The Week Ahead: U.S. Exceptionalism

U.S. Exceptionalism Share this story: Alan Rose Foreign Exchange Senior Trader Relative to our peer group and other G7 countries, the U.S. economy has been an island onto itself over the past 18 months. The U.S. economy has done a much better job of weathering the global slowdown from the trade war and reduced trade volumes that have so negatively impacted so many other economies.  While there have been clear signs of U.S. recessionary contractions in farming and manufacturing from the trade war, other sectors of our economy have held their own or benefited from the sharp reduction in U.S. interest rates aided by the Fed’s three rate cuts this year. The U.S. dollar has reflected this exceptionalism and remained firm overall, despite sharply declining U.S. interest rates. While capitalism has its faults, it still offers the best system for maximum flexibility to a changing environment along with a dynamic reallocation of resources etc. and has allowed our economy to shift gears and withstand the global slowdown better than almost any other country. The economic levers are adjusting and working combined with the lasting effects of tax cuts and deregulation to help stabilize the economy. Job creation over the past three months (near 200,000 average) almost reflects the economy getting a second wind, even without the benefit of concluding a Phase 1 trade agreement between the U.S. and China. While recessionary signs were flashing orange earlier this year, the economy has regrouped and stabilized. The Fed’s corrective adjustments to lower interest rates combined with the Fed’s more predictable outlook regarding monetary policy and inflation have aided in stabilizing the economy.  Further impetus could come from a conclusion to the Phase 1 trade agreement and if the U.S. dollar declines slightly as predicted for 2020, the longest U.S. economic expansion in U.S. history should continue to march on. MAJOR CENTRAL BANK ACTIVITY THIS WEEK 12/11 United States Expectations for rates to be unchanged at 1.75% 12/11 Brazil Expectations for rates to be cut by 50 bps to 4.50% 12/12 Switzerland Expectations for rates to be unchanged at -0.75% 12/12 Turkey Expectations for rates to be cut from 14.00% to 12.50% 12/12 ECB Expectations for rates to be unchanged at 0.0% 12/13 Russia Expectations for rates to be cut from 6.50% to 6.25% KEY MARKET MOVING ECONOMIC RELEASES United States and Canada  12/11 CPI Expectations for a gain of 0.2%; YoY rises to 2.0% 12/12 PPI Expectations for a gain of 0.2%; YoY rises to 1.3% 12/13 Retail Sales Expectations for a gain of 0.4% following a 0.3% print Europe/Eurozone  12/10 German ZEW Survey Expectations for a slight improvement in the survey 12/10 U.K. Indust. Product. Expectations for a 0.2% print following a -0.3% print 12/10 U.K. Trade Balance Expectations for a slight decrease in the trade deficit Asia/Japan, and New Zealand  12/11 Japan Machine Ords. Expectations for a gain of 0.7% after a -2.9% print 12/12 Japan Tankan Expectations for a decline from 5 to 3 FORECASTS EUR While the linkage with the upward surging GBP has been strong at times, the euro has also been pressured by weak EZ economic data and a persistently overachieving DXY. EUR/GBP reflects this bipolar relationship and continues to grind lower since October making multi-year lows this week. Continue to expect the EUR to shadow and be hinged to the GBP and Brexit volatility as the U.K. election final approaches this week. Christine Lagarde will preside over her first ECB meeting on Thursday where rates are expected to be unchanged but tilted toward a dovish bias. Expect a steady to slightly weaker EUR this week but with an eye on the GBP post-election. GBP The GBP had a spectacular resurgence since October 1 appreciating near 7% against the U.S. dollar and has appreciated against numerous other major currencies as optimism spreads regarding the upcoming election this week. Polls still favor a slight Tory majority as the Tory lead over Labor remains consistently near 10%; the market remains optimistic and continues to buy GBP dips.  As we have all witnessed both in the U.S. and abroad, polling results over the past years have not always hit their mark. Expect a steady GBP as the election on Thursday approaches and hope the polls have hit their mark. JPY The JPY has been on a weakening trend since September 1 coinciding with the resumption of U.S. – China trade talks. But over the past month, the JPY is unchanged as U.S. interest rates have stabilized and come off their highs. Markets seem near to have priced in a Phase 1 deal and are hopeful for a conclusion prior to the implementation of more tariffs on December 15th. Continue to expect volatile intraday markets as ping-pong headlines regarding trade shift sentiment. Expect further consolidation this week.  CAD The Canadian dollar had a rude awakening as Friday’s Canadian Jobs report was incredibly weak and undid all the good and upbeat news from the Bank of Canada earlier in the week. Up until Friday, the CAD had reflected the resiliency of the Canadian economy and the independent course chartered by the Bank of Canada. The Canadian dollar gave back almost all of its gains for the week. Expect more range trading this week as the markets continue to digest the impact of the very weak jobs report but Canadian 2-year yields remain above U.S.2-year yields should keep the Canadian weakness contained. CNY The CNY has consolidated its gains since the resumption of the trade talks trading between 7.0500 and 7.000 for the past two weeks. Since November 1, the CNY is near unchanged; intraday volatility continues to reflect the ping-pong headlines regarding the status of the trade negotiations. Expect more range bound and consolidative trading this week with an eye toward presidential tweets. AUD The Aussie mirrors much of the recent developments of other key major and commodity linked currencies piggybacking the positive or negative developments regarding U.S. – China trade prospects. While the Aussie has experienced multiple bullish and bearish trends since August, it has returned to the same levels seen in early August. The RBA kept rates unchanged at its last meeting of the year last week following three rate cuts in June, July, and October. Markets remain biased toward another rate cut in February with a 68% probability. Expect a steady and range bound AUD this week. If we can help you with any Foreign Exchange needs, please email foreignexchange@cnb.com or call (800) 447‑4133. Want to learn more about international finance, economics, and global events? Sign up for our other Foreign Exchange emails and videos! Follow City National Bank on social media: Non-deposit investment products: • Are not FDIC insured, • Are not deposits or other obligations of City National Bank and are not guaranteed by City National Bank, and • Are subject to investment risks, including possible loss of the principal invested. This report is for general information and education only and was compiled from data and sources believed to be reliable. City National Bank does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors as of the date of the report with no obligation to update or notify of inaccuracy or change. This report is not a recommendation or an offer or solicitation to buy or sell any financial instrument discussed. It is not specific investment advice. Financial instruments discussed may not be suitable for the reader. Readers must make independent investment decisions based on their own investment objectives and financial situations. Prices and financial instruments discussed are subject to change without notice. Instruments denominated in a foreign currency are subject to exchange rate and other risks. City National Bank (and its clients or associated persons) may engage in transactions inconsistent with this report and may buy from or sell to clients or others the financial instruments discussed on a principal basis. Past performance is not an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.

Unsubscribe from this list  |  Update email preferences This message has been sent to bank@banking.offers.report. Please do not reply to this email. To ensure the delivery of future emails, please add foreignexchange@emails.cnb.com to your email address book or safe sender list. Copyright ©2019 City National Bank – All Rights Reserved. 350 South Grand Avenue, 12th Floor, Los Angeles, CA 90071 City National Bank is a subsidiary of Royal Bank of Canada. TERMS & CONDITIONS  |  PRIVACY STATEMENT NMLSR ID# 536994 | City National Bank Member FDIC