EXECUTIVE SUMMARY

Each day in recent weeks has brought new evidence of troubles in the once stalwart “trans-Atlantic relationship,” the outdated misnomer for ties between Washington and its major Western European partners: Britain, France, Germany and more recently, the European Union. Disputes and slights – some real, some imagined – have led to speculation about a drift in a relationship that dominated (and indeed founded) most of the global institutions of the second half of the 20th century. While few see any evidence of an actual rivalry between the two sides, it’s possible that the combined damage to the relationship caused by the 2003 Iraq War and then the global financial crisis in 2008 has altered the way the major players view each other. In particular, hopes that maturing EU institutions could simplify this relationship so far remain unfulfilled. Ties between various individual European states and Washington vary greatly, with Poland and the Baltic states on the warm end and an increasingly disgruntled Turkey and bellicose Russia on the other.

CNBC -- Arun Motianey, director of fixed-income strategy for Roubini Global Economics and author of the recently released SuperCycles: The New Economic Force Transforming Global Markets and Investment Strategy (McGraw-Hill), says the supercycles feature periods of commodity booms followed by busts, and the U.S. economy is on the verge of an inflationary period that will generate a sharp rise in prices. (Click for Video [8:06] and report).

Last week, Nouriel Roubini released an analysis exclusively for RGE clients. While maintaining his core projection of protracted U-shaped growth in the United States, Roubini argued that the risks of a double-dip recession in the United States are rising. The following content is excerpted from that analysis, the full version of which is still available just for clients on Roubini.com.

V, U and W

A slew of poor economic data over the past two weeks suggests that the U.S. economy is headed for a U-shaped recovery—at best—in 2010. The macro news, including data on consumer confidence, home sales, construction and employment, actually suggests a significant downside risk even to the anemic levels of growth which RGE forecast for H1. The U.S. faces continued challenges in H2—particularly as historic levels of fiscal stimulus fade—and appears far too close to the tipping point of a double-dip recession.

Check out all of the RGE analysis and EconoMonitor contributions that were published this past week at roubini.com.

RGE Analysis: [Available only to RGE clients]

U.S. Growth Outlook: Still Anemic and U-Shaped but Risks of a Double-Dip Recession Are Rising by Nouriel Roubini

A slew of poor economic data over the past two weeks suggests that the U.S. economy in 2010 is headed for – at best – a U-shaped recovery. The macro news, including data on consumer confidence, home sales, construction and employment, actually suggests a significant downside risk even to the anemic 2.7% growth which RGE forecast for H1. With the positive effects of the historic levels of fiscal stimulus due to fade this year, the U.S. faces at best a 1.5% growth rate in H2, which looks too close for comfort to a tipping point of a double-dip recession.

China’s annual theatrical production of transparency, “The Two Sessions,” opened today (March 3) in Beijing. Starting Friday, the National People’s Congress (NPC), China’s legislature and nominally highest political body, will air some of the current policy debates within the Communist Party (and their predetermined solutions). Today’s Chinese People’s Political Consultative Conference (CPPCC) will demonstrate the Party’s willingness to hear suggestions from a carefully cultivated group of outsiders. Clearly the NPC is the more important of the two meetings, though its impact on actual governance remains negligible as decisions are ultimately taken by the State Council. Here’s RGE’s take on what to look for behind the stagecraft: some modest shifts away from the loose monetary policy language used last year, a reiteration of efforts to contain the housing bubble and a push to loosen the household registration system for migrant workers.

In this week’s note, we examine the price drivers of silver, the least “precious” of the precious metals. The following content is drawn from an RGE Analysis by Mikka Pineda, “Will Silver Always Be Second to Gold?” which was released to clients last week. For more related analysis on silver, gold, the base metals and other commodities, please see RGE’s extensive Q1 2010 Commodities Outlook.

It has been quite a few days for Canada – a well hosted (if costly) Olympics with a record number of gold medals including a coveted hockey gold. Now it seems, like the U.S., Canada’s economy bounced back strongly in Q4, growing 5.0% q/q annualized, up from under 1% in Q3 (itself revised up). Net exports again returned to growth (as autos and energy exports picked up and imports fell) and domestic demand climbed by 4.6%. However, as with the U.S. , this return to growth could fade. There are a few warning signs ahead.

Brazil:

The central bank increased reserve requirements (RR) on bank time deposits by BRL 34 billions, to be effective on April 9, and on additional requirements on time deposits and on demand deposits by BRL 37 billions, to be effective on March 22.   The actions will withdraw a total BRL 71 billion in liquidity from the system.  The RRs were lowered by Q4 2008 in order to provide liquidity to the financial system (BRL 100 billion) during the crisis; however, the central bank considers that the financial system is very liquid and that those measures are no longer necessary. 

Today, Viktor Yanukovych was sworn in as the new President of Ukraine following a February 7, 2010 runoff vote against Prime Minister Yulia Tymoshenko, which followed an inconclusive first round election in January. His first task will be to form a new coalition in parliament by adding opposition members to his 172 seats to oust rival Yulia Tymoshenko from the post of Prime Minister.