We expect rates to remain within the trading ranges that we have seen since the end of last year
Going for carry continues to be the name of the game, while the consideration of the credit risks involved seems once again to be a secondary concern. The risks of a bond bubble are no doubt in the air, but this trend has not run its course.
The Fed left policy unchanged as widely expected, but said the pace of QE could be either increased or decreased. This marks a slightly dovish shift from earlier this year.
Despite the recent round of weak data we do not expect an overly dovish tone to the post-meeting statement tomorrow. Still, a potential surprise would be if the FOMC is worried about disinflation.
The reason for our optimism is that private-sector deleveraging, which has been the most important factor holding back the US recovery over the past four years, seems to be over. Very importantly, the US consumer is back as Q4 2012 seems to mark an important economic turning with the end of household deleveraging.
Big market moves have caught a lot of attention in the past few days. Where is the world going?
Today’s US employment report supports our expectation of yet another spring slowdown in growth.
We forecast a 175k rise in US payrolls in March. An outcome in line with our forecast will support our expectation of yet another spring slowdown in growth.
We expect US economic data generally to disappoint compared to consensus estimates over the next few months as the sequester kicks in. As a consequence, we see increased risks of a temporary reversal of some the recent increase in risk appetite in financial markets.
The recent report by the ratings agency Standard & Poor’s shows most countries studied have actually already made a lot of progress in addressing their increasing age-related spending compared to 2010, even though a lot of work remains. One of the most striking aspects of the report is the progress seen in Italy, which could see its rating rise notably going forward.
As expected, the Fed left its policy and forward guidance unchanged at today’s FOMC meeting. Regarding QE3, there was no change in the wording of the statement to signal plans to scale down the Fed’s asset purchases yet. The FOMC's new unemployment projection is still consistent with no hike rate at least until late 2015.
Due to the strength of underlying fundamentals in the US economy, an elevated structural level of unemployment and the Fed credibly aiming for higher inflation we expect the US yield curve to continue steepening over the coming year or so as markets price in higher inflation.
With much improved economic fundamentals and significantly diminished policy risks the stage is set for a much stronger US economy in 2013 and 2014, but not without bumps along the road.
Our expectations for next week’s FOMC meeting.
US policymakers failed this time to reach a last-minute agreement averting the so-called sequester cuts. But the fiscal battle doesn’t end here. A timeline of key events related to the impending fiscal debate is provided in this post.
Fed Chairman Bernanke defended today the central bank’s asset purchases and said that they are still merited. With no new policy signals we still believe that the Fed is unlikely to scale down QE3 over the next few months.
I put the odds of the full sequester spending cuts going through on 1 March at more than 50%. Moreover, I expect most of the cuts to be sticking. I expect such an outcome to be slightly negative for risky assets and slightly positive for US Treasuries and the USD.
Yesterday’s Fed minutes showed a central bank increasingly divided about the future of asset purchases, even though most participants found the purchases effective in easing financial conditions and helping stimulate economic activity. Still, the Fed clearly wants to be careful not to start removing accommodation too soon or too fast.
Regulators have been forced to backtrack on many of their most ambitious reforms lately, due to fears that big reforms could really hit the markets and the real economy very negatively. This trend now also continues regarding the planned margin requirements for derivatives, while more “fine tuning” of the planned reforms no doubt lies ahead before any actual implementation.
Today’s FOMC meeting was a non-event, leaving monetary policy and the forward guidance unchanged as widely expected.
Today’s Q4 GDP report will likely prompt recession talk in financial markets, but we are pretty sure that the US economy is not on the verge of a new contraction.
Tomorrow’s FOMC meeting is likely to be a non-event. Q4 US GDP growth is likely to be weak, but the breakdown should contain some positives.
Risk-on is likely to dominate in the very near-term but given the lack of fundamental improvements we expect to see a correction sometime during the spring.
Recent political events in Washington have made the global economy somewhat safer. Thus, while we continue to see policy-related downside risks to our 2.1% GDP growth forecast for 2013, these risks have diminished significantly over the past few weeks because the threat from both the fiscal cliff and the debt ceiling has been addressed.
Viime vuodet markkinat ovat sukellelleet kriisistä kriisiin. Keskuspankkien heittämät pelastusrenkaat ovat kuitenkin nostaneet riskimarkkinat pinnalle. Korot ovat painuneet poikkeuksellisen alas. Nämä likviditeettijuhlat eivät kuitenkaan jatku ikuisesti. Rahapolitiikka alkaa tänä vuonna hiljalleen kiristyä.
USA tarvitse pikaisesti uusia poliittisia ratkaisuja kriisin välttämiseksi, vaikka vasta äskettäin verojyrkänteestä saatiin vauhtitöyssy. Nyt uhkana on vielä jyrkempi talouden jarrutus, jollei liittovaltio saa lisää lainanottovaltuuksia. Kuten vuodenvaihteen verojyrkänne, tämä on keinotekoinen poliittinen kriisi, joka ratkennee kompromissiin.
We estimate that a fiscal deal including a timely increase of the debt limit ensuring that all scheduled payments are met as well as further deficit reductions of USD 1-1½trn over ten years will be enough to prevent new rating downgrades of US debt.
The Basel Committee on Banking Supervision announced yesterday it had agreed to considerably loosen its new liquidity requirements. The relaxation of the rules illustrates the regulators are not particularly willing to risk another big hit to the economy due to heavy regulation.
US jobs data highlight why we are increasingly sceptical of the Fed’s indications that it will keep the funds rate near zero for at least 2½ more years.
Also our second macro call of the year will be above consensus, just as ISM earlier this week. The strong market sentiment partly attributed to the recent fiscal cliff decision may lose some momentum if our model for tomorrow´s nonfarm payrolls is correct (pointing at 170k vs consensus at 150k), and the expected maturity and size of the open ended QE pro-gram is reduced.
The last-minute fiscal cliff deal is clearly a relief because it helps the US to steer clear of recession. However, while the fiscal cliff is now history, we will likely face another fiscal battle in Washington in just a few weeks’ time, with potentially negative consequences for confidence.
Everybody worries about the Fiscal cliff after yesterday's failed vote. Here are a few reasons why shouldn't worry.
In our view the US economy is approaching full capacity at a faster pace than currently anticipated by the Fed. We are therefore increasingly sceptical of the Fed’s indications that it will keep the funds rate near zero for almost three more years.
The Fed’s new rate guidance could easily lead to big market swings going forward. Thus, linking future policy more closely to incoming data risks introducing substantial volatility into broader financial conditions, hurting confidence among consumers and businesses.
The Fed extends its asset purchases into 2013 and adopts unprecedented numerical thresholds to convey how long it expects to leave short rates at near-zero.
New rules concerning the collateral needed to back derivative positions as well as new liquidity requirements will have major consequences for financial markets in general. Even though the rules are not final yet, it seems increasingly clear that we will see increased demand for the highest-quality assets going forward.
Because of a lot of noise in today's jobs report my advice is to ignore it
Here is the Global Week Ahead. The publication covers next week’s major numbers and events.
UPDATE! Now with link to web presentation. Winter equinox marks the day when the days are shortest—and from then on days become longer. The same can be said of the global economic development. In spite of the growth in 2012 has been slightly weaker than expected we still see economic growth improving. We have lowered our growth forecasts for 2012 and 2013 marginally but upped our 2014 forecasts.
I remain long-term bullish on the USD. Any near-term headwind to the USD due to improved risk sentiment when the risk related to Greece and Spain is removed should be seen as a USD buying opportunity.
The European working age population will decline in coming decades. The pattern in Germany is similar to that of Japan, whose demographic problems are well known. The declining population is expected to lead to lower growth, which limits the scope of grow-ing out of the current debt burden. An ageing population also points to low interest rates.
Europas befolkning i arbetsför ålder minskar kommande decennium. Utvecklingen i Tyskland liknar Japan, vars demografiska problem är väl kända. Den sjunkande befolk-ningen väntas leda till lägre tillväxt vilket bl.a. begränsar möjligheten att växa sig ur da-gens skuldbörda. En åldrande befolkningen talar också för låga räntor.
With an unchanged balance of power after the US elections more cautious investor behaviour due to policy uncertainty seems likely going into year-end. Focus now turns to how policymakers will handle the fiscal cliff issue in the lame-duck session.
Ahead of tomorrow’s presidential and congressional elections some updated thoughts on the potential market implications, in Q&A form.
Roughly six years after the US housing market collapsed from a huge bubble, the market finally shows steady improvement. The housing sector is now adding to GDP growth, and we expect the moderate positive contribution to be sustained in 2013 and 2014.
The US ISM came out slightly better than expected in October. Rise om new orders bodes well for the coming month or two.
US economic growth picked up in the third quarter as consumers spent more, government spending accelerated and residential construction improved. For now, I see moderate upside risks to my 1.5% GDP growth forecast for Q4, but much could still go wrong.
The two-day FOMC meeting that ended today was a non-event for markets, as widely expected. Focus is now on the next meeting on 11-12 December.
The most important events this week will be the FOMC meeting and the Troika review of Greece. We expect the Riksbank to stay on hold.
US growth data continue to impress despite headwinds. Today's retail sales data were yet another positive surprise.
There are only minor changes to this weeks financial forecasts.
This week’s key event will be the EU Summit Thursday and Friday although it may not necessarily provide the news about Greece and Spain that the financial markets are waiting for.
The US data was not as bad as feared, but not good enough to take Fed off QE#. This week - lots of talk and the quarterly earnings kick off to stir the risk sentiment...
After this week’s heavy calendar, next week will be notably calmer, especially in terms of economic data releases. Luckily, politics and corporate earnings reports will pick-up some of the slack. However, the most pressing questions are unlikely to be answered next week.
Don't be fooled by some positive US macro headlines over the past week - payrolls may come weaker than expected...
We and the markets have been surprised by the positive US ISM reading today, as the most important new orders sub-index led the gains...
Focus on Euro-zone problems continue. We don't expect economic key figures to surprise on the upside. Risk on/risk off to ebb and flow and we're keeping our forecasts mostly unchanged.
More details from the ECB on OMT, September employment report and ISM manufacturing survey from the US, minutes of the FOMC meeting, UK PMI figures and the Bank of England rate decision.
The likely meagre benefits of the Fed’s new easing effort risk being outweighed by potentially significant costs in the longer run. The potential costs include not only the loss of the Fed’s credibility but also economic instability.
Spain will be in focus in the week ahead after an FT article today suggesting that the planed structural reforms announcement next week has been agreed upon with the Commission and hence could pave the way for an aid request. On the key figure front we expect no major surprises neither in the US nor in the Euro area.
In this issue we take a stance on QE, which we think will end up being futile.
With the Fed’s announcement of QE3 now behind us the fiscal cliff will likely become more of a market focus as we approach the US elections and the end of the year.
The Fed’s new bond purchases and changes to the communication strategy illustrate that the Fed is determined to shift the US economy into higher gear, though we need action from Congress as well.
This Week Ahead brings fewer important events, but will surely have its moments. While the markets are still digesting the Fed and ECB announcements, Spain is watching the markets and biding its time.
Previous bond purchase programmes by the Fed have led to a rather quick rise in yields. This time there are a number of factors arguing that history will not repeat itself. As a result, any rise in yields is likely to be very gradual for now.
QE3 from Fed and Wild Wednesday in the Euro area next week
Tomorrow’s employment report might make or break not only President Obama but also the Fed’s QE3.
Although the US economy lost momentum in Q2 the recovery is expected to continue the next few years, but at a moderate pace. However, US fiscal challenges around the end of this year imply significant risks to the outlook.
Slide fest for the data hungry. Presentations on China, the US and the Euro-area following up on our latest Economic Outlook report.
Today’s set of data was clearly on the soft side, supporting those who believe that the Fed will launch QE3 at next week's meeting.
We are confident that i) ECB will follow Draghi’s lead and ii) this will cause risky assets to perform into the end of the year. However, we are not totally convinced this will be the ultimate game changer in the Euro-zone. Our latest macro forecasts point to a continued slow economic upswing. Bond yields are to stay low and the USD to strengthen.
In his speech at Jackson Hole, Bernanke provided no new information of the form or timing of any additonal easing.
Will the ECB deliver? Hopes are high but expect somewhat of a disappointment as they won't reveal all.
Three US fiscal issues pose a threat to the US economic outlook. In this research note, I have tried to list a few scenarios of how the looming and potentially damaging US fiscal drama could play out.
New policy signals are eagerly awaited from major central banks at the moment, not least from the US Fed and the ECB.
As a child I watched John Steinbeck’s social realist masterpiece “The Grapes of Wrath” and maybe this is why images of a desperate Henry Fonda flash before my inner eye when I think about the severe drought that has hit the US, sending prices of corn and other crops sky high.
An extension of the Fed's forward guidancce of low rates into 2015, but no QE3, is a likely outcome of the next FOMC meeting in September, in my view.
Som barn så jeg John Steinbecks socialrealistiske mesterværk ” Vredens Druer” i fjernsynet. Det var i den film, at Henry Fonda for alvor slog i gennem i rollen som landarbejderen Tom Joad, der som følge af den ekstreme tørke, der ramte USA under den store depression i 1930’erne, bliver tvunget til at rive tilværelsen i Midtvesten op ved rode og sammen med sin familie søge lykken vestpå i Californien.
Next week’s macroeconomic releases and events are, in our view, generally likely to give further support to risk appetite in financial markets.
Markets are waiting for cues to take new direction - cues about possible decisive ECB intervention and/or more evidence that the big economies are starting to recover modestly.
The dust has not yet settled after yesterday’s ECB press conference, where President Draghi dealt a blow to hopes that the central bank will quickly make huge bond purchases to address the Euro-area debt crisis.
A mixed US employment report suggests the economy is not weak enough to prompt the Fed to launch QE3 in September.
The Fed on Wednesday left policy unchanged but strengthened its easing bias. No change to its forward guidance for low rates is likely to disappoint markets in the near term.
Today's ISM manufacturing survey was not weak enough to trigger QE3 from the Fed later today.
US Congressional leaders have reached a short-term budget deal that avoids a government shutdown, extinguishing one of Washington’s numerous potential fiscal fights ahead of the November election. The fiscal cliff, however, is still looming at the end of the year.
Markets might get disappointed by the Fed tomorrow as the central bank, in my view, is unlikely to launch another asset purchase programme (QE3) despite economic weakness.
It seems the Fed needs more weak data, before it will provide additional stimulus. Our baseline scenario sees US economic data picking up later this year, in which case the Fed could stick with Operation Twist. Still, in the short run, weak data may continue, supporting further easing.
Recent data implies that growth in US consumer spending has weakened, whereas underlying retail sales grew by close to 6%. In light of the weak data, dovish comments will likely be heard from Bernanke tomorrow.
Weak data would likely need to continue for the Fed to embark on new stimulus measures in the short term, and our baseline remains that US data will start to improve again soon. But, in light of yesterday’s minutes, the Fed remains prepared to act.
Summertime has more often than not seen plenty of market action in the past few years, and we do not expect this time to be an exception.
Tomorrow’s US employment report is likely to add to the continuing concerns about the strength of the US economy. Still, the report is expected to support the impression from today’s data that a new US recession is not around the corner.
Det er vores vurdering, at med overraskende positive resultater fra EU topmødet i sidste uge, og bedre økonomiske nøgletal til efteråret, da vil USD/JPY om kort tid indlede en tendens med kursstigning og slutte året nær niveauet 85.
June’s US ISM manufacturing survey is clearly a negative for investor confidence, although expectations of more easing from the Fed (QE3) are likely to increase.
After all eyes being in Euro-zone events lately, next week’s heavy US data certainly has potential to catch the attention again.
I believe there are good reasons to expect a rebound in US activity in late summer or early autumn. If this prediction proves right, we should see an improvement of risk appetite in financial markets before long.
We have made minor adjustments to our financial forecasts. The storyline is more or less unchanged.
Yet another EU summit this week will not change trends. Moderate optimism on FX front - EM and commodity currencies to recover in the coming weeks.
The Fed gave a nod to the slowing US economy today, extending its Operation Twist through the end of 2012. However, the extension is likely to have very little impact on the wider economy and overall risk sentiment in financial markets.
The statement from the G20 leaders contained a lot of good intentions again, but whether they will lead to any concrete implementation remains to be seen.
The Fed is likely to provide more monetary easing at the upcoming FOMC meeting with a short extension of its Operation Twist. The outcome of the pivotal Greek election on Sunday could also have a further effect.
Most of next week will most likely be spent digesting the Greek elections results and (the chance of) possible stimulus measures, and few interesting entries in the calendar.
Apart from the continued talks around when Spain will make the official request for aid to its banks, the Greek elections are definitely the main thing to follow.
While Fed chairman Bernanke offered few hints that further monetary stimulus is imminent, the Fed seems to be leaning more towards an extension of Operation Twist rather than pure QE at the 19-20 June FOMC meeting.
Today’s weak US employment report solidifies at least one of the pre-conditions for more monetary policy easing from the Fed.
After this week’s heavyweight US economic data, the spotlight is even stronger in the Euro zone again next week.
An increasingly clear picture is emerging of a US economy that has gained momentum and is slowly heading for a selfsustaining upswing, while Europe seems to be sliding into a deeper crisis than previously anticipated.
We expect US economic data to continue to come in on the weak side, putting renewed pressure on risk appetitive and continuing to support the safest assets.
Fed chairman Bernanke may effectively already be a lame duck as he is likely to step down in early 2014 and his dovish views appear to be increasingly isolated within the organisation. This could be a huge issue going forward.
The Greek situation will continue to grab the headlines. Euro-zone Q1 GDP will likely confirm the zone has fallen into another recession, while US April retail sales growth likely weakened notably compared to March.
Probably the most important debate on US monetary policy is whether there really is an aggregate demand shortfall, and as a result, a negative output gap. If the answer is yes, then the Fed should continue supporting the economy. If the answer is no, monetary policy should soon be tightened.
While the soft April employment numbers leave the door open for further monetary easing, the report isn’t bad enough to force the Fed to announce QE3 at the 19-20 June FOMC meeting.
Outlook for next week's key figures and events in the US, the euro area, China, Japan, UK, Canada, Switzerland, Australia and New Zealand.
While QE3 is still expected to be announced in June, too little Fed tightening is priced in longer out.
Following recent evidence of slower US growth, the April ISM manufacturing survey was a pleasant surprise.
At 2.2% US GDP growth was probably only slightly weaker than the Fed’s expectations for Q1. However, I believe the Fed’s growth forecast will be challenged more in Q2.
Federal Reserve chairman Bernanke said Wednesday that further bond purchases by the Fed remain “very much on the table”, if the economy needs further support. But it will require weak economic data for QE3 to be announced in June. And this is what I still expect to see.
The big central banks have turned out to be much less inclined to QE than expected. We no longer expect QE from the Bank of England in May.
We see rates continuing lower in the coming months and the EUR/USD unchanged around the current levels.
We see rates continuing lower in the coming months and the EUR/USD unchanged around the current levels.
Although Fed officials continue to signal no imminent QE, I still expect QE3 to be announced in June.
We do not expect next week’s economic data offerings to convey a particularly encouraging message. Here is what we expect from the week ahead.
The US government might be bumping up against the debt ceiling already by end-September, at the height of the presidential election campaign and significantly earlier than many analysts seem to expect.