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ISM business activity index, published on Thursday evening, confirmed concerns about the approaching crisis in the American economy. Despite the fact that the economy has been expanding for 116 consecutive months, the growth rate has declined very quickly, the industrial sector is slowing down faster than other sectors. The December figure was 54.1 p., below 59.3 p. A month earlier, the result was noticeably worse than forecast, while the new order index fell from 62.1 p to 51.1 p., the employment index fell from 58.4 p to 56.2 p., supply volumes and inventories fell, the level demand, and the price sub-index fell to a minimum since June 2017, which threatens to fall in real incomes and inflation expectations.
A little earlier, the ADP report on employment in the private sector outwardly looks very positive, since the number of new jobs has significantly exceeded forecasts, however, it has not been without a spoonful of tar, strong growth has been recorded in the service sector, while in industry it is more than ambitious, and in extraction it was completely reduced.
Today, a report on the labor market for December will be published, it is expected that the number of new jobs in the economy will again be consistently high, which should give support to the dollar index, but the focus will not be on the average wage growth rate, and here the situation is not improving, on the contrary, worsens. As long as consumer confidence indexes are high, panic is not dominant, but the trend is getting worse and worse. It is expected that the annual growth rate of average wages will drop from 3.1% to 3.0%, which will be a sign of a decrease in inflationary pressure, which has long been reflected in the fall in yields of 5-year TIPS bonds, which again updated the two-year minimum.
Business is waiting for a decrease in inflation and, as a result, a fall in consumer confidence, which will inevitably lead to even more rigid adjustments to the Fed's plans.
Despite the fact that, as a result of the December meeting, the Fed is still pursuing an expansionary policy, albeit at a slower pace, the market has already begun to prepare for the worst, and these fears do not go unnoticed by the Fed officials. The head of the Federal Reserve Bank of Dallas, Robert Kaplan, said on Thursday that during the first half of 2019, interest rates must be abandoned due to increased volatility and increased uncertainty in US economic growth and a slowdown in global growth.
Any pause in the rate growth will be a powerful bearish factor for the dollar, and the market reassessment of forecasts has already arrived. Futures on the CME rate for the first time in several years turned in the opposite direction, now investors see the prospect not of a rate increase in 2019, but on the contrary, its decline.
The situation for the dollar looks worse and worse. The slowdown of the global economy will affect, first of all, the commodity currencies, but the dollar may lose the status of a defensive asset if the US economy starts to shrink faster than the market expected, and this is precisely what is going on. The report on the labor market today may be noticeably worse than expected, which will lead to a decrease in the dollar index and an increase in panic.
Eurozone
The ECB, in a rapidly changing environment, is following a cautious strategy and keeping the euro situation in check. The regulator does not give any public forecasts on the date of the first rate increase, and a significant part of the repayments in the framework of the completion of the asset repurchase program, which for 2019 is 167 billion euros, intends to reinvest back, and, as a rule, in the same jurisdiction in which repayment. These intentions give concern to the ECB, which the main vector of efforts will be aimed at maintaining stability, that is, plans to reduce the balance of the ECB markets will not see soon.
On Friday, EUR / USD is neutral in anticipation of a report on employment, the boundaries of the range of 1.13 - 1.15 are wide, the shift is more likely towards the upper limit.
Great Britain
The currency pair GBP / USD has no direction, the recovery in oil prices supports the pound, as well as the prospect of a weaker dollar, the probability of growth to resistance 1.2730 is slightly higher.
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