It's All About Politicians, Central Bankers And Growth For 2013
"It’s all about Politicians, Central Bankers and Growth for 2013" is how Deutsche Bank's Jim Reid perfectly sums up the year ahead. While he notes that Central bankers have increasingly eliminated the immediate tail-risk across the globe, he adds that they have not yet found the solution to weak/negative growth and how to successfully de-lever over indebted economies. This argues for a risk-off (periodic growth disappointments), risk-on world (liquidity injections) to continue as far as the eye can see.
We tend to agree that the biggest risk to this comes from politicians. The fiscal cliff is the near-term risk but the Italian elections also loom and execution risk in Spain must be closely watched.
It could be a decent year for markets but with huge risk off moments. It’s difficult to assess where we’ll be in one of these mini-cycles by the time the calendar ticks over into 2014 but trying to trade the large potential swings will likely be key.
Beyond 2013, politics will continue to be the key risk in markets. Central banks seem increasingly ‘all-in’ but there is conditionality attached to this in Europe. If politicians drop the ball and renege on promises or get forced by the electorate to embark on a different path against the wishes of the EU/ECB then huge risk aversion could still easily occur. Politics will be a key determinant as to whether the Euro survives over the next few years. We need political stability well beyond 2013 to guarantee this.
2013 is likely to be the seventh year that the financial world operates under extreme conditions/stress and increasingly heavy intervention.
Source: Deutsche Bank