The weekly macro review for w/c 25 November 2019 – US data this week continued to highlight generally weaker manufacturing activity across the three regional reports for Nov.
The advance Durable Goods report for Oct was mixed. Orders rebounded across most categories, but was led mostly by defence aircraft orders. Shipments remained weak with no growth in the month. Unfilled orders increased due to defense aircraft orders. Inventory still increased this month, albeit at a slower pace. The single largest contributor to inventory growth was non-defense aircraft.
We continue to track weakness in several categories – non-defense aircraft and motor vehicles. The annual increase in inventory for non-defense aircraft continued to accelerate and is now at +18%, compared to the 25% and 24% respective annual declines for orders and shipments. Motor vehicles was also weak; inventory is growing at an annual pace of 6% (consistently) while orders are down -4% and shipments are down -3% (both slowing). While there may some GM effect in this month’s data, the slowing growth trend was established before that.
It’s important to note that last week’s US prelim manufacturing PMI continued to build on the improvement seen in Oct, so it’s possible that there will be an improvement in manufacturing activity in the following months.
The second estimate for US GDP was revised higher to +2.1% from +1.9%. This was mostly the result of a shift in the change in inventories from a -0.4% decline to a +10% increase in Q3. This revision is not surprising given the higher levels of inventories recorded across several categories and seen across several different reports during Q3. As noted in the wholesale sales and inventory report for Sep, the inventory to sales ratio remains elevated – with inventory rising faster than sales.
The annual change in the headline PCE price index was unchanged in the month, but growth slowed further for the core measure of PCE price growth. Core PCE price growth slowed to 1.6% in Oct after approaching +1.8% in Aug. This will continue to reinforce the ‘muted inflation pressure’ view of the Fed.
House prices in the US increased at a faster pace in Sep, after a long period of decelerating growth.
Retail and industrial production data for Japan was volatile, reflecting the first month of the consumption tax increase. Retail sales declined in the month (and on an annual basis) reversing the gains in the two prior months which were likely due to stockpiling before the tax increase. The stockpiling effect will continue to unwind enabling us to evaluate the impact of the consumption tax on demand.
Japanese industrial production and shipments also fell hard with production down 4% in Oct. There was some typhoon related disruption in Oct and likely an impact from stockpiling prior to the increase in the consumption tax in Oct.
The value of Australian construction and private capex continued to decline in real terms in Q3 and will likely detracting from GDP growth in Q3. Growth in the value of outstanding private credit continued to slow – led this month by a notable slowdown in the growth of outstanding business credit.
The RBA Governor’s speech this week reflected on the policy options available if/when the OCR reaches the effective lower bound – which has been confirmed as 0.25%. Governor Lowe goes out of his way to downplay any risk in the Australian economy and yet here we are, two 25bps cuts away from a scenario where the RBA would consider a QE program in Australia;
“There may come a point where QE could help promote our collective welfare, but we are not at that point and I don’t expect us to get there.”
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 2 December 2019 – This will be a full week of data, some important central bank speeches and rates decisions.
The final manufacturing and services PMI’s for Nov will be released this week across the major markets.
In the US, data will focus on non-farm payrolls, the ISM’s, factory orders, wholesale inventories and the first read of consumer sentiment for Dec.
This week, US Fed Vice Chairman for Supervision and Regulation, Randle Quarles, will provide testimony to the House Financial Services Committee and the Senate Banking Committee (Wed and Thu). We will look for any comments or indication of regulatory changes in the lead up to year end given the issues with repo funding.
The USTR will also announce on 2 Dec the outcome of its S.301 investigation into the digital services tax approved by the French government. This will include any proposed action.
The ECB President Lagarde will also provide testimony this week at the ECON hearing of the European Parliament this week. Eurozone data will focus on the second estimate of Q3 GDP and Germany factory orders and industrial production.
The RBA meets on Tue regarding rates in Australia. The current expectations are for rates to stay on hold until at least Feb or Mar. The Q3 GDP result will be released on Wed and growth is expected to remain low. Also out this week; building approvals and retail sales.
The Bank of Canada will also meet this week on rates.
US Treasury supply will be heavier, but with the higher value of securities maturing, there will be a relatively smaller amount of new money raised this week. The US Treasury will settle $297bn in ST bills and notes this week raising approx. $13.6bn in new money.
More detail (including a calendar of key data releases) is provided in the briefing document – download the file here;
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
