Independent Strategy

Macro Matters

April 2019

Independent Strategy Blog: Macro Matters

Dollar facing some corrective pressure after the upside break in DXY through 98.00, ceding ground vs. the euro, yen and a perkier looking sterling.  But overall this should be a short run thing.  The break higher in DXY supports the longer-term bull dollar thesis.

While the headline China April PMIs released his morning might have disappointed, the breakdown shows these releases were not entirely all bad news.  Indeed, there were a number of positive in the structure, notably the continuing recovery in NBS manufacturing export orders while output overall is still expanding at a reasonable rate and we saw some mild de-stocking.

Another downside surprise for inflation.  While the headline y/y rate moved up to 1.49%, core PCE was flat on the month which took the y/y rate back down to just 1.553%.  That’s enough to round it up to 1.6% on the wires but it’s still the lowest print since Sep 2017.

Money supply growth has picked up again but it’s being driven by a rise in M1, specifically overnight money.  Velocity continues to fall.  Credit growth meanwhile remains in the doldrums.

US

26th April, 2019 » US Advance Q1 GDP

Strong advance Q1 GDP numbers, but the devil is in the detail with a further big inventory build and a particularly strong contribution in net trade both driving up the q/q ann. growth rate to 3.2%, easily beating forecasts.  The y/y rate also hit 3.2%, the highest since Q2 2015.

Special Post: Commodities

25th April, 2019 » Special Post: CommoditiesIran oil curbs irrelevant

President Trump has decided to end the waivers the US granted for Iranian oil imports, effective end of June.  This has lifted oil prices over the past week.  Examining global production, expected output and current spare capacity estimates even the complete elimination of Iran from the global oil market is pretty inconsequential.

Germany

25th April, 2019 » Germany April IFO Survey

The picture for German manufacturing continues to look rather bleak judging by the April IFO survey, with the modest improvement on the services side masking an even sharper deterioration in trade and industry.  This leaves the business cycle clock looking even gloomier, albeit the relative resilience of current conditions keeping us well clear of recessionary territory.

Chinese stimulus effects have already shown up with an improvement of the macro data, notably the manufacturing PMI surveys, but the real economy numbers have also bounced.  This improvement now also has official recognition, with the Chinese authorities shifting their economic assessment.

Bit more currency volatility after the Easter break with the dollar starting strongly, moving to its recent highs in dollar index terms.  We're not quite at point of capitulation but if this move doesn't reverse it could finally deliver the long awaited bullish dollar break.

US

18th April, 2019 » US March Retail Sales

Solid set of numbers, the positive surprise easily outweighing mild downward revisions to the February data.  Consumption should have been supported by tax refund cheques, which likely helped offset the drag from higher gasoline prices,

UK

17th April, 2019 » UK March Inflation Report

Modest downside surprise in the consumer price numbers but really not that significant.  There is little underlying price pressure now the full effects of earlier sterling depreciation have washed through.  The main variance continues to come from energy/fuel prices.

Currency's remain trapped in ranges, with no sign of any immediate break that could snap them out of these bounds.  The longer-term trends remain intact but these periods of consolidation can be lengthy before these primary drivers reassert themselves.  Overall it's still a strong dollar story.

Soft industrial production number which reflects tepid manufacturing activity where growth is now running at its lowest rate is two years.  This matches the deterioration we’ve seen on the orders side of the Federal Reserve bank surveys and fits with the upward pressure seen on the inventory side.

US

16th April, 2019 » US February TICS Data

Outflows slowed in February amid a return of private overseas investors into the fixed income universe, which offset further selling in the equity space.

A solid set of credit numbers, suggesting the government is succeeding in reopening this transmission channel, which should begin to show up more notably in the activity and growth data from hereon in.

China

12th April, 2019 » China March Trade Balance

Larger than expected surplus and notable bounce in export growth.  But given the calendar effects of Chinese New Year it’s probably best to view February/March trade data as a single batch, thus smoothing these effects.

Trade and output data surprising to the upside, boosted by what looks to be activity as firms seek to get ahead of the curve pending the previously expected March 29 Brexit data – which the March PMIs also showed amid a record increase in inventories (and not just compared to UK history, but globally).

Currencies have ranged for the past week, with dollar ceding a little ground.  But not enough to derail the overall dollar bull story.  Bond yields have tried to edge back but remain locked in longer-term downtrends which implies still lower yields.

Unsurprising to see overall loan demand and supply conditions little changed with weaker corporate demand offset by stronger demand on the consumer side.  While banks expect corporate loan demand to pick up in the second quarter looking at underlying economic conditions this seems quite optimistic,

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