The Macro Review and Outlook for w/c 4 February 2019

by Kim | Feb 4, 2019

The macro review w/c 28 January 2019 – Despite the looming trade talks, the US proceeded to officially request the extradition of Huawei CFO Meng as well as announce further criminal charges against Huawei. Little detail was provided regarding the trade talk outcomes between the US and China, although brief comments were upbeat. Further high-level talks have been scheduled for mid-month.

As expected, the FOMC kept rates on hold. Comments remained dovish; “muted inflation pressures” and “case for raising rates has weakened” were key statements. The surprise announcement was the decision on the long run monetary policy implementation framework – to retain the current system of ‘abundant reserves’. Past minutes, and even a speech by Vice Chairman Clarida on 10 Jan suggested that the FOMC was still working through its evaluation of the options in the coming meetings. The decision means that the FOMC can complete ‘normalisation’ sooner and with a larger balance sheet than expected. The FOMC is now considering the appropriate timing for ending normalisation.

Brexit remains at an impasse. The UK Parliament essentially voted for the current agreement on the basis that it be renegotiated. Brussels insisted that the deal was not up for renegotiation. Latest news suggests that the UK may look to extend Article 50 beyond 29 Mar as a key UK working group commences work on providing alternative arrangements for the Irish border backstop.

US PMI and ISM numbers indicated somewhat faster overall growth in manufacturing. New export orders remained weak in both surveys. The regional surveys were mixed. The end of the partial government shutdown will help put some firmer numbers around these surveys. Nonfarm payrolls were strong again in Jan, but the very strong Dec growth in payrolls was revised much lower. On an annual basis, employment continued to grow faster than what both population and participation added back to the labour force. The slightly slower growth in employment though, resulted in a smaller decrease in total unemployed persons.

The flash Eurozone GDP growth for Q4 was better than expected with the quarterly growth rate on par with Q3. Italy officially went into recession. The PMI’s for Jan suggest manufacturing weakness is likely to continue. German retail sales data indicated some impact on consumer sentiment with a large fall in retail trade for Dec.

Data from Asia remains disappointing. The post-storm rebound from Oct in Japan appears to have ended with retail sales growth remaining low and industrial production again falling back below last year. Japanese manufacturing PMI was very weak with both production and new orders contracting. Manufacturing PMI’s were also weaker in the key Asian hubs, with Chinese, Taiwan and South Korea manufacturing sectors all falling into contraction.

Some evidence that Australia is catching up to its regional neighbours with a very weak business conditions report for Dec. The CPI growth for Q4 remains below the RBA range and suggests little need to increase rates.

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 4 February 2019 – In the US, the focus shifts back to the data this week with important readings on services PMI’s, factory orders, trade, consumer credit and motor vehicle sales.

US agencies will continue to catch up with delayed data releases – and updated data will be added as available. US government funding remains in place until the next deadline of 15 Feb (next week).

Notable speeches will be the State of the Union address delivered by President Trump this week and Fed Chairman Powell will provide brief remarks in Washington.

US earnings announcements will continue this week.

It will be a lighter week for US treasury issuance, with the US Treasury settling approx. $169bn in ST bills and raising approx. $9bn in new money.

Its Chinese New Year this week and US-China trade talks are likely to pick up again next week – awaiting confirmation on further meetings.

The BoE will meet this week and rates are most likely to remain on hold as the Brexit impasse continues. The UK services PMI for Jan will be an important gauge of activity in the economy.

The RBA will also meet this week – rates are expected to remain on hold. Australian retail sales will be released for Dec providing a gauge for how spending is tracking amid the housing slowdown. Likely to affect sentiment this week will be public release of the Royal Commission into Banking Misconduct in Australia.

Eurozone data this week will round out the view of private sector activity in Jan with services PMI’s to be released. Broader Eurozone retail sales, final German factory orders and industrial production data for Dec will also be released.

Further detail and a calendar of key releases are provided in the briefing document – download it here;

Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net