- "In our final weekly before a brief summer break, we look back over the year so far and
forward to the second half of the year and the market themes and questions that we think will dominate there. While the year has proceeded in distinct phases – from US growth upgrade to European sovereign risk to US slowdown worry – many assets are not far from where they begun 2010."
- "In thinking about this evolution and the path forward, we find it helpful to think about three sources of risk exposure. The first is US growth risk and the issue of whether the market has priced enough of a slowing. The second is non-US growth risk broadly speaking and whether the market is too optimistic or too pessimistic there. Running around this issue is whether it is possible to see slowing in the US without seeing more serious slowing elsewhere (the ‘decoupling’ debate returns!). The third is the kind of systemic risk that has reappeared with
worries about sovereign exposures and the banking system."
- "We think the second half of the year will be dominated by a set of judgments that relate to these three areas. First, how deep a US slowing and what kind of policy response might be forthcoming? Second, how much decoupling is possible (and will China’s policy shift meaningfully)? Third, will sovereign and systemic risks intensify again or settle? Our own forecasts envisage a period of some muddiness in the near-term that ultimately resolves towards a more positive global view. But given the fragilities in the system, we will be watching our various proprietary tools (GLI, FSI, FCIs) and trying to stay open-minded."
GoldmanSachs Global Economics Weekly 20100728
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