by Kim | Jan 3, 2022
Key themes for the week ahead – FOMC Minutes, US Non-Farm Payrolls, and Dec PMI’s
In our last outlook note for 2021, we said that the trend of US data over the intervening FOMC meeting period will be important to the timing of the first US rate hike. This is especially relevant as inflation continues to trend above target and the economy continues to rebound from the pandemic.
To Recap – The last FOMC decision in Dec was in line with expectations for a faster taper and possible earlier liftoff in rates. Later, Governor Waller suggested that quantitative tightening (QT) might be under consideration and the Mar 2022 FOMC meeting could be live for the first hike.
“It would take something like severe disruption from omicron to delay labor market improvement or keep unemployment from falling, to keep March from being a key date to think of for liftoff.” https://www.bloombergquint.com/onweb/fed-s-waller-says-rate-hike-warranted-shortly-after-taper-ends
Since our last note, PCE inflation for Nov came in higher than expected at 5.7% while Oct inflation was also revised higher. The continued high pace of the monthly PCE inflation (expecting +0.2% growth in Nov – actual +0.6%) will likely remain a concern. Uncertainty has also been elevated about the rapid spread of the new virus variant and the potential impact on the economy.
FOMC Minutes – The minutes of that last FOMC meeting will be released this week. The key points will be around the extent of the discussion for an earlier rates lift-off and QT.
US Non-Farm Payrolls – This week, the Dec US non-farm payrolls will be released. Unless there is a ‘severe disruption’ to either payrolls growth or the reduction in unemployment, the FOMC is likely to remain on target (at least) for an earlier end to taper. The growth in non-farm payrolls is expected to be +400k in Dec (prior actual +210k). The participation rate will also be a key data point – the Nov participation rate was 61.8% (16yrs+).
PMIs Dec – The final Dec Markit PMI’s will be released this week. The prelim Dec PMIs highlighted a general deceleration in momentum going into Dec 2021 – especially across Europe and UK services sectors. The US ISM PMI’s will be released this week. Momentum across services and manufacturing is expected to decelerate somewhat but remain elevated. Headline ISM manufacturing PMI (Dec) expected 60.4 (prior 61.1) and services PMI (Dec) expected 67.2 (prior 69.1). Prices, lead times, inventory, and demand will be key metrics.
This week, the US Treasury will auction and settle approx. $241bn in ST Bills, raising approx. $80bn in new money for the first week of Q12022.
Approx. $18.5bn 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 | Dec 20, 2021
Key themes for the week ahead – US inflation, elevated virus uncertainty
This will be a quiet data week leading into the Holiday period. The key data highlight will be the monthly US PCE inflation data for Nov.
Uncertainty is elevated about the new virus variant. Cases have reached new pandemic highs in some places while restrictions have been reinstated in some countries (i.e., Europe).
This uncertainty comes amid a shift to a tightening bias among central banks. The BoE surprised last week with a 15bp increase in the bank rate to help address higher and more persistent inflation. The ECB remained more dovish but still announced the end of the emergency QE program for Mar 2022 (to be offset though by the regular APP until Q4 2022). The FOMC delivered as expected with a faster pace of taper, and likely ending QE in Mar 2022. This acceleration gives the FOMC flexibility to “better position policy”. The SEP showed a shift to three potential hikes in 2022. Quantitative tightening (QT) was then floated by Fed Governor Waller on Friday, who also suggested that the Mar 2022 meeting could be live for the first hike.
“It would take something like severe disruption from omicron to delay labor market improvement or keep unemployment from falling, to keep March from being a key date to think of for liftoff.” https://www.bloombergquint.com/onweb/fed-s-waller-says-rate-hike-warranted-shortly-after-taper-ends
For the US, the trend of the data over the intervening meeting period will be crucial to the timing of the first hike.
The prelim PMIs for Dec (released last week) showed a slowdown in growth momentum across manufacturing and services activity across the US, Eurozone, UK, Japan, and Australia. Most notable was the slowdown in services activity, especially in the UK and Europe.
US PCE Inflation
The US PCE price index data for Nov will be released this week. Headline PCE price growth is expected to increase to +5.6%, up from 5% in Oct. Income growth is expected to slow for the month to 0.2% (from +0.5% in Oct), and expenditure growth is expected to slow slightly to 1% (from 1.3% in Oct).
Other US data includes the final Dec release of the University of Michigan consumer sentiment data (expecting no change to the 70.4 headline index).
This week, the US Treasury will auction and settle approx. $321bn in ST Bills, raising approx. $127bn in new money for the week. The US Treasury will also auction 5yr TIPS and the 20yr Bond, both to settle next week. Approx. $8bn 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 Mars Capital Partners | Dec 13, 2021
Key themes for the week ahead – central bank policy decisions, inflation, and output
This will be a big week of data and final central bank meetings for the year. The focus for the week will be the FOMC meeting/decision on 15 Dec.
Central Banks – Part Two
The FOMC will meet and announce details of its policy decision this week. Expectations are for an acceleration of QE tapering. The SEP will be important with updates on inflation, growth, labour market, and the expected shift in timing for rates lift-off.
The ECB, BoE, SNB, and BoJ all meet this week also. There are no changes expected to policy settings.
Last week, the RBA kept policy unchanged but suggested that the Board will consider its QE program in Feb ‘22 – especially as it waits to see what other CB’s do. RBA Governor Lowe will also speak this week – his speeches should provide a gauge on the pushback on earlier rates increases. Markets are still forecasting an earlier rates lift-off than RBA guidance. The BoC kept policy unchanged but changed the wording around inflation (removing temporary reference, and watching for more embedded inflation expectations). With higher inflation and a recovering labour market, expectations are that hikes will commence earlier next year. The PBoC cut the RRR last week to further support the economy.
Inflation
Last week US CPI growth in higher than expected at +6.88% for Nov. Most areas of expenditure contributed to the acceleration in inflation from Oct. Inflation numbers out this week for Canada (exp +4.8%), the UK (exp +4.7%), and the Euro area (final est +4.9%). Euro area CPI (especially) has been tracking higher due mostly to energy prices.
Growth momentum
This week the prelim PMI’s for Dec will be released providing insight into private sector growth momentum into the final month of Q4.
Improvement in industrial production for Germany and Japan in Oct highlighted a rebound in auto output. This week, US industrial production data for Nov will be released – expecting a monthly gain of +0.7% (versus +1.6% in Oct). US retail sales data will also be released with expected monthly growth of +0.8% for Nov compared to +1.7% in Oct. Monthly US CPI for Nov was +0.8%.
This week, the US Treasury will auction and settle approx. $290bn in ST Bills, Notes, and Bonds. There will be a net paydown though of $118bn which includes three recent CMBs maturing on 15 Dec ($120bn). Approx. $32bn in ST Bills and Notes & 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 | Dec 6, 2021
Key themes for the week ahead – US CPI and central bank policy decisions
The key data point this week will be US CPI on Friday. This will also be the first of two weeks of final central bank policy meetings for the year. Also note: the lead-up to the debt ceiling limit (estimated 15 Dec), finalizing the passage of the Democrats spending bill in the Senate, and some more firm direction on the risk level of the new covid variant.
Central Bank Decision & US CPI
FOMC – Testimony last week by US Fed Chair Powell outlined an explicit shift in policy approach. Chair Powell indicated that inflation is an issue such that it will now need to be addressed in order for the labour market to continue to recover;
“…to get back to the same labour market we had before the pandemic, we need a longer expansion. To get that, we are going to need price stability, the risk of persistent high inflation is a major risk to getting back to such a labour market…” (from 55min https://www.banking.senate.gov/hearings/cares-act-oversight-of-treasury-and-the-federal-reserve-building-a-resilient-economy)
The tone of questioning in the Senate highlighted the pollical nature of the concern over the current inflation rate. The taper will likely be accelerated, finishing a few months earlier in 2022. Despite risks, the effect of the new variant will not be “remotely comparable” to Mar 2020. The FOMC meets next week on 14/15 Dec.
US data will maintain pressure on the FOMC next week. This week, annual US CPI growth is forecast to accelerate further, expecting +6.7% in Nov up from +6.2% in Oct. The monthly growth in the CPI for Nov is expected to be +0.7% versus +0.9% in Oct. Last week, non-farm payrolls growth disappointed notably for Nov at +210k growth versus +550k expected. The Sep and Oct non-farm payrolls were revised higher by +82k in total.
The RBA meets this week and policy settings are likely to remain unchanged. The RBA was forced to abandon its 3yr target at the last meeting. The RBA Board has continued to push back on more hawkish forecasts for rate increases in 2022 – expect that to continue. As previously announced, QE will be reviewed at the Feb 2022 meeting.
The BoC will also meet this week and policy settings are expected to remain unchanged. At its last meeting, the BoC ended QE and shifted to the reinvestment phase. Looking for signaling from the bank on the path of future rate changes – possibly earlier in 2022.
Next week will be a big week for central bank meetings: FOMC, ECB, BoE, and the BoJ.
This week, the US Treasury will auction and settle approx. $223bn in ST Bills, raising approx. $53bn in new money. The US Treasury will also auction $112bn in 3yr and 10yr Notes and 30yr Bonds – that will settle next week. Approx. $14bn 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 | Nov 29, 2021
Key themes for the week ahead – US non-farm payrolls, growth momentum, and central bank speeches
It will be another big week of economic data and central bank speeches. Other things to be aware of this week; the lead-up to the debt ceiling limit, finalizing the passage of the Democrats spending bill in the Senate, OPEC+ meeting, and reactions to the new Covid-19 variant.
US Non-Farm Payrolls
Non-farm payrolls are expected to increase by +550k for Nov (compared to +531k in Oct). Payrolls growth before Oct had been revised higher which added to the FOMC case to begin the taper. Last week, Fed Governor Bostic noted that a faster taper could be possible. A stronger result for Nov may put this more firmly on the table. The FOMC meets 14/15 Dec so will likely have time to weigh up risks from a new Covid variant.
Growth Momentum
The final Nov Markit PMI’s will be released this week. Last week, the prelim Markit PMIs for Nov showed continued moderate output growth across manufacturing and services. Momentum in the Eurozone, Japan, and Aus was better than expected. Services growth was slower in the US and the UK. Supply constraints continued to hinder output growth (e.g., Germany auto manufacture), higher input price growth weighed more broadly, and selling prices also increased broadly.
The US ISM reports will be released this week – commentary and growth momentum (esp. in services) will be in focus. The headline ISM manufacturing index is expected to reach 61 in Nov (up from 60.8 in Oct). The headline ISM services index is expected to ease to 65.5 in Nov (from 66.7 in Oct).
Central Bank Speeches
This week there will be several central bank speeches including FOMC Chair Powell (Senate testimony), BoJ Governor Kuroda, and BoE Governor Bailey. There will be other US Fed Governor speeches – including Williams, Clarida, Bowman, and Quarles.
The renomination of Chair Powell and the nomination of Governor Brainard to Vice-Chair was announced last week.
This week, the US Treasury will auction and settle approx. $520bn in ST Bills, Notes, Bonds, and TIPS, raising approx. $54bn in new money. Approx. $45bn 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 | Nov 22, 2021
Key themes for the week ahead – central banks, global growth momentum, and US inflation.
It might be a shortened holiday week, but there will be much to digest.
Central Banks
The latest FOMC and ECB meeting minutes will be released. The next US Fed Chair is expected to be announced this week. The RBNZ meets this week and a 25bps increase in the cash rate is possible. There will also be several speeches including BoE Governor Bailey and ECB President Lagarde.
Global Growth Momentum
This week, the prelim PMI’s for Nov are expected to show continued modest acceleration in US manufacturing and services activity. Private sector growth across the UK and Europe is expected to have slowed. Covid disruptions within Europe remain an issue.
US industrial production last week improved across the three key industries, with a notable rebound in motor vehicle output. Initial US regional manufacturing data for Nov indicated that input and selling price growth remained widespread and growth in delivery lead-times remained elevated. Demand growth was mixed.
Inflation
This week, the US Fed preferred view of consumer prices will be released. The PCE price index is expected to increase by +4.6% in Oct (from 4.4% in Sep) and the core PCE price index is expected to accelerate from 3.6% in Sep to 4.1% in Oct.
Last week, consumer price inflation data from the UK and Canada showed a further acceleration. UK CPI was higher than expected at 4.2% (expecting 3.9%) and consumer prices in Canada increased by 4.7% (expecting 4.7%) versus +4.4% in Sep. Aus wages growth was a little higher than expected at +0.6% for the quarter (prior +0.4%). Japan consumer price growth remained weak with headline CPI -0.1% (expecting +0.5%) for the year to Oct.
The monthly US personal consumption expenditure and income data for Oct will also be released this week. Incomes are expected to increase by +0.2% (MoM) after declining by -1% in Sep. Personal expenditures are expected to increase by 1% (prior month +0.6%). The final University of Michigan consumer sentiment data for Nov is expected to show little improvement with headline sentiment at 67 (versus 66.8 prelim Nov).
This week, the US Treasury will auction and settle approx. $287bn in ST Bills and FRN’s, raising approx. $7bn in new money. The US Treasury will also auction the 2yr, 5yr, and 7yr Notes this week ($176bn) – to settle next week on 30 Nov.
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
