by Kim | Jul 20, 2020
The weekly macro review for w/c 13 July 2020 – One of the key themes this week is the potentially stalling/slowing recovery in jobs growth in the US. The high frequency data (initial, continuing, and PUA claims and the Household Pulse survey) is showing some signs of slowing.
Regional US manufacturing surveys mostly improved in Jul. There was at least improvement in the number of firms recording new orders growth across both surveys. The Philadelphia Fed survey indicated more stable activity across other key measures rather than a sharp resumption of activity. Unfilled orders across both the NY and Philly Fed surveys still indicate spare capacity across most firms. Most firms still reported no change to employment and hours. The diffusion indexes don’t show the scale of the change – it’s based on the proportion of firms reporting higher, lower or the same level of activity compared to the month prior.
The Jun US industrial production report showed improved production growth especially for manufacturing sectors. This was consistent with the Jun PMI’s and factory orders. Levels of activity are undoubtedly improving. But activity is yet to regain pre-shutdown levels. Capacity utilization is also improving but remains at levels on par with that of mid-2009. The current level of motor vehicle production capacity utilization (still 25% below a year ago) is a big influence on the result, but many other manufacturing industries are also experiencing lower capacity utilization.
Also of note in the industrial production report was that mining production and capacity utilization had fallen further in Jun.
The index for oil and gas well drilling fell 18.0 percent in June and was about 70 percent below its year-earlier level. For the second quarter, mining output declined 42.7 percent at an annual rate.
Survey data for manufacturing new orders growth indicates some further short-term increase in production. But it is unclear whether this will be strong enough to result in a faster recovery of production and capacity utilization. How quickly this spare capacity is reduced will have implications for how quickly employment, hours and investment improves.
With regard to services output, the question is how much disruption to activity/recovery will there be due to the latest increase in infections?
In Aus, consumer sentiment fell in Jul amid a larger outbreak in one of the most populous states:
There is likely some loss of confidence regarding the ability to contain the virus and “limiting the extent to which the economy can return to business as usual”.
The small “recovery” in US sentiment in Jun was also mostly reversed in the Jul prelim reading especially for expected conditions – citing the potential impact of increased infections on personal finances and the economy.
The US is now on the cusp of the higher unemployment benefit (Federal Pandemic Unemployment Compensation) expiring on 31 Jul without any clarity over an extension. This will affect approx. 25m recipients. Another stimulus bill is likely to be announced in the coming week and it is highly likely that benefits will be extended. The stimulus checks and enhanced benefits have helped to return US retail sales to annual growth in a short time. Retail sales in Jun were +1.1% ahead of the same month a year ago.
One other area that has continued to improve in the US is housing. The mortgage application data this week indicates that many are taking the chance to refinance based on record low mortgage rates. This obviously boosts income. Housing market conditions have improved across the nation and notably in the Northeast especially.
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 20 July 2020 – The focus this week will be on the US Congress negotiating an extension to the Federal Pandemic Unemployment Compensation payment as a part of another stimulus bill, the EU recovery package, rising case infections and the prelim PMI’s for Jul.
US highlights this week will be:
Initial and continuing claims will remain in focus. Last week, we noted that the reduction in claims appears to be stalling amid rising infection/cases.
The US prelim PMI for manufacturing and services for Jul. The services reading will be an important barometer of the potential impact of rising infections especially in the South and parts of the West and Midwest.
US existing home sales for Jun will be released.
The prelim PMI’s for manufacturing and services in Jul will be released for the Eurozone, UK, Japan, and Aus.
In Aus, the government will also announce changes to the crisis employment support programs of JobKeeper and JobSeeker. This will be announced ahead of the budget statement later in the week. This will be important in the context of the pace of the current rebound, unemployment levels and the new peaks in infections in one of the two most populous cities.
Purchases of Treasury and Mortgage securities will be larger this week and are back up to $20bn/week pace. This week, the NY Fed will purchase approx. $20.8bn in Treasury securities (last week $17.8bn, prior week before that $21.8bn) and approx. $23.8bn in MBS (prior week $22.8bn and week prior to that $22.8bn).
US Treasury issuance to be updated during the 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
by Kim | Jul 13, 2020
The weekly macro review for w/c 6 July 2020 – Last week we reviewed the manufacturing recovery in the US in Jun. This week we look at services/non-manufacturing activity. The easing of lock-down and trading restrictions resulted in some improvement in private sector services activity for the US in Jun.
The more detailed ISM non-manufacturing PMI showed that activity improved in Jun and ‘only’ three industries reported further overall declines in the month: Mining; Other Services; and Management of Companies & Support Services. Importantly the increase in new orders was stronger – a positive sign for short-term output growth. But order backlogs and employment indicate that spare capacity is still an issue. Eleven industries continued to report net declines in employment in Jun; Management of Companies & Support Services; Educational Services; Mining; Professional, Scientific & Technical Services; Other Services; Retail Trade; Health Care & Social Assistance; Public Administration; Wholesale Trade; Utilities; and Finance & Insurance.
The Markit services PMI for the US showed that activity overall continued to decline in Jun, but at a slower pace than in May. There was more of a general stabilization of activity across key business indicators. There was little in this report to suggest that, on net, there had been a sharp resumption in services business growth in Jun.
JOLTS data was mixed. The total hires and separations for the month were much stronger – with growth in hires reaching an all-time high. On a monthly basis, hires were larger than separations in May by +2.3m people. But the implied loss of employment in Mar and Apr (combined) was 15.4m jobs. So, while May was a positive result, there is still a long way to go before the labour market overcomes those losses. The level of job openings increased marginally. The level of quits remain depressed – indicating less inclination to change jobs during high levels of unemployment.
Initial unemployment claims and continuing claims remain elevated but have at least continued to slow in the last few weeks. There has, instead, been an increase in Pandemic Unemployment Assistance initial and continuing claims.
German factory orders improved in May – a good sign for production in the short-term. Industrial production also rebounded in May – but with mixed performance across industry sectors. Levels of production remain well below the same time a year ago.
In Australia, lending for housing declined at an accelerated pace in May, likely reflecting the impact from the National shutdown in Apr. All sectors of housing finance declined in May. The slow-down in credit growth will most likely impact the growth of house prices over the coming months.
Job ads in Australia improved in Jun after a long period of weakness and are still 45% below the same month a year ago.
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 July 2020 – A big week of data and central bank meetings.
US highlights this week will be:
Regional readings of manufacturing for Jul – important to see how activity is tracking after the Jun rebound.
Initial and continuing claims will remain in focus – especially the Pandemic Unemployment Assistance claims which have been rising quickly over the last few weeks.
The prelim consumer sentiment for Jul will be released, providing some important insight into the impact of rising infections across the South and the West (especially) on consumer sentiment and spending intentions.
Retail sales and CPI for Jun.
Industrial production for Jun which will provide more detail around the Jun PMI’s and factory orders data.
In Australia, the labour market survey for Jun will be released.
China Q2 GDP will be released this week, along with the remaining Jun data including retail sales, industrial production, and fixed asset investment.
Rates decisions by the BoJ and the ECB.
Purchases of Treasury and Mortgage securities are incomplete for the week – the full schedule for operations will be released on 13 Jul. Last week, the NY Fed purchased approx. $21.8bn in Treasury Securities (prior week $7.8bn, prior week before that $19.6bn) and approx. $22.8bn in MBS (prior week $18.1bn and prior week before that $22.8bn).
This week, the US Treasury will settle approx. $438bn in ST bills, Notes and Bonds raising approx. $31bn 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
by Kim | Jul 6, 2020
The weekly macro review for w/c 29 June 2020 – Sectors within the US economy have, so far, been affected by the pandemic in different ways.
US durable goods manufacturing has been most affected within transport equipment, specifically, motor vehicles and non-defense aircraft (which was already declining prior to the pandemic). That’s not to say that other durable goods sectors have not been affected by shutdowns, it’s that the extent of the impact on transport equipment production has been most severe – and this is a large part of industry.
The May US factory orders data showed that transport orders rebounded strongly – but half of that growth was due to the change from -$8bn in aircraft orders in Apr (net cancelled orders) to $3bn in orders in May resulting in +$11bn contribution to the headline growth between the two months. Orders for transports are still 41% below a year ago. Yet, orders for durable goods ex transports is “only” 6.7% below a year ago (which is still a large decline, but not as extreme).
Motor vehicle retail sales rebounded in May – led by SUV’s/light trucks. Sales of auto’s also increased, but off an extremely low base, and to a lesser degree than SUV’s. The pandemic appears to have accelerated the trend of the decline in auto/sedan sales – May auto sales on a SAAR basis was a mere 2.65m units, the second lowest on record after Apr 2020.
It is also worth noting that Japanese production of motor vehicles declined at an accelerated pace in May and production levels fell to 61% below a year ago. Retail sales of motor vehicles in Japan fell by 11% in May (and -34% compared to a year ago).
Non-durable goods shipments in May, excluding petroleum, are now only down 3.2% versus a year ago. Production across food and chemicals, especially, has been less affected throughout the pandemic. Petroleum production in the US has been impacted by severe price falls as well as a decline in demand. Petroleum shipments are 54% below a year ago (value). The Dallas Fed Survey for Jun noted that oil producers remained downbeat, despite a general improvement in manufacturing conditions in the region.
The broader forward view of manufacturing for Jun via the ISM manufacturing PMI highlighted that more manufacturing firms continue to recover across most industries. But within the detail of the ISM is that transportation equipment manufacture continued to worsen across every measure in the Jun PMI. Most concerning is the continued decline in orders for this segment as it suggest continued weaker output in the short-term.
Despite the improvements in shipments and orders, the ISM survey showed that firms, on net, continue to reduce employment.
We will cover services next week once the Jun data is released. For now, the non-farm payrolls for Jun increased by 4.8m jobs – of which 2.1m of the gains were in leisure and hospitality. The trend of improving payrolls is extremely positive – but there are another 14.5m jobs still to be recovered. Yet the weekly initial claims, continuing claims and pandemic unemployment assistance claims all remain extremely elevated and have been little changed. The concerning trend in the household employment survey was the continued rise in permanent layoffs (but temporary layoffs also declined).
The outbreak of infections across the US South and parts of the West and Midwest will likely derail some of this recovery, especially in the services hospitality sector. The unemployment claims data is likely to record further increases in these regions.
The global manufacturing PMI’s were consistent. The pace of decline slowed notably as more firms started to record improving conditions especially across Europe and Australia. Japanese manufacturing was the exception – almost half of the survey panel (48% of firms) recorded lower production, compared to 13% of firms that expanded output in June.
In most cases, growth is just starting to rebound, so excess capacity is still an issue and firms are continuing to reduce employment. The improvement in sentiment for the next twelve months was universal.
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 6 July 2020 – While it will be a relatively quiet week data-wise, the news flow will continue to focus on the growing number of Covid-19 infections, and not just in the US.
We are also approx. four months out from the next US general election and polling will also start to fill the news-cycle.
US highlights this week will be the ISM non-manufacturing PMI and the Markit Services PMI – which will help to round out our view on the recovery of services into Jun. The other important data release will be the initial and continuing claims data – especially now as we potentially start to see the impact of infections in the South and parts of the West on further trade restrictions and layoffs.
The RBA will meet on rates this week. Other important Aus data this week will be the housing finance data for May.
Highlights for Europe; retail sales for May and German industrial production and orders for May.
Purchases of Treasury and Mortgage securities will be larger this week and are back up to $20bn/week pace. The NY Fed will purchase approx. $21.8bn in Treasury Securities (last week $7.8bn, prior week $19.6bn) and approx. $22.8bn in MBS (last week $18.1bn and prior wk. $22.8bn).
There will be one term repo operation this week and overnight operations have been reduced to one per day.
This is the first week of Q3. The US Treasury estimate for Q3 borrowing is lower this quarter (compared to the significant increase in Q2). The Q3 estimate for total net new money raised is $677bn.
This week, the US Treasury will settle approx. $320bn in ST bills, raising approx. $20.4bn 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
by Kim | Jun 29, 2020
The weekly macro review for w/c 22 June 2020 – Global prelim PMI’s for Jun showed some further improvement since countries started to lift restrictions related to the pandemic. This month, there was a continued ‘slower pace of decline’. This means that the number of firms reporting a decrease in activity still outnumber the firms reporting an increase in activity, but by a much smaller degree than in the month prior. This was a consistent result across the US, EU, UK, Japan, and Australia.
Some highlights from the prelim reports; France and UK manufacturing sectors recorded at least small growth in Jun compared to May, and the Aus services sector also recorded growth in Jun compared to May. Japan’s manufacturing sector remained weak with the PMI and output indicating declines accelerated in Jun.
The US prelim composite PMI for Jun indicated a slower pace of decline in activity. What these PMI’s don’t show, is the degree to which activity/output/orders is growing. The advance durable goods report for May recorded stronger headline growth in orders of over 15%. Half of this increase was the result of a shift in new orders for non-defense aircraft from a total of -$8.6bn in orders (i.e. net cancelled orders) last month to total orders in May of +$3.1bn. That said, most other categories reported a rebound in orders – but excluding transportation (and the aircraft effect), growth in orders was more moderate at +4%. Shipments growth was also more moderate.
The three US regional manufacturing reports for Jun reflected further stabilization in conditions in Jun. Within these reports, employment continued to decline, but at a slower pace, with the majority of firms reporting ‘no change’ in employment levels from the month prior.
This has also been reflected in the weekly initial and continuing claims. The weekly growth in initial claims remains extremely elevated – and, adding in the Pandemic Unemployment Assistance (PUA), initial claims were more like 2.18m for the week. Continuing claims also remain elevated at 19.5m people, but there was a more substantial 767k reduction in total claims wk ending 13 Jun. As of 6 Jun, there were 11m continuing PUA claims (NSA).
In May, there was a month on month decline in personal income/personal disposable income compared to Apr (due to one-off stimulus payments made in Apr). But the level of personal disposable income remains above the pre-pandemic trend due to the growth in government social payments. Wages and salaries grew in the month, but remain well below a year ago. Consumption expenditures grew in May, but remain approx. 10% below a year ago. So the savings rate (surplus % of disposable income), although lower than the month prior, remains extremely elevated.
Is the saving a function of fear (remaining unemployed, laid-off, lower future income etc) or still a function of less opportunity to spend due to restrictions? It’s likely a combination of both. Recall that the May consumer credit report recorded a relatively large decrease in outstanding revolving consumer credit.
Consumer sentiment slipped slightly in the final half of Jun compared to the first half of Jun. The Jun result was still an increase on the month prior. While all regions experienced the fall in sentiment as a result of the Covid-19 shutdowns, the Northeast fared the worst due the high number of infections. The improvement/decline in cases in the Northeast – likely as a result of a longer shutdown, has resulted in a much stronger rebound in sentiment in the region this month. Growth in sentiment in the South has been weaker – and this is likely to worsen as Covid cases have started to increase. There is likely to be some worsening in sentiment across other regions as the number of US cases reaches new highs.
While most consumers believe that economic conditions could hardly worsen from the recent shutdown of the national economy, prospective growth in the economy is more closely tied to progress against the coronavirus.
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 29 June 2020 – It will be a short week in the US with the National Independence Day holiday commencing on Fri 3 Jul. Important data releases will be packed into the short US week; Non-farm payrolls for Jun, ISM Manufacturing PMI for Jun, FOMC minutes and the weekly initial and continuing jobless claims.
The USMCA comes into effect on 1 Jul this week.
US Fed Chairman Powell will provide testimony to the House of Representatives Financial Services Committee on Tue 1 Jul on the CARES Act.
Other data highlights include:
Final PMI’s for Jun will start to be released this week – including manufacturing activity across the US, Europe, Japan, China, and Aus.
Japanese data includes retail sales and the prelim view of May industrial production.
In Aus retail sales for May will be released as well as private sector credit changes for May.
Purchases of Treasury and Mortgage securities will be slower this week due to the shortened week. For the first four days of this week, the NY Fed will purchase approx. $7.8bn in Treasury Securities (last week $19.6bn, prior week $25bn) and approx. $18.1bn in MBS (last week $22.8bn and prior wk. $22.8bn).
There will be one term repo operation this week and overnight operations have been reduced to one per day.
US Treasury issuance will remain heavy, with net new money raised this week remaining at the lower end of the recent scale. The US Treasury will settle approx. $506bn in ST Bills and Notes this week. The US Treasury will raise approx. $135bn in new money for the week.
The US Treasury Q2 borrowing requirement is $2.999 trillion USD in new money. The quarter end total of new money raised is estimated at $2.545 trillion USD. This is 85% of the requirement for the quarter.
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 | Jun 22, 2020
The weekly macro review for w/c 15 June 2020 – The current trend of initial and continuing claims indicates little progress into reducing unemployment via reopening so far. Granted, its early days in the reopening process, but this is the second week of Jun data for initial claims and continuing claims reflect first week of Jun data. Both remain extremely high. Yet, activity is clearly picking up – as evidenced by the strong rebound in retail sales last month (May).
The regional manufacturing surveys and industrial production data also indicate a lift in activity. The regional survey results were positive in terms of recording a lift in activity in the first week of Jun. They also provide some insight into the impact on employment so far. The average workweek probably says the most about current working conditions. Despite the improvements in orders and shipments this month, firms continued to cut the average workweek on net (most firms kept the workweek unchanged compared to May) – both surveys were consistent on this. Demand growth is likely such that firms are not yet in a position, on net, to expand operations significantly compared to May. The change in unfilled orders also hint at this. Industrial production, esp manufacturing improved in May, but the scale of the rebound so far is such that levels of production remain low. Next month data should start to see a larger improvement, but so far, employment appears to be lagging.
One data point that stands out this week is the Japanese merchandise trade for May. There were quite severe declines in exports and imports this month compared to a year ago. Exports declined across all regions, with the most notable, a 50% decline in exports to the US (compared to the same month a year ago) – including transport equipment exports down 80%. Exports to China, the largest export market were down only slightly – likely indicating the more advanced state of the recovery in China. Japan’s imports were also down. Last month, the fall in imports were linked mostly to the fall in the value of petroleum imports. This month declines in imports were more widespread. China is the single largest import market (1.5t in May) for Japan. While imports from China were down by only 2% compared to a year ago – the underlying performance of imports was mixed. Imports of manufactured goods from China was up by 46% (the largest positive contribution, but only one subsector led this growth – textiles, yarn, fabrics) and machinery +6%. This was offset by declines in imports from China across transport equip (-39%), electrical machinery (-10%), others (-16%), raw materials (-19%), and foodstuffs (-19%).
The BoJ kept policy unchanged, aside from upwardly revising the value of loans it could potentially back under a pre-existing scheme. Instead, the BoJ confirmed its dedication to QQE and YYC as the Japanese government has approved further stimulus to support the weaker economy. There was little change in the Japanese CPI growth this month (well below the 2% target). Japan has already experienced two consecutive quarters of GDP decline, as well as ongoing weakness in trade.
The weaker Japanese trade data (imports) also connects back to the weakness in Chinese exports reported last week (as well as lower Chinese exports to Europe and the US). But while Chinese exports declined, Chinese imports declined by a larger degree. This is somewhat consistent with this month’s Chinese industrial production data. The decline in exports has been more moderate – supported by the restart of local production.
The Aus Labour Force report for May highlights the extent to which fairly significant damage has been done the labour market. In May, employment declined, unemployment increased and underemployment also increased. The increase in these measures has reached historical extremes. The employment to population ratio was 58.4% in May. The last time the employment to population ratio was at least this low was in Jun 1999.
The one positive was hours worked. This month, hours worked declined by a much smaller number, possibly indicating that the peak falls in activity were in Apr.
With the lifting of more restrictions in Aus, there will hopefully be a rebound in employment growth next month. But the mutual obligation requirement of looking for work on JobSeeker has also been reinstated as of early Jun, so we’ll possibly see an increase in the participation rate, leading to an increase in ‘official’ unemployment numbers next month. There also appears to be some new Covid case activity – something to watch.
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 22 June 2020 – The highlights this week will be the prelim Jun PMI’s for the US, Europe, Japan, the UK, and Aus.
US Fed Chairman Powell will speak on Fri on building a resilient workforce during the Covid-19 era. Vice Chair for Supervision Quarles will give a speech on stress testing on Fri also.
Data is mostly US-focused this week aside from the prelim PMI’s. The important US data for the week; prelim PMI’s and regional surveys for Jun, personal income and expenditure for May, final consumer sentiment of Jun, and initial and continuing unemployment claims.
Purchases of Treasury and Mortgage securities remain at a similar pace as the week prior – but the schedule for the week is incomplete and the new schedule out on 25 Jun. For the first four days of this week, the NY Fed will purchase approx. $11bn in Treasury Securities (last week $25bn, prior week $20bn) and approx. $18.1bn in MBS (last week $22.8bn and prior wk. $22.5bn).
There will be one term repo operation this week and overnight operations have been reduced to one per day.
US Treasury issuance will remain heavier, but much lower net new money will be raised this week. The US Treasury will settle approx. $421bn in ST Bills and FRN this week. The US Treasury will raise approx. $92bn 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 $2.409 trillion USD. This is 80% of the requirement for the quarter and we are now 92% of the way through the quarter (in weeks).
In order to meet its $2.999 trillion target for the quarter, the US Treasury will need to raise approx. $590bn in new money next weeks – the last week of the quarter.
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
