” “ The UniCredit Weekly Focus

Transcription

16 October 2014
Economics Research
The UniCredit
Weekly Focus
Economics, FI/FX & Commodities Research
Credit Research
Equity Research
Cross Asset Research
“
No. 124
16 October 2014
The importance of “market power and regulation”
”
– Focus: The Royal Swedish Academy of Sciences announced that the French economist Jean Tirole was awarded
the Nobel Prize in Economics for his work on market power and regulation. According to the award announcement,
Mr. Tirole’s work has provided regulators and competition authorities with “a whole new set of tools". This week’s
Weekly Focus looks at Mr. Tirole’s work through the lens of banking regulation, which has been a hot topic recently.
– Preview: The preliminary PMIs for October will likely point to an ongoing loss of growth momentum in the
eurozone, in line with our expectations of GDP standstill in 4Q (+0.1% qoq). The BoE releases the minutes of its
October meeting. We expect the vote in favor of keeping the Bank Rate at 0.5% to remain 7-2 based on insufficient
inflationary pressure and the fact that increased downside risks to growth have increased in the last few months.
– Review: Eurozone industrial production contracted heavily in August, largely driven by a big setback in Germany.
As financial markets are showing their worst performance in a long time, we want to highlight that the world is not
coming to an end – quite the contrary! According to the Fed’s Beige Book on the US economy, “reports from the
twelve Federal Reserve Districts generally described modest to moderate economic growth at a pace similar to
that noted in the previous Beige Book.” Even more importantly, “several Districts noted that contacts were generally
optimistic about future activity.” On Wednesday, the Italian government approved the Stability Law for 2015, which
encompasses a bold set of measures envisaging lower taxation on households and firms, backed, for the main
part, by cuts to public spending.
Editor: Dr. Martina von Terzi, Economist (UniCredit Bank)
16 October 2014
Economics & FI/FX Research
Weekly Focus
The Focus of the Week
Nobel Prize in Economics:
The importance of “market power and regulation”
Ŷ
Ŷ
Ŷ
Jean Tirole – for his work on market power and regulation – was to be awarded the Nobel
Prize in Economics and we briefly explain the reasons for it.
Tirole’s theory applied in practice – in several areas, including banking regulation.
Banking regulation has been a hot topic over the last couple of years. We provide a brief
summary of recent developments.
Introduction
The Nobel Memorial Prize in Economic Sciences, established in 1968 and endowed by
Sweden's central bank, on the occasion of the bank's 300th anniversary, is an award for
outstanding contributions to the field of economics. Although it’s not one of the Nobel Prizes
established in the will of Alfred Nobel in 1895, it is identified with them, and prizes are
announced with and awarded at the same ceremony.
On Monday, 13 October, it was announced that the French economist Jean Tirole was to be
awarded the Nobel Prize in Economics for his work on market power and regulation. Not only
is he, at age 61, six years younger than the average age of Nobel economics laureates, but
he is the first European economist since late 1980s to be awarded this prize (as a single
author). Jean Tirole made important theoretical contributions in a number of areas, but most
of all he has clarified how to understand and regulate industries with a few powerful firms –
exactly the topic high up on the European agenda. According to the award announcement by
the Royal Swedish Academy of Sciences, Jean Tirole’s work provides regulators and
competition authorities with “a whole new set of tools". This inspired us to look in more detail
at the winning piece and the lessons to be learned from it.
To regulate or not to regulate?
Many industries are dominated by a small number of large firms or a single monopoly. Left
unregulated, such markets often produce socially undesirable results - prices higher than
those motivated by costs, or unproductive firms that survive by blocking the entry of new and
more productive ones. Governments and regulators often use simple rules such as price
ceilings for companies with a monopoly and co-operation banns between competitors. Jean
Tirole showed, that under some conditions, doing so can do more harm than good.
Regulatory decisions with respect to what activities should be conducted as public entities
and which should be left in “private hands” are relevant but always difficult. This is true no
matter whether applied to infrastructure industries, education, healthcare or banking.
In general, there are two difficulties which regulators face. First, most markets are dominated
by a few firms that all have an influence on prices, volumes and quality. Oligopoly (as this
market status is called), as common as it is, is difficult to study, much more complicated than
a single monopoly or perfect competition which traditional economic theory deals with.
Strategic planning by oligopolistic companies needs to take into account the likely responses
of other market participants. Here, behavioral economics, game theory and contract theory
come into interplay. Second, the regulatory authority lacks information about the firm’s costs
and the quality of the goods and services it delivers. Asymmetric information provides
regulated firms often with a competitive advantage. Time relevance plays a role here as well.
Like we all know, regulators are often blamed for reacting too late and too inaccurately. That’s
also a reason why regulations are becoming more lengthy and cumbersome. The more the
global and complex the world is, the more time consuming it is to agree on the regulatory
norms. Did Jean Tirole manage to solve this vicious circle?
UniCredit Research
page 2
See last pages for disclaimer.
16 October 2014
Weekly Focus
To start with, Tirole’s research proved it wrong to look for general principles that would apply
to every industry. He showed that price caps for monopolists and prohibiting cooperation
between competitors in the same market while permitting the latter for firms in different
positions in the value chain can work well in some conditions, while they do more harm than
good in others. For example, depending how price ceilings are determined, they might either
provide dominate firms with strong motives to reduce costs, but they also may lead to
excessive profits. A merger of competitor companies may lead to more rapid innovation but it
may also distort competition. Together with his colleague, Jean-Jacques Laffont, he
demonstrated how asymmetric information problem can be circumvented by a clear set of
production contracts, letting the firms choose out of self-interest. Time-frame for regulation, a
long-term contract or a series of short-term contracts, as well as the optimal reward system
were also discussed. This theory, applied to a range of issues, was summarized in a book on
procurement and regulation, published in 1993, which had a great impact in practice, which
the next section will summarize.
Tirole’s knowledge applied
1. Modeling the interconnectedness of banks and the case for regulation. Results – while
decentralized interbank markets are prone to systemic crises, decentralized interbank
markets encourage peer monitoring across banks. This benefit is undermined when
governments are expected to bail out failing banks ex post, since an anticipated bailout
makes it less worthwhile for a bank to monitor its counterparties ex ante. The paper
analyzes various regulatory mechanisms to deal with this problem, and foresees many of
the problems that would eventually hit the financial system in the 2008 crisis.
2. Comparison of properties of different clearing and settlement systems, which have been at
the forefront of financial regulation in the aftermath of the financial crisis. The analytical
framework suggests the possibility of safeguarding the flexibility of interbank mutual overdraft
facilities while improving current systems through three measures: 1. a reinterpretation of
bilateral debit caps as bilateral credit lines, so as to escape the rigidity of the "double
coincidence of wants", 2. the use of a broader definition of mutual overdraft facilities
encompassing other forms of short-term lending between banks, and 3. a centralization of the
bilateral credit lines and transactions in a gross payment system, so as to allow the central bank
to better monitor positions and to avoid being forced to intervene to prevent systemic risk.
3. Consumer interests - in their book, The Prudential Regulation of Banks (1994), Dewatripont
and Tirole focused on another problem: many bank lenders, such as depositors, are too small
and dispersed to exercise any control over the bank. Thus, the role of regulation is to represent
the interests of these lenders, exercising control over banks and mitigating excessive risk-taking
by bank managers. Dewatripont and Tirole used a financial-contracting framework to analyze
optimal regulation regarding solvency rules, recapitalizations, accounting, and securitization.
4. Collective risk taking - Farhi and Tirole (2012a) showed that financial institutions may,
collectively, use too much short-term debt and engage in correlated investment strategies.
The reason is that this makes it more likely that a certain bank will be bailed out in case of
failure, because other banks will have problems at the same time. Put differently, the
choices of leverage and risk taking by different financial institutions are strategic
complements, exacerbating the risk of systemic crises. Based on this insight, Farhi and
Tirole derived optimal regulatory policies, contrasting interest-rate policies (i.e., lower
interest rates in a crisis to facilitate refinancing) and transfer policies (i.e., direct transfers to
financial institutions in a crisis). Optimal policies involve ex ante liquidity requirements as
well as interest-rate policies, despite the latter having distortionary costs. They also
provided a rationale for so-called macro-prudential regulation, where optimal regulatory
interventions are based on the status not only of individual financial institutions but also of
the financial system as a whole. These insights have important consequences, from banks
choosing to correlate their risk exposures to the need for macro-prudential supervision.
UniCredit Research
page 3
16 October 2014
Weekly Focus
5. Exit from financial crises - Tirole (2012) asked how one may “jump-start” a financial
market in a crisis. Crises are typically triggered by adverse news about the value of
financial assets, like the negative shock to the perceived value of U.S. mortgage-backed
securities in the 2008-09 crisis. Due to adverse selection, small adverse news can
completely freeze up the market for financial assets. As a bank has better information
about its own assets when it tries to sell assets to finance necessary investments, this may
lead other market participants to believe that it has inside information about its assets
being of low quality. When the market price of bank assets falls, banks with high-quality
assets find selling their assets to finance investments less worthwhile. As a result, the
asset market dries up, banks are not able to finance their investments, and the financial
system cannot restore its solvency. To counter such developments, many regulators
(including the Federal Reserve and the ECB) have intervened in asset markets, offering to
buy bank assets. This is costly to taxpayers, however, since banks with low-quality assets
have the largest incentive to take advantage of this offer. Tirole derived the optimal policy for
dealing with the problem: to buy back the weakest assets, and then provide financing to banks
with assets of intermediate quality, while retaining these assets on the firms’ balance sheet.
This leaves only the highest quality assets for trade, which restores the functioning of markets.
Banking regulation
As mentioned above, the effective regulation of financial institutions – and the failure thereof –
has been a hot topic high on the political agenda over the last couple of years. This is
understandable since highly leveraged and interconnected financial institutions pose a
material systemic risk with potentially severe consequences for our societies. Just bear in
mind the explosion of public indebtedness, for example, in Ireland as a consequence of bank
bailouts, which brought the country’s debt/GDP ratio from the lowest end of the European
range towards the upper end in just a few years. Even at this very moment, one of the hottest
topics in European markets – the outcome of the Asset Quality Review and the EBA-stress
test – are obviously closely related to regulatory initiatives. However, these initiatives have
widespread implications beyond financial markets, affecting the real economy and all of our
everyday life. In the following, we want to summarize some of the recent key developments in
bank regulation and highlight the wider economic consequences. However, this overview has
to be very superficial, as financial regulation is anything but simple and which with each
additional and necessary layer becomes more and more complex. Regulating a complex
market requires complex rules. This is one of the practical conclusions of Jean Tirole’s
academic work. The simple rulebook – often demanded by some – is not expedient. This can
be confirmed by the Basel rulebooks. The first Basel (Basel I) published at the end of the
1980s had 60 pages in total. Basel II, which was finally published in 2004 had already
350 pages, while the new Basel III framework (which is an extension to Basel II) has already
500 pages. Moreover, there was also the quick crisis response called Basel II.5 in 2009.
The two key quantities that are subject to regulation in the financial industry are capital and
liquidity, in order to safeguard leveraged financial intermediaries to withstand a downturn and
have sufficient liquidity to satisfy discretionary cash outflows. One of the key concepts in order
to quantify capital requirements in banks – Risk-Weighted Assets (RWA) – was already
established in the Basel I framework in 1988. The rules required banks to hold a minimum
capital buffer of 8% of RWA and provided some definitions regarding the quality of the eligible
capital. The next level – Basel II – established a new regime with three pillars: minimum
capital requirement, supervisory review and disclosure. Moreover, the capital requirements
covered not only credit risk via RWAs (the key focus of Basel I), but also market and
operational risks. Moreover, it also provided more detailed rules regarding the derivation of the
risk-weights. This rating-based approach (if implemented by using external credit ratings) is
one of the (only) two areas in financial markets where official rules refer to ratings from credit
rating agencies. The other area is the eligibility criteria for collateral in the ECB’s open
market operations.
UniCredit Research
page 4
16 October 2014
Weekly Focus
The Basel reform package from 2009 (a.k.a. Basel II.5) added, among other things, enhanced
securitization rules (which had severe implications for the ABS market and are now partly
seen a bit more critical, as the ECB aims to revive the securitization market with its recently
announced ABS purchasing program), new criteria for hybrid capital instruments, stronger
capital requirements for trading books and rules for bank remuneration policies. Last but not
least, Basel III brought quantitative and qualitative requirements for eligible capital (resulting in
the recent CoCo/AT1 issuance wave by banks), established additional capital buffers (including
a buffer for systemically relevant banks), implemented liquidity and leverage ratios and
introduced the credit-value adjustment (CVA) in order to cope with counterparty risk in
derivative positions. For a more detailed summary, please refer to the summary table on
Basel II provided by the BIS.
The chart 1 below shows the timeline for the capital requirements as a consequence of the
new Basel III framework up until 2019, when the final requirements need to be implemented.
On top of the Core-Tier 1 (CT1) requirement of 8%, there will be a capital conservation buffer
of 2.5%, a countercyclical buffer (0-2.5%) and a systemic buffer of up to 5%. See also link for
more details regarding the phase-in arrangements.
CHART 1: TIMELINE FOR THE DEVELOPMENT OF CAPITAL REQUIREMENTS
18.0%
16.0%
14.0%
12.0%
Systematic buffers (CET1)
Countercyclical buffer (CET1)
Capital conservation buffer (CET1)
Tier-2
Additional Tier-1
Common equity Tier-1
5%
3.75%
2.5%
2.5%
1.875%
10.0%
1.25%
0.625%
0.625%
8.0%
1.25%
1.25%
1.875%
2.5%
2%
2%
2%
2%
2%
1.5%
1.5%
1.5%
1.5%
1.5%
4%
4.5%
4.5%
4.5%
4.5%
4.5%
2014
2015
2016
2017
2018
2019
2.5%
6.0%
1.5%
4.0%
2.0%
0.0%
Source: CRR, UniCredit Research
In addition to these increasing capital requirements, the timeline of upcoming regulatory
milestones includes the results of the AQR/stress test (due on 26 October) followed by the
fully operational Single Supervisory Mechanism (SSM) in early November and the Single
Resolution Mechanism (SRM) at the beginning of next year implemented in the Bank
Recovery and Resolution Directive (BRRD). Note that next year’s BRRD introduction still
excludes the senior bail-in tool, which will only become effective at the beginning of 2016.
Moreover, the leverage ratio should be introduced by 2018 (at the latest). SSM and SRM are
two of the three pillars of the Banking Union. The third pillar is a supranational Deposit
Guarantee Scheme, which is currently being debated, and for which no date has been fixed.
If this looks already like an ambitious agenda, also the changes that have already been
implemented non-the-least on the capital side were challenging. Before the Lehman crisis,
CT1 ratios of banks were in the area of 4-5%. This compares to an average level of 16% for a
selection of the largest European banks. Moreover, focusing on the even stricter definition of
Common-Equity Tier1 (CET1) capital, the same selection shows a ratio of 12%. This means
that, for larger banks, capital buffers increased 2-3 times over a period of slightly more than
five years (and even more so when focusing on CET1). This was a substantial deleveraging
effort on the banking side.
UniCredit Research
page 5
16 October 2014
Weekly Focus
However, this deleveraging effort did not come without a price tag, also for the real economy.
As the additional capital requirements in the countries hit by the financial crisis and the
subsequent sovereign debt crisis were particularly high, those banking systems were very
restrictive in terms of credit supply to the real economy. Moreover, as the sovereign debt
crisis resulted in a renationalization of financial markets, the lack of credit availability could not
be offset by cross border lending from more robust institutions in the less troubled countries.
This resulted in an insufficient credit supply, in particular to the SME sector, for example in
Spain and Italy, which aggravated the economic implications. Since the SME sector forms the
backbone of these economies, unemployment skyrocketed as companies that were no longer
able to refinance daily operations went out of business. This fragmentation of the European
financial system, which was a result of a domestic focus of national supervisors, even impacted
the monetary transmission channel of the ECB. To address these issues, the European
Banking Union was set up, for which we will see the first two pillars (SSM and SRM) to go live
over the next couple of weeks. And as we have outlined above, more initiatives are scheduled
over the next few years. Among them, there is one buzz word that will be crucial in particular
for financial investors, namely the Fundamental Review of the Trading Book (a.k.a. FRTB). In
it, authorities will provide more detailed rules for capital requirements in banks’ trading books
– and certainly, the requirements will be increased.
However, the efforts of the last few years already are bearing fruit. By significantly strengthening
capital and liquidity buffers, our banking system is much more robust to systemic risks. This
could already be confirmed in price action in bank bonds over the course of the year, which
was filled with headlines that would several years ago most probably have resulted in a major
spread blowout, such as the Russian-Ukrainian conflict, the selloff in EM and HY debt or the
developments surrounding Hypo Alpe Adria or Banco Espirito Santo. Besides some
short-term spread volatility, nothing really dramatic happened in the overall bank debt market.
The intended mechanisms to isolate troubled banks and to keep the banking system robust
with respect to external shocks are working.
Concluding remarks
There are no general principles which apply to every industry. The world is complex and as
such requires complex rules. Simple regulation doesn’t exist. Thanks to Jean Tirole’s
thorough and carefully research examining peculiarities of different markets and applying new
analytical methods in economics, we know more about how to regulate effectively and
efficiently for the benefit of all citizens. He managed to give his sophisticated theoretical
contributions great practical significance. For that reason, he surely deserves his award,
which will be presented on 10 December.
Dr. Martina von Terzi,
Economist (UniCredit Bank)
+49 89 3781 3013
martina.vonterzi@unicredit.de
Dr. Philip Gisdakis
Strategist (UniCredit Bank)
+49 89 37813228
philip.gisdakis@unicredit.de
Links and further reading:
1.
The official website of the Royal Swedish Academy of Sciences, http://kva.se and http://nobelprize.org
2.
Scientific background: http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2014/advanced-economicsciences2014.pdf
3.
Popular science background: http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2014/popular-economicsciences2014.pdf
4.
http://mitpress.mit.edu/books/prudential-regulation-banks
5.
International regulatory framework for banks (Basel III): http://www.bis.org/bcbs/basel3.htm
6.
Rochet, J-C. and J. Tirole (1996a). Interbank lending and systemic risk. Journal of Money, Credit and Banking 28, 733-762.
7.
Rochet, J-C. and J. Tirole (1996b). Controlling risk in payment systems. Journal of Money, Credit and Banking 28, 832-862.
8.
Tirole, J. (2012). Overcoming adverse selection: How public intervention can restore market functioning. American Economic Review 102, 29-59.
UniCredit Research
page 6
16 October 2014
Weekly Focus
ANNEX
Year
Laureate
Country
Rationale / Analysis / Contribution
1969
Frisch, Tinbergen
NO, NL
dynamic models, analysis of economic process
1970
Samuelson
US
static and dynamic economic theory
1971
Kuznets
US
economic growth
1972
Hicks, Arrow
UK, US
general economic equilibrium theory, welfare theory
1973
Leontief
US
input-output method
1974
Myrdal, Hayek
SE, UK
money and economic fluctuations, economic, social and institutional interdependence
1975
Kantorovich, Koopmans
RU, US
optimum allocation of resources
1976
Friedman
US
consumption analysis, monetary history and theory; stabilization policy
1977
Ohlin, Meade
SE, UK
theory of international trade and capital movements
1978
Somin
US
decision-making process within economic organizations
1979
Schultz, Lewis
US, UK
economic development research - developing countries
1980
Klein
US
econometric models, economic fluctuations policies
1981
Tobin
US
financial markets - expenditure decisions, employment, production and prices
1982
Stigler
US
industrial structures, functioning of markets and causes, public regulation
1983
Debreu
FR
rigorous reformulation of the theory of general equilibrium
1984
Stone
UK
development of systems of national accounts
1985
Modigliani
IT
saving and financial markets
1986
Buchanan
US
economic and political decision-making - contractual and constitutional bases
1987
Solow
US
theory of economic growth
1988
Allais
FR
theory of markets and efficient utilization of resources
1989
Haavelmo
NO
probability theory foundations of econometrics, simultaneous economic structures
1990
Markowitz, Miller, Sharpe
US
financial economics
1991
Coase
UK
transaction costs and property rights
1992
Becker
US
human behaviour and interaction, including non-market behaviour
1993
Fogel, North
US
applied economic theory, quantitative methods
1994
Harsanyi, Nash, Selten
US, DE
theory of non-cooperative games - analysis of equilibria
1995
Lucas
US
rational expectations, macroeconomic analysis, economic policy
1996
Mirrlees, Vickrey
UK, US
economic theory of incentives under asymmetric information
1997
Merton, Scholes
US
new method to determine the value of derivatives
1998
Sen
IN
welfare economics
1999
Mundell
CA
monetary and fiscal policy under different FX regimes, optimum currency areas
2000
Heckman, McFadden
US
selective samples and discrete choices
2001
Akerlof, Spence, Stiglitz
US
markets with asymmetric information
2002
Kahneman, Smith
US
decision-making under uncertainty, alternative market mechanisms
2003
Engle, Granger
US, UK
time series with time-varying volatility (ARCH) and common trends (cointegration)
2004
Kydland, Prescott
NO, US
dynamic macroeconomics, business cycles theory
2005
Aumann, Schelling
IL, US
game theory - conflict and cooperation
2006
Phelps
US
intertemporal tradeoffs in macroeconomic policy
2007
Hurwicz, Maskin, Myerson
US
design theory
2008
Krugman
US
trade patterns and location of economic activity
2009
Ostrom, Williamson
US
economic governance - the commons and boundaries of the firm
2010
Diamon, Mortensen, Pissarides US, CY
markets with search frictions
2011
Sargent, Sims
empirical research on cause and effect in the macroeconomy
US
2012
Roth, Shapley
US
theory of stable allocations, practice of market design
2013
Fama, Hansen, Shiller
US
empirical analysis of asset prices
2014
Tirole
FR
analysis of market power and regulation
Source: UniCredit Research
UniCredit Research
page 7
16 October 2014
Weekly Focus
The Week Ahead
Eurozone: October PMIs likely pointing towards ongoing
loss of growth momentum
Next Thursday, the preliminary PMIs for October will likely point to an ongoing loss of growth
momentum in the eurozone, in line with our expectations of GDP standstill in 4Q (+0.1% qoq).
We see the manufacturing PMI down to 49.9 from 50.3, and the services counterpart to 51.5
from 52.4. Overall, the Composite PMI is expected to ease by 0.7 points to 51.3 – the lowest
level since December 2013. On a country level, we expect German manufacturing PMI to
recover part of last month's decline and increase slightly to 47.1 in October from 49.9 in
September. The main factors weighing on growth remain geopolitical uncertainty, economic
sanctions on and by Russia, and weak emerging economies. The initial benefit from EUR
depreciation may only partly offset these headwinds. In the last few days, financial market
tensions have clearly increased, but it is probably too early to see this reflected in the
upcoming PMIs.
BoE: MPC minutes to focus on inflation fall and growth
headwinds
The BoE releases the minutes of its October meeting on Wednesday, 22 October. We expect
the vote in favor of keeping the Bank Rate at 0.5% to remain 7-2, with Ian McCafferty and
Martin Weale continuing to vote for a 25bp hike. The news of the month would have bolstered
the view of most members that there is insufficient inflationary pressure (the governor would
have received a pre-release of the fall in inflation to 1.2%) to warrant an immediate hike and
that the downside risks to growth have increased in the last few months.
Other Major Events & Data Releases
ITALY
CONSUMERS REMAIN CAUTIOUS
ISTAT consumer confidence index
125
Fri, 24 Oct, 12:00 CET
ISTAT consumer
confidence
Total index
120
Total index (smoothed)
115
Ŷ
110
105
100
Ŷ
95
90
85
Oct
UniCredit Consensus
101.9
Last
102.0
After broadly stabilizing in September, the ISTAT consumer
confidence index should decline in October from 102.0
to 101.9.
Consumers are becoming more cautious regarding the
economic situation (mainly in terms of prospects), and to a
lesser extent their own financial situation.
80
1998
2000
2002
2004
2006
2008
2010
2012
Ŷ
2014
Poor economic growth continues to take its toll on consumer
sentiment and this is expected to restrain the recovery in
private consumption in 3Q14.
Source: Source: Istat, UniCredit Research
UniCredit Research
page 8
16 October 2014
Weekly Focus
UK
RETAIL SALES PROBABLY FLAT IN SEPTEMBER
% yoy
8.0
ONS retail sales volume
Thu, 23 Oct, 10:30 CET
Retail sales excl.
auto (% mom)
BRC like-for-like sales
6.0
Ŷ
4.0
2.0
0.0
Ŷ
-2.0
-4.0
-6.0
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
UniCredit
0.0
Sept
Consensus
Last
0.2
We expect retail sales to be flat in September following a
decent run. Sales excluding automotive fuel were up a
strong 4.5% yoy in August.
Some consolidation is suggested by the BRC like-for-like
sales index which fell to -2.1% yoy in September from
+1.3% yoy in the previous month.
Jan-14
3Q GDP GROWTH LIKELY TO BE STRONG AT 0.7% QOQ
3M/3M contributions to GDP growth, pp
1.2
Services
Construction
Industrial production
Fri, 24 October, 10:30 CET
GDP, % qoq
Forecasts
1
Ŷ
0.8
0.6
0.4
Ŷ
0.2
0
-0.2
3Q
UniCredit
0.7
Consensus
Last
0.9
We expect 3Q GDP growth of 0.7% qoq when the ONS
releases its preliminary estimate on Friday, 24 October.
The risks are skewed towards growth of 0.6% qoq.
Growth in 3Q came almost entirely from services, with
manufacturing entering a slowdown and construction
surprisingly shrinking 3.9% mom in August.
-0.4
-0.6
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Source: ONS; BRC; UniCredit Research
Dr. Martina von Terzi, Economist (UniCredit Bank)
Marco Valli, Chief Eurozone Economist (UniCredit Bank Milan)
Chiara Corsa, Economist (UniCredit Bank Milan)
Dr. Loredana Federico, Economist (UniCredit Bank Milan)
Daniel Vernazza, Ph.D., Economist (UniCredit Bank London)
Edoardo Campanella, Economist (UniCredit Bank Milan)
UniCredit Research
page 9
16 October 2014
Weekly Focus
The Week in Retrospect
UK: No immediate rate hike as spare capacity closed at
a slower rate and inflation fell
The UK labor market is continuing to improve. The unemployment rate fell sharply to 6.0% in
the three months to August, the lowest level in six years, and regular pay growth rose to
0.9%. However, there are the first signs that the rate at which spare capacity is closing will
start to decline. The fall in the more timely jobless claims measure of unemployment was less
than expected and significantly less than in August. Although still a sizable drop, it is the
smallest monthly decline in jobless claims since April 2013 and suggests the pace of decline
in the headline unemployment rate will start to ease. The fall in the unemployment rate has
pushed down the medium-term equilibrium unemployment rate but not by much. Indeed, the
fall in unemployment was mostly due to a reduction in short-term unemployment – the share
of the fall in unemployment accounted for by the long-term unemployed was smaller than it
has been over the past year. Average weekly earnings growth excluding bonuses rose to
0.9% yoy in the three months to August from an upward-revised 0.8%. The bottom for pay
growth now looks very likely to be behind us and we expect the lagging indicator to pick up
from here.
Eurozone: IP sharply contracts in August, GDP still on track
for growth in 3Q14
Eurozone industrial production contracted by 1.8% mom in August, totally reversing the 0.9%
mom increase shown in July. The data breakdown showed that the IP drop was driven by a
fall in the production of capital goods by 4.8%, intermediate goods by 0.7% and non-durable
consumer goods by 0.2%. The production of durable consumer goods marginally increased
by 0.2%, while energy production expanded by 1.2%. From a country perspective, the
setback in eurozone IP was largely driven by Germany, where output ex construction was
down 4.3% mom, largely due to negative calendar effects. Production in the rest of the
eurozone held up much better, with France, Italy and Spain posting flat or slightly positive
numbers. In general, the recent loss of growth momentum in the eurozone has been
consistent with the latest deterioration of survey indicators. Nevertheless, GDP in 3Q14
remains on track for a re-acceleration (after having stagnated in 2Q14), although the August
IP decline indicates downside risks to our 0.3% qoq GDP forecast for 3Q14.
US: Beige Book to Financial Markets: Be Happy!
As financial markets are showing their worst performance in a long time we wanted to
highlight the important message from Main Street that the world is not coming to an end –
quite the contrary! According to the Beige Book published on Wednesday, “reports from the
twelve Federal Reserve Districts generally described modest to moderate economic growth at
a pace similar to that noted in the previous Beige Book.” More importantly, “several Districts
noted that contacts were generally optimistic about future activity.” The report is based on
information collected before October 6. But have there been any fundamental changes over
the past several days? We do not think so! Admittedly, this week’s US retail sales report was
a bit weaker than expected; but it was the first blip in eight months. We see it as an outlier
rather than the beginning of a downward trend. Along the same lines, the Beige Book
emphasized that “retailers were relatively optimistic about the remainder of the year.” And why
wouldn’t they be? The fundamentals for stronger consumer spending are all in place: The
labor market continues to improve solidly, lower oil prices lift households’ purchasing power,
and the signs of higher wage gains are mounting. While the Beige Book still characterized
wage growth in a number of Districts as “modest”, it highlighted that several Districts “reported
upward wage pressure for particular industries and occupations.”
UniCredit Research
page 10
16 October 2014
Weekly Focus
The list is comprehensive and includes skilled labor in construction and manufacturing, as
well as upward wage pressure for transportation workers, skilled engineers, managers, IT
professionals, and bankers. New York reported that workers were more frequently leaving
jobs for higher pay, while St. Louis noted increased turnover of skilled employees, who were
switching to higher-paying jobs.
In that context, we also wanted to highlight a study, released on Wednesday by the Cleveland
Fed. While the researchers admitted the obvious that, “estimates of labor market slack can
differ greatly depending on how slack is defined”, they concluded that the “disparate slack
estimates are currently close to one another, suggesting the unemployment rate has almost
reached its longer-run normal level.”
Consequently, we remain confident that the US economy will continue to grow solidly
throughout the second half of the year. If anything, the Atlanta Fed’s real time GDP tracker
points to some upside risks to our 3Q14 growth estimate of 2.8%. Fed officials seem to share
that constructive outlook – despite some concerns about global growth and financial market
volatility. According to a report published on Bloomberg, “Fed Chair Janet Yellen voiced
confidence in the durability of the US economic expansion in the face of slowing global growth
and turbulent financial markets at a closed-door meeting in Washington last weekend.”
Fundamentally, the market action seen over the past several days clearly seems overdone.
US: industrial production jumped 1.0% in September
The Federal Reserve reported on Thursday that US industrial production jumped a strong
1.0% in September, following a slightly downward revised 0.2% decline in August (was
-0.1%). It is the largest monthly increase since November 2012. Manufacturing output was up
0.5% (still held back a bit by lower car production), while utilities’ and mining output rose 3.9%
and 1.8%, respectively.
In a separate report, the Labor Department announced that initial jobless claims declined to
264,000 in the week ending October 11. This, in turn, was the lowest level since April 2000.
The less volatile 4W moving average fell to 283,500, which is also the lowest since 2000.
As financial markets are seemingly facing a bumpy road, we find it important to highlight these
indicators, which support our view of a healthy US economy. Wednesday’s blip in retail sales,
which certainly added to the negative mood, was, in our view, merely an outlier. As mentioned
above on the Beige Book, the fundamentals for a pick-up in consumption gains all remain in
place: The labor market continues to improve solidly, lower oil prices lift households’ purchasing
power, and the signs of higher wage gains are clear. The ongoing declines in jobless claims
unequivocally corroborate that the improvement of the labor market has not stopped.
Italy’s Stability Law: key takeaways
On Wednesday, the Italian government approved the Stability Law for 2015. The Stability Law
encompasses a bold set of measures envisaging lower taxation on households and firms
(worth about EUR 18bn), backed, for the main part, by cuts to public spending (EUR 15bn).
The overall size of the measures is larger than generally expected and, in the government
projections, will leave the 2015 deficit at just below the 3% mark. Our initial assessment is
positive. The Stability Law goes in the direction of tackling some of Italy’s main structural
problems – especially the excessive tax pressure where this is most distortionary – and puts
money on the table to ensure the labor market reform can bring the desired changes in terms
of a shift towards permanent employment and flex security.
UniCredit Research
page 11
16 October 2014
Weekly Focus
The main areas of uncertainty are the lack of concrete details on spending cuts, with a high
risk that some of these cuts may be linear – and therefore sub-optimal from an efficiency point
of view – and compliance with the SGP. Below are the highlights of the Stability Law:
Ŷ
Ŷ
Ŷ
Ŷ
Ŷ
Ŷ
Ŷ
Ŷ
Ŷ
The reduction of taxation for low-income households has been made permanent. This will
cost about EUR 10bn on a yearly basis, and is essential to maximize the impact on
consumption, reducing the risk that the tax benefit will end up boosting household savings.
The exclusion of labor cost from the tax base of IRAP (regional tax on production) is highly
welcome. All companies, regardless of their size, are entitled to the benefit, which will be
worth EUR 6.5bn a year – the estimated cost for the government is slightly lower, thanks to
the positive impact that the measure is expected to have on the economy. This is one of
the boldest steps taken in the last several years to reduce the (high) tax wedge that
undermines the competitiveness of Italian firms.
Firms that will hire people under the “single contract” scheme envisaged by the Jobs Act –
i.e. on a permanent basis without the protection of Article 18 for dismissal for economic
reasons – will not pay social security contributions for three years. This bold incentive is
estimated to cost the government about EUR 2bn a year, but it will be effective only after
the Jobs Act is up and running.
The government put on the table EUR 1.5bn for the new, more inclusive, system of
unemployment benefits envisaged by the Jobs Act.
Important details on spending cuts are still missing. For the time being, we know that all
level of governments will have to contribute with a 3% reduction of their spending. This
raises the probability that the cuts will be, for the most part, linear.
The government has penciled in almost EUR 4bn of extra revenues from the fight against
tax evasion, although the effective collection of these resources tends to be highly uncertain.
The approval of the Stability Law by the EC cannot be taken for granted, mostly because
the Italian government decided to increase the 2015 deficit target to 2.9% from 2.2% (thus
freeing about EUR 11bn of resources) while postponing the balanced budget (in structural
terms) to 2017 from 2015. To take into account the risk of possible opposition from
Brussels, the government decided to set aside a “buffer” of about EUR 3.5bn (0.2% of
GDP), which we regard as a wise move. In our view, the sound economic structure of the
Stability Law, together with the acceleration of the process of structural reforms, creates
some room for “indulgence” from the EC. But this is a very close call.
The Stability Law also brings about the possibility for workers to have their severance
payment (Tfr) being paid in advance, as opposed to when they retire or quit their job. Given
that the (retained) severance payment is usually an important source of liquidity for firms,
especially SMEs, the framework set up by the government envisages that banks will lend
to firms the amount of the severance payment paid out to employees, and in doing so
banks will enjoy state guarantee. The impact of the measure on private consumption is
likely to be positive, although very difficult to estimate.
The increase of the tax rate on pension funds (or second-pillar schemes in general) is
negative news, because at the margin it may weaken confidence in private pension
schemes and reduce their appeal.
Marco Valli, Chief Eurozone Economist (UniCredit Bank Milan)
Dr. Harm Bandholz, CFA (UniCredit Bank New York)
Edoardo Campanella, Economist (UniCredit Bank Milan)
Daniel Vernazza, Ph.D. (UniCredit Bank London)
UniCredit Research
page 12
16 October 2014
Weekly Focus
Major Data Releases & Economic Events To Look At Next Week
Date
17–25 Oct 2014
Time
(ECB)
Fri, 17 Oct
Mon, 20 Oct
Tue, 21 Oct
Wed, 22 Oct
Thu, 23 Oct
Country
Indicator/Event
Consensus
(Bloomberg)
Previous
Sep
2.7
-1.9
Period
SV
Slovenia Sovereign Debt Rating Published by Fitch
UniCredit
estimates
SP
Spain Sovereign Debt Rating May Be Published by Moody's
9:45
EC
ECB's Constancio Speaks in Frankfurt
12:00
EC
Eurostat Release First GDP Estimates After ESA 2010 Adoption
14:00
PL
Industrial Production (% yoy)
14:30
US
Fed's Yellen Speaks at Boston Fed Conference on Inequality
14:30
US
Housing Starts (thousands)
Sep
1008
956
14:30
US
Building Permits (thousands)
Sep
1030
1003
15:55
US
University of Michigan Consumer Confidence
Oct
84
84.6
0:00
EC
EU Foreign Ministers Hold Meeting in Luxembourg
8:00
GE
Producer Price Index, PPI (% yoy)
Sep
-0.8
10:00
EMU
Current Account Balance (EUR bn)
Aug
18.7
4:00
CH
Industrial Production (% yoy)
Sep
7.5
4:00
CH
Real GDP (% qoq)
Q3
7.2
7.5
8:00
16:00
SZ
US
Exports (real, % mom)
Existing Home Sales (mn)
Sep
Sep
5.1
5.09
-0.7
5.05
14:30
US
Core CPI (ex food & energy, % mom)
Sep
0.1
0.2
0.01
14:30
US
Consumer Price Index, CPI (% mom)
Sep
0.1
0
3:35
JP
PMI (Nomura)
Oct
8:45
FR
Business Confidence (manufacturing, INSEE)
Oct
96
9:00
FR
Services PMI (index)
Oct
48.4
9:00
FR
Manufacturing PMI (index)
Oct
48.8
9:30
9:30
GE
GE
Oct
Oct
47.1
55.7
49.9
10:00
EMU
Oct
51.5
52.4
10:00
EMU
Oct
49.9
50.3
10:30
UK
Retail Sales (% mom)
Sep
0.0
13:00
TR
Repo Rate Announcement (%)
16:00
US
Leading Indicators (Conference Board, % mom)
SP
Spain Sovereign Debt Rating Published by Fitch
IT
Italy Sovereign Debt Rating Published by Fitch
LX
Luxembourg Sovereign Debt Rating by Moody's
Fri, 24 Oct
6.9
-0.2
51.7
0.2
Sep
8.25
8.25
0.7
0.2
GE
Germany Sovereign Debt Rating May Be Published by Moody's
AS
Austria Sovereign Debt Rating May Be Published by Moody's
8:00
GE
GfK Consumer Confidence
10:20
EC
ECB's Praet Speaks in Milan
10:30
UK
Real GDP (% qoq)
Q3
0.7
0.9
12:00
IT
Consumer Confidence (ISTAT, index)
Oct
101.9
102
16:00
US
New Home Sales (thousands)
Sep
Nov
8.3
473
504
*Asterisked releases are scheduled on or after the date shown; sa = seasonal adjusted, nsa = not seasonally adjusted, wda = working day adjusted
UniCredit Research
page 13
16 October 2014
Weekly Focus
UniCredit Economic Forecasts
2013
Industrialized countries
US
Euro area
Germany
France
Italy
Spain
Austria
UK
Switzerland
Japan
Developing countries
Central & Eastern Europe
Russia
Poland
Czech Republic
Hungary
Turkey
Emerging Asia
China
Real GDP (%, yoy)
2014
2015
Consumer Prices (%, yoy)
2013
2014
2015
Budget Balance (% of GDP)
2013
2014
2015
2.2
-0.4
0.2
0.4
-1.9
-1.2
0.2
1.7
1.9
1.5
2.1
0.8
1.5
0.4
-0.2
1.2
0.6
3.0
1.5
1.0
2.7
1.2
1.6
0.8
0.7
1.6
1.6
2.3
1.6
1.5
1.5
1.4
1.5
0.9
1.2
1.5
2.0
2.6
-0.2
0.4
1.8
0.5
1.0
0.6
0.3
0.0
1.7
1.6
0.1
2.8
2.2
1.0
1.6
0.8
0.8
0.6
1.9
2.0
0.2
1.8
-7.3
-3.0
0.2
-4.2
-2.8
-6.7
-1.5
-5.9
0.0
-9.3
-6.4
-2.8
0.0
-4.4
-3.0
-5.6
-2.8
-5.0
-0.1
-8.0
-5.6
-2.6
0.3
-4.3
-3.0
-4.5
-1.5
-4.0
-0.2
-6.7
1.3
1.7
-0.7
0.0
4.0
-0.4
3.0
2.4
0.0
2.9
-0.1
3.2
2.4
0.0
2.0
6.8
0.9
1.4
0.0
7.5
7.4
0.1
0.4
0.0
9.0
6.3
0.9
1.6
0.0
6.5
-0.5
-4.3
-1.3
0.0
-1.5
0.5
5.6
-1.7
0.0
-2.7
-0.7
-3.0
-2.5
0.0
-3.3
7.7
7.1
6.9
2.6
2.3
2.9
-2.1
-2.1
-2.0
Real GDP (% qoq, sa)
US (annualized)
Euro area
Germany
France
Italy
Spain
Austria
UK
Switzerland
Japan
Russia
Poland (% yoy)
Czech Republic
Hungary
Turkey
China (%, yoy)
4Q13
3.5
0.3
0.4
0.2
-0.1
0.2
0.4
0.6
0.5
0.0
0.4
2.7
1.1
0.5
0.9
7.7
1Q14
-2.1
0.2
0.7
0.0
0.0
0.4
0.1
0.7
0.4
1.5
0.1
3.4
0.6
1.1
1.8
7.4
2Q14
4.6
0.0
-0.2
0.0
-0.2
0.6
0.2
0.9
0.2
-1.7
0.2
3.3
0.3
0.8
-0.5
7.5
3Q14
2.8
0.3
0.4
0.2
0.1
0.5
0.3
0.6
0.1
0.6
0.0
2.7
0.4
0.4
0.2
7.1
4Q14
2.8
0.1
0.1
0.1
0.0
0.3
0.2
0.6
0.2
0.5
-0.7
2.6
0.4
0.4
0.4
6.9
1Q15
2.5
0.3
0.4
0.2
0.2
0.3
0.4
0.5
0.4
0.5
-0.5
2.6
0.7
0.5
0.6
7.0
2Q15
2.5
0.4
0.6
0.3
0.2
0.4
0.5
0.6
0.6
0.4
-0.2
3.2
0.7
0.5
0.6
6.9
3Q15
2.5
0.4
0.7
0.3
0.3
0.5
0.6
0.5
0.8
0.6
0.0
3.2
0.8
0.6
0.6
6.8
4Q15
2.5
0.5
0.7
0.4
0.4
0.6
0.6
0.5
0.6
-0.8
0.6
3.6
0.7
0.7
0.7
6.8
Consumer Prices (% yoy)
US
Core rate (ex food & energy)
Euro area
Core rate (ex food & energy)
Germany
France
Italy
Spain
Austria
UK
Switzerland
Japan
Russia
Poland
Czech Republic
Hungary
Turkey
China
4Q13
1.2
1.7
0.8
0.8
1.3
0.6
0.7
0.2
1.6
2.1
0.0
1.4
6.4
0.7
1.1
0.7
7.5
2.9
1Q14
1.4
1.6
0.7
0.8
1.2
0.7
0.5
0.0
1.6
1.7
0.0
1.5
6.4
0.6
0.2
0.0
8.0
2.3
2Q14
2.1
1.9
0.6
0.8
1.1
0.6
0.4
0.2
1.8
1.7
0.1
3.6
7.6
0.3
0.2
-0.3
9.4
2.2
3Q14
1.8
1.8
0.3
0.8
0.8
0.4
-0.1
-0.4
1.7
1.4
0.0
3.4
7.7
-0.3
0.6
0.0
9.2
2.0
4Q14
2.0
1.9
0.5
0.9
1.0
0.5
0.2
0.0
1.6
1.4
0.2
3.1
7.9
-0.3
0.8
0.6
9.3
2.9
1Q15
2.2
2.2
0.7
1.1
1.3
0.5
0.2
0.1
1.8
1.5
0.3
3.0
7.7
0.0
1.1
1.6
7.4
3.0
2Q15
2.0
2.1
0.9
1.0
1.4
0.8
0.6
0.5
1.7
1.7
0.1
1.3
6.5
0.7
1.6
2.2
6.5
2.9
3Q15
2.3
2.4
1.0
1.1
1.7
1.0
1.1
0.7
2.0
1.8
0.3
1.2
6.0
1.4
1.8
2.3
5.6
2.8
4Q15
2.5
2.5
1.2
1.2
1.9
1.1
1.2
0.9
2.1
2.0
0.2
2.5
5.4
1.5
1.9
2.9
6.7
2.9
UniCredit Research
page 14
16 October 2014
Weekly Focus
UniCredit FI/FX & Commodity Forecasts
INTEREST RATE & YIELD FORECAST (%)
2014/15
current
end-4Q
UniCredit
Forward*
end-1Q
UniCredit
Forward*
end-2Q
UniCredit
Forward*
end-3Q
UniCredit
Forward*
Euro area
Refi Rate
3M Euribor
10Y Bunds
0.05
0.08
0.81
0.05
0.05
1.10
0.05
0.11
0.85
0.05
0.05
1.30
0.05
0.11
0.90
0.05
0.05
1.50
0.05
0.11
0.94
0.05
0.05
1.75
0.05
0.12
0.98
US
Fed Funds Target Rate
3M USD Libor
10Y Treasuries
0.25
0.23
2.13
0.25
0.35
2.70
0.25
0.26
2.21
0.25
0.40
3.10
0.25
0.30
2.29
0.50
0.75
3.30
0.40
0.40
2.35
0.75
1.00
3.60
0.65
0.55
2.42
UK
Repo Rate
10Y Gilts
0.50
2.07
0.75
2.75
0.50
2.15
1.00
3.20
0.75
2.22
1.25
3.50
0.90
2.28
1.50
3.75
1.15
2.34
Switzerland
3M CHF Libor Target Rate
10Y Swissies
0.00
0.43
0.00
0.70
0.00
0.44
0.00
0.90
0.00
0.46
0.00
1.15
0.00
0.49
0.00
1.40
0.00
0.52
Russia
Reference Rate
3M Money Market Rate
8.00
8.29
8.00
9.30
8.25
8.00
9.30
8.15
7.75
9.00
7.95
7.50
8.75
7.55
Poland
Reference Rate
2.00
1.93
2.00
2.20
2.00
2.00
2.22
1.90
2.00
2.24
1.90
2.00
2.28
1.95
Czech Republic
Reference Rate
0.05
0.04
0.05
0.35
0.05
0.05
0.35
0.05
0.05
0.35
0.05
0.05
0.35
0.05
Hungary
Reference Rate
2.10
2.10
2.10
2.15
2.85
2.10
2.22
2.85
2.10
2.32
2.85
2.10
2.40
3.00
Turkey
Reference Rate
8.25
10.60
7.50
8.20
8.00
7.50
8.08
7.90
7.50
8.18
8.25
7.50
8.20
8.35
EXCHANGE RATE FORECASTS
2014/15
EUR-USD
EUR-GBP
EUR-CHF
EUR-JPY
EUR-RUB
EUR-PLN
EUR-CZK
EUR-HUF
EUR-TRY
USD-JPY
USD-CHF
GBP-USD
current
1.28
0.80
1.21
136
52.39
4.23
27.55
308
2.90
106
0.94
1.60
end-4Q
UniCredit
Forward
1.22
1.28
0.74
0.80
1.22
1.21
137
135
51.06
47.84
4.12
4.20
27.70
27.53
308
311
3.00
3.01
112
101
1.00
0.89
1.65
1.70
end-1Q
UniCredit
Forward
1.26
1.28
0.75
0.80
1.23
1.21
141
135
52.17
48.74
4.10
4.22
27.60
27.51
315
312
3.07
3.06
112
101
0.98
0.89
1.68
1.70
end-2Q
UniCredit
Forward
1.30
1.28
0.77
0.81
1.24
1.21
147
135
52.95
49.65
4.15
4.24
27.60
27.49
310
313
3.15
3.12
113
101
0.95
0.89
1.69
1.69
end-3Q
UniCredit
Forward
1.32
1.28
0.78
0.81
1.26
1.21
152
135
53.66
50.58
4.13
4.26
27.60
27.46
315
314
3.23
3.18
115
101
0.95
0.89
1.70
1.69
end-4Q
UniCredit
Forward
1225
1240
95
85
end-1Q
UniCredit
Forward
1250
1246
95
86
end-2Q
UniCredit
Forward
1250
1246
100
87
end-3Q
UniCredit
Forward
1275
1247
100
88
COMMODITY PRICE FORECASTS
2014/15
Gold (USD/ tr oz)
Oil Price (Brent, USD/b)
current
1243
83
*Bloomberg Consensus for central bank rates
UniCredit Research
page 15
16 October 2014
Weekly Focus
Disclaimer
Our recommendations are based on information obtained from, or are based upon public information sources that we consider to be reliable but for the completeness and accuracy of which we assume no liability. All estimates and opinions included in the report represent the independent judgment of the analysts as of the date of the issue. We reserve the right
to modify the views expressed herein at any time without notice. Moreover, we reserve the right not to update this information or to discontinue it altogether without notice.
This analysis is for information purposes only and (i) does not constitute or form part of any offer for sale or subscription of or solicitation of any offer to buy or subscribe for any
financial, money market or investment instrument or any security, (ii) is neither intended as such an offer for sale or subscription of or solicitation of an offer to buy or subscribe
for any financial, money market or investment instrument or any security nor (iii) as an advertisement thereof. The investment possibilities discussed in this report may not be
suitable for certain investors depending on their specific investment objectives and time horizon or in the context of their overall financial situation. The investments discussed
may fluctuate in price or value. Investors may get back less than they invested. Changes in rates of exchange may have an adverse effect on the value of investments. Furthermore, past performance is not necessarily indicative of future results. In particular, the risks associated with an investment in the financial, money market or investment instrument or security under discussion are not explained in their entirety.
This information is given without any warranty on an "as is" basis and should not be regarded as a substitute for obtaining individual advice. Investors must make their own determination of the appropriateness of an investment in any instruments referred to herein based on the merits and risks involved, their own investment strategy and their legal,
fiscal and financial position. As this document does not qualify as an investment recommendation or as a direct investment recommendation, neither this document nor any part
of it shall form the basis of, or be relied on in connection with or act as an inducement to enter into, any contract or commitment whatsoever. Investors are urged to contact their
bank's investment advisor for individual explanations and advice.
Neither UniCredit Bank, UniCredit Bank London, UniCredit Bank Milan, UniCredit Bulbank, ZagrHEDþNDEDQND8QL&UHGLW%DQN&]HFKLD%DQN3HNDR8QL&UHGLW5XVVLD8QL&UHGLW
Slovakia, UniCredit Tiriac nor any of their respective directors, officers or employees nor any other person accepts any liability whatsoever (in negligence or otherwise) for any
loss howsoever arising from any use of this document or its contents or otherwise arising in connection therewith.
This analysis is being distributed by electronic and ordinary mail to professional investors, who are expected to make their own investment decisions without undue reliance on
this publication, and may not be redistributed, reproduced or published in whole or in part for any purpose.
Responsibility for the content of this publication lies with:
a) UniCredit Bank AG (UniCredit Bank), Am Tucherpark 16, 80538 Munich, Germany, (also responsible for the distribution pursuant to §34b WpHG). The company belongs to
UniCredit Group. Regulatory authority: “BaFin“ – Bundesanstalt für Finanzdienstleistungsaufsicht, Lurgiallee 12, 60439 Frankfurt, Germany.
b) UniCredit Bank AG London Branch (UniCredit Bank London), Moor House, 120 London Wall, London EC2Y 5ET, United Kingdom.
Regulatory authority: “BaFin“ – Bundesanstalt für Finanzdienstleistungsaufsicht, Lurgiallee 12, 60439 Frankfurt, Germany and subject to limited regulation by the Financial Conduct Authority, 25 The North Colonnade, Canary Wharf, London E14 5HS, United Kingdom and Prudential Regulation Authority 20 Moorgate, London, EC2R 6DA, United Kingdom. Further details regarding our regulatory status are available on request.
c) UniCredit Bank AG Milan Branch (UniCredit Bank Milan), Piazza Gae Aulenti, 4 - Torre C, 20154 Milan, Italy, duly authorized by the Bank of Italy to provide investment services.
Regulatory authority: “Bank of Italy”, Via Nazionale 91, 00184 Roma, Italy and Bundesanstalt für Finanzdienstleistungsaufsicht, Lurgiallee 12, 60439 Frankfurt, Germany.
d) UniCredit Bulbank, Sveta Nedelya Sq. 7, BG-1000 Sofia, Bulgaria
Regulatory authority: Financial Supervision Commission (FSC), 33 Shar Planina str.,1303 Sofia, Bulgaria
e) ZagrebaþNDEDQNDGG7UJEDQD-HODþLüD, HR-10000 Zagreb, Croatia
Regulatory authority: Croatian Agency for Supervision of Financial Services, Miramarska 24B, 10000 Zagreb, Croatia
f) UniCredit Bank Czech Republic (UniCredit Bank Czechia), Na Príkope 858/20, CZ-11121 Prague, Czech Republic
5HJXODWRU\DXWKRULW\&1%&]HFK1DWLRQDO%DQN1D3ĜtNRSČ3UDKD&]HFK5HSXEOLF
g) Bank Pekao, ul. Grzybowska 53/57, PL-00-950 Warsaw, Poland
Regulatory authority: Polish Financial Supervision Authority, Plac PoZVWDĔFyZ:DUV]DZ\-950 Warsaw, Poland
h) ZAO UniCredit Bank Russia (UniCredit Russia), Prechistenskaya emb. 9, RF-19034 Moscow, Russia
Regulatory authority: Federal Service on Financial Markets, 9 Leninsky prospekt, Moscow 119991, Russia
i) UniCredit Bank Slovakia a.s. (UniCredit Slovakia), Šancova 1/A, SK-813 33 Bratislava, Slovakia
Regulatory authority: National Bank of Slovakia, Imricha Karvaša 1, 813 25 Bratislava, Slovakia
j) UniCredit Tiriac Bank (UniCredit Tiriac), Bucharest 1F Expozitiei Boulevard, RO-012101 Bucharest 1, Romania
Regulatory authority: National Bank of Romania, 25 Lipscani Street, RO-030031, 3rd District, Bucharest, Romania
k) UniCredit Bank AG Hong Kong Branch (UniCredit Bank Hong Kong), 25/F Man Yee Building, 68 Des Voeux Road Central, Hong Kong.
Regulatory authority: Hong Kong Monetary Authority, 55th Floor, Two International Financial Centre, 8 Finance Street, Central, Hong Kong
l) UniCredit Bank AG Singapore Branch (UniCredit Bank Singapore), Prudential Tower, 30 Cecil Street, #25-01, Singapore 049712
Regulatory authority: Monetary Authority of Singapore, 10 Shenton Way MAS Building, Singapore 079117
m) UniCredit Bank AG Tokyo Branch (UniCredit Tokyo), Otemachi 1st Square East Tower 18/F, 1-5-1 Otemachi, Chiyoda-ku, 100-0004 Tokyo, Japan
Regulatory authority: Financial Services Agency, The Japanese Government, 3-2-1 Kasumigaseki Chiyoda-ku Tokyo, 100-8967 Japan, The Central Common Government Offices No. 7.
POTENTIAL CONFLICTS OF INTEREST
UniCredit Bank AG acts as a Specialist or Primary Dealer in government bonds issued by the Italian, Portuguese and Greek Treasury. Main tasks of the Specialist are to participate with continuity and efficiency to the governments' securities auctions, to contribute to the efficiency of the secondary market through market making activity and quoting
requirements and to contribute to the management of public debt and to the debt issuance policy choices, also through advisory and research activities.
ANALYST DECLARATION
The author’s remuneration has not been, and will not be, geared to the recommendations or views expressed in this study, neither directly nor indirectly.
ORGANIZATIONAL AND ADMINISTRATIVE ARRANGEMENTS TO AVOID AND PREVENT CONFLICTS OF INTEREST
To prevent or remedy conflicts of interest, UniCredit Bank, UniCredit Bank London, UniCredit Bank Milan, 8QL&UHGLW%XOEDQN=DJUHEDþNDEDQND8QL&UHGLW%DQN&]HFKLD%DQN
Pekao, UniCredit Russia, UniCredit Slovakia, and UniCredit Tiriac have established the organizational arrangements required from a legal and supervisory aspect, adherence to
which is monitored by its compliance department. Conflicts of interest arising are managed by legal and physical and non-physical barriers (collectively referred to as “Chinese
Walls”) designed to restrict the flow of information between one area/department of UniCredit Bank, UniCredit Bank London, UniCredit Bank Milan, UniCredit Bulbank, =DJUHEDþND
banka, UniCredit Bank Czechia, Bank Pekao, UniCredit Russia, UniCredit Slovakia, UniCredit Tiriac, and another. In particular, Investment Banking units, including corporate finance,
capital market activities, financial advisory and other capital raising activities, are segregated by physical and non-physical boundaries from Markets Units, as well as the research department. In the case of equities execution by UniCredit Bank AG Milan Branch, other than as a matter of client facilitation or delta hedging of OTC and listed derivative
positions, there is no proprietary trading. Disclosure of publicly available conflicts of interest and other material interests is made in the research. Analysts are supervised and
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ADDITIONAL REQUIRED DISCLOSURES UNDER THE LAWS AND REGULATIONS OF JURISDICTIONS INDICATED
Notice to Australian investors
This publication is intended for wholesale clients in Australia subject to the following:
UniCredit Bank AG and its branches do not hold an Australian Financial Services licence but are exempt from the requirement to hold an Australian financial services licence in respect
of the financial services UniCredit Bank AG and its branches provide to wholesale clients. UniCredit Bank AG and its branches are regulated by BaFin under German laws, which differ
from Australian laws. This document is only for distribution to wholesale clients as defined in Section 761G of the Corporations Act. UniCredit Bank AG and its branches are not Authorised Deposit Taking Institutions under the Banking Act 1959 and are not authorised to conduct a banking business in Australia.
UniCredit Research
page 16
16 October 2014
Weekly Focus
Notice to Austrian investors
This document does not constitute or form part of any offer for sale or subscription of or solicitation of any offer to buy or subscribe for any securities and neither this document
nor any part of it shall form the basis of, or be relied on in connection with or act as an inducement to enter into, any contract or commitment whatsoever.
This document is confidential and is being supplied to you solely for your information and may not be reproduced, redistributed or passed on to any other person or published, in
whole or part, for any purpose.
Notice to Czech investors
This report is intended for clients of UniCredit Bank, UniCredit Bank London, UniCredit Bank Milan, UniCredit Bulbank=DJUHEDþNDEDQND8QL&UHGLWBank Czechia, Bank Pekao,
UniCredit Russia, UniCredit Slovakia, UniCredit Tiriac in the Czech Republic and may not be used or relied upon by any other person for any purpose.
Notice to Hong Kong investors
The information in this publication is intended for recipient(s) who is/are Professional Investor as defined in Section 1 of Part 1 of Schedule 1 to the Securities and Futures Ordinance (Cap. 571). The information in this publication is based on carefully selected sources believed to be reliable, however we do not make any representation as to the accuracy or completeness of the information. Any opinions herein reflect our judgement at the date hereof and are subject to change without notice. Any investments presented in this
publication may be unsuitable for the investor depending on his or her specific investment objectives and financial position. Any reports provided herein are provided for general
information purposes only and cannot substitute the obtaining of independent financial advice. Private investors should obtain the advice of their banker/broker about any investments concerned prior to making them. Nothing in this publication is intended to create contractual obligations.
Notice to Italian investors
This document is not for distribution to retail clients as defined in article 26, paragraph 1(e) of Regulation n. 16190 approved by CONSOB on October 29, 2007.
In the case of a short note, we invite the investors to read the related company report that can be found on UniCredit Research website www.research.unicredit.eu.
Notice to Japanese investors
This document does not constitute or form part of any offer for sale or subscription for or solicitation of any offer to buy or subscribe for any securities and neither this document
nor any part of it shall form the basis of, or be relied on in connection with or act as an inducement to enter into, any contract or commitment whatsoever.
Notice to Polish investors
This document is intended solely for professional clients as defined in Art. 3 39b of the Trading in Financial Instruments Act of 29 July 2005.The publisher and distributor of the
recommendation certifies that it has acted with due care and diligence in preparing the recommendation, however, assumes no liability for its completeness and accuracy.
Notice to Russian investors
As far as we are aware, not all of the financial instruments referred to in this analysis have been registered under the federal law of the Russian Federation "On the Securities
Market" dated 22 April 1996, as amended (the "Law"), and are not being offered, sold, delivered or advertised in the Russian Federation. This analysis is intended for qualified
investors, as defined by the Law, and shall not be distributed or disseminated to a general public and to any person, who is not a qualified investor.
Notice to Singapore investors
The information in this publication is intended solely for Institutional and Accredited investors only, as defined in section 4A of the Securities and Futures Act (Cap. 289) of Singapore (“SFA”) and is not intended to be made available to the retail public. We have taken reasonable steps to select information based on sources believed to be reliable. However we do not make any representation as to its accuracy or completeness. This publication is distributed for information only and is not a prospectus as defined in the SFA. It is
not and should not be construed as an offer to sell or a solicitation of an offer to buy any security or investment product. It is also not and should not be construed as providing
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take into consideration the investment objectives, financial situation, risk appetite of any other characteristics and particular needs of an investor. You should consult your advisers concerning any potential transactions and consider carefully whether the security, investment or product is suitable for you before making any investment decision. Any
reports provided herein are provided for general information purposes only. Any information regarding past performances of the investment may not be indicative of future performances and cannot substitute the obtaining of independent financial advice.
Notice to Turkish investors
Investment information, comments and recommendations stated herein are not within the scope of investment advisory activities. Investment advisory services are provided in
accordance with a contract of engagement on investment advisory services concluded with brokerage houses, portfolio management companies, non-deposit banks and the
clients. Comments and recommendations stated herein rely on the individual opinions of the ones providing these comments and recommendations. These opinions may not suit
your financial status, risk and return preferences. For this reason, to make an investment decision by relying solely on the information stated here may not result in consequences
that meet your expectations.
Notice to UK investors
This communication is directed only at clients of UniCredit Bank, UniCredit Bank London, UniCredit Bank Milan, 8QL&UHGLW%XOEDQN=DJUHEDþNDEDQND8QL&UHGLW%DQN&]HFKLD
Bank Pekao, UniCredit Russia, UniCredit Slovakia, or UniCredit Tiriac who (i) have professional experience in matters relating to investments or (ii) are persons falling within
Article 49(2)(a) to (d) (“high net worth companies, unincorporated associations, etc.”) of the United Kingdom Financial Services and Markets Act 2000 (Financial Promotion)
Order 2005 or (iii) to whom it may otherwise lawfully be communicated (all such persons together being referred to as “relevant persons”). This communication must not be acted
on or relied on by persons who are not relevant persons. Any investment or investment activity to which this communication relates is available only to relevant persons and will
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This report is being furnished to U.S. recipients in reliance on Rule 15a-6 ("Rule 15a-6") under the U.S. Securities Exchange Act of 1934, as amended. Each U.S. recipient of this
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the risks involved in executing transactions in such securities. Any U.S. recipient of this report that wishes to discuss or receive additional information regarding any security or
issuer mentioned herein, or engage in any transaction to purchase or sell or solicit or offer the purchase or sale of such securities, should contact a registered representative of
UniCredit Capital Markets, LLC.
Any transaction by U.S. persons (other than a registered U.S. broker-dealer or bank acting in a broker-dealer capacity) must be effected with or through UniCredit Capital Markets.
The securities referred to in this report may not be registered under the U.S. Securities Act of 1933, as amended, and the issuer of such securities may not be subject to U.S.
reporting and/or other requirements. Available information regarding the issuers of such securities may be limited, and such issuers may not be subject to the same auditing and
reporting standards as U.S. issuers.
The information contained in this report is intended solely for certain "major U.S. institutional investors" and may not be used or relied upon by any other person for any purpose.
Such information is provided for informational purposes only and does not constitute a solicitation to buy or an offer to sell any securities under the Securities Act of 1933, as
amended, or under any other U.S. federal or state securities laws, rules or regulations. The investment opportunities discussed in this report may be unsuitable for certain investors depending on their specific investment objectives, risk tolerance and financial position. In jurisdictions where UniCredit Capital Markets is not registered or licensed to trade
in securities, commodities or other financial products, transactions may be executed only in accordance with applicable law and legislation, which may vary from jurisdiction to
jurisdiction and which may require that a transaction be made in accordance with applicable exemptions from registration or licensing requirements.
The information in this publication is based on carefully selected sources believed to be reliable, but UniCredit Capital Markets does not make any representation with respect to
its completeness or accuracy. All opinions expressed herein reflect the author’s judgment at the original time of publication, without regard to the date on which you may receive
such information, and are subject to change without notice.
UniCredit Capital Markets may have issued other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. These publications reflect the different assumptions, views and analytical methods of the analysts who prepared them. Past performance should not be taken as an indication or guarantee of
future performance, and no representation or warranty, express or implied, is provided in relation to future performance.
UniCredit Capital Markets and any company affiliated with it may, with respect to any securities discussed herein: (a) take a long or short position and buy or sell such securities;
(b) act as investment and/or commercial bankers for issuers of such securities; (c) act as market makers for such securities; (d) serve on the board of any issuer of such securities; and (e) act as paid consultant or advisor to any issuer.
The information contained herein may include forward-looking statements within the meaning of U.S. federal securities laws that are subject to risks and uncertainties. Factors
that could cause a company’s actual results and financial condition to differ from expectations include, without limitation: political uncertainty, changes in general economic conditions that adversely affect the level of demand for the company’s products or services, changes in foreign exchange markets, changes in international and domestic financial
markets and in the competitive environment, and other factors relating to the foregoing. All forward-looking statements contained in this report are qualified in their entirety by this
cautionary statement
This document may not be distributed in Canada.
EFI e 4
UniCredit Research
page 17
16 October 2014
Weekly Focus
UniCredit Research*
Michael Baptista
Global Head of CIB Research
+44 207 826-1328
michael.baptista@unicredit.eu
Dr. Ingo Heimig
Head of Research Operations
+49 89 378-13952
ingo.heimig@unicredit.de
Erik F. Nielsen, Global Chief Economist
+44 207 826 1765
erik.nielsen@unicredit.eu
Economics & Commodity Research
EEMEA Economics & FI/FX Strategy
Global FI Strategy
European Economics
Marco Valli, Chief Eurozone Economist
+39 02 8862-0537
marco.valli@unicredit.eu
Artem Arkhipov, Head, Macroeconomic Analysis
and Research, Russia
+7 495 258-7258
artem.arkhipov@unicredit.ru
Michael Rottmann, Head, FI Strategy
+49 89 378-15121
michael.rottmann1@unicredit.de
Dr. Andreas Rees, Chief German Economist
+49 69 2717-2074
andreas.rees@unicredit.de
Anca Maria Aron, Economist, Romania
+40 21 200-1377
anca.aron@unicredit.ro
Stefan Bruckbauer, Chief Austrian Economist
+43 50505-41951
stefan.bruckbauer@unicreditgroup.at
Anna Bogdyukevich, CFA, Russia
+7 495 258-7258 ext. 11-7562
anna.bogdyukevich@unicredit.ru
Tullia Bucco, Economist
+39 02 8862-0532
tullia.bucco@unicredit.eu
Dan Bucúa, Economist
+44 207 826-7954
dan.bucsa@unicredit.eu
Edoardo Campanella, Economist
+39 02 8862-0522
edoardo.campanella@unicredit.eu
Hrvoje Dolenec, Chief Economist, Croatia
+385 1 6006 678
hrvoje.dolenec@unicreditgroup.zaba.hr
Chiara Corsa, Economist
+39 02 8862-0533
chiara.corsa@unicredit.eu
ďXERPtU.RUãĖiN&KLHI(FRQRPLVW6ORYDkia
+421 2 4950 2427
lubomir.korsnak@unicreditgroup.sk
Dr. Loredana Federico, Economist
+39 02 8862-0534
loredanamaria.federico@unicredit.eu
Catalina Molnar, Chief Economist, Romania
+40 21 200-1376
catalina.molnar@unicredit.ro
Chiara Silvestre, Economist
chiara.silvestre@unicredit.eu
Marcin Mrowiec, Chief Economist, Poland
+48 22 524-5914
marcin.mrowiec@pekao.com.pl
Daniel Vernazza, Ph.D., Economist
+44 207 826-7805
daniel.vernazza@unicredit.eu
Dr. Martina von Terzi, Economist
+49 89 378-13013
martina.vonterzi@unicredit.de
US Economics
Dr. Harm Bandholz, CFA, Chief US Economist
+1 212 672-5957
harm.bandholz@unicredit.eu
Commodity Research
Jochen Hitzfeld, Economist
+49 89 378-18709
jochen.hitzfeld@unicredit.de
Carlos Ortiz, Economist, EEMEA
+44 207 826-1228
carlos.ortiz@unicredit.eu
Mihai Patrulescu, Senior Economist, Romania
+40 21 200-1378
mihai.patrulescu@unicredit.ro
Dr. Luca Cazzulani, Deputy Head, FI Strategy
+39 02 8862-0640
luca.cazzulani@unicredit.eu
Chiara Cremonesi, FI Strategy
+44 207 826-1771
chiara.cremonesi@unicredit.eu
Elia Lattuga, FI Strategy
+39 02 8862-0538
elia.lattuga@unicredit.eu
Kornelius Purps, FI Strategy
+49 89 378-12753
kornelius.purps@unicredit.de
Herbert Stocker, Technical Analysis
+49 89 378-14305
herbert.stocker@unicredit.de
Global FX Strategy
Dr. Vasileios Gkionakis, Global Head, FX Strategy
+44 207 826-7951
vasileios.gkionakis@unicredit.eu
Armin Mekelburg, FX Strategy
+49 89 378-14307
armin.mekelburg@unicredit.de
Roberto Mialich, FX Strategy
+39 02 8862-0658
roberto.mialich@unicredit.eu
Kristofor Pavlov, Chief Economist, Bulgaria
+359 2 9269-390
kristofor.pavlov@unicreditgroup.bg
Martin Rea, EM Fixed Income Strategist
+44 207 829-6077
martin.rea@unicredit.eu
Pavel Sobisek, Chief Economist, Czech Republic
+420 955 960-716
pavel.sobisek@unicreditgroup.cz
Publication Address
UniCredit Research
Corporate & Investment Banking
UniCredit Bank AG
Arabellastrasse 12
D-81925 Munich
globalresearch@unicredit.de
Bloomberg
UCCR
Internet
www.research.unicredit.eu
*UniCredit Research is the joint research department of UniCredit Bank AG (UniCredit Bank), UniCredit Bank AG London Branch (UniCredit Bank London), UniCredit Bank AG Milan Branch (UniCredit Bank Milan),
8QL&UHGLW%XOEDQN=DJUHEDþNDEDQNDGG8QL&UHGLW%DQN&]HFK5HSXEOLF8QL&UHGLW%DQN&]HFKLD%DQN3HNDR=$28QL&UHGLW%ank Russia (UniCredit Russia), UniCredit Bank Slovakia a.s. (UniCredit Slovakia),
UniCredit Tiriac Bank (UniCredit Tiriac).
EFI 10
UniCredit Research
page 18

” “ The UniCredit Weekly Focus

Transcription

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