by Kim | Feb 25, 2019
The weekly macro brief for w/c 25 February 2019 – Several key events will be in focus this week;
1.US President Trump will meet with North Korean Supreme Leader Kim Jong-un in Vietnam. While not directly related to the markets, headlines could impact sentiment.
2. US Fed Chairman Powell will provide testimony on monetary policy to the US Senate over two days.
3. USTR Lighthizer will also provide testimony to the House Ways and Means Committee on the progress of trade talks. Progress on US-China talks will be of interest as well as any possible commentary regarding the s.232 investigation.
4. Brexit – although the meaningful vote was postponed until 12 Mar, there could still be a vote this week that results in a delay to Brexit if an amended deal is not completed by 13 Mar 2019.
It
will be a big week of data for the US. Of most interest will be Q4 GDP and
Personal Consumption Expenditure and price data. Housing data will also be
released including house prices, pending home sales and housing starts. US
manufacturing will remain in focus – ISM manufacturing PMI for Feb, final
Markit manufacturing PMI for Feb, durable goods orders (full report) and regional
manufacturing surveys.
US
Fed speeches will feature heavily throughout the week including a further
speech by Chairman Powell later in the week.
There
will be heavier supply of treasuries settling this week with the US Treasury
settling approx. $319bn in bills, notes and TIP’s. Its also month end and
approx. $12.3bn in securities on the Fed balance sheet will mature of which
$5.82bn will be reinvested.
There will several other important data releases this week, as we continue to track slower manufacturing and production activity;
PMI’s
for China, Canada and UK manufacturing for Feb as well as the final
manufacturing PMI for the Eurozone for Feb.
Japan industrial production data for Jan and final manufacturing PMI for Feb.
More detail is provided in the full briefing document – you can download the file here;
Key releases from w/c 18 February will be incorporated into the Macro Review for w/c 25 February.
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | Feb 18, 2019
The weekly macro review for w/c 11 February 2019 – Weaker industrial production and external trade were key themes this week.
Key industrial production reports were weaker with output
declining in Japan (Dec), the EU (Dec) and the US (Jan) in the month. Output in
Japan and the EU fell below output levels from a year ago. The decline in
production in the US was led by an 8.8% fall in motor vehicle and parts
production.
GDP reports for Germany and Japan confirmed the weaker state
of external demand late in 2018. Germany narrowly missed a technical recession
as net exports likely detracted from growth. Growth rebounded in Japan in Q4,
but the year on year result was such that annual GDP growth in Q4 slowed to
-0.01%. The external sector also detracted from growth.
The EU goods trade balance for Dec and the full year 2018 trade
balance confirmed the broadly weaker trade position. Goods exports declined in
Dec while imports grew. In the full year of 2018, exports grew at a slower rate
than imports. The detail highlights that growth of the largest export product
group, machinery and vehicles, finished the year at +1.8%, lagging total goods
exports growth of 4% for the year.
The question facing both Europe and Japan is whether the US
will place a 25% tariff on car and truck imports. President Trump was scheduled
to receive the final report into tariff recommendations from the s.232 National
security investigation into car and truck imports by 17 Feb. The President has
90 days to review and action. President Trump has previously assured the EU and
Japan that no additional tariffs will be levied while trade negotiations are
underway (about to get underway).
UK Q4 GDP highlighted that Brexit has likely put a brake on
business investment decision making amid a weaker external sector (net trade
also detracted from growth in Q4) resulting in slower overall growth.
Consumption remains resilient and growth in retail sales accelerated in Jan.
Growth in the CPI slowed as energy prices declined.
The large magnitude % decline in US retail sales for Dec was important. While the report was weak (growth in autos was offset by declines in spending across all other categories), the broader context of the data makes it difficult to say whether this is the start of a trend in slower consumption. The decline in retail sales is inconsistent with the consumer credit data that was released last week for the month of Dec. Whilst revisions to data will be possible next month (consumer credit or retail), the Jan retail data will likely still be impacted by the partial govt shutdown. The weaker motor vehicle sales for Jan (released last week) will also likely weigh on next month’s retail 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 18 February 2019 – Later in the week we get our first view of Feb private sector manufacturing and service activity with the prelim Feb PMI’s to be released for the US, Eurozone, and Japan.
It
will be a short week in the US – the focus will be on the FOMC minutes and
especially comments around the balance sheet size and the interest rate regime.
Durable Goods Orders for Dec will be released as well as the latest housing
market index (Feb) and existing home sales data (Jan). As we move into
reporting Feb data for the US, it will be interesting to see any impact on data
from the end of the partial government shutdown and the pivot by the Fed to
hold off on further rate hikes.
Several
Fed speeches are so far scheduled for Friday – topics include “the future of
the Federal Reserve’s balance sheet”.
The
US-China trade talks continue this week – USTR Lighthizer and Vice Premier Lui
He will meet again in Washington as the 1 March deadline approaches.
US
treasury supply will be much lighter this week, with the US Treasury settling
approx. $169bn in ST bills and raising approx. $12bn in new money.
In
Australia, the Wage Price Index for Q4 will be released along with the Jan
Labour Force Survey results. Both will be crucial inputs for the RBA decision
on interest rates.
Also of note this week will be the UK Labour Force Survey and Canada Retail Sales for Dec.
More detail 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 | Feb 11, 2019
The macro review for w/c 4 February 2019 – Growth downgrades were announced during the week by the EC, the BoE and the RBA.
The EC lowered growth forecasts for Euro area GDP; +1.3% in
2019 and 1.6% in 2020 (Autumn Forecast: 1.9% in 2019; 1.7% in 2020). Italy is
already in recession and there is a risk of Germany also falling into recession.
The EC maintains that “Europe’s economic fundamentals remain solid”.
The BoE kept rates on hold. Brexit remains the largest
near-term risk with rising uncertainty about the form of Brexit. This is acting
as a headwind to business decisions and the BoE has reduced growth forecasts.
The UK services PMI reflects the impact of increasing uncertainty of Brexit on
business decision making.
The RBA also kept rates on hold. Importantly, the RBA has
shifted from its tightening bias (“next move in rates likely to be up”) to a
more neutral bias – “the next move could be up or down”. This reflects concerns
regarding the domestic housing market, consumption and global growth. The RBA
downgraded economic growth from the “3.5% average” to 2.5% in June 2019 and then
back up to +3% by the end of 2019. For the RBA, negative shifts in the labour
market will likely be the key for rate cuts.
Comments by US San Francisco Fed President, Mary Daly, late
in the week sparked the interest of the markets, saying that the US Fed balance
sheet could be used to “generate more stimulus than it could achieve by just
cutting rates” (rather than just using the balance sheet in emergency situations).
This was broadly interpreted as “QE for
ever”.
US agencies are starting to catch up on the reporting
backlogs. Factory orders, shipments and inventories were weak in Nov – driven
by falls in non-durable goods (petroleum products) orders, shipments and
inventories. International trade data also suggests that lower oil prices may
have impacted the headline trade result. But the price-adjusted import data
shows a broader slow-down (but not decline) of growth, especially since Oct.
Both PMI reports into services for Jan indicated slower growth – which could be
an effect from the partial government shutdown. The Jan motor vehicle sales
data was very weak.
Weaker consumer data was recorded in the EU and Australia
for Dec. EU retail sales (vol) fell in Dec across a broad range of categories,
reversing the stronger gains in Oct and Nov. Aussie retail sales growth was
marginal at best in vol terms and down in value terms. The shifting holiday retail
calendar outside of the US has been bringing sales forward into Nov, but this
was still a weak retail result for Australia. The Aus Services PMI also fell
hard in Jan suggesting further weakness, especially in retail.
So far, much of the data around the ‘growth slowdown’ has been reflected in slower growth in production/manufacturing and exports, with weakness emanating mostly from Asia/China. PMI’s throughout Asia and Europe have been indicating slower growth in output and new orders while backlogs decline. For the most part, this weakness has yet to be reflected in consumer-based data. Some retail reports are starting to weaken, and we’ll get a better handle on that in the next few weeks. US data will be harder to evaluate given the possible impact of the partial govt shutdown. For example, US auto sales decline sharply in Jan during the shutdown. PMI’s are just starting to hint at weaker growth in employment – but most labour market reports remain quite strong.
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 February 2019 – The focus this week will be on economic growth data.
On
the back of EC downgrades to growth, Germany and the broader Eurozone Q4 GDP (prelim)
will be released this week. Germany Q3 GDP declined by -0.2%. The German Office
of Statistics released an early forecast indicating that Germany would likely
avoid a technical recession.
Japanese
Q4 GDP will be released this week and all eyes will be on whether a technical
recession will be avoided there too.
There has at least been a somewhat stronger rebound in activity since
the Sep weather related disruption.
We
will get a broad view of the performance of the UK economy amid the ongoing
Brexit impasse – with retail sales, Q4 GDP and CPI out this week. There will be
further meetings between EU and UK negotiators this week, but little hope of
changes to the withdrawal agreement.
In
the US, CPI, PPI, retail sales for Dec and business inventories will be
released along with the first read of consumer sentiment for Feb.
There
are two notable US Fed speeches this week – including Chairman Powell and
Atlanta Fed president Bostic giving a speech at the European Financial Forum on economic outlook and
monetary policy in Ireland.
The
US-China trade talks continue at the end of the week with US Treasury Secretary
Mnuchin and USTR LIghthizer travelling to Beijing for talks.
US Treasury supply will be heavy this week, with an additional $50bn Cash Mgt Bill to settle on Mon 11 Feb. This week, the US Treasury will settle approx. $303bn in ST bills, notes and bonds, raising approx. $89bn in new money (incl the $50bn CMB). Its also mid-month and $43bn in US Fed holdings of Treasury securities will mature this week. Of that total, approx. $20bn will be reinvested.
The next deadline for US government funding is this week – 15 Feb.
More detail 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 | Feb 4, 2019
The macro review w/c 28 January 2019 – Despite the looming trade talks, the US proceeded to officially request the extradition of Huawei CFO Meng as well as announce further criminal charges against Huawei. Little detail was provided regarding the trade talk outcomes between the US and China, although brief comments were upbeat. Further high-level talks have been scheduled for mid-month.
As expected, the FOMC kept rates on hold. Comments remained
dovish; “muted inflation pressures” and “case for raising rates has weakened”
were key statements. The surprise announcement was the decision on the long run
monetary policy implementation framework – to retain the current system of
‘abundant reserves’. Past minutes, and even a speech by Vice Chairman Clarida
on 10 Jan suggested that the FOMC was still working through its evaluation of
the options in the coming meetings. The decision means that the FOMC can
complete ‘normalisation’ sooner and with a larger balance sheet than expected.
The FOMC is now considering the appropriate timing for ending normalisation.
Brexit remains at an impasse. The UK Parliament essentially voted for the current agreement on the basis that it be renegotiated. Brussels insisted that the deal was not up for renegotiation. Latest news suggests that the UK may look to extend Article 50 beyond 29 Mar as a key UK working group commences work on providing alternative arrangements for the Irish border backstop.
US PMI and ISM numbers indicated somewhat faster overall
growth in manufacturing. New export orders remained weak in both surveys. The
regional surveys were mixed. The end of the partial government shutdown will
help put some firmer numbers around these surveys. Nonfarm payrolls were strong
again in Jan, but the very strong Dec growth in payrolls was revised much
lower. On an annual basis, employment continued to grow faster than what both population and
participation added back to the labour force. The slightly slower growth in
employment though, resulted in a smaller decrease in total unemployed persons.
The
flash Eurozone GDP growth for Q4 was better than expected with the quarterly
growth rate on par with Q3. Italy officially went into recession. The PMI’s for
Jan suggest manufacturing weakness is likely to continue. German retail sales
data indicated some impact on consumer sentiment with a large fall in retail
trade for Dec.
Data
from Asia remains disappointing. The post-storm rebound from Oct in Japan
appears to have ended with retail sales growth remaining low and industrial
production again falling back below last year. Japanese manufacturing PMI was
very weak with both production and new orders contracting. Manufacturing PMI’s
were also weaker in the key Asian hubs, with Chinese, Taiwan and South Korea
manufacturing sectors all falling into contraction.
Some evidence that Australia is catching up to its regional neighbours with a very weak business conditions report for Dec. The CPI growth for Q4 remains below the RBA range and suggests little need to increase rates.
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 February 2019 – In the US, the focus shifts back to the data this week with important readings on services PMI’s, factory orders, trade, consumer credit and motor vehicle sales.
US
agencies will continue to catch up with delayed data releases – and updated data
will be added as available. US government funding remains in place until the
next deadline of 15 Feb (next week).
Notable speeches will be the State of the Union address delivered by President Trump this week and Fed Chairman Powell will provide brief remarks in Washington.
US earnings announcements will continue this
week.
It will be a lighter week for US treasury
issuance, with the US Treasury settling approx. $169bn in ST bills and raising approx.
$9bn in new money.
Its
Chinese New Year this week and US-China trade talks are likely to pick up again
next week – awaiting confirmation on further meetings.
The
BoE will meet this week and rates are most likely to remain on hold as the
Brexit impasse continues. The UK services PMI for Jan will be an important gauge
of activity in the economy.
The
RBA will also meet this week – rates are expected to remain on hold. Australian
retail sales will be released for Dec providing a gauge for how spending is
tracking amid the housing slowdown. Likely to affect sentiment this week will
be public release of the Royal Commission into Banking Misconduct in Australia.
Eurozone data this week will round out the view of private sector activity in Jan with services PMI’s to be released. Broader Eurozone retail sales, final German factory orders and industrial production data for Dec will also be released.
Further detail and a calendar of key releases are provided in the briefing document – download it here;
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | Jan 28, 2019
The macro review for w/c 21 January 2019 – The slow-down in global trade (and growth) continued to be a key theme from the data last week.
The US data was somewhat stronger, but there were some mixed
results. The two regional surveys showed some improvement in headline
manufacturing activity in Jan after the weaker readings from Dec. But an
underlying theme was that new order growth remained weak and headline output
grew as firms worked through backlogs. That said, the broader prelim manufacturing
PMI for Jan was stronger with domestic demand offsetting weaker new export
orders. The services PMI was mostly unchanged.
US existing home sales came in weaker with falls across all
regions and led by larger falls in the Midwest.
The ECB kept rates on hold. While the minutes of the last
meeting in Dec and the Jan press conference have introduced more caution on the
broader environment, the ECB still appears to be fundamentally optimistic about
the economy and the outlook. The data continues to indicate a weaker growth
environment and the Jan PMI’s did little allay concerns about the slow-down.
The broader Eurozone composite PMI showed subdued growth and weaker internal
results such as declining new orders – led by both manufacturing and services.
The BoJ kept rates on hold and reduced the inflation forecast for fiscal year 2019. Data on merchandise trade was weaker with exports declining in Dec. This weakness was mostly driven by Asia with exports to Asia -7% in Dec. Exports to China were -6.9%. The prelim Jan Manufacturing PMI fell to a neutral 50 reading as key indicators of demand (new orders and production) fell into contraction.
Trade data from the Asia region was also released during the
week, further highlighting the weaker trade environment.
Ending on a good note. UK labour force data remained strong.
The Australian labour force data was also strong, although employment growth
has moderated somewhat.
The US Senate and House voted unanimously on Friday to fund the Government until 15 Feb as negotiations on funding for the border wall continue. It will likely take some time to restore the data flow by key agencies.
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 28 January 2019 – While the ‘hard data’ will be important this week, there are several events lining up that could be important to sentiment.
High level US-China trade talks will take place in
Washington 30-31 Jan. President Trump’s key economic advisor, Larry Kudlow has
called this meeting “determinative” (Source:http://www.atimes.com/article/chinese-vice-ministers-heading-to-washington-ahead-of-trade-talks/),
underlining the importance of these particular talks. The 30 Jan is also the
final date for the US to file an extradition order for Huawei CFO Meng. US
authorities have previously confirmed that they will request the extradition
from Canada. China’s Foreign Ministry hit back last week ‘strongly urging’ that
the US ‘correct its mistake’ and cancel the arrest order. The US has continued
to take a hard-line on China outside of these talks and it’s possible that this
highly visible case could impact the sentiment of the talks this week.
The FOMC also meets this week and rates are expected to
remain on hold. Details that the Fed is considering rolling back its balance
sheet run off were reported by the WSJ late last week. As we are in the Fed
blackout period leading up to the FOMC meeting, there has been no confirmation
or denial by the Fed – yet the markets responded positively to the report. The
messaging by the Fed will be important to watch this week.
Finally, there is Brexit. There will be another vote in the
UK Parliament this coming week on a plan that the EU has already (previously)
ruled out. Other amendments will be tabled within the Parliament to request an
extension to 29 Mar deadline. If any of the amendments are successful, this
could lead the way to a second referendum possibly breaking the current
deadlock.
There will also be heavy US treasury supply this week with
the US Treasury settling $333bn in bills, notes and TIPS this week, raising
approx. $31bn in new money. Its also month end, and approx. $14.2bn in Fed
holdings of treasury securities will roll off the Fed balance sheet.
There are several important data releases this week;
US Non-farm payrolls, the first estimate of US Q4 GDP
(possibly delayed), the ISM Manufacturing PMI for Jan and the final Markit
Manufacturing PMI for Jan.
Final Manufacturing PMI’s for Jan will also be released; UK,
Japan and Eurozone.
Australian Q4 CPI
US earnings announcements will continue this week.
Further detail and a calendar of key releases are provided in the briefing document – download it here;
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
