by Kim | Oct 31, 2022
Key events for the week ahead – FOMC, BoE, & RBA policy decisions, US non-farm payrolls
Recap from last week
Despite high and persistent inflation, more CBs may be signaling an intention to slow the pace of policy tightening after front-loading hikes. The most important signal on this front may come from the FOMC this week.
Last week, the BoC increased rates by 50bps (some were expecting 75bps). Governor Macklem noted that the tightening phase will draw to a close – the bank is getting closer, but not there yet. The BoC expects that the policy rate will still need to increase further.
The ECB raised rates by 75bps. The ECB has likely reached the end of its frontloading transition and is moving towards a ‘meeting-by-meeting’ approach. Rates are still expected to increase further. Inflation in the Euro area is yet to peak, and growth concerns are elevated. Euro area prelim CPI in Oct is expected to increase again, reaching +10.2%.
The BoJ kept policy unchanged and doubled down on its dovish rhetoric; “We don’t plan to raise interest rates or head for an exit (from easy policy) any time soon. But if achievement of 2% inflation comes into sight, the board will of course debate an exit policy” (source: Reuters). Inflation forecasts were revised higher, but Governor Kuroda noted that the bank is looking for wage increases to accompany higher inflation.
Inflation is still broadly persistent. The US PCE inflation rate was higher than expected but stalled at +6.2%. European country-level CPI (prelim Oct) was higher than expected and continued to accelerate in Germany (+10.4%), Italy (+11.9%), and France (+7.1%). Aus CPI for Q3 was also higher than expected and accelerated to +7.3%. Aus core CPI similarly accelerated to +6.1% in Q3 from +4.9% in Q2.
Growth and output momentum continued to weaken. Global prelim PMIs for Oct show momentum is slowing, if not contracting. Only Aus and Japan manufacturing expanded in Oct. The US manufacturing expansion slowed to neutral. Services weakened further – except in Japan.
Outlook for the week ahead
The focus will be on the FOMC this week. While a 75bps increase is expected, the FOMC is also expected to signal whether/when it will slow the pace of policy tightening. If it does, then balanced communication will be crucial; that fighting inflation still is a priority despite reducing the size of rate hikes.
An important US barometer will come out after the FOMC this week; US non-farm payrolls for Oct are expected to increase by +200k (after +263k last month). Participation is expected to remain at 62.3% and the unemployment rate to increase slightly to 3.6%. Job openings for Sep are expected to slow further to 10m after a notable fall in Aug. The US ISM manufacturing and services PMIs are expected to show a slowdown in growth momentum.
The BoE is expected to increase its policy rate by 75bps this week after unprecedented political and market turmoil. Most fiscal measures have now been reversed, so the BoE outlook for tightening, inflation, and growth will be important.
The RBA is expected to increase its policy rate by 25bps – after having already reduced the size of hikes last month.
The full suite of global PMIs will be released this week for Oct.
This week, the US Treasury will auction and settle approx. $466bn in ST Bills, Notes, Bonds, TIPS, and FRNs raising approx. $42bn in new money.
QT for Oct; Approx. $32bn in Notes, Bonds, & FRNs will be redeemed/roll off the balance sheet on 31 Oct.
Approx $26bn in ST Bills will mature on the Fed balance sheet this week and will be reinvested/rolled over.
The next quarterly Treasury financing update will be on 2 Nov 2022.
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 24, 2022
Key events for the week ahead – BoC, ECB, and BoJ policy decisions, Inflation (US PCE inflation Sep, prelim Euro-area CPIs Oct, Aus CPI Q3), prelim PMIs for Oct, US GDP Q3
Recap from last week
While the FOMC looks set to raise rates by 75bps again next week, the focus shifted to the timing of when the Fed will start to slow the pace/size of rate hikes. The likelihood of changing to smaller hikes “at some point” has been well-telegraphed in the FOMC minutes. Two articles came out last week. The NYT article suggested that any “serious discussion” on smaller hikes would be delayed by at least a month as inflation remained high and the labour market tight. “The conversation about whether to scale back is now more likely to happen in December”. (Source: NYT Jeanna Smialek). The WSJ article received more traction as a signal from the Fed. The article suggested that the Fed may start to prepare markets for smaller hikes after the Nov meeting and “are likely to debate then whether and how to signal plans to approve a smaller increase in December”. (Source: WSJ Nick Timiraos). Both articles highlight how smaller hikes could conflict with the Fed’s goal of tightening monetary policy. The Fed’s problem will be whether it can slow the pace/size of rate increases while still appearing to be hawkish, and not undo the work it has done to tighten financial conditions.
We are now in the blackout period ahead of the FOMC meeting next week.
The RBA minutes noted that the Board was also worried about market reactions to slowing the pace of hikes. Aus inflation is expected to peak at over 7% (currently 6.1%). The pace of hikes was slowed to assess the impact on households amid high mortgage debt and variable mortgage rates; “The full effects of higher interest rates were yet to be felt in mortgage payments and the increases in the cash rate were close to the interest rate buffer applied when many current borrowers took out their loans” (source: RBA). The RBA is concerned with the cash rate at 2.6% – while futures markets currently expect the cash rate to peak higher at around 4% late next year (unless inflation eases faster). Aus labour market data last week was weaker than expected as employment growth slowed. The CPI release this week will be important leading up to the RBA meeting next week. Aus CPI is expected to increase to +6.9% in Q3. The Aus government budget will be released this week.
Outlook for the week ahead
Central bank policy decisions this week; The BoC is expected to increase by 50bps to 3.75% as inflation data last week remained elevated at +6.9% for Sep.
The ECB is expected to increase rates by 75bps to 1.5%. last week Euro area CPI for Sep was confirmed at +9.9% in Sep from +9.1% in Aug. This week, the prelim CPIs for Oct will be released for Germany, Italy, France, and Spain.
The BoJ is expected to keep policy unchanged. The policy rate differential will keep pressure on the currency amid unconfirmed interventions. Japanese headline CPI remained at +3% in Sep while core CPI ex fresh food accelerated to +3% and has been above +2% now for six months. CPI growth ex-energy and fresh food is accelerating and reached +1.8% in Sep – still below the BoJ +2% threshold.
US PCE inflation for Sep expected to ease to +5.8% from +6.2% in Aug. Core PCE is expected to increase to +5.2% from +4.9% in Aug. The US employment cost index for Q3 is expected to remain elevated at +1.3% (QoQ). US GDP growth in Q3 is expected to increase to +2.1% (SAAR basis) from -0.6%. The contribution of domestic versus external demand will be important.
Prelim global PMIs for Oct will provide insight into changes in growth momentum amid high inflation and rising rates.
This week, the US Treasury will auction and settle approx. $255bn in ST Bills, raising approx. $26bn in new money.
The US Treasury will also auction the 2-year, 5-year, and 7-yr Notes and 2-year FRN – to settle on 31 Oct.
QT; approx. $19.4bn of ST Bills will mature on the Fed balance sheet this week. Of this total, approx. $3.2bn in ST Bills will be redeemed/roll-off the balance sheet and approx. $16.2bn in ST Bills 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 | Oct 17, 2022
Key events for the week ahead – US earnings, housing and production data, inflation for the UK, Canada, NZ, Eurozone, and Japan, RBA minutes
Recap from last week
US CPI growth was higher than expected adding to the uncertainty around the path of inflation and keeping pressure on the FOMC to hike.
The headline inflation rate has moderated from a peak of +9% in Jun to +8.2% in Sep. But the deceleration stalled between Aug and Sep. This month, falling gasoline and used/new car prices (and core commodity prices generally) was offset by an acceleration in core services price growth (broad). Annual food price growth is still extremely elevated but did not accelerate between Aug and Sep. Core CPI growth has continued to accelerate across most measures. Even excluding the well-known categories adding to/detracting from inflation – food, energy, shelter, and used cars, shows that price growth continued to accelerate in the remaining categories. This measure of core CPI increased to a new cycle high of +6.7% in Sep versus +6.3% in Aug. US consumer inflation expectations increased in the prelim University of Michigan sentiment report for Oct (after falling for several months) – due to a shift in gasoline price expectations. It will concern the FOMC to see inflation expectations increase again.
US nominal retail sales were flat at a total level, or -0.4% in real terms for the month. Initial claims (wk of 7 Oct) increased again to +228k. One third of the increase in the NSA claims was recorded in Florida (likely due to Hurricane Ian), but some of the other bigger states also recorded an uptick. A further increase in initial claims is expected this week to +235k.
The FOMC minutes maintained a hawkish stance. The 75bps increase at that meeting was seen as “another step towards sufficiently restrictive”. Since the last meeting though, concerns over financial stability risks have increased. Some FOMC members have highlighted the two-sided risks from the rapid tightening of global financial conditions. The minutes also note that “…it likely would become appropriate at some point to slow the pace of policy rate increases while assessing the effects of cumulative policy adjustments on economic activity and inflation”.
While US inflation has eased, it is not yet on a clear downward trajectory, and there are both upside and downside risks. The pace of further tightening will continue to be data dependant. After the stronger-than-expected CPI last week, the target FFR probability for Nov indicates another +75bps hike is likely.
Outlook for the week ahead
US Q3 earnings will continue to be in focus. Data will focus on housing and output. US existing home sales are expected to slow to 4.69m (SAAR) in Sep from 4.8m in Aug. Industrial production is expected to increase by +0.1% in Sep (from 0% in Aug). The first of the regional manufacturing surveys for Oct will be released.
Global inflation data will be in focus; UK CPI (expecting ↑ +10%), Canada (↓ +6.8%), NZ (↓ +6.6%), and Japan (↑ +3.1%). The final Eurozone CPI result for Sep will be released and is expected to increase by +10%.
China data for Sep and Q3 GDP is expected to rebound amid rolling covid lockdowns.
The RBA minutes will be released and of interest will be the decision to shift to a slower pace of rate hikes. The market reaction has been to push out the peak in the cash rate later into 2023 (now Nov rather than Jul), while the peak rate has fluctuated with global market volatility (now back up to 4%). The Aus labour market survey for Sep will be released and employment is expected to increase by +25k, the participation rate to remain at 66.6%, and the unemployment rate to remain at 3.5%.
This week, the US Treasury will auction and settle approx. $335bn in ST Bills, Notes, and Bonds, raising approx. $80bn in new money.
The US Treasury will also auction the 5-year TIPS and 20-year Bond – to settle on 31 Oct.
QT; approx. $19.78bn of ST Bills will mature on the Fed balance sheet this week. Of this total, approx. $3.3bn in ST Bills will be redeemed/roll-off the balance sheet and approx. $16.5bn in ST Bills 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 | Oct 10, 2022
Key events for the week ahead – US CPI, FOMC minutes, and US retail sales
Recap from last week
US labour market data for Sept was mostly in line with expectations. Payroll growth is slowing, but still high enough to indicate tight labour market conditions. The notable fall in the unemployment rate was however due to a fall in participation as employment growth moderated. The labour data last week is not expected to cause the Fed to rethink the pace of rate hikes, but some data may begin to catch their attention. First is the notable fall in job openings in Aug. Engineering a fall in openings has been a pillar of the Fed’s ‘soft landing’ thesis – to reduce demand for new jobs rather than existing employment. Openings are historically elevated, and there is still a long way before this series ‘normalizes’. Second, while the bigger gains in hourly earnings were in services, some key ‘reopening’ industries also reported the smallest gains in earnings in the month – retail trade, education & health, and leisure & hospitality. Finally, initial claims jumped back above +200k and are expected to increase again this week (+225k). The trajectory of these indicators is important for the moment.
Fed speeches last week remained hawkish. Governor Waller said that the inflation outcomes in the Aug report were “not the inflation outcome” that would support a slower pace of hikes. Waller notes the latest SEP has between 100 and 125bps of hikes over the next two meetings and data is still supportive of another 75bps in Nov – but that depends now on inflation leading up to Nov. The target rate probability has shifted back to a +75bps increase in Nov.
The global manufacturing PMI shifted into contraction in Sep. The G7 countries slowed again and most stayed in contraction except the US & Japan (only a modest expansion). The US was the only G7 country where the manufacturing PMI expanded, albeit slightly. There was a notable contraction in parts of Asia (Taiwan, Sth Korea, and China) and Europe esp. Germany and France. Manufacturing among the ASEAN group accelerated. The global services output shifted from contraction to neutral (this excludes the China result which recorded a large slowdown from 55 in Aug to 49.3 in Sep). The G7 was mixed. Japan’s services activity accelerated into moderate expansion. US services improved from a low level but remained in contraction. Eurozone services contracted at a faster pace – led by a further deceleration in Germany and Italy.
The RBA surprised with a lower hike of 25bps (expecting +50bps) to “assess the outlook for inflation and economic growth in Australia”. The RBA is concerned about the impact of rapidly rising rates on households as variable rate mortgages account for approx. 65% of outstanding mortgages in Aus (source; RBA). Rate increases are expected to be passed through over the next few months. The RBA released the financial stability review for Q3 which includes details of the impact of rising rates and inflation on households in Australia.
Outlook for the week ahead
US CPI will be the main focus. Headline CPI for Sept is expected to ease to +8.1% (from +8.3% in Aug) as monthly inflation is expected to increase by +0.2% (from +0.1% Aug). Core CPI is expected to increase by +6.5%, up from +6.3% in Aug. The OPEC decision last week (and the oil price reaction) raises the spectre of volatile CPI readings in the months ahead which will concern policymakers.
US retail sales are expected to increase by +0.3% in Sept from +0.2%.
The FOMC minutes will be released this week. Fed speeches during the week include Vice Chair Brainard on Monday.
The BoE temporary Gilt purchase program is due to end on 14 Oct. The BoE has announced additional measures to ensure an orderly exit from the intervention.
This week, the US Treasury will auction and settle approx. $227bn in ST Bills with another net paydown of -$2bn.
The US Treasury will also auction the 3yr and 10yr Notes and the 30year Bond – all will settle next week.
QT; approx. $17.7bn of ST Bills will mature on the Fed balance sheet this week. Of this total, approx. $3.5bn in ST Bills will be redeemed/roll-off the balance sheet and approx. $14.2bn in ST Bills 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 | Oct 3, 2022
Key events for the week ahead – US non-farm payrolls, RBA & RBNZ policy decisions, US Fed speeches
Recap from last week
The BoE intervened with an emergency program to buy long-dated UK government bonds to “restore orderly market conditions”. The intervention was to be “strictly time-limited”, ending on 14 Oct. The commencement of the outright sale of Gilts from the BoE balance sheet was postponed until 31 Oct. At the time of writing, the UK government has announced that it will drop a part of its spending plan given the adverse market response.
Amid the hawkish messaging, some US Fed speeches noted a ‘two-sided risk’ of rapidly rising rates. In a speech late last week, US Fed Vice Chair Brainard said that the “global environment of high inflation and rising interest rates highlights the importance of paying attention to financial stability considerations for monetary policy”. Global policy tightening has been rapid “by historical standards” and it will “take time” for tightening to work through sectors. Monetary policy will still need to be “restrictive for some time” but also recognize “that risks may become more two-sided at some point”. (Speech; Global Financial Stability Considerations for Monetary Policy in a High-Inflation Environment). By the end of last week, probabilities for the next US rate hike had become more evenly split between a 50 and 75bps increase. In the prior week, the probability had been firmly in favour of a 75bps increase.
US headline PCE inflation slowed to +6.2% in Aug as gasoline prices eased. But core PCE inflation accelerated from +4.7% in Jul to +4.9% in Aug. The Dallas Fed 12-mth trimmed mean (core inflation) rate accelerated to a cycle high of +4.7% in Aug, up from +4.5%. The US initial jobless claims (SA) also continued to slow and new claims fell to +193k last week. This is a useful high-frequency indicator of current labour market strength.
Inflation in the Euro area accelerated notably in the prelim Sep release increasing to +10% in Sep from +9.1% in Aug. While the headline is higher due to rising energy prices (+3% just in the month), price growth accelerated across all major expenditure categories.
The first monthly Aussie inflation release showed a slight easing in the inflation rate from +7% in Jul to +6.8% in Aug. The easing in the rate of inflation was due to the fall in auto fuel prices as the fuel excise tax was reduced (this measure expired on 28 Sep).
Outlook for the week ahead
US non-farm payrolls for Sep are expected to remain strong increasing by +250k (Aug +315k). The participation rate is expected to fall slightly to 62.2% while the unemployment rate is expected to be unchanged at 3.7%. The US ISM manufacturing and services PMIs will be released – growth momentum is expected to ease slightly.
There will be a large number of Fed speeches this week including FOMC members Waller, Jefferson, Williams, Cook, George, and Mester.
The remainder of the global PMIs for Sep will be released this week.
The RBA and RBNZ will meet this week and both central banks are expected to increase their policy rates by 50bps. The RBA has previously noted that it expects to slow the pace of hikes to keep the economy on an even keel. The previous minutes showed that the Board was already considering a 25 or 50bps increase last month. Aus labour market conditions remain strong, while housing continues to ease.
The next OPEC meeting is scheduled for 5 Oct 2022.
This week, the US Treasury will auction and settle approx. $255bn in ST Bills with a net paydown of -$2bn.
QT; approx. $25.5bn of ST Bills will mature on the Fed balance sheet this week. Of this total, approx. $5.1bn in ST Bills will be redeemed/roll-off the balance sheet and approx. $20.4bn in ST Bills 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
