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G10 Macro Rates Market Analysis – Weekly Review – 2nd Dec 2019

Tuesday, December 03, 2019

With the Pacific G10 Macro Rates Team

Global Macro Overview
It was mostly a quiet Thanksgiving week, with the FT reporting the tightest range for EUR/USD in history. Last week also saw the continuation of the election campaign in the UK, further developments on the US-China trade front, new highs on the S&P and a lot of insightful macroeconomic data.

North America
US: The continued storm of unofficial headlines about the prospects of a near-term trade deal between the US and China has been driving the markets. President Trump signed the Bill supporting pro-democracy protests in Hong Kong, emphasising that he did not have a choice. Markets were fearing that it would trigger a sharp response from China and affect trade talks, which as yet has not happened and the S&P continued marching to new highs.

On the data front, regional Fed surveys were mixed whilst housing and consumer data was strong. New Home sales in October were 733k from upwardly revised 738k, Consumer Confidence has declined marginally to 125.5 (127 exp., 125.9 prev.) and is still close to historical highs with improving expectations at 97.9 vs. 94.5 previously.

The second estimate of 3Q GDP came in higher at 2.1% versus the expectations for an unchanged reading of 1.9%, with core PCE revised slightly down to 2.1% from 2.2%. Durable Goods Orders were strong across all subcomponents with the headline number increasing to 0.6% from -1.4% against the expectations of -0.9%. Finally, initial and continuous claims were slightly down and still stay at multi-decades low. 

Canada: The key number for last week was 3Q GDP that came in line with expectations at 1.3% and down from an unsustainably high 3.5% in Q2. Digging deeper, the strength came from the consumption, residential investments (driven by lower mortgage rates), business investments and government spending, while exports were the main detractors. BoC will not be concerned about this number at this week’s meeting, as underlying drivers remain strong, including most importantly business investments in the midst of global manufacturing recession.

Eurozone: Last week was full of regional and broad data. In Germany, IFO indicator improved to 95 in line with expectations from upwardly revised 94.7, Consumer Confidence improved to 9.7 from 9.6. Unemployment surprisingly dropped by 16k against the expectations of 6k increase, with Unemployment rate unchanged at 5% lows, however Retail Sales disappointed by dropping -1.9% (0.2% exp., 0% prev).

Final French 3Q GDP estimate was unchanged at 0.3% with upward revision to the YoY number to 1.4% on the back of stronger consumption. Unemployment in Italy declined to 9.7% (9.8% exp., 9.9% prev.) while Consumer and Manufacturing Confidence went slightly down. Inflation numbers were unequivocally strong with Core HICP at 1.3% highest since 2015 and ‘super’ core at 1.5% strongest since 2013. These prints could be distorted by base effects but jump in Services Inflation to 1.9% indicates that tight labour markets and strong wages are finally boosting prices.

Sweden3Q GDP was stronger than expected at 0.3% QoQ (0.2% exp., 0.1% prev.), Retail Sales in October were 0.2% MoM (0% exp., 0.5% prev.), Manufacturing Confidence surprised to the upside 96.1 (94.8 prev., 96.3 prev.) and finally Consumer Confidence was slightly lower at 91.9 (92.3 prev., 92.7 prev.)

Norway: The Unemployment rate was unchanged at 2.1% in November against the expectation for an increase to 2.2%. Retail Sales in October declined -0.8% (0.2% exp., -0.1% prev.)


As one would expect after the VAT tax hike, retail sales have declined in October, however the rate of decline was more extreme than expectations at -14.4% MoM (-10.4% exp., 7.1% prev.). On the other side, labour market data was stronger with an increase in the Jobs-to-Applicant ratio to 1.57 and unchanged Jobless rate at 2.4%. Worryingly, Industrial Production dropped -4.2% in October (-2% exp., 1.7% prev.). On a brighter note, Consumer Confidence improved to 38.7 from 36.2 (36.8 exp.).

Financial markets were closely watching the YouGov poll results. The poll has accurately predicted the minority Conservative government in 2017 against the polls. However, this time around it failed to provide any different insight, predicting a strong Conservative majority. Data showed continued consumer pessimism with Confidence number staying at -14, while Consumer Credit growth increased to 6.1% (5.9% prev.) and House Prices increasing 0.5% MoM (0.1% exp., 0.2% prev.)

Australia: Highlight of the week was a speech given by RBA Governor Lowe. He clarified Central Bank’s position with regards to unconventional monetary policy tools by suggesting 0.25% target rate as a trigger for purchases of Government Bonds. This has led to a rally in the front end of the curve that was only pricing interest rate cuts to 0.5%. Private Sector credit growth was weaker at 2.5% versus expectations for an unchanged 2.7% increase. 

New Zealand: Retail Sales jumped 1.6% in 3Q (0.5% exp., 0.2% prev.) on the back of increased spending during the Rugby World Cup. Trade data was in line with expectations and ANZ survey showed improved outlook with Activity increasing to 12.9 from -3.5, Business Confidence at -26.4 from -42.4 and Consumer Confidence at 120.7 from 118.4.

For further information on the Pacific G10 Macro Rates team, their experience and strategy please see below           

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IMPORTANT INFORMATION: Issued and approved by Pacific Capital Partners Limited, a limited company registered in England and Wales, authorised and regulated by the Financial Conduct Authority . The information contained herein is not approved for use by the public and is only intended for recipients who would be generally classified as investment professionals. Information or opinions contained in this article do not constitute an offer to sell or a solicitation, or offer to buy, any securities or financial instruments or investment advice or any advice or recommendation in respect of such securities or other financial instruments. Where past performance is shown it refers to the past and should not be seen as an indication of future performance.

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