by Kim | Mar 18, 2024
Key events this week – Central bank decisions; FOMC, BoJ, RBA, BoE, and SNB, CPI inflation; Japan, UK, Canada, and Euro Area, US housing data, and G4 prelim PMIs for Mar
Recap from last week
The US CPI report indicated that progress on disinflation may have stalled again in Feb. Headline inflation came in higher, as expected, at +3.2% as energy prices increased over the month. The monthly headline inflation rate has increased over the last four months. Core inflation slowed less than expected to +3.8%, as monthly core inflation also continued to trend slightly higher (+0.36% in Feb). The trimmed mean CPI has been a consistent indicator of the underlying trend of inflation. The annual trimmed mean inflation rate slowed to +3.5% in Feb from +3.7% in Jan. However, the monthly pace of trimmed mean inflation has been mostly constant over the last twelve months, but drifting higher over the last few months. This also implies that the underlying trend of disinflation has stalled. The PPI came in higher than expected across both headline and core measures in Feb. Various elements of the PPI feed into the Fed-preferred PCE inflation measure – and hint at expectations for more persistent PCE inflation.
US retail sales and industrial production recorded a rebound in Feb after falls in Jan. However, the rebound in Feb activity did not fully offset the weakness in Jan. US retail sales increased by less than expected in Feb by +0.6% after the Jan decline was revised lower to -1.1%. An increase in auto sales boosted growth this month. Similarly, manufacturing output growth rebounded in Feb but did not fully retrace the Jan falls. Our first view of Mar manufacturing activity – the Empire State Manufacturing survey, showed that, at best, the improvement in Feb activity was maintained into Mar but without higher growth momentum follow through.
Despite the rise in US retail sales, the Atlanta Fed GDP Nowcast for Q1 growth was revised lower to +2.3% (from a +2.5% run rate) on the retail sales and PPI data, reflecting a lower contribution from consumption growth so far in Q1.
Outlook for the week ahead
This is a big week of central bank meetings, inflation data, and important prelim PMIs for Mar data to round out our view of Q1 growth momentum.
There are at least six (6) important central bank meetings this week.
The FOMC is expected to keep policy settings unchanged. At the last meeting, Fed Chair Powell noted that inflation is still too high and ongoing progress on bringing it down is not assured. In the Q&A he specifically noted that the last six months of data had been good, and he was looking for a continuation of that good data. Since then, progress on disinflation seems to have stalled. The pace of growth has eased in Q1 but is still running at an elevated range of between +2-3%. The labor market data provided mixed messages on the strength of payroll growth while the unemployment rate has drifted higher. Fed speeches since the Jan meeting have been successful in pushing out the timing of rate cut expectations to at least Jun with the number of cuts moving down in line with the Jan SEP (a median of three). This week we will find out more about how the FOMC is characterizing the recent trends in inflation, growth, and labor market and how that translates into the latest projections for the policy outlook. The FOMC is also expected to begin talking about ‘balance sheet issues’ and any changes to QT are likely to be covered in the statement and press conference.
US Fed Chair Powell will also give opening remarks at a Fed event on Friday.
The BoJ is meeting this week and is broadly expected to either end its negative interest rate policy settings or signal that such a change is coming shortly. This speculation has been fuelled by the results so far of annual wage negotiations. If policy rates are changed at this meeting, then it will be important to understand what this means for YCC and QE settings. BoJ Governor Ueda has previously noted that even if the negative rates policy is ended, monetary policy settings are likely to remain accommodative. Last week, Japanese Q4 GDP growth was revised upward to +0.1%, due to higher private non-residential investment spending.
Other central bank meetings this week; the RBA, BoE, SNB, and PBoC (prime rate setting) are expected to keep policy settings unchanged. Across these meetings, we’ll be watching for any change in guidance and outlook.
CPI data for Feb will be released for Canada, the UK, Japan, and the Euro Area (final) this week.
Headline inflation in Canada is expected to increase slightly to +3.1% in Feb. Canadian trimmed mean inflation is expected to stay unchanged at +3.4% over the year in Feb.
UK headline inflation is expected to ease to +3.5% in Feb (from +4% in Jan), while core inflation is also expected to slow to +4.6% (from +5% in Jan).
Japanese National CPI is expected to accelerate over the year – given the stronger Tokyo CPI report for Feb. The BoJ preferred measure of core CPI ex fresh food is expected to increase to +2.8% in Feb from +2% in Jan.
The Euro Area CPI for Feb is expected to be confirmed at +2.6% over the year and +0.6% over the month. Core inflation is expected to be confirmed at +3.1% over the year.
US housing data for Feb will be in focus this week. This will feed into the next update of the Atlanta Fed GDP Nowcast for Q1 growth. New housing permits are expected to increase in Feb to an annual rate of +1.5m, up from 1.489m in Jan. New housing starts are also expected to increase to 1.435m (annualized) from +1.331m in Jan. Existing home sales are expected to fall slightly to an annualized rate of 3.95m (from 4m in Jan).
The latest March S&P flash PMIs for the G4 (plus Aus) will be released this week. These will be an important guide for understanding the path of growth momentum through Q1. So far in Q1, services activity has continued to improve, indicating at least moderate growth momentum. Manufacturing activity has stayed little changed with output remaining in contraction, except for the US in Feb.
This week, the US Treasury will auction and settle approx. $512bn in ST Bills raising approx. $25bn in new money. The US Treasury will also auction the 10-year TIPS and 20-year Bond this week.
QT this week: Approx $0.7bn in ST Bills will mature on the Fed balance sheet and will be reinvested. Approx $2.9bn in ST Bills will mature on the Fed balance sheet and be redeemed/rolled 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 | Mar 11, 2024
Key events this week – US: CPI & PPI, retail sales, and industrial production
Recap from last week
US data last week indicated minimal change in the labor market and growth outlook for the FOMC in two weeks. Although US labor market conditions are gradually easing, they remain mostly positive, while growth remains moderate.
In his testimony last week, US Fed Chair Powell reiterated that the FOMC is in “no rush” to cut rates, and is “waiting to become more confident that inflation is moving sustainably to 2%”, noting that “we’re not far from that”. If the economy evolves as expected, then it will be appropriate to begin to dial back some of the policy restriction “at some point this year”.
One important pillar of the ‘patience on rate cuts’ stance is ‘continued robust jobs growth’. The labor market update for Feb suggests that labor demand continues to ease – but there were mixed messages in the data. Non-farm payroll growth was higher than expected in Feb at +275k, but growth in the prior two months was revised notably lower – especially with the stronger Jan result revised down from +353k to +229k. Even though job growth may not have been as high as previously thought, the pace of growth has remained steady over the last three months. Conversely, the household survey recorded a pronounced rise in the unemployment rate from 3.7% in Jan to 3.9% in Feb. Could this be enough for the FOMC to begin to become more neutral on labor market conditions? The unemployment rate is at the lower end of the range of FOMC projections for 2024. The JOLTS survey for Jan provides a good summary of labor market conditions overall; a continued slowdown in labor demand (as job openings and hires ease further), while layoffs and discharges stay low. The layoff and discharge rate in the JOLTS survey remains at a series low of 1.0. Similarly, initial jobless claims have stayed low so far in this cycle. The anecdotes from the Challenger Job Cut Announcement survey suggest further layoffs may be coming (hiring announcements from this survey also remain relatively low).
Indicators of US economic activity remained positive last week – suggesting continued moderate growth through Q1. Both US services PMI surveys indicated continued modest expansion in Feb. The US Fed Beige Book for the 3 months to the end of Feb noted that activity increased “slightly on balance” since the last update, with only one region noting a slight softening of conditions. The survey noted some softness in retail spending due to heightened price sensitivity. However, retail sales for Feb (out this week) are likely to be bolstered by the rebound in auto sales. The latest Atlanta Fed GDPNowcast showed that US growth inched back up to a pace of +2.6% so far in Q1.
More broadly, the global growth context continued to improve as the Global S&P PMIs for Feb suggested a further improvement in growth momentum across both manufacturing and services activity. Amid the uptick in growth momentum, Chinese trade data came in better than expected with export (and import) growth accelerating more than expected. Chinese CPI also came in hotter than expected, increasing by +1% over the month in Feb and rising by +0.7% over the year in Feb up from -0.8% in Jan.
The Bank of Canada kept rates on hold last week. Guidance was unchanged with the Governing Council noting that higher rates need more time to do their work. Despite some improvement in inflation, the headline rate remains above 3% and underlying inflation pressures are persisting.
The ECB also kept rates on hold last week. While inflation had been easing through the latter half of 2023, the ECB Governing Council is not yet “sufficiently confident” enough that inflation is on the path to 2% to begin easing. ECB President Lagarde hinted at timing milestones though;
“We will know a little more in April, but we will know a lot more in June.”
Outlook for the week ahead
It’s a US data-centric week. The focus shifts to the important US CPI report for Feb out this week. The stronger Jan US CPI result was important, and, together with subsequent speeches, helped to push back the timeline to begin policy normalization. The Feb CPI report will play a crucial role in providing insights into the ongoing progress on disinflation and whether the Jan result was merely a temporary setback or a change in trend.
US headline CPI growth is expected to stay unchanged at +3.1% in Feb, while monthly inflation is expected to increase by +0.4% in Feb, up from +0.3% in Jan. Core inflation is expected to ease to +3.7% in Feb from +3.9% in Jan. The monthly core inflation is also expected to ease to +0.3% in Feb from +0.4% in Jan. As usual, the components contributing to CPI growth will be important – goods versus services, and core services ex-housing.
The US PPI report for Feb will also be released this week – and can provide some insight into possible changes in the Fed’s preferred PCE inflation measure. Headline PPI for Feb is expected to increase by +1.2% over the year in Feb, up from +0.9% in Jan. The monthly PPI is expected to increase by +0.3% in Feb – the same as in Jan. Core PPI is expected to stay unchanged at +2% over the year in Feb, while the monthly core PPI reading is expected to slow to +0.2% in Feb from +0.5% in Jan.
Several other reports will feed into the broader US growth picture. The most important one will be US retail sales. US retail sales are expected to increase by +0.7% in Feb after falling -0.8% in Jan. A rebound in auto sales for Feb suggests some support for retail sales growth. Last week, the US Fed Beige Book for Feb had noted that “consumer spending, especially on retail goods, “inched down in recent weeks”. Reports noted heightened price sensitivity by consumers and households trading down and shifting away from discretionary spending.”
There will be several reports on US manufacturing and output. Industrial production growth in Feb is expected to stay unchanged at 0% after falling by -0.1% in Jan. The US manufacturing output PMI shifted into expansion in Feb. The first regional manufacturing update for Mar will be the NY Empire State manufacturing survey.
We are in the blackout period for Fed speeches ahead of the next FOMC meeting next week on 19-20 Mar.
This week, the US Treasury will auction and settle approx. $591bn in ST Bills, Notes, and Bonds raising approx. $87bn in new money.
QT this week: Approx $1bn in ST Bills will mature on the Fed balance sheet and will be reinvested. Approx $9bn in ST Bills, Notes, and Bonds will mature on the Fed balance sheet and be redeemed/rolled 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 | Mar 4, 2024
Key events this week; US Non-Farm Payrolls, US Fed Chair Powell testimony, ECB & BoC Monetary Policy Meetings
Recap from last week
US PCE inflation, spending, and broader activity data painted a mixed picture last week. US PCE inflation came in as expected with both headline and core inflation continuing to ease in Jan. Measures of core inflation eased to a lesser degree. There was an acceleration in the monthly inflation rate. Lower energy prices in Jan continued to offset the reemergence of broader inflation pressure in the month. The PCE report likely reinforces the view that the FOMC will need more data to confirm that inflation is on a sustainable path to the 2% target. Several weeks ago, Fed Governor Waller commented on the Jan CPI report, trying to ascertain whether it was ‘more noise than signal’ – this could equally apply to the Jan PCE inflation result.
There was a notable amount of US spending, income, and activity data last week. This is best summarized by the change to the Atlanta Fed GDPNowcast for Q1 growth (at 1 Mar 2024). By the end of the week, the path of growth in Q1 was marked lower to +2.1% (after tracking at just above +3%). The path of growth for Q1 was revised lower mostly due to weaker personal consumption expenditures for Jan, which fell by -0.1% in real terms for the month (a fall in goods consumption not offset by the growth in services consumption). Residential and non-residential investment was also marked lower in the latest update. It’s important to emphasize that it is still only early in the quarter regarding tracking and the Nowcast data.
Other inflation data last week showed slower progress on inflation. The Euro Area prelim CPI for Feb continued to slow but still came in higher than expected. Headline inflation slowed to +2.6% while core inflation slowed less than expected to +3.1% (expecting +2.8%). Monthly inflation was also higher – especially across services at +0.8% for the month. Aus headline inflation was unchanged at 3.4% in Jan. The monthly CPI series is more goods-centric, while the RBA has noted the non-tradable/services/domestic-focused prices as the area of concern. In the Jan report, the non-tradable CPI components still increased at an elevated rate of +4.7%.
Japanese headline inflation eased by more than expected while annual core inflation (ex-fresh food) slowed in line with expectations. Inflation has continued to ease from its recent peaks. The flat trend in monthly inflation over the past two months, at 0% for both core measures, suggests a possible stall in inflation momentum.
Outlook for the week ahead
The focus stays firmly on the US economy with payrolls and the broader labor market reports for Feb due this week. The ECB and BoC will also meet on monetary policy.
Since the Jan FOMC meeting, Fed speeches have consistently pushed back on the timing of policy easing. However, this FOMC ‘patience on rate cuts’ is predicated on the conditions of continuing robust jobs and economic growth. The Feb payroll growth, broader indicators of labor market tightness, and wages will be important for a data-dependant Fed against the backdrop of potentially slower growth emerging so far in Q1 2024.
US non-farm payrolls are expected to increase by +190k in Feb (down, from a stronger-than-expected +353k in Jan). The unemployment rate is expected to stay unchanged at 3.7%. Average weekly hours are expected to rebound to 34.3 after a fall in Jan. Average hourly earnings are expected to ease as average hours increase. The JOLTS report for Jan will provide a further update on labor demand with Job Openings expected to fall to 8.89m (from 9m in Dec).
There will be a range of US economic data released this week, providing a further update on the path of growth in Q1. The ISM services PMI is expected to stay around 53.0. US Factory orders are expected to increase by +0.3% in Jan. Various US PMI surveys are expected to show a slightly slower pace of service sector growth in Feb. The Fed Beige Book on regional activity will be released for Q1.
US Fed Chair Powell will give two days of testimony this week (Semi-annual Monetary Policy Report to Congress). Several other Fed speeches are noted in the calendar.
The ECB will meet on monetary policy this week and is expected to keep policy unchanged. Of most interest will be the update to ECB forecasts of growth, inflation, and unemployment.
The Bank of Canada will also meet this week. Monetary policy is expected to stay unchanged. Recent inflation data eased more than expected and it will be important to see if there is a shift in BoC commentary on the policy outlook. Canadian Q4 GDP growth was better than expected last week at +0.2% after contracting slightly in Q3. Canadian employment and labour market survey data for Feb will be released at the end of the week.
Global manufacturing PMIs released last week for Feb indicated continued modest improvement on the back of more widespread growth in output and new orders. Manufacturing in the Eurozone (core), Japan, Taiwan, and Australia all stayed in contraction, offset by growth in the US, India, Mexico, and Ireland, as well as modest growth in China. The S&P Global services PMIs for Feb will be released this week.
Further updates on growth for Q4 will be reported this week. Eurozone Final GDP for Q4 is expected to be unchanged at 0% for the quarter and +0.1% for the year. Aus Q4 GDP is expected to increase by +0.3% over the quarter and slow to +1.5% over the year (from +2.1% in Q3).
China’s National People’s Congress will be held this week and will outline its growth goal for 2024 and other policy measures.
This week, the US Treasury will auction and settle approx. $474bn in ST Bills raising approx. $31bn in new money.
QT this week: Approx $0.8bn in ST Bills will mature on the Fed balance sheet and will be reinvested. Approx $3.5bn in ST Bills will mature on the Fed balance sheet and be redeemed/rolled 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 | Feb 26, 2024
Key events this week; Inflation – US PCE inflation, Euro Area CPI, Japanese CPI, Aus CPI; US & Canada Q4 GDP; RBNZ Rates Decision
Recap from last week
Central bank minutes and speeches were in focus last week. The message theme from the FOMC & ECB minutes and speeches was; patience on rate cuts.
FOMC guidance shifted to rate cuts as the bias for the next move in policy rates. Guidance was changed as the upside inflation risk has diminished and this is likely the peak in policy rates. However, rate cuts may take longer to materialize – the Committee needs greater confidence that inflation is moving sustainably to 2%. The minutes note balancing the risk of cutting too early and stalling progress on inflation, with the risk of maintaining an ‘overly restrictive’ stance for too long. With the broader economy doing well, there is time to be patient. The Jan US CPI & PPI placed a question mark over the progress on disinflation. Since then, some speeches have suggested a need to see broader disinflation among goods and services to be more confident inflation is moving back down. Governor Waller’s speech last week noted that the Jan CPI report likely pushed back the timing of rate cuts to verify whether the Jan result was noise or the start of the new trend. Governor Waller specifically noted that the uptick in inflation was spread more widely among goods and services. He also noted that there was no rush to start to normalize policy rates but still expects to start that process this year.
One thing that is clear is that by many metrics, the U.S. economy is healthy and well positioned to continue growing and adding jobs.
That makes the decision to be patient on beginning to ease policy simpler than it might be. I am going to need to see at least another couple more months of inflation data before I can judge whether January was a speed bump or a pothole. Source: Governor Waller, speech 22 Feb 2024
The other important point from the minutes was that the FOMC will begin discussing ‘balance sheet issues’ at the Mar meeting to ‘guide an eventual decision to slow the pace of run-off’.
The ECB minutes held a similar message; that patience was still needed. Policy rates were kept on hold at the Jan meeting. Even though inflation had eased, progress on disinflation remained fragile, and loosening policy rates too early could undo some of the progress.
The RBA minutes outlined the case to keep rates on hold. Only two policy options were discussed – to hike or to hold. The risk that inflation wouldn’t return to the target range had eased, however, it would still be some time before the Board was sufficiently confident that inflation would return to target in a reasonable timeframe. The costs of inflation not returning to target in a reasonable timeframe were potentially very high; which led the Board to agree that it was appropriate not to rule out a further increase in the cash rate. The latest wage price index for Q4 was slightly higher than expected and real wages came in slightly positive for the first time since early 2021. With the CPI retreating and the WPI staying high after years of slower growth, the RBA will be monitoring how consumer spending will respond and what it means for inflation.
The overall direction of the Feb prelim PMIs for the G4 (plus Aus) was a continued improvement in services growth while manufacturing activity stayed little changed and in contraction. There were several crosscurrents this month. The US was an exception with a notable overall improvement; US manufacturing output expanded at a faster pace and services activity continued to expand at a modest pace. Japanese manufacturing returned to a sharp contraction in Feb. Eurozone services growth returned to expansion while manufacturing activity remained weaker, led by the renewed downturn in German manufacturing.
Outlook for the week ahead
Global inflation and growth data will be in focus this week and both will be important inputs as central banks consider the path of policy rates and the implications for the timing of policy adjustments.
US PCE inflation, the FOMC preferred inflation measure, is expected to increase at a slightly faster monthly rate, given some of the Jan PPI results. Headline PCE inflation is expected to ease to +2.4% over the year, but increase by +0.3% over the month (up from +0.2% in Dec). For comparison, the latest FOMC median headline PCE inflation projection is +2.4% for the end of 2024. Core PCE inflation is expected to ease further to +2.8% from +2.9% in Dec. Monthly core PCE inflation is expected to increase by +0.4% over the month, up from +0.2% in Dec. The FOMC median projection for core PCE for 2024 is also +2.4% – the Jan result would still be above that level.
Growth data for the US includes the second estimate for Q4 GDP which is expected to stay around the +3.3% (annualized) rate for Q4. This would mean that growth over the year in 2023 would be +3.1% – which is above the FOMC median growth projection for 2023 of +2.6%. There will also be a wide range of US income, spending, housing, and industrial activity data for Jan and Feb, including the ISM manufacturing PMI for Feb. These data will feed into a comprehensive update of the Atlanta Fed GDPNowcast for Q1 US growth – which currently sits at +2.9%. The FOMC median projection is for growth to slow by the end of 2024 to +1.4%.
There will be several Fed speeches, including NY Fed President Williams, Governor Waller (responding to a paper titled, “Quantitative Tightening Around the Globe; What Have We Learned?” – which may start to lay the groundwork for changes to QT), and Fed Governor Kugler.
The Aus monthly CPI for Jan is expected to increase to +3.5% (from +3.4% in Dec).
The Euro Area prelim CPI for Feb is expected to continue to moderate. Headline CPI is expected to slow to +2.5% in Feb (from +2.8% in Jan). Core CPI is expected to ease to +2.9% in Feb (from +3.3% in Jan).
Japanese National CPI figures for Jan will be released early this week. Headline inflation is expected to ease to +2.5% in Jan (from +2.6% in Dec). The BoJ preferred measure of CPI ex fresh food is expected to ease to +1.9% in Jan (from +2.3% in Dec). Core CPI (ex-fresh food and energy) is still running at approx. +3.7% but is also expected to ease. This will be an important input for the BoJ as it considers the case for and timing of its potential exit from the negative rates regime.
Canadian Q4 GDP is expected to return to growth of +0.8% annualized (from -1.1% in Q3).
The RBNZ will meet this week and is expected to stay on hold at 5.50%. There has been some speculation that the RBNZ may raise its policy rate further.
The broader global suite of S&P PMIs for Feb will be released towards the end of the week – starting with global manufacturing activity.
This week, the US Treasury will auction and settle approx. $668bn in ST Bills, Notes, Bonds, and TIPS raising approx. $137bn in new money.
QT: Approx $20bn in ST Bills, Notes, and Bonds will mature on the Fed balance sheet and will be reinvested. Approx $29bn in Notes & Bonds will mature on the Fed balance sheet and be redeemed/rolled 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 | Feb 19, 2024
Key events this week – Central bank minutes – FOMC, RBA, & ECB; US Fed speeches – Waller, Jefferson, Cook; Inflation – Euro Area CPI, Canada CPI & Aus wages; Prelim S&P PMIs Feb
Recap from last week
US headline CPI for Jan came in higher than expected but continued to slow. Despite headline CPI easing from +3.4% in Dec to +3.1% in Jan, expectations were for a larger moderation to below +3%. Core CPI stayed elevated at +3.9% in Jan, unchanged from Dec, with the monthly rate rising to +0.4%. The trimmed mean and median inflation measures accelerated in Jan suggesting that inflation pressure was likely broader than it had been in recent months. The US PPI also came in higher than expected – especially the monthly rate. Some PPI measures feed into the preferred PCE inflation measure used by the FOMC, raising some concerns over persistent inflation. Markets continued to push out the timing of the first US rate cut – currently pricing in Jun.
Fed-speak provided a mixed view on whether the inflation impulse in Jan would change the FOMC outlook on inflation progress and the path of rates. A speech by Richmond Fed President Barkin noted that “given the strong labor market and robust demand, the FOMC has time to build confidence before toggling rates down” (Source; Bloomberg). Themes focused on “patience” and “looking for more conviction that slowing inflation is broadening and sustainable”. Concern was noted that progress on disinflation has focused on goods (energy, core goods), which may not persist, while progress on services disinflation has been slower. The FOMC minutes and several important Fed speeches this week may help to put the latest CPI and PPI results into a broader context.
Other US data last week was mixed. Consumption growth slowed in Jan and the revision to Dec indicated that retail growth at the end of Q4 had not been as strong. Consumption growth also stalled in real terms. Industrial production and manufacturing output fell in Jan. US regional manufacturing surveys for Feb showed conditions stabilized following the weakness in Jan and sentiment in the business outlook continued to improve. The prelim Feb PMIs will be out this week providing further insight into growth momentum. Housing data was mixed with permits and starts weaker than expected in Jan, however, home builder sentiment continued to improve in Feb.
Overall, the latest Atlanta Fed GDPNowcast for Q1 US GDP growth edged lower to +2.9% mostly on slower consumption growth. The run rate for US growth is still elevated, especially compared to the weaker growth picture emerging outside of the US. Last week, the prelim Japanese GDP for Q4 contracted for the second quarter in a row by -0.1% (expecting +0.3%) with the decline in Q3 revised lower to -0.8%. The decline in Q4 GDP was led by another fall in real private consumption. Similarly, UK GDP fell by -0.3% in Q3, after falling by -0.1% in Q3. Net trade and household consumption were the largest contributors to the fall in Q4 – although UK retail sales growth in Jan reversed the large fall in Dec. Euro Area GDP growth in Q4 remained stalled at 0%, after falling slightly by -0.1% in Q3.
Outlook for the week ahead
Central bank meeting minutes and FOMC speeches will be a key focus this week.
Minutes for the RBA, ECB, and FOMC meetings will be released this week. The FOMC minutes should provide details around the evolution of guidance at the Jan meeting; that the bias remains to stay on hold, looking for further confidence that inflation is sustainably on the path to 2% before commencing rate cuts.
There are several important US Fed speeches worth noting this week given the Jan inflation results, and what it might mean for the path of rates. On Wednesday, Governor Michelle Bowman will speak (in Washington, DC) an hour before the FOMC minutes are released, on “View from the Federal Reserve”. Three speeches are scheduled for Thursday (from lunchtime to evening – note various locations, for timing purposes), starting with Vice Chair Jefferson speaking on the “US Economic Outlook and Monetary Policy” at 10 am (Washington, DC). This will be followed by Governor Cook speaking at 5 pm (at Princeton, NJ). Finally, and importantly, Fed Governor Waller speaks at 7 pm on Thursday on the “Economic Outlook” (Minneapolis, Minnesota) – this will likely provide important context around recent data and his view on what it means for the path of rate cuts. See the Federal Reserve calendar for more details this week.
The RBA minutes should provide details about the case to keep rates on hold, the view of domestic cost pressures, heightened uncertainty around the outlook, and the decision to adjust guidance to not rule out the option of a further rate hike.
The ECB minutes should also provide more detail about deliberations to keep rates on hold amid faster progress on inflation and stalling growth.
There will be inflation data released this week. The final Euro Area CPI in Jan is expected to confirm +2.8% headline CPI and +3.3% core inflation. Canada CPI for Jan is expected to slow to +3.2% in Jan with BoC measures of core inflation staying elevated at +3.6%. Finally, the Aus Wage Price Index for Q4 is expected to show some moderation in wage growth over the quarter to +0.9% in Q4 from +1.3% in Q3. Annual growth in wages is expected to stay elevated at +4.1% at the end of Q4.
Finally, the prelim G4 PMI’s for Feb will be released this week. Headline manufacturing PMI’s improved in Jan, though generally stayed below 50. The US manufacturing PMI was one exception, moving slightly above 50, despite output remaining in contraction. Services PMI’s also continued to improve in Jan led by moderate expansion in the US, Japan, and the UK.
This week, the US Treasury will auction and settle approx. $548bn in ST Bills and FRN’s raising approx. $86bn in new money. QT this week: Approx $15.6bn in ST Bills will mature on the Fed balance sheet 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
