by Kim | Apr 25, 2022
Key themes for the week ahead – Inflation and growth data, BoJ meeting, and ongoing geopolitical risk
Recap from last week
Last week, US Fed Chair Powell indicated that a 50bps increase will be on the table for the May meeting. Other speeches by Fed officials last week supported the view of a faster move up to the ‘neutral’ rate. US Fed officials are now in the blackout period ahead of the FOMC meeting next week 3-4 May.
The RBA minutes provided insight behind the guidance shift at the Apr meeting. Rising inflation pressure, high uncertainty about wages growth amid a tight domestic labour market, and rates moving higher globally – “these developments have brought forward the likely timing of the first increase in interest rates”. Inflation is expected to increase over the coming quarters. Aus CPI for Q1 is out this week and annual CPI growth is expected to accelerate to +4.6% from +3.5% in Q4. Core inflation is expected to increase to +3.4% from +2.6%. A hike at the next RBA meeting (3 May) is possible, but the Board may be hesitant to make a major policy shift ahead of the Federal election on 21 May.
Prelim PMIs for Apr were mixed. The unifying theme remained the record, or near-record, high rates of input and output price growth. Escalating costs and prices were cited as offsetting the positive impact of the reduction in covid restrictions. There was some indication that supply chains remain under pressure. In Aus, reduced covid restrictions contributed to faster growth across manufacturing and services. Momentum across manufacturing and services in Japan remained lacklustre. Eurozone services activity helped to offset a more notable slowdown in manufacturing output. Germany’s manufacturing output contracted sharply. US manufacturing activity increased while there was a more notable slowdown in services growth.
The week ahead
US growth and PCE inflation data are out this week ahead of the FOMC meeting next week. US GDP growth in Q1 is expected to slow to +1.1% (SAAR basis) from +6.9% in Q4. The headline PCE price index for Mar is expected to be little changed from +6.4% in Feb. Core PCE inflation is expected to ease slightly to +5.3% in Mar from +5.4% in Feb.
The BoJ meets on policy this week and settings are expected to remain unchanged. The BoJ continues to reaffirm its commitment to accommodative policy and remains an outlier among global central banks that are shifting to a tightening stance. Japanese CPI last week was in line with expectations on headline inflation +1.2% and core inflation +0.8%.
Eurozone Q1 GDP and the prelim inflation data for Apr are out this week. Euro area GDP is expected to increase by +0.3% in Q1 (from +0.3% in Q4). Annual GDP growth is expected to increase to +5.1% versus +4.6% in Q4. The prelim Euro area CPI for Apr is expected to increase to +7.5% from +7.4% in Mar. The monthly inflation rate is expected to ‘ease’ to +1.8% from +2.5% in Mar. ECB President Lagarde is scheduled to speak this week.
BoC Governor Macklem is scheduled to provide a statement to the Canadian parliament.
China PMIs for Apr is expected at the end of the week, amid extended Covid lockdowns.
This week, the US Treasury will auction and settle approx. $211bn in ST Bills and 5yr TIPS, with a -$7bn paydown.
The US Treasury will also auction approx. $180bn in Notes and FRNs which will settle on 2 May.
Approx. $19bn in ST Bills will mature on the Fed balance sheet this week and will be rolled over.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Mars Capital Partners | Apr 25, 2022
Last week, equities turned sharply lower as expected after a counter-trend rally into resistance and now face a key test of structural support. The bears took hold of the markets late last week and are likely set for a hard test of major swing lows. Make or break for equity markets early this week as […]
by Kim | Apr 19, 2022
Key themes for the week ahead – US Fed Chair speech, CPIs Japan, Canada, & NZ, prelim global PMI’s Apr, and ongoing geopolitical risk
Recap from last week
US CPI growth accelerated as expected to +8.5% in Mar from +7.9% in Feb. The acceleration was led by higher energy and food prices. There was a small acceleration in core CPI growth as used car prices eased but were mostly offset by core services price growth. US retail sales increased at a slower pace – still affected by weaker auto sales. Annual retail growth declined in real terms as data cycled over the stimulus from 2021. The prelim consumer sentiment in Apr improved as gasoline prices started to ease.
Both the RBNZ and the BoC increased their benchmark rates by 50bps last week. The BoC announced that it would start reducing the size of its balance sheet by allowing maturing securities to roll off the balance sheet. Both central banks indicated that there would be more rate increases as inflation remains above target. The CPI reports for both Canada and NZ are out this week. Canada CPI growth is expected to increase to +6.1% in Mar from +5.7% in Feb. The monthly CPI growth is expected to be +0.9% in Mar below the +1% recorded in Feb. The NZ CPI growth for Q1 is expected to increase to +7.1% from +5.9% in Q4.
There was no change in policy from the ECB. The statement sounded dovish despite inflation risks having “intensified”. The press conference provided more detail. “Europe is in a different situation to the US” with more exposure to the war and needs to manage the policy trade-off between the downside risk to growth and the upside risk to inflation. The ECB reiterated adherence to the sequence for normalizing that began back in Dec. Guidance is that, at this point, there is a “very high probability” that net asset purchases will end (sometime) in Q3. Updated growth and inflation projections will be presented at the next meeting in Jun which will inform the decision to end net asset purchases and then decide on policy for rates.
Lockdowns have started to affect Chinese economic data with weaker (annual) imports, retail sales, and slower industrial output growth in Mar. This lockdown is expected to have an impact more broadly on supply chains.
The week ahead
The IMF spring meetings will feature US Fed Chair Powell and ECB President Lagarde. This will likely be the last public remarks by Fed Chair Powell before the next FOMC meeting on 4 May and we will be looking for signaling of a 50bp increase. Markets are currently pricing a 90% probability of a 50bps increase at the next meeting.
The RBA Minutes noted that inflation pressure, tight labour market, and expected strengthening of wage growth “have brought forward the likely timing of the first increase in interest rates”. Additional evidence over the “coming months” would be available. The RBA is not likely to shift at the May meeting due to the federal election in late May.
Japan CPI for Mar is expected to accelerate to +1.3% from +0.9% in Feb. The BoJ has reiterated its support for keeping rates low as global rates start to increase.
Prelim global PMIs for Apr will be released. A consistent pace of momentum is expected but we are alert to the impact on global supply chains, prices, and demand from Chinese lockdowns, the war in Ukraine, and the positive impact of lifting Covid restrictions.
This week, the US Treasury will auction and settle approx. $334bn in ST Bills, Notes, and Bonds, raising approx. $9.3bn in new money. The US Treasury will also auction approx. $20bn in 5-year TIPS which will settle on 29 Apr.
Approx. $25bn in ST Bills will mature on the Fed balance sheet this week and will be rolled over.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Mars Capital Partners | Apr 19, 2022
Global equity markets continued to stair step lower last week as global rates rose and the US$ strengthened. Commodities rebounded last week for what are likely to be ending wave (c) counter-trend rallies. The key macro themes of rising inflation, global central bank tightening, slowing global growth and geopolitical risks continue unabated. The markets are […]
by Kim | Apr 11, 2022
Key themes for the week ahead – Central bank policy decisions, US CPI, and ongoing geopolitical risk
Recap from last week…
Central banks are moving towards a tightening stance on monetary policy. The FOMC minutes confirmed that the Board will move “expeditiously” to increase the FFR to neutral – with one or more 50bp increases at coming meetings possible. After moving the policy rate to neutral, “a move to a tighter policy stance could be warranted”. QT is likely to be announced at the May meeting and may commence shortly thereafter (roll-off capped at approx. $95bn/mth). What is unclear is how and how much QT will contribute to the tightening of financial conditions as rates move to neutral and possibly beyond.
The FOMC minutes noted concerns over inflation expectations becoming unanchored. In a speech earlier in the week, Governor Brainard (usually more dovish), said that dealing with inflation was ‘paramount’. Rates sold off across the curve after that speech, but more notably at the long end. By the end of the week, the entire curve had shifted up and steepened slightly.
US momentum remained robust – the ISM PMI for Services in Mar expanded at a faster pace, consumer credit growth of +$42bn in Feb was the largest $ growth in the series back to the start of 2000, and initial claims remained below 200k. Mortgage applications continued to decline.
The RBA left policy settings unchanged but made a significant shift in its guidance. The Board removed ‘we are prepared to be patient’ from its statement. This suggests that hikes may now be on the table. After the meeting, rate hike calls were brought forward to Jun and even May this year. Aussie rates moved higher throughout the week. The Aus labour market survey for Mar is out this week, and the unemployment rate is expected to fall below 4% which has been an important marker for the RBA.
The week ahead...
US CPI for Mar is expected to accelerate again on higher energy and commodity prices. The headline CPI growth is expected to increase to +8.5% in Mar from +7.9% in Feb. Monthly inflation is expected to increase to +1.2% in Mar from +0.8% in Feb. Retail sales ($ value) for Mar are expected to increase by +0.6% and prelim consumer sentiment for Apr is expected to fall further to 58.8. Fed Governor Brainard and other Fed presidents will speak this week.
Other consumer inflation reports: China, the UK, and final Mar CPI for France, Italy, & Germany.
The RBNZ and the BoC are both expected to increase rates at meetings this week. Both are likely to increase rates by 25bps this week, with the BoC more likely to increase by 50bps.
The ECB is likely to keep policy settings unchanged. There may be an assessment of the acceleration in Mar Euro area inflation data. The minutes last week reflect some differences among members on the need to act quickly on inflation and on ending the APP unconditionally. The decision in Mar to taper the APP was important to provide optionality on future interest rates changes. But the decision to end the APP net purchases in Q3 remains conditional. Adjustments to key interest rates “would take place “some time after” the end of net asset purchases of the APP”. It was reported last week that the ECB has started working on a “crisis tool” to manage bond yields after the end of the APP. This may be discussed further at this meeting.
This week, the US Treasury will auction and settle approx. $200bn in ST Bills with a net paydown of -$22bn.
The US Treasury will also auction approx. $100bn in Notes and Bonds which will settle next week.
Approx. $43bn in ST Bills, Notes, Bonds, and TIPS will mature on the Fed balance sheet this week and will be rolled over.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
