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Research:
Long Term Loans in Majors

US Dollar
Fundamentals

After a final run to Glory in Q4'97, US Asset Markets (Stock Market and Bond Market) may fall sharply in Q1 '98

US Interest Rates could rise in 1st Quarter, 1998

Inflation and slower growth could both hit USA at the same time, by Q1 '98

  • US interest rates may have a little more room to fall. To put it differently, the Fed might not raise rates too soon, preferring to wait for undeniable signs of inflation.
  • Because, to raise rates too early or too fast may mean spooking the Asset markets, which would have a tremendously negative impact on Confidence levels and could lead to some sharp slowdown in the USA.
  • The outlook on interest rates is not too clear. Will the 30 Yr. T-Bond yield fall to 6.00 before end 1997? If so, one would expect the Bond Market to be absolutely ripe for a BIG sell-off in Q1 98, which would hurt the Dollar terribly.
  • In any case, by end-97 or in Q1 98, Inflation might start to hit USA. And interest rates might start to rise at that point of time. Would it be reasonable to assume that real yields would remain largely stable? CHECK
  • One should be prepared for a sinking Dow in the next 6 months.
  • USA has seen some very good years of low inflation growth now. Anything could end the party. And it might be very possible that the downturn could start in the biggest party going the Dow.
  • Smart Money could look to stay away from USA in '98

Technicals
At the present juncture there is an even chance of that Long Bond Yields could either fall to 6.0% or rise to 7.0% over the next 3 months.

We would favour the former move, and expect 6.0% to hold, as it has done in Q3 93 and Q1 96.

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