The Macro Outlook for w/c 29 January 2024

Key events this week – FOMC and BoE meetings, US non-farm payrolls, Aus Q4 CPI, Euro Area prelim CPI & GDP Q4

Recap from last week

There was more good news on US growth and inflation last week. US GDP growth came in higher than expected at +3.3% annualized in Q4, beating expectations for a moderation to +2%. GDP growth has not slowed as much as the FOMC expected. At the end of 2023, the median projection for GDP growth over 2023 was upgraded to +2.6% (range between +2.5% and +2.7%) – the actual year-on-year growth rate in the advance Q4 GDP release last week was +3.1%.

Importantly, against this backdrop of more buoyant growth, US PCE inflation continued to ease. Headline PCE inflation stayed at +2.6% over the year with the monthly pace rising to +0.2% as expected. This has again come in below the FOMC median projection for the 2023 inflation rate of +2.8% and is below the lower bound of the projection range (+2.7% to +3.2%). These projections were only updated at the recent Dec FOMC meeting – suggesting that inflation is still easing faster than the FOMC expected.  Annual core PCE inflation eased from +3.2% in Nov to +2.9% in Dec. The core PCE inflation rate also came in well below the FOMC median projection of +3.2% over the year ending Dec and well below the lower bound of the projection range (+3.2% to +3.7%).

The BoC and ECB kept policy settings unchanged. BoC deliberations shifted from whether policy is restrictive enough, to how long to maintain the current level of restrictive rates. The ECB noted that restrictive policy settings are helping to push down inflation. While inflation is expected to ease further, it was premature to discuss rate cuts at this meeting. The BoJ also kept policy settings unchanged. However, a more meaningful shift in policy was hinted at during the press conference. The BoJ could have enough information on wage growth by the Apr meeting to decide on a shift away from negative interest rates with the possibility of several interest rate increases to follow.

The Jan prelim PMIs among the G4 suggested an improvement in growth momentum at the start of 2024. Services output growth accelerated while manufacturing PMIs became less negative. The lengthening of lead times was a theme among manufacturing PMI reports in Jan – due to conflicts in the Red Sea. There was a general link between an improvement in headline manufacturing PMIs and a less severe contraction in the manufacturing output index. The US headline manufacturing PMI improved to above 50 in Jan – somewhat at odds with the weaker US regional manufacturing surveys.

Outlook for the week ahead

The FOMC meets this week and is broadly expected to keep policy settings unchanged at this meeting. Signaling on the outlook will be important, especially given better growth and inflation metrics, but we don’t expect to have a clear timing regarding the start of policy calibration. Despite the good inflation report for Dec, Governor Waller previously noted that the annual CPI revisions in the upcoming Jan report will be an important hurdle to confirming the inflation picture ahead of any policy changes. Governor Waller also noted that risks to the employment and inflation mandates have become more balanced – so more focus on labor market metrics could start to feature for the FOMC.

The US Jan labor market reports will be important later this week. While non-farm payrolls were elevated in Dec, the overall picture was mixed as weaker hiring and employment were offset by a fall in participation. Non-farm payrolls are expected to increase by +173k in Jan (+216k in Dec). Revisions to past payroll growth will stay in focus. The unemployment rate is expected to increase slightly to 3.8% (from 3.7%), which suggests either a softening in employment growth or a rebound in participation (or a mix of both). The level of job openings is expected to be little changed at 8.75m in Dec (an approximate vacancy rate of 5.3%). Governor Waller’s recent speech highlighted that a vacancy rate of 4.5% is an important benchmark for the outlook of labor market conditions.

The BoE will meet this week and is expected to keep policy settings unchanged.

Euro Area growth is expected to stay at a stalled pace while inflation continues to ease. Euro Area GDP growth for Q4 is expected to stay slightly negative at -0.1% over the quarter and at 0% over the year. The prelim Euro Area headline inflation rate for Jan is expected to ease to +2.8% (from +2.9% in Dec). Core inflation for the Euro Area is expected to ease to +3.2% (from +3.4% in Dec).

The Aus quarterly CPI for Q4 will be released this week ahead of the RBA meeting next week. Headline inflation is expected to slow to +0.8% over the quarter (from +1.2%) and to +4.3% over the year (from +5.4%).

The full suite of S&P global PMIs for Jan will be released, starting with manufacturing this week.

The US Treasury will provide its latest quarterly refunding announcement for Q1 and Q2 – on 29 and 31 Jan.

This week, the US Treasury will auction and settle approx. $690bn in ST Bills, Notes, Bonds, FRNs, and TIPS raising approx. $96bn in new money.

QT: Approx $16.4bn in ST Bills will mature on the Fed balance sheet and will be reinvested. Approx $27.6bn in ST Bills, Notes, Bonds, and FRNs will mature and roll off the Fed balance sheet.

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

The Macro Outlook for w/c 22 January 2024

Key events this week – Central banks; BoJ, BoC, and ECB, US PCE inflation, Prelim PMIs Jan

Recap from last week

As markets anticipate the start of the US rate-cutting cycle, US Fed Governor Waller provided important context and markers around the FOMC projections of (a median of) three rate cuts through 2024. He was clear on one thing; the FOMC will now likely have a more balanced focus between the dual mandates of 2% inflation and full employment as it moves to calibrate policy settings.

While the emphasis of policy since that time has been on pushing down inflation, given the strength of the current labor market the FOMC’s focus now is likely to be more balanced: keeping inflation on a 2 percent path while also keeping employment near its maximum level. Today, I view the risks to our employment and inflation mandates as being more closely balanced. Source: Governor Waller, Speech at The Brookings Institution

Labor demand has slowed through the tightening cycle via a lower vacancy rate (from a peak of 7.5% to 5.3% in Nov) while unemployment/involuntary separations have stayed low. According to Waller’s research, the US labor market is approaching a point where a lower vacancy rate could mean a notable increase in unemployment;

We showed in our research that if the vacancy rate continued to fall below 4.5 percent there would be a significant increase in the unemployment rate. So, from now on, the setting of policy needs to proceed with more caution to avoid over-tightening. 

Waller noted that economic activity and the labor market ‘was in good shape’ and he was ‘more confident than since 2021’ that inflation was on the path to 2%. To keep the economy on this trajectory, the FOMC can consider lowering the policy rate “to keep the real policy rate at an appropriate level of tightness” without the need to “cut as rapidly as in the past”. Data dependence remained the important caveat. On the subject of timing, more information would be needed “in the coming months” to confirm that inflation is on a sustainable path to 2%. One important hurdle on that path is the Jan CPI revisions (9 Feb) – along with key labor market reports.

US data last week was in line with the recent shape of US growth trends – led by robust consumer spending and weakness in manufacturing. Consumer retail sales growth was higher than expected in Dec. Anecdotes in the Fed Beige Book also noted strong consumer holiday spending and increased leisure travel. Consumer sentiment moved higher at the start of Jan and initial claims fell below +200k.

Manufacturing activity stayed weaker. The NY Empire State Manufacturing survey for Jan showed widespread contraction in orders and the Beige Book noted that nearly all districts reported decreases in manufacturing activity. Within the industrial production report, manufacturing output in Dec was up +0.1% in Dec.

US housing data was mixed as mortgage rates continued to ease. Home builder sentiment increased by more than expected but the recovery was uneven across the regions. Mortgage applications continued to grow. Housing permits were higher, housing starts were lower, and completions rose notably into the end of 2023. Existing home sales fell in Dec to a new pandemic low.

Piecing this together, the advance release of US GDP this week is expected to show that growth slowed to +2% in Q4 from the very fast pace of +4.9% in Q3.

Outlook for the week ahead

The main focus this week will be US PCE inflation. This is the preferred measure of inflation for the FOMC and a further slowing of inflation will be important for sentiment around the timing of rate cuts. US PCE inflation for Dec is expected to be +2.6% (unchanged from Nov) over the year and +0.2% over the month. Core PCE inflation is expected to slow to +3% in Dec from +3.2% in Nov and increase to +0.2% over the month (from +0.1% in Nov). The FOMC projections for 2023 year-end PCE inflation are; +2.8% headline and +3.2% core. The FOMC meets next week.

There will be several central bank meetings this week. Settings are expected to be unchanged however central banks may start to adjust guidance as inflation eases. The Bank of Japan is expected to keep policy settings unchanged. Last week, the Japanese national CPI continued to improve as headline and core inflation rates slowed.

The Bank of Canada is expected to keep policy settings unchanged. At the prior meeting, the BoC noted that there had been clearer signs that monetary policy was helping to moderate spending and relieve price pressures. The increase in Canada’s headline CPI in Dec was partly the result of gasoline price base effects. The trimmed mean inflation rate increased to +3.7% from +3.5% in Nov suggesting some persistence in underlying inflation. The latest BoC Business Outlook Survey noted some softening in firm’s output price growth, however, wage growth was ‘expected to ease only gradually’.

The ECB is also expected to keep policy settings unchanged at this meeting. At the last meeting, the ECB noted that inflation had eased, but that domestic price pressures remain elevated. The Euro area CPI for Dec was confirmed at +2.9% – higher than in Nov but a ‘temporary’ increase was expected at the last ECB meeting. Underlying inflation continued to ease, and slowed to +3.4% in Dec.

Finally, the prelim S&P PMIs for Jan will be released this week providing some insight into growth momentum at the start of 2024.

This week, the US Treasury will auction and settle approx. $496bn in ST Bills raising approx. $49bn in new money. The US Treasury will also auction the 7-Year, 5-Year, and 2-Year Notes and the 2-Year FRN this week – to settle at the end of the month (next week).

QT this week: Approx $12.2bn in ST Bills will mature on the Fed balance sheet and will be reinvested. Approx $2bn in ST Bills will mature and roll off the Fed balance sheet.

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

The Macro Outlook for w/c 15 January 2024

Key events this week – US retail sales & housing data, US Fed Governor Waller speech, CPI; Japan, UK, Eurozone, and Canada

Recap from last week

Speeches by Fed officials reiterated that a range of policy outcomes were still possible – pushing back on markets and the degree of easing so far priced in. The message from Dallas Fed President Logan (speech here) and NY Fed President Williams (speech here); there has been ‘meaningful’ progress on inflation, and data is moving in the right direction, however, we are still ‘a ways from our price stability goal’ and will need to keep a sufficiently restrictive stance ‘for some time’ to ‘fully achieve’ the 2% inflation target. Some frustration was expressed around the easing of financial conditions potentially making the job harder to bring down inflation.

Both Williams and Logan discussed the path of QT suggesting that changes to QT may be on the table, however, Williams pushed back on an imminent need to slow the pace of QT.

US CPI came in slightly higher than expected – indicating less progress on inflation this month. US headline CPI was +3.3% in Dec, up slightly from +3.1% in Nov. Core CPI eased to +3.9% from +4% in Nov. Parts of underlying/core inflation have stayed stickier this month (shelter). The trimmed mean inflation slowed to +3.9% over the year, as the monthly pace accelerated to +0.35% in Dec. The PPI report for Dec reflected faster easing in some prices with final demand prices falling by -0.1% over the month and staying at around +1% over the year. Core PPI also came in lower than expected. The PPI result suggests that the upcoming PCE price index (Fed preferred inflation measure) is likely to continue to improve in Dec.

After the US CPI and PPI reports, markets were pricing rate cuts to start in Mar with potentially seven further rate cuts through the year (source; CME at 15 Jan).

Outlook for the week ahead

So far, the tightening cycle in the US has correlated with an easing in the supply/demand imbalance in the labor market and a more rapid improvement in inflation over the last six months. Growth has slowed from the fast pace of Q3 but is still tracking at around +2.2% for Q4 (latest Atlanta Fed GDPNow 10 Jan). The focus this week shifts to US retail sales and housing data to round out the growth picture at the end of 2023.

US retail sales are expected to increase by +0.4% in Dec, up from +0.3% in Nov.

Housing market data for Dec is expected to show further stabilization in activity as mortgage rates remain below recent peaks. New housing permits are expected to increase to 1.47m (SAAR basis) and housing starts are expected to be somewhat lower at 1.415m (SAAR). Existing home sales are expected to increase slightly to 3.83m on an annualized basis.

There will be a range of Fed speeches throughout the week. The focus will be on Fed Governor Waller speaking on the Economic Outlook at the Brookings Institution. The Q&A from his Nov speech (“Something appears to be giving”- here) was notable for suggesting that if inflation continues falling for several more months, the policy rate could be lower. Waller was unsure whether the FOMC had done enough to achieve price stability, and noted that “data we receive over the next couple of months will help answer that question”. We’ll be looking to Governor Waller this week to review the data since that speech, especially the latest inflation numbers, and what he thinks it means for the path of policy, in preparation for the FOMC meeting at the end of Jan.

The path of inflation remains a key focus outside of the US with CPI reports for; Canada, the UK, the Euro Area (final release), and Japan. Inflation is expected to continue to ease.

The Aus labor market survey for Dec will be released this week. Net employment growth is expected to slow to +16k in Dec, from +61k in Nov. The unemployment rate is expected to stay unchanged at 3.9% while participation is expected to fall slightly.

Growth data out of China will also be in focus with Q4 GDP, industrial production and retail sales for Dec to be released this week.

This week, the US Treasury will auction and settle approx. $539bn in ST Bills, Notes, and Bonds raising approx. $29bn in new money. The US Treasury will also auction the 10-year TIPS and the 20-year Bond this week – to settle at the end of the month.

QT this week: Approx $9.3bn in ST Bills will mature on the Fed balance sheet and will be reinvested. Approx $27.4bn in ST Bills, Notes, Bonds, and TIPS will mature and roll off the Fed balance sheet.

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

The Macro Outlook for w/c 8 January 2024

Key events this week – US CPI, Aus monthly CPI & retail sales

Recap from last week

Details of the latest FOMC deliberations provided some balanced commentary. The change in guidance to include ‘any additional tightening’ was intended to relay that while the FFR was likely at or near its peak, the door remained open to further tightening if appropriate. Other commentary highlighted the possibility of keeping the “target range at its current value for longer than they currently anticipated”, depending on how the economy continued to evolve. Concerns noted that the easing in financial conditions “beyond what is appropriate” could make it more difficult to reach the inflation goal. Despite the more balanced commentary, the SEP still reflects a consensus around several rate cuts for 2024, amid an “unusually elevated degree of uncertainty”;

In their submitted projections, almost all participants indicated that, reflecting the improvements in their inflation outlooks, their baseline projections implied that a lower target range for the federal funds rate would be appropriate by the end of 2024. Source: FOMC Minutes, 12-13 Dec 2023

The decision to keep rates unchanged in Dec was still deemed the appropriate path; job gains were slowing, growth had slowed from the fast pace of Q3, and generally tighter financial conditions were still expected to weigh on activity, hiring, and inflation. This remains the context going into 2024.

US labor market conditions continued to ease in Dec. The current labor market dynamic is one of resilience though; job growth is easing, but unemployment has stayed low.  In Dec, non-farm payrolls came in stronger than expected at +216k, while the two prior months were revised lower by -71k. Annual growth in payrolls slowed further to 1.75% in Dec, the slowest pace of growth of the last year, and is now just above the 5-year pre-pandemic average. The household survey was less encouraging as employment fell markedly in Dec, reversing the stronger Nov gains. The unemployment rate was unchanged at 3.7% though (below the FOMC median projection of 3.8% for the year-end) due to the accompanying fall in participation. Average weekly hours were little changed. Annual average hourly earnings growth ticked up slightly to +4.1% in Dec but growth has consistently slowed from the +4.8% pace of a year ago.

The US PMI survey data for Dec showed that manufacturing activity remained weaker – this was consistent across both the ISM and S&P surveys. The PMIs provided a mixed view of momentum across services, however, growth remained positive across both surveys. At the end of the week, the Atlanta Fed GDP Nowcast ticked up to +2.5% for Q4 – led by growth in personal consumption expenditures (vehicle sales for Dec).

The prelim Eurozone CPI ticked higher as expected in Dec. Euro area inflation is expected to be +2.9% in Dec, up from +2.4% in Nov. Core CPI is expected to come in slightly lower than expected at +3.4%.

The S&P Global PMIs for Dec were more constructive into year-end. While global manufacturing activity stayed in mild contraction, it was offset by another moderate lift in services growth momentum.

Outlook for the week ahead

Inflation will be the main focus this week with US, Aus, and China CPI reports out this week.  

US CPI for Dec is expected to continue to confirm the disinflation trend established during the latter part of 2023. In the latest FOMC minutes, upside risks to inflation were seen as having “diminished” but it was noted that inflation is still well above the Committee’s longer-run goal. Headline CPI in Dec is expected to be +3.2%, up slightly from +3.1% in Nov. Over the month, CPI is expected to increase by +0.1% in Dec, up from 0% in Nov. Core CPI is expected to ease to +3.8% over the year in Dec from +4% in Nov and is expected to increase by +0.2% over the month, down slightly from +0.3% in Nov.

The Aus monthly CPI series for Nov will be released, ahead of the more comprehensive quarterly CPI update for Q4 due at the end of the month. In Nov, headline CPI is expected to have eased to +4.4% from +4.9% in Oct. The Nov retail sales are expected to increase by +1.2% over the month after falling by -0.2% in Oct.

This week, the US Treasury will auction and settle approx. $429bn in ST Bills, raising approx. $13bn in new money. The US Treasury will also auction the 3-year and 10-year Notes and the 30-year Bond this week – to settle next week.

QT this week: Approx $9bn in ST Bills will mature on the Fed balance sheet and will be reinvested. Approx $1.4bn in ST Bills will mature and roll off the Fed balance sheet.

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

The Macro Outlook for w/c 1 January 2024

Key events this week – FOMC Minutes, US Non-Farm Payrolls, Euro Area CPI, PMI’s for Dec

Recap from last week

US PCE inflation for Nov continued to ease at a faster-than-expected pace. We recently noted that US inflation has eased more than expected through the latter part of 2023, prompting the FOMC to revise its inflation projections lower at the Dec meeting. In Nov, the headline PCE inflation rate slowed to +2.6% while the core PCE inflation rate slowed to +3.2%. Both of these measures are already at or below the lower full-year FOMC inflation projection submitted in Dec. Importantly, both annual and short-term measures continue to indicate that the path of inflation and underlying inflation remains lower.

Despite the high inflation and rising rate environment of the last several years, US economic growth has been resilient and labor market conditions have stayed remarkably strong. While the growth and unemployment situation is expected to weaken in 2024, FOMC projections reflect a ‘soft landing’ scenario for the US. The FOMC meeting in Dec signaled a potential shift in the rates cycle – to align rates with further expected progress on lower inflation and a slower growth environment in 2024. We’ll find out more details about the FOMC deliberations and signaled policy shift when the Minutes of the Dec FOMC meeting are released this week.

The latest update to the Atlanta Fed GDPNowcast – a running estimate of US GDP growth – showed Q4 growth slowed to +2.3% from +2.7% based on the Nov personal spending and residential investment data. The main contributor was the slower pace of personal spending growth in Nov of +0.2% (expecting +0.3%) while spending growth in Oct was revised lower to +0.1%. US residential investment spending data was mixed – but showed sentiment stabilizing amid falling mortgage rates.

Outlook for the week ahead

We are straight back into important economic data this week with a comprehensive update on the US labor market. The resilience of the US labor market has so far surprised many – and it remains an important element of the current economic resilience.

The US labor market data in Dec is expected to show more of the same – ongoing tight conditions while labor supply and demand conditions come into better balance. In Dec, US non-farm payroll growth is expected to slow to +163k total payrolls (from +199k in Nov). The unemployment rate is expected to edge slightly higher to 3.8% in Dec (from 3.7% in Nov). The FOMC projection for 2024 reflects an expectation that the unemployment rate will end the year at 4.1% (median projection) within a potential range of a 3.9% to 4.5% unemployment rate throughout the year.

US average weekly hours are expected to stay at 34.4 in Dec. Average hourly earnings growth is expected to slow to +0.3% over the month and to +3.9% over the year. The Nov JOLTS survey (lags by one month) is expected to show little change in the level of job openings of around 8.8m.

The US ISM manufacturing and services PMIs for Dec will be released. Stronger services growth momentum is expected to offset continued sluggish manufacturing conditions.

The prelim Euro Area CPI for Dec is expected to rebound slightly. It was noted at the latest ECB meeting, that inflation was “likely to pick up again temporarily in the near term”. Euro Area headline inflation is expected to increase by +3% in Dec, up from +2.4% in Nov. Core CPI is expected to remain little changed at +3.5%.

Finally, the full suite of global S&P PMI’s for Dec will be released providing a broad update on growth momentum through to the end of Q4. The prelim release of G4 PMIs in Dec showed a mixed picture. The prelim data was earlier than usual so could see some revisions in the final release. To recap the prelim Dec results; there was a lift in services growth momentum in the US, Japan, and the UK, but services activity continued to contract in the Eurozone, especially in France. The generally stronger services growth helped to offset persistent weakness in manufacturing across all the G4 economies in Dec.

This week, the US Treasury will auction and settle approx. $597bn in ST Bills, Notes, and Bonds, raising approx. $73bn in new money.

QT this week: Approx $10bn in ST Bills will mature on the Fed balance sheet and will be reinvested. Approx $33bn in ST Bills, Notes, Bonds, and FRNs will mature and roll off (redeemed) the Fed balance sheet.

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

The Macro Outlook for w/c 18 December 2023

Key events this week – US PCE inflation, CPI reports for the UK, Canada, Japan, and the Euro Area (final), BoJ meeting, RBA minutes

Recap from last week

Communication and signaling from the FOMC diverged from other central banks last week. The FOMC kept policy settings unchanged but altered its forward guidance providing the clearest signal yet that it is shifting (or intends to shift) its policy bias. The current market pricing of rate cuts for 2024 was addressed by the Summary of Economic Projections (SEP) which shows a median of three (3) cuts to the FFR next year. US PCE inflation has eased more than expected through the latter part of 2023 and the projected final inflation rate over the year was revised much lower to +2.8%, from +3.3% expected only back in Sept. While US growth has been robust and unemployment has stayed low, both are expected to weaken in 2024. The SEP is saying that if inflation continues to ease, growth slows, and unemployment rises in line with expectations, then rates will need to be calibrated to the slower growth/lower inflation environment. The press conference statement maintained a general theme that the inflation fight was not yet done, but Chair Powell tempered this sentiment noting that ‘our policy rate is likely at or near its peak for this tightening cycle’.  

US data last week suggested that aggregate demand likely improved in Nov and Dec. The latest update to the Atlanta Fed GDPNowcast upgraded the pace of US growth so far in Q4 from +1.2% to +2.6%. Retail sales growth was higher than expected at +0.3% (which included a large drag on nominal sales from falling gasoline prices), mortgage applications continued to rebound (mostly, but not all due to refi activity), and initial jobless claims (SA) eased back to +202k. US CPI continued to ease but at a slower pace than in Oct, as energy prices fell. Core CPI inflation remained unchanged at +4% in Nov.

The ECB kept policy settings and guidance unchanged and ECB President Lagarde pushed back on market expectations of rate cuts;

“We did not discuss rate cuts at all. No discussion, no debate on this issue.” ECB President Lagarde

Euro area growth concerns were more muted than in the last meeting despite the negative GDP print in Q3 (explained by a drag from inventories). The ECB remained concerned about domestic sources of inflation, noting that important wage data would not be available until Q1 2024. However, ECB President Lagarde outlined a more favorable view on the progress of disinflation, emphasizing new projections that see inflation at +2.1% in 2025, not 2026.

The BoE kept policy and guidance unchanged. The decision remained at 6-3, with three members preferring to raise the bank rate by 25bps.

The prelim PMIs among the G4 (plus Aus) for Dec were mixed – but the prelim data is earlier than usual so could see some revisions. There was a lift in services growth momentum in the US, Japan, and the UK, but services activity continued to contract in the Eurozone, especially in France. The generally stronger services growth helped to offset persistent weakness in manufacturing. Both the headline manufacturing PMI and the manufacturing output indexes fell into contraction across all countries in the prelim Dec release.

Outlook for the week ahead

Inflation data is a key focus this week.  The US PCE inflation data for Nov will help to determine whether the pace of disinflation continued to outperform FOMC forecasts.  Annual headline PCE inflation is expected to slow to +2.8% in Nov from +3% in Oct and slow to 0% over the month. Some forecasts are expecting the headline PCE inflation rate to decline over the month. Core PCE inflation is expected to slow to +3.4% in Nov and stay around +0.2% over the month.

There will be a broad range of US data which will provide a view on the pace of aggregate demand in Q4 and whether momentum is continuing to improve from the slow start to the quarter. This includes personal consumption expenditures (expected to increase by +0.3% in Nov, up from +0.2% in Oct) and personal income (expected to increase by +0.4% in Nov, up from +0.2% in Oct). The final University of Michigan consumer sentiment for Dec will be released and is expected to show that the strong rebound in sentiment from the prelim release was sustained through the month. US housing data for Nov will be released this week – permits, starts, existing home sales and new home sales are all expected to moderate further. Further regional manufacturing survey data and durable goods orders for Nov are also out this week. Finally, the third version of US GDP for Q3 is expected to confirm growth of +5.2%.

Global inflation data is broadly expected to show continued progress on disinflation. CPI data for the Euro area is expected to confirm that headline inflation slowed to +2.4% in Nov and fell by 0.5% over the month. Canada’s CPI rate is expected to slow to +2.9% over the year in Nov and by -0.2% over the month. UK inflation is expected to slow to +4.4% over the year, and by +0.2% over the month in Nov. Finally, Japanese National CPI is expected to slow, with the main BoJ measure of core CPI ex fresh food expected to slow to +2.5% over the year.

The BoJ will meet this week on policy. Policy settings are expected to be unchanged at this meeting. Updates to forecasts are not due until the next meeting.

Finally, the RBA minutes will be released. The Board kept the cash rate on hold in Dec for two main reasons; not much news during the inter-meeting period (the monthly inflation series doesn’t provide enough insight into services inflation) and holding the cash rate would allow some time for the latest rate hike to take effect. The minutes should provide some detail about the case to hold rates steady. The Aus labor market report for Nov showed that the economy is still generating strong job growth. However, the unemployment rate ticked higher to 3.9% from 3.8% due to even stronger growth in the size of the labor market – from the latest increase to another new series high in the participation rate.

This week, the US Treasury will auction and settle approx. $429bn in ST Bills, with a net paydown of -$3bn.

The US Treasury will also auction the 20-Year Bond and 2-Year FRN this week – to settle over the next two weeks.

QT this week: Approx $2.1bn in ST Bills will mature on the Fed balance sheet and will be reinvested. Approx $1.7bn in ST Bills will mature and roll off (redeemed) the Fed balance sheet.

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

Happy holidays to all!