Rising stock prices may be self-sustaining, but rising commodity prices are self-limiting

The upswing in resource prices continues. From a fundamental perspective this is no surprise. As the US, Japan, and Europe pursue an unremittingly loose monetary policy, credit supply to the “real” economy is more or less stagnant. Therefore a lot of capital is available for speculation. In addition, growth rates (and the anticipated returns) in the emerging economic nations outpace those in the West, whereas the former consume relatively high quantities of commodities. Owing to various capital restrictions it has now become easier and cheaper to speculate on buoyant growth in the upcoming economies through the commodity markets. On top of this US growth is accelerating while resources are becoming more popular as an inflation hedge.

Read more on The Market Oracle

Stop blaming the Germans

Read Edin Mujagic's new blog at EUobserver:
http://blogs.euobserver.com/mujagic/2010/12/21/stop-blaming-the-germans/

Edin Mujagic is a monetary economist at the ECR Research in The Netherlands and at Tilburg University.

Italy and Belgium - eurozone's overlooked Achilles' heel

Read political analyst Andy Langenkamp's comment on the eurozone here:
http://euobserver.com/7/31551

Rising real interest rates in US underpin dollar

The drop in EUR/USD over the past weeks could merely be a correction to the uptrend. Also because the Fed is deliberately trying to weaken the dollar in order to underpin the US economy. In our view EUR/USD will likely continue to fall. Rising real interest rates are helping the dollar and we think this upswing will be on the cards for another while as the US economy continues to pick up. In addition, the eurozone crisis seems far from over. The latter requires further fiscal tightening by the governments and/or a looser monetary policy by the ECB. Both factors will impact negatively on the euro. We expect EUR/USD to drop towards 1.15 over the coming quarters. Any upward corrections will likely stop near 1.35-1.38.

Want to see our reports in full, direct to your inbox? Sign up for a free trial at www.ecrresearch.com

In the press: Watch U.S. Treasury Yield for Stocks' Sweet Spot

Maarten Spek is a financial markets analyst specializing in interest-rate and currency developments within the G10 economies. He is co-author of ECR's publications on G10 interest-rate and currency developments.

Read his latest article "Watch U.S. Treasury Yield for Stocks' Sweet Spot" on Seeking Alpha.

EUR/USD – the euro, from life buoy to millstone

The drop in EUR/USD in November was mainly down to the uncertainty surrounding the European public finances and the associated weaknening of the euro. Once a life buoy for the troubled eurozone countries, the single currency has now become the proverbial albatross. The weak EMU members are unable to devalue their domestic currencies as they could have done before the introduction of the euro. Now, only lower wages and prices can help them become more competitive. Yet this amounts to economic suicide as old debts will start to weigh ever heavier. Therefore the stronger euro economies have no choice but to offer a helping hand, which meets with mounting political opposition and does not really contribute to structural solutions for the underlying problems. In our view the survival of the common currency will continue to hang in the balance. Moreover, the ECB will be forced to keep its monetary policy loose, which will impact negatively on the euro. Over the coming months to quarters EUR/USD could drop towards 1.15. Any intermediate rallies will likely stop near 1.35.


Read the full report here: http://bit.ly/fnpBAp

Room For Additional Economic Stimulus Continues To Shrink, Stock Market Trend

Most analysts view the current correction on stock markets worldwide as unavoidable. Tensions in Europe linked to the public finances are on the rise, China is trying to restrict domestic credit supply, and the Fed faces a torrent of criticism at home and abroad regarding its policy to increase quantitative easing by $600bn with an option to draw down more. It is feared that further quantitative easing would only weaken the dollar further and push up commodity prices. As a result of the latter the rapidly growing Asian economies would come under additional inflationary pressures.

EUR/USD – On the way down

We think economic growth and interest rates will pick up in the US in the near future. Simultaneously, the eurozone economy is bound to cool, which will undoubtedly ratchet up the tensions within the Monetary Union. It increasingly remains to be seen if the Fed will be able to apply further quantitative easing whereas the ECB is under mounting pressure to ease its monetary policy additionally. EUR/USD could slide towards 1.15 over the coming months to quarters.

Want to see our reports in full, direct to your inbox? Sign up for a free trial at www.ecrresearch.com

European short-term interest rates and bond yields – Eurozone: One monetary union, very different economies

Owing to fiscal tightening in the eurozone we expect decelerating economic growth for the time being. The – temporary – bail-out of Ireland does not change a thing. Both Ireland and the eurozone are still facing the same problems. As the situation in the weak euro countries is quite desperate, long-term interest rates in these member states will likely continue to rise. Simultaneously, the spread between bond yields in the weak and the strong euro states could widen in the coming months. On top of this, the 3-month EURIBOR may be expected to rise in the coming period, whereas the EUR swap spread could continue to widen. The main reasons are slowing economic growth, mounting uncertainty on the financial markets, and fresh banking woes. The 3-month EURIBOR may climb from around 1.04% towards 1.50% as the EUR swap spread widens from near 30 bp to around 50 bp. In the coming months the German 10-year yield (now around 2.7%) could on balance rise towards 3% in the wake of rising US bond yields. Subsequently, it may fall quite sharply.

Interested in reading our latest Eurozone Interest Rates report in full, with our concrete reasoning behind our views? Sign up for a free trial at www.ecrresearch.com

EUR/CHF, USD/CHF Swiss Rates - Growing demand for francs

In the coming months we expect global economic growth to slow. This will create mounting tensions, within the EMU as well as wider afield. In response, we foresee a darkening mood on the markets as investors flee into safety. These developments will benefit the franc. EUR/CHF (now around 1.33) could gradually drop towards 1.20 over the next few months.

To view the whole report, and concrete reasonings behind our analyses, you can sign up for a free trial at www.ecrresearch.com. The trial is completely free and non obligation.

EUR/USD - Months of dollar strength in the pipeline

The dollar is under downward pressure (for various reasons). However, we expect a marked appreciation in the US currency over the coming period, especially against the euro. Among others because US economic growth could start to accelerate somewhat over the coming months to quarters whereas there is little doubt that tensions within the eurozone will continue to mount. Over that period, EUR/USD (now around 1.38) may peak near 1.43 then fall towards 1.10.

Want to read out latest EUR/USD report in full? Visit www.ecrresearch.com and sign up for a free trial.

European short-term interest rates and bond yields – ECB is standing firm …for now

The ECB is pursuing a considerably more restrictve monetary policy than the Fed. In our view the trouble in the euro area will grow worse over the coming period. This could widen the spreads between bond yields in the weak and the strong euro countries. The 3-month EURIBOR may well rise from near 1.05% towards 1.5% in the coming months as the EUR swap spread widens from 32 towards 50 basis points. In the near future, the German 10-year yield (now around 2.4%) may drop slightly due to the flight to safety as a result of mounting problems in the struggling euro states.

Want to read out latest EUR/USD report in full? Visit www.ecrresearch.com and sign up for a free trial.

ECR Research - Summer 2010 Developments

ECR Research has moved into the modern world. With all of our reports now available via our new website - our clients can access much more information in a much more convenient manner.

Each of our clients will be able to login with only their email address - no more hassle with passwords.

Once logged in, clients will have access to their chosen areas.

Along with our new website, we have released a new notification system to update our clients on all our recent publications. As soon as new research is available to our clients, a short email is sent with a personalised link. This personalised link will also automatically log in clients to their ECR account.

Apply for a free, no obligation trial now for our Independent Financial Research

Bring the IMF to Europe...literally

Europe could bring not only the IMF money to the old continent, but the institution as well. Just one show of Europeanism would suffice.

It was bound to happen eventually. The share of emerging markets in the world economy is much higher than some ten years ago, let alone half a century ago. Despite their increasing weight, it was as the time stood still at international institutions such as the International Monetary Fund and the World Bank. Sure, last year some emerging markets (by the way, don’t we need another term, as those markets have emerged by now?) got a few more votes at the IMF, but it was nothing spectacular.

It is a different story at the World Bank though. Voting shares of some emerging and developing countries have increased sharply under the new agreement. China now has more to say than Germany, Great Britain or France. In the near future, the gap between young brides in the world economy, i.e. countries like China, and the three grand old ladies of Europe will become even larger. Even with the new agreement, the voting share of emerging markets remains too low given the (fast increasing) size of their economies.

Read our report in full - Click here

You can sign up for a free trial at our website - ECR Research

General consensus of the EUR/USD is.. sceptical

With pressure on revenue and profit margins, currency fluctuations are becoming more important as a source of risk and revenue. Unfortunately for the most important currency pair EUR/USD, consensus offers little guidance. Consensus 'forecasts' a flat 1.35 for the coming 3, 6, 9 and 12 months. This has never happened in history, however, and it is highly unlikely in the near future. Read on to learn why our views differ.

Full report - Click here

Interview with Paul Volcker by Edin Mujagic

A few months ago our monetary economist Edin Mujagic sat down and had a long chat with Paul Volcker, former chairman of the Federal Reserve and currently the head of the Economic Recovery Advisory Board in the administration of the American President Barack Obama. A short version of this interview was published in December 2009 in the Dutch business and economics weekly magazine FEM Business & Finance. Below you can read the entire interview that took place in the Rockefeller Center in New York.

Full report - Click here

Are Spain and Italy next in line?

First they were called the PIIGS. Then, various banks and other institutions banned that acronym. So economists opted for Club Med. I have not read or heard any threats of suing the economists from the real Club Med, so that is the name that appears to be able to stick. I am, of course, referring to the southern euro area member states, as PIIGS stands for Portugal, Italy, Ireland (one exception per acronym is allowed), Greece and Spain.

Now, unless you have spent the last few months on another planet, Greece has been the focus of attention. A few days ago Portugal got a, rather unwelcome I might add, boost in that manner when rating agency Fitch Rating lowered its score from AA to AA- and attached a negative outlook for the future.

The currency market reacted to that and other negative news, for example the painfully clear message that Europe cannot even agree to disagree on how to help Greece overcome its troubles let alone to agree on any substantial involvement, by sending the Euro lower against the Dollar and other currencies.

This post is by Edin Mujagic, a monetary economist here at ECR.

ECR Research – Macroeconomic research institute

ECR Research is a long-standing and continuously growing research institute specialising in currency and interest rate markets. ECR is strictly independent and provides a medium term view on the G-10 economies. In the past 30 years, many professionals in the corporate and financial world have chosen ECR as one of their favourite sources. Today, over 3,500 readers worldwide enjoy our unbiased and provocative market comments every day!

Based in Utrecht, The Netherlands, our analysts publish 3 reports per week. The 3 reports focus on different sectors within the global financial economy.

• Global Interest Rates
• Global Currencies
• Global Financial Markets

Our research is not only read by some of the largest names in the financial world, but also by smaller and mid sized corporations.

We will be posting extracts of our reports and newsletters here, giving you a taste of what our clients are receiving straight to their inbox.

Follow us on Twitter @ECR_Research

For more information, or to receive our reports on a trial basis please get in touch with me via o.payne@ecrresearch.com.