BofAML: Divergencia y el dólar (+ comentario elecciones españolas)

Redacción - Viernes, 18 de Diciembre

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Key takeaways.- Some global investors expect the US dollar will strengthen enough in 2016 to materially slow down the Fed's hiking cycle.-While the US dollar may move sharply against some currencies next year, the real trade-weighted USD will rise only modestly.-The Fed may be more sensitive to further appreciation, but we do not expect the Fed to delay its gradual pace of hikes.

Global: Divergence and the dollar

Will the US dollar appreciate enough in 2016 that the Fed will once again decide to delay rate hikes? We don't think so, based on an estimate of the real trade-weighted US dollar that uses our FX strategists' 2016 currency forecasts.

United States: Nice to meet you, R*

With the Federal Reserve's first hike in the rearview mirror, the conversation shifts to the path of the hiking cycle. A key communication tool is the concept of an equilibrium real Fed funds rate, otherwise known as R*. While short-run R* is close to zero, the long-run is still believed to be about 1.5% in real terms, suggesting a shallow and slow hiking cycle

Euro Area: Spain - a long road ahead

Polls give a slightly more than even chance to a continuation of PP administration as a minority government or in coalition. But uncertainty is high and several alternatives look feasible. A Podemos-led government is the least likely. Absent any major surprise, election results should not be a market event. But there is no win-win result for the medium run.

China: Policy support to help divergent housing market.

We expect some stabilization in Chinese residential investment as the home sales recovery continues with supportive policies. Residential investment has been weak due to high-inventory pressure in lower-tier cities, despite robust home sales momentum. There are some green shoots as inventory pressures have started to ease in cities across all tiers.

Japan: Shift to moderately expansionary fiscal policy

The latest tax reforms and the supplementary budget indicate that the Abe administration's policy focus for the time being (FY3/17-18) is on ending deflation.

Emerging EMEA: oil vs economy

The Russian economy continues to look vulnerable to any further declines in oil prices. Increasingly pro-cyclical fiscal policy due to deficit limits could increase the sensitivity of real GDP to oil price volatility. The economy could remain in recession if oil prices fail to recover, as RUB weakness might not be sufficient for stabilization.

Latin America: there is life after the hike

Banxico and BCCh increased their policy rates by 25bp, as we expected. We look for BanRep to hike today. Fitch lowered Brazil's credit to junk and we expect Moody's to follow. We increased our 2016 inflation forecast to 6.9%. Argentina devalued and removed FX and capital controls. We expect ARS to trade between 13 and 15 in the coming months.

UK: BoE vs the Fed

The labor market has arguably been stronger in the UK than US, but planned UK austerity and sterling sensitivity justify delay vs Fed. BoE strategy now seems closer to waiting for the "whites of inflation's eyes" before hiking. The risks to our 2Q hike call are skewed to delay.

Australia: Budget deterioration goes on as commodity prices slump

The 2015-16 budget update foreshadows a $37.4bn deficit for 2015-16, $2.3bn worse than what was expected in May's budget (at 2.9% of GDP). In the four years to 2018-19, the underlying cash deficits are expected to sum to $108bn, an upward revision of $26.1bn from what had been forecast in May's budget, due to downward revisions for growth and commodity prices.  

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