The weekly macro review for w/c 16 November 2020 – Data from the US this week showed that the rebound in activity continued. A slight uptick in initial claims hinted at some possible impact from the growing level of state and regional restrictions. This will be something to watch in the coming weeks. Continuing claims remained elevated and the fall in regular state ongoing claims was mostly offset by an increase in the uptake of federal pandemic programs.
US retail sales growth slowed in Oct. The breadth of growth across categories was narrower this month. The monthly retail growth was led mostly by the increase in non-store retail sales. Year-to-date retail sales are now only -0.1% below the same period a year ago.
Manufacturing activity continued to recover. Industrial production in Oct increased at a faster pace led by faster growth in manufacturing output. Output and utilization remain below a year ago. The regional manufacturing surveys for Nov indicated that growth remained consistent.
Housing conditions were especially strong in Nov – reaching another new high for the conditions index. This was led by single-family sales (present conditions) and further improvement of conditions in the Midwest and the South. Existing home sales also continued to increase at a fast pace, albeit slower than in the prior month. All regions contributed to growth. Mortgage applications recorded an increase in purchase applications – for the second time out of the last eight weeks.
The rebound in Japan, especially for manufacturing and exports, continued. Industrial output in Sep increased for the fourth month in a row, despite the headline contraction in the manufacturing output PMI. Aiding this recovery has been the steady rebound in export growth over the last few months. Two points of caution from the prelim Nov PMI was the renewed contraction in new export work and the faster decline in output prices.
In Australia, the Reserve Bank minutes reiterated that reducing unemployment was a National priority amid concerns over subdued demand conditions. The full suite of exceptional monetary measures introduced in Nov, including QE for the first time, was aimed at providing further traction for the recovery alongside fiscal measures.
Previously, the RBA has acknowledged that inflation would not be likely to return to the 2-3% range until wage growth started to accelerate. This is not likely to happen until labour market slack is greatly reduced. In Q3, annual wage growth slowed to the slowest pace in the series (short) history. The labour market survey for Oct recorded faster growth in the number of employed persons – one of the stronger monthly rebounds in employment since the pandemic shutdowns. The important takeaway is that while employment increased notably, the supply of labour increased by a larger degree (participation had increased). This means that the total number of unemployed persons continued to increase on a monthly and annual basis. For the moment, employment growth/labour demand is lagging behind the increase in the supply of labour. As domestic restrictions continue to be lifted, employment growth will need to accelerate further to reduce the extremely high level of unemployment and underemployment.
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 23 November 2020 – It will be a short week in the US with the National Thanksgiving Day holiday. Despite the short week, it will still be a heavy data week including the FOMC minutes, and the prelim PMI’s for Nov.
Key data points this week include:
Most of the US data will be released on Wednesday this week including weekly initial claims data, durable goods orders for Oct, the prelim Q3 GDP (2nd release), personal income, expenditures, and prices for Oct, Uni of Michigan consumer sentiment final for Nov, and the FOMC minutes.
US Fed Vice Chair Clarida will give a speech at the IMF Conference on New Policy Frameworks for a “lower for longer” world. The link is provided in the calendar.
The prelim PMI’s for Nov will be released this week. These will provide some insight into the impact on activity from the latest Covid restrictions in Europe and the UK especially. Services will likely remain weaker.
In Australia, construction work done and private sector CAPEX for Q3 will be released this week. Both reports are key inputs into the Q3 GDP release scheduled for the following week.
US Fed purchases of Treasury securities and MBS will be lower this week due to the shorter week. Last week, purchases of US Treasuries totaled approx. $34bn, and this week, purchases will be around $4bn. Purchases of MBS will remain elevated and the Fed appears to be buying well above the $40bn/month rate. Last week’s purchases were approx. $36bn and this week’s purchases are expected to total $20bn, even with the shorter week.
US Treasury issuance will be somewhat lighter this week. The US Treasury will settle approx. $309bn in ST Bills and 2yr FRN’s this week, raising approx. $11bn in new money.
The US Treasury will also auction $169bn in 2, 5, and 7-year Notes this week that will settle on 30 Nov. Note that the settlement of 10yr TIPS, Notes, and Bonds on Monday 30 Nov will be heavy at $208bn – raising approx. $130bn in new money. This does not include the regular ST Bills for the week.
This week, approx. $15bn in Bills 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
