Independent Strategy

Macro Matters

Eurozone

17th May, 2019 » Eurozone April HICP

Eurozone April inflation matched the increase the market was expecting, notably core which now stands at its highest level in 43 months.  But this really flatters the overall picture given the increase in package holiday prices (notably in Germany) which lifted the recreation component of core this month, alongside an overall uptick in corresponding services.

A weak industrial production number and even bleaker manufacturing figures, which leave the y/y rate in negative territory for the first time since December 2016 (and the last China crisis!)  On the manufacturing side non-durables look weak while autos within the durables continue to drag with auto production running around -4.4% y/y now, maintain the negative streak from the start of the year.

US

15th May, 2019 » US April Retail Sales

Retails sales report again providing some volatility with sales weakening following the very strong March rebound.  But the overall picture is still not that bad.  The y/y rate might have dipped a little but we’re still clear of the low we touched in December.  The trend since then is still easy to label as ‘recovering’.

The improvement we saw in the headline activity numbers in March proved short lived with both industrial production and retail sales taking a renewed dive in April.  Auto sector weakness was notably pronounced.  Passenger car unit sales are down some 11% from the June 2018 peak, which is unprecedented in a developing economy with a reported growth rate as that of China.

US

10th May, 2019 » US April CPI

Modest downside surprise on both headline and core but not really anything material.  Underlying inflationary pressure remains well contained with the recent rebound driven largely by shelter.  Ex-ing that out and inflationary pressures look even more contained.

UK

10th May, 2019 » UK March Sector Output

March output data was strong on the manufacturing side, amid inventory building ahead of the (since extended) end-March Brexit deadline.  Construction and services ended the quarter on a weak note, leading to an overall dip in GDP in the final month of Q1.

Underlying money supply growth remains weak, reflected in M2’s shrinking share relative to GDP.  But the credit multipliers do look better, with some upward momentum suggesting that efforts to spur lending have been working, and the right type of lending as seen by the ongoing contraction of borrowing from the shadow banking sectors.

This morning completed the March industrial production and orders reports for Germany.  Although the m/m bounce in industrial production extended, the prior month’s downward revision took some of the gloss off this and the y/y comparison still looks gloomy.

China

8th May, 2019 » China April Trade

Now the Chinese New Year effects have washed through we’re getting a cleaner picture of what underlying trade growth in China looks like.  While the April figures disappointed, exports back in negative territory y/y, over the first four months of the year as a whole the export figures are still marginally ahead of where they were in 2018, while imports are down around 2.5%.

Dollar holding below its recent highs but still looks like a corrective consolidation framed in a longer-term uptrend.  That applies to most of the crosses, with perhaps the exception of the yen.  Equities have rolled over with the most pronounced break being in Europe.

A very strong Q1 non-farm productivity report, partly flattered by a surprisingly soft unit labour costs number.  Obviously, GDP growth has been strong, and with employment growth running at a consistent weight the implication is that productivity had to have accelerated.  But there are some other distortions within the mix.

The US April manufacturing PMIs are all now in following today’s ISM release and the picture looks pretty bleak with a big slide from what had looked to be a healthier March release.  There was a notable deteriorating in the orders side with export orders sub 50.0 for the first time since the 2015/16 China slowdown.

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.

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