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
