US Economics: Why Worry about the Overhang of Debt?
Global Economic Team, Morgan Stanley
Across advanced economies, governments are struggling with a long-lasting consequence of the recent financial crisis-high public debt loads. Some commentators downplay the scope of the problem for the US. After all, the yield on ten-year Treasury notes is around 1-7/8 percent. If investors do not seem worried about buying government debt, why are some politicians worried about issuing more of it?
FX: Area - EUR/USD Still Very Resilient
Arne Lohmann Rasmussen, Chief Analyst, Danske Bank
In the past week we have seen financial stress rising on the back of increased concerns about Greece. However, the FX market has been surprisingly calm. The JP Morgan G7 volatility index (based on option volatility) is still trading close to the lowest level since 2008. In particular, the lack of volatility in EUR/USD has surprised many market participants. EUR/USD has been remarkably stable in a 1.29-1.33 range and realised 1M volatility is trading at its lowest level since January 2008. The stable EUR/USD has puzzled a lot of our clients and one of the most common questions of the past month has been why the euro is not any weaker.
Moderato: Ma Non Troppo
John E. Silvia, Chief Economist, Wells Fargo
Our outlook for moderate growth and PCE deflator measured inflation suggests the FOMC will maintain their current interest rate policy, keeping the Funds rate range from 0 to 25 bps. However, we expect that Operation Twist will not be renewed, which would create a slight upward move in longer-term Treasury rates.
U.S. – European Austerity: Was It Just A Fling?
Michael Dolega, Economist,TD Bank Financial Group
Once again all eyes were on Europe this week following the results of the French and Greek weekend elections, which appear to have rejected the idea of austerity as the key to Europe’s salvation. Hollande’s win in France marks the shift in sentiment to an agenda of growth. Meanwhile in Greece, a fragmented election result left the pro-bailout coalition rivals-turned-partners two seats shy of majority in the 300-seat chamber. With a divided electorate and no one party able to yet form a government, it is very likely that new elections will have to be called by the end of June. If the stalemate persists, the country risks the termination of its current bailout program with the EU/IMF, which could, in turn, precipitate its exit from the euro zone.
Compiled by David Song, Currency Analyst
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