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
