The weekly macro review for w/c 7 October 2019 – Large announcements took center stage during the week.
A limited trade deal (or at least a truce) between the US and China was announced this week. This more limited agreement has little detail attached at this stage – but it likely means that China will purchase more US agriculture and the US will not go ahead with the increase in the tariff rate on imports from China from 15 Oct. It is expected that those details will be agreed to in time for the APEC Summit 16-17 Nov.
By the end of the week, there was a more positive tone on Brexit regarding an agreement on an alternative to the Irish border backstop. This has since been downplayed by both sides. With the important EU summit coming up, negotiations will again come down to the wire. The Benn act of the UK Parliament requires the UK PM to request an extension to the Brexit deadline (rather than ‘crash out’ with no deal) if there is no agreement with the EU27 and House of Commons backing by 11pm Sat 19 Oct. The UK PM continues to talk about exiting the EU on 31 Oct without a deal.
There was an announcement by the US Fed that it will commence purchasing ST Treasury Bills at a pace of $60bn per month in what it calls ‘reserve management purchases’. The US Fed Chairman had hinted at some intervention in his press conference at the last FOMC meeting, to ‘provide sufficient supply of reserves’ in the wake of liquidity issues in the repo market. The purchase of these ST T-bills will commence on 15 Oct and will continue into at least Q2 2020. This will be in addition to both the overnight repo operations of up to $75bn (daily) and term repo operations of up to $35bn (twice weekly) to ease funding pressures in the repo market.
Other important releases this week were the FOMC and ECB minutes. The FOMC minutes included detail regarding the funding issues in the repo market and the discussion on the size of policy easing at the meeting. The decision to reduce the FFR by 25bps was not unanimous – and the minutes outline the arguments for a 25bps cut, a 50bps cut and no cut to the FFR. All members agreed that downside risk had increased since the last meeting.
“…a clearer picture of protracted weakness in investment spending, manufacturing production, and exports had emerged.”
JOLTS data out this week indicated some further slower momentum in job hiring and openings. Although there was little to suggest any surge in layoffs/discharges, the growth of quits has slowed notably. The first read of consumer confidence for Oct showed a rebound in sentiment. The annual growth in consumer prices was unchanged in Aug at 1.7% and core CPI growth remained much higher on the back of shelter and medical services prices.
The ECB minutes outlined the discussion, agreement and disagreement on the final suite of easing measures introduced at the last meeting. While members all agreed that a further easing in policy was warranted, there was some disagreement on the individual elements making up the package of measures. The key data out this week was Germany orders and industrial production for Aug (somewhat backward looking given the deterioration indicated by the Sep PMI’s). Weakness in orders was led by the German domestic market. Industrial production increased in the month, led by stronger growth in manufacturing and mining, but remains well below the near-term peak and below a year ago.
Aussie housing lending data continued to strengthen – although growing at a slower pace than the month prior. Softer data indicated slightly more ‘steady’ results with business confidence and conditions picking up slightly. The AiG performance of industry reports indicated some lift in momentum for manufacturing, weak growth for services and continued contraction in construction. Across all three sectors, selling prices continued to decline indicating that demand remains an issue.
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 14 October 2019 – A range of data, news events and US Fed speeches this week.
The emphasis will shift onto the substance of this first phase of the US-China trade agreement as the details are put into writing for the APEC meeting mid-Nov. The next round of tariff increases on imports from China into the US (which were initially postponed) will not go into effect this week.
This is an important week for Brexit with the EC summit on 17-18 Oct. Negotiations will continue throughout the week in order to find some agreement on an alternative to the Irish border backstop. Both sides have stated that there is still a large distance to cover. The UK Parliament has an extraordinary sitting of the House of Commons planned for Sat 19 Oct in order to vote on any alternative that has been approved at the EC summit. If no agreement is in place by 11pm on Sat 19 Oct, the UK PM is required to request a further extension to the 31 Oct Brexit deadline.
The first of the tariffs on imports from the EU (related to the WTO-Airbus case) will likely take effect on 18 Oct.
Important data out this week;
US retail sales, housing data and industrial production. There is also a very heavy schedule of Fed speeches this week.
China data dump including trade, CPI, retail sales and industrial production.
Eurozone industrial production and CPI.
UK retail sales, employment and CPI.
Australia employment survey.
Finally, it will be a very heavy week for US Treasury supply. The US Treasury will settle $255bn in Treasury bills and coupons raising approx. $69bn in new money (a relatively large amount). This will also be the first week of ‘reserve management purchase’ operations.
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
