The Macro Review and Outlook for w/c 4 March 2019
The weekly macro review for w/c 25 February 2019 – US data was a highlight this week. One of the more important insights comes from the US personal consumption expenditure and income release for Dec. This confirmed the weaker retail numbers for Dec (note; after much stronger growth in Nov). At the same time, real income growth accelerated – importantly this included employee compensation. In other words – the decline in consumption in Dec may have been sentiment driven, rather than driven by a worsening of consumer/income fundamentals.
(While nominal disposable income declined in Jan (some one-off reversals), employee compensation continued to grow, albeit slower than in Dec, but on par with prior months. This was the full month of the partial government shutdown.)
Supporting this thesis is the substantial increase in the savings rate for Dec – consumers saved more rather than spent. There was also only a modest improvement in consumer sentiment data for Feb. In fact, Uni of Michigan sentiment data for current economic conditions continued to weaken in Feb after the large fall in Jan. This may mean that further weakness in spending could persist. There was already a large slowdown in Jan auto sales in the US. It will be important to watch for changes in consumer sentiment and employment – both of which could shift spending patterns quickly.
Inventory build was highlighted by Q4 GDP data and the wholesale sales and inventory report which indicated slower growth in wholesale sales and recent inventory growth in that part of the supply chain.
Manufacturing growth slowed – confirmed by the ISM PMI, Markit PMI and the production sub-index of the Chicago Fed National Activity Index. Mixed results from the regional surveys. The slower growth in US factory orders suggests slower output growth is possible. In the
Outside of the US, weakness in manufacturing persisted into Feb. Via the PMI’s, manufacturing went into contraction at the broader Eurozone level in Feb and German manufacturing contracted at a faster pace. The weakness in Japanese industrial production in Jan is likely to persist given the Feb manufacturing PMI fell into contraction.
Concerning Canadian Q4 GDP with much slower growth led by declines in investment spending. The lower Terms of Trade resulted in a decline in National income for the quarter. The manufacturing PMI indicated continued slower growth.
Aus data was mixed with the value of construction work declining while capex in Q4 increased. Some contrary signals from the RBA monetary aggregates. Growth in new credit for the private sector continues to accelerate (and remains slightly negative) – led by growth in new credit for business which is mostly offsetting the continued deceleration in new mortgage credit. At the same time, the slowdown in the decline of the money base (across several measures) seems to have stabilized.
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 March 2019 – Central bank interest rate decisions will feature this week;
RBA decision scheduled for early in the week while GDP for Q4 will not be released until after the decision
BoC – looking for signaling on the slower growth from Q4
ECB – also looking for any shift in signaling as growth and activity data continues to disappoint
Several US Fed speeches this week. Of note is a speech by Chairman Powell on Monetary Policy Normalization and Review – at the 2019 Stanford Institute for Economic Policy Research (SIEPR) Economic Summit. As well, NY Fed President John Williams will give a speech on “The Economic Outlook: The ‘New Normal’ Is Now” at the Economic Club of New York.
US data of note; the monthly employment and non-farm payrolls for Feb, motor vehicle sales for Feb (Jan data was very soft), ISM non-manufacturing PMI.
Services PMI’s will be released across the major economies rounding out the view of private sector activity and output in Feb.
Also of note; Germany factory orders for Jan to confirm the weaker manufacturing PMI readings and China trade data out later in the week.
There will be lighter supply of treasuries settling this week with the US Treasury settling approx. $182bn in ST bills, raising approx. $21bn in new money.
Other important events this week that could shift sentiment;
Progress on an appendix to the Brexit Article 50 agreement leading up to the UK Parliament meaningful vote on 12 Mar.
An announcement of an agreement on trade between the US and China – with details.
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
MCP Market Update: March 4th, 2019 – Melt-up
