Bond Outlook [by bridport & cie, November 1st 2006]
| If anything, the “swingometer” this week has moved slightly in favour of the Fed rate going down in early 2007. 10-year USD yields have moved still lower. There is growing unease that the knock-on effects on related industries and household borrowing, due to the decline of housing prices and construction spending, have yet to do their damage. The USD has returned to weakening. Only time will tell whether the USA is merely slowing in growth or entering recession, and whether cheaper oil will come to the rescue of indebted households. |
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| The other key question for the global economic outlook is whether the “Rest of the World” can ride out a slowdown of US consumption or not. As we reported last week, The Economist, using Purchasing-Power-Parity clearly thinks it can: Stephen Roach (MSI) equally firmly thinks that it cannot. However, so much depends on Chinese policy. Will Beijing free, or at least loosen, the RMB? That would do much to consolidate China as a full member of the world’s economy. |
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| Europe is certainly doing its bit for rebalancing. |