Bond Outlook [by bridport & cie, January 13th 2010]
| The doubts we expressed last week, that the positive atmosphere of financial markets contradicted economic reality, have continued to grow. Unemployment in the USA and housing foreclosures are still rising. What GDP growth that is being achieved is dependent on government stimuli, and now, overhanging everything, is the end of quantitative easing foreseen for March. Deflation remains and may worsen even though government borrowing is likely to push up US long-term rates; they have already risen from 4.2% at 10 years to 4.6% over the last six weeks alone. Euroland and the UK are scarcely in any better shape. The problems of Greece are also straining solidarity in the Euro zone. |
| Asia, however, is thriving. What is more, it is thriving largely because of regional expansion. The shift in economic power from West to East, which we have mentioned for many years in this Weekly, is accelerating. China has found so much demand for its products within Asia that the need to stimulate domestic demand to replace lost exports to the West has declined to the point where monetary tightening is the chosen route of the Chinese authorities. |