Daily Shot: Dollar Knocks U.S. Off Balance
Sober Look | Oct 07, 2015 06:29AM ET
- Strong dollar scuppers US trade figures
- 20% see Fed rate hike as possible this year in survey
- Survey shows 30% see move more than 12 months away
- Emerging markets currencies rally on back of risk-on sentiment
Let's begin with the latest US trade data which shows the US dollar strength has taken its toll. The trade deficit was materially worse than expected.
Here are two charts of US exports - both the dollar value as well as the year-over-year changes.
One area where US export growth has not been interrupted is the financial services sector. A big part of this is the management fees for assets US investment firms are managing for foreign investors.
Continuing with the US economy, here is the Daily Shot Survey: "When will the Fed begin raising rates?" About 20% of the participants believe that a 2015 hike is still possible. Almost 30% think the first rate hike is at least a year away. Some believe that the next policy move by the Fed will entail some form of easing (such as negative rates or QE). We'll repeat this survey in a couple of months. Thanks everyone for participating.
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Retail sales in the US seem to be sputtering. Below is the Johnson Redbook Retail Sales Index - not very promising. It's a bit puzzling to see US consumer shares doing so well.
Is Germany too exposed to auto production?
Swiss CPI remains firmly in the red on a year-over-year basis. I suspect this may be the bottom, as the Swiss franc has declined somewhat vs the euro.
Turning to emerging markets we have the following developments:
1. Ukraine has triggered an event of default recently and the CDS auction (used to settle CDS) has been completed. The auction result - $80.6 - is a record high for a sovereign CDS recovery.
Here is the Ukrainian bond price action.
Source: Bloomberg
Because of this unexpectedly high recovery, CDS holders have taken a hit. Even those who bought protection some years ago would have lost money (on top of paying out the spread) if they stayed in through the settlement.
Source: Bloomberg
2. The International Monetary Fund has released its latest GDP projections. The nations in yellow are expected to take some of the worst hits in 2015. Venezuela's GDP is projected to contract by 10%, only behind Yemen which is at negative 28%.
Source: IMF
Source: IMF
3. China's FX reserves fell again. I suspect we are going to bottom out here for some time as the pressure on the RMB eases (as a result of the reduced probability of a 2015 liftoff in the US). In fact the offshore RMB now trades at a premium to the domestic currency.
Source: Tradingeconomics.com
4. Indonesian rupiah had quite a rally recently (chart shows USD falling against IDR). Once again, this to some extent is the result of the weak payrolls report in the US which makes it more likely that the Fed is in a holding pattern.
Disclosure: Originally published at Saxo Bank TradingFloor.com
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