by Kim | Aug 23, 2021
The focus for the week ahead will be on growth and the US Federal Reserve Jackson Hole Policy Symposium to be held on Friday 27 Aug.
The growth outlook is under question with the Delta virus gaining a foothold across several countries, including the US. This will be an important test for vaccination strategies. US growth already appeared to be moderating as some fiscal measures have started to roll off. But the concern from Dallas Fed Kaplan late last week (who has been a strong proponent of normalizing monetary policy), the FOMC minutes, and the rescheduling of the Jackson Hole symposium from in-person to online provide some cautious signals.
From the FOMC minutes, a taper announcement seemed unlikely as early as the Jackson Hole meeting this week but is still ‘live’ for this year. Discussions focused on the impact on financial conditions, the timing, and the composition of the taper. The standard for ‘significant further progress’ has not yet been met for the labour market but could be met by the end of the year. Concerns were raised over the interpretation of a taper announcement and what it means for the path of rates (the FOMC wants to keep QE taper and rates normalization independent). Risks to the outlook remain – with a slowing vaccination rate and the question of the impact on growth from Delta infections.
In NZ, the RBNZ held off on its anticipated rate increase last week as level 4 restrictions were imposed across the country. The RBNZ Board noted that it will likely return to its normalization stance.
The Committee agreed that their least regrets policy stance is to further reduce the level of monetary stimulus so as to anchor inflation expectations and continue to contribute to maximum sustainable employment. They agreed, however, to keep the OCR unchanged at this meeting given the heightened uncertainty with the country in a lockdown. https://www.rbnz.govt.nz/news/2021/08/official-cash-rate-on-hold-at-025-percent
In Australia, the outbreak has gone from bad to worse and this will be reflected in weaker economic data for Q3.
The prelim PMIs for Aug will provide the first view of the impact of renewed restrictions and outbreaks on the growth momentum. Also, out this week will be the US PCE data for July including the Fed preferred measure of inflation and the final read of the University of Michigan consumer sentiment for Aug.
The US Treasury will settle $260bn in ST Bills and FRN’s, raising approx. $2bn in new money. Approx. $18bn in ST Bills will mature on the Fed balance sheet and will be rolled over. The US Treasury will auction the 2yr, 5yr, and 7yr Notes this week – to settle on 31 Aug next week.
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
by Kim | Aug 16, 2021
The focus for the week ahead will be on US retail sales and central bank messaging.
This week, minutes from the latest FOMC and RBA meetings will be released. The FOMC minutes will be further scrutinized for any hints of a shift in the message – especially with the Jackson Hole symposium coming up the following weekend (26-28 Aug). US Fed Chair Powell will host a town hall-style meeting this week. The Reserve Bank of NZ will meet on rates, and it is widely expected to increase the benchmark rate to 0.50%.
Despite an improving labour market situation, there was an alarming fall in US consumer sentiment in early Aug. Headline sentiment in early Aug is now lower than at the onset of the pandemic-led shutdowns back in Apr 2020. Sentiment for both current and expected conditions also fell sharply. Such declines in the past have been associated with a sudden negative shift in the economy. The reason for the decline in early Aug has been traced back to the resurgence in Covid (Delta) infections in the US:
There is little doubt that the pandemic’s resurgence due to the Delta variant has been met with a mixture of reason and emotion. Consumers have correctly reasoned that the economy’s performance will be diminished over the next several months, but the extraordinary surge in negative economic assessments also reflects an emotional response, mainly from dashed hopes that the pandemic would soon end. http://www.sca.isr.umich.edu/
In this context, data for US consumer spending will be backward-looking this week. Retail sales for Jul are expected to fall by -0.2% (Jun +0.6%). US housing market data will cover building permits (expecting 1.615m SAAR) and housing starts (expecting 1.608m for Jul). US industrial production for Jul is expected to increase by +0.5%. The Empire State and Philadelphia Fed manufacturing surveys will provide the first look at Aug manufacturing activity.
Aus data of note this week will be the labour and employment market survey for Jul. Employment is expected to contract by -45k in Jul (after +29k in Jun). The RBA minutes this week will reflect the meeting when there was a limited shutdown in the largest Aus state. The RBA expected the shutdowns to reduce hours worked but have a limited impact on employment. Since that meeting, both of the most populous states have been placed into even more severe, and extended shutdowns to reduce the rising number of Delta infections.
This week, the US Treasury will settle $400bn in ST Bills, Notes, and Bonds, raising approx. $78.4bn in new money. Approx. $75bn in ST Bills, Notes, and Bonds will mature on the Fed balance sheet and will be rolled over. The US Treasury will auction the 20yr Bond and 30yr TIPS this week – to settle on 31 Aug.
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
by Kim | Aug 8, 2021
The focus for the week ahead will be on US CPI, PPI, and JOLTS data. It will be a quiet week on the central bank front.
US data last week provided a reasonably strong view of the economy. Non-farm payrolls growth exceeded expectations for Jul and the prior two months were revised notably higher. The unemployment rate declined against a backdrop of increased participation – which is positive. The employment to population ratio also increased. The ISM manufacturing PMI indicated a steady pace of growth at the current higher-level while the services PMI reached another all-time high. Supply chain disruptions rather than demand appear to be the main impediment to output growth. Consumer credit growth for Jun (credit card revolving) exceeded expectations (+$35bn versus +$17bn expected) and suggests some improved confidence to increase leverage (but could equally indicate a more bearish situation).
Covid-19 infections continue to increase across several countries. In some cases, this is against a backdrop of rising vaccinations (that help to negate a need for shutdowns). Lockdowns have been extended across several of the largest Australian states and vaccination rates remain low. Last week, the RBA did not reverse QE tapering scheduled for Sep and was unexpectedly upbeat given the circumstances. The RBA noted a supportive fiscal response to the current lockdowns and expressed confidence that the state economies seem to bounce back after a shutdown.
This week, annual US CPI growth for Jul is expected to ease to +5.3% versus +5.4% in Jun. Core CPI growth is also expected to ease to 4.3% (from +4.5% in Jun). JOLTS data for Jun is expected to report a sustained elevated level of job openings of 9.2m jobs in Jun (versus 9.2m in May). Finally, the prelim read of the University of Michigan consumer sentiment for Aug is expected to show little change in sentiment levels between late Jul and Aug.
This week, the US Treasury will settle $264bn in ST Bills, with a net paydown of -$33bn (issuance < maturing securities). Approx. $22bn in ST Bills will mature on the Fed balance sheet and will be rolled over. The US Treasury will also auction $126bn in Notes and Bonds this week – that will settle next week.
Last week, the US Treasury released the Q3 quarterly refunding requirements. One point of interest was that the US Treasury noted that the current issuance size and patterns may “provide more borrowing capacity than is needed” with an “expectation of announcing an initial set of auction size reductions as soon as the November refunding announcement” (https://home.treasury.gov/news/press-releases/jy0307).
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
by Kim | Aug 2, 2021
The focus for the week ahead will be on US non-farm payrolls for Jul, the US ISM and global Markit PMIs, and the RBA and BoE rates meeting.
Increased infections of the delta variant have started to take hold again in several regions/countries.
Data has so far confirmed a sharp contraction in activity in Aus due to severe, and now extended lockdowns that have been reinstated. The RBA will meet this week, and previously announced QE tapering may be reversed. The extended nature of these lockdowns means that a second recession is possible, and some fiscal support has been reinstated. RBA Governor Philip Lowe will provide testimony to the House of Representatives later this week and the RBA will also release the Statement on Monetary Policy (SOMP).
Last week, the FOMC left monetary policy unchanged. Fed Chair Powell noted that the pandemic impacts on the economy have eased, supported by vaccinations. Of note though was that the rate of vaccinations has eased, and the delta strain has been spreading. So far, those sectors most impacted by the pandemic have yet to recover. The committee will continue to assess progress towards the average 2% inflation and full employment goals.
This week, US non-farm payrolls will be important. Growth in nonfarm payrolls is expected to be 900k in Jul (versus +850k in Jun). In recent weeks, the initial claims data has been weaker.
US ISM reports on manufacturing and services will be released for Jul. So far, demand has remained intact, despite lengthening lead times, rising backlogs, falling inventories, supply chain issues, and rising input prices. The ISM manufacturing PMI is expected to be 60.8 (Jun 60.6). The ISM services PMI is expected to be 60.4 (Jun 60.1).
This week, the US Treasury will settle $465bn in ST Bills, Notes, and Bonds raising approx. $60bn in new money. Approx. $21bn in ST Bills will mature on the Fed balance sheet and will be rolled over.
There will be an update this week (4 Aug) on the estimated borrowing requirements for the US Treasury in Q3 and Q4. This will include funding assumptions regarding the expiration of the suspension of the debt ceiling.
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
by Kim | Jul 26, 2021
The focus for the week ahead will be on the US FOMC meeting, inflation data, and Q2 GDP.
The FOMC will meet this week and no change to policy is anticipated. The expected timing of a tapering announcement has moved out from Aug (Jackson Hole) to possibly Dec. In recent testimony, Fed Chair Powell noted that the economy was still “a ways off” from reaching the threshold for tapering. But the Fed Chair has also promised plenty of warning of any changes. Given the range of views on the FOMC, it’s likely that tapering will be a key point of discussion.
In Australia, widespread lockdowns due to an outbreak of the ‘Delta’ variant of Covid-19 have resulted in a sharp contraction in output (especially services). The RBA will meet next week, and previously announced QE tapering may be reversed temporarily.
US data this week will focus on inflation, manufacturing reports, housing, and GDP. This week, the PCE measure of consumer inflation will be released, and annual core PCE price growth is expected to accelerate to 3.7% (from 3.4% in May). US GDP for Q2 is expected to grow at 8.6% (annualized) – prior Q1 growth was 6.4%. US new home sales are expected to grow by 792k in Jun after 769k growth (SAAR) in May. House prices in May are expected to increase by +15.4% year on year.
US manufacturing data for July highlights continued strong demand but ongoing issues with longer lead times, higher input prices, and tighter labour supply. The prelim US services PMI for July recorded a slowdown in output growth, but that was coming off the series high recorded in Jun. Weaker demand was reported due to “hesitancy” over higher prices.
Other inflation data out this week includes: Aus Q2 CPI expected to grow by 3.8% (Q1 growth 1.1%) and Eurozone CPI (prelim) for Jul is expected to grow by 2% (versus 1.9% annual growth in Jun).
The prelim Eurozone GDP for Q2 is expected to increase by 1.5% after recording -0.3% in Q1.
This week, the US Treasury will settle $246bn in ST Bill auctions, with an estimated pay down of $17bn for the week (issuance < amount maturing). The US Treasury will also auction approx. $235bn in Notes and FRN’s this week which will settle next week.
Approx. $42bn in ST Bills, Notes & Bonds, and FRN’s will mature on the Fed balance sheet and will be rolled over. Markets are currently unfazed by the upcoming expiration of the debt ceiling suspension on 31 Jul. A further suspension of or an increase in the debt ceiling is currently under negotiation in the US Congress.
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
by Kim | Jul 19, 2021
The focus for the week ahead will be on US housing data, the ECB rates decision, and the first look at global manufacturing and services growth for July.
Central bank activity will focus on the ECB rates decision and the release of the minutes from the latest RBA and BoJ meetings. The RBA July minutes will outline the decision to start tapering bond purchases – this decision may be reconsidered as the current lockdowns in Australia have been extended. Officials from the US Fed will be in the blackout period ahead of the FOMC meeting next week on 27-28 July.
Last week, US annual CPI growth accelerated more than expected to 5.4% in Jun from 5% in May. Used car prices contributed the most to the acceleration, but shelter/owners’ equivalent rent, new cars, food, and energy service price growth also contributed to the acceleration. Slower annual growth in energy prices (gasoline) was the largest offsetting category.
The Uni of Michigan consumer sentiment survey recorded a more notable decline in US consumer sentiment in the first two weeks of July. Consumers are concerned about inflation:
Inflation has put added pressure on living standards, especially on lower and middle income households, and caused postponement of large discretionary purchases, especially among upper income households. Consumers’ complaints about rising prices on homes, vehicles, and household durables has reached an all-time record. Purchase rates, however, have benefitted from record increases in accumulated savings and reserve funds. A critical issue is whether consumers will find greater value in keeping a significant portion of their savings as a precautionary hedge, or spending a significant portion in an effort to avoid their inflationary erosion and to benefit from buying-in-advance of increasing market prices. http://www.sca.isr.umich.edu/
The key releases in the week ahead:
The US housing data for Jun, including building permits (expecting 1.7m SAAR), housing starts (expecting 1.597m SAAR), and existing home sales (expecting 5.9m SAAR). Last week, US mortgage applications rose a notable +16% (on the prior week) as rates started to ease. Both refi’s and purchase applications increased.
The prelim manufacturing and services PMI’s across key economies for July will be released later in the week.
This week, the US Treasury will settle $245bn in ST Bill auctions, paying down an estimated $48bn for the week (issuance < amount maturing). The US Treasury will also auction the 20yr Bond (settle 2 Aug) and 10yr TIPS (settle 30 Jul) this week. Approx. $19bn in ST Bills will mature on the Fed balance sheet and will be rolled over.
More detail (including a calendar of key data releases) is provided in the briefing document – download the file here;
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
