Key events this week – US ISM manufacturing PMI, global PMI’s Dec
Recap from last week: The Atlanta Fed Q4 GDP growth run rate is unchanged.
US economic growth continues to maintain stronger momentum through the second half of 2024.
The final estimate of US Q3 GDP growth was recently revised higher to a +3.1% annualized pace – driven by an acceleration in exports, consumer spending, and federal government spending in the quarter (source: BEA). Based on limited data last week, the Atlanta Fed GDP nowcast for Q4 US GDP growth remained steady at a +3.1% run rate, indicating continued robust economic activity. However, data highlight that pockets of weakness remain, particularly in US residential investment as mortgage rates have again risen. Data last week showed that US new home sales in Nov detracted slightly from growth in Q4, but this was offset by contributions from the durable goods report. Looking ahead to 2025, the US growth backdrop remains positive, amid a hawkish shift by the Fed and uncertainty surrounding the extent of new Trump policies.
In contrast, the minutes from some central banks have highlighted concerns regarding their respective growth outlook.
The latest RBA minutes detailed the shift in the Board’s outlook at the Dec meeting. The Board noted that data had broadly evolved as expected and not enough to shift its forecasts. However, risks that inflation may resolve more slowly had diminished, while downside risks to activity had strengthened. Two points led to this shift in risks; recent weaker activity (Q3 GDP), and wage growth that had slowed by more than expected, suggesting greater capacity in the labour market than had been assumed. Guidance shifted to reflect the Board gaining some confidence that inflation is moving sustainably to the target – “but risks remain”. At the time of the decision, this led markets to begin pricing in the possibility of an earlier rate cut, potentially as soon as Feb, when the next set of forecasts will be released. As of 27 Dec, markets are pricing in a rate cut by Apr.
The BoC deliberations outlined the debate between a 25 or 50bps rate cut at its last meeting. The Governing Council reduced rates by 50bps citing downside risks to its inflation forecast and a weaker growth outlook. Policy settings no longer needed to be “clearly restrictive”. Not all recent data had pointed to a need for a 50bps cut, but the cumulative effect of rate cuts since June would be needed to reduce the slack in the economy and maintain inflation around the 2% target. In light of ‘substantial’ cuts since June, guidance was shifted to expectations for “a more gradual approach” to monetary policy going forward.
Outlook for the week ahead; Another short week, focus on Dec PMIs.
It will be another short week with a quiet data calendar. US data will be limited to the ISM manufacturing PMI, pending home sales, and vehicle sales for Dec.
The full suite of global PMIs for Dec will begin to be released this week and will provide a broad update on momentum in private-sector manufacturing and services activity in the final month of the year.
Key factors to watch this week:
- US ISM manufacturing PMI for Dec – the headline index is expected to be little changed at 48.3 (from 48.4 in Nov). This will feed into a limited update to the Atlanta Fed GDP nowcast for Q4.
- US pending home sales are expected to increase by +0.9% in Nov after +2% in Oct. The slowing in activity partly reflects the renewed increase in mortgage rates since the end of Sept.
- S&P global manufacturing PMI reports for Dec will begin to roll out this week, with the services reports to follow next week.
This week, the US Treasury will auction and/or settle approx. $658bn in ST Bills, Notes, Bonds, and TIPs, raising approx. $35bn in new money.
QT this week: Approx $12bn of ST Bills, Notes, and Bonds will mature on the Fed balance sheet and will be reinvested. Approx $18bn 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
From our team to yours, we extend warmest wishes for the holidays. May the New Year bring you health and happiness!
