Deutsche Bank - Fixed Income ResearchThe House View - Outlook 2014


Global growth should accelerate in 2014, mainly driven by a reduction in the pace of austerity in advanced economies. We see above-consensus growth in the US as the housing and labour market recoveries gain pace, while the Eurozone returns to its first year of growth since 2011. In China, 2014 is a year of reform and, as confidence builds, growth should pick-up
With the exception of EM, risk assets were in a sweet spot for most of 2013, as valuations improved and the “crisis psychology” prevalent since 2008 began to wane. 2014 should see further normalisation, as we continue to move away from highly correlated, macro-driven markets to a world with increased dispersion of returns as asset selection and corporate fundamentals become key
We expect moderate gains for risk assets, with Equities once again the best performing asset class while Credit and Rates lag in a rising rate environment. Following the sell-off in 2013, EM should see further differentiation this year, as investors reward countries that are reforming. In FX, we see the continuation of the USD multi-year up-cycle. In commodities, oil should fall by ~10% on rising non-OPEC supply led by the US
As in 2013, central banks will remain ultra-supportive, adding a further USD 1tn of liquidity. However, 2014 will see policy divergence, as the Fed ends QE while the BoJ and ECB ease further. There is currently a strong consensus for both improving growth and easy monetary policy. However, if growth improves as much as we expect, a risk is that monetary policy normalises faster than expected. Conversely, should growth disappoint, risk assets will remain dependent on further central bank intervention. In either case, it is worth noting that we remain in the midst of a major financial experiment and there is no template for this cycle in history