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Transcript
Unwinding the great
monetary experiment
Macro view for the bond markets
Kevin Stirrat, Head of Investment Strategy
0800 367 227 • www.forsythbarr.co.nz
Disclosure Statement
The Financial Advisers Act 2008 and the Financial Advisers (Disclosure) Regulations
2010 require written disclosure of specific information by people providing financial
advice
In accordance with this legislation we have distributed a copy of our Disclosure
Statements
If anyone does not have a copy of these Disclosure Statements can you please
advise us now before we commence the presentation
The comments in this presentation are general in nature and should not be
regarded as personalised financial advice. If you wish to receive specific financial
advice, please contact your Investment Advisor
0800 367 227 • www.forsythbarr.co.nz
Slide 2
Disclaimer
Analyst Disclosure Statement: In preparing this report the analyst may or may not have a threshold interest in the securities
mentioned in this report. A threshold interest is defined as being a holder of more than $50,000 or 1% of the securities on
issue, whichever is the lesser. A disclosure statement is available on request and is free of charge.
Disclaimer: This publication has been prepared in good faith based on information obtained from sources believed to be
reliable and accurate. However, that information has not been independently verified or investigated by Forsyth Barr Limited.
Accordingly, Forsyth Barr Limited:
a) does not make any representation or warranty (express or implied) that the information is accurate, complete or current; and
b) excludes and disclaims (to the maximum extent permitted by law) any liability which may be incurred by any person as a result of that
information being inaccurate or incomplete in any way or for any reason.
The information, analyses and recommendations contained in this publication are confidential to the intended recipients and
are statements of opinion only. They have been prepared for general information purposes and whilst every care has been
taken in their preparation, no warranty or representation is given (express or implied) as to their accuracy or completeness.
Nothing in this publication should be construed as a solicitation to buy or sell any security or other product, or to engage in or
refrain from doing so or engaging in any other transaction. This publication should not be used as a substitute for specific
advice. Prior to acting on any information, analysis or recommendation contained in this publication, you should seek advice
from your usual Investment Advisor. Forsyth Barr Limited and its related companies (and their respective officers, agents and
employees) will not be liable for any loss whatsoever suffered by any person relying upon any such information, analysis or
recommendation. This publication is not intended to be distributed or made available to any person in any jurisdiction where
doing so would constitute a breach of any applicable laws or regulations. Forsyth Barr Limited and its related companies (and
their respective officers, agents and employees) may own or have an interest in securities or other products referred to in this
publication, and may be directors or officers of, or provide investment banking services to, the issuer of those securities or
products, and may receive fees for acting in any such capacity in relation to that issuer. Further, they may buy or sell
securities as principal or agent, and as such may undertake transactions that are not consistent with any recommendations
contained in this publication.
This presentation is not for reproduction, public circulation or the use of any third party (whether in whole or in part) without
the prior written consent of Forsyth Barr Limited.
0800 367 227 • www.forsythbarr.co.nz
Slide 3
Content
• Global industrial cycle upswing underway
• United States employment outlook improving
• United States Federal Reserve to commence stimulus
reduction
• United States tightening still a long way off
• Macro suggestions why inflation could remain contained
• Bond market rout unlikely
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Slide 4
United States manufacturing – surging
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Slide 5
UK manufacturing – material up-turn
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Slide 6
Euro manufacturing recovering
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Slide 7
China looking more sturdy
China HSBC manufacturing PMI: Momentum is improving following the midyear slow-down
Source: Markit, Haver Analytics, Deutsche Bank Research
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Slide 8
United States unemployment rate
- key policy indicator
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Slide 9
Core United States inflation
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Slide 10
Corporate Inc. saving versus investing
Source: Forsyth Barr Research, BCA Research
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Slide 11
Excess global liquidity has not led to a
general increase in prices
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Slide 12
Advanced economies CPI
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Slide 13
United States Federal Reserve balance sheet
– the solution and the problem
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Slide 14
Employment
• Structural changes in employment
• Globalisation – first outsourcing and now “showrooming”
• Technology – robotics/3D Printing
• Under- employed (part-timers)
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Slide 15
United States employment growth mainly
part-timers
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Slide 16
United States labour force participation
rates in secular decline – mostly age related
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Slide 17
Demographics
Aging populations in the developed world
•
•
•
•
Leading to lower aggregate demand
Declining workforce
Saving over investment
Income over growth
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Slide 18
Global fertility comparisons
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Slide 19
Europe working age population projections
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Slide 20
Developed markets’ share of population and
demographic
Source: Haver, UBS
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Slide 21
Implications for Bonds
•
•
•
•
•
•
Normalisation of yields underway
Tapering doesn’t mean explicit tightening
Quantitative Easing to slow – not unwind (for many years)
United States long bonds to trade between 2-4%
United States 10 year bonds to trade around nominal GDP
Steeper curves to remain the norm
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Slide 22
United States long bond yields and
demographics
Source: Shiller, Haver, UBS
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Slide 23
United States 10-year bond and nominal GDP
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Slide 24
Demographics and nominal GDP - United States
Source: Haver, UBS
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Slide 25
Policy response
Inflation headwinds
•
•
•
•
•
Technology and innovation impacting on employment
Globalisation – “showrooming”
Demographics
Debt/deleveraging
Lower nominal GDP
Policy Response will be to keep rates low for longer than
currently expected
In the absence of inflation, central bank balance sheets will
remain reflationary
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Slide 26
Thank you
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Slide 27