The weekly macro review for w/c 20 July 2020 – The prelim PMI’s for Jul show that there have been mixed results in the pace of improvement in private sector activity and output.
The important point is the context of these PMI results from Apr, May, Jun, and Jul. The May to Jul activity is coming off extremely low levels of activity. The low point was Apr when most firms reported declines in activity/output due to closure/restriction of non-essential activity.
If firms are re-opening (or restrictions are lifted), then why haven’t PMI’s rebounded into the 60’s or even 70’s? Only two country PMI’s in Jul suggest that re-opening has resulted in a stronger output rebound: UK manufacturing output 59.8, UK services output 56.6 and Aus services output 58.8.
The pace of the rebound in output among the other PMI’s has been slow.
The US composite PMI for Jul is at 50 – only a small improvement from Jun. Services firms indicate output is still declining slightly, on net. Manufacturing output recorded the first month on month increase in five months. Employment was unchanged.
The Kansas City Fed manufacturing survey indicated a shift to at least moderate growth in region for Jul. This survey provides the year on year diffusion index – which indicates that 60% of firms in the region still recorded a decline in production versus a year ago.
High frequency employment data for the US was mixed. The seasonally adjusted initial claims increased in the month for the first time in four months, but the non-seasonally adjusted data indicated an improvement. The big picture though is that even at the week ending 4th Jul (when the latest wave of infections was emerging), the total number of people claiming unemployment insurance for both state and federal programs was still over 31m people.
The PMI’s for Japan are most concerning. Both manufacturing and services output continue to decline at a similar pace to Jun, indicating little if any improvement in conditions. Employment declined at a faster pace.
Across the Eurozone there was a moderate lift in the number of private sector firms (likely) reporting higher output and activity – the first month on month increase since Feb 2020. Again, context is important. Overall output expansion of around 54 indicates a low level of growth considering the severity of the output fall when the composite output PMI fell to 13.6 in Apr.
The UK composite PMI was stronger and probably one of the better results of the group. The lifting of more restrictions in Jul has resulted in faster growth in output especially across services. The manufacturing output PMI jumped up to 59.8 – which is also a better result. This is clearly an improvement, but growth is likely generated from a low level of activity (which is why the PMI’s “should” all be higher). It is telling though that employment continued to contract – and at a faster pace in Jul. Despite the better results for the UK this month, commentary was downbeat:
Despite the restart of more parts of the service economy, especially leisure-related businesses, there were also reports that initial levels of demand had been weaker-than-expected.
The Aus results were mixed. Services output was stronger, showing a likely broader resumption of growth. Manufacturing output increased for the first time in a year. Given how severe the decline was in Apr/May (which indicates that most manufacturing firms recorded declines in output and activity), the headline expansion remains only moderate into the second full month of lifted restrictions. The PMI expansion level needs to be taken in context of just far output fell between Mar and May. Again, it is a telling sign that employment levels continued to be reduced on net in Jul – across both manufacturing and services. A more severe outbreak in infections in one of the larger states (Vic) may result in weaker growth in the following months. As a result, many states have slowed down how quickly restrictions (especially on-premise food etc) have been lifted.
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 27 July 2020 – This will be a big week of data, the US FOMC meeting, key US earnings reports, and important guidance on the extension of the CARES Act/Federal unemployment insurance funding, as expiration of the programs approach at the end of the week.
It is anticipated that the Republicans will table a further stimulus bill including the extension of Federal unemployment programs this week. The current programs are due to expire on 31 Jul. The bill is likely to also include a National extension of the initial four-month moratorium on rental evictions (affecting approx. 12m people).
The FOMC will meet on Tue and Wed with the policy announcement on Wed.
Data highlights this week:
US – prelim Q2 GDP, the final consumer sentiment for Jul, the first view of durable goods orders for Jun and the initial, continuing, and Pandemic unemployment insurance claims.
There will be a heavy schedule of earnings releases to be aware of this week. Of note will be Thurs (US EST), which will include Amazon, Alphabet and Apple.
More information: https://twitter.com/eWhispers/status/1287004960304095232
Eurozone prelim Q2 GDP.
Japan industrial production for Jun – important given how weak the PMI’s have been. There is likely to be some improvement.
Aus Q2 CPI.
The schedule of US Fed purchases of Treasury and Mortgage-Backed Securities will be updated as of 27 Jul. Purchases had been tracking back up around the $20bn/week level.
US Treasury issuance will remain heavy, but the net new money raised will be relatively low. The US Treasury will auction and/or settle approx. $481bn in ST bills, notes, bonds and TIPS this week, raising approx. $20bn 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
