by Kim | Nov 27, 2023
Key events this week – Inflation; US PCE Inflation, Euro Area CPI, and Aus CPI, RBNZ policy decision, US Fed-speak including Fed Chair Powell
Outlook for the week ahead
Progress on inflation will be a key theme in the week ahead.
US PCE inflation for Oct will be released this week. Headline PCE inflation for Oct is expected to slow to +3.1% over the year (from +3.4% in Sep) and slow to +0.1% over the month (from +0.4% in Sep). Core PCE is expected to slow to +3.5% over the year (down from +3.7% in Sep) and slow to +0.2% over the month (from +0.3% in Sep).
If PCE inflation slows as expected in Oct, it will be at the lower end of the range (and just below the median) of the current FOMC inflation projections for the year. The current FOMC projection for headline PCE over 2023 is between +3.1% and +3.8% and the core PCE inflation projection is between +3.5% and +4.2%. The latest FOMC minutes continued to reiterate that the Committee would need to see more data to be confident that inflation was “clearly on a path to the 2% objective”. Despite restrictive policy settings placing downward pressure on inflation and economic activity, inflation remains “unacceptably high”. It was noted that core inflation had come down somewhat in recent months with positive progress on core goods inflation and a gradual easing of shelter inflation. So far though, “there had only been limited progress on bringing down inflation in core services ex-shelter” – this is Fed Chair Powell’s favored view of the underlying trend of inflation.
It will be the last week of Fed speeches before the blackout period ahead of the FOMC meeting on 12-13 Dec. There will be several Fed speeches of interest this week, including Fed Chair Powell (Discussion), Governor Waller (Econ Outlook), and Governor Bowman (Mon Pol and the Econ).
Other US data out this week will provide further insight into the growth outlook for Q4. Personal income and spending data for Oct will be released. Income growth is expected to stay around +0.2% over the month while spending is expected to slow to +0.2% in Oct from +0.7% in Sep. The ISM manufacturing PMI is expected to show manufacturing activity continued to stall in Nov.
The prelim Euro area inflation for Nov is expected to ease further. Headline inflation is expected to slow to +2.8% over the year from +2.9% in Oct. Core inflation is expected to ease to +3.9% over the year (from +4.2% in Oct).
The Aus monthly CPI for Oct is expected to stay relatively elevated at +5.5% (from +5.6% in Sep). The latest RBA minutes reflected the debate over the decision to raise the cash rate by a further 25bps in Nov. The decision was based on the risks arising from the outlook for inflation to be stronger than had been previously expected. Concerns were raised over resilient domestic demand, higher underlying inflation, and “growing signs of a mindset among businesses that any cost increases could be passed onto consumers”. This was seen as a key challenge to the task of bringing inflation back to target in a reasonable timeframe.
The RBNZ will meet this week and is expected to keep policy settings unchanged.
The S&P Global PMIs for Nov will begin to be released later this week. Last week, the prelim G4 (incl Aus) PMIs for Nov showed that services momentum was slightly improved while manufacturing PMIs were in contraction. Overall, only the US and UK PMIs indicated expansion across private sector activity. Activity slowed to a stalled pace in Japan, the contraction slowed somewhat across the Eurozone, and the contraction in private sector activity gathered pace in Australia in Nov.
This week, the US Treasury will auction and settle approx. $657bn in ST Bills, Notes, Bonds, and TIPS raising approx. $101bn in new money.
QT this week: Approx $18bn in ST Bills, Notes, and Bonds will mature on the Fed balance sheet and will be reinvested. Approx $29.5bn in Notes and Bonds will mature and roll off (redeemed) the Fed 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
by Mofar2016 | Nov 27, 2023
Last week, equities continued to extend higher towards bigger picture resistance in the holiday shortened week. The major indices continue to lead the way with the Nasdaq, S&P and DJIA continuing to impulse higher while the Russell, NYA and RSP rallies appear corrective (so far). These fragmented markets warn of greater risks going forward unless […]
by Kim | Nov 20, 2023
Key events this week – US Thanksgiving Holiday, Minutes; FOMC, RBA, & ECB, Inflation; Japan & Canada, S&P Prelim PMIs Nov
Recap from last week
After a relatively big week of US data, the latest Atlanta Fed GDP Nowcast showed the US Q4 growth estimate slowing slightly to +2% (SAAR) from +2.2% where it started the week, and emphasizing that US Q4 growth is so far on a slower trajectory than in Q3.
US retail sales growth was softer in Oct falling by -0.1% after stronger (revised higher) growth of +0.9% in Sep. Industrial production output fell in Oct, as manufacturing output was impacted by labor disputes (motor vehicle production -10%). The first US regional manufacturing surveys for Nov suggested that manufacturing activity likely stayed at a stalled pace. Housing data was mixed. Of note was the sharp fall in home builder sentiment for Nov – approaching the lows of the pandemic. Permits and starts came in slightly better than expected. Mortgage applications increased modestly as 30-year fixed mortgage rates remained elevated at around 7.6%. Initial and continuing claims have been rising over the last four weeks.
Importantly, the Oct US CPI report showed that the downward trend in inflation resumed after progress stalled during Aug and Sep. The slowdown in headline inflation to +3.2% was led mostly by falling energy prices. Progress on core inflation remains slower. With measures of underlying inflation still running at between +3.8% and +4.1% over the year, and between +0.2% and +0.3% over the month, the FOMC is likely to stay in the camp of “still a long way to go on inflation” for now. Fed speeches last week mostly reflected the position that it was too early to declare victory over inflation. In an interview last week, Chicago Fed President Goolsbee noted that the task to get inflation down to 2% is “not done yet”, but also noted that “the moment of arguing how high should rates go is going to fade to how long should we keep rates at this level as inflation is coming down”. Markets have moved ahead in pricing four rate cuts commencing in May 2024.
Globally, there were more signs of growth slowing and inflation easing. Euro Area GDP growth for Q3 (second estimate) stayed at -0.1% over the quarter. Euro area headline CPI slowed to +2.9%, with the monthly rate slowing to +0.1%. Euro area core inflation also slowed to +4.2% over the year and to +0.2% over the month. Eurozone industrial production fell more than expected by -1.1% in Sep confirming the weakness in survey output measures. The prelim Japanese Q3 GDP contracted more than expected by -0.5%. UK inflation also slowed more notably over the year from +6.7% in Sep to +4.6% in Oct.
Outlook for the week ahead
It will be a short week due to the US Thanksgiving Holiday.
In the US, the focus will be on the FOMC Minutes. Rates were unchanged at the last meeting as the FOMC noted that restrictive policy settings were placing downward pressure on activity and inflation allowing the FOMC to now proceed carefully. At the time, the press conference was interpreted by some as signaling a potential shift to a more prolonged pause, or even an end to the hiking cycle.
US existing home sales for Oct are expected to fall to 3.9m (SAAR basis) from 3.96m in Sep. Durable goods orders are also expected to fall by -3.2% after rising by +4.6% in Sep (due to large non-defense aircraft orders). Initial jobless claims will remain in focus.
The RBA minutes of the latest meeting will be released this week. The RBA hiked rates by a further 25bps at the last meeting and the minutes should provide some insight into that decision. RBA Governor Bullock will give a speech this week covering the latest policy decision and the progress on implementing recommendations from the RBA review.
Inflation data for Canada and Japan will be out this week. Canadian headline inflation is expected to ease more notably from +3.8% to +3.2% in Oct. The trimmed mean is also expected to ease further from +3.7%. At the prior meeting, the BoC had expressed some concern over the trend of underlying inflation. Japanese headline inflation is expected to be little changed at +3% in Oct, while core inflation ex fresh food and energy is expected to stay elevated at +4.2%.
Finally, the prelim S&P PMI reports for Nov will be released this week. These will provide some insight into the latest manufacturing and services growth momentum among key G4 economies. The PMI surveys in Oct showed a slowdown across service momentum while manufacturing was broadly unchanged staying in moderate contraction. US output PMIs had stayed positive across both manufacturing and services in Oct.
This week, the US Treasury will auction and settle approx. $480bn in ST Bills and FRNs raising approx. $76bn in new money. The US Treasury will also auction the 10-year TIPS and 20-year Bond this week – both will settle next week.
QT this week: Approx $12.8bn 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
by Mofar2016 | Nov 20, 2023
Last week, equity markets continued to rally strongly on the back of a benign CPI and falling rates. The Nasdaq, SPX and DJIA continued to impulse higher while the Russell 2000, RSP and NYA lagged in what appear to be corrective rallies so far. The strength of this rally continues to warn that the bull […]
by Kim | Nov 13, 2023
Key events this week – US CPI & retail sales, Aus labor market & wage price index, inflation; UK, Euro area, central bank speeches
Recap from last week
Despite a light data week, there were several important points around some key themes.
Central banks have reiterated concerns over balancing progress on inflation with a slowing growth outlook. The latest was the RBA, which raised the cash rate last week by 25bps noting slower-than-expected progress on inflation. Despite this concern, wording changes in the guidance to “whether further tightening of monetary policy is required” (from “some further tightening of monetary policy is required”) were interpreted as marking an end to the hiking cycle. The RBA Statement on Monetary Policy release (SoMP – Nov 2023) saw inflation forecasts revised higher through the forecast period. GDP growth is expected to slow amid weaker expected growth in household consumption.
A speech by US Fed Chair Powell was consistent with the last FOMC press conference but this speech was seen as having a more hawkish tone. The FOMC will continue to move carefully to balance the “risk of being misled by a few good months of data” with the risk of overtightening and will evaluate the totality of the data to determine the extent to which additional policy firming may be appropriate. Fed Chair Powell continued to characterize the process of getting inflation down to 2% as having “a long way to go”, as improvements in labor supply were helping to bring the labor market back into balance. Chair Powell also noted that the FOMC is not confident that it has achieved the stance of monetary policy that is “sufficiently restrictive”.
Global data continued to reflect the impact of tighter monetary policy conditions. This was reflected in the further slowdown in the S&P Global PMI for Oct. The global composite PMI slowed to 50 in Oct from 50.5 in Sep. This stalling in momentum was the result of slower global services growth and manufacturing output growth that has begun to weaken again. Despite the lackluster conditions, optimism in future activity was little changed and stayed at an elevated level. The US S&P PMIs for Oct remained an outlier among the larger developed economies with both the manufacturing and services PMIs staying in positive territory.
Outlook for the week ahead
This will be an important week for understanding shifts in the growth and inflation outlook.
The ‘not too hot’ US labor market data for Oct helped to fuel an expectation that US growth has started to moderate. The latest Atlanta Fed GDP Nowcast has US Q4 growth running at 2.1% (SAAR). There will be a range of US inflation, spending, output, and housing data this week that will provide a broad update on the Q4 growth outlook.
US headline CPI growth is expected to slow to +3.3% over the year from +3.7% in Sep as energy prices fall. The monthly pace of CPI is expected to slow to +0.1% in Oct from +0.3% in Sep. Core inflation is expected to stay unchanged at +4.1% over the year in Oct and +0.3% over the month.
US retail sales are expected to fall by -0.1% in Oct after the much stronger growth of +0.7% in Sep.
US industrial production for Oct is expected to fall by -0.4% in Oct after increasing by +0.3% in Sep. The first US regional manufacturing surveys for Nov will provide an update on momentum in the manufacturing sector.
The first US housing data for Oct and Nov will be released this week – importantly reflecting the period of (peak?) higher mortgage rates. US building approvals are expected to slow to 1.45m (SAAR) in Oct from 1.47m in Sep. New housing starts are also expected to slow to 1.34m in Oct from 1.35m in Sep. After a period of weakening home builder sentiment, the NAHB housing market index is expected to be unchanged at the start of Nov.
US initial claims have been drifting higher recently (still around average for the last three months), as the level of continuing claims has also been rising more notably. Initial claims are expected to be slightly higher at +222k for last week (+217k in the prior week).
The Aus labor market and wage-price data will be important this week. Employment growth is expected to increase to +18k in Oct from +6.7k in Sep. However, with participation expected to stay unchanged at 66.7%, the unemployment rate is projected to increase to 3.7%. Wage growth is expected to accelerate to +1.3% in Q3 from +0.8% in Q2 – partly the result of the annual increase in the minimum wage rates from the start of Jul. The annual change in the wage price index is expected to increase to +3.9% in Q3 from +3.6% in Q2. This would be just below the RBA Dec quarter forecast of +4% growth in the WPI.
Global growth and inflation data will remain in focus. The second estimate of the Euro Area GDP release for Q3 is expected to be unchanged at -0.1% over the quarter and +0.1% over the year. The prelim Japanese GDP for Q3 is also expected to slow by -0.1% over the quarter from +1.2% in Q2.
The final Euro area CPI for Oct is expected to slow to +2.9% for headline and +4.2% for core CPI. UK headline CPI for Oct is expected to slow to +4.8% while core CPI is expected to slow to +5.8%.
There will be a broad range of UK and Chinese data out this week.
Other; Central Bank speeches will feature this week. Ongoing geopolitical risks remain elevated. US President Biden and Chinese President Xi will meet earlier in the week. A US government funding extension will need to be negotiated this week ahead of the 17 Nov deadline.
This week, the US Treasury will auction and settle approx. $566bn in ST Bills, Notes, and Bonds raising approx. $68bn in new money.
QT this week: Approx $17.6bn in ST Bills, Notes, and Bonds will mature on the Fed balance sheet this week and will be reinvested. Approx $30.5bn in Notes and Bonds will mature on the Fed balance sheet and 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
