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Over the slow news week, which was dominated by retail earnings and presumptive Republican presidential nominee Mitt Romney’s choice of Paul Ryan as his running mate, markets did little.Economists shifted their attention to what a win by either Romney or Obama would mean to economy, and surprisingly we got some consensus: neither can do much.
We also got some nice analysis from Roubini and Koo on Europe, and Michelle Meyer weighed in on the resurgent U.S. housing market.
'Looking ahead, mortgage rate lock-ins associated with refinancing in this historically low rate environment could keep non-distressed inventory contained. This decline in housing supply coupled with a modest pickup in home sales has helped to better align supply with demand. As a result the overall level of inventory in the market has declined, underpinning home prices.'
'The spike in food and gas prices casts a cloud over the back-to-school shopping season -- a big drain on cyclical spending right into the grocery bill and gas tank. The last time we had food and gas prices going up was like this was back in the first quarter of 2011 and it produced a zero per cent GDP growth and a subsequent end to the post-QE2 rally.'
'Our current projection is that the Treasury will reach the official limit by year end, though this appears more likely to occur in December, rather than in November as had seemed possible in our previous projection. Assuming it uses the cash management and accounting strategies that have been employed in the past, the Treasury is likely to be able to finance government operations under the limit until sometime in February 2013, by which point Congress must raise the debt ceiling.'
'The global economy has sunk deeper into the twilight zone that divides sustainable recovery from renewed recession. We have sharply cut our growth forecasts (in many cases, again) for most countries and regions around the globe over the past three weeks. We now expect only 3.2% global GDP growth in 2012 and 3.5% in 2013, half a point lower in each year than when our forecasts peaked in March.'
'I think everyone's expectations are built around a base case of an economic forecast of slow growth. We know that historically, economic forecasts are not the most reliable. I actually think if I'd look at the market's expectations of sort of 1.5 per cent GDP growth, I'm going to take the over. I think the driver here is U.S. housing is really driving a construction recovery that should boost overall GDP growth rates.'
'We can't know when, but at some point the markets will be bigger than the Fed once again. We saw what happened in 2008 and we saw it in 2001. When the markets finally revolt, then they will be bigger than the Fed and all of the central banks. My belief is we will have taken this money printing as far as it will go, and the pendulum will swing back in the other direction...'
'Since seasonal factors have to cancel each other out over the year, there has to be a period of abnormally large, positive adjustments in the summer. This is no conspiracy; it is simply a reflection of shifting seasons and economic behaviour, but it does complicate reading the tea leaves.'
'But breaking up earlier could allow the survival of the single market and of the EU. A futile attempt to avoid a breakup for a year or two -- after wasting trillions of euros in additional official financing by the core -- would mean a disorderly end, including the destruction of the single market, owing to the introduction of protectionist policies on a massive scale.'
'The dollar is likely to remain the world's reserve currency over the next 50 years, having supplanted sterling for good a half a century ago. Admittedly, this 'eternity forecast' could be derailed if a deadlocked Congress refused to raise America's debt ceiling. But in the absence of the US government defaulting in future, the dollar's dominance may prove surprisingly durable.'
'...corporate leaders have not downshifted on capital investment programs thus far, further arguing that management teams also expect some cooperation as we suspect lobbying for just that is occurring behind the scenes. At the same time, CEOs understand that election politics prevent a near-term resolution...'
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