The Macro Review and Outlook for w/c 1 April 2019

The weekly macro review for w/c 25 March 2019 – The focus last week was on US data and performance.

Indices of US regional and National activity indicated a slower level of growth momentum throughout Mar. All regional surveys remained in expansion but the pace of growth was somewhat slower except for the Kansas City Fed Manufacturing Index (recording faster expansion).

Housing – the uptick in mortgage application growth so far this year is yet to fully translate into sustained higher pending home sales data. House price growth continued to slow. Lower mortgage rates are now just starting to kick in at the beginning of the Spring selling season.

US Q4 GDP growth was revised lower. This was due to lower growth in personal consumption expenditure, private domestic investment and govt consumption and investment expenditure. Net exports were revised higher to be ‘less negative’.

The trend of slower growth in personal consumption expenditures continued in Jan – likely the product of a continued cautious consumer at the time of negative headlines on the govt shutdown and a volatile period on the stock market. Jan was also the month where sentiment readings fell hard. Consumption expenditures grew only marginally in Jan as purchases of durable goods continued to fall. Disposable income growth fell in Jan which was the result of a fall in personal dividend income, farm proprietors’ income, and personal interest income (partly reversing large increases in Dec) – rather than a fall in employee compensation. Growth in employee compensation and wages & salaries has remained constant through to Feb. Disposable incomes continued to grow in Feb. The important clue is that the saving rate remained elevated in Jan (after increasing in Dec) – indicating that consumers likely held off on the larger purchases.

Consumer sentiment measures (Uni of Michigan) have continued to improve into Mar. Headline measures of sentiment are now all above the Jan lows and are in line with the last 12-month averages. This may be supportive of improvements in spending in the coming months.

The latest annual growth in PCE price indexes for headline and core inflation continued to slow. Both measures were lower than current Fed projections for 2019 and remain below the FOMC 2% symmetrical target. Current inflation readings suggest rates will remain on hold.

Of interest outside of the US was Japanese industrial production. This has been one indicator of the broader manufacturing, trade influenced, slow-down in Asia. The Feb prelim data showed some improvement in the month – but the production index remains below the levels seen throughout most of 2018. While total shipments and production remain below the same time last year, several key area’s such as the production of autos and fabricated metal are now above the same time a year ago.

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 1 April 2019 – Indicators of global manufacturing activity will be a key focus this week. Final manufacturing PMI’s for Mar will be released for Europe, Asia, US, and the UK. The Chinese PMI’s have been of interest as stimulus measures are expected to drive improvement in activity, resulting in a flow-on effect through to key trading partners. Germany new orders and industrial production for Feb will be an important barometer of activity after the much weaker PMI readings (and production data) of late.

US data out this week will focus on manufacturing and services activity and the US consumer. Of note will be PMI’s and ISM indexes, durable goods orders, non-farm payrolls, retail sales, motor vehicle sales, and consumer credit data.

The RBA will meet for its rates decision this week. Rates are expected to stay on hold. Aus retail sales out this week will provide policymakers with some further insight into the spending impact of falling house prices/stalling housing market. The Aus 2019-2020 budget will be handed down on 2 Apr – much earlier than usual due to a likely Federal election in May. Likely to see some spending stimulus measures announced and will be looking for key budget policies that affect the housing market. It’s also likely that the government will announce the date of the Federal election.

Another Brexit vote will likely take place in the UK Parliament early this week. If the deal is defeated for the fourth time, and there is no other viable alternative, PM May will need to request an extension for Brexit in order to break the impasse. The ‘no-deal Brexit’ deadline is next week 12 Apr and an emergency Brexit summit has been scheduled by the EC for 10 Apr.

The US-China trade negotiations will continue this week with Chinese Vice Premier Lui He traveling to Washington to resume trade talks on 3 Apr. 

US Treasury supply will remain heavier this week, with last week’s notes auctions settling early this week. The US Treasury will settle approx. $282bn in ST bills and notes, raising approx. $34bn in new money for the week.

More detail (including a calendar of events) is provided in the briefing document – you can download the file here;

Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net