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Global Growth Paths Diverge 

Andreas Utermann 

Global View 


The United States and Japan are breaking away from the pack as the euro zone stares down a double-dip recession, says Global CIO Andreas Utermann. Meanwhile, central banks remain committed to using financial repression to revive markets and reduce debt.
Key economic indicators for the US have continued their slow but steady improvement. US GDP¹ grew by 2.4 percent in the first quarter of 2013, up from an annualized 0.4 per cent in the fourth quarter of 2012. US private consumption rose from 1.8 to 3.4 per cent (annualized) despite assumed fiscal cliff headwinds, which could have induced fiscal retrenchment. The Case-Shiller 20-city index² rose by 9.3 per cent year over year and 1.24 per cent month over month; consequently, the US deficit shrank more than expected, to 5.7 percent of GDP, down from 8.1 per cent one year ago.

Japan's economic growth also appears to be accelerating, perhaps from witnessing the initial impact of the new economic policies under Prime Minister Abe. However, growth in Asia (ex-Japan) and Latin America seems to be stagnating, and euro-zone growth is once again decelerating. The euro-zone economies are experiencing a double dip, with the current retrenchment lasting longer than the sharp downturn at the onset of the great financial crisis.

The biggest impact of these diverging macroeconomic developments was felt in the currency and commodity markets. As anticipated, the Japanese yen (JPY) continued its downward trend versus all major currencies; for the first time in five years, it fell to just above the technically important JPY 100 per USD 1 threshold. The euro also showed weakness against the dollar, falling to below USD 1.30 per EUR 1; and emerging market currencies, as predicted, showed trade-weighted gains. ommodities and commodityrelated issues were also weak, with Brent Crude repeatedly testing the USD 100 per barrel level. The biggest shock was reserved for gold prices, which twice fell to below USD 1400 per ounce and appear to be headed lower.

The asset price movements took place against a background of generally low equity volatility in an overall constructive market, with the VIX³ staying low at around 14. Yield curves continued to remain subdued, with many yields falling to multi-decade or historic lows. For now, central banks appear to be in control and managing the process of financial repression. Interestingly, in a break with the correlation of recent years, a greater risk appetite now seems to be benefiting the USD. In next month's newsletter, we will examine how our own asset class predictions have done in relative terms, and we will identify what we believe will be the major market risks for the second half of 2013.

1 Gross domestic product
2 Case-Shiller Home Price Index Composite 20
3 Chicago Board of Options Exchange Market Volatility Index

Gross domestic product (GDP) is the value of all final goods and services produced in a specific country. It is the broadest measure of economic activity and the principal indicator of economic performance.

The CBOE Volatility Index® (VIX®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. Since its introduction in 1993, VIX has been considered by many to be the world's premier barometer of investor sentiment and market volatility.

The S&P/Case-Shiller Home Price Indices are the leading measures for the US residential housing market, tracking changes in the value of residential real estate both nationally as well as in 20 metropolitan regions.

The material contains the current opinions of the author, which are subject to change without notice. Statements concerning financial market trends are based on current market conditions, which will fluctuate. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Forecasts and estimates have certain inherent limitations, and are not intended to be relied upon as advice or interpreted as a recommendation.


Allianz Global Investors Distributors LLC, 1633 Broadway, New York NY, 10019-7585,, 1-800-926-4456.


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