by Kim | May 27, 2019
The weekly macro review for w/c 20 May 2019 – The FOMC minutes reflected a somewhat more upbeat, yet guarded view on growth and risks – “some of the risks and uncertainties that had surrounded their outlooks earlier in the year had moderated”. Unfortunately, the rates decision was made prior to the escalation in the trade dispute between the US and China. Several points noted in the minutes have also been superseded by weaker data on retail sales and manufacturing activity. The Board maintains that low inflation is due to transitory effects. Nonetheless, ‘muted inflation’ and the global economic backdrop warrant a patient approach to rates.
From the RBA, some of the more positive
underpinnings of the recent outlook (US-China trade etc) have now shifted to uncertainty
and have tilted risks to growth to the downside. The RBA meeting was just after
news broke of the deterioration in trade talks between the US and China. Domestically,
the low inflation print for the Mar 2019 quarter and the income/spending impact
of falling house prices has the Board monitoring the labour market very
closely. What has concerned the board is that, despite very strong employment
growth, underemployment/slack in the labour market remains elevated and is
likely to slow down progress of wage growth (and reaching the inflation target).
During the week, Governor Lowe suggested that a discussion on rate cuts was
likely at the next board meeting.
Data on manufacturing in the US
continues to disappoint. The advance Durable Goods report for Apr highlighted
that both shipments and new orders fell in Apr, with Mar results also revised
lower. This confirmed the weaker manufacturing data within the industrial production
report from the previous week.
The prelim US composite PMI suggested that this weakness
accelerated in May with both services and manufacturing growth slowing quickly.
New orders in manufacturing declined in this survey for the first time since ’09,
employment growth slowed to a marginal rate and business sentiment fell amid a
worsening trade backdrop.
Japan prelim manufacturing PMI also
fell back into slight contraction in May. While measures of demand remained
weaker, most concerning was the shift in manufacturing sentiment to a ‘negative
outlook’ – the lowest level in over six years.
The Eurozone prelim PMI was little
changed. Results in core countries were more mixed, but there was some deterioration
in demand within periphery countries.
Escalations continue between the US and
China outside of strictly trade issues, and this is likely to continue. No further
talks have been scheduled at this stage.
Amid the impasse on Brexit, PM May will step down as leader on 7 June.
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 27 May 2019 – US growth and sentiment will likely be a focus this week. The second or ‘prelim’ version of Q1 GDP will be released, along with the latest personal consumption and expenditure data for Apr. Of interest will be the income data – after weaker growth in the Mar monthly data. The final read of consumer sentiment for May will be released – again this will be of interest as the prelim reading was taken before the US announced it would revisit tariffs on Chinese imports – this may or may not impact consumer sentiment. Finally, there are several regional surveys providing some further insight into slowing US manufacturing growth.
As mentioned last week, trade headlines and posturing
are likely to remain a feature over the next few weeks. Although there was a
one-month deadline given for the trade deal, this is likely to draw out until after
the US has completed its review process into tariffs on the remaining $300bn of
Chinese imports (after 17 Jun).
Data out of China has been somewhat disappointing
after the initial lift in Mar. This week, the NBS will release the manufacturing
and non-manufacturing PMI’s for May.
Also of note will be the prelim read on Japanese industrial
production for Apr.
The Bank Of Canada will meet on interest rates.
The RBA will release private sector credit data for
Australia for Apr.
US Treasury supply will be heavier this week and its month end. The US Treasury will settle approx. $294bn in ST bills and coupons this week, raising approx. $51bn in new money – the heaviest for several months. Approx. $20bn in securities on the Fed balance sheet will mature on 31 May and approx. $14bn of that will be reinvested under the revised lower monthly cap.
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 | May 20, 2019
The weekly macro review for w/c 13 May 2019 – Despite stimulus measures in place, economic data out of China continues to disappoint. This week, there was little follow through on industrial production with growth slowing back down to the lower pre-Mar level. Retail sales growth slowed quickly. Factory sales/shipments of autos declined at an accelerated pace.
US data was mixed. Retail sales fell. The decline in auto
sales was expected but weaker sales were recorded across most categories.
Manufacturing activity remains lacklustre. Industrial
production growth disappointed with manufacturing and utilities leading the
decline. Manufacturing output fell below last year for the first time since
2016. The first regional US surveys for manufacturing in May were higher – led
by larger increases in shipments after stronger growth in new orders in Apr. There
was no follow-through on new orders growth for May.
The prelim US consumer sentiment data for May was mostly much
stronger. The survey was taken prior to the deterioration in talks between
the US and China, so the final report may see some revision.
The trade front delivered mixed news. The US came to an
agreement with Mexico and Canada to lift retaliatory tariffs under the s.232
duties on steel and aluminium. The US also agreed to postpone the decision to
levy tariffs under the s.232 car and truck import investigation. But President
Trump announced that he agreed with
the conclusion of the Commerce Dept report that auto imports harmed national security
by causing declining market share for US-owned carmakers. The Commerce report
has not been made public. The threat of these tariffs continues to hang over
the negotiations with Japan and the EU.
By the end of the week, it was reported that negotiations between the US and China had stalled. The US continues to move forward on the process to finalise the next round of tariffs on $300bn on imports from China.
Eurozone industrial production continued to decline in Mar,
but declines were not as broad, limited to energy and non-durable consumer
goods. EU and German Q1 GDP growth accelerated slightly.
In Australia, the Liberal (conservative) government was returned to government – meaning that there would be no removal of the favourable tax incentives related to property (negative gearing, capital gains tax), among other things. Lending for housing in Mar declined at an accelerated pace. Wage growth remains low – with real wages growing at a faster pace only due to lower growth in the CPI.
Employment is a key metric of the RBA at this part of the
cycle. There are two
dynamics playing out over different timeframes. On an annual basis, the labour
market remains in good condition. Employment growth remains larger than the
labour force growth resulting in further declines in total unemployed persons.
Although
employment growth has been somewhat stronger over the last two years, the
underemployment ratio remains close to its highs. This has been a key concern
of the RBA regarding ‘excess capacity’ and the implication for wage growth.
The underlying month trend is moving in a different direction. Employment growth only equalled the estimate of what pop growth added to the labour force. Meaning that employment growth was not then high enough to absorb the increase in participation (participation reached a new all-time high in the latest month). As a result, the number of unemployed persons increased for the fourth month in a row.
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 20 May 2019 – This week, the focus will be on the FOMC minutes, a speech by Chairman Powell, US-China relations and the first release of PMI’s for May.
Trade headlines and posturing are likely to remain a feature
over the next few weeks. The news from Friday was that negotiations between the
US and China had stalled. Further escalations were announced as Huawei was “placed
on a business blacklist” by the US. Details of further talks are expected as
the US has placed a one-month deadline to complete negotiations – although so
far, meeting this deadline is looking less likely. US trade representatives
will also meet with Japan and EU trade negotiators this week.
In the US, the focus will be on the FOMC minutes, initial
durable goods orders report for Apr and the prelim PMI’s for May.
There is another large array of Fed speeches this
week. Of note will be a keynote speech by US Federal Reserve Chairman Powell on
Monday at the “Mapping the
Financial Frontier: What does the next decade hold?” Annual Financial
Markets Conference held by the Atlanta Federal Reserve Bank in Florida.
Also, of note this week, will be the RBA minutes and UK
retail sales.
European parliament
elections will commence during the week, with most member countries holding
elections on Sunday 26 May. Voters in 28 countries will elect 751 Members of
the European Parliament for a five (5) year term. The UK will take part in
these elections. Once Brexit occurs, these MEP’s
will resign, and the Parliament will be reduced to 705 members.
US Treasury supply will be lighter this week. The US Treasury will settle approx. $183bn in ST bills, with a net paydown of $9bn.
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 | May 13, 2019
The weekly macro review for w/c 6 May 2019 – The headlines this week continued to follow the US-China trade negotiations in the countdown to the Friday tariff deadline. The USTR has now been directed by President Trump to increase tariffs from 10 to 25% on approx. $200bn of import from China as well as commence the process of increasing tariffs on “essentially all remaining imports from China, valued at approx. $300bn”. The US has set a one-month deadline to complete the deal or the final stage of tariffs will be imposed.
There was little upward performance momentum in data releases
this week. The exception was the better than expected German orders and
production data. A disconnect seems to be emerging between the accelerating
decline in the German manufacturing PMI and production data.
From the US; JOLT’s data was mixed – slowing growth in hires
is important. Involuntary separations are slowing, but growth in voluntary
quits is also slowing.
Consumer credit slowed in Mar led by a decline in
revolving/credit card credit. Senior Loan Officer Opinion Survey indicated a
shift to tighter lending standards for credit cards in Q1.
Price growth was little changed in Apr – headline PPI grew
at the same pace and CPI growth increased as faster growth in energy and
services prices offset slower growth in food and declines in core commodities
prices for the year.
Wholesale sales grew at a faster pace – led mostly by
non-durable goods (petroleum) in Mar. Sales of durable goods still grew at a
faster pace, but growth underperformed the total. The decline in inventories
was led by one area – non-durables (drugs). The value of inventories for
durables increased at a faster pace. The sales to inventory ratio declined.
European composite PMI indicated little change in momentum
with growth remaining only moderate in Apr.
German factory orders grew overall but was led by foreign
orders – domestic orders declined at a faster pace in Mar. Industrial
production improved in Mar, but manufacturing production across most areas
remains below a year ago and below recent peaks. There was no indication of an accelerating
decline in activity as indicated by the Mar PMI for manufacturing.
UK GDP growth accelerated in Q1 – reflecting much faster
growth in production and manufacturing, imports, investment spending by
government and inventories – likely as the result of preparations for Brexit.
Australian retail data continued to disappoint. Real retail sales declined in Q1, after zero growth in Q4 last year. The RBA kept the overnight cash rate on hold. The Board changed its guidance statement, reflecting the need to see improvements in the labour market (i.e. decrease in the elevated underemployment rate) in order to reach the inflation target. The Board “will be paying close attention to developments in the labour market”. Key forecasts for the economy were revised lower in the May Statement on Monetary Policy.
Data out of China showed little acceleration in activity. Services PMI was unchanged for Apr. The trade surplus was lower as imports grew, and exports declined (exports still > imports). New loan growth was lower than in prior months likely indicating a more subdued impact on activity.
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 13 May 2019 – Trade negotiations are likely to remain at the forefront. The US increased tariffs on Chinese imports last week and there is a likelihood of retaliation from China. Details of further talks are expected as the US has placed a one-month deadline to complete the deal.
This comes amid the commencement of trade talks with Japan and the EU. Important to these negotiations is the deadline this week on 18 or 19 May for President Trump to finalise the decision on s.232 investigation on car and truck imports. Given that both negotiations are in the early stages, it’s possible that the decision will be postponed.
Important
US data out this week will focus on retail sales (expecting weaker Auto sales),
the prelim reading on consumer sentiment for May and the latest view of
production and output with the first May regional surveys and total US
industrial production.
There
is a large range of Fed speeches this week. Of note are two speeches by Fed Reserve Board Vice Chairman Clarida on the Federal Reserve’s Review of Its Monetary
Policy Strategy, Tools, and Communication Practices (Monday and Friday).
We
continue to look for a sustained improvement in the Chinese economy with retail
sales, motor vehicle sales and industrial production (after last month’s large
increase in IP). Lower growth in new loans data for Apr will possibly impact
expenditure and output.
It
will be a big week for Australia in the lead up to the Federal election on 18
May. Data will be in focus – housing lending for Mar, the labour market survey
and the wage price index. The labour market data will be the most important
indicator for the RBA in setting rates policy.
US Treasury supply will be heavier this week. The US Treasury will settle approx. $244bn in ST bills, notes, and bonds, raising approx. $19.6bn in new money. It’s also mid-month and approx. $38bn in securities on the Fed balance sheet will mature. The new lower cap of $15bn for the month means that approx. $28.6bn will be reinvested on the 15 May.
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 | May 6, 2019
The weekly macro review for w/c 29 Apr 2019 – US data and events dominate the review this week and results are mixed.
Weak inflation. The FOMC appears to be discounting the
weaker core inflation growth reported this week, believing that ‘some
transitory factors may be at work’. The monthly change in the core PCE price
index has been slowing since the start of the year. Both core services and
goods prices are contributing to the slower growth as of Mar. The annual growth
in core services prices has been slowing since mid-2018 and core goods prices
slowing more so in the last two months.
Weaker personal income growth for Mar was also reported this week. Data is
now up to date after the shutdown and, after revisions, the Mar result is the
third month in a row where disposable personal income growth has stalled,
falling to zero in Mar. While employee compensation growth remained on par with
the prior month, falls in other forms of income detracted from overall personal
income in the month – mainly personal interest income and farm proprietors
income.
Motor Vehicle sales fell again in Apr. The fall in Apr means the SAAR is
almost back on par with the Jan/Feb lows – obviously that higher level of
growth from Mar has not been maintained. This will likely detract from the next
retail result and is so far not a good sign of a rebound in consumer
expenditure.
Factory orders headline numbers suggested a strong rebound – on the back
of stronger orders for transport equipment. But underlying annual growth in shipments
and new orders have slowed over the last few months, and especially so in Mar.
While it’s not obvious, it’s likely that petroleum (price fluctuations) is influencing
the headline numbers especially since late 2018. The ISM manufacturing report, regional
surveys and Markit manufacturing PMI confirm this weaker growth.
Non-farm payrolls were stronger. The household survey of employment wasn’t
as strong as it has been. In the annual view, the larger decline in the
total number of unemployed persons was the result of slower growth in the
labour force rather than faster/accelerating growth in employment. This was the
fourth month where annual employment growth has slowed.
The monthly employment figures are somewhat more concerning.
Employment declined again in the month. What ‘saved’ this report was the 0.02%
pt decline in participation – which equated to approx. 517k persons leaving the
labour force. As a result of this decline in participation, total unemployed
persons declined. The fall in total
unemployed persons “technically” occurred while employment declined in the
month.
US-China trade negotiations appear to have stalled. President Trump announced that Friday 10 May is now a deadline to complete negotiations before the tariff rate is again increased. China’s manufacturing PMI’s for Apr suggested little acceleration since the stronger Mar result.
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 6 May 2019 – The US-China trade negotiations are back front and center this week. There is no confirmation yet that Vice Premier Lui He will cancel his planned trip to Washington this week. The US President has given 10 May as a deadline to complete the deal before tariffs are increased.
Data will likely focus on China this week; trade, CPI, new loans and services PMI will be released. Again, we look for signs of further improvement in the economy.
Important
US data this week will be CPI and PPI. Wholesale trade data will provide a view
on inventories through the distributive channels. Consumer credit for Mar will
include the quarterly view of auto loans.
US
Fed speeches will feature this week, including Chairman Powell providing
opening remarks at the “Renewing the
Promise of the Middle Class” research conference.
The Reserve Bank of Australia will meet this week. It’s been a long time since there was an elevated chance of a rate cut. The latest probability is a 40% chance of a cut to 1.25% (down from a 68% chance of a cut after the weak CPI report on 23 Apr). The only reason the RBA may not cut is that a) the labour market remains in good condition and b) the upcoming federal election is on 18 May 2019. The rate tracker based on the ASX 30 Day Interbank Cash Rate Futures – https://www.asx.com.au/prices/targetratetracker.htm
Also up this week will be German trade, new orders, and industrial production data. This will help to provide some further detail around the deteriorating manufacturing PMI data.
US-EU trade negotiations will continue this week – but both sides remain apart on agreement of the scope of negotiations. The opening gambit for both the EU and Japan has been to exclude agriculture from negotiations.
US Treasury supply will be lighter this week. The US Treasury will settle approx. $169bn in ST bills with a paydown of approx. $9bn. The US Treasury will also auction approx. $84bn in notes and bonds this week which will settle next week at mid-month (raising approx. $28.6bn in new money).
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 | Apr 29, 2019
The weekly macro review for w/c 22 April 2019 – US GDP growth accelerated higher in Q1. The underlying drivers of growth provide a mixed message on economic activity. Growth was higher on the back of faster export growth, coupled with declining imports (higher net exports), and a continued increase in the change in inventory. Personal consumption growth and private fixed investment spending growth both halved.
The inventory build has been observed across several reports over the last few months especially within retail and wholesale channels, as sales growth slowed. An important point is that consumer retail sales, including motor vehicle sales, improved in Mar. If this higher growth in consumption can be maintained, then the inventory build may dissipate over the next few months. Growth in personal consumption expenditures, retail sales, and motor vehicle sales will be important data points to watch over the next few months.
One feature of the two regional surveys out this week for
Apr was the weaker growth in employment and/or hours worked. The Richmond Fed
manufacturing survey highlighted a weak rebound in activity – with a further
notable increase in inventory for Apr and fall in the average work week – the
largest decline since 2008.
US consumer sentiment for Apr continued the sideways move,
but consumers remain upbeat about financial prospects in the year ahead.
The BoJ sounded an alarm on the economic outlook in Japan
due to global uncertainties and the planned tax hike in Oct. The bank announced
plans to expand the range of eligible collateral for lending and clarified its
forward guidance that low rates will be maintained until at least Spring 2020.
On cue, prelim industrial production declined sharply in Mar – in line with the
weaker result indicated by the manufacturing PMI for Mar. Retail sales growth
was stronger in Mar and recorded the first small acceleration in annual sales
growth.
Australian CPI surprised to the downside with growth in the quarter at 0%. Annual price growth, including measures of core CPI, continue to trend further below the RBA target range. Both domestic and external factors are contributing to the lower price growth in the quarter and the year.
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 April 2019 – A big week of US data, with the FOMC rates decision, employment, and non-farm payrolls and PMI’s for Apr.
Personal
Income and Outlays and the PCE price index data will round out the Q1 view of consumption
activity. We’ve been tracking slower spending growth and higher savings rates
so far in 2019, with stronger growth in retail sales in Mar.
Another
data point to watch this week will be whether the higher growth in US motor
vehicle sales has continued in Apr.
PMI’s
for China manufacturing, and services activity will be released this week –
looking for whether the recovery in activity has continued into Apr.
UK
– BoE rates decision due this week along with the PMI’s for Apr. This will
provide an early insight into the impact on the UK economy, so far, of
postponing Brexit (after preparations were put in place for 29 Mar exit). Talks
between the UK Government and the Labour party will continue this week, but it
is unlikely that there will be another vote in Parliament on Brexit this week.
Q1
GDP for the Eurozone will be released along with the final PMI’s for Apr.
Prelim data, especially for manufacturing activity showed continued weakness
across the Eurozone into Apr.
US Treasury
supply will be heavier this week. The US Treasury will settle approx. $310bn
in ST bills and notes, raising approx. $37bn in new cash this week (after
several weeks of paydowns). It’s also month end and $31.7bn in securities on the Fed balance sheet
will mature and approx. $1.9bn in principal payments will be reinvested. Next
month, the cap on reinvestments will be lowered to $15bn until the end of Sep
2019.
Trade talks between the US and China continue this week with plans to finalise details of a trade deal. At the same time, awaiting further details on the next round of talks between the US and Japan, as well as the commencement of talks between the US and EU.
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 | Apr 22, 2019
The weekly macro review for w/c 15 Apr 2019 – China economic data continued to improve this week. While there was faster growth in industrial production and retail sales in Mar, this was yet to be reflected in the quarterly GDP growth result. The Q1 2019 GDP growth rate slowed to +1.4% versus +1.5% in the prior quarter and +1.5% in the same quarter a year ago.
The impact of Chinese stimulus on other countries remains mixed. South Korea exports to China in Apr continue to deteriorate. EU exports to China were much stronger in the YTD Feb +13% (versus +6.2% growth in the full year 2018). Japan exports to China fell again in Mar by -9.4% versus a year ago.
The improvement in US retail sales growth was an important data point this week. Growth was stronger across most categories for the month – the question is whether it will be sustained. The prelim Apr sentiment data last week indicated a ‘sideways’ move rather than any acceleration higher. Continued retail growth (consumer pull-through) over the coming months should help ease issues with inventory build evident within the wholesale supply chain.
Overall US industrial production and manufacturing growth continue to flatline – while some regional indexes have improved. The prelim PMI for Apr indicated a marked slow-down in service-sector activity while there was little change in manufacturing activity.
PMI data for Europe indicates private sector growth likely slowed further in Apr – the slightly slower contraction in manufacturing was offset by somewhat slower growth in services. New export orders continued to contract at a steeper pace in Apr and for the 7th month in a row. Despite this accelerating contraction in new export orders, EU trade data out last week shows that so far, EU export growth in the YTD to Feb (+4.1%) remains on par with the full year 2018 of 4%. Based on the PMI readings for new export orders (especially for Mar and Apr), EU export growth may slow in the coming months.
Given that the Brexit deadline was moved out at the last minute, most organisations had been preparing in the months leading up to that deadline and stock-piling/bringing forward orders etc. This has been noted in the PMI’s in Feb and Mar. Some of that is visible in the EU trade data; in the full year 2018, UK imports grew at 0% but in the YTD Feb 2019, imports grew at a much faster +10%. UK retail sales for Mar were very strong again and annual growth accelerated to a near term high of +6.6%. Will this stronger run of activity be sustained now that the deadline on Brexit has been moved to 31 Oct and, will firms continue to maintain higher inventories until Brexit is resolved? Elsewhere, in the UK, the labour market remains strong and inflation steady.
The US and China appear to be in the final stages of the trade deal negotiation. Our focus now shifts to the commencement of the US-EU negotiations – the importance of which cannot be underestimated. This week, the EC approved negotiation directives which did not include agriculture. At the same time, President Trump has threatened that he will impose auto tariffs if agriculture is not included in the negotiations. No date has been set for the commencement of talks.
The annual picture of the Australian labour market remains robust. But on a monthly basis, there is a subtle (continued) weakening in conditions. In the prior month we noted that the more recent monthly employment growth was now below that of the total labour force – resulting in small increases in total unemployed persons on a monthly basis. This trend has continued in Mar resulting in a further (small) increase in unemployment.
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 Apr 2019; US corporate earnings are likely to be in focus this week with many of the larger corporates reporting. Signaling around future activity will be of interest.
Important US data this week – prelim Q1 GDP, durable
goods for Mar and the final Apr consumer sentiment data.
It will be quiet on the US Fed front ahead of next
week’s FOMC meeting.
Interest rate decisions this week from the Bank of
Canada and the Bank of Japan.
The BoJ will also release its Q1 outlook report. The
prelim Mar industrial production for Japan will also be released this week – weaker
manufacturing PMI’s for Mar and Apr suggest ongoing weakness in production
data.
Aussie Q1 CPI will be released this week – an important
data point ahead of next week’s RBA interest rate meeting.
US Treasury supply will be lighter and there will be
another pay-down. The US Treasury will settle approx. $189bn in ST bills,
with a net paydown of $13bn.
US-EU trade negotiations will likely become a larger focus. The EC has now approved its negotiation directives and objectives conflict with that of the US. President Trump has threatened tariffs on Auto’s if agriculture is not included in the negotiations and the EC directive does not include agriculture. There has also been some escalation in the Boeing/Airbus subsidies dispute.
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
