Global Growth Outlook And Inflation Downgrade…

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(US) IMF revises US 2012 GDP forecast to 2.0% from 2.1% prior, 2013 US GDP to 2.3% from 2.4% prior, citing the following:

  1. US economic recovery is tepid and subject to elevated downside risks, including the euro zone crisis, housing market and uncertainty about fiscal plans.
  2. US needs to remove the uncertainty surrounding the “fiscal cliff” while also pusuing further deficit reduction that does not tamp down economic recovery.
  3. IMF warns that President Obama’s proposed budget cuts reduce spending too much.
  4. Supports administration’s plan to have GSEs cut principal owed on certain mortgages.
  5. IMF’s Lagarde: The US neede sensible fiscal consolidation.

Insight: On April 17th the IMF raised US 2012 GDP to +2.1% from +1.8% prior; the IMF also raised US 2013 GDP to +2.4% from +2.2% prior

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(EU) OECD MAY INFLATION 2.1% V 2.5% PRIOR, lowest since Jan 2011

  • Annual inflation decelerated in all G7 countries. Strong slowdowns were recorded in Canada (where inflation fell to 1.2% in May, compared with 2.0% in April) and the United States (to 1.7%, down from 2.3%). In both countries the slowdown mainly reflected a fall in energy prices for the first time since October 2009.
  • Annual inflation slowed more moderately in Germany (to 1.9%, down from 2.1%), Japan (to 0.2%, down from 0.4%), the United Kingdom (to 2.8%, down from 3.0%), France (to 2.0%, down from 2.1%) and Italy (to 3.2%, down from 3.3%).
  • Euro area annual inflation (as measured by the HICP) slowed to 2.4% in May, down from 2.6% in April.
  • Annual inflation slowed in China (to 3.0% in May, down from 3.4% in April), South Africa (to 5.8%, down from 6.1%) and Brazil (to 5.0%, down from 5.1%). It remained stable in India (at 10.2%), Indonesia (at 4.5%) and the Russian Federation (at 3.6%).
  • Compared to the previous month, consumer prices in the OECD area fell by 0.1% in May 2012. They fell by 0.3% in Japan, by 0.2% in Germany, by 0.1% in Canada, France, the United Kingdom and the United States. They remained stable in Italy.

How to interpret these headlines?

With OECD’s inflation report showing global inflation down to the 2.1%, citing a fall in energy prices and weaker Global Growth Outlook, it is no surprise that all G7 countries are struggling with some facing potential double-dip recessions. Market is obviously waiting now for the next news catalysts and they could come in the forms of ECB Press Conference or NFP Employment Release this week, as both news releases have the potential of changing medium term sentiment for the entire currency market.

As far as IMF GDP Forecasts for the U.S., it’s not a breaking news, market have been aware of this for some time, but the timing of this release ahead of the NFP Friday will bring more attention on US economy and put more pressure on the Federal Reserve if the NFP comes out disappointing… Remember the change in the Last FOMC Statement:

“The Committee is prepared to take further action as appropriate to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability” ,

Which led me to believe that if we get a disasterous NFP release, USD will be sold off on speculation of additional Fed easing… All in all I do not expect to see further USD strength from now until after Friday…

 

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About Henry Liu

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