here is what i am looking at:
Employment and inflation has been ticking up. Inflation is relatively correlated with crude prices and with the agreement globally to reduce production is a huge development which will accelerate inflationary pressure in H1 next year. I follow the USA closely and although there is growth it isn't the strength there that merits this dollar interest. What we have here is a typical case of over reaction in the markets. The rate hike was priced in and the shoots of recovery are not strong enough to back the extension. NFP private has actually been decreasing on average over the year while government NFP has been increasing on average. Manufacturing has been recovering at a very slow pace. Youth unemployment is rising and wage growth has been slow. Look it was enough of a recovery that lead me to get into the dollar trade in the first place but it's now run its course.
If anyone thinks the Fed is going to raise rates 3 times next year i should point them to the fact that they said 4 hikes in 2016 and every month was a letdown due to slow growth and we only have 1. In other words, if they raise it 3 more times next year ill eat a well used pair of socks.
there there are trickles of shoots like this all over the place:
- Goldman Sachs upgraded European banks to overweight in their asset allocation for 2017
- "We are ending our two-year cautious European Banks stance," J.P. Morgan analysts wrote
- At the start of 2016, investors all but threw in the towel on the European banking sector. Stocks dropped to 2008 crisis-era lows as investors braced themselves for years of litigation problems, ultra-low interest rates and grinding restructuring plans.Bank of America Merrill Lynch's December fund manager survey showed allocations to bank stocks surging to record highs, with a net 31% of fund managers overweight on the sector's stocks.
As for Italy, the government is ready to back struggling banks so there really isn't any risk of them going bust.The EU -JunkFace has said they will step in if needed. The real risk here is Greece who seem to be at odds with their monster debt but ultimately Greece has 11 million people and is 19th in size of economy.
Whatever the trough is going to be, we can't be far from it.
The middle image is PMI
Good info and data there
Here is my tuppance worth, the way I understand it.
Fed said they were watching two key indicators and long term speel was decision to raise rates was going to be based on the data.
1. Unemployment had to be < 6% (currently 4.6%)
2. Contain inflationary pressures (currently @ 1.7%)
We passed the 6% unemployment level quite some time back and inflation is gaining pace so Fed is well placed after a very long time to raise rates.
The curve ball is Trump and his plans for infrastructure spending/funding. Analyst have pencilled in 6 trillion give away in tax breaks.
Trump also talking about repealing Frank Dodd regs, that's why Banks getting ahead of them selves.
I concur with sentiments about the recovery being not as strong as reported. If all that money keeps flowing in with infrastructure spending then yes things will chug along as before.
With respect to number of times Fed to raise rates, I wouldn't like to go against the Fed. Compared to US, EU and UK have uphill struggle sorting them selves out. Hence, possible upside to the dollar. Especially so if senate approves Trump tax breaks.
Three ingredients go into making the swing trade from my perspective;
1. FA
2. TA &
3. On going news & data
I would also watch bond prices and yields. US raising rates and value of dollar is going to be really taxing on emerging countries who've sold bonds in dollars. Payback is going to be ball busting to some. Then there is the Yen carry trades to watch again which will provide another upside to the dollar.
Lot's going on, checks and balances from my pov.
