The Weekly Macro Review and Outlook for w/c 9 November 2020
The weekly macro review for w/c 2 November 2020 – US data this week continued to indicate improvement in the economy. Jobs growth improved – but there is still a long way before there is a full recovery of the jobs lost in Mar and Apr. The non-farm payrolls continue to rebound – and have now recovered just over 50% of the jobs lost in Mar and Apr. Unemployment continued to fall – aided by a slower recovery in labour market participation. Initial jobless claims continue to slow. Some of the slowdown in state-based programs is being offset by increases in federal support programs.
The US congress will return next week in a lame duck session. There is some evidence that Governors may begin to implement measures to reduce the spread of Covid in their states – especially where cases are placing pressure on hospital capacity. President-elect Biden will announce a task force this week – it is unclear how much impact he can have prior to taking office though. The holiday season will place pressure on infection rates, which are already well above 100k a day now. Any restrictions implemented during this period may not be supported by another round of fiscal support, although there remains some positive signs for some agreement on stimulus support during the lame duck session – and there is still a very high level of cash in the Government Treasury General Account. The FOMC left policy unchanged this month – further support for the economy in the face of restrictions, may be a priority for the FOMC over the next few months.
US business activity continued to rebound, but is uneven. Manufacturing recorded stronger growth in Oct, in line with the improved regional reports. The Sep factory orders continue to show weakness in airline and petroleum industries. Motor vehicle orders and shipments are now back above that of a year ago. Other industries continued to rebound. Services growth was consistent this month, but there was no acceleration in activity after the stronger result in Sep. There was some caution regarding hiring.
Activity in Europe and the UK is about to be impacted by further social restrictions to curb the spread of Covid. Eurozone manufacturing was stronger in Oct due mostly to activity in Germany. Services output across the Eurozone fell back into contraction – the first sign of weakness re-emerging.
In the UK there was a notable slowdown in services growth, while manufacturing growth remained consistent. The BoE stepped up asset purchases by an additional £150bn. The BoE remains cautious about the uncertainty of the Brexit trade deal as well as the impact of the reimposition of social restrictions.
Australia is now coming out on the other side of restrictions. The PMI’s noted large improvements in business sentiment as case counts decline, as trading and travel restrictions are lifted, and as state border restrictions begin to lift. The PMI’s indicated moderate improvement in activity, especially in services. But both manufacturing and services reports noted declines in employment. The RBA used this opportunity to “gain more traction” with monetary stimulus by easing further this month. A large suite of easing measures was introduced this week, including QE, and the reduction of the OCR down to +0.1%.
Aus mortgage finance data confirmed that housing remains well supported. Retail sales are recovering with a strong Q3 result (in real terms) – even the weakness in Vic was offset by stronger growth in other states. But the retail sectors contributing to the growth are generally not discretionary in nature. Food grocery has been strong. Household Goods was also strong – led by some shift to work-from-home requirements. Retail sales have been boosted by the strong fiscal and monetary stimulus, rent and mortgage payment moratoriums, early tax-free access to retirement savings, and improvements in employment. Some of the fiscal measures have started to unwind now.
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 9 November 2020 – A relatively quiet week ahead. The US presidential election results will continue to be finalized and it will be a relatively light data week. The most pressing issue will be what action will be taken by the US to curb the sharp increase in Covid infections.
It is Veterans Day in the US on Wed 11 Nov.
Key data points this week include:
US – the prelim consumer sentiment for Nov to date, CPI and PPI for Oct.
China Oct data will continue to be released this week – including trade (last weekend), CPI and PPI data.
Australia consumer confidence data for Nov will be an important indicator for spending leading into the end of the year.
US Fed purchases of Treasury securities will be lighter this week due to the Veterans Day holiday. Last week, purchases were around $20.6bn and this week, purchases will be slightly lower at $16.625bn. Purchases of MBS remain elevated. Last week purchases totaled $32bn and this week purchases are expected to total $19.6bn. The target for MBS purchases is around $40bn a month.
US Treasury issuance will be lighter this week and with a net paydown. The US Treasury will settle approx. $285bn in ST Bills this week, with a net paydown of -$18bn.
The US Treasury will also auction $122bn in Notes and Bonds this week which will settle next week.
The US Treasury released the estimated funding requirements for Q4 just prior to the election. The estimated net new money raised for Q4 was reduced from $1.2tr to $617bn for the quarter. The Q1 2021 estimate was also released and the net new money raised was estimated at $1.12tr – indicating that stimulus was not likely until the new year.
This week, approx. $16bn 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
MCP Market Update: November 9th, 2020 – Bears last stand
The Macro Outlook for w/c 2 November 2020
The US Presidential election, central bank policy decisions, and a heavy data week will feature against a backdrop of new peaks in Covid-19 infections in the US, Europe and the UK. Further restrictions have been announced for European countries, and another month-long shutdown has been announced for England.
The US Presidential election will be held on Tuesday 3 Nov. A ‘blue wave’ result is not assured as there is the risk of a surprise Trump win, a contested election, and/or a divided government. The wider use of mail-in ballots will increase the likelihood that there will not be an official winner announced on the night. The process is likely to extend beyond Tuesday night and if the result is contested, this process will likely be prolonged further. A divided result either way could see some disruption for markets due to lowered expectations for stimulus and increased ambiguity over the policy process for the next four years.
The US Fed FOMC will hand down its policy decision on Thursday and there is no expectation for a change in stance at this stage. The economy is rebounding, albeit unevenly, but infections continue to rise to new peaks, possibly dampening progress. Last week the Fed adjusted its Main Street Lending program – reducing the minimum loan size to $100k and reducing fees to encourage smaller businesses to use the facility. https://www.federalreserve.gov/newsevents/pressreleases/monetary20201030a.htm
The RBA will meet on Tuesday and market expectations of a rate cut to 0% has held steady at 84% for the last week (source: https://www2.asx.com.au/markets/trade-our-derivatives-market/futures-market/rba-rate-tracker ). From the minutes of the last RBA meeting, the Board noted that it expected more traction from further easing with states coming out of lockdown. It is also possible that further changes to the Term Funding Facility will be announced (expanded) – placing possible further downward pressure on mortgage rates in Australia.
The BoE also meets this week – the two key issues will be the Brexit trade agreement (no ratified agreement) and a new month-long lockdown for England. An announcement is expected on the status of the Brexit trade negotiation on Wednesday or Thursday this week – as more intensive negotiations continue in Brussels.
Key data points this week include:
US – Non-farm payrolls and ISM manufacturing and services PMI’s for Oct will be the key data focus.
The final global PMI’s for Oct will be released. Europe PMI’s for Oct are only starting to reflect the impact of restrictions on trade, especially for services.
US Fed purchases of Treasury securities will increase this week. Last week, purchases were lower at around $8bn and this week, purchases will increase to the $20bn benchmark. Purchases of MBS remain elevated. Last week purchases totaled $28bn and this week purchases are expected to reach $32bn, well above the $20bn benchmark.
US Treasury issuance will be heavier this week. The US Treasury will settle approx. $529bn in ST Bills, Notes, and Bonds this week, raising approx. $76bn in new money.
With progress on stimulus stalled until after the election result, the current pace of new money raised is running below the $1.2tr estimate for the quarter (38% of the quarter and 11% of the estimated net cash to be raised for the quarter). The US Treasury cash balance remains elevated at $1.65tr (Wed 28 Oct level).
This week, approx. $28bn 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
MCP Market Update: November 1st, 2020 – Election Inflection
