Roach is a former Morgan Stanley Asia chairman and is now a senior fellow at Yale University.
- “The U.S. economy has been afflicted with some significant macro imbalances for a long time, namely a very low domestic savings rate and a chronic current account deficit”
- “The dollar is going to fall very, very sharply.”
Roach spoke in an interview with CNBC, called for a 35% fall in the dollar.
- “These problems are going from bad to worse as we blow out the fiscal deficit in the years ahead”
It’s almost June
Citi’s month-end rebalancing model flags a strong USD sell signal against EUR and GBP at this month-end
“Our Asset Rebalancing Model notes a rotation from equities into bonds at May month end. The signal is moderately strong coming in at -1.4/+1.3 historical standard deviations (hist. std. dev.) for equities and bonds respectively.
The FX impact notes selling of USD against EUR and GBP at month end,” Citi notes.
Typically, month-end FX re-balancing flows is felt most going into the 4pm London fix on the last trading day of the month.
Goldman Sachs’s chief equity strategist, David Kostin spoke Tuesday with CNBC
- “There’s a little bit of asymmetry in terms of the downside risk toward a level in the S&P 500 of around 2,000, which is down almost 25%, and upside of around 10% to a target at the end of the year of 3,000”
Unpicking/deciphering that – he thinks lower is more likely.
- important investors not get too keen to buy
- during the 2008 financial crisis the market took several months of violent moves up and down before ultimately putting in a lasting bottoming on March 9, 2009
- “I would just remind you that in 2008 in the fourth quarter there were many different rallies…but the market did not bottom until March of 2009”
Goldman Sachs were very close to the money indeed for jobless claims.
I posted yesterday:
- US Jobless claims data due Thursday – Goldman Sachs forecasts 5.25m
And then, prior to the data they boosted their forecast:
- Goldman Sachs raises US weekly initial jobless claims forecast to 6 million, from 5.25 million previously
Note that this NFP report is unlikely to be instructive, the survey was mainly before the big impact of the coronavirus outbreak on the economy. Over to GS’ comments:
- estimate for nonfarm payrolls is a decline of 180k in March
- unemployment rate up 0.3 to 3.8% … risks skewed towards a larger increase
- the March employment numbers are already fairly stale and insignificant in our view, because the April report will likely show job losses in the millions.
Thursday note from Bank of America / Merrill Lynch
- Project global growth for 2020 at 2.8%
- slowest since 2009
- Expect China to be weakest since 1990
- risks are still skewed to the downside
- Our forecasts do not include a global pandemic that would basically shut down economic activity in many major cities
And, just thinking out loud …. does the coronavirus mean the yield curve inversion was right all along?
The headline is the in summary version of a client note from UBS on the US dollar.
Its a detailed look at the US dollar trend, but adding to the to the headline points in brief.
When and how the dollar might turn is anyone’s guess
- longterm dollar trend … As of last month, it was still levying upward pressure … did not appear to be waning materially
- medium term trend … duration of 2-5 years … more or less mirrors intra business cycle growth surges and slowdowns
- shorter term one that averages about a year…. seems to relate to shocks caused by politics and supply disruptions to commodities … a modest dollar drag today … could reflect the … trade war coming home to roost and the drag on Chinese leading indicators passing, as fiscal stimulus from tax cuts and modest credit easing have begun to filter through
No summer hours here. Investors are bracing for a busy week as earnings season gets under way in America, in Europe parliament votes for a new president for the European Commission and on both sides of the Atlantic, investors face a deluge of economic data. Here’s what to watch in the coming days. US earnings Banks unofficially kick off second-quarter earnings season on Monday and investors will be tuning in to see whether corporate America is headed for its first earnings recession since 2016. Citigroup starts the earnings party on Monday and JPMorgan Chase, Goldman Sachs and Wells Fargo follow suit on Tuesday. Prospects of rate cuts by the Federal Reserve are unnerving investors that are watching to see if this could squeeze banks’ profit margins. My colleague Rob Armstrong has more in his excellent bank earnings curtain raiser. I
in all, nearly 60 companies in the S&P 500 are expected to report results including the big banks, Netflix, Microsoft, Schlumberger and Johnson & Johnson. US data Markets have largely pencilled in a cut by the Fed at its monetary policy meeting this month, though investors continue to debate how many cuts the central bank may push through this year and how deep the cuts will be. To get a better picture of the US economy and clues to Fed policymakers’ thinking, investors will closely parse a string of economic data for updates on consumer and industrial health. Americans are expected to have tightened their purse strings a little last month with headline retail sales expected to rise 0.2 per cent month-on-month, following a stronger 0.5 per cent increase in May. Control sales, which strip out volatile items like food, energy and building materials, are expected to rise 0.3 per cent. Investors will also tune into consumer sentiment data later in the week. Updates on the industrial sector come via regional manufacturing surveys as well as industrial production data, which is expected to show factory output cooled. The economic calendar also includes updates on the housing market. UK data
The economic calendar across the pond also promises to be busy with jobs data, inflation and retail sales on the docket. As markets consider the possibility of a rate cut by the Bank of England, “next week’s raft of UK data are likely to give ammunition to both sides of the argument,” noted economists at ING. While wages are expected to tick back up, they said “the high street isn’t feeling the benefit of this modest improvement in real wage growth”. However, they added: “With Brexit noise only likely to increase over the coming months, and a risk that trade tensions could worsen, we think the Bank of England will keep rates on hold for the rest of the year.”
EU Commission president On Tuesday the European Parliament votes on the next EU Commission president. Ursula von der Leyen has promised parliament a bigger say in Brussels’ decision-making as she seeks MEPs for the top post in Brussels for the next five years. “A successful vote will be largely ignored by markets, but a failure to garner enough support (which is still a possibility) could blow up the entire deal that the Council reached earlier this month, though we do think that Ms [Christine] Lagarde’s ECB nomination will be safe either way,” said strategists at TD Securities. South Africa rates On Thursday attention shifts to South Africa, where the reserve bank is widely expected to announce a 25 basis point cut to the repo rate, putting it at 6.5 per cent. Since the last SARB meeting in May, the monetary policy committee has undergone a massive transition. Strategists at TD Securities “think the message will be moderately dovish, suggesting potentially more easing,” and expect “slightly positive” reaction in the rand as they argue markets have “priced for more easing than we expect”.