A recent piece by Ellyn Terry, an economist at the Atlanta Fed, provides important evidence and information on the drivers of the decline in the US labour force participation rate. The interesting aspect of this small study is that it breaks down the drivers on age groups which allows us to get a much closer look at the recent trends in the US labour force participation rate
UK inflation last week came back to the BoE’s target for the first time since 2009. This should most certainly be a boon for consumers whose average real incomes have been negative for several years. However, our UK Future Inflation…
Investors welcomed the vow made last year by the new Chinese government to reform the economy through a clamp-down on shadow banking and excess liquidity as well as to commit to a strategy of re-balancing the economy. Still, it seems difficult for China to break out of its old ways. Data released this week consequently shows FX reserve growth in China surging towards the end of last year.
In October we wrote a report highlighting the bubble in Canadian housing and told clients that the currency in particular was under threat. A large current account deficit and the creeping expectations that the BoC might actually be forced into lowering rates have been key factors for a weaker currency.
The last seven months have seen an impressive improvement in US manufacturing. Almost all components of US manufacturing have been growing strongly and the US ISM has staged an impressive comeback from sub-50 in May last year to 57 in December. However, our growth diffusion index now implies the potential for short-term disappointment.
A nice series of articles from Bloomberg news alerts us to the fact that the Fed is anything but united when it comes to QE. There is consequently ongoing confusion, disagreement and general apprehension surrounding whether and how the Fed is supposed to end QE . Quite simply; the powers that be do not see eye to eye on this one and this is slightly worrying (if completely understandable).
Yesterday’s FOMC saw the first tapering of bond purchases by the Fed, by $10 billion per month. To soothe markets, the Fed also reinforced its forward guidance, making it “stronger and longer”, by a promise to leave the Federal Funds rate close to the zero bound “well past the time that the unemployment rate declines below 6.5%”.
One of the points we have emphasized to clients in the past two months is that many of our indicators suggest that long rates in the US may not rise as aggressively as the consensus expects. In other words, the Fed might stay more dovish than the market expects and tapering, should it occur, is already priced in.
Nothing comes for free and with the eurozone periphery deflating its way to a currency account surplus the aggregate external balance of the euro area has increased to its highest level ever at more than 2% of GDP. Coupled with tighter liquidity (less euros sloshing around), improved sentiment and repatriation ahead of AQR the EUR has seen strong support this year.