From the category archives:

Global Economy

Global Macro View (05 March 2010, by Citi Research)

8 March 2010

IMF Chief Economist proposes central banks consider raising inflation targets. Raising the inflation target would lead to ‘inflation creep’. Key issue is need to avoid nominal interest rates hitting zero lower bound. Superior alternative to raising inflation target is to remove the floor on nominal interest rates. There exist at least three operationally feasible, practical institutional monetary policy innovations that eliminate the zero lower bound.

Global Economy: Default or Inflate or…

3 March 2010

As we’ve noted elsewhere, the options seem to be severe belt-tightening (threatening renewed developed world recession), bail-out or default, overt or covert. Last Friday we looked at what belt-tightening requires. Bail-out is possible for an individual country, but not really feasible this time, given the breadth of the problem. Who could bail out the G-20? So, here we look at the third option.

Japan Equity Market: Japanese Stocks Rise When Global Monetary Policy Tightens

3 March 2010

When US interest rates rise, more often than not so do Japanese stocks (since 1980). Global interest rates are generally hiked when the economy is performing well. Given their sensitivity to the global economy, it is natural that Japanese stocks rise when the outlook is improving.

Global Economic Outlook and Strategy (Feb 2010, by Citi Research)

3 March 2010

Despite market nervousness over sovereign credit worries and tightening global liquidity, we believe that global recovery is becoming more firmly entrenched. We continue to make more upgrades than downgrades to our 2010 growth forecasts across major economies, although as before the pattern remains uneven – with Asia leading and Europe lagging. This month, we have significantly raised our 2010 GDP growth forecasts for Canada, Japan, Argentina, Poland and, especially, Russia. In addition, our 2010 inflation forecasts are creeping up in several emerging markets.

Emerging Markets Macro and Strategy – The Next Thing To Worry About: Inflation (Feb 2010)

2 March 2010

Inflation has surprised on the upside in a number of emerging economies recently, raising the question: will the growth story in emerging markets set the stage for unpleasant adjustments in monetary policy this year? After all, Greece hasn’t been the only source of market turbulence since the start of 2010; Chinese monetary tightening played its role too. And it’s not just China where inflationary pressures may be rising: there are other countries – Brazil, Mexico, India and Turkey among others – where inflation and expectations are on the increase. So will this lead to more reasons for the market to worry?

Special Report on Financial Risk: The Gods Strike Back (by Economist)

21 February 2010

In this special report: Taming financial risk: Financial risk got ahead of the world’s ability to manage it; Number-crunchers crunched: The uses and abuses of mathematical models; The role of the risk manager: Risk managers to the fore; Banks and risk management: Why some banks did much better than others; Evaporating liquidity: The perils of a sudden evaporation of liquidity; The future of financial regulation: What regulators should do now; Risk after the crisis: Moneymen need saving from themselves

Asian Currency: Monetary Tightening to Lead to Asian Currency Strengthening and Japanese Equity Gains

21 February 2010

Global equities climbed 70.7% from the March 2009 low to the January 2010 high; Japanese equities increased 41.4% over the same period; We believe there is concern that monetary tightening in China will have a knock-on effect on global equities; Stocks rise with Chinese rates and the renminbi; Japanese stocks rise when Chinese rates rise; Asian currencies set for real gains.

Global Economy: ER, RR, IOR and RRR

21 February 2010

How many ‘r’s can you fit in a title? If you were following central bank exit strategies this week, then quite a few. First, Fed Chairman Bernanke’s speech on February 10 sketched quite a fluid picture at the Fed, where a vibrant debate about the different nature of this tightening cycle seems to revolve around some innovative yet practical strategies. Then the second Required Reserve Ratio (RRR) hike by the PBoC on February 12 unnerved investors worried about a more rapid tightening in China.

Global Credit: Close Your Eyes, and Hope It Goes Away

21 February 2010

Major Points: Positions still close to record longs; Inflows down again, by more than half from peak; Real money sold a few single names in telcos and utilities, but basically sat on their hands; Hedge funds, in contrast, have slashed positions in high yield and have used record shorts in indices to reduce net exposure

Euro Area — Implications of the Sovereign Crisis

19 February 2010

The EU Council suggested there is strong political will to prevent a liquidity crisis in Greece. But it remains unclear if the political support will lead to future financial support for Greece and if the support will be large enough to calm markets. Although we do not expect that we will get clearance on these questions by Tuesday, we are quite confident that the other euro area countries eventually will provide a bail-out for Greece if necessary.

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