Key events for the week ahead – US non-farm payrolls, RBA & RBNZ policy decisions, US Fed speeches
Recap from last week
The BoE intervened with an emergency program to buy long-dated UK government bonds to “restore orderly market conditions”. The intervention was to be “strictly time-limited”, ending on 14 Oct. The commencement of the outright sale of Gilts from the BoE balance sheet was postponed until 31 Oct. At the time of writing, the UK government has announced that it will drop a part of its spending plan given the adverse market response.
Amid the hawkish messaging, some US Fed speeches noted a ‘two-sided risk’ of rapidly rising rates. In a speech late last week, US Fed Vice Chair Brainard said that the “global environment of high inflation and rising interest rates highlights the importance of paying attention to financial stability considerations for monetary policy”. Global policy tightening has been rapid “by historical standards” and it will “take time” for tightening to work through sectors. Monetary policy will still need to be “restrictive for some time” but also recognize “that risks may become more two-sided at some point”. (Speech; Global Financial Stability Considerations for Monetary Policy in a High-Inflation Environment). By the end of last week, probabilities for the next US rate hike had become more evenly split between a 50 and 75bps increase. In the prior week, the probability had been firmly in favour of a 75bps increase.
US headline PCE inflation slowed to +6.2% in Aug as gasoline prices eased. But core PCE inflation accelerated from +4.7% in Jul to +4.9% in Aug. The Dallas Fed 12-mth trimmed mean (core inflation) rate accelerated to a cycle high of +4.7% in Aug, up from +4.5%. The US initial jobless claims (SA) also continued to slow and new claims fell to +193k last week. This is a useful high-frequency indicator of current labour market strength.
Inflation in the Euro area accelerated notably in the prelim Sep release increasing to +10% in Sep from +9.1% in Aug. While the headline is higher due to rising energy prices (+3% just in the month), price growth accelerated across all major expenditure categories.
The first monthly Aussie inflation release showed a slight easing in the inflation rate from +7% in Jul to +6.8% in Aug. The easing in the rate of inflation was due to the fall in auto fuel prices as the fuel excise tax was reduced (this measure expired on 28 Sep).
Outlook for the week ahead
US non-farm payrolls for Sep are expected to remain strong increasing by +250k (Aug +315k). The participation rate is expected to fall slightly to 62.2% while the unemployment rate is expected to be unchanged at 3.7%. The US ISM manufacturing and services PMIs will be released – growth momentum is expected to ease slightly.
There will be a large number of Fed speeches this week including FOMC members Waller, Jefferson, Williams, Cook, George, and Mester.
The remainder of the global PMIs for Sep will be released this week.
The RBA and RBNZ will meet this week and both central banks are expected to increase their policy rates by 50bps. The RBA has previously noted that it expects to slow the pace of hikes to keep the economy on an even keel. The previous minutes showed that the Board was already considering a 25 or 50bps increase last month. Aus labour market conditions remain strong, while housing continues to ease.
The next OPEC meeting is scheduled for 5 Oct 2022.
This week, the US Treasury will auction and settle approx. $255bn in ST Bills with a net paydown of -$2bn.
QT; approx. $25.5bn of ST Bills will mature on the Fed balance sheet this week. Of this total, approx. $5.1bn in ST Bills will be redeemed/roll-off the balance sheet and approx. $20.4bn in ST 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
