The weekly macro review for w/c 30 November 2020 – Data out of the US this week reflected some slowdown of the recent growth momentum. There has been a more localized approach to managing the spread of Covid-19 infections rather than any Nationally mandated approach. Infections, and now deaths continue to rise across the US amid early production and roll-out of the vaccine.
Non-Farm payroll growth slowed notably in Nov. The composition of payroll growth reflected a shift away from ‘re-opening’ type service jobs like hospitality, food service, and retail. The increase in services jobs was instead led higher by couriers and messengers, warehousing and storage, and truck transportation. Manufacturing and construction payroll jobs accounted for most of the goods-producing payroll growth.
A weaker result for the labour market this month. The headline focus was on the fall in unemployment and the unemployment rate. Unfortunately, that occurred within the context of a decline in employment for the month (part-time workers) and a larger number of people leaving the labour force this month.
The US ISM reports for Nov recorded slower growth. Manufacturing activity growth slowed slightly, with most indexes remaining stable. Employment shifted back into contraction – but more firms recorded no change to employment levels. Petroleum and coal industry output remained a drag on the ISM manufacturing report. Services growth slowed for the second month, but growth was still moderate overall. Most firms recorded no change across output, orders, and employment.
Across the industry reports, US firms noted some supply chain disruptions, due to Covid infections in some cases, for inputs, higher prices, and longer lead-times as a result.
US vehicle sales declined across both segments in Nov.
The Oct income and personal consumption report from last week recorded a decline in personal income as some government assistance programs started to wind-down. This offset positive, yet slower growth in employee compensation and income from capital. Excluding taxes, disposable income declined in Oct after increasing in Sep. As incomes fell in the month, consumption expenditure also slowed notably. This resulted in a fall in the saving rate (savings as a % of disposable income) – which remains extremely elevated.
The one consistent theme out of the major global PMI reports for Nov was the optimism toward the 12-month outlook given the announcement of the Covid-19 vaccine.
Across Europe and the UK, services sectors were again impacted by the reintroduction of restrictions.
The pace of manufacturing growth in Europe was constant – led by Germany. Excluding Germany, growth in Europe slowed to zero growth. The services sector was again hit hard by the reintroduction of social distancing restrictions and the services PMI contracted sharply.
Similarly in the UK, manufacturing activity was buoyed by stock build preparation for the end of the Brexit transition period at the end of Dec. Services shifted back into a sharp contraction.
In Japan, the headline manufacturing PMI reflected a continued, but a slight, contraction in manufacturing activity. Yet the industrial production data continues to report stronger growth in output and shipments. This discrepancy might reflect a fairly uneven rebound among firms. Services firms recorded a further contraction in business output in Nov.
Q3 GDP for Australia recorded a rebound in National output. Despite the high quarterly growth, the rebound has a way to go before output growth is back to the pre-shutdown trajectory. Real GDP remains -3.8% below the same quarter a year ago.
This quarter’s GDP rebound was led mostly by household consumption expenditure and a positive contribution from the change in inventories. Household expenditure has been well supported by enhanced government support, tax-free superannuation withdrawals, and rent/mortgage payment holidays. Government consumption expenditure also made a positive contribution to growth this quarter. Offsetting this growth was a substantial contraction in net exports.
The pre-existing trend of declining private gross fixed capital formation (investment spending) worsened further in the latest quarter. The decline in business investment offset some growth in dwelling construction and investment.
The RBA made no changes to the current interest rate and policy settings.
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 7 December 2020 – Key highlights for the week will be US data, the ECB rates decision, and Brexit negotiations ahead of the EC summit later in the week.
Key data points this week include:
US – CPI for Nov, initial unemployment claims, and the University of Michigan Consumer Sentiment prelim release for Dec. It will be a quiet week for Fed speeches ahead of the FOMC meeting next week on 15-16 Dec.
Chinese trade data, CPI, and PPI for Nov will be released this week.
Europe – ECB rates decision likely to focus on the economic impact of further restrictions to manage Covid infections, German industrial production data for Oct.
As we come into the final weeks of the year, the end of the Brexit transition period will be in focus. The final date is 31 Dec 2020. Negotiations are yet to reach any compromise on a trade deal, but there is some chance for a deal to be presented at the EC summit by Thur/Fri of this week. The end of the transition period is likely to be disruptive for both regions regardless of whether a deal is agreed to or not by the end of the week.
The US Fed purchases of Treasuries and MBS will remain elevated this week. The Fed appears to be purchasing well above the $40bn/month rate of MBS. The US Fed will purchase approx. $22.4bn of Treasury securities this week, slightly above the $19.6bn purchased in the week prior. Purchases of MBS will total approx. $32.1bn this week, just slightly below the $35.2bn purchased in the week prior.
US Treasury issuance will be lighter this week. The US Treasury will settle approx. $285bn in ST Bills this week, with a net paydown of $3bn. Net cash raised this quarter so far, continues to lag behind the $617bn estimated cash required for Q4.
The US Treasury will also auction approx. $118bn in Notes and Bonds this week that will settle on the 15 Dec.
This week, approx. $14bn 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
