UPDATE TO THE WEEKLY MACRO BRIEF 31 Mar 2020 – After posting the briefing document, the US Treasury added two Cash Management Bills (CMB) for the week – a 42-Day and 69-Day CMB. Together, this increased the total of Bills and Coupons settling this week by $105bn. Totals have been updated in the briefing document.
The weekly macro review for w/c 23 March 2020 – The more timely indicators of activity for Mar indicate a severe drop in economic activity.
To further support the supply of dollar liquidity, the US FOMC announced on Mon morning that QE would effectively be open ended. Last week in our briefing we noted that the Fed had already likely purchased $275bn in the first week of a proposed $500bn QE target for “a couple of months”. From the FOMC this week;
“The Federal Reserve will continue to purchase Treasury securities and agency mortgage-backed securities in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions.” https://www.federalreserve.gov/newsevents/pressreleases/monetary20200323a.htm
The Mar prelim PMI’s for the US, Europe and Asia confirmed that output and employment growth contracted sharply. Services business activity was hit very hard. The manufacturing PMI’s declined, but not to the same extent – in most cases lengthening supplier lead times (usually a positive indicator of rising activity, but not in this case) offset historic falls in output and new orders.
The two regional US manufacturing surveys for Mar were mixed. The Richmond Fed index was little changed but the fall in new orders indicates weakness in future output is possible. The Kansas City Fed survey for Mar indicated a much more severe decline in activity was underway. There was an important anecdote in that survey;
“$30 per barrel oil is a much bigger problem that people are not focusing on because of C-19.”
The increase in US initial jobless claims for the week prior was shocking at 3.28m new claims – even though we knew to expect an extremely high number.
Consumer sentiment is deteriorating quickly. Prelim Mar results were revised sharply lower in the final report for this week. The indexes haven’t recorded historic falls yet – but the 7-day moving average, should it stabilize at these levels, indicates that Apr may set-up for a historic fall of over 30pts in a 2-month consecutive period. While financial support can help to mitigate an adverse financial situation for many, it’s not likely to tip the scales from pessimism to optimism and this sets the expectation for large shifts in spending and saving.
US mortgage applications also declined again this week. Refi activity also declined in the week, but remains up over +195% versus the same week a year ago.
“The 30-year fixed mortgage rate reached its highest level since mid-January last week, even as Treasury yields remained at relatively low levels…”
“…this week’s additional actions taken by the Federal Reserve to restore liquidity and stabilize the mortgage-backed securities market could put downward pressure on mortgage rates, allowing more homeowners the opportunity to refinance.”
There are more data releases covered in the review document. Use the links on the contents page to navigate to different country sections. Download the review here;
The outlook for w/c 30 March 2020 – UPDATED 31 Mar 2020 – After posting this brief, the US Treasury added two Cash Management Bills (CMB) for the week – a 42-Day and 69-Day CMB. Together, this increased the total of Bills and Coupons settling this week by $105bn. Totals have been updated in the first paragraph below and in the Treasury Issuance section of the brief.
[Edited] Treasury issuance to increase. There will be a significant increase in the supply of US Treasuries settling this week. The US Treasury will settle approx. $493bn in ST Bills, TIPS, Notes and three (3) CMB’s this week, raising approx. $237bn in new money for the week. There was an increase in auction amounts across all Bills plus the addition of three (3) CMB’s.
Looking forward, the initial Q2 Treasury financing schedule released back at the start of Feb had a recommended net $56bn paydown (Bills -$278bn and Coupons +$222bn). The next update is not until mid Apr, but several estimates indicate that revisions to the Treasury financing needs, across Q2 and Q3 could reach over a trillion USD in net new money raised.
QE is now open ended. This week, the NY Fed will purchase approx. $345bn in Treasury Securities and approx. $200bn in MBS.
It’s a reasonably heavy data week – still mostly focused on Feb data. Some of the more important Mar data will be released this week.
In the US, the most important released will be non-farm payrolls for Mar and initial jobless claims for last week ending 27 Mar. Also of note will be the ISM PMI’s and the final Markit PMI’s for Mar. Several important regional manufacturing/business conditions reports will be released this week – NY, Chicago and Dallas.
The prelim Eurozone CPI for Mar will be released this week.
We will get a more global view of the state of the economic impact via the release of the final PMI’s for Mar this week.
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
