The weekly macro review for w/c 17 August 2020 – The prelim PMI’s for Aug were mixed.
The strongest PMI among the larger economies for Aug remains UK services. Given the severe declines recorded around the world from Feb to Jun, the rebound in the UK PMI’s since Jun are more the expected magnitude of growth following such historic low levels of activity followed by a broad reopening of the economy. But UK firms continued to reduce employment and were concerned about future output growth.
The US PMI’s indicated a moderate lift in growth for Aug. The rebound in the US has so far been slow. Context is important – US firms overall recorded significant, consecutive monthly declines between Feb and Jun. The Jul result across both services and manufacturing was a ‘no change’ versus Jun after five months of falls. The Aug result is the first month on month increase for firms on net since Jan 2020. There are more positive signs this month regarding orders, export orders and employment.
The two regional US manufacturing surveys were less encouraging – there was an obvious stalling of growth momentum after the last two months. What was concerning was weaker growth in employment and in the average workweek for the month across both reports.
US housing remains a brighter spot. Housing market conditions improved back to pre-shut-down levels. Existing sales, permits and starts were all stronger this month.
There was some positive news for Japan this month. Exports & imports remain below a year ago but to a lesser degree than last month. There was a further improvement in exports for the month of Jul and this is consistent with the forecast for higher growth in Japanese industrial production for Jul. The improvement in global merchandise export demand will help domestic Japanese industrial production. Japanese industrial production recorded a rebound in Jun with shipment growth higher than production growth.
The growth in Japanese exports over the last two months is a somewhat encouraging sign of an uplift in global demand and trade especially from the two largest Japanese export markets China and the US. Weaker Japanese imports though suggests some weakening of Japanese domestic demand conditions. This was further emphasised in the Japanese Aug PMI – both manufacturing and services activity and output continued to contract, with no improvement from the prior month.
Across the Eurozone, there was a notable slow down in the pace of services growth while growth in manufacturing activity was unchanged at a low level. Excluding Germany and France, the output PMI shifted back into slight contraction. Employment continued to decline across the Eurozone.
In Aus, private sector services activity shifted back into decline. This was expected given the severe restrictions reimposed in on the key states, Victoria. The infection rates are slowing notably in Vic. Growth in manufacturing activity continued at a moderate pace. Reinstated border closures within Aus will likely continue to hamper production growth.
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 24 August 2020 – There are two headline events this week. The main one is the Jackson Hole central bank symposium later in the week. US Fed Chairman Powell’s speech on Thurs is expected to present the outcomes from the monetary policy framework review.
The Republican Convention will be at the start of the week.
It will be a lighter week of data, focusing mostly on US data. The important datapoints will be – initial and continuing claims, the second half of Aug consumer sentiment data from the University of Michigan, personal income, consumption and prices for Jul and the advance durable goods data for Jul.
Important Q2 Aus data will be released this week ahead of the Q2 GDP release next week. This week will be Q2 private sector capex and construction work done.
The schedule of US Fed purchases of Treasury and Mortgage-Backed Securities for this week is incomplete – the new schedule will be released on 27 Aug. Purchases are up to and including Thurs 27 Aug. Treasury Security purchases by the Fed this week will be $5.925bn (last week total $21.45bn). The purchase of MBS will be $22bn this week (last week $25.6bn).
US Treasury issuance will be somewhat lighter this week. The US Treasury will settle approx. $307bn in ST bills and FRNs this week, raising approx. $38bn in new money. The US Treasury will also auction approx. $148bn of Notes this week that will settle on 31 Aug.
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
