Saxo Bank’ strategists expect the third quarter to be good for assets and believe Q3 could actually be a major pivot point, marking the end of excessively easy money and a turning point towards the slow withdrawal of QE. The “Godot” Saxo Bank is waiting for is the wake-up call – the reforms needed to get the global economy back on track.
This quarter could see the stock market climb higher, driven by a tailwind of central banks and a supporting cast of politicians only too willing to delay any real reform. Continued sluggish growth figures out of the US and Europe, while not perfect conditions for the economy, are ideal for the ongoing equity market rally because it keeps the wake-up call on hold.
Saxo Bank’s analysts argue that for a real recovery to occur, the small and medium sized enterprises (SMEs) – which make up 80 percent of the economy – need to be enabled, through lending and regulation, to innovate and create new jobs.
This quarter will also host a key event with the German election on September 22. Only after the election will we see a more determined attempt by the new German government and parliament to shape Germany’s EU policy. Currently Europe remains “overbanked” with undercapitalised banks, an issue that needs to be resolved before credit can flow again in Europe.
Saxo Bank is preparing for a significant slowdown in the EU in the fourth quarter, with a number of events on the horizon that will be difficult to keep under control, including; Greece’s non-compliance with Troika demands; Portugal’s political instability; the recession in Ireland; Italy and France’s reluctance to implement any real reform and the political scandal in Spain.
Steen Jacobsen, Chief Economist at Saxo Bank, comments:
“Europe can’t stave off reform much longer and will have to stop pretending very soon. The next quarter looks good for assets, but we believe the next peak in economic cycles and assets won’t come until 2017, so enjoy this one while it lasts.
“If the beginning of the end of QE is indeed coming this quarter there is still the possibility that it could also be the starting point towards an all-time low in interest rates in 2014, when the final bill comes due.”
The full report can be downloaded here: http://www.tradingfloor.com/blogs/quarterly-outlook
