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Monthly Review : December

  • In the US, the combination of low interest rates, a significant recovery in the housing market and, an even marginal, labour market recovery could result in higher growth in real personal spending in the coming months.
  • The Eurozone economy remains on a trajectory of economic deterioration, while we may not have yet seen the low of the current negative cycle in core European countries including Germany.
  • In Japan, an aggressive monetary policy is contributing to the current trend of global liquidity, which could have a short-term positive impact on growth, but is also adding to the overall global structural risks.
  • In China, the government's announcements of a relatively low growth target of 7.5%, but more importantly comments about "quality" growth as opposed to "quantity" may contribute to a convergence of investor expectations on a different model of economic growth, which ultimately will be positive for assets such as Chinese equities and cyclical commodities. The likelihood of medium-term positive surprises in the US economy, developments in China and Japan and the current positive momentum in the Eurozone crisis front suggest a continuation of the upward momentum in equity markets with an increased probability of acceleration in emerging markets. On bonds, we maintain a neutral view on German Bunds and a negative one on US Treasuries. Currently, the EURUSD exchange rate has positive short-term momentum, but exaggerates macroeconomic and political realities. At the same time, recent developments suggest a higher fair value. We revise upwards our 12-month target to 1.26 from 1.19. Our view on commodities remains neutral, but we note the significant improvement in the technical picture of the price of oil (crude).