Global Scintillation Detector Market Overview to 2027

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Wall Street pros are as baffled as anyone by the fate of the dollar

(Bloomberg) – Wondering where the dollar is going as the US deficit continues to grow? Wall Street is also trying to figure it out. Goldman Sachs Group Inc. sees echoes of one of the weakest periods in recent greenback history. Meanwhile, Morgan Stanley believes he might actually get stronger. A rising US current account deficit is once again a heated debate in the currency market, with implications for all asset classes. The gap is the biggest since 2008 as a percentage of the economy, and it’s only growing as the United States overtakes much of the world in rebounding from the pandemic. The result is that more and more dollars are entering foreign hands, either to return to American assets or to be diverted elsewhere. Experts agree on this point. Where they diverge is on the potential impact of the current account, the broadest measure of trade and investment flows in the world’s largest economy. Forecasters expect the anticipated merchandise trade deficit, which is expected on Friday, to set a new record. This is a crucial time for the world’s largest reserve currency, which has given up on all the gains it had recorded earlier this year. For Goldman, the deficit is key to its bearish view of the dollar, as analysts at the firm point out similarities with 2002-2007. when the dollar suffered a major collapse. Also include Deutsche Bank AG in this camp. On the other hand, Morgan Stanley and Eurizon SLJ Capital believe that the current environment may mirror the 1980s and 1990s, when the dollar strengthened in the face of large deficits. For now, however, the US currency is weakening and the bears seem to have the upper hand. “The dollar is expensive on a large trade-weighted basis, and non-US assets increasingly offer competitive returns,” said Zach Pandl, Goldman’s. co-responsible for global foreign exchange and emerging markets strategy. “Investors are likely to exit the long-standing US fixed income and equity markets, which will cause the dollar to depreciate over time.” The Bloomberg Dollar Spot Index is down 1.3% this month and is trading near lows this year. Indeed, the greenback has weakened against half of its Group of 10 currency peers. Pandl has a “structurally negative” view of the dollar over the next three years. Goldman expects the current account deficit to peak at 4.4% of gross domestic product by the end of 2021. That’s more than the median forecast by forecasters, who estimate it will climb to 3.6 % of GDP this year, up from 3.09% at the end of If Goldman’s take on the greenback is correct, that would suggest that it is only a matter of time before foreign investors seek international assets with higher yields, which would undermine the strength of the dollar and potentially open up a longer period. structural decline that many predict. For emerging markets, it could also mean stronger economic growth as a result of the US dollar’s inverse correlation with commodities, rising local stock prices and the potential deflation of dollar-denominated debt. T-bills are around 1.60%, which is higher than most developed markets but significantly lower than the 3% investors get for Chinese and Mexican bond equivalents. And while the U.S. stock market continues to hit record highs, Goldman predicts a decline in stock returns relative to non-U.S. Markets over the next year – and he expects the deficit will also deflect them. dollar flow. a consensual point of view. Stephen Jen of Eurizon SLJ, for example, believes that economic growth in the United States will drive demand for the greenback more than talk of a growing deficit and a low-yielding environment will hamper it. The Bank of America agrees, saying deficits could weigh on the dollar in three to five years, but not now when the economy beats its global peers. The key to this is recovery from the pandemic. The United States is leading major economies in inoculating their people, paving the way for business reopening. Economists predict that the gross domestic product of the United States will grow by 6.5% this year, compared to 5.1% on average for developed economies. “A strong US economy should attract enough global capital to easily finance its large external deficit and in turn support the dollar.” mentionned. “Higher economic growth will mean more profits for American businesses and higher inflation, which suggests a stronger dollar.” Those on Jen’s camp argue that when US assets are attractive to the world, the dollar has the capacity to strengthen even as the current account deficit widens. That’s because foreign investors need dollars to invest in American titans like Amazon.com Inc., the parent company of Google Alphabet Inc. and Facebook Inc. – all of which are listed on the U.S. stock exchanges. In the 1990s, the US currency rose amid a growing deficit as the rise of tech startups attracted just about everyone. And during the 1980s high nominal interest rates attracted foreign investors, former Federal Reserve chief Paul Volcker, who raised the target rate to 20%, helping to prop up the greenback. while the current account deficit increased. that the dollar weakened when the US current account deficit widened in the mid-2000s. But Morgan Stanley says his historical analysis shows it’s not clear whether such a relationship holds up over time. In a corresponding study of 28 currencies, the relationship between exchange rates and deficits was mixed, strategist Matthew Hornbach and colleagues wrote in a report. . “Rather, it will be the capital account that will determine the US dollar, that is, how will foreign investors react to the influx of dollars.” The latest US net investment position tracking data shows the measure is currently the most negative on record. This indicates that investments by foreigners in the United States most exceed those made by Americans in more overseas assets. Dollar Outlook That said, the dollar weighs on Deutsche Bank believes there is a major reason to be particularly concerned about the external deficit. a large budget deficit, ”which could prove to be persistent, especially in light of the challenges of containing it in the American political system, wrote Alan Ruskin and his colleagues. late in the year, down from around 1.22 on Thursday, and ending at that level in 2022. Meanwhile, leveraged investors remain bearish on the currency after switching to a net long position in early May. They have been bearish for 10 of the past 16 months. “A country cannot have a high current account deficit forever,” said Athanasios Vamvakidis, head of G-10 foreign exchange strategy at Bank of America. “To reduce it, you need a weaker currency to reduce imports and increase exports. At some point, it will happen. (Updates 10-year returns in 11th paragraph) More articles like this are available at bloomberg.com Subscribe now to stay ahead with the most trusted source of business information. © 2021 Bloomberg LP


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