YouSaid · the spoken record

Mark Dowding

lines on the record: 24
first: 2021-06-22
most recent: 2021-06-22
sittings or episodes: 1
sources: podcast

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“More confidence around the Fed. So, all of that in the short term looks okay, assuming none of the virus concerns start to reemerge. So I would say from our perspective on the desk, the flows have been fairly constructive. We remain constructive on the geography. And I think it's certainly been.”
2021-06-22 · Goldman Sachs Exchanges · The European Recovery: Here to Stay? · IDENTIFIED FROM THE TRANSCRIPT
“Le Pen versus Macron into the second round, where Macron is still very well expected to win. But it's Europe, it's politics. There are always surprises and twists and turns in the tail. Those are, you know, kind of the three that we're aware of. I think ultimately, as long as we continue to see a unified Europe, one of those unified and fiscal expansion, I would say the longer-term prospects of the geography look very attractive. And you start to move from fiscal expansion back into a version of austerity or aversion of balanced books, then we once again inevitably end up probably discussing similar thematics we had in the early part of the 2010s. I do think Europe will benefit if rates do go higher, which I think is a fairly consensual view across the street. And ultimately, I think that sets up pretty well with what we hope to be some decent FPs.”
2021-06-22 · Goldman Sachs Exchanges · The European Recovery: Here to Stay? · IDENTIFIED FROM THE TRANSCRIPT
“Market depending on how prevalent degrees end up being and whether the Black Zero is taken away and definite expansion becomes hard-coded within Germany. And so that will affect the relative rotation depending upon what's going to work and what's not. The more serious risks are probably what happens with Italy in February around a presidential election and whether Draghi steps in the presidential seat, which then causes a political rift. That's reasonably far enough away right now that I think people aren't too concerned, but it's certainly something that will potentially be an issue. And then the big one is the French election, and we have some regional elections coming up that will give us a guidepost as to how that's progressing in the crazy, crazy tail risk there is that there'll be a coalition of the left that faces off against Le Pen in the first round that takes Macrona the picture. That's very, very unlikely. And of course, the perennial fear is, you know.”
2021-06-22 · Goldman Sachs Exchanges · The European Recovery: Here to Stay? · IDENTIFIED FROM THE TRANSCRIPT
“So there are quite a few as there always are in Europe. Look, I think before we talk about election stuff, I think one, I think in the near term, the recovery trade in Europe is certainly predicated on that continued process of reopening and vaccination. If we look at the UK, we just had a delay in the reopening. It was fairly well expected. So I think it was reasonably well received. But I do think for Europe specifically, there isn't so much concern. And if something like the Delta variant were to pop up in European geography and have a similar issue delaying recovery, that might be a very short-term concern for the market, but one that I don't think is necessarily priced. So something that I think we probably need to keep an eye on. In the medium term, there are quite a few elections coming up. I would say, you know, one, we have the German election in September, and this is not one that's particularly, I think, seen as a risk at all for Europe, but it does have implications, I think, for the”
2021-06-22 · Goldman Sachs Exchanges · The European Recovery: Here to Stay? · IDENTIFIED FROM THE TRANSCRIPT
“Absolutely. You know, I think having traded it through the sovereign crisis in 2011, there were multiple points where we thought, you know, Europe would be pushed further apart. And it certainly moved that way through a process of austerity. I think from a very structural perspective, the pandemic and the fiscal expansion has drawn it slightly closer together. And that has disbanded maybe some of the structural fears about why an investment here is always fraught with risk. But being a trader sitting in a trading seat, I probably hear more of the short-term arguments than the long-term ones.”
2021-06-22 · Goldman Sachs Exchanges · The European Recovery: Here to Stay? · IDENTIFIED FROM THE TRANSCRIPT
“PP banks, I would say, and how investors think about making an investment to Europe. There are other important structural arguments. I think the pandemic has tightened the bond amongst European countries. It's forced big reforms, particularly in Southern Europe. And those reforms are bearing fruit in terms of large fiscal expansions that are predicated on structural reforms. So the Italian flows that I was referring to, I would say, are more long-term in nature relative to short-term and with the view that the drug you put, if you will, will carry forward much bigger, impactful and longer-term changes. So, you know, I guess it's not fair for me to say it's purely short-term in nature, but there are structure arguments that I'm sympathetic to.”
2021-06-22 · Goldman Sachs Exchanges · The European Recovery: Here to Stay? · IDENTIFIED FROM THE TRANSCRIPT
“By nature, slightly more short termism, there are structural arguments that I'm very sympathetic to. And I think we should address them. One, if you look at the last decade of returns, it's been predicated on kind of a disinflationary narrative, this idea that growth is scarce and hard to come by post-GFC. And hence investors have been allocating very aggressively to secular growth. And parts of the market where multiple expansion is greatly rewarded. And that tends to favor the US, that tends to favor tech, and it tends not to favor Europe or Japan for that matter. So, you know, I do think there is perhaps a slight correlation and perhaps part of its causation as well, but I think rising interest rates as a whole in a structural view on rising rates certainly benefit Europe as a geography, and that has a lot to do with the banking sector and the relative weight and the relative underperformance of Europe.”
2021-06-22 · Goldman Sachs Exchanges · The European Recovery: Here to Stay? · IDENTIFIED FROM THE TRANSCRIPT
“To be honest, I do feel a lot of feedback is slightly more temporary in nature. I think certainly from the macro community, the view has been that the relative pace of recovery for Europe just makes it a much more appetizing investment. And I do think that's predicated on the vaccination path, having very rapidly improved for continental Europe. And versus the US, where a large portion of the reopening trade has already occurred. So on a relative basis, there's lots of room to be very excited in terms of the slope of recovery, the slope of GDP improvement coming out of pandemic. And there are some structural arguments that are worth discussing, but the arguments that are being put forward for Europe are the same arguments that are now hearing for Japan. Look at where vaccinations are, look at how they're progressing. And it's very clear that there is a sharp pickup in PMIs and recovery that's yet to come. That is perhaps.”
2021-06-22 · Goldman Sachs Exchanges · The European Recovery: Here to Stay? · IDENTIFIED FROM THE TRANSCRIPT
“Just in things like broad Eurostocks, we're seeing investors moderately long, maybe call it one to three, but I would say relative to a baseline of negative four, that's a rapid improvement. So we have seen positioning tick up. I think if you look at RPB, which is our prime brokerage, which is a measure of all.”
2021-06-22 · Goldman Sachs Exchanges · The European Recovery: Here to Stay? · IDENTIFIED FROM THE TRANSCRIPT
“So it's been about kind of 10 out of 11 a week, so the inflows into Europe. It's been a while since I've Been able to say anything like that. In general, most portfolios have been structured for a long time towards growth. They hold specifically a large overweight within the US. Within Europe I would say there have been episodes where macro funds have come in, chased the geography, have had bad experiences and have kind of kept the allocation relatively low If we look back, it was really the last French election, we had overwhelming sense, positive feedback and kind of euphoria. And if I kind of benchmark positioning at that level, we were probably 10 out of 10 then. I would say if we look at where implied funding has come.”
2021-06-22 · Goldman Sachs Exchanges · The European Recovery: Here to Stay? · IDENTIFIED FROM THE TRANSCRIPT
“Would say that in general our flows indicate quite substantial appetite for banks, construction, broad cyclicality and value. We've seen a notable uptick in demand for southern Europe specifically, Italy. It does feel there is a bit of a domestic tilt towards the flow. There are probably some really good reasons for that in terms of the scope of the recovery fund and the direction of travel in terms of some of the structural reforms that have come out of the pandemic. But in general, investors position themselves with the more cyclical tilt and given the overall, I would say, tendency towards value in European geography, certainly relative to the US, it's been expressed in those parts that I've mentioned like the banks where it's always been a bit of a love-hate relationship amongst the investor base.”
2021-06-22 · Goldman Sachs Exchanges · The European Recovery: Here to Stay? · IDENTIFIED FROM THE TRANSCRIPT
“Think we're really starting to see some European outperformance for the first time in a number of years. I think if we look at year to date, it's pretty clear the Essex-5Es actually outperformed both the S&P and the NASDAQ. That doesn't happen very often. And if you look at the decomposition of what's been leading the rally, you know, it's been banks and autos, which are up nearly 30% each. The defensive parts of the market, like utilities are unchanged. It's been entirely a value decomposed rally. It's been driven by consumption, domestics, Italian domestics, inflation. Yeah, I mean, I would say we're definitely starting to see some signs of optimism. And it's been a while since investors have really warmed up to the geography.”
2021-06-22 · Goldman Sachs Exchanges · The European Recovery: Here to Stay? · IDENTIFIED FROM THE TRANSCRIPT
“First of all, a lot of these temporary factors that I talked about will drop out as you go into 22. So there's going to be a mechanical decline in the inflation numbers. And at the same time, we think the underlying inflation trend is still very subdued. So when you cut through the noise in the inflation data, what we see is that inflation trend is only about 1% and hasn't changed very much. And we think that's because there's a lot of slack in the euro area and that it is going to take a long time for that underlying inflation trend to firm. And so when you look ahead, we think core inflation will go up, but will only go up relatively gradually. And we have core inflation reach one and a half percent on a sustainable basis, so not just on a one-off basis at the end of 2024. And so that's still clearly below 2%.”
2021-06-22 · Goldman Sachs Exchanges · The European Recovery: Here to Stay? · IDENTIFIED FROM THE TRANSCRIPT
“I think it's really the structure of the inflation increase. And, of course, that's similar also in other countries such as the US, that one factor is commodity prices that's clearly pushing up headline inflation. Another one is base effects. So we had drops in some prices last year. And so the comparison one year later points to a big increase. And then there are also a number of technical factors, some of them specific to Europe, such as tax changes that we think are likely to push up inflation more in the next few months. We think inflation will peak in November. And I think the most eye-catching number here is that we think German headline inflation will reach 4% in November, which of course, you know, for European standards, is quite a lot. At the same time, though, I think it's pretty compelling that this increase is not going to be sustainable.”
2021-06-22 · Goldman Sachs Exchanges · The European Recovery: Here to Stay? · IDENTIFIED FROM THE TRANSCRIPT
“And the ECB not changing their inflation forecast was perhaps particularly surprising just because inflation has jumped recently in the euro area. It's reached the central bank's target for the first time in more than two years. So what gives them confidence that this is a temporary versus a longer-term move? And do you agree with that?”
2021-06-22 · Goldman Sachs Exchanges · The European Recovery: Here to Stay? · IDENTIFIED FROM THE TRANSCRIPT
“And then the third takeaway, and I think in some ways the most forward-looking takeaway, was that they remain very cautious on inflation despite that upgrade to growth. So you saw a small upgrade to a core inflation profile, but they kept the end point for headline inflation unchanged. So that's many ways the key number is the 2023 headline inflation number. They kept that at 1.4%, which is still well below that aim of 2% that they are following. And as a result of that, Lagarde said that any exit discussion at this point is premature and also unnecessary. And so bottom line for us is that we think they will keep policy highly accommodative well into the recovery because it will take time for inflation to move up and we don't have a hike from the ECB until 2025.”
2021-06-22 · Goldman Sachs Exchanges · The European Recovery: Here to Stay? · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I would highlight three things. As you say, the governing council decided to pledge a steady hand, as President Lagarde called it, with regard to the bond purchases. So they maintained this pledge to buy at a significantly higher pace with its PEP program and motivated that by the recent increase in interest rates that we've seen since the March meeting to say that there is still”
2021-06-22 · Goldman Sachs Exchanges · The European Recovery: Here to Stay? · IDENTIFIED FROM THE TRANSCRIPT
“And their pad also with some structural reforms. And so we do think the overall fiscal stance, so if you sum together the national level and the wide level, will remain expansionary across the euro area. So we estimate this year it adds around one and a half percentage points to growth. Next year, probably half that. So that is modest compared to what we've seen in the US. I think that's clear, but I also think it's a huge improvement relative to what we saw after the crisis. And I would also note that the fiscal support is very persistent. So the recovery fund money will stretch all the way to 2026. And that's, of course, where it gets its name from. It's supposed to really support the recovery over multiple years.”
2021-06-22 · Goldman Sachs Exchanges · The European Recovery: Here to Stay? · IDENTIFIED FROM THE TRANSCRIPT
“The economy recovers, but we think the turn towards consolidation is going to be a much more gradual one than in the past. And I do think that's one of the key lessons that was learned after the crisis that Europe turned towards consolidation too quickly. Now, the second aspect of the fiscal response, and in some ways the much more innovative one, was, of course, the EU-wide fiscal response with the creation of the recovery fund, which has now been ratified and has now issued debt and will disperse those funds across countries. And this is hugely important for Southern Europe because the allocations there are very large. So Italy, for example, and Spain will get around 12% of GDP from grants and loans over the next few years. And we think the money will be spent on things that tend to have high multipliers. So basically public investment projects.”
2021-06-22 · Goldman Sachs Exchanges · The European Recovery: Here to Stay? · IDENTIFIED FROM THE TRANSCRIPT
“I think we have seen pretty remarkable shifts in fiscal policy across Europe. And I think it's helpful here in Europe to distinguish between national policies and then EU-wide policies. So on the national basis, this is really where the COVID response initially took place. And I think European governments really focused on bridging measures rather than outright stimulus measures initially. And this, of course, includes short-term work schemes and then also the corporate support schemes that are very expensive, but also very effective in shielding workers and in shielding firms. And so, for example, we saw a much more limited increase in unemployment in Europe than in the US. But of course, it came with a large increase in deficits across Europe. I think on the national side, we think that deficits will start to shrink as we go into 22.”
2021-06-22 · Goldman Sachs Exchanges · The European Recovery: Here to Stay? · IDENTIFIED FROM THE TRANSCRIPT
“Yes, sure. So manufacturing activity has already been quite firm, so industrial production levels, for example, already normalized earlier in the year. And I think that's partly because growth momentum in parts of the world, in China and the US, have been firm. And so that has lifted global trade and, of course, manufacturing was not affected by the COVID restrictions during the third wave. So it's quite natural for manufacturing activity to have shown more resilience. But services activity is still very depressed, which of course is true, particularly in the contact intensive parts where those restrictions are specifically targeted at those sectors. And those are responsible really for the large remaining shortfall in GDP across Europe. And so as these restrictions are lifted, we think services activity should accelerate sharply. And that's what we are seeing in the early data. So far,”
2021-06-22 · Goldman Sachs Exchanges · The European Recovery: Here to Stay? · IDENTIFIED FROM THE TRANSCRIPT
“And that's, of course, important for Europe, which is a very open economy. And so bottom line for us is 5.4% growth in 2021 for the euro area and 8.1% for the UK. And both of those are pretty sharply above consensus.”
2021-06-22 · Goldman Sachs Exchanges · The European Recovery: Here to Stay? · IDENTIFIED FROM THE TRANSCRIPT
“But as these restrictions lift, we should see an unlocking of pent-up demand as we go into the summer months. And third, the incoming activity data, I think is consistent with a very strong pickup in activity, particularly services in May and in June. Now, so far, we only have preliminary surveys and sort of high-frequency data for June, but it does look like the economy is accelerating and the forward-looking indicators, whether you look at business expectations or you look at new orders, suggest that there's more room to run. So when you take that together, we see strong momentum into the summer. We are significantly above consensus for growth, both for Q2 and for Q3. And our global growth views are constructed.”
2021-06-22 · Goldman Sachs Exchanges · The European Recovery: Here to Stay? · IDENTIFIED FROM THE TRANSCRIPT
“So we think it's different because we're getting very encouraging information across a range of metrics in Europe. So first, I would highlight that we have seen pretty sharp improvements now on the medical side. COVID cases and hospitalizations are now down pretty sharply, really across the euro area. Vaccinations are up. We think we're on track to reach 50% of the population later in June. As long as the vaccine rollout continues. Second, we have already seen significant reopening steps. Plans are for that to continue into the summer. And that's, of course, highly relevant for services activity, which is very depressed.”
2021-06-22 · Goldman Sachs Exchanges · The European Recovery: Here to Stay? · IDENTIFIED FROM THE TRANSCRIPT