Bank Research Consensus Weekly 09-14-09

Published September 14th, 2009 - 08:31 GMT

The BoE decided on Thursday to leave the bank rate at its record-low 0.5%, which was as expected, and to keep its asset purchase programme at GBP175bn, about which there was slightly more uncertainty ahead of the meeting. In the brief statement accompanying the decision, the bank wrote that the “scale of the programme will be kept under review” and that it expects “the announced programme to take another two months to complete”.

Frank Jullum, Chief Economist, Danske Bank



Weekly Bank Research Center 09-14-09



 

‘Up' Without ‘Swing'

 

Richard Berner & Joachim Fels, Global Economics Team, Morgan Stanley

More bang for the buck, this year... In our previous Global Forecast Snapshots three months ago, we argued that the heavily stimulated global economy had returned to growth in 2Q09, led by a bounce in China and elsewhere in Asia, and that laggards such as the US and Europe would follow in the second half of this year. Indeed, hard data received since then confirm that global growth resumed in 2Q09, with GDP surging by 4% annualised - twice the pace we estimated three months ago. The bounce in Asia turned out to be even more pronounced than we thought (+19% saar in China!), and both US and euro area output contracted by less than expected, with Germany and France already clocking positive growth in 2Q.

 

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UK: Bank of England Soon to Ditch Its Dovish Stance

Frank Jullum, Chief Economist, Danske Bank

The BoE decided on Thursday to leave the bank rate at its record-low 0.5%, which was as expected, and to keep its asset purchase programme at GBP175bn, about which there was slightly more uncertainty ahead of the meeting. In the brief statement accompanying the decision, the bank wrote that the “scale of the programme will be kept under review” and that it expects “the announced programme to take another two months to complete”.

 

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Walk, Don’t Run, to the Exit

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

 

Our latest monthly outlook continues the view that the Fed will remain on hold through the first half of next year. Core inflation, as measured by the personal consumption deflator, is expected to remain below the Fed’s perceived 2 percent growth rate while the unemployment rate is expected to remain high. Historically, the Fed has not raised the funds rate until after the unemployment rate has peaked, which is not apparent yet. In contrast, we expect long-term Treasury rates to drift upward as the Fed executes its exit strategy because of diminishing demand for Treasury bonds while supply continues to rise. With core inflation remaining below the 2 percent ceiling, the Fed has free reign to focus on providing liquidity to assist with the economic recovery and the improvement of bank balance sheets. In this context, there is no rush to the exits.

 

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United States - Back To School And Back To Work

 

Don Drummond, Chief Economist, TD Bank Financial Group

In a shortened week rather light on economic data a few hopeful signs emerged and at least one cautionary signal also surfaced. The Federal Reserve Beige Book signaled signs of stabilization and improvement throughout the Fed’s twelve districts. U.S. jobless claims declined in the week, continuing to point to improvement in the job market, and finally U.S. trade data pointed to a rebound in trade flows in both directions with real goods imports rising 5.3% and exports not far behind at 3.9% in July. Yet amongst the hopeful signs lay lingering doubts about the pace of future expansion. Consumers in July continued to pay off their credit cards and appear to be reluctant to take on more debt. Consumer credit fell 0.9% in July (9.9% annualized) – the largest month-over-month decline since 1975. While this indicator is rather backward looking it also shows some persistence and a slower pace of credit expansion is further indication that a quick return to old spending habits is unlikely. And while we do expect a move away from the negative headline inflation rates that we see today, a slower pace of credit expansion limits the risk that rampant inflation is anywhere near on the horizon.

 

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Increased Liquidity Boosts Recovery Hopes

 

Trevor Williams, Chief Economist at Lloyds TSB Financial Markets

A global increase in liquidity has been underway in an attempt to kick start economic recovery ever since the depth of the financial crisis was understood. It appears to be working. A range of countries have recorded a rise in economic growth in Q2, including Germany, France and Japan, see chart a. For many of them, this was the first rise in economic activity in over a year, after sharp consecutive quarterly declines. However, the US and the UK recorded falls in economic activity in Q2. It is also noticeable that emerging market economies are bouncing back more quickly than developed economies, with annual gdp in Q2 up by 7.9% in China, by 6.1% in India and quarterly increases in Singapore of 20% and 9.7% in South Korea. In short, there are solid signs that conventional and unconventional policy loosening is helping to foster a global economic recovery.

 

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