The weekly macro review w/c 16 September 2019 – Policy easing by the US Federal Reserve followed the ECB easing measures announced last week. All three central banks this week indicated heightened concern for global growth and a weakening outlook.
The US Federal Reserve cut the FFR range target to 1.75-2.0%. The cut was based on the implication of global developments for the economic outlook and muted inflation pressure. The future likely path will be determined based on incoming information.
Despite the cut in rates, US data has continued to improve, especially housing related data this week. The regional manufacturing surveys for Sep were mixed. Industrial production data in Aug improved, especially with manufacturing production returning to growth in the month.
The Bank of England (BoE) kept rates on hold while forward guidance remains firmly focused on Brexit. UK CPI (H) slowed markedly in the latest Aug release and the BoE highlighted the potential shift to a lower demand environment the longer that Brexit uncertainties persist. Talks between the UK and the EU have sparked hopes for a revised Brexit deal – meetings this coming week at the UN General Assembly will be important. The crucial date remains 19 Oct 2019 – after which if there is no revised deal, the UK PM is now required to request another extension.
The Bank of Japan (BoJ) kept rates on hold and there were no changes to policy settings. That said, the BoJ continued to upgrade its level of concern on growth which was reflected in changes to the wording in its statement. The BoJ has shifted its view to that of downside risks increasing. Last month the BoJ amended its statement indicating its willingness to take additional easing measures. This month the BoJ appears to be more explicit in opening the door to the possibility of further easing;
“…slowdowns in overseas economies have continued to be observed and their downside risks seem to be increasing, the Bank judges that it is becoming necessary to pay closer attention to the possibility that the momentum toward achieving the price stability target will be lost.”
Next month will be important for the BoJ as Japan implements the consumption tax hike.
Data out of Japan confirmed the continued weaker external trade in Aug with both merchandise exports and imports declining YoY. Of note was the weaker exports to its largest export market, China. This also highlighted that demand out of China does not appear to be improving. Japan National CPI ex fresh food growth slowed. There is some evidence to suggest that, removing both fresh food and energy price changes, there is some accelerating trend in underlying price growth – albeit at low levels and with the 2% target remaining elusive.
The Reserve Bank of Australia (RBA) minutes indicated that rates remained on hold as there was no further deterioration in domestic conditions that warranted a further rate cut in Sep. Signs were emerging that the established housing market (sales and prices) in Syd & Melb had begun to stabilize and that employment growth had been maintained. The latest labour market report this week though, cited by the RBA as one of the more important datapoints (for its objective to reduce spare capacity of persistently high unemployment and underemployment), showed that unemployment increased as increased participation was not matched by gains in employment growth. The composition of employment growth also raised concerns as FT employment growth slowed markedly.
Chinese data was mostly weaker. Retail sales growth slowed slightly, and growth remains lower than at a year ago. The decline in Auto sales appears to be gathering pace as Auto retail sales declined by 8% in Aug (versus -0.1% for the YTD). Annual growth in industrial production also slowed to a new near-term low of only 4.4%. Growth across all three key industrial groups continued to slow in Aug.
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 23 September 2019 – Important datapoints this week will be the prelim PMI’s for Sep across the US, Japan and the Eurozone. Manufacturing has remained weak and/or in contraction across most regions with services activity helping to off-set some of the weakness.
In the US there will be more housing data – new home sales and Case-Shiller House Price Index for (Jul). More recent data indicates that activity in the housing sector appears to be picking up. Other important US data will be; durable goods and the monthly personal income, outlays and PCE price index for Aug. The US goods trade balance and the third est for GDP in Q2 will also be released this week.
It will be a full week of US Fed speeches. Of note will be speeches by; NY Fed President Williams speaking at the US Treasury Market Conference in New York, Vice Chairman Clarida speaking at the Fed Listens event in San Francisco and Vice Chairman Quarles speaking on macro-prudential regulation in Washington, DC.
The annual UN General Assembly will take place this week 23-27 Sep in New York. Sideline meetings on trade and Brexit will be important. Of particular interest is the US-Japan trade deal – a completed deal is expected to be signed at the meeting this week (possibly Wednesday). The UK PM and EU President are also expected to make the most of the meeting to further discussions on a Brexit backstop alternative.
Not all leaders will be present at the UN General Assembly; notable absences will be Chinese President Xi, PM Netanyahu and Russian President Putin.
US Treasury issuance will be somewhat lighter this week. The US Treasury will settle $190bn in ST bills and FRN’s this week, raising approx. $25bn in new money (relatively light given recent weeks).
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
