The weekly macro review for w/c 11 February 2019 – Weaker industrial production and external trade were key themes this week.
Key industrial production reports were weaker with output declining in Japan (Dec), the EU (Dec) and the US (Jan) in the month. Output in Japan and the EU fell below output levels from a year ago. The decline in production in the US was led by an 8.8% fall in motor vehicle and parts production.
GDP reports for Germany and Japan confirmed the weaker state of external demand late in 2018. Germany narrowly missed a technical recession as net exports likely detracted from growth. Growth rebounded in Japan in Q4, but the year on year result was such that annual GDP growth in Q4 slowed to -0.01%. The external sector also detracted from growth.
The EU goods trade balance for Dec and the full year 2018 trade balance confirmed the broadly weaker trade position. Goods exports declined in Dec while imports grew. In the full year of 2018, exports grew at a slower rate than imports. The detail highlights that growth of the largest export product group, machinery and vehicles, finished the year at +1.8%, lagging total goods exports growth of 4% for the year.
The question facing both Europe and Japan is whether the US will place a 25% tariff on car and truck imports. President Trump was scheduled to receive the final report into tariff recommendations from the s.232 National security investigation into car and truck imports by 17 Feb. The President has 90 days to review and action. President Trump has previously assured the EU and Japan that no additional tariffs will be levied while trade negotiations are underway (about to get underway).
UK Q4 GDP highlighted that Brexit has likely put a brake on business investment decision making amid a weaker external sector (net trade also detracted from growth in Q4) resulting in slower overall growth. Consumption remains resilient and growth in retail sales accelerated in Jan. Growth in the CPI slowed as energy prices declined.
The large magnitude % decline in US retail sales for Dec was important. While the report was weak (growth in autos was offset by declines in spending across all other categories), the broader context of the data makes it difficult to say whether this is the start of a trend in slower consumption. The decline in retail sales is inconsistent with the consumer credit data that was released last week for the month of Dec. Whilst revisions to data will be possible next month (consumer credit or retail), the Jan retail data will likely still be impacted by the partial govt shutdown. The weaker motor vehicle sales for Jan (released last week) will also likely weigh on next month’s retail result.
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 18 February 2019 – Later in the week we get our first view of Feb private sector manufacturing and service activity with the prelim Feb PMI’s to be released for the US, Eurozone,
It will be a short week in the US – the focus will be on the FOMC minutes and especially comments around the balance sheet size and the interest rate regime. Durable Goods Orders for Dec will be released as well as the latest housing market index (Feb) and existing home sales data (Jan). As we move into reporting Feb data for the US, it will be interesting to see any impact on data from the end of the partial government shutdown and the pivot by the Fed to hold off on further rate hikes.
Several Fed speeches are so far scheduled for Friday – topics include “the future of the Federal Reserve’s balance sheet”.
The US-China trade talks continue this week – USTR Lighthizer and Vice Premier Lui He will meet again in Washington as the 1 March deadline approaches.
US treasury supply will be much lighter this week, with the US Treasury settling approx. $169bn in ST bills and raising approx. $12bn in new money.
In Australia, the Wage Price Index for Q4 will be released along with the Jan Labour Force Survey results. Both will be crucial inputs for the RBA decision on interest rates.
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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
