Global: four themes for 2011
- In many ways 2010 is ending on a similar note to 2009 with markets rallying on hopes of economic recovery. This is certainly in line with our view of the world economy and we have just upgraded our US GDP forecast to 3.1%. However, we also recognise that the US is simply kicking the can down the road by avoiding fiscal consolidation. Markets are also far more cautious about the scope for policymakers to remove support than a year ago.
Our four themes for 2011 are:
- Sweet spot continues - low interest rates and rising profits support risk assets.
- Search for yield - investors will continue to flee cash and move out along the risk curve.
- East/ West divergence - higher growth in emerging markets versus developed, but also higher inflation.
- Sovereign debt restructuring - euro crisis to move into new phase where burden sharing occurs before 2013.
UK: Deck the halls... (page 9)
- Tis the season to be jolly, at least that is the tune being sung amongst the manufacturing sector that will be enjoying the festivities. Two separate surveys suggest booming activity not seen for over 15 years as companies take advantage of improving global demand and the low level of Sterling.
- Don we now our gay apparel - the retail sector is at it too! Though the fiscal squeeze is set to intensify in 2011, retailers are enjoying the strongest pick up in activity since 2002. We think the strong rise in sales is partly caused by shoppers trying to beat the January increase in VAT, but strength coming through bodes well for 2011.
- Fast away the old year passes - and just in time too for the Bank of England after a terrible year that will be marked by poor forecasts, alleged political involvement, and its credibility as an inflation fighter called into question.
- Fa la la la laa, la la la la. Seasons greetings everyone.