Central bankers, politicians, growth the dominant story of 2013, say KNG’s Nugent and Podesta
Nick Nugent, head of Convertibles and Andrea Podesta, head of Fixed Income at KNG Securities say that 2013 is shaping up to be a year of bankers, politicians and growth.
It’s all about central bankers, politicians and growth for 2013.
Central bankers have increasingly eliminated the immediate tail-risk across the globe but not yet found the solution to tackle what is now a prolonged period of weak/negative growth. This suggests that a risk-off (periodic growth disappointments), risk-on world (liquidity injections) looks set to continue.
The biggest challenge comes from politicians. The US fiscal cliff was only pushed around the corner for a couple of months, the Italian elections loomed, and execution risk in Spain must also be closely watched without forgetting the German election in September. These concerns, and worries about inflationary pump-priming have caused yield curves to back up. Investor flows have led to a decent start to the year for equity markets, which may well continue, but will likely be interspersed with significant risk-off moments.
In our view, hopes for better economic growth will be challenged at least in the coming two quarters. If so, fears of an early exit from Quantitative Easing will likely prove to be unfounded. We expect that negative real interest rates, Quantitative Easing and the ECB’s Outright Monetary Transaction (OMT) programme will be key factors in 2013.
Our base case remains that the global economy will remain stuck between robust recovery and renewed recession. Three main themes should keep growth in the twilight zone:
• The on-going deleveraging in the developed world
• The cloud of policy uncertainty hanging over the advanced economies, particularly in the US and Eurozone
• The transition to new growth models in the emerging world
(Andrea Podesta, head of Fixed Income at KNG Securities)