The weekly macro review for w/c 8 June 2020 – There were no changes made to US monetary policy settings this week. The FOMC statement and press conference were more downbeat in the current assessment of conditions, but did note some positive developments as the economy starts to open up.
While the FOMC kept policy settings on hold, the US Fed announced enhancements to crisis lending programs, enabling a broader scope of eligibility as well as easing the terms of the Main Street Lending Program.
Fed Chairman Powell noted in his press conference;
The extent of the downturn and the pace of recovery remain extraordinarily uncertain and will depend in large part on our success in containing the virus. We all want to get back to normal, but a full recovery is unlikely to occur until people are confident that it is safe to reengage in a broad range of activities.
This sentiment was also reflected in the prelim consumer confidence numbers this week. Measures of sentiment, current conditions and expected conditions all improved in the prelim report. While expectations are high that the jobless rate will fall, there are lower expectations that favourable economic conditions will be re-established – consumers remain concerned about ongoing high unemployment and a resurgence in the spread of Covid-19;
Bad times financially in the economy as a whole during the year ahead were still expected by two-thirds of all consumers, and a renewed downturn was anticipated by nearly half over the longer term.
News of increasing cases of Covid-19 are starting to emerge across the US and Beijing has entered a fresh lock-down to control a local outbreak.
US CPI was little changed in the month and on an annual basis. The PPI indicated that selling prices increased at a faster rate. In both reports, food price inflation was higher and the reversal of energy price declines also impacted prices. Prices for shelter and medical services continues to grow at a higher pace.
Initial unemployment claims continued to increase in the latest week – over the last 12 weeks, a total of 44m claims have been made by people. Continuing claims have remained extremely elevated and consistently around 20-21m mark. JOLTS data for Apr highlighted decreasing job openings, hires, and quits. At the same time, the level of layoffs and discharges remained extremely elevated after likely peaking in Mar.
Industrial production in Germany (and the broader EU group) and Japan declined notably in Apr. More recent PMI’s indicate that Apr 2020 may have been the “peak” of these declines (not for Japan though). While the lifting of domestic restrictions will help, global export demand will be an important driver of production growth for these countries. The production of motor vehicles remains a key component of this growth.
This month, the Chinese trade surplus increased notably due to a decline in exports and a larger decline in imports. While some of the import decline is linked to lower oil prices, there were still substantial declines in imports from the larger industrial exporters such as Europe (especially Germany), the US, and Japan. This is partly a reflection of these countries remaining under some restrictions as well as some Chinese domestic demand weakness (likely, demand for both final and intermediate goods). Imports from other key markets such as Vietnam and South Korea were higher while imports from Australia were lower.
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 15 June 2020 – The highlights for the week will be speeches/testimony by the US Fed Chairman, rates decisions by the BoJ and BoE, US retail sales and several views of regional US manufacturing activity in Jun.
US Fed Chairman Powell will provide testimony to the Senate Committee on Banking, Housing, and Urban Affairs on 16 Jun and will deliver the semi-annual report on Monetary Policy to the US Congress on 17 Jun.
Vice Chair Clarida will deliver a speech via pre-recorded video at the Foreign Policy Association annual dinner. Both Chairman Powell and Vice Chair Clarida will also give speeches later in the week on the19th. https://www.federalreserve.gov/newsevents/2020-june.htm
The BoJ and BoE will deliver rates decisions this week.
The important US data this week; retail sales for May, NY and Philly Fed regional manufacturing Surveys for Jun, US industrial production for May, and initial and continuing unemployment claims.
UK data this week will include labour market (Feb-Apr), CPI and retail sales results for May.
The key data highlight for Australia will be the May labour market survey.
Purchases of Treasury and Mortgage securities remain at a similar pace as the week prior. This week, the NY Fed will purchase approx. $25bn in Treasury Securities (last week $20bn, prior week $22.5bn) and approx. $22.8bn in MBS (last week $22.5bn and prior wk. $22.5bn).
There will be one term repo operation this week and overnight operations have been reduced to one per day. Note several changes were made to repo operations last week.
US Treasury issuance will remain heavy. The amount of new money raised will increase over last week, but is down on recent weeks as more CMB’s mature. The US Treasury will settle approx. $535bn in ST Bills, Notes, and Bonds this week. The US Treasury will raise approx. $164bn in new money for the week.
The US Treasury Q2 borrowing requirement is $2.999 trillion USD in new money. The quarter to date value of new money raised stands at $2.317 trillion USD. This is 77% of the requirement for the quarter and we are now 83% of the way through the quarter (in weeks).
In order to meets its $2.999 trillion target for the quarter, the US Treasury will need to raise approx. $682bn in new money in the next two weeks. This would represent a significant increase in issuance over the coming weeks.
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
