Key events for the week ahead – FOMC, BoE, and RBA meetings, US non-farm payrolls, and ongoing geopolitical risk
Recap from last week
US Q1 real GDP surprised to the downside due to a notable contraction in net exports. US goods exports declined while import demand remained elevated for the quarter. This more than offset the faster growth in personal consumption and investment expenditure. Inventories and government expenditures both detracted from growth. US PCE inflation accelerated to +6.6% in Mar, up from +6.4% in Feb with monthly inflation increasing to +0.87%. Core PCE inflation remained high at +5.2% but lower than the +5.3% print in Feb, as we start to cycle over the higher base from a year ago. Monthly core PCE price growth remained at +0.3%.
Aussie inflation was higher than expected. CPI growth in Q1 was +5.1% (prior was +3.5%). Inflation was broadly based. The headline and core measures are now above the RBA’s upper band of 3%.
The Euro-area prelim GDP growth for Q1 remained muted, but positive at +0.2%. At the same time, Euro-area inflation increased by +7.5% in Apr, up from +7.4% in Mar. Monthly CPI growth eased to +0.6% as energy prices declined by -3.7%. This illustrates the lower growth and high inflation policy challenge for the ECB.
The BoJ remained firmly dovish. It announced it would step in to buy 10yr JGBs “every business day” at 0.25% to support the zero-target rate. Inflation is still below 2% and risks to growth are to the downside. This is a firm stake in the ground from the BoJ and its forecasts show that an easing bias is not likely over the medium term.
Chinese PMIs recorded a sharp contraction in both manufacturing and services activity for Apr as a strict zero-covid policy is still in place. This is expected to have a further impact on global supply chains and poses a risk to growth for many countries.
The week ahead
This is another week of significant central bank meetings and data for markets to digest.
The FOMC is expected to raise rates by 50bps this week and announce the details of QT. We’ll be looking for guidance on the path to the ‘neutral’ rate at subsequent meetings and views on the tightening in financial conditions, the expected slowdown in inflation, and the growth outlook. The US Treasury will also release its quarterly refunding requirements on 4 May.
US non-farm payrolls are expected to increase by +380k in Apr. Participation is expected to be unchanged while the unemployment rate is expected to fall to 3.5%. The ISM PMIs for Apr are expected to show slightly faster growth momentum than in Mar.
The RBA will meet on policy this week. Given the higher-than-expected CPI and the strong labour market, the RBA Board is expected to increase rates by 15bps this week (some estimates indicate 40bps). But note that the RBA has been hesitant (in the past) to make a major policy change in front of a federal election (which will be 21 May). The Board only just changed its forward guidance (removing “can afford to be patient”) at the last meeting and indicated that it would look at data “over the coming months”, which may include another quarter of the consumer and wage price index.
BoE will meet this week and a further 25bps increase is expected.
Final global PMIs for Apr will be released this week. The prelim reports had highlighted a continued record pace of input and/or output price growth across most countries in Apr.
This week, the US Treasury will auction and settle approx. $363bn in ST Bills, Notes, Bonds, and FRNs, with another -$7bn paydown.
Approx. $47bn in ST Bills, Notes, Bonds, and FRNs 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
