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USA - Our view on the Fed is for a rate hike to occur in 3rdQ for three primary reasons: (1) Growth
should accelerate as certain negative effects fade (capex spending, strikes in West ports…). (2) The
Fed wants to have a tool to use in the event that growth starts to slow down. (3) They would like to
start a tightening cycle before the election year in 2016.
Eurozone – Industrial & consumer surveys point to the continuation of the cyclical recovery, with
GDP forecasts on an upward trend, though the best news could be already behind. ECB - Losses in
the fixed income universe have in fact increased the eligible bonds to be bought. The ECB has
reiterated its commitment to undertake the programme until September 2016 or beyond.
EM Asia – Most economies in Emerging Asia are likely to record decent growth over the next couple
of years. These countries have no big external imbalances, are well-placed to benefit from strong US
growth, are big winners from lower oil prices, and an anchored inflation means monetary policy is
set to remain supportive. See our GDP projections for each country inside. China – The economy is
moving up the value chain. The break between China’s exports and imports from EM Asia suggests
that China is importing fewer complex components because it is making them itself. India – We are
seeing friendly noises being made between India and China about advancing a “strategic cooperative
partnership”. Beijing has invited Delhi to join the “One belt One Road initiative” and India has
agreed to be a founding member of the AIIB bank. India has also given the green-light to the
construction of a new highway linking the two economies.
Japan - At the 30-Apr policy board meeting, BoJ board member T. Kuichi suggested that the pace of
JGB purchases should be slowed down, due to concerns over the lack of bond market liquidity.
LatAm – Brazil: Levy garnered additional support for his fiscal agenda (Congress approved the first
set of fiscal measures, although some points were defeated). This gives greater capability to start
introducing a more growth-oriented narrative. Social & Political unrest is now much calmer. Mexico
- The slowdown in growth during the 1Q15 was due almost entirely to weakness in industry. The
decline in manufacturing is related to the soft patch in the US economy. We see encouraging news
coming from the service sector, the own mining sector, and from the US, where we expect a
recovery of momentum during 2H2015.
Equity Markets - Keep exposure to OW Neutral in the global Equity markets in general. Our
Andbank system of flow and positioning indicators suggests a lack of significant stress in the equity
markets. We consider that the market is slightly overbought but a sudden deep and sustained riskoff
shift is unlikely. If a correction takes place, it should prove to be short-lived. Preferred:
Eurozone, Spain, India and Mexico.
Fixed Income Markets - Hold the 10Y US Treasury (Neutral). Accumulate with yields above
2.25%. Hold your German Bunds (Neutral) until yields come back to 0.4%. Then wait before buying
bunds until 1% in yield. Corp credit (EUR): HOLD. HY (EUR): BUY. Corp credit (USD): HOLD. HY
USD: HOLD. Peripheral Bonds: BUY. Stay long duration until yields are well below 1%. EM Gov
bonds: Still offer value. In hard currency we prefer Brazil, Mexico and Turkey. In local currency,
Indonesia, India, Brazil and Turkey.
Commodities - SELL. Heavy investment form 2008, full capacity and growth in supply lead us to
take the view that the prospects for a new bull market in commodities are dim. OIL: No changes for
now in our outlook, namely that we are in a Structural bear oil market. USD50 in the WTI could
represent the upper band of the fundamental range. Gold is expensive.
USA - Our view on the Fed is for a rate hike to occur in 3rdQ for three primary reasons: (1) Growth
should accelerate as certain negative effects fade (capex spending, strikes in West ports…). (2) The
Fed wants to have a tool to use in the event that growth starts to slow down. (3) They would like to
start a tightening cycle before the election year in 2016.
Eurozone – Industrial & consumer surveys point to the continuation of the cyclical recovery, with
GDP forecasts on an upward trend, though the best news could be already behind. ECB - Losses in
the fixed income universe have in fact increased the eligible bonds to be bought. The ECB has
reiterated its commitment to undertake the programme until September 2016 or beyond.
EM Asia – Most economies in Emerging Asia are likely to record decent growth over the next couple
of years. These countries have no big external imbalances, are well-placed to benefit from strong US
growth, are big winners from lower oil prices, and an anchored inflation means monetary policy is
set to remain supportive. See our GDP projections for each country inside. China – The economy is
moving up the value chain. The break between China’s exports and imports from EM Asia suggests
that China is importing fewer complex components because it is making them itself. India – We are
seeing friendly noises being made between India and China about advancing a “strategic cooperative
partnership”. Beijing has invited Delhi to join the “One belt One Road initiative” and India has
agreed to be a founding member of the AIIB bank. India has also given the green-light to the
construction of a new highway linking the two economies.
Japan - At the 30-Apr policy board meeting, BoJ board member T. Kuichi suggested that the pace of
JGB purchases should be slowed down, due to concerns over the lack of bond market liquidity.
LatAm – Brazil: Levy garnered additional support for his fiscal agenda (Congress approved the first
set of fiscal measures, although some points were defeated). This gives greater capability to start
introducing a more growth-oriented narrative. Social & Political unrest is now much calmer. Mexico
- The slowdown in growth during the 1Q15 was due almost entirely to weakness in industry. The
decline in manufacturing is related to the soft patch in the US economy. We see encouraging news
coming from the service sector, the own mining sector, and from the US, where we expect a
recovery of momentum during 2H2015.
Equity Markets - Keep exposure to OW Neutral in the global Equity markets in general. Our
Andbank system of flow and positioning indicators suggests a lack of significant stress in the equity
markets. We consider that the market is slightly overbought but a sudden deep and sustained riskoff
shift is unlikely. If a correction takes place, it should prove to be short-lived. Preferred:
Eurozone, Spain, India and Mexico.
Fixed Income Markets - Hold the 10Y US Treasury (Neutral). Accumulate with yields above
2.25%. Hold your German Bunds (Neutral) until yields come back to 0.4%. Then wait before buying
bunds until 1% in yield. Corp credit (EUR): HOLD. HY (EUR): BUY. Corp credit (USD): HOLD. HY
USD: HOLD. Peripheral Bonds: BUY. Stay long duration until yields are well below 1%. EM Gov
bonds: Still offer value. In hard currency we prefer Brazil, Mexico and Turkey. In local currency,
Indonesia, India, Brazil and Turkey.
Commodities - SELL. Heavy investment form 2008, full capacity and growth in supply lead us to
take the view that the prospects for a new bull market in commodities are dim. OIL: No changes for
now in our outlook, namely that we are in a Structural bear oil market. USD50 in the WTI could
represent the upper band of the fundamental range. Gold is expensive.