by Kim | Jan 30, 2023
Key events this week – Central bank policy decisions; FOMC, BoE, and ECB, US non-farm payrolls
Recap from last week
US inflation moderated in line with expectations. Headline US PCE inflation came in at +5% for Dec, slowing from +5.5% in Nov, led by falling energy prices. Core PCE eased as expected to +4.4%. The ‘super core’ measure emphasized by Fed Chair Powell remained little changed at just above +4% – highlighting the stickier nature of underlying inflation.
US growth was more robust than expected in Q4, increasing at an annualized pace of +2.9%. Growth is slowing, but not as much as expected. The data late in Q4 suggested some softening of US activity, as shown by falling retail sales and industrial production. But more recent growth in personal income, adjusted for inflation, has continued to accelerate. The 6mth SAAR of personal income (ex-transfer payments) adjusted for inflation reached +2.9% in Dec. The 10-year pre-pandemic avg is +3.1%. While spending growth has eased, the saving/surplus between income and spending, has instead started to increase again but remains well below the pre-pandemic level.
Continued strength in the US labor market will be important to help support income growth while the balance between consumption and saving adjusts. Initial claims continued to move lower last week to +186k despite further anecdotes of planned job cuts. The Jan non-farm payrolls growth this week is still expected slow, but remain robust at +175k jobs added.
The BoC has now signaled a likely pause in its hiking cycle to assess the impact of rate increases.
Aus CPI came in higher than expected at +7.8% (the RBA had previously noted a higher Q4 CPI print was expected). Aus PMIs and business surveys suggested some stalling in activity.
The G7 prelim PMIs for Jan showed services output improved (less negative in most cases) while manufacturing activity remained at a stalled pace.
Outlook for the week ahead
This week the FOMC is expected to step down to a pace of a 25bps rate hike. As growth and the labor market continue to hold up, the focus will be on remaining at a sufficiently restrictive level to help bring down inflation. Not likely to see a dovish shift as the job on inflation is not yet done. The tone is not likely to be overly hawkish though given some emerging weakness in economic activity. There may be greater emphasis on the optionality of “data dependence”.
The ECB is expected to increase rates by 50bps this week to 2.5%. Inflation is still elevated. The latest CPI for the Euro Area will be released before the ECB announcement. The prelim Jan CPI is expected to fall in the month, but remain elevated over the year at +9.1%. The prelim Eurozone GDP for Q4 is expected to contract slightly by -0.1%.
Similarly, the BoE is expected to increase rates by a further 50bps to 4%. Inflation is still elevated at +10.5%.
US labor market data will be in focus; non-farm payrolls are expected to increase by +175k in Jan. The Employment Cost Index (ECI) will also be released this week and will be an important marker for the pace of wage growth – expecting +1.2% for Q4. The Dec JOLTS report is expected to show a further slowdown in job openings to 10.2m. The Jan US ISM PMIs will also be released.
The S&P PMIs for Jan will provide a reading on the broader global growth momentum in Jan.
The US Treasury will auction and settle approx. $452bn in ST Bills, Notes, Bonds, TIPS, and FRN’s raising approx. $49bn in new money.
Approx $17.4bn in ST Bills will mature on the Fed balance sheet this week and will be reinvested. Approx $37bn in ST Bills, Notes, Bonds, and FRN’s will mature on the Fed balance sheet this week and will be redeemed/roll-off the Fed balance sheet.
The latest US Treasury borrowing requirements and Q1 refunding will be released 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 | Jan 23, 2023
Key events this week – US PCE Price Index, US GDP Q4, Aus & NZ CPI Q4, BoC policy meeting
Recap from last week
US data was mixed last week. Consumer spending and industrial output fell in Dec, while initial jobless claims remained low. Housing data was weak, but there was some sign of stabilizing. The FOMC is likely to step down to 25bps next week.
US retail sales fell more than expected in Dec and the decline was broad-based. The decline in the 6mth annualized change of real retail sales (now -3.8%) shows the slowdown in consumer spending gathered pace in Dec.
US Industrial production data confirmed recent survey weakness. Manufacturing output declined again and has now fallen behind a year ago (-0.5% below Dec 2021 versus up by +3.8% just back in Sep). Output growth has slowed notably over each of the last three months across both durable & non-durable goods industries.
Housing data showed some stabilization in home builder sentiment, while existing home sales continued to fall, albeit at a slower pace. Existing home sales have fallen to be only +0.2% ahead of the 2020 pandemic low. Mortgage purchase applications were stronger in the latest week aided partly by slightly lower mortgage rates.
Despite the weakening Dec data, US initial jobless claims (SA) fell below the 200k/week level to +197k for the week ending 14 Jan. Continuing claims were little changed.
US Fed speeches suggested that a further slowing in the pace of hikes could be expected next week. Vice Chair Brainard noted that the recent ‘downshift’ enables the FOMC to assess more data, while also reiterating that the policy rate will need to be sufficiently restrictive for some time given high inflation. The shift to a 25bps hike was all but confirmed with a WSJ article on 22 Jan – “Federal Reserve officials are preparing to slow interest-rate increases for the second straight meeting”.
The BoJ left policy unchanged last week. Guidance remained that the BoJ “will not hesitate to take additional easing measures if necessary; it also expects short- and long-term policy interest rates to remain at their present or lower levels”. Inflation is expected to decelerate toward the middle of the year while the median forecast for core inflation over 2023 was revised slightly higher to +1.8%. Actual core inflation (ex-fresh food & energy) increased to +3% in Dec (from +2.8% in Nov). Monthly core inflation slowed to +0.1% in Dec.
Outlook for the week ahead
US headline PCE price inflation for Dec is expected to ease from +5.5% in Nov. Core PCE is expected to ease to +4.4% in Dec from +4.7% in Nov. The advance estimate for US GDP growth in Q4 is expected to slow to an annualized pace of +2.6% (from +3.2% in Q3). Moderating inflation and growth will be important inputs for the FOMC meeting next week on 1 Feb.
Aus and NZ Q4 CPI will be released this week. Aus CPI is expected to moderate to +1.6% in Q4 but accelerate over the year to +7.5%. The next RBA meeting is on 7 Feb. NZ CPI is expected to ease slightly over the year to +7.1%. The next meeting of the RBNZ is on 22 Feb.
The BoC is expected to increase rates by a further 25bps and may then signal a pause in the hiking cycle. Inflation eased to +6.3% in Dec mainly due to lower energy prices. Core median inflation was little changed at 5% in Dec. Retail sales declined in Nov, with core retail falling the most in eleven months.
The prelim S&P PMIs for Jan 2023 will be released this week providing a gauge of global growth momentum going into the new year.
It will be another big week of US Treasury issuance. The US Treasury will auction and settle approx. $368bn in ST Bills (including another CMB) raising approx. $110bn in new money.
The US Treasury will also auction the 2, 5, and 7-year Notes and the 2yr FRN this week – to settle on 31 Jan.
Approx $18bn in ST Bills will mature on the Fed balance sheet this week and will be reinvested. Approx $1.3bn in ST Bills will mature on the Fed balance sheet this week 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
by Kim | Jan 16, 2023
Key events for the week ahead – US retail sales, Fed speak, BoJ policy decision, CPI reports; Japan, Canada, UK, and the Eurozone, China GDP, Davos
Recap from last week
US CPI slowed again in Dec to +6.4% (from +7.1% in Nov). The monthly pace declined slightly. Food, core goods, and (mainly) energy prices contributed to the deceleration between Nov and Dec. The more nuanced view of CPI now taken by the FOMC is to look at underlying inflation via core services ex shelter. The closest metric, services excluding rent of shelter, accelerated from +7.3% in Nov to +7.4% in Dec but is down from the high of +8.2% in Sep.
Despite the peak in headline CPI, the Cleveland Fed core measures of median and trimmed-mean CPI are only easing slowly and remain elevated. The median CPI for Dec slowed to +6.92% from +6.98% in Nov (the peak was +7% in Oct) – and is still showing a broad persistence of inflation. Even the month change remained high BUT is on a slowing trend. The trimmed mean CPI slowed to +6.5% in Dec from +6.6% in Nov (peaked at +7.3% in Sep).
Despite persistent underlying inflation, the soft-landing narrative has quickly gained favor as headline inflation has eased amid robust labor market conditions. Fed speeches last week supported slowing the pace of hikes to 25bps in Feb but reiterated the expectation of a higher for longer policy rate setting.
Aus CPI growth was higher than expected, accelerating to +7.4% in Nov. Inflation likely remains uncomfortably high for the RBA – keeping alive further rate hike expectations. The re-set of higher mortgage rates is a concern for the RBA trying to keep the economy on “an even keel”. The Aus labor market survey for Dec is out this week – and labor market conditions are expected to remain tight. The next RBA meeting is on 6 Feb.
Outlook for the week ahead
US retail sales for Dec will gauge how consumption has been affected during this tightening cycle. US retail sales are expected to fall -0.8% in Dec. US industrial production (including manufacturing) for Dec will be important in the context of the current weakness in manufacturing surveys and falling hours. US industrial production is expected to fall by -0.1% in Dec (after a -0.2% decline in Nov). Rounding out commentary on the trajectory of the US economy this week will be US earnings.
US Fed speak; This is the last week leading up to the blackout period ahead of the FOMC meeting on 1 Feb. US Fed Vice Chair Brainard and Board of Governors member Chris Waller will both speak on the economic outlook this week. They may signal a slower pace of hikes.
The BoJ is not expected to change policy settings this week, but another adjustment can’t be completely ruled out. The BoJ is expected to review the functioning of the wider band around the 10yr yield target.
CPI data should show further easing in headline inflation rates; UK CPI is expected to ease slightly to +10.6% in Dec from +10.9% in Nov. Canada CPI is expected to ease to +6.3% in Dec from +6.8% in Nov. Euro area CPI for Dec is expected to be confirmed at +9.2%. Japan’s core CPI ex-fresh food (BoJ preferred measure) is expected to accelerate to 4% while core ex-energy & fresh food is expected to be little changed at +2.8% in Dec.
Markets will look through weaker data in the lead-up to China’s exit from the Covid-zero policy. Chinese Q4 GDP is expected to contract by -0.8% in Q4.
This week, the US Treasury will auction and settle approx. $409bn in ST Bills (including a CMB), Notes, and Bonds, raising approx. $107bn in new money.
The US Treasury will also auction the 10-Year TIPS and 20-Year Bond this week – to settle on 31 Jan.
Approx $14bn in ST Bills will mature on the Fed balance sheet this week and will be reinvested. Approx $19.6bn in Notes, Bonds, TIPS, and ST Bills will mature on the Fed balance sheet this week 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
by Kim | Jan 9, 2023
Key events for the week ahead – US CPI, US Fed Chair Powell panel discussion
Recap from last week
Data continued to paint a picture of a reasonably robust US labor market despite slowing employment growth momentum. Growth in average hourly earnings slowed but highlighted the noisy nature of the ‘average’ as the prior month (Nov) was revised from an uncomfortably high (for the FOMC) +0.6% to +0.4%. The Dec month growth slowed to +0.3% as the annual growth slowed to +4.6% (expecting +5%). The FOMC will likely see this as a step in the right direction.
While payroll growth slowed to +223k, it is still above the level needed to absorb population growth (approx. +100k jobs). Employment growth in the household survey increased more notably for the month by +717k – but was led almost entirely by part-time employed persons (+679k). Participation increased at the same time that the unemployment rate fell even further. The unemployment rate for the core working age group 25-54 years fell to 2.95% in Dec (from +3.27% in Nov). The 16yr+ unemployment rate fell to 3.47% (from 3.65% in Nov). The Nov JOLTS survey showed a slowing in openings and hires but layoffs and discharges remained near series lows – a good sign of resilience so far in this tightening cycle. But private sector hours and manufacturing overtime hours have started to decline, especially manufacturing overtime hours. This may be a precursor to future weakness in employment.
The fall in overtime hours is consistent with an obvious slowing in US manufacturing activity. US activity measured by the S&P and ISM PMIs deteriorated in Dec. The ISM manufacturing PMI contracted again while the ISM services PMI showed services activity slowing quite notably, falling from 56.5 in Nov to 49.9 in Dec.
The FOMC minutes reflected the decision to slow the pace of the Dec rate hike to 50bps. The stronger hawkish tone of earlier in the year has been softened as policy approaches a restrictive level; ongoing increases are still appropriate, inflation starting to ease but need to see more evidence of progress, the labor market is still tight, but “a couple” of participants starting to see the risks to the inflation outlook becoming more balanced and the risks of over-tightening versus under-tightening as becoming more balanced.
The S&P global PMIs for Dec showed a further fall in global manufacturing momentum. While the contraction in the Eurozone and Japan stabilized in Dec, momentum in other parts of Asia slowed, and the US contraction gained momentum. The S&P global services contraction stabilized at a modest level as momentum improved across Europe, Japan, and the UK. Again, the US contraction in services gained momentum
Outlook for the week ahead
The focus this week will be on US CPI for Dec. Headline CPI is expected to moderate further to +6.5% from +7.1% in Nov. Monthly CPI is expected to remain at +0.1%. US core CPI is expected to slow to +5.7% from +6% in Nov with monthly core CPI for Dec at +0.3%. Other inflation reports; Aus Nov (monthly) CPI is expected to increase to +7% from +6.9%. China’s CPI for Dec is expected to remain low at +1.8%.
Germany and Eurozone production data for Nov will provide some scale for the weakness in the manufacturing PMIs. Last week, German factory orders declined by over 5% in Nov.
US Fed Chair Powell is to take part in a discussion panel on central bank independence.
This week, the US Treasury will auction and settle approx. $228bn in ST Bills, with a paydown of $1bn.
The US Treasury will also auction the 3 and 10-year Notes and the 30-year Bond this week – all will settle next week.
Approx $14bn in ST Bills will mature on the Fed balance sheet this week and will be reinvested. Approx $1bn in ST Bills will mature on the Fed balance sheet this week 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
by Kim | Jan 2, 2023
Key events for the week ahead – US non-farm payrolls, Euro Area prelim CPI (Dec), S&P global PMIs, FOMC minutes (TBC)
Recap from the last two weeks
The US PCE inflation report for Nov was released before the holiday break. PCE inflation slowed more than expected to +5.5% in Nov from +6.1% in Oct. Food inflation is still high – but the monthly food inflation trend continues to ease. Energy prices are volatile, but growth has slowed. Core goods disinflation is progressing as expected. The core services ex-housing component is what the FOMC is looking at to judge how inflation may develop from here;
“This is the largest of our three categories, constituting more than half of the core PCE index. Thus, this may be the most important category for understanding the future evolution of core inflation.” Source: US Fed Chair Powell – Brookings speech, 30 Nov 2022
This measure of underlying inflation may have peaked in Oct, but remains elevated.
“Because wages make up the largest cost in delivering these services, the labor market holds the key to understanding inflation in this category.“- US Fed Chair Powell – Brookings speech, 30 Nov 2022
Outlook for the week ahead
US labour market reports will be a key focus this week. With headline measures of inflation easing, the performance of the labour market is important in understanding how wages, underlying inflation, and the monetary policy outlook may evolve from here.
US non-farm payrolls for Dec are expected to increase by +200k (from +263k in Nov). This is still robust growth and above the estimated +100k growth required to accommodate population growth. The unemployment rate is expected to remain at 3.7% and participation at 62.1%.
Growth in average weekly earnings is expected to increase by +5% over the year (from +5.1% in Nov). For the FOMC, higher nominal wage growth reflects the ongoing imbalance between the supply of labour and demand for labour.
The Nov job openings are expected to fall to 10m in Nov (from 10.34m in Oct). The Oct JOLTS report showed falls in openings and hires (both below their 12mth averages, but openings remaining historically elevated). But this did not result in a corresponding increase in layoffs and discharges and both of these measures were still near series lows. Quits also remain elevated.
The weekly jobless claims data is an important high-frequency measure of the labour market. This week, initial claims (SA) are expected to increase by +230k (from +225k in the week prior). The current level of initial jobless claims is on par with the start of the year. The trend of the SA continuing claims series has been increasing steadily since Oct (after falling at the start of the year) and is now only 4.3% below the level at the start of 2022.
The FOMC minutes from the Dec meeting would usually be released this week – but is not yet scheduled on the Federal Reserve website.
The final global PMIs for Dec will be released this week. To recap, the G7 manufacturing PMIs remained in contraction. The contraction in Eurozone manufacturing slowed. Services output expanded in Japan, while services output in the UK shifted back to neutral, and the Eurozone services contraction slowed. The US S&P manufacturing and services PMIs contracted at a faster pace, falling to 46.2 and 44.4 respectively in early Dec.
This week, the US Treasury will auction and settle approx. $354bn in ST Bills, Notes, and Bonds raising approx. $35bn in new money.
Approx $13.6bn in ST Bills will mature on the Fed balance sheet this week and will be reinvested. Approx $2.8bn in ST Bills will mature on the Fed balance sheet this week 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
by Kim | Dec 19, 2022
Key events for the week ahead – US PCE Price inflation, Japan & Canada CPI, BoJ Monetary Policy Meeting, RBA Minutes
Recap from last week
Major central banks continued to tighten policy last week.
The FOMC increased the FFR by 50bps as US CPI showed signs of continued moderation. The FOMC remained hawkish despite further good news on inflation, reinforcing that it expects ongoing increases to the target range will be appropriate to get the policy rate to a “sufficiently restrictive” level. Further hikes will be at a measured pace, allowing for the so far, rapid tightening in rates to take effect.
The FOMC upgraded the FFR projections for 2023 from a median of 4.6% (in Sept) to 5.1%. The 2023 core PCE projection was also revised higher from the Sept projection to +3.5% – highlighting the concern that inflation may remain above the target in the near term. Importantly, the FOMC wants to see “clear progress” on inflation, that slowing inflation is on a sustainable path to achieving its 2% target before considering cutting rates. The ‘higher rates for longer’ message was reinforced for now.
US CPI growth eased from +7.7% in Oct to +7.1% in Nov. Core inflation continued to ease. Growth in core goods prices eased which offset a further increase in core services price growth.
The ECB increased rates by 50bps. Guidance was hawkish, with the Governing Council noting that “interest rates will still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive to ensure a timely return of inflation to the 2% medium-term target.” The inflation outlook was revised higher from the prior forecast. The ECB also announced its plan to commence QT in Mar 2023 – with detailed plans to be announced at the Feb 2023 meeting.
The BoE also increased its Bank Rate by 50bps. The decision was split; one member voted for a larger increase and two for no increase at this meeting. Guidance was that further increases in the Bank Rate would be necessary if inflation and the economy evolved in line with projections. The Nov inflation rate was +10.7%, slightly below expectations.
The prelim Dec S&P PMIs showed only a slight improvement in growth momentum among G7 countries. Manufacturing PMIs remained in contraction with output continuing to contract. Services output expanded in Japan, UK services shifted back to neutral, and the Eurozone services contraction slowed. The US manufacturing and services PMIs contracted again, falling to 46.2 and 44.4 respectively in early Dec.
Outlook for the week ahead
Inflation data will be in focus. The FOMC preferred US PCE inflation data for Nov will be released. Headline PCE inflation is expected to increase by +0.3% in the month and slow to +5.7% over the year. Core PCE inflation is expected to ease to +4.6%.
Canada’s CPI for Nov is expected to slow to +6.6%.
The Japanese National CPI growth is expected to stay around +3.7% with core CPI ex-fresh food increasing to +3.7% for Nov. The BoJ is meeting this week and policy is expected to remain unchanged – despite the higher CPI growth.
The RBA meeting minutes will be released. The Board increased rates by 25bps at the last meeting and the minutes may provide some insight into the debate over the pace of that hike and possibly the pace of future hikes.
This week, the US Treasury will auction and settle approx. $222bn in ST Bills, with a net paydown of approx. -$24bn.
Approx $6.7bn in ST Bills will mature on the Fed balance sheet this week and will be reinvested.
Approx $0.6bn in ST Bills will mature on the Fed balance sheet this week 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
