The macro review for w/c 4 February 2019 – Growth downgrades were announced during the
The EC lowered growth forecasts for Euro area GDP; +1.3% in 2019 and 1.6% in 2020 (Autumn Forecast: 1.9% in 2019; 1.7% in 2020). Italy is already in recession and there is a risk of Germany also falling into recession. The EC maintains that “Europe’s economic fundamentals remain solid”.
The BoE kept rates on hold. Brexit remains the largest near-term risk with rising uncertainty about the form of Brexit. This is acting as a headwind to business decisions and the BoE has reduced growth forecasts. The UK services PMI reflects the impact of increasing uncertainty of Brexit on business decision making.
The RBA also kept rates on hold. Importantly, the RBA has shifted from its tightening bias (“next move in rates likely to be up”) to a more neutral bias – “the next move could be up or down”. This reflects concerns regarding the domestic housing market, consumption and global growth. The RBA downgraded economic growth from the “3.5% average” to 2.5% in June 2019 and then back up to +3% by the end of 2019. For the RBA, negative shifts in the labour market will likely be the key for rate cuts.
Comments by US San Francisco Fed President, Mary Daly, late in the week sparked the interest of the markets, saying that the US Fed balance sheet could be used to “generate more stimulus than it could achieve by just cutting rates” (rather than just using the balance sheet in emergency situations). This was broadly interpreted as “QE for ever”.
US agencies are starting to catch up on the reporting backlogs. Factory orders, shipments and inventories were weak in Nov – driven by falls in non-durable goods (petroleum products) orders, shipments and inventories. International trade data also suggests that lower oil prices may have impacted the headline trade result. But the price-adjusted import data shows a broader slow-down (but not decline) of growth, especially since Oct. Both PMI reports into services for Jan indicated slower growth – which could be an effect from the partial government shutdown. The Jan motor vehicle sales data was very weak.
Weaker consumer data was recorded in the EU and Australia for Dec. EU retail sales (vol) fell in Dec across a broad range of categories, reversing the stronger gains in Oct and Nov. Aussie retail sales growth was marginal at best in vol terms and down in value terms. The shifting holiday retail calendar outside of the US has been bringing sales forward into Nov, but this was still a weak retail result for Australia. The Aus Services PMI also fell hard in Jan suggesting further weakness, especially in retail.
So far, much of the data around the ‘growth slowdown’ has been reflected in slower growth in production/manufacturing and exports, with weakness emanating mostly from Asia/China. PMI’s throughout Asia and Europe have been indicating slower growth in output and new orders while backlogs decline. For the most part, this weakness has yet to be reflected in consumer-based data. Some retail reports are starting to weaken, and we’ll get a better handle on that in the next few weeks. US data will be harder to evaluate given the possible impact of the partial govt shutdown. For example, US auto sales decline sharply in Jan during the shutdown. PMI’s are just starting to hint at weaker growth in employment – but most labour market reports remain quite strong.
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 11 February 2019 – The focus this week will be on economic growth data.
On the back of EC downgrades to growth, Germany and the broader Eurozone Q4 GDP (prelim) will be released this week. Germany Q3 GDP declined by -0.2%. The German Office of Statistics released an early forecast indicating that Germany would likely avoid a technical recession.
Japanese Q4 GDP will be released this week and all eyes will be on whether a technical recession will be avoided there too. There has at least been a somewhat stronger rebound in activity since the Sep weather related disruption.
We will get a broad view of the performance of the UK economy amid the ongoing Brexit impasse – with retail sales, Q4 GDP and CPI out this week. There will be further meetings between EU and UK negotiators this week, but little hope of changes to the withdrawal agreement.
In the US, CPI, PPI, retail sales for Dec and business inventories will be released along with the first read of consumer sentiment for Feb.
There are two notable US Fed speeches this week – including Chairman Powell and Atlanta Fed president Bostic giving a speech at the European Financial Forum on economic outlook and monetary policy in Ireland.
The US-China trade talks continue at the end of the week with US Treasury Secretary Mnuchin and USTR LIghthizer travelling to Beijing for talks.
US Treasury supply will be heavy this week, with an additional $50bn Cash Mgt Bill to settle on Mon 11 Feb. This week, the US Treasury will settle approx. $303bn in ST bills, notes and bonds, raising approx. $89bn in new money (incl the $50bn CMB). Its also mid-month and $43bn in US Fed holdings of Treasury securities will mature this week. Of that total, approx. $20bn will be reinvested.
The next deadline for US government funding is this week – 15 Feb.
More detail is provided in the briefing document – you can download the file here;
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
