The weekly macro review for w/c 6 January 2020 – Our w/c 6 Jan 2020 macro review includes several of the larger releases from the last two weeks, focusing mainly on private sector manufacturing and services output.
US manufacturing weakness was evident in the data out over the last few weeks. Factory orders data continues to show that declines in non-defense aircraft production, shipments and (rising) inventory is one of the larger issues affecting the data. Excluding transport equipment, the value of US factory orders and shipments is just slightly below a year ago. This is also reflected in the mixed results across regional manufacturing reports. The ISM manufacturing PMI for Dec reported a further contraction in activity, while the Markit manufacturing PMI was positive, albeit reflecting low growth.
The labour market report for Dec highlighted that overtime hours of US durable goods manufacturing continued to contract at around 9% in Dec. This is broadly in line with the weaker growth/conditions. Overall average weekly hours growth was also still below that of a year ago.
US employment growth (non-farm payrolls) slowed in Dec – and was lower than the 12-month average which has now slowed back down to 184k. The unemployment rate remained broadly unchanged. The labour market performance remains good – from the household survey, the acceleration in employment growth together with lower/no growth in what participation added to the labour force, resulted in a larger decline in total unemployed persons (in the month and on an annual basis).
Global PMI’s – manufacturing remained in contraction across Europe incl Germany, Japan, UK and Australia at the end of 2019. Despite these weaker readings, firms expressed optimism for 12-months ahead, likely due to greater Brexit certainty and the phase one trade deal between US-China in early Dec (reflecting at least no further worsening in trade relations).
Germany recorded one of the weaker manufacturing PMI results in the Eurozone for Dec. Factory orders declined for Nov. The data indicates that the declines since late 2017 appear to have at least stabilized at a lower level but are yet to recover the respective peaks. Similarly, industrial production was stronger in Nov, but at best, declines in output (for manufacturing especially) may have stabilized – too early to tell.
Services PMI’s were generally stronger, except for Australia and Japan, which remained in contraction. The UK services PMI recovered to the 50/neutral level.
CPI’s for Dec are worth noting. China CPI growth remained elevated at 4.5%, likely adding further pressure in a lower growth environment for consumers. Also, some signs of higher CPI growth across the Eurozone too in the Dec prelim CPI.
There was little rebound in data out of Japan for Nov. Retail sales increased in the month but remained below a year ago across most categories (likely due to stockpiling prior to the Oct sales tax increase). There was no rebound (overall) in industrial production and shipments for Nov. The Dec PMI’s indicate that there is likely more weakness in activity to come as both manufacturing and services PMI’s for Dec contracted at a faster pace.
There are more data releases covered in the review document. Use the links on the contents page to navigate to different country sections. Download the review here;
The outlook for w/c 13 January 2020 – The signing of the phase one trade deal between the US and China will be a key focus this week. The signing is planned to take place on 15 Jan and text of the deal will be released after. It was reported late last week by Reuters that Chinese officials were yet to confirm purchase commitments of agriculture of $40-$50bn.
Brexit legislation will also continue to make its way through the House of Lords in the UK Parliament this week.
Senate committees are currently reviewing the USMCA legislation and it’s not likely that there will be a Senate vote this week.
House Speaker Pelosi said her caucus will decide this week when to send impeachment articles to the Senate for trial.
There are several data highlights this week;
In the US, retail sales for Dec, CPI and PPI, prelim consumer sentiment for Jan will be released.
China Q4 GDP will be released this week with the second half of the Dec data – trade, industrial production, retail sales and new loans.
In Aus – housing finance for Nov and consumer sentiment for Jan will be released.
It will be a somewhat heavier week for US Treasury settlements. The US Treasury will settle approx. $226bn in ST Bills. Notes and Bonds this week, raising approx. $25.1bn in new money. Approx. $12.5bn of securities on the Fed balance sheet will mature this week. There will also be approx. $5bn in reinvestment purchases made this week.
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
