by Kim | Jul 27, 2020
The weekly macro review for w/c 20 July 2020 – The prelim PMI’s for Jul show that there have been mixed results in the pace of improvement in private sector activity and output.
The important point is the context of these PMI results from Apr, May, Jun, and Jul. The May to Jul activity is coming off extremely low levels of activity. The low point was Apr when most firms reported declines in activity/output due to closure/restriction of non-essential activity.
If firms are re-opening (or restrictions are lifted), then why haven’t PMI’s rebounded into the 60’s or even 70’s? Only two country PMI’s in Jul suggest that re-opening has resulted in a stronger output rebound: UK manufacturing output 59.8, UK services output 56.6 and Aus services output 58.8.
The pace of the rebound in output among the other PMI’s has been slow.
The US composite PMI for Jul is at 50 – only a small improvement from Jun. Services firms indicate output is still declining slightly, on net. Manufacturing output recorded the first month on month increase in five months. Employment was unchanged.
The Kansas City Fed manufacturing survey indicated a shift to at least moderate growth in region for Jul. This survey provides the year on year diffusion index – which indicates that 60% of firms in the region still recorded a decline in production versus a year ago.
High frequency employment data for the US was mixed. The seasonally adjusted initial claims increased in the month for the first time in four months, but the non-seasonally adjusted data indicated an improvement. The big picture though is that even at the week ending 4th Jul (when the latest wave of infections was emerging), the total number of people claiming unemployment insurance for both state and federal programs was still over 31m people.
The PMI’s for Japan are most concerning. Both manufacturing and services output continue to decline at a similar pace to Jun, indicating little if any improvement in conditions. Employment declined at a faster pace.
Across the Eurozone there was a moderate lift in the number of private sector firms (likely) reporting higher output and activity – the first month on month increase since Feb 2020. Again, context is important. Overall output expansion of around 54 indicates a low level of growth considering the severity of the output fall when the composite output PMI fell to 13.6 in Apr.
The UK composite PMI was stronger and probably one of the better results of the group. The lifting of more restrictions in Jul has resulted in faster growth in output especially across services. The manufacturing output PMI jumped up to 59.8 – which is also a better result. This is clearly an improvement, but growth is likely generated from a low level of activity (which is why the PMI’s “should” all be higher). It is telling though that employment continued to contract – and at a faster pace in Jul. Despite the better results for the UK this month, commentary was downbeat:
Despite the restart of more parts of the service economy, especially leisure-related businesses, there were also reports that initial levels of demand had been weaker-than-expected.
The Aus results were mixed. Services output was stronger, showing a likely broader resumption of growth. Manufacturing output increased for the first time in a year. Given how severe the decline was in Apr/May (which indicates that most manufacturing firms recorded declines in output and activity), the headline expansion remains only moderate into the second full month of lifted restrictions. The PMI expansion level needs to be taken in context of just far output fell between Mar and May. Again, it is a telling sign that employment levels continued to be reduced on net in Jul – across both manufacturing and services. A more severe outbreak in infections in one of the larger states (Vic) may result in weaker growth in the following months. As a result, many states have slowed down how quickly restrictions (especially on-premise food etc) have been lifted.
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 27 July 2020 – This will be a big week of data, the US FOMC meeting, key US earnings reports, and important guidance on the extension of the CARES Act/Federal unemployment insurance funding, as expiration of the programs approach at the end of the week.
It is anticipated that the Republicans will table a further stimulus bill including the extension of Federal unemployment programs this week. The current programs are due to expire on 31 Jul. The bill is likely to also include a National extension of the initial four-month moratorium on rental evictions (affecting approx. 12m people).
The FOMC will meet on Tue and Wed with the policy announcement on Wed.
Data highlights this week:
US – prelim Q2 GDP, the final consumer sentiment for Jul, the first view of durable goods orders for Jun and the initial, continuing, and Pandemic unemployment insurance claims.
There will be a heavy schedule of earnings releases to be aware of this week. Of note will be Thurs (US EST), which will include Amazon, Alphabet and Apple.
More information: https://twitter.com/eWhispers/status/1287004960304095232
Eurozone prelim Q2 GDP.
Japan industrial production for Jun – important given how weak the PMI’s have been. There is likely to be some improvement.
Aus Q2 CPI.
The schedule of US Fed purchases of Treasury and Mortgage-Backed Securities will be updated as of 27 Jul. Purchases had been tracking back up around the $20bn/week level.
US Treasury issuance will remain heavy, but the net new money raised will be relatively low. The US Treasury will auction and/or settle approx. $481bn in ST bills, notes, bonds and TIPS this week, raising approx. $20bn in new money.
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 | Jul 27, 2020
Global equity markets pushed to marginal new highs before fading late in the week. The equity market rally remains fragmented as the DJIA and Russell have yet to confirm the Nasdaq and SPX push to new cycle highs. All eyes were on the PM's as they accelerated higher following the DXY break of key support. […]
by Kim | Jul 20, 2020
The weekly macro review for w/c 13 July 2020 – One of the key themes this week is the potentially stalling/slowing recovery in jobs growth in the US. The high frequency data (initial, continuing, and PUA claims and the Household Pulse survey) is showing some signs of slowing.
Regional US manufacturing surveys mostly improved in Jul. There was at least improvement in the number of firms recording new orders growth across both surveys. The Philadelphia Fed survey indicated more stable activity across other key measures rather than a sharp resumption of activity. Unfilled orders across both the NY and Philly Fed surveys still indicate spare capacity across most firms. Most firms still reported no change to employment and hours. The diffusion indexes don’t show the scale of the change – it’s based on the proportion of firms reporting higher, lower or the same level of activity compared to the month prior.
The Jun US industrial production report showed improved production growth especially for manufacturing sectors. This was consistent with the Jun PMI’s and factory orders. Levels of activity are undoubtedly improving. But activity is yet to regain pre-shutdown levels. Capacity utilization is also improving but remains at levels on par with that of mid-2009. The current level of motor vehicle production capacity utilization (still 25% below a year ago) is a big influence on the result, but many other manufacturing industries are also experiencing lower capacity utilization.
Also of note in the industrial production report was that mining production and capacity utilization had fallen further in Jun.
The index for oil and gas well drilling fell 18.0 percent in June and was about 70 percent below its year-earlier level. For the second quarter, mining output declined 42.7 percent at an annual rate.
Survey data for manufacturing new orders growth indicates some further short-term increase in production. But it is unclear whether this will be strong enough to result in a faster recovery of production and capacity utilization. How quickly this spare capacity is reduced will have implications for how quickly employment, hours and investment improves.
With regard to services output, the question is how much disruption to activity/recovery will there be due to the latest increase in infections?
In Aus, consumer sentiment fell in Jul amid a larger outbreak in one of the most populous states:
There is likely some loss of confidence regarding the ability to contain the virus and “limiting the extent to which the economy can return to business as usual”.
The small “recovery” in US sentiment in Jun was also mostly reversed in the Jul prelim reading especially for expected conditions – citing the potential impact of increased infections on personal finances and the economy.
The US is now on the cusp of the higher unemployment benefit (Federal Pandemic Unemployment Compensation) expiring on 31 Jul without any clarity over an extension. This will affect approx. 25m recipients. Another stimulus bill is likely to be announced in the coming week and it is highly likely that benefits will be extended. The stimulus checks and enhanced benefits have helped to return US retail sales to annual growth in a short time. Retail sales in Jun were +1.1% ahead of the same month a year ago.
One other area that has continued to improve in the US is housing. The mortgage application data this week indicates that many are taking the chance to refinance based on record low mortgage rates. This obviously boosts income. Housing market conditions have improved across the nation and notably in the Northeast especially.
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 20 July 2020 – The focus this week will be on the US Congress negotiating an extension to the Federal Pandemic Unemployment Compensation payment as a part of another stimulus bill, the EU recovery package, rising case infections and the prelim PMI’s for Jul.
US highlights this week will be:
Initial and continuing claims will remain in focus. Last week, we noted that the reduction in claims appears to be stalling amid rising infection/cases.
The US prelim PMI for manufacturing and services for Jul. The services reading will be an important barometer of the potential impact of rising infections especially in the South and parts of the West and Midwest.
US existing home sales for Jun will be released.
The prelim PMI’s for manufacturing and services in Jul will be released for the Eurozone, UK, Japan, and Aus.
In Aus, the government will also announce changes to the crisis employment support programs of JobKeeper and JobSeeker. This will be announced ahead of the budget statement later in the week. This will be important in the context of the pace of the current rebound, unemployment levels and the new peaks in infections in one of the two most populous cities.
Purchases of Treasury and Mortgage securities will be larger this week and are back up to $20bn/week pace. This week, the NY Fed will purchase approx. $20.8bn in Treasury securities (last week $17.8bn, prior week before that $21.8bn) and approx. $23.8bn in MBS (prior week $22.8bn and week prior to that $22.8bn).
US Treasury issuance to be updated during the week.
More detail (including a calendar of key data releases) is provided in the briefing document – download the file here;
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Mars Capital Partners | Jul 20, 2020
Global equity markets continue to grind higher despite deteriorating economic conditions and global virus outbreaks. The weaker US$ and excess liquidity is helping to support risk assets across the board. However, there is strong evidence to suggest that the recent trend in DXY, commodities and equities should be ending near term. We are alert to […]
by Kim | Jul 13, 2020
The weekly macro review for w/c 6 July 2020 – Last week we reviewed the manufacturing recovery in the US in Jun. This week we look at services/non-manufacturing activity. The easing of lock-down and trading restrictions resulted in some improvement in private sector services activity for the US in Jun.
The more detailed ISM non-manufacturing PMI showed that activity improved in Jun and ‘only’ three industries reported further overall declines in the month: Mining; Other Services; and Management of Companies & Support Services. Importantly the increase in new orders was stronger – a positive sign for short-term output growth. But order backlogs and employment indicate that spare capacity is still an issue. Eleven industries continued to report net declines in employment in Jun; Management of Companies & Support Services; Educational Services; Mining; Professional, Scientific & Technical Services; Other Services; Retail Trade; Health Care & Social Assistance; Public Administration; Wholesale Trade; Utilities; and Finance & Insurance.
The Markit services PMI for the US showed that activity overall continued to decline in Jun, but at a slower pace than in May. There was more of a general stabilization of activity across key business indicators. There was little in this report to suggest that, on net, there had been a sharp resumption in services business growth in Jun.
JOLTS data was mixed. The total hires and separations for the month were much stronger – with growth in hires reaching an all-time high. On a monthly basis, hires were larger than separations in May by +2.3m people. But the implied loss of employment in Mar and Apr (combined) was 15.4m jobs. So, while May was a positive result, there is still a long way to go before the labour market overcomes those losses. The level of job openings increased marginally. The level of quits remain depressed – indicating less inclination to change jobs during high levels of unemployment.
Initial unemployment claims and continuing claims remain elevated but have at least continued to slow in the last few weeks. There has, instead, been an increase in Pandemic Unemployment Assistance initial and continuing claims.
German factory orders improved in May – a good sign for production in the short-term. Industrial production also rebounded in May – but with mixed performance across industry sectors. Levels of production remain well below the same time a year ago.
In Australia, lending for housing declined at an accelerated pace in May, likely reflecting the impact from the National shutdown in Apr. All sectors of housing finance declined in May. The slow-down in credit growth will most likely impact the growth of house prices over the coming months.
Job ads in Australia improved in Jun after a long period of weakness and are still 45% below the same month a year ago.
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 13 July 2020 – A big week of data and central bank meetings.
US highlights this week will be:
Regional readings of manufacturing for Jul – important to see how activity is tracking after the Jun rebound.
Initial and continuing claims will remain in focus – especially the Pandemic Unemployment Assistance claims which have been rising quickly over the last few weeks.
The prelim consumer sentiment for Jul will be released, providing some important insight into the impact of rising infections across the South and the West (especially) on consumer sentiment and spending intentions.
Retail sales and CPI for Jun.
Industrial production for Jun which will provide more detail around the Jun PMI’s and factory orders data.
In Australia, the labour market survey for Jun will be released.
China Q2 GDP will be released this week, along with the remaining Jun data including retail sales, industrial production, and fixed asset investment.
Rates decisions by the BoJ and the ECB.
Purchases of Treasury and Mortgage securities are incomplete for the week – the full schedule for operations will be released on 13 Jul. Last week, the NY Fed purchased approx. $21.8bn in Treasury Securities (prior week $7.8bn, prior week before that $19.6bn) and approx. $22.8bn in MBS (prior week $18.1bn and prior week before that $22.8bn).
This week, the US Treasury will settle approx. $438bn in ST bills, Notes and Bonds raising approx. $31bn in new money.
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
