Bank Research Consensus Weekly 03.15.10
What Fiscal Tightening?
Spyros Andreopoulos, Joachim Fels & Major Pradhan, Global Economics Team, Morgan Stanley
Don't worry about 2010 growth: We continue to forecast solid, above-consensus global GDP growth of 4.4% this year - despite growth downgrades in Europe, a weaker 1Q in the US (largely weather-related) and the recent softening in the China Manufacturing PMI (reflecting Chinese New Year seasonality, in our view). Monetary and fiscal policies remain very expansionary around the globe, asset markets - though wobbly in January and February - continue to be supportive, and the rebalancing towards domestic demand-led growth in EM economies is in full swing. Thus, we believe that the risks of a global double-dip this year are low. Rather, we think that economic growth could surprise on the upside over the next couple of quarters - note that our US team's preliminary forecast for March payrolls is for a whopping 300,000 gain! We don't think that bond markets are prepared for positive growth surprises and we thus continue to look for rising yields.
FX: Strong Danish Krone and Swiss Rate Decis
John Hydeskov & Kasper Kirkegaard, Senior Analysts, Danske Bank
The Danish krone has firmed a little against the euro in recent weeks. Higher Danish interest rates combined with the prospect of low money market rates in Europe for longer than previously assumed have simply been too good to ignore – despite the already low EUR/DKK spot rate and thus limited potential for an exchange rate gain as well. EUR/DKK is currently trading just above the level where the Danish central bank (Nationalbanken) previously – early January – resisted further krone strengthening by selling kroner against euro. A further influx of currency seems likely and thus the outlook is for currency reserves to again grow. We believe Nationalbanken is not keen to see the reserves grow much more, suggesting it may be faster off the mark this time around.
Still on Pace for a Modest Economic Recovery
John E. Silvia, Ph.D. Chief Economist, Wachovia
February’s retail sales report was easily the best economic news released this week. Overall sales rose 0.3 percent during February, with strong gains reported across nearly every major category. Sales excluding gasoline, building material and automotive dealers, which is a category that tends to track the personal consumption data, rose 0.9 percent in February, following a 0.6 percent gain in January. The strong back-to-back gains suggest consumer spending will rise at a 2.2 percent pace or better during the first quarter, which is in line with our forecast, published earlier this week.
United States - Paper or Plastic?
Pascal Gauthier, Chief Economist, TD Bank Financial Group
It looks good so far, but mostly just on paper. As of yet, the recovery from the Great Recession has largely been a balance sheet affair. This week marked the one year anniversary
(March 9th) of the stock market lows. Equities have rebounded by a stunning 60% since then. As far as tangible assets go, most important of all real estate, the S&P/Case-Shiller home price index has notched seven consecutive monthly gains from June through December 2009. A massive amount of government stimulus is also making its way through the system. Interest rates are at rock-bottom lows, worker productivity is high, inflation is muted, and manufacturing output is roaring back to life.
Sovereign Credit Risk to Remain in the Spotlight?
Trevor Williams, Chief Economist at Lloyds TSB Corporate Markets
The travails of Ireland and, more recently, Greece have turned the spotlight back on the sovereign credit markets. Since November last year, sovereign credit spreads in Greece have widened sharply amid growing fears that the country’s fiscal problems could precipitate a prolonged economic stagnation or a sovereign default. It is not only Greece, however, that has been affected. Fears of contagion have pushed the spreads of other countries higher, particularly those perceived to have weak fiscal positions. In this weekly we look at some of the main measures of sovereign credit risk and assess what they imply for country default in 2010.
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