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
