US OUTLOOK/OPINION: Macro Week Ahead: PCE Plus A Rare Flagging Of Trade Data
Mar-21 20:32
- The US economic calendar is backloaded in the upcoming week, with Thursday’s Q4 national account revisions and advanced trade data for February before Friday’s PCE report for February.
- The third release for national accounts typically receives a little less attention although being for Q4, this will be the first estimate we see for Gross Domestic Income, a useful alternative look at economic activity in the quarter.
- The advance merchandise trade data will also no doubt be watched far more closely than usual after the January release saw a ballooning deficit on a surge in imports. The limited details with this advance release will limit conclusions, but we’ll watch imports of industrial supplies most closely. The full release on Apr 3 should then give a better idea of how concentrated any surprises were in “finished metal shapes”, which appeared heavily driven by gold arbitrage flows that won’t show in GDP data.
- Friday’s PCE report is then expected to show a recovery in personal spending in February (0.5% after -0.2%) although it should look much less impressive in real terms (seen at 0.3% after -0.5%).
- The retail sales control group firmly beat expectations (1.0% M/M vs cons 0.4, partly offset by a 0.2pp downward revision to -1.0% in Jan) but both overall sales and discretionary spending were soft.
- Core PCE inflation meanwhile is seen rounding to 0.3% M/M although unrounded estimates point to a ‘high’ 0.3. This would mark a further acceleration from the 0.285% M/M seen in January, whilst a simplistic example of a 0.33% M/M increase with no revisions would see the six-month rate rise four tenths to a more troubling 3.0% annualized for its highest since June.
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STIR: Implied 2025 Cuts Edge Higher After Fed Minutes
Feb-19 20:31
The futures-implied Fed funds path shows slightly more anticipated easing following the release of the January FOMC minutes.
- We would attribute this dovish reaction mainly to speculation that the Fed may be closer to ending QT than previously thought based on the extensive discussion on balance sheet policy in the January meeting minutes (though as we noted earlier, it seems such sentiments remain in the minority on the Committee).
- While the minutes release nudged cumulative 2025 pricing less than 1bp lower, the biggest move of the session was on headlines earlier in the session on US -Ukraine-Russia negotiations which appeared to help steer rates and equities lower.
- The first full 25bp rate cut remains priced only by September's meeting but more fully after today's moves (27bp vs 25bp prior session), with cumulative cuts for 2025 totaling 37-38bp to 3.96% (vs 35bp and 3.94% prior).
| 2025 Meeting | Current FF Implieds (%), LH | Cumulative Change From Current Rate (bp) | Incremental Chg (bp) | Prior Session (Feb 18) | Chg Since Then (bp) |
| Mar 19 | 4.32 | -0.6 | -0.6 | 4.32 | 0.0 |
| May 07 | 4.30 | -3.3 | -2.7 | 4.29 | 0.7 |
| Jun 18 | 4.20 | -13.1 | -9.8 | 4.21 | -0.7 |
| Jul 30 | 4.15 | -18.2 | -5.1 | 4.16 | -1.0 |
| Sep 17 | 4.06 | -27.2 | -9.0 | 4.08 | -1.8 |
| Oct 29 | 4.02 | -31.3 | -4.1 | 4.03 | -1.5 |
| Dec 10 | 3.96 | -37.4 | -6.1 | 3.98 | -2.3 |
AUDUSD TECHS: Bulls Remain In The Driver’s Seat
Feb-19 20:30
- RES 4: 0.6471 High Dec 9 ‘24
- RES 3: 0.6429 High Dec 12 ‘24
- RES 2: 0.6414 38.2% retracement of the Sep 30 ‘24 - Feb 3 bear leg
- RES 1: 0.6384 High Dec 13
- PRICE: 0.6347 @ 16:15 GMT Feb 19
- SUP 1: 0.6305/6231 50-day EMA / Low Feb 10
- SUP 3: 0.6171/6088 Low Feb 4 / 3
- SUP 3: 0.6045 1.500 proj of the Sep 30 - Nov 6 - 7 price swing
- SUP 4: 0.6000 Round number support
AUDUSD is trading at its recent highs and a bull theme remains intact. The pair has cleared 0.6331, the Jan 24 high and a key short-term resistance. The breach highlights a stronger reversal and paves the way for gains towards 0.6414, a Fibonacci retracement. Note that moving average studies remain in a bear-mode position. This suggests the latest recovery is a correction. Initial firm support to watch is 0.6231, the Feb 10 low.
FED: Jan FOMC Minutes: Gov't Policy Uncertainty For Inflation (3/3)
Feb-19 20:17
Government policy shifts were indeed a key risk to inflation for FOMC participants: "other factors were cited as having the potential to hinder the disinflation process, including the effects of potential changes in trade and immigration policy as well as strong consumer demand" while "business contacts in a number of Districts had indicated that firms would attempt to pass on to consumers higher input costs arising from potential tariffs".
- Interestingly though, downside growth risks from government policy shifts didn't appear to be considered, but upside risks were:
- "Participants pointed to various risks to economic activity and employment, including downside risks associated with an unexpected weakening of the labor market, a weakening of consumers' financial positions, or a tightening of financial conditions, as well as upside risks associated with a potentially more favorable regulatory environment for businesses and continued strength in domestic spending."
- And on employment, "participants judged that labor market conditions had remained solid and that those conditions were broadly consistent with the Committee's goal of maximum employment... Nonetheless, participants generally noted that labor market indicators merited close monitoring" (though it's not clear in what direction it merits monitoring).
- Separately, the framework review discussion is discussed in some detail, confirming some of the previous Fed participants' discussions:
- "Participants highlighted as areas of consideration the statement's focus on the risks to the economy posed by the ELB, the approach of mitigating shortfalls from maximum employment, and the approach of aiming to achieve inflation moderately above 2 percent following periods of persistently below-target inflation...Participants also mentioned aspects of the statement that they thought should continue to be emphasized—including the Committee's firm commitment to achieving maximum employment and 2 percent inflation, as well as the importance of keeping longer-term inflation expectations well anchored."
