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Highlights Rising CO2 emissions on the back of stronger global energy growth this year will keep energy markets focused on expanding ESG risks in the buildout of renewable generation via metals mining (Chart of the Week). EM energy demand is expected to grow 3.4% this year vs. 2019 levels and will account for ~ 70% of global energy demand growth. Demand in DM economies will fall 3% this year vs 2019 levels. Overall, global demand is expected to recover all the ground lost to the COVID-19 pandemic, according to the IEA. Rising energy demand will be met by higher fossil-fuel use, with coal demand increasing by more than total renewables generation this year and accounting for more than half of global energy demand growth. Demand for renewable power will increase by 8,300 TWh (8%) this year, the largest y/y increase recorded by the IEA. As renewables generation is built out, demand for bulks (iron ore and steel) and base metals will increase.1 Building that new energy supply will contribute to rising CO2, particularly in the renewables' supply chains. Feature Energy demand will recover much of the ground lost to the COVID-19 pandemic last year, according to the IEA.2 Most of this is down to successful rollouts of vaccination programs in systemically important economies – e.g., China, the US and the UK – and the massive fiscal and monetary stimulus deployed to carry the global economy through the pandemic. The risk of further lockdowns and uncontrolled spread of variants of the virus remains high, but, at present, progress continues to be made and wider vaccine distribution can be expected. The IEA expects a global recovery in energy demand of 4.6% this year, which will put total demand at ~ 0.5% above 2019 levels. The global rebound will be led by EM economies, where demand is expected to grow 3.4% this year vs. 2019 levels and will account for ~ 70% of global energy demand growth. Energy demand in DM economies will fall 3% this year vs 2019 levels. Overall, global demand is expected to recover all the ground lost to the COVID-19 pandemic, according to the IEA. Chart of the WeekGlobal CO2 Emissions Will Rebound Post-COVID-19 Coal demand will lead the rebound in fossil-fuel use, which is expected to account for more than total renewables demand globally this year, covering more than half of global energy demand growth. This will push CO2 emissions up by 5% this year. Asia coal demand – led by China's and India's world-leading coal-plant buildout over the past 20 years – will account for 80% of world demand (Chart 2). Chart 2China, India Lead Coal-Fired Generation Buildout Demand for renewable power will post its biggest year-on-year gain on record, increasing by 8,300 TWh (8%) this year. This increase comes at the back of roughly a decade of an increasing share of electricity from renewables globally (Chart 3). As renewables generation is built out, demand for bulks (iron ore and steel) and base metals will increase.3 Building that new energy supply will contribute to rising CO2, particularly in the renewables' supply chains. Chart 3Share of Electricity From Renewables Has Been Increasing ESG Risks Increase With Renewables Buildout Governments have pledged to invest vast sums of money into the green energy transition, to reduce fossil fuels consumption and deforestation, thus curbing temperature increases. In addition, banks have pledged trillions will be made available to support the buildout of renewable technologies over the coming years. The World Bank, under the most ambitious scenarios considered (IEA ETP B2DS and IRENA REmap), projects that renewables, will make up approximately 90% of the installed electricity generation capacity up to 2050. This analysis excludes oil, biomass and tidal energy. (Chart 4). Building these renewable energy sources will be extremely mineral intensive (Chart 5). Chart 4Renewables Potential Is Huge … While we have highlighted issues such as a lack of mining capex and decreasing ore grades in past research – both of which can be addressed by higher metals and minerals prices – the environmental, social and governance (ESG) risks posed by mining are equally important factors for investors, policymakers and mining companies to consider.4 The mining industry generally uses three principal sources of energy for its operations – diesel fuel (mostly in moving mined ore down the supply chain for processing), grid electricity and explosives. Of these three, diesel and electricity consumption contributes substantially to mining’s GHG emissions. In the mining stage, land clearing, drilling, blasting, crushing and hauling require a considerable amount of energy, and hence emit the highest amounts of greenhouse gases (GHGs). Chart 5… As Are Its Mineral Requirements The Environmental Impact Of Mining Under the scenarios depicted in Chart 5, copper suppliers could be called on to produce approximately 21mm MT of the red metal annually between now and 2050, which is equivalent to a 7% annual increase of supplies vs. the 2017 reference year shown in the chart. Mining sufficient amounts of copper, a metal which is critical to the renewable energy buildout, both in terms of quantity and versatility, will test miners' and governments' ability to extract sufficient amounts of ore for further processing without massively damaging the environment or indigenous populations' habitats (Chart 6). Chart 6Copper Spans All Renewables Technologies A recent risk analysis of 308 undeveloped copper orebodies found that for 180 of the orebodies – roughly equivalent to 570mm MT of copper – ore-grade risk was characterized as moderate-to-high risk.5 High risk implies a lower concentration of metal in the ore deposits. Mining in ore bodies with lower copper grades will be more energy intensive, and thus will emit more greenhouse gases. Table 1 is a risk matrix of the 40 mines that have the most amount of copper tonnage in this analysis: 27 of these mines displayed in the matrix have a medium-to-high grade risk. Table 1Mining Risk Matrix Another analysis established a negative relationship between the ore-grade quality and energy consumption across mines for different metals and minerals.6 This paper found that, as ore grade depletes, the energy needed to extract it and send it along the supply chain for further processing is exponentially higher (Chart 7). Lastly, a recent examination found that in 2018, primary metals and mining accounted for approximately 10% of the total greenhouse gases. Using a case study of Chile, the world’s largest producer of the red metal, the researchers found that fuel consumption increased by 130% and electricity consumption per unit of mined copper increased by 32% from 2001 to 2017. This increase was primarily due to decreasing ore grades.7 As ore grades continue to fall, these exponential relationships likely will persist or become more significant. Chart 7Energy Use Rises As Ore Quality Falls Bottom Line: While technology can improve extraction, it cannot reduce the minimum energy required for the mining process. This increased energy use will contribute to the total amount of CO2 and other GHGs emitted in the process of extracting the ores required to realize a low-carbon future. Trade-Off Between CO2 Emissions And Economic Development A recent Reuters analysis highlights the gap between EM and DM from the perspective of their renewable energy transition priorities.8 Of the 17 UN Sustainable Development Goals (SDGs), “Taking action to combat climate change” takes precedence over the rest for DM economies. This is largely because they have already dealt with other energy and income intensive SDGs such as improvements in healthcare and poverty reduction. The large scale of unmet energy demand in developing countries poses a huge challenge to controlling CO2 emissions. The populations of these countries are growing fast and are projected to continue increasing over the next three decades. Rising populations, make the issue of a "green-energy transition" extremely dynamic – i.e., not only do EM economies need to replace existing fossil fuels, but they also need to add enough extra zero-emission fuel sources to meet the growth in energy demand. Bottom Line: Coupled with the increased amount of energy required to mine the same amount of metal (due to lower ore grades), rising energy demand resulting from a burgeoning population in EM economies - which use fossil fuels to meet their primary needs - will require more metals to be mined for the renewable energy transition. This will further increase the amount of carbon dioxide and other greenhouse gas emissions from mine activity, and increase the risk to indigenous populations living close-by to the sources of this new metals supply. ESG risks will increase as a result, presenting greater challenges to attracting funding to these efforts. Ashwin Shyam Research Associate Commodity & Energy Strategy ashwin.shyam@bcaresearch.com Robert P. Ryan Chief Commodity & Energy Strategist rryan@bcaresearch.com Commodities Round-Up Energy: Bullish OPEC 2.0 was expected to stick with its decision to return ~ 2mm b/d of supply to the market at its ministerial meeting Wednesday. Markets remain wary of demand slowing as COVID-19-induced lockdowns persist and case counts increase globally. The production being returned to market includes 1mm b/d of voluntary cuts by Saudi Arabia, which could, if needs be, keep barrels off the market if demand weakens. Base Metals: Bullish Front-month COMEX copper is holding above $4.50/lb, after breaching its 11-year high earlier this week. The proximate cause of the initial lift above that level was news of a strike by Chilean port workers on Monday protesting restrictions on early pension-fund drawdowns, according to mining.com. After a slight breather, prices returned to trading north of $4.50/lb by mid-week. Last week, we raised our Dec21 COMEX copper price forecast to $5.00/lb from $4.50/lb. Separately, high-grade iron ore (65% Fe) hit record highs, while the benchmark grade (62% Fe) traded above $190/MT earlier in the week on the back of lower-than-expected production by major suppliers and USD weakness. Steel futures on the Shanghai Futures Exchange hit another record as well, as strong demand and threats of mandated reductions in Chinese steel output to reduce pollution loom (Chart 8). Precious Metals: Bullish Rising COVID cases, especially in India, Brazil and Japan are increasing gold’s safe-haven appeal (Chart 9). The US CFTC, in its Commitment of Traders (COT) report for the week ending April 20, stated that speculators raised their COMEX gold bullish positions. At the end of the two-day FOMC meeting, the Fed decided against lifting interest rates and withdrawing support for the US economy. However, officials sounded more optimistic about the economy than they did in March. The decision did not give any sign interest rates would be lifted, or asset purchases would be tapered against the backdrop of a steadily improving economy. Net, this could increase demand for gold, as inflationary pressures rise. As of Tuesday’s close, COMEX gold was trading at $1778/oz. Ags/Softs: Neutral Corn and bean futures settled down by mid-week after a sharp rally earlier. After rising to a new eight-year high just below $7/bushel due to cold weather in the US, and fears a lower harvest in Brazil will reduce global grain supplies, corn settled down to ~ $6.85/bu at mid-week trading. Beans traded above $15.50/bu earlier in the week, their highest since June 2014, and settled down to ~ $15.36/bu by mid-week. Attention remains focused on global supplies. The uptrend in grains and beans remains intact. Chart 8 Chart 9 Footnotes 1 Please see Renewables, China's FYP Underpin Metals Demand, published 26 November 2020, for further discussion. It is available at ces.bcaresearch.com. 2 Please see Global Energy Review 2021, the IEA's Flagship report for April 2021. 3 Please see Renewables, China's FYP Underpin Metals Demand, published 26 November 2020, for further discussion. It is available at ces.bcaresearch.com. 4 We discussed these capex issues in last week's research, Copper Headed Higher On Surge In Steel Prices, which is available at ces.bcaresearch.com. 5 Please see Valenta et al.’s ‘Re-thinking complex orebodies: Consequences for the future world supply of copper’ published in 2019 for this analysis. 6 Please see Calvo et. al.’s ‘Decreasing Ore Grades in Global Metallic Mining: A Theoretical Issue or a Global Reality?’ published in 2016 for this analysis. 7 Please see Azadi et. al.’s ‘Transparency on greenhouse gas emissions from mining to enable climate change mitigation’ published in 2020 for this analysis. 8 Please see John Kemp's Column: CO2 emission limits and economic development published 19 April 2021 by reuters.com. Investment Views and Themes Strategic Recommendations Tactical Trades Commodity Prices and Plays Reference Table Trades Closed in 2021 Summary of Closed Trades
Highlights Developed economies continue to transition towards a post-pandemic state. Europe has further to go, but it is lagging the US at a constant rate and is thus merely delayed – not on a different path. This ongoing transition is also reflected in the global macro data, which continues to surprise to the upside. Widespread optimism about the outlook for economic activity and earnings over the coming year has led some investors to ask whether an imminent peak in the rate of growth could be a potentially negative inflection point for richly valued risky asset prices. Using our global leading economic indicator as a guide, we find that a peak in growth momentum in and of itself is not likely to be enough of a catalyst for meaningful risky asset underperformance versus government bonds. A sizeable shock to sentiment would likely be required, causing either a very serious growth slowdown, outright fears of recession, or some other event that negatively impacts earnings growth or raises the equity risk premium (“ERP”). We can identify several candidates for such a shock, including the emergence of new, vaccine-resistant variants of COVID-19, the impact of higher taxes on earnings, overtightening in China, and a potentially hawkish shift in monetary policy in the developed world. But none of these risks individually appears to be likely enough to warrant reducing cyclical portfolio exposure. We continue to expect positive absolute single-digit returns from stocks over the coming 6-12 months, and would recommend that investors remain overweight stocks versus bonds in a multi-asset portfolio. We remain overweight global ex-US equities vs. the US, but expect that euro area stocks will have to do the heavy lifting, driven either by the underperformance of global technology stocks or the outperformance of euro area financials. Within a fixed-income portfolio, we recommend a modestly short duration stance, but do so primarily on a risk-adjusted basis. Feature Chart I-1Europe Is Behind The US, But On The Same Path Over the past month, developed economies have continued to transition towards a post-pandemic state. While the number of new confirmed COVID-19 cases remains relatively high on a per capita basis in the US and Europe, there continues to be significant progress on the vaccination front in all Western advanced economies. Europe continues to lag the US and the UK in terms of the share of the population that has received at least one dose of vaccine, but Chart I-1 highlights that the gap has remained constant at approximately six weeks (to the US). Panel 2 of Chart I-1 highlights that the US and UK both experienced either falling or a stable number of new cases once the number of first doses reached current European levels; Israel required significant further gains in the breadth of vaccinations before it altered COVID-19’s transmission dynamics in that country, but this appears to have occurred because of a much higher pace of spread earlier this year. The negative impact on advanced economies from reduced services activity is strongly linked to pandemic control measures (such as stay-at-home orders, curfews, forced business closures, etc). We have argued that, outside of the US, the implementation and removal of these measures is being driven by the impact of the pandemic on the medical system, rather than the sheer number of new cases and deaths. Chart I-2 highlights that, based on this framework, Europe still has further to go – current per capita hospitalizations remain much higher in France and Italy than in the US, UK, or Canada. But the nature of the disease means that hospitalizations begin to fall even if case counts remain relatively stable, and fall rapidly once new cases trend lower. Given the steady gains that European countries are making in providing first vaccine doses to their populations, it seems likely that hospitalizations there will peak sometime in the coming four to six weeks. This underscores that Europe is not on a different path than that of the US, it is simply further behind in the process (and will ultimately catch up). The transition towards a post-pandemic state is also reflected in the global macro data, which continues to positively surprise in all three major economies (Chart I-3). In Europe, the April services PMI rose back above the 50 mark, April consumer confidence surprised to the upside, and February retail sales came in better than expected (Table I-1). In the US, the March services PMI was also very strong, the labor market continued to meaningfully improve, and several measures of inflation surprised to the upside. Chart I-2Euro Area Hospitalizations Remain High, But Will Soon Decline Chart I-3The Macro Data Continues To Positively Surprise Table I-1Services PMIs And The Labor Market Continue To Meaningfully Improve Chart I-4China's Current Contribution To Global Demand Is Strong In China, the recent tick higher in the surprise index likely reflects the recognition of some data series whose release was delayed due to the Chinese New Year, as well as significant base effects (compared with Q1 2020) in many data series recorded in year-over-year terms. On a quarter-over-quarter basis, Chinese economic activity decelerated last quarter to 0.6% from the upwardly revised 3.2% in Q4 2020 – which was below the anticipated 1.4% q/q. Still, Chinese RMB-denominated import growth closely matches (lagging) data on global exports to China (in US$ terms), with the former suggesting that China’s current contribution to global external demand remains strong (Chart I-4). This is also consistent with rising producer prices, which had fallen back into deflationary territory last year (panel 2). Peaking Growth Momentum: Should Investors Be Worried? The continued increase in the number of vaccine doses administered, positive data surprises, and bullish global growth forecasts for this year have understandably led to extremely optimistic investor sentiment. It has also naturally raised the question of “what could go wrong?”, with some investors pointing to an imminent peak in the rate of growth as a potentially negative inflection point for richly valued risky asset prices. Chart I-5 addresses this question by examining 12 episodes of waning growth momentum since 1990, defined as an identifiable peak in our global leading economic indicator. Panel 2 shows the 12-month rate of change in the relative performance of global equities versus a US$-hedged 7-10 year global Treasury index. Chart I-5Is Peaking Growth Momentum A Risk For Stocks? At first blush, the chart does support the notion that a peak in growth momentum is generally negative for risky asset prices. The subsequent 12-month relative return from stocks versus bonds following a peak in the LEI has been negative in 8 out of the 12 episodes, suggesting that the risks of an equity correction are currently quite elevated. However, there is more to the story than this simple calculation implies (Table I-2). First, two of the twelve episodes saw the global LEI peak in the context of an eventual US recession, so it is not surprising that stocks underperformed bonds in those episodes. Second, out of the six non-recessionary episodes, only two of them involved significant underperformance, in 2002 and in 2015. Table I-2Peak Growth Momentum Is An Insufficient Catalyst For Equity Underperformance US equities underperformed in the former case because of the persistently damaging impact of corporate excesses that built up during the dot-com bubble, and predominantly global ex-US equities underperformed bonds in the latter case because of a combination of the significant impact on global CAPEX from the 2014 dollar and oil price shock, as well as a major decline in global bond yields. In the four other non-recessionary examples of equity underperformance, stocks only modestly underperformed bonds, and often this occurred in the context of significant events: surprising Fed hawkishness in 1994, the Asian financial crisis in 1997, a major slowdown in China in 2013, and the combination of a domestically-driven Chinese economic slowdown coupled with the Sino/US trade war in 2017/2018. The key point for investors is that a peak in growth momentum is in and of itself not enough of a catalyst for meaningful risky asset underperformance versus government bonds. A sizeable shock to sentiment would likely be required, causing either a very serious growth slowdown, outright fears of recession, or some other event that negatively impacts earnings growth or raises the equity risk premium (“ERP”). What Else Could Go Wrong? There are four other plausible risks that we can identify to a bullish stance towards risky assets over the coming 6-12 months. We discuss each of these risks below. New COVID-19 Variants Chart I-6 highlights that bottom up analysts expect global earnings per share to be 12% higher than their pre-pandemic level in 12-months’ time. This expectation is driven by extraordinarily easy fiscal and monetary policy, but also the view that vaccination against COVID-19 will allow social distancing policies to end and services activity to fully recover. However, as India is clearly – and tragically – demonstrating at present, the emerging world is lagging in terms of vaccinating its population. India’s per capita case count has soared (Chart I-7), which is surprising given that the country’s COVID-19 infection rate has been significantly below that of more advanced economies over the past year. It is therefore likely that India’s case count explosion is due to new variants of the disease, and periodic outbreaks in less developed countries – as well as vaccine hesitancy in more developed economies – risks the emergence of even newer variants that may be partially or substantially vaccine-resistant. Chart I-6Earnings Expectations Already Price In A Normalization In Services Activity Chart I-7India's COVID-19 Situation Is Tragic, And Concerning New variants of COVID-19 may prove to be less deadly, but the economic impact of the pandemic has come mainly from its potential to collapse the medical system via high rates of serious illness requiring hospitalization, not strictly from its lethality. As such, potentially new vaccine-resistant variants of the disease resulting in similar or higher rates of hospitalization pose a risk to a bullish economic outlook. Taxation Both corporate and individual tax rates are set to rise in the US over the coming 12-18 months which, at first blush, could certainly qualify as a non-recessionary event that negatively impacts earnings or raises the ERP. Corporate taxes are set to rise first as part of the American Jobs Plan, which our political strategists have argued will probably take the Biden administration most of this year to pass. The plan involves a proposed increase in the domestic corporate income tax rate to 28% from 21%, a higher minimum tax on foreign profits, and a 15% minimum tax on “book income”. In addition, as part of the American Families Plan, Biden is proposing to increase the top marginal income tax rate for households earning $400,000 or more to 39.6% (from 37%), and to substantially increase the capital gains tax rate for those earning $1 million or more from a base rate of 20% to 39.6%. The 3.8% tax on investment income that funds Obamacare would be kept in place, which would bring the total capital gain tax rate to 43.4% for that income group. Peter Berezin, BCA’s Chief Global Strategist, made two points about higher corporate taxes in a recent report.1 First, he noted that the changes would likely result in an 8% decline in forward earnings if passed as currently proposed, but that various tax credits as well as opposition to a 28% corporate tax rate from Democratic Senator Joe Manchin would likely cap the impact at 5%. Second, he argued that the behavior of 12-month forward earnings and the performance of stocks that benefitted the most from President Trump’s corporate tax cuts suggest that very little impact from these changes has been priced in. Peter argued in his report that the effect of strong economic growth will likely offset the negative impact of higher taxes on earnings, and we are inclined to agree. Chart I-8 highlights that a 5% reduction in 12-month forward earnings would reduce the equity risk premium by roughly 20-25 basis points, which would not be disastrous on its own. Still, the fact that these changes have not been priced in means that corporate tax hikes could be a more meaningful driver of lower stock prices if the impact is ultimately larger than we currently expect or if the growth outlook suddenly shifts in a negative direction. In terms of changes to individual taxes, our sense is that the proposed increase in the capital gains tax rate is more significant than the modest proposed change to the top marginal income tax rate for higher-income households. For individuals earning $1 million or more, Chart I-9 highlights that the proposed change to the capital gains rate would bring it to the highest level seen since the late 1970s. Given the rich valuation of equities, it seems inconceivable that such a change would not trigger some short-term selling of equities to lock in long-term gains at lower tax rates. Chart I-8Higher Corporate Taxes Will Only Modestly Reduce the Equity Risk Premium Chart I-9Biden's Capital Gains Tax Proposal Would Lead To Some Selling Of Stocks... But like upcoming changes to corporate taxes, we see the potential for higher taxes on wealthy individuals as a risk to the equity market and not as a likely driver of stock prices over a cyclical time horizon. First, our political strategists see 50/50 odds that the American Families Plan will be passed this year, meaning that short-term tax avoidance selling may be postponed until 2022. In addition, Chart I-10 highlights that over the longer term, the relationship between the maximum capital gains tax rate and the ERP is weak or nonexistent. The chart highlights that the perception of a positive relationship rests entirely on the second half of the 1970s, when the maximum capital gains tax rate was between 30-40%. However, it seems clear from the chart that the stagflationary environment of that period was responsible for a high ERP, as the capital gains rate fell from 1977 to 1982 without any significant decline in risk premia. It took until the end of the 1982 recession and the beginning of the structural disinflationary period for the equity risk premium to decline, suggesting that there is effectively no relationship between the two (and therefore no reason to believe that higher capital gains taxes will lead to sustained declines in stock market multiples). Chart I-10…But The Effect Would Not Likely Last Overtightening In China Chart I-11Leading Indicators Of China's Economy Are Pointing Down, Not Up Even though Chart I-4 highlighted that Chinese import demand is currently strong, we expect China’s growth impulse to weaken in the second half of the year. Chart I-11 highlights that our leading indicator for China’s Li Keqiang index has done a good job of predicting Chinese import growth, and the indicator is now in a clear downtrend. Panel 2 presents the components of the indicator, and shows that all three are trending lower. Monetary conditions are potentially rebounding from extremely weak levels (due to past deflation and a rise in the RMB versus the US dollar and other Asian currencies), but money supply and credit measures are deteriorating. Leading indicators for China’s economy are deteriorating because Chinese policymakers have already tightened liquidity conditions in response to the country’s rebound from the pandemic and following a surge in the credit impulse. The 3-month repo rate returned to pre-pandemic levels in the second half of last year (Chart I-12), and consequently the private sector credit impulse (particularly that of corporate bond issuance) fell despite robust medium-to-long term loan growth. Chart I-12Chinese Interest Rates Have Already Returned To Pre-COVID Levels We noted in our January report that China’s credit impulse has consistently followed a 3½-year cycle since 2010, and this year has been no different. This cycle is not exogenous or mystical; it has been caused by the repeated “oversteering” of activity by Chinese policymakers who frequently oscillate between the need to fight deflation and the strong desire to curb additional private sector leveraging. Our base case view is that policymakers will not accidentally overtighten the economy, and that the credit impulse will settle somewhere between late 2019 levels and the peak rate reached in the latter half of last year. But the risk of significant oversteering cannot be ruled out, and will likely remain a downcycle risk for investors for several years to come. A Hawkish Shift In Monetary Policy In Developed Markets Last week the Bank of Canada announced that it would taper its pace of government debt purchases from 4 billion to 3 billion CAD per week. The announcement was noteworthy for many investors, as it suggested that asset purchase reductions could also be announced by the Fed and other major central banks by the end of the second or third quarter. Many investors are sensitive to the tapering question because of what transpired during the “Taper Tantrum” episode of 2013. During an appearance before Congress in late May of that year, then Chair Ben Bernanke stated that the Fed could “step down” the pace of its asset purchases in the next few FOMC meetings if economic conditions continued to improve. The result was that 10-year Treasurys fell roughly 10% in total return terms over the subsequent three-month period. While stocks rallied in response to the growth-positive implications of the move, this occurred from a much higher ERP starting point than exists today. The risk, in the minds of some investors, is that tapering today could thus lead to a correction in stock prices. There are two counterpoints to this view. First, bonds have already sold off meaningfully over the past several months in response to a significant improvement in the economic outlook, and investors already expect the Fed to raise interest rates earlier than it is publicly forecasting. It is thus difficult to see how an announcement of tapering from the Fed would significantly alter the outlook for monetary policy over the coming 6-18 months. Chart I-13Another Taper Tantrum-Like Selloff Would Necessitate Higher Expectations For R-star Second, it is notable that the “Taper Tantrum” began at yield levels at the front end of the curve that are roughly similar to what prevails today. 5-year/5-year forward bond yields stood at roughly 3% at the beginning of the “Tantrum”, compared with 2.3% today. Chart I-13 highlights how high forward bond yields would need to rise in order to generate another selloff of similar magnitude from 10-year Treasury yields (roughly 3.65%). In our view, a rise to this level over the coming year is essentially impossible without a major shift in investor expectations about the natural rate of interest. We highlighted the risk of such a shift in last month’s report,2 but for now it would likely necessitate hard evidence of little-to-no permanent damage to the labor market from the pandemic. This is not our base case view, but it will be an important possibility to monitor as the decisive end to social distancing and other pandemic control measures draws nearer. Investment Conclusions As noted above, there are several identifiable risks to a bullish outlook for risky assets, but none of these risks individually appear to be likely. Given this, we continue to expect positive absolute single-digit returns from stocks over the coming 6-12 months, and would recommend that investors remain overweight stocks versus bonds in a multi-asset portfolio. We favor value versus growth stocks, cyclical versus defensive sectors, and small versus large cap stocks, although there is more return potential over the coming year in value versus growth than the latter two positions. We also remain short the US dollar over a cyclical time horizon. Within a global equity portfolio, we remain overweight global ex-US equities vs the US, but this position has moved against us over the past two months. Chart I-14 highlights that global ex-US equities have given back all of their October – January gains versus US equities, most of which has occurred since late-February. The chart also highlights that all of this underperformance has been driven by emerging market stocks, as euro area equity performance has been mostly stable year-to-date. Chart I-15 highlights that EM underperformance has occurred both in the broadly-defined tech sector as well as when measured in ex-tech terms. To us, this suggests that EM stocks are responding to the deterioration in leading indicators for the Chinese economy that we noted above, which implies that they are not likely to lead global ex-US equity performance higher over the course of the year barring an imminent shift in Chinese policy. We continue to expect that euro area stocks will have to do the heavy lifting, driven either by the underperformance of global technology stocks or the outperformance of euro area financials – which are extremely cheap relative to US banks and have much further scope for earnings to normalize as the pandemic draws to a close. Chart I-14Emerging Markets Have Caused Global Ex-US Stocks To Underperform Chart I-15EM's Underperformance Has Been Broad-Based As a final point, investors should note that we are recommending a modestly short duration stance within a fixed-income portfolio, but that we make this recommendation primarily on a risk-adjusted basis. Chart I-16 highlights that Treasury market excess returns (relative to cash) have historically been driven by whether the Fed funds rate increases by more or less than what is currently priced into the market. Over the past 12 months, the Treasury index has very substantially underperformed cash without a hawkish surprise, and the rate path that is currently implied by the OIS curve is already more hawkish than the Fed is (for now) projecting. On this basis, a neutral duration stance could be justified, but we would still prefer a modestly short duration stance due to the risk of a potential increase in investor expectations for the neutral rate of interest late this year or in early 2022. Chart I-16Policy Rate Surprises Tend To Drive The Duration Call Jonathan LaBerge, CFA Vice President The Bank Credit Analyst April 29, 2021 Next Report: May 27, 2021 II. In COVID’s Wake: Government Debt And The Path Of Interest Rates The US fiscal outlook has deteriorated substantially over the past two decades, as a consequence of the fiscal response to both the global financial crisis and the COVID-19 pandemic. US government debt-to-GDP is now nearly as high as it was at the end of the Second World War, and is projected by the US Congressional Budget Office (CBO) to explode higher over the coming 30 years. Some investors argue that extreme levels of government debt now virtually guarantee that interest rates will remain structurally low, and we test this claim alongside a scenario that limits the projected rise in the primary deficit. We find that US fiscal reform, when it eventually occurs, will likely be negative for health care stocks. We also note that even in a scenario where the US limits the size of its future primary budget deficit, net interest outlays will likely rise to elevated levels compared to history. A comparison with the Canadian experience in the 1990s suggests a structurally negative outlook for the US dollar, from an overvalued starting point. Finally, we note that the US fiscal outlook does not necessarily prevent an increase in interest rates over the coming few years in a scenario where investors raise their expectations for the neutral rate of interest, a possibility that we discussed in last month’s report. This scenario is not our base case view, but it is plausible and should actively be monitored by investors over the coming one to two years. For now, we do not expect that rising interest rates pose a risk to stocks over the coming 6-12 months. Investors should remain cyclically overweight equities within a multi-asset portfolio, and should maintain a below-benchmark level of duration on a risk-adjusted basis. In 2001, US government debt held by the public as a share of GDP stood at 31.5%, after having fallen roughly 16 percentage points from early 1993 levels. Today, as a result of both the global financial crisis and the COVID-19 pandemic, the debt to GDP ratio has risen to a whopping 100%, and is projected to rise meaningfully higher over the coming decades. In this report we review the long-term US fiscal outlook in the wake of the pandemic, with a focus on the implications for interest rates. Some investors argue that extreme levels of government debt now virtually guarantee that interest rates will remain structurally low, and we test this claim alongside a scenario that limits the projected rise in the primary deficit. We find that US fiscal reform, when it eventually occurs, will likely be negative for health care stocks, whose fundamental performance has outstripped that of the broad equity market since the mid-1990s (reflecting pricing power that stands to be curtailed through regulation). We also note that even in a scenario where the US limits the size of its future primary budget deficit, net interest outlays will likely rise to elevated levels compared to history. A comparison with the Canadian experience in the 1990s suggests a structurally negative outlook for the US dollar, from an overvalued starting point. Finally, we note that the US fiscal outlook does not necessarily prevent an increase in interest rates over the coming few years in the hypothetical scenario that we described in last month’s report,3 i.e., an environment where the narrative of secular stagnation is challenged and investor expectations for the neutral rate rise closer to trend rates of economic growth. This scenario is not our base case view, but it is plausible and should actively be monitored by investors over the coming one to two years. For now, investors should remain cyclically overweight equities within a multi-asset portfolio, and should maintain a below-benchmark level of duration on a risk-adjusted basis. Debt Sustainability, And The CBO’s Baseline Projection When analyzing the US fiscal outlook, the Congressional Budget Office’s Long-Term Budget Outlook report is typically the reference point for investors. The report provides annual projections for the budget deficit and the debt-to-GDP ratio for the next three decades, as well as a breakdown of the projected deficit into its primary (i.e., non-interest) and net interest components. Charts II-1 and II-2 present the most recent baseline projections from the CBO, which clearly present a dire long-term outlook. The deficit and debt-to-GDP ratio are projected to be relatively stable over the next decade, but explode higher over the subsequent 20 years. In 2051, the CBO’s baseline projects that the budget deficit will be roughly 13% of GDP, with net interest costs accounting for approximately two-thirds of the deficit. Chart II-1The CBO’s Fiscal Outlook Is Extremely Negative Chart II-2In 2051, The CBO Projects A 13% Annual Budget Deficit In order to understand what is driving the CBO’s dire long-term budget and debt forecast, it is important to review the government debt sustainability equation shown below. The equation highlights that the change in a government’s debt-to-GDP ratio is approximately equal to 1) the primary deficit plus 2) net interest costs as a share of GDP, the latter being defined as the product of last year’s debt-to-GDP ratio and the difference between the average interest rate on the debt and the rate of GDP growth. Δ Debt-To-GDP Ratio ≈ Primary Deficit As A % Of GDP4 + (r-g)*(Prior Period Debt-To-GDP Ratio) Where: r = Average interest rate on government debt and g = Nominal GDP growth The equation highlights that expectations of a persistently rising debt-to-GDP ratio must occur either because of expectations of a persistent primary deficit, or expectations that interest rates will persistently exceed the rate of economic growth (or some combination of the two). This underscores why debt sustainability analysis often focuses on the primary budget balance, as a country’s debt-to-GDP ratio will be stable if no primary deficit exists and interest costs are at or below the prevailing rate of economic growth. Chart II-3 illustrates the source of the CBO’s projected rise in debt-to-GDP beyond 2031, by presenting the two components of the debt sustainability equation alongside the projected annual change in the debt-to-GDP ratio. The chart makes it clear that while the CBO is forecasting a sizeable primary deficit to continue, it is projected to grow at a slower pace than the debt-to-GDP ratio itself. The increasing rate at which the debt-to-GDP ratio is projected to grow in the latter years of the CBO’s forecast period is clearly driven by the interest rate component, meaning that “r” is projected to be greater than “g”. Chart II-4 presents this point directly, by highlighting that the CBO is forecasting the average interest rate on government debt to exceed that of nominal GDP growth in 2038, and to continue to exceed growth (by an increasing amount) thereafter. Chart II-3Decomposing The CBO's Projected Change In The Debt-To-GDP Ratio Chart II-4The CBO's Projections Rest, In Part, On Rates Eventually Exceeding Growth Three Adjustments To The CBO’s Baseline We make three adjustments to the CBO’s baseline in order to assess how the US fiscal outlook shifts under an interest rate path that is different than that projected by the CBO. First, we adjust the CBO’s projected budget deficit over the coming few years based on deficit forecasts from our US Political Strategy service following the passage of the American Recovery Plan act.5 Chart II-5We Test The Effect Of An Initially Higher, But More Sustainable, Rate Path Next, we adjust the interest component of the total budget deficit based on a new path for short- and long-term interest rates that models a scenario in which the neutral rate of interest rises to, but not above, GDP growth (Chart II-5). In last month’s report we outlined a scenario in which this could feasibly occur,3 and the hypothetical path for interest rates shown in Chart II-5 thus incorporates both the negative budgetary impact of an earlier rise in interest rates and the positive budgetary impact of “r” never rising above “g”. We explicitly exclude any crowding out effect on long-term interest rates, based on the view that term premia are likely to remain muted in a world of low potential economic growth, unless a fiscal crisis appears to be imminent (see Box II-1). Box II-1 Arguing Against The CBO’s Crowding Out Assumption The CBO’s projection that interest rates will ultimately rise above the rate of economic growth rests on the view that increased government spending will absorb savings that would otherwise finance private investment (a “crowding out” effect). We agree that crowding out can occur over the course of the business cycle, especially in a scenario where increased government spending pushes output above its potential (creating a cyclical acceleration in inflation and eventually an increase in interest rates). But the CBO is assuming that high government debt-to-GDP ratios will crowd out private investment on a structural basis, and on this basis we disagree. First, Chart Box II-1 highlights that there is essentially no empirical relationship across countries between a country’s debt-to-GDP ratio and its long-term government bond yield. Japan is a clear outlier in the chart, but including Japan implies that the relationship is negative, not positive. Chart Box II-1There Is No Empirical Relationship Between Debt-To-GDP And Interest Rates In addition, given that central banks directly control interest rates at the short-end of the curve, a structural crowding out effect can only manifest itself in the form of an elevated term premium embedded in longer-term government bond yields. Our bet is that term premia are likely to stay low in a world of low falling nominal growth, as evidenced by the experience of the past decade.6 Finally, we model the impact of two changes, beginning in 2031, that would work towards reducing the primary deficit: an increase in average government revenue to 20% of GDP (its peak level reached in 2000), and a slower pace of increase on major health care program spending. Despite the fact that population aging will increase mandatory spending on social security and health care over the coming three decades, the CBO has highlighted that the majority of the increase in spending towards these programs is projected to occur due to rising health care costs per person (Chart II-6). We thus model the impact of medical care cost control by limiting the rise in net mandatory outlays on health care programs between 2021 and 2051 to roughly half of what the CBO baseline projects. This adjustment does not prevent mandatory spending on health care programs from rising, given the strong political challenges involved in limiting spending increases that are caused by an aging population. Chart II-6The US Structural Primary Balance Is Heavily Impacted By Medical Costs Charts II-7 and II-8 illustrate how these three adjustments impact the long-term US fiscal outlook. Relative to the CBO’s baseline projections, the American Recovery Plan (ARP) budget deficit forecasts from our US Political Strategy service imply that the debt-to-GDP ratio will be approximately three to four percentage points higher over the very near term, and roughly ten points higher over the long term. Chart II-7Even With Higher Rates, The Fiscal Outlook Is Meaningfully Less Bad… Relative to this new baseline, an increase in interest rates to, but not above, the projected rate of nominal economic growth increases the debt-to-GDP ratio by an additional ten percentage points (20 points higher versus the CBO’s baseline) in the middle of the forecast period, but it lowers the debt-to-GDP ratio over the longer run by eliminating the effect of outsized interest rates magnifying a persistent primary deficit. Still, the debt-to-GDP ratio is projected to rise to a whopping 207% of GDP by 2051 in this scenario, with a budget deficit in excess of 10% of GDP. The third adjustment shown in Charts II-7 and II-8 underscores the impact on the US fiscal outlook of actions aimed at reducing the primary deficit. Increases in government revenue and the prevention of rising health care costs per person results in the debt-to-GDP ratio that is 64 percentage points lower in 2051 than in our normalized interest rate scenario. The budget deficit in this scenario still increases to approximately 6% of GDP thirty years from today, but in this case most of the deficit is due to the net interest component rather than the primary deficit, meaning that the debt-to-GDP ratio would be increasing at a much slower rate if interest rates were no higher than the rate of economic growth. Chart II-8 highlights that net interest spending in this scenario would rise to 4.5% of GDP, which would be meaningfully higher than the prior high of roughly 3% in the late 1980s and early 1990s. Chart II-8...With Higher Taxes And Medical Cost Control Chart II-9A Meaningful, But Not Unprecedented, Rise In Net Interest Outlays But that is far from unprecedented or necessarily consistent with a fiscal crisis. Chart II-9 also shows that Canada’s public debt charges rose to 6.5% of GDP in the early 1990s without triggering a public debt crisis. It is true that Canada subsequently embarked on a painful fiscal consolidation program in order to reduce its public debt burden, but this, in part, occurred because of a cyclically-adjusted primary deficit of approximately 3% - twice as large as that projected for the US in 2051 in our adjusted scenario shown in Charts II-7 and II-8. Revenue And Health Care Cost Reform Our third adjustment to the CBO’s long-term budget outlook involved changes to revenue and health care cost control to reduce the US’ projected primary deficit. Are these adjustments achievable? In our view, the answer is yes: As noted above, our scenario modeled these changes taking place a decade from today, which allows for policymakers and stakeholders to have a substantial amount of time to act and adjust to these changes. On the revenue front, we noted above that US government revenue has reached 20% of GDP in the past, in the year 2000. Chart II-10 highlights that while raising taxes will likely reduce US competitiveness, the US maintains a sizeable tax advantage relative to other advanced economies, and that this was true prior to the tax cuts that took place under the Trump administration. On the health care cost front, Chart II-11 highlights that US healthcare expenditure is much larger as a share of GDP than other countries, which was not the case prior to the 1980s. Chart II-12 highlights that this cost difference is entirely due to inpatient (i.e., hospital) and outpatient (i.e., drug) costs. While it is not clear what form it will take, it seems likely that future reforms by policymakers to eliminate rising health care costs per person will occur and can be achieved. Chart II-10The US Government Can Afford To Raise Revenue Chart II-11The US Spends Much More On Health Care Than Other Countries Chart II-12The US Significantly Outspends The World On Hospital And Drug Costs The key point for investors is not whether these changes should or should not occur, but whether there are any feasible scenarios in which spiraling government debt and interest payments are avoided without the Fed purposely maintaining monetary policy at levels persistently below the rate of economic growth – and thus risking major inflationary pressure. Our analysis above highlights that there are; the question is when policymakers will choose to act and in what form. A potential tipping point may be when US government spending on net interest as a % of GDP exceeds its prior high, which occurs in 2026 in the scenario modeled in Chart II-8. In a scenario where reforms fail to materialize or where financial markets force policymakers to act, a fiscal risk premium could certainly emerge in longer-term government bond yields, which could lead the Fed to maintain lower short-term interest rates than it otherwise would. But this scenario is only likely to emerge after interest rates converge towards rates of economic growth, as US government debt will remain highly serviceable for some time if "r" remains meaningfully lower than "g". Investment Conclusions There are three potential investment implications of our research. First, the fact that rising medical costs have such a significant impact on the CBO’s projections of the primary deficit implies that fiscal reform, when it eventually occurs, will be negative for US health care stocks. Chart II-13 highlights that US health care sector earnings have outperformed broad market earnings since the mid-1990s, and that the sector has consistently delivered an above-average return on equity. This historical performance likely reflects the sector’s pricing power, which stand to be curtailed through regulatory efforts in a world where rising health care costs per person collide with fiscal belt-tightening. Interestingly, Chart II-12 highlighted that US per capita spending on medical goods is not significantly higher than in other developed markets, suggesting that the health care equipment & supplies industry may fare better over a very long term time horizon than overall health care. Second, Charts II-7 and II-8 highlighted that even if the US does raise revenue as a share of GDP and limits excessive growth in medical costs, a primary deficit will still exist and net interest outlays will still rise to elevated levels compared to what has historically been the case. We noted that Canada experienced a higher public debt burden in the 1990s and did not suffer from a fiscal crisis, but Chart II-14 highlights that the fiscal situation did weigh on the Canadian dollar, which progressively traded 10-20% below its PPP-implied fair value level over the course of the 1990s. Thus, the implication is that eventual fiscal reform in the US may be structurally negative for the US dollar, from an overvalued starting point (panels 3 and 4 of Chart II-14). Chart II-13Eventual Fiscal Reform Will Likely Be Negative For Health Care Stocks Chart II-14The US Fiscal Outlook, Even With Some Reforms, Is Dollar-Negative Finally, our scenario analysis highlights that very elevated levels of government debt do not guarantee that interest rates will remain structurally low, especially over the next decade when the US primary deficit is projected to remain relatively stable. For investors focused on forecasting the direction of 10-year Treasury yields from the perspective of valuation, it should be noted that the next decade is the relevant projection period for the Fed funds rate, not what occurs to net interest outlays in the two decades that follow. Over the very long run, it is true that there may ultimately be very strong political pressure on the Fed to keep interest rates below the prevailing rate of economic growth, as policymakers in 2030 will be able to avoid a structural adjustment to the primary deficit of roughly 1.1-1.3% of GDP for every percentage point that average interest rates on government debt are below nominal GDP growth. However, we noted above that this pressure is unlikely to build before the second half of this decade even in a scenario where interest rates rise significantly over the coming few years, and it remains an open questions whether the Fed will acquiesce to this pressure given its strong potential to fuel excess private sector leveraging. Over the coming one to two years, the key conclusion is that the US fiscal outlook is not likely to prevent an increase in interest rates over the coming few years in the hypothetical scenario that we described in last month’s report, i.e., an environment where the narrative of secular stagnation is challenged and investor expectations for the neutral rate rise closer to trend rates of economic growth. This remains a risk to our overweight stance towards risky assets and is not our base case view. But it does highlight the importance of monitoring long-dated rate expectations over the coming year, and argues, on a risk-adjusted basis, for a below-neutral duration stance within a fixed-income portfolio. Jonathan LaBerge, CFA Vice President The Bank Credit Analyst III. Indicators And Reference Charts BCA’s equity indicators highlight that the “easy” money from expectations of an eventual end to the pandemic have already been made. Our technical, valuation, and sentiment indicators are very extended, highlighting that investors should expect positive but more modest returns from stocks over the coming 6-12 months. Our monetary indicator has aggressively retreated from its high last year, reflecting a meaningful recovery in government bond yields. The indicator remains above the boom/bust line, however, highlighting that monetary policy remains supportive for risky asset prices. Forward equity earnings already price in a complete earnings recovery, but for now there is no meaningful sign of waning forward earnings momentum. Net revisions remain positive, and positive earnings surprises have risen to their strongest levels on record. Within a global equity portfolio, EM stocks have dragged down global ex-US performance, likely in response to deteriorating leading indicators for the Chinese economy. This implies that they are not likely to lead global ex-US equity performance higher over the course of the year barring an imminent shift in Chinese policy. We continue to expect that euro area stocks will have to do the heavy lifting, driven either by the underperformance of global technology stocks or the outperformance of euro area financials – which are extremely cheap relative to US banks and have much further scope for earnings to normalize as the pandemic draws to a close. The US 10-Year Treasury yield has edged lower over the past month, after having risen to levels that were extremely technically stretched. Despite this pause, our valuation index highlights that bonds are still expensive, and that yields could move higher over the cyclical investment horizon. We expect the rise to be more modest than our valuation index would imply, but we would still recommend a modestly short duration stance within a fixed-income portfolio. Commodity prices, particularly copper, lumber, and agricultural commodities, are screaming higher. This reflects bullish cyclical conditions, but also pandemic-induced supply shortages that are likely to wane later this year. Commodity prices are technically extended and sentiment is extremely bullish for most commodities, suggesting that a breather in commodity prices is likely at some point over the coming several months. US and global LEIs remain in a solid uptrend, and global manufacturing PMIs are strong. Our global LEI diffusion index has declined significantly, but this likely reflects the outsized impact of a few emerging market countries (whose vaccination progress is lagging). Strong leading and coincident indicators underscore that the global demand for goods is robust, and that output is below pre-pandemic levels in most economies because of very weak services spending. The latter will recover significantly later this year, as social distancing and other pandemic control measures disappear. EQUITIES: Chart III-1US Equity Indicators Chart III-2Willingness To Pay For Risk Chart III-3US Equity Sentiment Indicators Chart III-4Revealed Preference Indicator Chart III-5US Stock Market Valuation Chart III-6US Earnings Chart III-7Global Stock Market And Earnings: Relative Performance Chart III-8Global Stock Market And Earnings: Relative Performance FIXED INCOME: Chart III-9US Treasurys And Valuations Chart III-10Yield Curve Slopes Chart III-11Selected US Bond Yields Chart III-1210-Year Treasury Yield ComponentsChart III-13US Corporate Bonds And Health Monitor Chart III-14Global Bonds: Developed Markets Chart III-15Global Bonds: Emerging Markets CURRENCIES: Chart III-16US Dollar And PPP Chart III-17US Dollar And Indicator Chart III-18US Dollar Fundamentals Chart III-19Japanese Yen Technicals Chart III-20Euro Technicals Chart III-21Euro/Yen Technicals Chart III-22Euro/Pound Technicals COMMODITIES: Chart III-23Broad Commodity Indicators Chart III-24Commodity Prices Chart III-25Commodity Prices Chart III-26Commodity Sentiment Chart III-27Speculative Positioning ECONOMY: Chart III-28US And Global Macro Backdrop Chart III-29US Macro Snapshot Chart III-30US Growth Outlook Chart III-31US Cyclical Spending Chart III-32US Labor Market Chart III-33US Consumption Chart III-34US Housing Chart III-35US Debt And Deleveraging Chart III-36US Financial Conditions Chart III-37Global Economic Snapshot: Europe Chart III-38Global Economic Snapshot: China Jonathan LaBerge, CFA Vice President The Bank Credit Analyst Footnotes 1 Please see Global Investment Strategy "Taxing Woke Capital," dated April 16, 2021, available at gis.bcaresearch.com 2 Please see The Bank Credit Analyst Special Report "R-star, And The Structural Risk To Stocks," dated March 31, 2021, available at bca.bcaresearch.com 3 Please see The Bank Credit Analyst Special Report "R-star, And The Structural Risk To Stocks," dated March 31, 2021, available at bca.bcaresearch.com 4 Presented in this fashion, a budget deficit (surplus) is recorded with a positive (negative) sign. 5 For more information, please see US Political Strategy report “Biden’s Pittsburgh Speech And Legislative Agenda,” dated April 1, 2021, available at usp.bcaresearch.com 6 Please see “Term premia: models and some stylised facts”, by Cohen, Hördahl, and Xia, BIS Quarterly Review, September 2008.
Highlights After staging a tentative rebound in the first three months of the year, the US dollar has resumed its weakening trend. We expect the greenback to drift lower over the next 12 months, as global growth momentum rotates from the US to the rest of the world, the Fed maintains its ultra-accommodative monetary stance, and the US struggles to finance its burgeoning trade deficit. China will provide adequate fiscal and monetary support for its economy, which will buoy commodity prices, the yuan, and other EM currencies. The Canadian dollar should strengthen as the Bank of Canada continues to shrink its balance sheet with the goal of lifting rates by the end of 2022. EUR/USD is on track to rise to 1.25 by year-end. The pound will strengthen against the euro. While the yen’s defensive nature will limit any gains in the currency, a cheap valuation and relatively high Japanese real rates will keep downside risks in check. Global Growth Momentum To Rotate From The US To The Rest Of The World Sizable upward revisions to US growth projections gave the US dollar a modest boost in the first quarter of 2021 (Chart 1). According to Bloomberg consensus estimates, US real GDP grew by 5.4% in the first quarter, spurred on by massive fiscal stimulus and a speedy vaccination rollout. In contrast, real GDP in the euro area, the UK, and Japan contracted (Table 1). Chart 1A Dovish Fed Kept The Dollar From Strengthening Much This Year Despite Strong US Growth Vis-À-Vis The Rest Of The World Table 1Growth In Major Advanced Countries Is Expected To Start Catching Up To The US Later This Year While economic momentum still favors the US in the second quarter, the gap with other countries will narrow dramatically. The US economy is on track to expand by 8.1% in the current quarter. Bloomberg consensus expects the euro area to grow by 7.4%, the UK by 17.4%, and Japan by 4.7%. Looking out to the third quarter, both the euro area and the UK are poised to grow faster than the US. Continental Europe, in particular, should see much stronger growth in the second half of 2021 following a sluggish start to the vaccine rollout. Enough Vaccines For All? The vaccination campaign has gotten off to a slow start in most emerging markets. The spread of more contagious Covid-19 variants has led to a surge in infections in some regions. Notably, India is reporting over 300,000 new cases a day. Matters should improve on the pandemic front for many developing economies later this year. Assuming that vaccine makers are able to achieve their production targets, the Duke University Global Health Innovation Center estimates that 12 billion vaccine doses will be produced in 2021. This would be enough to vaccinate 75% of the world’s population, close to most measures of “herd immunity.” China Will Maintain Ample Policy Support Chart 2Real Rate Differentials Moved In Favor Of The Dollar At The Long End Of The Curve In Q1, But Not At The Short End Investor concerns that the Chinese authorities are about to reverse stimulus measures are overblown. Jing Sima, BCA’s chief China strategist, expects the general government budget deficit to average 8% of GDP in 2021, largely unchanged from 2020 levels. She sees credit growth falling from 15% in 2020 to 12% this year (in line with her estimate of nominal GDP growth). Given that China’s debt-to-GDP ratio stands at 270%, credit growth of 12% would leave the outstanding stock of credit roughly 33 trillion yuan (32% of GDP) higher at the end of 2021 compared to end-2020. That is a lot of new credit formation, all of which should buoy commodity prices, the yuan, and other EM currencies. Rate Differentials Remain Dollar Bearish Despite strong US growth, US 2-year real rates have continued to decline in relation to rates abroad. Long-term yield differentials did rise in favor of the US in the first three months of the year, giving the dollar a lift. However, long-term differentials have since reversed course, which helps account for the dollar’s renewed weakness (Chart 2). The Fed’s dovish stance explains why stronger growth has given so little support to the dollar. The 10-year Treasury yield generally tracks the expected Fed funds rate two-to-three years out (Chart 3). At present, the markets are as hawkish relative to the median Fed dot as they have ever been (Chart 4). Chart 3Bond Yields Are Unlikely To Rise Much Unless The Market Lifts Its Estimate Of Where The Fed Funds Rate Will Be 2-To-3 Years Out Chart 4The Market Is Very Hawkish Relative To The Fed Dots This doesn’t mean that market expectations cannot get more hawkish from here. However, for this to happen, the Fed would need to start aggressively talking up the prospect of tapering asset purchases and accelerating the timeline to hiking rates. This does not seem probable to us. Chart 5Prime-Age Employment Remains Well Below Pre-Pandemic Levels The prime-age employment-to-population ratio is still 3.7 percentage points below pre-pandemic levels (Chart 5). Overall US employment is about 5% below where it was in January 2020. Among workers earning less than $20 per hour, employment is down more than 10% (Chart 6). While some firms have complained about a shortage of workers, this likely reflects the combination of generous unemployment benefits (which expire in September) and lingering fears about catching the virus from work (which will abate as more people are vaccinated). Just as was the case following the Great Recession – when market commentary was rife with talk about a permanent increase in “structural unemployment” – concerns that the pandemic has led to lasting labor market damage will prove to be largely unfounded. Chart 6US Employment Still Down About 5% From Its Pre-Pandemic Levels The Dollar Faces Balance Of Payments Pressures The dollar is not a cheap currency. It is 13% overvalued based on Purchasing Power Parity exchange rates (Chart 7). One of the consequences of the dollar’s overvaluation has been a persistent trade deficit. As Chart 8 shows, the US trade deficit in goods and services has widened sharply since early 2020. Chart 7The Dollar Is Expensive Based On Its PPP Fair Value Chart 8The Widening US Trade Deficit Excessively large budget deficits drain national savings, leading to a larger current account deficit. Hence, the dollar has usually weakened whenever the government has eased fiscal policy beyond what was necessary to close the output gap (Chart 9). Foreigners have been net sellers of Treasurys this year. To a large extent, equity inflows have supported the dollar (Chart 10). However, if growth rotates from the US to the rest of the world, non-US stock markets are likely to outperform. This could cause foreign equity inflows into the US to turn into outflows. The dollar would then need to weaken to make US stocks more attractive in foreign-currency terms. Chart 9The Dollar Usually Weakens Whenever The Government Eases Fiscal Policy Beyond What Is Necessary To Close The Output Gap Chart 10Equity Inflows Supported The Dollar This Year Technicals Point To A Weaker Dollar For many investment decisions, being a contrarian is a smart strategy. This does not apply to trading the US dollar, however. The dollar is a high momentum currency (Chart 11). When it comes to the dollar, you want to be a trend follower. Chart 11The Dollar Is A High Momentum Currency Chart 12 shows that a simple trading rule that bought the dollar index when it was trading above its moving average would have made money, whereas a rule that bought the index when it was below its moving average would have lost money. While trading rules using short-term moving averages work best, even long-term moving average rules yield profitable results. Chart 12ATrading The Dollar: Follow Momentum (I) Chart 12BTrading The Dollar: Follow Momentum (II) Today, the dollar is trading below all of its various moving averages, which points to further downside for the currency. The dollar’s momentum status extends to sentiment. In general, the dollar is more likely to strengthen when sentiment is already bullish. On the flipside, the dollar is more likely to weaken when sentiment is bearish. At present, dollar sentiment is bearish, which increases the odds of further dollar weakness (Chart 13). Chart 13ABeing A Contrarian Doesn’t Pay When It Comes To Trading The Dollar (I) Chart 13BBeing A Contrarian Doesn't Pay When It Comes To Trading The Dollar (II) Chart 14Seasonality In The FX, Bond, And Equity Markets Finally, the dollar has tended to exhibit seasonal fluctuations. In general, the greenback has strengthened in the first half of the year and weakened in the second half (Chart 14). It is not entirely clear what explains this phenomenon, but it is worth noting that since 1985, almost all of the cumulative decline in Treasury yields has occurred in the back half of the year. Cyclical Currencies Are Most Likely To Strengthen Against The US Dollar Cyclical (i.e., high-beta) currencies will fare best against the US dollar over the next 12 months. In the EM space, strong global growth will benefit the Mexican peso, Chilean peso, Brazilian real, South African rand, Korean won, and the Indonesian rupiah. In the developed economy sphere, the Swedish krona, Norwegian krone, and Australian and Canadian dollars are poised to appreciate the most. We are particularly bullish on the loonie. The Bank of Canada announced on Wednesday that it will reduce the weekly pace of government bond purchases from C$4 billion to C$3 billion. Even before this announcement, the BoC’s balance sheet was shrinking following the decision to scale back repo operations and discontinue several other asset purchase programs. The BoC also indicated that it expects the Canadian economy to return to full employment in the second half of 2022, which should set the stage for the first rate hike by the end of next year. We expect EUR/USD to reach 1.25 by year-end. The British pound will strengthen to 1.50 against the dollar and 1.20 against the euro. Chart 15 shows that GBP/USD has closely tracked the rise and fall of global equities. Notably, the pound is 15% undervalued against the euro based on real 2-year interest rate differentials (Chart 16). Chart 15GBP/USD Has Closely Tracked Global Equities Chart 16The Pound Is Undervalued Against The Euro Based On Real Short-Term Interest Rate Differentials The Japanese yen is a highly defensive currency. Hence, stronger global growth will pose a headwind to the yen. Nevertheless, the yen is quite cheap, trading at a 20% discount to its Purchasing Power Parity exchange rate (Chart 17). Moreover, real yields are higher in Japan than they are in the other major economies, reflecting ongoing deflationary pressures (Chart 18). On balance, we expect the yen to move sideways against the US dollar over the next 12 months. Chart 17The Yen Is Quite Cheap Chart 18Real Yields Are Higher In Japan Than In The Other Major Economies Equity Implications Of A Weaker Dollar Cyclical stocks tend to outperform defensives when the dollar is weakening. To the extent that cyclicals are overrepresented in stock market indices outside the US, a weaker dollar favors non-US equities (Chart 19). Chart 19Cyclical Stocks Tend To Outperform Defensives When The Dollar Is Weakening Chart 20Value Stocks Generally Do Best In A Weak Dollar Environment Value stocks also tend to do best in a weak dollar environment (Chart 20). As such, we recommend that investors overweight cyclicals, non-US, and value stocks over the next 12 months. Peter Berezin Chief Global Strategist pberezin@bcaresearch.com Global Investment Strategy View Matrix Special Trade Recommendations Current MacroQuant Model Scores
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中国の鋼材需要の急増を受け、建築およびインフラプロジェクトが今年完了するにつれて上海鉄鋼先物が今月初めに5,200人民元/MT弱の史上高近くまで上昇したことから、銅価格はさらに上昇すると見込まれます（今週のチャート）。
銅は今年および来年にかけて実需ベースでの需給不足を記録し、在庫がさらに減少するとともに中国および世界的に銅スクラップの需要を押し上げるでしょう。
銅価格の上昇が続けば、現在の市場での口先介入が需要と価格上昇を抑えられない場合、中国の膨大な国家保有銅在庫（約200万MTと推定される）の一部を当局が放出する可能性があります。
強い鋼材マージンと製鉄所に対する新たな環境規制が高品位鉄鉱石（65% Fe）需要を押し上げており、同品は今週初めに約223ドル/MT弱の史上高を付けました。ベンチマークの鉄鉱石価格（62% Fe）は今週10年ぶり高値で取引され、約190ドル/MT手前でした。
当社は2021年12月の銅価格予想を4.50ドル/lbから5.00ドル/lbに引き上げます。さらに、本日の取引終了時に2022年物CME/COMEX銅をロングし、2023年物CME/COMEX銅をショートするポジションを取ります。より急峻なバックワーデーションを見込んでの取組みです。
特集
中国の唐山（Tangshan）製鉄拠点における汚染削減のための製鉄所稼働率の最大30%削減という政府指示は、建設およびインフラのブームに対応する既に逼迫した市場をさらに引き締めることになります（チャート2）。このブームは鋼材価格、そして結果的に鉄鉱石価格を急騰させました（チャート3）。過去と同様に、これが銅の強気相場の次の局面の舞台を整えます。
今週のチャート
鋼材の急騰が銅価格の更なる上昇を予告
鉄鋼の急騰は銅価格のさらなる上昇を示唆する
鉄鋼の急騰は銅価格のさらなる上昇を示唆する
当社のモデルでは、特に鉄筋（リバー）価格と銅価格の間に強い関係があることが今週のチャートで確認できます。鋼材は建築・インフラプロジェクトの前段階で使われ（鉄筋で補強されたコンクリートや圧延コイル製品など）、その後、完成したプロジェクトには銅が使われます（配線や配管の形で）。
チャート2
銅の強気相場は続く
銅の強気相場は続く
銅の強気相場は続く
建設・建築ブームに加え、製造業の継続的な回復が銅価格の追い風となり、2021年後半の世界的な活動回復がこれをさらに増幅します。チャート4は名目GDP水準と銅価格の関係を示しています。重要なのは、アジア（中国を含む）およびアジア以外の経済成長が銅価格とコインテグレーション（共積分）関係にあることで、すなわち経済成長と工業コモディティは長期的な均衡を共有しており、それが同時変動を説明します。
チャート3
鋼材ブームが鉄鉱石価格を押し上げる
鉄鋼ブームが鉄鉱石価格を押し上げる
鉄鋼ブームが鉄鉱石価格を押し上げる
メディア報道はしばしば、中国の政府支出をGDP比で注目しがちです（例：社会融資総額のGDP比）。しかし商品価格動向を説明しようとする際に経済要因が除外されがちです。中国政府が民間部門（財・サービス面）をさらに拡大することに成功すれば、オーガニックな経済成長が中国のコモディティ需要を説明する上でより重要になります。
チャート4
世界経済の成長が銅価格を押し上げる
世界的な経済成長が銅価格を押し上げる
世界的な経済成長が銅価格を押し上げる
当社の銅モデルでは、名目中国GDP、新興アジア（EMアジア）GDPおよびアジア以外の新興国（EM）GDPに加え、鋼材と鉄鉱石価格が銅価格と共積分関係にあることが分かります。これは純粋な経済学的観点から期待される結果です。一方で、これらの工業用コモディティ価格と中国の名目GDPに対する社会融資総額の割合との間には共積分関係（経済的な共動性や共通トレンド）は見られません。これらのモデルにより、銅価格の説明や予測に役立たない偽の関係を回避できます。
チャート5
鉄鉱石・銅の需要はグリーン・エネルギーの整備で増加する
鉄鋼価格の急騰で銅が上昇
鉄鋼価格の急騰で銅が上昇
チャート6
再生可能エネルギーが新規増分発電を主導
銅、鉄鋼価格の急騰を受け上昇へ
銅、鉄鋼価格の急騰を受け上昇へ
長期的には、当社が過去の調査報告で指摘してきたように、分散型再生可能発電の導入、よりレジリエントな電力網、電気自動車（EV）への移行は、鉄鉱石や鋼材といったばら積み需要、および特に銅のようなベースメタルの需要成長の主要な源泉となります（チャート5）。1 すでに再生可能エネルギーは、世界の電力網に追加される新規増分発電の中で最も高い成長セグメントを占めています（チャート6）。
銅供給の増加にはより高い価格が必要
銅供給は短期（2022年末まで）では需要に対応するのが困難であり、再生可能エネルギーとEVの整備は大半がこれから始まる段階にあります。つまり中期（2025年末まで）および長期（2050年）において、需要を満たすためにはかなりの新供給を開発する必要があります。
短期的には、精錬銅の供給面、特に製錬所が半精製品として精製し製造入力にする凝縮物（コンデンセート）レベルが極めて低下しており、中国の製錬所におけるトリートメント料・精製料（TC/RC）の長期的な急落からも確認できます（チャート7）。先週およそ22ドル/MTで、これらの手数料は2013年に中国でのベンチマークTC/RC指数が開始されて以来の最低水準でした（reuters.comによる）。2
チャート7
供給減少で銅のTC/RCが低下、価格を押し上げる
銅のTCRCsが供給減で下落し、価格を押し上げる
銅のTCRCsが供給減で下落し、価格を押し上げる
銅の供給事情はチャート8にも表れており、年次の供給と需要を残高に換算すると、これが在庫市場を介して調整されます。国際銅研究グループ（ICSG）は、鉱山生産は昨年も前年並みで推移し、精銅供給はわずか1.5%の増加にとどまったと推定しています。
チャート8
実需の不足が銅在庫を引き下げる...
現物不足が銅在庫を取り崩す…
現物不足が銅在庫を取り崩す…
ICSGの推定によれば消費は2.2%増加し、中国の保税倉庫在庫を調整後の今年の実需ベースの不足は456千MTが見込まれます。これで銅市場は4年連続の実需不足となり、2017年以降の平均不足は約414千MTです。その結果、在庫が再び供給ギャップを埋める頼みとなり、世界の在庫は前年比約25%減と低水準で今後も減少し続けるでしょう（チャート9）。
鉱業の設備投資が弱く、銅鉱石の品位が低下しているため、相当程度の新投資を促すにはより高い価格が必要です（チャート10）。しかし、これらプロジェクトのリードタイムは最良のケースでも5年であるため、鉱山会社は近い将来に最終投資判断を下してプロジェクトを承認する必要があります（チャート11）。
チャート9
...結果として4年続く実需不足で在庫は低水準
…4年にわたる現物不足を経て低い
…4年にわたる現物不足を経て低い
チャート10
弱い投資と低下する鉱石品位を是正するにはより高い銅価格が必要
弱い設備投資と鉱石品位の低下を是正するには、銅価格のさらなる上昇が必要だ
弱い設備投資と鉱石品位の低下を是正するには、銅価格のさらなる上昇が必要だ
チャート11
新規鉱山稼働までのリードタイムは短縮中だが時間は限られる
銅、鉄鋼価格の急騰で上昇へ
銅、鉄鋼価格の急騰で上昇へ
投資への含意
当社が銅に注目するのは、銅があらゆる再生可能技術に関わり、電気自動車（EV）にとっても重要であり、特にこの技術が広く普及した場合にその重要性が増すという単純な事実によります（チャート12）。
当社は短期・中期・長期の投資期間にわたり銅供給の課題が続くと予想しています。短期対応として、当社は2020年9月10日に2021年12月物銅をロングすることを推奨しており、このポジションは現在39.2%の含み益です。中長期をカバーするために、当社はS&P グローバル GSCI コモディティ・インデックスおよびiShares GSCI コモディティ ダイナミック ロール ストラテジー ETF（COMT）をそれぞれ2017年12月7日と2021年3月12日に推奨しており、これらは現時点でそれぞれ-2.3%および-0.8%となっています。
チャート12
電気自動車の普及が新たな銅需要を生む
鉄鋼価格の急騰で銅が上昇へ
鉄鋼価格の急騰で銅が上昇へ
本日の取引終了時に、上記の銅の需給ストーリーに基づく中期的な機会を捉えるために、2022年物CME/COMEX銅先物をロングし、2023年物CME/COMEX銅先物をショートするポジションを構築します。市場のさらなる引き締まりにより在庫が取り崩され、銅先物カーブのバックワーデーションがより急峻になると予想しています。
短期・中期・長期の当社ポジションに対する主なリスクは、世界的にCOVID-19パンデミックを抑制できないことであり、これは短期的なリスクだと考えています。第二のリスクは、中国国家備蓄局（別名：国家鉱物備蓄局）が保有する戦略的な銅コンセントレート備蓄の大規模放出です。後者のリスクに関して、同局の実際の保有量は不明ですが、約200万MTの範囲にあると考えられています。3
結論： 当社は工業用コモディティ、特に銅に対して強気の立場を維持します。
ロバート・P・ライアン チーフ・コモディティ＆エネルギー・ストラテジスト rryan@bcaresearch.com
コモディティ概要
エネルギー： 強気
米国エネルギー情報局（EIA）によれば、テキサス州は2022年末までに約10GWのユーティリティ規模の太陽光発電を追加する見込みです。テキサスは2020年に本格的に太陽光市場に参入し、2.5GWを導入しました。EIAは今後2年間で年平均約5GWを追加すると見ており、総太陽光容量は約15GW弱になる見込みです。この新規容量の約30%は米国で最も生産性の高い油田があるパーミアン盆地で建設される予定です。比較として、米国の太陽光発電の主要生産州であるカリフォルニアはEIAによれば3.2GWの新規太陽光容量を追加します（チャート13）。2022年末までに、新規太陽光発電の約3分の1がテキサスで追加される見込みで、同州はすでに国内で最大の風力発電地でもあります。風力の発電可能性は夜間に高く、太陽は昼間に最も豊富です。
貴金属： 強気
パラジウム価格は水曜日に約2,876ドル/ozで取引され、2020年2月の過去最高2,875.50ドル/ozを上回り3,000ドル/ozに迫っています。これは世界最大のパラジウム生産者であるロシアの金属メーカー、ノリリスクの生産見通し引き下げが続いているためです（チャート14）。同社は今週、以前の見通しを更新し、鉱山の浸水により銅・ニッケル・パラジウムの鉱山生産が今年最大20%減少する可能性があるとしました。パラジウムはガソリン車の触媒に使われ、世界がCOVID-19由来の需要破壊と自動車の供給を制限している半導体不足から回復するにつれて、自動車販売の回復が見込まれます。加えて、白金族金属（PGM）の生産は南アフリカの電力供給の不安定さにより妨げられており、国内の電力大手が需給調整のために計画停電を実施せざるを得ない状況です。当社は2020年4月23日にパラジウムのロングを推奨して以降、同金属のロングを維持しており、このポジションは35.6%の含み益です。
チャート13
鉄鋼価格の急騰で銅が上昇へ
鉄鋼価格の急騰で銅が上昇へ
チャート14
パラジウム価格
パラジウム価格
脚注
1 例として当社が2020年11月26日に発表したレポート「Renewables, China's FYP Underpin Metals Demand」（再生可能エネルギー：中国の五カ年計画が金属需要を支える）をご覧ください。 ces.bcaresearch.comで入手可能です。
2 reuters.comに掲載された2021年4月14日付の記事「RPT-COLUMN-Copper smelter terms at rock bottom as mine squeeze hits: Andy Home」を参照してください。この記事は、鉱山と製錬所間の直接取引が10ドル/MT程度まで報告されたことを指摘しており、銅の実需サイドが現状いかに逼迫しているかを示しています。
3 reuters.comに掲載された2021年4月20日付の記事「Column: Supercycle or China cycle? Funds wait for Dr Copper's call」をご覧ください。
投資見解とテーマ
推奨
戦略的推奨
戦術的トレード
コモディティ価格と取組の参考表
2021年にクローズしたトレード
クローズ済みトレードの要約
より高いインフレが到来
より高いインフレが到来
ハイライト
もし完全に実施されれば、バイデン大統領の メイド・イン・アメリカ税制プラン はS&P 500の利益を約8%押し下げることになります。私たちはいくつかの提案された税制措置が弱められると予想しており、実際の影響は利益が5%減少する程度になると見ています。
強い経済成長と緩和的な金融政策からの継続的な支援を考えれば、投資家は短期的な増税の影響をやすやすと受け流す可能性が高いです。
しかし長期を見渡すと、米国の税率が引き上げられ続け、最終的に株価に悪影響を及ぼす水準に達するだろうと考える理由が四つあります。第一に、実効の米国法人税率は依然として非常に低いこと。第二に、トランプ政権の減税が投資支出を押し上げなかったことにより、最終的に減税を完全に元に戻しやすくなっていること。第三に、債券利回りの上昇は借入の増加よりも増税で歳出を賄う方が得策にしてしまうこと。第四に、そして最も重要なのは、企業と富裕層への増税に有利に働く政治的な風向きが変わりつつあることです。
民主党はしばらくの間、経済問題で左傾化してきました。一方で保守的な共和党員は、いまや自分たちを嫌うように見える“ウォーク（woke）”な企業群に対する減税をなぜ支持すべきか自問し始めています。
米国の企業部門は自らの利益を擁護してくれる政党を失うリスクに直面しています。したがって、短期的な株式の見通しは依然として明るいものの、長期的見通しは次第に暗くなっています。
バイデンの税制プラン
3月31日、バイデン大統領は アメリカン・ジョブズ・プラン を発表しました。本プランは公共インフラ等に対し、8年間にわたって合計2.25兆ドルの新たな連邦支出を提案しています。メイド・イン・アメリカ税制プラン に概説されているように、バイデン政権はこの新たな支出パッケージの財源として今後15年間で2兆ドルの税収を確保しようとしています。
税制プランの最も重要な三つの条項は次の通りです：
米国内の法人税率を21%から28%に引き上げること。これにより税率はトランプ減税前の水準（35%）の中間点に戻ることになります。法人利益の世界的配分やその他の要因を考慮すると、こうした増税はS&P 500の利益を約4%押し下げることになります。
米企業の海外利益に対する最低税率の引き上げ。バイデン政権はGlobal Intangible Low-Taxed Income（GILTI）の最低税率を10.5%から21%へ倍増することを提案しています。また、Foreign-Derived Intangible Income控除（FDII）を廃止する計画です。これら二つの措置はS&P 500の利益をさらに約3.5%押し下げることになります。
「ブック・インカム」（すなわち企業が株主に報告する利益）に対する15%の最低税。年間利益が20億ドルを超える法人に適用されます。財務省はこの税の対象となる企業は45社になると見積もっています。これはS&P 500の利益をさらに0.5%押し下げます。
これらを合わせると、S&P 500の利益は約8%減少します。実際には、影響は5%前後に近いと考えています。バイデン案にはクリーン・エネルギーや研究開発（R&D）などを対象とした各種税額控除が含まれており、これが一部の増税を相殺するはずです。また最終的な法人税率は28%に達しない可能性が高いです。重要なスイング票であるウェストバージニア州の上院議員ジョー・マンチンは既に25%で抑えることを好むと述べています。
何が既に織り込まれているか？
チャート 1
増税で最も打撃を受ける可能性のある企業群は好調に推移している
増税で最も損失を被る可能性のある企業は好調に推移している
増税で最も損失を被る可能性のある企業は好調に推移している
私たちのデータの読み取りでは、増税の影響はアナリストの利益予想や市場の期待のいずれにもほとんど織り込まれていないようです。
チャート 1 はゴールドマンの「Formerly High Tax（以前は高税）」と「Formerly Low Tax（以前は低税）」の株式バスケットのパフォーマンスを示しています。以前高税だった企業はトランプの減税で最も恩恵を受け、減税が巻き戻された場合には最も損をすることが想定されます。それにもかかわらず、これらはジョージア州の決選投票で上院が民主党に渡って以来、低税の同業者をアウトパフォームしています。
同様に、利益見通しも増税の見込みに反応していません。これは驚くべきことではありません。チャート 2 は、アナリストが利益見積りを調整したのはドナルド・トランプ大統領がTax Cuts and Jobs Actに署名して法制化した2017年12月22日を過ぎてからであったことを示しています。当時と同様に、アナリストは最終的な税制パッケージの詳細を待ってから推計を変えるように見えます。
チャート 2
アナリストは増税の可能性を反映して利益見積りを調整していない
アナリストは、税金の増加の可能性を織り込んで利益予想を修正していない
アナリストは、税金の増加の可能性を織り込んで利益予想を修正していない
当面は景気循環のダイナミクスが税制より重要
投資コミュニティが増税を織り込んでいないことは株式への逆風ではありますが、控えめな逆風と表現するのが適切でしょう。IBESの推計は依然として2022年のS&P 500企業の利益成長を15%と示しています。来年に企業利益の上昇を阻むには非現実的に大きな税負担が必要になります。
国際通貨基金（IMF）が数週間前に発表した最新の経済見通しは、2022年の米実質GDPが3.5%成長すると予想しており、これはファンドが1月に想定していた水準より1ポイント高い数字です（表 1）。株式リターンと経済成長には強い相関があるため、株式の強気相場は増税があっても生き残る可能性が高いです（チャート 3）。
表 1
成長は依然として堅調
ウォーク資本への課税
ウォーク資本への課税
チャート 3
経済成長が強いときに株は通常債券をアウトパフォームする
景気が強いとき、エクイティは通常、ボンドを上回る
景気が強いとき、エクイティは通常、ボンドを上回る
もちろん、いくつかの銘柄は増税によって打撃を受ける可能性があります。テクノロジーセクターは特に脆弱で、現在S&P 500の中でも最も低い実効税率の一つを享受しているためです（チャート 4）。テック企業は特許のような無形資産からの所得をオフショアの税制回避地に振り向けることにも非常に長けており、まもなく強化されるであろう内国歳入庁（IRS）の標的になる可能性があります。1
現在、私たちはグロース株よりバリュー株を支持しています。増税がテックのような成長セクターに不均衡にマイナスの影響を与える可能性があるという事実は、この見解を強化します。
チャート 4
テックは増税に脆弱である
ウォーク・キャピタルへの課税
ウォーク・キャピタルへの課税
増税：長期トレンドの始まりか？
増税が株価に与える短期的影響についてはそれほど心配していませんが、より長期的な結果については懸念しています。以下で論じるように、バイデンは今後の支出イニシアティブ（例えば今後提示される アメリカン・ファミリーズ・プラン）を賄うために所得税やキャピタルゲイン税を引き上げる可能性が高いだけでなく、法人税を引き上げ続けようという圧力は彼の政権を超えて持続するでしょう。その理由は四つあります：
理由 #1：実効の米国法人税率はいまだ非常に低い
チャート 5
法人税収は低い
法人税収は低い
法人税収は低い
2018年4月、Tax Cuts and Jobs Act が施行されて4か月後、議会予算局（CBO）は2019年に米国企業が支払う法人税を2760億ドルと予測しました。しかし最終的に企業が支払ったのは2300億ドルに過ぎませんでした。2
米国の法人所得税収は2018–19年にGDP比でわずか1%にとどまり、2013–17年の半分でした（チャート 5）。ロナルド・レーガンの2期目には、米国企業は約30%の実効税率に直面していました。今日ではそれが15%未満です（チャート 6）。GDP比で見ると、米国政府が徴収する法人税収はほとんどの他のOECD諸国より低くなっています（チャート 7）。
チャート 6
経済全体の実効法人税率は30年以上にわたり縮小してきた
経済全体の実効法人税率は30年以上にわたり縮小し続けている
経済全体の実効法人税率は30年以上にわたり縮小し続けている
チャート 7
米国の法人課税は高くない
ウォーク資本への課税
ウォーク資本への課税
チャート 8
トランプ氏はIRSに狙われる不運に見舞われた
ウォーク資本への課税
ウォーク資本への課税
さらに、米国政府は時に支払われるべき金を集めようとすらしません。資産200億ドル超の法人に対する監査は2011年以降で50%減少しています。年収100万ドル超の個人に対する監査は80%減少しています（チャート 8）。今週上院で証言したチャック・レッティグ内国歳入庁長官は、税の脱漏が政府に年間1兆ドルの損失をもたらしていると推定しました。
理由 #2：トランプの減税が投資支出を押し上げられなかったことが、最終的に減税を完全に逆転しやすくする
もしトランプの減税が投資支出を押し上げていたなら、これらが財政赤字に与えるマイナスの影響を見過ごしやすくなったでしょう。しかし証拠は、法人税率の引き下げが資本支出を促進する効果はほとんどなかったことを示しています。
チャート 9 は、Tax Cuts and Jobs Act 可決後の2年間で資本支出がGDP比でほとんど増加していないことを示しています。国際通貨基金によれば、減税のうちわずか5分の1だけが資本投資や研究開発支出の資金に使われました。3 同様に、Hanlon、Hoopes、Slemrodの研究では、S&P 500企業のカンファレンスコールで減税を受けて資本支出を増やす計画について言及した企業は4分の1未満であったと報告されています。4
チャート 9
トランプの減税は投資をほとんど押し上げなかった
トランプの減税は投資を促す効果がほとんどなかった
トランプの減税は投資を促す効果がほとんどなかった
チャート 10
設備投資と知的財産は長持ちしない
事業用設備と知的財産は長持ちしない
事業用設備と知的財産は長持ちしない
なぜ企業投資はあまり上昇しなかったのでしょうか。一つの答えは、利益への課税は資本投資への課税とは同じではないということです。付録1が説明するように、利息費用が税控除の対象である場合、低い法人税は借入を通じて賄われる資本支出に大きな影響を与えない可能性があります。
住宅のような長寿命資産とは異なり、企業の資本ストックの多くは比較的寿命が短い（チャート 10）。事業用機器やソフトウェアの需要は、資本コストよりも総需要の見通しに依存します。
最後に、私たちが 「不平等が量的緩和をもたらした、逆ではない」 と題した報告書で説明したように、今日の企業利益の大部分は何らかの形の独占的な力に帰せられます。標準的な経済理論は、独占的な超過利潤に課税しても生産や投資が減るとは限らないことを示唆しています。
理由 #3：債券利回りの上昇は、借入増加より増税で歳出を賄うことをより合理的にする
金利が依然として極めて低い水準にある間は、増税で政府支出を賄う必要性は差し迫っていません。これは特に、長期的に経済成長（したがって税収）を押し上げると合理的に期待されるインフラ支出に当てはまります。
チャート 11
現状のままだと米国の利払いは急増する
米国の利払いは現状のままでは急増する
米国の利払いは現状のままでは急増する
しかし金利が上昇すれば、政府は利払い費の急増に直面するよりも増税を選ぶ方が有利と考えるでしょう。米国を含む多くの経済で公的債務水準は非常に高いため、金利上昇は社会保障プログラムから債券保有者への資金移転を引き起こします。これは有権者に人気がありません。
議会予算局は、歳出削減などの措置が講じられない場合、今後数十年で連邦政府の利払いが急速に膨らむと見積もっています（チャート 11）。次に論じるように、これらの措置は支出削減よりも増税の形を取る可能性が高いでしょう。
理由 #4：企業や富裕層への増税に有利な政治的風向きが強まっている
民主党はしばらくの間左へ移動しています。2001年には「政府が我が国の問題を解決するためにもっと役割を果たすべきだ」と答えた民主党支持者は50%でした。今日ではその割合は83%です（チャート 12）。
チャート 12
民主党支持者はより大きな政府を望んでいる
ウォーク資本への課税
ウォーク資本への課税
チャート 13
社会保障・医療関係の大型歳出は今後も増え続ける
社会保障と医療の高額支出は今後も増え続ける
社会保障と医療の高額支出は今後も増え続ける
共和党は小さな政府を好む傾向を示し続けていますが、これは長続きしないかもしれません。メディケアと社会保障は連邦の非利子支出の40%以上を消費しています。両プログラム（特にメディケア）への支出は今後急速に増加する見込みです（チャート 13）。高齢者の政治的志向が共和党寄りである程度あるなら、これは高齢者向け給付を維持するために共和党が増税を支持する傾向を強める可能性があります。
企業や富裕層が社会的にリベラルな政策を支持する傾向が強まっていることは、保守的な共和党員が、なぜ自分たちを嫌うように見える人々や企業への減税を支持し続けるべきかを自問する原因になっています。昨年11月、ジョー・バイデンは米国で最も裕福な郡で20ポイントの差をつけて勝利しましたが、トランプの支持は最も貧しい郡で上昇しました（チャート 14）。この傾向を反映して、「コーポレート・アメリカにほとんど信頼を置いていない」と答えた共和党員の割合は2018年2月の19%から2021年3月には30%に上昇しました（チャート 15）。
チャート 14
民主党は富裕層層で着実に支持を拡大している
ウォーク・キャピタルへの課税
ウォーク・キャピタルへの課税
チャート 15
共和党支持者は企業CEOに対してより懐疑的に
ウォーク資本への課税
ウォーク資本への課税
共和党支持者の中で、法人税を引き上げることを支持する人の割合は引き下げを支持する人の2倍以上になっています（チャート 16）。全国的には、73%のアメリカ人が企業の影響力に不満を抱いており、これは2001年から25ポイントの上昇です（チャート 17）。
チャート 16
より多くのアメリカ人が富裕層に課税することを望んでいる
ウォーク資本への課税
ウォーク資本への課税
チャート 17
大企業に対する態度の悪化
ウォーク資本への課税
ウォーク資本への課税
世論の変化を踏まえれば、バイデンの税制案に対する共和党の反応がいかに「元気がない」ものだったかはさほど驚くべきことではありません。党の指導者たちはプランを形式的に非難した後、迅速に「ウォーク」企業を攻撃する立場に転じました。
ジョージア州の新しい選挙法に対する企業の反応について述べる中で、上院共和党院内総務ミッチ・マコーネルは「我々は権力と富を持つ人々による国民を誤導し脅すための組織的なキャンペーンを目撃している」 と述べました。さらに彼は続けて、「選挙法から環境問題、過激な社会政策、第二改正に至るまで、民間セクターの一部はウォークな並行政府のように振る舞うことに手を出し続けている。企業が憲法秩序の外から我が国を極左の群衆に乗っ取られる手段となれば、重大な結果を招くことになるだろう」と述べました。
私たちが予想するようにこの傾向が続けば、米国の企業部門は自らの利益を守る政党を失うでしょう。したがって短期的な株式の見通しは依然として明るいものの、長期的な見通しはますます暗くなっています。
Peter Berezin チーフ・グローバル・ストラテジスト pberezin@bcaresearch.com
付録1：法人利益への増税が投資を減らすのはどんなときか？
ある企業が機械を1,000ドルで購入するかどうかを検討しているとします。企業は外部の貸出・借入の利回り、すなわち外部金利 r を8%と直面していると仮定します。
付随する表は、機械が生み出す内部収益率（その機械が生成する投資収益）によって企業の利益がどのように変わるかを示しています。
まず、企業が機械の購入を新たな負債の発行で賄う場合を考えます。ここでは内部収益率が10%で機械が永久に使える（すなわち減価償却しない）と仮定します。この場合、機械は年間100ドルの営業収入を生みます。80ドルの利息費用を差し引いた後、企業の税引前利益は20ドルになります（例A）。
企業の所得税率が20%で利息が完全に税控除されるとすると、企業は20*0.2＝4ドルの税金を支払い、税後利益は16ドルになります（例B）。
税金が企業の税後利益を減らしたことに注意してください。とはいえ、それは機械を購入するインセンティブを消滅させるものではありません。20ドルが16ドルになっても、16ドルはゼロより良いのです。
したがって、この単純な例では、資本設備の購入が借入で賄われ、利息支払が完全に税控除される場合、利益課税の導入は投資するか否かの最終判断に影響を与えません。
利息が税控除されない場合は状況が変わります。この場合、企業が機械を買うか否かで無差別になるためには内部収益率が r/(1-t) まで上昇する必要があります。上の例では、内部収益率は8%/(1-0.2)=10%に上がらなければなりません。このとき企業は100ドルの営業利益を得て、その利益に20ドルの税を支払い、80ドルの利息を支払った後にトントンになります（例C）。
利息支払が税控除されない場合、株式による資金調達で新しい資本設備に投資するか否かの計算は、借入の場合と似ています。株式による資金調達を考える最良の方法は、企業が機械を購入した後にその機械の市場価格がいくらになるかを考えることです。税がなく内部収益率が10%であれば、市場価格は100/0.08＝1,250ドルになります（例D）。企業は1,000ドルで買えるので購入するのが合理的です。
もし機械のオーナーがその機械が生み出す所得の流れに対して20%の利益税を支払わなければならないなら、市場価値は80/0.08＝1,000ドルになります（例E）。この時点で企業は機械を購入するかどうかに無差別になります。
機械が永久に持たないという仮定を放棄した場合はどうでしょうか。主な違いは、機械を購入するかどうかの決定が資本コストの変化に対して鈍感になることです。例えば、機械が1年しか持たないとすると、その1年で得られる収益が著しく高くなければ企業にとって購入する価値が出ません（例F）。これにより、機械購入の決定は金利よりも景気循環、特に総需要の見通しにより依存するようになります。
付録 表 1
ウォーク・キャピタルへの課税
ウォーク・キャピタルへの課税
脚注
1 Jed Graham, “バイデンの税制案：Amazon、Google、Facebook、Apple、Microsoftへの影響,” インベスターズ・ビジネス・デイリー (2021年4月8日).
2 “議会予算局の2019会計年度ベースライン見積りの正確性,” 議会予算局（Congressional Budget Office） (2019年12月).
3 Emanuel Kopp, Daniel Leigh, Susanna Mursula, and Suchanan Tambunlertchai, “2017年のTax Cuts and Jobs Act以降の米国投資,” 国際通貨基金（IMF）ワーキングペーパー (2019年5月31日).
4 Michelle Hanlon, Jeffrey L. Hoopes, and Joel Slemrod, “Tax Reform Made Me Do It!” NBER ワーキングペーパー 25283 (2018年11月).
グローバル・インベストメント・ストラテジー ビュー・マトリックス
ウォーク資本への課税
ウォーク資本への課税
特別トレードの推奨
ウォーク資本への課税
ウォーク資本への課税
現在のマクロクアント・モデル・スコア
ウォーク資本への課税
ウォーク資本への課税
According to BCA Research’s Counterpoint service, over the next few years, a deflationary shock is a near-certainty even if we do not know its precise nature or its precise timing. Hence, investors must incorporate such deflationary outcomes into their…
ハイライト
継続中かつ予想される財政・金融刺激策とCOVID-19対策の進展を受けた世界成長の強まりは、主要データ提供者による今年の石油需要前提を押し上げています。
当社は本月の需給バランスで2021年の世界需要見積りを64万b/d引き上げて98.25mm b/dとし、OPEC 2.0が脆弱な回復を乱さないようにブレント価格を$60/bbl付近に保つための必要な調整を行うと想定しています。
当社の2022年および2023年のブレント予測はそれぞれ$65/bbl、$75/bblで維持します。
コモディティ市場は、米国、ロシア、中国およびそれらの関係国・同盟国を巻き込む武力衝突の高まる確率を無視しています。ロシアはウクライナ国境に軍を集結させ、米国に干渉するなと警告しました。中国はフィリピン沖に戦艦を集結させ、台湾の防空識別圏への侵入を続けており、米軍を緊張させています。意図的あるいは偶発的な交戦が発生すれば石油価格は急騰します。
価格は上下双方にリスクがあふれています。武力衝突のリスクに加え、ワクチン配布の加速は回復を前倒しし、当社予測を超える価格上昇をもたらす可能性があります。一方で、ブラジル、インド、欧州での死亡者数および入院者数の上昇が示すように、COVID-19によるロックダウン再発の下振れリスクは依然として存在します（今週のチャート）。
特集
石油需要推計—当社の推計も含め—は、主要経済におけるCOVID-19の抑制に向けた測定可能な進展と、特に米国発の潤沢な財政・金融刺激策を受けて回復しています。1
IMFのGDP上方修正を受け、本月の需給バランスで当社は2021年の世界需要見積りを64万b/d引き上げて98.25mm b/dとしました。当社のモデリングでは、脆弱な回復を損なわないようにブレント価格を$60/bbl付近に保つために、サウジアラビア王国（KSA）とロシアが主導する生産者連合であるOPEC 2.0が必要な調整を行うと想定しています。
通常とは異なり、石油需要回復の初期段階は先進国市場（DM）がけん引すると見ています。先進国の代理としてOECDの石油消費を用いています（チャート2）。その後、来年以降は新興市場（EM）経済が再び成長を主導し、2023年にかけて続きます。
今週のチャート
COVID-19の死者数・入院者数が世界的回復を脅かす
原油価格の上振れリスクが高まっている
原油価格の上振れリスクが高まっている
チャート2
先進国（DM）の需要が今年急増
DMの需要が今年急増
DMの需要が今年急増
OPEC 2.0の余剰生産能力の吸収
当社はサウジアラビア王国（KSA）とロシアが主導する生産者連合であるOPEC 2.0を市場で支配的な生産者としてモデリングし続けています。今年予想する成長はOPEC 2.0の余剰生産能力のかなりの部分を吸収する見込みであり、その大半—約8mm b/dのうち約6mm b/d—がKSAにあります（チャート3）。
主要生産国の余剰生産能力は、米国のシェール生産者がリグと人員を動員して新規生産を集積ラインや主要パイプラインに導入するよりも速く、回復する需要に対応することを可能にします。
当社は米国のシェール生産者を市場価格を受け入れるコホート（価格受容群）としてモデル化しており、市場が許す限り生産すると想定しています。2020年に9.22mm b/dまで落ち込んだ米国生産は、今年9.56mm b/d、2022年に10.65mm b/d、2023年に11.18mm b/dまで回復すると見ています（チャート4）。米国内コンチネンタル産（Lower 48）の生産成長はシェールが主導し、各年とも米国総生産の約80%を占める見込みです。
チャート3
コアOPEC 2.0の余剰生産能力がまず需要増に反応する
OPEC 2.0のコア予備生産能力は需要の増加に最初に反応する
OPEC 2.0のコア予備生産能力は需要の増加に最初に反応する
チャート4
シェールは価格受容群における限界供給源
シェールは価格受容群における限界バレルである
シェールは価格受容群における限界バレルである
供給面でのOPEC 2.0の支配的地位は、余剰生産能力が枯渇するまでは非連合生産者に経済的地代を奪われることを許さず、非連合生産者にとっては抑制要因となります。その後、価格受容群は資本を呼び込む能力が限られているため、内部留保から多くの探査・生産（E+P）活動を賄う可能性が高いと考えられます。株主は配当の維持・成長、あるいは株式買戻しによる資本還元を要求し続けるでしょう。これが収益性のある企業に生産成長を限定する要因になります。
当社はOPEC 2.0連合の生産規律が供給を需要のわずか下にとどめ、在庫が減少し続けるようにするだろうと見ています。これはCOVID-19パンデミックで需要が破壊されたにもかかわらず実際に起きたことです（チャート5）。これらのモデリング前提から、当社は供給と需要が2023年にかけて均衡へ向かって動き続けると予想しています（表1）。
チャート5
2021年の需給バランス
2021年の需給バランス
2021年の需給バランス
表1
BCA 世界原油 需給バランス（MMb/d、ベースケース）
原油価格の上方リスクが高まっている
原油価格の上方リスクが高まっている
当社はこの需給均衡化が恒常的な物理的不足を誘発し、在庫は2023年にかけて減少し続けると予想しています（チャート6）。在庫が取り崩されるにつれて、OPEC 2.0の支配的な生産者地位はブレントおよびWTIのフォワードカーブをバックワーデーションに保つことを可能にします（チャート7）。2 当社は2022年および2023年のブレント予測をそれぞれ$65/bbl、$75/bblで維持しています（チャート8）。
チャート6
OPEC 2.0の政策は供給を需要の下に置き続ける...
OPEC 2.0政策は供給を需要より下回る水準に保ち続けている…
OPEC 2.0政策は供給を需要より下回る水準に保ち続けている…
チャート7
OECD在庫は2023年までに減少
OECD Inventories Fall to 2023
OECD Inventories Fall to 2023
チャート8
世界経済回復に伴いブレント予測は上昇
世界経済の回復に伴い、ブレントは上昇が予想される
世界経済の回復に伴い、ブレントは上昇が予想される
価格の両方向リスクが充満
当社見解には上振れおよび下振れのリスクが数多くあります。
上振れの例として、英国と米国のワクチン配布の立ち上げ方が示唆に富みます。
両国とも当初はつまづきました。特に米国は1月時点でも戦略が整っていないように見えました。米国が調達と配布を本格化させると接種率は急上昇し、現在では米国内で「通常の」独立記念日（Fourth of July）を迎える見通しにあるようです。英国は今週再開を開始しました。両国は2021年第3四半期に集団免疫を達成すると予想されています。3 調達と配布を誤ったEUは、英国と米国の教訓から利益を得て2021年第4四半期に集団免疫を達成するとマッキンゼーの調査は示しています。このスケジュールの前倒しは、より強い成長と当社予測を上回る石油価格につながるでしょう。
次の大きな課題は、パンデミックが加速し変異株の発生・拡散に理想的な環境を提供している新興経済地域（特にそのような地域）にワクチンを供給することです。ブラジル、インド、欧州での死亡者数・入院者数の上昇が示すように、大規模なCOVID-19によるロックダウンの再発リスクは依然として残ります。
戦の狼煙（Cry Havoc）
当社が見るもう一つの大きな上振れリスクは、米国、ロシア、中国およびそれらの関係国・同盟国を巻き込む武力衝突です。
現時点でコモディティ市場はこれらのリスクを無視しています。戦争のレベルには達していないにせよ、機動的な交戦―航空機が撃墜されたり南シナ海で艦船が交戦するような事態―の確率は日々高まっています。
これは驚くべきことではなく、当社の同僚であるBCAリサーチの地政学ストラテジー（Geopolitical Strategy）が最近指摘した通りです。4 実際、マット・ガートケン（Matt Gertken）が率いる当該サービスは、バイデン政権が就任直後からロシアと中国によってこの種の試練にさらされるだろうと警告していました。
ロシアはウクライナ国境に軍を集結させ、米国に干渉するなと警告しています。中国はフィリピン沿岸に軍艦を集結させ、台湾の防空識別圏への侵入を続けており、米軍を緊張させています。米露、米中間の政治対話はますます激しくなっており、近い将来に和らぐ兆しは見えません。意図的であれ偶発的であれ交戦が発生すれば戦争の遁走を許し、石油価格は一時的に急騰する可能性があります。
最後に、当社が想定するようにイランが核合意（すなわち共同包括的行動計画：JCPOA）を西側諸国と再締結できれば、イランは「正式な」石油輸出国としての復帰を余儀なくされ、OPEC 2.0はこれを受け入れざるを得なくなります。JCPOAは2018年に当時のトランプ大統領によって破棄されました。
これは困難を伴う可能性があります。当社は2014–16年の石油価格崩壊が、サウジが市場シェア戦争を仕掛けて価格を暴落させ、2010年末から2014年半ばにかけて続いた1バレル当たり$100超の価格をイランに許さないための行動だったと考えています。OPEC 2.0、特にKSAは米国–イラン交渉に公には関与していません。しかし2014年に開始された壊滅的な市場シェア戦争の後、KSAおよびOPEC 2.0はJCPOA後にイランの市場復帰を受け入れたことを想起する価値があります。
ロバート・P・ライアン チーフ コモディティ＆エネルギー・ストラテジスト rryan@bcaresearch.com
アシュウィン・シャイアム リサーチアソシエイト コモディティ＆エネルギー戦略 ashwin.shyam@bcaresearch.com
コモディティ概況
エネルギー： 強気
ブレントとWTI価格は、EIAの週間石油在庫報告が2021年4月9週終わりで米国の原油・製品在庫が910万バレル減少したことを示した後に急騰しました。これは商業用原油と蒸留油在庫の大幅な取り崩し（それぞれ590万バレル、210万バレル）が主導しました。これらの取り崩しは過去一週間に主要データ機関（EIA、IEA、OPEC）による世界需要の概ね強気な上方修正を背景としています。これらの評価は、精製製品需要、すなわち「product supplied」が4月9週終わりで日量110万b/d跳ね上がったというEIAデータに裏付けられています。ジョンソン＆ジョンソンの接種問題という挫折があったにもかかわらずワクチン配布が勢いを増しており、在庫の取り崩しと需要改善が上昇の触媒となったようです。米ドルの弱含みや米国の実質金利低下も追い風になりました。
ベースメタル： 強気
今週初めニッケル価格は下落しました。中国の国営新華社通信が中国の李克強首相が上昇するコモディティ価格の中で原材料市場の規制強化の必要性を強調したと報じ、企業の業績に圧力がかかっているとのことでした（チャート9）。この発言は中国のトップ経済顧問である劉鶴が先週コモディティ価格の追跡を当局に求めた後に出たものです。ニッケル価格はこの報を受けて今週初めにトン当たり約$500下落し、ロンドン金属取引所の取引で火曜日終値時点で$16,114.5/MTで取引されていました。他のベースメタルはこのニュースの影響を受けませんでした。
貴金属： 強気
今週初めに発表された3月の米国インフレデータを受けて米ドルと10年物米国債利回りは低下しました。米国の消費者物価は約9年ぶりの大幅上昇を記録しました。インフレヘッジ需要と米ドル・債利回りの低下が金の購入における機会費用を下げたことが金価格を押し上げました（チャート10）。この不確実性と米国の財政刺激策によるインフレ圧力の高まりが金需要を増加させます。スポットのCOMEX金は火曜日終値で$1,746.20/ozで取引されていました。
穀物・ソフトコモディティ： 中立
USDAの報告によると、米国のトウモロコシ期末在庫は13.5億ブッシェルで、市場予想の13.9億ブッシェルや先月の省の1.50億ブッシェル推定を下回っています（agriculture.comの集計）。世界のトウモロコシ在庫は2.839億トンで、市場予想の2.845億トンおよび省の推定2.876億トンを下回りました。
チャート9
ベースメタルは強気に動く
ベースメタルは強気になっている
ベースメタルは強気になっている
チャート10
金価格の上昇
金価格が上昇へ
金価格が上昇へ
脚注
1 当社が2021年4月8日に発表したUS-Russia Pipeline Standoff Could Push LNG Prices Higherをご覧ください。簡単に言えば、IMFは今年および来年の成長率見通しをそれぞれ6%と4.4%に引き上げ、2021年1月の更新時点と比べてほぼ1ポイントの上方修正を行いました。
2 バックワーデーションのフォワードカーブ—先物の期近価格が期先価格を上回る状態—は需給タイトさを示す市場のシグナルです。精製業者が将来よりも今の原油の入手を高く評価していることを意味します。これはちょうど投資家が明日引き渡される1ドル札に対して1ドルを支払うことを好み、1年後に引き渡される同じ1ドル札には今日98セントしか払わないかもしれないのと同じダイナミクスです。
3 マッキンゼー・アンド・カンパニーが2021年3月26日に発表したWhen will the COVID-19 pandemic end?をご参照ください。
4 BCAの地政学ストラテジーが2021年4月2日に発表した先見的な分析The Arsenal Of Democracyをご覧ください。同レポートは、バイデン政権は中国/台湾、ロシア、イラン、さらには北朝鮮に関する初期のストレス・テストに直面していると指摘しています。ゲーム理論は金融市場が台湾海峡での危機の60%の確率を無視できない理由を説明するのに役立ちます。全面戦争の確率は依然低いものの、台湾は世界で最も重要な地政学的リスクであり続けます。
投資見解とテーマ
推奨事項
戦略的推奨
タクティカルトレード
コモディティ価格とプレイ参考表
2021年にクローズしたトレード
クローズしたトレードの概要
より高いインフレが到来
より高いインフレが到来
Highlights On a timeframe of a few years, a net deflationary shock is a near-certainty even if we do not know its precise nature or its precise timing. Hence, investors must build such a deflationary shock or shocks into their long-term investment strategy. Specifically: The 10-year T-bond yield will ultimately reach zero, and the 30-year T-bond yield will ultimately reach 0.5 percent. For patient investors, this presents a mouth-watering 100 percent return on the long-duration T-bond. The structural bull market in equities will continue until T-bond yields reach their ultimate low. Patient equity investors should steer towards ‘growth’ sectors that will surge on the ultimate low in T-bond yields. Fractal trade shortlist: Taiwan versus China, Netherlands versus China, and Sweden versus Finland. Feature Chart I-1For Long-Term Investors, A Shock Is A Near-Certainty Predicting shocks is easy. The precise nature and timing of shocks is not predictable, but the statistical distribution of shocks is highly predictable. This means that the longer our investment timeframe, the more certain we are of encountering at least one shock – even if we cannot predict its precise nature or timing. Many economists and strategists blame their forecasting errors on shocks, such as the pandemic, which they point out are ‘unforecastable.’ Absent the shocks, they argue, their predictions of the economy and the markets would have turned out right. This is a valid excuse for short-term forecasting errors, but it is not a valid excuse for long-term forecasting errors. On a long-term horizon, encountering a major shock, or several major shocks, is a near-certainty. Hence, economists and strategists who are not incorporating the well-defined statistical distribution of shocks into their long-term investment forecasts and strategies are making a mistake. Individual Shocks Are Not Predictable In the 21 years of this century so far, there have been five shocks whose economic/financial consequences have been felt worldwide: the dot com bust (2000); the global financial crisis (2007/8); the euro debt crisis (2011/12); the emerging markets recession (2014/15); and the global pandemic (2020). To these we can add two wide-reaching political shocks: the Brexit vote (2016); and Donald Trump’s shock victory in the US presidential election (2016). In total, this constitutes seven shocks, four economic/financial, two political, and one natural (Chart I-2). Chart I-2The Seven Global Shocks Of The Century (So Far) Some people argue that economic/financial shocks are predictable, because they arise from vulnerabilities in the economy or financial markets, which should be easy to spot. Unfortunately, though such vulnerabilities are obvious in hindsight, the greatest economic minds cannot see them in real time. The greatest economic minds cannot see economic vulnerabilities. Infamously, on the eve of the global financial crisis, Ben Bernanke was insisting that “there’s not much indication that subprime mortgage issues have spread into the broader mortgage market.” Equally infamously, on the eve of the euro debt crisis, Mario Draghi was asking “what makes you think that the ECB must become lender of last resort to governments to keep the eurozone together?” (Chart I-3 and Chart I-4) Chart I-3Bernanke Couldn't See The GFC Chart I-4Draghi Couldn't See The Euro Debt Crisis Which begs the question, what is the current vulnerability that today’s great economic minds cannot see? As we have documented many times, most recently in The Rational Bubble Is Turning Irrational, the current vulnerability is the exponential relationship between rising bond yields and the risk premiums on equities and other risk-assets (Chart I-5 and Chart I-6). Meaning that $500 trillion of risk-assets are vulnerable to any substantial further rise in bond yields. Chart I-5A 1.5 Percent Decline In The Bond Yield Had A Smaller Impact On The Earnings Yield When The Bond Yield Started At 4 Percent... Chart I-6...Than When The Bond Yield Started ##br##At 3 Percent The second type of shock – political shocks – should be predictable as they mostly arise from well-defined events such as elections and referenda, which an army of political experts analyses ad nauseam. Yet the greatest political minds could not see Brexit or President Trump coming. Indeed, even ‘Team Brexit’ didn’t see Brexit coming, because it had no plan on how to implement Brexit once the vote was won. The third type of shocks – natural shocks – are clearly unpredictable as individual events. Nobody knows when the next major pandemic, earthquake, volcano eruption, tsunami, solar flare, or asteroid strike is going happen. Yet, to repeat, while the precise nature and timing of shocks is not predictable, the statistical distribution of shocks is highly predictable. The Statistical Distribution Of Shocks Is Highly Predictable The good news is that shocks follow well-defined statistical ‘power laws’ which allow us to accurately forecast how many shocks to expect in any long timeframe. The 7 shocks experienced through the past 21 years equates to a shock every three years on average, or 3.33 shocks in any 10-year period. The expected wait to the next shock is three years. The next few paragraphs delve into some necessary mathematics, but don’t worry, you don’t need to understand the maths to appreciate the key takeaways. If the past 21 years is representative, we propose that the number of shocks in any 10-year period follows a so-called Poisson distribution with parameter 3.33. From this distribution, it follows that the probability of going through a 5-year period without a shock is just 19 percent, and the probability of going through a 10-year period without a shock is a negligible 4 percent (Chart of the Week). The result is that if you are a long-term investor, then encountering a shock is a near-certainty and should be built into your investment strategy. How can we test our assumption that the number of shocks follows a Poisson distribution? The maths tells us that if the number of shocks follows a Poisson distribution with parameter 3.33, then the ‘waiting time’ between shocks follows a so-called Exponential distribution also with parameter 3.33. On this basis, 63 percent of the waits between shocks should be up to three years, 23 percent should be four to six years, and 14 percent should be over six years. Now we can compare this expected distribution with the actual distribution of waits between the 7 shocks encountered so far in this century. We find that the theory lines up closely with the practice, validating our assumption of a Poisson distribution (Chart I-7 and Chart I-8). Chart I-7The Theoretical Waiting Time Between Shocks… Chart II-8…Is Close To The Actual Waiting Time Between Shocks To repeat the key takeaways, on a long-term timeframe, encountering at least one shock is a near-certainty, and the expected wait to the next shock is three years. A Shock Is A Near-Certainty, And It Will End Up Deflationary Nevertheless, there remains a pressing question: Will the next shock(s) be deflationary or reflationary? It turns out that all shocks end up with both deflationary and reflationary components: either a deflationary impulse followed by a reflationary backlash or, as we highlighted in The Road To Inflation Ends At Deflation, a reflationary impulse followed by a deflationary backlash. But the crucial point is that the deflationary component will swamp the reflationary component. In the seven shocks of this century so far, six have been deflationary impulses with a weaker reflationary backlash; and one – the reflation trade of 2017-18 – was a reflationary impulse with a stronger deflationary backlash. It is our high conviction view that in the next shock(s), the deflationary component will continue to hold the upper hand (Chart I-9). Chart I-9Each Shock Has A Deflationary And Reflationary Component... But The Deflationary Component Tends To Dominate The simple reason is that as financial asset prices, real estate prices, and debt servicing costs get addicted to ever lower bond yields, the economy and financial markets cannot tolerate bond yields reaching previous tightening highs and, just like all addicts, need a new extreme loosening to feel any stimulus. This means that when the next shock comes – as it surely will – it will require lower lows and lower highs in the bond yield cycle. Let’s sum up. On a timeframe of a few years, a shock is a near-certainty even if we do not know its precise nature – economic/financial, political, or natural – or its precise timing. Furthermore, the shock will be net deflationary. Hence, investors must build such a deflationary shock or shocks into their long-term investment strategy. Specifically: The 10-year T-bond yield will eventually reach zero, and the 30-year T-bond yield will ultimately reach 0.5 percent. For patient investors, this constitutes a mouth-watering 100 percent return on the long-duration T-bond. The 10-year T-bond yield will eventually reach zero. The structural bull market in equities will continue until T-bond yields reach their ultimate low. Patient equity investors should tilt towards ‘growth’ sectors that will surge on the ultimate low in T-bond yields. Candidates For Countertrend Reversals This week we have noticed an unusual decoupling among the tech-heavy markets of Taiwan, Netherlands, and China (Chart I-10). Chart I-10An Unusual Decoupling Between Tech-Heavy Netherlands And China Among these three markets, the strong short-term outperformance of both Taiwan and Netherlands are due to supply bottlenecks in the semiconductor sector that have boosted Taiwan Semiconductor Manufacturing and ASML, but we expect these bottlenecks ultimately to resolve. On this basis and combined with extremely fragile 130-day fractal structures, Taiwan versus China and Netherlands versus China are vulnerable to reversals (Chart I-11 and Chart I-12). Chart I-11Underweight Taiwan Versus China Chart I-12Underweight Netherlands Versus China Our first recommended trade is to underweight Netherlands versus China, setting a profit target and symmetrical stop-loss at 5 percent. Another outperformance that looks fragile on its 130-day fractal structure is Sweden versus Finland, driven by industrials and financials versus energy and materials (Chart I-13). Chart I-13Underweight Sweden Versus Finland Our second recommended trade is to underweight Sweden versus Finland, setting a profit target and symmetrical stop-loss at 4.7 percent. Dhaval Joshi Chief Strategist dhaval@bcaresearch.com Fractal Trading System Fractal Trades 6-Month Recommendations Structural Recommendations Closed Fractal Trades Asset Performance Equity Market Performance Indicators To Watch - Bond Yields Chart II-1Indicators To Watch - Bond Yields - ##br##Euro Area Chart II-2Indicators To Watch - Bond Yields - ##br##Europe Ex Euro Area Chart II-3Indicators To Watch - Bond Yields - ##br##Asia Chart II-4Indicators To Watch - Bond Yields - ##br##Other Developed Indicators To Watch - Interest Rate Expectations Chart II-5Indicators To Watch - Interest Rate Expectations Chart II-6Indicators To Watch - Interest Rate Expectations Chart II-7Indicators To Watch - Interest Rate Expectations Chart II-8Indicators To Watch - Interest Rate Expectations
Highlights Private-sector savings exploded during the pandemic, swelling the already large global savings glut. Reluctant to sit on excess cash, households shifted some of their funds into the stock market. With corporate buybacks outpacing new share issuance, stock prices had nowhere to go but up. Falling bond yields further supercharged equity valuations. Despite the run-up in stocks, the global equity risk premium – measured as the forward equity earnings yield minus the real bond yield – still stands at about 6%, similar to where it was in late-2009. Using a simple example, we show why investors should hold more stock than the standard 60/40 rule suggests when bond yields are still this low. While bond yields will rise further over the coming years, it is likely to be a slow process. Investors should remain bullish on stocks over a 12-month horizon, favouring non-US equities over their US peers. Did A Surfeit Of Savings Lead To A Shortage Of Assets? Real interest rates have fallen dramatically since the early 1980s (Chart 1). Economic theory posits that lower real rates discourage savings while encouraging spending. Yet, as Chart 2 shows, with the exception of the late-1990s and the mid-2000s – two periods when spending was buoyed first by the dotcom bubble and then by the housing bubble – the US private sector has run a large financial surplus; that is to say, it has consistently spent less than it earned. Private-sector financial balances in most other economies have followed a similar trend. Chart 1Real Bond Yields Have Been Trending Lower Since The 1980s Chart 2The Private Sector Has Been Mostly Running Surpluses Ben Bernanke famously cited chronic private-sector financial surpluses as evidence of a “global savings glut.” The concept of a savings glut is closely related to the concept of demand-side secular stagnation, an idea popularized by Larry Summers prior to his heel-turn towards stimulus skeptic. When the private sector is unable to find enough worthy investment projects to make use of all available savings, the economy will struggle to attain full employment, even in the presence of very low interest rates. The concept of a savings glut is also related to another, less well known, concept: a safe asset shortage. If the private sector earns more than it spends, it must, by definition, accumulate assets. In principle, governments can satiate the demand for safe assets by issuing more bonds. In practice, governments have often been reluctant to run persistently large budget deficits for fear that this could undermine their credibility. Faced with a shortage of safe assets, the private sector has stepped in to fill the void, often with disastrous consequences. Most notably, in the lead-up to the Global Financial Crisis, banks sliced and diced portfolios of risky mortgages with the goal of creating safe assets that could be sold into the market. Most financial crashes occur when investors conclude that the assets they once thought were safe are not so safe after all. This was precisely what happened to mortgage-backed securities during the 2008 mortgage meltdown. The exact same pattern repeated itself two years later when investors finally came around to the seemingly obvious conclusion that Greek government bonds were not as safe as say, German bunds. The Safe Asset Shortage In A Post-Pandemic World This brings us to the present day. After falling from 7% of GDP in 2009 to 3% of GDP in the lead-up to the pandemic, the global private-sector financial balance surged to 11% of GDP in 2020. The IMF expects the global private-sector balance to average 9% of GDP in 2021 before trending lower over the coming years. Arithmetically, the private-sector financial balance must equal the sum of the fiscal deficit and the current account balance.1 By running large budget deficits during the pandemic, governments endowed the private sector with income they otherwise would not have had. This income consisted of transfers (stimulus checks, expanded unemployment benefits, business subsidies, etc.) as well as income generated from direct government spending on goods and services. As of the end of March, we estimate that US households had accumulated about $2.2 trillion (10.5% of GDP) in savings over and above what they would have had in the absence of the pandemic. About 40% of those “excess savings” stemmed from fiscal policy with the remainder reflecting decreased consumption (Chart 3). Chart 3Lower Spending And Higher Income Have Led To Mounting Savings Chart 4Government Largesse Boosted Savings And Fattened Bank Deposits As the private sector’s financial balance increased, so did its asset holdings. Unlike in normal fiscal expansions where governments fund budget deficits by selling debt to the public, this time around, governments largely sold the debt to central banks. The money that governments received from central banks in return was then pumped into the economy, leading to a surge in bank deposits (Chart 4). The Nature Of Stock Market “Flows” What happened to the money after it reached people’s bank accounts? A popular narrative is that some of it flowed into the stock market. While this description is technically true, it is somewhat misleading in that it conveys the false impression that there was a net inflow of money into stocks. The reality is more nuanced. When I buy some stock, I gain some shares but lose some cash. Conversely, whoever sold me the stock gains some cash and loses some shares. In aggregate, there is no change in either the number of shares or the amount of cash that investors hold. What does change is the value of the shares in relation to the cash that investors hold. My purchase must lift the share price by enough to persuade someone else to part with their shares. If the seller does not want to hold the additional cash, he or she may try to place an order to purchase a different stock that appears more attractively priced. This game of hot potato will only end when the value of the stock market rises by enough that all investors are happy with how much stock they own in relation to how much cash they hold. Rethinking The 60/40 Split The standard investment mantra is that investors should hold 60% of their portfolios in stock and the rest in cash, bonds, and other financial assets. The discussion above casts doubt on this simple rule of thumb. Suppose that Melanie holds $600 in stock and $400 in cash, and that cash earns a real interest rate of 2%. Let us also assume that Melanie requires a 4% equity risk premium. Hence, the equity earnings yield must be 6% (i.e., her $600 in stock must correspond to $36 in earnings).2 Now let us suppose that the central bank cuts the policy rate, so that the real interest rate falls to zero. In order to maintain a 4% equity risk premium, the earnings yield must decline to 4%, which implies that the value of the stock must rise to $900 ($36/0.04=$900). Thus, we have gone from a position where Melanie holds 60% of her portfolio in stock to one where she holds about 69% ($900/$1300) in stock. In other words, even though the equity risk premium did not change at all, the desired ratio of stock-to-cash rose from $600/$400=1.5 to $900/$400=2.25. Let us continue the thought experiment and imagine a scenario where the government sends Melanie and everyone else a stimulus check of $100. Now she has $500 in cash and $900 in stock. If she wants to maintain a stock-to-cash ratio of 2.25, she would need to use some of her cash to buy stock. However, since everyone else is also looking to purchase stock with their stimulus checks, before Melanie has a chance to enter a buy order, she finds that the stock in her portfolio has appreciated to $1125. Since $1125/$500 is equal to 2.25, Melanie cancels her buy order, content with the knowledge that she holds as much stock as she wants. Notice that in this simple example, neither interest rate cuts nor stimulus checks did anything to boost corporate profits. All that happened is that stock prices rose, causing the equity earnings yield to first fall from 6% to 4% after the central bank cut rates, and then fall again from 4% to 3.2% ($36/$1125) after the stimulus checks were sent out. If all of this sounds a bit familiar, it should. The sequence of events described above is precisely what has happened over the past 12 months. And not just to stock prices. As interest rates fell and cash balances swelled, other risky assets such as cryptocurrencies went to the proverbial moon. Is The Party Over? Given that fiscal stimulus has peaked and interest rates cannot be cut any further in the major economies, are stocks set to fall? Not necessarily! The amount of stock that investors choose to hold in relation to their cash balances is a function of animal spirits. While US consumer confidence rebounded in March to the highest level in a year, it still remains well below pre-pandemic levels (Chart 5). The percentage of households in The Conference Board’s survey who expect stock prices to rise over the next 12 months is still around its long-term average (Chart 6). Chart 5Stocks Could Rise Further As Confidence Recovers Chart 6The Percentage Of Households Who Expect Stock Prices To Rise Over The Next 12 Months Is Still Around Its Long-Term Average Fortunately, the US is on target to provide a vaccine shot to everyone who wants one by the end of April.3 As the economy continues to reopen, confidence will rise further. Rising confidence, in turn, may prompt investors to increase their equity holdings. Our US equity strategists expect share buybacks to exceed share issuance over the next 12 months. Thus, the value of equity portfolios will only be able to rise if share prices go up. Outside the US and the UK and a few other smaller economies, the vaccination campaign has gotten off to a rocky start. However, the pace of inoculations is set to accelerate rapidly in the second quarter, which should pave the way to faster global growth. Global equities usually outperform bonds when growth is on the upswing (Chart 7). Chart 7Stocks Usually Outperform Bonds When Economic Growth Is Strong While equity allocations have risen, they are below the level reached in 2000 (Chart 8). Back then, the global equity earnings yield was on par with the real bond yield. Today, the earnings yield is about six percentage points above the bond yield, a similar gap to what prevailed in late-2009 (Chart 9). Chart 8Stock Allocations Have Rebounded, But Remain Below Their 2000 Peak Chart 9The Equity Risk Premium Is At Levels Similar To Late-2009 Granted, today’s high equity risk premium largely reflects the exceptionally low level of bond yields. If bond yields were to move up, the equity risk premium would shrink. While we do think that bond yields will rise by more than expected in the long run, the path to higher yields is likely to be a slow one. Rate expectations 2-to-3 years out tend to move closely in line with the 10-year yield (Chart 10). Already, there is a large gap between market expectations and the Fed dots. Whereas the market expects the Fed to start lifting rates late next year, the median Fed “dot” continues to signal no rate hike at least until 2024 (Chart 11). It is unlikely that market expectations will shift towards an even more aggressive path of rate tightening unless the Fed’s dovish rhetoric turns hawkish. As we discussed in our recently published Second Quarter Strategy Outlook, we do not expect this to happen anytime soon. Thus, with monetary policy still very loose, stocks can continue to grind higher. Chart 10Bond Yields Are Unlikely To Rise Much Unless The Market Lifts Its Estimate Of Where The Fed Funds Rate Will Be 2-To-3 Years Out Chart 11A Wide Gap Has Opened Up Between Market Expectations And The Fed Dots Regionally, we favour stock markets outside the US. Not only will overseas markets benefit from a rotation in growth from the US to the rest of the world in the second half of this year, but US corporate tax rates are almost certain to rise. We will be exploring the tax issue over the coming weeks. Peter Berezin Chief Global Strategist pberezin@bcaresearch.com Footnotes 1 Just as the private-sector financial balance is the difference between what the private sector earns and spends, the fiscal balance is the difference between what the government earns and spends. If the fiscal balance is negative, the government runs a deficit. If the fiscal balance is positive, the government runs a surplus. Thus, added together, the private-sector financial balance and the fiscal balance simply equals the difference between what the country as a whole earns and spends which, by definition, is equal to the current account balance. One can also see this point by rewriting the equation Y=C+I+G+X-M as (Y-T)-(C+I)=(G-T)+(X-M) where T is tax revenue, Y-T is private-sector earnings, C+I is what the private sector spends on consumption and capital goods, G-T is the fiscal deficit, and X-M is the current account balance, broadly defined to include not only the trade balance but also net income from abroad. 2 The relative attractiveness of stocks can also be inferred by subtracting the real bond yield from the earnings yield on stocks in order to get an implied equity risk premium (ERP). It is necessary to subtract the real bond yield, rather than the nominal bond yield, from the earnings yield because the earnings yield provides an estimate of the real total expected return to shareholders. For further discussion on this, please see Appendix A of the Global Investment Strategy Special Report, “TINA To The Rescue?” dated August 23, 2019. 3 Mia Sato, “The US is about to reach a surprise milestone: too many vaccines, not enough takers,” MIT Technology Review, March 22, 2021. Global Investment Strategy View Matrix Special Trade Recommendations Current MacroQuant Model Scores