Friday, 20 March 2009

The week that was

  • Fed announces $300 billion of QE in 2-10 year Treasuries, US curve flattens, long yields fall 50bps, pushing 10 year sub 3%
  • USD safe have status evaporates on QE (DXY -4.5% on week), investors look to NOK as new haven (+7% vs. USD on week), backed by oil revenues and robust finances.
  • UN preparing recommendation to member countries to diversify away from USD reserves & to adopt a currency basket. Likely impact unclear as UN doesn't have the financial muscle of the IMF or G7.
  • USD weakness pushes gold (+3%) & oil (+10%) higher as well as broad commodity indices - it's H1 2008 all over again.
  • Equity rally peters out (MXWO +6% on the week)
  • IMF forecasts global economic activity to contract by 0.5% to 1% in 2009 on an annual average basis—the first such fall in 60 years before growing 1.5-2.5% in 2010. The US is expected to contract by 2.6%, the Euro area by 3.2% and Japan by 5.8% with advanced economies as a whole contracting by as much as 3.5% and emerging and developing economies likely to grow only 1.5-2.5%. The contraction in the U.S. is expected to push the output gap to levels not seen since the early 1980s.
  • UK jobless claims worst since 1971 but BoE chief economist, Spencer Dale, thinks "a substantial amount of the total contraction we’re going to see has come through”, saying the economy would begin growing again by the end of the year and expand at normal rates throughout 2010
  • UBS CDS tightens 75bps on improved Tier 1 ratio driven by buyback of Tier 2 debt

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