12 Jan 2015
The divergence theme to remain intact, soft US wages not a threat – BBH
FXStreet (Barcelona) - The Brown Brothers Harriman Team, notes that continued decline in Oil and the recent weak US average hourly earnings growth might have fuelled a dovish push, but the divergence theme stays intact.
Key Quotes
“The greatest risk to the divergence theme is not that the BOJ and ECB would abandon their to pursuit unorthodox monetary policy. It was that the consensus would swing against ideas that the Federal Reserve will raise rates near mid-year.”
“The continued drop in oil prices, and last week's news that US average hourly earnings growth slowed to their weakest rate in two years, have fueled a dovish push back. The string of US data in the days ahead will provide them with more ammunition. Producer and consumer prices likely fell in December. Retail sales likely slowed.“
“This may encourage some consolidation of the dollar's recent gains, which means a heavier tone for the greenback. Momentum already seemed to have stalled in the second half of last week. The same is true for equities.”
“Nevertheless, we are reluctant to be swayed. These developments do not pose a serious threat to the divergence theme.”
“The Federal Reserve targets core inflation for good reason. Headline inflation may fall, but core inflation is likely to prove sticky.”
“One of the important factors here is the rise in housing costs. We already know that auto sales slowed sequentially from November, and the drop in gasoline prices will weigh on the headline retail sales report. However, excluding autos, gasoline, and building materials, which are included in different measures that feed into GDP calculations, retail sales are still expanding at a respectable rate. Moreover, it is being done largely without the use of revolving credit.”
Key Quotes
“The greatest risk to the divergence theme is not that the BOJ and ECB would abandon their to pursuit unorthodox monetary policy. It was that the consensus would swing against ideas that the Federal Reserve will raise rates near mid-year.”
“The continued drop in oil prices, and last week's news that US average hourly earnings growth slowed to their weakest rate in two years, have fueled a dovish push back. The string of US data in the days ahead will provide them with more ammunition. Producer and consumer prices likely fell in December. Retail sales likely slowed.“
“This may encourage some consolidation of the dollar's recent gains, which means a heavier tone for the greenback. Momentum already seemed to have stalled in the second half of last week. The same is true for equities.”
“Nevertheless, we are reluctant to be swayed. These developments do not pose a serious threat to the divergence theme.”
“The Federal Reserve targets core inflation for good reason. Headline inflation may fall, but core inflation is likely to prove sticky.”
“One of the important factors here is the rise in housing costs. We already know that auto sales slowed sequentially from November, and the drop in gasoline prices will weigh on the headline retail sales report. However, excluding autos, gasoline, and building materials, which are included in different measures that feed into GDP calculations, retail sales are still expanding at a respectable rate. Moreover, it is being done largely without the use of revolving credit.”