The Macro Outlook for w/c 6 March 2023

by Kim | Mar 6, 2023

Key events this week – US non-farm payrolls, US Fed Chair Powell testimony, central bank decisions; RBA, BoC, and BoJ

Recap from last week

The global S&P PMIs provided a broad reading of momentum for Feb.  

The global composite output PMI recorded a further acceleration in output growth – the highest reading since Jul 2022. This improvement in momentum was led by a further expansion in the global services output index. The global manufacturing output PMI also showed an improvement in momentum, albeit smaller than for services, reaching a neutral 50 level. Manufacturing performance was still mixed despite the headline improvement. Conditions worsened across larger manufacturing countries; France, Japan, and Germany.

In the US, the question has been how much of the stronger momentum in Jan will be sustained. So far, the Feb ISM PMIs indicated no change to the momentum recorded in Jan. The ISM services PMI showed continued moderate expansion as domestic and export orders rebounded. Services inflation remained sticky. The ISM manufacturing PMI remained in a mild contraction. Production contracted further as weak orders were not offset by another fall in backlogs. Price increases became more widespread again.

US Fed Governor Waller’s speech suggested that the Jan revisions to the CPI showed that the FOMC may not have made as much progress on inflation as expected. Waller’s comments provide a guide; if payrolls and inflation data go back to the pre-Jan downward trajectory, then this endorses the current (Dec) SEP for the FFR of between 5.1-5.4%. If data comes in higher/hotter, then the projection for the target range may need to be increased.  

Euro area CPI came in higher than expected for Feb at +8.5%, with the monthly pace increasing by +0.8%. Core CPI for Feb was also higher at +5.6%, up from +5.3% in Jan. The monthly core CPI also came in at +0.8%.

Outlook for the week ahead

The first of the important US Feb data will be released this week, leading up to the FOMC meeting on 21-22 Mar.

Growth in US payrolls is expected to slow to +210k in Feb (from +517k last month). The unemployment rate is expected to remain at a low of 3.4%. Other labor market indicators include JOLTS for Jan and the Challenger report for Feb.

US Fed Chair Powell will provide two days of testimony this week (the semi-annual report to Congress). He may mirror some of what Waller has said – that rate projections may need to move higher if data continues to strengthen.  

The RBA is expected to increase rates by a further 25bps to 3.60%. Aus growth slowed by more than expected in Q4 with weakness in domestic consumption and investment. The headline monthly inflation (new series) for Jan eased to +7.2%. Retail sales growth was stronger for Jan but remained in a slower growth trend.

The BoC is expected to keep rates on hold, with the policy rate at 4.5%.

The BoJ will meet this week and policy settings are expected to be unchanged, as this will be Governor Kuroda’s last meeting.

This week, the US Treasury will auction and settle approx. $276bn in ST Bills with a net paydown of -$33bn. The US Treasury will also auction the 3 and 10-year Notes and the 30-year Bond this week – all will settle next week.

QT: Approx $0.8bn in ST Bills will mature and roll off the Fed balance sheet this week. Approx $10.4bn in ST Bills will mature on the Fed balance sheet this week and 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