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Weekly Focus: Fear of a major slowdown is mounting

- Market Movers ahead
• 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.
Focus
• 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.
DenDanske Weekly Focus 20100702

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