by Kim | Dec 11, 2023
Key events this week – Central bank meetings; FOMC, BoE, ECB, and SNB, US CPI & retail sales, Aus labour market survey, S&P prelim PMIs Dec
Recap from last week
Robust US labor market conditions amid easing inflation are continuing to support households while the FOMC is expected to maintain restrictive policy settings.
US non-farm payrolls rebounded by more than expected in Nov and this was broadly a good jobs report. Nonfarm payrolls increased by +199k (expecting +180k) versus +150k in Oct (unrevised). From the household survey; the notably stronger increase in employed persons over the month more than offset the increase in labor supply from higher participation and population growth – and the unemployment rate fell back to 3.7%. Average hourly earnings rebounded to +0.35% over the month and stayed little changed around +4% over the year. The average workweek also increased slightly to 34.4 hours.
Despite the good result for the month, growth has slowed from the pandemic highs across payrolls, employment, job openings, and average hourly earnings. The fall in job openings was more pronounced in Oct (lagging data) – with the job opening rate falling to 5.3 (from 5.6 in Sep). The fact that the rate of job openings continues to fall while the layoff and discharge rate remains at a series low of 1.0 will likely be a positive sign for the FOMC.
The prelim University of Michigan consumer survey for Dec showed a notable rebound in consumer sentiment amid falling inflation expectations and emerging hopes that US elections next year will be favorable for the economy;
Consumer sentiment soared 13% in December, erasing all declines from the previous four months, primarily on the basis of improvements in the expected trajectory of inflation. Source: University of Michigan Consumer Sentiment Prelim, Dec 2023
Recent lower US inflation prints have also supported a near-term lift in real personal disposable income growth – which, together with solid labor market conditions, is also likely to be supportive of improving consumer sentiment.
Global growth was slower in Q3. Euro Area Q3 GDP growth was revised lower to -0.1%. However, this was the result of a negative contribution from the change in inventories which offset an improvement in household spending growth. Japanese Q3 GDP growth was revised lower to -0.7% based on a larger drag from the change in inventories, but household spending and the net export contribution remained weak. Aus Q3 GDP growth was slower than expected at +0.2% and household consumption growth stalled. The BoC policy meeting also noted that the slowdown in the Canadian economy was reducing inflationary pressures, as growth stalled over the middle quarters of the year.
Looking forward into Q4, the Global PMIs for Nov indicated that the manufacturing downturn continued to ease. There was a lift in momentum at the composite PMI level in Nov – led by an improvement in manufacturing conditions (though still in slight contraction) and a continued modest expansion in services.
Outlook for the week ahead
This will be a big week of central bank meetings and data in the lead-up to the end of the year.
Across many developed market economies, inflation is coming down, and growth is slowing. Markets have begun pricing in more and earlier rate cuts for 2024. Central bank meetings this week should provide some insight into the expected path of policy rates over the next year – the outlook is likely to remain cautious and uncertain, reinforcing that it is too early to call the fight on inflation done.
The FOMC is expected to keep policy settings unchanged. The focus of the meeting will be Fed Chair Powell’s press conference and the latest Summary of Economic Projections (SEP). The SEP is expected to provide important signaling on the change in the path of policy rates amid slowing inflation and low unemployment conditions. The FOMC is still likely to reinforce the position that it is not yet done on the inflation fight and Chair Powell has recently cautioned that it would be “premature” to “speculate on when policy might ease”.
During the two-day FOMC meeting, the US CPI for Nov will be released. Headline CPI is expected to be flat over the month and slow to +3.1% over the year as energy prices continue to fall. Core inflation is expected to increase by +0.3% over the month and stay unchanged at +4% over the year. US retail sales for Nov will be released after the meeting and are expected to fall slightly by -0.1% over the month.
The ECB is expected to keep policy settings unchanged. Recent speeches have suggested that the more notable easing in inflation over the last few months could make further policy tightening unlikely.
The BoE and SNB are expected to keep policy settings unchanged.
The Aus labour market survey for Nov is expected to show net employment growth slow to +1k over the month and the unemployment rate to lift to 3.8% (from 3.7% in Oct). The RBA kept policy rates on hold last week after increasing the cash rate at the Nov meeting due to concerns over persistent domestic inflation.
The final round of PMIs for the year will be released this week. The prelim G4 (plus Aus) prelim PMIs for Dec will provide some insight into the pace of growth in manufacturing and services in Q4.
This week, the US Treasury will auction and settle approx. $537bn in ST Bills, Notes, and Bonds raising approx. $63bn in new money.
QT this week: Approx $3.9bn in ST Bills will mature on the Fed balance sheet and will be reinvested. Approx $17.5bn in ST Bills, Notes, and Bonds 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
by Kim | Dec 4, 2023
Key events this week – US non-farm payrolls, RBA & BoC meetings, GDP Q3; Aus, Japan and the Euro Area
Recap from last week
Progress on slowing US and Euro Area inflation has reignited optimism for a policy shift with markets pricing a larger number of rate cuts in 2024.
In the US, better-than-expected progress on PCE inflation, amid signs of easing growth momentum and some dovish central bank signaling, saw up to five rate cuts priced for 2024 and commencing as early as Q1. US PCE headline inflation eased more than expected to +3% over the year in Oct – which is now below the lower end of the current FOMC projections for the year (PCE inflation projection range is +3.1% to +3.8%). Core PCE inflation slowed as expected to +3.5% in Oct, with the monthly pace slowing to +0.2%. Measures of underlying inflation, such as core services ex shelter slowed more notably in Oct to +3.2% from +3.5% in Sept.
The speech from Fed Governor Waller garnered the most attention before the PCE inflation report. He was ‘increasingly confident’ that policy was tight enough (signaling not likely to see another hike). While “monetary policy has to work now to get inflation back to 2%”, he did outline a potential path for a Fed policy shift, as a means to align rates with slower inflation;
If the decline in inflation continues “for several more months … three months, four months, five months … we could start lowering the policy rate just because inflation is lower,” he said. “It has nothing to do with trying to save the economy. It is consistent with every policy rule. There is no reason to say we will keep it really high.” (Source: Reuters, 29 Nov 2023)
The FOMC will need to manage the risk that easing policy could slow the progress of bringing down inflation. For now, core inflation remains well above the 2% target and unemployment remains historically low. There are signs that growth is slowing from the robust pace of +4.9% in Q3 and the Atlanta Fed GDP Nowcast for Q4 did take a step down to 1.2% last week on slower personal spending growth, but it’s too early to call. Fed Chair Powell sought to address the enthusiasm for slowing inflation leading to a policy pivot;
“It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease. We are prepared to tighten policy further if it becomes appropriate to do so.” US Fed Chair Powell, Opening Remarks, 1 Dec 2023
The prelim Euro Area CPI for Nov also slowed more than expected. Headline CPI slowed to +2.4% in Oct with the monthly pace falling by -0.5% led by falls in energy and services prices. Core CPI also slowed by more than expected to +3.6% (from +4.2% in Oct). The slowing inflation seems to be more consistent with stalling growth in the Euro Area.
The monthly Aus inflation indicator eased by more than expected with headline inflation slowing to +4.9%. The core trimmed mean measure slowed slightly to +5.3% suggesting that inflationary pressures in the center of the distribution remain broad. The tradable versus non-tradable view of inflation will likely reinforce the RBA governor’s view that inflation has become more domestically focused. Non-tradable inflation has eased from a peak of +7.7% in Jan 2023 to +6% in Oct.
Outlook for the week ahead
US labor market data will be the key focus this week. It will be an important and timely data release to help round out the view of the US economy as we look for signs of moderating demand and further easing of wage growth ahead of next week’s CPI for Nov and the FOMC meeting on 12-13 Dec.
US non-farm payrolls are expected to rebound to +180k in Nov after weaker growth in Oct of +150k (impacted by labor disputes). The unemployment rate is expected to stay unchanged at 3.9%. Average weekly earnings growth is expected to pick up slightly to +0.3% over the month but stay around 4% over the year. The Oct (lagging) JOLTS data is expected to show a continued slowing in labor demand with job openings easing to 9.4m.
The RBA will meet this week and is expected to keep policy rates unchanged at 4.35% after hiking by 25bps at the previous meeting. Since the last meeting, RBA Governor Bullock has noted that the nature of inflation in Aus has become “increasingly homegrown and demand-driven”, highlighting the role of monetary policy in addressing inflation. Later in the week, Aus Q3 GDP is expected to show that growth slowed to +0.3% over the quarter (from +0.4% in Q2) and slowed to +1.7% over the year.
The BoC will meet this week and is expected to keep policy rates unchanged at 5%. At the last meeting, the Governing Council noted concerns over persistent underlying inflation (with a special note on the war in Israel and Gaza as a new source of geopolitical uncertainty) – but since then headline and core measures of inflation have continued to ease. Last week, Q3 GDP declined by -0.3% (expecting growth to be flat) as exports declined and household consumption growth stalled.
The second release of Japanese Q3 GDP is expected to confirm the -0.5% contraction (from +1.2% in Q2). The fall in GDP was led by the change in inventories which offset a muted contribution from household consumption, private investment, and net export growth.
The second release of the Euro Area Q3 GDP is also expected to confirm growth stalling at -0.1% in Q3.
The remainder of the S&P Global Services PMI’s for Nov will be released this week.
The US Treasury will auction and settle approx. $429bn in ST Bills raising approx. $6bn in new money.
QT this week: Approx $3.7bn in ST Bills will mature on the Fed balance sheet and will be reinvested. Approx $3.1bn 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
by Kim | Nov 27, 2023
Key events this week – Inflation; US PCE Inflation, Euro Area CPI, and Aus CPI, RBNZ policy decision, US Fed-speak including Fed Chair Powell
Outlook for the week ahead
Progress on inflation will be a key theme in the week ahead.
US PCE inflation for Oct will be released this week. Headline PCE inflation for Oct is expected to slow to +3.1% over the year (from +3.4% in Sep) and slow to +0.1% over the month (from +0.4% in Sep). Core PCE is expected to slow to +3.5% over the year (down from +3.7% in Sep) and slow to +0.2% over the month (from +0.3% in Sep).
If PCE inflation slows as expected in Oct, it will be at the lower end of the range (and just below the median) of the current FOMC inflation projections for the year. The current FOMC projection for headline PCE over 2023 is between +3.1% and +3.8% and the core PCE inflation projection is between +3.5% and +4.2%. The latest FOMC minutes continued to reiterate that the Committee would need to see more data to be confident that inflation was “clearly on a path to the 2% objective”. Despite restrictive policy settings placing downward pressure on inflation and economic activity, inflation remains “unacceptably high”. It was noted that core inflation had come down somewhat in recent months with positive progress on core goods inflation and a gradual easing of shelter inflation. So far though, “there had only been limited progress on bringing down inflation in core services ex-shelter” – this is Fed Chair Powell’s favored view of the underlying trend of inflation.
It will be the last week of Fed speeches before the blackout period ahead of the FOMC meeting on 12-13 Dec. There will be several Fed speeches of interest this week, including Fed Chair Powell (Discussion), Governor Waller (Econ Outlook), and Governor Bowman (Mon Pol and the Econ).
Other US data out this week will provide further insight into the growth outlook for Q4. Personal income and spending data for Oct will be released. Income growth is expected to stay around +0.2% over the month while spending is expected to slow to +0.2% in Oct from +0.7% in Sep. The ISM manufacturing PMI is expected to show manufacturing activity continued to stall in Nov.
The prelim Euro area inflation for Nov is expected to ease further. Headline inflation is expected to slow to +2.8% over the year from +2.9% in Oct. Core inflation is expected to ease to +3.9% over the year (from +4.2% in Oct).
The Aus monthly CPI for Oct is expected to stay relatively elevated at +5.5% (from +5.6% in Sep). The latest RBA minutes reflected the debate over the decision to raise the cash rate by a further 25bps in Nov. The decision was based on the risks arising from the outlook for inflation to be stronger than had been previously expected. Concerns were raised over resilient domestic demand, higher underlying inflation, and “growing signs of a mindset among businesses that any cost increases could be passed onto consumers”. This was seen as a key challenge to the task of bringing inflation back to target in a reasonable timeframe.
The RBNZ will meet this week and is expected to keep policy settings unchanged.
The S&P Global PMIs for Nov will begin to be released later this week. Last week, the prelim G4 (incl Aus) PMIs for Nov showed that services momentum was slightly improved while manufacturing PMIs were in contraction. Overall, only the US and UK PMIs indicated expansion across private sector activity. Activity slowed to a stalled pace in Japan, the contraction slowed somewhat across the Eurozone, and the contraction in private sector activity gathered pace in Australia in Nov.
This week, the US Treasury will auction and settle approx. $657bn in ST Bills, Notes, Bonds, and TIPS raising approx. $101bn in new money.
QT this week: Approx $18bn in ST Bills, Notes, and Bonds will mature on the Fed balance sheet and will be reinvested. Approx $29.5bn in Notes and Bonds 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
by Kim | Nov 20, 2023
Key events this week – US Thanksgiving Holiday, Minutes; FOMC, RBA, & ECB, Inflation; Japan & Canada, S&P Prelim PMIs Nov
Recap from last week
After a relatively big week of US data, the latest Atlanta Fed GDP Nowcast showed the US Q4 growth estimate slowing slightly to +2% (SAAR) from +2.2% where it started the week, and emphasizing that US Q4 growth is so far on a slower trajectory than in Q3.
US retail sales growth was softer in Oct falling by -0.1% after stronger (revised higher) growth of +0.9% in Sep. Industrial production output fell in Oct, as manufacturing output was impacted by labor disputes (motor vehicle production -10%). The first US regional manufacturing surveys for Nov suggested that manufacturing activity likely stayed at a stalled pace. Housing data was mixed. Of note was the sharp fall in home builder sentiment for Nov – approaching the lows of the pandemic. Permits and starts came in slightly better than expected. Mortgage applications increased modestly as 30-year fixed mortgage rates remained elevated at around 7.6%. Initial and continuing claims have been rising over the last four weeks.
Importantly, the Oct US CPI report showed that the downward trend in inflation resumed after progress stalled during Aug and Sep. The slowdown in headline inflation to +3.2% was led mostly by falling energy prices. Progress on core inflation remains slower. With measures of underlying inflation still running at between +3.8% and +4.1% over the year, and between +0.2% and +0.3% over the month, the FOMC is likely to stay in the camp of “still a long way to go on inflation” for now. Fed speeches last week mostly reflected the position that it was too early to declare victory over inflation. In an interview last week, Chicago Fed President Goolsbee noted that the task to get inflation down to 2% is “not done yet”, but also noted that “the moment of arguing how high should rates go is going to fade to how long should we keep rates at this level as inflation is coming down”. Markets have moved ahead in pricing four rate cuts commencing in May 2024.
Globally, there were more signs of growth slowing and inflation easing. Euro Area GDP growth for Q3 (second estimate) stayed at -0.1% over the quarter. Euro area headline CPI slowed to +2.9%, with the monthly rate slowing to +0.1%. Euro area core inflation also slowed to +4.2% over the year and to +0.2% over the month. Eurozone industrial production fell more than expected by -1.1% in Sep confirming the weakness in survey output measures. The prelim Japanese Q3 GDP contracted more than expected by -0.5%. UK inflation also slowed more notably over the year from +6.7% in Sep to +4.6% in Oct.
Outlook for the week ahead
It will be a short week due to the US Thanksgiving Holiday.
In the US, the focus will be on the FOMC Minutes. Rates were unchanged at the last meeting as the FOMC noted that restrictive policy settings were placing downward pressure on activity and inflation allowing the FOMC to now proceed carefully. At the time, the press conference was interpreted by some as signaling a potential shift to a more prolonged pause, or even an end to the hiking cycle.
US existing home sales for Oct are expected to fall to 3.9m (SAAR basis) from 3.96m in Sep. Durable goods orders are also expected to fall by -3.2% after rising by +4.6% in Sep (due to large non-defense aircraft orders). Initial jobless claims will remain in focus.
The RBA minutes of the latest meeting will be released this week. The RBA hiked rates by a further 25bps at the last meeting and the minutes should provide some insight into that decision. RBA Governor Bullock will give a speech this week covering the latest policy decision and the progress on implementing recommendations from the RBA review.
Inflation data for Canada and Japan will be out this week. Canadian headline inflation is expected to ease more notably from +3.8% to +3.2% in Oct. The trimmed mean is also expected to ease further from +3.7%. At the prior meeting, the BoC had expressed some concern over the trend of underlying inflation. Japanese headline inflation is expected to be little changed at +3% in Oct, while core inflation ex fresh food and energy is expected to stay elevated at +4.2%.
Finally, the prelim S&P PMI reports for Nov will be released this week. These will provide some insight into the latest manufacturing and services growth momentum among key G4 economies. The PMI surveys in Oct showed a slowdown across service momentum while manufacturing was broadly unchanged staying in moderate contraction. US output PMIs had stayed positive across both manufacturing and services in Oct.
This week, the US Treasury will auction and settle approx. $480bn in ST Bills and FRNs raising approx. $76bn in new money. The US Treasury will also auction the 10-year TIPS and 20-year Bond this week – both will settle next week.
QT this week: Approx $12.8bn in ST Bills will mature on the Fed balance sheet this week and will be reinvested.
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 13, 2023
Key events this week – US CPI & retail sales, Aus labor market & wage price index, inflation; UK, Euro area, central bank speeches
Recap from last week
Despite a light data week, there were several important points around some key themes.
Central banks have reiterated concerns over balancing progress on inflation with a slowing growth outlook. The latest was the RBA, which raised the cash rate last week by 25bps noting slower-than-expected progress on inflation. Despite this concern, wording changes in the guidance to “whether further tightening of monetary policy is required” (from “some further tightening of monetary policy is required”) were interpreted as marking an end to the hiking cycle. The RBA Statement on Monetary Policy release (SoMP – Nov 2023) saw inflation forecasts revised higher through the forecast period. GDP growth is expected to slow amid weaker expected growth in household consumption.
A speech by US Fed Chair Powell was consistent with the last FOMC press conference but this speech was seen as having a more hawkish tone. The FOMC will continue to move carefully to balance the “risk of being misled by a few good months of data” with the risk of overtightening and will evaluate the totality of the data to determine the extent to which additional policy firming may be appropriate. Fed Chair Powell continued to characterize the process of getting inflation down to 2% as having “a long way to go”, as improvements in labor supply were helping to bring the labor market back into balance. Chair Powell also noted that the FOMC is not confident that it has achieved the stance of monetary policy that is “sufficiently restrictive”.
Global data continued to reflect the impact of tighter monetary policy conditions. This was reflected in the further slowdown in the S&P Global PMI for Oct. The global composite PMI slowed to 50 in Oct from 50.5 in Sep. This stalling in momentum was the result of slower global services growth and manufacturing output growth that has begun to weaken again. Despite the lackluster conditions, optimism in future activity was little changed and stayed at an elevated level. The US S&P PMIs for Oct remained an outlier among the larger developed economies with both the manufacturing and services PMIs staying in positive territory.
Outlook for the week ahead
This will be an important week for understanding shifts in the growth and inflation outlook.
The ‘not too hot’ US labor market data for Oct helped to fuel an expectation that US growth has started to moderate. The latest Atlanta Fed GDP Nowcast has US Q4 growth running at 2.1% (SAAR). There will be a range of US inflation, spending, output, and housing data this week that will provide a broad update on the Q4 growth outlook.
US headline CPI growth is expected to slow to +3.3% over the year from +3.7% in Sep as energy prices fall. The monthly pace of CPI is expected to slow to +0.1% in Oct from +0.3% in Sep. Core inflation is expected to stay unchanged at +4.1% over the year in Oct and +0.3% over the month.
US retail sales are expected to fall by -0.1% in Oct after the much stronger growth of +0.7% in Sep.
US industrial production for Oct is expected to fall by -0.4% in Oct after increasing by +0.3% in Sep. The first US regional manufacturing surveys for Nov will provide an update on momentum in the manufacturing sector.
The first US housing data for Oct and Nov will be released this week – importantly reflecting the period of (peak?) higher mortgage rates. US building approvals are expected to slow to 1.45m (SAAR) in Oct from 1.47m in Sep. New housing starts are also expected to slow to 1.34m in Oct from 1.35m in Sep. After a period of weakening home builder sentiment, the NAHB housing market index is expected to be unchanged at the start of Nov.
US initial claims have been drifting higher recently (still around average for the last three months), as the level of continuing claims has also been rising more notably. Initial claims are expected to be slightly higher at +222k for last week (+217k in the prior week).
The Aus labor market and wage-price data will be important this week. Employment growth is expected to increase to +18k in Oct from +6.7k in Sep. However, with participation expected to stay unchanged at 66.7%, the unemployment rate is projected to increase to 3.7%. Wage growth is expected to accelerate to +1.3% in Q3 from +0.8% in Q2 – partly the result of the annual increase in the minimum wage rates from the start of Jul. The annual change in the wage price index is expected to increase to +3.9% in Q3 from +3.6% in Q2. This would be just below the RBA Dec quarter forecast of +4% growth in the WPI.
Global growth and inflation data will remain in focus. The second estimate of the Euro Area GDP release for Q3 is expected to be unchanged at -0.1% over the quarter and +0.1% over the year. The prelim Japanese GDP for Q3 is also expected to slow by -0.1% over the quarter from +1.2% in Q2.
The final Euro area CPI for Oct is expected to slow to +2.9% for headline and +4.2% for core CPI. UK headline CPI for Oct is expected to slow to +4.8% while core CPI is expected to slow to +5.8%.
There will be a broad range of UK and Chinese data out this week.
Other; Central Bank speeches will feature this week. Ongoing geopolitical risks remain elevated. US President Biden and Chinese President Xi will meet earlier in the week. A US government funding extension will need to be negotiated this week ahead of the 17 Nov deadline.
This week, the US Treasury will auction and settle approx. $566bn in ST Bills, Notes, and Bonds raising approx. $68bn in new money.
QT this week: Approx $17.6bn in ST Bills, Notes, and Bonds will mature on the Fed balance sheet this week and will be reinvested. Approx $30.5bn in Notes and Bonds will mature on the Fed balance sheet and be redeemed.
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 6, 2023
Key events this week – RBA monetary policy decision, US Fed-speak including Fed Chair Powell, UK GDP Q3
Recap from last week
Central bank decisions and important data overtook heightened geopolitical concerns last week.
As expected, the FOMC kept policy settings unchanged at its meeting last week. Current restrictive settings are expected to keep downward pressure on activity and inflation. The Committee continues to “proceed carefully” judging that the full effects of tightening are yet to be felt. Guidance remains unchanged; additional firming may be appropriate and will be based on the totality of the incoming data. Higher long yields are helping keep financial and credit conditions tighter and the hurdle is likely higher for further increases in policy rates. Policy settings are however likely to stay restrictive “until we are confident that inflation is a path to that (2%) objective”. This decision was interpreted to mean that the Fed was likely done with further rate hikes in this cycle. Additional cuts to the FFR have started to be priced in for 2024.
The BoJ kept policy rates unchanged but adjusted how it conducts YCC. Importantly, the BoJ removed the ‘hard’ ceiling to defend the 1% upper limit of the 10-year JGB yield, instead calling it a ‘reference point’. As expected, the BoJ increased its inflation estimates for 2023 through to 2025.
The BoE kept policy settings on hold amid signs of ‘some impact of higher monetary policy on the labor markets and on momentum in the real economy more generally’.
US economic data was not too hot last week and this likely contributed to the shift in the outlook for additional cuts to the FFR in 2024. The broad update of the US labor market showed some easing of tight labor market conditions. Non-farm payroll growth for Oct was lower than expected at +150k, as labor strikes affected results. The prior two months were revised lower by -101k payrolls. The household survey recorded a marked fall in employment that was only partially offset by a fall in participation. This resulted in an increase in the unemployment rate to 3.9% (from 3.8% in Sep). Average weekly hours slowed, and the effects of labor strikes were also reflected in the fall of average overtime hours in durable goods manufacturing. In Sep, job openings were little changed. The job opening rate remains well above the pre-pandemic average. Wages growth continued to ease in Q3 with growth of the ECI slowing to +4.3% from +4.5% in Q2. Pockets of elevated wage growth remain within public sector state and local government compensation.
Data globally continued to reflect the impact of tighter monetary policy conditions. The global S&P manufacturing PMI for Oct was downbeat with optimism in the outlook falling to an eleven-month low. Output contracted across Europe, the UK, China, and Japan. Output in the US according to this survey, expanded mildly for the second consecutive month. The global manufacturing PMI employment index fell for the second month with a contraction recorded across a majority of countries in the survey. The remaining global services PMIs for Oct will be released this week.
The Eurozone flash GDP showed activity contracted slightly in the Euro area in Q3 and growth likely stalled over the year. Euro area headline inflation slowed more than expected to +2.9% as energy prices fell. Core inflation slowed to +4.2%.
Canadian employment growth was lower than expected while the unemployment rate increased by more than expected to 5.7%.
Outlook for the week ahead
The RBA will meet this week. Market pricing for this meeting was only at a 50% implied expectation for a rate hike this week (as of 3 Nov), however, many economists are forecasting an increase to 4.35%. In Q3, inflation was higher over the quarter but slowed over the year to +5.4%. The question is whether this latest CPI report, together with other data from the inter-meeting period, will result in an upgrade to the inflation outlook. It’s likely to be a finely balanced decision.
There will be several US Fed speeches this week, including remarks from Fed Chair Powell, Governor Waller, and Dallas Fed President Logan.
Economic data will be light this week.
UK GDP for Q3 is expected to fall by -0.1% over the quarter. This would be on par with the BoE expectation of weakening growth in Q3 (compared to +0.2% in Q2).
The remaining suite of S&P global service PMI reports will be released this week helping to round out the view of economic activity at the start of Q4.
The US Senior Loan Officer survey for Q3 will be released this week and may provide some insight into lending conditions amid higher long-term yields. Initial claims for the wk ending 4 Nov are expected to increase by +217k.
This week, the US Treasury will auction and settle approx. $454bn in ST Bills raising approx. $23bn in new money. The US Treasury will also auction the 3-year and 10-year Notes and the 30-year Bond – these will settle next week on the 15 Nov.
QT this week: Approx $13.6bn in ST Bills will mature on the Fed balance sheet this week and will be reinvested.
An update of the quarterly refunding announcement is provided in the briefing document attached. 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
