draghi is ready for an october policy shift. are markets? · weakness. the market has almost...

Cross-Asset Weekly 08 September 2017

1 | Cross-Asset Weekly

Draghi is ready for an October policy shift. Are markets?

Yesterday’s ECB meeting prepares the ground for a change in the ECB’s QE programme in October, as we discuss in our European Macro, FX and Rates section. 2017 GDP growth was revised up to 2.2% in the staff projections – the highest level since 2007. Inflation projections were only lowered by 0.1% despite the stronger currency. FX markes didn’t see the ECB yet as a headwind for further euro appreciation despite the push by against the recent euro rally in the statement and press conference. The rates market saw the meeting as dovish and bond yields fell. It appears for the rates market, the focus in on an extension and not tapering. On the macroeconomic front, some positive news are coming from Japan. In our Japan Macro section, we show how the country has returned to a path of relatively steady growth, thanks to improvement in domestic demand. Inflation remain weak, but recent developments in the labor market suggest that better wage growth is within reach. Nonetheless, we do not expect any policy shift from the BoJ, as the inflation target has been too elusive on too many occasions before. The US corporate bond market looks healthy with record levels of issuance expected in 2017, as we discuss in the US Equity Strategy section. We monitor issuance volumes, credit spreads, and breadth of US corporate bonds, as they also contain information relevant for US equities. US corporate bond market breadth figures confirm the solid medium-term uptrend in US equities. In our Emerging Markets section, we highlight the strong YTD performance of Indone-sian corporate bonds on improving fundamentals. However, we point out that further upside is limited given the stretched valuations. This week’s highlights

European Macro, FX and Rates 2ECB preparing the ground for policy changes in October FX Market reaction: ECB isn’t yet a headwind for further euro appreciation Rates Market: Bullish reaction – extension isn’t tapering?

Japan Macro 5Is Japan back?

US Equity Strategy 7Giving some additional credit to US equities

Emerging Markets: Indonesia 9Rich valuations limit further upside potential

Economic Calendar 10Week of 11/09 – 15/09/2017

Market Performance 11Global Markets in Local Currencies

Contacts Dr. Karsten Junius, CFA Chief Economist [email protected] +41 58 317 32 79 Adolfo Laurenti Global Economist [email protected] +41 58 317 30 86 Ursina Kubli Forex Strategist [email protected] +41 58 317 32 80 Cédric Spahr, CFA Equity Strategist [email protected] +41 58 317 31 28 Dr. Florian Weber, CFA Fixed Income Strategist [email protected] +41 58 317 31 14 Emiliano Surballe, CFA Emerging Market Credit Strategist [email protected] +41 58 317 35 64 Kunal Singh, CFA Emerging Market Credit Strategist [email protected] +41 58 317 31 21 Thilina Hewage, CFA Emerging Market Credit Strategist [email protected] +65 6230 66 61



European Macro, FX and Rates

ECB preparing the ground for policy changes in October

This week’s ECB meeting prepares the ground for a change in the ECB’s QE pro-gramme in October. 2017 GDP growth was revised up to 2.2% in the staff projec-tions – the highest level since 2007. Inflation projections were only lowered by 0.1% despite the stronger currency.

The decision about the future of the ECB’s asset purchase programme was postponed to October. During the press conference, ECB president Draghi said the governing council discussed the QE programme, in particular the length and size, and the ECB has tasked committees to analyse various options. A key part of the discussion was about the impact on the transmission channel of these different options. This could be an indication that the ECB is also looking at changing the composition of its pro-gramme – or just taper sovereign purchases while letting credit purchases run longer. The ECB’s staff projections showed a substantial upward revision for the 2017 GDP growth. The ECB now expects growth at 2.2% - the highest level since 2007. Inflation projections were only lowered marginally by 0.1% to 1.5% in 2019, which is less than could have been expected due to the euro appreciation. The ECB’s sensitivity analysis suggests that a 10% appreciation of the euro should lower inflation by 0.5% in 12 months. Given the 5% appreciation of the trade-weighted euro, the small revision sug-gests a strong confidence of the ECB in bringing inflation back to its medium-term aim of 2%.

FX Market reaction: ECB isn’t yet a headwind for further euro appreciation

The rates and FX markets seemed to have attended two different press conferences. The FX investors took the meeting as hawkish and the euro rose against most other currencies. The EUR/USD exchange rate rose above 1.20 and the EUR/CHF spiked again above 1.14. This is reaction appears strange given Draghi’s insistence that the revision in the inflation profile was entirely due to the stronger currency.

Dr. Florian Weber, CFA Fixed Income Strategist [email protected] +41 58 317 31 14

2017 GDP growth revised to 2.2% - the highest level since 2007

Inflation only revised down marginally to 1.5% in 2019

Exhibit 1: 2017 GDP growth revised to the highest level since2007

Exhibit 2: Inflation only revised down marginally for 2019

Source: European Central Bank, J. Safra Sarasin, 07.09.2017 Source: European Central Bank, J. Safra Sarasin, 07.09.2017

Euro up and bond yields down after the press conference

2.2%

1.8%1.7%

1.9%1.8%

1.7%

0.0

0.5

1.0

1.5

2.0

2.5

2017 2018 2019September staff projections June staff projections

1.5%

1.2%

1.5%1.5%

1.3%

1.6%

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2017 2018 2019September staff projections June staff projections



The strong increase of the euro, therefore, is a concern for the ECB. The staff projec-tions assume the EUR/USD exchange rate to remain at 1.18 in 2018 and 2019. In ad-dition, the trade weighted euro is expected to only increase by only 2.6% in 2018 and remain unchanged in 2019. ECB president Draghi in the press conference also sug-gested several times that a too strong euro is a risk. The ECB statement even included a sentence that “the recent volatility in the exchange rate represents a source of uncer-

tainty which requires monitoring with regard to its possible implications for the medium-

term outlook for price stability”1 – a phrase central bank’s use if they want to push against moves in the currency. The reaction of the euro is even more puzzling given the rates market pricing. The real interest rate spread between 2-year US and EUR rates in two years (2y2y) has re-mained extremely stable at around 150bp since the beginning of 2017. However, the EUR has strengthened from 1.05 to 1.20 during that time (see Exhibit 3). We continue to believe that this divergence cannot be sustained in the long-run. Either the interest rate spread needs to tighten – our expected scenario – or the Euro should depreciate against the US-Dollar. However, we also believe that the recent euro strength is also supported by a dollar weakness. The market has almost entirely priced out the Trumpflation trades and dov-ish comments by Brainard reduced the probability for another rate hike. The market is currently pricing the next 25bp only for July 2018. This is also negative for the Dollar. While we acknowledge the weaker US inflation numbers, GDP growth and labour market tightness, makes the current market pricing excessively dovish. Until July 2018, we continue expecting three rate hikes – December 2017, March 2018 and June 2018. If the market shortens the time until the next full hike is priced, the EUR/USD exchange rate could fall again and also interest rates would increase globally.

1 http://www.ecb.europa.eu/press/pressconf/2017/html/ecb.is170907.en.html

Strong euro remains a concern for the ECB

EUR/USD exchange rate rates diverged from interest rate differentials

ECB and Fed rate hike expectations have been pushed into the future

Exhibit 3: EUR/USD exchange rate rates diverged from interestrate differentials

Exhibit 4: ECB and Fed rate hike expectations have been pushedinto the future

Source: J. Safra Sarasin, 08.09.2017 Source: Credit Suisse Locus, J. Safra Sarasin, 08.09.2017

1.05

1.10

1.15

1.20

1.25

1.30

1.35

1.40

1.45

1.50-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2010 2011 2012 2013 2014 2015 20162010 - 2014: 2y real rate & 2015-today: 2y2y real rate spread

EUR/USD exchange rate, rhs, inv

Apr-16

Nov-16

Jun-17

Dec-17

Jul-18

Jan-19

Aug-19

Feb-20

Sep-15 Jan-16 Jun-16 Nov-16 Apr-17 Aug-17Fed Hike ECB Hike



Rates Market: Bullish reaction – extension isn’t taper-ing?

In contrast to the FX market, the rates market seemed to have taken the press confer-ence as neutral-to-dovish. Bund yields fell and periphery bonds rallied strongly. The takeaway for the rates market seems to have been: 1. Europe remains the best “goldilocks” place – strong growth, highly accommodative

central bank, and subdued inflationary pressures 2. The ECB will remain dovish despite the strong growth outlook. The date until a full

hike 25bp is priced, has been shifted to Q1 2020 (see Exhibit 4) 3. The ECB will only use the flexibility within the current parameters of its programme.

This supportive of German Bunds, where scarcity is most acute, and should be supportive for Supras and CSPP eligible bonds.

However, both the rally in bund yields and the rise of the euro was likely supported by strong increase in US initial jobless claims, which rose to 298k. This should be largely driven by the effect of Hurricane Harwey. The rally in German Bunds was mainly driven by lower real rates. The 10-year German Bund real rate has fallen back to negative 1.0% (see Exhibit 5). This drop in real rates explains entirely the lower bond yields. The rates market seems to price “extension” albeit at a lower pace instead of “tapering”. This would also be consistent with strong positive reaction of periphery bonds, which rallied strongly after the yesterday’s meeting (see Exhibit 6). We believe the market is underestimating the pace at which the sovereign purchases within the overall asset purchases could be reduced. When the ECB reduced its pur-chase pace from 80bn/month to 60bn/month, the reduction almost entirely fell on the sovereign bond purchases within the QE programme. We believe this could happen again this time and continue expecting an end of the sovereign bond purchases within 1H 2018, even if the whole QE programme runs longer. This should be bearish for sov-ereign bonds, Bunds and periphery, while being positive for corporate bonds.

Rates market saw the meeting as neutral-to-dovish

Drop in bond yields driven by lower real rates

Periphery spreads tightened after the ECB meeting but are significantly wider than in early August

Exhibit 5: Drop in bond yields driven by lower real rates Exhibit 6: Periphery spreads tightened after the ECB meeting butare significantly wider than in early August

Source: Credit Suisse Locus, J. Safra Sarasin, 08.09.2017 Source: Credit Suisse Locus, J. Safra Sarasin, 08.09.2017

-1.2

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

Jan-16 May-16 Aug-16 Dec-16 Apr-17 Aug-17

10y DBR real yield 10y DBR nominal yield

90

110

130

150

170

190

210

Jan-16 May-16 Aug-16 Dec-16 Apr-17 Aug-17

10-year BTP - DBR spread



Japan Macro

Is Japan back?

Japan appears to have returned to a path of relatively steady growth, thanks to improvement in domestic demand. Inflation remain weak, but recent developments in the labor market suggest that better wage growth is within reach. Nonetheless, we do not expect any policy shift from the BoJ, as the inflation target has been too elusive on too many occasions before. Central bankers will likely want to see a fuller, longer recovery in place before tinkering with monetary policy.

One important story in the current upswing in global growth is the economic renais-sance of the Japanese economy, which grew by 2.5% annualized during 2Q17. This is softer than initially estimated, yet the best performance in more than two years, and it marks the fourth straight quarter of progressive acceleration in growth (see Exhibit 1). There are two encouraging development in the composition of growth. First, domestic demand is accelerating. Unlike 2016, when exports still represented the major driver for the economy, recent data shows that both consumption and investment are picking up. Anecdotal evidence suggests that spending on services and discretionary goods are improving, and so is leisure-related consumption, a sign that consumers are growing more confident. Residential investment has been strong in recent quarters, but capex is also improving – and with the Olympics Games heading to Tokyo in 2020, govern-ment and infrastructure spending is expected to accelerate further in 2018 and 2019. Second, the mix of nominal and real growth is improving. In the early stages of Abe-nomics, markets were disappointed that the policy shock, mostly on the monetary side, resulted in higher inflation but relatively disappointing real growth. Ultimately this trend proved to be unsustainable, and inflation failed to remain close to the BoJ target. What we are now seeing is the reverse situation: inflation remains muted, like in most De-veloped Economies, but growth is improving – going forward, a much more sustainable mix. With potential growth estimates at 0.5%-1%, growth is running above potential, which is a more dependable manner to lead to higher inflation. Consumer prices remain indeed a major policy focus, in a country that has struggled with deflation for almost two decades (see Exhibit 2). Inflation readings remain low, with consumer prices at a modest 0.4% yoy in July (excluding food and energy, core is at a meagre 0.1% yoy).

Adolfo Laurenti Global Economist [email protected] +41 58 317 30 86

Japan is enjoying some of the better growth rates seen in more than two years

Improving domestic demand is a driver of growth, and both consumer spending and investment should sustain momentum in coming quarters

Nominal growth remains anaemic, but fi-nancial markets like the combination of positive real growth and low inflation

Inflation remains weak

Exhibit 1: Real and nominal growth Exhibit 2: The struggle with deflation

Source: Datastream, J. Safra Sarasin, 08.09.2017 Source: Datastream, J. Safra Sarasin, 08.09.2017

-2

-1

0

1

2

3

4

5

1Q15 3Q15 1Q16 3Q16 1Q17

Real GDP q/q annualized

Nominal GDP y/y

-3

-2

-1

0

1

2

3

4

5

2000 2002 2004 2006 2008 2010 2012 2014 2016

CPI

Core CPI excl.Food & energy

Abenomics shock

VAT tax shock



Some structural factors remain in place to keep a lid on prices, in particular the ad-verse demographic trends. Yet, the output gap is now firmly in positive territory and over time we shall expect inflation to slowly rise toward more reassuring levels. Japan is, after all, one of the few developed countries where a relationship between the un-employment rate and inflation (the so called Phillips Curve) still holds (see Exhibit 3). Despite an unemployment rate below 3%, there is yet little evidence that wages and salaries are accelerating, at least for full-time workers. But signs of a more positive evolution are already apparent. Hourly wages for part-time employees are rising at the fastest pace since 2008, and businesses report an overall shortage of part-time work-ers. Overall, the participation rate is rising, in particular thanks to a rising number of women joining the workforce – a success of an early labor market reform by the Abe government. Measures of hiring and job openings point to a strong labor market, and wages are expected to follow soon. Indeed, labor shortages are often indicated as a driver of capex spending. Despite the positive developments, we believe that the Bank of Japan will continue to remain fairly accommodating. The bold shift towards a new policy regime of “quantita-tive and qualitative monetary easing with yield curve targeting” was welcomed with some scepticism in 2016 (and you could count us among the sceptics), but it is giving some results. Yet, the inflation target has been too elusive on too many occasions, and we believe the BoJ will be reluctant to make any changes to the current mix until a full recovery is well underway. The country is moving in the right direction, but it is too early to sound the all-clear signal.

A positive output gap bodes well for wage growth

A tight market for part-time workers is also a harbinger of improvement in overall wag-es

The monetary policy mix is working, and the BoJ will be reluctant to make any ad-justment until a fuller recovery is under way

Exhibit 3: The “Phillips Curve” and the stable relationship be-tween inflation and unemployment rate in Japan

Exhibit 4: The labor force participation rate is rising again

Source: Datastream; J. Safra Sarasin, 08.09.2017 Source: Datastream; J. Safra Sarasin, 08.09.2017

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0%

Infla

tion

Unemployment rate48

49

50

51

52

53

58

59

60

61

62

63

64

2000 2002 2005 2008 2011 2014 2017

Labor force participation rate (LHS)

Labor force participation - female (RHS)



US Equity Strategy

Giving some additional credit to US equities

The US corporate bond market looks healthy with record levels of issuance ex-pected in 2017

We monitor issuance volumes, credit spreads and breadth of US corporate bonds, as they also contain information relevant for US equities

US corporate bond market breadth figures confirm the solid medium-term up-trend in US equities

We perform a health check of the US corporate bond market in terms of credit spreads, issuance and breadth, since its dynamics usually bear significant implications for US equity market trends. As the Fed is about to start winding down its balance sheet, we will monitor the issuance as well as other corporate bond market indicators more closely. The monetary tightening due to the balance sheet shrinkage might impact the liquidity and issuance volumes of US corporate bonds, which would be in turn detri-mental for the US equity market. The total volume of listed US corporate bonds went from about $2tr in 1996 to over USD 8tr at the end of 2016. The volume of bond issu-ance at the end of August 2017 compared with issuance at the end of August 2016 strongly hints that US corporate bond issuance in 2017 is likely to exceed the record level of the past year ($1527bn), for the sixth year in a row (see Exhibit 1). US compa-nies, including names with lower credit ratings, presently enjoy an easy access to bond market financing.

The aggregate behaviour of the US corporate bond market often provides useful con-firming information about the overall trend for US equities. This is especially true when it comes to its riskier parts which are high yield and convertible bonds. Corporate bonds react to a large extent to the same business cycle and risk appetite factors which drive equity markets. Movements in high yield spreads tend to coincide with moves in US equity indices (see Exhibit 2). Since 2009, the Fed has added a new di-mension to the relationship between US corporate bonds and equities through its very loose monetary policy. US corporates harnessed the low yield environment and lever-aged their balance sheets. They have issued large volumes of corporate bonds and have used the proceeds for share buybacks. This mechanism effectively boosted EPS growth during a time when sales and GDP growth were scarce. Any substantial worsen-ing of issuance conditions for US corporate bonds would endanger this source of sup-port of US equities and erode EPS growth. We are currently not overly concerned with an end of buybacks.

Cédric Spahr, CFA Equity Strategist [email protected] +41 58 317 31 28

US companies currently enjoy easy access to bond market funding

US corporate bond and equity markets are closely connected

Exhibit 1: Total US corporate bond issuance in 2017 should ex-ceed the record level registered in 2016.

Exhibit 2: US high yield bond spreads generally move in sync withUS equities. The low level of spreads is bullish for equities.

Source: SIFMA, Bloomberg, J. Safra Sarasin, 06.09.2017 Source: Bloomberg, J. Safra Sarasin, 06.09.2017

0

400

800

1'200

1'600

2'000

1996 2000 2004 2008 2012 2016

US High yield bond issuance

US Investment grade bond issuance

USD bn

0

500

1000

1500

2000

2500

3000

1995 2000 2005 2010 2015

S&P 500

Credit Suisse US high yield spread to worst (bp)



We analyse breadth in the US corporate bond market by using the data provided by the Financial Industry Regulatory Authority (FINRA). FINRA provides figures on advancing & declining US bond issues and on the number of issues making 52 week new highs or new lows, just like the New York Stock Exchange provides equivalent statistics for equi-ties. FINRA break data sets down in investment grade, high yields, agency, and convert-ible bonds. Breadth figures in the bond market often react with more inertia to equity market movements ‒ bonds are less risky than equities ‒ and create less frequent whipsaws than equity market breath indicators. We use them to confirm the overall trend in US equities. High yield and convertible bond breadth have worsened for exam-ple substantially in late 2007, which provided a strong warning sign for US equities ahead of the 2008 crisis. High yield breadth has also worsened in 2H15 and 2016 ‒ high yield bonds issued by US shale oil producers suffered disproportionately as the oil price dropped‒, yet the more subdued reaction of convertible bond breadth during the same period indicated that the situation for the US economy was probably not as seri-ous. Currently, all our measures of corporate bond breadth exhibit strong uptrends and carry the same bullish message for US equities. The monitoring of US corporate bond issuance, credit spreads, as well as breadth figures reinforces the credibility of our work on the equity side. Corporate bond issu-ance remains very strong, while movements in credit spreads do not betray any worsen-ing trend. We presently do not observe any sign of divergence between the behaviour of US corporate bonds and equities. Both markets retain a bullish overtone which con-firms our positive view for US equities going into year-end.

Corporate bond market breadth figures re-veal strong uptrends

Corporate bond market breadth confirms the uptrend in US equities

Exhibit 3: The trend for 52 week net new highs among US highyield bonds looks very strong, which is bullish for US equities.

Exhibit 4: The cumulated advance/decline line for US convertiblebonds provides a similarly bullish picture for equities.

Source: FINRA, Bloomberg, J. Safra Sarasin, 06.09.2017 Source: FINRA, Bloomberg, J. Safra Sarasin, 06.09.2017

-8'000

-6'000

-4'000

-2'000

0

2'000

4'000

6'000

8'000

10'000

12'000

14'000

500

1'000

1'500

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2005 2010 2015

HY bonds, cumulated 52W highs - lows (rhs)

S&P 500

-500

0

500

1'000

1'500

2'000

2'500

3'000

3'500

500

1'000

1'500

2'000

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2005 2010 2015

Convertible bonds, cumulated advance / decline line (rhs)

S&P 500



Emerging Markets: Indonesia

Rich valuations limit further upside potential

Indonesia has generated stellar returns within the Asian USD credit space since the beginning of 2016. While the fundamental and technical picture remains fa-vourable, valuation levels have become expensive vs. its Asian peers in our view.

Year-to-date, Indonesia has been a clear outperformer within Asian USD credits, with total return of 11%. In comparison, Asian credits have returned 5.66% so far in 2017. Indonesia performed strongly in 2016 as well, with total return of 12.8%. A rating up-grade from S&P, stability in macro-economic fundamentals and limited new issue sup-ply has enabled Indonesia to outperform its Asian peers. Looking ahead, we see valua-tions as a key impediment for Indonesia to repeat its strong performance. Economic growth in Indonesia has remained stable at the 5% range in recent quarters and policy makers have taken coordinated actions to boost the growth rate. Benign in-flation and receding external risks enabled policy makers to cut policy rates in August. The government also raised 2017 fiscal deficit target to 2.92% of GDP from 2.41% to expedite investment in infrastructure assets. On the external front, Indonesia has suc-cessfully reduced its Current Account Deficit to 1.5% of GDP in 2Q17 from 3.6% in 3Q13. As a consequence, foreign reserves have reached an all-time high of $127bn, implying an import coverage of 10 months. The improvements on the external front should put Indonesia in a solid position to weather external shocks in the near term. On the technical front, limited new issue supply has been a supportive factor for valua-tions. Indonesia has issued $9.2bn of bonds in 2017 vs $127bn by China. This has supported Indonesian spreads which are currently trading at their lowest levels since 2011. On a relative basis, Indonesia presently trades inside its higher rated peers such as China and Hong Kong. Furthermore, Indonesia has a higher duration (8.1) compared to broader Asian credit market (4.7). While technical factors may remain strong for Indonesia, aided by relatively low new issuance, valuations have become a key impediment for performance in the near term. On a relative basis, we see valuation in Indonesia as expensive and see better value in higher rated peers at this juncture.

Thilina Hewage, CFA Emerging Market Credit Strategist [email protected] +65 6230 6661

Indonesia has outperformed Asia credit by a wide margin in 2017

Fundamentals remain stable aided by pro-growth policies and improving external sector

Post the recent rally, Indonesia’s valua-tions look expensive versus Asian peers, limiting upside potential

Exhibit 1: Trends in Foreign Reserves and quarterly GDP growth Exhibit 2: USD Credit Spreads (bps) in Asia by country

Source: Bloomberg, BJSS Source: JP Morgan Asia Credit Index, BJSS

95

100

105

110

115

120

125

130

4.0

4.2

4.4

4.6

4.8

5.0

5.2

5.4

Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17

GDP Growth Foreign Reserves (USD Bn)

238

274285

231

203

182

125

150

175

200

225

250

275

300

Asia Credit(BBB+/Baa1)

China(BBB+/Baa1)

Hong Kong (A-/Baa1)

India (BBB-/Ba1)

Indonesia(BBB-/Baa3)

Philippines(BBB/Baa2)



Economic Calendar

Week of 11/09 – 15/09/2017

Country Time Item Date Unit Consensus

Forecast Prev.

Monday, 11/09/2017 JP 06:30 Tertiary Industry Index Jul mom - 0.0%CH 10:00 Total Sight Deposits Sep 08 CHF bn - 579.2 10:00 Domestic Sight Deposits Sep 08 CHF bn - 468.5

Tuesday, 12/09/2017 JP 02:01 Manpower Survey 4Q16 index - 24.0US 12:00 NFIB Small Business Optimism Aug index - 105.2 16:00 JOLTS Job Openings Jul 1 000 - 6163

Wednesday, 13/09/2017 CH 09:15 Producer & Import Prices Aug yoy - -0.1%EMU 11:00 Industrial Production Jul yoy - +2.6%DE 08:00 CPI, final Aug mom - +0.1% 08:00 CPI, final Aug yoy - +1.8% 00:00 Wholesale Price Index Aug mom - -0.1% 00:00 Wholesale Price Index Aug yoy - +2.2%US 13:00 MBA Mortgage Applications Sep 08 % - - 14:30 PPI Final Demand Aug mom +0.3% -0.1% 14:30 PPI Final Demand Aug yoy - +1.9% 14:30 PPI ex Food & Energy Aug mom +0.2% -0.1% 14:30 PPI ex Food & Energy Aug yoy - +1.8% 20:00 Monthly Budget Statement Aug USD bn - -42.9

Thursday, 14/09/2017 CH 09:30 Sight Deposit Interest Rate Sep 14 % - -0.75%UK 13:00 BoE Sets Interest Rate Sep 14 % - 0.25%US 14:30 Initial Jobless Claims Sep 9 1 000 - - 14:30 Continuing Claims Sep 2 1 000 - - 14:30 CPI Aug mom +0.3% +0.1% 14:30 CPI Aug yoy +1.8% +1.7% 14:30 CPI ex Food & Energy Aug mom +0.2% +0.1% 14:30 CPI ex Food & Energy Aug yoy +1.6% +1.7% 14:30 Avg. Weekly Earnings Aug yoy - +1.1% 14:30 Avg. Hourly Earning Aug yoy - +0.7% 15:45 Consumer Comfort Sep 10 index - -

Friday, 15/09/2017 US 14:30 Empire Manufacturing Sep index - 25.2 14:30 - Less Auto Aug mom +0.5% +0.5% 15:15 Capacity Utilization Aug index 76.9% 76.7% 15:15 Manufacturing Production Aug mom - -0.1% 16:00 U. of Mich. Expectations, prel. Sep index - 87.7

Source: Bloomberg, J. Safra Sarasin



Market Performance

Global Markets in Local Currencies

Government Bonds Current value Δ 1W Δ YTD TR YTD in %

Swiss Eidgenosse 10 year (%) -0.17 -4 2 -1.4

German Bund 10 year (%) 0.31 -7 10 0.4

UK Gilt 10 year (%) 0.98 -8 -26 4.7

US Treasury 10 year (%) 2.03 -14 -42 3.3

French OAT - Bund, spread (bp) 31 0 -17

Italian BTP - Bund, spread (bp) 165 -5 4

Spread over govt bonds

Change in credit spread Credit in-

dex

Credit Markets (bp) Δ 1W Δ YTD TR YTD in %

US Investment grade corp. bonds 60 -3 8 5.8

EU Investment grade corp. bonds 54 0 19 1.7

US High yield bonds 334 -11 21 6.8

EU High yield bonds 235 -1 53 4.8

Stock Markets Level P/E ratio 1W TR in % TR YTD in %

SMI - Switzerland 8'902 17.9 -0.2 11.8

DAX - Germany 12'305 13.5 2.0 7.1

MIB - Italy 21'814 14.9 0.2 15.6

IBEX - Spain 10'148 14.2 -1.7 11.0

DJ Euro Stoxx 50 - Eurozone 3'448 14.7 0.8 7.7

FTSE 100 - UK 7'366 15.1 -0.4 6.9

S&P 500 - USA 2'465 18.8 0.3 11.7

Nasdaq 100 - USA 5'964 21.5 0.5 23.6

Nikkei 225 - Japan 19'275 16.6 -1.3 2.5

MSCI Emerging Markets 1'090 13.6 0.3 28.9

Forex - Crossrates Level 3M implied volatility

1W in % YTD in %

USD-CHF 0.95 8.9 -2.0 -7.2

EUR-CHF 1.14 7.1 -0.3 6.4

GBP-CHF 1.25 8.7 0.0 -0.7

EUR-USD 1.21 8.2 1.7 14.7

GBP-USD 1.32 7.8 2.1 7.1

USD-JPY 107.4 9.9 -2.6 -8.2

EUR-GBP 0.91 8.1 -0.3 6.9

EUR-SEK 9.54 5.9 0.5 -0.4

EUR-NOK 9.31 6.5 0.7 2.5

Commodities Level 3M realised

volatility 1W in % YTD in %

CRB Commodity Index 436 3.6 0.0 3.0

Brent crude oil - USD / barrel 54 27.3 3.8 -1.8

Gold bullion - USD / Troy ounce 1'353 9.6 2.1 17.9

Source: J. Safra Sarasin, Bloomberg

Contacts Dr. Karsten Junius, CFA Chief Economist [email protected] +41 58 317 32 79 Adolfo Laurenti Global Economist [email protected] +41 58 317 30 86 Ursina Kubli Forex Strategist [email protected] +41 58 317 32 80 Cédric Spahr, CFA Equity Strategist [email protected] +41 58 317 31 28 Dr. Florian Weber, CFA Fixed Income Strategist [email protected] +41 58 317 31 14 Emiliano Surballe, CFA Emerging Market Credit Strategist [email protected] +41 58 317 35 64 Kunal Singh, CFA Emerging Market Credit Strategist [email protected] +41 58 317 31 21 Thilina Hewage, CFA Emerging Market Credit Strategist [email protected] +65 6230 66 61


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