Tired trade

- Global: Tired trade "The growth in global trade continues to slow, but we expect a soft landing in the year ahead. We are less sanguine about global imbalances: much of the improvement in the US trade balance appears to be cyclical."
-United States: To QE or not to QE, that is the question "The Fed’s decision to stop the run down of its portfolio has prompted a chorus of questions. We argue that the odds of another round of full-blown quantitative easing (QE2) have risen to 35%."
- Canada: Inflation on the horizon "With the output gap nearly closed, we continue to believe inflationary forces are building and a significant breach of the 2% target lies in the not-too-distant future. Euro area: Stunning differences in 2Q growth in Europe Eurozone 2Q GDP rose by 1.0% qoq, exceeding the 0.7% qoq consensus forecast. There were dramatic divergences, with Germany expanding by 2.2% qoq (9.0% annualized) while Greece contracted by 1.5% qoq (5.8% annualized)."
- UK: Slower growth, higher inflation once again "The BoE continues to expect inflation to fall back below target in the medium term, but with upside risks and unusually large uncertainties."
- Japan: Testing time for policy response to strong yen "In case the yen continues to appreciate, some options the BoJ could take include: (1) steps to reduce the term premium, (2) gearing up commitment and (3) formal quantitative easing."
- Australia: AUD – Parity or paucity? "The June quarter export surge and further rise in commodity export prices in July has revived interest in where the Aussie dollar will end up."
- Emerging Asia: Will China’s wheat prices follow suit? "A global wheat price surge should have limited impact on inflation in China."
- Emerging EMEA: "We review the Russia budget and conclude that the government forecasts mask two key underlying risks."
- Latin America: LatAm inflation: not concerned yet "The current grain supply shock is nothing like the global food crisis of 2007-2008 a nd as a result, the effects on inflation, rates and FX in LatAm should be marginal."

Merrill Lynch Global Economic Weekly 20100813

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