Julius Baer: Comentarios China, EE.UU., Gas Natural

Redacción - Viernes, 19 de Enero

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China: Strong economic performance to moderate in 2018 Yesterday’s macroeconomic data confirmed the first rebound of Chinese full-year growth in 2017 since 2010. Chinese gross domestic product (GDP) grew by 6.9% compared to the previous year, rising from 6.7% in 2016, and was markedly above Beijing’s ‘around 6.5%’ goal. The global upswing and with it the demand for Chinese exports were the main drivers for this comfortable outcome, which allowed the Chinese authorities to safely perform reforms to bring its large debt under control and continue the shift towards a consumption-oriented economy. Exports remained a growth driver until the end of the year, as confirmed by resilient export and industrial production figures for December. They are likely to remain a supportive, but weakening pillar for growth in H1 2018. Retail sales, on the other hand, surprised to the downside on falling auto sales, but this rather looks like a one-off. For next year, we expect growth to moderate to around 6.5% as slowing credit growth in connection with ongoing reforms will have an overall cooling effect on the economy.

China’s economy ended a strong 2017 on a resilient note, as exports and the property sector continued to hold up. We expect these supportive factors to weaken over the next months, leading to a gradual moderation of Chinese GDP growth as reforms are continued.

 

Susan Joho, Economist, Julius Baer

 

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US government bonds caught between shutdown risk and supply fears

 

The yield on the benchmark 10-year Treasury note has surpassed the post-election high and stands at 2.63% at the time of writing. The strength of the oil price, as well as political factors, keeps the bond market under pressure. Yesterday, the House of Representative approved a continuing resolution (CR) that sanctions government spending until mid- February. The CR also needs to be approved by the Senate before midnight Washington time to avoid a partial shutdown of the US government. Given the Republican majority in the Senate, such an approval would be seen as granted under normal circumstances. The problem is that some senators of the Grand Old Party have openly announced their opposition to it, making the outcome less predictable. To make things worse, the Treasury is warning that it will run out of money, barring an increase of the debt limit by the end of February. Thus, the bond market is really caught between the short-term fears of a shutdown, which would weaken the economy and be positive for bond prices, and the outlook for a lift of the debt limit and higher supply of bonds, which would be negative. Credit spreads, i.e. the yield advantage of the riskier corporate bonds over Treasuries, are very compressed at this juncture, meaning that the weakness of Treasury bonds also translates into lower corporate bond prices.

 

We stay neutral for US high-yield bonds and prefer capital protected investments for the risky part of the US corporate bond market, besides our long-held recommendation for money market instruments. In the government bond segment, we maintain our new call to add exposure to 10-year Treasury notes with yields above 2.6%, our year-end target.

 

Markus Allenspach, Head Fixed Income Research, Julius Baer

 

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Natural gas: The aftermath of the cold spell

 

The natural gas market seasonally jumps to life when winter arrives and cold weather ignites heating demand for the fuel. The past weeks have been particularly extreme with an arctic cold spell pushing United States natural gas demand to record highs around the turn of the year. In consequence, prices spiked by more than 15% and are now retreating from the latest highs. Although the inventory draw has been significant, the market is less concerned about tightening supplies. The near-term weather outlook foresees above-average temperatures. Gas production grows robustly on the back of expanding drilling activity in both the shale oil and shale gas basins across the country. We stick to our neutral view and see prices coming back towards USD 3 per million British thermal units. Meanwhile in Europe, natural gas prices have dropped more than 15% in the past month. Mild weather tempers heating demand while solid wind conditions reduce the use of natural gas power plants. With imports from Norway and Russia remaining on elevated levels, the solid supply outlook should continue to weigh on prices and thus we to stick to our cautious view. The weather outlook will remain the key driver of price volatility for the time being. The take-away for investors is twofold. First, the natural gas price spike underpins the temporary nature of the recent bounce in the commodity asset class. Second, the natural gas market is one of the structural energy growth stories driven by the rising shale output, increasing the United States’ liquefied natural gas exports and China’s ambitiously swift coal-to-gas shift.

 

Natural gas prices are retreating from their recent highs. Solid production growth and the outlook for more normal winter weather conditions have tamed the supply fears unleashed by the arctic cold spell of late last year. We stick to our neutral view and see prices trading range bound with weather risks remaining the key wild card.

 

Norbert Rücker, Head Macro & Commodity Research, Julius Baer

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