The
economic forecast indicates that everything seems to be fine. The U.S.
economy’s expected growth was revised higher this year to 3.1% from 2.8%,
thanks to tax cuts, higher oil prices, and capital expenditures. http://www.tectono-business.com/2015/07/tectono-business-review-in-conjunction_21.html
Employment is to remain at historic lows of 3.7%, and inflation will remain
steady at 2-2.1% over the next three years. In my opinion, these projections
reflect that we’re living in a perfect world.
Fed
Chair Powell doesn’t yet feel threatened by the effects of the trade war,
although he will continue to monitor its developments very carefully. http://www.tectono-business.com/2015/07/tectono-business-review-in-conjunction_21.html
Interestingly, U.S. equity markets were pulled lower during Powell’s press
conference as Treasury yields tumbled across the curve dragging financial
stocks with them.
In
theory, low inflation expectations may continue to support non-financial stocks
given that it’s a key component of the required return on equity. http://www.tectono-business.com/2015/07/tectono-business-review-in-conjunction_21.html
However, our concern is that falling GDP growth rate will translate into lower
profitability and corporate earnings growth. Given that valuations remain
historically high, and interest rates on the rise, the threat to the equity bull
market will likely increase over the next several months.
The
Dollar was only slightly firmer against its major counterparts. http://www.tectono-business.com/2015/07/tectono-business-review-in-conjunction_21.html
The Dollar index traded 0.3% higher at the time of writing at 94.50, which is
still well below August highs of 96.98. This suggests that yesterday’s Fed
decision was well priced in the market, and focus should now return to macro
fundamentals for new guidance.
Several
sets of U.S. economic data are due to be released today including the final
reading of Q2 GDP, durable goods, trade balance and personal consumption
expenditures prices. While Q2 growth is likely to be confirmed at 4.2%, durable
goods for August is expected to rise 2% after a 1.7% decline in June. http://www.tectono-business.com/2015/07/tectono-business-review-in-conjunction_21.html
Given that durable products often involve capital investments, a rise in this
figure may indicate that businesses are still not very concerned about any
ensuing trade wars. http://www.tectono-business.com/2015/07/tectono-business-review-in-conjunction_21.html
It will also be interesting to see how trade tariffs are impacting the U.S.
trade balance. In July the U.S. deficit with China hit record levels, so a
continuation of this trend would raise the prospects of further tariffs on the
remaining Chinese goods imported to the U.S.
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