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Chief Economist's Comment - 19 Jan 2020    

Sunday Wrap

  • EM investors in Vienna predict stronger growth for the CEE region than we do, largely reflecting more positive assumptions about the global business cycle.
  • The ECB policy review is about to start: the risk that it might signal higher tolerance for suboptimally low inflation should not be...
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  • EM investors in Vienna predict stronger growth for the CEE region than we do, largely reflecting more positive assumptions about the global business cycle.
  • The ECB policy review is about to start: the risk that it might signal higher tolerance for suboptimally low inflation should not be underestimated.
  • US-China trade deal: temporary truce, but no breakthrough.
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Sunday Wrap: Kurzzusammenfassung

Publikation nur auf Englisch verfügbar

  • Auf unserer jährlichen CEE Winter Conference letzte Woche in Wien prognostizierten Emerging-Markets-Investoren ein stärkeres Wachstum für die Region Mittel- und Osteuropa als wir, was in erster Linie positivere Annahmen zur globalen Konjunktur widerspiegelt.
  • Demn...
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Publikation nur auf Englisch verfügbar

  • Auf unserer jährlichen CEE Winter Conference letzte Woche in Wien prognostizierten Emerging-Markets-Investoren ein stärkeres Wachstum für die Region Mittel- und Osteuropa als wir, was in erster Linie positivere Annahmen zur globalen Konjunktur widerspiegelt.
  • Demnächst beginnt die Überprüfung der Geldpolitik der EZB: Das Risiko, dass sie womöglich eine höhere Toleranz für suboptimal niedrige Inflation signalisiert, sollte nicht unterschätzt werden.
  • Handelsabkommen USA/China: zeitweiliger Waffenstillstand, aber kein Durchbruch
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Sunday Wrap: Breve riassunto

Pubblicazione disponibile solo in inglese

  • A Vienna, gli investitori EM prevedono una crescita più forte per la regione CEE rispetto alle nostre previsioni, e ciò riflette in gran parte ipotesi più positive sul ciclo economico globale.
  • La revisione della politica della BCE sta per iniziare: il rischio...
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Pubblicazione disponibile solo in inglese

  • A Vienna, gli investitori EM prevedono una crescita più forte per la regione CEE rispetto alle nostre previsioni, e ciò riflette in gran parte ipotesi più positive sul ciclo economico globale.
  • La revisione della politica della BCE sta per iniziare: il rischio che possa segnalare una maggiore tolleranza per un livello di inflazione inferiore a quello ottimale non deve essere sottovalutato.
  • Accordo commerciale USA-Cina: tregua temporanea, ma nessuna svolta decisiva.
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- 21 Nov 2019  

2020-21 Outlook: Late-cycle blues

  • Macro: Global growth is set to weaken further to 2.7% in 2020, as the US economy is likely to enter a downturn, protectionist tensions are unlikely to fade materially and the resilience of the domestic drivers of eurozone growth starts to wane. The Fed will probably cut rates by 100bp, while the ECB...
more >>>
  • Macro: Global growth is set to weaken further to 2.7% in 2020, as the US economy is likely to enter a downturn, protectionist tensions are unlikely to fade materially and the resilience of the domestic drivers of eurozone growth starts to wane. The Fed will probably cut rates by 100bp, while the ECB is expected to stand pat and focus on its policy review. Economic growth in the CEE region will likely slow as a result of external headwinds.
  • FI: Government bonds should remain supported throughout 2020. We expect 10Y US yields to fall to 1.50%, with the curve bull-steepening. Room for lower Bund yields is more limited as the bar for further ECB rate cuts is high and the Bund curve is quite flat. The 10Y yield will likely hit -0.50% at end-2020.
  • FX: Narrower growth and rate differentials between the US and the eurozone offer EUR-USD some upside potential. We expect the GBP to recover but this will likely be slowed by BoE easing and the risk of a Brexit-related “cliff edge” in December 2020.
  • Equities: We anticipate strong corrections of up to 20% in global equities in 1H20, with some relief by year-end. 2020 will be dominated by low earnings growth in Europe and slowing earnings growth in the US. We think present consensus estimates are too high.
  • Credit: The late-stage credit cycle warrants defensive positioning in European IG and HY credit, with a preference for non-cyclical sectors. Technical factors such as the CSPP should support credit, though this will likely be balanced by a deterioration in credit fundamentals and the gap to valuations will widen further.
  • CEEMEA: EM hard-currency credit is set to post a good, mostly carry-related performance in 2020 of more than 5%. Our preference remains BBB and BB rated credit.
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Late-cycle blues (German version)

* Macro: Das globale Wachstum dürfte sich bis 2020 weiter auf 2,7% abschwächen, aufgrund eines voraussichtlichen Abschwungs der US-Wirtschaft sowie kaum wesentlich veränderter protektionistischer Spannungen und einer nachlasssenden Widerstandsfähigkeit der inländischen Wachstumstreiber in der...

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* Macro: Das globale Wachstum dürfte sich bis 2020 weiter auf 2,7% abschwächen, aufgrund eines voraussichtlichen Abschwungs der US-Wirtschaft sowie kaum wesentlich veränderter protektionistischer Spannungen und einer nachlasssenden Widerstandsfähigkeit der inländischen Wachstumstreiber in der Eurozone. Die Fed wird ihre Zinsen voraussichtlich um 100 Bp. senken, während die EZB ihre Geldpolitik vermutlich stabil halten und sich auf die Überprüfung ihrer geldpolitischen Strategie konzentrieren wird. Das Wirtschaftswachstum in der CEE-Region dürfte sich aufgrund externer Gegenwinde verlangsamen.

* FI: Staatsanleihen sollten während des gesamten Jahres 2020 gut unterstützt bleiben. Wir erwarten einen Rückgang der 10J UST Rendite auf 1,50%, wobei sich die Kurve versteilern dürfte. Der Spielraum für niedrigere Bundrenditen ist geringer, da die Messlatte für weitere Zinssenkungen der EZB hoch und die Bundkurve recht flach ist. Die 10J Rendite wird Ende 2020 voraussichtlich -0,50% erreichen.

* FX: Engere Wachstums- und Renditeunterschiede zwischen den USA und der Eurozone bieten EUR-USD ein gewisses Aufwärtspotenzial. Wir gehen von einer Erholung bei GBP aus, aber dies wird wahrscheinlich durch die Zinssenkungen der BoE und das Risiko eines Brexits ohne Abkommen im Dezember 2020 gebremst.

* Equities: Wir erwarten starke Korrekturen von bis zu 20% in den globalen Aktien im 1H20, mit einer gewissen Entlastung bis zum Jahresende. Das Jahr 2020 wird von einem niedrigen Gewinnwachstum in Europa und einem sich verlangsamenden Gewinnwachstum in den USA geprägt sein. Wir halten die derzeitigen Konsensschätzungen für zu hoch.

* Credit: Die Spätphase im Kreditzyklus rechtfertigt eine defensive Positionierung im europäischen Investment-Grade- und High-Yield-Anleihenbereich, mit einer Präferenz für nicht-zyklische Sektoren. Technische Faktoren, wie das CSPP, sollten Unternehmensanleihen unterstützen, obwohl dies wahrscheinlich durch eine Verschlechterung der Fundamentaldaten ausgeglichen wird, wobei sich der Abstand zu den Bewertungen weiter vergrößern sollte.

* CEEMEA:Schwellenländeranleihen mit einer stabilen Währung werden im Jahr 2020 eine gute Performance von mehr als 5% aufweisen. Wir bevorzugen weiterhin Anleihen mit einem BBB und BB Rating.

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- 21 Nov 2019  

2020-21 Outlook: Late-cycle blues

  • Macro: Global growth is set to weaken further to 2.7% in 2020, as the US economy is likely to enter a downturn, protectionist tensions are unlikely to fade materially and the resilience of the domestic drivers of eurozone growth starts to wane. The Fed will probably cut rates by 100bp, while the ECB...
more >>>
  • Macro: Global growth is set to weaken further to 2.7% in 2020, as the US economy is likely to enter a downturn, protectionist tensions are unlikely to fade materially and the resilience of the domestic drivers of eurozone growth starts to wane. The Fed will probably cut rates by 100bp, while the ECB is expected to stand pat and focus on its policy review. Economic growth in the CEE region will likely slow as a result of external headwinds.
  • FI: Government bonds should remain supported throughout 2020. We expect 10Y US yields to fall to 1.50%, with the curve bull-steepening. Room for lower Bund yields is more limited as the bar for further ECB rate cuts is high and the Bund curve is quite flat. The 10Y yield will likely hit -0.50% at end-2020.
  • FX: Narrower growth and rate differentials between the US and the eurozone offer EUR-USD some upside potential. We expect the GBP to recover but this will likely be slowed by BoE easing and the risk of a Brexit-related “cliff edge” in December 2020.
  • Equities: We anticipate strong corrections of up to 20% in global equities in 1H20, with some relief by year-end. 2020 will be dominated by low earnings growth in Europe and slowing earnings growth in the US. We think present consensus estimates are too high.
  • Credit: The late-stage credit cycle warrants defensive positioning in European IG and HY credit, with a preference for non-cyclical sectors. Technical factors such as the CSPP should support credit, though this will likely be balanced by a deterioration in credit fundamentals and the gap to valuations will widen further.
  • CEEMEA: EM hard-currency credit is set to post a good, mostly carry-related performance in 2020 of more than 5%. Our preference remains BBB and BB rated credit.
less <<<

Late-cycle blues (German version)

* Macro: Das globale Wachstum dürfte sich bis 2020 weiter auf 2,7% abschwächen, aufgrund eines voraussichtlichen Abschwungs der US-Wirtschaft sowie kaum wesentlich veränderter protektionistischer Spannungen und einer nachlasssenden Widerstandsfähigkeit der inländischen Wachstumstreiber in der...

more >>>

* Macro: Das globale Wachstum dürfte sich bis 2020 weiter auf 2,7% abschwächen, aufgrund eines voraussichtlichen Abschwungs der US-Wirtschaft sowie kaum wesentlich veränderter protektionistischer Spannungen und einer nachlasssenden Widerstandsfähigkeit der inländischen Wachstumstreiber in der Eurozone. Die Fed wird ihre Zinsen voraussichtlich um 100 Bp. senken, während die EZB ihre Geldpolitik vermutlich stabil halten und sich auf die Überprüfung ihrer geldpolitischen Strategie konzentrieren wird. Das Wirtschaftswachstum in der CEE-Region dürfte sich aufgrund externer Gegenwinde verlangsamen.

* FI: Staatsanleihen sollten während des gesamten Jahres 2020 gut unterstützt bleiben. Wir erwarten einen Rückgang der 10J UST Rendite auf 1,50%, wobei sich die Kurve versteilern dürfte. Der Spielraum für niedrigere Bundrenditen ist geringer, da die Messlatte für weitere Zinssenkungen der EZB hoch und die Bundkurve recht flach ist. Die 10J Rendite wird Ende 2020 voraussichtlich -0,50% erreichen.

* FX: Engere Wachstums- und Renditeunterschiede zwischen den USA und der Eurozone bieten EUR-USD ein gewisses Aufwärtspotenzial. Wir gehen von einer Erholung bei GBP aus, aber dies wird wahrscheinlich durch die Zinssenkungen der BoE und das Risiko eines Brexits ohne Abkommen im Dezember 2020 gebremst.

* Equities: Wir erwarten starke Korrekturen von bis zu 20% in den globalen Aktien im 1H20, mit einer gewissen Entlastung bis zum Jahresende. Das Jahr 2020 wird von einem niedrigen Gewinnwachstum in Europa und einem sich verlangsamenden Gewinnwachstum in den USA geprägt sein. Wir halten die derzeitigen Konsensschätzungen für zu hoch.

* Credit: Die Spätphase im Kreditzyklus rechtfertigt eine defensive Positionierung im europäischen Investment-Grade- und High-Yield-Anleihenbereich, mit einer Präferenz für nicht-zyklische Sektoren. Technische Faktoren, wie das CSPP, sollten Unternehmensanleihen unterstützen, obwohl dies wahrscheinlich durch eine Verschlechterung der Fundamentaldaten ausgeglichen wird, wobei sich der Abstand zu den Bewertungen weiter vergrößern sollte.

* CEEMEA:Schwellenländeranleihen mit einer stabilen Währung werden im Jahr 2020 eine gute Performance von mehr als 5% aufweisen. Wir bevorzugen weiterhin Anleihen mit einem BBB und BB Rating.

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CEE Quarterly - 13 Jan 2020

CEE: An outperformer in testing times (1Q20)

  • 2020 could prove a difficult year for EM due to weak global trade, a likely slowdown in the US, tighter financial conditions in EM and the impact these factors might have on policies and macroeconomic imbalances. A recovery is on the cards in 2021.
  • CEE could be again an outperformer among EM owing to...
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  • 2020 could prove a difficult year for EM due to weak global trade, a likely slowdown in the US, tighter financial conditions in EM and the impact these factors might have on policies and macroeconomic imbalances. A recovery is on the cards in 2021.
  • CEE could be again an outperformer among EM owing to lower reliance on foreign capital and US demand, as well as better economic policies and the EU anchor.
  • In EU-CEE, we expect economic growth to slow to 2.5% in 2020 from 3.6% in 2019, affected by weaker global trade and a cyclical downturn in the US. Economic growth could recover to 2.8% in 2021 if global trade rebounds.
  • Growth in the western Balkans will follow the same trajectory as in EU-CEE. We expect rate cuts in Czechia and Serbia, and rates on hold in all other EU-CEE countries.
  • Growth in Turkey is likely to pick up gradually to around 2% in 2020 and 3% in 2021 but remain below potential in both years. The CBRT may cut its policy rate to 10% or lower, keeping the real interest rate close to zero.
  • In Russia, economic growth could remain below 1.5% in 2019-20 if investment under the national projects program fails to start. We expect the CBR to cut the policy rate to 5.75% or below in 2020 as inflation remains below the 4% target.
  • The main political risks will be a smaller EU fund allotment to central Europe, thwarted European integration in the western Balkans and US sanctions on Turkey and, to a lesser extent, on Russia.
  • We highlight four convergence trades: inflation in EU-CEE and Turkish rates and inflation (1Q20), Czech and eurozone rates (from 2Q20 onwards), EU-CEE EUR bond yields and Bunds (throughout 2020), Russian rates and inflation (in the medium term).
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Rates Perspectives - 23 Jan 2020

A deep dive into Austria´s government bond market

  • A balanced budget is on the agenda of Austria’s new government led by the Conservatives (ÖVP) and the Greens. With Austria’s GDP growth set to exceed the eurozone average, Austrian macroeconomic fundamentals remain among the most solid in the euro area.
  • About two thirds of Austrian bond market is...
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  • A balanced budget is on the agenda of Austria’s new government led by the Conservatives (ÖVP) and the Greens. With Austria’s GDP growth set to exceed the eurozone average, Austrian macroeconomic fundamentals remain among the most solid in the euro area.
  • About two thirds of Austrian bond market is held by foreign investors, and in particular by non-banks. 20% is held by domestic investors (half of which is held by domestic bank while investment managers and insurance companies account for an only modest share). The most price-sensitive investors (such as foreign asset managers) have reduced holdings of Austrian government debt following the beginning of QE, a factor that should provide stability.
  • With investors extending maturities, we expect the Austrian curve to moderately flatten from current levels, especially in the 10/30Y segment.
  • RAGBs are now trading at the same level as OATs. From a risk/reward perspective, we prefer RAGBs to OATs given their lower volatility and their higher correlation with Bunds.
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FX Perspectives - 23 Jul 2019

HUF: No, it´s not undervalued

  • In this note, we consider a macro fundamentals-based equilibrium exchange rate model for the trade-weighted real effective exchange rate (REER) of the Hungarian forint.
  • We find that variables such as productivity (compared to the eurozone), net foreign direct investment and government debt (both...
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  • In this note, we consider a macro fundamentals-based equilibrium exchange rate model for the trade-weighted real effective exchange rate (REER) of the Hungarian forint.
  • We find that variables such as productivity (compared to the eurozone), net foreign direct investment and government debt (both expressed as a percentage of GDP), terms of trade (TOT) as well as real interest rate differentials (RIR) help explain past movements in the HUF REER.
  • Overall, we devise four different model specifications that suggest the HUF real exchange rate is between 2% below and 1% above its equilibrium rate.
  • This contrasts with some prevailing views that the forint is somewhat undervalued. Declining productivity growth (compared to its trading partners) has been an important driver weighing on the currency’s equilibrium value.
  • While the models signal that the currency is close to equilibrium, we find that past deviations from equilibrium are reasonably well correlated to Hungary’s interest rate differential against its main trading partners and – more recently – indicators of global growth sentiment.
  • Conclusion: We find that the HUF is more or less fairly valued, in contrast to the views of some market participants that the currency is undervalued. Over the longer term, an improvement in productivity could see the fair value improve over time. On a multi-quarter basis, we believe the stance of NBH monetary policy and global growth will be more important for the value of the currency.
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