DavidBelleFX

Why the US isn't at all safe... a different perspective

NYSE:UPS   UNITED PARCEL SERVICE INC
For months now, we have had murmurings of an imminent rate hike by the US Fed, then a period of poor data is released, then it is pushed back, and repeat, repeat... I have some cause for concern for the US, in fact.

Note the chart above of the UPS stock price vs the Dow Jones Industrial Average             . Considering transportation and delivery etc are an extremely good indicator for economic sentiment, I believe this could show some cause for concern. The reasons behind this is purely because if there is divergence between the transport sector and the rest of the industrial firms (Dow Transports are down 9.5% this year), it indicates that the transport firms aren't taking what is being made - i.e there is reduced demand. What is even more interesting is that we have experienced extremely low oil             prices. One would have thought that a lower oil             price would have allowed the transport firms to experience lower costs and possibly lead to heightened demand but this has not been the case, clearly.

In addition to this, there are other factors weighing on America's prosperity. The US is a hair's breadth from deflation and there are two factors very closely linked to this that I will touch on. The first is that if the Yen continues to weaken, it is hugely likely that China will be forced to depreciate the Yuan. Considering China is one of the US' biggest trading partners, this will cause a huge amount of imported deflation into the US. If a rate hike would occur, this would add further deflationary pressure.

Another factor to consider is the activity of the Emerging Market economies and the correlation between commodity prices. Take a look at the following chart (http://gyazo.com/b3efb49d75bea1320acc194a4bfc8e01). This shows an overlay of the Commodity Research Bureau Index and the MSCI             Emerging Markets ETF . Note the historical correlation between the two assets. What is notable about this is that after a movement in EM commodity prices, a movement in the MxEF occurs in the same direction. In my opinion, we will see a further sell off in MxEF. Why? There is a large slump in demand for exports from the Emerging Market economies, driven by reduced demand from China and the US.

Due to the mixed data and other weighing concerns, I do not feel as though September is the right time for the US to increase the bank rate. I believe that Q1 could be possible.

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