The weekly macro review for w/c 13 May 2019 – Despite stimulus measures in place, economic data out of China continues to disappoint. This week, there was little follow through on industrial production with growth slowing back down to the lower pre-Mar level. Retail sales growth slowed quickly. Factory sales/shipments of autos declined at an accelerated pace.
US data was mixed. Retail sales fell. The decline in auto sales was expected but weaker sales were recorded across most categories.
Manufacturing activity remains lacklustre. Industrial production growth disappointed with manufacturing and utilities leading the decline. Manufacturing output fell below last year for the first time since 2016. The first regional US surveys for manufacturing in May were higher – led by larger increases in shipments after stronger growth in new orders in Apr. There was no follow-through on new orders growth for May.
The prelim US consumer sentiment data for May was mostly much stronger. The survey was taken prior to the deterioration in talks between the US and China, so the final report may see some revision.
The trade front delivered mixed news. The US came to an agreement with Mexico and Canada to lift retaliatory tariffs under the s.232 duties on steel and aluminium. The US also agreed to postpone the decision to levy tariffs under the s.232 car and truck import investigation. But President Trump announced that he agreed with the conclusion of the Commerce Dept report that auto imports harmed national security by causing declining market share for US-owned carmakers. The Commerce report has not been made public. The threat of these tariffs continues to hang over the negotiations with Japan and the EU.
By the end of the week, it was reported that negotiations between the US and China had stalled. The US continues to move forward on the process to finalise the next round of tariffs on $300bn on imports from China.
Eurozone industrial production continued to decline in Mar, but declines were not as broad, limited to energy and non-durable consumer goods. EU and German Q1 GDP growth accelerated slightly.
In Australia, the Liberal (conservative) government was returned to government – meaning that there would be no removal of the favourable tax incentives related to property (negative gearing, capital gains tax), among other things. Lending for housing in Mar declined at an accelerated pace. Wage growth remains low – with real wages growing at a faster pace only due to lower growth in the CPI.
Employment is a key metric of the RBA at this part of the cycle. There are two dynamics playing out over different timeframes. On an annual basis, the labour market remains in good condition. Employment growth remains larger than the labour force growth resulting in further declines in total unemployed persons.
Although employment growth has been somewhat stronger over the last two years, the underemployment ratio remains close to its highs. This has been a key concern of the RBA regarding ‘excess capacity’ and the implication for wage growth.
The underlying month trend is moving in a different direction. Employment growth only equalled the estimate of what pop growth added to the labour force. Meaning that employment growth was not then high enough to absorb the increase in participation (participation reached a new all-time high in the latest month). As a result, the number of unemployed persons increased for the fourth month in a row.
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 20 May 2019 – This week, the focus will be on the FOMC minutes, a speech by Chairman Powell, US-China relations and the first release of PMI’s for May.
Trade headlines and posturing are likely to remain a feature over the next few weeks. The news from Friday was that negotiations between the US and China had stalled. Further escalations were announced as Huawei was “placed on a business blacklist” by the US. Details of further talks are expected as the US has placed a one-month deadline to complete negotiations – although so far, meeting this deadline is looking less likely. US trade representatives will also meet with Japan and EU trade negotiators this week.
In the US, the focus will be on the FOMC minutes, initial durable goods orders report for Apr and the prelim PMI’s for May.
There is another large array of Fed speeches this week. Of note will be a keynote speech by US Federal Reserve Chairman Powell on Monday at the “Mapping the Financial Frontier: What does the next decade hold?” Annual Financial Markets Conference held by the Atlanta Federal Reserve Bank in Florida.
Also, of note this week, will be the RBA minutes and UK retail sales.
European parliament elections will commence during the week, with most member countries holding elections on Sunday 26 May. Voters in 28 countries will elect 751 Members of the European Parliament for a five (5) year term. The UK will take part in these elections. Once Brexit occurs, these MEP’s will resign, and the Parliament will be reduced to 705 members.
US Treasury supply will be lighter this week. The US Treasury will settle approx. $183bn in ST bills, with a net paydown of $9bn.
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
