Will “Sunset” Darken the Outlook?
Richard Berner & David Greenlaw, Global Economics Team, Morgan Stanley
Policy uncertainty creates fiscal drag. Gridlock in Washington over taxes and other policies has created uncertainty for both households and businesses. Most immediately, the expectation that the decade-old tax cuts may ‘sunset' at year-end could create ‘virtual' fiscal drag even before the taxes actually go up. In response, consumers anticipating higher taxes in 2011 may save more and spend less in the next few months. Also, businesses may accelerate compensation and dividends into 2010 at next year's expense, exaggerating the appearance that consumers have turned extremely cautious again in early 2011
FX: 20% Growth Since 2007
Kasper Kirkegaard & Sverre Holbek, Senior Analyst, Danske Bank
The Bank for International Settlements (BIS) published its latest Triennial Central Bank Survey of the FX market on Wednesday, which draws on data from 53 central banks fortransactions in the month of April. The survey reveals that the market has continued togrow strongly, with a 20% increase in overall turnover since 2007 to a mind-bogglingUSD4,000bn – a day! This clearly illustrates that the FX market remains the largest and most liquid financial market
Global Recovery Remains Intact, At Least for Now
John E. Silvia, Ph.D. Chief Economist, Wachovia
More countries released second-quarter GDP data this week, and the results were generally strong. For starters, real GDP in India rose 8.8 percent, the strongest year-over-year growth rate since the global economy started to slide into the tank at the end of 2007. Although we expect GDP growth to slow somewhat over the next few quarters, the Indian economy is clearly booming again. (For further insights, see the special report thatwe wrote on India this week, which is posted on our Web site.)
United States – Further Away From the Cliff Dina Cover, Economist, TD Bank Financial Group
We had some fairly positive data this week, starting with expansions in both personal income and consumption for the month of July. Then the Conference Board’s consumer confidence index surprised market expectations on the upside and the ISM manufacturing index also fared better than expected underpinned by a surprisingly strong reading in its employment sub-component, and to a lesser extent in prices paid. The latter should help to temper some of the recent talk on the possibility of the U.S. economy slipping into deflation
Global Double-Dip Fears Subside…
Trevor Williams, Chief Economist at Lloyds TSB Financial Markets
Fears of a double-dip recession in the global economy receded in the past week, following better than expected US employment data and strong manufacturing surveys from both China and the US. In particular, the Chinese survey was boosted by a strong rise in domestic demand – perhaps supportive of global rebalancing hopes – while the US survey was buoyed by stronger employment and restocking. The Stoxx Europe 600 index rose for the first time in four weeks, led by gains in autos & parts, basic resources and construction & materials. Markets shrugged off weaker manufacturing surveys in the UK and eurozone
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Compiled by Michael Wright, Currency Analyst
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Michael Wright is the author of FX Headlines, Fundamentals vs. Technical’s, Weekly Spotlight, Intraday Trading, and Forex Trading Weekly Forecast
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