The Implications of the Fiscal Cliff
Jan 16, 2013
SUPER: David Woo
Our outlook for 2013 is that the dollar is going to continue to do well, and the treasuries are going to out-perform again. Our forecast for the Eurodollar, by year end, is 1.2. dollar Yen at 85, and we expect 10 year treasury yields to end 2013 by 2 percent.
We think the biggest story for 2013 is going to be the outlook for US fiscal policy. We think if fiscal cliff were to materialise, to the extent, at least to a significant fiscal tightening this is going to be very dollar bullish and to the extent it’s going to slow down global economy, this is also going to be bullish for treasuries and other government bond markets.
We expect long-term interest rates to remain low through 2013, as the result of combinative monetary policy in the US, Europe and elsewhere. In particular, we expect the FED to continue QE through at least 2013 and we think there’s a good change the ECB will be more accommodative as a result of deflationary risk among the periphery economies.