2016/02/05 TrendView VIDEO: Foreign Exchange (weekend)
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TrendView VIDEO ANALYSIS & OUTLOOK: Friday, February 5, 2016 (weekend)
Global View: Foreign Exchange
While not quite as wild and wooly as the equities previous, foreign exchange has had its own very aggressive movements of late. And it is more than just select individual currencies, as the serial psychological shifts affected various currencies across the course of the past several weeks; and especially last week. While the other developed economy and emerging currencies had swirled around each other previous, the impact of the Fed’s ‘normalcy bias’ (see our December 16th afternoon post on that) finally came home to weigh heavily on the US Dollar Index from the middle of last week. There is more on that below and in the video discussion. Suffice to say for now that one of our favorite (even if not very short-term trend influential) indications is back on Monday morning:
The next set of Organization for Economic Cooperation and Development (OECD) Composite Leading Indicators (CLI.) As we have noted previous, the titles of monthly updates attempt to be upbeat no matter what the actual data may show. Yet even a cursory review of the actual graphs of the future economic indications in January’s OECD CLI release shows real weakness. The US is clearly in a cyclical downturn since as far back as late 2014, and weakening further at present. The same is true for the UK along with Japan. Of course China is still weak, and commodity economies like Canada and Russia are commensurately still suffering, even if India and Brazil might be bottoming.
While the Euro-zone seems to be recovering, that is not of much comfort for two reasons. The Euro-zone is starting from a very low base on both economic growth and inflation, and the recent data has not been very inspiring. And in any event, we have the same question as previous on that: With so many other major economies weakening, are we really going to rely upon Europe to lead the way higher?
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Video Timeline: It begins with little on the macro (i.e. fundamental influences) other than to mention the return to weaker data overall that was highlighted by the Bank of England holding the base rate steady at the 0.50% all-time low Thursday and the Fed’s Dudley finally questioning whether the Fed is right to be raising rates at this time. The rest will be covered in the Special Weekend TrendView video on equities and fixed income.
It moves on to the US DOLLAR INDEX at 02:00, EUR/USD at 06:15, GBP/USD at 10:45, AUD/USD at 13:45 and USD/JPY at 16:00 followed by the very active CROSS RATES at 20:15 to prior returning to the US DOLLAR INDEX at 24:45 to complete the full review.
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Authorized Gold and Platinum Subscribers click ‘Read more…’ (below) to access the balance of the opening discussion and TrendView Video Analysis and General Update. Silver and Sterling Subscribers click ‘Read more…’ (below) to access the balance of the opening discussion.
NOTE: Back on the evening of December 8th we posted our major Extended Perspective Commentary. That reviews a broad array of factors to consider Will 2016 be 2007 Redux? For many who believe that the US economy is really strengthening and can once again lead the rest of the world to more extensive recoveries, this may seem a bit odd.
Yet there are combined factors from many areas we have been focused on since the early part of last year which are less than constructive for the global economy and equity markets. We suggest a read if you have not done so already.
We pointed out in December that in the face of another likely Santa Claus Rally this was not an actionable view during the year-end equities rally. Yet it was (and remains) important background to utilize into 2016. This is much like our major late 2006 perspective on Smooth Rebalancing? …or… The Crash of ‘07? (even though the actual crash was deferred into 2008.)
▪ And of course, that was merely the latest set of atypically downbeat indications from the OECD. As the monthly CLI titles imply, OECD would rather always take a ‘glass is half full’ view of the global economy; at least in between the recent far more negative semiannual Economic Outlook analysis and presentations. The headline for that January release (November’s indications with the typical two month delay) was “Composite leading indicators continue to point to stable growth momentum in the OECD area.”
As noted above, the reality was much weaker than that. Any literal headline change to a less upbeat view from its typical ‘glass is half full’ view of the global economy would speak volumes about the OECD actually being worried that more extensive weakness could be setting in. We will need to see what we get on Monday morning.
▪ We focused on that in this post because it has implications for the relative performance of the foreign exchange markets as well. All the rest is the same as noted in the Special Weekend TrendView video post on equities and fixed income. That includes some further discussion of the Fed’s ‘normalcy bias’ we have cited as a pernicious factor for the US economy since even before our December 16th post right after that major meeting that saw the first rate hike in almost a decade, revised projections and Janet Yellen’s press conference. We suggest a read of that for further current background.
The TrendView VIDEO ANALYSIS & OUTLOOK is accessible below.
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