by Kim | Jan 17, 2022
Key themes for the week ahead – global inflation, central banks, US housing data
This will be a short week in the US with the National holiday for the birthday of Martin Luther King Jr on Monday. The annual WEF gathering at Davos was due to take place this week and has been replaced by a series of virtual sessions between 17-22 Jan.
Recap
Last week, US CPI increased at an expected pace of 7.1% in Dec – the fastest pace of consumer price inflation since the early ’80s. Inflation remained high for essentials such as food, shelter, and energy. Consumer sentiment for Jan was disappointing, falling to a new low since the GFC, on inflation and expected falls in real income. US retail sales missed badly for Dec – and the result was worse accounting for inflation. Sales fell across most categories due to pulling forward of holiday sales (Oct), lack of inventory, and/or some effect from the latest round of the pandemic.
Markets now reflect a higher probability that rate hikes will start in Mar. Fed speeches also signaled a more aggressive approach to QT – such as the possibility of outright sales of Fed holdings (rather than a roll-off). The US yield curve still finished the week at the equal flattest level for the YTD (both 2’s-10’s and 5’s-30’s).
Central Banks
This week, the BoJ meets on policy. With inflation at relatively low levels, no change to policy is expected. However, there is a possibility of a change in wording around inflation risks. A small (by global standards) lift in CPI has reportedly triggered “hints of public discontent” (Bloomberg). The ECB Dec minutes will be released this week and ECB President Lagarde will speak at a virtual Davos session on Friday. The US FOMC meets next week with the speech blackout taking effect this week.
Global Inflation
CPI for Dec will be reported this week across major economies. Headline expectations: UK (expecting +5%), Canada (expecting +4.7%), Eurozone (expecting 5%), and Japan (prior +0.6%).
US Housing
US mortgage application data highlights the rising mortgage rate environment affecting refinance activity. Data this week: existing home sales for Dec are expected to fall slightly to 6.43m (SAAR). Housing inventory will be a key highlight of the report. Also, building permits; expecting 1.7m, and housing starts; expecting 1.65m (both SAAR-basis).
Other
The Aus labour market survey for Dec will be released. Employment is expected to increase by +30k, participation is expected to increase to 66.2%, and the unemployment rate is expected to fall to 4.5%. The Nov data last week was strong for retail sales and housing finance. This all reflects the positive impact of reopening. This week, the Westpac consumer sentiment for Jan will highlight any impact on sentiment from this latest outbreak.
This week, the US Treasury will auction and settle approx. $351bn in ST Bills, Notes, and Bonds, raising approx. $96bn in new money. The US Treasury will also auction 10yr TIPS and the 20yr Bond this week – which will settle on 31 Jan.
Approx. $29bn 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 | Jan 10, 2022
Key themes for the week ahead – US CPI, Fed nomination hearings, and US retail sales.
Last week, the Fed minutes signaled another shift from the FOMC to promote further steps in policy normalization. The timing and conditions for quantitative tightening (QT), or balance sheet runoff, was discussed. There was a flavor of ‘this time is different’ concerning QT (the first QT program ended abruptly in Sep 2019) and would likely start much sooner after rates liftoff than in the prior cycle. The accelerated end to taper was seen as warranted with inflation exceeding forward guidance criteria. There were mixed views on full employment, but it was generally agreed that maximum employment criteria were not yet met, but would be soon. The accelerated end to taper now provides the FOMC with the flexibility for an earlier start to rates lift-off. Markets are pricing a higher probability for a Mar hike.
Later in the week, US non-farm payrolls growth for Dec disappointed. But in the five months to Dec, non-farm payrolls have been revised higher by +730k jobs (compared to the initial number announced from Jul to Nov). Labour market indicators continue to improve. Employment growth remained strong and the employment to population ratio is now 1.6%pts below the pre-pandemic peak. The participation rate was unchanged in Dec but had been revised higher for Nov to 61.9%. The unemployment rate fell below 4% to 3.9% (16yrs+).
The ISM surveys were disappointing for Dec. The services ISM eased more notably with slower output and orders growth. Firms noted continued price pressures. Manufacturing momentum also eased somewhat – especially the pace of price growth and supplier delivery times.
Fed Nomination Hearings
This week the focus will be on the important FOMC nomination hearings in the US senate for Chair Powell (Tue) and Governor Brainard (Thur). The last time Chair Powell testified, senators conveyed their concern about high inflation.
US CPI
The US CPI for Dec will be released this week. CPI is expected to increase by 7% in Dec (up from 6.8% in Nov). The monthly increase is expected to ease to +0.4% (from +0.8% in Nov). Core CPI is expected to increase by 5.4% (up from 4.9% in Nov).
US Retail Sales
Also out this week will be US retail sales (expecting -0.1% in the month versus +0.3% in Nov) and the University of Michigan prelim consumer sentiment for Jan (expecting 70).
This week, the US Treasury will auction and settle approx. $241bn in ST Bills, raising approx. $23bn in new money. The US Treasury will also auction the 3yr and 10yr Notes and the 30yr Bond this week – to settle next week.
Approx. $18.5bn in ST Bills will mature on the Fed balance sheet this week and will be rolled over.
Next Monday 17 Jan will be Martin Luther King Jr Holiday (US).
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 | Jan 3, 2022
Key themes for the week ahead – FOMC Minutes, US Non-Farm Payrolls, and Dec PMI’s
In our last outlook note for 2021, we said that the trend of US data over the intervening FOMC meeting period will be important to the timing of the first US rate hike. This is especially relevant as inflation continues to trend above target and the economy continues to rebound from the pandemic.
To Recap – The last FOMC decision in Dec was in line with expectations for a faster taper and possible earlier liftoff in rates. Later, Governor Waller suggested that quantitative tightening (QT) might be under consideration and the Mar 2022 FOMC meeting could be live for the first hike.
“It would take something like severe disruption from omicron to delay labor market improvement or keep unemployment from falling, to keep March from being a key date to think of for liftoff.” https://www.bloombergquint.com/onweb/fed-s-waller-says-rate-hike-warranted-shortly-after-taper-ends
Since our last note, PCE inflation for Nov came in higher than expected at 5.7% while Oct inflation was also revised higher. The continued high pace of the monthly PCE inflation (expecting +0.2% growth in Nov – actual +0.6%) will likely remain a concern. Uncertainty has also been elevated about the rapid spread of the new virus variant and the potential impact on the economy.
FOMC Minutes – The minutes of that last FOMC meeting will be released this week. The key points will be around the extent of the discussion for an earlier rates lift-off and QT.
US Non-Farm Payrolls – This week, the Dec US non-farm payrolls will be released. Unless there is a ‘severe disruption’ to either payrolls growth or the reduction in unemployment, the FOMC is likely to remain on target (at least) for an earlier end to taper. The growth in non-farm payrolls is expected to be +400k in Dec (prior actual +210k). The participation rate will also be a key data point – the Nov participation rate was 61.8% (16yrs+).
PMIs Dec – The final Dec Markit PMI’s will be released this week. The prelim Dec PMIs highlighted a general deceleration in momentum going into Dec 2021 – especially across Europe and UK services sectors. The US ISM PMI’s will be released this week. Momentum across services and manufacturing is expected to decelerate somewhat but remain elevated. Headline ISM manufacturing PMI (Dec) expected 60.4 (prior 61.1) and services PMI (Dec) expected 67.2 (prior 69.1). Prices, lead times, inventory, and demand will be key metrics.
This week, the US Treasury will auction and settle approx. $241bn in ST Bills, raising approx. $80bn in new money for the first week of Q12022.
Approx. $18.5bn 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.
by Kim | Dec 20, 2021
Key themes for the week ahead – US inflation, elevated virus uncertainty
This will be a quiet data week leading into the Holiday period. The key data highlight will be the monthly US PCE inflation data for Nov.
Uncertainty is elevated about the new virus variant. Cases have reached new pandemic highs in some places while restrictions have been reinstated in some countries (i.e., Europe).
This uncertainty comes amid a shift to a tightening bias among central banks. The BoE surprised last week with a 15bp increase in the bank rate to help address higher and more persistent inflation. The ECB remained more dovish but still announced the end of the emergency QE program for Mar 2022 (to be offset though by the regular APP until Q4 2022). The FOMC delivered as expected with a faster pace of taper, and likely ending QE in Mar 2022. This acceleration gives the FOMC flexibility to “better position policy”. The SEP showed a shift to three potential hikes in 2022. Quantitative tightening (QT) was then floated by Fed Governor Waller on Friday, who also suggested that the Mar 2022 meeting could be live for the first hike.
“It would take something like severe disruption from omicron to delay labor market improvement or keep unemployment from falling, to keep March from being a key date to think of for liftoff.” https://www.bloombergquint.com/onweb/fed-s-waller-says-rate-hike-warranted-shortly-after-taper-ends
For the US, the trend of the data over the intervening meeting period will be crucial to the timing of the first hike.
The prelim PMIs for Dec (released last week) showed a slowdown in growth momentum across manufacturing and services activity across the US, Eurozone, UK, Japan, and Australia. Most notable was the slowdown in services activity, especially in the UK and Europe.
US PCE Inflation
The US PCE price index data for Nov will be released this week. Headline PCE price growth is expected to increase to +5.6%, up from 5% in Oct. Income growth is expected to slow for the month to 0.2% (from +0.5% in Oct), and expenditure growth is expected to slow slightly to 1% (from 1.3% in Oct).
Other US data includes the final Dec release of the University of Michigan consumer sentiment data (expecting no change to the 70.4 headline index).
This week, the US Treasury will auction and settle approx. $321bn in ST Bills, raising approx. $127bn in new money for the week. The US Treasury will also auction 5yr TIPS and the 20yr Bond, both to settle next week. Approx. $8bn 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 | Dec 6, 2021
Key themes for the week ahead – US CPI and central bank policy decisions
The key data point this week will be US CPI on Friday. This will also be the first of two weeks of final central bank policy meetings for the year. Also note: the lead-up to the debt ceiling limit (estimated 15 Dec), finalizing the passage of the Democrats spending bill in the Senate, and some more firm direction on the risk level of the new covid variant.
Central Bank Decision & US CPI
FOMC – Testimony last week by US Fed Chair Powell outlined an explicit shift in policy approach. Chair Powell indicated that inflation is an issue such that it will now need to be addressed in order for the labour market to continue to recover;
“…to get back to the same labour market we had before the pandemic, we need a longer expansion. To get that, we are going to need price stability, the risk of persistent high inflation is a major risk to getting back to such a labour market…” (from 55min https://www.banking.senate.gov/hearings/cares-act-oversight-of-treasury-and-the-federal-reserve-building-a-resilient-economy)
The tone of questioning in the Senate highlighted the pollical nature of the concern over the current inflation rate. The taper will likely be accelerated, finishing a few months earlier in 2022. Despite risks, the effect of the new variant will not be “remotely comparable” to Mar 2020. The FOMC meets next week on 14/15 Dec.
US data will maintain pressure on the FOMC next week. This week, annual US CPI growth is forecast to accelerate further, expecting +6.7% in Nov up from +6.2% in Oct. The monthly growth in the CPI for Nov is expected to be +0.7% versus +0.9% in Oct. Last week, non-farm payrolls growth disappointed notably for Nov at +210k growth versus +550k expected. The Sep and Oct non-farm payrolls were revised higher by +82k in total.
The RBA meets this week and policy settings are likely to remain unchanged. The RBA was forced to abandon its 3yr target at the last meeting. The RBA Board has continued to push back on more hawkish forecasts for rate increases in 2022 – expect that to continue. As previously announced, QE will be reviewed at the Feb 2022 meeting.
The BoC will also meet this week and policy settings are expected to remain unchanged. At its last meeting, the BoC ended QE and shifted to the reinvestment phase. Looking for signaling from the bank on the path of future rate changes – possibly earlier in 2022.
Next week will be a big week for central bank meetings: FOMC, ECB, BoE, and the BoJ.
This week, the US Treasury will auction and settle approx. $223bn in ST Bills, raising approx. $53bn in new money. The US Treasury will also auction $112bn in 3yr and 10yr Notes and 30yr Bonds – that will settle next week. Approx. $14bn 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
