Key events for the week ahead – US retail sales, US Fed speeches, CPI for Oct; Japan, UK, Canada, and the Euro area, China data, G20
Recap from last week
US CPI growth slowed more than expected in Oct increasing expectations that the FOMC will slow the pace of hikes and pause tightening earlier. Fed speeches supported a likely shift to a slower pace of hikes, but emphasized that “a slower pace should not be taken to represent easier policy” (Lorie Logan – Dallas Fed President). By the end of the week, the target rate probability for the Dec Fed meeting was pricing a +50bps increase, from an even split between 50 and 75bps increase. On Sunday, Governor Waller said that “It’s really not so much about the pace anymore, it’s where we’re going (to) end up. And where we end is going to be driven solely by what happens with inflation.” (Source: Bloomberg).
Headline US CPI slowed from +8.2% in Sep to +7.7% in Oct. The areas of disinflation suggest that the commodity price and demand shocks from the pandemic and the Ukraine invasion appear to be easing. Monthly food price growth has slowed further, but this is not yet visible in the annual change. Energy price growth has eased but remains volatile.
Core CPI slowed from +6.6% in Sep to +6.3% in Oct. Slower core CPI was mostly the result of a further fall in used car prices (falling for the fourth month and up only +2% on a year ago) – with demand across autos (and durables) likely impacted by higher rates and some tightening of lending standards. This was partly offset by faster growth in core services led by shelter price growth (no sign of rolling over yet). Other measures of underlying CPI remained elevated while the monthly trend may be rolling over. Sticky prices stalled at the current peak of +6.5%.
The bigger picture is that slowing CPI is yet to coincide with a weaker labour market or slower wage growth. So while the impact of price and demand shocks might be starting to fade, the inflation story may not be over. The Atlanta Fed wage growth tracker for Oct recorded a further acceleration in wages (overall measures) from +6.3% in Sep to +6.5% in Oct, and wage growth acceleration was recorded across most indicators. US consumer sentiment indicators weakened at the start of Nov as consumer inflation expectations edged higher again. This likely means the Fed stays the course on tightening for now. Early this week, Fed Governor Waller noted that “So it’s good, finally, that we saw some evidence of inflation starting to come down, but I just cannot stress [enough] this is one data point. We’re going to need to see a continued run of this kind of behaviour and inflation slowly starting to come down, before we really start thinking about taking our foot off the brakes here.”
Outlook for the week ahead
US data and Fed speeches will be prominent. US retail sales for Oct are expected to increase by +0.9%. Housing data is expected to remain weak with existing home sales expected to slow to 4.4m (SAAR basis). A substantial number of FOMC members will speak this week, including Vice Chair Brainard.
More inflation data is due this week. The UK CPI for Oct is expected to accelerate to +10.6% (also UK labour market data and the budget release on 17 Nov). Canada CPI is expected to increase to +7% in Oct. Japanese CPI is expected to slow to +2.7%, but ex-fresh food to increase to +3%. Euro area final CPI for Oct is expected to be +10.7%.
The RBA minutes will be released. Aus data is expected to show that the labour market remains robust amid policy tightening. The Aus Q3 wage price index is expected to increase by +3% year on year, up from +2.6%. Aus employment is expected to increase by +15k, the participation rate to remain at 66.6%, and the unemployment rate to remain at a low 3.5%.
This week, the US Treasury will auction and settle approx. $351bn in ST Bills, Notes, and Bonds raising approx. $65bn in new money.
The US Treasury will also auction the 20-year Bond and 10-year TIPS this week. These will settle on 30 Nov.
Approx $93bn in ST Bills, Notes, and Bonds will mature on the Fed balance sheet this week. Of this, approx. $40.4bn in Notes and Bonds will mature and roll-off the Fed balance sheet (as a part of the $60bn cap). The remaining $52.7bn of ST Bills, Notes, and Bonds that will mature this week 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
