LSR全球资产配置：_美国短暂衰退将至_日本QE加大中国通缩、货币战风险-2013-04-15.pdf
April 2013 Macroeconomic Outlook Fiscally induced US recession danger postponed, not averted A spending surge and saving collapse may have raised Q1 GDP growth to 3%, but reversal in Q2 Japan takes big risk for small reward: no more yen for yen? Japan could get 4% broad money growth and 2% real GDP growth from its new policies, but risks storing up huge financial risks without generating 2% Liquidity and Central Banks An alternative monetary interpretation of Kurodas plan The BoJs aggressive monetary stimulus cannot on its own stem Japans relative economic decline. But it has the potential to end debt of Japans malaise. This article offers an alternative view of the economic and asset market consequences of Mr. Kurodas plan. Investment Outlook Equities European Banks bore the brunt of market reaction to Cyprus and stay vulnerable as tensions simmer across the Eurozone. Italy and Spain = still pariah markets. Weak US Q1 earnings expectations may be enough to support the S 2nd Article, Charles Dumas Investment Outlook Eugenio Montersino. LSR Asset Allocation Macroeconomic Outlook ly induced US recession danger postponed, not averted Japan takes big risk for small reward no more yen for yen? Liquidity and central banks An alternative monetary interpretation of Kurodas plan Asset Allocation is based on the analysis and insights of all LSR economists and strategists. Individual sections have been prepared as follows: Macroeconomic Outlook Article, Charles Dumas; Liquidity and Central Banks Equities, Melissa Kidd; Fixed Income, Andrea Cicione; 3 4 4 7 11 11 14 14 20 24 Asset Allocation is based on the analysis and insights of all LSR economists and strategists. ared as follows: Macroeconomic Outlook 1st Article, ; Liquidity and Central Banks Jamie Dannhauser; Equities, Melissa Kidd; Fixed Income, Andrea Cicione; Model Portfolio Asset Allocation 3 Asset allocation matrix (12-month view) Bold indicates change of view (old rating in brackets) April 2013 Equities Bonds FX vs $ Monetary Policy North America US 0 0 carry on buying Canada -1 0 -1 unchanged Developed Europe UK 0 0 -1 QE Switzerland 0 -1 FX target is QE Euro Area -1 -1 interest rates down Germany -1 0 France -1 0 Italy -2 0 Spain -2 -1 Asia Japan 0 0 0 large QE Australia 0 -1 interest rates down China -1 0 neutral overall India 0 +1 (0) interest rates down Korea -1 -1 (0) interest rates down Taiwan -1 -1 (0) easier Latin America Brazil -1 0 +1 (0) interest rates up Mexico 0 +1 +1 interest rates down Emerging Europe ½% of the increase is assumed in Q2 (affecting real consumer spending growth negatively at 2% annualised) and ¼% in each of Q3 and Q4 (a 1% annualised negative effect in each quarter). For Q1, the assembly of these factors leads to a growth forecast of 3% (annualised). Real consumer spending could be up at a 2½-3% rate, contributing nearly 2% to real GDP growth. Household net worth and savings rate, % disposable income -2.5% 0.0% 2.5% 5.0% 7.5% 10.0% 12.5%375% 425% 475% 525% 575% 625% 675% 1963 Q1 1968 Q1 1973 Q1 1978 Q1 1983 Q1 1988 Q1 1993 Q1 1998 Q1 2003 Q1 2008 Q1 Jan- Feb av. Net worth, left (inverted) scale Savings rate, right scale 6 LSR Asset Allocation The post-Sandy reconstruction, together with housing strength, should slightly outweigh the cuts in government spending arising from both the 2011 debt ceiling agreement, and sequestration that started on March 1st. Real growth in business cap-ex and the inventory contribution could add more than 1% to GDP growth, but net exports are likely to be negative, as import growth should significantly outweigh exports. Q2 and Q3 are likely to see “payback”. Q2 GDP could fall at ½% annualised. Real disposable incomes may rise a little, but not much. Employment, on the household measure that better captures recent tendencies, is virtually flat. Real wages and salaries are only gaining minimally. High incomes are “giving back” the pay-out at the end of 2012. Real disposable income growth could be less than 1% in Q2 (annualised), and real consumer spending would therefore fall at a 1% rate, given the assumed 2% negative effect of higher saving with a ¾% negative contribution to GDP growth. Real government spending, with the Sandy effect tailing off, ie, negative in addition to budget cuts and the mounting impact of sequestration, could contribute another 1% negatively. Manufacturing data suggest weaker growth of cap-ex and inventories, but continued strong housing could mean private capital spending contributes a positive 1% to growth. The rest of the world is in the doldrums, so export weakness may offset much of the import decline likely in this scenario. In Q3, real GDP could fall again, this time closer to a 1% annualised rate, a key assumption being that sequestration lasts through the fiscal year to September. Real disposable income growth at a 1% annualised rate is likely to be offset by the higher savings rate forecast, leaving consumer spending flat. Real government spending cuts could again contribute as much as minus 1% to GDP, with sequestration reaching full pitch. Cuts in real business cap-ex and inventories are likely to offset housing strength. Net exports again could be close to neutral. In Q4, GDP could be positive, but slow. Again, there is little to hope for from consumer spending, with employment probably weak and the savings rate continuing to revert. Much will depend on the result of budget negotiations. But from Q4 onward we expect the combined forces of housing recovery, replacement demand for cars, energy investment, production and lowering of costs to the consumer, and US cost competitiveness as an investment location, to initiate a strong recovery. These forecasts continue to suggest a serious downswing in corporate profits, unless the savings rate reversion does not occur as assumed, in which case both GDP and corporate profits should hold up better in Q2-Q4. Charles Dumas Macroeconomic Outlook 7 Japan takes big risk for small reward no more yen for yen? Japans move from economic repression to violent stimulus caught the world by surprise again last week. It has the look of desperation about it. Before the new Bank of Japan Governor Kuroda dropped his QE bombshell on April 4th we had analysed how the changes known as “Abenomics” had at that stage largely ignored Japans chief structural problem, and skirted about it with palliatives. (See our March Quarterly Review and the subsequent Monthly Review, “Abenomics another Japanese sink-hole”.) The QE announcement, likewise, is directed at the symptom of Japans problems deflation rather than their cause: some 12- 14% of GDP too much net cash flow in business and too little in households. What Kurodas QE has achieved is the high likelihood that growth this year and next will be 2%, enough to check deflation, but probably not to reach the inflation target of 2%. The size of the QE relative to GDP, 10% in each of 2013 and 2014, is more than half as much again as Mr Bernankes in the US, though the inordinate size of Japanese broad money, well over twice GDP, means it is only about 4½% of M3. M3 growth this year and next could be only some 4%, certainly not earth-shattering. The benefit of this is likely to be limited to only a modest boost to growth this year and next, because the government is forgetting or unaware that monetary stimulus only achieves real traction in the economy where structural problems have been addressed unless private sector confidence is buoyant enough to ignore them, as is hardly the case here. This QE entails major risks. A sharp further downward shift of the yen way through 100/$ could easily occur, in which case the 2% inflation target would come within reach. But Japanese households have already shown sensitivity to the governments lust for inflation, with a sharp increase of consumption in the latest couple of months, despite ongoing falls in income. Older Japanese, a large proportion of the population, with an even larger share of the financial assets, will clearly remember the hyperinflation after WW2. Post-war history is littered with examples of countries making a “dash for growth” and ending up flat on their faces in a financial crisis. Japanese households could well already be eying the exit. Japanese government debt is a net 135% of GDP (gross debt is over 230%) yet net interest on it is less than 1% of GDP, helped by interest rates of well below 1% on 10-year JGBs (less than 0.5% in the immediate aftermath of the QE announcement) and even less on shorter- dated paper. The danger of this large and increasing debt provoking a financial crisis, with the structural government deficit 10% of GDP in 2013, and the actual number close to 11%, is always a concern. But a shift to 2% inflation with possible capital flight by households fearing devaluation makes it more immediate. An increase of JGB yields to some premium over 2% to take care of this risk would be the last straw in boosting the budget deficit just as the government is anyhow going for easy money, a falling yen and fiscal stimulus. A less dire, but significant, risk is retaliatory action in other countries, leading to a currency war. Chinese President Xi this week talked publicly about nations needing to avoid being “selfish”. This is quite a change from the China-first approach of its policy in the past, but not without cause. The Chinese real exchange rate rose 60% between coming off the fixed parity of 8.28 yuan/dollar in 2005 and last year. The combined yen moves, sympathetic move of the won, and continued Chinese wage inflation, threatens another 5-10% real appreciation this year. Yet China, at the level of prices rather than wages, has been in producer price deflation for nearly two years now, in a desperate effort to retain export competitiveness. This weeks 8 LSR Asset Allocation March PPI release showed a fresh intensification of deflation, from -1.6% to -1.9%. Rising wage costs with producer price deflation spells squeezed profit margins, sharpening the downswing of Chinese growth that we expect in the second half of this year. Mr Xis complaint about selfishness sets the stage for action if a further yen decline sets in. Yet the US complaisance about Japans policy would be unlikely to survive unilateral Chinese FX depreciation, as is needed. The “multiple-dip” nature of the world economy after the financial crisis has always threatened to lead to trade war. Japan has increased that risk. Japan is no stranger to a declining real exchange rate. Mostly owing to falling wages it has had falling relative costs since the yen peak of 1995. Germany has similarly achieved a falling real exchange rate through wage restraint. The difference between them is that Germanys share of its export markets has risen 15% since the late 1990s, Japans has fallen by 32%. While most advanced countries have seen their world market share give way in the face of Chinas meteoric growth, Germanys has not, and the advanced-country average has been a decline about half as large as Japans. France has done almost as badly as Japan, and Italy worse, but France has not had any gain in cost advantage while Italy has suffered a large relative cost gain that has hampered its exports. Japans is a unique case of major gains in cost competitiveness combined with drastic loss of world market share. In the real effective exchange rate chart above, the recent 20% drop in the yen has taken the index down below the 80 level that was its low point in 2007. In the pre-2007 period, Japan was practising a tight-fiscal/loose-money policy that kept the zero-interest-rate policy right through five years of healthy expansion. The resulting real exchange rate decline was only enough, however, to slow, rather than halt, its falling world market share. As soon as the real rate reverted upward, that share fell sharply again. The Japanese supply side is in serious trouble unrelated to costs, but deriving from poor products or other management issues. The current gain of cost competitiveness should enable some gain in net exports this year, though 1% of GDP is the upper end of what can reasonably be projected. It is likely that the Q1 gain in real consumer spending will tail off, and probably partly reverse, later this year, as the inflation of import prices feeds through. In the total supply of the economy (GDP plus imports) imports are one seventh, so a 20% hike in the value of foreign currency could boost overall supply costs by 3%. But some of this will be absorbed by higher profit margins on the export side, so the consumer deflator is unlikely to exceed 2% inflation (year-on-year) before Japanese real effective exchange rate but it is also a cause of Japans relative economic decline that monetary policy can go a long way to solving. Japan needs faster broad money growth. The Kuroda plan should achieve that. Because of the size and average maturity of the JGB purchases, a significant chunk of the bonds bought by the BoJ will be from non-bank investors, in contrast to the previous asset purchase programme which had commercial banks as the dominant sellers. This means that the expansion of BoJ assets will not only increase the monetary base but also the broad money supply which matters for asset prices and nominal demand. The expansion of the monetary base might encourage banks to lend more, thus amplifying the initial (broad) monetary impulse, as they try to offload the excess liquidity being created by the BoJ. Alternatively, banks might respond by shedding some of their own JGB holdings in an effort to keep their liquid asset buffers at their desired level. Perversely, this would offset some of the benefits of the BoJs actions, as non-banks investors buy the JGBs off the banking system, thus reducing the stock of broad money. One cannot know exactly how large a boost to broad money the BoJs asset purchases will bring about. Evidence from the BoEs and the Feds QE purchases suggest the pass-through is below one, potentially even below a half, i.e. it takes at least $2 of QE to boost broad money by $1. But in both countries, the need for both borrowers and lenders to deleverage should mean that a greater chunk of the broad money created by the central bank will be used to repair balance sheets which will destroy newly-created deposits, as loans are repaid. In Japan, the pass-through from QE to broad money creation may thus be higher than we have seen in the UK or the US. Initial work by LSR, based on US and UK pass-through estimates, suggests the BoJs stimulus should raise the growth of broad money to the 4-5% range, a rate last seen, albeit only temporarily, in the late 1990s. This would represent a material improvement in Japanese monetary conditions, which in turn should boost the growth of nominal incomes, a necessary precursor to ending debt-deflation. To the extent that the BoJs bold promises in and of
