by Kim | Jun 10, 2019
The macro review for w/c 3 June 2019 – Developments on trade, increasing downside risks from trade tensions and low inflation had central bankers in the US, Europe, and Australia worried this week.
The US Fed Chairman has put a
rate cut into play. Chairman Powell stated in a speech on Tuesday that
the US Fed ‘will act, as appropriate, to sustain the expansion’. The Chairman
was referring specifically to ‘recent developments involving trade and other
matters’ – the stalling of talks with China and the upcoming threat of tariffs
on imports from Mexico. The comments were somewhat out of place in that they
were added to the start of his opening remarks for the Fed conference on
Monetary Policy Strategy, Tools and Comms Practices – a conference dealing with
longer-run issues.
But the brief comments by the Fed Chair had the desired
effect and helped markets in light of some weaker economic data for May –
especially coming into the blackout period before the next FOMC meeting. The
most notable was the much slower growth in non-farm payrolls. The
household survey also highlighted the continued deceleration in employment
growth. The Markit PMI’s indicated that private sector activity in
manufacturing and services had slowed quickly in May to only a marginal level
of growth. The ISM’s was less negative but indicate that growth remained low in
May.
Other measures of output and sales were also weaker for Apr
– with factory orders and shipments falling in the month. Wholesale sales also
declined while inventories increased at a faster pace.
One brighter spot was that motor vehicle sales had picked up
again in May. There is a possibility that retail sales of vehicles will remain
lower (growth from fleet sales) in the May retail sales report. Consumer credit
growth in Apr accelerated on the back of faster growth in revolving credit.
Then, very late on Friday, US President Trump announced that the US and Mexico
had reached an agreement on managing the flow of illegal immigrants into the US
– and that the tariffs on imports from Mexico were on hold indefinitely.
While the ECB kept rates on hold, ECB President Draghi indicated that discussions had started regarding a possible cut or further bond purchases to stimulate inflation. The prelim CPI for May indicated that annual consumer price growth decelerated quickly in May – both headline inflation and core inflation, which will be a concern for the ECB. The underlying drivers of the faster Q1 GDP growth were somewhat positive but incoming data suggested weakness into the second quarter. Retail sales declined in May after flat sales in Apr. The PMI’s for May were mixed – ongoing declines in manufacturing were offset by some growth in services activity – but growth in output/activity likely remained subdued overall throughout the Eurozone.
The RBA cut rates to ‘assist with faster progress in reducing unemployment’ which will help to get the inflation back to the 2-3% range. The RBA cited concerns over increasing trade tensions and domestic uncertainty regarding household consumption, sustained low income growth, and falling house prices. The Q1 GDP did little to allay those concerns. While growth accelerated in Q1 versus Q4, growth of domestic output (GNE) was zero. Into the second quarter, retail sales declined with some pronounced negative shifts in expenditure. The value of housing lending increased due only to an increase in the value borrowed by owner-occupiers. But the number of owner-occupier commitments fell suggesting that underlying weakness in lending persists – which is likely to be reflected in continued falls in house prices.
Special mention of UK Markit PMI’s – overall indicating that in May, private sector activity grew at a lower more marginal pace. Importantly, the weakness in manufacturing and construction was still offset by faster growth in the services sector. The common theme was that Brexit and political uncertainty was holding back growth.
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 10 June 2019 – A solid week of data to focus on given the US Fed blackout period will be in effect leading up to the FOMC meeting next week.
The main focus this week will be data out of China – trade, retail sales, industrial production and new loans for May.
US data will focus on inflation with the latest CPI and PPI for May. Retail sales for May and the first reading of consumer sentiment for Jun will provide some insight into spending patterns. US industrial production will also help to gauge changes in output – both ISM and Markit manufacturing PMI’s suggested little output growth in May.
Following closely on the rate cut from last week, the Australian
labour market survey will be released this week for May. Business confidence
and sentiment data for May will also be released. There is some caution with
the May data given that it will still partly reflect the expectation that there
would be a change in government at the federal election in mid-May.
US-China
trade; the increase in the tariff rate goes into effect on 15 Jun from 10 to
25% on $200bn of imports. A decision on the USTR investigation into further
tariffs on $300bn of imports is due shortly.
The
results of the USTR investigation into EU subsidies for large civil aircraft is
likely due shortly.
G20 meetings continue in the lead up to the Summit in Osaka on 28-29 June 2019.
US Treasury supply will be lighter this week. The US Treasury will settle approx. $147bn in ST bills this week, with a net pay down of $42bn. The 37-day CMB issued on 7 May will also mature this week on 13 Jun – adding another $20bn to the net paydown.
More detail (including a calendar of events) is provided in the briefing document – you can download the file here;
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | Jun 3, 2019
The weekly macro review for w/c 27 May 2019 – One of our key themes for the week had been growth and sentiment. Wrapped up in this was not only US growth data but also sentiment around trade negotiations.
Trade talks with China remain on hold. China released a
white paper over the weekend essentially outlining its side of why and how
talks stalled. The official statement advocates for the benefits of
co-operation and positions China as ‘willing’ to work with the US to find
solutions. The aim appears to shift the onus of the stalled talks onto the US. The
statement from China draws a line in the sand;
“There are bottom lines in consultations. China will not
compromise on major issues of principle. China does not want a trade war, but
it is not afraid of one and it will fight one if necessary. China’s position on
this has never changed.”
President Trump has put a question mark over ratifying the
USMCA by commencing a program of increasing tariffs on all imports from Mexico.
The tariffs are aimed at halting the flow of illegal immigration into the US.
President Trump and USTR Lighthizer commenced higher level
trade talks with Japan last week. While differences remain, President Trump declared
that a deal will be announced in August – after the elections in Japan, but
also within the 6-month window for the extension of auto-tariff announcements.
Final submissions for the investigation by the US into EU subsidies
on large civil aircraft should have also concluded during the week. This is
still a live issue and could result in tariffs on both US and EU imports.
Consumer sentiment data out for May has reflected a weakening
in sentiment from the stalled talks with China – “confidence significantly
eroded in the last two weeks of May” (after the US recommenced raising tariffs
on China). The index of current conditions continued to weaken, now 9% below
last year, but the headline index of consumer sentiment continued to increase.
Affecting sentiment was the inflation expectations from higher prices/tariffs creating
a negative impact on current buying conditions.
The already weaker expenditure conditions are visible in the
latest GDP and PCE and income reports. The monthly Apr PCE and income release showed
that while there was faster growth in incomes (but not employee compensation),
expenditure in Apr slowed very quickly – across goods and services. Annual
growth in both headline and core prices for PCE accelerated slightly. But
within the core PCE price measure – core goods prices (ex-energy & food)
declined at the fastest pace since 2007. While at odds with the sentiment and inflation
expectations, it signals potentially weaker demand/expenditure conditions.
US Q1 GDP growth was revised slightly lower. The key features
of Q1 GDP remain the much lower contribution from personal consumption
expenditure and the much higher contribution from the increase in inventories
for the quarter. The contribution from private fixed investment and net exports
were revised lower in the latest release.
The two regional surveys indicate continued lacklustre growth
in manufacturing during May. One point stands out from the Richmond Fed Survey
– stockpiles of raw materials and finished goods inventories have been increasing
sharply since Dec 2018. Stockpiles of raw materials reached an all-time high in
the May report and finished goods inventories are now 2 pts below the post GFC
high.
Also of interest this week was China and the impact of stimulus measures on the economy. Recent data has been disappointing and the official NBS manufacturing and non-manufacturing PMI’s for May were no different. Both indexes paint a less than positive picture of economic activity in China during the month. The hopes of ‘green-shoots’ stemming from massive credit stimulus appear to have been either premature or signal that stimulus has been, at least so far, ineffective in creating a sustained impact on growth.
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 3 June 2019 – Global economic activity and growth is likely to remain in focus this week. This is a very large week of data, rates decisions and speeches – on top of the headline risk regarding trade disputes.
We should get a solid read on global manufacturing and
services activity with PMI’s for May being released this week.
There will be a large amount of US data and Fed
speeches to digest this week. Data will provide a broad overview of activity;
motor vehicle sales, ISM manufacturing and non-manufacturing PMI’s, non-farm
payrolls and employment, and the final factory orders data for Apr. The US Fed
will be running its review of monetary policy strategy, tools,
and communication practices – both Chairman Powell and Vice Chairman Clarida
will speak at this conference.
European growth will be a key focus. The ECB will meet on
rates this week. Of interest will be Germany factory orders and industrial
production data (noting some divergence between PMI’s and German data over
recent months), Eurozone retail sales and the more detailed release of Q1 GDP.
It’s a very big week for Australia. The RBA will meet on rates. As of 31 May, the 30-day interbank cash rate futures indicated a 100% expectation that the RBA will cut rates on Tuesday; https://www.asx.com.au/prices/targetratetracker.htm. The rates decision will be made before Q1 GDP is released on Wednesday. Housing lending and retail sales will also be released this week – both data points are still prior to the general election.
UK PMIs will provide some indication as to how the economy
is responding to the continued Brexit limbo.
Trade negotiations will continue to feature. Negotiations
between the US and Japan are live and issues regarding aircraft subsidies continue
to simmer between the EU and the US which could flare up shortly. There is now a
question over whether the USMCA will be ratified as a new round of tariffs on
imports from Mexico go into effect. Although
there was a one-month deadline given for the trade deal with China, this is
likely to draw out until after the US has completed its review process into tariffs
on the remaining $300bn of Chinese imports (after 17 Jun).
US Treasury supply will be lighter this week. The US Treasury will settle approx. $147bn in ST bills this week, with a net pay down of $22bn.
More detail (including a calendar of events) is provided in the briefing document – you can download the file here;
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | May 27, 2019
The weekly macro review for w/c 20 May 2019 – The FOMC minutes reflected a somewhat more upbeat, yet guarded view on growth and risks – “some of the risks and uncertainties that had surrounded their outlooks earlier in the year had moderated”. Unfortunately, the rates decision was made prior to the escalation in the trade dispute between the US and China. Several points noted in the minutes have also been superseded by weaker data on retail sales and manufacturing activity. The Board maintains that low inflation is due to transitory effects. Nonetheless, ‘muted inflation’ and the global economic backdrop warrant a patient approach to rates.
From the RBA, some of the more positive
underpinnings of the recent outlook (US-China trade etc) have now shifted to uncertainty
and have tilted risks to growth to the downside. The RBA meeting was just after
news broke of the deterioration in trade talks between the US and China. Domestically,
the low inflation print for the Mar 2019 quarter and the income/spending impact
of falling house prices has the Board monitoring the labour market very
closely. What has concerned the board is that, despite very strong employment
growth, underemployment/slack in the labour market remains elevated and is
likely to slow down progress of wage growth (and reaching the inflation target).
During the week, Governor Lowe suggested that a discussion on rate cuts was
likely at the next board meeting.
Data on manufacturing in the US
continues to disappoint. The advance Durable Goods report for Apr highlighted
that both shipments and new orders fell in Apr, with Mar results also revised
lower. This confirmed the weaker manufacturing data within the industrial production
report from the previous week.
The prelim US composite PMI suggested that this weakness
accelerated in May with both services and manufacturing growth slowing quickly.
New orders in manufacturing declined in this survey for the first time since ’09,
employment growth slowed to a marginal rate and business sentiment fell amid a
worsening trade backdrop.
Japan prelim manufacturing PMI also
fell back into slight contraction in May. While measures of demand remained
weaker, most concerning was the shift in manufacturing sentiment to a ‘negative
outlook’ – the lowest level in over six years.
The Eurozone prelim PMI was little
changed. Results in core countries were more mixed, but there was some deterioration
in demand within periphery countries.
Escalations continue between the US and
China outside of strictly trade issues, and this is likely to continue. No further
talks have been scheduled at this stage.
Amid the impasse on Brexit, PM May will step down as leader on 7 June.
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 27 May 2019 – US growth and sentiment will likely be a focus this week. The second or ‘prelim’ version of Q1 GDP will be released, along with the latest personal consumption and expenditure data for Apr. Of interest will be the income data – after weaker growth in the Mar monthly data. The final read of consumer sentiment for May will be released – again this will be of interest as the prelim reading was taken before the US announced it would revisit tariffs on Chinese imports – this may or may not impact consumer sentiment. Finally, there are several regional surveys providing some further insight into slowing US manufacturing growth.
As mentioned last week, trade headlines and posturing
are likely to remain a feature over the next few weeks. Although there was a
one-month deadline given for the trade deal, this is likely to draw out until after
the US has completed its review process into tariffs on the remaining $300bn of
Chinese imports (after 17 Jun).
Data out of China has been somewhat disappointing
after the initial lift in Mar. This week, the NBS will release the manufacturing
and non-manufacturing PMI’s for May.
Also of note will be the prelim read on Japanese industrial
production for Apr.
The Bank Of Canada will meet on interest rates.
The RBA will release private sector credit data for
Australia for Apr.
US Treasury supply will be heavier this week and its month end. The US Treasury will settle approx. $294bn in ST bills and coupons this week, raising approx. $51bn in new money – the heaviest for several months. Approx. $20bn in securities on the Fed balance sheet will mature on 31 May and approx. $14bn of that will be reinvested under the revised lower monthly cap.
More detail (including a calendar of events) is provided in the briefing document – you can download the file here;
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | May 20, 2019
The weekly macro review for w/c 13 May 2019 – Despite stimulus measures in place, economic data out of China continues to disappoint. This week, there was little follow through on industrial production with growth slowing back down to the lower pre-Mar level. Retail sales growth slowed quickly. Factory sales/shipments of autos declined at an accelerated pace.
US data was mixed. Retail sales fell. The decline in auto
sales was expected but weaker sales were recorded across most categories.
Manufacturing activity remains lacklustre. Industrial
production growth disappointed with manufacturing and utilities leading the
decline. Manufacturing output fell below last year for the first time since
2016. The first regional US surveys for manufacturing in May were higher – led
by larger increases in shipments after stronger growth in new orders in Apr. There
was no follow-through on new orders growth for May.
The prelim US consumer sentiment data for May was mostly much
stronger. The survey was taken prior to the deterioration in talks between
the US and China, so the final report may see some revision.
The trade front delivered mixed news. The US came to an
agreement with Mexico and Canada to lift retaliatory tariffs under the s.232
duties on steel and aluminium. The US also agreed to postpone the decision to
levy tariffs under the s.232 car and truck import investigation. But President
Trump announced that he agreed with
the conclusion of the Commerce Dept report that auto imports harmed national security
by causing declining market share for US-owned carmakers. The Commerce report
has not been made public. The threat of these tariffs continues to hang over
the negotiations with Japan and the EU.
By the end of the week, it was reported that negotiations between the US and China had stalled. The US continues to move forward on the process to finalise the next round of tariffs on $300bn on imports from China.
Eurozone industrial production continued to decline in Mar,
but declines were not as broad, limited to energy and non-durable consumer
goods. EU and German Q1 GDP growth accelerated slightly.
In Australia, the Liberal (conservative) government was returned to government – meaning that there would be no removal of the favourable tax incentives related to property (negative gearing, capital gains tax), among other things. Lending for housing in Mar declined at an accelerated pace. Wage growth remains low – with real wages growing at a faster pace only due to lower growth in the CPI.
Employment is a key metric of the RBA at this part of the
cycle. There are two
dynamics playing out over different timeframes. On an annual basis, the labour
market remains in good condition. Employment growth remains larger than the
labour force growth resulting in further declines in total unemployed persons.
Although
employment growth has been somewhat stronger over the last two years, the
underemployment ratio remains close to its highs. This has been a key concern
of the RBA regarding ‘excess capacity’ and the implication for wage growth.
The underlying month trend is moving in a different direction. Employment growth only equalled the estimate of what pop growth added to the labour force. Meaning that employment growth was not then high enough to absorb the increase in participation (participation reached a new all-time high in the latest month). As a result, the number of unemployed persons increased for the fourth month in a row.
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 20 May 2019 – This week, the focus will be on the FOMC minutes, a speech by Chairman Powell, US-China relations and the first release of PMI’s for May.
Trade headlines and posturing are likely to remain a feature
over the next few weeks. The news from Friday was that negotiations between the
US and China had stalled. Further escalations were announced as Huawei was “placed
on a business blacklist” by the US. Details of further talks are expected as
the US has placed a one-month deadline to complete negotiations – although so
far, meeting this deadline is looking less likely. US trade representatives
will also meet with Japan and EU trade negotiators this week.
In the US, the focus will be on the FOMC minutes, initial
durable goods orders report for Apr and the prelim PMI’s for May.
There is another large array of Fed speeches this
week. Of note will be a keynote speech by US Federal Reserve Chairman Powell on
Monday at the “Mapping the
Financial Frontier: What does the next decade hold?” Annual Financial
Markets Conference held by the Atlanta Federal Reserve Bank in Florida.
Also, of note this week, will be the RBA minutes and UK
retail sales.
European parliament
elections will commence during the week, with most member countries holding
elections on Sunday 26 May. Voters in 28 countries will elect 751 Members of
the European Parliament for a five (5) year term. The UK will take part in
these elections. Once Brexit occurs, these MEP’s
will resign, and the Parliament will be reduced to 705 members.
US Treasury supply will be lighter this week. The US Treasury will settle approx. $183bn in ST bills, with a net paydown of $9bn.
More detail (including a calendar of events) is provided in the briefing document – you can download the file here;
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | May 13, 2019
The weekly macro review for w/c 6 May 2019 – The headlines this week continued to follow the US-China trade negotiations in the countdown to the Friday tariff deadline. The USTR has now been directed by President Trump to increase tariffs from 10 to 25% on approx. $200bn of import from China as well as commence the process of increasing tariffs on “essentially all remaining imports from China, valued at approx. $300bn”. The US has set a one-month deadline to complete the deal or the final stage of tariffs will be imposed.
There was little upward performance momentum in data releases
this week. The exception was the better than expected German orders and
production data. A disconnect seems to be emerging between the accelerating
decline in the German manufacturing PMI and production data.
From the US; JOLT’s data was mixed – slowing growth in hires
is important. Involuntary separations are slowing, but growth in voluntary
quits is also slowing.
Consumer credit slowed in Mar led by a decline in
revolving/credit card credit. Senior Loan Officer Opinion Survey indicated a
shift to tighter lending standards for credit cards in Q1.
Price growth was little changed in Apr – headline PPI grew
at the same pace and CPI growth increased as faster growth in energy and
services prices offset slower growth in food and declines in core commodities
prices for the year.
Wholesale sales grew at a faster pace – led mostly by
non-durable goods (petroleum) in Mar. Sales of durable goods still grew at a
faster pace, but growth underperformed the total. The decline in inventories
was led by one area – non-durables (drugs). The value of inventories for
durables increased at a faster pace. The sales to inventory ratio declined.
European composite PMI indicated little change in momentum
with growth remaining only moderate in Apr.
German factory orders grew overall but was led by foreign
orders – domestic orders declined at a faster pace in Mar. Industrial
production improved in Mar, but manufacturing production across most areas
remains below a year ago and below recent peaks. There was no indication of an accelerating
decline in activity as indicated by the Mar PMI for manufacturing.
UK GDP growth accelerated in Q1 – reflecting much faster
growth in production and manufacturing, imports, investment spending by
government and inventories – likely as the result of preparations for Brexit.
Australian retail data continued to disappoint. Real retail sales declined in Q1, after zero growth in Q4 last year. The RBA kept the overnight cash rate on hold. The Board changed its guidance statement, reflecting the need to see improvements in the labour market (i.e. decrease in the elevated underemployment rate) in order to reach the inflation target. The Board “will be paying close attention to developments in the labour market”. Key forecasts for the economy were revised lower in the May Statement on Monetary Policy.
Data out of China showed little acceleration in activity. Services PMI was unchanged for Apr. The trade surplus was lower as imports grew, and exports declined (exports still > imports). New loan growth was lower than in prior months likely indicating a more subdued impact on activity.
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 13 May 2019 – Trade negotiations are likely to remain at the forefront. The US increased tariffs on Chinese imports last week and there is a likelihood of retaliation from China. Details of further talks are expected as the US has placed a one-month deadline to complete the deal.
This comes amid the commencement of trade talks with Japan and the EU. Important to these negotiations is the deadline this week on 18 or 19 May for President Trump to finalise the decision on s.232 investigation on car and truck imports. Given that both negotiations are in the early stages, it’s possible that the decision will be postponed.
Important
US data out this week will focus on retail sales (expecting weaker Auto sales),
the prelim reading on consumer sentiment for May and the latest view of
production and output with the first May regional surveys and total US
industrial production.
There
is a large range of Fed speeches this week. Of note are two speeches by Fed Reserve Board Vice Chairman Clarida on the Federal Reserve’s Review of Its Monetary
Policy Strategy, Tools, and Communication Practices (Monday and Friday).
We
continue to look for a sustained improvement in the Chinese economy with retail
sales, motor vehicle sales and industrial production (after last month’s large
increase in IP). Lower growth in new loans data for Apr will possibly impact
expenditure and output.
It
will be a big week for Australia in the lead up to the Federal election on 18
May. Data will be in focus – housing lending for Mar, the labour market survey
and the wage price index. The labour market data will be the most important
indicator for the RBA in setting rates policy.
US Treasury supply will be heavier this week. The US Treasury will settle approx. $244bn in ST bills, notes, and bonds, raising approx. $19.6bn in new money. It’s also mid-month and approx. $38bn in securities on the Fed balance sheet will mature. The new lower cap of $15bn for the month means that approx. $28.6bn will be reinvested on the 15 May.
More detail (including a calendar of events) is provided in the briefing document – you can download the file here;
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
