The macro review for w/c 22 October 2018 – Fed speakers addressed whether it is time for a pause in interest rate increases given current market volatility, some weaker earnings outlook going into 2019 and weaker housing/auto sales. Fed outlook was always for more ‘moderate’ growth going into 2019, especially as fiscal stimulus waned. Unless employment and inflation indicators turn lower than forecasts, Fed unlikely to change course. Yet, the probabilities for another rate hike in Dec have fallen over the last week.
Most data this week pointed to continued strength in US economy, but some ongoing weakness in housing and weaker private investment figures in the GDP report. Chicago Fed National Activity Index has the economy still expanding above the historical average. Prelim PMI’s for Oct indicated improved momentum, especially in the domestic economy, but ‘export activity stagnating’. Durable goods remained strong on the back of defense and non-defense transport manufacturing – ex transport, new orders grew by a much small 0.1%. US Q3 GDP growth slowed somewhat – weakness in net export growth and private fixed investment was offset by growth in inventories and continued growth in personal consumption expenditure. Of note was the slowdown in the growth of the core PCE price index for Q3 – slowing from +2.2% in Q2 to +1.6% in Q3 (annualised rates of growth).
Weakness in some Eurozone data appears to be persisting, with the notable slow-down in Eurozone and German prelim PMI’s. Watching for confirmation in ‘hard data’. For example, Eurozone and German industrial production (reported two weeks ago for Aug) showed declines had stabilized.
The ECB kept rates on hold – no change to policy measures. Draghi see’s current European data reflecting ‘weaker momentum, not a downturn’ and weakness likely to be transitory.
Japan prelim manufacturing PMI showed a solid improvement, especially with new export orders growing for the first time since May.
The Bank of Canada increased its overnight rate to 1.75%.
More detail covered in the full review of last week – use the links on the contents page to navigate to different country sections. Download here (hit the back button on your browser to return to the site);
The outlook for w/c 29 October 2018 – The US Treasury will settle approx. $281b in ST bills and notes this week (notes were auctioned last week), raising approx. $37b in new money. Its also month end and $23.8b in securities on the Fed balance sheet will mature – there will be no re-investment of principal payments this month.
Several major economic releases this week and central bank decisions;
BoJ and BoE interest rate decisions
Key economic reports;
US – PCE price index, employment cost index, employment report, house price index, ISM manufacturing survey
Europe – Q3 GDP, prelim CPI (Oct), German retail sales
Australia – CPI Q3, retail sales and private sector credit
Manufacturing PMI’s – UK, US, Eurozone and Germany
Brexit remains an unknown – looking for stalled negotiations to recommence this week
Further detail and a calendar of key releases is provided in the full briefing document – 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
