by Kim | Apr 27, 2020
The weekly macro review for w/c 20th April 2020 – The Mar data has continued to show the first downside impacts to economic activity from the Covid-19 shutdowns.
The frontline of the US durable goods manufacturing impact in Mar was motor vehicles and non-defense aircraft. Both recorded severe declines in orders and shipments. Most of the decline in new orders for Mar can be traced back to a -$16bn print in new orders for non-defense aircraft – likely order cancellations. Excluding transport, the declines were more muted. The total value of unfilled orders across durable goods industries remained elevated in Mar.
But the start to Q2 looks to be even worse. The Apr PMI data is indicating an acceleration in output declines compared to Mar. The prelim PMI’s across most of the major regions recorded new series lows in the pace of output contraction. This has also been reflected in US regional manufacturing surveys for Apr.
In many cases, the decline reflects the first full month of restricted trade for many businesses. We are now almost at the start of May and many regions/countries/states are wary, and even unable, to lift quarantine restrictions at this stage – possibly setting up for an even worse Q2 unless something changes.
Extremely high levels of unemployment – now over 26m people in the US have filed an initial unemployment claim in the last five weeks – is placing greater pressure on governments around the world to begin to ease restrictions.
Sentiment remains fragile. There is an expectation across businesses and households that economic conditions are likely to improve once restrictions are lifted. But a resurgence in virus infections, and the re-imposition of restrictions, could see a further negative shift in sentiment.
“The risks associated with these decisions are not equally balanced, with an incorrect decision to reopen having serious repercussions.”
Stimulus will likely start to have an impact on households and income from mid-late Apr. Retail sales globally exhibit a similar pattern – extremely strong sales for grocery items (stockpiling included), some household goods and home office supplies. Weaker sales have been recorded across more discretionary categories such as clothing as well as those areas under greater social distancing restrictions, such as food service. Spending patterns will likely shift for a while a) while restrictions remain in place and 2) while incomes remain constrained.
The USTR announced this week that the new USMCA agreement would enter into force from 1 Jul 2020. From that statement (emphasis added);
“The crisis and recovery from the Covid-19 pandemic demonstrates that now, more than ever, the United States should strive to increase manufacturing capacity and investment in North America.”
Likely to see greater focus on reconfiguring US manufacturing supply chains – driving more ‘local’ rather than ‘global’ solutions.
The other point to note this week was the more negative tone of Brexit trade talks. Whether or not this is posturing, the deadline for the extension of the trade deal negotiation is coming up at the end of Jun. The UK has been consistent in saying that it would not request an extension.
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 27 April 2020 – The focus this week will be on central bank meetings of the BoJ, the US Fed and the ECB as well as the prelim Q1 GDP releases for the US and the Eurozone.
The release of the final PMI’s for Apr will commence at the end of the week. The Chinese National Bureau of Statistics will also release the NBS Manufacturing and Non-Manufacturing PMI’s for Apr.
Other important data releases this week will be;
US; ISM Manufacturing PMI for Apr, Initial Jobless Claims for last week and several more regional manufacturing surveys for Apr.
Australia’s Q1 CPI.
The US Fed will continue to reduce purchases of Treasury and Mortgage securities. This week, the NY Fed will purchase approx. $50bn in Treasury Securities (last week $75bn, prior week $150bn) and approx. $40bn in MBS (last week $50bn and prior wk $75bn).
The number of term repo operations has also been reduced to one (1) this week. The twice daily O/N operations remain unchanged.
At the same time, US Treasury issuance remains extremely heavy amid increased fiscal spending. This week w/c 27 Apr, the US Treasury will settle approx. $559bn in ST Bills, Notes and TIPS, raising approx. $240bn in new money for the week. It is possible that additional Cash Management Bill’s will be added this week. The final total of US Treasury issuance settling last week w/c 20 Apr was $443bn raising approx. $254bn in new money for the 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
by Mars Capital Partners | Apr 27, 2020
Last week, global equities declined from measured resistance but failed to break meaningful support. So far, the equity rally is in 3 waves - any trade above the wave (c) highs will change the rally into a 5 wave impulse - this is important! Any near term push to new cycle highs will indicate that […]
by Kim | Apr 20, 2020
The weekly macro review for w/c 13 April 2020 – The sudden drop in output, sentiment and employment has so far been unprecedented. We expect this data to remain very weak until quarantine measures start to lift. In the US, and across many countries, stimulus is currently making its way through to households and businesses. This will provide some limited relief as many ride out these extremely difficult times.
Lock downs remain in place across many countries. The exception (for which we have data) is China – which is now lifting quarantine measures. Data this week reflects ongoing consumer weakness, as the sharp decline in retail sales continued in Mar. Industrial production declined at a slower pace, somewhat offset by a rebound in mining. Manufacturing remained weaker across more capital/durable goods sectors while non-durables such as food production continued to grow. Exports rebounded in Mar after a much weaker Feb. The Chinese economy shrank at a record pace in Q1. A sign of things to come for many countries.
In the US, new unemployment claims remained at extreme (high) levels this week. In the last four weeks, over 22m people have filed for unemployment benefits. Housing market conditions fell sharply. The weekly MBA survey highlighted that the purchase index remains weak (down 35% from the start of Mar) – a 4-6wk leading indicator of housing sales.
A look at two regional manufacturing surveys for the first full month of Apr highlighted record-breaking declines across indicators of current activity. The two surveys only differed in the view of conditions in six months’ time. From the NY Empire State survey, one of the hardest hit states by the virus, firms only expected a slight improvement in conditions in six months’ time. From the Philly Fed survey – firms were far more optimistic about conditions in six months’ time.
Retail sales contracted sharply in Mar – with motor vehicle sales and food service the largest drags on growth. Unsurprisingly, grocery sales were very strong. Delivery of stimulus checks in the US commenced on 13 Apr – either electronic or by mail.
The Aus labour market report reflects the conditions the week prior to the implementation of containment policies in mid Mar – little change overall. By late Mar, business confidence for Australia had fallen hard, recording the largest decline in the survey history. Similarly, business conditions deteriorated notably in the month across trading, profitability and employment. The Westpac consumer sentiment survey for Apr shows how far sentiment has fallen since the lock-down came into effect – recording the single largest monthly decline in the survey history. While many of the fiscal support packages have been announced, issues remain with implementation (difficulty in registering for programs etc) and payments are yet to commence.
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 20th April 2020 – Several important points to note this week.
Firstly, the US Fed announced further reductions in purchases of Treasury and Mortgage securities for the week. This week, the NY Fed will purchase approx. $75bn in Treasury Securities (last week $150bn, prior week $205bn) and approx. $50bn in MBS (last week $75bn and prior wk $100bn).
The number of term repo operations has also been halved from four operations a week last month to two operations a week this month. The twice daily O/N operations remain unchanged.
At the same time, US Treasury issuance remains very heavy amid increased fiscal spending. This week w/c 20 Apr, the US Treasury will settle approx. $413bn in ST Bills, including three (3) Cash Management Bills (CMB’s), raising approx. $224bn in new money for the week. It is possible that additional CMB’s will be added this week.
The final total of US Treasury issuance settling last week w/c 13 Apr was $542bn in ST bills, Notes and Bonds raising approx. $292bn in new money for the week.
Finally, on the data front, the key highlights this week will be the prelim PMI’s for Apr across the US, Europe and Asia.
Other releases of note for the US will be initial jobless claims for last week, the final read of consumer sentiment for Apr, durable goods orders for Mar and existing home sales for Mar.
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
by Mars Capital Partners | Apr 20, 2020
Last week, US equities continued to extend gains with the ES / SPX finally tagging equality targets. Our base case is for a near term top in equities followed by a resumption of the bigger picture downtrend. The alternate bull case is for a continued impulse rally to new ATH's - we are at a […]
by Kim | Apr 13, 2020
The weekly macro review for w/c 6 April 2020 – The sheer weight of the emerging US and global unemployment picture indicates that the demand shock from C-19 shutdowns will likely be significant.
Late in the week, the US Fed announced a further $2.3t in funding for several facilities designed to enable, essentially bridging finance, to a range of organisations in the US economy. This is the Fed stepping in as the backstop – both directly and indirectly, keeping rates low and ensuring the flow of credit within the financial system. Love it or hate it, these actions are helping to keep the US financial system on life support. It’s likely we’ll see continued upgrades and expansion of this support with the Fed essentially plugging gaps in liquidity if and when required.
While the financial system remains on life support, the economic situation is worsening. Whether these firms survive post C-19 is another story. The central question is – how quickly will demand return? When, if ever, will spending patterns “return to normal”?
In the last 3 weeks, over 16m US workers made an initial unemployment claim. This includes another alarming 6.6m initial claims this week. Mortgages applications declined again – as unemployment increased and uncertainty remains high. Home-owners/borrowers are taking advantage of the forbearance provision of the CARES Act with a significant number of borrowers applying for the program. Data for Mar highlighted that motor vehicle sales fell by a third versus the month prior. Within that, auto retail sales fell to the lowest monthly pace on record (going back to 1976).
Consumer sentiment data for early Apr continued to deteriorate – recording the largest fall in the series history. The Apr fall in sentiment around current economic conditions indicates just how hard consumers have been hit so far. We cannot discount the possibility that lasting damage has been done to spending patterns and that a swift ‘V’ shaped recovery is not likely.
Consumer sentiment data highlights that expectations about future conditions was not quite as negative. This was based on the expectation that quarantine measures would only be temporary. It’s becoming obvious that shut-downs, in various forms, will likely continue.
What is also becoming apparent is the complexity and magnitude of the task to ‘restart’ a highly integrated, just-in-time, global supply chain.
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 13 April 2020 – This week we begin to get more data for Mar to start rounding out the view of the initial economic impact of the C-19 shutdown.
From the US this week, initial and continuing claims will remain a key focus, as well as new mortgage applications. Of note will be retail sales and industrial production for Mar. We will also get a first view of NY and Philadelphia manufacturing conditions for Apr.
Chinese GDP for Q1 will be released. Also, Mar data for China’s international trade, retail sales, industrial production and fixed asset investment.
In Australia, the focus will be on the labour market report for Mar and consumer and business confidence reports also for Mar.
This week w/c 13 Apr will see continued heavy US Treasury issuance especially for ST bills. The US Treasury will settle approx. $512bn in ST Bills, Notes and Bonds, including four (4) Cash Management Bills (CMB’s) this week, raising approx. $262bn in new money for the week. It is possible that additional CMB’s will be added this week.
The final total of US Treasury issuance settling last week w/c 06 Apr was $509bn in ST bills, raising approx. $308bn in new money for the week.
This week, the NY Fed will purchase approx. $150bn (last week $205bn) in Treasury Securities and approx. $75bn (last week $100bn) in MBS.
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
