Société Générale ask if the US economy is Goldilocks or Groundhog Day? And what it means for the buck.
- Employment growth 1.55%
- Unemployment 4.4%
- Wage growth 2.46%
- Weak productivity
- Weak real wage growth
.... leave the economy in an endless winter of mediocrity,
.... while solid employment growth without inflation is the 'not to cold, not too warm' mix that keeps the 'fed normalising policy ever so slowly, equity indices marching ever higher and the economic cycle able to trundle on with no recession in sight.
The combination leaves the dollar somewhat soggy ...
SG go on:
- There's not enough inflation threat, or enough zip in the economy, to make me think yields can march higher without interruption but I would be more relaxed if the CFTC data hinted at a massive great speculative short in 10year Notes, rather than pointing to a reduced long.
- At current levels, Treasury yields still aren't undermining global risk sentiment and so they are undermining the yen.
- USD/JPY continues to track yield differentials well enough and last week's BOJ bond-buying has done the trick in getting USD/JPY over 114 and EUR/JPY above 130.
- If we get US yields back to their December highs and JGBs stay at these levels, USD/JPY has a chance of getting back to 120. It's a fine balance though, with sources of risk-aversion including tension on the Korean peninsula, Japanese PM Abe's weal poll scoring and an oil market that remains nervous.
And, finally, SG on what to watch this week:
- The key events in the US are Janet Yellen's semi-annual testimony on Wednesday and Friday's deluge of data: CPI, IP, retail sales and U-Mich.
