by Kim | Jan 27, 2025
Key events this week – FOMC, ECB, and BoC meetings, PCE inflation, and Q4 growth
Recap from last week: Shifting PMIs and the BoJ hikes.
The first prelim S&P PMIs for 2025 signaled a shift in momentum. Manufacturing weakness showed some signs of easing, though the sector remained in contraction in key economies, including Australia, the Eurozone, Japan, and the UK. Meanwhile, the services sector continued to expand modestly with little change in momentum across major economies, including Australia, Japan, the UK, and the Eurozone.
The prelim US PMIs painted a mostly positive picture of US activity at the start of 2025. The US manufacturing PMI strengthened and shifted into marginal expansion for the first time in six months. Firms continued to cite concerns over slow manufacturing sales though. The stronger US services sector recorded a marked slowdown to a more modest pace of growth – the slowest of the past eight months. However, firms broadly maintained stronger optimism in the growth outlook, alongside faster expansion in services employment. The PMI survey noted a resumption of inflation pressure across both input and output/selling prices.
The first central bank meetings of 2025 began last week. The BoJ increased rates by a further 25bps to 0.50%, noting that “the likelihood of realizing the outlook has been rising”. The BoJ assessed positive developments on wage growth – which has been an important feature as it looks to foster the development of that ‘virtuous cycle’. Real rates are to remain “significantly negative” to continue to support the moderate recovery in the Japanese economy. Further hikes and adjustments to the degree of monetary accommodation are to be expected if the economy continues to evolve as per the outlook forecast. Inflation forecasts have been upgraded.
Data last week was important to upcoming central bank meetings. Canada’s CPI edged lower in Dec to +1.8% – as the sales tax break came into effect mid-month. Importantly, the BoC measures of core inflation resumed easing with the average over the three core measures slowing to +2.3% in Dec. The BoC Business Outlook survey showed business sentiment remaining subdued, but some optimism emerging in the outlook for sales growth as interest rate reductions work through the economy and in anticipation of rate cuts ahead. The BoC meets this week. At the last meeting, the BoC signaled that, after cutting rates by 50bps at each of the last two meetings, it would return to a more gradual pace of monetary easing. The BoC is expected to cut rates again by 25bps this week.
The unemployment rate in the UK increased in the 3 months to Nov as payroll jobs fell and the employment rate also edged slightly lower. Vacancies continued to fall. However, wage growth stayed firm. The BoE meets on the 6 Feb.
Outlook for the week ahead; FOMC, ECB, and BoC meetings, inflation, and Q4 growth.
It will be an important week with more key central bank meetings, inflation data for the US and Aus, and growth indicators for the US and Europe.
Key factors to watch this week;
The first central bank meetings of 2025 will continue this week;
- The FOMC is expected to keep rates unchanged. At its last meeting, the FOMC cut rates by 25bps, citing the decision to cut as a “closer call”. The decision signaled a shift away from the process of recalibrating rates to a more cautious and gradual pace as policy rate settings approached neutral levels. Fed Chair Powell noted slower progress on inflation and elevated uncertainty over the impact of new administration policies on growth and inflation. With some mixed inflation data out since the last meeting, we will look for any shifts in the Fed’s view of the outlook. The Dec PCE inflation data will be released at the end of the week.
- The BoC is expected to cut rates by 25bps at this meeting. At its last meeting, the BoC signaled a shift to a more gradual pace of policy easing. Last week, Bloomberg reported a speech by BoC Deputy Governor Gravelle that the BoC plans to end its QT program in the first half of 2025. The BoC may begin to outline these changes at upcoming meetings.
- The ECB is expected to cut rates by 25bps at this meeting. At its last meeting the ECB cut rates by 25bps – based on its view that the disinflation process was continuing. The Governing Council noted that concerns remained elevated over a weaker growth outlook, the policy uncertainty in its two largest economies, and the potential impact of US trade policy. Since then, inflation data has been little changed, with underlying CPI staying around +2.7%. Growth is expected to slow in Q4.
Inflation data this week will be important for the path of policy rates;
- US PCE inflation for Dec will be released at the end of the week. The Fed preferred core PCE inflation is expected to firm slightly over the month to +0.2% in Dec from +0.1% in Nov. This would leave the annual core PCE inflation rate unchanged at +2.8% over the year and in line with the upgraded FOMC projection of +2.8% for the full year 2024. A softer core PCE reading would be supportive of the disinflation narrative for the FOMC. Using the Cleveland Fed nowcast for PCE inflation in Dec, the headline rate is expected to increase by +0.3% over the month, up from +0.1% in Nov. This would raise the annual rate to +2.6% over the year in Dec (higher than the FOMC year-end projection of +2.4%). The broader inflation narrative will be challenged over the next few months as we cycle over the higher readings from the start of 2024.
- Also important for the FOMC view on inflation will be the Employment Cost Index for Q4. This is expected to increase by +1% over the quarter in Q4, up from +0.8% in Q3. This would keep the annual ECI unchanged at +3.7% in Q4.
- The Aus quarterly CPI for Q4 will be released this week. This will be crucial for the upcoming RBA meeting in Feb given that the Board shifted its signaling at the last meeting to reflect that the Board is gaining confidence that inflation is moving sustainably to the target. The RBA has yet to commence cutting rates. Annual headline inflation in Q4 is expected to ease to +2.5% from +2.8% in Q3. The RBA-preferred trimmed mean measure of core inflation is expected to slow to +3.3% in Q4, down from +3.6% in Q3. This would put the core measure just outside of the RBA target band of 2-3%.
The first view of US and Euro area growth data for Q4 will be released this week – this will also be important for the broader central bank outlook.
- The advance release of US GDP for Q4 will be released this week. Annualized growth is expected to slow slightly to +2.7%, from +3.1% in Q3. The Atlanta Fed GDP nowcast has Q4 US growth tracking at around +3% annualized. The latest FOMC projections had upgraded the end-of-year growth projection to +2.5% for the end of 2024.
- Prelim growth data for Europe in Q4 will be released. The Euro area growth rate is expected to slow to +0.1% in Q4, from +0.4% in Q3. Over the year, growth is expected to be +1% at the end of Q4, up slightly from +0.9% in Q3. The latest ECB projections have GDP growth at +0.7% at the end of 2024.
Now that US President Trump has been inaugurated, policy details and directives have begun to emerge. The threat of tariffs remains a key issue for trading partners – especially for, but not limited to, Canada, Mexico, China, Japan, and the EU. A broader trade review is due by the incoming US Trade Representative on 1 Apr – and this will likely set the scene for the broader trade policy and tariff direction.
This week, the US Treasury will auction and/or settle approx. $736bn in ST Bills, Notes, Bonds, TIPs, and FRNs raising approx. $128bn in new money.
QT this week: Approx $30bn of ST Bills, Notes, Bonds, and FRNs will mature on the Fed balance sheet and will be reinvested. Approx $8.6bn in Notes, Bonds, and FRNs will mature and be redeemed/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
by Mofar2016 | Jan 27, 2025
Last week, equities rallied for a hard test of ATH's in what counts best as an extended 5th wave that broke sharply lower over the weekend. The question remains as to whether this impulsive rally was a bullish wave (i) of a larger degree 5 wave rally through new ATH's or a bearish ending wave […]
by Kim | Jan 20, 2025
Key events this week – Inauguration, central banks, and S&P prelim PMIS for Jan 2025
Recap from last week: US inflation concerns ease, growth momentum lifts.
Markets generally took comfort from the US CPI and PPI reports last week. The headline and core CPI rates were actually little changed in Dec compared to Nov, even firming slightly in the case of headline inflation, which increased to +2.9%. These topline results still indicate some risk of stalled progress on disinflation. However, the test of the disinflation narrative will likely emerge in the first few months of 2025 as inflation data cycles over the elevated readings from last year. This will happen alongside the unfolding detail of the policy direction of the new Trump administration and its implications for inflation.
While there wasn’t a clear downshift in US CPI this month, there were some signs that the path of underlying inflation continues to ease – especially in some of the services categories where inflation has been more persistent. Core services inflation was still high at +4.5% year-over-year in Dec (down from +4.6% in Nov), but the more recent annualized rates, +3.6% on a 3-month annualized basis and +3.2% on a 1-month annualized basis, suggest that the rate may continue to slow. Of note was the further progress on shelter price inflation – something that Fed officials have been expecting. The core services less shelter CPI measure also showed a similar improvement. This may give the FOMC some comfort that the underlying disinflation story remains intact.
However, despite slowing in the most recent month, some of these more near-term annualized rates remain elevated. Other measures of underlying inflation also suggest that more progress is needed. The trimmed mean CPI, also a consistent measure of the behavior of underlying inflation, has been little changed over the last five months at +3.2% and as of Dec, there is little difference among the annual, 6mth, or 3mth annualized inflation rates – suggesting little progress in near-term underlying inflation.
From here, it depends on how this CPI and PPI report translates into the Fed’s preferred PCE inflation measure for Dec. The Nov PCE inflation report did show more progress, especially over the month in Nov with core PCE coming in lower at +0.1% over the month. Fed Governor Waller also noted this in a recent speech. Another soft reading on the PCE indicator would help support the ongoing disinflation story. The latest Cleveland Fed PCE inflation nowcast for the PCE deflator for Dec indicates a possibly slightly firmer monthly core reading. The Dec PCE inflation report is due after the FOMC meeting next week.
US consumption, output, and housing data in Dec remained broadly positive. US retail sales growth was slightly lower than expected at +0.4%, but the Nov increase was revised higher. The retail control measure (feeds into the GDP consumption component) was notably stronger at +0.7% in Dec. US industrial production recorded a strong rebound in growth. The latest Fed Beige Book also noted an improvement in conditions from Nov through Dec among the twelve Federal Reserve Districts. The Atlanta Fed GDP nowcast for Q4 growth run rate lifted back up to a solid +3% by the end of last week. Leading up to the FOMC meeting next week, economic conditions remain generally positive in the US. Markets currently expect the FOMC to stay on hold at the Jan meeting and have, at the time of writing, moved back to pricing in one rate cut this year (CME FedWatch).
Other data from last week will be important ahead of the first central bank meetings of the year.
UK inflation for Dec was more constructive with headline and core inflation slightly lower than expected. The story of underlying inflation also improved, especially with the more persistent services inflation taking a notable step down to +4.4% in Dec (from +5%). This will be good news for the BoE. The BoE did not cut at the last meeting reflecting the need to “squeeze remaining inflationary pressures from the economy” amid “sluggish demand and a weakening labour market”. This weaker backdrop was partly reflected in data last week with falls in industrial production, retail sales, and modest growth in the monthly GDP indicator for Nov. The latest UK labor market data will be out this week, ahead of the BoE meeting in several weeks.
The Aus labour market report recorded surprisingly strong employment growth in Dec. The unemployment rate still increased slightly as the labour force participation rate increased to another new all-time high. The continued growth in employment will be welcomed by the RBA, given sluggish overall economic growth. The RBA has only just started to signal that the Board is gaining confidence that inflation is moving sustainably to the target. The crucial quarterly CPI report for Q4 will be released next week. At this stage, markets are pricing around Apr for the first cut.
Euro area headline inflation for Dec was confirmed at +2.4%, with core inflation remaining unchanged at +2.7%. Services inflation remained at +4% over the year and rose by +0.8% over the month. ECB officials reaffirmed confidence in expectations that inflation would return to the 2% target in 2025. Minutes noted that the “last step towards achieving the inflation target would be a moderation in services inflation”, which was projected to decrease noticeably H1 2025, and that “it cannot let its guard down in the final stretch of disinflation”. Concerns remained elevated over the growth outlook, policy uncertainty in its two largest economies, and the potential impact of US trade policy especially amid sluggish/uneven growth. The ECB meets next week.
Outlook for the week ahead; Inauguration, central banks, and the first S&P prelim PMIS for Jan 2025.
The main event this week will be the inauguration of US President Trump for his second term in office. In the first hours and days of the Trump Presidency, global markets and key stakeholders will be awaiting direction from announcements relating to major campaign promises, especially on trade, tariffs, and immigration policy. Later in the week, President Trump will also address the WEF Davos annual forum (20-24 Jan) via video link.
Key factors to watch this week;
With limited US data out this week, there won’t be an update to the GDP nowcast until the end of next week. Existing home sales for Dec are expected to increase slightly to 4.19m (annualized pace), up from 4.15m in Nov. The Michigan Consumer Sentiment for Jan is expected to be unchanged.
This week is the blackout period for US Fed speeches ahead of the FOMC meeting next week.
More broadly, the S&P Prelim PMIs for Jan will be released later this week. This will provide the first view of growth momentum among key G4 nations (and Aus) coming into 2025. The prior year ended with rising momentum in services activity helping to offset some lackluster manufacturing conditions.
The first central bank meetings of 2025 will begin this week – with most major central banks meeting over the next few weeks. Data this week will feed into those decisions.
The first meeting will be the Bank of Japan this week, with its policy announcement/decision expected on 24 Jan. The BoJ kept rates unchanged at its last meeting in Dec. In his press conference after that meeting, BoJ Governor Ueda said “More information on Japan’s wages and the policies of US President-elect Donald Trump is needed before the BOJ can decide on a rate hike”. Yet with limited resolution on those sticking points, speeches and interviews over the last few weeks have raised market expectations for a hike by the BoJ later this week. Governor Ueda indicated that a hike may be under consideration at this meeting, and also noted some early positive developments on wage negotiations. The key National CPI report for Dec will be released at around the same time as the BoJ meeting. The BoJ-preferred core CPI measure ex fresh food is expected to lift from +2.7% in Nov to +3% in Dec.
Canada’s CPI for Dec is expected to ease. Headline CPI is expected to slow to +1.7% in Dec from +1.9% in Nov. Measures of core inflation are also expected to slow further. The BoC Business Outlook survey will also be released this week, providing a broad view of activity leading up to the BoC meeting next week.
NZ CPI for Q4 is expected to ease further to +0.5% over the quarter, down from +0.6% in Q3. The annual rate is expected to slow to +2.1% in Q4 from +2.2% in Q3.
This week, the US Treasury will auction and/or settle approx. $603bn in ST Bills raising approx. $106bn in new money. The US Treasury will also auction the 10-year TIPS and 20-year Bond this week – both to settle at the end of the month.
QT this week: Approx $12bn of 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 | Jan 20, 2025
Last week, the bulls held key equality support across the board leading to an impulsive 5 wave rally into Friday's high. The corrective rally opens the door for a push to new ATH's but the bigger picture wave count is less clear. With Trump's first week in office post-inauguration, we should be prepared for increased […]
by Kim | Jan 13, 2025
Key events this week – US CPI, PPI, & retail sales, China GDP, Trump cabinet confirmation hearings start
Recap from last week: FOMC minutes and a better-than-expected US jobs report.
The Dec minutes show the FOMC navigating a shifting balance between increased upside risks to the inflation outlook and some diminishing downside risks to the labor market. The committee decided to cut rates by 25bps at the Dec meeting, but some Fed members noted that there was “merit” in keeping the FFR unchanged. The “finely balanced” decision aimed to maintain strength in the economy and the labor market while continuing to support progress on inflation.
Regarding the outlook though, the Committee indicated that the pace of future rate cuts would likely slow down. If data comes in as expected with inflation continuing to move down to 2%, and the economy remaining near max employment, it would be appropriate to move gradually to a more neutral stance over time. Although inflation had eased over the last two years, members noted recent elevated inflation readings, slower progress on disinflation through the latter half of 2024, strength in spending, some easing in downside risks for the labor market, and importantly, “increased upside risks to the outlook for inflation”. After 100 bps of rate cuts, monetary policy was seen as “significantly less restrictive” and the FFR closer to its neutral value. Amid this backdrop of firmer inflation, a solid labor market, robust growth, and some Fed easing already in place, the high degree of uncertainty regarding the scope and impact of new trade and immigration policies on growth and inflation also supported a more gradual approach toward neutral policy settings.
The Dec US jobs report likely helped to alleviate any concerns over a near-term weakening in the labor market. Non-farm payroll growth for Dec exceeded expectations, increasing by 256k jobs, building further on the rebound from the weak Oct report. Revisions for Oct and Nov were minimal. The detail of the payroll report was positive, with growth in total non-farm payrolls led by the private sector. The split between private goods-producing and services-providing jobs growth reflected the broader trends in the US economy; weaker conditions in manufacturing jobs were offset by stronger growth among service industries.
The unemployment rate fell to 4.1% in Dec, easing from its near-term peak of 4.2% in Nov. The lower unemployment rate was the result of a rebound in employment growth after two months of declines. The LFPR was unchanged in Dec but has edged lower in recent months. Of note was a further fall in the participation rate within the core working age group. After peaking at 83.9% in Aug 2024, the participation rate for 25-54yrs has fallen back to 83.3% in Dec. This is still just above the pre-pandemic level of 83% (Dec 2019), but it has lost some of the more notable pandemic-era gains. The rising participation rate has likely been an important contributor to improved labor supply, as well as helping to underpin income and consumption growth.
Growth in hours worked was in line with payroll growth. Average hourly earnings increased in line with expectations at +3.9%. There was a solid rebound in job openings in the Nov JOLTS report, indicating some increase in labor demand.
The next FOMC meeting is on 28-29 Jan. If inflation progress remains little changed/stalled in Dec, this labor market report likely supports no action from the Fed in Jan. At the time of writing, market pricing for rate cuts has been pushed out later into H2 2025 (source: CME FedWatch).
As expected, other US data last week helped to firm the growth run rate for Q4. The Atlanta Fed GDPNowcast for Q4 GDP growth edged higher from +2.4% to +2.7%. Growth in auto sales for Dec and the stronger momentum in the ISM services PMI contributed to a firming in the Q4 growth run rate.
More broadly, the S&P global composite PMI for Dec showed a further improvement in global private sector growth momentum at the end of 2024. This was led by a further increase in global service sector business activity that more than offsetting the renewed, yet slight, contraction in global manufacturing output.
Outlook for the week ahead; Focus on US CPI, PPI, retail sales, and US Senate confirmation hearings.
It will be another important week for the outlook on US inflation, growth, and what it means for the near-term path of rates ahead of the next FOMC meeting. The focus will be on US CPI and PPI, together with a solid range of US spending, housing, and output data for Dec.
We may also start to gain some sense of the incoming administration priorities ahead of the inauguration of US President-elect Trump next week. Senate confirmation hearings for President-elect Trump’s cabinet nominees will begin this week with some notable hearings including the US Treasury Secretary. This may come with some headline risk.
With the labor market remaining solid, the latest US inflation data will be an important input ahead of the next Fed meeting on 28-29 Jan. This will also depend on how both the CPI and PPI results track back into the Fed-preferred PCE inflation measure. The next PCE inflation report will be released 31 Jan.
This will also be the final week of Fed speeches before the blackout period ahead of the next FOMC meeting.
Key factors to watch this week:
- The week kicks off with US PPI for Dec; US headline PPI for Dec is expected to increase by +3% over the year, unchanged from +3% in Nov. The increase in monthly PPI is expected to be unchanged at +0.3%. Annual core PPI is expected edge lower to +3.2% in Dec, from +3.4% in Nov. The monthly increase in core PPI is expected to be unchanged at +0.2% in Dec.
- US headline CPI is expected to increase slightly to +2.8% over the year from +2.7% in Nov. The monthly increase in CPI is expected to remain unchanged at +0.3% in Dec. Core CPI is expected to ease slightly to +3.2% over the year in Dec, from +3.3% in Nov. The increase in monthly core CPI is also expected to ease to +0.2% in Dec from +0.3% in Nov.
- US retail sales for Dec are expected to increase by +0.5%, from +0.7% in Nov. In Nov, growth in the retail control measure (feeds into GDP consumption calculations) was +0.4%.
- US industrial production is expected to increase by +0.3% in Dec after falling by -0.1% in Nov. The first regional Fed manufacturing surveys for Jan will be released this week.
- US housing data is expected to be little changed. New permits in Dec are expected to edge lower to 1.46m (annualized) from 1.49m in Nov. Housing starts are expected to increase to 1.33m (annualized) from 1.29m (annualized) in Nov.
- The US Fed Beige Book will be released this week providing a summary of regional insights into economic activity ahead of the FOMC meeting at the end of the month.
Outside of the US, the focus shifts to UK and Euro area inflation, the Aus labour market update, and important data on Chinese growth.
- The final version of the Euro area CPI for Dec will be released this week. Last week, the Euro area prelim CPI for Dec came in as expected at +2.4% in Dec, up from +2.2% in Nov. Core CPI was unchanged at +2.7%. Services inflation firmed to +4%, and increased by +0.8% over the month.
- The ECB minutes will be released this week.
- UK CPI is likely an important data release for the BoE outlook. The decision not to cut at its most recent meeting reflected the need to ‘squeeze remaining inflationary pressures from the economy’ amid some weakening in near-term activity. The increase in UK headline CPI is expected to be unchanged at +2.6% in Dec. Core CPI is expected to ease slightly to +3.4% in Dec, from +3.5% in Nov. One of the key inflation measures to watch will be services inflation – which had stalled at +5% in both Oct and Nov.
- The Aus labour market data for Dec will be released this week. Net employment growth is expected to slow to +10k in Dec while participation is expected to remain unchanged at 67%. The unemployment rate is expected to edge higher to 4% in Dec, up from 3.9% in Nov.
- There will be a notable range of Chinese economic data out this week. Growth in Q4 is expected to lift to +1.7% over the quarter, from +0.9% in Q3. Annual GDP growth is expected to reach +5% over the year in Q4, up from +4.6% in Q3. Fixed asset investment (exp +3.3%), industrial production (exp +5.4%), and retail sales (exp +3.5%) growth in Dec are expected to be little changed from Nov.
This week, the US Treasury will auction and/or settle approx. $609bn in ST Bills, Notes, and Bonds raising approx. $34bn in new money.
QT this week: Approx $36bn of ST Bills, Notes, Bonds, and TIPS will mature on the Fed balance sheet and will be reinvested. Approx $16.4bn of Notes, Bonds, and TIPS will mature on the Fed balance and will be redeemed/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
