by Kim | Apr 29, 2024
Key events this week – FOMC monetary policy meeting, US non-farm payrolls & ISM surveys, prelim Euro Area GDP Q1 & CPI
Recap from last week
US inflation data didn’t challenge the narrative that rate cuts could take longer to materialize. The overall PCE inflation picture through Q1 was one of stalling progress on disinflation. The headline PCE inflation for Mar came in slightly higher than expected at +2.7% (expecting +2.6%) while the monthly pace was unchanged at +0.3%. Core inflation remained unchanged at +2.8% (expecting it to slow to +2.6%) while the monthly pace of core inflation also came in at +0.3%.
The Mar PCE inflation report contained notable revisions higher for Jan and Feb inflation. These revisions suggest that inflation pressure likely began to broaden out again (to more categories) after Nov 2023. Monthly services inflation has stayed stickier since Aug 2023 and has even started to trend slightly higher again. Importantly, this has been exacerbated by a smaller offsetting effect from goods deflation since Nov 2023, which then shifted to goods inflation, albeit at a low rate, over the last several months. The monthly trimmed mean and median inflation rates also suggest that inflation likely broadened out after Nov 2023. But after the notable increase in the monthly trimmed mean and median inflation in Jan, these measures abated in Feb and again in Mar – suggesting that this current inflation impulse is not continuing to broaden out (both measures are back to roughly average levels for the last half of 2023). That said, the FOMC is likely to remain concerned about the persistence of core inflation at +2.8%, services inflation at +4%, and core services ex-shelter inflation at +3.5% in Mar.
The strong outlook for US growth was tempered in Q1 GDP. The prelim Q1 GDP growth came in much lower than expected at +1.6% annualized (expecting growth to have eased to +2.5% annualized). The key driver of the lower growth in Q1 was the contraction in net exports (growth in exports slowed, while growth in imports increased at a faster pace than exports). Growth in final domestic demand, excluding the volatile external sector and inventories, eased to +2.8% (annualized) suggesting domestic demand growth remained more robust. The monthly PCE report for Mar showed improving momentum in household spending through Q1, underpinned by continued solid growth in income.
The prelim US PMI for Apr suggested a slowdown in growth momentum across both manufacturing and services coming into Q2. The manufacturing PMI edged down to just below the neutral level while services activity slowed to only a modest pace of expansion. The key themes from the report were weaker demand as orders contracted across both manufacturing and services, a fall in services employment, and weaker business sentiment. Input prices increased while output price growth eased.
More broadly, the G4 prelim PMIs for Apr suggested a continued improvement in the pace of economic momentum. This was led by an acceleration in service sector activity.
The BoJ met last week and kept policy settings unchanged.
Outlook for the week ahead
The FOMC and US non-farm payrolls will be the highlights of the week.
The FOMC is expected to keep policy settings unchanged this month. The main insight will be into how the FOMC is characterizing the view of inflation and growth over Q1 and what it means for the policy outlook. Fed Chair Powell’s comments at the press conference will be important. The FOMC is likely to maintain its stance that it needs greater confidence that inflation is moving sustainably to 2% before it begins to lower policy rates and that it has time to be patient on rate cuts. The previous meeting minutes already noted concerns over firmer inflation readings. We won’t know the degree to which participants are shifting rate cut projections until the update of the SEP at the Jun meeting. Guidance at the last meeting noted that “almost all participants judged that it would be appropriate to move policy to a less restrictive stance at some point this year if the economy evolved broadly as they expected”. At the last meeting, the FOMC also discussed slowing the pace of QT, judging that “it would be prudent to begin slowing the pace of runoff fairly soon”. This could be addressed as soon as the meeting this week.
Another crucial element bolstering the Fed’s commitment to maintaining its patient stance on restrictive policy is the robust state of the labor market. This week will feature a broad update on US labor market conditions for Apr. Non-farm payroll growth is again expected to ease to +243k from the +303k growth in payrolls in Mar. The unemployment rate is expected to stay unchanged at 3.8%. Average weekly hours are also expected to stay unchanged at 34.4. Job openings for Mar are expected to ease again to 8.68m from 8.75m in Feb. The quarterly employment cost index is expected to remain elevated at +1% for Q1 (versus +0.9% in Q4 2023).
The Apr ISM PMI surveys (and the final S&P PMIs) will provide further insight into manufacturing and services growth momentum going into Q2.
The Euro Area prelim Q1 GDP is expected to show a slight improvement in growth to +0.1% from the stalled pace of 0% in Q4 2023. The prelim CPI for the Euro Area in Apr is expected to show little change to headline inflation at +2.4%, but some easing in core inflation to +2.6% in Apr.
The full suite of global PMIs for Apr will be released this week.
The US Treasury will also release its latest quarterly financing requirements for Q2 and estimates for Q3.
This week, the US Treasury will auction and settle approx. $659bn in ST Bills, Notes, Bonds, and FRNs, raising approx. $40bn in new money.
QT this week: Approx $17.4bn in ST Bills will mature on the Fed balance sheet and will be reinvested. Approx $22bn in Notes and Bonds will mature on the Fed balance sheet and will 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
by Mofar2016 | Apr 29, 2024
Last week, equities rebounded sharply and we did not get the downside follow through to help confirm an impulsive decline. The structure counts best as a 3 wave decline and subsequent 3 wave rally into overhead 50 day sma resistance for the primary indices. This week will see a key test of overhead resistance as […]
by Kim | Apr 22, 2024
Key events this week – US PCE Inflation & Q1 GDP, BoJ meeting, Aus CPI Q1, Global flash PMIs Apr
Recap from last week
Last week, US consumer and domestic investment spending lifted Q1 GDP growth projections. The latest Atlanta Fed GDP Nowcast for US Q1 GDP growth rose from +2.4% to +2.9% by the end of the week.
US retail sales growth was higher than expected for Mar at +0.7%. Growth in non-store retail sales accounted for over half of the growth in the month. Coupled with the upward revision of retail sales growth to +0.9% for Feb, this strengthened the perception of robust spending through to the end of Q1. The residential construction data for Mar was somewhat lackluster, with both new permits and starts lower than expected and lower compared to Feb. While housing partly offset some of the contribution to Q1 growth from the strong retail sales result, another positive monthly result for industrial production in Mar helped to lift the Q1 GDP run rate.
The US Federal Reserve Beige Book for April suggests that this pace of activity likely continued into April/start of Q2. Districts confirmed that overall economic activity had “expanded slightly” since the last report in late Feb. Reports on spending were mixed with some reports of weakness in discretionary spending due to elevated prices. Inflation remained modest and was “running at about the same pace as in the last report”. The report noted that a “frequent comment was that firms’ ability to pass cost increases on to consumers had weakened considerably in recent months, resulting in smaller profit margins”. Despite that, Districts reported that “employment rose at a slight pace overall”.
US Fed speeches last week continued to indicate that policy settings are likely to stay unchanged until there is greater confidence that inflation is moving sustainably toward 2%. While economic conditions and the labor market remain resilient, the Fed can keep rates on hold, allowing more time for restrictive policy settings to bring down inflation. Markets have continued to lower expectations for rate cuts this year – at the time of writing, only one cut is fully priced in for this year in Sept (Source; CME FedWatch Tool).
Global inflation reports showed disinflation progress continued in Mar. UK inflation eased further in Mar across headline (+3.2%) and core (+4.2%) measures. Most of this progress was led by goods inflation slowing to +0.8%, while services inflation eased only slightly and remained elevated at +6%.
Canadian headline inflation increased to +2.9% led by higher gasoline prices. However, the BoC preferred measures of underlying inflation showed continued progress with several measures slowing to below +3% in Mar. In a moderated discussion with US Fed Chair Powell, BoC Governor Macklem noted that “despite rising headline inflation, importantly, measures of core inflation did tick down again and does suggest that underlying inflationary pressures are continuing to ease. We continue to be moving in the right direction.”
NZ inflation continued to ease over the year but was little changed over the quarter. The composition of inflation still shows that non-tradable inflation (domestic-led) is high at +5.8%.
Finally, Japanese inflation eased however the core measures ex fresh food remains elevated at +2.6%. The more recent annualized rates of inflation have started to accelerate again, but so far, remain below the annual rates. The BoJ meets this week and is expected to provide an update to its inflation forecast.
Outlook for the week ahead
Inflation reports remain front and centre this week. The global flash PMIs for Apr will provide some insight into global growth going into Q2.
This will be an important week with the Fed-preferred PCE inflation report for Mar due at the end of the week. Fed speeches last week continued to indicate that rate cuts could take longer to materialize while inflation progress stalls and labor market and growth conditions remain robust. However, while the Mar CPI measure showed stalling progress on inflation, the PPI hinted that the PCE measure may show some progress on disinflation.
Expectations are for little change in the inflation picture this month. US headline PCE is expected to increase by +0.3% over the month in Mar, this would be in line with the Feb result. Headline inflation over the year is expected to increase to +2.6% in Mar, up from +2.5% in Feb, due to higher energy prices. Core PCE inflation is also expected to increase by +0.3% over the month, while annual core inflation is expected to ease only slightly to +2.7% from +2.8% in Feb.
The advance estimate of US Q1 GDP growth will be released this week. Growth is expected to slow to an annualized pace of +2.5% in Q1 (from +3.4% in Q4 2023).
The FOMC will meet next week. This should provide an update on its guidance for the outlook on growth and inflation, although new projections will not be provided at this meeting. It also means that there will be no Fed speeches this week.
The more detailed Aus Q1 CPI report will be released this week, and ahead of the next RBA meeting on 6-7 May. Quarterly inflation is expected to increase to +0.8% from +0.6% in Q4. The annual rate is expected to slow to +3.4% in Q1, from +4.1%. Trimmed mean/core inflation is expected to increase over the quarter to +0.9%, from +0.8% in Q4.
The BoJ will meet this week and rate settings are expected to stay unchanged. At the last meeting, the BoJ announced the end of its negative interest rate policy, but still provided guidance that, given its outlook for economic activity and prices, accommodative financial conditions would be maintained for the time being. The BoJ will release its quarterly Outlook Report at this meeting which will update its view on developments in prices and economic activity.
Finally, the latest round of flash PMIs for the G4 (plus Aus) for Apr will be released early this week. Growth momentum has been improving through Q1. Growth in services activity has lifted to a moderate pace while manufacturing conditions within the G4 have become less negative.
This week, the US Treasury will auction and settle approx. $410bn in ST Bills, with a paydown of -$46bn. The US Treasury will also auction the 2, 5, and 7-year Notes and the 2-year FRN this week – all will settle on 30 Apr.
QT this week: Approx $9bn 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
by Mofar2016 | Apr 22, 2024
Last week, equities broke the key 50 day sma trend support and flushed lower as expected. "Bulls need to make a stand here to reverse the recent decline or risk a waterfall decline." This latest decline appears to be in an 3 waves down so far and needs to extend lower in an impulsive 5 […]
by Kim | Apr 15, 2024
Key events this week – US retail sales & housing data, US Fed Chair Powell, CPI’s Mar; Canada, Japan, UK, NZ, and the Euro Area
Recap from last week
Central bank meetings and minutes underscored shifts in confidence regarding the favorability of inflation conditions for potential policy easing.
The ECB kept current settings unchanged but continued to signal that Jun could be live for the first rate cut. Given more favorable inflation readings, guidance was shifted to acknowledge that if data continues to increase confidence that inflation was converging at 2%, then “it would be appropriate to reduce the current level of monetary policy restriction”. Hints at the Jun timing have remained consistent following ECB President Lagarde’s comments at the March meeting that “we’ll know some in Apr, but more in Jun”. This timing was also addressed in the press conference with President Lagarde noting that a few members had been confident enough in the limited Apr data to cut rates at this meeting.
The BoC kept policy unchanged but started to raise the prospect of rate cuts, noting that Jun was “in the realm of possibility” if recent improvements in inflation continued. However, the Governing Council cautioned that the decline in core inflation is only recent, and is looking for evidence that the easing in underlying inflation will be sustained; “as we consider how much longer to hold the policy rate at the current level, we’re looking for this easing of inflation to be sustained”.
The RBNZ kept policy settings unchanged. There was little change in the overall sentiment of the decision. However, there was a new paragraph added to the statement with a specific time reference to “this calendar year” regarding when the Committee was confident that restrictive policy would return inflation to within the target range of 1-3%.
The FOMC minutes for the Mar meeting were less positive on inflation developments. The minutes indicated that firmer inflation readings in Jan and Feb placed some doubt over its confidence that inflation was moving sustainably to the 2% target. The minutes noted that disinflation was still progressing “along a path that was generally expected to be uneven”. With positive momentum in the US economy, policy settings are likely to stay unchanged until there is greater confidence that inflation is moving sustainably toward 2% (the FOMC has been consistent on this).
Participants noted indicators pointing to strong economic momentum and disappointing readings on inflation in recent months and commented that they did not expect it would be appropriate to reduce the target range for the federal funds rate until they had gained greater confidence that inflation was moving sustainably toward 2 percent.
Last week, the higher-than-expected US CPI report for Mar was likely to have disappointed the Fed. The CPI for Mar confirmed a further stalling in the pace of disinflation compared to the faster pace in late 2023. For now, this will likely mean that rate cuts may take longer to materialize as the FOMC focuses on managing the risk of reducing restraint too soon with the risk of keeping policy too tight for too long.
The US PPI report for Mar could hold some good news given the flow through to the FOMC preferred PCE inflation measure. The PPI report for Mar released a day after the CPI, came in lower than expected and suggests that the upcoming Mar PCE report may not be as firm as the CPI report. It will be another two weeks until the March PCE inflation report comes out.
Outlook for the week ahead
The focus this week shifts to US growth, a moderated discussion with Fed Chair Powell, and global CPI reports for Mar.
US earnings will also be in focus together with simmering geopolitical headline risks.
The latest Atlanta Fed GDPNowcast update has US Q1 growth running at +2.4%. This week, US retail sales, industrial production, and housing data will further round out the view of Q1 GDP growth. This will be the second last input into the growth run rate before the final Q1 GDPNowcast at the end of Apr so should provide a more robust view of growth.
US retail sales are expected to increase by +0.4% in nominal terms in Mar. This is down from the +0.6% increase in Feb.
New building permits for Mar are expected to ease slightly to 1.51m (annualized) from 1.54m in Feb. New housing starts are expected to ease to 1.48m (annualized) from 1.52m units in Feb. US existing home sales in Mar are expected to slow back slightly to 4.2m units (annualized) from 4.3m in Feb.
US Fed speeches will be in focus this week. US Fed Chair Powell will take part in a moderated discussion with Bank of Canada Governor Macklem. Also speaking this week will be Vice Chair Jefferson and Presidents Logan and Williams.
Inflation data for the UK, Euro area (final), Japan, Canada, and NZ will be released this week. The Canadian and NZ inflation data will be important in the context of central bank decisions last week hinting at more favorable inflation developments. Headline inflation in Canada is expected to accelerate over the month to +0.7% (from +0.3% in Feb), while the annual rate is also expected to increase from +2.8% in Feb. The important trimmed mean inflation rate is expected to stay unchanged at +3.2%. NZ CPI for Q1 is expected to increase slightly to +0.6% from +0.5% in Q4 and increase slightly over the year from +4.7% in Q4. UK headline inflation is expected to ease to +3.1% from +3.4% in Feb while core inflation is also expected to ease to +4.1% in Mar. Japanese core inflation is expected to ease to +2.7% in Mar, down slightly from +2.8% in Feb.
Chinese GDP, retail sales, and industrial production data will be in focus.
Aus employment data for Mar is expected to slow to +7.2k from the very fast pace of Feb. The unemployment rate is expected to increase to 3.9%.
This week, the US Treasury will auction and settle approx. $575bn in ST Bills, Notes, and Bonds, raising approx. $10bn in new money. The US Treasury will also auction the 5-year TIPS and 20-year Bond this week – both will settle on 30 Apr.
QT this week: Approx $15bn in ST Bills, Notes, Bonds, and TIPs will mature on the Fed balance sheet and will be reinvested. Approx $37.4bn in Notes, Bonds, and TIPs will mature and roll off 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
