Key events this week – US CPI & retail sales, FOMC minutes, BoC meeting, Aus labor market survey, US bank earnings
Recap from last week
While momentum in US labor market growth continues to slow, conditions remain tight. US non-farm payrolls increased by +236k in Mar. Payroll growth remained tilted to services-providing jobs, which increased by +196k, while goods-producing payrolls declined slightly by 7k. Govt payrolls increased by 47k. Overall growth in payrolls is still elevated compared to the pre-pandemic trend.
Employment growth (among 16yrs+) was high enough to absorb the increase in the participation rate and still reduce unemployment. The unemployment rate edged lower to 3.5%. Hours growth was slightly lower in Mar. Growth in average hourly earnings continued to moderate. The Feb JOLTS data reflected the slowing growth trend. Job openings continued to moderate with the opening rate easing to 6.0 in Feb, which is still well above the pre-pandemic average rate of 4.2. But hires continued to outpace separations helping to keep unemployment low. Growth in initial claims has lifted over the last few months (after the revision last week).
The US ISM surveys for Mar reflected further weakening in manufacturing momentum and moderate, yet slowing growth across services.
Market pricing for the path of US rates shifted after last week’s data (although shortened holiday session). Markets are now pricing one more hike to 5-5.25% in May, then a brief pause before pricing the first rate cut in July. This is still a point of tension with FOMC projections. Conditions would need to deteriorate notably in the few months ahead for the FOMC to take this path, with the FOMC noting that “cuts are not the base case” for 2023.
The RBA kept rates on hold to allow time to assess the effect of rate increases on the economy, amid heightened uncertainty. The statement noted that rate increases, higher inflation, and a fall in housing are starting to lead to a “substantial slowing in household spending”. With inflation still elevated and a tight labor market, the Board may consider further tightening if needed. Governor Lowe noted later in his National Press Club address that Aus mortgage rates had increased more than most other countries despite a lower cash rate.
RBNZ surprised markets with a 50bps increase, citing inflationary pressure and employment ‘beyond its maximum sustainable level’.
Global PMI’s reflected ongoing lacklustre manufacturing momentum while global services growth continued to expand, notably across China, the Eurozone, and Japan.
Outlook for the week ahead
US CPI and retail sales will be the important inputs providing a guide on consumption growth and inflation leading up to the next FOMC meeting. Headline US CPI for Mar is expected to moderate to +5.2% as data starts to cycle over the higher base from last year. The monthly pace is expected to slow to +0.2%. Core inflation though is expected to remain elevated, accelerating slightly to +5.6% in Mar with the monthly pace around +0.4%. US retail sales are expected to fall by -0.4% in Mar. The FOMC minutes will be released this week and should reflect discussion around expectations for further tightening of policy versus a market-based tightening in credit conditions related to recent bank failures.
The Bank of Canada is expected to keep rates on hold as previously signalled.
Finally, the Aus labor market survey for Mar will be released. Employment growth is expected to slow to +20k. The participation rate is expected to stay unchanged at 66.6% while the unemployment rate is expected to increase slightly to +3.6%.
This week, the US Treasury will auction and settle approx. $251bn in ST Bills with a paydown of approx. $9bn.
The US Treasury will also auction the 30-year Bond and 3 and 10-year Notes this week.
QT: Approx $19.4bn in ST Bills, Notes, and Bonds will mature on the Fed balance sheet this week and will be reinvested. Approx $16.4bn in Notes and Bonds will mature on the Balance sheet (15 Apr) 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
