by Kim | Jul 12, 2021
A big week of Central Bank rate decisions, data out of China, US inflation, US earnings, and global industrial production.
This week, the RBNZ, BoC, and BoJ meet on rates. There have been growing expectations of a rate hike later in the year for NZ and the BoC is expected to announce plans for tapering at this meeting. There will be several speeches by US Fed officials during the week including two days of testimony by Fed Chair Powell.
Late last week, the PBoC reduced the RRR by 50bps to further support the economy. CPI growth in China was weaker than expected for Jun, while new loan growth increased. Data out of China this week includes Q2 GDP, retail sales, trade, and industrial production.
US Inflation will be in focus this week with the CPI and PPI. CPI growth is expected to hold steady at 4.9%. Last week, the US Fed submitted its Monetary Policy report, noting:
Even though the pace of price increases has jumped in the first half of this year, recent readings on various measures of inflation expectations indicate that inflation is expected to return to levels broadly consistent with the FOMC’s 2 percent longer-run inflation objective after a period of temporarily higher inflation. That said, upside risks to the inflation outlook in the near term have increased. https://www.federalreserve.gov/monetarypolicy/files/20210709_mprfullreport.pdf
This week, the US Treasury will also commence payments of the expanded Child Tax Credit covering 39m households and approx. 88% of children in the US.
Other data releases of note this week will be industrial production for the US, Japan (final), China, and Europe. US retail sales for Jun will also be released this week – expecting a decline of -0.4% after a -1.3% decline in May.
The Australian labour market survey will be released this week for Jun. Expectations are for lower growth of +30k employment (after +115k last month) and the u/e rate to fall to 5%. There will be other Aus consumer and business sentiment readings out this week which might be important given the latest lockdown in the most populous Aus state (NSW).
This week, the US Treasury will settle $409bn in ST Bills, Notes, and Bonds raising approx. $31bn in new money for the week. Several ST Bill auctions have been reduced as the suspension of the US federal debt ceiling ends on 31 July.
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
by Kim | Jul 5, 2021
Central banks and data will be in focus this week.
On the central bank front, the FOMC minutes for the June meeting will be released this week. The US Fed is also expected (tentative) to submit the biannual monetary policy report.
The RBA will meet on rates this week and Governor Lowe will hold a press conference after the Board meeting. The RBA board is expected to decide on the 0.1% 3yr yield target and whether to extend purchases to the next Government bond maturing in Nov 2024. The Board is also expected to decide on the future value and timing of QE purchases.
ECB President Lagarde is expected to give several speeches this week.
Last week, US non-farm payroll data increased more than expected by +850k jobs (expecting 675k). The May result was revised higher by +24k jobs and Apr was revised lower by 9k jobs. The payrolls growth in Jun was made up of +662k private-sector jobs (goods payroll jobs +20k, services payroll jobs +642k) and +188k public-sector payroll jobs. In the private sector, leisure and hospitality payrolls increased by +343k in Jun. In the public sector, local government education accounted for the largest share of the increase in public sector jobs with +155k jobs. Overall, payrolls are still 6.7m below pre-pandemic levels.
Despite the strong payrolls number, the Household survey recorded low growth in employment for June. The unemployment rate increased to 5.9% as the participation rate remained unchanged for the 16yrs+ age group at 61.6%.
The key data releases this week will be:
US ISM services PMI for Jun, JOLTS for May, and Consumer Credit for May.
Aus retail sales for May have been released and growth came in stronger than expected at +0.4% for the month.
The final services PMI’s for Jun will be released for the US and the Eurozone.
This week, the US Treasury will settle $266bn in ST Bills, with a paydown of approx. $22bn.
Approx. $20bn in ST Bills will mature on the Fed balance sheet and will be rolled over.
Fed purchases of US Treasuries (QE) will resume on Tuesday. Purchases of US Treasuries are expected to be $24.3bn, up from $7.9bn last week. MBS purchases are expected to total $18.7bn (down from $21.6bn last week).
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
by Kim | Jun 28, 2021
This week, the focus will be on the US non-farm payrolls report for Jun – just before the US Independence Day long weekend.
It will be a somewhat quieter week on the central bank front. There will be speeches by Governor Lowe of the RBA ahead of the RBA meeting next week, ECB President Lagarde, and BoE Governor Bailey. There will also be several speeches by FOMC members this week. Last week, FOMC speeches highlighted two broad views on the inflation outlook – 1) that the current growth in consumer prices would likely “fade” and 2) the risk that inflation could be more persistent. Testimony by Fed Reserve Chair Powell last week noted that price increases “don’t speak broadly to a tight economy”. But he did state that current price effects had been larger than expected and may turn out to be more persistent.
Annual growth in the US PCE price index (Fed preferred measure of consumer price inflation) increased by +3.9% in May after increasing by +3.6% in Apr. The base effects also eased this month (meaning that there was a slight increase in the index from Apr to May in 2020).
The top three contributors to headline inflation this month were: Gasoline prices (accounting for approx. 24% of the headline inflation growth), Used Light Truck prices (accounting for approx. 9% of headline inflation growth), and the imputed price for owner equivalent rent (accounting for 6% of annual headline inflation growth in May). Overall, the annual growth in the price of goods accelerated from +4.7% in Apr to +5.4% in May. This contributed nearly 47% of headline inflation growth (up from 43% in the year to Apr 2021). The annual growth in the price of services was unchanged at +3.1% (no acceleration in the annual rate between Apr and May).
Annual growth in Core PCE inflation accelerated slightly from +3.1% in Apr to +3.3% in May.
The key event this week in the US will be non-farm payrolls on Friday. Expectations for payrolls growth in Jun are currently at +675k (+559k in May).
Other key reports are the ISM manufacturing PMI for Jun, factory orders, goods trade balance, total vehicle sales, and initial jobless claims (which have been slightly higher in recent weeks).
This week, the US Treasury will settle $489bn in ST Bills, Notes, Bonds, and TIPS raising approx. $124bn in new money for the week. This week, approx. $55bn in ST Bills, Notes, and Bonds will mature on the Fed balance sheet and will be rolled over.
Fed purchases of US Treasuries (QE) will be notably lighter this week leading up to the long weekend ($7.9bn versus $20bn last week). MBS purchases will be unchanged at $22bn. Purchases will recommence on 6 Jul.
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
by Kim | Jun 21, 2021
The focus this week is likely to remain on the FOMC meeting last week – and the (interpreted) shift in signaling from that meeting. Be aware that many FOMC members will be speaking this week, including Chair Powell providing testimony on the Covid response to the US House of Representatives. We will look for any shift in remarks by Fed officials, including comments ‘walking back’ this interpretation of a change in Fed sentiment.
A change in the dot-plot projections for interest rates signaled, without any commitment, that a change in rates may happen sooner. This also means that tapering QE purchases would also likely start sooner. Again, no explicit comment was made by the FOMC on this. Markets are still digesting the implications of this shift, along with some of the ‘technical adjustments’ to administered rates (interest on reserves and excess reserves, and the overnight RRP rate).
Other key events coming up this week include:
US PCE price inflation data on Fri – annual core PCE prices are expected to increase to +3.4% (from +3.1% in Apr). Headline PCE inflation will not have a lower base effect this month. Some forecasts still expect an acceleration in annual headline PCE growth for May to 4% (from +3.6% in Apr).
Also for the US: existing home sales for May (expecting 5.72m SAAR versus 5.85m in Apr), consumer sentiment for Jun, durable goods orders, and several of the regional manufacturing surveys for Jun.
The Bank of England rates decision will be on Thurs.
Finally, the prelim PMI’s for Jun will be released for the US, Europe, Japan, UK, and Australian economies.
This week, the US Treasury will settle $292bn in ST Bills and 2yr FRN’s raising approx. $34bn in new money for the week. The net new cash raised for the quarter to date is approx. $211bn (full quarter 2 est of $463bn).
At the latest meeting, the FOMC also made a “technical adjustment” to the interest rate on required and excess reserves (now 15bps up from 10bps) and the overnight repurchase rate (5bps up from zero). Auctions of short-term bill rates appear to have been impacted after the meeting (CMB’s and 4/8-week Bills). Usage of the Fed’s ONRRP program has been increasing recently but increased notably after this adjustment. This week, the US Treasury will also auction the 2yr, 5yr, and 7yr Notes – which will settle on 30 Jun. Approx. $9bn 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
by Kim | Jun 14, 2021
The focus this week will be on central bank meetings, including the US FOMC and a raft of CPI and PPI reports for May.
Last week, annual growth in the US CPI accelerated at a faster pace of 4.93% for May (from 4.15% in Apr). There was a smaller base effect this month – and if the May 2020 base were unchanged (compared to Apr 2020), headline CPI would have still accelerated to 4.82%. The main contributors to the higher CPI growth were energy prices (gasoline), used cars & trucks, owner’s equivalent rent, and transport services (motor vehicle insurance & airline fares). The increase in gasoline prices accounted for approx. 40% of the annual increase in the headline CPI this month. Excluding the larger contributors to headline CPI growth (food, energy, shelter, and used cars) the annual CPI growth still accelerated from 2.57% in Apr to 3.28% in May. There was a small base effect too – and without any base effect for this ‘core group’, annual growth in prices would have still accelerated to 2.98% in May. For this core measure of CPI, the quarterly pace of growth in May accelerated to the fastest level since 1991 to 1.51%.
This week, the Fed is likely to “look through” the higher CPI and PCE price growth for May – expecting higher price growth to be transitory. The Fed will likely want to see more substantial improvement in labour market metrics after the last two months of smaller than expected gains in payrolls (which is still 7.6m below pre-pandemic levels). No change to policy settings is expected – although we will look for language that starts to hint at talking about tapering.
Other highlights this week will be:
Central banks: the BoJ and SNB will meet this week on rates and policy. Speeches this week from BoE Governor Bailey, RBA Governor Lowe, and BoC Governor Macklem.
US data this week (mainly Tue & Wed): US retail sales growth for May expecting a -0.8% decline (from 0% growth in Apr). Industrial production in May expecting a +0.6% increase (up from +0.5% in Apr). Annual PPI growth in May is expected to increase to 6.3% (up from 6.2% in Apr). Building permits for May expected to increase to 1.74m (SAAR) up from 1.733m in Apr. Building starts for May expecting a 1.630m increase in May, up from 1.569m in Apr. There will also be the first of the regional manufacturing surveys for Jun (NY and Philadelphia).
The May CPI and PPI reports for the Eurozone, Germany, Canada, China, UK, and Japan will be released this week.
Australian employment and labour market report for May – expecting growth in employment of +30k after a 30k decline in Apr.
This week, the US Treasury will settle $420bn in Bills, Notes, and Bonds raising approx. $77bn in new money for the week. The US Treasury will also auction the 5yr TIPS and 20yr Bond this week – to settle on 30 Jun. This week, approx. $31bn in Bills and Notes 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
by Kim | Jun 7, 2021
The US CPI release for May and the ECB rates decision will be the focus for the week – both on Thursday. It will be a quiet week for US Fed speeches in the lead-up to the FOMC meeting next week.
Estimates for the increase in US non-farm payrolls last week were varied. While the 559k increase was below the median expectation (650k), it was still an improvement on the month prior. The household survey indicated that the unemployment rate declined further in May – this was (equally) the result of higher employment growth, but also a fall in participation. With payrolls, employment, and participation still well below pre-Covid levels, it is hard to see that “substantial further progress” has been made in the labour market yet.
The main highlights this week will be:
The headline US CPI growth is expected to be 4.7% in May (up from 4.2% in Apr). Annual growth in core CPI is expected to be 3.4% (up from 3% in Apr). There will be a smaller base effect in the annual CPI calculation this month. From June, the base will shift higher.
Other reports of note for the US will be the University of Michigan consumer sentiment survey for early Jun, JOLTS for Apr, and the consumer credit change for Apr.
The ECB will meet on Thursday and there are no changes expected in policy or rates. Vaccination rates have started to increase more notably throughout Europe, supporting an improvement in the short-term outlook. The ECB is expected to maintain the current pace of (PEPP) QE through the summer to support the recovery.
Data out of China includes trade, CPI, and PPI for May.
This week, the US Treasury will settle $266bn in ST Bills, with a -$19bn net paydown for the week. The net new cash raised for the quarter-to-date is approx. $100bn (est of $463bn).
The US Treasury will also auction the 3yr Note, 10yr Note, and the 30yr Bond this week – raising approx. $99bn in new cash. These auctions will settle on 15 Jun.
This week, approx. $16bn 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
