Trading Floor expert predicts positive economy growth for late 2009
Trading Floor columnist and Saxo Bank chief economist David Karsbol says the American economy will return to positive GDP growth in the second half of 2009; however, the reliance of the recovery on government spending and inventory re-stocking may mean the growth is not sustainable.
Karsbol says consumer deleveraging will continue and demand will remain subdued. US unemployment will continue to rise over the coming months, further hindering debt repayments and consumption.
Saxo Bank’s fourth quarterly financial outlook for 2009 is available for download on the Trading Floor site, which has been running since May 2009. Trading Floor gives daily and quarterly outlook and trading analysis of Forex, Equities, FX options, CFD trading, and commodities.
The Saxo Bank quarterly report is put together by the bank’s strategy team of chief economist David Karsbol, chief equity strategist Christian Blaabjerg, consulting FX strategist John Hardy and market strategist Mads Koefoed.
The quarterly outlook predicts that monetary stimuli and government deficits are likely to continue, leading to a ’Japanisation’ of financial markets - higher price-to-earnings ratios and lower yields on both corporate bonds and treasuries.
Karsbol added: "Because Western economies are more flexible and able to embrace the necessary changes, we do not think that things will get as bad as was the case in Japan.
“However, it is increasingly evident that the current scenario in the West bears a close resemblance to post-1990 Japan, and it looks progressively like we have entered a new regime in which everyone assumes that large companies will be bailed out. This means that default risk is ’priced out’, and we see higher price-to-earnings ratios and lower yields on fixed income.”
With maximum stimulus in the rear view mirror and austerity and exit strategies increasingly on the menu, Forex trading as a whole may begin to shift away from the rosier recovery projection that is already priced in. This could likely mean the exhaustion of many of the trends that are currently in place in FX, where so many trades are aligned along the ubiquitous risk appetite axis.
A USD short seems to be a vote for the global recovery and has become the ’newer and better’ carry trade. “The very low US yields and need for external financing and increasing reluctance from China to buy greenbacks is a toxic cocktail that could drive the currency even weaker in the near term,” Karsbol said.
Looking towards the end of the year, market dynamics indicate a shift from this year’s equity market rally. Global equity markets rallied 59% from the March lows through to August, and looking ahead, dynamics indicate a shift in performance towards micro trends and sector-specific growth and valuation stories.
“Most indicators of economic activity are stabilising, but at very depressed levels. We believe investors should continue to take cyclical risk through regional allocations, with particular emphasis on emerging markets over Europe and the US, where it will be difficult to maintain and improve growth.”
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