by Kim | Aug 24, 2020
The weekly macro review for w/c 17 August 2020 – The prelim PMI’s for Aug were mixed.
The strongest PMI among the larger economies for Aug remains UK services. Given the severe declines recorded around the world from Feb to Jun, the rebound in the UK PMI’s since Jun are more the expected magnitude of growth following such historic low levels of activity followed by a broad reopening of the economy. But UK firms continued to reduce employment and were concerned about future output growth.
The US PMI’s indicated a moderate lift in growth for Aug. The rebound in the US has so far been slow. Context is important – US firms overall recorded significant, consecutive monthly declines between Feb and Jun. The Jul result across both services and manufacturing was a ‘no change’ versus Jun after five months of falls. The Aug result is the first month on month increase for firms on net since Jan 2020. There are more positive signs this month regarding orders, export orders and employment.
The two regional US manufacturing surveys were less encouraging – there was an obvious stalling of growth momentum after the last two months. What was concerning was weaker growth in employment and in the average workweek for the month across both reports.
US housing remains a brighter spot. Housing market conditions improved back to pre-shut-down levels. Existing sales, permits and starts were all stronger this month.
There was some positive news for Japan this month. Exports & imports remain below a year ago but to a lesser degree than last month. There was a further improvement in exports for the month of Jul and this is consistent with the forecast for higher growth in Japanese industrial production for Jul. The improvement in global merchandise export demand will help domestic Japanese industrial production. Japanese industrial production recorded a rebound in Jun with shipment growth higher than production growth.
The growth in Japanese exports over the last two months is a somewhat encouraging sign of an uplift in global demand and trade especially from the two largest Japanese export markets China and the US. Weaker Japanese imports though suggests some weakening of Japanese domestic demand conditions. This was further emphasised in the Japanese Aug PMI – both manufacturing and services activity and output continued to contract, with no improvement from the prior month.
Across the Eurozone, there was a notable slow down in the pace of services growth while growth in manufacturing activity was unchanged at a low level. Excluding Germany and France, the output PMI shifted back into slight contraction. Employment continued to decline across the Eurozone.
In Aus, private sector services activity shifted back into decline. This was expected given the severe restrictions reimposed in on the key states, Victoria. The infection rates are slowing notably in Vic. Growth in manufacturing activity continued at a moderate pace. Reinstated border closures within Aus will likely continue to hamper production growth.
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 24 August 2020 – There are two headline events this week. The main one is the Jackson Hole central bank symposium later in the week. US Fed Chairman Powell’s speech on Thurs is expected to present the outcomes from the monetary policy framework review.
The Republican Convention will be at the start of the week.
It will be a lighter week of data, focusing mostly on US data. The important datapoints will be – initial and continuing claims, the second half of Aug consumer sentiment data from the University of Michigan, personal income, consumption and prices for Jul and the advance durable goods data for Jul.
Important Q2 Aus data will be released this week ahead of the Q2 GDP release next week. This week will be Q2 private sector capex and construction work done.
The schedule of US Fed purchases of Treasury and Mortgage-Backed Securities for this week is incomplete – the new schedule will be released on 27 Aug. Purchases are up to and including Thurs 27 Aug. Treasury Security purchases by the Fed this week will be $5.925bn (last week total $21.45bn). The purchase of MBS will be $22bn this week (last week $25.6bn).
US Treasury issuance will be somewhat lighter this week. The US Treasury will settle approx. $307bn in ST bills and FRNs this week, raising approx. $38bn in new money. The US Treasury will also auction approx. $148bn of Notes 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
by Kim | Aug 17, 2020
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
by Kim | Aug 10, 2020
The weekly macro review for w/c 3 August 2020 – In the US, there was a more notable improvement/reduction in the number of new and continuing claims across both state and federal programs this week. Similarly, non-farm payrolls also recorded further growth in new jobs. But that pace of job growth slowed notably compared to the prior two months – and the levels of continuing claims, despite some improvement, remain extremely elevated.
On the broader tally, 22.16m payroll jobs were lost in Mar and Apr this year. So far, 9.28m payroll jobs have been regained during May-Jul. This month, most of the growth in employment was in part-time rather than full-time jobs.
To provide some context, the proportion of the US population now employed is back down to levels last seen in the 1960’s. The employment to population ratio highlights just how much damage has been done to the US labour market – and how critical ongoing fiscal support is for the recovery process.
With no clear resolution on new stimulus from the US congress, President Trump signed executive orders (EO’s) for a greatly reduced level ($300/wk) and extension (maybe 6wks) of the PUA benefit (utilizing FEMA funds), deferring some payroll tax, extending the eviction moratorium and continuing the zero-interest for student loans. At this point, its not clear whether these EO’s have an enforceable impact – the measures have been described as small, complex and temporary. But at least it might be a short term stop gap as negotiations continue.
Across all PMI’s for Jul, firms remain cautious about hiring, despite some headline month on month improvement in output and orders. Growth has been driven by domestic markets, while exports mostly remain weak.
US Manufacturing – the ISM report was quite positive for Jul. The Markit report indicated only marginal growth at best compared to the month prior. Production of motor vehicles has now appeared to gather more pace and this was a highlight of the Factory Orders & Shipments data for Jun. Durable goods ex transport orders were also stronger in Jun. Shipments of durable goods excluding transports is interesting – the decline due to the Covid shutdown was not as severe (as say the contraction in motor vehicle production) – and now shipments are ‘only’ 4.2% below a year ago (at the worst level, shipments were down by 8.7% in Apr). But shipment growth across durables ex transports was slowing notably in the 18-months leading up to the pandemic – which makes expectations for the recovery unclear.
Non-durable goods performance was likely impacted by higher oil prices this month. But excluding that, shipment growth of chemicals was stronger, and shipment growth of food remains steady.
As supply chains come back on-line, the next few months results will be important barometers of where final demand is at.
US Services – reports this month were lacklustre. Services accounted for most of the job growth this month, but there was little in either the ISM or Markit PMI’s that suggested acceleration in growth despite several months now of reopening. The ISM index remained elevated, but the underlying shift in firms reporting higher, no change or lower output suggests that firms, on net, are seeing at best more steady conditions this month, rather than accelerating growth. The Markit index also reflect no change in activity this month compared to the prior month.
Across the other regions, the UK and Aus services PMI’s were at levels more consistent with a broader reopening.
Eurozone services PMI recorded stronger month on month growth. Manufacturing growth was only moderate. For context, manufacturing output increased on a month on month basis for the first time this month since the start of 2019, while new orders increased in Jul, month on month for the first time in two years.
In Japan, both services and manufacturing PMI’s indicated a continued contraction in activity, although manufacturing contracted at a slower pace in Jul. The industrial production forecasts were for much higher growth in production for Jul – which has not been reflected in the PMI result.
In Australia, price has played a large factor in the return of retail sales in Q2. The trend in the underlying real (volume) of retail sales indicates that sales (versus the same quarter a year ago) have declined notably in Q2 while nominal growth remained positive, albeit slowed. Of note are the severe declines in Q2 volumes in NSW (-4.3%) and VIC (-6.2%) – well before the latest lock-down in Vic. Aus PMI’s continued to show further month on month growth in activity in Jul. For now, though, this momentum is likely to stall as severe restrictions are reimposed in Vic due to increased infections.
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 10 August 2020 – The focus will likely remain on progress of US Congress negotiations for further fiscal stimulus.
Data highlights this week:
US – initial claims data, retail sales for Jul, and the prelim consumer sentiment reading for early Aug. Also, Jul industrial production will be released – an important ‘hard datapoint’ to support the manufacturing PMI’s. It remains a good barometer for how manufacturing production and capacity is recovering.
Most of the Chinese economic data for Jul is out this week – including CPI, PPI, retail sales and industrial production.
Australia – the labour market survey for Jul will be released this week. The Q2 wage price index will also be released.
The schedule of US Fed purchases of Treasury and Mortgage-Backed Securities for this week is incomplete – the next schedule will be released during the week on 13 Aug. Treasury Security purchases by the Fed until Wed this week will be $7.8bn (last week total $9bn). The purchase of MBS so far, will be $17.04bn this week (last week $24.23bn).
US Treasury issuance will be slightly heavier this week. The US Treasury will settle approx. $319bn in ST bills this week, raising approx. +$8.3bn in new money. The US Treasury will also auction approx. $112bn in Notes and Bonds this week that will settle next week – raising approx. $62.5bn in new money. The latest US Treasury financing schedule for Q3 has a revised higher forecast for net cash raised for this quarter of $947bn, up from the initial $677bn estimate. Final numbers will depend on the shape of the final agreed stimulus bill. So far, $42bn (of a forecast $947bn) in new money has been raised this quarter – which means that there could be a significant increase in issuance over the next seven 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
by Kim | Aug 3, 2020
The weekly macro review for w/c 27 July 2020 – US headline consumer sentiment and sentiment around expected conditions have both fallen back to the lows reached at the start of pandemic.
The Expectations Index fell back to 65.9 in July, tied with the six-year low recorded in May, providing no indication that consumers expect the recession to end anytime soon.
There was even some unusually downbeat commentary from the Mortgage Bankers Association this week regarding mortgage applications:
“Homebuyers stepped back slightly, and there was a larger drop in purchase application volume for FHA, VA, and USDA loans. This trend, along with the fact that average loan sizes are increasing, indicate that prospective first-time buyers are being impacted more by the rising economic stress caused by the resurgence in COVID-19 cases, as well as the uncertainty on how the next round of government support will take shape.”
Sentiment indicators are likely to worsen as additional benefits expire and if housing forbearance programs are not extended.
So far there has been no resolution regarding the extension for the expiring CARES Act benefits. The funding bill continues to be debated among Republicans. Some Republicans suggest enough stimulus has already been delivered and the Whitehouse wants to boost the economy prior to the election. The Democrats have an alternative set of priorities. There will likely be some resolution/compromise, but the Federal benefits have now started to expire.
The Federal Pandemic Unemployment Assistance program currently has over twelve million people on continuing claims. There are over 30 million people claiming ongoing unemployment insurance (at wk ending 11 Jul) across both state and federal programs.
The high frequency employment data (the regular state-based programs) is providing some mixed signals – the more recent data indicates that the small improvement in initial claims appears to be stalling and continuing claims also increased.
Regional manufacturing reports for July indicate at least a low level of momentum in production and shipments growth. Employment growth remains low, but there was improvement in hours worked. The advance durable goods report for Jun also indicated stronger growth for the month – except for non-defense airline orders. There appears now to be some greater momentum behind motor vehicle production and orders.
The decline in personal income in Jun was mostly due to the one-off CARES Act payments going through in the prior two months. In Jun there was an increase in wages and salaries, but levels remain well below a year ago. Incomes were boosted by unemployment insurance. Expenditures increased in Jun. But the year on year comparison highlights the severe decline in expenditure on Services – usually a very stable component. Any impact on expenditure and income from the current outbreak in infections in the US will likely start to show up from Jul.
In Australia, one of the largest states, Victoria, will go into a more severe shutdown for an estimated six (6) weeks due to the increase in infections. This will be another hit to the Australian economy, impacting business output, expenditure and employment at the state and National levels. At this stage, there is no indication of any renewed fiscal support for the state.
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 3 August 2020 – This will be another big week of data and several central bank meetings. Focus also remains on the ongoing negotiation of the extension of the US CARES Act/Federal unemployment insurance funding and stimulus.
Data highlights this week:
US – non-farm payrolls for Jul, the ISM PMI reports for Jul and the latest initial, continuing, and Pandemic unemployment insurance claims.
The final Markit PMI’s for Jul will be released for the major economies including – the US, Eurozone, UK, Japan, China, and Australia.
Australia – the RBA will meet this week on interest rates. Retail sales and housing finance data for Jun will be released this week. There is a possibility for further federal stimulus announcements due to the shutdown in Victoria.
The Bank of England will also meet this week.
The schedule of US Fed purchases of Treasury and Mortgage-Backed Securities has now been updated. There will be a reduction in the pace of Treasury security purchases by the Fed this week, down to $9bn (last week $25.15bn). The purchase of MBS will remain steady at $24.23bn this week (last week $26.15bn).
US Treasury issuance will be lighter this week – and there will be a net paydown. The US Treasury will settle approx. $285bn in ST bills this week, with a paydown of approx. -$33.6bn. This reduces the amount of new money raised this quarter to date to $34bn – the estimated requirement for new money raised this quarter is $677bn.
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
by Kim | Jul 27, 2020
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
