財政政策

Highlights Globalization is recovering to its pre-pandemic trajectory. But it will fail to live up to potential, as the “hyper-globalization” trends of the 1990s are long gone. China was the biggest winner of hyper-globalization. It now faces unprecedented risks in the context of hypo-globalization. Global investors woke up to China’s domestic political risks this year, which include arbitrary regulatory crackdowns on tech and private business. While Chinese officials will ease policy to soothe markets, the cyclical and structural outlook is still negative for this economy. Growth and stimulus have peaked. Political risk will stay high through the national party congress in fall 2022. US-China relations have not stabilized. India, the clearest EM alternative for global investors, is high-priced relative to China and faces troubles of its own. It is too soon to call a bottom for EM relative to DM. Feature Global investors woke up to China’s domestic political risk over the past week, as Beijing extended its regulatory crackdown to private education companies. Our GeoRisk Indicator shows Chinese political risk reaching late 2017 levels while the broad Chinese stock market continued this year’s slide against emerging market peers (Chart 1). Chart 1China: Domestic Political Risk Takes Investors By Surprise A technical bounce in Chinese tech stocks will very likely occur but we would not recommend playing it. The first of our three key views for 2021 is the confluence of internal and external headwinds for China. True, today’s regulatory blitz will pass over like previous ones and the fast money will snap up Chinese tech firms on the cheap. The Communist Party is making a show of force, not destroying its crown jewels in the tech sector. However, the negative factors weighing on China are both cyclical and structural. Until Chinese President Xi Jinping adjusts his strategy and US-China relations stabilize, investors do not have a solid foundation for putting more capital at risk in China. Globalization is in retreat and this is negative for China, the big winner of the past 40 years. Hypo-Globalization Globalization in the truest sense has expanded over millenia. It will only reverse amid civilizational disasters. But the post-Cold War era of “hyper-globalization” is long gone.1 The 2010s saw the emergence of de-globalization. In the wake of COVID-19, global trade is recovering to its post-2008 trend but it is nowhere near recovering the post-1990 trend (Chart 2). Trade exposure has even fallen within the major free trade blocs, like the EU and USMCA (Chart 3). Chart 2Hypo-Globalization Chart 3Trade Intensity Slows Even Within Trade Blocs Of course, with vaccines and stimulus, global trade will recover in the coming decade. We coined the term “hypo-globalization” to capture this predicament, in which globalization is set to rebound but not to its previous trajectory.2 We now inhabit a world that is under-globalized and under-globalizing, i.e. not as open and free as it could be. A major factor is the US-China economic divorce, which is proceeding apace. China’s latest state actions – in diplomacy, finance, and business – underscore its ongoing disengagement from the US-led global architecture. The US, for its part, is now on its third presidency with protectionist leanings. American and European fiscal stimulus are increasingly protectionist in nature, including rising climate protectionism. Bottom Line: The stimulus-fueled recovery from the global pandemic is not leading to re-globalization so much as hypo-globalization. A cyclical reboot of cross-border trade and investment is occurring but will fall short of global potential due to a darkening geopolitical backdrop. Still No Stabilization In US-China Relations Chart 4Do Nations Prefer Growth? Or Security? A giant window of opportunity is closing for China and Russia – they will look back fondly on the days when the US was bogged down in the Middle East. The US current withdrawal from “forever wars” incentivizes Beijing and Moscow to act aggressively now, whether at home or abroad. Investors tend to overrate the Chinese people’s desire for economic prosperity relative to their fear of insecurity and domination by foreign powers. China today is more desirous of strong national defense than faster economic growth (Chart 4). The rise of Chinese nationalism is pronounced since the Great Recession. President Xi Jinping confirmed this trend in his speech for the Communist Party’s first centenary on July 1, 2021. Xi was notably more concerned with foreign threats than his predecessors in 2001 and 2011 (Chart 5).3 China has arrived as a Great Power on the global stage and will resist being foisted into a subsidiary role by western nations. Chart 5Xi Jinping’s Centenary Speech Signaled Nationalist Turn Meanwhile US-China relations have not stabilized. The latest negotiations did not produce agreed upon terms for managing tensions in the relationship. A bilateral summit between Presidents Biden and Xi Jinping has not been agreed to or scheduled, though it could still come together by the end of October. Foreign Minister Wang Yi produced a set of three major demands: that the US not subvert “socialism with Chinese characteristics,” obstruct China’s development, or infringe on China’s sovereignty and territorial integrity (Table 1). The US’s opposition to China’s state-backed economic model, export controls on advanced technology, and attempts to negotiate a trade deal with the province of Taiwan all violate these demands.4 Table 1China’s Three Demands From The United States (July 2021) The removal of US support for China’s economic, development – recently confirmed by the Biden administration – will take a substantial toll on sentiment within China and among global investors. US President Joe Biden and four executive departments have explicitly warned investors not to invest in Hong Kong or in companies with ties to China’s military-industrial complex and human rights abuses. The US now formally accuses China of genocide in the Xinjiang region.5 Bottom Line: There is no stabilization in US-China relations yet. This will keep the risk premium in Chinese currency and equities elevated. The Sino-American divorce is a major driver of hypo-globalization. China’s Regulatory Crackdown President Xi Jinping’s strategy is consistent. He does not want last year’s stimulus splurge to create destabilizing asset bubbles and he wants to continue converting American antagonism into domestic power consolidation, particularly over the private economy. Now China’s sweeping “anti-trust” regulatory crackdown on tech, education, and other sectors is driving a major rethink among investors, ranging from Ark-founder Cathie Wood to perma-bulls like Stephen Roach. The driver of the latest regulatory crackdown is the administration’s reassertion of central party control. The Chinese economy’s potential growth is slowing, putting pressure on the legitimacy of single-party rule. The Communist Party is responding by trying to improve quality of life while promoting nationalism and “socialism with Chinese characteristics,” i.e. strong central government control and guidance over a market economy. Beijing is also using state power and industrial policy to attempt a great leap forward in science and technology in a bid to secure a place in the sun. Fintech, social media, and other innovative platforms have the potential to create networks of information, wealth, and power beyond the party’s control. Their rise can generate social upheaval at home and increase vulnerability to capital markets abroad. They may even divert resources from core technologies that would do more to increase China’s military-industrial capabilities. Beijing’s goal is to guide economic development, break up the concentration of power outside of the party, prevent systemic risks, and increase popular support in an era of falling income growth. Sociopolitical Risks: Social media has demonstrably exacerbated factionalism and social unrest in the United States, while silencing a sitting president. This extent of corporate power is intolerable for China. Economic And Financial Risks: Innovative fintech companies like Ant Group, via platforms like Alipay, were threatening to disrupt one of the Communist Party’s most important levers of power: the banking and financial system. The People’s Bank of China and other regulators insisted that Ant be treated more like a bank if it were to dabble in lending and wealth management. Hence the PBoC imposed capital adequacy and credit reporting requirements.6 Data Security Risks: Didi Chuxing, the ride-sharing company partly owned by Uber, whose business model it copied and elaborated on, defied authorities by attempting to conduct its initial public offering in the United States in June. The Communist Party cracked down on the company after the IPO to show who was in charge. Even more, Beijing wanted to protect its national data and prevent the US from gaining insights into its future technologies such as electric and autonomous vehicles. Foreign Policy Risks: Beijing is also preempting the American financial authorities, who will likely take action to kick Chinese companies that do not conform to common accounting and transparency standards off US stock exchanges. Better to inflict the first blow (and drive Chinese companies to Hong Kong and Shanghai for IPOs) than to allow free-wheeling capitalism to continue, giving Americans both data and leverage. Thus Beijing is continuing the “self-sufficiency” drive, divorcing itself from the US economy and capital markets, while curbing high-flying tech entrepreneurs and companies. The party’s muscle-flexing will culminate in Xi Jinping’s consolidation of power over the Politburo and Central Committee at the twentieth national party congress in fall 2022, where he is expected to take the title of “Chairman” that only Mao Zedong has held before him. The implication is that the regulatory crackdown can easily last for another six-to-12 more months. True, investors will become desensitized to the tech crackdown. But health care and medical technology are said to be in the Chinese government’s sights. So are various mergers and acquisitions. Both regulatory and political risk premia in different sectors can persist. The current administration has waged several sweeping regulatory campaigns against monopolies, corruption, pollution, overcapacity, leverage, and non-governmental organizations. The time between the initial launch of one of these campaigns and their peak intensity ranges from two to five years (Chart 6). Often, but not always, central policy campaigns have an express, three-year plan associated with them. Chart 6ABeijing Cracked Down On Monopolies, Corruption, Pollution... Chart 6B...NGOs, Overcapacity, And Leverage Chart 7China Tech: Buyer Beware The first and second year mark the peak impact. The negative profile of Chinese tech stocks relative to their global peers suggests that the current crackdown is stretched, although there is little sign of bottom formation yet (Chart 7). The crackdown began with Alibaba founder Jack Ma, and Alibaba stocks have yet to arrest their fall either in absolute terms or relative to the Hang Seng tech index. Bottom Line: A technical bounce is highly likely for Chinese stocks, especially tech, but we would not recommend playing it because of the negative structural factors. For instance, we fully expect the US to delist Chinese companies that do not meet accounting standards. The Chinese Government’s Pain Threshold? The government is not all-powerful – it faces financial and economic constraints, even if political checks and balances are missing. Beijing does not have an interest in destroying its most innovative companies and sectors. Its goal is to maintain the regime’s survival and power. China’s crackdown on private companies goes against its strategic interest of promoting innovation and therefore it cannot continue indefinitely. The hurried meeting of the China Securities Regulatory Commission with top bankers on July 28 suggests policymakers are already feeling the heat.7 In the case of Ant Group, the company ultimately paid a roughly $3 billion fine (which is 18% of its annual revenues) and was forced to restructure. Ant learned that if it wants to behave more like a bank athen it will be regulated more like a bank. Yet investors will still have to wrestle with the long-term implications of China’s arbitrary use of state power to crack down on various companies and IPOs. This is negative for entrepreneurship and innovation, regardless of the government’s intentions. Chart 8China's Pain Threshold = Property Sector Ultimately the property sector is the critical bellwether: it is a prime target of the government’s measures against speculative asset bubbles. It is also an area where authorities hope to ease the cost of living for Chinese households, whose birth rates and fertility rates are collapsing. While there is no risk of China’s entire economy crumbling because of a crackdown on ride-hailing apps or tutoring services, there is a risk of the economy crumbling if over-zealous regulators crush animal spirits in the $52 trillion property sector, as estimated by Goldman Sachs in 2019. Property is the primary store of wealth for Chinese households and businesses and falling property prices could well lead to an unsustainable rise in debt burdens, a nationwide debt-deflation spiral, and a Japanese-style liquidity trap. Judging by residential floor space started, China is rapidly approaching its overall economic pain threshold, meaning that property sector restrictions should ease, while monetary and credit policy should get easier as necessary to preserve the economic recovery (Chart 8). The economy should improve just in time for the party congress in late 2022. Bottom Line: China will be forced to maintain relatively easy monetary and fiscal policy and avoid pricking the property bubble, which should lend some support to the global recovery and emerging markets economies over the cyclical (12-month) time frame. China’s Regulation And Demographic Pressures Is the Chinese government not acting in the public interest by tamping down financial excesses, discouraging anti-competitive corporate practices, and combating social ills? Yes, there is truth to this. But arbitrary administrative controls will not increase the birth rate, corporate productivity, or potential GDP growth. First, it is true that Chinese households cite high prices for education, housing, and medicine as reasons not to have children (Chart 9). However, price caps do not attack the root causes of these problems. The lack of financial security and investment options has long fueled high house prices. The rabid desire to get ahead in life and the exam-oriented education system have long fueled high education prices. Monetary and fiscal authorities are forced to maintain an accommodative environment to maintain minimum levels of economic growth amid high indebtedness – and yet easy money policies fuel asset price inflation. In Japan, fertility rates began falling with economic development, the entrance of women in the work force, and the rise of consumer society. The fertility rate kept falling even when the country slipped into deflation. It perked up when prices started rising again! But it relapsed after the Great Recession and Fukushima nuclear crisis (Chart 10, top panel). Chart 9China: Concerns About Having Children China’s fertility rate bottomed in the 1990s and has gradually recovered despite the historic surge in property prices (Chart 10, second panel), though it is still well below the replacement rate needed to reverse China’s demographic decline in the absence of immigration. A lower cost of living and a higher quality of life will be positive for fertility but will require deeper reforms.8 Chart 10Fertility Fell In Japan Despite Falling Prices At the same time, arbitrary regulatory crackdowns that punish entrepreneurs are not likely to boost productivity. Anti-trust actions could increase competition, which would be positive for productivity, but China’s anti-trust actions are not conducted according to rule of law, or due process, so they increase uncertainty rather than providing a more stable investment environment. China’s tech crackdown is also aimed at limiting vulnerability to foreign (American) authorities. Yet disengagement with the global economy will reduce competition, innovation, and productivity in China. Bottom Line: China’s demographic decline will require larger structural changes. It will not be reversed by an arbitrary game of whack-a-mole against the prices of housing, education, and health. India And South Asia Chart 11China Will Ease Policy... Or India Will Break Out Global investors have turned to Indian equities over the course of the year and they are now reaching a major technical top relative to Chinese stocks (Chart 11). Assuming that China pulls back on its policy tightening, this relationship should revert to mean. India faces tactical geopolitical and macroeconomic headwinds that will hit her sails and slow her down. In other words, there is no great option for emerging markets at the moment. Over the long run, India benefits if China falters. Following the peak of the second COVID-19 wave in May 2021, some high frequency indicators have showed an improvement in India’s economy. However, activity levels appear weaker than of other emerging markets (Chart 12). Given the stringency levels of India’s first lockdown last spring, year-on-year growth will look faster than it really is. As the base effect wanes, underlying weak demand will become evident. Moreover India is still vulnerable to COVID-19. Only 25% of the population has received one or more vaccine shots which is lower than the global level of 28%. The result will be a larger than expected budget deficit. India refrained from administering a large dose of government spending in 2020 (Chart 13). With key state elections due from early 2022 onwards, the government could opt for larger stimulus. This could assume the form of excise duty cuts on petroleum products or an increase in revenue expenditure. These kinds of measures will not enhance India’s productivity but will add to its fiscal deficit. Chart 12Weak Post-COVID Rebound In India – And Losing Steam Chart 13India Likely To Expand Fiscal Spending Soon Such an unexpected increase in India’s fiscal deficit could be viewed adversely by markets. India’s fiscal discipline tends to be poorer than that of peers (see Chart 13 above). Meanwhile India’s north views Pakistan unfavorably and key state elections are due in this region. Consequently, Indian policy makers may be forced to adopt a far more aggressive foreign policy response to any terrorist strikes from Pakistan or territorial incursions by China over August 2021. The US withdrawal from Afghanistan poses risks for India as it has revived the Taliban’s influence. India has a long history of being targeted by Afghani terrorist groups. And its diplomatic footprint in Afghanistan has been diminishing. Earlier in July, India decided temporarily to close its consulate in Kandahar and evacuated about 50 diplomats and security personnel. As August marks the last month of formal US presence in Afghanistan, negative surprises emanating from Afghanistan should be expected. Bottom Line: Pare exposure to Indian assets on a tactical basis. Our Emerging Markets Strategy takes a more optimistic view but geopolitical changes could act as a negative catalyst in the short term. We urge clients to stay short Indian banks. Investment Takeaways US stimulus contrasts with China’s turmoil. The US Biden administration and congressional negotiators of both parties have tentatively agreed on a $1 trillion infrastructure deal over eight years. Even if this bipartisan deal falls through, Democrats alone can and will pass another $1.3-$2.5 trillion in net deficit spending by the end of the year. Stay short the renminbi. Prefer a balance of investments in the dollar and the euro, given the cross-currents of global recovery yet mounting risks to the reflation trade. A technical bounce in Chinese stocks and tech stocks is nigh. China’s policymakers are starting to respond to immediate financial pressures. However, growth has peaked and structural factors are still negative. The geopolitical outlook is still gloomy and China’s domestic political clock is a headwind for at least 12 more months. Prefer developed market equities over emerging markets (Chart 14). Emerging markets failed to outperform in the first half of the year, contrary to our expectation that the global reflation trade would lift them. China/EM will benefit when Beijing eases policy and growth rebounds. Chart 14Emerging Markets: Not Out Of The Woods Yet Stay short Indian banks and strongman EM currencies, including the Turkish lira, the Brazilian real, and the Philippine peso. The biggest driver of EM underperformance this year is the divergence between the US and China. But until China’s policy corrects, the rest of EM faces downside risks.   Matt Gertken Vice President Geopolitical Strategy mattg@bcaresearch.com   Ritika Mankar, CFA Editor/Strategist ritika.mankar@bcaresearch.com Footnotes 1 Dani Rodrik, The Globalization Paradox: Democracy and the Future of the World Economy (New York: Norton, 2011). 2 See my "Nationalism And Globalization After COVID-19," Investments & Wealth Monitor (Jan/Feb 2021), pp13-21, investmentsandwealth.org. 3 Our study of Xi’s speech is not limited to this quantitative, word-count analysis. A fuller comparison of his speech with that of his predecessors on the same occasion reveals that Xi was fundamentally more favorable toward Marx, less favorable toward Deng Xiaoping and the pro-market Third Plenum, utterly silent on notions of political reform or liberal reform, more harsh in his rhetoric toward the outside world, and hawkish about the mission of reunifying with Taiwan. 4 The Chinese side also insisted that the US stop revoking visas, punishing companies and institutes, treating the press as foreign agents, and detaining executives. It warned that cooperation – which the US seeks on the environment, Iran, North Korea, and other areas – cannot be achieved while the US imposes punitive measures. 5 See US Department of State, "Xinjiang Supply Chain Business Advisory," July 13, 2021, and "Risks and Considerations for Businesses Operating in Hong Kong," July 16, 2021, state.gov. 6 Top business executives are also subject to these displays of state power. For example, Alibaba founder Jack Ma caricatured China’s traditional banks as “pawn shops” and criticized regulators for stifling innovation. He is now lying low and has taken to painting! 7 See Emily Tan and Evelyn Cheng, "China will still allow IPOs in the United States, securities regulator tells brokerages," CNBC, July 28, 2021, cnbc.com. Officials are sensitive to the market blowback but the fact remains that IPOs in the US have been discouraged and arbitrary regulatory crackdowns are possible at any time. 8 Increasing social spending also requires local governments to raise more revenue but the central government had been cracking down on the major source of revenues for local government: land sales and local government financing vehicles. With the threat of punishment for local excesses and lack of revenue source, local governments have no choice but to cut social services, pushing affluent residents towards private services, while leaving the less fortunate with fewer services. As with financial regulations, the central government may backpedal from too tough regulation of local governments, but more economic and financial pain will be required to make it happen. The Geopolitics Of The Olympics The 2020 Summer Olympics are currently underway in Tokyo, even though it is 2021. The arenas are mostly empty given the global pandemic and economic slowdown. Every four years the Summer Olympics create a golden opportunity for the host nation to showcase its achievements, infrastructure, culture, and beauty. But the Olympics also have a long history of geopolitical significance: terrorist acts, war protests, social demonstrations, and boycotts. In 1906 an Irish athlete climbed a flag pole to wave the Irish flag in protest of his selection to the British team instead of the Irish one. In 1968 two African American athletes raised their fists as an act of protest against racial discrimination in the US after the assassination of Martin Luther King Jr. In 1972, the Palestinian terrorist group Black September massacred eleven Israeli Olympians in Munich, Germany. In 1980 the US led the western bloc to boycott the Moscow Olympics while the Soviet Union and its allies retaliated by boycotting the 1984 Los Angeles Olympics. In 2008, Russia used the Olympics as a convenient distraction from its invasion of Georgia, a major step in its geopolitical resurgence. So far, thankfully, the Tokyo Olympics have gone without incident. However, looking forward, geopolitics is already looming over the upcoming 2022 Winter Olympics in Beijing. How the world has changed. The 2008 Summer Olympics marked China’s global coming-of-age celebration. The breathtaking opening ceremony featured 15,000 performers and cost $100 million. The $350 million Bird’s Nest Stadium showcased to the world China’s long history, economic prowess, and various other triumphs. All of this took place while the western democratic capitalist economies grappled with what would become the worst financial and economic crisis since the Great Depression. In 2008, global elites spoke of China as a “responsible stakeholder” that was conducting a “peaceful rise” in international affairs. The world welcomed its roughly $600 billion stimulus. Now elites speak of China as primarily a threat and a competitor, a “revisionist” state challenging the liberal world order. China is blamed for a lack of transparency (if not virological malfeasance) in handling the COVID-19 pandemic. It is blamed for breaking governance promises and violating human rights in Hong Kong, for alleged genocide in Xinjiang, and for a list of other wrongdoings, including tough “Wolf Warrior” diplomacy, cyber-crime and cyber-sabotage, and revanchist maritime-territorial claims. Even aside from these accusations it is clear that China is suffering greater financial volatility as a result of its conflicting economic goals. Talk of a diplomatic or even full boycott of Beijing’s winter games is already brewing. Sponsors are also second-guessing their involvement. More than half of Canadians support boycotting the winter games. Germany is another bellwether to watch. In 2014, Germany’s president (not chancellor) boycotted the Sochi Olympics; in 2021, the EU and China are witnessing a major deterioration of relations. Parliamentarians in the UK, Italy, Sweden, Switzerland, and Norway have asked their governments to outline their official stance on the winter games. In the age of “woke capitalism,” a sponsorship boycott of the games is a possibility. This is especially true given the recent Chinese backlash against European multinational corporations for violating China’s own rules of political correctness. A boycott which includes any members of the US, Norway, Canada, Sweden, Germany, or the Netherlands would be substantial as these are the top performers in the Winter Olympics. Even if there is no boycott, there is bound to be some political protests and social demonstrations, and China will not be able to censor anything said by Western broadcasters televising the events. Athletes usually suffer backlash at home if they make critical statements about their country, but they run very little risk of a backlash for criticizing China. If anything, protests against China’s handling of human rights will be tacitly encouraged. Beijing, for its part, will likely overreact, as these days it not only controls the message at home but also attempts more actively to export censorship. This is precisely what the western governments are now trying to counteract, for their own political purposes. The bottom line is that the 2008 Beijing Olympics reflected China’s strengths in stark contrast with the failures of democratic capitalism, while the 2022 Olympics are likely to highlight the opposite: China’s weaknesses, even as the liberal democracies attempt a revival of their global leadership.   Jesse Anak Kuri Associate Editor Jesse.Kuri@bcaresearch.com Section II: GeoRisk Indicator China Russia United Kingdom Germany France Italy Canada Spain Taiwan Korea Turkey Brazil Australia Section III: Geopolitical Calendar

Highlights Gold is – and always will be – exquisitely sensitive to Fed policy and forward guidance, as last month's "Dot Shock" showed (Chart of the Week). Its price will continue to twitch – sometimes violently – as the widening dispersion of views evident in the Fed dots keeps markets on edge and pushes forward rate expectations in different directions. Fed policy is important but will remain secondary to fundamentals in oil markets. Increasingly inelastic supply will force refiners to draw down inventories, which will keep forward curves backwardated. OPEC 2.0's production-management policy is the key driver here, followed closely by shale-oil's capital discipline. Between these market bookends are base metals, which will remain sensitive to Fed policy, but increasingly will be more responsive to tightening supply-demand fundamentals, as the pace of the global renewables and EV buildout challenges supply. The one thing these markets will share going forward is increasing volatility. Gold volatility will remain elevated as markets are forced to parse sometimes-cacophonous Fed forward guidance; oil volatility will increase with steeper backwardation; and base metals volatility will rise as fundamentals continue to tighten. We remain long commodity-index exposure (S&P GSCI and COMT ETF) and equity exposure (PICK ETF). Feature Gold markets still are processing last month's "Dot Shock" – occasioned by the mid-June move of three more Fed bankers' dots into the raise-rates-in-2022 camp at the Fed – and the sometimes-cacophonous forward guidance of post-FOMC meetings accompanying these projections. Following last month's meeting, seven of the 18 central bankers at the June meeting now favor an earlier rate hike. This dot dispersion fuels policy uncertainty. When policy uncertainty is stoked, demand for the USD typically rises, which generally – but not always – contributes to liquidation of dollar-sensitive positions in assets like commodities. This typically leads to higher price volatility.1 This is most apparent in gold, which is and always will be exquisitely sensitive to Fed guidance and the slightest hint of a change in course (or momentum building internally for such a change). This is what markets got immediately after the June meeting. When this guidance reflects a wide dispersion of views inside the Fed, it should come as no surprise that price volatility increases among assets that are most responsive to monetary policy. This dispersion of market expectations – as a matter of course – is intensified by discordant central-bank forward guidance.2 Fundamentals Reduce Oil's Sensitivity To Fed Policy Fed policy will always be important for the evolution of the USD through time, which makes it extremely important for commodities, since the most widely traded commodities are priced in USD. All else equal, an increase in the value of the USD raises the cost of commodities ex-US, and vice versa. Chart of the WeekGold Still Processing Dot Shock Chart 2Oil Market Remains Tight... The USD's impact is dampened when markets are fundamentally tight – e.g., when the level of demand exceeds supply, as is the case presently for oil (Chart 2).3 When this occurs, refiner inventories have to be drawn down to make up for supply deficits (Chart 3). This leads to a backwardation in the oil forward curves – i.e., prices of prompt-delivery oil are higher than deferred-delivery oil – reflecting the fact that the supply curve is becoming increasingly inelastic (Chart 4). This backwardation benefits OPEC 2.0 member states, as most of them have long-term supply contracts with customers indexed to spot prices, and investors who are long commodity-index exposure, as it is the source of the roll yield for these products.4 Chart 3Forcing Inventories To Draw... Chart 4...And Backwardating Forward Curves Copper's Sensitivity To Fed Policy Declining Supply-demand fundamentals in base metals – particularly in the bellwether copper market – are tightening, which, as the oil market illustrates, will make prices in these markets less sensitive to USD pressures going forward (Chart 5). We expect the copper forward curve to remain backwardated for an extended period (Chart 6), which will distance the evolution of copper prices from Fed policy variables (e.g., interest rates and the USD). Chart 5Copper USD Sensitivity Will Diminish As Balances Tighten Chart 6Expect Persistent Backwardation In Copper Indeed, our modeling suggests this already is occurring in the metals markets, as can be seen from the resilience of copper prices during 1H21, when China's fiscal and monetary stimulus was waning and, recently, during the USD's recent rally, which was an unexpected headwind generated by the Fed's June meeting. If, as appears likely, China re-engages in fiscal and monetary stimulus in 2H21, the global demand resurgence for metals, copper in particular, will receive an additional fillip. Like oil, copper inventories will have to be drawn down over the next two years to make up for physical deficits, which have been a persistent problem for years (Chart 7). Capex in copper markets has yet to be incentivized by higher prices, which means these physical deficits likely will widen as the world gears up for expanded renewables generation and the grids required to support them, not to mention higher electric vehicle (EV) demand. If, as we expect, copper miners do not invest in new greenfield mine projects – choosing instead to stay with their brownfield expansion strategies – the market will tighten significantly as the world ramps up its demand for renewable energy. This means copper's supply curve will, like oil's, become increasingly inelastic. At the limit – i.e., if new mining capex is not incentivized – price will be forced to allocate limited supply, and may even have to get to the point of destroying demand to accommodate the renewables buildout. Chart 7Supply-Demand Balance Tightening In Copper A Word On Spec Positioning We revisited our modeling of speculative influence on these markets over the past couple of weeks, in anticipation of the volatility we expect and the almost-certain outcry from public officials that will ensue. Our modeling continues to support our earlier work, which found fundamentals are determinant to the evolution of industrial commodity prices. Using Granger-Causality and econometric analysis, we find prices mostly explain spec positioning in oil and copper, and not the other way around.5 We do find spec positioning – via Working's T Index – to be important to the evolution of volatility in WTI crude oil options, along with other key variables (Chart 8).6 That said, other variables are equally important to this evolution, including the St. Louis Fed's Financial Stress Index, EM equity volatility, VIX volatility and USD volatility. These variables are not useful in modeling copper volatility, where it appears fundamental and financial variables are driving the evolution of prices and, by extension, price volatility. We will continue to research this issue, and will continue to subject our results to repeated trials in an attempt to disprove them, as any researcher would do. Chart 8Oil Volatility Drivers Investment Implications Gold will remain hostage to Fed policy, but oil and base metals increasingly will be charting a path that is independent of policy-related variables, chiefly the USD. There is no escaping the fact that gold volatility will increasingly be in the thrall of US monetary policy – particularly during the next two years as the Fed attempts to guide markets toward something resembling normalization of that policy.7 However, as the events of the most recent FOMC meeting illustrate, gold price volatility will remain elevated as markets are forced to parse oftentimes-cacophonous Fed forward guidance. This would argue in favor of using low-volatility episodes as buying opportunities in gold options – particularly calls, as we continue to expect gold prices to end the year at $2,000/oz. We also favor silver exposure via calls, expecting price to go to $30/oz this year. In oil and base metals, we continue to expect supply-demand fundamentals in these markets to tighten, which predisposes us to favor commodity index products. For this reason, we remain long commodity-index exposure – specifically the S&P GSCI index, which is up 6.8% since inception, and the COMT ETF, which is up 8.7% since inception. We expect the base metals markets to remain very well bid going forward, and remain long equity exposure in these markets via the PICK ETF, which we re-entered after a trailing stop was elected that left us with a 24% gain since inception at the end of last year.   Robert P. Ryan Chief Commodity & Energy Strategist rryan@bcaresearch.com Ashwin Shyam Research Associate Commodity & Energy Strategy ashwin.shyam@bcaresearch.com Commodities Round-Up Energy: Bullish US crude oil stocks (ex SPR) fell 6.7mm barrels in the week ended 25 June 2021, according to the US EIA. Total crude and product stocks were down 4.6mm barrels. Domestic crude oil production was unchanged at 11.1mm b/d over the reporting week. Total refined-product demand surpassed the comparable 2019 reporting period, led by higher distillate consumption (4.2mm b/d vs 3.8mm b/d). Gasoline consumption remains a laggard (9.2mm b/d vs 9.5mm b/d), as does jet fuel (1.4mm b/d vs 1.9mm b/d). Propane and propylene demand surged over the period, likely on the back of petchem demand (993k b/d vs 863k b/d). Base Metals: Bullish Base metals prices are moving higher in anticipation of tariffs being imposed by Russia to discourage exports beyond the Eurasian Economic Union, according to argusmedia.com. In addition to export tariffs on copper, aluminum and nickel, steel exports also will face levies to discourage material from leaving the EAEU (Chart 9). The tariffs are expected to remain in place from August through December 2021. Separately, premiums paid for high-quality iron ore in China (65% Fe) reached record highs earlier this week, as steelmakers scramble for supply, according to reuters.com. The premium iron ore traded close to $36/MT over benchmark material (62% Fe) this week. Precious Metals: Bullish Gold prices continue to move lower following the FOMC meeting on June 16. The yellow metal was down 0.6% y-o-y at $1762.80/oz as of Tuesday’s close after being up a little more than 13% y-o-y before the FOMC meeting earlier this month (Chart 10). We believe the USD rally, which, based on earlier research we have done, could be benefitting from safe-haven demand arising from global concern over the so-called Delta variant of COVID-19, which has spread to at least 85 countries. Public-health officials are fearful this could cause a resurgence in COVID-19 cases and additional mutations in the virus if vaccine distribution in EM states is not increased. Ags/Softs: Neutral Widely disparate weather conditions in the US west and east crop regions – drought vs cooler and wetter weather – appear to be on track to produce average crop yields for corn and beans this year, according to agriculture.com's Successful Farming. In regions where hard red spring wheat is grown, states experiencing low rainfall likely will have poor crops this year. Chart 9 Chart 10   Footnotes 1     We model gold prices as a function of financial variables sensitive to Fed policy – e.g., real rates and the broad trade-weighted USD – and uncertainty, which is conveyed via the Global Economic Policy Uncertainty (GEPU) index published by Baker, Bloom & Davis.  2     Please see Lustenberger, Thomas and Enzo Rossib (2017), "Does Central Bank Transparency and Communication Affect Financial and Macroeconomic Forecasts?" SNB Working Papers, 12/2017. The Swiss central bank researchers find "… the verdict about the frequency of central bank communication is unambiguous. More communication produces forecast errors and increases their dispersion. … Stated differently, a central bank that speaks with a cacophony of voices may, in effect, have no voice at all. Thus, speaking less may be beneficial for central banks that want to raise predictability and homogeneity among financial and macroeconomic forecasts. We provide some evidence that this may be particularly true for central banks whose transparency level is already high." (p. 26) 3    Please see OPEC 2.0 Vs. The Fed, published on February 8, 2018, for additional discussion. 4    Please see The Case For A Strategic Allocation To Commodities As An Asset Class, a Special Report we published on March 11, 2021 on commodity-index investing.  It is available at ces.bcaresearch.com. 5    The one outlier we found was Brent prices, for which non-commercial short positioning does Granger-Cause price.  Otherwise, price was found to Granger-Cause spec positioning on the long and short sides of the market. 6   Please see BCA Research's Commodity & Energy Strategy Weekly Report, "Specs Back Up The Truck For Oil," published on April 26, 2018, in which we introduce Holbrook Working's "T Index," a measure of speculative concentration in futures and options markets. It is available at ces.bcaresearch.com. Briefly, Working's T Index shows how much speculative positioning exceeds the net demand for hedging from commercial participants in the market. 7     Please see How To Re-Shape The Yield Curve Without Really Trying published by our US Bond Strategy group on June 22 for a deeper discussion of the outlook for Fed policy.   Investment Views and Themes Strategic Recommendations Tactical Trades Commodity Prices and Plays Reference Table Trades Closed in 2021 Summary of Closed Trades

Highlights The US is withdrawing from the Middle East and South Asia and making a strategic pivot to Asia Pacific. The third quarter will see risks flare around Iran and the US rejoin the 2015 Iranian nuclear deal. The result is briefly negative for oil prices but the rise of Iran is a new geopolitical trend that will increase Middle Eastern risk over the long run. The geopolitical outlook is dollar bullish, while the macroeconomic outlook is getting less dollar-bearish due to China’s risk of over-tightening policy. Stay neutral USD and be wary of commodities and emerging markets in the third quarter. European political risk is bottoming. The German and French elections are at best minor risks. However, the continent is ripe for negative black swans, especially due to Russian aggression. Go tactically long global large caps and defensives. Feature Chart 1Three Key Views On Track (So Far) We chose “No Return To Normalcy” as the theme of our 2021 outlook. While the COVID-19 vaccine promised economic recovery, we argued that normalization would create complacency regarding fundamental changes that have taken place in the geopolitical environment. A contradiction between an improving macroeconomic backdrop and a foreboding geopolitical backdrop would develop in 2021 and beyond. The “reflation trade” has begun to lose steam as we go to press. However, global recovery will still be the dominant story in the second half of the year as vaccination spreads. The question for the third quarter and the rest of the year is whether reflation will continue. As a matter of forecasting, we think it will. But as a matter of investment strategy, we are taking a more defensive stance until China relaxes economic policy. In our annual outlook we highlighted three key geopolitical views: (1) China’s headwinds, both at home and abroad (2) US détente with Iran and pivot to Asia (3) Europe’s opportunity. All three trends are broadly on track and can be illustrated by looking at equity performance in the relevant regions for the year so far: Chinese stocks sold off, UAE stocks rallied, and European stocks rallied (Chart 1). However, these trends are not exclusively tied to absolute equity performance. The most important question is what happens to global growth and the US dollar as these three key views continue. Stay Neutral On The Dollar It paid off for us to maintain a neutral stance on the dollar. True, the global recovery and exorbitant US trade and budget deficits are bearish for the dollar and bullish for other currencies. But the greenback’s “counter-trend bounce” is proving more formidable than many investors expected. The fundamentals of the American economy and global position remain strong. Since the outbreak of COVID-19, the US has secured its recovery with fiscal policy, maintained rule of law amid a contested election, innovated and distributed vaccines, benefited from more flexible social restrictions, refurbished global alliances, and put pressure on its geopolitical rivals. In essence, the combined effect of President Trump’s and Biden’s policies has been to make America “great again” (Chart 2). From a geopolitical perspective, the dollar is appealing. Chart 2Trump-Biden Make America Great Again? In addition, the first two geopolitical views mentioned above – China’s headwinds and the US-Iran détente – imply a negative environment for China and the renminbi. The reason for the US to do a suboptimal deal with Iran, both in 2015 and 2021, is to reduce the risk of war and buy time to enable a strategic pivot to Asia Pacific. Three US presidents have been elected on the pledge to conclude the “forever wars” in the Middle East and South Asia. Biden is withdrawing US troops from Afghanistan in September. There can be little doubt Biden is committed to an Iran deal, which is supposed to free up the US’s hands (Chart 3). Meanwhile the US public and Congress are unified in their desire to better defend US interests against China’s economic and military rise. There has not yet been a stabilization of US-China policies. Biden is not likely to hold a summit with Chinese President Xi Jinping until late October at earliest – and that is a guess, not a confirmed summit. The Biden administration has completed its review of China policy and is maintaining the Trump administration’s hawkish posture, as predicted. The US and China may resume their strategic and economic dialogue at some point but it is impossible to go back to the status quo ante 2015. That was the year the US adopted a more confrontational stance toward China – a stance later supercharged by Trump’s election and trade tariffs. The hawkish consensus on China is one of the rare unifying factors in a deeply divided America. The Biden administration explicitly says the US-China relationship is now defined by “competition” instead of “engagement.”1 One exception to this neutral view on the dollar has been our decision to go long the Japanese yen and Swiss franc, which has not panned out so far. Our reasoning is that geopolitical risk will boost these currencies but otherwise the reduction of geopolitical risk will weigh on the dollar in the context of global growth recovery. So far geopolitical risk has remained subdued while the US dollar has outperformed. We are still sympathetic to these safe-haven currencies, however, as they are attractively valued as long as one expects geopolitical risks to materialize (Chart 4). Chart 3US Pivot To Asia Runs Through Iran Our third key view, that EU was the real winner of the US election last year, remains on track. This is marginally positive for the euro at the expense of the dollar. Given the above points, we favor an equal-weighted basket of the euro and the dollar relative to the renminbi (Chart 5). Chart 4Safe-Haven Currencies Attractive Chart 5Favor Euro And Dollar Over Renminbi The geopolitical outlook is dollar-bullish. The macroeconomic outlook is dollar-bearish, except that China’s economy looks to slow down. We expect China to ease policy in the second half of the year but it may come late. We remain neutral dollar in the third quarter. Wait For China To Relax Policy July 1 marks the centenary of the Communist Party of China. The main thing investors should know is that the Communist Party predates China’s capitalist phase by sixty years. The party adopted capitalism to improve the economy – it never sacrificed its political or foreign policy goals. This poses a major geopolitical problem today because the Communist Party’s consolidation of power across Greater China, symbolized by Beijing’s revocation of Hong Kong’s special status in 2019, has convinced the western democracies that China is no longer compatible with the liberal world order. China launched a 13.8% of GDP monetary-and-fiscal stimulus over 2018-20 due to the trade war and COVID-19 pandemic. So the economy is stable for the hundredth anniversary celebration. The centenary goals are largely accomplished: GDP is larger, poverty is nearly extinguished, although urban incomes are still lagging (Chart 6). General Secretary Xi Jinping will mark the occasion with a speech. The speech will contribute to his governing philosophy, Xi Jinping Thought, a synthesis of communist Mao Zedong Thought and the pro-capitalist “socialism with Chinese characteristics” pioneered by General Secretary Deng Xiaoping in the 1980s-90s. The effect is to reassert Communist Party and central government primacy after the long period of decentralization that enabled China’s rapid growth phase. It is also to endorse an inward economic turn after the four-decade export-manufacturing boom. The Xi administration’s re-centralization of policy has entailed mini-cycles of tightening and loosening control over the economy. The administration leans against the country’s tendency to gorge itself on debt and grow at any cost – until it must lean the other way for fear of triggering a destabilizing slowdown. For this reason Beijing tightened policy proactively last year, producing a sharp drop in money, credit, and fiscal expansion in 2021 that now threatens to undermine the global recovery. By our measures, any further tightening will result in undershooting the regime’s money and credit targets, i.e. overtightening, and hence threaten to drag on the global recovery (Chart 7). Chart 6China's Communist Party Centenary Goals Chart 7China Verges On Over-Tightening Policy Overtightening would be a policy mistake with potentially disastrous consequences. So the base case should be that the government will relax policy rather than undermine the post-COVID recovery. However, investors cannot be confident about the timing. The 2015 financial turmoil and renminbi devaluation occurred because policymakers reacted too slowly. One reason to believe policy will be eased is that after July 1 the government will turn its attention to the twentieth national party congress in 2022, the once-in-five-years rotation of the Central Committee and Politburo. The party congress begins at the local level at the beginning of next year and culminates in the fall of 2022 with the national rotation of top party leaders. Xi Jinping was originally slated to step down in 2022. So he needs to squash any last-minute push against him by opposing factions of the party. He may have himself named chairman of the Communist Party, like Mao before him. Most importantly he will put his stamp on the “seventh generation” of China’s leaders by promoting his followers into key positions. All of this suggests that the Xi administration cannot risk triggering a recession, even if its preferences remain hawkish on economic policy. Policy easing could come as early as the end of July. As a rule of thumb, we have noticed that the Politburo’s July meeting on economic policy is often an inflection point, as was the case in 2007, 2015, 2018, and 2020 (Table 1). Some observers claim the April Politburo meeting already signaled an easing in policy, although we do not see that. If July clearly signals relaxation, global investors will cheer and emerging market assets and commodities will rise. Table 1China’s Politburo Often Hits Inflection Point On Economic Policy In July Still we maintain a defensive posture going into the third quarter because we do not have a high level of confidence that policymakers will act preemptively. A market riot may precede and motivate the inflection point in policy. Also the negative impact of previous policy tightening will be felt in the third quarter. China plays and industrial metals are extremely vulnerable to further correction (Chart 8). Chart 8China Plays And Metals Vulnerable To Further Correction The earliest occasion for a Biden-Xi summit comes at the end of October, as mentioned. While US-China talks will occur at some level, relations will remain fundamentally unstable. While a Biden-Xi summit may improve the atmosphere and lead to a new round of strategic and economic dialogue, or Phase Two trade talks, the fact is that the US is seeking to contain China’s rise and China is seeking to break out of the strictures of the US-led world order. The global elite and mainstream media will put a lot of emphasis on the post-Trump return to diplomatic “normalcy” and summits. But this is to overemphasize style at the expense of substance. Note that the positive feelings of the Biden-Putin summit on June 16 fizzled in less than a week when Russia allegedly dropped bombs in the path of a British destroyer in the Black Sea. The US and UK were training Ukraine’s military. Britain denies any bombs were dropped but Russia says next time they will hit their target. (More on this below.) This episode is instructive for US-China relations: summitry is overrated. China is building a sphere of influence and the US no longer believes dialogue alone is the answer. Tit-for-tat punitive measures and proxy battles in China’s neighboring areas, from the Korean peninsula to the Taiwan Strait to the South and East China Seas, are the new normal. Bottom Line: Tactically, stay defensive on global risk assets, especially China plays. Strategically, maintain a constructive outlook on the cycle given the global recovery and China’s need eventually to relax monetary and fiscal policy. US-Iran Deal Likely – Then The Real Trouble Starts The US will likely rejoin the 2015 Iranian nuclear deal (Joint Comprehensive Plan of Action) by August and pull out of its longest-ever war in Afghanistan in September. The US is wrapping up its “forever wars” to meet the demands of a war-weary public. Ironically, the long-term consequence is to create power vacuums that invite new geopolitical conflicts in the context of the US’s great power struggle with China and Russia. But for now a deal with Iran – once it is settled – reduces geopolitical risk by reducing the odds of military escalation in the region. The Iran talks are more significant than the Afghanistan pullout. We are confident in a deal because Biden can rejoin the 2015 deal unilaterally – it was never approved by the US Senate as a formal treaty. The Iranians will not support any militant action so aggressive as to scupper a deal that offers them the chance of reviving their economy at a critical time in the regime’s history. Reviving the deal poses a downside risk for oil prices in the third quarter though not over the long run. It is negative in the short run because investors will have to price not only Iran’s current and future production (Chart 9) but also any resulting loss of OPEC 2.0 discipline. Brent crude is trading at $76 per barrel as we go to press, above the $65-$70 per barrel average that our Commodity & Energy Strategy service expects to see over the coming five years (Chart 10). Chart 9Iran's Oil Production Will Return Chart 10Brent Price Faces Short-Term Downside Risk From Iranian Crude The oil price ceiling is enforced by the cartel of oil producers who fear that too high of prices will incentivize US shale oil production as well as the global shift to renewable energy. The Russians have always dragged their feet over oil production cuts and are now pushing for production hikes. The government needs an oil price of around $50-55 per barrel for the budget to break even. The Saudis need higher prices to break even, at $70-75 per barrel. Moscow must coordinate various oil producers, led by the country’s powerful oligarchs and their factions, which is inherently more difficult than the Saudi position of coordinating one producer, Aramco. The Russians and Saudis have maintained cartel discipline so far in 2021, as expected, because the wounds of the market-share war last year are still raw. They retreated from that showdown in less than a month. However, a major escalation in Saudi Arabia’s strategic conflict with Iran could push the Saudis to seek greater market share at Iran’s expense, as occurred before the original Iran deal in 2014-15. Hence our view that the risk to oil prices will shift from the upside to the downside in the second half of the year if the US-Iran deal is reconstituted. Over the long run, the deal is not negative for oil prices. The deal is a tradeoff for lower geopolitical risk today but higher risk in the future. The reason is that Iran’s economic recovery will strengthen its strategic hand and generate a backlash in the region. The global oil supply and demand balance will fluctuate according to circumstances but regional conflict will inject a risk premium over time. Biden’s likely decision to rejoin the 2015 deal should be seen as a delaying tactic. It is impossible to go back to 2015, when the US had mustered a coalition of nations to pressure Iran and when Iran’s “reformist” faction stood to receive a historic boost from the opening of the country’s economy. Now the US lacks a coalition and the reformists are leaving office in disgrace, with the hardliners (“principlists”) taking full power for the foreseeable future. Iran is happy to go back to complying with a deal that consists of sanctions relief in exchange for temporary limits on its nuclear program. The 2015 deal’s restrictions on Iran’s nuclear program begin expiring in 2023 and continue to expire through 2040. Biden has no chance of negotiating a newer and more expansive deal that extends these sunset clauses while also restricting Iran’s ballistic missile program and regional militant activities. He will say that easing sanctions is premised on a broader “follow on” deal to achieve these US goals. But the broader deal is unlikely to materialize anytime soon. The Iranians will commit to future talks but they will have no intention of agreeing to a more expansive deal unless forced. The country’s leaders will never abandon their nuclear program after witnessing the invasions of non-nuclear Libya and Ukraine – in stark contrast with nuclear-armed North Korea. Moreover Biden cannot possibly reassemble the P5+1 coalition with Russia and China anytime soon. The US is directly confronting these states. They could conceivably work with the US when Iran is on the brink of obtaining nuclear weapons but not before then. They did not prevent North Korea. The Supreme Leader Ali Khamenei, the soon-to-be-inaugurated President Ebrahim Raisi, the Iranian Revolutionary Guard Corps, the Ministry of Intelligence, and other pillars of the regime are focused exclusively on strengthening the regime in advance of Khamenei’s impending succession sometime in the coming decade. The succession could easily lead to domestic unrest and a political crisis, which makes the 2020s a critical period for the Islamic Republic. With Tehran focused on a delicate succession, it is not a foregone conclusion that Iran will go on the offensive to expand its sphere of influence immediately after the US deal. But sooner or later a major new geopolitical trend will emerge: the rise of Iran. With sanctions removed, trade and investment increasing, and Chinese and Russian support, Iran will be capable of pursuing its strategic aims in the region more effectively. It will extend its influence across the “Shia Crescent,” including Iraq. The fear that this will inspire in Israel and the Gulf Arab states has already generated a slow-boiling war in the region. This war will intensify as the US will be reluctant to intervene. The purpose of the deal is to enable the war-weary US to reduce its active involvement in the region. The US foreign policy and defense establishment do not entirely see it this way – they emphasize that the US will remain engaged. But US allies in the Middle East will not be convinced. The region already has a taste for the way this works after the US’s precipitous withdrawal from Iraq in 2011, which lead to the rise of the Islamic State terrorist group. Biden will try not to be so precipitous but the writing is on the wall: the US will reduce its focus and commitment. A scramble for power in the region will begin the moment the ink dries on Biden’s signature of the JCPA. Israel and the Arab states are forming a de facto alliance – based on last year’s Abraham Accords – to prepare for Iran’s push to dominate the region. Even if Iran is not overly aggressive (a big if), Israel and the Gulf Arabs will overreact as a result of their fear of abandonment. They will also seek to hedge their bets by improving ties with the Chinese and Russians, making the Middle East the scene of a major new proxy battle in the global great power struggle. As a risk to our view: if the Biden administration changes course this summer and refuses to lift sanctions or rejoin the Iran deal – low but not zero probability – then tensions with Iran will explode almost instantaneously. The Iranians will threaten to close the Strait of Hormuz and a crisis will erupt in the third or fourth quarter. Bottom Line: The US will most likely rejoin the Iranian nuclear deal by August to avoid an immediate crisis or war. The Biden administration will wager that it can lend enough support to regional allies to keep Iran contained. This might work, as the Iranians will focus on fortifying the regime ahead of its leadership succession. However, Iran’s hardline leadership will see an opportunity in America’s withdrawal from its “forever wars.” Iran will increasingly cooperate with Russia and China. Iran’s conflict with Israel and Saudi Arabia will be extremely difficult to manage and will escalate over time, quite possibly creating a revolution or war in Iraq. The Gulf Arabs are already under immense pressure from the green energy revolution. Thus while oil prices might temporarily fall on the return of Iranian exports, they will later see upward pressure from a new wave of Middle Eastern instability. European Political Risk Has (Probably) Bottomed By contrast with all the above we have viewed Europe as a negligible source of (geo)political risk in 2021. European policy uncertainty is falling in Europe relative to these other powers and the rest of the world (Chart 11). Chart 11Europe's Relative Policy Uncertainty Bottoming Chart 12EU Break-Up Risk Hits Floor (Again) The risk of a break-up of the European Union has wilted and remains at historic lows (Chart 12). There is no immediate threat of any European countries emulating the UK and attempting to exit. Even Italian support for the euro has surged. Immigration flows have plummeted. European solidarity is not on the ballot in the upcoming German and French elections. Germany is choosing between the status quo and a “green revolution” that would not really be a revolution due to the constraints of coalition politics. The Greens have lost some momentum relative to their polling earlier this year but underlying trends suggest they will surprise to the upside in the September 26 vote (Charts 13A and 13B). They embrace EU solidarity, robust government spending, weariness with the Merkel regime, and concerns about climate change, Russia, China, and social justice. Chart 13AGerman Greens Will Surprise To Upside Chart 13BGerman Greens Will Surprise To Upside We expect the Greens to surprise to the upside. But as they are forced into a coalition with the ruling Christian Democrats then they will be limited to raising spending rather raising taxes (Table 2). The market will cheer this result. Table 2German Greens’ Ambitious Tax Hike Proposals If the Greens disappoint then a right-leaning government and too early fiscal tightening could become a risk – but it is a minor risk because Merkel’s hand-picked successor, the CDU Chancellor Candidate Armin Laschet, will be pro-Europe and fiscally dovish, just like the mainstream of his party under Merkel. The only limitation on this dovishness is that it would take another global shock for there to be enough votes in the Bundestag to loosen the schuldenbremse or “debt brake.” In France, President Emmanuel Macron is likely to win re-election – the populist candidate Marine Le Pen remains an underdog who is unlikely to make it through France’s two-round electoral system. In Italy, Prime Minister Mario Draghi is overseeing a national unity coalition that will dole out EU recovery funds. An election cannot be held ahead of the presidential election in January, which will be secured by the establishment parties as a major check on any future populist ruling coalition. The risk in these countries, as in Spain and elsewhere, is that neoliberal structural reform and competitiveness are falling by the wayside. Fiscal largesse is positive for securing the recovery but long-term growth potential will remain depressed (Chart 14). Chart 14European And Global Fiscal Stimulus (Updated June 2021) Europe remains stuck in a liquidity trap over the long run. It depends on the rest of the world for growth. This is a problem given that China’s potential growth is slowing and there is no ready substitute that will prop up global growth. Europe is increasingly ripe for negative “black swan” events. The power vacuum in the Middle East described above will lead to instability and regime failures that will threaten European security. Russia will remain aggressive, a reflection of its crumbling structural foundations. The Putin administration has not changed its strategy of building a sphere of influence in the former Soviet Union and pushing back against the West, as signaled by the threat to bomb ships that sail in Crimean waters – a unilateral expansion of Russia’s territorial waters following the Crimean invasion. The Biden administration is not seeking anything comparable to the diplomatic “reset” with Russia from 2009-11, which ended in acrimony. In other words, European political risk may be bottoming as we speak. Investment Takeaways Chart 15Limited Equity Upside From Likely US Infrastructure Bill US Peak Fiscal Stimulus: The Biden administration is highly likely to pass an infrastructure package through Congress, either as a bipartisan deal with Republicans or as part of the American Jobs Plan. The result is another $1-$1.5 trillion fiscal stimulus, albeit over an eight-year period, with infrastructure funding taking until 2024-25 to ramp up. Biden’s other plans probably will not pass before the 2022 midterm election, which will likely bring gridlock. Investors are well aware of these proposals and the policy setting will probably be frozen after this year. Hence there is limited remaining upside for global materials sector and US infrastructure plays (Chart 15). The extravagant US fiscal thrust of 2020-21 will turn into a huge fiscal drag in 2022 (Chart 16). The Federal Reserve, however, will remain ultra-dovish as long as labor market slack persists – regardless of who is at the helm. Chart 16US Fiscal Drag Very Large In 2022 Chart 17Go Long Large Caps And Defensives China’s Headwinds Persist: China may or may not ease policy in time to prevent a market riot. China plays and industrial metals are highly exposed to a correction and we recommend steering clear. US-Iran Deal Weighs On Oil Price: Tactically we are neutral on oil and oil plays. An Iran deal could depress oil prices temporarily – and potentially in a major way if the Saudis agree with the Russians on increasing production. Fundamentals are positive but depend on the OPEC 2.0 cartel. The cartel faces the risk that higher prices will incentivize both alternative oil providers and the green revolution. Europe’s Opportunity: We continue to see the euro and European stocks offering value. Given the troubles with Russia we favor developed Europe plays over emerging Europe. The German election would be a bullish catalyst for European assets but headwinds from China will prevail, which is negative for cyclical European stocks. The Russian Duma election, also in September, creates high potential for Russia to clash with the West between now and then. Tactically, go long global large caps and defensives (Chart 17).   Matt Gertken Vice President Geopolitical Strategy mattg@bcaresearch.com   Footnotes 1 Independent Vermont Senator Bernie Sanders recently felt it was necessary to warn against a second cold war. Sanders, a democratic socialist, is a reliable indicator of the left wing of the Democratic Party and a dissenter who puts pressure on the center-left Biden administration. His fears underscore the dominance of the new hawkish consensus. Appendix China Russia UK Germany France Italy Canada Spain Taiwan – Province Of China Korea Turkey Brazil Australia

Highlights Oil demand expectations remain high. Realized demand continues to disappoint. This means OPEC 2.0's production-management strategy – i.e., keeping the level of supply below demand – will continue to dictate oil-price levels. US producers will remain focused on consolidation via M&A and on returning capital to shareholders, in line with the Kingdom of Saudi Arabia's (KSA) expectation. Going forward, shale producers will focus on protecting and growing profit margins. The durability of OPEC 2.0's tactical advantage arising from its enormous spare capacity – ~ 7mm b/d – is difficult to gauge: Tightening global oil markets now in anticipation of Iran's return as a bona fide exporter benefits producers globally, and could accelerate the return of US shales if that return is delayed or re-opening boosts demand more than expected. We are raising our average Brent forecast for 2021 to $66.50 vs. $63/bbl earlier, with 2H21 prices averaging $70/bbl. We are moving our 2022 and 2023 forecasts up slightly to $74 and $81/bbl (Chart of the Week). WTI will trade $2-$3/bbl lower. We remain long the S&P GSCI Dynamic Roll Index ETF (COMT) and the S&P GSCI, expecting tight supply-demand balances to further steepen backwardations in forward curves. Feature While the forecasted rebound in global oil demand continues to drive expectations for higher prices, it is the production discipline of OPEC 2.0 and capital discipline imposed on US shale producers that has and will continue to super-charge the recovery of prices. Continued monetary accommodation and fiscal stimulus notwithstanding, realized global oil demand has mostly flatlined at ~ 96mm b/d following its surge in February, as uncertainty over COVID-19 containment keeps governments hesitant about reopening their economies too quickly. Stronger demand in Asia, led by China, has been offset by weaker demand in India and Japan, where COVID-19 remains a deterrent to re-opening and recovery. The recovery in DM demand generally stalled over this period even as vaccine availability increased (Chart 2). Chart of the WeekOPEC 2.0 Comfortable With Higher Prices Chart 2Global Demand Recovery Stalled That likely will change in 2H21, but it is not a given: The UK, which has been among the world leaders in COVID-19 containment and vaccinations, delayed its full reopening by a month – to July 19 – in an effort to gain more time to bolster its efforts against the Delta variant first identified in India. In the US, New York state lifted all COVID-19-induced restrictions and fully re-opened this week. Still, even in the US, unintended inventory accumulation in the gasoline market – just as the summer driving season should be kicking into high gear – suggests consumers remain cautious (Chart 3). Chart 3Unintended Inventory Accumulation in US Gasoline Market We continue to expect the re-opening of the US and Europe (including the UK) will boost DM demand in 2H21, and wider vaccine availability will boost EM oil demand later in the year and in 2022. For all of 2021, we have lifted our demand-growth estimate slightly to 5.3mm b/d from 5.2mm b/d last month. We expect global demand to grow 4.1mm b/d next year and 1.6mm b/d in 2023. Our 2021 estimates are in line with those of the US EIA and the IEA. OPEC is more bullish on demand recovery this year, expecting growth of 6mm b/d. We continue to believe the risk on the demand side remains to the upside; however, given continued uncertainty around global COVID-19 containment, we remain circumspect. Supply-Side Discipline Drives Oil Prices OPEC 2.0 remains committed to its production-management strategy that is keeping the level of supply below demand. Compliance with production cuts in May reportedly was at 115%, following a 114% rate in April.1 Core OPEC 2.0 – i.e., states with the capacity to increase production – is holding ~ 7mm b/d of spare capacity, according to the IEA, which will allow it to continue to perform its role as the dominant supplier in our modeling (Chart 4). Earlier this year, KSA's Energy Minister Abdulaziz bin Salman correctly recognized the turn in the market that likely ensures OPEC 2.0's dominance for the foreseeable future – i.e., the shift in focus of the US shale-oil producers from production for the sake of production to profitability.2 This is a trend that has been apparent for years as capital markets all but abandoned US shale-oil producers. Chart 4OPEC 2.0 Remains Dominant Producers outside OPEC 2.0 – what we refer to as the "price-taking cohort" – have prioritized shareholder interests as a result of this market pressure, and remain focused on sometimes-forced consolidation via M&A, which we have been expecting.3 The significance of this evolution of shale-oil production is difficult to overstate, particularly as the survivors of this consolidation will be firms with strong balance sheets and a focus on profitability, as is the case with any well-run manufacturing firm. We also expect large producers to opportunistically shed production assets to reduce their carbon footprints, so as to come into compliance with court-ordered emission reductions and shareholder demands to reduce pollution.4 With the oil majors like Shell, Equinor and Oxy divesting themselves of shale properties, production increasingly will be in the hands of firms driven by profitability.5 We expect US shale-oil production to end the year at 9.86mm b/d and to average 9.57mm b/d next year; however, as the shales become the marginal global supply, production could become more volatile (Chart 5). The consolidation of US production also will alter the profitability of firms continuing to operate in the shales. We expect breakeven costs to fall as acquired production by stronger firms results in high-grading of assets – only the most profitable will be produced given market-pricing dynamics – while less profitable acreage will be mothballed until prices support development(Chart 6). Chart 5US Producers Focus On Profitability Chart 6Shale Breakevens Likely Fall As Consolidation Picks Up Supply-Demand Balances Tightening The current round of M&A consolidation and OPEC 2.0's continued discipline lead us to expect continued tightening of global oil supply-demand balances this year and next (Chart 7). This will allow inventories to continue to draw, which will keep forward oil curves backwardated (Chart 8). Chart 7Supply-Demand Balances Will Continue To Tighten Chart 8Tighter Markets, Lower Stocks The critical factor here will be OPEC 2.0's continued calibration of supply in line with realized demand and the return of Iran as a bona fide exporter, which we expect later this year. OPEC 2.0's restoration of ~ 2mm b/d of supply will be done by the beginning of 3Q21, when we expect Iran to begin restoring production and visible exports (i.e., in addition to its under-the-radar sales presently). The return of Iranian supply – and a possible increase in Libyan output – will present some timing difficulties for OPEC 2.0's overall strategy, but they will be short-lived. We continue to monitor output to assess the evolution of balances (Table 1). Table 1BCA Global Oil Supply - Demand Balances (MMb/d, Base Case Balances) Investment Implications Oil demand will increase over the course of 2H21, as vaccines become more widely distributed globally, and the massive fiscal and monetary stimulus deployed worldwide kicks economic activity into high gear. On the supply side, markets will tighten on the back of continued restraint until Iranian barrels return to the market. The balance of risk is to the upside, particularly if the US and Iran are unable to agree terms that restore Iran as a bona fide exporter. In that case, the market tightening now under way will result in sharply higher prices. That said, realized demand growth has stalled over the past three months, which can be seen in unintended inventory accumulation in the US gasoline markets just as the summer driving season opens. We are raising our average Brent forecast for 2021 to $66.50 vs. $63/bbl earlier, with 2H21 prices averaging $70/bbl. We are moving our 2022 and 2023 forecasts up slightly as well to $74 and $81/bbl (Chart of the Week). WTI will trade $2-$3/bbl lower. We remain long the S&P GSCI Dynamic Roll Index ETF (COMT) and the S&P GSCI, expecting tight supply-demand balances to further steepen backwardations in forward curves. The big risk, as highlighted above, remains an acceleration of COVID-19 infections, hospitalizations and deaths, which force governments to delay re-opening or impose localized lockdowns once again. In this regard, KSA's strategy of calibrating its output to realized – vice forecasted – demand likely will remain in place.   Robert P. Ryan Chief Commodity & Energy Strategist rryan@bcaresearch.com Ashwin Shyam Research Associate Commodity & Energy Strategy ashwin.shyam@bcaresearch.com   Commodities Round-Up Energy: Bullish China's refinery throughput surged 4.4% to 14.3mm b/d in May, a record high that surpassed November 2020's previous record of 14.26mm b/d, according to S&P Platts Global. The increased runs were not unexpected, and were largely accounted for by state-owned refiners, which operated at 80% of capacity after coming out of turnaround season. Turnarounds will fully end in July. In addition, taxes on niche refined-product imports are due to increase, which will bolster refinery margins as inventories are worked down. China's domestic crude oil production was just slightly more than 4mm b/d. Base Metals: Bullish China's Standing Committee approved the release an undisclosed amount of its copper, aluminum and zinc stockpiles via an auction process in the near future, according to reuters.com. The government disclosed its intent on the website of National Food and Strategic Reserves Administration on Wednesday; however, specifics of the auction – volumes and auction schedule, in particular – were not disclosed. Prices had fallen ~ 9% from recent record highs in the lead-up to the announcement, which we flagged last month.6 Prices rallied from lows close to $4.34/lb on the COMEX Wednesday (Chart 9). Precious Metals: Bullish After a worse-than-expected US employment report, we do not expect the Federal Reserve to lift nominal interest rates in Wednesday’s Federal Open Market Committee (FOMC) meeting. The Fed will only raise rates once the US economy reaches a level consistent with its definition of "maximum employment." Wednesday’s interest rate decision will be crucial to gold prices. If the Fed does not mention asset tapering or an interest-rate hike, citing current inflation as a transitory phenomenon, gold demand and prices will rise. On the other hand, if the Fed indicates an interest rate hike sooner than the previously stated 2024, this will weigh on gold prices (Chart 10). Ags/Softs: Neutral As of June 13, 96% of the US corn crop had emerged vs. the five-year average of 91%, according to the USDA. 68% of the crop was rated in good to excellent condition, slightly below the five-year average. In the bean market, 94% of the crop was planted as of 13 June, vs. the five-year average of 88%. The Department reported 86% of the crop had emerged vs. the five-year average of 74%. According to the USDA, 52% of the bean crop was in good-to-excellent condition vs the five-year average of 72%. Chart 9 Chart 10   Footnotes 1     Please see OPEC+ complies with 115% of agreed oil curbs in May - source published by reuters.com on June 11, 2021. 2     Please see Saudis raise U.S. and Asian crude prices for April delivery published by worldoil.com on March 8, 2021. 3    Please see US shale consolidation continues as Independence scoops up Contango Oil & Gas published by S&P Global Platts on June 8, 2021. 4    We discuss this in A Perfect Energy Storm On The Way, published on June 3, 2021.  Climate activism will become increasingly important to the evolution of oil and natural gas production, and likely will lead to greater concentration of supply in the hands of OPEC 2.0 and privately held producers that do not answer to shareholders. 5    Please see Interest in Shell's Permian assets seen as a bellwether for shale demand published by reuters.com on June 15, 2021. 6    Please see Less Metal, More Jawboning, which we published on May 27, 2021.  It is available at ces.bcaresearch.com. Investment Views and Themes Strategic Recommendations Tactical Trades Commodity Prices and Plays Reference Table Trades Closed in 2021 Summary of Closed Trades

Highlights US labor-market disappointments notwithstanding, the global recovery being propelled by real GDP growth in the world's major economies is on track to be the strongest in 80 years. This growth will fuel commodity demand, which increasingly confronts tighter supply.  Higher commodity prices will ensue, and feed through to realized and expected inflation.  Manufacturers will continue to see higher input and output prices. Our modeling suggests the USD will weaken to end-2023; however, most of the move already has occurred.  Real US rates will remain subdued, as the Fed looks through PCE inflation rates above its 2% target and continues to focus on its full-employment mandate (Chart of the Week). Given these supportive inflation fundamentals, we remain long gold with a price target of $2,000/oz for this year.  We are upgrading silver to a strategic position, expecting a $30/oz price by year-end.  We remain long the S&P GSCI Dynamic Roll Index ETF (COMT) and the S&P GSCI, expecting tight supply-demand balances to steepen backwardations in forward curves, and long the Global Metals & Mining Producers ETF (PICK). Global economic policy uncertainty will remain elevated until broader vaccine distributions reduce lockdown risks. Feature The recovery of the global economy catalyzed by massive monetary accommodation and fiscal stimulus is on track to be the strongest in the past 80 years, according to the World Bank.1 The Bank revised its growth expectation for real GDP this year sharply higher – to 5.6% from its January estimate of 4.1%. For 2022, the rate of global real GDP growth is expected to slow to 4.3%, which is still significantly higher than the average 3% growth of 2018-19. DM economies are expected to grow at a 4% rate this year – double the average 2018-19 rate – while EM growth is expected to come in at 6% this year vs a 4.2% average for 2018-19. The big drivers of growth this year will be China, where the Bank expects an unleashing of pent-up demand to push real GDP up by 8.5%, and the US, where massive fiscal and monetary support will lift real GDP 6.8%. The Bank expects other DM economies will contribute to this growth, as well. Growth in EM economies will be supported by stronger demand and higher commodity prices, in the Bank's forecast. Commodity demand is recovering faster than commodity supply in the wake of this big-economy GDP recovery. As a result, manufacturers globally are seeing significant increases in input and output prices (Chart 2). Chart of the WeekUS Real Rates Continue To Languish Chart 2Global Manufacturers' Prices Moving Higher These price increases at the manufacturing level reflect the higher-price environment in global commodity markets, particularly in industrial commodities – i.e., bulks like iron ore and steel; base metals like copper and aluminum; and oil prices, which touch most processes involved in getting materials out of the ground and into factories before they make their way to consumers, who then drive to stores to pick up goods or have them delivered. Chart 3Commodity Price Increases Reflected in CPI Inflation Expectations These price pressures are being picked up in 5y5y CPI swaps markets, which are cointegrated with commodity prices (Chart 3). This also is showing up in shorter-tenor inflation gauges – monthly CPI and 2y CPI swaps. Oil prices, in particular, will be critical to the evolution of 5-year/5-year (5y5y) CPI swap rates, which are closely followed by fixed-income markets (Chart 4). Chart 4Oil Prices Are Key To 5Y5Y CPI Swap Rates Higher Gold Prices Expected CPI inflation expectations drive 5-year and 10-year real rates, which are important explanatory variables for gold prices (Chart 5).2 In addition, the massive monetary and fiscal policy out of the US also is driving expectations for a lower USD: Currency debasement fears are higher than they otherwise would be, given all the liquidity and stimulus sloshing around global markets, which also is bullish for gold (Chart 6). Chart 5Weaker Real Rates Bullish For Gold Chart 6Weaker USD Supports Gold All of these effects, particularly the inflationary impacts, are summarized in our fair-value gold model (Chart 7). At the beginning of 2021, our fair-value gold model indicated price would be closer to $2,005/oz, which was well above the actual gold price in January. Gold prices have remained below the fair value model since the beginning of 2021. The model explains gold prices using real rates, TWIB, US CPI and global economic policy uncertainty. Based on our modeling, we expect these variables to continue to be supportive of gold, bolstering our view the yellow metal will reach $2000/ oz this year. Unlike industrial commodities, gold prices are sensitive to speculative positioning and technical indicators. Our gold composite indicator shows that gold prices may be reflecting bullish sentiment. This sentiment likely reflects increasing inflation expectations, which we use as an explanatory variable for gold prices. The fact that gold is moving higher on sentiment is corroborated by the latest data point from Marketvane’s gold bullish consensus, which reported 72% of the traders expect prices to rise further (Chart 8). Chart 7BCAs Gold Fair-Value Model Supports 00/oz View Chart 8Sentiment Supports Oil Prices Investment Implications The massive monetary and fiscal stimulus that saw the global economy through the worst of the economic devastation of the COVID-19 pandemic is now bubbling through the real economy, and will, if the World Bank's assessment proves out, result in the strongest real GDP growth in 80 years. Liquidity remains abundant and interest rates – real and nominal – remain low. In its latest Global Economic Prospects, the Bank notes, " The literature generally suggests that monetary easing, both conventional and unconventional, typically boosts aggregate demand and inflation with a lag of 1-3 years …" The evidence for this is stronger for DM economies than EM; however, as the experience in China shows, scale matters. If the Bank's assessment is correct, the inflationary impulse from this stimulus should be apparent now – and it is – and will endure for another year or two. This stimulus has catalyzed organic growth and will continue to do so for years, particularly in economies pouring massive resources into renewable-energy generation and the infrastructure required to support it, a topic we have been writing about for some time.3 We remain long gold with a price target of $2,000/oz for this year. We are long silver on a tactical basis, but given our growth expectations, are upgrading this to a strategic position, expecting a $30/oz price by year-end. As we have noted in the past, silver is sensitive to all of the financial factors we consider when assessing gold markets, and it has a strong industrial component that accounts for more than half of its demand.4 Supportive fundamentals remain in place, with total supply (mine output and recycling) falling, demand rising and balances tightening (Chart 9). Worth noting is silver's supply is constrained because of underinvestment in copper production at the mine level, where silver is a by-product. On the demand side, continued recovery of industrial and consumer demand will keep silver prices well supported. In terms of broad commodity exposure, we remain long the S&P GSCI Dynamic Roll Index ETF (COMT) and the S&P GSCI, expecting tight supply-demand balances to continue to draw down inventories – particularly in energy and metals markets – which will lead to steeper backwardations in forward curves. Backwardation is the source of roll-yields for long commodity index investments. Investors initially have a long exposure in deferred commodity futures contracts, which are then liquidated and re-established when these contracts become more prompt (i.e., closer to delivery). If the futures' forward curves are backwardated, investors essentially are buying the deferred contracts at a lower price than the price at which the position likely is liquidated. We also remain long the Global Metals & Mining Producers ETF (PICK), an equity vehicle that spans miners and traders; the longer discounting horizon of equity markets suits our view on metals. Chart 9Upgrading Silver To Strategic Position Chart 10Wider Vaccine Distribution Will Support Gold Demand Global economic policy uncertainty will remain elevated until broader vaccine distributions reduce lockdown risks. We expect the wider distribution of vaccines will become increasingly apparent during 2H21 and in 2022. This will be bullish for physical gold demand – particularly in China and India – which will add support for our gold position (Chart 10).       Robert P. Ryan Chief Commodity & Energy Strategist rryan@bcaresearch.com Ashwin Shyam Research Associate Commodity & Energy Strategy ashwin.shyam@bcaresearch.com   Commodities Round-Up Energy: Bullish The US EIA expects Brent crude oil prices to fall to $60/bbl next year, given its call higher production from OPEC 2.0 and the US shales will outpace demand growth. The EIA expects global oil demand will average just under 98mm this year, or 5.4mm b/d above 2020 levels. For next year, the EIA is forecasting demand will grow 3.6mm b/d, averaging 101.3mm b/d. This is slightly less than the demand growth we expect next year – 101.65mm b/d. We are expecting 2022 Brent prices to average $73/bbl, and $78/bbl in 2023. We will be updating our oil balances and price forecasts in next week's publication. Base Metals: Bullish Pedro Castillo, the socialist candidate in Peru's presidential election, held on to a razor-thin lead in balloting as we went to press. Markets have been focused on the outcome of this election, as Castillo has campaigned on increasing taxes and royalties for mining companies operating in Peru, which accounts for ~10% of global copper production. The election results are likely to be contested by opposition candidate rival Keiko Fujimori, who has made unsubstantiated claims of fraud, according to reuters.com. Copper prices traded on either side of $4.50/lb on the CME/COMEX market as the election drama was unfolding (Chart 11). Precious Metals: Bullish As economies around the world reopen and growth rebounds, car manufacturing will revive. Stricter emissions regulations mean the demand for autocatalysts – hence platinum and palladium – will rise with the recovery in automobile production. Platinum is also used in the production of green hydrogen, making it an important metal for the shift to renewable energy. On the supply side, most platinum shafts in South Africa are back to pre-COVID-19 levels, according to Johnson Matthey, the metals refiner. As a result, supply from the world’s largest platinum producer will rebound by 40%, resulting in a surplus. South Africa accounts for ~ 70% of global platinum supply. The fact that an overwhelming majority of platinum comes from a nation which has had periodic electricity outages – the most recent one occurring a little more than a week ago – could pose a supply-side risk to this metal. This could introduce upside volatility to prices (Chart 12). Ags/Softs: Neutral As of 6 June, 90% of the US corn crop had emerged vs a five-year average of 82%; 72% of the crop was reported to be in good to excellent condition vs 75% at this time last year. Chart 11 Chart 12 Footnotes 1     Please see World Bank's Global Economic Prospects update, published June 8, 2021. 2     In fact, US Treasury Inflation-Indexed securities include the CPI-U as a factor in yield determination.  3    For our latest installment of this epic evolution, please see A Perfect Energy Storm On The Way, which we published last week.  It is available at ces.bcareserch.com. 4    Please see Higher Inflation Expectations Battle Lower Risk Premia In Gold Markets, which we published February 4, 2021. It is available at ces.bcareserch.com.     Investment Views and Themes Strategic Recommendations Tactical Trades Commodity Prices and Plays Reference Table Trades Closed in 2021 Summary of Closed Trades

Highlights Political and corporate climate activism will increase the cost of developing the resources required to produce and deliver energy going forward – e.g., oil and gas wells; pipelines; copper mines, and refineries. Over the short run, the fastest way for investor-owned companies (IOCs) to address accelerated reductions in CO2 emissions imposed by courts and boards is to walk away from the assets producing them, which could be disruptive over the medium term. Longer term, state-owned companies (SOCs) not facing the constraints of IOCs likely will be required to provide an increasing share of the resources needed to produce and distribute energy. The real difficulty will come in the medium term. Capex for critical metals like copper languishes, just as the call on these metals steadily increases over the next 30 years (Chart of the Week). The evolution to a low-carbon future has not been thought through at the global policy level. A real strategy must address underinvestment in base metals and incentivize the development of technology via a carbon tax – not emissions trading schemes – so firms can innovate to avoid it. We remain long energy and metals exposures.1 Feature And you may ask yourself, "Well … how did I get here?" David Byrne, Once In A Lifetime Energy markets – broadly defined – are radically transforming from week to week. The latest iteration of these markets' evolution is catalyzed by climate activists, who are finding increasing success in court and on corporate boards – sometimes backed by major institutional investors – and forcing oil and gas producers to accelerate CO2 emission-reduction programs.2 Climate activists' arguments are finding increasing purchase because they have merit: Years of stiff-arming investors seeking clarity on the oil and gas producers' decarbonization agendas, coupled with a pronounced failure to provide returns in excess of their cost of capital, have given activists all of the ammo needed to argue their points. Chart of the WeekCall On Metals For Energy Will Increase This activism is not limited to the courts or boardrooms. Voters in democratic societies with contested elections also are seeking redress for failures of their governments to effectively channel mineral wealth back into society on an equitable basis, and to protect their environments and the habitats of indigenous populations. This voter activism is especially apparent in Chile and Peru, where elections and constitutional conventions likely will result in higher taxes and royalties on metals IOCs operating in these states, which will increase production costs and ultimately be passed on to consumers.3 These states account for ~ 40% of world copper output. IOCs Walk Away Earlier this week, Exxon walked away from an early-stage offshore oil development project in Ghana.4 This followed the unfavorable court rulings and boardroom setbacks experienced by Royal Dutch Shell, Chevron and Exxon recently (referenced in fn. 2). While the company had no comment on its abrupt departure, its action shows how IOCs can exercise their option to put a project back to its host government, thus illustrating one of the most readily available alternatives for energy IOCs to meet court- or board-mandated CO2 emissions targets. If these investments qualify as write-offs, the burden will be borne by taxpayers. As climate activism increases, state-owned companies (SOCs) not facing the constraints of IOCs likely will be required to provide an increasing share of the resources – particularly oil and gas – needed to produce and distribute energy going forward. This is not an unalloyed benefit, as the SOCs still face stranded-asset risks, if they invest in longer-lived assets that are obviated by a successful renewables + grid buildout globally. That is a cost that will have to be compensated, when the SOCs work up their capex allocations. Still, if legal and investor activism significantly accelerates IOCs' capex reductions in oil and gas projects, the SOCs – particularly those in OPEC 2.0 – will be able to expand their position as the dominant supplier in the global oil market, and could perhaps increase their influence on price levels and forward-curve dynamics (Chart 2).5 Chart 2OPEC 2.0s Could Expand If Investor Activism Increases Higher Call On Metals At present, there is a lot of talk about the need to invest in renewable electricity generation and the grid structure supporting it, but very little in the way of planning for this transition. Other than repeated assertions of its necessity, little is being said regarding how exactly this strategy will be executed given the magnitude of the supply increase in metals required. Nowhere is this more apparent than in the refined copper market, which has been in a physical deficit – i.e., production minus consumption is negative – for the last 6 years (Chart 3). Physical copper markets in China, which consumes more than 50% of refined output, remain extremely tight, as can be seen in the ongoing weakness of treating charges and refining charges (TC/RC) for the past year (Chart 4). These charges are inversely correlated to prices – when TC/RCs are low, it means there is surplus refining capacity for copper – unrefined metal is scarce, which drives down demand for these services. Chart 3Coppers Physical Deficit Likely Persist Chart 4Chinas Refined Copper Supply Remains TightTheoretically, high prices will incentivize higher levels of production. However, after the last decade’s ill-timed investment in new mine discoveries and expansions, mining companies have become more wary with their investments, and are using earnings to pay dividends and reduce debt. This leads us to believe that mining companies will not invest in new mine discoveries but will use capital expenditure to expand brownfield projects to meet rising demand. In the last decade, as copper demand rose, capex for copper rose from 2010-2012, and fell from 2013-2016 (Chart 5). During this time, the copper ore grade was on a declining trend. This implies that the new copper brought online was being mined from lower-grade ore, due to the expansion of existing projects(Chart 6). Chart 5Copper Capex Growth Remains Weak Chart 6Copper Ore-Quality Declines Persist Through Capex Cycle Capex directed at keeping ore production above consumption will not be sufficient to avoid major depletions of ore supplies beginning in 2024, according to Wood Mackenzie. The consultancy foresees a cumulative deficit of ~ 16mm MT by 2040. Plugging this gap will require $325-$500 billion of investment in the copper mining sector.6 The Case For A Carbon Tax The low-carbon future remains something of a will-o'-the-wisp – seen off in the future but not really developed in the present. Most striking in discussions of the low-carbon transition is the assumption of resource availability – particularly bases metals –in, e.g., the IEA's Net Zero by 2050, A Roadmap for the Global Energy Sector, published last month. In the IEA's document, further investment in hydrocarbons is not required beyond 2025. The copper, aluminum, steel, etc., required to build the generation and supporting grid infrastructure will be available and callable as needed to build all the renewable generation the world requires. The document is agnostic between carbon trading and carbon taxes as a way to price carbon and incentivize the technology that would allow firms and households to avoid a direct cost on carbon. A real strategy must address the fact that most of the world will continue to rely on fossil fuels for decades, as development goals are pursued. Underinvestment in base metals and its implications for the buildout of generation and grids has to be a priority if these assets are to be built. Given the 5-10-year lead times base metals mines require to come online, it is obvious that beyond the middle of this decade, the physical reality of demand exceeding supply will assert itself. A good start would be a global effort to impose and collect carbon taxes uniformly across states.7 This would need to be augmented with a carbon club, which restricts admission and trading privileges  to those states adopting such a scheme. Harmonizing the multiple emissions trading schemes worldwide will be a decades-long effort that is unlikely to succeed. Such schemes also can be gamed by larger players, producing pricing distortions. A hard and fast tax that is enforced in all of the members of such a carbon club would immediately focus attention on the technology required to avoid paying it – mobilizing capital, innovation and entrepreneurial drive to make it a reality. This would support carbon-capture, use and storage technologies as well, thus extending the life of existing energy resources as the next generation of metals-based resources is built out. In addition, a carbon tax raises revenue for governments, which can be used for a variety of public policies, including reducing other taxes to reduce the overall burden of taxation. Lastly, a tax eliminates the potential for short-term price volatility in the pricing of carbon – as long as households and firms know what confronts them they can plan around it.  Tax revenues also can be used to reduce the regressive nature of such levies. Investment Implications The lack of a coherent policy framework that addresses the very real constraints on the transition to a low-carbon economy makes the likelihood of a volatile, years-long evolution foreordained. We believe this will create numerous investment opportunities as underinvestment in hydrocarbons and base metals production predisposes oil, natural gas and base metals prices to move higher in the face of strong and rising demand. We remain long commodity index exposure – the S&P GSCI and GSCI Commodity Dynamic Roll Strategy ETF (COMT), which is optimized to take advantage of the most backwardated commodity forward curves in the index. These positions were up 5.3% and 7.2% since inception on December 7, 2017 and March 12, 2021, respectively, at Tuesday's close. We also remain long the MSCI Global Metals & Mining Producers ETF (PICK), which is up 33.9% since it was put on December 10, 2020. Expecting continued volatility in metals – copper in particular – we will look for opportunities to re-establish positions in COMEX/CME Copper after being stopped out with gains. A trailing stop was elected on our long Dec21 copper position established September 10, 2020, which was closed out with a 48.2% gain on May 21, 2021. Our long calendar 2022 vs short calendar 2023 COMEX copper backwardation trade established April 22, 2021, was closed out on May 20, 2021, leaving us with a return of 305%.   Robert P. Ryan Chief Commodity & Energy Strategist rryan@bcaresearch.com Ashwin Shyam Research Associate Commodity & Energy Strategy ashwin.shyam@bcaresearch.com   Commodities Round-Up Energy: Bullish OPEC 2.0 offered no surprises to markets this week, as it remained committed to returning just over 2mm b/d of production to the market over the May-July period, 70% of which comes from the Kingdom of Saudi Arabia (KSA), according to Platts. While Iran's return to the market is not a given in OPEC 2.0's geometry, we have given better than even odds it will return to the market beginning in 3Q21 and restore most of the 1.4mm b/d not being produced at present to the market over the course of the following year. OPEC itself expects demand to increase 6mm b/d this year, somewhat above our expectation of 5.3mm b/d. Stronger demand could raise Brent prices above our average $63/bbl forecast for this year (Chart 7). Brent was trading above $71/bbl as we went to press. Base Metals: Bullish BHP declared operations at its Escondida and Spence mines were running at normal rates despite a strike by some 200 operations specialists. BHP is employing so-called substitute workers to conduct operation, according to reuters.com, which also reported separate unions at both mines are considering strike actions in the near future. Precious Metals: Bullish The Fed’s reluctance to increase nominal interest rates despite indications of higher inflation will reduce real rates, which will support higher gold prices (Chart 8). We agree with our colleagues at BCA Research's US Bond Strategy that the Fed is waiting for the US labor market to reach levels consistent with its assessment of maximum employment before it makes its initial rate hike in this interest-rate cycle. Subsequent rate changes, however, will be based on realized inflation and inflation expectations. In our opinion, the Fed is following this ultra-accommodative monetary policy approach to break the US liquidity trap, brought about by a rise in precautionary savings due to the pandemic. In addition, we continue to expect USD weakness, which also will support gold and precious metals prices. We remain long gold, expecting prices to clear $2,000/oz this year. Ags/Softs: Neutral Corn prices fell more than 2% Wednesday, following the release of USDA estimates showing 95% of the corn crop was planted by 31 May 2021, well over the 87% five-year average. This was in line with expectations. However, the Department's assessment that 76% of the crop was in good-to-excellent condition exceeded market expectations. Chart 7 Chart 8 Footnotes 1     Please see Trade Tables below. 2     Please see OPEC, Russia seen gaining more power with Shell Dutch ruling and EXCLUSIVE BlackRock backs 3 dissidents to shake up Exxon board -sources published by reuters.com June 1, 2021 and May 25, 2021. 3    Please see Chile's govt in shock loss as voters pick independents to draft constitution published by reuters.com May 17, 2021, and Peru’s elite in panic at prospect of hard-left victory in presidential election published by ft.com June 1, 2021.  Peru has seen significant capital flight on the back of these fears.  See also Results from Chile’s May 2021 elections published by IHS Markit May 21, 2021 re a higher likelihood of tax increases for the mining sector.  The risk of nationalization is de minimis, according to IHS. 4    Please see Exxon walks away from stake in deepwater Ghana block published by worldoil.com June 1, 2021. 5    Please see OPEC 2.0's Production Strategy In Focus, which we published on May 20, 2021, for a recap our how we model OPEC 2.0's strategy.  It is available at ces.bcaresearch.com. 6    Please see Will a lack of supply growth come back to bite the copper industry?, published by Wood Mackenzie on March 23, 2021. 7     Please see The Challenges and Prospects for Carbon Pricing in Europe published by the Oxford Institute for Energy Studies last month for a discussion of carbon taxes vs. emissions trading schemes.     Investment Views and Themes Strategic Recommendations Tactical Trades Commodity Prices and Plays Reference Table Trades Closed in 2021 Summary of Closed Trades

Highlights President Biden has called for the US intelligence community to investigate the origins of COVID-19 and one of Biden’s top diplomats has stated the obvious: the era of “engagement” with China is over. This clinches our long-held view that any Democratic president would be a hawk like President Trump. The US-China conflict – and global geopolitical risk – will revive and undermine global risk appetite. China faces a confluence of geopolitical and macroeconomic challenges, suggesting that its equity underperformance will continue. Domestic Chinese investors should stay long government bonds. Foreign investors should sell into the bond rally to reduce exposure to any future sanctions. The impending agreement of a global minimum corporate tax rate has limited concrete implications that are not already known but it symbolizes the return of Big Government in the western world. Our updated GeoRisk Indicators are available in the Appendix, as well as our monthly geopolitical calendar. Feature In our quarterly webcast, “Geopolitics And Bull Markets,” we argued that geopolitical themes matter to investors when they have a demonstrable relationship with the macroeconomic backdrop. When geopolitics and macro are synchronized, a simple yet powerful investment thesis can be discerned. The US war on terror, Russia’s resurgence, the EU debt crisis, and Brexit each provided cases in which a geopolitically informed macro view was both accessible and actionable at an early stage. Investors generally did well if they sold the relevant country’s currency and disfavored its equities on a relative basis. Chart 1China's Decade Of Troubles Of course, the market takeaway is not always so clear. When geopolitics and macroeconomics are desynchronized, the trick is to determine which framework will prevail over the financial markets and for how long. Sometimes the market moves to its own rhythm. The goal is not to trade on geopolitics but rather to invest with geopolitics. One of our key views for this year – headwinds for China – is an example of synchronization. Two weeks ago we discussed China’s macroeconomic challenge. In this report we discuss China’s foreign policy challenge: geopolitical pressure from the US and its allies. In particular we address President Biden’s call for a deeper intelligence dive into the origins of COVID-19. The takeaway is negative for China’s currency and risk assets. The Great Recession dealt a painful blow to the Chinese version of the East Asian economic miracle. By 2015, China’s financial turmoil and currency devaluation should have convinced even bullish investors to keep their distance from Chinese stocks and the renminbi. If investors stuck with this bearish view despite the post-2016 rally, on fear of trade war, they were rewarded in 2018-19. Only with China’s containment of COVID-19 and large economic stimulus in 2020 has CNY-USD threatened to break out (Chart 1). We expect the renminbi to weaken anew, especially once the Fed begins to taper asset purchases. Our cyclical view is still bullish but US-China relations are unstable so we remain tactically defensive. Forget Biden’s China Review, He’s A Hawk Chinese financial markets face a host of challenges this year, despite the positive factors for China’s manufacturing sector amid the global recovery. At home these challenges consist of a structural economic slowdown, a withdrawal of policy stimulus, bearish sentiment among households, and an ongoing government crackdown on systemic risk. Abroad the Democratic Party’s return to power in Washington means that the US will bring more allies to bear in its attempt to curb China’s rise. This combination of factors presents a headwind for Chinese equities and a tailwind for government bonds (Chart 2). This is true at least until the government should hit its pain threshold and re-stimulate. Chart 2Global Investors Still Wary New stimulus may not occur in 2022. The Communist Party’s leadership rotation merely requires economic stability, not rapid growth. While the central government has a record of stimulating when its pain threshold is hit, even under the economically hawkish President Xi Jinping, a financial market riot is usually part of this threshold. This implies near-term downside, particularly for global commodities and metals, which are also facing a Chinese regulatory backlash to deter speculation. In this context, President Biden’s call for a deeper US intelligence investigation into the origin of COVID-19 is an important confirming signal of the US’s hawkish turn toward China. Biden gave 90 days for the intelligence community to report back to him. We will not enter into the debate about COVID-19’s origins. From a geopolitical point of view it is a moot point. The facts of the virus origin may never be established. According to Biden’s statement, at least one US intelligence agency believes the “lab leak theory” is the most likely source of the virus (while two other agencies decided in favor of animal-to-human transmission). Meanwhile Chinese government spokespeople continue to push the theory that the virus originated at the US’s Fort Detrick in Maryland or at a US-affiliated global research center. What is certain is that the first major outbreak of a highly contagious disease occurred in Wuhan. Both sides are demanding greater transparency and will reject each other’s claims based on a lack of transparency. If the US intelligence report concludes that COVID originated from the Wuhan Institute of Virology, the Chinese government and media will reject the report. If the report exonerates the Wuhan laboratory, at least half of the US public will disbelieve it and it will not deter Biden from drawing a hard line on more macro-relevant policy disputes with China. The US’s hawkish bipartisan consensus on China took shape before COVID. Biden’s decision to order the fresh report introduces skepticism regarding the World Health Organization’s narrative, which was until now the mainstream media’s narrative. Previously this skepticism was ghettoized in US public discourse: indeed, until Biden’s announcement on May 26, the social media company Facebook suppressed claims that the virus came from a lab accident or human failure. Thus Biden’s action will ensure that a large swathe of the American public will always tend to support this theory regardless of the next report’s findings. At the same time Biden discontinued a State Department effort to prove the lab leak theory, which shows that it is not a foregone conclusion what his administration will decide. The good news is that even if the report concluded in favor of the lab leak, the Biden administration would remain highly unlikely to demand that China pay “reparations,” like the Trump administration demanded in 2020. This demand, if actualized, would be explosive. The bad news is that a future nationalist administration could conceivably use the investigation as a basis to demand reparations. Nationalism is a force to be reckoned with in both countries and the dispute over COVID’s origin will exacerbate it. Traditionally the presidents of both countries would tamp down nationalism or attempt to keep it harnessed. But in the post-Xi, post-Trump era it is harder to control. The death toll of COVID-19 will be a permanent source of popular grievance around the world and a wedge between the US and China (Chart 3). China’s international image suffered dramatically in 2020. So far in 2021 China has not regained any diplomatic ground. Chart 3Death Toll Of COVID-19 The US is repairing its image via a return to multilateralism while the Europeans have put their Comprehensive Agreement on Investment with China on hold due to a spat over sanctions arising from western accusations of genocide (a subject on which China pointedly answered that it did not need to be lectured by Europeans). Notably Biden’s Department of State also endorsed its predecessor’s accusation of genocide in Xinjiang. Any authoritative US intelligence review that solidifies doubts about the WHO’s initial investigation – even if it should not affirm the lab leak theory – would give Biden more ammunition in global opinion to form a democratic alliance to pressure China (for example, in Europe). An important factor that enables the US to remain hawkish on China is fiscal stimulus. While stimulus helps bring about economic recovery, it also lowers the bar to political confrontation (Chart 4). Countries with supercharged domestic demand do not have as much to fear from punitive trade measures. The Biden administration has not taken new punitive measures against China but it is clearly not worried about Chinese retaliation. Chart 4Large Fiscal Stimulus Lowers The Bar To Geopolitical Conflict China’s stimulus is underrated in this chart (which excludes non-fiscal measures) but it is still true that China’s policy has been somewhat restrained and it will need to stimulate its economy again in response to any new punitive measures or any global loss of confidence. At least China is limited in its ability to tighten policy due to the threat of US pressure and western trade protectionism. Simultaneous with Biden’s announcement on COVID-19, his administration’s coordinator for Indo-Pacific affairs, Kurt Campbell, proclaimed in a speech that the era of “engagement” with China is officially over and the new paradigm is one of “competition.” By now Campbell is stating the obvious. But this tone is a change both from his tone while serving in President Obama’s Department of State and from his article in Foreign Affairs last year (when he was basically auditioning for his current role in the Biden administration).1 Campbell even said in his latest remarks that the Trump administration was right about the “direction” of China policy (though not the “execution”), which is candid. Campbell was speaking at Stanford University but his comments were obviously aimed for broader consumption. Investors no longer need to wait for the outcome of the Biden administration’s comprehensive review of policy toward China. The answer is known: the Biden administration’s hawkishness is confirmed. The Department of Defense report on China policy, due in June, is very unlikely to strike a more dovish posture than the president’s health policy. Now investors must worry about how rapidly tensions will escalate and put a drag on global sentiment. Bottom Line: US-China relations are unstable and pose an immediate threat to global risk appetite. The fundamental geopolitical assessment of US-China relations has been confirmed yet again. The US is seeking to constrain China’s rise because China is the only country capable of rivaling the US for supremacy in Asia and the world. Meanwhile China is rejecting liberalization in favor of economic self-sufficiency and maintaining an offensive foreign policy as it is wary of US containment and interference. Presidents Biden and Xi Jinping are still capable of stabilizing relations in the medium term but they are unlikely to substantially de-escalate tensions. And at the moment tensions are escalating. China’s Reaction: The Example Of Australia How will China respond to Biden’s new inquiry into COVID’s origins? Obviously Beijing will react negatively but we would not expect anything concrete to occur until the result of the inquiry is released in 90 days. China will be more constrained in its response to the US than it has been with Australia, which called for an international inquiry early last year, as the US is a superior power. Australia was the first to ban Chinese telecom company Huawei from its 5G network (back in 2018) and it was the first to call for a COVID probe. Relations between China and Australia have deteriorated steadily since then, but macro trends have clearly driven the Aussie dollar. The AUD-JPY exchange rate is a good measure for global risk appetite and it is wavering in recent weeks (Chart 5). Chart 5Australian Dollar Follows Macro Trends, Rallies Amid China Trade Spat Tensions have also escalated due to China’s dependency on Australian commodity exports at a time of spiking commodity prices. This is a recurring theme going back to the Stern Hu affair. The COVID spat led China to impose a series of sanctions against Australian beef, barley, wine, and coal. But because China cannot replace Australian resources (at least, not in the short term), its punitive measures are limited. It faces rising producer prices as a result of its trade restrictions (Chart 6). This dependency is a bigger problem for China today than it was in previous cycles so China will try to diversify. Chart 6Constraints On China's Tarrifs On Australia By contrast, China is not likely to impose sanctions on the US in response to Biden’s investigation, unless Biden attacks first. China’s imports from the US are booming and its currency is appreciating sharply. Despite Beijing’s efforts to keep the Phase One trade deal from collapsing, Biden is maintaining Trump’s tariffs and the US-China trade divorce is proceeding (Chart 7). Bilateral tariff rates are still 16-17 percentage points higher than they were in 2018, with US tariffs on China at 19% (versus 3% on the rest of the world) while Chinese tariffs on the US stand at 21% (versus 6% on the rest of the world). The Biden administration timed this week’s hawkish statements to coincide with the first meeting of US trade negotiators with China, which was a more civil affair. Both countries acknowledged that the relationship is important and trade needs to be continued. However, US Trade Representative Katherine Tai’s comments were not overly optimistic (she told Reuters that the relationship is “very, very challenging”). She has also been explicit about maintaining policy continuity with the Trump administration. We highly doubt that China’s share of US imports will ever surpass its pre-Trump peaks. The Biden administration has also refrained so far from loosening export controls on high-tech trade with China. This has caused a bull market in Taiwan while causing problems for Chinese semiconductor stocks’ relative performance (Chart 8). If Biden’s policy review does not lead to any relaxation of export controls on commercial items then it will mark a further escalation in tensions. Chart 7US Tarrifs Reduce China In Trade Deficit Bottom Line: Until Presidents Biden and Xi stabilize relations at the top, the trade negotiations over implementing the Phase One trade deal – and any new Phase Two talks – cannot bring major positive surprises for financial markets. Chart 8US Export Controls Amid Chip Shortage Congress Is More Hawkish Than Biden Biden’s ability to reduce frictions with China, should he seek to, will also be limited by Congress and public opinion. With the US deeply politically divided, and polarization at historically high levels, China has emerged as one of the few areas of agreement. The hawkish consensus is symbolized by new legislation such as the Strategic Competition Act, which is making its way through the Senate rapidly. Congress is also trying to boost US competitiveness through bills such as the Endless Frontier Act. These bills would subject China to scrutiny and potential punitive measures over a broad range of issues but most of all they would ignite US industrial policy , STEM education, and R&D, and diversify the US’s supply chains. We would highlight three key points with regard to the global impact of this legislation: Global supply chains are shifting regardless: This trend is fairly well established in tech, defense, and pharmaceuticals. It will continue unless we see a major policy reversal from China to try to court western powers and reduce frictions. The EU and India are less enthusiastic than the US and Australia about removing China from supply chains but they are not opposed. The EU Commission has recommended new defensive economic measures that cover supply chains in batteries, cloud services, hydrogen energy, pharmaceuticals, materials, and semiconductors. As mentioned, the EU is also hesitating to ratify the Comprehensive Agreement on Investment with China. Hence the EU is moving in the US’s direction independently of proposed US laws. After all, China’s rise up the tech value chain (and its decision to stop cutting back the size of its manufacturing sector) ultimately threatens the EU’s comparative advantage. The EU is also aligned with the US on democratic values and network security. India has taken a harder stance on China than usual, which marks an important break with the past. India’s decision to exclude Huawei from its 5G network is not final but it is likely to be at least partially implemented. A working group of democracies is forming regardless. The Strategic Competition Act calls for the creation of a working group of democracies but the truth is that this is already happening through more effective forums like the G7 and bilateral summits. Just as the implementation of the act would will ultimately depend on President Biden, so the willingness of other countries to adopt the recommendations of the working group would depend on their own executives. Allies have leeway as Biden will not use punitive measures against them: Any policy change from the EU, UK, India, and Australia will be independent of the US Congress passing the Strategic Competition Act. These countries will be self-directed. The US would have to devote diplomatic energy to maintaining a sustained effort by these states to counter China in the face of economic costs. This will be limited by the fact that the Biden administration will be very reluctant to impose punitive measures on allies to insist on their cooperation. The allies will set the pace of pressure on China rather than the United States. This gives the EU an important position, particularly Germany. And yet the trends in Germany suggest that the government will be more hawkish on China after the federal elections in September. Bottom Line: The Biden administration is unlikely to use punitive measures against allies so new US laws are less important than overall US diplomacy with each of the allies. Some allies will be less compliant with US policies given their need for trade with China. But so far there appears to be a common position taking shape even with the EU that is prejudicial to China’s involvement in key sectors of emerging technologies. If China does not respond by reducing its foreign policy assertiveness, then China’s economic growth will suffer. That drag would have to be offset by new supply chain construction in Southeast Asia and other countries. Investment Takeaways The foregoing highlights the international risks facing China even at a time when its trend growth is slowing (Chart 9) and its ongoing struggle with domestic financial imbalances is intensifying. China’s debt-service costs have risen sharply and Beijing is putting pressure on corporations and local governments to straighten out their finances (Chart 10), resulting in a wave of defaults. This backdrop is worrisome for investors until policymakers reassure them that government support will continue. Chart 9China's Growth Potential Slowing Chart 10China's Leaders Struggle With Debt China’s domestic stability is a key indicator of whether geopolitical risks could spiral out of control. In particular we think aggressive action in the Taiwan Strait is likely to be delayed as long as the Chinese economy and regime are stable. China has rattled sabers over the strait this year in a warning to the United States not to cross its red line (Chart 11). It is not yet clear how Biden’s policy continuity with the Trump administration will affect cross-strait stability. We see no basis yet for changing our view that there is a 60% chance of a market-negative geopolitical incident in 2021-22 and a 5% chance of full-scale war in the short run. Chart 11China PLA Flights Over Taiwan Strait Putting all of the above together, we see substantial support for two key market-relevant geopolitical risks: Chinese domestic politics (including policy tightening) and persistent US-China tensions (including but not limited to the Taiwan Strait). We remain tactically defensive, a stance supported by several recent turns in global markets: The global stock-to-bond ratio has rolled over. China is a negative factor for global risk appetite (Chart 12). Global cyclical equities are no longer outperforming defensives. There is a stark divergence between Chinese cyclicals and global cyclicals stemming from the painful transition in China’s bloated industrial economy (Chart 13). Global large caps are catching a bid relative to small caps (Chart 14). Chart 12Global Stock-To-Bond Ratio Rolled Over Chart 13Global Cyclicals-To-Defensives Pause Chart 14Global Large Caps Catch A Bid Versus Small Caps Cyclically the global economic recovery should continue as the pandemic wanes. China will eventually relax policy to prevent too abrupt of a slowdown. Therefore our strategic portfolio reflects our high-conviction view that the current global economic expansion will continue even as it faces hurdles from the secular rise in geopolitical risk, especially US-China cold war. Measurable geopolitical risk and policy uncertainty are likely to rebound sooner rather than later, with a negative impact on high-beta risk assets. Matt Gertken Vice President Geopolitical Strategy mattg@bcaresearch.com Coda: Global Minimum Tax Symbolizes Return Of Big Government On Thursday, the US Treasury Department released a proposal to set the global minimum corporate tax rate at 15%. The plan is to stop what Treasury Secretary Janet Yellen has referred to as a global “race to the bottom” and create the basis for a rehabilitation of government budgets damaged by pandemic-era stimulus. Although the newly proposed 15% rate is significantly below President Biden’s bid to raise the US Global Intangible Low-Taxed Income (GILTI) rate to 21% from 10.5%, it is the same rate as his proposed minimum tax on corporate book income. Biden is also raising the headline corporate tax rate from 21% to around 25% (or at highest 28%). Negotiators at the OECD were initially discussing a 12.5% global minimum rate. The finance ministers of both France and Germany – where the corporate income tax rates are 32.0% and 29.9%, respectively – both responded positively to the announcement. However, Ireland, which uses low corporate taxes as an economic development strategy, is obviously more comfortable with a minimum closer to its own 12.5% rate. Discussions are likely to occur when G7 finance ministers meet on June 4-5. Countries are hoping to establish a broad outline for the proposal by the G20 meeting in early July. It is highly likely that the OECD will come to an agreement. However, it is not a truly “global” minimum as there will still be tax havens. Compliance and enforcement will vary across countries. A close look at the domestic political capital of the relevant countries shows that while many countries have the raw parliamentary majorities necessary to raise taxes, most countries have substantial conservative contingents capable of preventing stiff corporate tax hikes (Table 1, in the Appendix). Our Geopolitical strategists highlight that the Biden administration’s compromise on the minimum rate reflects its pragmatism as well as emphasis on multilateralism. Any global deal will be non-binding but the two most important low-tax players are already committed to raising corporate rates well above this level: Biden’s plan is noted above, while the UK’s budget for March includes a jump in the business rate to 25% in April 2023 from the current 19%. Ireland and Hungary are the only outliers but they may eventually be forced to yield to such a large coalition of bigger economies (Chart 15). Chart 15Global Minimum Corporate Tax Impact Is Symbolic Rather Than Concrete Thus a nominal minimum corporate tax rate is likely to be forged but it will not be truly global and it will not change the corporate rate for most countries. The reality of what companies pay will also depend on loopholes, tax havens, and the effective tax rate. Bottom Line: On a structural horizon, the global minimum corporate tax is significant for showing a paradigm shift in global macro policy: western governments are starting to raise taxes and revenue after decades of cutting taxes. The experiment with limited government has ended and Big Government is making a comeback. On a cyclical horizon, the US concession on global minimum tax is that the Biden administration aims to be pragmatic and “get things done.” Biden is also working with Republicans to pass bills covering some bipartisan aspects of his domestic agenda, such as trade, manufacturing, and China. The takeaway from a global point of view is that Biden may prove to be a compromiser rather than an ideologue, unlike his predecessors.   Matt Gertken Vice President Geopolitical Strategy mattg@bcaresearch.com   Roukaya Ibrahim Vice President Daily Insights RoukayaI@bcaresearch.com Footnotes 1 Kurt M. Campbell and Jake Sullivan, "Competition Without Catastrophe," Foreign Affairs, September/October 2019, foreignaffairs.com. Section II: Appendix Table 1OECD: Which Countries Are Willing And Able To Raise Corporate Tax Rates? GeoRisk Indicator China Russia UK Germany France Italy Canada Spain Taiwan – Province Of China Korea Turkey Brazil Australia Section III: Geopolitical Calendar

ハイライト グローバル株式は大きな調整に非常に脆弱である。しかし景気循環的には米連邦準備制度（FRB）はインフレの上振れを容認する姿勢を取っており、世界経済は回復している。 中国の財政・信用インパルスが急低下しており、これによりグローバルの景気循環株およびコモディティは下押しを受けやすい。 短期を越えれば、中国の政治的安定の必要性が過度な政策引き締めを防ぐはずだ。リスクは前倒しになっている。 中国の国勢調査は当社のメガテーマの一つを裏付けている：中国の国内政治は不安定であり、ネガティブなサプライズをもたらし得る。 インドの州選挙は大規模なCOVID-19の波の最中に実施されたが、与党が2024年にも依然有利であることを示唆している。これは政策の継続を意味する。 景気循環派の強気バイアスを維持するが、中国が政策ミスを犯した場合には方針転換する準備をしておくこと。 特集 チャート 1 インフレ再浮上 インフレが頭をもたげる インフレが頭をもたげる 今週、米国のコアインフレが強く出たことと、長く眠っていたインフレが再び頭をもたげることへの幅広い懸念を受けて、グローバル市場は震撼した（チャート 1）。 景気循環的には、世界経済の回復に伴い投資家は米国株から国際株へローテーションし、米ドルは下落すると引き続き見ている（チャート 2）。しかしこの見方は、新興国株が先進国株に対してアウトパフォームし始めるべきだということも含んでおり、今年これまでのところはそれが実現していない。新興市場はテクノロジーに偏っており、米国の長期金利上昇に脆弱なだけでなく、中国の景気刺激がピークに達した今、さらに困難に直面している。 チャート 2 株式市場の動揺 株式市場が動揺 株式市場が動揺 チャート 3 世界経済とセンチメントの回復 世界経済とセンチメントは回復しつつある 世界経済とセンチメントは回復しつつある チャート 4 景気循環株対ディフェンシブの揺らぎ グローバルのシクリカル株とディフェンシブ株が揺らいでいる グローバルのシクリカル株とディフェンシブ株が揺らいでいる 我々が頼れる一つの事実は、COVID-19ワクチンの展開が続くことで世界的な成長回復を後押しするという点である（チャート 3）。米ドルもそれを示唆している。ドルは第1四半期に米国の相対的成長優位で反発したが、その後は下落に転じている。ドル安はディフェンシブに対して景気循環株にとってポジティブだが、景気循環株は短期的にはリフレーショントレードが過熱していることを示している（チャート 4）。 中国の成長が今や重要な焦点になる。中国の政策ミスは強気の景気循環見通しを覆すだろう。中国の金融・財政政策の引き締めは、今年我々が強調してきた主要なグローバルな政策リスクであり、今まさに顕在化している。しかし我々は引き締めの制約も指摘してきた。現時点で中国は我々のベンチマークによれば過度な引き締めの瀬戸際に立っている。さらなる引き締めが行われれば、我々は本質的によりディフェンシブな見方に転じるだろう。 本レポートではまた、中国の国勢調査の結果と、最新の大波のCOVID-19感染のもとで行われたインドの最近の州選の含意を検討する。我々はまだインドに対する強気見解を変更していないが、注視している。 中国：過度引き締めリスク 中国の問題は、対外貿易依存から内需依存への経済モデルの継続的な変化に起因している。これは習近平国家主席の台頭以前に共産党が採った戦略的決定であり、習はそれを体現し、戦略的ビジョンと米国との対立を通じて強化してきた。 北京の目標は滑らかで安定した移行を管理することだった。2015年の金融混乱や2018-19年の貿易戦争はその目標を危うくしたが、政策当局は最終的に持ちこたえた。そこへCOVID-19が発生し、1970年代以来の本格的な経済縮小をもたらした。中国はウイルスを抑え込み、貿易戦争開始から2021年のピークまでにGDP比13.8%に上る別の大規模な刺激で回復したが、今やさらに困難な移行に直面している。 チャート 5 中国の上昇する貯蓄傾向 中国の貯蓄傾向の高まり 中国の貯蓄傾向の高まり 潜在GDPが鈍化していることを考えると生活水準の改善の必要性は一層切迫している。債務の大幅な増加に鑑みると体系的な金融リスクを抑制する必要性も一層切迫している。米国が中国に対抗する民主諸国の連合を形成している今、経済の多角化の必要性も高まっている。長期預金比率などで測られる中国の家計・企業の「限界貯蓄性向」の急上昇は、国が困難に直面しアニマルスピリッツが抑えられていることの兆候である（チャート 5）。 2018-21年の大規模拡大の後、中国の財政・信用インパルスは低下に転じている。政策当局は昨年以降、緊急的な刺激を引き揚げるシグナルを出しており、その影響はハードデータに現れている。中国のマネー、クレジット、そして財政とクレジットを合わせたインパルスはいずれも、6〜9か月のラグの後に経済成長と相関する。これは中国のマネーとクレジットサイクルや経済活動を測る指標がどれであれ当てはまる（チャート 6Aおよびチャート 6B）。中国の経済モメンタムはピークに達しており、世界がワクチンと経済再開の追い風を享受しているにもかかわらず、今年後半から2022年にかけて世界経済にとって逆風となるだろう。 チャート 6A 中国の財政・信用インパルスが急落 … 中国の財政・信用インパルスが急落… 中国の財政・信用インパルスが急落… チャート 6B … マネー・アンド・クレジットのインパルスも同様に低下 ... マネー・アンド・クレジットのインパルスも同様である ... マネー・アンド・クレジットのインパルスも同様である 財政・信用インパルスのダウンシフトは、特に国内消費向けに中国が輸入するコモディティ、マテリアル、およびその他財の需要の鈍化を予示している（中国の輸出向け製造に投入される部品や中間財の輸入は、世界の回復とともに比較的健全に見える）。このシフトは、スウェーデン株などの中国関連プレイや急騰している金属価格が調整なしに上昇を続けることを困難にするだろう（チャート 7）。投機筋のポジショニングは現時点でコモディティに偏っている。中国とそれが支配する金属市場との乖離は短期的には耐え難いように見える（チャート 8）。 チャート 7 中国のリフレーショントレードはピーク付近 中国のリフレーショントレードはピーク付近 中国のリフレーショントレードはピーク付近 チャート 8 マネーサイクルとコモディティ価格の衝突 マネーサイクルとコモディティ価格の衝突 マネーサイクルとコモディティ価格の衝突 世界的なグリーンや再生可能エネルギーシステムへの移行（すなわち脱炭素化）は銅をはじめ金属にとって強気だが、短期的には中国の需要減を補うことはできないことを、我々のエマージング・マーケッツ・ストラテジーが示している。中国の建設・産業向けの銅の国内需要は世界総需要の約56.5%を占める一方、グリーンエネルギー競争（太陽光パネル、風力発電、電気自動車の生産等）は世界需要の約3.5%にすぎない。 この数値は既存のシステムや構造の再調整やレトロフィット（例：電力網）も見込まれているためグリーン計画をやや過小評価している面はある。しかし要点は、米国および欧州の消費が大幅に増加しても、中国の銅消費が減少すればそれに逆行することだ。特に米国のインフラ計画が早くても2022年まで本格的に始動しないことを考えれば、今後12か月で中国の影響で世界の銅需要は減速するだろう。 中国の政策当局はまだ過度な引き締めを懸念している、あるいは新たに政策を緩和する意思を示したわけではない。4月末の政治局会議は12月の中央経済工作会議や3月の政府活動報告から大きな政策変更を含んでいなかった（表 1）。しかしもし差異があるとすれば、昨年の緊急感をさらに後退させつつも、地方政府幹部を隠れ債務に対して説明責任を負わせるような何らかの仕組みを示唆した点にある。含意は引き続き引き締め的な政策であり、したがって過度の引き締めリスクは依然として大きい。 表 1 中国の最近のマクロ経済政策表明：刺激の縮小 中国は過度な金融引き締めの瀬戸際にある 中国は過度な金融引き締めの瀬戸際にある チャート 9 中国の政策引き締めのベンチマーク 中国の政策引き締めのベンチマーク 中国の政策引き締めのベンチマーク 確かに4月会議の「お茶の葉」は様々に読み取ることができる。4月の声明はマクロ経済政策指針から「必要な政策支援を維持する」という文言を外しており、これは経済への支援を減らすことを意味する可能性がある。しかし同時に、マネーサプライ（M2）とクレジット成長（社会融資総量）を名目GDP成長に合わせるという目標も外れており、これはクレジット成長の新たな上振れを許容するものと見なすこともできる。とはいえ中国人民銀行は第1四半期の金融政策報告書でこのクレジット目標を維持しており、確信は持てない。このルーブリックによれば、中国は我々がリスクを測るために用いる「過度引き締め」の瀬戸際にあることに注意されたい（チャート 9）。 過去20年の中国の政策運営に基づけば、我々は重大な転換点の発表は4月ではなく7月の政治局会議で行われると予想する。したがって4月は先の会合からの大きな変更とは見なしていないし、我々のチャイナ・インベストメント・ストラテジーも同様に見ていない。従って過度な政策引き締めは今後12か月で中国および世界経済に対する現実的なリスクであり、我々の過度引き締めチェックリストはこの点を強調している（表 2）。 表 2 中国の政策引き締めチェックリスト 中国、過度の引き締め寸前 中国、過度の引き締め寸前 中国の財政・信用のダウンシフトは、第20回党大会を控えて進行している。党大会は2022年を通じて行われ、秋に最高指導部（政治局常務委員）の交代で頂点に達する。共産党の100周年に当たる今年7月1日に向けて経済は十分に刺激されているため、政策当局は過剰を防ぐことに集中している。金融リスクの予防、反独占規制、不動産バブルの抑制が当面の命題である。企業および政府の債務不履行や破産の増加は、指導部が経済構造改革と改革を推し進める意志を裏付けており、近年これが確認されている（チャート 10）。 チャート 10 中国における創造的破壊 中国、過度な引き締め寸前 中国、過度な引き締め寸前 投資家は党大会があるからといって指導部が政策を緩和するだろうと想定してはならない。2017年の党大会の前にはむしろその逆のことが起きた。しかし、投資家はまた、中国が重要なイベントの前に自国経済を沈めるほど過度に引き締めるとも安易に想定してはならない。安定が目標となるだろう（2017年や以前の党大会でもそうであったように）──これは現行の引き締めが財政的・経済的にあまりにも痛みを伴う場合には政策緩和がいつか行われることを意味する。政策当局が転換点に達するまでは、中国関連資産は短期的に脆弱である。 ちなみに、第20回党大会の接近は政治的な暗闘や衝撃的な出来事を引き寄せるだろう。最高指導者は通常、党大会前に派閥の勢力を示すために有力なライバルを解任する。政府はまたメディア統制を強化し、事件の周辺で声を上げるか抗議するかもしれない反体制派を取り締まる。しかし2022年はその利害が一層高い。 習主席は当初2022年に退任すると見られていたが、今は退任しない見込みであり、これは少なくとも一部の反対を喚起するだろう。さらに習政権下で中国は三つの歴史的な政策革命を遂げた：強力な指導者モデルを採用し、前二代の集団指導モデルを損なったこと、経済の自給自足を重視して自由化と開放を犠牲にしたこと、そして大国としての地位を強調し米国や同盟国との協調を犠牲にしていることだ。 まとめ：中国の政策引き締めにより、グローバル株式、コモディティ、そして「中国プレイ」は大幅な調整リスクに直面している。当社のベースケースは中国が過度な引き締めを回避するというものだが、最新のマネーおよびクレジットの数値はその見方を変更する閾値に達している。これらの指標がさらに急落すれば見解を変更する必要がある。 中国の消えゆく労働力 最終的に過度な引き締めを抑制する制約の一つは、労働年齢人口の縮小による中国の潜在GDP成長の低下である。中国の第7回国勢調査が今週公表され、国とその経済に影響する深い構造変化を裏付けた。 過去10年の人口増加率は5.4%に鈍化し、1953年の最初の国勢調査以降で最低となった。出生率は2020年に1.3まで下落し、2.1の人口置換水準や2016年に一人っ子政策を緩和した際の目標1.8を下回っている。出生率は世界銀行の推計（2019年で1.7）や日本の数値よりも低い。人口1000人当たりの出生数も減少し、2020年の新生児数は1961年（大飢饉の年）以来の低水準となった。出生率は高所得国の水準に収束しており、経済発展が中国でも出産抑制の同じ効果をもたらしていることを示唆しているが、中国はこれらの国より発展段階が低い。 チャート 11 1990年代の日本より速く減少する中国の労働人口 中国、過度な金融引き締めの瀬戸際に立つ 中国、過度な金融引き締めの瀬戸際に立つ 最年少コホートの比率は16.6%から17.95%に上昇し、最年長コホートは2010年の8.9%から現在13.5%へ上昇、働き手層は75.3%から68.6%に低下した。労働年齢人口は2010年にピークに達し、過去10年で6.79ポイント減少した。対照的に日本の労働年齢人口は1992年にピークを迎え、その後の10年で2.18ポイント低下した（チャート 11）。 言い換えれば、中国は1990年代初頭に日本が経験した人口転換を経験しているが、中国の労働年齢人口はさらに速く減少する可能性がある。中国は日本が達したより低い1人当たり所得水準でこの大規模な社会経済的変化を経験している。 人口動態の課題は中国の社会経済的および政治的システムに圧力をかけるだろう。中国の奇跡は、他のアジアの奇跡と同様に、輸出製造により大量の貯蓄を生み出し、それを国家開発に再投資することを前提としていた。労働年齢人口の減少は経済発展と重なり、長期的には貯蓄率の低下をもたらすだろう。これはチャート 12に示されたように、二つの異なる中国の労働人口の図と国民貯蓄率を並べたものである。扶養比率が上昇するにつれて貯蓄率は低下し、再目的化に使える資金が減少する。資本コストは上昇し、経済構造改革は加速するだろう。 日本の場合、人口変化は1990年の金融危機と全国的な経済行動の変化と同時に起きた。貯蓄率は経済の変化とともに低下したが、生成された貯蓄は依然として投資を上回っており、これは民間需要の不足と大きな債務負担の圧力によるものであった。企業は投資と生産の拡大よりも債務圧縮に注力した（チャート 13）。これらは外部環境が良好だったときに起きたが、中国は地政学的緊張による経済的圧力が高まる文脈で同様の人口問題に直面している。 チャート 12 希少化する中国の労働者 中国の労働者が希少になりつつある 中国の労働者が希少になりつつある チャート 13 高貯蓄が債務拡大を可能にするが、やがて債務が圧倒する 高い貯蓄が借入拡大を促し、債務が耐え難くなるまで続く 高い貯蓄が借入拡大を促し、債務が耐え難くなるまで続く 中国はこれまで破滅的な金融危機や不動産価格の崩壊を回避しており、深刻な流動性の罠に陥る事態は避けている。中国当局は不動産バブルの危険を痛感しており、したがって金融の過剰を防ぎバブル的活動を抑制することに注力している。これが過度の引き締めリスクを重大なものにしている。しかしどちらか一方の誤りはデフレへの滑落を招き得る。習政権は活動が過度に減速したり金融の不安定性が手に負えなくなりそうな時は経済を刺激してきたが、これは難しいバランス行為であり、故に我々は過度引き締めリスクを綿密に監視している。 中国の国勢調査からのその他の注目点は以下の通りである： 二人っ子政策は現時点では成功していない。 COVID-19は出生率に悪影響を与えた可能性はあるが、タイミングの点で出生数を大きく歪めるほどではない。したがってトレンドはパンデミックだけで説明できない。 急速な都市化が続いており、都市化率は64%に達し、2010年から14ポイント上昇した。 政策議論は定年年齢の引き上げ、出産に対する財政的インセンティブの提供、子育てをより手頃にするための各種価格統制（特に不動産バブルの抑制）、および地方からの移住が続く中で中小都市の不動産価格が急落しないようにする措置を強調している。 中国の少数民族人口は総人口の9%を占め、過去10年で9%成長したのに対し、漢民族は91%で5%成長にとどまった。少数民族は一人っ子（二人っ子）政策の免除対象である。しかし、新疆のような自治区では民族間緊張が発生しており、中国の少数民族政策に対する国際的な監視が強まっている。 中国の人口動態上の課題は広く知られているが、最新の国勢調査はその規模を再確認させる。中国の潜在成長率は低下しており、上昇する扶養比率は政府に対する要求を強める社会変化を示している。より大きな財政・社会支出の必要は困難な経済的トレードオフと不人気な政治的決定を必要とするだろう。経済変化と人の移動は地域間および富の格差を深めるだろう。 これらすべての点は、我々の一貫したジオポリティカル・ストラテジーのメガテーマの一つを裏付けている：中国の国内政治リスクは過小評価されている。 まとめ：中国の2020年国勢調査は、中国の上昇する社会経済的・政治的課題の根底にある人口減少を強く裏付けるものである。中国は強力な中央政府を持ち、単一支配政党の下で権力が集約され、近年様々な課題を管理してきた実績はあるが、それでも現在進行中の変化の規模は圧倒的であり、ネガティブな経済的・政治的サプライズを招くだろう。 インド：州選はモディに対する転換点ではない インドで第2波のCOVID-19がピークにあった時期に、5州で選挙が行われた。中でも西ベンガル州の結果が最も重要だった。西ベンガルは大きな州であり、インド国会の議員のほぼ10分の1を占めている。ナレンドラ・モディ首相の与党バラティヤ・ジャナタ党（BJP）は294議席中約70%を獲得するとの目標を公言していた。 実際には、西ベンガルは地域政党であるオール・インディア・トリナムール会議（AITMC）の圧勝となった。AITMCは2期の反イナカム任期に直面していたにもかかわらず、議席数は過去最高を記録した。多くの予測を上回る結果であり、多くの世論調査が予想していなかったことが示された。 投資家はこの重要州でのBJPの敗北をどう受け止めるべきか。これはモディのパンデミック対応への反発か。2024年の総選挙で政権交代や国家政策の変更を予告するものか。そうとは言えない。ここで我々は三つの主要な示唆を挙げる： 示唆その1：BJPの成果は注目に値する チャート 14 インド：西ベンガルで足がかりを得たBJP 中国、過度な引き締めの瀬戸際 中国、過度な引き締めの瀬戸際 BJPは西ベンガルで目標には届かなかったが、この州はBJPの地盤ではない。BJPは英語で言えばヒンディー語圏で自然な支持基盤を持つとされ、西ベンガルは非ヒンディー語圏であり、伝統的にBJPは「外部勢力」と見なされてきた。またこの州は変化を受け入れにくいことで知られている。例えばAITMC以前は左派が34年という記録的な長期政権を維持していた。このような状況下で、BJPが2021年に77議席に増やしたことは注目に値する（2016年は3議席）（チャート 14）。 この成果によりBJPは西ベンガルで主要な野党となった。これはBJPが時間をかければ伝統的な強みを持たない州でも足場を築けることを示している。歴史的に弱い州でこの成果を上げたことは、BJPが依然として無視できない勢力であることの表れだ。 示唆その2：BJPの人気は後退したが、2024年に政権を維持する見込みは依然強い BJPに対する不満はCOVID-19対応の不手際とそれに伴う経済的困窮により高まっているが、国家レベルでBJPに代わる現実的な選択肢は存在しない。 最近の州選は、西ベンガルだけでなく、野党のインド国民会議（INC）がまだ体制を整えていないことを確認した。コングレスは西ベンガルで44議席から0議席に崩壊した。より重要なのは、コングレスが大衆にアピールする内部指導者を任命・選出する必要性と、識別可能な政策アジェンダを策定する必要性という二つの重要課題をまだ解決していない点である。 コングレスの弱さは、BJPの議席数が2019年のピークから減少する可能性があっても、我々の2024年のベースケースは依然としてBJP主導の政権がインドの政権を維持するというものであることを意味する。政策の継続性とある程度の構造改革の可能性がベースケースだ。 示唆その3：インドの地域政党の台頭 過去10年のBJPの台頭は、コングレスと地域政党の議席減少と同時に進んだ。しかし最近の州選は、BJPが地域政党の議席シェアを劇的に圧縮できないことを示している。例えば西ベンガルではBJPは単独で77議席を獲得したが、これはこの州で支配的なAITMCの犠牲になって得たものではない。一方、同月に選挙が行われた別の大州であるタミル・ナードゥでは二大地域政党の間で支配が揺れ続けている。 チャート 15 インド：BJPは2019年にピークを迎えたが2024年にも有力 中国は過度な引き締めの瀬戸際にある 中国は過度な引き締めの瀬戸際にある 2019年の総選挙では地域政党（BJPとコングレスを除く全党）のシェアは約40%から35%に低下した（チャート 15）。2024年の選挙では、BJPのピーク議席数が2019年の高水準から低下することにより、地域政党の議席シェアがやや上昇する可能性がある。 インドの地域政党の今後の台頭は単純な力学に根ざしている。BJPが2024年に二期目の現職となる可能性があるので、全国レベルでBJPに対する代替がない限り、有権者は差分的に地域政党を支持する選択をするだろう。 BJPは2024年に単独最大党として過半数を超える議席を獲得するポジションに留まるだろう。しかし与党が過半数を確保するために地域政党を取り込むシナリオも十分にあり得る。ただし2024年までは長い時間がある。COVID-19とその経済的影響への対応が、BJPが2019年の成果を超えることを難しくするだろう。次の重要な州選は2022年2月に予定されており、インド最大の州ウッタル・プラデーシュで選挙が行われる。ここでの結果は、BJPがパンデミックと経済ショックによる反イナカム効果をいかに緩和できるかを示すだろう。 結論：インドにおけるBJPの人気は揺らいでいるが劇的に崩れたわけではない。BJPは依然として2024年に過半数を超える単独最大政党になる位置にある可能性が高い。したがって当面この新興市場で政権不安は懸念されない。 中国の国内政治リスクとインドの政治的継続性を踏まえ、当面インド向けのトレードを維持する（チャート 16Aおよびチャート 16B）。ただし我々はインド全体のレビューを進めており、今後の特別レポートで顧客に結論を共有する予定である。 チャート 16A 新興国に対してインド債をロングで保有 インド債券を新興国（EM）に対してロングで維持する インド債券を新興国（EM）に対してロングで維持する チャート 16B インドロング／中国ショートを堅持 インドをロング、中国をショートで貫く インドをロング、中国をショートで貫く 投資上の示唆 短期的な安全資産トレードを維持する。天然ガス先物のロングは19.8%の利得でクローズ。 景気循環（12か月）の強気ポジションを維持し、グロースよりバリューを優先する。レアアースを含むコモディティおよび新興市場のロングを維持する。ただし、中国が我々のベンチマークに従って過度の引き締めを行った場合にはこれらのトレードをカットする準備をすること。 当面は新興国同業と比較してインドのローカル通貨建て債をオーバーウェイトし、インド株を中国株に対してロングする。だがインドに対する強気姿勢は精査中である。 チャート 17 テック売りの中で回復するサイバーセキュリティ株 サイバーセキュリティ株がテック株の暴落の中で反発 サイバーセキュリティ株がテック株の暴落の中で反発 サイバーセキュリティ株はロングで保有を継続すべきだが、地政学的「職場復帰」トレードとしてはサイバーよりも航空宇宙・防衛を引き続き好む。先週の一般的なテック売りの中でサイバーセキュリティ株はテックセクターに対して持ち直した。米国で発生した大規模なColonial Pipelineのランサムウェア攻撃は、東海岸の燃料供給の約45%を支える主要ネットワークを一時的に停止させた（チャート 17）。それでも重要インフラに対する攻撃はサイバーセキュリティが長期的なテーマであることを浮き彫りにしており、投資家はエクスポージャーを維持すべきである。サイバー株はワクチン発見以降、テック全体をアウトパフォームしている（チャート 18）。 チャート 18 サイバーセキュリティは構造的テーマである サイバーセキュリティは長期的なテーマである サイバーセキュリティは長期的なテーマである Matt Gertken バイスプレジデント 地政学ストラテジー mattg@bcaresearch.com Yushu Ma リサーチ・アソシエイト yushu.ma@bcaresearch.com Ritika Mankar, CFA 編集者／ストラテジスト Ritika.Mankar@bcaresearch.com

Highlights Biden’s first 100 days are characterized by a liberal spend-and-tax agenda unseen since the 1960s. It is not a “bait and switch,” however. Voters do not care about deficits and debt. At least not for now. The apparent outcome of the populist surge in the US and UK in 2016 is blowout fiscal spending. Yet the US and UK also invented and distributed vaccines faster than others. US growth and equities have outperformed while the US dollar experienced a countertrend bounce. While growth will rotate to other regions, China’s stimulus is on the wane. Of Biden’s three initial geopolitical risks, two are showing signs of subsiding: Russia and Iran. US-China tensions persist, however, and Biden has been hawkish so far. Our new Australia Geopolitical Risk Indicator confirms our other indicators in signaling that China risk, writ large, remains elevated. Cyclically we are optimistic about the Aussie and Australian stocks. Mexico’s midterm elections are likely to curb the ruling party’s majority but only marginally. The macro and geopolitical backdrop is favorable for Mexico. Feature US President Joe Biden gave his first address to the US Congress on April 28. Biden’s first hundred days are significant for his extravagant spending proposals, which will rank alongside those of Lyndon B. Johnson’s Great Society, if not Franklin Delano Roosevelt’s New Deal, in their impact on US history, for better and worse. Chart 1Biden's First 100 Days - The Market's Appraisal The global financial market appraisal is that Biden’s proposals will turn out for the better. The market has responded to the US’s stimulus overshoot, successful vaccine rollout, and growth outperformance – notably in the pandemic-struck service sector – by bidding up US equities and the dollar (Chart 1). From a macro perspective we share the BCA House View in leaning against both of these trends, preferring international equities and commodity currencies. However, our geopolitical method has made it difficult for us to bet directly against the dollar and US equities. Geopolitics is about not only wars and trade but also the interaction of different countries’ domestic politics. America’s populist spending blowout is occurring alongside a sharp drop in China’s combined credit-and-fiscal impulse, which will eventually weigh on the global economy. This is true even though the rest of the world is beginning to catch up in vaccinations and economic normalization. As for traditional geopolitical risk – wars and alliances – Biden has not yet leaped over the three initial foreign policy hurdles that we have highlighted: China, Russia, and Iran. In this report we will update the view on all three, as there is tentative improvement on the Russian and Iranian fronts. In addition, we will introduce our newest geopolitical risk indicator – for Australia – and update our view on Mexico ahead of its June 6 midterm elections. Biden’s Fiscal Blowout From a macro point of view, Biden’s $1.9 trillion American Rescue Plan Act (ARPA) was much larger than what Republicans would have passed if President Trump had won a second term. His proposed $2.3 trillion American Jobs Plan (AJP) is also larger, though both candidates were likely to pass an infrastructure package. The difference lies in the parts of these packages that relate to social spending and other programs, beyond COVID relief and roads and bridges. The Republican proposal for COVID relief was $618 billion while the Republicans’ current proposal on infrastructure is $568 billion – marking a $3 trillion difference from Biden. In reality Republicans would have proposed larger spending if Trump had remained president – but not enough to close this gap. And Biden is also proposing a $1.8 trillion American Families Plan (AFP). Biden’s praise for handling the vaccinations must be qualified by the Trump administration’s successful preparations, which have been unfairly denigrated. Similarly, Biden’s blame for the migrant surge at the southern border must be qualified by the fact that the surge began last year.1 A comparison with the UK will put Biden’s administration into perspective. The only country comparable to the US in terms of the size of fiscal stimulus over 2019-21 so far – excluding Biden’s AJP and AFP, which are not yet law – is the United Kingdom. Thus the consequence of the flare-up of populism in the Anglo-Saxon world since 2016 is a budget deficit blowout as these countries strive to suppress domestic socio-political conflict by means of government largesse, particularly in industrial and social programs. However, populist dysfunction was also overrated. Both the US and UK retain their advantages in terms of innovation and dynamism, as revealed by the vaccine and its rollout (Chart 2). Chart 2Dysfunctional Anglo-Saxon Populism? No sharp leftward turn occurred in the UK, where Prime Minister Boris Johnson and his Conservatives had the benefit of a pre-COVID election in December 2019, which they won. By contrast, in the US, President Trump and the Republicans contended an election after the pandemic and recession had virtually doomed them to failure. There a sharp leftward turn is taking place. Going forward the US will reclaim the top rank in terms of fiscal stimulus, as Biden is likely to get his infrastructure plan (AJP) passed. Our updated US budget deficit projections appear in Chart 3. Our sister US Political Strategy gives the AJP an 80% chance of passing in some form and the AFP only a 50% chance of passing, depending on how quickly the AJP is passed. This means the blue dashed line is more likely to occur than the red dashed line. The difference is slight despite the mind-boggling headline numbers of the plans because the spending is spread out over eight-to-ten years and tax hikes over 15 years will partially offset the expenditures. Much will depend on whether Congress is willing to pay for the new spending. In Chart 3 we assume that Biden will get half of the proposed corporate tax hikes in the AJP scenario (and half of the individual tax hikes in the AFP scenario). If spending is watered down, and/or tax hikes surprise to the upside, both of which are possible, then the deficit scenarios will obviously tighten, assuming the economic recovery continues robustly as expected. But in the current political environment it is safest to plan for the most expansive budget deficit scenarios, as populism is the overriding force. Chart 3Biden’s Blowout Spending Biden’s campaign plan was even more visionary, so it is not true that Biden pulled a “bait and switch” on voters. Rather, the median voter is comfortable with greater deficits and a larger government role in American life. Bottom Line: The implication of Biden’s spending blowout is reflationary for the global economy, cyclically negative for the US dollar, and positive for global equities. But on a tactical time frame the rotation to other equities and currencies will also depend on China’s fiscal-and-credit deceleration and whether geopolitical risk continues to fall. Russia: Some Improvement But Coast Not Yet Clear US-Russia tensions appeared to fizzle over the past week but the coast is not yet clear. We remain short Russian currency and risk assets as well as European emerging market equities. Tensions fell after President Putin’s State of the Nation address on April 21 in which he warned the West against crossing Russia’s “red lines.” Biden’s sanctions on Russia were underwhelming – he did not insist on halting the final stages of the Nord Stream II pipeline to Germany. Russia declared it would withdraw its roughly 100,000 troops from the Ukrainian border by May 1. Russian dissident Alexei Navalny ended his hunger strike. Putin attended Biden’s Earth Day summit and the two are working on a bilateral summit in June. Chart 4Russia's Domestic Instability Will Continue De-escalation is not certain, however. First, some US officials have cast doubt on Russia’s withdrawal of troops and it is known that arms and equipment were left in place for a rapid mobilization and re-escalation if necessary. Second, Russian-backed Ukrainian separatists will be emboldened, which could increase fighting in Ukraine that could eventually provoke Russian intervention. Third, the US has until August or September to prevent Nord Stream from completion. Diplomacy between Russia and the US (and Russia and several eastern European states) has hit a low point on the withdrawal of ambassadors. Fourth, Russian domestic politics was always the chief reason to prepare for a worse geopolitical confrontation and it remains unsettled. Putin’s approval rating still lingers in the relatively low range of 65% and government approval at 49%. The economic recovery is weak and facing an increasingly negative fiscal thrust, along with Europe and China, Russia’s single-largest export destination (Chart 4). Putin’s handouts to households, in anticipation of the September Duma election, only amount to 0.2% of GDP. More measures will probably be announced but the lead-up to the election could still see an international adventure designed to distract the public from its socioeconomic woes. Russia’s geopolitical risk indicators ticked up as anticipated (Chart 5). They may subside if the military drawdown is confirmed and Biden and Putin lower the temperature. But we would not bet on it. Chart 5Russian Geopolitical Risk: Wait For 'All Clear' Signal Bottom Line: It is possible that Biden has passed his first foreign policy test with Russia but it is too soon to sound the “all clear.” We remain short Russian ruble and short EM Europe until de-escalation is confirmed. The Russian (and German) elections in September will mark a time for reassessing this view. Iran: Diplomacy On Track (Hence Jitters Will Rise) While Russia may or may not truly de-escalate tensions in Ukraine, the spring and summer are sure to see an increase in focus on US-Iran nuclear negotiations. Geopolitical risks will remain high prior to the conclusion of a deal and will materialize in kinetic attacks of various kinds. This thesis is confirmed by the alleged Israeli sabotage of Iran’s Natanz nuclear facility this month. The US Navy also fired warning shots at Iranian vessels staging provocations. Sporadic attacks in other parts of the region also continue to flare, most recently with an Iranian tanker getting hit by a drone at a Syrian oil terminal.2 The US and Iran are making progress in the Vienna talks toward rejoining the 2015 nuclear deal from which the US withdrew in 2018. Iran pledged to enrich uranium up to 60% but also said this move was reversible – like all its tentative violations of the Joint Comprehensive Plan of Action (JCPA) so far (Table 1). Iran also offered a prisoner swap with the US. Saudi Arabia appears resigned to a resumption of the JCPA that it cannot prevent, with crown prince Mohammed bin Salman offering diplomatic overtures to both the US and Iran. Table 1Iran’s Nuclear Program And Compliance With JCPA 2015 Still, the closer the US and Iran get to a deal the more its opponents will need to either take action or make preparations for the aftermath. The allegation that former US Secretary of State John Kerry’s shared Israeli military plans with Iranian Foreign Minister Javad Zarif is an example of the kind of political brouhaha that will occur as different elements try to support and oppose the normalization of US-Iran ties. More importantly Israel will underscore its red line against nuclear weaponization. Previously Iran was set to reach “breakout” capability of uranium enrichment – a point at which it has enough fissile material to produce a nuclear device – as early as May. Due to sabotage at the Natanz facility the breakout period may have been pushed back to July.3 This compounds the significance of this summer as a deadline for negotiating a reduction in tensions. While the US may be prepared to fudge on Iran’s breakout capabilities, Israel will not, which means a market-relevant showdown should occur this summer before Israel backs down for fear of alienating the United States. Tit-for-tat attacks in May and June could cause negative surprises for oil supply. Then there will be a mad dash by the negotiators to agree to deal before the de facto August deadline, when Iran inaugurates a new president and it becomes much harder to resolve outstanding issues. Chart 6Iran Deal Priced Into Oil Markets? Hence our argument that geopolitics adds upside risk to oil prices in the first half of the year but downside risk in the second half. The market’s expectations seem already to account for this, based on the forward curve for Brent crude oil. The marginal impact of a reconstituted Iran nuclear deal on oil prices is slightly negative over the long run since a deal is more likely to be concluded than not and will open up Iran’s economy and oil exports to the world. However, our Commodity & Energy Strategy expects the Brent price to exceed expectations in the coming years, judging by supply and demand balances and global macro fundamentals (Chart 6). If an Iran deal becomes a fait accompli in July and August the Saudis could abandon their commitment to OPEC 2.0’s production discipline. The Russians and Saudis are not eager to return to a market share war after what happened in March 2020 but we cannot rule it out in the face of Iranian production. Thus we expect oil to be volatile. Oil producers also face the threat of green energy and US shale production which gives them more than one reason to keep up production and prevent prices from getting too lofty. Throughout the post-2015 geopolitical saga between the US and Iran, major incidents have caused an increase in the oil-to-gold ratio. The risk of oil supply disruption affected the price more than the flight to gold due to geopolitical or war risk. The trend generally corresponds with that of the copper-to-gold ratio, though copper-to-gold rose higher when growth boomed and oil outperformed when US-Iran tensions spiked in 2019. Today the copper-to-gold ratio is vastly outperforming the oil-to-gold on the back of the global recovery (Chart 7). This makes sense from the point of view of the likelihood of a US-Iran deal this year. But tensions prior to a deal will push up oil-to-gold in the near term. Chart 7Biden Passes Iran Test? Likely But Not A Done Deal Bottom Line: The US-Iran diplomacy is on track. This means geopolitical risk will escalate in May and June before a short-term or interim deal is agreed in July or August. Geopolitical risk stemming from US-Iran relations will subside thereafter, unless the deadline is missed. The forward curve has largely priced in the oil price downside except for the risk that OPEC 2.0 becomes dysfunctional again. We expect upside price surprises in the near term. Biden, China, And Our Australia GeoRisk Indicator Ostensibly the US and Russia are avoiding a war over Ukraine and the US and Iran are negotiating a return to the 2015 nuclear deal. Only US-China relations utterly lack clarity, with military maneuvering in the Taiwan Strait and South China Sea and tensions simmering over the gamut of other disputes. Chart 8Biden Still Faces China Test The latest data on global military spending show not only that the US and China continue to build up their militaries but also that all of the regional allies – including Japan! – are bulking up defense spending (Chart 8). This is a substantial confirmation of the secular growth of geopolitical risk, specifically in reaction to China’s rise and US-China competition. The first round of US-China talks under Biden went awry but since then a basis has been laid for cooperation on climate change, with President Xi Jinping attending Biden’s virtual climate change summit (albeit with no bilateral summit between the two). If John Kerry is removed as climate czar over his Iranian controversy it will not have an impact other than to undermine American negotiators’ reliability. The deeper point is that climate is a narrow basis for US-China cooperation and it cannot remotely salvage the relationship if a broader strategic de-escalation is not agreed. Carbon emissions are more likely to become a cudgel with which the US and West pressure China to reform its economy faster. The Department of Defense is not slated to finish its comprehensive review of China policy until June but most US government departments are undertaking their own reviews and some of the conclusions will trickle out in May, whether through Washington’s actions or leaks to the press. Beijing could also take actions that upend the Biden administration’s assessment, such as with the Microsoft hack exposed earlier this year. The Biden administration will soon reveal more about how it intends to handle export controls and sanctions on China. For example, by May 19 the administration is slated to release a licensing process for companies concerned about US export controls on tech trade with China due to the Commerce Department’s interim rule on info tech supply chains. The Biden administration looks to be generally hawkish on China, a view that is now consensus. Any loosening of punitive measures would be a positive surprise for Chinese stocks and financial markets in general. There are other indications that China’s relationship with the West is not about to improve substantially – namely Australia. Australia has become a bellwether of China’s relations with the world. While the US’s defense commitments might be questionable with regard to some of China’s neighbors – namely Taiwan (Province of China) but also possibly South Korea and the Philippines – there can be little doubt that Australia, like Japan, is the US’s red line in the Pacific. Australian politics have been roiled over the past several years by the revelation of Chinese influence operations, state- or military-linked investments in Australia, and propaganda campaigns. A trade war erupted last year when Australia called for an investigation into the origins of COVID-19 and China’s handling of it. Most recently, Victoria state severed ties with China’s Belt and Road Initiative. Despite the rise in Sino-Australian tensions, the economic relationship remains intact. China’s stimulus overweighed the impact of its punitive trade measures against Australia, both by bidding up commodity prices and keeping the bulk of Australia’s exports flowing (Chart 9). As much as China might wish to decouple from Australia, it cannot do so as long as it needs to maintain minimum growth rates for the sake of social stability and these growth rates require resources that Australia provides. For example, global iron ore production excluding Australia only makes up 80% of China’s total iron ore imports, which necessitates an ongoing dependency here (Chart 10). Brazil cannot make up the difference. Chart 9China-Australia Trade Amid Tensions Chart 10China Cannot Replace Australia This resource dependency does not necessarily reduce geopolitical tension, however, because it increases China’s supply insecurity and vulnerability to the US alliance. The US under Biden explicitly aims to restore its alliances and confront autocratic regimes. This puts Australia at the front lines of an open-ended global conflict. Chart 11Introducing: Australia GeoRisk Indicator (Smoothed) Our newly devised Australia GeoRisk Indicator illustrates the point well, as it has continued surging since the trade war with China first broke out last year (Chart 11). This indicator is based on the Australian dollar and its deviation from underlying macro variables that should determine its course. These variables are described in Appendix 1. If the Aussie weakens relative to these variables, then an Australian-specific risk premium is apparent. We ascribe that premium to politics and geopolitics writ large. A close examination of the risk indicator’s performance shows that it tracks well with Australia’s recent political history (Chart 12). Previous peaks in risk occurred when President Trump rose to power and Australia, like Canada, found itself beset by negative pressures from both the US and China. In particular, Trump threatened tariffs and the Australian government banned China’s Huawei from its 5G network. Today the rise in geopolitical risk stems almost exclusively from China. There is potential for it to roll over if Biden negotiates a reduction in tensions but that is a risk to our view (an upside risk for Australian and global equities). Chart 12Australian GeoRisk Indicator (Unsmoothed) What does this indicator portend for tradable Australian assets? As one would expect, Australian geopolitical risk moves inversely to the country’s equities, currency, and relative equity performance (Chart 13). Australian equities have risen on the back of global growth and the commodity boom despite the rise in geopolitical risk. But any further spike in risk could jeopardize this uptrend. Chart 13Australia Geopolitical Risk And Tradable Assets An even clearer inverse relationship emerges with the AUD-JPY exchange rate, a standard measure of risk-on / risk-off sentiment in itself. If geopolitical risk rises any further it should cause a reversal in the currency pair. Finally, Australian equities have not outperformed other developed markets excluding the US, which may be due to this elevated risk premium. Bottom Line: China is the most important of Biden’s foreign policy hurdles and unlike Russia and Iran there is no sign of a reduction in tension yet. Our Australian GeoRisk Indicator supports the point that risk remains very elevated in the near term. Moreover China’s credit deceleration is also negative for Australia. Cyclically, however, assuming that China does not overtighten policy, we take a constructive view on the Aussie and Australian equities. Biden’s Border Troubles Distract From Bullish Mexico Story The biggest criticism of Biden’s first 100 days has been his reduction in a range of enforcement measures on the southern border which has encouraged an overflow of immigrants. Customs and Border Patrol have seen a spike in “encounters” from a low point of around 17,000 in 2020 to about 170,000 today. The trend started last year but accelerated sharply after the election and had surpassed the 2019 peak of 144,000. Vice President Kamala Harris has been put in charge of managing the border crisis, both with Mexico and Central American states. She does not have much experience with foreign policy so this is her opportunity to learn on the job. She will not be able to accomplish much given that the Biden administration is unwilling to use punitive measures or deterrence and will not have large fiscal resources available for subsidizing the nations to the south. With the US economy hyper-charged, especially relative to its southern neighbors, the pace of immigration is unlikely to slacken. From a macro point of view the relevance is that the US is not substantially curtailing immigration – quite the opposite – which means that labor force growth will not deviate from its trend. What about Mexico itself? It is not likely that Harris will be able to engage on a broader range of issues with Mexico beyond immigration. As usual Mexico is beset with corruption, lawlessness, and instability. To these can be added the difficulties of the pandemic and vaccine rollout. Tourism and remittances are yet to recover. Cooperation with US federal agents against the drug cartels is deteriorating. Cartels control an estimated 40% of Mexican territory.4 Nevertheless, despite Mexico’s perennial problems, we hold a positive view on Mexican currency and risk assets. The argument rests on five points: Strong macro fundamentals: With China’s fiscal-and-credit impulse slowing sharply, and US stimulus accelerating, Mexico stands to benefit. Mexico has also run orthodox monetary and fiscal policies. It has a demographic tailwind, low wages, and low public debt. The stars are beginning to align for the country’s economy, according to our Emerging Markets Strategy. US and Canadian stimulus: The US and Canada have the second- and third-largest fiscal stimulus of all the major countries over the 2019-21 period, at 9% and 8% of GDP respectively. Mexico, with the new USMCA free trade deal in hand, will benefit. US protectionism fizzled: Even Republican senators blocked President Trump’s attempted tariffs on Mexico. Trump’s aggression resulted in the USMCA, a revised NAFTA, which both US political parties endorsed. Mexico is inured to US protectionism, at least for the short and medium term. Diversification from China: Mexico suffered the greatest opportunity cost from China’s rise as an offshore manufacturer and entrance to the World Trade Organization. Now that the US and other western countries are diversifying away from China, amid geopolitical tensions, Mexico stands to benefit. The US cannot eliminate its trade deficit due to its internal savings/investment imbalance but it can redistribute that trade deficit to countries that cannot compete with it for global hegemony. AMLO faces constraints: A risk factor stemmed from politics where a sweeping left-wing victory in 2018 threatened to introduce anti-market policies. President Andrés Manuel López Obrador (known as AMLO) and his MORENA party gained a majority in both houses of the legislature. Their coalition has a two-thirds majority in the lower house (Chart 14). However, we pointed out that AMLO’s policies have not been radical and, more importantly, that the midterm election would likely constrain his power. Chart 14Mexico’s Midterm Election Looms These are all solid points but the last item faces a test in the upcoming midterm election. AMLO’s approval rating is strong, at 63%, putting him above all of his predecessors except one (Chart 15). AMLO’s approval has if anything benefited from the COVID-19 crisis despite Mexico’s inability to handle the medical challenge. He has promised to hold a referendum on his leadership in early 2022, more than halfway through his six-year term, and he is currently in good shape for that referendum. For now his popularity is helpful for his party, although he is not on the ballot in 2021 and MORENA’s support is well beneath his own. Chart 15AMLO’s Approval Fairly Strong MORENA’s support is holding at a 44% rate of popular support and its momentum has slightly improved since the pandemic began. However, MORENA’s lead over other parties is not nearly as strong as it was back in 2018 (Chart 16, top panel). The combined support of the two dominant center-right parties, the Institutional Revolutionary Party and the National Action Party, is almost equal to that of MORENA. And the two center-left parties, the Democratic Revolution Party and Citizen’s Movement, are part of the opposition coalition (Chart 16, bottom panel). The pandemic and economic crisis will motivate the opposition. Chart 16MORENA’s Support Holding Up Despite COVID Traditionally the president’s party loses seats in the midterm election (Table 2). Circumstances are different from the US, which also exhibits this trend, because Mexico has more political parties. A loss of seats from MORENA does not necessarily favor the establishment parties. Nevertheless opinion polling shows that about 45% of voters say they would rather see MORENA’s power “checked” compared to 41% who wish to see the party go on unopposed.5 Table 2Mexican President’s Party Tends To Lose Seats In Midterm Election While the ruling coalition may lose its super-majority, it is not a foregone conclusion that MORENA will lose its majority. Voters have decades of experience of the two dominant parties, both were discredited prior to 2018, and neither has recovered its reputation so quickly. The polling does not suggest that voters regret their decision to give the left wing a try. If anything recent polls slightly push against this idea. If MORENA surprises to the upside then AMLO’s capabilities would increase substantially in the second half of his term – he would have political capital and an improving economy. While the senate is not up for grabs in the midterm, MORENA has a narrow majority and controls a substantial 60% of seats when its allies are taken into account. In this scenario AMLO could pursue his attempts to increase the state’s role in key industries, like energy and power generation, at the expense of private investors. Even then the Supreme Court would continue to act as a check on the government. The 11-seat court is currently made up of five conservatives, two independents, and three liberal or left-leaning judges. A new member, Margarita Ríos Farjat, is close to the government, leaving the conservatives with a one-seat edge over the liberals and putting the two independents in the position of swing voters. Even if AMLO maintains control of the lower house, he will not be able to override the constitutional court, as he has threatened on occasion to do, without a super-majority in the senate. Bottom Line: AMLO will likely lose some ground in the lower house and thus suffer a check on his power. This will only confirm that Mexican political risk is not likely to derail positive underlying macro fundamentals. Continue to overweight Mexican equities relative to Brazilian.   Matt Gertken Vice President Geopolitical Strategy mattg@bcaresearch.com   Appendix 1 The market is the greatest machine ever created for gauging the wisdom of the crowd and as such our Geopolitical Risk Indicators were not designed to predict political risk but to answer the question of whether and to what extent markets have priced that risk. Our Australian GeoRisk Indicator (see Chart 11-12 above) uses the same simple methodology used in our other indicators, which avoid the pitfall of regression-based models. We begin with a financial asset that has a daily frequency in price, in this case the AUD, and compare its movement against several fundamental factors – in this case global energy and base metal prices, global metals and mining stock prices, and the Chilean peso. Australia is a commodity-exporting country. It is the largest producer of iron ore and is among the largest producers of coal and natural gas. It is also a major trading partner for China. Due to the nature of its economy the Australian dollar moves with global metal and energy prices and the global metals and mining equity prices. Chile, another major commodity producer also moves with global metal prices, hence our inclusion of the peso in this indicator. The AUD has a high correlation with all of these assets, and if the changes in the value of the AUD lag or lead the changes in the value of these assets, the implication is that geopolitical risk unique to Australia is not priced by the market. We included the peso as Chile is not as affected as Australia by any conflict in the South China Sea or Northeast Asia, which means that a deviation of the AUD from CLP represents a unique East Asia Pacific risk. Our indicator captures the involvement of Australia in a few regional and international conflicts. The indicator climbed as Australia got involved in the East Timor emergency and declined as it exited. It continued declining even as Australia joined the US in the Afghanistan and Iraq wars, which showed that investors were unperturbed by faraway wars, while showing measurable concern in the smaller but closer Timorese conflict. Risks went up again as the nation erupted in labor protests as the Howard government made changes to the labor code. We see the market pricing higher risk again during the 2008 financial crisis, although it was modest and Australia escaped the crisis unscathed due to massive Chinese stimulus. Since then, investors have been climbing a wall of worry as they priced in Northeast Asia-related geopolitical risks. These started with the South Korean Cheonan sinking and continued with the Sino-Japanese clash over the Senkaku islands. They culminated with the Chinese ADIZ declaration in late 2013. In 2016, Australia was shocked again when Donald Trump was elected, and investor fears were evident when the details of Trump-Turnbull spat were made public. The risk indicator reached another peak during the trade wars between the US and the rest of the world. Investors were not worried about COVID-19 as Australia largely contained the pandemic, but the recent Australian-Chinese trade war pushed the risk indicator up, giving investors another wall of worry. If the Biden administration forces Australia into a democratic alliance in confrontation with autocratic China then this risk will persist for some time.   Jesse Anak Kuri Associate Editor Jesse.Kuri@bcaresearch.com We Read (And Liked) ... The Narrow Corridor: States, Societies, And The Fate Of Liberty This book is a sweeping review of the conditions of liberty essential to steering the world away from the Hobbesian war of all against all. In this unofficial sequel to the 2012 hit, Why Nations Fail: The Origins Of Power, Prosperity, And Poverty, Daron Acemoglu (Professor of Economics at the Massachusetts Institute of Technology) and James A. Robinson (Professor of Global Conflict Studies at the University of Chicago) further explore their thesis that the existence and effectiveness of democratic institutions account for a nation’s general success or failure. The Narrow Corridor6 examines how liberty works. It is not “natural,” not widespread, “is rare in history and is rare today.” Only in peculiar circumstances have states managed to produce free societies. States have to walk a thin line to achieve liberty, passing through what the authors describe as a “narrow corridor.” To encourage freedom, states must be strong enough to enforce laws and provide public services yet also restrained in their actions and checked by a well-organized civil society. For example, from classical history, the Athenian constitutional reforms of Cleisthenes “were helpful for strengthening the political power of Athenian citizens while also battling the cage of norms.” That cage of norms is the informal body of customs replaced by state institutions. Those norms in turn “constrained what the state could do and how far state building could go,” providing a set of checks. Though somewhat fluid in its definition, liberty, as Acemoglu and Robinson show, is expressed differently under various “leviathans,” or states. For starters, the “Shackled Leviathan” is a government dedicated to upholding the rule of law, protecting the weak against the strong, and creating the conditions for broad-based economic opportunity. Meanwhile, the “Paper Leviathan” is a bureaucratic machine favoring the privileged class, serving as both a political and economic brake on development and yielding “fear, violence, and dominance for most of its citizens.” Other examples include: The “American Leviathan” which fails to deal properly with inequality and racial oppression, two enemies of liberty; and a “Despotic Leviathan,” which commands the economy and coerces political conformity – an example from modern China. Although the book indulges in too much jargon, it is provocative and its argument is convincing. The authors say that in most places and at most times, the strong have dominated the weak and human freedom has been quashed by force or by customs and norms. Either states have been too weak to protect individuals from these threats or states have been too strong for people to protect themselves from despotism. Importantly, many states believe that once liberty is achieved, it will remain the status quo. But the authors argue that to uphold liberty, state institutions have to evolve continuously as the nature of conflicts and needs of society change. Thus society's ability to keep state and rulers accountable must intensify in tandem with the capabilities of the state. This struggle between state and society becomes self-reinforcing, inducing both to develop a richer array of capacities just to keep moving forward along the corridor. Yet this struggle also underscores the fragile nature of liberty. It is built on a precarious balance between state and society; between economic, political, and social elites and common citizens; between institutions and norms. If one side of the balance gets too strong, as has often happened in history, liberty begins to wane. The authors central thesis is that the long-run success of states depends on the balance of power between state and society. If states are too strong, you end up with a “Despotic Leviathan” that is good for short-term economic growth but brittle and unstable over the long term. If society is too strong, the “Leviathan” is absent, and societies suffer under a pre-modern war of all against all. The ideal place to be is in the narrow corridor, under a shackled Leviathan that will grow state capacity and individual liberty simultaneously, thus leading to long-term economic growth. In the asset allocation process, investors should always consider the liberty of a state and its people, if a state’s institutions grossly favor the elite or the outright population, whether these institutions are weak or overbearing on society, and whether they signify a balance between interests across the population. Whether you are investing over a short or long horizon, returns can be significantly impacted in the absence of liberty or the excesses of liberty. There should be a preference among investors toward countries that exhibit a balance of power between state and society, setting up a better long-term investment environment, than if a balance of power did not exist.   Guy Russell Research Analyst GuyR@bcaresearch.com GeoRisk Indicator China Russia UK Germany France Italy Canada Spain Taiwan – Province Of China Korea Turkey Brazil Australia Footnotes 1 "President Biden’s first 100 days as president fact-checked," BBC News, April 29, 2021, bbc.com. 2 "Oil tanker off Syrian coast hit in suspected drone attack," Al Jazeera, April 24, 2021, Aljazeera.com. 3 See Yaakov Lappin, "Natanz blast ‘likely took 5,000 centrifuges offline," Jewish News Syndicate, jns.org. 4 John Daniel Davidson, "Former US Ambassador To Mexico: Cartels Control Up To 40 Percent Of Mexican Territory," The Federalist, April 28, 2021, thefederalist.com. 5 See Alejandro Moreno, "Aprobación de AMLO se encuentra en 61% previo a campañas electorales," El Financiero, April 5, 2021, elfinanciero.com. 6 Penguin Press, New York, NY, 2019, 558 pages. Section III: Geopolitical Calendar

特別レポート

ハイライト 緑の党が9月26日の連邦選挙でドイツ政府の支配権を握る可能性が高い。少なくとも新連立政権で非常に影響力を持つだろう。 ドイツはEU内で長期にわたる地政学的目標の多くを達成している。金融政策と財政政策はハト派で、環境政策はタカ派というコンセンサスがある。最大の変化は外部からもたらされるだろう。 米国とドイツの関係はより困難になっている。両国ともロシアと中国の侵略には反対するが、ドイツは米国の攻撃的行動には抵抗するだろう。 キリスト教民主同盟（CDU）が政府に留まる確率は65％であり、これにより緑の党の論争的で野心的な増税議題は制限されるだろう。左派連立の確率は35％であり、回復のために財政刺激を前倒しで実行するだろう。 経済は回復基調にあり、緑の党主導の財政緩和は回復を加速させるだろう。しかし、連立政治はドイツの人口動態の悪化、生産性の低下、大きな過剰貯蓄といった問題に対処することはおそらくできないだろう。 景気循環の観点では、ブントに対して周辺欧州債をオーバーウェイト；EUR/USD；およびドイツ株に対してイタリア株とスペイン株をオーバーウェイト。 特集 チャート 1ドイツ人は若い女性と緑の党に注目 変革の風：ドイツ、グリーン化へ 変革の風：ドイツ、グリーン化へ ドイツは緑の党が指導する主要国としては初めての国になる見込みだ。少なくとも9月26日のドイツ選挙では現政権が期待を下回り、緑の党が期待を上回る番狂わせが起きるだろう（チャート 1）。 オンラインベッティング市場は30％で、アナレーナ・ベアボックが2022年に緑の党出身として初の首相、かつ第三党から選出される初の首相になる確率を過小評価している（チャート 2）。 「ドイツ問題」――ドイツを統一しつつ隣国との平和を維持する方法の問題――は過去二世紀にわたりヨーロッパの中心にあったが、今日では実質的に解決されたように見える。平和で統一されたドイツが平和で概ね統一されたヨーロッパの中心に位置している。様々なリスクは差し迫っているが、このポジティブな背景は認識されるべきである。 チャート 2市場はベアボックの首相挑戦に気づき始めている 変革の風：ドイツ、グリーン化へ 変革の風：ドイツ、グリーン化へ ドイツ選挙で最もあり得るシナリオはいずれも、ユーロ圏の連帯を目指す政策を継続させることで現在の状況を強化するだろう。緑のシフトですら既にかなり進行しているが、緑の党主導の政府はそれをさらに加速するだろう。それでも今年の選挙は重要だ。なぜならドイツの左方へのシフトを告げ、少なくとも今後4年間の財政、エネルギー、産業、貿易政策を形作るからである。 左派の大勝は短期的には株式市場に興奮をもたらすだろう――パンデミック後の反発を加速させるポジティブな財政サプライズ――が、長期的には過去との決別を招き、政策の不確実性を高めるだろう（チャート 3）。緑の党は増税や規制の大幅な強化、および産業とエネルギー政策における大きな変更を支持している。左派の大勝がない場合、連立政治は混迷を招き、ドイツの既存政策が継続されるだろう。 チャート 3ドイツの政策不確実性の高まり ドイツの政策不確実性が高まっている ドイツの政策不確実性が高まっている ドイツ国内で何が起ころうとも、地政学的環境は一段と危険になっている。ドイツは米国のロシアや中国との大国間闘争に巻き込まれることを避けようとするが、選択の余地がないかもしれない。 ドイツの地政学 ドイツ統一の困難さは近代ヨーロッパ史の中心にある。ドイツ語を話す大きく生産的な人口を有していたため、1871年の統一は近隣諸国にとって安全保障上の脅威となり、それが世界大戦へとつながった。冷戦後の平和的なドイツ再統一は、EUが大陸の平和と繁栄を確立する可能性を生み出した。 この体制は最近の挑戦を乗り越えてきた。ドイツとEUの関係は金融危機、アラブの春と移民流入、ブレグジット、トランプ大統領の貿易関税によって脅かされた。しかし最終的にこれらの出来事は、外圧に直面してドイツとヨーロッパの結びつきが強まる現実を固めた。ドイツは軍事的役割を回避し、経済面でフランスと歩調を合わせ、ロシアとの衝突を避けることで大陸における優越性を達成した。 ドイツは長年求めてきた戦略目標の多くを達成しているため、過去10年間に米国や英国のようなナショナリストの反発に見舞われることはなかった。しかしドイツはポピュリズムや反既成勢力の感情に無縁ではない。二大政治勢力であるキリスト教民主同盟と社会民主党は最近の選挙で支持を失い、やむなく大連立を組むことになった。 ドイツの反既成感情は有権者を左に動かし、緑の党を支持する傾向を生んだ。緑の党は過去10年間で着実に支持を伸ばし、選挙のわずか5か月前に勢いをつかんだ（チャート 4）。しかしドイツの緑の党は基本的に既成政党でもある。16州のうち11州で州政府に参加しており、現在はドイツで三番目に人口が多く生産的な州であるバーデン＝ヴュルテンベルク州で首位の座にある。1998年から2005年にかけては政府に参加し、新自由主義的な構造改革や海外への軍事派遣にかかわったこともある。さらに緑の党は単独で政権をとることはできず、連立政権の中で統治する必要があり、それが彼らのより論争的な政策を調整するだろう。 チャート 4緑の党躍進、キリスト教民主同盟失速 緑の党が躍進、キリスト教民主党は失速 緑の党が躍進、キリスト教民主党は失速 今日のドイツは、三つの重要な条件を満たすことでフランスおよびEUと足並みを揃えている：完全な金融緩和（ドイツ連邦憲法裁判所による欧州中央銀行への挑戦は効果がない）、完全な財政的順応（アンゲラ・メルケル首相はCOVID-19危機下で共同債の発行と緩い赤字管理に同意し、かつ強力なグリーン・エネルギー政策を採用した）、そして完全な安全保障上の調整（ドイツの再軍備はNATOの文脈内で行われ、ヨーロッパの安全保障上の願望はフランスと足並みを揃えて実行されている）。これらの条件は、たとえ緑の党が左派連立の先頭に立って政権を掌握したとしても、2021年の選挙で変わることはないだろう。 結論：ドイツはヨーロッパを統一し統治するという大戦略的目標を事実上達成した。どのドイツ政府もこの状況に挑むことはなく、すべてのドイツ政府はこれを固めようと努めるだろう。この体制に対する最大のリスクは国内よりもむしろ国外から生じる。 ドイツ問題の再来か？ ドイツの地政学的立場はチャート 5 に要約される。これは各国や機関に対する国民の見方を示している。ドイツ人はEUや国連のようなグローバルな機関に対しては好意的であり、NATOに対してはやや低い好感度を示す。それ以外のものに対しては好意的ではない。ロシアに対しては否定的な見方をしているが、劇的ではなく、これはロシアとの衝突に関心がないことを示している――彼らは別の大規模な欧州戦争の戦場や城壁になりたくないのだ。彼らは米国と中国をさらに、かつ同等に嫌っている。2020年の選挙以降米国に対する態度が改善したとしても、純粋な不支持は示唆的である。 チャート 5ドイツは米国よりロシアを好んでいるのか？ 変革の風：ドイツ、グリーン化へ 変革の風：ドイツ、グリーン化へ 世界金融危機以降、特に2014年のロシアによるウクライナ侵攻以降、ドイツは軍備を増強してきた。この増強は米国の促しの下で、旧ソ連圏における勢力圏回復を図るロシアの軍事行動に対応するNATO同盟国と歩調を合わせて行われている（チャート 6）。ただしドイツの軍事支出はNATOのGDP比2％の目標にはまだ達していない。フランスやヨーロッパと統合され、ロシア抑止を目的としている限り、それは近隣国にとって脅威とは見なされないだろう。 チャート 6ドイツとNATOが軍事支出を増加させる 変化の風：ドイツ、グリーン化へ 変化の風：ドイツ、グリーン化へ チャート 7ロシア・ドイツ関係の亀裂がヨーロッパの基盤に与える影響を注視せよ 変革の風：ドイツ、グリーン化へ 変革の風：ドイツ、グリーン化へ ロシアの攻撃性はドイツ人とヨーロッパ人を互いに引き寄せ続けるはずだ。もしプーチンが軍事的強制ではなく外交を追求すれば状況は変わり得る。そうなればドイツを東ヨーロッパから切り離す可能性がある。 ノルドストリーム2パイプラインを完成させるというロシアとドイツの現在の強硬な姿勢からもその可能性は明らかである。これは米国や東欧の反対にもかかわらず進められている。パイプラインは選挙に間に合うよう9月までに完成する予定であり、緑の党がこれに反対していることが影響している部分も少なくない。もし米国がパイプラインの停止を主張すれば、ロシアとの間で危機が発生し、メルケルとキリスト教民主同盟は屈辱を受けるだろう。しかし米国はロシアの軍事的脅威に直面してそれを控える可能性もある（確率は五分五分である）。 ロシアが今年ウクライナ国境に10万人以上の部隊を配置したこと――そして報道によれば5月1日までに部隊を基地に戻すよう命じたとされること――はロシア・ドイツ関係の試金石に相当する。プーチンはウクライナで容易にロシアの影響力を拡大することができ、緊張は少なくともロシアの議会選挙が行われる9月までは高止まりするだろう。ドイツ人は再度の侵攻に対して制裁で応じるだろうが、米国が提案するより厳しい制裁は和らげられる可能性が高い。真に情勢を変えるのはロシアがウクライナ全土を征服する場合だろう。それはありそうもない――正にそれがドイツ、ヨーロッパ、米国を結束させ、ロシアにとって経済的損失と戦略的劣勢をもたらすからである（チャート 7）。 中国の台頭もまたドイツをヨーロッパと結びつけ続ける要因となるはずだ。ドイツ人は中国の技術的・製造面での進展、特にデジタルインフラやネットワークへの中国の関与を恐れている。緑の党は二酸化炭素排出量が多い中国製品が低炭素のドイツ製品の価格を圧迫している点を批判している。ベアボックはカーボン調整手数料を支持しているが、これは関税の婉曲表現である。しかしドイツ人は中国とのビジネス関係を維持したがっており、中国の軍事力を大いに恐れているわけではない。したがって中国問題を巡って米独が分裂するリスクがある。 もしドイツが米国の反対にもかかわらず一貫してロシアや中国に肩入れするならば、米国のみならず同胞の欧州諸国からも敵対的な注目を浴びる危険がある。最終的にはEU外の大国と関係を結ぶことでドイツの力が過剰になるのではないかと恐れられるだろう。しかしこれは今日の主要なリスクではない。米国はドイツを取り込み、トランス大西洋同盟を再活性化しようとしている。一方でドイツはロシアの軍事的脅威や中国の貿易慣行に対抗するために米国の支援を必要としている。米独関係は、米国が独裁的勢力との全面的な対立へドイツを強いるようなことがない限り改善するだろう。 結論：米国とドイツの関係は過去よりも難しくなっているが、両国はロシアの侵略と中国の技術的・貿易上の野心を抑止するという共通の利益を共有している。バイデン大統領がこれらの大国に多国間で対処しようとする試みは、ドイツのリスク回避的姿勢によって制約されている。2021年選挙のシナリオ ドイツの選挙結果については現実的なシナリオがいくつか考えられます。私たちが緑の党が政権を形成すると予想するのは、複数の基本的要因に基づいています。世論調査は現在、明確に私たちの見方に有利に転じており、残り5か月で緑の党が勢いを増しています。政党をイデオロギーのブロックに分類すると、争いはほぼ拮抗しています。我々の見立ては、その勢いが野党である緑の党に傾くというもので、その理由を以下に説明します。 一方で自由民主党（FDP）は好成績を収め、キリスト教民主同盟から票を奪うはずです。右派のAlternative für Deutschland（AfD）は大きく得票するわけではないものの、キリスト教民主同盟からいくつかの票を奪うほどには根強く存在しています。これらは保守派にとって「失われた」票であり、連立に加わる政党がないため戻らないでしょう（Chart 8）。 Chart 8Germany's Median Voters Shifts To the Left ドイツの中央値の有権者が左傾化 ドイツの中央値の有権者が左傾化 キリスト教民主同盟は、新鮮味を失い脆弱な政府のすべての兆候を示しています。彼らは16年間政権を担っており、州および連邦選挙での成績は最近悪化しており、今年も含まれます（Table 1）。有権者は「変化の時だ」という強い考えに影響されやすい状況です。メルケル首相の支持率はまだ約60％ですが急落しており、彼女の成功した功績だけでは党を救えません。党内は動揺の兆候に満ちています：後継問題、優柔不断、内紛、汚職スキャンダル。緑の党は「増税・支出拡大」の左派とみなされるでしょうが、実際に何が立法化され得るかは連立構成次第です（Table 2）。1 Table 1AChristian Democrats Fall, Greens Rise, In Recent State Elections 変化の風：ドイツ、グリーン化へ 変化の風：ドイツ、グリーン化へ Table 1BChristian Democrats Fall, Greens Rise, In Recent State Elections 変革の風：ドイツがグリーン化へ 変革の風：ドイツがグリーン化へ Table 2Policy Platforms Of The Green Party 変革の風：ドイツ、グリーン化へ 変革の風：ドイツ、グリーン化へ キリスト教民主同盟とそのバイエルンの姉妹政党であるキリスト教社会同盟が首相候補の争いでこれほど苦戦したことは不吉な前兆です。さらに、党内のエリート層は、より人気のあったマルクス・ゼーダーではなくメルケルが指名した後継者アルミン・ラシェットという安全策を選びました（Chart 9）。この分裂は今年後半に党を悩ませる可能性が高いでしょう。 Chart 9Christian Democrats And Christian Social Union Divided Ahead Of Election 変革の風：ドイツ、グリーン化へ 変革の風：ドイツ、グリーン化へ ラシェットは指名で世論調査における反発上昇（バウンス）を受けましたが、それは一時的なものになるでしょう。それ以前の世論調査で彼が大きな存在感を示したことはありません。 Chart 10Dissatisfaction Points To Government Change 変化の風：ドイツがグリーン化へ 変化の風：ドイツがグリーン化へ 彼はパンデミック対応をめぐってメルケルや連立と公然と対立してきました。そもそも彼はメルケルの第一の後継者の選択肢ではありませんでした。第一の候補はアナグレート・クランプ＝カレンバウアーであり、わずかなAfDとの協力の示唆をめぐる論争で失脚しました。メルケルの後継を埋めるには明白な問題があります。 連立内の内紛以上に重要なのは、ドイツが世界の他の国々と同様に、経済と社会に対する歴史的ショックを受けたという事実です。パンデミックと景気後退は不適切なワクチン配布によってさらに悪化しました。国民の不満は高く、現職党にとっては別のネガティブサインです（Chart 10）。 もちろん選挙はまだ5か月先です。ワクチンはやがて行き渡り、経済は再開し、消費者の景況感は改善するでしょう――以下に示すように、ドイツが選挙までに期待すべき非常にポジティブなマクロの上振れがあるからです。有権者は概して厳格なパンデミック対策を支持しており、メルケルの影響力は長く続くでしょう。キリスト教民主同盟とキリスト教社会同盟は再統一以降のほとんどの期間にわたって現代ドイツを支配してきており、世論の支持率が33％を下回ったことはありません。緑の党は世論調査ではしばしば投票所での得票よりも多くの勢いを喚起してきました。こうした点を踏まえ、以下に主観的確率を付した選挙シナリオを提示します： 緑・赤・赤連立 – 緑の党がキリスト教民主同盟抜きで政権を率いる – 35％の確率. 緑・黒連立 – 緑の党がキリスト教民主同盟とともに政権を率いる – 30％の確率. 黒・緑連立 – キリスト教民主同盟が緑の党とともに政権を率いる – 25％の確率. 大連立（現状維持） – キリスト教民主同盟が緑の党抜きで政権を率いる – 10％の確率. 私たちの主観的確率は、上記の世論調査やオンライン賭けのデータに基づきますが、緑の党の勢い、キリスト教民主同盟の内部分裂、「変化の時」要因、そして歴史的な外生的経済・社会ショックの存在を考慮して調整したものです。 選挙前に地政学的なサプライズが起こる可能性はありますが、それらはたいてい緑の党を強化する方向に働くでしょう。緑の党はロシアと中国に対して強硬な姿勢を取っているからです。 要点： 緑の党が次期ドイツ政府を主導する可能性が高いですが、少なくとも強力な影響力は持つでしょう。 選挙シナリオの政策影響 どの連立が政権を構成するかが新たな政策の枠組みを決定します。財政政策は選挙の結果に基づいて変わり、支出と税の両方が影響を受けます。緑の党は「増税・支出拡大」の左派ですが、実際に何が立法化され得るかは連立次第です。2 緑の党の考え方は、環境政策を通じて再建プロセスを「舵取り」することです。しかし左派が強固な多数を欠く場合、緑の党のより論争的で懲罰的な施策は通りません。変革的な政策は低所得層に重くのしかかるでしょう（Chart 11）。 Chart 11Ambitious Climate Policy Will Face Resistance 変化の風：ドイツがグリーン化へ 変化の風：ドイツがグリーン化へ 各首相候補の政策姿勢は、ドイツにおける高い政策的一致度を示すのに役立ちます。Table 3は、ある政策分野において候補者が「鷹派」（積極的、攻撃的）か「鳩派」（受動的、防御的）かに基づいて候補者を見ています。際立っているのは、党の違いにもかかわらず候補者間の合意です。誰も財政や金融の鷹派ではありません。貿易に関して鷹派と分類できるのはベアボックだけです。3 移民問題で鷹派とされる者はいません。ほとんど全員が気候変動対策には強硬です。またロシアや中国に対する姿勢はより懐疑的になりつつありますが、完全な強硬派というわけではありません。 Table 3Policy Consensus Among German Chancellor Candidates 変化の風：ドイツがグリーン化する 変化の風：ドイツがグリーン化する 緑の党が期待を下回ったとしても、ドイツはグリーン関連の取り組みを放棄しないでしょう。現在の大連立は、緑の党が野党にあったとしても、国民の圧力により気候対策パッケージを追求しました。ドイツ国民は他のヨーロッパ諸国よりも環境志向がかなり強いです（Chart 12）。グリーンへのシフトは世界的にも進行しています。米国も現在グリーン競争に参入しており、中国も独自の理由で取り組みを強化しています。4月22-23日のバイデンのアースデイ気候サミットに先立つ一連の発表を受けて更新された現在のグリーン目標と措置については、付録を参照してください。 Chart 12Germans Care Even More About Environment Than Other Europeans 変革の風：ドイツ、グリーン化へ 変革の風：ドイツ、グリーン化へ いかなる連立でも、COVID後の経済回復に注力するため支出を税よりも多く引き上げるでしょう。ドイツの積極的な財政転換には長い前奏があり、それは持続力があり無視すべきではありません。キリスト教民主同盟を中核とする連立は他の場合より早く財政規律を回復させようとするでしょうが、上に示したシナリオによればそれが実行できる確率はわずか5％にすぎません。EUの財政上限が2022年に凍結されている間、欧州の他国は積極的な支出を行う動機を持つでしょう。特にドイツ政府がより鳩派に傾く場合はなおさらです。 米英以上に、ドイツはワシントン・コンセンサス的な新自由主義から距離を置きつつあります。しかしドイツでは米国型の激しい分極化やポピュリズムの急増は見られていません。少なくとも現時点ではそうです。これは長期的にはリスクになり得ます。キリスト教民主同盟、AfD、および様々な内外の展開の行方次第です。 要点： ドイツには金融、財政、貿易、移民に関しては鳩派的な国民的一致があり、環境政策については強硬（プロ・グリーン）の一致があります。ロシアや中国との地政学的対立に関しては以前より強硬になりつつあります。連立政権が現実的であることを踏まえると、この合意が今年の選挙後の実際の政策を決定する可能性が高いでしょう。 与党の構成にかかわらずいくつかの点は明確です。第一に、ドイツは成長の新たな源として内需を求め、経済の再均衡とEU統合の深化を図っていること。第二に、ドイツはグリーン・エネルギー推進を加速していること。第三に、ドイツはロシアとの新たな冷戦のただ中にいることを受け入れられないこと。第四に、対中国政策はあいまいであること。ドイツのマクロ見通し より広範な財政の状況を考慮する以前から、今後12〜24か月のドイツの経済活動見通しはすでにポジティブでした。9月の選挙に関する当社のベースケースは、緑の党を中心とした連立政権を想定しており、この楽観的な見方を裏付けるものです。ただし、ドイツは依然として重大な長期的課題に直面しており、これらの構造的逆風に適切に対処するための政治的合意はこれまでのところ形成されていません。緑の党は幾つかの解決策を提示していますが、すべての提案が建設的というわけではなく、多くは議会での勢力次第となるでしょう。 短期を覗くと… ドイツ経済は世界的な景気循環の回復の恩恵を受ける見込みであり、これはBCAリサーチの現在の見通しの核心にある見方です。4 ドイツは依然として貿易と製造の強国であり、そのため世界的な製造業の回復から大きな恩恵を受けます。製造業と貿易はドイツのGDPのそれぞれ20％と88％を占めており、主要経済の中で最も高い割合です。別の見方では、OECDによれば、ドイツ製品に対する海外需要は国内付加価値のおよそ30％を占めており、これは韓国のような小規模経済よりも高い比率です（Chart 13）。さらに、自動車、機械およびその他の輸送機器、ならびに化学製品および関連製品は、ドイツの輸出の53％を占めています。これらの製品はいずれも世界的な景気循環に特に敏感であり、したがって今後2年間でドイツ経済のパフォーマンスを高めるでしょう。 欧州域内との貿易は、今後のドイツ経済にとってもう一つの後押しとなります。ユーロ圏向けおよびEU域内向けの出荷はそれぞれドイツの輸出の34％と23％、合計で57％を占めます。現在、停滞気味の欧州経済はドイツにとってハンディキャップですが、欧州には米国よりも抑圧された需要が多く、耐久財の消費はワクチン接種がさらに進展すれば急増するでしょう（Chart 14）。これは、今後12〜18か月で欧州の消費が大幅に回復すると当社が予想するため、ドイツにとって大きな追い風となります。5 Chart 13ドイツはグローバル貿易に依存している 変化の風：ドイツ、グリーン化へ 変化の風：ドイツ、グリーン化へ Chart 14欧州は米国よりも多くの潜在需要を抱えている 欧州は米国よりも先送りされた需要が大きい 欧州は米国よりも先送りされた需要が大きい Chart 15ワクチン接種の進捗 ワクチン接種の進捗 ワクチン接種の進捗 国内要因も対外要因だけでなくドイツ経済の強さを示しています。ワクチン接種のペースはドイツで急速に加速しています（Chart 15）。四半期向けに追加で5000万回分、そして今後2年間で最大18億回分のワクチン購入を行うというEUの最近の発表はさらなる改善を示唆しています。より幅広いワクチン接種の取り組みは、消費に対する基礎的な追い風を触発するでしょう。 ドイツの家計所得も大幅に改善する見込みです。クルツァルバイト制度は危機時に失業率を抑える上で重要な役割を果たし、失業率は2020年初めの5％からピークでも6.4％にとどまりました。しかし、この制度は総就業時間の7％という大幅な減少を阻止することはできませんでした。というのも定義上、600万人の従業員が所定労働時間の短縮を余儀なくされていたからです（Chart 16）。この制度の大きな利点の一つは、労働者と雇用主との連結が断絶するのを防ぐことであり、したがって活動が回復する際の摩擦的失業が少なく、家計所得に長期的な損傷が生じにくい点にあります。一方で、ドイツ政府は債務ブレーキの適用の遅延を受けて、家計と企業への支援を継続する可能性が高いでしょう。緑の党は債務ブレーキを2022年に復元するのではなく改定することを提案しており、保守派が約束する復元とは対照的です。 Chart 16クルツァルバイトが功を奏した Kurtzarbeitが窮地を救った Kurtzarbeitが窮地を救った 家計のバランスシートが強固であることは、増加する所得を消費に回す余力があることを意味します。住宅不動産価格は年率8％のペースで上昇しており、資産対可処分所得比率を過去最高水準に押し上げています。一方で、債務対資産比率と金利水準も非常に低く、既存債務の返済負担は最小限にとどまっています（Chart 17）。 このような状況では、耐久財支出が加速し、たとえドイツの家計が過去1年間で蓄積した1,200億ユーロの過剰貯蓄を多く使わなかったとしても、全体として景気循環的な支出は持ち上がります。Chart 18が示すように、米国の耐久財支出はすでにコロナ前の高水準を上回っていますが、ドイツは長期トレンド付近に留まっています。したがって、今夏に経済が再開し、所得と雇用が増加するにつれて、同時に高まる消費者信頼感が景気循環的支出の回復を可能にするでしょう。 Chart 17強固な家計のバランスシート 強固な家計のバランスシート 強固な家計のバランスシート Chart 18ドイツも米国より多くの潜在需要を抱えている ドイツも米国よりも抑えられた需要が大きい ドイツも米国よりも抑えられた需要が大きい Chart 19多くの指標からのポジティブなメッセージ 多くの指標が示すポジティブなメッセージ 多くの指標が示すポジティブなメッセージ さまざまな経済指標がすでに到来しつつあるドイツの経済ブームを示しています。製造受注は堅調で、ほとんどのセクターで経済センチメントが上昇しています。一方で、消費者の楽観主義は底を形成しつつあり、新車登録は急速に増加しています。最も好ましい点として、完成品在庫が崩壊しており、これは将来の需要を満たすために生産が増強されることを示唆しています（Chart 19）。 要点：ドイツ経済は今年後半から2022年にかけて加速する見込みです。いつものように、ドイツは力強い世界成長から健全な利益を享受しますが、ワクチン接種プログラムの拡大、雇用主と従業員の良好な関係、強固な家計のバランスシート、および耐久財に対する顕著な潜在需要も国内経済を後押しします。ベルリンでの政治的な左派へのシフトを受けて9月以降に財政政策が引き続き緩和的に推移するという当社のベースケースは、この不可避の回復をさらに加速させるだけでしょう。…そして長期的見通し 目先の見通しが明るいのに対し、ドイツ経済の長期的見通しは依然として芳しくない。新たな与党連合の政策がドイツの厳しい人口動態、悪化する生産性、大きな過剰貯蓄という問題に対処する可能性は低い。グローバルなグリーン・エネルギーとハイテクの競争の文脈で生産性の押し上げ余地はあるが、現時点では憶測の域を出ない。 ドイツが直面するもっとも明白な問題は高齢化であり、合計特殊出生率はわずか1.6にとどまる。今後30年間で、ドイツの扶養比率は80%まで急増する見込みで、高齢者扶養比率が20%増加することが主因である（チャート20）。生産年齢人口は2050年までに18%減少する見込みで、潜在GDPの成長を抑制するだろう。 ドイツの生産性成長の見通しも厳しい。ドイツの生産性成長は長期的に低下しており、1975年の5%から2019年には1%を下回った。一般に広まっている考えに反し、1999年から2007年の間、ドイツの労働生産性成長はフランスやスペインと同程度にしか過ぎなかった；2008年以降はこの二国に遅れをとっているが、イタリアは上回っている。 ドイツの生産性が振るわない重要な理由の一つは投資不足である。これは同国の緊縮的な財政運営を反映している面もある。例えば2019年、ドイツの公的投資はGDPの2.4%であり、OECD平均の3.8%や、米国の公的投資であるGDPの3.6%と比べても見劣りする。この数字はドイツの公的資本ストックの減価償却を考慮していない。ユーロ導入以降、ネット公的投資は平均でGDPの0.03%にとどまっている。最大の問題は自治体レベルにある。2012年から2019年にかけて、連邦および州レベルのネット投資は平均でGDPの0.2%だった一方で、自治体のネット投資は平均でGDPの0.2%をマイナスにした。新政権がこのドイツ経済の欠陥に対処できることが望まれる。緑の党が最も積極的ではあるが、障害に直面するだろう。 ドイツの生産性にとってより大きな問題は企業の設備投資である。企業の投資は同国で低迷してきた。ユーロ導入以降、ドイツにおける資本集約度の生産性への寄与はイタリアと同等であり、フランスやスペインよりも劣後している。その結果、ドイツの資本ストックの平均年齢は過去最高水準であり、米国やユーロ圏平均を大きく上回っている（チャート21）。 チャート20ドイツは人口動態が厳しい ドイツは人口動態が悪い ドイツは人口動態が悪い チャート21ドイツの資本ストックは老朽化している ドイツの資本ストックは老朽化している ドイツの資本ストックは老朽化している ドイツの設備投資の内訳は生産性のハンディキャップを悪化させている。ドイツ連邦銀行（ブンデスバンク）の研究によれば、情報通信技術（ICT）への資本支出が労働生産性に与えた寄与は、2008年から2012年の間で年平均0.05パーセントポイントだった。この指標において、ドイツはフランスや米国より遅れていたが、それでもイタリアは上回っていた。2013年から2017年にかけては、ICT投資の生産性への寄与は0.02パーセントポイントに落ち、依然としてフランスや米国より低いが、イタリアとは同水準であった。 ICTや知識基盤資本（KBC）への投資の絶対水準を見ると、ドイツの課題がさらに浮き彫りになる。2016年におけるICT機器、ソフトウェアとデータベース、研究開発および知的財産生産物、その他のKBC資産（組織資本や研修を含む）への総投資はGDPの8%未満を占めていた。フランス、米国、スウェーデンではそれぞれこれらの支出がGDPの11%、12%、13%を占めていた（チャート22、上段）。この投資不足はドイツのイノベーション能力を直接的に損ねる。チャート22の下段は、ICT特許の総数の80%を占める8つの主要カテゴリについて、ドイツが米国、日本、韓国、あるいは中国に著しく遅れを取っていることを示している。 チャート22ドイツはICT投資で遅れを取っている 変革の風：ドイツ、グリーン化へ 変革の風：ドイツ、グリーン化へ ICTおよびKBC投資におけるドイツのハンディキャップの主要因の一つは中小企業であり、これらは資本の投入に特に消極的であった。OECDの研究は、2010年から2019年の間に、ドイツの小企業と大企業の間のICTツールおよび活動の採用ギャップがOECD平均に比べて悪化したことを示している（チャート23）。ベンチャーキャピタル投資の不足もこれらの問題を悪化させている可能性が高い。2019年におけるドイツのベンチャーキャピタル投資はGDPの0.06%を占めるにすぎない。これはフランスや英国（それぞれ0.08%および0.1%）の水準を下回り、ましてや韓国、カナダ、イスラエル、米国（それぞれ0.16%、0.2%、0.4%、0.65%）の水準には遠く及ばない。緑の党は新たなベンチャーキャピタル・ファンドを創設すると主張しているが、この分野での実行力は疑わしい。 チャート23ドイツの中小企業におけるICT能力の遅れ 変化の風：ドイツ、グリーン化へ 変化の風：ドイツ、グリーン化へ ドイツの生産性成長はOECD諸国の他と比べて今後も平均を下回る可能性が高く、フランスや英国にも遅れを取る見込みであるため、ドイツが競争力を維持する唯一の方法はコストを抑制することである。つまり、ドイツは近年の競争力喪失をこれ以上放置することはできない（チャート24）。したがって、生産性の低成長はドイツの実質賃金を制約するだろう。 チャート24ドイツの競争力は低下している ドイツの競争力が低下している ドイツの競争力が低下している この賃金抑制は消費に悪影響を与えるだろう。今後12～24か月の一時的な押し上げを除けば、ドイツの消費は抑制されたままである可能性が高い。これは千年紀の変わり目以降の最初の15年に見られた状況と同様であり、ハルツIVの労働市場改革は実質賃金にも打撃を与えた。緑の党は福祉給付を拡充し、最低賃金を引き上げ、ハルツIVの運用を緩和することを目指している。 結論：ドイツの過剰貯蓄は構造的に幅広く残るだろう。設備投資が実質的に回復しなければ、ドイツの非金融企業は純貸し手のままである。加えて、実質賃金成長が低い世界で将来の家計の状況を不安視している家計は、所得のかなりの割合を引き続き貯蓄するだろう。その結果、千年紀の変わり目以降にドイツが蓄積した過剰貯蓄は定着する（チャート25）。言い換えれば、ドイツは大きな経常収支黒字を維持し、欧州および世界に対してデフレ的な影響を及ぼし続けるだろう。 9月の選挙に出馬する各党が提唱する政策が、設備投資低迷やICT投資低迷という問題を覆す新法につながるとは限らない。緑の党は経済の過剰規制をさらに悪化させるだろう。すべての目的を達成するような政策革命が実行されない限り（非常に高いハードルである）、ドイツにはこれまでと同様の状況、つまり緩やかに衰退する経済が続くと予想される。 チャート25貯蓄過多、投資不足 貯蓄過多、投資不足 貯蓄過多、投資不足 チャート26ドイツは再生可能エネルギーで好成績 変化の風：ドイツ、グリーン化へ 変化の風：ドイツ、グリーン化へ とはいえ、明るい点もある。ドイツは再生可能エネルギー分野でリーダーになりつつあり、この流れの拡大を活かして輸出市場を拡大することができる（チャート26）。 投資への示唆 債券市場 ドイツとユーロ圏全体の経済見通しは、欧州のフィクスト・インカム・ポートフォリオ内でドイツ・ブントをアンダーウェイトすることと整合的です。 ブントは世界で最も割高な債券市場の一つに入っており、特に今年後半に欧州で経済の良いサプライズが生じた場合、非常に脆弱になります。とりわけ9月の選挙を受けてドイツの財政政策がさらに緩和されれば脆弱性は増します（チャート27）。さらに、ドイツの財政政策が緩和されれば欧州の周辺国債が支えられ、現在ECBが積極的に買っている割安なイタリアBTPは特に恩恵を受けるでしょう。したがって、我々はBTPのオーバーウェイトを継続し、ギリシャ債とポルトガル債をそのリストに加えます。 チャート27ドイツ・ブントは割高である 変革の風：ドイツ、グリーン化へ 変革の風：ドイツ、グリーン化へ チャート28ドイツ利回りは既に欧州に関して多くの悲観を織り込んでいる ドイツ国債利回りは既に欧州に対する相当な悲観を織り込んでいる ドイツ国債利回りは既に欧州に対する相当な悲観を織り込んでいる 米国債と比較すると、ブントの見通しはより複雑です。一方で、ECBはこのサイクルの後半でFRBほど金融政策を引き締めないでしょう。さらに、欧州のインフレ率は今年および事業サイクルを通じて米国水準を下回る可能性が高いです。他方で、ブントは既に実質ターミナル・レートの代理指標とタームプレミアムの両方で国債（Treasury Notes）よりもかなり低い数値を織り込んでいます（チャート28）。 総合的に見れば、BCAリサーチのグローバル・フィクスト・インカム・ストラテジー・サービスは、ブントは今年米国債をアウトパフォームすべきだと見ています。なぜならブントはベータが低く、利回り上昇局面で価値のある特徴を持っているからです。6 我々はこの見方に関連するリスクを注意深くモニターします。なぜなら欧州の景気回復が世界的な利回り上昇の触媒になる可能性があり、その場合ドイツ・ブントは一時的にアンダーパフォームすることがあり得るからです。 構造的には、ベルリンがドイツの生産性問題に対処しない限り、ドイツ・ブントは世界の利回りにとっての錨（アンカー）であり続ける公算が大きいです。ドイツは過剰貯蓄に溢れ、これはデフレ的な錨として作用するとともに、欧州の実質金利の長期的な上昇を抑制します。過剰貯蓄は大きな経常収支黒字をもたらすため、ドイツは引き続き貯蓄を海外へ輸出し、世界の利回りを抑制する要因として作用し続けるでしょう。 ユーロ 中期的な見通しはユーロの大幅な上昇を示唆しています。 今後12カ月で欧州およびドイツの成長が良いサプライズとなるという我々の予想は、ユーロのアウトパフォーマンスと整合します。過去10年間、投資家がユーロ圏から資金を取り出し米国へ移してきたという事実は、この議論に説得力を与えます（チャート29）。 我々のドイツの財政政策に関する見解もユーロに有利に働きます。ドイツの財政赤字拡大は欧州の経済活動を助け、ユーロ圏全体のリスクプレミアムを縮小します。このプロセスはユーロにとって二重にポジティブです。第一に、周辺国のリスクプレミアム低下はユーロ圏への資金流入を呼び込みます。とりわけギリシャ、ポルトガル、イタリア、スペインの利回りは代替投資よりも価値を提供します。第二に、強い成長と低いリスクプレミアムは、ユーロ圏の唯一のリフレーターであるECBへの負担を軽減します。これにより、マージンではありますが、欧州の極めて低迷したターミナル・レート代理指標が押し上げられ、EUR/USDを支援するはずです。 欧州内部のポジティブな力に加え、堅調な世界経済活動はユーロの魅力を高めます。ドルはカウンターサイクル通貨であり、したがって世界の景気サイクルの上昇は一般にドル安と一致し、EUR/USDの魅力を増します。とはいえ、もし世界経済の押し上げが米国から生じれば、ドルは強くなる可能性があります。この現象は2021年の第1四半期に見られました。しかし、今後12カ月で世界の成長リーダーシップは米国から離れる見込みであり、これは世界成長とドルの逆相関という通常の関係が再びユーロに有利に働くことを意味します。 欧州の国際収支の動態はユーロの魅力をさらに強固にします。ドイツおよびユーロ圏の経常収支黒字は依然として大きく、特に米国で拡大する双子の赤字と比較すると際立っています。 今後12〜24カ月を超えた期間では、ドイツおよび欧州経済の構造的な活力欠如がユーロを円やスイスフランのようなセーフヘイブン通貨へと変える可能性が高いです。強い国際収支と低金利（いずれも過剰貯蓄の症状）はファンディング通貨の定義的特徴であり、改革が生産性低迷に対処しない限りユーロ圏の恒久的属性となるでしょう。ユーロ圏の対外純資産ポジションは既に上昇しており、低インフレはユーロの購買力平価見積りに構造的な上方バイアスを与えるでしょう（チャート30）。これらの展開は日本やスイスですでに見られており、時間が経てばユーロのプロサイカリティ（景気循環性）は消えていく可能性が高いです。 チャート29投資家は既に欧州資産をアンダーウェイトしている 投資家は既に欧州資産をアンダーウェイトしている 投資家は既に欧州資産をアンダーウェイトしている チャート30ユーロのフェアバリューにおける上方バイアス ユーロのフェアバリューには上方バイアスがある ユーロのフェアバリューには上方バイアスがある チャート31ドイツはユーロ圏の他国よりアウトパフォームしていない ドイツはユーロ圏の他国を上回っていない ドイツはユーロ圏の他国を上回っていない ドイツ株式 絶対的に見れば、DAXおよびドイツ株式は今後12〜24カ月で依然として大きな上振れ余地を持っています。BCAリサーチは株式に対してポジティブな姿勢を想定しており、ベータが高い市場であるドイツは恩恵を受ける可能性があります。7 さらに、ドイツ株式は世界経済活動への感応度が高いことがその魅力を際立たせます。我々は欧州株式を好み、ドイツ株も例外ではありません。8 より複雑な問題は、欧州株式ポートフォリオ内でドイツ株式をどのように位置付けるかです。2003年から2012年にかけて大幅にアウトパフォームした後、ドイツ株式はそれ以降ユーロ圏の他と同じ動きになっています（チャート31）。さらに、ドイツ株式は現在、主要なバリュエーション指標のすべてでユーロ圏の他地域に対してディスカウントで取引されています（チャート31、下段）。 ドイツ株式のユーロ圏他地域に対する見通しを左右するグローバル・マクロの力は現在、相反するメッセージを送っています。一方では、コモディティ価格が上昇したりユーロが上昇したりすると通常ドイツ株はアウトパフォームします（チャート32）。他方では、世界の利回りが上昇したり、中国の過剰準備が減少した期間の後にはドイツ株はアンダーパフォームすることもあります。今日見られるような環境がそれに該当します。 こうした世界的要因からの不明確さがあるため、ドイツの相対的パフォーマンスに関する答えは欧州の経済動態の中にあります。ドイツはユーロ圏の他地域に対して競争力を失いつつあり（チャート24 22ページ）、これはユーロが強くなった場合にドイツ株が過去10年のパフォーマンスほど恩恵を受けないことを示唆しています。さらに、ドイツ株はドイツの製造業PMIが広いユーロ圏のそれに対して上昇したときにアウトパフォームします。ドイツとユーロ圏の製造業PMIの差はほぼ史上高水準にあり、ユーロ圏の他地域が追いつくにつれてこの差は縮小する可能性が高いです。これはドイツ株のパフォーマンスに影響を与えるはずです（チャート33）。 チャート32ドイツの相対的パフォーマンスにとって混在するグローバルな背景 ドイツの相対パフォーマンスを取り巻く混在するグローバル環境 ドイツの相対パフォーマンスを取り巻く混在するグローバル環境 チャート33欧州の経済の追いつきはドイツ株にとって不利となる 欧州の経済の追い上げはドイツ・エクイティに打撃を与える 欧州の経済の追い上げはドイツ・エクイティに打撃を与える 最後に、セクター別の動態が最終的な決定要因となる可能性があります。表4はドイツとユーロ圏の他市場との間でセクター配分に限定的な差しかないことを示しており、これが過去9年間の相対的パフォーマンスの安定性を説明するのに役立ちます。 しかしながら、国別に見ればドイツと特定の欧州諸国との間で差異は大きくなります。この観点では、BCAの成長株に対するネガティブなスタンスはオランダに対してドイツをオーバーウェイトすることと相関します。さらに、我々の金融株と債券利回りに関するポジティブな見通しは、ドイツがイタリアおよびスペインの株式に対してアンダーパフォームすべきであることを示唆します。 表4欧州主要取引所におけるセクター別内訳 変革の風：ドイツがグリーン化へ 変革の風：ドイツがグリーン化へ   マット・ガートケン バイスプレジデント ジオポリティカル・ストラテジー mattg@bcaresearch.com   マチュー・サヴァリー, チーフ・ヨーロピアン・インベストメント・ストラテジスト Mathieu@bcaresearch.com 付録：世界の気候政策コミットメント 変革の風：ドイツ、グリーン化へ 変革の風：ドイツ、グリーン化へ 変化の風：ドイツ、グリーン化へ 変化の風：ドイツ、グリーン化へ 脚注 1 Matthew Karnitschnig、"German Conservatives Mired In ‘The Swamp,’" Politico、2021年3月24日、politico.eu。 2 緑の党は炭素税、デジタルサービス税、金融取引税を含む様々な税に関心を持っています。彼らはまた、鉄鋼や自動車メーカーに一定割合の炭素中立鋼材や電気自動車を販売させる工業クオータにも関心があります。Baerbock氏への優れたインタビューはIleana GrabitzとKatharina Schuler、"I don’t have to convert the SUV driver in Prenzlauer Berg," Zeit Online、2020年1月2日、zeit.deを参照してください。 3 Zeit Onlineに対する彼女のコメントを参照してください。 4 BCAリサーチ グローバル・インベストメント・ストラテジー・ストラテジー・アウトルック "Second Quarter 2021 Strategy Outlook: Inflation Cometh?"、日付2021年3月26日、gis.bcareseach.comで入手可能。 5 BCAリサーチ ヨーロピアン・インベストメント・ストラテジー・スペシャル・レポート "A Temporary Decoupling"、日付2021年4月5日、eis.bcareseach.comで入手可能。 6 BCAリサーチ グローバル・フィクスト・インカム・ストラテジー・ストラテジー・レポート "Harder, Better, Faster, Stronger"、日付2021年3月16日、gfis.bcareseach.comで入手可能。 7 BCAリサーチ グローバル・インカム・ストラテジー・ストラテジー・アウトルック "Second Quarter 2021 Strategy Outlook: Inflation Cometh?"、日付2021年3月26日、gis.bcareseach.comで入手可能。 8 BCAリサーチ ヨーロピアン・インカム・ストラテジー・ストラテジー・レポート "Time And Attraction"、日付2021年4月12日、eis.bcareseach.comで入手可能。