The Weekly Macro Review and Outlook for w/c 6 April 2020

by Kim | Apr 6, 2020

The weekly macro review for w/c 30 March 2020 – Data this week showed that services, especially consumer facing service industries, have so far been most heavily impacted by the pandemic. That said, across the US, Asia and Europe private sector activity across both services and manufacturing sectors contracted in Mar.

US data across PMI’s and employment highlighted severe falls in services employment, output and new work in Mar. It was an even more shocking reading for initial jobless claims in the latest week with 6.6m new claims recorded.  The majority of the -700k decline in Mar non-farm payrolls were recorded for leisure and hospitality workers – even worse, is that the reference week for Mar non-farm payrolls was prior to the severe deterioration in initial claims over the last two weeks. The ISM non-manufacturing PMI indicted that growth in activity had only slowed overall – but this headline result was buoyed by a lengthening in supplier delivery lead-times. The changes in output indicate that contraction was underway.

US manufacturing activity has also been impacted further. The manufacturing PMI’s and regional surveys indicate quite acute falls in output and especially new work. But some differences by industry were noted. Manufacturing conditions were generally better across healthcare and food & beverage sectors – although there were disruptions to these supply chains impacting output. Petroleum and more capital-based manufacturing were generally weaker (transport, machinery etc). In some cases, backlogs of work were helping to maintain workforces. The pace of growth in new work will be crucial going forward, especially for manufacturing employment. The ISM manufacturing report highlighted that most firms, 70%, reported unchanged manufacturing employment – up slightly from the month prior. This was similar to the Dallas Fed manufacturing survey in Mar. There is an obvious freeze on manufacturing employment though, and other reports highlighted that hours worked and overtime hours had both declined.

Input price falls were recorded in the ISM/Markit surveys. The degree to which this is led by a fall in oil prices is unclear. Elsewhere, the lengthening of supplier lead times suggests some ‘scarcity’ of other inputs. Over time, this could impact input and/or consumer prices.

The overall contraction in Eurozone services activity was severe in Mar, with the pace of decline in services business activity the worst on record. Manufacturing activity also contracted further.

In Japan, both manufacturing and, especially services, activity declined sharply in Mar. Aggregate demand had already contracted notably in Q4 2019, so this is a further blow for the Japanese economy. More consistent services growth had previously helped to offset some the persistent weaker growth seen in manufacturing over the last year.

Many noted the expansion in the official Chinese manufacturing and non-manufacturing PMI’s for Mar. The sharp increase from a record low reading indicates that there was at least some growth in Mar versus Feb. Even the Chinese National Bureau of Statistics highlights that the result “did not mean that China’s economic operation had returned to normal”. Growth in demand and output was mostly led by the domestic market. New export orders (both manufacturing and non-manufacturing industries) continued to decline in Mar after larger declines in Feb. Most external trade partners began to implement strict quarantine policies in Mar, impacting demand. Manufacturing employment growth was unchanged in Mar after a much larger decline in Feb. Chinese non-manufacturing employment continued to decline.

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 6 April 2020 – Two short weeks coming up with Easter celebrations from 10-13 Apr.

It will be a relatively light week from a data perspective this week. For the US, the important points will be initial and continuing jobless claims, FOMC minutes and Michigan consumer sentiment prelim reading for Apr. US PPI and CPI data will also be released this week for Mar.

In Aus, the RBA will meet on 7 Apr for its rates decision. As of 3 Apr, the ASX rate cut indicator remained at almost a 50-50 chance of a further cut to 0%. The RBA Board has previously said that 0.25% for the overnight cash rate was the lower bound. https://www.asx.com.au/prices/targetratetracker.htm

An emergency OPEC meeting was originally set for 6 Apr which has now been postponed until 9 Apr.

US Treasury issuance will continue to be heavy. Last week, several Cash Management Bills (CMB’s) were added to supply bringing the total of US Treasuries settling last week to $618bn, raising approx. $362bn in new money – just in one week.

So far this week, the US Treasury will settle approx. $379bn in short term bills, including three CMB’s, raising approx. $179bn in new money. It is possible that additional CMB’s will be added this week.

This week, the NY Fed will purchase approx. $205bn in Treasury Securities and approx. $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