GLOBAL OUTLOOK ECONOMY & FINANCIAL MARKETS
Andbank’s Monthly Corporate Review February 2016
ECONOMY & FINANCIAL MARKETS CORPORATE REVIEW JANUARY-16
Contents Executive Summary
3
This month’s news in charts
5
Country Pages USA
6
Europe
7
China
8
Japan
9
Latam: Argentina
10
Equity Markets Fundamental Assessment
11
Short-term Assessment. Risk-off shift probability
11
Technical Analysis. Main indices
11
Fixed Income Markets Fixed Income, Core Countries
12
Fixed Income, European Peripherals
12
Fixed Income, Corporate Bonds
13
Fixed Income, Emerging Markets
13
Commodities
14
Forex
16
Summary Table of Expected Financial Market Performance
17
Monthly Tactical Asset Allocation Proposal
18
Appendix
19
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ECONOMY & FINANCIAL MARKETS CORPORATE REVIEW JANUARY-16
A preliminary assessment of financial market conditions: Forced to consider the long-term and the short-term. The Long-term view: A serious bear market is a downtrend in which investors who buy at the top do not recover their money for four years or more. Such episodes always occur after a massive misallocation of capital (and risk) created by central bankers who believed in the myth that ultra-low interest rates create economic growth (see the chart below). The second factor to be considered is the length of the period during which rates have been too low. It is worth noting that the current episode of negative real rates is the longest ever seen, meaning that in all likelihood a considerable misallocation of capital and risk already exists today. As long as central bankers continue to implement their useless and highly disruptive ZIRP policies, a serious misallocation of capital and risk will continue to build up and is likely to reach extreme volumes, worsening our long-term outlook for financial markets the longer this persists.
The Short-term view: However, there are also convincing reasons to believe that this 15%-20% correction could turn out to be just a “hiatus followed by a resumption�. The upsurge in equity prices that started on March 2009 has been among the most despised and distrusted bull-markets of all time (courtesy of central bankers). As a result, the bull trend has been regularly interrupted by setbacks triggered by a variety of horror stories, some just as worrying as this one.
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ECONOMY & FINANCIAL MARKETS CORPORATE REVIEW JANUARY-16
A preliminary assessment of financial market conditions: Forced to consider the long-term and the short-term. Each of these corrections seen during the last six years turned out to be a buying opportunity. The question we should now be asking is whether this is another buying opportunity or… is daddy bear coming? To assess whether this correction represents the early stages of a structural bear market or not, we have to repeat the same exercise we performed in the past. We have to judge whether the current causes of the present market setback are likely to trigger the repercussions feared by the market. There are three worries that are relentlessly torturing investors: China, Oil loans (& contagion) and Global recession. China could derail the world economy and financial markets, but this will only occur if Chinese authorities lose control of the Renminbi exchange rate, which could lead to a devastating capital flight. However, the facts seem to point to greater stability in China in the last few weeks. Furthermore, the proxies for Chinese GDP used by the local sources we work with show that after a sharp downturn in early 2015 (partly due to the inadvertent tightening in fiscal policy for local governments), conditions appeared to be relatively stable for most of 2H15. The latest reforms are also expected to bear fruit in 2016: Loc govt’s fiscal deposits (RMB 5trn) to be auctioned to commercial banks => easing interbank liquidity + fewer PBoC open mkt operations + unlock reserves + equivalent to a >200 bp in RRR + larger money base in the system (US$750bn x Velocity of money). In the case of oil loans & contagion risk, there is indeed a direct relationship between the oil price and the amount of defaults expected to materialize in the energy sector. However, there is significant misunderstanding about the macroeconomics of cheap oil. The US$60 fall in the oil price will redistribute some US$2trn of income annually from producers to consumers that use money much more intensely. Low oil prices will mean extremely dovish central banks. Thus, the correlation between oil prices and stock markets should be negative (not positive). With regards to the risk of a global recession, the low oil price is currently seen as a leading indicator of weak economic growth, yet history shows that falling oil prices always presage an upturn in global activity. The idea that falling oil prices are a key indicator of falling economic activity (and asset prices) is wrong, as history shows. SUMMARY: As mentioned before, the conditions for a bear market are in place: 1) A very long period of ultralow rates, and 2) maximum levels of capital and risk misallocation… in a rarefied political atmosphere (EU, US, Middle East…). The odds for a bear market to materialize will increase as long as certain dysfunctions in financial markets remain (mostly in the primary US HY market and the US Leverage loan market). Therefore, in the short run we MUST be cautious until certain technical aspects in markets (potential precipitating factors) return to normal – banks reopening their fixed-income trading operations, the US HY market ceasing to be dysfunctional. Indeed there are convincing reasons to think that this 15%-20% correction could turn out to be just a hiatus followed by a resumption. 1) Fears about China may be overdone. 2) There is significant misunderstanding about the macroeconomics of cheap oil, and 3) The widespread belief that plunging oil prices are a leading indicator of recession is wrong, as demonstrated by history. But to enter this market, we need evidence that the primary funding market in the US (HY & Lev Loans) is functioning correctly, which at present we do not have.
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ECONOMY & FINANCIAL MARKETS CORPORATE REVIEW JANUARY-16
This month’s news in charts 4,0%
Libor-OIS spread (Overnight Index Swap)
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ECONOMY & FINANCIAL MARKETS CORPORATE REVIEW JANUARY-16
USA:
We are revising our 2016 GDP growth down slightly to 2.4%
S&P 500 sell-offs. Duration and magnitude
Do you feel dizzy?
Financial Markets We see this correction as driven by a profit recession centered on certain industries (banking and energy). We have to assess recent developments and the likely limits to S&P EPS damage. Our base case scenario for 2016 assumes almost zero profits from energy firms, although this could be offset by other sectors if the oil price remains between $30-$50 We still feel comfortable with our US market forecast of 2140 for 2016 since it already factored in several downside revisions to earnings, margins and eps growth. Dips of 5%+ are common and happen at least once a year. Of the 80 episodes of 5%+ sell-offs since 1957, about two-thirds were less than 10% with an average sell-off of 7% and duration of 27 trading days. The other one-third of sell-offs have been higher than 10%. Oil reflections We cannot know if oil prices have reached a floor. We can say however that with the early lifting of sanctions in Iran, most of the bearish permutations around our base case outlook have been realized. Global markets have entered panic mode and downside risks include the possibility that defensive animal instincts may drive down oil and other markets still further. No one knows what will happen. We are confident that the current strip is too low, unless the global economy does crash into recession and /or Saudi Arabia ramps up supply significantly. In this sense, our view for the general credit market remains constructive. Economy & macro estimates Intensified global headwinds point to slower growth this year than we were anticipating. As a consequence we are slightly revising down our real GDP growth forecast for 2016 to 2.4% in annual terms. The positive drivers of growth will be household finances, which have improved considerably and should support solid growth in consumption and residential investment, and job gains, which should slow towards a more sustainable pace, but faster wage growth should help keep labor income strong. The negatives: although the US is relatively insulated from global conditions, the strong dollar may continue to drag on net exports. Business investment has already slowed, with few signs of a pending rebound. Financial market targets Fixed Income: 10Y UST yield at 2.7%. Equity: Target price for the S&P is 2140. Traditionally, earnings must fall by more than 5% to cause a bear market and for this to happen we need some of the following to occur: Corporates to show signs of overinvesting, interest charges to rise by 80bp, GDP to be sub 1.2% or labor to have clear-cut pricing power. We see none of these conditions in place.
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ECONOMY & FINANCIAL MARKETS CORPORATE REVIEW JANUARY-16
Europe:
Draghi “conducts” the orchestra.
MACRO SURPISES IN EUROPE
Does this makes sense?
Economy Macro is out of the focus at the start of the year. 1) European surveys are performing well (although this decoupling from the rest of the global economy could prove short-lived). 2) Best news coming from the labor market (without wage pressures…), with pending doubts on the industrial recovery. Inflation expectations driven downwards following oil price correction (-20% YTD). Doubts arise regarding central bank next steps. 2016 may not turn out as imagined (at least in terms of inflation). Politics Spain: The situation remains uncertain. Last minute agreement or new elections? Spanish bonds and equity market still vulnerable. Portugal: The leftist government released a budget based on optimistic GDP growth (2.1 percent vs. 2016 EC estimates 1.7% or 1.5% of consensus). Thus, deficit goals are deemed as not very credible. This is now being discussed in Brussels. Additional info: Presidential elections are set for February, and rating review by DBRS (the only agency to maintain Portugal’s IG) in April. On the positive side, there is a major public debt issuance (€4bn) that has been welcomed by the market, despite NovoBanco. Few short-term catalysts. ECB March now seems the most suitable (and fully expected) time for more QE if needed. ECB’s last statement showed its total willingness for further measures (both a depo rate cut and larger monthly purchases). The ECB certainly acted as a catalyst. At least for the 3 days following Draghi’s speech. It remains to be seen whether the joy will last until March. Financial markets Liquidity issues are undoubtedly present already (banks closing their fixed-income trading operations, the dysfunctional US HY market, etc.). Corporate bonds: Credit spreads widening significantly, both in IG and HY markets (following the latter HY US performance). Risk off mode? Liquidity issues? Contagion? Too many questions without answers. Itraxx Europe at 65bp. Itraxx HY at 290bp. A more negative oil scenario and the absence of concrete actions from central banks, could lead to a cut in our spread targets for both IG and HY indices. Peripheral bonds: Low growth, low inflation, ECB purchases… point to a benign scenario for peripheral yields (but the 2015 lows will be difficult to be repeated). SP 1.4-1.8%, IT 1.3%-1.5%, PO 2%, IR 1%-1.2%. German bund (UW): 0.5%-0.9% due to the steady recovery and with EURIBOR rates anchored at low levels on the back of the expansionary ECB policy. As the year advances, recovery combined with the possible upward trend in treasury yields should also push up bund yields towards higher levels (0.9%). Stoxx 600: Sales growth 3.5%, Margins 8%, EPS 7 growth 9.2%, PE2016 at 16.7. Target = 424.
ECONOMY & FINANCIAL MARKETS CORPORATE REVIEW JANUARY-16
China:
Markets are convinced that China is in the midst of an The state of the nation: economic crisis The SSE has already reflected the fall in intermediation
UK banks creating close ties with Chinese markets
The SSE has already reflected the fall in intermediation
30 economic releases this month. 16 positives vs 13 negatives. Total monthly assessment +3 in a +/-30 range (see Appendix 1). Markets appear convinced that China is in the midst of an economic crisis (helped by policy “missteps”). According to our local sources consulted and some independent research firms, their proxies for Chinese GDP show that after a sharp downturn in early 2015, for most of 2H15 conditions appeared relatively stable, with resilience in services and consumer spending (offsetting industry and investment). China among the best-performing economies at its income level: Of the 53 economies classified by the World Bank as “Upper Middle Income” (per capita income between $4,126 and $12,735), only five are likely to have grown faster than 4.3% last year (Turkmenistan, Panama, Dominican Republic, Namibia and Malaysia). No signs of labor market fragility: 13 million new urban jobs in 2015 (exceeding the official target of 10 million) Outlook Our independent sources (local) expect continued policy support that will drive a recovery over the coming months. The deceleration in growth since 2010 is largely a structural decline after years of unsustainable creditdriven growth. Fiscal policy was inadvertently tightened a year ago after a ban on borrowing by local government financing instruments (SPVs) came into effect. This ban has now been significantly relaxed. A tax cut on purchases of small cars late last year has already had a major effect and the government has pledged further tax reductions this year. RMB The People’s Bank has given strong hints that in future it will manage the renminbi’s value relative to a currency basket rather than against the US dollar. One implication is that if the dollar strengthens against other currencies, as it did in 2015, the renminbi will depreciate against the dollar (but this will not come as a deliberate devaluation policy). This said, a major slide in the RMB is unlikely (given the large current account surplus). Reforms Banking & Local governments may be allowed to auction their RMB4.6trn fiscal deposits, currently parked at the PBoC (at 0.35%), to a commercial bank (at 3%). The PBoC will have to pay 1.62% on the portion that becomes required reserves, but this will act as a form of monetary easing. (1) Fiscal deposits held at the PBoC tighten interbank liquidity and makes the PBoC act by using its open market operations (a source of volatility). This will unlock reserves that could be used by banks to expand lending. 2) Note how the “small” drawdown in fiscal deposits held at the PBoC so far in the 2015 trial has injected over RMB800bn of reserves into the banking system (as a comparison, the 50bp cut in the 8 RRR injected some RMB600bn).
ECONOMY & FINANCIAL MARKETS CORPORATE REVIEW JANUARY-16
Japan:
Kuroda’s madness: “I’m ready to do more”. Press leaks point to further QE expansion. BoJ Haruhiko Kuroda has hinted that he was ready to do more, and subsequent press leaks point to a further expansion of his quantitative easing program. His reasons: 1) One month ago the BoJ mildly expanded its QE operation to a deafening silence. Since then the Nikkei is down -11.5% and the yen has risen 3.5% . 2) China continues to send mixed signals. 3) The Eurozone released less than stellar economic data yesterday. 4) US credit markets look sick. 5) There is also a political “logic” that points to more QE. 6) The BoJ will be happy to rein in JPY appreciation in light of the latest Tankan survey, which suggests that any strengthening beyond ¥118 will dissuade companies from hiking wages (which is crucial to his domestic reflation goals). 7) In recent years there has been a clear correlation between stock prices and Abe’s popularity, so Abe will not oppose further monetary stimulus. Economy 24 economic releases this month. 4 positives vs 18 negatives. Total monthly assessment -14 in a +/-24 range (see Appendix 2). Demographics will not support GDP Japan’s population grew by only 0.2% between 2005 and 2010 to 128 million. Only nine of Japan’s 47 prefectures saw their populations rise. Over the coming decades, that anemic demographic growth will turn negative, with the United Nations projecting that the population is likely to decline to just 102 million by 2050. What are the direct implications in terms of nominal GDP? The working-age population is shrinking by more than 1% per year (ensuring downward pressure on GDP growth). With very low unemployment and high labor participation, Japan has no idle resources to boost GDP in the medium-term. The scope for boosting the economy with fiscal stimulus or easy money have proved to be nil. Outlook for real estate activity? Even if the proportion of Japanese living in urban areas rises to 80% (currently 68%) the country’s total urban population will still be in decline. Clearly then it would be wrong to expect that the current boom in construction activity would be sustained at a nationwide level (construction will be confined to a relatively small number of select prefectures in Tokyo). How to escape a debt trap: Corporates must put their huge cash piles to work in a productive way (global fundamentals have not deteriorated on the scale seen in 2008) in order to achieve nominal growth that will shift firms’ cash preferences and encourage productive investment. This will only occur when firms cease to perceive the information from the monetary system (BoJ) to be blatantly manipulated. As long as this persists, there is no way of assessing proposed long-term investment. 9
ECONOMY & FINANCIAL MARKETS CORPORATE REVIEW JANUARY-16
Argentina:
An impressive start by the legislature
Fathom Consulting expects GDP to rise to around 2% in 2017
NPL at just 1.9% of total
Measures taken Export taxes will be lifted. Wheat, corn, dairy products, beef, fruit, olives and garlic will be totally exempt from payments while soybeans taxes will come down to 30% from 35%. Onshore USD futures contracts: ROFEX decided to force buyers of US Dollar futures contracts to accept a discount on their profits by applying a premium to their originally traded prices depending on the date when these contracts were settled. FX: End of restrictions on free access to the FX market and the local currency will be managed using a dirty float system (open market operations). After December’s devaluation following clamp removal, the peso went from 9.7 to 13.60 (ending the blue peso). The effects have been just 2 months of higher inflation. How? The new administration has secured funds to allow an increase in foreign reserves of between USD 15‐25 billion, which will enter the country in the following 4 weeks. The sources will be: 1) Syndicated loan to the central bank by foreign investment banks. 2) Commitment signed by local and multinational grain traders to provide US$2 billion per week. 3) Local business sectors willing to repatriate funds held abroad. Reliable macro data: Macri signed a decree called a “State of national statistical emergency” to grant INDEC’s new authorities the means to produce reliable statistics and “recover the truth”. Plans for Sustainability: Fiscal & deficit goals • Fiscal front: Macri inherited a primary fiscal deficit of 5.8% (7% considering campaign promises). Primary deficit goal for 2016 is 4.8%. Cuts will be made on subsidies totaling 1.5% and another 0.8% from managing expenditure. Target for 2017 will be 3.3%, 1.8% for 2018 and 0.8% in 2019. Debt servicing accounted for approximately 2.2% of GDP in 2015. • Inflation front: 2015 ended with a 28% inflation rate. Future targets are 20-25% for 2016, 15-18% in 2017, 8-12% in 2018 and 5% in 2019. • Holdouts: Prat-Gay recognized the total current claim of holdout creditors (US$9.882bn). Secretary of Finance Luis Caputo met with holdouts on January 12 in an informative meeting. Government strategy is to recognize capital owed but to negotiate punitive interests it considers excessive (70% of the claim is punitive interests and 30% is face value). A formal offer to holdouts is due to be made on January 25th. BCAR: • Bridge Loan: Central bank will obtain a bridge loan with several banks for between USD 4.0-6.0 bn. The pool of banks will lend dollars to the central bank for one year in exchange for Bonar 22, 25 and 27 securities, which will serve as collateral. Central bank reserves have increased by USD 1.4bn since currency controls were lifted.
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ECONOMY & FINANCIAL MARKETS CORPORATE REVIEW JANUARY-16
Equity Markets GLOBAL EQUITY INDICES - FUNDAMENTAL ASSESSMENT:
Index
Sales per Share 2015
S&P 500 INDEX/d 1.136
Andbank's Sales Andbank's Net Margin Sales Growth per Share Net Margin 2015 2016 2016 2016
EPS 2015
EPS 2016
EPS Growth PE ltm PE ltm 2016 2015 2016
118,6
10,4%
4,9%
1.192
9,7%
116
-2,5%
16,35 18,50
23,3
7,6%
3,5%
318
8,0%
25
9,2%
14,47 16,70
IBEX 35 INDEX/d 9.577
665,3
6,9%
2,3%
9.793
7,00%
686
3,0%
12,97 15,00
MXSE IPC GRAL /d28.180
1.916,2
6,8%
9,0%
30.716
7,5%
2.304
20,2%
22,77 21,30
BVSP BOVESPA I/d 53.078
3.636,6
6,9%
10,3%
58.545
6,5%
3.805
4,6%
10,93 13,20
NIKKEI 225 INDEX20.388
1.049,4
5,1%
3,3%
21.061
4,9%
1.032
-1,7%
16,92 18,00
SSE COMPOSITE/d2.602
234,5
9,0%
8,0%
2.810
9,0%
253
7,9%
11,73 16,00
HANG SENG INDE/d 11.570
1.348,0
11,7%
7,5%
12.438
11,0%
1.368
1,5%
14,43 16,33
S&P SENSEX/d
13.646
1.529,1
11,2%
12,0%
15.284
11,8%
1.803
17,9%
16,05 17,00
MSCI EM ASIA
411
34,1
8,3%
10,1%
453
9,0%
41
19,4%
18,21 17,25
STXE 600 PR/d
307
INDEX CURRENT PRICE 1.939 337 8.627 43.631 39.745 17.751 2.750 19.447 24.539 621
2016 2016 TARGET E[Perform.] PRICE % Ch Y/Y 2.140 10,3% 424 26,0% 10.283 19,2% 49.069 12,5% 50.232 26,4% 18.575 4,6% 4.047 47,1% 22.342 14,9% 30.659 24,9% 703 13,1% ANDBANK ESTIMATES
RISK-OFF SHIFT PROBABILITY:
Andbank's Global Equity Market Composite Indicator (Breakdown)
Buy signals Positive Bias Neutral Negative Bias Sell signals FINAL VALUATION
Previous
Current
Month
Month
5 2 13 2 0 2,3
8 7 4 2 1 4,3
Andbank’s Global Equity Market Composite Indicator Preliminary assessment of the level of stress in markets
0
-5
-10 Market is Overbought
+5
Area of Neutrality Sell bias
Buy bias
+10 Market is Oversold
o Score. Our Andbank GEM composite indicator has shifted from 2.3 to 4.3 in a -10/+10 range, suggesting that the market remains, to some extent, slightly oversold but that the level of stress is not extreme yet (not extremely oversold). We therefore consider that the market IS CHEAP (but not extremely cheap). At current levels, the continuity of the risk-off shift in the equity markets would mean that the market would quickly become heavily oversold. o Positioning (speculators, HF, asset allocators): The positioning indicators offer more reassuring reading this month, since fund managers are now staying more underweight and speculators are holding more puts than calls. o Flows (Funds & ETFs): Net flows to risky assets have been negative in the past weeks. o Sentiment: Positive readings (contrarian) since most respondents have already declared their negative view (many more bears than bulls) TECHNICAL ANALISYS (2016 view):
o S&P: Central scenario, in 2016 the index will move within the 1.814 - 2.134 range. o STOXX50: The index will move above the key 2,789 level, keeping its 2009 upward trend. o IBEX 35: Central scenario, the index remains above 8,275 and reenters the 9,231-11,800 range. 11
ECONOMY & FINANCIAL MARKETS CORPORATE REVIEW JANUARY-16
Fixed Income – Core Country Bonds:
NEGATIVE STANCE
UST 10Yr BOND: “UW”. Entry point above 2.7% yield. 1. Swap spread: Swap rates fell to 1.90% (from 2.08%) and the 10Y UST also fell, to 2.07% (from 2.23%). The swap spread therefore turned even more negative (-17bp from -15bp). For this spread to normalize towards the +20bp area, with the 10Y CPI expectations (swap rate) anchored in the 2%2.25% range, the 10Y UST yield should move toward 1.92% (this must be considered as a floor) 2. Slope: The UST yield curve has flattened again (to 117bp from 128bp). With the short end stable in the 1.25% area, to reach the 10yr average slope (173bp), the 10Y UST yield could go to 2.98%. 3. Given the “new normal” (ZIRPs), a good entry point in the 10Y UST could be when real yield hits 1%. Given that 2016 CPI could reach 1.7%, UST yield should rise to 2.7% to become a “BUY”. EURO BENCHMARK 10Yr BOND: “UW”. Entry point at 0.7% yield. 1. Swap Spread: Swap rates fell (to 0.75% from 0.85%) and the Bund yield fell (to 0.37% from 0.48%). The swap spread remained stable at 38bp (from 37bp). For the Swap spread to normalize towards the 30-40bp area, with the 10Y inflation expectations (swap rate) anchored in the 1%-1.25% area, the Bund yield should move towards 0.8%. 2. Slope: The slope of the EUR curve fell to 81bp (from 86bp). With the short end “normalized” in the 0.25% area, to reach the 10yr average slope (113bp), the Bund yield should go to 0.88%.
Fixed Income – Peripheral Bonds: •
•
•
NEUTRAL STANCE
The probability of QE 2.0 by the ECB keeps rising. Despite a likely pickup in CPI numbers, these will remain subdued into 2016, causing Mr. Draghi to loosen policy further. In our view, the recent rebound in underlying CPI figures has been due to the depreciation of the euro since mid-2014, causing the prices of imported non-energy goods to rise by almost 10% y/y in August. Unless the euro depreciates further, inflation will be much lower in the months ahead. This more flexible stance on QE will prolong the associated scarcity of paper derived from QE. Additionally, a benign auction calendar (with negative net issuance adjusted by QE) should be supportive for these government bonds. The incorporation of certain political aspects has led to slight changes in our targets (10Yr govt yields): Spain 12 1.8%, Italy 1.4%, Portugal 2%, IE 1.1%, Greece 6.5%
ECONOMY & FINANCIAL MARKETS CORPORATE REVIEW JANUARY-16
Fixed Income – Corporate Bonds & EM Govies FIXED INCOME – CORPORATE CREDIT IG US$: NEUTRAL. HY US$: ”UW” CDX HY: Credit markets continue their roller coaster ride driven by energy prices. The possible contagion risk to other sectors given the widening in credit spreads is leading us to be more cautious about high yield markets. Issuance remains nonexistent in the high-yield world, with bond yields and spreads rising and banks closing their corporate debt trading activities. Just seven deals were priced totaling $3.1bn vs $19bn in January 2014. The default rate is set to rise to 6%. The risk-off scenario in global markets has intensified as shown by outflows from credit markets as investors move into safe haven assets. Sectors: OW Financials – Materials – Consumer cyc. UW Utilities – Healthcare – Industrial. CDX IG: The widening spread has been driven by the decline in US Treasury yields and Investment Grade prices are slightly up. Wider spreads may have a limited impact with lower yields and a dovish Fed. Valuations are becoming more compelling as spreads widen, and we do not expect a recession. Demand for High Grade Bonds has become more stable despite the sell-off in equities, as low inflation attracts the interest of investors in credit markets. Sectors: OW Financials – Media – Retail. UW Metals and Mining – Energy – Utilities
IG EUR: NEUTRAL. HY EUR: NEUT-POSITIVE Liquidity issues are here to stay, but they are not new (just to bear in mind). This could lead us to cut exposure to this category due to higher volatility, rather than modifying our targets, which will remain stable unless we foresee a more negative scenario for oil and the end of supportive central bank policies. In the credit world, we must point out the very scarce activity in the European High Yield market, something that contrasts with the better tone in the Investment Grade. The market still differentiates between individual sectors’ performance, but the contagion effect is increasingly felt. Sector view in IG category: (1) Financials a “safe haven bet” due to strict regulation, ECB supervision and recent credit recovery. (2) Some value in oil and selectively in “materials”. Sector view in HY category: (1) Industrials and some big names in basic materials are among our favorites. Targets: Itraxx Europe at 65bp. Itraxx HY at 290bp.
FIXED INCOME - EMERGING MARKETS (GOVIES): “The conditions are not met” 10 Year
CPI (y/y)
10 Year
Yield
Last
Yield
Govies
reading
Real
3,35%
4,98%
5,61%
2,19%
Taiwan
8,34% 7,80% 4,18% 2,87% 3,85% 2,41% 2,35% 2,03% 0,99%
Turkey
Indonesia India EM ASIA
Philippines China Malaysia Thailand Singapore
EME
South Korea
1,50%
2,69%
1,60%
1,27%
2,68%
1,17%
-0,85%
3,26%
-0,64%
2,99%
1,28%
0,75%
0,14%
0,86%
10,62%
8,81%
1,81%
Russian Federation 10,10%
12,90%
-2,80%
16,55% 6,15% 8,65% 7,69%
10,67%
5,88%
2,13%
4,02%
6,77%
1,88%
4,40%
3,29%
Brazil LATAM
To date, our rule of thumb for EM bonds has been “buy” when two conditions are met: (1) US Treasuries are cheap or at fair value; and (2) Real yields in EM bonds are 175bp above the real yield in UST. Is the UST cheap or at fair value? Historically, a good entry point in the 10Y UST has been when real yields are at or above 1.75%. However, given the “new normal” (ZIRPs globally), a good entry point in the 10Y UST bond could be when the real yield is 1%. Given our 2016 target for US CPI of 1.7%, the UST bonds should be at 2.7% to be considered cheap. So the first condition is not met. Do real yields in EM bonds provide sufficient spread? If the first condition is met and under the “new normal” (ZIRPs), a good entry point in EM bonds could be when EM real yields are 100bp above the real yield of the UST. Since the projected real yield of USTs this year is 0.37% (2.07%-1.70%), the real yield of the EM bonds should be at least 1.37% (see table).
Mexico Colombia Peru
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ECONOMY & FINANCIAL MARKETS CORPORATE REVIEW JANUARY-16
Commodities ENERGY (OIL): “HOLD”. Fundamental target range ($30-50). The price war among OPEC producers, which comes on top of the battle between OPEC and US shale oil, is bound to intensify as Iran rejoins the global economy. This will keep oil prices at very moderate levels. Iran could ramp up its crude output from the current 2.8mn bpd to the 3.6mn it produced before the latest tightening of sanctions in 2012, and ultimately to its peak production of 6mn bpd achieved in 1970 (when it had access to western technology and funding). Given that Iran has the fourth largest proven oil reserves and that those reserves are geographically as accessible as Saudi Arabia's, restoring (or exceeding) 1970 production levels seems a very modest long-term objective. This means that Iran will add about as much to global oil output in the second half of this decade as the US shale revolution did in the first half. In order to find room in the market for all this extra oil, Iran must compete fiercely not only with the burgeoning production from Saudi Arabia, Kurdistan (both producers pumping at record rates), Libya and Nigeria, but also with Iraq’s production capacity (which keeps increasing, according to the EIA). The oil market has definitely shifted from monopoly price setting by OPEC to competitive pricing. In this new and competitive scenario, oil prices will fluctuate between a ceiling (determined by the break-even point of the high-cost swing producers, i.e. US frackers and Canadian tar sands) and a floor (determined by the lowest-cost producers among the Middle East OPEC members, Azerbaijan, Kurdistan, Russia, etc.). The oil market could be re-entering a competitive pricing period similar to 1986-2004, in which $50 per barrel could easily be the ceiling. Some still believe that OPEC countries (or Saudi Arabia) can set oil prices at whatever level they wish (as they did during the “monopoly periods” of 1974-85 and 2005-14). In a world in which oil demand is constrained by advances in non-fossil fuel technologies and supply keeps growing as a result of new production techniques, such monopoly power is now an illusion. Optimism based on possible cuts in US shale oil supply is not well founded. The US Energy Information Administration predicted that US production would fall by 160k bpd in 2016 (due to cuts in investment), but even if US production is cut, this reduction could be dwarfed by increases in Saudi output of 1 million bpd this year or the additional 1-3 million bpd that Iran is likely to add.
14
ECONOMY & FINANCIAL MARKETS CORPORATE REVIEW JANUARY-16
Commodities GOLD: Target US$ 900/oz Negative drivers: 1. Gold in real terms. Gold at constant 2009 prices is now at $1,014 ($1,016 in the previous month and still above its 20 year average of $750). Given our global deflator (US Implicit Price Deflator – US Domestic Final Sales base year 2009) of 1.1008, for the gold price to stay near its historical average in real terms, the nominal price must remain near US$822. 2. Gold in terms of oil (Gold / Oil): This ratio has increased to 33.6 (from 27.4) and remains above its LT average of 13.9. If the average oil price stays at $40, the nominal price of gold must approach US$560 for this ratio to remain near its LT average level. 3. Gold in terms of the DJI (Dow Jones / Gold): This ratio (inverse) has moved to 14.39 (from 16.7 previously), still below its LT average of 20.3. Given our long term target price for the DJI ($18,250), the price of gold must approach US$900 for this ratio to remain near its LT average. 4. Positioning in gold points to further falls: CEI 100oz Active Future non comm. contracts: longs 158k from prior 173k. Shorts 114k from 139k => Net of +43 from + 34.4 k. (Speculators are now longer than a month ago). 5. Financial liberalization in China. Higher “quotas” each month in the QFII are widening the investment alternatives for Chinese investors (historically focused on gold). 6. Central bank activity: Central banks are gradually cutting their stocks of gold after 7 years of heavy reserves accumulation (see the chart below). 7. Monetary stimulus by ECB and BOJ continues, but not by the Fed (remember the price of gold is in USD). This points to the following dynamics: gold stable or downward in terms of USD; gold price following an upward trend versus the EUR and JPY, which means that the USD must rise relative to the EUR and the JPY. Positive drivers: 1. Amount of gold in the world: The total value of gold in the world is circa US$6.9tn, a fairly small percentage (3.2%) of the total size of the financial cash markets (212tn). The daily volume traded in the LBMA and other gold marketplaces is around US$173bn (2.5% of the world's gold and just 0.08% of the total in the financial markets).
120 100 80 60 40 20 0 -20 -40 -60
GOLD STOCK - CENTRAL BANK RESERVES (%Y/Y, MA6m)
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 India Thailand
Sing Philipp
Andbank, National Reserve Banks
Japan UK
C hile C hina
120 100 80 60 40 20 0 -20 -40 -60
Russia
©FactSet Research Systems
15
ECONOMY & FINANCIAL MARKETS CORPORATE REVIEW JANUARY-16
Currencies • EUR/USD: MT Target (1.00 – 1.05) The positioning was little changed in the EUR/USD cross. Speculators are still short in the EUR although less than a month ago (net shorts moved to -18.6 from -21.8 bn USD) as the ECB surprised by not delivering further monetary easing and putting the March meeting into play. There is still plenty of room for speculators to reach the lower end of the range and build shorter positions in EUR, depending on their 12 month investment pattern (especially after the BoJ’s decision to imitate the ECB and take interest rates into negative territory. See chart). If true, the EUR/USD could fall further towards 1.001.05.
• JPY/USD: MT Target (120). JPY/EUR: MT Target (126) JPY continued its medium-term positioning shift as net longs reached a new recent high.
• • • • • • • • •
GBP/USD: MT Target (0.65). GBP/EUR: MT Target (0.68) CHF/USD: MT Target (1.00). CHF/EUR: MT Target (1.05) EM FX/USD: NEUTRAL-BULLISH MXN/USD: MT Target (17.5). MXN/EUR: MT Target (18.4) BRL/USD: MT Target (4.00). MXN/EUR: MT Target (4.20) RUB/USD: Neutral AUD/USD: UW AUD CAD/USD: OW CAD CNY/USD: MT Target (6.20). Outlook: After a poorly handled attempt to move to a more market-determined exchange rate, and with the US dollar strong across the board and the likelihood that the foreign exchange market has now largely priced in the prospect of Federal Reserve tightening, the US dollar is likely to weaken over the six to 12 months following the Fed’s first rate hike (as suggested by experience).
Max
Currency
Values of Change vs Net positions last week 1-yr Max (Bn $) (Bn $) (Bn $)
1-yr Min (Bn $)
1-yr Avg (Bn $)
0,0 13,1 -3,1 -30,4 -11,7 -4,3 -3,2 -1,1 -2,7 -0,1 -5,9 -5,1
32,9 32,9 -1,4 -20,1 -4,8 -2,1 -0,4 0,0 -1,4 0,0 -2,8 -2,6
Current Z-score 3-yr
4,0
Min Current
SPECULATIVE POSITION IN THE FX MARKETS (3Yr - Z SCORES. Max, Min & Current in 1Yr)
3,0
USD vs All USD vs G10 EM EUR JPY GBP CHF BRL MXN RUB AUD CAD
27,37 25,22 -2,14 -18,68 4,00 -3,41 0,11 -0,08 -2,08 0,02 -2,50 -4,55
0,01 0,04 0,03 1,19 1,32 -0,66 -0,30 0,01 -0,01 0,03 -0,90 -0,40
48,8 47,1 0,1 -8,9 4,0 0,7 1,4 0,3 0,3 0,2 0,6 0,6
0,29 0,11 -1,00 -0,67 3,26 -0,82 0,38 -0,19 -1,12 -0,05 -0,29 -0,88
ANDBANK
2,0 1,0 0,0 -1,0 -2,0 -3,0 -4,0
ANDBANK -5,0 USD vs All
USD vs G10
EM vs USD
EUR vs USD
JPY vs USD
GBP vs USD
CHF vs USD
BRL vs USD
MXN vs RUB vs USD USD
AUD vs USD
CAD vs USD
16
ECONOMY & FINANCIAL MARKETS CORPORATE REVIEW JANUARY-16
Market Outlook – Fundamental Expected Performance Performance Performance Performance Asset Class
Indices
Equity
USA - S&P 500
Current
2016
Expected
02/02/2016
Target
Performance*
2015
Last month
YTD
-0,73%
-5,1%
-5,1%
1.939
2140
10,3%
6,79%
-7,9%
-7,9%
337
424
26,0%
SPAIN - IBEX 35
-7,15%
-9,6%
-9,6%
8.628
10283
19,2%
MEXICO - MXSE IPC
-0,39%
1,5%
1,5%
43.631
49069
12,5% 26,4%
01/02/2016 EUROPE - STOXX 600
BRAZIL - BOVESPA
-13,31%
-8,3%
-8,3%
39.745
50232
JAPAN - NIKKEI 225
9,07%
-6,7%
-6,7%
17.751
18575
4,6%
CHINA - SHANGHAI COMPOSITE
9,41%
-22,3%
- 22,3%
2.750
4047
47,1%
KONG KONG - HANG SENG
-7,16%
-11,3%
- 11,3%
19.447
22342
14,9%
INDIA - SENSEX
-5,03%
-6,2%
-6,0%
24.539
30659
24,9%
MSCI EM ASIA
-7,90%
-6,2%
-6,2%
621
703
13,1%
Fixed Income
US Treasury 10 year govie
2,8%
2,8%
1,95
2,70
- 4,06%
Core countries
UK 10 year Guilt
2,8%
2,8%
1,63
2,15
- 2,54%
German 10 year BUND
2,3%
2,3%
0,35
0,70
- 2,41%
Fixed Income
Spain - 10yr Gov bond
1,8%
1,8%
1,56
1,80
- 0,38%
Peripheral
Italy - 10yr Gov bond
1,1%
1,1%
1,47
1,40
2,04%
Portugal - 10yr Gov bond
-1,7%
-1,7%
2,72
2,00
8,48%
Ireland - 10yr Gov bond
2,4%
2,4%
0,85
1,10
- 1,15%
Greec e - 10yr Gov bond
-10,8%
- 10,8%
9,19
6,50
30,73%
Fixed Income
Credit EUR IG-Itraxx Europe
-0,5%
-0,5%
96,81
65
1,58%
Credit
Credit EUR HY-Itraxx Xover
-1,5%
-1,5%
381,79
290
5,98%
Bono EUR 5y IG & HY
Credit USD IG - CDX IG
-0,4%
-0,4%
104,00
70
3,21%
Credit USD HY - CDX HY
-0,5%
-0,5%
487,27
400
8,31%
14,60%
Bono USD 5y Fixed Income
-0,3%
-0,3%
10,60
10,10
EM Europe (Loc) Russia - 10yr Gov bond
Turkey - 10yr Gov bond
-4,2%
-4,2%
10,34
11,34
2,34%
Fixed Income
6,5%
6,5%
8,10
7,10
16,10%
Indonesia - 10yr Gov bond
Asia
India - 10yr Gov bond
0,2%
0,4%
7,79
7,04
13,79%
(Local curncy)
Philippines - 10yr Gov bond
0,1%
0,1%
4,08
3,33
10,08%
China - 10yr Gov bond
0,1%
0,1%
2,82
2,32
6,82%
Malaysia - 10yr Gov bond
2,9%
2,9%
3,85
3,35
7,85%
Thailand - 10yr Gov bond
1,7%
1,7%
2,27
1,27
10,27%
Singapore - 10yr Gov bond
3,3%
3,3%
2,19
1,44
8,19%
South Korea - 10yr Gov bond
1,5%
1,5%
1,93
1,93
1,93%
Taiwan - 10yr Gov bond
0,9%
0,9%
0,91
0,91
0,91% 2,18%
Fixed Income
Mexic o - 10yr Govie (Loc )
2,4%
2,4%
6,02
6,50
Latam
Mexic o - 10yr Govie (usd)
-0,2%
-0,1%
4,13
4,40
2,00%
Brazil - 10yr Govie (Loc )
7,4%
7,4%
15,72
15,00
21,48%
Commodities
Brazil - 10yr Govie (usd)
3,6%
3,6%
7,30
6,00
17,70%
CRY
-8,2%
-8,2%
161,7
190,0
17,50%
-17,1%
- 17,1%
30,7
40,00
30,21%
6,0%
6,1%
1.124,6
900,0
-19,97%
Oil (WTI) GOLD Fx
EUR/USD ($ to 1€)
0,5%
0,5%
1,091
1,05
- 3,79%
GBP/USD (£ to 1$)
2,3%
2,3%
0,69
0,65
- 6,34%
GBP/EUR (£ to 1€)
2,8%
3,0%
0,76
0,68
- 9,87%
CHF/USD (c hf to 1$)
1,9%
2,0%
1,02
1,00
- 2,08%
CHF/EUR (c hf to 1€)
2,4%
2,5%
1,11
1,05
- 5,80%
JPY/USD (¥ to 1$)
0,4%
0,4%
120,75
120
- 0,62%
JPY/EUR (¥ to 1€)
1,0%
1,0%
131,80
126,00
- 4,40%
MXN/USD (mxn to 1$)
6,9%
6,9%
18,36
17,50
- 4,67%
MXN/EUR (mxn to 1€)
7,5%
7,5%
20,04
18,38
- 8,31%
BRL/USD (brl to 1$)
0,9%
0,9%
3,99
4,00
0,17%
BRL/EUR (brl to 1€) CNY (c ny to 1$)
1,4% 1,3%
1,4% 1,3%
4,36 6,58
4,20 6,20
- 3,63% - 5,77%
* For Fixed Inc ome instruments, the expec ted performanc e refers to a 12 month period
17
ECONOMY & FINANCIAL MARKETS CORPORATE REVIEW JANUARY-16
Monthly Tactical Global Asset Allocation Proposal Conservative Max Drawdown
< 5%
5%/15%
Strategic Tactical (%) (%)
Asset Class
Moderate
Balanced
Growth
15%/30%
Strategic (%)
Tactical (%)
Strategic (%)
Tactical (%)
30%> Strategic Tactical (%) (%)
Money Market
15,0
17,5
10,0
12,0
5,0
6,3
5,0
6,5
Fixed Income Short-Term
25,0
24,3
15,0
15,0
5,0
5,3
0,0
0,0
Fixed Income (L.T) OECD
30,0
29,1
20,0
20,0
15,0
15,9
5,0
5,4
US Gov & Municipals & Agencies
11,7
8,0
6,3
2,2
EU Gov & Municipals & Agencies
2,9
2,0
1,6
0,5
European Peripheral Risk Credit (OECD)
14,6 20,0
10,0 20,0
20,0
7,9 15,0
15,9
2,7 5,0
5,4
Investment Grade USD
7,8
8,0
6,3
2,2
High Yield USD
3,9
4,0
3,2
1,1
Investment Grade EUR
3,9
4,0
3,2
1,1
High Yield EUR
3,9
4,0
3,2
1,1
Fixed Income Emerging Markets
5,0
4,9
7,5
7,5
10,0
10,6
15,0
16,3
Latam Sovereign
1,5
2,3
3,2
4,9
Latam Credit
1,0
1,5
2,1
3,3
Asia Sovereign
1,5
2,3
3,2
4,9
Asia Credit
1,0
1,5
2,1
3,3
Equity OECD
5,0
4,9
20,0
20,0
32,5
34,4
50,0
54,3
US Equity
2,4
10,0
17,2
27,2
European Equity
2,4
10,0
17,2
27,2
Equity Emerging
0,0
0,0
5,0
5,0
10,0
10,6
10,0
10,9
Asian Equity
0,0
3,0
6,3
6,5
Latam Equity
0,0
2,0
4,2
4,3
Commodities
0,0 Energy
0,0
2,5
0,0
0,5
5,0
0,20
1,1
5,0
0,4
1,1 0,43
Minerals & Metals
0,0
0,08
0,2
0,16
Precious
0,0
0,13
0,3
0,27
Agriculture REITS
19,4
0,0 0,0
0,0
0,1 0,0
0,0
0,2 2,5
0,0
0,2 5,0
0,0
This recommended asset allocation table has been prepared by the Asset Allocation Committee (AAC), made up of the managers of the portfolio management departments and the product managers in each of the jurisdictions in which we operate. Likewise, the distribution of assets within each customer profile meets the risk control requirements established by regulations.
18
ECONOMY & FINANCIAL MARKETS CORPORATE REVIEW JANUARY-16
Appendix I CHINA
ANDBANK'S ASSESSMENT JAN 2016 1 China will maintain an easing bias, citing researchers from the State Information Center and China Development Bank. According to the report, M2 growth is expected be ~13% with GDP ~+6.5%.
1 China Banking Regulatory Commission's Shang Fulin, said that China will keep encouraging private investment in the banking industry to establish privately-owned banks and participate in restructuring high-risk institutions.
-1 Zhejiang Shipping Group applied for bankruptcy on behalf of its subsidiary Zhoushan Wuzhou Ship Repairing & Building. According to the report, this marks the first bankruptcy case in the sector for a state-owned firm since the industry slowdown began last year.
-1 The CSRC asked bourses to tell listed companies that the six-month sales ban on major stockholders will remain valid beyond Jan. 8. Furthermore, it has ordered its state-controlled funds to buy equities, in a move interpreted as the authorities stepping in once again to combat a $590B sell-off in the worst-ever start to the year. While these moves may remove some selling pressure, they also undermine the authorities' pledge to give markets more sway (influence)
-1 Citing National Railway Bureau data, Caixin reported that railway cargo volume dropped 10.5% y/y to 3.4B tons to extend a string of declines since 2012. According to the report, the result casts doubt on an annual average growth target of 4.3% to 4.2B tons by 2020. -1 Non-performing asset securitization to re-emerge this year: The Economic Information Daily discussed the potential for further development in the market for non-performing asset securitization. Commercial banks held a NPL balance of CNY 1.186T ($182.03B or 1,6% of GDP) at Q3'15-end. This could make space in the bank's balance sheets for new investments and loans. -1 December Caixin manufacturing PMI at 48.2 vs 48.6 in November (and consensus of 48.9), marking a contraction for the 10th straight month. -1 December Caixin services PMI at 50,2 vs 51,2 in November -1 Composite Caixin Output Index fell to 49.4 in December vs 50.5 in November. 1 December NBS manufacturing PMI at 49,7 vs 49.6 in November (and consensus of 49,7) 1 December NBS Non- manufacturing PMI at 54,4 vs 53,6 in November 1 Chinese Academy of Science Research Center estimates GDP to grow 6.7% in 2016. According to the report, H1 growth is expected to be ~6.5%, while H2 is seen firmer at ~6.8%. Forecasts remain consistent with official growth target of close to 7%. 1 CSRC announces new rules on share sales:Significant shareholders are not to sell stock equivalent to more than 1% of the company's outstanding shares within three months. Companies are to announce their intent to sell shares 15 days in advance. 1 CFETS says that the PBoC will keep its commitment to allow the yuan to be driven by market forces reflecting real economic supply and demand. The division also noted that China does not need to use competitive depreciation to stimulate exports, and that there is no basis for continuous depreciation and the yuan remains strong relative to international reserve currencies. It is highlighted that it will keep the yuan stable against a basket of currencies 1 December CPI +1.6% y/y vs +1.5% in November
0 Senior official Han Jun says shorting yuan will not succeed: He ruled out the possibility of a steep decline in CNY and denied that China is guiding yuan lower for competitive reasons. Also warned investors to brace of a long period of L-shaped recovery as the government will not implement strong stimulus measures as it focuses on a more sustainable growth model. 1 The PBoC gives more overseas central banks approval to enter onshore yuan market. The PBoC said seven such institutions completed registration with the China Foreign Exchange Trading System, which signaled their official access to the Chinese FX market.
1 December trade balance CNY382.1B vs consensus CNY338.8B and CNY343.1B in November. Exports +2.3% y/y vs consensus (4.1%) and (3.7%) in November. Imports (4.0%) y/y vs consensus (7.9%) and (5.6% in November)
19-ene
Range 30 1 -1
1 December auto sales rise 18.3%y/y in December to 2.4M units, due to: 1) recent support from sales tax cuts on vehicles with smaller engines, that helped to stem the negative impact from road restrictions imposed to curb air pollution in Beijing. 1 Exports improve in dec to -1,4% y/y (from -7,1% in Nov and -11,5% expected) 1 Imports improve in dec to -7,6% y/y (from -8,7% in Nov and -11,5% expected) 1 Trade Balance in Dec up to 60,9bn usd, from 53,74bn in Nov -1 FDI down to +6,4% YTD in Dec from +7,34% in Nov 1 China house prices y/y Dec up 1,6% from 0,9% in Nov 1 Outstanding loan growth down 14,3 from 14,9%, but we see it as a necessary moderation (since it is still growing above nominal GDP) -1 Money supply down to 13,3% in Dec from 13,7% in Nov) -1 Urban investment y/y down to 10% in Dec (from 10,2% in Nov) -1 Industrial Output y/y down to 5,9% in Dec (from 6,20% in Nov) -1 Retail Sales down to 11,10% in Dec (from +11,2% in Nov) -1 4015 GDP Q/Q down to 1,6% from 1,8% prior and 1,7% expected) Month assesment 3 16 13
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ECONOMY & FINANCIAL MARKETS CORPORATE REVIEW JANUARY-16
Appendix II JAPAN
ANDBANK'S ASSESSMENT JAN 2016 1 December Auto sales +3,1% y/y 0 PMI Manufacturing stable at 52,6 in December (from 52,6 in November) -1 PMI Services 51,5 in December (down from 51,6 in November) -1 The Nikkei cited various corporate executives expressing reservations about an across the board pay raise for workers under the Abe administration's target for 3% growth in employee remuneration. -1 The Nikkei reported that the Financial Services Agency is mulling over a better system to supervise interest rate exposure among banks, in preparation of an eventual end to the BoJ's QQE program. The FSA's movements coincide with the Basel Committee on Banking Supervision, which is considering a requirement by banks to hold more capital based on their interest rate risk, or to have the financial agencies of individual countries increase their oversight. -1 November real wages (0.4%) y/y vs +0.4% in October: Total nominal average wages 0.0% y/y vs consensus +0.7% and +0.7% in October. Takeaways: Real earnings in November slipped for the first time in five months. Note that Prime Minister Shinzo Abe had reiterated again and again that wage hike is essential to Abenomics and to reaching the 2% inflation target. -1 December BoJ consumer sentiment index (17.3) vs prior (15.2) -1 November leading economic index 103.9 vs a revised 104.2 in October -1 Sharp considering government-led bailout: Without citing sources, the Nikkei reported that Sharp (6753.JP) may surrender a 90% stake to state-backed Innovation Network Corp of Japan for about 짜200B ($1.68B) after divesting its LCD business. -1 December bank lending growth eases to +2.2% y/y vs +2.3% in November 1 December consumer confidence index 42.7 vs consensus 42.4 and 42.6 in November -1 Major automaker labor unions call for 짜3,000 ($25) monthly pay rise. Workers are demanding a pay rise this coming spring that equates to half the amount they lobbied for last year. According to the Nikkei, the unions are coordinating with other labor groups in the auto sector, which seek to increase base wages by at least 짜3,000 per month -1 December M2 money supply +3.0% y/y vs consensus +3.3% and +3.3% in November . M3 grew at a +2.5% y/y vs consensus of +2.7% and +2.7% in November -1 Exports Dec15 at -8% y/y vs -3,3% in Nov -1 Imports Dec15 -18% y/y vs -10,2% in Nov 1 Trade balance improved in Dec15 to 140 bn JPY (from -381bn in Nov -1 Flash Manufacturing PMI cut to 52,4 in Jan vs 52,5 in Dec -1 Tankan Jan2016 cut to 6 from 9 in Dec -1 Thomson Reuters PCSI survey down to 41,7 in Jan from 42,24 in Dec -1 Machinery orders in Nov15 down to 1,2% y/y vs 10,3% y/y previous, and 6,3% expected. In M/M terms the decline is -14,4% 1 Economy watchers poll improves to 48,7 from 46,1 in Dec -1 Bank lending at 2,2% y/y in Dec, down from 2,3% in Nov -1 LEI cut to -0,7 (from 1,8), Coincident indicator cut to -1,4 (from 1,5) 0 Nikkei manufacturing PMI at 52,6 in Dec (from 52,6) Range Month assesment 24 -14 1 4 -1 18
20
ECONOMY & FINANCIAL MARKETS CORPORATE REVIEW JANUARY-16
Principal Contributors
Alex Fusté. – Chief Global Economist – Global & Asia: Macro, Rates & FX. +376 881 248 Giuseppe Mazzeo. – CIO Andbank US – U.S. Rates & Equity. +1 786 471 2426 Eduardo Anton. – Portf. Manager US – Credit & Quasi governments. +1 305 702 0601 J.A Cerdan. – Equity Strategist Europe – European Equity. +376 874 363 Renzo Nuzzachi, CFA. – Product Manager LatAm – Rates & FX. +5982-626-2333 Jonathan Zuloaga. – Analyst, Mexico – Macro, bonds & FX. +52 55 53772810 Albert Garrido. – Portfolio Manager Andorra – European Equity. +376 874 363 Ricardo Braga. – Product Analyst Brazil – Products. +55 11 3095 7075 Gabriel Lopes. – Product Analyst Brazil – Products. +55 11 3095 7075 Andrés Davila. – Head of A. Management Panama – Venezuela. +507 2975800 Mª Angeles Fernández. – Product Manager, Europe – Macro & Rates. +34 639 30 43 61 David Tomas. – Wealth Management, Spain – Spanish Equity. +34 647 44 10 07 Andrés Pomar. – Portfolio Manager Luxembourg – Volatility. +352 26 19 39 25 Carlos Hernández. – Product Manager – Technical Analysis. +376 873 381
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ECONOMY & FINANCIAL MARKETS CORPORATE REVIEW JANUARY-16
Legal Disclaimer All notes and sections in this document have been prepared by the team of financial analysts at ANDBANK. The opinions stated herein are based on a combined assessment of studies and reports drawn up by third parties. These reports contain technical and subjective assessments of data and relevant economic and sociopolitical factors, from which ANDBANK analysts extract, evaluate and summarize the most objective information, agree on a consensual basis and produce reasonable opinions on the questions analyzed herein. The opinions and estimates contained herein are based on market events and conditions occurring up until the date of the document's publication and cannot therefore be decisive in evaluating events after the document's publication date. ANDBANK may hold views and opinions on financial assets that may differ partially or totally from the market consensus. The market indices have been selected according to those unique and exclusive criteria that ANDBANK considers to be most suitable. ANDBANK does not guarantee in any way that the forecasts and facts contained herein will be confirmed and expressly warns that past performance is no guide to future performance, that analyzed investments could be unsuitable for all investors, that investments can vary over time regarding their value and price, and that changes in the interest rate or forex rate are factors which could alter the accuracy of the opinions expressed herein. This document cannot be considered in any way as a selling proposition or offer of the products or financial assets mentioned herein, and all the information included is provided for illustrative purposes only and cannot be considered as the only factor in the decision to make a certain investment. Additional major factors influencing this decision are also not analyzed in this document, including the investor's risk profile, financial expertise and experience, financial situation, investment time horizon and the liquidity of the investment. As a consequence, the investor is responsible for seeking and obtaining the appropriate financial advice to help him assess the risks, costs and other characteristics of the investment that he is willing to undertake. ANDBANK expressly disclaims any liability for the accuracy and completeness of the evaluations mentioned herein or for any mistakes or omissions which might occur during the publishing process of this document. Neither ANDBANK nor the author of this document shall be responsible for any losses that investors may incur, either directly or indirectly, arising from any investment made based on information contained herein. The information and opinions contained herein are subject to change without notice.
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