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
