Excel Currencies USD Weekly Forecast – 8th – 12th
The gyrations in US data have continued over the past week providing mixed signals about the current pace of growth. While some of the recent fluctuations have definitely been caused by the extreme weather situation on the east coast during February, there is little doubt that the pace of growth has slowed from the 5.9% q/q AR pace in Q4. That said, data generally indicate relatively robust growth rates of about 3% in Q1. ISM data were among the data offering mixed signals. The manufacturing ISM edged lower to 56.5 from its recent peak of 58.4 indicating some slowdown in the pace of manufacturing growth, but from robust levels. While the ISM manufacturing index may have peaked, we believe that the index will hover in the high 50s for the remainder of H1. Indeed our models continue to suggest a fair level around 60. The real positive surprise however, was the increase in the non-manufacturing index to 53.0 from 50.5, which indicates that the recovery is finally broadening to the service sector. While personal spending data for January was robust putting Q1 real consumption growth on track for 2.5%, vehicle sales for February drifted lower from an already depressed level. However, recent developments in compensation, unemployment, wealth and credit paint a somewhat brighter picture for US households and we are relatively confident that consumer spending will continue its moderate recovery. In housing the bad news continues to flow. This week the pending home sales report printed another sharp drop in existing home sales – now down more than 20% from the October level. We now see a risk of mild contraction in residential construction during H1 and are concerned about a new leg up in prices due to low demand and huge supply from foreclosed homes.
In January, retail sales increased 0.5% m/m in value terms, confirming the underlying upward trend at work since September. Although the Conference Board and University of Michigan household confidence indexes suggest that households have not really felt the effects of the recovery yet (milder job losses, buoyant rebound in equity markets over the past year), consumption nonetheless increased at a reasonable pace, up nearly 2% in real terms. In February, retail sales are likely to be less favourable than in previous months due to very harsh weather conditions. Snowstorms probably dissuaded households from making certain purchases that could be postponed easily. Unit sales of cars and light trucks also contracted 4% compared to January. Service station sales were probably affected by the decline in gasoline prices in February. All in all, it is very likely that retail sales declined in February (estimated at -0.7%, figure to be released on 12 March).US manufacturing ISM disappointed to the downside. It edged lower to 56.5 from its recent peak of 58.4 indicating some slowdown in the pace of manufacturing growth, but from robust levels. Elsewhere, focus will be on NFIB small business optimism for March and weekly claims data. A speech by New York Fed’s Dudley mid-week could prove interesting ahead of next the FOMC meeting on 16 March.
Since New Year commodities have experienced something of a rollercoaster ride, although oil prices are once again trading close to USD80 following the correction which occurred in late January and early February; the heating-oil crack spread has declined while that of gasoline has widened significantly. Generally, copper and aluminium have moved in opposite directions which in our view broadly reflects their relative fundamentals. Steel increased steadily in February as it became clear prices looked set for a cost-push shock due to rising iron-ore prices. Furthermore, nickel prices have surged despite an unfavourable stock situation. Finally, gold prices have increased slightly to record highs in euro and sterling terms despite trading well off their December 2009 USD peak.
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