Global Inflation: Merry-Go-Round Spinning Again?
Spyros Andreopoulos, Morgan Stanley
The Great Monetary Easing (Part 2), is in full swing... In response to a slowing global economy and further downside risks emanating from the possibility of an escalating Eurozone debt crisis, central banks all over the world - and across the DM-EM divide - have been deploying their arsenal for a while now, and should continue to do so. The result is aggressive monetary easing on a global scale - what we have dubbed the Great Monetary Easing, Part 2 (GME2; see Sunday Start: What Next in the Global Economy, January 22, 2012); this follows on from GME1 in 2009-10. The GME2 is now in full swing. Last week, the Bank of England announced a further £ 50 billion of gilts purchases, to take place over the next three months. On Tuesday, the Bank of Japan upped the target of its Asset Purchase Program by 50%, from JPY 20 trillion to JPY 30 trillion, with the increment concentrated exclusively on JGB purchases. We think Sweden's Riksbank will pick up the baton from the Bank of Japan on Thursday and cut the repo rate by 25bp.
FX: Norges Bank Allows NOK Strength
Arne Lohmann Rasmussen, Chief Analyst, Danske Bank
NOK has gained 5% since the end of November and EUR/NOK is trading back below 7.50. The last time this happened was after the SNB introduced a ceiling for CHF at the beginning of September last year and investors temporarily sought refuge in NOK. However, NOK does not have the liquidity to serve as a safe haven, so the September surge proved short-lived and EUR/NOK spiked back above 7.80.
Is “QE3” in Store?
John E. Silvia, Chief Economist, Wells Fargo
At its policy meeting on Jan. 24-25, the FOMC surprised many market participants by extending its commitment to keep the Federal Funds rate at “exceptionally low levels” through late 2014. Up until that meeting, the FOMC had committed to keep rates low only until mid-2013. The minutes of the Jan. 24-25 policy meeting, which were released this week, shed some more light on the FOMC’s current thinking.
United States – Austerity Antidote?
Chris Jones, Economist,TD Bank Financial Group
Near-term fiscal risks to economic growth were mitigated this week after Congressional leaders struck a deal to extend temporary payroll tax cuts and unemployment insurance benefits through the end of 2012. That leaders managed to reach an agreement without the usual brinkmanship was encouraging, as failure to do so would have dealt a blow to economic momentum just as the recovery is picking up steam. Looking further out, however, there is still significant uncertainty over the future course of government spending, especially as it relates to the draconian budget cuts enshrined in the Budget Control Act (BCA). As such, the risk that fiscal austerity comes to bite in the not-too-distant future persists.
Compiled by David Song, Currency Analyst