Weekly Bank Research Center 08-17-09


What Will Tightening Look Like?

Stephen Roach, Head Economist, Morgan Stanley

Even before the dust settles on the monetary easing cycle, markets have started a watch for the beginning of monetary tightening. Unlike past cycles where the focus was solely on policy rates, the unconventional element of monetary easing means that the assets and liabilities of central banks are key variables in the tightening equation. Central bank balance sheets will undoubtedly be observed as closely as indications of policy rate hikes. But we caution investors against equating a contracting balance sheet with a withdrawal of monetary expansion. Instead, we provide a laundry list of measures that would constitute monetary tightening. None of these measures indicate that tightening is imminent any time soon.


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JPY To Be The Big Loser in 2010

Niels-Henrik Bjørn Sørensen, Senior Analyst, Danske Bank

The Japanese yen is in our view burdened by an almost unlimited number of factors: the increase in risk appetite, almost zero carry, excessive Japanese outflows, a political mess and a high debt just to mention a few. So it remains a conundrum to us why the world’s preferred safe-haven currency no. 1 has not weakened more in the ongoing bettering process. We maintain our call for substantial yen weakening on all forecast horizons.


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United States - The Soylent Recovery…It's Made Out Of People

Steve Chan, Economist, TD Bank Financial Group

It’s a bit of an awkward phase in the U.S. economic recovery as it goes through its “tweener” stage. The growing consensus is that some kind of recovery is underway and that the worst has past. However, the friction now is whether it is too early to talk about exit strategies and higher interest rates. Everyone is anxious to put the recession behind us, but it would be dangerous to assume this recovery is more mature than it is. It still requires conducive monetary policy to help support the businesses and consumers that will drive a full-fledged expansion.


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Economic Activity: Levelling Off or Growing?

Trevor Williams, Chief Economist at Lloyds TSB Financial Markets

It is clear that a remarkable economic recovery is underway in Asia, led by China and India, but is the same true of the developed economies? Recent economic figures for Germany and France have prompted many commentators to predict that recovery has started. But is this true or is it more a levelling off of activity? Moreover, not only have financial markets been expecting recovery, as shown by the strong rise in equities in recent months, but they have been looking for it to start in Europe ahead of the US. Further, the expectation was that, within Europe, the UK would be the first out of recession. Currency markets in particular have been marking down the US dollar relative to the pound, the euro and the yen.


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Compiled By: David Song, Currency Analyst