The most anticipated event of the week was the FOMC meeting. The FFR was increased for the fourth time this year. The statement of the decision had an unexpected hawkish tone including retaining the reference to “further hikes”. Chairman Powell’s news conference, though, emphasised more the downside risks. At this stage, FOMC participants have revised growth somewhat lower for 2019 and “judge” that there may be a further two hikes in rates in 2019. There were some important changes to the wording of the decision statement which were clarified by NY Fed President Williams in his CNBC interview on Friday morning.
US data was mostly good this week. Core PCE growth ticked up in the latest month, in line with Fed estimates. The third estimate for Q3 GDP growth was revised slightly lower to +3.4% as personal consumption expenditure and the contribution of net exports were revised lower. The contribution from inventories remains high. The latest month of PCE data for Nov indicates that real spending growth has been somewhat lower so far in Q4 than in Q3.
US housing data had some positive news. Although the conditions index continued to deteriorate in Nov, existing home sales and new residential construction increased in the latest month.
One area to watch for is slowing US manufacturing growth. Data this week and over the last few weeks is hinting at slower momentum, especially from Dec. The three regional surveys this week were much softer. Advance durable goods new orders and shipments ex-transports for Nov was softer. In the previous month final durable goods report, core orders & shipments growth had been trending somewhat slower throughout the year. Last weeks industrial production data for manufacturing had growth slowing and the prelim PMI for Dec also showed manufacturing activity growing at a slower pace. Something to watch.
Other interest rates decisions this week; the BoE (concerned about Brexit), BoJ (inflation not remotely close to targets) and RBA (concerned banks are tightening credit too much) all kept rates on hold.
The impact of slower global trade was mostly evident in the monthly Japanese trade data. Japanese export growth slowed to a mere +0.1% as exports to two (Asia and Western Europe) of the top three Japanese export markets declined versus last year. The Eurozone trade deficit also increased as exports and import growth accelerated (but imports grew at a faster pace).
Consumer price data out this week indicates that the impact of recent growth in energy costs is starting to reverse.
US-China trade talks; a ‘notice of modification of action’ was posted onto the US Federal Register by the USTR on 19 Dec 2018 – confirming that “the rate of additional duty for the products covered by the September 2018 action will increase to 25 percent on March 2, 2019”. This confirms a hard deadline of 1 March 2019 for the US-China Section 301 trade negotiations to be completed by. As we come back from the holiday season, trade negotiation activity will likely ramp up – along with headline risk.
There are more topics/data releases covered in this weeks review. Use the links in the contents page to navigate to different country sections. Download the review here;
The next weekly briefing document will be published next weekend.
As always, comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
Happy holidays and best wishes to you and your family!
