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13.01.2016
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The second half of 2015 was difficult for markets. The start of 2016 has not been any easier, with the yuan's devaluation reigniting concerns over China and global growth. The move comes at a particularly sensitive time: in addition to an uninspiring macro backdrop, the first Fed hike in nearly a decade has added to market anxiety. Oil prices fell to 12-year lows and risk assets sold-off broadly. The magnitude of the sell-off outside of China appears exaggerated relative to macro fundamentals. We expect a modest rise in global growth in 2016, from the slowest pace post crisis in 2015. The US and European cyclical recoveries continue, and we expect average growth to remain stable, yet unspectacular, in both regions. Other large advanced economies should see growth accelerate. Meanwhile, the outlook in EM remains challenging, but less deep recessions in Russia and Brazil and an acceleration in India should see growth pick up. As for China, while the gradual deceleration continues, fears of a sharp slowdown are overdone. Hardly an outlook worthy of the worst ever start of a year for the S&P500.The macro impact of the market sell-off is unlikely to push central banks into changing course. The Fed should continue its gradual rate rises, with market pricing converging toward Fed guidance sometime this year. In the case of the ECB, further easing in the near-term is possible given the recent decline in oil prices, but a resilient growth outlook should keep the ECB on hold. Rather, absent further shocks there is more risk in 2016 of focus shifting to discussing a reduction in the pace of easing. Tactical rebounds in risk assets are possible in the short-term, but a sustainable recovery requires China uncertainty to fade. More generally, markets in 2016 are likely to remain choppy. Dollar strength should continue, though at a more modest pace. US and European rates should rise modestly. In equities, we see 10-15 per cent upside for the US and Europe with both earnings growth and slightly higher valuations contributing to index gains. US credit, especially high yield, continues to suffer from high commodity exposure, and Europe credit should outperform on more solid fundamentals. EM assets will remain under pressure, though we do not expect 1980s-90s style EM crises.David Folkets-Landau, Group Chief Economist The document includes a 3-slide review of 2015 as well as our macro and markets views for 2016. We include a quick run through the key themes for markets in 2016. Page highlights: p10: our take on the sell-off p24: political risk in Europe p35: China FX policy p36-37: oil story p39: asset class views summary [more]
15.12.2015
73
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In this new TheHouseView Infographic we look at the mechanics of the upcoming Fed rate rise. As a reminder, the one-pager Infographic does not replace, but rather complements, TheHouseView by tackling a current topic in a few charts and visuals. The Fed looks set to raise policy rates by 25 basis points for the first time since 2006. This is likely to lead to a ~20 basis points rise in the effective fed funds rate, not 25. Click the link to view the one-pager. For a more thorough discussion of the outlook for the Fed after liftoff see TheHouseView Special, Fed: Taking the plunge (9 December 2015): http://pull.db-gmresearch.com/p/9072-1C78/95321283/DB_TheHouseView_2015-12-10.pdf Previous TheHouseView Infographic: Understanding negative deposit rates (30 November 2015): http://pull.db-gmresearch.com/p/6024-229D/13164921/DB_TheHouseView_2015-12-01.pdf [more]
30.11.2015
75
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This is our second TheHouseView Infographic. This one-pager does not replace, but rather complements, TheHouseView by tackling a current topic in a few charts and visuals. In this second edition we explain how negative deposit rates work. Do not hesitate to pass on any feedback. The ECB is widely expected to cut rates deeper into negative territory this week. The goal is to offset external risks to inflation – and to growth – by reversing euro strength and boosting domestic demand. Click the link to view the one-pager. [more]
18.11.2015
77
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In case you missed it, we published our first TheHouseView Infographic on Monday (click here to view). The Infographic is a one-pager and does not replace, but rather complements, TheHouseView by tackling a current topic in a few charts and visuals. In the first edition we looked at ECB easing and euro weakness. TheHouseView - Policy Divergence AheadOver the last month, stabilising or improving data have reduced the risk of a negative macro scenario, diminishing global growth concerns that had dominated since the summer. China broadly stabilised, with leading indicators pointing to a pick-up in near-term growth. Eurozone data confirmed that the economy continues its stable above-trend growth. US data have been mixed but point to solid fundamentals. In EM, growth remains weak but appears to be bottoming out. Outside of the US, monetary policy is becoming more accommodative. China surprised markets with a rate cut in October that will provide further support to growth. In Europe, a more dovish than expected ECB clearly signalled further easing in December (we expect a rate cut and an extension of QE) despite a solid growth background, as low inflation remains a concern. Similarly, the Bank of England surprised by pivoting toward a more dovish policy stance. In the US, meanwhile, a more hawkish than expected Fed and very strong labour market data have materially raised the odds of a December rate hike. A rate cut in Europe soon followed by a rate hike in the US would at last crystallise the Fed-ECB policy divergence theme that has dominated headlines since last year. Markets have welcomed the additional clarity about global growth and monetary policy as risk assets have rallied strongly since end-September. Going forward positive data would reinforce Fed hike expectations and support risk assets. The risk would be a hawkish Fed determined to hike even if data soften, undermining market sentiment. Into 2016, we see improving but still unspectacular global growth as EM economies partly rebound. This should offer contained upside for risk assets, with value coming from stock picking and relative value rather than outright directional gains. David Folkerts-Landau, Group Chief EconomistKey pages this month: p7: macro data and clarity on monetary policy have reduced the risk of a negative scenario p12: political risk in Europe p15: December Fed hike firmly on the table p16: ECB / Fed policy divergence to crystallise [more]
18.11.2015
78
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In case you missed it, we published our first TheHouseView Infographic on Monday (click here to view). The Infographic is a one-pager and does not replace, but rather complements, TheHouseView by tackling a current topic in a few charts and visuals. In the first edition we looked at ECB easing and euro weakness. TheHouseView - Policy Divergence AheadOver the last month, stabilising or improving data have reduced the risk of a negative macro scenario, diminishing global growth concerns that had dominated since the summer. China broadly stabilised, with leading indicators pointing to a pick-up in near-term growth. Eurozone data confirmed that the economy continues its stable above-trend growth. US data have been mixed but point to solid fundamentals. In EM, growth remains weak but appears to be bottoming out. Outside of the US, monetary policy is becoming more accommodative. China surprised markets with a rate cut in October that will provide further support to growth. In Europe, a more dovish than expected ECB clearly signalled further easing in December (we expect a rate cut and an extension of QE) despite a solid growth background, as low inflation remains a concern. Similarly, the Bank of England surprised by pivoting toward a more dovish policy stance. In the US, meanwhile, a more hawkish than expected Fed and very strong labour market data have materially raised the odds of a December rate hike. A rate cut in Europe soon followed by a rate hike in the US would at last crystallise the Fed-ECB policy divergence theme that has dominated headlines since last year. Markets have welcomed the additional clarity about global growth and monetary policy as risk assets have rallied strongly since end-September. Going forward positive data would reinforce Fed hike expectations and support risk assets. The risk would be a hawkish Fed determined to hike even if data soften, undermining market sentiment. Into 2016, we see improving but still unspectacular global growth as EM e [more]
16.11.2015
79
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Welcome to TheHouseView Infographic. This one-pager complements TheHouseView by tackling a current topic in a few charts and visuals. In this first edition we look at ECB easing and euro weakness. Do not hesitate to pass on any feedback. The ECB has signalled it will ease policy in December. Renewed expectations of Fed hikes will not stay its hand: if anything, the ECB is more likely to exceed market expectations. This means further downside for the euro. Click the link to view the one-pager. [more]
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