Better Than Average

November 18, 2024
6 min read

Better Than Average

  • • The U.S. economy is still tracking above long-run annual trend growth of 1.8%.
  • • BOJ Governor Ueda sticks to the bank’s cautious hawkish bias and shrugs-off yen weakness. Odds of a December BOJ rate hike unchanged around 50%.
  • • UK Rightmove national asking price drops in November. But housing market outlook remains encouraging.

Please see our Drivers for the Week Ahead for an in-depth look at what markets are facing this week.

USD is mixed just under last week’s fresh cyclical highs. U.S. equity futures point to a modest positive open after Friday’s stock market correction. The encouraging U.S. economic outlook in both absolute and relative to other major economies continue to support the fundamental USD uptrend. The U.S. economy is still tracking above long-run annual trend growth of 1.8%. For Q4, the Atlanta Fed GDPNow model estimates vgrowth at 2.5% SAAR while the New York Fed GDP nowcast model sees growth at 2.1% SAAR.

Today, the U.S. data highlights are the November New York Fed Services business activity index (1:30pm London) and NAHB housing market index (3:00pm London). The NAHB housing market index is expected to fall a point to 42, further indicating that residential investment remains a drag on Q4 growth. As a background, residential investment subtracted -0.2pts and -0.1pts from Q3 and Q2 GDP growth, respectively.

Meanwhile, the U.S. September TIC data will likely remain indicative of robust foreign demand for U.S. long-term securities (9:00pm London). In August, net foreign purchases of Treasury Bonds & notes, gov’t agency bonds, corporate bonds & stocks totaled over US$793bn which almost covered the cumulative U.S. trade deficit of US$832bn. The prospect for a lower U.S. corporate tax rate and a wave of deregulation under a Trump administration can boost foreign portfolio flows to the U.S. in favor of a stronger USD.

USD/JPY retraced some of Friday’s loss. Bank of Japan (BOJ) Governor Ueda reiterated the bank’s cautious hawkish bias. Ueda noted “I think that gradually adjusting the degree of accommodation in line with the improvement in economic activity and prices will support long-term economic growth and contribute to achieving the price stability target in a sustainable and stable manner.” Ueda added “the outlook being on track doesn’t mean rate hike every time”. Markets continue to price-in about 55% probability of a 25bps BOJ rate hike in December.

Ueda also shrugged-off recent yen weakness pointing out “we’re not seeing yen carry positions like those in July.” Indeed, speculators net short JPY futures position relative to open interest was around 25% last week vs. over 50% in early July.

GBP/USD is consolidating above technical support at 1.2600. UK Rightmove national asking price dropped -1.4% m/m vs. 0.3% in October to be up 1.2% y/y in November. According to Rightmove, lower prices reflect post-Budget disappointment. Nevertheless, the pick-up net mortgage approvals point to a continued recovery in housing market activity. Net mortgage approvals for house purchase rose from 62,600 in September, the highest level since August 2022 (72,000). BOE policy maker Greene speaks at a conference titled “The future of inflation” (6:30pm London).

EUR/USD is holding above technical support at 1.0500. There are no policy-relevant Eurozone economic data release today. A handful of ECB officials are scheduled to speak including Chief Economist Lane (1:00pm London) and President Lagarde (6:30pm London).

AUD/USD is trading heavy around 0.6460 on USD strength. AUD and Australian bonds ignored comments by RBA Assistant Governor Kent. In a speech titled “The Financial System and Monetary Policy in Australia” Kent concluded that “there is no evidence that monetary policy is stronger in Australia than in other advanced economies.” Kent also made some observations on the RBA’s use of forward guidance, noting “I think it would be worth reviewing the RBA’s approach to forward guidance from time to time.”

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