USD news - page 24

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US Dollar 2017 Forecast: Politics Will Have a Major Influence


Political tensions will be a key focus during 2017, especially with the probability of a combative Trump Administration, with policy developments likely to have important implications for inflation and interest rates.

Markets are assuming that there will be upward pressure on the dollar. There is, however, a high degree of uncertainty and the US trade deficit will leave the US currency exposed to selling pressure if confidence in US assets deteriorates in the context of trade wars and geo-political fears. There is also a risk that the so called ‘strong dollar’ policy will be jettisoned to boost competitiveness.

Following major political and financial-market ructions caused by the June 2016 UK referendum and Trump’s November victory in the US election, political developments will have an extremely important impact on market trends in 2017.

Trump will be sworn in on January 20th and policies of the new Administration will have a crucial market impact. Trump has pledged to cut business taxes and boost spending on infrastructure to boost the US growth rate.

With the US economy already running at close to full capacity efforts to boost the economy through fiscal policy would tend to put upward pressure on inflation, especially with the US already close to full employment. An increase in inflation would also increase pressure for a faster pace of Fed tightening and tend to put upward pressure on long-term interest rates.

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Chicago PMI index for December 54.6 vs 56.8 estimate


For the year, the index closed 2015 at 42.9. So there has been a pretty good gain (PS the December 2015 reading was the lowest since June 2009).   The high for 2016 was Novembers 57.6 post election reading.  The low for the calendar year was at 47.6 in February.  

There were two months below the 50 level. The 50 level is the dividing line of contraction and expansion.  

IN the current month:
  • New orders 56.5 vs 63.2 last
  • Employment 49.7, unchanged from last month but below the 50 level
  • Order backlog 42.6 vs 52.8 last 
  • Production 58.5 vs 59.1 last
  • Inventories 46.0 vs 56.1 last
  • Prices paid 58.0 vs 56.8 last
  • Supplier deliveries 54.7 vs 53.9 last
This month's special question: 
How will the new administration's policies impact their business in 2017? 

Over half of total respondents expected their business to prosper.  They cited:
  • Tax reforms and 
  • deregulation as positive for business. 
On the negative side:
  • 40% thought it would have no impact, and 
  • 9% said they anticipated a negative impact  
The full report can be found on the internet by clicking HERE.
 

Dollar Indicators Bearish; Correction Poised To Continue


The technical condition of the US dollar, which has been advancing through most of the Q4 '16, has been deteriorating, in our assessment. This led us to anticipate a consolidative or corrective phase. Although the holiday-thinned market conditions may have spurred exaggerated price moves, like the euro ahead of the weekend, it now appears that this phase is set to continue.

We have argued that the dollar rally was part of a larger portfolio adjustment that began in early October, with the US election providing extra fuel to a move that was already underway. For example, the anticipation of the hike by the Federal Reserve at the December FOMC meeting was building before the election, and most data was stronger than expected, lifting the economy to something close to two-times trend. The broader changes in the investment climate included bearish curve steepening, rising equities, higher oil, and lower gold prices. Markets may move at different speeds, but the dollar's pullback is likely part of a larger correction to the powerful Q4 '16 moves.

In the last trading session of 2016, the Dollar Index slipped through its 20-day moving average (102.15) for the first time in a couple of weeks, but managed to close just above it (~102.20). It could have put in a third point in a trend line that connects the November 9 (~95.90), December 8 (~99.45) and December 30 lows (~101.95). Nevertheless, the technical indicators remain bearish. The Dollar Index has been stalling. Consider the highs from the past three weeks, 103.56, 103.65 and 103.63. The past week's 0.8% loss snaps a three-week advance. Last week, we suggested the potential of this pullback extends to 101.00-101.50. This still seems reasonable at this juncture, though the risk is for an overshoot to the downside. The 100.70 area may be key for the outlook for Q1 '17.

The euro spiked briefly through $1.0650 on the last trading session of the year. Although this proved premature as the euro quickly surrendered the gains, the near-term outlook is constructive. The fading upside momentum in the Dollar Index was matched by the euro, its largest component. The euro’s lows from the last three weeks are $1.0367, $1.0352, and $1.0372. The MACD and Slow Stochastics have turned up, and the five-day moving average is set to cross above the 20-day average in the coming days. Last week, we suggested potential toward $1.0675, but the way the correction has unfolded, it looks like there is scope for gains beyond there. The $1.0715 area represents a 38.2% retracement of the euro’s gains since the US election. The 50% retracement objective is near $1.0825.

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December 2016 US ISM manufacturing PMI 54.7 vs 53.6 exp


Details of the December 2016 US ISM manufacturing PMI data report 3 January 2017

  • Prior 53.2
  • Employment 53.1 vs 52.5 exp. Prior 52.3
  • Prices paid 65.5 vs 55.5 exp. Prior 54.5
  • New orders 60.2 vs 53.0 prior
 

Altanta Fed GDPNow 2.9% vs 2.5% prior


Update on Q4 GDP from the Atlanta Fed

A spiffing show from the ISM and construction spending raises the GDP forecast.

"The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2016 is 2.9 percent on January 3, up from 2.5 percent on December 22. The forecast of the contribution of inventory investment to fourth-quarter growth increased from 0.35 percentage points to 0.73 percentage points following the U.S. Census Bureau's Advance Economic Indicators release on December 29. This was offset by a decline in the forecast of the contribution of net exports to fourth-quarter growth from -0.25 percentage points to -0.67 percentage points following the same release. The forecasts for consumer and government spending and business fixed investment all increased after this morning's construction spending release from the U.S. Census Bureau and the Manufacturing ISM Report On Business from the Institute of Supply Management."

 

December 2016 US ADP employment report 153k vs 175k exp


Details of the December 2016 US ADP employment report 5 January 2017

  • Prior 216k
  • Small biz 18k vs 37k prior
  • Medium 71k vs 89k prior
  • Large 63k vs 90k prior
  • Service sector 169k vs 228k prior
  • Goods producing -16k vs -11k prior
  • Construction -2k vs 2k prior
  • Manufacturing -9k vs -10k prior
  • Trade & transport 82k vs 69k prior
  • Financials 10k vs 12k prior
  • Professional & business 24k vs 68k prior
 

December 2016 US non farm payrolls 156k vs 178k exp


Details from the December 2016 US non farm payrolls and labour market data 6 January 2017

  • Prior 178k. Revised to 204k
  • Unemployment rate 4.7% vs 4.7% exp. Prior 4.6%
  • Average hourly earnings 0.4% vs 0.3% exp m/m. Prior -0.1%
  • 2.9% vs 2.8% exp y/y. Prior 2.5%
  • Average hours 34.3 vs 34.4 exp. Prior 34.4. Revised to 34.3
  • Participation rate 62.7% vs 62.7%. Revised to 62.6%
  • Private payrolls 144k vs 170k exp. Prior 156k. Revised to 198k
  • Manufacturing payrolls 17k vs 0k exp. Prior -4k. Revised to -7k
  • Gov payrolls 12k vs 7k exp. Prior 22k. Revised to 6k
  • U6 underemployment 9.2% vs 9.3% prior
    •  

    December 2016 US labour market conditions index 1.2 vs 1.5 prior


    December 2016 US employment trends and labour market conditions index

    • Employment trends 129.6 vs 130 prior. Revised to 129.9.
     

    US NFIB December small business optimism 105.8 vs 99.5 exp


    US NFIB December small business optimism report 10 Jan

    • 98.4 prev

    12-year highs for the index

    • 23% of employers see it as a good time to expand
    • employers with jobs not able to fill falls to 29%
    • net % of firms expecting a better economy rises to 50%
    • firms seeing increased capex rises to 29%
    • net % of firms expecting better sales rises to 31%
     

    USD: S/T Correction To Extend Vs Core FX, But Staying Bullish Into 2017


    The USD is losing ground, retracing some of its post-employment report gains vs the EUR and JPY.

    There was not obvious catalyst for the reversal yesterday, although the USD retreat did coincide with a weaker risk sentiment: a pullback in US yields, a 0.3% drop in the S&P 500 and a slide in front-month crude prices to new lows for the year.

    We remain quite constructive on the USD as we move into 2017, but, with US nominal and real yields well-off their December highs now and the market already long USD according to our metrics, we see some scope for a near-term pullback vs the core currencies, particularly if equity markets give back some ground.

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