The disappointing US employment data reinforces our expectation that after a strong advance in Q1 the US dollar will correct lower in Q2. The euro’s performance is also broadly consistent with the US experience in which the dollar sold off in anticipation of QE and then rallied on the fact. The euro recorded its low within a week of the ECB’s launch of its public sector purchase program.
Since the recovery of the US economy following the “Great Recession” of 2007, unemployment has steadily declined but wages have remained virtually unchanged, an historic anomaly. However, wages for one segment of the population have seen a gradual up-tick: minimum wage workers.
American consumers are getting more confident while home prices continue to rise, as historical tailwinds turn to headwinds that are helping the country sustain its economic recovery.
After a downturn in February, the Consumer Confidence Index rose to 101.3, an increase of 2.5 percentage points from February. The Conference Board noted that the index, which measures consumers’ general feeling about future economic conditions, saw a sharp uptick while economic expectations for the future rose.
The US dollar is mostly lower as liquidity thins, and soft economic data kept the bulls penned. The soft ADP estimate and weaker than expected manufacturing ISM offset the heightened rhetoric about Greece’s 460 mln euro payment due to the IMF next week.
A recent report by the Pew Charitable Trust has found that the middle class has definitely gotten smaller since 2000. But, with the economy on the rebound, should it not be growing again?
Americans saw their incomes rise in February, helping spending to rise slightly as goods and services become slightly more affordable.
Personal incomes rose 0.4% in February, the same gain that incomes saw in January. A new report by the Bureau of Economic Analysis showed a total of $61.8 billion in higher personal incomes for the month of January and a $58.6 billion increase in February.
Tax Burdens and Discretionary Consumption
The US dollar remains bid as liquidity begins to slip away from the foreign exchange market, not to return until April 7. The inability of the euro and especially sterling to trade higher despite favorable economic news is noteworthy. At the same time, the Nikkei’s fall (0.9%) after a similar slide in the S&P 500 yesterday (and a lower opening projected today) has failed to keep the dollar below JPY120.
March may begin as a lion and end as lamb, but the US dollar is finishing the month as it began, with underlying strength. The main exception is the Japanese yen, against which the dollar is flat, perhaps a reflection of the weaker Nikkei (-1%), and softer US shares.
The calendar impacts the investment climate. March 31 ends the month, quarter, and for several countries and companies, the fiscal year. The Easter holiday is typically among the quietest in the capital markets, with many financial centers closed. After April 1, full liquidity will not return until April 7.
The US dollar trended higher in Asia and early Europe, but the gains pared as the European session got under way, and the underlying trends remain intact. Global equities are also winding down the month and quarter with upticks as well.
