by Kim | Jun 27, 2022
Key events for the week ahead – US PCE inflation, Eurozone inflation, ECB Forum on Central Banking
Recap from last week
An increasingly hawkish Fed has raised the risk of a recession, or at least, reduced the chances of a soft landing on a narrow landing strip. In testimony last week, Chair Powell reaffirmed that the economy is “very strong and well positioned to handle tighter monetary policy”. But the Senate and Congress were concerned that the Fed had failed to heed their inflation warnings and that aggressive tightening to reduce inflation could bring on a recession. Chair Powell made an “unconditional commitment” to tame inflation – while waiting for “compelling evidence” that inflation is moving down before easing the pace of tightening. At this stage, either a 50bps or 75bps increase is on the table for Jul.
With growth concerns heightened, there will be increased attention to incoming data. The prelim PMIs for Jun were disappointing. Momentum slowed more than expected in the US and across Europe. The main theme was a contraction in demand/new orders and weaker confidence in the growth outlook. This was evident across US manufacturing and surprisingly, services. Across the Eurozone, orders slowed across services and contracted sharply across manufacturing. Private sector manufacturing activity in Japan also slowed – with demand affected by Covid restrictions in China. Service sector momentum was stronger in Japan as travel and tourism restrictions were eased. The prelim PMI for the UK and Aus showed momentum remained little changed in Jun.
In Aus, the RBA minutes noted further upside surprises in inflation over the prior month. The minutes suggest that the decision to go with a 50bps increase was that the current/low starting level of rates was seen as too stimulatory for an economy with a tight labour market and facing higher inflation. The Board was concerned that the inflation mindset was shifting and did not want to risk higher inflation becoming entrenched. Governor Lowe noted that the Board will be having the same discussion next month on whether to increase the cash rate target by 25 or 50bps.
Inflation was elevated across CPI reports last week. CPI growth in Canada came in higher than expected at +7.7% (expecting +7.5%) in May, the UK CPI came in as expected at +9.1%, and CPI growth in Japan remained at +2.5% for May, slower than expected, but still elevated.
Outlook for the week ahead
The ECB hosts its Forum on Central Banking this week 27-29 Jun. Members from the ECB will speak at the start of the week. On Wed, US Fed Chair Powell, ECB President Lagarde, and BoE Governor Bailey will take part in the economic policy panel.
Inflation will remain top of mind this week. US PCE price inflation for May will be released. This is the FOMC preferred measure of inflation. Headline PCE is expected to remain elevated in May (the Apr headline PCE inflation was +6.3% and core was +4.9%). Other US data will include the ISM manufacturing PMI for Jun, durable goods orders for May, and the monthly personal income and spending for May.
The flash Euro area inflation for Jun will be reported and inflation is expected to accelerate from +8.1% in May to +8.3% in Jun – another record reading. The flash CPIs for Euro area countries will also be released during the week: Spain, Germany, France, and Italy.
The final PMIs for Jun manufacturing activity will start to be released this week. The official Chinese Bureau of Statistics China PMIs will also be released for Jun.
Next Monday is the US National Independence Day holiday.
This week, the US Treasury will auction and settle approx. $347bn in ST Bills, TIPS, Notes, and Bonds, raising an estimated $53bn in new money.
Approx. $35bn in ST Bills, Notes & Bonds will mature on the Fed balance sheet this week and will be rolled over. Approx. $21bn in Notes and Bonds will mature and roll off the Fed balance sheet this week, making up the bulk of the $30bn QT cap for June.
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 | Jun 27, 2022
Global equities rebounded last week after holding near term wave (v) or 5 support. The big picture market structure remains bearish as our expectation is that January's ATH completed the supercycle rally from the 2009 lows. Minimum targets for this bear market decline is the March 2020 lows - buyer beware as this is no […]
by Kim | Jun 20, 2022
Key events for the week ahead – CPI reports (UK, Japan, and Canada), Chair Powell testimony, and prelim PMIs for June
Recap from last week
Higher than expected CPI and inflation expectations readings from the University of Michigan survey prompted the FOMC to implement a larger shift in policy last week. The aim of the FOMC was to signal its willingness to move decisively and not wait for another meeting to quell rising inflation and inflation expectations.
The target for the FFR was increased by +75bps – higher than the +50bps guidance for the meeting. The FOMC noted that this was an “unusually large increase” and that moves of this size are not expected to be common. But ongoing increases in the target FFR will be appropriate. There was a notable shift in guidance for monetary policy in favour of implementing a moderately restrictive policy by the end of the year.
In his press conference, Chair Powell noted “our objective really is to bring inflation down to 2 percent while the labor market remains strong”.
The FOMC is looking for “compelling evidence” that inflation is coming down, such as a series of declining monthly inflation reads before it starts to slow the pace of tightening.
US Fed Chair Powell will give two days of testimony this week to the Senate and House of Reps standing committees. This will provide a broader view of the political pressure placed on the Fed to rein in inflation. We might also see guidance on the preference of the next hike in Jul – either 50 or 75bps.
US data was softer last week. Consumer retail spending was weaker than expected, declining slightly. Manufacturing output (from the Industrial Production report) also declined slightly, and early Jun regional manufacturing reports highlight weaker momentum. Housing activity continued to slow as mortgage rates increased rapidly.
The BoE raised its bank rate by a further 25bps (6-3 decision where three members voted for a 50bps increase). UK inflation and retail sales will be released this week. CPI is expected to remain elevated and increase to +9.1% in May (from +9% in Apr).
The SNB surprised markets with a +50bps increase in its key policy rate (now at -0.25%).
The BoJ kept policy settings unchanged and remained in easing mode. Within the context of rising rates and hawkish central banks, bond purchases by the BoJ to defend yield targets reached a new high last week. This week, Japan CPI will be released – with headline inflation expected to reach +2.9% in May. Minutes of last week’s meeting will also be released.
Outlook for the week ahead
The RBA minutes will be released this week and should provide important insight into the surprise 50bps increase at the last meeting. Last week Governor Lowe announced an upgraded inflation forecast during a prime-time interview – catching many off guard. There will be several speeches given by Governor Lowe this week.
With central banks becoming increasingly hawkish, attention now shifts to signs of changes in growth momentum. This week, the Jun prelim PMIs will provide an early reading on growth momentum at the mid-year point.
The final reading for the US University of Michigan consumer sentiment survey for Jun will also be released on Friday.
This week, the US Treasury will auction and settle approx. $204bn in ST Bills and FR Notes with an estimated paydown of $9bn. The US Treasury will also auction the 20yr Bond and 5yr TIPS this week – both to settle next week.
Approx. $9.5bn 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 | Jun 20, 2022
The bear market trend was finally confirmed last week with 5 waves down from recent supercycle ATH's. This latest decline confirms our view that the bigger picture market trend is now bearish. Global CB's have reversed course and started tightening aggressively to fight inflation (rising prices are now a political problem) - global macro trends […]
by Kim | Jun 13, 2022
Key events for the week ahead – Central bank decisions; FOMC, BoE, BoJ, and SNB, US retail sales, and ongoing geopolitical risk
Recap from last week
Last week, the RBA surprised markets, and the broader community, with a 50bps rate hike and signaled “doing what is necessary” to ensure inflation returns to target. The size and timing of further hikes are to be guided by incoming data.
The ECB stayed on course with its policy normalization sequencing. Purchases under the APP will end on 1 Jul (reinvestments to continue). Guidance for Jul & Sep was clear – conditions for a rate hike have been met and expect +25bps at the Jul meeting. Another increase is planned for Sep and depending on the updated medium-term outlook for inflation, a ‘larger rate increment may be appropriate’. Beyond Sep, ‘gradual but sustained increases’ will be appropriate. Inflation forecasts were revised higher and growth forecasts revised lower.
The US CPI growth rattled markets, accelerating faster than expected to +8.6% in May, up from +8.2% in Apr. The inflation mix continues to shift as food, energy, and shelter prices contributed more to the acceleration while used and new car price growth decelerated. High inflation reads have corresponded with a sustained and notable deterioration in US consumer sentiment, now at a new series low.
Last week, the RBNZ announced that it would actively start to sell securities on its balance sheet starting in Jul. It plans to dispose of its holdings over the next five (5) years.
Outlook for the week ahead
The hotter CPI report poses a further challenge for the US Fed as it navigates market expectations for even higher rates and political pressure to reduce high inflation, while it hopes to orchestrate a ‘soft landing’ for the economy. The FOMC was already expected to increase rates by 50bps at the Jun meeting this week and in Jul. The FOMC signaling and how it responds to this further acceleration in inflation will be important. Will there be a shift beyond ‘raising expeditiously to neutral’ to starting to consider further larger hikes and/or restrictive policy settings? So far, Chair Powell and Governor Waller are due to speak at the end of the week.
Other central bank meetings this week include the BoE – which is expected to increase the bank rate by another 25bps. The SNB and the BoJ are both expected to keep policy rates unchanged.
US retail sales will provide an important gauge of consumer spending this week. Retail sales for May are expected to increase by +0.2% after increasing by +0.9% in Apr.
We are also watching US initial claims, which came in higher than expected last week at +229k. While claims are still low, it is an important high-frequency data point to watch.
Aus labour market data for May will be released. The RBA noted the strength of the labour market as underpinning its confidence to front-load larger rate hikes. Employment is expected to increase by +25k persons, and unemployment is expected to fall further to 3.8%.
This week, the US Treasury will auction and settle approx. $312bn in ST Bills, Notes, and Bonds raising approx. $39bn in new money. This is the first week of QT. Approx. $35.7bn in ST Bills, Notes, and Bonds will mature on the Fed balance sheet this week. Of this, $9bn of Coupons will roll off the Fed balance sheet.
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
