The macro review for w/c 21 January 2019 – The
The US data was somewhat stronger, but there were some mixed results. The two regional surveys showed some improvement in headline manufacturing activity in Jan after the weaker readings from Dec. But an underlying theme was that new order growth remained weak and headline output grew as firms worked through backlogs. That said, the broader prelim manufacturing PMI for Jan was stronger with domestic demand offsetting weaker new export orders. The services PMI was mostly unchanged.
US existing home sales came in weaker with falls across all regions and led by larger falls in the Midwest.
The ECB kept rates on hold. While the minutes of the last meeting in Dec and the Jan press conference have introduced more caution on the broader environment, the ECB still appears to be fundamentally optimistic about the economy and the outlook. The data continues to indicate a weaker growth environment and the Jan PMI’s did little allay concerns about the slow-down. The broader Eurozone composite PMI showed subdued growth and weaker internal results such as declining new orders – led by both manufacturing and services.
The BoJ kept rates on hold and reduced the inflation forecast for fiscal year 2019. Data on merchandise trade was weaker with exports declining in Dec. This weakness was mostly driven by Asia with exports to Asia -7% in Dec. Exports to China were -6.9%. The prelim Jan Manufacturing PMI fell to a neutral 50 reading as key indicators of demand (new orders and production) fell into contraction.
Trade data from the Asia region was also released during the week, further highlighting the weaker trade environment.
Ending on a good note. UK labour force data remained strong. The Australian labour force data was also strong, although employment growth has moderated somewhat.
The US Senate and House voted unanimously on Friday to fund the Government until 15 Feb as negotiations on funding for the border wall continue. It will likely take some time to restore the data flow by key agencies.
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 28 January 2019 – While the ‘hard data’ will be important this week, there are several events lining up that could be important to sentiment.
High level US-China trade talks will take place in Washington 30-31 Jan. President Trump’s key economic advisor, Larry Kudlow has called this meeting “determinative” (Source:http://www.atimes.com/article/chinese-vice-ministers-heading-to-washington-ahead-of-trade-talks/), underlining the importance of these particular talks. The 30 Jan is also the final date for the US to file an extradition order for Huawei CFO Meng. US authorities have previously confirmed that they will request the extradition from Canada. China’s Foreign Ministry hit back last week ‘strongly urging’ that the US ‘correct its mistake’ and cancel the arrest order. The US has continued to take a hard-line on China outside of these talks and it’s possible that this highly visible case could impact the sentiment of the talks this week.
The FOMC also meets this week and rates are expected to remain on hold. Details that the Fed is considering rolling back its balance sheet run off were reported by the WSJ late last week. As we are in the Fed blackout period leading up to the FOMC meeting, there has been no confirmation or denial by the Fed – yet the markets responded positively to the report. The messaging by the Fed will be important to watch this week.
Finally, there is Brexit. There will be another vote in the UK Parliament this coming week on a plan that the EU has already (previously) ruled out. Other amendments will be tabled within the Parliament to request an extension to 29 Mar deadline. If any of the amendments are successful, this could lead the way to a second referendum possibly breaking the current deadlock.
There will also be heavy US treasury supply this week with the US Treasury settling $333bn in bills, notes and TIPS this week, raising approx. $31bn in new money. Its also month end, and approx. $14.2bn in Fed holdings of treasury securities will roll off the Fed balance sheet.
There are several important data releases this week;
US Non-farm payrolls, the first estimate of US Q4 GDP (possibly delayed), the ISM Manufacturing PMI for Jan and the final Markit Manufacturing PMI for Jan.
Final Manufacturing PMI’s for Jan will also be released; UK, Japan and Eurozone.
Australian Q4 CPI
US earnings announcements will continue this week.
Further detail and a calendar of key releases are provided in the briefing document – download it here;
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
