One Financial 12:14

8/10/2019 One Financial 12:14

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Weekly Sentiment Paper Distributed by: One FinancialForthe Week of: 12/14 through 12/20 Written by: Andrei Wogen

Email: [email protected]

Last Week in Review 2

Australian Dollar 2

New Zealand Dollar 4

Japanese Yen 6

China Renminbi; Onshore, Yuan 8

Euro Area: Euro 10

British Pound 11

Canadian Dollar 13

United States Dollar 15


2/17

Last Week in Review

Australian DollarOverall Picture and Its Tone

Overall the Australian is weak economically. The weak points continue to be weak mining

sector and the employment sector while the consumer also remains weak and feels weak as

both retail sales and consumer sentiment have been lower respectively. As for the business

sector, manufacturing and services sectors continue to weaken as does business sentiment.Politically speaking, the country is doing well but recent budget problems have caused the

government to cut down on spending and adjust policy in order to keep debt from rising too

much. This action has also caused consumer sentiment to weaken and there is likely more cuts

on the way as the mining industry continues to slow. Another thing that has caused some worry

from the government is the strong housing market. Prices continue to rise which is helping to

support consumers some but has caused the government to voice their disproval of these high

US Retail sales jump higher than expected; seasonal factors though a big reason for thejump

ECB TLTRO take up not that great; expectations rise again for more easing yet again...QE

Australian employment comes in mixed but overall weakness persists

RBNZ leaves their interest rate alone as expected but sounded more optimistic on bothgrowth and inflation and also said they expected they would need to raise rates again

Japan 3rd Quarter GDP growth revised down further after the weak preliminary reading;

business investment in particular weakened even further China CPI falls further; month-to-month now in negative territory

China tightens rules on collateral for markets limiting the use of low-grade corporatebonds as collateral for trades

RBA Gov. Stevens jawbones the Aussie Dollar again


3/17

prices worrying about a bubble forming. As for the central bank they continue to remain neutral

to slightly dovish while continuing to keep rates at historical levels. They continue to say that

rates are the right level to foster growth and investment but they also continue to verbally talk

down the Australian Dollar which they say is too high. Still no actual intervention though.yet.

Overall then the tone of Australia is neutral to slightly negative. Overall Sentiment of the Australian Dollar

As for the overall sentiment towards the Australian Dollar, this is now fully

negative overall.

Last Week in Review

Employment data last week looked to be good but overall showed yet more weakness in

the Australian economy. The overall employment change came in above expected though the

unemployment rate rose a tad, now up to 6.3% from 6.2% previous. Also full time employment

came in lower than previous while previous was revised down and part time employment came

in far above previous but the previous was revised lower. On the bright side the participationrate rose a tad from last month. So a mixed report overall but nothing to be excited about. The

big event for the week was a speech by RBA Gov. Stevens where he jawboned the currency yet

again while also mentioning rate cuts, interestingly enough. His assessment of the economy is

that it is doing fine and not in a recession and that jobs and inflation are roughly were the

central bank was expecting them to be. His comment on interest rate cuts though interests me as

he said that official rate cuts need to be delivered in a way that boosts confidence rather than

remind people of the economys woes which to me says that the option for more rate cuts is

there and could be what they do to help bring down the Aussie Dollar. The markets

expectations for a rate cut, and in some cases more than one, is increasing for next year. Otherdata showed home loans increasing for October and inflation expectations falling. Consumer

confidence also took a big tumble. It appeared that confidence may be rising some but now that

hope it dashed with the confidence number at its lowest level since August of 2011. This does

not spell good things for consumer activity going forward and this is not a good thing given

that Christmas is just around the corner.

The Week Ahead and Other Thoughts

This week is a slow one for data with only new motor vehicle sales on Sunday and

Westpac Leading index data on Tuesday. We will also get data on the RBAs Foreign Exchange

Transaction for November which could be interesting given all the jawboning coming from theRBA right now. The RBA will also be releasing their meeting minutes from their most recent

policy meeting, which will be released on Monday. There will likely be little change though in

the minutes in its tone given that the RBA seems to be comfortable with rates as they are now.

Though given RBA Gov. Stevens comments last week..maybe not so much.


4/17

New Zealand DollarOverall Picture and Its Tone

New Zealand as a whole continues to do well though has weakened some over the past

few months, economically speaking. Lower commodity prices, lower house prices and lower

inflation have been the main weaknesses for the New Zealand economy. Other weaknesses have

been a deteriorating trade balance, along with falling exports and a fall in business and

consumer sentiment which has also translated into lower consumer spending via retail sales

data. However all is not bad in New Zealand and actually things are pretty good despite these

negatives. Though business sentiment is low, it is still high in historical terms which has been

seen in the manufacturing sector in particular which remains strong as well as does the

industrial sector. As for trade, imports and exports are rising now again while the labor market

also remains strong with falling unemployment and increased employment overall. However,

as is the case around the world overall, wages continue to remain weak. Looking to the housing

market now, after rising prices from the beginning of this year, they have fallen now from their

highs after implementation of policy to help cool the housing market went into effect several

months back. This, and now weaker building permits, continue to cause the housing market to

weaken overall though in some parts, construction remains active overall. As for the

government, they continue to remain strong as pro-growth policies and increased government

spending continue to help support the economy and with the recent elections keeping the

incumbent prime minister in power for another term, there will likely be little change. In

regards to the central bank, after having tightened policy by raising rates three times this year

beginning in March, the central bank is now on hold indefinitely after falling commodity prices

and lower inflation have caused them to reassess their estimates of future inflation in the

country. This is a pretty big turnaround for them from just a few months ago when they were

talking about seeing a need to raise rates pretty consistently due to what they used to see as

inflation pressures building. However these pressures have since diminished or left altogether

and so in response the central bank is expected to be on hold until at least the middle of next

year and possibly longer if inflation doesnt start to pick up soon. They have also voiced their

concerns about the high valuation of the New Zealand Dollar relative to other currencies. This

has caused the RBNZ to intervene in recent months in the currency market to bring down the

value of the Kiwi. This is an obvious statement by the Bank that they are not willing to let the

currency stay too strong and will do something to help bring it down and so in light of this


5/17

there continues to be speculation that they will continue to intervene in the markets going

forward. Overall then, the tone for New Zealand remains in neutral territory overall.

Overall Sentiment of the New Zealand Dollar

The overall sentiment for the New Zealand dollar is neutral now as expectations

that the RBNZ will raise rates has come into play again helping to put some life in theKiwi.

Last Week in Review

Last weeks RBNZ meeting showed a bit of a surprise as the Bank was a bit more upbeat

than the market (and I) were expecting it would be. It acknowledged that rate hike would be

coming soon while they also increased their assessment and forecasts for both GDP and

inflation for next year and 2016 and the Bank is pleased with the fall in oil saying it will be a

positive development for the economy.. The Bank though continued to jawbone the currency

saying it is too high and that it sees it coming down even more than it has. During his press

conference too, RBNZ Gov Wheeler voiced his concern about rising house prices in the Aukland

area of the country but said that no new macro-prudential measures are planned at this point.

Overall though the RBNZ was more optimistic than the market had anticipated and this sent

the NZD higher. Other data for the week was Electronic retail sales data which came in lower

than expected and in negative territory and manufacturing data came in lower than previous

but still showed expansion in the sector. Looking at the sub-sectors, employment and finished

stock numbers were the only two that rose for the month of November. Production, new orders

and deliveries all fell. House data showed another rise in house prices while manufacturing

sales rose for the third quarter. Also during the week, Fonterra revised lower their payout

forecasts for dairy products yet again. This is once again not good news for farmers in thecountry.


This week third quarter GDP numbers will be in focus for the New Zealand Dollar.

Expectations are for lower numbers than previous, but only slightly. I as well think the risks for

a lower than previous GDP release are pretty good as commodity prices continue to fall, the

housing market cooled a bit during that period and consumer spending has been pretty good

but not great during that time period. So all-in-all I am expecting a weaker number than

previous and could be even lower. Other data for the week will be ANZ Business confidence

numbers and Visitor Arrivals numbers. As for the latter, the amount of visitor arrivals continues

to grow and if the Australian economy in particular continues to weaken, which I expect it will,

the number of arrivals to greener pastures on the other side of the sea, New Zealand, I expect

will continue to grow which will only help grow the New Zealand economy even more. Besides

that, the NZ Dollar will likely move in response to last weeks RBNZ where they sounded a bit


6/17

more optimistic than expected and so rate hike expectations could be pushed forward a bit,

pushing the Kiwi higher.

Japanese Yen Overall Picture and Its Tone

Japan as a whole is very weak right now, politically, socially and economically. On the

economic side, businesses continue to be weak as manufacturing, services and industrial sectors

continue to be weak however on a bright note, corporate profits continue to rise. On the

consumer side, consumer sentiment and consumption both remain weak as seen recently in

household spending and retail sales data. As for trade, imports and exports have been weak but

now both are improving some while the overall trade balance remains in negative territory.Inflation also remains weak and continues to fall causing deflation to persist. On the

government side of things, debt remains high while recent tax hikes meant to bring down the

level of debt in the country have caused yet more weakness in the economy. The government in

general remains stuck in old ways and lacking reforms to help revise the economy. As for the

central bank they continue to remain very negative overall with low interest rates and and a

quantitative easing program that puts all others that have occurred or are occurring to shame as

its size is huge. A couple of weeks ago too, the central bank surprised the markets by

implementing and increasing their QE program. Finally, on the social side of things, as the

population continues to age the levels of debt continue to increase while other socialdevelopments continue to cause weakness in the economy. Overall then the picture of Japan is

very negative right now.

Overall Sentiment of the Japanese Yen

The overall sentiment for the Japanese Yen is very negative right now as it

continues to move lower but has strengthened somewhat over the last week on a

combination of profit taking, global risk off and US Dollar long profit taking.

Last Week in Review

Third quarter GDP came in even lower than the preliminary with business investment

being the most concerning as it came in even weaker than the preliminary reading. Overall

though, the final growth reading showed that there is little growth to speak of in Japan right

now and with falling business investment, this is a great concern for the Japanese economy. If

business arent spending to expand and invest, hiring and wages will likely weaken going

forward which in turn, will put pressure on the consumer. Other data for the week was bank

lending, which rose and which continues to improve which is an encouraging sing amidst all


7/17

the bad data coming out of Japan right now overall. Other weaker data last week was

Machinery order and Tertiary industry index numbers, both which came in lower than expected

and previous and both in negative territory for the month of October. The BSI Manufacturing

Survey also showed more weakness as firms planning to increase capital spending fell from the

last time this survey was released, third quarter of this year. Also both capacity utilization andindustrial production numbers came in lower the previous. Overall though focus of the markets

was on the elections of which the results are due the beginning of this week and what it means

for Abes reforms and their future.


This week the BoJ monetary policy statement and press conference will be in focus from

Thursday night through early Friday morning, US EST time. With the economy in shambles

right now, bets continue to exist that the BoJ will ease further but this is likely a ways off at this

point. What the minutes show though will be interesting to see as what will be said in the BoJ

Press Conference. It can be assumed that the BoJ will be dovish on the economy but I amthinking otherwise as they have continued to sound optimistic on the economy going forward

overall. Other data for the week will be Tankan Large Manufacturing Outlook and overall

survey numbers from Manufacturers including Capex numbers. These survey numbers will be

looked at more than usual for evidence of any sign of pick up in the manufacturing sector of

Japan as it has been very weak lately and getting weaker, as seen by industrial production

numbers last week as one example. We will also get Trade Balance data on Tuesday, including

exports and imports data and then All Industry Activity and Leading economic index numbers

both being released on Thursday. Focus though will be on the elections to start the week and the

how the Yen reacts to the results. Just before this newsletter went to print, exit polls showed that

Abe had indeed won the election with his party, the Liberal Democratic party, winning 327 seats

out of the possible 475 seats available.. This means that Abes coalition won the crucial two-

thirds majority. Though it should be noted that it appeared that the turnout for the vote was

small and so could explain why and how Abes party did win. This also to me tells me that

there is likely possibly more opposition towards Abe and his party and what Abe is doing with

his reform policies. Though this opposition, if its there, will likely not show itself until next

elections with main upcoming elections not coming until 2016. The USD/JPY pair looked quite

weak last week after several weeks straight of gains, with the weakness coming regardless of

both good US data and more negative Japan data.


8/17

China Renminbi; Onshore, Yuan Overall Picture and Tone

Overall China is weak right now economically and is changing politically and socially. As

for the economic picture, this has been weakening over the past few months. Inflation continues

to move lower which also includes food prices which continue to move lower. As for the

consumer, Consumer Confidence is improving some again after deteriorating over the past few

months while retail sales continue to move lower. As for the business side of things, the services

sector, manufacturing sector and industrial sector as well as business confidence all continue to

weaken overall. As for the employment picture this remains mixed to weak as labor costs

continue to weaken and the number of unemployed persons continues to move higher

highlighting the struggle of the Chinese economy to move from a strictly manufacturing based

economy to more of a services based country in terms of their main revenue and GDP growth

source. As for the housing market, prices continue to move lower as does loan growth putting

pressure on the consumer and the economy as a whole. With lower housing prices the demand

for existing and new housing is slowing and with the real estate market being such a big driver

of growth in China, this is putting a strain on its overall growth. On the government side of

things they continue to work on pushing through reforms to move the economy form a

centrally, government controlled economy, to a more market baed economy. During their recent

Fourth Plenum meeting they highlighted these reforms they are and want to implement

especially focusing on making the law system freer. As for the central bank, they continue to

implement reforms and easing measures to help revive the economy including reserve ratio for

certain banks and other reforms to help rural regions and the real estate market improve

including rate cuts recently. Interest rate liberalization is also one of the main things on the

central banks agenda in terms of reforms they want to implement. Overall then the tone of

China is a more negative one right now as reforms being implemented by the government and

central bank continue to cause weakness in the economy while overall global growth being

weak is causing the manufacturing industry to be weak right now.

Overall Sentiment of the Chinese Yuan (Onshore)

The overall sentiment for China is negative but as the Yuan is controlled by the

PBoC right now, the movements in their are not true in many ways. However, the Yuan

has now been weakening versus the USD over the past few weeks and continued to do

so last week as well.

Last Week in Review


9/17

Last week, CPI data from China came in lower than expected with month-over-month

inflation slipping into negative territory. PPI also continued to decline again with this set of data

being in negative territory for 33 months straight now, i.e. deflation. The big news during the

week though came from changes in government policy. Rules were announced that banned

traders from using low grade corporate bonds as collateral (margin) in financial markets forsuch things as stock purchases and such. This sent Chinese stocks into a tailspin, with the

Shanghai index falling over 5% in one day which in turn, sent the rest of the world markets

lower. News then came a couple of days later of the PBoC injecting 400B Yuan into the interbank

market to help prop up the markets and the banking system. Overall though, what the

government is doing with these policy changes should be no surprise to the markets as these

changes have been expected for quite a while now. But nonetheless, the markets seem to be still

working through the idea that Chinese growth will be slower and lower going into the future.

Though the question remains...just how far will growth fall in China. Other data for the week,

and which concerned markets, was trade balance data which showed imports and exports fall

for November with imports slipping into negative territory showing more weakness in the

domestic economy. To finish off the week, Industrial production and urban investment numbers

fell from previous readings with the former coming in lower than expected. Retail sales though

rose a bit for November, a bit of an encouraging sign though the overall trend in retail spending

has been down over the past several months so it will take more than just this months data to

start to make that part of the Chinese economy look any better.

The Week Ahead and Other Thoughts:

This week data is thin. On Monday, HSBC Manufacturing PMI will be released and then

on Tuesday FDI and MNI Business Sentiment index numbers will be released. Then on

Wednesday House Price data will be released. House prices in China have been falling steadily

over the past few months which has put pressure on the economy. Overall though, attention

will be on the Chinese government and the PBoC on what measures, if any, they will push

through in order to help prop the economy up or change policy especially going into the end of

the year.

Euro Area: Euro Overall Picture and Its Tone

The overall conditions of the Euro Zone are and continue to be very weak and negative.

Overall growth continues to move lower with some countries, including Germany, slipping into


10/17

negative growth in the most recent quarter. As for the business side of the economy, the services

and manufacturing and industries sectors all continue to move into weak territory while

business sentiment also continues to deteriorate. As for the consumer, consumption remains low

as seen in continued weakening retail sales data while sentiment also continues to move lower.

The labor market is also very weak with high unemployment, especially youth unemployment,and wages continue to be low. Trade also remains weak with imports falling while exports are

actually remaining fairly supported. As far as the loan and money sector goes, loan growth

continues to be weak to both businesses and consumers. On the government side of things debt

levels remain very high and there is little ambition from some Euro Zone members to bring

those high debt levels down. In fact the recent budget presented by Italy to the European

Commission showed little in the way of actual reforms to bring down their debt level and was

accepted by the Commission showing once again, that these debt levels in the Euro Zone will

continue to rise until a day of reckoning comes and these countries have to default. Another

thing of continued concern continues to be the political divide between political members and

regions of the Euro Zone especially, now, in terms of how the ECB is allowed to deal with the

low growth and inflation. However disagreement and divide are also continuing to be present

in light of continued rising debt and lack of reforms from different countries, namely Italy and

France. As for the central bank, they continue to remain very dovish, recently implementing a

sort of QE program with the purchases of covered bonds and ABS assets in a bid to help revive

the Euro Zones struggling loan and banking industry in order to therefore revive economic

growth. They also have cut rates quite a good amount since about June of this year with one of

their rates now in negative territory. So overall the tone of the Euro Zone is negative.

Overall Sentiment of the Euro

The overall sentiment for the Euro currency is currently still negative overall but

this negativity has weakened over the past week or so.

Last Week in Review

The latest data of the take-up of TLTRO by the banks in the Euro Zone released last week,

showed a lower take-up than was expected by the market and therefore in the mind of the

market, paves the way for more easing.i.e. QE. The take-up in fact was only a small amount

larger than previous. The previous low take-up was blamed on the upcoming AQR test results

being released shortly after but this time is more concerning. It would appear now even more

that banks in the Euro Zone just dont want extra capital at this point which means theirappetite for lending remains low. Hence too why bets for more easing have started rising again

though we will probably not be getting anything new in terms of easing from the ECB until at

least the beginning of next year sometime. During the week though news came that several

banks will be repaying LTROs to the ECB which gave the Euro a lift. However I still think that

the poor take-up in the TLTRO auction is yet another negative to add to the already long list of

negatives that are part of the Euro Zone right now. Other data for the week from the Euro Zone


11/17


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This weakness in consumer sentiment has stemmed in part from a weakening housing market

as house prices fall as well as construction activity. As far as inflation goes, this also continues to

move lower as the UK follows the rest of the world (or a large part of it) into a world-wide

deflationary trend, in some respects. This low inflation and weaker growth has also kept the

BoE at bay in terms of them raising rates. They continue to be neutral on that fact and themarket is currently expecting them to keep rates on hold and not raise them until the middle

part of next year at the very least. Another concern of the BoE, which has kept them from

raising rates at this point is the low wage growth. However the labor market as a whole

continues to improve as the number of newly employed continues to rise and the number of

unemployed continues to fall. Overall then the tone of the United Kingdom is neutral to slightly

positive.

Overall Sentiment of Pound Sterling

Overall the sentiment for the Pound Sterling is neutral to negative.

Last Week in ReviewLast week we data showed that the Industrial and Manufacturing sectors slowed overall

during the month of October. Both sets of data came in below expectations with Manufacturing

and Industrial production numbers both slipping into negative territory for the month-over-

month reading. Other data showed a slight drop in house prices while the BRC Retail Sales

monitor data showed an improvement above what was released previous and what was

expected. Sales of appliances were higher and there was evidence of a strong Black Friday as

well as online shopping. Construction output for October also came in lower than expected

though with the good reading that was had during the previous month, the overall picture still

looks good for the construction sector as it is still adding to overall GDP (growth) instead oftaking away form it. We also heard from BoE member McCafferty who sounded his usual

hawkish self saying that he sees little slack left in the UK economy and that he expects wage

pressures will start to materialize soon. On the flip side of things though BoE Gov. Carney also

spoke and he sounded a bit more dovish saying that the UK economy needs to have continued

stimulus and that rate hikes will be gradual and limited. Nothing too different from either of

them though in comparison to what they have said in the past. Rate hikes are still expected to

occur in the UK by the second half of next year though.


Its looking to be a pretty busy week for the UK. As for data, November CPI will be infocus and, following the trend in other inflation data around the world, I can expect a lower

reading. However the tone of the BoE towards this lower inflation, whether theyll look through

it or not, is what is important. We will likely get to see what their tone is towards inflation in

fact during when the BoE meeting minutes from their most recent meeting will be released

where we will get an updated version of their assessment of the UK economy. Also the BoE rate

hike vote results will be in focus as speculation has been around for a bit now that there could


13/17

be another addition for a vote for a rate hike, joining the two votes that already exist for that to

happen. Other data for the week will be employment dat, being released on Wednesday along

with the release of the BoE meeting minutes, where expectations exist for their to be wage

growth versus last months release. On Thursday retail sales will be released and then on

Tuesday, along with CPI data, PPI data and Retail Price index numbers will be released. Then onSunday, more house price data will be released. Overall then it will be an interesting week for

the Pound as markets continue to guess when the BoE will make its first move in raising rates. If

inflation moves higher though or even stays steady as it is, then I think we could see a lift in the

Pound which has been under pressure quite a bit recently as inflation has slowed over the past

few months as well as overall growth. Also wage growth data will be watched closely for yet

more signs of not only inflation but also for evidence that slack in the UK economy is improving

or not, particularly in the employment sector. So an important week for the Pound and

expectations surrounding rate hikes from the BoE, if and when and by how much.

Canadian Dollar Overall Picture and Its Tone

The Canadian economy continues to be mixed overall. The positive side of things is that

inflation continues to be relatively stable and high, though this has likely changed now with oilmoving so low. Overall growth too continues to be supported. As for the consumer this is where

some of the weakness lies as spending remains subdued as seen via retail sales data. As for the

business side of things, this remains supported overall. Oil production also continues to

increase but with prices as low as they are, they are not helping the economy any right now. As

for the housing sector, this remains strong with high prices and good building activity both

being supported by low interest rates. As for trade, exports have started to increase some

recently especially as the US continues to bounce back. As for the labor market, this seems to be

improving as new jobs continue to increase in number and the unemployment rate continues to

move higher while wages remain weak, as seems to be norm right now. As for the central bankthey remain neutral to dovish in their tone towards the Canadian economy though they are

starting to sound a bit more optimistic now as the US economy, which Canada is very

dependent on, continues to improve. However, they continue to see recent inflation levels as

being just temporary and still continue to expect weaker growth for a while going forward.

Overall then the tone of Canada as a whole is neutral in relation to the monetary policy in

particular.


14/17

Overall Sentiment of the Canadian Dollar

Overall the sentiment for the CAD is currently neutral to negative.

Last Week in Review

Last week was a slow one for data from Canada but that didnt stop the CAD from being

sold off heavily as oil prices continued to move lower. Western Canadian Select oil in fact reachits lowest level since 2009, dropping down to $42.03/barrel during last week. As for data

though, housing starts rose more than expected and previous while building permits weakened

from previous reading showing some lower demand going forward, at least for one month.

Then later on in the week, Capacity Utilization rose more than expected while New Housing

Price data remained steady. We also heard form BoC Gov. Poloz who spoke on the economy and

inflation. Overall he sounded mostly neutral on the economic front saying that the level of GDP

was higher than we (the BoC) though also saying it has quite a bit of spare capacity to use up.

He also continued to strike a downbeat tone on inflation and oil with him pegging the latter as

being a reason for lower growth going forward. Also last week the BoC released their FinancialSystem Review. The Four biggest risks that they cite for the Canadian economy are: (1)

household debt and a sharp correction in home prices; (2) a sharp increase in long term rates as

monetary policies normalize; (3) stress from the Euro Zone possibly with Russia as a trigger;

and (4) stress emanating from a financial disruption in China. The three channels they expect

these four risks to come from are: (1) elevated household debt; (2) housing market imbalances

and (3) investor risk taking and liquidity in financial markets. Overall though this is nothing too

new from what we have heard form the Bank before but still something to note in terms of

watching what the Bank is watching and is concerned with. They have too increased their

rhetoric recently in terms of their concerns regarding the ever higher house prices and activehouse sector.


CPI data on Friday and Oil will be the main focus of the CAD market this week. As for

CPI, the BoC continues its look through the recent uptrend in inflation that has occurred over

the past couple of months of so and now with oil prices moving as low as they have, their

looking through could finally be justified somewhat. Retail sales will also be released on Friday

along with the inflation data. Also we will get Wholesale sales data on Wednesday and

Manufacturing Shipments data on Tuesday. But the big story will continue to be oil. Last week

the low oil prices claimed its first victim in terms of a Shale gas company going bankrupt. Thiswill be the next focus of the markets I think as more shutdowns of drilling fields and whole

companies will definitely negatively impact the economies of oil producing nations, the US now

being one of those and Canada also being one, in terms of jobs and overall consumption and

investment and therefore growth.


15/17

United States Dollar Overall Picture and Its Tone

The overall picture of the US one of positive growth overall, a central bank that is (very

slowly) turning more hawkish while the government has been pushed to one side in many

respects as it continues to wrangle with its differences and division. As for the economy: it

continues to improve overall though there has been some weakness seen recently, particularly

in the manufacturing sector due to the increasing value of the US Dollar. However this sector, as

well as the industrial and services sectors continue to grow. Business sentiment also remainsstrong. The employment sector continues to be good overall with rising employment and falling

unemployment. However problems remain as long term unemployed people continue to

struggle to find jobs and the skills gap continues to widen as fewer and fewer have the skills

necessary to do high tech jobs that are so vital to a nations growth. As for the consumer, they

also remain pretty good though weak wage growth continues to be a problem and consumption

is down some now looking at retail sales data. Sentiment though for the consumer remains

strong overall. Trade continues to do well with both exports and imports strong though the

deficit in the US continues to deepen. As for inflation, this continues to stay steady, but steadily

below the Feds target. As for housing, after a good start this year this sector has weakenedsome in the past few months as rate hike expectations continue to be in focus for this industry.

As for rates, and the Fed, in light of the overall US economic picture they have begun to turn

more hawkish in their tone and in their policy recently exiting their QE program completely in a

bid to begin to slowly tighten policy. The tone from the Fed is also changing, though also

changing as they are sounding more optimistic on the economy and jobs and so on but are still

concerned about low inflation. Looking to the government, this part of the US continues to be in

a wrangle with itself failing to pass any meaningful laws or policy changes to help the economy

grow. Recent mid-term elections have given some people some hope as the Republicans now

control both the House and Senate though with a stubborn President at the helm of things, littlewill likely change until after presidential elections in two years. However we will have to see.

Maybe Congress will be able to pull a rabbit out of its hat after all. Overall though the tone of

the US economy is neutral to positive overall due to a more optimistic Federal Reserve and

stronger economic growth that continues to get stronger.

Overall Sentiment of the US Dollar


16/17

Overall the sentiment for the USD continues to be positive overall but this positiveness

has weakened a bit the past week or so.

Last Week in Review

Retail sales data came in better than expected last week showing some good consumer

demand from the US consumer. However even with Black Friday shopping and Cyber Mondayshopping, the data was not THAT great. Though overall the rise this month was due mostly to

seasonal reasons with Black Friday sales especially showing through. Other data for the week

was sparse with UoM Sentiment numbers which came in much better than expected and initial

jobless claims fell more than expected. Whole sales inventories also came in better than expected

as also did NFIB Business optimism. The one key release that was negative last week was PPI

numbers which fell for the month of November, mostly driven lower by energy related factors.

Overall though the US economy seems to be rolling along like usual though the USD has

recently not shown the same vigor. The Dollar in fact has fallen over the past week or so as

profit taking, mixed with expectations of what the Japanese elections will bring have caused the

USD to fall as well as other currencies rising versus the US Dollar.


For this week the main event will be the FOMC meeting and rate statement. The bank will

also be releasing their forecasts for growth, inflation and what their forecast for rates are in

terms of when and how much. As for the meeting, I expect the Bank will leave rates as they are

but the statement and its wording will be what is most in focus. Expectations have been rising

again that the Fed will remove their considerable time phrase from their statement in

reference to how long they plan on leaving rates low now that their QE program is done. Recent

speak from Fed members over the past few weeks has pointed to the reality that the removal of

this phrase is coming, the question is just when. My personal bet is that the Fed will wait a bit

longer to remove the phrase. Why? With recent lower inflation, global weakness, lower oil

prices and recent weakness in some sectors of the US economy, I think the Fed will want to wait

until after the beginning of next year to see how things play out better before starting to tighten

policy. The removal of the considerable time phrase is what will be seen as the next step

before rates rise in my opinion, and the opinion of much of the markets from what I can tell. As

for the growth forecasts I dont expect these to change much at all while inflation forecasts I

believe could very well move lower. The bank will also be releasing their forecasts for rate hikes,

when and how much and all that. I am expecting their be no change to this as well. The Fed

seems pretty comfortable with the markets expectations that the first rate hike will be sometime

in the second half of next year. Also, once again, with lower inflation, lower global growth and

now some weaker domestic growth, I dont think the Fed will want to adjust expectations too

much at this point. The other big news for the week will be CPI data, also being released on

Wednesday before the Fed decision. Expectations are that inflation will move lower as energy

prices have done over the past few weeks. The key will be the prices of other things besides


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those related to the energy sector. If those move lower we could see the Dollar sell off even

more. Though the market reaction will likely be limited as the Fed meeting is later on in the day

and more in focus overall. As for other data during the week, on Monday we will get Industrial

Production, Capacity Utilization and NAHB Housing Market data and then on Tuesday we will

get more housing data with Housing Starts and Building Permits data being released along withManufacturing data. Then on Thursday Services and Composite PMI data will be released along

with weekly jobless claims data. But like I said, the Fed meeting is the most important event for

the week not only in the US but around the world too. As for the US Dollar and what its

reaction could be.the Dollar has moved lower over the past week or so and by a good amount

too versus the Yen in particular. This move lower too was in spite of much better than expected

NFP data which included wage growth. So unless data comes out better than expected overall

and the Fed in particular is more hawkish then their policy shows at this point, including their

expectations for rate hikes, I am not very optimistic that the US Dollar will gain very much or

sustain those gains. In fact, due partly to profit taking, and partly to a Fed that I expect will stay

pat through to the end of the year, I am expecting the US Dollar to continue to move weaker

through to the end of the year especially versus the Yen and Euro.

One Financial 12:14

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Transcript of One Financial 12:14