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The floodgates are open in terms of policy according to JPM’s Jan Loeys in his latest Global Asset Allocation note.We think the positive environment for risk assets can and will last over the next 3-6 months. And this is not because of a strong economy, as we foresee below potential global growth over the next year and are below consensus expectations. Overall, we continue to see data that signal that world growth is in a bottoming process. With most countries having now reported, global GDP looks to have expanded at a tepid 1.9% pace in 2Q12, 1.3%-point below what would simply be trend.
On the back of weak gains in consumer and business spending at mid-year, global IP growth has come to a stand-still. And while things appear to have bottomed with some signals of improvement in consumer spending in July, the soft trajectory of both spending and production through June is expected to hold global GDP growth to another tepid quarter of just 2%. More important to us as positive drivers of risk markets are coming policy stimulus measures, price momentum, and the continuing but more medium-term forces of asset reflation and high risk premia.
To quickly review:
- The Fed is seeing as being on the precipice of launching QE3.
- The ECB is going to buy short-term peripheral debt on an unlimited scale.
- China has stepped up its fiscal stimulus.
- Last night Korea unveiled a tiny fiscal stimulus.
Indeed, the global reflation theme is super hot.
In a note out last night titled Third Ease From The Sun, BTIG’s Dan Greenhaus wrote:
Being Right or Making Money is the title of Ned Davis’ book and the sentiment is as appropriate as ever now. Investors are arguing whether the Fed should or can do anything for unemployment, whether hyper inflation lay just around the corner or whether Ben Bernanke even “understands markets.” In reality, we believe all that matters is whether assets are likely to appreciate or depreciate in the immediate future as a result of the Fed’s actions. We believe “appreciate” is the correct answer.
Continuing on the theme of inflation-themed punsmaship, Nomura has a note out called “Inflate. Pray. Love.
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