FXstreet.com

Research US

This report has been deactivated

6

0

Job recovery ahead

Thu, Sep 10 2009, 10:30 GMT
by Peter Possing Andersen, Signe Roed-Frederiksen, Allan von Mehren

Danske Bank A/S


  • Focus on job market data is set to intensify in the coming months, with job growth being a key factor for the sustainability of the current recovery. A repeat of the jobless recoveries in 1991 and 2002 would be a serious blow to outlook. However, for several reasons we believe this is less likely to happen.
  • First, the current recovery will see sufficiently strong growth during the initial three to four quarters to kick-start the labour market. In fact the very weak recoveries in 1991 and 2002 were the main factor behind the lack of job creation.
  • Second, the economy and in particular businesses saw renewed (in some instances intensifying) headwinds during the 1991 and 2002 recoveries. So far this is not the case. Although businesses remain under pressure, most headwinds have eased rather than intensified.
  • Third, because of the extreme pressure on the corporate sector during this crisis businesses are leaner now compared with exits from the 1991 and 2001 recession. In the two previous recessions labour hoarding and a subsequent rise in productivity explains some of the weakness in job growth. While a further strong rise in productivity this time cannot be ruled out, the moderate investment growth prior to this crisis does not support this.
  • Finally, hours worked have not declined more than usual in this downturn. Hours will go up as activity rises but it is not likely to fully crowd out jobs.
  • In absence of new unexpected headwinds job growth is likely to return by year-end and to reach the 200,000-250,000 range by the middle of next year, with the unemployment rate peaking in Q1 at 10.1%.
  • This would be a positive surprise and a very important signal for further risk-taking in the market. This should also pave the way for the next leg up in bond yields and increase market speculations about Fed tightening.

Strong growth to kick-start the job market

While the initial recovery phase, driven by recoil in the manufacturing and residential construction sectors, has sufficient steam to drive the economy for the coming two to three quarters, it is very obvious that a recovery in final demand – in particular private consumption – will eventually be needed for a sustained recovery to materialise. Hence, job growth is needed to return rather sooner than later. If job growth does not reach close to 200,000 per month by the middle of next year there is an increased risk that the recovery will fizzle out. This is exactly what the markets have begun worrying about.

With the outlook for around 4% growth in the current and coming two quarters, our main expectation is that job growth will return by late this year. Moreover we believe it is likely that pass-through from growth to jobs will be more normal in the current recovery, than following the past two recessions (see the following sections). Hence we forecast job growth to reach about 200,000-250,000 people/month by mid-2010.

Indeed this would be sufficient to take nominal aggregate compensation growth back to around 3% by the middle of next year, which in turn should make room for consumption growth to reach about 2% given relatively subdued inflation and some slight accommodation in the savings rate. This should provide the green light for further risk-taking, add renewed upward pressure on bond yields, and increase speculation about monetary normalisation.

Alternatively, if job growth is not able to keep up with the business cycle, as in the past two recessions, it spells problems. In that case the unemployment rate will continue to climb and job growth will be too weak to secure sufficient nominal income growth for consumption to return to a pace, which is consistent with a sustained recovery. That would be bad news for risk taking and put central banks on hold for longer.

The roadmap below depicts different scenarios for the economy and the job market based on: a) A normal pass-through from GDP to jobs; and b) A “jobless” pass-through as seen during the jobless recoveries in 1991 and 2002 where job annualised growth was about 1-1½% lower than what should be expected given the level of GDP growth. The scenarios are based on a model, which estimates non-farm payrolls on current and lagged GDP growth and the underlying trend in labour productivity.

Published on  Thu, Sep 10 2009, 10:30 GMT

6

0

US: Gauging the potential from a turn in housing

Fri, Aug 28 2009, 09:30 GMT
by Peter Possing Andersen, Signe Roed-Frederiksen

Danske Bank A/S


    • Along with the US economy moving out of recession, signs of stabilisation in the housing market have emerged. The correction in housing activity over the past three years has taken both construction activity and home sales substantially below any long-term sustainable level. We believe that a turnaround in sales and residential construction is on the cards for H2 this year and home prices are likely to follow.
    • Housing fundamentals have turned considerably more positive over recent months. Affordability is close to an all-time high, construction as a percent of GDP is at its lowest level since WWII and the inventory of new homes for sale has dropped below its long-run average. Given our expectation that job growth will be back in the black by year-end, the backdrop is thus in place for a rebound in housing.
    • We expect home sales to recover back to the underlying trend over the coming six to eight quarters, and residential construction to turn from a considerable headwind to a modest tailwind. Prices are in the process of bottoming and we look for positive growth in 2010. Unless home sales turn out stronger than we anticipate, we don’t envisage much of an increase in house prices in 2009 though.
    • Lagged effects from the plunge in household net wealth caused by declining home prices will continue to weigh on consumers through 2010, but at a diminishing rate. This leaves the overall contribution to growth from housing at 0.2-0.3pp AR in each of the coming six quarters compared to an average drag of 1.5pp over the past three.

    Don't disregard a turn in housing

    The burst of the housing bubble and the subsequent plunge in home sales and residential construction has had severe consequences for the US economy. Households have seen the value of their housing assets shrink by more than USD 4000bn since the peak in late 2006. This in turn has fuelled major losses in the financial sector and a ramp-up in the household savings rate. On top of this, residential construction, which at the peak accounted for 6.3% of GDP, has shrunk to a mere 2.4% of GDP in Q2 2009, subtracting on average 1% AR each quarter from GDP growth over the past three years. A turnaround in housing activity and prices will thus remove a significant drag on the economy and a major factor of uncertainty for both the financial sector and US households.

    While housing cycles are generally long, the current downturn has been unusually protracted. The boom in the housing market resulted in a relatively large overshooting in investment, home sales and prices, but over the past quarters, this overshooting has reversed into a general undershooting. A turnaround in the housing market is thus on the cards, and once the rebound materialises it has the potential to be hefty.

    Indeed, the latest housing market data has been encouraging. New home sales have risen 30% from the bottom in March this year, existing home sales are up 4% and the latest Senior Loan Officer Survey showed an increase in demand for prime mortgages for the second quarter in a row. Furthermore, the two major home price indexes that we track, the S&P/Case-Shiller national and the FHFA purchase only, have shown sequential increases in June.

    Published on  Fri, Aug 28 2009, 09:30 GMT

    2

    0

    US: Auto sector to boost H2 growth

    Mon, Aug 3 2009, 09:46 GMT
    by Peter Possing Andersen, Signe Roed-Frederiksen

    Danske Bank A/S


    • Since the onset of the recession in late 2007, US auto and light truck sales have plummeted to historical lows. However, going into H2 09, there are several good reasons to believe that motor vehicle production could be one of the main drivers of GDP growth.
    • Demand for vehicles is set to recover in H2 09 – perhaps strongly. Pent-up demand could be unleashed very quickly as the government’s CARS incentive programme is now kicking in. On top of this, healing credit markets and tax breaks should support spending power.
    • The inventory cycle dynamics are strong in this part of the economy. Just to stabilise motor vehicle inventories at the current very low level of demand, production needs to be ramped up 20-25%.
    • Inventory dynamics in the car sector alone could contribute about 0.75-1.00pp to annualised GDP growth in H2 09 while increased demand could add a further 1.0-1.5pp. In that case, the auto sector will turn a 0.50pp headwind into a 2.00- 2.25pp tailwind to GDP in H2 09, i.e. a net boost of 2.50-2.75pp.
    • There is a chance that most of the boost will be delivered in Q3. Hence, the auto sector plays an important role in our expectation that the US economy will return to 3% growth rates already in the current quarter.

    Published on  Mon, Aug 3 2009, 09:46 GMT

    10

    0

    US: A united rescue effort, but short on detail

    Wed, Feb 11 2009, 10:13 GMT
    by Peter Possing Andersen, Signe Roed-Frederiksen

    Danske Bank A/S


    • Bank losses and write-downs continue to mount and with unemployment on the rise, loan losses are likely to increase further. The IMF has estimated that total losses in the banking system could amount to USD2,200bn, implying that only half of the forecast losses have surfaced so far. While losses in themselves are hampering the banks' capital cushion, uncertainty regarding the size and distribution of such losses works as a roadblock to the normal functioning of credit markets. Government intervention should therefore be aimed not only at recapitalizing the banks but also at removing uncertainty from banks' balance sheets.

    • The Financial Stability Plan (FSP) announced by US Treasury Secretary, Timothy Geithner on 10 February addresses these issues by setting up a USD500bn Private-Public Investment Fund, which should catalyze private sector investments in distressed assets, combined with a Financial Stability Trust, which will receive convertible preferred shares from banks that receive new capital injections. However, the measures will take time to implement as the banking system will first have to undergo thorough stress tests to assess the health of individual banks. In addition, the terms on which new capital injections are made will be stricter than under the TARP.

    • Furthermore, the plan includes an expansion of the Fed's TALF program to revive consumer credit. The program has been expanded to include commercial mortgage-backed securities, private label residential mortgage-backed securities and other asset-backed securities. The size of the program could be increased from the current USD200bn to as much as USD1,000bn.

    • So far, the plan is short on detail, especially on the Private-Public Investment Fund, and it remains to be seen whether the announced measures will be enough to restore confidence and lending in the banking system. So far equity markets have been doubtful about the plan, with financials knocked back to last week's levels. In our view, the main drawback of the plan is that, apart from the expansion of the TALF, it will take time to implement. However, once it is effectuated, it could remove a great deal of uncertainty about the health of individual banks.

    Published on  Wed, Feb 11 2009, 10:13 GMT

    9

    0

    US: How much bang for the Obama buck?

    Wed, Jan 28 2009, 09:18 GMT
    by Peter Possing Andersen, Signe Roed-Frederiksen

    Danske Bank A/S


    • The US economy is currently in one of the deepest economic recessions since WWII, and a self-reinforcing contraction in employment and consumption makes policy action crucial. The Federal Re-serve has already taken unprecedented steps to unlock the credit markets; further credit easing measures are likely to be implemented as credit markets are still a long way from normal functioning. However, monetary policy is weakened by the breakdown of the monetary transmission mechanism. This leaves fiscal policy with a greater role in getting the US economy back on track.

    • President Obama's administration has put forward a substantial recovery package amounting to USD 825bn so far, or approximately 6% of GDP. The package consists of tax relief for households and businesses combined with government spending on investments and state fiscal relief. We estimate that such a package would have a significant effect on growth and could boost GDP growth by ap-proximately 0.7%-point in 2009 and 1.0%-point in 2010. Even with a fiscal boost of this size, we do not expect the US economy to move above trend growth before Q1 2010.

    • The cost of the recovery package adds to the already surging budget deficit, which we expect to reach 9% of GDP in FY 2009 and 6% in FY 2010. The flipside of the deficit is a flood of new supply of Treas-ury securities in 2009. We estimate that the combined borrowing needs from the underlying budget deficit, buying of TARP related assets, GSE funding and the Treasury's MBS purchase programme amounts to USD 2.0trn in FY 2009. While the surge in supply will put a floor under Treasury yields, we continue to see the main risk for a renewed surge in bond yields to be a surprise rebound in activity indicators.

    Published on  Wed, Jan 28 2009, 09:18 GMT

    11

    0

    US: Manufacturing recovery ahead

    Fri, Jan 23 2009, 08:36 GMT
    by Peter Possing Andersen, Signe Roed-Frederiksen

    Danske Bank A/S


    • Since late summer last year US, and global manufacturing activity has entered a severe contraction due to a combined shock from the credit crunch and a collapse in demand growth. Most business indicators - including the US ISM index - are on levels only seen in the deepest post-WWII recessions.

    • However, much of the adjustment in the US manufacturing industry has already taken place. First, prior to the recession the US manufacturing industry ran very lean inventories. Second, the liquidity squeeze from the credit crisis has led to an unusually fast alignment of production to demand fundamentals. Consequently, the pace of production is now undershooting the slowdown in demand. Hence, it will merely take stabilisation in demand growth to spark an industrial recovery.

    • If credit spreads do not resume widening we believe that the US ISM index will see imminent stabilisation and a subsequent recovery over the coming three to six months. We expect the index to reach 42- 44 by June, which would be consistent with zero GDP growth. If monetary and fiscal policy gets traction further recovery is on the cards for H2.

    • A recovery in the ISM index will be the first sign of improvement in several other indicators. Aside from the obvious correlation with manufacturing production, the ISM usually correlates closely with leading indicators, trade, jobless claims and capital goods orders. Hence, we expect that improvement in these indicators over the coming quarters will support a general improvement in sentiment.

    • In financial markets this will be a very important event. A recovery in the ISM index usually adds upward pressure to long US bond yields and to the steepness of the money market curve. Moreover, a pick-up in the ISM index will be a signal of a future stabilisation in corporate earnings.

    Published on  Fri, Jan 23 2009, 08:36 GMT

    9

    0

    USA: Housing adjustment has further to go

    Mon, Nov 10 2008, 10:22 GMT
    by Peter Possing Andersen, Signe Roed-Frederiksen

    Danske Bank A/S


    • Residential construction has dropped from 6.3% of nominal GDP at the peak of the construction cycle to 3.3% in Q3 08, which is close to the levels that have marked the bottom in previous housing downturns. At the current depressed level of housing starts, demand for new homes is outpacing supply. Consequently, the inventory of new homes for sale is declining rapidly, which we think is sowing the seeds for a gradual recovery in residential construction from Q2 09.

    • Home affordability has improved as house prices have declined and, compared to fundamentals, we are approaching fair levels. However, evidence from previous downturns shows that house prices usually undershoot fundamentals for a period following a boom. In addition, we expect fundamentals to turn more unfavourable in 2009, as unemployment increases and income growth slows.

    • An important factor to keep in mind is the impact from the escalation in the credit crisis. The usual measures of house price fundamentals do not capture the current credit crunch, which is likely to prolong the period of adjustment. Consequently, we do not expect house prices to stabilise before Q1 10.

    • We expect the net effect of housing on GDP growth to remain negative throughout 2009, although the drag is likely to become gradually smaller. The bulk of the impact on GDP growth from lower house prices is yet to be seen, while the contribution from construction is set to turn positive by Q2 09.

    Published on  Mon, Nov 10 2008, 10:22 GMT

    14

    2

    US: Falling down

    Fri, Nov 7 2008, 14:01 GMT
    by Peter Possing Andersen, Signe Roed-Frederiksen

    Danske Bank A/S


    • Consumer spending has seen the worst performance since the 1992 recession with a contraction of 3.1% q/q AR in Q3. Recent data suggest that the Q4 performance could be even worse, and that a stabilisation is not within reach before next year. Hence, GDP for 2009 is now tracking somewhat below our standing forecast of 0.0%.

    • Although falling energy prices are delivering a 'super boost' to consumption in Q4 and Q1, consumers are currently facing significant headwinds due to unusually tough financial conditions and negative labour market dynamics. On top of this, recessionary dynamics seem to have become selfperpetuating.

    • Unfortunately, the energy boost will deliver only a one-off effect for Q4 and Q1, while financial conditions will act as a brake for much longer. Moreover, the labour market will take quite a long time to recover. Hence, consumers face an uphill battle and the outlook is for a very slow recovery and below trend growth throughout 2009.

    • The risks to our forecasts are larger than usual, as the combination and force of the shocks facing US households are quite extreme. Importantly, though, risks are not only skewed to the downside. A second round of fiscal stimulus (expected to be in the range of USD 100–300bn) looks increasingly likely early next year, providing some potential upside risk.

    Published on  Fri, Nov 7 2008, 14:01 GMT

    35

    0

    US: Presidential election 2008

    Mon, Nov 3 2008, 10:22 GMT
    by Peter Possing Andersen, Signe Roed-Frederiksen, Danske Research Team

    Danske Bank A/S


    • Tuesday, November 4 is US Election Day. The presidency, one third of the seats in the Senate and the entire House of Representative are up for the vote.
    • Barack Obama has been ahead of John McCain for most of the campaign, and has recently seen his lead increase. Recent polls suggest a landslide victory to the Democrats is within reach. We take a look at the political environment facing each of the candidates.
    • Regardless of who takes over the Oval Office in January, the new president will face enormous chal-lenges, with the US economy in its worst condition for decades and a financial system in chaos. We take a look at the major differences between the two candidates on macroeconomic issues.
    • Wall Street clearly points to Obama as the president it has the greater faith in, reflecting a desire for a new start that can re-establish the consumer and investor trust that is essential for the economy and the financial markets to function. What impact will the election have on equity markets and sectors?

    Caution! Risk of landslide ahead

    Do not forget the election On Tuesday, November 4, US voters will head for the ballot box to vote for the next president of the USA, who will be sworn in on January 20, 2009.

    So far, the election has not attracted that much attention in the markets due to the financial crisis. However, the election to the most prominent public office in the Western World is the main event of the week. Americans will have to choose be-tween Arizona senator John McCain (R) and Barack Obama (D) – senator for Illinois.

    The election comes at a critical time for the US and for Wall Street – a time when the world‟s lead-ing economy is on its knees due to a credit crisis that is rapidly becoming the greatest economic challenge for the US since the Second World War.

    Policy differences between Barack Obama and John McCain are likely to prove important for fu-ture responses to the current financial and economic crisis.

    Published on  Mon, Nov 3 2008, 10:22 GMT

    0

    0

    US: Financial crisis tipping US into recession

    Fri, Oct 10 2008, 15:20 GMT
    by Peter Possing Andersen, Signe Roed-Frederiksen

    Danske Bank A/S


    • • The deterioration in financial conditions in recent weeks has been faster and more severe than we had envisioned. Our downside risk scenario for the US economy is now materialising and we have revised our macroeconomic and monetary policy outlook as a result. We now expect the US economy to enter into recession in the coming quarters and do not expect growth to reach trend before 2010.

    • • With both consumer and business credit drying up, domestic demand will face serious headwinds in the coming quarters. We expect a significant contraction in both private consumption and business investment. While the drop in commodity prices will cushion the blow to households it is not enough to offset a recession as falling equity prices put further downward pressure on consumption growth.

    • • The Federal Reserve has restarted its easing cycle, and we expect a further 25bp cut at the meetings in October and December, taking the fed funds rate to 1% by year-end. Further policy measures aimed at unfreezing the money and credit markets are also in the pipeline.

    Published on  Fri, Oct 10 2008, 15:20 GMT

    2

    0

    CP market and money markets gridlocked

    Tue, Oct 7 2008, 13:30 GMT
    by Danske Research Team

    Danske Bank A/S


    • • Following the passing of the USD 700bn bailout package, the key problem in the financial crisis remains the deadlocked money markets. In this paper we look at the problems in the commercial paper (CP) market and the implications for money markets.

    • • The combination of increased fear and uncertainty about bank survival, combined with the drying up of funding via the CP market, has created massive problems in dollar money markets.

    • • The Fed announced its latest initiatives to combat the money market problems today. Further initiatives will probably be needed. We would not be surprised to see the US authorities targeting the problems in the CP market going forward.

    Published on  Tue, Oct 7 2008, 13:30 GMT

    0

    0

    The financial crisis − what's next?

    Tue, Sep 16 2008, 12:17 GMT
    by Danske Research Team

    Danske Bank A/S


    • • The financial crisis has reached yet another high watermark with Lehman Brothers filing for chapter 11. In this paper we point to the key takeaways of the recent events and look at where the risks lie going forward. We also sum up our views on key financial markets. 

    • • Event risk is now high on the agenda again. With Lehman Brothers filing for chapter 11, it is clear to the market that the US authorities have drawn a line in the sand - no more bail-outs! The implication is that more large banks can go bust if they are not able to provide the necessary capital to compensate for losses. It is now in the hands of other banks to help their ailing peers to raise the necessary capital. 

    • • It was not all bad news over the weekend. The fact that Merrill Lynch was able to find a buyer proves that it is still possible to raise capital - as long as there is positive net worth in the company. The problem for Lehman was that it became insolvent and no one saw value in buying the company.

    • • In the short term, all focus will be on whether AIG will survive or have to file for bankruptcy. Other drivers will be earnings reports from Goldman Sachs (due September 16) and Morgan Stanley (due September 17), the ability of other troubled companies to raise capital, and developments in the CDS market where contracts on Lehman Brothers now need to be settled.

    • • We expect the crisis to continue to evolve with high volatility in all markets. Central banks could again come into play. Potential cuts from the Fed and Bank of England are back on the agenda and pressure will mount on the ECB to join in supporting the ailing world economy. Especially as lower oil prices should reduce inflation concerns.

    Published on  Tue, Sep 16 2008, 12:17 GMT

    0

    0

    Fannie and Freddie rescue, version 2.0

    Mon, Sep 8 2008, 08:09 GMT
    by Peter Possing Andersen

    Danske Bank A/S


     
    •  On Sunday, 7 September, the US Treasury announced further steps to overcome the problems with the two large mortgage lenders, Fannie Mae and Freddie Mac. The Government is effectively taking over control of the two agencies under so-called conservatorship of the Federal Housing and Finance Administration.
    • The Treasury.s plan also includes securing the solvency of the agencies through injecting capital by issued senior preferred equity shares, securing the liquidity of the agencies and the Federal Home Loan bank by introducing a new credit facility, and finally securing the liquidity of the market by issuing a temporary programme to buy GSE MBS.
    • The plan is expected to trigger relief in the market in the next few days; the pattern set by the 13 July statement suggests we should see some return of risk appetite. We have already seen strong equity performance in Asian markets and a sharp rise in US bond yields. Also expect a tighter US agency spread, and tighter swap spreads.
    • Whether the Treasury.s move is sufficient to more lastingly break the negative dynamics in the finan-cial markets remains to be seen. This is the boldest move so far in the crisis and makes it clear that the US Government is willing to go to great lengths to prevent systemic risks from evolving too far. However, plenty of troubles are still out there and with US house prices still falling, it is too early to make any firm conclusions on the lasting impact of this intervention. The growth outlook for the rest of the year is still very shaky and we expect bond yields to revert lower again when the dust settles from the relief in the markets.
    • Given the scope of the Treasury.s actions, we think the plan will be able to bring mortgage rates lower. This would be a key achievement in ultimately promoting some stabilisation in the housing market.

    Published on  Mon, Sep 8 2008, 08:09 GMT

    0

    0

    US: Monetary Policy and Liquidity Effects

    Fri, Aug 8 2008, 08:08 GMT
    by Peter Possing Andersen

    Danske Bank A/S


      • • From boardroom decisions to market transactions… Are you aware of how the Federal Reserve implements target rate decisions in the open market? We present a primer on the traditional US monetary policy instruments and explain their practical implementations. 

      • • TAF, TOP, TSLF, PCF, PDCF - the labyrinth of acronyms is expanding and it's easy to get lost. We introduce an ABC-guide to the new Fed credit facilities and explain how they are aimed at easing strains in the financial markets in the light of the liquidity crisis. In addition, we discuss how well the Fed has succeeded in carrying out its intended objectives.

      • • Looking forward, we analyse how these new credit facilities may influence the ability of the Fed to conduct monetary policy. The added risky components have dramatically changed the Fed balance sheet and could potentially restrain the Fed's ability to influence the economy in the future.

      Published on  Fri, Aug 8 2008, 08:08 GMT

      0

      0

      US: Taking stock of the bear market

      Wed, Jul 30 2008, 07:27 GMT
      by Peter Possing Andersen

      Danske Bank A/S


      • • Over the past year, equity markets have been declining as problems in the financial sector have fuelled risk aversion and the earnings outlook has deteriorated. In the US, the equity market is now flirting with bear market territory.
      • • The plunge in equity wealth - in the US as well as globally - adds another headwind to the economy on top of the housing market correction, tighter credit, and rising commodity prices. However, for a number of reasons the economy is currently less sensitive to equity market swings than during the previous downturn in 2000-2003. Firstly, household equity holdings now account for a smaller share of household balance sheets and are smaller relative to disposable income. Secondly, corporate imbalances are smaller this time around.
      • • During this expansion, equity markets have been much less important for GDP growth than in the previous expansion. Over the past four quarters, the stock market has turned from adding a modest ½pp to GDP growth to subtracting a modest ¼pp from growth. Unless equity markets weaken significantly further, this headwind is not set to intensify much.

      Published on  Wed, Jul 30 2008, 07:27 GMT

      0

      0

      US: A rebate update

      Wed, May 21 2008, 07:51 GMT
      by Peter Possing Andersen

      Danske Bank A/S


      • • A little more than three weeks ago, the Internal Revenue Service (IRS) began the transfer of USD 106bn in tax rebates to US consumers. Currently almost a quarter of the rebate payments have reached consumers; the remaining transfers should be completed by mid-July.

      • • With the rebates being paid from early May, some impact should be visible, if not in May, then in the June data. While there are major uncertainties around the timing and size of the impact of this stimu-lus package, we believe the most likely outcome is that the rebates will provide a significant boost to consumer spending over the coming three to four months.

      • • The reacceleration in consumer spending will have a spin-off effect on US industry. While industrial indi-cators are set to weaken further in the next couple of months, the scale-up in demand at a time when in-ventories are very lean is likely to spark a temporary rebound in the manufacturing sector during the au-tumn. Generally, the major bulk of the GDP effect from the rebates expected to arrive in Q3.

      • • However, around New Year 2009 the positive impact from the rebates is likely to peter out, resulting in renewed softness in consumer spending, as the underlying economy will remain relatively weak at that time. We do not expect consumers to be on track for a sustained recovery before somewhat into 2009.

      • • In the short term, though, it will be crucial to keep track of high-frequency indicators to watch the re-sponse among consumers. This is likely to be a determinant of market sentiment over the summer. If the stimulus package finds traction in the economy it could support some of the current optimism about the economic outlook in the markets. However, if the tax rebates fail to jumpstart consumption in the next few weeks and months this could potentially spark serious concerns.

      Published on  Wed, May 21 2008, 07:51 GMT

      0

      0

      US: Non−residential construction hits the wall

      Tue, Apr 22 2008, 08:58 GMT
      by Peter Possing Andersen, Carsten Valgreen

      Danske Bank A/S


      • • In the midst of one of the worst housing correction for decades, the non-residential construction industry has experienced a tremendous boom. This has partly offset the sharp decline in home building activity. Consequently, total construction has, so far, experienced a somewhat milder-than-usual slowdown. In fact, the construction sector’s drag on the economy has eased in recent quarters.

      • • Unfortunately, non-residential construction is now starting to feel the heat from a stalling business cycle and tighter credit conditions following the financial crisis. Several indicators suggest that non-residential construction is facing a potentially severe slowdown. Incoming data is already showing a significant deceleration in non-residential construction activity, and even suggest that an outright contraction has taken place in Q1.

      • • With the correction in residential construction activity still having legs, the negative impact from the overall construction industry is set to re-intensify in the coming quarters. Generally, the economy will not experience any easing from the construction sector until some stabilisation in home building ac-tivity materialises later this year.

      Published on  Tue, Apr 22 2008, 08:58 GMT

      0

      0

      US: Consumers under siege

      Fri, Feb 29 2008, 10:02 GMT
      by Peter Possing Andersen, Carsten Valgreen

      Danske Bank A/S


      • • The economic slowdown in the US is no longer merely a housing story. In recent months US consum-ers have been under considerable pressure. Recent data suggest that consumer spending almost stalled around New Year.
      • • Importantly, the slowdown in consumption spending is not only driven by declining house prices. A whole range of negative factors, including high energy & food prices, a softer labour market, declining equity prices and tighter credit conditions have caught up with consumers. Consequently, the underly-ing pace of consumption has probably slowed to the 1-2% range.
      • • Generally, the uncertainty is currently very high and consumers might only be one major shock away from entering a period of protracted retrenchment. However, the most likely scenario is that con-sumption growth will trough in Q2 and rebound in Q3 as the fiscal stimulus package kicks in and the pressure from energy prices eases off a bit.
      • • Despite the tax boost the effect from credit tightening, slowing house prices and a softer labour mar-ket is unlikely to dissipate fast. With underlying fundamentals for spending likely to remain soft, there will be a renewed period of widespread weakness in consumer spending around New Year when the tax rebates lapse.
      • • Overall the outlook is for a bumpy pattern in consumer spending during the next 4-6 quarters. While we do not expect consumer spending to slide into a period of sustained contraction, the situation is set to remain unusually fragile for a prolonged period. US households are not likely to enter shallow waters before mid-2009.
      • • Further, the risks remain asymmetric to the downside as a more protracted slowing in the labour market, a sharp decline in asset prices or a sharper credit slowdown could generate a deeper and more sustained slowdown in consumer spending.

      Published on  Fri, Feb 29 2008, 10:02 GMT

      0

      0

      US: Inflation risks are rising

      Wed, Jun 20 2007, 07:35 GMT
      by Peter Possing Andersen, Carsten Valgreen

      Danske Bank A/S


      • Despite high commodity price inflation, tight labour markets and rising import prices there has, so far, been little evidence of inflationary pressures feeding through to goods prices and into the core consumer price level in the US. However, in this report we argue that there are clear signs that significant inflationary pressures have been accumulating in the inflation pipeline. These pressures are now on the verge of popping the surface implying rising goods price inflation in the coming quarters.
      • Firstly, the anchor for core goods prices, unit labour costs, has been slowly climbing as a response to the tightening of the labour market. This slow - but steady - upward trend in labour costs is the real long-term danger for the US economy, and we think it is underestimated in the market at present.
      • This is partly because the expansion in the 90s left the impression that inflation was and is restrained by globalisation. We show that the low inflation in the later part of the 90s cycle was actually mostly a cyclical phenomenon attributable to the deflationary impact from the Asian crisis in 1997-8.
      • Secondly, the rise in commodity prices and weakening of the dollar during the past 12-24 months is about to feed through to higher US goods price inflation. This follows the usual lag of about 12 months.
      • Consequently, we expect core PPI inflation to accelerate above 3.0%. In combination with higher import price inflation this will add 0.3-0.4%-point to core CPI/PCE inflation. However, the overall path for core inflation will be flat - not rising - as the higher goods price inflation will be countered by a normalisation in housing-related inflation.
      • Hence, core CPI inflation will go sideways continuing in the higher end of the implicit Fed comfort zone during the coming year. However, as housing services make up a smaller share of the PCE price index, core PCE inflation is likely to drift slightly upward during the coming quarters.

      Published on  Wed, Jun 20 2007, 07:35 GMT

      0

      0

      U.S: An unfriendly news flow

      Mon, Apr 2 2007, 16:21 GMT
      by Peter Possing Andersen

      Danske Bank A/S


      • The news flow on certain US data and the energy markets turned more unfriendly during February and March. Consequently, we are employing a softer growth profile in H1. There are three arguments be-hind our revision:
      • Firstly, the tailwinds from gasoline prices will to turn into headwinds during the coming months. This is our primary concern. Gasoline prices are up by more than 50% since the bottom in mid-January and will hit US consumers over the next 3-4 months.
      • Secondly, new home sales have been surprisingly – or rather suspiciously – weak in the first months of this year compared to indicators that usually provide a consistent tracking of the index. While this suggests that the drop in new home sales could be temporary, the current weakness will inevitably de-lay the stabilisation of the housing market.
      • Thirdly, the weakness in durable goods orders has extended into February and promises another slug-gish quarter for corporate spending. This will weigh negatively on H1 GDP as well. However, we call for a comeback in business spending in the coming quarters, as we expect a recovery in the ISM index.
      • While the recent data and a softer growth profile for H1 have increased the risk for a self-perpetuating negative dynamic in the economy, our main scenario of healthy growth in H2 remains in place. However, to reflect that growth risks have increased in recent months, we mark down our 12-month Fed forecast to 5.25 % from 5.50%. Inflation remaining high will keep the Fed on hold through-out 2007.

      Published on  Mon, Apr 2 2007, 16:21 GMT

      0

      0

      U.S: Subprime mortgage market − containment or contagion?

      Fri, Mar 30 2007, 08:39 GMT
      by Peter Possing Andersen, Carsten Valgreen

      Danske Bank A/S


      • Problems in the US subprime mortgage market have fuelled fears of a broader contagion to the housing market and the economy in general. We focus on three potential channels for a spillover from the subprime problems: a broad tightening of credit, rising foreclosure rates and the impact of Adjustable Rate Mortgage (ARM) resets.
      • Mortgage credit standards have been tightened in recent quarters. And while we would not be surprised to see a further tightening of credit standards - also outside the housing market - during the coming quarters, the conditions for a broader credit meltdown are currently not present.
      • Rising foreclosure rates will put more homes up for sale. This could potentially delay the stabilisation of the housing market. However, the additional number of homes for sale in 2007 will correspond to no more than one month’s turnover. Hence, the overall impact on the housing market is not likely to be that great.
      • The bulk of the ARM resets will occur during 2007 and 2008. However, the negative impact will be limited, as it will correspond to less than 0.25% of aggregate personal income growth. Moreover, the impact will hit less than 10% of US households.
      • Finally, it might be constructive to view the subprime problems as a symptom rather than a cause. In the wake of 425bp of monetary tightening and a slowing housing market, it is understandable that some problems should show up in the riskiest section of the adjustable rate mortgage market.
      • While the problems in the US subprime mortgage market are a risk factor, we do not expect any deep macroeconomic ramifications via either a severe tightening of credit or via housing activity. Containment is our call.

      Published on  Fri, Mar 30 2007, 08:39 GMT

      0

      0

      U.S: Bad news on corporate spending too?

      Thu, Mar 29 2007, 08:45 GMT
      by Peter Possing Andersen, Carsten Valgreen

      Danske Bank A/S


      • Non-defence capital goods orders - a proxy for US business spending - have been slowing markedly in recent months. Given the strong fundamentals in place, i.e. high capacity utilisation, low spending levels and easy financing conditions, recent developments seem surprisingly soft.
      • We find that some of the softness in capital goods orders is attributable to the decline in business confidence, i.e. ISM index. Contrary to conventional wisdom - and quite surprisingly - a simple regression reveals that capacity utilisation, interest rates and profits are not able to explain business spending.
      • Instead, we find evidence that the stock market, inflation and ISM employment are able to capture future swings in business spending fairly well. These factors signal that business spending will pick up during H1, although to a slightly slower pace than earlier. An improvement in business spending is further supported by our expectation of a recovery in the ISM index in 2007.

      Published on  Thu, Mar 29 2007, 08:45 GMT

      0

      0

      USA: What weather effect?

      Tue, Feb 13 2007, 09:11 GMT
      by Peter Possing Andersen

      Danske Bank A/S


      • Much has been said recently about the economic impact of the unseasonably warm weather in the US from November to mid-January. While the weather likely had some positive impact on US consumers and activity in general, we doubt the effect has been that great.
      • We look at three ways the weather can distort consumption: by directly affecting spending behaviour, or through real incomes via either energy prices or employment growth. Moreover, the weather usually has an impact on the construction sector.
      • There is no doubt that unusually warm weather in November and December boosted the consumption of goods and some services significantly. However, much of this effect has been offset by a weatherinduced slowdown in consumption of energy-related housing utilities. The initial net impact of these two factors is, in fact, only moderately positive.
      • As oil and gasoline prices did not drop but, rather, rose slightly in November and December, there was no positive weather impact on consumption through oil prices. Any positive effect arising from lower energy prices during Q4 was related to the drop in energy prices in the autumn – which had nothing to do with abnormal weather. The drop in oil prices during the first weeks of this year was likely due to the high temperatures, but this will feed into Q1– not Q4 – data.
      • Significant weather effects are also difficult to find in the labour market. The BLS gauge of weatherrelated patterns in total employment does not indicate any abnormalities during Q4.
      • We conclude that it is very doubtful that any substantial share of the strength seen in personal spending and activity in general can be discounted to the unusually high temperatures in November and December. Instead, we attribute the positive developments in Q4 to stronger fundamentals. Further, we expect that any negative “weather overhang” in Q1 will be of little magnitude.

      Published on  Tue, Feb 13 2007, 09:11 GMT

      0

      0

      USA: Beware what you wish for − The US would lose from a stronger RMB

      Wed, Jan 10 2007, 11:46 GMT
      by Carsten Valgreen

      Danske Bank A/S


      ·        While the US continues to pressure China to revalue the RMB more quickly, China continues to resist. Fed chairman Ben Bernanke seems to have teamed up with the administration recently, trying to force the RMB stronger.

      ·         On the face of it this makes political sense. There is a growing anxiety in the US about globalisation and the loss of domestic manufacturing jobs. But does it make economic sense? Will the US prosper with a stronger RMB? We are not so certain.

      ·          Firstly, job losses in US manufacturing are mostly due to high productivity growth and low demand growth for goods compared to services. A stronger RMB will have at best a temporary effect on the trend of ever lower manufacturing employment in the US as share of overall employment. This point can be extended to all rich countries.

      ·         Secondly, the US is actually a net beneficiary of the implicit .subsidy. that Bernanke claims a weak Chinese renminbi constitutes: US consumers receive this subsidy through lower US import and goods prices. We estimate this subsidy is worth 0.7% of US GDP. Moreover, there is no net loss of jobs to .pay. for the subsidy, as low US interest rates offset the negative job effects of a strong dollar. Again this point can be extended to other rich countries as well.

      ·         Thirdly, the US is benefiting from the reserve status of the dollar. US residents are on average earning 1% more on their assets abroad than they are paying on foreigners. assets in the US. This is partly due to foreigners owning low-yielding bonds in the US. This source of income has boomed due to fi-nancial globalisation and is now earning the US 1-1½% of GDP/year. This major US .export industry. could be in jeopardy in the longer run if the dollar loses its reserve status.

      ·         Overall, a free-floating RMB might be better for the Chinese economy by preventing overheating, and it would probably also lessen the risk of dangerous protectionism globally. Maybe it would make inter-national adjustments smoother, but it would also imply more inflation and higher interest rates in the West. On balance, a stronger RMB would probably be bad business for the US and maybe even for the world. It would be good business for China and Chinas competitors in the emerging world however.     

      Published on  Wed, Jan 10 2007, 11:46 GMT


      Archive

      Danske Bank  | Holmens Kanal 2-12, DK-1092 Copenhagen
      http://www.danskebank.com/ | danskeresearch@danskebank.com

      Legal disclaimer and risk disclosure

      This publication has been prepared by Danske Bank for information purposes only. It is not an offer or solicitation of any offer to purchase or sell any financial instrument. Whilst reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and no liability is accepted for any loss arising from reliance on it. Danske Bank, its affiliates or staff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives), of any issuer mentioned herein. Danske Bank's research analysts are not permitted to invest in securities under coverage in their research sector. This publication is not intended for private customers in the UK or any person in the US. Danske Bank A/S is regulated by the FSA for the conduct of designated investment business in the UK and is a member of the London Stock Exchange. Copyright () Danske Bank A/S. All rights reserved. This publication is protected by copyright and may not be reproduced in whole or in part without permission.


      Interested in forex trading? forex brokerage firms!


      ACM Advanced Currency Markets SA
      Contact the broker/FDM
      Open a demo account
      		FX Solutions LLC
      Contact the broker/FDM
      Open a demo account
      		Forex Capital Markets, LLC (FXCM)
      Contact the broker/FDM
      Open a demo account      		MF Global FXA Securities Ltd.
      Contact the broker/FDM
      Open a demo account      		City Credit Capital (UK) Limited
      Contact the broker/FDM
      Open a demo account

      GET CASH BACK FOR YOUR TRADES!   Learn more about the Pip Rebate Program

      Note: All information on this page is subject to change. The use of this website constitutes acceptance of our user agreement. Please read our privacy policy and legal disclaimer.

      Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading and seek advice from an independent financial advisor if you have any doubts.

      Opinions expressed at FXstreet.com are those of the individual authors and do not necessarily represent the opinion of FXstreet.com or its management. FXstreet.com has not verified the accuracy or basis-in-fact of any claim or statement made by any independent author: errors and Omissions may occur.

      Any opinions, news, research, analyses, prices or other information contained on this website, by FXstreet.com, its employees, partners or contributors, is provided as general market commentary and does not constitute investment advice. FXstreet.com will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

      ©2009 "FXstreet.com. The Forex Market" All Rights Reserved.