Decision time – A real change or more denial?

London, 26 July 2012

Saxo Bank, the online trading and investment specialist, have released their Q3 outlook that views Europe as insolvent, in a phase of denial of the actual problems and without a credible path forward. The Bank’s analysts also predict that growth in China will decrease to 6.5 percent, marking the next quarter as the low point for China and for world growth in general.

For the current crisis, Saxo Bank operates with a three-phase model that includes; Denial (which prompts policy-makers and central bankers to rely on quantitative easing and financial stimulus); Protest (where the public votes new governments which still fail to address the real problems) and; Mandate for Change (which forces policy-makers to take real action). According to the Bank, the EU has remained embedded in the first and second phases, having yet to arrive at a mandate for change. Saxo Bank predicts that this will come most likely before the end of this year, however it will be a result of a break-down of the system rather than enlightenment.

Saxo Bank also predicts that the current combination of fiscal stimulus, central bank balance sheet expansion and lower interest rates may lead to the realisation that this policy will not work, paving the way for a new political agenda with focuses on the strongest side of the economy, the micro-economy.

Peter Garnry, Equity Strategist at Saxo Bank, comments: “A real mandate for change should be a good thing, as it would likely bring about a strong and sustainable recovery from the current low point. The main participants in the current crisis – Asia, Europe and the US – continue show a complete lack of action which ultimately increases the likelihood of this happening as the doubling down on extend-and-pretend will soon exhaust itself.

From a macro perspective, this crisis has a simple solution: Give the micro-economy incentives to invest and produce and recognise that a growth plan needs to be backed by security, educational opportunities, a fair healthcare system, liquid capital markets and reasonable taxes. Right now, policy makers are doing the opposite: increasing regulation, taxes, and austerity and reducing spending on healthcare and education. I hope that the mandate for change arrives soon for our beleaguered economies and societies, because delaying it would be the ultimate form of denial.”

Commodities Outlook: Battle between weather, geopolitics and slowing growth

"For the third year in a row macroeconomic concerns triggered a second quarter sell-off as little progress was made to solve the European debt crisis while China, representing half of all consumption growth in recent years, continued to slow and the US economy hit a soft patch. The major commodity indices suffered losses, especially the energy heavy S&P GSCI index which dropped the most since the Lehman collapse in 2008.

"Slowing economic activity turned the focus to diminishing demand but as seen several times before the cure for low prices is low prices and with sluggish supply growth, low inventory levels, tight bank lending and limited incentive for producers to invest one should not ignore the price support this will create. The broad based DJ UBS commodity index has retraced more than 61.8 percent of the 2009 recession low to the 2011 peak and we believe this sell-off has mostly been driven by long liquidation from overextended investors as the global economy is nowhere near recession levels with continued growth expected in the coming quarters.

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Saxo Bank Q3 Outlook 2012:

Visit the Saxo Bank Quarterly Outlook page or download the Q3 Outlook 2012 here.