With the Pacific G10 Macro Rates Team
Global Macro Overview
Trade Wars and stabilising data continued to drive financial markets last week. As both sides of the trade dispute started sending positive signals towards the end of the week, financial markets embraced risk-on environment – equities rallied to new highs and 10y US Treasuries sold off close to 15bps.
US: The week was quiet from an economic data standpoint. Factory orders weakened slightly more than expected as job openings continued sliding, while jobless claims stayed at cyclical lows. Productivity data was poor, but it followed two quarters of strong growth and was partially driven by an increase of registered self-employed. Unit labour costs have increased to 3.6%, whilst consumer sentiment is still resilient.
Canada: Data was softer this week. Trade data was more negative than expected and the previous month
(August) was revised lower. Employment data softened with the headline number falling 2k with 16k decrease in full-time employment, the reduction came
from manufacturing jobs.
Eurozone: Final manufacturing PMIs for October were revised slightly higher to 45.9 – still recessionary territory. Encouragingly, German PMI bottomed. Services PMIs were also revised a touch higher to 52.2 as well. Retail sales were strong at 3.1% yoy. Regionally, Spanish data was softer with PMIs, Industrial Output / Production and Employment weakening more than expected. French, Italian and German data has been stronger as PMIs, manufacturing output in France and German trade data moved surprising to the upside. Notably, exports in Germany increased 1.5% in September confirming that the economic slowdown is potentially over.
Scandinavia: Swedish October PMIs were weaker, driven by the services production numbers for September. Data from Norway was mixed, but manufacturing seems to have bottomed out.
Limited data out of Japan this week, but markets continued to follow global developments and trade with significant volatility, as 10y JGBs sold off 12bps during the week and now are at a much more comfortable level for the BoJ at -6bps. PMI revisions for October were negative.
All eyes are on the general election. Meanwhile, PMIs were stronger across the board. The Bank of England meeting on Thursday delivered unexpected volatility as two members dissented by voting for cuts. One of them, Saunders, has been advocating for interest rate hikes just a couple of months ago. In a press conference, Carney justified a more dovish stance by the signs of weakening activity and easier conditions in the labour market. We believe that the chances of interest rate cuts in 2020 are now significant, regardless of the election outcome.
Australia: PMIs were revised lower, while retail sales weakened. Trade data has improved and a strong increase in home loans adds to the evidence that the housing sector has bottomed. RBA left interest rates unchanged as the majority of market participants had expected.
New Zealand: Higher participation rate helped to drag the unemployment rate higher, wage growth was in line with expectations at 2.4% annualised. House prices increased 2.8% yoy.
For further information on the Pacific G10 Macro Rates team, their experience and strategy please see belowRead the Strategy Information Sheet
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