by Kim | Sep 26, 2022
Key events for the week ahead – Central bank speeches including Fed Chair Powell, Eurozone CPI, and US PCE inflation
Recap from last week
Markets are continuing to digest the details of last week’s monetary policy decisions.
High, and seemingly persistent, inflation is keeping the FOMC on its unwavering hawkish path. The FOMC increased rates by +75bps as expected. The SEP shows rates higher for longer, with no cuts projected until 2024. The FOMC view of restrictive policy is where real yields are positive across the yield curve (using core PCE measures). The market reaction so far has been a shift up in the yield curve, further inversion, and pricing another 75bp hike for Nov.
The BoE raised by 50bps as expected with the decision to sell bonds from its Asset Purchase Facility. The rate hike decision was not unanimous. Three members voted for a 75bps increase citing that the energy price guarantee and fiscal support would add to demand pressure. This was a prescient outlook in light of the budget released at the end of the week. The proposed spending amid high inflation and monetary tightening has added greater pressure to rates and markets are currently pricing additional hikes before the next meeting (Source: Bloomberg). Eyes on the BoE this week.
Despite rising inflation, the BoJ kept policy settings unchanged, and markets are questioning how long the BoJ can remain an outlier. After weeks of currency weakening, and signaling an intervention, the government intervened to strengthen the Yen after the BoJ kept policy unchanged. The rates differential is still a fundamental issue that is reflected in currency weakness.
The RBA minutes for Sep highlighted that the Board was already starting to consider slowing the pace of hikes. When this was detailed several days after the Sep Board meeting, the implied cash rate futures terminal rate fell to 3.55% (Jul 2023) from 3.76%. But as of 26 Sep, the cash rate futures are now pricing a peak of 4.325% (source: ASX). The RBA meets next week, and it will be important how it responds to market expectations of higher rates (even another 100bps priced by year-end) and how this aligns with slowing the pace of hikes to keep an even keel.
Global prelim PMIS for Sep were mixed. Manufacturing output contracted except in Aus while services activity weakened except in Japan. Input cost increases were more widespread in Europe, especially in Germany.
Outlook for the week ahead
There will be a notable number of central bank speeches this week, including US Fed Chair Powell and ECB President Lagarde.
Inflation data will be in focus, especially in Europe. The Eurozone headline CPI is expected to increase to +9.6% in Sep (from +9.1% in Aug). Country-level CPIs will also be released.
US PCE inflation for Aug is expected to increase to +6.6% from +6.3% in Jul. The monthly pace is expected to increase to +0.3% from -0.1% in Jul. The University of Michigan consumer sentiment for Sep is expected to be unchanged. Durable goods orders for Aug are expected to decline by -0.5% (versus Jul -0.1%).
This week, the US Treasury will auction and settle approx. $393bn in ST Bills, Notes, Bonds, TIPS, and FRN’s, raising approx. $73bn in new money.
This week also marks the first large redemption as a part of this QT program. In total, approx. $55.6bn of ST bills, Notes and Bonds will mature on the Fed balance sheet this week. Of this total;
- Approx. $33.9bn in Notes & Bonds maturing will be redeemed/roll-off the balance sheet on 30 Sep.
- Approx. $21.7bn in ST Bills will mature on the Fed balance sheet this week. Of this, approx. $4.3bn of maturing Bills will be redeemed and the remaining $17.4bn of maturing Bills will be reinvested.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Mofar2016 | Sep 26, 2022
Markets remain in a big picture bear market. Equities extended lower last week to tag our initial downside targets with a hard test of the June lows. It's make or break time. The US$ broke to new cycle highs across the board with the Euro and Pound breaking to new lows. Bonds continued to sell-off […]
by Kim | Sep 19, 2022
Key events for the week ahead – FOMC, BoE, BoJ, and SNB policy decisions, CPI’s, central bank speeches, prelim PMIs for Sep
Recap from last week;
US inflation remains persistent. Headline US CPI increased by +8.2% in Aug (expecting +8.1%) after increasing by +8.5% in Jul. The main contributor to the deceleration between Jul and Aug was the fall in energy commodity prices (gasoline). All other main expenditure groups (food, energy services, core commodities, and core services) partly offset the decline in gasoline prices.
Measures of core CPI showed persistent inflation. The trimmed mean and median CPI continued to accelerate this month – both reaching new series highs (data back to 1984). From the sticky/flexible prices series; sticky prices continued to accelerate across both headline and core sticky prices (across all periods) – indicating that there may be some persistence to this bout of inflation. Other US data out last week reflects resilience in the economy given the pace of hikes so far. Retail sales increased more than expected by +0.3% and initial jobless claims continued to ease, now at +213k. Housing data will likely remain weaker as mortgage rates increased to 6% last week. This week, home builder sentiment (Sep) plus existing home sales, housing permits, and starts data for Aug will be released.
For the FOMC, it means that they are yet to see progress in reducing inflation. Markets now expect another 75bps increase this week. The statement and press conference will likely remain hawkish. The latest SEP will be released. As the FFR moves into restrictive territory, the projections will be insightful about the latest thinking on the pace of hikes. The FOMC has already signaled that it will be appropriate to slow the pace of hikes at some point.
Last week RBA Governor Lowe provided insight into the rates outlook at the RBA (source: House of Reps Testimony). According to Lowe, we are getting closer to ‘normal’ settings now. Likely to be discussing a 25 or 50bps at the next meeting (note inflation is yet to peak and the labour market is still strong). Rates should cycle somewhere between 2.5 – 3.5% over the long run. We’re at 2.35%, so getting to that range of ‘normal’, but still on the low side. Since that testimony, peak cash rate futures are back up to 3.9% by Jun 2023, as of 19 Sep (source: ASX).
Outlook for the week ahead;
FOMC meeting; expecting +75bps. Plus; A “Fed Listens” event is scheduled with Fed Chair Powell, Vice Chair Brainard, and Governor Bowman. Fed speeches are also likely after the FOMC meeting.
BoJ meeting; expecting no change to settings. Discussion on Yen weakness likely. Japan National CPI for Aug out before the meeting – expecting CPI ex fresh food at +2.7% up from +2.4% in Jul.
BoE meeting; expecting +50bps. UK CPI was little changed last week at +9.9%. The BoE may also vote on details regarding the outright sale of securities in its Asset Purchase Facility (source: BoE).
SNB meeting: expecting +75bps increase from -0.25% to +0.5%.
Other central bank events; speeches by RBNZ Governor Orr, ECB President Lagarde, and ECB Board member Schnabel, RBA Minutes, and a substantial number of other central bank decisions (not covered here).
Global prelim PMIs for Sep will be released later in the week starting with Europe, the UK, and the US. Stabilization in manufacturing activity ex Europe is expected. Services momentum is expected to remain weaker in Sep.
This week, the US Treasury will auction and settle approx. $221bn in ST Bills, with an approx. paydown of $7bn.
The US Treasury will also auction the 10-year TIPS and 20-year Bond – both will settle next week.
QT – Approx. $10.5bn in ST Bills will mature on the Fed balance sheet this week. Of this, approx. $2.2bn of maturing Bills will be redeemed and the remaining $8.3bn of maturing Bills will be reinvested.
There are no further Treasury or MBS purchase operations scheduled at this time.
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 Mofar2016 | Sep 19, 2022
Last week, equities turned lower from highlighted fib resistance following the hotter than expected CPI report. It all comes back to the Fed - as CPI remains elevated, the Fed will keep raising rates to constrain the long end of the curve in a highly indebted world. Markets had been "hoping" for a moderating CPI […]
by Kim | Sep 13, 2022
Key events for the week ahead – US CPI & retail sales
Recap from last week;
Central bank speeches and policy decisions continued to signal a firm commitment to address inflation to keep inflation expectations anchored.
US Fed Chair Powell remained hawkish and kept the option open for another large rate hike. Other speeches supported a further outsized increase. The market probability of another 75bps hike has now increased to over 90%. “It is very important that inflation expectations remain anchored,” Powell said, adding that the “clock is ticking” on ensuring that they stay that way.” Source: Bloomberg
The ECB delivered an outsized increase of 75bps while inflation is now expected to average +8.1% over 2022 in the Euro area. It is still early in the ECB hiking cycle and more rate hikes are expected; “Over next several meetings, the Governing Council will raise rates further to dampen demand against the risk of a persistent upward shift in inflation expectations.” Source: ECB
The BoC hiked by a further 75bps. While inflation has eased, it remains high, and concerns were noted over short-term inflation expectations; “Surveys suggest that short-term inflation expectations remain high. The longer this continues, the greater the risk that elevated inflation becomes entrenched.” Source: BoC
The RBA hiked by a further 50bps and removed the reference to ‘normalizing policy’ in its statement. Inflation is expected to peak this year at 7.75%. In a speech later in the week, the RBA Governor noted the link between a de-anchoring of inflation expectations and interest rates; “A shift higher in inflation expectations will require higher interest rates. In time that would mean a sharper slowing of the economy. It is in our national interest that we avoid this.” Governor Lowe also indicated that the case to slow the pace of hikes becomes stronger “as the level of the cash rate rises”.
The headline J.P.Morgan composite global PMI for Aug reported a contraction in global output across manufacturing and service sectors for the first time since the start of the pandemic. At the same time, future output growth expectations continued to improve.
Outlook for the week ahead;
In the lead-up to the FOMC meeting next week, the focus is on US CPI and retail sales for Aug. The monthly US CPI change is expected to fall slightly by -0.1% (from -0.02% in Jul). The annual inflation rate is expected to slow to +8.1% in Aug from +8.5% in Jul. Core inflation will be closely watched and growth is expected to remain at +0.3% over the month and increase to +6.1% over the year.
US retail sales growth is expected to remain flat in nominal terms in Aug.
With the FOMC meeting next week, we are now in the blackout period for Fed speeches.
The UK CPI (Aug) is expected to increase to +10.2%, up from +10.1% in Jul. Monthly CPI is expected to remain at +0.6%. The UK labour market survey for the three months to Jul will also be released. These will both be key inputs into the BoE policy meeting which has been postponed until 22 Sep.
The Aus labour market report for Aug is expected to show +35k growth in employment, an increase in the participation rate to 66.6%, and the unemployment rate to remain at 3.4%.
This week, the US Treasury will auction and settle approx. $312bn in ST Bills, Notes, and Bonds, raising approx. $3bn in new money.
QT Summary; Approx. $25bn in ST Bills, Notes, and Bonds will mature on the Fed balance sheet this week. Of this, approx. $13bn of maturing Notes, Bonds, and Bills will be redeemed and the remaining $12bn in maturing Bills will be reinvested.
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
