The weekly macro review for w/c 9 September 2019 – The ECB eased this week due to the continued shortfall of inflation linked to the ‘more protracted weakness in the Euro area economy’. Easing measures included a further cut into negative territory for the deposit facility, the reintroduction of QE at €20bn a month, continued reinvestments and changes to TLRTO III operations. Guidance now is that low rates and QE will be applied indefinitely.
The other important news in the announcement/decision was the introduction of the two-tier system of remunerating bank excess liquidity holdings from 30 Oct. It’s been suggested that this was a somewhat ‘historic’ shift in the implementation of monetary policy – the following is worth a read; https://www.philosophyofmoney.net/draghis-historic-farewell/.
News leaked late last week that the WTO ruled in favour of the US regarding illegal EU subsidies for Airbus. The ruling has not yet been made public as both parties review the decision over the next few weeks. The WTO panel will then adopt the decision and make the ruling public. The US has been reviewing the possible list of tariffs in preparation of the ruling. Depending on the details of the ruling, tariffs in EU imports will most likely be implemented. The EU has a similar case outstanding regarding Boeing.
US consumer credit growth accelerated in Jul in line with the much stronger retail sales in that month. The Aug retail sales growth slowed, and, ex autos, growth was 0% versus the month prior. Consumer sentiment rebounded only slightly in the prelim Sep reading, after the larger drop in Aug (linked mostly to negative tariff news).
JOLTs data indicated that while hiring continued to grow, job openings growth slowed further. Layoffs and discharges (involuntary separations) contributed to the increase in total separations. The number of quits (voluntary separations) increased at a faster pace, reaching a new all-time high number of quits, suggesting that workers were more confident in conditions to change jobs.
The growth in the headline all-items CPI slowed slightly on an annual basis to +1.7%. But the core CPI ex food and energy prices accelerated to +2.4%. Both core goods and services contributed to this acceleration. It will be important to see how the FOMC will view this at the upcoming meeting where rates are expected to be cut again.
There has been some optimism emerging regarding progress on an alternative to the current backstop agreement for Brexit. UK rolling GDP data for May-Jul was lackluster with growth at zero % after the prior three-month decline. The labour market remains resilient – somewhat slower annual employment growth was offset by a lower increase in participation which helped reduce total unemployment further.
Australian lending for housing increased at a much faster pace in Aug as easing of lending restrictions and rate cuts continued to take effect. Business confidence eased back again, and business conditions continued to decline in August. There is some indication that conditions may be firming across selected industries.
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 16 September 2019 – Central bank decisions will be the key focus this week. The FOMC, BoJ and BoE decisions are all scheduled this week. The FOMC is expected to cut rates – despite economic data remaining resilient. The current probability for the FOMC to cut rates to 175-200bps is 84% (as of 16 Sep) – https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html?utm_source=cmegroup&utm_medium=friendly&utm_campaign=fedwatch&redirect=/fedwatch).
In the US, we will get our first reading of Sep manufacturing conditions with two regional surveys released this week. Industrial production and housing data will also be published.
The Eurozone CPI and Zew economic sentiment survey will be released. The focus for Europe may start to shift more onto possible escalation of trade tensions with the US considering the (currently confidential) WTO ruling, possible subsequent tariffs and the transition to the new EU leadership taking over the negotiations.
In the UK, the focus will remain on Brexit and the emerging optimism for a deal on Brexit. Data of note this week will be retail sales and the CPI.
This will also be an important week for Aus data with Q2 house prices and the important labour market report for Aug. The RBA minutes for Sep will also be published.
US Treasury issuance will be somewhat heavier this week. The US Treasury will settle $255bn in ST bills, notes and bonds this week, raising approx. $66bn in new money. This may be somewhat offset by the paydown of the maturing 45-day CMB from back in Aug ($35bn).
More detail (including a calendar of key events) is provided in the briefing document – download the file here;
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
