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
by Kim | Apr 15, 2019
The weekly macro review for w/c 08 Apr 2019 – Data out late in the week confirmed the large degree of monetary stimulus now supporting the Chinese economy. Growth in total social financing in Q1 increased by +10.7% versus the same time a year ago. China’s trade data was still mixed – export growth was much stronger than expected but imports continued to decline. This suggests continued weaker domestic demand as well as likely weaker export trade data for some Chinese trade partners.
The ECB this week kept rates on hold, acknowledging that risks in the region remain tilted to the downside.
Three related US datapoints stood out this week. The FOMC minutes confirmed that, on balance, rates are likely to remain on hold through this year, despite mention of ‘data dependence’. “Muted inflation” is enabling “a patient approach” on rates.
CPI and PPI data out this week indicate some price pressure
returning from energy prices. This will be important to watch. While annual
growth in the headline CPI accelerated between Feb and Mar due to a less
negative impact from energy prices, the monthly change highlighted faster
growth in consumer facing energy prices. Similarly, there was some upward
pressure from energy prices in the PPI.
Any potentially faster inflation growth, in the absence of
accelerating wage growth, is likely to hurt consumer sentiment. Commentary from
the prelim consumer sentiment report for Apr highlights that – “what has been of increasing importance to consumers are
rising nominal incomes, and low inflation, producing strong gains in inflation
adjusted incomes”. Sentiment measures continue to move sideways.
A further reprieve on deadlines for Brexit. Although the “final” date has been pushed out to 31 Oct, there is a still a sense of urgency on striking a deal to avoid taking part in the European Parliament elections.
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 15 Apr 2019 – A short but very data heavy week.
Performance of the Chinese economy will likely be important this week with Q1 GDP growth, retail sales, and industrial production data to be released.
Given the large growth in monetary stimulus in Q1 in China and the first possible signs of improving activity, we will be looking for evidence of this starting to impact key trade partners.
US data will focus on domestic production and consumer spending as well as international trade. Of note will be retail sales (stronger motor vehicle sales should feature), inventories through the trade channels, industrial production, international trade and the first view of manufacturing and services PMI’s for Apr.
Japan CPI, final industrial production and international trade data will be released.
In Europe, the prelim manufacturing and services PMI’s for Apr will be important gauges of any improvement in manufacturing momentum especially. Also of note will be Eurozone trade and CPI data.
UK
data; retail sales, CPI and the labour force data for the 3-months to Feb.
The RBA minutes will be released this week as well as the key labour force survey report.
US-China trade negotiations will continue this week with a deal still expected to be completed within the next few weeks. US-Japan trade negotiations will commence this week. Further details on the commencement of US-Europe trade negotiations is also be expected this week.
The US International Trade Commission is likely to provide its analysis of the USMCA/NAFTA agreement shortly. The revised timing for the report was ‘mid-Apr’ due to the partial government shutdown. This will be a vital report in the process of ratifying the USMCA/NAFTA agreement by the US Congress.
US Treasury supply will be heavier this week but there will be another pay-down. The US Treasury will settle approx. $241bn in ST bills, notes, and bonds this week. The 42-day CMB will also mature this week and there will be a net paydown of $39bn.
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 8, 2019
The weekly macro review for w/c 1 April 2019 – The rebound in the official China NBS Manufacturing PMI for Mar set a positive tone for the week. The underlying drivers of expansion suggest that improvements in production and new orders signal that measures to stimulate may be starting to impact activity. Of note was the Caixin Manufacturing PMI which reported a ‘significant’ improvement in manufacturing employment.
In the US, a slower pace of manufacturing activity over the
last four months was confirmed by the latest ISM. The business inventories
report highlighted the growing build-up in inventories through the distributive
trade channels – especially merchant wholesalers. Also of note was the more
downbeat reports on services growth via both the Markit and ISM PMI’s.
The Feb retail sales indicated consumer spending remained subdued.
This was partly confirmed by the continued slower growth in consumer credit,
especially in the last 3-months to Feb. The rebound in motor vehicle sales in
Mar (the more recent of the reports) suggests a more positive outlook for
spending – in line with the improvements in consumer sentiment.
Non-farm payrolls rebounded in Mar. The household survey shows
that over the last year, total employment has grown faster than what both
population and participation have added to the labour force. As a result, the
number of total unemployed persons continue to decline. Of note though is that
participation growth has stalled, and employment growth has slowed.
Data from Europe and Asia continues to indicate weakness in
manufacturing across key economies. The decline in new factory orders in Germany
accelerated in Feb – led mostly by falls in foreign new orders but domestic
orders also declined. Headline German industrial production grew in Feb but
production in manufacturing continued to decline across most industry
categories. Japanese manufacturing activity continued to contract, while
services growth remained steady at more moderate levels.
The RBA kept rates on hold. Signalling from the latest statement suggests that RBA may no longer be ‘on-hold’ at future meetings. Stronger growth in retail sales may allay fears that continued falls in house prices are impacting spending. The govt budget featured a forecast return to surplus in the ‘19-20 financial year and spending measures included some stimulus in the form of tax cuts and cash payments for some households. A date for the election is yet to be called but is expected by late May.
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 8 April 2019 – Data out on China this week will be a key focus as we look for signs of continued improvement in activity, especially in international trade. New loans and money supply data will also provide an indication of the degree of stimulus still being provided.
Central bankers will be back in focus this week. US
FOMC minutes will be released and there are several speeches throughout the
week including Chairman Powell. Other speeches of note include Vice-Chair
Clarida as a part of the Fed’s review of monetary policy strategy, tools, and communication practices
and Vice-Chair Quarles participating in a round table on reforming major
interest rate benchmarks.
The ECB meets this week. While rates will likely
remain on hold, signalling will be important regarding ECB view on the
continued weaker manufacturing growth in key economies.
US data of note this week will be CPI & PPI. The broader
view of factory orders for Feb will provide some further insight into manufacturing
trend growth. We’ll also get out first view of Apr consumer sentiment numbers.
Aus data of note will be lending for housing.
It’s down to the wire again for Brexit. PM May continues
to negotiate a compromise with the Labour Party to pass the withdrawal
agreement in Parliament. If such a compromise is reached (and passed), it is to
be presented and approved at the EU summit on 10 Apr. If either no compromise
is reached across parties or the EU rejects the proposal, then it’s possible that
a longer delay to Brexit will be agreed upon.
Awaiting further
announcements on the progress of US-China trade negotiations.
US Treasury supply will lighter this week. The US Treasury will settle approx. $163bn in ST bills. With a CMB also maturing this week, there will be a net paydown of $37bn.
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 1, 2019
The weekly macro review for w/c 25 March 2019 – The focus last week was on US data and performance.
Indices of US regional and National activity indicated a slower level of growth momentum throughout Mar. All regional surveys remained in expansion but the pace of growth was somewhat slower except for the Kansas City Fed Manufacturing Index (recording faster expansion).
Housing – the uptick in mortgage application growth so far
this year is yet to fully translate into sustained higher pending home sales
data. House price growth continued to slow. Lower mortgage rates are now just
starting to kick in at the beginning of the Spring selling season.
US Q4 GDP growth was revised lower. This was due to lower
growth in personal
consumption expenditure, private domestic investment and govt consumption and
investment expenditure. Net exports were revised higher to be ‘less negative’.
The trend of slower growth in personal consumption expenditures
continued in Jan – likely the product of a continued cautious consumer at the
time of negative headlines on the govt shutdown and a volatile period on the
stock market. Jan was also the month where sentiment readings fell hard. Consumption
expenditures grew only marginally in Jan as purchases of durable goods continued
to fall. Disposable income growth fell in Jan which was the result of a
fall in personal dividend income, farm proprietors’ income, and personal
interest income (partly reversing large increases in Dec) – rather than a fall
in employee compensation. Growth in
employee compensation and wages & salaries has remained constant through to
Feb. Disposable incomes continued
to grow in Feb. The important clue is that the saving rate remained elevated in
Jan (after increasing in Dec) – indicating that consumers likely held off on
the larger purchases.
Consumer
sentiment measures (Uni of Michigan) have continued to improve into Mar.
Headline measures of sentiment are now all above the Jan lows and are in line
with the last 12-month averages. This may be supportive of improvements in
spending in the coming months.
The latest annual growth in PCE price indexes for headline
and core inflation continued to slow. Both measures were lower than current Fed
projections for 2019 and remain below the FOMC 2% symmetrical target. Current
inflation readings suggest rates will remain on hold.
Of interest outside of the US was Japanese industrial production. This has been one indicator of the broader manufacturing, trade influenced, slow-down in Asia. The Feb prelim data showed some improvement in the month – but the production index remains below the levels seen throughout most of 2018. While total shipments and production remain below the same time last year, several key area’s such as the production of autos and fabricated metal are now above the same time a year ago.
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 1 April 2019 – Indicators of global manufacturing activity will be a key focus this week. Final manufacturing PMI’s for Mar will be released for Europe, Asia, US, and the UK. The Chinese PMI’s have been of interest as stimulus measures are expected to drive improvement in activity, resulting in a flow-on effect through to key trading partners. Germany new orders and industrial production for Feb will be an important barometer of activity after the much weaker PMI readings (and production data) of late.
US data out this week will focus on manufacturing and services activity and the US consumer. Of note will be PMI’s and ISM indexes, durable goods orders, non-farm payrolls, retail sales, motor vehicle sales, and consumer credit data.
The RBA will meet for its rates decision this week. Rates are expected to stay on hold. Aus retail sales out this week will provide policymakers with some further insight into the spending impact of falling house prices/stalling housing market. The Aus 2019-2020 budget will be handed down on 2 Apr – much earlier than usual due to a likely Federal election in May. Likely to see some spending stimulus measures announced and will be looking for key budget policies that affect the housing market. It’s also likely that the government will announce the date of the Federal election.
Another Brexit vote will likely take place in the UK Parliament early this week. If the deal is defeated for the fourth time, and there is no other viable alternative, PM May will need to request an extension for Brexit in order to break the impasse. The ‘no-deal Brexit’ deadline is next week 12 Apr and an emergency Brexit summit has been scheduled by the EC for 10 Apr.
The US-China trade negotiations will continue this week with Chinese Vice Premier Lui He traveling to Washington to resume trade talks on 3 Apr.
US Treasury supply will remain heavier this week, with last week’s notes auctions settling early this week. The US Treasury will settle approx. $282bn in ST bills and notes, raising approx. $34bn in new money for the week.
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 | Mar 25, 2019
The weekly macro review for w/c 18 Mar 2019; Two points stand out from this week.
The first is the FOMC decision. There was a shift in the
signalling of the future path of rates since the Dec meeting – no change in
rates through 2019. Growth and inflation targets were revised lower for the
year and u/e revised higher. The FOMC sees inflation as muted and acknowledges
that the committee is not meeting the inflation target in a symmetrical way.
Data is softening at this stage. Details of QT ending and reduction in
reinvestment caps were outlined. For now, the Fed is easing without cutting rates,
including its signalling of rates on hold.
US data out this week continued to confirm a ‘softening’
trend, with factory orders and the prelim Mar PMI indicating slower growth. On
the other hand, there has been a small improvement and stabilization in some
housing metrics.
The second point was the acceleration in the contraction of manufacturing PMI’s (prelim) in Europe for Mar – especially in Germany. The magnitude of the contraction was unexpected and raised concerns more broadly over the trajectory of growth. Final reports will provide more detail, but the early indications suggest declines in new orders, including export orders and continued falls in order backlogs, are likely to continue to impact output for some time.
Japanese data was mixed. Inflation remains well below the
BoJ target. Trade data for Feb indicated exports continued to decline, but
stronger export performance was reported for the two main export markets US and
China. Final industrial production numbers for Jan were revised slightly higher
on the back of unusually strong growth in Food & Tobacco production &
shipments. The prelim Mar PMI indicated that the contraction in manufacturing
continued.
The decline in Australian house prices accelerated in Q4.
The RBA minutes indicate heightened uncertainty regarding the domestic economy.
The bias for rates is no longer ‘the next move will be up’. The RBA minutes
clearly state that developments in the labour market will be important. The
Australian labour market data this week was mostly strong, but employment
growth continued to slow.
Brexit disruption continued this week. The third vote was pulled and an extension was granted by the EU27, contingent upon the outcome of another vote or other such agreement by the UK Parliament on the direction of Brexit. The dates for the extension are now shaped by the upcoming EU parliamentary elections. UK data out this week indicated that the labour market remains strong, inflation is steady and retail sales continue to grow. The BoE kept rates on hold citing Brexit as the most important near-term issue in setting policy. The BoE continued to signal that the future path of rates will depend on the nature and timing of Brexit.
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 25 Mar 2019; A less data-heavy week but events are in place that could impact sentiment, nonetheless.
Speeches
by Central Bankers will feature this week; speeches by US Fed Presidents will
be numerous, as well as ECB President Draghi and RBA board members throughout
the week. The RBNZ will meet for its rates decision this week.
Some
form of Brexit vote (a third vote) or agreement on the direction on Brexit should
take place in the UK Parliament this week. The Brexit deadline has been
extended and the date will be contingent on what happens in the UK Parliament.
The US-China trade negotiations will continue this week with USTR Lighthizer and Treasury Secretary Mnuchin traveling to Beijing for meetings from 28 Mar.
US data will focus on growth, housing, and regional manufacturing. Of note; the second estimate for Q4 GDP, income (Feb), outlays (Jan) and the PCE price index for Jan. Housing data was a brighter spot last week, so will watch for signs of continued improvement or at least stabilization. Regional manufacturing surveys will provide some insight into Mar activity.
The
prelim Japanese industrial production data for Feb will be released – against a
backdrop of weaker/contracting manufacturing PMI’s.
US Treasury
supply will be somewhat heavier this week. The US Treasury will settle
approx. $237bn in ST bills, TIPS and FRN’s, raising approx. $47bn in new money.
The US Treasury will also auction approx $113bn
in 2/5/7yr notes this week – which will settle on 1 Apr, raising approx $41bn
in new money.
As it is quarter end and approx $22bn of securities on the Fed balance sheet will mature on 31 Mar. This is below the $30bn cap, so there will be no reinvestments.
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 | Mar 18, 2019
The weekly macro review for w/c 11 Mar 2019 – The more subdued US retail environment extended into Q1 2019. Retail sales in the US grew marginally in Jan, despite the falls in motor vehicle and gas sales. The rebound in sales excluding autos and gas was larger but sales remain below the Nov 18 level. Consumer sentiment continued to improve in Mar (prelim report) – readings on sentiment and current economic conditions are still below the same time a year ago, but future expectations are now ahead of last year. Current sentiment readings remain elevated and are consistent with continued spending growth.
Headline US CPI growth slowed due to lower energy prices. But core CPI remained steady around 2.1% led mostly by higher growth in prices for shelter.
The trend of accelerating growth in manufacturing activity
through late 2016 to early 2018 has shifted to either a more constant rate or
slower growth environment.
The broader slowdown in manufacturing activity was reflected in the US industrial production data (Feb) and durable goods report (Jan). US industrial production growth remained low in the latest month with production in manufacturing declining for the second month. Manufacturing capacity utilization is starting to reflect this slower growth.
Durable goods orders were higher in Jan due to transports. Excluding the effect of larger transport orders, the slow-down in annual growth in orders and shipments is more pronounced.
There were some positive signs from Europe;
German industrial production fell in Jan, but the decline in
Dec was revised to a positive/growth result. Production in Jan remains below
last year. Declines in production of intermediate and capital goods were the
key drivers of the Jan result. The German trade surplus was lower as export
growth remained below import growth. Importantly, export and import growth for the month outperformed in
non-EU member states (“third countries”).
Broader Eurozone industrial production grew in Jan
especially in key economies and across major industry groups.
The BoJ kept rates on hold and the statement acknowledged weaker export and industrial
production activity – as a result of slowing overseas economies.
The growth in housing finance for Australia continued to decline in Jan – on both a value and number of commitments basis. The value of lending to households for dwellings was 21% below the same time a year ago in Jan.
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 18 Mar 2019 – Several central bank decisions will be in focus this week. The FOMC meets this week. While rates are likely to remain on hold, we will look for signalling on future rate changes, the end of the balance sheet run-off and the assessment of the US economy and outlook.
The BoE also meets this week as Brexit goes down-to-the-wire.
Rates will most likely remain on hold. The BoE meeting will be after the likely
third vote on Tuesday, but before the EC summit. Brexit “should be” clearer
after the EC summit on 21-22 Mar – only 7 days before the 29 Mar Brexit
deadline.
Data this week to track the slow-down in manufacturing
and production – Japan (final) industrial production for Jan, US factory orders
for Jan and the prelim round of Mar PMI’s for Europe, Japan and the US to round
out the view of Q1 activity.
On the Aussie housing market decline – the official
ABS Q4 house price index will be released. The Aussie labour market survey for
Feb is out this week – leading indicators of employment growth have been
slowing. Any material deterioration in the labour market could start to shift
the RBA bias towards rate cuts.
US treasury supply will be more moderate this week.
The US Treasury will settle approx. $182bn in ST bills this week raising
approx. $21bn in new money.
The US-China trade negotiations – news on progress will likely continue to be drip-fed throughout the week.
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
