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Monthly Review: October

In the US, we estimate a slowdown in growth for the third quarter of 2013 to 2% (annualized), compared to 2.5% for the second quarter. A similar rate is also expected for the first quarter of 2014, when we expect a firmer resolution of the issues of sequestration and the debt limit. After that we expect growth to accelerate. For the whole of 2013, we estimate an average annual rate of growth of 1.6%, showing a significant slowdown compared to the 2.8% growth in 2012, while for 2014 we expect acceleration to 2.6%.


In the Eurozone, we estimate that there was a marginal slowdown during the third quarter of 2013, with a growth rate of 0.2% (quarterly rate), compared to 0.3% for the second quarter. Growth of the order of 0.2% - 0.3% is considered sustainable until the end of 2014. Therefore, for the whole of 2013, we estimate an average annual rate of contraction of real GDP by 0.3%, showing an improvement over the -0.6% in 2012 while, for 2014, growth is expected to recover to 1.1%.


Once again, increased uncertainty, which is countered by excess liquidity, is a positive factor for risky securities. Avoiding two potentially significant risks (tapering & debt limit) might support current positive market momentum, but what should also be taken into account is that the combination of low interest rates and low volatility is ideal for creating excesses, but is also conducive to an environment of, potentially increased, investment risk. 


Particularly vulnerable are US equities that are at this point deemed expensive, but which still maintain a positive technical picture. In emerging countries, the overall picture is positive as both fundamental and technicals are positive. Concerns about Chinese liquidity mainly affect commodities, which have a negative overall rating. In the bond markets, low maturity US Treasury bonds are considered very expensive, but remain under the protection of the Fed. On the other hand, further “flattening”  of the US curve, from the long end is possible. The EURUSD cross maintains a positive technical picture. However, it not only begins to deviate from previously tight relationships with bond market spreads (Germany vs. the USA, Germany vs. the European periphery) but also remains exposed to a future resurgence of "cohesion risk» in the Eurozone.