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India Equity Research Reports, IPO and Stock News
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Along the Knife-Edge
After a turbulent summer, it is clearer than
ever that the key characteristics of a post-bust
recovery (a sluggish and fragile demand
recovery alongside continuing downward
pressure on interest rates) are firmly in place.
So the key short-term question will be whether
the latest financial disruptions are enough to
prompt fresh deterioration in an economy that
was already growing slowly, pushing the US,
and perhaps Europe, into another recession.
In tracking that transmission, we continue to
focus on three channels: the hit to confidence
and the forward indicators, as captured by our
GLI and its components; any signs of
tightening in financial conditions; and
increased signs of stress in the banking system
and renewed sovereign stress. We continue to
be most concerned about the last channel (and
the European element of this in particular).
And with an intensifying European policy
calendar, September could see sustained focus
here after an already rocky start. We are likely
to remain cautious until the deterioration on
each of these fronts reverses.
Both for the economy and for markets, we
think the current position is unlikely to be
sustainable. For the economy, the feedback
loops inherent in both the US labour market
and the sovereign stresses in Europe suggest
that we will either recover towards our
baseline or slip towards something worse. And
for markets, current pricing still looks like a
balancing of the probabilities of two different
views, meaning that a resolution in either
direction is likely to affect prices in rates and
equities, perhaps quite significantly. The
market now appears to be assessing a
somewhat higher probability of a US recession
than we do. But without clearer signs that the
pressures from the data, financial conditions
and banking/sovereign stresses are beginning
to change, it will be hard for markets to sustain
a recovery.
Along the Knife-Edge
After a turbulent summer, it is clearer than ever that the
key characteristics of a post-bust recovery—a sluggish
and fragile demand recovery alongside continuing
downward pressure on interest rates—are firmly in place.
Benchmarked against the recoveries after severe housing
busts elsewhere, the US recovery looks to be tracking a
very similar path.
The key short-term question will be whether the latest
financial disruptions are enough to prompt fresh
deterioration in an economy that was already growing
slowly, pushing the US—and perhaps Europe too—into
recession. In tracking that transmission, we continue to
focus on three channels:
The hit to confidence and the forward indicators, as
captured by our GLI and its components.
Any signs of tightening in financial conditions,
something that Fed and ECB interventions have
mitigated but not prevented.
Increased signs of stress on sovereigns and in the
banking system.
In the European element of this in particular, the last
channel continues to be the area we are most concerned
about. With an intensifying European policy calendar,
September could see sustained focus here after an already
rocky start. We are likely to remain cautious until the
deterioration on each of these fronts reverses.
Beyond the developed world, the performance of China
and the other large emerging markets (EM) will also be
important to the global picture and asset market reaction.
Our own global growth forecasts still embed the
relatively optimistic assumption that it is policy more
than growth that will adjust in EM, as a softer external
environment is offset by policy shifts. Recent data from
Asia continues to look somewhat better than elsewhere.
Since markets are now clearly priced for forward
weakness, and for policy easing fairly soon in a range of
places, any sign that the US is continuing to dodge
recession—still our central case, but one that carries
significant risk—could fuel a further reversal in the
market damage of the past month or two. The bad news is
that if the data deterioration becomes more widespread,
concerns about the limits of policy in dealing with these
problems may accelerate, particularly given that many of
the more obvious solutions lie outside central banks’
domain. A more sustained global easing cycle might then
be priced.
Both for the economy and for markets, we think the
current position is unlikely to be sustainable. For the
economy, the feedback loops inherent in both the US
labour market and the sovereign stresses in Europe make
it more likely that we will either recover towards our
baseline or slip towards something worse. And for
markets, current pricing still looks like a balancing of the
probabilities of two different views, meaning that a
resolution in either direction is likely to affect prices in
rates and equities, perhaps quite significantly. The market
now appears to be assessing a somewhat higher
probability of a US recession than we do. But until there
are clear signs that the pressures from the data, financial
conditions and banking/sovereign stresses are beginning
to change, it will be hard for markets not to remain under
pressure.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Along the Knife-Edge
After a turbulent summer, it is clearer than
ever that the key characteristics of a post-bust
recovery (a sluggish and fragile demand
recovery alongside continuing downward
pressure on interest rates) are firmly in place.
So the key short-term question will be whether
the latest financial disruptions are enough to
prompt fresh deterioration in an economy that
was already growing slowly, pushing the US,
and perhaps Europe, into another recession.
In tracking that transmission, we continue to
focus on three channels: the hit to confidence
and the forward indicators, as captured by our
GLI and its components; any signs of
tightening in financial conditions; and
increased signs of stress in the banking system
and renewed sovereign stress. We continue to
be most concerned about the last channel (and
the European element of this in particular).
And with an intensifying European policy
calendar, September could see sustained focus
here after an already rocky start. We are likely
to remain cautious until the deterioration on
each of these fronts reverses.
Both for the economy and for markets, we
think the current position is unlikely to be
sustainable. For the economy, the feedback
loops inherent in both the US labour market
and the sovereign stresses in Europe suggest
that we will either recover towards our
baseline or slip towards something worse. And
for markets, current pricing still looks like a
balancing of the probabilities of two different
views, meaning that a resolution in either
direction is likely to affect prices in rates and
equities, perhaps quite significantly. The
market now appears to be assessing a
somewhat higher probability of a US recession
than we do. But without clearer signs that the
pressures from the data, financial conditions
and banking/sovereign stresses are beginning
to change, it will be hard for markets to sustain
a recovery.
Along the Knife-Edge
After a turbulent summer, it is clearer than ever that the
key characteristics of a post-bust recovery—a sluggish
and fragile demand recovery alongside continuing
downward pressure on interest rates—are firmly in place.
Benchmarked against the recoveries after severe housing
busts elsewhere, the US recovery looks to be tracking a
very similar path.
The key short-term question will be whether the latest
financial disruptions are enough to prompt fresh
deterioration in an economy that was already growing
slowly, pushing the US—and perhaps Europe too—into
recession. In tracking that transmission, we continue to
focus on three channels:
The hit to confidence and the forward indicators, as
captured by our GLI and its components.
Any signs of tightening in financial conditions,
something that Fed and ECB interventions have
mitigated but not prevented.
Increased signs of stress on sovereigns and in the
banking system.
In the European element of this in particular, the last
channel continues to be the area we are most concerned
about. With an intensifying European policy calendar,
September could see sustained focus here after an already
rocky start. We are likely to remain cautious until the
deterioration on each of these fronts reverses.
Beyond the developed world, the performance of China
and the other large emerging markets (EM) will also be
important to the global picture and asset market reaction.
Our own global growth forecasts still embed the
relatively optimistic assumption that it is policy more
than growth that will adjust in EM, as a softer external
environment is offset by policy shifts. Recent data from
Asia continues to look somewhat better than elsewhere.
Since markets are now clearly priced for forward
weakness, and for policy easing fairly soon in a range of
places, any sign that the US is continuing to dodge
recession—still our central case, but one that carries
significant risk—could fuel a further reversal in the
market damage of the past month or two. The bad news is
that if the data deterioration becomes more widespread,
concerns about the limits of policy in dealing with these
problems may accelerate, particularly given that many of
the more obvious solutions lie outside central banks’
domain. A more sustained global easing cycle might then
be priced.
Both for the economy and for markets, we think the
current position is unlikely to be sustainable. For the
economy, the feedback loops inherent in both the US
labour market and the sovereign stresses in Europe make
it more likely that we will either recover towards our
baseline or slip towards something worse. And for
markets, current pricing still looks like a balancing of the
probabilities of two different views, meaning that a
resolution in either direction is likely to affect prices in
rates and equities, perhaps quite significantly. The market
now appears to be assessing a somewhat higher
probability of a US recession than we do. But until there
are clear signs that the pressures from the data, financial
conditions and banking/sovereign stresses are beginning
to change, it will be hard for markets not to remain under
pressure.
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