Banks/Economics: The State of Dis-Union: Balkanisation & Banking Union
Huw Van Steenis, Arnaud M Mares, Alice Timperley, Morgan Stanley
We're concerned the balkanization of banking markets will act as a drag on lending, economic recovery and be a source of instability. We find the current EU proposals for Banking Union insufficiently federal to address this. Our scorecard assesses the proposals & investment implications.
Market Response Says A Lot About Expectations
Lars Tranberg Rasmussen, Senior Analyst, Danske Bank
Judging from the price action this Friday morning, the EU Summit delivered more than what was priced into the markets. Expectations for the Summit were low, as these summits usually deliver little but big headlines and as Germany had signalled that it would not give in on risk sharing before the path of establishing centralised European controls over national fiscal policy is irreversible.
Will the ECB and BoE Ease Further?
John E. Silvia, Chief Economist, Wells Fargo
On July 5, the European Central Bank (ECB) holds a regularly scheduled policy meeting; there is speculation that the Governing Council could cut rates. Although the decision is likely to be finely balanced, we look for the ECB to reduce its main policy rate from 1.00 percent to an all-time low of 0.75 percent. Recent monthly data suggest the rate of economic contraction in the overall euro area has intensified in the second quarter, and fiscal consolidation and uncertainties related to the sovereign debt crisis likely will lead to weak economic activity for some time. Moreover, ECB President Draghi sounded unusually dovish in his news conference following the June 6 policy meeting.
U.S. – European Leaders Show Some Grit
Alistair Bentley, Economist,TD Bank Financial Group
As we approach the first week of July, the major themes underpinning the global and domestic economy remain remarkably unchanged from last year. Europe continues to stumble from one crisis to the next, deleveraging is still holding back the pace of U.S. growth and the direction of future fiscal policy from Washington remains as clear as mud (see our latest Quarterly Economic Forecast for more details). This week showed a little glimmer of hope that next year may bring greener pastures.
Compiled by David Song, Currency Analyst