by Kim | May 11, 2020
The weekly macro review for w/c 4 May 2020 – Even though it was expected, the extremely large decline in employment and increase in unemployment in the US jobs report was still alarming. The initial and continuing unemployment claims data indicate that this is likely to continue.
The detail on unemployment is important. While unemployment increased substantially, the vast majority (87%) of those people identified as having lost jobs this month, were classified as “on temporary layoff” and expecting to be recalled to their jobs once restrictions are lifted. The pace of permanent job losses has so far been much smaller and is tracking well below that of the GFC levels. The dynamic between temporary and permanent layoff is one of the more important datapoints to watch in order to see if/when these jobs come back and how future employment expectations are changing.
Consumers remained more cautious regarding expenditure on larger items such as vehicles. Retail sales of vehicles in Apr (on a SAAR basis) continued to fall to new lows. Consumer credit also declined in Mar, led by a decline in revolving credit (credit cards). This fits with the income and outlays report from the prior week – while income declined as a result of job losses, the value of expenditure declined by a greater degree. Stimulus checks around mid-Apr are likely to show up as higher expenditure but it will worth noting the impact on “saving” (as measured by the income/expenditure report), and/or outstanding consumer credit.
The weaker demand in areas such as vehicles impacted factory orders and shipments in Mar. The overall decline in US factory shipments and orders was in line with the weaker PMI data from Mar. The decline in shipments and orders was led by transport equipment, as well as petroleum shipments. The largest impact on new orders was the -$16bn print in total orders for non-defense aircraft for the month (not the change, the total value) – which indicates that orders may have been cancelled. There were modest declines in orders and shipments across other industries, the exception was food manufacturing shipments.
Germany industrial production for Mar declined severely – led by manufacturing. The index of manufacturing production fell back to 2010 levels. This is consistent with the weak Mar PMI report. Only construction activity continued to grow. The Apr manufacturing PMI has indicated that manufacturing output in Germany has declined even further.
This week, the view of Apr activity was completed with the release of the services PMIs. The countries/regions covered here all recorded faster declines in activity in Apr. In many cases, the business activity index reached all-time lows. The exception was China. The China Caixin services activity index still indicated that activity contracted in Apr, but at a similar pace as in Mar. Underlying conditions appear mixed with new work declining and employment declining at an accelerated pace but some small improvements were recorded in the outlook.
There appears to be more news of various restrictions starting to be lifted as of early May. This could start to be reflected as improvements in activity levels next month (depending on the reference week for surveys).
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 11 May 2020 – The focus this week will be on US retail, industrial and sentiment data, including two May data releases and Q1 GDP for the UK, Europe, and Germany.
Important highlights for this week include –
US: the first data out for May will be the prelim University of Michigan consumer sentiment survey and the NY Empire State Manufacturing Survey. The NY Fed manufacturing survey reference week will likely be the first week of May, so there might be some small lift in activity. Last month, the general business conditions index in the survey fell 57pts to -78.2.
The advance retail sales for Apr will be released. Note that stimulus checks were sent starting mid-Apr.
Initial and continuing claims will remain a key focus. So far, over 33m new unemployment claims have been made over the last seven weeks. Weekly claims remain in the millions.
Finally, US industrial production for Apr will be released. The Apr PMI’s indicated severe declines in output were experienced.
Prelim Q1 GDP will be released for the UK and Germany. The more detailed Q1 Eurozone GDP will be released.
Aussie employment data for Apr will be released along with the Q1 wage price index and consumer and business sentiment for May.
More data out for China this week including retail sales, industrial production, CPI, and PPI for Apr. This will be an important marker to see how the Chinese economy is performing so far.
The US Fed will continue to reduce purchases of Treasury and Mortgage securities. This week, the NY Fed will purchase approx. $35bn in Treasury Securities (last week $40bn, prior week $50bn) and approx. $25bn in MBS (last week $30bn and prior wk $40bn).
There will be one term repo operation this week. The new repo schedule will be release mid-week.
US Treasury issuance remains heavy amid increased fiscal spending. This week w/c 11 May, the US Treasury will settle approx. $528bn in ST Bills, Notes and Bonds raising approx. $157bn in new money for the week, still somewhat lower than in recent weeks. It is possible that additional Cash Management Bill’s will be added this week. Last week the US Treasury released its funding requirements for Q2 which totalled $2.999trillion in new money. So far this quarter, new money raised is $1.447 trillion.
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 4, 2020
The weekly macro review for w/c 27 April 2020 – Demand remains firmly in contraction. Pressure is mounting on governments and states to lift distancing restrictions in order to address/reverse the severe economic impact of those restrictions. While infection curves are flattening, in places such as the US, levels of infection remain stubbornly high. This is likely to remain an ongoing issue.
US GDP contracted by 1.2% in Q1. The decline in services expenditure made the largest contribution to the decline, but most other areas also contributed to the decline. Durable goods expenditure decline, non-residential investment declined for the fourth quarter in a row and imports and exports declined at an accelerated pace. “Net exports” recorded a positive contribution to GDP growth because the decline in net exports was smaller than the prior quarter. Residential fixed investment expenditure was one of the few areas that continued to grow.
More recent data indicates that the most severe declines in activity have occurred so far in Apr.
In the US, manufacturing activity contracted at a record pace in Apr as evidenced by the ISM and regional manufacturing surveys. The ISM highlighted that industry breadth also deteriorated. Of the eighteen (18) manufacturing industries covered by the survey, only two reported growth in Apr. Surveys out of the Dallas Fed and Richmond Fed also highlight extreme pessimism in the outlook.
The number of initial unemployment claims in the US continued to increase. The total number of people making a new claim over the last six weeks is now over 30m people.
As expected personal incomes declined sharply in Mar in the US – led by a fall in wages and salaries. This was barely offset by an increase in transfer payments in Mar, but we expect this to change in Apr. There was a much larger decline in expenditures (compared to the decline in income) though – mostly across services (health care expenditure), as well as durable goods. As a result, there was an increase in the surplus between disposable income and expenditure. The saving rate increased to 13.1%.
Other regions also continue to experience falls in demand. Eurozone GDP declined by 3.8% in Q1. This means its likely that some of the larger member states entered into a recession this quarter. China manufacturing slipped back into slight contraction – despite the easing of local restrictions, weak global demand continued to drag on activity.
There were several central bank meetings during the week. Both the BoJ and ECB added programs to further ease financial conditions. The US Fed made no changes to policy. The FOMC statement noted declines in activity, increased job losses and “muted inflation pressure”.
For the moment, inflation is being held down by weaker oil prices. There was some pull back across headline inflation growth reported this week as energy prices declined sharply.
There is some indication of underlying food price inflation. In the US, a recent Nielsen grocery report cited larger increases in prices across grocery categories and there was news of limits placed on some meat purchases due to supply issues (Kroger Supermarkets). In the US, annual growth in food prices for in-home consumption accelerated in Mar to +1.1%.
In Aus, Q1 growth in food prices was +1.9% (while overall all-items CPI increased by +0.4% in the quarter) due to some impact from drought and bushfires. Overall annual growth in consumer prices in Aus came in stronger than expected for Q1 – despite weaker energy prices.
In the Eurozone, unprocessed food prices increased by +3.5% just in Apr.
While food prices don’t officially make up a large weight in CPI indexes, it is a fairly sensitive area of expenditure when it comes to meeting basic needs.
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 4 May 2020 – The focus this week will be on US non-farm payrolls. With over 30m new unemployment claims over the last six weeks, the Apr report is likely to be an extremely negative result.
The release of the final PMI’s for Apr will continue across the US, Asia, and Europe this week – both manufacturing and services.
The RBA and BoE meet this week on monetary policy.
Other important events this week include –
US; ISM Non-Manufacturing PMI for Apr, Initial Jobless Claims for last week and of course, Non-Farm Payrolls for Apr.
Australia; Retail Sales for Mar. The prelim reading was strong at +8% growth for the month.
The UK and US commence trade talks this week. These initial talks will run for two weeks and in parallel with the EU Brexit trade negotiations.
The US Fed will continue to reduce purchases of Treasury and Mortgage securities. This week, the NY Fed will purchase approx. $40bn in Treasury Securities (last week $50bn, prior week $75bn) and approx. $30bn in MBS (last week $40bn and prior wk $50bn).
There will be two term repo operations this week. The twice daily O/N operations remain unchanged.
At the same time, US Treasury issuance remains heavy amid increased fiscal spending. This week w/c 4 May, the US Treasury will settle approx. $426bn in ST Bills, raising approx. $163bn in new money for the week, still somewhat below recent weeks. It is possible that additional Cash Management Bill’s will be added this week. The final total of US Treasury issuance settling last week w/c 27 Apr was $589bn raising approx. $270bn 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
by Kim | Apr 27, 2020
The weekly macro review for w/c 20th April 2020 – The Mar data has continued to show the first downside impacts to economic activity from the Covid-19 shutdowns.
The frontline of the US durable goods manufacturing impact in Mar was motor vehicles and non-defense aircraft. Both recorded severe declines in orders and shipments. Most of the decline in new orders for Mar can be traced back to a -$16bn print in new orders for non-defense aircraft – likely order cancellations. Excluding transport, the declines were more muted. The total value of unfilled orders across durable goods industries remained elevated in Mar.
But the start to Q2 looks to be even worse. The Apr PMI data is indicating an acceleration in output declines compared to Mar. The prelim PMI’s across most of the major regions recorded new series lows in the pace of output contraction. This has also been reflected in US regional manufacturing surveys for Apr.
In many cases, the decline reflects the first full month of restricted trade for many businesses. We are now almost at the start of May and many regions/countries/states are wary, and even unable, to lift quarantine restrictions at this stage – possibly setting up for an even worse Q2 unless something changes.
Extremely high levels of unemployment – now over 26m people in the US have filed an initial unemployment claim in the last five weeks – is placing greater pressure on governments around the world to begin to ease restrictions.
Sentiment remains fragile. There is an expectation across businesses and households that economic conditions are likely to improve once restrictions are lifted. But a resurgence in virus infections, and the re-imposition of restrictions, could see a further negative shift in sentiment.
“The risks associated with these decisions are not equally balanced, with an incorrect decision to reopen having serious repercussions.”
Stimulus will likely start to have an impact on households and income from mid-late Apr. Retail sales globally exhibit a similar pattern – extremely strong sales for grocery items (stockpiling included), some household goods and home office supplies. Weaker sales have been recorded across more discretionary categories such as clothing as well as those areas under greater social distancing restrictions, such as food service. Spending patterns will likely shift for a while a) while restrictions remain in place and 2) while incomes remain constrained.
The USTR announced this week that the new USMCA agreement would enter into force from 1 Jul 2020. From that statement (emphasis added);
“The crisis and recovery from the Covid-19 pandemic demonstrates that now, more than ever, the United States should strive to increase manufacturing capacity and investment in North America.”
Likely to see greater focus on reconfiguring US manufacturing supply chains – driving more ‘local’ rather than ‘global’ solutions.
The other point to note this week was the more negative tone of Brexit trade talks. Whether or not this is posturing, the deadline for the extension of the trade deal negotiation is coming up at the end of Jun. The UK has been consistent in saying that it would not request an extension.
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 April 2020 – The focus this week will be on central bank meetings of the BoJ, the US Fed and the ECB as well as the prelim Q1 GDP releases for the US and the Eurozone.
The release of the final PMI’s for Apr will commence at the end of the week. The Chinese National Bureau of Statistics will also release the NBS Manufacturing and Non-Manufacturing PMI’s for Apr.
Other important data releases this week will be;
US; ISM Manufacturing PMI for Apr, Initial Jobless Claims for last week and several more regional manufacturing surveys for Apr.
Australia’s Q1 CPI.
The US Fed will continue to reduce purchases of Treasury and Mortgage securities. This week, the NY Fed will purchase approx. $50bn in Treasury Securities (last week $75bn, prior week $150bn) and approx. $40bn in MBS (last week $50bn and prior wk $75bn).
The number of term repo operations has also been reduced to one (1) this week. The twice daily O/N operations remain unchanged.
At the same time, US Treasury issuance remains extremely heavy amid increased fiscal spending. This week w/c 27 Apr, the US Treasury will settle approx. $559bn in ST Bills, Notes and TIPS, raising approx. $240bn in new money for the week. It is possible that additional Cash Management Bill’s will be added this week. The final total of US Treasury issuance settling last week w/c 20 Apr was $443bn raising approx. $254bn 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
by Kim | Apr 20, 2020
The weekly macro review for w/c 13 April 2020 – The sudden drop in output, sentiment and employment has so far been unprecedented. We expect this data to remain very weak until quarantine measures start to lift. In the US, and across many countries, stimulus is currently making its way through to households and businesses. This will provide some limited relief as many ride out these extremely difficult times.
Lock downs remain in place across many countries. The exception (for which we have data) is China – which is now lifting quarantine measures. Data this week reflects ongoing consumer weakness, as the sharp decline in retail sales continued in Mar. Industrial production declined at a slower pace, somewhat offset by a rebound in mining. Manufacturing remained weaker across more capital/durable goods sectors while non-durables such as food production continued to grow. Exports rebounded in Mar after a much weaker Feb. The Chinese economy shrank at a record pace in Q1. A sign of things to come for many countries.
In the US, new unemployment claims remained at extreme (high) levels this week. In the last four weeks, over 22m people have filed for unemployment benefits. Housing market conditions fell sharply. The weekly MBA survey highlighted that the purchase index remains weak (down 35% from the start of Mar) – a 4-6wk leading indicator of housing sales.
A look at two regional manufacturing surveys for the first full month of Apr highlighted record-breaking declines across indicators of current activity. The two surveys only differed in the view of conditions in six months’ time. From the NY Empire State survey, one of the hardest hit states by the virus, firms only expected a slight improvement in conditions in six months’ time. From the Philly Fed survey – firms were far more optimistic about conditions in six months’ time.
Retail sales contracted sharply in Mar – with motor vehicle sales and food service the largest drags on growth. Unsurprisingly, grocery sales were very strong. Delivery of stimulus checks in the US commenced on 13 Apr – either electronic or by mail.
The Aus labour market report reflects the conditions the week prior to the implementation of containment policies in mid Mar – little change overall. By late Mar, business confidence for Australia had fallen hard, recording the largest decline in the survey history. Similarly, business conditions deteriorated notably in the month across trading, profitability and employment. The Westpac consumer sentiment survey for Apr shows how far sentiment has fallen since the lock-down came into effect – recording the single largest monthly decline in the survey history. While many of the fiscal support packages have been announced, issues remain with implementation (difficulty in registering for programs etc) and payments are yet to commence.
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 20th April 2020 – Several important points to note this week.
Firstly, the US Fed announced further reductions in purchases of Treasury and Mortgage securities for the week. This week, the NY Fed will purchase approx. $75bn in Treasury Securities (last week $150bn, prior week $205bn) and approx. $50bn in MBS (last week $75bn and prior wk $100bn).
The number of term repo operations has also been halved from four operations a week last month to two operations a week this month. The twice daily O/N operations remain unchanged.
At the same time, US Treasury issuance remains very heavy amid increased fiscal spending. This week w/c 20 Apr, the US Treasury will settle approx. $413bn in ST Bills, including three (3) Cash Management Bills (CMB’s), raising approx. $224bn in new money for the week. It is possible that additional CMB’s will be added this week.
The final total of US Treasury issuance settling last week w/c 13 Apr was $542bn in ST bills, Notes and Bonds raising approx. $292bn in new money for the week.
Finally, on the data front, the key highlights this week will be the prelim PMI’s for Apr across the US, Europe and Asia.
Other releases of note for the US will be initial jobless claims for last week, the final read of consumer sentiment for Apr, durable goods orders for Mar and existing home sales for Mar.
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 | Apr 13, 2020
The weekly macro review for w/c 6 April 2020 – The sheer weight of the emerging US and global unemployment picture indicates that the demand shock from C-19 shutdowns will likely be significant.
Late in the week, the US Fed announced a further $2.3t in funding for several facilities designed to enable, essentially bridging finance, to a range of organisations in the US economy. This is the Fed stepping in as the backstop – both directly and indirectly, keeping rates low and ensuring the flow of credit within the financial system. Love it or hate it, these actions are helping to keep the US financial system on life support. It’s likely we’ll see continued upgrades and expansion of this support with the Fed essentially plugging gaps in liquidity if and when required.
While the financial system remains on life support, the economic situation is worsening. Whether these firms survive post C-19 is another story. The central question is – how quickly will demand return? When, if ever, will spending patterns “return to normal”?
In the last 3 weeks, over 16m US workers made an initial unemployment claim. This includes another alarming 6.6m initial claims this week. Mortgages applications declined again – as unemployment increased and uncertainty remains high. Home-owners/borrowers are taking advantage of the forbearance provision of the CARES Act with a significant number of borrowers applying for the program. Data for Mar highlighted that motor vehicle sales fell by a third versus the month prior. Within that, auto retail sales fell to the lowest monthly pace on record (going back to 1976).
Consumer sentiment data for early Apr continued to deteriorate – recording the largest fall in the series history. The Apr fall in sentiment around current economic conditions indicates just how hard consumers have been hit so far. We cannot discount the possibility that lasting damage has been done to spending patterns and that a swift ‘V’ shaped recovery is not likely.
Consumer sentiment data highlights that expectations about future conditions was not quite as negative. This was based on the expectation that quarantine measures would only be temporary. It’s becoming obvious that shut-downs, in various forms, will likely continue.
What is also becoming apparent is the complexity and magnitude of the task to ‘restart’ a highly integrated, just-in-time, global supply chain.
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 April 2020 – This week we begin to get more data for Mar to start rounding out the view of the initial economic impact of the C-19 shutdown.
From the US this week, initial and continuing claims will remain a key focus, as well as new mortgage applications. Of note will be retail sales and industrial production for Mar. We will also get a first view of NY and Philadelphia manufacturing conditions for Apr.
Chinese GDP for Q1 will be released. Also, Mar data for China’s international trade, retail sales, industrial production and fixed asset investment.
In Australia, the focus will be on the labour market report for Mar and consumer and business confidence reports also for Mar.
This week w/c 13 Apr will see continued heavy US Treasury issuance especially for ST bills. The US Treasury will settle approx. $512bn in ST Bills, Notes and Bonds, including four (4) Cash Management Bills (CMB’s) this week, raising approx. $262bn in new money for the week. It is possible that additional CMB’s will be added this week.
The final total of US Treasury issuance settling last week w/c 06 Apr was $509bn in ST bills, raising approx. $308bn in new money for the week.
This week, the NY Fed will purchase approx. $150bn (last week $205bn) in Treasury Securities and approx. $75bn (last week $100bn) in MBS.
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
