2018 Global Outlook What Goes Up Will Always Come Down? Francis Tan UOB Global Economics & Markets Research 25 th January 2018 Disclaimer: This material that follows is a presentation of general background information about the Bank’s activities current at the date of the presentation. It is information given in summary form and does not purport to be complete. It is not to be relied upon as advice to investors or potential investors and does not take into account the Private & Confidential investment objectives, financial situation or needs of any particular investor. This material should be considered with professional advice when deciding if an investment is appropriate. UOB Bank accepts no liability whatsoever with respect to the use of this document or its content.
Some Stuff To Ponder, And Puzzles To Solve Where Are We On The Business Cycle? Will Stock Markets Continue to “ Cheong ”? Is the US Economy Really Better? If So, Why Aren’t Prices Higher? Why Aren’t Workers Paid More? Why Were Asian Currencies So Strong In 2017? How About 2018? Where’s the SGD going? Will There Be More En-Blocs Millionaires This Year? 2 UOB Global Economics & Markets Research
History Does Not Repeat Itself… But It Rhymes Mark Twain 3 UOB Global Economics & Markets Research
The Business Cycle Always Rhymes EARLY MID LATE RECESSION Fiscal/Monetary stimulus Fiscal/Monetary stimulus slows Fiscal/Monetary tightening Fiscal/Monetary stimulus Economic growth starts increasing Economic growth slows, still positive Economic growth peaks, Economic growth & mfg contracts, stagnates, slows retail drops Employment picks up, confidence Stronger employment growth, Unemployment at lowest levels, Unemployment shoots up, wages improves confidence continues to grow wages increasing, tight lab mkt contract, confidence declines Corporate profits increases strongly Margins peaking, management buys Earnings disappoints though Earnings contract, Bank lending back shares to boost profits expectations remain high drops EARLY MID LATE RECESSION Peak Trough 4 UOB Global Economics & Markets Research
5 UOB Global Economics & Markets Research
Lots of Exuberance In Markets. As Much As It Looks Like There’s Only One Direction… Selected MSCI Equity Indices (Dec 2010 = 1000) +30% UOB Global Economics & Markets Research 6
Markets Do Move In Cycles…It’s All About Sentiments & Psychology… Or, “ Animal Spirits ” Selected MSCI Equity Indices (Dec 2010 = 1000) UOB Global Economics & Markets Research 7
Domestic Interest Rates Are Rising Fast/Slow? United States & Singapore Interest Rates 98’ AFC 01’ IT 03’ SARS 08’ GFC 175bps 300bps 425bps 125bps UOB Global Economics & Markets Research 8
Domestic Interest Rates Are Rising Fast/Slow? United States & Singapore Interest Rates UOB Global Economics & Markets Research 9
Improvement in PMIs in Developed Markets Faster Than Emerging Markets, But Could be Peaking DM & EM Mfg PMI DM & EM Svc PMI DM mfg peaking? 10 UOB Global Economics & Markets Research
US: As The Cycle Matures Further Are Things Looking Better? 11
Improvement In US GDP Since 2H 2016 & Positive Output Gap Will Heighten Fed’s Hawkish Senses in 2018 US Real GDP US Output Gap US$21.52t US$17.62t The “Lost” Decade 12 UOB Global Economics & Markets Research
US Payrolls Continues To Gain Strongly During This Cycle Recovery Trend Of US Non-Farm Payrolls During Previous Recessions UOB Global Economics & Markets Research 13
Labour Market Vibrancy Indicators Pointing To Reduced Slack US Labour Market Conditions UOB Global Economics & Markets Research 14
And The US Consumer Is A lot More Confident While The Labour Market Gets Tighter US Consumer Confidence & Unemployment Rate (12m Lead) UOB Global Economics & Markets Research 15
Wage Growth Has Not Been Up to Expectations, Even Though Labour Market Is Deemed To Be “Tight”. US Average Hourly Earnings % y/y UOB Global Economics & Markets Research 16
Improving Unemployment Rates Has Not Translated Into Higher Wages Us Phillips Curve UOB Global Economics & Markets Research 17
If Fed Really Follows The Taylor Rule, FFTR Would Be Much Higher (Luckily Janet’s Surname Is Not Taylor!) US Fed Funds Target Rate and Taylor Rule Estimates 𝜤(𝑽 ∗ − 𝑽 𝒖 ) 𝒋 𝒖 = 𝝆 𝒖 + 𝒔 ∗ + 𝒃 𝝆 𝝆 𝒖 − 𝝆 ∗ + 𝒃 𝒛 (𝒛 𝒖 − 𝒛 𝒖 ) UOB Global Economics & Markets Research 18
US: How About Wage Inflation? Hiring is Up, Labour Market is Tight, Why Aren’t Wages Rising Faster? 19
It’s Simple Labour Productivity Growth Is Low! As Employment Share In Low Productivity Sectors Grew US Labour Productivity Growth UOB Global Economics & Markets Research 20
Moreover, Increased Incidence of Jobs Mismatches After GFC Why? It’s All About The Skills Set The US Beveridge Curve Low UnN High Vacancies 3 1 High UnN Low Vacancies 45 deg 2 UOB Global Economics & Markets Research 21
US Households Are Healthier In Terms of Financials US Households & Non-profits Balance Sheet UOB Global Economics & Markets Research 22
In Part Due To Higher Home Prices, But… US Home Price Indices US New Home Sales Source: Bloomberg, (Monthly Data) 23 UOB Global Economics & Markets Research
…Wages Growing Slower; Cost of Funds Rising Faster Homes Get Increasingly Unaffordable US Home Affordability UOB Global Economics & Markets Research 24
American Corporates Still At Healthy Levels, But No Doubt, Valuations Are Rising By The Day S&P 500 Corporate Profits, Dividends, and Valuations UOB Global Economics & Markets Research 25
Fed Rate Hike & Weaker Asian Manufacturing Will Boost DXY DXY and UOB DXY Interest Rate Spread UOB Global Economics & Markets Research 26
Market Pricing-In Stronger SGD Before Apr 18, And Likely Will Ease After MAS Meeting UOB SGD NEER 129 MAS kept neutral stance Easing Round 2 Easing Round 1 Easing Round 3 unchanged in Oct 16, Apr 17 and MAS shifted SGD NEER MAS shifted SGD MAS shifted SGD Oct 17 meetings slope from 2% to 1% in NEER slope from NEER slope to 127 an off-cycle decision 1% to 0.5% Neutral 125 SGD NEER was trading 123 above midpoint 98% of the time since Jan 2017 121 119 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 SGD NEER Upper-end: 2% Mid-Point of Estimated Policy Band Lower-end: 2% Source: Bloomberg (Daily Data) UOB Global Economics & Markets Research 27
USDSGD Have Faith! 28 UOB Global Economics & Markets Research
Economic Conditions in SG 29
Slower Growth During This Recovery Cycle Singapore’s Real GDP UOB Global Economics & Markets Research 30
External Sectors Are Picking Up Very Strongly Singapore’s Real GDP (Production) UOB Global Economics & Markets Research 31
Recent Pickup in External Sectors Spilling Over to Domestic Sectors Singapore's Real GDP (External vs Domestic Sectors) 87’ Crash 9 7’ Crash 01’ IT 07/08’ Crash UOB Global Economics & Markets Research 32
Resurgence in Domestic Consumption, But Investments Still Sluggish Singapore’s Real GDP (Expenditure) UOB Global Economics & Markets Research 33
China’s Mfg As A Mildly Positive Leading Indicator For SG NODX China Satellite Manufacturing Index & Singapore Non-Oil Domestic Exports UOB Global Economics & Markets Research 34
Slower Growth For Semiconductor Output Expected In 2018 Asia Pacific Semiconductor Sales vs Singapore Semiconductor IP UOB Global Economics & Markets Research 35
Falling Retrenchment Numbers Amongst PMETs Is A Good Sign Number of Retrenched Workers by Profession GFC: 13,130 (PMET) Persons Recessions Recessions Recessions 6,000 5,000 PMET Prof, Managers, Executives & Technicians 2012 to date: CSSW Clerical, Sales & Service Workers 43,000 (PMET) 4,000 PTOCL Prod,Transport Operators,Cleaners & Labourers 3,000 2,000 1,880 1,000 1,170 0 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 Source: CEIC, UOB Global Economics & Markets Research (Quarterly Data) UOB Global Economics & Markets Research 36
While Employers Are Holding On To Staff, They Are Hesitant In Hiring More Job Recruitment Rate Persons Recessions Recessions Recessions 5.00 PMET Prof, Managers, Executives & Technicians 4.50 CSSW Clerical, Sales & Service Workers 4.00 PTOCL Prod,Transport Operators,Cleaners & Labourers 3.50 3.00 3.00 2.50 2.40 2.00 1.80 1.50 1.00 0.50 0.00 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 Source: CEIC, UOB Global Economics & Markets Research (Quarterly Data) UOB Global Economics & Markets Research 37
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