Binky Chadha, the reputedly and repeatedly bullish Deutsche Bank chief global strategist, says we’re headed lower for three persisting reasons: bad economic data out of the United States, the ongoing euro crisis, and the slowdown in emerging markets.Although Binky is “constructive on the resolution of each of the 3 drivers over the medium term,” he is watching Deutsche Bank’s economic data surprise index (MAPI) before he’s ready to call the next rally.
He may be ready in July, though:
In terms of timing, with the US MAPI in the middle of the lower half of its typical band and consensus forecasts holding up obstinately, a typical decline to the bottom of the band still looks some ways off. On its current trajectory it should hit the bottom of the band in mid July. The euro summit is not until end-June. We see a turn in the US data as a necessary condition for a bottom in risk assets. In 2010 and in 2011 a turn in the US data preceded that in the other regions. We don’t see a sustainable rally in risk assets on a European policy response alone were it to come earlier without a turn up in the data.
Here is the MAPI index he is referring to, complete with bands:
How low do assets go? Binky says that “The S&P 500 trend channel since 2009 is pointing to 1560 at the top of the band and 1210 at the bottom,” and that “the average multiple of the 2010 and 2011 corrections (12x) also suggests 1200.”
From there, though, Binky is, of course, bullish. He says the economic data out of the United States that is missing expectations is a “normal” cycle. Further, he believes “European authorities will come up with a longer-term vision and roadmap for European integration likely at their end-June summit.” Finally, he calls the slowdown in emerging markets “healthy” because it has curbed inflation, which in turn has allowed policymakers flexibility in responding to the slowdown, meaning we shouldn’t see a hard landing in EM.