EUR 9.24 For Business Accounts Only

MACRO THOUGHTS EXPECTATIONS FOR 2017 AND REVIEW OF 2016

Prior to the US election, Macro Thoughts September 16, 2016 commented, ’Consumers have had little or no assistance from central banks, generally, and with government fiscal policies being limited and insufficient to tackle the lack of consumer demand, particularly in Europe, trade has suffered. Protectionism is rising now and geopolitical risks are increasing. These issues will come to the fore as disillusioned populations, who have increasingly been asked to make sacrifices, are becoming more militant, questioning the established parties and looking for change. Having failed consumers for 8 years, there is an underlying rebellion amongst Americans, and this is giving Donald Trump a momentum towards becoming President that few would have forecast. Such dissatisfaction is also being observed around the world, and Brexit may be just the start of significant changes that will occur over the next 12 months, which will have a macroeconomic impact’. 

WWW.MACROTHOUGHTS.CO.UK

Globally, electorates have run out of patience and are voting for change and central banks, politicians, markets and economists need to be alert to greater risks in 2017, as the future of Europe becomes more uncertain, Chinese risks increase and Trump needs to walk the walk, having talked the talk.

Strength in the US economy needs to be questioned. Expecting weak GDP for Q4 2016 and Q1 2017...

Dollar strength Trump’s election is already creating a problem with the US Dollar.....

US Q1 GDP could be negative... Real GDI (Gross Domestic Income), which is arguably a better indication of domestic growth, was lower in Q3 (4.8% from Q2 5.2%)....

To compare US ‘full’ employment pre- and post-crisis, the U6 rate (which includes temporary/marginally-attached workers), has fallen to 9.3 for the first time since 2008; however, in 2007 U6 averaged around 8.3

Worrying signs for traditional industries in the US 

​Twelve months ago, I warned that US automobile sales, that were hitting records, partly boosted by incentives (as well as the threat of higher interest rates), were not sustainable. Twelve months later, General Motors have announced they will reduce productivity....

I highlighted in 2014 that the top exports for 14 states of America came from the Airline industry, relying on global market conditions, and in 2016 there are worrying signs for this industry....

Turning tactically bond bearish early in Q3 

It was the BOJ’s meeting, post-G20 Hangzhou Summit in September that turned Macro Thoughts tactically bearish. By pinning 10 year JGB yields at zero...

Brexit

Not enough attention was paid to the regions beyond London, and it was not appreciated that consumer confidence and spending has remained stable because, for many, Brexit resulted from a hope for change....

Europe 

I expect Europe to be the area of risk and volatility during 2017....

I will be releasing a run down of European politics and Macro Thoughts’ views later this week.

Some of Macro Thoughts’ investment strategies and hedges during 2016 

In the end of 2015 Macro Thoughts end of year review:

US yields to fall to 1.35%

Bank of Japan rate cut (3/25 p/l ratio)

Royal Bank of Australia rate cut (3/25 p/l ratio)

For Brexit:

Inflation - GBP 10year Breakenens 2.36, (Final Profit 3.18),

Curve steepener 2y5y swaps, 18bp, incl. fwd starting and swaptions, (Profit 34bp)

Forex Hedging - GBPUSD Puts reference 1.49 (Put Spread 1.45/1.35)

European political volatility:

Relative Value - Sell Italy 10y Buy Spain 10yr bonds spread of -5bp, (Final profit +47bp)

Sell France / Buy Germany 10yr bonds, Sell US / Buy Germany 10yr bonds

Buy Germany 2year Schatz outright, basis swap and via options to hedge political and banking liquidity uncertainty