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
by Kim | Sep 21, 2020
We are entering a bumpy period of political uncertainty against the backdrop of a global economy still reeling, and rebounding, from the Covid-19 pandemic.
Over the next few months, the US domestic political scene will likely be dominated by the replacement of US Supreme Court Justice Ginsburg, amid the lead up to the US Presidential election. The passing of another US stimulus bill remains in the mix but may take a backseat – with obvious implications for the pace of the economic rebound. US monetary policy will remain a key lever. This week, US Fed Chairman Powell will give three days of testimony regarding the CARES Act. There will also be speeches by Vice Chair Quarles and Governor Brainard regarding the economic outlook.
The BoE announced last week that it was exploring how negative rates could be implemented effectively. The BoE Governor Bailey will speak early this week and several risks for the UK economy are front and center. As noted in the minutes last week, UK annual inflation fell to 0.2% in Aug, triggering the exchange of letters between the Governor and Chancellor. One of the evolving risks is the lack of progress on the negotiation of the Brexit free trade agreement with the EU. The BoE noted in the minutes last week that the current path of growth for the UK economy was based on an orderly Brexit with the establishment of a free-trade agreement with the EU. The BoE will review this at the Nov meeting. The other risk is the rising trend in new covid-19 cases in the UK (and Europe). Its unclear what steps may be taken, if any, to contain a further outbreak.
The prelim global PMI’s for Sep will be released this week. This will provide some further insight into the pace of the rebound across some of the major economies.
US Fed purchases of Treasuries and MBS will ramp up. This week, the US Fed will purchase $21bn in Treasury Securities (last week $17bn). The purchase of MBS has been elevated over the last few weeks and will increase further this week to $29.6bn (last week $24bn).
US Treasury issuance will be slightly lighter this week. The US Treasury will settle approx. $307bn in ST Bills and FRNs, raising approx. $6bn in new money. The US Treasury will also auction $155bn in Notes this week that will settle next week.
More detail (including a calendar of key data releases for the week) is provided in the briefing document – download the weekly brief here;
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | Sep 14, 2020
The focus this week will be on central bank interest rate and policy decisions and key data releases.
This week, the FOMC, BoJ, and BoE will meet on monetary policy.
Data highlights for the week:
US – retail sales for Aug, prelim consumer sentiment for Sep and the stalling weekly jobless claims will be important metrics of the consumer recovery this week. Manufacturing data includes the first view of Sep activity via the Empire State and the Philadelphia Fed manufacturing surveys. Industrial production data will also be released for Aug – an important hard data point to track the recovery in manufacturing activity and capacity utilization.
The US Senate and House will be back from recess. The US Presidential election is less than two months away and further negotiations (posturing) on stimulus will remain in focus.
China – data on industrial production, fixed asset investment and retail sales for Aug will be released.
Australia – the labour market report for Aug will be released this week – providing an important gauge on the pace of recovery in employment.
The Brexit trade deal negotiations between the EU and the UK will continue this week. The focus will remain on the introduction of Brexit legislation by the UK which breaches the commitment made to ensuring no hard border between Ireland and Northern Ireland as a part of the Brexit agreement.
The forward schedule of US Fed purchases of Treasury Securities and MBS will be released on 14 Sep. Last week, planned purchases of Treasury Securities by the Fed were $11.95bn and purchases of MBS were $22.1bn.
US Treasury issuance will be heavier this week. The US Treasury will settle approx. $393bn in ST Bills, Notes, and Bonds this week, raising approx. $62.4bn in new money.
More detail (including a calendar of key data releases) is provided in the briefing document – download the weekly brief here;
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | Sep 7, 2020
Highlights for this week include the ECB rates decision, Brexit talks in London, and a generally quiet data week across the board.
A short week for the US with the Labor Day National holiday on the 7 Sep. US data highlights this week will be the initial and continuing jobless claims data and the CPI for Aug.
The US Senate and House are both back from recess over the next week. With the US Presidential election less than two months away now, further negotiations on stimulus will likely be in focus.
Other highlights this week:
China trade data for Aug – an important barometer for the recovery of global demand and production.
Germany Industrial Production for Aug – also an important barometer for the recovery of global demand.
The ECB will meet this week on rates and monetary policy.
The Brexit trade deal negotiations between the EU and the UK will be held in London this week. It is expected that the UK PM Johnson will set a 15 Oct deadline for the trade negotiations. There has been little progress on the trade deal negotiations so far.
The US Fed purchase of Treasury securities is again below the $20bn benchmark, while purchases of MBS are above the $20bn benchmark (note that this is a short week). Treasury Security purchases by the Fed this week will be $11.95bn (last week total $15.42bn). The purchase of MBS will be $22.1bn this week (last week $24bn).
US Treasury issuance will be lighter this week and there will be a net paydown. The US Treasury will settle approx. $319bn in ST Bills this week, with a net paydown of $13.7bn.
More detail (including a calendar of key data releases) is provided in the briefing document – download the weekly brief here;
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
