Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
December 2001
Overview
l l l l l l
US, German and Japanese recessions underway; UK avoids recession Surveys provide only tentative evidence that the UK domestic economy is cooling Rate lows: US 1.5%; Eurz 2.75%; UK 3.5% Monetary policy works . . . strong 2002H2 recovery Buy UK domestic consumer plays Downside risks: US imbalances, Japanese banks, ECB inertia
Base Rates Lead UK Consensus Growth Forecasts
3.50
3.00
ML Forecasts (Consensus)
2.50
GDP Growth RPIX inflation, end year Base rates, end year 10 year yields, end year
6 2.00 7
1.50
1.00
0.50
10
0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
11
Rolling average for current & next years consensus GDP forecasts for the UK (LHS) Base rate plot inverted and pushed forward 6 months (RHS)
280
225
5.20
220
260
5.10
215
5.00
210
240
4.90
205
4.80
200
220
4.70
195
4.60
200
190
4.50
185
4.40
180 J F M A M J J A S O N D J
180 J F M A M J J A S O N D J
4.30
2000 2001 Total returns: cyclicals / defensives Cyclicals = Mining, basic industries, general industries, cyclical consumer goods Defensives = Utilities, food retailing, non-cyclical consumer goods
2000
2001
2000
2001
Laurence Meyer, 27.11.01: On the US outlook prior to 11th September: I expected growth to build only slowly and therefore expected the pace of recovery through the first half of 2002 to be disappointing.
30 year bonds
Fed funds
The response of financial conditions to monetary policy easing in this episode has been unusual, if not unique...[due to weakness in equities and dollar strength]...I believe that the financial shocks that have occured - including the shocks to equity prices and the dollar - have required monetary policy to move more aggresively than would otherwise have been the case. The implication of starting with an unusually low interest rate is therefore not to go slowly but to be respond more aggressively to any adverse shock
4000
3.00
3500
3000
2.50
2500
2.00
2000
1500
1.50
1000
1.00
500
0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
0.50 89 90 91 92 93 94 95 96 97 98 99 00 01 02
Manufacturing confidence
70
60 20
50
-20
40
-40 30 -60
-80
Inflation (RHS)
20
10 -100
= Recession = No Recession
80
US
NAPM
45
70
40
35 60 30 50 25 40 20 30 15 20
Inflation (RHS)
10
10
0 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02
350
70
300
60
7
50
250
US
6 6
40
200
TMT
150
5
30
4
20
Total Market
100
10
Nominal
3
Euroland
3
Real
2 2
0 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02
1 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
7 40
10
70
30
65
5 20 4
60
55
10
50
2 0 1 -10
45
-2
40
Capex (LHS)
-20
-4
NAPM survey
35
-1
-6
30
-30 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02
-2
-8 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02
25
= Recession
US Natural Disasters
Hurricane Hugo Hurricane Andrew Northridge Earthquake 11th September Attacks
UCLA estimate
-1
-2
-3 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
1370
1200
SAME
768
937 US
1000
800
600
323
400
Japan
200
0 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01
260
Capacity Utilisation
120 115
240
220
110
SAME
Japan
200
SAME
Japan
105
180
100
160
95
140
90
120
85
100
80
80
US
75 70 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 77 79 81 83 85 87 89 91 93 95 97 99 01
60
10
Unemployment, %
7
DIFFERENT
US
DIFFERENT
US
2 4 1
3 0
Japan
-1
Japan
86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03
-2
1 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03
220
200
180
DIFFERENT
120
DIFFERENT
US
110
100
160
90
140
80
120
70
Japan
100
60
50
Japan
88 89 90 91 92 93 94 95 96 97 98 99 00 01 02
80 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01
40
11
US Outlook
Bull Case
Bear Case
l l l l l
l l l l
12
7.50
Crisis starts
10
Aus $
100
Korea
7.00 95
6.50
90
Rates
6.00 85
Australia
5.50 80
5.00
75
-5
4.50 70
-10 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
4.00 1993 1994 1995 1996 1997 1998 1999 2000 2001
65
13
15
10
Consumer spending
Capex
Profits
-5
Exports Manufacturing
-10
14
1. BoE activism: base rate cuts. Down at least 200bp this year.
4
2. Lower taxes. Down by 9.0bn in April 01, equivalent to 3p off the basic rate. 3. Windfall gains: 1bn from Friends Provident; 1.5bn from Scottish Life; all due in 2001H2
-2
-4
-6 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01
15
UK Leading Indicators
Slope of the Yield Curve
400 400 11 300 300 10 200 200 9
11
10
Consumer Confidence
10
10 5 9 0 0 5
+ve for
8 100 100
8 -5 -5
7 -10 -10
consumer
-15
-15
-200
2 -30 -30
-500
-500
-600 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
-600
0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
-35 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
-35
30
30
30 30
20
20
10
10
20
20
-ve for
0
10 10
-10
-10 2 2
corporates
-20
-20
0 -30
-10 -10
-30
-2 -40 -40
-20 -20
-2
-4
-4
-50
-50
-60 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
-60
-6
-30 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 -30
-6 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
16
25
GfK
20 20 20 10 6
15 5
-5
15
-10
-10 10 4
10
-15
-20
-20
-30
-25
-40 0
John Lewis
3 0
-5
-30
MORI
90 91 92 93 94 95 96 97 98 99 00 01 02
-50
-35
-60
-10 J F M A M J J A S O N D J F M A M J J A S O N D
GfK: Based on answers to 5 questions on the outlook/ performance of the economy/own households finances & willingness to make big ticket purchases MORI: Economic Optimism
2000
2001
80
60
RICS
40
3m/12m
20
20
15
10 10
0
3m/3m
0
-20
-40
HBF
-5 -10 -10
-60
-20 -15
-80 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
-30 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
-20 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01
Balance of housebuilders from monthly HBF survey reporting an increase in: House Prices, nsa Purchasers making an initial deposit (reservation) on a new house, nsa
17
New Orders
75
80
70
65
40
60
Construction
20
Retail (12%)
55
50
-20
Services
45
-40
Orders falling
40
Manufacturing
-60
-80 1993 1994 1995 1996 1997 1998 1999 2000 2001
18
18 10 16 9 14 8 12
US unemployment, rate %
7 10
8 6 6 5 4 4
3 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04
Fed funds rate, pushed forward 2 years (RHS) US Total Unemployment Rate SADJ
19
Cyclically Adjusted Public Sector Net Borrowing as a % of GDP Change in Fiscal Stance: (+ve = Fiscal Ease)
Nov 99 Nov 00 Mar 01 Nov 01
PBR = Pre-Budget Report Source: HM Treasury
2.0%
3.0%
1
3
HMT forecasts
-1
-2 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05
-1
Chart shows general Government consumption expenditure, the national accounts measure of current expenditure which excludes capital spending and accounts for about 20% of GDP Source: HM Treasury
-2
-3
-4
Chart shows the change between fiscal years incyclically adjusted public sector net borrowing as a share of GDP: This represents the simplest way of showing the change in the fiscal stance. Source: HM Treasury
20
66
15
3.40
64
Corporates (LHS)
30 1.20
14
3.20
25
13 62 12 60
3.00 1.15
Average
20
Corporates
2.80
1.10
11
2.60 15
58 10
2.40
56
2.20
Consumers (RHS)
88 89 90 91 92 93 94 95 96 97 98 99 00 01
1.05 10
Average Consumers
54
2.00
1.00
5 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02
Ratio of gross debt to corporate profits (LHS) Ratio of gross debt to consumers gross disposable income (RHS)
21
90
Average
120
85
80
Capital spending has accelerated in the UK in recent years but unlike the US - there is no clear evidence that the UK is suffering from an overbuilt capital stock
100
75 80
20 year low
70
UK
60
Average Average
65
40
60
20
55
0 70 72 74 UK (LHS) US (RHS) 76 78 80 82 84 86 88 90 92 94 96 98 00 02
50
22
4.00
3.50
The fall in long run expectations for Japanese GDP growth has clearly been unhelpful for the Japanese economy and equity market in recent years
US is 3.2%
3.00
UK was 2.6%
2.50
US was 2.5%
UK is 2.4%
2.00
Japan is 2.0%
1.50
1.00 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Consensus forecasts from Consensus Economics. Figures show for each year and for each country the prevailing consensus forecasts for average GDP growth rates 5-10 years ahead
23
Inflation boosted March-June by higher petrol & food prices; depressed in September - December by falling petrol prices Goods and utility prices (=33.4% of RPI) have trended up, pushing up core inflation. Inflation will benefit from lower output, import and commodity price pressures. But we see RPIX inflation edging up to 2.5% by the end of 2002 on firm domestic demand and a tight labour market.
24
2.00
RPIX
2.40
HICP
RPIX
1.80
0.50 1.60
25
Services (35.8%)
15
3
0
10
-1
-2
-3
0
-4
-5
-1
-5
-10
-2
-15
Above breakdown excludes mortgage interest payments, Council Tax and depreciation which accounts for 10.9% of the RPI by weight
26
55
Output gap
50
-6
50
-4
0 40 -2
0 -2
40
-4
Average
30
2
30
-6
4
-8
20
6
20
-10
8
-12
-14 -15 65 67 69 71 73 75 77 79 81 83 85 87 89 91
Inflation (RHS)
93 95 97 99 01
10
10
Inflation (RHS)
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00
10
12
60
55
45 40
55
50
50
50
40 40
30
30
40
Skills shortages
20 30 10
20
10 30
-10
20
-10
20
-20 10
-20
-30
-30
Inflation (RHS)
60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00
10
-40
-35
27
4.00
4.00
3.80
3.80
3.60
3.60
3.40
3.40
3.20
3.20
3.00
3.00
2.80
2.80
2.60
2.60
2.40
2.20
2.00
99
01 00
02
2.40
2.20
2.00
1.80
Limiting the scope for pleasant surprises for the bond market
9.50
9.50
9.00
9.00
8.50
8.50
8.00
8.00
7.50
7.50
7.00
7.00
6.50
6.50
6.00
6.00
5.50
5.50
5.00
5.00
4.50
4.50
4.00 1993 1994 1995 1996 1997 1998 1999 2000 2001
4.00
Inflation Expectations & Bond Yields Barring a hard landing inflation expectations probably dont have much further to fall
11 10
100
90
80
70
60 8 50 7 40
30
20
10
4 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
10 year gilt yields (LHS) ML/Gallup Fund Managers Survey: % of UK Fund Managers expecting higher inflation in 12m time (RHS)
28
Outlook
The rebound in in 1996 represented a recovery from post-ERM under-valuation US Growth Shock Has Been of Surprisingly Small Benefit to the Euro
130
2.20
0.80
125
2.00
0.90
120
1.80
115
1.60
1.00
110
1.40
105
1.20
1.10
100
1.00 1.20
95
0.80
GDP 1998
GDP 2001
1.30
90
85
De-rating of
Re-rating of
0.60
80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01
1.40
29
19 75 19 77 19 80 19 83 19 87 19 90 19 91 19 92
Source: Bloomberg
Germany
10
10
UK
-10
Danish voters
-10
-20
-20
-30
-30
-40
-50
UK voters
-40
-50
-60
UK Guardian / ICM survey: If there were to be a referendum, wouldyou vote to join the Single European Currency, or would you vote not to join? Chart shows % replying join minus % replying not join
Source: Bloomberg
30
Copyright 2000 Merrill Lynch, Pierce, Fenner & Smith Limited (MLPF&S). Issued by Merrill Lynch, Pierce, Fenner & Smith Limited which is regulated by the Securities and Futures Authority Limited. The information herein was obtained from various sources; we do not guarantee its accuracy. Additional information available. Neither the information nor any opinion expressed constitutes an offer to buy or sell any securities or options or futures contracts. MLPF&S and its affiliates may trade for their own accounts as odd-lot dealer, market maker, block positioner and/or arbitrageur in any securities or options of this issuer(s). MLPF&S, its affiliates, directors, officers, employees and employee benefit programs may have a long or short position in any securities or options of this issuer(s). Foreign-currency-denominated securities are subject to fluctuations in exchange rates that could have a positive or adverse effect on an investors return upon the conversion into local currency of dividends or interest received, or proceeds from the sale of such securities. In addition, investors in securities such as ADRs, whose values are influenced by foreign currencies, effectively assume currency risk.
31