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[B]New Zealand Dollar Cannot Fly [/B]
[/B][/B][/B]</p> <em>Niels-Henrik Bjørn Sørensen, Senior Analyst, Danske Bank
In this article we argue that there remains a large downside potential for NZD, and that the first rate cut by the RBNZ in an easing cycle could trigger a more prolonged sell-off in the kiwi – even though the market is already pricing significant monetary easing. This could have the potential to take NZD/USD below 0.70 going into 2009, as fundamental support continues to abate.
[B]Weekly Bank Research Center 07-28-08[/B]
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[B]UK Economy to Worsen Before it Improves [/B]
[/B][/B][/B]</p> [I]Stephen Roach, Head Economist, Morgan Stanley [/I]
We have still to see the worst of this cycle in terms of low GDP growth and high inflation, in our opinion. Data suggest that the UK economy is now slowing significantly, and we expect that slowing to continue for a couple of quarters yet. This month, we again nudged lower our UK real GDP growth forecast to 1.4% in 2008 and 1.3% in 2009 (1.5% in both years previously and compared to 1.7% and 1.8%, respectively, at the end of May). 1.3% would mark the lowest GDP growth for a full calendar year since 1992 (when growth was a mere 0.2% with the economy having contracted in 1991) and compares to trend/potential of just above 2.5%. We still see an early 1990s recession as only about a 20% probability, but we continue to put close to a 50% probability on a technical recession (two consecutive quarters of even slightly negative quarter-on-quarter GDP growth). See Fear and Loathing in the UK, Graham Secker, David Miles et al, June 26, 2008.
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[B]Defining a Bottom in the Housing Market [/B]
[/B][/B][/B] [I]E. Silvia, Ph.D. Chief Economist, Wachovia[/I]
The stock market folded up like a cheap suit Thursday when disappointing news was released on existing home sales and first-time unemployment claims. A slight rebound in oil prices added fuel to the rout. Market participants appear to have been disappointed that the housing market has not yet bottomed out. This fear seems a bit exaggerated, as most of the damage from the housing bust has already occurred. Housing has not bottomed out, but the worst is almost certainly behind us. We believe it is instructive to define what a bottom actually is. At the bottom, sales and price declines will be at their most extreme levels and foreclosures will likely be at an all-time high. We expect the bottom in sales to occur within the next six to nine months and look for home prices to bottom out between a year and 18 months from now. The rate of deterioration in sales and prices, however, has already moderated significantly.
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[B]Why Have US Economic Conditions Deteriorated So Rapidly? [/B]
[/B][/B][/B]</p> [I]Steve Chan, Economist, TD Bank Financial Group [/I]
Remember April and May? The leaves were returning. The flowers were blooming. The credit crunch was over. Well, the spring fling is over and markets have come to the realization – which incidentally has been TD Economics base case scenario all along – that the credit crunch will continue to slowly bleed for some time. While the market roller coaster saw increasing optimism early this week, apparently markets forgot that the U.S. housing market remains in shambles. There is some light. For the first time since the spring of 2007, the 3-month trend in new home sales and starts is positive. New home construction is what is captured in GDP measures of residential investment, and this same signal preceded rebounds in U.S. residential investment in each of the last three downturns. Existing home sales, on the other hand, make up the majority of the U.S. housing stock and mortgage market, and sales there dropped another 2.6% M/M in June and are down over 15% over last year. Critically, at this current pace of sales, it would take over 11 months to sell the inventory of unsold homes already on the market. And this doesn’t include other homes dumped on the market in coming months through foreclosure or voluntary sales. In the second quarter, one in every 171 U.S. households was foreclosed on – with Nevada showing a staggering one in 43 households and California one in every 65.
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[B]Calls for UK Government Intervention Increasing [/B]
[/B][/B][/B]</p> [I]Trevor Williams, Chief Economist at Lloyds TSB Financial Markets [/I]
With UK economic growth slowing and the housing market weakening, the call for government action is rising. In the US, they have cut taxation by nearly 2% and slashed interest rates by 3.25 percentage points to 2%. But the UK economy is in a different position, for one thing its budget deficit as a share of gdp is slightly larger and for another it is not clear whether a relaxation of fiscal policy would be met by a response from the Monetary Policy Committee (MPC) in the form of higher interest rates. Further, the weakening of annual UK economic growth from an above trend pace last year of 3% to a below trend pace this year of about 1.8% has resulted in a widening of the fiscal deficit, to its worst position since the 1990s. But how bad can it get and why does it matter?
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[B]Other Pre-screened Independent Contributors[/B]
[/B][/B][/B]</p> [I]J-Chart [/I]
J-Chart is an innovative charting and bias-neutral market analysis tool. Based on its proprietary theoretical concept and display of market price action, J-Chart provides a much clearer and unique insight into the market than conventional charting methods. This innovative charting and market analysis tool is designed to visualize market price action that constructs unique price patterns called “Equilibriums”. Based on its “non-fixed time frame” concept and “Kinetic Equilibrium” application, J-Chart users are able to forecast markets’ future movements with high accuracy.