GOLDMAN: These 10 Stories Will Dominate Markets In 2013

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With 2012 wrapping up, investors are beginning to prepare themselves for 2013.David Kostin, Goldman’s Chief U.S. Equity Strategist, has already called for the S&P 500 to end 2013 at 1,575.

Goldman Sachs’ Economics Research team led by Dominic Wilson just published their 18-page report on Top 10 Market Themes For 2013, the big stories that will dominate the markets.

Overall, the team expects global growth to pick up in the second half of the year aided by the U.S. energy boom.  Developed market economies have lots of room to grow. Emerging markets also have room to grow, but will have less flexibility as inflation risks intensify.

We distilled the report and pulled the key points and quotes.

Growth will be weak in early 2013 with increased fiscal restraint. Spanish economic risks and Italian political risks will ease in the second half of the year. And there will be 'room to grow' thanks to output gaps. Looser energy supplies will also help.

'The biggest challenge from a markets perspective is that we see risks to growth concentrated early in the year, with Q1 likely to show a step-down in growth globally.'

Source: Goldman Sachs

Interest rates will stay ultra-low in the world's largest economies. 'Fed to move towards macro-based criteria; ECB to conduct private asset purchases.'

'However, the most hotly debated shift currently is whether the BoJ will make a more convincing attempt at easing. ... And while we do expect incremental progress, our central case is not for a quantum leap in BoJ policy, particularly in the near term.'

Source: Goldman Sachs

US housing activity will continue to increase, as mortgage rates remain record low and lending conditions loosen.

'On that front, two kinds of assets come to mind. The first is select vintages of the ABX index on subprime mortgages. ... The second is US domestic banks, which could benefit further from a gradual normalisation of housing credit finance if home prices continue to drift higher.'

Source: Goldman Sachs

European growth will be weak, with Spanish economic risks and Italian political risks intensifying early in the year.

'With risk premia still wider than elsewhere, and larger than warranted by fundamentals alone, further policy progress -- and an absence of fresh stresses -- could see incremental gains in Euro area assets.'

Source: Goldman Sachs

'The divergence in growth between the Euro area core (Germany in particular) and the periphery (Spain in particular) is set to continue. Periphery weakness is already well-known, but the potential for German overheating is a more distinctive theme.'

Source: Goldman Sachs

Emerging Markets will see growth accelerate but they will also have 'less room to grow' than developed markets. Inflation will increase the risk of tighter monetary policy.

'We think EM equities should have a better year, but the upside potential may be limited by the fact that inflationary pressure and a potential shift towards tightening could come earlier than the market expects in places.'

Source: Goldman Sachs

'US energy supply story gradually loosens global oil constraint.'

'Most importantly, we expect oil markets to return to a more structurally stable position, where the ability to bring on new supply in the $80-90/bbl range is rapidly increasing. The relaxation of the energy supply constraint globally reduces one major obstacle to a global recovery as we look to above-trend global growth into 2014 and beyond.'

Source: Goldman Sachs

'Although we expect Chinese growth to stabilise next year, the pace of growth we envisage is still only a touch above 8%.'

'Our Commodity Research team's analysis of the Chinese construction cycle suggests that iron ore demand is likely to remain soft as core building demand falls, and that copper will receive a boost from the completion of new buildings in the next 6-9 months, but is likely to peak thereafter.'

Source: Goldman Sachs

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