by Kim | May 6, 2019
The weekly macro review for w/c 29 Apr 2019 – US data and events dominate the review this week and results are mixed.
Weak inflation. The FOMC appears to be discounting the
weaker core inflation growth reported this week, believing that ‘some
transitory factors may be at work’. The monthly change in the core PCE price
index has been slowing since the start of the year. Both core services and
goods prices are contributing to the slower growth as of Mar. The annual growth
in core services prices has been slowing since mid-2018 and core goods prices
slowing more so in the last two months.
Weaker personal income growth for Mar was also reported this week. Data is
now up to date after the shutdown and, after revisions, the Mar result is the
third month in a row where disposable personal income growth has stalled,
falling to zero in Mar. While employee compensation growth remained on par with
the prior month, falls in other forms of income detracted from overall personal
income in the month – mainly personal interest income and farm proprietors
income.
Motor Vehicle sales fell again in Apr. The fall in Apr means the SAAR is
almost back on par with the Jan/Feb lows – obviously that higher level of
growth from Mar has not been maintained. This will likely detract from the next
retail result and is so far not a good sign of a rebound in consumer
expenditure.
Factory orders headline numbers suggested a strong rebound – on the back
of stronger orders for transport equipment. But underlying annual growth in shipments
and new orders have slowed over the last few months, and especially so in Mar.
While it’s not obvious, it’s likely that petroleum (price fluctuations) is influencing
the headline numbers especially since late 2018. The ISM manufacturing report, regional
surveys and Markit manufacturing PMI confirm this weaker growth.
Non-farm payrolls were stronger. The household survey of employment wasn’t
as strong as it has been. In the annual view, the larger decline in the
total number of unemployed persons was the result of slower growth in the
labour force rather than faster/accelerating growth in employment. This was the
fourth month where annual employment growth has slowed.
The monthly employment figures are somewhat more concerning.
Employment declined again in the month. What ‘saved’ this report was the 0.02%
pt decline in participation – which equated to approx. 517k persons leaving the
labour force. As a result of this decline in participation, total unemployed
persons declined. The fall in total
unemployed persons “technically” occurred while employment declined in the
month.
US-China trade negotiations appear to have stalled. President Trump announced that Friday 10 May is now a deadline to complete negotiations before the tariff rate is again increased. China’s manufacturing PMI’s for Apr suggested little acceleration since the stronger Mar result.
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 6 May 2019 – The US-China trade negotiations are back front and center this week. There is no confirmation yet that Vice Premier Lui He will cancel his planned trip to Washington this week. The US President has given 10 May as a deadline to complete the deal before tariffs are increased.
Data will likely focus on China this week; trade, CPI, new loans and services PMI will be released. Again, we look for signs of further improvement in the economy.
Important
US data this week will be CPI and PPI. Wholesale trade data will provide a view
on inventories through the distributive channels. Consumer credit for Mar will
include the quarterly view of auto loans.
US
Fed speeches will feature this week, including Chairman Powell providing
opening remarks at the “Renewing the
Promise of the Middle Class” research conference.
The Reserve Bank of Australia will meet this week. It’s been a long time since there was an elevated chance of a rate cut. The latest probability is a 40% chance of a cut to 1.25% (down from a 68% chance of a cut after the weak CPI report on 23 Apr). The only reason the RBA may not cut is that a) the labour market remains in good condition and b) the upcoming federal election is on 18 May 2019. The rate tracker based on the ASX 30 Day Interbank Cash Rate Futures – https://www.asx.com.au/prices/targetratetracker.htm
Also up this week will be German trade, new orders, and industrial production data. This will help to provide some further detail around the deteriorating manufacturing PMI data.
US-EU trade negotiations will continue this week – but both sides remain apart on agreement of the scope of negotiations. The opening gambit for both the EU and Japan has been to exclude agriculture from negotiations.
US Treasury supply will be lighter this week. The US Treasury will settle approx. $169bn in ST bills with a paydown of approx. $9bn. The US Treasury will also auction approx. $84bn in notes and bonds this week which will settle next week at mid-month (raising approx. $28.6bn in new money).
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 | Apr 29, 2019
The weekly macro review for w/c 22 April 2019 – US GDP growth accelerated higher in Q1. The underlying drivers of growth provide a mixed message on economic activity. Growth was higher on the back of faster export growth, coupled with declining imports (higher net exports), and a continued increase in the change in inventory. Personal consumption growth and private fixed investment spending growth both halved.
The inventory build has been observed across several reports over the last few months especially within retail and wholesale channels, as sales growth slowed. An important point is that consumer retail sales, including motor vehicle sales, improved in Mar. If this higher growth in consumption can be maintained, then the inventory build may dissipate over the next few months. Growth in personal consumption expenditures, retail sales, and motor vehicle sales will be important data points to watch over the next few months.
One feature of the two regional surveys out this week for
Apr was the weaker growth in employment and/or hours worked. The Richmond Fed
manufacturing survey highlighted a weak rebound in activity – with a further
notable increase in inventory for Apr and fall in the average work week – the
largest decline since 2008.
US consumer sentiment for Apr continued the sideways move,
but consumers remain upbeat about financial prospects in the year ahead.
The BoJ sounded an alarm on the economic outlook in Japan
due to global uncertainties and the planned tax hike in Oct. The bank announced
plans to expand the range of eligible collateral for lending and clarified its
forward guidance that low rates will be maintained until at least Spring 2020.
On cue, prelim industrial production declined sharply in Mar – in line with the
weaker result indicated by the manufacturing PMI for Mar. Retail sales growth
was stronger in Mar and recorded the first small acceleration in annual sales
growth.
Australian CPI surprised to the downside with growth in the quarter at 0%. Annual price growth, including measures of core CPI, continue to trend further below the RBA target range. Both domestic and external factors are contributing to the lower price growth in the quarter and the year.
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 29 April 2019 – A big week of US data, with the FOMC rates decision, employment, and non-farm payrolls and PMI’s for Apr.
Personal
Income and Outlays and the PCE price index data will round out the Q1 view of consumption
activity. We’ve been tracking slower spending growth and higher savings rates
so far in 2019, with stronger growth in retail sales in Mar.
Another
data point to watch this week will be whether the higher growth in US motor
vehicle sales has continued in Apr.
PMI’s
for China manufacturing, and services activity will be released this week –
looking for whether the recovery in activity has continued into Apr.
UK
– BoE rates decision due this week along with the PMI’s for Apr. This will
provide an early insight into the impact on the UK economy, so far, of
postponing Brexit (after preparations were put in place for 29 Mar exit). Talks
between the UK Government and the Labour party will continue this week, but it
is unlikely that there will be another vote in Parliament on Brexit this week.
Q1
GDP for the Eurozone will be released along with the final PMI’s for Apr.
Prelim data, especially for manufacturing activity showed continued weakness
across the Eurozone into Apr.
US Treasury
supply will be heavier this week. The US Treasury will settle approx. $310bn
in ST bills and notes, raising approx. $37bn in new cash this week (after
several weeks of paydowns). It’s also month end and $31.7bn in securities on the Fed balance sheet
will mature and approx. $1.9bn in principal payments will be reinvested. Next
month, the cap on reinvestments will be lowered to $15bn until the end of Sep
2019.
Trade talks between the US and China continue this week with plans to finalise details of a trade deal. At the same time, awaiting further details on the next round of talks between the US and Japan, as well as the commencement of talks between the US and EU.
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 | Apr 22, 2019
The weekly macro review for w/c 15 Apr 2019 – China economic data continued to improve this week. While there was faster growth in industrial production and retail sales in Mar, this was yet to be reflected in the quarterly GDP growth result. The Q1 2019 GDP growth rate slowed to +1.4% versus +1.5% in the prior quarter and +1.5% in the same quarter a year ago.
The impact of Chinese stimulus on other countries remains mixed. South Korea exports to China in Apr continue to deteriorate. EU exports to China were much stronger in the YTD Feb +13% (versus +6.2% growth in the full year 2018). Japan exports to China fell again in Mar by -9.4% versus a year ago.
The improvement in US retail sales growth was an important data point this week. Growth was stronger across most categories for the month – the question is whether it will be sustained. The prelim Apr sentiment data last week indicated a ‘sideways’ move rather than any acceleration higher. Continued retail growth (consumer pull-through) over the coming months should help ease issues with inventory build evident within the wholesale supply chain.
Overall US industrial production and manufacturing growth continue to flatline – while some regional indexes have improved. The prelim PMI for Apr indicated a marked slow-down in service-sector activity while there was little change in manufacturing activity.
PMI data for Europe indicates private sector growth likely slowed further in Apr – the slightly slower contraction in manufacturing was offset by somewhat slower growth in services. New export orders continued to contract at a steeper pace in Apr and for the 7th month in a row. Despite this accelerating contraction in new export orders, EU trade data out last week shows that so far, EU export growth in the YTD to Feb (+4.1%) remains on par with the full year 2018 of 4%. Based on the PMI readings for new export orders (especially for Mar and Apr), EU export growth may slow in the coming months.
Given that the Brexit deadline was moved out at the last minute, most organisations had been preparing in the months leading up to that deadline and stock-piling/bringing forward orders etc. This has been noted in the PMI’s in Feb and Mar. Some of that is visible in the EU trade data; in the full year 2018, UK imports grew at 0% but in the YTD Feb 2019, imports grew at a much faster +10%. UK retail sales for Mar were very strong again and annual growth accelerated to a near term high of +6.6%. Will this stronger run of activity be sustained now that the deadline on Brexit has been moved to 31 Oct and, will firms continue to maintain higher inventories until Brexit is resolved? Elsewhere, in the UK, the labour market remains strong and inflation steady.
The US and China appear to be in the final stages of the trade deal negotiation. Our focus now shifts to the commencement of the US-EU negotiations – the importance of which cannot be underestimated. This week, the EC approved negotiation directives which did not include agriculture. At the same time, President Trump has threatened that he will impose auto tariffs if agriculture is not included in the negotiations. No date has been set for the commencement of talks.
The annual picture of the Australian labour market remains robust. But on a monthly basis, there is a subtle (continued) weakening in conditions. In the prior month we noted that the more recent monthly employment growth was now below that of the total labour force – resulting in small increases in total unemployed persons on a monthly basis. This trend has continued in Mar resulting in a further (small) increase in unemployment.
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 22 Apr 2019; US corporate earnings are likely to be in focus this week with many of the larger corporates reporting. Signaling around future activity will be of interest.
Important US data this week – prelim Q1 GDP, durable
goods for Mar and the final Apr consumer sentiment data.
It will be quiet on the US Fed front ahead of next
week’s FOMC meeting.
Interest rate decisions this week from the Bank of
Canada and the Bank of Japan.
The BoJ will also release its Q1 outlook report. The
prelim Mar industrial production for Japan will also be released this week – weaker
manufacturing PMI’s for Mar and Apr suggest ongoing weakness in production
data.
Aussie Q1 CPI will be released this week – an important
data point ahead of next week’s RBA interest rate meeting.
US Treasury supply will be lighter and there will be
another pay-down. The US Treasury will settle approx. $189bn in ST bills,
with a net paydown of $13bn.
US-EU trade negotiations will likely become a larger focus. The EC has now approved its negotiation directives and objectives conflict with that of the US. President Trump has threatened tariffs on Auto’s if agriculture is not included in the negotiations and the EC directive does not include agriculture. There has also been some escalation in the Boeing/Airbus subsidies dispute.
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 | Apr 15, 2019
The weekly macro review for w/c 08 Apr 2019 – Data out late in the week confirmed the large degree of monetary stimulus now supporting the Chinese economy. Growth in total social financing in Q1 increased by +10.7% versus the same time a year ago. China’s trade data was still mixed – export growth was much stronger than expected but imports continued to decline. This suggests continued weaker domestic demand as well as likely weaker export trade data for some Chinese trade partners.
The ECB this week kept rates on hold, acknowledging that risks in the region remain tilted to the downside.
Three related US datapoints stood out this week. The FOMC minutes confirmed that, on balance, rates are likely to remain on hold through this year, despite mention of ‘data dependence’. “Muted inflation” is enabling “a patient approach” on rates.
CPI and PPI data out this week indicate some price pressure
returning from energy prices. This will be important to watch. While annual
growth in the headline CPI accelerated between Feb and Mar due to a less
negative impact from energy prices, the monthly change highlighted faster
growth in consumer facing energy prices. Similarly, there was some upward
pressure from energy prices in the PPI.
Any potentially faster inflation growth, in the absence of
accelerating wage growth, is likely to hurt consumer sentiment. Commentary from
the prelim consumer sentiment report for Apr highlights that – “what has been of increasing importance to consumers are
rising nominal incomes, and low inflation, producing strong gains in inflation
adjusted incomes”. Sentiment measures continue to move sideways.
A further reprieve on deadlines for Brexit. Although the “final” date has been pushed out to 31 Oct, there is a still a sense of urgency on striking a deal to avoid taking part in the European Parliament elections.
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 15 Apr 2019 – A short but very data heavy week.
Performance of the Chinese economy will likely be important this week with Q1 GDP growth, retail sales, and industrial production data to be released.
Given the large growth in monetary stimulus in Q1 in China and the first possible signs of improving activity, we will be looking for evidence of this starting to impact key trade partners.
US data will focus on domestic production and consumer spending as well as international trade. Of note will be retail sales (stronger motor vehicle sales should feature), inventories through the trade channels, industrial production, international trade and the first view of manufacturing and services PMI’s for Apr.
Japan CPI, final industrial production and international trade data will be released.
In Europe, the prelim manufacturing and services PMI’s for Apr will be important gauges of any improvement in manufacturing momentum especially. Also of note will be Eurozone trade and CPI data.
UK
data; retail sales, CPI and the labour force data for the 3-months to Feb.
The RBA minutes will be released this week as well as the key labour force survey report.
US-China trade negotiations will continue this week with a deal still expected to be completed within the next few weeks. US-Japan trade negotiations will commence this week. Further details on the commencement of US-Europe trade negotiations is also be expected this week.
The US International Trade Commission is likely to provide its analysis of the USMCA/NAFTA agreement shortly. The revised timing for the report was ‘mid-Apr’ due to the partial government shutdown. This will be a vital report in the process of ratifying the USMCA/NAFTA agreement by the US Congress.
US Treasury supply will be heavier this week but there will be another pay-down. The US Treasury will settle approx. $241bn in ST bills, notes, and bonds this week. The 42-day CMB will also mature this week and there will be a net paydown of $39bn.
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 | Apr 8, 2019
The weekly macro review for w/c 1 April 2019 – The rebound in the official China NBS Manufacturing PMI for Mar set a positive tone for the week. The underlying drivers of expansion suggest that improvements in production and new orders signal that measures to stimulate may be starting to impact activity. Of note was the Caixin Manufacturing PMI which reported a ‘significant’ improvement in manufacturing employment.
In the US, a slower pace of manufacturing activity over the
last four months was confirmed by the latest ISM. The business inventories
report highlighted the growing build-up in inventories through the distributive
trade channels – especially merchant wholesalers. Also of note was the more
downbeat reports on services growth via both the Markit and ISM PMI’s.
The Feb retail sales indicated consumer spending remained subdued.
This was partly confirmed by the continued slower growth in consumer credit,
especially in the last 3-months to Feb. The rebound in motor vehicle sales in
Mar (the more recent of the reports) suggests a more positive outlook for
spending – in line with the improvements in consumer sentiment.
Non-farm payrolls rebounded in Mar. The household survey shows
that over the last year, total employment has grown faster than what both
population and participation have added to the labour force. As a result, the
number of total unemployed persons continue to decline. Of note though is that
participation growth has stalled, and employment growth has slowed.
Data from Europe and Asia continues to indicate weakness in
manufacturing across key economies. The decline in new factory orders in Germany
accelerated in Feb – led mostly by falls in foreign new orders but domestic
orders also declined. Headline German industrial production grew in Feb but
production in manufacturing continued to decline across most industry
categories. Japanese manufacturing activity continued to contract, while
services growth remained steady at more moderate levels.
The RBA kept rates on hold. Signalling from the latest statement suggests that RBA may no longer be ‘on-hold’ at future meetings. Stronger growth in retail sales may allay fears that continued falls in house prices are impacting spending. The govt budget featured a forecast return to surplus in the ‘19-20 financial year and spending measures included some stimulus in the form of tax cuts and cash payments for some households. A date for the election is yet to be called but is expected by late May.
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 8 April 2019 – Data out on China this week will be a key focus as we look for signs of continued improvement in activity, especially in international trade. New loans and money supply data will also provide an indication of the degree of stimulus still being provided.
Central bankers will be back in focus this week. US
FOMC minutes will be released and there are several speeches throughout the
week including Chairman Powell. Other speeches of note include Vice-Chair
Clarida as a part of the Fed’s review of monetary policy strategy, tools, and communication practices
and Vice-Chair Quarles participating in a round table on reforming major
interest rate benchmarks.
The ECB meets this week. While rates will likely
remain on hold, signalling will be important regarding ECB view on the
continued weaker manufacturing growth in key economies.
US data of note this week will be CPI & PPI. The broader
view of factory orders for Feb will provide some further insight into manufacturing
trend growth. We’ll also get out first view of Apr consumer sentiment numbers.
Aus data of note will be lending for housing.
It’s down to the wire again for Brexit. PM May continues
to negotiate a compromise with the Labour Party to pass the withdrawal
agreement in Parliament. If such a compromise is reached (and passed), it is to
be presented and approved at the EU summit on 10 Apr. If either no compromise
is reached across parties or the EU rejects the proposal, then it’s possible that
a longer delay to Brexit will be agreed upon.
Awaiting further
announcements on the progress of US-China trade negotiations.
US Treasury supply will lighter this week. The US Treasury will settle approx. $163bn in ST bills. With a CMB also maturing this week, there will be a net paydown of $37bn.
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
