Independent Strategy

Macro Matters

China

10th December, 2019 » China November Inflation

The strong upswing in Chinese consumer price inflation in November has a very straightforward explanation.  The swine flu epidemic and the devastation this has inflicted on Chinese pig herds – reducing total numbers by over 40%.  Indeed, meat prices are up 74% yoy, driven by pork which is now up 110% compared to the same period last year.

US Impeachment process looks likely to go on for a little longer than expected.  Pelosi’s initial hope that things could be wrapped up by Christmas, so the Democrats could start the new year on a clean slate, focused on the Presidential primaries and campaign looks hopeful now.  Pelosi has always felt the impeachment process was always driven by the left wingers in the party and never had a credible chance of success.  By delaying the process, it prevents the House from pursuing more important business such as delivering on the campaign promises of the mid-terms.

October retail sales registered a further deceleration in growth.  The control group is still showing a decent rate of y/y expansion but other groups momentum has clearly reversed from the summer pick up.  The industrial production report was bleaker reading.

UK Russia dossier a bit of a non-event.  Attracted some media attention but sources suggest that the content is largely benign.  The main criticisms contained within was that the UK was ill-equipped to deal with this type of interference, largely because they had not expected it.  Seems a little surprising that the PM would veto publication given the content.  There is nothing that screams conspiracy.

Quite a slowdown in credit growth during October, certainly compared to the rate we saw last year.  While the trend for shadow sector deleveraging continues there was also quite a sharp slowing of bank loans.  Corporate bond issuance remained muted while there was a pronounced deceleration in the ‘other’ category, which now encompasses local government bond issuance.

US

6th November, 2019 » US Q3 (Prelim) Productivity

A rather disappointing first assessment of US productivity in the third quarter.  Non-farm productivity registered the first qoq decline since the end of 2015.  On the positive side the yoy rate still looks a reasonable 1.4%, compared to a 5-year average of 1.1%, but the trend still lacks much conviction.  Really, we’re still flatlining at best.  Labour costs were stronger than expected, rising at a 3.6% annualised rate in the non-farm sector overall.  That’ll raise the heckles of the hawks that view the tight labour market as a risk.

A modest bounce in German factory orders in September (+1.3% m/m wda), which has pared the yoy decline a little.  But at -4.6% yoy orders are still clearly a weak spot, having recorded 13 consecutive months of yoy declines.  That leaves total orders around 10% below their late 2017 peak.

US

5th November, 2019 » US October PMIs

We now have the final October purchasing managers indices for October and the data paints something of a mixed picture.  That could be seen as slightly encouraging given our concerns that the economic soft spot was turning into something more damaging.

US

1st November, 2019 » US October Payrolls & Wages

Solid payrolls report with 128k jobs added, with the strong upward revisions to September and August, which further dampened concerns about the labour market slowdown.  Clearly there has been a deceleration in job creation, but it looks pretty mild based on these rough estimates (employment date subject to heavy annual revisions so not the best indicator of the real-time health of the labour market at potential turning points).

The UK election campaign will be one of two strategies.  The Tories will build their case around their Brexit deal while Labour will try and create a narrative around the future for Britain over the next five years (trying to move beyond their promise to renegotiate and offer the deal to the electorate via a second referendum which is likely to be on the manifesto).

First glance shows positive surprises for Wednesday’s data releases.  First, we had the October ADP report which recorded a 125k jobs gain versus the 100k consensus.  But there was a decent downward revision to September (-42k) and the underlying rate of growth continues to decelerate.

While China’s 3Q GDP number was a little lower than expectations at 6.0% y/y the monthly production and activity series for September all improved.  Retail sales growth picked up to 7.8% y/y from 7.5% while industrial activity rebounded to 5.8% y/y from 4.4% in August.  Investment was perhaps the one area of disappointment, growth slowing to 5.4% y/y despite a further modest pick up on the State Owned side.

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