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
