The Ant And The Grasshopper: A Window Into Macro, Part II

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Regardless of the dollar's role and function in the world economy and the halls of finance, in the near and intermediate terms, investors and businesses are more concerned with foreign exchange prices. The greenback has fallen out of favor. Its main supports, like wide interest rate differentials, favorable growth differentials, and political certainty if not stability, have weakened. The pace accelerated from mid-June through the end of July.It seems to have entered a consolidative or corrective phase, perhaps aided by the stabilization of yields as participants make room for the quarterly refunding, and a surge in coupon issuance through October.  

The upcoming US data features July CPI, retail sales, and industrial production figures.Taken as a whole, the data are likely to show that the US economic activity moderated from the pace seen in June. The July job figures showed a disturbingly low number of returning workers in manufacturing.The 26k increase paled in comparison to the median forecast for 255k and June's 357k increase.Losses were reported in the production of computers and electronic goods, fabricated metals, and machinery.The auto sector, which has been a bit of an economic catalyst in Canada, and to a lesser extent, Mexico, as well as the US, saw another 39k workers return. 

Retail sales are forecast to rise by around 1.8% after the sizzling 7.5% month-over-month gain in June.The core measures, which exclude autos, gasoline, and building materials, may slow to a still-strong 0.9% from 5.6%, according to the median forecast in the Bloomberg survey.Similarly, the growth in industrial output is also likely to slow.The median forecast calls for a 3% rise after a 5.4% gain in June.The pace of recovery in the manufacturing sector may have moderated to2.9% from 7.2%.Given the manufacturing employment disappointment, the risk would seem to lie to the downside.Year-over-year measures of headline and core CPI may ease.

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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