Julius Baer _ China, bonos gubernamentales EE.UU. y cobre

Redacción - Viernes, 31 de Marzo

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ECONOMICS Optimistic businesses in China Today, one day ahead of the usual publication date, the Chinese National Bureau of Statistics published its official figures for the purchasing managers’ indices. Both the manufacturing and the services gauge increased, to 51.8 and 55.1 respectively. With that, they signal that the strong momentum unfolding in Q1 will last into Q2, with initial strength in the industrial sector broadening into the service sector. The development had been supported by a pick-up in producer prices leading to higher earnings. However, measures taken against financial risks since the beginning of the year will likely lead to a cooling in the second half. 

Chinese growth momentum in Q1 surprised many with its strength, as the property sector performed better than expected. This strength is likely to continue in Q2. Tightening measures since the beginning of the year could lead to a softening of economic growth in the second half of the year.

 

Susan Joho, Economist, Julius Baer

 

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FIXED INCOME

 

US government bonds: The painful transition from BAT to BSN - stay in loans 

 

One of the key themes we have set for 2017 is the shift from monetary to fiscal stimulus, expecting no more support from central banks but lower tax rates and more infrastructure spending in the USA. What we see now is a slight transformation of the theme. President Trump is no longer seen as capable of pushing through a large-scale reform of the US tax system. In particular, he could not implement a reform of the health care system that would free up means to finance a massive reduction of the corporate tax rate. And there seems to be no support for the Border Adjustment Tax (BAT) or other strategies that would foster exports at the expense of imports. In other words, there is less fiscal boost of the USecono-my. The thing is that the latter has gained so much traction in recent month that the US central bank openly debates the need to lower its balance sheet, i.e. to stop reinvesting the money from maturing mortgage-backed securities and Treasury bonds it holds on its books. Some market observers even believe that the wording hints at an interest of the Fed to outright sell such papers in the market. Balance sheet normalisation (BSN) will be the new key word to watch in the week ahead, in particular if economic data continue to surprise on the upside. From the White House, on the other hand, the bond market is not expecting any signal before the expiration of the current Continuing Resolution (CR) on 28 April. 

 

With the focus back on US monetary policy, we reiterate our call for US senior loan funds that give exposure to variable-rate debt, a segment that benefits from rising rates. We maintain our call for higher US government bond yields in the shorter and medium term.

 

Markus Allenspach, Head Fixed Income Research, Julius Baer

 

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COMMODITIES

 

Copper: Supply-side progress not yet reflected in prices

 

In recent weeks it has all been about supply disruptions in the copper market, fuelling the story of a looming shortage and providing support to bullish sentiment. Since the end of last week, two of the disruptions have been resolved while there has been progress on a third. The strike at Escondida in Chile came to an end last week, while yesterday the staff at Cerro Verde in Peru agreed to return to work. Also yesterday, there was news that the impasse over copper exports from Indonesia’s Grasberg mine might be resolved shortly as the government was nearing an agreement with the operator. That said, this supply-side progress has not been reflected in prices yet, which gained slightly over the past week. The restart of production at these mines should add to already ample supplies, as indicated by rising inventories, falling physical premiums and widening scrap discounts. While sentiment in the futures market has cooled in recent weeks, it is still bullish and bears the risk of profit-taking. We continue to believe that too much has been priced into copper, both in terms of demand growth expectations and supply disruptions. We remain bearish and stick to our short position. That said, supply disruptions remain the biggest upside risk with several labour contracts up for negotiation this year. 

 

Since the end of last week, two of copper’s supply disruptions have been resolved while there has been progress on a third. We continue to believe that too much has been priced into copper, both in terms of demand growth expectations and supply disruptions. Hence, we remain bearish and stick to our short position.

 

Carsten Menke, Commodities Research Analyst, Julius Baer

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