The weekly macro review for w/c 25 May 2020 – Consumer sentiment in the US barely improved in May despite most states now starting to lift stay-at-home restrictions. Consumer assessment of current conditions improved, while expectations of future conditions actually continued to worsen.
The small improvement in current conditions was likely due, in part, to the receipt of stimulus payments and the start of unemployment insurance payments. The headline +10.5% growth in personal income in Apr hides the underlying performance issues – that over the last two months, US wages and salaries income has declined by over US$1 trillion. The income growth in Apr came from government transfer payments – mostly the CARES ACT payments. The CARES ACT payments are only a one-time payment. The reality is that for many people, that payment will need to cover the period of time until they can get back to work. The expectation of weaker future conditions is one driver of the larger fall in consumption expenditure (across both goods and services) and the subsequent significant increase in the savings rate this month.
As for recoveries, another 2 million+ people in the US filed an initial unemployment claim last week. The ten-week total of initial unemployment claims has now reached 40 million people.
The first US regional surveys for May show some improvement in manufacturing conditions. Most measures indicate that the pace of decline has eased from the shutdown in Apr. But the proportion of firms reporting further weaker conditions in May still outnumber those starting to see improvements. Outlooks remain pessimistic.
The advance durable goods report revealed severe declines in Apr for orders and shipments. This was the worst monthly decline in shipments by a large margin. The main drivers of the falls were transport – led by motor vehicles and non-defense aircraft. Orders for non-defense aircraft were again cancelled this month and the value of shipments in Apr fell to a mere $4.4bn which is now 70% below the peak reached in Nov 2018. Most other sectors also recorded declines in orders and shipments.
Outside of the US, Japanese industrial production data confirmed the scale of the decline in manufacturing activity in Apr as telegraphed by the weaker PMI’s. The declines in production and shipments have been led mostly by larger falls in transport equipment manufacturing.
Germany Q1 GDP decline of -2.2% was confirmed in the second estimate. This is the second consecutive quarter of GDP decline for Germany.
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 1 June 2020 – The focus this week will be on US non-farm payrolls for May, ECB and RBA meetings and global PMI’s for May.
Global PMI’s for May will be released this week. This should provide some insight as to how economies and regions are performing as restrictions start to lift – especially for services sectors.
Important US data this week will focus on non-farm payrolls for May, initial and continuing jobless claims and the ISM manufacturing and non-manufacturing PMI’s for May. The final release of factory orders data for Apr will also be released this week.
The RBA and ECB meet this week. It will be a quiet week for the US Fed ahead of the FOMC meeting next week.
In Aus, Q1 GDP will be released on Wed. The expectation is for a slight decline in GDP for Q1 as most of the economic impact was in the latter half of Mar. Inventory components will be released on Tue which could tip the scale. Retail sales for Apr will also be released – the prelim retail turnover released last week indicated a severe decline in sales in Apr.
Purchases of Treasury and Mortgage securities remain at a similar pace as the week prior. This week, the NY Fed will purchase approx. $22.5bn in Treasury Securities (last week $20bn, prior week $30bn) and approx. $22.5bn in MBS (last week $18bn 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 remains heavy amid increased fiscal spending. The US Treasury will settle approx. $600bn in ST Bills, Notes and the new 20-year Bond this week. This includes four (4) Cash Management Bills (CMB’s). The US Treasury will raise approx. $223bnbn 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 currently stands at $2.048 trillion USD. This is 68% of the requirement for the quarter and we are 69% of the way through the quarter (in 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
