Global Economic Outlook - 2014 - Four Seasons of Leverage

Global Economic Outlook - 2014 - Four Seasons of Leverage

■ 1# Bumpy growth relay from emerging to advanced

For the first time post-crisis, we expect advanced economies in 2014 to see an increased contribution to global growth as emerging economies deleverage. Commodity markets will sit at the heart of this dynamic - our strategists look for range-bound markets in 2014.

Eco Analysis - UK lending positive again but SME finance still weak (B. Hilliard)

Eco Analysis - UK lending positive again but SME finance still weak (B. Hilliard)

The UK money and credit release showed mortgage approvals picking up much as expected - a slightly faster pace from 63.4k to 66.7k. This is still very low compared to all the hype about the housing boom though but further gains are certain to follow. Consumer credit was a little bit weak at only £0.4bn.

SG Commodities Review: Copper

SG Commodities Review: Copper

Robin Bhar
2013.03.20

■ Copper prices have lost their anchor at $8,000/t. Reasons for the sharp fall include weak physical demand, soaring exchange stocks of copper, disappointing data from China, and lack of Chinese buying after the Lunar New Year holidays concluded in mid-February.

SG Commodities Review: Carbon

SG Commodities Review: Carbon

Paolo Coghe & Stephanie Aymes
2013.03.20

■ After the crucial success in the ENVI vote on February 19, the path to the formal approval process for backloading will continue and the Parliament and Council, along with the European Commission, will enter into ‘trialogue’ negotiations to arrive at a common text before the plenary vote scheduled for 15 April at the European Parliament.

SG Commodities Review: Thermal coal

SG Commodities Review: Thermal coal

Paolo Coghe
2013.03.20

■ Throughout 2012 the mining sector started to rediscover some of the investment discipline that had disappeared during the commodity bull run of the last decade, causing an oversupply of coal, exacerbated by a global economic slowdown, and in turn leading to a material price slide and current depressed price levels.

SG Commodities Review: The four consequences of the US shale gas revolution

SG Commodities Review: European Gas and LNG

Thierry Bros
2013.03.20

The four consequences of the US shale gas revolution

1/ US coal is displacing Russian gas in Europe

The US shale gas revolution pushed Cheap US coal and is displacing expensive gas for power generation in Europe. But, faced with record low European gas demand, Norway managed to increase its production, forcing Gazprom to act as the swing supplier.

SG Commodities Review: European Gas and LNG

SG Commodities Review: European Gas and LNG

Thierry Bros
2013.03.20

■ Norway exported a record 107.6 bcm of pipe gas in 2012, according to the gas system operator Gassco.

SG Commodities Review: US Natural Gas

SG Commodities Review: US Natural Gas

Laurent Key
2013.03.20

■ SG research’s Cal 13 price forecast was revised 20 cents higher vs last quarter at $3.70, due to the bullish withdrawals experienced at the end of the winter.

SG Commodities Review: Oil

SG Commodities Review: Oil

Michael Wittner
2013.03.20

■ Strong growth in Chinese demand is driving 1.1 Mb/d of global consumption growth this year. Total growth in non-OPEC supply, including OPEC NGLs, comes to 1.4 Mb/d, driven by 1.0 Mb/d growth in US liquids output. Saudi Arabia has been cutting proactively and aggressively to balance the market.

German HICP inflation decelerates to 1.8%

■ German HICP inflation decelerates to 1.8%

In 2012, German HICP remained broadly stable around 2% yoy. Since the beginning of the year, HICP inflation decelerated slightly from 2.0% yoy in December to 1.8% yoy in February, thereby hitting a 27-month. Most of the fall can be attributed to lower food inflation, as we observed a fall from 4.5% yoy to 3.1% yoy. Looking ahead, we expect the German HICP to average above 2% in 2013 on the back of a relatively strong wage growth. We should also see higher inflation rates in Germany, compared to the euro area average, once VAT hikes drop out of annual comparison in H2 2013.

UK data bring back the fear of a “triple dip”

■ UK data bring back the fear of a “triple dip”

January manufacturing output contracted along with industrial production (-1.2% mom). Most of the fall in the industrial production can be attributed to the maintenance issues in the North Sea production platforms; which already contributed to the deterioration in activity in Q4 2012. In addition, the heavy snow in January had a strong negative impact on the manufacturing output. As these factors are temporary and set to be reversed, it is too early to expect a technical recession in Q1 2013.Looking ahead, the sharp fall of sterling since the beginning of the year will play some role in helping the manufacturers.

Eco Analysis - China's recovery is more gradual than expected (W. Yao)

Eco Analysis - China's recovery is more gradual than expected (W. Yao)

■ China's food-fuelled inflation and housing-driven growth

China's February CPI increased more than expected by 3.2%yoy, but will most likely fall back again in March. Money and credit growth moderated in February but remained accommodative. Meanwhile, growth data for January and February combined were mixed. Industrial production disappointed, while fixed asset investment powered ahead, thanks to the incredibly buoyant property market. Retail sales weakened considerably, but the main cause was probably the laudable anti-corruption campaign waged by the new leaders. Overall, the data still suggest that the recovery is on track, albeit more gradual than initially anticipated.

Wei YAO

Sequester Politics, Freddie Mac Earnings, Home on the Range

RATES
FI SPECIAL
March 4, 2013

Sequester Politics, Freddie Mac Earnings, Home on the Range

■ This is the economy under the sequester.

The $85bn of sequester cuts have now officially gone into effect. Two Senate bills - one from either party - aimed at reworking or providing more flexibility for the cuts, failed votes of cloture and are provisionally dead. To sidestep the next hurdle of the fiscal crisis, House Republicans are said to be drafting a bill that will fund the government for the remainder of the fiscal year. On the upside, this is an attempt to remove the threat of a government shutdown before the existing continuing resolution (CR) expires on March 27th. On the downside, it probably means there is virtually no possibility that a compromise exchanging tax reform for entitlement reform will be forthcoming from this Congress.

Eco Analysis - Asia Round-up: Property market tightening in China sours the mood (K. Baader, W. Yao)

ECONOMICS
ECO ANALYSIS
March 4, 2013

Eco Analysis - Asia Round-up: Property market tightening in China sours the mood (K. Baader, W. Yao)

Asian stock markets started the week on a sour note, reacting to news of additional measures in mainland China to restrain real estate prices. This was arguably also the main factor driving down the Australian dollar, although the economic news reports this morning were also weak. The main exception to stock market weakness was Japan, where stocks are trading firmer despite a fractionally stronger yen. The relative stability of the yen is noteworthy, given that the proposed new BoJ governor, Mr Kuroda, reiterated in his confirmation hearing his strongly dovish bias, arguing for accelerated and broadened asset purchases. Lastly, an unexpectedly weak inflation reading in South Korea in our view boosted the chances of a rate cut by the Bank of Korea, a view that appears to be shared by the market, given the sharp decline in two-year government bond yields this morning.

Eco Analysis - China National People\'s Congress meeting preview (W. Yao)

ECONOMICS
ECO ANALYSIS
March 4, 2013

Eco Analysis - China National People\'s Congress meeting preview (W. Yao)

The annual plenary session of the National People's Congress (NPC) will convene on 5 March and close on 17 March. There is more to watch than just the routine Government Work Report and fiscal budget. New government leaders - including the President, Premier and top Ministers - will be appointed and formally take the helm. On the reform front, aside from affirmative rhetoric, we expect two concrete steps.

Eco Analysis - China's stubborn housing inflation risks further policy tightening (W. Yao)

Eco Analysis - China's stubborn housing inflation risks further policy tightening (W. Yao)

China January housing inflation accelerated to the fastest pace since early 2011. This report justifies Beijing's renewed hawkishness on the housing market. Further acceleration of housing inflation will most likely trigger more policy tightening. Meanwhile, RBA Governor Stevens sounded rather upbeat on the economy in testimony to Parliament, and rather disinclined to cut rates in the short term. Key points were that there is a good deal of stimulus in the pipeline from previous easing, and that the high A$ has been a key factor in the current low rate setting. In response, the A$ strengthened nearly 1c and short-term rates rose.

Eco Analysis - Impressive German labour data (M. Martinez, A. Annenkov)

Eco Analysis - Impressive German labour data (M. Martinez, A. Annenkov)

Hard data once gain underlined the growing divergences between the French and German economies. German labour data proved very impressive and the unemployment rate dropped to a 20 year low in January (6.8% in January. Meanwhile, French consumption was flat in Q4 12 and details suggest that it is likely to remain sluggish in Q1 13.

Eco Analysis - FOMC stays the course (A. Markowska)

Eco Analysis - FOMC stays the course (A. Markowska)

Summary: The FOMC statement was very much inline with expectations. Asset purchases will continue at $85bn per month until the outlook for the labor market improves substantially, or until the perceived costs start to outweigh the benefits. The FOMC did not offer any new color on when that may be (and none was expected). The Fed's characterization of Q4 GDP numbers was a temporary pause driven by transitory factors. The statement notes some improvement in private sector demand, and sees the current policy stance as consistent with the recovery proceeding at a moderate pace. After the annual rotation of voting members, there was only one dissent vs. the possibility of two, perhaps suggesting a slightly less hawkish bias than expected. We will look to FOMC minutes on February 20th for more color on the timeframe for asset purchases.

Eco Analysis - France: No sign of sentiment up according to INSEE (M. martinez)

Eco Analysis - France: No sign of sentiment up according to INSEE (M. martinez)

The most observed component of the INSEE survey, the business climate index in the industrial sector fell from 89 to 86. As it improves slightly in the service sector, the business climate index for the whole economy was stable at 87. This is a low level (1.3 standard deviations below average) which points at best to stalled activity in the near term. We have the long held view that INSEE surveys help generally improve accurate forecasts of GDP growth in the near term (our econometric model has a solid R²=0.93). The main reason is that the INSEE surveys are completed on a broad basis (4,000 of companies). The January surveys' results do not change our forecast at -0.1%qoq in Q4 12 and Q1 13, but we believe risks are tilted to the downside. Bottom line: the government 2013 GDP growth forecast of 0.8% looks increasingly unlikely after such a weak start to 2013 (SG forecast for 2013 is zero growth). Hence, we believe that the government would be obliged to make a further budgetary adjustment to achieve the public deficit target (3.0% of GDP). The government could instead opt for a minor fiscal slippage. We believe that the government will not confront such a choice before March 2013, once final 2012 GDP and fiscal figures will be known.

Eco Analysis - UK in or out? (B. Hilliard)

Eco Analysis - UK in or out? (B. Hilliard)

UK PM Cameron delivered his “Europe” speech in London and committed to holding a referendum on Britain's future in the EU if a Conservative government is re-elected in May 2015. The issue is thus set to remain theoretical for a while, but uncertainty can have a negative impact on investment flows into UK in the meantime. On the data side in Europe, French industrial confidence surprised on the downside in January as internal and external demand ebbed. Hence, in contrast with the German Zew survey, hopes that the improved market sentiment paves the way for more positive hard data in the euro area will be disappointed (at least in France in the short term).