The weekly macro review for w/c 2 December 2019 – Global manufacturing weakness persisted into Nov across the US, Europe, Japan and Australia. But one of the main sources of recent weakness, China, was the stronger performer this month with activity rebounding into expansion. If this continues, then it could have a positive impact on activity across key markets.
US manufacturing activity remained lackluster (across various indicators) – the accelerated decline in manufacturing overtime hours in Nov was an important highlight this week.
The ISM for Nov manufacturing activity continued to contract at a slightly faster pace. Yet the Markit PMI recorded faster growth in Nov. The detailed Oct factory orders report was little changed – orders increased in the month led mostly by defense aircraft orders. Excluding defense orders, new order growth was flat to the month prior. Manufacturing weakness still seems mostly focused on transport equipment, but orders continue to decline on an annual basis including and excluding transports.
Services activity reported across the Markit and ISM reports indicated that growth remained low in Nov. The ISM recorded a small deceleration in growth while the Markit report recorded a slight acceleration.
Employment and sentiment data suggested little impact on the consumer despite the deceleration in activity. Non-farm payrolls growth for Nov was higher – partly led by the return of striking manufacturing workers. The household survey indicated that annual growth in employment had slowed slightly, but total unemployed persons still declined. Employment growth slowed notably on a monthly basis – but unemployed persons still declined due to a larger decrease in participation in the month.
Growth in hours of all employees indicated no change on an annual basis (0% growth). But the average overtime hours of manufacturing employees declined at an accelerated pace of -11%.
The prelim consumer sentiment reading for Dec was stronger across current sentiment, current conditions and expected conditions. Sentiment readings are now at the “upper end of the favourable range is has travelled since the start of 2017”.
“Nearly all of the early December gain was among upper income households, who also reported near record gains in household wealth, largely due to increased stock prices.”
Europe – Growth in Q3 was slightly faster across the broader Eurozone – led by households and improvement in the external sector. This helped to offset a lower contribution from private investment spending. So far Q4 results remain weaker, with little improvement regarding the decline in Eurozone manufacturing activity. Services activity also continued to slow. Retail sales in Oct declined at a faster pace.
Weakness in manufacturing persisted in Oct for the largest EU member Germany. New orders, especially for the domestic market continued to decline. Industrial production also declined at an accelerated pace in Oct – led by manufacturing and construction. Overall production levels are now 8% below the peak of Nov 2017.
Japan – There was little evidence of a rebound in Japan manufacturing conditions in Nov. Services activity improved, recording marginal growth. Overall, a fairly neutral result after the increase in the sales tax and rebound from storm disrupted trade and manufacturing in Oct.
Australia – Growth slowed further in Q3 led by lower contributions from households, government and trade. Private investment also continued to decline, but at a slower pace. The RBA was likely hoping to see some positive impact from interest rate cuts, tax relief and small increases in house prices on consumption. But households tightened expenditure in Q3. While household income growth has not been accelerating, household disposable incomes were boosted by tax relief in Q3. Instead of spending that additional disposable income, households increased saving. There has been a shift in household sentiment and behaviour.
Australian retail sales in Oct (nominal value) recorded no growth in the month. Several factors to consider; drought and bushfires in NSW & QLD could be impacting performance and consumers could be holding out for the Nov US-style Black Friday promotions.
The RBA rates decision was made prior to the release of this data and the Board kept rates on hold. The performance of the labour market will be an important datapoint over the next few weeks.
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 December 2019 – Not a very data heavy week, but there are several important events;
Central bank decisions this week – FOMC, ECB and SNB. The current target rate probabilities indicate rates likely to remain on hold in the US. Source; https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html?utm_source=cmegroup&utm_medium=friendly&utm_campaign=fedwatch&redirect=/fedwatch
The UK general election will take place this week. An increased majority for the Conservative party will see Brexit likely go ahead by the end of Jan 2020.
On 15 Dec, the tariff rate on certain imports from China is due to increase. There is little indication at this stage that talks have progressed enough on a phase one deal to avoid this increase. Expecting headline risk on trade deals this week.
The Australian government will release its mid-year economic and financial outlook (a mid-year budget statement). While there has been no indication so far, there is still the possibility that stimulus measures could be announced for the economy.
Data highlights this week;
US retail sales, CPI & PPI
China trade, CPI, PPI and new loans data
Australia Q3 house price index, Governor Lowe speech
US Treasury supply will be much lighter and with a rare paydown. . The US Treasury will settle $153bn in ST bills this week paying down approx. $38bn in outstanding bills. The 16-day CMB from late Nov will also mature this week and there is no indication that it will be rolled over at this stage. The effect is likely to continue to help ease pressure on primary dealer balance sheets.
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
