Key events for the week ahead – FOMC Minutes, RBA Minutes, RBNZ monetary policy meeting, US retail sales, inflation; UK, Canada, & Japan
Recap from last week
US headline CPI decelerated slightly more than expected to +8.5% in Jul (expecting +8.7%) – from +9.1% in Jun. The monthly CPI declined slightly by -0.02% (expecting +0.2%). The main contributor to the slower inflation print was the fall in energy prices, especially gasoline prices. Core goods also contributed slightly to the headline deceleration as new and used car & truck price growth slowed (has been easing for six months). But food price growth continued to accelerate in the month and over the year while core services price growth remained at +5.5%.
Measures of median and trimmed mean CPI continued to accelerate in Jul, suggesting that underlying inflation pressures remained persistent. Inflation expectations from the University of Michigan survey show an easing in inflation expectations for the next year down to 5% (down from a peak of +5.4%), but expectations for inflation over the next five years were unchanged at 3% (equal to the recent peak).
The pace of wage growth is also an important barometer for the FOMC. The Atlanta Fed wage tracker showed wage growth continued to accelerate through Jul. While a welcome boost to real income, it suggests continued tightness in the labour market. The NY Fed Global Supply Chain Pressure Index suggests that the supply chain shock (which accounted for some of the inflation pressure) continues to ease, but that supply chain pressures still are historically elevated.
Fed signaling was consistent; ‘not near done yet’ as inflation is still well above the 2% target, but a step in the right direction. Over the last two weeks, the Fed has repeatedly attempted to quash the idea of a Fed pivot, or that rates might be cut in 2023 while inflation remains so far above the target. Kashkari, Daly (more of a dove), and Barkin speeches supported a further outsized hike for Sep (none are voting members in 2022). Daly was less hawkish but noted she was “looking for the data in the aggregate to affirm the Fed is on a path to bring inflation down substantially and achieve the price stability target”. Kashkari went as far as saying that Fed credibility was on the line as it works to bring inflation back to its mandated 2% target.
Outlook for the week ahead
The US FOMC will release the minutes of its last meeting. After that meeting, the decision was interpreted as a ‘pivot’ and the minutes may provide further insight into that and the outlook for Sep. US retail sales growth is expected to slow to +0.1% in Jul (from +1% in Jun). US housing data is expected to show further slowing of existing home sales to 4.88m (SAAR) and housing permits and starts in Jul. The high-frequency initial jobless claims data will continue to be monitored as it edges up over +260k.
The RBA will release the minutes of the Aug meeting. The Board increased the cash rate target by 50bps, expected further hikes were necessary to bring down inflation but signaled its intent to keep the economy ‘on an even keel’. The important wage price index for Q2 is expected to show further acceleration in wages of +0.8% over Q2 and +2.7% over the year (from +2.4% in Q1). The labour market in Jul is expected to remain strong with +25k growth in employment, participation unchanged at a high of 66.8%, and the unemployment rate remaining at a low 3.5%.
The RBNZ is expected to increase rates by 50bps to 3%.
Inflation readings for Jul: Japan; headline CPI is expected to slow to +2.2% (from 2.4% in Jun), UK CPI is expected to accelerate to +9.8% in Jul (from +9.4% in Jun), and Canadian CPI is expected to slow to +7.6% in Jul (from 8.1% in Jun).
This week, the US Treasury will auction and settle approx. $329bn in ST Bills, Notes, and Bonds, raising approx. $74bn in new money. The US Treasury will also auction approx. $23bn in 30yr TIPS and 20yr Bonds – which will settle on 31 Aug.
Approx. $81bn in ST Bills, Notes, and Bonds will mature on the Fed balance sheet this week and will be rolled over. Approx $23bn in Notes & Bonds will mature and be redeemed as a part of the QT balance sheet roll-off.
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
