by Kim | Apr 27, 2020
The weekly macro review for w/c 20th April 2020 – The Mar data has continued to show the first downside impacts to economic activity from the Covid-19 shutdowns.
The frontline of the US durable goods manufacturing impact in Mar was motor vehicles and non-defense aircraft. Both recorded severe declines in orders and shipments. Most of the decline in new orders for Mar can be traced back to a -$16bn print in new orders for non-defense aircraft – likely order cancellations. Excluding transport, the declines were more muted. The total value of unfilled orders across durable goods industries remained elevated in Mar.
But the start to Q2 looks to be even worse. The Apr PMI data is indicating an acceleration in output declines compared to Mar. The prelim PMI’s across most of the major regions recorded new series lows in the pace of output contraction. This has also been reflected in US regional manufacturing surveys for Apr.
In many cases, the decline reflects the first full month of restricted trade for many businesses. We are now almost at the start of May and many regions/countries/states are wary, and even unable, to lift quarantine restrictions at this stage – possibly setting up for an even worse Q2 unless something changes.
Extremely high levels of unemployment – now over 26m people in the US have filed an initial unemployment claim in the last five weeks – is placing greater pressure on governments around the world to begin to ease restrictions.
Sentiment remains fragile. There is an expectation across businesses and households that economic conditions are likely to improve once restrictions are lifted. But a resurgence in virus infections, and the re-imposition of restrictions, could see a further negative shift in sentiment.
“The risks associated with these decisions are not equally balanced, with an incorrect decision to reopen having serious repercussions.”
Stimulus will likely start to have an impact on households and income from mid-late Apr. Retail sales globally exhibit a similar pattern – extremely strong sales for grocery items (stockpiling included), some household goods and home office supplies. Weaker sales have been recorded across more discretionary categories such as clothing as well as those areas under greater social distancing restrictions, such as food service. Spending patterns will likely shift for a while a) while restrictions remain in place and 2) while incomes remain constrained.
The USTR announced this week that the new USMCA agreement would enter into force from 1 Jul 2020. From that statement (emphasis added);
“The crisis and recovery from the Covid-19 pandemic demonstrates that now, more than ever, the United States should strive to increase manufacturing capacity and investment in North America.”
Likely to see greater focus on reconfiguring US manufacturing supply chains – driving more ‘local’ rather than ‘global’ solutions.
The other point to note this week was the more negative tone of Brexit trade talks. Whether or not this is posturing, the deadline for the extension of the trade deal negotiation is coming up at the end of Jun. The UK has been consistent in saying that it would not request an extension.
There are more data releases covered in the review document. Use the links on the contents page to navigate to different country sections. Download the review here;
The outlook for w/c 27 April 2020 – The focus this week will be on central bank meetings of the BoJ, the US Fed and the ECB as well as the prelim Q1 GDP releases for the US and the Eurozone.
The release of the final PMI’s for Apr will commence at the end of the week. The Chinese National Bureau of Statistics will also release the NBS Manufacturing and Non-Manufacturing PMI’s for Apr.
Other important data releases this week will be;
US; ISM Manufacturing PMI for Apr, Initial Jobless Claims for last week and several more regional manufacturing surveys for Apr.
Australia’s Q1 CPI.
The US Fed will continue to reduce purchases of Treasury and Mortgage securities. This week, the NY Fed will purchase approx. $50bn in Treasury Securities (last week $75bn, prior week $150bn) and approx. $40bn in MBS (last week $50bn and prior wk $75bn).
The number of term repo operations has also been reduced to one (1) this week. The twice daily O/N operations remain unchanged.
At the same time, US Treasury issuance remains extremely heavy amid increased fiscal spending. This week w/c 27 Apr, the US Treasury will settle approx. $559bn in ST Bills, Notes and TIPS, raising approx. $240bn in new money for the week. It is possible that additional Cash Management Bill’s will be added this week. The final total of US Treasury issuance settling last week w/c 20 Apr was $443bn raising approx. $254bn in new money for the week.
More detail (including a calendar of key data releases) is provided in the briefing document – download the file here;
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | Apr 20, 2020
The weekly macro review for w/c 13 April 2020 – The sudden drop in output, sentiment and employment has so far been unprecedented. We expect this data to remain very weak until quarantine measures start to lift. In the US, and across many countries, stimulus is currently making its way through to households and businesses. This will provide some limited relief as many ride out these extremely difficult times.
Lock downs remain in place across many countries. The exception (for which we have data) is China – which is now lifting quarantine measures. Data this week reflects ongoing consumer weakness, as the sharp decline in retail sales continued in Mar. Industrial production declined at a slower pace, somewhat offset by a rebound in mining. Manufacturing remained weaker across more capital/durable goods sectors while non-durables such as food production continued to grow. Exports rebounded in Mar after a much weaker Feb. The Chinese economy shrank at a record pace in Q1. A sign of things to come for many countries.
In the US, new unemployment claims remained at extreme (high) levels this week. In the last four weeks, over 22m people have filed for unemployment benefits. Housing market conditions fell sharply. The weekly MBA survey highlighted that the purchase index remains weak (down 35% from the start of Mar) – a 4-6wk leading indicator of housing sales.
A look at two regional manufacturing surveys for the first full month of Apr highlighted record-breaking declines across indicators of current activity. The two surveys only differed in the view of conditions in six months’ time. From the NY Empire State survey, one of the hardest hit states by the virus, firms only expected a slight improvement in conditions in six months’ time. From the Philly Fed survey – firms were far more optimistic about conditions in six months’ time.
Retail sales contracted sharply in Mar – with motor vehicle sales and food service the largest drags on growth. Unsurprisingly, grocery sales were very strong. Delivery of stimulus checks in the US commenced on 13 Apr – either electronic or by mail.
The Aus labour market report reflects the conditions the week prior to the implementation of containment policies in mid Mar – little change overall. By late Mar, business confidence for Australia had fallen hard, recording the largest decline in the survey history. Similarly, business conditions deteriorated notably in the month across trading, profitability and employment. The Westpac consumer sentiment survey for Apr shows how far sentiment has fallen since the lock-down came into effect – recording the single largest monthly decline in the survey history. While many of the fiscal support packages have been announced, issues remain with implementation (difficulty in registering for programs etc) and payments are yet to commence.
There are more data releases covered in the review document. Use the links on the contents page to navigate to different country sections. Download the review here;
The outlook for w/c 20th April 2020 – Several important points to note this week.
Firstly, the US Fed announced further reductions in purchases of Treasury and Mortgage securities for the week. This week, the NY Fed will purchase approx. $75bn in Treasury Securities (last week $150bn, prior week $205bn) and approx. $50bn in MBS (last week $75bn and prior wk $100bn).
The number of term repo operations has also been halved from four operations a week last month to two operations a week this month. The twice daily O/N operations remain unchanged.
At the same time, US Treasury issuance remains very heavy amid increased fiscal spending. This week w/c 20 Apr, the US Treasury will settle approx. $413bn in ST Bills, including three (3) Cash Management Bills (CMB’s), raising approx. $224bn in new money for the week. It is possible that additional CMB’s will be added this week.
The final total of US Treasury issuance settling last week w/c 13 Apr was $542bn in ST bills, Notes and Bonds raising approx. $292bn in new money for the week.
Finally, on the data front, the key highlights this week will be the prelim PMI’s for Apr across the US, Europe and Asia.
Other releases of note for the US will be initial jobless claims for last week, the final read of consumer sentiment for Apr, durable goods orders for Mar and existing home sales for Mar.
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 | Apr 13, 2020
The weekly macro review for w/c 6 April 2020 – The sheer weight of the emerging US and global unemployment picture indicates that the demand shock from C-19 shutdowns will likely be significant.
Late in the week, the US Fed announced a further $2.3t in funding for several facilities designed to enable, essentially bridging finance, to a range of organisations in the US economy. This is the Fed stepping in as the backstop – both directly and indirectly, keeping rates low and ensuring the flow of credit within the financial system. Love it or hate it, these actions are helping to keep the US financial system on life support. It’s likely we’ll see continued upgrades and expansion of this support with the Fed essentially plugging gaps in liquidity if and when required.
While the financial system remains on life support, the economic situation is worsening. Whether these firms survive post C-19 is another story. The central question is – how quickly will demand return? When, if ever, will spending patterns “return to normal”?
In the last 3 weeks, over 16m US workers made an initial unemployment claim. This includes another alarming 6.6m initial claims this week. Mortgages applications declined again – as unemployment increased and uncertainty remains high. Home-owners/borrowers are taking advantage of the forbearance provision of the CARES Act with a significant number of borrowers applying for the program. Data for Mar highlighted that motor vehicle sales fell by a third versus the month prior. Within that, auto retail sales fell to the lowest monthly pace on record (going back to 1976).
Consumer sentiment data for early Apr continued to deteriorate – recording the largest fall in the series history. The Apr fall in sentiment around current economic conditions indicates just how hard consumers have been hit so far. We cannot discount the possibility that lasting damage has been done to spending patterns and that a swift ‘V’ shaped recovery is not likely.
Consumer sentiment data highlights that expectations about future conditions was not quite as negative. This was based on the expectation that quarantine measures would only be temporary. It’s becoming obvious that shut-downs, in various forms, will likely continue.
What is also becoming apparent is the complexity and magnitude of the task to ‘restart’ a highly integrated, just-in-time, global supply chain.
There are more data releases covered in the review document. Use the links on the contents page to navigate to different country sections. Download the review here;
The outlook for w/c 13 April 2020 – This week we begin to get more data for Mar to start rounding out the view of the initial economic impact of the C-19 shutdown.
From the US this week, initial and continuing claims will remain a key focus, as well as new mortgage applications. Of note will be retail sales and industrial production for Mar. We will also get a first view of NY and Philadelphia manufacturing conditions for Apr.
Chinese GDP for Q1 will be released. Also, Mar data for China’s international trade, retail sales, industrial production and fixed asset investment.
In Australia, the focus will be on the labour market report for Mar and consumer and business confidence reports also for Mar.
This week w/c 13 Apr will see continued heavy US Treasury issuance especially for ST bills. The US Treasury will settle approx. $512bn in ST Bills, Notes and Bonds, including four (4) Cash Management Bills (CMB’s) this week, raising approx. $262bn in new money for the week. It is possible that additional CMB’s will be added this week.
The final total of US Treasury issuance settling last week w/c 06 Apr was $509bn in ST bills, raising approx. $308bn in new money for the week.
This week, the NY Fed will purchase approx. $150bn (last week $205bn) in Treasury Securities and approx. $75bn (last week $100bn) in MBS.
More detail (including a calendar of key data releases) is provided in the briefing document – download the file here;
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | Apr 6, 2020
The weekly macro review for w/c 30 March 2020 – Data this week showed that services, especially consumer facing service industries, have so far been most heavily impacted by the pandemic. That said, across the US, Asia and Europe private sector activity across both services and manufacturing sectors contracted in Mar.
US data across PMI’s and employment highlighted severe falls in services employment, output and new work in Mar. It was an even more shocking reading for initial jobless claims in the latest week with 6.6m new claims recorded. The majority of the -700k decline in Mar non-farm payrolls were recorded for leisure and hospitality workers – even worse, is that the reference week for Mar non-farm payrolls was prior to the severe deterioration in initial claims over the last two weeks. The ISM non-manufacturing PMI indicted that growth in activity had only slowed overall – but this headline result was buoyed by a lengthening in supplier delivery lead-times. The changes in output indicate that contraction was underway.
US manufacturing activity has also been impacted further. The manufacturing PMI’s and regional surveys indicate quite acute falls in output and especially new work. But some differences by industry were noted. Manufacturing conditions were generally better across healthcare and food & beverage sectors – although there were disruptions to these supply chains impacting output. Petroleum and more capital-based manufacturing were generally weaker (transport, machinery etc). In some cases, backlogs of work were helping to maintain workforces. The pace of growth in new work will be crucial going forward, especially for manufacturing employment. The ISM manufacturing report highlighted that most firms, 70%, reported unchanged manufacturing employment – up slightly from the month prior. This was similar to the Dallas Fed manufacturing survey in Mar. There is an obvious freeze on manufacturing employment though, and other reports highlighted that hours worked and overtime hours had both declined.
Input price falls were recorded in the ISM/Markit surveys. The degree to which this is led by a fall in oil prices is unclear. Elsewhere, the lengthening of supplier lead times suggests some ‘scarcity’ of other inputs. Over time, this could impact input and/or consumer prices.
The overall contraction in Eurozone services activity was severe in Mar, with the pace of decline in services business activity the worst on record. Manufacturing activity also contracted further.
In Japan, both manufacturing and, especially services, activity declined sharply in Mar. Aggregate demand had already contracted notably in Q4 2019, so this is a further blow for the Japanese economy. More consistent services growth had previously helped to offset some the persistent weaker growth seen in manufacturing over the last year.
Many noted the expansion in the official Chinese manufacturing and non-manufacturing PMI’s for Mar. The sharp increase from a record low reading indicates that there was at least some growth in Mar versus Feb. Even the Chinese National Bureau of Statistics highlights that the result “did not mean that China’s economic operation had returned to normal”. Growth in demand and output was mostly led by the domestic market. New export orders (both manufacturing and non-manufacturing industries) continued to decline in Mar after larger declines in Feb. Most external trade partners began to implement strict quarantine policies in Mar, impacting demand. Manufacturing employment growth was unchanged in Mar after a much larger decline in Feb. Chinese non-manufacturing employment continued to decline.
There are more data releases covered in the review document. Use the links on the contents page to navigate to different country sections. Download the review here;
The outlook for w/c 6 April 2020 – Two short weeks coming up with Easter celebrations from 10-13 Apr.
It will be a relatively light week from a data perspective this week. For the US, the important points will be initial and continuing jobless claims, FOMC minutes and Michigan consumer sentiment prelim reading for Apr. US PPI and CPI data will also be released this week for Mar.
In Aus, the RBA will meet on 7 Apr for its rates decision. As of 3 Apr, the ASX rate cut indicator remained at almost a 50-50 chance of a further cut to 0%. The RBA Board has previously said that 0.25% for the overnight cash rate was the lower bound. https://www.asx.com.au/prices/targetratetracker.htm
An emergency OPEC meeting was originally set for 6 Apr which has now been postponed until 9 Apr.
US Treasury issuance will continue to be heavy. Last week, several Cash Management Bills (CMB’s) were added to supply bringing the total of US Treasuries settling last week to $618bn, raising approx. $362bn in new money – just in one week.
So far this week, the US Treasury will settle approx. $379bn in short term bills, including three CMB’s, raising approx. $179bn in new money. It is possible that additional CMB’s will be added this week.
This week, the NY Fed will purchase approx. $205bn in Treasury Securities and approx. $100bn in MBS.
More detail (including a calendar of key data releases) is provided in the briefing document – download the file here;
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | Mar 30, 2020
UPDATE TO THE WEEKLY MACRO BRIEF 31 Mar 2020 – After posting the briefing document, the US Treasury added two Cash Management Bills (CMB) for the week – a 42-Day and 69-Day CMB. Together, this increased the total of Bills and Coupons settling this week by $105bn. Totals have been updated in the briefing document.
The weekly macro review for w/c 23 March 2020 – The more timely indicators of activity for Mar indicate a severe drop in economic activity.
To further support the supply of dollar liquidity, the US FOMC
announced on Mon morning that QE would effectively be open ended. Last week in
our briefing we noted that the Fed had already likely purchased $275bn in the
first week of a proposed $500bn QE target for “a couple of months”. From the
FOMC this week;
“The Federal Reserve will continue to purchase Treasury securities and agency mortgage-backed securities in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions.” https://www.federalreserve.gov/newsevents/pressreleases/monetary20200323a.htm
The Mar prelim PMI’s for the US, Europe and Asia confirmed
that output and employment growth contracted sharply. Services business
activity was hit very hard. The manufacturing PMI’s declined, but not to the
same extent – in most cases lengthening supplier lead times (usually a positive
indicator of rising activity, but not in this case) offset historic falls in
output and new orders.
The two regional US manufacturing surveys for Mar were mixed.
The Richmond Fed index was little changed but the fall in new orders indicates
weakness in future output is possible. The Kansas City Fed survey for Mar
indicated a much more severe decline in activity was underway. There was an
important anecdote in that survey;
“$30 per barrel oil is a much bigger problem that people are not focusing on because of C-19.”
The increase in US initial jobless claims for the week prior
was shocking at 3.28m new claims – even though we knew to expect an extremely
high number.
Consumer sentiment is deteriorating quickly. Prelim Mar
results were revised sharply lower in the final report for this week. The
indexes haven’t recorded historic falls yet – but the 7-day moving average,
should it stabilize at these levels, indicates that Apr may set-up for a
historic fall of over 30pts in a 2-month consecutive period. While financial
support can help to mitigate an adverse financial situation for many, it’s not
likely to tip the scales from pessimism to optimism and this sets the
expectation for large shifts in spending and saving.
US mortgage applications also declined again this week. Refi
activity also declined in the week, but remains up over +195% versus the same
week a year ago.
“The 30-year fixed mortgage rate reached its highest level since mid-January last week, even as Treasury yields remained at relatively low levels…”
“…this week’s additional actions taken by the Federal Reserve to restore liquidity and stabilize the mortgage-backed securities market could put downward pressure on mortgage rates, allowing more homeowners the opportunity to refinance.”
There are more data releases covered in the review document. Use the links on the contents page to navigate to different country sections. Download the review here;
The outlook for w/c 30 March 2020 – UPDATED 31 Mar 2020 – After posting this brief, the US Treasury added two Cash Management Bills (CMB) for the week – a 42-Day and 69-Day CMB. Together, this increased the total of Bills and Coupons settling this week by $105bn. Totals have been updated in the first paragraph below and in the Treasury Issuance section of the brief.
[Edited] Treasury issuance to increase. There will be a significant increase in the supply of US Treasuries settling this week. The US Treasury will settle approx. $493bn in ST Bills, TIPS, Notes and three (3) CMB’s this week, raising approx. $237bn in new money for the week. There was an increase in auction amounts across all Bills plus the addition of three (3) CMB’s.
Looking forward, the initial Q2 Treasury financing schedule
released back at the start of Feb had a recommended net $56bn paydown (Bills -$278bn
and Coupons +$222bn). The next update is not until mid Apr, but several
estimates indicate that revisions to the Treasury financing needs, across Q2
and Q3 could reach over a trillion USD in net new money raised.
QE is now open
ended. This week, the NY Fed will purchase approx. $345bn in Treasury Securities
and approx. $200bn in MBS.
It’s a reasonably
heavy data week – still mostly focused on Feb data. Some of the more important Mar
data will be released this week.
In the US, the
most important released will be non-farm payrolls for Mar and initial jobless
claims for last week ending 27 Mar. Also of note will be the ISM PMI’s and the final
Markit PMI’s for Mar. Several important regional manufacturing/business
conditions reports will be released this week – NY, Chicago and Dallas.
The prelim
Eurozone CPI for Mar will be released this week.
We will get a more global view of the state of the economic impact via the release of the final PMI’s for Mar this week.
More detail (including a calendar of key data releases) is provided in the briefing document – download the file here;
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
