Bank Research Consensus Weekly 06.11.12
US Economics and Interest Rate Strategy: The Inside Scoop on Fed Action
Vincent Reinhart, Chief US Economist, Morgan Stanley
Slower employment growth, worsening strains in European markets, and a gloomier assessment of US politicians' ability to steer clear of the impending fiscal cliff make it likely that the Fed will mark down its already tepid forecast. This should provide all the justification the Fed needs to launch further unconventional policy action via changes in its balance sheet. Given the Morgan Stanley economic forecast, we estimate about a four-in-five chance this trigger is reached by the June 19-20 FOMC meeting.
FX: Stretched Positioning to Counter Downside Risks
Morten Helt, Senior Analyst, Danske Bank
This was supposed to be the week when the major central banks announced plans of further monetary easing but so far only China has delivered. So, where does that leave the FX market? Growth visibility remains low and is likely to keep volatility in the market as investors try to figure out what growth scenario to discount. This in turn is likely to keep the high beta currencies from rebounding fully, as investors will probably need confirmation of further monetary easing before adding long positions in these currencies again.
Bernanke Reaffirms Outlook
John E. Silvia, Chief Economist, Wells Fargo
”Economic growth has continued at a moderate pace so far this year,” said Chairman Ben Bernanke in testimony at the Joint Economic Committee this week. We agree with this outlook while recognizing that many in the market had expected the economy to pick up steam as the year progressed. We would also agree with the chairman’s assessment that the slowdown in employment gains reflects, in part, the influence of seasonal adjustment factors and warm weather earlier this week. Inflation, our second fundamental that sets the framework for interest rates, suggests that the measures of inflation, such as the PCE deflator and the consumer price index, are expected to show evidence slower gains for the rest of this year driven of primarily by lower energy prices as well as the weakened demand from global economies.
U.S. – Fiscal Partners
Chris Jones, Economist,TD Bank Financial Group
Major central banks across the globe were on the offensive this week, even if only in words. In Thursday’s testimony before the Joint Economic Committee, Chairman Bernanke entreated lawmakers to do more to support the U.S. economic recovery, saying “I’d be much more comfortable if Congress would take some of this burden from us.” Across the Atlantic, after announcing interest rates would remain on hold at 1%, ECB Chief Mario Draghi chastised policymakers for not being aggressive enough in solving Europe’s crisis. But not all central bankers simply talked the talk. In a surprise move, the People’s Bank of China (PBC) cut its benchmark rate by 0.25 pp for the first time since 2008. The move comes in advance of a slew of economic data set to be released by the state statistical agency this weekend, including inflation.
Compiled by David Song, Currency Analyst
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