Market Views For 2016 - page 14
You are missing trading opportunities:
- Free trading apps
- Over 8,000 signals for copying
- Economic news for exploring financial markets
Registration
Log in
You agree to website policy and terms of use
If you do not have an account, please register
US Budget Deficit Rises 17% In First 11 Months Of Fiscal 2015-16
The August US Federal budget deficit amounted to $107.1bn, compared with an expected figure of around $105bn and an August 2015 deficit of $64.4bn.
On an adjusted basis, the deficit increased to $118bn from $107bn last year, maintaining the sustained deterioration seen this year.
Over the first 11 months of fiscal 2015/16, the deficit increased sharply by over 17% to $621bn from $530bn the previous year. Although there should be a strong surplus for the final month of the year, the full-year deficit will inevitably increase sharply. In the 12 months to August, the deficit amounted to 2.9% of GDP from 2.6% in July.
In the fiscal year to date, total revenue increased by just under 1% while spending rose by 3.5% due to a strong increase in entitlement programmes. There was a recovery in income tax receipts in the latest month with growth of around 0.5% over the year, but corporate taxes continued to decline and overall revenue growth remains disappointing.
Overall, demand for Treasuries remained strong during the first half of 2016, with strong overseas demand for US bonds. There has, however, been a significant decline in overseas demand over the past 2-3 months, especially with the gradual increase in Libor costs making buying much less attractive.
There will, therefore, be a much bigger potential impact on prices if domestic demand also weakens. Yields have moved higher this month with 10-year rates breaking above 1.70% to three-month highs. A rising budget deficit will be much more of an economic and political issue if there is a sustained rise in bond yields with the potential for rising debt-interest payments and a renewed crowding out of private investment.
US Treasuries remained on the defensive following the data with the 10-year contract down close to 20 ticks on the day with the yield at 3-month highs above 1.73%. The dollar edged marginally higher with EUR/USD close to daily lows at 1.1220.
read more
MNI sources reporting that ECB likely to keep rates on hold until at least year-end
MNI running a report from their ECB sources 19 Sept
Story is helping to put a bid under the euro again
RBA Minutes: Economic drag from falling mining investment looks to have peaked
Reserve Bank of Australia minutes from the September monetary policy board meeting
Quick headlines via Reuters
Full text: Minutes of the September 2016 Monetary Policy Meeting of the Reserve Bank Board
Latest Organisation for Economic Co-operation and Development report 21 Sept
That large downward revision for UK in 2017 reflects the uncertainty that lays ahead regardless of what's happening at the moment.
ECB’s Economic Bulletin: European Central Bank Faces Key Period For Inflation Trends
In its latest Economic Bulletin, the ECB continues to examine price developments. Inflation and inflation expectations will continue to be an important consideration for the ECB, especially as they will play a crucial role in inflation developments. The bank’s strategy will be in serious trouble if inflation pressures weaken into late 2016.
Between early June and early September 2016, market-based measures of long-term inflation expectations declined to 1.29% from 1.48% and the series remains close to record lows having declined from 2.25% at the beginning of 2014.
In contrast, survey-based measures of long-term inflation expectations have remained broadly unchanged in the 1.50-2.00% range.
The ECB remains confident at underlying inflation is likely to rise gradually over the forecast period with an easing of downward pressure as slack in the economy declines. Wages growth is expected to increase given the decline in unemployment. The central bank is also expecting an increase in corporate pricing power and cyclical improvement in profit margins. Money supply growth remains strong enough to underpin a solid increase in nominal GDP with M3 growth consistent at above 4% over the past year.
The ECB is still concerned that the fading impact of previous Euro depreciation will limit any upward move in inflation.
Overall, the bank forecast a rise in harmonised consumer price inflation (HICP) to 1.2% in 2017 and 1.8% in 2018 from 0.2% this year. For these forecasts to be realised, the programme of bond purchases started at the beginning of 2015 will need to show some results by late this year.
The central bank will, however, be extremely uneasy if there is no evidence of rising underlying inflation by late 2016 and pressure for further radical monetary action would then increase once again.
Fed Struggles With Neutral Interest Rate
As we expected here at Cumberland Advisors, the FOMC chose not to raise rates at its September meeting but strongly suggested, based upon both rhetoric and its dot forecast chart, that it was clearly open to one policy move this year. However, the case made both in the Committee’s Statement and by Chair Yellen at her press conference was represented as being stronger than an unbiased observer could justify by the available data.
As expected, someone asked at the press conference whether the November meeting was a “live” meeting or not. Predictably, Yellen repeated the mantra that all meetings were live. But realistically, the November meeting falls just before the election, no new forecasts will be prepared and no press conference is currently scheduled, so it would take a surprising turn of the incoming data to trigger a policy move at that meeting. At that meeting, the Committee will have the first reading on Q3 GDP, one more jobs report and two readings on PCE inflation. So far, the incoming numbers on Q3 GDP suggest another quarter of sluggish or moderate growth. Hence, we aren’t likely to see a move until December.
Jobs, Jobs, Jobs
What did the Committee say on Wednesday besides projecting the view that it was close to making a decision to raise rates again? The first data point that the Committee statement focused on was the labor market. While the unemployment rate has remained steady, Yellen emphasized that more people have entered the job and labor market, which has continued to strengthen. Though she did acknowledge that growth thus far in 2016 has been less robust than in 2015, her case is not as strong as she would like to make it appear. Current job-market performance, relative to past history, is in fact dismal. Job growth may be enough, as Yellen argued, to absorb new entrants into the market, but certainly not enough to also provide jobs for those with part-time jobs who want full-time work. By comparison, we estimate that if today’s economy created the same number of jobs per dollar of GDP that it did between 1960 and 1970, for example, job growth today would be four times what it currently is. Similarly, the number would be twice as large if the jobs creation rate today were what it was in 1983–2006.
read more
Here Is Why GBP Should Stabilize Close To Current Levels
The GBP has been strongly capped at the lower end of this year’s trading. We remain of the view that the currency should stabilise close to the current levels.
First of all, the currency has been mainly driven by monetary policy expectations, which remain strongly capped for now. Even if incoming data surprises positively, the BoE’s policy stance is linked to longer term Brexit-related uncertainty. It may be true that central bank members such as Forbes see no need for additional stimulus measures anytime soon. Nevertheless, there is no room for rising rate expectations either.
Elsewhere, speculative short positioning may be less elevated, but remains close to levels that are making it difficult for the currency to break to new lows unless there is fundamental reason for it.
With this week’s data calendar relatively empty, such an outlook may be subject to only low risk. Final Q2 GDP is the only notable release.
source
Yellen: Majority of FOMC see a rate rise likely needed this year
Finally some comments about the current situation
Only one comment here that the market is concerned with. The buck has reacted to it with USDJPY up around 25 pips to 100.72. Cable is down in the lows again, as is the euro. USDCAD is looking the biggest gainer as it checks out the recent highs around 1.3270.
Fed's primal divide: Is economy overheating or stuck in a rut?
Investors may be expecting a U.S. interest rate increase in December, but Federal Reserve policymakers remain divided over whether the economy is mired in a rut, strong enough to withstand an immediate hike or hovering somewhere in between.
Speaking in the wake of the U.S. central bank's decision last week to hold rates steady, 10 Fed officials fanned out for appearances this week in a profusion of "Fedspeak" that markets and the public are trying to digest.
The Fed raised rates last December for the first time in nearly a decade, and many investors currently expect it to raise rates again this December - but only with about a 55 percent probability, according to data from CME Group (NASDAQ:CME).
With a potentially volatile U.S. presidential election and two months of economic data still to come, the Fed policymakers' remarks suggested the debate is far from over.
"The low interest rate environment is not just a U.S. phenomenon, or simply a situation engineered by Federal Reserve policy," Chicago Fed President Charles Evans said in a speech to a community banking conference in St. Louis on Wednesday.
"Rather, it is a global phenomenon with underpinnings in economic fundamentals" that are likely to persist.
read more
ECB's Nowotny: Euro as a currency was never in danger
Comments from Nowotny
Until there is a clear mechanism for countries to leave the Eurozone, there will always be concerns about a breakup.
Now that there is a period of relative calm in the Eurozone bond market, it would be a good time to put that mechanism in place but that kind of wisdom isn't Brussel's strong suit.