From FT Alphaville:
Recent data and developments suggest that the intensifying credit market turmoil is likely to infect the real economy, especially in the developed world, through a full-blown credit crunch, says Stephen Jen, Morgan Stanley’s global head of currency research.
Jen, who has sharply changed his earlier bullish tone, warns that risky assets may be in jeopardy in the coming weeks. Even so, he adds, the mood swing in the markets in the past few days has been “quite extreme”.
The key issues, in Jen’s view, are:
- The previously bullish analysts and investors have turned quite bearish. “I don’t trust sharp mood swings in general.”
- So far, the sub-prime crisis is a ‘rich countries’ problem. While persistent profit downgrades by large financial institutions as they struggle to mark-to-market their exposure to various credit instruments and the resultant credit restraint will weigh on aggregate demand growth in the US, UK and Euroland, there are scant signs of stress in the credit markets in the emerging world....MORE