Key events for the week ahead – FOMC, BoE, & RBA policy decisions, US non-farm payrolls
Recap from last week
Despite high and persistent inflation, more CBs may be signaling an intention to slow the pace of policy tightening after front-loading hikes. The most important signal on this front may come from the FOMC this week.
Last week, the BoC increased rates by 50bps (some were expecting 75bps). Governor Macklem noted that the tightening phase will draw to a close – the bank is getting closer, but not there yet. The BoC expects that the policy rate will still need to increase further.
The ECB raised rates by 75bps. The ECB has likely reached the end of its frontloading transition and is moving towards a ‘meeting-by-meeting’ approach. Rates are still expected to increase further. Inflation in the Euro area is yet to peak, and growth concerns are elevated. Euro area prelim CPI in Oct is expected to increase again, reaching +10.2%.
The BoJ kept policy unchanged and doubled down on its dovish rhetoric; “We don’t plan to raise interest rates or head for an exit (from easy policy) any time soon. But if achievement of 2% inflation comes into sight, the board will of course debate an exit policy” (source: Reuters). Inflation forecasts were revised higher, but Governor Kuroda noted that the bank is looking for wage increases to accompany higher inflation.
Inflation is still broadly persistent. The US PCE inflation rate was higher than expected but stalled at +6.2%. European country-level CPI (prelim Oct) was higher than expected and continued to accelerate in Germany (+10.4%), Italy (+11.9%), and France (+7.1%). Aus CPI for Q3 was also higher than expected and accelerated to +7.3%. Aus core CPI similarly accelerated to +6.1% in Q3 from +4.9% in Q2.
Growth and output momentum continued to weaken. Global prelim PMIs for Oct show momentum is slowing, if not contracting. Only Aus and Japan manufacturing expanded in Oct. The US manufacturing expansion slowed to neutral. Services weakened further – except in Japan.
Outlook for the week ahead
The focus will be on the FOMC this week. While a 75bps increase is expected, the FOMC is also expected to signal whether/when it will slow the pace of policy tightening. If it does, then balanced communication will be crucial; that fighting inflation still is a priority despite reducing the size of rate hikes.
An important US barometer will come out after the FOMC this week; US non-farm payrolls for Oct are expected to increase by +200k (after +263k last month). Participation is expected to remain at 62.3% and the unemployment rate to increase slightly to 3.6%. Job openings for Sep are expected to slow further to 10m after a notable fall in Aug. The US ISM manufacturing and services PMIs are expected to show a slowdown in growth momentum.
The BoE is expected to increase its policy rate by 75bps this week after unprecedented political and market turmoil. Most fiscal measures have now been reversed, so the BoE outlook for tightening, inflation, and growth will be important.
The RBA is expected to increase its policy rate by 25bps – after having already reduced the size of hikes last month.
The full suite of global PMIs will be released this week for Oct.
This week, the US Treasury will auction and settle approx. $466bn in ST Bills, Notes, Bonds, TIPS, and FRNs raising approx. $42bn in new money.
QT for Oct; Approx. $32bn in Notes, Bonds, & FRNs will be redeemed/roll off the balance sheet on 31 Oct.
Approx $26bn in ST Bills will mature on the Fed balance sheet this week and will be reinvested/rolled over.
The next quarterly Treasury financing update will be on 2 Nov 2022.
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
