The Macro Review and Outlook for w/c 8 April 2019
The weekly macro review for w/c 1 April 2019 – The rebound in the official China NBS Manufacturing PMI for Mar set a positive tone for the week. The underlying drivers of expansion suggest that improvements in production and new orders signal that measures to stimulate may be starting to impact activity. Of note was the Caixin Manufacturing PMI which reported a ‘significant’ improvement in manufacturing employment.
In the US, a slower pace of manufacturing activity over the last four months was confirmed by the latest ISM. The business inventories report highlighted the growing build-up in inventories through the distributive trade channels – especially merchant wholesalers. Also of note was the more downbeat reports on services growth via both the Markit and ISM PMI’s.
The Feb retail sales indicated consumer spending remained subdued. This was partly confirmed by the continued slower growth in consumer credit, especially in the last 3-months to Feb. The rebound in motor vehicle sales in Mar (the more recent of the reports) suggests a more positive outlook for spending – in line with the improvements in consumer sentiment.
Non-farm payrolls rebounded in Mar. The household survey shows that over the last year, total employment has grown faster than what both population and participation have added to the labour force. As a result, the number of total unemployed persons continue to decline. Of note though is that participation growth has stalled, and employment growth has slowed.
Data from Europe and Asia continues to indicate weakness in manufacturing across key economies. The decline in new factory orders in Germany accelerated in Feb – led mostly by falls in foreign new orders but domestic orders also declined. Headline German industrial production grew in Feb but production in manufacturing continued to decline across most industry categories. Japanese manufacturing activity continued to contract, while services growth remained steady at more moderate levels.
The RBA kept rates on hold. Signalling from the latest statement suggests that RBA may no longer be ‘on-hold’ at future meetings. Stronger growth in retail sales may allay fears that continued falls in house prices are impacting spending. The govt budget featured a forecast return to surplus in the ‘19-20 financial year and spending measures included some stimulus in the form of tax cuts and cash payments for some households. A date for the election is yet to be called but is expected by late May.
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 8 April 2019 – Data out on China this week will be a key focus as we look for signs of continued improvement in activity, especially in international trade. New loans and money supply data will also provide an indication of the degree of stimulus still being provided.
Central bankers will be back in focus this week. US FOMC minutes will be released and there are several speeches throughout the week including Chairman Powell. Other speeches of note include Vice-Chair Clarida as a part of the Fed’s review of monetary policy strategy, tools, and communication practices and Vice-Chair Quarles participating in a round table on reforming major interest rate benchmarks.
The ECB meets this week. While rates will likely remain on hold, signalling will be important regarding ECB view on the continued weaker manufacturing growth in key economies.
US data of note this week will be CPI & PPI. The broader view of factory orders for Feb will provide some further insight into manufacturing trend growth. We’ll also get out first view of Apr consumer sentiment numbers.
Aus data of note will be lending for housing.
It’s down to the wire again for Brexit. PM May continues to negotiate a compromise with the Labour Party to pass the withdrawal agreement in Parliament. If such a compromise is reached (and passed), it is to be presented and approved at the EU summit on 10 Apr. If either no compromise is reached across parties or the EU rejects the proposal, then it’s possible that a longer delay to Brexit will be agreed upon.
Awaiting further announcements on the progress of US-China trade negotiations.
US Treasury supply will lighter this week. The US Treasury will settle approx. $163bn in ST bills. With a CMB also maturing this week, there will be a net paydown of $37bn.
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
MCP Market Update: April 8th, 2019 – Gold, Bonds and Yen
The Macro Review and Outlook for w/c 1 April 2019
The weekly macro review for w/c 25 March 2019 – The focus last week was on US data and performance.
Indices of US regional and National activity indicated a
Housing – the uptick in mortgage application growth so far this year is yet to fully translate into sustained higher pending home sales data. House price growth continued to slow. Lower mortgage rates are now just starting to kick in at the beginning of the Spring selling season.
US Q4 GDP growth was revised lower. This was due to lower growth in personal consumption expenditure, private domestic investment and govt consumption and investment expenditure. Net exports were revised higher to be ‘less negative’.
The trend of slower growth in personal consumption expenditures continued in Jan – likely the product of a continued cautious consumer at the time of negative headlines on the govt shutdown and a volatile period on the stock market. Jan was also the month where sentiment readings fell hard. Consumption expenditures grew only marginally in Jan as purchases of durable goods continued to fall. Disposable income growth fell in Jan which was the result of a fall in personal dividend income, farm proprietors’ income, and personal interest income (partly reversing large increases in Dec) – rather than a fall in employee compensation. Growth in employee compensation and wages & salaries has remained constant through to Feb. Disposable incomes continued to grow in Feb. The important clue is that the saving rate remained elevated in Jan (after increasing in Dec) – indicating that consumers likely held off on the larger purchases.
Consumer sentiment measures (Uni of Michigan) have continued to improve into Mar. Headline measures of sentiment are now all above the Jan lows and are in line with the last 12-month averages. This may be supportive of improvements in spending in the coming months.
The latest annual growth in PCE price indexes for headline and core inflation continued to slow. Both measures were lower than current Fed projections for 2019 and remain below the FOMC 2% symmetrical target. Current inflation readings suggest rates will remain on hold.
Of interest outside of the US was Japanese industrial production. This has been one indicator of the broader manufacturing, trade influenced, slow-down in Asia. The Feb prelim data showed some improvement in the month – but the production index remains below the levels seen throughout most of 2018. While total shipments and production remain below the same time last year, several key area’s such as the
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 1 April 2019 – Indicators of global manufacturing activity will be a key focus this week. Final manufacturing PMI’s for Mar will be released for Europe, Asia, US, and the UK. The Chinese PMI’s have been of interest as stimulus measures are expected to drive improvement in activity, resulting in a flow-on effect through to key trading partners. Germany new orders and industrial production for Feb will be an important barometer of activity after the much weaker PMI readings (and production data) of late.
US data out this week will focus on manufacturing and services activity and the US consumer. Of note will be PMI’s and ISM indexes, durable goods orders, non-farm payrolls, retail sales, motor vehicle sales,
The RBA will meet for its rates decision this week. Rates are expected to stay on hold.
Another Brexit vote will likely take place in the UK Parliament early this week. If the deal is defeated for the
The US-China trade negotiations will continue this week with Chinese Vice Premier Lui He traveling to Washington to resume trade talks on 3 Apr.
US Treasury supply will remain heavier this week, with last week’s notes auctions settling early this week. The US Treasury will settle approx. $282bn in ST bills and notes, raising approx. $34bn in new money for 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
MCP Market Update: April 1st, 2019 – Bears Fumble
