Macro review for w/c 3 December 2018 – There has been a large shift in the growth narrative over the last few weeks. Increased emphasis has been placed on the likelihood of slower growth in the near-term outlook due to yield curve inversion, fading stimulus and the broader context of slowing global momentum. More dovish Fed statements have started to re-shape the expectations for the path of rate hikes– this is what the Fed signalled it wanted to do in the minutes last week (i.e.no longer follow a ‘gradual path’ of rate hikes).
Several Fed Presidents have been advocating that the low inflation print over the last few months gives the Fed space to pause and reassess. Political pressure has also been mounting on the Fed to slow the rate of increases.
The outcome of the US-China G20 sideline meeting was used to project confidence for the path forward for trade negotiations. But uncertainty and headline risk around trade and tariffs remains. The USTR has confirmed a hard deadline of 1 Mar 2019 to conclude negotiations to avert an intensifying trade war.
US data this week shows that the economy continues to do well. The ISM’s indicate continued high rates of expansion across manufacturing and non-manufacturing sectors. Factory orders headline data were lower but highly influenced by volatile transports. Growth in core (ex-transports) new orders and shipments have been slowing (growing at a slower rate) throughout the year. Non-farm payroll growth was lower in the month, but the household survey shows that the higher level of employment growth continues to ‘absorb’ new/returning workers to the labour force and reduce unemployment. Avg wages continue to grow. On the more interest rate sensitive parts of the economy; consumer credit growth continued to accelerate while motor vehicle sales were down slightly.
Outside of the US, there is growing caution about growth.
The BoC minutes clearly stress the concern of the potential negative impact on the Canadian economy from the oil price ‘shock’ of the last few weeks as well as generally slower momentum going into Q4.
The Aus GDP Q3 print was much lower than expected. There is now a growing focus on slower growth amid a house price correction.
The ECB has previously stated that it will closely watch the data leading up the Dec meeting. Data this week suggests that the weakness is enduring. Eurozone PMI data indicated that expansion in both manufacturing and services activity continues to slow – led by core Eurozone countries. Production data in Germany was mixed – new orders remain lower than last year, but production growth had improved over the last two months. Eurozone GDP growth was confirmed at +0.2% and employment growth has similarly slowed to +0.2% in Q3.
Finally, Chinese trade data was well below expectations with exports and imports growing at a much slower pace. This lower level of activity is likely to continue to have far reaching effects throughout the global economy.
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 the w/c 10 December 2018 – This week there will likely be a rare paydown by the US Treasury. The US Treasury will auction and settle $145b in ST bills this week, creating a net paydown of $20bn. The US Treasury will also auction $78b in 3/10/30yr securities, raising approx. $54b in new money – these will settle next week. There are no Fed holdings of securities that will mature this week.
UK Brexit will be a key focus this week with the UK Parliament expected to vote on 11 Dec.
Prelim PMI’s for Dec are out this week for Japan, Eurozone and the US providing a first glimpse at momentum going into the last month of Q4 and the last month of the year.
For the US this week, the focus will be on the PPI and CPI reports as well as retail sales and industrial production.
The ECB rates decision is this week. The ECB will provide a further assessment of current economic conditions in the Eurozone. It is still expected that Net Asset Purchases will reduce to zero at the end of the month.
A final read on Japanese Q3 GDP will be out this week. The important industrial production data will also be confirmed for Oct.
We’ll get further signs of the slowing housing market in Australia with the Q3 house price index and Oct housing lending data out this week.
The US trade deal negotiations process continues this week. The first public hearing will take place on Monday 10 Dec for the US-Japan trade negotiations. A public hearing for the US-Europe trade negotiations was scheduled for 14 Dec but has not yet been confirmed by the USTR.
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
