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Capital Markets

Bond Outlook May 24th

Market turbulence obscures underlying trends, which we again seek to identify. The shift in world economics with the rise of Asia and Russia has its parallels in politics.

Bond Outlook [by bridport & cie, May 24th 2006]

The turbulence of the last fortnight continues, with perhaps a respite for the USD. Emerging markets and commodities remain very volatile, with declining liquidity. Our task in this Weekly is to step back from the heat of the market in an attempt to identify underlying trends. We shall list them below. However, let us first sketch the overall politico-economic situation as we perceive it.

 

Rebalancing the world economy has a political dimension also. The move, now under way, from a uni-polar, US-centric world to a tri-polar world, implies more even consumption across the world, but it also implies a lessening of US political hegemony. The Bush presidency, beset by scandals, has fallen out of favour even among former life-long Republicans. A Democratic take over of one or both Houses in November is highly probable. The medium-term result of the Iraq failure may be for the USA to turn inwards, in terms both of protectionism and of military interventionism. BCP's Molano points out that the world needs a leader, and laments the loss of US leadership during the current transition period.

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