by Kim | Nov 28, 2022
Key events for the week ahead – US Non-farm payrolls, US Fed Chair Powell, Euro Area flash CPI Nov, Central bank speeches
Recap from last week
The FOMC minutes reflected growing support for slowing the pace of rate hikes, with a ‘substantial majority of participants’ judging that it ‘would likely soon’ be appropriate to do so. But ‘a few other’ participants see merit in moving the policy rate into ‘clearly restrictive territory’ before slowing the pace of hikes – to ensure there were more concrete signs inflation pressures were receding ‘significantly’. The minutes noted that the ultimate level of the FFR was more important at this stage than the pace of further increases. The ultimate level of the FFR in this cycle is still highly uncertain. Ongoing increases are still expected and ‘various participants’ noted that the ultimate level of FFR might be higher than previously thought.
By the end of last week, the US 2-10yr spread reached another YTD low of -0.75bps, amid further expectations for slowing growth. Markets are still pricing the likelihood of a smaller +50bps hike in Dec. Signalling will be important this week with Fed Chair Powell talking at the Brookings Institute on Wed 30 Nov. If changes are likely to the pace of hikes in Dec, then Chair Powell will possibly signal that ahead of the blackout period before the FOMC meeting on 13-14 Dec.
Flash PMIs for Nov were disappointing. US manufacturing shifted into mild contraction while the contraction in services accelerated. The Eurozone recorded a slightly slower contraction in manufacturing while the contraction in services continued. Japan recorded a notable slowdown in services momentum and manufacturing momentum shifted into a slight contraction. Finally, manufacturing momentum in Aus slowed further while services activity continued to contract.
The RBNZ increased its OCR by +75bps to +4.25% citing high inflation, strong demand (including a faster recovery in international visitors), low unemployment, and ‘worker shortages holding back output across many industries and regions’.
Outlook for the week ahead
US labour market data will be in focus this week and an important input for the FOMC in Dec. Non-farm payrolls are expected to increase by a further +200k jobs. The unemployment rate is expected to remain at a low of 3.7%. There will be several other US labour market indicators; JOLTS for Oct (expecting +10.3m), anecdotal job cut/hire announcements, and the high-frequency initial claims (expecting +235k). Despite remaining low, initial claims increased last week to +240k (from +220k).
US PCE inflation for Oct will be released. This is the FOMC preferred measure of inflation. Headline PCE inflation is expected to remain at +6.2% with the monthly pace increasing to +0.5% (up from +0.3% in Sep). Core PCE inflation is expected to slow slightly to +5% (from +5.1% in Sep).
The US ISM manufacturing PMI will be released this week – and is expected to show a mild contraction in activity. The S&P PMI’s (global) for Nov will start to be released this week providing some insight into global growth momentum.
The Euro area (and individual country-level) flash CPI for Nov will be released. The annual pace is expected to ease slightly to +10.4% (from +10.6% in Oct). Falls in producer energy distribution prices have started to show up, for example in the notable monthly decline in the Germany PPI last week of -4.2% in Oct.
There will be several central bank speeches this week – including BoJ Governor Kuroda and RBA Governor Lowe. Many will also take part in the Bank of Thailand/BIS conference “Central Banking Amidst Shifting Ground” (Fri 2 Dec).
This week, the US Treasury will auction and settle approx. $421bn in ST Bills, TIPS, Notes, and Bonds, raising approx. $58bn in new money.
Approx $38bn in ST Bills, Notes, and Bonds will mature on the Fed balance sheet this week and will be reinvested.
Approx $21bn in ST Bills, Notes, and Bonds will mature on the Fed balance sheet this week and will be redeemed.
The QT summary for Dec; In December, the face value of Coupons maturing on the Fed balance sheet is approx. $53.5bn. As this is below the $60bn cap for balance sheet roll-off, all maturing Coupons will be redeemed this month. That means that maturing Bills on the balance sheet will make up the residual $6.5bn up to the $60bn redemption cap this month.
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 21, 2022
Key events for the week ahead – FOMC & ECB Minutes, Flash PMIs Nov, RBNZ policy decision, US Thanksgiving Holiday
Recap from last week
US Fed speeches hinted at the possibility to slow the pace of policy tightening from the Dec meeting. Markets are pricing a step down to +50bps. But as noted at the last FOMC meeting, it is the level of rates that is important now. Bullard sees the FFR higher, 5-5.25% at a minimum to get into the restrictive zone. Market probabilities are currently pricing up to that level and peaking in mid-2023. The US 2-10yr spread reached a YTD low of -0.69, as the resulting growth expectations fell.
So far, US consumer spending remains robust. Retail sales growth was higher than expected in Oct and spending was stronger across most categories. High-frequency initial claims also remain low. But there was further weakness in regional manufacturing surveys. Weaker/declining new orders became more widespread in Nov. Output growth stayed positive as firms worked through backlogs and supply chains adjusted. US housing market conditions and sales deteriorated further as credit tightens and mortgage rates stay elevated.
Inflation outside of the US showed little sign of easing in Oct. Euro area inflation was confirmed at +10.6% with price growth accelerating across most categories. Inflation in the UK came in higher than expected at +11.1% and core was also up to +6.5%. Inflation in Canada stalled with the headline rate remaining at +6.9%. Japanese inflation came in higher than expected and core ex-fresh food accelerated to +3.6% (from +3% in Sep). The BoJ has previously noted that the weakening Yen has been a driver of higher import costs for commodities, thereby driving up consumer inflation. This is not the kind of inflation the BoJ is looking for. Japanese GDP unexpectedly contracted in Q3 as personal consumption growth slowed and net exports declined.
The RBA minutes covered the policy debate and included details of the review of forward guidance. The 25bps increase was favoured given how fast the RBA had already hiked and the uncertainty over how household spending would react to the rapid tightening of conditions. Wage growth came in higher than expected in Q3 at +3.1% over the year with a notable acceleration in private sector wages to +3.4% (also linked to annual wage reviews). The labour market tightened further in Oct as employment increased by more than expected and the unemployment rate fell back to 3.4%. With inflation remaining high, this is likely supportive of further tightening.
Outlook for the week ahead
It’s a short week for the US Thanksgiving Day Holiday.
FOMC minutes will be released. This will likely include the debate for taking into account the ‘cumulative tightening of monetary policy’ (slowing the pace) amid significant uncertainty around the level of interest rates required for what might be deemed as ‘sufficiently restrictive’. Expecting the minutes to reinforce that there is “still some ways to go” on rates.
The lead-up to the next FOMC meeting could be interesting as markets digest Fed signaling and important data for rates just prior to the next FOMC meeting. Chair Powell is scheduled to speak at a Brookings event on Wed 30 Nov – the week before the blackout week for the 13-14 Dec FOMC meeting. Signaling from Chair Powell on the pace of hikes is likely at this event. The Brookings speech will be two days before the Nov non-farm payrolls (the last day before the blackout period), while the important Nov CPI will be released on 13 Dec, the day before the Dec FOMC announcement.
The flash PMIs will be released this week for Nov. Expectations are for continued moderate contraction in the Eurozone, UK, and US (services). Momentum is expected to slow in Aus and be little changed in Japan.
The RBNZ will meet this week on policy. The RBNZ stepped up the pace of hikes to 50bps back in Apr 2022 and there is an expectation that it may step up the pace to a +75bps increase this week.
This week, the US Treasury will auction and settle approx. $314bn in ST Bills, Cash Management Bills, and FRNs raising approx. $78bn in new money.
The US Treasury will also auction the 2yr, 5yr, and 7yr Notes this week. These will settle on 30 Nov.
Approx $16bn 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 14, 2022
Key events for the week ahead – US retail sales, US Fed speeches, CPI for Oct; Japan, UK, Canada, and the Euro area, China data, G20
Recap from last week
US CPI growth slowed more than expected in Oct increasing expectations that the FOMC will slow the pace of hikes and pause tightening earlier. Fed speeches supported a likely shift to a slower pace of hikes, but emphasized that “a slower pace should not be taken to represent easier policy” (Lorie Logan – Dallas Fed President). By the end of the week, the target rate probability for the Dec Fed meeting was pricing a +50bps increase, from an even split between 50 and 75bps increase. On Sunday, Governor Waller said that “It’s really not so much about the pace anymore, it’s where we’re going (to) end up. And where we end is going to be driven solely by what happens with inflation.” (Source: Bloomberg).
Headline US CPI slowed from +8.2% in Sep to +7.7% in Oct. The areas of disinflation suggest that the commodity price and demand shocks from the pandemic and the Ukraine invasion appear to be easing. Monthly food price growth has slowed further, but this is not yet visible in the annual change. Energy price growth has eased but remains volatile.
Core CPI slowed from +6.6% in Sep to +6.3% in Oct. Slower core CPI was mostly the result of a further fall in used car prices (falling for the fourth month and up only +2% on a year ago) – with demand across autos (and durables) likely impacted by higher rates and some tightening of lending standards. This was partly offset by faster growth in core services led by shelter price growth (no sign of rolling over yet). Other measures of underlying CPI remained elevated while the monthly trend may be rolling over. Sticky prices stalled at the current peak of +6.5%.
The bigger picture is that slowing CPI is yet to coincide with a weaker labour market or slower wage growth. So while the impact of price and demand shocks might be starting to fade, the inflation story may not be over. The Atlanta Fed wage growth tracker for Oct recorded a further acceleration in wages (overall measures) from +6.3% in Sep to +6.5% in Oct, and wage growth acceleration was recorded across most indicators. US consumer sentiment indicators weakened at the start of Nov as consumer inflation expectations edged higher again. This likely means the Fed stays the course on tightening for now. Early this week, Fed Governor Waller noted that “So it’s good, finally, that we saw some evidence of inflation starting to come down, but I just cannot stress [enough] this is one data point. We’re going to need to see a continued run of this kind of behaviour and inflation slowly starting to come down, before we really start thinking about taking our foot off the brakes here.”
Outlook for the week ahead
US data and Fed speeches will be prominent. US retail sales for Oct are expected to increase by +0.9%. Housing data is expected to remain weak with existing home sales expected to slow to 4.4m (SAAR basis). A substantial number of FOMC members will speak this week, including Vice Chair Brainard.
More inflation data is due this week. The UK CPI for Oct is expected to accelerate to +10.6% (also UK labour market data and the budget release on 17 Nov). Canada CPI is expected to increase to +7% in Oct. Japanese CPI is expected to slow to +2.7%, but ex-fresh food to increase to +3%. Euro area final CPI for Oct is expected to be +10.7%.
The RBA minutes will be released. Aus data is expected to show that the labour market remains robust amid policy tightening. The Aus Q3 wage price index is expected to increase by +3% year on year, up from +2.6%. Aus employment is expected to increase by +15k, the participation rate to remain at 66.6%, and the unemployment rate to remain at a low 3.5%.
This week, the US Treasury will auction and settle approx. $351bn in ST Bills, Notes, and Bonds raising approx. $65bn in new money.
The US Treasury will also auction the 20-year Bond and 10-year TIPS this week. These will settle on 30 Nov.
Approx $93bn in ST Bills, Notes, and Bonds will mature on the Fed balance sheet this week. Of this, approx. $40.4bn in Notes and Bonds will mature and roll-off the Fed balance sheet (as a part of the $60bn cap). The remaining $52.7bn of ST Bills, Notes, and Bonds that will mature this week 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 7, 2022
Key events for the week ahead – US CPI and the US midterm election
Recap from last week
Last week the FOMC opened the door to changing the pace of rate hikes. This allows the FOMC to consider the “cumulative tightening of monetary policy” and its effects. The decision gives the FOMC the optionality to adjust the size of the next hike which will be decided “on the totality of incoming data”. This decision comes against the backdrop of higher-than-expected inflation and significant uncertainty around the path of rates. But there is no reason to pivot policy right now – and Chair Powell noted that we “still have some ways to go” on rates and that “the ultimate level of interest rates will be higher than previously expected”. By the end of the week though, and after the payrolls beat on Friday, the somewhat steeper yield curve (higher long rates) may be indicating that it’s too early to be slowing. This will be something to watch. This also sets the scene for the important US CPI report this week – and inflation is expected to ease only slightly from +8.2% in Sep to +8% in Oct, with an acceleration in monthly CPI expected from +0.4% in Sep to +0.7% in Oct.
US labour market momentum was still robust. Non-farm payrolls for Oct beat expectations at +261k and Sep was revised higher to +315k. Payroll growth is slowing but is well ahead of the pre-pandemic trend. The household survey had some divergence as monthly employment declined and the unemployment rate increased to 3.7% (from 3.5% in Sep). JOLTS for Sep showed hires may have peaked, but are still elevated. Layoffs & discharges are at near-series lows. Openings rebounded after the fall last month. Quits are also within 10% of the series high but did fall further this month. This softening suggests an increasing reluctance to shift jobs.
Last week, the BoE also increased rates by a further 75bps. The statement highlighted the considerable uncertainty around inflation, the path of rates, and growth. Inflation stands at 10.1% and is expected to peak at 11%. Guidance was that further increases in the Bank rate may be needed for a sustainable return of inflation to target “albeit to a peak lower than priced into financial markets”. The press conference placed more emphasis on the assertion that the Bank Rate will need to go up by less than what markets are currently pricing.
The RBA increased the cash rate target by 25bps as expected. Inflation is now expected to peak higher at +8% (from +7.8%). The RBA noted that it had “increased rates materially since May to help return inflation to target”. There remains high uncertainty around how households will respond to higher mortgage rates. Further increases in rates are expected and the timing and size are to be determined by incoming data.
Global PMI momentum continued to slow into Oct. Both the global manufacturing and services PMIs slipped into slight contraction. G7 manufacturing was weaker, especially in Europe, the UK, and Canada. There was a notable slowdown in US and ASEAN manufacturing (both still expanding). The slowdown in services momentum was also noted this month – especially in the US, UK, Eurozone, China, and Aus. Japan was the only G7 economy where both manufacturing and service activity was expanding.
Outlook for the week ahead
The US CPI for Oct and the US midterm election are the main focus this week. US CPI is expected to ease only slightly from +8.2% in Sep to +8% in Oct, with an acceleration in monthly CPI expected from +0.4% in Sep to +0.7% in Oct.
There will also be a number of US Fed (and other CB) speakers– and this may start to add to headline risk with speeches fluctuating between dovish and hawkish sentiment ahead of the next Fed meeting.
This week, the US Treasury will auction and settle approx. $255bn in ST Bills, raising approx. $34bn in new money.
The US Treasury will also auction the 30yr Bond and the 10yr and 3yr Notes this week. These will settle on 15 Nov.
Approx $16.5bn in ST Bills will mature on the Fed balance sheet this week and will be reinvested/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 | 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
