Bank Research Consensus Weekly 03.12.12
Better Data, but Too Early for Policy-Maker Cheer
Jonathan Ashworth & Melanie Baker, Morgan Stanley
The May MPC decision will be a very close call, in our view: We have heard more hawkish noises from the MPC in the last few weeks. Recent data support the view that there are solid upside risks to our 1Q forecast of flat growth, and rising oil prices increase the likelihood that inflation will fall more slowly than expected. However, with higher mortgage rates, the BoE perceiving ample spare capacity and with growth likely to be very soft in 2Q, we still suspect that the MPC will opt for further asset purchases. Meanwhile, despite the more upbeat incoming data, we don't expect the OBR to make any material changes to its forecasts for the Budget on March 21. We expect policy changes in the Budget to be fiscally neutral.
FX: Quality Justifies SEK Strength
Stefan Mellin, Senior Analyst, Danske Bank
We have always seen that the SEK is a pro-cyclical currency that cushions the negative impact on exports, GDP and employment when global demand abates, and vice versa. So the mere fact that the krona has appreciated – rather than depreciated – at a time when the cyclical outlook in Sweden and abroad has clearly deteriorated is at odds with normality. A simple correlation with any global business cycle proxy suggests EUR/SEK should not trade below but above 9.00. So why isn’t this happening, and what’s different this time?
Three Paths to Normalcy
John E. Silvia, Chief Economist, Wells Fargo
Widespread concern persists in the bond market that current benchmark Treasury rates are arbitrarily low given the aims of U.S. monetary policy, the flight to safety trade due to the European sovereign debt situation and cautious expectations on economic growth. Evidence of this arbitrary rate assessment is the persistent situation where the five-year nominal Treasury yield remains below the level of inflation expectations for the same next five years. Negative real yields, even before taxes, do not appear to be a long-term stable situation and the expectation is that interest rates will rise. The questions before the house are—how much and when?
United States – Market Volatility is Down, But for How Long?
Alistair Bentley, Economist,TD Bank Financial Group
This was arguably the most turbulent week in financial markets so far this year. On Tuesday, the S&P 500 declined 1.5% as asset managers worried about the prospects of slowing global growth. Investors, however, quickly turned their attention to the more uplifting news of a successful debt swap agreement in Greece and a strong February U.S. jobs report. As of 12pm on Friday, the S&P500 was poised to end the week up 0.3%.
Compiled by David Song, Currency Analyst
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