Macro Weekly – The loss of momentum is losing momentum

by: Han de Jong

  • Some signs of stabilisation of business confidence
  • US durable goods orders showing the effects of the trade conflict and GM strike
  • Korean export data poor, Taiwanese a little better
  • Brexit, Draghi, Impeachment, Fed cut
191025-Macro-Weekly.pdf (214 KB)

Eurozone business confidence stabilised in October according to preliminary data. The Markit PMI for manufacturing was unchanged at 45.7. Still nothing to write home about, of course, but it could have been worse. PMI data have not been released for all individual countries yet, but what is striking is that the manufacturing index was unchanged for the eurozone as a whole but was up for both Germany and France (Germany from 41.7 to 41.9 and France from 50.1 to 50.5). This either means that other countries registered declines or the data is set to be revised. The services PMI for the eurozone inched up: 51.8 in October versus 51.6 in September. The authoritative German Ifo index confirmed the stabilisation. Their overall index was stable at 94.6. The expectations component, which tends to be seen as the more important part of the survey, improved: 91.5 versus 90.9. The current-conditions component on the other hand fell from 98.6 to 97.8 having risen in the previous month. The US PMIs are actually showing a bottoming. The rival ISM indices have not yet been published for October, but so far they have been more negative than the PMIs.

US durable goods orders fell 1.1% mom in September after a rise of 0.3% in the previous month. Capital good orders, excluding defence and aircraft dropped 0.5% mom after a 0.6% drop in the previous month. The durable goods report demonstrates that companies’ appetite for capital spending continues to weaken. Shipments of non-defence capital goods, ex-air in absolute terms reached a peak in May this year and have since fallen. The fall has not been huge, merely some 1.5%, but it is in line with our expectations. On a year on year basis, the pace of growth has eased from around 10% two years ago to just over 1%. Capital spending is weakening as the effects of the December 2017 tax reform is wearing off; because of the China-US conflict; and probably also because of the GM strike which includes some 50,000 workers who have been on strike since mid-September.

US housing sensitive to mortgage rates

On a positive note, the US housing sector is responding to the drop in mortgage rates as the two graphs related to this indicate. The sensitivity of the housing market to changes in borrowing costs makes monetary policy relatively effective in the US. The improvement in housing demand plus the improvement in the cashflow of families who use lower mortgage rates to refinance provides support for the economy and is an important consideration for us to maintain our view that a US recession is not very likely between now and the end of 2020.

Digging into Taiwanese export orders

Korean export performance remains dire. The value of exports was down 19.5% yoy in the first 20 days of October, marginally better than September’s -21.8%. The decline in import growth got significantly worse: -20.1% down from -11.1% in September, the worst reading since early 2016. This highlights the poor performance of global trade but some Korea-specific problems may also play a role.

Taiwanese export orders may be bottoming. They were down 4.9% yoy in September, after -8.3% in August. Digging into some of the detail I found that export orders from China and Hong Kong are showing an encouraging improvement. In absolute terms these orders have risen since June. In yoy-terms they have improved from -14.6% in June to -3.0% in September. It is early days yet but the last couple of these data points may be an indication that the Chinese economy is starting to get over the worst of its slowdown and may be starting to have a more positive effect on global trade. Let me repeat, though, it is early days yet.


The Brexit saga continues. No point writing about it as anything I write may be out of date before the ink is dry.

Draghi farewell

ECB President Draghi gave his last press conference last Thursday. The governing council did not change any policies. They had already done that in September. That meeting had been followed by stinging criticism, among others from Dutch central bank president Klaas Knot. Draghi was asked about that. His response was that differences of opinion are normal and healthy. He also pointed out that some economic data released after the September meeting has been weak, supporting the ECB’s September’s decision. Overall, it was a tame event and Draghi said his goodbyes graciously

Fed third rate cut coming

The US Fed is expected to cut rates for a third time at their policy meeting on 30 October. We are forecasting a fourth cut in December, but our conviction level has fallen a little. The Fed has explained the cuts as ‘insurance’ against an undesirable weakening of the economy. Economic data have generally shown some weakening, but not excessively so. In addition, one can wonder how much insurance one requires. Whether or not there will be a fourth cut this year in December will depend on the dataflow between now and then.


The impeachment procedure against president Trump is gaining momentum. So far, hearings have been behind closed doors, but there is talk now to make them public. I still think it is unlikely that Trump will be removed from office as this would require a two-third majority in the Senate, where the Republicans hold a majority (53 out of 100). Having said that, it is very conceivable that the House impeaches the president as that only requires a simple majority in the House where the Democrats have a fairly comfortable majority (234 seats out of 435). But this whole process is more about doing as much as possible damage to Trump in order to prevent the president from serving a second term. This will therefore be a drawn-out process with the Democrats creating as much drama as they can.