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Daily Shot: U.S. Economy Shows Gumption

Published 08/27/2015, 07:52 AM
Updated 07/09/2023, 06:31 AM

The US economy is showing signs of resilience. Here's the latest:

The US durable goods report was surprisingly strong.

Goods Chart

Scotiabank, Capital Economics, and others point out that CAPEX seems to be picking up momentum.
CAPEX picking up

Non-defense capital goods shipments

As expected, the Fed's William Dudley (who is highly influential on the Federal Open Market Committee) telegraphed to the markets that the recent market turmoil makes a September rate hike "less compelling." Of course, the Fed is just as concerned about falling inflation expectations, which have resulted in higher real rates (tighter effective monetary conditions).
5-year treasury inflation-indexed security

Futures now point to a just over a 50% chance of rate hike before year-end. A delayed rate hike should (in theory) limit the dollar's appreciation, which may be marginally helpful for the US economy.
30-Day Fed Funds

Signs of any "financial stress" in the US have been quite limited thus far.

Cleveland Financial Stress Index

The Eurozone is also not seeing signs of any material financial stress as interbank transaction volumes remain low. EONIA Volume

Housing in the US is expected to be accretive to GDP growth.

Residential Fixed Investment Contribution to Real GDP

GDPNow, the Atlanta Fed's US GDP tracker, still shows poor Q3 GDP growth relative to what sell-side economists have been predicting, but the indicator is improving.
GDPNow

Now lets look at some trends in the currency markets.

The euro had a quick pop on Dudley's dovish speech, but continued to decline on returning risk appetite. Yes, the euro is a "safe haven" currency these days.
EUR/USD Chart

The chart below shows the correction in the Australian dollar over the past few years - driven by the end of commodities super-cycle. Time for a bounce?
AUD/USD Chart

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In China, the impact of Peoples Bank of China's liquidity injections is finally becoming visible in lower money market rates (repo rates shown below). Lets see how much lower they will push this.

China repo rates

Turning to energy, US crude oil inventory fell more than expected last week, but remains highly elevated relative to historical levels for this time of the year.
US commercial crude oil stocks

US crude oil production still seems to be rising. It's hard to see how this is sustainable at current price levels, but some nimble firms continue to increase output.
US oil output still rising

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