Shifting from policy accommodation to growth acceleration€¦ · Shifting from policy...

Shifting from policy accommodation to growth acceleration

Goldman Sachs Research

September 2013

Noah Weisberger Goldman, Sachs & Co. (212) 357-6261 [email protected] Aleksandar Timcenko Goldman, Sachs & Co. (212) 357-7628 [email protected]

The Goldman Sachs Group, Inc.

This research is focused on industries and sectors. It does not attempt to distinguish between the prospects or performance of, or provide analysis of, individual companies within any industry or sector we describe. Any trading recommendation in this research relating to an industry or sector refers to the entire industry or sector and not to any individual company in that industry or sector. In addition, any trading recommendation relating to multiple positions in more than one industry or sector refers to the entire recommended trading strategy and not to any of the constituent positions in isolation. In particular, we are not recommending any individual security or an investment in any individual company, and you should not rely on this research in making an investment decision with respect to any individual company or security. You should consider this research as only a single factor in making investment decisions. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Wavefront® is a registered service mark of Goldman, Sachs & Co., and the Wavefront ideas, concepts and methodologies described herein are proprietary and patent pending.

Goldman Sachs Global Investment Research 2

Global GDP Growth Forecasts 2012-2016

USA 1.8 2.8 1.5 2.9 3.2 3.0Japan -0.6 2.0 1.8 1.6 1.2 1.5Euro Area 1.5 -0.5 -0.5 0.9 1.2 1.5

Germany 3.4 0.9 0.6 2.0 2.1 2.2France 2.0 0.0 0.0 0.5 1.0 1.3Italy 0.5 -2.4 -1.8 0.4 0.8 1.0Spain 0.4 -1.4 -1.5 0.0 0.9 1.8

UK 1.1 0.2 1.4 2.3 2.5 2.7China 9.3 7.8 7.4 7.7 7.8 7.8India 7.5 5.1 5.4 6.7 7.2 7.5Brazil 2.7 0.9 2.3 2.8 3.3 3.4Russia 4.3 3.4 2.7 3.5 3.7 3.1Developed Markets 1.7 1.4 1.0 2.2 2.4 2.5Emerging Markets 6.9 5.5 5.4 6.0 6.2 6.2World 3.9 3.1 2.9 3.8 4.1 4.1

2014 2015 2016% yoy 2011 2012 2013

Source: Goldman Sachs Global Investment Research.


Real GDP Growth: GS vs Consensus

GS Consensus* GS Consensus*USA 1.8 2.8 1.5 1.5 2.9 2.6Japan -0.6 2.0 1.8 1.9 1.6 1.5Euro Area 1.5 -0.5 -0.5 -0.6 0.9 0.9UK 1.1 0.2 1.4 1.2 2.3 1.9Brazil 2.7 0.9 2.3 2.2 2.8 2.7China 9.3 7.8 7.4 7.5 7.7 7.5India 7.5 5.1 5.4 5.5 6.7 6.3Russia 4.3 3.4 2.7 2.3 3.5 2.9BRICs 7.6 6.0 6.0 6.0 6.6 6.3Advanced Economies 1.7 1.4 1.0 1.1 2.2 2.0

World 3.9 3.1 2.9 2.8 3.8 3.6* Consensus Economics August 2013Source: Goldman Sachs Global Investment Research

% yoy 2011 20122013 2014


Inflation: GS vs Consensus

GS Consensus* GS Consensus*

USA 3.1 2.1 1.6 1.5 1.8 1.9Japan -0.3 0.0 0.1 0.1 2.3 2.1Euro Area 2.7 2.5 1.5 1.5 1.5 1.5UK 4.5 2.8 2.6 2.7 2.4 2.5Brazil 6.6 5.4 6.2 5.8 5.5 5.6China 5.4 2.6 2.4 2.6 2.6 3.1India 9.5 7.5 5.5 5.4 5.7 5.6Russia 8.5 5.1 6.5 6.0 5.6 5.5BRICs 6.8 4.2 3.8 3.9 3.8 4.1Advanced Economies 2.7 2.0 1.4 1.4 1.8 1.9

World 4.3 3.2 2.8 2.8 2.9 3.0* Consensus Economics August 2013Source: Goldman Sachs Global Investment Research

% yoy 2011 20122013 2014


An Increase in Fiscal Drag, Then Relief

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

2008 2009 2010 2011 2012 2013 2014 2015

US

Euro-4 (Germany, France, Italy, Spain)

Fiscal Impulse

Forecasts

%of GDP

Source: IMF, Goldman Sachs Global Investment Research.


Moving Over the Hump of Fiscal Contraction

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

TaxSpending (Ex Sequester)Sequester

Impact of Federal Fiscal Policy on Real GDP Growth:

Percentage points Percentage points

2012 2013 2014



Negative Output Gaps Around the World, But Much More “Room” in DMs

-5

-4

-3

-2

-1

0

1

2

3

1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016

%

EMWorldDM

Fcst.



Is the GLI breaking out of its range?

Source: Haver Analytics and Goldman Sachs Global Investment Research.


GLI in Expansion (since April)


Aug-13

Jun-13

Apr-13

Feb-13

Jan-13

Dec-12

Sep-12Jul-12

May-12

-0.08%

-0.06%

-0.04%

-0.02%

0.00%

0.02%

0.04%

0.06%

0.08%

0.10%

-0.20% 0.00% 0.20% 0.40% 0.60%

GLI

acc

eler

atio

n

GLI growth

Recovery Expansion

Slowdown

Expansion

Contraction Slowdown


PMIs strong, China picking up bit now too



PMI and New Orders-to-Inventory spread improving too



Macro data: positive surprises are back



CAI rebounding



Sentiment robust



Homebuilding Has a Lot of Upside

0

400

800

1200

1600

2000

2400

2800

0

400

800

1200

1600

2000

2400

2800

86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16

Household Formation

Housing Starts

Thousands Thousands

* Assumed demolition rate of 300,000 per year. Source: Department of Commerce. GS Global Investment Research.

Household FormationForecast

Housing Starts

Demolitions*


Capital Spending Should Rebound

-20

-15

-10

-5

0

5

10

15-25

0

25

50

75

1001991 1994 1997 2000 2003 2006 2009 2012

Sr Loan Officer Opinion Survey (left)

Business Fixed Investment (right)

Source: Federal Reserve Board. Department of Commerce.

Percent change, year agoNet percent tightening credit



SP 500 Tracking Expansion Pace; Wavefront GDP Growth Basket Ahead

-20%-18%-16%-14%-12%-10%

-8%-6%-4%-2%0%2%4%6%8%

10%12%14%16%18%20%22%24%26%

S&P 500 EM Equities Aussie Dollar GS WF USGrowth basket

Oil Copper

Expansion Slowdown Contraction Recovery

Recent Slowdown(1-Feb-2013 to 30-Apr-13)

Recent Expansion(1-May-13 to current)



Cyclical Sectors in the Lead

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Ene

rgy

Mat

eria

ls

Indu

stria

ls

Dis

cret

iona

ry

Sta

ples

Hea

lthca

re

Fina

ncia

ls IT

Telc

omm

Util

ities

Expansion Slowdown Contraction Recovery

Recent Slowdown(1-Feb-13 to 30-Apr-13)

Recent Expansion(!-May-13 to current)


Current Activity Indicator Has Picked Up

Jan Apr Jul Oct Jan Apr Jul-1

0

1

2

3

4

-1

0

1

2

3

4

HousingEmploymentConsumerIndustry

Percent change, annual rate Percent change, annual rate

* First principal component of 25 key weekly and monthly US economic indicators.Source: Goldman Sachs Global Investment Research.

Current Activity Indicator (CAI)

2012 2013


Asset markets consistent with better US impulse (which is unfamiliar!)

-20

-15

-10

-5

0

5

10

15

20

US Banks USDefensives

SPX Globalcyclicals

(USmarket)

Eurostoxx EM equity

%

-5

0

5

10

15

20

25

-20

0

20

40

60

80

100

UST 10-year

Bund10-year

$/AUD $/JPY $/EM FX USDTWI

$/EUR

bp %



Different macro ‘shocks’ lead to different asset market impacts

Response of asset to shock: US Growth European Growth EM/China Growth Tighter US Monetary

US ++? +? +? -Domestic cylicals ++ 0 0 -Global Cyclicals + + + -Defensives +? 0 0 -?

Non-US DM + ++? +? -EM + +? ++? - -

US yields ++ + + ++

Non-US DM yields + ++ + ++?

$ +? - - +$/JPY + 0 +? +$/Europe +? - -? - +?$/EM + 0 - ++

EM vs DM - - + -EM vs US - 0 + -Glob Cyc vs Def +? + + -?Dom Cyc vs Def ++? 0 0 -?

Stoc

ksR

ates

FXR

elat

ive

equi

ty

Note: Scale shows likely response to each shock ranging from most positive to most negative on the following scale: ++, ++?, +, +?, 0, -?, -, --?, --. For negative shocks, signs would be reversed. Source: Goldman Sachs Global Investment Research.


‘Growth-driven’ rate rises do not usually stop equities, unless rates rise very rapidly

Average monthly changes SPX (%) 10Y (bps) No. of

Months SPX (%) 10Y (bps) No. of Months

Rates+ 0.97 20.1 143 0.97 20.1 143

Rates- 0.58 -19.4 198 0.58 -19.4 198

Growth+/Rates+ 1.97 20.2 91 1.12 20.9 75

Growth +/ Rates - 1.78 -14.5 79 1.18 -19.9 98

Growth -/Rates + -0.78 20.1 52 0.80 19.3 68

Growth -/Rates - -0.21 -22.6 119 0.00 -18.9 100

Growth +/ Rates ++ 0.17 52.8 12 0.12 52.0 10

Growth -/Rates ++ -1.67 45.3 4 -0.97 49.2 6

Using WF Growth Basket Using CAI



Shifting cross-currents help explain past market movements…

-3-2-1012345678

-6-4-202468

10121416

SPX Eurostoxx EM USD TWI UST 10-year 9(RHS)

% chg, 12/30/12-5/21/13 bp

-64

-48

-32

-16

0

16

32

48

64

-16

-12

-8

-4

0

4

8

12

16

SPX Eurostoxx EM USD TWI UST 10-year (RHS)

% chg, 5/21/13-6/24/13 bp

Until May, markets were mostly consistent with improving US growth

May-June saw a US monetary ‘tightening’ shock



Since June, asset markets have been more consistent with global growth improvement

-5

0

5

10

15

20

25

-2

0

2

4

6

8

10

SPX Eurostoxx EM USD TWI UST 10-year (RHS)

% chg, 6/24/13-8/31/13 bp



WF Growth and ISM since 2010



WF Growth and ISM level (long history)



Discretionary leadership



Materials lag



Industrials are middling



Market sentiment higher



US Yields continue to lead; but equity market growth views are rising

Source: Bloomberg and Goldman Sachs Global Investment Research.


Risk is retreating, while growth views support the market



EM equity has yet to fully participate in the cyclical upswing



EM Equity sell off and FX weakness on a rebound



US FCI elevated again



2015 rate hikes still in the market


0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13

Dec-2013 Fed FundsDec-2014 Fed FundsDec-2015 Fed Funds


US growth risk improving, China growth risk improving, EM equity higher



Banks pull back was sharp, despite little shift elsewhere



Homebuilders pause …



… despite dramatic pick-up in the data …


-4

-3

-2

-1

0

1

2

3

4

5

0 20 40 60 80 100

Mon

thly

cha

nge

NAHB Housing Index

ExpansionRecovery

Contraction Slowdown

Jan-03

Jan-05

Jan-07

Jan-09

Jan-11Aug-13

Housing Swirlogram


… as mortgage rates rise



Small cap outperformance is widespread



Equity basket disclosure

The Securities Division of the firm may have been consulted as to the various components of the baskets of securities discussed in this report prior to their launch; however, none of this research, the conclusions expressed herein, nor the timing of this report was shared with the Securities Division.

Disclosure Appendix September 11, 2013


Disclosure Appendix

Analyst certification We, Noah Weisberger and Aleksandar Timcenko, hereby certify that all of the views expressed in this report accurately reflect our personal views, which have not been influenced by considerations of the firm's business or client relationships.

Disclosures Global product; distributing entities The Global Investment Research Division of Goldman Sachs produces and distributes research products for clients of Goldman Sachs on a global basis. Analysts based in Goldman Sachs offices around the world produce equity research on industries and companies, and research on macroeconomics, currencies, commodities and portfolio strategy.

This research is disseminated in Australia by Goldman Sachs Australia Pty Ltd (ABN 21 006 797 897); in Brazil by Goldman Sachs do Brasil Corretora de Títulos e Valores Mobiliários S.A.; in Canada by Goldman, Sachs & Co. regarding Canadian equities and by Goldman, Sachs & Co. (all other research); in Hong Kong by Goldman Sachs (Asia) L.L.C.; in India by Goldman Sachs (India) Securities Private Ltd.; in Japan by Goldman Sachs Japan Co., Ltd.; in the Republic of Korea by Goldman Sachs (Asia) L.L.C., Seoul Branch; in New Zealand by Goldman Sachs New Zealand Limited; in Russia by OOO Goldman Sachs; in Singapore by Goldman Sachs (Singapore) Pte. (Company Number: 198602165W); and in the United States of America by Goldman, Sachs & Co. Goldman Sachs International has approved this research in connection with its distribution in the United Kingdom and European Union.

European Union: Goldman Sachs International, authorised and regulated by the Financial Services Authority, has approved this research in connection with its distribution in the European Union and United Kingdom; Goldman Sachs AG, regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht, may also distribute research in Germany.

General disclosures This research is for our clients only. Other than disclosures relating to Goldman Sachs, this research is based on current public information that we consider reliable, but we do not represent it is accurate or complete, and it should not be relied on as such. We seek to update our research as appropriate, but various regulations may prevent us from doing so. Other than certain industry reports published on a periodic basis, the large majority of reports are published at irregular intervals as appropriate in the analyst's judgment.

Goldman Sachs conducts a global full-service, integrated investment banking, investment management, and brokerage business. We have investment banking and other business relationships with a substantial percentage of the companies covered by our Global Investment Research Division. Goldman, Sachs & Co., the United States broker dealer, is a member of SIPC (http://www.sipc.org).

Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients and our proprietary trading desks that reflect opinions that are contrary to the opinions expressed in this research. Our asset management area, our proprietary trading desks and investing businesses may make investment decisions that are inconsistent with the recommendations or views expressed in this research.

The analysts named in this report may have from time to time discussed with our clients, including Goldman Sachs salespersons and traders, or may discuss in this report, trading strategies that reference catalysts or events that may have a near-term impact on the market price of the equity securities discussed in this report, which impact may be directionally counter to the analysts’ published price target expectations for such stocks. Any such trading strategies are distinct from and do not affect the analysts’ fundamental equity rating for such stocks, which rating reflects a stock’s return potential relative to its coverage group as described herein.

We and our affiliates, officers, directors, and employees, excluding equity and credit analysts, will from time to time have long or short positions in, act as principal in, and buy or sell, the securities or derivatives, if any, referred to in this research.


Disclosure Appendix

This research is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Clients should consider whether any advice or recommendation in this research is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. The price and value of investments referred to in this research and the income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain investments.

Certain transactions, including those involving futures, options, and other derivatives, give rise to substantial risk and are not suitable for all investors. Investors should review current options disclosure documents which are available from Goldman Sachs sales representatives or at http://www.theocc.com/about/publications/character-risks.jsp. Transaction costs may be significant in option strategies calling for multiple purchase and sales of options such as spreads. Supporting documentation will be supplied upon request.

In producing research reports, members of the Global Investment Research Division of Goldman Sachs Australia may attend site visits and other meetings hosted by the issuers the subject of its research reports. In some instances the costs of such site visits or meetings may be met in part or in whole by the issuers concerned if Goldman Sachs Australia considers it is appropriate and reasonable in the specific circumstances relating to the site visit or meeting.

All research reports are disseminated and available to all clients simultaneously through electronic publication to our internal client websites. Not all research content is redistributed to our clients or available to third-party aggregators, nor is Goldman Sachs responsible for the redistribution of our research by third party aggregators. For all research available on a particular stock, please contact your sales representative or go to http://360.gs.com.

Disclosure information is also available at http://www.gs.com/research/hedge.html or from Research Compliance, 200 West Street, New York, NY 10282.

© 2013 Goldman Sachs.

No part of this material may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without the prior written consent of The Goldman Sachs Group, Inc

Shifting from policy accommodation to growth acceleration€¦ · Shifting from policy...

Documents

Transcript of Shifting from policy accommodation to growth acceleration€¦ · Shifting from policy...