Special Coverage

US Recession?

Tue, Jan 22 2008, 10:05 GMT
by Marina Schiaffino

FXstreet.com


US RecessionThe financial markets have been caught by fears of a US recession and a worsening of the problems in the financial sector. We can take a look the most recent events that have led to this situation.

On Thursday 17, Mr Bernanke asked for the help of the US Administration in his speech at the Senate. This movement was seen by many analysts as a sign of weakness, interpreting that the Fed cannot take control of the actual US economic state.

But the strongest day was on Friday 18, when US president, Mr. George Bush, tried to launch an economical recovery plan. This plan consisted in a USD140.000 million stimulous plan to rescue the damaged economy, a number that stands for more or less the 1% of the US GDP. Markets reacted really bad to this proposal, seeing it as a 'too-late' solution (they see the Administration going behind the economy, not anticipating it), falling down sharply.

The last act of this play came on Monday, with (luckily?) the US Market closed. In Europe all of the floors panicked, falling a huge 5% to 8%.

Though purely under numeric conditions there's no real recession at the US, if we talk of psychological conditions we are clearly into it.

One of the most risky solutions goes through the Sovereign Funds. As Tony Juste, FX Advisor at FXstreet.com, says: "The interest of the Chinese government to keep the situation relatively calm before the Beijing Games should push for a massive injection of liquidity to keep things up, and a first proof of that was seen today in early European trade."

In order to try to avoid this recession, the Fed has cut its interest rate 75bp, to 3.50% in an unexpected move.

In-Depth Analysis

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Analysts' Comments

  • · Nouriel Roubini, chairman of Roubini Global Economics:
    "My view is that the rest of the world can't decouple from recession in the United States." - Dow Jones
  • · Neil Mellor, analyst at the Bank of New York:
    "People are coming to the view that it's not just the U.S. that's going to suffer. The dollar has been the default beneficiary as it's no longer a no-brainer to sell the dollar as markets fall." - Reuters
  • · Melinda Smith, currency analyst at ABN Amro:
    "Despite the fact that markets remain unimpressed with the US economic stimulus package proposed on Friday, the dollar has held up well." - AFP
  • · Simon Derrick, head of currency research at Bank of New York:
    "Financial markets returned to their familiar theme of risk aversion overnight as investors' fears over the spill-over of a slowing US economy into the global arena continued to fester. It now seems that the demise of the 2007 'no-brainer' trade of swapping the greenback for any number of higher-yielding alternates is gaining broad based acceptance." - Thomson Financial News

Published on  Thu, Jan 24 2008, 11:35 GMT

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