Global Research

• Euroland: Can exports ignore the euro?
  The strengthening of the euro poses a serious risk to Euroland’s exports in 2008. However, it is worth recalling that the euro has not strengthened as much on a trade-weighed basis. Also, the more subdued development in unit labour costs will neutralise some of the competitiveness deterioration stemming from the stronger euro. Finally, large exposure to fast growing markets also supports exports. This means that Euroland is set to lose only a little of its share on export markets throughout
• Denmark: Does the Danish housing market imitate the US?
  The Danish housing market has experienced a prolonged boom and a subsequent slowdown, which in many ways resembles the housing market boom and deceleration in the US - albeit with a delay of about one year. Does this imply that the troubles in the US sub-prime market are a forewarning of what is yet to come for Denmark? Due to important differences in the financing structure we do not think so. There are several striking similarities in recent Danish and US housing market developments. House
• CEE/CIS: The engine is cooling down
  • Growth is set to slow down in Central and Eastern Europe and in Eurasia. Luckily the slowdown is set to be fairly soft in the larger economies in the region such as Russia and Poland, while the smaller economies in the Baltics and south-eastern Europe are set for a significantly harder landing. • The slowdown in growth is especially driven by significantly tighter credit conditions in the region - especially in the Baltic states and Kazakhstan. • The slowdown will particularly be visible in
• US: A labour market health check
  The August payrolls data has cast doubt over the resilience of the US labour market and motivated fears of a more serious downturn in economic activity. Not only did the labour market experience a net loss of jobs in August, the labour market report also included a negative revision to previous months, implying a considerably weaker trend in hiring than previously. There is no doubt that the trend in payrolls has softened over recent years in response to softer eco-nomic growth. That said, the
• Awash with Cash 9: After the "credit run"
  The present financial market crisis is not just about US sub-prime mortgages. It is about deleveraging after a period of extremely easy financial conditions, about faith in credit rating? agencies and it is about trust in the system of complex fixed income products built up over a number of years. We benchmark the crisis against similar financial distress in 1987, 1998 and 2001. This crisis resembles 1998 the most, with the difference being that the present crisis seems more systemic and in
• Financial crisis: Why the contagion?
  We are amidst a financial crisis. We attempt in this note to give a stylised explanation as to why the negative effects on assets are amplified and why this entails contagion effects Balance sheet contractions are an important factor behind the spreading of the financial crisis. Since we do not know for how long this crisis will last, we believe caution is warranted.
• U.S: How can the Fed avoid a "credit run"?
  Liquidity provisions by Fed and other central banks have, so far, failed to calm markets. Instead, financial markets remain stressed and dislocated. Hence, it is no wonder many are calling for Fed cuts, to restore “normality” in the markets. In many ways this crisis is a close parallel to the 1998 LTCM credit crisis. But the lesson learned by the Fed back then was that Fed cuts worked in the short term – but contributed to the notion of a “Greenspan put” in the longer run. We think there are
• Oil market: Lower oil inventories going forward
  Even if OPEC might step up its quotas at the September 11 OPEC meeting, the market will experience a counter seasonal draw in stocks in this quarter. The market balance is almost inevitably going to tighten this autumn. Hence, we continue to expect oil prices to remain at the current level for the rest of 2007. We also see a tighter oil market in 2008, and raise our 2008 forecast slightly. If the current turmoil in the financial markets continues it will negatively affect the oil price and
• Ukraine: Huge potential, but reform needs to speed up
  Growth has been extremely strong in recent years – driven by buoyant domestic demand. Economic growth potential for the coming years looks positive, but much will depend on the pace of reform. The political situation has stabilised after pro-Western President Yushchenko and pro-Russian Prime Minister Yanukovych agreed at the end of May to hold parliamentary elections on 30 Septem-ber. Agreeing an election date diffused the wrangling between the president and the parliament that had intensified
• The return of risk
  Over the past few weeks, risk aversion has increased on financial markets driven by the fear of deteriorating credit quality, primarily in the US mortgage market. We believe the recent turmoil is a market correction and not a prelude to a major meltdown on financial markets Panic in credit markets rarely lasts long, unless it is driven by macro-fundamentals. Corporate financing requirements are still too low to generate any longer-term significant widening of credit spreads. The net resulting
• Awash with cash 8: Is the bond yield conundrum fading?
  Long bonds have sold off globally over the past couple of weeks. This has reignited the discussion about the bond yield conundrum - or rather whether the bond yield conundrum is disappearing and yields are “normalising”. However, so far the sell-off can be fully explained by a macro reappraisal, as investors have realised that the US economy looks a lot better than was consensus just a short while ago. Usually the simplest explanation should be preferred. This being the case, we are reluctant
• Switzerland: SNB keeps sleeves rolled up
  We expect the Swiss National Bank (SNB) to raise its policy rate by 25bp to 2.5% at the monetary policy meeting on 14 June. The financial markets largely share this expectation - at present only a very small chance of a 50bp hike is being discounted. We have revised our SNB forecast upwards. We previously expected the bank to go on hold after the June meeting, whereas we now anticipate further 25bp hikes at the September and December meetings. This means that we expect the policy rate to hit
• China: Should we care about the stock market?
  The boom in the mainland stock market is caused by a combination of catch-up, aggressive valuation of emerging markets in general and excessive valuation of the Chinese market in particular. In our estimate the Chinese stock market is overvalued by less than 30%, and on some measures the Chinese stock market is still far from the valuations of the previous market high in 2001. A market correction of 30% would probably have limited effects on global financial markets and will mainly depend on
• Ukraine: Political noise will not derail economy
  On April 2, 2007, President Viktor Yushchenko decided to dissolve the parliament and sign a presidential decree ordering early parliamentary elections to be held on May 27, 2007. Early elections will clear the air, but it will not really change the composition of the parliament as the governing coalition will retain power. We argue that the political noise in the short run will not derail the economy and the ongoing upswing, as to a large extent it is driven by a strong global demand for
• Turkey: The end of stability
  Turkey is in the midst of the biggest political crisis in the country since 2001. The situation is far from over and the most likely political outcome of the crisis indicates a much less stable political situation than has been the case for the last five years. The parliamentary elections are likely to lead to a less-reformist and much more unstable government - most likely a coalition gover