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22 Feb 2013
Forex Flash: Next week's main headlights in FX – Merrill Lynch
Merrill Lynch analysts warn of the impending fiscal cuts that are likely to trip GDP growth: “The full sequester is poised to hit on March 1, and as Ethan Harris notes in this edition, the probable $50bn spending cut over a seven-month period would amount to a 0.5% of GDP shock”, wrote analyst Gustavo Reis, expecting GDP growth of just 1% in 2Q.
In regard to this weekend's election in Italy, the greatest post-election risk is a deteriorated growth outlook rather than the backtracking of recent reforms: “Whoever wins the elections has limited room to evade the new balanced budget rule, but growth prospects may dim further if a “reform-fatigued” coalition triumphs”, said Merrill Lynch analysts.
Crossing over to Japan, all eyes remain on the dovish spirit of the government and speculation about who's going to lead the BoJ: “Whoever takes the job from among the frontrunners is likely to be closely aligned with the administration, and therefore set to strike a notably more dovish tone than current Governor Shirakawa. Looking ahead, the real test comes during the new BoJ’s first policy meeting in early April”, they wrote.
In regard to this weekend's election in Italy, the greatest post-election risk is a deteriorated growth outlook rather than the backtracking of recent reforms: “Whoever wins the elections has limited room to evade the new balanced budget rule, but growth prospects may dim further if a “reform-fatigued” coalition triumphs”, said Merrill Lynch analysts.
Crossing over to Japan, all eyes remain on the dovish spirit of the government and speculation about who's going to lead the BoJ: “Whoever takes the job from among the frontrunners is likely to be closely aligned with the administration, and therefore set to strike a notably more dovish tone than current Governor Shirakawa. Looking ahead, the real test comes during the new BoJ’s first policy meeting in early April”, they wrote.