Saxo Bank Q2 Outlook 2012: European Politics Is Spinning Out of Control

SINGAPORE--(Marketwire - May 14, 2012) - Saxo Bank, the parent company of Saxo Capital Markets, believes the economic momentum will weaken during Q2 2012. The eventual return of QE (Quantitative Easing) seems inevitable as central banks try to keep the crisis at bay and the compounding of policy errors failing to address the solvency problem and growing social and geo-political friction will potentially lead to an explosive outcome.

According to the Bank's analysts, Europe will continue on the path of flat growth this quarter, but even the rebound in economic growth in the US cannot save Europe from entering a new economic low point during next 2-3 quarters. Asia will continue to aid its growth through imports. If the recovery in the US fails to provide enough jobs momentum, a return of QE some time in Q3 may be a possibility. In Asia, the critical question is China, as losses on investments continue to accumulate and eventually need to be realised.

Also, Saxo Bank, the online trading and investment specialist, predicts that commodities will face a bumpy road ahead as geo-politics have intensified the unpredictable nature of oil markets. Grain prices risk rising sharply and gold is expected to consolidate during the early part of Q2. Volatility will return to the equity market in Q2 as stimulus is withdrawn and safer dividend paying stocks will outperform. The Australian dollar is the least favourite of the major currencies with the most to lose relative to the Chinese landing and its current valuation and the Chinese Yuan could also lose steam as China's terms of trade shift and on reduced capital inflows.

Steen Jakobsen, Chief Economist at Saxo Bank, comments: "Nothing has changed economically but the political will and support for the financial experiment initiated by policymakers post-Lehman has collapsed. European politics is spinning out of control and the gap between politicians and voters is widening, that's what you see in Greece, that's what you see in France. We have reached the second phase of the crisis: During the first phase no one could see or feel the crisis. Now comes the protest against the established. The third and final phase is 6-18 months from now and that is where we turn towards a mandate for change and reforms.

"Our growth outlook for this quarter is relatively sanguine, but we fear that the next 2-3 quarters will mark a new low point in economic growth, politics, and sentiment with higher deficits and more crowding out of capital. However, we remain optimistic because we believe we will quickly get to where things can't get much worse and, hopefully, before the end of 2013, someone somewhere in Europe, maybe in Germany, will be given a 'Thatcheresque' mandate for real change."

The full Q2 2012 Outlook includes the following analyses:

• Equities
• FX Outlook
• Monetary Policy: Central Banks
• Asia Outlook: China - a different (re-)balancing act
• Commodity Outlook: Oil markets looking for right balance

Please download the Q2 Outlook 2012 from http://sg.saxomarkets.com/news-analysis/research

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Established since 2006, Saxo Capital Markets Pte. Ltd. is a wholly-owned subsidiary of Saxo Bank A/S, the online trading and investment specialist. It serves as the Asia Pacific headquarters and holds a Capital Markets Services licence from the Monetary Authority of Singapore and a Commodity Broker licence from The International Enterprise Singapore.

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