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 7th 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
