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;
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We wish all of our valued clients a very happy and safe holiday!
