Deutsche Bank
Global Outlook and Local Wishes
32 Annual Conference IAEF
Buenos Aires, June 11, 2015
Gustavo Cañonero, Managing Director
Chief Economist for Emerging Markets
Deutsche Bank Securities
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Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE
LOCATED IN APPENDIX 1. MICA(P) 146/04/2015
Deutsche Bank
Gustavo Cañonero
Gustavo.canonero@db.com
(1 212) 250 - 7530
Agenda
I.
US Outlook
II.
EU, Japan, and China
III.
Latin America
IV.
Investment Implications
V.
Argentina
Deutsche Bank
Gustavo.Canonero@db.com
1
US, Fed and
Markets
Deutsche Bank
Gustavo.Canonero@db.com
2
US Outlook
Growth is picking up, but for the past five years the FOMC has
been too optimistic about growth
Q4/Q4 % chg
5
Q4/Q4 % chg
Actual GDP growth
Dec 12 projections
Mar 15 projections
June 10 projections
Dec 13 projections
Nov 11 projections
Dec 14 projections
5
4
4
3
3
2
2
1
1
2010
2011
2012
2013
2014
2015
2016
2017
Note: FOMC forecasts are q4/q4 and actual GDP is annual data.
Source: FRB, BEA, DB Global Markets Research
Deutsche Bank
Gustavo.Canonero@db.com
3
US Outlook
Inflation remains low, but FOMC projections have always
outplayed it
% q4/q4
% q4/q4
2.0
1.9
1.8
1.7
1.6
1.5
1.4
1.3
1.2
1.1
1.0
Actual core PCE inflation
Dec 13 FOMC projections
Mar 15 FOMC projections
2011
2012
Dec 12 FOMC projections
Dec 14 FOMC projections
2.0
1.9
1.8
1.7
1.6
1.5
1.4
How the Fed views inflation 1.3
1.2
How the market views inflation
1.1
1.0
2013
2014
2015
2016
2017
Source: BEA, FRB, Haver Analytics, DB Global Markets Research
Deutsche Bank
Gustavo.Canonero@db.com
4
Strong dollar impact?
The recent move down in capacity utilization has delayed
the uptrend in inflation. This may also delay the first Fed hike.
US Outlook
%
84
Capacity utilization (ls)
Unemployment rate (rs)
%
10
82
Full capacity=higher inflation
80
9
8
78
Is the dollar
behind the
recent
weakness?
76
74
7
6
72
70
5
Unemployment rate
close to Fed NAIRU=5.1%
68
66
64
4
3
02
03
04
05
06
07
08
09
10
11
12
13
14
15
Source: Fed, BLS, Haver Analytics, DB Global Markets Research
Deutsche Bank
Gustavo.Canonero@db.com
5
US Outlook
One year ago there was no wage pressure.
Now the ECI and ECEC are trending higher
5.0
Employment cost index: wages & salaries (rs)
Employer Costs for Employee Compensation: wages & salaries (rs)
% y/y
Avg hourly earnings, All workers (rs)
Employment cost index: wages & salaries, 3-qtr change, ann (ls)
5.0
4.5
4.5
4.0
4.0
%, AR
3.5
All four wage
measures flat
3.0
Two wage
measures
trending up
3.5
3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Source: BLS, Haver Analytics, DB Global Markets Research
Deutsche Bank
Gustavo.Canonero@db.com
6
US Outlook
Companies planning to raise wages trending up
%y/y
% of firms
NFIB: Companies planning to raise worker compensation (9 month lead, ls)
ECI: wages & salaries: private industry workers (rs)
25
4.5
Correlation=0.88
4.0
20
3.5
15
3.0
2.5
10
2.0
5
1.5
1.0
0
86
88
90
92
94
96
98
00
02
04
06
08
10
12
14
15
Source: NFIB, BLS, Haver Analytics, DB Global Markets Research
Deutsche Bank
Gustavo.Canonero@db.com
7
US Outlook
Wage and income expectations near highest levels in five years
Expectations of personal finances in 1 year: Relative score (ls)
%
%
Percentage of consumers expecting household income to rise over next year (rs)
70
140
130
60
120
50
110
40
100
30
90
04
05
06
07
08
09
10
11
12
13
14
15
Source: University of Michigan, Haver Analytics, DB Global Markets Research
Deutsche Bank
Gustavo.Canonero@db.com
8
US Outlook
%
5
Market expectations still well below FOMC dots
Fed Funds Futures
Mar-15 Median
Sep-14 Median
%
5
Dec-14 Median
Minutes Mar-15
4
4
3
3
Robert.Burgess@db.com
2
2
1
1
0
0
2014
2015
2016
2017
Longer Term
Source: Fed, Bloomberg, DB Global Markets Research
Deutsche Bank
Gustavo.Canonero@db.com
9
BUT
Deutsche Bank
Gustavo.Canonero@db.com
10
US Outlook
The speed of the expansion has significantly
lagged past economic cycles until now
Real GDP
% y/y
Current cycle
8
% y/y
Average of last 9 cycles
8
6
6
4
4
2
2
0
0
-2
-2
-4
-4
-6
-6
-4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10111213141516171819202122
"0" represents the recession end date
Source: BEA, Haver Analytics, DB Global Markets Research
Deutsche Bank
Gustavo.Canonero@db.com
11
US Outlook
Productivity has been also lower than its historic
trend
Nonfarm productivity during and after the recession
% y/y
% y/y
Average of post-WWII recessions
Current recession
6
6
Is productivity well measured
in Google´s time anyway????
4
4
2
2
0
0
-2
-2
-4
-2
0
2
4
6
8
10 12 14
"0" represents recession end quarter
16
Source: BEA, Haver analytics, DB Global Markets Research
Deutsche Bank
Gustavo.Canonero@db.com
12
18
20
US Outlook
Poor investment appetite seems to be behind low
productivity growth
YoY Productivity and investment growth 10%
10.8%
YoY
8.2%
7.1%
5.8%
5.7%
5.5%
5%
0%
1.2%
‐5%
Facebook is worth 10
times Sony, with less than
1/5 of Capex !!!!
‐8.2%
‐10%
Real Output Per Hour (Nonfarm Business Sector) ‐15%
Real Private Nonresidential Fixed Investment ‐20%
Mar‐00
May‐01
Jul‐02
Sep‐03
Nov‐04
Jan‐06
Mar‐07
‐17.7%
May‐08
Jul‐09
Sep‐10
Nov‐11
Source: BEA, Haver analytics, DB Global Markets Research
Deutsche Bank
Gustavo.Canonero@db.com
13
Jan‐13
Mar‐14
US Outlook
And declining labor force participation dampens the
“good news” of a falling unemployment rate
Civilian employment-population ratio (Inverted axis, ls)
%.
Unemployment rate (rs)
%
10
58
9
8
60
7
Robert.Burgess@db.com
6
62
5
4
64
3
2
66
00 01
02 03 04
05 06
07 08
09 10
11 12
13 14
Source: BLS, Haver Analytics & DB Global Markets Research
Deutsche Bank
Gustavo.Canonero@db.com
14
US Outlook
1. Current productivity trend might not sustain
supply growth
2. Employment and/or income might not sustain
demand growth
3. Savings seem to be increasing (high return
on low capex activities, demographics,
education, public debt, etc)
4. Very low or negative real rates might be
needed to equalize Saving=Investment under
full employment
Low real rates and excess liquidity
nevertheless promote constant risks of asset
bubbles and financial fragilities
Deutsche Bank
Gustavo.Canonero@db.com
15
US Outlook
Market volatility is re-emerging
MOVE index divided by VIX
1200
1200
1000
1000
Post-crisis high
800
800
Robert.Burgess@db.com
600
600
400
400
20 year average
200
200
90
95
00
05
10
15
Note: 1-month Move Index used. Source: WSJ, BoAML, Haver Analytics, DB Global Markets Research
Deutsche Bank
Gustavo.Canonero@db.com
16
US Outlook
Primary dealer inventory of IG and high yield bonds currently 20%
of what it was in 2007 – and the outstanding stock of
corporate bonds has almost doubled since 2007
USD trn
Total stock of US corporate bonds outstanding (ls)
Primary dealer inventory of corporate bonds (rs)
USD bln
300
4.5
250
4.0
The
credit
liquidity
gap
3.5
200
150
3.0
100
2.5
50
0
2.0
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Source: FRB, Haver Analytics, DB Global Markets Research
Deutsche Bank
Gustavo.Canonero@db.com
17
US Outlook
Fed funds at zero sent households on a hunt for yield.
Households now own 30% of IG and HY outstanding, up from 15%
in 2006. Will they sell when the Fed turns hawkish later this year?
%
10 year treasury note yield (ls, inverted)
%
1.50
Household holdings of corporate bonds as share of all outstanding
corporate bonds (rs)
32
2.25
28
3.00
24
3.75
20
4.50
16
5.25
12
02
03
04
05
06
07
08
09
10
11
12
13
14
15
Note: Flow of funds data; household holdings is the sum of household direct holdings + ETF + Mutual funds
Source: FRB, Haver Analytics, DB Global Markets Research
Deutsche Bank
Gustavo.Canonero@db.com
18
Europe, Japan,
and China
Deutsche Bank
Gustavo.Canonero@db.com
19
EU
US long rates continue to be driven by ECB
expectations
Forward Implied Hike
Month
Forward Implied Hike
Month
Fed
Mar-21
ECB
mar-21
Sep-20
sep-20
Feb-20
feb-20
Aug-19
ago-19
Feb-19
feb-19
Aug-18
ago-18
Jan-18
ene-18
Robert.Burgess@db.com
jul-17
Jul-17
ene-17
Jan-17
jul-16
Jul-16
Jan-16
ene-16
Jun-15
jun-15
Dec-14
dic-14
Jun-14
ene-14
jun-14
abr-14
jul-14
oct-14
ene-15
abr-15
Note: Data from OIS curves. For the first hike the cutoff is 0.25% in Europe and 0.375% in the US.
Source: Jack Di Lizia, Steven Zeng, DB Global Markets Research
Deutsche Bank
Gustavo.Canonero@db.com
20
EU
Europe benefiting from lower oil and lower euro
%y/y
Retail trade ex auto & motorcycles (ls)
6
Index
Euro area
PMI: composite employment (rs)
58
4
55
2
52
0
49
-2
46
-4
43
-6
40
04
05
06
07
08
09
10
11
12
13
14
15
Source: EuroStat, Markit, Haver Analytics, DB Global Markets Research
Deutsche Bank
Gustavo.Canonero@db.com
21
EU
Spain: New orders at highest level since 2007
Index
65
Spain : PMI Manufacturing new orders
Index
65
60
60
55
55
50
50
45
45
40
40
35
35
30
30
25
25
20
20
05
06
07
08
09
10
11
12
13
14
15
Source: MARKIT, Haver Analytics, DB Global Markets Research
Deutsche Bank
Gustavo.Canonero@db.com
22
A falling euro is good for European inflation.
And it holds back inflation in the US
Effects of a ten percent euro depreciation
Year
United States
GDP Level
Inflation (Consumer prices)
Japan
GDP Level
Inflation (Consumer prices)
European Union
GDP Level
Inflation (Consumer prices)
Deviations from baseline, in percent
1
2
3
-0.1
-0.3
-0.2
-0.3
-0.3
-0.4
-0.2
-0.4
-0.5
-0.1
-0.3
-0.4
0.6
0.6
0.4
0.4
0.4
0.7
Source: OECD, DB Global Markets Research
Deutsche Bank
Gustavo.Canonero@db.com
23
EU
Markets underestimating the progress made in Europe
Difference in ranking between Germany and the periphery in the World
Bank’s survey of how easy or difficult it is to do business in different
countries
Greece
Portugal
Spain
Italy
Ireland
20
20
0
0
-20
-20
-40
-40
-60
-60
-80
-80
-100
-100
2010
2011
2012
2013
2014
2015
For example: In 2010 Greece was 84 places behind Germany in the ranking, in 2015 the difference was 47
Source: World Bank Doing Business Survey, DB Global Markets Research
Deutsche Bank
Gustavo.Canonero@db.com
24
Japan
Abenomics is working
Japan: Female employment rate: age 25-54
%
%
73
73
December 2012
Abenomics begins
72
72
71
71
70
70
69
69
68
68
67
67
66
66
07
08
09
10
11
12
13
14
15
Source: OECD, Haver Analytics, DB Global Markets Research
Deutsche Bank
Gustavo.Canonero@db.com
25
Japan wage growth highest since 1998
Japan
Japan
% y/y,
9m MA
3
% y/y,
9m MA
3
Total cash earnings
2
2
1
1
Robert.Burgess@db.com
0
0
-1
-1
-2
-2
-3
-3
-4
-4
95
97
99
01
03
05
07
09
11
13
15
Source: Haver Analytics, DB Global Markets Research
Deutsche Bank
Gustavo.Canonero@db.com
26
China
Recent data from China is worrying
%y/y
%y/y
China
Industrial production (ls)
24
Real GDP(rs)
15
22
14
20
13
18
12
16
11
14
10
12
9
10
8
8
7
6
6
4
5
2
4
06
07
08
09
10
11
12
13
14
15
Source: CNBS, Haver Analytics, DB Global Markets Research
Deutsche Bank
Gustavo.Canonero@db.com
27
China
China: Housing market stabilizing somewhat
Number of cities with rising home prices
Unchanged
Number of cities with falling home prices
Apr-15
Jan-15
Oct-14
Jul-14
Apr-14
Jan-14
Oct-13
0
Jul-13
0
Apr-13
10
Jan-13
10
Oct-12
20
Jul-12
20
Apr-12
30
Jan-12
30
Oct-11
40
Jul-11
40
Apr-11
50
Jan-11
50
Oct-10
60
Jul-10
60
Apr-10
70
Jan-10
70
Note: Month over month changes. Source: CNBS, Haver Analytics, DB Global Markets Research
Deutsche Bank
Gustavo.Canonero@db.com
28
China
The number of 15-to-30-year-olds
in China falling by 25% over the next decade
China: Population aged 15-30 years
Mn
Mn
325
325
315
315
305
305
295
295
285
285
275
275
265
265
255
255
245
245
235
235
225
225
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Source: UN, Haver Analytics, DB Global Markets Research
Deutsche Bank
Gustavo.Canonero@db.com
29
How will a slowdown in China impact the rest of the world?
Percent of total exports consumed by China
%
%
Australia
Japan
South Korea
US
Germany
Brazil
40
40
35
35
30
30
25
25
20
20
15
15
10
10
5
5
0
0
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
Source: IMF, Haver Analytics, DB Global Markets Research
Deutsche Bank
Gustavo.Canonero@db.com
30
China
UN forecast: Share of world working age population rising in Africa
Share in world's working age population
%
India
Africa
China
%
US+Europe+Japan
35
35
30
30
25
25
Robert.Burgess@db.com
20
20
15
15
10
10
5
5
50
60
70
80
90
00
10
20
30
40
50
60
70
Note: Data covers period from Jan 2007 to present.
Source: UN, Haver Analytics, DB Global Markets Research
Deutsche Bank
Gustavo.Canonero@db.com
31
Latin America
Deutsche Bank
Gustavo.Canonero@db.com
32
LATAM Outlook
Recent economic cycle seems in line with
historical correlations within terms of trade
shocks
15%
30%
Gross domestic product
10%
Terms of trade
20%
Investment, rhs
5%
10%
0%
0%
‐5%
‐10%
‐10%
‐20%
1990
1993
1996
1999
2002
2005
2008
2011
2014
Source: IMF and DB Global Markets Research
Deutsche Bank
Gustavo.Canonero@db.com
33
LATAM Outlook
Absent the commodity bonanza, anti business climate,
strong regulatory stance, and high fiscal burden
summarize the main threats to performance in the region
Public burden and private investment (avg 2012-2014)
Gross Investment/GDP
27
CHI
25
COL
PER
23
MEX
21
ARG
19
VEN*
17
BRA
15
20
25
30
35
40
45
Government Primary Expenditure/GDP VEN* Data available until 2012 Deutsche Bank
Gustavo.Canonero@db.com
Source: Haver Analytics, IMF & DB Global Markets Research
34
Latin America Outlook
Disappointment is across the board, but outlook differs within
regional countries
GDP growth
Inflation
140 %
%
2013
6
2014
2015F
2016F
2013
2014
2015F
2016F
120
4
100
2
80
60
0
40
‐2
20
‐4
0
ARG
BRA
CHIL
COL
MEX
PER
VEN
Current account balances
5
4
2014
2015F
2016F
3
2
1
0
‐1
‐2
‐3
‐4
‐5
ARG
BRA
CHIL
Source: DB Global Markets Research
Deutsche Bank
Gustavo.Canonero@db.com
COL
BRA
CHIL
COL
MEX
PER
VEN
LATAM forecasts
%
2013
ARG
Robert.Burgess@db.com
MEX
PER
VEN
(%YoY unless stated)
Real GDP growth
Priv. consumption
Investment
Inflation (eop)
Exports, USD bn
Imports, USD bn
Industrial production
Unemployment (%)
Fiscal bal. (% of GDP)
CA bal. (% of GDP)
2013
2014 2015F 2016F
2.6
0.9
0.2
1.9
3.8
1.2
0.5
2.1
2.9
‐1.7
‐1.9
3.1
10.4
12.7
13.9
13.2
968.5 931.3 847.5 886.6
923.2 902.9 848.8 877.5
1.5
‐1.3
‐0.5
3.0
5.7
5.6
6.1
6.6
‐2.9
‐5.6
‐4.8
‐4.2
‐2.4
‐2.7
‐3.4
‐3.2
35
Latin America Outlook
Much slower growth than before, particularly in those
countries fostering consumption growth in the boom
2013
GDP Growth (%)
Argentina
Brazil
Chile
Colombia
Mexico
Peru
Venezuela
2.9
2.7
4.3
4.9
1.1
5.8
1.7
2014
‐1.1
0.1
1.9
4.6
2.1
2.4
‐3.4
2015F
‐0.5
‐1.4
2.3
3.2
2.6
3.3
‐7.4
2016F
2.1
0.6
3.0
3.0
3.3
4.5
‐1.2
Inflation (eop, %)
Argentina
Brazil
Chile
Colombia
Mexico
Peru
Venezuela
2013
2014
27.9
5.9
2.8
1.9
4.0
3.1
56.5
37.7
6.4
4.6
3.7
4.1
3.2
70.0
2013
2014
6.52
2.34
523.8
1870
13.0
2.80
5.97
8.47
2.66
607.4
2001
14.8
2.98
20.00
2015F
27.3
8.7
3.5
4.2
3.1
2.5
100.0
2016F
21.0
5.4
2.9
3.0
3.4
2.9
120.0
Robert.Burgess@db.com
2013
Current Account (%GDP)
Argentina
‐1.4
Brazil
‐3.4
Chile
‐3.7
Colombia
‐3.2
Mexico
‐1.8
Peru
‐4.3
Venezuela
3.2
2014
‐1.7
‐4.5
‐1.2
‐5.2
‐2.3
‐4.0
6.7
2015F
‐1.5
‐4.5
‐0.2
‐5.8
‐2.5
‐4.7
‐2.5
2016F
‐1.1
‐4.5
‐0.5
‐4.1
‐2.7
‐4.7
‐1.8
Fx (eop)
Argentina
Brazil
Chile
Colombia
Mexico
Peru
Venezuela
2015F
9.75
3.20
625.4
2800
14.6
3.16
40.00
2016F
14.8
3.40
621.4
3200
14.4
3.32
80.00
Source: DB Global Markets Research
Deutsche Bank
Gustavo.Canonero@db.com
36
Investment
Implications
Deutsche Bank
Gustavo.Canonero@db.com
37
Investment implications summarized
Fed outlook
– Fed will hike in
September or
December
The economy is losing momentum. Timing of Fed hike will depend on how long the
soft patch lasts.
Bond markets
- Rates modestly
higher in 2015
Fundamentals suggest 10y rates are below fair value. As growth accelerates rates
will move higher. But demand from Europe and “tourists” leaving HY+IG coming
back to rates will keep a lid on the uptrend.
Stock markets
- Better private
sector balance
sheets
Corporate, household, and banking sector balance sheets continue to heal. This
bodes well for equities.
FX
- USD up
Stronger US recovery will mean Fed hiking sooner, which will mean higher USD
Commodities
- Downside risks
Slowing Chinese construction growth likely to continue to put downward pressure
on commodity prices. If commodity prices fall, Australia, Latam, and Canada likely
to be hit.
Emerging markets
- Falling commodity
prices a negative
Structural problems starting to appear in a number of emerging markets, including
China.
Source: DB Global Markets Research
Deutsche Bank
Gustavo.Canonero@db.com
38
Global Forecasts
Deutsche Bank
Gustavo.Canonero@db.com
39
Global Forecasts
US drives global growth now, EM accomodates but with
challenges
GDP growth, YoY
2014F 2015F 2016F
G7
‐US
‐Japan
‐Euroland
EM Asia (ex‐Japan)
‐China
‐India
EMEA
‐Russia
LatAm
‐Argentina
‐Brazil
‐Chile
‐Colombia
‐Mexico
‐Peru
Industrial countries
EM countries
Global
1.7
2.4
‐0.1
0.9
2.1
2.7
0.9
1.4
2.5
3.1
1.8
1.6
6.5
6.4
6.3
7.4
7.0
6.7
7.2
7.5
7.5
Robert.Burgess@db.com
2.3
0.6
1.5
0.6 ‐5.2 ‐3.4
0.8
‐1.1
0.1
1.9
4.7
2.1
2.7
1.7
4.7
3.4
0.2
‐0.5
‐1.4
2.3
3.2
2.6
3.3
2.2
4.2
3.3
1.9
2.1
0.6
3.0
3.0
3.3
4.5
2.4
4.6
3.7
CPI Inflation, YoY
2014F 2015F 2016F
1.5
1.6
2.7
0.4
0.5
0.6
0.7
0.0
2.0
2.6
0.9
1.4
3.4
2.0
6.7
6.0
7.9
2.7
1.8
5.0
8.6
16.0
3.5
2.7
5.7
5.7
6.9
12.5
38.5
6.3
4.4
2.8
4.0
3.2
1.4
5.3
3.6
12.9
27.5
8.1
3.9
4.3
3.3
2.7
0.5
5.5
3.4
11.9
25.1
6.1
2.9
3.4
3.5
2.7
1.9
5.2
3.8
Source: DB Global Markets Research
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40
Global Forecasts
Rates are going up globally, and terms of trade stay
stable at best
Commodities (USD, Annual Average)
2014F
2015F
2016F
W TI (barrel)
Brent Blend (barrel)
Gold (oz.)
Copper (lb)
95.21
102.20
1265
3.13
55.00
59.00
1165
2.80
2017F
65.00
70.00
1100
2.70
70.00
75.00
1100
3.20
12M
0.90
126.0
12M
1.00
2.70
0.05
0-0.10
Exchange Rates
Current
3M
Robert.Burgess@db.com
USD/EUR
JPY/USD
1.12
118.0
1.00
119.0
6M
1.00
121.0
Current
0.13
2.35
0.05
0-0.10
3M
0.13
2.35
0.05
0-0-10
6M
0.25
2.50
0.05
0-0.10
Interest Rates
Fed Funds
10-Y Treasuries
ECB rate
ODR rate
Source: DB Global Markets Research
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Argentina
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Appendix 1
Important Disclosures
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*Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via
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