by Kim | Nov 13, 2023
Key events this week – US CPI & retail sales, Aus labor market & wage price index, inflation; UK, Euro area, central bank speeches
Recap from last week
Despite a light data week, there were several important points around some key themes.
Central banks have reiterated concerns over balancing progress on inflation with a slowing growth outlook. The latest was the RBA, which raised the cash rate last week by 25bps noting slower-than-expected progress on inflation. Despite this concern, wording changes in the guidance to “whether further tightening of monetary policy is required” (from “some further tightening of monetary policy is required”) were interpreted as marking an end to the hiking cycle. The RBA Statement on Monetary Policy release (SoMP – Nov 2023) saw inflation forecasts revised higher through the forecast period. GDP growth is expected to slow amid weaker expected growth in household consumption.
A speech by US Fed Chair Powell was consistent with the last FOMC press conference but this speech was seen as having a more hawkish tone. The FOMC will continue to move carefully to balance the “risk of being misled by a few good months of data” with the risk of overtightening and will evaluate the totality of the data to determine the extent to which additional policy firming may be appropriate. Fed Chair Powell continued to characterize the process of getting inflation down to 2% as having “a long way to go”, as improvements in labor supply were helping to bring the labor market back into balance. Chair Powell also noted that the FOMC is not confident that it has achieved the stance of monetary policy that is “sufficiently restrictive”.
Global data continued to reflect the impact of tighter monetary policy conditions. This was reflected in the further slowdown in the S&P Global PMI for Oct. The global composite PMI slowed to 50 in Oct from 50.5 in Sep. This stalling in momentum was the result of slower global services growth and manufacturing output growth that has begun to weaken again. Despite the lackluster conditions, optimism in future activity was little changed and stayed at an elevated level. The US S&P PMIs for Oct remained an outlier among the larger developed economies with both the manufacturing and services PMIs staying in positive territory.
Outlook for the week ahead
This will be an important week for understanding shifts in the growth and inflation outlook.
The ‘not too hot’ US labor market data for Oct helped to fuel an expectation that US growth has started to moderate. The latest Atlanta Fed GDP Nowcast has US Q4 growth running at 2.1% (SAAR). There will be a range of US inflation, spending, output, and housing data this week that will provide a broad update on the Q4 growth outlook.
US headline CPI growth is expected to slow to +3.3% over the year from +3.7% in Sep as energy prices fall. The monthly pace of CPI is expected to slow to +0.1% in Oct from +0.3% in Sep. Core inflation is expected to stay unchanged at +4.1% over the year in Oct and +0.3% over the month.
US retail sales are expected to fall by -0.1% in Oct after the much stronger growth of +0.7% in Sep.
US industrial production for Oct is expected to fall by -0.4% in Oct after increasing by +0.3% in Sep. The first US regional manufacturing surveys for Nov will provide an update on momentum in the manufacturing sector.
The first US housing data for Oct and Nov will be released this week – importantly reflecting the period of (peak?) higher mortgage rates. US building approvals are expected to slow to 1.45m (SAAR) in Oct from 1.47m in Sep. New housing starts are also expected to slow to 1.34m in Oct from 1.35m in Sep. After a period of weakening home builder sentiment, the NAHB housing market index is expected to be unchanged at the start of Nov.
US initial claims have been drifting higher recently (still around average for the last three months), as the level of continuing claims has also been rising more notably. Initial claims are expected to be slightly higher at +222k for last week (+217k in the prior week).
The Aus labor market and wage-price data will be important this week. Employment growth is expected to increase to +18k in Oct from +6.7k in Sep. However, with participation expected to stay unchanged at 66.7%, the unemployment rate is projected to increase to 3.7%. Wage growth is expected to accelerate to +1.3% in Q3 from +0.8% in Q2 – partly the result of the annual increase in the minimum wage rates from the start of Jul. The annual change in the wage price index is expected to increase to +3.9% in Q3 from +3.6% in Q2. This would be just below the RBA Dec quarter forecast of +4% growth in the WPI.
Global growth and inflation data will remain in focus. The second estimate of the Euro Area GDP release for Q3 is expected to be unchanged at -0.1% over the quarter and +0.1% over the year. The prelim Japanese GDP for Q3 is also expected to slow by -0.1% over the quarter from +1.2% in Q2.
The final Euro area CPI for Oct is expected to slow to +2.9% for headline and +4.2% for core CPI. UK headline CPI for Oct is expected to slow to +4.8% while core CPI is expected to slow to +5.8%.
There will be a broad range of UK and Chinese data out this week.
Other; Central Bank speeches will feature this week. Ongoing geopolitical risks remain elevated. US President Biden and Chinese President Xi will meet earlier in the week. A US government funding extension will need to be negotiated this week ahead of the 17 Nov deadline.
This week, the US Treasury will auction and settle approx. $566bn in ST Bills, Notes, and Bonds raising approx. $68bn in new money.
QT this week: Approx $17.6bn in ST Bills, Notes, and Bonds will mature on the Fed balance sheet this week and will be reinvested. Approx $30.5bn in Notes and Bonds will mature on the Fed balance sheet and be redeemed.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | Nov 6, 2023
Key events this week – RBA monetary policy decision, US Fed-speak including Fed Chair Powell, UK GDP Q3
Recap from last week
Central bank decisions and important data overtook heightened geopolitical concerns last week.
As expected, the FOMC kept policy settings unchanged at its meeting last week. Current restrictive settings are expected to keep downward pressure on activity and inflation. The Committee continues to “proceed carefully” judging that the full effects of tightening are yet to be felt. Guidance remains unchanged; additional firming may be appropriate and will be based on the totality of the incoming data. Higher long yields are helping keep financial and credit conditions tighter and the hurdle is likely higher for further increases in policy rates. Policy settings are however likely to stay restrictive “until we are confident that inflation is a path to that (2%) objective”. This decision was interpreted to mean that the Fed was likely done with further rate hikes in this cycle. Additional cuts to the FFR have started to be priced in for 2024.
The BoJ kept policy rates unchanged but adjusted how it conducts YCC. Importantly, the BoJ removed the ‘hard’ ceiling to defend the 1% upper limit of the 10-year JGB yield, instead calling it a ‘reference point’. As expected, the BoJ increased its inflation estimates for 2023 through to 2025.
The BoE kept policy settings on hold amid signs of ‘some impact of higher monetary policy on the labor markets and on momentum in the real economy more generally’.
US economic data was not too hot last week and this likely contributed to the shift in the outlook for additional cuts to the FFR in 2024. The broad update of the US labor market showed some easing of tight labor market conditions. Non-farm payroll growth for Oct was lower than expected at +150k, as labor strikes affected results. The prior two months were revised lower by -101k payrolls. The household survey recorded a marked fall in employment that was only partially offset by a fall in participation. This resulted in an increase in the unemployment rate to 3.9% (from 3.8% in Sep). Average weekly hours slowed, and the effects of labor strikes were also reflected in the fall of average overtime hours in durable goods manufacturing. In Sep, job openings were little changed. The job opening rate remains well above the pre-pandemic average. Wages growth continued to ease in Q3 with growth of the ECI slowing to +4.3% from +4.5% in Q2. Pockets of elevated wage growth remain within public sector state and local government compensation.
Data globally continued to reflect the impact of tighter monetary policy conditions. The global S&P manufacturing PMI for Oct was downbeat with optimism in the outlook falling to an eleven-month low. Output contracted across Europe, the UK, China, and Japan. Output in the US according to this survey, expanded mildly for the second consecutive month. The global manufacturing PMI employment index fell for the second month with a contraction recorded across a majority of countries in the survey. The remaining global services PMIs for Oct will be released this week.
The Eurozone flash GDP showed activity contracted slightly in the Euro area in Q3 and growth likely stalled over the year. Euro area headline inflation slowed more than expected to +2.9% as energy prices fell. Core inflation slowed to +4.2%.
Canadian employment growth was lower than expected while the unemployment rate increased by more than expected to 5.7%.
Outlook for the week ahead
The RBA will meet this week. Market pricing for this meeting was only at a 50% implied expectation for a rate hike this week (as of 3 Nov), however, many economists are forecasting an increase to 4.35%. In Q3, inflation was higher over the quarter but slowed over the year to +5.4%. The question is whether this latest CPI report, together with other data from the inter-meeting period, will result in an upgrade to the inflation outlook. It’s likely to be a finely balanced decision.
There will be several US Fed speeches this week, including remarks from Fed Chair Powell, Governor Waller, and Dallas Fed President Logan.
Economic data will be light this week.
UK GDP for Q3 is expected to fall by -0.1% over the quarter. This would be on par with the BoE expectation of weakening growth in Q3 (compared to +0.2% in Q2).
The remaining suite of S&P global service PMI reports will be released this week helping to round out the view of economic activity at the start of Q4.
The US Senior Loan Officer survey for Q3 will be released this week and may provide some insight into lending conditions amid higher long-term yields. Initial claims for the wk ending 4 Nov are expected to increase by +217k.
This week, the US Treasury will auction and settle approx. $454bn in ST Bills raising approx. $23bn in new money. The US Treasury will also auction the 3-year and 10-year Notes and the 30-year Bond – these will settle next week on the 15 Nov.
QT this week: Approx $13.6bn in ST Bills will mature on the Fed balance sheet this week and will be reinvested.
An update of the quarterly refunding announcement is provided in the briefing document attached. 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 30, 2023
Key events this week – FOMC, BoJ, and BoE monetary policy decisions, US non-farm payrolls & ISM surveys
Recap from last week
The prelim release of US Q3 GDP did not disappoint last week. Real GDP growth in Q3 was higher than expected at +4.9% (annualized basis). Even nominal GDP growth accelerated to +8.5% (annualized) in Q3. The acceleration in real GDP was led by growth in personal consumption expenditures across both goods & services (the Sep monthly PCE was stronger than expected at +0.7%), a larger change in inventories, and growth in government expenditure. Private investment spending slowed.
US PCE inflation for Sep showed little improvement in the headline rate, with inflation stalling at +3.4%. Core PCE inflation slowed to +3.7% but picked up over the month to +0.3%. Price growth of core goods continued to moderate (used cars) while core services inflation has remained more persistent at +5% (shelter). Across a range of inflation measures (trimmed mean, median, and headline), the monthly trend of inflation is showing a slight re-acceleration. The final University of Michigan consumer inflation expectations for Oct stayed higher with year-ahead inflation expectations revised higher to +4.2%.
To round out the ‘totality of the data’ ahead of the FOMC meeting this week; US data has been consistently ‘better than expected’ through Q3. This has been across retail sales & consumption growth, non-farm payrolls, the moderate improvement in manufacturing conditions, and the overall acceleration in Q3 GDP growth (prelim). However, short-term indicators show higher rates impacting mortgage applications and some parts of the housing market. There has been slower, ‘less encouraging’ progress on inflation recently. The FOMC meets this week and is unlikely to change its stance from “proceeding carefully” and is expected to keep policy rates unchanged. As noted last week, Fed speeches questioned the degree to which economic growth may moderate from here given the recent “significant tightening of financial conditions” resulting from higher long-term bond yields. Guidance from the FOMC will be important this week. Another hike may not be off the table – but the bar for another hike is likely to be higher. Fed speeches noted that if growth stays strong AND, even if inflation just stabilizes here, then that could form the basis for more tightening by the FOMC.
The BoC and ECB kept policy settings unchanged last week. The BoC remained concerned over inflation, noting that some “inflation risks have increased”.
Aus Q3 headline inflation slowed to +5.4% in Q3 (from +6% in Q2). The larger-than-expected increase in the quarterly rate to +1.2% was notable – led by faster growth in housing, transport (fuel), alcohol & tobacco, food, and insurance prices. The trimmed mean (RBA preferred measure) also accelerated over the quarter to +1.2% and slowed to +5.2% over the year. Since the CPI release, markets have been pricing in a higher probability (close to 50% on 27 Oct) that the RBA will increase rates by a further 25bps by Feb 2024. The RBA meets next week.
The prelim Oct PMIs for the G4 (plus Australia) showed a slowdown across service momentum while manufacturing PMIs were broadly unchanged staying in moderate contraction. Services output slipped to just below the 50-expansion level – due to a further deterioration in the Eurozone and a shift back to a contraction in Aus. Conditions in the US were the standout of the report with both services and manufacturing output growth improving.
Outlook for the week ahead
There will be several important areas of focus this week.
The first will be central bank policy decisions. Broadly, the global rise in longer-term yields is likely to weigh on most central bank decisions at this stage. The BoJ is expected to keep policy settings unchanged. However, there have been news items suggesting (signaling) that adjustments to policy settings are under consideration. The updated outlook report will also be released and there may be scope for changes to the inflation outlook.
The FOMC is expected to keep policy settings unchanged. As noted above, guidance will be important.
The BoE is also expected to keep policy rates unchanged. The last policy decision to keep rates on hold was not unanimous due to high inflation and the weakening momentum of the real economy. The decision this week could also be finely balanced.
The second area of focus will be data. The key economic report for the US will be non-farm payrolls and the broad update of US labor market indicators for Oct. US non-farm payrolls are expected to increase by +182k (from +336k in Sep). The unemployment rate is expected to stay unchanged at 3.8%. The employment cost index (ECI) for Q3 is expected to show no change in the pace of employment cost growth of +1% over the quarter. The JOLTS survey for Sep is expected to show a slowdown in the number of job openings to 9.3m. The US ISM surveys for Oct will provide a detailed view of momentum going into Q4 – manufacturing activity is expected to stay at a stalled pace while services momentum is expected to slow.
In Europe, the prelim CPI for the Euro Area is expected to show further progress on slowing inflation in Oct. Headline inflation is expected to slow to +3.2% in Oct from +4.3% in Sep. Core CPI is expected to stay elevated at +4.2%, but still moderate from +4.5% in Sep. The Eurozone prelim GDP is expected to contract slightly by -0.1% in Q3.
The full suite of global S&P PMIs will be released this week for Oct. This will provide a broader view of global private sector momentum going into Q4.
Finally, geopolitical risk and uncertainty remain elevated this week.
This week, the US Treasury will auction and settle approx. $700bn in ST Bills, Notes, Bonds, TIPS, and FRNs raising approx. $114bn in new money.
QT: Approx $22bn in ST Bills will mature on the Fed balance sheet this week and will be reinvested. Approx $39bn in ST Bills, Notes, and Bonds will mature on the Fed balance sheet this week and will be redeemed/roll-off the balance sheet.
The latest US quarterly refunding announcement will be made this week. Announcements regarding the financing requirements for Q4 2023 and Q1 2024 (estimate) will be made on 30 Oct and further details will be released on 1 Nov this week. 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 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
