Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Trump Stocks and Crypto Mania 2025 Incoming as Bitcoin Breaks Above $100k - 8th Dec 24
Gold Price Multiple Confirmations - Are You Ready? - 8th Dec 24
Gold Price Monster Upleg Lives - 8th Dec 24
Stock & Crypto Markets Going into December 2024 - 2nd Dec 24
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Forget Decoupling - The Fed will NOT Raise Interest Rates this Year

Interest-Rates / US Interest Rates Sep 01, 2015 - 06:47 PM GMT

By: Ashraf_Laidi

Interest-Rates

USD under renewed pressure from a combination of renewed China data disappointment, weak US manufacturing ISM and lingering chatter of a September Fed hike. US stock futures began selling off 6 hours before the release of China's manufacturing PMI, which showed the first contraction in six months and the lowest figure in three years. The largely-weaker than expected manufacturing ISM (lowest in 27 months) was accompanied by broader weakness in all components.


German Minus US 10-Year Yield Spread

We reiterate since December that the Fed will NOT raise rates this year and any rate hike this year will be policy mistake.

The disinflationary impact of USD strength and inevitable depreciation of the Chinese yuan will continue to supress US inflation to the extent of shadowing declines in US jobless rate. Saudi Arabia, a key strategic partner of the US is already suffering from the combination of plunging oil prices, rising budget deficit and having its currency-riyal-tied to a strong USD. Not dissimilar from China FX situation.

We reiterate that the cyclical peak of the US dollar against both the yen and euro is already behind us. USDJPY will not return to the 125.00 yen highs and EURUSD will not return to the $1.0530 lows seen earlier this year.

US Manufacturing ISM

No Decoupling again

In 2007, it was erroneously & widely predicted by pundits that emerging markets would decouple from G7 and escape the 2008-9 recession. Although BRICS recovered rapidly in 2010-2011, their decline in tandem with US, UK & Eurozone was notable in 2008-9.

Today, the decoupling idea is being peddled again, based on US diverging away from China & EM. This will prove wrong again as the combination of trade and capital flows is stronger than ever.

EURUSD: more than just unwinding

While the recent stabilisation in EURUSD has been widely attributed to unwinding of euro shorts linked to escalating risk aversion, don't forget old fashioned fundamentals. The spread on German-US 10-year yields (Germany minus US) continues to improve in tandem with a stabilizing EURUSD rate. The chart below highlights the improving yield spread in favour of the euro, while US core PCE price index (Fed's target) diverges away from the 2.0% target as Eurozone core CPI holds steady at 1.0% --13-month highs.

Draghi is back

We expect ECB president Draghi to re-emphasize his dovish stance in Thursday's press conference, subjecting euro to some pressure, especially if the governing council lowers its growth and CPI projections. Any pullback in EURUSD will be assessed ahead of Friday's release of the US August jobs report, expected at 205K from 210K. But take note that out of the last 15 releases of August NFP reports (due on September), 11 reports had negative surprises. And each of the last four August reports have undershot forecasts.

For more frequent FX & Commodity calls & analysis, follow me on Twitter Twitter.com/alaidi

By Ashraf Laidi
AshrafLaidi.com

Ashraf Laidi CEO of Intermarket Strategy and is the author of "Currency Trading and Intermarket Analysis: How to Profit from the Shifting Currents in Global Markets" Wiley Trading.

This publication is intended to be used for information purposes only and does not constitute investment advice.

Copyright © 2015 Ashraf Laidi

Ashraf Laidi Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in