Here three outstanding reports from JP running the continued theme of forward looking 2014 view.No tech in specifically but don’t let that stop you from reading these two from the UK teams first and the third from the US equities team, which is a bit more of a cheer leading review, i believe.
Both these first two reports deserve a decent read. They make some excellent points with the equity report being a bit more ‘controversial’ in my mind than the FI and FX.
Equity wise first.
JP make a strong case for European and Uk out performance of the US in 2014.
They try and present a fundamental case first and i must say its weak in my view. There is nothing on the credit front other than to say that credit data lags the real turn around. OK i accept the point but then show me something else JP to convince me on the case. They don’t have an explanation other than a domestic reversal of themes like less austerity, credit growth, consumer confidence improvement ie reduce savings and spend more & capex growth.
One by one.
1) Less austerity. Yes, feeds 1% into growth.
2) credit growth. No or rather show me something to give me some evidence. The euro bank stress tests and regulatory environment appears to be toughening not lightening. I can’t see how credit can grow other than Germany. Or unless the ECB steps in with a game changing news announcement. (Watch the German courts on the OMT ruling Q1 2014).
3)Consumer confidence. Yes possibly a little. Though without credit growth unlikely to result in much spending.
4) Capex growth. Ie corporates to invest. Really? Why? Why would they invest and increase capex. Yes capex as share of gdp globally is at historic lows but this alone is not enough to suggest a dead cat bounce. Evidence. Note they are also bearish EMs. So it would be an unusual time for the euro exporters to be suddenly reversing their capex trends and investing unless the ems pick up. Which JP suggest they wont for 2014.
So overall the economic case they present is uber weak, in my view.
But where they score goals is in the equity price valuations. Normal pe means vs the US and recent under performance, etc. On the nuts and bolts issues they score, in my view. There are some good picks as well but they need a detailed look and comment. Some usual names appear. Forum to discuss this detail.
Here the report. There is a lot of detail here and many comments re 2014 strat for miners, energy and value vs cyclical, Ems etc.
If the equity team’s report was a bit lite on the economics JPM securities team (US Co – UK Desk) more than makes up for it in their 2014 FX and fixed income report here below.
Its a good report. What i like is that they make clear that the structural issues are immense and unresolved in say the UK as one example but this matters not in terms of trading and values for eurgbp etc for 2014. Why has growth been so strong in Norway, Sweden and Switzerland. Not because of any ‘real’ demand issues, clearly. Not for many years has domestic economic performance been driven by productivity and intrinsic demand issues. What i like here is that the team understand this perfectly and make no attempt to pretend otherwise. One small point to make, the UK’s house price indexes are very difficult to read. There is a wide regional divergence and this hides the real issues. Statistics only on England are much more interesting and bench marking English house prices to English salaries and English debt to English incomes etc is a much more fascinating and worrying set of stats!
This an article from Oct13.
And within England itself the statistics vary hugely by region. Also debt to gdp on aggregate in the Uk is high but not higher than some. But we must recall that the UK has 1m buy to let landlords. She has a high concentration of debt in one segment and class of society. The UK unlike almost all other countries operates a variable interest rate model on most of her household debt. This is quite unique and makes the transmission speed of rates on consumption one of the highest it the world. Ie as world rates fall uk consumption offers offers a positive beta on world consumption. As rates rise she offers a negative beta. She is an consumer cyclical (alpha type) economy. (In our financial vernacular). That’s all fine but part of our game is to understand what is what in terms of instruments and asset classes. We must be clear when to hold UK assets and when to hit the sell button.
Here without more delay the JP FX and FI 2014 forecast.
Here below the US equities team review and forecasts. They advocate a strong 6trh year for this bull market and more pe compression. The argument rests on earnings improvement and positive fund flows as relatively the spread to bonds is too high. Note within this bullish case is the assumption that bond yields compress further in spite of the taper. Well, that will take some doing but lets see what the Fed has up its sleeve.
Here their report.
Much more to come.
Rich