Key themes for the week ahead – FOMC, inflation, and growth momentum amid the latest outbreak
This will be a big week of economic data and central bank meetings.
Central banks
The focus will be on the FOMC monetary policy meeting. The FOMC is expected to confirm the end of QE (end of tapering) in Mar. At the Dec meeting, Chair Powell noted that the earlier conclusion of QE/tapering was intended to provide the FOMC with the flexibility to adjust policy, especially given more persistent inflation. We expect some signalling on the timing for a rates lift-off – possibly Mar. Speeches by various Fed officials have supported a Mar timing for the first hike and the end of QE in Mar opens the way for the Fed to commence hiking. The FOMC is also expected to provide further details of QT (pace and timing).
The BoC meets this week. At the last meeting, policy guidance suggested mid-2022 for rates lift-off. Canada CPI data for Dec came in softer for the month with MoM CPI recording a slight fall of -0.1% led by lower gasoline prices. Annual CPI growth accelerated to +4.8%.
Next week the RBA, BoE, and ECB will meet on monetary policy.
Inflation
Inflation data will remain in focus this week. The US PCE price index growth is expected to accelerate to +6.1% in Dec from +5.7% in Nov. The US employment cost index will be an important barometer of wage pressure. The index is expected to increase at a slightly slower pace of 1.2% in Q4 (from +1.3% in Q3).
Both Aus and NZ Q4 CPI data will be released this week. Aus CPI is expected to have accelerated in Q4 to 3.2% (from +3% in Q3). The QoQ CPI growth is also expected to accelerate to 1% in Q4 from +0.8% in Q3. Faster inflation will place greater pressure on the RBA to review its rate hike timing (currently 2023) – especially after the strong Dec labour force report and a potentially earlier FOMC hike. The latest omicron impact (PMI services back into contraction in Jan) is likely to be viewed as a short-term disruption.
Growth
Growth momentum is likely to have slowed amid the omicron outbreak. The prelim Jan PMIs for the major economies will highlight the extent of the impact of the omicron outbreak, especially on services. So far, Aus & Japan services PMIs recorded a sharp contraction in Jan.
US GDP in Q4 is expected to increase by 5.5% (SAAR basis) after slower growth in Q3 of +2.3%. There has been some softening of US data toward the end of Q4 – especially in terms of personal expenditure. PCE spending is expected to decline by -0.6% in Dec (in line with the weaker Dec retail sales).
Weaker economic conditions are expected to be reflected in Europe for Q4; GDP in Germany is expected to contract by -0.2% in Q4.
This week, the US Treasury will auction and settle approx. $275bn in ST Bills, raising approx. $31bn in new money. The US Treasury will also auction 2yr, 5yr, and 7yr Bonds and the 2yr FRN this week – which will settle on 31 Jan. Approx. $26bn 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.
