The Macro Outlook for w/c 3 April 2023

by Kim | Apr 3, 2023

Key events this week – US non-farm payrolls, RBA & RBNZ decisions, global S&P PMIs, and US ISM PMIs

Recap from last week

Attention shifted back to price stability last week. US PCE headline inflation eased slightly more than expected as food and gasoline prices contributed most to the deceleration in Feb. Core measures of inflation remained persistent. Core goods inflation eased, while core services continued to accelerate somewhat, led by housing. Measures of underlying inflation such as the trimmed mean and median inflation have eased from recent peaks, but suggest inflation pressure remains broad-based. More recent measures of core and underlying inflation (the 3mth and 6mth SAARs) are still slightly above the annual rates – suggesting more persistent core inflation around the mid-4% rate, above the 2% mandate, and the SEP for 2023 of +3.6%. The market pricing for the FFR has shifted again and is now 40/60 in favor of another hike in May while pricing several cuts through H2.

The fall in US consumer sentiment (University of Michigan) for Mar was noteworthy for its commentary;

“This month’s turmoil in the banking sector had limited impact on consumer sentiment, which was already exhibiting downward momentum prior to the collapse of Silicon Valley Bank”.

“While sentiment fell across all demographic groups, the declines were sharpest for lower-income, less-educated, and younger consumers, as well as consumers with the top tercile of stock holdings. All five index components declined this month, led by a notably sharp weakening in one-year business conditions.”

The Mar prelim Euro area inflation picture worsened. Headline annual inflation slowed notably mostly due to the higher base from energy prices a year ago. Importantly, the monthly and core readings show that inflation is not only persistent but also continues to accelerate. The estimated monthly increase in headline inflation for Mar accelerated to +0.9%, up from +0.8% in Feb. Core inflation accelerated further to +5.7% while the monthly core inflation rate also accelerated from +0.8% in Feb to +1.2% in Mar. Food, non-energy industrial goods, and services price growth continued to accelerate. Energy prices fell versus a year ago, and more notably over the month.

Aus headline inflation slowed more than expected in Feb (the monthly series) to +6.8%. Since Dec, most of the rapid disinflation has been due to the reversal of the higher holiday travel and accommodation prices reported during Nov and Dec (first vacations without Covid restrictions). Looking through the impact of higher recreation and culture prices, ‘underlying’ inflation has eased, but remains high. Retail sales growth slowed as expected, but stayed positive. Both will be important inputs for the RBA this week.

Outlook for the week ahead

Growth in US non-farm payrolls for Mar is expected to moderate to +240k this month after increasing by +311k in Feb. Participation is expected to stay at 62.5% and the unemployment rate is expected to be unchanged at a low of 3.6%. The payroll report will be released on the morning of the Good Friday holiday.

A wide range of US labor market indicators will be released this week, including Feb JOLTS and the Challenger job cuts survey for Mar. Note that new seasonal factors for 2023 initial and continuing claims will be released and revisions to 2018-2022 will be released on 6 Apr. Last week, initial claims increased to +198k and are expected to be around +200k for the week ending 31 Mar.

The US ISM surveys for Mar will provide a gauge of private sector growth momentum in the US. Manufacturing is expected to remain in contraction while services are expected to continue to expand moderately.

The RBA will meet this week. Some forecasters suggest that the RBA will raise by another 25bps to +3.85%, but current market pricing suggests a hold. The minutes of the latest RBA meeting noted that it agreed to reconsider the case for a pause at the upcoming meeting this week. At the last meeting, the softer Jan labor market report played into growth concerns (Feb employment was stronger). RBA Governor Lowe will also give his annual address at the National Press Club this week.

The RBNZ will meet this week and is expected to increase the policy rate by 25bps.

The global S&P PMIs for March will be released this week. The prelim PMIs (released last week) for Mar were encouraging, with stronger growth momentum across services helping to offset stalled momentum in manufacturing. There was a notable acceleration in services momentum, especially in Europe (France & Germany) and the US.

This week, the US Treasury will auction and settle approx. $251bn in ST Bills with a paydown of approx. $43bn.

The estimated net new money to be raised for Q2 is $278bn and the final US Treasury forecast for Q2 will be updated on 1 May.

QT: Approx $15.3bn 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