Group Economics
Daily Insight
Macro & Financial Markets Research Maritza Cabezas & Georgette Boele
US economy set to rebound
+ 31 20 343 5618
27 May 2015
US business spending strong and consumer confidence stabilising…. …confirming our view that the US economy will bounce back in the second quarter The dollar rally is gaining momentum
US business spending climbs for second month in a row US durable goods orders declined by 0.5% in April after a strong jump of 5.1% the previous month. In March the large gains in orders was related to civilian aircraft and defence goods, which are particularly volatile. The more closely watched parts of this report, which provide a good indication of business spending, rose solidly in April. Core capital goods, excluding defence and aircrafts rose 1%, down from 1.5%.
Rate hike expectations are crucial for the US dollar US dollar index
102
4
100
5 6
98
7
96
8
Meanwhile core capital good shipments, used by the BEA to
94
estimate investment in durable equipment in the National
92
Accounts, rose 0.8%, down from 1% the previous month.
90 Jan 15
These series had been weak at the beginning of the year, likely as a result of the port disruptions and there is some
Months before Fed rate hike (reverse order)
9 10 11 Feb 15
Mar 15
US Dollar index (lhs)
Apr 15
May 15
Months before Fed rate hike (rhs)
payback now. This data suggest that the temporary headwinds are behind and that there is quite some momentum
Source: Bloomberg
for investment at the moment. Indeed, a drop in business investment and weak exports have held back economic growth
The dollar rally is gaining momentum
in the past few months. We expect the economy to bounce
Investor sentiment towards the US dollar has improved
back in the coming quarters. Given the weak start, GDP
significantly over the recent days. The higher-than-expected
growth should be around 2.7% in 2015.
US consumer inflation data published last Friday has resulted in some upward adjustments in US fed rate hike expectations
Other US data solid, suggesting improvement ahead
this year and next. This was reflected in a few basis points
Other reports released yesterday, including the Conference
increase in the Fed Funds futures and Eurodollar futures for
Board’s consumer confidence index for May showed that
December 2015 and 2016. In addition, investors according to
sentiment remains firm. The index edged up to 95.4 from 95.2.
some measures, on average expect less than 7 months
According to this survey, consumers’ outlook for the labour
before the first Fed rate hike, which was more than 9 months
market improved. Separately, new home sales in the US
some weeks ago. The US dollar has appreciated, while
increased by 6.8% in April, up from -10% the previous month.
financial markets adjusted their expectations (see graph
Meanwhile, the S&P Case Schiller home price index increased
above). USD/JPY has even set a new high since 2007. It is
slightly in March by 0.95%, from a February gain which was
likely that the Fed will start the hiking cycle in September and
revised up by 0.3pp to 1.2%. Over the past year the home
will hike at a faster pace than financial markets currently
price index rose by 5%. Higher home prices are a result of a
anticipate. Later this week, the second estimate of US GDP
housing market that is gradually recovering. The increasing
will be released. Expectations are for a 0.9% drop in Q1
demand for housing should boost construction and support
compared to the 0.2% rise for the first estimate. We are not as
residential investment in the coming time.
negative as current market consensus, so there is room for the US dollar to rally.