King Dollar will become King of Kings in 2017!
Greenback looks set for a big rally, writes
October payrolls, at 160,000 jobs and a 4.9 per cent unemployment rate confirm the message of the November FOMC and will have no impact on the Presidential election.
One, the Federal Reserve will raise 25 basis points in December.
Two, average hourly earnings have now risen to 0.4 per cent last month, a seven year high. This means a tight labour market and rising inflation.
Three Hillary Clinton will be elected the 45th President of the United States as Trump has no mathematical odds of winning 270 Electoral College votes.
Four, the US Dollar Index reached a seven month high in October. But as President Reagan liked to say, your ain’t seen nothing yet. The Fed’s dual mandate will force it to raise the Fed Funds rate three times in 2017. This means the US dollar is on the eve of its biggest rally since the post Lehman panic. King Dollar is about to become King of Kings Dollar, with apologies to the ghost of the last Shah of Iran!
The Euro is 53 per cent of the US Dollar Index and has been slammed as the two year US Treasury — German Bund interest rate spread has widened to its highest level in the past decade. The ECB will not taper its current 80 billion Euro asset purchase programme in March 2017, the precise moment when Britain invokes Article 50, France faces the very real threat of Marine Le Pen’s National Front in the Elysee Palace and AFD’s threat to the ruling German coalition in Berlin.
Sometime after the next ECB meeting in December, the gnomes of Zurich (and every other money bazaar on the planet!) will realise that the politics of the Bundesbank and the ECB Governing Board precludes an end of monetary stimulus, especially now that crude oil has lost its entire post Algiers rally. My call? No end to negative interest rates in Europe Continued existential pressures for Old World banks, led by the German Grossbanken.
This means primarily Deutsche Bank but even Credit Suisse has lost almost 50 per cent of its market cap in 2015. In fact, I would not be surprised if the ECB extends and enlarges the scope of its monetary stimulus. This means the Euro is headed to 1.04.
My post Brexit call to short sterling at 1.33 for a 1.15 target played out on October 7 in the Asian “flash crash”. Yet the real time calculus on sterling changed last week. Mark Carney will not abandon the Old Lady of Threadneedle Street to atone for his public Remain views. The Bank of England raised its growth forecast and indicated that it is willing to accept inflation above two per cent for the next three years.
The High Court’s decision on Article 50 has defanged the “hard Brexit” demons that haunt 10 Downing Street. UK manufacturing data is resilient. Foreign central banks continue to buy gilts at HM Treasury auctions. Oil’s fall will help Britain’s current account deficit. The UK consumer’s post Brexit price shock at the supermarket and the petrol pump means no imminent end to the High Street spending binge. Nissan has reiterated its commitment to the Sunderland plant. There will be no base rate cut as long as Carney rules the roost in the City of London. My call? Sterling bulls go long at 1.24 and ride
King Dollar is about to become King of Kings Dollar, with apologies to the ghost of the last Shah of Iran! the “soft Brexit” wave till 1.28 on cable. If I am right (and political ill winds in Westminster could derail macro paradigms overnight!), this is an impeccable moment to accumulate sterling/yen.
My successive calls to short the Canadian dollar at 1.26 and then again at 1.30 have been vindicated with a vengeance now that the loonie has fallen to 1.34. Friends and kin from Mirdiff to Montreal called me to ask if the post Algiers pop in West Texas crude was a signal to buy the Canadian dollar. My answer was no even before the OPEC deal unraveled in Vienna as the loonie sank to 1.34 in October. The real variable that moves the loonie is relative economic growth/interest rate spreads. I expect Governor Poloz to cut rates again as house prices sag while the Fed hikes in 2017. This means the loonie is headed to last December levels near 1.46, good news for a McGill parent!
The Bank of Japan has been comatose in 2016, threatening the future of Abenomics. Japan has not emerged from its two “lost decades” or generated two per cent inflation, as Kuroda-san promised. The Japanese yen rose from 120 to 99 (just after Brexit) and the Bank of Japan did squat to prevent this deflation shock to the Empire of the Rising Sun.
M