1. society
2. work
3. unemployment

Letter finalised at 3pm Paris time
April 6 - 10, 2015
Highlights of the week
● United States: Rising number of job openings, business still brisk in services.
● Eurozone: Retail sales eroded in February.
● Emerging economies: Inflation accelerated in Russia, Brazil, Mexico, Colombia and Turkey. It remained stable in
China and slowed in Philippines.
● Markets: US yields slightly up. The euro depreciated vs the US dollar and the equity markets continued their rise.
Key focus
Foreign exchange will weigh decisively on 2015 corporate earnings
Stock market valuations are wound tight on both sides of the Atlantic, and the prospects for further increases in multiples are now
limited, specifically in the United States where it looks as if monetary policy will slowly normalise. So without significant rerating, growth
in corporate earnings will be crucial. Against this backdrop, the sharp rise of the dollar, which has appreciated 17% against a basket
of currencies and 29% against the euro since June 30, has particular importance for both US and Eurozone securities. In addition,
three other factors will also impact earnings: the economic situation, oil prices, and the state of banking sector normalisation.
To illustrate these different impacts, we have aggregated the interim balances of each of the components in the EuroStoxx 50
and the S&P 500, two indices that are emblematic of their respective regions and highly international as well, with a 36% and 45%
share, respectively, of non-domestic sales (outside the monetary zone).
451
400
300
185
200
152
12
Other impacts
0
Net Result 2015
21
Forex Net
62
100
Net Result 2014
With all of these factors (+33 billion, of which +21 for foreign exchange, +3 for the
economy, +15 for financials and -6 for oil companies), aggregate results for the
EuroStoxx 50 should jump 22% in 2015, compared to -5% for the S&P 500.
Furthermore, this earnings rebound for the EuroStoxx 50 is not likely to be a
straw fire, but should continue into 2016, with +12%. At the same time, the
S&P 500 would start gaining again with +9%.
500
Forex Gross
Given the exchange rate assumptions, EuroStoxx 50 results should be
boosted 14% in 2015, while S&P 500 results would be penalised by 7%. In
addition, each of the two indices will benefit from the pursuit of milder economic
weather, but will suffer from the decline in the energy sector's contribution. Finally,
starting from a much lower point, the rebound in banks' earnings will be all the
more dramatic in the Eurozone.
Change in EuroStoxx 50 aggregate net earnings (€ bn)
Net Intl exposure
The average euro-to-dollar exchange rate should land at 1.05 in 2015 and
1.00 in 2016, after 1.33 in 2014, which is quite spectacular. To fully appreciate the
impact of the exchange on the EuroStoxx 50 and the S&P 500, however, the
approach must be extended to the other currencies. With -12% in effective exchange rate, versus -21% in dollars (1.05 vs. 1.33), euro depreciation compared
to the basket of currencies is, admittedly, less spectacular than compared to the
dollar, due to the concomitant decline in the yen and numerous emerging currencies, but for the first time since the crisis began, Eurozone businesses will
benefit from a competitive currency. Indeed, you will recall that from September 2008 to end-2014, despite a double-dip recession against a single one in the
US, the euro's average exchange rate came out to $1.34. Conversely, US businesses will face a 12-year peak for the dollar against all currencies.
Source: Amundi Research
The EuroStoxx 50's net exposure, outside the Eurozone, is estimated at €451 billion ((2004 bn x 45%)
/2)
Such a divergence in 2015 earnings would be all the more striking in that it would be the first time since 2008 that the Eurozone
takes back the lead over the United States. And this divergence is only partially anticipated by the consensus, which is counting
on a mere +2% for the S&P 500 and +7% for the EuroStoxx 50. Beyond the often-illusory precision of numbers, there are many reasons to prepare for an imminent and lasting earnings recovery of the EuroStoxx 50. Against this backdrop, despite a trailing PER of
17x, a high point since 2004, the rediscovery of Eurozone equities is no accident; it will very likely continue
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April 6 - 10, 2015
The week at a glance
Other events
Mexico >
Mexico sold 1.5 billion in 100-year euro-denominated bonds at a 4% yield, maturing in March 2115. This is
the country’s second offering issued in the single currency this year. The Finance Ministry said in a statement that
demand for the bond was 4.2 times the issuance amount.
Mexico is seeking to lock in lower borrowing costs amid the ECB’s unprecedented stimulus. This is the third time
that Mexico has tapped foreign debt markets for 100-year cash, following an offering of 1 billion pounds ($1.49
billion) last year and $2.68 billion in 2010. In a context of negative yields for euro bonds, the ECB bond-buying
programme’s side effect is a powerful incentive to issue debt in the single currency so as to take advantage of the
current search for yield.
Economic indicators
United States >
Rising number of job openings, business still brisk in services. The number of job openings rose more than
expected in the US in February (5,133 K vs. the expected 5,007 K). In addition, the ISM non-manufacturing index
stayed high in March, at 56.5 (in line with expectations), falling back only slightly from its February level (56.9). Its
new-orders and employment components are even above their levels of last month.
These numbers, which contrast with the previous week's unpleasant surprise on employment, bode well for a
rebound in the US economy, after the slump in Q1.
Eurozone >
Retail sales eroded in February. In February, retail sales fell back -0.2% in the Eurozone (number in line with
expectations), while January's growth was adjusted down to +0.9% from the previously-announced +1.1%. At the
country level, in February, retail sales were down -0.5% in Germany and -0.7% in Spain, while they remained
stable in France. The figure for Italy is not yet available.
Consumption went into a stall after its strong gains in December and January, driven by improved household
purchasing power related to lower oil prices. On the whole, the figures already available on the Eurozone economy in the first quarter show the recovery is taking hold.
Emerging >
In Russia inflation worsened further, by 16.9% YoY vs. 16.7% in February. However, on an MoM basis the
trend has shifted intensely, to 1.2% in March vs. 2.2% in February, and 3.9% in January. This MoM receding of
inflation is due to slower gains in food and service prices. Similarly, in Brazil, inflation continued to worsen on
a YoY basis to 8.1% vs. 7.7% in February but, in contrast with Russia, inflation also worsened on an MoM
basis, to 1.3% vs. 1.2% in February. This trend was driven mainly by the acceleration in administered prices
(13.3% YoY vs. 9.6% in February), whereas market prices have fallen significantly (6.6% YoY vs. 7.1% in February). Inflation also worsened in Mexico and Colombia, by, respectively, 3.1% and 4.6% YoY in March vs.
3% and 4.4% in February, driven mainly by higher administered and food prices. In Turkey, the trend also appears to have stop receding, as inflation worsened to 8.7% YoY vs. 4.9% in February and 2.9% in January.
In China, in contrast, inflation levelled off at the relatively low level of 1.4% YoY and the disinflation seen in
manufactured goods even slowed, to -4.6% YoY in March vs. -4.8% in February). In the Philippines, inflation
receded slightly to 2.4% YoY in March vs. 2.5% in February.
These diverging inflation profiles show that central banks in emerging economies are not facing the same realities
and that, in reaction to a possible normalisation of US monetary policy, they do not all have the same amount of
leeway.
Financial markets
Fixed-income
US bond yields were up slightly, after statements by New York City Fed Chair Dudley, who said a raise in the
fed funds rate in June was not to be ruled out. German yields declined a little.
Pressure on European yields coming from the ECB's purchases is extremely high; German long-term yields will
continue to fall. US bond yields will come back up, but very slowly, because the Fed's monetary tightening will be
very gradual, and inflows on the US bond market will continue.
Emerging local rates are benefiting from the easing of Treasuries’ (implied) volatility. Clearly EM bonds
have shifted into a risk-on mode. A new leg of a bond rally is starting in the wake of disappointing US labour
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April 6 - 10, 2015
statistics. Technicals are supportive. Demand for long dated sovereign bonds denominated in euro is pacing up
while local rates are easing, especially in the belly part of high carry curves such as the Russian or Brazilian ones.
Yield to maturity on the GBI-EM (local rates bench.) has resumed its downward trend along with sovereign debt
spreads. At the current pace, these metrics could head down to 6% by end of H1. At this stage, we are sticking to
the view that the second part of the year may become more challenging as room for manoeuvre will be substantially reduced by upward trending commodity prices and mounting pressures on corporate credit yield (especially
in Asia).
Foreign exchange
The euro was down against the US dollar and virtually all currencies. The EUR/USD exchange rate lost 3.5%
over the week. European currencies were down overall for the week. The USD/JPY exchange rate continued to
stagnate around 120.
We are still counting on a decline in the EUR/USD exchange rate in the months to come, because of the fact that
investors outside the Eurozone will continue to sell their bonds to the ECB, but also the fact that the Fed will raise
its fed funds before the end of 2015.
High beta emerging currencies are back in favour after having been severely hit during the dollar tantrum (July
2014 – March 2015). The ruble appreciated almost 10% against the US dollar despite a bleak domestic outlook.
Central Bank of Russia governor Elvira Nabiullina said that the CBR was expecting the economy to shrink by
around 3.5 to 4 percent this year. It is worth noting that the Colombian peso (+3.4%) and Brazilian real (+2.5%)
followed in the footsteps of the ruble rally. The South African rand, Malaysian ringgit and Indonesian rupiah also
did well.
This rally is mainly explained by poor US job figures that led to downward revisions of Fed rate hike expectations,
with a first increase now projected by year end rather than June. Without any downside surprise from Chinese
economy, we now expect to see ignition from other high beta currencies such as the Turkish lira, Indonesian
rupiah or South African rand.
Credit
The credit markets performed on the euro and dollar markets. The CDS Itraxx and Crossover Indexes tightened by 4 and 17 bp, respectively. Note this week's purchase of British Gas Group for €64.5 billion by DutchBritish oil & gas company Royal Dutch Shell. It is one of the largest transactions carried out in the energy sector
over the last decade.
The M&A market has a new spring in its step after several years of relative calm. It is essentially the result of a
rise of large-scale transactions. These transactions are financed in part with the surplus cash that has built up
since 2008. In this gloomy economy, it is still a challenge for businesses to preserve their revenue and margins.
So streamlining activity wins over business development. This rebound is also characterised by sharp growth in
cross-border transactions. More and more US businesses are taking an interest in European assets, whose
appeal comes from the valuation differential between the two zones. Abundant liquidity in a low-rate environment
will remain a key support factor for this trend.
Equity
An upbeat week. We saw mergers & acquisitions in Europe, specifically the UK, which is sending BG upward, for
example. The Hong Kong stock exchange benefited from arbitrage flows from Shanghai, domestic funds using
facilities offered to them by the Shanghai-HK Stock Connect link. And finally, we should mention that the earnings
publishing season has just got underway in the US, which is likely to confirm the weakness of Q1 from the standpoint of domestic sales as much as the negative impact of a strong dollar.
At this stage, the equity markets are being driven by negative rates which boost risk premiums, and the fact that
the increase in the Fed's rates is potentially postponed to a little later in the year. Foreign exchange is playing a
key role in terms of geographic allocation, and is favouring the Eurozone and Japan ahead of the US or UK.
Within the emerging markets, Asia is the favourite. This position, which we defended in our annual outlook, is
becoming the broad consensus view. If this remains valid, it is best to diversify away from this "dollar" topic by
focusing on European banks (reflation) for example and keeping sustainable-yield securities at the back of the
portfolio.
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April 6 - 10, 2015
Key upcoming events
Economic indicators
United States: real estate market numbers should be good in March, as should opinion surveys for April. China:
GDP growth in Q1 2015 is expected to dip to +7.0% over one year.
Date
Country
13 April
China
14 April
UK
Eurozone
Brazil
16 April
17 April
Trade balance, March
Consensus
Prior
$ 40.10 Bn
$ 60.62 Bn
CPI, YoY, March
0.0%
0.0%
Industrial production, MoM, February
0.3%
-0.1%
Retail sales, YoY, February
-2.1%
0.6%
Retail sales, MoM, March
1.0%
-0.6%
China
GDP, YoY, Q1
7.0%
7.3%
China
Industrial production, YoY, March
7.0%
6.8%
US
Industrial production, MoM, March
-0.3%
0.1%
US
NAHB housing market index, April
55
53
US
Building permits, March
1,080 K
1,102 K
US
Housing starts, March
1,040 K
897 K
US
Phily Fed Survey, March
5.0
5.0
UK
Unemployement rate, February
5.6%
5.7%
US
Core CPI, MoM, March
0.2%
0.2%
US
Michigan consumer sentiment, April
93.7
93.0
US
15 April
Upcom ing m acroeconom ic data
Source: Bloomberg, Amundi Strategy
Auctions
Date
Country
13 April
Italy
Germany
France
Auctions of European sovereign debt [m aturity, am ount (if available)]
Long-term, € 7.5 Bn
Short-term, € 2 Bn
Short-term, € 6.5 Bn
15 April
Germany
16 April
Spain
10 years, € 4 Bn
Long-term, amounts not available on Friday
France
Long-term (including inflation-linked bonds), amounts not available on Friday
Source: Bloomberg, Amundi Strategy
Key events
Worth watching: the ECB's monetary policy committee meeting.
Date
Upcom ing m onetary policy com m ittee m eetings
15 April
European Central Bank (ECB)
29 April
Federal Reserve (Fed)
30 April
Bank of Japan (BoJ)
11 May
Bank of England (BoE)
17 juin
Federal Reserve (Fed)
Date
Upcom ing political events
May 2015
General election in United Kingdom
June 2015
General election in Turkey
July 2015
General election in Mexico
General election in Spain
October 2015
General election in Argentina
Source: Amundi Strategy
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April 6 - 10, 2015
Market snapshot
Equity markets
10/04/2015
Over 1 week
Over 1 month
Ytd
S&P 500
2091
1.2%
2.3%
1.6%
Eurostoxx 50
3813
2.6%
6.9%
21.2%
CAC 40
5233
3.1%
7.2%
22.5%
Dax 30
12381
3.5%
7.7%
26.3%
Nikkei 225
19908
2.4%
6.7%
14.1%
MSCI Emerging Markets (close -1D)
1029
3.5%
9.0%
7.6%
Commodities - Volatility
10/04/2015
Over 1 week
Over 1 month
Ytd
Crude Oil (Brent, $/barrel)
56
3.7%
0.7%
0.9%
1206
0.2%
3.8%
2.0%
13
-1.6
-3.6
-6.1
10/04/2015
Over 1 week
Over 1 month
Ytd
EUR/USD
1.06
-3.5%
-1.0%
-12.5%
USD/JPY
120
1.1%
-0.7%
0.5%
EUR/GBP
0.72
-1.5%
2.0%
-6.7%
EUR/CHF
1.04
-0.4%
-2.9%
-13.7%
10/04/2015
Over 1 week
Over 1 month
Ytd
EONIA
-0.06
+2 bp
+1 bp
-20 bp
Euribor 3M
0.01
-1 bp
-2 bp
-7 bp
Libor USD 3M
0.28
-
+1 bp
+2 bp
2Y yield (Germany)
-0.28
-3 bp
-4 bp
-18 bp
10Y yield (Germany)
0.15
-5 bp
-9 bp
-40 bp
2Y yield (US)
0.54
+7 bp
-14 bp
-12 bp
10Y yield (US)
1.93
+9 bp
-20 bp
-24 bp
10/04/2015
Over 1 week
Over 1 month
Ytd
France
+28 bp
-1 bp
-1 bp
--
Austria
+13 bp
-1 bp
+5 bp
+3 bp
Netherlands
+15 bp
-2 bp
+11 bp
+1 bp
Finland
+6 bp
-1 bp
+5 bp
-6 bp
Belgium
+27 bp
--
+3 bp
-2 bp
Ireland
+55 bp
-1 bp
+4 bp
-16 bp
Portugal
+146 bp
-6 bp
-1 bp
-69 bp
Spain
+107 bp
+4 bp
+6 bp
-
Italy
+112 bp
+1 bp
+13 bp
-23 bp
10/04/2015
Over 1 week
Over 1 month
Ytd
Itraxx Main
+53 bp
-4 bp
+3 bp
-9 bp
Itraxx Crossover
+244 bp
-17 bp
-17 bp
-102 bp
Itraxx Financials Senior
+63 bp
-6 bp
+5 bp
Gold ($/ounce)
VIX
FX markets
Fixed Income markets
Eurozone Sovereigns 10Y spreads vs
Germany
Credit markets
Source: Bloomberg, Amundi Strategy
-5 bp
3:00 pm Paris time
5
April 6 - 10, 2015
WEEKLY
Research, Strategy and Analysis
This document neither constitutes an offer to buy nor a solicitation to sell a product and shall not be considered as an unlawful solicitation or an
investment advice.
Amundi accepts no liability whatsoever, whether direct or indirect, that may arise from the use of information contained in this material. Amundi can in
no
way be held responsible for any decision or investment made on the basis of information contained in this material. The information contained in this
document is disclosed to you on a confidential basis and shall not be copied, reproduced, modified, translated or distributed without the prior written
approval of Amundi, to any third person or entity in any country or jurisdiction which would subject Amundi or any of “the Funds”, to any registration
requirements within these jurisdictions or where permitted and to persons who may receive it without breaching applicable legal or regulatory
requirements. The information contained in this document is deemed accurate as at April 2015. Data, opinions and estimates may be changed
without notice.
Document issued in Singapore by Amundi Singapore Limited (Company Registration No. 198900774E).
6