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US Credit Mkt Week Ahead: Fed, ECB, BoJ Decisions, UST Supply
CHICAGO (MNI) - There's plenty to digest in the week ahead, even before
Wednesday afternoon's FOMC policy announcement -- short term rates pricing in
near 100% probability of a hike (MNI PINCH model: 86%) -- when Federal Reserve
Chairman Jerome Powell hosts a press conference to discuss forward guidance 30
Light on data Monday, the U.S. Treasury will be cramming in $32 billion 3-year
(1130ET) and $22 billion 10-year note auctions (1300ET) in addition to $48
billion 13-week and $42 billion 26-week bill auctions; $14B 30-year Bonds cap
off auctions on Tuesday.
Markets will continue to digest the outcome of the G7 summit that ended Saturday
after President Trump telling U.S. officials to not endorse while urging the
Group of Seven to readmit Russia (outed in 2014 when G8 became G7).
President Trump's historic "mission of peace" with North Korea in Singapore
begins Tuesday, results of which may be quick in coming after Trump "predicted
Saturday he would know 'within the first minute' whether the summit with North
Korean leader Kim Jong Un would be a success," The Wall Street Journal reported.
On to monetary policy, the second rate hike of the year is widely expected from
the FOMC Wednesday, short term rates pricing in near 100% probability (MNI PINCH
That said, any further changes in the language of the statement and the Summary
of Economic Projections (SEP) will be key in discerning forward guidance as
Federal Reserve chairman Jerome Powell speaks to the press 30 minutes after the
announcement. The Fed blackout period ends midnight June 14.
Nomura economists suspect the Fed will only raise interest on excess reserves
(IOER) by 20bp, "5bp lower than the top of the target range. This would largely
be a mechanical change reflecting the narrowing EFFR-IOER spread but may
represent a small step towards moving back to a point-estimate, as opposed to
range, policy rate framework."
Currently, MNI's PINCH model reflects a 60% chance of a third hike at the
September 26 FOMC and 12% for a fourth at the December 19 FOMC.
Note, prior to the media blackout period, San Francisco Fed President John
Williams relayed a hawkish message in a Reuters interview last Friday saying the
"Fed is about three rate hikes away from reaching a 'neutral' level, where
interest rates are neither adding to or taking away from economic growth."
"After that, the Fed does not necessarily need to pause on rate hikes," Williams
said, "but could drive rates still higher if economy remains strong and
inflation is at or above" Fed's 2% target.
Williams is set to take over at the NY Fed a week from now.
That said, the ongoing flattening in Treasury yield curves (5s30s below 30.0,
10+ year lows) warrants close attention as inverted yield curves are widely
viewed as a precursor to a recession (2s10s has inverted eight times over past
60 years, preceding a (short-lived) recession within 2 years appr .66% of the
In the absence of strong consistent data going forward, rate hike chances after
June are overdone as long as curves continue to flatten, markets appear to be
overlooking the latter.
Let's not forget European geopolitical factors following the rise of the
populist coalition government in Italy. Some US accounts still fear an an Italy
exit from the EU and potential collapse of the Union.
This is an important factor as even the Fed has admitted geopolitical
uncertainty -- needs to be considered in policy decisions. Perhaps ironically,
it was only two months ago that Williams conceded the fact that inversion "is a
powerful recession sign" but downplayed the chances as he posited the U.S.
economy will enter the "second largest expansion" due to global factors soon.
The ECB will host their monthly policy meeting on Thursday, markets eager for
guidance on the end of their QE asset purchase program, followed by the Bank of
Japan's policy meeting on Friday.
Data highlights include May CPI on Tuesday (0.2% estimate steady to prior), PPI
on Wednesday followed by retail sales, imports price index and weekly claims on
Morgan Stanley economists estimate "core CPI to bounce back 0.19% in May after a
lower-than-expected 0.10% gain in April, driven by both core goods and core
services" while retail sales should reflect a "modest deceleration in consumer
spending in May following a solid three-month run through April."
Nomura economists "expect data next week to continue the theme of accelerating
US growth," forecasting a "0.5% m-o-m in core ("control") retail sales in May as
consumer spending data looks set to remain strong during the quarter." On May
CPI report, Nomura expects "core CPI to increase 0.2% (0.158%) m-o-m, only a
modest rebound from the weaker-than-expected 0.098% m-o-m April reading,
bringing the y-o-y change to 2.2% (2.198%)."
Calendar of next week's market events (prior, estimate):
- Jun 11 Jun NY Fed expectations survey, 1100ET
- Jun 11 US TSY $42B 26W bill auction, 1130ET
- Jun 11 US TSY $32B 3Y Note auction, 1130ET
- Jun 11 US TSY $48B 13W bill auction, 1300ET
- Jun 11 US TSY $22B 10Y Note auction, 1300ET
- Jun 12 FOMC kicks off two-day policy meeting
- Jun 12 May NFIB Small Business Index (104.8, --) 0600ET
- Jun 12 May CPI (0.2%, --) 0830ET
- Jun 12 May CPI Ex Food and Energy (0.1%, --) 0830ET
- Jun 12 09-Jun Redbook retail sales m/m (0.1%, --) 0855ET
- Jun 12 US TSY $14B 30Y Bond auction, 1300ET
- Jun 12 May Treasury budget balance ($214.3b, --) 1400ET
- Jun 13 08-Jun MBA Mortgage Applications (4.1%, --) 0700ET
- Jun 13 May Final Demand PPI (0.1%, --) 0830ET
- Jun 13 May PPI ex. food and energy (0.2%, --) 0830ET
- Jun 13 May PPI ex. food, energy, trade (0.1%, --) 0830ET
- Jun 13 Jun Atlanta Fed inflation (2.0%, --) 1000ET
- Jun 13 08-Jun crude oil stocks ex. SPR w/w (+2.07m bbl, --) 1030ET
- Jun 13 FOMC policy announcement 1400ET
- Jun 13 Fed Chair Powell press conf on FOMC annc 1430ET
- Jun 14 09-Jun jobless claims (222k, --) 0830ET
- Jun 14 May imports price index (0.3%, --) 0830ET
- Jun 14 May exports price index (0.6%, --) 0830ET
- Jun 14 May retail sales (0.2%, --) 0830ET
- Jun 14 May retail sales ex. motor vehicle (0.3%, --) 0830ET
- Jun 14 May retail sales ex. mtr veh, gas (0.3%, --) 0830ET
- Jun 14 10-Jun Bloomberg comfort index (54.8, --) 0945ET
- Jun 14 Apr business inventories (0.0%, --) 1000ET
- Jun 14 08-Jun natural gas stocks w/w 1030ET
- Jun 14 13-Jun Fed weekly securities holdings 1630ET
- Jun 15 Jun Empire Manufacturing Index (20.1, --) 0830ET
- Jun 15 May industrial production (0.7%, --) 0915ET
- Jun 15 May capacity utilization (78.0%, --) 0915ET
- Jun 15 Jun Michigan sentiment index (p) (98.0, --) 1000ET
- Jun 15 May BLS state payrolls (134.0k, --) 1000ET
- Jun 15 Q2 St. Louis Fed Real GDP Nowcast (+3.72%, --) 1100ET
- Jun 15 Q2 NY Fed GDP Nowcast (+3.1%, --) 1115ET
- Jun 15 Apr net TICS flows 1600E
- Jun 15 Apr long term TICS flows 1600ET
--MNI Chicago Bureau; tel: +1 312-431-0089; email: email@example.com
--MNI London Bureau; tel: +44 203-586-2225; email: firstname.lastname@example.org
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