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Prieur Perspective: New Wave of Risk Aversion Hits

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Uncertainty takes its toll on markets worldwide.

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The IMF's World Economic Outlook reported that the global economy was beginning to emerge from the recession but "stabilization is uneven and the recovery is expected to be sluggish." Economic growth was projected at 0.5 percentage points higher than in April 2009 or a 1.4% contraction in 2009 and 2.5% growth in 2010. Advanced economies were expected to contract by 3.8% in 2009 and expand by 0.6% in 2010, whereas emerging markets would slow sharply, growing by only 1.5% in 2009 before rebounding to 4.7% in 2010.



Interestingly, the report also published financial stress indices for advanced and emerging economies, showing these have receded markedly since the beginning of 2009. However, the report mentioned that "improvements are far from uniform across markets and countries" and "bank lending conditions are expected to remain tight and external financing conditions constrained for a considerable time."



A snapshot of the week's US economic data is provided below.

July 10
The $787 billion fiscal stimulus package -- facts lost in policy rhetoric
Trade gap posts significant improvement in May
Consumer outlook turns a bit sour once again

July 9
Initial Jobless Claims report -- distortions from seasonal adjustments

July 8
CEO Business Confidence moves up in the second quarter
Mortgage Purchase Index suggests an increase in home sales during June and possibly July
Consumers continue to borrow less but pace of decline is notable

July 6
ISM Survey points to moderation in pace of decline in economic activity

Also, late payments on home-equity loans rose to a record in the first quarter as 18 straight months of job losses and a slumping economy left more borrowers unable to pay their debts, the American Bankers Association reported (via Bloomberg). Delinquencies on home-equity loans climbed to 3.52% of all accounts from 3.03% in the fourth quarter.

Summarizing the US economic outlook, with specific reference to the stimulus plan, Asha Bangalore (Northern Trust) said:

"At the present time, it is necessary to assess if the stimulus package is working in the preferred direction and if modifications and enhancements are called for, but it is imprudent to declare that it is not successful and a sheer waste of tax dollars or that a bigger package is necessary.

"In recent days, much to the chagrin of economic bears, a wide range of economic reports point to improving economic conditions. Without doubt more bullish economic data are necessary to confirm that the economy is on firm footing. The intensity and nature of the economic and financial market crisis that has been under way suggests that economic miracles will not materialize in a short period, which means that a weak economic report does not translate into going back to the drawing board in a panic."


Week's Economic Reports

Click here for the week's economy in pictures, courtesy of Jake of EconomPic Data. Click here for a summary of this week's economic calendar from Yahoo.

The US economic highlights for the coming week include the following:



"If you get all the facts, your judgment can be right; if you don't get all the facts, it can't be right," said Bernard Baruch.

No positions in stocks mentioned.
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