Bank Research Consensus Weekly 07-06-09

A G8 meeting will take place in Italy next week (Wednesday to Friday), and interest in the FX market is centring on the Chinese delegation led by President Hu Jintao. In the past week the financial media have reported that China wants a discussion about the USD’s role as reserve currency. Understandably the Chinese are worried about what the US imbalances will mean for the USD in the long term, especially considering that the bulk of China’s FX reserves are invested in USD assets.

[I]Niels-Henrik Bjørn Sørensen,
Senior Analyst, Danske Bank[/I]

[B]Weekly Bank Research Center 07-06-09[/B]

  [B]                                                               [B][B][/B][/B][/B]<b style="">[B][B][B] 

[B] Global QE, Global Inflation [/B][B][/B]

[/B][/B][/B][B] [/B] </p> [I] Stephen Roach, Head Economist, Morgan Stanley [/I]

 Inflation complacency: With headline inflation gauges in negative territory in  many countries and the global economy only just emerging from the ‘Great  Recession', it may seem absurd or at least premature to worry about inflation  risks.  Indeed, most investors appear to be undaunted by inflation, a view that  is also reflected in market-implied 10-year inflation expectations for the US  and the euro area of less than 2%, which would be lower than actual inflation  over the past decade.  In our view, however, markets are too sanguine about  longer-term inflation risks.  It appears more likely to us that in the coming  decade inflation will significantly exceed the levels seen over the past decade.      

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[B] G8 Meeting to Set Agenda for USD (Perhaps) [/B][B][/B]

[/B][/B][/B][B] [/B] [I] Niels-Henrik Bjørn Sørensen, Senior Analyst, Danske Bank[/I]<em>

                                                                                                                                                                                                                                                     A G8 meeting will take place in Italy next week (Wednesday to Friday), and  interest in the FX market is centring on the Chinese delegation led by President  Hu Jintao. In the past week the financial media have reported that China wants  a discussion about the USD’s role as reserve currency. Understandably the  Chinese are worried about what the US imbalances will mean for the USD in the  long term, especially considering that the bulk of China’s FX reserves are  invested in USD assets.                                                                                                

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[B] [B][B][/B][/B][/B]<b style="">[B][B][B] [B] Canada – Manufacturing Hammers April GDP [/B][B][/B]

[/B][/B][/B][B] [/B] [I] Steve Chan, Economist, TD Bank Financial Group [/I]

 While the Canadian economy is definitely faring better than many others around the world, there is no question that it is still in a very weak state. This week we got the first glimpse of real production activity for the second quarter with the release of April GDP figures. The economy contracted 0.1% from March, marking the ninth consecutive month of decline. Compared to year-ago levels, the economy contracted by 3% – the quickest pace observed during the current downturn. While not off to a great start, we suspect that economic activity was even worse in May and June, resulting in an estimated annualized contraction of 2.2% for the quarter as a whole.  

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[B] [B][B][/B][/B][/B]<b style="">[B][B][B] [B] Deja Vu – Same Old Inventory-Led Economic Downturn [/B][B][/B]

[/B][/B][/B][B] [/B] [I] Trevor Williams, Chief Economist at Lloyds TSB Financial Markets [/I]

 Many assumptions about economic and financial market performance have been shattered in the 2 years since the global credit market crisis started. Not least amongst these assumptions was the view that ‘lean production’ methods – including manufacturers keeping stocks to a minimum and producing on demand to customer specification – would reduce the impact of the stock or inventory cycle on economic growth. But this economic downturn has, as always, been led by investment cut backs and falls in manufacturing output, driven by the inventory cycle. Chart a shows how sharp the fall in manufacturing output has been compared with the less pronounced reduction in the growth of volume retail sales, which has only just dropped into negative  territory in annual terms.  

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[/B][B] [B] Other Pre-screened Independent Contributors[/B]

[/B] [/B][/B][B] [/B] [I] J-Chart [/I]

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[I][B]Compiled By: David Song, Currency Analyst and Nolan Mickey, DailyFX[/B][/I]