Bond Outlook January 18th
2006 is looking good and less dependent on the USA. However, the shift of the world's economy from unipolar to tripolar has serious implications for the cost of money.
Bond Outlook [by bridport & cie, January 18th 2006]
Even while the doubts about the sustainability of the US economic structure are growing, the overall outlook for the world's economy looks favourable. The world has moved marginally away from US-centricity but remains very vulnerable to belt-tightening by US consumers. It is as if everyone realises that the Americans have to cut back on their spending, but would like them to do so rather gently. That, presumably, is the view of the Chinese, responsible for one of the two economic driving forces we identified last week (support for the USD). The other driving force is the US housing bubble and its associated consumer over-spending, where the best hope is that Bernanke will be able to deflate the bubble rather than burst it.
Among the beneficiaries of a growing world economy is Switzerland. The Credit Suisse view is positive, thanks to the improvement in its neighbours' economies and its exports outside Europe. Modest interest rate rises may be expected for 2006 (2 x 0.25% are mooted), which may mean that returns on CHF bonds remain low, at least for a few months.