Sunday, December 12, 2004 4:57:17 PM
TIC Data - Funding The US Deficit
By Kathy Lien, Chief Strategist
Published Date: December 10, 2004
On December 15th, the US is scheduled to release its monthly data on net foreign purchases of US securities, also known as the Treasury International Capital (TIC) report, which measures shifting international portfolio and capital positions. In an environment where currency values are increasingly driven by capital flows, the TIC data is a key piece of information that directly reveals cross-border transactions involving US securities. With the dollar driven lower by concerns about the current account deficit, the TIC data will be one of the most anticipated reports next week. A large and growing current account deficit in the US requires net foreign capital inflows on the order of at least $1.8 billion per day. The TIC report acts as an approximate gauge of foreign investor willingness to finance this deficit. Smaller than expected net foreign purchases offer a possible signal that the deficit may be becoming unsustainable as foreigners lose their appetite for US assets. The chart below indicates that over the past year, the gap between net foreign purchases of US securities and the trade deficit has been narrowing, explaining the market's concern over the deficit.
According to the latest TIC data, net foreign inflow for the month of September increased from an upwardly revised $59.9 billion to $63.4 billion. The data indicates that there was a sufficient influx of funds during the month of September to meet the trade deficit for the same month, which narrowed to -$51.6 billion from -$53.5 billion. However, the dollar did not rally following this report because the details also indicated that Japan was a net seller of US securities. The weaker dollar has prompted a surge in private investment of Treasuries and corporate bonds, which should have been bullish for the dollar. Unfortunately, the market feared that this might foreshadow a longer-term trend of Asian central banks reducing or even dumping their extraordinary holdings of US treasuries. Although one month can barely be used as reference for a longer-term trend, if this does becomes a reality in October's report, not only would the dollar face a deeper slide, but the US economic recovery could be threatened as Treasury prices fall and yields soar. The charts on the following page graphically display the trend of US treasury purchases by the 2 largest holders of US treasuries.
Resources: http://www.treas.gov/tic/
Source: http://www.dailyfx.com/article_rr_070.html
By Kathy Lien, Chief Strategist
Published Date: December 10, 2004
On December 15th, the US is scheduled to release its monthly data on net foreign purchases of US securities, also known as the Treasury International Capital (TIC) report, which measures shifting international portfolio and capital positions. In an environment where currency values are increasingly driven by capital flows, the TIC data is a key piece of information that directly reveals cross-border transactions involving US securities. With the dollar driven lower by concerns about the current account deficit, the TIC data will be one of the most anticipated reports next week. A large and growing current account deficit in the US requires net foreign capital inflows on the order of at least $1.8 billion per day. The TIC report acts as an approximate gauge of foreign investor willingness to finance this deficit. Smaller than expected net foreign purchases offer a possible signal that the deficit may be becoming unsustainable as foreigners lose their appetite for US assets. The chart below indicates that over the past year, the gap between net foreign purchases of US securities and the trade deficit has been narrowing, explaining the market's concern over the deficit.
According to the latest TIC data, net foreign inflow for the month of September increased from an upwardly revised $59.9 billion to $63.4 billion. The data indicates that there was a sufficient influx of funds during the month of September to meet the trade deficit for the same month, which narrowed to -$51.6 billion from -$53.5 billion. However, the dollar did not rally following this report because the details also indicated that Japan was a net seller of US securities. The weaker dollar has prompted a surge in private investment of Treasuries and corporate bonds, which should have been bullish for the dollar. Unfortunately, the market feared that this might foreshadow a longer-term trend of Asian central banks reducing or even dumping their extraordinary holdings of US treasuries. Although one month can barely be used as reference for a longer-term trend, if this does becomes a reality in October's report, not only would the dollar face a deeper slide, but the US economic recovery could be threatened as Treasury prices fall and yields soar. The charts on the following page graphically display the trend of US treasury purchases by the 2 largest holders of US treasuries.
Resources: http://www.treas.gov/tic/
Source: http://www.dailyfx.com/article_rr_070.html
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