The USD has to some extent lost its safe-haven status in connection with the ongoing financial market turmoil. In part due to the weaker USD and lower interest rates in the US we are probably heading for a period when currency regimes around the world will be increasingly questioned. Most obvious, of course, will be the countries that fully or partly peg their currencies to the USD - which is primarily a number of countries in Asia and the Middle East. In Asia there has been speculation in recent weeks on a major revaluation of the Chinese CNY and a widening of the fluctuation band for HKD. Put simply, the costs of maintaining the link to USD have been rising.
[B]Weekly Bank Research Center 11-12-07[/B]
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[B] US Business Conditions: Signalling a Recession? [/B]
[/B] [/B] [/B]</p> [I][I] Stephen Roach, Head Economist, Morgan Stanley [/I] [/I]
As expected, the improvement in the Morgan Stanley Business Conditions Index was short-lived. The MSBCI plunged 23 points to 30% in early November, the record low last seen in August. While we do not have enough history to see how the MSBCI behaved during previous cycles, the index has certainly hit dangerously low — perhaps even recessionary — levels. Over the past month, credit conditions have worsened, and the S&P 500 has begun pricing in economic weakness, sinking 5.7%. Add in oil prices climbing dangerously close to $100/barrel, and the question changes from when the MSBCI will recover to if it will happen, at least over the next six months. It is also important to note that the weakness is not only due to housing-related factors — our survey sample no longer includes homebuilders and mortgage finance companies.
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[B] Currency Regimes May Be Tested [/B]
[/B] [/B] [/B] <em> Niels-Henrik Bjørn Sørensen, Senior Analyst, Danske Bank
The USD has to some extent lost its safe-haven status in connection with the ongoing financial market turmoil. In part due to the weaker USD and lower interest rates in the US we are probably heading for a period when currency regimes around the world will be increasingly questioned. Most obvious, of course, will be the countries that fully or partly peg their currencies to the USD - which is primarily a number of countries in Asia and the Middle East. In Asia there has been speculation in recent weeks on a major revaluation of the Chinese CNY and a widening of the fluctuation band for HKD. Put simply, the costs of maintaining the link to USD have been rising. First, it is becoming less and less compatible with the price stability goals of many countries. Second, the cost of accumulating foreign currency reserves in US assets is increasing as the USD weakens and US interest rates fall (see figure).
<strong style=""> [B][B][B] [B] The Only Thing We Have to Fear is Fear Itself [/B]
[/B] [/B] [/B] [I][I]John E. Silvia, Ph.D. Chief Economist, Wachovia[/I] [/I]
Fear has taken hold of the financial markets and shaken any semblance of common sense investors had left. Share prices sold off sharply this past week, first on news that General Motors would take a stupendous $39 billion loss in the third quarter and then later on the announcement of another round of write-downs related to the subprime mortgage market meltdown. To make matters worse, oil prices flirted with the psychologically important $100 a barrel level throughout most of the week and earnings from tech bell weather Cisco Corporation came in short of expectations. In addition, chain store sales came in below expectations for October.
<strong style=""> [B][B][B] [B] Canadian Dollar Should Not Fly this High [/B]
[/B] [/B] [/B] [I] Steve Chan, Economist, TD Bank Financial Group [/I]
In the early years of the 21st century, as Canadians busied themselves at work and drove the unemployment rate to an all-time low, the Canadian dollar was simultaneously being pushed up. At first, this appreciation seemed orderly and gradual, but then concerns and questions arose. How much of the loonie’s rise was a reflection of the need of the U.S. dollar to weaken in order to address the American’s large current account deficit? How much was a reflection of China’s fear of floating, which foisted undue appreciation on the loonie that should have befallen the renminbi? And why do policymakers appear to be complacent? The pandemonium has been palpable, but the fallacies have flown faster than the facts.
<strong style=""> [B][B][B] [B] Bond yields and equities decline as credit fears persist [/B]
[/B] [/B] [/B] [I] Trevor Williams, Chief Economist at Lloyds TSB Financial Markets [/I]
Risk aversion towards the dollar intensified this week as market participants sold the US currency over fears about the credit crisis and worries that China is mulling a further diversification of its predominantly dollar denominated foreign exchange reserves. £/$ cleared major barriers and traded above 2.1100, but on Friday the cross fell back near the lows for the week. €/$ scaled a new peak above 1.4700, bolstered by hawkish inflation comments by the ECB. The yuan also reached a new high against the dollar, supported by positive Chinese trade data for October. $/yuan fell to a new low of 7.4100. However, the yuan weakened against other currencies including the euro and sterling, a trend that provoked more comments from European officials about the need for a speedier yuan revaluation.
<strong style=""> [B][B][B] [B] Other Pre-screened Independent Contributors[/B]
[/B] [/B] [/B] [I] J-Chart [/I]
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