Key events this week – Central bank meetings; FOMC, BoE, ECB, and SNB, US CPI & retail sales, Aus labour market survey, S&P prelim PMIs Dec
Recap from last week
Robust US labor market conditions amid easing inflation are continuing to support households while the FOMC is expected to maintain restrictive policy settings.
US non-farm payrolls rebounded by more than expected in Nov and this was broadly a good jobs report. Nonfarm payrolls increased by +199k (expecting +180k) versus +150k in Oct (unrevised). From the household survey; the notably stronger increase in employed persons over the month more than offset the increase in labor supply from higher participation and population growth – and the unemployment rate fell back to 3.7%. Average hourly earnings rebounded to +0.35% over the month and stayed little changed around +4% over the year. The average workweek also increased slightly to 34.4 hours.
Despite the good result for the month, growth has slowed from the pandemic highs across payrolls, employment, job openings, and average hourly earnings. The fall in job openings was more pronounced in Oct (lagging data) – with the job opening rate falling to 5.3 (from 5.6 in Sep). The fact that the rate of job openings continues to fall while the layoff and discharge rate remains at a series low of 1.0 will likely be a positive sign for the FOMC.
The prelim University of Michigan consumer survey for Dec showed a notable rebound in consumer sentiment amid falling inflation expectations and emerging hopes that US elections next year will be favorable for the economy;
Consumer sentiment soared 13% in December, erasing all declines from the previous four months, primarily on the basis of improvements in the expected trajectory of inflation. Source: University of Michigan Consumer Sentiment Prelim, Dec 2023
Recent lower US inflation prints have also supported a near-term lift in real personal disposable income growth – which, together with solid labor market conditions, is also likely to be supportive of improving consumer sentiment.
Global growth was slower in Q3. Euro Area Q3 GDP growth was revised lower to -0.1%. However, this was the result of a negative contribution from the change in inventories which offset an improvement in household spending growth. Japanese Q3 GDP growth was revised lower to -0.7% based on a larger drag from the change in inventories, but household spending and the net export contribution remained weak. Aus Q3 GDP growth was slower than expected at +0.2% and household consumption growth stalled. The BoC policy meeting also noted that the slowdown in the Canadian economy was reducing inflationary pressures, as growth stalled over the middle quarters of the year.
Looking forward into Q4, the Global PMIs for Nov indicated that the manufacturing downturn continued to ease. There was a lift in momentum at the composite PMI level in Nov – led by an improvement in manufacturing conditions (though still in slight contraction) and a continued modest expansion in services.
Outlook for the week ahead
This will be a big week of central bank meetings and data in the lead-up to the end of the year.
Across many developed market economies, inflation is coming down, and growth is slowing. Markets have begun pricing in more and earlier rate cuts for 2024. Central bank meetings this week should provide some insight into the expected path of policy rates over the next year – the outlook is likely to remain cautious and uncertain, reinforcing that it is too early to call the fight on inflation done.
The FOMC is expected to keep policy settings unchanged. The focus of the meeting will be Fed Chair Powell’s press conference and the latest Summary of Economic Projections (SEP). The SEP is expected to provide important signaling on the change in the path of policy rates amid slowing inflation and low unemployment conditions. The FOMC is still likely to reinforce the position that it is not yet done on the inflation fight and Chair Powell has recently cautioned that it would be “premature” to “speculate on when policy might ease”.
During the two-day FOMC meeting, the US CPI for Nov will be released. Headline CPI is expected to be flat over the month and slow to +3.1% over the year as energy prices continue to fall. Core inflation is expected to increase by +0.3% over the month and stay unchanged at +4% over the year. US retail sales for Nov will be released after the meeting and are expected to fall slightly by -0.1% over the month.
The ECB is expected to keep policy settings unchanged. Recent speeches have suggested that the more notable easing in inflation over the last few months could make further policy tightening unlikely.
The BoE and SNB are expected to keep policy settings unchanged.
The Aus labour market survey for Nov is expected to show net employment growth slow to +1k over the month and the unemployment rate to lift to 3.8% (from 3.7% in Oct). The RBA kept policy rates on hold last week after increasing the cash rate at the Nov meeting due to concerns over persistent domestic inflation.
The final round of PMIs for the year will be released this week. The prelim G4 (plus Aus) prelim PMIs for Dec will provide some insight into the pace of growth in manufacturing and services in Q4.
This week, the US Treasury will auction and settle approx. $537bn in ST Bills, Notes, and Bonds raising approx. $63bn in new money.
QT this week: Approx $3.9bn in ST Bills will mature on the Fed balance sheet and will be reinvested. Approx $17.5bn in ST Bills, 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
