The Macro Review and Outlook for w/c 6 May 2019

by Kim | May 6, 2019

The weekly macro review for w/c 29 Apr 2019 – US data and events dominate the review this week and results are mixed.

Weak inflation. The FOMC appears to be discounting the weaker core inflation growth reported this week, believing that ‘some transitory factors may be at work’. The monthly change in the core PCE price index has been slowing since the start of the year. Both core services and goods prices are contributing to the slower growth as of Mar. The annual growth in core services prices has been slowing since mid-2018 and core goods prices slowing more so in the last two months.

Weaker personal income growth for Mar was also reported this week. Data is now up to date after the shutdown and, after revisions, the Mar result is the third month in a row where disposable personal income growth has stalled, falling to zero in Mar. While employee compensation growth remained on par with the prior month, falls in other forms of income detracted from overall personal income in the month – mainly personal interest income and farm proprietors income.

Motor Vehicle sales fell again in Apr. The fall in Apr means the SAAR is almost back on par with the Jan/Feb lows – obviously that higher level of growth from Mar has not been maintained. This will likely detract from the next retail result and is so far not a good sign of a rebound in consumer expenditure.

Factory orders headline numbers suggested a strong rebound – on the back of stronger orders for transport equipment. But underlying annual growth in shipments and new orders have slowed over the last few months, and especially so in Mar. While it’s not obvious, it’s likely that petroleum (price fluctuations) is influencing the headline numbers especially since late 2018. The ISM manufacturing report, regional surveys and Markit manufacturing PMI confirm this weaker growth.

Non-farm payrolls were stronger. The household survey of employment wasn’t as strong as it has been. In the annual view, the larger decline in the total number of unemployed persons was the result of slower growth in the labour force rather than faster/accelerating growth in employment. This was the fourth month where annual employment growth has slowed.

The monthly employment figures are somewhat more concerning. Employment declined again in the month. What ‘saved’ this report was the 0.02% pt decline in participation – which equated to approx. 517k persons leaving the labour force. As a result of this decline in participation, total unemployed persons declined.  The fall in total unemployed persons “technically” occurred while employment declined in the month.

US-China trade negotiations appear to have stalled. President Trump announced that Friday 10 May is now a deadline to complete negotiations before the tariff rate is again increased. China’s manufacturing PMI’s for Apr suggested little acceleration since the stronger Mar result.

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 6 May 2019 – The US-China trade negotiations are back front and center this week. There is no confirmation yet that Vice Premier Lui He will cancel his planned trip to Washington this week. The US President has given 10 May as a deadline to complete the deal before tariffs are increased.

Data will likely focus on China this week; trade, CPI, new loans and services PMI will be released. Again, we look for signs of further improvement in the economy.

Important US data this week will be CPI and PPI. Wholesale trade data will provide a view on inventories through the distributive channels. Consumer credit for Mar will include the quarterly view of auto loans.

US Fed speeches will feature this week, including Chairman Powell providing opening remarks at the “Renewing the Promise of the Middle Class” research conference.

The Reserve Bank of Australia will meet this week. It’s been a long time since there was an elevated chance of a rate cut. The latest probability is a 40% chance of a cut to 1.25% (down from a 68% chance of a cut after the weak CPI report on 23 Apr). The only reason the RBA may not cut is that a) the labour market remains in good condition and b) the upcoming federal election is on 18 May 2019. The rate tracker based on the ASX 30 Day Interbank Cash Rate Futures – https://www.asx.com.au/prices/targetratetracker.htm

Also up this week will be German trade, new orders, and industrial production data. This will help to provide some further detail around the deteriorating manufacturing PMI data.

US-EU trade negotiations will continue this week – but both sides remain apart on agreement of the scope of negotiations. The opening gambit for both the EU and Japan has been to exclude agriculture from negotiations.

US Treasury supply will be lighter this week. The US Treasury will settle approx. $169bn in ST bills with a paydown of approx. $9bn. The US Treasury will also auction approx. $84bn in notes and bonds this week which will settle next week at mid-month (raising approx. $28.6bn in new money).

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