The weekly macro review for w/c 4 November 2019; There were several important highlights in the US data this week – mostly reinforcing the weaker state of growth.
Factory orders for Sep indicated the continued weakening growth across several of the larger categories – motor vehicle bodies/parts, non-defense aircraft and machinery. The annual decline in orders remains more moderate than in 2014-16 but growth in 2019 has slowed from a much higher level this time. Either way, the slower growth in orders may weigh on future shipment growth.
The factory orders and wholesale sales reports for Sep both highlighted the increasing value of inventory especially across motor vehicles, machinery and metals in Sep.
Motor vehicle sales in Oct fell relatively hard (seas adj basis) – for both autos and SUV’s. This suggests that weakness in orders and shipments and increasing inventories is likely to persist.
Consumer credit growth halved in Sep – led mostly by non-revolving credit (helping to explain to the weaker auto sales) but credit card credit also declined for the second month.
Despite the weaker credit growth and declines in new car sales, consumer sentiment data remains robust. The Nov prelim sentiment readings pulled back only slightly from the larger increase in Sep and Oct. Commentary remains positive, although there was a note about consumers becoming more cautious spenders.
The other major highlight in this weeks’ data was the JOLTS report. It was widely reported that job openings continued to decline. But there was also a deterioration in the separations data – namely a larger increase in Sep for layoffs and discharges. This has been a one-month event so far, so it will be something to watch.
Reports into services – ISM and Markit seemed to diverge at the headline level. But underlying both reports, was further falls in unfilled orders continuing to support business activity. The new orders index in the ISM indicated a negative underlying shift in firms reporting increasing new orders, yet the new orders sub-index increased anyway. The Markit services PMI indicated declining new orders and employment.
Manufacturing PMI’s out of Europe were little changed at the current levels of decline. Services activity improved slightly but the underlying performance detail was less positive.
Germany factory orders in Sep improved – somewhat at odds with the Sep PMI that indicated a further pulse lower in new orders. The factory orders data was weaker only in intermediate goods and durable goods, which was offset by stronger growth in orders across capital, consumer and non-durable goods. On an annual basis though, orders for the domestic and Euro-area markets declined at a faster pace.
Germany industrial production was much weaker in Sep. Levels of manufacturing production in Sep were at their lowest levels since the peak in this part of the cycle – so no sign of a bottom in manufacturing this month. The growth in orders though suggests that this may improve in the near future. Utilities and mining production both recorded growth in the month but remain well below a year ago. Construction was the only area to record growth in the month and on an annual basis.
In Australia, the RBA kept rates on hold. While the Board expected the recent declines in the cash rate to support growth, it acknowledged that it was ready to ease further if required.
The RBA Board noted that a ‘gentle turning point’ may have been reached in the Australian economy. This was referring mostly to the new upswing in lending for housing and the subsequent anecdotal increase in house prices. Lending for housing has improved somewhat led almost entirely by owner occupiers. At the lowest point, lending for housing was 28% below the peak and that has now improved/grown in several months to be 17% below the peak in lending. Meanwhile Aus retail sales for Sep were disappointing. In real terms, retail sales declined on an annual basis for the first time since the recession of the early 90’s. Nominal retail sales growth remained at +2.5% for the year. In the UK, key sectors such as Services continue to stagnate amid the Brexit uncertainty. But with the general election coming up, firms and the BoE MPC noted that those uncertainties would likely begin to fade and growth would pick up into 2020.
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 11 November 2019; A full calendar of data and US Fed speeches this week.
Highlights in the US; Fed Chairman Powell will testify before the Congressional Joint Economic Committee and House Budget Committee on Wed and Thu respectively. The US Fed Vice Chairman Clarida will also give a speech at the Swiss National Bank on Monetary Policy, Bond Yields and Price Stability on Tue.
Key highlights on the data front include CPI, Retail Sales and Industrial production for Oct.
The data dump out of China will be important this week as we continue to look for signs of improved/changes in demand. Highlights include trade balance, industrial production, retail sales, CPI, PPI and new loans (since the lowering of the benchmark rate).
Prelim Q3 GDP data will be released for Germany, the broader Eurozone, Japan and the UK – all important barometers of current activity.
A heavy week of UK data also includes CPI, retail sales and the labour market. The PMI’s have indicated the economy stagnating as a result of Brexit uncertainty but expecting some lift in the Oct data, especially retail sales, as consumers prepared (brought forward purchases) for Brexit at the end of Oct.
The final Sep industrial production report for Japan will be important. The prelim headline numbers were stronger for the month, but there was notable weakness across some categories including passenger cars.
In Australia, the important labour market report for Oct and Q3 wage price index will be released this week. This will be closely watched by the RBA.
Headline risks this week; details of phase one of the US-China trade deal, a possible vote on the USMCA to be announced and the possible release or decision on auto tariffs related to the S.232 report into auto imports and national security.
It will be a heavier week for US Treasury supply. The US Treasury will settle approx. $266bn in short term bills, notes and bonds this week, raising approx. $40bn in new money. There will be approx. $41bn in securities on the Fed balance maturing on 12, 14 and 15 Nov. There will be no reserve management purchases settling this week. The Fed will purchase approx. $3.4bn in Treasury coupons as a part of the restarted reinvestment of principal payments.
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
