The weekly macro review for w/c 27 July 2020 – US headline consumer sentiment and sentiment around expected conditions have both fallen back to the lows reached at the start of pandemic.
The Expectations Index fell back to 65.9 in July, tied with the six-year low recorded in May, providing no indication that consumers expect the recession to end anytime soon.
There was even some unusually downbeat commentary from the Mortgage Bankers Association this week regarding mortgage applications:
“Homebuyers stepped back slightly, and there was a larger drop in purchase application volume for FHA, VA, and USDA loans. This trend, along with the fact that average loan sizes are increasing, indicate that prospective first-time buyers are being impacted more by the rising economic stress caused by the resurgence in COVID-19 cases, as well as the uncertainty on how the next round of government support will take shape.”
Sentiment indicators are likely to worsen as additional benefits expire and if housing forbearance programs are not extended.
So far there has been no resolution regarding the extension for the expiring CARES Act benefits. The funding bill continues to be debated among Republicans. Some Republicans suggest enough stimulus has already been delivered and the Whitehouse wants to boost the economy prior to the election. The Democrats have an alternative set of priorities. There will likely be some resolution/compromise, but the Federal benefits have now started to expire.
The Federal Pandemic Unemployment Assistance program currently has over twelve million people on continuing claims. There are over 30 million people claiming ongoing unemployment insurance (at wk ending 11 Jul) across both state and federal programs.
The high frequency employment data (the regular state-based programs) is providing some mixed signals – the more recent data indicates that the small improvement in initial claims appears to be stalling and continuing claims also increased.
Regional manufacturing reports for July indicate at least a low level of momentum in production and shipments growth. Employment growth remains low, but there was improvement in hours worked. The advance durable goods report for Jun also indicated stronger growth for the month – except for non-defense airline orders. There appears now to be some greater momentum behind motor vehicle production and orders.
The decline in personal income in Jun was mostly due to the one-off CARES Act payments going through in the prior two months. In Jun there was an increase in wages and salaries, but levels remain well below a year ago. Incomes were boosted by unemployment insurance. Expenditures increased in Jun. But the year on year comparison highlights the severe decline in expenditure on Services – usually a very stable component. Any impact on expenditure and income from the current outbreak in infections in the US will likely start to show up from Jul.
In Australia, one of the largest states, Victoria, will go into a more severe shutdown for an estimated six (6) weeks due to the increase in infections. This will be another hit to the Australian economy, impacting business output, expenditure and employment at the state and National levels. At this stage, there is no indication of any renewed fiscal support for the state.
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 3 August 2020 – This will be another big week of data and several central bank meetings. Focus also remains on the ongoing negotiation of the extension of the US CARES Act/Federal unemployment insurance funding and stimulus.
Data highlights this week:
US – non-farm payrolls for Jul, the ISM PMI reports for Jul and the latest initial, continuing, and Pandemic unemployment insurance claims.
The final Markit PMI’s for Jul will be released for the major economies including – the US, Eurozone, UK, Japan, China, and Australia.
Australia – the RBA will meet this week on interest rates. Retail sales and housing finance data for Jun will be released this week. There is a possibility for further federal stimulus announcements due to the shutdown in Victoria.
The Bank of England will also meet this week.
The schedule of US Fed purchases of Treasury and Mortgage-Backed Securities has now been updated. There will be a reduction in the pace of Treasury security purchases by the Fed this week, down to $9bn (last week $25.15bn). The purchase of MBS will remain steady at $24.23bn this week (last week $26.15bn).
US Treasury issuance will be lighter this week – and there will be a net paydown. The US Treasury will settle approx. $285bn in ST bills this week, with a paydown of approx. -$33.6bn. This reduces the amount of new money raised this quarter to date to $34bn – the estimated requirement for new money raised this quarter is $677bn.
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
