by Kim | Mar 23, 2020
The weekly macro review for w/c 16 March 2020 – More countries, as well as individual US states, have tightened quarantine measures in an effort to slow the spread of the Coronavirus. This is having significant impacts on economic activity – not to mention enormous social impacts. Governments and central banks are ramping up stimulus, safety net support and liquidity measures.
Major central banks made out-of-cycle announcements on
policy changes and further accommodations during the week. There was further co-ordinated
central bank action to address USD shortages during the week.
On Mar 20, the EC proposed activating the ‘general
escape clause of the Stability and Growth Pact’ – allowing member states to
respond with greater fiscal flexibility. In the US, a $1TR stimulus package was yet to be approved by the
Senate at the time of writing (will likely pass with changes).
The combined Jan-Feb data for China started to show a
severe impact – retail sales fell by over 23% (real terms), industrial
production fell by 13.5% and fixed asset investment fell by 24.5%.
The Mar data for US, Europe and Asia will start to
highlight the extent of the economic shock. Once the extent of this shock
becomes apparent, there is likely to be some further calibration especially
with required levels of fiscal stimulus.
US data this week – starting to show some impact in the
hard data. The first two Mar regional manufacturing surveys both showed a
significant fall in manufacturing activity. Initial jobless claims increased by
70k to 281k – and this is expected to get much worse next week (estimates are
for initial claims to be in the millions). There was some softness in mortgage
applications.
US housing – strength in West/South existing home sales
in Feb, but conditions starting to weaken into Mar. Retail sales (val) already
weakening in Feb – well before the oil price shock (from first week of Mar).
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 23 March 2020 – The human and economic cost of the spread of Coronavirus will remain the key focus. Quarantine requirements continue to be stepped up across countries and regions. There is some good news in the form of slowing growth in the number of new cases in some regions (due to quarantine), including Asia, that are further along in this outbreak.
The
fall-out for the financial markets continues. Central banks continue to
implement measures to ease liquidity issues.
The
focus now starts to shift to the understanding the extent of economic shock and
how fiscal stimulus will be applied. This week, we will start to gauge that
impact with the prelim PMI’s for Mar across the US, Europe and Asia. Two other
important data points will be US Initial Jobless Claims from last week (20 Mar)
and the final version of the University of Michigan Consumer Sentiment for Mar.
Estimates for Initial Jobless Claims from last week have hit extreme levels
(millions) – and there was talk that this number may not be released.
The supply of US Treasuries settling this week will remain heavy. The US Treasury will settle approx. $236bn in ST Bills, a FRN and a new 79-day CMB this week, raising approx. $43.1bn in new money. The US Treasury will also auction approx. $125bn in Notes this week, to settle next week (raising approx. $42.5bn). Liquidity will be supported with further significant increases in repo operations each week, as well as purchases of Treasury securities by the Fed. There is still no forward schedule released for the planned purchases of securities – details to be released daily on the NY Fed website. On Mon 23 Mar, the Desk at the NY Fed will purchase approx. $75bn in Treasuries. While the results of purchase operations for last week have also not yet been released, the ‘planned’ purchases for last week totalled $275bn. Last week the Fed announced purchases of $500bn “over the coming months” – last week’s purchases represents over half of those planned purchases just in the first week. Further announcements from the Fed are likely as it looks for new ways to ease financial conditions.
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 16, 2020
Disruptions to financial markets continued last week. Central banks have responded with emergency rate cuts and further measures to ease financial conditions. The RBNZ cut rates by 75bps to +0.25% and the US Federal Reserve cut rates by 100bps to 0-0.25% ahead of its scheduled meeting this week.
The US Fed
announced a range of further significant policy easing measures on 15 Mar
(details included in this briefing document), including the coordinated Central
Bank action to “enhance the provision of liquidity via the standing US dollar
swap line arrangements”.
The Bank of
Japan announced a range of easing measures ahead of its scheduled meeting; details;
https://www.boj.or.jp/en/announcements/release_2020/k200316b.pdf,
https://www.boj.or.jp/en/announcements/release_2020/rel200316d.pdf,
https://www.boj.or.jp/en/announcements/index.htm/
Although the RBA cut its benchmark rate two weeks ago, further liquidity measures were announced today (16 Mar) – https://www.rba.gov.au/media-releases/2020/mr-20-07.html. This includes the purchase of AU bonds in the secondary market and standing repo operations. The statement indicates that further policy measures will be announced during the week on 19 Mar. This is likely to include a further reduction in the overnight cash rate to 0.25% and possible details of a QE program. The Aus government has also indicated that further fiscal stimulus is to be announced shortly.
Data out of
China early this week indicates significant declines across retail sales,
industrial production and fixed asset investment over the Jan-Feb period.
Data of note this week; US retail sales (Feb), regional
manufacturing data (Mar) and US industrial production – we will include a special
focus on US initial jobless claims and weekly mortgage applications data.
Labour market reports from Aus and the UK will also be in
focus this week.
The supply of US Treasuries settling this week will be heavier.
The US Treasury will settle approx. $246bn in ST Bills, Notes and Bonds this
week, raising approx. $57.3bn in new money.
This will be supported with significant increases in repo operations each week, as well as purchases of Treasury securities by the Fed. At this stage, there has been no forward schedule released for the planned purchases of securities. Purchase details this will be released daily on the NY Fed website. On Mon 16 Mar, the Desk at the NY Fed will purchase approx. $40bn in Treasuries. On 13 Mar, the Desk at the NY Fed purchased approx. $37bn in securities.
More detail, including a one-page calendar of key data releases for the week, 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 8, 2020
Markets are likely to continue to digest the impact of Coronavirus as well as now the ramifications of the breakdown in OPEC relations with Russia. This will be a quiet data week with only a few releases of note.
Last
week, central banks responded to the threat to economic activity from the
outbreak of Coronavirus with further rate cuts. The RBA (-25bps) and BoC (-50bps)
cut rates, as well as an ‘insurance’ (emergency) rate cut (-50bps) by the US
Federal Reserve. The ECB is due to meet this week.
US Fed Presidents were out during the week and there was some indication that the Fed may look to expand its mandate on asset purchases. The US FOMC will meet next week on 18 Mar and the current target rate probabilities indicate a further cut to 25-50bps (as of 8 Mar; https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html?utm_source=cmegroup&utm_medium=friendly&utm_campaign=fedwatch&redirect=/fedwatch)
Data
of note this week in the US will be CPI and PPI for Jan. Likely the most
important piece of data will be the first read for Mar of the Uni of Michigan
consumer confidence data. Given the falls in the US stocks and the
ongoing/escalation in Coronavirus reporting, its possible that we start to see confidence
erode.
Data
out of Europe includes Eurozone and Germany industrial production for Jan and detailed
Q4 GDP.
The
NBS in China will release CPI and PPI data for Feb. New loans data is also due
to be released this week.
Aus
data of note will be the NAB business confidence and conditions for Feb as well
as housing loans for Jan.
The supply of US Treasuries settling this week will be lighter
and there will be a net paydown due to the 21-day CMB ($40bn) maturing on 12
Mar. The US Treasury will settle approx. $173bn in ST Bills this week, with a
net paydown of $32.6bn.
This will continue to be supported with overnight repo operations on each business day of up to $100bn as well as two 14-day term repo operations this week of up to $20bn each (10 and 12 Mar). Last week, repo operations were over-subscribed in some cases, indicating increased funding needs coming into quarter end.
More detail, including a one-page calendar of key data releases for the week, 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 1, 2020
Markets are likely to continue to grapple with the potential impact of Coronavirus this week. The level of uncertainty regarding the impact on health, production, trade, expenditure, travel and supply chains remains extremely high. The first view of the quarantine impact on Chinese economic activity indicated a record level of contraction in both the manufacturing and non-manufacturing PMI’s for Feb. Other economic data out of China was not released last week. In the coming week, we’ll see the Caixin PMI’s for manufacturing and services as a comparison to the official NBS data. Chinese trade data for Jan and Feb is due to be released at the end of the week, but delays are likely.
This is a data
heavy week and there is likely to be greater headline risk around some of the releases
as the narrative of the economic impact starts to develop. That said – some impacts
may not appear negative on the surface. Firms may increase orders in order to
stockpile parts etc. or look for alternative sources of supply. This also
highlights the importance of tracking CPI and PPI over the coming months.
Global PMIs
for Feb are due out this week. The prelim Feb PMI’s indicated some weakening/contraction
in activity – this week’s release will include a broader view of economies. Production
and order data for Germany and US factory orders for Jan may be too early to
record much impact – although German data was already very weak in Dec.
US data of
note also includes the ISM manufacturing and non-manufacturing PMI’s for Feb as
well as non-farm payrolls for Feb.
US domestic
politics will also be in focus this week with the Democratic Super Tuesday
primaries on 3 Mar. So far, Bernie Sanders has taken the lead and the outcome
on Tues will have implications for the expected path of the election and
assessment of policy implications.
The Aust
economy will also be in greater focus given the reliance on the Chinese economy.
The RBA meets this week and the ‘official’ probability of a rate cut at this
meeting remains very low (given the circumstances) – only 11% expectation for a
rate cut to 0.5% on 3 Mar as of 27 Feb. This may evolve in the next few days – refer
to the tracker here; https://www.asx.com.au/prices/targetratetracker.htmtrack
Other
Aussie data out this week (after the RBA meeting) includes Q4 GDP (noting unexpected
declines in Q4 investment numbers last week), retail sales and monthly trade
data (important in tracking the slow-down in Australia’s largest trading
partner).
Also this week; OPEC meets on 5 and 6 Mar and the UK and EU commence Brexit trade negotiations.
The supply of US Treasuries settling this week will again be heavy. The US Treasury will settle approx. $292bn in ST Bills and Notes this week, raising approx. $51bn in new money. This will continue to be supported with overnight repo operations on each business day of up to $100bn as well as two 14-day term repo operations this week of up to $20bn each ($5bn lower for both term repo operations).
More detail, including a one-page calendar of key data releases for the week, 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 | Feb 23, 2020
The major data highlights this week will be China data, US Q4 prelim GDP and Japan retail sales and industrial production. This will be amid the likely ongoing headlines regarding the coronavirus.
Data out for China this week includes retail sales, industrial production and fixed asset investment. At the end of the week, the Chinese NBS will also release the Manufacturing and Non-Manufacturing PMI’s for Feb. Note that this data could be delayed as a result of managing fallout from the spread of coronavirus.
US data will feature the prelim reading
of Q4 GDP. More regional survey data for Feb will also be released this week.
The feature of the regional surveys last week was the acceleration in growth of
new orders (as well as inventories). The US manufacturing PMI showed growth
slowing and services were even weaker, falling into contraction – at odds so
far with the stronger readings from the regional surveys. It’s possible that supply
chain disruptions due to coronavirus could manifest in several ways (aside from
just the halt in supply) – firms could start to stockpile parts/finished goods in
the short term, resulting in the spike in new orders and some firms could
benefit as alternative suppliers are sought. More detail should come to light
as further regional survey results and durable goods data are released this
week. The final consumer sentiment reading for Feb will also be released – looking
to see whether there has been any revision to US sentiment from the coronavirus
news (there was minimal mention in the prelim Feb release).
The
main Fed speaker this week is Vice Chair Clarida – US Economic Outlook and Monetary Policy, at the
36th Annual National Association for Business Economics Economic Policy
Conference, Washington, D.C.
Japan remains firmly on the radar –
especially after last weeks’ decline in GDP for Q4 and now the accelerated
contraction in the Feb prelim PMI’s. This week, retail sales and the prelim industrial
production for Jan will be released.
Also note that Germany will release this
week the detail (and possible revision) for Q4 GDP.
The supply of US Treasuries settling this week will again be heavy, but not to the same degree as the week prior. The US Treasury will settle approx. $231bn in ST Bills, FRNs and TIPS this week, raising approx. $45.9bn in new money. This will continue to be supported with overnight repo operations on each business day of up to $100bn as well as two 14-day term repo operations this week of up to $25bn each.
More detail, including a one-page calendar of key data releases for the week, is provided in the briefing document – download the file here;
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
