EUR 21.76 For Business Accounts Only

The Weekly Track outlooks-and-lookouts

- The Weekly Track – Outlooks and Lookouts by Bob Savage
http://trackresearch.com/articles/the-weekly-track-outlooks-and-lookouts/

We finished the first week of 2018 with more questions than answers. The rally up in risk with equities jumping to new records and with commodities all higher suggests the themes that ended 2017 linger in 2018. The outlooks for 2018 remain robust for equities, negative for bonds, positive for commodities and confused about the USD. Most see the USD going nowhere even though rates and growth differentials support the dollar in the medium term. The lookout for USD trouble starts with politics with the threat of a government shutdown and lack of cross party support ongoing. The twin deficits add to the drag for the USD as the trade data haven’t improved despite the push for more nationalist trade policy and the US budget remains in deep deficit – aggravated by the recent tax reform. No one is so sure that the FOMC rate hikes are a sure thing in 2018 either. The risk of a 2-3 hike regime or a 3-4 one seems about even to most. The bigger issue for the USD is the terminal
rate for the Fed is seen closer to 2.25% than the 3.5% dots and the forward guidance power of the new Powell Fed is yet to be tested. Markets are looking out for trouble even as their outlooks are for even better times ahead. This state can last a long time – and it begs the question of what will change views other than something truly shocking – either from nature or man-made like a war or a recession – neither seem that likely and so we see the tape reflect the rising tide of 2018 hopes as greed beats fear so far. For the USD this means more of the same consolidation near the bottom of 2017. For the big picture, the USD isn’t yet that far from its 20 year average (Using the Fed broad $ index) and the risk of 105 rather than 95 seems about even.