Bank Research Consensus Weekly 08.20.12
FX: Relief to the Euro in the Autumn
Arne Lohmann Rasmussen, Chief Analyst, Danske Bank
We expect global economic growth to remain weak but the recent stabilisation in macro surprises suggests that the period of downward revisions is coming to an end. This together with light risk positioning should be enough to secure a stable market but whether the current rebound will extend into Q4 will depend on policymakers.
In our main scenario, Spain asks the European Financial Stability Facility (EFSF) forhelp, the ECB restarts its bond purchase programme, China boosts its stimulus and with a 75/25 probability the Fed delivers QE3. This should reduce the EUR risk premium, lead to further unwinding of long dollar positions and support the cyclical commodity currencies.
Rising Rates: A Good Sign
John E. Silvia, Chief Economist, Wells Fargo
Over the past few weeks, the benchmark 10-year Treasury rate has risen. We view this as a good sign for the economy and a move to more rationale pricing, in line with economic fundamentals for fixed income instruments.
U.S. – Slowing Inflation Leaves Room for Easing
Michael Dolega, Economist, TD Bank Financial Group
This week further clarified the picture of second quarter global economic momentum, and it appears there is no of escaping the downshift. Japan dented market sentiment on Monday after announcing that GDP growth slowed to a quarter of the pace experienced in the first three months of the year, with consumption and net exports both acting as a drag on growth. Preliminary estimates came in at 0.3% q/q or about half the pace expected by economists. Next up was Europe, which received further confirmation of its economic woes as Q2 output declined by 0.2% q/q in both the euro area and the EU as a whole. The decline was fully expected, especially given that the region remains in the grips of a sovereign debt crisis. In fact, markets reacted positively to the news that Germany and France avoided outright declines between April and June this year.
Compiled by David Song, Currency Analyst
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