The International Economic Outlook Jackson Hole, WY John E. Silvia, Chief Economist July 12, 2018
Dollar Appreciation: Bias Downward
We expect the dollar to depreciate as central bank policy convergence replaces policy divergence.
Source: Federal Reserve Board and Wells Fargo Securities
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Dollar Appreciation: Bias Downward
The dollar has depreciated against all of our large trading partners over the past year, but movements have varied significantly.
Source: Federal Reserve Board and Wells Fargo Securities
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International Trade
The U.S. trade balance with Canada and Mexico is modest compared to the rest of the world—particularly China.
Source: U.S. Department of Commerce and Wells Fargo Securities
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Retaliatory Tariff Implications
Possible trade policy changes could pose downside risks to export growth.
Source: IHS Markit and Wells Fargo Securities
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Dollar and Short-Term Rates
We expect the divergence between expected short-term rates and the Fed’s dollar index to return as global monetary policy convergence continues.
Source: Federal Reserve Board, U.S. Department of the Treasury and Wells Fargo Securities
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Global Central Bank Policy Rates
Additional FOMC rate hikes traditionally are less supportive of the U.S. dollar, while any rate hikes from other central banks would be more supportive of foreign currencies. This relationship affects capital flows.
Source: Bloomberg LP, Federal Reserve Board and Wells Fargo Securities
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Global Central Bank Outlook
Global central banks appear to be on a gradual path toward monetary policy convergence
Source: Bloomberg LP and Wells Fargo Securities
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Treasury Issuance Outlook
Net Treasury issuance should decline slightly in 2017. We expect the fiscal bump in 2018 to accelerate the pace of issuance in CY 2018.
The Federal Deficit & Net Treasury Issuance
Composition of Treasury Issuance
Source: U.S. Department of the Treasury and Wells Fargo Securities
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Domestic demand for U.S. Treasuries
Over the past five years, households and U.S. banks in particular have seen robust growth in the size of their Treasury holdings, helping absorb some of the new supply that has come to market.
Domestic Bank Ownership of U.S. Treasuries
Domestic Ownership by Sector
Source: U.S. Department of the Treasury and Wells Fargo Securities
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Foreign demand for U.S. Treasuries
Relatively higher U.S. interest rates likely buoyed foreign demand for U.S. assets in 2017. The increase in foreign demand was driven by private purchases.
Net Purchases of U.S. Treasuries
Foreign Official vs. Private Purchases
Source: U.S. Department of the Treasury and Wells Fargo Securities
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Foreign Purchases of U.S. Securities: Still Solid
Capital flows and asset allocation by global investors play a strong role in rate determinations
Source: U.S. Department of the Treasury and Wells Fargo Securities
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Yield Curve: Short-Term Rates Headed Higher
The yield curve is expected to flatten further as the Fed raises short-term interest rates.
Source: IHS Markit and Wells Fargo Securities
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Global Forecast
We expect global economic growth will remain near its long-run trend.
Source: International Monetary Fund and Wells Fargo Securities
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Global Exports: Upswing
Global trade has clearly downshifted compared to past expansions, however the recent trend is encouraging.
Source: IHS Markit and Wells Fargo Securities
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Developing Markets Signal their Significance
Developing markets have become increasingly important for U.S. exporters.
Developing Markets Gaining Share
Trend Likely to Continue
Source: IHS Markit and Wells Fargo Securities
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International Forecast
Source: International Monetary Fund and Wells Fargo Securities
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FX Outlook
Source: Wells Fargo Securities
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Appendix
Wells Fargo Economics Group Publications
Recent Special Commentary
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Wells Fargo Securities Economics Group Global Head of Research, Economics & Strategy
Economists
Diane Schumaker-Krieg ………………… ….diane.schumaker@wellsfargo.com Global Head of Research, Economics & Strategy ……
john.silvia@wellsfargo.com
Ariana Vaisey, Economic Analyst Abigail Kinnaman, Economic Analyst Shannon Seery, Economic Analyst
Mark Vitner, Senior Economist mark.vitner@wellsfargo.com …jay.bryson@wellsfargo.com
Sam Bullard, Senior Economistsam.bullard@wellsfargo.com Nick Bennenbroek, Currency Strategist nicholas.bennenbroek@wellsfargo.com Azhar Iqbal, Econometrician
erik.f.nelson@wellsfargo.com
michael.d.pugliese@wellsfargo.com Economic Analysts
Senior Economists Jay H. Bryson, Global Economist
Erik Nelson, Currency Strategist Michael Pugliese, Economist
Chief Economist John E. Silvia
Charlie Dougherty, Economist charles.dougherty@wellsfargo.com
ariana.b.vaisey@wellsfargo.com abigail.kinnaman@wellsfargo.com shannon.seery@wellsfargo.com
Administrative Assistants
azhar.iqbal@wellsfargo.com
Tim Quinlan, Senior Economist
tim.quinlan@wellsfargo.com
Donna LaFleur, Executive Assistant
Eric J. Viloria, Currency Strategist
eric.viloria@wellsfargo.com
Dawne Howes, Administrative Assistant dawne.howes@wellsfargo.com
Sarah House, Senior Economist
sarah.house@wellsfargo.com
donna.lafleur@wellsfargo.com
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