Independent Strategy

Posts by Nick Kennedy

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,

US

POST » 5th April, 2019 » US March Payrolls Report

A stronger payrolls number, but after the disruptions of last month (weather knocking around 80k off the headline figure) the bounce could still have been a stronger.  But enough to maintain sold employment growth, which continues to defy estimates that the labour market is tight...

China

REPORT » 4th April, 2019 » The Iceman Cometh?

People are always keen to write off China. Its authoritarian regime has built up malinvestments and debt beyond that of any other emerging economy, both in nominal terms and as a share of GDP. Even its GDP is often deemed to be over-inflated. But we are not on the cusp of a collapse. For a start, China’s financial system still has relatively closed circuitry, with the money being owed mostly by state-owned enterprises (SOEs) to state-owned banks, meaning relatively modest connectivity to the wider world.

Deterioration continues to run at pace, with some rebound in domestic demand failing to offset continuing weakness on the export side.  The release points to a further deterioration in exports in the coming months, although the decline in industrial production is running more closely, suggesting that a further downward adjustment/slump is not needed there.

Dollar has managed to rebound after failed move lower last week, but DXY still capped by the key 98.00 area.  That means euro remains under pressure, yen and Cable more finely balanced (for now). Bond yields fell to new lows but have backed off over the last few sessions.

Another disappointing report and while the yoy rate is still expanding (more robustly once ex-ing out the more volatile items) it seems clear that the 2017/18 mini-boom has exhausted itself.  As far as shipments go, growth still looks better, but we’re still seeing inventories rising.

Price data basically confirms what we knew, inflation is back in a moderating phase with dip in core highlighting that.  Income a little below expectations but the underlying wage story remains constructive, so nothing to be concerned about.  Although in terms of Fed priorities the pick-up in wage growth is not enough to offset broader demand concerns.

US

POST » 28th March, 2019 » US Q4 GDP Final

Final US GDP numbers for Q4 revised down a little bit but not that much of a change in year-on-year terms, with growth overall running a shade below 3% which isn’t bad.  Government was weak but investment still looks strong and inventory build also helped headline.  In fact, investment looks too strong given how corporate profits have performed.  Ditto for employment vs. profits.

A bit more FX volatility but nothing sufficient to derail underlying trends towards a stronger dollar, even if some decent support areas were temporarily breached.  Really this just suggests momentum is lacking and that trends might take a little longer to play out.

Germany

POST » 25th March, 2019 » March Germany IFO Survey

While there looks to have been an improvement in March it’s generally led by a better services performance.  Looking at industry the trajectory remains weak with the ‘IFO clock’ remaining in downswing territory amid a further mild deterioration in expectations.  This continues to suggest ongoing manufacturing weakness, confirming the deterioration seen in the manufacturing PMI.

Excess reserves have been falling at a far quicker pace than the overall contraction in Fed balance sheet (Fig1).  This is perhaps a cleaner way of showing the same thing, using just Treasury securities which share more similar qualities in terms of value as capital (Fig2).

Special Post: Technicals

POST » 19th March, 2019 » IS Technicals 19th March

Dollar remains in a corrective phase overall, but the longer-term bull trend still looks good, meaning an eventual push through 98.00 on DXY.  On the rate side core bonds are in ranges for the moment, reflecting the adjustment central banks have made with regards to monetary policy guidance.

Manufacturing weakness persists, with strong energy output insufficient to offset broader downshift.  Looking at Fed survey orders data we’re not yet at a point to bounce.  So production side likely to remain an overall drag on economic activity over the remainder of the first quarter.

In the Media