by Kim | Feb 17, 2025
Key events this week – FOMC minutes, RBA & RBNZ meetings, CPI; Japan, UK, & Canada, Prelim S&P PMIs Feb
Recap from last week: US CPI firms, but PPI offers hope for softer core PCE inflation.
The US CPI and PPI releases for Jan offer key insights into the likely trajectory of the Fed’s preferred PCE inflation measure, due out on 28 Feb. While there wasn’t much to like about the firmer CPI results, the picture of US PCE inflation in Jan became a little more constructive after the PPI report.
The headline and core CPI results for Jan all came in higher than expected across both monthly and annual timeframes. Annual headline CPI increased to +3% while core CPI increased to +3.3% in Jan, both higher than in Dec. Monthly headline and core inflation accelerated to +0.5% in Jan, on par with the high readings from a year ago, adding further weight to the concern that progress on disinflation may have stalled. One positive from the report was that annual shelter inflation continued to slow. The PPI results for Jan were also higher than expected with headline PPI increasing to +3.5% over the year (expecting +3.1%). PPI inflation accelerated in the latter half of 2024. While not as high as in 2021/22, many PPI measures are now higher than they were a year ago.
Importantly, the increase in the individual PPI components that feed into the Fed’s preferred PCE inflation measure was more moderate in Jan. Together with the CPI result, suggests that the Fed-preferred annual core PCE is likely to decelerate in Jan. The FOMC is looking for further progress on annual core PCE inflation before it will continue cutting rates. Progress on core PCE inflation had mostly stalled through 2024, slowing to +2.6% through the middle of the year, then remaining at +2.8% for the last three months. Using the Cleveland Fed CPI nowcast for core PCE in Jan of +0.37%, and assuming no revisions, annual core PCE would slow to +2.66% in Jan. While this represents some progress, a monthly reading on core inflation of +0.37% would be elevated for the Fed, especially after more benign readings in Nov and Dec. The details of the report will be important.
During his testimony last week, US Fed Chair Powell noted that the Fed still has more work to do, and remains in no rush to lower rates.
“Last year, inflation was 2.6% — so great progress — but we’re not quite there yet,” Source: Bloomberg, 13 Feb 2025
The FOMC also wants to understand and assess the potential impact of new policy measures on inflation and the economy. The inflation outlook is still clouded by some uncertainty over the form of tariffs and other policy measures.
The US GDP growth run rate has moderated so far in Q1. The Atlanta Fed GDP nowcast for Q1 growth slowed to +2.3% at the end of last week. The slowdown from the prior week was mostly due to the sharper-than-expected fall in US retail sales of -0.9% for Jan, led by notable falls in motor vehicles and non-store sales. For now, the fall in Jan retail sales follows stronger retail sales growth in the back half of 2024. US industrial production growth slowed in Jan as manufacturing and mining output declined, and was partially offset by a notable increase in the output of utilities, due in part to cooler weather.
The prelim Q4 GDP growth for the Euro area came in slightly better than expected at +0.1% over the quarter (expecting 0%). This was still a step down from the somewhat more moderate pace of growth in Q3 of +0.4%.
UK GDP growth for Q4 was also better than expected at +0.1% over the quarter (expecting a fall of -0.1%) after no growth in Q3. The detail painted a less optimistic picture as household expenditure growth stalled, while business investment and net trade declined. This was offset by a positive contribution from the change in inventories and growth in government expenditure.
Outlook for the week ahead; FOMC minutes, RBA & RBNZ meetings, CPI; Japan, UK, & Canada, Prelim S&P PMIs Feb
This week, the focus shifts back to central bank decisions and key data. In the US, housing data for Jan will feed into a further update on the trajectory of growth so far in Q1. The prelim S&P PMIs for key developed markets in Feb will also provide a broader view of growth momentum and private sector sentiment through to the middle of Q1.
Key factors to watch this week;
The RBA and RBNZ will meet for the first time this year. The minutes of the Jan FOMC meeting will be released.
- The RBA is expected to cut rates for the first time in this cycle from 4.35% to 4.1%. The latest Q4 CPI report was positive for the RBA, with core CPI slowing further towards the top of the target range. At the last meeting, there had been a notable shift in the RBA outlook on inflation, with the Board “gaining confidence that inflationary pressures are declining”. So far, the labour market has remained solid, retaining most of the pandemic gains in terms of higher employment, lower unemployment, and higher participation. Given the strength in labour market conditions, the guidance provided by the Board will be important for the outlook on the path to further rate cuts. The Aus labour market report for Jan will also be released this week.
- The RBNZ is expected to cut rates by 50bps at its meeting this week. While inflation remained in the RBNZ target range for the second quarter in a row in Q4, growth and labour market conditions continued to deteriorate. GDP in Q3 contracted by -1% over the quarter (including revisions) while the unemployment rate increased to 5.1% in Q4, from 4.8% in Q3.
- The minutes of the FOMC meeting on 29 Jan will be released.
Central bank speeches;
- US Fed; Several speeches are worth watching this week, most notably Governor Waller’s address on the US economic outlook. Others include Governor Bowman (including brief remarks on the economy), Governor Kugler (navigating inflation), and Fed Vice Chair Jefferson (Household balance sheets).
US data releases this week will primarily focus on housing, but will also include the first regional manufacturing surveys for Feb. The housing starts data will feed into another update on the pace of GDP growth through Q1 so far.
- US new housing permits are expected to ease slightly in Jan to a 1.46m annualized pace from 1.48m in Dec. New housing starts are expected to slow to a 1.39m annualized pace in Jan from 1.5m in Dec. Existing home sales are expected to ease to 4.13m units annualized in Jan.
CPI data for Japan, the UK, and Canada will provide important input for these central banks ahead of the next round of meetings in Mar.
- The National CPI in Japan is expected to remain firm in Jan. The BoJ preferred measure of core CPI ex fresh food is expected to increase in Jan to +3.1% over the year from +3% in Dec. The BoJ increased rates at the last meeting, citing progress on inflation and positive developments in wage growth. Recent speeches continue to hint at further hikes as long as inflation and growth evolve according to the outlook, though the prospect of tariffs remains a key uncertainty. GDP in Q4 came in higher than expected at +0.7% over the quarter, or a +2.8% annualized rate (expecting +1%).
- UK inflation and labour market data this week will provide an update for the BoE as it balances firming inflation with a slow growth backdrop. Headline CPI is expected to increase to +2.8% in Jan, up from +2.5% in Dec. Core CPI is expected to increase to +3.7% from +3.2% in Dec. At its last meeting, the BoE noted that headline inflation was expected to move up through the first half due to higher energy prices while underlying inflation was expected to wane. The Dec (rolling 3mth) UK labour market report will also be released this week, and the unemployment rate is expected to increase to 4.5%, up from 4.4% in Nov.
- Canadian CPI for Jan will be released this week. The monthly decline of -0.4% in Dec was partially the result of a temporary break in the GST. This is also expected to be reflected in stronger retail sales in Dec. Annual inflation is expected to be little changed from +1.8% in Dec, with monthly inflation remaining flat at 0%. The BoC core measures are also expected to be little changed with the trimmed mean remaining at +2.5%. The BoC core measures averaged +2.3% in Dec.
Finally, the S&P prelim PMIs for the G4 plus Aus will be released later this week.
This week, the US Treasury will auction and/or settle approx. $640bn in ST Bills, Notes, and Bonds raising approx. $18bn in new money.
QT this week: Approx $50bn of ST Bills, Notes, and Bonds will mature on the Fed balance sheet and will be reinvested. Approx $15bn in Notes and Bonds will mature on the Fed balance sheet 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 | Feb 10, 2025
Recap from last week: The US labor market remains solid in January.
The Jan jobs data indicates that US labor market conditions remain solid, maintaining a mostly positive signal for the overall economy.
At the last FOMC meeting, Fed Chair Powell characterized the US labor market as “pretty stable and broadly in balance”. He acknowledged that it is a “low hiring environment” but that the unemployment rate had been “pretty stable now for a full half a year”. While data revisions cloud the view, the Jan labor market report shows little change in those conditions.
Payroll growth slowed to +143k in Jan (expecting +154k); private sector jobs increased by +111k and govt by +32k. Services-providing industries accounted for all of the private sector job growth in Jan – but slowing from a more sizeable increase of +275k in Dec. The overall annual benchmark revision to the level of payrolls was slightly smaller than expected, but still resulted in the 12-month average payroll growth slowing from +186k to 166k in Dec. The Jan payroll growth remained slightly below this lower average benchmark. However, the upward revision to payroll growth of +100k in the last three months of 2024 suggests some stronger momentum through to the end of last year. The overall hiring rate remained stable at the end of Dec.
The unemployment rate fell to 4% in Jan from 4.1% in Dec. This was a positive development given that both participation and employment (using the employment-to-population ratio) increased in Jan. Other measures of unemployment also reflected slightly more positive, stable conditions.
Several pieces of labor force data stand out and will need to be monitored amid the noisy and heavily revised data this month. The first is the notable 7% fall in job openings at the end of Dec. Because these data are subject to revision, it is unclear whether, combined with slower payroll growth in Jan, they suggest some softening in labor demand.
The second area to be monitored is the further fall in aggregate and average weekly hours worked. Aggregate hours worked in private payrolls have declined in the last two months, falling by -0.2% in Jan (but also fell by -0.5% in Jan a year ago) and by -0.1% in Dec. Average weekly hours also declined in both Jan and Dec. One reason for the fall in Jan aggregate hours worked could be due to the notable increase of 573k people “employed but not at work” due to weather. However, this explanation doesn’t account for the fall in aggregate hours in Dec, which is also not consistent with the upward revision to the Dec payroll growth.
Finally, growth in average hourly earnings was firmer in Jan, increasing by +0.5% in the month from +0.3% in Dec. The annual rate lifted slightly to +4.1%. The Fed will need to watch how this evolves beyond Jan.
US ISM and S&P PMI surveys for Jan shifted back into alignment. Both surveys indicated some improvement in manufacturing activity while the larger services sector, despite staying positive, recorded a notable moderation in momentum. This is also consistent with the slowdown in services payroll jobs in Jan. The Atlanta Fed GDP nowcast of Q1 US GDP growth is currently at +2.9%.
The Global S&P PMIs mirrored that shift in the US, as global manufacturing output PMIs shifted to reflect marginal growth expectations, while services momentum moderated, but stayed positive. While the composite output expansion did moderate in Jan, indicators of future output optimism continued to improve, as did the employment index. Both input and output price indexes also firmed.
The BoE cut rates as expected, albeit with a surprising 7-2 vote (two members preferred a 50bps cut). The Committee cited sufficient disinflation progress as justification for the rate cut. Growth had also been weaker than expected. While higher energy prices pose some upside risk to headline inflation in the outlook, underlying inflation is projected to ease. The BoE will maintain a somewhat restrictive policy stance while inflation risks subside further, following a gradual and cautious path of rate reductions.
Outlook for the week ahead; US CPI & retail sales, Fed Chair Powell testimony.
With stable labor market conditions supporting the Fed while it keeps rates on hold, the focus this week shifts to assessing progress on inflation and what it means for the path of US rates. The latest US retail sales and industrial production data will provide a more robust update to the Q1 growth rate. US Fed Chair Powell will also give two days of testimony this week. Outside of the US, Euro area and UK growth data will be in focus.
Key factors to watch this week;
US CPI and PPI for Jan will provide a guide for how the Fed-preferred PCE inflation report for Jan is likely to evolve. The FOMC is looking for further progress on core PCE inflation, particularly year-over-year, before easing policy further. We’ll be watching how monthly core inflation compares to the higher readings from last year and importantly what it could mean for the PCE report in two weeks. While a single month’s data may not be decisive, the Jan figures follow two more benign core PCE readings from Nov and Dec. These CPI and PPI reports could therefore influence expectations for US policy rates, with softer or firmer data potentially shifting the current market pricing of rate cuts in 2025.
- US headline CPI is expected to increase by +0.3% over the month in Jan, down from +0.4% in Dec. The annual rate is expected to stay unchanged at +2.9%.
- US core CPI is expected to increase by +0.3% in Jan, from +0.2% in Dec. A year ago, core CPI recorded +0.4% over the month in Jan. Annual core CPI is expected to slow to +3.1% in Jan from +3.25% in Dec.
- The headline PPI is expected to be unchanged at +0.2% in Jan. The annual rate is expected to slow to +3.1% in Jan from +3.3% in Dec.
- Core PPI is expected to increase by +0.3% in Jan from 0% in Dec. The annual core PPI rate is expected to slow to +3.3% in Jan from +3.5% in Dec.
Fed speeches;
- Fed Chair Powell will give two days of testimony to the US House of Representatives and the Senate this week. The tone of questioning will be interesting given the change in administration. Chair Powell is likely to reiterate the key themes from his recent FOMC press conference; economy and policy settings in a good place, looking for further progress on inflation, and in wait-and-see mode on tariffs/policy measure impacts on inflation.
- Fed Governor Waller is scheduled to speak on Wed (stablecoins) and may touch briefly on the inflation data/outlook.
Update on US growth at the start of Q1;
- US retail sales for Jan are expected to be flat (0%) after increasing by +0.4% in Dec. The retail control sales result will be the important measure feeding into the GDP calculation – and this increased by +0.7% in Dec.
- US industrial production is expected to increase by +0.3% in Jan, down from +0.9% in Dec.
Tariffs;
- Uncertainty over the effects of US policy on the inflation outlook remains elevated – which includes the impact of budget, tariffs, and regulatory policy. While tariff threats were withdrawn last week, this situation continues to evolve. Late last week, President Trump threatened that reciprocal tariffs may announced this week along with tariffs on all steel and aluminium imports into the US. Tariffs on some Chinese imports are due to go into effect this week with China announcing retaliatory duties.
Outside of the US, Q4 growth data will be in focus for Europe and the UK.
- Euro area GDP for Q4 is expected to be confirmed at a stalled pace of 0% over the quarter and +0.9% over the year. Last week, the Euro area inflation report firmed in Jan as outlined by the ECB in the prior week. Services inflation stayed steady at +3.9%. Reporting by Bloomberg on a research paper by ECB staff regarding the neutral rate published late last week suggests that fewer rate cuts may be required to reach the neutral range (with the usual caveats).
- The UK Q4 GDP is expected to decline by -0.1% over the quarter, from 0% change in Q3.
This week, the US Treasury will auction and/or settle approx. $490bn in ST Bills raising approx. $30bn in new money.
QT this week: Approx $14.5bn of 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
by Kim | Feb 3, 2025
Key events this week – US non-farm payrolls, ISM surveys, Fed speeches, BoE policy meeting
Recap from last week: Central banks wary of trade risks.
Before the US tariff announcement late last week, central banks wrestled with the potential economic fallout of tariffs and a trade war, particularly the impact on inflation, growth, and the future direction of interest rates. The emphasis was slightly different among the decisions last week.
The Bank of Canada (BoC) addressed the challenge most directly, given its close trading relationship with the US. The BoC cut rates again – continuing to support growth while the economy remains in “excess capacity” and inflation is stable around the 2% level. Given the high degree of uncertainty in the outlook, the BoC held off on forward guidance. The BoC Governor expressed clear concern about the downside risks to the Canadian economy posed by tariffs and a potential trade war, noting that such a scenario would “badly hurt economic activity in Canada” while simultaneously placing “direct upward pressure on inflation”. The Bank provided a frank assessment of its position in such circumstances:
However, with a single instrument—our policy interest rate—we can’t lean against weaker output and higher inflation at the same time. Source: BoC Press Conf 29 Jan 2025
The ECB cut its deposit facility rate by a further 25bps. The disinflation process remains on track however, inflation is expected to remain around the current level in the near term. Euro area growth faces several headwinds, and the latest prelim Q4 GDP result showed growth stalling at 0% in the quarter. “Trade frictions” were highlighted as a key uncertainty for Euro area inflation, trade, and growth. Guidance remained limited;
And for those who would like to have this solid forward guidance, it would be totally unrealistic to do anything of that nature, simply because we are facing significant and probably rising uncertainty at the moment. Source: ECB Press Conf, 30 Jan 2025
Discussion focused on the path of rate cuts from here and the ‘neutral’ rate. An ECB staff paper is to be released at the end of this week with an update on the neutral rate/range. ECB President Lagarde noted that this paper “will help us determine how close we are (to neutral) and what our monetary policy stance should be”.
The FOMC stayed on hold as expected. The message from the FOMC is that the US economy is in a good place overall and policy settings are well positioned to make further progress on inflation. The policy stance is “less restrictive” than it has been, and the Committee is not in a hurry to adjust the policy stance. Future rate cuts will depend on further progress on inflation and Fed Chair Powell was clear that the FOMC needs to specifically see the 12-month inflation rate come down (or weakness in labor market conditions). The outlook for further progress on inflation was optimistic, given the development of slowing housing inflation. The Committee is firmly in wait-and-see mode on the effect of and its response to, the domestic policy changes to be enacted by the new Trump administration – including trade, immigration, fiscal, and regulatory policy.
We’ll patiently watch and understand and kind of not be in a hurry to get to a place of understanding what our policy response should be until we see how it plays out. Source: FOMC Press Conf, 29 Jan 2025
The Dec US PCE inflation report highlighted the Fed’s point on inflation. After making progress on disinflation over the past two years, progress seemed to have stalled this year. In Dec, the monthly core PCE inflation was slightly softer than expected at +0.16% (expecting +0.19%), however, the annual rate remained at +2.8%. This annual core PCE rate has averaged +2.8% over the last 12 months. To highlight the Fed’s concern, a year ago, the annual core PCE rate was 3.04% – which suggests little progress throughout 2024. This month, there was more progress on slower housing inflation and core goods deflation. The short-term annualized measures of inflation do point to inflation slowing more recently again. However, the issue of seasonality is important – and this is the Fed’s point. For example, last year in Jan 2024, the monthly headline PCE rate reaccelerated to +0.4% while the core PCE rate came in at +0.5% over the month – both were high readings after three months of far more benign results. How the annual inflation data evolves over the next few months, as it cycles over these higher readings during the start of 2024, will be important for shaping the inflation narrative.
US growth came in lower than expected at +2.3% annualized in Q4 (expecting +2.7%). Continued strength in personal consumption expenditure only partially offsets some weakness in fixed investment and slower growth in govt expenditure. The change in private inventories detracted from growth, as private inventories were little changed over the prior quarter. Over the year, US real GDP growth was +2.5% – which was on par with the latest and upgraded FOMC projection for US growth over the year at the end of 2024.
Outlook for the week ahead; US non-farm payrolls, the BoE, and elevated headline risk from tariffs.
Markets will likely continue to digest the tariff announcements from late last week – and there remains potential for headline risk.
US data will be focused on the comprehensive update on the US labor market in Jan and the ISM surveys. The Bank of England also meets this week. Outside of the US, data will focus on important Euro area inflation, the Canadian labour market, and the broader update from the S&P global PMIs for Jan.
Key factors to watch this week;
US Labor market data for Jan will be important for providing the FOMC with a general gauge of labour market conditions at the start of the year.
- US non-farm payrolls are expected to increase by +154k in Jan, down from +256k in Dec. The final annual benchmark revision for the establishment survey will be issued in the Jan release by the BLS. The prelim release showed a -818k downward revision to non-farm payrolls over the year.
- The unemployment rate is expected to stay unchanged at 4.1%. Average weekly earnings are expected to increase by +0.3% over the month and slow to +3.8% over the year in Jan.
- The JOLTS survey for Dec (lags by one month) is expected to show job openings slow to 7.88m in Dec, from 8.1m in Nov.
- The US ISM manufacturing and services PMIs for Jan will provide a gauge of growth momentum in private sector activity. The ISM manufacturing PMI is expected to be little changed remaining in slight contraction at 49.3, while the headline services PMI is expected to show continued moderate expansion at 54.2.
- Fed speeches are back this week. Some highlights; Fed Vice Chair Jefferson will speak on the economic outlook and monetary policy. Governor Waller will give a speech on payments but may recap the Fed meeting last week. The latest Fed Loan Officer survey will also be released this week.
Central banks;
- The BoE will meet this week for the first time in 2025 and is expected to cut rates by 25bps. The BoE kept rates unchanged at the last meeting in a closer 6-3 vote. The window seemed to be narrowing for the BoE with domestic inflation resolving slowly amid a weakening growth backdrop. More recent inflation data has shown underlying inflation easing further while the unemployment rate has edged higher.
Outside of the US, data will be important for the central bank policy outlook;
- The Euro area prelim CPI for Jan is expected to stay unchanged at +2.4% over the year versus +2.4% in Dec. The core CPI for Jan is expected to edge lower to +2.6% over the year, from +2.7% in Dec.
- In Canada, employment growth is expected to slow to +26k from +90k in Dec. The unemployment rate is expected to edge higher to 6.8% from 6.7%.
- The NZ labour market data for Q4 is expected to show a further fall in employment in Q4 of -0.2%, after -0.5% in Q3. The unemployment rate is expected to rise to 5.1% in Q4 from 4.8% in Q3. The RBNZ meets for the first time this year on 19 Feb.
- The broader suite of global PMIs for Jan will be released this week.
This week, the US Treasury will auction and/or settle approx. $490bn in ST Bills raising approx. $45bn in new money.
QT this week: Approx $12.7bn of ST Bills will mature on the Fed balance sheet and will be reinvested.
The next scheduled update on the US Treasury quarterly financing estimates for Q1 and Q2 will be this week on 3 and 5 Feb 2025. Details are usually located on the US Treasury website here.
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 27, 2025
Key events this week – FOMC, ECB, and BoC meetings, PCE inflation, and Q4 growth
Recap from last week: Shifting PMIs and the BoJ hikes.
The first prelim S&P PMIs for 2025 signaled a shift in momentum. Manufacturing weakness showed some signs of easing, though the sector remained in contraction in key economies, including Australia, the Eurozone, Japan, and the UK. Meanwhile, the services sector continued to expand modestly with little change in momentum across major economies, including Australia, Japan, the UK, and the Eurozone.
The prelim US PMIs painted a mostly positive picture of US activity at the start of 2025. The US manufacturing PMI strengthened and shifted into marginal expansion for the first time in six months. Firms continued to cite concerns over slow manufacturing sales though. The stronger US services sector recorded a marked slowdown to a more modest pace of growth – the slowest of the past eight months. However, firms broadly maintained stronger optimism in the growth outlook, alongside faster expansion in services employment. The PMI survey noted a resumption of inflation pressure across both input and output/selling prices.
The first central bank meetings of 2025 began last week. The BoJ increased rates by a further 25bps to 0.50%, noting that “the likelihood of realizing the outlook has been rising”. The BoJ assessed positive developments on wage growth – which has been an important feature as it looks to foster the development of that ‘virtuous cycle’. Real rates are to remain “significantly negative” to continue to support the moderate recovery in the Japanese economy. Further hikes and adjustments to the degree of monetary accommodation are to be expected if the economy continues to evolve as per the outlook forecast. Inflation forecasts have been upgraded.
Data last week was important to upcoming central bank meetings. Canada’s CPI edged lower in Dec to +1.8% – as the sales tax break came into effect mid-month. Importantly, the BoC measures of core inflation resumed easing with the average over the three core measures slowing to +2.3% in Dec. The BoC Business Outlook survey showed business sentiment remaining subdued, but some optimism emerging in the outlook for sales growth as interest rate reductions work through the economy and in anticipation of rate cuts ahead. The BoC meets this week. At the last meeting, the BoC signaled that, after cutting rates by 50bps at each of the last two meetings, it would return to a more gradual pace of monetary easing. The BoC is expected to cut rates again by 25bps this week.
The unemployment rate in the UK increased in the 3 months to Nov as payroll jobs fell and the employment rate also edged slightly lower. Vacancies continued to fall. However, wage growth stayed firm. The BoE meets on the 6 Feb.
Outlook for the week ahead; FOMC, ECB, and BoC meetings, inflation, and Q4 growth.
It will be an important week with more key central bank meetings, inflation data for the US and Aus, and growth indicators for the US and Europe.
Key factors to watch this week;
The first central bank meetings of 2025 will continue this week;
- The FOMC is expected to keep rates unchanged. At its last meeting, the FOMC cut rates by 25bps, citing the decision to cut as a “closer call”. The decision signaled a shift away from the process of recalibrating rates to a more cautious and gradual pace as policy rate settings approached neutral levels. Fed Chair Powell noted slower progress on inflation and elevated uncertainty over the impact of new administration policies on growth and inflation. With some mixed inflation data out since the last meeting, we will look for any shifts in the Fed’s view of the outlook. The Dec PCE inflation data will be released at the end of the week.
- The BoC is expected to cut rates by 25bps at this meeting. At its last meeting, the BoC signaled a shift to a more gradual pace of policy easing. Last week, Bloomberg reported a speech by BoC Deputy Governor Gravelle that the BoC plans to end its QT program in the first half of 2025. The BoC may begin to outline these changes at upcoming meetings.
- The ECB is expected to cut rates by 25bps at this meeting. At its last meeting the ECB cut rates by 25bps – based on its view that the disinflation process was continuing. The Governing Council noted that concerns remained elevated over a weaker growth outlook, the policy uncertainty in its two largest economies, and the potential impact of US trade policy. Since then, inflation data has been little changed, with underlying CPI staying around +2.7%. Growth is expected to slow in Q4.
Inflation data this week will be important for the path of policy rates;
- US PCE inflation for Dec will be released at the end of the week. The Fed preferred core PCE inflation is expected to firm slightly over the month to +0.2% in Dec from +0.1% in Nov. This would leave the annual core PCE inflation rate unchanged at +2.8% over the year and in line with the upgraded FOMC projection of +2.8% for the full year 2024. A softer core PCE reading would be supportive of the disinflation narrative for the FOMC. Using the Cleveland Fed nowcast for PCE inflation in Dec, the headline rate is expected to increase by +0.3% over the month, up from +0.1% in Nov. This would raise the annual rate to +2.6% over the year in Dec (higher than the FOMC year-end projection of +2.4%). The broader inflation narrative will be challenged over the next few months as we cycle over the higher readings from the start of 2024.
- Also important for the FOMC view on inflation will be the Employment Cost Index for Q4. This is expected to increase by +1% over the quarter in Q4, up from +0.8% in Q3. This would keep the annual ECI unchanged at +3.7% in Q4.
- The Aus quarterly CPI for Q4 will be released this week. This will be crucial for the upcoming RBA meeting in Feb given that the Board shifted its signaling at the last meeting to reflect that the Board is gaining confidence that inflation is moving sustainably to the target. The RBA has yet to commence cutting rates. Annual headline inflation in Q4 is expected to ease to +2.5% from +2.8% in Q3. The RBA-preferred trimmed mean measure of core inflation is expected to slow to +3.3% in Q4, down from +3.6% in Q3. This would put the core measure just outside of the RBA target band of 2-3%.
The first view of US and Euro area growth data for Q4 will be released this week – this will also be important for the broader central bank outlook.
- The advance release of US GDP for Q4 will be released this week. Annualized growth is expected to slow slightly to +2.7%, from +3.1% in Q3. The Atlanta Fed GDP nowcast has Q4 US growth tracking at around +3% annualized. The latest FOMC projections had upgraded the end-of-year growth projection to +2.5% for the end of 2024.
- Prelim growth data for Europe in Q4 will be released. The Euro area growth rate is expected to slow to +0.1% in Q4, from +0.4% in Q3. Over the year, growth is expected to be +1% at the end of Q4, up slightly from +0.9% in Q3. The latest ECB projections have GDP growth at +0.7% at the end of 2024.
Now that US President Trump has been inaugurated, policy details and directives have begun to emerge. The threat of tariffs remains a key issue for trading partners – especially for, but not limited to, Canada, Mexico, China, Japan, and the EU. A broader trade review is due by the incoming US Trade Representative on 1 Apr – and this will likely set the scene for the broader trade policy and tariff direction.
This week, the US Treasury will auction and/or settle approx. $736bn in ST Bills, Notes, Bonds, TIPs, and FRNs raising approx. $128bn in new money.
QT this week: Approx $30bn of ST Bills, Notes, Bonds, and FRNs will mature on the Fed balance sheet and will be reinvested. Approx $8.6bn in Notes, Bonds, and FRNs will mature and be redeemed/roll off the Fed balance sheet.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | Jan 20, 2025
Key events this week – Inauguration, central banks, and S&P prelim PMIS for Jan 2025
Recap from last week: US inflation concerns ease, growth momentum lifts.
Markets generally took comfort from the US CPI and PPI reports last week. The headline and core CPI rates were actually little changed in Dec compared to Nov, even firming slightly in the case of headline inflation, which increased to +2.9%. These topline results still indicate some risk of stalled progress on disinflation. However, the test of the disinflation narrative will likely emerge in the first few months of 2025 as inflation data cycles over the elevated readings from last year. This will happen alongside the unfolding detail of the policy direction of the new Trump administration and its implications for inflation.
While there wasn’t a clear downshift in US CPI this month, there were some signs that the path of underlying inflation continues to ease – especially in some of the services categories where inflation has been more persistent. Core services inflation was still high at +4.5% year-over-year in Dec (down from +4.6% in Nov), but the more recent annualized rates, +3.6% on a 3-month annualized basis and +3.2% on a 1-month annualized basis, suggest that the rate may continue to slow. Of note was the further progress on shelter price inflation – something that Fed officials have been expecting. The core services less shelter CPI measure also showed a similar improvement. This may give the FOMC some comfort that the underlying disinflation story remains intact.
However, despite slowing in the most recent month, some of these more near-term annualized rates remain elevated. Other measures of underlying inflation also suggest that more progress is needed. The trimmed mean CPI, also a consistent measure of the behavior of underlying inflation, has been little changed over the last five months at +3.2% and as of Dec, there is little difference among the annual, 6mth, or 3mth annualized inflation rates – suggesting little progress in near-term underlying inflation.
From here, it depends on how this CPI and PPI report translates into the Fed’s preferred PCE inflation measure for Dec. The Nov PCE inflation report did show more progress, especially over the month in Nov with core PCE coming in lower at +0.1% over the month. Fed Governor Waller also noted this in a recent speech. Another soft reading on the PCE indicator would help support the ongoing disinflation story. The latest Cleveland Fed PCE inflation nowcast for the PCE deflator for Dec indicates a possibly slightly firmer monthly core reading. The Dec PCE inflation report is due after the FOMC meeting next week.
US consumption, output, and housing data in Dec remained broadly positive. US retail sales growth was slightly lower than expected at +0.4%, but the Nov increase was revised higher. The retail control measure (feeds into the GDP consumption component) was notably stronger at +0.7% in Dec. US industrial production recorded a strong rebound in growth. The latest Fed Beige Book also noted an improvement in conditions from Nov through Dec among the twelve Federal Reserve Districts. The Atlanta Fed GDP nowcast for Q4 growth run rate lifted back up to a solid +3% by the end of last week. Leading up to the FOMC meeting next week, economic conditions remain generally positive in the US. Markets currently expect the FOMC to stay on hold at the Jan meeting and have, at the time of writing, moved back to pricing in one rate cut this year (CME FedWatch).
Other data from last week will be important ahead of the first central bank meetings of the year.
UK inflation for Dec was more constructive with headline and core inflation slightly lower than expected. The story of underlying inflation also improved, especially with the more persistent services inflation taking a notable step down to +4.4% in Dec (from +5%). This will be good news for the BoE. The BoE did not cut at the last meeting reflecting the need to “squeeze remaining inflationary pressures from the economy” amid “sluggish demand and a weakening labour market”. This weaker backdrop was partly reflected in data last week with falls in industrial production, retail sales, and modest growth in the monthly GDP indicator for Nov. The latest UK labor market data will be out this week, ahead of the BoE meeting in several weeks.
The Aus labour market report recorded surprisingly strong employment growth in Dec. The unemployment rate still increased slightly as the labour force participation rate increased to another new all-time high. The continued growth in employment will be welcomed by the RBA, given sluggish overall economic growth. The RBA has only just started to signal that the Board is gaining confidence that inflation is moving sustainably to the target. The crucial quarterly CPI report for Q4 will be released next week. At this stage, markets are pricing around Apr for the first cut.
Euro area headline inflation for Dec was confirmed at +2.4%, with core inflation remaining unchanged at +2.7%. Services inflation remained at +4% over the year and rose by +0.8% over the month. ECB officials reaffirmed confidence in expectations that inflation would return to the 2% target in 2025. Minutes noted that the “last step towards achieving the inflation target would be a moderation in services inflation”, which was projected to decrease noticeably H1 2025, and that “it cannot let its guard down in the final stretch of disinflation”. Concerns remained elevated over the growth outlook, policy uncertainty in its two largest economies, and the potential impact of US trade policy especially amid sluggish/uneven growth. The ECB meets next week.
Outlook for the week ahead; Inauguration, central banks, and the first S&P prelim PMIS for Jan 2025.
The main event this week will be the inauguration of US President Trump for his second term in office. In the first hours and days of the Trump Presidency, global markets and key stakeholders will be awaiting direction from announcements relating to major campaign promises, especially on trade, tariffs, and immigration policy. Later in the week, President Trump will also address the WEF Davos annual forum (20-24 Jan) via video link.
Key factors to watch this week;
With limited US data out this week, there won’t be an update to the GDP nowcast until the end of next week. Existing home sales for Dec are expected to increase slightly to 4.19m (annualized pace), up from 4.15m in Nov. The Michigan Consumer Sentiment for Jan is expected to be unchanged.
This week is the blackout period for US Fed speeches ahead of the FOMC meeting next week.
More broadly, the S&P Prelim PMIs for Jan will be released later this week. This will provide the first view of growth momentum among key G4 nations (and Aus) coming into 2025. The prior year ended with rising momentum in services activity helping to offset some lackluster manufacturing conditions.
The first central bank meetings of 2025 will begin this week – with most major central banks meeting over the next few weeks. Data this week will feed into those decisions.
The first meeting will be the Bank of Japan this week, with its policy announcement/decision expected on 24 Jan. The BoJ kept rates unchanged at its last meeting in Dec. In his press conference after that meeting, BoJ Governor Ueda said “More information on Japan’s wages and the policies of US President-elect Donald Trump is needed before the BOJ can decide on a rate hike”. Yet with limited resolution on those sticking points, speeches and interviews over the last few weeks have raised market expectations for a hike by the BoJ later this week. Governor Ueda indicated that a hike may be under consideration at this meeting, and also noted some early positive developments on wage negotiations. The key National CPI report for Dec will be released at around the same time as the BoJ meeting. The BoJ-preferred core CPI measure ex fresh food is expected to lift from +2.7% in Nov to +3% in Dec.
Canada’s CPI for Dec is expected to ease. Headline CPI is expected to slow to +1.7% in Dec from +1.9% in Nov. Measures of core inflation are also expected to slow further. The BoC Business Outlook survey will also be released this week, providing a broad view of activity leading up to the BoC meeting next week.
NZ CPI for Q4 is expected to ease further to +0.5% over the quarter, down from +0.6% in Q3. The annual rate is expected to slow to +2.1% in Q4 from +2.2% in Q3.
This week, the US Treasury will auction and/or settle approx. $603bn in ST Bills raising approx. $106bn in new money. The US Treasury will also auction the 10-year TIPS and 20-year Bond this week – both to settle at the end of the month.
QT this week: Approx $12bn of 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
by Kim | Jan 13, 2025
Key events this week – US CPI, PPI, & retail sales, China GDP, Trump cabinet confirmation hearings start
Recap from last week: FOMC minutes and a better-than-expected US jobs report.
The Dec minutes show the FOMC navigating a shifting balance between increased upside risks to the inflation outlook and some diminishing downside risks to the labor market. The committee decided to cut rates by 25bps at the Dec meeting, but some Fed members noted that there was “merit” in keeping the FFR unchanged. The “finely balanced” decision aimed to maintain strength in the economy and the labor market while continuing to support progress on inflation.
Regarding the outlook though, the Committee indicated that the pace of future rate cuts would likely slow down. If data comes in as expected with inflation continuing to move down to 2%, and the economy remaining near max employment, it would be appropriate to move gradually to a more neutral stance over time. Although inflation had eased over the last two years, members noted recent elevated inflation readings, slower progress on disinflation through the latter half of 2024, strength in spending, some easing in downside risks for the labor market, and importantly, “increased upside risks to the outlook for inflation”. After 100 bps of rate cuts, monetary policy was seen as “significantly less restrictive” and the FFR closer to its neutral value. Amid this backdrop of firmer inflation, a solid labor market, robust growth, and some Fed easing already in place, the high degree of uncertainty regarding the scope and impact of new trade and immigration policies on growth and inflation also supported a more gradual approach toward neutral policy settings.
The Dec US jobs report likely helped to alleviate any concerns over a near-term weakening in the labor market. Non-farm payroll growth for Dec exceeded expectations, increasing by 256k jobs, building further on the rebound from the weak Oct report. Revisions for Oct and Nov were minimal. The detail of the payroll report was positive, with growth in total non-farm payrolls led by the private sector. The split between private goods-producing and services-providing jobs growth reflected the broader trends in the US economy; weaker conditions in manufacturing jobs were offset by stronger growth among service industries.
The unemployment rate fell to 4.1% in Dec, easing from its near-term peak of 4.2% in Nov. The lower unemployment rate was the result of a rebound in employment growth after two months of declines. The LFPR was unchanged in Dec but has edged lower in recent months. Of note was a further fall in the participation rate within the core working age group. After peaking at 83.9% in Aug 2024, the participation rate for 25-54yrs has fallen back to 83.3% in Dec. This is still just above the pre-pandemic level of 83% (Dec 2019), but it has lost some of the more notable pandemic-era gains. The rising participation rate has likely been an important contributor to improved labor supply, as well as helping to underpin income and consumption growth.
Growth in hours worked was in line with payroll growth. Average hourly earnings increased in line with expectations at +3.9%. There was a solid rebound in job openings in the Nov JOLTS report, indicating some increase in labor demand.
The next FOMC meeting is on 28-29 Jan. If inflation progress remains little changed/stalled in Dec, this labor market report likely supports no action from the Fed in Jan. At the time of writing, market pricing for rate cuts has been pushed out later into H2 2025 (source: CME FedWatch).
As expected, other US data last week helped to firm the growth run rate for Q4. The Atlanta Fed GDPNowcast for Q4 GDP growth edged higher from +2.4% to +2.7%. Growth in auto sales for Dec and the stronger momentum in the ISM services PMI contributed to a firming in the Q4 growth run rate.
More broadly, the S&P global composite PMI for Dec showed a further improvement in global private sector growth momentum at the end of 2024. This was led by a further increase in global service sector business activity that more than offsetting the renewed, yet slight, contraction in global manufacturing output.
Outlook for the week ahead; Focus on US CPI, PPI, retail sales, and US Senate confirmation hearings.
It will be another important week for the outlook on US inflation, growth, and what it means for the near-term path of rates ahead of the next FOMC meeting. The focus will be on US CPI and PPI, together with a solid range of US spending, housing, and output data for Dec.
We may also start to gain some sense of the incoming administration priorities ahead of the inauguration of US President-elect Trump next week. Senate confirmation hearings for President-elect Trump’s cabinet nominees will begin this week with some notable hearings including the US Treasury Secretary. This may come with some headline risk.
With the labor market remaining solid, the latest US inflation data will be an important input ahead of the next Fed meeting on 28-29 Jan. This will also depend on how both the CPI and PPI results track back into the Fed-preferred PCE inflation measure. The next PCE inflation report will be released 31 Jan.
This will also be the final week of Fed speeches before the blackout period ahead of the next FOMC meeting.
Key factors to watch this week:
- The week kicks off with US PPI for Dec; US headline PPI for Dec is expected to increase by +3% over the year, unchanged from +3% in Nov. The increase in monthly PPI is expected to be unchanged at +0.3%. Annual core PPI is expected edge lower to +3.2% in Dec, from +3.4% in Nov. The monthly increase in core PPI is expected to be unchanged at +0.2% in Dec.
- US headline CPI is expected to increase slightly to +2.8% over the year from +2.7% in Nov. The monthly increase in CPI is expected to remain unchanged at +0.3% in Dec. Core CPI is expected to ease slightly to +3.2% over the year in Dec, from +3.3% in Nov. The increase in monthly core CPI is also expected to ease to +0.2% in Dec from +0.3% in Nov.
- US retail sales for Dec are expected to increase by +0.5%, from +0.7% in Nov. In Nov, growth in the retail control measure (feeds into GDP consumption calculations) was +0.4%.
- US industrial production is expected to increase by +0.3% in Dec after falling by -0.1% in Nov. The first regional Fed manufacturing surveys for Jan will be released this week.
- US housing data is expected to be little changed. New permits in Dec are expected to edge lower to 1.46m (annualized) from 1.49m in Nov. Housing starts are expected to increase to 1.33m (annualized) from 1.29m (annualized) in Nov.
- The US Fed Beige Book will be released this week providing a summary of regional insights into economic activity ahead of the FOMC meeting at the end of the month.
Outside of the US, the focus shifts to UK and Euro area inflation, the Aus labour market update, and important data on Chinese growth.
- The final version of the Euro area CPI for Dec will be released this week. Last week, the Euro area prelim CPI for Dec came in as expected at +2.4% in Dec, up from +2.2% in Nov. Core CPI was unchanged at +2.7%. Services inflation firmed to +4%, and increased by +0.8% over the month.
- The ECB minutes will be released this week.
- UK CPI is likely an important data release for the BoE outlook. The decision not to cut at its most recent meeting reflected the need to ‘squeeze remaining inflationary pressures from the economy’ amid some weakening in near-term activity. The increase in UK headline CPI is expected to be unchanged at +2.6% in Dec. Core CPI is expected to ease slightly to +3.4% in Dec, from +3.5% in Nov. One of the key inflation measures to watch will be services inflation – which had stalled at +5% in both Oct and Nov.
- The Aus labour market data for Dec will be released this week. Net employment growth is expected to slow to +10k in Dec while participation is expected to remain unchanged at 67%. The unemployment rate is expected to edge higher to 4% in Dec, up from 3.9% in Nov.
- There will be a notable range of Chinese economic data out this week. Growth in Q4 is expected to lift to +1.7% over the quarter, from +0.9% in Q3. Annual GDP growth is expected to reach +5% over the year in Q4, up from +4.6% in Q3. Fixed asset investment (exp +3.3%), industrial production (exp +5.4%), and retail sales (exp +3.5%) growth in Dec are expected to be little changed from Nov.
This week, the US Treasury will auction and/or settle approx. $609bn in ST Bills, Notes, and Bonds raising approx. $34bn in new money.
QT this week: Approx $36bn of ST Bills, Notes, Bonds, and TIPS will mature on the Fed balance sheet and will be reinvested. Approx $16.4bn of Notes, Bonds, and TIPS will mature on the Fed balance and will be redeemed/roll off the Fed balance sheet.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
