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9 Feb 2016
US data is key and might be improving - Westpac
Westpac’s US data surprise index appears to be on the cusp of a recovery, a potentially important tonic for fragile markets.
Key Quotes:
"The complexion of the US data is not high on the list of market priorities right now, certainly not amid a medley of other seemingly more pressing stressors – European bank credit, Chinese/EM growth momentum, the CNY/CNH spread and the Fed hike cycle, to name several.
A recovery in the complexion of the US data has the capacity to be transformative for markets.. Some stability if not outright recovery in the data can be expected to give both equities and the USD a boost going forward. More broadly, a run of stronger data would be a very important tonic for fragile markets.
There is understandable caution about how much traction this story can develop given the threat from tighter financial conditions. But, our analysis suggests the tightening in financial conditions has already played out in the data.
A stronger patch of US data in coming months would fit the observation that much of the soft Q4 growth outcome was inventory driven, while three year highs for household savings rates, along with the steady fall in gasoline prices and mortgage rates should underpin healthier growth outcomes in H1 2016. The Atlanta Fed’s Q1 Nowcast warns as much – it is very early days yet but their Q1 GDP growth estimate has risen from 1.2% to 2.2% so far in February."
Key Quotes:
"The complexion of the US data is not high on the list of market priorities right now, certainly not amid a medley of other seemingly more pressing stressors – European bank credit, Chinese/EM growth momentum, the CNY/CNH spread and the Fed hike cycle, to name several.
A recovery in the complexion of the US data has the capacity to be transformative for markets.. Some stability if not outright recovery in the data can be expected to give both equities and the USD a boost going forward. More broadly, a run of stronger data would be a very important tonic for fragile markets.
There is understandable caution about how much traction this story can develop given the threat from tighter financial conditions. But, our analysis suggests the tightening in financial conditions has already played out in the data.
A stronger patch of US data in coming months would fit the observation that much of the soft Q4 growth outcome was inventory driven, while three year highs for household savings rates, along with the steady fall in gasoline prices and mortgage rates should underpin healthier growth outcomes in H1 2016. The Atlanta Fed’s Q1 Nowcast warns as much – it is very early days yet but their Q1 GDP growth estimate has risen from 1.2% to 2.2% so far in February."