The macro review for w/c 7 January 2019 – The stance of several key central banks has now shifted from removing policy accommodations to a ‘wait and see’ approach as growth concerns increase.
Fed speeches throughout the week and the FOMC minutes, continued to reinforce the key position of the Fed now; low inflation is providing room to ‘wait and see’, no set path for rates, won’t hesitate to change course if policy or normalisation hinders achievement of dual mandate goals. The FOMC is likely to see how the data and risks to growth play out on the domestic front before hiking rates again.
The ECB minutes reflected 1) a shift in growth sentiment with the balance of risks now moving to the downside, although still assessed as ‘broadly balanced’, 2) rates “lift-off” likely pushed out to late 2019 and 3) the introduction of “chained guidance”. This roughly translates into “removal of accommodation is on hold for now”.
After raising the benchmark rate several times in 2018, the BoC kept rates on hold in Jan highlighting further growth concerns for the Canadian economy. Growth is expected to slow in Q4 and Q1 2019 as a result of lower oil prices. Rates likely to remain on hold until the impact of lower oil prices and global trade developments becomes apparent on inflation, spending and the housing market.
One central bank has been steadily increasing policy accommodations over the last year; the PBoC.
On the trade front; little news on the outcomes of the US-China trade talks during the week, but the meeting has likely set the foundations for higher-level negotiations in late Jan. Trade talks with Japan and the EU are likely to start within the next month as negotiating objectives have now been released by the USTR.
US data was limited due to the ongoing government shut down and we, unfortunately, missed a key indicator of manufacturing activity in Factory Orders. Headline CPI growth slowed to +1.9% on the back of lower energy prices, while growth in core CPI ex-food and energy remained unchanged at +2.2% – led by growth in services. Growth in the non-manufacturing PMI slowed but remains elevated. JOLTS data show openings and hires remain at high levels, but it appears that the strong upward momentum during 2018 has paused.
European industrial data was disappointing while consumer retail sales growth improved. The low-light of the week was the poor German manufacturing orders and industrial production data for Nov – confirming the recent weaker PMI reads and indicating further declines are likely. Of concern is that the decline in new orders and production was no longer limited to foreign markets and durable goods. German trade data showed both exports and imports declined in the month and the overall trade surplus is well below last year.
There are more data releases covered in last weeks review. Use the links on the contents page to navigate to different country sections. Download the review here;
The outlook for w/c 14 January 2019 – US Q4 earnings announcements are likely to be a focus over the next few weeks given concerns over growth.
It will be a much quieter week on the central bank front. The highlights; ECB’s Draghi and NY Fed President Williams will give speeches this week.
Treasury supply will be more moderate this week as the US Treasury settles approx. $223bn in bills, notes and bonds this week, raising approx. $24bn in new money. It’s also mid-month and approx. $2.1bn in securities will mature and roll off the Fed balance sheet.
US data flow will likely be interrupted by the continued Government shutdown and this week we will miss the US retail sales data for Dec, housing starts and business inventories. The housing market index will provide some insight on the performance of the housing market leading into the end of the year.
CPI’s will be in focus this week, with key reports for UK, Germany, Eurozone, Japan and Canada. The reversal of higher energy prices will likely be a key driver of CPI changes.
Global manufacturing and industrial growth will be in focus this week with US, Eurozone and Japan (revised) industrial production data.
The UK vote on Brexit will likely be held this week on 15 Jan. UK retail sales data for Dec should provide a good read on consumer spending/sentiment.
Further detail and a calendar of key releases are provided in the full briefing document – download it here;
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
