The macro review for w/c 31 December 2018 – Several central banks stepped in to calm the markets last week. First, US Fed Chairman Powell made it explicit that the Fed will be flexible and will adjust policy, and significantly, if required. Chairman Powell referenced the ‘tension’ between balancing the markets (and what the shift in bond yields is saying about future growth) and data on the economy. A continued or extended Government shutdown will hinder that data flow.
US data was very mixed. Further slowing in manufacturing activity, including the larger fall in the ISM manufacturing index, contrasted with the very strong non-farm payrolls number. The Dec Uni of Michigan Consumer sentiment survey highlighted that “consumers reported more negative than positive news about job prospects for the first time in two years, with the shift widespread”. This is a one-month shift, but negative news may be starting to play a role.
Second, the PBoC cut the RRR for the fourth time since the start of 2018 on the back of continued weaker readings of economic activity. The PBoC’s benchmark interest rate has remained unchanged since 2016.
The range of opinions in the BoJ summary of opinions report was skewed to a more positive view on the Japanese economy. More candid opinions stood out claiming that “it cannot be said that the actual condition of restoration-related demand and production stemming from natural disasters has been strong”. The BoJ may also further downgrade its inflation forecasts. In Nov, Japanese industrial production declined in the month (expecting an increase) and retail sales also declined with annual growth more than halving. The Dec manufacturing PMI confirmed renewed falls in new export orders with “unfavourable workload growth” cited in markets such as Nth America, China and Taiwan.
The European PMI’s for Dec continued to disappoint. To some degree, Eurozone results were lower on the back of ongoing French protests. But Italy and Germany PMI’s (manufacturing and now services) slowed even further on the back of weak/declining new orders. Production levels were maintained as firms worked through backlogs.
There are more data releases covered in last weeks review. Use the links on the contents page to navigate to different country sections. Download the review here;
The outlook for w/c 7 January 2019 – Trade talks and the Fed will feature this week.
A US delegation will attend trade talks in China on 7-8 Jan this week. President Trump continues to stoke the fires with optimistic tweets about progress between the two countries. We have been here before and there is a possible headline risk – but a positive outcome is something that could shift sentiment, especially regarding the business outlook in the US.
There are many Fed speeches scheduled for this week including Fed Chairman Powell. The two speeches of most interest will be Chairman Powell at the Economic Club of Washington and Vice Chairman Clarida giving a speech on the economic outlook and monetary policy at the Downtown Association in New York.
The FOMC Dec minutes will be released this week.
US data flow will likely be interrupted with the continued Government shutdown. The CPI report for Dec still looks like it will be released on Friday. CPI, ISM Non-Manufacturing and Factory Orders (likely delayed) will be the highlights for the week.
German data this week should help to confirm the weaker PMI reads with Industrial Production, New Orders and Trade for Nov. Retail sales for Germany and Europe should provide a good read on consumer sentiment.
The BoC interest rate decision is also this week. This is first meeting since further large falls in the oil price during Dec – will be important for signalling on growth and rates.
Treasury supply will be very light this week, with the US Treasury settling approx. $145b in ST bills, paying down approx. $15b. More moderate supply will likely return next week.
The UK vote on Brexit remains on the radar with a vote now likely during the week of 14 Jan 2019.
Further detail and a calendar of key releases are provided in the full briefing document – download it here;
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
