by Kim | Jun 15, 2020
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
by Kim | Jun 8, 2020
The weekly macro review for w/c 1 June 2020 – The first view of May activity, via the PMI’s, showed manufacturing and service sectors beginning the recovery from widespread shut-downs and stay at home orders. The decline in activity eased across the US, Europe, UK, Japan, and Australia, but activity continued to contract. Activity will likely continue to improve from these low levels, but how much and how quickly remains highly uncertain.
There was a welcome lift in US non-farms payrolls (compared to the prior month) after two months of significant declines. The increase in May was linked mostly to leisure and hospitality, construction, education and health services, and retail trade.
Considering the reference week 10-16 May, the lift in payrolls appears consistent with the (large) reduction in continuing claims for that same week. There has been some commentary that payrolls lifted in that week because firms needed to keep people on the payrolls in order to qualify and receive government PPP loans – whether people are working or not. But the growth in payrolls is consistent with the economy starting to lift restrictions. The average weekly hours worked also increased in the reference week.
So while there was a lift in non-farm payrolls for May, the level of unemployment remains historically high at 13.3%. And the pace of growth in weekly initial claims remained extreme at just under 2 million people in the week, while continuing claims increased to 21m people. Both are indicative of continued weakness in demand.
Of note this month was the historically large decline in the value of outstanding US consumer credit. In May, this declined by over $68bn in the month – led by a $58bn decline in revolving credit. This suggests that US consumers opted to pay down debt rather than increase consumption.
The US ISM PMI’s reflected some easing in the pace of decline in manufacturing and non-manufacturing activity. But overall activity remained firmly in contraction in May with both sectors reporting only a limited rebound in demand so far. Across manufacturing, just over 50% of firms reported continued lower orders and production in May versus Apr. There was only a slight improvement in the number of firms reporting higher employment and this was well outnumbered by the proportion of firms still reducing employment. The non-manufacturing PMI reflected a similar situation – only one industry reported an increase in new orders in May and no industries (overall) reported an increase in employment.
The Markit PMI’s for the US, Europe, and the UK, indicated a slower pace of decline across manufacturing and services in May, compared to the extremely low levels recorded in Apr. But overall, private sector activity still continued to decline, and in some cases, at an historically fast pace.
In Japan, the manufacturing PMI for May indicated that conditions worsened and the pace of decline accelerated. Services business activity improved somewhat but the headline index remained extremely low in the 20’s.
In Aus, GDP declined in Q1 for the first time since 2011 – led by weaker household consumption. The PMI’s for May indicated limited rebound so far with manufacturing activity declining in May at the same pace as in Apr. Services business activity declined at a slower pace, but the headline index remained extremely low, also in the 20’s. Further restrictions have been lifted as of the start of Jun which includes some intra-state travel – likely helping to lift activity levels in the coming months.
Finally, the manufacturing and non-manufacturing PMI’s in China reflected further month on month growth. The detail highlights some continued weakness especially in global demand with the export index contracting at a faster pace.
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 8 June 2020 – A quieter week on the data front. The highlight this week will be the US FOMC meeting. The FOMC announcement and press conference will be held on Wed.
US data of note this week will be initial and continuing jobless claims, CPI and PPI for May and the first view of consumer confidence for Jun.
Data out of China this week includes trade, new loans, CPI and PPI for May.
Europe data highlights will include industrial production for Apr and the detailed view of Q1 GDP.
Finally, Aus housing lending data for Apr will be released along with the NAB business conditions and confidence report for May. We will also get the first view of consumer confidence for Jun.
Purchases of Treasury and Mortgage securities remain at a similar pace as the week prior. This week, the NY Fed will purchase approx. $20bn in Treasury Securities (last week $22.5bn, prior week $20bn) and approx. $22.5bn in MBS (last week $22.5bn and prior wk. $18bn).
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, but there will be a lower amount of new money raised this week as more of the CMB’s mature. The US Treasury will settle approx. $447bn in ST Bills this week. This includes four (4) Cash Management Bills (CMB’s). The US Treasury will raise approx. $104bn 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 currently stands at $2.153 trillion USD. This is 72% of the requirement for the quarter and we are 76% of the way through the quarter (in weeks). Over the last three weeks of the quarter, the US Treasury will need to raise approx. $846bn in new money in order to meet the $2.999 trillion target. 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
by Kim | Jun 1, 2020
The weekly macro review for w/c 25 May 2020 – Consumer sentiment in the US barely improved in May despite most states now starting to lift stay-at-home restrictions. Consumer assessment of current conditions improved, while expectations of future conditions actually continued to worsen.
The small improvement in current conditions was likely due, in part, to the receipt of stimulus payments and the start of unemployment insurance payments. The headline +10.5% growth in personal income in Apr hides the underlying performance issues – that over the last two months, US wages and salaries income has declined by over US$1 trillion. The income growth in Apr came from government transfer payments – mostly the CARES ACT payments. The CARES ACT payments are only a one-time payment. The reality is that for many people, that payment will need to cover the period of time until they can get back to work. The expectation of weaker future conditions is one driver of the larger fall in consumption expenditure (across both goods and services) and the subsequent significant increase in the savings rate this month.
As for recoveries, another 2 million+ people in the US filed an initial unemployment claim last week. The ten-week total of initial unemployment claims has now reached 40 million people.
The first US regional surveys for May show some improvement in manufacturing conditions. Most measures indicate that the pace of decline has eased from the shutdown in Apr. But the proportion of firms reporting further weaker conditions in May still outnumber those starting to see improvements. Outlooks remain pessimistic.
The advance durable goods report revealed severe declines in Apr for orders and shipments. This was the worst monthly decline in shipments by a large margin. The main drivers of the falls were transport – led by motor vehicles and non-defense aircraft. Orders for non-defense aircraft were again cancelled this month and the value of shipments in Apr fell to a mere $4.4bn which is now 70% below the peak reached in Nov 2018. Most other sectors also recorded declines in orders and shipments.
Outside of the US, Japanese industrial production data confirmed the scale of the decline in manufacturing activity in Apr as telegraphed by the weaker PMI’s. The declines in production and shipments have been led mostly by larger falls in transport equipment manufacturing.
Germany Q1 GDP decline of -2.2% was confirmed in the second estimate. This is the second consecutive quarter of GDP decline for Germany.
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 1 June 2020 – The focus this week will be on US non-farm payrolls for May, ECB and RBA meetings and global PMI’s for May.
Global PMI’s for May will be released this week. This should provide some insight as to how economies and regions are performing as restrictions start to lift – especially for services sectors.
Important US data this week will focus on non-farm payrolls for May, initial and continuing jobless claims and the ISM manufacturing and non-manufacturing PMI’s for May. The final release of factory orders data for Apr will also be released this week.
The RBA and ECB meet this week. It will be a quiet week for the US Fed ahead of the FOMC meeting next week.
In Aus, Q1 GDP will be released on Wed. The expectation is for a slight decline in GDP for Q1 as most of the economic impact was in the latter half of Mar. Inventory components will be released on Tue which could tip the scale. Retail sales for Apr will also be released – the prelim retail turnover released last week indicated a severe decline in sales in Apr.
Purchases of Treasury and Mortgage securities remain at a similar pace as the week prior. This week, the NY Fed will purchase approx. $22.5bn in Treasury Securities (last week $20bn, prior week $30bn) and approx. $22.5bn in MBS (last week $18bn 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 remains heavy amid increased fiscal spending. The US Treasury will settle approx. $600bn in ST Bills, Notes and the new 20-year Bond this week. This includes four (4) Cash Management Bills (CMB’s). The US Treasury will raise approx. $223bnbn 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 currently stands at $2.048 trillion USD. This is 68% of the requirement for the quarter and we are 69% of the way through the quarter (in 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 | May 25, 2020
The weekly macro review for w/c 18 May 2020 – The prelim PMI’s for May suggest that the pace of the falls in output may have started to abate across the US, Eurozone, and UK.
The ‘slower pace of decline’ in this case means that more firms are starting to record increases in output (from a low base) and less firms are recording declines in output. But for the moment, the firms reporting declines still outnumber the firms reporting increases. Those declines are also on top of the severe Apr contraction.
In the US, output across services declined at a slightly slower pace than in manufacturing. The weekly initial claims data is yet to show any recovery. The initial claims for wk ending 15 May remained extremely elevated with 2.4m new initial claims recorded. There was a similarly large increase in the number of continuing claims for the prior week. While existing home sales fell sharply in Apr, housing market conditions, and mortgage applications data suggests that the market likely stabilized in May.
This “improvement” in the PMI’s in the form of a slower pace of decline was far less pronounced in Japan and Australia.
The prelim Japanese PMI for May indicated that activity continued to decline at a similar severe pace as in Apr. The services output index remained in the 20’s, indicating that services activity continues to contract at an extremely sharp pace. Manufacturing output continued to decline at an accelerated pace. The decline in Q1 GDP indicates that in all likelihood, Japan is already in a recession. So far Q2 performance appears to be worse. Exports declined by over 20% in Apr (value). The PMI’s for Apr and May indicate an even more severe contraction in output. The National emergency was issued in Apr and it’s likely that this will end by early Jun. Stimulus payments were approved in Apr and its likely that a further round of support will be announced shortly.
The prelim PMI for Australia was also concerning with the composite output index remaining in the 20’s. Services output recorded a slightly slower pace of decline, from a low output index level of 19 in Apr. But manufacturing output continued to decline at an accelerated pace. High frequency payrolls data indicates that employment declined at a slightly faster pace in the first week of May. The prelim Apr retail turnover shifted sharply negative in the month with retail sales likely declining across most segments. Quarantine restrictions continue to be eased across the country in late May and are planned to ease further from early Jun.
A further blow to the Aus economy will the exports impacted by measures recently announced by China on barley tariffs, beef export restrictions, and slower thermal coal exports. This week the Aus government also announced that benefits of the JobKeeper program had been significantly overstated – more like 3.5m rather than 6m recipients or a $60bn spend rather than a $130m spend. Whilst that might reflect a “saving” to the budget, it also means less people receiving support during a significant economic downturn.
Since the GFC especially, spending by China had been an important driver of global growth. At the National People’s Congress over the weekend, and for the first time since 1994, the growth target was omitted. In a speech, Premier Li Keqiang explained why;
“because our country will face some factors that are difficult to predict,” pointing to the coronavirus and uncertainties around trade. But Mr. Li said the lack of a target “will enable all of us to concentrate on ensuring stability…and security.”
This comes at a time when China has been increasingly singled out for its role in the spread of Covid-19, as well as now for the renewed security crackdown on Hong Kong.
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 25 May 2020 – A short week this week due to the US Memorial Day holiday. Expect to hear some anecdotal information regarding activity over the US holiday weekend. Tensions regarding China are likely to continue.
Important highlights for this week –
US data will be in focus this week. The important highlights providing some early insight into May activity; initial and continuing jobless claims, several important regional manufacturing surveys for May, and the final University of Michigan consumer sentiment survey for May.
The US advance durable goods orders data for Apr will help to confirm the scale and scope of the contraction in orders as indicated by the PMI’s. The personal income and expenditure data for Apr will provide some insight into income impacts and shifts in expenditure and saving.
So far, a somewhat quieter week for US Federal Reserve speeches. US Fed Chairman Powell will speak on Fri.
In Japan, the first view of Apr industrial production will be released. Again, this will provide confirmation of the level of impact on production in Japan during one of the worst months as measured by the PMI’s.
Aus data of note this week will be Q1 capex in preparation for the GDP release. As well, the month end private sector credit data for Apr will be released – also providing some insight into the scale of contraction in spending and investment across business, housing, and personal expenditure.
The US Fed will continue to reduce purchases of Treasury and Mortgage securities (shorter week also). This week, the NY Fed will purchase approx. $20bn in Treasury Securities (last week $30bn, prior week $35bn) and approx. $18bn in MBS (last week $22.5bn and prior wk. $25bn).
There will be one term repo operation this week and overnight operations have been reduced to one per day.
US Treasury issuance remains heavy amid increased fiscal spending. The offer amounts, across the CMB’s especially, have started to increase as more of the earlier issuance matures. The US Treasury will settle approx. $509bn in ST Bills, TIPS and FRN’s this week. This includes, so far, five (5) Cash Management Bills (CMB’s). The US Treasury will raise approx. $228bnbn 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 currently stands at $1.825 trillion USD. This is 61% of the requirement for the quarter and we are 61% of the way through the quarter (in 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 | May 18, 2020
The weekly macro review for w/c 11 May 2020 – Data this week provided more robust confirmation of the scale of the decline in economic activity – especially in Apr. The Apr data reflects at least one full month of restrictions across most countries, except China where restrictions have been lifted since Mar.
“The scope and speed of this downturn are without modern precedent, significantly worse than any recession since World War II. We are seeing a severe decline in economic activity and in employment, and already the job gains of the past decade have been erased.” US Fed Chairman Powell
In the US, the 11% decline in industrial production in Apr was led by all areas of manufacturing. Manufacturing production levels fell to the lowest levels recorded during the GFC. Motor vehicle production all but stopped in Apr with production falling 70% in the month.
Regional manufacturing activity in NY for May recorded a slower pace of decline. There at least appears to be some slow down in the decline of employment. Firms also expected stronger growth in six months, albeit from this low base of activity.
US initial unemployment claims continued to be measured in the millions. Now eight weeks since the beginning of restrictions, over 36m people have filed an initial unemployment claim.
Retail sales were extremely weak for Apr with sales declining by $80bn versus the $43bn decline in Mar. Only one segment in retail recorded a month-on-month increase – non-store sales. Sales in segments such as clothing stores are now down by 90%.
Prelim consumer sentiment in the US for May was little changed overall, increasing by a few points. Sentiment around current conditions improved as income support started to make its way through to households. Consumers noted that health remained their largest concern. But that social isolation had overtaken concerns over personal finances (finances became less of an issue due to support received). Yet expectations about future economic conditions continued to deteriorate.
In Europe, Q1 data reflected accelerated declines in activity. Industrial production across the Eurozone fell sharply in Mar and PMI’s indicate that this is likely to be even worse in Apr. The Eurozone GDP contracted in Q1 by 3.3%. The German economy is likely already in recession as Q4 GDP growth was revised to negative and Q1 GDP declined by 2.2%.
In Aus, the Apr labour force report provided the first view of the impact of restrictions on the labour market. The sharp increase in unemployment was moderated by a large decline in participation as workers were limited in their ability to look for work. Significant labour market slack now exists. Despite that, consumer sentiment in May rebounded strongly (but still negative) due to fiscal support but also the “worst fears” for the virus have not been realised.
The focus will start to shift to recovery as many countries commence lifting domestic restrictions. In some cases, sovereign borders will remain closed for the meantime. In the US, the vast majority of states are now reopening (as of 18 May 2020), regardless of the status of new case counts. Domestic restrictions are being relaxed across Europe, Australia, and parts of Asia.
Recoveries will rely heavily on; the number of countries (especially larger trading partners with interconnected supply chains) relaxing restrictions, maintaining low case counts to enable further easing of restrictions and the extent to which fiscal support is available and maintained.
Data from late May (high frequency) and June will likely start to provide insight on the pace of recovery for most countries from a production and consumption perspective. It will be a process.
“Returning to normal lives as workers versus returning to normal lives as consumers” , M.Pettis https://twitter.com/michaelxpettis/status/1262055347365138432
Activity in China for Apr saw few signs of improvement. Firms noted that the global nature of weaker demand, as well as weaker domestic conditions, were still impacting the Chinese economy.
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 18 May 2020 – It will be a busy week of central bank minutes, US Fed speeches and the prelim PMI’s for May.
Important highlights for this week –
Central bank meetings minutes this week for the US FOMC, RBA, and ECB.
Speeches and testimony by US Fed Chairman Powell and Vice Chair Clarida.
The prelim PMI’s for May will be released for the US, Europe, Japan, and Australia. This will provide some insight into how manufacturing and services activity is rebounding as some markets start to ease restrictions.
Late in the week, the annual Chinese National Peoples Congress will commence. This will occur with the backdrop of rising trade and diplomatic tensions among China and some of its trade partners.
The US Fed will continue to reduce purchases of Treasury and Mortgage securities. This week, the NY Fed will purchase approx. $30bn in Treasury Securities (last week $35bn, prior week $40bn) and approx. $22bn in MBS (last week $25bn and prior wk. $30bn).
There will be one term repo operation this week and overnight operations have been reduced to one per day.
US Treasury issuance remains heavy amid increased fiscal spending. The offer amounts, across the CMB’s especially, have started to increase as more of the earlier issuance matures. The US Treasury will settle approx. $478bn in ST Bills this week. This includes, so far, four (4) Cash Management Bills (CMB’s). The US Treasury will raise approx. $149bn in new money for 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
