The weekly macro review for w/c 20 May 2019 – The FOMC minutes reflected a somewhat more upbeat, yet guarded view on growth and risks – “some of the risks and uncertainties that had surrounded their outlooks earlier in the year had moderated”. Unfortunately, the rates decision was made prior to the escalation in the trade dispute between the US and China. Several points noted in the minutes have also been superseded by weaker data on retail sales and manufacturing activity. The Board maintains that low inflation is due to transitory effects. Nonetheless, ‘muted inflation’ and the global economic backdrop warrant a patient approach to rates.
From the RBA, some of the more positive underpinnings of the recent outlook (US-China trade etc) have now shifted to uncertainty and have tilted risks to growth to the downside. The RBA meeting was just after news broke of the deterioration in trade talks between the US and China. Domestically, the low inflation print for the Mar 2019 quarter and the income/spending impact of falling house prices has the Board monitoring the labour market very closely. What has concerned the board is that, despite very strong employment growth, underemployment/slack in the labour market remains elevated and is likely to slow down progress of wage growth (and reaching the inflation target). During the week, Governor Lowe suggested that a discussion on rate cuts was likely at the next board meeting.
Data on manufacturing in the US continues to disappoint. The advance Durable Goods report for Apr highlighted that both shipments and new orders fell in Apr, with Mar results also revised lower. This confirmed the weaker manufacturing data within the industrial production report from the previous week.
The prelim US composite PMI suggested that this weakness accelerated in May with both services and manufacturing growth slowing quickly. New orders in manufacturing declined in this survey for the first time since ’09, employment growth slowed to a marginal rate and business sentiment fell amid a worsening trade backdrop.
Japan prelim manufacturing PMI also fell back into slight contraction in May. While measures of demand remained weaker, most concerning was the shift in manufacturing sentiment to a ‘negative outlook’ – the lowest level in over six years.
The Eurozone prelim PMI was little changed. Results in core countries were more mixed, but there was some deterioration in demand within periphery countries.
Escalations continue between the US and China outside of strictly trade issues, and this is likely to continue. No further talks have been scheduled at this stage.
Amid the impasse on Brexit, PM May will step down as leader on 7 June.
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 27 May 2019 – US growth and sentiment will likely be a focus this week. The second or ‘prelim’ version of Q1 GDP will be released, along with the latest personal consumption and expenditure data for Apr. Of interest will be the income data – after weaker growth in the Mar monthly data. The final read of consumer sentiment for May will be released – again this will be of interest as the prelim reading was taken before the US announced it would revisit tariffs on Chinese imports – this may or may not impact consumer sentiment. Finally, there are several regional surveys providing some further insight into slowing US manufacturing growth.
As mentioned last week, trade headlines and posturing are likely to remain a feature over the next few weeks. Although there was a one-month deadline given for the trade deal, this is likely to draw out until after the US has completed its review process into tariffs on the remaining $300bn of Chinese imports (after 17 Jun).
Data out of China has been somewhat disappointing after the initial lift in Mar. This week, the NBS will release the manufacturing and non-manufacturing PMI’s for May.
Also of note will be the prelim read on Japanese industrial production for Apr.
The Bank Of Canada will meet on interest rates.
The RBA will release private sector credit data for Australia for Apr.
US Treasury supply will be heavier this week and its month end. The US Treasury will settle approx. $294bn in ST bills and coupons this week, raising approx. $51bn in new money – the heaviest for several months. Approx. $20bn in securities on the Fed balance sheet will mature on 31 May and approx. $14bn of that will be reinvested under the revised lower monthly cap.
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
