- "We look at the situations of the United States, the euro zone, the United Kingdom and Japan and we compare trends in share prices and EPS (earnings per share). A significant difference in these developments can result from:
• marked changes in the determinants of PER (and therefore of long-term interest rates and growth);
• "parasitic" influences on stock market prices; for example sluggish growth in consumption can depress demand for stocks and stock market prices, even if EPS are on the rise."
- "The elasticity of stock market indices to EPS is too low, and above all in Japan where it is virtually zero. We show that in all likelihood:
• the changes in the determinants of PER do not explain the bias between stock market indices and PER;
• the trend in household consumption explains stock market indices better than EPS, and the slowdown in consumption plays a part in the weakness of the elasticity of indices to EPS, especially in Japan."
Natixis Special Report 20100709
The uncertainty is set to last
- "Since the end of 2009, the financial markets have been characterised by great volatility and a rise in risk premia, sure signs of highly significant uncertainty among investors."
- "This uncertainty is definitely set to last, since it has causes that are themselves longlasting:
• difficulty in ascertaining what the outcome of the sovereign debt crisis in the euro zone will be: stabilisation of public debt ratios and possibility for countries to finance themselves again normally, or a divergent dynamics and eventually a default? We will have to wait until 2012 or 2013 to have a clear view;
• uncertainty about the banks’ real situation, due to additional real estate losses (Spain, United States) and the massive holding of sovereign debts in Europe. We will have to wait for the outcome of the sovereign debt crisis, i.e. 2012 to (possibly) be reassured;
• continued recovery or dip in the United States? The latest figures are downbeat, but we will have to until the end of 2010 and 2011 to gain a better understanding;
• uncertainty about the effects of the restrictive fiscal policies in European growth, and hence the results and the financial situation of companies; will a decline in the savings rate offset this? Fiscal deficits must be drastically reduced from 2011 to 2013."
- "We can therefore expect continued high volatility in the financial markets for several years."
Natixis Flash Economics 355 20100709
- "This uncertainty is definitely set to last, since it has causes that are themselves longlasting:
• difficulty in ascertaining what the outcome of the sovereign debt crisis in the euro zone will be: stabilisation of public debt ratios and possibility for countries to finance themselves again normally, or a divergent dynamics and eventually a default? We will have to wait until 2012 or 2013 to have a clear view;
• uncertainty about the banks’ real situation, due to additional real estate losses (Spain, United States) and the massive holding of sovereign debts in Europe. We will have to wait for the outcome of the sovereign debt crisis, i.e. 2012 to (possibly) be reassured;
• continued recovery or dip in the United States? The latest figures are downbeat, but we will have to until the end of 2010 and 2011 to gain a better understanding;
• uncertainty about the effects of the restrictive fiscal policies in European growth, and hence the results and the financial situation of companies; will a decline in the savings rate offset this? Fiscal deficits must be drastically reduced from 2011 to 2013."
- "We can therefore expect continued high volatility in the financial markets for several years."
Natixis Flash Economics 355 20100709
First Half Not Exactly As Expected – So What to Expect in 2H?
- India and Indonesia look expensive — "In terms of straight valuations, both India and Indonesia now rank amongst Asia’s most expensive equity markets. Even adjusting for ROE, the premium now looks excessive. At the other end of the spectrum, one has Korea on single-digit P/E, but cranking out an above-average ROE; all hallmarks of an end-of-cycle for a cyclical market. China now also features amongst the cheaper markets based on P/E, P/CE and ROE; a market to look at for the second half."
- Defensive stocks are expensive — "Sector wise, the consumer defensives are amongst the most expensive whichever valuations you care to look at. They are also well held by the consensus. What comes out looking cheap is a combination of cyclical, tech hardware and the semiconductors. Amongst the interest sensitives, banks score well, as increasingly does real estate. The cheapest defensive is telecoms. Across the board, earnings revisions continue to decline, with the cyclicals underperforming. Appetite towards cyclicals or real estate remains low at present."
- Market is likely to weaken in summer — "We continue to believe that markets will weaken into August-to-September, driven by downward revisions to earnings, global growth fears, and continued tightness in Asian excess liquidity. The shift in our portfolio will be away from telecoms and towards greater cyclicality. Country wise, the biggest call will be whether to overweight China."
Citigroup Asia Macro Investigator 20100712
- Defensive stocks are expensive — "Sector wise, the consumer defensives are amongst the most expensive whichever valuations you care to look at. They are also well held by the consensus. What comes out looking cheap is a combination of cyclical, tech hardware and the semiconductors. Amongst the interest sensitives, banks score well, as increasingly does real estate. The cheapest defensive is telecoms. Across the board, earnings revisions continue to decline, with the cyclicals underperforming. Appetite towards cyclicals or real estate remains low at present."
- Market is likely to weaken in summer — "We continue to believe that markets will weaken into August-to-September, driven by downward revisions to earnings, global growth fears, and continued tightness in Asian excess liquidity. The shift in our portfolio will be away from telecoms and towards greater cyclicality. Country wise, the biggest call will be whether to overweight China."
Citigroup Asia Macro Investigator 20100712
China Property: Current sector rebound could be shortlived; sales performance is the key
- June sales stabilized: "Primary home sales in the eight major cities in June slipped only 1% M/M after a 46% decline in May. That said, sales in fact increased at end-June as some developers started offering more sizable discounts in the sales price. In 1H10, sales in the eight
major cities dropped 36% Y/Y, in contrast to the 20% Y/Y growth for sales volume nationwide in 5M10."
- Price correction underway: "In June, the Centaline Leading Index (secondary transaction price) for the top five cities fell 1.0% to 3.6% M/M, thus bringing the overall cumulative decline to 3.2% since April’s peak. More price cuts are underway with a 20-30% price drop seen in Tongzhou (beyond 5th-ring-road) in Beijing. According to government statistics, in 5M10 the national average ASP reached Rmb4,959psm, and affordability is now close to 47% based on our estimates. We therefore see room for a further correction, especially in overheated cities, where we expect a 20-30% price decline."
- Sector may stay range-bound: "We also do not anticipate any nearterm easing of policy measures. The effect of any policy easing in late 2010 could be offset by a potential sharp increase in inventories. Hence we expect the sector to remain range-bound and prefer companies with better sales performance due to their more flexible pricing strategies (e.g. Vanke) and companies with improvement in net gearing (e.g. R&F). We are concerned about the slow run rate of some mid-cap names such as Shimao, Agile and CR Land relative to their own targets. While we have a long-term bullish view and OW rating on these stocks, in the next quarter their share price performance could be constrained by slower contract sales until sales catch up, say in 4Q10."
JPMorgan China Property Monthly Wrap 20100715
major cities dropped 36% Y/Y, in contrast to the 20% Y/Y growth for sales volume nationwide in 5M10."
- Price correction underway: "In June, the Centaline Leading Index (secondary transaction price) for the top five cities fell 1.0% to 3.6% M/M, thus bringing the overall cumulative decline to 3.2% since April’s peak. More price cuts are underway with a 20-30% price drop seen in Tongzhou (beyond 5th-ring-road) in Beijing. According to government statistics, in 5M10 the national average ASP reached Rmb4,959psm, and affordability is now close to 47% based on our estimates. We therefore see room for a further correction, especially in overheated cities, where we expect a 20-30% price decline."
- Sector may stay range-bound: "We also do not anticipate any nearterm easing of policy measures. The effect of any policy easing in late 2010 could be offset by a potential sharp increase in inventories. Hence we expect the sector to remain range-bound and prefer companies with better sales performance due to their more flexible pricing strategies (e.g. Vanke) and companies with improvement in net gearing (e.g. R&F). We are concerned about the slow run rate of some mid-cap names such as Shimao, Agile and CR Land relative to their own targets. While we have a long-term bullish view and OW rating on these stocks, in the next quarter their share price performance could be constrained by slower contract sales until sales catch up, say in 4Q10."
JPMorgan China Property Monthly Wrap 20100715
China Property: Hope in 2H, Selectively Focus on Beta
- Strong June sales rebound— "Key developers we tracked announced an average 45% MoM rebound in June contracted sales vs. the 43% MoM slippage in May. Market giants Vanke, China Poly, COLI, etc. demonstrated strong sales capabilities with monthly sales up 42.6%-98.9% MoM, even hitting monthly record high sales. Apart from several developers such as CR Land, Glorious & Country Garden, the remainder reported a gentle recovery of 20-30% MoM on transaction value."
- June 2010: National residential prices -0.1% MoM; 1st drop in past 16 months —
"The strong sales rebound in leading developers was due to price cutting, especially for Vanke and Poly. NBS released the Jun-2010 operating statistics of China property sector that growth momentum on investment and building activities has been decelerating under the tightening while the pricing is resilient, on the grounds that developers are still reining in launching new supply with significant price cuts. Transaction volume recovered on a MoM basis given the low-base sales in previous month as well as price cuts from selective developers."
- Recent share price rally triggered by rumor of mortgage lending loosening — "In the past two trading days, China property stocks rebounded by about 7% on average due to the rumor that a few banks in Shanghai have resumed third home mortgages and loosened standards for second home mortgages."
- Hope in 2H — "In 1H, we suggested investors only stick to quality names such as COLI and Shimao, and they have been the top two best share price performers among all leading developers YTD. Entering 3Q, policy risk has been partially settling along with developers’ price cuts. Potential strong property demand has been well proven. Though we do not think the central government should loosen the tightening in the remainder of 2010, which could be too risky – the central government could lose credibility and could trigger a crazy rebound in volume and property prices – it is still possible for the central government to give more
feasibility to commercial banks in 1Q of next year after considering its critical contribution to economic growth."
- Selectively focus on beta – Shimao and Poly HK. — "If we expect the physical market turning point to emerge in 1Q2011, a good entry timing to the China property sector should emerge in early 3Q 2010, which is also the reason why investors should selectively focus on higher-beta names in 3Q to hunt for returns. After the expected price cuts of 10-15% in June and July, the policy risk should be partially settled already. Entering 3Q, investors could gradually add weights to higher-beta names such as Shimao and Poly HK. We believe these names not only have higher beta but also have specific selling points that could result in share price outperformance."
Citigroup China Property 20100713
- June 2010: National residential prices -0.1% MoM; 1st drop in past 16 months —
"The strong sales rebound in leading developers was due to price cutting, especially for Vanke and Poly. NBS released the Jun-2010 operating statistics of China property sector that growth momentum on investment and building activities has been decelerating under the tightening while the pricing is resilient, on the grounds that developers are still reining in launching new supply with significant price cuts. Transaction volume recovered on a MoM basis given the low-base sales in previous month as well as price cuts from selective developers."
- Recent share price rally triggered by rumor of mortgage lending loosening — "In the past two trading days, China property stocks rebounded by about 7% on average due to the rumor that a few banks in Shanghai have resumed third home mortgages and loosened standards for second home mortgages."
- Hope in 2H — "In 1H, we suggested investors only stick to quality names such as COLI and Shimao, and they have been the top two best share price performers among all leading developers YTD. Entering 3Q, policy risk has been partially settling along with developers’ price cuts. Potential strong property demand has been well proven. Though we do not think the central government should loosen the tightening in the remainder of 2010, which could be too risky – the central government could lose credibility and could trigger a crazy rebound in volume and property prices – it is still possible for the central government to give more
feasibility to commercial banks in 1Q of next year after considering its critical contribution to economic growth."
- Selectively focus on beta – Shimao and Poly HK. — "If we expect the physical market turning point to emerge in 1Q2011, a good entry timing to the China property sector should emerge in early 3Q 2010, which is also the reason why investors should selectively focus on higher-beta names in 3Q to hunt for returns. After the expected price cuts of 10-15% in June and July, the policy risk should be partially settled already. Entering 3Q, investors could gradually add weights to higher-beta names such as Shimao and Poly HK. We believe these names not only have higher beta but also have specific selling points that could result in share price outperformance."
Citigroup China Property 20100713
Do not fear a weaker euro, but do not expect too much either - US growth: good news and bad…
- United States "Business surveys are signalling a slowdown in the US economic recovery as the second half of the year gets underway. We believe this is less a sign that a "double-dip” recession is imminent than it is of the inventory cycle's diminishing contribution to growth. The combination of slower growth, lower inflation and turmoil in financial markets in the wake of the sovereign debt crisis, will no doubt encourage the Federal Reserve to maintain its extremely accommodative monetary policy well into next year."
- Japan "Growth slowed significantly in Q2 to 0.5%, as exports and consumption lost some of their dynamism. Monetary policy is expected to remain extremely loose, while fiscal policy could be progressively tightened. The economy is expected to grow by around 3.5% in 2010 and 2% in 2011. Deflation is expected to end in the second half of 2011."
- Eurozone "Driven by the ongoing rebound in the industrial sector, GDP growth probably increased in Q2 after rising only 0.2% q/q in Q1. However the pace of economic activity could slow thereafter as persistently tough labour market conditions and fiscal consolidation measures adopted by several countries put a significant strain on domestic demand. Exports will remain the main growth engine. With low inflationary pressures and a fragile recovery, the ECB will be in no hurry to raise the refi rate before 2012."
- Germany "Exports will continue to support growth over the next few quarters, as Germany benefits from the recovery of investment spending in China and the United States. The euro's depreciation againstthe dollar is also increasing the country's price-competitiveness. The strength of exports shouldtherefore partially compensate for weak domestic demand."
- France "Activity very probably rebounded in the spring despite the ongoing contraction in household spending, particularly car purchases. The spike in inflation is nearly at and end and the stabilisation in the unemployment rate since the beginning of the year suggests that the labour market continues to improve. However, domestic demand remains weak against a backdrop of growing concern as to the scale of the fiscal consolidation scheduled for next year. The Finance Act for 2011, currently being drafted, aims to reduce the fiscal deficit to 6% of GDP next year."
- Italy "The recovery from recession continues to be quite moderate and export-led for Italy. From Q3 2009 to Q1 2010 the GDP has regained just one tenth of the previous fall. The implementation of austerity measures – decided in the wake of the Greek debt crisis- will further stress the priority of sound stability versus quicker economic expansion."
- Spain "After growing slightly in the first half of 2010, GDP is expected to contract again in the second half under the impact of the Spanish government’s new austerity measures. These will probably further depress domestic demand, already dampened by the slow elimination of the main imbalances - high indebtedness among private economic agents, exorbitant size of the
construction sector and bursting of the property market bubble. Spain could therefore slip back
into recession. Against this backdrop, investors will be focusing their attention on public finances
and the situation in the banking sector."
- United Kingdom "The acceleration of GDP growth in the second quarter is likely to be short lived. The new Cameron government's programme to consolidate public finances, the likes of which haven’t been seen since the second world war, is likely to weigh on economic activity as of next year. Sterling’s past depreciation and the likelihood of continued accommodative monetary policy from the Bank of England will not compensate for fiscal austerity’s negative impact on growth. We expect GDP growth to slow from 1.5% this year to around 1% in 2011."
- China "China’s economic growth is showing signs of deceleration driven by domestic investment. It is projected to slow gradually in 2Q-4Q10, down from +12% year-on-year in 1Q10, and reach 10% for the whole of this year. In recent months, the authorities have implemented quantitative and administrative measures aimed at curbing mortgage and total lending growth and limiting investment projects of state enterprises and local governments. This has succeeded in bringing credit growth apparently under control and reducing state investment growth. Moreover, a correction seems to begin in the property market and inflation expectations are moderating. Moreover, on June 19th, China ended its currency peg to the USD and returned to a managed float exchange rate regime. Due to renewed uncertainties over global prospects and slowing domestic demand growth, the authorities are unlikely to let the yuan appreciate much or tighten further their economic policy stance in the very short term."
BNPParibas Economic Market Monitor July2010
- Japan "Growth slowed significantly in Q2 to 0.5%, as exports and consumption lost some of their dynamism. Monetary policy is expected to remain extremely loose, while fiscal policy could be progressively tightened. The economy is expected to grow by around 3.5% in 2010 and 2% in 2011. Deflation is expected to end in the second half of 2011."
- Eurozone "Driven by the ongoing rebound in the industrial sector, GDP growth probably increased in Q2 after rising only 0.2% q/q in Q1. However the pace of economic activity could slow thereafter as persistently tough labour market conditions and fiscal consolidation measures adopted by several countries put a significant strain on domestic demand. Exports will remain the main growth engine. With low inflationary pressures and a fragile recovery, the ECB will be in no hurry to raise the refi rate before 2012."
- Germany "Exports will continue to support growth over the next few quarters, as Germany benefits from the recovery of investment spending in China and the United States. The euro's depreciation againstthe dollar is also increasing the country's price-competitiveness. The strength of exports shouldtherefore partially compensate for weak domestic demand."
- France "Activity very probably rebounded in the spring despite the ongoing contraction in household spending, particularly car purchases. The spike in inflation is nearly at and end and the stabilisation in the unemployment rate since the beginning of the year suggests that the labour market continues to improve. However, domestic demand remains weak against a backdrop of growing concern as to the scale of the fiscal consolidation scheduled for next year. The Finance Act for 2011, currently being drafted, aims to reduce the fiscal deficit to 6% of GDP next year."
- Italy "The recovery from recession continues to be quite moderate and export-led for Italy. From Q3 2009 to Q1 2010 the GDP has regained just one tenth of the previous fall. The implementation of austerity measures – decided in the wake of the Greek debt crisis- will further stress the priority of sound stability versus quicker economic expansion."
- Spain "After growing slightly in the first half of 2010, GDP is expected to contract again in the second half under the impact of the Spanish government’s new austerity measures. These will probably further depress domestic demand, already dampened by the slow elimination of the main imbalances - high indebtedness among private economic agents, exorbitant size of the
construction sector and bursting of the property market bubble. Spain could therefore slip back
into recession. Against this backdrop, investors will be focusing their attention on public finances
and the situation in the banking sector."
- United Kingdom "The acceleration of GDP growth in the second quarter is likely to be short lived. The new Cameron government's programme to consolidate public finances, the likes of which haven’t been seen since the second world war, is likely to weigh on economic activity as of next year. Sterling’s past depreciation and the likelihood of continued accommodative monetary policy from the Bank of England will not compensate for fiscal austerity’s negative impact on growth. We expect GDP growth to slow from 1.5% this year to around 1% in 2011."
- China "China’s economic growth is showing signs of deceleration driven by domestic investment. It is projected to slow gradually in 2Q-4Q10, down from +12% year-on-year in 1Q10, and reach 10% for the whole of this year. In recent months, the authorities have implemented quantitative and administrative measures aimed at curbing mortgage and total lending growth and limiting investment projects of state enterprises and local governments. This has succeeded in bringing credit growth apparently under control and reducing state investment growth. Moreover, a correction seems to begin in the property market and inflation expectations are moderating. Moreover, on June 19th, China ended its currency peg to the USD and returned to a managed float exchange rate regime. Due to renewed uncertainties over global prospects and slowing domestic demand growth, the authorities are unlikely to let the yuan appreciate much or tighten further their economic policy stance in the very short term."
BNPParibas Economic Market Monitor July2010
The correlation between risks since 2009
- "Since 2009, there has been a correlation between four types of risks:
• sovereign risk;
• banking risk;
• corporate credit risk (default risk);
• currency risk."
- "The sovereign risk and the banking risk are correlated (in Europe and Japan) because of the massive holding of government securities by banks and the appearance of sovereign risk due to the fiscal deficits linked to the crisis."
- "The credit risk and the banking risk are normally correlated, because of the banks’ portfolios of corporate loans; the corporate credit risk and sovereign risk are correlated since, if there is a public debt crisis in a country, there is either a very rapid reduction in the fiscal deficit, or a default, and in both cases a fall in gross domestic product."
- "Lastly, the currency risk is correlated to other risks because of the dollar’s safe haven role: concern about European countries, banks and companies leads to an appreciation of the dollar. The "stress-test" has become global, since all risks unfold simultaneously."
Natixis Flash Economics 353 20100708
• sovereign risk;
• banking risk;
• corporate credit risk (default risk);
• currency risk."
- "The sovereign risk and the banking risk are correlated (in Europe and Japan) because of the massive holding of government securities by banks and the appearance of sovereign risk due to the fiscal deficits linked to the crisis."
- "The credit risk and the banking risk are normally correlated, because of the banks’ portfolios of corporate loans; the corporate credit risk and sovereign risk are correlated since, if there is a public debt crisis in a country, there is either a very rapid reduction in the fiscal deficit, or a default, and in both cases a fall in gross domestic product."
- "Lastly, the currency risk is correlated to other risks because of the dollar’s safe haven role: concern about European countries, banks and companies leads to an appreciation of the dollar. The "stress-test" has become global, since all risks unfold simultaneously."
Natixis Flash Economics 353 20100708
Comparisons with Japan, US, Hong Kong and Singapore housing markets for China
• China housing sector development compared with Japan, US, Hong Kong and Singapore: "This report reviews the development of the housing sectors in Japan, US, Hong Kong and Singapore, focusing on the high-growth periods in those markets, in order to make comparisons with China's rapidly growing housing market. We also review housing finance systems and the nature of housing sector leverage during periods of rapid growth, and analyze the impact of specific policy measures on the development of the housing sectors in each country."
• China’s housing sector faces short-term cyclical challenges but longterm outlook is robust: "China’s housing sector exhibits the pronounced cyclicality of a high-growth emerging market. Since 1998, housing values have risen almost 400x and the housing loan market has expanded 125x to become the second-largest home loan market in Asia- Pacific (after Japan)."
• Policy risks appear adequately priced in China developer share prices, but timing of re-entry depends on sales momentum: "The lessons drawn from a review of the other comparative markets show that policy failures/mistakes can accentuate the cyclicality of this sector. We believe the China homebuilders already price in a substantial policy risk premium, but will consider a concerted re-entry into the China homebuilders when contract sales momentum begins to re-accelerate (toward the end of 2010 based on our expectations)."
JPMorgan Asian Property Yardstick 20100714
• China’s housing sector faces short-term cyclical challenges but longterm outlook is robust: "China’s housing sector exhibits the pronounced cyclicality of a high-growth emerging market. Since 1998, housing values have risen almost 400x and the housing loan market has expanded 125x to become the second-largest home loan market in Asia- Pacific (after Japan)."
• Policy risks appear adequately priced in China developer share prices, but timing of re-entry depends on sales momentum: "The lessons drawn from a review of the other comparative markets show that policy failures/mistakes can accentuate the cyclicality of this sector. We believe the China homebuilders already price in a substantial policy risk premium, but will consider a concerted re-entry into the China homebuilders when contract sales momentum begins to re-accelerate (toward the end of 2010 based on our expectations)."
JPMorgan Asian Property Yardstick 20100714
Recovery Is In The Details
- "A light data week provided a much needed respite from the overspinning of disappointing numbers in recent weeks. Recovery appears poised to slow but not falter. The latest business surveys, jobless claims and anecdotal consumer reports suggest moderate growth will continue, while the headlong retreat in risk appetite has paused."
- "Despite an uninspired jobs recovery, a decomposition of employment data shows some encouraging signs. In particular, some structurally damaged sectors may be stabilizing. Nonetheless, the wide disparity between rising profits and capex on one side and lackluster hiring on the other reinforces concern that policy-related uncertainty is delaying a healthier upturn in employment."
- "Headline weakness in retail sales belies relative strength in more comprehensive data on consumer spending. Discretionary consumer outlays continued to ramp up through May. Again in June, the dampening effects of lower gasoline prices and a continuing correction in building materials sales may mask expected gains in areas more directly linked to consumer spending. We expect a rise in core sales of 0.3% for June consistent with roughly 3% growth in real consumer outlays for the second quarter."
Citigroup Comments on Credit 20100709
- "Despite an uninspired jobs recovery, a decomposition of employment data shows some encouraging signs. In particular, some structurally damaged sectors may be stabilizing. Nonetheless, the wide disparity between rising profits and capex on one side and lackluster hiring on the other reinforces concern that policy-related uncertainty is delaying a healthier upturn in employment."
- "Headline weakness in retail sales belies relative strength in more comprehensive data on consumer spending. Discretionary consumer outlays continued to ramp up through May. Again in June, the dampening effects of lower gasoline prices and a continuing correction in building materials sales may mask expected gains in areas more directly linked to consumer spending. We expect a rise in core sales of 0.3% for June consistent with roughly 3% growth in real consumer outlays for the second quarter."
Citigroup Comments on Credit 20100709
Prepare for a period of value outperformance when stocks rally
- "Cheap valuations and washed out sentiment suggest a favourable risk-reward for European equities, as long as the global economy is not double-dipping. Our Combined Market Timing Indicator (CMTI) recently reached a buy signal of -0.5 for the first time since April 09. Following a CMTI reading of below -0.5, MSCI Europe has been up on average 9.2% over the subsequent 6 months, with equities up 85% of the time. At the same time sentiment is cautious with the AAII survey reaching its lowest level since March 2009 and 9 consecutive weeks of outflows from mutual funds. MSCI Europe trades on 10.3x 12 month forward earnings compared to a historical average of 14x since 1987. Given the structural headwinds to growth in this cycle 14x PE seems too high to us, however a return to historic averages of 11-12x in the 1970s-1980s would still suggest a further 10-20% upside from today’s levels."
- "Growth and quality factors have trounced value factors since September. From the March 09 lows through to September 09, cheap stocks outperformed expensive stocks by over 30%. In September we noted that the market was not providing sufficient reward to growth and quality factors. Our reliable growth basket traded at record low valuations to the market (see ‘Reliable Growth has never been cheaper’, 14th September 2009) and valuation dispersion became extremely narrow – all of which suggested a need to focus more on growth and quality in addition to valuation. However, since September there has been a significant style rotation away from value and towards growth strategies. High growth stocks have outperformed low growth stocks by over 8% since September, while value stocks have underperformed by 12%. 27 of the top 40 stock picking strategies since September have been related to either growth or quality. This style rotation has become even more pronounced since the market peaked in April as the market has become even more focussed on concerns over global growth."
- "Reliable growth stocks should be long-term winners, but given strong outperformance we would prefer the cheaper end of the reliable growth universe in the next 3-6M. Our reliable growth basket has outperformed steadily over the last nine months and no longer trades at a discount to the market. Structurally these stocks should be long-term outperformers against a backdrop of anaemic GDP in the West. However, given we believe stocks are more likely to go up than down by year end, we would look to rotate toward the cheaper constituents (see ‘Updating our thoughts on reliable growth’, 5th July 2010 for more details)."
- "We would also rotate back into some value screens given the potential for a strong rally in the next 6M. MSCI Europe Growth now trades at an above average premium to MSCI Europe Value. The outperformance of the MSCI Europe Growth index vs the equivalent Value index over the last nine months is high by historic standards – in fact the only occasion where such outperformance was significantly higher than now was 1999/2000. Valuation dispersion has also widened by 1 standard deviation in the last few months. We believe that as and when equities move higher, the market’s focus on quality and defensive growth will become less binary. As such we feel that it is an appropriate moment to screen for stocks that are either oversold or offer exceptional value."
Morgan Stanley European Strategy 20100712
- "Growth and quality factors have trounced value factors since September. From the March 09 lows through to September 09, cheap stocks outperformed expensive stocks by over 30%. In September we noted that the market was not providing sufficient reward to growth and quality factors. Our reliable growth basket traded at record low valuations to the market (see ‘Reliable Growth has never been cheaper’, 14th September 2009) and valuation dispersion became extremely narrow – all of which suggested a need to focus more on growth and quality in addition to valuation. However, since September there has been a significant style rotation away from value and towards growth strategies. High growth stocks have outperformed low growth stocks by over 8% since September, while value stocks have underperformed by 12%. 27 of the top 40 stock picking strategies since September have been related to either growth or quality. This style rotation has become even more pronounced since the market peaked in April as the market has become even more focussed on concerns over global growth."
- "Reliable growth stocks should be long-term winners, but given strong outperformance we would prefer the cheaper end of the reliable growth universe in the next 3-6M. Our reliable growth basket has outperformed steadily over the last nine months and no longer trades at a discount to the market. Structurally these stocks should be long-term outperformers against a backdrop of anaemic GDP in the West. However, given we believe stocks are more likely to go up than down by year end, we would look to rotate toward the cheaper constituents (see ‘Updating our thoughts on reliable growth’, 5th July 2010 for more details)."
- "We would also rotate back into some value screens given the potential for a strong rally in the next 6M. MSCI Europe Growth now trades at an above average premium to MSCI Europe Value. The outperformance of the MSCI Europe Growth index vs the equivalent Value index over the last nine months is high by historic standards – in fact the only occasion where such outperformance was significantly higher than now was 1999/2000. Valuation dispersion has also widened by 1 standard deviation in the last few months. We believe that as and when equities move higher, the market’s focus on quality and defensive growth will become less binary. As such we feel that it is an appropriate moment to screen for stocks that are either oversold or offer exceptional value."
Morgan Stanley European Strategy 20100712
Risks to the global economy leave investors cautious
- "In the past month, financial markets have been hit with a bad case of the jitters on worries that the global economy will not be able to withstand the implementation of fiscal austerity measures in Europe and slowing growth in some emerging economies. Central bankers too have assumed a more cautious tone with both the U.S. Federal Reserve Board and the Bank of Canada pointing to risks to the outlook coming from developments abroad. While we have not changed our baseline forecasts for U.S. and Canadian growth or inflation, recent events suggest that downside risks to the growth outlook have risen leading us to revise the timing and magnitude of tightening in some countries."
RBC Financial Markets Monthly July2010
RBC Financial Markets Monthly July2010
Beware of the 'Great Correlation'
- "Throughout the crisis, there has been an increasing level of market correlation, in particular in times of panic. This tail dependency can be found on the level of different asset classes (stocks vs. credits vs. rates vs. exchange rates) but also on the level of individual assets. The central message can summarized in the following way: If everything is going down the drain, really everything is going down the drain. In this publication we focus on the elevated correlation in current markets and its potential implications. Moreover, we describe a simple model that allows to quantify the "average" correlation within a portfolio."
■ Macro Outlook: "A double-dip recession scenario is not our core view, but the latest
battery of early indicators revealed an astonishing congruency in the slowdown of the headline readings across economies."
■ Micro Fundamentals: "As the global growth momentum has peaked, we are likely to
observe higher variability in sector earnings and greater dispersion in sector spreads in the near future."
■ Debt-Equity-Linkage: "Given a significant rise in risk aversion, the level of correlation
among equities also jumped to new highs. The "average" correlation of single stocks within the EuroStoxx 50 index increased above post-Lehman levels recently."
■ Credit Quality Trend: "The subdued growth outlook brings about great uncertainty
regarding future default rates, due to the correlation between default and economic cycles."
■ Market Technicals: "While fundamentals are key in the long run, new bond supply and liquidity are a major driving force for credit markets in the short to medium term."
■ Valuation & Timing: "On a tactical time horizon, the next big topic is the 2Q10 earnings release season, which will keep investors busy over the next few weeks. While for nonfinancials, earnings will probably be in line with OK-ish expectations, earnings data for European financials will meet more scrutiny from investors."
■ Other Credit Markets: "Credit Derivatives: The relationship between credit spreads and the exchange rate has an impact on the pricing of credit risk in different currencies.
Securitization: in the wake of the sovereign debt crisis, ABS issuance has become scarce again due to high spread volatility. EEMEA Credits: Uncertainty about the outcome of the euro zone debt crisis led to a re-coupling of EEMEA corporates with global credits."
■ Allocation: "We reduce our sector recommendation for Basic Resources to MW from OW. With this step, we continue with our de-risking strategy that we announced last month: we missed an opportunity to reduce exposure to this more cyclical sector, however, we were reluctant to act in the middle of a panic. All other recommendations were kept unchanged."
■ Model Portfolio: "Our financials portfolio underperformed the benchmark by -64bp, while the non-financials portfolio outperformed by 11bp due to the recovery in cyclicals."
Unicredit Euro Credit Pilot July2010
■ Macro Outlook: "A double-dip recession scenario is not our core view, but the latest
battery of early indicators revealed an astonishing congruency in the slowdown of the headline readings across economies."
■ Micro Fundamentals: "As the global growth momentum has peaked, we are likely to
observe higher variability in sector earnings and greater dispersion in sector spreads in the near future."
■ Debt-Equity-Linkage: "Given a significant rise in risk aversion, the level of correlation
among equities also jumped to new highs. The "average" correlation of single stocks within the EuroStoxx 50 index increased above post-Lehman levels recently."
■ Credit Quality Trend: "The subdued growth outlook brings about great uncertainty
regarding future default rates, due to the correlation between default and economic cycles."
■ Market Technicals: "While fundamentals are key in the long run, new bond supply and liquidity are a major driving force for credit markets in the short to medium term."
■ Valuation & Timing: "On a tactical time horizon, the next big topic is the 2Q10 earnings release season, which will keep investors busy over the next few weeks. While for nonfinancials, earnings will probably be in line with OK-ish expectations, earnings data for European financials will meet more scrutiny from investors."
■ Other Credit Markets: "Credit Derivatives: The relationship between credit spreads and the exchange rate has an impact on the pricing of credit risk in different currencies.
Securitization: in the wake of the sovereign debt crisis, ABS issuance has become scarce again due to high spread volatility. EEMEA Credits: Uncertainty about the outcome of the euro zone debt crisis led to a re-coupling of EEMEA corporates with global credits."
■ Allocation: "We reduce our sector recommendation for Basic Resources to MW from OW. With this step, we continue with our de-risking strategy that we announced last month: we missed an opportunity to reduce exposure to this more cyclical sector, however, we were reluctant to act in the middle of a panic. All other recommendations were kept unchanged."
■ Model Portfolio: "Our financials portfolio underperformed the benchmark by -64bp, while the non-financials portfolio outperformed by 11bp due to the recovery in cyclicals."
Unicredit Euro Credit Pilot July2010
Will central banks be able to use Taylor Rules again?
- "When the economic situation is normal, central banks use interest rate rules similar to Taylor Rules (the central bank’s intervention rate depends on inflation and the capacity utilisation rate). However, when the economy is depressed and inflation is low, Taylor Rules can no longer be used since they would lead to negative nominal short-term interest rates. Central banks then have to implement unconventional policies: purchases of bonds in order to drive down long-term interest rates, Quantitative Easing (monetary base target), changeover to an exchange rate target, an objective of liquidity in financial markets — all these policies have been used since 2008."
- "We wonder whether economic conditions will enable, in the future, renewed utilisation
of Taylor Rules, or whether central banks will have to continue using unconventional
policies. If we forecast key intervention rates of central banks by drawing on econometrically
estimated Taylor Rules, we find that only the United States should currently maintain
unconventional policies (until mid-2011)."
- "The euro zone and the United Kingdom ought to renew with conventional policies in 2010. However, this approach does not take into account further developments of the crisis (banking risk, sovereign debt crisis) which would force central banks to continue conducting unconventional policies even though the Taylor Rule would lead to a positive interest rate."
Natixis Flash Economics 352 20100706
- "We wonder whether economic conditions will enable, in the future, renewed utilisation
of Taylor Rules, or whether central banks will have to continue using unconventional
policies. If we forecast key intervention rates of central banks by drawing on econometrically
estimated Taylor Rules, we find that only the United States should currently maintain
unconventional policies (until mid-2011)."
- "The euro zone and the United Kingdom ought to renew with conventional policies in 2010. However, this approach does not take into account further developments of the crisis (banking risk, sovereign debt crisis) which would force central banks to continue conducting unconventional policies even though the Taylor Rule would lead to a positive interest rate."
Natixis Flash Economics 352 20100706
Market Slip Worse Than the Dip
- Risk aversion migrates to overstated double-dip concerns — "sovereign sensitivity has diminished, but the ongoing downward revision to growth expectations is weighing on markets. The negative momentum probably isn’t over, but the full double-dip being discounted by an increasing part of the market isn’t reflected in the forward-looking data."
- Expect mixed messages in 2Q earnings — "strong activity data in 2Q should sustain momentum in non-financial earnings growth, but outlook statements are likely to reflect weaker economic sentiment. Bank earnings will be dented by difficult market conditions, which may cause some negative surprises, but on the whole we believe the downside is priced in."
- European banks – "stressed to impress? The stress tests will probably find individual weaknesses, but systemic solidity. With parameters likely to generate a manageable result, we think the ‘feel-good factor’ in the market will prove relatively short-lived."
- Maintaining a long bias in credit — "the resilience of credit spreads over the last
month suggests positioning is now much more balanced. Against attractive valuations and our impression that cash holdings have been built up, we continue to believe that credit spreads can perform – or at least hold their ground – despite the challenging backdrop."
- Keeping beta, but staying short peripherals — "we have made few changes to the portfolio this month. So we maintain beta exposure in banks and global cyclicals, but we stay short credit linked to periphery sovereigns."
Citigroup Credit Outlook 20100712
- Expect mixed messages in 2Q earnings — "strong activity data in 2Q should sustain momentum in non-financial earnings growth, but outlook statements are likely to reflect weaker economic sentiment. Bank earnings will be dented by difficult market conditions, which may cause some negative surprises, but on the whole we believe the downside is priced in."
- European banks – "stressed to impress? The stress tests will probably find individual weaknesses, but systemic solidity. With parameters likely to generate a manageable result, we think the ‘feel-good factor’ in the market will prove relatively short-lived."
- Maintaining a long bias in credit — "the resilience of credit spreads over the last
month suggests positioning is now much more balanced. Against attractive valuations and our impression that cash holdings have been built up, we continue to believe that credit spreads can perform – or at least hold their ground – despite the challenging backdrop."
- Keeping beta, but staying short peripherals — "we have made few changes to the portfolio this month. So we maintain beta exposure in banks and global cyclicals, but we stay short credit linked to periphery sovereigns."
Citigroup Credit Outlook 20100712
Sheer Lunacy staring at the Heavens
- "This paper presents a study of correlations between the moon phases and behaviour of financial markets, and suggests a medium-to-long term trading strategy, which can significantly increase profits. It also takes a quick look at planetary alignments and what could be significant in terms of timing for the coming weeks (really bad for stocks)."
- "For many years, people have been monitoring relations between natural phenomena and industrial performances or markets behaviour in order to be able to estimate future performance and adapt to changes to either maximise the profits or minimise losses. In many cultures, it is well accepted that moon phases could influence peoples’ behaviour, (90 countries in the world today use the Lunar calendar as the basis for time measurement), whereas scientists established its relation to rising and low tides. New moon traditionally symbolise the period of low energy, or energy accumulation period, whereas the time of full moon is the period of high energy or spending period. The question arises of whether this observation could be extended to markets behaviour."
RBS Equity Special 20100707
- "For many years, people have been monitoring relations between natural phenomena and industrial performances or markets behaviour in order to be able to estimate future performance and adapt to changes to either maximise the profits or minimise losses. In many cultures, it is well accepted that moon phases could influence peoples’ behaviour, (90 countries in the world today use the Lunar calendar as the basis for time measurement), whereas scientists established its relation to rising and low tides. New moon traditionally symbolise the period of low energy, or energy accumulation period, whereas the time of full moon is the period of high energy or spending period. The question arises of whether this observation could be extended to markets behaviour."
RBS Equity Special 20100707
Asia: votes of confidence
- "After a brief pause in June, Asia’s central banks are tightening again"
- "In the past two weeks, Taiwan, India, Malaysia and Korea have all hiked interest rates"
- "This is bread-and-butter economics. GDP in Asia is far above precrisis levels; inflation is nearly back to average. Interest rates must return to normal too, and they are"
- "The rate hikes are a loud vote of confidence from Asia’s central banks that growth will continue, despite weakness in Europe (and more generally, the G3)"
- "The world has not decoupled. The G3 matters, but Asia matters more"
DBS Economics 20100709
- "In the past two weeks, Taiwan, India, Malaysia and Korea have all hiked interest rates"
- "This is bread-and-butter economics. GDP in Asia is far above precrisis levels; inflation is nearly back to average. Interest rates must return to normal too, and they are"
- "The rate hikes are a loud vote of confidence from Asia’s central banks that growth will continue, despite weakness in Europe (and more generally, the G3)"
- "The world has not decoupled. The G3 matters, but Asia matters more"
DBS Economics 20100709
What will happen if growth in the euro zone remains persistently weak?
- Possibly, because of short-term reasons (increase in savings, slowdown in wages, rapid reduction of fiscal deficits) as well as long-term ones (low level of productivity gains, population ageing) growth in the euro zone will remain durably far weaker than in the rest of the world.
- One would then have:
• persistently lower interest rates and return on equity in the euro zone, as well as smaller capital outflows, and a depreciation of the euro;
• accelerated de-industrialisation in the euro zone, because companies will focus on markets enjoying more rapid growth, low levels of investment, and this will lead to self-perpetuating weak growth and hamper deleveraging;
• increasingly pronounced internationalisation of European companies;
• Central European countries pursuing a different strategy from economic and financial integration with Western Europe.
Natixis Flash Economics 351 20100706
- One would then have:
• persistently lower interest rates and return on equity in the euro zone, as well as smaller capital outflows, and a depreciation of the euro;
• accelerated de-industrialisation in the euro zone, because companies will focus on markets enjoying more rapid growth, low levels of investment, and this will lead to self-perpetuating weak growth and hamper deleveraging;
• increasingly pronounced internationalisation of European companies;
• Central European countries pursuing a different strategy from economic and financial integration with Western Europe.
Natixis Flash Economics 351 20100706
Russia: to build confidence
- "Of all the BRIC countries, Russia suffered most in the global recession and it seems to be seeing the slowest recovery. GDP fell by 7.9% in 2009, compared with a fall of 0.2% for Brazil and growth of 6.7% in India and 8.7% in China. In the first quarter of 2010, Russia’s GDP grew by 3% year-on-year, compared with charts of 9% in Brazil, 8.6% in India and 11.9% in China. Comparing Russia with other major oil producers in the Middle East and Africa leads to a similar conclusion."
- "This article seeks to identify the reason of this poor performance, particularly during the recovery phase. Recovery in domestic demand and a return to more ‘normal’ internal liquidity conditions both seem to be lagging relative to the improvement in the oil market and the recovery of the global economy. The crisis of confidence, with a lasting effect on consumers and businesses, appears to be playing a key role in this underperformance."
- "The first two sections of this article describe the trend in the real economy since 2008 and the effects of the financial crisis. The third section looks at the effects and limits of the fiscal stimulus policy, whilst the fourth examines monetary policy."
BNPParibas_Conjoncture_20100702
- "This article seeks to identify the reason of this poor performance, particularly during the recovery phase. Recovery in domestic demand and a return to more ‘normal’ internal liquidity conditions both seem to be lagging relative to the improvement in the oil market and the recovery of the global economy. The crisis of confidence, with a lasting effect on consumers and businesses, appears to be playing a key role in this underperformance."
- "The first two sections of this article describe the trend in the real economy since 2008 and the effects of the financial crisis. The third section looks at the effects and limits of the fiscal stimulus policy, whilst the fourth examines monetary policy."
BNPParibas_Conjoncture_20100702
Readings
Is something really scary coming in October? - FT Alphaville
The banking ‘miracle’ debunked - FT Alphaville
New thinking on executive compensation: Pay CEOs with debt - VoxEU
Commercial Real Estate Deleveraging Update July 2010 - Financial News Express
The accidental CMBS recovery - Fortune
Should You Be Worried About Inflation? What About Deflation? - CBS Money Watch
The capital tsunami is a bigger threat than the nuclear option - China Financial Markets
G20’s “Violent Agreement” on Austerity Will Smash Global Economy - New Deal 2.0
Nobody understands the liquidity trap (wonkish) - Paul Krugman
Can infrastructure-led growth save the economy? - Salon
Rising imports offset U.S. sales abroad - Washington Post
The banking ‘miracle’ debunked - FT Alphaville
New thinking on executive compensation: Pay CEOs with debt - VoxEU
Commercial Real Estate Deleveraging Update July 2010 - Financial News Express
The accidental CMBS recovery - Fortune
Should You Be Worried About Inflation? What About Deflation? - CBS Money Watch
The capital tsunami is a bigger threat than the nuclear option - China Financial Markets
G20’s “Violent Agreement” on Austerity Will Smash Global Economy - New Deal 2.0
Nobody understands the liquidity trap (wonkish) - Paul Krugman
Can infrastructure-led growth save the economy? - Salon
Rising imports offset U.S. sales abroad - Washington Post
The road to normalisation?
- "Risk appetite has stabilised and EGB peripheries have performed. The front end of Europe remains under pressure as Euro money market conditions continue to normalise. While confidence remains fragile, we have taken the first steps towards near-term stabilisation."
Barclays Global Rates Weekly 20100709
Barclays Global Rates Weekly 20100709
Japan: Impact of Upper House election, Part 1
- Major defeat for DPJ — "The ruling coalition must be reshuffled for the DPJ to retain control of the Diet. The DPJ, People's New Party, and independents affiliated with the ruling coalition now have 110 seats after Sunday's Upper House election, short of the 122 seats required for a majority. The Kan cabinet's approval rating has fallen sharply in the month since Kan became PM."
- Focus turns to September 20 DPJ leadership election — "When the ruling party
has lost an Upper House election in the past, the PM has resigned immediately or soon after. Sosuke Uno and Ryutaro Hashimoto resigned immediately, and Tomoiichi Murayama and Shinzo Abe resigned within a year."
- Consumption tax hike looks unlikely — "If political leadership weakens, it will be
difficult to implement large-scale tax reform. Hiking the consumption tax requires strong leadership, so it is unlikely to happen for now. We do not expect an increase until 2014 at the earliest."
- Major corporate tax cut also unlikely — "The DPJ had hoped to fund this by scaling back special taxation measures. Those affected are strongly opposed to the ¥5.9trn (net) reduction in tax cuts (the naphtha exemption alone is worth ¥3.6trn). However, a small-scale reduction seems possible."
- Deregulation, selling off government assets — "Regardless of what shape the next administration takes, given the enormous size of Japan's budget deficit we think it needs to 1) ease tourism and real estate regulations and 2) sell off government assets. Selling government assets and deregulating real estate would be positive for the real estate, transportation, construction, internet, and service sectors."
- Political realignment and share prices — "If the DPJ sacrifices the postal reform bill and ties up with Your Party (a strong advocate of small government), we think it would actually be good for stocks. We highlight Sumitomo Realty & Development, JR Central, Rakuten, Yahoo, ANA, and Oriental Land as stocks that could benefit."
Citigroup Corporate Securities Strategy 20100713
- Focus turns to September 20 DPJ leadership election — "When the ruling party
has lost an Upper House election in the past, the PM has resigned immediately or soon after. Sosuke Uno and Ryutaro Hashimoto resigned immediately, and Tomoiichi Murayama and Shinzo Abe resigned within a year."
- Consumption tax hike looks unlikely — "If political leadership weakens, it will be
difficult to implement large-scale tax reform. Hiking the consumption tax requires strong leadership, so it is unlikely to happen for now. We do not expect an increase until 2014 at the earliest."
- Major corporate tax cut also unlikely — "The DPJ had hoped to fund this by scaling back special taxation measures. Those affected are strongly opposed to the ¥5.9trn (net) reduction in tax cuts (the naphtha exemption alone is worth ¥3.6trn). However, a small-scale reduction seems possible."
- Deregulation, selling off government assets — "Regardless of what shape the next administration takes, given the enormous size of Japan's budget deficit we think it needs to 1) ease tourism and real estate regulations and 2) sell off government assets. Selling government assets and deregulating real estate would be positive for the real estate, transportation, construction, internet, and service sectors."
- Political realignment and share prices — "If the DPJ sacrifices the postal reform bill and ties up with Your Party (a strong advocate of small government), we think it would actually be good for stocks. We highlight Sumitomo Realty & Development, JR Central, Rakuten, Yahoo, ANA, and Oriental Land as stocks that could benefit."
Citigroup Corporate Securities Strategy 20100713
The most worrying trend in the United States and the euro zone: The decline in the weight of industry
- "Many analyses focuses on the public finance situation, the unemployment level and the real estate market situation. But in our opinion, in the United States and the euro zone, the most significant and worrying trend is the decline in the weight of industry in the economy."
- "Now, this implies:
• a fall in average job skills and wages;
• a slowdown in productivity gains and long-term growth, hence, in addition, greater difficulty in reducing public and private debt ratios;
• greater balance of trade problems and greater dependence on emerging markets."
Natixis Flash Economics 350 20100706
- "Now, this implies:
• a fall in average job skills and wages;
• a slowdown in productivity gains and long-term growth, hence, in addition, greater difficulty in reducing public and private debt ratios;
• greater balance of trade problems and greater dependence on emerging markets."
Natixis Flash Economics 350 20100706
What happens if investors refuse to invest in asset markets in which liquidity can disappear and where there is excessive price volatility?
- "The financial crisis has definitely discouraged investors from allocating large portions of their portfolios to:
• financial asset markets in which liquidity can disappear;
• asset markets where equilibrium prices show excessive volatility."
- "Many investors have liquidity requirements and fair value accounting ("mark to market") penalises assets for which price volatility is excessive. The problem is that most financial assets come under these two categories: equities, credit, emerging-market assets, commodities, ABS, even covered bonds, public debts of small countries, and bank debt."
- "The only liquid assets left, with fairly stable prices, are US, French and German government debt, hence the relatively high price of these assets."
Natixis Flash Economics 349 20100706
• financial asset markets in which liquidity can disappear;
• asset markets where equilibrium prices show excessive volatility."
- "Many investors have liquidity requirements and fair value accounting ("mark to market") penalises assets for which price volatility is excessive. The problem is that most financial assets come under these two categories: equities, credit, emerging-market assets, commodities, ABS, even covered bonds, public debts of small countries, and bank debt."
- "The only liquid assets left, with fairly stable prices, are US, French and German government debt, hence the relatively high price of these assets."
Natixis Flash Economics 349 20100706
Happy birthday, global expansion
- "As manufacturing comes off the boil demand and labor indicators become the keys"
- "The European growth bounce has arrived but is likely to be short-lived"
- "Next week’s China releases likely to signal downshift toward 8% growth"
- "Headline inflation is dropping fast; will temper EM policy normalization"
JPMorgan Global Data Watch 20100709
- "The European growth bounce has arrived but is likely to be short-lived"
- "Next week’s China releases likely to signal downshift toward 8% growth"
- "Headline inflation is dropping fast; will temper EM policy normalization"
JPMorgan Global Data Watch 20100709
Debt brakes for Euroland
- "The economic crisis has weighed heavily on the budgets of euro-area countries. In the coming years new ways will have to be found to cut deficits and boost growth in order to achieve a long-term reduction in public debt."
- "Good budgeting rules manage the expectations of economic agents, ensure that fiscal policy outcomes are sustainable over the long term and thereby prove to be convincing measures for investors in the capital markets. There is a great deal of room for improvement for the Stability and Growth Pact (SGP) especially with regard to the fiscal policy outcomes and how they are perceived by the capital markets."
- "Euro-area countries have a wide range of national budget rules. Successful consolidation has been achieved in countries that posted high growth rates and whose deficits were cut by expenditure rules."
- "Germany’s debt brake is an intelligent and promising concept for achieving a long-term reduction in public debt. Its fiscal policy control mechanism addresses both the structural and the cyclical deficit components. Its fiscal targets are dynamic and are calculated on the basis of criteria laid down in the SGP. The debt brake could therefore easily be extended to other countries."
- "The debt brake represents Germany’s first step towards growth-oriented consolidation. Since Germany is seen as a benchmark by the capital markets, other euro-area countries could soon decide to take similar steps. The preventive arm of the stability pact would then be extended to the ―domain‖ of national policy."
- "The introduction of national debt brakes in the eurozone is technically straightforward, but politically complicated. Legally possible, but politically unrealistic is obligatory transposition in all euro-area states with a debt ratio exceeding 60% of GDP."
- "The outcome-oriented coordination of national fiscal policies via national debt brakes is effective and therefore desirable. With the medium-term objectives of the stability pact operating as fiscal guidelines they provide the eurozone countries with the commensurate scope to meet their budget goals using their own economic policy strategies."
DeutscheBank EU Monitor 20100712
- "Good budgeting rules manage the expectations of economic agents, ensure that fiscal policy outcomes are sustainable over the long term and thereby prove to be convincing measures for investors in the capital markets. There is a great deal of room for improvement for the Stability and Growth Pact (SGP) especially with regard to the fiscal policy outcomes and how they are perceived by the capital markets."
- "Euro-area countries have a wide range of national budget rules. Successful consolidation has been achieved in countries that posted high growth rates and whose deficits were cut by expenditure rules."
- "Germany’s debt brake is an intelligent and promising concept for achieving a long-term reduction in public debt. Its fiscal policy control mechanism addresses both the structural and the cyclical deficit components. Its fiscal targets are dynamic and are calculated on the basis of criteria laid down in the SGP. The debt brake could therefore easily be extended to other countries."
- "The debt brake represents Germany’s first step towards growth-oriented consolidation. Since Germany is seen as a benchmark by the capital markets, other euro-area countries could soon decide to take similar steps. The preventive arm of the stability pact would then be extended to the ―domain‖ of national policy."
- "The introduction of national debt brakes in the eurozone is technically straightforward, but politically complicated. Legally possible, but politically unrealistic is obligatory transposition in all euro-area states with a debt ratio exceeding 60% of GDP."
- "The outcome-oriented coordination of national fiscal policies via national debt brakes is effective and therefore desirable. With the medium-term objectives of the stability pact operating as fiscal guidelines they provide the eurozone countries with the commensurate scope to meet their budget goals using their own economic policy strategies."
DeutscheBank EU Monitor 20100712
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