THE MACRO MENU: 17 - 21 FEBRUARY 2020

THE MACRO MENU: 17 - 21 FEBRUARY 2020

Updated: Feb 24

MARKET BRIEFING: Monday 17th February 2020
CALENDAR HIGHLIGHTS

Monday: US Holiday (President's Day), CN House Prices, FDI, New Loans, JN Industrial Production, Capacity Utilisation, UK Rightmove House Price Index, GE Bundesbank, EU Eurogroup Meeting, Construction Output


Tuesday: AU RBA Meeting Minutes, UK Unemployment Rate, Employment change, Average Earnings, Labour Productivity, GE ZEW Economic Sentiment, 2-yr Auction, US NY Empire Manufacturing Index, NAHB Housing Market Index, TIC data, CA Manufacturing Sales, US Earnings: Wal-Mart, UK Earnings: HSBC


Wednesday: JN Trade Balance, Core Machinery Orders, AU Wage Price Index, UK CPI/PPI/RPI, GE 30-yr Auction, EU Current Account, US Building Permits, Housing Starts, PPI, FOMC Meeting Minutes, Weekly API Inventories, CA CPI, Fed's Mester, Kashkari, Kaplan Speak


Thursday: AU Unemployment Rate, Employment Change, GE PPI, GfK Consumer Climate, FR CPI, 3/5-yr Auctions, SP Trade Balance, 3/5/10-yr Auctions, UK Retail Sales, CBI Industrial Trends Orders, EU ECB Meeting Minutes, Consumer Confidence, US Weekly Jobless Claims, Philly Fed Manufacturing Index, Leading Index, Weekly DoE Inventories, CA ADP Non-Farm Employment Change, New Housing Price Index, Fed's Barkin Speaks


Friday: AU/JN Manufacturing/Service PMI, JN CPI, All Industries Activity Index, FR/GE/EU Manufacturing/Service PMI, IT Industrial New Orders/Sales, CPI, EU CPI, UK Manufacturing/Service PMI, PSNB, US Manufacturing/Service PMI, Existing Home Sales, Baker Hughes Rig Count, Fed's Kaplan, Brainard, Clarida, Mester, BoE's Tenreyro Speak


Saturday: G20 Conference in Saudi Arabia, US Nevada Democratic Caucuses


MACRO OVERVIEW: Sunday 16th February 2020

GBP BACK IN FOCUS THIS WEEK


Last week saw the surprising resignation of UK Chancellor Sajid Javid, leading to an increase in expectations of a closer fiscal alignment between the Treasury and the Prime Minister's office through the newly appointed replacement Rishi Sunak.


Sunak is no stranger to the HM Treasury, having worked closely alongside Javid as the Chief Secretary. He also comes equipped with an impressive CV, having worked at Goldman Sachs as an analyst before moving into fund management, a past that has already been targeted by Labour. However, despite his credentials the ambitious 39-year-old, who has only been in politics since 2015, is likely to be little more than a 'yes' man for cabinet adviser Dominic Cummings, who after last week's re-shuffle has now acquired the relevant team to exercise his plans with less resistance.



GBP rallied on the belief these political developments may result in a 'Trumpian' style stimulus but with the March 11th budget still some way off I think the move is premature. Furthermore, this week, attention comes back to economic data with a number of headline readings on the docket:


  • Tuesday: Unemployment Rate, Average Earnings

  • Wednesday: UK CPI, PPI, RPI

  • Thursday: Retail Sales

  • Friday: Manufacturing and Service PMI


Despite the recent Boris bump after securing his majority government at the end of last year, I do not see that momentum lasting long and with a lack of any immediate detail on fiscal changes from the government, GBP could be susceptible for a pull-back over the week ahead.


MORE FISCAL SUPPORT IN CHINA


We continue to monitor the coronavirus situation closely but remain content for the moment that markets will remain sanguine barring any major surprises. The recent revision to bump up the number of reported cases has done little to rattle markets and we anticipate that will remain the case for the time being.


Over the weekend, the Chinese finance minister Liu Ju said "authorities will further perfect and implement measures this year to reduce corporate taxes and cut unnecessary government expenses" in further efforts to stem the economic fallout from the virus.


Barclays Chief Investment Officer, Will Hobbs, gave a great podcast about the effect Covid-19 (or coronavirus) could have on the economy, and whether it could lead to a global recession. He discusses the impact that the outbreak and recent trade tensions have had on our manufacturing supply chains, and whether this points towards the end of globalisation as we know it.


Click HERE to listen to the full podcast. It's well worth a listen if you have 20 minutes.


NOT MINUTES BUT REPOS THAT MATTER


This week sees the release of the Fed and ECB meeting minutes, of which neither is expected to yield much in the way of surprises. Instead the area we continue to watch is the recent decision from the FRBNY to continue to shrink its repurchase-agreement operations for a second straight month.



The understanding by analysts is that the over-subscribed nature of these operations is not due to renewed stress in funding markets but rather the ability for dealers to access cheaper liquidity than prevailing market rates.


On this basis, the move from the Fed looks to be reasonable but markets are not always so rational, and if it starts to be seen that the US central bank is withdrawing liquidity too quickly, then could this act as a new breaking point for an concerted pull back from all-time highs in US equity markets? That remains to be seen.


DEMOCRATIC CAUCUSES, ARE THEY IMPORTANT?


For now, not really. But given some of the growing press attention of late, I thought a quick comment was warranted.


Last week saw Bernie Sanders extend his lead as the clear front-runner in the Democratic race, fending off former South Bend, Indiana Mayor Pete Buttigieg in New Hampshire last week. Sanders' socialist policies are by no means a preferred choice across the entire democratic spectrum, but moderates within the party appear split and with the surprisingly strong performance of Minnesota centrist Amy Klobuchar, Sanders could by default be the biggest benefactor of a divided centre ground.


What has taken place so far is merely the appetiser and the main event to come will be 'Super Tuesday' on March 3rd. This is when 16 states, territories or groups vote for their preferred candidate.


As yet, billionaire businessman Michael Bloomberg, has been holding fire while spending big on his campaign. Despite his track record on race (discriminatory stop-and-frisk policy) and comments during the financial crisis, the former New York Mayor has slowly risen up the polls and is now ranking third nationally, with PredictIt tagging him as second behind Sanders.



In summary, the Democratic party appears to have no clear consensus and that keeps President Trump as the firm favourite come November 2020. For now, this remains of interest for mainstream US media but not so much for markets.



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