Key events this week – US CPI, FOMC Minutes, Fed Speak
Recap from last week
For the moment, robust US labor market conditions continue to support growth resilience. Through the tightening cycle so far, indicators of heightened labor demand across non-farm payrolls, employment, job openings, and wage growth have been slowing from historically elevated levels. However, as the stimulus-fuelled growth of the pandemic-era reverses, there has not yet been a material deterioration in labor market conditions. The unemployment rate has stayed low so far in this tightening cycle, initial and continuing claims are low, and layoffs, discharges, and quits are almost back in line with pre-pandemic averages.
The FOMC is likely to view the Sep payrolls as in line with “recent stronger than expected activity” as the process of rebalancing continues. Non-farm payroll growth was stronger than expected in Sep at +336k (expecting +163k), while growth in the two prior months was revised higher by +119k. Growth in average hourly earnings stayed low at +0.2% over the month while annual growth slowed to +4.1%. Contributing to slower average hourly wage growth could be the change in the mix of employment growth. Over the last few months, the household survey has shown that employment growth has been driven by higher part-time employment while full-time employment growth has slowed but has stayed elevated. The average work week and participation rate were unchanged, and the unemployment rate stayed low at 3.8%. The JOLTS data for Aug showed a surprise increase in the job openings rate, back up to 5.8. The number of job openings has been falling through this tightening cycle, but is still above the pre-pandemic average of 4.2, reflecting some ongoing tightness in the labor market.
The global S&P PMI’s showed stalling manufacturing activity persisted through to the end of Q3. Eurozone manufacturing remained in firm contraction, with conditions deteriorating in Japan, the UK, Aus, Canada, and the ASEAN group at the end of Q3. US manufacturing conditions have stayed little changed. Stronger global services growth had been helping to offset weaker manufacturing conditions. However, the services expansion has slowed throughout Q3 to a more modest pace of growth. Services growth has slowed to a stalled pace in the US, the UK, China, and the Eurozone.
The RBA and RBNZ both kept policy settings unchanged in Oct.
Outlook for the week ahead
There are several important events this week. We are now in the lead-up to the next FOMC meeting on 1 Nov and the CPI report for Sep will be an important input. The FOMC is looking for continued progress on slowing inflation and while inflation is still too high, recent reports have been going in the right direction. Headline CPI growth is expected to slow to +3.6% in Sep from +3.7% in Aug and the monthly rate is also expected to ease to +0.3% in Sep from +0.6% in Aug. Core CPI is also expected to ease to +4.1% in Sep from +4.3% in Aug while the monthly core rate is expected to stay unchanged at +0.3%.
The US PPI data for Sep will come out before the CPI report this month. Headline PPI growth is expected to slow to +0.4% over the month, from +0.7% in Aug. Annual growth in the PPI is expected to be little changed around +1.6%.
The latest minutes of the FOMC meeting will be released this week. Of interest will likely be discussions around the timing of (or need for) further rate hikes, as outlined in the Summary of Economic Projections. The market-based probability of another hike in 2023 has come down in recent weeks while long-end yields have been rising.
We will continue to watch initial claims (expected +210k) and the weekly mortgage application data. Mortgage applications continued to deteriorate, falling by 6% last week as mortgage rates increased to the highest level since 2000.
There will be a large number of Fed speakers this week, including Governor Jefferson (The Economic Outlook and Monetary Policy Transmission), Governor Waller (The Evolution of Monetary Policy), and Governor Bowman (Financial Stability in Uncertain Times).
There will be several other data releases; European country-level CPI for Sep, Eurozone, and German industrial production for Aug. The first round of Chinese data for Sep will be released this week which will include CPI/PPI and trade data. Chinese export and import data are expected to continue to improve.
Renewed and elevated geopolitical unrest and local US political uncertainty (due to the removal of the US House Speaker last week) may provide further headline risk through the week.
This week, the US Treasury will auction and settle approx. $433bn in ST Bills, raising approx. $24bn in new money. This week, the US Treasury will also auction approx. $101bn in Notes and Bonds – which will settle next week.
QT this week: Approx $10.3bn in ST Bills will mature on the Fed balance sheet this week and will be reinvested. Approx $1.6bn 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
