1、Contents HYPERLINK l _TOC_250032 KeyEconomicIndicators4 HYPERLINK l _TOC_250031 UBSvsConsensus5 HYPERLINK l _TOC_250030 MarketThemes,InvestmentIdeasandKeyForecastsfor20206 HYPERLINK l _TOC_250029 Global Economics8 HYPERLINK l _TOC_250028 Thecarcycle,thetechcycle,theshalecycleandhowitallcametogetheri

2、n a perfect(tariff)storm HYPERLINK l _TOC_250027 Willtheeasinginglobalfinancialconditionsleadtogrowthresurgence?17 HYPERLINK l _TOC_250026 al Csmonenig r reak? HYPERLINK l _TOC_250025 Whoisthechampionofglobaljobcreation?23 HYPERLINK l _TOC_250024 Will the manufacturing Blobswallownon-manufacturing?2

3、8 HYPERLINK l _TOC_250023 atonke watchg ant y? HYPERLINK l _TOC_250022 Istherestillpolicyspace?Morethanyouthink37 HYPERLINK l _TOC_250021 Outlook2020-202141 HYPERLINK l _TOC_250020 Scenarioanalysis46 HYPERLINK l _TOC_250019 Markets Overview: Themes&Trades55 HYPERLINK l _TOC_250018 ThemeI:UBSCycleClo

4、cksaysitspastBetatime59 HYPERLINK l _TOC_250017 ThemeII:Policymakerswhorewillingarentable,thosewhoreable,arent willing HYPERLINK l _TOC_250016 ThemeIII:Thegravityofzero&theworldbeneath82 HYPERLINK l _TOC_250015 ThemeIV:Fattails,skinnypriceofprotection91 HYPERLINK l _TOC_250014 Equities98 HYPERLINK l

5、 _TOC_250013 Currencies122 HYPERLINK l _TOC_250012 Rates140 HYPERLINK l _TOC_250011 Credit168 HYPERLINK l _TOC_250010 EM192 HYPERLINK l _TOC_250009 Politicalcalendar206 HYPERLINK l _TOC_250008 Economic Regional Pages217 HYPERLINK l _TOC_250007 USA&Canada218 HYPERLINK l _TOC_250006 LatinAmerica237 HY

6、PERLINK l _TOC_250005 WesternEurope267 HYPERLINK l _TOC_250004 EmergingEurope307 HYPERLINK l _TOC_250003 China336 HYPERLINK l _TOC_250002 AsiaexChina346 HYPERLINK l _TOC_250001 Japan376 HYPERLINK l _TOC_250000 Australia &NewZealand386Global EconomicResearchContacts394Global StrategyResearchContacts3

7、95Trade recommendations andhistoricalperformance397We would like to thank Garima Jaiswal, Adarsh Kurup, Tulika Poddar, Daksh Gupta, Vamsi Krishna, Sonam Jagga, Sagarika Asrani and Sarbartho Mukherjee, our research support service professionals, for their assistance in preparing this research report.

8、GyorgyKovacs HYPERLINK mailto:gyorgy.kovacs +44-20-75687563Robert Martin HYPERLINK mailto:rob.martin +1-212-7132532ChiragMirani HYPERLINK mailto:chirag.mirani +1-203-7197514VassiliSerebriakov HYPERLINK mailto:vassili.serebriakov +1-212-7131850EdwardTeather HYPERLINK mailto:edward.teather +65-6495596

9、5Joni Teves HYPERLINK mailto:joni.teves +65-6495 6851George Tharenou HYPERLINK mailto:george.tharenou +61-2-93243520JohnWraith HYPERLINK mailto:john.wraith +44-20-75688286AnnaZadornova HYPERLINK mailto:anna.zadornova +44-20-75674212Ning HYPERLINK mailto:ning.zhang +852-29718135Key Economic Indicator

10、sRealGDP1/CPI (% CurrentaccountGDP)Fiscal balance (% GDP)* 2019F2020F2021F 2019F2020F2021F 2019F2020F2021F 2019F2020F2021F US-2.4-2.5-2.4-4.7-5.0-4.5Japan1.02.12.3-3.5-4.0-3.8Canada2.01.91.9-2.7-2.5-0.1UK-5.0-4.7-4.8-1.9-1.5-1.3Switzerland1.00.40.4Eurozone-0.9-1.0-1.0GermanyFrance1.31.01.3-0.6-0.20.

11、0-3.1-2.3-2.2Italy-2.2-2.5-2.5Spain2.01.51.7-2.3-2.1-2.0Greece0.61.01.2-2.1-2.3-0.0EMEA-0.7-1.4-1.3Turkey0.02.23.015.4-0.5-1.1-4.5-4.5-4.5South Africa-3.6-3.7-3.6-6.2-6.3-6.0Kazakhstan4.04.84.5-3.0-0.20.0Czech0.40.2-0.2Hungary-1.0-1.1-0.7-1.8-1.0-0.8Poland-0.6-0.8-0.4-0.8-1.6-1.8Russia1.03.24.02.21.

12、00.9UAE-1.81.02.0-1.3-2.4-0.5Asia (ex Japan)-3.6-3.8-3.8Australia1.52.02.10.4-1.2-0.7New Zealand-3.0-2.9-2.6Hong Kong-3.02.63.04.01.02.5Singapore16.515.613.5-0.9-1.6-1.5Korea0.0-0.5-0.9Taiwan1.013.013.50.1-0.20.0Malaysia-3.4-3.4-2.8Thailand-3.0-2.7-2.6Indonesia5.05.03.3-2.7-2.3-2.1-2.2-2.4-2.4Philip

13、pines-1.3-2.2-2.5-2.4-2.9-2.9India*-1.4-1.6-1.6-6.5-6.3-6.1Vietnam7.06.2-1.3-4.5-4.5-4.5China1.01.10.9-4.4-4.5-4.6Latin America*-1.8-1.9-1.9-4.3-4.2-4.1Argentina-3.6-2.61.654.147.633.7-2.1-0.5-0.9-4.2-4.0-3.5Mexico0.02.93.3-0.4-0.6-0.8-1.8-2.0-2.4Brazil-2.2-2.5-2.5-6.3-6.2-5.9Venezuela-35.0-10.0-5.0

14、69.4269.6500.0-25.0-22.0-18.0Chile-3.9-3.9-4.1-1.8-1.9-1.8Colombia-4.4-4.1-3.4-2.6-2.4-2.2Peru2.02.12.2-2.2-2.2-1.4-1.8-2.0-2.0G-0.5-0.7-0.7-3.3-3.6-3.3DM0.20.00.0-2.8-3.1-2.8EM-3.9-4.1-4.1World*3.13.03.63.00.10.1-3.2-3.4-3.3Source:Haver,CEIC,NationalStatistics,UBSforecasts1/calendaryearaverage*ForC

15、PI,excludesVenezuela(whichisinthousands).*Forbudgetbalance,centralgovt.*India numbers based on Fiscal year ending March.Global assumptionsend 20end 21 end20end21EUR/USD1.151.1810y US Treasury yield1.501.75USD/JPY108.0110.010y Bund yield-0.500.00GBP/USD1.341.3710y JGB0.000.25EUR/CHF1.141.1810y Gilts0

16、.751.00USD/RMB7.207.20Source:UBSUSD/RMB7.207.20 Brent oilprice(avg)63.567.0UBS vs ConsensusR eal GD P C P I (% avg)P o licy rate ( end perio d)F X vs USD ( end perio d)UB S-currentforecasts20F21FUB S vsC o nsensus20F21FUB S-currentforecasts20F21FUB S vsConsensus20F21FUB S-currentforecasts20F21FUB S

17、vsC o nsensus20F21FUB S- current fo recasts20F21FUB S vsC o nsensus20F21FUS-0.60.0-Japan0.1-0.303.02.0Canada0.00.00.00.00.0UK0.00.0Switzerland0.00.0Eurozone-0.60 -0.600.00.00.0Germany-0.60 -0.60France-0.60 -0.600.0-0.60 -0.60Spain0.0-0.60 -0.60Greece0.70.2-0.60 -0.60EMEA0.0-Turkey12.00 10.50-1.0-0.5

18、SouthAfrica0.30.0Kazakhstan-400.0-Czech0.00.020.34-0.6-1.6Hungary0.0-0.12Poland-0.10.00.00.00.0Russia0.20.00.00.062.5063.00-0.8-1.4UAE-0.1A sia (ex Japan)0.00.2-Australia-0.10.00.0-0.3-0.30.00.0NewZealand0.0-0.1-0.10.00.00.00.0Hong Kong0.30.00.0Singapore-65.0-100.0-40.0KoreaTaiwan0.029.5029.00Malays

19、ia0.1Thailand0.329.5029.00nesia-0.4450.0Philippines0.01.552.0052.00260.00.1-0.80.00.00.00.072.0074.000.0Vietnam0.30.6-0.3-0.52320022000-900.0China-0.50.00.00.2Latin America*-Argentina0.140.00 30.00-20.0-0.826.01.038.02.3Mexico-0.320.50Brazil0.10.00.00.00.0Venezuela-15.0269.6 500.0-25.00 25.00-592966

20、82-Chile0.1-0.5-0.8740.0730.0225.0Colombia0.00.335003600Peru-0.3-0.90.00.0G7*-0.30.1-0.1-0.2-DM0.2-0.1-0.1-EM-0.1-World*3.03.6- 0 .30 .12.92.60 .0- 0 .2-Source:Haver,CEIC,NationalStatistics,UBSforecasts,Bloomberg,#ConsensusistakenfromBloomberg,usingmedianforecasts.1/calendaryearaverage.*ForCPI, excl

21、udesVenezuela. *FY21andFY22forecastsforconsensus.FY22forecastsisUBSestimate. *G8aggregateforecastforconsensus. Fedpolicyratesare upperboundtargetrate. ECBeffectivepolicyrate.AsofQ42011,theECBeffectivepolicyratechangedfromtherefiratetothedepositrate. 3MHIBOR.Itisthe benchmarkinterestrateusedbytheHong

22、Kongcentralbank. 1-year-depositrate. ForFX,blendedweightedaverageofseveralavailableFXrates.#Venezuela CPI in thousand. Venezuela FX: 2020 59324540; 2021: 296682024540. Consensus updated as on 7Nov2019.Market Themes, Investment Ideas and Key Forecastsfor 20202019hasbeenabadyearforeconomicdata,butagoo

23、dyearformarketssofar.Cheapinitialvaluationsandcentralbanks across the world provided a bridge to safety. UBS economists believe that while the data will improve in 2020, convalescencewillbeslowerthanconsensusexpects.Policyislikelytoremainstimulatory,althoughincrementallylessthan thisyear.Howshouldin

24、vestorsbalancethislimitedgoodnewsagainstmoreadvancedvaluations?Our top investment ideas for 2020 are driven by four main themes.Theme I: UBS Cycle Clock says its past Beta time1: Long US vs European equities2: Long US Software vs Hardware equities3:LongUKDomesticsvsUKInternationalequities 4: LongNOK

25、SEK5: LongBRLMXN6: Long IDRZARTheme II: Policy makers whore willing arent able, those whore able, arent willing7: Long TOPIX vs MSCI EM8:LongMSCIChinavsMSCIAustralia 9: Receive 1y1yCHF10: Long CDX.HY protection 11: Long EUR SubFin protectionTheme III: The gravity of zero & the world beneath12: Long

26、UST 30y13:Long5yChinaGovernmentBonds,fundedinTWD 14:ReceiveAUD2y3yvsPayGBP2y3yIRS15:LongMexico5yCDSvsPEMEX5yCDSTheme IV: Fat tails, skinny price of protection16: HSI upside (right tail)17:USDCNHdownside(righttail) 18:USDJPYdownside(lefttail)19: Downside on US small cap (left tail)Figure 1: Macroecon

27、omic and market forecasts Baseline scenario4Q1920191Q202Q203Q204Q2020201Q212Q213Q214Q212021US GDP (q/q, SAAR)Eurozone GDP (q/q, SAAR)China GDP (q/q, SAAR)6.66.06.0Fed Funds rate (EOP)1.751.751.251.001.001.001.001.001.001.001.251.25ECB Depo rate (EOP)-0.50-0.50-0.60-0.60-0.60-0.60-0.60-0.60-0.60-0.60

28、-0.60-0.60EURUSD (EOP)8USDCNY (EOP)0007.057.007.00US 10-year yield (EOP)1.501.501.251.001.251.501.501.501.751.751.751.75EZ 10-year yield (EOP)-0.50-0.50-0.75-0.75-0.75-0.50-0.50-0.50-0.250.000.000.00US IG spread (EOP)109109135160155145145145145140130130US HY spread (EOP)37437451064060055055053050047

29、0450450MSCI ACWI (q/q for quarters, y/y for years)2.116.6-2.3-Source: MSCI, Bloomberg, UBS (incl. estimates). Fed Funds rate forecasts indicate the upper bound of the range. MSCI ACWI forecasts refer to price performance.%Trade escalation Tradede-escalationSupply becomes demand shock %Trade escalati

30、on Tradede-escalationSupply becomes demand shock Oil at $120/bblOil at $30/bbl Baseline1.304.0Trade escalation Trade escalation Tradede-escalationSupply becomes demand shock Oil at $120/bblOil at $30/bbl Baseline1.203.01.152.01.101.051.01.00Mar-18Oct-18May-19Dec-19Jul-20Feb-21Sep-210.0Mar-18 Sep-18

31、Mar-19 Sep-19 Mar-20 Sep-20 Mar-21 Sep-21Source:UBS,BloombergSource: UBS, BloombergSep19=100Trade escalation Tradede-escalationSupply becomes demand shock Sep19=100Trade escalation Tradede-escalationSupply becomes demand shock Oil at $120/bblOil at $30/bbl Baseline125bpTrade escalationbpTrade escala

32、tion Tradede-escalationSupply becomes demand shock Oil at $120/bblOil at $30/bbl Baseline1,10095080011510565050035020050Mar-18Oct-18May-19 Dec-19Jul-20Feb-21Sep-21958575Mar-18Oct-18May-19Dec-19Jul-20Feb-21Sep-21Source:UBS,BloombergSource: UBS, BloombergArendKapteyn HYPERLINK mailto:arend.kapteyn +44

33、-20-75670531Pierre Lafourcade HYPERLINK mailto:pierre.lafourcade +1-203-7198921Alan Detmeister HYPERLINK mailto:alan.detmeister +1-212-7131222Global EconomicsGlobalEconomyOutlook2020-2021UBS Research THESIS MAP 2020-2021 Global Economic OutlookPIVOTALQUESTIONSQ: Do easing financial conditions presag

34、e growthresurgence?The one standard deviation move in the global FCI is positive but we find its predictive power questionablehistorically,andeconomicandpoliticaluncertaintymayimpedetheusualtransmission.Q: Will the consumer crack if trade tensions linger?Developed market consumption is holding up as

35、 income gains are offsetting slowing employment growth (-70bp from peak). However, we are now only 40bp from stall speedthe point at which unemployment starts to go up. So far, consumption weakness has been concentrated in EM.Q: What is the probability of the non-manufacturing sector going into rece

36、ssion?There is still time. We estimate a 30% probability of a countrys non-manufacturing sector goinginto recessionafter12months,conditionalontherebeingamanufacturingrecession.UBSVIEWWe expect a recovery in 2020, but a much weaker one than consensus: Part of that is tariff effects being underestimat

37、ed (demand elasticities to tariffs have been 3-4x larger than assumed in central bank models) and earlier tariffs still working their way through the data. And partly there is somedisconnectbetweenhowthemarketandbusinesses(moreuncertain)viewtheoutlookevenif there is a deal.EVIDENCE & SIGNPOSTS Tarif

38、fs have been the focus but other currents are shifting. We estimate that the Auto cycle accountsforuptohalfoftheglobalindustrialproductionweaknessanditisstartingtoturn.Likewise, theTechcycleaccountsfor30-40%ofthenominaltradeweaknessandhasalsostabilized.Andglobal tradedeflatorshavealsobottomedandshou

39、ldstarttoboostglobaltrade.However,theUSShalecycle (28%oftheglobalIPdeterioration)isweakening,USelectionsarecomingintofocus,Brexitremains unresolved,andthegapbetweenfundamentalsandmarketsisnowextreme.MarketCycleiscloseto anall-timehigh,whileBusinessCycleismiddlingatthe50th percentileinEurope,forinsta

40、nce.UPSIDERISKThe slowdown may have been exacerbated by factors unrelated to trade. These could ease. Justas2017sstrengthwasexaggeratedbyaconfluenceofforcessuchasstrongChinahousing,Tech and rising confidence in Europe, 2019s tariff hit could have been similarly made worse by a perfect stormoffalling

41、cardemand,aweakTechcycle,softshaleproductionandtightfinancialconditionsin ChinaandIndia.Someofthesefactorsmayorganicallyimproveandliftglobalgrowthtowardstrend.Figure 6: Risks aroundthebaselineFigure 7: Alternative policy ratescenarios Source:UBSSource: UBSThe car cycle, the tech cycle, the shale cyc

42、le and how it all came together in a perfect (tariff)stormTo set the stage for our Global Outlook, we take you on a chart-tour of what we believe are the proximate causes for the global growth slowdown. Tariffs are clearly a major part of the story, but not the whole of it. Identifying other current

43、s flowing below the surface is key to understanding what happensnext.The starting point is Figure 8 from our Global growth now-cast report, showing growth has essentially slowed from over 4% two years ago to 2.6% now (QoQ annualized)the 14th percentile over the last 20 years. Figure 9 decomposes the

44、 slowdown into the different data buckets driving the now-cast (domestic, external and other) and quantifies how many percentage points the different data sets are subtracting from long-run average growth. The external component, which is everything correlated with trade (including things like indus

45、trial production), clearly dominates, subtracting 72bp from trend as of Sept 19. It includes only 1/3 of the dataset, but it contributes 2/3 of the weakness.1The base for next years outlook is low (global growth is tracking in only the 14th percentile)Figure 8: Global growth is tracking at only 2.6%

46、Figure 9: Most of the weakness isexternalSource: UBS,Haver,CEICSource: UBS, Haver,CEICClearly, something disrupted global trade and is transmitting to global growth. Figure10showshowthe6pporsodropinglobaltradevolumegrowthtranslated o ler istial in (IP)e sile most impat aiale in expliihistoricalvaria

47、tionsinGDP.Theintuitionhereissimple:countriesproducegoods to meet domestic and foreign demand, and if foreign demand drops with no offsetting increase in domestic demand, they produce less rather than let unneeded inventories build up. Thats it, viewed from the production side of national accounts.

48、From an expenditure national accounts perspective, this weakness mostly shows up in investment (down from about 5% to2%).2Trade so far has been the main channel of disruption1ThisisindetailedinWetrackovervariablesacross25 2 This a from Ireland according to official its ratio from 27 to in a (a in Th

49、is is again to of s e t t m a h y e r f n inassetsfromto(see HYPERLINK /blog/irelands-statistical-cry-help) of to Irish inistothisyear.Figure 10: Global industrial production vsimportvolumesFigure 11: Global manufacturing vsnon-manufacturingSource: UBS,CPB,HaverSource: UBS,HaverIn terms of contribut

50、ion to overall output the slowdown has come roughly equally frommanufacturingandnon-manufacturing.Butwhilesomemaylookatthatand suggest the slowing has been broad based, we think it misses the point. At the sectorleveltheslowdownhasbeenmuchlargerinmanufacturing,asisclearfrom Figure11.Theroughequality

51、ofcontributionsisbecausemanufacturingcomprises less than 20% of the global economy whereas non-manufacturing accounts for theother80%(includingservicesandeverythingelse).Becausethetransmissionis from trade to production its no surprise that manufacturing has been more impacted than other sectors.Fig

52、ure 12: Global import volume growthFigure 13: Eurozone vs US recessionprobabilitySource: UBS,CPBSource:UBSTheEurozonerecessionprobabilityisoverlaidonthatoftheUS. Purple is where they overlap.Ourcentralthesisisthattariffsplayedamajorroleinthesegrowthswings,anda fargreateronethancentralbanksandpolicym

53、akersmoregenerallyhaveallowed for:theaverageresponsivenessofdemandtopriceincreasesfromtariffsappears to have been 3-4 times larger than the normal unit elasticity assumptions. Why dowethinkitwastariffs?Becauseitstheonlythingthatexplainsthecliffeffectin global trade (see Figure 12) and the near simul

54、taneous spike in the recessionprobability for both Europe and the US (Figure 13), which we discussed in more detail here.The other obvious takeaway from staring at the trade data is that China and the USthe two parties at the centre of the trade disputedrove nearly half of the global trade volume sl

55、owdown, even though their weight in global trade is only 25% (Figure 14).Figure 14: Cumulative change in contribution to global import volume growth vs the weight in global tradeSource: UBS, HaverChina and the US drove nearly half of the global trade volume weakness (2x their weight)This is already

56、leading to large trade diversion and investment effects, as we describeintheAsiacountrysectionsofthisreport.Anditisleadingtolarge shifts in market share, both within the US where Mexico and Vietnam have gained marketshare(Figure15),andChina,whereAustraliassharehassurged(Figure 16).Figure 15: Change

57、in market shares intheUSFigure 16: Change in market shares inChinaSource:UBS,IMF(weuseseasonallyadjusteddirectionoftradestatistics)Source: UBS, IMF (we use seasonally adjusted direction of tradestatistics)Figure 17 shows the market share shifts at a higher level. EM has mostly gained market share in

58、 China while DM has mostly gained in the US. Figure 18 shows howtariffincomecollectedacrossallUS tradehasdoubledasashareofimports sinceearlylastyear(andinnominaltermstheincreasehasbeensomewhatlarger). These tariff duties are likely to further step up as the September tariffs begin appearing in the d

59、ata.Three distinct cycles driving global growth weaknessHowever, there is clearly more going on than just tariffs. While the cliff in global trade occurred in line with the tariff escalation, trade had started to slow well before.Indeed,thepeakinglobaltradeandIPwaslate2017/early2018nearly6 months be

60、fore the US/China tariffs kickedin.We believe there are three additional explanations (three cycles) for the sudden slowdowninglobalactivity.Thesecyclesturnedvirtuallysimultaneously,creatinga perfectstorm,butthecorrelationintimingseemssomewhatcoincidentalandnot necessarily tariff induced.EMgainsmark