Problems emerge from the woodwork
- The emerging market weakness has been creating increased concern among investors. Although current account deficit countries have been particularly hit, this is more a domestic policy crisis than a current account crisis in our view.
- The scaling back of Fed liquidity is not directly to blame (it is worth noting that the dollar is weaker versus the Euro and yen, hardly consistent with the idea of a liquidity pull back). Rather, as the low yield environment bred policy complacency in emerging markets, so the rise in yields exposes policy flaws.
- Japan's trade deficit increased again. Exports to the US and to China (some of which will be re-exported to the US) rose, suggesting reasonable US demand. However the fuel import bill is rising inexorably, which may create some strains for the Japanese consumer.
- Germany is giving the ifo survey of business confidence today. German domestic demand is seen as being important to the German recovery this year, and business confidence remains relatively high.
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