The investment conditions ahead

The investment conditions ahead, to be more difficult than expected!

 Global

•  2016 will be a two-stage year:

1. H1: Building up the myth of normalization

1. Global growth and inflation statistics will surprise on the upside (fiscal boosts are overlooked in DM)
2. Fiscal policy will ease in 2016 in Europe and in the USA
3. Because of fewer tensions on oil and EM FX, the short-term upside of the USD limited            
4. Consumer segments and construction to support global improvements

 

2. H2: Growth/Liquidity trade-off to become less attractive

1. Leading indicators are expected to peak towards the end of 2016
2. Fed rates at 1 % in September
3. EM outflows to continue increasing thereby volatility in the bond market (high quality) and another leg in the USD rally to occur before it will fall-back much lower levels than today

 

• Inflexion points:

1. EM: last year of currency adjustments in real terms
2. Europe: the last year of crisis repair
3. US: the last good year before a significant recession in 2017
4. Oil: Prices for energy will go lower before stabilizing at present levels for the years ahead

 US

1. We expect the treasury curve will steepen.
2. Commodity prices will bottom-out.
3. The US equity market will enter the last quarter of a positive cycle.

 

Europe

1. Moderate but comparatively robust above-trend growth opportunities are in place (there is more catch-up potential in the Europe than in the US).
2. Favorable financial conditions should remain until 2018.
3. Improved competitiveness, based on cheap money, is well supported for most countries, except in some regions such as France.
4. Barbarians at the gate: the European political system got a sensible and warranted reminder that its borders are not secure and it that can’t play dual roles, e.g. firefighter and pyromaniac. A more pragmatic approach by the EU is required otherwise more far-right representatives will be elected and put into government roles. Ultimately, the problems will be solved; the question though is in which manner.

 

 What are the risks through-out the year?

1. Politics: US election, (Mr D.T. to become President?! or more of the same with Mrs Clinton), Brexit (event the UK government is undecided and does not really support the status quo), European refugee crisis (see article Barbarians at the gate).
2. More deflation in the manufacturing sector (ove-capacities can’t be reduced and governments apply the wrong policies)
3. Downgrading of EM countries resulting in a higher risk aversion, impacting thereby the economies in Europe and US. Europe is more exposed to DM than the US.