What to expect from inflation, growth and central banks

Transcription

1 Your access to capital markets. / What to expect from inflation, growth and central banks Uto Baader Founder & Consultant, Baader Bank AG Porec October 2016

2 Source: Thomson Reuters Datastream Against a difficult global backdrop, Croatia enjoys an important tailwind due to its EU accession in mid Equity market performance post EU accession (indexed MSCI price indices in local currencies) year +2 years +3 years Croatia (from 1-Jul-13) Poland/Hungary/Czech Republic (from 1-May-04) Finland (from 1-Jan-95) Spain (from 1-Jan-86) 2 Source: Thomson Reuters Datastream, MSCI, Baader Helvea Research

3 Trends in global trade volumes have become increasingly sluggish over the last few years World trade volume 3 Source: Thomson Reuters Datastream, Baader Helvea Research

4 and the persistent weakness in freight rates heralds that no recovery can be expected for now World trade volume and Baltic Dry Index 4 Source: Thomson Reuters Datastream, Baader Helvea Research

5 Keynes does not work anymore: The higher public debt did become, the less governments have been successful in stimulating growth USA: Public debt in % of Nominal GDP and Nominal GDP growth 5 Source: Thomson Reuters Datastream, Baader Helvea Research

6 Elevated debt-levels also have prevented that the massive stimulus provided by central banks has delivered the desired expansionary effects USA: Total debt of all economic sectors in % of nominal GDP and Fed Funds target rate 6 Source: Thomson Reuters Datastream, Baader Helvea Research

7 China to the rescue? As debt has exploded, similar problems are present and the marginal impact of stimulus must also be expected to wane China: Total social financing and real GDP growth 7 Source: Thomson Reuters Datastream, Baader Helvea Research

8 Despite the massive stimulus seen over the last few years, investments in the real economy have failed to become a driver for global growth Gross Fixed Capital Formation in % of GDP for various countries 8 Source: Thomson Reuters Datastream, OECD, Baader Helvea Research

9 Primarily the public sector benefits from the low interest policy of the ECB, while the private sector may be affected from conflicting trends Eurozone: Contribution of all economic sectors to the financing gap (in % of GDP) 9 Source: Thomson Reuters Datastream, Eurostat, Baader Helvea Research

10 In relative terms, the size of the ECB s asset purchase program is getting close to other central banks Government bond holdings of central banks in % of GDP and volume outstanding 10 Source: Thomson Reuters Datastream, Eurostat, Baader Helvea Research

11 The BOJ and the ECB are still in the process of expanding their balance sheets via asset purchases with little to no economic success Evolution of central banks balance sheets (indexed) 11 Source: Thomson Reuters Datastream, Baader Helvea Research

12 Earlier this year, 10Y bond yields have even reached negative territory in some countries but overall yields rather show signs of a basing process 10Y government bond yields of major countries 12 Source: Thomson Reuters Datastream, Baader Helvea Research

13 Instead of investing in plant and equipment on their own, low interest rates have lured companies to prefer external growth via acquisitions Globally announced M&A transaction volume: (12M sum, in USD bn) 13 Source: Thomson Reuters Datastream, Bloomberg, Baader Helvea Research

14 and also had the result that companies utilized the cheap financing conditions to buy back their own shares via higher debt US Domestic Non-Financial Corporate Business: Net buybacks of equities and corporate borrowing 14 Source: Thomson Reuters Datastream, Baader Helvea Research

15 Looking at less erratic inflation metrics instead of headline inflation numbers argues against major deflationary risks USA: CPI vs. GDP deflator (% change yoy) Euro area: CPI vs. GDP deflator (% change yoy) 15 Source: Thomson Reuters Datastream, Baader Helvea Research

16 as most of the fluctuations in headline inflation rates are caused by energy price movements due to the high volatility in crude oil prices Eurozone headline inflation rate and crude oil price (% change yoy) 16 Source: Thomson Reuters Datastream, Baader Helvea Research

17 An upward bias should persist in inflation rates over the next few months. But the trajectory decisively will depend on the outlook for oil prices. Eurozone CPI and 6M projection for different oil price scenarios (assuming CPI ex energy = constant) 17 Source: Thomson Reuters Datastream, Baader Helvea Research

18 Europe may not escape higher US rates, as a synchronous performance of global bond yields would mitigate any further USD appreciation EUR in USD and 10Y yield spread of German Bunds over US Treasuries 18 Source: Thomson Reuters Datastream, Baader Helvea Research

19 Rising central bank holdings of gold may flag the desire to increase inflation expectations World: International Reserves held in Gold (in thousand tons) 19 Source: Thomson Reuters Datastream, IMF, Baader Helvea Research

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