by HVB Group Global Markets Research
HVB Group
● Concern. The US recession has only just been officially confirmed, but the next poltergeist is already stalking media & markets – deflation! Investors’ inflation expectations have, at any rate, plummeted, and are currently hovering around the zero line (cf. chart below).
● Facts. Our analysis reveals, however, that the fundamentals do not (yet) support the deflation fear. For that to happen, the US recession would have to be deeper than we are projecting, and the unemployment rate would have to rise to more than 9% (pages 4-6).
● Counter-measures. That is exactly what economic policy is attempting to prevent with all the means at its disposal. The hundreds of billions in fiscal programs are unprecedented in the post-war era, and the Fed has already lowered its target rate a whopping 425 basis points. The week after next, it will ease another 50 basis points. We even won't exclude a zero target rate soon.
● Fed. Moreover, the central bank has already begun to combine its traditional monetary policy with quantitative measures – i.e. even before it has depleted its interest rate ammunition (pages 7-8). The objective here is to avoid Japanese conditions. The Fed has, in a matter of weeks, already pumped more liquidity into the system than Japan did in three years. Nevertheless, US deflation risks continue to rise.
● Further topics:
Weekly Comment: Actions speak louder than words (page 2).
EMU: Worst recession since 1992/93 (page 9).
Data outlook: European industry sinks ever deeper into recession; US retail sales continue to plummet (page 11).
Market outlook: Govies and USD to remain in demand (page 18).
No comments:
Post a Comment