by Kim | Dec 10, 2018
Macro review for w/c 3 December 2018 – There has been a large shift in the growth narrative over the last few weeks. Increased emphasis has been placed on the likelihood of slower growth in the near-term outlook due to yield curve inversion, fading stimulus and the broader context of slowing global momentum. More dovish Fed statements have started to re-shape the expectations for the path of rate hikes– this is what the Fed signalled it wanted to do in the minutes last week (i.e.no longer follow a ‘gradual path’ of rate hikes).
Several Fed Presidents have been advocating that the low inflation print over the last few months gives the Fed space to pause and reassess. Political pressure has also been mounting on the Fed to slow the rate of increases.
The outcome of the US-China G20 sideline meeting was used to project confidence for the path forward for trade negotiations. But uncertainty and headline risk around trade and tariffs remains. The USTR has confirmed a hard deadline of 1 Mar 2019 to conclude negotiations to avert an intensifying trade war.
US data this week shows that the economy continues to do well. The ISM’s indicate continued high rates of expansion across manufacturing and non-manufacturing sectors. Factory orders headline data were lower but highly influenced by volatile transports. Growth in core (ex-transports) new orders and shipments have been slowing (growing at a slower rate) throughout the year. Non-farm payroll growth was lower in the month, but the household survey shows that the higher level of employment growth continues to ‘absorb’ new/returning workers to the labour force and reduce unemployment. Avg wages continue to grow. On the more interest rate sensitive parts of the economy; consumer credit growth continued to accelerate while motor vehicle sales were down slightly.
Outside of the US, there is growing caution about growth.
The BoC minutes clearly stress the concern of the potential negative impact on the Canadian economy from the oil price ‘shock’ of the last few weeks as well as generally slower momentum going into Q4.
The Aus GDP Q3 print was much lower than expected. There is now a growing focus on slower growth amid a house price correction.
The ECB has previously stated that it will closely watch the data leading up the Dec meeting. Data this week suggests that the weakness is enduring. Eurozone PMI data indicated that expansion in both manufacturing and services activity continues to slow – led by core Eurozone countries. Production data in Germany was mixed – new orders remain lower than last year, but production growth had improved over the last two months. Eurozone GDP growth was confirmed at +0.2% and employment growth has similarly slowed to +0.2% in Q3.
Finally, Chinese trade data was well below expectations with exports and imports growing at a much slower pace. This lower level of activity is likely to continue to have far reaching effects throughout the global economy.
There are more topics/data releases covered in this weeks review. Use the links in the contents page to navigate to different country sections. Download the review here (hit the back button on your browser to return to the site);
The outlook for the w/c 10 December 2018 – This week there will likely be a rare paydown by the US Treasury. The US Treasury will auction and settle $145b in ST bills this week, creating a net paydown of $20bn. The US Treasury will also auction $78b in 3/10/30yr securities, raising approx. $54b in new money – these will settle next week. There are no Fed holdings of securities that will mature this week.
UK Brexit will be a key focus this week with the UK Parliament expected to vote on 11 Dec.
Prelim PMI’s for
Dec are out this week for Japan, Eurozone and the US providing a first glimpse
at momentum going into the last month of Q4 and the last month of the year.
For the US this week, the focus will be on the PPI and CPI reports as well as retail sales and industrial production.
The ECB rates decision is this week. The ECB will provide a further assessment of current economic conditions in the Eurozone. It is still expected that Net Asset Purchases will reduce to zero at the end of the month.
A final read on Japanese Q3 GDP will be out this week. The important industrial production data will also be confirmed for Oct.
We’ll get further signs of the slowing housing market in Australia with the Q3 house price index and Oct housing lending data out this week.
The US trade deal negotiations process continues this week. The first public hearing will take place on Monday 10 Dec for the US-Japan trade negotiations. A public hearing for the US-Europe trade negotiations was scheduled for 14 Dec but has not yet been confirmed by the USTR.
Further detail and a calendar of key releases is provided in the full briefing document – download it here (hit the back button on your browser to return to the site);
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | Dec 3, 2018
The macro review for w/c 25 November 2018 – Despite a positive assessment of current conditions, a point in Chairman Powell’s speech during the week was interpreted as a change to the view of where we are in the hiking cycle – shifting from ‘a long way from neutral’ to ‘close to neutral’. That said, the FOMC minutes suggest that a further rate hike is likely in Dec. After that, policy will change if incoming data ‘prompts a meaningful reassessment of the outlook’ rather than follow the ‘gradual increases’ path. Expect to see this wording change in the FOMC statements.
Data this week indicated stronger growth in real personal consumption expenditure and real disposable personal income. The Oct core PCE price index growth was lower and is now outside of the lower end of the current FOMC projection range for inflation. This is not likely to represent a material change just yet, especially given the stronger consumption/income data. The regional surveys continue to record price and wage pressures.
On more interest-rate sensitive sectors; new home sales continued to fall. House prices slowed on an annual basis but were somewhat firmer in the month to month change.
ECB Draghi continued to err on the side that current European weakness is transitory. Net asset purchases are still likely to finish at the end of Dec. The prelim Euro area and German CPI growth slowed somewhat.
Japanese industrial production bounced back strongly in Oct. While the forecasts are for further increases in Nov and Dec, the Prelim PMI for Nov suggests that manufacturing growth continued to slow again, including weaker new orders.
Declines in private capex and construction for Australia are likely to detract from GDP growth in Q3.
The meeting between Presidents Trump and Xi has been broadly positive. The outcome was an agreement to move forward to address key issues on tariffs, IP protections and the trade imbalance. No further tariffs/escalations will be applied while negotiations take place. There is a 90-day window for discussions. The US will also be kicking off trade negotiations with Japan, Europe and the UK during that time.
There are more topics/data releases covered in this weeks review. Use the links in the contents page to navigate to different country sections. Download the review here (hit the back button on your browser to return to the site);
Weekly Macro Review 25Nov2018
The outlook for w/c 3 December 2018 – It’s going to be a relatively lighter week for treasury issuance – the US Treasury will auction and settle approx. $171b in short-term bills, raising approx. $11b in new money. The 4wk and 8wk bill amounts are yet to be announced.
This week, Chairman Powell testifies on the US Economic Outlook to the Congress Joint Economic Committee. We’ll be looking for further signalling on the economic outlook and possibly any commentary on the weaker core PCE inflation growth from last week. There are several other FOMC member speeches this week. The key US data release this week will be non-farm payrolls. Also; the ISM reports, PMI’s and mortgage applications.
PMI’s will be released this week for the US, Europe, UK and Asian economies – helping to gain a handle on growth momentum in Q4.
There is a large amount of European data out this week and will be an important follow-up to answering whether current weakness is transitory in nature. This will feed into the ECB assessment at the Dec rate meeting.
Rates decisions for the RBA and BoC this week.
Australian Q3 GDP and retail sales data this week. We’ll be looking for further signs of impact from the slowing housing market.
Further detail and a calendar of key releases is provided in the full briefing document – download it here (hit the back button on your browser to return to the site);
Weekly Macro Brief 03Dec2018
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by Kim | Nov 24, 2018
The macro review for w/c 19 November 2018 – Global growth remained in focus last week.
In the US, the question is whether the Fed will pause rate hikes. Prelim PMI’s for Nov indicated growth had slowed across manufacturing and services. The advance durable goods orders report for Oct had a large headline decline for new orders. This was partly because of large transport orders over the last few months, but there is some evidence that growth in ‘core’ orders have slowed somewhat.
Data on housing was a little mixed, but still shows that housing continues to slow. The housing market conditions index in fell relatively hard in Nov. But the Oct existing home sales recorded the first monthly increase in six months. New residential construction continues to slow.
The ECB minutes confirmed that current European data was weaker than had been expected. The Dec ECB meeting will be an important opportunity, with more data, to determine whether the current weakness is transitory or more persistent in nature.
Data out this week for Europe continues along the slowing theme. Prelim PMI’s highlight growth had slowed further in Nov – across both manufacturing and services in both core and periphery countries. Output growth in manufacturing is almost neutral and new orders declined. In Germany, both services and manufacturing growth continued to slow with manufacturing new orders and export orders declining.
The decline in German Q3 GDP was confirmed. The largest contributor was the decline in exports. But household consumption also contributed to the decline. The positive change in inventories offset the declines to a large degree.
The Japanese trade balance deteriorated in Oct. While exports grew at a faster rate (than in Sep), imports grew faster. CPI growth ex fresh food remained unchanged at 1%. Energy prices continue to impact CPI growth.
The Brexit agreement was approved at the EC meeting on 25 Nov. The UK Parliament is expected to vote on the deal on 12 Dec 2018.
There are more topics/data releases covered in this weeks review. Use the links in the contents page to navigate to different country sections. Download the review here (hit the back button on your browser to return to the site);
Weekly Macro Review 19Nov2018
UPDATED – Outlook for w/c 25 November 2018 – A very full week of events, treasury issuance, Fed, ECB, BoE speeches and data releases.
The week kicks off early with the special EC summit on 25 Nov to finalise and formalise the Brexit agreement. The draft agreement then needs to be approved by both sides and there is still much uncertainty regarding the direction of the Brexit agreement through the UK Parliament.
It’s going to be an extremely heavy week for treasury issuance – the US Treasury will auction and settle approx. $285b in US Treasury securities, raising approx. $80.8b in new money. The 4wk and 8wk bill announcements are TBC. Its also month end and $24.9b in treasury securities will mature on the Fed balance sheet of which $12.3b will be reinvested.
The G20 Leaders’ Summit commences at the end of the week with a full week of meetings leading up that event. Presidents Trump & Xi are expected to meet on the sidelines regarding trade. Recent reports/statements/comments (posturing) are setting a more adversarial tone leading up to the meeting.
In the US this week, there will be a relatively full agenda of Fed speeches, included Chairman Powell at the Economic Club in NY. As we move into the realm of ‘no forward guidance’ we’ll be looking for signalling on the future path of rates. FOMC minutes will also be released this week. Data releases of note include the second estimate for GDP, house price data and PCE price index data.
Although there is no formal announcement, expect some US headlines regarding retail sales/traffic results regarding US Black Friday/Cyber Monday.
Prelim Japanese Industrial production this week will be an important follow-up on recent poor results. The expectation is for higher industrial production in Oct.
Eurozone and Germany CPI data.
ECB Draghi and BoE Carney speeches on Monday.
Further detail and a calendar of key releases is provided in the full briefing document – download it here (hit the back button on your browser to return to the site);
Weekly Macro Brief 25Nov2018
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | Nov 19, 2018
The macro review for w/c 12 November 2018 – Slower global growth was a key focus this week across several fronts.
Speeches by regional Fed Presidents and Fed Chairman Powell all acknowledged slower growth globally, although growth remains strong in the US. “Broad consensus” to keep increasing US rates in the near term – but how far and how fast was the question. Mentioned by several Fed Presidents that modest inflation pressure is keeping expectations of rate increases in check.
ECB President Draghi also addressed concerns about slower European growth as GDP growth slowed to 0.2% in Q3, German GDP declined in Q3, Euro area employment growth slowed and CPI growth accelerated. Whilst Draghi claimed some of this weakness was due to ‘one-off’ impacts, some threats remain. Uncertainties around the medium term outlook have increased and will be better placed at the Dec ECB rate meeting to make a full assessment of the risks to growth.
Japanese Q3 GDP also declined – led lower by public and private demand and negative contribution from net exports. More recent data suggests that there might some improvement.
A deal was reached on Brexit, but headwinds/uncertainty remain on whether the UK parliament will approve the deal. Some mixed data – retail sales declined for the second month in a row and the labour survey shows most recent quarter that employment growth remains lower and unemployment increased. CPI growth remained steady.
The USTR has now made formal requests and set dates for public hearings into the negotiating objectives for its trade negotiations with Japan, the UK and Europe.
There are more topics/data releases covered in this weeks review. Use the links in the contents page to navigate to different country sections. Download the review here (hit the back button on your browser to return to the site);
Weekly Macro Review 12Nov2018
The outlook for w/c 19 November 2018 – Despite more positive messages over the last few weeks, the tone of US-China discussions took a negative turn over the weekend at the APEC meeting. Whether this continues into the lead up to the G20 meeting, may pose some headline risk. Presidents Trump & Xi are expected to meet on the sidelines of the G20 meeting at the end of next week.
A lighter week for US treasury issuance with the US Treasury auctioning and settling approx. $148b in ST bills this week raising approx. $15b in new money. Next week will be month end and so far, its looking to be an extremely heavy week of issuance – with an estimated $295b in treasuries to be auctioned and settled, raising approx. $90.8b in new money.
It’s a short week in the US with the Thanksgiving Holiday on Thursday.
Given the focus on global growth, one of the more important releases later this week will be the prelim PMI’s for the US, Germany and the Eurozone for Nov.
For the US, housing data will be in focus along with Durable Goods data.
UK and Brexit – the special EC summit to finalise and formalise the Brexit agreement is scheduled for Sunday 25 Nov.
Further detail and a calendar of key releases is provided in the full briefing document – download it here (hit the back button on your browser to return to the site);
Weekly Macro Brief 19Nov2018
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | Nov 12, 2018
The macro review for w/c 5 November 2018 – As expected, the FOMC kept rates on hold. There was little change to the accompanying statement. US data out this week confirmed the continued strength of economic activity. Growth in services activity remains close to near term highs and the services PMI grew at a faster pace. JOLTS data pulled back slightly, but job openings and hires remain close to all-time highs. Producer prices for final demand accelerated higher on the back of higher growth in energy, food and services prices.
US consumer credit growth was lower in the current month, but higher overall in the third quarter. Non-revolving credit drove overall consumer credit growth higher on the back of a pick up in both motor vehicle and student loan growth.
The EU rejected the UK compromise to resolve the Irish border backstop issue – both sides have not agreed on the implementation. There is still some possibility for negotiation, but its becoming unlikely that a deal will be ready in time to call a special EC meeting in Nov. Despite the uncertainty, UK data remains resilient. UK Q3 GDP grew at a faster pace driven by higher export growth and continued growth in household and government consumption. Some underlying signs of growth slowing throughout the quarter. This was also highlighted by the slower growth in the UK services PMI. New orders and some areas of consumer spending were weaker.
German industrial production was somewhat stronger than the manufacturing PMI had suggested – with production growing ahead of last year in the latest month. But slower growth/declines in new manufacturing orders, especially from overseas and the decline in manufacturing turnover were in line with the weaker momentum outlined in the Sep and Oct PMI’s.
Mixed data on Japan. Services PMI improved in Oct. The Japanese trade balance improved in the Sep month, but that was due to declining exports and mostly due to a larger slow down in imports. Slightly different on a quarterly basis as the trade surplus shifted to deficit in Q3 (Yen basis) – export growth slowed and imports grew at a faster rate. Machinery orders for Sep fell very hard – it’s also a volatile dataset. Will need to see how industrial output/activity responds in Oct and Nov, given the improvements in PMI’s.
The data on Aus housing continues to deteriorate. Overall lending for housing was down 14% from a year ago. The weekly auction clearance rates continue to fall. The RBA kept rates on hold as expected. Despite the likelihood of further falls in house prices, the RBA increased growth projections for 2018/19.
There are more topics/data releases covered in this weeks review. Use the links in the contents page to navigate to different country sections. Download the review here (hit the back button on your browser to return to the site);
Weekly Macro Review 05Nov2018
The outlook for w/c 12 November 2018 – A heavy week of treasury issuance with the US Treasury settling $247b in bill, note and bond auctions this week and raising $59.6 in new money. Its also mid-month and approx. $17b in Fed holdings of securities will roll off the Fed balance sheet. The date to watch is 15 Nov.
Several US FOMC member speeches this week including Chairman Powell.
US data this week; CPI, retail sales, industrial production and regional surveys. Looking for activity to confirm the continued path of rate increases.
Important European data is out this week, especially given the recent weaker data; CPI, Q3 GDP and industrial production. ECB President Draghi is also scheduled to speak. At the end of Dec (next month) the ECB is scheduled to finish net asset purchases (currently running at €15b). German Q3 GDP and CPI will also be released this week – providing some insight as to the impact of slower industrial production on the broader German economy.
With Brexit uncertainty continuing to increase and the pockets of slightly weaker UK data last week – this week will provide an important read on the resilience of the UK consumer with retail sales, the labour market and CPI.
The Australian labour market report for Oct will be out this week also – something to keep on the radar given the slow-down in housing.
Further detail and a calendar of key releases is provided in the full briefing document – download it here (hit the back button on your browser to return to the site);
Weekly Macro Brief 12Nov2018
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | Nov 5, 2018
The macro review for w/c 29 October 2018 – Data this week confirmed continued strength in the US labour market. The highlight of the labour market report was the increase in participation. The gap between the current participation rate and that of the pre-GFC period for the 25-54yr age group is becoming smaller. Employment growth remains larger than the sum of what population and participation are adding to the labour force and the total number of unemployed persons still declined. Wages growth continues to increase.
Core PCE price growth remains at the Fed 2% target.
US regional activity indexes, manufacturing PMI and the ISM manufacturing PMI still show private sector manufacturing activity is expanding – albeit at a slower pace than recent highs. Some further acknowledgement of slower export orders. House price growth continues to slow – and this will be one to watch.
The probability of a Dec rate increase by the FOMC has edged back up to almost 80%.
Euro area growth is slowing, with GDP growth halving in the latest quarter. Last week, ECB President Draghi called it “weaker momentum, not a downturn”. The Oct manufacturing PMI’s are suggesting that activity may be rolling over in some of the larger economies. New orders, new export orders and output were weaker/contracting, especially in some of the larger manufacturing economies, including Germany. Elevated CPI growth is not helping – as higher energy costs are placing an added cost burden on households and firms. A reading on services PMI’s and industrial production (w/c 5 Nov) will help to balance out the view.
Japanese industrial production slowed further in the latest month. There was a sharper leg down in Sep versus a year ago growth – possibly due to the typhoon at the start of Sep. But trends across the board suggest that growth had peaked some time ago – tariffs and trade slow down are likely having an impact. Sep & Oct manufacturing PMI’s were slightly improved. We wont know until after November whether the weakness in Sep remains part of the bigger trend.
BoJ and BoE kept rates on hold. The BoJ revised down its inflation forecast for this year. The BoE revised its GDP growth forecast down slightly for 2019 (which is based on the smooth Brexit transition).
There is are more topics/data releases covered in this weeks review. Use the links in the contents page to navigate to different country sections. Download the review here (hit the back button on your browser to return to the site);
Weekly Macro Review 29Oct2018
The outlook for w/c 5 November 2018 – The focus this week will be on the US mid-term elections on Tuesday.
The FOMC also meets this week and its likely rates will remain on hold at this meeting.
There will be medium level of treasury supply, with the US Treasury auctioning $263b in notes and bills. The bills will settle this week, raising approx. $27b in new money.
On Brexit, there may be a tentative solution/compromise for the Irish border backstop issue. A cabinet meeting is scheduled this week. UK Services PMI and Q3 GDP are also out this week.
German industrial production, factory orders and trade will be important this week, given the recent weakness in Europe/German manufacturing PMI’s. Services PMI’s will also help to balance out the view of private sector activity.
Similarly, Japanese trade balance and machinery orders will be important considering the weaker industrial production data last week.
The Sep housing credit data will be out for Australia this week. This will be the first read on mortgage credit growth since the Australian banks increased mortgage interest rates (out of cycle increases). Auction clearance rates continue to deteriorate suggesting further falls in prices.
Further detail and a calendar of key releases is provided in the full briefing document – download it here (hit the back button on your browser to return to the site);
Weekly Macro Brief 5Nov2018
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
