Is the US out of the Woods? Some Seem to Think So

[B]Weekly Bank Research Center 10-08-07[/B]


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[B] Belated Verbal Intervention from the ECB? [/B]
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[I][I] Stephen Roach, Head Economist, Morgan Stanley [/I] [/I]

As expected, the ECB left interest rates unchanged at 4% at this week?s Governing Council meeting. The press conference retained a tightening bias, though, by reiterating upside risks to price stability and indicating that the ECB is ready to counter these risks. However, the ECB seems gradually to be toning down its hawkish tone. The ECB no longer describes its policy as being on the accommodative side. During the Q&A session, ECB President Trichet highlighted that independent on whether the monetary policy stance was accommodative or not, the bank was ready to counter inflationary risks at any time, if needed. Together with an emphasis on the heightened uncertainty and the need for further data points to judge the repercussions of the current market turbulence on the economy, this underpins our call for the ECB to be on hold for now. While the ECB might remove its tightening bias in the future, our reading of the press conference is that it isn?t willing to do so yet. Going forward, the ECB will not only watch incoming confidence and activity data carefully to gauge the potential downside risks to growth. After the 3Q bank lending survey showed marked tightening in credit standards, it is also likely will be watching monetary and credit aggregates in particular to assess the impact of the tightening on actual lending. During the press conference, the ECB President played down the recent rise in loan growth, attributing it to re-intermediation and warning of portfolio shifts bloating M3 in the coming months. ?
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[B] A Quiet Week Ahead [/B]
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[I] Niels-Henrik Bjørn Sørensen, Senior Analyst, Danske Bank [/I]

                                                                                                                                                                      Economic data will be thin on the ground in the coming week, and so the focus  will be on the figures for German industry. Some indicators have suggested a  relatively sharp downturn in industry, and the question is whether this will be  confirmed by the hard data. We predict a healthy increase of 0.8% m/m in  industrial output and an increase of 1.5% in industrial orders.                                                                                                                            
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                                                                                                                                                                                                                       [Full Story](http://danskeresearch.danskebank.com/link/WeeklyFocus05102007/$file/WeeklyFocus.pdf)
                                                                     
                                           
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[B] Rate cut expectations have not gone away [/B]
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[/B] [/B] [I] Trevor Williams, Chief Economist at Lloyds TSB Financial Markets [/I]

Despite worries that the US sub-prime credit crisis will lead to weaker economic growth on this side of the Atlantic, UK firm?s confidence in their own business activity is increasingly robust, according to September?s Lloyds TSB Corporate Markets Business Barometer. Confidence amongst UK firms rocketed in September, with 70 per cent expecting their business activity to increase over the next 12 months. This is an increase of 11 per cent from August?s survey. Just 7 per cent of UK firms predicted that their activity will decrease over the same period.
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[B] US Review: Don’t worry about a thing… [/B]
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[I][I]John E. Silvia, Ph.D. Chief Economist, Wachovia[/I] [/I]
Maybe we should have listened to a little more Bob Marley during this summer’s mortgage market meltdown. With the benefit of today’s employment report and upward revisions to the two previous month’s data, the economy looks as though it was nowhere near the edge of the abyss. Nonfarm employment rose by 110,000 jobs in September and job gains in July and August were revised up by a total of 118,000 jobs. The economy has slowed but is still growing solidly. Nonfarm employment has increased by an average of 97,000 jobs over the past three months, which is very close to what we had originally forecast. Hiring has clearly slowed in areas tied to residential construction, like home sales and mortgage banking. Manufacturing employment is also declining, particularly in areas tied to residential construction and motor vehicle production. Aside from these two important areas, however, hiring remains relatively solid, with strong gains in professional and business services, health care, and the leisure and hospitality sector.
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[B] BLS Defibrillator Resuscitates US Employment [/B]
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[/B] [/B] [I] Steve Chan, Economist, TD Bank Financial Group [/I]

The U.S. economy created 110,000 net new jobs in September, 10% more than the consensus forecast. More importantly, faith in the Bureau of Labor Statistics? (BLS) initial numbers took another hit, as revision for July and August turned back time and brought 118,000 jobs back from the dead. The 4,000 jobs lost in August turned into an 89,000 gain, while July?s gain increased from 68,000 to 93,000. All of which brings the 6-month trend rate of monthly job growth a tick above the ‘decent but by no means stellar? territory of 110,000 - see exhibit 1.
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[/B] [/B] [I] J-Chart [/I]
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