by Kim | Oct 25, 2021
Key themes for the week ahead – central bank policy decisions, inflation, and US growth (tech earnings too).
This will be the first of two weeks of major central bank policy decisions. This week: the BoC, BoJ, and ECB. Next week: the RBA, FOMC, and BoE. Policy decisions and signaling will be interesting in the context of recent front-end sell-offs. Market pricing of rate hikes have been brought forward across many countries – even despite some dovish CB guidance.
This week, the BoC is expected to keep rates on hold, but with a chance for a further taper announcement.
The ECB is expected to keep policy settings on hold. Guidance on taper will be important. The Sep CPI was confirmed at +3.4% – led by accelerating energy prices. Underlying inflation is 1.9% ex-energy but accelerating. The Eurozone flash PMI for Oct suggests the Euro growth momentum slowing into Q4. The Euro area Oct prelim CPI is out this week, expecting +3.7% headline growth (up from 3.4% in Sep). Q3 GDP is expected to slow to +3.5%.
The BoJ is expected to keep policy settings unchanged. Last week CPI growth remained well below the BoJ targets. The latest flash PMI’s for Oct indicated a welcomed shift in growth momentum at the start of Q4.
Next week the RBA meets. Rate hikes are being priced in much earlier than RBA guidance. Last week the RBA responded by buying up to $1bn of 2024 3yr AGB to defend the 0.1% target rate. Minutes reaffirmed dovish guidance especially as the country emerges from multiple lockdowns. The Q3 CPI is released this week – expecting inflation to ‘ease’ to 3.1% (from 3.8% – base effects).
The BoE also meets next week. The new BoE chief economist expected inflation to be higher into H1 next year. It was suggested that next week could be “live” for a rate hike discussion – but it would be “finely balanced”.
US rates have also been pricing an earlier liftoff with a flattening yield curve. The lift in ST rates has been in line with a shift in Fed guidance, but concern is rates rising going into a lower growth environment (roll-off of stimulus etc). The PCE inflation is out this week for Sep – expecting core inflation to increase to 3.7% from 3.4%. The ECI for Q3 will provide some insight into wages. US growth has been downgraded throughout Q3 and GDP for Q3 is expected to slow to +2.8% annualized. Looking forward, the flash PMI’s for Oct (released last week), reported a notable lift in services output and activity. Manufacturing output continues to be hampered by ongoing supply chain disruptions while demand has remained robust. Widespread input price increases were again reported by firms.
The US Treasury will settle approx. $286bn in ST Bills and 5yr TIP’s raising approx. $103bn in new money. Additional Cash Management Bills (CMB’s) were added to the schedule as the US Treasury manages the TGA balance amid debt ceiling discussions. Just over $200bn in Notes (2yr, 5yr, and 7yr) and 2yr FRN will be auctioned this week – and will settle next week.
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
by Kim | Oct 18, 2021
Key themes for the week ahead – growth momentum & output, inflation, and US housing data.
A quieter week on the data front, but a lot of Fed speak this week.
There will be US Fed speeches on most days this week. Chair Powell was expected to speak later in the week – but this is not yet on the Fed calendar. The next FOMC meeting is two weeks away (2-3 Nov), so this will be the last week for signaling ahead of that meeting. There was much to digest from last week with CPI, FOMC minutes, and the flattening yield curve.
The FOMC minutes last week showed that an announcement on taper may be made at the Nov meeting. In a speech last week, Vice Chair Clarida indicated that inflation targets had been more than met and that labour market conditions for a taper had been “all but” met. A more cryptic reference to “very nearly”, or “almost”. Higher, and so far, more persistent inflation has been the theme markets have been digesting. Market estimates of hikes were brought forward, and the yield curve flattened as 1yr-7yr yields reached YTD highs by the end of the week.
In his speech last week, Vice Chair Clarida also noted ‘significant shifts in aggregate demand and supply’ (due to policies to manage the pandemic). He was referencing the impact of supply chain bottlenecks on output and prices that are persisting. This week, we’ll get a further reading of the impact of ongoing bottlenecks on growth momentum and output leading into Q4.
Firstly, US industrial production and Chinese industrial production data will round out the view of industrial output for Sep. Then, later in the week, the prelim Oct PMIs for a range of countries will be released.
Other inflation data out this week will round out the Sep data and includes the final Euro area CPI for Sep, NZ CPI (upside surprise earlier today), and Japan National CPI for Sep. The prior YoY CPI growth for Japan was -0.4%.
US housing data for Sep will be out this week – including existing home sales (exp 6.06m SAAR), building permits (exp 1.68m SAAR), and housing starts (1.62m SAAR).
The RBA minutes for Oct will be released and RBA Governor Lowe speaks this week.
This week, the US Treasury will settle approx. $298bn in ST Bills raising approx. $110bn in new money. This is a relatively heavy week for ST Bills. A number of additional Cash Management Bills (CMB’s) were added to the schedule last week and again this week to help manage Treasury spending leading up to debt ceiling and funding negotiations.
Approx. $19bn in ST Bills will mature on the Fed balance sheet this week and will be rolled over. The 5yr TIPS and 20yr Bond will be auctioned this week – and will settle around month end.
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
by Kim | Oct 11, 2021
Key themes for the week ahead – US inflation, Fed taper signalling, and rates.
Despite the headline disappointment, US payrolls growth was interpreted as good enough to keep a possible taper announcement on track for Nov (FOMC 3 Nov 2021). This week, we’ll watch the Sept FOMC Minutes and Fed speeches for important signalling on the payrolls result, inflation, and a taper announcement. US inflation for Sep will also be important this week. US and global rates are likely to remain in focus.
The headline US non-farm payrolls last week disappointed to the downside. “Reasonably good” growth in private payrolls (+317k) was offset by a decline in public payrolls (-123k). The decline in education payrolls (state and local levels) accounted for all the public sectors decrease with lingering Covid issues disrupting back to school activity. In the private sector, the growth in Leisure and Hospitality payrolls was muted compared to prior months and this trend is consistent with the outbreak in late 2020.
The prior two months’ payrolls were revised higher and the monthly average payrolls growth over the last four months now sits at +653k/month.
US labour supply is still an issue with participation declining in Sep. This partly explains the much larger decrease in the unemployment rate in Sep. In the broader 16yrs+ group, the combination of growth in employment and a decrease in participation resulted in a notable decrease in the unemployment rate from 5.2% in Aug to 4.8% in Sep. In the core working-age group of 24-54yrs, most of the decline in the unemployment rate was due to the fall in participation.
The US CPI data for Sep will be a key focus this week. Headline CPI growth is expected to remain at +5.3% and core CPI growth is expected to remain at +4%.
US retail sales for Sep will be released and a slight decline of -0.2% is expected, but ex-Autos, growth of +0.4% (MoM) is expected. The University of Michigan consumer sentiment data (prelim) for Oct will also be released – a slight improvement is expected.
In Aus, the labour market data for Sep will be released. Employment is expected to decline by -120k (prior -146k). Vaccination rates are at least on-target for a staged easing of restrictions (so far NSW, with Vic to start at the end of Oct).
Chinese data (trade, inflation, and retail sales) for Sep will also be released.
This week, the US Treasury will settle approx. $309bn in ST Bills, Notes, and Bonds raising approx. $84bn in new money. The US Treasury will auction and settle the 3yr and 10yr Notes (before CPI) and the 30yr Bond this week. There has been a shift in timing for debt ceiling negotiations and this is reflected in the (higher) 8-week Bill. Approx. $26bn 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 or scroll through the file below.
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | Oct 4, 2021
The focus for the week ahead will be on US non-farm payrolls and several central bank meetings.
This week the RBA and RBNZ will meet to review monetary policy settings. The RBA is expected to hold rates unchanged at 0.10%. There is a chance that the RBNZ will raise rates by 25bps, despite Covid restrictions still in place. The ECB will release the minutes of its latest meeting this week. There will also be several speeches by US Fed officials including Vice Chair Quarles.
Inflation data last week came in just slightly ahead of expectations. The prelim Euro area CPI for Sep came in at +3.4% (expecting 3.3%) as annual energy price growth continued to accelerate (+17% in Sep). Excluding energy, the prelim CPI growth was lower at +1.9% (but up from +1.7% in Aug).
US annual PCE price inflation for Aug came in at +4.26% ahead of the Jul rate of +4.16%. Core inflation was slightly higher than expected at +3.6% in Aug. The latest Fed forecast has PCE inflation at 4.2% for 2021. Personal income growth slowed in Aug as growth in employee compensation and government transfer payments slowed. US Personal consumption expenditures (nominal value) increased at a faster pace in Aug led by faster growth in non-durable goods and slower growth in services. This offset a further (albeit slower) decline in durable goods consumption for Aug – due to a combination of restricted supply and higher prices. Consumer sentiment improved slightly at the end of Sept, but sentiment towards durables remained weak. This month, consumer sentiment noted that inflation had already impacted living standards:
Indeed, favorable buying attitudes posted some small further declines due to complaints about prices for homes, vehicles, and durables, all of which were already near all-time lows. Even if transient, higher inflation has already decreased living standards, and further damage is anticipated as just 18% of all households anticipated income gains would be larger than the expected inflation rate. http://www.sca.isr.umich.edu/
The main focus this week will be on US non-farm payrolls for Sep. Expectations are for a +460k increase in payrolls. The unemployment rate is expected to decline slightly to 5.1%.
Also out this week will be the US ISM Services PMI for Sep.
This week, the US Treasury will settle approx. $183bn in ST Bills with a net paydown of $57bn. Some short-term Bill rates remain slightly elevated amid debt ceiling negotiations.
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 or scroll through the file below.
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | Sep 27, 2021
The focus for the week ahead will be on US Fed and central bank speeches, and inflation data.
This week, the ECB will host the Forum on Central Banking on 28-29 Sep. US Fed Chair Powell will take part along with other major central bank leaders. There is potential for headline risk as central banks start talking about tapering.
US Fed Chair Powell will also supply testimony to the US Senate this week on the CARES Act. There will be numerous other Fed Presidents and FOMC members speaking this week (not all listed in the calendar).
Last week, there was no change to the stance of US Fed monetary policy. Fed Chair Powell announced that the FOMC is preparing to start tapering QE purchases. The tapering process is expected to conclude around the middle of 2022 – as long as the recovery remains on track. The taper may be announced in Nov – the next non-payrolls will be important (always is), as will signaling in Fed speeches after that time.
The FOMC revised growth projections lower to 5.9% for 2021 (compared to the Jun forecast) but upgraded the forecast for 2022. The unemployment rate forecast was revised higher to 4.8% for 2021 and the 2022 forecast was unchanged at 3.8%. The 2021 forecast for inflation was revised higher to 4.2% for 2021 (from the 3.4% forecast in Jun). Importantly, the medium-term inflation is forecast to remain above the Fed target level. The FOMC projections for the next rate change are now split 50/50. Nine (9) FOMC members expect no change to rates in 2022 and the other nine (9) expect at least one rate increase by the end of 2022.
Other central banks have either indicated an intention to start to ease QE purchases (BoE last week) and ECB previously (currently “recalibrating” purchases) or have already started to taper QE purchases. The only central bank that has not done so is the BoJ – still citing caution over the pandemic.
This week, the prelim Eurozone CPI for Sep will be released. The headline expectation is for CPI growth of +3.3% (prior 3%).
US PCE inflation data will also be released this week for Aug. Core PCE price growth is expected to remain around 3.5% (from 3.6% in Jul). Headline PCE inflation increased from 4% in Jun to 4.2% in Jul.
This week, the US Treasury will settle approx. $370bn in ST Bills, Notes, TIPS, and Bonds raising approx. $11.4bn in new money. The new money raised this week is relatively low given the size of issuance due to reduced auction amounts on some ST Bills and the removal of a CMB. Approx. $47bn in ST Bills, Notes, and Bonds will mature on the Fed balance sheet this week and will be rolled over. The 4-week Bill rate remains somewhat elevated in the lead-up to debt ceiling negotiations. The 8-week Bill rate has moderated.
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 | Sep 20, 2021
The focus for the week ahead will be firmly on the US FOMC policy decision and a notable number of other central bank meetings.
The FOMC will meet this week and submit new economic projections (SEP). The policy decision is likely to include a timeline for tapering – to possibly commence later in Q4. But there is also a chance that the Fed doesn’t announce a taper timeline at this meeting (maintain optionality). Either way, the SEP will be important this month to understand how committee members judge the progress of the recovery, whether there is any consensus around growth slowing and the impact on the outlook. The FOMC will want to keep a taper decision independent from any link to a future rate increase to ensure that markets don’t interpret the taper as a part of a tightening path.
US Fed Chair Powell will speak on Friday at a virtual event – “Perspectives on the pandemic recovery”.
Other central bank meetings this week: the BoJ, the BoE, and the PBoC. There is a holiday in China on 20/21 Sep and the PBoC, or other Chinese policymakers may step in to support markets in the wake of slowing growth and regulatory crackdowns. The minutes of the latest RBA meeting will also be published this week.
There are a notable number of other central bank meetings this week (not listed in the calendar) that may pose some specific headline risk: Sweden, Indonesia, Brazil, SNB, Philippines, Norway, Turkey, and South Africa.
Other important points this week will be US housing market data for Aug. This includes existing home sales expecting 5.89m (5.99m SAAR basis in Jul), building permits expecting 1.61m (prior 1.63m), and housing starts expecting1.56m (prior 1.53m).
The prelim PMI’s will provide a view of private sector momentum coming into Sep across the major economies.
This week, the US Treasury will settle approx. $191bn in ST Bills and FRN’s this week, with a net paydown of -$90bn (new issuance < maturing securities).
The 10yr TIPS and 20yr Bond will be auctioned this week and will settle next week.
Approx. $11bn 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 or scroll through the file below.
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
