Independent Strategy

Macro Matters

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,

US

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...

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

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

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).

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