by Kim | Dec 28, 2020
Highlights for the short week between the Christmas and New Year break include the sign off on the latest US government spending and relief bill and a light data week.
News of the Covid-19 vaccination rollout is running alongside reports of new outbreaks, new faster-spreading strains, and case flare-ups across several countries.
Last week, the UK PM announced further restrictions in response to the discovery of a faster-spreading strain of Covid-19. A further fast-spreading strain has since been identified in South Africa:
The British authorities have detected two cases of the South Africa variant, Mr. Hancock said. In both cases, the infected people had been in contact with people who had traveled to Britain from South Africa in recent weeks. Mr. Hancock said that those infected with the new variant and their close contacts would be quarantined, and that travel from South Africa would be restricted. https://www.nytimes.com/live/2020/12/23/world/covid-updates-coronavirus
The UK parliament will be recalled to vote on the Brexit trade agreement this week. EU members will review the agreement before a formal vote, likely later in Jan.
It will be a quiet week on the data front. The highlights include US initial jobless claims.
The latest schedule of US Fed purchases of Treasuries and MBS will be announced on 28 Dec. Last week’s purchases were lower, in line with the short week. Last week, the Fed purchased approx. $9bn in US Treasury securities and approx. $18.4bn in MBS.
US Treasury issuance will be heavier this week. The US Treasury will settle approx. $558bn in ST Bills, Notes, FRN’s, TIPS, and Bonds this week, raising approx. $188bn in new money. This brings the total of new money raised for the quarter to $575bn – which is approx 93% of the estimated requirement for the quarter.
This week, approx. $62bn 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.
We wish all of our valued clients a safe and prosperous New Year.
by Kim | Dec 21, 2020
The weekly macro review for w/c 14 December 2020 – Last week we noted that sentiment across many countries had been buoyed by news of a Covid-19 vaccine. But this has not stopped the rolling outbreaks from continuing to affect economies and households. In many cases, countries or regions within countries are reinstating travel and distancing restrictions. This is affecting the trajectory of the recovery from the more severe shutdowns at the start of the year.
In the US, the severity of the current outbreak of Covid-19 is worse (absolute numbers) than at the start of the year. But this time there has been no nationally mandated shutdown or restrictions – this has been handled on a local basis. Data continues to reflect at least a slowing of recovery momentum. US manufacturing is faring better than services. Data for Dec is reflecting ongoing growth, just no further acceleration in that growth. Services activity slowed notably in Dec but stayed positive. Retail sales for Nov were weak – especially given the Thanksgiving holiday. Initial and continuing claims have been increasing again since Thanksgiving. A sizeable level of unemployment remains, and the US Congress appears to have finally made some progress on a relief bill to help fill the income gap through cash payments and an extension to benefits. The FOMC made no changes to its high levels of monetary easing. The Chairman reinforced that accommodative policy would remain in place until inflation at least averages 2%.
In Europe, restrictions had been imposed again in many countries through Nov and Dec. The Oct production data remained strong – led by stronger growth in Germany. The Dec data suggests some broadening of manufacturing growth among countries. Services remain weak as a result of restrictions.
In the UK, the severe decline in services activity in Nov eased in Dec. Unfortunately, this is likely to be short-lived as greater restrictions have just been announced to combat a new strain of the virus. This will impact the UK and also Europe, which imposed travel bans on the UK. Manufacturing activity was boosted in Dec somewhat by preparations for the final Brexit deadline. At this stage, there is no UK-EU trade deal yet ahead of the 31 Dec deadline. The BoE made no changes to the current stance of policy.
In Japan, the rebound in activity is mixed. There has been a recent rise in cases and some restrictions have been re-imposed. Manufacturing production continues to rebound and is still 3% below a year ago. The PMI recorded a contraction led by services, which declined at a faster pace in Dec. The Nov merchandise trade reflected some domestic weakness in demand as well as weaker global export demand. The Dec manufacturing PMI noted an accelerated decline in new export orders. The National CPI declined at an accelerated pace – even excluding fresh food and energy. This reflects some of the weakness experienced in the services sector. The BoJ announced that it will assess further options for ‘effective monetary easing’ likely to be announced at the Mar 2021 meeting (within the current QQE with YCC framework). The Committee judges that current economic activity and inflation will remain under ‘downward pressure’ for a ‘prolonged period’ due to the pandemic.
In Australia, local community transmissions flared up in NSW. The states have been quick to reimpose border restrictions. The Nov employment survey was more positive. Even though employment growth slowed, there was a slower increase in the supply of labour too. This helped to reduce total unemployment in the month. The one caution is that most of the employment growth was the result of the easing of restrictions in Vic while employment across several of the larger states declined in Nov.
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 21 December 2020 – Highlights for the short week leading up to the Christmas holiday celebrations include the announcement of a compromise on stimulus in the US, increased Covid restrictions, and US data.
News of Covid-19 vaccinations is running alongside reports of new outbreaks, a new faster-spreading strain, and flare-ups across several countries.
Over the weekend, the UK PM announced further restrictions in response to the discovery of a faster-spreading strain of Covid-19. European nations responded swiftly with border closures and flight bans, including the closure of the Channel Tunnel “for at least 48 hours”.
The travel restrictions come at a difficult time for many British companies, which are engaged in last-minute stockpiling before December 31, when a status-quo transition period with the European Union ends and new customs rules come into effect. https://www.abc.net.au/news/2020-12-21/european-union-nations-halt-uk-flights-over-covid-19-variant/13002548
A small outbreak of community transmission in Australia (NSW) has resulted in some border closures and social distancing restrictions to be reinstated.
US data is the focus this week. The highlights include initial jobless claims (which have been trending a little higher since Thanksgiving), personal income, expenditure and prices, and consumer sentiment leading into the end of the year.
The US Fed purchases of Treasuries and MBS will be lower in this shorter week. The Fed will purchase approx. $9bn in US Treasury securities this week (last week $31.2bn) and approx. $18.4bn in MBS (last week $27.9bn).
US Treasury issuance will be lighter this week. The US Treasury will settle approx. $310bn in ST Bills this week, raising approx. $22bn in new money. The US Treasury will also auction the FRN, 5yr TIPS, and 20yr Bond this week, which will settle next week. Approx $230bn in Notes and Bonds will be auctioned and settled next week, raising approx. $159bn in new money. This may be revised based on the final stimulus number and the TGA balance..
This week, approx. $10bn in Bills will mature on the Fed balance sheet and will be rolled over.
More detail (including a calendar of key data releases) is provided in the briefing document – download the file here;
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net.
We wish all of our valued clients a very happy and safe holiday!
by Mars Capital Partners | Dec 21, 2020
Please note: due to the upcoming holidays, our next update will be published in the new year. Wishing all our clients and their families a happy Holiday season and prosperous New Year! Last week saw the continuation of our primary market trends - strong equities, weak US$, strong commodities and pinned rates. It is important […]
by Kim | Dec 14, 2020
The weekly macro review for w/c 7 December 2020 – The roll-out of Covid-19 vaccines is helping to improve sentiment. But while prospects for the future are improving, there remains a more immediate/impending issue of the economic impact from the current outbreak as well as the general pace of recovery.
In the US, consumer sentiment recorded a surprising improvement – driven by sentiment around the longer-term outlook. Current prospects for the economy and household finances were unchanged. There were still expectations that in the immediate term unemployment would increase and incomes would decline, given the severity of the current outbreak.
In the week after Thanksgiving, US initial claims increased sharply. This is the first week where a notable increase has been recorded, especially during this latest outbreak of infections. It is not clear whether this is a shift in trend. From the Oct JOLTS and Nov non-farm payrolls data, we know that there were also large layoffs of temporary Census workers.
The JOLTS data for Oct showed a continued improvement in the net employment change for the month, but the annual net employment change was still a -5.65m decline in employment. While this was an improvement from the -6.2m decline in employment in Sep, these results are significantly below the average growth of +2.1m in employment recorded through 2019. Hires are now ahead of a year ago and layoffs and discharges are 5% below a year ago. Quits remain an insightful gauge. The level of quits is still 10% below a year ago – indicating either a lower willingness or ability of workers to change jobs. Job openings are also still 9% below a year ago, so the availability of jobs likely remains an issue.
The US CPI report was interesting this month. The pandemic has resulted in sharp shifts in spending patterns. Broadly, less air travel, less eating out, reduced discretionary spending, leaving densely populated areas (if possible), and more local/at home-based consumption. There are some small indications that severe price declines across categories such as apparel and airline fares are starting to reverse. This may be a small indication of returning demand, or at least, less deep discounting required.
The ECB announced additional support at the latest meeting. Rates remained unchanged, but pandemic-related QE was increased. The TLTRO III was also expanded for banks, and most of the other easing measures and emergency programs were extended indefinitely. It will be interesting to see the extent to which the US FOMC will respond this week to the current US situation.
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 14 December 2020 – Key highlights for the week will be central bank meetings and a heavy data week.
This week, the FOMC meets and rates are expected to remain on hold. The Fed will consider the current economic impact of the virus, and while data has not materially deteriorated during this wave of infections, the rebound across some sectors is still weak. The ECB last week adjusted some policy settings and the FOMC could do the same. The BoE meets this week and will also consider the current economic impact of the recent restrictions as well as the upcoming Brexit transition deadline. The BoJ will also meet at the end of the week.
Key data points this week include:
The prelim PMI’s for Dec across the US, Europe, Japan, UK, and Australia. This will provide some insight into the severity of recent virus outbreaks and restrictions on services sectors especially.
Industrial production data will be released across Japan (Oct), the Eurozone, the US, and China for Nov.
US – initial weekly jobless claims will be important after last week’s increase, retail sales for Nov, and building permits and housing starts for Oct.
Australia – the latest RBA minutes and the employment and labour market survey for Nov will be released this week.
The US Fed purchases of Treasuries and MBS will remain elevated this week. There will be a notable increase in the purchase of Treasury securities this week of $31.2bn (up from $$22.4bn last week). The purchase of MBS will slow slightly but remains well above the $40bn/month rate. The Fed will purchase $27.9bn in MBS this week, up from $32.1bn last week.
US Treasury issuance will be heavier this week. The US Treasury will settle approx. $403bn in ST Bills, Notes, and Bonds this week, raising approx. $96bn in new money.
This week, approx. $17bn 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
by Mars Capital Partners | Dec 14, 2020
Last week, global equities stalled at trend resistance but the decline is NOT clearly impulsive and failed to break any meaningful support. The DXY traded sideways but the trend remains lower in wave 5 of (C) until proven otherwise. Bonds recovered but only in a corrective 3 waves of equality as the long end continued […]
