The macro review for w/c 29 October 2018 – Data this week confirmed continued strength in the US labour market. The highlight of the labour market report was the increase in participation. The gap between the current participation rate and that of the pre-GFC period for the 25-54yr age group is becoming smaller. Employment growth remains larger than the sum of what population and participation are adding to the labour force and the total number of unemployed persons still declined. Wages growth continues to increase.
Core PCE price growth remains at the Fed 2% target.
US regional activity indexes, manufacturing PMI and the ISM manufacturing PMI still show private sector manufacturing activity is expanding – albeit at a slower pace than recent highs. Some further acknowledgement of slower export orders. House price growth continues to slow – and this will be one to watch.
The probability of a Dec rate increase by the FOMC has edged back up to almost 80%.
Euro area growth is slowing, with GDP growth halving in the latest quarter. Last week, ECB President Draghi called it “weaker momentum, not a downturn”. The Oct manufacturing PMI’s are suggesting that activity may be rolling over in some of the larger economies. New orders, new export orders and output were weaker/contracting, especially in some of the larger manufacturing economies, including Germany. Elevated CPI growth is not helping – as higher energy costs are placing an added cost burden on households and firms. A reading on services PMI’s and industrial production (w/c 5 Nov) will help to balance out the view.
Japanese industrial production slowed further in the latest month. There was a sharper leg down in Sep versus a year ago growth – possibly due to the typhoon at the start of Sep. But trends across the board suggest that growth had peaked some time ago – tariffs and trade slow down are likely having an impact. Sep & Oct manufacturing PMI’s were slightly improved. We wont know until after November whether the weakness in Sep remains part of the bigger trend.
BoJ and BoE kept rates on hold. The BoJ revised down its inflation forecast for this year. The BoE revised its GDP growth forecast down slightly for 2019 (which is based on the smooth Brexit transition).
There is are more topics/data releases covered in this weeks review. Use the links in the contents page to navigate to different country sections. Download the review here (hit the back button on your browser to return to the site);
The outlook for w/c 5 November 2018 – The focus this week will be on the US mid-term elections on Tuesday.
The FOMC also meets this week and its likely rates will remain on hold at this meeting.
There will be medium level of treasury supply, with the US Treasury auctioning $263b in notes and bills. The bills will settle this week, raising approx. $27b in new money.
On Brexit, there may be a tentative solution/compromise for the Irish border backstop issue. A cabinet meeting is scheduled this week. UK Services PMI and Q3 GDP are also out this week.
German industrial production, factory orders and trade will be important this week, given the recent weakness in Europe/German manufacturing PMI’s. Services PMI’s will also help to balance out the view of private sector activity.
Similarly, Japanese trade balance and machinery orders will be important considering the weaker industrial production data last week.
The Sep housing credit data will be out for Australia this week. This will be the first read on mortgage credit growth since the Australian banks increased mortgage interest rates (out of cycle increases). Auction clearance rates continue to deteriorate suggesting further falls in prices.
Further detail and a calendar of key releases is provided in the full briefing document – download it here (hit the back button on your browser to return to the site);
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
