Key events this week – US CPI, RBNZ and BoC policy decisions, central bank speeches
Recap from last week
Global yields moved higher last week within the context of the FOMC Minutes and the decision to pause hikes, recent hawkish speeches, and a series of better-than-expected data on the US economy.
The FOMC minutes detailed the decision to pause hikes, which was based on allowing more time to assess the progress of tightening done to date. However, “some participants” favoured another 25bps increase noting a tight labour market and “few clear signs that inflation was on a path to return to the Committees 2% objective over time”. While the FOMC is continuing to slow the pace of hikes, economic activity has been more resilient than expected. “Almost all participants” noted that further tightening would be “appropriate”.
The important US labour market data was mixed. There was some sign of easing demand for workers as payroll growth continued to slow in Jun, plus revisions lower in the prior two months. Job openings were also lower in May (still elevated though). Other data reflected continued tightness in labour market conditions with the unemployment rate staying low for 16yrs+, and falling for the 25-54yr group. Average hourly earnings growth remained elevated and average weekly hours increased. Initial claims, a coincident view of labour market conditions, increased again and the underlying trend has been rising, albeit slowly. The trend in continuing claims (which lags by a week), is now more mixed between the seasonally adjusted (slowing) and non-seasonally adjusted (rising) series.
The PMIs continued to show manufacturing and services conditions diverging at the end of Q2. The US ISM manufacturing PMI for Jun was only lower (in this cycle) at the depths of pandemic lockdowns. The underlying detail suggests that more manufacturing firms shifted to reporting ‘no change’ in activity compared to the prior month across the five key measures. In other words, recording lacklustre conditions. The ISM services PMI showed more widespread improvement in demand, output/activity, and employment. The global S&P PMIs reflected a similar situation. The global manufacturing PMI shifted further into contraction, while global services momentum slowed, but continued to signal a moderate expansion.
Outlook for the week ahead
The main focus this week will be on the US CPI report for Jun. This CPI report may take on slightly more importance given the recent move higher in yields. The CPI report for May provided some favourable signs of easing inflation. This month, headline inflation is expected to ease further to +3%, while core inflation is expected to stay elevated at +5% (down from +5.3% in May). Monthly core inflation is expected to slow to +0.3% from +0.4% in May.
There will be a few US Fed speeches this week. Of note will be Governor Waller on the economic outlook for the US and Fed Vice Chair for Supervision Barr on bank capital. The Fed will also release the Beige Book this week, providing an update on regional economic conditions.
The RBNZ will meet this week and is expected to leave rates on hold at 5.5%. The BoC will also meet this week and, after the stronger employment growth last week, expectations for a 25bps hike have increased.
Other speeches include RBA Governor Lowe will this week on the Reserve Bank review and monetary policy. The BoE Governor Bailey will speak this week, and the BoE credit conditions report will also be released this week.
This week, the US Treasury will auction and settle approx. $477bn in ST Bills, raising approx. $72bn in new money. The US Treasury will also auction the 30-year Bond and the 3-year and 10-year Notes this week – all will settle next week.
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
