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
by Kim | May 31, 2021
It will be a big week of data, central bank speeches, the RBA rates decision, and OPEC.
Markets currently expect US inflation to be transitory and are looking through the higher prints as we cycle over the low points of consumer inflation last year. The latest Apr US PCE data was the last of the lower base readings from 2020 – the 2020 base will start to increase from May. The latest PCE trimmed mean shows that underlying inflation continued to increase from 1.71% in Mar to 1.79% in Apr (annualized) – but remains well below recent peaks of 2.1% in Feb 2020.
The main highlights this week will be:
US non-farm payrolls for May will be the focus – especially after the much weaker than expected Apr result. Expectations are currently for a +650k increase in May (prior actual was +266k increase in payroll jobs in Apr and a substantial downward revision to the Mar result).
US central bank speeches including Chair Powell, Vice Chair Quarles, and Governor Brainard.
US ISM Manufacturing and Services PMI’s for May – while ongoing expansion of demand is expected especially in Services, the prices, delivery lead times, and unfilled orders indexes will also be in focus, providing some insight into any easing of supply chain disruptions and input price pressures.
The RBA meeting on rates. While no change in rates is expected, the RBA is expected to provide commentary on the TFF which is due to wind-up on 30 Jun. Commentary is expected to remain focused on reducing labour market spare capacity before any change in rates. Labour market outcomes are likely to be made worse by another state-wide lockdown in Victoria (second-most populous state) – just as National support programs have ended.
Australia Q1 GDP will be released. Growth in Q1 is expected to have slowed slightly to +2.5% (from +3.1% in Q4 2020).
There will be several other central bank speeches this week: ECB President Lagarde, RBNZ Governor Orr, BoE Governor Bailey, and the Indian central bank will also meet this week.
OPEC will meet this week:
OPEC and its allies are expected to stick with a decision to boost output in July when the group gathers Tuesday, according to a Bloomberg survey last week. https://www.bloomberg.com/news/articles/2021-05-30/oil-edges-higher-with-market-set-to-focus-on-opec-policy-meet
This week, the US Treasury will settle $476bn in ST Bills, Notes, and Bonds, raising approx. $91bn in new money. The net new cash raised for the quarter to date is approx. $119bn (est of +$463bn in Q2). This week, approx. $62bn in ST Bills and Notes & Bonds 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 | May 24, 2021
The focus this week will be on US data, notably the personal income, consumption, and PCE price index data for Apr. There will also be several speeches and testimony by US Fed Vice Chair Quarles and the rates decision by the RBNZ.
The key US data highlights this week are:
Personal income, consumption, and the PCE price index data for Apr. The consumer inflation number will be important – this is the release followed by the FOMC. There was a relatively large acceleration in the annual inflation rate for Mar, which increased to 2.3% from 1.5% in Feb. The Apr 21 result will cycle over the lowest point of the price index for 2020, so base effects should be more notable. This will be the last month of a lower base contributing to the headline inflation number. Annual core inflation is expected to increase from 1.8% in Mar to 3% in Apr.
US durable goods orders will be released for Apr – expecting a +0.7% increase in orders (slower than the 1% increase in Mar).
US new home sales for Apr are expected to increase at a slightly slower pace of 975k (down from 1.021m SAAR basis in Mar) – as material delays continue to impact construction and higher mortgage rates impacted demand somewhat.
There will also be several regional US manufacturing surveys released this week for May. Expecting similar themes of production impacts from supply chain disruptions, higher prices, and rising order backlogs. From the Markit prelim US PMI report last week:
Nonetheless, a further marked deterioration in vendor performance limited operating capacity and reportedly held back output growth. https://www.markiteconomics.com/Public/Home/PressRelease/392edb090fd34a7cb68bf22a1ddb7789
In Australia, the Q1 construction work and private sector CAPEX reports will be released this week, ahead of Q1 GDP next week. Aus employment data for Apr disappointed last week with an overall decline in total employment for the month. The unemployment rate still declined due to a fall in participation.
This week, the US Treasury will settle $305bn in ST Bills, 10yr TIPS, and 2yr FRN’s, with a net paydown of -$5bn. The net new cash raised for the quarter to date is approx. $29bn. The US Treasury will also auction the 2yr, 5yr, and 7yr Notes this week which will settle next week on 1 Jun.
This week, approx. $15bn in ST Bills will mature on the Fed balance sheet and will be rolled over. Next Mon 31 May will be the US Memorial Day Holiday.
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 | May 17, 2021
The focus this week will be on the FOMC minutes, US housing data, and the global prelim PMI’s for May.
The upside surprise for US CPI in Apr dominated the news last week. Other data was generally in line with expectations, although PPI growth also came in higher. US retail sales “disappointed” with a 0% change after a 10% increase in the prior month. Of interest was the University of Michigan consumer sentiment result – consumer sentiment fell unexpectedly by 6pts (despite record stimulus, etc.). The fall was the result of higher inflation expectations and expectations for real income growth the weakest in five years. Despite negative mentions of buying conditions (for homes, vehicles, durables), the expectation is for spending to still advance – supported by rising employment/re-opening, stimulus, and savings. The rationale is interesting:
This combination of persistent demand in the face of rising prices creates the potential for an inflationary psychology, fostering buy-in-advance rationales and cost-of-living increases in wages. At present, these rationales remain relatively uncommon, and the power of corrective economic policies is now relatively potent.
Policy commitments to establish full employment while allowing inflation to meaningfully rise have never been attempted with the additional micro goals of equity and fairness across population subgroups. http://www.sca.isr.umich.edu/
This week in the US, the FOMC minutes will be released. There will also be several Federal Reserve Governors speaking during the week, including US Fed Vice Chair Clarida. Housing data will be in focus with permits (exp 1.77m SAAR), starts (exp 1.71m), and existing home sales (exp 6.09m) for Apr.
The prelim global PMI’s for May will also be released later in the week for the US, Europe, Japan, UK, and Australia. Input price pressures and supply chain disruptions will be of interest.
In Australia, the RBA will also release the latest minutes. Also out this week will be the Q1 wage price index (exp +0.5%), and the labour market survey for Apr (employment growth exp +15k). The Apr labour market survey will be the first since the end of a major business support program – the JobKeeper subsidy.
This week, the US Treasury will settle $426bn in ST Bills, Notes, and Bonds, raising approx. $37bn in new money. The net new cash raised for the quarter to date is approx. $34bn.
This week, approx. $24bn 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
