| | | The United States higher rates being to pressure US home sales.1. Let’s begin the year with the latest pending home sales figures, which came in below expectations. Are higher rates starting to pressure the housing market?
2. New home construction in the US continues to lag the demographic demand for housing.
Source: Goldman Sachs, @joshdigga
3. According to the Conference Board, US consumer confidence is now at the highest level since 2001 (right before 9/11). Will this trend translate into spending?
4. The economy of Texas is finally showing signs of growth. If oil prices remain at current levels or rise, we should see further improvement. The charts below show service sector and manufacturing activity indicators from the Dallas Fed.
5. Speaking of manufacturing, the various regional surveys (such as the one from Texas) suggest that today’s national manufacturing report from the Institute for Supply Management (ISM) should be solid. Nordea predicts a reading above 55 – the highest since 2014. Will the recent dollar strength derail this recovery?
Source: @MikaelSarwe, @josephncohen
6. The latest wholesalers inventory levels unexpectedly jumped, suggesting that the two-year inventory thinning may be coming to an end. Some analysts have revised up their Q4 GDP forecasts in response to this figure.
7. Nonetheless, the NY Fed’s NowCast model sees US GDP growing only 1.8% (annualized) in the 4th quarter.
Source: NY Fed
8. As discussed yesterday, projections for US growth in 2017 are centered around 2.2 – 2.3%, with “fat tails” on both sides. Only one economist is forecasting a GDP decline.
Source: @fastFT; Read full article
9. One of the key trends economists will be monitoring this year is capital investment. The chart below shows investment diverging from employment. Companies would rather hire more cheap employees than make significant investments, resulting in weak productivity growth.
Source: @NickatFP, @DeanDijour
10. One way to spur investment is by s changing the corporate tax structure. Here is a comparison of the tax proposalfrom the House Republicans and Donald Trump’s team.
Source: Goldman Sachs, @joshdigga
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China1. Beijing has changed the composition of the benchmark currency basket, reducing exposure to the dollar. China wants to decouple from the Fed’s tightening cycle to make sure the yuan does not rise too much against the currencies of competitor nations.
SO the weighting of the big 3 USD, EUR, JPY are all down as is AUD and HKD smart move by the chinese to help stem the Trump arguement that the Chinese are manipulating there currency on the US and G7...
no trump tweet on that this morning.
Source: Goldman Sachs, @joshdigga
2. The above could mean further renminbi weakness against the dollar, which will put pressure on foreign reserves. Here is the offshore renminbi vs. the dollar hitting multi-year lows.
3. Short-term rates in China remain elevated and highly volatile – below is the 7-day repo rate. Economists believe Beijing is attempting to reduce speculative activity and leverage.
4. The renminbi funding market in Hong Kong has tightened further. This policy is meant to make it harder to short China’s currency. (with the Chinese Hibor Curve inverted it makes it much more expensive to short the Yuan as you are paying large funding points each day even when nothing happens.
5. China’s manufacturing output increased much faster than economists had been projecting. Note the comment on input prices.
Source: Markit, Caixin
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Asia1. Elsewhere in Asia, Singapore’s GDP growth shocked to the upside, with a 9% quarter-over-quarter growth, apparently due to improvements in manufacturing.
2. South Korea’s consumer sentiment fell to the lowest level in years in response to the President Park Geun-hye scandal.
3. Tokyo’s CPI, which comes out a month ahead the nation-wide numbers points to returning deflation in Japan. Most economists view this as temporary.
Currency traders have shifted into a net short yen exposure in response to the recent dollar rally.
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Emerging Markets1. Security concerns in Turkey are taking a toll on the nation’s currency which hit another record low. The 10yr bond yield remains above 11%.
Turkey’s manufacturing sector is in contraction mode as input price pressures intensify.
Source: Markit
2. Russia’s CPI is declining faster than expected. The central bank needs to resume its easing cycle as real rates hit new highs.
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