Wednesday July 14, 2004 - 11:41:39 GMT
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US OPEN MARKET POINTS 07-14-04
No Wages No Growth
Overnight, the surprisingly low Japanese Consumer Confidence numbers (45.1 vs. 49 expected) highlighted one of the key problems of the current world economic expansion. Concerned about their future income growth, Japanese consumers drove the confidence number markedly down. Wages in Japan have risen only 3 times in the past 36 months. Last months US Non Farm Payroll number also disappointed with respect to wage growth. In US wages grew at a meager annualized rate of 2.1% -- a full 110bp below the 20 year average. In short, corporations are booking record profits but consumers are receiving little incremental cash flow. In Japan consumer spending comprises almost 60% of the economy. In US that number is greater then 70%. Ultimately this dichotomy between anemic wage growth and strong GDP growth is unsustainable and will lead to contraction in worldwide demand.
Stephen Roach of Morgan Stanley believes this problem is structural and cannot be solved by standard fiscal or monetary policy tools. He writes, “The IT-enabled efficiency tactics allow US companies to substitute high-wage domestic workers with like-quality low-wage foreign workers in goods producing and services-providing functions, alike. The lack of pricing leverage in today’s climate makes this arbitrage an increasingly urgent competitive imperative. In my view, the global labor arbitrage is likely to be an enduring feature of the macro climate — raising the distinct possibility that sub-par job creation in the US could well be here to stay for the foreseeable future.” If Roach is accurate then G-3 growth will slow substantially, creating further carry trade opportunities. Indeed, today’s buoyant numbers from the Australian Westpac survey and UK’s strong employment data bode well for possible rate increases in both nations. Should this occur, the (AUD/USD, GBP/USD, GBP/JPY) carry trade will become even more appealing to FX traders.
Key Overnight Developments
- AUD Westpac Consumer Confidence survey reaches 10 year highs analysts expect future RBA hike
- JPY Nikkei tumbles 2.1% as techs drop on disappointing Intel report
- GBP Both UK Unemployment rate and change beat expectations with wage growth is fastest in 2 years
FX Spot Overnight
- EUR finds support at 2300 trades back to 2370 on European buying
- JPY loses the 109 handle on Nikkei sell off weak Consumer Confidence data
- GBP loses 86 handle despite strong employment as wage growth is less then expected
- CHF approaches 2300 tracking EUR in absence on geopolitical or eco news
12:30GMT - (8:30 AM EST) USD Retail Sales (June)
Expected at –0.8%, Previous 1.2%
Ex-Autos Expected at –0.2%, Previous 0.7%
Most analysts expect a large decline for June due to recent sales #s from auto manufacturers and warnings from Wal-Mart and Target.
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