Key events this week – US non-farm payrolls & ISM surveys, RBA & RBNZ monetary policy decisions
Recap from last week
US core PCE inflation continued to ease while spending and growth data reflected mostly resilient economic conditions. The elephant in the room is the recent increase in long rates, the extent to which long rates may stay higher, and the expected impact on global activity.
US PCE inflation for Aug came in as expected at +3.5%, accelerating slightly mostly due to energy prices. Monthly headline inflation was +0.4% in Aug up from +0.2% in Jul. Core PCE inflation eased to +3.9% in Aug and the monthly rate moved lower. The latest FOMC median projection for core PCE growth is +3.7% over 2023. The trimmed mean measure of underlying inflation also slowed to +3.9% over the year as the monthly rate stayed low (but has inched slightly higher over the past two months). Overall, another good report for the FOMC which wants to see continued progress on inflation to be confident inflation is on a sustainable path lower.
US personal consumption expenditure growth for Aug was slightly lower than expected at +0.4%, and +0.1% in real terms. Lower spending on goods was offset by growth in services. The average growth in personal spending through Q3 has so far stayed higher than in Q2. Real personal disposable income has recorded consecutive falls over the last three months.
US regional manufacturing surveys continued to stabilize in Sep. The decline in new orders has become less severe except in the Philadelphia and Kansas regions. While the outlook and sentiment have been negative, the slowdown in employment growth has stabilized. The recent fall in the prices paid and prices received indexes has stabilized, with both indexes rising slightly over the last several months.
US housing activity continues to show signs of a renewed impact from rising mortgage rates. Mortgage applications, pending home sales (Aug), and new home sales (Aug) all fell in the latest round of data.
US Q2 GDP growth was confirmed at +2.1% SAAR. While PCE expenditure was revised lower, this was offset by a larger contribution from private investment spending and net exports. The Atlanta Fed GDP Nowcast for Q3 GDP growth has stayed high at +4.9%.
Inflation in the Euro area (prelim for Sep) came in lower than expected at +4.3% over the year and the monthly rate slowed to +0.3%. Core CPI is also expected to be lower at +4.5%.
Aus CPI for Aug came in as expected with headline CPI rising to +5.2% while the monthly rate increased to +0.6%. The shorter-term 3-month SAAR has shown some acceleration in headline inflation. The trimmed mean measure of underlying inflation stayed elevated at 5.6% in Aug. Pressure from services inflation remains elevated in the domestic economy.
Outlook for the week ahead
The main focus this week will be US non-farm payrolls and labor market indicators. This is a key report for the FOMC which is looking for a continued rebalancing of the labor market.
US non-farm payrolls are expected to increase by +163k in Sep (from +187k in Aug). Participation is expected to be little changed at 62.8%, but the unemployment rate is expected to fall to 3.7%. Average weekly hours are expected to be unchanged at 34.4. Average hourly earnings are expected to increase by +0.3% over the month and by +4.3% over the year. The JOLTS survey for Aug is expected to show little change in the number of job openings at 8.83m.
The Sep ISM surveys for the US are expected to show a slight moderation in services activity while manufacturing continues to contract.
There will be several Fed speakers this week. At this stage, Fed Chair Powell is scheduled to speak on Monday, but this is not listed on the official Federal Reserve calendar.
The RBA will meet on monetary policy this week. This will be the first meeting under the new leadership of Governor Michele Bullock. The cash rate is expected to stay unchanged at 4.1%.
The RBNZ will also meet on monetary policy this week. The official cash rate is also expected to stay unchanged at 5.5%.
The global suite of S&P PMIs will be released this week for Sep, providing a broader view of manufacturing and services growth momentum through Q3.
This week, the US Treasury will auction and settle approx. $244bn in ST Bills, raising approx. $65bn in new money. The US Treasury estimates that it will raise approx. $852bn in new money in Q4. The next quarterly refunding update will be on 30 Oct and 1 Nov.
QT this week: Approx $15bn in ST Bills will mature on the Fed balance sheet this week and will be reinvested. Approx $2.4bn in ST Bills will mature on the Fed balance sheet this week and will be redeemed/roll-off the 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
