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
by Kim | Mar 11, 2019
The weekly macro review for w/c 4 March 2019 – Slower growth remained a key theme last week. Sentiment also soured as the US-China trade agreement now seems further away than most expected. Reports are that the March summit has been postponed. Brexit negotiations also failed to deliver a solution to the Irish border backstop issue.
The ECB officially shifted its guidance for rate increases out to at least the end of 2019 and growth forecasts for 2019 were materially lowered with the outlook weaker than expected. The growth forecast for 2019 now equals the current annual GDP growth rate for the Euro Area +1.1%. The ECB also launched a new TLTRO program to commence in Sep. At the same time, German factory orders decreased in Jan but Dec results were revised higher – something positive to watch. Eurozone retail sales growth also rebounded in Jan across most categories.
The Bank of Canada kept rates on hold. The BoC highlighted
that Q4 growth was much weaker than the bank had forecast back in Jan. The
slowdown was much broader than just oil-related areas of the economy. With core
inflation steady, rates likely remain on hold in the near term.
The RBA also kept rates on hold. Aus GDP growth slowed
further in Q4 to +0.17% after the ‘surprise’ slowdown in Q3. The RBA’s central
forecast for 2019 growth is currently 3%. Retail sales growth remained
subdued/marginal in Jan and the Service PSI indicates continued weakness in retail
for Feb. Forward indicators of employment growth show some moderation in
employment growth.
US labour market data was a key focus this week. Reported
job cut announcements increased further in Feb, with an emphasis on industrial
goods and retail. Hiring announcements were much lower. The non-farm payrolls
growth slowed significantly bringing the average growth lower. From the household
survey, employment growth continued to slow but that growth remained larger
than the growth of the labour force, resulting in total unemployed persons
declining further on an annual basis.
The unemployment rate declined in Feb to 3.8% from 4% in Jan as a result of a lower total number of unemployed persons. The data likely still reflect some impact from the shutdown – with unemployment higher previously due to the classification of furloughed federal employees as on ‘temporary layoff’.
US services PMI’s indicated a faster pace of growth (consistent across both ISM and Markit reports) – the underlying drivers were positive. Markit quotes that firms were unsure that current demand conditions could be sustained.
Trade data from China continued to disappoint for Feb coming in much lower than expected. Chinese credit growth also came in much lower than expected, but aggregate financing for Jan plus Feb is still well above last year but will take time to flow through to activity. The Caixin Services PMI weakened markedly in Feb.
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 11 March 2019 – Important data is out this week as we continue to track the effect of the US government shutdown on Q1 activity and whether/how much the broader global slowdown in manufacturing and trade is affecting the US;
US
Jan retail sales will kick the week off after the much weaker result for Dec.
Consumer sentiment fell in Jan and this could be a driver of spending
decisions.
US Durable Goods and Industrial Production reports are also out this week.
Other
reports out this week should provide insight into the impact of the global
slow-down in trade and manufacturing on other key economies;
Industrial production reports this week for Germany, the Eurozone, and China, as well as German international trade data.
CPI
will be reported for the US, Germany and Europe.
We will
also track for indications of Chinese stimulus starting to impact activity.
This week China retail sales and fixed asset investment will be reported.
Australia
housing lending data for Jan will be released this week – as we continue to
track the fall in house prices.
Central
banks; BoJ rates decision and introductory remarks from US Fed Chairman Powell.
Much
heavier supply of treasuries this week. The US Treasury will settle approx. $260bn
in ST bills, notes and bonds this week raising approx. $75bn in new money.
It is an important week for
Brexit as there are only several weeks left until the 29 Mar Brexit deadline.
The meaningful vote scheduled for 12 Mar will possibly become a ‘provisional’
vote. If defeated, there is likely to be a vote on a no-deal Brexit followed by
a vote on requesting a delay to Brexit. This will unfold throughout the week.
The US-China trade negotiations continue.
More detail 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 4, 2019
The weekly macro review for w/c 25 February 2019 – US data was a highlight this week. One of the more important insights comes from the US personal consumption expenditure and income release for Dec. This confirmed the weaker retail numbers for Dec (note; after much stronger growth in Nov). At the same time, real income growth accelerated – importantly this included employee compensation. In other words – the decline in consumption in Dec may have been sentiment driven, rather than driven by a worsening of consumer/income fundamentals.
(While nominal disposable income declined in Jan (some
one-off reversals), employee compensation continued to grow, albeit slower than
in Dec, but on par with prior months. This was the full month of the partial
government shutdown.)
Supporting this thesis is the substantial increase in the
savings rate for Dec – consumers saved more rather than spent. There was also
only a modest improvement in consumer sentiment data for Feb. In fact, Uni of Michigan
sentiment data for current economic conditions continued to weaken in Feb after
the large fall in Jan. This may mean that further weakness in spending could persist.
There was already a large slowdown in Jan auto sales in the US. It will be
important to watch for changes in consumer sentiment and employment – both of
which could shift spending patterns quickly.
Inventory build was highlighted by Q4 GDP data and the
wholesale sales and inventory report which indicated slower growth in wholesale
sales and recent inventory growth in that part of the supply chain.
Manufacturing growth slowed – confirmed by the ISM PMI, Markit PMI and the production sub-index of the Chicago Fed National Activity Index. Mixed results from the regional surveys. The slower growth in US factory orders suggests slower output growth is possible. In the context of slower consumer demand and inventory build within the supply chain, this makes sense.
Outside of the US, weakness in manufacturing
persisted into Feb. Via the PMI’s, manufacturing went into contraction at the
broader Eurozone level in Feb and German manufacturing contracted at a faster
pace. The weakness in Japanese industrial production in Jan is likely to
persist given the Feb manufacturing PMI fell into contraction.
Concerning Canadian Q4 GDP with
much slower growth led by declines in investment spending. The lower Terms of
Trade resulted in a decline in National income for the quarter. The
manufacturing PMI indicated continued slower growth.
Aus data was mixed with the value of construction work declining while capex in Q4 increased. Some contrary signals from the RBA monetary aggregates. Growth in new credit for the private sector continues to accelerate (and remains slightly negative) – led by growth in new credit for business which is mostly offsetting the continued deceleration in new mortgage credit. At the same time, the slowdown in the decline of the money base (across several measures) seems to have stabilized.
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 4 March 2019 – Central bank interest rate decisions will feature this week;
RBA
decision scheduled for early in the week while GDP for Q4 will not be released
until after the decision
BoC – looking for signaling on the slower growth from Q4
ECB – also looking for any shift in signaling as growth and activity data continues to disappoint
Several
US Fed speeches this week. Of note is a speech by Chairman Powell on Monetary
Policy Normalization and Review – at the 2019 Stanford Institute for Economic
Policy Research (SIEPR) Economic Summit. As well, NY Fed President John Williams will give a speech
on “The Economic Outlook: The ‘New Normal’ Is Now” at the Economic
Club of New York.
US
data of note; the monthly employment and non-farm payrolls for Feb, motor
vehicle sales for Feb (Jan data was very soft), ISM non-manufacturing PMI.
Services
PMI’s will be released across the major economies rounding out the view of
private sector activity and output in Feb.
Also
of note; Germany factory orders for Jan to confirm the weaker manufacturing PMI
readings and China trade data out later in the week.
There
will be lighter supply of treasuries settling this week with the US Treasury
settling approx. $182bn in ST bills, raising approx. $21bn in new money.
Other important events this
week that could shift sentiment;
Progress on an appendix to
the Brexit Article 50 agreement leading up to the UK Parliament meaningful vote
on 12 Mar.
An announcement of an agreement on trade between the US and China – with details.
More detail 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 | Feb 25, 2019
The weekly macro brief for w/c 25 February 2019 – Several key events will be in focus this week;
1.US President Trump will meet with North Korean Supreme Leader Kim Jong-un in Vietnam. While not directly related to the markets, headlines could impact sentiment.
2. US Fed Chairman Powell will provide testimony on monetary policy to the US Senate over two days.
3. USTR Lighthizer will also provide testimony to the House Ways and Means Committee on the progress of trade talks. Progress on US-China talks will be of interest as well as any possible commentary regarding the s.232 investigation.
4. Brexit – although the meaningful vote was postponed until 12 Mar, there could still be a vote this week that results in a delay to Brexit if an amended deal is not completed by 13 Mar 2019.
It
will be a big week of data for the US. Of most interest will be Q4 GDP and
Personal Consumption Expenditure and price data. Housing data will also be
released including house prices, pending home sales and housing starts. US
manufacturing will remain in focus – ISM manufacturing PMI for Feb, final
Markit manufacturing PMI for Feb, durable goods orders (full report) and regional
manufacturing surveys.
US
Fed speeches will feature heavily throughout the week including a further
speech by Chairman Powell later in the week.
There
will be heavier supply of treasuries settling this week with the US Treasury
settling approx. $319bn in bills, notes and TIP’s. Its also month end and
approx. $12.3bn in securities on the Fed balance sheet will mature of which
$5.82bn will be reinvested.
There will several other important data releases this week, as we continue to track slower manufacturing and production activity;
PMI’s
for China, Canada and UK manufacturing for Feb as well as the final
manufacturing PMI for the Eurozone for Feb.
Japan industrial production data for Jan and final manufacturing PMI for Feb.
More detail is provided in the full briefing document – you can download the file here;
Key releases from w/c 18 February will be incorporated into the Macro Review for w/c 25 February.
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | Feb 18, 2019
The weekly macro review for w/c 11 February 2019 – Weaker industrial production and external trade were key themes this week.
Key industrial production reports were weaker with output
declining in Japan (Dec), the EU (Dec) and the US (Jan) in the month. Output in
Japan and the EU fell below output levels from a year ago. The decline in
production in the US was led by an 8.8% fall in motor vehicle and parts
production.
GDP reports for Germany and Japan confirmed the weaker state
of external demand late in 2018. Germany narrowly missed a technical recession
as net exports likely detracted from growth. Growth rebounded in Japan in Q4,
but the year on year result was such that annual GDP growth in Q4 slowed to
-0.01%. The external sector also detracted from growth.
The EU goods trade balance for Dec and the full year 2018 trade
balance confirmed the broadly weaker trade position. Goods exports declined in
Dec while imports grew. In the full year of 2018, exports grew at a slower rate
than imports. The detail highlights that growth of the largest export product
group, machinery and vehicles, finished the year at +1.8%, lagging total goods
exports growth of 4% for the year.
The question facing both Europe and Japan is whether the US
will place a 25% tariff on car and truck imports. President Trump was scheduled
to receive the final report into tariff recommendations from the s.232 National
security investigation into car and truck imports by 17 Feb. The President has
90 days to review and action. President Trump has previously assured the EU and
Japan that no additional tariffs will be levied while trade negotiations are
underway (about to get underway).
UK Q4 GDP highlighted that Brexit has likely put a brake on
business investment decision making amid a weaker external sector (net trade
also detracted from growth in Q4) resulting in slower overall growth.
Consumption remains resilient and growth in retail sales accelerated in Jan.
Growth in the CPI slowed as energy prices declined.
The large magnitude % decline in US retail sales for Dec was important. While the report was weak (growth in autos was offset by declines in spending across all other categories), the broader context of the data makes it difficult to say whether this is the start of a trend in slower consumption. The decline in retail sales is inconsistent with the consumer credit data that was released last week for the month of Dec. Whilst revisions to data will be possible next month (consumer credit or retail), the Jan retail data will likely still be impacted by the partial govt shutdown. The weaker motor vehicle sales for Jan (released last week) will also likely weigh on next month’s retail 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 18 February 2019 – Later in the week we get our first view of Feb private sector manufacturing and service activity with the prelim Feb PMI’s to be released for the US, Eurozone, and Japan.
It
will be a short week in the US – the focus will be on the FOMC minutes and
especially comments around the balance sheet size and the interest rate regime.
Durable Goods Orders for Dec will be released as well as the latest housing
market index (Feb) and existing home sales data (Jan). As we move into
reporting Feb data for the US, it will be interesting to see any impact on data
from the end of the partial government shutdown and the pivot by the Fed to
hold off on further rate hikes.
Several
Fed speeches are so far scheduled for Friday – topics include “the future of
the Federal Reserve’s balance sheet”.
The
US-China trade talks continue this week – USTR Lighthizer and Vice Premier Lui
He will meet again in Washington as the 1 March deadline approaches.
US
treasury supply will be much lighter this week, with the US Treasury settling
approx. $169bn in ST bills and raising approx. $12bn in new money.
In
Australia, the Wage Price Index for Q4 will be released along with the Jan
Labour Force Survey results. Both will be crucial inputs for the RBA decision
on interest rates.
Also of note this week will be the UK Labour Force Survey and Canada Retail Sales for Dec.
More detail 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
