by Kim | Jun 29, 2020
The weekly macro review for w/c 22 June 2020 – Global prelim PMI’s for Jun showed some further improvement since countries started to lift restrictions related to the pandemic. This month, there was a continued ‘slower pace of decline’. This means that the number of firms reporting a decrease in activity still outnumber the firms reporting an increase in activity, but by a much smaller degree than in the month prior. This was a consistent result across the US, EU, UK, Japan, and Australia.
Some highlights from the prelim reports; France and UK manufacturing sectors recorded at least small growth in Jun compared to May, and the Aus services sector also recorded growth in Jun compared to May. Japan’s manufacturing sector remained weak with the PMI and output indicating declines accelerated in Jun.
The US prelim composite PMI for Jun indicated a slower pace of decline in activity. What these PMI’s don’t show, is the degree to which activity/output/orders is growing. The advance durable goods report for May recorded stronger headline growth in orders of over 15%. Half of this increase was the result of a shift in new orders for non-defense aircraft from a total of -$8.6bn in orders (i.e. net cancelled orders) last month to total orders in May of +$3.1bn. That said, most other categories reported a rebound in orders – but excluding transportation (and the aircraft effect), growth in orders was more moderate at +4%. Shipments growth was also more moderate.
The three US regional manufacturing reports for Jun reflected further stabilization in conditions in Jun. Within these reports, employment continued to decline, but at a slower pace, with the majority of firms reporting ‘no change’ in employment levels from the month prior.
This has also been reflected in the weekly initial and continuing claims. The weekly growth in initial claims remains extremely elevated – and, adding in the Pandemic Unemployment Assistance (PUA), initial claims were more like 2.18m for the week. Continuing claims also remain elevated at 19.5m people, but there was a more substantial 767k reduction in total claims wk ending 13 Jun. As of 6 Jun, there were 11m continuing PUA claims (NSA).
In May, there was a month on month decline in personal income/personal disposable income compared to Apr (due to one-off stimulus payments made in Apr). But the level of personal disposable income remains above the pre-pandemic trend due to the growth in government social payments. Wages and salaries grew in the month, but remain well below a year ago. Consumption expenditures grew in May, but remain approx. 10% below a year ago. So the savings rate (surplus % of disposable income), although lower than the month prior, remains extremely elevated.
Is the saving a function of fear (remaining unemployed, laid-off, lower future income etc) or still a function of less opportunity to spend due to restrictions? It’s likely a combination of both. Recall that the May consumer credit report recorded a relatively large decrease in outstanding revolving consumer credit.
Consumer sentiment slipped slightly in the final half of Jun compared to the first half of Jun. The Jun result was still an increase on the month prior. While all regions experienced the fall in sentiment as a result of the Covid-19 shutdowns, the Northeast fared the worst due the high number of infections. The improvement/decline in cases in the Northeast – likely as a result of a longer shutdown, has resulted in a much stronger rebound in sentiment in the region this month. Growth in sentiment in the South has been weaker – and this is likely to worsen as Covid cases have started to increase. There is likely to be some worsening in sentiment across other regions as the number of US cases reaches new highs.
While most consumers believe that economic conditions could hardly worsen from the recent shutdown of the national economy, prospective growth in the economy is more closely tied to progress against the coronavirus.
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 29 June 2020 – It will be a short week in the US with the National Independence Day holiday commencing on Fri 3 Jul. Important data releases will be packed into the short US week; Non-farm payrolls for Jun, ISM Manufacturing PMI for Jun, FOMC minutes and the weekly initial and continuing jobless claims.
The USMCA comes into effect on 1 Jul this week.
US Fed Chairman Powell will provide testimony to the House of Representatives Financial Services Committee on Tue 1 Jul on the CARES Act.
Other data highlights include:
Final PMI’s for Jun will start to be released this week – including manufacturing activity across the US, Europe, Japan, China, and Aus.
Japanese data includes retail sales and the prelim view of May industrial production.
In Aus retail sales for May will be released as well as private sector credit changes for May.
Purchases of Treasury and Mortgage securities will be slower this week due to the shortened week. For the first four days of this week, the NY Fed will purchase approx. $7.8bn in Treasury Securities (last week $19.6bn, prior week $25bn) and approx. $18.1bn in MBS (last week $22.8bn and prior wk. $22.8bn).
There will be one term repo operation this week and overnight operations have been reduced to one per day.
US Treasury issuance will remain heavy, with net new money raised this week remaining at the lower end of the recent scale. The US Treasury will settle approx. $506bn in ST Bills and Notes this week. The US Treasury will raise approx. $135bn in new money for the week.
The US Treasury Q2 borrowing requirement is $2.999 trillion USD in new money. The quarter end total of new money raised is estimated at $2.545 trillion USD. This is 85% of the requirement for the quarter.
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 | Jun 29, 2020
Global equity markets remain in intermediate downtrends following the early June highs. Despite the negative news cycle, the primary equity indices remain above the June 15 lows and near term 50 day sma support. Our expectation remains that the initial decline was wave (i) / (a) of a larger decline as we look for another […]
by Kim | Jun 22, 2020
The weekly macro review for w/c 15 June 2020 – The current trend of initial and continuing claims indicates little progress into reducing unemployment via reopening so far. Granted, its early days in the reopening process, but this is the second week of Jun data for initial claims and continuing claims reflect first week of Jun data. Both remain extremely high. Yet, activity is clearly picking up – as evidenced by the strong rebound in retail sales last month (May).
The regional manufacturing surveys and industrial production data also indicate a lift in activity. The regional survey results were positive in terms of recording a lift in activity in the first week of Jun. They also provide some insight into the impact on employment so far. The average workweek probably says the most about current working conditions. Despite the improvements in orders and shipments this month, firms continued to cut the average workweek on net (most firms kept the workweek unchanged compared to May) – both surveys were consistent on this. Demand growth is likely such that firms are not yet in a position, on net, to expand operations significantly compared to May. The change in unfilled orders also hint at this. Industrial production, esp manufacturing improved in May, but the scale of the rebound so far is such that levels of production remain low. Next month data should start to see a larger improvement, but so far, employment appears to be lagging.
One data point that stands out this week is the Japanese merchandise trade for May. There were quite severe declines in exports and imports this month compared to a year ago. Exports declined across all regions, with the most notable, a 50% decline in exports to the US (compared to the same month a year ago) – including transport equipment exports down 80%. Exports to China, the largest export market were down only slightly – likely indicating the more advanced state of the recovery in China. Japan’s imports were also down. Last month, the fall in imports were linked mostly to the fall in the value of petroleum imports. This month declines in imports were more widespread. China is the single largest import market (1.5t in May) for Japan. While imports from China were down by only 2% compared to a year ago – the underlying performance of imports was mixed. Imports of manufactured goods from China was up by 46% (the largest positive contribution, but only one subsector led this growth – textiles, yarn, fabrics) and machinery +6%. This was offset by declines in imports from China across transport equip (-39%), electrical machinery (-10%), others (-16%), raw materials (-19%), and foodstuffs (-19%).
The BoJ kept policy unchanged, aside from upwardly revising the value of loans it could potentially back under a pre-existing scheme. Instead, the BoJ confirmed its dedication to QQE and YYC as the Japanese government has approved further stimulus to support the weaker economy. There was little change in the Japanese CPI growth this month (well below the 2% target). Japan has already experienced two consecutive quarters of GDP decline, as well as ongoing weakness in trade.
The weaker Japanese trade data (imports) also connects back to the weakness in Chinese exports reported last week (as well as lower Chinese exports to Europe and the US). But while Chinese exports declined, Chinese imports declined by a larger degree. This is somewhat consistent with this month’s Chinese industrial production data. The decline in exports has been more moderate – supported by the restart of local production.
The Aus Labour Force report for May highlights the extent to which fairly significant damage has been done the labour market. In May, employment declined, unemployment increased and underemployment also increased. The increase in these measures has reached historical extremes. The employment to population ratio was 58.4% in May. The last time the employment to population ratio was at least this low was in Jun 1999.
The one positive was hours worked. This month, hours worked declined by a much smaller number, possibly indicating that the peak falls in activity were in Apr.
With the lifting of more restrictions in Aus, there will hopefully be a rebound in employment growth next month. But the mutual obligation requirement of looking for work on JobSeeker has also been reinstated as of early Jun, so we’ll possibly see an increase in the participation rate, leading to an increase in ‘official’ unemployment numbers next month. There also appears to be some new Covid case activity – something to watch.
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 22 June 2020 – The highlights this week will be the prelim Jun PMI’s for the US, Europe, Japan, the UK, and Aus.
US Fed Chairman Powell will speak on Fri on building a resilient workforce during the Covid-19 era. Vice Chair for Supervision Quarles will give a speech on stress testing on Fri also.
Data is mostly US-focused this week aside from the prelim PMI’s. The important US data for the week; prelim PMI’s and regional surveys for Jun, personal income and expenditure for May, final consumer sentiment of Jun, and initial and continuing unemployment claims.
Purchases of Treasury and Mortgage securities remain at a similar pace as the week prior – but the schedule for the week is incomplete and the new schedule out on 25 Jun. For the first four days of this week, the NY Fed will purchase approx. $11bn in Treasury Securities (last week $25bn, prior week $20bn) and approx. $18.1bn in MBS (last week $22.8bn and prior wk. $22.5bn).
There will be one term repo operation this week and overnight operations have been reduced to one per day.
US Treasury issuance will remain heavier, but much lower net new money will be raised this week. The US Treasury will settle approx. $421bn in ST Bills and FRN this week. The US Treasury will raise approx. $92bn in new money for the week.
The US Treasury Q2 borrowing requirement is $2.999 trillion USD in new money. The quarter to date value of new money raised stands at $2.409 trillion USD. This is 80% of the requirement for the quarter and we are now 92% of the way through the quarter (in weeks).
In order to meet its $2.999 trillion target for the quarter, the US Treasury will need to raise approx. $590bn in new money next weeks – the last week of the quarter.
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 | Jun 22, 2020
Our base case remains that the early June highs marked an important swing high for risk assets. The impulsive decline from the highs is likely wave (a) / (i) of a larger decline - re remain bearish / defensive. Bonds remain bullish but could see an early week corrective decline. We have no confirmed top […]
by Kim | Jun 15, 2020
The weekly macro review for w/c 8 June 2020 – There were no changes made to US monetary policy settings this week. The FOMC statement and press conference were more downbeat in the current assessment of conditions, but did note some positive developments as the economy starts to open up.
While the FOMC kept policy settings on hold, the US Fed announced enhancements to crisis lending programs, enabling a broader scope of eligibility as well as easing the terms of the Main Street Lending Program.
Fed Chairman Powell noted in his press conference;
The extent of the downturn and the pace of recovery remain extraordinarily uncertain and will depend in large part on our success in containing the virus. We all want to get back to normal, but a full recovery is unlikely to occur until people are confident that it is safe to reengage in a broad range of activities.
This sentiment was also reflected in the prelim consumer confidence numbers this week. Measures of sentiment, current conditions and expected conditions all improved in the prelim report. While expectations are high that the jobless rate will fall, there are lower expectations that favourable economic conditions will be re-established – consumers remain concerned about ongoing high unemployment and a resurgence in the spread of Covid-19;
Bad times financially in the economy as a whole during the year ahead were still expected by two-thirds of all consumers, and a renewed downturn was anticipated by nearly half over the longer term.
News of increasing cases of Covid-19 are starting to emerge across the US and Beijing has entered a fresh lock-down to control a local outbreak.
US CPI was little changed in the month and on an annual basis. The PPI indicated that selling prices increased at a faster rate. In both reports, food price inflation was higher and the reversal of energy price declines also impacted prices. Prices for shelter and medical services continues to grow at a higher pace.
Initial unemployment claims continued to increase in the latest week – over the last 12 weeks, a total of 44m claims have been made by people. Continuing claims have remained extremely elevated and consistently around 20-21m mark. JOLTS data for Apr highlighted decreasing job openings, hires, and quits. At the same time, the level of layoffs and discharges remained extremely elevated after likely peaking in Mar.
Industrial production in Germany (and the broader EU group) and Japan declined notably in Apr. More recent PMI’s indicate that Apr 2020 may have been the “peak” of these declines (not for Japan though). While the lifting of domestic restrictions will help, global export demand will be an important driver of production growth for these countries. The production of motor vehicles remains a key component of this growth.
This month, the Chinese trade surplus increased notably due to a decline in exports and a larger decline in imports. While some of the import decline is linked to lower oil prices, there were still substantial declines in imports from the larger industrial exporters such as Europe (especially Germany), the US, and Japan. This is partly a reflection of these countries remaining under some restrictions as well as some Chinese domestic demand weakness (likely, demand for both final and intermediate goods). Imports from other key markets such as Vietnam and South Korea were higher while imports from Australia were lower.
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 15 June 2020 – The highlights for the week will be speeches/testimony by the US Fed Chairman, rates decisions by the BoJ and BoE, US retail sales and several views of regional US manufacturing activity in Jun.
US Fed Chairman Powell will provide testimony to the Senate Committee on Banking, Housing, and Urban Affairs on 16 Jun and will deliver the semi-annual report on Monetary Policy to the US Congress on 17 Jun.
Vice Chair Clarida will deliver a speech via pre-recorded video at the Foreign Policy Association annual dinner. Both Chairman Powell and Vice Chair Clarida will also give speeches later in the week on the19th. https://www.federalreserve.gov/newsevents/2020-june.htm
The BoJ and BoE will deliver rates decisions this week.
The important US data this week; retail sales for May, NY and Philly Fed regional manufacturing Surveys for Jun, US industrial production for May, and initial and continuing unemployment claims.
UK data this week will include labour market (Feb-Apr), CPI and retail sales results for May.
The key data highlight for Australia will be the May labour market survey.
Purchases of Treasury and Mortgage securities remain at a similar pace as the week prior. This week, the NY Fed will purchase approx. $25bn in Treasury Securities (last week $20bn, prior week $22.5bn) and approx. $22.8bn in MBS (last week $22.5bn and prior wk. $22.5bn).
There will be one term repo operation this week and overnight operations have been reduced to one per day. Note several changes were made to repo operations last week.
US Treasury issuance will remain heavy. The amount of new money raised will increase over last week, but is down on recent weeks as more CMB’s mature. The US Treasury will settle approx. $535bn in ST Bills, Notes, and Bonds this week. The US Treasury will raise approx. $164bn in new money for the week.
The US Treasury Q2 borrowing requirement is $2.999 trillion USD in new money. The quarter to date value of new money raised stands at $2.317 trillion USD. This is 77% of the requirement for the quarter and we are now 83% of the way through the quarter (in weeks).
In order to meets its $2.999 trillion target for the quarter, the US Treasury will need to raise approx. $682bn in new money in the next two weeks. This would represent a significant increase in issuance over the coming weeks.
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
