by Kim | Apr 19, 2022
Key themes for the week ahead – US Fed Chair speech, CPIs Japan, Canada, & NZ, prelim global PMI’s Apr, and ongoing geopolitical risk
Recap from last week
US CPI growth accelerated as expected to +8.5% in Mar from +7.9% in Feb. The acceleration was led by higher energy and food prices. There was a small acceleration in core CPI growth as used car prices eased but were mostly offset by core services price growth. US retail sales increased at a slower pace – still affected by weaker auto sales. Annual retail growth declined in real terms as data cycled over the stimulus from 2021. The prelim consumer sentiment in Apr improved as gasoline prices started to ease.
Both the RBNZ and the BoC increased their benchmark rates by 50bps last week. The BoC announced that it would start reducing the size of its balance sheet by allowing maturing securities to roll off the balance sheet. Both central banks indicated that there would be more rate increases as inflation remains above target. The CPI reports for both Canada and NZ are out this week. Canada CPI growth is expected to increase to +6.1% in Mar from +5.7% in Feb. The monthly CPI growth is expected to be +0.9% in Mar below the +1% recorded in Feb. The NZ CPI growth for Q1 is expected to increase to +7.1% from +5.9% in Q4.
There was no change in policy from the ECB. The statement sounded dovish despite inflation risks having “intensified”. The press conference provided more detail. “Europe is in a different situation to the US” with more exposure to the war and needs to manage the policy trade-off between the downside risk to growth and the upside risk to inflation. The ECB reiterated adherence to the sequence for normalizing that began back in Dec. Guidance is that, at this point, there is a “very high probability” that net asset purchases will end (sometime) in Q3. Updated growth and inflation projections will be presented at the next meeting in Jun which will inform the decision to end net asset purchases and then decide on policy for rates.
Lockdowns have started to affect Chinese economic data with weaker (annual) imports, retail sales, and slower industrial output growth in Mar. This lockdown is expected to have an impact more broadly on supply chains.
The week ahead
The IMF spring meetings will feature US Fed Chair Powell and ECB President Lagarde. This will likely be the last public remarks by Fed Chair Powell before the next FOMC meeting on 4 May and we will be looking for signaling of a 50bp increase. Markets are currently pricing a 90% probability of a 50bps increase at the next meeting.
The RBA Minutes noted that inflation pressure, tight labour market, and expected strengthening of wage growth “have brought forward the likely timing of the first increase in interest rates”. Additional evidence over the “coming months” would be available. The RBA is not likely to shift at the May meeting due to the federal election in late May.
Japan CPI for Mar is expected to accelerate to +1.3% from +0.9% in Feb. The BoJ has reiterated its support for keeping rates low as global rates start to increase.
Prelim global PMIs for Apr will be released. A consistent pace of momentum is expected but we are alert to the impact on global supply chains, prices, and demand from Chinese lockdowns, the war in Ukraine, and the positive impact of lifting Covid restrictions.
This week, the US Treasury will auction and settle approx. $334bn in ST Bills, Notes, and Bonds, raising approx. $9.3bn in new money. The US Treasury will also auction approx. $20bn in 5-year TIPS which will settle on 29 Apr.
Approx. $25bn 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 | Apr 11, 2022
Key themes for the week ahead – Central bank policy decisions, US CPI, and ongoing geopolitical risk
Recap from last week…
Central banks are moving towards a tightening stance on monetary policy. The FOMC minutes confirmed that the Board will move “expeditiously” to increase the FFR to neutral – with one or more 50bp increases at coming meetings possible. After moving the policy rate to neutral, “a move to a tighter policy stance could be warranted”. QT is likely to be announced at the May meeting and may commence shortly thereafter (roll-off capped at approx. $95bn/mth). What is unclear is how and how much QT will contribute to the tightening of financial conditions as rates move to neutral and possibly beyond.
The FOMC minutes noted concerns over inflation expectations becoming unanchored. In a speech earlier in the week, Governor Brainard (usually more dovish), said that dealing with inflation was ‘paramount’. Rates sold off across the curve after that speech, but more notably at the long end. By the end of the week, the entire curve had shifted up and steepened slightly.
US momentum remained robust – the ISM PMI for Services in Mar expanded at a faster pace, consumer credit growth of +$42bn in Feb was the largest $ growth in the series back to the start of 2000, and initial claims remained below 200k. Mortgage applications continued to decline.
The RBA left policy settings unchanged but made a significant shift in its guidance. The Board removed ‘we are prepared to be patient’ from its statement. This suggests that hikes may now be on the table. After the meeting, rate hike calls were brought forward to Jun and even May this year. Aussie rates moved higher throughout the week. The Aus labour market survey for Mar is out this week, and the unemployment rate is expected to fall below 4% which has been an important marker for the RBA.
The week ahead...
US CPI for Mar is expected to accelerate again on higher energy and commodity prices. The headline CPI growth is expected to increase to +8.5% in Mar from +7.9% in Feb. Monthly inflation is expected to increase to +1.2% in Mar from +0.8% in Feb. Retail sales ($ value) for Mar are expected to increase by +0.6% and prelim consumer sentiment for Apr is expected to fall further to 58.8. Fed Governor Brainard and other Fed presidents will speak this week.
Other consumer inflation reports: China, the UK, and final Mar CPI for France, Italy, & Germany.
The RBNZ and the BoC are both expected to increase rates at meetings this week. Both are likely to increase rates by 25bps this week, with the BoC more likely to increase by 50bps.
The ECB is likely to keep policy settings unchanged. There may be an assessment of the acceleration in Mar Euro area inflation data. The minutes last week reflect some differences among members on the need to act quickly on inflation and on ending the APP unconditionally. The decision in Mar to taper the APP was important to provide optionality on future interest rates changes. But the decision to end the APP net purchases in Q3 remains conditional. Adjustments to key interest rates “would take place “some time after” the end of net asset purchases of the APP”. It was reported last week that the ECB has started working on a “crisis tool” to manage bond yields after the end of the APP. This may be discussed further at this meeting.
This week, the US Treasury will auction and settle approx. $200bn in ST Bills with a net paydown of -$22bn.
The US Treasury will also auction approx. $100bn in Notes and Bonds which will settle next week.
Approx. $43bn in ST Bills, Notes, Bonds, and TIPS 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 | Apr 4, 2022
Key themes for the week ahead – FOMC & ECB Minutes, RBA Meeting, and ongoing geopolitical headline risk
Recap from last week
The path of inflation remained a central theme last week. The Euro area prelim CPI for Mar came in notably higher than expected, accelerating from 5.9% in Feb to 7.5% in Mar. Extremely high energy and food price growth was a significant contributor to the acceleration as the invasion of Ukraine added further pressure to supply and prices. Euro area core CPI for Mar increased by 3% in Mar versus 2.7% in Feb – a year ago Euro area core CPI growth was +0.9%. This latest report will add further pressure to the ECB (meeting next week). Inflation risks were already skewed to the upside, but policy now needs need to balance that with the growth and humanitarian impact of the Ukraine invasion.
The US PCE price index for Feb came in lower than expected at 6.4% (expecting 6.7%), but still accelerated compared to 6.1% in Jan. Month-on-month growth remained high at +0.6% in Feb (compared to 0.6% in Jan). Core PCE inflation accelerated to 5.4% in Feb versus 5.2% in Jan.
The US labour market report for Mar was strong. Non-farm payrolls were a little lower than expected at +431k, but there was a further +95k higher revision for the prior two months. Importantly, employment growth was able to absorb the increase in participation and reduce total unemployed persons. The unemployment rate declined to 3.6% in Mar.
The US ISM manufacturing PMI recorded somewhat slower growth in Mar. The underlying detail was important with notably slower growth of new orders and production partly offset by growth in employment. Lead-times were little changed. There was a further surge in input price growth with 75% of firms reporting higher prices in Mar up from 56% of firms reporting higher prices in Feb. The ISM services PMI report is due this week.
China continues to struggle with its Covid outbreak. This was reflected in a contraction across both manufacturing and non-manufacturing PMIs for Mar (excluding construction).
The week ahead
The US yield curve continued to flatten through last week and inverted again by the end of the week. Policymakers are facing the prospect of even higher US inflation prints from Mar – with the growth outlook becoming less favorable. The FOMC minutes of the Mar meeting will be released this week. The FOMC raised the FFR by 25bps at the last meeting. The minutes are expected to highlight more detail around QT/balance sheet run-off discussions. After the last meeting, Chair Powell, and other FOMC members, signaled the possibility of a 50bps increase in the FFR at upcoming meetings. Markets are currently pricing a 50bps increase in May and Jun. There will also be multiple Fed speakers through this week.
The ECB minutes will be released this week ahead of the Apr meeting next week.
The RBA will meet this week and policy is expected to remain unchanged. Pressure is building for the RBA to raise rates sooner than previously expected (markets pricing the first increase around mid-year). The labour market has continued to strengthen, and the economy is recovering from the omicron outbreak. Governor Lowe has previously hinted that inflation and wage risks have moved to the upside. How long can the RBA maintain the “we can afford to be patient” stance?
Next week will be a short week due to Easter.
This week, the US Treasury will auction and settle approx. $200bn in ST Bills with a net paydown of -$27bn.
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
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
