Research Deutsche Bank The House View Switching into a higher gear DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI(P) 057/04/2016 29 November 2016 Distributed on: 29/11/2016 05:10:00 GMT Research Deutsche Bank The House View – 29 November 2016 thehouseview@list.db.com http://houseview.research.db.com Month in Review 2 NY Times, 21-Nov-2016 Bloomberg, 18-Nov-2016 theguardian, 20-Nov-2016 Reuters, 22-Nov-2016 WSJ, 16-Nov-2016 The Huffington Post, 21-Nov-2016 Financial Post, 21-Nov-2016 ETF Daily News, 17-Nov-2016 Market Pulse, 17-Nov-2016 Reuters, 25-Nov-2016 The China Post, 28-Nov-2016 The New York Times, 9-Nov-2016 Business Indiser, 23-Nov-2016 Zerohedge, 22-Nov-2016 ValueWalk, 23-Nov-2016 WSJ, 23-Nov-2016 The Telegraph, 27-Nov-2016 CyprusMail, 23-Nov-2016 WSJ, 18-Nov-2016 Research Deutsche Bank The House View – 29 November 2016 thehouseview@list.db.com http://houseview.research.db.com Trump’s win may have opened a new chapter for the US. The shift toward a more balanced mix of easy monetary and fiscal policy and looser regulation is expected to jumpstart the economy, ending years of low growth and inflation. Faster US growth would also have positive spillovers to the rest of the world. Risks remain that some of these growth-friendly policies are not implemented or have unexpected effects. But the biggest threat to growth is a possible protectionist turn, which would further depress already anaemic global trade. Any political spillover in Europe would also be negative. The first risk event is Italy’s Senate referendum on 4-December. Polls suggest the vote will fail, and if it does, PM Renzi will likely resign. The sell-off in Italian assets indicates that this outcome is being priced, but as long as immediate elections and a eurosceptic government are possible, market stress can build further. Elections in the Netherlands, France and Germany next year will ensure that political risk remains a source of volatility. In the coming weeks we will see the last ECB and Fed decisions of 2016. In Europe, taper talk is premature, and we expect a six month extension of QE. In the US, a rate hike in December is all but a done deal. Markets have so far focused on the positives of Trump’s policies, with the dollar strengthening, rates selling off and equities rising, reaching all-time highs in the US. Several of these trends should continue in the coming months: the rates sell-off has some further room to run and the dollar should strengthen further, with the euro reaching parity next year and further weakness expected in sterling and yen. David Folkerts-Landau, Group Chief Economist 3 The House View, 29 November 2016 Switching into a higher gear The views in this publication are informed by Deutsche Bank’s Global Strategy Group, which advises management and clients on broad market risks and global economic and financial developments. The views and forecasts of the group, which consists of senior research staff, may occasionally differ from those disseminated by their research colleagues Editors: Marcos Arana, Aditya Bhave, Matthew Luzzetti, Rajni Thakur Table of contents Introduction 4-boxes Total returns Macro update Global growth and inflation post-election US growth outlook Downside risks from US election Protectionism Deglobalisation Political spillovers Global growth Eurozone and China update Markets Post-election market moves Fed and ECB outlook Summary of market views FX, rates, and EM views Research Deutsche Bank The House View – 29 November 2016 thehouseview@list.db.com http://houseview.research.db.com Fed: expect December hike. Risks of faster hikes than Fed projection, but unlikely to be revised until H2-2017 ECB: expect 6 month QE extension in December. Too early for ECB to taper, given core inflation still low BoJ: easing bias. Limited rate cuts possible. Monetary base expansion likely to slow BoE: neutral stance, with risks slightly skewed to easing – but further rate cut no longer our baseline PBoC: return to easing with rate cut in H1-2017 EM: generally on hold, with few exceptions (e.g., tightening in Turkey) Global outlook remains sluggish. Expect growth to rise modestly to 3.4% in 2017. Potential for upside on the back of stronger US growth Much more bullish on US growth following Trump win. Marked up forecasts for 2017 (2.3%), with acceleration coming mostly in H2, and 2018 (3.5%) Eurozone growth to remain subdued. Faster US helps but with lag. Headwinds from credit, Brexit, politics to keep growth muted in 2017 (1.1%) and 2018 (1.4%) EM outlook also subdued. Expect pick-up in LatAm, CEEMEA , but spillover from US initially likely negative US regime shift: potential for US economy to shift into higher gear on material fiscal stimulus. Provides first concrete move toward more balanced policy mix in DM Politics: political uncertainty high over next 12 months, especially in Europe – with Italian referendum as well as Brexit process and elections acros