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The International Economic Outlook Jackson Hole, WY John E. Silvia, Chief Economist July 12, 2018


Dollar Appreciation: Bias Downward

We expect the dollar to depreciate as central bank policy convergence replaces policy divergence.

Source: Federal Reserve Board and Wells Fargo Securities

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Dollar Appreciation: Bias Downward

The dollar has depreciated against all of our large trading partners over the past year, but movements have varied significantly.

Source: Federal Reserve Board and Wells Fargo Securities

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International Trade

The U.S. trade balance with Canada and Mexico is modest compared to the rest of the world—particularly China.

Source: U.S. Department of Commerce and Wells Fargo Securities

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Retaliatory Tariff Implications

Possible trade policy changes could pose downside risks to export growth.

Source: IHS Markit and Wells Fargo Securities

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Dollar and Short-Term Rates

We expect the divergence between expected short-term rates and the Fed’s dollar index to return as global monetary policy convergence continues.

Source: Federal Reserve Board, U.S. Department of the Treasury and Wells Fargo Securities

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Global Central Bank Policy Rates

Additional FOMC rate hikes traditionally are less supportive of the U.S. dollar, while any rate hikes from other central banks would be more supportive of foreign currencies. This relationship affects capital flows.

Source: Bloomberg LP, Federal Reserve Board and Wells Fargo Securities

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Global Central Bank Outlook

Global central banks appear to be on a gradual path toward monetary policy convergence

Source: Bloomberg LP and Wells Fargo Securities

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Treasury Issuance Outlook

Net Treasury issuance should decline slightly in 2017. We expect the fiscal bump in 2018 to accelerate the pace of issuance in CY 2018.

The Federal Deficit & Net Treasury Issuance

Composition of Treasury Issuance

Source: U.S. Department of the Treasury and Wells Fargo Securities

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Domestic demand for U.S. Treasuries

Over the past five years, households and U.S. banks in particular have seen robust growth in the size of their Treasury holdings, helping absorb some of the new supply that has come to market.

Domestic Bank Ownership of U.S. Treasuries

Domestic Ownership by Sector

Source: U.S. Department of the Treasury and Wells Fargo Securities

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Foreign demand for U.S. Treasuries

Relatively higher U.S. interest rates likely buoyed foreign demand for U.S. assets in 2017. The increase in foreign demand was driven by private purchases.

Net Purchases of U.S. Treasuries

Foreign Official vs. Private Purchases

Source: U.S. Department of the Treasury and Wells Fargo Securities

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Foreign Purchases of U.S. Securities: Still Solid

Capital flows and asset allocation by global investors play a strong role in rate determinations

Source: U.S. Department of the Treasury and Wells Fargo Securities

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Yield Curve: Short-Term Rates Headed Higher

The yield curve is expected to flatten further as the Fed raises short-term interest rates.

Source: IHS Markit and Wells Fargo Securities

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Global Forecast

We expect global economic growth will remain near its long-run trend.

Source: International Monetary Fund and Wells Fargo Securities

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Global Exports: Upswing

Global trade has clearly downshifted compared to past expansions, however the recent trend is encouraging.

Source: IHS Markit and Wells Fargo Securities

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Developing Markets Signal their Significance

Developing markets have become increasingly important for U.S. exporters.

Developing Markets Gaining Share

Trend Likely to Continue

Source: IHS Markit and Wells Fargo Securities

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International Forecast

Source: International Monetary Fund and Wells Fargo Securities

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FX Outlook

Source: Wells Fargo Securities

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Appendix


Wells Fargo Economics Group Publications

Recent Special Commentary

To join any of our research distribution lists please visit our website: http://www.wellsfargo.com/ economics

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Wells Fargo Securities Economics Group Global Head of Research, Economics & Strategy

Economists

Diane Schumaker-Krieg ………………… ….diane.schumaker@wellsfargo.com Global Head of Research, Economics & Strategy ……

john.silvia@wellsfargo.com

Ariana Vaisey, Economic Analyst Abigail Kinnaman, Economic Analyst Shannon Seery, Economic Analyst

Mark Vitner, Senior Economist mark.vitner@wellsfargo.com …jay.bryson@wellsfargo.com

Sam Bullard, Senior Economistsam.bullard@wellsfargo.com Nick Bennenbroek, Currency Strategist nicholas.bennenbroek@wellsfargo.com Azhar Iqbal, Econometrician

erik.f.nelson@wellsfargo.com

michael.d.pugliese@wellsfargo.com Economic Analysts

Senior Economists Jay H. Bryson, Global Economist

Erik Nelson, Currency Strategist Michael Pugliese, Economist

Chief Economist John E. Silvia

Charlie Dougherty, Economist charles.dougherty@wellsfargo.com

ariana.b.vaisey@wellsfargo.com abigail.kinnaman@wellsfargo.com shannon.seery@wellsfargo.com

Administrative Assistants

azhar.iqbal@wellsfargo.com

Tim Quinlan, Senior Economist

tim.quinlan@wellsfargo.com

Donna LaFleur, Executive Assistant

Eric J. Viloria, Currency Strategist

eric.viloria@wellsfargo.com

Dawne Howes, Administrative Assistant dawne.howes@wellsfargo.com

Sarah House, Senior Economist

sarah.house@wellsfargo.com

donna.lafleur@wellsfargo.com

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The International Economic Outlook  

John Silvia at the Tenth Annual Rocky Mountain Economic Summit in Victor, ID on July 12, 2018.

The International Economic Outlook  

John Silvia at the Tenth Annual Rocky Mountain Economic Summit in Victor, ID on July 12, 2018.