Can't Stop Me Now

November 12, 2024
6 min read

Can't Stop Me Now

  • USD is up across the board and the fundamental uptrend is intact.
  • U.K. unemployment rate rose in September, but wage growth remained sticky. BOE anticipated to pause easing in December.
  • Australia consumer and business sentiment improve. RBA cash rate futures still imply a first 25bps cut in May 2025.

USD is up across the board and inflation-adjusted 10-year Treasury yields continue to grind higher. The fundamental USD uptrend is intact. First, the U.S. economy is in a sweet spot and outperforming other advanced economies. Second, the prospect for looser fiscal policy under a Trump administration and limited Fed easing room bode well for USD. Third, expectations for a lower U.S. corporate tax rate and a wave of deregulation should boost foreign portfolio and FDI flows to the U.S.

Today, the U.S. data highlights include: the October NFIB small business optimism index (11:00am London), NY Fed October inflation expectations (4:00pm London), and the Q3 Senior Loan Officer Opinion (SLOO) survey on bank lending practices (7:00pm London). In Q2, the SLOO survey showed the net shares of banks that reported having tightened lending standards were lower than in Q1 across almost all loan categories. We expect this trend to continue in Q3 as the September FOMC meeting noted that credit remained generally accessible to most corporate and consumer borrowers.

There is also plenty of Fed speakers today. Fed Governor Waller (3:00pm London), Richmond Fed President Barkin (voter) 3:15pm London), Minneapolis Fed President Kashkari (non-voter) (7:00pm London), Philadelphia Fed President Harker (non-voter) (10:00pm London).

GBP/USD broke below key support at its 200-day moving average (1.2819). The U.K. labor market eased further in September but remains relatively tight by historical standards. The unemployment rate rose more than expected to a four-month high at 4.3% (consensus: 4.1%, BOE Q3 projection: 4.2%) vs. 4.0% in August. Average private weekly earnings excluding bonuses fell to 4.8% y/y vs. 4.9% y/y in August. The earning print was higher than consensus (4.7% y/y) but in line with the BOE’s Q3 projection. Overall, sticky wage growth reinforces the BOE’s cautious easing guidance. Markets continue to place low odds (about 20%) of 25bps bank rate cut in December. BOE Chief Economist Huw Pill is up next (9:00am London).

EUR/USD plunged to its lowest level since April. Germany reports the November ZEW investor economic sentiment survey (10:00am London). The expectations index is projected to improve to 13.2 from 13.1 in October. Regardless, the German economy is the weak link in the Eurozone as the manufacturing sector remains firmly in contraction. German fiscal assistance is unlikely until a new government is in place early next year. As such, the ECB will likely have to do the heavy lifting to support the sluggish German growth outlook. The market is pricing-in almost 150bp of ECB policy rate cuts over next 12 months.

AUD/USD is down near 0.6550 on USD strength and lower iron ore prices. More optimistic Australia consumer and business sentiment failed to offer AUD support. The Westpac Melbourne Institute Consumer Sentiment Index rose 5.3% m/m to a 30-month high at 94.6 in November. Meanwhile, the NAB Business confidence index increased 7pts to a 20-month high at 5 and business conditions were unchanged at a five-month high of 7 in October. RBA cash rate futures still imply a first 25bps cut in May 2025.

USD/CNH surged to 7.2500, the highest since August 2, and China’s benchmark CSI 300 Index is down over 3%. China’s National Development and Reform Commission highlighted that “in the coming period, the domestic market in China will more clearly dominate the economy cycle.” It’s difficult to get excited with this encouraging statement because rebalancing China’s economy toward private consumption has been a key priority since 2004.

Yet, China's household consumption remains very low at 39% of GDP while investment accounts for over 40% of GDP. For comparison, the average share of household consumption to GDP ratio in OECD countries is 54%. The most straightforward way to boost private consumption in China is to reduce persistently high household savings rate which is over 30%. This requires fiscal expansion to increase and unify social safety nets (medical, unemployment, education) and a more progressive tax system.

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