Economic Weakness Abroad Suggests Continued Strength in the Greenback

A taste of global economic data released today:

• Euro Zone Service PMI was weaker than expected at 42.5


• The U.K. PMI measure fell to 40.1 from 42.4


• Euro Zone retail sales in October fell 0.8% (outpacing expectations to the downside)


• Australia's GDP grew 0.1% Q-O-Q in Q3 (half of the expected growth)


• Thailand's central bank cut rates by 1.0% to 2.75%

This data further emphasizes the decline of global economic activity and reiterates the likelihood of a wide spread easing of monetary policy on a global basis (an easing already pursued in the United States). The introduction of loose global monetary policy coupled with a heightened sense of risk aversion (especially in the emerging markets) will likely lead to an inflow of foreign capital into the United States, resulting in a continuation of the strong performance seen in the USD over the past few months. The downside is the negative affect this will have on US exports and in turn their contribution to GDP in the US (export growth has already decreased from 12.3% in Q2 to 3.4% in Q3 due in part to the USD's performance over that time period). This supports our view that we will continue to experience GDP contraction through H209.

12/04 Update:
ECB cuts by 100 bps and the ECB eases by 75bps leaving the benchmark rates at 2.0% and 2.5% respectively (the days of the European single, inflation focused mandate are quickly fading).