by Kim | Sep 30, 2019
The outlook for w/c 30 September 2019 – A full week of data, US Fed speeches and it’s also quarter end.
Important
US data out this week; non-farm payrolls and employment, ISM manufacturing and
non-manufacturing PMI’s for Sep and the final Markit PMI’s for Sep.
There is
also a full week of Fed speeches. The highlight will be on Friday with a ‘Fed
Listens’ event – “Fed Listens: Perspectives on Maximum Employment
and Price Stability”. US
Fed Chairman Powell will give the opening remarks at this event. Also speaking
will be Board members Brainard and Quarles.
Other speeches of note will be; Board Vice Chairman Clarida (Thursday) – outlook for the economy and monetary policy at the Wall Street Journal’s Future of Global Markets event in New York.
Across Europe, the final PMI’s for Sep will be released as well as Euro Area and German CPI and retail sales data.
The final
PMI’s for the UK in Sep and Q2 GDP will also be in focus this week. Brexit is
now coming into the *final* four week stretch. Further alternative plans for
the Irish border issue are expected to be tabled with the EU later this week.
The focus on Australia will be on the RBA rates decision on Tuesday. The expectations are for a further cut in the overnight cash rate to 0.75% (at 27 Sep 2019 a 78% expectation https://www.asx.com.au/prices/targetratetracker.htm). The probability for a further rate cut increased after the labour market data in mid-Sep indicated unemployment had moved higher. Later in the week, Aus retail sales data will also be released.
On trade, the WTO is expected to announce this week the findings of its arbitration on the amount of US tariffs related to the Airbus case.
US Treasury issuance will be heavier this week and its quarter end. The US Treasury will settle $297bn in ST bills, notes and TIPS this week, raising approx. $51bn in new money.
More detail (including a calendar of key events) is provided in the briefing document – download the file here;
Several data releases from last week w/c 23 September will instead be included in the Weekly Macro Review for w/c 30 September 2019 (next week).
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | Sep 23, 2019
The weekly macro review w/c 16 September 2019 – Policy easing by the US Federal Reserve followed the ECB easing measures announced last week. All three central banks this week indicated heightened concern for global growth and a weakening outlook.
The US
Federal Reserve cut the FFR range target to 1.75-2.0%. The cut was based on the
implication of global developments for the economic outlook and muted inflation
pressure. The future likely path will be
determined based on incoming information.
Despite the
cut in rates, US data has continued to improve, especially housing related data
this week. The regional manufacturing surveys for Sep were mixed. Industrial
production data in Aug improved, especially with manufacturing production
returning to growth in the month.
The Bank of England (BoE) kept rates on hold while forward guidance remains firmly focused on Brexit. UK CPI (H) slowed markedly in the latest Aug release and the BoE highlighted the potential shift to a lower demand environment the longer that Brexit uncertainties persist. Talks between the UK and the EU have sparked hopes for a revised Brexit deal – meetings this coming week at the UN General Assembly will be important. The crucial date remains 19 Oct 2019 – after which if there is no revised deal, the UK PM is now required to request another extension.
The Bank of Japan (BoJ) kept rates on hold and there were no changes to policy settings. That said, the BoJ continued to upgrade its level of concern on growth which was reflected in changes to the wording in its statement. The BoJ has shifted its view to that of downside risks increasing. Last month the BoJ amended its statement indicating its willingness to take additional easing measures. This month the BoJ appears to be more explicit in opening the door to the possibility of further easing;
“…slowdowns in overseas economies have continued to be observed and their downside risks seem to be increasing, the Bank judges that it is becoming necessary to pay closer attention to the possibility that the momentum toward achieving the price stability target will be lost.”
Next month will be important for the BoJ as Japan implements
the consumption tax hike.
Data out of
Japan confirmed the continued weaker external trade in Aug with both merchandise
exports and imports declining YoY. Of note was the weaker exports to its
largest export market, China. This also highlighted that demand out of China does
not appear to be improving. Japan National CPI ex fresh food growth slowed. There
is some evidence to suggest that, removing both fresh food and energy price changes,
there is some accelerating trend in underlying price growth – albeit at low
levels and with the 2% target remaining elusive.
The Reserve Bank of Australia (RBA) minutes indicated that rates remained on hold as there was no further deterioration in domestic conditions that warranted a further rate cut in Sep. Signs were emerging that the established housing market (sales and prices) in Syd & Melb had begun to stabilize and that employment growth had been maintained. The latest labour market report this week though, cited by the RBA as one of the more important datapoints (for its objective to reduce spare capacity of persistently high unemployment and underemployment), showed that unemployment increased as increased participation was not matched by gains in employment growth. The composition of employment growth also raised concerns as FT employment growth slowed markedly.
Chinese data was mostly weaker. Retail sales growth slowed slightly, and growth remains lower than at a year ago. The decline in Auto sales appears to be gathering pace as Auto retail sales declined by 8% in Aug (versus -0.1% for the YTD). Annual growth in industrial production also slowed to a new near-term low of only 4.4%. Growth across all three key industrial groups continued to slow in Aug.
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 23 September 2019 – Important datapoints this week will be the prelim PMI’s for
Sep across the US, Japan and the Eurozone. Manufacturing has remained weak and/or
in contraction across most regions with services activity helping to off-set
some of the weakness.
In the US there will be more housing data – new home sales
and Case-Shiller House Price Index for (Jul). More recent data indicates that activity
in the housing sector appears to be picking up. Other important US data will be;
durable goods and the monthly personal income, outlays and PCE price index for
Aug. The US goods trade balance and the third est for GDP in Q2 will also be
released this week.
It will be a full week of US Fed speeches. Of note will be
speeches by; NY Fed President Williams speaking at the US Treasury Market Conference
in New York, Vice Chairman Clarida speaking at the Fed Listens event in San
Francisco and Vice Chairman Quarles speaking on macro-prudential regulation in
Washington, DC.
The annual UN General Assembly will take place this week
23-27 Sep in New York. Sideline meetings on trade and Brexit will be important.
Of particular interest is the US-Japan trade deal – a completed deal is
expected to be signed at the meeting this week (possibly Wednesday). The UK PM
and EU President are also expected to make the most of the meeting to further
discussions on a Brexit backstop alternative.
Not all leaders will be present at the UN General Assembly;
notable absences will be Chinese President Xi, PM Netanyahu and Russian
President Putin.
US Treasury issuance will be somewhat lighter this week. The US Treasury will settle $190bn in ST bills and FRN’s this week, raising approx. $25bn in new money (relatively light given recent weeks).
More detail (including a calendar of key events) 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 16, 2019
The weekly macro review for w/c 9 September 2019 – The ECB eased this week due to the continued shortfall of inflation linked to the ‘more protracted weakness in the Euro area economy’. Easing measures included a further cut into negative territory for the deposit facility, the reintroduction of QE at €20bn a month, continued reinvestments and changes to TLRTO III operations. Guidance now is that low rates and QE will be applied indefinitely.
The other
important news in the announcement/decision was the introduction of the two-tier
system of remunerating bank excess liquidity holdings from 30 Oct. It’s been
suggested that this was a somewhat ‘historic’ shift in the implementation of monetary
policy – the following is worth a read; https://www.philosophyofmoney.net/draghis-historic-farewell/.
News leaked late last week that the WTO ruled in favour of
the US regarding illegal EU subsidies for Airbus. The ruling has not yet been
made public as both parties review the decision over the next few weeks. The
WTO panel will then adopt the decision and make the ruling public. The US has
been reviewing the possible list of tariffs in preparation of the ruling. Depending
on the details of the ruling, tariffs in EU imports will most likely be
implemented. The EU has a similar case outstanding regarding Boeing.
US
consumer credit growth accelerated in Jul in line with the much stronger retail
sales in that month. The Aug retail sales growth slowed, and, ex autos, growth
was 0% versus the month prior. Consumer sentiment rebounded only slightly in the
prelim Sep reading, after the larger drop in Aug (linked mostly to negative
tariff news).
JOLTs
data indicated that while hiring continued to grow, job openings growth slowed
further. Layoffs and discharges (involuntary separations) contributed to
the increase in total separations. The number of quits (voluntary separations) increased
at a faster pace, reaching a new all-time high number of quits, suggesting that
workers were more confident in conditions to change jobs.
The growth
in the headline all-items CPI slowed slightly on an annual basis to +1.7%. But the
core CPI ex food and energy prices accelerated to +2.4%. Both core goods and
services contributed to this acceleration. It will be important to see how the
FOMC will view this at the upcoming meeting where rates are expected to be cut
again.
There has
been some optimism emerging regarding progress on an alternative to the current
backstop agreement for Brexit. UK rolling GDP data for May-Jul was lackluster with
growth at zero % after the prior three-month decline. The labour market remains
resilient – somewhat slower annual employment growth was offset by a lower
increase in participation which helped reduce total unemployment further.
Australian lending for housing increased at a much faster pace in Aug as easing of lending restrictions and rate cuts continued to take effect. Business confidence eased back again, and business conditions continued to decline in August. There is some indication that conditions may be firming across selected industries.
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 16 September 2019 – Central bank decisions will be the key focus this week. The FOMC, BoJ and BoE decisions are all scheduled this week. The FOMC is expected to cut rates – despite economic data remaining resilient. The current probability for the FOMC to cut rates to 175-200bps is 84% (as of 16 Sep) – https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html?utm_source=cmegroup&utm_medium=friendly&utm_campaign=fedwatch&redirect=/fedwatch).
In the US,
we will get our first reading of Sep manufacturing conditions with two regional
surveys released this week. Industrial production and housing data will also be
published.
The Eurozone
CPI and Zew economic sentiment survey will be released. The focus for Europe
may start to shift more onto possible escalation of trade tensions with the US considering
the (currently confidential) WTO ruling, possible subsequent tariffs and
the transition to the new EU leadership taking over the negotiations.
In the UK, the
focus will remain on Brexit and the emerging optimism for a deal on Brexit.
Data of note this week will be retail sales and the CPI.
This will
also be an important week for Aus data with Q2 house prices and the important
labour market report for Aug. The RBA minutes for Sep will also be published.
US Treasury issuance will be somewhat heavier this week. The US Treasury will settle $255bn in ST bills, notes and bonds this week, raising approx. $66bn in new money. This may be somewhat offset by the paydown of the maturing 45-day CMB from back in Aug ($35bn).
More detail (including a calendar of key events) 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 9, 2019
The weekly macro review for w/c 2 September 2019 – US data highlighted weaker manufacturing activity with ambiguity over services growth and household employment. Both the Markit and ISM PMI’s signaled stagnant manufacturing activity – despite some of the stronger regional survey results for Aug. Factory orders data was mixed for Jul as orders increased by the fastest pace since a year ago – supported by an improvement in orders for non-defense aircraft over the last two months. Excluding transports, growth in shipments and orders have slowed to, and remain at, low levels over the year.
There was
divergence in the US services PMI data. The Markit services PMI indicated much
weaker activity but the ISM indicated much stronger services activity.
Non-farm
payrolls growth slowed more than expected and the average monthly growth in
payrolls is lagging well behind the pace of a year ago. The household survey
was more positive with stronger employment growth in the month leading to both
higher participation and a decline in unemployment. It will be important to see
whether this acceleration in the household employment will be maintained.
Manufacturing growth remained weaker globally with services activity helping to pick up some of the slack.
Activity in
Europe was slightly improved in Aug – lifted by stronger services activity. Of
note was the continued weakness in German manufacturing in Aug. Sentiment regarding
output fell to the lowest level since data was collected. The weaker German
manufacturing PMI data from Jul was confirmed by the sharp decline in new factory
orders and industrial production.
In Japan – weaker
manufacturing activity was offset by faster growth in services.
At the
composite level, activity in the UK contracted in Aug – marginal growth in
services activity was offset by declines in manufacturing and construction output.
It was another tumultuous week in UK politics leading up to the next Brexit
deadline. The political uncertainty continues to constrain business activity
and investment decisions.
The RBA
kept rates on hold – and will continue to monitor developments in the labour
force. Aus annual GDP growth for Q2 slowed to the lowest annual pace since the GFC.
Excluding the external sector,
expenditure in the domestic economy declined in Q2. PMI data for Aug (AiG reports) showed activity
improved in manufacturing and services with construction continuing to decline.
Consumer spending remained weaker in Jul with retail sales posting a further
decline in Jul – possibly too early for stimulus to impact spending.
In order to support growth, the PBoC announced the first RRR cut in four years – a 50bps decrease. Some smaller banks will receive up to a 100bps decrease. China’s PMI’s similarly indicated weaker growth in manufacturing while services activity remained more stable.
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 9 September 2019 – The focus this week will be on the ECB rates decision – with a possibility that the ECB will ease at this meeting.
US data
highlights this week; CPI, retail sales and consumer sentiment. There will be
no Fed speeches this week in the black-out period leading up to the Fed meeting
next week.
The US Congress
is back in session this week. The approval of the USMCA through Congress may
receive renewed focus/urgency given increased volatility around trade.
Australian
data this week will focus on housing finance – an important barometer of how
recent rate cuts and easing of lending conditions are affecting demand for
credit. The NAB business conditions and confidence data for Aug will also continue
to track the response to stimulus from business.
It will
likely to be another turbulent week in UK politics with a second vote on a snap
election and the possibility of a parliament shutdown. Data highlights will be the
labor market report for May-Jul and monthly GDP for Jul.
Data out of
China will focus on trade flows and internal demand conditions with the new
loans, CPI and PPI out this week.
There is potential
for headline risk regarding trade. Discussions will continue over the next few
weeks in the lead up to the re-commencement of high-level talks between the US
and China in Washington (Oct). The detail of the US-Japan trade deal is
currently in development under a tight deadline, to be completed for signing at
the UN General Assembly later this month in NY. The WTO ruling on EU (and US) airline
subsidies is also due shortly.
US Treasury issuance will be somewhat lighter this week. The US Treasury will settle approx. $210bn in ST bills raising approx. $24bn in new money.
More detail (including a calendar of events) 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 3, 2019
The weekly macro review for w/c 26 August 2019 – US data was more positive regarding manufacturing growth. The Dallas Fed, Richmond Fed, and Chicago PMI regional manufacturing surveys recorded at least moderate growth and improved conditions in Aug (after the much weaker Jul readings). The Jul data reported this week still reflected the somewhat weaker production conditions. Chicago Fed National Activity Index fell further below average due to lower production and income growth. Growth in durable goods orders for Jul was led predominantly by an improvement in new orders for aircraft (non-defense aircraft and parts). Excluding transportation, new orders declined in the month and on an annual basis. Shipments declined in the month and inventory growth remains higher than orders.
The large decline in the Uni of Michigan consumer sentiment, expectations and conditions data was an important highlight. The decline was led by concern over increased tariffs. Despite the large one-month decline, sentiment remains at a level consistent with a more moderate rate of consumption growth.
US personal incomes grew at a slower pace in Jul led mostly
by much slower growth in wages and salaries. Lower growth in taxes somewhat
offset the weaker income growth resulting in only slightly slower growth in
disposable income (versus the month prior). Personal consumption expenditures
increased at a faster pace in Jul – providing a relatively strong start to Q3.
Personal savings declined as a result of disposable income growth <
consumption growth.
There was little change in the annual growth of the headline
PCE price index this month, growing at +1.38% and remaining well below the Fed
2% target. Core PCE prices growth was similarly little changed on an annual
basis. Faster growth in the PCE price index for the month was led by energy
goods and services. Core prices grew at a slightly slower pace in the month.
Prelim Eurozone data indicated that CPI growth was constant
at 1% in Aug. The fall in annual energy prices was offset by faster growth in
food, alcohol and tobacco prices and slightly faster growth in services prices.
Industrial production in Japan for Jul increased moderately as expected, after larger falls in the month prior. Japanese retail sales recorded a relatively large decline in Jul.
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 2 September 2019 – The Aug PMI’s will be released this week across the major economies providing further insight into the scale of the current slowdown in private sector activity across, Europe, Asia, and the US. So far, US regional manufacturing surveys for Aug have posted improved manufacturing conditions.
Main US data highlights this week; ISM’s, factory orders and
employment.
US Fed Chairman Powell will give a speech on Friday in Zurich. Several regional Fed Presidents will also speak throughout the week. Chicago Fed President Evans will speak about trade and the auto sector on Wednesday
UK/Brexit – the return of the UK Parliament to session this
week may add to volatility given the announced/planned suspension of Parliament
in the lead up to the second Brexit deadline on 31 Oct. The suspension of
Parliament has been seen as a tactic to avoid any attempts to block a no-deal
Brexit.
New factory orders and industrial production for Germany
will also be released this week – both important given the scale of the current
weakness in manufacturing activity.
The RBA meets on rates this week – current expectations are
for rates to remain on hold (as of 2 Sep 2019) https://www.asx.com.au/prices/targetratetracker.htm.
The rates decision will come ahead of the Aussie Q2 GDP release.
New tariff rates have gone into effect from 1 Sep –
implemented by both the US and China. The US will continue to run public
hearings on the remaining tariff increases due in Oct.
US Treasury issuance will remain heavy this week. The US Treasury will settle approx. $295bn in ST bills and notes raising approx. $74bn in new money.
More detail (including a calendar of events) 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 | Aug 26, 2019
The weekly macro review for w/c 19 August 2019 – Trade uncertainty, and escalation in tariff levies on US-China trade, slower growth, and central bank policy responses were the main themes this week.
The most pressing development late last week was the
announcement by US President Trump of a further increase in tariffs to be applied
to imports from China. This has amounted to a further escalation in the trade
dispute between the US and China. A candid speech from the RBA Governor Phillip
Lowe at the Jackson Hole symposium provides an interesting perspective;
“One way of looking at the world economy at the moment is that we are experiencing a series of significant political shocks – the serious issues between the United States and China, Brexit, the problems in Hong Kong, the tensions between Japan and South Korea, and the stresses in Italy.”
“…these shocks are generating considerable uncertainty.”
The minutes of central bank meetings of the US Fed, ECB and RBA released this week, all mentioned similar risks; slowing global growth, trade policy, and weak inflation. In this same speech, the RBA Governor goes on to question whether monetary policy can effectively deal with these shocks;
“Central banks are seeking to offset the effects of these shocks with lower interest rates and/or more monetary stimulus. This is entirely understandable, although it remains to be seen how effective it will be.”
“… monetary policy is just one of the levers that are potentially available for managing the economy. And, arguably, given the challenges we face at the moment, it is not the best lever.”
This acknowledgment doesn’t mean that CB’s won’t continue to ease policy in response though. The Fed minutes indicate an easing bias, although guided by incoming data. The ECB has indicated that further easing is likely at the next meeting. The RBA has already shifted to easing policy. All three CB’s also cite weak or muted inflation as reasons for further easing.
Adding to concerns over trade and growth, the prelim PMI’s
provided little expectation of any improvement in manufacturing activity into Aug.
Broadly, services activity continues to offset some of the manufacturing
weakness – except for in the US and Australia this month.
The US Prelim composite PMI showed that private sector growth
had slowed to a slight pace – with manufacturing falling into contraction and
signs that the usually stronger services sector also experienced weakness in
Aug. The Kansas City Fed manufacturing index also declined further in Aug and
respondents cited concerns over tariffs (before this latest escalation);
“Regional factory activity had its largest monthly drop in over three years, and over 55 percent of firms expect negative impacts from the latest round of U.S. tariffs on Chinese goods,”
US housing is showing some promise with continued improvement in existing home sales, as interest rates fall.
Employment growth has been a bright spot for the US economy. The BLS released the prelim revision to non-farm payroll growth this week, expecting that US non-farm payrolls will be revised lower by -501k persons in the Jan 2020 release. This likely will undermine one important point of confidence in the US economy.
The prelim composite PMI out of Eurozone was little changed
overall – services growth was slightly higher while manufacturing activity continued
to contract. Broadly, Euro area CPI growth slowed further – likely a large
concern for the ECB. The ongoing slowdown in the German PPI reflects the weaker
demand conditions.
The decline in Japanese exports continues to confirm the
current weaker demand conditions in Asia. The overall decline in Japanese
exports in Jul versus a year ago was mostly led by Asia (esp. China). The
prelim PMI was improved due to stronger growth in services while manufacturing
continued to contract.
The prelim composite PMI for Aust was concerning with the composite index falling into contraction. This was led by much weaker activity in services in Aug while manufacturing growth was little changed.
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 26 August 2019 – The focus this week will be on key economic releases and fall-out from the re-escalation in the US-China trade dispute.
At this stage, we are awaiting any details of a recommencement
of face to face talks between the US and China. On other trade issues, a
decision by the WTO on the US-EU airline subsidy dispute is expected shortly.
In the US, data will focus on growth, consumption, and manufacturing. The key releases are; advance durable goods orders for Jul and regional manufacturing surveys for Aug, Q2 GDP 2nd estimate, personal incomes and outlays for Jul and final consumer sentiment for Aug.
Euro CPI and detailed Q2 GDP for Germany will be the key
highlights.
In Australia, investment, housing & credit growth data will be in focus – private capex and construction data for Q2, new home sales, and RBA credit data for Jul will be released.
Of note in Japan, the prelim industrial production data for
Jul. Surveys expected an increase in production for Jul, yet PMI output data for
Jul indicated further contraction.
US Treasury issuance will be slightly heavier this week, but new money raised will remain elevated, in line with the increase in ST bills issuance and the recent suspension of the debt ceiling. The US Treasury will settle $207bn in ST bills, TIPS and FRN’s raising approx. $62bn in new money.
More detail (including a calendar of events) is provided in the briefing document – download the file here;
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
