Saxo Bank Quarterly Outlook: ‘The Pace of Economic Decline is Petering Out’

COPENHAGEN - In a follow-up to their financial Outlook for 2009, Saxo Bank, the online trading and investment specialist, has launched its first Quarterly Outlook for the global economy. Compiled by Saxo Bank’s Strategy team, the short analysis examines the global economic outlook for the forthcoming quarter and will also look at whether the first quarter predictions that were made by the Strategy team in their Yearly Outlook were correct.

The Quarterly Outlook will be followed by a Half-Yearly outlook in June.

Commenting on the outlook, David Karsbol, Chief Economist at Saxo Bank: “Unfortunately, the leading indicators leave no hope for a nearby recovery and we still believe that write-downs from Eastern Europe and Chinese deceleration will be the primary drivers for negative growth and mild deflation for the rest of the year. The G20-communique delivered by Gordon Brown promises a broad range of initiatives that are very much in line with the drafts already leaked to the press before the summit. They may instigate increased liquidity for some time due to the Herculean money printing efforts on the part of central banks but the interference by the public sector and the enormous costs will choke off market dynamism and end up having the complete reverse effect of what the G20 intended.”

David Karsbol adds to this: “G20 could, as predicted, not reverse the leading indicators and in addition, the money supply figures are not a cause for celebration. Stocks will continue to suffer from earnings revisions and downgrades. We maintain that stocks could go significantly lower and our target for S&P500 is 500 within 2009. When this happens, we ought to have hit rock-bottom. We have noticed that the Fed, SNB and BoE have begun on Quantitative Easing programs, but one should remember that the experience from Japan is not impressive. We do not expect these activities to have any lasting impact on the interest rates.”

1. Macro update

In the last two months the Saxo Bank Global Business Cycle Indicator has declined at a slower rate, suggesting that 2009 World GDP per Capita growth will be around -2.5%. The slowdown is hitting export orientated countries such as Japan, Germany and China, particularly hard and will lead to severe recessions with leading indicators giving no hope for a nearby recovery. Saxo Bank still believes that write-downs from Eastern Europe and Chinese deceleration will be the primary drivers for negative growth and deflation for the rest of the year. Fix your borrowing costs now, if possible

2. Equity update

We are still negative on equities and since our base scenario for the economy is deflation we do not find equities cheap right now. In this Quarterly Outlook we have lowered our original estimates for earnings growth in the Yearly Outlook on the back of our macroeconomic view.

3. FX Update

The main theme this quarter has been competitive devaluation, which was kicked off when the Bank of England announced its debt monetization policies. The British Pound has been the biggest “winner” in the race to the bottom. The United Kingdom has a terrible fiscal position and is therefore one of the least able to afford the massive stimulus efforts it has announced. But the pound is now so cheap that the UK is incredibly competitive and when things stabilize perhaps later this year the pound could be in for a rebound.

4. Quantitative easing to accommodate drunken sailor spending

The logical destination of the Fed’s Quantitative Easing (QE) policy will be that the central bank will end up owning all its government’s debt in order for the QE policy to work. The worst case scenario will be a destruction of the private capital market for sovereign debt - the best case scenario will have no effect.

Link to the Quarterly Outlook: www2.saxobank.com/Documents/pressreleases/Quarterly-Outlook-Q2-2009. pdf

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About Saxo Bank

Saxo Bank is an online trading and investment specialist, enabling clients to trade Forex, CFDs, Stocks, Futures, Options and other derivatives, as well as providing portfolio management via SaxoWebTrader and SaxoTrader, the leading online trading platforms. SaxoTrader is available directly through Saxo Bank or through one of the Bank’s global partners. White Labelling is a significant business area for Saxo Bank, and involves the Bank’s online trading platform being customised and branded for other financial institutions and brokers. Saxo Bank has more than 120 White Label Partners and boasts thousands of clients in over 180 countries. Saxo Bank is headquartered in Copenhagen with offices in the UK, France, Italy, Switzerland, Spain, Singapore, Australia and Japan.

Source: Saxo Bank

Media enquiries: Jeanette Nielsen, PR Manager, Saxo Bank, +45-5159-5275, Team-CorporateCommunications at saxobank.com. Leone Lewis, Penrose Financial, +44-(0)20-7786-4887, leonel at penrose.co.uk