by Kim | Mar 10, 2025
Key events this week – US CPI and PPI Feb, Bank of Canada meeting
Recap from last week: Data remains solid, but rising uncertainty clouds the outlook.
While U.S. data remained solid last week, rising uncertainty, fueled by erratic tariff news and spending cuts, is clouding the economic outlook and souring sentiment.
At the end of the week, US Fed Chair Powell’s speech aimed to look through the noise of the news flow. Most important was Chair Powell’s signaling on the path of rates given concerns over rising inflation pressure. He reiterated that if inflation does not continue to move sustainably toward the 2% target, i.e. if it starts to firm, then the likely policy response would be to maintain the current policy restraint for longer. Rate hikes were not mentioned at this stage. Alternatively, rate cuts would be appropriate if labor market conditions weaken, or if inflation falls faster than expected. He reinforced that conditions were still such that the Fed doesn’t need to be in a hurry to adjust policy and can wait for greater clarity to understand the “net effect” of policy changes.
Fed Governor Waller’s speech a day earlier also had a ‘wait and see’ approach regarding the impacts of tariffs and other policy measures. He pushed back on any easing at the next meeting, noting that he wanted to see Feb inflation data. He felt cuts would come later in the year.
But Waller did acknowledge recent data that points to rising weakness, and he said he’s waiting to see if it translates into broader-based government data. Source: Reuters 6 Mar 2025
For now, the question is whether some of this “rising weakness” will translate into “hard data”.
Given all the news, labor market data was surprisingly solid for Feb. While there were a few weak points, conditions could still be seen within the context of a gradually cooling labor market. Growth in non-farm payrolls came in around expectations at +151k (expecting +160k) versus +125k in the prior month (revised lower from +143k). The 6-month average increased to +191k jobs. The average workweek remained near its recent low of 34.1 hours, however, growth in aggregate hours did rebound in Feb. The average hourly earnings were lower than expected in Feb at +4% over the year, as Jan was revised lower to +3.9%. One weak spot was the employment-to-population ratio which continued to drift lower – and this will be something to watch. While the unemployment rate did edge higher to 4.1%, it remains within the recent range.
It’s worth noting that, the cut-off date for the labor market data was early Feb – and as such may not fully reflect the ramp-up in cuts to government spending and headcounts through the month. The Challenger report for Feb provided a darker view of the outlook for the labor market with a notable jump in layoff announcements to 172k in Feb from 49k in Jan. The DOGE cuts accounted for the single largest reason for layoff announcements (62k). However, there were large increases in layoff announcements across a broad range of industries, attributable to market/economic conditions, bankruptcy, restructuring, and closing – with these four reasons alone accounting for 92k of the job cut announcements in Feb.
Other survey data, such as the PMIs did not highlight weakness in employment in Feb. The Beige Book anecdotes also reflected more stable employment conditions in Feb compared to early Jan. For now, data is likely consistent with the Fed’s characterization of the labor market as “remaining solid”, though risks exist.
The same survey data provided further anecdotal evidence that tariff threats are coinciding with more widespread pricing pressures. A key theme in both the ISM and S&P PMI surveys in Feb was that input cost pressures increased. Output prices also increased in Feb, though the Beige Book noted that some firms reported difficulty in passing on higher input costs. This week, the focus will be on whether these rising inflation pressures will be reflected in CPI and PPI data for Feb.
From a growth and momentum perspective, the US PMIs for Feb reflected manufacturing and services activity/output moderating, especially manufacturing orders. Employment indicators suggested little change in conditions from the prior month. Across most surveys, the overriding theme was tariffs and the uncertainty surrounding them.
The Atlanta Fed GDP nowcast model still shows the US GDP run rate contracting at a notable pace so far in Q1. However, the release of the more detailed international trade report revealed that a large contributor to the increase in imports was non-monetary gold (i.e. not reflecting changes in economic activity). Analysis by the Atlanta Fed suggests that adjusting for the gold imports, the US Q1 growth run rate likely improved (as a result of the data released last week) to +0.4% annualized.
Outside of the US, the ECB cut its deposit facility rate by 25bps to 2.50% – now just above the upper bound of what it might consider the ‘neutral range’. Inflation forecasts were revised slightly higher on rising energy prices while risks to growth remain tilted to the downside. New fiscal priorities were likely to support the growth outlook, though details of spending would be important. For now, disinflation remains on track, policy is becoming meaningfully less restrictive, and uncertainty is elevated.
Some people have used the adjective “phenomenal” uncertainty, and we debated as to whether it was high, high and rising, but suffice to say that it is all over – so we have risks all over, uncertainty all over. Source: ECB Press Conference Q&A, 6 Mar 2025
From China’s NPC, “Premier Li Qiang declared on Wednesday that “vigorously boosting consumption” was the government’s top priority in 2025 as it strives to hit an ambitious growth target of “about 5%,” the same as the past two years” (source: Bloomberg, 6 Mar 2025). Measures were announced to restructure and support these policy goals – though did not include any direct stimulus. The latest data still pointed to tepid economic conditions. Annual CPI and PPI for Feb returned to deflation. Trade data also pointed to weaker than expected demand with export growth slowing to +2.3% over the year from +11% in Dec and imports declining by -8% in Jan/Feb from +1% in Dec.
Outlook for the week ahead; US CPI and PPI, BoC monetary policy meeting, and tariff headline risk
US economic outlook concerns stem largely from worsening survey data, especially rising inflation pressures. That’s why the US CPI and PPI data for Feb will be important this week – to see whether concerns begin to translate into hard data. Like the labor market data, it may still be too early to see a widespread impact.
Key factors to watch this week;
US CPI and PPI for Feb. While CPI is not the Fed’s preferred inflation gauge, both the CPI and PPI will provide a guide for the PCE inflation result for Feb. This will be an important input for the Fed meeting next week.
- Headline CPI is expected to ease to +2.9% over the year in Feb, from +3% in Jan. Over the month, CPI is expected to slow to +0.3% in Feb, down from +0.5% in Jan.
- Core CPI is expected to slow to +3.2% over the year in Feb, from +3.3% in Jan. Over the month, core CPI is expected to slow to +0.3% in Feb from +0.4% in Jan.
- Headline PPI is expected to slow to +3.3% in Feb, from +3.5% in Jan. The monthly PPI rate is expected to slow to +0.3% over the month in Feb, from +0.4% in Jan.
- Core PPI is expected to remain unchanged at +3.6% in Feb, versus +3.6% in Jan. The monthly core PPI rate is also expected to be unchanged at +0.3% over the month in Feb, versus +0.3% in Jan.
The US JOLTS data for Jan lags the broader labor market releases this month. Job openings are expected to increase to 7.7m in Jan, up from 7.6m in Dec. Potential weakness from recent DOGE cuts are not expected to show up in the JOLTS data for Jan.
It’s the blackout week for Fed speeches ahead of the FOMC meeting next week.
The Bank of Canada will meet this week and is expected to cut rates again. Guidance was suspended at the last meeting as the threat of tariffs and a trade war created notable uncertainty over the growth outlook. News on this front has been less than positive for Canada, with both the US and China imposing tariffs on Canadian exports, with more tariff news expected. The Canadian labour market report last week was also mixed. The unemployment rate remained unchanged at 6.6% but employment growth disappointed at only +1k net for the month.
Further news on tariffs for China, Canada, and Mexico is expected this week – and headline risk remains elevated. This week, steel and aluminum tariffs are expected to be implemented, while the Trump administration continues to work towards the 2 Apr deadline for a broader tariff announcement.
This week, the US Treasury will auction and/or settle approx. $424bn in ST Bills, with a net paydown of -$61bn. The US Treasury will also auction the 3-year and 10-year Notes and the 30-year Bond – all to settle next week.
QT this week: Approx $2.9bn 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 | Mar 3, 2025
Key events this week – US labor market for Feb, Fed speeches, ISM surveys, ECB meeting, China NPC, and tariff announcements
Recap from last week: Progress on inflation and the evolving US economic outlook.
As we approach the next FOMC meeting on 18-19 Mar, the US economic landscape continues to evolve. Data last week showed encouraging signs of slowing underlying inflation in Jan, yet simultaneously cast doubt on the narrative of the robust economic expansion, a concern currently based on limited hard data. This week, we add the critical US labor market component for Feb to our analysis as we build a more comprehensive view ahead of the Fed’s upcoming decision.
At its last meeting, the FOMC maintained its policy stance, citing the need for further disinflation progress before considering rate cuts, supported by a solid labor market and economy. The Jan PCE inflation data showed encouraging signs of progress on disinflation, coming in below expectations. Core PCE inflation slowed to +2.65% over the year, a step down from +2.9% in Dec, and below the +2.8% rate where it seemed to stall through late 2024. Seasonality was a key consideration in this report and importantly, monthly inflation data moderated compared to the higher figures of a year ago. This is a development that is likely to be welcomed by the FOMC. While core goods inflation remained relatively firm, core services inflation, a key area of concern, showed signs of easing. Specifically, core services inflation slowed to +3.4%, and core services excluding housing also slowed to +3.1%. Despite these positive developments and the general progress on disinflation, short-term annualized rates suggest that further disinflation may proceed at a more gradual pace.
However, the elevated inflation rate at the end of 2024 was not the only concern on the inflation front for the FOMC. The Committee was also worried about the upside risks to the inflation outlook from the potential impact of tariffs and changes to immigration policy. The uncertainty around policy has yet to be resolved, so this may still weigh on the FOMC decision.
Beyond policy concerns, the data may already be reflecting potential tariff-related pressures, clouding the economic outlook. The threat of tariffs appears to coincide with two developments. The first is the emergence of rising cost pressures observed in the US S&P prelim PMI report for Feb and now also across the regional manufacturing surveys for Feb, suggesting that price increases on raw materials became more widespread in Feb (including the Dallas, Kansas, Empire State, and Philadelphia Fed manufacturing surveys for Feb).
The second was the notable step down in the US growth outlook for Q1. The Atlanta Fed GDP nowcast for Q1 GDP growth shifted sharply lower from +2.3% growth at the start of the week to a -1.5% contraction by the end of the week. The key driver of that decline was the increase in the goods trade deficit led mostly by a +32% increase in imports of industrial supplies for the month – possibly reflecting orders to front-run potential tariff price increases.
However, the fall in personal spending for Jan also contributed to the weaker growth outlook. While this fall was expected based on the Jan retail sales results, it does raise some uncertainty over the outlook for consumption growth. So far, it’s one month of weaker consumption spending and comes off the back of four months of much stronger growth leading into the end of 2024. Personal income growth was stronger than expected in Jan, led higher (in nominal terms) by cost-of-living adjustments on transfer payments, but labor income growth also remained stable.
Given the uncertainty over the growth outlook and some improvement on inflation progress, markets are now pricing in almost three rate cuts this year (at the time of writing), with cuts to resume in Jun (Source: CME FedWatch).
Outlook for the week ahead; US labor market for Feb, Fed speeches, ISM surveys, ECB meeting, China NPC, geopolitical and tariff headline risk.
Given this uncertain US growth backdrop, the US labor market data for Feb, and what it means for income and growth, will be crucial for understanding the evolving economic backdrop. Ahead of the blackout period next week, there are also several key Fed speeches which will provide some context for how Fed members are thinking about the economic outlook.
Key factors to watch this week;
US labor market conditions in Feb
- US non-farm payrolls for Feb are expected to increase by +156k, slightly higher than Jan at +143k. The direction of revisions will be important.
- The unemployment rate is expected to be unchanged at 4% in Feb versus 4% in Jan.
- The average weekly hours are expected to increase back up to 34.2 hours in Feb from 34.1 in Jan.
- Average hourly earnings are expected to slow to +0.3% over the month, from +0.5% in Jan, but remain unchanged at +4.1% over the year.
- On more of an anecdote front, the Challenger Gray Job Cut Announcement survey for Feb may provide some further insight into labor market conditions.
- We continue to monitor initial claims data to gauge the impact of government layoffs.
- The JOLTS survey for Jan will be released on 11 Mar.
US data releases this week will primarily focus on production for Jan and Feb with a combination of hard and survey data.
- The ISM manufacturing and services PMI for Feb will be released – and it will be important whether they confirm the direction of the S&P Prelim PMIs for Feb (which recorded a notable slowdown in services activity in Feb).
- The Fed Beige Book may provide some important anecdotes about consumption, growth, prices, and the labor market since the last release on 15 Jan.
- US Factory Orders for Jan are expected to increase by +1.5% in Jan after falling by -0.9% in Dec. The advance durable goods orders for Jan increased by more than expected due to an increase in the larger value aircraft orders in the month.
The final US Fed speeches before the blackout period next week, ahead of the FOMC meeting on 18-19 Mar.
- US Fed Chair Powell will give a speech on the Economic Outlook on Fri 7 Mar.
- Fed Governor Waller will also give a speech on the Economic Outlook on Thur 6 Mar.
- The Fed Vice Chair Williams is also scheduled to give several speeches this week.
- There will also be a range of other speeches on Fri 7 Mar by Governor Bowman and Kugler.
The ECB is expected to cut rates this week;
- The ECB will kick off the next round of central bank meetings this week. Markets expect the ECB to cut rates by 25bps to 2.5%. The minutes of the last meeting showed that the Governing Council agreed that the disinflation process was well on track, while the growth outlook continued to be weak. Services inflation was widely seen as the key inflation component to monitor during the coming months. Last week, the Jan Euro area services inflation remained stuck at +3.9%, however, the negotiated wage rates easing in the Dec quarter could give the ECB some comfort over the outlook for services inflation.
- The prelim Euro Area CPI for Feb is expected to show underlying inflation slow further to +2.5% from +2.7% in Jan.
Data outside of the US;
- Australia’s GDP for Q4 is expected to increase to +0.5% over the quarter, lifting from +0.3% in Q3. The latest RBA minutes for the 18 Feb meeting will be released.
- Canada labour market update for Feb; net employment growth is expected to slow to +18k in Feb.
The full suite of S&P global PMIs for Feb will be released this week.
Further news on tariffs for China, Canada, and Mexico is expected this week – and headline risk remains elevated.
At the same time, the Chinese National People’s Congress will take place in Beijing this week – and stimulus measures are expected to be announced together with the key economic targets for the year (source: Bloomberg 3 Mar 2025).
This week, the US Treasury will auction and/or settle approx. $469bn in ST Bills, with a net paydown of -$6bn.
QT this week: Approx $2.4bn 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 24, 2025
Key events this week – US PCE inflation, durable goods orders, Q4 GDP, and ECB minutes
Recap from last week: Navigating the push and pull of US policy uncertainty.
The Jan FOMC minutes revealed several key themes, but prominent was the underlying uncertainty surrounding US policy and its potential impact on the inflation outlook. The Committee had kept rates unchanged at the last meeting after cutting 100bps at the prior three meetings. The Committee noted that it was “well positioned” to take time to assess the evolving outlook for economic activity, the labor market, and inflation. Labor market conditions and economic activity were seen mostly in a positive light. The main theme repeated in various ways throughout the minutes was that inflation remains somewhat elevated, with upside risks to the inflation outlook. Upside risks stemmed from 1) core PCE ending 2024 at a higher than projected level despite some better monthly results in Nov and Dec and, 2) other factors;
However, other factors were cited as having the potential to hinder the disinflation process, including the effects of potential changes in trade and immigration policy as well as strong consumer demand. Source: FOMC Minutes 28-29 Jan 2025
There was also some difference in views over the degree of restrictiveness of current policy settings. Finally, there was a discussion about how the resolution of the debt ceiling could impact reserves and that it could be appropriate to pause quantitative tightening (QT).
The effect of the push and pull from the evolving US policy outlook also emerged in last week’s data. The most notable impact was in the S&P Prelim PMIs for Feb with services activity/output slipping markedly into a slight contraction for the first time in several years. The manufacturing output index reflected continued expectations of growth. The overall US composite output index slumped to a near-stall pace of 50.4 in Feb;
New order growth also weakened sharply and business expectations for the year ahead slumped amid growing concerns and uncertainty related to federal government policies. The upturn in manufacturing output was also in part linked to the front-running of tariffs, hinting at merely a temporary boost. Source: S&P US Flash PMI – Feb 2025
In the latest S&P PMI survey, optimism in the outlook fell to the lowest level in over two years due to increased uncertainty for business from spending cuts and tariffs, concerns over higher prices, and “broader geopolitical developments”. It will be important to see how this survey result aligns with the upcoming ISM surveys for Feb and also how it translates into ‘hard data’.
The Michigan consumer sentiment survey also recorded a marked fall in sentiment in Feb. The falls in sentiment differed across party affiliations – unchanged for Republicans with falls recorded among Democrats and Independents. Again, it will be important to see how this aligns with the Conference Board consumer sentiment results this week.
Aligning with the prelim manufacturing PMI, the US regional manufacturing surveys continued to indicate positive conditions. Housing data reflected ongoing lackluster conditions. New home builder sentiment fell notably across all regions. Growth in the issue of new permits remained flat. New housing starts fell back in Jan after a stronger Dec, with the largest falls recorded in the South (likely weather-related). Existing home sales also fell notably in Jan, across all regions. For now, news of wide-ranging government job cuts has yet to broadly impact initial jobless claims, though claims in the DC area have ticked up. Initial jobless claims remain at the 12-week average.
The updated Atlanta Fed GDP nowcast for US Q1 growth was unchanged at +2.3% last week (based only on the addition of housing starts data for Jan). However, the path of the FFR did evolve last week – with conditional probabilities now reflecting two possible cuts this year (at the time of writing; Jun and Dec cuts) (Source: CME Fedwatch).
The RBA reduced the cash rate for the first time in this cycle, citing faster-than-expected progress on underlying inflation. However, there is a high degree of caution on prospects for further easing and more detailed guidance was suspended. The Board noted that upside and downside risks to inflation remain, and that policy needs to remain restrictive to ensure that disinflation progress does not stall. The Jan labour market results remained strong with above-average employment growth. The unemployment rate increased slightly due to the increase in participation to another new all-time high.
The RBNZ cut rates by 50bps as expected. The Board noted that while inflation remained within the target band, ‘significant spare capacity in the economy’ indicated that a further reduction in the OCR was appropriate.
More broadly, the S&P prelim PMIs for Feb continued to reflect shifting momentum. The prelim PMI release covers the US, UK, Germany, France, Japan, the broader Eurozone, and Aus. The prelim manufacturing PMI’s improved across most countries, except in the UK. Despite the improvement, manufacturing activity remained in contraction, albeit to a lesser extent, across most countries except in the US and Aus. The recent stronger momentum across services slowed in Feb – led by marked falls in the US, France, and Germany to a lesser extent.
Outlook for the week ahead; US PCE inflation, durable goods orders, and Q4 GDP, and ECB minutes.
The focus this week shifts to assessing progress on US PCE inflation and growth data and what they mean for the path of US rates.
Key factors to watch this week;
US annual PCE inflation is expected to ease in Jan.
- Using the latest Cleveland Fed PCE nowcast for PCE inflation, headline PCE inflation is expected to increase over the month to +0.38% in Jan from +0.26% in Dec. While lower than the same month a year ago (+0.42%), inflation at this monthly pace is still not consistent with the 2% target. The annual PCE inflation rate is expected to slow to +2.51% in Jan, from +2.55% in Dec.
- Core PCE inflation is expected to increase over the month to +0.37% in Jan from +0.16% in Dec. This would still be slower than the same month a year ago (which was +0.5% in Jan 2024). Annual core PCE inflation is expected to ease to +2.66% in Jan, from +2.8% in Dec.
- The FOMC projections in Dec 2024 showed core PCE slowing to +2.5% by the end of 2025.
- Of concern for the Fed has been core PCE inflation stalling at +2.8% for the last three months of 2024, having slowed to a low of +2.63% in Jun 2024.
Central banks;
- ECB minutes of the latest meeting will be released this week.
- US Fed speeches will be limited this week. Vice Chair for Supervision Barr will give several speeches on financial stability and supervision. Governor Bowman will give a speech on community banking. See the calendar for other speeches.
US data releases this week will primarily focus on production, spending, and income growth for Jan.
- The second estimate for US GDP in Q4 is expected to be unchanged at +2.3% annualized.
- US durable goods orders are expected to increase by +2% in Jan, up from -2.2% in Dec.
- Personal income growth is expected to slow to +0.3% in Jan from +0.4% in Dec.
- Personal spending growth is expected to slow to +0.2% in Jan from +0.7% in Dec.
- New home sales are expected to slow to a 0.677m annualized pace in Jan, from 0.698m in Dec. Pending home sales are expected to fall by -1.3% in Jan after a -5.5% fall in Dec.
Data outside of the US will focus on inflation and growth;
- The final Eurozone CPI for Jan is expected to confirm annual headline inflation at +2.5% and annual core inflation at +2.7%. Euro area country-level prelim CPI’s for Feb will begin to be released this week also. There will be several Euro-area GDP reports to be finalized for Q4; both Germany and France’s results are expected to confirm a contraction in GDP in Q4 of -0.2% and -0.1% respectively. German election results will likely stay in focus through the week, along with broader European geopolitical events.
- The Aus monthly CPI series (different from the comprehensive quarterly report) is expected to show headline inflation unchanged at +2.5% in Jan.
- Tokyo CPI will provide a preview of broader Japanese inflation for Feb. Tokyo CPI ex-fresh food is expected to slow to +2.3% over the year, from +2.5% in Jan. Last week Japanese national core CPI ex-fresh food came in higher than expected over the year, firming to +3.2% in Jan from +3% in Dec.
This week, the US Treasury will auction and/or settle approx. $680bn in ST Bills, Notes, FRNs, TIPS, and Bonds raising approx. $50bn in new money.
QT this week: Approx $35bn of ST Bills, Notes, and Bonds will mature on the Fed balance sheet and will be reinvested. Approx $10bn 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 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
