The latest economic reports and forecast from the Federal Reserve continue to suggest economic activity will slow to a crawl during the first half of the year. The data, however, still do not support the contention that a recession has already begun, nor do they suggest one is right around the corner. While the economy appears to be holding its own, the credit markets remain on edge. Eliot Spitzer, along with state insurance regulators, is pushing the major bond insurers to come up with a recapitalization plan or other solution to protect municipal borrowers. The statements by state regulators, the hearing in Congress, and even the offer by Warren Buffet to reinsure municipal bonds insured by the monolines likely brings a resolution to the crisis somewhat closer. The final shape the resolution takes remains to be seen, however. E. Silvia, Ph.D. Chief Economist, Wachovia
The latest economic reports and forecast from the Federal Reserve continue to suggest economic activity will slow to a crawl during the first half of the year. The data, however, still do not support the contention that a recession has already begun, nor do they suggest one is right around the corner. While the economy appears to be holding its own, the credit markets remain on edge. Eliot Spitzer, along with state insurance regulators, is pushing the major bond insurers to come up with a recapitalization plan or other solution to protect municipal borrowers. The statements by state regulators, the hearing in Congress, and even the offer by Warren Buffet to reinsure municipal bonds insured by the monolines likely brings a resolution to the crisis somewhat closer. The final shape the resolution takes remains to be seen, however.
E. Silvia, Ph.D. Chief Economist, Wachovia
Review and Preview: What is ahead for Financial Markets?
Stephen Roach, Head Economist, Morgan Stanley
GDP in US and Industrial Production in Japan are Decisive Factors The front end was supported by a strong flight-to-quality bid from weakness in various markets – severely dislocated auction-rate securities becoming the latest focus of investor anxiety to add to the growing list of distressed or completely broken markets – as well as a belief that worsening market conditions would lead to more Fed easing. Heavy mortgage selling pressures, mixed economic data, continued sizable curve steepening trade flows and limited interest in the longer end at such low rates pressured the intermediate and longer ends of the market. Full Story Bank of England Stands Pat, Waits for Evidence of UK Economic Slowdown Niels-Henrik Bjørn Sørensen, Senior Analyst, Danske Bank The past week was chock-a-block with important economic events in the UK. On Monday, producer price data for January showed that UK companies had hiked prices by the highest annual rate since 1991. Tuesday's inflation data came in lower than expected, but still demonstrated that consumer prices are on an upward path. The RICS survey on Wednesday revealed that the housing market has not been in a worse state since the last recession in 1992. Also on Wednesday, the Bank of England.s (BoE) inflation report failed to confirm current market pricing that indicates a 1% cut in UK interest rates over the next 12 months. Overall, these outcomes were not surprising, and we are left with a picture of an economy that is experiencing rising consumer prices, falling house prices and with a central bank that for now is more focused on price pressures than the gathering gloom on growth. Full Story US Economy Sees Slow Growth, No Recession So Far E. Silvia, Ph.D. Chief Economist, Wachovia
GDP in US and Industrial Production in Japan are Decisive Factors
Full Story
Bank of England Stands Pat, Waits for Evidence of UK Economic Slowdown
Niels-Henrik Bjørn Sørensen, Senior Analyst, Danske Bank
The past week was chock-a-block with important economic events in the UK. On Monday, producer price data for January showed that UK companies had hiked prices by the highest annual rate since 1991. Tuesday's inflation data came in lower than expected, but still demonstrated that consumer prices are on an upward path. The RICS survey on Wednesday revealed that the housing market has not been in a worse state since the last recession in 1992. Also on Wednesday, the Bank of England.s (BoE) inflation report failed to confirm current market pricing that indicates a 1% cut in UK interest rates over the next 12 months. Overall, these outcomes were not surprising, and we are left with a picture of an economy that is experiencing rising consumer prices, falling house prices and with a central bank that for now is more focused on price pressures than the gathering gloom on growth.
US Economy Sees Slow Growth, No Recession So Far
US Economic Outlook Gloomy, Canadian Economy Sees Little Relief
Steve Chan, Economist, TD Bank Financial Group
It was a rather mixed bag for North American data releases this week. Stateside, major economic releases gave some hope to analysts and market watchers who have placed their bets on the U.S. economy avoiding recession. However, any positive impact on markets was drowned out by a pessimistic sounding speech by Fed Chairman Ben Bernanke and negative readings on second-tier indicators such as the Michigan confidence survey and the Empire manufacturing index. Bonds rallied and equity markets sold off amid increasing fears of more credit write-downs by major banks that served to highlight Bernanke’s concerns over deteriorating credit conditions. In Canada there was nothing to cheer about this week and dismal international trade and manufacturing shipments data in December auger for slower overall economic growth.
Japanese Yen and Swiss Franc Bid, Bank of England Tempers Rate Cut Expectations
Trevor Williams, Chief Economist at Lloyds TSB Financial Markets
The yen and Swiss franc consolidated their positions this week after concerns flared up about the impact of the credit market turmoil on the global economy. Both currencies were buoyed after Moody's downgraded the credit rating of US bond insurer FGIC. This spurred a new flight to quality from equities into safe haven currencies and government bonds. Sterling surrendered some of its gains late in the week and closed the up 0.7% against the dollar and down 0.5% vs the euro. £/Chf drifted back to the low end of the trading range and closed the week below 2.1450 despite signs of faltering confidence in Switzerland. The Swedish krona was one of the biggest gainers this week after the Riksbank on Wednesday unexpectedly raised interest rates by 0.25% to 4.25%. £/Sek dropped 1.5% to 12.4410, a one-month low.
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