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
