Key events this week – US Thanksgiving Holiday, Minutes; FOMC, RBA, & ECB, Inflation; Japan & Canada, S&P Prelim PMIs Nov
Recap from last week
After a relatively big week of US data, the latest Atlanta Fed GDP Nowcast showed the US Q4 growth estimate slowing slightly to +2% (SAAR) from +2.2% where it started the week, and emphasizing that US Q4 growth is so far on a slower trajectory than in Q3.
US retail sales growth was softer in Oct falling by -0.1% after stronger (revised higher) growth of +0.9% in Sep. Industrial production output fell in Oct, as manufacturing output was impacted by labor disputes (motor vehicle production -10%). The first US regional manufacturing surveys for Nov suggested that manufacturing activity likely stayed at a stalled pace. Housing data was mixed. Of note was the sharp fall in home builder sentiment for Nov – approaching the lows of the pandemic. Permits and starts came in slightly better than expected. Mortgage applications increased modestly as 30-year fixed mortgage rates remained elevated at around 7.6%. Initial and continuing claims have been rising over the last four weeks.
Importantly, the Oct US CPI report showed that the downward trend in inflation resumed after progress stalled during Aug and Sep. The slowdown in headline inflation to +3.2% was led mostly by falling energy prices. Progress on core inflation remains slower. With measures of underlying inflation still running at between +3.8% and +4.1% over the year, and between +0.2% and +0.3% over the month, the FOMC is likely to stay in the camp of “still a long way to go on inflation” for now. Fed speeches last week mostly reflected the position that it was too early to declare victory over inflation. In an interview last week, Chicago Fed President Goolsbee noted that the task to get inflation down to 2% is “not done yet”, but also noted that “the moment of arguing how high should rates go is going to fade to how long should we keep rates at this level as inflation is coming down”. Markets have moved ahead in pricing four rate cuts commencing in May 2024.
Globally, there were more signs of growth slowing and inflation easing. Euro Area GDP growth for Q3 (second estimate) stayed at -0.1% over the quarter. Euro area headline CPI slowed to +2.9%, with the monthly rate slowing to +0.1%. Euro area core inflation also slowed to +4.2% over the year and to +0.2% over the month. Eurozone industrial production fell more than expected by -1.1% in Sep confirming the weakness in survey output measures. The prelim Japanese Q3 GDP contracted more than expected by -0.5%. UK inflation also slowed more notably over the year from +6.7% in Sep to +4.6% in Oct.
Outlook for the week ahead
It will be a short week due to the US Thanksgiving Holiday.
In the US, the focus will be on the FOMC Minutes. Rates were unchanged at the last meeting as the FOMC noted that restrictive policy settings were placing downward pressure on activity and inflation allowing the FOMC to now proceed carefully. At the time, the press conference was interpreted by some as signaling a potential shift to a more prolonged pause, or even an end to the hiking cycle.
US existing home sales for Oct are expected to fall to 3.9m (SAAR basis) from 3.96m in Sep. Durable goods orders are also expected to fall by -3.2% after rising by +4.6% in Sep (due to large non-defense aircraft orders). Initial jobless claims will remain in focus.
The RBA minutes of the latest meeting will be released this week. The RBA hiked rates by a further 25bps at the last meeting and the minutes should provide some insight into that decision. RBA Governor Bullock will give a speech this week covering the latest policy decision and the progress on implementing recommendations from the RBA review.
Inflation data for Canada and Japan will be out this week. Canadian headline inflation is expected to ease more notably from +3.8% to +3.2% in Oct. The trimmed mean is also expected to ease further from +3.7%. At the prior meeting, the BoC had expressed some concern over the trend of underlying inflation. Japanese headline inflation is expected to be little changed at +3% in Oct, while core inflation ex fresh food and energy is expected to stay elevated at +4.2%.
Finally, the prelim S&P PMI reports for Nov will be released this week. These will provide some insight into the latest manufacturing and services growth momentum among key G4 economies. The PMI surveys in Oct showed a slowdown across service momentum while manufacturing was broadly unchanged staying in moderate contraction. US output PMIs had stayed positive across both manufacturing and services in Oct.
This week, the US Treasury will auction and settle approx. $480bn in ST Bills and FRNs raising approx. $76bn in new money. The US Treasury will also auction the 10-year TIPS and 20-year Bond this week – both will settle next week.
QT this week: Approx $12.8bn in ST Bills will mature on the Fed balance sheet this week and will be reinvested.
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
