US growth leadership position is fading - Westpac

Analysts at Westpac explained that the relatively stronger US growth against the backdrop of a sluggish global growth story has been the key to the strong rise in interest rate differentials in the USD’s favour and the USD’s 20% rise since mid-2014.

Well, well, well ... Do you still think the Fed will hike rates?

Key Quotes:

"But, tentative signs are emerging that the US’ growth “leadership” position in the global economy is fading. Both sides of the equation seem to be at work - less weak activity overseas and weaker headline GDP growth in the US. This is probably not the start of a meaningful trend – the US seems to face fewer long term headwinds to sustained growth than either the Eurozone or China – but it may nevertheless be enough to upend the USD for a while.

Advance US Q2 GDP growth was of course well below consensus at 1.2%, though a large draw on inventories accounted for much of the miss. Real final sales were healthier at 2.6%. US GDP tends to be revised higher over time too – the last six advance releases all missed expectations but lately the 2nd and 3rd updates have been revised higher. That's the good news. On the other side of the ledger:

US growth has averaged a paltry 1% in 2016H1, not even half the growth pace that consensus was looking for at the start of the year – the Bloomberg median forecast for 2016H1 growth stood at 2.5% at the start of the year. With the Fed and consensus at 2% and 1.9% respectively for full year 2016 GDP, growth in the second half needs to hit a strong 3% annualised pace to realise these full year forecasts."