Global Re-Easing
Spyros Andreopoulos & Manoj Pradhan,Morgan Stanley
The ABCD of global re-easing: Global re-easing is underway as the global central bank reacts to the risk of recession in the major economies. The central banks of Australia and Romania became the latest to cut policy rates this week, joining the central banks of Switzerland, Turkey, Brazil, Russia, Israel and Indonesia. G4 central banks have been active too, on the unconventional side. Mostly because of the lack of conventional room to ease, the Fed, the ECB, the BoJ and the BoE have all delivered unconventional packages. The result? An increase in the G5 excess liquidity metric we track, though liquidity in the BRICs has not yet turned thanks to China's monetary policy maintaining its position and a recent tightening from the RBI. Globally, AAA (ample, abundant, augmenting) liquidity has always responded to support the BBB (bumpy, brittle, below-par) recovery as the CCC (confidence, competency, credibility) crisis has weakened the options that policy-makers have in a DDD (debts, deficits, deleveraging) regime.
Why is EUR/USDNot LowerAfter the ECBRateCut?
Arne Lohmann Rasmussen,Chief Analyst, Danske Bank
The ECB surprise 25bp rate cut initially sent the euro lower, but after testing downside support levels EUR/USD rebounded and is now back above 1.38. What is going on? Usually the initiation of a monetary easing cycle leads to a bigger currency depreciation, but Thursday saw important mitigating factors.
FOMC Outlook, Market Rates
John E. Silvia,Chief Economist, Wells Fargo
Two major developments this week should influence the path of interest rates over the next six months. First, the Federal Open Market Committee (FOMC) downgraded its expectations for economic growth, raising its inflation and unemployment expectations for 2011 and 2012. Second, the Eurozone community continued to struggle to come to a meaningful arrangement with the interim volatility of market rates and capital flows continuing.
United States – All Eyes On Europe
Alistair Bentley, Economist,TD Bank Financial Group
The Eurozone crisis took a dangerous turn this week. On Monday evening, just days after European leaders unveiled a three-pronged strategy designed to end the crisis, Greek Prime Minister George Papandreou unexpectedly announced plans to hold a referendum on debt austerity. As one would expect, equity markets fell sharply on the news. Meanwhile, Germany and France made it clear that any Greek referendum should be tantamount to a vote on Greece staying in the European Union.
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Compiled byDavid Song, Currency Analyst
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