Key events this week – US PCE inflation & ECI Q1, Aus CPI, US & Euro Area flash GDP Q1, BoJ Meeting
Recap from last week
Data painted a mixed picture of US growth momentum at the end of Q1 going into Q2.
The US Fed Beige Book survey contained anecdotes of stagnant growth between Mar and Apr among the Federal Reserve Districts. Three districts reported modest growth while nine reported no change. Of note was the varying experience of tighter lending and credit conditions since the recent bank failures. The first US regional manufacturing surveys for Apr were mixed. The NY Fed manufacturing survey recorded a stronger rebound, while the Philadelphia Fed survey reflected continued weakness in manufacturing activity. US housing data for Mar indicated a stall in the recent momentum across existing home sales, new permits, and starts. Homebuilder sentiment was little changed going into Apr, remaining low. Mortgage applications weakened further last week, retracing the prior five weeks of gains. Initial claims increased slightly to +245k, remaining within the higher, but sidewards trend, while continuing claims increased further.
In stark contrast were the flash PMIs for Apr. Across the G4 generally, the expansion in services growth that started in Feb strengthened further in Apr. This helped to offset some weakness in manufacturing, especially across Europe, the UK, and Aus. The US flash PMI for Apr showed stronger momentum across both manufacturing and services sectors as growth in output, inflation, and employment were more widespread.
Despite the mixed data messages, markets continued to price in a further rate hike at the May FOMC meeting next week. Rate cuts priced in after the recent bank failures have now been shifted further out to Nov.
Inflation remained persistent. Japanese core CPI surprised to the upside at +3.8% – a peak not seen since the 1908’s. UK CPI surprised to the upside for Mar at +10.1% and core at +6.2% (plus a strong labor market report). Inflation in Canada was mostly as expected while NZ CPI growth was lower than expected at +6.7%.
The RBA minutes outlined the case for a pause in hikes for at least one meeting. The minutes noted that policy could still be tightened further and that the pause would allow time to assess more data – especially the next quarterly inflation report this week (26 Apr), another labor market report, and updated staff forecasts. The minutes suggest that this data would be important in assessing the need for further tightening.
Outlook for the week ahead
Its a full week of US data across inflation, manufacturing, housing, growth, and the US consumer – ahead of the FOMC meeting next week. The US PCE inflation for Mar is expected to slow to +4.6% (from +5% in Feb), as core inflation is expected to remain little changed at +4.5% in Mar (+4.6% Feb). The important employment cost index for Q1 is expected to increase by +1.1% over the quarter (up from 1% in Q4). The flash US GDP growth for Q1 is expected to slow to +2% (annualized) from +2.6% in Q4. Also; durable goods orders, more regional manufacturing surveys for Apr, new home sales, and personal spending & income for Mar.
The latest Aus quarterly CPI report will be an important input for the RBA meeting next week. The quarterly CPI for Q1 is expected to show inflation slowing to +6.9% from +7.8% in Q4. Trimmed mean inflation is expected to stay elevated at +6.7% (from +6.9% in Q4).
The BoJ will meet this week – the first meeting led by Governor Ueda. There is speculation that the BoJ will review its policy approach – but not likely at this meeting. A full update on BoJ forecasts will be released and the framing around rising core inflation will be important.
This week, the US Treasury will auction and settle approx. $257bn in ST Bills and TIPS, with a net paydown of $1bn.
The US Treasury will also auction the 2yr, 5yr, 7yr Notes, and the 2yr FRN this week – to settle next week.
QT: Approx $29.8bn in ST Bills, Notes, and Bonds will mature on the Fed balance sheet this week and will be reinvested. Approx $43.5bn in Notes and Bonds will mature on the Fed balance sheet (30 Apr) and will be redeemed.
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
