by Kim | Mar 28, 2022
Key themes for the week ahead – US non-farm payrolls, inflation data, and ongoing geopolitical headline risk
Recap from last week
In the week following the first US rate hike in this cycle, US Fed Chair Powell signaled that the FOMC is willing to be “more aggressive” in addressing inflation at coming meetings. In his NABE speech on Monday, Chair Powell noted that “inflation is much too high” and “raising the federal funds rate by more than 25bps” could be appropriate. Other Fed speeches throughout the week supported returning the federal funds rate to the ‘neutral rate’ as quickly as possible. Rates markets reacted strongly and are currently pricing multiple 50bps hikes over coming meetings starting in May. By the end of the week, the US yield curve flattened further (5-30’s) down to 5bps. At the time of writing, that curve comparison was slightly inverted.
The prelim Mar PMIs showed that input price inflation remains a key theme. Growth momentum was positive across the US and Australia. Aus private sector input and output price inflation “hit record rates”. Demand was boosted by the reopening of international travel. US output and demand increased at a faster pace while input costs increased at “one of the fastest rates on record” in the PMI survey. Firms notably increased output charges at a slower pace.
Growth momentum in Japan was lackluster, as manufacturing activity recorded no change and services activity contracted at a slower pace. Input and output prices increased at a faster pace.
Eurozone activity started to reflect disruption from the war in Ukraine. Growth was slower amid lengthening in supply lead-times while costs increased at “unprecedented rates”.
The week ahead
The focus for the weeks ahead is the path of inflation and the impact on growth/demand from inflation and the broader, ongoing removal of pandemic restrictions.
This week US non-farm payrolls for Mar are expected to increase by +475k (after increasing by +678k in Feb). The unemployment rate is expected to fall to 3.7% while the participation rate is expected to be unchanged at 62.3%.
The US PCE price index, the FOMC preferred measure of US consumer inflation, is expected to increase by +6.7% in Feb, up from +6.1% in Jan.
Other consumer inflation data: Germany’s CPI prelim for Mar is expected to increase by +6.1% after increasing by 5.1% in Feb. Monthly inflation is expected to reach +1.9% in Mar (from +0.9% in Feb). The broader Eurozone inflation data is also expected to show an acceleration in price growth to +6.5% in Mar from +5.9% in Feb.
The US ISM manufacturing PMI report for Mar is expected to show consistent growth momentum. The headline PMI is expected to remain unchanged at 58.6. Details on underlying pricing, lead times, and demand will be insightful.
We are alert to headline risks related to the invasion of Ukraine. Negotiating teams are expected to resume face-to-face talks this week.
The Federal budgets for the US and Australia will be handed down at the start of the week. A ‘cost of living adjustment’ cash payment is expected to be announced in the Aus budget while implementing measures to narrow the budget deficit.
This week, the US Treasury will auction and settle approx. $378bn in ST Bills, Notes, TIPS, and Bonds, raising approx. $72bn in new money.
Approx. $54bn in ST Bills, Notes, and Bonds 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 | Mar 21, 2022
Key events for the week ahead – Geopolitical risks, US Fed Chair Powell speech, global prelim PMI’s for March
Recap from last week
The invasion of Ukraine continues unabated, and hopes are that a diplomatic resolution can be reached as soon as possible.
Commentary from central banks acknowledges that the invasion has added further uncertainty for growth while inflation risks are tilted to the upside (dependent on the path of sanctions and the invasion generally).
The US Federal Reserve has started its hiking cycle with a 25bps increase in the FFR. The assessment by the FOMC was that inflation is high and inflation risks are to the upside, the US economy is “very strong”, and the labour market is “extremely tight”. The SEP was important. The FOMC matched the market expectation for the number of rate hikes (increasing from three to six hikes for 2022) with the terminal FFR around 2.375% over the longer run – this is slightly lower than the Dec projection. The inflation forecast for 2022 was revised higher (than in Dec) and slows more notably in 2023 to 2.7% (still slightly higher than the Dec projection). Chair Powell noted that “inflation is likely to take longer to return to our price stability goal than previously expected”. Importantly, the higher inflation and ensuing hikes over 2022 resulted in a lower real GDP growth forecast for 2022 (from 4% forecast in Dec to 2.8% in the latest SEP). The growth forecast for 2023 is unchanged (from the Dec forecast) at 2.2%. The unemployment forecast was unchanged at 3.5% through 2022 and 2023. As previously mentioned, QT will be announced at an upcoming meeting. The US yield curve flattened sharply by the end of the week.
The BoE hiked its Bank Rate by another 25bps last week. UK CPI for Feb will be released this week and is expected to accelerate from 5.5% in Jan to 5.9% in Feb. Monthly CPI is expected to increase from -0.1% in Jan to +0.6% in Feb.
The BoJ left policy unchanged. The Japanese National CPI continued to edge higher with headline inflation reaching +0.9% in Feb (up from +0.5% in Jan) and core CPI (ex-fresh food) up +0.6% in Feb (from +0.2% in Jan).
A key point from the RBA minutes was that the Board now sees wages growth risks tilted to the upside – this could be a subtle but important shift. The Board has consistently said that it is too early to say that inflation is “sustainably in the range” – especially because wages growth had been lagging. This could be setting up for an official shift in the rates outlook (while markets are already pricing hikes to begin this year).
The week ahead
We are alert to headline risks related to the invasion of Ukraine. US President Biden will attend the emergency NATO summit on Thursday.
There will be many speeches by central bankers this week. Of note will be US Fed Chair Powell on Monday and Wednesday.
The prelim global PMIs will be released for Mar. These will give an early insight into any shifts in growth momentum. Of interest will be the Euro area economy. It may be too early to assess impacts from another round of lockdowns in China.
This week, the US Treasury will auction and settle approx. $276bn in ST Bills and FRN’s, raising approx. $7bn in new money. The US Treasury will auction the 10yr TIPS and 20yr Bond this week – both will settle next week.
Approx. $12bn 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 | Mar 14, 2022
Key events for the week ahead – Geopolitical risks, central bank meetings – FOMC, BoE, and BoJ, RBA minutes, US retail sales
Recap from last week
The invasion of Ukraine continues to exact an enormous humanitarian toll. We hope for a swift end to this violence, but initial sanctions are yet to change the course of this tragedy. Markets have been focused on headline risks as sanctions led to further surges in commodity and energy prices.
The ECB meeting last week remained focused on the rising risk of inflation. The ECB announced a faster taper of its core QE program (APP). The end of the program will be determined around the end of Q2, dependent on ‘strengthening inflation’ through Q2. The potentially earlier ending of the APP provides the ECB with the optionality to act earlier on rates. The ECB increased its inflation forecast notably for 2022.
US CPI came in as expected at +7.9% for Feb, accelerating from +7.5% growth in Jan. The contributors to the acceleration remained broad. Inflation is likely to remain a risk considering higher ag/commodity and energy prices. Add also the possibility of further supply chain disruptions as China locks down an important industrial center amid a another covid outbreak.
The week ahead
Central bank communications will be an important theme. The geopolitical situation has added greater uncertainty for the tightening path and central banks will need to balance the risks to growth from the invasion and sanctions with rising/elevated inflation and price stability mandates.
The FOMC is expected to increase the FFR target by 25bps this week. On QT, Chair Powell recently testified that “the plan to shrink the balance sheet will not be finalized at this meeting”. The new SEP will be of interest to understand changes to the path of rates since the Dec meeting. Chair Powell has already noted in testimony that the Fed will “proceed but will proceed carefully” given heightened uncertainty. Commentary on inflation will be important.
The BoE will meet this week. Another 25bps increase in the Bank Rate is expected as inflation remains elevated. The BoJ will also meet this week – and no change to policy is expected. The National CPI for Japan will be released this week and higher energy prices are expected to impact the headline number.
US retail sales growth for Feb is expected to ease to +0.4% for the month after increasing by +3.8% in Jan.
The RBA minutes of the Mar meeting will be released this week. Minutes are likely to reflect that the RBA can be patient on rate increases despite inflation risks moving to the upside. Key points: persistence of supply shocks, including from Ukraine invasion, and wages growth. The Aus labour market and employment survey for Feb will be released this week. Employment is expected to increase by +40k, the participation rate to increase to 66.3%, and the unemployment rate to fall to 4.1%.
This week, the US Treasury will auction and settle approx. $328bn in ST Bills, Notes, and Bonds, raising approx. $75bn in new money.
Approx. $34bn in ST Bills, Notes, and Bonds 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 | Mar 7, 2022
Key themes for the week ahead – Geopolitical risk, ECB policy meeting, US CPI
Recap from last week
The significant humanitarian toll and the economic and political fallout from the invasion of Ukraine continued to roil markets. Against the backdrop of surging commodity and energy prices, US Fed Chair Powell, in his testimony to the US Congress, confirmed that a 25bps increase for Mar “would be appropriate”. The plan to reduce the Fed balance sheet will not be finalized next week. After the Mar FOMC meeting, the Fed will “proceed carefully”. Inflation is too high, but the path and impact of sanctions are highly uncertain. Chair Powell signaled a path of stability over creating further uncertainty. The FOMC is now in the blackout period before next week’s meeting.
The target rate probabilities no longer reflect a more hawkish response from the FOMC in Mar. At the time of writing, markets were even pricing an 8% probability of no change to the FFR at next week’s meeting (a huge turnaround in market sentiment).
US data last week was strong. Non-farm payrolls and the household employment survey for Feb were stronger than expected. The US ISM surveys for manufacturing and services reflected a more constant pace of expansion during Feb.
The week ahead
The context for this week remains the ongoing and heightened geopolitical risk. Sanctions and the threat of embargos are having a significant impact on the supply and price of important food/ag commodities, industrial metals, and of course energy. If not contained quickly, this could exacerbate inflation problems, diminish the growth outlook, and will have a significant human toll.
The ECB will meet this week on policy. The ECB was expected to present a more thorough assessment of the inflation backdrop and forecasts at this meeting. But this will be a crucial meeting to understand how the ECB is changing its outlook in the context of the conflict – and it will be too early for the ECB to fully incorporate likely implications. Europe is facing even greater uncertainty with a war on its doorstep, financial market instability, and a potentially significant energy price shock.
The other important data point this week is US CPI for Feb and inflation is expected to stay extremely elevated. Headline CPI is expected to increase by +7.9% in Feb (up from +7.5% in Jan). The monthly pace of growth is also expected to accelerate to +0.8% (up from +0.6% in Jan). Political pressure on the Fed to rein in inflation has been building for some time now. At the Senate hearing last week Chair Powell was asked whether “the Fed was prepared to do what it takes to get inflation under control and protect price stability?”. Chair Powell responded, “…I hope history will record that the answer to your question is yes”. But the FOMC is not likely to enact measures that might disrupt markets right now.
This week, the US Treasury will auction and settle approx. $226bn in ST Bills with a net paydown of $69bn.
Approx. $17bn in ST Bills will mature on the Fed balance sheet this week and will be rolled over.
The US Treasury will also auction the 3-year and 10-year Note and the 30-year Bond this week – and will settle next 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 | Feb 28, 2022
Key themes for the week ahead – Geopolitical risk, central bank decisions, US Fed Chair Powell testimony, US Fed speeches, US President Biden State of the Union speech, US non-farm payrolls
Recap from last week
Fed speak last week continued to discount the likelihood of a 50bps increase in the FFR in Mar. US PCE inflation continued to accelerate reaching +6.1% in Jan – a forty-year high. For context, the FOMC SEP for Dec had PCE inflation reaching +5.3% by the end of 2021. This further acceleration will keep pressure on the FOMC to adjust policy. The initial global PMIs for Feb showed a stronger rebound across services. Manufacturing output and momentum was little changed from the pace of growth in Jan, as firms cited ongoing input and labour shortages. The outlier was Japan recording a contraction across services and manufacturing output. Price growth remained higher across all sectors with both input and output charges increasing at an elevated pace.
The week ahead
The broad context for this week is the ongoing and heightened geopolitical risk. We expect this to introduce a cautious tone into central bank speeches and decisions this week.
This week, US Fed Chair Powell will give two days of testimony and there will be various Fed speakers. Last week, speeches were already indicating less aggressive tightening for Mar (+25bps rather than 50bps). Signaling by the Fed Chair this week at hearings will need to navigate a balance for policy to address persistently high inflation and the risk that rising geopolitical tensions will impact growth. In the current context, the more extreme tightening scenarios seem less likely for Mar. The Fed will highlight the importance of ‘data dependency’ during this heightened period of risk.
The RBA and BoC will announce the latest monetary policy decisions this week. The RBA is expected to keep rates on hold. The Aus wage price index data last week was on par with expectations and RBA forecasts. This is likely not enough to support an earlier (Jun) lift-off in tightening – but the RBA Board will provide updated guidance this week. After the RBA meeting, Aus Q4 GDP will be released and is expected to increase by +2.5% for the quarter and +3% for the year.
The BoC is expected to lift rates by 25bps at this meeting.
US President Biden will give the State of The Union speech this week. Any change to the nature of sanctions on Russia will be an important theme (e.g., by including energy).
US non-farm payrolls will be released this week for Feb. Payrolls are expected to increase by +450k after increasing by +467k in Jan. The unemployment rate is expected to fall to 3.9% while the participation rate is also expected to fall slightly to 62%.
This week, the US Treasury will auction and settle approx. $409bn in ST Bills, Notes, Bonds, and TIPS, raising approx. $92bn in new money.
Approx. $51bn in ST Bills, Notes, and Bonds 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 | Feb 21, 2022
Key themes for the week ahead – US PCE Inflation data, Fed speak, and continued geopolitical headline risk
Recap from last week
We noted last week that ‘fed speak’ would be prominent in the lead-up to the next FOMC meeting. Over the next three weeks, the question remains: is the Fed preparing markets for more or less aggressive tightening?
The FOMC minutes noted that members “expected” that it would soon be appropriate to raise the target range. The probability of a Mar rate lift-off looks likely. Several members had favoured ending QE earlier than Mar to signal a stronger commitment to bringing down inflation – this did not happen. Inflation risks were seen as tilted to the upside. QT: “conditions would likely warrant” beginning to reduce the size of the balance sheet “sometime later this year”. Also noted was that “if inflation does not move down as expected, it would be appropriate for the committee to remove accommodation at a faster pace than they currently anticipate”.
Coming into last week, markets were pricing the possibility of a 50bps increase at the Mar meeting after the Jan CPI. Speeches through the week have dampened that idea for the moment – citing the risk of unduly tightening financial conditions. At the very least, markets are expecting a 25bps increase in the FFR target range at the Mar meeting. This is still a fluid situation and US inflation data this week will be another important input for the Mar meeting.
US data remained solid last week – especially the Jan retail sales result led by non-store and motor vehicle sales (although Dec was revised lower). US PPI also surprised to the upside (with little impact on markets).
The week ahead
Geopolitical headline risk remains heightened.
Fed speak will continue with FOMC members Governor Waller, Cleveland President Mester, and Governor Bowman speaking this week.
US PCE inflation data will be released this week – the FOMC preferred measure of inflation. Headline PCE inflation is expected to increase by +5.5% in Jan from +5.8% in Dec. Monthly PCE inflation is also expected to ease to +0.3% from +0.4% in Dec.
The global prelim PMIs for Feb will be released this week providing insight into the rebound in global growth.
The RBNZ will also meet this week and is expected to increase the official cash rate by 25bps to 1%.
The Aussie Wage Price Index for Q4 is expected to increase by +0.7% QoQ/+2.4% YoY. This would be above current RBA forecasts of +2.25% YoY. This will be an important data point for the RBA as it looks for evidence of a higher trend in wage and inflation growth over the next several quarterly wage and CPI releases as it considers the case for earlier rate hikes.
This week, the US Treasury will auction and settle approx. $297bn in ST Bills and 2-year FRN, raising approx. $28bn in new money. The US Treasury will also auction the 2-year, 5-year, and 7-year Notes this week which will settle on 28 Feb.
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
