Bank Research Consensus Weekly 08-03-09

Published August 3rd, 2009 - 01:58 GMT

The name of the game now is confidence, but the recent past has been about con games. From 1970 to about 1995, asking consumers how much better they thought they’d be doing in the future relative to the present provided a good gauge of where consumer spending would go in the future. This was a crushing blow to economists everywhere. Apparently decades devising fancy models was a waste when all that was needed was to ask people. But putting the antisocial tendencies of economists aside for the moment, things turned up for the profession around 1995. All of a sudden, consumers were becoming more and more pessimistic about their prospects – to a level not seen in the 30 years prior – but yet they just kept on spending. Not only that, but spending growth accelerated. Consumers were saying one thing, but doing quite another.

 

Steve Chan, Economist, TD Bank Financial Group



 

Weekly Bank Research Center 08-03-09



 

The Credit Channel  

Stephen Roach, Head Economist, Morgan Stanley

The domestic credit channel can become a key theme for the domestic growth story. Last week we examined the improvement in external conditions facing Brazil (see "Brazil: What Is the China Link?" EM Economist, July 31, 2009). This week we look at domestic factors, focusing on the credit channel. Local conditions are improving across the board - sentiment indicators are rebounding, activity indicators post repeated sequential gains, and labor market conditions find firmer footing. While recent domestic data support a better growth environment in 2009, we suspect that improved credit conditions could prove an important driver for the domestic growth story in 2010. Public sector banks have done the heavy lifting in extending domestic credit so far this year, but there is a growing local perception that private sector lending can continue to gain speed into 2010, as interest rates stay low and local conditions improve. For its part, the national development bank (BNDES) looks set to strengthen further its lending muscle, while local capital markets pick up.

 

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FX: Summertime is Here

Niels-Henrik Bjørn Sørensen, Senior Analyst, Danske Bank

Summer is upon us, as is clear from the FX market where July has traditionally marked the beginning of a period of decreased liquidity. When markets are quiet, even small trades can trigger significant exchange rate movements, and so one might imagine that the summer period would bring relatively large fluctuations in the FX market and high implied volatility.

 

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United States – Confidence Games

Steve Chan, Economist, TD Bank Financial Group

The name of the game now is confidence, but the recent past has been about con games. From 1970 to about 1995, asking consumers how much better they thought they’d be doing in the future relative to the present provided a good gauge of where consumer spending would go in the future. This was a crushing blow to economists everywhere. Apparently decades devising fancy models was a waste when all that was needed was to ask people. But putting the antisocial tendencies of economists aside for the moment, things turned up for the profession around 1995. All of a sudden, consumers were becoming more and more pessimistic about their prospects – to a level not seen in the 30 years prior – but yet they just kept on spending. Not only that, but spending growth accelerated. Consumers were saying one thing, but doing quite another.

 

Full Story

 


Developing Economies Lead the Way Out of Recession

Trevor Williams, Chief Economist at Lloyds TSB Financial Markets

Following the onset of the global credit crisis two years ago, it was generally believed that developing economies, particularly in Asia, would be better placed to weather the storm than some of the more advanced economies, such as the US and UK. It was reasoned that the export-orientated, savings-rich countries, with the support of China, faced little prospect of an external payments crisis and were one step removed from the bursting of the debt bubble created in western economies. De-coupling was the buzzword at that time. Yet, over the subsequent twelve to eighteen months, expectations that the developing world could distance itself from the global credit crisis faded amid a collapse in world trade.

 

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Compiled By: David Song, Currency Analyst and Nolan Mickey, DailyFX

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