2008 promises to be another interesting year. With significant variance in the range of forecasts on offer and fast changing perceptions of risk, financial markets could be in for a prolonged period of volatility. Key themes for 2008 include, have central banks averted a massive rise in corporate defaults or will further cash injections be required as losses continue to be disclosed? Will the US housing market recover? Will the UK housing market collapse? Is the UK retail sector in for a tough period? Are we in for another bout of strong M&A activity? Will commodity markets and emerging market equities come off the boil? Are markets too complacent about inflation risk, so will bond yields rise in the major economies? Answers to these questions will become clearer through economic data releases and policy action/ statements as the year unfolds. - Trevor Williams, Chief Economist at Lloyds TSB Financial Markets
Weekly Bank Research Center 12-24-07
Bold Action: Central Banks Likely to Succeed
Bold Action: Central Banks Likely to Succeed
Coordinated central bank actions to ease liquidity strains in money markets in our view will ultimately have significant positive implications for financial markets and the economy. Yet financial markets have yawned at the moves. If we’re right, despite near-term risks, opportunities are emerging in US equity and credit markets. Liquidity pressures emerged here and in Europe from two sources. One is the overhang of uncertainty about the value of collateral and the economic outlook. A second is the reintermediation of the banking system, which still has further to go. Banks and securities firms have become risk averse, hoarding cash and demanding a premium to lend in the interbank market. At the beginning of this week, that premium was running about 100 bp.
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Euroland - On a knife-edge
Niels-Henrik Bjørn Sørensen, Senior Analyst, Danske Bank
Both the German ifo index and the FLASH PMIs for Euroland fell a little in December after some signs of a renewed rise in November. It is still the clash between relatively strong economic figures and the long shadow of the credit crisis that is affecting business confidence. While actual economic numbers have been fine, albeit with a few exceptions, the credit crisis intensified in November and December, and it is probably this development that has pulled confidence a little further down. The general picture of business confidence is that growth is around or a little above trend . in other words, a situation where the ECB, under normal circumstances, would be close to tightening monetary policy, especially if the inflation risks were as high as they are at present.
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Key Themes for 2008
Trevor Williams, Chief Economist at Lloyds TSB Financial Markets
2008 promises to be another interesting year. With significant variance in the range of forecasts on offer and fast changing perceptions of risk, financial markets could be in for a prolonged period of volatility. Key themes for 2008 include, have central banks averted a massive rise in corporate defaults or will further cash injections be required as losses continue to be disclosed? Will the US housing market recover? Will the UK housing market collapse? Is the UK retail sector in for a tough period? Are we in for another bout of strong M&A activity? Will commodity markets and emerging market equities come off the boil? Are markets too complacent about inflation risk, so will bond yields rise in the major economies? Answers to these questions will become clearer through economic data releases and policy action/ statements as the year unfolds.
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2007 a Year to be Remembered: 2008 Looks Murky
Steve Chan, Economist, TD Bank Financial Group
This time of year is chock-full of prognostications on the year ahead. Last week, we stepped into the fray by providing our updated view on how the increasingly murky economic story will unfold in 2008 (see TD Economics’ Quarterly Economic Forecast at www.td.com/economics). In this edition of the Weekly Bottom Line, we take a look back at a year that was – to say the least – memorable. Just as the 1987 stock market crash, the 1998 Russian debt default and 9/11 have gone down in infamy, 2007 will be remembered as the year that the rain of liquidity (much of which was tied to the U.S. sub-prime boom) turned into a drought. The outbreak of the so-called credit crunch this past summer has prompted investors to look at risk through a new lens with enormous implications for the trajectory of prices of bond, equity, commodities and foreign exchange.
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Eight Things to Watch in 2008
John E. Silvia, Ph.D. Chief Economist, Wachovia
As this tumultuous year draws to a close we thought it appropriate to outline some key themes we see for the coming year. Much of this draws from our Annual Outlook, which is available on our web site. This year is ending with lots of talk about the possibility of recession. The R word first made its way back into the economic discussion back in late February, when Alan Greenspan addressed a group of investors in Japan and stated that he saw a one in three chance of the U.S. economy falling into recession in 2007. By the end of the year, he had upped his odds to a 50-50 chance of a recession in the next year.
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