Thursday, January 14, 2010

ForexGen Financial Market


The end of the 1980s brought about the demise of the Soviet Union and its then satellites. With the failure of socialist planning, gloating took place among some Western circles who declared absolute victory for free market capitalism. Almost twenty years later, as we approach the end of the first decade of the new millennium, we are in the midst of a US-led major crisis of the Western financial system. Very different quarters are gloating now, blaming it on the failure of capitalism, and suggesting that a return to a system with socialist overtones is not only preferable, but unavoidable. Many point out that even the essence of the bailout plan, put together by a free market administration in the US, already points in that direction.


A financial crisis can have vasts costs and consequences around the globe, particularly in the short-to-medium term. But such consequences, and the political rethoric around it, ought not cloud the need to engage in a reasonabale debate about appropriate ideological, systemic and policy responses, which will have wide ranging ramifications for the longer term. Moving from an unfettered free market ideological stance to a pragmatic and middle-of-the-road market-friendly role for the government may be warranted: one that balances the need for continuing private entrepreneurship and market-led innovation with the checks and balances of government oversight and pro-transparency regulations.

Financial Market News

The ECB today is likely to leave the refinancing rate unchanged at 1%. In the press conference, President Trichet is expected to repeat the view of the Governing Council that the economic recovery path going forward will be 'uneven'. Indeed, Germany yesterday said that fullyear 2009 GDP fell 5% and that quarter-on-quarter growth was flat in the final quarter, after rises in the prior two quarters. To date, the ECB has been at pains to stress that the measures taken to start unwinding its 'unconventional' policy measures do not represent an attempt to influence money market rates such as EONIA (which would send a message of imminent tightening to financial markets). There will also be considerable interest on any comments relating to Greece's financial predicaments.

The are no major economic data or events in the UK today. Yesterday, November industrial production numbers reaffirmed the likelihood of a return to growth in Q4, with the National Institute for Economic and Social Research estimating that quarter-on-quarter GDP rose 0.3%. We think it could be stronger. In the US, December retail sales and import prices are among the main data releases, while the Treasury will offer $13bn of 30-year bonds. We forecast monthly retail sales to rise 0.6% (5.3% on the year), but a downside risk could be the adverse weather conditions, which may have played a part in the December nonfarm payrolls figures