The macro review for w/c 1 July 2019; The manufacturing slow-down in the US and abroad is continuing to evolve. The ongoing lack of growth in new orders is manifesting now as falling order backlogs and, anecdotally, reduced input buying. In some cases, finished goods inventories are increasing. The reduction in input buying suggests further pressure on output for suppliers further back up the supply chain. The reduction in order backlogs continues to support output growth for now.
In the US, the PMI, ISM and factory orders data highlighted the continued trend of slowing/stalling US manufacturing activity. Services activity helped to offset the slower manufacturing activity. Despite the stronger services PMI reading, some concern was raised over the expectations for future growth in new business. Non-farms payrolls came in stronger and the household survey recorded a small improvement in annual employment growth. Unemployment increased in the month though due to an increase in participation.
The PMI’s for manufacturing activity contracted in Europe, including Germany, UK, Japan, Australia, and China. Similar patterns were also evident – declining new orders resulting in further declines in backlogs of work, which was helping to maintain some output growth. Further anecdotal evidence that firms were reducing input buying to reduce costs in the face of lower orders. The German manufacturing sector recorded an accelerated decline in new orders in May – the result of lower orders across most segments and more generally, external orders.
European production and exports were dealt another potential blow this week as the USTR announced plans to review additional products for tariffs as a part of the dispute on civil aircraft subsidies.
Broadly, the services PMI’s offset the weaker manufacturing results across many countries/regions.
The exception was in the UK where services growth slowed to almost zero. The Jun PMI’s for the UK indicated that there has been some renewed slowdown across manufacturing, services and construction in the UK.
In Australia, the RBA cut rates for the second time in two months. The rate cuts, along with the May election result, will likely impact sentiment and spending. This month we reviewed the AiG performance of industry indexes for Jun to gain a reading of activity after the first full month since the election and the first interest rate cut. The services index increased for the second month running with some service firms calling conditions a ‘return to business as usual’. Manufacturing fell back into contraction and construction continued to contract, albeit at a slightly slower pace. Retail sales growth was subdued in May.
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 8 July 2019; Fed-speak picks up again this week. The main focus will be on the three (3) speeches by US Fed Chairman Powell – opening remarks at the stress testing conference in Boston, testimony before the House Financial Services Committee and the semi-annual monetary policy testimony to the Senate Banking Committee.
Other US data in focus this week will be the FOMC minutes for Jun as well as CPI and PPI.
Data out of China will provide some insight into any shifts in activity with new loans, trade and CPI/PPI for Jun.
After the much weaker orders data last week, Germany industrial production for May will be released. The broader industrial production data for the Euro-area will also be released later in the week along with the final figures for Japan in May.
In Australia, the NAB business confidence and conditions for Jun will be released. This will provide another important insight as to any change in activity and sentiment since the first rate cut and covers the first full, post-election month. Housing lending data for May will also be released – it may be difficult to gauge any shift in sentiment/lending given the election was mid-month and APRA only announced a review into changes to serviceability requirements directly after the election.
The Bank of Canada will meet this week on interest rates and monetary policy.
US Treasury supply will be lighter this week – the US Treasury will settle approx. $147bn in ST bills paying down approx. $6bn.
Trade negotiations;
Trade talks between the US and China are said to recommence this week in Beijing.
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
