The Macro Review and Outlook for w/c 25 March 2019

by Kim | Mar 25, 2019

The weekly macro review for w/c 18 Mar 2019; Two points stand out from this week.

The first is the FOMC decision. There was a shift in the signalling of the future path of rates since the Dec meeting – no change in rates through 2019. Growth and inflation targets were revised lower for the year and u/e revised higher. The FOMC sees inflation as muted and acknowledges that the committee is not meeting the inflation target in a symmetrical way. Data is softening at this stage. Details of QT ending and reduction in reinvestment caps were outlined. For now, the Fed is easing without cutting rates, including its signalling of rates on hold.

US data out this week continued to confirm a ‘softening’ trend, with factory orders and the prelim Mar PMI indicating slower growth. On the other hand, there has been a small improvement and stabilization in some housing metrics.

The second point was the acceleration in the contraction of manufacturing PMI’s (prelim) in Europe for Mar – especially in Germany. The magnitude of the contraction was unexpected and raised concerns more broadly over the trajectory of growth. Final reports will provide more detail, but the early indications suggest declines in new orders, including export orders and continued falls in order backlogs, are likely to continue to impact output for some time.

Japanese data was mixed. Inflation remains well below the BoJ target. Trade data for Feb indicated exports continued to decline, but stronger export performance was reported for the two main export markets US and China. Final industrial production numbers for Jan were revised slightly higher on the back of unusually strong growth in Food & Tobacco production & shipments. The prelim Mar PMI indicated that the contraction in manufacturing continued.

The decline in Australian house prices accelerated in Q4. The RBA minutes indicate heightened uncertainty regarding the domestic economy. The bias for rates is no longer ‘the next move will be up’. The RBA minutes clearly state that developments in the labour market will be important. The Australian labour market data this week was mostly strong, but employment growth continued to slow.

Brexit disruption continued this week. The third vote was pulled and an extension was granted by the EU27, contingent upon the outcome of another vote or other such agreement by the UK Parliament on the direction of Brexit. The dates for the extension are now shaped by the upcoming EU parliamentary elections. UK data out this week indicated that the labour market remains strong, inflation is steady and retail sales continue to grow. The BoE kept rates on hold citing Brexit as the most important near-term issue in setting policy. The BoE continued to signal that the future path of rates will depend on the nature and timing of Brexit.

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 25 Mar 2019; A less data-heavy week but events are in place that could impact sentiment, nonetheless.

Speeches by Central Bankers will feature this week; speeches by US Fed Presidents will be numerous, as well as ECB President Draghi and RBA board members throughout the week. The RBNZ will meet for its rates decision this week.

Some form of Brexit vote (a third vote) or agreement on the direction on Brexit should take place in the UK Parliament this week. The Brexit deadline has been extended and the date will be contingent on what happens in the UK Parliament.

The US-China trade negotiations will continue this week with USTR Lighthizer and Treasury Secretary Mnuchin traveling to Beijing for meetings from 28 Mar.

US data will focus on growth, housing, and regional manufacturing. Of note; the second estimate for Q4 GDP, income (Feb), outlays (Jan) and the PCE price index for Jan. Housing data was a brighter spot last week, so will watch for signs of continued improvement or at least stabilization. Regional manufacturing surveys will provide some insight into Mar activity.

The prelim Japanese industrial production data for Feb will be released – against a backdrop of weaker/contracting manufacturing PMI’s.

US Treasury supply will be somewhat heavier this week. The US Treasury will settle approx. $237bn in ST bills, TIPS and FRN’s, raising approx. $47bn in new money. The US Treasury will also auction approx $113bn in 2/5/7yr notes this week – which will settle on 1 Apr, raising approx $41bn in new money.

As it is quarter end and approx $22bn of securities on the Fed balance sheet will mature on 31 Mar. This is below the $30bn cap, so there will be no reinvestments.

More detail (including a calendar of events) 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

The Macro Review and Outlook for w/c 18 March 2019

by Kim | Mar 18, 2019

The weekly macro review for w/c 11 Mar 2019 – The more subdued US retail environment extended into Q1 2019. Retail sales in the US grew marginally in Jan, despite the falls in motor vehicle and gas sales. The rebound in sales excluding autos and gas was larger but sales remain below the Nov 18 level. Consumer sentiment continued to improve in Mar (prelim report) – readings on sentiment and current economic conditions are still below the same time a year ago, but future expectations are now ahead of last year. Current sentiment readings remain elevated and are consistent with continued spending growth.

Headline US CPI growth slowed due to lower energy prices. But core CPI remained steady around 2.1% led mostly by higher growth in prices for shelter.

The trend of accelerating growth in manufacturing activity through late 2016 to early 2018 has shifted to either a more constant rate or slower growth environment.

The broader slowdown in manufacturing activity was reflected in the US industrial production data (Feb) and durable goods report (Jan). US industrial production growth remained low in the latest month with production in manufacturing declining for the second month. Manufacturing capacity utilization is starting to reflect this slower growth.

Durable goods orders were higher in Jan due to transports. Excluding the effect of larger transport orders, the slow-down in annual growth in orders and shipments is more pronounced.

There were some positive signs from Europe;

German industrial production fell in Jan, but the decline in Dec was revised to a positive/growth result. Production in Jan remains below last year. Declines in production of intermediate and capital goods were the key drivers of the Jan result. The German trade surplus was lower as export growth remained below import growth. Importantly, export and import growth for the month outperformed in non-EU member states (“third countries”).

Broader Eurozone industrial production grew in Jan especially in key economies and across major industry groups.

The BoJ kept rates on hold and the statement acknowledged weaker export and industrial production activity – as a result of slowing overseas economies.

The growth in housing finance for Australia continued to decline in Jan – on both a value and number of commitments basis. The value of lending to households for dwellings was 21% below the same time a year ago in Jan.

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 Mar 2019 – Several central bank decisions will be in focus this week. The FOMC meets this week. While rates are likely to remain on hold, we will look for signalling on future rate changes, the end of the balance sheet run-off and the assessment of the US economy and outlook.

The BoE also meets this week as Brexit goes down-to-the-wire. Rates will most likely remain on hold. The BoE meeting will be after the likely third vote on Tuesday, but before the EC summit. Brexit “should be” clearer after the EC summit on 21-22 Mar – only 7 days before the 29 Mar Brexit deadline.

Data this week to track the slow-down in manufacturing and production – Japan (final) industrial production for Jan, US factory orders for Jan and the prelim round of Mar PMI’s for Europe, Japan and the US to round out the view of Q1 activity.

On the Aussie housing market decline – the official ABS Q4 house price index will be released. The Aussie labour market survey for Feb is out this week – leading indicators of employment growth have been slowing. Any material deterioration in the labour market could start to shift the RBA bias towards rate cuts.

US treasury supply will be more moderate this week. The US Treasury will settle approx. $182bn in ST bills this week raising approx. $21bn in new money.

The US-China trade negotiations – news on progress will likely continue to be drip-fed throughout the week.

More detail ( including a calendar of events) 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

The Macro Review and Outlook for w/c 11 March 2019

by Kim | Mar 11, 2019

The weekly macro review for w/c 4 March 2019 – Slower growth remained a key theme last week. Sentiment also soured as the US-China trade agreement now seems further away than most expected. Reports are that the March summit has been postponed. Brexit negotiations also failed to deliver a solution to the Irish border backstop issue.

The ECB officially shifted its guidance for rate increases out to at least the end of 2019 and growth forecasts for 2019 were materially lowered with the outlook weaker than expected. The growth forecast for 2019 now equals the current annual GDP growth rate for the Euro Area +1.1%. The ECB also launched a new TLTRO program to commence in Sep. At the same time, German factory orders decreased in Jan but Dec results were revised higher – something positive to watch. Eurozone retail sales growth also rebounded in Jan across most categories.

The Bank of Canada kept rates on hold. The BoC highlighted that Q4 growth was much weaker than the bank had forecast back in Jan. The slowdown was much broader than just oil-related areas of the economy. With core inflation steady, rates likely remain on hold in the near term.

The RBA also kept rates on hold. Aus GDP growth slowed further in Q4 to +0.17% after the ‘surprise’ slowdown in Q3. The RBA’s central forecast for 2019 growth is currently 3%. Retail sales growth remained subdued/marginal in Jan and the Service PSI indicates continued weakness in retail for Feb. Forward indicators of employment growth show some moderation in employment growth.

US labour market data was a key focus this week. Reported job cut announcements increased further in Feb, with an emphasis on industrial goods and retail. Hiring announcements were much lower. The non-farm payrolls growth slowed significantly bringing the average growth lower. From the household survey, employment growth continued to slow but that growth remained larger than the growth of the labour force, resulting in total unemployed persons declining further on an annual basis.

The unemployment rate declined in Feb to 3.8% from 4% in Jan as a result of a lower total number of unemployed persons. The data likely still reflect some impact from the shutdown – with unemployment higher previously due to the classification of furloughed federal employees as on ‘temporary layoff’.

US services PMI’s indicated a faster pace of growth (consistent across both ISM and Markit reports) – the underlying drivers were positive. Markit quotes that firms were unsure that current demand conditions could be sustained.

Trade data from China continued to disappoint for Feb coming in much lower than expected. Chinese credit growth also came in much lower than expected, but aggregate financing for Jan plus Feb is still well above last year but will take time to flow through to activity. The Caixin Services PMI weakened markedly in Feb.

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 March 2019 – Important data is out this week as we continue to track the effect of the US government shutdown on Q1 activity and whether/how much the broader global slowdown in manufacturing and trade is affecting the US;

US Jan retail sales will kick the week off after the much weaker result for Dec. Consumer sentiment fell in Jan and this could be a driver of spending decisions.

US Durable Goods and Industrial Production reports are also out this week.

Other reports out this week should provide insight into the impact of the global slow-down in trade and manufacturing on other key economies;

Industrial production reports this week for Germany, the Eurozone, and China, as well as German international trade data.

CPI will be reported for the US, Germany and Europe.

We will also track for indications of Chinese stimulus starting to impact activity. This week China retail sales and fixed asset investment will be reported.

Australia housing lending data for Jan will be released this week – as we continue to track the fall in house prices.

Central banks; BoJ rates decision and introductory remarks from US Fed Chairman Powell.

Much heavier supply of treasuries this week. The US Treasury will settle approx. $260bn in ST bills, notes and bonds this week raising approx. $75bn in new money.

It is an important week for Brexit as there are only several weeks left until the 29 Mar Brexit deadline. The meaningful vote scheduled for 12 Mar will possibly become a ‘provisional’ vote. If defeated, there is likely to be a vote on a no-deal Brexit followed by a vote on requesting a delay to Brexit. This will unfold throughout the week. 

The US-China trade negotiations continue.

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