Macro Review and Outlook for w/c 25 June 2018
Macro review for w/c 18 June 2018 – It was a big week for central banks and central bank signalling last week:-
Central bankers attended the ECB Forum on Central Banking – discussions, panels and presentation of papers on Wage and Price Setting.
US Fed Chairman Powell used the ECB Forum as an opportunity to reinforce the position of the FOMC – a strong case for further gradual increases in the FFR, strong economy and balanced risks. During the week, a speech by Atlanta Fed President Bostic provided a positive view of current economic performance but was more cautious that activity (spending, inflation, wages) wasn’t representing a shift in economic momentum but was the result of transitory factors.
BoJ minutes for April – inflation remains too weak, the chances of the bank achieving its 2% target by 2020 seemed low under current policy guidelines. BoJ to discuss at length in June & July meetings. Comments suggest possibly setting up for further accommodations. A speech by Board member Funo highlighted that the BoJ will not be tapering any time soon, highlighted risks to the economy from trade protectionism.
RBA minutes had a large change in wording – removed the reference that the next move for the cash rate would be up and provided more hints at general concerns about low wage growth, excess capacity in the labour markets, high household debt and further tightening of lending standards in the future. House prices fell during Q1 at a National level.
The BoE kept rates on hold and policy unchanged, except advised that any tapering of stock of QE assets would not occur until Bank Rate reached 1.5% (had previously advised 2%). A speech later by Governor Carney outlined that the BoE will receive a capital injection – to significantly increase the amount of liquidity the bank can provide, as the bank prepares for Brexit. The key piece of Brexit legislation was finally passed by the UK parliament this week.
China is easing – PBoC cut its Required Reserve Ratio (RRR) by 0.5% (effective 5 July) to provide liquidity support as the crackdown on shadow banking continues and trade tensions with the US escalate. Issues are seen in the Chinese stock market and reports of increasing difficulty in securing domestic funding. The PBoC also widened the range of eligible collateral for short-term loans.
On global growth –
Prelim PMI’s for June – while all PMI’s still in expansion, across US, Europe and Japan a similar result, a slowing of momentum in June, with manufacturing conditions weakening, off-set somewhat by activity in services. Key themes – slowing new orders, trade and political concerns have been emerging across different reports (not just PMI’s).
Consistent with Prelim PMI, US Philly Fed manufacturing outlook activity index fell in the latest month, highlighting continued moderation in conditions 6mths from now.
Continued slowing of Canadian retail sales and low CPI growth.
US-China tariffs – threats and retaliatory actions continued during the week. The focus now is on how China may escalate beyond trade tariffs (currency depreciation).
More detail is provided in the full report. There are some formatting changes that make it easier to move to different sections. Download the Macro Review here (hit the back button to return to the site);
Weekly Macro Review 18June2018
The focus for the upcoming w/c 25 June 2018;
Trade, tariffs and protectionism remain a key theme.
Central banks and liquidity –
- Rates decision from RBNZ.
- Further signalling by central bankers with speeches from the BoE, BoC and the BoJ summary opinion report. Regional US Fed speeches throughout the week also.
- Month-end roll-off of maturing Fed balance sheet holdings – likely a lower impact liquidity week with the US Treasury auctioning/settling $156b in notes & bills and raising $21b in new money (4week bill TBA).
US growth will be in focus after lacklustre manufacturing readings in the prelim June PMI & Philly Fed released last week – regional manufacturing and activity surveys from Chicago Fed, Dallas Fed, Richmond Fed and Kansas Fed. Also up; Durable Goods Orders, Chicago PMI and third release of Q1 GDP/PCE Indexes.
An important read on the latest European inflation – prelim June CPI will be released this week for the Eurozone and Germany.
UK growth and Brexit remain a focus with Q1 GDP (third release), EC meeting with an agenda item reviewing the state of Brexit negotiations.
Download the calendar for this week (hit the back button to return to the site);-
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
