Key events this week – Central bank minutes – FOMC, RBA, & ECB; US Fed speeches – Waller, Jefferson, Cook; Inflation – Euro Area CPI, Canada CPI & Aus wages; Prelim S&P PMIs Feb
Recap from last week
US headline CPI for Jan came in higher than expected but continued to slow. Despite headline CPI easing from +3.4% in Dec to +3.1% in Jan, expectations were for a larger moderation to below +3%. Core CPI stayed elevated at +3.9% in Jan, unchanged from Dec, with the monthly rate rising to +0.4%. The trimmed mean and median inflation measures accelerated in Jan suggesting that inflation pressure was likely broader than it had been in recent months. The US PPI also came in higher than expected – especially the monthly rate. Some PPI measures feed into the preferred PCE inflation measure used by the FOMC, raising some concerns over persistent inflation. Markets continued to push out the timing of the first US rate cut – currently pricing in Jun.
Fed-speak provided a mixed view on whether the inflation impulse in Jan would change the FOMC outlook on inflation progress and the path of rates. A speech by Richmond Fed President Barkin noted that “given the strong labor market and robust demand, the FOMC has time to build confidence before toggling rates down” (Source; Bloomberg). Themes focused on “patience” and “looking for more conviction that slowing inflation is broadening and sustainable”. Concern was noted that progress on disinflation has focused on goods (energy, core goods), which may not persist, while progress on services disinflation has been slower. The FOMC minutes and several important Fed speeches this week may help to put the latest CPI and PPI results into a broader context.
Other US data last week was mixed. Consumption growth slowed in Jan and the revision to Dec indicated that retail growth at the end of Q4 had not been as strong. Consumption growth also stalled in real terms. Industrial production and manufacturing output fell in Jan. US regional manufacturing surveys for Feb showed conditions stabilized following the weakness in Jan and sentiment in the business outlook continued to improve. The prelim Feb PMIs will be out this week providing further insight into growth momentum. Housing data was mixed with permits and starts weaker than expected in Jan, however, home builder sentiment continued to improve in Feb.
Overall, the latest Atlanta Fed GDPNowcast for Q1 US GDP growth edged lower to +2.9% mostly on slower consumption growth. The run rate for US growth is still elevated, especially compared to the weaker growth picture emerging outside of the US. Last week, the prelim Japanese GDP for Q4 contracted for the second quarter in a row by -0.1% (expecting +0.3%) with the decline in Q3 revised lower to -0.8%. The decline in Q4 GDP was led by another fall in real private consumption. Similarly, UK GDP fell by -0.3% in Q3, after falling by -0.1% in Q3. Net trade and household consumption were the largest contributors to the fall in Q4 – although UK retail sales growth in Jan reversed the large fall in Dec. Euro Area GDP growth in Q4 remained stalled at 0%, after falling slightly by -0.1% in Q3.
Outlook for the week ahead
Central bank meeting minutes and FOMC speeches will be a key focus this week.
Minutes for the RBA, ECB, and FOMC meetings will be released this week. The FOMC minutes should provide details around the evolution of guidance at the Jan meeting; that the bias remains to stay on hold, looking for further confidence that inflation is sustainably on the path to 2% before commencing rate cuts.
There are several important US Fed speeches worth noting this week given the Jan inflation results, and what it might mean for the path of rates. On Wednesday, Governor Michelle Bowman will speak (in Washington, DC) an hour before the FOMC minutes are released, on “View from the Federal Reserve”. Three speeches are scheduled for Thursday (from lunchtime to evening – note various locations, for timing purposes), starting with Vice Chair Jefferson speaking on the “US Economic Outlook and Monetary Policy” at 10 am (Washington, DC). This will be followed by Governor Cook speaking at 5 pm (at Princeton, NJ). Finally, and importantly, Fed Governor Waller speaks at 7 pm on Thursday on the “Economic Outlook” (Minneapolis, Minnesota) – this will likely provide important context around recent data and his view on what it means for the path of rate cuts. See the Federal Reserve calendar for more details this week.
The RBA minutes should provide details about the case to keep rates on hold, the view of domestic cost pressures, heightened uncertainty around the outlook, and the decision to adjust guidance to not rule out the option of a further rate hike.
The ECB minutes should also provide more detail about deliberations to keep rates on hold amid faster progress on inflation and stalling growth.
There will be inflation data released this week. The final Euro Area CPI in Jan is expected to confirm +2.8% headline CPI and +3.3% core inflation. Canada CPI for Jan is expected to slow to +3.2% in Jan with BoC measures of core inflation staying elevated at +3.6%. Finally, the Aus Wage Price Index for Q4 is expected to show some moderation in wage growth over the quarter to +0.9% in Q4 from +1.3% in Q3. Annual growth in wages is expected to stay elevated at +4.1% at the end of Q4.
Finally, the prelim G4 PMI’s for Feb will be released this week. Headline manufacturing PMI’s improved in Jan, though generally stayed below 50. The US manufacturing PMI was one exception, moving slightly above 50, despite output remaining in contraction. Services PMI’s also continued to improve in Jan led by moderate expansion in the US, Japan, and the UK.
This week, the US Treasury will auction and settle approx. $548bn in ST Bills and FRN’s raising approx. $86bn in new money. QT this week: Approx $15.6bn in ST Bills will mature on the Fed balance sheet 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
