Credit Suisse First Boston

Strong data in the US continue to underscore the economic rebound - Credit Suisse First Boston

Global Economics Research Team at Credit Suisse First Boston

Global Economy:
The balance of risks has moved to the upside in the US and Asia. Thus, upward pressures on commodity prices have emerged, primarily due to speculative interest. Not all regions are currently partaking in this upturn. Disappointing reports out of the euro area, with French Q2 GDP falling 0.3%qoq, point to little evidence that domestic demand has stabilised. A food price shock is also set to keep the balance of risks on the downside for the euro area, as higher inflation is likely to give the ECB little room to manoeuvre and reduce purchasing power.

Foreign Exchange:
The ongoing wave of growth optimism and the generally firmer tone in core yields keep us bullish on the US dollar in the near term. The Philly Fed index was the latest data point to print well in excess of expectations. Moreover, indications that the labour markets continue to lag output growth are guiding markets towards what we believe is a strongly dollar-bullish scenario in the near term: higher GDP growth combined with very little chance of an imminent move to actual Fed tightening.