by Kim | Apr 6, 2020
The weekly macro review for w/c 30 March 2020 – Data this week showed that services, especially consumer facing service industries, have so far been most heavily impacted by the pandemic. That said, across the US, Asia and Europe private sector activity across both services and manufacturing sectors contracted in Mar.
US data across PMI’s and employment highlighted severe falls in services employment, output and new work in Mar. It was an even more shocking reading for initial jobless claims in the latest week with 6.6m new claims recorded. The majority of the -700k decline in Mar non-farm payrolls were recorded for leisure and hospitality workers – even worse, is that the reference week for Mar non-farm payrolls was prior to the severe deterioration in initial claims over the last two weeks. The ISM non-manufacturing PMI indicted that growth in activity had only slowed overall – but this headline result was buoyed by a lengthening in supplier delivery lead-times. The changes in output indicate that contraction was underway.
US manufacturing activity has also been impacted further. The manufacturing PMI’s and regional surveys indicate quite acute falls in output and especially new work. But some differences by industry were noted. Manufacturing conditions were generally better across healthcare and food & beverage sectors – although there were disruptions to these supply chains impacting output. Petroleum and more capital-based manufacturing were generally weaker (transport, machinery etc). In some cases, backlogs of work were helping to maintain workforces. The pace of growth in new work will be crucial going forward, especially for manufacturing employment. The ISM manufacturing report highlighted that most firms, 70%, reported unchanged manufacturing employment – up slightly from the month prior. This was similar to the Dallas Fed manufacturing survey in Mar. There is an obvious freeze on manufacturing employment though, and other reports highlighted that hours worked and overtime hours had both declined.
Input price falls were recorded in the ISM/Markit surveys. The degree to which this is led by a fall in oil prices is unclear. Elsewhere, the lengthening of supplier lead times suggests some ‘scarcity’ of other inputs. Over time, this could impact input and/or consumer prices.
The overall contraction in Eurozone services activity was severe in Mar, with the pace of decline in services business activity the worst on record. Manufacturing activity also contracted further.
In Japan, both manufacturing and, especially services, activity declined sharply in Mar. Aggregate demand had already contracted notably in Q4 2019, so this is a further blow for the Japanese economy. More consistent services growth had previously helped to offset some the persistent weaker growth seen in manufacturing over the last year.
Many noted the expansion in the official Chinese manufacturing and non-manufacturing PMI’s for Mar. The sharp increase from a record low reading indicates that there was at least some growth in Mar versus Feb. Even the Chinese National Bureau of Statistics highlights that the result “did not mean that China’s economic operation had returned to normal”. Growth in demand and output was mostly led by the domestic market. New export orders (both manufacturing and non-manufacturing industries) continued to decline in Mar after larger declines in Feb. Most external trade partners began to implement strict quarantine policies in Mar, impacting demand. Manufacturing employment growth was unchanged in Mar after a much larger decline in Feb. Chinese non-manufacturing employment continued to decline.
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 April 2020 – Two short weeks coming up with Easter celebrations from 10-13 Apr.
It will be a relatively light week from a data perspective this week. For the US, the important points will be initial and continuing jobless claims, FOMC minutes and Michigan consumer sentiment prelim reading for Apr. US PPI and CPI data will also be released this week for Mar.
In Aus, the RBA will meet on 7 Apr for its rates decision. As of 3 Apr, the ASX rate cut indicator remained at almost a 50-50 chance of a further cut to 0%. The RBA Board has previously said that 0.25% for the overnight cash rate was the lower bound. https://www.asx.com.au/prices/targetratetracker.htm
An emergency OPEC meeting was originally set for 6 Apr which has now been postponed until 9 Apr.
US Treasury issuance will continue to be heavy. Last week, several Cash Management Bills (CMB’s) were added to supply bringing the total of US Treasuries settling last week to $618bn, raising approx. $362bn in new money – just in one week.
So far this week, the US Treasury will settle approx. $379bn in short term bills, including three CMB’s, raising approx. $179bn in new money. It is possible that additional CMB’s will be added this week.
This week, the NY Fed will purchase approx. $205bn in Treasury Securities and approx. $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
by Kim | Mar 30, 2020
UPDATE TO THE WEEKLY MACRO BRIEF 31 Mar 2020 – After posting the briefing document, the US Treasury added two Cash Management Bills (CMB) for the week – a 42-Day and 69-Day CMB. Together, this increased the total of Bills and Coupons settling this week by $105bn. Totals have been updated in the briefing document.
The weekly macro review for w/c 23 March 2020 – The more timely indicators of activity for Mar indicate a severe drop in economic activity.
To further support the supply of dollar liquidity, the US FOMC
announced on Mon morning that QE would effectively be open ended. Last week in
our briefing we noted that the Fed had already likely purchased $275bn in the
first week of a proposed $500bn QE target for “a couple of months”. From the
FOMC this week;
“The Federal Reserve will continue to purchase Treasury securities and agency mortgage-backed securities in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions.” https://www.federalreserve.gov/newsevents/pressreleases/monetary20200323a.htm
The Mar prelim PMI’s for the US, Europe and Asia confirmed
that output and employment growth contracted sharply. Services business
activity was hit very hard. The manufacturing PMI’s declined, but not to the
same extent – in most cases lengthening supplier lead times (usually a positive
indicator of rising activity, but not in this case) offset historic falls in
output and new orders.
The two regional US manufacturing surveys for Mar were mixed.
The Richmond Fed index was little changed but the fall in new orders indicates
weakness in future output is possible. The Kansas City Fed survey for Mar
indicated a much more severe decline in activity was underway. There was an
important anecdote in that survey;
“$30 per barrel oil is a much bigger problem that people are not focusing on because of C-19.”
The increase in US initial jobless claims for the week prior
was shocking at 3.28m new claims – even though we knew to expect an extremely
high number.
Consumer sentiment is deteriorating quickly. Prelim Mar
results were revised sharply lower in the final report for this week. The
indexes haven’t recorded historic falls yet – but the 7-day moving average,
should it stabilize at these levels, indicates that Apr may set-up for a
historic fall of over 30pts in a 2-month consecutive period. While financial
support can help to mitigate an adverse financial situation for many, it’s not
likely to tip the scales from pessimism to optimism and this sets the
expectation for large shifts in spending and saving.
US mortgage applications also declined again this week. Refi
activity also declined in the week, but remains up over +195% versus the same
week a year ago.
“The 30-year fixed mortgage rate reached its highest level since mid-January last week, even as Treasury yields remained at relatively low levels…”
“…this week’s additional actions taken by the Federal Reserve to restore liquidity and stabilize the mortgage-backed securities market could put downward pressure on mortgage rates, allowing more homeowners the opportunity to refinance.”
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 30 March 2020 – UPDATED 31 Mar 2020 – After posting this brief, the US Treasury added two Cash Management Bills (CMB) for the week – a 42-Day and 69-Day CMB. Together, this increased the total of Bills and Coupons settling this week by $105bn. Totals have been updated in the first paragraph below and in the Treasury Issuance section of the brief.
[Edited] Treasury issuance to increase. There will be a significant increase in the supply of US Treasuries settling this week. The US Treasury will settle approx. $493bn in ST Bills, TIPS, Notes and three (3) CMB’s this week, raising approx. $237bn in new money for the week. There was an increase in auction amounts across all Bills plus the addition of three (3) CMB’s.
Looking forward, the initial Q2 Treasury financing schedule
released back at the start of Feb had a recommended net $56bn paydown (Bills -$278bn
and Coupons +$222bn). The next update is not until mid Apr, but several
estimates indicate that revisions to the Treasury financing needs, across Q2
and Q3 could reach over a trillion USD in net new money raised.
QE is now open
ended. This week, the NY Fed will purchase approx. $345bn in Treasury Securities
and approx. $200bn in MBS.
It’s a reasonably
heavy data week – still mostly focused on Feb data. Some of the more important Mar
data will be released this week.
In the US, the
most important released will be non-farm payrolls for Mar and initial jobless
claims for last week ending 27 Mar. Also of note will be the ISM PMI’s and the final
Markit PMI’s for Mar. Several important regional manufacturing/business
conditions reports will be released this week – NY, Chicago and Dallas.
The prelim
Eurozone CPI for Mar will be released this week.
We will get a more global view of the state of the economic impact via the release of the final PMI’s for Mar this 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 | Mar 23, 2020
The weekly macro review for w/c 16 March 2020 – More countries, as well as individual US states, have tightened quarantine measures in an effort to slow the spread of the Coronavirus. This is having significant impacts on economic activity – not to mention enormous social impacts. Governments and central banks are ramping up stimulus, safety net support and liquidity measures.
Major central banks made out-of-cycle announcements on
policy changes and further accommodations during the week. There was further co-ordinated
central bank action to address USD shortages during the week.
On Mar 20, the EC proposed activating the ‘general
escape clause of the Stability and Growth Pact’ – allowing member states to
respond with greater fiscal flexibility. In the US, a $1TR stimulus package was yet to be approved by the
Senate at the time of writing (will likely pass with changes).
The combined Jan-Feb data for China started to show a
severe impact – retail sales fell by over 23% (real terms), industrial
production fell by 13.5% and fixed asset investment fell by 24.5%.
The Mar data for US, Europe and Asia will start to
highlight the extent of the economic shock. Once the extent of this shock
becomes apparent, there is likely to be some further calibration especially
with required levels of fiscal stimulus.
US data this week – starting to show some impact in the
hard data. The first two Mar regional manufacturing surveys both showed a
significant fall in manufacturing activity. Initial jobless claims increased by
70k to 281k – and this is expected to get much worse next week (estimates are
for initial claims to be in the millions). There was some softness in mortgage
applications.
US housing – strength in West/South existing home sales
in Feb, but conditions starting to weaken into Mar. Retail sales (val) already
weakening in Feb – well before the oil price shock (from first week of Mar).
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 23 March 2020 – The human and economic cost of the spread of Coronavirus will remain the key focus. Quarantine requirements continue to be stepped up across countries and regions. There is some good news in the form of slowing growth in the number of new cases in some regions (due to quarantine), including Asia, that are further along in this outbreak.
The
fall-out for the financial markets continues. Central banks continue to
implement measures to ease liquidity issues.
The
focus now starts to shift to the understanding the extent of economic shock and
how fiscal stimulus will be applied. This week, we will start to gauge that
impact with the prelim PMI’s for Mar across the US, Europe and Asia. Two other
important data points will be US Initial Jobless Claims from last week (20 Mar)
and the final version of the University of Michigan Consumer Sentiment for Mar.
Estimates for Initial Jobless Claims from last week have hit extreme levels
(millions) – and there was talk that this number may not be released.
The supply of US Treasuries settling this week will remain heavy. The US Treasury will settle approx. $236bn in ST Bills, a FRN and a new 79-day CMB this week, raising approx. $43.1bn in new money. The US Treasury will also auction approx. $125bn in Notes this week, to settle next week (raising approx. $42.5bn). Liquidity will be supported with further significant increases in repo operations each week, as well as purchases of Treasury securities by the Fed. There is still no forward schedule released for the planned purchases of securities – details to be released daily on the NY Fed website. On Mon 23 Mar, the Desk at the NY Fed will purchase approx. $75bn in Treasuries. While the results of purchase operations for last week have also not yet been released, the ‘planned’ purchases for last week totalled $275bn. Last week the Fed announced purchases of $500bn “over the coming months” – last week’s purchases represents over half of those planned purchases just in the first week. Further announcements from the Fed are likely as it looks for new ways to ease financial conditions.
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 | Mar 16, 2020
Disruptions to financial markets continued last week. Central banks have responded with emergency rate cuts and further measures to ease financial conditions. The RBNZ cut rates by 75bps to +0.25% and the US Federal Reserve cut rates by 100bps to 0-0.25% ahead of its scheduled meeting this week.
The US Fed
announced a range of further significant policy easing measures on 15 Mar
(details included in this briefing document), including the coordinated Central
Bank action to “enhance the provision of liquidity via the standing US dollar
swap line arrangements”.
The Bank of
Japan announced a range of easing measures ahead of its scheduled meeting; details;
https://www.boj.or.jp/en/announcements/release_2020/k200316b.pdf,
https://www.boj.or.jp/en/announcements/release_2020/rel200316d.pdf,
https://www.boj.or.jp/en/announcements/index.htm/
Although the RBA cut its benchmark rate two weeks ago, further liquidity measures were announced today (16 Mar) – https://www.rba.gov.au/media-releases/2020/mr-20-07.html. This includes the purchase of AU bonds in the secondary market and standing repo operations. The statement indicates that further policy measures will be announced during the week on 19 Mar. This is likely to include a further reduction in the overnight cash rate to 0.25% and possible details of a QE program. The Aus government has also indicated that further fiscal stimulus is to be announced shortly.
Data out of
China early this week indicates significant declines across retail sales,
industrial production and fixed asset investment over the Jan-Feb period.
Data of note this week; US retail sales (Feb), regional
manufacturing data (Mar) and US industrial production – we will include a special
focus on US initial jobless claims and weekly mortgage applications data.
Labour market reports from Aus and the UK will also be in
focus this week.
The supply of US Treasuries settling this week will be heavier.
The US Treasury will settle approx. $246bn in ST Bills, Notes and Bonds this
week, raising approx. $57.3bn in new money.
This will be supported with significant increases in repo operations each week, as well as purchases of Treasury securities by the Fed. At this stage, there has been no forward schedule released for the planned purchases of securities. Purchase details this will be released daily on the NY Fed website. On Mon 16 Mar, the Desk at the NY Fed will purchase approx. $40bn in Treasuries. On 13 Mar, the Desk at the NY Fed purchased approx. $37bn in securities.
More detail, including a one-page calendar of key data releases for the week, 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 | Mar 8, 2020
Markets are likely to continue to digest the impact of Coronavirus as well as now the ramifications of the breakdown in OPEC relations with Russia. This will be a quiet data week with only a few releases of note.
Last
week, central banks responded to the threat to economic activity from the
outbreak of Coronavirus with further rate cuts. The RBA (-25bps) and BoC (-50bps)
cut rates, as well as an ‘insurance’ (emergency) rate cut (-50bps) by the US
Federal Reserve. The ECB is due to meet this week.
US Fed Presidents were out during the week and there was some indication that the Fed may look to expand its mandate on asset purchases. The US FOMC will meet next week on 18 Mar and the current target rate probabilities indicate a further cut to 25-50bps (as of 8 Mar; https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html?utm_source=cmegroup&utm_medium=friendly&utm_campaign=fedwatch&redirect=/fedwatch)
Data
of note this week in the US will be CPI and PPI for Jan. Likely the most
important piece of data will be the first read for Mar of the Uni of Michigan
consumer confidence data. Given the falls in the US stocks and the
ongoing/escalation in Coronavirus reporting, its possible that we start to see confidence
erode.
Data
out of Europe includes Eurozone and Germany industrial production for Jan and detailed
Q4 GDP.
The
NBS in China will release CPI and PPI data for Feb. New loans data is also due
to be released this week.
Aus
data of note will be the NAB business confidence and conditions for Feb as well
as housing loans for Jan.
The supply of US Treasuries settling this week will be lighter
and there will be a net paydown due to the 21-day CMB ($40bn) maturing on 12
Mar. The US Treasury will settle approx. $173bn in ST Bills this week, with a
net paydown of $32.6bn.
This will continue to be supported with overnight repo operations on each business day of up to $100bn as well as two 14-day term repo operations this week of up to $20bn each (10 and 12 Mar). Last week, repo operations were over-subscribed in some cases, indicating increased funding needs coming into quarter end.
More detail, including a one-page calendar of key data releases for the week, is provided in the briefing document – download the file here;
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
