august 2009
anticipations Monthly
Written by Philippe Waechter, Chief Economist of Natixis Asset Management
Our macroeconomic analysis The global economy increasingly gave off more positive signs during the month of July, though the situation still varies by geographical zone. Activity is picking up in Asia, showing clear signs of improvement in the US and tending towards stabilization in the Euro zone. Such disparities result from the scope of the economic policies implemented by authorities. • In the United States, the decline in GDP was much more moderate than during the second quarter: by an annualised rate of -1% (versus -6.4% in the first quarter). Private investments and stocks had less impact on growth. The contribution of government spending and external trade was positive: sharper drop in imports compared with exports. The only negative aspect was the slight decline in consumer spending as households chose to increase their savings due to the continuing poor job market. The US economy is on the path towards recovery from the recession, as illustrated by the joint presence of three factors: the ratio of new orders to stocks continues to increase, the downward slope of declining production and structural investments is now not as steep and, lastly, the real estate market is levelling out. • Though Latin America and Eastern Europe are still in a recession, recovery is already underway in the Asian zone, spurred on by China. The massive stimulation plan passed by the government has reinforced internal
demand in China which has been beneficial to the entire zone through an increase in exports. In order to provide for a lasting upturn in activity, governments and central banks will forge ahead with lenient policies aimed at bolstering internal demand as emerging countries in particular do not currently have the luxury of being able to count on demand from industrialised countries to shore up their exports. • In the Euro zone, the rate of declining activity has slackened. Activity only dropped by an annualised rate of -0.4% in the second quarter. In France and Germany, the economy grew by an annualised rate of +1.3% over the same period. The industrial sector in these two countries is in a better position and external trade has had a positive effect. Nevertheless, investments and consumption are still weak. Stocks are currently at very low levels. The biggest concern is the continuing decline in retail sales which have been severely affected by the grim job market. Surveys conducted in the industrial sector improved significantly in July. The positive points in the PMI/Markit survey(1) were the rebound of orders (in the manufacturing sector in particular) and the continuing decline of stocks. This could be a sign of a move toward the stabilisation of activities during the second half of the year. Manufacturers seem to be benefiting from the improved climate in general and, more particularly, from growth in Asia.
(1) The PMI survey polls companies on the key factors affecting their activities: production, new orders, jobs, prices, stocks, etc.
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anticipations Monthly august 2009
Our market analysis
Signs of an upturn of the world economy and the publication of better than expected company results clearly benefited equity markets during the month of July. Stock market gains were in clear contrast with the relative stability of government bond markets.
n Money market In a context characterised by low inflation, central banks have kept their rates at very low levels and have indicated that they will not change them for some time. During the month of July, Jean-Claude Trichet and Ben Bernanke mentioned possible strategies to lead the economy out of the crisis. These involve removing or neutralising excess liquidity once activity has picked up and thus limiting inflationary risks. Such rhetoric is aimed at preparing markets for a time when monetary policies will become less lenient. In so doing, they are seeking to avoid a surprise effect similar to that witnessed in February 1994 when the Fed started normalising its monetary policy.
n Bond markets Government bond markets remained relatively stable over the past month. The US 10-year note hovered between 3.3% and 3.7% and the OAT 10 year was between 3.6% and 3.8%. This was mainly the result of the absence of inflationary tensions and the reaffirmation by central banks that they will hold their rates at low levels for an extended period of time.
n Equity markets Following a period characterised by doubts and uncertainties in the month of June, equity markets rose sharply in July. An upturn in activity in Asia, signs of improvement in the US and the publication of higher than expected results on both shores of the Atlantic were the principal factors behind this about-face. The Standard & Poor’s index progressed by 7.3% and the CAC 40 index by 9.4% between 30th of June and the 30th of July 2009.
n Currency market The US dollar was not among the beneficiaries of signs this summer that the US economy is coming out of the recession. On the contrary, the real exchange rate of the Dollar depreciated slightly during the month of July, despite the continued improvement of surveys conducted among manufacturers and the publication of better than expected company results. In a period of reduced risk aversion, investors have abandoned the Dollar to invest in assets which offer higher yields.
n Commodities After having returned below the threshold of 60 Dollars in early July on the heels of doubts about the outlook for recovery of the world economy, oil prices have begun to rise again and are now back at the 70 Dollar level, which is still high considering that global demand is low and stocks are high.
Written on 08/17/2009
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anticipations Monthly august 2009 Our asset allocation bias We remain “neutral” on bond markets and have moved to “positive” on equity markets. Risk categories
Risk subcategories
Tactical allocation*
Commentary
July 09(1) Aug. 09(2)
Fixed income
=
=
We remain "neutral". Continued highly lenient monetary policies and reduced inflationary risks suggest that long-term rates will remain stable.
Equities
-
+
We have switched to "positive" as equity markets should benefit from the signs of improved global activity.
United States
-
-
We remain "negative". Due to un upturn of activity, the slope of the curve could steepen due to an increase in long-term rates as the Fed will not touch its reference rate.
Euro
=
=
We remain "neutral". The ECB will keep its rates at very low levels for a long period of time and transformations underway at commercial banks are limiting the risks of tensions on long-term rates.
UK
Japan
= =
= =
Corporate
+
+
United States
= = +
+ + + =
= = =
= = =
= =
= =
Fixed income
Emerging countries
Euro issuers
Equities
Euro UK Japan Dollar
currencies (against the euro)
Yen Pound Sterling
Commodities
Oil Gold
We remain "negative" based on fears in connection with financing of the public deficit in the UK. We remain "neutral". We remain "neutral". We remain "positive". The situation of companies will progressively improve as global activity becomes more positive. We have switched to "positive": activity is getting back on track, as are results. We move to "positive". Markets will soon reflect the outlook of a progressive upturn of activity. We move to "positive". We have switched to "neutral" due to the fragile nature of the recovery and of investments and consumption in particular. "Neutral": the Euro/Dollar ratio should remain stable. "Neutral": the Yen should stabilise compared with the Euro. "Neutral": the Pound Sterling should stabilise.
"Neutral": the price of a barrel of oil should stabilise at around the current levels. We remain "neutral".
Scale from -- to ++
*weighting gap vs. strategic allocation of an investor
(1) Investment committee on 06/25/2009. (2) Investment committee on 07/30/2009. This document is intended for professional clients. None of the information contained in this document should be interpreted as having any contractual value. This document is produced purely for the purposes of providing indicative information. It constitutes a presentation conceived and created by Natixis Asset Management from sources that it regards as reliable. Natixis Asset Management reserves the right to modify the information presented in this document at any time without notice. This document does not in any way constitute a
commitment on behalf of Natixis Asset Management. Natixis Asset Management will not be held responsible for any decision taken or not taken on the basis of information contained in this document, nor in the use that a third-party may make of it. This document may only be copied for information purposes, and all copies are strictly for personal use. It may not be used, reproduced, distributed or communicated to third parties in part or in whole without the prior written authorization of Natixis Asset Management.
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