Key events for the week ahead – US non-farm payrolls, Euro Area prelim CPI (Dec), S&P global PMIs, FOMC minutes (TBC)
Recap from the last two weeks
The US PCE inflation report for Nov was released before the holiday break. PCE inflation slowed more than expected to +5.5% in Nov from +6.1% in Oct. Food inflation is still high – but the monthly food inflation trend continues to ease. Energy prices are volatile, but growth has slowed. Core goods disinflation is progressing as expected. The core services ex-housing component is what the FOMC is looking at to judge how inflation may develop from here;
“This is the largest of our three categories, constituting more than half of the core PCE index. Thus, this may be the most important category for understanding the future evolution of core inflation.” Source: US Fed Chair Powell – Brookings speech, 30 Nov 2022
This measure of underlying inflation may have peaked in Oct, but remains elevated.
“Because wages make up the largest cost in delivering these services, the labor market holds the key to understanding inflation in this category.“- US Fed Chair Powell – Brookings speech, 30 Nov 2022
Outlook for the week ahead
US labour market reports will be a key focus this week. With headline measures of inflation easing, the performance of the labour market is important in understanding how wages, underlying inflation, and the monetary policy outlook may evolve from here.
US non-farm payrolls for Dec are expected to increase by +200k (from +263k in Nov). This is still robust growth and above the estimated +100k growth required to accommodate population growth. The unemployment rate is expected to remain at 3.7% and participation at 62.1%.
Growth in average weekly earnings is expected to increase by +5% over the year (from +5.1% in Nov). For the FOMC, higher nominal wage growth reflects the ongoing imbalance between the supply of labour and demand for labour.
The Nov job openings are expected to fall to 10m in Nov (from 10.34m in Oct). The Oct JOLTS report showed falls in openings and hires (both below their 12mth averages, but openings remaining historically elevated). But this did not result in a corresponding increase in layoffs and discharges and both of these measures were still near series lows. Quits also remain elevated.
The weekly jobless claims data is an important high-frequency measure of the labour market. This week, initial claims (SA) are expected to increase by +230k (from +225k in the week prior). The current level of initial jobless claims is on par with the start of the year. The trend of the SA continuing claims series has been increasing steadily since Oct (after falling at the start of the year) and is now only 4.3% below the level at the start of 2022.
The FOMC minutes from the Dec meeting would usually be released this week – but is not yet scheduled on the Federal Reserve website.
The final global PMIs for Dec will be released this week. To recap, the G7 manufacturing PMIs remained in contraction. The contraction in Eurozone manufacturing slowed. Services output expanded in Japan, while services output in the UK shifted back to neutral, and the Eurozone services contraction slowed. The US S&P manufacturing and services PMIs contracted at a faster pace, falling to 46.2 and 44.4 respectively in early Dec.
This week, the US Treasury will auction and settle approx. $354bn in ST Bills, Notes, and Bonds raising approx. $35bn in new money.
Approx $13.6bn in ST Bills will mature on the Fed balance sheet this week and will be reinvested. Approx $2.8bn in ST Bills will mature on the Fed balance sheet this week and will be redeemed/roll-off the Fed balance sheet.
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
