A Different Place
Spyros Andrepoulos, Joachim Fels & Manoj Pradhan, Morgan Stanley
In this first issue of our new bi-weekly Global Macro Analyst, which replaces the weekly Global Monetary Analyst, we lay out our big-picture view of the global economic and policy environment. Our key theme has been and continues to be that even four years after the bursting of one of the biggest credit bubbles in history, the world remains a very different place from the one we knew before 2008. As we see it, the current macro environment is dominated by three major developments:
FX: BoJ and BoE Moving in Opposite Directions
Arne Lohmann Rasmussen, Chief Analyst, Danske Bank
The Bank of Japan (BoJ) has this year embarked on a significantly more aggressive monetary policy to weaken the yen and, on top of different QE measures, has introduced an inflation target of 1.0%. We believe that the BoJ will step-up its easing policy and announce further QE at this week’s policy meeting. See ‘Market movers’ for details.
Rates Dip on Weaker Reports
John E. Silvia, Chief Economist, Wells Fargo
The yield on the 10-year Treasury note fell below 2.00 percent this week, as most domestic economic reports came in below expectations and news out of Europe remained mostly negative. Slower growth is restraining industrial commodity prices, helping soothe inflation fears whipped up by quantitative easing in the United States and Europe. The limited effects of QE are now beginning to exert a new influence; what do monetary policymakers do once QE loses its punch?
Canada – Bank of Canada to Hike Rates Before Year-End
Dina Cover, Economist,TD Bank Financial Group It appears as though the ‘lower for longer’ mantra may be replaced by ‘sooner than later’ in Canada. Indeed, this week the Bank of Canada changed its language, likely paving the way for higher interest rates this year. While the central bank held the overnight rate steady at 1.00% on Tuesday, the accompanying communiqué and Monetary Policy Report released the following day noted that “some modest withdrawal of the present considerable monetary policy stimulus may become appropriate”.
Compiled by David Song, Currency Analyst