Independent Strategy

Macro Matters

September 2019

Independent Strategy Blog: Macro Matters

While the headline numbers looked ok versus consensus, they reinforced some of the trends we’ve seen over the last few months.  On the inflation side while there doesn’t seem much to worry about looking at the headline, there has been a build in core prices.  Core PCE picked up to just under 1.8% y/y, which fits with the (stronger) increase we’ve seen in core CPI.

Eurozone saw a renewed uptick in money supply growth in August, but it was driven by a further increase in M1 rather than broader money.  Credit growth seems to be on a firmer footing, with strength being driven by France and Germany while in Italy and Spain we’re still seeing deleveraging, notably on the corporate side.  And deposits still growing faster, suggesting some caution.  Quite positive from the ECB’s perspective, particularly with the latest easing package yet to factor.

Germany

24th September, 2019 » Germany Sep IFO Survey

Another weak IFO survey.  The manufacturing sector remains particularly soft, offsetting what was a modest bounce on the (resilient) services side of things.  The IFO clock moved further towards recession territory.  While it might not yet be formally in this quadrant, the scale of the decline over the past year suggests we’re closer to, if not already in, a technical slump.

US

18th September, 2019 » , US Money Market Volatility

The spike in repo rates (Figure 1) in the US has drawn quite a bit of attention, sparking some concerns that this might be a sign of some kind of systemic risk.  But the reality is somewhat more balanced, with the rise reflecting a number of specific factors and probably a rather sluggish response from the NY Fed, which conducts the open market operations of the Federal Reserve system, rather than any deeper seated problems.

UK

18th September, 2019 » UK August Inflation Report

Another positive outcome with price pressure easing across the board, both at a consumer price level and on the producer side.  Sharp deceleration in core CPI particularly welcome, particularly when taken alongside rising wage growth which will help real incomes catch up with the losses sustained following the inflation surge that followed the Brexit referendum.

US

17th September, 2019 » US August Industrial Production

Better than expected bounce in August industrial production, although it doesn’t look so flattering in y/y terms with the growth rate (if you can call it that) slowing further to just 0.36%. And that includes a +0.68 contribution from energy.  Manufacturing in other words is contracting, registering a drop of -0.44% y/y.

US

13th September, 2019 » US August Retail Sales

Solid August retail sales report which build on the improvement we saw during July.  Overall retail sales growth has moved up to 4.1% y/y while control group growth hit 5.3% y/y.  Much of the monthly lift was due to higher auto sales, stripping that out and the recent growth rate looks more modest.  But overall this is not a sign of false confidence with an increase in big ticket expenditure a positive demand sign.

China

11th September, 2019 » China August Money & Credit

Chinese August money supply and credit data was in line with market expectations.  Money supply growth remains stable.  Even if M2 was fractionally above estimates the broad money growth rate has been basically static for the past eighteen months.  On the credit side loan growth picked up a little from last month, but overall not that different to what we saw this time last year.

UK

9th September, 2019 » UK July GDP, Production, Trade

Better monthly GDP print which kept y/y growth rate at 1.0%.  But this is still the lowest level (bar last month) since Aug 2013.  Activity expanded across all sectors m/m.  But looks more like respite than turnaround with Brexit uncertainty continuing to drag on sentiment and activity.  Surveys continue to reflect this uncertainty amid weak orders and a sharp rise in firms operating below capacity.

US

6th September, 2019 » US Aug Non-Farm Payrolls, Wages

Another soft non-farm payrolls report, with July also revised downward.  Private sector jobs growth in particular disappointed at just 96k which compares to the +246k private jobs added this time last year.  There was some positive movement on the participation rate, which jumped to 63.2%.  Hiring continues to be driven by females though.

Germany

5th September, 2019 » July Germany Factory Orders

Although there was a slight upward revision to the June numbers, there isn’t much to cheer in the German July factor orders report.  Orders fell a further 2.7% m/m.  That takes the current decline to -11.2% from its peak.

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