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
