by Kim | Nov 25, 2024
Key events this week – US Thanksgiving holiday, US PCE inflation & FOMC minutes, RBNZ meeting, more global CPI reports
Recap from last week: S&P prelim PMIs for Nov and global inflation reports; slowing growth and persistent inflation.
Broadly, the S&P flash PMIs for Nov offered a sobering preview of output growth among larger G4 nations midway through Q4. The manufacturing sectors of the G4 countries remained in contraction, and the previously resilient service sectors have begun to show signs of slowing momentum.
The clear exception in Nov was the US. It was the only G4 economy in the flash series with a positive and strengthening composite PMI. However, the underlying result was mixed as stronger services sector growth more than offset the renewed contraction of manufacturing output. The US manufacturing PMI remained in slight contraction, despite an improving outlook for manufacturing output growth. The US manufacturing PMI report noted lengthening lead times and slower declines in inventory as firms increased input purchases to front-run potential tariffs on imports.
US housing data was mixed. Existing home sales in Oct and new home builder sentiment in Nov both rebounded further. New housing building permits and housing starts were both slightly lower in Oct, likely due to weather effects, as well as firmer mortgage rates. There was only a small lift in the US Q4 GDP run rate and the latest Atlanta Fed GDP Nowcast increased to +2.6% at the end of the week. There will be a more substantial update to the US Q4 growth run-rate from data in the coming week.
US Fed speeches reinforced the themes of the US economy in a good position and rate cuts should continue to follow a recalibration path. Governor Bowman emphasized that the Fed has not achieved its inflation forecasts, and that progress on lowering inflation appears to have stalled. She also noted, similar to Dallas Fed President Logan last week, that the Fed may be closer to a neutral stance than we currently think. Markets are leaning towards pricing a slower pace of rate cuts. The current probability for another rate cut versus no change at the Dec meeting is becoming more evenly balanced (at the time of writing – see CME FedWatch).
Other developed market CPI data for Oct were mostly firmer than expected – though the weakening PMIs suggest that a backdrop of easing activity could support further falls in inflation.
Canada’s CPI was slightly firmer, especially across the core measures. However persistent services inflation did ease more than expected. The overall firmness of inflation in Oct could reduce expectations for another larger rate cut by the BoC in Dec. That assessment will be aided by Q3 GDP this week and growth is expected to slow to +1.5% annualized.
UK CPI also increased more than expected, reinforcing the trend that progress on inflation seems to have stalled since Apr 2024. Goods prices were higher in the month and provided a smaller deflationary offset over the year, while services inflation remained elevated at +5%. This may support the BoE’s “gradual approach” to removing policy restraint.
The Euro area core CPI for Oct was confirmed at +2.7% – still above target, but slowly moving lower. The ECB will also need to balance the stronger wage data for Q3 against a backdrop of weakening manufacturing and services conditions. The Nov flash PMI for the Euro area indicated a marked shift back into contraction in output midway through Q4. Larger declines in activity were recorded in France and Germany, with the PMIs reflecting elevated uncertainty regarding both domestic and international political headwinds.
Japan’s inflation rates were little changed, however, there was a notable rebound in monthly CPI of +0.6%. The important core CPI ex fresh food and energy increased to +2.3% in Oct. In a speech at the start of the week, BoJ Governor Ueda was cautious in providing guidance for the next policy move. At a speech later in the week, he repeated this point, noting that there is still a month to go before the next meeting. He did, however, reiterate that at the next meeting the BoJ “will “seriously” assess the impact of foreign exchange rates on inflation and the economy” (source; Bloomberg).
Finally, the RBA Minutes had a few interesting points. The Board is not seeing the conditions needed to begin rate cuts, despite some weakness in private consumption growth. Inflation is still too high, and the RBA noted that recent weakness in the labour market may be reversing. The Board “would need to observe more than one good quarterly inflation outcome to be confident that such a decline in inflation was sustainable”. This gained attention, suggesting that the earliest rate cut is now potentially out to May 2025 (assuming no negative unemployment or growth shock).
Outlook for the week ahead: US Thanksgiving holiday, US PCE inflation, FOMC minutes, and the RBNZ monetary policy meeting.
Even though this will be a shortened week, important central bank, inflation, and growth data will be released this week.
In the US, the focus will be on a shortened holiday week, the Fed-preferred PCE inflation for Oct, spending and income for Oct, durable goods orders for Oct, and the FOMC minutes.
Note the shift in the timing of US releases due to the shortened holiday week.
The US PCE inflation for Oct is expected to remain firmer. Headline PCE inflation is expected to increase to +2.3% in Oct, from +2.1% in Sep. This would be still in line with the latest Fed projection for year-end. The monthly headline rate is expected to stay at +0.2%. However, the core PCE rate is expected to increase to +2.8%, above the Fed’s latest projection of +2.6% for year-end. This would mark the highest level of core PCE inflation in five months – which has stalled between +2.6% and +2.7% for the last five months. Additionally, the monthly core PCE rate is expected to increase by + 0.3%.
Personal income for Oct is expected to be unchanged at +0.3% growth while personal spending growth is expected to slow to +0.4% in Oct from +0.5% in Sep.
Durable goods orders are expected to increase by +0.1% in Oct after falling by -0.8% in Sep.
The second estimate of US Q2 GDP growth is expected to be confirmed at +2.8%.
The latest FOMC meeting minutes will be released this week. At the last meeting the FOMC cut the FFR by 25bps, continuing to recalibrate it policy settings. The Committee shifted its language to reflect that it had gained confidence that inflation was on a sustainable path to 2%, but was not yet calling a victory on inflation.
Outside of the US, the RBNZ will meet for the last time this year and is expected to lower its policy rate by 50bps. The next RBNZ meeting will be on 19 Feb 2025.
The AUS monthly CPI series (goods-centric) is expected to increase to +2.3% in Oct from +2.1% in Sep. RBA Governor Bullock will speak at the CEDA conference this week and is expected to elaborate on some of the details released in the minutes last week. The next RBA meeting will be on 9-10 Dec.
Finally, the Euro area prelim CPI for Nov will be released this week, along with many of the country-level prelim CPI reports. Headline Euro area CPI in Nov is expected to increase to +2.4% from +2% in Oct, while core CPI is expected to be little changed at +2.7%.
This week, the US Treasury will auction and settle approx. $814bn in ST Bills, Notes, Bonds, TIPS, and FRNs raising approx. $205bn in new money. This is a relatively large week for treasury auctions.
QT this week: Approx $28bn of ST Bills, Notes, and Bonds will mature on the Fed balance sheet and will be reinvested. Approx $7.7bn on Notes & 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 | Nov 25, 2024
Last week, equities declined impulsively as expected into the 50 day sma support before rebounding sharply with the DJIA and Russell leading the charge. However, the cash SPX did not confirm the ES_F impulsive decline and the inability to break 50 day sma support warns that the bigger picture trend remains bullish. While the SPX […]
by Kim | Nov 18, 2024
Key events this week – US housing data, S&P prelim PMIs for Nov, global inflation reports, and RBA minutes.
Recap from last week: Progress on US inflation and implications for the FOMC.
US CPI for Oct highlighted several important points. US inflation has moderated over the past year, however the path to price stability remains a bumpy one. While inflation has slowed from very high levels, progress on core CPI may have stalled more recently. Despite the progress on disinflation, most measures of inflation remain above the Fed’s 2% target, supporting the Fed’s assertion that there is still more work to be done.
US headline CPI accelerated slightly in Oct to +2.6% from the low of +2.4% in Sep. While this represents a slight uptick, it remains below the +3.2% rate recorded a year ago. The 6-month annualized rate has fallen to its lowest level (in this cycle) of +1.4%, suggesting that the near-term inflationary pressure is easing.
However, underlying inflation pressures remain persistent and reflect that bumpy path down to 2%. Core CPI has stalled around +3.3% for the last five months now – and this may concern the Fed. Monthly core CPI has been unchanged at +0.3% over the last three months. In Oct, core goods inflation remained positive (+0.05%) for the second month, compared to the deflationary offset it has provided over the last year. Core services inflation was unchanged at +0.35% over the month. Within core services, the annual rate of shelter inflation has slowed throughout the last year, but it remained unchanged and at an elevated +4.9% in Oct. Even excluding shelter, the annual core services ex-shelter measure remained elevated at +4.6% in Oct – but the 6-month annualized rate of 2.7% suggests some renewed progress.
The trimmed mean is another key measure of the trend in underlying inflation that excludes outlier effects. The US trimmed mean rate was unchanged at +3.2% in Oct but has progressed from +4.1% a year ago. Importantly, the 6-month annualized rate is down to +2.5% (a new low in this cycle), and while it has stalled here for the last three months, it does suggest that the more recent pace of underlying inflation may be easing.
The PPI also firmed this month across both headline and core measures as expected. The rate of core PPI ex-food and energy has been rising over the last three months and is back up to +3.1% – a year ago this measure was +2.2%. The direction of travel has been higher on both services and core goods PPI through this last year. Together, the CPI and PPI suggest that the Fed’s preferred PCE measure of inflation may remain around +0.3% in Oct for the second month in a row.
The broad message from speeches by Fed Chair Powell & Dallas Fed President Logan last week was; continue to proceed with caution on the path of policy easing. Fed Chair Powell noted that “the economy is not sending any signals that we need to be in a hurry to lower rates”. This has been a consistent message from the Fed Chair. It aligns with the recalibration approach taken by the FOMC to remove policy restriction gradually, rather than rushing to cut rates back down to a more neutral level. Dallas Fed President Logan outlined several risks that she is watching, which included a note that she sees “substantial signs that the neutral rate has increased in recent years, and some hints that it could be very close to the where the FFR is now”.
In these uncertain but potentially very shallow waters, I believe it’s best to proceed with caution. I anticipate the FOMC will most likely need more rate cuts to finish the journey. But it’s difficult to be sure how many cuts may be needed and how soon they may need to happen. Source: Speech, Dallas Fed President Logan, 13 Nov 2024
After US data last week, there was little change to the Atlanta Fed GDP Nowcast for Q4 GDP growth – and the Q4 growth run rate remained at +2.5%. US retail sales growth slowed in Oct to +0.4%, however, the Sep result was revised notably higher from +0.4% to +0.8% growth. US industrial production output declined as expected in Oct given strike activity and disruption from weather events.
Outlook for the week ahead: US housing data, S&P prelim PMIs for Nov, and global inflation reports.
It will be a quiet week for US data with the focus on housing and the S&P prelim PMIs for Nov.
With the recent firming in mortgage rates, and possibly some effect from weather disruptions, US housing data is expected to be little changed overall in Oct. Permits are expected to increase to an annualized rate of 1.44m in Oct (from 1.425m in Sep). New housing starts, which feed into the Atlanta Fed GDP Nowcast, are expected to be slightly lower at 1.34m annualized in Oct (from 1.354 in Sep). Existing home sales for Oct are expected to edge slightly higher to 3.94m annualized, from 3.84m in Sep.
Other US data this week will include some early reads on Nov activity – and these may provide hints on sentiment reaction to the US election result. The reports include regional manufacturing surveys for Nov, the S&P prelim PMIs for Nov, and the University of Michigan consumer sentiment report (final) for Nov.
With US CPI/PPI remaining firmer in Oct, the FOMC will be keeping an eye on indicators of labor market activity in the lead-up to the next meeting and policy decision. With a question mark over the softer Oct payrolls report, the recent easing trend in initial claims has provided some comfort after the spike higher from the effects of the strikes and weather during early Oct. This week, claims are expected to remain low at 220k.
Fed speeches will be limited this week. Of note will be a speech by Governor Cook on the economic outlook and monetary policy.
The prelim S&P PMIs for Nov will be released for the G4 plus Australia. These will provide further insight into private sector growth momentum through to the middle of Q4. The Oct results showed continued lackluster momentum in manufacturing activity, while services activity had remained moderate.
The focus shifts to Oct CPI reports for the UK, Japan, Canada, and the Euro area – with implications for monetary policy.
UK headline CPI is expected to increase to +2.2% in Oct from +1.7% in Sep, while core CPI is expected to edge lower to +3.1% in Oct from +3.2% in Sep. At its last meeting, the BoE reiterated a ‘gradual approach’ to removing policy restriction noting that ‘domestic inflationary pressures have resolved more slowly’.
Canada’s headline CPI is expected to increase to +1.9% in Oct from +1.6% in Sep. The larger fall in Sep was due to the fall in gasoline prices. The BoC measures of underlying inflation have averaged around +2.3% over the last two months and how these measures evolve may be important for the next BoC move. The BoC has cut rates in the last four meetings with a 50bps cut at its last meeting in Oct. It also guided that further cuts are to be expected, depending on how data evolve. Recent labour force data showed a continued fall in the employment rate while the unemployment rate remained unchanged at 6.5%.
In Japan, the main measure of inflation for the BoJ, core CPI ex fresh food, is expected to ease back to +2.2% in Oct from +2.4% in Sep. The fall in monthly inflation in Sep was led by the application of energy subsidies. The core CPI ex fresh food and energy had edged up slightly to +2.1% in Sep. There remains a question mark over the timing of another rate hike by the BoJ. At its last meeting, the BoJ indicated that “if the aforementioned outlook for economic activity and prices will be realized, the Bank will accordingly continue to raise the policy interest rate and adjust the degree of monetary accommodation”. This week, BoJ Governor Ueda will give several speeches.
The final version of the Euro area CPI for Oct will be released this week. Headline inflation is expected to be confirmed at +2% over the year, while core CPI is expected to be confirmed at +2.7% over the year. At its last meeting, the ECB did cut its policy rate by 25bps, noting recent downside surprises in indicators of economic activity. It also noted that the disinflation process was well underway, but that there were still some factors affecting domestic inflation. ECB President Lagarde will give several speeches this week.
Finally, the RBA minutes of the last meeting will be released this week. At the last meeting, the Board kept rates on hold, noting that inflation, especially underlying inflation remains too high. The RBA is yet to commence cutting rates in this cycle (but its benchmark rate remains at a relatively lower peak than other central banks). Recent labour force data shows labour market conditions remain resilient, and likely not a reason for the RBA to cut rates at this stage.
This week, the US Treasury will auction and settle approx. $532bn in ST Bills raising approx. $71bn in new money. The US Treasury will also auction the 10-year TIPS and 20-year Bond this week – both will settle near the end of the month.
QT this week: Approx $12bn of ST Bills 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 | Nov 18, 2024
Last week, equity markets exhausted to the upside as the Trump Top reversed lower. As warned in last week's update, equity markets had met initial upside targets after an impulsive 5 wave rally to new ATH's unconfirmed by the Russell 2000. This sharp reversal warns of the potential for an intermediate degree market top. Bears […]
by Kim | Nov 11, 2024
Key events this week – US CPI, PPI, & retail sales, Fed Chair Powell speech
Recap from last week: The US Presidential election and central bank meeting highlights.
Despite the heightened pre-election uncertainty, US President Trump and the Republican Party are likely to secure a decisive victory. While control of the House of Representatives is yet to be confirmed (at the time of writing), the Republicans are leading in the race to win the majority of seats. This would give President Trump and the Republicans control of both the House and the Senate, paving the way to implement the policy agenda.
Last week’s central bank meetings featured important policy decisions. As expected, the FOMC cut the FFR by a further 25bps. The decision focused on the process to continue to recalibrate its policy stance. Emphasis added:
“I would put it this way, we’re on a path to a more neutral stance. And that’s very much what we’re on. That has not changed at all since September”. US Fed Chair Powell, Press Conference Q&A, 7 Nov 2024
Fed Chair Powell noted that the Committee had gained the confidence that inflation is on a sustainable path to 2%. However, with core inflation still elevated, the FOMC is not declaring victory yet. Despite recent firmness, the FOMC expects inflation to follow a ‘bumpy path’ over the next few years, eventually settling around 2%. The FOMC shifted its characterization of the labor market from “cooling” in Sept to “solid” in Nov. There was only a brief note on the impact of strikes and weather on Oct payrolls. That said, the FOMC reiterated a clear message; “we don’t want the labor market to soften much from here”. Fed Chair Powell was positive on the economic backdrop.
Guidance remained data dependent, with Fed Chair Powell even noting that it was “not a good time to be doing a lot of forward guidance”. The FOMC would slow the pace of cuts if inflation stopped moving sustainably toward 2%. However, the FOMC would “move more quickly” if either inflation fell more quickly, and/or the labor market weakened unexpectedly.
The Bank of England (BoE) cut the Bank Rate by 25bps, citing continued progress on disinflation but also noting that domestic inflation pressures were resolving more slowly. It did warn that inflation was likely to rebound in the final quarter due to energy price base effects. The Committee noted little evidence that aggregate demand was falling short of aggregate supply, so guidance remained focused on a “gradual approach to removing policy restraint”. The decision also highlighted the impact of the UK Budget, noting a more material upward shift of the market-implied path for the Bank Rate since the budget release.
The RBA remained the outlier and kept rates on hold, noting that underlying inflation remains too high. With new forecasts indicating that it will be some time yet before inflation is back at the mid-point, the Board needs to remain vigilant to upside risks to inflation. Governor Bullock noted that progress has been made from a year ago, but this last leg of progress towards the target is proving difficult. In the press conference, Governor Bullock said that services inflation at +5% was a key issue.
Chinese officials announced new measures aimed at assisting local governments in refinancing their “hidden” debt, as reported by Bloomberg. A more demand-focused stimulus package might be unveiled once the extent of US tariffs becomes clear.
Outlook for the week ahead: Progress on US inflation, Q3 GDP reports, and central bank speeches.
While the results of the US election are being finalized, attention shifts to the economic landscape this week.
In the US, CPI and PPI inflation indicators, retail sales, and a speech by US Fed Chair Powell will be in focus.
Last week, Fed Chair Powell noted that while the job is not yet done on inflation, progress so far indicated that the story was still consistent with inflation coming down on a ‘bumpy path’ over the next couple of years and settling around 2%. Meanwhile, progress on US inflation is expected to be little changed in Oct, with headline CPI increasing to +2.5% over the year, up from +2.4% in Sep. The monthly pace is expected to remain at +0.2%. Core CPI is expected to be unchanged at +3.3% over the year in Oct and +0.3% over the month. US PPI is expected to be firmer, increasing to +2.3% in Oct from +1.8% in Sep. Over the month, headline PPI is expected to increase by +0.2%, up from 0% in Sep. Core PPI is also expected to increase to +2.9% in Oct, up from +2.8% in Sep, while the monthly rate is expected to increase to +0.3% from +0.2% in Sep.
Other data this week will help to firm the early view on US growth in Q4. Last week, the Atlanta Fed GDP Nowcast showed the growth run rate at +2.5% at the start of Q4 from higher vehicle sales growth in Oct, factory orders data, and a positive contribution to inventories from wholesale trade. This week, growth in US retail sales is expected to slow to +0.3% in Oct from +0.4% in Sep. Last month, the retail control group growth was strong at +0.7%. US industrial production is expected to fall again in Oct by -0.2%, after falling by -0.3% in Sep (due to falls in durable goods manufacture).
There will be numerous US Fed speakers this week. Of note, will be US Fed Chair Powell speaking on the Economic Outlook at an event on Thur. The Fed will release the latest Senior Loan Officer Survey results for Q3.
Outside of the US, Q3 GDP and employment data will provide an update on the broader growth context.
In the UK, Q3 GDP growth is expected to slow to +0.2% in Q3 from +0.5% in Q2. UK labor market data for the 3 months to Sep is expected to record an increase in the unemployment rate to +4.1%. The BoE Governor Bailey will speak during the week.
In Aus, important labour market data for Oct will be released. Employment growth is expected to slow, participation is expected to be unchanged, and the unemployment rate is expected to increase to +4.2%. The Q3 wage price index will also be released. RBA Governor Bullock will take part in a discussion panel during the week.
The flash estimate for Euro area Q3 GDP is expected to be confirmed at +0.4% over the quarter and +0.9% over the year. The ECB minutes will be released.
Japanese Q3 GDP growth is expected to slow to +0.2% in Q3 from the most robust pace of +0.7% in Q2.
Last week, Chinese CPI and PPI data continued to confirm the deflationary trend. Trade data was mixed, as export growth strengthened, while imports shifted to a decline of -2.7% over the year. This week, annual growth in Chinese retail sales, industrial production, and fixed asset investment are expected to be little changed from the prior month.
This week, the US Treasury will auction and settle approx. $607bn in ST Bills, Notes, and Bonds raising approx. $40bn in new money.
QT this week: Approx $45bn of ST Bills, Notes, and Bonds will mature on the Fed balance sheet and will be reinvested. Approx $17.3bn in Notes and Bonds will mature on the Fed balance sheet and will be redeemed/roll off the 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
