A lot of market participants will be viewing this week as simply a three day week. Thanksgiving always leads us to warn about a lack of liquidity in markets as traders instead work up the courage for another turkey sandwich and an antacid as opposed to making plays. Given its proximity to the end of the year as well, it provides a rather easy checkpoint for funds and trusts to begin reducing positions ahead of the move into 2015.
That being said, there is little to suggest that people will be exiting their US economy and dollar positive positions before the end of the year. Like most economists and strategists, I am currently writing my outlook for 2015 for the G10 economies and their currencies. The idea that has the most consensus backing at the moment – and therefore the one that stands to upset the apple cart should it fail – is the belief that the US economy will continue to improve through the year and that the US economy will therefore be strong enough to sustain rate hikes.
I am not disagreeing with this notion. The US has really been the only G10 nation that has maintained a high level of economic performance through Q2/3 and into Q4. Elsewhere, the growth wasn’t really there in the first place or has drifted off as global disinflationary pressures have increased and global demand has slowed.
We would have to think that the US data will remain in a positive vein this week. Tomorrow’s GDP announcement should be good enough to keep people writing stories about 3.0% growth. This is the second release of Q3 output – a period that saw a strong run of housing starts and retail sales. More present data, however, is due in the form of the latest consumer confidence numbers. There is the real possibility that these confidence surveys are very strong.
Last month’s number showed the highest level of consumer confidence since September 2007. There is no real surprise in the massive consumer confidence number; wages, jobless claims and purchasing power all in the consumer’s favor. We can but hope that the correlation with retail sales recovers in the coming quarters given the breakdown that we have seen recently.
The dollar’s performance remains strong. Once again, the weight of expectation is such that there are few analysts out there actively looking for a fall in the value of the USD through 2015. We are not joining the contrarians on this one but will give a word to the wise. Such is the sentiment and size of positioning around the greenback at the moment that an unwind would be quick and rather expensive for the investment community. Drivers of this would have to be aggressive economic weakness – which doesn’t look likely – or further falls in inflation, which seems to be under control at the moment.
In other words, there is a lot to be thankful for in the US economy and for the dollar right now.