APRIL 2017

WORLD

Gold / Copper ratio is bouncing off its support line, a ratio inversely correlated with reflation. The pause in reflation, the main message provided last month, should last some more time before the second reflation up leg starts.

The proxy for Global IP is indicating that further improvement in Global IP are likely to be observed

That is a positive for the global equity cycle

World GDP remains on a solid upward trajectory

US

US Risk aversion remains low as economic conditions remains supportive

That allows Equities to outperform Bonds

US GDP outlook still solid based on the leadership offered by the Conference Board Employment Trend Index (No of people employed)

The resource utilisation index (machine & humans) also conveys a positive message

Capex poised to improve

Personal Consumption too

The price for one unit of risk reaches very high level. Not a timing tool but a reminder that good news come at an elevated price.

US bond like sectors recovered Vs Cyclicals as long rates declined

EM

EM GDP momentum remains well sustained

MSCI EM EPS also poised to show more improvement

G4 imports growth also suggest an improving outlook for EM profit growth

ASIA Ex-Japan

MSCI ASIA Ex-Jpn EPS growth should continue to improve

CHINA

Liquidity having its toll on China Steel prices and Iron ore

Industrial Commodities are also rolling over as total credit growth in China is slowing down

Fixed asset investment in real estate and, ultimately, materials demand from China should also be impacted.

A slowdown in the real estate sector shall weight on commodities prices

Basic resources stock relative performance is also impacted in Asia Ex-Jpn

The outlook for China is key to determine the outlook for global equities. The Li Keqiang index is used to measure the old China sectors, the sectors that authorities can drive with their levers.

CONCLUSIONS

1) Ongoing pause in the reflation trade. Commodities price shall remain under pressure.

2) The macro trends remains positive in DM

3) EPS growth should continue to rise

4) Risk aversion remains low, equities shall continue to outperform bonds

5) China credit conditions are tightening; this create a risk for global industrial production, commodities and global EPS growth towards the year end considering the lead of the credit cycle over these macro data.

Maurizio Sanci

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