ANZ released a very good macro strategy note late yesterday arguing that the global slowdown has some ways to run and markets face stiff headwinds. I recommend a read. Here’ the conclusion:
Our lead indicators suggest that the weakness in the manufacturing PMIs (and thus overall growth) will extend through to at least Q3 2012. Moreover, we expect the current loss in momentum will be relatively short lived and not deep. Indeed, we are looking for a bounce in production in late 2012 or early 2013 across the regions. This will be driven by: a basing in the current inventory liquidation cycle (and the subsequent need to rebuild stock); and, stimulatory policy measures, particularly in China, taking effect.
The depth and duration of the loss of momentum across the ANZ GLIs suggests that markets will have difficulty in sustaining any sort of recovery in risk until later in the year. Indeed, we suspect that the likely ongoing loss in economic momentum may provide rough times for markets in the next few months. The only possible counter to this negative view is that the market can be supported by more pro-growth policy measures. We saw risk sentiment buoyed by a number of policy circuit breakers in June.
However, we think it will be difficult to maintain this type of policy momentum in coming months. With risks tilted to a further loss in economic momentum and investor sentiment, risk assets may be vulnerable to a downward correction over the next few months. This could rebuild support for “safehaven” (US, UK, Japan) and “high-quality” (Australia, Canada, Scandinavian, Swiss) bonds. We omit Bunds under the safe-haven category for now, as plans to directly re-capitalise European banks represent a mutual debt sharing arrangement which may put pressure on German funding costs. We would consider buying any sharp sell off in risk assets based on our assessment that global momentum should bounce back later in the year.
