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
