Global outlook - lsta.lt konferencija/3_Danske... · 13 98 00 02 04 06 08 10 12 30 35 40 45 50 55...
33
Global outlook Lars Christensen Chief Analyst, Head of Emerging Markets Research +45 45 12 85 30 (direct) + 45 40 74 49 51 (mobile) [email protected] February 2012
Transcript of Global outlook - lsta.lt konferencija/3_Danske... · 13 98 00 02 04 06 08 10 12 30 35 40 45 50 55...
Global outlook
Lars Christensen Chief Analyst, Head of Emerging Markets Research +45 45 12 85 30 (direct) + 45 40 74 49 51 (mobile) [email protected] February 2012
Moderate global growth
- GDP estimates for 2012
2
US 2.5%
China 8.5%
Euro area 0.3%
Japan 2.5%
08 09 10 11 12 13
-12,5
-10,0
-7,5
-5,0
-2,5
0,0
2,5
5,0
-12,5
-10,0
-7,5
-5,0
-2,5
0,0
2,5
5,0% k/k ann. % k/k ann.
08 09 10 11 12 13
-20,0
-15,0
-10,0
-5,0
0,0
5,0
10,0
-20,0
-15,0
-10,0
-5,0
0,0
5,0
10,0% k/k ann.% k/k ann.
08 09 10 11 12 13
-6-5-4-3-2-101234
-6-5-4-3-2-101234
% k/k ann.% k/k ann.
08 09 10 11 12 13
2
4
6
8
10
12
14
16
2
4
6
8
10
12
14
16% k/k ann.% k/k ann.
Markets are pricing very negative scenario
3
94 96 98 00 02 04 06 08 10 12
5,0
10,0
15,0
20,0
25,0
30,0
5,0
10,0
15,0
20,0
25,0
30,0Eurostoxx 50 P/E ratio
S&P500, 12m forward P/E ratio
90 94 96 98 00 02 04 06 08 10 12
1
2
3
4
5
6
7
8
9
1
2
3
4
5
6
7
8
9Fair value model (based on infl. exp,ISM,
fed funds rate, credit spread and foreign
demand for treasuries)
%%
10yr US bond yield
01 02 03 04 05 06 07 08 09 10 11
5,0
10,0
15,0
20,0
25,0
30,0
35,0
40,0
5,0
10,0
15,0
20,0
25,0
30,0
35,0
40,0
Price earning - China
Hang Seng China Enterprise (Offshore)
Shanghai (onshore)
Price/earnings ratio
Global forecasts
- above consensus in all regions
4
% å/åD anske
B ank
C o nse
nsus OEC D IM F
D anske
B ank
C o nse
nsus OEC D IM F
USA 2.5 2.3 2.0 1.8 2.6 2.4 2.5 2.2
Euro 0.3 -0.4 0.2 -0.5 1.5 1.0 1.4 0.8
Japan 2.5 1.7 2.0 1.7 1.6 1.7 1.6 1.6
Kina 8.5 8.5 8.5 8.2 9.1 8.2 9.5 8.8
2012 2013
Euro area growth outlook A rising tide lifts all boats
Debt crisis still main theme
6
Source: Reuters Ecowin and Danske Markets Source: Reuters Ecowin and Danske Markets
3Y LTRO has given some relief
European debt crisis
jan11
mar maj jul sep nov jan12
4,5
5,0
5,5
6,0
6,5
7,0
7,5
4,5
5,0
5,5
6,0
6,5
7,0
7,5 %, 10-year yields
Spain
Italy
We have moved one step back from the edge… …but focus remain on Italy and Spain
ECB’s purchases restarted
05 06 07 08 09 10 11 12
0,51,01,52,02,53,03,54,04,55,05,5
0,51,01,52,02,53,03,54,04,55,05,5
% %
ECB refi rate
Euro 10-year gov yield
GDP weighted
Euro 2-year gov yield
GDP weighted (% Greece)
Sovereign debt crisis
7
Source: EU-Commission Source: Reuters Ecowin and Danske Markets
Problem in public finances is evident… …but was not that clear before financial crisis
Fiscal tightening
and low growth
00 01 02 03 04 05 06 07 08
-10,0
-7,5
-5,0
-2,5
0,0
2,5
5,0
7,5
10,0
-10,0
-7,5
-5,0
-2,5
0,0
2,5
5,0
7,5
10,0% of GDP% of GDP Gov. budget
Italy
Spain
Germany
NetherlandsPortugal
Belgium
Greece
Ireland
France
Finland
Ireland
Spain
Greece
Germany
France
UK
Belgium
Italy
US
Netherlands
Denmark
Finland
Portugal
-12
-10
-8
-6
-4
-2
00 25 50 75 100 125 150 175
De
fic
it%
of G
DP
(2
01
1)
Debt % of GDP (2011)
Crisis is here to stay – Key events in the coming months
1. Negotiations on Greek PSI deal and second rescue package.
2. Auctions in Italy and Spain.
3. Bank recapitalisation in Europe.
4. EU summit details.
5. EFSF role in secondary markets.
6. IMF role in debt crisis should be clarified.
7. General election in France.
8
... and medium term risk factors
8. Package for Greece not clear it is sustainable.
9. Spanish housing market and banking sector.
10. Fear of contagion – is Portugal next in line?
11. Increased fiscal integration –implementation risks and treaty changes.
9
Debt crisis scenarios
10
Euro breakdown 1. ECB bond purchases and 3 year LTROs
2. Closer fiscal integration – eurobonds
Main scenario Alternative scenarios
Five reasons why euro recession will be short
1. Fiscal headwind is significant – but is not getting stronger
2. US recovery normally leads the Euro area
3. Emerging Markets to drive stronger export growth
4. The recession is partly due to ”overproduction”
5. Financial headwinds expected to ease slightly during 2012
11
00 02 04 06 08 10 12
-3,0-2,5-2,0-1,5-1,0-0,50,00,51,01,5
15
25
35
45
55
65 Index % q/q
<< Composite PMI new orders
Euro area GDP >>
Euro area outlook 2012
#1: Fiscal headwind is significant – but is not getting stronger
Fiscal policy continues to be tightened in 2012…
... but contrary to popular belief the tightening is not getting stronger
If anything it is getting slightly smaller according to current plans
12
08 09 10 11 12 13
-3,0-2,5-2,0-1,5-1,0-0,50,00,51,01,52,02,53,0
-3,0-2,5-2,0-1,5-1,0-0,50,00,51,01,52,02,53,0
% of GDP % points<< Euro area, Change in
cyclically adj. primary balance
Effect on GDP growth >>
08 09 10 11 12 13
-3,0
-2,5
-2,0
-1,5
-1,0
-0,5
0,0
0,5
1,0
1,5
-3,0
-2,5
-2,0
-1,5
-1,0
-0,5
0,0
0,5
1,0
1,5% of GDP
% of GDP
Euro area, cyclically adjusted primary balance
2010 2011E 2012E
Spain -5,1 -2,3 -1,7
Italy 1,3 2,1 4,1
Greece -3,1 1,5 5,1
Portugal -6,2 -0,4 2,8
Ireland -26,2 -5,5 -3,7
France -3,4 -2,1 -1,2
Germany -1,0 1,1 1,6
C yclically-adjusted primary bal,
% o f GD P
Euro area outlook 2012
#2: US recovery normally leads the euro area
Global industrial cycle very synchronised due to globalisation
The turn in the US industrial cycle signal a turn in the global industrial cycle
Normal that US leads the euro area
We look for further rise in ISM towards 55-56 in coming months – Euro PMI likely to follow
13
98 00 02 04 06 08 10 12
30
35
40
45
50
55
60
65
70
15
25
35
45
55
65
75
85 Index Index
<< US ISM man, new orders
Euro PMI, total, new orders >>
Note: Vertical lines show bottom in ISM
Euro area outlook 2012
#3: Emerging Markets to drive stronger export growth
Chinese growth to recover in coming quarters
Euro PMI has had high correlation with China in recent years
Major headwind from food prices has turned into tailwind
Has two effects:
− Real income growth goes up
− Policy goes from tightening to easing
Same effect in most Emerging Markets
14
04 05 06 07 08 09 10 11 12
-10
-5
0
5
10
15
20
25
-90
-65
-40
-15
10
35
60
85 % 6m, AR% y/y
<< CRB food stuff index, 3 month lead
China food inflation >>
Euro area outlook 2012
06 07 08 09 10 11 12
-5,0-2,50,02,55,07,5
10,012,515,017,5
0
10
20
30
40
50
60
70
80
Forecast
<< Euro, comp. PMI, new orders
China GDP growth>>
% q/q ARIndex
Emerging Markets importance for the euro area has grown significantly over past 10 years
Asia now buys more than 20% of euro exports. CEE just below 20%
US only buys around 10%
Slowdown in Emerging Markets have been important factor in euro export slowdown
As Emerging Markets growth recover it will also lift euro area exports
15
00 02 04 06 08 10
10,0
12,5
15,0
17,5
20,0
22,5
25,0
10,0
12,5
15,0
17,5
20,0
22,5
25,0Export destination, % of total %
Asia
CEE
USA
%
#3: Emerging Markets to drive stronger export growth
07 08 09 10 11
-60
-40
-20
0
20
40
60
-60
-40
-20
0
20
40
606m chng, AR %
Asia
USA
CEEEuro exports
by destination
6m chng, AR %
Euro area outlook 2012
#4: The recession is partly due to inventory build-up
Euro area growth outperformed in H1 growing 1.9% vs 0.8% in US
Part of the production rise went to inventories as sales slowed
Current decline in production is partly adjustment to sales
But this will be a temporary effect
16
97 99 00 01 02 03 04 05 06 07 08 09 10 11
-3
-2
-1
0
1
2
3
4
25
3035
404550
55
606570
75
80Index Std. dev.
*Stocks of purchases index
<< EUR PMI, new orders
EUR PMI order-inventory* balance >>
97 99 00 01 02 03 04 05 06 07 08 09 10 11
35,0
37,5
40,0
42,5
45,0
47,5
50,0
52,5
55,0
35,0
37,5
40,0
42,5
45,0
47,5
50,0
52,5
55,0Index Index
Euro PMI man., stocks of purchases
Euro PMI man., stocks of finished goods
06 07 08 09 10 11
73
83
93
103
113
123
133
85
90
95
100
105
110
115
1202005=100
<< German industrial production
German factory orders >>
Euro area outlook 2012
#5: Financial headwind to ease slightly during 2012
Financial headwind substantial in 2011
Bond yields higher, equities lower, credit standards tighter
Credit tightening intensify in short term but expected to decline again in H2 2012
36-mont LTRO will give significant help to the banks – very cheap funding
17
jan10
maj sep jan11
maj sep jan12
maj sep
40
50
60
70
80
90
100
110
40
50
60
70
80
90
100
110Euro stoxx 50
Eurostoxx financials
Jan-10 = 100
03 04 05 06 07 08 09 10 11 12
-20
-10
0
10
20
30
40
50
60
70
-20
-10
0
10
20
30
40
50
60
70
Consumers
Net bal
Easing
Enterprises
Net bal
Tightening
Housing
Euro area outlook 2012
jan10
apr jul okt jan11
apr jul okt jan12
0
1
2
3
4
5
6
7
8
9
0
1
2
3
4
5
6
7
8
9%, 2 year government bonds %
ECB refi rate
Euro area
GDP weighted
Euro area
(ex. Greece)
Germany
Euro AAA
Summary: Euro area growth to surprise vs market pessimism
Euro area in recession in coming quarters
Pace of decline to taper off now -> PMI is going to rise
Growth to recover slowly from Q2 to 1½% by end-2012
Five reasons:
− US recovery leads euro
− China recovers in early 2012
− Inventory adjustment temporary drag
− Fiscal headwind not getting stronger
− Financial headwinds to ease slightly
Downside risk: worsening of euro debt crisis
18
Euro area outlook 2012
00 02 04 06 08 10 12
-3,0-2,5-2,0-1,5-1,0-0,50,00,51,01,5
15
25
35
45
55
65 Index % q/q
<< Composite PMI new orders
Euro area GDP >>
US Outlook
Growth at 2.8% in Q4
- Expected to continue at 2½% in 2012
20
Note: Grey bar show US recession
03 04 05 06 07 08 09 10 11 12
-8
-6
-4
-2
0
2
4
6
30
35
40
45
50
55
60
65 Index 2Q chng, %, AR
US GDP >>
<< ISM manufacturing index
US recovery takes hold
GDP outlook (consensus in paranthesis)
2011: 1.8% (1.8)
2012: 2.5% (2.1)
2013: 2.6% (2.5%)
ISM to stay around 55 as growth hums along
00 01 02 03 04 05 06 07 08 09 10 11
-60
-35
-10
15
40
65
90
11530
35
40
45
50
55
60
65Index
'000 persons
Jobless claims, 6mth chng,
lag 1m, smoothed >>
<< ISM manufacturing
Claims support stronger ISM
Why recovery? Headwinds turning to tailwinds
21
00 02 04 06 08 10
-4
-3
-2
-1
0
1
2
3
4
-4
-3
-2
-1
0
1
2
3
4US inventories,
contr. to GDP growth, q/q AR
#3: Inventory contribution to turn positive
02 03 04 05 06 07 08 09 10 11
100
150
200
250
300
350
400
450
100
150
200
250
300
350
400
450USD per barrel USD per gallon
US gasoline price
07 08 09 10 11
9
10
11
12
13
14
15
16
17
9
10
11
12
13
14
15
16
17Mn, AR
US car sales
Mn, AR
#1: Headwind from gasoline faded
#2: Car sales higher post Japanese earthquake
US recovery takes hold
Chinese Outlook
Source: Reuters Ecowin and Danske Markets
China
PMI stabilisation signal worst maybe over
07 08 09 10 11 12
2
4
6
8
10
12
14
16
40
45
50
55
60
65 % q/q AR
% q/q AR
<< NBS Manufacturing PMI, nsa
GDP growth>>
<< HSBC Manufacturing PMIDiffusion
Source: China’s National Bureau of Statistics and Danske Markets
Room to ease monetary policy
Inflation poised to drop sharply
Credit/money supply growth below target
Inflation is poised to drop sharply
− Around 3½% in mid-2012
− Inflation target for 2012 expected to be 4%
Credit/money supply growth is already
substantially below target
− M2 target has become more important for PBoC
− M2 target for 2012 is expected to remain 16%
− Credit growth will be allowed to pick up
Source: China’s National Bureau of Statistics,
06 07 08 09 10 11 12
-2
0
2
4
6
8
10
-2
0
2
4
6
8
10
Non-Food
% y/y
Forecast
% y/yContribution to inflation
Food
Target for 2011
05 06 07 08 09 10 11
5
10
15
20
25
30
35
40
5
10
15
20
25
30
35
40 %M2 money supply
3m/3m AR
y/y
%
Source: China’s National Bureau of Statistics and Danske Markets
What are China’s options?
Improve liquidity in the interbank
market through open market
operations
Cut the reserve requirement for
commercial banks
Ease credit quota’s for commercial
banks
Cut leading interest rates
Ease fiscal policy
− Construction of social housing could be accelerated
Source: China’s National Bureau of Statistics,
05 06 07 08 09 10 11 12
6
8
10
12
14
16
18
20
22
6
8
10
12
14
16
18
20
22 %
Major banks
Reserve Requirement Ratio %
Small banks
08 09 10 11 120
1
2
3
4
5
6
7
0
1
2
3
4
5
6
7
1-year treasury bill
% %Money market interest rate
3M Shibor
1-year benchmark deposit
26
We still expect 2012 to be a year of recovery for China
Inflation poised to decline substantially and will not be a major constraint on policy
Recovery will be supported by both monetary and fiscal easing
However, policy response will be cautious and depend on how the economy performs
in the coming months
Lower inflation supports private consumption
Gradual improvement in exports
However, only modest recovery in Q1 12 and there will be downside risk
Adjustment in property market will continue to weigh in the short run
Import of commodities could suffer in the short run
Appreciation of CNY to continue albeit the pace is poised to slow
Summary China
US consumer underpinned by stronger employment and
lower inflation
27
US recovery takes hold
85 90 95 00 05 10
-5
-3
-1
1
3
5
7
-5
-3
-1
1
3
5
7% q/q2, AR
Private consumption
Private consumption model
(Real income proxy, Housing wealth)
% q/q2, AR
92 94 96 98 00 02 04 06 08 10 12
4
6
8
10
12
14USD trn USD trn
US housing net wealth
00 02 04 06 08 10 12
-10,0
-7,5
-5,0
-2,5
0,0
2,5
5,0
7,5
-10,0
-7,5
-5,0
-2,5
0,0
2,5
5,0
7,5q/q, AR
CPI, q/q AR
q/q, AR
00 02 04 06 08 10 12
-7,5
-5,0
-2,5
0,0
2,5
5,0
7,5
10,0
-7,5
-5,0
-2,5
0,0
2,5
5,0
7,5
10,0q/q, AR
US payrolls income proxy
q/q, AR
Big currency misalignments in the Euro zone
28
Over/Under valuation to euro
based on unit labour cost since 1999
-15
-10
-5
0
5
10
15
GER AUS FIN BEL FRA HOL IRE ESP ITA POR DEN GRC
Over/Under valuation to euro
based on HICP since 1999
-10
-5
0
5
10
15
20
GER FRA AUS FIN DEN BEL HOL ITA IRE POR ESP GRC
Winners and losers in an EMU break-up
Most overvalued EMU currencies by PPP: GRD, LUF, ESP and PTE
Most undervalued EMU currencies by PPP: DEM, FRF, FIM and ATS
Germany, Netherlands, France and Finland appear strongest on most measures – though France is running a
current account deficit
Greece, Portugal, Spain, Ireland and the Slovak Republic is expected to see the biggest depreciation of their
currency in a total EMU break-up scenario
Austria Belgium Cyprus Estonia Finland France Germany Greece Ireland Italy Luxembourg Malta Netherlands Portugal Slovak Rep Slovenia Spain
REER Over/undervaluation (1994-) -1.4% 1.1% n/a 16.9% -3.9% -3.9% -6.0% 7.1% 2.5% 0.9% n/a n/a -1.4% 2.2% 33.1% 2.8% 4.3%
Z-score 0.5 0.3 -1.3 0.8 0.8 1.0 -0.3 0.1 0.3 0.5 0.2 -2.9 0.1 0.0
CPI Cummulated dev since entry -2% 2% 4% 3% -3% -3% -7% 17% 6% 5% 14% 3% 0% 8% 1% 4% 14%
Z-score 0.9 0.3 0.0 0.2 1.1 1.1 1.6 -2.0 -0.3 -0.2 -1.6 0.1 0.5 -0.7 0.4 0.0 -1.5
C/A % of GDP (2011) 2.8 0.6 -7.2 2.4 2.5 -2.7 5.0 -8.4 1.8 -3.5 9.8 -3.8 7.5 -8.6 -1.3 -1.7 -3.8
Z-score 0.6 0.2 -1.3 0.6 0.6 -0.4 1.1 -1.5 0.4 -0.6 1.9 -0.6 1.5 -1.5 -0.1 -0.2 -0.6
Budget % of GDP (2011) -3.5 -3.5 -6.6 -0.1 -1.0 -5.9 -1.7 -8.0 -10.3 -4.0 -0.7 -2.9 -3.8 -5.9 -4.9 -6.2 -6.1
Z-score 0.3 0.3 -0.8 1.6 1.3 -0.5 1.0 -1.3 -2.2 0.1 1.4 0.6 0.2 -0.5 -0.2 -0.6 -0.6
Debt % of GDP (2011) 72 95 64 6 50 87 83 166 109 121 20 66 66 106 45 44 67
Z-score 0.1 -0.5 0.3 1.8 0.6 -0.3 -0.2 -2.4 -0.9 -1.2 1.4 0.2 0.2 -0.8 0.8 0.8 0.2
NFA % of GDP (2007) -9% 33% n/a n/a -30% 14% 19% -101% -20% 1% n/a n/a 44% -91% -45% -22% -77%
Z-score 0.3 1.2 -0.2 0.8 0.9 -1.7 0.0 0.5 1.4 -1.5 -0.5 0.0 -1.2
Liquidity Equity market cap 0.2% 0.5% 0.0% 0.0% 0.3% 3.1% 2.8% 0.1% 0.2% 1.1% 0.1% 0.0% 0.5% 0.2% 0.0% 0.0% 1.2%
Z-score -0.4 -0.1 -0.6 -0.6 -0.3 2.6 2.3 -0.6 -0.4 0.5 -0.6 -0.6 -0.1 -0.5 -0.6 -0.6 0.6
Total Z-score 2.3 1.6 -2.4 2.2 3.9 4.0 7.6 -9.7 -3.2 -0.6 2.6 -0.4 4.3 -5.4 -3.2 -0.6 -3.2
Note: Net financial asset data is sourced from Barnes (2010), OECD WKP83.
ECB could step up SMP in 2012
30
Source: Reuters Ecowin and Danske Markets Source: Bloomberg, ECB and Citi
ECB
ECB has included Italy and Spain… …and could more than double SMP in 2012
w1 w8 w17 w27 w37 w47 w4 w13 w23 w33 w4310 11 12
-2,5
0,0
2,5
5,0
7,5
10,0
12,5
15,0
17,5
20,0
22,5
-100
-50
0
50
100
150
200
250
300
350
400EUR bn
ECB purchases,
per week >>
EUR bn
Securities Market pro
<< Asset purchases
(covered+government bonds)
4 reasons for low long term growth in the US
31
85 90 95 00 05 10
-7,5
-5,0
-2,5
0,0
2,5
5,0
7,5
-7,5
-5,0
-2,5
0,0
2,5
5,0
7,5 % q/q AR
Actual payrolls
Payrolls model = f(GDP biann. growth)
% q/q AR
00 02 04 06 08 10 12 14
-11
-9
-7
-5
-3
-1
1
3
-11
-9
-7
-5
-3
-1
1
3% of GDP
% of GDP
Budget deficit, projected by CBO
70 75 80 85 90 95 00 05 10 15 200
25
50
75
100
125
150
175
200
0
25
50
75
100
125
150
175
200USD USD
Brent oliepris
?
#3: House prices under pressure from huge overhang of hourses
85 90 95 00 05 10
100
150
200
250
300
350
400
1,0
1,5
2,0
2,5
3,0
3,5
4,0
4,5
5,0Mn, AR Index 1980=100
US FHFA house prices >>
<< Inventories of existing homes
#1: Job growth to stay sluggish #2: Strong fiscal tightening in pipeline
#4 Super cycle in oil prices is new headwind
Will US follow the Euro zone in recession?
32
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Disclosure
This report has been prepared by Danske Research, which is part of Danske Markets, a division of Danske Bank. Danske Bank is under supervision by the Danish Financial Super-visory Authority.
Danske Bank research reports are prepared in accordance with the Danish Society of In-vestment Professionals’ Ethical rules and the Recommendations of the Danish Securities Dealers Association.
Danske Bank has established procedures to prevent conflicts of interest and to ensure the provision of high quality research based on research objectivity and independence. These procedures are documented in the Danske Bank Research Policy. Employees within the
Danske Bank Research Departments have been instructed that any request that might impair the objectivity and independence of research shall be referred to Research Man-agement and to the Compliance Officer. Danske Bank Research departments are organised independently from and do not report to other Danske Bank business areas. Research ana-lysts are remunerated in part based on the over-all profitability of Danske Bank, which includes investment banking revenues, but do not receive bonuses or other remuneration
linked to specific corporate finance or dept capital transactions. Danske Bank is a market maker and may as such hold positions in the financial instru-ments mentioned in this report. Please go to www.danskebank.com/Research for further disclosures and information in accordance with Danish legislation and self-regulation standards.
