The weekly macro review for w/c 5 October 2020 – Global services activity increased at a broadly similar pace in Sep as in Aug. The Eurozone slipped into slight contraction and Japan continued to contract at a similar, marginal pace. The US and UK services PMI’s indicated that the pace of growth remained on par with the prior month.
The US ISM business activity and domestic new orders, especially, indicated a faster pace of growth in the services sector.
Given the tentative recoveries so far, especially in services and consumer facing industries, the renewed outbreak of infections in Europe, the UK, and starting again in the US, will test whether policy makers can balance the economic recovery with controlling another outbreak.
US JOLTS data indicated that employment continued to expand in Aug, but job openings were weaker in the month. The pace of layoffs and discharges fell to a series low – which is inconsistent with the rising permanent layoffs from the household employment survey. On a rolling 12-month basis to Aug, the difference between hires and separations implies a net employment loss of 7m as of Aug. This has improved from the -13.5m employment loss in Apr but remains well below the average growth of +2m prior to the shutdowns.
US consumers continued to pay down credit card debt with revolving credit leading another decline in overall consumer credit for the month. This is the sixth month of decline in the value of outstanding revolving credit (this also happened through the GFC). Non-revolving credit growth also slowed.
This week the MBA released the mortgage credit availability index for Sep. This showed a further tightening in mortgage lending standards:
“Across all loan types, there continues to be fewer low credit score and high-LTV loan programs. The housing market overall is on strong footing, but the data show that lenders are being cautious, given the spike in mortgage delinquency rates in the second quarter, as well as the ongoing economic uncertainty.”
Despite the US Fed maintaining very easy/accommodative conditions (and mortgage rates continuing to fall as the Fed buys up MBS), banks are limiting lending due to the weaker economic environment.
In Aus, housing finance recorded a substantial increase in Aug – mostly the result of lenders catching up on backlogs (as noted by the Aus Bureau of Statistics). Still, this has locked in 3 months of gains in mortgage lending commitments. The RBA kept rates on hold this month. After the meeting and the Fed budget release, the probability of another rate cut in Nov increased.
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 macro outlook for w/c 12 October 2020 – A big week ahead – the key highlights include the next Presidential debate in the lead up to the US Presidential election, the EU-UK Brexit trade agreement, central bank Governor speeches this week, and important data releases.
There are now only 3 weeks until the US Presidential election. The focus this week will be the second Presidential debate and the ongoing posturing around a second stimulus bill.
The EC meeting this week 15-16 Oct will be important for Brexit trade deal proceedings. The status of negotiations will be reviewed and a trade deal has so far not yet been agreed upon. It was originally hoped that a deal would be completed by this week to enable enough time for parties to ratify the trade deal.
There are several central bank Governor speeches this week – the ECB’s Lagarde, BoE’s Bailey, and RBA’s Lowe will all speak this week (different events). There will also be speeches by US Fed Vice Chair Clarida and Vice Chair for Supervision Quarles.
The key data points this week include:
US – Retail sales, CPI, and industrial production for Sep. The first view of Oct production data with NY and Philadelphia regional surveys and the prelim Uni of Michigan consumer confidence data for Oct will also be released.
China trade data, CPI, and PPI for Sep.
Aus employment and labour market survey for Sep.
The next schedule of US Fed purchases of Treasury and MBS will be released this week.
US Treasury issuance will be heavier this week. The US Treasury will settle approx. $395bn in ST Bills, Notes, and Bonds this week raising approx. $72bn in new money.
This week, approx. $20bn in Bills, Notes, and Bonds will mature on the Fed balance sheet and will be rolled over.
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
