The weekly macro review for w/c 2 September 2019 – US data highlighted weaker manufacturing activity with ambiguity over services growth and household employment. Both the Markit and ISM PMI’s signaled stagnant manufacturing activity – despite some of the stronger regional survey results for Aug. Factory orders data was mixed for Jul as orders increased by the fastest pace since a year ago – supported by an improvement in orders for non-defense aircraft over the last two months. Excluding transports, growth in shipments and orders have slowed to, and remain at, low levels over the year.
There was divergence in the US services PMI data. The Markit services PMI indicated much weaker activity but the ISM indicated much stronger services activity.
Non-farm payrolls growth slowed more than expected and the average monthly growth in payrolls is lagging well behind the pace of a year ago. The household survey was more positive with stronger employment growth in the month leading to both higher participation and a decline in unemployment. It will be important to see whether this acceleration in the household employment will be maintained.
Manufacturing growth remained weaker globally with services activity helping to pick up some of the slack.
Activity in Europe was slightly improved in Aug – lifted by stronger services activity. Of note was the continued weakness in German manufacturing in Aug. Sentiment regarding output fell to the lowest level since data was collected. The weaker German manufacturing PMI data from Jul was confirmed by the sharp decline in new factory orders and industrial production.
In Japan – weaker manufacturing activity was offset by faster growth in services.
At the composite level, activity in the UK contracted in Aug – marginal growth in services activity was offset by declines in manufacturing and construction output. It was another tumultuous week in UK politics leading up to the next Brexit deadline. The political uncertainty continues to constrain business activity and investment decisions.
The RBA kept rates on hold – and will continue to monitor developments in the labour force. Aus annual GDP growth for Q2 slowed to the lowest annual pace since the GFC. Excluding the external sector, expenditure in the domestic economy declined in Q2. PMI data for Aug (AiG reports) showed activity improved in manufacturing and services with construction continuing to decline. Consumer spending remained weaker in Jul with retail sales posting a further decline in Jul – possibly too early for stimulus to impact spending.
In order to support growth, the PBoC announced the first RRR cut in four years – a 50bps decrease. Some smaller banks will receive up to a 100bps decrease. China’s PMI’s similarly indicated weaker growth in manufacturing while services activity remained more stable.
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 9 September 2019 – The focus this week will be on the ECB rates decision – with a possibility that the ECB will ease at this meeting.
US data highlights this week; CPI, retail sales and consumer sentiment. There will be no Fed speeches this week in the black-out period leading up to the Fed meeting next week.
The US Congress is back in session this week. The approval of the USMCA through Congress may receive renewed focus/urgency given increased volatility around trade.
Australian data this week will focus on housing finance – an important barometer of how recent rate cuts and easing of lending conditions are affecting demand for credit. The NAB business conditions and confidence data for Aug will also continue to track the response to stimulus from business.
It will likely to be another turbulent week in UK politics with a second vote on a snap election and the possibility of a parliament shutdown. Data highlights will be the labor market report for May-Jul and monthly GDP for Jul.
Data out of China will focus on trade flows and internal demand conditions with the new loans, CPI and PPI out this week.
There is potential for headline risk regarding trade. Discussions will continue over the next few weeks in the lead up to the re-commencement of high-level talks between the US and China in Washington (Oct). The detail of the US-Japan trade deal is currently in development under a tight deadline, to be completed for signing at the UN General Assembly later this month in NY. The WTO ruling on EU (and US) airline subsidies is also due shortly.
US Treasury issuance will be somewhat lighter this week. The US Treasury will settle approx. $210bn in ST bills raising approx. $24bn in new money.
More detail (including a calendar of events) is provided in the briefing document – download the file here;
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
