The Weekly Macro Brief for w/c 9 March 2020
Markets are likely to continue to digest the impact of Coronavirus as well as now the ramifications of the breakdown in OPEC relations with Russia. This will be a quiet data week with only a few releases of note.
Last week, central banks responded to the threat to economic activity from the outbreak of Coronavirus with further rate cuts. The RBA (-25bps) and BoC (-50bps) cut rates, as well as an ‘insurance’ (emergency) rate cut (-50bps) by the US Federal Reserve. The ECB is due to meet this week.
US Fed Presidents were out during the week and there was some indication that the Fed may look to expand its mandate on asset purchases. The US FOMC will meet next week on 18 Mar and the current target rate probabilities indicate a further cut to 25-50bps (as of 8 Mar; https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html?utm_source=cmegroup&utm_medium=friendly&utm_campaign=fedwatch&redirect=/fedwatch)
Data of note this week in the US will be CPI and PPI for Jan. Likely the most important piece of data will be the first read for Mar of the Uni of Michigan consumer confidence data. Given the falls in the US stocks and the ongoing/escalation in Coronavirus reporting, its possible that we start to see confidence erode.
Data out of Europe includes Eurozone and Germany industrial production for Jan and detailed Q4 GDP.
The NBS in China will release CPI and PPI data for Feb. New loans data is also due to be released this week.
Aus data of note will be the NAB business confidence and conditions for Feb as well as housing loans for Jan.
The supply of US Treasuries settling this week will be lighter and there will be a net paydown due to the 21-day CMB ($40bn) maturing on 12 Mar. The US Treasury will settle approx. $173bn in ST Bills this week, with a net paydown of $32.6bn.
This will continue to be supported with overnight repo operations on each business day of up to $100bn as well as two 14-day term repo operations this week of up to $20bn each (10 and 12 Mar). Last week, repo operations were over-subscribed in some cases, indicating increased funding needs coming into quarter end.
More detail, including a one-page calendar of key data releases for the week, is provided in the briefing document – download the file here;
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
MCP Market Update: March 8th, 2020 – Downside risks remain
The Weekly Macro Brief for w/c 2 March 2020
Markets are likely to continue to grapple with the potential impact of Coronavirus this week. The level of uncertainty regarding the impact on health, production, trade, expenditure, travel and supply chains remains extremely high. The first view of the quarantine impact on Chinese economic activity indicated a record level of contraction in both the manufacturing and non-manufacturing PMI’s for Feb. Other economic data out of China was not released last week. In the coming week, we’ll see the Caixin PMI’s for manufacturing and services as a comparison to the official NBS data. Chinese trade data for Jan and Feb is due to be released at the end of the week, but delays are likely.
This is a data heavy week and there is likely to be greater headline risk around some of the releases as the narrative of the economic impact starts to develop. That said – some impacts may not appear negative on the surface. Firms may increase orders in order to stockpile parts etc. or look for alternative sources of supply. This also highlights the importance of tracking CPI and PPI over the coming months.
Global PMIs for Feb are due out this week. The prelim Feb PMI’s indicated some weakening/contraction in activity – this week’s release will include a broader view of economies. Production and order data for Germany and US factory orders for Jan may be too early to record much impact – although German data was already very weak in Dec.
US data of note also includes the ISM manufacturing and non-manufacturing PMI’s for Feb as well as non-farm payrolls for Feb.
US domestic politics will also be in focus this week with the Democratic Super Tuesday primaries on 3 Mar. So far, Bernie Sanders has taken the lead and the outcome on Tues will have implications for the expected path of the election and assessment of policy implications.
The Aust economy will also be in greater focus given the reliance on the Chinese economy. The RBA meets this week and the ‘official’ probability of a rate cut at this meeting remains very low (given the circumstances) – only 11% expectation for a rate cut to 0.5% on 3 Mar as of 27 Feb. This may evolve in the next few days – refer to the tracker here; https://www.asx.com.au/prices/targetratetracker.htmtrack
Other Aussie data out this week (after the RBA meeting) includes Q4 GDP (noting unexpected declines in Q4 investment numbers last week), retail sales and monthly trade data (important in tracking the slow-down in Australia’s largest trading partner).
Also this week; OPEC meets on 5 and 6 Mar and the UK and EU commence Brexit trade negotiations.
The supply of US Treasuries settling this week will again be heavy. The US Treasury will settle approx. $292bn in ST Bills and Notes this week, raising approx. $51bn in new money. This will continue to be supported with overnight repo operations on each business day of up to $100bn as well as two 14-day term repo operations this week of up to $20bn each ($5bn lower for both term repo operations).
More detail, including a one-page calendar of key data releases for the week, is provided in the briefing document – download the file here;
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
MCP Market Update: February 29th, 2020 – The Market breaks
