Richard Franulovich, Research Analyst at Westpac, suggests that even with a cooler manufacturing ISM and weaker housing data of late, not to mention still benign inflation and earnings data, the US still comfortably retains its growth leadership position.
Key Quotes
“Early Q3 GDP nowcasts point to back to back growth above 3% and yield spreads broadly continue to trend in the USD’s favour.”
“There is now a clear regional partition on trade risks; US-China trade tensions continue to ratchet higher, a (temporary) truce has formed on the US-Europe front and negotiators sound hopeful that a revised NAFTA deal is on the near horizon.”
“Net, net the USD could see a modest retracement given markets have mostly discounted the median Fed dot for two hikes by end-2018 and with spec longs at 18-month highs, but should maintain the bulk of its H1 gains.”
“Bigger risks could materialise in late 2018/early 2019 – as congress flips to probable Democrat rule, the Fed potentially rethinks the pace of hikes as policy approaches neutral and the tax cut boost to growth peaks.”
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