Friday, July 2, 2010

Weekly Focus Fear of a major slowdown is mounting #ecb $ewb $spx


  • ECB meeting on Thursday - questions are expected to centre around additional liquidity measures and the ECB's asset purchases. Developments in Euroland bond markets and news out of southern Europe.
  • US non-manufacturing ISM - will it hold up better than its manufacturing sibling?
  • Monetary policy meeting at the Bank of England is not expected to bring any changes.
  • Swedish industrial data and the government s net borrowing needs. Norwegian CPI.

  • Global Update
    Global PMI's have fallen - fundamentals suggest a slowdown, but the European debt crisis has likely accelerated the decline.
  • The Riksbank hiked rates by 25bp, as expected, and the repo path was revised slightly higher in 2010 and 2011, but lower in 2012-13.
  • The expiry of the one-year LTRO has brought the duration of Euroland money market liquidity lower, which has put upward pressure on short-term rates.
  • The G-20 summit highlighted the change in policy focus from coordinated global growth support to a more diverse agenda. In Europe, focus is on public finances and in Asia attention has turned to inflation fighting.
The combination of general pressure on the euro and the SNB ceasing to intervene in the FX market has opened the door to the downside in EUR/CHF. We see a high probability of further support for the Swiss franc in the coming months. However, if the market's faith in the euro improves, profit-taking could lead to a sharp upward correction in EUR/CHF - a key risk to our forecast.

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