Experts Talk Chicago PMI, Dollar, German Growth
Bloomberg BusinessWeek compiles comments from Wall Street economists and strategists on the key economic and market topics of Dec. 30. Joseph Lavorgna, Deutsche Bank The stronger-than-expected reading on the December [purchasing managers' survey from the Chicago chapter of the Institute for Supply Management] (60.0 vs. 56.1), combined with similar results from the regional manufacturing survey from the Philadelphia Fed district, countermand the impact of a much weaker [New York Fed] Empire survey earlier in the month. As such, we are upgrading our national ISM manufacturing survey forecast for next week to 55.0, from 53.6 as last reported. The consensus forecast is for 54.0. The details of the Chicago PMI were generally stronger, as new orders (63.5 vs. 62.8) and production (65.8 vs. 57.6) both improved from already solid readings. Other important positive news came in the form of mounting order backlogs (53.0 vs. 46.5) and rising employment (51.2 vs. 41.9). Order backlogs are significant, because a healthy supply of back orders can sustain production, even if demand temporarily falters—additionally, they help to boost business managers' confidence with respect to capital spending and employment plans. The employment component crossed into expansionary territory for the first time in 25 months. In other details of the report, prices paid rose (54.9 vs. 52.6) and inventories continued to contract at a slower pace (39.4 vs. 34.9). These manufacturing figures are consistent with our view of a continued turn in the inventory cycle, which will boost production through (at least) the first part of 2010. Vassili Serebriakov, Wells Fargo Bank In what remains a light week for foreign exchange trading activity, the dollar is strengthening again. The greenback touched a three-month high against the Japanese yen, while also advancing against most other major currencies today. Given thin economic calendars, we suspect yearend position adjustment and book balancing continue to play a big role in the currency moves. However, we also see some of the latest FX market patterns, such as the breakdown in the inverse dollar-equities relationship, as an early indication that the drivers of currency markets in 2010 will be different from those in 2009. One key theme that we see developing over the course of next year is the move away from extremely accommodative monetary policy settings by global central banks, which should be U.S. dollar-supportive. We also see the Japanese yen and the Swiss franc "regaining" their status of carry-trade-funding currencies. The latest IMM speculative positioning data showing traders moving to a net short position on the yen suggests this theme may be starting to play out already. Natascha Gewaltig, Action Economics Germany's export-oriented economy has been hit hard by the global financial crisis, yet the labor market has remained quite resilient. This, along with government stimulus programs, should allow the economy to stabilize in 2010 and expand 1.6%, after an estimated contraction of 4.8% this year. German growth bottomed out in the first quarter of the year, and the rebound in the second half has been stronger than anticipated. The inventory cycle and stimulus programs have accounted to a large extent for the volatility. German gross domestic product declined 3.5% quarter-over-quarter in Q1, followed by a modest 0.4% rise in the second quarter and a stronger than expected 0.7% pick-up in Q3. Indications are that Q4 will be almost equally as strong.
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