Wall Street & us fed

It’s All About The Data Silly

What data?  I mean economic data coming out of the US.

By now you would have heard all about it – the US economy generated 280,000 jobs last month in May, far exceeding economist’s forecast which lends weight to the view that quarter 1’s dismal performance could be a blip due to cold winter effect and a port strike on west coast as the economic powers ahead in the next 2 quarters.  Fear of rate hikes by Fall (September) is back on.

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I have long advocated let us not be silly and go into this roller coaster game of forecasting by the month when will be the exact liftoff by US Fed be, going by what analysts say in the daily news.  Why so?  Well let’s just say you can have the two contrasting views at the same time with a dovish and hawkish stance so who do you believe?  At the end of the day nobody really knows as these guys are just doing their jobs giving interviews, doing data-crunching and at the same time gazing through some crystal ball … Look no one person actually predicted the oil price crash last October or was there?

That’s the reason why I prefer to take stock more like every 3-6 months and not read too much into one month’s statistics like the dismal figures in March.  I also prefer to use a more measured approach and look at more lasting “structural factors” as global events unfold.  These factors are more predictable and the effects more definitive.

Still I am no expert and I am off in my predictions that rate hike will come by June this month which is not likely now.  In my humble opinion, I have believed the drastic fall in oil prices will spur consumers to spend (and remember Americans unlike Asians love to spend – another structural factor) but the effect takes 6 months to trickle down to the economy and as it happened in October hitting the cold harsh winter months, I am expecting to see the full effects only in the quarter 2 economic data.

Apparently it took longer than 6 months as we are just seeing some signs now.  However I am now more convinced of a stronger set of numbers for June (out by July) as summer arrive and buying & travel activities pick up and if that is true, there is a real possibility that Janet Yellen and company might just decide to do a lift-off next month (or before September) to show the markets their resolve in doing the 1st rate hike and get this whole guessing game over and done with.  Remember she has already pre-empted that possibility of announcing a rate hike on video-conference even if there is no formal press conference scheduled for July’s and August’s FOMC.  Most analysts think the 1st rate hike will only be announced in a post-FOMC press conference in September or December.  That may change.

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Like I said there is no point guessing this.  The best way is to wait for the economic data for the month of June and July to be out, which will prove crucial to the timing of the lift-off.  I am adjusting my view that this will now happen anytime from July to September quarter however the general view is that it will be towards end of the year or even next year which is what IMF has recently lobbied for as it sees no reason for US to hike rates in the absence of inflation.

I am currently in New York as I am writing this and guess what, my friend here has just bought a brand new Nissan pathfinder (SUV) for USD44,000 on Memorial Day weekend.

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