Key events for the week ahead – US CPI, US Fed Chair Powell panel discussion
Recap from last week
Data continued to paint a picture of a reasonably robust US labor market despite slowing employment growth momentum. Growth in average hourly earnings slowed but highlighted the noisy nature of the ‘average’ as the prior month (Nov) was revised from an uncomfortably high (for the FOMC) +0.6% to +0.4%. The Dec month growth slowed to +0.3% as the annual growth slowed to +4.6% (expecting +5%). The FOMC will likely see this as a step in the right direction.
While payroll growth slowed to +223k, it is still above the level needed to absorb population growth (approx. +100k jobs). Employment growth in the household survey increased more notably for the month by +717k – but was led almost entirely by part-time employed persons (+679k). Participation increased at the same time that the unemployment rate fell even further. The unemployment rate for the core working age group 25-54 years fell to 2.95% in Dec (from +3.27% in Nov). The 16yr+ unemployment rate fell to 3.47% (from 3.65% in Nov). The Nov JOLTS survey showed a slowing in openings and hires but layoffs and discharges remained near series lows – a good sign of resilience so far in this tightening cycle. But private sector hours and manufacturing overtime hours have started to decline, especially manufacturing overtime hours. This may be a precursor to future weakness in employment.
The fall in overtime hours is consistent with an obvious slowing in US manufacturing activity. US activity measured by the S&P and ISM PMIs deteriorated in Dec. The ISM manufacturing PMI contracted again while the ISM services PMI showed services activity slowing quite notably, falling from 56.5 in Nov to 49.9 in Dec.
The FOMC minutes reflected the decision to slow the pace of the Dec rate hike to 50bps. The stronger hawkish tone of earlier in the year has been softened as policy approaches a restrictive level; ongoing increases are still appropriate, inflation starting to ease but need to see more evidence of progress, the labor market is still tight, but “a couple” of participants starting to see the risks to the inflation outlook becoming more balanced and the risks of over-tightening versus under-tightening as becoming more balanced.
The S&P global PMIs for Dec showed a further fall in global manufacturing momentum. While the contraction in the Eurozone and Japan stabilized in Dec, momentum in other parts of Asia slowed, and the US contraction gained momentum. The S&P global services contraction stabilized at a modest level as momentum improved across Europe, Japan, and the UK. Again, the US contraction in services gained momentum
Outlook for the week ahead
The focus this week will be on US CPI for Dec. Headline CPI is expected to moderate further to +6.5% from +7.1% in Nov. Monthly CPI is expected to remain at +0.1%. US core CPI is expected to slow to +5.7% from +6% in Nov with monthly core CPI for Dec at +0.3%. Other inflation reports; Aus Nov (monthly) CPI is expected to increase to +7% from +6.9%. China’s CPI for Dec is expected to remain low at +1.8%.
Germany and Eurozone production data for Nov will provide some scale for the weakness in the manufacturing PMIs. Last week, German factory orders declined by over 5% in Nov.
US Fed Chair Powell is to take part in a discussion panel on central bank independence.
This week, the US Treasury will auction and settle approx. $228bn in ST Bills, with a paydown of $1bn.
The US Treasury will also auction the 3 and 10-year Notes and the 30-year Bond this week – all will settle next week.
Approx $14bn in ST Bills will mature on the Fed balance sheet this week and will be reinvested. Approx $1bn 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
