Key events for the week ahead – US Non-farm payrolls, US Fed Chair Powell, Euro Area flash CPI Nov, Central bank speeches
Recap from last week
The FOMC minutes reflected growing support for slowing the pace of rate hikes, with a ‘substantial majority of participants’ judging that it ‘would likely soon’ be appropriate to do so. But ‘a few other’ participants see merit in moving the policy rate into ‘clearly restrictive territory’ before slowing the pace of hikes – to ensure there were more concrete signs inflation pressures were receding ‘significantly’. The minutes noted that the ultimate level of the FFR was more important at this stage than the pace of further increases. The ultimate level of the FFR in this cycle is still highly uncertain. Ongoing increases are still expected and ‘various participants’ noted that the ultimate level of FFR might be higher than previously thought.
By the end of last week, the US 2-10yr spread reached another YTD low of -0.75bps, amid further expectations for slowing growth. Markets are still pricing the likelihood of a smaller +50bps hike in Dec. Signalling will be important this week with Fed Chair Powell talking at the Brookings Institute on Wed 30 Nov. If changes are likely to the pace of hikes in Dec, then Chair Powell will possibly signal that ahead of the blackout period before the FOMC meeting on 13-14 Dec.
Flash PMIs for Nov were disappointing. US manufacturing shifted into mild contraction while the contraction in services accelerated. The Eurozone recorded a slightly slower contraction in manufacturing while the contraction in services continued. Japan recorded a notable slowdown in services momentum and manufacturing momentum shifted into a slight contraction. Finally, manufacturing momentum in Aus slowed further while services activity continued to contract.
The RBNZ increased its OCR by +75bps to +4.25% citing high inflation, strong demand (including a faster recovery in international visitors), low unemployment, and ‘worker shortages holding back output across many industries and regions’.
Outlook for the week ahead
US labour market data will be in focus this week and an important input for the FOMC in Dec. Non-farm payrolls are expected to increase by a further +200k jobs. The unemployment rate is expected to remain at a low of 3.7%. There will be several other US labour market indicators; JOLTS for Oct (expecting +10.3m), anecdotal job cut/hire announcements, and the high-frequency initial claims (expecting +235k). Despite remaining low, initial claims increased last week to +240k (from +220k).
US PCE inflation for Oct will be released. This is the FOMC preferred measure of inflation. Headline PCE inflation is expected to remain at +6.2% with the monthly pace increasing to +0.5% (up from +0.3% in Sep). Core PCE inflation is expected to slow slightly to +5% (from +5.1% in Sep).
The US ISM manufacturing PMI will be released this week – and is expected to show a mild contraction in activity. The S&P PMI’s (global) for Nov will start to be released this week providing some insight into global growth momentum.
The Euro area (and individual country-level) flash CPI for Nov will be released. The annual pace is expected to ease slightly to +10.4% (from +10.6% in Oct). Falls in producer energy distribution prices have started to show up, for example in the notable monthly decline in the Germany PPI last week of -4.2% in Oct.
There will be several central bank speeches this week – including BoJ Governor Kuroda and RBA Governor Lowe. Many will also take part in the Bank of Thailand/BIS conference “Central Banking Amidst Shifting Ground” (Fri 2 Dec).
This week, the US Treasury will auction and settle approx. $421bn in ST Bills, TIPS, Notes, and Bonds, raising approx. $58bn in new money.
Approx $38bn in ST Bills, Notes, and Bonds will mature on the Fed balance sheet this week and will be reinvested.
Approx $21bn in ST Bills, Notes, and Bonds will mature on the Fed balance sheet this week and will be redeemed.
The QT summary for Dec; In December, the face value of Coupons maturing on the Fed balance sheet is approx. $53.5bn. As this is below the $60bn cap for balance sheet roll-off, all maturing Coupons will be redeemed this month. That means that maturing Bills on the balance sheet will make up the residual $6.5bn up to the $60bn redemption cap this month.
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
