FX Daily: US Fed beginning to accept slowing growth outlook - Westpac

According to analysts at Westpac, the current macro themes are increasingly leaning towards a slowdown across the global marketscape as major economies struggle to keep the growth engines churning.

Key quotes

Friday’s Fed speakers included VC Clarida, who said global growth was slowing, and the Fed is getting close to neutral (but not there yet); Evans, who said the economy’s doing well and the Fed funds rate is just shy of neutral; and (non-voter) Harker, who wasn’t convinced a December rate hike is prudent. Overall, this was a somewhat more dovish tone than we might have expected and it had a notable impact on yields.

US 10yr treasury yields fell from 3.12% to 3.06% - a three-week low, while 2yr yields fell from 2.87% to 2.80%. Fed fund futures yields repriced the chance of another rate hike on 19 December at 65% (from 70% the previous day, and 80% a few weeks ago).

 ECB President Draghi stated that Eurozone growth had lost momentum for temporary internal reasons as well as slower global growth, but that the ECB remained confident that the broader cycle for the region is resilient. He also stated that inflation pressures remain muted and that their extended guidance would remain.

Australia’s data calendar is largely empty this week. RBA Nov minutes are due tomorrow. There are only minor releases due in Europe and Asia. In the US, we see the Nov National Association of Home Builders Market Index. The headline index has been in the high 60s since the Dec 2017 peak of 74 (% of homebuilders reporting positive conditions). Such readings are similar to the boom years of 2004-2005, raising questions about the usefulness of the survey, given that housing starts, permits and sales have all weakened this year. Consensus is 67 versus 68 in Oct.