by Kim | May 9, 2022
Key themes for the week ahead – US CPI, central bank speeches, and ongoing geopolitical risk
Recap from last week
The FOMC, RBA, and BoE increased rates to curb inflation, announced balance sheet reduction, and guided higher for the likely path of rates.
The FOMC increased the target FFR by 50bps to 0.75-1%. Quantitative tightening will begin in Jun with a cap of $30bn/mth in balance sheet run-off for the first three months, then increasing to $60bn/mth. Chair Powell noted that “we are on a path to move our policy rate expeditiously to more normal levels” and that “additional 50bps increases should be on the table at the next couple of meetings” – assuming markets evolve as expected.
Chair Powell said that underlying growth in the US economy remained strong. The decline in Q1 GDP “reflecting swings in inventories and net exports, two volatile categories” that “likely carry little signal for future growth”. The Apr US ISM PMIs recorded slightly slower growth momentum as firms noted ongoing supply challenges and difficulty in finding qualified staff. Higher prices were a major theme as the number of firms reporting higher prices remained extremely elevated and the services sector recorded a new series high in the price index. US labour market indicators were somewhat mixed. Non-farm payrolls increased more than expected by +428k while Feb and Mar were revised lower by 40k. The unemployment rate was unchanged at 3.6%, as a fall in participation helped to offset a decline in employment in the household (population) survey.
The RBA surprised markets with a 25bps increase in the cash rate target to 0.35% (expecting +15bps). The RBA announced that bond holdings and the size of the balance sheet will decline as bonds mature (no reinvestments) – with substantial declines in the balance sheet expected during 2023/4. While rates are not on a preset path, it is expected that further increases in interest rates will be necessary.
The BoE increased rates by a further 25bps in a 6-3 decision, with three members voting for a 50bps increase. The decision highlighted that inflation pressures have “intensified sharply” – “leading to a material deterioration in the outlook for the world and UK growth”. The BoE central inflation forecast has UK CPI peaking in Q4 this year and averaging over 10%. The decision was accompanied by a weaker outlook for growth and rising unemployment. A plan for the outright sale of bond holdings will be presented at the Aug meeting for implementation at a later meeting. The committee noted that “some degree of further tightening in monetary policy may still be appropriate in the coming months”. The UK Q1 GDP is out this week and growth is expected to be +1% for Q1 and +9% over the year.
The week ahead
The US CPI for Apr will be the focus for the week – with growth in consumer prices expected to ease. The headline CPI growth is expected to slow to +8.1% in Apr from +8.5% in Mar. The monthly CPI is expected to ease from +1.2% in Mar to +0.2% in Apr. Core CPI is expected to increase by 6% in Apr, down from +6.5% in Mar. The monthly core CPI is expected to increase by +0.4% in Apr versus +0.3% in Mar.
Central bank speeches will come into focus over the next few weeks. We are watching for: US signaling on a change in the pace/size of rate increases (also a function of the inflation result) and ECB signaling on the path of rates.
This week, the US Treasury will auction and settle approx. $182bn in ST Bills with a further -$36bn paydown.
The US Treasury will auction $103bn in 3yr and 10yr Notes and the 30yr Bond this week which will settle next week.
Approx. $18bn in ST Bills will mature on the Fed balance sheet this week and will be rolled over.
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 | May 2, 2022
Key events for the week ahead – FOMC, BoE, and RBA meetings, US non-farm payrolls, and ongoing geopolitical risk
Recap from last week
US Q1 real GDP surprised to the downside due to a notable contraction in net exports. US goods exports declined while import demand remained elevated for the quarter. This more than offset the faster growth in personal consumption and investment expenditure. Inventories and government expenditures both detracted from growth. US PCE inflation accelerated to +6.6% in Mar, up from +6.4% in Feb with monthly inflation increasing to +0.87%. Core PCE inflation remained high at +5.2% but lower than the +5.3% print in Feb, as we start to cycle over the higher base from a year ago. Monthly core PCE price growth remained at +0.3%.
Aussie inflation was higher than expected. CPI growth in Q1 was +5.1% (prior was +3.5%). Inflation was broadly based. The headline and core measures are now above the RBA’s upper band of 3%.
The Euro-area prelim GDP growth for Q1 remained muted, but positive at +0.2%. At the same time, Euro-area inflation increased by +7.5% in Apr, up from +7.4% in Mar. Monthly CPI growth eased to +0.6% as energy prices declined by -3.7%. This illustrates the lower growth and high inflation policy challenge for the ECB.
The BoJ remained firmly dovish. It announced it would step in to buy 10yr JGBs “every business day” at 0.25% to support the zero-target rate. Inflation is still below 2% and risks to growth are to the downside. This is a firm stake in the ground from the BoJ and its forecasts show that an easing bias is not likely over the medium term.
Chinese PMIs recorded a sharp contraction in both manufacturing and services activity for Apr as a strict zero-covid policy is still in place. This is expected to have a further impact on global supply chains and poses a risk to growth for many countries.
The week ahead
This is another week of significant central bank meetings and data for markets to digest.
The FOMC is expected to raise rates by 50bps this week and announce the details of QT. We’ll be looking for guidance on the path to the ‘neutral’ rate at subsequent meetings and views on the tightening in financial conditions, the expected slowdown in inflation, and the growth outlook. The US Treasury will also release its quarterly refunding requirements on 4 May.
US non-farm payrolls are expected to increase by +380k in Apr. Participation is expected to be unchanged while the unemployment rate is expected to fall to 3.5%. The ISM PMIs for Apr are expected to show slightly faster growth momentum than in Mar.
The RBA will meet on policy this week. Given the higher-than-expected CPI and the strong labour market, the RBA Board is expected to increase rates by 15bps this week (some estimates indicate 40bps). But note that the RBA has been hesitant (in the past) to make a major policy change in front of a federal election (which will be 21 May). The Board only just changed its forward guidance (removing “can afford to be patient”) at the last meeting and indicated that it would look at data “over the coming months”, which may include another quarter of the consumer and wage price index.
BoE will meet this week and a further 25bps increase is expected.
Final global PMIs for Apr will be released this week. The prelim reports had highlighted a continued record pace of input and/or output price growth across most countries in Apr.
This week, the US Treasury will auction and settle approx. $363bn in ST Bills, Notes, Bonds, and FRNs, with another -$7bn paydown.
Approx. $47bn in ST Bills, Notes, Bonds, and FRNs will mature on the Fed balance sheet this week and will be rolled over.
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 | Apr 25, 2022
Key themes for the week ahead – Inflation and growth data, BoJ meeting, and ongoing geopolitical risk
Recap from last week
Last week, US Fed Chair Powell indicated that a 50bps increase will be on the table for the May meeting. Other speeches by Fed officials last week supported the view of a faster move up to the ‘neutral’ rate. US Fed officials are now in the blackout period ahead of the FOMC meeting next week 3-4 May.
The RBA minutes provided insight behind the guidance shift at the Apr meeting. Rising inflation pressure, high uncertainty about wages growth amid a tight domestic labour market, and rates moving higher globally – “these developments have brought forward the likely timing of the first increase in interest rates”. Inflation is expected to increase over the coming quarters. Aus CPI for Q1 is out this week and annual CPI growth is expected to accelerate to +4.6% from +3.5% in Q4. Core inflation is expected to increase to +3.4% from +2.6%. A hike at the next RBA meeting (3 May) is possible, but the Board may be hesitant to make a major policy shift ahead of the Federal election on 21 May.
Prelim PMIs for Apr were mixed. The unifying theme remained the record, or near-record, high rates of input and output price growth. Escalating costs and prices were cited as offsetting the positive impact of the reduction in covid restrictions. There was some indication that supply chains remain under pressure. In Aus, reduced covid restrictions contributed to faster growth across manufacturing and services. Momentum across manufacturing and services in Japan remained lacklustre. Eurozone services activity helped to offset a more notable slowdown in manufacturing output. Germany’s manufacturing output contracted sharply. US manufacturing activity increased while there was a more notable slowdown in services growth.
The week ahead
US growth and PCE inflation data are out this week ahead of the FOMC meeting next week. US GDP growth in Q1 is expected to slow to +1.1% (SAAR basis) from +6.9% in Q4. The headline PCE price index for Mar is expected to be little changed from +6.4% in Feb. Core PCE inflation is expected to ease slightly to +5.3% in Mar from +5.4% in Feb.
The BoJ meets on policy this week and settings are expected to remain unchanged. The BoJ continues to reaffirm its commitment to accommodative policy and remains an outlier among global central banks that are shifting to a tightening stance. Japanese CPI last week was in line with expectations on headline inflation +1.2% and core inflation +0.8%.
Eurozone Q1 GDP and the prelim inflation data for Apr are out this week. Euro area GDP is expected to increase by +0.3% in Q1 (from +0.3% in Q4). Annual GDP growth is expected to increase to +5.1% versus +4.6% in Q4. The prelim Euro area CPI for Apr is expected to increase to +7.5% from +7.4% in Mar. The monthly inflation rate is expected to ‘ease’ to +1.8% from +2.5% in Mar. ECB President Lagarde is scheduled to speak this week.
BoC Governor Macklem is scheduled to provide a statement to the Canadian parliament.
China PMIs for Apr is expected at the end of the week, amid extended Covid lockdowns.
This week, the US Treasury will auction and settle approx. $211bn in ST Bills and 5yr TIPS, with a -$7bn paydown.
The US Treasury will also auction approx. $180bn in Notes and FRNs which will settle on 2 May.
Approx. $19bn in ST Bills will mature on the Fed balance sheet this week and will be rolled over.
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 | Apr 19, 2022
Key themes for the week ahead – US Fed Chair speech, CPIs Japan, Canada, & NZ, prelim global PMI’s Apr, and ongoing geopolitical risk
Recap from last week
US CPI growth accelerated as expected to +8.5% in Mar from +7.9% in Feb. The acceleration was led by higher energy and food prices. There was a small acceleration in core CPI growth as used car prices eased but were mostly offset by core services price growth. US retail sales increased at a slower pace – still affected by weaker auto sales. Annual retail growth declined in real terms as data cycled over the stimulus from 2021. The prelim consumer sentiment in Apr improved as gasoline prices started to ease.
Both the RBNZ and the BoC increased their benchmark rates by 50bps last week. The BoC announced that it would start reducing the size of its balance sheet by allowing maturing securities to roll off the balance sheet. Both central banks indicated that there would be more rate increases as inflation remains above target. The CPI reports for both Canada and NZ are out this week. Canada CPI growth is expected to increase to +6.1% in Mar from +5.7% in Feb. The monthly CPI growth is expected to be +0.9% in Mar below the +1% recorded in Feb. The NZ CPI growth for Q1 is expected to increase to +7.1% from +5.9% in Q4.
There was no change in policy from the ECB. The statement sounded dovish despite inflation risks having “intensified”. The press conference provided more detail. “Europe is in a different situation to the US” with more exposure to the war and needs to manage the policy trade-off between the downside risk to growth and the upside risk to inflation. The ECB reiterated adherence to the sequence for normalizing that began back in Dec. Guidance is that, at this point, there is a “very high probability” that net asset purchases will end (sometime) in Q3. Updated growth and inflation projections will be presented at the next meeting in Jun which will inform the decision to end net asset purchases and then decide on policy for rates.
Lockdowns have started to affect Chinese economic data with weaker (annual) imports, retail sales, and slower industrial output growth in Mar. This lockdown is expected to have an impact more broadly on supply chains.
The week ahead
The IMF spring meetings will feature US Fed Chair Powell and ECB President Lagarde. This will likely be the last public remarks by Fed Chair Powell before the next FOMC meeting on 4 May and we will be looking for signaling of a 50bp increase. Markets are currently pricing a 90% probability of a 50bps increase at the next meeting.
The RBA Minutes noted that inflation pressure, tight labour market, and expected strengthening of wage growth “have brought forward the likely timing of the first increase in interest rates”. Additional evidence over the “coming months” would be available. The RBA is not likely to shift at the May meeting due to the federal election in late May.
Japan CPI for Mar is expected to accelerate to +1.3% from +0.9% in Feb. The BoJ has reiterated its support for keeping rates low as global rates start to increase.
Prelim global PMIs for Apr will be released. A consistent pace of momentum is expected but we are alert to the impact on global supply chains, prices, and demand from Chinese lockdowns, the war in Ukraine, and the positive impact of lifting Covid restrictions.
This week, the US Treasury will auction and settle approx. $334bn in ST Bills, Notes, and Bonds, raising approx. $9.3bn in new money. The US Treasury will also auction approx. $20bn in 5-year TIPS which will settle on 29 Apr.
Approx. $25bn in ST Bills will mature on the Fed balance sheet this week and will be rolled over.
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 | Apr 11, 2022
Key themes for the week ahead – Central bank policy decisions, US CPI, and ongoing geopolitical risk
Recap from last week…
Central banks are moving towards a tightening stance on monetary policy. The FOMC minutes confirmed that the Board will move “expeditiously” to increase the FFR to neutral – with one or more 50bp increases at coming meetings possible. After moving the policy rate to neutral, “a move to a tighter policy stance could be warranted”. QT is likely to be announced at the May meeting and may commence shortly thereafter (roll-off capped at approx. $95bn/mth). What is unclear is how and how much QT will contribute to the tightening of financial conditions as rates move to neutral and possibly beyond.
The FOMC minutes noted concerns over inflation expectations becoming unanchored. In a speech earlier in the week, Governor Brainard (usually more dovish), said that dealing with inflation was ‘paramount’. Rates sold off across the curve after that speech, but more notably at the long end. By the end of the week, the entire curve had shifted up and steepened slightly.
US momentum remained robust – the ISM PMI for Services in Mar expanded at a faster pace, consumer credit growth of +$42bn in Feb was the largest $ growth in the series back to the start of 2000, and initial claims remained below 200k. Mortgage applications continued to decline.
The RBA left policy settings unchanged but made a significant shift in its guidance. The Board removed ‘we are prepared to be patient’ from its statement. This suggests that hikes may now be on the table. After the meeting, rate hike calls were brought forward to Jun and even May this year. Aussie rates moved higher throughout the week. The Aus labour market survey for Mar is out this week, and the unemployment rate is expected to fall below 4% which has been an important marker for the RBA.
The week ahead...
US CPI for Mar is expected to accelerate again on higher energy and commodity prices. The headline CPI growth is expected to increase to +8.5% in Mar from +7.9% in Feb. Monthly inflation is expected to increase to +1.2% in Mar from +0.8% in Feb. Retail sales ($ value) for Mar are expected to increase by +0.6% and prelim consumer sentiment for Apr is expected to fall further to 58.8. Fed Governor Brainard and other Fed presidents will speak this week.
Other consumer inflation reports: China, the UK, and final Mar CPI for France, Italy, & Germany.
The RBNZ and the BoC are both expected to increase rates at meetings this week. Both are likely to increase rates by 25bps this week, with the BoC more likely to increase by 50bps.
The ECB is likely to keep policy settings unchanged. There may be an assessment of the acceleration in Mar Euro area inflation data. The minutes last week reflect some differences among members on the need to act quickly on inflation and on ending the APP unconditionally. The decision in Mar to taper the APP was important to provide optionality on future interest rates changes. But the decision to end the APP net purchases in Q3 remains conditional. Adjustments to key interest rates “would take place “some time after” the end of net asset purchases of the APP”. It was reported last week that the ECB has started working on a “crisis tool” to manage bond yields after the end of the APP. This may be discussed further at this meeting.
This week, the US Treasury will auction and settle approx. $200bn in ST Bills with a net paydown of -$22bn.
The US Treasury will also auction approx. $100bn in Notes and Bonds which will settle next week.
Approx. $43bn in ST Bills, Notes, Bonds, and TIPS will mature on the Fed balance sheet this week and will be rolled over.
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 | Apr 4, 2022
Key themes for the week ahead – FOMC & ECB Minutes, RBA Meeting, and ongoing geopolitical headline risk
Recap from last week
The path of inflation remained a central theme last week. The Euro area prelim CPI for Mar came in notably higher than expected, accelerating from 5.9% in Feb to 7.5% in Mar. Extremely high energy and food price growth was a significant contributor to the acceleration as the invasion of Ukraine added further pressure to supply and prices. Euro area core CPI for Mar increased by 3% in Mar versus 2.7% in Feb – a year ago Euro area core CPI growth was +0.9%. This latest report will add further pressure to the ECB (meeting next week). Inflation risks were already skewed to the upside, but policy now needs need to balance that with the growth and humanitarian impact of the Ukraine invasion.
The US PCE price index for Feb came in lower than expected at 6.4% (expecting 6.7%), but still accelerated compared to 6.1% in Jan. Month-on-month growth remained high at +0.6% in Feb (compared to 0.6% in Jan). Core PCE inflation accelerated to 5.4% in Feb versus 5.2% in Jan.
The US labour market report for Mar was strong. Non-farm payrolls were a little lower than expected at +431k, but there was a further +95k higher revision for the prior two months. Importantly, employment growth was able to absorb the increase in participation and reduce total unemployed persons. The unemployment rate declined to 3.6% in Mar.
The US ISM manufacturing PMI recorded somewhat slower growth in Mar. The underlying detail was important with notably slower growth of new orders and production partly offset by growth in employment. Lead-times were little changed. There was a further surge in input price growth with 75% of firms reporting higher prices in Mar up from 56% of firms reporting higher prices in Feb. The ISM services PMI report is due this week.
China continues to struggle with its Covid outbreak. This was reflected in a contraction across both manufacturing and non-manufacturing PMIs for Mar (excluding construction).
The week ahead
The US yield curve continued to flatten through last week and inverted again by the end of the week. Policymakers are facing the prospect of even higher US inflation prints from Mar – with the growth outlook becoming less favorable. The FOMC minutes of the Mar meeting will be released this week. The FOMC raised the FFR by 25bps at the last meeting. The minutes are expected to highlight more detail around QT/balance sheet run-off discussions. After the last meeting, Chair Powell, and other FOMC members, signaled the possibility of a 50bps increase in the FFR at upcoming meetings. Markets are currently pricing a 50bps increase in May and Jun. There will also be multiple Fed speakers through this week.
The ECB minutes will be released this week ahead of the Apr meeting next week.
The RBA will meet this week and policy is expected to remain unchanged. Pressure is building for the RBA to raise rates sooner than previously expected (markets pricing the first increase around mid-year). The labour market has continued to strengthen, and the economy is recovering from the omicron outbreak. Governor Lowe has previously hinted that inflation and wage risks have moved to the upside. How long can the RBA maintain the “we can afford to be patient” stance?
Next week will be a short week due to Easter.
This week, the US Treasury will auction and settle approx. $200bn in ST Bills with a net paydown of -$27bn.
Approx. $21bn in ST Bills will mature on the Fed balance sheet this week and will be rolled over.
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
