by Kim | Aug 26, 2019
The weekly macro review for w/c 19 August 2019 – Trade uncertainty, and escalation in tariff levies on US-China trade, slower growth, and central bank policy responses were the main themes this week.
The most pressing development late last week was the
announcement by US President Trump of a further increase in tariffs to be applied
to imports from China. This has amounted to a further escalation in the trade
dispute between the US and China. A candid speech from the RBA Governor Phillip
Lowe at the Jackson Hole symposium provides an interesting perspective;
“One way of looking at the world economy at the moment is that we are experiencing a series of significant political shocks – the serious issues between the United States and China, Brexit, the problems in Hong Kong, the tensions between Japan and South Korea, and the stresses in Italy.”
“…these shocks are generating considerable uncertainty.”
The minutes of central bank meetings of the US Fed, ECB and RBA released this week, all mentioned similar risks; slowing global growth, trade policy, and weak inflation. In this same speech, the RBA Governor goes on to question whether monetary policy can effectively deal with these shocks;
“Central banks are seeking to offset the effects of these shocks with lower interest rates and/or more monetary stimulus. This is entirely understandable, although it remains to be seen how effective it will be.”
“… monetary policy is just one of the levers that are potentially available for managing the economy. And, arguably, given the challenges we face at the moment, it is not the best lever.”
This acknowledgment doesn’t mean that CB’s won’t continue to ease policy in response though. The Fed minutes indicate an easing bias, although guided by incoming data. The ECB has indicated that further easing is likely at the next meeting. The RBA has already shifted to easing policy. All three CB’s also cite weak or muted inflation as reasons for further easing.
Adding to concerns over trade and growth, the prelim PMI’s
provided little expectation of any improvement in manufacturing activity into Aug.
Broadly, services activity continues to offset some of the manufacturing
weakness – except for in the US and Australia this month.
The US Prelim composite PMI showed that private sector growth
had slowed to a slight pace – with manufacturing falling into contraction and
signs that the usually stronger services sector also experienced weakness in
Aug. The Kansas City Fed manufacturing index also declined further in Aug and
respondents cited concerns over tariffs (before this latest escalation);
“Regional factory activity had its largest monthly drop in over three years, and over 55 percent of firms expect negative impacts from the latest round of U.S. tariffs on Chinese goods,”
US housing is showing some promise with continued improvement in existing home sales, as interest rates fall.
Employment growth has been a bright spot for the US economy. The BLS released the prelim revision to non-farm payroll growth this week, expecting that US non-farm payrolls will be revised lower by -501k persons in the Jan 2020 release. This likely will undermine one important point of confidence in the US economy.
The prelim composite PMI out of Eurozone was little changed
overall – services growth was slightly higher while manufacturing activity continued
to contract. Broadly, Euro area CPI growth slowed further – likely a large
concern for the ECB. The ongoing slowdown in the German PPI reflects the weaker
demand conditions.
The decline in Japanese exports continues to confirm the
current weaker demand conditions in Asia. The overall decline in Japanese
exports in Jul versus a year ago was mostly led by Asia (esp. China). The
prelim PMI was improved due to stronger growth in services while manufacturing
continued to contract.
The prelim composite PMI for Aust was concerning with the composite index falling into contraction. This was led by much weaker activity in services in Aug while manufacturing growth was little changed.
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 26 August 2019 – The focus this week will be on key economic releases and fall-out from the re-escalation in the US-China trade dispute.
At this stage, we are awaiting any details of a recommencement
of face to face talks between the US and China. On other trade issues, a
decision by the WTO on the US-EU airline subsidy dispute is expected shortly.
In the US, data will focus on growth, consumption, and manufacturing. The key releases are; advance durable goods orders for Jul and regional manufacturing surveys for Aug, Q2 GDP 2nd estimate, personal incomes and outlays for Jul and final consumer sentiment for Aug.
Euro CPI and detailed Q2 GDP for Germany will be the key
highlights.
In Australia, investment, housing & credit growth data will be in focus – private capex and construction data for Q2, new home sales, and RBA credit data for Jul will be released.
Of note in Japan, the prelim industrial production data for
Jul. Surveys expected an increase in production for Jul, yet PMI output data for
Jul indicated further contraction.
US Treasury issuance will be slightly heavier this week, but new money raised will remain elevated, in line with the increase in ST bills issuance and the recent suspension of the debt ceiling. The US Treasury will settle $207bn in ST bills, TIPS and FRN’s raising approx. $62bn in new money.
More detail (including a calendar of events) is provided in the briefing document – download the file here;
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Mars Capital Partners | Aug 26, 2019
Our bearish equity outlook remains in tact but markets need to break support to help confirm. Equities reversed lower from resistance while key risk indicators, the Yen and Swiss Franc rallied strongly. Bonds and PM's remain well bid while Dr Copper continues to break lower. The Yuan continues to weaken as the China trade wars […]
by Kim | Aug 19, 2019
The weekly macro review for w/c 12 August 2019 – Economic and sentiment data, as well as US-China trade tariffs, was the main focus of the week.
The US softened its stance on the next 10% of tariffs on the
remaining $300bn of US imports from China. Some tariffs will still go ahead on 1
Sep, but others, importantly on consumer goods, will be postponed until 15 Dec.
The US consumer and consumption expenditure has been
resilient over the last quarter and a brighter spot in the US economy, so the sharp
decline in the prelim Aug consumer sentiment data is a red flag. Uncertainty
created by further tariffs and the US Fed rate cut were key drivers behind the
fall in Aug. Interestingly, the rate cut had increased consumer apprehension
about the economy. The Jul retail sales result was broadly stronger, so it will
be interesting to see whether the more “heightened uncertainty” expressed in
the Aug sentiment spills over into expenditure next month. Growth in consumer
prices accelerated in Jul including underlying measures of consumer prices. There
was little change in the two regional surveys for Aug – although there was some
improvement in new orders across both.
Concerns over global growth remain elevated especially for manufacturing/industrial output. Further declines in industrial production were recorded in Jun across the US, Eurozone, and Japan. While not declining, industrial production growth in China had slowed from a year ago, reaching the slowest pace of growth in a year – despite stimulus measures.
US industrial production declined as a result of a decline
in manufacturing and a likely temporary decline in mining activity. Manufacturing
production shifted back into decline on an annual basis.
Even after small upward revisions, Japanese industrial production
declined in Jun and on an annual basis. Several industries contributed to the decline
in the month and of note was the deterioration in passenger car production and
shipments in the month (which had been improving).
At the broad EZ level, industrial production declined on a
monthly and annual basis across the main industries as well as across most member
states. As a result, the Q2 prelim GDP growth slowed/halved across the broader Eurozone
and prelim Q2 GDP declined in Germany – led by weaker trade.
UK data was mixed as we head into the final months leading
up to Brexit in Oct. Retail sales increased, but at a slower pace, due only to growth
in online sales. Consumer prices accelerated in Jul. The labour market outcome
for the Apr-Jun period indicated that despite faster employment growth, the larger
increase in participation resulted in a much smaller annual decline in total
unemployed persons. On a quarter basis, the increase in participation resulted
in a further increase in total unemployed.
In Aus, the monthly bus conditions survey deteriorated further – led by further falls in trading and employment conditions. A further decline in forward orders suggests little near-term improvement. Business confidence increased slightly. Wage growth in Q2 was constant for the private sector while public sector wage growth accelerated. The labour market report for Jul was mixed; while employment growth remains elevated, it is not growing fast enough to absorb the increase in participation, which reached another new all-time high. We’ve been noting the monthly increase in total unemployed persons for the last several months and this month, the labour market recorded the first annual increase in total unemployed persons in two years. The unemployment rate increased. This will be something that the RBA will continue to monitor closely. For the moment, the continued employment growth will remain a positive, but it will likely take time for any monetary stimulus to start to reduce unemployment and underemployment. Until then, it’s difficult to see wage growth accelerating in a consistent fashion to support consumption growth.
Data out of China continued to indicate weaker economic activity. New loan growth was much weaker than expected especially as demand for household and corporate loans fell compared to the prior month. Retail sales growth slowed in Jul. The slower growth in industrial production was consistent with the annual decline in the PPI reported last week indicating weaker demand conditions and the manufacturing PMI’s that remain in contraction.
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 19 August 2019 – The focus this week will be on central bank minutes, Jackson Hole, the G7 summit and the prelim PMI’s for Aug.
This week, minutes for
the most recent meetings of the US Fed, ECB and RBA will be released.
The Jackson Hole
Economic Symposium will commence this Thursday hosted by the Kansas City Fed.
The agenda is yet to be released but the key topic will be ‘challenges for
monetary policy’. Further details; https://www.kansascityfed.org/publications/research/escp/symposiums/escp-2019
The G7 summit in France will commence on 24 Aug. The key topic will be dealing with inequality. It’s also likely that other issues will be discussed on the sidelines – including Brexit and trade negotiations. The invited guest countries are Australia, India, and Spain.
On the data front, we
will receive our first view of Aug activity with the prelim private sector
manufacturing and services PMI across the US, Europe, Japan (mfg), and Australia.
On trade negotiations,
it will be important to watch for progress on the US-Japan trade talks. Talks
will continue this week in Washington and are at an important stage in order to
reach a deal by the end of Sep. On other trade issues, US representatives will
continue to hold discussions with China this week in the hope of moving negotiations
forward. A decision by the WTO on the US-EU airline subsidy dispute is expected
shortly.
US Treasury issuance will be lighter but new money raised will remain elevated, in line with the increase in ST bills issuance and the recent suspension of the debt ceiling. The US Treasury will settle $182bn in ST bills raising approx. $37bn in new money.
More detail (including a calendar of events) is provided in the briefing document – download the file here;
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Mars Capital Partners | Aug 18, 2019
NB: I am travelling this week but will try to update clients as soon as practical. Apologies in advance for any delay in responses. COT data will be updated later this week. Last week equities reversed lower from 50 day sma and 61.8% Fib resistance but bulls continued to hold key 200 day sma support. […]
by Kim | Aug 12, 2019
The weekly macro review for w/c 5 August 2019 – Tensions between the US and China escalated at the start of the week after the US announced plans to implement a further 10% tariff on imports from China. The USD/CNY moved above 7.00 for the first time in ten years – while no longer trading at its highs, the CNY fix remains above 7.00. A further round of trade talks between the US and China is scheduled for Sep after this next round of tariffs are implemented on 1 Sep.
This was the first of two weeks of economic data out of
China and data continues to indicate weaker growth. Producer prices for the
manufactured goods sector declined on an annual basis in Jul after slowing
consistently through the last year. Manufacturing activity overall continued to
contract, and services activity growth slowed. The Chinese trade surplus
increased further in Jul – the result of continued moderate growth in exports
and declining imports. The weaker import demand continues to hit trade partners.
The next round of tariffs on 1 Sep – some front loading in the Aug data is possible.
US data this week also continued to indicate a slowing of
activity. Services PMI’s showed that activity continued to grow but the pace remained
lower. Both ISM and Markit reports cited firms somewhat downbeat – with comments
remaining mixed about business conditions and the overall economy.
The US PPI showed that broadly, growth in US producers’ selling prices are continuing to slow – across both goods and services. Annual growth in the PPI has halved over the last year and the more underlying measure of producer prices (ex food, energy and trade) has also continued to slow also at a faster pace this month.
JOLTS data continued to deliver mixed results. The measures
of job openings and hires are now declining on a year ago basis. Separations
data is not so clear cut – firms were not reducing workforces, but workers were
also less inclined to voluntarily leave their jobs.
Data confirmed weaker manufacturing activity continued in Germany. While factory orders were stronger overall in Germany in Jun, it was led by non-Eurozone foreign countries and capital goods orders. Orders from the domestic market and Euro-area countries declined in the month. Overall industrial production in Germany fell harder in Jun and declined at an accelerated pace versus a year ago. The decline in production was broad with manufacturing, mining, and utilities all declining the month. Construction activity stabilized after a larger decline in the month prior.
We continue to track the data flow on Australia after recent stimulus measures. The RBA kept rates on hold this month after cutting in the two months prior. Housing lending growth started to pick up in the Jun data – which incorporates the first of the two recent rate cuts. New lending for housing remains 18% below a year ago and 26% below the peak. There was little improvement across the AiG performance of industry indices for Jul though. Manufacturing activity rebounded to moderate growth in the month but services and construction activity both deteriorated markedly. Only the new orders growth in manufacturing provides some hope that production will lift in the near future. The ongoing contraction in new orders across services and construction suggest little chance for a rebound in the near term.
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 12 August 2019 – Economic and sentiment data will be the key focus this week. Data out of the US, China, and Europe will be especially important in the context of slower growth and the escalation of trade tensions.
US data will continue to
track slowing production/activity growth and the impact on business and
consumer sentiment from the escalation in trade tensions with China. Of note
this week will be US industrial production for Jul, several regional surveys
with an early read on Aug activity, CPI, prelim consumer sentiment for Aug and
retail sales. US housing data will also be out this week, gauging the impact of
lower mortgage rates on housing activity.
This will be the second week of key economic data out of China for Jul – including retail sales, industrial production, and new loans.
This week we’ll see the impact of weaker manufacturing and
trade activity in Germany and across the Eurozone with prelim Q2 GDP growth. The
Zew survey will continue to provide some insight into economic sentiment.
UK data this week will focus on retail sales, the labour
market, and consumer and producer prices. Activity may start to lift as
preparations commence for the next Brexit deadline.
Important data this week for Australia includes the labour market survey and Q2 wages growth – two areas considered relevant by the RBA in relation to monetary policy at the moment.
US Treasury issuance will be heavier this week and the issuance of ST bills has increased in line with the recent suspension of the debt ceiling. The US Treasury will settle $286bn in ST bills, notes and bonds this week, raising approx. $54.6bn in new money. Approx. $54bn in US Treasury securities will mature on the Fed balance sheet on 15 Aug and will be rolled over at treasury auctions.
More detail (including a calendar of events) is provided in the briefing document – download the file here;
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
