Key themes for the week ahead – US non-farm payrolls, inflation data, and ongoing geopolitical headline risk
Recap from last week
In the week following the first US rate hike in this cycle, US Fed Chair Powell signaled that the FOMC is willing to be “more aggressive” in addressing inflation at coming meetings. In his NABE speech on Monday, Chair Powell noted that “inflation is much too high” and “raising the federal funds rate by more than 25bps” could be appropriate. Other Fed speeches throughout the week supported returning the federal funds rate to the ‘neutral rate’ as quickly as possible. Rates markets reacted strongly and are currently pricing multiple 50bps hikes over coming meetings starting in May. By the end of the week, the US yield curve flattened further (5-30’s) down to 5bps. At the time of writing, that curve comparison was slightly inverted.
The prelim Mar PMIs showed that input price inflation remains a key theme. Growth momentum was positive across the US and Australia. Aus private sector input and output price inflation “hit record rates”. Demand was boosted by the reopening of international travel. US output and demand increased at a faster pace while input costs increased at “one of the fastest rates on record” in the PMI survey. Firms notably increased output charges at a slower pace.
Growth momentum in Japan was lackluster, as manufacturing activity recorded no change and services activity contracted at a slower pace. Input and output prices increased at a faster pace.
Eurozone activity started to reflect disruption from the war in Ukraine. Growth was slower amid lengthening in supply lead-times while costs increased at “unprecedented rates”.
The week ahead
The focus for the weeks ahead is the path of inflation and the impact on growth/demand from inflation and the broader, ongoing removal of pandemic restrictions.
This week US non-farm payrolls for Mar are expected to increase by +475k (after increasing by +678k in Feb). The unemployment rate is expected to fall to 3.7% while the participation rate is expected to be unchanged at 62.3%.
The US PCE price index, the FOMC preferred measure of US consumer inflation, is expected to increase by +6.7% in Feb, up from +6.1% in Jan.
Other consumer inflation data: Germany’s CPI prelim for Mar is expected to increase by +6.1% after increasing by 5.1% in Feb. Monthly inflation is expected to reach +1.9% in Mar (from +0.9% in Feb). The broader Eurozone inflation data is also expected to show an acceleration in price growth to +6.5% in Mar from +5.9% in Feb.
The US ISM manufacturing PMI report for Mar is expected to show consistent growth momentum. The headline PMI is expected to remain unchanged at 58.6. Details on underlying pricing, lead times, and demand will be insightful.
We are alert to headline risks related to the invasion of Ukraine. Negotiating teams are expected to resume face-to-face talks this week.
The Federal budgets for the US and Australia will be handed down at the start of the week. A ‘cost of living adjustment’ cash payment is expected to be announced in the Aus budget while implementing measures to narrow the budget deficit.
This week, the US Treasury will auction and settle approx. $378bn in ST Bills, Notes, TIPS, and Bonds, raising approx. $72bn in new money.
Approx. $54bn in ST Bills, Notes, and Bonds 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
