The weekly macro review for w/c 14 October 2019 – Brexit was the main highlight during the week. The vote for the alternative backstop was defeated in the UK parliament until the legislation required to implement the bill is passed by the parliament. This situation will continue to unfold throughout next week. A decision on an extension will likely follow once that legislation has been passed/defeated.
There was little further detail on regarding phase one of the US-China trade deal. With the details yet to be put into writing and fully agreed to (we were here back in May), the situation will likely remain tenuous. Even this week, China continued to advocate that agriculture purchases would be made based on market requirements rather than agreeing to a set purchase amount.
US data this week was little changed. Manufacturing has been a weaker part of the US economy and the industrial production report this week indicated that manufacturing output declined in Sep – in line with weaker readings across PMI’s. The decline in manufacturing was led by both durables (GM strike affecting auto production in Sep) and non-durables led by lower output of petroleum products.
US retail sales were weaker in Sep – the first monthly decline since Feb 2019. The annual growth in retail sales has recovered to above 4% since the slowdown in late 2018. Consumer sentiment data has strengthened in the prelim Oct release, indicating that sales likely remain solid in the near term.
Manufacturing has also been a weak for Europe and the industrial production release for Aug indicated that output growth remained subdued. Despite slight growth in the month in the Euro area, production remains below the levels from a year ago. The Eurozone headline CPI growth slowed further – led by lower growth in energy prices. Energy prices have affected most CPI reports this week. Core CPI growth increased slightly as services prices continued to grow at a faster pace.
Growth in the BoJ preferred measure of CPI ex-fresh food continued to slow this month, down to +0.3% and remaining well below the 2% target. Again, energy prices continue to influence these CPI figures – ex fresh food & energy, CPI was slightly higher at +0.5%. The introduction of the consumption tax will be incorporated into the CPI data next month.
As the Brexit process continues to unfold, the UK labour market survey indicated worsening trends in employment and unemployment – the deterioration visible in the latest 3-month reading. Annual UK CPI growth was unchanged at 1.7% and retail sales growth steadied.
Trends in the Australian labour market remained weaker. Employment growth slowed, while the supply of labour increased (via participation growth) resulting in an increase in the total number of unemployed persons. These developments will be closely watched by the RBA as it looks to further easing to reduce this spare labour market capacity (which it sees as a key drag on the CPI via lower wage growth pressure). The RBA minutes on the labour market outlook were less encouraging;
It was also possible that participation was rising partly in response to weak growth in incomes. Moreover, employment growth was forecast to slow over the period ahead.
Data out of China was mixed. Trade data deteriorated further with both exports and imports declining. The fall in imports especially, reflecting further weaker domestic demand and weaker demand for regional exporters into China.
Retail sales indicated that consumer demand remained steady. Domestic retail sales increased at a similar pace month on month with a small acceleration over the year. Consumer price growth accelerated as meat prices, especially pork, have increased markedly.
Industrial production lifted – led by faster growth in manufacturing and mining while output growth for utilities remained steady. Producer prices declined at a faster annual pace, suggesting weaker demand conditions persisted. The largest annual declines in producer prices continued to be driven by chemicals and petroleum.
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 21 October 2019 – There are several key events and data releases this week.
The process to complete Brexit continues this week. The legislation required to implement the alternative Brexit deal is expected to be introduced into the UK parliament early this week. If this legislation passes, then it is possible that the Brexit deal will be approved by the UK parliament.
The ECB meets this week and it will be President Draghi’s final meeting as President.
Important data out this week;
Prelim PMI’s for Oct will be released across the US, Europe, Asia and Australia this week.
US durable goods orders, regional manufacturing surveys, existing home sales and final consumer sentiment readings for Oct will be released.
Japan merchandise trade.
It will be a lighter week for US Fed speeches ahead of the FOMC meeting next week on 30 Oct. As of 21 Oct, the probability of a further rate cut next week is 89.3%. https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html?utm_source=cmegroup&utm_medium=friendly&utm_campaign=fedwatch&redirect=/fedwatch
Finally, it will be a lighter week for US Treasury supply. The US Treasury will settle $182bn in Treasury bills raising approx. $25bn in new money. Approx. $22.6bn in reserve management purchases will settle this week.
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
