Deutsche Bank Research
The House View
Back to school
marcos.arana@db.com matthew.luzzetti@db.com michael.hsueh@db.com
18 September 2017
Distributed on: 17/09/2017 21:59:00 GMT
DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 083/04/2017.
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Month in Review
FT, August 31, 2017
FT, August 09, 2017
FT, August 28, 2017
FT, September 12, 2017
Economic Times, September 02 2017
NYT, June 26, 2017
Reuters, September 11, 2017
FT, August 26, 2017
Newsmax, 28 August, 2017
FT, August 29, 2017
Bloomberg, September 14 2017
The Guardian, August 01, 2017
Bloomberg, September 14 2017
The Washington Post, September 06, 2017
NYT, September 01, 2017
Deutsche Bank Research
NYT, September 06, 2017 thehous eview@list.db.com http://hous eview.res earch.db.com
The House View - 18 September 2017
Nasdaq, September 10, 2017
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The House View, 18 September 2017 Back to school
Unlike the last few years, this summer was relatively quiet. As markets look ahead to the rest of the year, the key theme will continue to be the major central banks' tentative progress toward removing monetary accommodation.
Investors have so far not priced in this outlook. Since the prospects for growth across all the major countries is better than it has been for some time it remains a puzzle why there hasn't been a greater sell-off in bond markets.
The failure of inflation to rise to the central bank targets of around 2% is only part of the explanation. Geopolitical and political risk have also played a role. But the latest data in the US have started to ease fears of a persistent low inflation scenario, and this should prompt a further move higher in rates as the tightening path for central banks becomes easier.
A gradual repricing of rates should not prove disruptive for risk assets, as it reflects a strong macro backdrop. But a sharp rise in rates, precipitated by a more meaningful pickup in inflation which reveals that central banks may be behind the curve, could be highly disruptive to asset pricing generally. 2013's taper tantrum provides an example, with US rates rising 140bp in 8 months and wiping billions off risk asset valuations.
Introduction |
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Summer review |
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Macro outlook |
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Politics |
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Summaries |
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Table of contents
David Folkerts-Landau, Group Chief Economist
The views in this publication are informed by Deutsche Bank's 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 colleagues
Deutsche Bank Research
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The House View - 18 September 2017
Steady global growth, macro views shift in favor of Europe. Latest data reinforce central banks' stance toward tighter policy
Economic outlook Central bank watch
Global growth near potential at 3.7% in 2017-18, up from 3.1% in 2016. We see upside resulting from capex growth, labour shortages, synchronised recovery
US economy improves from 2.2% to 2.4% growth in 2018. Volatility in labour market data should not alter Fed's view of full employment with solid momentum.
Eurozone cyclically strong: Our upgraded forecasts are above consensus at 2.2% in 2017, 2.0% in 2018. Exports & pent-up domestic demand driving growth.
EM: growth rising to 4.7% in 2017, 4.9% in 2018. China unexpectedly slowed in Aug, but risks balanced in H2
Views on key themes
Central banks on exit path: But signaling remains tentative outside the US; tug of war between CB messaging and market pricing is mediated by inflation
Low inflation: US inflation data improved; expect labour market tightness to feed into wages and in turn inflation. USD weakness could be a further boost.
Political risk: Intensification of North Korean crisis since late July but diplomatic resolution remains likely
Regime shift in FX: Rebalancing of investment flows takes over, relative rate expectations lose importance
Fed: Announcement on balance sheet policy in September; next rate hike in December, 3 more in 2018
ECB: QE extension and tapering to be announced in October, despite euro strength
BoJ: Not under pressure to act, no change expected in target short rate or yield curve control policy this year
BoE: We now expect a 25bp hike in November, but not the start of a hiking cycle
PBoC: No urgency to change policy stance, interest rates to remain at the current relatively high level
EM: Low inflation buying time for EM CBs, either allowing rate cuts (BR, RU, SA) or delaying rate hikes
Key downside risks to our view
M Sharp rise in rates: taper tantrum-type scenario if inflation rises faster, central banks seen behind curve
M China financial instability: property bubble deflates; rising dollar, DM yields put pressure on outflows, RMB
L DM growth deceleration: rising policy rates interrupt macro momentum, mild recession
L De-globalisation: rise of anti-trade policies exacerbates anaemic global trade and sharply slows growth
Deutsche Bank Research
thehous eview@list.db.com http://hous eview.res earch.db.com The House View - 18 September 2017
Notes: H / M / L indicates estimated probability of risk (High, Medium, Low). 4
Deutsche Bank AG published this content on 18 September 2017 and is solely responsible for the information contained herein.
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