Central banks sounded, not surprisingly, more worried after the G7 meeting at the weekend. The G7 meetings allow for more ???group thought???, and the recent one has presumably fostered a spreading of, in particular, the Federal Reserve??™s concerns to other central banks. While we do not foresee any major shift in monetary policies going forward, central banks are becoming increasingly cautious, especially those that were in the process of raising interest rates, including Norway and Sweden, which will both hold monetary policy meetings in the coming week. We expect that Norges Bank will cut its interest rate forecast by less than the market anticipates. In Sweden, on the other hand, the situation could be the reverse, as the Riksbank has so far not budged much from its projection, and the market simply believes that it will continue to tighten.

In the major economies, the market - as is often the case - has run quite some way ahead of the central banks. Sentiment has shifted, even though the economic data (apart from the US housing data) do not paint a uniformly bad picture. While US housing is sinking further, US consumption continues to look solid. In-deed, our ISM models and other industrial indicators are, in fact, rather optimistic - even on the US - in the time ahead. The credit crunch may have undermined this, of course, but that is by no means certain. So the data provide no reason for central banks to spring into action - even though their lack of action may have left a bad taste in their mouths. Expect caution and less dramatic announcements, but no pronounced change in course. The US will certainly cut rates, but so far there is not much to suggest that either Europe or Asia will follow. The name of the game is postponed rate hikes - not rate cuts.