The weekly macro review for w/c 11 November 2019 – US manufacturing data remained weak in Sep. Total industrial production declined in Sep and manufacturing led the decline. Drilling down, auto manufacturing was a notable area of weakness. Production declined at an accelerated pace of -7.1% in Oct after falling -5.5% in Sep. The NY Fed Industrial Production report still cited the GM strike as the cause of the fall in Sep. Yet, there also appears to be a demand problem. Retail sales of autos only partly rebounded in Oct after the larger fall in Sep – the official BEA data last week had total motor vehicle sales declining in Oct. Last week in the wholesale inventories report for Sep, we saw the inventory to sales ratio for autos jump to 1.8 – there are only ten months during the GFC in 2008 when the inventory to sales ratio was higher.
Prelim Q3 GDP was a highlight – growth remains subdued across Germany, Europe and Japan. There was a small acceleration in the UK Q3 GDP growth.
The German economy narrowly averted a technical recession. While Q2 GDP growth was revised lower to -0.2%, the prelim Q3 GDP growth was reported as +0.1%. The full detail will be released next week 22 Nov.
The prelim Q3 Eurozone GDP growth was little changed, growing at +0.2% in Q3 across the Euro area.
GDP growth in Japan slowed from +0.4% in Q2 to +0.1% in Q3. The annual pace accelerated though. The lower Q3 growth was the result of lower private consumption growth, the change in inventories detracting from growth and net exports also detracting from growth. The complete industrial production report for Sep saw production and shipments revised higher – possibly stronger ahead of the consumption tax increase. Despite the strong growth in the report, both shipments and production of one of the largest weight industry groups, transport/passenger cars, continued to decline.
Auto production remains a problematic area for Japan. In the negotiation of the phase one trade deal, the US provided no assurance that tariffs were off the table. The Japanese parliament is currently debating the US-Japan phase one trade bill with some risk that approval is delayed.
In the UK, the lagging GDP data recorded a rebound in Q3 due to a less negative contribution from private investment. The labour market report for Jul-Sep continued to show deterioration in the more recent 3-month change – with employment continuing to decline. There was no corresponding increase in unemployed persons because participation declined over the same period. Weakness in consumption growth appears to have persisted into Q4 with the decline in retail sales in Oct.
Aussie data will provide some concern for the RBA. The Q3 wage growth was unchanged in the quarter and slowed on an annual basis. The labour market in Oct remained weaker with low employment growth. Unemployment increased and would have been worse except that participation recorded the first monthly decline in fifteen months. The underutilization rate increased in Oct – this is likely a large reason why wages growth has remained lacklustre and this will not be good news for the RBA. Over the last year, the combination of slower employment growth and increased labour supply have been the key drivers of the higher underutilization rate.
Activity in China continued to expand, but growth/momentum remains at some of the lowest levels recorded. This lower pulse of activity is likely impacting global demand and trade – given the large influence that prior Chinese stimulus and expenditure on fixed asset investment/capital goods had on global growth in the post-GFC period. Chinese consumers are also likely seeing a squeeze on real purchasing power as annual CPI growth accelerated to +3.8% on the back of higher food (meat) prices. Retail sales slowed to the equal lowest pace of growth of the last 12-months. Autos were a large contributor to the weaker retail growth, declining by -3.3% versus Oct a year ago.
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 18 November 2019 – A much lighter week of data flow. The main highlights are;
Prelim composite PMI’s for our first view of Nov activity across the US, Eurozone, Germany, Japan and Australia.
Central bank meeting minutes to be released this week – FOMC, ECB and the RBA. A relatively quiet week for US Fed speeches.
There are two other notable releases this week;
Japan CPI for Oct – the first month after the consumption tax increase.
Germany Q3 GDP detailed release – any slight deterioration in the headline growth could see Germany “officially” in recession.
Headline risks remain this week;
Details of progress, or lack of, regarding phase one of the US-China trade deal.
Possible announcement of a vote by the US House of Representatives on the USMCA.
Possible release or decision on auto tariffs related to the S.232 report into auto imports and national security.
The Japanese parliament is also debating the phase one US-Japan trade deal bill. The bill will either pass the lower house on the 19 Nov or there is the possibility of a delay. Lawmakers remain concerned about the threat of auto tariffs.
It will be a much lighter week for US Treasury supply. The US Treasury will settle approx. $182bn in short term bills this week, raising only approx. $6bn in new money.
Added liquidity will be reasonably strong, especially considering the lighter issuance. There will be approx. $22.6bn in reserve management purchases settling this week – operations this week represent 42% of the total reserve management purchases for the month. The Fed will also purchase approx. $5.3bn 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
