The macro review for w/c 25 November 2018 – Despite a positive assessment of current conditions, a point in Chairman Powell’s speech during the week was interpreted as a change to the view of where we are in the hiking cycle – shifting from ‘a long way from neutral’ to ‘close to neutral’. That said, the FOMC minutes suggest that a further rate hike is likely in Dec. After that, policy will change if incoming data ‘prompts a meaningful reassessment of the outlook’ rather than follow the ‘gradual increases’ path. Expect to see this wording change in the FOMC statements.
Data this week indicated stronger growth in real personal consumption expenditure and real disposable personal income. The Oct core PCE price index growth was lower and is now outside of the lower end of the current FOMC projection range for inflation. This is not likely to represent a material change just yet, especially given the stronger consumption/income data. The regional surveys continue to record price and wage pressures.
On more interest-rate sensitive sectors; new home sales continued to fall. House prices slowed on an annual basis but were somewhat firmer in the month to month change.
ECB Draghi continued to err on the side that current European weakness is transitory. Net asset purchases are still likely to finish at the end of Dec. The prelim Euro area and German CPI growth slowed somewhat.
Japanese industrial production bounced back strongly in Oct. While the forecasts are for further increases in Nov and Dec, the Prelim PMI for Nov suggests that manufacturing growth continued to slow again, including weaker new orders.
Declines in private capex and construction for Australia are likely to detract from GDP growth in Q3.
The meeting between Presidents Trump and Xi has been broadly positive. The outcome was an agreement to move forward to address key issues on tariffs, IP protections and the trade imbalance. No further tariffs/escalations will be applied while negotiations take place. There is a 90-day window for discussions. The US will also be kicking off trade negotiations with Japan, Europe and the UK during that time.
There 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 3 December 2018 – It’s going to be a relatively lighter week for treasury issuance – the US Treasury will auction and settle approx. $171b in short-term bills, raising approx. $11b in new money. The 4wk and 8wk bill amounts are yet to be announced.
This week, Chairman Powell testifies on the US Economic Outlook to the Congress Joint Economic Committee. We’ll be looking for further signalling on the economic outlook and possibly any commentary on the weaker core PCE inflation growth from last week. There are several other FOMC member speeches this week. The key US data release this week will be non-farm payrolls. Also; the ISM reports, PMI’s and mortgage applications.
PMI’s will be released this week for the US, Europe, UK and Asian economies – helping to gain a handle on growth momentum in Q4.
There is a large amount of European data out this week and will be an important follow-up to answering whether current weakness is transitory in nature. This will feed into the ECB assessment at the Dec rate meeting.
Rates decisions for the RBA and BoC this week.
Australian Q3 GDP and retail sales data this week. We’ll be looking for further signs of impact from the slowing housing market.
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
