US prospects at a high watermark? - Westpac

US momentum is still seen to be solid and as a result the “US outperformance” narrative has taken root again, but lead indicators suggest the US may be on the cusp of a crest in growth momentum too, according to Richard Franulovich, Research Analyst at Westpac.

Key Quotes

“The relentless easing in US financial conditions has come to an end too. US financial conditions are not tight, far from it. Moreover, signs of higher wages growth and fiscal stimulus confirm firm underpinnings to the US outlook. But, the mix of weaker equities, wider credit spreads, higher mortgage rates, yield curve flattening, a modest correction higher in the USD and higher LIBOR-OIS wholesale funding rates have all finally produced a measurable turning point in various measures of US financial conditions. This is precisely what the Fed will have been looking for.”

“Regardless, it does imply the recent trend of upward revisions to US prospects has probably reached a high watermark. The last six months saw a meaningful reassessment of US prospects. The median forecast for 2018 US GDP growth, as measured by Bloomberg, rose from 2.3% to 2.8%. The Eurozone saw a similar reappraisal but it stalled out amid a flood of weaker surveys in recent weeks. The US looks to be on the cusp of a similar reassessment.”