The global economy includes a forecast of slowing growth in the US – What recession?


Outlook: The news calendar is pretty light today, giving us only mortgage applications, April trade and consumer credit. Oh, yes, and UK PM Sunak meets with Pres Biden ansd will be asking (again) for some special trade relationship. 

The big question today is whether the Bank of Canada will follow the RBA and halt the pause in hiking, a pause that started in January, and resume hiking at today’s policy meeting. We get the news around 10 am. Whatever the decision, it’s unlikely to have any effect on the Fed, which is resolute in sticking to its “transparency” in messaging. That is skipping a hike in June but resuming hikes in July. That’s the story and the Fed is likely to stick to it.

Of all the mishmash of noisy data, this time the OEC manages to make some news, even if it’s not getting headlines. Earlier today its forecasts for the global economy includes a US forecast of growth at 1.6% in 2023. Growth will slow to 1% in 2024. What recession?

The eurozone will get 0.9% this year and 1.5% in 2024. China will accelerate to 5.4% this year and 5.1% in 2024. 

“The OECD also noted that downside risks persist, including uncertainty over the evolution of the war in Ukraine, persistence of inflation, while some of the favourable conditions that helped to reduce energy demand this year, like a mild winter in Europe, may not be repeated next year” (Trading Economics).

We get another GDPNow from the Atlanta Fed. On June 1 it had growth at 2%, with the Blue Chip consensus rising slowly toward 1%.

Following up on the idea of growth leading currencies, Bloomberg has an article today defending the supremacy of the dollar that contains some juicy data. “Construction spending by manufacturers in the US has more than doubled in the past year, reaching an annual rate of almost $190 billion in April, according to Ben Holland and Alex Tanzi of Bloomberg News, who cite Census Bureau data. Manufacturing now accounts for about 13% of all non-government construction, the highest share on record in a data series stretching back to the early 1990s, they report. Intel Corp. is investing about $20 billion to build a chip fabrication plant in Ohio and Ford Motor Co. broke ground last year on a Tennessee factory that will make electric trucks.”

Then there is that de-dollarization hype. Not happening. See the chart showing the dollar’s share of global payments still up there. The report names a Citibank essay on Friday claiming that AI is drawing in global capital to the Nasdaq, up about 33% so far this year. Contrary to the consensus, stocks are outperforming bonds.

Buried in the text is the observation that some of the dollar’s resilience has to do with the higher interest rates investors can get in the US. The current Fed benchmark is 5.25% (and the CME FedWatch tool has 52.5% expecting a 25 bp bump at the July meeting). The eurozone has 3.25%. The UK has 4.5%. Japan has -0.10%. Back in the 1980’s, relative rates were the driver. They may be coming back. When the Fed does finally signal it’s through, then we can re-evaluate. 

Forecast: The dollar is up a little or down a little, but the overall trajectory is up. Barring an unhappy Surprise or Shock, it can go further, too.

This is an excerpt from “The Rockefeller Morning Briefing,” which is far larger (about 10 pages). The Briefing has been published every day for over 25 years and represents experienced analysis and insight. The report offers deep background and is not intended to guide FX trading. Rockefeller produces other reports (in spot and futures) for trading purposes.

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