Goldman Sachs still upbeat on US growth
Economists at Goldman Sachs lowered their fourth quarter US growth tracking measure to 0.4% from 0.7% after today's factory orders data but they remain constructive about 2016 and say that could help to underpin the US dollar.
Their assessment of the macro landscape is that:
1. The US weakness as priced by the US growth risk factor is likely overstated relative to the downshift in the data.
2. Moreover, the downshift in the data themselves is still mostly about manufacturing, global pressures and an inventory cycle, with the US domestic demand picture still more robust
3. DM growth elsewhere is still firm, and policy is likely to turn even more accommodating in Europe and Japan (with the BoJ and ECB tacking that way this past week), while US rate hikes will likely continue apace in 2016 (predicated in part on our still-intact view of the growth picture).
4. China risks are likely contained to China and the commodity/EM complex, but have also been roundly priced in those spaces Layering these views on top of a more quantitative assessment of what has been priced, we would opt to lean against the downgrade in US growth, particularly across domestically exposed equity sectors; we would lean against risk-off currency strength in other parts of DM, although USD strength is something we think could extend; and we would lean against the rally in fixed income, particularly in the US, and the related strength in US defensive/yield-producing sectors. While, net net, China growth weakness is likely overstated by markets currently, at the present time, we are a bit less comfortable leaning against that wind. However, some signs of oil price stabilisation may be helpful here.
In this context, the list of potential opportunities includes:
1- US Utilities and Telecom sectors, which have also not only benefited from the US growth downgrade but have also outperformed that overstated (in our opinion) shift; on the long side, we would point to the underperformance of the DAX (and some of the other European indices), the S&P 500, and US Financials and Discretionary Sectors;
2- JPY and EUR had, until recently, looked rich relative to their macro drivers, but they are now much more in line, as the last few weeks have seen both come under pressure again following ECB and BoJ action. But from here, given that both carry negative exposure to US growth, if the market revises up its view of US growth to match our expectations these are assets that could come under more pressure.
3- Although materials have also underperformed relative to the current set of macro shifts, at least directionally we could envisage further damage there if China slips further, and the broader EM/commodity complex outlook, while having been damaged already, is not particularly upbeat from here
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