Some fairly important macro data was published yesterday that’s worth studying:
- 4th quarter UK GDP growth disappointed slightly, coming in at 2.7% annualised versus expectations of 2.8%. Still it marks an improvement of 0.1% on the previous quarter. UK growth is still solid.
- Durable goods orders in the United States disappointed in December, coming in at -0.8% versus +0.6% forecast. This is an improvement on the November -1.3% number, but a decline is a decline, and economists will probably be lowering their estimates for 4th quarter GDP growth now. Still even a +3% annualised growth number for Q4 is solid even if it marks a cooling off in comparison to the smoking hot +5% Q3 number.
- More and more US multi-nationals are warning about pressure on profits because of the strong US dollar. Not a shock really. In addition there are growing concerns about stagnating demand outside of the United States. Well… concerns from other companies maybe, but not Apple! Simply stunning numbers.. the largest net income by any public company in history for the 3 months to December at $18bn!! This was on the back of iPhone sales with 74.5m units sold, smashing even the most optimistic Wall Street forecasts. And this wasn’t just about domestic holiday sales. Demand for the iPhone 6 was surging in China
- Also in the US, the Conference Board consumer confidence index improved significantly in January hitting its highest level since 2007 at 102.9 versus 93.1 in December.
An interesting data mix yesterday, that’s for sure. I would say goldilocks, but that descriptive has already established its place in the financial lexicon, far be it for me to challenge that. It does seem clear that there is a reasonable chance for US consumers to do what they’ve done historically and bail the rest of the world out.
In Asia overnight, the Singaporean monetary authority, MAS, surprised the market and loosened policy prompting the biggest one day fall in years. The Singapore dollar hasn’t traded this weak since 2010. This is a trading nation, and possesses one of the largest hubs for oil refining anywhere in the world. Not a huge shock that times are tougher there, and stagnating growth in its larger neighbours certainly doesn’t help.
One of those neighbours, China, is finding targeted stimulus less effective than hoped as industrial profits fell by 8% last month… an unwelcome new record if the data is to be believed. On the other hand the local currency, the renminbi is now one of the 5 most used payment currencies in the world, joining the US dollar, the euro, the pound sterling and the Japanese yen in the heavyweight category. Steady progress towards the end goal of convertibility and reserve currency status continues.
Another interesting titbit from Asia which I find interesting, and could have longer term ramifications is a move by Japanese corporates away from age based pay, to a more sensible and market sensitive norm… pay based on merit. Revolutionary indeed! Now if they can just get more women into the workforce they might be able to grow their way out of the horrendous problems. Probably too little too late though.
The steady depreciation of the naira continues, and the near term prospects for the Nigerian economy look fairly grim. I was struck by some data which shows that under the previous President Obasanjo’s term of office, the average oil price was below $40 per barrel, yet growth averaged about 7%, while under the incumbent President Goodluck Jonathan, oil has averaged considerably higher, close to $100, but growth has only averaged about 6%. One hopes that if he wins another term he makes growth and employment an absolute priority. As things stand the economy, or more specifically, federal and state government coffers are clearly unprepared for a sustained period of lower energy prices. This is one of the main reasons why we, at ParityFX, remain bearish on the prospects for the naira. Even if sensible policies are put in place, it will take time for the benefits to work through the economy. If the Central Bank of Nigeria has any hopes of maintaining a reasonable reserve buffer they will probably have to allow the naira to weaken a lot more.
Yesterday was a short covering day for the euro, as traders took the opportunity to lighten up their short positions, and those who had enthusiastically dumped euros following the Greek election news probably had to scramble and reverse those trades. Buying the rumour, selling the fact remains an essential component of successful trading! I’ve said it many times before, corrections are necessary for the long term health of trends, it is possible there might be more legs in this euro recovery, but that’s not the bet I would want to take. The trend is for the euro to weaken, and it looks increasingly likely that we will see parity versus the US dollar at some point this year. We should also see the euro weaken further against the pound sterling, I see 0.7250 as a likely initial target.
We have the FOMC later on today and as always the statement will be closely monitored. Economists aren’t expecting too much drama, a lot has already been said in recent months. Governor Yellen has pledged patience regarding their determination to raise rates, but what will be interesting to see is the outlook for growth and inflation. It will also be of great interest to hear how much the global outlook for growth impacts on their view of when to hike rates. This is important. We will report back tomorrow, as this could greatly influence the dollar trend.
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