by Kim | Aug 5, 2019
The weekly macro review for w/c 29 July 2019 – The US Fed and the BoJ made changes to policy and guidance citing downside risks from weak global growth and trade policy uncertainty. The US Fed cut the FFR by 25bps and has ended quantitative tightening. The BoJ added to its guidance that “the bank will not hesitate to take additional easing measures” in the case where downside risks regarding developments from overseas economies are significant.
Both decisions were issued before the announcement made by
US President Trump that another 10% tariff would be applied on the remaining
$300bn of imports from China from 1 Sep. This has amounted to a re-escalation
of tensions with China. At the time of writing, China has allowed its currency
to fall through the 7.00 level and Chinese state-owned enterprises have been asked
to suspend the import of US agriculture products.
Uncertainty on trade and the implications for growth has
impacted firms and consumer sentiment.
Consumer sentiment data for Jul indicated that US consumers
had a ‘renewed sense of personal financial optimism’ – while there was no
expectation of a rapid acceleration in income, there was also no expectation of
changes in
inflation and unemployment rates. That said, US consumers are taking
precautionary measures and that policy uncertainties might outweigh any falls
in interest rates on spending decisions;
“Consumers have not ignored mounting policy uncertainties as they have begun to take precautionary measures to increase savings and reduce debt. Favorable buying attitudes toward homes and vehicles have significantly receded from their cyclical peaks despite declining interest rates.”
This sentiment mirrored the income and consumption data for
Jun – with incomes growing slightly faster and consumption expenditure growth
slowing. Savings increased.
For the Fed this week, the headline PCE price index growth
continued to slow, but core price growth increased at a faster pace to +1.6%.
Of note this week was US non-farm payrolls – the growth of which continues to slow. But the household employment survey is also showing some concerning employment trends – especially in the core working-age group of 25-54yrs with annual employment growth declining for the first time since 2013.
Growth of average weekly hours worked, and overtime hours of manufacturing employees are also starting to mirror the weaker manufacturing reports – both declined at an accelerated pace this month.
The Jul manufacturing and output data were mostly weaker. The ISM index continues to grow at a slower pace with firms reporting a notable slowdown in production and employment growth. Across most reports, with weaker new orders growth, production growth continues to be supported for the moment as firms work through order backlogs. Global risks, trade tensions, and lower growth expectations were the key concerns facing firms. The latest escalation with China this week will likely weigh further.
Trade concerns and slower global growth were also issues cited across the continued contraction of manufacturing activity across the broad Eurozone and Japan in Jul. Industrial production in Japan declined faster in Jun. Firms cited issues around China and escalating conflict with South Korea. In Europe, Q2 GDP growth slowed and both headline and core CPI growth also slowed.
Aussie CPI growth picked up slightly but growth in core
measures continued to slow led by lower growth in prices from the domestic
economy. Retail sales growth (vol) returned to positive territory but, despite
the election result and one rate cut, growth remains moderate. Annual growth in
retail sales volumes of just +0.2% is a new low in momentum since the GFC.
Late in the week, the US signed into law a two-year agreement that increases the US government’s borrowing limit and suspends the debt ceiling until Jul 2021. The US Treasury reissued the Q3 funding requirements with an additional $273bn in new money to be raised in Q3 (ST bills).
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 5 August 2019 – This week, the focus is on the re-escalation of trade tensions between the US and China and the implementation of punitive measures by both countries. The data so far suggests that the implications of the trade tensions and now, a further escalation including the currency depreciation by China, has wider-reaching economic impacts.
The RBA will announce its interest rate decision early this
week. The Q2 CPI from last week lifted slightly but core measures continued to slow
led by slower price growth from the domestic economy. Rates were cut at the
last two meetings and guidance suggested a ‘wait and see’ approach herein – but
the ASX 30-day interbank cash rate futures has shifted to a 50-50 chance of another
cut this week (as of 2 Aug) https://www.asx.com.au/prices/targetratetracker.htm
Other Aussie data of note; the AiG performance of industry
indexes and housing lending for Jun. The Jun data will incorporate the first of
the two recent rate cuts.
In the US, the focus will be on the ISM non-manufacturing
PMI, consumer credit and JOLTS data.
Across a range of economies, the services PMI’s will round
out the broader view of business activity.
Other important data points this week; Germany new orders
and industrial production, Japan prelim Q2 GDP, UK prelim Q2 GDP and a raft of data
out of China (trade, lending, CPI and PPI).
Treasury issuance will be lighter this week. The US Treasury will issue approx. $148bn in ST bills this week with a net paydown of $5bn. We expect to see further increases in the size of ST bill issuance in the following week due to the suspension of the debt ceiling.
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 | Jul 29, 2019
The weekly macro review for w/c 22 July 2019 – Data out this week confirmed lower US growth momentum. The Q2 advance GDP release showed that annual growth slowed to 2.1% (SAAR). Revisions to annual GDP growth had several impacts; the annual growth by quarter was revised higher between Q4 2016 and Q3 2018, while the latest Q4 2018 and Q1 2019 growth was revised notably lower and the overall shape of the trend shows that US growth has been slowing since Q2 2018.
The bright spot for the Q2 GDP release was the much faster
growth in personal consumption expenditure.
The data out this week for Jul, especially in manufacturing, indicates continued weakness. The prelim US composite PMI was little changed. Manufacturing activity slowed to zero growth – growth in new orders remains ‘marginal’, firms appear to be managing inventory in light of slower growth in orders and manufacturing employment indicators are weakening. Services activity improved but noted was the sharper fall in future business expectations.
The two US regional surveys for Jul showed manufacturing activity
contracting, with several key areas deteriorating markedly. The advance durable
goods orders for Jun showed a small, welcomed improvement in new orders for the
month.
Across the manufacturing releases in the US, the dynamic remains unchanged;
new orders growth has been slowing (if not declining) and shipment growth has slowed
but remains positive. In the absence of accelerating growth in new orders,
firms are working through order backlogs and this is helping to support output.
As an indicator of future output growth, new orders will remain a key focus.
In Europe, last weeks’ fall in the Zew
economic expectations index for Jul was backed up by further weakness in the prelim
PMI’s for Jul. Services activity slowed slightly but much weaker manufacturing
activity dragged the overall index lower. The broad Eurozone manufacturing
indicators remain concerning with stagnating growth in new orders and an
accelerated decline in new export orders. Unsurprisingly, future expectations for
output growth declined to the lowest levels since 2014. The prelim PMI’s for
the largest EU economy, Germany, showed that growth slowed more broadly across
both manufacturing and services in Jul.
While the ECB kept policy unchanged,
there was a significant shift in guidance signalling the likelihood of policy
easing in the near future;
“The Governing Council expects the key ECB interest rates to remain at their present or lower levels at least through the first half of 2020”
“In this context, the Governing Council has tasked the relevant Eurosystem Committees with examining options, including ways to reinforce its forward guidance on policy rates, mitigating measures, such as the design of a tiered system for reserve remuneration, and options for the size and composition of potential new net asset purchases.”
Tensions between the US and EU continue to weigh on
sentiment. The EU expects the WTO to give the US approval to apply tariffs on
EU imports valued at between $5-7bn. The EU has a similar case pending against
Boeing. The US has already opened a second S.301 investigation to identify additional
EU products for tariffs.
In Australia, the RBA Governor, Philip Lowe, gave a speech on inflation and
inflation targeting. The main feature from a policy perspective was that
Governor Lowe provided some forward guidance on rates in Australia;
“Whether or not further monetary easing is needed, it is reasonable to expect an extended period of low interest rates.
In the UK, the leadership of the Conservative party was resolved as Boris Johnson won the PM ballot. Johnson has been a strong proponent of leaving the EU on 31 Oct with or without a deal. No details have been released regarding a restarting of negotiations with the EU on the withdrawal agreement. The UK government has instead committed to further spending in preparation for leaving the EU on 31 Oct.
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 July 2019 – A big week in the global macro sphere. Interest rate decisions will be announced by three major central banks this week – the BoJ, the BoE, and the FOMC.
It
is expected that the FOMC will cut rates by 25bps and, at this stage, there remains
a lower probability applied to a 50bps cut. https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html?utm_source=cmegroup&utm_medium=friendly&utm_campaign=fedwatch&redirect=/fedwatch
Of note this week will
be important data out of the US; non-farm payrolls and employment, personal
consumption expenditure, the PCE price index and consumer sentiment. We will
also get a further read on manufacturing activity with the ISM and Markit
Manufacturing PMI’s for Jul, the final factory orders data for Jun and several
regional surveys.
The final PMI’s for July
will also begin to be released this week across the major economies with
manufacturing in focus.
In Europe, Q2 GDP will
be published along with Jul prelim CPI.
In Australia, the
important Q2 CPI will be released along with retail sales. Both will be
important considerations for the RBA meeting on rates next week.
On trade, US and Chinese
officials will meet for the first time since the G20 on trade. Further meetings
with officials in Japan are also expected as officials agreed to ‘speed-up’ negotiations.
US Treasury supply will be heavier this week – the US Treasury will settle approx. $289bn in ST bills and coupons, raising approx. $20bn in new cash. As its also month-end, approx. $19bn in securities will mature on the Fed balance sheet. Of this, approx. $5.8bn will be reinvested.
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 | Jul 22, 2019
The weekly macro review for w/c 15 July 2019 – Speeches by US Fed officials created confusion over signalling this week. Chairman Powell signalled the likelihood of a rate cut at the next meeting. An expectation for a 50bp cut had somehow become embedded and the Williams speech was widely interpreted as signalling that the rate cut would be 50bps. This was then walked back. Current target rate probabilities continue to suggest that a 25bp cut is likely.
US data this week was better and absent was evidence of a deterioration in performance.
The first look at Jul manufacturing
data saw both regional surveys rebound. The Empire State headline index rebounded
back to positive territory – the outlook for 6-months ahead was more positive
while current conditions were slightly less positive – measures of demand
remained weaker and declining inventories suggested firms are still wary of
conditions. The Philly Fed rebound was very strong – new orders growth was very
strong and employment growth was a highlight.
It’s possible that the Jun-specific spike
lower in these regional surveys a response to the heightened uncertainty
created by the threat of tariffs on imports from Mexico (as well as the
uncertainty regarding US-China tariffs). That said, weaker manufacturing
conditions have persisted throughout 2019 – confirmed by the lower trend in the
ISM index, durable goods and also in the manufacturing component of the industrial
production report so far this year. Manufacturing output was slightly higher
this month but remains below the Dec 2018 peak. Overall industrial production growth
this month slowed to zero %.
On the consumer side, US retail sales continued to grow in Jun with sales increasing across many categories and more than offsetting a relatively large decline in the value of gasoline sales. The first look at consumer sentiment for Jul was little changed.
The improvement in retail sales over
the last few months has yet to impact inventories. The manufacturing and trade
inventories and sales data highlighted that despite an improvement in sales, the
sales to inventory ratio remained unchanged in May.
In Europe, economic expectations (Zew) fell further into
negative territory. There was no obvious trigger for the spike lower, instead;
“…the experts seem to lose confidence that current uncertainty factors like the trade conflict between China and the US, the design of Brexit and resolve the recent escalation in the Iran conflict in the medium term. The experts’ expectation of an imminent depreciation of the dollar against the euro is also likely to be a source of economic pessimism.”
Euro area CPI and core CPI both
increased at a faster pace in Jun. The ECB meets in the next week and there is some
uncertainty surrounding further monetary accommodations.
In Japan, both exports and imports
declined in Jun (versus a year ago), continuing the trend of weaker growth. CPI
growth and the BoJ measure of core CPI both slowed further in Jun. Core prices
excluding energy remained unchanged.
The RBA minutes indicated that the easing bias remains in place but expectations for a third cut in Aug are low. There was little change in the employment report – with the annual view of employment growth remaining positive. But the monthly trend of increasing unemployment continued. Employment growth in Australia will need to accelerate in order to a) continue to absorb the increase in participation and b) reduce unemployment at a faster pace.
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 July 2019 – There are no US Fed speeches scheduled ahead of the FOMC meeting next week.
The ECB meets this week on interest rates and monetary
policy – there is some uncertainty as to whether the ECB will apply further
accommodations in July.
Although it will be a quieter week on the data front, there are
several important releases this week.
We will get the first view of July manufacturing and services
activity with the prelim PMI’s released across the major markets.
In the US, the prelim Q2 GDP will be released later in the week along with the advance durable goods report for Jun. The PMI’s and regional surveys will help to clarify the extent to which weaker manufacturing results have persisted into July.
US earnings will remain in focus with both major tech and industrial
companies reporting earnings this week.
In the UK, the results of the ballot for the Conservative
Party leadership will be announced on Tuesday.
US Treasury supply will be lighter this week – the US Treasury will settle approx. $142bn in ST bills, with a net paydown of approx. $14bn.
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 | Jul 15, 2019
The weekly macro review for w/c 8 July 2019 – In a speech during the week, Fed Chairman Powell was widely seen as signalling that a rate cut for Jul was likely. The minutes of the prior meeting provided the broader context and outlined the reasons behind the increase in support for a rate cut. The minutes did, however, highlight that committee members acknowledged that some of these heightened risks were only recent – and that accommodations would be required if risks proved to be sustained. In his speeches during the week, US Fed Chairman Powell confirmed that since that FOMC meeting (two weeks ago), those concerns look to be sustained;
“Since then, based on incoming data and other developments, it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook.”
Even before the speeches, the probability of a 25bp rate cut
was very high (94.6% on 5 Jul). The probability of a 50bp cut has now edged up
from 5.4% on 5 Jul to 25.6% (as of 14 Jul). https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html?utm_source=cmegroup&utm_medium=friendly&utm_campaign=fedwatch&redirect=/fedwatch
On the data front, US CPI growth (not the FOMC preferred
measure) grew at a slightly slower pace in Jun of +1.6%. Core CPI growth also
slowed slightly to 2%.
The JOLTS data this month is worth noting. The longer-term
trend of the annual change in hires suggests some more recent loss of growth
momentum – growth is no longer accelerating. The annual change in job openings
has slowed noticeably (still growing though) – especially over the last
6-months.
As noted last week, the manufacturing slow down continued to evolve in
Jun, with some evidence suggesting that the lack of growth in new
orders is manifesting now as falling order backlogs. The reduction in order
backlogs continues to support output growth for now.
Despite the weaker manufacturing PMI readings, industrial
production in Europe, including Germany and Japan increased in May. These data
releases don’t provide the levels of outstanding orders.
Industrial production increased in the Euro area and
EU in May. Production growth was recorded across most categories with the
exception of intermediate goods.
In Germany, industrial production also increased slightly in the latest month. The increase in the month was due to manufacturing, but annual manufacturing production declined by the second-fastest pace of the last 18-months. The accelerated decline in new manufacturing orders reported last week for May suggests that production declines may continue across intermediate goods and capital goods. Production growth is also likely to remain subdued across durable, non-durable and consumer goods based on the new orders data. Production of utilities continued to slow. Construction has also slowed noticeably over the last several months – with annual growth slowing from 13.5% in Feb to 0.1% as of May.
Industrial production growth in Japan in May was revised
slightly lower but still positive for the month. The longer-term trend of
annual growth highlights the decline in production and shipments while the
indexes for inventory and the inventory ratio reached near-term highs in May.
In Australia, business conditions and confidence data
indicated that the confidence boost from the election has not been sustained,
even as the RBA has cut rates. The improvement in business confidence recorded
in May after the federal election was mostly reversed in Jun. Business
conditions improved slightly and remain well below average. Despite the
improvement in overall conditions, the forward orders remain negative,
suggesting that activity is not likely to rebound in the short-term.
The decline in the value of new lending for housing also resumed in May. Data on the number of new commitments suggest that there may be some slow-down in the decline of owner-occupier lending (led by one state).
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 July 2019; The highlights this week will be the commencement of US Q2 earnings announcements, US and China economic data and a speech by US Fed Chairman Powell.
US Q2 earnings;
“Earnings Growth: For Q2 2019, the estimated earnings decline for the S&P 500 is -3.0%. If -3.0% is the actual decline for the quarter, it will mark the first time the index has reported two straight quarters of year-over-year declines in earnings since Q1 2016 and Q2 2016.” https://www.factset.com/hubfs/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_071219A.pdf
Fed Chairman Powell will give a speech during the week
“Aspects of Monetary
Policy in the Post-Crisis Era”. The probability of a 25bp rate cut at the Jul
meeting remains high – with an increase in the chance of a 50bp cut.
US data this week will focus on output and consumer demand.
This week we get the first look at some Jul manufacturing data with two
regional surveys – Philly Fed and the Empire State. Industrial production for
Jun will also be released. On the consumer side, retail sales for Jun will be
released (likely weaker/flat auto sales) and the prelim consumer sentiment for
Jul.
Data out of China this week – Q2 GDP growth, retail sales, and industrial production.
In the UK,
data on retail sales, CPI and the labour market will be released this week. Next
week, on 22 Jul, expect the results of the Conservative Party leadership ballot.
The minutes of the last RBA meeting will be released this week – covering the second cut in the overnight cash rate. The important labour market survey will be a key focus for the week. US Treasury supply will be heavier this week – the US Treasury will settle approx. $246bn in ST bills and coupons this week, raising approx. $25bn in new cash.
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 | Jul 8, 2019
The macro review for w/c 1 July 2019; The manufacturing slow-down in the US and abroad is continuing to evolve. The ongoing lack of growth in new orders is manifesting now as falling order backlogs and, anecdotally, reduced input buying. In some cases, finished goods inventories are increasing. The reduction in input buying suggests further pressure on output for suppliers further back up the supply chain. The reduction in order backlogs continues to support output growth for now.
In the US, the PMI, ISM and factory orders data highlighted the
continued trend of slowing/stalling US manufacturing activity. Services
activity helped to offset the slower manufacturing activity. Despite the
stronger services PMI reading, some concern was raised over the expectations
for future growth in new business. Non-farms payrolls came in stronger and the
household survey recorded a small improvement in annual employment growth.
Unemployment increased in the month though due to an increase in participation.
The PMI’s for manufacturing activity contracted in Europe,
including Germany, UK, Japan, Australia, and China. Similar patterns were also
evident – declining new orders resulting in further declines in backlogs of
work, which was helping to maintain some output growth. Further anecdotal evidence
that firms were reducing input buying to reduce costs in the face of lower orders.
The German manufacturing sector recorded an accelerated decline in new orders
in May – the result of lower orders across most segments and more generally, external
orders.
European production and exports were dealt another potential blow this week as the USTR announced plans to review additional products for tariffs as a part of the dispute on civil aircraft subsidies.
Broadly, the services PMI’s offset the weaker manufacturing results across many countries/regions.
The exception was in the UK where services growth slowed to
almost zero. The Jun PMI’s for the UK indicated that there has been some
renewed slowdown across manufacturing, services and construction in the UK.
In Australia, the RBA cut rates for the second time in two months. The rate cuts, along with the May election result, will likely impact sentiment and spending. This month we reviewed the AiG performance of industry indexes for Jun to gain a reading of activity after the first full month since the election and the first interest rate cut. The services index increased for the second month running with some service firms calling conditions a ‘return to business as usual’. Manufacturing fell back into contraction and construction continued to contract, albeit at a slightly slower pace. Retail sales growth was subdued in 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 July 2019; Fed-speak picks up again this week. The main focus will be on the three (3) speeches by US Fed Chairman Powell – opening remarks at the stress testing conference in Boston, testimony before the House Financial Services Committee and the semi-annual monetary policy testimony to the Senate Banking Committee.
Other US data in focus this
week will be the FOMC minutes for Jun as well as CPI and PPI.
Data out of China will provide
some insight into any shifts in activity with new loans, trade and CPI/PPI for
Jun.
After the much weaker orders
data last week, Germany industrial production for May will be released. The broader
industrial production data for the Euro-area will also be released later in the
week along with the final figures for Japan in May.
In Australia, the NAB business confidence and conditions for Jun will be released. This will provide another important insight as to any change in activity and sentiment since the first rate cut and covers the first full, post-election month. Housing lending data for May will also be released – it may be difficult to gauge any shift in sentiment/lending given the election was mid-month and APRA only announced a review into changes to serviceability requirements directly after the election.
The Bank of Canada will meet
this week on interest rates and monetary policy.
US Treasury supply will be lighter this week – the US
Treasury will settle approx. $147bn in ST bills paying down approx. $6bn.
Trade negotiations;
Trade talks between the US and China are said to recommence this week in Beijing.
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
