Consumer Confidence and Spending May Be Stabilizing, Survey Says - InvestorPlace
Greek Government Plans New Taxes, Spending Cuts - Wall Street Journal
Five 'new normals' that really will stick - Fortune
With consumers slow to spend, businesses are slow to hire - Washington Post
Chinese scientists reach North Pole - Xinhua
A Chinese Business Book Bestseller “Goldman Sachs Conspiracy” - Sinocism
The last chance to avoid a global trade war - Financial Times

Subdued Growth, No Double Dip

- "We continue to expect a sustained but uneven global recovery, although the near-term outlook could be quite choppy. We do not regard a double-dip recession — that takes major economies back into a period of sustained negative growth — as likely. Nevertheless, growth momentum has slowed in China, Japan and the US, and is unlikely to regain the vigour of late 2009 and early 2010 in the next few quarters."
- "As with the last couple of months, revisions to our growth forecasts are quite balanced but with a slight tilt to the downside. We are raising our 2010 growth forecasts for the UK, euro area, Sweden and Hong Kong after strong Q2 data. However, we also have cut our forecasts for the US and Japan, following softer Q2 readings and the lack of support from financial conditions."
- "With low inflation, plus signs of slowing growth and weaker financial conditions, the Fed has signaled a reenergized commitment to low interest rates, and we now expect the Fed to keep rates on hold all the way to the end of 2011. The BoE and ECB are probably on hold until well into 2011, but on balance we now believe that 3Q-11 is more likely for the first hike rather than our prior forecast of 2Q-11. With China on hold near term, our base case is that none of the main five central banks (Fed, ECB, PBOC, BoJ, BoE) will hike before mid-2011."
- "Citi's market strategists are cautiously optimistic on credit and equities and believe that current fears of a global double-dip recession are overdone, while corporate profits will probably continue to outpace market expectations. Citi's FX strategists believe that further upside for the trade-weighted USD may be likely over 0-3 months as short USD exposures are unwound. Thereafter, however, we expect that many G10 currency pairs effectively will continue to range trade. G10 fx is likely to remain a funding tool more generally for forays into higher-yielding EM currencies and asset markets."

Citigroup Global Economic Outlook Strategy 20100818

Note to Self: The Fed Likes Bonds It Thinks Are Cheap

- Quantitative Easing 2010: The Fed Still Likes Cheap Bonds "Inside, we analyze which issues the Fed bought during the Treasury purchases of 2009 and compare them with what it bought this week using our spline model. The results: Last year it bought bonds that were cheap to spline, and this year it is doing the same."
- Ahead of the Curve: US vs. Japan "While we do expect the curve to flatten in the medium term, we do not think the Treasury market will move in lock-step with what the Japanese rates market experienced in the 1990s. Swift policy actions, strong productivity, and constructive demographics give us less reason to believe deflation and negative growth may lead to a Japan-style curve compression."
- Munis "Based on the experience of the early 1980s, local government employment could be vulnerable to significant additional employment reductions if predictions of a double-dip recession come true."

RBC US Fixed Income Weekly 20100819

Death Becomes Her

- Decoupling – "The last quarter has seen 10Y yields around the world fall to all time lows or very close to all time lows, while equity indices have continued to rally."
- Who knows more? – "Equity investors seem to fear that the bond market is predicting a double dip that the equity market is not pricing in."
- A draw – "After these periods of equities and bonds tracking each other, equities outperform half the time. No monopoly on knowledge."
- Disbanding the cult of the equity – "The moves in the two asset classes have however seen dividend yields over bond yields back at pre 1950s levels."
- Growth matters – "This derating of equity suggests that future returns will be set by earnings growth rather than a further derating."
- Equity and credit – "The final yield crossover is credit and equity. Not yet at the index level. We screen for stocks; BASF, Roche, Unilever, Vodafone feature."

It’s not always sunny in Philadelphia

- Macro viewpoint: Its not always sunny in Philadelphia "The economy continues to slow and the risk of a fiscal accident is growing."
- Fed watch: Can Bernanke quell the cacophony? "We would have hoped Chairman Bernanke would speak first after the August FOMC meeting and clarify the view of the majority. Instead, we got noisy clatter from a number of hawks, all of whom we believe are unlikely to reflect the prevailing positions on the outlook or policy by most Fed officials."
- Housing watch: A mini double-dip in housing construction "The housing market is a key barometer of the underlying health of the economy. We are therefore launching a new, “Housing Watch” note within the US Economic Weekly to keep our readers in tune to the evolving state of the housing market."
- The week ahead: Taking a bite out of 2Q GDP "Chairman Bernanke will be delivering a closely-watched speech at the Kansas City Fed's annual Jackson Hole Symposium on Friday. The theme of the conference is “Macroeconomic Challenges: The Decade Ahead.” On the data front, the Bureau of Economic Analysis will likely take a bite out of 2Q GDP. With the trade gap widening even more then initial estimates, we expect 2Q GDP to be revised down almost a full percentage point to just 1.5% annualized from 2.4% previously. Keeping with the theme over the last several weeks, we expect better manufacturing sector data (durable goods orders) to offset the weak numbers emanating from the housing market (new and existing home sales)."

Merrill Lynch US Economic Weekly 20100820

Cutting our risky FX call to neutral

- Cutting our risky FX call to neutral "We choose to cut our tactically bullish stance on risky currencies and revert to a ‘neutral’ call. ‘Flipping NOLI’ indicates that there remains some error between actual and market-implied NOLI, but it has narrowed significantly since we first recommended a tactically bullish stance. One important rationale for retaining our ‘tactically bullish’ stance on 5 August was based on the notion that we were statistically likely (69%) to be in a phase of positive momentum for risk. We caught the 31%. Indeed, our latest assessment of positioning seems to suggest that there is limited short-term scope for a sustained improvement in pro-risk positioning. In this piece we also briefly explore our views on the US employment situation (pessimistic relative to consensus), the US policy situation (optimistic relative to consensus) and China growth and policy (somewhat optimistic, but concerned that we have been complacent)."
- The potential impact of a Potash deal on "Potash has rejected BHP Billiton’s initial offer. But the spike in Potash’s stock price suggests that the market sees a high probability that BHP will submit a higher offer. The reported financing structure and BHP’s (non) hedging policy suggest that the bulk of the transaction value will translate into CAD buying in the FX spot market. While CAD has already appreciated around 1.5% on the back of the news, we do not think the currency is fully pricing in a reasonable probability that we could see the biggest
ever M&A inflow."
- JPY - Effective JPY rate, monetary easing and intervention "The government and the BOJ have started to try in earnest to stop JPY appreciation via aggressive verbal intervention. Yet despite all appearances, we think that the government has not obtained the agreement of other countries regarding intervention and is not yet in a position to intervene. Similarly, the BOJ has not yet expressed any deep concern about the economic situation. We think that if any easing by the BOJ falls short of the market's expectations, JPY could remain on a medium-term strengthening trend."
- JPY - Taking a closer look at investment flows that fail to tally with JPY appreciation "In July, USD/JPY declined despite record net purchases of foreign securities by Japanese investors. We see two possible reasons for this: 1) the inclusion of a large amount of exchange rate-neutral transactions in the figure for outward portfolio investment, such that downward pressure on JPY was less than appearances suggest, and 2) the JPY-positive impact of factors such as inward portfolio investment, speculative positioning, and currency hedging by Japanese institutions and companies."
- Capital Flow Monitor - Shift in June as foreigners sold eurozone fixed income "Portfolio flow data showed that foreigners were net sellers of eurozone fixed income assets in June, having bought sizeable amounts in April and May. Foreigners were net buyers of eurozone equities, and eurozone residents were net sellers of foreign assets, bringing total net portfolio flows to a small positive. In our view, the report suggests that some of the EUR weakness in June is being driven by negative sentiment among investors towards eurozone assets."
- Singapore - No change expected at the October MAS policy announcement "The Monetary Authority of Singapore (MAS) is probably about to commence its policy review process, which we think is likely to lead to the MAS maintaining the 2% annual appreciation path of the S$NEER as its base case with no change in the width of the bands. However, we currently see some risk that the MAS could take a more aggressive stance, which could entail increasing the annual slope of appreciation to 3% (a similar move occurred on 10 October 2007 when the MAS announced it would “increase slightly” the slope of the S$NEER policy band). We see this as a relatively small probability event, but it could materialize given upside inflation risk in 2H10."
- EMFX Portfolio Update - Scaling into 5Y TRY payers and buying EUR/TRY "We believe the short-term risk reward suggests exploring the opportunity of paying 5y TRY cross currency for a market priced for perfection. We also add 1m call spreads in EUR/TRY, in addition to rolling USD/TRY call spreads."
- Turkey trip notes - Partly cloudy with sunny intervals "We visited Istanbul and Ankara, and the theme seems to have changed from a safehaven to one of the start of imbalances. The fundamentals still highlight a bullish story in Turkey and the safe-haven theme is priced in over the next three months. Nevertheless, we see some dark clouds lurking (particularly for the rates market and relative to the current pricing) and discuss some of the domestic demand and monetary exit concerns."
- EMFX Portfolio Update - Reduce R207 and exit TRY 1y1y payers "5y5y is the new 1y1y theme has been a key one for us. Accordingly we have been long South Africa 10y bonds (R207s) and have tactically paid 1y1y TRY. Both views worked, but we have reasons to reduce risk in the short-term and thus we are halving the exposure on R207and exiting the TRY 1y1y payer."
- FX Quant Insights - When there was no trend "The bane of any trend-following strategy is when the market becomes range bound. In this article we look at a method for determining whether the market is trending or not by looking at the gradient of moving averages. The rationale is that moving averages tend to flatten during periods of range-bound price action. We find that our gradient-based trading rule outperforms simple moving-average crossovers, which suggests the gradient-based approach adds value compared with simpler technical indicators. We also show that filtering a simple moving average using a gradient adds value."

Nomura Global FX Weekly 20100819

Quantitative teasing

- "Continued signs of slowing global growth momentum led by US and China"
- "Rising claims, soft consumers increase risk of subpar US growth"
- "The Fed acts and BoJ talks but uncertainty about monetary tools runs high"

JPMorgan Global Data Watch 20100813

Metals: Balanced view for 2H10, but upside for 2011 intact

- Metals prices have been trading within a range this year "Following sharp price gains as the global economy emerged from recession, metals have been trading within familiar ranges during the past few months. This was peculiar because copper fundamentals strengthened visibly, with LME stocks for instance drawing since March. Physical copper premia, which are a good indicator for the tightness of regional metal markets, have also generally been well supported and rose to an extremely high $150/t in China. Subdued upward pressure on base metal prices has been heavily influenced by increasing macro headwinds as the initial steady recovery started to fade. Headwinds have been reflected in a host of indicators, with last week’s release of US trade data suggesting that 2Q GDP growth is tracking at only 1.3% QoQ annualised according to our economists. There is also evidence of a slowdown in China, the most significant metals consumer, as the government has been tightening policy selectively."
- We see some downside risks to base prices during 3Q10 "Activity in the metals industry normally slows during the summer months, which often reduces price support during that period. With this in mind, we believe that there is a risk for prices to come under pressure and copper could fall to $6,500/t ($2.95/lb) in the coming weeks. Yet, at the same time we see scope for an increase in activity later in September, which should support metals quotations. Our generally balanced short-term view also implies that price movements will likely remain choppy. Nevertheless, without a double dip, we believe that metals should be well supported in 2011."
- Despite uncertain outlook, we keep positive view for 2011 "Our generally positive view on metals for 2011 is based on the BofA Merrill Lynch Economics team forecast that global GDP will rise by 4.2% YoY, following a 4.6% expansion in 2010. It is worth noting that even though Chinese authorities will likely keep a tap on speculative activity in the property sector, measures have been taken that should at least partially offset that. Nevertheless, despite persistent supply constraints for some metals, risks are skewed to the downside and any signs of a sharper than anticipated slowdown (which is not our base case) would likely lead to a reduction of our forecasts. Meanwhile, we also reinforce our gold call and see prices gradually rising to $1,500/oz during the coming 18 months."
- Upgrades to longer-term prices "Using a combination of project incentive prices and marginal production costs, we have adjusted our longer-term prices."

Merrill Lynch Metals Strategist 20100817

A Cautious, Careful Consensus

- The August consensus: cautious and careful "Our August FMS reveals a consensus that is cautious on global growth and risk. The bearishness of June & July has abated. But few investors hold extreme views or extreme positions right now, so directional signals from the August FMS are limited."
- Growth expectations stabilize, trough in China "The collapse in growth expectations in June and July was followed by stabilization in August. A mere 5% of investors forecast stronger global growth in the next 12 months, but a large 78% majority do not expect another recession. China growth expectations have troughed: the growth diffusion index rises sharply to -19% from -39% last month, which caused commodity exposure to rise."
- Risk metrics back in their trading range "In a new question our survey said the two largest "tail risks" are premature fiscal tightening and US municipal/EU sovereign debt defaults. That said, risk appetite in August has stabilized. The BofA-ML Risk Appetite & Liquidity Index rose to 39, a fraction below the long-term average level. The average investor cash balance fell to 3.8% from 4.4%. But hedge fund net exposure remains near a 4-year low."
- Still uw bonds, but raising exposure to commodities "No contrarian "sell signal" for bonds: global asset allocators remain stubbornly underweight bonds (exposure dropped to -23% from -15%) and modestly overweight equities (broadly unchanged at a net 12% ow). Commodity exposure has risen to 9% ow from marginally uw last month."
- Out of US/Japan into Europe/UK "Big drop in exposure to US, with a net 14% uw the market, the lowest level since Jan'08. Big drop in exposure to Japan, with a net 27% uw. A net 62% of investors view the Yen as overvalued, the highest reading on record. Big rotation into Europe (+11%) and to UK equities (lowest uw since May '07). GEM remains the most preferred region (+38%) for asset allocators but is not at extreme levels (a net 53% were ow last Nov)."
- Out of utilities/pharma into banks/industrials "August saw rotation into banks, though investors are still uw (-19%), and further rotation into industrials (+12%), financed by lower weightings in pharma (12% ow from 23% last month) and utilities (-27% = least loved sector). Tech remains the most-favoured sector (net 34% ow) despite recent underperformance."

Inside the S&P 500 Update Brief: Brighter Rearview Mirror, Rougher Road Ahead

- "Corporate earnings in 2Q continued to dramatically beat our expectations as margins surged. With S&P 500 EPS about 7% above our estimate in 2Q and 9% above consensus, we’ve adjusted up earnings level forecasts by a nearsimilar amount. But we still see a sharp slowing in EPS growth ahead."
- "Our revised S&P 500 operating EPS forecast for 2011 is $90.25 vs $86 previously, which still represents a slowing to +7% after a +36% gain in 2010. This is below 2011 sell-side consensus of $96.12 and +14.6%."
- "Very near-term EPS estimates will likely follow the familiar pattern of gradual downward revision. But 3Q consensus estimates show an outright drop from 2Q, which already appears too pessimistic. This is even as our 3Q U.S. GDP estimate is just +1.6%, and 2H 2010 has been revised down ½ percentage pt."
- "For 2011, (small) upward risks to the EPS forecast might include larger net share repurchases. However, fundamental gains driven by higher utilization rates and falling labor costs are gradually running their course. The most profitable cyclical activities, such as cross border trade, are set to moderate."
- "The recovery has yet to build up significant “cyclical baggage” that would risk a broad contraction. However, uncertainty and risk aversion could keep activity stalled and flatten earnings more than we expect."
- "Long-term budget concerns are obvious. However, the difference between slightly above-trend U.S. growth in 2011 or below-trend growth with unacceptable downside risks seems to lie in the hands of fiscal policy makers."

Fear of double dip intensifies

- Market Movers ahead
• "In the US we expect to see a drop in both new home sales and existing home sales. Moreover, we expect that the durable goods report will give an indication of how strong the upward trend is, notably if it has been losing pace. Furthermore, we expect a considerable downward revision of second quarter GDP."
• "The most important release in the euro area is the August flash PMI indicators. We expect PMI levels to drop a bit across the euro area as a consequence of the recent signs of slowing in the US and Asia."
• "The data calendar for next week is light in Asia. Most notably Japanese trade data will give some more input to how Japanese exports are coping with the strong JPY and how much Asia is slowing at the moment."
• "In Denmark attention will be on the Danish government’s draft budget proposal for 2011 and the accompanying economic forecast."
- Global Update
• "With another round of weak economic data out of the US late this week, the fear of a deeper slowdown has intensified. Due to continued weakness in activity data we have decided to revise the growth forecast, but we continue to believe that the risk of an outright recession is limited."
• "It has been a calm week in the euro area. In Germany the ZEW expectations index showed some weakness."
- Focus
• "Sovereign spreads in the euro area periphery have widened considerably during the past two weeks. We will take stock of the attempts to bring public finances back on a sustainable path. Our primary concern is that public support for necessary reforms may falter."

DenDanske Weekly Focus 20100820

Will Stanley Fischer regret his hikes?

- Market movers ahead: Rate decisions take centre stage "In the coming week rate decisions in Poland, Hungary and Israel are expected to take centre stage. We expect all three central banks to keep rates unchanged, but it will be very interesting to see how the banks choose to communicate with regard to the recent rise in fears over a double dip in global growth and change of stance of the Federal Reserve in a more dovish direction. We would especially keep an eye on the Bank of Israel, which could change its bias from a tightening to an easing bias. In this week’s EMEA Weekly, we also take a closer look at the outlook for monetary policy in Poland, Hungary and Israel, based on our Monetary Policy Tracker and the socalled Taylor gap. Lithuanian macro data is due next week. The final GDP number for the Q2 10 should not vary significantly from the flash estimate (around 1%y/y). GDP components data, would support our conclusion that the growth resulting from export and restocking. Recovering in industrial production is expected to accelerate further (to 0.7% y/y in July from 4.8% y/y in June), mostly based on the external demand. However, growth in domestic demand will be slow as unemployment remains at its peak level and wages are likely to stay sluggish for this year. There is no reason to assume the significant acceleration in retail trade during the summer, but in general we expect to see a more intensive stabilisation, mostly due to positive base effect. We expect the decline in the retail trade rate to slow to 3.9% y/y in July, from 6.4% in June. Given that unemployment is structural by the nature it could rise in Q2 10 to almost 19% of the labour force. The Construction sector still indicated a decline trend and will not require, at least in the near future, large-scale labour."
- Fixed Income Outlook: Rates and yields to inch down further "Our Monetary Policy Tracker continues to indicate that the EMEA central banks are likely to go back to monetary easing, which points in the direction of more downside risks to rate and yields across the region. We continue to stress that the biggest downside risks on rates and yields are in Israel and Turkey."
- FX Outlook: Carry erosion: Be careful with shekel and lira "With monetary policy likely to move in a more dovish direction in most EMEA countries we are also likely to see some “carry erosion” across the region. This gives some risks to the region’s currencies – especially for shekel and lira. Our EMEA FX Scorecard overall continues to point toward weaker EMEA currencies on a one- to three-month horizon."
- Scorecard-based trade of the week: Buy ILS/ZAR "We have been long CZK/ZAR for five weeks based on the highest and lowest scores in our EMEA FX Scorecard. However, going into next week the Israeli shekel is the highest scoring currency in the Scorecard, while the rand remains the lowest. Therefore, based on the Scorecard, we recommend buying ILS/ZAR going into next week."

DenDanske EMEA Weekly 20100820

Impact of a stronger yen on Japanese exports

- Impact of a stronger yen on Japanese exports
• "Our statistical analysis found that the nominal USD/Yen exchange rate little matters for growth of real exports"
• "As the real effective yen exchange rate, a more relevant variable for real exports, has been relatively stable, we don’t think it necessary to alter the outlook for net exports going forward unless the forecast for global industrial production is revised meaningfully"
- Growth forecast revised technically after the release of Q2 GDP
• "While Q2 (Apr-Jun) 2010 GDP growth rose 0.4% qoq annualized for the fifth straight quarter of positive growth, this represented its lowest point in three quarters"
• "Upon the release of Q2 GDP data, we revised our annual growth forecasts; in the revised forecasts, we look for 2.6% and 0.8% for real GDP growth for CY2010 and CY2011, respectively (prior to the revision, 2.9% and 1.0%, respectively)"
• "Weaker than expected Q2 GDP results and the recent deterioration of leading indicators for production and consumption have been responsible for the downward revisions"
• "The momentum of the recovery in consumer sentiment is slowing down. The July Business Watcher Survey showed that outlook DI for household-related activity dropped for the third consecutive month. The Consumer Confidence Index also fell month-on-month in July for the first time in seven months."
- Demand for bank loans remains weak
• "Money stock in July indicates weak demand for funds and less risk appetite among investors"

CreditSuisse Japan Economics Weekly 20100819

The Power of the Purse: Gender Equality and Middle-Class Spending

- Gender equality is improving "In the BRICs and N-11 countries, gender gaps in education, employment, health and political representation are narrowing. At the same time, laws and social norms that have discriminated against women are shifting in some countries. Together, these factors are giving women greater influence and decision-making power within households and markets."
- Women’s spending priorities are different "Women’s spending priorities differ from men’s, with women notably more likely to buy goods and services that improve the family’s welfare. Thus, as women gain decision-making power, household spending patterns are likely to shift. Household savings rates are also likely to rise. Sectors likely to benefit from women’s expanding buying power include food, healthcare, education, childcare, apparel, consumer durables and financial services. Our equity research analysts identify a list of companies with exposure to these global opportunities."
- Identifying the “sweet spot”: gender equality meets the global middle class "Improving gender equality coincides with the rapid growth of the “global middle class” (those with annual incomes between $6,000 and $30,000 in PPP terms). From about 1.7 billion people today, this middle class is expected to reach approximately 3.6 billion by 2030, of whom about 85% will live in the BRICs and N-11 countries. Over the next five years, the combined impact of growing gender equality and the emerging middle class will be seen most clearly in China and Russia, and to a lesser extent in Vietnam, Mexico, Brazil and Indonesia. In
the subsequent decade (2015-2025), these dynamics are likely to remain strong in Mexico and Russia, and to continue to strengthen in China, Indonesia, Vietnam, India and Philippines. India’s middle class will see rapid growth off a very low base, but the shifts in spending that we outline are likely to remain constrained by women’s relatively low status, at least for the next 10-15 years."
- Income and equality: a virtuous circle "Spending driven by women should support the development of human capital, which will fuel economic growth in the years ahead. At the same time, economic growth should continue to bolster gender equality."

GoldmanSachs Global Markets Institute 20100805