by Kim | Nov 20, 2023
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
by Kim | Nov 13, 2023
Key events this week – US CPI & retail sales, Aus labor market & wage price index, inflation; UK, Euro area, central bank speeches
Recap from last week
Despite a light data week, there were several important points around some key themes.
Central banks have reiterated concerns over balancing progress on inflation with a slowing growth outlook. The latest was the RBA, which raised the cash rate last week by 25bps noting slower-than-expected progress on inflation. Despite this concern, wording changes in the guidance to “whether further tightening of monetary policy is required” (from “some further tightening of monetary policy is required”) were interpreted as marking an end to the hiking cycle. The RBA Statement on Monetary Policy release (SoMP – Nov 2023) saw inflation forecasts revised higher through the forecast period. GDP growth is expected to slow amid weaker expected growth in household consumption.
A speech by US Fed Chair Powell was consistent with the last FOMC press conference but this speech was seen as having a more hawkish tone. The FOMC will continue to move carefully to balance the “risk of being misled by a few good months of data” with the risk of overtightening and will evaluate the totality of the data to determine the extent to which additional policy firming may be appropriate. Fed Chair Powell continued to characterize the process of getting inflation down to 2% as having “a long way to go”, as improvements in labor supply were helping to bring the labor market back into balance. Chair Powell also noted that the FOMC is not confident that it has achieved the stance of monetary policy that is “sufficiently restrictive”.
Global data continued to reflect the impact of tighter monetary policy conditions. This was reflected in the further slowdown in the S&P Global PMI for Oct. The global composite PMI slowed to 50 in Oct from 50.5 in Sep. This stalling in momentum was the result of slower global services growth and manufacturing output growth that has begun to weaken again. Despite the lackluster conditions, optimism in future activity was little changed and stayed at an elevated level. The US S&P PMIs for Oct remained an outlier among the larger developed economies with both the manufacturing and services PMIs staying in positive territory.
Outlook for the week ahead
This will be an important week for understanding shifts in the growth and inflation outlook.
The ‘not too hot’ US labor market data for Oct helped to fuel an expectation that US growth has started to moderate. The latest Atlanta Fed GDP Nowcast has US Q4 growth running at 2.1% (SAAR). There will be a range of US inflation, spending, output, and housing data this week that will provide a broad update on the Q4 growth outlook.
US headline CPI growth is expected to slow to +3.3% over the year from +3.7% in Sep as energy prices fall. The monthly pace of CPI is expected to slow to +0.1% in Oct from +0.3% in Sep. Core inflation is expected to stay unchanged at +4.1% over the year in Oct and +0.3% over the month.
US retail sales are expected to fall by -0.1% in Oct after the much stronger growth of +0.7% in Sep.
US industrial production for Oct is expected to fall by -0.4% in Oct after increasing by +0.3% in Sep. The first US regional manufacturing surveys for Nov will provide an update on momentum in the manufacturing sector.
The first US housing data for Oct and Nov will be released this week – importantly reflecting the period of (peak?) higher mortgage rates. US building approvals are expected to slow to 1.45m (SAAR) in Oct from 1.47m in Sep. New housing starts are also expected to slow to 1.34m in Oct from 1.35m in Sep. After a period of weakening home builder sentiment, the NAHB housing market index is expected to be unchanged at the start of Nov.
US initial claims have been drifting higher recently (still around average for the last three months), as the level of continuing claims has also been rising more notably. Initial claims are expected to be slightly higher at +222k for last week (+217k in the prior week).
The Aus labor market and wage-price data will be important this week. Employment growth is expected to increase to +18k in Oct from +6.7k in Sep. However, with participation expected to stay unchanged at 66.7%, the unemployment rate is projected to increase to 3.7%. Wage growth is expected to accelerate to +1.3% in Q3 from +0.8% in Q2 – partly the result of the annual increase in the minimum wage rates from the start of Jul. The annual change in the wage price index is expected to increase to +3.9% in Q3 from +3.6% in Q2. This would be just below the RBA Dec quarter forecast of +4% growth in the WPI.
Global growth and inflation data will remain in focus. The second estimate of the Euro Area GDP release for Q3 is expected to be unchanged at -0.1% over the quarter and +0.1% over the year. The prelim Japanese GDP for Q3 is also expected to slow by -0.1% over the quarter from +1.2% in Q2.
The final Euro area CPI for Oct is expected to slow to +2.9% for headline and +4.2% for core CPI. UK headline CPI for Oct is expected to slow to +4.8% while core CPI is expected to slow to +5.8%.
There will be a broad range of UK and Chinese data out this week.
Other; Central Bank speeches will feature this week. Ongoing geopolitical risks remain elevated. US President Biden and Chinese President Xi will meet earlier in the week. A US government funding extension will need to be negotiated this week ahead of the 17 Nov deadline.
This week, the US Treasury will auction and settle approx. $566bn in ST Bills, Notes, and Bonds raising approx. $68bn in new money.
QT this week: Approx $17.6bn in ST Bills, Notes, and Bonds will mature on the Fed balance sheet this week and will be reinvested. Approx $30.5bn in Notes and Bonds will mature on the Fed balance sheet and 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 | Nov 6, 2023
Key events this week – RBA monetary policy decision, US Fed-speak including Fed Chair Powell, UK GDP Q3
Recap from last week
Central bank decisions and important data overtook heightened geopolitical concerns last week.
As expected, the FOMC kept policy settings unchanged at its meeting last week. Current restrictive settings are expected to keep downward pressure on activity and inflation. The Committee continues to “proceed carefully” judging that the full effects of tightening are yet to be felt. Guidance remains unchanged; additional firming may be appropriate and will be based on the totality of the incoming data. Higher long yields are helping keep financial and credit conditions tighter and the hurdle is likely higher for further increases in policy rates. Policy settings are however likely to stay restrictive “until we are confident that inflation is a path to that (2%) objective”. This decision was interpreted to mean that the Fed was likely done with further rate hikes in this cycle. Additional cuts to the FFR have started to be priced in for 2024.
The BoJ kept policy rates unchanged but adjusted how it conducts YCC. Importantly, the BoJ removed the ‘hard’ ceiling to defend the 1% upper limit of the 10-year JGB yield, instead calling it a ‘reference point’. As expected, the BoJ increased its inflation estimates for 2023 through to 2025.
The BoE kept policy settings on hold amid signs of ‘some impact of higher monetary policy on the labor markets and on momentum in the real economy more generally’.
US economic data was not too hot last week and this likely contributed to the shift in the outlook for additional cuts to the FFR in 2024. The broad update of the US labor market showed some easing of tight labor market conditions. Non-farm payroll growth for Oct was lower than expected at +150k, as labor strikes affected results. The prior two months were revised lower by -101k payrolls. The household survey recorded a marked fall in employment that was only partially offset by a fall in participation. This resulted in an increase in the unemployment rate to 3.9% (from 3.8% in Sep). Average weekly hours slowed, and the effects of labor strikes were also reflected in the fall of average overtime hours in durable goods manufacturing. In Sep, job openings were little changed. The job opening rate remains well above the pre-pandemic average. Wages growth continued to ease in Q3 with growth of the ECI slowing to +4.3% from +4.5% in Q2. Pockets of elevated wage growth remain within public sector state and local government compensation.
Data globally continued to reflect the impact of tighter monetary policy conditions. The global S&P manufacturing PMI for Oct was downbeat with optimism in the outlook falling to an eleven-month low. Output contracted across Europe, the UK, China, and Japan. Output in the US according to this survey, expanded mildly for the second consecutive month. The global manufacturing PMI employment index fell for the second month with a contraction recorded across a majority of countries in the survey. The remaining global services PMIs for Oct will be released this week.
The Eurozone flash GDP showed activity contracted slightly in the Euro area in Q3 and growth likely stalled over the year. Euro area headline inflation slowed more than expected to +2.9% as energy prices fell. Core inflation slowed to +4.2%.
Canadian employment growth was lower than expected while the unemployment rate increased by more than expected to 5.7%.
Outlook for the week ahead
The RBA will meet this week. Market pricing for this meeting was only at a 50% implied expectation for a rate hike this week (as of 3 Nov), however, many economists are forecasting an increase to 4.35%. In Q3, inflation was higher over the quarter but slowed over the year to +5.4%. The question is whether this latest CPI report, together with other data from the inter-meeting period, will result in an upgrade to the inflation outlook. It’s likely to be a finely balanced decision.
There will be several US Fed speeches this week, including remarks from Fed Chair Powell, Governor Waller, and Dallas Fed President Logan.
Economic data will be light this week.
UK GDP for Q3 is expected to fall by -0.1% over the quarter. This would be on par with the BoE expectation of weakening growth in Q3 (compared to +0.2% in Q2).
The remaining suite of S&P global service PMI reports will be released this week helping to round out the view of economic activity at the start of Q4.
The US Senior Loan Officer survey for Q3 will be released this week and may provide some insight into lending conditions amid higher long-term yields. Initial claims for the wk ending 4 Nov are expected to increase by +217k.
This week, the US Treasury will auction and settle approx. $454bn in ST Bills raising approx. $23bn in new money. The US Treasury will also auction the 3-year and 10-year Notes and the 30-year Bond – these will settle next week on the 15 Nov.
QT this week: Approx $13.6bn in ST Bills will mature on the Fed balance sheet this week and will be reinvested.
An update of the quarterly refunding announcement is provided in the briefing document attached. 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 | Oct 30, 2023
Key events this week – FOMC, BoJ, and BoE monetary policy decisions, US non-farm payrolls & ISM surveys
Recap from last week
The prelim release of US Q3 GDP did not disappoint last week. Real GDP growth in Q3 was higher than expected at +4.9% (annualized basis). Even nominal GDP growth accelerated to +8.5% (annualized) in Q3. The acceleration in real GDP was led by growth in personal consumption expenditures across both goods & services (the Sep monthly PCE was stronger than expected at +0.7%), a larger change in inventories, and growth in government expenditure. Private investment spending slowed.
US PCE inflation for Sep showed little improvement in the headline rate, with inflation stalling at +3.4%. Core PCE inflation slowed to +3.7% but picked up over the month to +0.3%. Price growth of core goods continued to moderate (used cars) while core services inflation has remained more persistent at +5% (shelter). Across a range of inflation measures (trimmed mean, median, and headline), the monthly trend of inflation is showing a slight re-acceleration. The final University of Michigan consumer inflation expectations for Oct stayed higher with year-ahead inflation expectations revised higher to +4.2%.
To round out the ‘totality of the data’ ahead of the FOMC meeting this week; US data has been consistently ‘better than expected’ through Q3. This has been across retail sales & consumption growth, non-farm payrolls, the moderate improvement in manufacturing conditions, and the overall acceleration in Q3 GDP growth (prelim). However, short-term indicators show higher rates impacting mortgage applications and some parts of the housing market. There has been slower, ‘less encouraging’ progress on inflation recently. The FOMC meets this week and is unlikely to change its stance from “proceeding carefully” and is expected to keep policy rates unchanged. As noted last week, Fed speeches questioned the degree to which economic growth may moderate from here given the recent “significant tightening of financial conditions” resulting from higher long-term bond yields. Guidance from the FOMC will be important this week. Another hike may not be off the table – but the bar for another hike is likely to be higher. Fed speeches noted that if growth stays strong AND, even if inflation just stabilizes here, then that could form the basis for more tightening by the FOMC.
The BoC and ECB kept policy settings unchanged last week. The BoC remained concerned over inflation, noting that some “inflation risks have increased”.
Aus Q3 headline inflation slowed to +5.4% in Q3 (from +6% in Q2). The larger-than-expected increase in the quarterly rate to +1.2% was notable – led by faster growth in housing, transport (fuel), alcohol & tobacco, food, and insurance prices. The trimmed mean (RBA preferred measure) also accelerated over the quarter to +1.2% and slowed to +5.2% over the year. Since the CPI release, markets have been pricing in a higher probability (close to 50% on 27 Oct) that the RBA will increase rates by a further 25bps by Feb 2024. The RBA meets next week.
The prelim Oct PMIs for the G4 (plus Australia) showed a slowdown across service momentum while manufacturing PMIs were broadly unchanged staying in moderate contraction. Services output slipped to just below the 50-expansion level – due to a further deterioration in the Eurozone and a shift back to a contraction in Aus. Conditions in the US were the standout of the report with both services and manufacturing output growth improving.
Outlook for the week ahead
There will be several important areas of focus this week.
The first will be central bank policy decisions. Broadly, the global rise in longer-term yields is likely to weigh on most central bank decisions at this stage. The BoJ is expected to keep policy settings unchanged. However, there have been news items suggesting (signaling) that adjustments to policy settings are under consideration. The updated outlook report will also be released and there may be scope for changes to the inflation outlook.
The FOMC is expected to keep policy settings unchanged. As noted above, guidance will be important.
The BoE is also expected to keep policy rates unchanged. The last policy decision to keep rates on hold was not unanimous due to high inflation and the weakening momentum of the real economy. The decision this week could also be finely balanced.
The second area of focus will be data. The key economic report for the US will be non-farm payrolls and the broad update of US labor market indicators for Oct. US non-farm payrolls are expected to increase by +182k (from +336k in Sep). The unemployment rate is expected to stay unchanged at 3.8%. The employment cost index (ECI) for Q3 is expected to show no change in the pace of employment cost growth of +1% over the quarter. The JOLTS survey for Sep is expected to show a slowdown in the number of job openings to 9.3m. The US ISM surveys for Oct will provide a detailed view of momentum going into Q4 – manufacturing activity is expected to stay at a stalled pace while services momentum is expected to slow.
In Europe, the prelim CPI for the Euro Area is expected to show further progress on slowing inflation in Oct. Headline inflation is expected to slow to +3.2% in Oct from +4.3% in Sep. Core CPI is expected to stay elevated at +4.2%, but still moderate from +4.5% in Sep. The Eurozone prelim GDP is expected to contract slightly by -0.1% in Q3.
The full suite of global S&P PMIs will be released this week for Oct. This will provide a broader view of global private sector momentum going into Q4.
Finally, geopolitical risk and uncertainty remain elevated this week.
This week, the US Treasury will auction and settle approx. $700bn in ST Bills, Notes, Bonds, TIPS, and FRNs raising approx. $114bn in new money.
QT: Approx $22bn in ST Bills will mature on the Fed balance sheet this week and will be reinvested. Approx $39bn in ST Bills, Notes, and Bonds will mature on the Fed balance sheet this week and will be redeemed/roll-off the balance sheet.
The latest US quarterly refunding announcement will be made this week. Announcements regarding the financing requirements for Q4 2023 and Q1 2024 (estimate) will be made on 30 Oct and further details will be released on 1 Nov this week. 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 | Oct 23, 2023
Key events this week – US PCE inflation & Q3 GDP, Fed speeches, ECB & BoC monetary policy meetings, Aus CPI, Prelim PMIs Oct
Recap from last week
Fed speeches last week acknowledged that US economic activity had picked up through Q3 – including spending and payrolls growth. Recent inflation prints remain on a downward trend, but were “less encouraging”. Moderating wage growth was a stronger theme from the speeches, with wage growth “moving closer to levels that would be consistent with 2% inflation”. However, the central question was whether economic growth would moderate from here given the recent “significant tightening of financial conditions” resulting from higher long-term bond yields. The FOMC stance is unlikely to change from “proceeding carefully” with policy rates staying on hold. Speeches by Fed Chair Powell and Governor Waller suggested that there may be a higher bar for another rate hike, but that another hike was not off the table. More specifically, if growth stays strong AND, even if CPI just stabilizes here, then that could form the basis for more tightening by the FOMC.
In line with recent stronger economic data, US retail sales increased by more than expected while the prior month was revised higher. This lifted the trend of nominal and real retail sales growth through Q3 compared to Q2. US housing data was more downbeat than in recent months, amid rising mortgage rates. New mortgage applications in the prior week fell by -6.9%. New residential construction data recorded a fall in new permits in Sep (across all regions), while housing starts increased modestly compared to the sharper fall in Aug. Existing home sales in Sep fell to a new pandemic-era low of 3.96m units (SAAR-basis). Home builder sentiment in Oct continued to weaken with the headline index falling 9% to 40 – still above the pandemic low of 30. Industrial output growth was stronger than expected in Sep (although Aug was revised lower) and manufacturing output growth improved across both durable and non-durable goods industries.
Outlook for the week ahead
There will be several areas of focus this week. The first will be on US inflation and economic growth to further round out the view of the ‘totality of the data’ leading up to the FOMC meeting next week.
US PCE inflation for Sep is expected to ease slightly to +3.4% (from +3.5% in Aug). Core inflation is expected to slow to +3.7% in Sep (from +3.9% in Aug), with the monthly pace rising slightly to +0.3%. Core PCE at +3.7% would be in line with the current FOMC median projection for the year-end result. The prelim University of Michigan consumer sentiment survey for Oct noted some upward movement in one-year and five-year inflation expectations. The final survey result for Oct this week will show whether the change in inflation expectations has been revised.
The first look at US GDP growth for Q3 may be more important than usual given how much focus has been placed on the ‘resilient’ economic conditions. GDP in Q3 is expected to accelerate to +4.1% (SAAR) from +2.1% in Q2.
There will be several Fed speeches this week – unusual in the week before an FOMC meeting. All speeches are noted as ‘opening remarks’ in the Federal Reserve Calendar. Remarks have been scheduled for Fed Chair Powell, Governor Waller, and Fed Vice Chair for Supervision Barr.
This is the first of several weeks of central bank meetings. This week, the ECB and BoC will meet and both are expected to keep policy rates on hold.
The Aus Q3 CPI will be released. The RBA minutes and speeches over the last two weeks suggest that the Q3 CPI report could be important for the next RBA meeting (7 Nov). Aus headline CPI is expected to slow over the year to +5.3% from 6% in Q2 while the quarterly growth is expected to increase to +1.1% from +0.8% in Q2. Trimmed mean inflation is expected to stay elevated at +1.1% over the quarter and to slow to +5% over the year (from +5.9% in Q2). Over the last week, there was a modest lift in market expectations for another hike by the RBA. However, the Sep labor market survey was lacklustre – possibly confirming the RBA view that the labor market has ‘turned a corner’. The RBA Governor Michele Bullock and Assistant Governor Kent will appear before the Aus Senate Economics Committee after the CPI report, providing some opportunity to signal any potential change in policy outlook if appropriate.
Finally, the global flash PMIs for key G4 economies for Oct will be released this week. This will provide the first view of growth momentum across manufacturing and services leading into Q4.
Geopolitical risk and uncertainty remain elevated this week.
The US House of Representatives is yet to appoint a new speaker. The process of nominating a new speaker will continue this week.
This week, the US Treasury will auction and settle approx. $454bn in ST Bills raising approx. $40bn in new money. The US Treasury will also auction approx. $167bn in 2-Year, 5-Year, 7-Year, and 2-Year FRNs – which will settle on 31 Oct.
QT this week: Approx $10.5bn in ST Bills will mature on the Fed balance sheet this week and will be reinvested. Approx $1.6bn in ST Bills will mature on the Fed balance sheet this week and will be redeemed/roll-off the 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
