by Kim | May 6, 2024
Key events this week – BoE and RBA monetary policy meetings, S&P Global Services PMIs
Recap from last week
The message from the FOMC was clear last week; restrictive policy settings need more time to do their job.
As expected, the FOMC kept interest rate settings unchanged, noting that it would be appropriate to reduce interest rates once it has gained greater confidence that inflation was moving sustainably towards the 2% target. The main driver of this decision was the “lack of further progress towards the Committee’s 2% inflation target” through Q1.
While the FOMC did remove “rates are likely at their peak” from the statement, the easing bias was maintained. The FOMC is prepared to stay on hold for as long as necessary, highlighting that current policy settings were “well positioned” for a range of outcomes; either to stay on hold (where progress on inflation stalls) or to lower rates (progress on inflation resumes and/or there is an unexpected weakening in the labor market). A hike is not likely to be the next move in rates – and the bar seems much higher to consider a hike (needing “persuasive evidence” that policy settings are no longer restrictive).
The FOMC also announced plans to lower the monthly redemption cap on its QT program beginning in Jun.
US data suggested growth and labor market momentum eased at the start of Q2. US non-farm payrolls in Apr were lower than expected at +175k (expecting +243k, while the prior two months were revised higher on net by +22k). Other labor market metrics remained steady – and do not suggest a weakening in the labor market in Apr. The employment growth measure from the household survey has been slowing since late 2023, however, the unemployment rate has only drifted slightly higher. The JOLTS survey continued to point to labor demand ‘coming into better balance’. While still elevated, the vacancy rate fell to 5.1%. Hiring continued to slow. So far, this slowdown in labor demand has not corresponded to a more notable shift higher in unemployment and the involuntary separations rate fell back to a series low of 1.0%. The quit rate is back below the pre-pandemic level, suggesting a reduced willingness to change jobs.
Wage growth has stayed somewhat elevated. The ECI quarterly measure did accelerate over the quarter and remained elevated at +4.1% over the year in Q1. The monthly average hourly earnings report did ease in Apr. Average hourly earnings growth slowed to +0.2% over the month and to +3.9% over the year. The Challenger Job Cut Announcement survey for Apr noted that “The labor market remains tight. But as labor costs continue to rise, companies will be slower to hire, and we expect further cuts will be needed. This low April figure may be the calm before the storm”.
The US ISM surveys also indicated slower growth momentum (also highlighted in the S&P PMIs for Apr) across both manufacturing and services sectors. While activity and employment indexes weakened in both surveys, input price indexes continued to rise driven by commodity prices. A slight fall in aggregate hours and average weekly hours in Apr also suggested a slowdown in the pace of activity.
The pricing of US rate cuts shifted by the end of last week – and is now back to pricing in two cuts for the back half of 2024.
Growth data out of Europe was positive with the Q1 flash Euro Area GDP returning to a moderate pace of growth of +0.3% in Q1, after stalling through Q3 and Q4 last year. The flash Euro Area inflation reading for Apr was mostly in line with expectations however core inflation came in slightly higher at +2.7% (expecting +2.6%) but at least down from +2.9% in Mar. Services inflation fell below 4% to +3.7% in Apr.
Outlook for the week ahead
It will be a quiet week data-wise. The focus will shift to the RBA and BoE monetary policy meetings this week.
The RBA is expected to keep rates unchanged. At the last meeting, the Board shifted to a more neutral stance of policy, no longer overtly suggesting that ‘further increases cannot be ruled out’. However, the most recent Q1 CPI is not likely to have improved the confidence of the Board that inflation is moving sustainably to the 2-3% band. It will be important to see how Governor Bullock characterizes the recent stronger-than-expected inflation, and what it might mean for the path of policy.
The BoE will also meet this week and is expected to keep rates on hold at this meeting. While there has been a continued slowdown in both headline (to +3.2%) and core inflation (to +4.2%) measures over the last few months, inflation remains elevated. It will be important to see how the BoE views the recent disinflation progress relative to its policy settings. The Q1 UK GDP will be released later in the week and growth is expected to rebound to +0.4% in Q1 after falling by -0.3% in Q4 2023.
The US data out this week; the University of Michigan Consumer Sentiment survey (prelim) for May, consumer credit change (Mar), the Q1 senior loan officer survey, and the weekly mortgage applications and initial claims data. There will be several Fed speeches throughout the week.
Canada labor market data for Apr will be released. Employment growth is expected to rebound after falling slightly last month. The unemployment rate is expected to continue to rise to 6.2%. This will be closely watched by the BoC.
The final S&P global services PMIs will be released this week to round out the full view of global growth momentum in Apr. Last week, the final manufacturing surveys were released, and global manufacturing momentum was little changed with the global manufacturing PMI at 50.3 in Apr, down from 50.6 in Mar.
This week, the US Treasury will auction and settle approx. $420bn in ST Bills, with a net paydown of -$13bn. The US Treasury will also auction the 3-year and 10-year Notes and the 30-year Bond this week – all will settle next week on 15 May.
QT this week: Approx $12.6bn in ST Bills will mature on the Fed balance sheet 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
by Kim | Apr 29, 2024
Key events this week – FOMC monetary policy meeting, US non-farm payrolls & ISM surveys, prelim Euro Area GDP Q1 & CPI
Recap from last week
US inflation data didn’t challenge the narrative that rate cuts could take longer to materialize. The overall PCE inflation picture through Q1 was one of stalling progress on disinflation. The headline PCE inflation for Mar came in slightly higher than expected at +2.7% (expecting +2.6%) while the monthly pace was unchanged at +0.3%. Core inflation remained unchanged at +2.8% (expecting it to slow to +2.6%) while the monthly pace of core inflation also came in at +0.3%.
The Mar PCE inflation report contained notable revisions higher for Jan and Feb inflation. These revisions suggest that inflation pressure likely began to broaden out again (to more categories) after Nov 2023. Monthly services inflation has stayed stickier since Aug 2023 and has even started to trend slightly higher again. Importantly, this has been exacerbated by a smaller offsetting effect from goods deflation since Nov 2023, which then shifted to goods inflation, albeit at a low rate, over the last several months. The monthly trimmed mean and median inflation rates also suggest that inflation likely broadened out after Nov 2023. But after the notable increase in the monthly trimmed mean and median inflation in Jan, these measures abated in Feb and again in Mar – suggesting that this current inflation impulse is not continuing to broaden out (both measures are back to roughly average levels for the last half of 2023). That said, the FOMC is likely to remain concerned about the persistence of core inflation at +2.8%, services inflation at +4%, and core services ex-shelter inflation at +3.5% in Mar.
The strong outlook for US growth was tempered in Q1 GDP. The prelim Q1 GDP growth came in much lower than expected at +1.6% annualized (expecting growth to have eased to +2.5% annualized). The key driver of the lower growth in Q1 was the contraction in net exports (growth in exports slowed, while growth in imports increased at a faster pace than exports). Growth in final domestic demand, excluding the volatile external sector and inventories, eased to +2.8% (annualized) suggesting domestic demand growth remained more robust. The monthly PCE report for Mar showed improving momentum in household spending through Q1, underpinned by continued solid growth in income.
The prelim US PMI for Apr suggested a slowdown in growth momentum across both manufacturing and services coming into Q2. The manufacturing PMI edged down to just below the neutral level while services activity slowed to only a modest pace of expansion. The key themes from the report were weaker demand as orders contracted across both manufacturing and services, a fall in services employment, and weaker business sentiment. Input prices increased while output price growth eased.
More broadly, the G4 prelim PMIs for Apr suggested a continued improvement in the pace of economic momentum. This was led by an acceleration in service sector activity.
The BoJ met last week and kept policy settings unchanged.
Outlook for the week ahead
The FOMC and US non-farm payrolls will be the highlights of the week.
The FOMC is expected to keep policy settings unchanged this month. The main insight will be into how the FOMC is characterizing the view of inflation and growth over Q1 and what it means for the policy outlook. Fed Chair Powell’s comments at the press conference will be important. The FOMC is likely to maintain its stance that it needs greater confidence that inflation is moving sustainably to 2% before it begins to lower policy rates and that it has time to be patient on rate cuts. The previous meeting minutes already noted concerns over firmer inflation readings. We won’t know the degree to which participants are shifting rate cut projections until the update of the SEP at the Jun meeting. Guidance at the last meeting noted that “almost all participants judged that it would be appropriate to move policy to a less restrictive stance at some point this year if the economy evolved broadly as they expected”. At the last meeting, the FOMC also discussed slowing the pace of QT, judging that “it would be prudent to begin slowing the pace of runoff fairly soon”. This could be addressed as soon as the meeting this week.
Another crucial element bolstering the Fed’s commitment to maintaining its patient stance on restrictive policy is the robust state of the labor market. This week will feature a broad update on US labor market conditions for Apr. Non-farm payroll growth is again expected to ease to +243k from the +303k growth in payrolls in Mar. The unemployment rate is expected to stay unchanged at 3.8%. Average weekly hours are also expected to stay unchanged at 34.4. Job openings for Mar are expected to ease again to 8.68m from 8.75m in Feb. The quarterly employment cost index is expected to remain elevated at +1% for Q1 (versus +0.9% in Q4 2023).
The Apr ISM PMI surveys (and the final S&P PMIs) will provide further insight into manufacturing and services growth momentum going into Q2.
The Euro Area prelim Q1 GDP is expected to show a slight improvement in growth to +0.1% from the stalled pace of 0% in Q4 2023. The prelim CPI for the Euro Area in Apr is expected to show little change to headline inflation at +2.4%, but some easing in core inflation to +2.6% in Apr.
The full suite of global PMIs for Apr will be released this week.
The US Treasury will also release its latest quarterly financing requirements for Q2 and estimates for Q3.
This week, the US Treasury will auction and settle approx. $659bn in ST Bills, Notes, Bonds, and FRNs, raising approx. $40bn in new money.
QT this week: Approx $17.4bn in ST Bills will mature on the Fed balance sheet and will be reinvested. Approx $22bn in Notes and Bonds will mature on the Fed balance sheet 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
by Kim | Apr 22, 2024
Key events this week – US PCE Inflation & Q1 GDP, BoJ meeting, Aus CPI Q1, Global flash PMIs Apr
Recap from last week
Last week, US consumer and domestic investment spending lifted Q1 GDP growth projections. The latest Atlanta Fed GDP Nowcast for US Q1 GDP growth rose from +2.4% to +2.9% by the end of the week.
US retail sales growth was higher than expected for Mar at +0.7%. Growth in non-store retail sales accounted for over half of the growth in the month. Coupled with the upward revision of retail sales growth to +0.9% for Feb, this strengthened the perception of robust spending through to the end of Q1. The residential construction data for Mar was somewhat lackluster, with both new permits and starts lower than expected and lower compared to Feb. While housing partly offset some of the contribution to Q1 growth from the strong retail sales result, another positive monthly result for industrial production in Mar helped to lift the Q1 GDP run rate.
The US Federal Reserve Beige Book for April suggests that this pace of activity likely continued into April/start of Q2. Districts confirmed that overall economic activity had “expanded slightly” since the last report in late Feb. Reports on spending were mixed with some reports of weakness in discretionary spending due to elevated prices. Inflation remained modest and was “running at about the same pace as in the last report”. The report noted that a “frequent comment was that firms’ ability to pass cost increases on to consumers had weakened considerably in recent months, resulting in smaller profit margins”. Despite that, Districts reported that “employment rose at a slight pace overall”.
US Fed speeches last week continued to indicate that policy settings are likely to stay unchanged until there is greater confidence that inflation is moving sustainably toward 2%. While economic conditions and the labor market remain resilient, the Fed can keep rates on hold, allowing more time for restrictive policy settings to bring down inflation. Markets have continued to lower expectations for rate cuts this year – at the time of writing, only one cut is fully priced in for this year in Sept (Source; CME FedWatch Tool).
Global inflation reports showed disinflation progress continued in Mar. UK inflation eased further in Mar across headline (+3.2%) and core (+4.2%) measures. Most of this progress was led by goods inflation slowing to +0.8%, while services inflation eased only slightly and remained elevated at +6%.
Canadian headline inflation increased to +2.9% led by higher gasoline prices. However, the BoC preferred measures of underlying inflation showed continued progress with several measures slowing to below +3% in Mar. In a moderated discussion with US Fed Chair Powell, BoC Governor Macklem noted that “despite rising headline inflation, importantly, measures of core inflation did tick down again and does suggest that underlying inflationary pressures are continuing to ease. We continue to be moving in the right direction.”
NZ inflation continued to ease over the year but was little changed over the quarter. The composition of inflation still shows that non-tradable inflation (domestic-led) is high at +5.8%.
Finally, Japanese inflation eased however the core measures ex fresh food remains elevated at +2.6%. The more recent annualized rates of inflation have started to accelerate again, but so far, remain below the annual rates. The BoJ meets this week and is expected to provide an update to its inflation forecast.
Outlook for the week ahead
Inflation reports remain front and centre this week. The global flash PMIs for Apr will provide some insight into global growth going into Q2.
This will be an important week with the Fed-preferred PCE inflation report for Mar due at the end of the week. Fed speeches last week continued to indicate that rate cuts could take longer to materialize while inflation progress stalls and labor market and growth conditions remain robust. However, while the Mar CPI measure showed stalling progress on inflation, the PPI hinted that the PCE measure may show some progress on disinflation.
Expectations are for little change in the inflation picture this month. US headline PCE is expected to increase by +0.3% over the month in Mar, this would be in line with the Feb result. Headline inflation over the year is expected to increase to +2.6% in Mar, up from +2.5% in Feb, due to higher energy prices. Core PCE inflation is also expected to increase by +0.3% over the month, while annual core inflation is expected to ease only slightly to +2.7% from +2.8% in Feb.
The advance estimate of US Q1 GDP growth will be released this week. Growth is expected to slow to an annualized pace of +2.5% in Q1 (from +3.4% in Q4 2023).
The FOMC will meet next week. This should provide an update on its guidance for the outlook on growth and inflation, although new projections will not be provided at this meeting. It also means that there will be no Fed speeches this week.
The more detailed Aus Q1 CPI report will be released this week, and ahead of the next RBA meeting on 6-7 May. Quarterly inflation is expected to increase to +0.8% from +0.6% in Q4. The annual rate is expected to slow to +3.4% in Q1, from +4.1%. Trimmed mean/core inflation is expected to increase over the quarter to +0.9%, from +0.8% in Q4.
The BoJ will meet this week and rate settings are expected to stay unchanged. At the last meeting, the BoJ announced the end of its negative interest rate policy, but still provided guidance that, given its outlook for economic activity and prices, accommodative financial conditions would be maintained for the time being. The BoJ will release its quarterly Outlook Report at this meeting which will update its view on developments in prices and economic activity.
Finally, the latest round of flash PMIs for the G4 (plus Aus) for Apr will be released early this week. Growth momentum has been improving through Q1. Growth in services activity has lifted to a moderate pace while manufacturing conditions within the G4 have become less negative.
This week, the US Treasury will auction and settle approx. $410bn in ST Bills, with a paydown of -$46bn. The US Treasury will also auction the 2, 5, and 7-year Notes and the 2-year FRN this week – all will settle on 30 Apr.
QT this week: Approx $9bn in ST Bills will mature on the Fed balance sheet 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
by Kim | Apr 15, 2024
Key events this week – US retail sales & housing data, US Fed Chair Powell, CPI’s Mar; Canada, Japan, UK, NZ, and the Euro Area
Recap from last week
Central bank meetings and minutes underscored shifts in confidence regarding the favorability of inflation conditions for potential policy easing.
The ECB kept current settings unchanged but continued to signal that Jun could be live for the first rate cut. Given more favorable inflation readings, guidance was shifted to acknowledge that if data continues to increase confidence that inflation was converging at 2%, then “it would be appropriate to reduce the current level of monetary policy restriction”. Hints at the Jun timing have remained consistent following ECB President Lagarde’s comments at the March meeting that “we’ll know some in Apr, but more in Jun”. This timing was also addressed in the press conference with President Lagarde noting that a few members had been confident enough in the limited Apr data to cut rates at this meeting.
The BoC kept policy unchanged but started to raise the prospect of rate cuts, noting that Jun was “in the realm of possibility” if recent improvements in inflation continued. However, the Governing Council cautioned that the decline in core inflation is only recent, and is looking for evidence that the easing in underlying inflation will be sustained; “as we consider how much longer to hold the policy rate at the current level, we’re looking for this easing of inflation to be sustained”.
The RBNZ kept policy settings unchanged. There was little change in the overall sentiment of the decision. However, there was a new paragraph added to the statement with a specific time reference to “this calendar year” regarding when the Committee was confident that restrictive policy would return inflation to within the target range of 1-3%.
The FOMC minutes for the Mar meeting were less positive on inflation developments. The minutes indicated that firmer inflation readings in Jan and Feb placed some doubt over its confidence that inflation was moving sustainably to the 2% target. The minutes noted that disinflation was still progressing “along a path that was generally expected to be uneven”. With positive momentum in the US economy, policy settings are likely to stay unchanged until there is greater confidence that inflation is moving sustainably toward 2% (the FOMC has been consistent on this).
Participants noted indicators pointing to strong economic momentum and disappointing readings on inflation in recent months and commented that they did not expect it would be appropriate to reduce the target range for the federal funds rate until they had gained greater confidence that inflation was moving sustainably toward 2 percent.
Last week, the higher-than-expected US CPI report for Mar was likely to have disappointed the Fed. The CPI for Mar confirmed a further stalling in the pace of disinflation compared to the faster pace in late 2023. For now, this will likely mean that rate cuts may take longer to materialize as the FOMC focuses on managing the risk of reducing restraint too soon with the risk of keeping policy too tight for too long.
The US PPI report for Mar could hold some good news given the flow through to the FOMC preferred PCE inflation measure. The PPI report for Mar released a day after the CPI, came in lower than expected and suggests that the upcoming Mar PCE report may not be as firm as the CPI report. It will be another two weeks until the March PCE inflation report comes out.
Outlook for the week ahead
The focus this week shifts to US growth, a moderated discussion with Fed Chair Powell, and global CPI reports for Mar.
US earnings will also be in focus together with simmering geopolitical headline risks.
The latest Atlanta Fed GDPNowcast update has US Q1 growth running at +2.4%. This week, US retail sales, industrial production, and housing data will further round out the view of Q1 GDP growth. This will be the second last input into the growth run rate before the final Q1 GDPNowcast at the end of Apr so should provide a more robust view of growth.
US retail sales are expected to increase by +0.4% in nominal terms in Mar. This is down from the +0.6% increase in Feb.
New building permits for Mar are expected to ease slightly to 1.51m (annualized) from 1.54m in Feb. New housing starts are expected to ease to 1.48m (annualized) from 1.52m units in Feb. US existing home sales in Mar are expected to slow back slightly to 4.2m units (annualized) from 4.3m in Feb.
US Fed speeches will be in focus this week. US Fed Chair Powell will take part in a moderated discussion with Bank of Canada Governor Macklem. Also speaking this week will be Vice Chair Jefferson and Presidents Logan and Williams.
Inflation data for the UK, Euro area (final), Japan, Canada, and NZ will be released this week. The Canadian and NZ inflation data will be important in the context of central bank decisions last week hinting at more favorable inflation developments. Headline inflation in Canada is expected to accelerate over the month to +0.7% (from +0.3% in Feb), while the annual rate is also expected to increase from +2.8% in Feb. The important trimmed mean inflation rate is expected to stay unchanged at +3.2%. NZ CPI for Q1 is expected to increase slightly to +0.6% from +0.5% in Q4 and increase slightly over the year from +4.7% in Q4. UK headline inflation is expected to ease to +3.1% from +3.4% in Feb while core inflation is also expected to ease to +4.1% in Mar. Japanese core inflation is expected to ease to +2.7% in Mar, down slightly from +2.8% in Feb.
Chinese GDP, retail sales, and industrial production data will be in focus.
Aus employment data for Mar is expected to slow to +7.2k from the very fast pace of Feb. The unemployment rate is expected to increase to 3.9%.
This week, the US Treasury will auction and settle approx. $575bn in ST Bills, Notes, and Bonds, raising approx. $10bn in new money. The US Treasury will also auction the 5-year TIPS and 20-year Bond this week – both will settle on 30 Apr.
QT this week: Approx $15bn in ST Bills, Notes, Bonds, and TIPs will mature on the Fed balance sheet and will be reinvested. Approx $37.4bn in Notes, Bonds, and TIPs will mature and 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
by Kim | Apr 8, 2024
Key events this week – US CPI & PPI, FOMC Minutes, ECB, BoC, & RBNZ meetings
Recap from last week
US economic activity has maintained a robust pace of growth so far in the first quarter, with strong labor market conditions persisting through March. In this context, some Fed speeches have signaled the possibility that, if inflation progress continues to stall here, rate cuts could be pushed further out. At the time of writing, market rate cut expectations had (just) moved out to Jul with only two cuts now priced in for this year.
In his speech last week, Fed Chair Powell reiterated that solid growth and US labor market conditions were providing the Fed with time to ensure that inflation is on a sustainable path to 2% before starting to cut interest rates.
Given the strength of the economy and progress on inflation so far, we have time to let the incoming data guide our decisions on policy.
On the recent stalling of disinflation progress, Fed Chair Powell reinforced that the job was not yet done and even acknowledged that “it is too soon to say whether the recent readings represent more than just a bump”.
The US labor market report was generally strong for Mar. Non-farm payrolls came in much higher than expected at +303k for Mar (expecting +205k). Revisions were also positive. This is now the fourth month in a row of elevated payroll growth. There were notable increases in construction, private education & health, leisure & hospitality, and government payrolls. The average weekly hours increased back up to 34.4 and average weekly earnings also increased by +0.35% Mar, up from +0.2% in Feb. The unemployment rate was little changed from 3.86% in Feb to 3.83% in Mar as participation and household employment metrics rebounded for the broader 16-year+ age group.
The JOLTs data showed that recently slowing job openings had stabilized at around a rate of 5.3% in Jan & Feb. There was a small uptick in the layoff and discharge rate in Feb to 1.1% – which is still near the series low. The Challenger Job Cut Announcement survey for Mar continued to hint at elevated job cuts to come and continued subdued hiring announcements.
US growth data remained positive last week. The rebound in the US ISM manufacturing survey for Mar helped offset slightly slower, albeit still positive, growth from the ISM services survey and slower growth in vehicle retail sales for Mar. At the end of the week, the latest Atlanta Fed GDPNowcast for Q1 growth lifted to +2.5% (from +2.3% at the start of the week).
The latest global PMI’s for Mar reflected a continued improvement in global activity. Across both manufacturing and services, output growth expanded at the fastest pace since mid-2023, supported by further improvements in new orders and optimism in the business outlook.
Outlook for the week ahead
The US CPI (and PPI) report this week will be important for the US rates outlook. Inflation data for Jan and Feb were characterized as “disappointing” in the context of the good progress made in the second half of 2023. Some Fed speeches have emphasized the need for several more ‘good readings, like the ones in late 2023’ on inflation to have greater confidence that inflation is moving sustainably to 2% before it becomes appropriate to begin lowering policy rates.
Headline US CPI is expected to increase over the year to +3.4% in Mar, up from +3.2% in Feb. The monthly pace of headline inflation is expected to ease to +0.3% in Mar, from +0.4% in Feb. Core CPI is expected to ease slightly to +3.7% in Mar, from +3.8% in Feb. The monthly core CPI is expected to increase by +0.3% in Mar, down from +0.4% in Feb.
Headline US PPI for Mar is expected to increase to +2.3% in Mar, up from +1.6% in Feb. The monthly PPI is expected to ease to +0.3% in Mar, down from +0.6% in Feb. Core PPI is expected to increase by +2.3% over the year in Mar, up slightly from +2% in Feb. Core PPI is expected to increase by +0.2% over the month in Mar, down slightly from +0.3% in Feb.
Central banks will also be in focus this week.
The FOMC Minutes of the Mar meeting will be released this week. This may provide further insight into the latest changes to the Summary of Economic Projections (SEP), particularly changes in the view around the outlook for rates.
The ECB will meet this week. Policy settings are expected to stay unchanged at this meeting. At the last meeting, the Governing Council noted that it was more confident that inflation was coming down, but not yet sufficiently confident given domestic price pressures had been more persistent. ECB President Lagarde noted that wage data were expected to be a key focus through to the Apr-Jun period; “we will know a little more in April, but we will know a lot more in June” to support changes to the policy rate. The prelim CPI for the Euro Area in Mar continued to slow over the year. The core CPI rate also eased to +2.9%, however, the monthly core rate stayed elevated at +1.1% due to higher non-energy industrial goods and services inflation. Services inflation has stayed unchanged at +4% over the year for the last five months, likely remaining a concern for the ECB.
The Bank of Canada will also meet this week. Policy settings are expected to stay unchanged. At the Mar meeting, the Governing Council noted that it was still too early to consider lowering the policy rate given lingering concerns over inflation and especially underlying inflation. Since then, there has been progress on inflation with the Feb CPI coming in lower than expected and the BoC core measures of inflation easing more notably to +3.1% – the lowest rate of the last six months. The Mar labor market data showed conditions easing with net employment declining and the unemployment rate jumping to 6.1%, up from 5.9% in Feb. This may start to weigh on the BoC outlook – with the latest BoC Business Outlook Survey for Q1 noting that “current conditions remain on the weaker side with firms moderating business investment spending plans as fewer firms feel the need to expand amid ‘persistently weak demand’”.
Finally, the RBNZ will also meet this week and is expected to keep policy settings unchanged. At the Feb meeting the RBNZ noted that “risks to the inflation outlook have become more balanced”. However, headline inflation remains above the 1-3% band “limiting the Committee’s ability to tolerate upside inflation surprises”.
This week, the US Treasury will auction and settle approx. $410bn in ST Bills, with a net paydown of -$52bn. The US Treasury will also auction the 3-year and 10-year Notes and 30-year Bond this week – these will settle next week on 15 Apr.
QT this week: Approx $9bn in ST Bills will mature on the Fed balance sheet 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
