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WEEK AHEAD: Highlights include flash PMIs, Fed minutes, Fed Chair Nomination

By Newsquawk Voice Ltd (Ryan Anderson)Market OverviewNov 19, 2021 13:48
WEEK AHEAD: Highlights include flash PMIs, Fed minutes, Fed Chair Nomination
By Newsquawk Voice Ltd (Ryan Anderson)   |  Nov 19, 2021 13:48
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President Biden is expected to reveal his nomination for the Fed Chair next week, with recent reports suggesting an announcement is due before Thanksgiving on November 25th. Most accept that the choice is between reappointing current Fed Chair Powell, or giving the nod to Governor Brainard; PredictIt currently has Powell as the favourite at 65c vs Brainard at 36c, although Brainard’s chances are judged to have eased since mid-week, where there was pricing around 41c.

Some Democrats have expressed concerns over the recent Fed investment disclosures, and some have also expressed concerns about Powell’s supposed lack of ‘green credentials’, a key consideration among progressive Democrats. Powell's oversight of banks has also been cited as a concern, where Brainard is judged to be tougher. Meanwhile, Brainard is seen as the more ‘dovish’ option, which some lawmakers may find concerning at a time when inflation is running hot; this is also a concern among American consumers, as seen in recent survey data, which have pointed to continued pricing pressures hitting consumer confidence, especially as the government heads into mid-term elections next year.

While Brainard is considered the more ‘dovish’ option, it is not immediately clear why, given Powell has firmly sat at the dovish extreme during the pandemic; additionally, there are quite a few other vacancies that need to be filled, including two regional Presidents, a vacant Governor slot, the Supervision role on the Board of Governors, while there is some speculation about whether current Vice Chair Clarida – whose term expires in January – will get reappointed.

The new Fed Chair will also have to deal with a hawkish twist from the Fed as the tapering process is set to conclude by H2 22. SGH Macro’s Fed watcher Tim Duy highlights that both candidates may share a similar weakness; neither Brainard nor Powell has had to manage an upward shift in the inflation dynamic, which he believes may be more challenging than the common Fed line that “we have well tested tools to deal with inflation”.


The PBoC is expected to keep its 1-Year Loan Prime Rate unchanged at 3.85%, and its 5-Year Loan Prime Rate at 4.65%, which would be the nineteenth consecutive month the central bank will have refrained from adjustments. The rhetoric from officials does not suggest any urgency to alter rates, and they have reiterated it will maintain prudent monetary policy, better support consumer investment recovery and curb excessive price increases.

The central bank’s actions also point to a steady approach after it recently announced a record CNY 1tln Medium-term Lending Facility, which matched the maturing amount for this month, and which Chinese press noted shows an intention to keep liquidity ample. The latest Chinese activity data topped expectations, with Industrial Production and Retail Sales both rising above forecasts, which does not suggest any urgent needs to policymakers to act; consumer prices in China are currently running at the fastest pace since September 2020, and record growth in factory gate prices both limit the scope for looser policy.


The RBNZ is expected to hike the Official Cash Rate by 25bps to 0.75%; money markets are pricing a 100% probability of a rate rise, and analysts are also overwhelmingly backing the move; 19 out of 20 analysts surveyed by Reuters see a +25bps hike, and the other sees a 50bps move.

At its October meeting, the Committee said that a further removal of monetary stimulus was expected over time, and that it would be appropriate to continue reducing the level of stimulus, with future moves contingent on the medium-term outlook for inflation and employment. It further said that policy stimulus would need to be reduced to maintain price stability and maximum sustainable employment over the medium-term. These hawkish comments have been further supported by strong data which continues to point to an overheating economy; CPI was hotter than expected in Q3 at 4.9%, substantially above the RBNZ’s 1-3% medium term target; there was also a blockbuster jobs report for the quarter, where the unemployment rate falling to 3.4% from 4.0% despite a 0.7ppt rise in labour force participation.

The strong data has spurred banks to adjust their rate hike calls; Bank of New Zealand flags the possibility of a 50bps rate hike, which it judges as a 50/50 probability; ANZ Bank has brought forward its estimate for the OCR to reach the neutral level of 2.0% by August 2022 vs a prior forecast of end-2022; while Westpac now sees the OCR peaking at 3.0% in 2023 vs prev. forecast for the OCR to peak at 2.0%.


The Fed’S November 2-3rd meeting saw the announcement of QE tapering, where Treasury purchases were cut by an initial USD 10bln per month to USD 70bln for November, while MBS purchases were cut by USD 5bln per month to USD 35bln, as analysts had expected. The same incremental M/M cuts are expected until the amount falls to zero, which will happen in June 2022.

The minutes will be looked at for clues on what could warrant an adjustment of the pace of tapering, a move Powell said would be telegraphed in advance if the Committee was to go down that route; other Fed officials have since suggested the bar is quite high for an adjustment, although with inflation still hot and employment steadily recovering, there is speculation growing on a hawkish adjustment.

Credit Suisse highlights that although the latest CPI report was post the FOMC meeting, the report suggests officials were already contemplating risks of having to lean more hawkish next year. The Fed toned down its transitory language in the statement, tweaking the language to describe inflation as “expected to be transitory” (from “transitory”), while analysts noted that Powell was hesitant to use the phrase in his post-meeting press conference, and when he did, he acknowledged ‘transitory’ means different things to different people, a theme that will likely be reiterated in the minutes, which will also allude to many of the pricing issues are being driven by supply chain concerns, which monetary policy can do little to counteract.

The Fed did little to push back on market pricing, where money markets currently see the first hike at the July meeting with some probability of a second hike later in 2022. Powell said "we focus on what we control", it is time to taper, it is not time to raise rates as they want to give the labour market time to heal further, although the Fed chair interestingly suggested it was possible that maximum employment could be reached by H2 next year, which would coincide with the end of the current taper schedule, and provided that inflation does not crater off, it would likely provide the conditions for lift-off.

Fed officials have been arguing that that now was not the time to raise rates, and they wanted to conclude the taper process first, while reiterating that the taper process and lift-off are both subject to different considerations. While a faster taper is one hawkish tilt available, Fed's Bullard (2022 voter; hawk) has suggested that the Fed could act more hawkishly without raising rates, potentially by signalling they could quite possibly lift rates before the taper ends, or even to let the balance sheet run-off immediately after tapering. Although these comments were made outside the Fed minutes timeframe, it will be interesting to see if these hawkish pathways are alluded to in the minutes.


The Riksbank is expected to keep its repo rate unchanged at 0.00% and likely to maintain the QE programme of purchases for Q1, but attention will be on the composition and any reinvestment updates. Since the last meeting, developments have, broadly speaking, been as expected and in-fitting with the general global theme.

Most pertinently, October’s CPIF was above market expectations at 3.1% vs 2.9% and modestly surpassed the Riksbank’s 3.0% expectation. On the subject of inflation, since the last gathering there has been a steady increase in the stream of rhetoric from rate setters expressing the view that inflation is temporary. While this line is not particularly new, it is interesting that the frequency of such commentary has markedly increased as we approach the November gathering.

In terms of this meeting, given the aforementioned focus, it would perhaps be prudent for the Riksbank to price a hike into the long-end of its repo path, that currently has rates unchanged for the entire horizon. Such an alteration would serve to emphasise their focus on inflation; but, given they continue to view it as temporary, could be accompanied by the usual commitment to ease policy, if the inflation target is threatened. On this, SEB’s primary scenario expects the path to price a 20bp hike in Q4-2024, and highlights the possibility that they could add to their verbal guidance that early tightening is possible, if inflation risks significantly and persistently overshooting. For reference, the unemployment rate has continued to moderate and activity data has been somewhat mixed from the prior reading but, generally, remains firm.


As expected, the ECB stood pat on rates, and held the size of its PEPP envelope at EUR 1.85tln. The statement that accompanied the announcement saw little in the way of tweaks with the Bank refraining from enhancing its forward guidance on rates. Ahead of the meeting, there had been some suggestions that the GC could attempt to push back on the market pricing for lift-off (20bps of hikes in Dec'22) by removing the word "shortly" from its commitment to end the APP "shortly before" it starts raising rates. However, such an adjustment was not implemented.

Note, during the press conference and since the prior meeting, officials have been at pains to suggest that the criteria for hiking rates are unlikely to be fulfilled in the coming year.

At the press conference, President Lagarde noted that the Euro area continues to recover strongly, but momentum had moderated. On the inflation front, Lagarde reiterated that the GC envisages inflation rising further before declining in 2022. However, the President conceded that the current phase of high inflation will last longer than expected and noted that if supply bottlenecks persist, this could see price pressures becoming more persistent.

On life after PEPP, as expected, Lagarde provided little in the way of clues on how the December showdown on the matter is taking shape other than stating that she believes PEPP will conclude next March. Note, it was commented that the dominant view on the GC is that volumes of QE matter more than duration; any colour around this will be useful for market participants.

Overall, desks are cognizant that the ECB will not be following suit with other central banks in hiking rates in response to current inflationary impulses. Instead, focus for ECB-watchers is on how the ECB plans to draw PEPP to a close. The debate on PEPP is unlikely to feature much in the upcoming account with the debate at the Bank set to intensify over the coming weeks.


The Bank of Korea is poised to hike its policy rate by 25bps at the upcoming meeting – with inflation set to be the main factor. Desks also highlight that aside from the inflation worries, the housing market rally persists, whilst policymakers also remain hawkish - as per recent comments from Governor Lee and the October meeting minutes.

That being said, SocGen expects rate-setter Sangyong Joo to dissent and advocate for no change in rates. Analysts anticipate a repeat of the hawkish stance amid the bullish growth outlook and inflation concerns, whilst the macroeconomic outlook is expected to upgrade the near-term inflation forecasts, but maintain the GDP growth metrics.

Looking ahead, SocGen suggests “that the next hike after the anticipated November hike is more likely in February than January.” The bank adds “we think that the BoK is against consecutive rate hikes, and we don’t agree with the view that the central bank will want to avoid hiking before the presidential election on 9 March (policy meeting is on 24 February).”


Euro-area PMIs are expected to reflect less optimistic sentiment in November vs October, although all three metrics are seen remaining in expansionary territory – with Manufacturing at 57.4 (prev. 58.3), Services at 54.0 (prev. 54.6) and the Composite at 53.3 (prev. 54.2). The October release showed a robust forward-looking New Orders metric, but recent high-frequency mobility data and COVID developments in the region will likely dampen sentiment – with Germany and the Netherlands likely to tighten COVID restrictions amid record cases, whilst Austria announced a full-scale hard lockdown. Desks highlight that Austria and the Netherlands are omitted from the Services PMI, and thus that part of the release will likely be shielded to an extent. Participants will also be on the lookout for commentary surrounding the supply chain disruptions and the nature of price pressures.


PMIs in the UK are expected to ease a touch vs October, with the Manufacturing forecast at 57.3 (prev. 57.8) and Services expected at 58.5 (prev. 59.1). Following the surprise activity uptick in October - aided by broad-based improvements across Services – desks are on the lookout to see if this is sustained in November data. Analysts at RBC believe the Services metric will be “elevated at 58.5 even if it does weaken slightly from October’s level. The October manufacturing PMI survey was more mixed than suggested by the headline reading of 57.7, and we expect input shortages to see it slip back this month.”

WEEK AHEAD: Highlights include flash PMIs, Fed minutes, Fed Chair Nomination

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WEEK AHEAD: Highlights include flash PMIs, Fed minutes, Fed Chair Nomination

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Comments (2)
Pijush Dash
Pijush Dash Nov 21, 2021 11:52
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Jamie Smith
Jamie Smith Nov 21, 2021 10:11
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Thanks Ryan excekkebt summary of post and future events and expectatation. A must read on a Sunday befire the week ahead. Thanks fir yiyr time.
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