Excel Currencies USD Weekly Forecast – 12th – 16th April 2010
USD Weekly – US Dollar To Face Heavy Event Risks, Chairman Bernanke Testimony
Fundamental Outlook for US Dollar is Bullish (overall, to get stronger). Service-Based Activity Expands at Faster Pace. FOMC Maintains Cautious Tone on High Unemployment. Consumer Credit Tumbles Lower in February
Encouraging data in the US. The ISM manufacturing index jumped to a new cycle high in March and employment growth returns to positive territory. The increase is driven primarily by a large increase in the inventory index, suggesting that the manufacturing sector is now starting to build inventories again. If the inventory index prints a similar high reading next month, it is a sign that production is now overshooting demand. In that case we could be in for a more significant slowdown in production in H2, but the jury is still out. For now, our models suggest that the ISM could remain at the current levels for some months before slowing. The ISM non-manufacturing index has been lagging its manufacturing counterpart during this cycle, but has started to catch up and took another 2.4 point leap in March. The survey was very strong with a surge in both new orders and business activity. Activity in the US service sector is thus gaining speed. The pick-up in production activity has finally turned into positive job growth. The employment report for March showed a gain in private payrolls of 123K and net revision of previous months added 62K to this. Forward-looking details in the report are encouraging with a rebound in hours worked and a continued increase in temporary help services. Bottom line is that businesses are beginning to feel confident enough about the recovery to start adding to payrolls. The Fed is however not convinced about the strength in the turnaround in the labour market and remains very dovish. This was confirmed by the FOMC minutes released this week, which reveal that the FOMC’s main concern remains the deceleration in core inflation. The decision by the US Treasury to delay the publication of its review of its main trading partners’ exchange rate policy has secured that the intensifying political game about a revaluation of the yuan will not be derailed.
In the US the agenda next week is heavy. Amongst a wide range of economic data the most important will be retail sales and CPI for March. Retail sales appear to have been very strong in March. Unit sales data for autos showed a strong rebound in nominal sales in March suggesting a boost to total retail sales of 1.2pp. Outside autos, sales look strong as well with retail sales ex autos and gasoline heading for an 1.2% increase. The early timing of Easter and improving weather are likely to have pushed spending higher, but even taking this into account spending looks strong. On inflation, the deceleration in annual core CPI is set to continue. Danske expect core consumer prices to be unchanged m/m taking annual core CPI to 1.1% down from 1.3%. Another round of housing market data will be released next week as well. Danske look for an increase in both the NAHB index and housing starts but a decline in building permits. Further, Fed will be in focus in another week loaded with speeches. Most important will be Bernanke’s testimony before the Congress on Wednesday, the same day as the Fed’s Beige Book is released. US Treasury Secretary Tim Geithner and China’s Vice Premier Wang Qishan appear to have discussed a possible deal on the $/CNY exchange rate. Accordingly, the chances of a near-term renminbi revaluation have risen. But while this may be good news for the US, higher bank reserve requirements, and ultimately, interest rate increases are probably more effective tools for slowing China’s domestic economic expansion. China is expected to have grown at an annual rate of some 12.5% in the year to Q1. Meanwhile, Fed Chairman Ben Bernanke’s testimony before Congress on Wednesday will be closely watched, as ever. With the Fed now well advanced on unwinding its emergency liquidity and asset purchase programmes, speculation on ‘exit strategies’ is intensifying and we look for Mr. Bernanke to provide more clarity on this. In terms of data, we expect robust outturns for retail sales and industrial production, while the Empire and Philly Fed surveys should show that momentum continued in Q2. After recent softness, Friday’s housing starts data will also warrant close inspection. Lloyds look for a modest pick up, as weather conditions improved in March. Other highlights include the February trade balance (Tuesday), March CPI (Wednesday) and University of Michigan confidence on Friday.
In February, consumer prices remained flat compared to the previous month and inflation dropped to 2.1% from 2.6%. Energy prices did not fluctuate much in March, so the overall consumer price index is expected to move in line with core inflation. Core inflation has been very mild (+0.07% m/m over the past six months) due to the lower cost of housing (reflecting a high vacancy rate) and the decline in unit wage costs (reflecting both high productivity gains and a smaller increase in wage remuneration). All in all, consumer prices are expected to rise very slightly again in March (estimated at +0.1% m/m; figure to be released on Wednesday 14 April). The headline inflation rate should rise to 2.4% from 2.1%, while core inflation continues to ease to 1.2% from 1.3%. In February, retail sales increased slightly in value terms (+0.3% m/m). In March, sales growth is expected to be much more robust (+1.2% m/m; figure to be released on Wednesday 14 April), mainly due to the rebound in automobile sales (+13.6% m/m in unit terms) spurred by carmaker rebates. Most other sectors will surely report sales growth as well, after purchases were hampered by bad weather conditions in February. For the first quarter as a whole, we expect retail sales to increase at an annualised rate of about 5.3% q/q, confirming the turnaround in consumption (albeit at a milder pace than in Q3 and Q4 2009). In February, industrial production increased for the eighth consecutive month, albeit only slightly (+0.1% m/m, compared to an average increase of 0.8% m/m over the seven previous months). Industrial growth is very likely to pick up more strongly in March (estimated at 0.8%; figure to be released on Thursday 15 April). Manufacturing surveys are still looking very upbeat (the PMI index hit 59.6, the highest score since 2004) and the total hours worked in the sector picked up strongly in March (1.5% m/m) after declining in February due to poor weather conditions (-1% m/m).
USD Weekly – US Dollar To Face Heavy Event Risks, Chairman Bernanke Testimony
Fundamental Outlook for US Dollar is Bullish (overall, to get stronger). Service-Based Activity Expands at Faster Pace. FOMC Maintains Cautious Tone on High Unemployment. Consumer Credit Tumbles Lower in February
Encouraging data in the US. The ISM manufacturing index jumped to a new cycle high in March and employment growth returns to positive territory. The increase is driven primarily by a large increase in the inventory index, suggesting that the manufacturing sector is now starting to build inventories again. If the inventory index prints a similar high reading next month, it is a sign that production is now overshooting demand. In that case we could be in for a more significant slowdown in production in H2, but the jury is still out. For now, our models suggest that the ISM could remain at the current levels for some months before slowing. The ISM non-manufacturing index has been lagging its manufacturing counterpart during this cycle, but has started to catch up and took another 2.4 point leap in March. The survey was very strong with a surge in both new orders and business activity. Activity in the US service sector is thus gaining speed. The pick-up in production activity has finally turned into positive job growth. The employment report for March showed a gain in private payrolls of 123K and net revision of previous months added 62K to this. Forward-looking details in the report are encouraging with a rebound in hours worked and a continued increase in temporary help services. Bottom line is that businesses are beginning to feel confident enough about the recovery to start adding to payrolls. The Fed is however not convinced about the strength in the turnaround in the labour market and remains very dovish. This was confirmed by the FOMC minutes released this week, which reveal that the FOMC’s main concern remains the deceleration in core inflation. The decision by the US Treasury to delay the publication of its review of its main trading partners’ exchange rate policy has secured that the intensifying political game about a revaluation of the yuan will not be derailed.
In the US the agenda next week is heavy. Amongst a wide range of economic data the most important will be retail sales and CPI for March. Retail sales appear to have been very strong in March. Unit sales data for autos showed a strong rebound in nominal sales in March suggesting a boost to total retail sales of 1.2pp. Outside autos, sales look strong as well with retail sales ex autos and gasoline heading for an 1.2% increase. The early timing of Easter and improving weather are likely to have pushed spending higher, but even taking this into account spending looks strong. On inflation, the deceleration in annual core CPI is set to continue. Danske expect core consumer prices to be unchanged m/m taking annual core CPI to 1.1% down from 1.3%. Another round of housing market data will be released next week as well. Danske look for an increase in both the NAHB index and housing starts but a decline in building permits. Further, Fed will be in focus in another week loaded with speeches. Most important will be Bernanke’s testimony before the Congress on Wednesday, the same day as the Fed’s Beige Book is released. US Treasury Secretary Tim Geithner and China’s Vice Premier Wang Qishan appear to have discussed a possible deal on the $/CNY exchange rate. Accordingly, the chances of a near-term renminbi revaluation have risen. But while this may be good news for the US, higher bank reserve requirements, and ultimately, interest rate increases are probably more effective tools for slowing China’s domestic economic expansion. China is expected to have grown at an annual rate of some 12.5% in the year to Q1. Meanwhile, Fed Chairman Ben Bernanke’s testimony before Congress on Wednesday will be closely watched, as ever. With the Fed now well advanced on unwinding its emergency liquidity and asset purchase programmes, speculation on ‘exit strategies’ is intensifying and we look for Mr. Bernanke to provide more clarity on this. In terms of data, we expect robust outturns for retail sales and industrial production, while the Empire and Philly Fed surveys should show that momentum continued in Q2. After recent softness, Friday’s housing starts data will also warrant close inspection. Lloyds look for a modest pick up, as weather conditions improved in March. Other highlights include the February trade balance (Tuesday), March CPI (Wednesday) and University of Michigan confidence on Friday.
In February, consumer prices remained flat compared to the previous month and inflation dropped to 2.1% from 2.6%. Energy prices did not fluctuate much in March, so the overall consumer price index is expected to move in line with core inflation. Core inflation has been very mild (+0.07% m/m over the past six months) due to the lower cost of housing (reflecting a high vacancy rate) and the decline in unit wage costs (reflecting both high productivity gains and a smaller increase in wage remuneration). All in all, consumer prices are expected to rise very slightly again in March (estimated at +0.1% m/m; figure to be released on Wednesday 14 April). The headline inflation rate should rise to 2.4% from 2.1%, while core inflation continues to ease to 1.2% from 1.3%. In February, retail sales increased slightly in value terms (+0.3% m/m). In March, sales growth is expected to be much more robust (+1.2% m/m; figure to be released on Wednesday 14 April), mainly due to the rebound in automobile sales (+13.6% m/m in unit terms) spurred by carmaker rebates. Most other sectors will surely report sales growth as well, after purchases were hampered by bad weather conditions in February. For the first quarter as a whole, we expect retail sales to increase at an annualised rate of about 5.3% q/q, confirming the turnaround in consumption (albeit at a milder pace than in Q3 and Q4 2009). In February, industrial production increased for the eighth consecutive month, albeit only slightly (+0.1% m/m, compared to an average increase of 0.8% m/m over the seven previous months). Industrial growth is very likely to pick up more strongly in March (estimated at 0.8%; figure to be released on Thursday 15 April). Manufacturing surveys are still looking very upbeat (the PMI index hit 59.6, the highest score since 2004) and the total hours worked in the sector picked up strongly in March (1.5% m/m) after declining in February due to poor weather conditions (-1% m/m).