Global Economic Weekly：USD Index Drops below 94, US Treasury Yields Rise at Slower Pace

17 May 2015 Please read the "Special Disclaimer" Section on the last page Securities Research Report Global Economy USD Index Drops below 94, US Treasury Yields Rise at Slower Pace Global Economic Weekly Weekly Review  The US Dollar index fell below 94 while US Treasury yields moved upward at a slower pace. Macro data of Europe, Japan and the US released the week ended May 17 continued to be disappointing. Despite better-than-expected weekly initial jobless claims, the US April Labor Market Conditions Index was still below expectations. US PPI recorded the biggest decline in five years and the MoM growth rate of retail sales remained flat with the previous month. These figures imply that US economic recovery in early 2Q was slower than expected. Eurozone 1Q real GDP flash expanded 0.4% QoQ, in line with expectations. However, some macro data have signaled weakness since the start of 2Q, and whether or not the economy can continue to beat expectations merits attention. There were two major events during the week: ① The US Dollar index fell below 94, sparking rises in prices of gold and other commodities with strong metal attributes; ② 10-year German bond yields continued corrections (once hitting a new high of 0.726%), while the uptrend of US Treasury yields moderated. Nasdaq, Dow Jones and S&P 500 indices all gained slightly for the week, while European stocks dropped amid fluctuations. Due to sluggish US economic data and narrowed spread of German bonds versus US Treasuries, the US Dollar index dropped significantly to below 74, which led to rebound in prices of commodities with strong metal attributes such as that of gold. Meanwhile, global oil prices also increased slightly amid volatility.  Although the US Dollar index declined sharply on weak macro data and narrowed spread of German bonds versus US Treasuries, we remain bullish on midterm uptrend of the dollar. Entering April, key US macro data have has not rebounded strongly as expected, which partly eased market expectations for a Fed rate hike. April retail sales were flat with the previous month with growth lower than the expected 0.2%; excluding autos and gas station sales, retail sales rose 0.2% MoM, less than the expected growth of 0.6%, the data for the previous month was revised up, indicating that real wage growth of US residents in 1Q has not transferred to consumption (savings rate increased somewhat). In addition, April Labor Market Conditions index (LMCI) further dipped to -1.9 from -0.3 the previous month. The four-week average of the weekly jobless claims continued to hit a 15-year low, better than expected. On the whole, the US economy improved in April from March, but the recovery was weaker than expected. April core PPI fell from 0.9% the previous month to 0.8%, less than the expected 1.1%, further adding pressure on the Fed to achieve the 2% inflation target. As macro data missed expectations, coupled with the recent dramatic selloff of German bonds which led to a sharp contraction of Germany and US debt spreads, the dollar index saw large declines recently, beating our previous estimates. However, we maintain our bullish outlook for the US Dollar index in the midterm before rate hike expectations are met, because the job market is gradually approaching full employment and wage increases may trigger potential inflation risks. We maintain our opinion that the first rate hike is more Analyst: Rong Cui 021-22167199 cuirong@ebscn.com Practice license number: S0930513080004 Analyst: Gao Xu 010-56513082 gaoxu@ebscn.com Practice license number: S0930512080004 Macroeconomic performance vs. forecast index Next week’s key data and events Date Economic Data 5/19/2015 US Housing Starts 5/19/2015 Eurozone CPI 5/21/2015 Fed April Meeting Minutes 5/22/2015 US CPI Watch Everbright Macro Grasp the Economic Pulse U.S. Japan Eurozone Emerging Markets 股票报告网整理http://www.nxny.com 2015-05-17 Global Economy Weekly Please read the "Special Disclaimer" Section on the last page - 2 - Securities Research Report likely to happen in September than in June.  Rising oil prices and the consequent inflation risk may not be sustainable. We noted in the previous weekly report that the current fundamentals do not underpin such a sharp rebound in oil prices since the beginning of this year. In addition to excess supply of crude oil and a strong dollar, the core factor is that shale oil technology advances substantially reduced the time lag between energy investment and output. Although OPEC production cuts may boost future oil prices, such rise will also be offset by high yield shale oil in a few weeks (besides, OPEC does not have the willingness to cut production). Some media reported this week: If US oil prices can be h