Deflation debate

Friday 21 November 2008 - Deflation debate

Presented by Andrew Cates

+ Equity markets across the Asian region have mostly bounced off their lows led in the first instance by a sharp recovery in Korea and Hong Kong which then spread to Australia, Taiwan and Japan. It is difficult to argue that markets are trading off fundamentals right now and a fundamental catalyst for these moves is therefore equally hard to find.


+ The Bank of Japan left rates unchanged last night, in line with expectations. The statement released alongside this decision suggested that Japan's monetary officials, like its government officials, had been talking about other ways of providing support via the provision of greater liquidity in the money markets.


+ The yield on nominal 10 year US Treasuries is presently roughly the same level as it is on 10 year TIPs suggesting the market is anticipating hardly any inflation over the next 10 years. A global financial crisis, a huge unwind of commodity prices combined with pernicious financial and household de-leveraging will deliver much lower levels of inflation in the period immediately ahead. Entrenched deflation will probably require a great deal of policy error however.


+ In the day ahead the data calendar is fairly light in the US though a number of Fed speakers are on offer. Europe see some provisional purchasing managers surveys of both manufacturing and services with a further drop in sentiment expected from already depressed levels.

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[hwy9nightkid]

first!

and a new face??