Macro Weekly – Treasury rally streched

by: Han de Jong , Aline Schuiling , Georgette Boele , Peter de Bruin , Maritza Cabezas

Macro-Weekly-131021-Treasury-rally-stretched1.pdf ()

Big Picture: Financial markets seem to be celebrating that the fiscal delay also means tapering delay. We think that a December taper is a closer call than generally judged. In addition, looking at how far the bond market has rallied and how much expectations of tightening have receded, we think that process has gone too far.

US: Economic data will start flowing again this week, with tomorrow’s labour market report the one to watch. We are expecting to see an acceleration in job growth, with nonfarm payrolls rising back to around the 200K mark. This would be the first step in a return in confidence in the US economic outlook.

Dollar: The greenback has been weighed down by the fiscal impasse and the scaling back of Fed tapering and rate hike expectations. We still expect the dollar to rally strongly in coming quarters given our positive view on the US economy, but we have reduced the degree of appreciation in our forecast for next year.

Eurozone: Industrial production in the eurozone rose in August, but is still on track to moderate in Q3, This is in line with our scenario for the eurozone economy of ongoing, yet rather slow, recovery. With inflation subdued, the ECB should keep policy accommodative through next year.

Asia: China’s economy accelerated in Q3. This underlines our view that the economy has turned, but September’s monthly data, which showed growth easing, warn not to expect a sharp rebound.