18 Jan 2016
USD: Weak end to the year for the US economy - MUFG
FXStreet (Delhi) – Lee Hardman, Currency Analyst at MUFG, suggests that the release on Friday of the weaker than expected retail sales report for December provided further evidence that the US economy performed poorly in Q4.
Key Quotes
“The report revealed that core retail sales contracted by -0.3% in December lowering the three-month average annualized rate to 1.5% from 4.6% at the end of Q3. The report signals that personal consumption growth likely moderated in Q4 after expanding by a solid average annualized rate of 3.3% in the previous two quarters.
Still with employment growth still solid, earnings growth picking up, and inflation likely to remain low for longer, it is likely that the slowdown in personal consumption growth is likely to prove only temporary. Personal consumption growth has been expanding by a solid annualized rate of around 3.0% in recent years.
Fed Vice Chair Dudley did not appear too concerned by the loss of economic growth momentum in Q4. He stated on Friday that the economic outlook hasn’t changed much since at the December FOMC meeting with domestic demand doing reasonably well. He continues to expect the US economy to expand by slightly above 2% in 2016 proving sufficient to push the unemployment rate down a bit further and to more fully utilize the nation’s labour resources. He expects the increase in resource utilization to prove sufficient to push both inflation and inflation expectations higher over time. The most concerning risk to the price outlook is the possibility that “inflation expectations become unanchored to the downside”. It would become more concerning if the US economy unexpectedly weakened.
Market-based measured of inflation expectations continue to fall alongside the price of crude oil dampening the case for further monetary tightening. However, it was reassuring that the 5-10-year inflation expectations component from the University of Michigan survey rebounded in January moving back above its average over the last year. Dampened Fed rate hike expectations are acting against the US dollar in the near-term although are not the main driver of the US dollar’s performance in the current risk off environment.”
Key Quotes
“The report revealed that core retail sales contracted by -0.3% in December lowering the three-month average annualized rate to 1.5% from 4.6% at the end of Q3. The report signals that personal consumption growth likely moderated in Q4 after expanding by a solid average annualized rate of 3.3% in the previous two quarters.
Still with employment growth still solid, earnings growth picking up, and inflation likely to remain low for longer, it is likely that the slowdown in personal consumption growth is likely to prove only temporary. Personal consumption growth has been expanding by a solid annualized rate of around 3.0% in recent years.
Fed Vice Chair Dudley did not appear too concerned by the loss of economic growth momentum in Q4. He stated on Friday that the economic outlook hasn’t changed much since at the December FOMC meeting with domestic demand doing reasonably well. He continues to expect the US economy to expand by slightly above 2% in 2016 proving sufficient to push the unemployment rate down a bit further and to more fully utilize the nation’s labour resources. He expects the increase in resource utilization to prove sufficient to push both inflation and inflation expectations higher over time. The most concerning risk to the price outlook is the possibility that “inflation expectations become unanchored to the downside”. It would become more concerning if the US economy unexpectedly weakened.
Market-based measured of inflation expectations continue to fall alongside the price of crude oil dampening the case for further monetary tightening. However, it was reassuring that the 5-10-year inflation expectations component from the University of Michigan survey rebounded in January moving back above its average over the last year. Dampened Fed rate hike expectations are acting against the US dollar in the near-term although are not the main driver of the US dollar’s performance in the current risk off environment.”