QE Coming of Age
Spyros Andreopoulos, Morgan Stanley
The financial crisis and its macroeconomic consequences forced central banks to use their balance sheets in unprecedented ways, and very aggressively so. Initially, market participants as well as central bankers themselves would probably have expected this use of the balance sheet to be temporary. And yet, roughly three years later, not only is no end in sight, but central banks are poised to up the stakes with more purchases in 1H12. On our forecasts, the Fed will embark on a further round of US$500-750 billion of Treasury and MBS buying, to be announced in 2Q; the Bank of England will likely announce an extension of its asset purchase programme in February by £75 billion; the Bank of Japan should increase the ceiling on its asset purchases; and even the ECB will join in the action with broad-based public and private sector bond purchases during the second quarter.
FX: Fading dollar support in 2012
Kasper Kirkegaard, Senior Analyst, Danske Bank
As we have advocated in the last two editions of Weekly Focus, the arguments for buying the dollar have faded going into 2012. Not as a result of Europe’s debt profile becoming more sustainable but as a result of improved global economic data and a more aggressive easing of monetary policy by the major central banks. The Fed’s indirect promise of QE3 should the US economy slow again only confirms our expectation of a structural dollar downtrend. Not least against the commodity currencies but also against the stronger cyclical emerging market currencies. The outlook against the euro is less certain, though.
The Fed Is Still Leaning Toward Ease
John E. Silvia, Chief Economist, Wells Fargo
January’s surprisingly robust employment figures, which showed employers adding 243,000 jobs and the unemployment rate falling to 8.3 percent, probably do not change the Fed’s view about beginning a third securities purchase program this spring. The bottom line on the January employment data is that they are clearly better than expected but there are still too many question markets (e.g., falling labor force participation, no change in average weekly hours and weather impacts) to conclusively say that hiring has ramped up in a self-sustaining way.
United States – Getting Better All the Time?
James Marple, Senior Economist,TD Bank Financial Group
You’d be forgiven if you began this week feeling a bit glum. With the Federal Reserve downgrading their forecasts for economic growth and reinforcing their pessimism with a commitment to leave interest rates at low levels until late 2014, who wouldn’t be left feeling a bit melancholy? Even more, who, upon opening the business section of their newspaper, wouldn’t have felt just a bit disappointed reading about economic growth in the fourth quarter? Not only did growth come in below expectations, but the details showed a dramatic slowdown in domestic demand.
Compiled by David Song, Currency Analyst
