The weekly macro review for w/c 9 December 2019 – Several of the larger uncertainties for the global economy are now poised to be resolved positively. There were several major developments during the week.
Firstly, the US and China have agreed on a phase one trade deal. While details are still emerging, there is at least no further deterioration in the trade relationship.
The UK election resulted in an increased majority for the UK Conservative Party. Brexit now looks likely to go ahead by the end of Jan 2020. We expect that there will be some rebound in activity as firms commence preparations for 31 Jan 2020.
Finally, the US Democrats also appear to have made an agreement with the White House on changes to the USMCA/NAFTA. This legislation is now expected to go to Congress before the end of the year as part of the process to ratify the deal.
The US FOMC kept rates on hold. Given the cuts already implemented over the last three (3) meetings, the Fed guidance has shifted to monitoring the implications of incoming information for the outlook, global developments and muted inflation pressure. Most FOMC members don’t see, given the current data and projections, a case for hikes in 2020.
US retail sales were softer in Nov, despite post-holiday promotions in Thanksgiving – although some of those holiday sales will be reported in Dec. Producer prices continue to highlight weakness across growth in service segments of trade margins and transport and warehousing prices in Nov.
Annual growth in consumer prices accelerated, as energy prices made a less negative contribution to price growth. Core CPI remains elevated at +2.3% – led predominantly by services prices.
The business inventories report for Oct highlighted weaker sales through the distributive trade channels while inventory continued to grow.
The ECB also kept rates on hold and made no change policy. This was the first meeting for the new ECB President Christine Lagarde.
In Japan, the second estimate for Q3 real GDP growth was revised higher – due mostly to upward revisions in household consumption (possibly stockpiling ahead of the consumption tax increase in Oct (Q4)) and private investment spending. The weaker industrial production data for Oct was also revised further lower in the final release.
House prices in Australia increased in Q3 but prices across most states remains below a year ago. This was in line with the growth in new credit since Jun 2019. In Nov, business conditions were unchanged and business confidence declined again – so far indicating little improvement in the economy in Q4. Consumer sentiment also declined in again in Dec, although remains above the recent low. The report suggests that rate cuts are not instilling confidence (as in 2011) and consumers are likely to keep a tight rein on spending during the holidays.
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 16 December 2019 – A busy week ahead with both data and events.
US Congress – possible votes on USMCA, Government funding bills ahead of the Friday deadline and impeachment this week.
Central bank decisions – BoJ and BoE. The BoJ will be interesting in light of the weaker data post-consumption tax. Changes in guidance from the BoE will be important now after the general election result.
Data highlights this week;
Prelim PMI’s for Dec across the US, Europe, Japan, UK and Australia.
US – Personal income, outlays and the PCE price index for Nov, industrial production, JOLTS, final consumer sentiment for Dec and regional manufacturing surveys.
UK data – Q3 GDP, employment and retail sales.
Japan – CPI for Nov, the second read after the consumption tax increase and trade (Oct trade data was disappointing, so looking for a rebound post weather and consumption tax disruptions).
The Australian government released its mid-year economic and financial outlook (a mid-year budget statement). Overall, expected/forecast surplus was lower due to the slowing economy. No further expenditure measures for the economy were announced.
This week, the RBA will be focused on the employment data for Nov.
US Treasury supply will be heavier. The US Treasury will settle $231bn in ST Bills, Notes and Bonds this week, raising approx. $39bn in new money. Reserve management operations for this week will see the Fed purchase approx. $30bn in treasury bills. Also, the Fed will reinvest approx. $6.9bn of maturing securities.
The Fed has announced additional term repo operations and also increased offering amounts further in the lead up to year end.
Friday is also Quadruple Witching.
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
