by Kim | Jan 2, 2024
Key events this week – FOMC Minutes, US Non-Farm Payrolls, Euro Area CPI, PMI’s for Dec
Recap from last week
US PCE inflation for Nov continued to ease at a faster-than-expected pace. We recently noted that US inflation has eased more than expected through the latter part of 2023, prompting the FOMC to revise its inflation projections lower at the Dec meeting. In Nov, the headline PCE inflation rate slowed to +2.6% while the core PCE inflation rate slowed to +3.2%. Both of these measures are already at or below the lower full-year FOMC inflation projection submitted in Dec. Importantly, both annual and short-term measures continue to indicate that the path of inflation and underlying inflation remains lower.
Despite the high inflation and rising rate environment of the last several years, US economic growth has been resilient and labor market conditions have stayed remarkably strong. While the growth and unemployment situation is expected to weaken in 2024, FOMC projections reflect a ‘soft landing’ scenario for the US. The FOMC meeting in Dec signaled a potential shift in the rates cycle – to align rates with further expected progress on lower inflation and a slower growth environment in 2024. We’ll find out more details about the FOMC deliberations and signaled policy shift when the Minutes of the Dec FOMC meeting are released this week.
The latest update to the Atlanta Fed GDPNowcast – a running estimate of US GDP growth – showed Q4 growth slowed to +2.3% from +2.7% based on the Nov personal spending and residential investment data. The main contributor was the slower pace of personal spending growth in Nov of +0.2% (expecting +0.3%) while spending growth in Oct was revised lower to +0.1%. US residential investment spending data was mixed – but showed sentiment stabilizing amid falling mortgage rates.
Outlook for the week ahead
We are straight back into important economic data this week with a comprehensive update on the US labor market. The resilience of the US labor market has so far surprised many – and it remains an important element of the current economic resilience.
The US labor market data in Dec is expected to show more of the same – ongoing tight conditions while labor supply and demand conditions come into better balance. In Dec, US non-farm payroll growth is expected to slow to +163k total payrolls (from +199k in Nov). The unemployment rate is expected to edge slightly higher to 3.8% in Dec (from 3.7% in Nov). The FOMC projection for 2024 reflects an expectation that the unemployment rate will end the year at 4.1% (median projection) within a potential range of a 3.9% to 4.5% unemployment rate throughout the year.
US average weekly hours are expected to stay at 34.4 in Dec. Average hourly earnings growth is expected to slow to +0.3% over the month and to +3.9% over the year. The Nov JOLTS survey (lags by one month) is expected to show little change in the level of job openings of around 8.8m.
The US ISM manufacturing and services PMIs for Dec will be released. Stronger services growth momentum is expected to offset continued sluggish manufacturing conditions.
The prelim Euro Area CPI for Dec is expected to rebound slightly. It was noted at the latest ECB meeting, that inflation was “likely to pick up again temporarily in the near term”. Euro Area headline inflation is expected to increase by +3% in Dec, up from +2.4% in Nov. Core CPI is expected to remain little changed at +3.5%.
Finally, the full suite of global S&P PMI’s for Dec will be released providing a broad update on growth momentum through to the end of Q4. The prelim release of G4 PMIs in Dec showed a mixed picture. The prelim data was earlier than usual so could see some revisions in the final release. To recap the prelim Dec results; there was a lift in services growth momentum in the US, Japan, and the UK, but services activity continued to contract in the Eurozone, especially in France. The generally stronger services growth helped to offset persistent weakness in manufacturing across all the G4 economies in Dec.
This week, the US Treasury will auction and settle approx. $597bn in ST Bills, Notes, and Bonds, raising approx. $73bn in new money.
QT this week: Approx $10bn in ST Bills will mature on the Fed balance sheet and will be reinvested. Approx $33bn in ST Bills, Notes, Bonds, and FRNs will mature and roll off (redeemed) 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 | Dec 18, 2023
Key events this week – US PCE inflation, CPI reports for the UK, Canada, Japan, and the Euro Area (final), BoJ meeting, RBA minutes
Recap from last week
Communication and signaling from the FOMC diverged from other central banks last week. The FOMC kept policy settings unchanged but altered its forward guidance providing the clearest signal yet that it is shifting (or intends to shift) its policy bias. The current market pricing of rate cuts for 2024 was addressed by the Summary of Economic Projections (SEP) which shows a median of three (3) cuts to the FFR next year. US PCE inflation has eased more than expected through the latter part of 2023 and the projected final inflation rate over the year was revised much lower to +2.8%, from +3.3% expected only back in Sept. While US growth has been robust and unemployment has stayed low, both are expected to weaken in 2024. The SEP is saying that if inflation continues to ease, growth slows, and unemployment rises in line with expectations, then rates will need to be calibrated to the slower growth/lower inflation environment. The press conference statement maintained a general theme that the inflation fight was not yet done, but Chair Powell tempered this sentiment noting that ‘our policy rate is likely at or near its peak for this tightening cycle’.
US data last week suggested that aggregate demand likely improved in Nov and Dec. The latest update to the Atlanta Fed GDPNowcast upgraded the pace of US growth so far in Q4 from +1.2% to +2.6%. Retail sales growth was higher than expected at +0.3% (which included a large drag on nominal sales from falling gasoline prices), mortgage applications continued to rebound (mostly, but not all due to refi activity), and initial jobless claims (SA) eased back to +202k. US CPI continued to ease but at a slower pace than in Oct, as energy prices fell. Core CPI inflation remained unchanged at +4% in Nov.
The ECB kept policy settings and guidance unchanged and ECB President Lagarde pushed back on market expectations of rate cuts;
“We did not discuss rate cuts at all. No discussion, no debate on this issue.” ECB President Lagarde
Euro area growth concerns were more muted than in the last meeting despite the negative GDP print in Q3 (explained by a drag from inventories). The ECB remained concerned about domestic sources of inflation, noting that important wage data would not be available until Q1 2024. However, ECB President Lagarde outlined a more favorable view on the progress of disinflation, emphasizing new projections that see inflation at +2.1% in 2025, not 2026.
The BoE kept policy and guidance unchanged. The decision remained at 6-3, with three members preferring to raise the bank rate by 25bps.
The prelim PMIs among the G4 (plus Aus) for Dec were mixed – but the prelim data is earlier than usual so could see some revisions. There was a lift in services growth momentum in the US, Japan, and the UK, but services activity continued to contract in the Eurozone, especially in France. The generally stronger services growth helped to offset persistent weakness in manufacturing. Both the headline manufacturing PMI and the manufacturing output indexes fell into contraction across all countries in the prelim Dec release.
Outlook for the week ahead
Inflation data is a key focus this week. The US PCE inflation data for Nov will help to determine whether the pace of disinflation continued to outperform FOMC forecasts. Annual headline PCE inflation is expected to slow to +2.8% in Nov from +3% in Oct and slow to 0% over the month. Some forecasts are expecting the headline PCE inflation rate to decline over the month. Core PCE inflation is expected to slow to +3.4% in Nov and stay around +0.2% over the month.
There will be a broad range of US data which will provide a view on the pace of aggregate demand in Q4 and whether momentum is continuing to improve from the slow start to the quarter. This includes personal consumption expenditures (expected to increase by +0.3% in Nov, up from +0.2% in Oct) and personal income (expected to increase by +0.4% in Nov, up from +0.2% in Oct). The final University of Michigan consumer sentiment for Dec will be released and is expected to show that the strong rebound in sentiment from the prelim release was sustained through the month. US housing data for Nov will be released this week – permits, starts, existing home sales and new home sales are all expected to moderate further. Further regional manufacturing survey data and durable goods orders for Nov are also out this week. Finally, the third version of US GDP for Q3 is expected to confirm growth of +5.2%.
Global inflation data is broadly expected to show continued progress on disinflation. CPI data for the Euro area is expected to confirm that headline inflation slowed to +2.4% in Nov and fell by 0.5% over the month. Canada’s CPI rate is expected to slow to +2.9% over the year in Nov and by -0.2% over the month. UK inflation is expected to slow to +4.4% over the year, and by +0.2% over the month in Nov. Finally, Japanese National CPI is expected to slow, with the main BoJ measure of core CPI ex fresh food expected to slow to +2.5% over the year.
The BoJ will meet this week on policy. Policy settings are expected to be unchanged at this meeting. Updates to forecasts are not due until the next meeting.
Finally, the RBA minutes will be released. The Board kept the cash rate on hold in Dec for two main reasons; not much news during the inter-meeting period (the monthly inflation series doesn’t provide enough insight into services inflation) and holding the cash rate would allow some time for the latest rate hike to take effect. The minutes should provide some detail about the case to hold rates steady. The Aus labor market report for Nov showed that the economy is still generating strong job growth. However, the unemployment rate ticked higher to 3.9% from 3.8% due to even stronger growth in the size of the labor market – from the latest increase to another new series high in the participation rate.
This week, the US Treasury will auction and settle approx. $429bn in ST Bills, with a net paydown of -$3bn.
The US Treasury will also auction the 20-Year Bond and 2-Year FRN this week – to settle over the next two weeks.
QT this week: Approx $2.1bn in ST Bills will mature on the Fed balance sheet and will be reinvested. Approx $1.7bn in ST Bills will mature and roll off (redeemed) 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
Happy holidays to all!
by Kim | Dec 11, 2023
Key events this week – Central bank meetings; FOMC, BoE, ECB, and SNB, US CPI & retail sales, Aus labour market survey, S&P prelim PMIs Dec
Recap from last week
Robust US labor market conditions amid easing inflation are continuing to support households while the FOMC is expected to maintain restrictive policy settings.
US non-farm payrolls rebounded by more than expected in Nov and this was broadly a good jobs report. Nonfarm payrolls increased by +199k (expecting +180k) versus +150k in Oct (unrevised). From the household survey; the notably stronger increase in employed persons over the month more than offset the increase in labor supply from higher participation and population growth – and the unemployment rate fell back to 3.7%. Average hourly earnings rebounded to +0.35% over the month and stayed little changed around +4% over the year. The average workweek also increased slightly to 34.4 hours.
Despite the good result for the month, growth has slowed from the pandemic highs across payrolls, employment, job openings, and average hourly earnings. The fall in job openings was more pronounced in Oct (lagging data) – with the job opening rate falling to 5.3 (from 5.6 in Sep). The fact that the rate of job openings continues to fall while the layoff and discharge rate remains at a series low of 1.0 will likely be a positive sign for the FOMC.
The prelim University of Michigan consumer survey for Dec showed a notable rebound in consumer sentiment amid falling inflation expectations and emerging hopes that US elections next year will be favorable for the economy;
Consumer sentiment soared 13% in December, erasing all declines from the previous four months, primarily on the basis of improvements in the expected trajectory of inflation. Source: University of Michigan Consumer Sentiment Prelim, Dec 2023
Recent lower US inflation prints have also supported a near-term lift in real personal disposable income growth – which, together with solid labor market conditions, is also likely to be supportive of improving consumer sentiment.
Global growth was slower in Q3. Euro Area Q3 GDP growth was revised lower to -0.1%. However, this was the result of a negative contribution from the change in inventories which offset an improvement in household spending growth. Japanese Q3 GDP growth was revised lower to -0.7% based on a larger drag from the change in inventories, but household spending and the net export contribution remained weak. Aus Q3 GDP growth was slower than expected at +0.2% and household consumption growth stalled. The BoC policy meeting also noted that the slowdown in the Canadian economy was reducing inflationary pressures, as growth stalled over the middle quarters of the year.
Looking forward into Q4, the Global PMIs for Nov indicated that the manufacturing downturn continued to ease. There was a lift in momentum at the composite PMI level in Nov – led by an improvement in manufacturing conditions (though still in slight contraction) and a continued modest expansion in services.
Outlook for the week ahead
This will be a big week of central bank meetings and data in the lead-up to the end of the year.
Across many developed market economies, inflation is coming down, and growth is slowing. Markets have begun pricing in more and earlier rate cuts for 2024. Central bank meetings this week should provide some insight into the expected path of policy rates over the next year – the outlook is likely to remain cautious and uncertain, reinforcing that it is too early to call the fight on inflation done.
The FOMC is expected to keep policy settings unchanged. The focus of the meeting will be Fed Chair Powell’s press conference and the latest Summary of Economic Projections (SEP). The SEP is expected to provide important signaling on the change in the path of policy rates amid slowing inflation and low unemployment conditions. The FOMC is still likely to reinforce the position that it is not yet done on the inflation fight and Chair Powell has recently cautioned that it would be “premature” to “speculate on when policy might ease”.
During the two-day FOMC meeting, the US CPI for Nov will be released. Headline CPI is expected to be flat over the month and slow to +3.1% over the year as energy prices continue to fall. Core inflation is expected to increase by +0.3% over the month and stay unchanged at +4% over the year. US retail sales for Nov will be released after the meeting and are expected to fall slightly by -0.1% over the month.
The ECB is expected to keep policy settings unchanged. Recent speeches have suggested that the more notable easing in inflation over the last few months could make further policy tightening unlikely.
The BoE and SNB are expected to keep policy settings unchanged.
The Aus labour market survey for Nov is expected to show net employment growth slow to +1k over the month and the unemployment rate to lift to 3.8% (from 3.7% in Oct). The RBA kept policy rates on hold last week after increasing the cash rate at the Nov meeting due to concerns over persistent domestic inflation.
The final round of PMIs for the year will be released this week. The prelim G4 (plus Aus) prelim PMIs for Dec will provide some insight into the pace of growth in manufacturing and services in Q4.
This week, the US Treasury will auction and settle approx. $537bn in ST Bills, Notes, and Bonds raising approx. $63bn in new money.
QT this week: Approx $3.9bn in ST Bills will mature on the Fed balance sheet and will be reinvested. Approx $17.5bn in ST Bills, Notes, and Bonds will mature and roll off (redeemed) 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 | Dec 4, 2023
Key events this week – US non-farm payrolls, RBA & BoC meetings, GDP Q3; Aus, Japan and the Euro Area
Recap from last week
Progress on slowing US and Euro Area inflation has reignited optimism for a policy shift with markets pricing a larger number of rate cuts in 2024.
In the US, better-than-expected progress on PCE inflation, amid signs of easing growth momentum and some dovish central bank signaling, saw up to five rate cuts priced for 2024 and commencing as early as Q1. US PCE headline inflation eased more than expected to +3% over the year in Oct – which is now below the lower end of the current FOMC projections for the year (PCE inflation projection range is +3.1% to +3.8%). Core PCE inflation slowed as expected to +3.5% in Oct, with the monthly pace slowing to +0.2%. Measures of underlying inflation, such as core services ex shelter slowed more notably in Oct to +3.2% from +3.5% in Sept.
The speech from Fed Governor Waller garnered the most attention before the PCE inflation report. He was ‘increasingly confident’ that policy was tight enough (signaling not likely to see another hike). While “monetary policy has to work now to get inflation back to 2%”, he did outline a potential path for a Fed policy shift, as a means to align rates with slower inflation;
If the decline in inflation continues “for several more months … three months, four months, five months … we could start lowering the policy rate just because inflation is lower,” he said. “It has nothing to do with trying to save the economy. It is consistent with every policy rule. There is no reason to say we will keep it really high.” (Source: Reuters, 29 Nov 2023)
The FOMC will need to manage the risk that easing policy could slow the progress of bringing down inflation. For now, core inflation remains well above the 2% target and unemployment remains historically low. There are signs that growth is slowing from the robust pace of +4.9% in Q3 and the Atlanta Fed GDP Nowcast for Q4 did take a step down to 1.2% last week on slower personal spending growth, but it’s too early to call. Fed Chair Powell sought to address the enthusiasm for slowing inflation leading to a policy pivot;
“It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease. We are prepared to tighten policy further if it becomes appropriate to do so.” US Fed Chair Powell, Opening Remarks, 1 Dec 2023
The prelim Euro Area CPI for Nov also slowed more than expected. Headline CPI slowed to +2.4% in Oct with the monthly pace falling by -0.5% led by falls in energy and services prices. Core CPI also slowed by more than expected to +3.6% (from +4.2% in Oct). The slowing inflation seems to be more consistent with stalling growth in the Euro Area.
The monthly Aus inflation indicator eased by more than expected with headline inflation slowing to +4.9%. The core trimmed mean measure slowed slightly to +5.3% suggesting that inflationary pressures in the center of the distribution remain broad. The tradable versus non-tradable view of inflation will likely reinforce the RBA governor’s view that inflation has become more domestically focused. Non-tradable inflation has eased from a peak of +7.7% in Jan 2023 to +6% in Oct.
Outlook for the week ahead
US labor market data will be the key focus this week. It will be an important and timely data release to help round out the view of the US economy as we look for signs of moderating demand and further easing of wage growth ahead of next week’s CPI for Nov and the FOMC meeting on 12-13 Dec.
US non-farm payrolls are expected to rebound to +180k in Nov after weaker growth in Oct of +150k (impacted by labor disputes). The unemployment rate is expected to stay unchanged at 3.9%. Average weekly earnings growth is expected to pick up slightly to +0.3% over the month but stay around 4% over the year. The Oct (lagging) JOLTS data is expected to show a continued slowing in labor demand with job openings easing to 9.4m.
The RBA will meet this week and is expected to keep policy rates unchanged at 4.35% after hiking by 25bps at the previous meeting. Since the last meeting, RBA Governor Bullock has noted that the nature of inflation in Aus has become “increasingly homegrown and demand-driven”, highlighting the role of monetary policy in addressing inflation. Later in the week, Aus Q3 GDP is expected to show that growth slowed to +0.3% over the quarter (from +0.4% in Q2) and slowed to +1.7% over the year.
The BoC will meet this week and is expected to keep policy rates unchanged at 5%. At the last meeting, the Governing Council noted concerns over persistent underlying inflation (with a special note on the war in Israel and Gaza as a new source of geopolitical uncertainty) – but since then headline and core measures of inflation have continued to ease. Last week, Q3 GDP declined by -0.3% (expecting growth to be flat) as exports declined and household consumption growth stalled.
The second release of Japanese Q3 GDP is expected to confirm the -0.5% contraction (from +1.2% in Q2). The fall in GDP was led by the change in inventories which offset a muted contribution from household consumption, private investment, and net export growth.
The second release of the Euro Area Q3 GDP is also expected to confirm growth stalling at -0.1% in Q3.
The remainder of the S&P Global Services PMI’s for Nov will be released this week.
The US Treasury will auction and settle approx. $429bn in ST Bills raising approx. $6bn in new money.
QT this week: Approx $3.7bn in ST Bills will mature on the Fed balance sheet and will be reinvested. Approx $3.1bn in ST Bills will mature and roll off (redeemed) 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 | Nov 27, 2023
Key events this week – Inflation; US PCE Inflation, Euro Area CPI, and Aus CPI, RBNZ policy decision, US Fed-speak including Fed Chair Powell
Outlook for the week ahead
Progress on inflation will be a key theme in the week ahead.
US PCE inflation for Oct will be released this week. Headline PCE inflation for Oct is expected to slow to +3.1% over the year (from +3.4% in Sep) and slow to +0.1% over the month (from +0.4% in Sep). Core PCE is expected to slow to +3.5% over the year (down from +3.7% in Sep) and slow to +0.2% over the month (from +0.3% in Sep).
If PCE inflation slows as expected in Oct, it will be at the lower end of the range (and just below the median) of the current FOMC inflation projections for the year. The current FOMC projection for headline PCE over 2023 is between +3.1% and +3.8% and the core PCE inflation projection is between +3.5% and +4.2%. The latest FOMC minutes continued to reiterate that the Committee would need to see more data to be confident that inflation was “clearly on a path to the 2% objective”. Despite restrictive policy settings placing downward pressure on inflation and economic activity, inflation remains “unacceptably high”. It was noted that core inflation had come down somewhat in recent months with positive progress on core goods inflation and a gradual easing of shelter inflation. So far though, “there had only been limited progress on bringing down inflation in core services ex-shelter” – this is Fed Chair Powell’s favored view of the underlying trend of inflation.
It will be the last week of Fed speeches before the blackout period ahead of the FOMC meeting on 12-13 Dec. There will be several Fed speeches of interest this week, including Fed Chair Powell (Discussion), Governor Waller (Econ Outlook), and Governor Bowman (Mon Pol and the Econ).
Other US data out this week will provide further insight into the growth outlook for Q4. Personal income and spending data for Oct will be released. Income growth is expected to stay around +0.2% over the month while spending is expected to slow to +0.2% in Oct from +0.7% in Sep. The ISM manufacturing PMI is expected to show manufacturing activity continued to stall in Nov.
The prelim Euro area inflation for Nov is expected to ease further. Headline inflation is expected to slow to +2.8% over the year from +2.9% in Oct. Core inflation is expected to ease to +3.9% over the year (from +4.2% in Oct).
The Aus monthly CPI for Oct is expected to stay relatively elevated at +5.5% (from +5.6% in Sep). The latest RBA minutes reflected the debate over the decision to raise the cash rate by a further 25bps in Nov. The decision was based on the risks arising from the outlook for inflation to be stronger than had been previously expected. Concerns were raised over resilient domestic demand, higher underlying inflation, and “growing signs of a mindset among businesses that any cost increases could be passed onto consumers”. This was seen as a key challenge to the task of bringing inflation back to target in a reasonable timeframe.
The RBNZ will meet this week and is expected to keep policy settings unchanged.
The S&P Global PMIs for Nov will begin to be released later this week. Last week, the prelim G4 (incl Aus) PMIs for Nov showed that services momentum was slightly improved while manufacturing PMIs were in contraction. Overall, only the US and UK PMIs indicated expansion across private sector activity. Activity slowed to a stalled pace in Japan, the contraction slowed somewhat across the Eurozone, and the contraction in private sector activity gathered pace in Australia in Nov.
This week, the US Treasury will auction and settle approx. $657bn in ST Bills, Notes, Bonds, and TIPS raising approx. $101bn in new money.
QT this week: Approx $18bn in ST Bills, Notes, and Bonds will mature on the Fed balance sheet and will be reinvested. Approx $29.5bn in Notes and Bonds will mature and roll off (redeemed) 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
