Bond Outlook [by bridport & cie, August 19th 2009]
| We would not want our readers to think we have completely flipped, but we have reason to rejoice! Our hope of global rebalancing is really happening. Asia’s economies are expanding in their own right – as distinct from relying on US consumption -- emerging economies in general are flourishing and the euro zone is looking moderately positive, all this despite declining imports into the USA. A new party is being enjoyed, and the former hosts, the USA and the UK, while not exactly excluded, are not leading the festivities. |
| All this fits in with our long-held view – now becoming common parlance – that the over-consuming countries have to tighten their belts, while the “savers” must loosen theirs. Exchange rates are also part of the rebalancing picture, with secular weakening of the USD and GBP. In fact, there have been so many calls this week on diversifying from the USD, that sentiment on currencies looks especially vulnerable. We content ourselves with the long-term trends. |
| Another group of potential guests are also absent from the party: the former Soviet Union. |