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
