>GLOBAL MARKETS: THE GREAT TRANSITION (ECONOMIC RESEARCH)

• Country-specific risk is now returning to the forefront as systemic risks wane.

• 2010Q1 marks the return of headline inflation as the 2008/09 oil price declines fall out of the data.

• Central banks will look through this to stable and low core price inflation but the divergence ensures that the inflation risk premium in financial assets persists.

• A sticky inflation risk premium has some potential to cause measures of inflation expectations to drift higher, with the U.K. most at risk.

• Fiscal strains are building with ratings agencies focused on European sovereigns for now.

• The fabric of the Euro is strained by divergent economic trends within the Euro area and the ECB will struggle to manage sixteen imperfectly integrated economies with just one interest rate.

• The publication also includes quarterly interest rate and exchange rate forecasts for the U.S., Canada, Australia, and New Zealand, and also offers additional exchange rate forecasts for the Japanese yen, the euro, the U.K. pound, and the Swiss franc.

To read the full report: GLOBAL MARKETS