"No warning can save people determined to grow suddently rich" - Lord Overstone

  • 17 hours The $85B Merger That Could Change The Media Forever
  • 18 hours Why Are Governments Creating Their Own Cryptocurrencies?
  • 19 hours How Debt Cycles Impact Gold
  • 20 hours Investors Up the Ante In $1.5B Uber Loan Deal
  • 22 hours Are Gold Miners Poised For A Breakout?
  • 23 hours Is The "Crypto Winter“ Over?
  • 1 day China Says It Doesn’t Fear Trade War
  • 2 days Twitter CEO: The World Will Have A Single Currency
  • 2 days Asian Currency Correction Could Signal Looming Crisis
  • 2 days Best Buy Drops Telecom Giant Over National Security Threat
  • 2 days The Pros And Cons Of The Federal Interest Rate Hike
  • 2 days Good News For Gold Bulls Despite Interest Rate Hike
  • 2 days Trump Hits China With $50 Billion In Tariffs
  • 2 days Russian Gold Reserves Hit Record High Amid Rising Tensions With West
  • 2 days Stocks Pull Back Following Interest Rate Hike
  • 3 days Will Regulatory Rollbacks Make Banks 'Too Big To Fail?'
  • 3 days Elon Musk’s $2.6 Billion Tesla Challenge
  • 3 days Tech Giants Could Be First Victims Of U.S. Trade War
  • 3 days Dow Gains Despite Fed’s Rate Hike
  • 3 days The Biggest Threat To Chinese Oil Futures
Stocks Pull Back Following Interest Rate Hike

Stocks Pull Back Following Interest Rate Hike

Fed's interest rate hike drove…

Economists Polarized On Trump’s Tariff Plan

Economists Polarized On Trump’s Tariff Plan

Economists are polarized on Trump’s…

Ashraf Laidi

Ashraf Laidi

Ashraf Laidi is the author of "Currency Trading and Intermarket Analysis: How to Profit from the Shifting Currents in Global Markets" - Wiley Trading.

More Info

Forget Decoupling

Act Exp Prev GMT
Great Britain Flag PMI Manufacturing
51.5 51.9 51.9 Sep 01 8:30
Great Britain Flag PMI Construction (AUG)
57.5 57.1 Sep 02 8:30
US Flag Markit Manufacturing PMI (AUG)
53.0 52.9 Sep 01 13:45
US Flag ISM Manufacturing PMI
51.1 52.6 52.7 Sep 01 14:00
49.7 49.7 50.0 Sep 01 1:00
53.4 53.9 Sep 01 1:00
51.5 53.9 53.8 Sep 01 1:45
47.3 47.2 47.1 Sep 01 1:45
Eurozone Spanish PMI Manufacturing
53.2 53.9 53.6 Sep 01 7:15
Eurozone Markit PMI Manufacturing (AUG)
52.3 52.4 52.4 Sep 01 8:00
Germany Markit PMI Manufacturing (AUG)
53.3 53.2 53.2 Sep 01 7:55

USD under renewed pressure from a combination of renewed China data disappointment, weak US manufacturing ISM and lingering chatter of a September Fed hike. US stock futures began selling off 6 hours before the release of China's manufacturing PMI, which showed the first contraction in six months and the lowest figure in three years. The largely-weaker than expected manufacturing ISM (lowest in 27 months) was accompanied by broader weakness in all components.

German Minus US 10-Year Yield Spread

We reiterate since December that the Fed will NOT raise rates this year and any rate hike this year will be policy mistake.

The disinflationary impact of USD strength and inevitable depreciation of the Chinese yuan will continue to supress US inflation to the extent of shadowing declines in US jobless rate. Saudi Arabia, a key strategic partner of the US is already suffering from the combination of plunging oil prices, rising budget deficit and having its currency-riyal-tied to a strong USD. Not dissimilar from China FX situation.

We reiterate that the cyclical peak of the US dollar against both the yen and euro is already behind us. USDJPY will not return to the 125.00 yen highs and EURUSD will not return to the $1.0530 lows seen earlier this year.

US Manufacturing ISM

No Decoupling again

In 2007, it was erroneously & widely predicted by pundits that emerging markets would decouple from G7 and escape the 2008-9 recession. Although BRICS recovered rapidly in 2010-2011, their decline in tandem with US, UK & Eurozone was notable in 2008-9.

Today, the decoupling idea is being peddled again, based on US diverging away from China & EM. This will prove wrong again as the combination of trade and capital flows is stronger than ever.

EURUSD: more than just unwinding

While the recent stabilisation in EURUSD has been widely attributed to unwinding of euro shorts linked to escalating risk aversion, don't forget old fashioned fundamentals. The spread on German-US 10-year yields (Germany minus US) continues to improve in tandem with a stabilizing EURUSD rate. The chart below highlights the improving yield spread in favour of the euro, while US core PCE price index (Fed's target) diverges away from the 2.0% target as Eurozone core CPI holds steady at 1.0% --13-month highs.

Draghi is back

We expect ECB president Draghi to re-emphasize his dovish stance in Thursday's press conference, subjecting euro to some pressure, especially if the governing council lowers its growth and CPI projections. Any pullback in EURUSD will be assessed ahead of Friday's release of the US August jobs report, expected at 205K from 210K. But take note that out of the last 15 releases of August NFP reports (due on September), 11 reports had negative surprises. And each of the last four August reports have undershot forecasts.


Back to homepage

Leave a comment

Leave a comment

Sign Up For The Safehaven Newsletter