RESEARCH March 2012 World
US unemployment is expected to hold steady at about 8.3%
The US economy continues to show signs of modest, but sustainable recovery. The Federal Reserve is on a “Wait-and-See” mode with the likelihood of QE3 occurring should unemployment edge back up during 2012. However, unemployment is expected to hold steady at about 8.3%. The ECB continues to pump liquidity into Eurozone banks in an effort to curtail a credit crunch; the end of February saw the second ECB offering of 3-yr funds, 800 banks borrowed Euro 530 bn ($598 bn). The first such offering was made back in December, where banks availed themselves of Euro 489 bn ($644bn). Much of the first round of funds was used by banks to cover debt, while it is unclear as of now what they will use the second round for. The ECB is hoping the liquidity will go towards unfreezing credit lines and lending to households and businesses in an effort to boost economic growth while most analysts worry that the funds will merely be parked in deposits. In any case, the ECB is disinclined to offer a third round.
The ECB continues to pump liquidity into Eurozone banks in an effort to curtail a credit crunch
Retail sales in Germany were weak, down almost 2% MoM in January. In that vein, US consumers were also weak in January, coming in flat, although automobile sales have been up. Greece’s credit was cut to the lowest level by Moody’s, from C to Ca; the ratings agency said that the current debt exchange deal would result in investors taking a 70% cut on the value of their holdings. The debt swap aims to bring national debt to 120% of GDP, from the 160% it’s currently hovering at. China continues to focus on a soft-landing with a focus on domestic consumption rather than exports and capital expenditures. The country is expecting a GDP growth of 7.5% for the year with an inflation target of 4%. The government lowered reserve requirements for the second time in as many months in order to boost lending while it has been steadily increasing interest rates in order to contain inflation. Japan performed well during the month as economic data was strong; production was up 2% in January following a gain of nearly 4% in December. Constructions orders were also up by nearly 25% 1 while Retail sales gained 4% MoM.
Chart Pack – Global Markets Figure: 3 – Capital Flows to Emerging Economies
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Figure: 4 - Feds Fund Target Rate
Institute of International Finance
Kuwait Financial Centre “Markaz”
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