by Kim | Jan 31, 2022
Key themes for the week ahead – central bank meetings and US non-farm payrolls
This will be another big week of economic data and central bank meetings.
Recap
Last week, the FOMC announced the end of QE in Mar (end of tapering) and signaled that it would be appropriate to start rising the FFR target soon. Over the weekend, the Atlanta Fed President noted that a more aggressive approach to increases was possible “if warranted by the economic data”. A separate note was released after the meeting outlining the broad principles of QT. The PCE price index growth for Dec came in below forecast at 5.8%, but still ahead of the Nov rate of 5.7% while monthly growth remained elevated at 0.45%. Annual core PCE price growth accelerated to 4.85%. GDP growth accelerated more than expected in Q4 led by a notable contribution from a larger change in inventories.
The BoC kept rates unchanged, but “decided to end its extraordinary commitment to hold its policy rate at the effective lower bound”. The bank is signaling that rates will be “on a rising path”.
Central Bank Meetings
The RBA is expected to keep rates on hold and will possibly announce the end of QE/tapering. CPI growth was higher than expected, but core CPI remains within the 2-3% band. Current strong labour market conditions are expected to ease given the latest outbreak. The RBA may signal rate increases to start this year, rather than in 2023, but it is likely the RBA would prefer to see wage growth increase first.
The BoE is expected to hike rates again and may announce its program to start reducing its balance sheet. We haven’t seen a situation when multiple CBs are reducing balance sheets at the same time.
The ECB is expected to keep rates on hold with no change in current settings. CPI growth remains more moderate excluding energy. Last week, Q4 GDP was slower across major economies and the German economy contracted by more than forecast in Q4.
US Non-Farm Payrolls
This week US non-farm payrolls are expected to increase by a more moderate +155k jobs (versus +199k in Dec). There has been some easing of momentum in Jan, especially in services and some regional manufacturing surveys (the latest outbreak is impacting staffing and output). Wage pressures eased more than expected in Q4 with the employment cost index increasing by 1% (versus 1.3% in Q3). This month, the participation rate is expected to fall slightly from 61.9% to 61.8% but the unemployment rate is expected to remain at 3.9%. The more detailed ISM surveys for US manufacturing and services activity will also be released for Jan this week. Both surveys are expected to show slightly slower growth momentum for the month.
This week, the US Treasury will auction and settle approx. $465bn in ST Bills, Notes, Bonds, TIPS, and FRNs, raising approx. $121bn in new money. Approx. $55bn in ST Bills, Notes, FRNs, and Bonds will mature on the Fed balance sheet this week and will be rolled over. The US Treasury will also release the latest financing schedule on 2 Feb.
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 | Jan 24, 2022
Key themes for the week ahead – FOMC, inflation, and growth momentum amid the latest outbreak
This will be a big week of economic data and central bank meetings.
Central banks
The focus will be on the FOMC monetary policy meeting. The FOMC is expected to confirm the end of QE (end of tapering) in Mar. At the Dec meeting, Chair Powell noted that the earlier conclusion of QE/tapering was intended to provide the FOMC with the flexibility to adjust policy, especially given more persistent inflation. We expect some signalling on the timing for a rates lift-off – possibly Mar. Speeches by various Fed officials have supported a Mar timing for the first hike and the end of QE in Mar opens the way for the Fed to commence hiking. The FOMC is also expected to provide further details of QT (pace and timing).
The BoC meets this week. At the last meeting, policy guidance suggested mid-2022 for rates lift-off. Canada CPI data for Dec came in softer for the month with MoM CPI recording a slight fall of -0.1% led by lower gasoline prices. Annual CPI growth accelerated to +4.8%.
Next week the RBA, BoE, and ECB will meet on monetary policy.
Inflation
Inflation data will remain in focus this week. The US PCE price index growth is expected to accelerate to +6.1% in Dec from +5.7% in Nov. The US employment cost index will be an important barometer of wage pressure. The index is expected to increase at a slightly slower pace of 1.2% in Q4 (from +1.3% in Q3).
Both Aus and NZ Q4 CPI data will be released this week. Aus CPI is expected to have accelerated in Q4 to 3.2% (from +3% in Q3). The QoQ CPI growth is also expected to accelerate to 1% in Q4 from +0.8% in Q3. Faster inflation will place greater pressure on the RBA to review its rate hike timing (currently 2023) – especially after the strong Dec labour force report and a potentially earlier FOMC hike. The latest omicron impact (PMI services back into contraction in Jan) is likely to be viewed as a short-term disruption.
Growth
Growth momentum is likely to have slowed amid the omicron outbreak. The prelim Jan PMIs for the major economies will highlight the extent of the impact of the omicron outbreak, especially on services. So far, Aus & Japan services PMIs recorded a sharp contraction in Jan.
US GDP in Q4 is expected to increase by 5.5% (SAAR basis) after slower growth in Q3 of +2.3%. There has been some softening of US data toward the end of Q4 – especially in terms of personal expenditure. PCE spending is expected to decline by -0.6% in Dec (in line with the weaker Dec retail sales).
Weaker economic conditions are expected to be reflected in Europe for Q4; GDP in Germany is expected to contract by -0.2% in Q4.
This week, the US Treasury will auction and settle approx. $275bn in ST Bills, raising approx. $31bn in new money. The US Treasury will also auction 2yr, 5yr, and 7yr Bonds and the 2yr FRN this week – which will settle on 31 Jan. Approx. $26bn 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 | Jan 17, 2022
Key themes for the week ahead – global inflation, central banks, US housing data
This will be a short week in the US with the National holiday for the birthday of Martin Luther King Jr on Monday. The annual WEF gathering at Davos was due to take place this week and has been replaced by a series of virtual sessions between 17-22 Jan.
Recap
Last week, US CPI increased at an expected pace of 7.1% in Dec – the fastest pace of consumer price inflation since the early ’80s. Inflation remained high for essentials such as food, shelter, and energy. Consumer sentiment for Jan was disappointing, falling to a new low since the GFC, on inflation and expected falls in real income. US retail sales missed badly for Dec – and the result was worse accounting for inflation. Sales fell across most categories due to pulling forward of holiday sales (Oct), lack of inventory, and/or some effect from the latest round of the pandemic.
Markets now reflect a higher probability that rate hikes will start in Mar. Fed speeches also signaled a more aggressive approach to QT – such as the possibility of outright sales of Fed holdings (rather than a roll-off). The US yield curve still finished the week at the equal flattest level for the YTD (both 2’s-10’s and 5’s-30’s).
Central Banks
This week, the BoJ meets on policy. With inflation at relatively low levels, no change to policy is expected. However, there is a possibility of a change in wording around inflation risks. A small (by global standards) lift in CPI has reportedly triggered “hints of public discontent” (Bloomberg). The ECB Dec minutes will be released this week and ECB President Lagarde will speak at a virtual Davos session on Friday. The US FOMC meets next week with the speech blackout taking effect this week.
Global Inflation
CPI for Dec will be reported this week across major economies. Headline expectations: UK (expecting +5%), Canada (expecting +4.7%), Eurozone (expecting 5%), and Japan (prior +0.6%).
US Housing
US mortgage application data highlights the rising mortgage rate environment affecting refinance activity. Data this week: existing home sales for Dec are expected to fall slightly to 6.43m (SAAR). Housing inventory will be a key highlight of the report. Also, building permits; expecting 1.7m, and housing starts; expecting 1.65m (both SAAR-basis).
Other
The Aus labour market survey for Dec will be released. Employment is expected to increase by +30k, participation is expected to increase to 66.2%, and the unemployment rate is expected to fall to 4.5%. The Nov data last week was strong for retail sales and housing finance. This all reflects the positive impact of reopening. This week, the Westpac consumer sentiment for Jan will highlight any impact on sentiment from this latest outbreak.
This week, the US Treasury will auction and settle approx. $351bn in ST Bills, Notes, and Bonds, raising approx. $96bn in new money. The US Treasury will also auction 10yr TIPS and the 20yr Bond this week – which will settle on 31 Jan.
Approx. $29bn 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 | Jan 10, 2022
Key themes for the week ahead – US CPI, Fed nomination hearings, and US retail sales.
Last week, the Fed minutes signaled another shift from the FOMC to promote further steps in policy normalization. The timing and conditions for quantitative tightening (QT), or balance sheet runoff, was discussed. There was a flavor of ‘this time is different’ concerning QT (the first QT program ended abruptly in Sep 2019) and would likely start much sooner after rates liftoff than in the prior cycle. The accelerated end to taper was seen as warranted with inflation exceeding forward guidance criteria. There were mixed views on full employment, but it was generally agreed that maximum employment criteria were not yet met, but would be soon. The accelerated end to taper now provides the FOMC with the flexibility for an earlier start to rates lift-off. Markets are pricing a higher probability for a Mar hike.
Later in the week, US non-farm payrolls growth for Dec disappointed. But in the five months to Dec, non-farm payrolls have been revised higher by +730k jobs (compared to the initial number announced from Jul to Nov). Labour market indicators continue to improve. Employment growth remained strong and the employment to population ratio is now 1.6%pts below the pre-pandemic peak. The participation rate was unchanged in Dec but had been revised higher for Nov to 61.9%. The unemployment rate fell below 4% to 3.9% (16yrs+).
The ISM surveys were disappointing for Dec. The services ISM eased more notably with slower output and orders growth. Firms noted continued price pressures. Manufacturing momentum also eased somewhat – especially the pace of price growth and supplier delivery times.
Fed Nomination Hearings
This week the focus will be on the important FOMC nomination hearings in the US senate for Chair Powell (Tue) and Governor Brainard (Thur). The last time Chair Powell testified, senators conveyed their concern about high inflation.
US CPI
The US CPI for Dec will be released this week. CPI is expected to increase by 7% in Dec (up from 6.8% in Nov). The monthly increase is expected to ease to +0.4% (from +0.8% in Nov). Core CPI is expected to increase by 5.4% (up from 4.9% in Nov).
US Retail Sales
Also out this week will be US retail sales (expecting -0.1% in the month versus +0.3% in Nov) and the University of Michigan prelim consumer sentiment for Jan (expecting 70).
This week, the US Treasury will auction and settle approx. $241bn in ST Bills, raising approx. $23bn in new money. The US Treasury will also auction the 3yr and 10yr Notes and the 30yr Bond this week – to settle next week.
Approx. $18.5bn in ST Bills will mature on the Fed balance sheet this week and will be rolled over.
Next Monday 17 Jan will be Martin Luther King Jr Holiday (US).
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 | Jan 3, 2022
Key themes for the week ahead – FOMC Minutes, US Non-Farm Payrolls, and Dec PMI’s
In our last outlook note for 2021, we said that the trend of US data over the intervening FOMC meeting period will be important to the timing of the first US rate hike. This is especially relevant as inflation continues to trend above target and the economy continues to rebound from the pandemic.
To Recap – The last FOMC decision in Dec was in line with expectations for a faster taper and possible earlier liftoff in rates. Later, Governor Waller suggested that quantitative tightening (QT) might be under consideration and the Mar 2022 FOMC meeting could be live for the first hike.
“It would take something like severe disruption from omicron to delay labor market improvement or keep unemployment from falling, to keep March from being a key date to think of for liftoff.” https://www.bloombergquint.com/onweb/fed-s-waller-says-rate-hike-warranted-shortly-after-taper-ends
Since our last note, PCE inflation for Nov came in higher than expected at 5.7% while Oct inflation was also revised higher. The continued high pace of the monthly PCE inflation (expecting +0.2% growth in Nov – actual +0.6%) will likely remain a concern. Uncertainty has also been elevated about the rapid spread of the new virus variant and the potential impact on the economy.
FOMC Minutes – The minutes of that last FOMC meeting will be released this week. The key points will be around the extent of the discussion for an earlier rates lift-off and QT.
US Non-Farm Payrolls – This week, the Dec US non-farm payrolls will be released. Unless there is a ‘severe disruption’ to either payrolls growth or the reduction in unemployment, the FOMC is likely to remain on target (at least) for an earlier end to taper. The growth in non-farm payrolls is expected to be +400k in Dec (prior actual +210k). The participation rate will also be a key data point – the Nov participation rate was 61.8% (16yrs+).
PMIs Dec – The final Dec Markit PMI’s will be released this week. The prelim Dec PMIs highlighted a general deceleration in momentum going into Dec 2021 – especially across Europe and UK services sectors. The US ISM PMI’s will be released this week. Momentum across services and manufacturing is expected to decelerate somewhat but remain elevated. Headline ISM manufacturing PMI (Dec) expected 60.4 (prior 61.1) and services PMI (Dec) expected 67.2 (prior 69.1). Prices, lead times, inventory, and demand will be key metrics.
This week, the US Treasury will auction and settle approx. $241bn in ST Bills, raising approx. $80bn in new money for the first week of Q12022.
Approx. $18.5bn 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 | Dec 20, 2021
Key themes for the week ahead – US inflation, elevated virus uncertainty
This will be a quiet data week leading into the Holiday period. The key data highlight will be the monthly US PCE inflation data for Nov.
Uncertainty is elevated about the new virus variant. Cases have reached new pandemic highs in some places while restrictions have been reinstated in some countries (i.e., Europe).
This uncertainty comes amid a shift to a tightening bias among central banks. The BoE surprised last week with a 15bp increase in the bank rate to help address higher and more persistent inflation. The ECB remained more dovish but still announced the end of the emergency QE program for Mar 2022 (to be offset though by the regular APP until Q4 2022). The FOMC delivered as expected with a faster pace of taper, and likely ending QE in Mar 2022. This acceleration gives the FOMC flexibility to “better position policy”. The SEP showed a shift to three potential hikes in 2022. Quantitative tightening (QT) was then floated by Fed Governor Waller on Friday, who also suggested that the Mar 2022 meeting could be live for the first hike.
“It would take something like severe disruption from omicron to delay labor market improvement or keep unemployment from falling, to keep March from being a key date to think of for liftoff.” https://www.bloombergquint.com/onweb/fed-s-waller-says-rate-hike-warranted-shortly-after-taper-ends
For the US, the trend of the data over the intervening meeting period will be crucial to the timing of the first hike.
The prelim PMIs for Dec (released last week) showed a slowdown in growth momentum across manufacturing and services activity across the US, Eurozone, UK, Japan, and Australia. Most notable was the slowdown in services activity, especially in the UK and Europe.
US PCE Inflation
The US PCE price index data for Nov will be released this week. Headline PCE price growth is expected to increase to +5.6%, up from 5% in Oct. Income growth is expected to slow for the month to 0.2% (from +0.5% in Oct), and expenditure growth is expected to slow slightly to 1% (from 1.3% in Oct).
Other US data includes the final Dec release of the University of Michigan consumer sentiment data (expecting no change to the 70.4 headline index).
This week, the US Treasury will auction and settle approx. $321bn in ST Bills, raising approx. $127bn in new money for the week. The US Treasury will also auction 5yr TIPS and the 20yr Bond, both to settle next week. Approx. $8bn 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.
