End of QE Priced In, Heavily Flagged: Oppenheimer

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Dec. 06 (Bloomberg) -- Peter Oppenheimer, Chief Strategist and Partner at Goldman Sachs, discusses the EU equities market, Federal Reserve tapering, and his subsequent 2014 outlook. He speaks on Bloomberg Television’s “On The Move.” (Source: Bloomberg)

2013, equity markets have had a good rally to say the least.

Can we build on that?

I think we can.

Rellive to other asset classes as well.

There are two wives looking at this.

The prospects are still very poor and equities will benefit from what we expect to be a reasonably good pick in global growth.

We're expecting pretty decent gains in europe around 15% to 15%. plus -- 12% to 15%, plus dividends.

How much of equity growth has to do with fundamentals and how much has to do with the stimulus being delayed until april or march next year?

We are in ra transition especially in europe from a market driven largely by multiple expansions as expectations rise for a recovery and the risk premium comes down, people get a little bit more confident.

We think the fundamental growth is going to be key.

But that growth is not purely dependent on europe on its own.

A lot of companies of course in europe heavily dependent on the rest of the world.

It is a combined effect with an improvement in margins that we think would bring profits up around 14% across europe as a whole.

We're so hooked on q.e. that people know that it will come to an end at some point, but it is not being priced in at all.

Well, i think that the end of q.e. is being priced in.

It is heavily flagged.

I don't think it would be a great surprise to anyone that tapering was announced or started.

The issue i think that is critical is whether that has a major effect on the start of all monetary policy.

When they announce tapering, they will also reduce unemployment threshold in the u.s. they will keep interest rates low for a very long time.

We would expect funds rates to remain unchanged in the fed until early 2016. so the day that janet yellen says we're going to start tapering, you're not expecting a big correction?

The reaction was not good in bond market or equity markets, but to some degree that has embeded the idea that this is it is going to happen at some point as you stay in the not too distant future.

We would guess that the response would be a bit more modern at this time.

Again, the crucial thing is what the start of tapering -- the start of monetary policy overall.

We think that, you know, the conditions will remain pretty adom dating.

That is the key thing.

Your outlook for 2014, what should by watch ought for in terms over the big dangers that equity markets should be looking out for?

I guess there are two key risks.

One of them is related to the discussion we just had.

Plausible that bond yields spike sharply higher as they did in may of this year and given the equity evaluations are higher than they were then, it would leave equity markets vulnerable to a setback if we were to see that kind of thing happening.

We estimate in europe that the duration over the equity market is around 20, so each 1% rise in bond yields would be worth a 20% move the the index.

That is a key risk.

The other one is that profits just don't recover.


we'll talk more about that after this very short break.

Thank you.

We'll talk about the biggest -- the second biggest risk that we have for 2014. here is a look at what else is coming up on "on the move." u.s. job gains are set for the best year since 2005. what to expected from today's report.

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