The macro review for w/c 24 June 2019 – The G20 delivered over the weekend. From our review last week;
“The G20 is a perfect venue for these gestures, with its traditionally grand shows of diplomatic pleasantries. If Trump and Xi appear together, shake hands and smile, consider that a small victory” https://www.scmp.com/comment/opinion/article/3015396/no-trade-war-breakthrough-no-problem-xi-and-trump-are-meeting-g20
The outcome of meetings between President Trump and President Xi was as good as could be expected – a truce or a pause in any further escalation. One difference this time is that there has been no time limit imposed on achieving an outcome.
Our attention regarding trade tensions shifted to the US-EU relationship. The EU formally announced that Britain, France, and Germany had established a special trade channel (“Instex”) that would enable trade with Iran that avoids the US sanctions. Repercussions for the EU-US relationship are possible.
On the data front, US manufacturing data mostly disappointed. The overarching theme was manufacturing growth stalling at the broader level. The advance durable goods report for May highlights the large adjustment underway regarding non-defense aircraft production, orders, and inventory. But even excluding all transportation, the advance report highlights slowing annual growth in orders and shipments and firms working through unfilled orders, which are also growing at a much slower pace. Within this context, inventory growth, while also slowing, remains elevated. The regional reports into manufacturing and business activity confirm that low and slowing manufacturing activity persisted into June.
The annual change in the headline US PCE price index slowed slightly in the latest month – led by lower annual growth in both goods and services prices. In the latest month though, headline PCE prices growth halved – due mostly to a shift in energy prices, but both overall goods and services prices growth slowed in the month. Underlying core inflation was also little changed on an annual basis, slowing slightly. The current FOMC projection for PCE inflation was revised lower (at the latest meeting) to 1.5% for 2019 (currently at that level) and core PCE was revised lower at the June meeting to 1.8% – which is still well above the current level of +1.6% as of May.
It’s worth noting the stronger industrial production data for Japan in May. Growth in production and shipments accelerated in May and this was across most product areas. Of note was the much faster growth in production and shipments of transport equipment, including passenger cars (which has been an area of weakness recently).
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 July 2019 – Although it will be a short week in the US with the Independence Day holiday, it will be a data-heavy week.
Global private sector manufacturing and services output will be in focus this week with the Markit PMI’s for June to be released.
In the US, the focus will be on a wide range of data-points including non-farm payrolls and employment, the ISM PMI’s, factory orders for May and motor vehicle sales.
In Australia, the RBA will meet on Tuesday for the July rate decision. As of 28 Jun, there is a 70% expectation for a further 25bps cut in the overnight cash rate to 1%. This is down slightly from the 89% expectation on 24 Jun – see details https://www.asx.com.au/prices/targetratetracker.htm
Other Aussie data points released this week will be retail sales for May and the AiG industry performance indices for Jun – included this month as it is one of the first datapoints since the May federal election.
US Treasury supply will be heavier this week – the US Treasury will settle approx. $260bn in ST bills and coupons, raising approx. $32bn in new money. Approx. $21.463bn in SOMA holdings of securities will mature on 1 Jul – with $6.5bn to be reinvested.
Trade negotiations;
There may follow-up from the G20 with further details to emerge (or key points walked back?) on the roadmap to restart talks between the US and China.
Also, waiting to see whether there is any fallout from the EU announcement on the special trade channel designed to enable trade with Iran that circumvents the US sanctions.
Previously President Trump has stated that the deadline for a trade deal with Japan was August – expect action/activity to ramp up in the coming weeks.
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
