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Citigold
Weekly Market Update | 9 February 2015
Citigold
Weekly Market Update
9 February 2015
Gifts from Central Banks




Data out of Europe looks to be improving
Citi Economic Surprise Index
CESIUSD Index
Citi analysts believe low oil prices and supportive financial conditions,
stimulated by a broadening set of central banks cutting rates, should have
boosted growth prospects in recent weeks.
CESIEUR Index
CESICNY Index
60
30
0
On 3 Feb 2015, the Reserve Bank of Australia joined the ranks of central
banks delivering dovish surprises by unexpectedly cutting its policy rate by
25bp to 2.25%, the first cut since August 2013.
On 4 Feb 2015, the People's Bank of China (PBoC) cut the Reserve
Requirement Ratio (RRR) for the first time since 2012, triggered by
continuous capital outflows and below-50 PMI reading.
History shows that Financials (property, diversified financials, insurance and
banks) have outperformed after the RRR cut, while defensive sectors such as
Consumer Staples, Telecom and Health Care have underperformed.
-30
-60
Nov-14
Dec-14
Jan-15
Source: Reuters as of 6 February 2015
HY slowly recovering
Accumulated 3-month Bond Index Returns
World Govt Bonds Index
HY Index
Global EMD Index
2%
1%
0%
-1%
-2%
-3%
-4%
-5%
-6%
Performance


Markets appear to be supported by improved economic growth optimism
last week. Equities were up 2.48% last week led by the US with the Dow
Jones Industrial Average and the S&P 500 Index higher 3.84% and 3.03%
respectively. European equities also finished the week higher with the
Europe Stoxx 600 up 1.71% whilst Japanese equities were mixed as the
Nikkei225 lost 0.15% but Topix gained 0.15% respectively.



Dec-14
Jan-15
EM equities worst performing
Accumulated 3-month Equity Index Returns
MSCI World
MSCI EM
MSCI Asia
The MSCI Emerging Markets Index gained 1.76%. Within the region,
Emerging Europe jumped 9.05% led by Russia adding 12.08% while the
MSCI Latin America and the MSCI Asia ex Japan gained 2.49% and 0.83%
respectively. The Shanghai Composite Index continued to be the biggest
underperformer, sliding 4.19% for the week.
Asset Allocation

Nov-14
Source: Reuters as of 6 February 2015
Equities — Earnings season remains supportive of Citi analysts’ bullish
medium-term view on equities. Though energy sector earnings suffered from
the oil prices collapse, 78% of S&P companies that have reported EPS beat
estimates; 64% in Japan and 63% in Europe. Citi analysts prefer markets
where quantitative easing is as well as beneficiaries of low oil prices.
Credit —Whilst Citi analysts like High Yield bonds in Europe and US, they
prefer higher quality within the asset class as US high yield was hit hardest
by the oil price collapse.
Rates — A lower Euro and an easing of monetary policy likely lowers real
yields, raises breakevens, and sees Bunds underperform US Treasuries and
periphery Europe.
Commodities — With demand-supply being a key driver of commodities
performance, upside appears limited in the near term as it takes time for a
significant adjustment in supply or demand.
6%
4%
2%
0%
-2%
-4%
-6%
-8%
-10%
Nov-14
Dec-14
Jan-15
Source: Reuters as of 6 February 2015
Week Ahead Key Data and Event
Date
Country
9-Feb
TA
Exports YoY
Data & Event
10-Feb
CH
10-Feb
JN
10-Feb
Period Survey
Prior
Citi Fct
Jan
2.9%
-2.8%
1.9%
PPI YoY
Jan
-3.8%
-3.3%
-3.7%
Tertiary Industry Index MoM
Dec
0.0%
0.2%
0.2%
CH
CPI YoY
Jan
1.0%
1.5%
0.8%
10-Feb
CH
New Yuan Loans (RMB bn)
Jan
1,350.0
697.3
1,312.0
12-Feb
US
Retail Sales Advance MoM
Jan
-0.5%
-0.9%
-0.9%
12-Feb
EC
Industrial Production SA MoM
Dec
0.2%
0.2%
0.2%
12-Feb
IN
CPI YoY
Jan
5.5%
5.0%
5.7%
12-Feb
US
Initial Jobless Claims
7 Feb
288K
278K
285K
13-Feb
US
Import Price Index MoM
Jan
-3.3%
-2.5%
-3.8%
13-Feb
EC
GDP SA YoY
4Q
0.8%
0.8%
0.7%
13-Feb
US
U. of Mich. Sentiment
Feb
98.2
98.1
98.0
Source: Reuters as of 6 February 2015
Page 1
Citigold
Weekly Market Update | 9 February 2015
Drivers and Risks By Market
United States

Driver: With the Q4 reporting season is underway, more than 70% of S&P
companies that have reported have given earnings surprises. Moreover, the ratio
of beats to misses has been improving since 2012 and now sits slightly above its
5 year average at 3.83. Assuming current conditions persist, Citi analysts believe
US earnings growth will remain positive with a 7.5% growth expected in 2015.
2200
2100
2000
1900


Risk: Recently earnings revisions are negative. Downgrades in the oil sector are a
big reason for the weakness in earnings momentum. The pickup in the volatility of
earnings revisions may also unnerve investors.
1800
1700
1600
S&P 500
1500
Implication: Citi analysts like retailing and consumer durable sectors. Also they
continue to see opportunities in Financials (Banks and REITs) as well as IT
(Software & Hardware).
Source: Reuters as of 6 February 2015
Europe



Driver: Citi analysts stay bullish on European equities given further euro
weakness, towards parity vs. USD in 1H16 and nominal economic growth may
support higher asset prices.
390
370
350
Risk: Citi analysts still think the Greek government and its creditors (including,
importantly, the ECB) will come to an agreement on a follow-up bailout that avoids
Grexit and a default by the Greek government. But a number of recent
developments highlight rising — risks to this view.
330
310
290
DJ Stoxx TMI
270
Implication: While Citi analysts continue to buy on dips, they focus on (1) Search
for yield – Dividend stocks (Insurance, Telecoms, Banks, Autos), (2) European
high yield bonds, (3) Cyclicals/Financials over Defensives and (4) Stocks with a
strong balance sheet and high sales exposure to the US.
Source: Reuters as of 6 February 2015
Japan



Driver: Japanese firms are gradually beefing up shareholder returns via share
buybacks and dividend hikes, against a backdrop of solid earnings and
government steps to improve corporate governance. 64% of TOPIX constituents
that have reported until last week beat earnings estimates, with Sales up 5.2%
YoY and Recurring profits up 8.1%. Japan continues to enjoy the most positive
earnings revisions.
Risk: A big gap is emerging between the timing of the start of rate hikes forecast
by the Federal Reserve and the timing forecast by the market via the Fed fund
interest rate futures. The risk is the market may react negatively to an earlier than
expected rate hikes.
1600
1500
1400
1300
1200
1100
Japan Topix
1000
Source: Reuters as of 6 February 2015
Implication: Citi analysts prefer autos and tyre exporters, brokerage and
insurance.
Asia

Driver: The PBOC announced last week that RRR for all financial institutions will
be cut by 50bps. This is the first RRR cut since May 2012, unlocking about
Rmb600bn liquidity by Citi analysts’ estimates. The move suggests the
government is ready to use traditional monetary policy tools to deal with a cyclical
downturn. Citi analysts expect 2-3 additional RRR cuts this year, enabling broad
money to grow by 12-13%. Citi analysts also expect two rate cuts in H1 due ti
falling inflation. These policies would help stabilize growth at around 7% this year.

Risk: While China’s property down-cycle and high debt/GDP ratio are among key
risks, Citi analysts believe most macro weakness is largely priced in.

Implication: Citi analysts reiterate their positive stance. Citi analysts believe
Property, Insurance, Banks and Brokers would benefit most from the shift in
stance, whilst Energy, Telecom and Staples will benefit least.
620
600
580
560
540
520
500
MSCI Asia ex JP
480
Source: Reuters as of 6 February 2015
Page 2
Citigold
Weekly Market Update | 9 February 2015
Currency Forecast
Last price
Weekly Market Performance
Forecasts
Currency 06-Feb-15
Mar-15
Jun-15
Sep-15
Dec-15
Mar-16
(2 – 6 February 2015)
G10-US Dollar
Euro
EURUSD
1.13
1.14
1.12
1.10
1.08
1.05
Japanese yen
USDJPY
119.1
118
124
129
132
134
British Pound
GBPUSD
1.52
1.52
1.50
1.47
1.44
1.41
Swiss Franc
USDCHF
0.93
0.85
0.90
0.95
0.99
1.03
Australian Dollar
AUDUSD
0.78
0.80
0.76
0.73
0.72
0.71
New Zealand
NZDUSD
0.74
0.75
0.71
0.68
0.67
0.66
1.7%
Canadian Dollar
USDCAD
1.25
1.20
1.22
1.25
1.26
1.27
1.5%
9.1%
Hong Kong
Indonesian Rupiah
Oil
US S&P 500
3.0%
2.5%
MSCI Latin America
2.5%
MSCI AC World
Europe Stoxx Europe 600
UK FTSE 100
Citi High Yield
1.1%
EM Asia
Chinese Renminbi
MSCI Emerging Europe
7.2%
USDCNY
6.24
USDHKD
USDIDR
6.23
7.75
7.76
12,621
12,830
6.26
6.29
7.77
6.27
7.79
12,999
7.78
13,170
13,167
6.23
7.78
13,127
1.0%
Taiwan TAIEX
0.8%
MSCI AsiaXJapan
0.7%
HK Hang Seng
0.3%
Korea KOSPI
Indian Rupee
USDINR
61.70
62.8
63.3
63.9
64.1
64.2
Korean Won
USDKRW
1089.78
1,107
1,122
1,137
1,140
1,140
Malaysian Ringgit
USDMYR
3.55
3.65
3.66
3.67
3.66
3.64
Philippine Peso
USDPHP
44.18
45.3
45.6
45.9
46.0
46.0
Singapore Dollar
USDSGD
1.35
1.35
1.36
1.37
1.37
1.37
-3.9%
Gold
Thai Baht
USDTHB
32.65
33.3
33.4
33.6
33.5
33.4
-4.2%
China Shanghai Composite
Taiwan Dollar
USDTWD
31.45
32.0
32.1
32.2
32.2
32.1
Russian Ruble
USDRUB
66.86
64.0
63.6
63.2
63.9
64.7
South African Rand
USDZAR
11.50
11.69
11.88
12.07
12.13
12.17
Brazilian Real
USDBRL
2.78
2.78
2.83
2.89
2.92
2.94
Mexican Peso
USDMXN
14.85
14.7
14.5
14.2
14.1
14.1
0.1%
Japan TPX Index
0.0%
Citi Global Emerging Mkt Sovereigns
China HSCEI
-0.2%
Citi World Broad Inv Grade
-0.7%
-10%
0%
10%
EM Europe
EM Latam
Source: Reuters as of 6 February 2015
\\
Market Performance (Year-To-Date)
(As of 6 February 2015)
9.0%
Source: Reuters as of 6 February 2015
6.7%
Short Rates and 10-Year Yield Forecasts
Last price
06-Feb-15
Forecasts
1Q15
2Q15
3Q15
4Q15
4.6%
HK Hang Seng
4.4%
UK FTSE 100
4.1%
Gold
3.3%
MSCI AsiaXJapan
Korea KOSPI
2.1%
1Q16
2Q16
Short Rates (End of Period)
Europe Stoxx Europe 600
MSCI Emerging Europe
1.6%
Taiwan TAIEX
1.6%
Citi High Yield
US
0.25
0.25
0.25
0.25
0.50
0.50
0.75
1.2%
Citi Global Emerging Mkt Sovereigns
Japan
0.10
0.1
0.1
0.1
0.1
0.1
0.1
1.2%
Citi World Broad Inv Grade
Euro Area
0.05
0.05
0.05
0.05
0.05
0.05
0.05
0.8%
MSCI AC World
10-Year Yield (Period Average)
Japan TPX Index
0.7%
US
1.96
1.95
2.20
2.35
2.55
2.65
2.65
Japan
0.34
0.25
0.35
0.40
0.45
0.50
0.50
Euro Area
0.38
0.55
0.55
0.65
0.65
0.75
0.75
Source: Citi Research and Reuters as of 6 February 2015
US S&P 500
-0.2%
China HSCEI
-2.4%
Oil
-3.0%
-20%
-4.0%
MSCI Latin America
-4.9%
China Shanghai Composite
0%
20%
Source: Reuters as of 6 February 2015
Page 3
Citigold
Weekly Market Update | 9 February 2015
World Market At Glance
Last price
52-Week
52-Week
Historical Returns (%)
06-Feb-15
High
Low
1 week
1 month
1 year
Year-to-date
Year-to-date
(USD)
0.81%
US / Global
MSCI World
420.50
434.24
387.49
2.48%
4.07%
7.72%
0.81%
Dow Jones Industrial Average
17824.29
18103.45
15625.53
3.84%
2.61%
14.05%
0.01%
0.01%
S&P 500
2055.47
2093.55
1776.01
3.03%
2.64%
15.90%
-0.17%
-0.17%
NASDAQ
4744.40
4814.95
3946.03
2.35%
3.30%
16.94%
0.18%
0.18%
MSCI Europe
445.51
506.61
409.57
2.40%
7.09%
-4.55%
2.21%
2.21%
Stoxx Europe 600
373.31
373.89
302.48
1.71%
12.58%
15.66%
8.98%
1.98%
FTSE100
6853.44
6904.86
6072.68
1.54%
7.65%
4.50%
4.38%
2.09%
CAC40
4691.03
4707.24
3789.11
1.88%
14.88%
12.01%
9.79%
2.73%
DAX
10846.39
10984.69
8354.97
1.42%
14.54%
17.17%
10.61%
3.02%
NIKKEI225
17648.50
18030.83
13885.11
-0.15%
4.53%
24.68%
1.13%
1.38%
Topix
1417.19
1454.22
1121.50
0.15%
4.12%
21.92%
0.69%
0.93%
MSCI Emerging Market
978.57
1104.31
906.25
1.76%
4.69%
5.25%
2.33%
2.33%
MSCI Latin America
2619.01
3720.81
2455.16
2.49%
1.07%
-10.47%
-3.98%
-3.98%
MSCI Emerging Europe
128.20
198.14
106.52
9.05%
7.35%
-31.55%
6.73%
6.73%
MSCI EM Middle East & Africa
282.54
341.09
248.54
4.21%
6.13%
-7.27%
4.35%
4.35%
48792.27
62304.88
44904.83
4.02%
1.65%
2.21%
-2.43%
-6.86%
826.40
1421.07
578.21
12.08%
10.71%
-37.88%
4.51%
4.51%
3.33%
Europe
Japan
Emerging Markets
Brazil Bovespa
Russia RTS
Asia
MSCI Asia ex-Japan
582.49
608.06
514.37
0.83%
5.28%
13.43%
3.33%
Australia S&P/ASX 200
5820.17
5850.90
5122.00
4.15%
8.49%
13.42%
7.56%
2.69%
China HSCEI (H-shares)
11697.32
12400.40
9159.76
-0.19%
-2.45%
22.64%
-2.40%
-2.38%
China Shanghai Composite
3075.91
3406.79
1974.38
-4.19%
-8.22%
51.29%
-4.91%
-5.47%
Hong Kong Hang Seng
24679.39
25362.98
21137.61
0.70%
5.08%
15.20%
4.55%
4.57%
India Sensex30
28717.91
29844.16
20149.01
-1.59%
6.41%
41.39%
4.43%
6.45%
Indonesia JCI
5342.52
5375.09
4440.59
1.00%
3.36%
20.74%
2.21%
0.09%
Malaysia KLCI
1813.25
1896.23
1671.82
1.80%
5.63%
0.85%
2.95%
1.63%
Korea KOSPI
1955.52
2093.08
1876.27
0.32%
3.88%
2.50%
2.08%
1.93%
Philippines PSE
7728.18
7777.84
5919.43
0.50%
6.19%
30.66%
6.88%
7.83%
Singapore STI
3431.36
3441.66
3000.17
1.18%
4.55%
14.83%
1.97%
-0.16%
Taiwan TAIEX
9456.18
9593.68
8356.93
1.01%
4.51%
13.78%
1.60%
1.55%
Thailand SET
1613.63
1619.77
1288.26
2.05%
9.21%
24.58%
7.74%
8.47%
Commodity
Oil
Gold spot
51.69
107.73
43.58
7.15%
7.84%
-47.17%
-2.97%
-2.97%
1233.92
1392.22
1131.24
-3.88%
1.27%
-1.93%
4.14%
4.14%
Source: Reuters as of 6 February 2015
Page 4
Citigold
Weekly Market Update | 9 February 2015
Disclaimer
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Investment Committee. For important disclosures concerning companies covered by Citi's Equity Research analysts, please refer to the attached link:
https://www.citivelocity.com/cvr/eppublic/citi_research_disclosures.
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