Macro review w/c 20 Aug 2018 – From Jackson Hole, the US Fed Chairman reiterated his key principal that rate hikes that are too fast or too slow are undesirable. The path for interest rate increases will continue to be gradual and based on the incoming data. The data so far – good jobs and growth numbers and low inflation.
The FOMC minutes provided further insight, especially around yield curve inversion – and highlights the range of opinions that exist regarding how members view yield curve inversion. It’s possible the yield curve could invert in the short-term (already flat) – it’s not clear how the FOMC members will balance “good data” with possibly hiking into an inversion. The next FOMC meeting is 26 Sept and rates are expected to increase.
The RBA minutes continued to highlight that while the next move in rates is likely to be up, there was no strong case for an increase in the near-term.
US-Mexico trade talks appear to be making headway, especially on key issues regarding the easing of the sunset clause requirement. The Canadian Foreign Minister has stated that Canada will re-join NAFTA negotiations once the US-Mexico deal agreed.
US-China negotiations did not appear to produce any further progress on stalled talks.
Brexit talks last week also appeared to have made little headway. The EU and UK negotiators have now made negotiations ongoing to meet key deadlines. The UK parliament returns next week, and key trade and tax bills will be in focus.
Data across the board remains mostly good with a few pockets of weakness;
US flash PMI’s highlighted that services and manufacturing continued to grow, but at a slightly slower pace in August, Durable Goods new orders and shipments declined in July.
Eurozone flash PMI’s highlighted a consistent rate of growth in August – but with a gap between the faster growth of core nations and the slowing growth in the periphery nations.
Japan flash PMI for Manufacturing highlighted a slightly faster pace of expansion led by domestic demand. Export orders have declined for 3 months in a row. CPI increased in July and the core annual rate accelerated slightly.
More detail is provided in the full review of last week – download it here (hit the back button on your browser to return to the site);
The outlook for w/c 27 August 2018 – On liquidity, there is heavy treasury issuance this week. Key dates are 30 and 31 Aug. The US Treasury will auction and settle $267b in bills and coupons, raising approx. $46b in new money. The 4wk bill is yet to be announced. It’s month end and $20.9b of securities in the Fed SOMA will mature on 31 Aug – of that, $9b will be reinvested.
Trade – given previous timelines and current progress, it’s possible that a deal between US and Mexico on NAFTA could be announced this week. The restarting of US-China negotiations last week appears to have made little headway so far – awaiting announcement of further rounds of negotiations and/or escalations.
Brexit negotiations will now become ongoing between the UK and the EU. The UK parliament returns from summer recess next week.
Key data this week is focused on growth and CPI;
US – the second estimate of Q2 GDP and PCE and Core PCE prices for July
Eurozone – Final CPI for July and German prelim CPI for Aug
Canada – Q2 GDP
Further detail is provided in the full brief – download it here (hit the back button on your browser to return to the site);
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
