Johnny Bo Jakobsen
Johnny Bo Jakobsen is Nordea Markets' Chief Analyst on the US. He is responsible for Nordea's view on the US economic outlook and Fed policy.
Johnny has been with Nordea for 15 years and during that time he has also covered Japan, the UK and Denmark. Prior to joining Nordea, Johnny worked at the Danish Ministry of Economic Affairs and he holds an M.Sc. (econ) from the University of Aarhus.
The Fed left policy unchanged as widely expected, but said the pace of QE could be either increased or decreased. This marks a slightly dovish shift from earlier this year.
Despite the recent round of weak data we do not expect an overly dovish tone to the post-meeting statement tomorrow. Still, a potential surprise would be if the FOMC is worried about disinflation.
The reason for our optimism is that private-sector deleveraging, which has been the most important factor holding back the US recovery over the past four years, seems to be over. Very importantly, the US consumer is back as Q4 2012 seems to mark an important economic turning with the end of household deleveraging.
We have made a number of adjustments to our financial forecasts including US rates, EUR/USD, GBP, CHF, JPY and base metals. The big story is unchanged!
Today’s US employment report supports our expectation of yet another spring slowdown in growth.
Risk appetite in general has been surprisingly resilient to adverse events in the past few months.
We forecast a 175k rise in US payrolls in March. An outcome in line with our forecast will support our expectation of yet another spring slowdown in growth.
We expect US economic data generally to disappoint compared to consensus estimates over the next few months as the sequester kicks in. As a consequence, we see increased risks of a temporary reversal of some the recent increase in risk appetite in financial markets.
As expected, the Fed left its policy and forward guidance unchanged at today’s FOMC meeting. Regarding QE3, there was no change in the wording of the statement to signal plans to scale down the Fed’s asset purchases yet. The FOMC's new unemployment projection is still consistent with no hike rate at least until late 2015.
Here are the usual financial forecast slides with our new financial forecasts published this this morning in Economic Outlook. We have changed our forecast for the Fed, the BoE, the SNB, Riksbanken, Euro rates, USD rates, EUR/USD, JPY, GBP, SEK, NOK, oil and the base metals.
Due to the strength of underlying fundamentals in the US economy, an elevated structural level of unemployment and the Fed credibly aiming for higher inflation we expect the US yield curve to continue steepening over the coming year or so as markets price in higher inflation.
With much improved economic fundamentals and significantly diminished policy risks the stage is set for a much stronger US economy in 2013 and 2014, but not without bumps along the road.
Our expectations for next week’s FOMC meeting.
US policymakers failed this time to reach a last-minute agreement averting the so-called sequester cuts. But the fiscal battle doesn’t end here. A timeline of key events related to the impending fiscal debate is provided in this post.
Fed Chairman Bernanke defended today the central bank’s asset purchases and said that they are still merited. With no new policy signals we still believe that the Fed is unlikely to scale down QE3 over the next few months.
I put the odds of the full sequester spending cuts going through on 1 March at more than 50%. Moreover, I expect most of the cuts to be sticking. I expect such an outcome to be slightly negative for risky assets and slightly positive for US Treasuries and the USD.
Risk sentiment has continued to mostly thrive lately. Improving economic data and continued easy monetary policy should still to provide support, but an increasing amount of event risk and uncertainty in the near future should lead to temporary profit taking and a correction lower in equity prices.
This is a regular monthly update of our financial forecasts. See the summary below or the full report via the link. Markets have settled a bit since our 29 Jan update (Markets getting too far ahead of economies). Still, we …
De finansielle markeder vil være præget af risikovillighed i den nærmeste fremtid. Men som følge af manglen på fundamentale forbedringer venter vi en korrektion i løbet af foråret.
Today’s FOMC meeting was a non-event, leaving monetary policy and the forward guidance unchanged as widely expected.
Today’s Q4 GDP report will likely prompt recession talk in financial markets, but we are pretty sure that the US economy is not on the verge of a new contraction.
Tomorrow’s FOMC meeting is likely to be a non-event. Q4 US GDP growth is likely to be weak, but the breakdown should contain some positives.
Risk-on is likely to dominate in the very near-term but given the lack of fundamental improvements we expect to see a correction sometime during the spring.
Recent political events in Washington have made the global economy somewhat safer. Thus, while we continue to see policy-related downside risks to our 2.1% GDP growth forecast for 2013, these risks have diminished significantly over the past few weeks because the threat from both the fiscal cliff and the debt ceiling has been addressed.
We have only made minor changes to the financial forecasts this time: We have lifted our mid-year target for the EUR/USD to 1.25, made minor changes to the GBP forecast, lowered our 3M EUR/SEK forecast to 8.60 and we have postponed the first hike from Norges Bank to March 2014 and only expect two hikes in 2014.
We estimate that a fiscal deal including a timely increase of the debt limit ensuring that all scheduled payments are met as well as further deficit reductions of USD 1-1½trn over ten years will be enough to prevent new rating downgrades of US debt.
US jobs data highlight why we are increasingly sceptical of the Fed’s indications that it will keep the funds rate near zero for at least 2½ more years.
The last-minute fiscal cliff deal is clearly a relief because it helps the US to steer clear of recession. However, while the fiscal cliff is now history, we will likely face another fiscal battle in Washington in just a few weeks’ time, with potentially negative consequences for confidence.