by Kim | Oct 23, 2023
Key events this week – US PCE inflation & Q3 GDP, Fed speeches, ECB & BoC monetary policy meetings, Aus CPI, Prelim PMIs Oct
Recap from last week
Fed speeches last week acknowledged that US economic activity had picked up through Q3 – including spending and payrolls growth. Recent inflation prints remain on a downward trend, but were “less encouraging”. Moderating wage growth was a stronger theme from the speeches, with wage growth “moving closer to levels that would be consistent with 2% inflation”. However, the central question was whether economic growth would moderate from here given the recent “significant tightening of financial conditions” resulting from higher long-term bond yields. The FOMC stance is unlikely to change from “proceeding carefully” with policy rates staying on hold. Speeches by Fed Chair Powell and Governor Waller suggested that there may be a higher bar for another rate hike, but that another hike was not off the table. More specifically, if growth stays strong AND, even if CPI just stabilizes here, then that could form the basis for more tightening by the FOMC.
In line with recent stronger economic data, US retail sales increased by more than expected while the prior month was revised higher. This lifted the trend of nominal and real retail sales growth through Q3 compared to Q2. US housing data was more downbeat than in recent months, amid rising mortgage rates. New mortgage applications in the prior week fell by -6.9%. New residential construction data recorded a fall in new permits in Sep (across all regions), while housing starts increased modestly compared to the sharper fall in Aug. Existing home sales in Sep fell to a new pandemic-era low of 3.96m units (SAAR-basis). Home builder sentiment in Oct continued to weaken with the headline index falling 9% to 40 – still above the pandemic low of 30. Industrial output growth was stronger than expected in Sep (although Aug was revised lower) and manufacturing output growth improved across both durable and non-durable goods industries.
Outlook for the week ahead
There will be several areas of focus this week. The first will be on US inflation and economic growth to further round out the view of the ‘totality of the data’ leading up to the FOMC meeting next week.
US PCE inflation for Sep is expected to ease slightly to +3.4% (from +3.5% in Aug). Core inflation is expected to slow to +3.7% in Sep (from +3.9% in Aug), with the monthly pace rising slightly to +0.3%. Core PCE at +3.7% would be in line with the current FOMC median projection for the year-end result. The prelim University of Michigan consumer sentiment survey for Oct noted some upward movement in one-year and five-year inflation expectations. The final survey result for Oct this week will show whether the change in inflation expectations has been revised.
The first look at US GDP growth for Q3 may be more important than usual given how much focus has been placed on the ‘resilient’ economic conditions. GDP in Q3 is expected to accelerate to +4.1% (SAAR) from +2.1% in Q2.
There will be several Fed speeches this week – unusual in the week before an FOMC meeting. All speeches are noted as ‘opening remarks’ in the Federal Reserve Calendar. Remarks have been scheduled for Fed Chair Powell, Governor Waller, and Fed Vice Chair for Supervision Barr.
This is the first of several weeks of central bank meetings. This week, the ECB and BoC will meet and both are expected to keep policy rates on hold.
The Aus Q3 CPI will be released. The RBA minutes and speeches over the last two weeks suggest that the Q3 CPI report could be important for the next RBA meeting (7 Nov). Aus headline CPI is expected to slow over the year to +5.3% from 6% in Q2 while the quarterly growth is expected to increase to +1.1% from +0.8% in Q2. Trimmed mean inflation is expected to stay elevated at +1.1% over the quarter and to slow to +5% over the year (from +5.9% in Q2). Over the last week, there was a modest lift in market expectations for another hike by the RBA. However, the Sep labor market survey was lacklustre – possibly confirming the RBA view that the labor market has ‘turned a corner’. The RBA Governor Michele Bullock and Assistant Governor Kent will appear before the Aus Senate Economics Committee after the CPI report, providing some opportunity to signal any potential change in policy outlook if appropriate.
Finally, the global flash PMIs for key G4 economies for Oct will be released this week. This will provide the first view of growth momentum across manufacturing and services leading into Q4.
Geopolitical risk and uncertainty remain elevated this week.
The US House of Representatives is yet to appoint a new speaker. The process of nominating a new speaker will continue this week.
This week, the US Treasury will auction and settle approx. $454bn in ST Bills raising approx. $40bn in new money. The US Treasury will also auction approx. $167bn in 2-Year, 5-Year, 7-Year, and 2-Year FRNs – which will settle on 31 Oct.
QT this week: Approx $10.5bn in ST Bills will mature on the Fed balance sheet this week and will be reinvested. Approx $1.6bn in ST Bills will mature on the Fed balance sheet this week and will be redeemed/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 | Oct 16, 2023
Key events this week – US Fed Chair Powell speech, US retail sales, CPI reports; UK, Canada, NZ, Japan, and the Euro Area
Recap from last week
US annual headline CPI inflation came in only slightly higher than expected at +3.7% while core inflation was in line with expectations at +4.1%. Annual rates of inflation continue to slow. The FOMC view of inflation trends also looks at core goods, core services, and core services ex-shelter to provide a guide on the path of underlying inflation. In Sep, core goods prices continued to fall (led by used car prices correcting after the pandemic shock) and core services price growth also slowed, though remained high at +5.7%. However, it appears that services and core inflation measures remain sticky, even excluding the large impact from shelter prices, as the 6mth and 3mth annualized inflation rates (across a range of measures) increased again in Sep. While the increase isn’t high by recent standards, the change in trend is worth noting. Also, the latest University of Michigan survey of consumer sentiment for Oct (prelim) noted an increase in the year-ahead inflation expectations to +3.8%, still well above the pre-pandemic range. Long-run inflation expectations also edged back up to +3% while staying within the elevated +2.9%-+3.1% range of the last two years.
The FOMC minutes and speeches throughout the week signaled that the path of rates is likely to stay on hold. Fed speeches noted that recent increases in long yields were doing the work for the FOMC in tightening conditions. Several speeches made this point. The FOMC minutes stated that policymakers expect that the cumulative tightening to date will begin to weigh on future economic activity, hiring, and inflation and that the Fed remains in a position to ‘proceed carefully’. The minutes suggest a higher bar might exist for a further rate increase. It was noted that communications may now need to shift from ‘how high’ to raise the policy rate to ‘how long to hold the policy rate at restrictive levels’.
Outlook for the week ahead
The totality of US data so far in Q3 continues to revolve around the theme of ‘recent stronger than expected activity’. So far, the Atlanta Fed GDPNowcast for Q3 growth is running at +5.1% (and importantly, will be updated this week), payroll growth has improved compared to Q2 (with the help of revisions), and underlying inflation pressure remains persistent.
This week, US data will provide a wide-ranging update across consumption, housing, and industrial output for the final month of the quarter. There will also be a notable number of Fed speeches again this week – as this will be the final week before the blackout week (next week) ahead of the FOMC meeting on 31 Oct – 1 Nov. Fed speeches this week will include Fed Chair Powell on Thursday, speaking on the Economic Outlook.
US retail sales growth is expected to slow to +0.3% in Sep from +0.6% in Aug.
US housing data is expected to begin to show an impact from the recent further rise in mortgage rates. New home builder sentiment is expected to stay at a low level. Existing home sales are expected to fall to 3.89m (SAAR) in Sep – this would be a new low for this pandemic cycle. Building permits are expected to slow to 1.45m (SAAR) in Sep (from 1.54m in Aug). New housing starts are also expected to stay somewhat lower than in recent months at 1.38m (SAAR) in Sep (versus 1.28m in Aug).
US Industrial output for Sep is expected to increase by +0.1% in Sep, from +0.4% in Aug. The first regional manufacturing surveys for Oct will be released and recent weaker manufacturing conditions are expected to continue to stabilize.
Other important data out this week includes global CPI reports for Sep; NZ headline inflation is expected to slow to +5.9%, Canada headline inflation is expected to stay unchanged at +4%, UK headline inflation is expected to slow to +6.5%, Euro area inflation is expected to slow to +4.3%, and Japanese CPI ex fresh food inflation is expected to slow to +2.7% over the year.
Aus data will also feature this week with the latest RBA minutes, a speech by new RBA Governor Bullock, and the Sep labor market survey. Aus net employment growth is expected to slow to +21k while the unemployment rate is expected to stay at a low 3.7%.
Geopolitical risk and uncertainty remain elevated this week.
The US House of Representatives is expected to vote on a new speaker on Tuesday.
This week, the US Treasury will auction and settle approx. $555bn in ST Bills, Notes, and Bonds raising approx. $101bn in new money. The US Treasury will also auction approx. $35bn in 5-Year TIPs and 20-Year Bonds – which will settle at the end of the month.
QT this week: Approx $10.9bn in ST Bills will mature on the Fed balance sheet this week and will be reinvested. Approx $15.6bn in ST Bills, Notes, and Bonds will mature on the Fed balance sheet this week and will be redeemed/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 | Oct 9, 2023
Key events this week – US CPI, FOMC Minutes, Fed Speak
Recap from last week
For the moment, robust US labor market conditions continue to support growth resilience. Through the tightening cycle so far, indicators of heightened labor demand across non-farm payrolls, employment, job openings, and wage growth have been slowing from historically elevated levels. However, as the stimulus-fuelled growth of the pandemic-era reverses, there has not yet been a material deterioration in labor market conditions. The unemployment rate has stayed low so far in this tightening cycle, initial and continuing claims are low, and layoffs, discharges, and quits are almost back in line with pre-pandemic averages.
The FOMC is likely to view the Sep payrolls as in line with “recent stronger than expected activity” as the process of rebalancing continues. Non-farm payroll growth was stronger than expected in Sep at +336k (expecting +163k), while growth in the two prior months was revised higher by +119k. Growth in average hourly earnings stayed low at +0.2% over the month while annual growth slowed to +4.1%. Contributing to slower average hourly wage growth could be the change in the mix of employment growth. Over the last few months, the household survey has shown that employment growth has been driven by higher part-time employment while full-time employment growth has slowed but has stayed elevated. The average work week and participation rate were unchanged, and the unemployment rate stayed low at 3.8%. The JOLTS data for Aug showed a surprise increase in the job openings rate, back up to 5.8. The number of job openings has been falling through this tightening cycle, but is still above the pre-pandemic average of 4.2, reflecting some ongoing tightness in the labor market.
The global S&P PMI’s showed stalling manufacturing activity persisted through to the end of Q3. Eurozone manufacturing remained in firm contraction, with conditions deteriorating in Japan, the UK, Aus, Canada, and the ASEAN group at the end of Q3. US manufacturing conditions have stayed little changed. Stronger global services growth had been helping to offset weaker manufacturing conditions. However, the services expansion has slowed throughout Q3 to a more modest pace of growth. Services growth has slowed to a stalled pace in the US, the UK, China, and the Eurozone.
The RBA and RBNZ both kept policy settings unchanged in Oct.
Outlook for the week ahead
There are several important events this week. We are now in the lead-up to the next FOMC meeting on 1 Nov and the CPI report for Sep will be an important input. The FOMC is looking for continued progress on slowing inflation and while inflation is still too high, recent reports have been going in the right direction. Headline CPI growth is expected to slow to +3.6% in Sep from +3.7% in Aug and the monthly rate is also expected to ease to +0.3% in Sep from +0.6% in Aug. Core CPI is also expected to ease to +4.1% in Sep from +4.3% in Aug while the monthly core rate is expected to stay unchanged at +0.3%.
The US PPI data for Sep will come out before the CPI report this month. Headline PPI growth is expected to slow to +0.4% over the month, from +0.7% in Aug. Annual growth in the PPI is expected to be little changed around +1.6%.
The latest minutes of the FOMC meeting will be released this week. Of interest will likely be discussions around the timing of (or need for) further rate hikes, as outlined in the Summary of Economic Projections. The market-based probability of another hike in 2023 has come down in recent weeks while long-end yields have been rising.
We will continue to watch initial claims (expected +210k) and the weekly mortgage application data. Mortgage applications continued to deteriorate, falling by 6% last week as mortgage rates increased to the highest level since 2000.
There will be a large number of Fed speakers this week, including Governor Jefferson (The Economic Outlook and Monetary Policy Transmission), Governor Waller (The Evolution of Monetary Policy), and Governor Bowman (Financial Stability in Uncertain Times).
There will be several other data releases; European country-level CPI for Sep, Eurozone, and German industrial production for Aug. The first round of Chinese data for Sep will be released this week which will include CPI/PPI and trade data. Chinese export and import data are expected to continue to improve.
Renewed and elevated geopolitical unrest and local US political uncertainty (due to the removal of the US House Speaker last week) may provide further headline risk through the week.
This week, the US Treasury will auction and settle approx. $433bn in ST Bills, raising approx. $24bn in new money. This week, the US Treasury will also auction approx. $101bn in Notes and Bonds – which will settle next week.
QT this week: Approx $10.3bn in ST Bills will mature on the Fed balance sheet this week and will be reinvested. Approx $1.6bn in ST Bills will mature on the Fed balance sheet this week and will be redeemed/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 | Oct 2, 2023
Key events this week – US non-farm payrolls & ISM surveys, RBA & RBNZ monetary policy decisions
Recap from last week
US core PCE inflation continued to ease while spending and growth data reflected mostly resilient economic conditions. The elephant in the room is the recent increase in long rates, the extent to which long rates may stay higher, and the expected impact on global activity.
US PCE inflation for Aug came in as expected at +3.5%, accelerating slightly mostly due to energy prices. Monthly headline inflation was +0.4% in Aug up from +0.2% in Jul. Core PCE inflation eased to +3.9% in Aug and the monthly rate moved lower. The latest FOMC median projection for core PCE growth is +3.7% over 2023. The trimmed mean measure of underlying inflation also slowed to +3.9% over the year as the monthly rate stayed low (but has inched slightly higher over the past two months). Overall, another good report for the FOMC which wants to see continued progress on inflation to be confident inflation is on a sustainable path lower.
US personal consumption expenditure growth for Aug was slightly lower than expected at +0.4%, and +0.1% in real terms. Lower spending on goods was offset by growth in services. The average growth in personal spending through Q3 has so far stayed higher than in Q2. Real personal disposable income has recorded consecutive falls over the last three months.
US regional manufacturing surveys continued to stabilize in Sep. The decline in new orders has become less severe except in the Philadelphia and Kansas regions. While the outlook and sentiment have been negative, the slowdown in employment growth has stabilized. The recent fall in the prices paid and prices received indexes has stabilized, with both indexes rising slightly over the last several months.
US housing activity continues to show signs of a renewed impact from rising mortgage rates. Mortgage applications, pending home sales (Aug), and new home sales (Aug) all fell in the latest round of data.
US Q2 GDP growth was confirmed at +2.1% SAAR. While PCE expenditure was revised lower, this was offset by a larger contribution from private investment spending and net exports. The Atlanta Fed GDP Nowcast for Q3 GDP growth has stayed high at +4.9%.
Inflation in the Euro area (prelim for Sep) came in lower than expected at +4.3% over the year and the monthly rate slowed to +0.3%. Core CPI is also expected to be lower at +4.5%.
Aus CPI for Aug came in as expected with headline CPI rising to +5.2% while the monthly rate increased to +0.6%. The shorter-term 3-month SAAR has shown some acceleration in headline inflation. The trimmed mean measure of underlying inflation stayed elevated at 5.6% in Aug. Pressure from services inflation remains elevated in the domestic economy.
Outlook for the week ahead
The main focus this week will be US non-farm payrolls and labor market indicators. This is a key report for the FOMC which is looking for a continued rebalancing of the labor market.
US non-farm payrolls are expected to increase by +163k in Sep (from +187k in Aug). Participation is expected to be little changed at 62.8%, but the unemployment rate is expected to fall to 3.7%. Average weekly hours are expected to be unchanged at 34.4. Average hourly earnings are expected to increase by +0.3% over the month and by +4.3% over the year. The JOLTS survey for Aug is expected to show little change in the number of job openings at 8.83m.
The Sep ISM surveys for the US are expected to show a slight moderation in services activity while manufacturing continues to contract.
There will be several Fed speakers this week. At this stage, Fed Chair Powell is scheduled to speak on Monday, but this is not listed on the official Federal Reserve calendar.
The RBA will meet on monetary policy this week. This will be the first meeting under the new leadership of Governor Michele Bullock. The cash rate is expected to stay unchanged at 4.1%.
The RBNZ will also meet on monetary policy this week. The official cash rate is also expected to stay unchanged at 5.5%.
The global suite of S&P PMIs will be released this week for Sep, providing a broader view of manufacturing and services growth momentum through Q3.
This week, the US Treasury will auction and settle approx. $244bn in ST Bills, raising approx. $65bn in new money. The US Treasury estimates that it will raise approx. $852bn in new money in Q4. The next quarterly refunding update will be on 30 Oct and 1 Nov.
QT this week: Approx $15bn in ST Bills will mature on the Fed balance sheet this week and will be reinvested. Approx $2.4bn in ST Bills will mature on the Fed balance sheet this week and will be redeemed/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 | Sep 25, 2023
Key events this week – US PCE inflation, spending, housing, and growth, Fed speeches incl Fed Chair Powell, Euro Area & Aus inflation
Recap from last week
There was a further shift to a pause in policy hikes from central banks last week. The FOMC kept rates on hold while the BoE and the SNB both shifted to a pause. The BoJ remained the outlier by maintaining accommodative policy settings.
The FOMC kept rates on hold as expected, maintaining a higher-for-longer outlook for the FFR. Guidance was unchanged with the Committee retaining the option for additional policy firming this year, and penciling in fewer cuts next year, as outlined in the Economic Projections (SEP). The FOMC still sees inflation as too high and is not forecasted to reach targets for some time yet (the US core PCE is not estimated to reach the target until 2026). However, inflation is moving in the right direction, allowing some space to “act carefully” in determining the extent of additional tightening. The Committee wants to see more than three months of progress on inflation and a continued rebalancing of the labor market before it is confident inflation is on a sustainable path lower. Chair Powell noted that they are broadly watching whether the current stronger growth is a threat to the committee’s ability to get inflation back to target or undermine the rebalancing of the labor market. These factors will form part of the “totality of the data” assessment for future decisions. Chair Powell also noted several downside risks to growth going into this final quarter of 2023.
The more resilient US growth currently stands in contrast to concerns over slowing growth noted in other central bank decisions over the last few weeks. The latest was the BoE last week which kept policy rates on hold in another tight 5-4 decision. The Committee noted that policy will need to stay restrictive for “sufficiently long” to lower inflation, however, “some evidence is emerging that the economy is starting to respond”. The BoE noted recent increases in unemployment, inflation easing more than expected in Aug, and “the growth outlook less positive since the last meeting”.
The BoJ maintained its accommodative policy settings, noting “extremely high uncertainties surrounding economies and financial markets at home and abroad”.
The latest round of prelim PMIs for Sep showed growth momentum slowing among the G4 (plus Australia). Services activity has slowed through Q3 while manufacturing activity has remained in contraction. In the Eurozone, both services and manufacturing activity are now in contraction (with a notable deterioration in France this month). In Sep, services growth slowed, but remained moderate in Japan and slowed to a stalled pace in the US. Of note was the stronger fall in the UK services PMI this month, which also noted “solid” declines in staffing levels. In contrast, Aus services activity rebounded from contraction to a modest expansion.
Outlook for the week ahead
Data will focus broadly on US inflation, spending, and growth.
US PCE inflation for Aug is expected to follow the CPI report with a slight increase in the headline rate to +3.5% (from +3.3% in Jul) due to higher energy prices. The monthly pace is expected to increase to +0.5% from +0.3% in Jul. Core PCE is expected to ease to +3.9% from +4.2% in Jul. The monthly pace of core PCE inflation is expected to stay at +0.2%.
US personal spending is expected to slow to +0.5% in Aug from +0.8% in Jul, as personal income growth is expected to increase to +0.4% in Aug from +0.2% in Jul.
The third (final) estimate for US Q2 GDP growth is expected to come in slightly higher at +2.2%.
US new home sales are expected to moderate further to 0.700m (SAAR) from 0.714m in Jul. US housing data was mixed last week; home builder sentiment continued to fall, permits were higher, starts were sharply lower (led by a fall in activity in the West, likely weather-related), and existing home sales continued to fall. Existing home sales fell to 4.040m (SAAR) in Aug, which is now just above the pandemic low of 4m (Jan 2023).
US durable goods orders for Aug are expected to fall slightly by -0.4% after falling by -5.2% in Jul (due to large value orders in Jun).
There will be several US Fed speeches this week, including Fed Chair Powell (Town Hall event for educators).
Other data in focus this week will be the prelim Euro area CPI for Sep. Headline CPI growth is expected to slow to +4.6% in Sep (from +5.2% in Aug). Core CPI is expected to also ease to +4.9% in Sep (from +5.3% in Aug).
The monthly Aus CPI is expected to show inflation increasing slightly to +5.2% in Aug from +4.9% in Jul.
This week, the US Treasury will auction and settle approx. $577bn in ST Bills, Notes, Bonds, TIPs, and FRNs raising approx. $110bn in new money. This brings the unofficial Q3 quarter-to-date total of new money raised to approx. $1,038bn (Est was $1,007bn).
The US Treasury will auction the 2-year, 5-year, and 7-year Notes this week, and, together with the 20-year Bond, these will settle on 2 Oct next week.
QT this week: Approx $6.5bn in ST Bills will mature on the Fed balance sheet this week and will be reinvested. Approx $29.2bn in ST Bills, Notes, and Bonds will mature on the Fed balance sheet this week and will be redeemed/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
