Key events for the week ahead – US earnings, housing and production data, inflation for the UK, Canada, NZ, Eurozone, and Japan, RBA minutes
Recap from last week
US CPI growth was higher than expected adding to the uncertainty around the path of inflation and keeping pressure on the FOMC to hike.
The headline inflation rate has moderated from a peak of +9% in Jun to +8.2% in Sep. But the deceleration stalled between Aug and Sep. This month, falling gasoline and used/new car prices (and core commodity prices generally) was offset by an acceleration in core services price growth (broad). Annual food price growth is still extremely elevated but did not accelerate between Aug and Sep. Core CPI growth has continued to accelerate across most measures. Even excluding the well-known categories adding to/detracting from inflation – food, energy, shelter, and used cars, shows that price growth continued to accelerate in the remaining categories. This measure of core CPI increased to a new cycle high of +6.7% in Sep versus +6.3% in Aug. US consumer inflation expectations increased in the prelim University of Michigan sentiment report for Oct (after falling for several months) – due to a shift in gasoline price expectations. It will concern the FOMC to see inflation expectations increase again.
US nominal retail sales were flat at a total level, or -0.4% in real terms for the month. Initial claims (wk of 7 Oct) increased again to +228k. One third of the increase in the NSA claims was recorded in Florida (likely due to Hurricane Ian), but some of the other bigger states also recorded an uptick. A further increase in initial claims is expected this week to +235k.
The FOMC minutes maintained a hawkish stance. The 75bps increase at that meeting was seen as “another step towards sufficiently restrictive”. Since the last meeting though, concerns over financial stability risks have increased. Some FOMC members have highlighted the two-sided risks from the rapid tightening of global financial conditions. The minutes also note that “…it likely would become appropriate at some point to slow the pace of policy rate increases while assessing the effects of cumulative policy adjustments on economic activity and inflation”.
While US inflation has eased, it is not yet on a clear downward trajectory, and there are both upside and downside risks. The pace of further tightening will continue to be data dependant. After the stronger-than-expected CPI last week, the target FFR probability for Nov indicates another +75bps hike is likely.
Outlook for the week ahead
US Q3 earnings will continue to be in focus. Data will focus on housing and output. US existing home sales are expected to slow to 4.69m (SAAR) in Sep from 4.8m in Aug. Industrial production is expected to increase by +0.1% in Sep (from 0% in Aug). The first of the regional manufacturing surveys for Oct will be released.
Global inflation data will be in focus; UK CPI (expecting ↑ +10%), Canada (↓ +6.8%), NZ (↓ +6.6%), and Japan (↑ +3.1%). The final Eurozone CPI result for Sep will be released and is expected to increase by +10%.
China data for Sep and Q3 GDP is expected to rebound amid rolling covid lockdowns.
The RBA minutes will be released and of interest will be the decision to shift to a slower pace of rate hikes. The market reaction has been to push out the peak in the cash rate later into 2023 (now Nov rather than Jul), while the peak rate has fluctuated with global market volatility (now back up to 4%). The Aus labour market survey for Sep will be released and employment is expected to increase by +25k, the participation rate to remain at 66.6%, and the unemployment rate to remain at 3.5%.
This week, the US Treasury will auction and settle approx. $335bn in ST Bills, Notes, and Bonds, raising approx. $80bn in new money.
The US Treasury will also auction the 5-year TIPS and 20-year Bond – to settle on 31 Oct.
QT; approx. $19.78bn of ST Bills will mature on the Fed balance sheet this week. Of this total, approx. $3.3bn in ST Bills will be redeemed/roll-off the balance sheet and approx. $16.5bn 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
