UBS with an interesting item, especially in the wake now of Trump's comments on wanting a stronger dollar
From a client note, in brief:
Under the radar, US net external liabilities are ballooning
- US net external indebtedness has sharply increased to multiyear highs
- US NIIP also stands out relative to the rest of the world
UBS cite 3 reasons
- sharp rise in the USD since 201
- strong outperformance of US equities vs the rest of the world
- current account is still too large to sustain in a world of slower nominal income growth
And say:
- This implies the USD is still expensive
- We estimate an additional 6-10% dollar depreciation would help stabilize the US (NIIP) in the medium term
UBS say thus on the USD:
- US curve continues to flatten in tandem with the weaker dollar. This relationship is unlikely to break, in our view, as long as the Fed continues to hike towards a fairly well pinned down terminal rate by markets. Thus, we believe more dollar weakness is likely in store
- EUR/USD is now closer to fair value, but we see room for some more upside, and we remain bullish
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Note: NIIP is Net International Investment Position in case you are wondering
