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.

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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.

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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