by Kim | Dec 19, 2022
Key events for the week ahead – US PCE Price inflation, Japan & Canada CPI, BoJ Monetary Policy Meeting, RBA Minutes
Recap from last week
Major central banks continued to tighten policy last week.
The FOMC increased the FFR by 50bps as US CPI showed signs of continued moderation. The FOMC remained hawkish despite further good news on inflation, reinforcing that it expects ongoing increases to the target range will be appropriate to get the policy rate to a “sufficiently restrictive” level. Further hikes will be at a measured pace, allowing for the so far, rapid tightening in rates to take effect.
The FOMC upgraded the FFR projections for 2023 from a median of 4.6% (in Sept) to 5.1%. The 2023 core PCE projection was also revised higher from the Sept projection to +3.5% – highlighting the concern that inflation may remain above the target in the near term. Importantly, the FOMC wants to see “clear progress” on inflation, that slowing inflation is on a sustainable path to achieving its 2% target before considering cutting rates. The ‘higher rates for longer’ message was reinforced for now.
US CPI growth eased from +7.7% in Oct to +7.1% in Nov. Core inflation continued to ease. Growth in core goods prices eased which offset a further increase in core services price growth.
The ECB increased rates by 50bps. Guidance was hawkish, with the Governing Council noting that “interest rates will still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive to ensure a timely return of inflation to the 2% medium-term target.” The inflation outlook was revised higher from the prior forecast. The ECB also announced its plan to commence QT in Mar 2023 – with detailed plans to be announced at the Feb 2023 meeting.
The BoE also increased its Bank Rate by 50bps. The decision was split; one member voted for a larger increase and two for no increase at this meeting. Guidance was that further increases in the Bank Rate would be necessary if inflation and the economy evolved in line with projections. The Nov inflation rate was +10.7%, slightly below expectations.
The prelim Dec S&P PMIs showed only a slight improvement in growth momentum among G7 countries. Manufacturing PMIs remained in contraction with output continuing to contract. Services output expanded in Japan, UK services shifted back to neutral, and the Eurozone services contraction slowed. The US manufacturing and services PMIs contracted again, falling to 46.2 and 44.4 respectively in early Dec.
Outlook for the week ahead
Inflation data will be in focus. The FOMC preferred US PCE inflation data for Nov will be released. Headline PCE inflation is expected to increase by +0.3% in the month and slow to +5.7% over the year. Core PCE inflation is expected to ease to +4.6%.
Canada’s CPI for Nov is expected to slow to +6.6%.
The Japanese National CPI growth is expected to stay around +3.7% with core CPI ex-fresh food increasing to +3.7% for Nov. The BoJ is meeting this week and policy is expected to remain unchanged – despite the higher CPI growth.
The RBA meeting minutes will be released. The Board increased rates by 25bps at the last meeting and the minutes may provide some insight into the debate over the pace of that hike and possibly the pace of future hikes.
This week, the US Treasury will auction and settle approx. $222bn in ST Bills, with a net paydown of approx. -$24bn.
Approx $6.7bn in ST Bills will mature on the Fed balance sheet this week and will be reinvested.
Approx $0.6bn in ST Bills will mature on the Fed balance sheet this week and will be redeemed/roll-off the Fed balance sheet.
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
by Mars Capital Partners | Dec 19, 2022
Last week, equities pushed to marginal new highs before reversing sharply lower for an outside-week bear reversal. "It is the reaction to the news that matters". The complication is that the near term SPX / ES rally up off the October lows can be counted as both bullish (impulsive) and bearish (corrective). At these times […]
by Kim | Dec 12, 2022
Key events for the week ahead – FOMC, BoE, ECB, and SNB policy meetings, US CPI and retail sales, Euro area and UK CPI, prelim PMIs Dec
Recap from last week
The week started with a WSJ article titled “Fed to weigh higher interest rates next year while slowing rises this month” – aiming to clarify any misinterpretations from the Brookings speech and ahead of the FOMC meeting this week.
Last week, the RBA raised rates by 25bps to 3.10%. The Board reiterated its priority to return inflation to the 2-3% band and expects to increase rates in the period ahead – but is not on a pre-set course. The Minutes next week may reveal the level of debate around the pace of hikes.
The BoC increased rates by 50bps to 4.25%. There was a notable change in the statement with the Governing Council to consider “whether the policy interest rate needs to rise further”. This was a shift from prior statements where the Governing Council expected “that the policy interest rate would need to increase”. BoC Governor Macklem speaks early this week.
Growth momentum slowed further according to the global PMIs for Nov. The global manufacturing and services PMIs registered slight contractions as global output and orders contracted. Activity across the G7 slowed. Japan was the only G7 country where services didn’t contract (although services momentum slowed the most in Japan). Manufacturing activity contracted across all G7 countries. The manufacturing contraction eased in the Eurozone, Germany, UK, and Canada.
The trend in US initial claims (especially the NSA series) after the Thanksgiving holiday week and continuing claims (both SA & NSA) continues to rise.
News later in the week confirmed that China is to step back from its zero-Covid policy.
Outlook for the week ahead
Amid a backdrop of slowing growth momentum and elevated inflation, the major central banks are expected to continue tightening policy this week.
The FOMC is expected to increase rates by 50bps to 4.25-4.5%. The latest SEP and ‘dot plot’ will be released, providing important insight into current thinking by the Committee on ‘higher rates for longer’. US CPI for Nov will be released the day prior and is expected to moderate to +7.3% in Nov from +7.7% in Oct. Core inflation is expected to moderate to +6.1% in Nov from +6.3% in Oct.
US output and consumption data will be in focus; US retail sales are expected to fall slightly in Nov by -0.2% after a +1.3% increase in Oct. US industrial production for Oct, the prelim US S&P PMIs for Dec, and the first regional manufacturing surveys for Dec will also be released. Initial claims are expected to remain at +230k (SA).
The ECB is expected to increase rates by a further 50bps to 2% and to preview QT intentions for 2023. Euro Area inflation for Nov is expected to be confirmed at +10%, with monthly inflation falling by -0.1%.
The BoE is expected to increase rates by 50bps to 3.50%. UK CPI for Nov is out the day before the meeting and is expected to ‘moderate’ to +10.9% in Nov from 11.1% in Oct. Core CPI is expected to remain at +6.5%.
The SNB is also expected to increase rates by 50bps to 1.0%.
The prelim S&P PMI readings for Dec will be released this week (US, UK, Aus, Japan, & Europe).
This week, the US Treasury will auction and settle approx. $312bn in ST Bills, Notes, and Bonds, raising approx. $45bn in new money.
Approx $12.6bn in ST Bills will mature on the Fed balance sheet this week and will be reinvested.
Approx $13.3bn in ST Bills, Notes, and Bonds will mature on the Fed balance sheet this week and will be redeemed/roll-off the Fed balance sheet.
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
by Mars Capital Partners | Dec 12, 2022
Last week equities turned lower from our sell zone but the decline is not yet clearly impulsive. Bears need to see downside follow through this week and press lower to break near term support to help ensure an impulsive bearish reversal. Trade above last week's highs invalidates the bear case and opens the door to […]
by Kim | Dec 5, 2022
Key events for the week ahead – US ISM services PMI, RBA & BoC policy decisions, global services PMIs
Recap from last week
As broadly expected, Chair Powell signaled that “the time for moderating the pace of rate increases may come as soon as Dec.” The timing of that moderation was “far less significant” than questions over how far rates need to go to control inflation and the length of time to hold policy at restrictive. The policy message was ‘higher for longer’ amid a high degree of concern and uncertainty around the path of inflation. The Q&A with Chair Powell outlined the FOMC approach to managing the risk of inflation becoming entrenched (emphasis added);
Another is to hold on longer at a high level and not, you know, loosen policy too early. I don’t want to over-tighten certain we, my colleagues, and I do not want to over-tighten because, you know, we, I think that cutting rates is not something we want to do soon. (Brookings speech transcript; 45.54sec)
Chair Powell’s Brookings speech laid out how the FOMC views the conditions it needs to see to bring inflation back to 2%. To that end, several points this week may be concerning for the FOMC; the re-acceleration of average hourly earnings growth, continued falls in participation, and sticky PCE core-services ex-housing inflation.
There are signs of moderation in the US labour force momentum. The Fed’s Beige Book for Nov noted that ‘hiring and retention difficulties eased further, although labor markets were still described as tight’. Payrolls growth came in higher than expected but growth continues to moderate. The household survey showed a decline in the number of people employed. The fall in participation, albeit slight, offset the decline in employed persons, so the unemployment rate remained at a low 3.7%. JOLTS data from Oct reinforced that the labour market momentum is slowing, but not yet showing negative trends in broader layoffs and discharges. Initial claims remain low but there is an upward trend in continuing claims (SA) beginning to emerge.
The PCE ‘core services ex housing’ measure of inflation was a key focus in Chair Powell’s Brookings speech – outlining the link between current tightness in the labour market, wage growth, and trends in underlying inflation pressure (important). While headline US PCE inflation continued to moderate, the core services (ex-energy services) accelerated to +5.1% as housing and other services prices ex-housing continued to accelerate or remained elevated. The Oct data suggests little in the way of underlying inflation trends abating.
Outlook for the week ahead
We are now in the blackout period ahead of the FOMC meeting next week.
This week, the RBA and BoC will meet on policy. The RBA is expected to increase rates by a further 25bps to 3.10% (outside chance for +15bps?). Inflation remains high and the labour market remains tight in Australia. There is uncertainty over whether the BoC may step down to a smaller 25bps increase this month from 50bps.
The US ISM services PMI for Nov will be released and is expected to show moderation in services activity but remain in expansion. The global S&P services PMIs will be released this week also.
The ECB will meet next week. ECB President Lagarde will give speeches this week which may provide an opportunity to fine-tune/change any signaling for that meeting (currently expecting +50bps in rates).
This week, the US Treasury will auction and settle approx. $22bn in ST Bills with a net paydown of $54bn.
Approx $11.8bn in ST Bills will mature on the Fed balance sheet this week and will be reinvested. Approx $1bn in ST Bills will mature on the Fed balance sheet this week and will be redeemed.
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
