📝 Westpac U.S. Economic Data Surprise Index Falls to Cycle Lows

Consumer surveys, regional PMIs and the interest rate sensitive housing sector have all producing some very underwhelming data prints lately. Barely one-third of US data released over the last eight weeks have beaten consensus expectations; that puts our US data surprise index deep in its bottom quartile, a far cry from where things stood in late-2021 when our surprise index hit 62%+, i.e. almost two thirds of the data were beating expectations.

US households have accumulated around $2.5trn in excess savings over Covid. Secondly, the US is enjoying a material terms of trade boost. The US terms of trade has risen more than 5% since late 2019, while Eurozone’s terms of trade have declined almost 4%. Eurozone implicit price deflator only goes back as far as the mid-1990s and as of 2021Q1 the Eurozone’s terms of trade was as weak as it has even been since then. Meanwhile, the US terms of trade has never been this high over the same period.

US recession talk will periodically undercut the USD, but yield support for the USD should continue to build; key Fed officials are already making the case for another +75bp in July and they sound as determined as ever in their quest to bring inflation down to more acceptable levels.

-Westpac Strategy