Tags: fed | rate hike | economy | investors

Economic Growth Indicators Rise Along With Rate-Hike Likelihood

Economic Growth Indicators Rise Along With Rate-Hike Likelihood
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Friday, 27 May 2016 07:33 AM Current | Bio | Archive


No doubt, the highlight of the day will be Fed Chair Janet Yellen speech and the Q&A session just before markets close early ahead of the Memorial Day holiday.

So, let’s wait and see what happens.

In the meantime, the G7 heads of government met and failed to agree there was any sense of economic crisis in the world.

Japan’s Prime Minister Abe had wanted to signal that there was in fact an economic crisis in the world or at least the threat of one.

Presenting the world in that light would help to absolve Prime Minister Abe of responsibility of the relative weakness of the Japanese economy, which is not really looking in the best of health, especially as there is a reasonable chance that elections will be called later this year in Japan.

The Japanese delegation prepared several papers proving how positively awful things were, but they were ignored.

Anyway, the G7 Ise-Shima Leaders’ Declaration statement did at least commit members to avoiding “competitive devaluation” of their currencies although it also warns that excess volatility and disorderly moves in foreign exchange rates can have adverse implications for economic and financial stability.

That said, the G7 did also comment on the UK referendum on EU membership stating: “A UK exit from the EU would reverse the trend towards greater global trade and investment, and the jobs they create, and is a further serious risk to growth.”

One thing that is for sure is that in case the UK would vote in favor of leaving the EU, it is practically impossible to price the financial consequences in at present and therefore it is certainly not an overstatement saying this is one of the biggest unknown unknowns today, and this as well on financial, economic as on geopolitical level.

If it were to happen, it would create a boatload of uncertainties that wouldn’t be helpful at all for overall markets with, just to name one example, the British pound taking a serious hit.

On the contrary, if the UK would vote to remain in the EU, which in fact the latest polls indicate, then we could see an interesting upward move in the pound sterling.

Of course, it won’t be over until it’s over.

Meanwhile Japanese consumer price inflation came in at minus 0.3 percent year-on-year on the headline.

Remarkable how the country with the highest inflation expectations in the G7 has the second lowest inflation rate in the G7.

The key issue of course is that the high frequency purchases of the Japanese consumer are tending to rise in price, which shakes the Japanese their perceptions on inflation. It should be further noted that the quality of Japanese consumer price inflation construction has been criticized in the past.

In the U.S., we can expect a positive first revision to first quarter GDP, an event that is calculated to animate those who obsessively watch for the Federal Reserve slightest tremor.

Fact is, high frequency data flow suggest, of course in part, the first quarter GDP is likely to be revised up and also because U.S. GDP is nearly always revised higher.

Indeed, nearly all U.S. data, growth and inflation, are revised higher at the moment.

Now investors could do well taking notice that the increasing growth GDP of the first quarter has a “disproportionate” bearing on annual average estimates, which is important, as this may change the presentation of the economy for the Federal Reserve, raising at least the possibility of an acceleration to the tightening cycle, which would, if that would be the case, impact broad-based overall markets.

Besides all that, the economic outlook for the U.S. remains relatively robust and real interest rates of borrowers are falling at quite an aggressive rate. Real borrowing rates are nominal rates, discounted by income growth.

Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments. To read more of his articles, GO HERE NOW.

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HansParisis
Presenting the world in that light would help to absolve Prime Minister Abe of responsibility of the relative weakness of the Japanese economy, which is not really looking in the best of health, especially as there is a reasonable chance that elections will be called later this year in Japan.
fed, rate hike, economy, investors
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2016-33-27
Friday, 27 May 2016 07:33 AM
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