The Macro Review and Outlook for w/c 29 April 2019

by Kim | Apr 29, 2019

The weekly macro review for w/c 22 April 2019 – US GDP growth accelerated higher in Q1. The underlying drivers of growth provide a mixed message on economic activity. Growth was higher on the back of faster export growth, coupled with declining imports (higher net exports), and a continued increase in the change in inventory. Personal consumption growth and private fixed investment spending growth both halved.

The inventory build has been observed across several reports over the last few months especially within retail and wholesale channels, as sales growth slowed. An important point is that consumer retail sales, including motor vehicle sales, improved in Mar. If this higher growth in consumption can be maintained, then the inventory build may dissipate over the next few months. Growth in personal consumption expenditures, retail sales, and motor vehicle sales will be important data points to watch over the next few months.

One feature of the two regional surveys out this week for Apr was the weaker growth in employment and/or hours worked. The Richmond Fed manufacturing survey highlighted a weak rebound in activity – with a further notable increase in inventory for Apr and fall in the average work week – the largest decline since 2008.

US consumer sentiment for Apr continued the sideways move, but consumers remain upbeat about financial prospects in the year ahead.

The BoJ sounded an alarm on the economic outlook in Japan due to global uncertainties and the planned tax hike in Oct. The bank announced plans to expand the range of eligible collateral for lending and clarified its forward guidance that low rates will be maintained until at least Spring 2020. On cue, prelim industrial production declined sharply in Mar – in line with the weaker result indicated by the manufacturing PMI for Mar. Retail sales growth was stronger in Mar and recorded the first small acceleration in annual sales growth.

Australian CPI surprised to the downside with growth in the quarter at 0%. Annual price growth, including measures of core CPI, continue to trend further below the RBA target range. Both domestic and external factors are contributing to the lower price growth in the quarter and the year.

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 29 April 2019 – A big week of US data, with the FOMC rates decision, employment, and non-farm payrolls and PMI’s for Apr.

Personal Income and Outlays and the PCE price index data will round out the Q1 view of consumption activity. We’ve been tracking slower spending growth and higher savings rates so far in 2019, with stronger growth in retail sales in Mar.

Another data point to watch this week will be whether the higher growth in US motor vehicle sales has continued in Apr.

PMI’s for China manufacturing, and services activity will be released this week – looking for whether the recovery in activity has continued into Apr.

UK – BoE rates decision due this week along with the PMI’s for Apr. This will provide an early insight into the impact on the UK economy, so far, of postponing Brexit (after preparations were put in place for 29 Mar exit). Talks between the UK Government and the Labour party will continue this week, but it is unlikely that there will be another vote in Parliament on Brexit this week.

Q1 GDP for the Eurozone will be released along with the final PMI’s for Apr. Prelim data, especially for manufacturing activity showed continued weakness across the Eurozone into Apr.

US Treasury supply will be heavier this week. The US Treasury will settle approx. $310bn in ST bills and notes, raising approx. $37bn in new cash this week (after several weeks of paydowns). It’s also month end and $31.7bn in securities on the Fed balance sheet will mature and approx. $1.9bn in principal payments will be reinvested. Next month, the cap on reinvestments will be lowered to $15bn until the end of Sep 2019.   

Trade talks between the US and China continue this week with plans to finalise details of a trade deal. At the same time, awaiting further details on the next round of talks between the US and Japan, as well as the commencement of talks between the US and EU.

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 22 April 2019

by Kim | Apr 22, 2019

The weekly macro review for w/c 15 Apr 2019 – China economic data continued to improve this week. While there was faster growth in industrial production and retail sales in Mar, this was yet to be reflected in the quarterly GDP growth result. The Q1 2019 GDP growth rate slowed to +1.4% versus +1.5% in the prior quarter and +1.5% in the same quarter a year ago.

The impact of Chinese stimulus on other countries remains mixed. South Korea exports to China in Apr continue to deteriorate. EU exports to China were much stronger in the YTD Feb +13% (versus +6.2% growth in the full year 2018). Japan exports to China fell again in Mar by -9.4% versus a year ago.

The improvement in US retail sales growth was an important data point this week. Growth was stronger across most categories for the month – the question is whether it will be sustained. The prelim Apr sentiment data last week indicated a ‘sideways’ move rather than any acceleration higher. Continued retail growth (consumer pull-through) over the coming months should help ease issues with inventory build evident within the wholesale supply chain.

Overall US industrial production and manufacturing growth continue to flatline – while some regional indexes have improved. The prelim PMI for Apr indicated a marked slow-down in service-sector activity while there was little change in manufacturing activity.

PMI data for Europe indicates private sector growth likely slowed further in Apr – the slightly slower contraction in manufacturing was offset by somewhat slower growth in services. New export orders continued to contract at a steeper pace in Apr and for the 7^th month in a row. Despite this accelerating contraction in new export orders, EU trade data out last week shows that so far, EU export growth in the YTD to Feb (+4.1%) remains on par with the full year 2018 of 4%. Based on the PMI readings for new export orders (especially for Mar and Apr), EU export growth may slow in the coming months.

Given that the Brexit deadline was moved out at the last minute, most organisations had been preparing in the months leading up to that deadline and stock-piling/bringing forward orders etc. This has been noted in the PMI’s in Feb and Mar. Some of that is visible in the EU trade data; in the full year 2018, UK imports grew at 0% but in the YTD Feb 2019, imports grew at a much faster +10%. UK retail sales for Mar were very strong again and annual growth accelerated to a near term high of +6.6%. Will this stronger run of activity be sustained now that the deadline on Brexit has been moved to 31 Oct and, will firms continue to maintain higher inventories until Brexit is resolved? Elsewhere, in the UK, the labour market remains strong and inflation steady.

The US and China appear to be in the final stages of the trade deal negotiation. Our focus now shifts to the commencement of the US-EU negotiations – the importance of which cannot be underestimated. This week, the EC approved negotiation directives which did not include agriculture. At the same time, President Trump has threatened that he will impose auto tariffs if agriculture is not included in the negotiations. No date has been set for the commencement of talks.

The annual picture of the Australian labour market remains robust. But on a monthly basis, there is a subtle (continued) weakening in conditions. In the prior month we noted that the more recent monthly employment growth was now below that of the total labour force – resulting in small increases in total unemployed persons on a monthly basis. This trend has continued in Mar resulting in a further (small) increase in unemployment.

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 22 Apr 2019; US corporate earnings are likely to be in focus this week with many of the larger corporates reporting. Signaling around future activity will be of interest.

Important US data this week – prelim Q1 GDP, durable goods for Mar and the final Apr consumer sentiment data.

It will be quiet on the US Fed front ahead of next week’s FOMC meeting.

Interest rate decisions this week from the Bank of Canada and the Bank of Japan.

The BoJ will also release its Q1 outlook report. The prelim Mar industrial production for Japan will also be released this week – weaker manufacturing PMI’s for Mar and Apr suggest ongoing weakness in production data.

Aussie Q1 CPI will be released this week – an important data point ahead of next week’s RBA interest rate meeting.

US Treasury supply will be lighter and there will be another pay-down.  The US Treasury will settle approx. $189bn in ST bills, with a net paydown of $13bn.  

US-EU trade negotiations will likely become a larger focus. The EC has now approved its negotiation directives and objectives conflict with that of the US. President Trump has threatened tariffs on Auto’s if agriculture is not included in the negotiations and the EC directive does not include agriculture. There has also been some escalation in the Boeing/Airbus subsidies dispute.

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 15 Apr 2019

by Kim | Apr 15, 2019

The weekly macro review for w/c 08 Apr 2019 – Data out late in the week confirmed the large degree of monetary stimulus now supporting the Chinese economy. Growth in total social financing in Q1 increased by +10.7% versus the same time a year ago. China’s trade data was still mixed – export growth was much stronger than expected but imports continued to decline. This suggests continued weaker domestic demand as well as likely weaker export trade data for some Chinese trade partners.

The ECB this week kept rates on hold, acknowledging that risks in the region remain tilted to the downside.

Three related US datapoints stood out this week. The FOMC minutes confirmed that, on balance, rates are likely to remain on hold through this year, despite mention of ‘data dependence’. “Muted inflation” is enabling “a patient approach” on rates.

CPI and PPI data out this week indicate some price pressure returning from energy prices. This will be important to watch. While annual growth in the headline CPI accelerated between Feb and Mar due to a less negative impact from energy prices, the monthly change highlighted faster growth in consumer facing energy prices. Similarly, there was some upward pressure from energy prices in the PPI.

Any potentially faster inflation growth, in the absence of accelerating wage growth, is likely to hurt consumer sentiment. Commentary from the prelim consumer sentiment report for Apr highlights that – “what has been of increasing importance to consumers are rising nominal incomes, and low inflation, producing strong gains in inflation adjusted incomes”. Sentiment measures continue to move sideways.

A further reprieve on deadlines for Brexit. Although the “final” date has been pushed out to 31 Oct, there is a still a sense of urgency on striking a deal to avoid taking part in the European Parliament elections.

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 15 Apr 2019 – A short but very data heavy week.

Performance of the Chinese economy will likely be important this week with Q1 GDP growth, retail sales, and industrial production data to be released.

Given the large growth in monetary stimulus in Q1 in China and the first possible signs of improving activity, we will be looking for evidence of this starting to impact key trade partners.

US data will focus on domestic production and consumer spending as well as international trade. Of note will be retail sales (stronger motor vehicle sales should feature), inventories through the trade channels, industrial production, international trade and the first view of manufacturing and services PMI’s for Apr.

Japan CPI, final industrial production and international trade data will be released.

In Europe, the prelim manufacturing and services PMI’s for Apr will be important gauges of any improvement in manufacturing momentum especially. Also of note will be Eurozone trade and CPI data.

UK data; retail sales, CPI and the labour force data for the 3-months to Feb.

The RBA minutes will be released this week as well as the key labour force survey report.

US-China trade negotiations will continue this week with a deal still expected to be completed within the next few weeks. US-Japan trade negotiations will commence this week. Further details on the commencement of US-Europe trade negotiations is also be expected this week.

The US International Trade Commission is likely to provide its analysis of the USMCA/NAFTA agreement shortly. The revised timing for the report was ‘mid-Apr’ due to the partial government shutdown. This will be a vital report in the process of ratifying the USMCA/NAFTA agreement by the US Congress.

US Treasury supply will be heavier this week but there will be another pay-down.  The US Treasury will settle approx. $241bn in ST bills, notes, and bonds this week. The 42-day CMB will also mature this week and there will be a net paydown of $39bn.  

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