Ao minuto: EUA atacam Irão. MNE iraniano diz que país "reserva todas as opções" para se defender

[Karamba]

(Morgan Stanley)
Europe : The Age of Low Expectations

Joachim Fels & Elga Bartsch


The ECB refi rate will stand 50 bp below its current level at end-2003; Bund yields, the DAX and EUR/USD will trade marginally higher than right now; the fed funds rate will still (or again) be at 1.25%; and European bonds will outperform Treasuries this year. This, in a nutshell, was the collective wisdom among some 60 clients from large (primarily) German financial institutions -- CIOs, senior asset allocators, and portfolio managers -- we not only gathered and but also polled at a macro seminar near Frankfurt this past week. These poll results portray a fairly downbeat view on the European and the global economies among our German clients -- hardly surprising given the economic malaise in Germany.

As usual in these kinds of polls, the median GDP forecasts for the current year were almost identical to the consensus -- 1.3% for Euroland and 2.5% for the United States. More interestingly, however, most clients appeared to think that the risks to these forecasts are biased heavily on the downside. At least that's how we interpret the message from the "macro surprises" that we asked clients to jot down. Following the rules devised by our seasoned US equity strategist Byron Wien, we asked clients to name an out-of-consensus event that they thought to have at least a 50% chance of happening this year. And, guess what? The overwhelming majority of surprises were on the negative side (for the economy or the equity market or both). Disappointments on economic growth and corporate profits or outright global recession were named frequently, as were events such as collapsing US and UK housing markets, a US banking crisis, a spreading Iraq war, and a USD collapse. Among the few positive surprises that were mentioned were a revival of IT spending, bold labour market reforms in Germany, and (at least the client thought it would be positive) a resignation of the German government.

Elsewhere, an overwhelming majority of clients (90%) thought the UK would not pass the five tests and not hold a referendum on EMU entry this year, while a small majority (60%) thought the Swedes would vote yes this year. On possible changes in the ECB strategy, 40% thought the Bank would amend its definition of price stability this year, but only 13% thought the ECB would drop the first, monetary, pillar. Incidentally, in his keynote address at our seminar, Bundesbank President Welteke later on also suggested that the ECB would not give up the monetary pillar, even though he confirmed that the Council currently pays more attention to the second, non-monetary pillar.

Our key takeaway from this client poll is that (almost) nobody seems to be positioned for an economic snapback or a sharp rally in equity markets for now. Or, as one of our most senior government bond traders summarised his impressions of seminar during the open forum discussion: "I don't know anybody who is short duration at the moment". To be sure, we also expect the economy to weaken further in the next several months. However, if and when the economy finally bottoms, the backup in bond yields could be quite vicious. So, the biggest surprise would likely be a smart snapback later this year! You have been warned.