Key themes for the week ahead – US inflation, elevated virus uncertainty
This will be a quiet data week leading into the Holiday period. The key data highlight will be the monthly US PCE inflation data for Nov.
Uncertainty is elevated about the new virus variant. Cases have reached new pandemic highs in some places while restrictions have been reinstated in some countries (i.e., Europe).
This uncertainty comes amid a shift to a tightening bias among central banks. The BoE surprised last week with a 15bp increase in the bank rate to help address higher and more persistent inflation. The ECB remained more dovish but still announced the end of the emergency QE program for Mar 2022 (to be offset though by the regular APP until Q4 2022). The FOMC delivered as expected with a faster pace of taper, and likely ending QE in Mar 2022. This acceleration gives the FOMC flexibility to “better position policy”. The SEP showed a shift to three potential hikes in 2022. Quantitative tightening (QT) was then floated by Fed Governor Waller on Friday, who also suggested that the Mar 2022 meeting could be live for the first hike.
“It would take something like severe disruption from omicron to delay labor market improvement or keep unemployment from falling, to keep March from being a key date to think of for liftoff.” https://www.bloombergquint.com/onweb/fed-s-waller-says-rate-hike-warranted-shortly-after-taper-ends
For the US, the trend of the data over the intervening meeting period will be crucial to the timing of the first hike.
The prelim PMIs for Dec (released last week) showed a slowdown in growth momentum across manufacturing and services activity across the US, Eurozone, UK, Japan, and Australia. Most notable was the slowdown in services activity, especially in the UK and Europe.
US PCE Inflation
The US PCE price index data for Nov will be released this week. Headline PCE price growth is expected to increase to +5.6%, up from 5% in Oct. Income growth is expected to slow for the month to 0.2% (from +0.5% in Oct), and expenditure growth is expected to slow slightly to 1% (from 1.3% in Oct).
Other US data includes the final Dec release of the University of Michigan consumer sentiment data (expecting no change to the 70.4 headline index).
This week, the US Treasury will auction and settle approx. $321bn in ST Bills, raising approx. $127bn in new money for the week. The US Treasury will also auction 5yr TIPS and the 20yr Bond, both to settle next week. Approx. $8bn in ST Bills will mature on the Fed balance sheet this week and will be rolled over.
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.
