by Kim | Jul 18, 2022
Key events for the week ahead – ECB & BoJ policy decisions, RBA Minutes, inflation reports, and prelim PMIs for July
Recap from last week
US CPI accelerated more than expected to +9.1% for Jun. Fed speeches and market reactions indicate that at least another 75bps hike is expected by the FOMC next week. There is a sense that the Jun CPI report marks a near-term peak in the pace of headline inflation given the easing in energy and commodity prices. But measures of core inflation (trimmed and median) and sticky CPI suggest that inflation pressure is still broadening and may take longer for it to peak. Even if headline inflation growth slows, it may take longer for core inflation to return to target levels.
US retail spending for Jun came in better than expected at +1% (still slightly negative in real terms), and consumer sentiment was little changed from Jun. The weakness in Jun US manufacturing from the regional and PMI reports was reflected in the -0.5% decline in manufacturing output in Jun. Both durable and non-durable goods output declined.
Continued high inflation had central banks announcing larger rate hikes last week. The BoC surprised with a 100bps increase in the target overnight rate to 2.5%, citing higher and more persistent inflation than expected. The BoC expects inflation to stay around 8% for the next few months. This week, the Jun CPI for Canada is expected to increase to +8.3% (from +7.7% in May).
The RBNZ also lifted the official cash rate by a further 75bps last week to 2.5%. The bank noted near-term upside inflation risks, supported by a tight labour market (3.2% unemployment rate). This week, NZ Q2 CPI came in higher than expected at +7.3% for Jun.
Outlook for the week ahead
There will be more central bank activity this week.
The BoJ will meet on monetary policy, but no policy change is expected. The BoJ is expected to update its inflation outlook. The Japanese National CPI for Jun will be released this week. Core inflation (ex-fresh food) is expected to stay elevated at +2.2% (from +2.1% in May).
The ECB is expected to increase its key rates by 25bps. The net asset purchases ended on 1 July. So far, inflation has continued to increase at an elevated pace. Sentiment is weakening and there are signs of slowing growth momentum, especially in periphery countries. Generally, markets are expecting a short hiking cycle.
The RBA minutes will be released this week. The RBA raised the cash rate target by another 50bps to 1.35% at the Jul meeting. Last week’s Jun labour market report reflected a further tightening in conditions – high employment growth, a new high in participation, and a near-term record low unemployment rate of 3.5%. This will give the RBA confidence to continue hiking rates. This week, Governor Lowe will speak, and Asst Governor Bullock will also speak about how Aus households are placed for interest rate increases. Next week, the Q2 CPI report will be released – in time for the Aug meeting the following week.
UK CPI for Jun is expected to increase further by +9.3% (versus +9.1% in May).
The prelim S&P PMIs for Jul will be released this week. There was a notable slowdown in Jun, especially in US manufacturing and across the Eurozone. The Jul reports are expected to show little change in momentum from Jun.
There will be no Fed-speak this week in the blackout period ahead of the FOMC meeting next week.
This week, the US Treasury will auction and settle approx. $211bn in ST Bills raising approx. $3bn in new money.
The US Treasury will also auction the 10yr TIPS and the 20yr Bond this week.
Approx. $19bn in ST Bills will mature on the Fed balance sheet this week and will be rolled over.
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 | Jul 11, 2022
Key events for the week ahead – US CPI & retail sales, RBNZ & BoC policy decisions, and US Q2 earnings
Recap from last week
The pace of inflation, the strength of the labour market, and growth remain key barometers for central banks in this tightening cycle. The FOMC minutes reflected the hawkish tilt at the June meeting following the May CPI report. A key change was the shift from ‘expeditiously to neutral’ to restrictive policy, and, possibly to an ‘even more restrictive stance’ if elevated inflation pressure persists. At this stage, it’s likely the FOMC will raise the FFR target by another 75bps at the Jul meeting. Since the last meeting and CPI report, the market narrative has shifted to growth and recession concerns if the Fed maintains this hawkish angle. The FOMC has done little to dampen this narrative.
US labour force data continued to confirm robust conditions for May and Jun. Non-farm payrolls for Jun were higher than expected at +372k, but with -72k revisions for the two prior months.
The US labour market started the year on a strong note, but the pace of momentum has eased since Mar. This is evident across slower (yet still high) payroll and household employment growth and a slightly rising trend in initial jobless claims since Mar. The peak (so far) in job openings was in Mar, the peak in hires was in Feb, and quits peaked back in Nov 2021. US layoffs and discharges reached a low in Dec 2021.
The US ISM reports highlight slower growth momentum since late 2021 also. Manufacturing conditions eased more notably by Jun – especially new orders (confirmed by the S&P PMI and regional surveys). The ISM services momentum also eased, but the headline expansion remains at the average 2019 pre-pandemic level. There is some sign of slowing services new orders/demand growth (especially in the US S&P Services PMI).
Global S&P PMIs for Jun was stronger – led by broader expansion from the reopening of China. Ex China highlights slower growth momentum in manufacturing – led by the Eurozone (including Germany) and the US. Eurozone services also slowed notably. The PMIs summarise the different headwinds facing many nations; including the roll-off of significant covid-era stimulus, high inflation impacting consumption, a war on the doorstep of Europe, an energy crisis, and rising rates.
Outlook for the week ahead
There are several important US reports out this week in the lead-up to the Jul FOMC meeting. The first is US CPI. Inflation is expected to accelerate to +8.8% for the year (expectations for up to +9%), up from +8.6% in May. Monthly CPI is also expected to remain high at +1.1% in Jun (versus +1% in May). Core CPI is expected to increase at a constant +0.6% for the month and +5.8% for the year, down from +6% in May.
The second is US retail sales growth, which is expected to rebound to +0.8% in Jun after a fall in nominal sales in May of -0.3%.
RBNZ monetary policy decision – markets are expecting a 50bps increase.
BoC monetary policy decision – and the expectation is for a 75bps increase. Headline CPI in Canada remains elevated. The employment decline in Jun was offset by a fall in participation, so the unemployment rate fell to 4.9%. Wage growth was stronger than expected.
Aus labour market report for Jun will be another important barometer for the RBA. Employment growth is expected to slow but the unemployment rate is also expected to fall to a record 3.8%.
The highly anticipated US Q2 earnings reports will commence later this week.
The US Treasury will auction and settle approx. $317bn in ST Bills, Notes, and Bonds raising approx. $10bn in new money this week.
Approx. $36bn in ST Bills, Notes, Bonds, and TIPS (incl compensation) will mature on the Fed balance sheet this week and will be rolled over. Approx. $13.6bn in Notes, Bonds, and TIPS (incl compensation) will 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
by Kim | Jul 4, 2022
Key events for the week ahead – US non-farm payrolls, FOMC & ECB minutes, RBA policy decision
Recap from last week
At the ECB Forum at Sintra last week, central bankers agreed that we aren’t returning to a ‘lowflation’ world. While Inflation may come down from these peaks, it could stay elevated compared to before the pandemic – and this has implications for monetary policy settings. Central bankers also felt there was urgency in tightening to ensure inflation does not become entrenched. Whilst Chair Powell thought there was a risk of “going too far” with tightening and risking a recession, in fact, “the bigger mistake to make, let’s put it that way, would be to fail to restore price stability.” (US Fed Chair Powell).
But will these central banks maintain this hawkishness if growth does slow in a meaningful way? In Europe, the Euro area flash CPI for Jun continued to accelerate to a record +8.6% but the flash PMIs for Jun suggests a slowdown in manufacturing and services momentum plus weak sentiment. The ECB has yet to even start raising rates (although conditions are tightening). There is still a considerable downside risk to growth in the Euro area from a further escalation with Russia/Ukraine and energy policy.
The BoE is not seen as behind the curve. The UK economy is “at a turning point” and showing signs of slowing while the inflation rate remains at an extreme +9.1%. The BoE Governor noted at Sintra that it would act more forcefully if inflation remained persistent, but hinted that raising the policy rate was not the only option.
Finally, the FOMC has been tightening more aggressively. The PCE inflation rate increased at a constant pace of 6.3% in May (+6.3% in Apr), but the Atlanta Fed trimmed mean still shows inflation broadening across categories. There are signs of easing pressure from energy and other commodity prices, which may be reflected in upcoming inflation reports. But US manufacturing, services, and housing data are fuelling growth concerns. US regional manufacturing surveys for Jun recorded a notable slowdown in orders over the last two months. Firms are instead working through backlogs and tight inventories are starting to ease. The ISM manufacturing report for Jun also reported a slight contraction in orders as well as a further, moderate contraction in employment.
Outlook for the week ahead
During his FOMC press conference in Jun, Chair Powell said that the “objective is to bring inflation down to 2% while the labour market remains strong”. The labour markets will remain a key barometer for the central banks and for the pace of tightening in the near term.
This week, the focus will be on US non-farm payrolls for Jun. Initial claims over the last few weeks have remained steady, albeit slightly elevated. Non-farm payrolls are expected to increase by +270k in Jun (+390k in May). Participation is expected to be little changed at 62.3% and the unemployment rate is expected to remain at an extremely low 3.6%.
The FOMC and ECB minutes from the prior meetings will be released this week.
The RBA will meet on policy this week. Governor Lowe noted that the discussion will likely focus on a 25 or 50bps increase in the cash rate target. Markets are expecting another 50bps increase. The labour market remains strong, while there is some evidence of the housing market starting to slow.
The final global PMIs for Jun will continue to be released this week. Also, Germany’s factory orders and industrial production data for May will be an important gauge of activity in the Euro area.
This week, the US Treasury will auction and settle approx. $182bn in ST Bills, with an estimated paydown of $26bn.
Approx. $20bn in ST Bills will mature on the Fed balance sheet this week and will be rolled over.
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 | Jun 27, 2022
Key events for the week ahead – US PCE inflation, Eurozone inflation, ECB Forum on Central Banking
Recap from last week
An increasingly hawkish Fed has raised the risk of a recession, or at least, reduced the chances of a soft landing on a narrow landing strip. In testimony last week, Chair Powell reaffirmed that the economy is “very strong and well positioned to handle tighter monetary policy”. But the Senate and Congress were concerned that the Fed had failed to heed their inflation warnings and that aggressive tightening to reduce inflation could bring on a recession. Chair Powell made an “unconditional commitment” to tame inflation – while waiting for “compelling evidence” that inflation is moving down before easing the pace of tightening. At this stage, either a 50bps or 75bps increase is on the table for Jul.
With growth concerns heightened, there will be increased attention to incoming data. The prelim PMIs for Jun were disappointing. Momentum slowed more than expected in the US and across Europe. The main theme was a contraction in demand/new orders and weaker confidence in the growth outlook. This was evident across US manufacturing and surprisingly, services. Across the Eurozone, orders slowed across services and contracted sharply across manufacturing. Private sector manufacturing activity in Japan also slowed – with demand affected by Covid restrictions in China. Service sector momentum was stronger in Japan as travel and tourism restrictions were eased. The prelim PMI for the UK and Aus showed momentum remained little changed in Jun.
In Aus, the RBA minutes noted further upside surprises in inflation over the prior month. The minutes suggest that the decision to go with a 50bps increase was that the current/low starting level of rates was seen as too stimulatory for an economy with a tight labour market and facing higher inflation. The Board was concerned that the inflation mindset was shifting and did not want to risk higher inflation becoming entrenched. Governor Lowe noted that the Board will be having the same discussion next month on whether to increase the cash rate target by 25 or 50bps.
Inflation was elevated across CPI reports last week. CPI growth in Canada came in higher than expected at +7.7% (expecting +7.5%) in May, the UK CPI came in as expected at +9.1%, and CPI growth in Japan remained at +2.5% for May, slower than expected, but still elevated.
Outlook for the week ahead
The ECB hosts its Forum on Central Banking this week 27-29 Jun. Members from the ECB will speak at the start of the week. On Wed, US Fed Chair Powell, ECB President Lagarde, and BoE Governor Bailey will take part in the economic policy panel.
Inflation will remain top of mind this week. US PCE price inflation for May will be released. This is the FOMC preferred measure of inflation. Headline PCE is expected to remain elevated in May (the Apr headline PCE inflation was +6.3% and core was +4.9%). Other US data will include the ISM manufacturing PMI for Jun, durable goods orders for May, and the monthly personal income and spending for May.
The flash Euro area inflation for Jun will be reported and inflation is expected to accelerate from +8.1% in May to +8.3% in Jun – another record reading. The flash CPIs for Euro area countries will also be released during the week: Spain, Germany, France, and Italy.
The final PMIs for Jun manufacturing activity will start to be released this week. The official Chinese Bureau of Statistics China PMIs will also be released for Jun.
Next Monday is the US National Independence Day holiday.
This week, the US Treasury will auction and settle approx. $347bn in ST Bills, TIPS, Notes, and Bonds, raising an estimated $53bn in new money.
Approx. $35bn in ST Bills, Notes & Bonds will mature on the Fed balance sheet this week and will be rolled over. Approx. $21bn in Notes and Bonds will mature and roll off the Fed balance sheet this week, making up the bulk of the $30bn QT cap for June.
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 | Jun 20, 2022
Key events for the week ahead – CPI reports (UK, Japan, and Canada), Chair Powell testimony, and prelim PMIs for June
Recap from last week
Higher than expected CPI and inflation expectations readings from the University of Michigan survey prompted the FOMC to implement a larger shift in policy last week. The aim of the FOMC was to signal its willingness to move decisively and not wait for another meeting to quell rising inflation and inflation expectations.
The target for the FFR was increased by +75bps – higher than the +50bps guidance for the meeting. The FOMC noted that this was an “unusually large increase” and that moves of this size are not expected to be common. But ongoing increases in the target FFR will be appropriate. There was a notable shift in guidance for monetary policy in favour of implementing a moderately restrictive policy by the end of the year.
In his press conference, Chair Powell noted “our objective really is to bring inflation down to 2 percent while the labor market remains strong”.
The FOMC is looking for “compelling evidence” that inflation is coming down, such as a series of declining monthly inflation reads before it starts to slow the pace of tightening.
US Fed Chair Powell will give two days of testimony this week to the Senate and House of Reps standing committees. This will provide a broader view of the political pressure placed on the Fed to rein in inflation. We might also see guidance on the preference of the next hike in Jul – either 50 or 75bps.
US data was softer last week. Consumer retail spending was weaker than expected, declining slightly. Manufacturing output (from the Industrial Production report) also declined slightly, and early Jun regional manufacturing reports highlight weaker momentum. Housing activity continued to slow as mortgage rates increased rapidly.
The BoE raised its bank rate by a further 25bps (6-3 decision where three members voted for a 50bps increase). UK inflation and retail sales will be released this week. CPI is expected to remain elevated and increase to +9.1% in May (from +9% in Apr).
The SNB surprised markets with a +50bps increase in its key policy rate (now at -0.25%).
The BoJ kept policy settings unchanged and remained in easing mode. Within the context of rising rates and hawkish central banks, bond purchases by the BoJ to defend yield targets reached a new high last week. This week, Japan CPI will be released – with headline inflation expected to reach +2.9% in May. Minutes of last week’s meeting will also be released.
Outlook for the week ahead
The RBA minutes will be released this week and should provide important insight into the surprise 50bps increase at the last meeting. Last week Governor Lowe announced an upgraded inflation forecast during a prime-time interview – catching many off guard. There will be several speeches given by Governor Lowe this week.
With central banks becoming increasingly hawkish, attention now shifts to signs of changes in growth momentum. This week, the Jun prelim PMIs will provide an early reading on growth momentum at the mid-year point.
The final reading for the US University of Michigan consumer sentiment survey for Jun will also be released on Friday.
This week, the US Treasury will auction and settle approx. $204bn in ST Bills and FR Notes with an estimated paydown of $9bn. The US Treasury will also auction the 20yr Bond and 5yr TIPS this week – both to settle next week.
Approx. $9.5bn in ST Bills will mature on the Fed balance sheet this week and will be rolled over.
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
