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The bull and the bear: Growth and metals demand perspectives in North America and Europe Jason Schenker, President, Prestige Economics.

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Presentation on theme: "The bull and the bear: Growth and metals demand perspectives in North America and Europe Jason Schenker, President, Prestige Economics."— Presentation transcript:

1 The bull and the bear: Growth and metals demand perspectives in North America and Europe Jason Schenker, President, Prestige Economics

2 Introduction

3 Prestige Economics: Research and Consulting Offerings Consulting Services ▪ Metals Commodity Risk Projects ▪ Energy Commodity Risk Projects ▪ Transportation Fuels Projects ▪ Interest Rate Swap Projects ▪ Foreign Exchange Rate Projects Retained Advisory Service ▪ Standard and Elite Corporate Advisory Service ▪ Institutional Investor Advisory Service Industry Research ▪ Industrial Metals and Scrap ▪ Energy ▪ Automotive ▪ Housing ▪ Agriculture

4 Prestige Economics is the World’s Leading Commodity Market Forecasting Firm Top Rankings by Bloomberg Prestige Economics Has Been Top Ranked For Every Quarter Since Being Founded in 2009 #1 Non-farm Payroll Forecaster in the World #1 Brent Crude Oil Price Forecaster in the World #1 Industrial Metals Price Forecaster in the World #1 Brazilian Real Forecaster in the World #2 Henry Hub Natural Gas Price Forecaster in the World #2 Precious Metals Price Forecaster in the World #2 Nickel Price Forecaster in the World #3 Copper Price Forecaster in the World #3 Aluminum Price Forecaster in the World #4 WTI Crude Oil Price Forecaster in the World #6 Gold Price Forecaster in the World #6 Australian Dollar Forecaster in the World #7 ISM Manufacturing Index Forecaster in the World Our rankings are online at: www.prestigeeconomics.com/topwww.prestigeeconomics.com/top Source: Bloomberg News

5 The Bull and The Bear: Short Term

6 The Bull and The Bear: Current Economic Situation Prestige 2013 GDP Forecasts 1.6% Source: Prestige Economics, IMF, BEA, Eurostat Current Unemployment Rates Manufacturing PMIs -0.3 % 7.3%12.0% 56.251.1 United StatesEurozone IMF 2012 GDP Level USD 15.7 TrillionUSD 12.2 Trillion The United States certainly looks like the bull.

7 The Bull and The Bear: Current Economic Situation IMF 2013 GDP Forecasts 1.7% Source: Prestige Economics, IMF, HSBC, CIPS/Markit Current Unemployment Rates Manufacturing PMIs 0.9% 7.1%7.7% 54.256.7 CanadaU.K. 3.4% 5.17% 50.0 Mexico

8 U.S. and European Growth in a Global Context

9 Modest Global Growth Likely to Continue Global Expectations and Forecasts Source: IMF, Prestige Economics, LLC IMF Growth Forecasts (July 2013) Annual Forecasts Real GDP, Year-over-Year % Change 20102011201220132014 Global5.13.93.1 3.8 Eurozone2.01.5-0.6-0.30.9 U.S.2.41.82.21.92.7 Japan4.5-0.61.92.01.2 U.K.1.81.00.30.91.5 Canada3.22.51.7 2.2 Brazil7.52.70.92.53.2 Russia4.3 3.42.53.3 India10.16.33.25.66.3 China10.49.37.8 7.7 Prestige Economics September 2013 Growth Forecasts Real GDP, % Change Year-over-Year 20132014 Global2.93.3 Eurozone-0.30.7 U.S.1.62.0 China7.77.8 The United States and Europe are downstream in the global supply chain.

10 Growth Indicators Point to Improving Prospects PMIs are good indicators of growth, and the are improving. Source: Prestige Economics, IMF, CPIS/Markit

11 Chinese Risks Could Bolster North America Source: BLS, Prestige Economics, LLC What is the natural rate of exchange between the Dollar and the Yuan? With the Eurozone out of recession, China should Strengthen

12 ECB Policy and European Growth Divisions

13 The ECB in 2014 A new impressive skyscraper on the river in Frankfurt. http://www.ecb.int/ecb/premises/construction/html/index.en.html

14 The ECB Now Coming in 2013: The ECB no longer has a disco. Now: Also currently home to a nightclub. http://www.livingxxl.eu/

15 Europe: Core Expectations Regarding European Debt Issues  The Euro is the Eurozone’s ugly baby.  The Euro will survive.  Distressed Eurozone members are very likely to bite the bullet and accept austerity.  Non-distressed Eurozone members are very likely to support those that are having issues.  The road forward may be difficult, but there is no way back.  Currency volatility will remain high until a more concrete solution has been reached. Core Expectations Source: Prestige Economics, LLC Key Takeaway from Cyprus: Countries will do virtually anything to stay in the Eurozone.

16 Eurozone and Other European GDP 2012 Growth Rates -2% to 0% 0% to 2% 2% to 4% Source: Prestige Economics, IMF -6% to -4% -4% to -2%

17 Eurozone and Other European GDP 2013 IMF Growth Forecasts -2% to 0% 0% to 2% 2% to 4% Source: Prestige Economics, IMF -6% to -4% -4% to -2% N/A

18 Fed Policy and U.S. Growth Bifurcation

19 Current Fed Policy: Unchanged in September Five Critical Parts 1.Reiteration of $40 Billion per month in new MBS purchases. 2.Reiteration of $45 Billion per month in new Treasury purchases. 3.Reiteration of an "exceptionally low range for the federal funds rate... at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.“ 4.Reiteration of rolling over maturing Treasuries at auction and reinvesting principal payments from agency debt and agency MBS. 5.Reiteration of the warning that the FOMC could still implement additional accommodative policies, if the labor market does not improve substantially. Source: Prestige Economics, LLC Tapering announcement was expected in September, but the “economic dependent” stance of the Fed resulted in no tapering. We do not expect a change in policy in October.

20 Prestige Economics U.S. Economic Outlook: Modest Improvements Ahead  Growth is rising modestly on trend.  The unemployment rate is falling modestly on trend. Source: Prestige Economics, LLC, BEA, BLS, Federal Reserve From the September 2013 Monthly Outlook and Forecast Report.

21 Unemployment Rates Remain High Nationally Source: BLS, Prestige Economics, LLC Job gains remain modest, and the unemployment rate has been falling slowly.

22 Alabama Arizona Arkansas California Colorado Florida Georgia Idaho IllinoisIndiana Iowa Kansas Kentucky Louisiana Maine Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming Connecticut Delaware Maryland New Jersey Rhode Island Alaska 5-5.9 6-6.9 7-7.9 Source: Prestige Economics, LLC and BLS <5 9-9.9 8-8.9 State Unemployment Rates Have Shown Broad-Based Improvements: August 2013 Hawaii

23 Alabama Arizona Arkansas California Colorado Florida Georgia Idaho IllinoisIndiana Iowa Kansas Kentucky Louisiana Maine Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming Connecticut Delaware Maryland New Jersey Rhode Island Alaska Hawaii 5-5.9 Last September State Unemployment Rates Were Significantly Higher 6-6.9 7-7.9 Source: Prestige Economics, LLC and BLS <4.9 9-9.9 10-10.9 >10.9 8-8.9

24 Home Sales Rose with the Implementation of QE3 Source: NAR, Census, Prestige Economics, LLC If it looks like a mini-bubble, chances are it’s a mini-bubble.

25 Home Prices Rose Sharply -- and Fell on Higher Rates Source: NAR, Census, Prestige Economics, LLC At the current pace of home sales and prices, the Fed is buying almost 4 years’ worth of single-family news homes in mortgage values this year.

26 Rates Rose Sharply After the June FOMC, but Fell After the September FOMC Source: Prestige Economics, LLC, Federal Reserve Higher rates have already been putting pressure on housing. The Yield Curve

27 Vehicle Purchases are Poised to Remain Strong We expect 15.5 to 16 million light vehicle sales in 2013. Falling unemployment rates, increases in real per capita GDP, and low interest rates remain positive for vehicle sales Source: BEA, Prestige Economics

28 Alabama Arizona Arkansas California Colorado Florida Georgia Idaho IllinoisIndiana Iowa Kansas Kentucky Louisiana Maine Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming Connecticut Delaware Maryland New Jersey Rhode Island Alaska Hawaii U.S. State S&P Credit Ratings are High – For Now AAA AA A Source: Prestige Economics, S&P Muni risks have been highlighted by Detroit, although we did not expect contagion.

29 Metals Expectations

30 Prestige Economics Metals Price Forecasts Source: Prestige Economics, LLC From the September 2013 Monthly Outlook and Forecast Report.

31 The Bull and The Bear: Long Term

32 The Bull and The Bear: Current Economic Situation Quantitative Easing in 2013 USD 850 Billion and still ongoing Source: Prestige Economics, IMF, Various Sources Central Bank Balance Sheet Entitlements None USD ~3.8 TrillionUSD ~2.4 Trillion USD ~12 Trillion United StatesEurozone National DebtsEntitlements USD ~17 Trillion USD 100 Trillion+USD 50-75 Trillion+ In the longer term, the United States looks like the bear.

33 Hindsight Market Expectations Five Years in the Future  The dollar was strong.  Commodity prices were cheap.  Rates were low.  U.S. taxes were low.  Emerging market growth and wealth were low.  We should have fixed entitlements when we had the chance. When we look back, we are likely to realize… Source: Prestige Economics

34 Disclaimer All commentary provided by Prestige Economics, LLC or any of its employees is commentary intended for general information use only and is not investment advice. Prestige Economics, LLC does not make recommendations on any assets, investment types, asset classes, non-regulated markets (e.g. FX, commodities), specific equities, bonds, or other investment vehicles. Prestige Economics, LLC does not guarantee the completeness or accuracy of analyses and statements, nor does Prestige Economics, LLC assume any liability for any losses that may result from the reliance by any person or entity on this information. Opinions, forecasts, and information are subject to change without notice. Reports do not represent a solicitation or offer of financial or advisory services or products, and are market commentary intended and written for general information use only. No part of this presentation may be circulated, quoted, reprinted, or otherwise reproduced for without prior written approval from Prestige Economics, LLC. This material is not a complete record of the presentation and discussion led by Prestige Economics, LLC. Prestige Economics, LLC Copyright © 2009 – 2013

35 Contact Information Jason Schenker Cell: +1 512 592 8905 Office: +1 512 425 0670 jasonschenker@prestigeeconomics.com Prestige Economics, LLC 7101 Fig Vine Cove Austin, Texas 78750 www.prestigeeconomics.com

36 Thank you Questions


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