Edited by Societe Generale Securities: "Mountain Rain is coming-- Societe Generale Securities Global Macroeconomic report 2019"

1. Relaxation approaches the ceiling, and the contradiction shifts from exchange rate to interest rate.

• In the decade after the financial crisis, "money to save the economy" became very popular.

"lack of demand" is a problem that cannot be bypassed in the post-financial crisis era.After the financial crisis, the momentum of the American information technology revolution and the deepening of the division of labor in the global value chain has ceased, and the growth of global demand has gradually stagnated. In the pattern of weak global demand, central banks have repeated three rounds of "monetary rescue" cycles.

The financial crisis of 2007-2008, the European debt crisis of 2012, and the contraction of trade due to the drag of commodity prices in 2014-2015. Correspondingly, the major developed economies have carried out three times of monetary easing, along with the decline in domestic interest rates, currency depreciation, the economy has also picked up.

However, the continuous easing of monetary policy did not really stimulate economic growth, but caused more hidden dangers in the financial market.The increasing dependence of the balance sheet on the prices of financial assets means that the bottleneck of global liquidity easing has arrived.。The dependence of the balance sheet and the economic "recovery" on monetary easing is unstoppable. But monetary easing has pushed up global debt却The fundamental contradiction of "lack of demand" has not been solved.

• Global liquidity "from release to income", the main contradiction from exchange rate to interest rate

In the past few years, due to the continuous easing of global central banks, exchange rate fluctuations have become the main contradiction in the market.。However, as European easing draws to a close, global interest rates will really begin to face upward pressure, and the main contradiction in global markets will shift from exchange rates to interest rates.

It is worth noting that in the process of releasing water in Europe since 2014, the liquidity provided by the ECB has in fact become the main force of global asset allocation.From the asset side of portfolio investment in G4 economies, the liquidity released by the ECB has become the main source of holding down global interest rates after 2014. However, with the end of QE by the ECB in 2019, this part of the marginal increment of bond purchases by the ECB will begin to shrink, and the global cost of capital will begin to rise, which will become the main contradiction in the global financial markets in the future.

2. The United States takes over the currency ahead of time, but its effectiveness is weakening.

• Fiscal expansion has taken the baton of monetary easing, but this round has actually been "snatched"

After the bottleneck of monetary easing, the US fiscal policy relay, but this round of early withdrawal of room for future expansion.It should be noted that fiscal policy stimulus is often counter-cyclical, that is, the expansion of fiscal deficits and economic decline are often synchronized, or even lagged behind. But there has been a marked departure between the two since 2016, suggesting that fiscal stimulus policies, including Mr Trump's tax cuts, are actually taking room for future fiscal expansion in advance. It also means that when the economy enters a downward cycle, there is less room for finance to play a role.

• But the fiscal pull is coming to an end, and the US economy is likely to decline.

Although Trump's tax cuts support the US economy in 2018, the US economy will also slow in 2019 as the fiscal stimulus fades.Judging from the economic data in the third quarter, corporate investment has slowed down.. Real GDP growth in the US fell to 3.5 per cent in the third quarter of 2018 from a month earlier. From an itemized point of view, the boost effect of tax reform is still clearly reflected in the residential sector, but the further slowdown in fixed asset investment has become the biggest drag.

In addition to the fading role of tax reform, the weakening of investment may also have the effect of falling external demand and raising costs in trade wars. Judging from the recent data, the momentum of the residential sector has also weakened.

3. "Anti-Globalization 2.0", the challenges that the world will face

• The "diversion of disastrous water to the east" may mark the official opening of "anti-globalization 2.0".

In 2018, the Sino-US trade war actually exposed another problem-anti-globalization. under the background of the bottleneck of monetary policy easing and the obvious spillover of fiscal policy, it is inevitable for governments around the world to "beggar their neighbors" and move towards "cake sharing". This problem may not necessarily have a dramatic impact on the global economy and even financial markets in the short term, but its long-term impact deserves our attention now.

• The reverse of globalization will reverse the suppression of inflation and interest rates in developed economies.

Anti-globalisation will depress demand-trade and investment, hurting not only emerging markets, but also the wealth gained by US companies through open equity stakes in emerging market companies. At the same time, inflationary pressures in advanced economies are also rising. And as demand for US debt falls in emerging economies, globalisation's crackdown on interest rates will be reversed. As a result, from a longer-term point of view, the global cost of capital is also under upward pressure.

4. Two potential risk points for the upward cost of capital.

• One of the potential risks to the upward cost of capital: the fragility of emerging markets

From both short-term and long-term perspectives, the rise in interest rates will become a major global contradiction. On the one hand,The overall external vulnerability of emerging markets has not declined.This means that while the repressive effect of the dollar on the income side of emerging markets has declined, it is still difficult to reduce the risks in some emerging markets with high external debt and weak solvency.

On the other hand, what is relatively ignored by the market is that American companies have also been obvious beneficiaries in the past global low interest rate environment, from some indicators.Its debt solvency is weaker than the end of the last cycle.Which means that the related US high-yield bond market could be the next risk point. And relatively speaking,Because of its relatively high solvency in emerging market economies, China is likely to become a safe haven in emerging markets.

• The second potential risk of the upward cost of capital: rising pressure on American companies to repay debt

Interest rates go up, and the "sequelae" of post-crisis low-interest-rate financing break out at some point in the future.The long-term low interest rate environment makes the global financial institutions face asset shortage, which in turn depresses the yield of all assets, and the cost of debt financing is also reduced. As a result, the scale of corporate debt financing in the United States has expanded rapidly. In the context of rising interest rates, the cost of debt financing will rise directly, which will not only squeeze corporate profits, but also put pressure on corporate debt repayment and cash flow.

In fact, in the low interest rate environment, the largest returns from debt financing are mainly small and medium-sized enterprises in the United States. So, as spreads rise,Small and medium-sized enterprises will also be more vulnerable.It is important to note that if global liquidity starts to tighten, the pressure on large and medium-sized enterprises will also rise.This may mean that there is a risk of a "make-up decline" in the US high-yield bond market.

5. Risk hint

Higher-than-expected stall of the global economy; rising volatility in financial markets; geopolitical risks