Strong manufacturing data from the US yesterday saw the dollar rally continue. The ISM numbers which were strong overall, but also in the key employment and prices categories which is a welcome relief after a recent spate of sluggish data in the United States. Couple this with the disinflationary state of affairs as illustrated by the core PCE data yesterday and we find a happy balance between solid growth and stable prices, a central bankers dream.
Talking about central bankers…there was a dovish speech from a key US policymaker last night, Boston Fed President Eric Rosengren, believes that conditions are not yet right for interest rate hikes in the US. His argument is two pronged:
- the first quarter was weak, and growth is still running below potential;
- and global risks do not support higher interest rates in the United States, the Eurozone being a particular concern.
All I can say is that fortunately he is not a voting member this year! Personally I think that a few small rate hikes won’t make much of an impact on solid US growth, but more importantly the US will have no wiggle room at all if the economy does hit the reefs in a few year’s time, if normalisation isn’t initiated as quickly as possible. Time will tell.
Across the pond, we also got some interesting European data, specifically the manufacturing PMI’s of the major economies, with France and Italy (laggards) impressing with improving conditions, while the UK and Germany looked more… so so. I would definitely characterise yesterday as strongly positive on the data front, all things considered.
Interest rates were cut by 25bps to 7.25% today, as expected, in India. This is the 3rd cut this year, but the RBI has hinted that this is there will be a pause in the easing cycle. The objective is to encourage investment which has been sluggish. Somehow I suspect that the reasons for that don’t have much to do with interest rates, but they are doing what they can in the short term. It is up to Prime Minister Modi to facilitate an environment where corporate leaders are encouraged to invest in India’s future.
There was an emergency meeting in Berlin last night where the troika tried to iron out differences in approach and objective. Attendees included the German Chancellor, the French President, the President of the ECB, the Managing Director of the IMF and the European Commission president. There are growing fears about Greece’s ability to pay its debts. The troika is yet to release €7.2bn of bailout funds to the Greeks, and without it, it’s difficult to see how default and grexit can be avoided. The plan appears to be to present a final creditor position to the Greeks by the end of this week, which might explain some of the Greek confusion following recent negotiations, they’re probably hearing positive words from one member of the troika only to have their hopes dashed by another. I can only shake my head…
We get Eurozone inflation numbers later. The British pound has started the day weak, while the euro and Japanese yen are slightly stronger than the dollar. Tuesday’s often see trend reversals, so I wouldn’t be shocked to see some mild dollar weakness, but this is merely a bump in what we continue to maintain is a US dollar bull trend.
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