麥格里資本全球宏觀報告：全球同步增長將在1-2個月內見頂 全球所有眼光都緊盯中國盛會 最大的危機可能是債務泡沫

After falling to nearly zero in early 2016, global industrial production growth has recovered steadily over the past 18 months, with recent momentum (3m/3m saar) the strongest seen since 2011 at 5%, well above the 3% long run average.

Notably, the most recent PMI surveys suggest that, if anything, growth momentum picked up further in August, with good growth in all the major regions.

基本結論：全球同步增長的動力未來1到2個月見頂

While growth remains robust, we expect momentum to peak in the next month or two, as inventories build, and the slowdown in Chinese housing and fixed asset investment weighs.

However, notwithstanding a near-term growth peak, we feel that the outlook has brightened considerably over the past six months, with growth likely to remain above average over the remainder of 2017 and into 2018.

? While this decade has been marked by substantial dips following growth peaks, we think that both the 2011 and 2014 episodes were driven by idiosyncratic shocks (Europe and China) that are unlikely to be repeated in 2018.

? Rather, we expect growth to oscillate around a relatively strong mean, as seen in the period 2004 to 2007.

最大的危機是

債務泡沫

Perhaps the most discussed risk to the outlook is the possibility of a 「bond bust,」 which would likely result in a substantial repricing of many risk assets. The key arguments for a major upward shift in global long yields are:

1. Strong global growth will eventually result in a change in sentiment in global markets, forcing yields higher as inflationary pressures rebound.

2. Yields have been held artificially low by central banks, and that the combination of likely ECB tapering and the planned reduction in Fed reinvestment will see a rapid upward adjustment.

3. Unemployment is now falling almost everywhere, which will see inflation begin to rebound; and

4. Despite the lack of traction so far, that the US administration is still focused on tax reform (read cuts…), which will boost yields.

While such an outcome is definitely possible, we feel that the risks to yields are more balanced, and that while they may move a little higher in the near term, long yields (particularly in the US and Japan) are unlikely to move out of recent ranges over the remainder of this year. There are six reasons for this view:

1. While global growth remains strong, a momentum peak is likely in coming months.

Historically once momentum begins to roll over, the upward pressure on yields moderates.

Has the dollar bull market come to an end?

Perhaps the most significant recent development across global markets, in our view, has been the broad-based fall in the USD. While the dollar has stabilized around current levels in recent weeks, we feel there is a risk that over the coming year or two the Greenback unwinds much of the gain seen in 2014 and 2015.

Over the past 45 years, the dollar has tended to move in big cycles, with turning points generally signaling a more substantial change in direction than recognized at the time.

In our view, the main catalyst for the dollar』s appreciation in 2014 was the pronounced outperformance of the US economy, along with the concomitant policy divergence.

While US growth remains stable, the rest of the world is now seeing much better growth, raising the risk that that exchange rates move back toward the levels seen in late 2013.

So whilst making currency forecasts is always challenging, we believe that that the major currency crosses are likely to return to broad fundamental/PPP values in 2018, and then overshoot in the following year.

In the case of the Euro/US$, the latest OECD estimate of PPP is 1.33. Our end 2018 forecast is 1.25 and our end 2019 forecast is 1.35.

In the case of the US$/￥, the latest OECD estimate of PPP is 102. Our end 2018 forecast is 100 and our end 2019 forecast is 90.

Commodities to be mixed

After rising substantially over the first seven months of 2017, over recent weeks base metals and bulk commodities have retraced some of the earlier gains. Given our expectation that

Chinese growth will moderate a little over coming months, we expect further falls across the complex, noting however, that as we move into 2018 much will depend on Chinese reforms totheir own commodity supply.

Please see Vivienne Lloyd』s recent report on copper price outlook: Copper overbought, time to turn around.

In contrast, the prices of oil has been relatively range bound over recent months, notwithstanding the hurricane season in the gulf of Mexico. We expect this stability to persist for some time, as US shale remains the swing producer, notwithstanding continues demand strength.

Please see Vikas Dwivedi』s most recent presentation on the oil price outlook here: Era of easy oil supply to 2020.

China』s economy has entered the late-cycle stage, though growth remains steady for now: The most important event in China in October is the upcoming 19th Party Congress， which will kick off on October 18. As such, in the next couple of months, it is not very likely that policy-makers will make any big turns. The top leaders will gather again in December to have the Central Economic Work Conference (CEWC), in which they will discuss the goals and strategies for the economy, including the growth target for next year. At that time, both the market and government officials will have a much clearer view on the direction of the Chinese economy for 2018 and the next five years.

Property market turning weaker: A large part of China』s business cycle is about property cycles. Property data have weakened recently, pointing to a new down-cycle ahead. National property sales growth slowed to low single digits in the past two months, compared with +16% yoy growth in 1H17. Meanwhile, new starts and property FAI in August are also weaker compared with 1H17. While property data could be very noisy for single month, the big trend is clear. Tight credit and extremely high base this year don』t bode well for the sector in the next twelve months. That said, the pace should be gradual, rather than dropping off a cliff.

Thanks to the strong sales in the past two years, completed unsold inventory fell to a threeyear low in August.

PPI disinflation to resume from September: PPI inflation rebounded to 6.3% yoy in August from 5.8% in July. Some might ask whether this shows the economy is trending up again. We don』t think so. The pick-up of PPI is mainly due to higher commodity prices such as steel and iron ore. However, cement is a better gauge of end-user demand, as it has almost no inventory issue. In August, cement prices barely moved while cement production dropped 3.7% yoy, which is the slowest pace since late 2015. In our view, the higher steel prices in August were due more to supply cuts (for example, inspection to comply with environmental standards), rather than strong demand. Looking ahead, we expect PPI inflation to trend down toward the year-end on higher base and weaker demand, implying that the growth for both nominal GDP and corporate earnings will be lower in 2H17 than in 1H17.

Yuan appreciation might take a break: By the end of this year, we think that the USD/CNY is likely to be range-bound between 6.5 and 6.9. The uncertainty comes mainly from centralbanks, especially from the Fed and the PBoC. For the Fed, the question is how the US$ is impacted by its exit from easing policies. For the PBoC, the question is whether it would allow the Yuan to rise without intervention, or start buying the dollar again to curb the strength of the Yuan.

But for the next 12 months, the chance for Yuan to strengthen remains high. The main driver is capital flows, which have also improved substantially, but still have ample room to improve. Over the past two years, exporters have postponed converting their FX income into RMB. Since 2015, China has had a surplus of US$1.3tn under goods trade, but only US$278bn has been converted into RMB. This is the opposite of what has happened in previous years, when appreciation expectations dominated. However, things are changing.

While 35% of goods trade surplus was converted into RMB in 2016, the ratio increased to 60% in January-July this year. As such, we expect the government to gradually loosen capital controls in the coming months. (See our thematic report: Will Yuan hit 6.4 against US$? 29 August 2017)

Rising uncertainties after the Party Congress: We see limited near-term risks from China. Earnings data for 1H17 look great, as this period coincides with the peak of this round of recovery. Banks look good for now, as their earnings growth, which bottomed in 4Q16, lags one year behind the recovery. Moreover, improved corporate earnings and cash flows lower concerns about asset quality and bad debt. All these make the rally in H-shares look much healthier than the one in 2015. That said, after the Party Congress, this round of political business cycle, which has supported growth in the past two years, will end. In other words, the economy will enter uncharted waters. The market has been familiar with the mini-cycle model since 2012, but it』s unclear whether it will continue for the next five years. The first signal should come from the Central Economic Work Conference this December, which will set the growth target for the next year.

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