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
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
