The weekly macro review for w/c 30 September 2019 – PMI’s out last week indicated that the global slowdown in activity continued into Sep. In many cases manufacturing activity contracted at a faster pace while there was also a notable slowdown in services activity in several countries/regions.
The US Markit manufacturing PMI was slightly more positive, but the ISM manufacturing PMI weakened, falling further into contraction and affecting a broader base of industries. The services PMI was mostly stable after a larger fall in the month prior and the ISM non-manufacturing PMI caught up this month indicating a larger degree slowdown in services growth. Regional activity was mixed. There was further deterioration in Chicago and NY business conditions while manufacturing growth in the Dallas Fed survey was only slightly slower.
Growth in non-farm payrolls slowed further and came in below consensus. This was partly offset by positive revisions in the two months prior, so the twelve-month average increased slightly.
From the household survey, the key feature was the decline in the unemployment rate. This occurred even though household employment growth had slowed in the month. The fall in the unemployment rate was mostly the function of slower growth in the labour force because there was no increase in labour force participation in the month.
Manufacturing activity weakened further in the Eurozone led by a further deterioration in German manufacturing conditions. Manufacturing in Germany recorded its worst performance since the GFC. Services activity, while remaining positive, also slowed markedly.
Across the broader Eurozone, the composite PMI slowed to just 50.1 – indicating virtually zero growth in private sector activity across the Eurozone. The EZ PPI growth for Aug slowed to zero but was led by sharper declines in energy prices. Weakness in producer prices is still evident for intermediate goods. Despite the gloomier picture painted by the PMI’s, Euro area retail sales still rebounded in Aug.
Manufacturing conditions in Japan remained weaker with industrial production declining again in Aug. The decline in the Sep PMI indicates that this is not likely to improve. The services PMI also slowed. This week, the increase in consumption tax was rolled out and this has been one of several issues weighing on business confidence. One bright spot in the Japanese data was the stronger rebound in retail sales for Aug after a sharper decline in Jul. It’s possible that retail purchases may have been/are being bought forward ahead of the tax increase.
The UK PMI’s painted a picture of an economy mired in Brexit uncertainty with services, manufacturing and construction activity all contracting in Sep. There appear to be little momentum behind preparations for the next Brexit deadline of 31 Oct. The process and path of Brexit remains unclear. Details of the negotiations on an alternative to the Irish border backstop indicate that a wide gap remains between the UK and the EU. The key date remains the next EU summit on the 17-18 Oct.
Finally, in Australia, the RBA lowered the cash rate again to 0.75% – mostly as a result of weaker employment data/stubbornly high spare labour market spare capacity leading to muted inflation pressure. There were several changes in the decision with a shift in focus from ‘lowering unemployment’ to a policy target of ‘full employment’. Total private sector outstanding credit continued to grow at a slower pace and building permits continued to decline. The number of permits on a moving annual total basis as of Aug was 26% below that of a year ago. Retail sales rebounded in Aug after a small decline in Jul as tax cuts, tax refunds and interest rate cuts start to kick in.
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 7 October 2019 – A somewhat quieter week on the data front – the main features this week will be FOMC and ECB minutes, Fed Chairman Powell speeches, the US-China trade meeting and Germany factory orders and industrial production.
The focus in the US this week will be on the FOMC minutes and three (3) speeches by Chairman Powell throughout the week. On the data front, the key highlights will be prelim consumer confidence for Oct, PPI and CPI for Sep.
US-China trade negotiations will be in focus with Vice Premier Lui He meeting USTR Lighthizer in Washington this week 10-11 Oct.
ECB minutes and Germany factory orders and industrial production (Aug) will be in focus for Europe this week, especially after the much weaker PMI data for German manufacturing last week. Trade and tariff headlines regarding the WTO ruling on Airbus and US tariffs on EU imports may continue to feature this week.
We are now within ten days of the next key date of the EU Summit on 17/18 Oct. At this summit, the UK and EU would need to agree on an alternative to the current Irish border backstop. Negotiations are expected to continue this week.
In Australia, the important housing lending data will be out this week for Aug. Softer data will feature more this week with a final wrap up of the Aus Industry Group services, manufacturing and construction performance indexes for Sep and the NAB business conditions and confidence report for Sep.
Final wrap up of Sep manufacturing and services PMI’s for China and new loans data.
US Treasury issuance will be lighter this week. The US Treasury will settle $200bn in ST bills this week raising approx. $7bn in new money (much lighter than prior weeks). The US Treasury will also auction 3yr and 10yr notes and the 30yr bond this week which will settle next week on 15 Oct. These auctions will raise approx. $54bn in new money.
More detail (including a calendar of key events) is provided in the briefing document – download the file here;
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
