APRIL 2017
WORLD
Gold / Copper ratio is bouncing off its support line, a ratio inversely correlated with reflation. The pause in reflation, the main message provided last month, should last some more time before the second reflation up leg starts.
The proxy for Global IP is indicating that further improvement in Global IP are likely to be observed
That is a positive for the global equity cycle
World GDP remains on a solid upward trajectory
US
US Risk aversion remains low as economic conditions remains supportive
That allows Equities to outperform Bonds
US GDP outlook still solid based on the leadership offered by the Conference Board Employment Trend Index (No of people employed)
The resource utilisation index (machine & humans) also conveys a positive message
Capex poised to improve
Personal Consumption too
The price for one unit of risk reaches very high level. Not a timing tool but a reminder that good news come at an elevated price.
US “bond like” sectors recovered Vs Cyclicals as long rates declined
EM
EM GDP momentum remains well sustained
MSCI EM EPS also poised to show more improvement
G4 imports growth also suggest an improving outlook for EM profit growth
ASIA Ex-Japan
MSCI ASIA Ex-Jpn EPS growth should continue to improve
CHINA
Liquidity having its toll on China Steel prices and Iron ore
Industrial Commodities are also rolling over as total credit growth in China is slowing down
Fixed asset investment in real estate and, ultimately, materials demand from China should also be impacted.
A slowdown in the real estate sector shall weight on commodities prices
Basic resources stock relative performance is also impacted in Asia Ex-Jpn
The outlook for China is key to determine the outlook for global equities. The Li Keqiang index is used to measure the “old China” sectors, the sectors that authorities can drive with their levers.
CONCLUSIONS
1) Ongoing pause in the reflation trade. Commodities price shall remain under pressure.
2) The macro trends remains positive in DM
3) EPS growth should continue to rise
4) Risk aversion remains low, equities shall continue to outperform bonds
5) China credit conditions are tightening; this create a risk for global industrial production, commodities and global EPS growth towards the year end considering the lead of the credit cycle over these macro data.
Maurizio Sanci
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