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;
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
