Le Magazine du Trésorier - n°56 - 4ème trimestre 2006 - (Page 5)

LA PAGE DES MARCHÉS REVIVAL OF THE USD However, although the dollar is weakening at the time of writing, we do not see the possibility of a dollar crisis as a clear and present danger to global growth and financial markets in the following quarters. Especially, because in our view the ECB and Bank of Japan will tighten monetary policy only slowly and not raise interest rates as much as the Fed. In the eurozone the labour market is still loose and unemployment is relatively high. Upward pressure on wages and inflation is not very substantial yet. In Japan the labour market is rather tight, but wages are not rising. This is mainly a result of the ageing population. Many old and relatively expensive employees retire and are replaced by cheaper young employees. Furthermore, in several of the eurozone member states and Japan fiscal tightening is planned, this makes the Bank of Japan and ECB more cautious about monetary thightening; especially with their currencies rising against the dollar now. Moreover, for many Asian central banks, which hold their currency pegged to the US dollar, a weakening of the dollar would mean even more intervention. That will increase the amount of liquidity even more, which will probably also keep flowing to the US, therefore supporting US growth as well as the dollar. We believe all this will result in a stronger instead of a weaker dollar. In our view it is likely that the US economy will pick up after a few lacklustre quarters and inflation will rise again; as the US labour market is already very tight, putting upward pressure on wages in the coming quarters. This also means the Fed has paused (in our view) and not stopped its tightening campaign. The Fed believes that somewhat lower growth would result in lower and acceptable inflation in 12 to 18 months. We believe however, that American economic growth will rise to such an extent that we do not expect inflation to come down to the level the Fed would like. Therefore we think the Fed is forced to hike rates again in the first half of 2007. As mentioned we see the dollar strengthening against all major currencies in the coming quarters. The weaker domestic currencies outside the US will help those economies to grow faster as well. Hence they will increasingly join the Fed in its tightening campaign, although not everywhere to the same degree. INFLATE OR DIE Somewhere down the line, financial markets will start discounting that central banks will take away the punchbowl and will keep tightening the amount of liquidity world wide. As a result vulnerable asset bubbles that are addicted to abundant liquidity will show major corrections in our view. It cannot be perfectly predicted when exactly this will happen, but our best estimate is the second half of next year. Just like rising asset prices have supported economic growth over the past years, declining asset prices will take down economic growth with them via a negative wealth effect. It will then become clear to the monetary authorities that it has become very hard to fight inflation without hurting asset prices and economic growth severely. So they will have to make a choice between ‘inflate or die’, so to speak. We assume central banks will choose for inflate and therefore expect long term interest rates to be in an uptrend for the coming years on balance. HIGHER GROWTH Bubbles bursting by being overstreched or as a result of the political swing to the left is not very likely in our view, as long as liquidity is still abundant world wide. The latter wil keep supporting growth and asset prices, not in the least by keeping interest rates down. This article is provided by Anneke Hoijtink, analyst at ECR Research Ltd. As an independent research institute ECR has over 25 years experience in forecasting medium term G10 currency and interest rates developments. Its publications are especially valued by corporate treasurers of large and medium size companies. For more information and a trial to its research visit www.ecrresearch.com Le Magazine du Trésorier - N° 56 http://www.ecrresearch.com http://www.ecrresearch.com

Table des matières de la publication Le Magazine du Trésorier - n°56 - 4ème trimestre 2006

Sommaire
Editorial
La page des marchés
La parole à... M. Mauro Mazza, Gold Rush
DOSSIER : le contrôle des performances de trésorerie
La parole aux annonceurs
Vie de l'association
EACT
Brèves
Internet

Le Magazine du Trésorier - n°56 - 4ème trimestre 2006