With the Pacific G10 Macro Rates Team
Global Macro Overview
Encouraging data out of China over the weekend has pushed equities and bond yields higher on Monday. However markets were caught out by President Trump who created a storm of headlines on Tuesday to detract attention from the release of the House Impeachment Report.
The remarks happened during the NATO summit and were directed against China and NATO alliance. The trade deal was put back on the table on Wednesday to calm the markets and the week finished with a very strong employment report out of the US put the markets back to where the week had started.
US: Divergence between ISM and Markit PMIs continued this week with final Markit Manufacturing PMI for November revised from 52.2 to 52.6, while the ISM number dropped to 48.1 (49.2 exp., 48.3 prev.). Subcomponents of the ISM survey were not encouraging with New Orders declining to 47.2 (49 exp., 49.1 prev.) and Employment lower at 46.6 (48.2 exp., 47.7 prev.).
Markit survey has more respondents, while ISM focuses on big corporations that are more vulnerable to the global drivers. Hence, Markit is more consistent with the resilient domestic data and ISM is reflecting global manufacturing weakness. There were no surprises in the final Durable Goods numbers and factory orders showed expected 0.3% increase.
Finally, the main surprise of the week came from uniformly strong employment data that showed 266k extra Jobs (180k exp., 156k prev.), 54k jobs created in manufacturing, 3.5% unemployment rate and 3.1% YoY increase in hourly earnings. Michigan Consumer sentiment data was also strong and close to the cycle highs at 99.2 (97 exp., 96.8 prev.). This should not come as a surprise, given the strong labour market that continues to create on average 200k jobs a month.
Canada: A closely watched employment report showed the largest contraction in employment in a decade
of -71k, with both part-time and full-time employment declining in November and unemployment increasing to 5.9% against the expectations for an unchanged
5.5% level. The rate of increase in hourly wage growth has declined as well, from 4.5% to 4.4%. Other data were not that grim, trade numbers for October
were better at -$1.08bn (-$1.45bn exp., -$1.23bn prev.) and Manufacturing PMI improved slightly to 51.4 from 51.2.
Eurozone: Not much data this week, with PMI revision coming in stronger in Spain and Germany against weaker in France and Italy lifting overall numbers to 46.9 for the Manufacturing (46.6 prev. and exp.) and 51.9 for the Services (51.5 prev. and exp.). Outside of PMIs, data out of Germany was disappointing with surprise MoM declines in Factory Orders (-0.4%, 0.4% exp., 1.5% prev.) and Industrial Production (-1.7%, 0.1% exp., -0.6% prev.).
Sweden: Disappointing Manufacturing PMI at 45.4 (46.9 exp., 46 prev.) and Services at 47.9 down from 49.5.
Norway: Strong Manufacturing PMI at 53.7 (53.3 exp., 54.9 prev.) and Industrial Production showing 3.6% MoM increase up from -0.2% decline. Manufacturing production was disappointing flatlining at 0% in October (0.3% exp., 0.8% prev.)Japan
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 priced back Conservative majority this week and GBPUSD rallied to 1.31. However, only PMIs and revisions were reported this week showing improvements with final Services PMI higher at 49.3 (48.6 prev.), final Manufacturing PMI at 48.9 (48.3 prev.) and Construction PMI at 45.3 (44.5 exp., 44.2 prev.)
Australia: RBA meeting this week did not deliver any further easing for the Australian economy. Central bank kept rates unchanged (market was not pricing a high probability of a cut) and is likely to continue with its pause into next year, watching the evolution of the economy. Data continued coming out weak, however. The Manufacturing index dropped to 48.1 from 51.6 and Services index was lower at 53.7 vs. 55.2 previously. Building approvals were weaker in October with YoY decline of -23.6% (-18% exp., -17% prev.), 3Q GDP in line with expectations for a 1.7% YoY growth but with a upward revision of the 2Q growth to 1.6% from 1.4%. Finally, October Retail Sales were weak showing 0% growth (0.3% exp., 0.2% prev.).
New Zealand: No major data releases apart from Term of Trade for 3Q that came in at 1.9% better than previous 1.4% and expectations for a 1% increase. More importantly, RBNZ speakers were upbeat on the economy this week validating market pricing of negligible chances of cuts in near future. As a result, currency continued to strengthen both against USD and AUD.
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