Bank Research Consensus Weekly 07.30.12
Revising Down Euro Area Growth
Anders Møller Lumholtz, Senior Analyst, Danske Bank
We expect the euro area to remain in recession in Q3 and that we will have to wait until 2013 before we see positive growth rates. For 2012 as a whole, we expect a GDP print of -0.3% and for 2013 we forecast growth at 0.5%.The deteriorating demand in the euro area is broad based. Fiscal consolidation continues to weigh down on growth while low business and consumer sentiment is a drag on private consumption and investments.In particular tightening credit conditions and financial fragmentation in the euro area banking sector will continue to weigh on growth. The next policy response will most likely target these issues, but they are hard to diminish as they are a result of differences in sovereign risk. One option could be granting ESM a banking license.
Draghi’s Determination Twist Rates
John E. Silvia, Chief Economist, Wells Fargo
European Central Bank President Mario Draghi’s determined statement that the ECB was prepared to “do whatever it takes to preserve the euro” sent Spanish, and many other European nations’ interest rates sharply lower on Thursday. The implication is that the ECB is prepared to use its “unlimited” balance sheet to purchase European sovereign debt, which has sent many investors temporarily to the sideline, or to the other side of the trade.
U.S. – Faster, Higher, Stronger or Slower, Lower, Weaker
James Marple, Senior Economist, TD Bank Financial Group
There continues to be somewhat of a disconnect between the signals sent by the Bank of Canada on interest rates and the expectations being priced into Canadian fixed income markets. This week, the central bank continued to use language signaling that the next rate move will be in the upward direction, even if it may be several months away. Yet, rate expectations as measured by BAX futures contracts continue to price in interest rate cuts by year-end. Furthermore, the Government of Canada 2-year bond yield remained below 1% – implying no change in rates over the next few years.
Compiled by David Song, Currency Analyst
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