by Kim | Jun 24, 2019
The macro review for w/c 17 June 2019 – Central banks were the main focus during the week – mostly signalling that more policy accommodation is to be expected. The FOMC, RBA, and ECB indicated that further accommodations were required in order to reach inflation targets over the medium term.
From the FOMC this week, we expected to see a shift in the language, opening the door to greater accommodation. While rates remained on hold at this meeting, the decision signalled growing support among committee members for more policy accommodation. Downside risks for the domestic economy are on the radar – weakening business sentiment and investment, re-emergence of ‘cross-currents’ on trade and global growth. The concern for the FOMC has been muted domestic inflation – with downside risks seen as further slowing progress on bringing inflation back to the 2% (symmetrical) target. Key language changed; removing reference to a “patient approach”. Forecasts were little revised except for PCE inflation which was revised lower for this year.
The two regional US manufacturing surveys indicated an
abrupt loss of momentum in Jun. The prelim composite PMI for Jun indicated
private sector activity stagnated – led by both manufacturing and services. At
the same time, housing market conditions and existing home sales have stabilized
since the start of the year.
ECB President Draghi also flagged further rate cuts and
monetary stimulus were likely. This is in response to continued weakness across
the Eurozone especially in manufacturing and exports. Downside risks pose a
threat to the ECB reaching its 2% inflation target and ECB President Draghi
reaffirmed the conviction of the Bank to meeting the 2% target.
Annual Eurozone CPI growth slowed further in May while the prelim
PMI’s indicated a slight improvement in momentum – led by services while
manufacturing continued to contract.
The BoJ also kept rates on hold. There was little change
here – with the Bank signalling policy accommodation to remain in place for an
extended period, until at least Spring 2020. Inflation in Japan ex fresh food
remained low in May with little sign of acceleration. The prelim manufacturing
PMI indicated continued slight contraction in manufacturing activity. Exports and
import declined in May.
The BoE kept rates on hold and has so far maintained its very
slight tightening bias – which assumes a smooth Brexit. But the MPC has started
to acknowledge downside risks are picking up with Brexit and political
uncertainty partly fuelling underlying
weaker growth in H1 relative to 2018. While stronger household consumption and
weaker business investment patterns have persisted, retail sales (volumes) have
declined/stalled for the last two months.
The RBA minutes also confirmed that further policy accommodation in Australia is likely. The case for rate cuts; to reduce spare capacity in the labour market in order for inflation to return to the 2-3% band (via an increase in wages growth). The return of inflation to the 2-3% range would be more gradual without further cuts given the current level of unemployment and underemployment.
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 24 June 2019 – The focus will be on the G-20 summit in Osaka at the end of the week – 28-29 Jun. Closely watched will be the outcome of the meeting between US President Trump and China’s President Xi and whether or not there will be another round of tariff escalation. There will also be meetings regarding the US-Japan trade negotiations.
US
data highlights this week include a focus on manufacturing output. After the
falls in momentum reported in the regional surveys and prelim composite PMI for
Jun last week, there will be several further readings of regional activity in
Jun. The final reading of consumer sentiment for Jun will also be released –
possibly reflecting the more positive outcome of no tariffs on imports from
Mexico.
Also,
this week will be the first read on durable goods orders and shipments for May,
personal consumption expenditure and incomes and the PCE price index for May.
US
Fed Chairman Powell speak this week in an interview discussing the challenges facing the U.S. economy and the policies of
the Federal Reserve.
In
Japan – the prelim reading for May industrial production will be important and
the extent to which it confirms the weaker PMI readings for output in manufacturing.
In Australia, month-end private sector credit data will be released for May. This is still cycling over the May election result and the unexpected win by the Liberal Party. US Treasury supply will be somewhat lighter this week – the US Treasury will settle approx. $180bn in ST bills and coupons, raising approx. $16bn 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
by Mars Capital Partners | Jun 24, 2019
Last week, equity bulls extended gains as expected and we are now testing ATH's and layered resistance. The US dollar reversed lower while Gold broke up and out of a multi-year triangle. Bonds made marginal new highs and reversed lower and Crude Oil broke up and out of 4th wave resistance calling into question the […]
by Kim | Jun 17, 2019
The macro review for w/c 10 June 2019 – Data out of China this week was mixed but suggests little in the way of accelerating growth. Industrial production continued to grow at a slower pace while consumers/households face higher prices with CPI growth accelerating on the back of much higher food prices (meat). Exports increased more than expected but imports continued to decline. The increase in new loans issued by banks was less than expected and only marginally above that of Apr – little to suggest this would create a larger impetus for growth.
US annual CPI growth slowed in May – food prices grew at a
slightly faster pace and this was offset by a decline in energy prices. Core
CPI growth has continued to slow over the last 12 months.
US consumer spending in May was stronger and the good news was that Apr results were also revised higher – consistent with the stronger growth in consumer credit (revolving credit) for Apr. The prelim consumer sentiment reading for Jun mostly reversed the stronger May gains – on the back of increased tariff/cost worries. As the tariffs on imports from Mexico were not implemented, this weaker sentiment result may be reversed.
In terms of output, US industrial production growth
indicated a small increase for the month. Production levels remain on par with
a year ago, but still below the peak of Dec 2018.
The Aus labour market report for May had some positive signs and some continuing concerns for the RBA. Despite indications of a weakening economy, employment growth increased slightly in the latest month – led by faster growth in part-time employed persons. Unemployment and underemployment remain an issue and both ticked higher in the latest month. The main insight is that increased participation (reaching another new all-time high in the latest month) is contributing to the slower change/reduction in total unemployed workers. Employment growth needs to increase at an even faster pace in order to continue to absorb the increase in participation as well as reduce unemployment at a faster pace (as per RBA commentary regarding wage/inflation pressure).
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 17 June 2019 – The focus this week will be on central bank rate decisions.
This week the US FOMC meeting will take place. This
meeting has taken on a more significant tone over the last week or two. Whilst
there had been expectations that the Fed will cut rates at this meeting, we are
now looking at the development of the language the FOMC will use in the rates decision,
and for monetary policy generally, as well as changes in economic forecasts.
The current probabilities as of 17 Jun suggest that rates are likely to remain on hold for this next meeting. For the latest probabilities;
https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html?utm_source=cmegroup&utm_medium=friendly&utm_campaign=fedwatch&redirect=/fedwatch
Two other important central bank meetings/rates
decisions will take place this week – the BoJ and the BoE. The minutes of the 4
Jun RBA rate cut decision will also be released this week.
The next two weeks will be important for the escalation
of the (trade) dispute between the US and China – expect headline risk to be
heightened. The G20 meeting will provide a catalyst for action in either
direction. Public hearings in the US on the proposed tariff list for the
remaining $300bn will be completed over the next two weeks – in time for any
proposed meeting between Presidents Trump and Xi on the sidelines of the G20. This
potentially clears the path for this round of tariffs to be applied. No meeting
between the two Presidents has been confirmed at this stage. Since early May,
negotiations remain at an impasse.
The highlight on the data front will be the first reading for June private sector activity – Markit prelim manufacturing and services PMI’s for the US, Europe, and Japan will be released towards the end of the week.
US Treasury supply will be heavier this week – the US Treasury will settle approx. $251bn in ST bills, notes, and bonds, raising approx. $32bn in new money this 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
by Mars Capital Partners | Jun 17, 2019
US equity markets continue to be defined by impulsive rallies and corrective declines. This week's FOMC meeting will be important (key risk) as the market expects the Fed to reiterate its dovish bias. Keep an eye on Gold and the Yen as they approach major range resistance - breakout or fakeout? Equities reversed higher after […]
by Kim | Jun 10, 2019
The macro review for w/c 3 June 2019 – Developments on trade, increasing downside risks from trade tensions and low inflation had central bankers in the US, Europe, and Australia worried this week.
The US Fed Chairman has put a
rate cut into play. Chairman Powell stated in a speech on Tuesday that
the US Fed ‘will act, as appropriate, to sustain the expansion’. The Chairman
was referring specifically to ‘recent developments involving trade and other
matters’ – the stalling of talks with China and the upcoming threat of tariffs
on imports from Mexico. The comments were somewhat out of place in that they
were added to the start of his opening remarks for the Fed conference on
Monetary Policy Strategy, Tools and Comms Practices – a conference dealing with
longer-run issues.
But the brief comments by the Fed Chair had the desired
effect and helped markets in light of some weaker economic data for May –
especially coming into the blackout period before the next FOMC meeting. The
most notable was the much slower growth in non-farm payrolls. The
household survey also highlighted the continued deceleration in employment
growth. The Markit PMI’s indicated that private sector activity in
manufacturing and services had slowed quickly in May to only a marginal level
of growth. The ISM’s was less negative but indicate that growth remained low in
May.
Other measures of output and sales were also weaker for Apr
– with factory orders and shipments falling in the month. Wholesale sales also
declined while inventories increased at a faster pace.
One brighter spot was that motor vehicle sales had picked up
again in May. There is a possibility that retail sales of vehicles will remain
lower (growth from fleet sales) in the May retail sales report. Consumer credit
growth in Apr accelerated on the back of faster growth in revolving credit.
Then, very late on Friday, US President Trump announced that the US and Mexico
had reached an agreement on managing the flow of illegal immigrants into the US
– and that the tariffs on imports from Mexico were on hold indefinitely.
While the ECB kept rates on hold, ECB President Draghi indicated that discussions had started regarding a possible cut or further bond purchases to stimulate inflation. The prelim CPI for May indicated that annual consumer price growth decelerated quickly in May – both headline inflation and core inflation, which will be a concern for the ECB. The underlying drivers of the faster Q1 GDP growth were somewhat positive but incoming data suggested weakness into the second quarter. Retail sales declined in May after flat sales in Apr. The PMI’s for May were mixed – ongoing declines in manufacturing were offset by some growth in services activity – but growth in output/activity likely remained subdued overall throughout the Eurozone.
The RBA cut rates to ‘assist with faster progress in reducing unemployment’ which will help to get the inflation back to the 2-3% range. The RBA cited concerns over increasing trade tensions and domestic uncertainty regarding household consumption, sustained low income growth, and falling house prices. The Q1 GDP did little to allay those concerns. While growth accelerated in Q1 versus Q4, growth of domestic output (GNE) was zero. Into the second quarter, retail sales declined with some pronounced negative shifts in expenditure. The value of housing lending increased due only to an increase in the value borrowed by owner-occupiers. But the number of owner-occupier commitments fell suggesting that underlying weakness in lending persists – which is likely to be reflected in continued falls in house prices.
Special mention of UK Markit PMI’s – overall indicating that in May, private sector activity grew at a lower more marginal pace. Importantly, the weakness in manufacturing and construction was still offset by faster growth in the services sector. The common theme was that Brexit and political uncertainty was holding back growth.
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 10 June 2019 – A solid week of data to focus on given the US Fed blackout period will be in effect leading up to the FOMC meeting next week.
The main focus this week will be data out of China – trade, retail sales, industrial production and new loans for May.
US data will focus on inflation with the latest CPI and PPI for May. Retail sales for May and the first reading of consumer sentiment for Jun will provide some insight into spending patterns. US industrial production will also help to gauge changes in output – both ISM and Markit manufacturing PMI’s suggested little output growth in May.
Following closely on the rate cut from last week, the Australian
labour market survey will be released this week for May. Business confidence
and sentiment data for May will also be released. There is some caution with
the May data given that it will still partly reflect the expectation that there
would be a change in government at the federal election in mid-May.
US-China
trade; the increase in the tariff rate goes into effect on 15 Jun from 10 to
25% on $200bn of imports. A decision on the USTR investigation into further
tariffs on $300bn of imports is due shortly.
The
results of the USTR investigation into EU subsidies for large civil aircraft is
likely due shortly.
G20 meetings continue in the lead up to the Summit in Osaka on 28-29 June 2019.
US Treasury supply will be lighter this week. The US Treasury will settle approx. $147bn in ST bills this week, with a net pay down of $42bn. The 37-day CMB issued on 7 May will also mature this week on 13 Jun – adding another $20bn to the net paydown.
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
