The weekly macro review for w/c 6 May 2019 – The headlines this week continued to follow the US-China trade negotiations in the countdown to the Friday tariff deadline. The USTR has now been directed by President Trump to increase tariffs from 10 to 25% on approx. $200bn of import from China as well as commence the process of increasing tariffs on “essentially all remaining imports from China, valued at approx. $300bn”. The US has set a one-month deadline to complete the deal or the final stage of tariffs will be imposed.
There was little upward performance momentum in data releases this week. The exception was the better than expected German orders and production data. A disconnect seems to be emerging between the accelerating decline in the German manufacturing PMI and production data.
From the US; JOLT’s data was mixed – slowing growth in hires is important. Involuntary separations are slowing, but growth in voluntary quits is also slowing.
Consumer credit slowed in Mar led by a decline in revolving/credit card credit. Senior Loan Officer Opinion Survey indicated a shift to tighter lending standards for credit cards in Q1.
Price growth was little changed in Apr – headline PPI grew at the same pace and CPI growth increased as faster growth in energy and services prices offset slower growth in food and declines in core commodities prices for the year.
Wholesale sales grew at a faster pace – led mostly by non-durable goods (petroleum) in Mar. Sales of durable goods still grew at a faster pace, but growth underperformed the total. The decline in inventories was led by one area – non-durables (drugs). The value of inventories for durables increased at a faster pace. The sales to inventory ratio declined.
European composite PMI indicated little change in momentum with growth remaining only moderate in Apr.
German factory orders grew overall but was led by foreign orders – domestic orders declined at a faster pace in Mar. Industrial production improved in Mar, but manufacturing production across most areas remains below a year ago and below recent peaks. There was no indication of an accelerating decline in activity as indicated by the Mar PMI for manufacturing.
UK GDP growth accelerated in Q1 – reflecting much faster growth in production and manufacturing, imports, investment spending by government and inventories – likely as the result of preparations for Brexit.
Australian retail data continued to disappoint. Real retail sales declined in Q1, after zero growth in Q4 last year. The RBA kept the overnight cash rate on hold. The Board changed its guidance statement, reflecting the need to see improvements in the labour market (i.e. decrease in the elevated underemployment rate) in order to reach the inflation target. The Board “will be paying close attention to developments in the labour market”. Key forecasts for the economy were revised lower in the May Statement on Monetary Policy.
Data out of China showed little acceleration in activity. Services PMI was unchanged for Apr. The trade surplus was lower as imports grew, and exports declined (exports still > imports). New loan growth was lower than in prior months likely indicating a more subdued impact on activity.
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 13 May 2019 – Trade negotiations are likely to remain at the forefront. The US increased tariffs on Chinese imports last week and there is a likelihood of retaliation from China. Details of further talks are expected as the US has placed a one-month deadline to complete the deal.
This comes amid the commencement of trade talks with Japan and the EU. Important to these negotiations is the deadline this week on 18 or 19 May for President Trump to finalise the decision on s.232 investigation on car and truck imports. Given that both negotiations are in the early stages, it’s possible that the decision will be postponed.
Important US data out this week will focus on retail sales (expecting weaker Auto sales), the prelim reading on consumer sentiment for May and the latest view of production and output with the first May regional surveys and total US industrial production.
There is a large range of Fed speeches this week. Of note are two speeches by Fed Reserve Board Vice Chairman Clarida on the Federal Reserve’s Review of Its Monetary Policy Strategy, Tools, and Communication Practices (Monday and Friday).
We continue to look for a sustained improvement in the Chinese economy with retail sales, motor vehicle sales and industrial production (after last month’s large increase in IP). Lower growth in new loans data for Apr will possibly impact expenditure and output.
It will be a big week for Australia in the lead up to the Federal election on 18 May. Data will be in focus – housing lending for Mar, the labour market survey and the wage price index. The labour market data will be the most important indicator for the RBA in setting rates policy.
US Treasury supply will be heavier this week. The US Treasury will settle approx. $244bn in ST bills, notes, and bonds, raising approx. $19.6bn in new money. It’s also mid-month and approx. $38bn in securities on the Fed balance sheet will mature. The new lower cap of $15bn for the month means that approx. $28.6bn will be reinvested on the 15 May.
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
