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
