- "It is possible that growth may become very weak in the euro zone in the
second half of 2010 and in 2011:
· if growth slows down in the United States, which may be feared based on recent figures;
· as a result of the drastic reduction in the fiscal deficit decided on in the United Kingdom;
· due to the decline in real wages and the rise in the household savings rate;
· due to the sharp reduction in fiscal deficits in those euro-zone countries which have no choice because they are under pressure from financial markets (Greece, Portugal, Ireland, Spain);
· as a consequence of offshoring, deindustrialisation and the low level of corporate investment."
- "The question that then arises concerns the attitude that should be adopted regarding their fiscal deficits by those countries that have no major obligation to reduce their deficits immediately: Germany, France, Italy, Netherlands, Belgium, Austria and Finland."
- "If euro-zone growth were to become very weak, it would of course be reasonable for them to put off a reduction in their fiscal deficits, but:
· will they want to do so (attitude of Germany)?
· will they be able to do so (possible negative investor reaction to a failure to reduce deficits)?"
Natixis Flash Economics 363 20100715
The wrong debate
- "While the European bank stress test is a pivotal moment, the issue of fiscal consolidation remains equally important—in fact it is fiscal concerns that brought us to the banks stress tests. Yet the austerity debate is mis-guided: the focus should be more on how to boost
sustainable growth, less on whether to prolong fiscal stimulus. The austerity debate is now not on whether fiscal tightening in advanced economies is necessary, but on when it should begin in earnest. Those who favor postponing adjustment argue that the recovery is still fragile, and premature fiscal tightening could trigger a double dip recession, particularly as there is little scope for a monetary policy reaction. On the other hand, delaying adjustment
where public debt dynamics seem unsustainable risks weakening market confidence, making funding costlier and harder, and undermines potential growth and living standards once debt
becomes too high (90% of GDP for advanced economies). So when is the right time to start tightening? US real GDP is now close to its pre-crisis peak, but unemployment is more than twice as high; European output is 4-4 ½% below peak, but the increase in unemployment has been overall less severe, albeit with wide crosscountry differences. Should we wait till both output and employment are back to pre-crisis levels? Just as credit growth in the run up to the crisis was excessive, so was GDP growth was unsustainably high; just as much of the financial wealth created was illusory, so a substantial share of “real” output growth was
unsustainable, at best borrowed from the future. What rates of growth and unemployment would have been “normal” without the credit bubble? How many of the jobs destroyed in the recession might be gone for good? These are the hard questions to answer, to lay the basis for the appropriate policy response. Meanwhile, fiscal consolidation plans have already been laid out in most countries, they are not dramatic, and there is no significant push to tighten them further. We should spend less time conjuring the confidencekilling ghost of a double-dip recession, more on debating what reforms countries need to ensure stronger sustainable growth— which will also serve to bolster market confidence."
Unicredit Market Sense 20100720
sustainable growth, less on whether to prolong fiscal stimulus. The austerity debate is now not on whether fiscal tightening in advanced economies is necessary, but on when it should begin in earnest. Those who favor postponing adjustment argue that the recovery is still fragile, and premature fiscal tightening could trigger a double dip recession, particularly as there is little scope for a monetary policy reaction. On the other hand, delaying adjustment
where public debt dynamics seem unsustainable risks weakening market confidence, making funding costlier and harder, and undermines potential growth and living standards once debt
becomes too high (90% of GDP for advanced economies). So when is the right time to start tightening? US real GDP is now close to its pre-crisis peak, but unemployment is more than twice as high; European output is 4-4 ½% below peak, but the increase in unemployment has been overall less severe, albeit with wide crosscountry differences. Should we wait till both output and employment are back to pre-crisis levels? Just as credit growth in the run up to the crisis was excessive, so was GDP growth was unsustainably high; just as much of the financial wealth created was illusory, so a substantial share of “real” output growth was
unsustainable, at best borrowed from the future. What rates of growth and unemployment would have been “normal” without the credit bubble? How many of the jobs destroyed in the recession might be gone for good? These are the hard questions to answer, to lay the basis for the appropriate policy response. Meanwhile, fiscal consolidation plans have already been laid out in most countries, they are not dramatic, and there is no significant push to tighten them further. We should spend less time conjuring the confidencekilling ghost of a double-dip recession, more on debating what reforms countries need to ensure stronger sustainable growth— which will also serve to bolster market confidence."
Unicredit Market Sense 20100720
Could stock market prices in the euro zone fall as much as in Japan since 1990?
- "Since the early 1990s, Japanese stock market prices have been divided by four, despite the marked improvement in corporate profitability since the late 1990s."
- "This steady decline in the Japanese stock market can be ascribed to:
• the memory of the stock market collapse in the early 1990s;
• lacklustre growth, which diverts investors from the stock market- even if this is irrational ;
• the fact that domestic savings are used above all to finance fiscal deficits."
- "But similar developments are (or will in all likelihood be) witnessed in the euro zone: very sharp fluctuations in share prices, sluggish domestic demand, fiscal deficits that are difficult to reduce and that monopolise savings."
Natixis Flash Economics 362 20100715
- "This steady decline in the Japanese stock market can be ascribed to:
• the memory of the stock market collapse in the early 1990s;
• lacklustre growth, which diverts investors from the stock market- even if this is irrational ;
• the fact that domestic savings are used above all to finance fiscal deficits."
- "But similar developments are (or will in all likelihood be) witnessed in the euro zone: very sharp fluctuations in share prices, sluggish domestic demand, fiscal deficits that are difficult to reduce and that monopolise savings."
Natixis Flash Economics 362 20100715
A European Private Company: Is Europe’s single legal form for SMEs close to approval?
- "Small and medium-sized enterprises (SMEs) in Europe have long called for a matching legal form valid across the EU (similar to that of the European company (SE) for large firms)."
- "The main benefits would be the availability of uniform Europe-wide company structures, significant cost reductions for businesses and further integration of the internal market."
- "Given the differing national views regarding the concrete features of the new legal form there is currently no sign of an agreement being reached at the European level in the short term; however, it is possible that progress will be made in negotiations during the year."
- "The key issues being discussed in depth are company formation, transnationality and employee participation rights in the new European private company (SPE)."
DeutscheBank Research Briefing 20100719
- "The main benefits would be the availability of uniform Europe-wide company structures, significant cost reductions for businesses and further integration of the internal market."
- "Given the differing national views regarding the concrete features of the new legal form there is currently no sign of an agreement being reached at the European level in the short term; however, it is possible that progress will be made in negotiations during the year."
- "The key issues being discussed in depth are company formation, transnationality and employee participation rights in the new European private company (SPE)."
DeutscheBank Research Briefing 20100719
Natural Gas: Lowering our price forecasts on the back of surging US production
- US natural gas production continues to surge forward, exceeding
our expectations… "US natural gas production continues to surge this year, driven by the shale gas revolution. As US production has exceeded our expectations, we are increasing our 2010 production by 3.0 bcf/d to 58.5 bcf/d on average for 2010. In addition, we are raising our 2011 production forecast by 3.7 bcf/d to 58.1 bcf/d. We still factor in a slightly declining production path over the rest of 2010, as we continue to expect some response to production from the lower conventional rig counts."
- … requiring reduced LNG production to balance the global market "We expect US LNG imports will need to remain low in order accommodate the increased US production. While we expect a tighter European market will be able to absorb a substantial portion of the LNG supply, we expect that global LNG production will need to remain restrained in order to keep the global gas market in balance. Consequently, we expect that global LNG production will likely be the price setting margin for gas in 2H10 and 2011."
- We are lowering our 2010 and 2011 forecasts as we expect lower prices will be required to restrain LNG production going forward "We are lowering our NYMEX natural gas prices forecasts to $4.63/mmBtu in 2H10 and $5.25/mmBtu in 2011, from $5.60 and $6.00 respectively. Further, while we expect stronger US production will put downward
pressure on UK NBP prices, we expect UK NBP prices will need to exceed US prices in order to direct LNG toward Europe. Net, we are lowering our UK NBP price forecast to $5.13/mmBtu (34.05 p/th) in 2H10 and to $5.75/mmBtu (35.20 p/th) in 2011, from $5.40/mmBtu (34.20 p/th) and $5.80/mmBtu (36.00 p/th), respectively. Should US production continue to
surprise to the upside, a return to more coal-to-gas substitution in power generation would likely be required to balance the market."
GoldmanSachs Commodities Natural Gas 20100716
our expectations… "US natural gas production continues to surge this year, driven by the shale gas revolution. As US production has exceeded our expectations, we are increasing our 2010 production by 3.0 bcf/d to 58.5 bcf/d on average for 2010. In addition, we are raising our 2011 production forecast by 3.7 bcf/d to 58.1 bcf/d. We still factor in a slightly declining production path over the rest of 2010, as we continue to expect some response to production from the lower conventional rig counts."
- … requiring reduced LNG production to balance the global market "We expect US LNG imports will need to remain low in order accommodate the increased US production. While we expect a tighter European market will be able to absorb a substantial portion of the LNG supply, we expect that global LNG production will need to remain restrained in order to keep the global gas market in balance. Consequently, we expect that global LNG production will likely be the price setting margin for gas in 2H10 and 2011."
- We are lowering our 2010 and 2011 forecasts as we expect lower prices will be required to restrain LNG production going forward "We are lowering our NYMEX natural gas prices forecasts to $4.63/mmBtu in 2H10 and $5.25/mmBtu in 2011, from $5.60 and $6.00 respectively. Further, while we expect stronger US production will put downward
pressure on UK NBP prices, we expect UK NBP prices will need to exceed US prices in order to direct LNG toward Europe. Net, we are lowering our UK NBP price forecast to $5.13/mmBtu (34.05 p/th) in 2H10 and to $5.75/mmBtu (35.20 p/th) in 2011, from $5.40/mmBtu (34.20 p/th) and $5.80/mmBtu (36.00 p/th), respectively. Should US production continue to
surprise to the upside, a return to more coal-to-gas substitution in power generation would likely be required to balance the market."
GoldmanSachs Commodities Natural Gas 20100716
What are the odds of a double-dip recession?
- "The waning budget stimulus and the probable end to restocking will considerably slow down growth in the second half of 2010. But the risk of a new violent business downturn, even in light of the budget austerity plans, is limited due to the ongoing effect of monetary stimulus and the profits trend."
- "This interpretation is backed by business cycle leading indicators. We can surmise from a study of both yield curves and confidence indicators that the probability of recession in developed countries within the next twelve months is very low."
- "The likelihood of the extreme scenario of a double dip recession occurring today requires a sharp surge in market rates due to a violent shock:
• from sovereign debt, but this source of risk is nil since central banks are buying government bonds.
• by a new bank crisis, but the constitution of reserves and asset writeoffs seem to have stabilized.
• by a forex crisis, but the probability of such a crisis occurring simultaneously in all developed economies is remote"
- "In the absence of any such shock (which must be exogenous), since inflation is not a risk, we should brace ourselves for the more probable odds of very feeble growth in the major developed economies."
Natixis Flash Economics 361 20100715
- "This interpretation is backed by business cycle leading indicators. We can surmise from a study of both yield curves and confidence indicators that the probability of recession in developed countries within the next twelve months is very low."
- "The likelihood of the extreme scenario of a double dip recession occurring today requires a sharp surge in market rates due to a violent shock:
• from sovereign debt, but this source of risk is nil since central banks are buying government bonds.
• by a new bank crisis, but the constitution of reserves and asset writeoffs seem to have stabilized.
• by a forex crisis, but the probability of such a crisis occurring simultaneously in all developed economies is remote"
- "In the absence of any such shock (which must be exogenous), since inflation is not a risk, we should brace ourselves for the more probable odds of very feeble growth in the major developed economies."
Natixis Flash Economics 361 20100715
Beyond the recovery hump
- "For much of 2010, our strategy has been to position for the global cyclical recovery. A powerful recovery did occur with global manufacturing up 12% from its recession low. Economic data is past the recovery hump. The cyclical trade is now mature. Within EM countries, we are rotating back to domestic demand. Our OW in the cyclical sectors of technology and transportation is more modest than the large UW in commodities and energy."
- "We downgraded Mexico and South Africa from overweight to neutral and upgraded ASEAN to overweight on 15 July."
- "China’s economic growth is slowing. Real GDP growth eased to 7.2% QoQ in 2Q from 10.8% in 1Q10. China's PMI fell for the third consecutive month to 50.4. Policy clearly favors consumption over FAI. But the consumer sector is only 11% of MSCI China. Materials and
energy constitute 20% of the index. Policy risk and margin pressure due to national service are the key medium term drivers for our UW in China, but a policy relief rally is possible as evidence of the slowdown builds. Fast money may wish to be neutral in China in a commodity
correction."
JPMorgan Emerging Markets Equity Strategy 20100719
- "We downgraded Mexico and South Africa from overweight to neutral and upgraded ASEAN to overweight on 15 July."
- "China’s economic growth is slowing. Real GDP growth eased to 7.2% QoQ in 2Q from 10.8% in 1Q10. China's PMI fell for the third consecutive month to 50.4. Policy clearly favors consumption over FAI. But the consumer sector is only 11% of MSCI China. Materials and
energy constitute 20% of the index. Policy risk and margin pressure due to national service are the key medium term drivers for our UW in China, but a policy relief rally is possible as evidence of the slowdown builds. Fast money may wish to be neutral in China in a commodity
correction."
JPMorgan Emerging Markets Equity Strategy 20100719
LatAm: a faster recovery
- "The recovery is gaining speed as the news arriving from the region continues to remain positive. Very significant are the raised debt rating for Argentina by Fitch, the take-up of Colombian bonds and good economic indicators in Colombia, Mexico and Peru. There are some signs of a slowdown in Brazil after high growth in the first quarter of this year. The official interest rate was increased in Chile, but continue to be very expansionary."
- "The equity markets are going up again, and we expect the same to happen in the foreign currency market. Most of the share indexes in the zone are reacting positively to the corporate results from the USA and of a reduction in the risk premium. Currencies reacted to factors in the cycle, which we expect to be corrected shortly."
BBVA Latin Weekly Observatory 20100716
- "The equity markets are going up again, and we expect the same to happen in the foreign currency market. Most of the share indexes in the zone are reacting positively to the corporate results from the USA and of a reduction in the risk premium. Currencies reacted to factors in the cycle, which we expect to be corrected shortly."
BBVA Latin Weekly Observatory 20100716
Have the United States and Europe pulled out of the crisis?
- "Some economists believe there will be a gradual recovery in growth in OECD countries, as the causes of the crisis are disappearing (excess indebtedness, holding of "rotten" assets) and due to the economic recovery in emerging countries."
- "Others believe there will be a renewed slump in the economies due to the excessively rapid disappearance of the stimulus provided by economic policies (reduction in fiscal deficits, especially in Europe; gradual withdrawal of unconventional monetary policies)."
- "It is certain that fiscal and monetary policies will become more restrictive. To ascertain whether this development will lead to a second dip in the economies, we have to determine whether the balance sheets of economic agents have improved enough. The crisis is actually a result of the deterioration in the balance sheets of households, banks and companies in some countries."
- "What is the situation with regard to balance sheet improvement?
• There are few countries (France, Italy) where households’ balance sheets are good enough to enable household indebtedness to (slowly) pick up again;
• Companies continue to deleverage everywhere, due to their determination to reduce their dependency on external funding;
• The banks’ situation is difficult to assess, in the absence of transparency about the value of the assets held. In several countries (United States, United Kingdom, Spain) borrower defaults are at a very high level, which points to the conclusion that many banks are still facing problems. On top of this, there is the problem of European banks’ holding of public debt."
- "All in all, it seems that it is too early in the process of improving the balance
sheets of private economic agents to bring counter-cyclical policies back to
normal."
Natixis Flash Economics 360 20100713
- "Others believe there will be a renewed slump in the economies due to the excessively rapid disappearance of the stimulus provided by economic policies (reduction in fiscal deficits, especially in Europe; gradual withdrawal of unconventional monetary policies)."
- "It is certain that fiscal and monetary policies will become more restrictive. To ascertain whether this development will lead to a second dip in the economies, we have to determine whether the balance sheets of economic agents have improved enough. The crisis is actually a result of the deterioration in the balance sheets of households, banks and companies in some countries."
- "What is the situation with regard to balance sheet improvement?
• There are few countries (France, Italy) where households’ balance sheets are good enough to enable household indebtedness to (slowly) pick up again;
• Companies continue to deleverage everywhere, due to their determination to reduce their dependency on external funding;
• The banks’ situation is difficult to assess, in the absence of transparency about the value of the assets held. In several countries (United States, United Kingdom, Spain) borrower defaults are at a very high level, which points to the conclusion that many banks are still facing problems. On top of this, there is the problem of European banks’ holding of public debt."
- "All in all, it seems that it is too early in the process of improving the balance
sheets of private economic agents to bring counter-cyclical policies back to
normal."
Natixis Flash Economics 360 20100713
Could the crisis, paradoxically, have accelerated emerging countries' growth ?
- "In early 2010 there has been very robust growth in emerging countries (except in Central Europe), while the economies of OECD countries are weaker, hence also normally emerging-country exports."
- "By what mechanisms could the crisis, paradoxically, have increased
emerging countries' growth? It could be imagined that:
• faced with the crisis in OECD countries, the emerging countries have stepped up strategies of stimulation of domestic demand;
• the crisis has led to transfers of productive investment from OECD countries to emerging countries;
• the crisis has halted the appreciation of emerging countries' currencies, due to the safe haven role of the dollar;
• or simply that increasingly significant trade between emerging countries
generates a multiplier effect which is sufficient to accelerate these countries' growth or else that the first quarter of 2010 was temporarily strong in OECD countries."
- "In fact, all these explanations are valid and played a role. Even though growth is slowing in OECD countries, the fact that the emerging countries stimulate their domestic demand, benefit from investment transfers, no longer have appreciating currencies and increasingly trade with one another, will maintain high growth in emerging countries."
Natixis Flash Economics 359 20100713
- "By what mechanisms could the crisis, paradoxically, have increased
emerging countries' growth? It could be imagined that:
• faced with the crisis in OECD countries, the emerging countries have stepped up strategies of stimulation of domestic demand;
• the crisis has led to transfers of productive investment from OECD countries to emerging countries;
• the crisis has halted the appreciation of emerging countries' currencies, due to the safe haven role of the dollar;
• or simply that increasingly significant trade between emerging countries
generates a multiplier effect which is sufficient to accelerate these countries' growth or else that the first quarter of 2010 was temporarily strong in OECD countries."
- "In fact, all these explanations are valid and played a role. Even though growth is slowing in OECD countries, the fact that the emerging countries stimulate their domestic demand, benefit from investment transfers, no longer have appreciating currencies and increasingly trade with one another, will maintain high growth in emerging countries."
Natixis Flash Economics 359 20100713
United Kingdom: back to the eighties
- "It’s hard not to compare what is happening now in the UK to the 80s, considering all the glaring similarities:
- the conservatives are back in power with the economy and public finances in shambles;
• the Tory leader’s speeches calling for renewal based on determination, a renewal that requires paying the price for past mistakes;
• policies challenging the principle of the welfare State."
- "The solutions proposed by David Cameron’s government are also reminiscent of those implemented by Margaret Thatcher, where drastic cuts were made in public spending and the economy was liberalized through the introduction of supply-side policies."
- "The UK is the only country that has clearly chosen this path. Has it made the right choice? The answer is double-sided. In the short term, yes, since the budget announcements of David Cameron’s government has helped to dispel the risks weighing on public finances. In the long term, the structural characteristics indicate that return to strong growth could take longer than expected by the government."
Natixis Flash Economics 354 20100708
- the conservatives are back in power with the economy and public finances in shambles;
• the Tory leader’s speeches calling for renewal based on determination, a renewal that requires paying the price for past mistakes;
• policies challenging the principle of the welfare State."
- "The solutions proposed by David Cameron’s government are also reminiscent of those implemented by Margaret Thatcher, where drastic cuts were made in public spending and the economy was liberalized through the introduction of supply-side policies."
- "The UK is the only country that has clearly chosen this path. Has it made the right choice? The answer is double-sided. In the short term, yes, since the budget announcements of David Cameron’s government has helped to dispel the risks weighing on public finances. In the long term, the structural characteristics indicate that return to strong growth could take longer than expected by the government."
Natixis Flash Economics 354 20100708
The double-dip risk and its market implications
- "Market participants face seriously limited visibility on the pace of near-term growth,
particularly for the advanced economies."
- "However, we do not believe that the global economy is about to fall back into a recession."
- "A double-dip – which is not the central scenario we choose – would most likely drive
rates even lower, but bond price upside is fairly limited, particularly at the front end."
- "In the event that the US did become the first to slide back into recession, the USD would be
hard pushed to find any support, at least initially. As the downturn shifts from local to global, it would become clear that there is nowhere to hide from a double-dip scenario. Against this backdrop, the USD would likely regain its status as a safe-haven play."
CreditAgricole Eco News 20100719
particularly for the advanced economies."
- "However, we do not believe that the global economy is about to fall back into a recession."
- "A double-dip – which is not the central scenario we choose – would most likely drive
rates even lower, but bond price upside is fairly limited, particularly at the front end."
- "In the event that the US did become the first to slide back into recession, the USD would be
hard pushed to find any support, at least initially. As the downturn shifts from local to global, it would become clear that there is nowhere to hide from a double-dip scenario. Against this backdrop, the USD would likely regain its status as a safe-haven play."
CreditAgricole Eco News 20100719
Views from the Bund
• Key investment theme: "We believe MSCI China may see a near-term rebound because: (1) MSCI China’s weak performance YTD may have factored in some bad news about the economic slowdown; (2) China’s liquidity situation has started to see some improvements; (3) the Ministry of Agricultural index fell for the second straight month by 1.4% in June, which
could give governing authorities more leeway in their adjustment of monetary policies when needed. However, we stay cautious on MSCI-China because: (1) we see continued downward earnings revision risk as China’s economic slowdown ripples through from macro-sensitive sectors, such as steel, to more downstream sectors such as property, industrials, capital
goods, and airlines, etc; (2) a number of sector-specific policy risks to hurt earnings of and to de-rate multiples of related companies; and (3) banks’ fund-raising activities are only half-way through. Amid market volatilities, we identify investment opportunities from China’s economic rebalancing: (1) China’s consumer staple and low- and medium-end consumer
discretionary sectors, given (a) these sectors’ sticky growth track record both in upturns and downturns of the economic cycle; (b) China’s ongoing wage hikes; (c) the urbanization trend in central and western China; (d) the fact that these sectors are already subject to complete market competition, and are subject to the least policy risk; (e) the emerging consumer finance industry in China to boost consumption. Based on case studies of Hengan and Changyu Wine, we hold our view that quality mid-cap (US$1-3B) names in consumer staple and low- and medium-end consumer discretionary sectors that are trading at teens’ multiples may offer the best opportunity to repeat Hengan’s and Changyu’s very high share price increase of 50x over 10 years. (2) Investment opportunities arising from the Western China Development strategy. (3) Investment opportunities from the railway sector’s visible capex, such as China Railway Group."
• What is changing: "China has released policies such as: (a) introducing the new resource tax charged at 5% of the revenue for coal, natural gas and oil companies; (b) putting price caps for coal companies; and (c) requiring a real name registration system for the online gaming sector."
• China model portfolio adjustment: "We are bullish on consumer staples low- and medium-end consumer discretionary, expressways, IPPs, banks, and insurance, while we are bearish on commodities, property, energy, paper, and airlines."
JPMorgan China Equity Strategy Economics 20100716
could give governing authorities more leeway in their adjustment of monetary policies when needed. However, we stay cautious on MSCI-China because: (1) we see continued downward earnings revision risk as China’s economic slowdown ripples through from macro-sensitive sectors, such as steel, to more downstream sectors such as property, industrials, capital
goods, and airlines, etc; (2) a number of sector-specific policy risks to hurt earnings of and to de-rate multiples of related companies; and (3) banks’ fund-raising activities are only half-way through. Amid market volatilities, we identify investment opportunities from China’s economic rebalancing: (1) China’s consumer staple and low- and medium-end consumer
discretionary sectors, given (a) these sectors’ sticky growth track record both in upturns and downturns of the economic cycle; (b) China’s ongoing wage hikes; (c) the urbanization trend in central and western China; (d) the fact that these sectors are already subject to complete market competition, and are subject to the least policy risk; (e) the emerging consumer finance industry in China to boost consumption. Based on case studies of Hengan and Changyu Wine, we hold our view that quality mid-cap (US$1-3B) names in consumer staple and low- and medium-end consumer discretionary sectors that are trading at teens’ multiples may offer the best opportunity to repeat Hengan’s and Changyu’s very high share price increase of 50x over 10 years. (2) Investment opportunities arising from the Western China Development strategy. (3) Investment opportunities from the railway sector’s visible capex, such as China Railway Group."
• What is changing: "China has released policies such as: (a) introducing the new resource tax charged at 5% of the revenue for coal, natural gas and oil companies; (b) putting price caps for coal companies; and (c) requiring a real name registration system for the online gaming sector."
• China model portfolio adjustment: "We are bullish on consumer staples low- and medium-end consumer discretionary, expressways, IPPs, banks, and insurance, while we are bearish on commodities, property, energy, paper, and airlines."
JPMorgan China Equity Strategy Economics 20100716
The last defence against a sharp contraction in activity: The monetary defence
- "Globalisation and competition from emerging countries are likely to lead to a sharp contraction in activity in most OECD countries."
- "In order to withstand this development, these countries have used:
• first private-sector indebtedness, which had to be interrupted in 2007-2008, and which caused the banking crisis;
• then government indebtedness, which had to be interrupted in 2010."
- "The only remaining defence against a drop in activity is currently the monetary defence."
- "Due to the very low interest rates and the abundance of liquidity, central
banks are enabling:
• the private sector to deleverage more easily;
• banks to finance the low-quality assets and loans they still have in their balance sheets;
• some over-indebted countries to obtain refinancing."
- "The "monetary defence" is thus preventing a surge in household and corporate bankruptcies, a fresh banking crisis and certain countries from defaulting. Removing the monetary defence would lead to a new and drastic crisis and a collapse in activity."
Natixis Flash Economics 356 20100712
- "In order to withstand this development, these countries have used:
• first private-sector indebtedness, which had to be interrupted in 2007-2008, and which caused the banking crisis;
• then government indebtedness, which had to be interrupted in 2010."
- "The only remaining defence against a drop in activity is currently the monetary defence."
- "Due to the very low interest rates and the abundance of liquidity, central
banks are enabling:
• the private sector to deleverage more easily;
• banks to finance the low-quality assets and loans they still have in their balance sheets;
• some over-indebted countries to obtain refinancing."
- "The "monetary defence" is thus preventing a surge in household and corporate bankruptcies, a fresh banking crisis and certain countries from defaulting. Removing the monetary defence would lead to a new and drastic crisis and a collapse in activity."
Natixis Flash Economics 356 20100712
Non-commercial investors turn short USD
- "The latest IMM data covers the week from 6 July to 13 July."
- "Following the USD peak in early June (since which the USD has corrected 5%
lower), speculative investors have gradually reduced their long positions and have
now once again turned net short USD. This shift partly reflects an unwinding of short
EUR positions, but also the build-up in long AUD, CAD, CHF and JPY positions."
- "Positioning risk has become more two-sided in EUR/USD. Since net short EUR
positions peaked at 40% of open interest in early May (a 3 sigma event), threequarters
of these have been unwound. This implies that the upside risk on EUR/USD,
all other things equal, has been reduced. The latest move in EUR/USD towards 1.30
after the IMM data was collected is likely to have seen EUR shorts further reduced."
- "The JPY has been on a bullish trend since May (appreciating close to 10% in effective
terms) coinciding with a 180-degree turnaround in speculative positioning. After
being net short JPY to the tune of 45% of open interest in early May, non-commercial
investors are now net long with 35% of open interest. As the JPY rises, however, so
does the probability of intervention by the Bank of Japan, which only amplifies the
downside risk on JPY that already exists from positioning."
DenDanske IMM Positioning 20100719
- "Following the USD peak in early June (since which the USD has corrected 5%
lower), speculative investors have gradually reduced their long positions and have
now once again turned net short USD. This shift partly reflects an unwinding of short
EUR positions, but also the build-up in long AUD, CAD, CHF and JPY positions."
- "Positioning risk has become more two-sided in EUR/USD. Since net short EUR
positions peaked at 40% of open interest in early May (a 3 sigma event), threequarters
of these have been unwound. This implies that the upside risk on EUR/USD,
all other things equal, has been reduced. The latest move in EUR/USD towards 1.30
after the IMM data was collected is likely to have seen EUR shorts further reduced."
- "The JPY has been on a bullish trend since May (appreciating close to 10% in effective
terms) coinciding with a 180-degree turnaround in speculative positioning. After
being net short JPY to the tune of 45% of open interest in early May, non-commercial
investors are now net long with 35% of open interest. As the JPY rises, however, so
does the probability of intervention by the Bank of Japan, which only amplifies the
downside risk on JPY that already exists from positioning."
DenDanske IMM Positioning 20100719
Asian growth stays strong, with signs of a soft-landing
- Asian growth stays strong, with signs of a soft-landing "The key data releases over the past week were China and Singapore second quarter GDP. Markets generally reacted positively to signs of a soft-landing in China and continued robust growth in Singapore,
despite expectations of a weaker second half as global demand declines."
- China’s second quarter GDP growth eases… "Recent tightening measures appear to be working, as China’s Q2 GDP growth came in slightly lower-than expected at 10.3% y/y, in line with other slowing indicators such as industrial production, M2, retails sales, and fixed assets (see Highlight). Inflation for June came in much lower than expected (2.9% y/y), helping to ease concerns of overheating, and reducing the likelihood of additional tightening measures in
the near term. Other export-oriented economies in the region are still booming, such as Singapore which posted another quarter of rapid GDP growth (see Highlight). Both Singapore and Japan raised their official economic growth forecasts for 2010 to 13-15% (from 7-9%) and 2.6% (from 1.8%), respectively. India posted an inflation outturn of 10.55% in June, rising expectations of further interest rates hikes in the next monetary policy meeting scheduled on July 27th."
- …monetary tightening continues "As expected, Thailand raised its policy rate by 25bps to 1.50% last week, following similar moves in recent weeks by Korea, Malaysia, Taiwan, and India. On the other hand, Japan and Philippines remained on hold. Tightening measures reveal the region’s confidence in the growth outlook (see IMF Hightlight)."
- In the coming week…. "The coming week is relatively light on data releases. Markets will focus on June’s CPI inflation for Hong Kong, Singapore and Malaysia, and exports orders for June in Taiwan."
BBVA Asia Weekly Watch 20100719
despite expectations of a weaker second half as global demand declines."
- China’s second quarter GDP growth eases… "Recent tightening measures appear to be working, as China’s Q2 GDP growth came in slightly lower-than expected at 10.3% y/y, in line with other slowing indicators such as industrial production, M2, retails sales, and fixed assets (see Highlight). Inflation for June came in much lower than expected (2.9% y/y), helping to ease concerns of overheating, and reducing the likelihood of additional tightening measures in
the near term. Other export-oriented economies in the region are still booming, such as Singapore which posted another quarter of rapid GDP growth (see Highlight). Both Singapore and Japan raised their official economic growth forecasts for 2010 to 13-15% (from 7-9%) and 2.6% (from 1.8%), respectively. India posted an inflation outturn of 10.55% in June, rising expectations of further interest rates hikes in the next monetary policy meeting scheduled on July 27th."
- …monetary tightening continues "As expected, Thailand raised its policy rate by 25bps to 1.50% last week, following similar moves in recent weeks by Korea, Malaysia, Taiwan, and India. On the other hand, Japan and Philippines remained on hold. Tightening measures reveal the region’s confidence in the growth outlook (see IMF Hightlight)."
- In the coming week…. "The coming week is relatively light on data releases. Markets will focus on June’s CPI inflation for Hong Kong, Singapore and Malaysia, and exports orders for June in Taiwan."
BBVA Asia Weekly Watch 20100719
The Hesitation Blues
- "Recovery’s apparent loss of momentum stops well short of signaling an economywide decline in activity. Barring a further breakdown in financial conditions, we anticipate second half growth in a range of 2% to 2½%."
- "Fed officials revised down their own growth and inflation forecasts but remained more upbeat than our own projections. Officials have deemphasized exit strategy discussions and acknowledged the revival of downside risks. But their baseline view does not support active consideration of new policy options."
- "Unconventional monetary policy proved highly effective in restoring key elements of financial stability. While conditions have weakened again somewhat, policymakers’ near-term message likely will reaffirm a readiness to support recovery."
- "Core retail sales rose in June but downward revisions to previous levels reveal greater hesitancy to spend among consumers despite solid income gains. A parallel retreat in business confidence underscores the importance of securing a more supportive financial setting."
Citigroup Comments on Credit 20100716
- "Fed officials revised down their own growth and inflation forecasts but remained more upbeat than our own projections. Officials have deemphasized exit strategy discussions and acknowledged the revival of downside risks. But their baseline view does not support active consideration of new policy options."
- "Unconventional monetary policy proved highly effective in restoring key elements of financial stability. While conditions have weakened again somewhat, policymakers’ near-term message likely will reaffirm a readiness to support recovery."
- "Core retail sales rose in June but downward revisions to previous levels reveal greater hesitancy to spend among consumers despite solid income gains. A parallel retreat in business confidence underscores the importance of securing a more supportive financial setting."
Citigroup Comments on Credit 20100716
White biotech: Revolution in instalments
- "Industrial biotechnology offers huge development opportunities for the chemicals industry, enabling more efficient processes, innovative products and reduced dependence on the raw material oil. However, there is still a long way to go in building a chemicals industry geared to biomass. The main obstacles are price competition from established value chains based on oil and rivalry between medical and industrial biotech in the race for R&D funds."
DeutscheBank Talking Point 20100719
DeutscheBank Talking Point 20100719
Top 10 Questions for 2H10
- Will There Be a Double-Dip Recession?
- Will Sovereign Balance Sheets Turn into a Global Crisis?
- Can Emerging Markets Drive Global Growth?
- Is the Treasury Rally Sustainable?
- Where to Invest in a Rising Rate Environment?
- Are Corrections a Buying Opportunity?
- Why is Selectivity Important?
- Is Investor Demand Enough to Support Gold?
- What Will Drive Oil and Grains Higher in the Near-Term?
- How Important are Asset Allocation Principles?
DeutscheBank Global Outlook July2010
- Will Sovereign Balance Sheets Turn into a Global Crisis?
- Can Emerging Markets Drive Global Growth?
- Is the Treasury Rally Sustainable?
- Where to Invest in a Rising Rate Environment?
- Are Corrections a Buying Opportunity?
- Why is Selectivity Important?
- Is Investor Demand Enough to Support Gold?
- What Will Drive Oil and Grains Higher in the Near-Term?
- How Important are Asset Allocation Principles?
DeutscheBank Global Outlook July2010
The Global FX Monthly Analyst
- "In recent weeks the US growth outlook has deteriorated again, which translates into weaker USD forecasts."
- "Some fiscal/political worst-case scenarios in the Euro-zone have not materialised, although near-term risks remain.""
- "Talk about reserve diversification into JPY and reduced scope for intervention create JPY upside risks."
- "The CHF may strengthen further, linked to sticky safe-haven flows, strong growth and unwinding risks for CHF funding trades."
GoldmanSachs Global FX Monthly Analyst July2010
- "Some fiscal/political worst-case scenarios in the Euro-zone have not materialised, although near-term risks remain.""
- "Talk about reserve diversification into JPY and reduced scope for intervention create JPY upside risks."
- "The CHF may strengthen further, linked to sticky safe-haven flows, strong growth and unwinding risks for CHF funding trades."
GoldmanSachs Global FX Monthly Analyst July2010
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