The Macro Outlook for w/c 5 September 2022

by Kim | Sep 5, 2022

Key events for the week ahead – Central bank policy decisions and speeches, including Fed Chair Powell, and global services PMIs

US non-farm payrolls remained solid, coming in higher than expected at +315k (expecting +285k) for Aug. There was a notable downward revision to the Jun payrolls growth and only a slight change for Jul. The US household employment survey recorded the largest increase in employed persons of the last five months of +442k but this was all growth in part-time employment. The unemployment rate increased slightly as more people returned to the labour force. Markets were still split between a 50 and 75bps increase at the next FOMC meeting.

Fed-speak last week maintained the hawkish tone. NY Fed President Williams expects rates to continue higher and remain there until inflation is subdued. Policy settings will need to be restrictive “for some time” and this would require real rates to be positive. More Fed-speak this week will be important in the lead-up to the next FOMC meeting and includes Fed Chair Powell, Vice Chair Brainard, and Governor Waller

US manufacturing momentum remained in expansion territory in Aug with the ISM and S&P PMIs at 52.8 and 51.5, respectively. Both surveys recorded weakness in output growth, while input prices continued to moderate. US factory orders for Jul (-1%) confirmed the weakness in orders recorded in the regional manufacturing surveys through Jul – a trend that continued into Aug.

The JP Morgan global manufacturing PMI for Aug weakened further and recorded only modest expansion at 50.3. Global output and new orders contracted. Overall manufacturing activity contracted in key markets including China, Germany, the broader Eurozone, Canada, Mexico, South Korea, Taiwan, and Poland. From the JP Morgan global manufacturing PMI note:  

The outlook is also increasingly weak. The orders:inventory ratio in August fell to its lowest level since May 2020, and the further deterioration in orders points to additional excess capacity building at factories.

Global services PMIs are due this week. The US ISM services PMI for Aug is expected to ease to 54.9.

The Euro area flash CPI for Aug surprised to the upside with inflation at +9.1% (expecting +9%). This will add further pressure on the ECB this week, which is expected to increase rates by 50bps (a 75bp increase has also been floated). Since the ECB affirmed its commitment to bring down inflation at Jackson Hole, the energy shock and geopolitical pressure have only increased. The Euro area group will meet this week to address the ‘economic situation and coordination of the macroeconomic policies in the euro area’. This will likely include further fiscal spending.

The RBA is expected to increase rates by 50bps this week. The effect of rate increases is starting to be reflected in the housing market with notable falls in new housing finance last week. Aussie Q2 GDP will be released this week and growth is expected to increase by +1.2% for the quarter and +3.8% over the year. RBA Governor Lowe is scheduled to speak during the week.

The BoC is expected to raise rates by 75bps this week. That comes on the back of a surprise 100bp increase in Jul. The latest CPI for Jul is elevated at +7.6%, slowing slightly from +8.1% in Jun. Growth remained robust in Q2 while manufacturing activity has started to slow.

Also; A new leader of the UK conservative party, and PM, is to be announced. BoE Governor Bailey is also expected to speak this week. OPEC to meet on supply.

This week, the US Treasury will auction and settle approx. $255bn in ST Bills, raising approx. $10bn in new money.

Approx. $19.8bn in ST Bills will mature on the Fed balance sheet this week. Of this, approx. $4.1bn will be redeemed and the remaining $15.7bn 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