Investors Are Lab Rabbits in Central Bank Experiments – Bloomberg 07-28-13

Salient to Investors:

Vincent Reinhart at Morgan Stanley said investors are the little white lab rabbits in the central bank experiments.

Gilles Moec at Deutsche Bank said the potential for the dialog between the central banks and the market to fail is significant.

Nathan Sheets et al at Citigroup said the UK and euro region are adopting the Fed’s forward-guidance strategy in an effort to decouple their bond markets from that of the US, while the US economy is way ahead of those economies in terms of place in the business cycle and the strength of the recoveries. Sheets et al predict yields will average 1.8 percent on 10-yr German bunds and 2.75 percent on 10-yr UK gilts in Q4 2014, while the 10-yr T-note will average 3.25 percent in Q4 2014 compared.

David Bloom at HSBC sees the dollar powering ahead by the end of 2014, with sterling weakening to $1.45 and the euro falling below $1.25.

Over 50% of 43 economists predict the BOE will adopt a data-contingent form of communication, while 40% predict a calendar-based commitment.

Sven Jari Stehn at Goldman Sachs said Fed research has highlighted the importance of forward guidance in aiding the economy while de-emphasizing the role played by quantitative easing.

Jonathan Loynes at Capital Economics said central banks have no idea what will happen in the future, so to commit to a particular policy stance carries risks, including loss of credibility.

The IMF forecasts the euro economy will shrink 0.6 percent in 2013.

Azad Zangana at Schroder Investment Mgmt said the BoE is trying to address the pickup in yields without actually buying bonds, and while forward guidance has been successful so far, it’s pushed yields back down and limits to how far it can go.

Read the full article at  http://www.bloomberg.com/news/2013-07-28/investors-are-lab-rabbits-in-central-bank-experiments.html

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