Key themes for the week ahead – central bank policy decisions, inflation, and US growth (tech earnings too).
This will be the first of two weeks of major central bank policy decisions. This week: the BoC, BoJ, and ECB. Next week: the RBA, FOMC, and BoE. Policy decisions and signaling will be interesting in the context of recent front-end sell-offs. Market pricing of rate hikes have been brought forward across many countries – even despite some dovish CB guidance.
This week, the BoC is expected to keep rates on hold, but with a chance for a further taper announcement.
The ECB is expected to keep policy settings on hold. Guidance on taper will be important. The Sep CPI was confirmed at +3.4% – led by accelerating energy prices. Underlying inflation is 1.9% ex-energy but accelerating. The Eurozone flash PMI for Oct suggests the Euro growth momentum slowing into Q4. The Euro area Oct prelim CPI is out this week, expecting +3.7% headline growth (up from 3.4% in Sep). Q3 GDP is expected to slow to +3.5%.
The BoJ is expected to keep policy settings unchanged. Last week CPI growth remained well below the BoJ targets. The latest flash PMI’s for Oct indicated a welcomed shift in growth momentum at the start of Q4.
Next week the RBA meets. Rate hikes are being priced in much earlier than RBA guidance. Last week the RBA responded by buying up to $1bn of 2024 3yr AGB to defend the 0.1% target rate. Minutes reaffirmed dovish guidance especially as the country emerges from multiple lockdowns. The Q3 CPI is released this week – expecting inflation to ‘ease’ to 3.1% (from 3.8% – base effects).
The BoE also meets next week. The new BoE chief economist expected inflation to be higher into H1 next year. It was suggested that next week could be “live” for a rate hike discussion – but it would be “finely balanced”.
US rates have also been pricing an earlier liftoff with a flattening yield curve. The lift in ST rates has been in line with a shift in Fed guidance, but concern is rates rising going into a lower growth environment (roll-off of stimulus etc). The PCE inflation is out this week for Sep – expecting core inflation to increase to 3.7% from 3.4%. The ECI for Q3 will provide some insight into wages. US growth has been downgraded throughout Q3 and GDP for Q3 is expected to slow to +2.8% annualized. Looking forward, the flash PMI’s for Oct (released last week), reported a notable lift in services output and activity. Manufacturing output continues to be hampered by ongoing supply chain disruptions while demand has remained robust. Widespread input price increases were again reported by firms.
The US Treasury will settle approx. $286bn in ST Bills and 5yr TIP’s raising approx. $103bn in new money. Additional Cash Management Bills (CMB’s) were added to the schedule as the US Treasury manages the TGA balance amid debt ceiling discussions. Just over $200bn in Notes (2yr, 5yr, and 7yr) and 2yr FRN will be auctioned this week – and will settle next week.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Also posted this week is a review of the major economic releases last week. Download the file here:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
