With the Pacific G10 Macro Rates Team
Global Macro Overview
Last week marked the first week of normal business and liquidity in the bond and interest rate markets, as demostrated by over $1 trillion of bond issuance.
However, it wasn’t all plain sailing, with Iran’s “proportionate measures in self-defence under Article 51 of UN Charter”, which resulted in a rocket attack on US installations in Iraq. With no US casualties resulting from the attack and the Iranian authorities signalling the end of hostilities – which is done via Twitter these days – observers focused on the Foreign Minister’s words “concluded” and “does not seek escalation”. The initial 10bp rally was quickly reversed and, quite remarkably, yields ended 4 to 5bps higher on the day. All this occurred despite the tragic loss of 176 people on a UIA flight out of Tehran.
US: The most anticipated data of the week was payrolls, which came in at +145k (vs +160k exp. & +266k prev.) additionally the PMI printed at +52.7. There was a reasonable amount of speeches from the federal reserve governors and presidents. Most of the comments were in line with previous statements about the economy and policy being in a “good place”. Stable US jobs data is unlikely to change the Federal Reserve’s view of the economy one way or the other. Earlier in the week Taco Bell announced it had raised manager salaries to 100k, highlighting the tightness of the jobs market, and this had been flagged as a bell-weather.
Finally, Nancy Pelosi (House speaker) moved the impeachment process to the Senate.
Canada: Payrolls +35k (vs +25 exp. & -71.2k prev.), unemployment rate +5.6% (vs +5.8% & +5.9% prev.) The anticipated event was a fire-side chat by governor Poloz, where he messaged that 2019’s damage to international trade was probably permanent and that there was some slack in the economy. However, in the end, it really emphasised that there is a high hurdle for the BoC to move in either direction.
Eurozone: In general Eurozone data was stronger. Starting with retail sales (Nov) with the Eurozone aggregate stronger +1% (vs +0.7% exp.) and in Germany were +2.1% (vs +1% exp.) with the previous month also revised higher. The Eurozone PMIs were marginally better and expansionary, driven by France, Germany and Spain. European industrial production (IP) for November was also better in Germany +1.1% (vs 0.8% exp. & -1.7% prev.) and Spain +1% (vs +0.2% exp. -0.4% prev.) with other countries making smaller but positive contributions.
Eurozone CPI +1.3% (as exp. & +1% prev.) providing some relief for the ECB and the only blot on the data book was French consumer confidence (Dec) +102 (vs +104 exp. & +106 prev.) which will probably be ignored for the moment.
Sweden: PMI +48.3 (vs +47.2 prev.) with November retail sales -0.4% (vs 0.3% exp & +0.2% prev.)
Norway: CPI (Dec) -0.2% (vs 0% exp. & +0.1% prev.) and IP +3.7%
No significant data. Japanese markets followed global trends.
In general UK data was better, but not amazing. PMI was stronger but still contractionary at +49.3 (vs +48.5 exp.) retail sales was better at +1.7% (vs -0.5% & -4.9% prev.) but coming from a weak base. Governor Carney was dovish and reiterated that growth had slowed below potential. This speech will have been one of his last, as Andrew Bailey takes over as governor in February.
Australia: Consumer confidence was weaker at 106.2 (vs 108 prev.), job adverts -6.7% (vs -1.7% prev.), retail sales +0.9% (vs +0.4% exp. & 0% prev.) and building approvals +11.8%. It remains to be seen if these numbers have been impacted by summer holidays or due to bush fire disaster and require further attention by the RBA.
New Zealand: House prices +4%.
China: Caxin PMI was expansionary 52.5 (vs 53.2 exp.) and gave some confidence to the market at the beginning of the week.
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