by Kim | Nov 15, 2021
Key themes for the week ahead – inflation
Inflation is the key theme for this week with several more CPI reports due for Oct.
There will also be numerous US Fed speeches this week, the first look at US manufacturing momentum going into Nov, and US housing data for Oct.
Inflation
Key central bank policymakers have acknowledged that inflation has been more persistent than expected. Central banks have forecast that Inflation will likely ease through H1 next year as supply chains recover, Covid pressures ease, and labour markets continue to recover. But ST rates still reflect the likelihood that CB’s will start to hike earlier than expected.
From last week, consumer price inflation came in higher than expected in the US and China for Oct. In the US, CPI growth was +6.2% (exp +5.8%) and there was a broad contribution to the acceleration. By the end of the week, ST US rates (1-5yr) reached new YTD highs as the curve flattened even further.
The inflation data out this week is important in the context of the other key CB’s and ST rate forecasts; UK CPI (exp +3.9%), Canada CPI (exp +4.6%), Eurozone CPI (exp +4.1% and +0.8% mth), Japan CPI (exp +0.2%) and the Aus Wage Price Index (exp +2.2% YoY and +0.5% Qtr). Japan is the obvious exception.
Growth Momentum
This week US industrial production data for Oct will be released (exp +0.7% v -1.3% Sep) – last month was lower due mostly to a further 7% decline in motor vehicle output. We will also get the first view of US manufacturing momentum going into Nov with several regional surveys to be released. This will provide further insight into the progress of supply chain issues, prices, and impact on output.
This week, the US Treasury will settle approx. $363bn in ST Bills, Notes, and Bonds, raising approx. $37bn in new money. This includes the addition of a $60bn 14-Day CMB this week.
The US Treasury will also auction 10yr TIPS and the 30yr Bond this week – to settle on 30 Nov.
A decision on the US Fed Chair position is imminent.
Next week is a short week due to the US Thanksgiving holiday.
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 | Nov 8, 2021
Key themes for the week ahead – inflation & central bank speeches
It’s been a huge two weeks of central bank policy decisions. Central Banks acknowledged that inflation has not been as transitory as they had initially expected – due to persistent demand/supply imbalances affecting supply chains. While inflation is above targets, policy makers signaled that they would effectively ‘look through’ this current inflation impulse and expect that inflation will ease through H1 next year as supply chains recover. The case for rate increases was not made because labour market goals have yet to be met. The exception is the BoE – still with market expectations of an increase in the bank rate by the end of the year.
The US FOMC announced a flexible approach to its taper schedule. It noted that it can be patient on rate hikes for the moment but still emphasized data dependence, flexibility, and a willingness to move either way (including with taper).
We don’t think it’s time yet to raise interest rates. There is still ground to cover to reach maximum employment both in terms of employment and in terms of participation. US Fed Chair Powell
There will be several central bank speeches this week – with Powell, Lagarde, Maklem, and Bailey all speaking. We’ll be looking for any follow-up commentary.
A decision on the US Fed Chair should also be imminent.
US labour market data was stronger than expected for Oct with upward revisions for the prior two months. The US services ISM reported a broader expansion in activity in Oct – reaching a new series high. Manufacturing momentum is still constant at this higher level. Pricing pressures and longer lead-times appeared to reassert this month across several surveys.
This week, the key economic release will be US CPI for Oct. Annual growth in the headline index is expected to accelerate from 5.4% in Sep to 5.8% in Oct. US PPI, JOLTS, and the Uni of Michigan consumer sentiment data will also be released. Veterans Day falls on Thursday this week. US initial claims will be reported on Wednesday.
Chinese CPI and PPI data is also out this week. Chinese CPI is expected to increase from 0.7% in Sep to 1.4% in Oct. The monthly rate is also expected to accelerate from +0.1% in Sep to +0.6% in Oct.
The Aus labour market and employment survey for Oct will start to pick up the reopening of the two largest states. Employment is expected to increase by +50k persons (after falling by -138k in Sep) and participation is expected to increase from 64.5% to 64.8%.
This week, the US Treasury will settle approx. $177bn in ST Bills, with a net paydown of -$6bn. The US Treasury will also auction the 3yr and 10yr Notes and the 30yr Bond this week – all 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 | Nov 1, 2021
Key themes for the week ahead – central bank policy decisions part 2, US payrolls, and global growth momentum.
This is the second of two weeks of major central bank policy decisions. The context of these meetings is significant as markets continue to bring forward rate hikes amid higher (and more persistent-than-expected) inflation and flattening yield curves.
The RBA did not defend the 3yr (Apr ’24 3yr AGB) target of 0.1% last week and by Friday that rate had reached 0.775%. CPI growth was lower-than-expected but the core (trimmed mean) increased into the 2-3% target band. RBA guidance has been more dovish than what market pricing now suggests (RBA see’s wages growth condition not met before 2024). The Board needs to navigate that difference this week – any shift in guidance will be important. At this stage, there is no press conference scheduled (a press conference is usually scheduled if a policy change is announced).
The FOMC is expected to announce the start of QE taper. Market projections of rate hikes have been bought forward and the yield curve has flattened. Details of the taper process will be important. Growth for Q3 came in lower-than-expected last week as did the headline PCE inflation rate – but PCE is still elevated. The ECI indicated faster growth in compensation costs at Q3. Annual wages and salaries growth remained below annual PCE inflation. The Oct regional surveys show supply issues are still acute, price pressures widespread, and employment mostly robust. The non-farm payrolls for Oct will be released on Friday and are expected to increase by 413k jobs (up from 194k in Sep). The ISM surveys for Oct will provide important insight into momentum going into Q4.
The BoE also meets this week. The new BoE chief economist expected inflation to be higher into H1 next year. It was suggested that this meeting could be “live” for a rate hike discussion – but it would be “finely balanced”.
Last week the BoC ended its QE program and noted that inflation may not be as transitory as previously thought. Guidance – policy rates to remain low until 2% inflation target sustainably achieved and slack in the economy absorbed – which it now projects will happen in the middle quarters of 2022.
The ECB announced a slowing of bond purchases over the next few months. Guidance was maintained – the ECB noted that the current conditions did not suggest rates would increase by mid-2022. But there was little pushback on whether markets were “getting ahead of themselves” by pricing in an earlier start to hikes. Inflation was expected to “last longer than originally expected”. The Oct flash CPI growth accelerated further on the back of accelerating energy prices. Underlying inflation also accelerated and is now at the 2% threshold.
The BoJ remained dovish and downgraded growth and inflation forecasts for 2021.
OPEC+ is expected to meet this week.
The US Treasury will settle approx. $496bn in ST Bills, Notes, Bonds, and FRN’s, raising approx. $135bn in new money. The US Treasury will also release the Q4 TBAC refunding documents on 3 Nov.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Also posted this week is a review of the major economic releases last week. Download the file here:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | Oct 25, 2021
Key themes for the week ahead – central bank policy decisions, inflation, and US growth (tech earnings too).
This will be the first of two weeks of major central bank policy decisions. This week: the BoC, BoJ, and ECB. Next week: the RBA, FOMC, and BoE. Policy decisions and signaling will be interesting in the context of recent front-end sell-offs. Market pricing of rate hikes have been brought forward across many countries – even despite some dovish CB guidance.
This week, the BoC is expected to keep rates on hold, but with a chance for a further taper announcement.
The ECB is expected to keep policy settings on hold. Guidance on taper will be important. The Sep CPI was confirmed at +3.4% – led by accelerating energy prices. Underlying inflation is 1.9% ex-energy but accelerating. The Eurozone flash PMI for Oct suggests the Euro growth momentum slowing into Q4. The Euro area Oct prelim CPI is out this week, expecting +3.7% headline growth (up from 3.4% in Sep). Q3 GDP is expected to slow to +3.5%.
The BoJ is expected to keep policy settings unchanged. Last week CPI growth remained well below the BoJ targets. The latest flash PMI’s for Oct indicated a welcomed shift in growth momentum at the start of Q4.
Next week the RBA meets. Rate hikes are being priced in much earlier than RBA guidance. Last week the RBA responded by buying up to $1bn of 2024 3yr AGB to defend the 0.1% target rate. Minutes reaffirmed dovish guidance especially as the country emerges from multiple lockdowns. The Q3 CPI is released this week – expecting inflation to ‘ease’ to 3.1% (from 3.8% – base effects).
The BoE also meets next week. The new BoE chief economist expected inflation to be higher into H1 next year. It was suggested that next week could be “live” for a rate hike discussion – but it would be “finely balanced”.
US rates have also been pricing an earlier liftoff with a flattening yield curve. The lift in ST rates has been in line with a shift in Fed guidance, but concern is rates rising going into a lower growth environment (roll-off of stimulus etc). The PCE inflation is out this week for Sep – expecting core inflation to increase to 3.7% from 3.4%. The ECI for Q3 will provide some insight into wages. US growth has been downgraded throughout Q3 and GDP for Q3 is expected to slow to +2.8% annualized. Looking forward, the flash PMI’s for Oct (released last week), reported a notable lift in services output and activity. Manufacturing output continues to be hampered by ongoing supply chain disruptions while demand has remained robust. Widespread input price increases were again reported by firms.
The US Treasury will settle approx. $286bn in ST Bills and 5yr TIP’s raising approx. $103bn in new money. Additional Cash Management Bills (CMB’s) were added to the schedule as the US Treasury manages the TGA balance amid debt ceiling discussions. Just over $200bn in Notes (2yr, 5yr, and 7yr) and 2yr FRN will be auctioned 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:
Also posted this week is a review of the major economic releases last week. Download the file here:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | Oct 18, 2021
Key themes for the week ahead – growth momentum & output, inflation, and US housing data.
A quieter week on the data front, but a lot of Fed speak this week.
There will be US Fed speeches on most days this week. Chair Powell was expected to speak later in the week – but this is not yet on the Fed calendar. The next FOMC meeting is two weeks away (2-3 Nov), so this will be the last week for signaling ahead of that meeting. There was much to digest from last week with CPI, FOMC minutes, and the flattening yield curve.
The FOMC minutes last week showed that an announcement on taper may be made at the Nov meeting. In a speech last week, Vice Chair Clarida indicated that inflation targets had been more than met and that labour market conditions for a taper had been “all but” met. A more cryptic reference to “very nearly”, or “almost”. Higher, and so far, more persistent inflation has been the theme markets have been digesting. Market estimates of hikes were brought forward, and the yield curve flattened as 1yr-7yr yields reached YTD highs by the end of the week.
In his speech last week, Vice Chair Clarida also noted ‘significant shifts in aggregate demand and supply’ (due to policies to manage the pandemic). He was referencing the impact of supply chain bottlenecks on output and prices that are persisting. This week, we’ll get a further reading of the impact of ongoing bottlenecks on growth momentum and output leading into Q4.
Firstly, US industrial production and Chinese industrial production data will round out the view of industrial output for Sep. Then, later in the week, the prelim Oct PMIs for a range of countries will be released.
Other inflation data out this week will round out the Sep data and includes the final Euro area CPI for Sep, NZ CPI (upside surprise earlier today), and Japan National CPI for Sep. The prior YoY CPI growth for Japan was -0.4%.
US housing data for Sep will be out this week – including existing home sales (exp 6.06m SAAR), building permits (exp 1.68m SAAR), and housing starts (1.62m SAAR).
The RBA minutes for Oct will be released and RBA Governor Lowe speaks this week.
This week, the US Treasury will settle approx. $298bn in ST Bills raising approx. $110bn in new money. This is a relatively heavy week for ST Bills. A number of additional Cash Management Bills (CMB’s) were added to the schedule last week and again this week to help manage Treasury spending leading up to debt ceiling and funding negotiations.
Approx. $19bn in ST Bills will mature on the Fed balance sheet this week and will be rolled over. The 5yr TIPS and 20yr Bond will be auctioned this week – and will settle around month end.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Also posted this week is a review of the major economic releases last week. Download the file here:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | Oct 11, 2021
Key themes for the week ahead – US inflation, Fed taper signalling, and rates.
Despite the headline disappointment, US payrolls growth was interpreted as good enough to keep a possible taper announcement on track for Nov (FOMC 3 Nov 2021). This week, we’ll watch the Sept FOMC Minutes and Fed speeches for important signalling on the payrolls result, inflation, and a taper announcement. US inflation for Sep will also be important this week. US and global rates are likely to remain in focus.
The headline US non-farm payrolls last week disappointed to the downside. “Reasonably good” growth in private payrolls (+317k) was offset by a decline in public payrolls (-123k). The decline in education payrolls (state and local levels) accounted for all the public sectors decrease with lingering Covid issues disrupting back to school activity. In the private sector, the growth in Leisure and Hospitality payrolls was muted compared to prior months and this trend is consistent with the outbreak in late 2020.
The prior two months’ payrolls were revised higher and the monthly average payrolls growth over the last four months now sits at +653k/month.
US labour supply is still an issue with participation declining in Sep. This partly explains the much larger decrease in the unemployment rate in Sep. In the broader 16yrs+ group, the combination of growth in employment and a decrease in participation resulted in a notable decrease in the unemployment rate from 5.2% in Aug to 4.8% in Sep. In the core working-age group of 24-54yrs, most of the decline in the unemployment rate was due to the fall in participation.
The US CPI data for Sep will be a key focus this week. Headline CPI growth is expected to remain at +5.3% and core CPI growth is expected to remain at +4%.
US retail sales for Sep will be released and a slight decline of -0.2% is expected, but ex-Autos, growth of +0.4% (MoM) is expected. The University of Michigan consumer sentiment data (prelim) for Oct will also be released – a slight improvement is expected.
In Aus, the labour market data for Sep will be released. Employment is expected to decline by -120k (prior -146k). Vaccination rates are at least on-target for a staged easing of restrictions (so far NSW, with Vic to start at the end of Oct).
Chinese data (trade, inflation, and retail sales) for Sep will also be released.
This week, the US Treasury will settle approx. $309bn in ST Bills, Notes, and Bonds raising approx. $84bn in new money. The US Treasury will auction and settle the 3yr and 10yr Notes (before CPI) and the 30yr Bond this week. There has been a shift in timing for debt ceiling negotiations and this is reflected in the (higher) 8-week Bill. Approx. $26bn 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 or scroll through the file below.
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
