by Kim | Nov 2, 2020
The US Presidential election, central bank policy decisions, and a heavy data week will feature against a backdrop of new peaks in Covid-19 infections in the US, Europe and the UK. Further restrictions have been announced for European countries, and another month-long shutdown has been announced for England.
The US Presidential election will be held on Tuesday 3 Nov. A ‘blue wave’ result is not assured as there is the risk of a surprise Trump win, a contested election, and/or a divided government. The wider use of mail-in ballots will increase the likelihood that there will not be an official winner announced on the night. The process is likely to extend beyond Tuesday night and if the result is contested, this process will likely be prolonged further. A divided result either way could see some disruption for markets due to lowered expectations for stimulus and increased ambiguity over the policy process for the next four years.
The US Fed FOMC will hand down its policy decision on Thursday and there is no expectation for a change in stance at this stage. The economy is rebounding, albeit unevenly, but infections continue to rise to new peaks, possibly dampening progress. Last week the Fed adjusted its Main Street Lending program – reducing the minimum loan size to $100k and reducing fees to encourage smaller businesses to use the facility. https://www.federalreserve.gov/newsevents/pressreleases/monetary20201030a.htm
The RBA will meet on Tuesday and market expectations of a rate cut to 0% has held steady at 84% for the last week (source: https://www2.asx.com.au/markets/trade-our-derivatives-market/futures-market/rba-rate-tracker ). From the minutes of the last RBA meeting, the Board noted that it expected more traction from further easing with states coming out of lockdown. It is also possible that further changes to the Term Funding Facility will be announced (expanded) – placing possible further downward pressure on mortgage rates in Australia.
The BoE also meets this week – the two key issues will be the Brexit trade agreement (no ratified agreement) and a new month-long lockdown for England. An announcement is expected on the status of the Brexit trade negotiation on Wednesday or Thursday this week – as more intensive negotiations continue in Brussels.
Key data points this week include:
US – Non-farm payrolls and ISM manufacturing and services PMI’s for Oct will be the key data focus.
The final global PMI’s for Oct will be released. Europe PMI’s for Oct are only starting to reflect the impact of restrictions on trade, especially for services.
US Fed purchases of Treasury securities will increase this week. Last week, purchases were lower at around $8bn and this week, purchases will increase to the $20bn benchmark. Purchases of MBS remain elevated. Last week purchases totaled $28bn and this week purchases are expected to reach $32bn, well above the $20bn benchmark.
US Treasury issuance will be heavier this week. The US Treasury will settle approx. $529bn in ST Bills, Notes, and Bonds this week, raising approx. $76bn in new money.
With progress on stimulus stalled until after the election result, the current pace of new money raised is running below the $1.2tr estimate for the quarter (38% of the quarter and 11% of the estimated net cash to be raised for the quarter). The US Treasury cash balance remains elevated at $1.65tr (Wed 28 Oct level).
This week, approx. $28bn in Bills will mature on the Fed balance sheet and will be rolled over.
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 | Oct 26, 2020
The weekly macro review for w/c 19 October 2020 – Global prelim PMIs for Oct indicated mostly consistent momentum in manufacturing growth for the month. The exception was the UK. The Composite UK report was quite downbeat with growth slowing notably but remaining positive. The UK manufacturing result reflected a combination of firms building stock ahead of the final Brexit deadline and firms streamlining inventory to reduce costs. Eurozone manufacturing was lifted by the German manufacturing sector. Japan’s manufacturing output index indicated a decline, but industrial manufacturing production is forecast to be positive for Sep – and export performance in Sep continued to improve. Weaker improvement in Japanese imports suggests some ongoing domestic weakness.
Growth in services PMI’s was mixed. There was a sharper contraction in Europe and a continued contraction in Japan. Growth was notably slower in the UK. Momentum in the US and Aus services activity was only slightly faster – linked to the easing of restrictions.
In the US, services output was higher, as restrictions were lifted, but there was some easing in the growth of orders and employment. Manufacturing growth maintained steady progress. Regional US manufacturing surveys for Oct have indicated continued improvement in manufacturing conditions.
There is some cautious optimism around slowing US initial jobless claims – especially now that California data has been updated. Continuing claims were lower too but falls in state and some fed programs were offset by increases in other fed programs. This could reflect a transition between programs as benefits expire for some people. How rising infections impact consumption behaviour will be important over the next few weeks.
US housing market data for Sep remained very strong. The Northeast has been a key driver of improved housing market conditions, existing home sales, new permits and new housing starts. All regions recorded stronger existing home sales in Sep. There is some caution ahead though from the mortgage application data. While refi activity has continued to grow as mortgage rates have continued to fall, purchase applications have declined now for the last four weeks. The purchase index is a leading 4-6 week indicator of home sales.
There were two interesting points from the minutes of the RBA Oct meeting. The first is the likelihood of further policy easing for Nov and the second is the change in forward guidance on inflation and full employment. The Board noted that it wants to see more than just progress toward full employment. There will likely be less emphasis on forecast inflation and more emphasis on actual inflation outcomes. It was also noted that inflation outcomes are not likely to be achieved until there is a tight labour market.
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 macro outlook for w/c 26 October 2020 – This will be another big week across the macro spectrum. We are now in the final week leading into the US Presidential election next Tuesday, Brexit talks are intensifying, Covid-19 cases are reaching new highs around the world, US Q3 earnings and growth data will feature, and there are several central bank interest rate decisions due this week.
We are now into the final week leading up to the US Presidential election. Stimulus discussions continue to simmer. The prelim US Q3 GDP will be reported this week – with likely a strong upturn in growth compared to the significant contraction in Q2.
US Q3 earnings this week will feature: Amazon, Apple, Google, Microsoft, Facebook, Twitter, Pinterest, AMD, Fastly, Shopify, Starbucks, Boeing, GE, Caterpillar, 3M, Pfizer, Moderna, Gilead Science, Visa, Mastercard, Exxon Mobil, Chevron, and Ford.
Brexit talks resumed late last week and have intensified into this week in an effort to reach an agreement. The 31 Oct has been identified as a target date to review progress on negotiations, allowing enough time for a deal to be ratified ahead of the 31 Dec transition deadline.
There are several central bank meetings this week: The ECB, BoJ, and BoC. It will be quiet on the US Fed front ahead of the FOMC meeting next week 4-5 Nov.
Key data points this week include:
US – prelim Q3 GDP will be a key focus this week with the expectations for a strong growth figure, the final half of Oct consumer sentiment reading, personal consumption, income and prices for Sep, and the advance durable goods report for Sep.
Chinese Oct PMI’s will be released over next weekend.
Europe prelim Q3 growth data will also be released along with prelim CPI growth for Oct.
Aus Q3 CPI will be released and will provide a key input into the RBA deliberations and meeting next Tues.
The new schedule of US Fed purchases of Treasury securities and MBS will be released mid-week.
US Treasury issuance will be little changed this week. The US Treasury will settle approx. $302bn in ST Bills and 5yr TIPS this week, raising approx. $5bn in new money. The US Treasury will also auction $210bn in Notes, Bonds, and FRN’s this week, which will settle next week.
This week, approx. $16bn in Bills will mature on the Fed balance sheet and will be rolled over.
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 | Oct 20, 2020
The weekly macro review for w/c 12 October 2020 – The current US initial and continuing jobless claims are still missing up-to-date California figures. This is likely to updated in the following week. As of the 26 Sep, continuing claims across all programs still totaled more than 25m people.
US retail sales growth in Sep was stronger. The general theme reflected the ongoing shift in consumer behaviour from lockdowns and restricted activity (mainly home-based consumption) to more on-the-go consumption.
US consumer prices increased at a slightly faster pace in Sep. Underlying CPI growth was little changed. Some acceleration in core goods prices (used cars mainly) offset some slower growth in core services, including shelter.
Despite more positive Sep figures, sentiment at the start of Oct reflected increased concern for current weakening conditions. But there was an improvement in expectations for future conditions.
“Slowing employment growth, the resurgence in covid-19 infections, and the absence of additional federal relief payments prompted consumers to become more concerned about the current economic conditions.“
US industrial production was weaker in Sep, especially for manufacturing and utilities output. The two regional manufacturing surveys for Oct were quite strong though – suggesting some firming of activity.
Employment in Australia declined in Sep – led by a decline in full-time employment. This only partially offset the stronger employment growth from the prior month. Total unemployed persons increased. The increase in total unemployed persons would have been larger if not for the decline in participation. The underutilisation rate increased slightly to 18.3%. Aside from the four months between Apr and Jul 2020, the underutilization rate in Sep is the still the highest in the series history – highlighting the weakness and slack the remains in the labour market.
Chinese trade data reflected more moderate export growth in Sep. Import growth though was stronger for the month – this included a larger increase in imports from the US for the month.
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 macro outlook for w/c 19 October 2020 – Key highlights for the week ahead include the final US Presidential debate in the lead up to the US Presidential election, the EU-UK Brexit trade negotiations at an inflection point, central bank speeches, and the prelim Oct PMI’s.
There are now only two weeks until the US Presidential election. The focus this week will be the final Presidential debate (last week’s debate was cancelled) and the ongoing posturing around a stimulus bill.
Given the lack of progress on the trade deal negotiations, the UK-EU posturing ramped up in earnest leading into the EC summit last week. The EC summit had been a key milestone for deal outline, and this has now been missed. Talks are currently at a standstill and its not clear whether there will be face to face meetings this week.
There are several central bank speeches this week. The US Fed Chairman Powell, Vice Chair Clairda, Vice Chair Quarles and Governor Brainard will speak early in the week. Also speaking this week will be ECB President Lagarde and RBA’s Kent and Debelle.
Late this week, the Markit prelim PMI’s will provide a further update to the economic rebound as of Oct. We note the increase in trading restrictions throughout Europe and the UK, as virus cases start to rise again. The re-imposition of restrictions is likely to impact services activity in the coming months.
Other key data points this week include:
US – Housing will feature this week with permits, starts, existing home sales, and the housing conditions index. There will be a further read on regional manufacturing activity for Oct (last weeks’ regional results were positive for Oct).
China industrial production, retail sales, and fixed asset investment for Sep and Q3 GDP.
The RBA will release the minutes of the Oct meeting – looking for hints of further easing bias.
The US Fed will further increase purchases of MBS this week with $26bn in purchases planned for the week. Purchase of Treasuries will remain constant at $19.5bn.
US Treasury issuance will be lighter this week. The US Treasury will settle approx. $285bn in ST Bills this week with a net paydown of -$17bn.
This week, approx. $20bn in Bills will mature on the Fed balance sheet and will be rolled over.
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 | Oct 12, 2020
The weekly macro review for w/c 5 October 2020 – Global services activity increased at a broadly similar pace in Sep as in Aug. The Eurozone slipped into slight contraction and Japan continued to contract at a similar, marginal pace. The US and UK services PMI’s indicated that the pace of growth remained on par with the prior month.
The US ISM business activity and domestic new orders, especially, indicated a faster pace of growth in the services sector.
Given the tentative recoveries so far, especially in services and consumer facing industries, the renewed outbreak of infections in Europe, the UK, and starting again in the US, will test whether policy makers can balance the economic recovery with controlling another outbreak.
US JOLTS data indicated that employment continued to expand in Aug, but job openings were weaker in the month. The pace of layoffs and discharges fell to a series low – which is inconsistent with the rising permanent layoffs from the household employment survey. On a rolling 12-month basis to Aug, the difference between hires and separations implies a net employment loss of 7m as of Aug. This has improved from the -13.5m employment loss in Apr but remains well below the average growth of +2m prior to the shutdowns.
US consumers continued to pay down credit card debt with revolving credit leading another decline in overall consumer credit for the month. This is the sixth month of decline in the value of outstanding revolving credit (this also happened through the GFC). Non-revolving credit growth also slowed.
This week the MBA released the mortgage credit availability index for Sep. This showed a further tightening in mortgage lending standards:
“Across all loan types, there continues to be fewer low credit score and high-LTV loan programs. The housing market overall is on strong footing, but the data show that lenders are being cautious, given the spike in mortgage delinquency rates in the second quarter, as well as the ongoing economic uncertainty.”
Despite the US Fed maintaining very easy/accommodative conditions (and mortgage rates continuing to fall as the Fed buys up MBS), banks are limiting lending due to the weaker economic environment.
In Aus, housing finance recorded a substantial increase in Aug – mostly the result of lenders catching up on backlogs (as noted by the Aus Bureau of Statistics). Still, this has locked in 3 months of gains in mortgage lending commitments. The RBA kept rates on hold this month. After the meeting and the Fed budget release, the probability of another rate cut in Nov increased.
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 macro outlook for w/c 12 October 2020 – A big week ahead – the key highlights include the next Presidential debate in the lead up to the US Presidential election, the EU-UK Brexit trade agreement, central bank Governor speeches this week, and important data releases.
There are now only 3 weeks until the US Presidential election. The focus this week will be the second Presidential debate and the ongoing posturing around a second stimulus bill.
The EC meeting this week 15-16 Oct will be important for Brexit trade deal proceedings. The status of negotiations will be reviewed and a trade deal has so far not yet been agreed upon. It was originally hoped that a deal would be completed by this week to enable enough time for parties to ratify the trade deal.
There are several central bank Governor speeches this week – the ECB’s Lagarde, BoE’s Bailey, and RBA’s Lowe will all speak this week (different events). There will also be speeches by US Fed Vice Chair Clarida and Vice Chair for Supervision Quarles.
The key data points this week include:
US – Retail sales, CPI, and industrial production for Sep. The first view of Oct production data with NY and Philadelphia regional surveys and the prelim Uni of Michigan consumer confidence data for Oct will also be released.
China trade data, CPI, and PPI for Sep.
Aus employment and labour market survey for Sep.
The next schedule of US Fed purchases of Treasury and MBS will be released this week.
US Treasury issuance will be heavier this week. The US Treasury will settle approx. $395bn in ST Bills, Notes, and Bonds this week raising approx. $72bn in new money.
This week, approx. $20bn in Bills, Notes, and Bonds will mature on the Fed balance sheet and will be rolled over.
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 | Oct 5, 2020
The weekly macro review for w/c 28 September 2020 – Data last week indicated some slowdown in the momentum of the US economic rebound.
There was a notably slower pace in the rebound of non-farm payrolls in Sep. In the last five months (May-Sep), there have been 11.417m jobs recovered in the US. A large deficit of -10.734m jobs remains – and this just accounts for the number of jobs lost during Mar and Apr.
The slower employment growth was mirrored by the employment report from the Household Survey. The decline in the unemployment rate was the result of a fall in participation. The number of permanent layoffs has continued to increase (but remains well down on the GFC). Employment growth slowed more substantially in Sep and most of the employment growth was part-time in nature. The employ to population ratio has increased from the Apr low of 51.3% to 56.6% in Sep (only slightly higher than in Aug). The last time in history when the employment to population ratio was this low was back in Feb 1976.
Initial claims were little changed in the latest week – still around the 1.4m level for both state and federal programs. But California has put its reporting on hold to clear the backlog of claims and application modifications – so data reflects last week data for California.
Income and disposable personal income declined in Aug. The decline was the result of a large fall from the expiration of the $600 additional payment on 31 Jul. Employee compensation growth was consistent compared to Jul but there was no acceleration in compensation growth. Expenditures increased at a slower pace. Given the decrease in disposable income, the level of savings fell by 23% compared to Jul. The saving rate is still almost double that of Jan levels.
Without extension of stimulus or benefits, further reductions in transfer payments will commence from late Dec as 39 weeks of PUA starts to expire. Another wave of reductions will likely start from Mar 2021 (26 weeks of state unemployment, 13 weeks of extended benefits, and 13 weeks of PEUC).
The annual PCE inflation rate increased at a faster pace in Aug. The core measure, excluding food and energy, indicates faster growth in underlying consumer prices of +1.8%. This acceleration will be important to watch, especially given the Fed average target of 2%.
Consumer sentiment firmed in the second half of Sep. This improvement was led mostly by higher income households. Levels remain well below those recorded at the start of the year.
There was some indication of slowing momentum in manufacturing growth. The headline ISM manufacturing PMI indicated that the pace of growth recorded in Aug was mostly maintained in Sep. Across key demand indicators, firms were reporting slower growth from the prior month. Of note was the slower pace of growth in new orders. The proportion of firms reporting higher/growth in new orders (compared to the prior month) has been falling and, in Sep, the number of firms reporting higher orders, was the lowest in the last four months. More firms also started reporting a decline in new orders. This will likely have implications for the pace of growth in production growth in the short-term. The production index also points to some levelling out of the growth momentum.
The US Markit PMI indicated a similar pace of growth in activity compared to the prior month – which remained moderate overall.
Outside of the US, the one highlight in the growth story was Germany. The increase in German manufacturing activity was a key driver of the overall improvement in the Eurozone manufacturing PMI.
The prelim annual Euro area CPI continued to decline in Sep by -0.3%. The month on month pace though remained positive at +0.1%. The main contributor to the annual decline was the continued fall in energy prices and price growth also slowed across services and non-energy industrial goods.
Retail sales in Japan rebounded in Aug but remain below a year ago. Manufacturing production continued to improve. The rebound in production remains uneven and led by a small group of industries. Most industries continued to record declines in finished goods inventories for the month of Aug.
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 macro outlook for w/c 5 October 2020 – In focus this week will be US domestic politics, in particular, tracking the health of President Trump after he contracted Covid-19, FOMC Minutes, RBA meeting, and US and global services PMI performance.
This week US Fed Chairman Powell will give a speech on the economic outlook at the National Association of Business Economics annual meeting. Link to viewing: https://www.youtube.com/watch?v=AxFVQJG_Wbk&feature=youtu.be
US domestic politics will likely continue to dominate in the lead up to the Presidential election. So far, President Trump has played down the severity of the infection on his health. With the first debate out of the way last week, the question is whether the second debate will go ahead on 15 Oct. News of further stimulus talks continue. The confirmation process for US Supreme Court Justice is also underway.
The key data points this week include:
US – ISM Services PMI, initial and continuing jobless claims, and the Aug JOLTS data. The focus in the JOLTS data will be on the pace of growth in job openings as well as separations/layoffs.
Global services PMI’s will be released early in the week providing some insight into the momentum behind service sector rebounds after/during these times of restricted trade.
It is a big week in Aus with the RBA meeting early in the week on rates and policy. This will be before the Federal government hands down the annual budget. There is some expectation that the overnight cash rate may be lowered further by the RBA (possibly by the end of the year) – as of Friday that was a 67% implied expectation of a further rate cut at the next meeting (down from 77% in the week prior). The Federal Budget is expected to include significant spending increases and tax cuts.
The US Fed will increase Treasury and MBS purchases this week. Treasury purchases are expected to be $29bn and MBS purchases are expected to be $26bn this week.
US Treasury issuance will be lighter this week. The US Treasury will settle approx. $319bn in ST Bills this week raising approx. $3bn in new money.
This week, approx. $27bn in Bills will mature on the Fed balance sheet and will be rolled over.
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 | Sep 28, 2020
The Weekly Macro Review for w/c 21 September 2020 – The prelim PMI’s for Sep indicated that the pace of the global rebound was similar compared to Aug growth. The broader Eurozone result was mixed though. Strong manufacturing growth in Europe was led by Germany which recorded accelerated export demand. Eurozone services shifted back to slight decline after no change in Aug. Output growth in the UK remained robust across services and manufacturing, slowing only slightly.
The Japanese PMI’s were also little changed from Aug, indicating a similar pace of decline in services and manufacturing output. The Japanese manufacturing PMI had already been weak throughout 2019. The output indexes indicated that most firms reported declines throughout 2020. There is some recent divergence with official industrial production data with Jul manufacturing increasing by +8.7% month on month.
US PMI’s for manufacturing and services output indicated a continued and steady pace of growth across firms in Sep. Services output growth was little changed and manufacturing output growth was slightly faster.
The US advance durable goods report for Aug was insightful. Monthly growth in orders and shipments slowed notably after two extremely strong months – and this likely reflects the restart of supply chains, especially for motor vehicle production. Excluding transportation, orders and shipments for industry were on par with a year ago in Aug.
Globally, motor vehicle production has been picking up speed over the last two months (pipeline fill) and this is one important indicator of the lift in global activity. In the US, motor vehicle orders and shipments declined slightly in Aug versus the prior month, but levels remain elevated and are still above those from a year ago. From here, the level of consumer demand will be important. The US manufacturing industry of most concern is non-defense aircraft. Orders have been negative for five of the last six months (representing approx. -$41bn in likely cancelled orders), leading to bigger falls in unfilled orders, shipments are -44% below a year ago, and inventory is +17% ahead of a year ago.
US initial jobless claims for the 19 Sep remain highly elevated and little changed from the prior week levels at 1.45m people (federal plus state programs). Continuing claims for both state and federal programs were notably lower for 5 Sep (than in the prior week) but remain elevated at 26m people.
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 macro outlook for w/c 28 September 2020 – Highlights this week will be US Fed speeches, the first US Presidential debate, and key data releases.
This week there are several US Fed Governors speaking. On Tue, Vice Chair Clarida will speak on Treasury Market Resilience and Vice Chair Quarles will speak on Financial Regulation and Financial Stability – https://www.federalreserve.gov/newsevents/calendar.htm. The ECB President Lagarde will also speak early this week.
US domestic politics will continue to feature. The first of three US Presidential debates between US President Trump and Democrat nominee Joe Biden will take place on 29 Sep this week. The next two debates will be held on 15 and 22 Oct. US President Trump has also announced his nomination for a Supreme Court Justice to replace Justice Ginsburg. The confirmation process is expected to be swift. There was also news late last week that US Treasury Secretary Mnuchin and House Speaker Pelosi would restart stimulus talks.
The key data points this week include: US non-farm payrolls and employment for Sep, the ISM manufacturing PMI for Sep, the PCE and price index data for Aug, and the final reading of consumer sentiment for Sep.
More broadly, the release of the global manufacturing PMI’s for Sep will commence this week, with services covered next week.
The next schedule for US Fed purchases of US Treasuries and MBS will be released on 28 Sep.
US Treasury issuance will be heavier this week. The US Treasury will settle approx. $474bn in ST Bills, TIPS, Notes, and Bonds this week raising approx. $103bn in new money. This week, approx. $40bn in Bills, Notes, and Bonds will mature on the Fed balance sheet and will be rolled over.
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
