德银-美股-宏观经济-白宫观点：健康回调-20180207-26页.pdf

ResearchDeutsche BankThe House ViewA healthy pullbackDISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1.MCI(P)083/04/2017.7 February Distributed on:07/02/2018 07:11:00 GMT7T2se3r0Ot6kwoPaResearchDeutsche BankThe House View 7 February http:/Month in Review2Bloomberg,26-Jan-2018FT,25-Jan-2018FT,14-Jan-2018Reuters,22-Jan-2018DW,18-Jan-2018CNBC,24-Jan-2018CITAYA.M,24-Jan-2018Reuters,25-Jan-2018FT,26-Jan-2018The Independent,26-Jan-2018Bloomberg,25-Jan-2018FT,23-Jan-2018FT,28-Jan-2018Los Angeles Times,17-Jan-2018Bloomberg,26-Jan-2018Reuters,26-Jan-2018Bloomberg,2-Feb-2018Bloomberg,5-Feb-2018FT,5-Feb-2018Market Watch,2-Feb-2018ResearchDeutsche BankThe House View 7 February http:/After a stellar 2017 and an even stronger January,risk assets have undergone asharp pullback in the last week.Initially triggered by higher rates as markets repricedinflation expectations higher,the episode evolved into a technical spout of volatilityexacerbated by programmatic strategies.The pullback is healthy,after a highly unusual stretch of market tranquility.Forinstance,the S&P 500 had not had a 3%pullback in over 300 trading days;marketpositioning had become stretched.However,the moves now appear overdone.Weare now well past the typical 3-5%pullback,and the sell-off has gone beyond thatduring 2013s Taper Tantrum which was triggered by a much sharper rise in rates.Fundamentals remain supportive of risk assets.The robust,broad-based globalexpansion continues and inflation will at last accelerate in 2018.We expect thesetrends to evolve steadily enough for central banks to tighten monetary policygradually as planned.Strong growth and rising but not high rates should continue tosupport corporate earnings and equity valuations even as bond yields steadily rise.Still,we expect market turbulence to return this year.Pullbacks and volatility willbecome more common as investors adjust to rising interest rates and capital isallocated out of risk assets and into higher-yielding fixed income.More volatilityshould not derail the underlying economic expansion or fundamentally dent riskassets,but it will make markets more bumpy and less predictable.David Folkerts-Landau,Group Chief Economist3The House View,6 February 2018A healthy pullbackThe views in this publication are informed by Deutsche Banks Global Strategy Group,which advises management and clients on broad market risks and global economic and financial developments.The views and forecasts of the group,which consists of senior research staff,may occasionally differ from those disseminated by their research colleaguesTable of contentsIntroduction 4-boxes Total returnsMarket overview Flying start A sharp but healthy pullback Sell-off overdoneFX outlook Weaker dollarMacro outlook Global growth overview Inflation outlook Central banks overview Italian election and BrexitForecasts ForecastsResearchDeutsche BankThe House View 7 February http:/ Fed:expect an above-consensus 4 hikes in 2018 ECB:slow exit to continue.No new measures until mid-2018;expect QE to end in 2018,first hike in mid-2019 BoJ:not under pressure to act,no change expected in target short rate or yield curve control policy BoE:on hold,risk is additional rate hikes PBoC:policy tightening to curb financial risks,followed by some easing in H2-2018 to avoid growth slowdown EM:rate hikes especially in Asia,while LatAm central banks have space to ease policy Robust,broad-based global backdrop in 2018(3.8%growth,higher than 2017).2018 the peak of the current cyclical expansion,expect deceleration from 2019 US growth to continue above potential at 2.6%in 2018,up from 2017.Tax reform to add 0.3-0.4pp.Drivers of growth broadening beyond solid consumer spending Eurozone cyclically strong,growth of 2.3%in 2018,in line with 2017.Main concern is how much longer can above-potential growth last EM:cyclical acceleration to continue,growth ticking up to 4.9%in 2018,even as China growth slows slightly Market pullback:sell-off in risk assets is healthy.But fundamentals remain supportive and magnitude appears overdone Inflation:despite disappointment in 2017,we expect inflation to accelerate in 2018 as output gaps close End of QE:2018(almost)the last year of QE.To be watched carefully,given QEs earlier impact on rates,risk assets Political risk:to remain prevalent(e.g.,Germany,Italy,Catalonia,Brexit,US mid-terms)but little macro impact Views on key themesEconomic outlookCentral bank watchKey downside risks to our viewNotes:H/M/L indicates estimated probability of risk(High,Medium,Low).4 Higher than expected inflation sends rates higher as monetary tightening expectations brought forward,disrupts markets Global growth disruption:a global equity correction weighs on sentiment and wealth,triggers a recession China slowdown:higher inflation,a policy mistake,or financial stress leads to sharp growth slowdown,with global ramifications though trade,financial channels Financial stability:tighter policy/slower growth causes financial sector instability,esp.where leverage is highMLThe robust global macro backdrop will continue in 2018,with monetary policy continuing to gradually tightenLMResearchDeutsche BankThe House View 7 February http:/4.42.51.90.9-2.8-4.1-4.1-5.1-7.1-0.4-1.4-1.83.12.82.50.1-2.70.5-8-6-4-2024681012MSCI EMItaly MilanShanghai CompositeUS S&P 500French CAC 40German DAX 30Europe Stoxx 600Japan NikkeiUK FTSE 100EUR HYUS HYEUR IGUS IGFranceGermanyUSCNYGBPEURJPYEM FXGBPEURDollar IndexIron OreGoldBrent OilYTD PeakReturns*per asset class in 2018EquitiesCommodities*FX*Sovereign debtCorporate CreditYTD20185Note:(*)Total return accounts for both income(interest or dividends)and capital appreciation.(*)FX,Commodities are spot returns.Source:Bloomberg Finance LP,Deutsche Bank Research.As of COB,6-Feb-2018It has been quite a start of the year,with an impressive market melt-up followed by an equally remarkable market pullbackCore rates have sold off,touching multi-year highsRally in 2018,but positioning is extreme and limited upside from hereCredit has been pressured by higher sovereign yieldsFundamentals continue to support dollar weakness,also aided by official rhetoricMost global equities have undergone a dramatic roundtrip this year,and most DM indexes are now lower YTD,though USD returns remain positive thanks to the dollars weaknessResearchDeutsche BankThe House View 7 February http:/60246810MSCIEMS&P 500MSCIWorldNikkeiStoxx600A smashing start of the year for equities%ytd,at peakMarkets enjoyed a flying start this JanuaryNote:(*)Healthcare boosted by sector-specific newsSource:Bloomberg Finance LP,Deutsche Bank Research Market overview.809010011012002468 10 12 14 16 18 20Median2018Not unseen before,but still on the high sideS&P 500 performance at start of year100=start of year;history since 192890th ptileTrading days since year start-60612CyclicalDefensiveCyclical sectors outperformed,e.g.,US*%ytd Flying start this year for markets Months-long rally extended Strong equity performance across regions,sectors with cyclicals outperforming Tightening of credit spreads Supported by material but orderly rates sell-off Cross-asset correlation reached multi-year highs0102030USUKGermanyJapanMaterial but orderly core rates sell-offbp ytd-25025507510020102012201420162018Cross-asset correlation at multi-year highsAvg.of pair-wise correlations between S&P 500,US 10y yield,EURUSD,oil%From start of year until peak(26-Jan)ResearchDeutsche BankThe House View 7 February http:/7 Sell-off became technical in nature Breach of technical levels causing forced selling by systematic strategies Self-reinforcing dynamics at play*Spike in equity volatility at the centre,suffering from extensive short-vol positioning especially via VIX-based ETF products Rates sell-off accelerated from last week of January Added 20bp in a week,taking YTD core rates sell-off to 30-50bp Core rates at 2-4 year highs US 10y close to 3%Rates move triggered sharp rise in volatility,sent global equities tumbling 5-10%equity sell-off,in cases wiping YTD gains Pullback reflects concern that rates could rise to levels that would structurally hurt risk assets-0.40.00.40.81.21.61.21.62.02.42.83.2201320142015201620172018US 10yEurope 10y(rhs)Source:Bloomberg Finance LP,Deutsche Bank Research Sell-off sent core yields to multi-year highs%But risk sentiment turned sharply negative as the rates sell-off accelerated.The move then got exacerbated by technicals*Market overview.Note:(*)A sharp move causes volatility to spike.Funds internal risk models set limits on the volatility of their portfolios.Higher volatility therefore can cause funds to sell their positions,which can cause volatility to rise even further.This can cascade in a negative feedback loopPullback triggered by fundamentalsbut exacerbated by technicals-12-10-8-6-4-20246MSCIEMS&P 500 MSCIWorldStoxx600Nikkeivs.2018 peakYTDEquity pullback wiped YTD gains%0.00.51.01.52.02.53.03.54.04.5201320142015201620172018Short VIX ETPs AUMShort-vol products had become stretchedUSD BillionsSource:Bloomberg Finance LP,Deutsche Bank Equity Derivatives Strategy ResearchDeutsche BankThe House View 7 February http:/ The US equity rally had been phenomenal 40%rally since Nov-2016 Longest rally on record without a 3%+pullback Typical triggers of a pullback were in place Stretched long equity positioning Turndown in macro surprises(not macro momentum)3-5%pullbacks are not disruptive,but rather healthy Typically occur every few months Give markets a breather,helping clean up stretched positioning and correcting relative value distortions Beyond technicals,supportive fundamentals to prevent a materially deeper correction This pullback also gives us a flavour of what to expect as markets adjust to higher inflation and higher rates Bouts of market volatility likely to become more frequent 050100150200250300350Jun-03May-91Apr-84Oct-94Mar-96Apr-53Nov-12Aug-54Apr-75Apr-77Feb-84Jun-98Oct-79Dec-00Aug-88Oct-77Apr-94Sep-01Nov-88Feb-69Feb-48Dec-74Sep-59Dec-97Jul-50Nov-71Feb-58Duration between two 3%+Drawdowns(S&P 500,trading days,post WorldWar II)Source:Bloomberg Finance LP,Deutsche Bank Research The longest uninterrupted US rally on recordCurrent Episode Percentile:100thMedian(38)Average(48)Ex-recession average(51)Current(307)1995(266)8The pullback is actually healthy,given the extent of the equity rally.It also gives us a taste of what awaits as rates move higher-100-5005010020142015201620172018Source:Citigroup,Bloomberg Finance LP,Deutsche Bank Research Macro surprises have peaked and are coming downUS macro surprises indexMarket overview.ResearchDeutsche BankThe House View 7 February http:/ Pullback triggered by acceleration of rates sell-off Sharp rise in rates since Sep-2017 fully justified Strong growth,tight labour markets,increasing evidence(and expectation)of higher inflation See further 50bp sell-off in US 10y by year-end But our conviction of a material further move higher in the short-term is now reduced Recent rise was much faster than expected Bound to be some buying at current levels Sell-off in risk assets now looks overdone though we recognise calling the exact timing can be difficult Move well beyond typical 3-5%pullback,and now larger than during Taper Tantrum which was triggered by a much sharper rise in rates Fundamentals remain supportive for risk assets At these levels,corporates likely to accelerate buybacks Beyond short-term dynamics,we see material further scope for rates to rise before they become restrictive for growth and risk assets US 10y yield starts weighing on growth/risk around 3.5%,i.e.,80bp above current levelsFundamentals remain supportive for risk assetsRobust macro backdropRobust,broad-based global expansionRising but still low inflationCycle reaching its peakSupportive monetary policyStill accommodativeTightening path to be predictable and gradual major central banks largely on autopilot this yearStrong corporate earningsSupported by strong global growthUS to benefit from US tax reform,weaker US dollarRising but not high ratesDespite the last few months rise in yields,we are still well below levels that can hurt growth and risk assetsScope for further benign sell-off9Market moves now look overdone,but it is always difficult to call the exact timing to re-enter the marketMarket overview.10-year Treasury yields:Too close to the sun?29-Jan-2018ResearchDeutsche BankThe House View 7 February http:/10 Dollar fell 12%on a trade-weighted basis since its late-2016 peak(16%vs.the euro);sell-off continued apace this year At first sight,inconsistent with monetary policy Tightening Fed that has ended QE,hiked rates 5 times,started unwinding its balance sheet However this is not at odds with history,e.g.,mid-1990s,2004-06 periods Expect dollar weakness to continue Target EURUSD at 1.3080859095100201620172018Trade weightedvs.EURSignificant dollar sell-off since end-2016 peakIndex 100=peak-12%-16%Dollar weakness has further to go,even as Fed rate hikes continue pushing rate differentials in favour of the USFX outlookFX Blueprint 12-Jan-2018Is it 2004-06(or 1994-95)all over again for the dollar?12-Jan-2018Yes,it all makes sense 25-Jan-2018Source:Haver Analytics,Bloomberg Finance LP,Deutsche Bank Research Despite tightening Fed,several factors explain why we expect further dollar weaknessExternal position Weakening US financial account balance,portfolio inflows have peaked European fund flow story more positive,last few years underweight to be coveredFiscal and trade policy US tax reform not particularly dollar-positive,increases fiscal deficit US protectionism favours weak dollarMonetary policy US monetary policy mostly priced in,market reluctant to price much more In contrast,scope for pricing further ECB tightening65758595105115125-2-101231990 1995 2000 2005 2010 2015US rate spread vs G4,lhsUSD,TWI,major currencies,rhsPrevious periods of higher rates/weaker USD-5.0-2.50.02.55.020092011201320152017EurozoneUSExternal position:eurozone better,US worse12m cumulative basic balance,%GDPResearchDeutsche BankThe House View 7 February http:/ US Treasury Secretary Mnuchin endorsed dollar weakness,sending the currency to three-year lows Interpreted as a departure from US traditional strong dollar policy Prompted quasi-explicit rebuke from ECB and comments from other officials/central bankers Reignited fears of currency war Comments at odds with G20 agreement to not manipulate currencies Put in the context of an“America first”policy,the message is the dollar is seen as part of trade policy US not shy about its protectionist stance A weak dollar supports trade and growth Weak dollar a quasi-free lunch for US:easy to encourage,boosts growth,little inflation impact Two factors can lead the US to change policy,but neither appears likely quite yet Negative equity market impact,e.g.,if inflation rises sharply Chinas response and retaliation capability via selling treasuries1.50.25-0.50.00.51.01.5GDPCore inflationSource:Stanley Fischer:“The transmission of exchange rate