Bank Research Consensus Weekly 08-24-09

Published August 25th, 2009 - 02:25 GMT

While one might expect price fluctuations to increase during July as liquidity tends to decline, there is little evidence of such an effect. Rather, by looking at historical data we find that implied volatility tends to decline slightly during the summer only to increase in September - and to some extent in October.

Niels-Henrik Bjørn Sørensen - Senior Analyst, Danske Bank



Weekly Bank Research Center 08-24-09



 

Tales of the Unexpected from the Labour Market

Stephen Roach, Head Economist, Morgan Stanley

The UK labour market data have been sending some unexpected messages lately. This is particularly the case with the most timely indicator, claimant unemployment. Unemployment is clearly still rising, but the recent increases in the claimant count have generally been smaller than anticipated and are now a great deal smaller than only a few months ago. Indicators like company employment intentions and household unemployment expectations are still at weak levels, but are improving. That leaves (at least) two questions: What's the best explanation for these data? What does this imply for the outlook? Our current forecast, for a contraction in employment in 2010 (-0.6%) after an expected decline of 2.1% in 2009, could prove too pessimistic.

 

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FX: Look Out For The September Effect

Niels-Henrik Bjørn Sørensen, Senior Analyst, Danske Bank

While one might expect price fluctuations to increase during July as liquidity tends to decline, there is little evidence of such an effect. Rather, by looking at historical data we find that implied volatility tends to decline slightly during the summer only to increase in September - and to some extent in October. This supports the anecdotal evidence that implied volatility picks up as traders return from the summer lull, although the result is also likely to be affected by the tendency of financial crises to occur during the second half of the year. The effect is most notable in EUR/USD and NZD/USD, but also for the Scandinavian currencies seasonal effects in volatility can be observed. On average the intraday spread in both EUR/SEK and EUR/NOK (the difference between daily spot highs and lows) has tightened significantly during July and then widened marginally in the following months. When it comes to the increase in the size of daily fluctuations in September, the effect is, however, most clearly observed in EUR/USD and EUR/GBP.

 

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It May be Time to Take One of the Punch Bowls Away

E. Silvia, Ph.D. Chief Economist, Wachovia

With the economy on the mend, the Fed has been openly contemplating its exit strategy. More and more economic indicators are improving with each passing week and most forecasters inside and outside the Fed now believe a recovery is underway. The challenge for the Fed will be to remove stimulus from where it is no longer needed without crippling the recovery. Fortunately, this is not a case of whether or not to take the punch bowl away. The Fed has put so many programs and facilities in place that they effectively have ten punch bowls out there. The decision they face today is whether they can shut some of these down without putting the budding economic recovery at risk.

 

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Canada - Hanging Tough

Steve Chan, Economist, TD Bank Financial Group

The latest evidence that the Canadian economy is in fact emerging from its recession was news that Canadian leading indicators advanced 0.4% in July, the first increase since last August. However, it was July inflation figures that made headlines this week. Year over year Canadian headline inflation slipped into deeper negative territory for the second consecutive month, and in July, reaching its lowest level in over 50 years. Most of the downward influence stemmed from a plunge in energy prices from year ago levels, when prices were at a record high (and unsustainable) level. Since energy prices are determined on world markets (and Canadian demand is too small to have any influence over commodity prices), the downward pressure on energy prices is more evidence of slack in the global economy, rather than a direct vote against the Canadian economy. However, disinflationary pressures from energy may well be over. Not only will last years increase in energy prices begin to fall out of the year over year calculation (August was the month that energy prices began to tumble) but commodity prices have since regained some of the losses witnessed over the end of 2008.

 

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Data to Show Weak UK Consumer Spending

Trevor Williams, Chief Economist at Lloyds TSB Financial Markets

The first expenditure breakdown of UK Q2 GDP is likely to confirm that consumer spending and capital spending contracted once again. Although retail sales picked up in the second quarter, total consumer spending will be considerably weaker. The CBI distributive trades survey will provide an early snapshot of retail activity in August. In the eurozone, the German IFO survey is expected to rise for fifth consecutive month, but given the degree of spare capacity in the economy, inflationary pressures are expected to remain weak, with Germany providing an early indication of August CPI inflation. In the US, the Treasury will sell $109bn of government debt securities. The second estimate of US Q2 GDP may be revised lower, but expectations are for a return to growth in the current quarter. Consumer confidence on the Conference Board measure may rise for the first time in three months.

 

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Compiled By: David Song, Currency Analyst

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