The weekly macro review for w/c 21 October 2019 – The prelim PMI’s this week indicated that private sector activity was slightly weaker, or little changed at lower levels in Oct.
In the US, the advance durable goods report provided more insight behind the weaker US manufacturing activity in Sep and Oct.
Recap of recent US manufacturing data; Sep ISM PMI fell further into contraction (across a broader range of industries) while the Sep Markit PMI was mostly stable after slowing markedly in Aug. Industrial production for manufacturing was weaker in Sep – with the GM strike affecting auto production – but that was not the only driver of the weaker durable goods result.
The Sep advance durable goods orders reflected this weakness in autos but also highlighted further weaker manufacturing results for non-defense aircraft. At the total durable goods level, the monthly decline in new orders and shipments, together with no change in order backlogs, made the inventory growth a standout in both the month and on an annual basis. This was led by non-defense aircraft and motor vehicles.
The US Oct prelim PMI indicated some small rebound in growth for manufacturing. Manufacturing recorded a small increase in the pace of growth, but growth remained moderate. That said demand, output and employment increased at a faster pace. There was also some improvement in the outlook. The services view of the PMI indicated that activity was little changed, but the sub-indices indicated weakening demand and declining employment.
The PMI’s were little changed for Germany and across the Eurozone. The composite PMI for Germany indicated continued contraction in manufacturing activity which offset the slightly slower growth in services. Across both reports – demand was weaker and order backlogs continued to decline. Sentiment shifted increasingly negative for the outlook. The German PPI, excluding energy prices, continued to slow, indicating that selling price growth remains under pressure. The recent peak in the PPI ex energy was in early 2017 at around 3% – and this has slowed consistently to +0.5% growth in producer selling prices as of Sep.
The broader Eurozone PMI was little changed at the composite level, with the index slowing to virtually no growth in Oct compared to Sep. While there was a slight improvement in the headline services activity index, growth in demand and employment slowed. Manufacturing broadly across the Eurozone remained in contraction, at the same level as the month prior. There was a faster decline in new manufacturing orders and employment declined – “with the steepest job cuts since Jan 2013”.
The ECB kept rates on hold. The outgoing President of the ECB, Mario Draghi, noted that since the last meeting, data had confirmed that the euro area growth remains in a period of protracted weakness. No further change was made to policy settings with several of the measures announced last month yet to be implemented. Outgoing President Draghi called on euro area countries to implement structural changes and fiscal response where possible.
The composite PMI for Japan slipped into contraction for the month. This was partly due to the implementation of the consumption tax increase as well as the major typhoon – but manufacturing firms cited weaker demand conditions generally. The manufacturing outlook shifted from net positive to net negative. Services activity slowed to zero growth.
The prelim Aus PMI indicated that growth of manufacturing and services activity slowed in Oct. Demand was weaker across both services and manufacturing with new manufacturing orders declining for the first time in the series history.
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 28 October 2019 – A big week of data, central bank interest rate decisions and the Brexit 31 Oct deadline.
Brexit – an extension has been confirmed by the EU, but no date yet supplied. The UK will likely go to another general election in early Dec and this will be confirmed early in the week. The second Brexit deadline comes up this week on 31 Oct.
Several central banks will meet this week regarding interest rates and monetary policy;
Interest rate decisions will be announced by the Bank of Canada (Wed), the Bank of Japan (Thu) and the US FOMC (Wed). As of 27 Oct, the probability of a further 25bps rate cut in the US is now 93%. https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html?utm_source=cmegroup&utm_medium=friendly&utm_campaign=fedwatch&redirect=/fedwatch
The major data releases this week;
US – Non-farm payrolls and employment, the prelim Q3 GDP, ISM and Markit manufacturing PMI’s
Europe – Eurozone prelim Q3 GDP and prelim CPI for Oct
Japan – The prelim industrial production for Sep, retail sales for Sep (the month prior to the increase in the consumption tax) and the final manufacturing PMI for Oct
Australia – Q3 CPI, private sector credit and the manufacturing PMI’s for Oct
Finally, it will be a much heavier week for US Treasury supply. The US Treasury will settle $332bn in bills, notes, FRN’s and TIPS this week, raising approx. $59bn in new money. Approx. $15bn in reserve management purchases will settle this week and the Fed will purchase approx. $4.6bn in Treasury coupons as a part of the restarted reinvestment of principal payments. Approx. $15.6bn in securities in the Fed SOMA account will mature on 31 Oct – the full amount will be reinvested/rolled over.
More detail (including a calendar of key data releases) is provided in the briefing document – download the file here;
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
