With the U.S. Dollar likely to maintain current levels
and expansion outside of Asia expected to be moderate, economies around the world
are likely to experience a continued, but slower, recovery in 2011, leading experts at the
ninth annual Dow Jones Indexes Global Economic Outlook said….
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The Caffeinated Economy
“We are expecting a very ‘growth friendly’ policy environment — monetary, fiscal and regulatory is likely to sustain a moderate 3% growth over the next two years,” said Ethan S. Harris, head of developed economics research, BofA Merrill Lynch. “However, the economy is still struggling with the after-effects of the economic crisis. Weakness in housing, state and local government finances and household balance sheets will continue to constrain the recovery, preventing the normal 6%-7% ‘boom’ that follows a major recession. With plenty of spare capacity in the industrial sector, housing and the labor market, ‘core’ inflation and wage growth will remain very weak and could decline further. This will be partly offset by a steady climb in commodity prices, resulting in headline inflation of about 1.5%. In this environment the Fed will be very slow to tighten. The Fed will not tighten until it sees considerable healing in the economy — an improvement in the banking system, a playing out of the home foreclosure process and most important a steady drop in the unemployment rate,” Harris added.
2011 Global Equity Strategy Outlook – Grinding On
“Having ground out a double-digit return in 2010, we expect global equities to do the same in 2011,” said Robert Buckland, chief global equity strategist, Citi Investment Research & Analysis. “We remain constructive on equity markets and see prospects for further gains from here. To the disappointment of policy makers, we don’t think companies in the developed world will use the cheap debt to spend on new investment. If Japan is our favored regional recovery story, Emerging Markets remain our preferred structural growth play. Talk of a deflating Emerging Market equity bubble is premature, in our view,” he added.
Trends in Foreign Exchange Markets
“The U.S. Dollar is expected to maintain current levels against the majors through mid-year, absent renewed crisis in Europe, “said Michael Woolfolk, senior currency strategist, global markets division, Bank of New York, Mellon. “The U.S. Dollar will resume its structural decline in the second half as the European Central Bank and other central banks begin raising interest rates. The Japanese Yen is expected to weaken against the majors on weak growth and interest rate differentials, as well as renewed Japanese Yen-funded carry trades. The Euro, British Pound and Swiss Franc will be resilient among the majors despite weak growth and exposure to the European sovereign debt crisis. Emerging Markets asset price bubbles will eventually burst, but not before they get much larger,” he added.
2011 Global Outlook – Reaching Limit of Washington’s Debt Expansion
“The global expansion is strengthening, but inflation and debt problems will keep growth limited outside of Asia,” said David Malpass, president, Encima Global LLC. “For 2011 we are expecting 3.5% growth in the U.S., less than 2% in Europe and Japan, and 10% growth in China. The Fed’s bond holdings risk inflation and will end up distorting markets and the Fed’s monetary policy decisions for a generation. We expect that the U.S. marketable debt to GDP ratio will rise from 60% to over 90%, a red flag for future U.S. growth. Overall, U.S. debt is stuck at 245% of GDP. Corporate earnings growth should remain strong, helped by non-U.S. profits, now nearly 25% of total U.S. corporate profits,” he added.
Year-to-Date Performance of Major Market Indexes (as of 1/21/11)
Dow Jones Industrial Average 3.48%
Dow Jones U.S. Total Stock Market Index 2.32%
Dow Jones Europe Index 4.13%
Dow Jones BRIC 50 Index -1.56%
Dow Jones Asian Titans 50 Index -0.10%
Dow Jones Asia/Pacific Index -0.50%
The Global Dow 3.61%
Dow Jones Global Titans 50 Index 3.77%
Dow Jones Global Total Stock Market Index 1.70%
Dow Jones UBS Commodity Index -0.93%
Source: ETFWorld – Dow Jones Indexes