switching into a higher gear - deutsche bank research · 2016-11-29 · the house view, 29 november...

Re

se

arc

h

De

uts

ch

e B

an

k

The

House

Vie

w

Switching into a higher gear

DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI(P) 057/04/2016

29 November 2016 Distributed on: 29/11/2016 05:10:00 GMT

Research Deutsche Bank

The House View – 29 November 2016 [email protected] http://houseview.research.db.com

Month in Review

2

NY Times, 21-Nov-2016

Bloomberg, 18-Nov-2016

theguardian, 20-Nov-2016

Reuters, 22-Nov-2016

WSJ, 16-Nov-2016

The Huffington Post, 21-Nov-2016

Financial Post, 21-Nov-2016

ETF Daily News, 17-Nov-2016

Market Pulse, 17-Nov-2016

Reuters, 25-Nov-2016

The China Post, 28-Nov-2016 The New York Times, 9-Nov-2016

Business Indiser, 23-Nov-2016

Zerohedge, 22-Nov-2016

ValueWalk, 23-Nov-2016

WSJ, 23-Nov-2016

The Telegraph, 27-Nov-2016

CyprusMail, 23-Nov-2016

WSJ, 18-Nov-2016

mailto:[email protected]

http://houseview.research.db.com/



Trump’s win may have opened a new chapter for the US. The shift toward a more

balanced mix of easy monetary and fiscal policy and looser regulation is expected to

jumpstart the economy, ending years of low growth and inflation. Faster US growth

would also have positive spillovers to the rest of the world.

Risks remain that some of these growth-friendly policies are not implemented or have

unexpected effects. But the biggest threat to growth is a possible protectionist turn,

which would further depress already anaemic global trade.

Any political spillover in Europe would also be negative. The first risk event is Italy’s

Senate referendum on 4-December. Polls suggest the vote will fail, and if it does, PM

Renzi will likely resign. The sell-off in Italian assets indicates that this outcome is

being priced, but as long as immediate elections and a eurosceptic government are

possible, market stress can build further. Elections in the Netherlands, France and

Germany next year will ensure that political risk remains a source of volatility.

In the coming weeks we will see the last ECB and Fed decisions of 2016. In Europe,

taper talk is premature, and we expect a six month extension of QE. In the US, a rate

hike in December is all but a done deal.

Markets have so far focused on the positives of Trump’s policies, with the dollar

strengthening, rates selling off and equities rising, reaching all-time highs in the US.

Several of these trends should continue in the coming months: the rates sell-off has

some further room to run and the dollar should strengthen further, with the euro

reaching parity next year and further weakness expected in sterling and yen.

David Folkerts-Landau, Group Chief Economist

3

The House View, 29 November 2016 Switching into a higher gear

The views in this publication are informed by Deutsche Bank’s Global Strategy Group, which advises management and

clients on broad market risks and global economic and financial developments. The views and forecasts of the group,

which consists of senior research staff, may occasionally differ from those disseminated by their research colleagues

Editors: Marcos Arana, Aditya Bhave,

Matthew Luzzetti, Rajni Thakur

Table of contents

Introduction 4-boxes

Total returns

Macro

update

Global growth and inflation

post-election

US growth outlook

Downside

risks from

US election

Protectionism

Deglobalisation

Political spillovers

Global

growth

Eurozone and China

update

Markets

Post-election market

moves

Fed and ECB outlook

Summary of market views

FX, rates, and EM views





Fed: expect December hike. Risks of faster hikes than

Fed projection, but unlikely to be revised until H2-2017

ECB: expect 6 month QE extension in December. Too

early for ECB to taper, given core inflation still low

BoJ: easing bias. Limited rate cuts possible. Monetary

base expansion likely to slow

BoE: neutral stance, with risks slightly skewed to

easing – but further rate cut no longer our baseline

PBoC: return to easing with rate cut in H1-2017

EM: generally on hold, with few exceptions (e.g.,

tightening in Turkey)

Global outlook remains sluggish. Expect growth to rise

modestly to 3.4% in 2017. Potential for upside on the

back of stronger US growth

Much more bullish on US growth following Trump win.

Marked up forecasts for 2017 (2.3%), with acceleration

coming mostly in H2, and 2018 (3.5%)

Eurozone growth to remain subdued. Faster US helps

but with lag. Headwinds from credit, Brexit, politics to

keep growth muted in 2017 (1.1%) and 2018 (1.4%)

EM outlook also subdued. Expect pick-up in LatAm,

CEEMEA , but spillover from US initially likely negative

US regime shift: potential for US economy to shift into

higher gear on material fiscal stimulus. Provides first

concrete move toward more balanced policy mix in DM

Politics: political uncertainty high over next 12 months,

especially in Europe – with Italian referendum as well

as Brexit process and elections across eurozone

European banks: underlying issue remains unresolved,

continues to be a source of downside risk for growth

Views on key themes

Economic outlook Central bank watch

Key downside risks to our view

Notes: H / M / L indicates estimated probability of risk (High, Medium, Low).

(*) Sharp deceleration in growth, e.g., growth falling below 5%

(**) Non-performing loans

4

Trump disappointment: US policies tilted to negatives

rather than positives, US growth fails to accelerate

Political risk escalation, banking stress in Europe that

derails recovery – Italy a key risk

China hard landing: sharp contraction that drags down

global growth, possibly due to deflating property bubble

Deglobalisation: rise of anti-trade policies exacerbates

already anaemic global trade and sharply slows growth

EM crisis on the back of rising dollar, US interest rates.

More likely on corporate than sovereign sector

M

M

M

M

More bullish on US outlook following Trump win. But European politics remain a key potential headwind in year ahead

L





24

13 10 10

-1 -4 -4

-6

13

6 5 4

8

4 1

-1

7

3

-1 -2

-15 -16 -17

30

19

12

-20

-10

0

10

20

30

Russia

Mic

ex

UK

FT

SE

10

0

MS

CI E

M

US

S&

P 5

00

Ge

rma

n D

AX

30

Eu

rop

e S

toxx 6

00

Ja

pa

n N

ikke

i

Sp

ain

IB

EX

35

Ita

ly M

ilan

US

HY

EU

R H

Y

US

IG

EU

R IG

UK

Ge

rma

ny

US

Ita

ly

JP

Y

Dolla

r In

de

x

EM

FX

EU

R

TR

Y

GB

P

MX

N

Bre

nt O

il

BB

G C

md

ty I

nd

ex

Go

ld

Since US Election

2016 YTD and since US election on 8-November

% Equities Commodities** FX** Sovereign

debt

Corporate

Credit

2016 YTD

5

Note: (*) Total return accounts for both income (interest or dividends) and capital appreciation. (**) FX, Commodities are spot returns.

Source: Bloomberg Finance LP, Deutsche Bank Research. As of 28 November 2016

Gold under-

performed on

risk-on tone

Credit weighed down

by rise in rates,

despite tighter

spreads in the US

Italy under-

performance

as referendum

nears

FX moves dominated

by dollar strength.

MXN, TRY among

worst performers

EM sell-off on stronger

dollar, rising rates. Russia

an exception, on hopes of

friendlier US stance

Trump’s election has been the key driver for markets – leading to dollar and DM equities rally, and core rates and EM sell-off

Strong rally in DM equities,

especially US, on

expectation of fiscal

stimulus, stronger growth

Widespread

core rate sell-

off

Oil up on

OPEC supply

cuts hopes





Past the election surprise, the focus has shifted to

the macroeconomic implications of Trump’s policies

This has triggered a positive reassessment of the

US and global macro outlook

The view centres on the expectation of a shift

toward a more balanced policy mix

− Monetary policy “only game in town” post-crisis

– ultra easy monetary policy compensated for

tight fiscal policy, tight regulation, lack of reform

− Fiscal stimulus, regulatory easing welcome at a

time when monetary easing seen as exhausted

The US is the first to take this step

− Only major country planning material fiscal

easing (infrastructure spending, tax cuts)

Similar response elsewhere unlikely for now, but

the pendulum is shifting in this direction

− UK: only marginal relaxation of austerity, but

new fiscal flexibility rules and corporate tax cuts

− EU: likely to use flexible approach toward

existing fiscal rules

− China: some fiscal easing likely in 2017

Donald Trump’s unexpected election in the US has triggered a reassessment of the US and global macro outlook

6

Policy mix: Trump’s fiscal plan to be the first shift toward a more

balanced policy mix

Structural

reform

Prospects

unclear

Monetary

policy

Ultra easy, has

compensated for

tightness

elsewhere

Financial

regulation

Possible

easing

Fiscal

policy

Large

stimulus

planned

Currently tight but expected to ease More relevant

in Europe

-10

-8

-6

-4

-2

0

2010 2012 2014 2016 2018 2020 2022 2024 2026

Trump proposes a material increase in the fiscal deficit

Fiscal balance, % of GDP

Current

law (CBO)

Trump’s

plan

Source: CBO, CRFB, Haver Analytics, Deutsche Bank Research. Note: deficit projection under Trump

assumes growth and tax revenues will follow the CBO's estimates. We expect both series to outperform

these estimates. As a result, the change in the deficit is likely to be less drastic than shown above.

US Economics Weekly: What a difference a week makes – 17-Nov-2016



http://pull.db-gmresearch.com/cgi-bin/pull/DocPull/8822-7533/91259822/DB_USEconWkly_2016-11-18_e7f74632-a67d-11e6-971d-ddb603b4d06a_604.pdf










This reassessment of the outlook brings about the expectation of higher inflation as growth accelerates

7

1.0

1.5

2.0

2.5

3.0

3.5

2010 2011 2012 2013 2014 2015 2016

US Europe

The increase in long-term inflation expectations accelerated after the

US election

5y5y inflation expectations, % (5d avg.)

Source: Bloomberg Finance LP, Deutsche Bank Research

US election

Started rising

ahead of election

The reassessment of the macro outlook is based on

the expectation of the start of a regime shift

− Normalisation away from years of low growth,

low inflation and low interest rates

The US election reinforced a process that started

earlier, underpinned by green shoots in inflation...

− US inflation on a broad uptrend, with further

upside risk from fiscal stimulus

− European inflation stable at low level, but

expected to rise, albeit slowly

...as well as signals from central banks that the

policy stance was shifting away from lower rates

− ECB, BoJ acknowledged limits of more rate cuts

− Fed eager to resume rate hikes

…Likely gradual through 2017 but faster pace

expected in 2018

There remain risks to this assessment

− Much depends on the success of Trump’s

administration to sustainably lift US growth

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

US Core PCE

Europe Core CPI

US core inflation is grinding steadily upward; Eurozone inflation is

low but expected to rise, albeit slowly

%yoy

Source: BEA, Eurostat, Haver Analytics, Deutsche Bank Research





A unified Republican government increases the

chances that Trump will deliver his pro-growth plan

− Lower income, capital gains and corporate taxes

− Rollback of business regulations

− Increase in defense and infrastructure spending

As a result, we have raised our real GDP growth

forecasts to 2.3% in 2017 and 3.5% in 2018 (from

1.7% and 1.9% respectively)

− Peak impact expected in H2 2017 and H1 2018

A key driver will be increase in business spending

− Scope for substantial acceleration as capex has

been very weak in this cycle

− Increase in capital stock would help stabilise or

reverse the downtrend in productivity growth

− Consumption to improve more modestly as

there is little pent-up consumer demand

Labor gains to improve, with unemployment rate

possibly dropping to 4% by 2018 (from 4.9% now)

Inflation to remain contained in near-term by dollar

strength due to improved growth prospects

The main reason to be optimistic about US growth is a material fiscal stimulus package that should help lift business spending

8

1.0

2.0 2.5

3.5 4.0 4.0

3.5 3.0

2.5

0

1

2

3

4

5

Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Q4'18

Pre-election Post-election

We have revised our GDP growth forecasts substantially upwards.

Peak impact expected in H2-2017 and H1-2018

US GDP forecast

% qoq annualised

Source: Deutsche Bank Research

Peak impact

-30

-20

-10

0

10

20

30

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Nonresidential equipment spending

Business investment has been weak relative to prior expansions

% yoy

Source: BEA, Haver Analytics, Deutsche Bank Research

US Daily: Trump plan to give meaningful lift to GDP – 14-Nov-2016



http://pull.db-gmresearch.com/cgi-bin/pull/DocPull/8213-F714/75375833/DB_USEconDly_2016-11-14_44a14964-aa66-11e6-9b76-c3205a63f1d9_604.pdf










Overview of Trump’s policies

Policy area Proposal Assessment

Substantial stimulus, of around 2-3% of GDP

Infrastructure and tax cuts, financed via deficit Potential game changer for growth

Higher deficits risk raising debt to GDP –

but acceptable if growth does accelerate

Congress could water it down

Corporate: slash tax rate*, one-off offer to repatriate foreign

profits at 10%, move from worldwide to territorial tax

Personal: cut top rate, repeal estate tax

Reduce regulatory burden, repeal parts of Dodd-Frank Ease credit supply constraints, helping

support growth

Critical of QE / low interest rates policy, supports Fed audit

Chair Yellen likely to be replaced in 2018 Challenges to Fed independence would

be negative

Protectionist stance: introduce tariffs / duties

Tough on China: 45% tariffs, label as FX manipulator

Renegotiate NAFTA, reject TPP, unlikely to support T-TIP** Material blow to globalisation

Major threat for global economy

Isolationist stance

Swing toward Russia, criticism of NATO, China Challenge to US-led liberal world order

that has prevailed for last 70 years

Tough stance on immigration: build Mexico wall, end

birthright citizenship Very negative at face value, though likely

to be watered down

Other Repeal Obamacare

Minimum wage determined at state / local level

Scale back climate change regulation

But not all of Trump’s programme is positive. The success will depend on what gets implemented – and uncertainty here is high

9 Note: (*) From 35% to 15%; (**) Trans Pacific Partnership and Transatlantic Trade and Investment

Partnership; (#) High frequency trading

Fiscal

deficit

Finance

Fed

Tax

Immigration

Foreign

policy

Trade





95

100

105

110

115

120

125

130 -5

0

5

10

15

20

25

30

2000 2004 2008 2012 2016

Credit to EM

Broad dollar (inverted, RHS)

Dollar strength a negative for EM

% yoy

Note: Credit to private non-financial sector.

Source: BIS, Bloomberg Finance LP, Deutsche Bank Research

$ strength negat-

ive for EM credit

Impact of strong dollar

Trade

Makes US exports less

competitive

Worsens US trade deficit

Manufac-

turing

Raises cost of “made in

USA”, disincentivises

investment

Corporate

profits

Stronger dollar depresses

foreign earnings – which

account for 25% of S&P

Trump vowed to protect US jobs by

erecting trade barriers, shifting from

US’ long-standing free-trade stance

Position is negative for global trade

Question is how strongly US

embraces protectionism

− Pledged withdrawal from TPP,

tweaks to NAFTA manageable

− More extreme action, e.g., WTO

withdrawal or attacking China as

currency manipulator, could be

very negative

Stronger US growth positive for EM

– but only with a lag. Barriers to

trade diminish the positive spillover

But negative impact of stronger

dollar and higher rates is immediate

− Effect on external debt service,

creditworthiness, external

accounts, risk assessment – and

supply and demand of credit

EM to suffer over next few quarters

Major concerns include the threat of protectionism, the potential drag from a strong dollar on the US economy, and EM

10

1 Threat of protectionism 2 Impact of strong $ on US economy 3 Impact on EM

Stronger dollar reflects expectations

of higher growth, inflation, rates –

this is positive

But there is concern that a strong

dollar could weigh on US economy

− Negative for trade, investment,

manufacturing, corporate profits

Balancing forces should prevent

excessive dollar appreciation

− Dollar strength depends on Fed

hikes, which depend on inflation

and strength of economy

30

40

50

60

2009 2011 2013 2015

Democrats

Republicans

% support for free trade*

Note: % saying “free trade has been a good thing for the US”

Source: Pew Research, Deutsche Bank Research

Collapsing

support for free

trade (and

globalisation)

Anti-trade tone appeals to Republican base

Hold the exuberance – 18-Nov-2016



http://pull.db-gmresearch.com/p/3876-A5C2/87658094/DB_Update_2016-11-17_0900b8c08c0ee209.pdf










The several decade-long rise of

globalisation could be in retreat

− Trade’s share of global GDP

has peaked

− Capital mobility has declined

− Tariffs have risen and could

rise further

Undercurrent of anti-globalisation

sentiment at centre of this trend

− Evidenced in Brexit, Trump’s

victory, rising support of

eurosceptic parties in Europe

Deglobalisation could have

significant implications for global

macro if it continues

− Smaller trade imbalances,

flows of capital and FDI

− Dollar funding will become

more constrained / expensive

− Slower productivity growth

and higher inflation with

reduced specialisation

Threats to trade come at a time when the world economy may be entering a period of deglobalisation

11

0

10

20

30

40

50

1980 1990 2000 2010

Number of free trade agreements signed

Source: WTO, IMF WEO Oct-2016, Deutsche Bank Research

Number of new free trade agreements has

been in decline

#

50

60

70

80

90

2002 2008 2010 2012 2014

US

Other country median

Source: Pew, Deutsche Bank Research

Falling support for openness since early

2000s, and generally lower in the US

%, Growing trade and business ties

are a good thing…

0

10

20

30

40

50

60

70

1870 1890 1910 1930 1950 1970 1990 2010

World trade share of global GDP has peaked;

do not take globalisation for granted

% of GDP


WWI starts

WWI ends

2016

est.

0.0

0.1

0.2

0.3

0.4

0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1990 1995 2000 2005 2010 2015

Source: IMF WEO Oct-2016, Deutsche Bank Research

Non-tariff impediments to trade have been on

the rise

% of products

Countervailing

duties (rhs)

Trade barriers

Anti-

dumping

Deglobalisation is here: what it means for global macro – 16-Nov-2016

The risk of deglobalisation: a US-China trade war? – 28-Nov-2016



http://pull.db-gmresearch.com/cgi-bin/pull/DocPull/13200-7713/81308524/DB_SpecialReport_2016-11-16_0900b8c08bedfeb1.pdf










http://pull.db-gmresearch.com/p/6278-FB9C/225464111/DB_SpecialReport_2016-11-28_0900b8c08c13670d.pdf














Italy’s referendum on 4-Dec next political risk event

− Senate reform intended to improve governability

− Vote now partly about PM Renzi

Opinion polls point to a No vote – negative as seen

leading to new election, risk of 5SM# government

While possible, this is only a tail risk

A new interim government tasked with modifying

electoral law before new elections is most likely

While positive short-term, it poses medium term risk

− Likely to lead to ineffectual governments, very

limited reform progress

− Low growth, bank concerns to remain

− Italy to continue to underperform, boosting

eurosceptic sentiment over time

Immediate reaction to No vote likely negative as

market reassesses risk of early election

− Could lead to market pressure on Italian banks –

any escalation could become systemic

− Italian authorities will need to act swiftly and

decisively if this is to be avoided

Another risk is political spillover in Europe – first and foremost in Italy

12

Approved

Senate reform

4-Dec

Senate

referendum

Rejected

Government

Renzi

resigns

Renzi stays

Assessment / implications

Best case

Most market friendly

Limited reform progress

No immediate crisis but

economy, banks remain

vulnerable to shocks

Tail risk

5SM# favourite to win

Lower House, not Senate

Could lead to consultative

euro referendum

Muddle through

Interim government

Positive short-term, as

avoids worst outcome

Mandate to change electoral

law, reform process to stall

Elections possible from Q2-

2017

Negative medium-term as

likely to result in ineffectual

governments as in past 15

years, boosting eurosceptics

−

New

government

Early

elections

(Q1-2017)

~

+

Unlikely

Base case

Senate referendum: Simplified scenario tree

Note: Thicker lines denote most likely path. For a comprehensive analysis of the referendum see Italy’s

referendum and beyond: a cross market view – 11-Nov-2016. (*) Proposal to narrow Senate role in favour

of Lower House, reducing chance of political gridlock. (#) Eurosceptic Five Star Movement party

According to polls,

No camp has gained

support and should

win referendum

Special Report - Risks after and beyond Italy’s referendum: 28 November 2016



http://pull.db-gmresearch.com/p/6624-9C62/66391553/DB_SpecialReport_2016-11-11_GDPBD00000301612.pdf









http://pull.db-gmresearch.com/p/10489-E60B/224462027/DB_SpecialReport_2016-11-28_0900b8c08c1c5fcf.pdf






High Court ruling weakened

government hand vs. Parliament

− Still expect Art. 50 trigger in Q1-

2017, Brexit vote to be honoured

Early election in 2017 more likely

− Government to gain stronger

majority, more room for

manoeuvre in EU negotiations

Chances of interim deal before end-

deal is agreed have risen

Merkel will seek a fourth term

Major parts of Merkel’s party favour

coalition with Greens – but unclear

if feasible

Thus, another, but weaker, Grand

Coalition appears likely

− Coalition partners overall lost

support vs. 2013 election result

Regardless of exact composition of

next coalition, looser fiscal policy is

unlikely

Beyond Italy, Trump’s win could further embolden nationalism in Europe – but current polls suggest the risk is relatively contained

13

1 Brexit uncertainty 2 French elections (Apr/May-2017) 3 German elections (likely Sep-2017)

-50

0

50

100

150

200

1945

1950

1951

1955

1959

1964

1966

1970

1974

1974

1979

1983

1987

1992

1997

2001

2005

2010

2015

2017

Source: House of Commons, polls, Deutsche Bank Research

Polls suggest a 2017 election would give the

government a much larger majority

Government

majority, MPs

Smallest majority

in 40 years

40-

80

Larger majority if

elections in 2017

Brexit update: the prospects for a general election – 7-Nov-2016

Focus Europe - Uncertainty and animal spirits: 04 November 2016

0

10

20

30

40

50

Left Party

Greens SPD CDU / CSU

FDP AfD Others

Current

Sep-13

Popularity of major parties has declined since

2013 election – another Grand Coalition likely

% popularity

As of Mid-August 2016

Source: IfD Allensbach, Deutsche Bank Research

Grand Coalition

Concern of eurosceptic, far right government in France is rising

Le Pen unlikely to win presidency according to current polls... − All likely second round

contenders would beat her − Hollande an exception, but

unlikely to make it to run-off ...Yet outcome can’t be dismissed

− Anti-immigration, protectionist narrative underpinned Brexit and Trump surprises

0 10 20 30 40 50 60 70

Fillon Le Pen

Macron Le Pen

Valls Le Pen

Notes: Fillon is centre-right candidate; Macron is a former Economy

Minister under Hollande; Valls is Hollande’s PM; Le Pen is leader of far

right, eurosceptic Front National. Polls from Apr-2016 (Nov-2016 for

Fillon-Le Pen). Source: Opinion polls, Deutsche Bank Research

Opinion polls suggest a Le Pen win next year

is unlikely, but need to be taken with caution

% vote for presidential election run-off

In addition, Austria, Netherlands elections also carry risk of populist / eurosceptic governments

Focus Europe: Momentum and Risk –25-Nov-2016



http://pull.db-gmresearch.com/p/9547-6187/45888480/DB_SpecialReport_2016-11-07_0900b8c08bfdbfb6.pdf








http://pull.db-gmresearch.com/p/6410-3497/38812504/DB_FocusEurope_2016-11-04_cd28c9e6-07b3-4017-84f9-77ca0456db99_604.pdf




http://pull.db-gmresearch.com/cgi-bin/pull/DocPull/10216-C5A9/217327595/DB_FocusEurope_2016-11-25_ccebbfd9-a55e-4885-a16f-572732c2a6a0_604.pdf









0.0

0.5

1.0

1.5

2.0

2.5

3.0

UK

US

OP

EC

Chin

a

Sw

itzer

Pola

nd

Czech

Russia

Sw

eden

Turk

ey

Hungary

Japan

Denm

ark

Kore

a

Rom

ania

Bra

zil

India

Mexic

o

Canada

Norw

ay

Stronger US growth would be an upside risk to eurozone, but

political uncertainty high for key trade partners: US and UK

Goods exports % EA GDP

Source: Eurostat, Deutsche Bank Research

Packed calendar keeps political risk high

− Uncertainty will weigh on growth, especially by

deterring business spending

− Risk of spillovers from Brexit, US election

Softer domestic demand on weaker credit impulse

− Though lending incentives could improve with

better global growth, steeper curves

Financial conditions becoming less supportive as

rising rates outweighing euro depreciation

More longer-term, structural issues of high debt,

low growth, low competitiveness remain unresolved

Eurozone growth remains slow but resilient at 1.2-

1.5% despite recurring shocks

− Upside to our forecast for Q4-2016

− Growth expected to moderate to 1.1% in 2017

A stronger US outlook should help eurozone growth

– but with limited impact in 2017

− US is second most important destination for

eurozone exports, behind the UK

− US acceleration likely in H2-2017, but 1-2

quarter lag before this is felt in Europe

But downside risks continue to dominate

Stronger US growth should help eurozone growth prospects, but downside risks continue to dominate the outlook

14

0.0

0.2

0.4

0.6

0.8

1.0

1.2

0.19 0.76 0.84

Narrow Financial Conditions Index (market based)

Eurozone financial conditions drifting tighter

# of standard deviations


Rising means easier, falling means tighter

Focus Europe: Economic growth and financial conditions – 18-Nov-2016



http://pull.db-gmresearch.com/p/10621-ECEC/93432051/DB_FocusEurope_2016-11-18_3f198da6-33ab-4e1b-bec3-ef25d8125535_604.pdf











-4

-3

-2

-1

0

1

2

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

Actual Fiscal deficit/surplus (inversed)

The Chinese fiscal deficit ratio generally saw

sizeable expansion during previous ext crisis

% of GDP, 4Q trailing

Source: WIND, Deutsche Bank Research

’97 AFC ’08 GFC

’11 EFC

3Q97

-0.3%

3Q02

-2.7%

2Q09

-2.4%

3Q16

-4.4%

2Q08

1.8%

3Q11

-0.6%

4Q14

-1.8%

Expansionary

fiscal policy

Contractionary

fiscal policy

In China, the US election poses downside risks to trade and growth, raising odds of policy easing in 2017

US election could impact China’s prospects

− Potential for negative trade effect from disputes

and possible tariffs

− Higher odds of looser policy in 2017: rate cut,

more fiscal stimulus to offset risk of softer trade

− Looser policy raises risk of higher inflation, asset

bubble, and eventual sharper growth slowdown

− Likely more focus on enhancing global influence

CNY weakness is not over: USDCNY to rise above

8 by end-2018, as outflow pressures persist

15

Recent data suggest China growth remains stable,

helped by a credit-fuelled property sector boom

But growth should slow as government continues to

tighten credit and property market regulations to

avoid a crisis

− Growth expected to fall modestly to 6.5% in

2017 and further to 6% in 2018

In response to slower growth, monetary and fiscal

policies should once again ease in Q2-2017

0

10

20

30

40

50

60

15

18

21

24

27

30

2010 2011 2012 2013 2014 2015 2016

Broad Credit Growth,

Land auction premium, rhs

China property sector set to cool as credit

growth slows and restrictions tightened

Previous 2Q avg., % yoy

Source: WIND, CREIS, Deutsche Bank Research

Previous & current Q avg., %

Correlation: 0.86

0

50

100

150

200

250

20

40

60

80

100

120

2000 2004 2008 2012 2016

Government debt: Chinese government still

has ample room in fiscal capacity

% of GDP

Source: BIS, Haver Analytics, Deutsche Bank Research

China 45

EU 92

Japan 212 (rhs)

US 97

Implication of US election for China –9-Nov-2016



http://pull.db-gmresearch.com/cgi-bin/pull/DocPull/15305-04D8/55581319/DB_SpecialReport_2016-11-09_0900b8c08c03c95b.pdf









Markets have clearly focused on the positive aspects of the US election, with equities soaring and core rates selling-off

16

-8

-6

-4

-2

0

2

4

8-Nov 11-Nov 14-Nov 17-Nov 20-Nov 23-Nov 26-Nov

US S&P 500

EuroStoxx 600

MSCI EM

DM equities have rallied, while EM equities

have sold off

Cumulative % change since 8 Nov


12

7 6 5 5 4

2 1

-2 -3

-4 -5

0

5

10

15 S&P 500 sectors since 8 Nov

US move led by cyclicals and sectors related

to deregulation and infrastructure plans

%


130

140

150

160

400

450

500

550

600

650

Jun Jul Aug Sep Oct Nov

USD HY

USD IG, rhs

US credit spreads have continued their post-

Brexit tightening

Cash credit spreads, bps


Brexit vote US election

70

80

90

100

110

120

130

2.0

2.2

2.4

2.6

2.8

3.0

3.2

Jan Mar May Jul Sep Nov

US 30Y yield

US 2y10y slope, rhs

US long-end yields have reached new highs

for the year, as has the yield curve slope…

%


bps

0.3

-1.8 -3.2 -3.7

-6.3

3.4

-10

-5

0

5

Dollar index

GBP CNY EM FX EUR JPY


…Contributing to a renewed bout of dollar

appreciation…

% change vs. USD since 8-Nov

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2009 2010 2011 2012 2013 2014 2015

EM weekly flows

EM funds have witnessed record outflows in

response to rising dollar and US rates

Source: EPFR, Deutsche Bank Research

% of AUM




The House View – 29 November 2016 [email protected] http://houseview.research.db.com 17

Summary of market views

Asset View Rationale

Markets

Positive on US Pro-growth policies and accommodative Fed to support US risk assets

Cautious on Europe

and EM Caution on Europe due to tepid fundamentals and political event risk

EM concerns due to outflows driven by increase in DM yields

Equities

Bullish US US: equities at all-time highs, rally can extend further on expected tax cuts.

Rotation into cyclicals

Europe: no upside

into year-end Europe: cautious given macro, political risk, possible bank stress and

weakness in oil due to dollar appreciation

Rates

US: modest scope

for further sell-off US long-end rates have increased largely due to repricing of risk premium

Rates to continue to rise through mid-2017

Europe: Bund yields

to rise due to inflation Higher core inflation and positive data momentum to push Bund yields up

Sell-off possibly too fast given upcoming risk events: case for risk reduction

FX

Bullish dollar “Perfect storm” for dollar strength given likely fiscal stimulus, Fed rate hikes,

ECB and BoJ QE, and supportive risk-asset cycle

Bearish euro Euro close to breaking below long-standing range, to reach parity in 2017

Bearish sterling Markets to re-focus on hard Brexit risks, weak sterling fundamentals

Bearish yen vs. USD Forecasts revised due to sharp rise in US rates

Credit Wider spreads in the

US and Europe

Despite recent tightening, higher rates to push IG spreads wider; HY less so

IG and HY spreads to widen moderately in 2017, with elevated intra-year

volatility due to policy uncertainty and political risk

EM Pressure to continue EM vulnerable to dollar strength due to substantial dollar-denominated debt

Higher US rates have caused reversal of recent inflows

However, fundamentals stronger than they were during 2013 taper tantrum





0

20

40

60

80

100 Rate hike at December 2016 meeting


Market is now about fully pricing a rate hike at the Fed’s December

meeting

%, probability

Market odds for

Dec rate hike at

highest this year

post-election

With data supportive and financial conditions

holding up well post-election, the Fed is expected to

raise rates by 25bp at its December meeting

− Supported by Fed commentary, including

Yellen’s

− Market now about fully pricing it

Beyond the rates decision, focus will be on if the

Fed’s forecasts react to the election surprise

− Only modest changes likely as Fed waits for

more clarity on fiscal policy outlook

− Directionally, would expect higher growth,

inflation and rates, and lower unemployment

Upside risk to Fed’s expectations for rate hikes in

coming years if growth picks up materially…

− Fed expects only two rate hikes in 2017 and

three in 2018

− Faster inflation, lower unemployment, higher

neutral rate could all warrant more increases

…But risk unlikely to materialise before H2-2017

− Inflation could moderate early in 2017

− It will take time for fiscal, regulatory policies to

pass and the economic impact to materialise

0.0

0.5

1.0

1.5

2.0

Dec-14 Dec-15 Dec-16 Dec-17

Actual FOMC Sep 2016 dots 3% growth scenario Fed funds futures (current) Fed funds futures (pre-election)

Note: 3% growth scenario based on Chair Yellen’s preferred Taylor rule and implications of this growth rate for

unemployment, inflation, and the neutral fed funds rate .

Source: FRB, Bloomberg Finance LP, Deutsche Bank Research

Upside risk to Fed’s expectations for rate increases if fiscal stimulus

brings a material boost to growth

%, fed funds rate Upside risk

to Fed rate

hikes under

faster growth

Market has

priced more

hikes since

election

Fed is set to raise rates in December; upside risk to rate expect-ations in coming years if Trump’s election brings faster growth

18





0

20

40

60

Note: percent of debt trading below the deposit rate (-40bp) as of 28-Nov


Bond scarcity remains an issue despite recent bond sell-off, with

large share of bonds still trading below deposit rate floor

%

-0.4

0.0

0.4

0.8

1.2

1.6

Jan-16 May-16 Sep-16 Jan-17 May-17

Headline HICP

DB forecast

Downside risks to ECB’s inflation outlook remain, suggesting caution

is appropriate

%yoy

Source: Haver Analytics, Deutsche Bank Research

Long-run average: 1.6%

The ECB maintains an easing bias given a cautious

view on the eurozone inflation outlook

− Downside risks to growth remain (e.g., softening

credit impulse, political uncertainty, rising oil)

− Insufficient evidence that core inflation (0.8%

yoy) will rise sustainably toward target

− As Draghi noted, improvements to date (and

expected) rely on ultra easy monetary policy

No further cuts to the deposit rate expected

− ECB has little urgency to weaken euro,

especially given decline since the US election

− Further cuts would hurt banks and potentially

damage bank lending channel

Instead, we expect a QE extension on 8-December

− 6-month extension from 2017 March expected

− A longer extension appears inappropriate at this

stage given resilient macro data

A combination of changes to QE parameters to deal

with bond scarcity issues is also likely

− Yield floor removal, issue limit increase most

likely; capital keys change cannot be ruled out

The ECB, meanwhile, is expected to announce a six-month QE extension at its 8-December meeting, amid a cautious outlook

19 Focus Europe: Momentum and risk – 25-Nov-2016



http://pull.db-gmresearch.com/cgi-bin/pull/DocPull/8328-1195/217327595/DB_FocusEurope_2016-11-25_ccebbfd9-a55e-4885-a16f-572732c2a6a0_604.pdf










Dollar strength due to fiscal stimulus to weigh on euro, yen and sterling; EUR/USD remains on track to reach parity next year

Given US policy changes and reversal of the Abe

market rally, we are now bearish yen vs. dollar

− Risk is yen reaches end-2017 forecast sooner

Despite gains since High Court Article 50 judgment,

we remain bearish sterling versus dollar and euro

− Market to re-focus on hard Brexit without fiscal

stimulus and negative current account dynamics

US and European politics and US policy cycle to

keep FX volatility elevated

20 FX Forecasts and Valuations- The Perfect storm?: 23 November 2016

“Perfect storm” for dollar strength

− Large fiscal stimulus could accelerate Fed

tightening given limited excess capacity

− QE in Europe and Japan continues to drive

demand for dollar-denominated assets

− Risk-asset cycle supportive of fiscal stimulus

EUR/USD should break below 1.05-1.15 range that

held since early 2015, to reach parity next year

− Forecasts unchanged but risks to the downside

80

90

100

110

120

130

140

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Jan-16 Jul-16 Jan-17 Jul-17

US 2 year yield US 10 year yield

USD/JPY, rhs

We are now bearish yen vs. dollar given the

increase in US yields

%


DB forecast

1.0

1.1

1.2

1.3

1.4

2014 2015 2016

EUR/USD


Euro trading near bottom of long-standing

range, to reach parity in 2017

Spot Year-end 2017

EUR/USD 1.06 0.95

USD/JPY 113.2 115

GBP/USD 1.25 1.06

EUR/JPY 119.8 109

EUR/GBP 0.85 0.90


Note: Spot as of 24th Nov close

Latest DB FX forecasts



http://pull.db-gmresearch.com/cgi-bin/pull/DocPull/6267-9891/208509401/DB_ERP_2016-11-23_0900b8c08c0f7c0b.pdf






Positive data momentum has been supportive of

the repricing of European rates since the summer

− Eurozone PMIs consistent with above-potential

growth and thus improved core inflation

− Oil price base effects to lift inflation expectations

− 10Y yield up about 45bps since post-Brexit low,

to rise further in 2017

Sell-off possibly too fast (but not too far): there is a

case for tactical risk reduction ahead of key events

− E.g., Italian referendum, ECB meeting

US long-end yields have increased sharply post

election, e.g., 10Y yield up about 50 bps

− Large rise in term premium: risk premium in long

rates relative to expectations of short rates

− Inflation and Fed rate hike expectations also up,

but to lesser extent

Foreign flows due to dollar strength and QE by ECB

and BoJ limit magnitude of sell-off

− 10Y yield to increase to 2.5% around mid-2017

and then return near current level by year-end

Change in growth, policy outlook has allowed US and Eurozone rates to reprice higher; sell-off to continue through 2017

21

-79

46 37

-87

51 48

-100

-80

-60

-40

-20

0

20

40

60

1 Jan - 8 Jul* 8 Jul - 8 Nov 8 Nov - Present

10Y Term Premium 10Y Yield

The increase in US long-end yields has been driven by

normalization of term premium, which plummeted earlier this year

bps

Source: FRBNY, Haver Analytics, Deutsche Bank Research

Note: (*) The 10-year yield troughed for the year on 8 July.

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

PPI core cons goods (8m lead)

Implied by PMI

HICP core goods, rhs

In Europe, price components of surveys imply further upside to core

inflation

%yoy






107 124

158 180

198 182

165 139

121 97

77

0

50

100

150

200

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

E.g., Fundamentals: EM corporates face a wall of (hard currency

debt) maturities in the coming years

$bn


Asia

CEEMEA LatAm

Pressure on EM assets will continue, but expect improvement in coming quarters given stronger fundamentals vs. taper tantrum

22

1 EM are vulnerable to a sharp rise in the dollar, US rates...

0.46

0.48

0.50

0.52

0.54

0.56

0.58

0.60

Jul-08 Jul-10 Jul-12 Jul-14 Jul-16

Deutsche Bank aggregate macro vulnerability index shows

significant reduction in EM vulnerability since 2013

Average percentile ranking across EM


More vulnerable

Less vulnerable

0

10

20

30

40

50

60

EG

P

TR

Y

ZA

R

UA

H

RO

N

HU

F

PLN

KZ

T

ILS

RU

B

CZ

K

IDR

INR

KR

W

PH

P

CN

Y

MY

R

TH

B

TW

D

VE

F

AR

S

CLP

MX

N

CO

P

BR

L

PE

N

Current May'13

Bar a few exceptions, FX reserves cover is higher than in 2013

% of GDP

Note: Gross reserves used for Turkey. Source: Deutsche Bank Research

EMEA Asia LatAm

80,81

85

2 ...But fundamentals are stronger vs. 2013 taper tantrum

-40

-20

0

20

40

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Debt funds inflows

E.g., Technicals: EM benefited from sustained inflows in the last

several months, and we are starting to see a reversal

$bn

Source: IIF, Deutsche Bank Research

FX reserves adequacy in EM –22-Nov-2016



http://pull.db-gmresearch.com/cgi-bin/pull/DocPull/12070-09C8/203640069/DB_SpecialReport_2016-11-22_GDPBD00000302072.pdf









DB forecasts


23

ASIA: China, HK, India, Indonesia, Korea, Malaysia, Philippines, Singapore, Sri Lanka, Taiwan,

Thailand, Vietnam

DM: Australia, Canada, Denmark , Eurozone, Japan, New Zealand, Norway, Sweden,

Switzerland, UK, US

* CPI (%) forecasts are period averages

CEEMEA: Czech Rep., Israel, Egypt, Hungary, Kazakhstan, Nigeria, Poland, Romania, Russia, Saudi

Arabia, South Africa, Turkey, UAE and Ukraine

LATAM: Argentina, Brazil, Chile, Colombia, Mexico, Peru, Venezuela

GDP growth (%) 2015 2016F 2017F 2018F CPI inflation, YoY* (%) 2015 2016F 2017F 2018F

Global 3.2 3.0 3.4 3.8 US 0.1 1.2 1.9 2.2

US 2.6 1.5 2.3 3.5 Eurozone 0.0 0.2 1.3 1.5

Eurozone 1.9 1.6 1.1 1.4 Japan 0.8 -0.3 0.5 1.1

Germany 1.7 1.9 1.0 1.3 UK 0.0 0.7 2.2 2.5

France 1.2 1.3 1.3 #N/A China 1.4 1.9 2.7 2.4

Italy 0.7 0.9 0.6 #N/A

Spain 3.2 3.0 2.0 #N/A Central Bank policy rate (%) Current Q4-16F Q4-17F Q4-18F

Japan 0.6 0.7 1.0 1.2 US 0.375 0.625 1.125 2.125

UK 2.2 1.9 0.9 1.3 Eurozone 0.00 0.00 0.00 0.00

China 6.9 6.6 6.5 6.0 Japan -0.10 -0.10 -0.10 -0.10

India 7.2 7.0 7.0 7.8 UK 0.25 0.25 0.25 0.25

EM Asia 6.1 6.0 5.9 5.9 China 1.50 1.50 1.50 1.50

EM CEEMEA 1.0 1.9 2.6 2.6

EM LatAm -0.4 -1.0 1.6 2.5 Key market metrics Current Q4-16F Q4-17F

EM 4.0 4.1 4.6 4.8 US 10Y yield (%) 2.31 2.25 2.30

DM 2.1 1.5 1.7 2.4 EUR 10Y yield (%) 0.21 0.30 0.35

EUR/USD 1.061 1.05 0.95

USD/JPY 112 109 115

S&P 500 2,202 2,200 2,350

Stoxx 600 340 325 345

Oil WTI (USD/bbl) 46.9 48.0 55.0

Oil Brent (USD/bbl) 48.1 50.0 57.0

Current prices as of 28-Nov-2016





Keep informed with our regular The House View publications at houseview.research.db.com

The House View

range

The House View Infographic Special Snapshot Macro Forecasts

Monthly report

Summarises key financial

and economic

developments

Provides context on

Deutsche Bank’s forecasts

and outlook for economic

growth, monetary policy

and financial markets

A one-pager that tackles a

current topic in a few

charts and visuals

Ad-hoc in depth reports on

major underlying topics

affecting global economic

growth and markets

A handy two-page

summary of Deutsche

Bank Research macro and

markets views

A summary of Deutsche

Bank Markets Research

macroeconomic, fixed

income, foreign

exchange and

commodities forecasts

24



houseview.research.db.com



Analyst Certification

This report covers more than one security and was contributed to by more than one analyst. The views expressed in this report accurately reflect the

views of each contributor to this compendium report. In addition, each contributor has not and will not receive any compensation for providing a specific

recommendation or view in this compendium report. Marcos Arana / Matthew Luzzetti / Aditya Bhave / Rajni Thakur

Attribution

The authors wish to acknowledge the contributions made by Shakun Guleria in the preparation of this report.

*Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg

and other vendors . Other information is sourced from Deutsche Bank, subject companies, and other sources. For disclosures pertaining to recommendations

or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global

disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr. Aside from within this report, important conflict

disclosures can also be found at https://gm.db.com/equities under the "Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this

information before investing.

25

Appendix 1 Important Disclosures *Other information available upon request



http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr

http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr



Additional Information The information and opinions in this report were prepared by Deutsche Bank AG or one of its affiliates (collectively "Deutsche Bank"). Though the information herein is believed to be reliable and has been obtained from public sources believed to be reliable, Deutsche Bank makes no representation as to its accuracy or completeness. If you use the services of Deutsche Bank in connection with a purchase or sale of a security that is discussed in this report, or is included or discussed in another communication (oral or written) from a Deutsche Bank analyst, Deutsche Bank may act as principal for its own account or as agent for another person. Deutsche Bank may consider this report in deciding to trade as principal. It may also engage in transactions, for its own account or with customers, in a manner inconsistent with the views taken in this research report. Others within Deutsche Bank, including strategists, sales staff and other analysts, may take views that are inconsistent with those taken in this research report. Deutsche Bank issues a variety of research products, including fundamental analysis, equity-linked analysis, quantitative analysis and trade ideas. Recommendations contained in one type of communication may differ from recommendations contained in others, whether as a result of differing time horizons, methodologies or otherwise. Deutsche Bank and/or its affiliates may also be holding debt or equity securities of the issuers it writes on. Analysts are paid in part based on the profitability of Deutsche Bank AG and its affiliates, which includes investment banking, trading and principal trading revenues. Opinions, estimates and projections constitute the current judgment of the author as of the date of this report. They do not necessarily reflect the opinions of Deutsche Bank and are subject to change without notice. Deutsche Bank provides liquidity for buyers and sellers of securities issued by the companies it covers. Deutsche Bank research analysts sometimes have shorter-term trade ideas that are consistent or inconsistent with Deutsche Bank's existing longer term ratings. Trade ideas for equities can be found at the SOLAR link at http://gm.db.com. A SOLAR idea represents a high conviction belief by an analyst that a stock will outperform or underperform the market and/or sector delineated over a time frame of no less than two weeks. In addition to SOLAR ideas, the analysts named in this report may from time to time discuss with our clients, Deutsche Bank salespersons and Deutsche Bank traders, trading strategies or ideas that reference catalysts or events that may have a near-term or medium-term impact on the market price of the securities discussed in this report, which impact may be directionally counter to the analysts' current 12-month view of total return or investment return as described herein. Deutsche Bank has no obligation to update, modify or amend this report or to otherwise notify a recipient thereof if any opinion, forecast or estimate contained herein changes or subsequently becomes inaccurate. Coverage and the frequency of changes in market conditions and in both general and company specific economic prospects make it difficult to update research at defined intervals. Updates are at the sole discretion of the coverage analyst concerned or of the Research Department Management and as such the majority of reports are published at irregular intervals. This report is provided for informational purposes only and does not take into account the particular investment objectives, financial situations, or needs of individual clients. It is not an offer or a solicitation of an offer to buy or sell any financial instruments or to participate in any particular trading strategy. Target prices are inherently imprecise and a product of the analyst’s judgment. The financial instruments discussed in this report may not be suitable for all investors and investors must make their own informed investment decisions. Prices and availability of financial instruments are subject to change without notice and investment transactions can lead to losses as a result of price fluctuations and other factors. If a financial instrument is denominated in a currency other than an investor's currency, a change in exchange rates may adversely affect the investment. Past performance is not necessarily indicative of future results. Unless otherwise indicated, prices are current as of the end of the previous trading session, and are sourced from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank, subject companies, and in some cases, other parties. The Deutsche Bank Research Department is independent of other business areas divisions of the Bank. Details regarding our organizational arrangements and information barriers we have to prevent and avoid conflicts of interest with respect to our research is available on our website under Disclaimer found on the Legal tab.

Macroeconomic fluctuations often account for most of the risks associated with exposures to instruments that promise to pay fixed or variable interest rates. For an investor who is long fixed rate instruments (thus receiving these cash flows), increases in interest rates naturally lift the discount factors applied to the expected cash flows and thus cause a loss. The longer the maturity of a certain cash flow and the higher the move in the discount factor, the higher will be the loss. Upside surprises in inflation, fiscal funding needs, and FX depreciation rates are among the most common adverse macroeconomic shocks to receivers. But counterparty exposure, issuer creditworthiness, client segmentation, regulation (including changes in assets holding limits for different types of investors), changes in tax policies, currency convertibility (which may constrain currency conversion, repatriation of profits and/or the liquidation of positions), and settlement issues related to local clearing houses are also important risk factors to be considered. The sensitivity of fixed income instruments to macroeconomic shocks may be mitigated by indexing the contracted cash flows to inflation, to FX depreciation, or to specified interest rates – these are common in emerging markets. It is important to note that the index fixings may -- by construction -- lag or mis-measure the actual move in the underlying variables they are intended to track. The choice of the proper fixing (or metric) is particularly important in swaps markets, where floating coupon rates (i.e., coupons indexed to a typically short-dated interest rate reference index) are exchanged for fixed coupons. It is also important to acknowledge that funding in a currency that differs from the currency in which coupons are denominated carries FX risk. Naturally, options on swaps (swaptions) also bear the risks typical to options in addition to the risks related to rates movements.

Derivative transactions involve numerous risks including, among others, market, counterparty default and illiquidity risk. The appropriateness or otherwise of these products for use by investors is dependent on the investors' own circumstances including their tax position, their regulatory environment and the nature of their other assets and liabilities, and as such, investors should take expert legal and financial advice before entering into any transaction similar to or inspired by the contents of this publication. The risk of loss in futures trading and options, foreign or domestic, can be substantial. As a result of the high degree of leverage obtainable in futures and options trading, losses may be incurred that are greater than the amount of funds initially deposited. Trading in options involves risk and is not suitable for all investors. Prior to buying or selling an option investors must review the "Characteristics and Risks of Standardized Options”, at http://www.optionsclearing.com/about/publications/character-risks.jsp. If you are unable to access the website please contact your Deutsche Bank representative for a copy of this important document.





Participants in foreign exchange transactions may incur risks arising from several factors, including the following: ( i) exchange rates can be volatile and are subject to large fluctuations; ( ii) the value of currencies may be affected by numerous market factors, including world and national economic, political and regulatory events, events in equity and debt markets and changes in interest rates; and (iii) currencies may be subject to devaluation or government imposed exchange controls which could affect the value of the currency. Investors in securities such as ADRs, whose values are affected by the currency of an underlying security, effectively assume currency risk.

Unless governing law provides otherwise, all transactions should be executed through the Deutsche Bank entity in the investor's home jurisdiction. Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the "Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing.

United States: Approved and/or distributed by Deutsche Bank Securities Incorporated, a member of FINRA, NFA and SIPC. Analysts located outside of the United States are employed by non-US affiliates that are not subject to FINRA regulations. Germany: Approved and/or distributed by Deutsche Bank AG, a joint stock corporation with limited liability incorporated in the Federal Republic of Germany with its principal office in Frankfurt am Main. Deutsche Bank AG is authorized under German Banking Law and is subject to supervision by the European Central Bank and by BaFin, Germany’s Federal Financial Supervisory Authority. United Kingdom: Approved and/or distributed by Deutsche Bank AG acting through its London Branch at Winchester House, 1 Great Winchester Street, London EC2N 2DB. Deutsche Bank AG in the United Kingdom is authorised by the Prudential Regulation Authority and is subject to limited regulation by the Prudential Regulation Authority and Financial Conduct Authority. Details about the extent of our authorisation and regulation are available on request.

Hong Kong: Distributed by Deutsche Bank AG, Hong Kong Branch.

India: Prepared by Deutsche Equities India Pvt Ltd, which is registered by the Securities and Exchange Board of India (SEBI) as a stock broker. Research Analyst SEBI Registration Number is INH000001741. DEIPL may have received administrative warnings from the SEBI for breaches of Indian regulations. Japan: Approved and/or distributed by Deutsche Securities Inc.(DSI). Registration number - Registered as a financial instruments dealer by the Head of the Kanto Local Finance Bureau (Kinsho) No. 117. Member of associations: JSDA, Type II Financial Instruments Firms Association and The Financial Futures Association of Japan. Commissions and risks involved in stock transactions - for stock transactions, we charge stock commissions and consumption tax by multiplying the transaction amount by the commission rate agreed with each customer. Stock transactions can lead to losses as a result of share price fluctuations and other factors. Transactions in foreign stocks can lead to additional losses stemming from foreign exchange fluctuations. We may also charge commissions and fees for certain categories of investment advice, products and services. Recommended investment strategies, products and services carry the risk of losses to principal and other losses as a result of changes in market and/or economic trends, and/or fluctuations in market value. Before deciding on the purchase of financial products and/or services, customers should carefully read the relevant disclosures, prospectuses and other documentation. "Moody's", "Standard & Poor's", and "Fitch" mentioned in this report are not registered credit rating agencies in Japan unless Japan or "Nippon" is specifically designated in the name of the entity. Reports on Japanese listed companies not written by analysts of DSI are written by Deutsche Bank Group's analysts with the coverage companies specified by DSI. Some of the foreign securities stated on this report are not disclosed according to the Financial Instruments and Exchange Law of Japan. Target prices set by Deutsche Bank's equity analysts are based on a 12-month forecast period. Korea: Distributed by Deutsche Securities Korea Co. South Africa: Deutsche Bank AG Johannesburg is incorporated in the Federal Republic of Germany (Branch Register Number in South Africa: 1998/003298/10).

Singapore: by Deutsche Bank AG, Singapore Branch or Deutsche Securities Asia Limited, Singapore Branch (One Raffles Quay #18-00 South Tower Singapore 048583, +65 6423 8001), which may be contacted in respect of any matters arising from, or in connection with, this report. Where this report is issued or promulgated in Singapore to a person who is not an accredited investor, expert investor or institutional investor (as defined in the applicable Singapore laws and regulations), they accept legal responsibility to such person for its contents. Taiwan: Information on securities/investments that trade in Taiwan is for your reference only. Readers should independently evaluate investment risks and are solely responsible for their investment decisions. Deutsche Bank research may not be distributed to the Taiwan public media or quoted or used by the Taiwan public media without written consent. Information on securities/instruments that do not trade in Taiwan is for informational purposes only and is not to be construed as a recommendation to trade in such securities/instruments. Deutsche Securities Asia Limited, Taipei Branch may not execute transactions for clients in these securities/instruments.

Qatar: Deutsche Bank AG in the Qatar Financial Centre (registered no. 00032) is regulated by the Qatar Financial Centre Regulatory Authority. Deutsche Bank AG - QFC Branch may only undertake the financial services activities that fall within the scope of its existing QFCRA license. Principal place of business in the QFC: Qatar Financial Centre, Tower, West Bay, Level 5, PO Box 14928, Doha, Qatar. This information has been distributed by Deutsche Bank AG. Related financial products or services are only available to Business Customers, as defined by the Qatar Financial Centre Regulatory Authority.





Russia: This information, interpretation and opinions submitted herein are not in the context of, and do not constitute, any appraisal or evaluation activity requiring a license in the Russian Federation.

Kingdom of Saudi Arabia: Deutsche Securities Saudi Arabia LLC Company, (registered no. 07073-37) is regulated by the Capital Market Authority. Deutsche Securities Saudi Arabia may only undertake the financial services activities that fall within the scope of its existing CMA license. Principal place of business in Saudi Arabia: King Fahad Road, Al Olaya District, P.O. Box 301809, Faisaliah Tower - 17th Floor, 11372 Riyadh, Saudi Arabia.

United Arab Emirates: Deutsche Bank AG in the Dubai International Financial Centre (registered no. 00045) is regulated by the Dubai Financial Services Authority. Deutsche Bank AG - DIFC Branch may only undertake the financial services activities that fall within the scope of its existing DFSA license. Principal place of business in the DIFC: Dubai International Financial Centre, The Gate Village, Building 5, PO Box 504902, Dubai, U.A.E. This information has been distributed by Deutsche Bank AG. Related financial products or services are only available to Professional Clients, as defined by the Dubai Financial Services Authority. Australia: Retail clients should obtain a copy of a Product Disclosure Statement (PDS) relating to any financial product referred to in this report and consider the PDS before making any decision about whether to acquire the product. Please refer to Australian specific research disclosures and related information at https://australia.db.com/australia/content/research-information.html

Australia and New Zealand: This research is intended only for "wholesale clients" within the meaning of the Australian Corporations Act and New Zealand Financial Advisors Act respectively. Additional information relative to securities, other financial products or issuers discussed in this report is available upon request. This report may not be reproduced, distributed or published without Deutsche Bank's prior written consent.

Copyright © 2016 Deutsche Bank AG



switching into a higher gear - deutsche bank research · 2016-11-29 · the house view, 29 november...

Documents