The weekly macro review for w/c 10 August 2020 – The good news in this week’s review was the continued slowdown in the pace of US initial and continuing jobless claims. The improvement/reduction in claims was uniform across the US with only four states recording further increases in claims. One possible reason contributing to the improvement is the notable increase in the number of temporary decennial Census workers earning any pay over the last few weeks. The Aug payrolls data will highlight the extent of the growth in government employment. The PMI’s for Jul still indicated somewhat weaker employment growth. The JOLT’s data also highlights a slower rebound in job openings. The implied employment change (hires less separations) has retraced little of the fall in employment from Mar-Apr.
The Pandemic Unemployment Assistance initial claims were almost halved versus the level of two weeks ago – this could be the result of the program expiration. As of wk ending 25 Jul, 28m people in the US were claiming unemployment insurance across both state and federal programs. The weekly numbers and levels remain extremely elevated. So far, there has only been a temporary Executive Order by US President Trump to extend benefits, while negotiations on the broader stimulus package have stalled. Both the House and the Senate are not due back to Washington until Sep.
Consumer sentiment in early Aug was little changed from the Jul levels – and are only marginally above the Apr lows.
Two significant changes since April have been that consumers have become more pessimistic about the five-year economic outlook (-18 points) and more optimistic about buying conditions (+21). Lower interest rates by the Fed prompted more favorable buying, especially for homes, and the DC policy gridlock was responsible for the weaker outlook.
The Jul industrial production data was interesting. Manufacturing output and capacity utilization continued to increase month on month but remains below a year ago. One important area of manufacturing that has lagged is the production of motor vehicles. This month, capacity utilization for motor vehicles was almost back on par with a year ago and pre-pandemic levels. Production levels increased notably in Jul. At the same time, motor vehicle retail sales declined in Jul. A function of constrained inventory or weaker demand?
EZ industrial production continued to rebound in Jun – only at a slightly slower pace compared to May.
Data out of China over the last few weeks indicates some recovery in global demand for Chinese exports, but still reflects weakness in domestic Chinese conditions. The China trade surplus increased. Exports increased in the month and on a year ago basis. But import growth slowed in the month and declined slightly on a year ago basis. Weaker import demand by China will likely hamper exports/production growth of its key trading partners. Chinese producer prices indicated further pressure on margins as input prices increased at a faster pace than producer selling prices. Consumer prices also increased at a faster pace – food price growth remains elevated and retail sales growth remains weaker.
In Australia, wage growth slowed to the lowest level since the series began. There was also a notable increase in “genuine market-based reductions in jobs paid by individual arrangement to ease financial pressure” – especially for managerial workers. This highlights the risk of broader negative income effects of the shutdowns not just for consumer-facing and hospitality workers.
Aus employment growth continued to rebound, but at a slower pace. The increase in participation though resulted in an increase in total unemployment for the month. The official unemployment rate was 7.5% – or just on 1m people unemployed. The actual number of people claiming the Aus govt Job-Seeker program is 1.6m people – and this suggests the unemployment rate may already be over 10%.
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 17 August 2020 – Central bank minutes and prelim Aug PMI’s will be the focus this week. The Aug data, more generally, will likely begin to show the underlying pace of recovery in services and manufacturing activity. Much of the current momentum has been driven by reopening and restocking as supply chains have come back online (still a globally uneven process).
The meeting minutes of the US FOMC, ECB, and RBA will be released this week. There are no surprises expected, given that the policy focus remains extremely accommodative.
The prelim Aug PMI’s will be released for the US, Japan, Australia, the Eurozone, and the UK. While all these markets recorded improvements in activity in Jul, the UK and Aus services rebound was the strongest. The Aus data may start to reflect some of the targeted lockdown measures.
In the US, there has so far been no further progress on the stimulus bill. Both the House and the Senate have left Washington until Sep. The Senate could be recalled if an agreement can be reached and a vote scheduled.
Other US data of note will be initial claims data (which has been slowing notably – possibly due to Census hiring) and regional manufacturing surveys for Aug.
The schedule of US Fed purchases of Treasury and Mortgage-Backed Securities for this week will remain higher. Treasury Security purchases by the Fed this week will be $21.45bn (last week total $20.63bn). The purchase of MBS will be $25.6bn this week (last week $22.03bn).
US Treasury issuance will be heavier this week. The US Treasury will settle approx. $397bn in ST Bills, Notes, and Bonds this week, raising approx. $70bn in new money. The US Treasury will also auction approx. $32bn in Bonds and 30-yr TIPS this week that will settle on 31 Aug.
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
