by Kim | Jun 13, 2022
Key events for the week ahead – Central bank decisions; FOMC, BoE, BoJ, and SNB, US retail sales, and ongoing geopolitical risk
Recap from last week
Last week, the RBA surprised markets, and the broader community, with a 50bps rate hike and signaled “doing what is necessary” to ensure inflation returns to target. The size and timing of further hikes are to be guided by incoming data.
The ECB stayed on course with its policy normalization sequencing. Purchases under the APP will end on 1 Jul (reinvestments to continue). Guidance for Jul & Sep was clear – conditions for a rate hike have been met and expect +25bps at the Jul meeting. Another increase is planned for Sep and depending on the updated medium-term outlook for inflation, a ‘larger rate increment may be appropriate’. Beyond Sep, ‘gradual but sustained increases’ will be appropriate. Inflation forecasts were revised higher and growth forecasts revised lower.
The US CPI growth rattled markets, accelerating faster than expected to +8.6% in May, up from +8.2% in Apr. The inflation mix continues to shift as food, energy, and shelter prices contributed more to the acceleration while used and new car price growth decelerated. High inflation reads have corresponded with a sustained and notable deterioration in US consumer sentiment, now at a new series low.
Last week, the RBNZ announced that it would actively start to sell securities on its balance sheet starting in Jul. It plans to dispose of its holdings over the next five (5) years.
Outlook for the week ahead
The hotter CPI report poses a further challenge for the US Fed as it navigates market expectations for even higher rates and political pressure to reduce high inflation, while it hopes to orchestrate a ‘soft landing’ for the economy. The FOMC was already expected to increase rates by 50bps at the Jun meeting this week and in Jul. The FOMC signaling and how it responds to this further acceleration in inflation will be important. Will there be a shift beyond ‘raising expeditiously to neutral’ to starting to consider further larger hikes and/or restrictive policy settings? So far, Chair Powell and Governor Waller are due to speak at the end of the week.
Other central bank meetings this week include the BoE – which is expected to increase the bank rate by another 25bps. The SNB and the BoJ are both expected to keep policy rates unchanged.
US retail sales will provide an important gauge of consumer spending this week. Retail sales for May are expected to increase by +0.2% after increasing by +0.9% in Apr.
We are also watching US initial claims, which came in higher than expected last week at +229k. While claims are still low, it is an important high-frequency data point to watch.
Aus labour market data for May will be released. The RBA noted the strength of the labour market as underpinning its confidence to front-load larger rate hikes. Employment is expected to increase by +25k persons, and unemployment is expected to fall further to 3.8%.
This week, the US Treasury will auction and settle approx. $312bn in ST Bills, Notes, and Bonds raising approx. $39bn in new money. This is the first week of QT. Approx. $35.7bn in ST Bills, Notes, and Bonds will mature on the Fed balance sheet this week. Of this, $9bn of Coupons will roll off the Fed balance sheet.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | Jun 6, 2022
Key events for the week ahead – RBA and ECB policy decisions, US inflation, and ongoing geopolitical risk
The RBA will meet on monetary policy early this week. Another 25bps increase in the cash rate target is expected, with a chance for a 40bps increase. The last quarterly inflation reading of +5.1% was higher than the RBA Board had expected. With only quarterly inflation reports available, the Board noted that it was looking at a broader range of inflation inputs, especially from its business liaison program. The guidance provided at the last meeting was that further increases in interest rates will be necessary (but are not on a pre-set path). Aus GDP data released last week showed that growth remained strong in Q1 at +0.7% for the quarter. While the unemployment rate did fall below 4% in Apr, employment growth was tepid for the month. Growth in housing finance had already begun to moderate since the start of the year and remained weaker in Apr.
The ECB will meet this week. It is expected that the governing council will announce the end of the Net Asset Purchase Program (QE) – with purchases to end in June (while maturing securities on the ECB balance sheet will continue to be rolled over). Last week, inflation again surprised to the upside across the Eurozone, accelerating from +7.4% in Apr to +8.1% in May – adding further pressure on the ECB to begin the hiking cycle. The ECB has committed to the sequence to end the net APP before a lift-off in rates. Based on this, the ECB is expected to signal the timing for when it will commence rate increases (likely to be at the Jul meeting). The ECB will release updated growth and inflation forecasts at this meeting.
US CPI for May will be released at the end of the week. Headline CPI growth is expected to remain elevated at +8.3% in May (versus +8.3% in Apr). The monthly pace of growth is expected to accelerate from +0.3% in Apr to +0.7% in May. Core CPI growth is expected to remain elevated at +5.9% in May, but slightly slower than the +6.2% in Apr.
We are now in the blackout period ahead of the FOMC meeting next week – so there will be no Fed speeches this week. The US CPI report for May, together with the momentum in non-farm payrolls for May, will be important inputs for the FOMC meeting next week. As a part of moving expeditiously back to neutral, increases of 50bps at the next two meetings have already been well telegraphed.
Further data on the Chinese economy will be released this week – including trade data, CPI, and PPI inflation rates.
This week, the US Treasury will auction and settle approx. $182bn in ST Bills, with an approx. paydown of $34bn. The US Treasury will also auction the 3yr and 10yr Notes and the 30yr Bond this week – to settle next week.
Approx. $16.5bn in ST Bills will mature on the Fed balance sheet this week and will be rolled over. Bills maturing this month on the Fed balance sheet will be rolled over/reinvested. The first round of Coupons to mature and roll off the Fed balance sheet will commence next 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 | May 22, 2022
Key themes for the week ahead – global growth momentum, US PCE inflation, FOMC minutes, RBNZ, and ongoing geopolitical risk
Recap from last week
There was a hawkish tone from Fed Chair Powell last week. The FOMC needs to see inflation come down in a “clear and convincing way” and they are “going to keep pushing until we see that”. Prior signaling has been to lift rates ‘expeditiously’ to neutral, but Chair Powell noted that the Fed “wouldn’t hesitate” to move beyond “broadly understood levels of neutral” to achieve its aim of reducing inflation. Rate hikes of 50bps seem likely for Jun and Jul meetings if inflation remains high.
US data last week was mixed. Retail sales increased by more than expected in Apr and the prior month was revised higher. Quarterly retail results caused concern about a slowdown, inventory levels, and staffing. Initial claims shifted above the 200k mark. The housing market continued to slow amid the rising rate environment. Within industrial production data, manufacturing output continued to increase at a constant pace. Manufacturing capacity utilization at 79.45% is almost back up to the prior series high going back to the start of 2006. Headline regional manufacturing surveys suggested slower growth momentum coming into May – with demand data mixed. Growth in lead times remained constant, price increases were widespread, and employment growth was broadly stable.
UK inflation accelerated to 9% in Apr from 7% in Mar and the 3mth unemployment rate came in lower at 3.7%. The BoE Governor will speak this week. CPI growth in Canada came in higher than expected at +6.8% in Apr.
The National CPI growth for Japan was also higher than expected at +2.4% in Apr, up from +1.2% in Mar. Core measures were similarly higher. The main contributor to the acceleration was cycling over to a lower base in 2021 communications prices.
The RBA minutes confirmed that the condition for a rate increase had been met. The Board debated the size of the rate increase, settling on 25bps to signal a “return to normal operating procedure” from extraordinary policy settings. The Q1 wage price growth was slightly lower than expected meaning real wages declined. Labour market data was mixed. Employment growth was weak but a fall in participation resulted in a decline in the unemployment rate to 3.9%.
In an interview last week, ECB President Lagarde (among other recent ECB speeches), suggested that the ECB may hike rates “within weeks” of ending the Net Asset Purchase Program (expected to end early in Q3).
Outlook for the week ahead
US PCE inflation result for Apr – the Fed preferred measure. Headline inflation is expected to be unchanged at +6.6% over the year to Apr and increase by +0.8% in the month. Core PCE inflation is expected to moderate to +4.6%.
The FOMC minutes for the May meeting will provide insight behind the decision to increase by 50bps and begin balance sheet run-off. Speeches since that meeting have reiterated the aim of policy to reduce inflation.
The prelim global PMIs for May will provide early insight into changes in growth momentum amid rising growth concerns. Global growth forecasts have been downgraded as inflation, the war in Ukraine, and shutdowns in China are forecast to affect demand and further disrupt supply chains.
The RBNZ will meet this week and is expected to increase rates again, possibly by another 50bps.
Fed speakers this week include pre-recorded remarks from Chair Powell. The World Economic Forum at Davos will run all week.
This week, the US Treasury will auction and settle approx. $204bn in ST Bills and 2yr FRNs, with an approx. paydown of $12bn.
The US Treasury will also auction the remainder of next week’s issuance – the 2yr, 5yr, and 7yr Notes. All will settle next week on 31 May.
Approx. $17bn 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 | May 16, 2022
Key themes for the week ahead – inflation, US retail sales, central bank speeches & minutes, and ongoing geopolitical risk
Recap from last week
US CPI for Apr and Fed speeches was the focus of last week. US CPI growth did ease to +8.3% in Apr from +8.5% in Mar but not by as much as expected (expecting +8.1%). The rate of growth is still extremely elevated. The deceleration in Apr was the result of slower growth in energy (gasoline) and used car prices. Household energy prices, food, and shelter price growth continued to accelerate. US consumer sentiment declined markedly again amid high inflation concerns.
Fed speeches reiterated the priority to deal with high inflation by moving to neutral as quickly as possible. This means increases of 50bps are likely at Jun and Jul meetings. The more hawkish speeches called for an even greater tightening of financial conditions. According to Fed Chair Powell, the FOMC is not actively considering 75bps increases but is prepared to do more (or less) if needed.
Chair Powell’s interview after the CPI release noted that their “ability to execute a soft landing depends on factors outside of its control” – namely geopolitics and supply chain bottlenecks, both of which remain issues. Growth concerns have become heightened since the invasion of Ukraine. Some US growth forecasts have recently been revised even lower than the FOMC SEP from Mar when 2022 growth was revised from 4% down to 2.8% (without a corresponding increase in the unemployment rate).
The week ahead
A big week of data affecting the growth and inflation outlook and the path for rates.
US retail sales this week are expected to increase by +0.8% in Apr from +0.7% in Mar. The Apr US housing data is expected to weaken slightly on rising mortgage rates. Speeches this week by Fed Chair Powell, Bullard, and Mester. Initial manufacturing surveys for May to provide early insight into output growth momentum, prices, employment, and supply chain impact, especially from the latest Chinese lockdowns.
Both the BoC and BoE have guided higher for rates on the back of elevated inflation. This week, Canadian CPI is expected to ease to +6.3% in Apr (from +6.7% in Mar) while UK CPI is expected to accelerate from 7% in Mar to +9.1% in Apr. UK labour market (Mar) and retail sales (Apr) data will also provide some important insight into the pace of economic activity. Last week, UK Q1 GDP was slightly lower than expected at +0.8% (expecting +1%).
Japanese national CPI growth is expected to increase to +1.5% in Apr up from +1.2% in Mar. Core CPI ex fresh food is expected to increase to +2.1% in Apr (from +0.8% in Mar) on the back of higher energy prices. Ex energy and fresh food prices, CPI is expected to decline by -0.9% over the year in Apr. The BoJ has stated that it expects inflation to reach above 2% but will ‘look through’ rising energy prices which it expects to be transitory. Japanese GDP in Q1 is expected to contract by -0.4%.
The RBA minutes should provide insight behind the May rate hike. The RBA will watch closely the labour market and wages releases this week. Expecting a +30k increase in employment and the unemployment rate to fall to 3.9%. Wages in Q1 are expected to increase by +0.8% in the quarter and by +2.5% over the year. Last week, Aussie consumer sentiment fell further on rising inflation and interest rates impacting the cost of living. The Australian Federal election will be held this weekend.
The ECB minutes will be released this week. Markets are continuing to forecast rate lift-off after QE ends, possibly from Jul. Final Apr Euro area CPI for Apr is expected to confirm Euro area inflation at +7.5%. ECB President Lagarde and numerous other ECB members will speak this week.
Chinese data for Apr continues to reflect weaker economic conditions amid strict covid-zero lockdowns.
G7 leaders meet this week.
This week, the US Treasury will auction and settle approx. $319bn in ST Bills, Notes, and Bonds raising approx. $16bn in new money.
The US Treasury will also auction the 20yr Bond and 10yr TIPS this week – both will settle on 31 May.
Approx. $97bn in ST Bills, Notes, and Bonds 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 | May 9, 2022
Key themes for the week ahead – US CPI, central bank speeches, and ongoing geopolitical risk
Recap from last week
The FOMC, RBA, and BoE increased rates to curb inflation, announced balance sheet reduction, and guided higher for the likely path of rates.
The FOMC increased the target FFR by 50bps to 0.75-1%. Quantitative tightening will begin in Jun with a cap of $30bn/mth in balance sheet run-off for the first three months, then increasing to $60bn/mth. Chair Powell noted that “we are on a path to move our policy rate expeditiously to more normal levels” and that “additional 50bps increases should be on the table at the next couple of meetings” – assuming markets evolve as expected.
Chair Powell said that underlying growth in the US economy remained strong. The decline in Q1 GDP “reflecting swings in inventories and net exports, two volatile categories” that “likely carry little signal for future growth”. The Apr US ISM PMIs recorded slightly slower growth momentum as firms noted ongoing supply challenges and difficulty in finding qualified staff. Higher prices were a major theme as the number of firms reporting higher prices remained extremely elevated and the services sector recorded a new series high in the price index. US labour market indicators were somewhat mixed. Non-farm payrolls increased more than expected by +428k while Feb and Mar were revised lower by 40k. The unemployment rate was unchanged at 3.6%, as a fall in participation helped to offset a decline in employment in the household (population) survey.
The RBA surprised markets with a 25bps increase in the cash rate target to 0.35% (expecting +15bps). The RBA announced that bond holdings and the size of the balance sheet will decline as bonds mature (no reinvestments) – with substantial declines in the balance sheet expected during 2023/4. While rates are not on a preset path, it is expected that further increases in interest rates will be necessary.
The BoE increased rates by a further 25bps in a 6-3 decision, with three members voting for a 50bps increase. The decision highlighted that inflation pressures have “intensified sharply” – “leading to a material deterioration in the outlook for the world and UK growth”. The BoE central inflation forecast has UK CPI peaking in Q4 this year and averaging over 10%. The decision was accompanied by a weaker outlook for growth and rising unemployment. A plan for the outright sale of bond holdings will be presented at the Aug meeting for implementation at a later meeting. The committee noted that “some degree of further tightening in monetary policy may still be appropriate in the coming months”. The UK Q1 GDP is out this week and growth is expected to be +1% for Q1 and +9% over the year.
The week ahead
The US CPI for Apr will be the focus for the week – with growth in consumer prices expected to ease. The headline CPI growth is expected to slow to +8.1% in Apr from +8.5% in Mar. The monthly CPI is expected to ease from +1.2% in Mar to +0.2% in Apr. Core CPI is expected to increase by 6% in Apr, down from +6.5% in Mar. The monthly core CPI is expected to increase by +0.4% in Apr versus +0.3% in Mar.
Central bank speeches will come into focus over the next few weeks. We are watching for: US signaling on a change in the pace/size of rate increases (also a function of the inflation result) and ECB signaling on the path of rates.
This week, the US Treasury will auction and settle approx. $182bn in ST Bills with a further -$36bn paydown.
The US Treasury will auction $103bn in 3yr and 10yr Notes and the 30yr Bond this week which will settle next week.
Approx. $18bn 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
