How Big Is the Fiscal Cliff in 2013?
David Greenlaw, Chief U.S. Fixed Income Economist, Morgan Stanley
Under current law, the US economy will experience a fiscal tightening of unprecedented magnitude at the end of this year. The main drivers include the scheduled expiration of the Bush era tax cuts, expiration of the 2010-11 payroll tax cut, expiration of emergency unemployment benefits, a budget sequester tied to the outcome of the failed Super Committee deliberations, other reductions in non-defense discretionary spending attributable to previously enacted budget appropriations legislation, defense spending reductions tied to a scaling back of activities in Iraq/Afghanistan, and the imposition of some new taxes on individuals imposed by the Affordable Care Act that was passed in 2010. While the Bush era tax cuts seem to get most of the attention, there are many changes that lie ahead under current law.
Spain and Main in Pain
Thomas Hovard, Chief Analyst, Danske Bank
Risk aversion has been increasing throughout the last couple of weeks driven not so much by any significant events, more by the sum of all parts (fewer positive economic surprises, LTRO headlines disappearing and southern Europe jitters among others). Well, one significant driver though is Spain, where 10Y govie rates are approaching 6% again compared with around 5% at the beginning of March. SMP (the govie debt buyback programme at the ECB) could come back into play as indicated by ECB board member Benoit Coeure to ease pressure on both Spain and Italy.
Low Rates are Hanging Around
John E. Silvia, Chief Economist, Wells Fargo
The Treasury market continues to take its cues from a domestic economy, which no longer seems to be ramping up as quickly as it was a few weeks earlier and the European Financial Crisis, which is still very much with us. News on inflation this week was largely as expected. While the inflation numbers continue to run a little ahead of the Fed’s comfort zone, price increases are not particularly widespread and the headline CPI is still decelerating on a year-to-year basis.
Canada – Interest Rate Decisions To Grab More Attention
Chris Jones, Economist,TD Bank Financial Group
Given the weekly events, it appears that business psyches and confidence levels here in Canada are no longer stuck in neutral. Last Thursday, the economy churned out 82,300 net new jobs, the seventh largest monthly tally posted in forty six years. The data release was positive all round, with strength noted across sectors, industries and in most provinces. In two survey releases, the Bank of Canada (BoC) detailed that firms are more upbeat about their sales’ prospects, have more access to credit, and are experiencing fewer capacity constraints than just four months ago. The good news did not end there – housing starts in March clocked in their fastest annualized pace since the onset of the recession. Low interest rates and unseasonably warm weather were the driving forces behind the robust homebuilding performance. However, we would be remiss if we said that all data releases this week were positive in nature – Canada’s international trade surplus narrowed to $292 million in February, much lower than the $1.9 billion figure posted the month prior.
Compiled by David Song, Currency Analyst