Currency
Interview: BROWN BROTHERS HARRIMAN ---RHAME, LARA--- Currency Strategist
>> got some headlines for you. this is coming off the teleconference with the c.f.o. from apple computer and the c.f.o. saying that the delays in deliffing their i-mac p.c.’s are in part due to manufacturing problems at i.b.m. they say they’re extremely unhappy about it but the c.f.o. also saying that they―the i.b.m. rather is putting enormous resources, quote, to resolve the delay. so i.b.m.’s manufacturing problems affected. the i-mac and i.b.m. saying they are putting enormous resources in to resolve that delay. that said sales at the nation’s stores fell more than expected in june down 1.1%, the biggest drop since february of 2003. back out cars and model parts sales were down .2%. compare that to a gain of .9%, a revised gain of .9% last month. higher oil prices contributed to the drop in spending in auto dealers and department stores and june’s retail sales could underscale forecasts for slower consumer spending in the second quarter. still, economists expect third quarter spending growth to rise to 3.5% as hiring and incomes are expected to rise. that weaker than expected sales data could mean that the fed is in no hurry now to raise rates unless inflation data comes in higher than expected. talk about the economy, rates in the dollar. we bring in laura rhames a currency strategist, i believe you are a senior economist is that correct?
>> yes.
>> an interesting title. we have a lot of alamo gatien amalgomation of data today. i was looking at the notes here and you said the market took the news in stride and you said the data should not be cause for much concern which really says a lot about the reaction or absence of reaction in the market today.
>> it’s true. we didn’t―this morning right after the numbers came out we didn’t have a substantial reaction. i think the sales have been so strong that a lot of―i think there is still a lot of thought that this can’t continue at the really frothy pace it’s been going at for so long. what people are focusing more on is really now the inflation data.
>> you had pointed out also that furniture and appliance sales were strong and the caveat or the reason behind it is the housing market continues to fuel consumption. that begs the question, the housing market , can that last?
>> you know, this is the important thing we have to remember. so far for the last several years now as consumers have really faced a very difficult labor market and falling wages they have relied on the house for that push to help them continue that consumption. now that is going to shift. housing will most likely if all theer in the second half of the year and probably not offer the same returns on wealth investment that we have previously. we are going to see now as the labor market improves wages taking over some of that burden. consumer confidence is improving. i don’t see any reason why the consumer is going to shut their purse closed. i think they will however spend at a less rapid pace than the first half of the year.
>> we look at the dollar year to date versus its 16 major rivals and it is up against all but six of them. five of them. excuse me. do you expect that little year-to-date trend to reverse itself?
>> you know, i do. we’ve already seen that starting. i think over the last six to eight weeks, as the fed expectations of very aggressive rate hikes have unwound somewhat we’ve seen the dollar coming off. and i think versus the euro that’s going to continue throughout the end of the year.
>> another chart, this one on this screen, and this is just the euro, the yen, the euro and pound. yen is in white, euro is orange. pound is in yellow. those are percentage moves year to date, the yellow on top of course the pound up about 4% year to date. the yen is up 2% and you can see the euro there down about 1.3%. you, though, are forecasting that the euro will go back to its all-time high by the end of the year and the yen is going to drop or gain rather about another 4% back to its four-year high.
>> yeah. pretty close. i think what we really have to look at when it comes to the yen is the nikkei and i think for example overnight we had a big example of how even positive news in financial markets , the nikkei fell and the yen came under pressure. but i think going forward that the economy there in japan is really in a self-sustaining recovery now, something we haven’t seen out of japan in 10 years and that is going to foster continued nikkei gains and a stronger yen as the year continues. i do think 105 is my year end yen forecast. 128 euro/dollar. we’re closing in on that now. we’ve been in a tight range with the euro but we’re now at 124 closer to the top of that range and i think it will be a dollar bearish --
>> have you changed those forecasts recently at all?
>> we have certainly downgraded our euro positive forecast. we had the euro going even more beyond its all-time record and continuing but i think as u.s. growth rebounded much more in the first quarter than we had expected and there’s been less followthrough the euro has been downgraded somewhat.
>> what is the fed going to do in august?
>> 25 in august but they’ll take at least one meeting off by the end of the year.
>> well done. excellent wrap. laura rhames, senior 4x economist. goldman sachs, cars, clothes, computers, all could become more expensive. we’ll take a look in our chart of the day.
