Friday, January 14, 2011

Inflation problems cropping up and authorities respond – overnight on Wed South Korea
surprised markets w/an unexpected rate hike as the country continues to take action to cap inflation. The
big surprise was the tone change out of Trichet during the ECB’s Thurs morning press conf, where the
bank president focused on rising risks to the eurozone’s inflation outlook. Trichet’s sentiments from
Thurs morning are being echoed by Germany’s Axel Weber in remarks early Fri. In the UK, the BOE has
been coming under increasing pressure for weeks now over that country’s rising inflation and while rates
were left on hold Thurs morning, the upcoming minutes may reveal a greater push for tighter policy.
Meanwhile, Indian inflation rate hotter than expected today, raising market expectations that the country
will take action on the rate front (see JPMorgan note this morning: “watch out for 25-50 bps rate hike as
inflation concerns take center stage” – JPM
WSJ says cities, hospitals, schools, and other muni borrowers, are “scrambling to refinance” tens
of billions worth of muni debt this year (and letters of credit are becoming harder to secure. Notes that a
New Jersey agency had to cut demand for an issue by 40% b/c of tepid demand while Vanguard shelved
plans for three new muni bond funds. – WSJ
US credit rating (this was out earlier on Thurs) – both S&P and Moody’s warn the US on its
credit outlook. Moody’s says the US needs to tackle its deficit problems in order to maintain its AAA
rating. S&P said it couldn’t rule out a downgrade of the US. – WSJ
Economists increasingly upbeat on growth outlook according to new WSJ poll – economists
now estimate the US economy grew at a 3.3% rate in Q4 (vs. 2.6% forecasted last month). The upbeat
outlook comes despite economists becoming increasingly pessimistic on housing. Inflation seen staying
in check. – WSJ

2011 GDP Forecasts

3.4%

3.2%

3.0%

2.8%

2.6%

2.4%

2.2%

2.0%
JPM UBS Citi BofA ML Bg Wgt Avg