17 Macro Surprises For 2013

Tyler Durden's picture

Just as Byron Wien publishes his ten surprises for the upcoming year, Morgan Stanley has created a heady list of seventeen macro surprises across all countries they cover that depict plausible possible outcomes that would represent a meaningful surprise to the prevailing consensus. From the return of inflation to 'Brixit' and from the BoJ buying Euro-are bonds to a US housing recovery stall out - these seventeen succinctly written paragraphs provide much food for thought as we enter 2013.


Via Morgan Stanley:

Just When You Thought it Was Dead, Inflation Returns (Joachim Fels/Charles Goodhart)
A strong economic rebound in China and the US, adverse supply shocks in agriculture and worries about swelling central bank balance sheets lead to a sharp rise in actual and expected global inflation. Central banks don’t dare to respond, given high debt levels and financial fragilities, and either continue to ignore or abandon their inflation targets. Rising wheat prices lead to bread riots. In the UK, Chancellor Osborne advises the British to eat oatcakes instead.

Debt Cancellation (Spyros Andreopoulos)
The US Treasury, Japan’s Ministry of Finance and Her Majesty’s Treasury jointly announce that the Treasury debt held by the Federal Reserve, Bank of Japan and Bank of England respectively as a consequence of QE purchases are cancelled, and that these central banks will operate with negative equity until further notice. As a consequence, government debt/GDP ratios are brought down by 11pp, 18pp and 25pp, respectively. Ratings agencies love it, as does the bond market – until it realizes that large-scale debt monetization has just taken place, and sells off sharply.

US Over the Cliff and Likes it (Vincent Reinhart)
The US goes over the fiscal cliff and likes it. A deal delayed to early 2013 in which politicians compromise because of concerns about financial markets would resolve uncertainty more assuredly than the baseline of stop-gap legislation followed by a plan later in the year. As a consequence, confidence gets a boost, pent-up business investment kicks in and the labour market improves more rapidly.

US Housing Stalls Out (David Greenlaw)
The burgeoning housing recovery in the US begins to stall due to credit tightening. There is still no private mortgage market at this point and financial problems are brewing at the FHA which could lead to a dramatic reduction in credit availability for first-time homebuyers. Meanwhile, putback risk continues to cause originators to increase scrutiny for conforming loans.

BoJ Leads World in Adopting Rule-Based Monetary Policy, but Exit from Deflation Lags (Robert Feldman/Takeshi Yamaguchi)
Following a change in its leadership, the Bank of Japan switches to target the ex-food ex-energy CPI, adopts price level targeting to make up for past deflation, and implements a base money growth rule based on deviations of the actual CPI from the desired path. However, the targeted CPI measure remains negative year on year in December 2013, and the BoJ maintains aggressive policy into 2014 and beyond.

BoJ First to Buy Euro Area Bonds, ECB Left Watching and Waiting (Elga Bartsch)
The Bank of Japan, as part of its more aggressive policy stance to fight deflation (see above), starts to acquire euro area government bonds in order to push down the yen before the ECB is able to activate its OMT program. While the BoJ acts, the ECB waits in vain for the Spanish government to apply for an ESM credit line and OMT bond purchases. The BoJ focuses its purchases on ESM/EFSF bonds as well as higher-yielding core and large peripheral markets and thus effectively becomes a lender of last resort for the euro area.

Italian Politics Revives the CRIC Cycle and Triggers OMT (Elga Bartsch/Daniele Antonucci)
A lively anti-austerity campaign in the run-up to the early elections causes investors to seriously worry as to whether Italy could be contemplating an exit from the euro. The convertibility risk, which the ECB’s OMT announcement had reduced, returns and Italy is forced to seek an ESM credit line and becomes the first country to trigger the OMT. Unfortunately, the damage has been done as markets now believe that the convertibility risk is political rather than monetary. Investors sell the euro and peripheral assets and stock up on tinned food and mood-boosting pills.

From ‘Grexit’ to ‘Brixit’ (Elga Bartsch)
Financial markets come round to the idea that Greece will stay in the euro for the foreseeable future. Instead, investors are getting increasingly concerned about the UK’s political stance on Europe, especially in view of a possible referendum on EU membership. Polls during 1H13 start to suggest that an exit of the UK from the EU is now seen as more likely than an exit of Greece from the euro. The London property market wobbles as financial institutions start making contingency plans for moving employees to Frankfurt and Paris.

The UK Formally Gives Up the Fight Against Inflation (Melanie Baker)
As inflation looks set to remain well above 2% for yet another year, the government begins to fear that targeting inflation at the 2% level will mean an abrupt end to very low interest rates in the not-too-distant future...or a sharp loss of Bank of England credibility. MPs increasingly argue that embedding a bit more inflation might be a good thing for helping the UK economy out of its difficulties. The government raises the MPC’s inflation target and, for good measure, it merges the Monetary Policy Committee and Financial Policy Committee together.

Recession Returns to Australia (Gerard Minack)
Australia hasn't had a recession for 21 years - arguably, one is overdue. Markets view the risk as low: fixed income markets are pricing in only 1-2 more rate cuts, and equities have re-rated through 2012.

Not the Right Green Shoots in EM (Manoj Pradhan)
EM green shoots develop further, but from the ‘wrong’ sources of growth. Better DM growth and/or an unwinding of the shock to global exports stabilizes EM exports and hence production. Complacency sets in and structural reforms to move away from the broken, export-investment-led model are put on the back-burner. The result? EM growth deteriorates shortly after.

China’s Shocking Tightening (Helen Qiao)
The Chinese government inadvertently tightens financial conditions aggressively by applying a ‘shock therapy’ during the early stage of the recovery. Off-balance sheet lending activities are banned and forced to roll back onto commercial banks’ balance sheets, causing a major liquidity freeze in the system. More credit defaults occur, giving rise to higher systemic risks. The economic recovery unravels.

The AXJ Productivity Booster (Chetan Ahya)
Policy-makers in Asia ex-Japan move aggressively to implement policy reforms, boosting the region’s productivity dynamic. China accelerates the move up the value chain and boosts consumption growth; India unveils more measures to lift investment in the economy; and Indonesia initiates reforms which improve the competitiveness of the non-commodity sectors. This raises productivity growth in the region, which has slowed significantly since the crisis, and results in higher corporate profitability.

Mexico’s Moment Arrives in its Long-Troubled Oil and Gas Industry (Gray Newman/Luis Arcentales)
Newly inaugurated President Enrique Peña Nieto surprises with a passage of aggressive constitutional change in Mexico’s oil and gas industry – he gains the political upper hand in energy and fiscal reform by starting his six-year term with a big boost in social programs and promises that energy/fiscal reform will provide even more revenues for social spending. MXN rallies on the prospects of a new FDI wave and the sovereign sees an upgrade.

Brazilian Policy Shifts from Stimulating Demand to Boosting Supply, with Ambitious Infrastructure Program (Gray Newman/Arthur Carvalho)
President Dilma Rousseff surprises most Brazil watchers as she follows through on her promise of an ambitious infrastructure program, lifting the globe’s sixth-largest economy from near the bottom of the globe’s infrastructure rankings. The technical details show attractive IRR triggering large investment inflows from abroad. BRL rallies more than expected on the news.

Turkey Goes Boringly Orthodox in Rates (Tevfik Aksoy)
The Central Bank of Turkey switches back to a conventional, orthodox and less exciting monetary policy in 2013. It removes the non-standard and creative tools designed to achieve inflation and financial stability goals at the same time. As a consequence, it faces new challenges of currency appreciation, currency volatility and no meaningful decline in the current account deficit. The experiment fails and policy switches back to non-conventional measures later in the year in an attempt to recoup the loss of credibility.

Back in the USSR (Jacob Nell)
Putin is successful in enticing Ukraine into the Eurasian Customs Union in return for energy subsidies which reduce its balance of payments financing need to a level which requires neither painful policy adjustment nor a sharp FX adjustment. This closes the door on EU entry for Ukraine, since you can’t be a member of two customs unions at once, and leads to economic reintegration of the main post-Soviet states – Russia, Ukraine, Kazakhstan and Belarus. The removal of trade and investment barriers – particularly if accompanied by a pro-investment, pro-market set of Russian-led policies – triggers higher growth across the region, while Russian energy subsidies would stabilize the hyrvnia and ruble.

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magpie's picture

That would only be allowed to happen if the Bankster cartel were to be able to seize their foreign assets

HurricaneSeason's picture

I believe they pulled assets to safety when they were threatened to be sued for 9/11. Still, stolen promises aren't worth as much as oil in the ground, especially if you have to pay the new price.

TheProphet's picture

That's a silly statement. Do you think they'd give a shit about paper assets held abroad if they could start printing their own paper at a value that far outstrips the other stuff?

TheProphet's picture

That's a silly statement. Do you think they'd give a shit about paper assets held abroad if they could start printing their own paper at a value that far outstrips the other stuff?

TheProphet's picture

That's a silly statement. Do you think they'd give a shit about paper assets held abroad if they could start printing their own paper at a value that far outstrips the other stuff?

TheProphet's picture

I see the website is working well this evening.

Matt's picture

Restoration of the Caliphate

The Muslim Brotherhood gains power in Iraq, Syria and Saudi Arabia. Along with Egypt, these four countries merge together to form a new Caliphate with a single constitution, gold backed currency and sharia law.

bilejones's picture

That would be great, A none Fiat currency I could believe in (and invest in).

zerozulu's picture

Morsi has a green card. FYI

lolmao500's picture

Won't happen. The Royal family have a big ass praetorian guard protecting them and they are not doing it for the money or for the country, but for GOD. The only way you get the royal family is if you kill all their protectors... the Saudis have it way too good (because of oil money) for that to happen.

HurricaneSeason's picture

They say the cost of keeping them happy is $96 a barrel due to some of the recent happiness bonuses. It's well below that now with a global slowdown and economic cliff coming.

Matt's picture

And there are like 40,000 princes, so they have sheer numbers on their side, too.

formadesika3's picture

Scar plants a garden. His household net worth declines but he is just as happy at the end of 2013 as he was at the beginning of 2013.

EARLPEARL's picture

numer 14...obama and all dems promise to forgive all private debt up to$ 50,000 ..they enlist steve keen to draw it up...house and senate become democrat controlled again...usa is doomed but everyone has healtth insurance and a new car/ and 2 flatscreens

zerozulu's picture

probability is higher for a million dollar forgiveness.

PUD's picture

The US and most major agricultural areas of the world suffer a second great drought due to climate change...food becomes scarce and expensive. Food riot break out all over the globe. 

Several major natural disasters occur from climate change at least as bad a Sandy

The Middle East goes from stupid to insane and large scale warfare consumes most of it

Financial markets finally implode, yields soar, global depression gets nitro boost overdrive and the whole ponzi system collapses in a giant martial law anarchy heap.

That's my call and I'm sticking to it

Matt's picture

You are supposed to write about a macro SURPRISE here, not highly likely events that are expected.

chump666's picture

2012 was bad 2013 will be worst.

The can kicking is done.  A perfect storm of chaos, we have it coming. 

Obama won't make more than a year in office.  Hillary, who should have replaced him, is falling apart. Metaphor and reality converge as history/nature sends us a reminder of our mortality.

Everyone will turn against central banks.

lasvegaspersona's picture


news for ya

absolutely no one knows what a central bank is except us and a few dedicated people interested in liberty...probably less than 1% of the population....ask around...ask: 'who is Ben Bernacke?" shoulders will shrug and the topic of conversation will return to 'the fiscal cliff' and then quickly back to football.

chump666's picture

Maybe people will wake up?

I have hope in humanity.

fonzannoon's picture

Chump and Currency and as debt and anyone... I witnessed an organization today debate how to invest it's savings from a sale of a building. It was a decent amount of money but nothing crazy. The point is they were debating locking the money up for 7 years at 1.8%. I asked them what their bank was paying on 1yr CD's. They said 1%. I asked them if the extra .82%/yr was worth their investment being illiquid. The answer I got was "Yes". They said interest rates are not going up. I asked them if they would pay the bank to hold their assets if rates went negative. They sat there at first in disbelief at the possibility. Then they said "I guess, what else would we do?". They then agreed that as long as they got 0% that is better than doing something where they could lose principal.

People seem to be okay with financial repression. As long as it ensures a shred of the world they used to know.

chump666's picture

I see your point with cash, but not many people have cash.  And if you have cash you get almost no return+ erosion from inflation (bill, insurance rates, food, gas etc etc etc) But  the issue will be rates on debt, look at credit card yielding 16% on repayments and since Obama loved the idea of creating a mini credit boom post/pre election, and the Fed could slam mortgage rates down, but no way will consumer/business credit go under 10%. It is adjusted for risk and inflation. Otherwise  Wall Street might as well close up shop.

So they got people running on the spot as wealth is ripped from all angles.  After the 2012 con, they will be pissed as hell.

chump666's picture

...war, major stand up fight.

Yen Cross's picture

You will hate me / The $ will bounce next week.

 I'm taking a 2 hour nap before London opens/ I am going to build my position/

 or go into V-Fib---------

chump666's picture

Why? If you read my posts I am DXY bid. 

I agree.   

fonzannoon's picture

Of course the dollar is going to bounce. Wait till we go off the cliff. The dollar should climb bigtime. The cuts and tax raises will actually end up being surprisingly celebrated by the media. "The US takes it's medicine!"

Now go ahead and eliminate that debt ceiling....we are good for it.

Yen Cross's picture

Was generalizing chump/ my appologies.

alentia's picture

Even I am not Ukranian, but "hyrvnia" is not a currency of the Ukraine, it is "hryvnia" or "hrivna" or "grivna".

Chupacabra-322's picture

US Goes Full Retard & Starts WWIII

Matt's picture

That would be a surprise?

Rathmullan's picture

Bad News? This market buys on bad news as much as it does good.

Having said that, I assign an 80% probabiity that the U.S, stock market returns a post dividend negative return in 2013. Smarter money, assuming there is any left, will start it off by driving this market down a few hundred over the next 2 weeks. Lemmings will follow suit making January a somewhat ugly month.  


q99x2's picture

We've decoupled.

Where's Hendry I want to hear from Hugh.

Yen Cross's picture

Chump I have several very nice short positions/ I'm going to take some profit into the London open/ short covering(buy stops)  will get hit/

 Then I'll add more/

lolmao500's picture

Japan and China go at it.

North Korea and South Korea go at it.

North Korea's regime collapses.

All hell break loose in the middle-east. (Iran, Syria, Turkey, Russia, Israel, Hezbollah, Egypt, Jordan, Saudi Arabia)

The west coast gets annihilated by a big earthquake, resulting in a meltdown of Diablo Canyon nuclear power plant.

Cascadia goes off.

Fukushima goes critical, they have to evacuate Tokyo.

The Chinese people says ENOUGH IS ENOUGH and revolt against the Chinese government, starting a civil war.

India-China go at it.

Russia-Georgia go at it.

Armenia-Azerbaijan go at it. (Russia-NATO on each side)

Revolt in Venezuela/coup d'etat.

Argentina is helped by other south american countries to get back the Falklands.

Radicals get elected in Pakistan and end all deals with America.

NATO continues pushing east, putting Ukraine and Georgia into NATO, pissing off Russia.

Anti-EU and anti-Euro parties get power in Italy.

Anti-EU and anti-Euro parties get power in Germany.

Civil war in Lebanon.

There's lots of shiat that is building up that could turn very bad in 2013.

Matt's picture

You people are DOING IT WRONG. The topic is Macro SURPRISES for 2013.

Here would be an example:

North and South Korea suddenly open their borders and begin peaceful reunification, and it goes smoothly. Viewed as very positive, as massive stimulus for South Korea to invest in and build infrastructure in North Korea. Psy and Kim Jong Un perform Gangnam Style together on stage for the Reunification Festival.

alfbell's picture

Texas announces secession proceeding. 20M Americans migrate into Texas from other states. Businesses move there in droves. All the Idaho and other heavy duty patriots move into Texas as well. No civil war occurs as Texas is bad and becoming badder with continual influx of Americans. Texas, the 15th largest economy in the world, becomes the 10th largest in less than 5 years.

zerozulu's picture

I bet Washington state will be the first.

chump666's picture

oh I nearly forgot.

Since we get two a year now:

2013 will have a slew of rogue trades, real nasty ones too. 

rawsienna's picture

Morgan Stanley has too many analysts with too little to do.  Who the F&&k cares!!!

lolmao500's picture

Obama turns against his banksters friends, put out arrest warrants for much of his staff and congress and banksters in the country. Call back all the troops around the world. Dissolves the FED. All unconstitutional laws that congress has passed are made illegal. Guantanamo is closed. Lots of top ranks CIA are arrested for war crimes. All officials in the Bush administration and Clinton administration are arrested for treason and war crimes. Presidential powers are made null and void.

Obama becomes the greatest president since JFK.

magpie's picture

sounds like the prediction for 2014

Bobbyrib's picture

Sounds like a fairy tale. Either he is joking (which is where I'm leaning), or he doesn't understand Obama. This will never happen.

bilejones's picture

I finally get off my butt and buy the wife the Glock.

August's picture

OK, but let her shoot the Springfield first.

andrewp111's picture

I don't think US bonds can be legally cancelled by the Treasury or the Fed, but the Treasury could mint platinum coins with a face value of $1 trillion. By depositing those coins with the Fed, the raw seigniorage would accomplish the same thing, and retire the US debt far below the debt ceiling.