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
