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
