september 2009
anticipations Monthly Written by Philippe Waechter, Chief Economist of Natixis Asset Management
Our macroeconomic analysis The global economy returned to stability during the summer and signs of recovery were seen in all world regions. Although Asian economies posted healthy gains already in the second quarter, the anticipated recovery is only in its early stages in the United States, while the euro zone economy should return to growth more quickly than expected. The United States economy is on track to leave the recession behind, as shown by the improved figures reported during the summer. The most spectacular rise of the period was the strong upturn in the ISM manufacturing index for the month of August. For the first time since January 2008, this index crossed the 50 percent threshold to reach 52.9 percent, thus signaling robust business growth. In addition, in the area of investment, both the residential real estate market and capital spending continued to exhibit stability. The sharp upswing in new orders and the maintenance of very low inventory levels lead us to predict that the rise in business activity will be swifter than expected. All the same, the strength of the recovery may be held in check as households throttle back on consumption, preferring to focus more on building back their savings and reducing their debt.
Korea. The rapid rise in intra-Asian trade has been a positive development for business activity. Growth figures for China, Korea and Japan all were firmly back on a positive footing in the second quarter. In the Euro zone, GDP was nearly stable in the second quarter, falling 0.1 percent quarter-on-quarter after a 2.5 percent drop in the first three months of 2009. Germany and France both saw slightly positive growth of 0.3 percent. Consumer spending and exports benefited from government stimulus measures, especially the “cash for clunkers� scheme for the automobile sector. During the summer, more positive trends for business indicators asserted themselves ahead of forecasts. For example, the PMI composite index (combining data for the manufacturing and services sectors) rose to 50.4 percent in August from 47 percent in July. The Euro zone economy is thus getting back on a stable track but remains fragile. Although the situation is improving in France and Germany, sluggish conditions persist in Spain and Italy. However, one important positive sign is the significant upturn in foreign orders for German capital goods, which provided a major boost to euro zone business activity in 2005–2007.
In Asia, accommodative budgetary and monetary policies helped to drive internal demand, especially in China and
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anticipations Monthly september 2009
Our market analysis
The equity markets continued their upward momentum, buoyed by signs of recovery in the world economy and by better-than-expected corporate earnings. This rally therefore contrasted with the virtual standstill in government bond markets during the summer months.
n Money market With limited risk of inflation, central banks maintained their highly accommodative monetary policies in order to spur recovery, announcing that they intend to keep these policies as such for some time and will continue to adopt exceptional measures to ensure the effectiveness of these measures. Central banks want to be certain that business growth momentum is sufficiently robust before implementing any crisis exit strategies.
n Bond markets Government bond markets remained relatively stable during the summer due to the continuing slim likelihood of inflation and the reiterated intention of central bankers to maintain interest rates at very low levels for an extended period. Even if inflation were to rapidly return to positive territory, due to the less negative impact of energy prices, it would still be limited given the absence of pressures on production capacity or the labor market. This also limits the risk of upward pressure on interest rates for government bonds.
n Equity markets Stocks continued the rebound that started in mid-March. Reports of better-than-expected corporate profits and the first stirrings of a recovery in worldwide growth explain this phenomenon. The CAC 40 index thus gained 4 percentage points between July 30 and September 2, the Euro Stoxx 50 rose by 1.8%, and the S&P 500 by 0.8%.
n Currency market Despite the many signs of recovery in the US economy during the summer, the US dollar has yet to bounce back and instead continued its steady decline, although at a more moderate pace than this past spring. The decrease in relative risk aversion prompted investors to move away from safe-haven, low-yield currencies to invest in assets offering greater returns and in particular the euro, which appreciated by 13.2% against the US dollar between March 9 and September 2 to close this period at USD 1.42 (thus reaching its highest level since December 2008).
n Commodities The prospect of a rapid recovery in business activity brought oil prices back to around 70 dollars per barrel (the level attained last June). Crude prices therefore remain high despite low worldwide demand and excess supply capacity.
Written on September 11th, 2009
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anticipations Monthly september 2009 Our asset allocation bias We remain “neutral” on bonds and “positive” on equities. Risk categories
Risk subcategories
Tactical allocation*
Commentary
Aug 09(1) Sept. 09(2)
Fixed income
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We remain “neutral”. The absence of inflation risk and the low-rate policies maintained by central banks portend the stability of long bond yields.
Equities
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We remain “positive” on the equity markets. Economic recovery worldwide should result in improved corporate earnings.
United States
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We remain “negative”. The possibility of a stronger-than-expected recovery in the United States may generate pressure on US long bonds.
Euro
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We remain “neutral”. The risk of a rise in long bond yields is limited by the ECB’s intention to keep rates low for an extended period and by the transformation programs under way at commercial banks.
UK
Japan
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= =
Corporate
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+
We remain “positive”. Companies will benefit from the economic recovery. In addition, the shrinkage in the supply of new securities should help the credit market.
United States
+ + + =
+ + + =
We maintain our “positive” stance. Markets will benefit from the nascent recovery in the world’s largest economy.
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Fixed income
Emerging countries
Euro issuers
Equities
Euro UK Japan Dollar
currencies (against the euro)
Yen Pound Sterling
Commodities
Oil Gold
We remain “negative” due to concerns related to the financing of the UK budget deficit. We maintain our “neutral” stance. We remain “neutral”.
We remain “positive”. The prospect of a return to growth sooner than expected should boost company earnings. We remain “positive”. We remain “neutral”. Japan’s recovery appears fragile given low internal demand and especially the drastic cuts in capital spending. “Neutral”: EUR/USD parity is expected to remain relatively stable. “Neutral”: the yen is expected to return to a more stable footing against the euro. “Neutral”: the pound sterling should remain stable.
We remain “neutral” on oil, as prices already reflect the prospect of higher worldwide demand. “Neutral”: after its strong rally, the price of gold per ounce is likely to return to stability.
Scale from -- to ++
*weighting gap vs. strategic allocation of an investor
(1) Investment committee on 07/30/2009. (2) Investment committee on 09/02/2009. 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
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