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Fixed Income Markets research presents its market analysis
On October 6th, Fixed Income Markets (FIM) Research held a breakfast meeting with the media in Paris. The analysts addressed the following topics: Is the recovery for real? - Monetary policy in changing times - What about a Bernanke conundrum for Treasury bonds? - Maximising gains amid mixed USD fortunes.
Hervé Goulletquer, Head of FIM research, discussed the recovery and its specificities across the world. It should be quite weak and its volatility, higher than usual. In the United States, the recovery is soft and non-inflationist. In Europe, the effect of the recovery is real but less marked than in the US. In the emerging markets, the rebalancing from exports to domestic demand would be a gradual process with, at least in a first stage, limited supports coming from currency revaluations.
Isabelle Job, Head of Macro Economic Research, explained the different policies the central banks should implement in the next few months. Central Banks are keen on maintaining low interest rates and non-conventional measures as long as necessary. The European Central Bank should hike its official rates before the FED, in the first quarter of 2011, compared to the second quarter 2011.
David Keeble, Global Head of Rates Strategy, presented the outlook on rates. By the end of 2009, either US and European long term interest rates would rise in relation to the end of QE initiatives. Treasury bonds would be the less performing market assets. In a second stage, from Calyon’s analysis, there will be a new Greenspan “conundrum” situation, in which Central Banks will increase short-term rates with no major reaction for long-term rates.
Daragh Maher, Deputy Head of Global Forex Strategy, presented his currency market forecasts. The USD should continue to weaken in the next six months, due to a confirmation of the global economic improvement and the related raise in risk appetite. At the end of the first quarter 2010, the EUR/USD parity should be at 1.50 and the GBP/USD at 1.79. In a second time, risk would become less a driver for FX markets while relative interest rate levels and relative growth performances would play a more central role. This should imply a stronger USD. EUR should under perform all currencies except “financing currencies”. The EUR/USD parity should be at 1.35 by the end of 2011.
A similar media breakfast meeting was organised in London on October 8th.
