Money Game 2012 Outlook

8/3/2019 Money Game 2012 Outlook

1/18

BUSINESS INSIDER

THE U.S. IN 2012


2/18

THE U.S. IN 2012 A SLOW HEALING ECONOMY

WALL STREETS top investment houses have issued theirpredictions for the new year, with a variety of opinions on how2012 will turn. BUSINESS INSIDER surveyed the top strategists at adozen firms, talking commodities, FX and, of course, theeconomy.


3/18

U.S. GDP

U.S. GDP is expected to rise modestly in 2012, asthe countrys business in Europe comes underpressure. Largely though, economists are upbeat.

The banks weigh in:

BANK OF AMERICA MERRILL LYNCH: Despite a 2012 recession inEurope, the US and the global economy will continue to grow,albeit at a modest pace. International growth will continue tooutpace US GDP growth by roughly double. The relative strengthwithin US national accounts wil l continue to come fromequipment & software spending and gross exports despite somedeceleration. This will benefit the Industrials and Tech sectors.

CITI: A contraction in Euro area GDP for 2012 may not entirelyoverwhelm globally-exposed US firms, as long as the rest of theworld continues to. US corporates are much more prone to asharp global slowdown than a localized recession in theEurozone.

LOW MEDIAN HIGH

1.60% 2.20% 3.00%


4/18

U.S. GDP COMMENTARY (CONT.)

DEUTSCHE BANK: This projection reflects the effects of two sets ofcountervailing forces. On the positive side are several key driversof growth, including pent-up demand for durables and structures,strong corporate sector balance sheets, and householddeleveraging. Spending on consumer durables and businessequipment, as well as investment in business structures andhousing, in the aggregate, is still running near historic lows as ashare of GDP. This spending will add an extra 5% to the level ofGDP in the years ahead as it returns to levels needed to keep thestock of homes and durables expanding in line with a growing

population. GOLDMAN SACHS: We also expect growth to slow in the US,

although we still do not expect a recession and have made nosignificant changes to our forecast.

J.P. MORGAN: The bounce back from low levels appears to bea central factor behind the strength in capital spending, whichhas been a major force behind the recovery thus far. Whilecapital spending is now returning to more normal levels,investment in housing and other structures remains unsustainablylow, and should be forward.


5/18

S&P EPS

S&P earnings are likely to accelerate headedinto 2012, with most financials forecasting EPStopping $100. Credit Suisse is unconvinced,expecting 0% growth in earnings.

The banks weigh in:

BANK OF AMERICA MERRILL LYNCH: At close to 9%, the netmargins of the S&P 500 Non-Financials are near the high end oftheir historical range. While we have little doubt that thesemargins would be unsustainable in a recession, there are severalreasons why margins should remain higher than the historicalaverage on a secular basis. Importantly, most of theimprovement in net margins has been the result of changesbelow the operating line.

CITI: Visibility is extraordinarily poor in late 2011, subject topolitical resolutions with unusually large economic consequencesboth in the U.S. and abroad. In general though, the growth justbehind us is likely to be stronger than the outlook going forward.With risks in mind, we hold for now our S&P 500 EPS estimate for

2012 unchanged at $101.

LOW MEDIAN HIGH

$96 $102.5 $106


6/18

EARNINGS TO GDP

Corporate profits have returned to all-time highs in 2011, afterfalling more than 50% during the crisis.


7/18

U.S. UNEMPLOYMENT

Estimates for unemployment skew in the high 8s,with only Oppenheimer Co. predicting it could hit8.00% even. The banks weigh in:

BANK OF AMERICA MERRILL LYNCH: Personal consumptiongrowth will decelerate in 2012 and savings rates will rise fromcurrent levels, while slowing payroll growth will lead to a risingunemployment rate.

DEUTSCHE BANK: The broad consensus expectation, and ourown, is that real GDP growth will struggle to rise much above itstrend rate of about 2.5%. This means that unemployment is likelyto remain uncomfortably high near 9%.

LOW MEDIAN HIGH

8.00% 8.90% 9.10%


8/18

INITIAL CLAIMS OFFER SOME IMPROVING NEWS

Initial claims spiked during 2009, but have since crossed backunder 400,000, indicating improving conditions. The

unemployment rate also dropped at the end of the year, to8.6%.


9/18

U.S. INFLATION

LOW MEDIAN HIGH

1.60% 1.80% 3.20%

High unemployment will keep inflation surprisinglylow in 2012, most financials agree.

The banks weigh in:

GOLDMAN SACHS: The large output gap should result inrenewed disinflation, pushing core inflation to 1.2% by late 2013.

J.P. MORGAN CHASE: With wage inflation contained, thepossibility of a wage-price spiral has been removed. The periodicepisodes of higher headline inflation experienced in thisexpansion have not translated into lasting increases in underlyinginflation. In the spring months of 2011, higher commodity prices,as well as temporarily higher prices of autos after the Japanese

earthquake, gave a boost to core inflation. More recently,however, core inflation has eased back lower.

UBS: Inflation pressures will remain subdued. Deflation riskpresents more of a challenge for policymakers in developedeconomies. And even in many emerging economies we expectinflation to fall in 2012, albeit due to base effects as commodity(especially food) prices level off.


10/18

EURO/DOLLAR

Recession in the Eurozone, which nearly everybank is forecasting for 2012, will lead it to declineagainst currencies like the USD and JPY.

The banks weigh in:

CITI: Our FX team sees the Euro/dollar rate dropping into the1.25-1.30 range over the next year due to further Europeanturmoil and weak growth; however, this should be partially offsetby better US growth the dollar tends to do well in outright USrecession, but less well in a cyclical slowdown where risk aversionmay be less.

DEUTSCHE BANK: Directionally, the EUR is expected to remain afavorite short. EUR/USD levels near 1.40, or 20% above PPP, willremain an active sell zone, while the downside limit is less easilydemarcated but will likely stall before 1.20. A collapse in the EURis not expected without more evidence that capital flows areexiting core asset markets.

UBS: A gradual recovery in the US economy versus recession inthe Eurozone will lead to a depreciation of the euro over our

forecast horizon. We expect the euro/dollar exchange rate toend 2012 at 1.25 and fall toward 1.20 by the end of 2013.

LOW MEDIAN HIGH

$1.20 $1.30 $1.45


11/18

DOLLAR/YEN

Economists are bullish on the Japanese Yen,expecting it to gain on the crisis in Europe.

The banks weigh in:

MORGAN STANLEY: We are bull ish on JPY in the year ahead andbelieve that a global low-yield environment marked by risk-aversion and deleveraging will keep JPY well supported Weforecast that JPY will benefit strongly as a safe haven currency ina world economy beset by uncertainty.

NOMURA: We see downside risk for USD/JPY toward mid-2012.The main fundamental drivers are: 1) further monetary easing bythe Fed (QE3); 2) intensifying European fiscal/financial problems;

and 3) subdued Japanese investment in foreign assets.

LOW MEDIAN HIGH

71 76 83


12/18

BRENT CRUDE OIL

Demand for crude oil, and therefore its price, willclosely follow Europe as EMs cannot supplementdeveloped nation pull back.

The banks weigh in: CREDIT SUISSE: We noted that unless the situation in Europe

worsens noticeably and begins to drag down growth in theemerging markets and North America, we expect the price of oilto move modestly higher over the coming year, with Brenttrading at around $120 in 4Q 2012.

DEUTSCHE BANK: We find that OPEC has a successful track

record in defending oil prices via production cuts although notwhen world growth is below 3% as the cartel is unable to cutproduction as fast as world oil demand growth is slowing.

OPPENHEIMER: Given the ambiguous global growth outlook overthe next several months, escalating commodity costs are likely athing of the past. That does not mean oil will not eclipse $100anytime soon. To the contrary, we believe there is enough globalgrowth and geopolitical uncertainty to keep oil prices elevated

within an$80-$100 range.

LOW MEDIAN HIGH

$86/bbl $105 $128


13/18

GOLD FUTURES

Gold is expected to go even higher in 2012, withsome banks predicting a spike above $2,000/oz.

The banks weigh in:

DEUTSCHE BANK: Consequently, our strongest conviction traderemains long precious metals and specifically gold. In anenvironment where real interest rates are negative and the USequity risk premium is high we expect this will sustain strongprivate and public sector demand for gold.

GOLDMAN SACHS: We expect gold prices to continue to climbgiven the current low level of US real interest rates. Further, withour US economics team forecasting slower US economic growth

throughout 2012, we expect US real interest rates to remain lowerfor longer, supporting higher gold prices.

MORGAN STANLEY: Beyond the safe haven status associatedwith uncertainty surrounding the European sovereign debt crisis,we also believe that: 1) the gold to oil ratio highlights that, on along-term real purchasing power basis, gold is close to fair long-term value; and 2) the prospect of sustained negative real

interest rates reduces the opportunity cost of holding non-yieldingassets.

LOW MEDIAN HIGH

$1,850/oz. $1940 $2,200


14/18

GOLD PRICES IN REVIEW

Over the past five years, gold prices have continued on anupward path. Recently, however, it has experienced a largepullback as investors sell off.


15/18

SILVER FUTURES

Silver futures are expected to closely track thoseof gold, which banks forecast will trend higherthan current levels (silver trades below $30 on theCME at present).

The banks weigh in:

MORGAN STANLEY: Following a sharp correction in 2Q2011, silverremains an attractively priced safe haven commodity relative togold. However, silvers well attested volatility, its vulnerability toweakening industrial demand, and weaker supply credentialsmake it a less fundamentally supported market than gold at the

present time.

LOW MEDIAN HIGH

$32.40/oz. $34.79 $50.00


16/18

COPPER FUTURES

Copper, like metal peers, is forecast to pricehigher in the new year as supply is constrained

The banks weigh in:

CREDIT SUISSE: Global growth would need to weaken noticeablyfor the price of copper to fall substantial ly on a sustained basisfrom the current level (the only time this occurred in the past sixyears was in the free-fall seen post Lehman).

GOLDMAN SACHS: We expect that an end to de-stocking inEurope, Chinese policy easing and solid construction activity(underpinned by the build out of social housing) will act as upsidecatalysts for copper prices in 1H12. In addition, copper supply

disruptions are presenting significant upside risks to copper atpresent.

MORGAN STANLEY: We believe coppers constructivefundamentals will make it an outperformer among the basemetals. Supply side difficulties remain, which should keep copperprices elevated and well above marginal cost until such time asthe global inventory pipeline is replenished and a more rel iable

supply environment ensues (likely post-2014).

LOW MEDIAN HIGH

$7,360/t $8,400 $9,500


17/18

NICKEL FUTURES

Nickel is expected to rise rapidly in 2012, withsome forecasts putting growth above 20% for theyear.

The banks weigh in: GOLDMAN SACHS: As both demand and sentiment towards

demand recovers through 2012, we expect high cost nickel pigiron will still be needed to clear the market. European turmoil andthe knock-on effect to economic growth remains the keydownside risk to our nickel forecasts.

MORGAN STANLEY: Nickel prices will likely be tied to Chinese

stainless steel production and exports, which are at risk givenslowing industrial production. We remain wary of exposure untilsupply trends in NPI and laterite become clear.

LOW MEDIAN HIGH

$18,125/t $21,000 $22,000


18/18

BUSINESS INSIDERwww.businessinsider.com

Date post:	06-Apr-2018
Category:	Documents
Upload:	eric-platt
View:	224 times
Download:	1 times

Money Game 2012 Outlook

Documents