by Kim | Dec 2, 2019
The weekly macro review for w/c 25 November 2019 – US data this week continued to highlight generally weaker manufacturing activity across the three regional reports for Nov.
The advance Durable Goods report for Oct was mixed. Orders
rebounded across most categories, but was led mostly by defence aircraft
orders. Shipments remained weak with no growth in the month. Unfilled orders
increased due to defense aircraft orders. Inventory still increased this month,
albeit at a slower pace. The single largest contributor to inventory growth was
non-defense aircraft.
We continue to track weakness in several categories –
non-defense aircraft and motor vehicles. The annual increase in inventory for
non-defense aircraft continued to accelerate and is now at +18%, compared to
the 25% and 24% respective annual declines for orders and
shipments. Motor vehicles was also weak;
inventory is growing at an annual pace of 6% (consistently) while orders are
down -4% and shipments are down -3% (both slowing). While there may some GM
effect in this month’s data, the slowing growth trend was established before
that.
It’s important to note that last week’s US prelim
manufacturing PMI continued to build on the improvement seen in Oct, so it’s
possible that there will be an improvement in manufacturing activity in the following
months.
The second estimate for US GDP was revised higher to +2.1%
from +1.9%. This was mostly the result of a shift in the change in inventories
from a -0.4% decline to a +10% increase in Q3. This revision is not surprising
given the higher levels of inventories recorded across several categories and
seen across several different reports during Q3. As noted in the wholesale
sales and inventory report for Sep, the inventory to sales ratio remains
elevated – with inventory rising faster than sales.
The annual change in the headline PCE price index was
unchanged in the month, but growth slowed further for the core measure of PCE
price growth. Core PCE price growth slowed to 1.6% in Oct after approaching
+1.8% in Aug. This will continue to reinforce the ‘muted inflation pressure’
view of the Fed.
House prices in the US increased at a faster pace in Sep,
after a long period of decelerating growth.
Retail and industrial production data for Japan was
volatile, reflecting the first month of the consumption tax increase. Retail
sales declined in the month (and on an annual basis) reversing the gains in the
two prior months which were likely due to stockpiling before the tax increase.
The stockpiling effect will continue to unwind enabling us to evaluate the
impact of the consumption tax on demand.
Japanese industrial production and shipments also fell hard
with production down 4% in Oct. There was some typhoon related disruption in
Oct and likely an impact from stockpiling prior to the increase in the consumption
tax in Oct.
The value of Australian construction and private capex
continued to decline in real terms in Q3 and will likely detracting from GDP
growth in Q3. Growth in the value of outstanding private credit continued to
slow – led this month by a notable slowdown in the growth of outstanding
business credit.
The RBA Governor’s speech this week reflected on the policy
options available if/when the OCR reaches the effective lower bound – which has
been confirmed as 0.25%. Governor Lowe goes out of his way to downplay any risk
in the Australian economy and yet here we are, two 25bps cuts away from a
scenario where the RBA would consider a QE program in Australia;
“There may come a point where QE could help promote our collective welfare, but we are not at that point and I don’t expect us to get there.”
There are more data releases covered in last weeks review. Use the links on the contents page to navigate to different country sections. Download the review here;
The outlook for w/c 2 December 2019 – This will be a full week of data, some important central bank speeches and rates decisions.
The final manufacturing and services PMI’s for Nov will be
released this week across the major markets.
In the US, data will focus on non-farm payrolls, the ISM’s, factory
orders, wholesale inventories and the first read of consumer sentiment for Dec.
This week, US Fed Vice Chairman for Supervision and
Regulation, Randle Quarles, will provide testimony to the House Financial
Services Committee and the Senate Banking Committee (Wed and Thu). We will look
for any comments or indication of regulatory changes in the lead up to year end
given the issues with repo funding.
The USTR will also announce on 2 Dec the outcome of its S.301
investigation into the digital services tax approved by the French government.
This will include any proposed action.
The ECB President Lagarde will also provide testimony this
week at the ECON hearing of the European Parliament this week. Eurozone data
will focus on the second estimate of Q3 GDP and Germany factory orders and industrial
production.
The RBA meets on Tue regarding rates in Australia. The
current expectations are for rates to stay on hold until at least Feb or Mar.
The Q3 GDP result will be released on Wed and growth is expected to remain low.
Also out this week; building approvals and retail sales.
The Bank of Canada will also meet this week on rates.
US
Treasury supply will be heavier, but with the higher value of securities
maturing, there will be a relatively smaller amount of new money raised this
week. The US Treasury will settle $297bn in ST bills and notes this week raising
approx. $13.6bn 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 | Nov 25, 2019
The weekly macro review for w/c 18 November 2019 – The FOMC minutes confirmed a more “wait and see” mode, allowing some time for policy rate changes to flow through to the economy. Guidance was also changed to reflect more focus on incoming data. It was noted in the minutes that the rate cut in Oct was an insurance against ongoing, downsides risks. In particular, the FOMC is concerned that weakness across manufacturing, energy, agriculture and weaker external growth could spill over into the labour market.
Other
points of interest from the FOMC minutes;
Still seeing
pressure in the repo market for year end. There have already been several announcements
since the meeting – mostly to increase size of the Fed repo facility. Still
possible that further measures will be taken to cope with year-end pressure.
The minutes
also included a discussion of policy options in the case of rates reaching the
effective lower bound. Negative rates were discussed at length as a part of the
policy options;
“…participants did not rule out the possibility that circumstances could arise in which it might be appropriate to reassess the potential role of negative interest rates as a policy tool.” FOMC Minutes 29-30 Oct 2019
The PMI’s
at a composite level – overall better view of US activity in Nov with output growth
increasing. Eurozone output growth was stagnant in Nov. Output growth in Germany
was still declining. Japan output growth was stagnant in Nov. UK output declined
in Nov. Australian output shifted into decline in Nov.
US – While
the PMI’s were somewhat improved, optimism regarding output growth in the next
12-months across both services and manufacturing was lower. Manufacturing activity
improved in the Philly Fed report, but Kansas City Fed manufacturing activity remained
in contraction.
US existing
home sales are still improving but are yet to exceed the late-2017 cycle highs.
Growth in housing permits likely positive for future construction activity.
The prelim PMI’s
across the Eurozone remained weak. The manufacturing decline abated slightly,
but services activity slowed further.
In Germany,
the composite index of output indicated a weaker pace of decline in Nov.
Services output growth continued to slow while the decline in manufacturing
output also slowed. Despite
most measures remaining weaker, optimism lifted for the first time in four
months.
Japan PMI’s
rebounded slightly – remaining mostly stagnant at the composite level. Services
activity rebounded slightly, and optimism lifted. Manufacturing activity
declined at a slower pace, but measures of demand continued to decline. Sentiment
lifted.
The Japanese
trade data for Oct was weak and the underlying detail was negative. Declines
in exports and imports in value terms were matched by declines in volume terms
(where that detail is provided) and declines were recorded across key customers/markets.
A large portion of the decline in imports versus a year ago is related to
petroleum, but again, other key imports were down in value and volume terms.
Core CPI growth in Japan accelerated slightly in Oct as the
increase in the consumption tax was implemented.
UK PMIs continue
to be heavily influenced by the Brexit process. At the composite level private
sector output declined at the fastest pace since Jul 2016 – led by declines in services
and manufacturing output.
Australian
PMIs deteriorated with both services and manufacturing output shifting into
contraction. Underlying detail on demand was also negative. Bus sentiment declined.
RBA minutes highlighted that consideration had been given to a further cut in rates at the Nov meeting. Instead, the RBA had opted to ‘wait and assess’ based on having “already delivered sizeable monetary stimulus over the last several months”. The overall assessment of the economy was downbeat.
There are more data releases covered in last weeks review. Use the links on the contents page to navigate to different country sections. Download the review here;
The outlook for w/c 25 November 2019 – This will be a shorter week for US markets with the Thanksgiving Holiday on Thu 28 Nov. Happy holidays to those celebrating this week!
Despite the shorter
week, there will still be relatively moderate data flow in the US, Australia
and Japan.
It will be mostly quiet on the central bank front with speeches by US Fed Chairman Powell on Mon and RBA Governor Lowe on Tue.
Key US data highlights;
durable goods orders, PCE price index, 2nd prelim GDP for Q3, National
house prices and a range of regional manufacturing surveys.
Data in Australia
will focus on important construction activity and private sector capex for Q3 as
key inputs for the Q3 GDP release next week (4 Dec).
In Japan, retail
trade data will be released for Oct. Retail growth has accelerated in the
months leading up to the Oct consumption tax increase – and we’ll see the
degree to which the tax hike has impacted demand.
On the trade front, headline
risk remains high regarding the US-China trade negotiations, which are ongoing.
There was no
agreement reached last week within the US on the USMCA – frustrating efforts
for a vote before Thanksgiving.
It now appears that the US has missed the deadline to announce auto tariffs as a part of the S.232 National security investigation. It’s possible that this action may take another form and we’ll continue to monitor the US Federal register for announcements.
The phase one trade deal between the US and Japan passed the lower house of the Japanese parliament last week – now likely to be ratified by the end of the year.
US Treasury supply will be a little heavier, especially after the addition of a 16-day Cash Management Bill last week which will settle this week. This week, the US Treasury will settle approx. $219bn in ST bills, FRN’s and TIP’s raising approx. $43bn 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 | Nov 18, 2019
The weekly macro review for w/c 11 November 2019 – US manufacturing data remained weak in Sep. Total industrial production declined in Sep and manufacturing led the decline. Drilling down, auto manufacturing was a notable area of weakness. Production declined at an accelerated pace of -7.1% in Oct after falling -5.5% in Sep. The NY Fed Industrial Production report still cited the GM strike as the cause of the fall in Sep. Yet, there also appears to be a demand problem. Retail sales of autos only partly rebounded in Oct after the larger fall in Sep – the official BEA data last week had total motor vehicle sales declining in Oct. Last week in the wholesale inventories report for Sep, we saw the inventory to sales ratio for autos jump to 1.8 – there are only ten months during the GFC in 2008 when the inventory to sales ratio was higher.
Prelim Q3
GDP was a highlight – growth remains subdued across Germany, Europe and Japan.
There was a small acceleration in the UK Q3 GDP growth.
The German
economy narrowly averted a technical recession. While Q2 GDP growth was revised
lower to -0.2%, the prelim Q3 GDP growth was reported as +0.1%. The full detail
will be released next week 22 Nov.
The prelim
Q3 Eurozone GDP growth was little changed, growing at +0.2% in Q3 across the
Euro area.
GDP growth in Japan slowed from +0.4% in Q2 to +0.1% in Q3. The annual pace accelerated though. The lower Q3 growth was the result of lower private consumption growth, the change in inventories detracting from growth and net exports also detracting from growth. The complete industrial production report for Sep saw production and shipments revised higher – possibly stronger ahead of the consumption tax increase. Despite the strong growth in the report, both shipments and production of one of the largest weight industry groups, transport/passenger cars, continued to decline.
Auto production remains a problematic area for Japan. In the negotiation of the phase one trade deal, the US provided no assurance that tariffs were off the table. The Japanese parliament is currently debating the US-Japan phase one trade bill with some risk that approval is delayed.
In the UK,
the lagging GDP data recorded a rebound in Q3 due to a less negative
contribution from private investment. The labour market report for Jul-Sep
continued to show deterioration in the more recent 3-month change – with
employment continuing to decline. There was no corresponding increase in
unemployed persons because participation declined over the same period.
Weakness in consumption growth appears to have persisted into Q4 with the
decline in retail sales in Oct.
Aussie data will provide some concern for the RBA. The Q3 wage growth was unchanged in the quarter and slowed on an annual basis. The labour market in Oct remained weaker with low employment growth. Unemployment increased and would have been worse except that participation recorded the first monthly decline in fifteen months. The underutilization rate increased in Oct – this is likely a large reason why wages growth has remained lacklustre and this will not be good news for the RBA. Over the last year, the combination of slower employment growth and increased labour supply have been the key drivers of the higher underutilization rate.
Activity in China continued to expand, but growth/momentum remains at some of the lowest levels recorded. This lower pulse of activity is likely impacting global demand and trade – given the large influence that prior Chinese stimulus and expenditure on fixed asset investment/capital goods had on global growth in the post-GFC period. Chinese consumers are also likely seeing a squeeze on real purchasing power as annual CPI growth accelerated to +3.8% on the back of higher food (meat) prices. Retail sales slowed to the equal lowest pace of growth of the last 12-months. Autos were a large contributor to the weaker retail growth, declining by -3.3% versus Oct a year ago.
There are more data releases covered in last weeks review. Use the links on the contents page to navigate to different country sections. Download the review here;
The outlook for w/c 18 November 2019 – A much lighter week of data flow. The main highlights are;
Prelim composite
PMI’s for our first view of Nov activity across the US, Eurozone, Germany,
Japan and Australia.
Central
bank meeting minutes to be released this week – FOMC, ECB and the RBA. A
relatively quiet week for US Fed speeches.
There are two other notable releases this week;
Japan CPI
for Oct – the first month after the consumption tax increase.
Germany Q3
GDP detailed release – any slight deterioration in the headline growth could
see Germany “officially” in recession.
Headline risks remain
this week;
Details of progress,
or lack of, regarding phase one of the US-China trade deal.
Possible announcement of a vote by the US House of Representatives on the USMCA.
Possible release or
decision on auto tariffs related to the S.232 report into auto imports and
national security.
The Japanese parliament
is also debating the phase one US-Japan trade deal bill. The bill will either
pass the lower house on the 19 Nov or there is the possibility of a delay. Lawmakers
remain concerned about the threat of auto tariffs.
It will be
a much lighter week for US Treasury supply. The US Treasury will settle approx.
$182bn in short term bills this week, raising only approx. $6bn in new money.
Added liquidity will be reasonably strong, especially considering the lighter issuance. There will be approx. $22.6bn in reserve management purchases settling this week – operations this week represent 42% of the total reserve management purchases for the month. The Fed will also purchase approx. $5.3bn in Treasury coupons as a part of the restarted reinvestment of principal payments.
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 | Nov 11, 2019
The weekly macro review for w/c 4 November 2019; There were several important highlights in the US data this week – mostly reinforcing the weaker state of growth.
Factory
orders for Sep indicated the continued
weakening growth across several of the larger categories – motor vehicle bodies/parts,
non-defense aircraft and machinery. The annual decline in orders remains more
moderate than in 2014-16 but growth in 2019 has slowed from a much higher level
this time. Either way, the slower growth in orders may weigh on future shipment
growth.
The factory orders
and wholesale sales reports for Sep both highlighted the increasing value of inventory
especially across motor vehicles, machinery and metals in Sep.
Motor vehicle sales
in Oct fell relatively hard (seas adj basis) – for both autos and SUV’s. This
suggests that weakness in orders and shipments and increasing inventories is
likely to persist.
Consumer credit
growth halved in Sep – led mostly by non-revolving credit (helping to explain
to the weaker auto sales) but credit card credit also declined for the second
month.
Despite the weaker credit
growth and declines in new car sales, consumer sentiment data remains robust. The
Nov prelim sentiment readings pulled back only slightly from the larger
increase in Sep and Oct. Commentary remains positive, although there was a note
about consumers becoming more cautious spenders.
The other major highlight
in this weeks’ data was the JOLTS report. It was widely reported that job openings
continued to decline. But there was also a deterioration in the separations
data – namely a larger increase in Sep for layoffs and discharges. This has
been a one-month event so far, so it will be something to watch.
Reports into
services – ISM and Markit seemed to diverge at the headline level. But
underlying both reports, was further falls in unfilled orders continuing to
support business activity. The new orders index in the ISM indicated a negative
underlying shift in firms reporting increasing new orders, yet the new orders sub-index
increased anyway. The Markit services PMI indicated declining new orders and
employment.
Manufacturing PMI’s
out of Europe were little changed at the current levels of decline. Services
activity improved slightly but the underlying performance detail was less
positive.
Germany factory
orders in Sep improved – somewhat at odds with the Sep PMI that indicated a
further pulse lower in new orders. The factory orders data was weaker only in
intermediate goods and durable goods, which was offset by stronger growth in
orders across capital, consumer and non-durable goods. On an annual basis
though, orders for the domestic and Euro-area markets declined at a faster
pace.
Germany industrial
production was much weaker in Sep. Levels of manufacturing production in Sep
were at their lowest levels since the peak in this part of the cycle – so no
sign of a bottom in manufacturing this month. The growth in orders though
suggests that this may improve in the near future. Utilities and mining
production both recorded growth in the month but remain well below a year ago. Construction
was the only area to record growth in the month and on an annual basis.
In Australia, the
RBA kept rates on hold. While the Board expected the recent declines in the cash
rate to support growth, it acknowledged that it was ready to ease further if
required.
The RBA Board noted that a ‘gentle turning point’ may have been reached in the Australian economy. This was referring mostly to the new upswing in lending for housing and the subsequent anecdotal increase in house prices. Lending for housing has improved somewhat led almost entirely by owner occupiers. At the lowest point, lending for housing was 28% below the peak and that has now improved/grown in several months to be 17% below the peak in lending. Meanwhile Aus retail sales for Sep were disappointing. In real terms, retail sales declined on an annual basis for the first time since the recession of the early 90’s. Nominal retail sales growth remained at +2.5% for the year. In the UK, key sectors such as Services continue to stagnate amid the Brexit uncertainty. But with the general election coming up, firms and the BoE MPC noted that those uncertainties would likely begin to fade and growth would pick up into 2020.
There are more data releases covered in last weeks review. Use the links on the contents page to navigate to different country sections. Download the review here;
The outlook for w/c 11 November 2019; A full calendar of data and US Fed speeches this week.
Highlights in the
US; Fed Chairman Powell will testify before the Congressional Joint Economic
Committee and House Budget Committee on Wed and Thu respectively. The US Fed Vice
Chairman Clarida will also give a speech at the Swiss National Bank on Monetary
Policy, Bond Yields and Price Stability on Tue.
Key highlights on
the data front include CPI, Retail Sales and Industrial production for Oct.
The data dump out of
China will be important this week as we continue to look for signs of improved/changes
in demand. Highlights include trade balance, industrial production, retail
sales, CPI, PPI and new loans (since the lowering of the benchmark rate).
Prelim Q3 GDP data
will be released for Germany, the broader Eurozone, Japan and the UK – all important
barometers of current activity.
A heavy week of UK
data also includes CPI, retail sales and the labour market. The PMI’s have indicated
the economy stagnating as a result of Brexit uncertainty but expecting some
lift in the Oct data, especially retail sales, as consumers prepared (brought
forward purchases) for Brexit at the end of Oct.
The final Sep
industrial production report for Japan will be important. The prelim headline
numbers were stronger for the month, but there was notable weakness across some
categories including passenger cars.
In Australia, the
important labour market report for Oct and Q3 wage price index will be released
this week. This
will be closely watched by the RBA.
Headline
risks this week; details of phase one of the US-China trade deal, a possible
vote on the USMCA to be announced and the possible release or decision on auto
tariffs related to the S.232 report into auto imports and national security.
It will be a heavier week for US Treasury supply. The US Treasury will settle approx. $266bn in short term bills, notes and bonds this week, raising approx. $40bn in new money. There will be approx. $41bn in securities on the Fed balance maturing on 12, 14 and 15 Nov. There will be no reserve management purchases settling this week. The Fed will purchase approx. $3.4bn in Treasury coupons as a part of the restarted reinvestment of principal payments.
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 | Nov 4, 2019
The weekly macro review for w/c 28 October 2019 – The FOMC reduced the FFR target at the latest meeting. While there had been no notable deterioration in conditions since the last meeting, Chairman Powell spoke of this reduction as more of an insurance against ongoing risks to the US economy – especially from the slow-down in global growth and trade which is already impacting exports, production and investment spending. Barring any worsening in conditions, the Fed appears to be favouring a watch and wait approach, noting that the recent rate cuts will take time to impact activity.
US data
this week showed some further signs that growth in the US economy is slowing.
Weakness in
manufacturing is likely to persist into Oct given the further decline in the
ISM Manufacturing PMI, weaker growth in the Dallas Fed manufacturing report and
the renewed contraction in the Chicago PMI. The Markit Manufacturing PMI shows
a more positive view of current manufacturing conditions for the second month
running.
Wholesale sales/inventory
report for Aug showed elevated inventory levels, especially for durable goods
(mostly machinery). Faster inventory growth was something that also showed up
in the advance durable goods report for Sep last week.
The advance
estimate of GDP growth was little changed between Q3 and Q2 coming in at +0.5%
for the quarter. On an annual basis, real GDP growth has been slowing since Q3
2018. A similar trend is evident across the annual growth in real personal
consumption expenditure, fixed investment, imports and exports.
This persistent
slow-down in manufacturing, investment expenditure and exports especially, appear
to have had some impact on income and employment growth. While income and
employment growth are not accelerating, growth remains moderate. The annual
growth in personal income has lifted in the latest month but is still below the
recent mid 2018 peak in growth. Income growth is elevated relative to 2016/17
though.
Non-farm
payroll growth came in lower this month. Despite positive revisions for the two
months prior, the 12-month average growth continues to slow – now averaging +175k
over the last 12-months, just above the Sep 2017 low of +168k. The slower
growth in non-farm payrolls is evident in the household employment survey. Employment
growth has slowed to below the average for the last five years. But on an
annual basis, employment growth remains higher than that of the labour force,
so unemployment has continued to fall.
Headline
inflation slowed somewhat in Sep, led mostly by lower energy prices. But even annual
core PCE price growth slowed in Sep (had been accelerating for several months).
In Japan –
the acceleration in retail sales in Sep was likely the result of bringing
forward purchases before the consumption tax increase in Oct. This will likely
impact expenditure growth in coming months. Industrial production for Sep was
more positive, but there were notable pockets of weakness in production,
shipments and inventory especially for motor vehicles. The manufacturing PMI
for Oct slid further into contraction. The BoJ kept rates on hold but shifted
its guidance to ensure “closer attention is paid to the possibility that the
momentum toward achieving the price stability target will be lost”.
In Australia,
headline CPI growth slowed, and measures of core CPI growth were little changed
and remain lower. The annual growth of the trimmed mean CPI was unchanged. Headline
and core CPI measures are well outside of the 2-3% target range for the RBA.
The
official China NBS manufacturing and non-manufacturing PMI’s were weaker in Oct
– manufacturing activity declined at a faster pace and non-manufacturing
activity recorded the slowest growth in a year. In contrast, the Caixin/Markit Manufacturing
PMI showed activity expanding at a faster pace.
Finally, the UK will hold a general election on 12 Dec 2019. The Conservative party will aim to increase its current minority position in order to deliver Brexit by 31 Jan 2020.
There are more data releases covered in last weeks review. Use the links on the contents page to navigate to different country sections. Download the review here;
The outlook for w/c 4 November 2019 – Key highlights for this week are the (remaining) manufacturing and services PMI’s for Oct, rates decisions from the RBA and the BoE and several large macro data releases.
The remainder
of the PMI reports for Oct are released this week across Asia, Europe and the
US.
The RBA and
the BoE meet this week on interest rates. As of 4 Nov, there is 93% expectation
of no change in the Australian overnight cash rate at the meeting on Tuesday –https://www.asx.com.au/prices/targetratetracker.htm.
Key data
releases this week;
US – Factory orders for Sep, Markit services PMI, ISM non-manufacturing PMI and the prelim University of Michigan consumer sentiment for Nov. There will also be a full week of Fed speeches this week.
Europe –
Germany factory orders and industrial production for Sep, and Eurozone
manufacturing and services PMIs.
Australia –
retail sales and housing finance for Sep and the AiG PMI’s across
manufacturing, services and construction.
It will be a lighter week for US Treasury supply. The US Treasury will settle approx. $210bn in short term bills this week, raising approx. $24bn in new money. Approx. $15bn in reserve management purchases will settle this week and the Fed will purchase approx. $5.3bn in Treasury coupons as a part of the restarted reinvestment of principal payments.
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
