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The global recovery is set to continue, commodity prices are going to boom, but there are threats that could take down the economy, according to Danske Bank.Their 5 themes to watch include are largely optimistic, but there are also serious concerns the debt threat could rise and cripple global markets.
Even if that threat becomes real, it should still be a great year for equities, according to Danske.
While 2010 saw threats to the global recovery, now it has stabilised and growth looks likely to expand in 2011, even though there is fiscal consolidation in developed markets.
Global growth for 2011 will be at 4.4% in 2011, with 60% expected to emanate from emerging markets.
The result will be a global rise in equities with returns of 10 to 15%, according to Danske.
While the commodities super cycle thesis isn't perfect, it does seem to be on for 2011. Demand from emerging markets is set to outpace supplies and likely to drive prices higher throughout the year.
There are serious issues with metals supplies and the global oil supply is under threat due to increased pressures on offshore drilling. China's rampant demand will continue in 2011, with new rail and energy projects set to come on line.
Discussions at international summits like the G20 are likely to be focused on the currency war between states.
Specifically, the U.S. and China will continue to spar over the weakness of the dollar due to QE2 and the weakness of the yuan due to currency pegging.
But since both sides are so far apart on these issues, it is unlikely we'll get a deal in 2011.
The global monetary policy gap, in which states that have low deficit levels are tightening and debtor states are holding at record low rates, is set to continue.
In the U.S., Japan, and eurozone, rates are likely to be held at lows. The eurozone will likely end its liquidity measures, the U.S. will wrap up QE2, but Japan will continue to ease. That's going to weaken the yen.
In terms of tightening, all of Canada, Australia, New Zealand, Switzerland, Sweden, and Norway are going to tighten in 2011 because they can. They're currencies should strengthen.
2011 is likely to be dominated by the word 'austerity' yet again. It won't just be the eurozone and UK applying such measures this time
The U.S. and Japan, mostly ignored by markets until now, may suddenly come under pressure to bring large fiscal adjustments.
While the eurozone will likely muddle through, investors will need to start buying fringe debt if the EU-IMF backstop plan is to work in the long-run.
Watch out for the U.S., particularly if China stops buying U.S. debt. This could get 'really nasty,' according to Danske.
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