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R B C W E A LT H M A N A G E M E N T
GLOBAL INSIGHT
W E E K L Y
O C TO B E R 1 7 , 2 0 1 4
A C LO S E R LO O K
Will the U.S. Buckle?
Kelly Bogdanov – San Francisco
Financial markets across regions have reacted violently to European recession and deflation risks and
the related plunge in crude oil. These risks beg the question: Can the U.S. withstand the headwinds or
will it buckle under pressure?
Despite an unusually lethargic and inconsistent recovery,
the U.S. economy is delivering slightly above-trend activity,
according to an index of 85 economic indicators (see chart).
But the fact that some data have softened recently is
disappointing.
Currently No Risk of Recession for the U.S. Economy
Chicago Fed National Activity Index (3-month moving average)
1
0
Factory orders have weakened and manufacturing activity has
pulled back a bit from robust levels.
-1
Retail sales fell 0.3% m/m in September, the first decline since
January. This prompted a number of Wall Street economists to
cut Q3 GDP growth forecasts to below 3%. The retail shortfall
helped send the 10-year Treasury yield tumbling to 1.86%
midday Wednesday, the fourth-largest decline since 2008.
-3
At this stage of the recovery, the U.S. economy should be
kicking into high gear. Instead, its performance remains
uneven. The lingering consequences from the previous debt
bubble and financial crisis keep posing challenges for the U.S.
and the rest of the world.
Above Zero is
Above-Average Growth
Below Zero is
Below-Average Growth
-2
-4
-5
2008
2009
2010
2011
2012
2013
Source - RBC Wealth Management, Bloomberg; data through 8/31/14, most recent report
M A R K ET P U L S E
3
Three factors straining Treasury market liquidity
Despite the economy’s flaws, we believe the U.S. will deliver
growth in the quarters ahead—sometimes at a strong pace,
sometimes at trend, and sometimes below-trend.
3
Why Canadian heavy oil differentials should improve
4
U.K. unemployment posts another positive surprise
Even though the manufacturing sector has come off the boil,
it is still solidly in expansion territory. Earnings reports from
leading industrial companies signal this should remain the case,
at least in the near term. Industrial production surged 1.0%
4
Hong Kong protests are easing
It’s Not All Gloom and Doom
Click here for authors’ contact information.
For Important Disclosures, see page 6.
2014
m/m in September, the strongest gain since March 2011. This is
not indicative of an economy that is about to fall off a cliff.
Service sector activity also remains strong. It comprises roughly
70% of economic activity and 80% of employment.
The labor market is strengthening. The U.S. has added 226,000
non-farm jobs per month, on average, this year. RBC Capital
Markets expects job gains in November and December to
average 250,000 or more.
U.S. Can Withstand the Pressures
None of the weak indicators are soft enough to trigger a
recession, in our view. RBC Capital Markets forecasts Q3 GDP
growth of 2.8%, well below the torrid 4.6% pace in Q2. It also
estimates Q4 growth of 2.5% and average quarterly growth of
2.2% in 2015.
If Europe succumbs to recessionary forces and continues to
struggle with deflation, U.S. growth would be constrained. But
because the economy is insular—it’s mainly driven by domestic
services activity—the GDP hit would be modest.
We believe the U.S. can withstand pressures from Europe
and its growth can even help other regions work through this
challenging period with less pain.
Biggest Intraday Moves in 10-year Treasury Yields
Since the Start of 2008
Rank
Date
Move*
Intraday
Low
1
18-Mar-2009
55
2.47
Fed upsizes QE, adds "extended
period" to language
2
08-Oct-2008
43
3.40
Fed bails out AIG, cuts rates 50 bps
3
09-Aug-2011
40
2.03
Fed adds "mid 2013" to language
(dovish); U.S. debt downgraded
four days earlier
4
15-Oct-2014
37
1.86
RECENT MOVE
5
20-Nov-2008
36
2.99
S&P 500 drops 6.7%
6
23-Jan-2008
34
3.29
Day after Fed's intermeeting
decision to cut rates 75 bps
7
15-Sep-2008
34
3.38
Lehman Brothers files for
bankruptcy
8
06-May-2010
32
3.26
Flash crash in U.S. stock market
9
01-Dec-2008
31
2.65
NBER declares recession,
Bernanke warns of more economic
weakness, ISM big decline, S&P
drops 8.9%
10
16-Sep-2008
30
3.25
Reserve Primary Money Fund
breaks the buck
Key Event(s)
* High to low in basis points
Source - RBC Capital Markets US Economics, Bloomberg, Federal Reserve, St. Louis Fed
W H AT ’ S M O V I N G M A R K ET S
Ebola: A Wild Card
In addition to European economic and deflation concerns
and weak oil prices, Ebola has weighed on equity markets in
October, especially in North America. But it had been only a
modest factor—until recently.
Ebola fears pounded the U.S. market during the week following
news a second Texas nurse had been infected and because
of major lapses, mismanagement, and inconsistencies by
authorities.
Those fears contributed to extreme market swings on
Wednesday. The Dow Jones Industrial Average plunged 458
points (-2.8%) in midday trading before recovering some of the
losses.
Overall, Ebola is wild card not only for the U.S. economy, but
for financial markets globally. It is not a quantifiable risk. If the
outbreak worsens in the U.S., it would likely dent confidence in
the economy, government, and health care system. Households
could pull back overall spending and increase savings, borrow
less, and cut back on travel and recreation.
Sectors That Could be Vulnerable if Ebola Fears Rise
S&P Industry Group and S&P 500 Performance Since September 29,
when the first U.S. Ebola Diagnosis Occurred in Dallas, Texas
Hotels &
Cruise Lines
Airlines
-6.6%
S&P 500
-5.6%
Retailers
Restaurants
-3.8%
-4.7%
-11.0%
Source - RBC Wealth Management, Bloomberg; data through 10/16/14
The fear of Ebola—let alone a wider outbreak in a major
developed country—probably is not fully priced into markets.
GLOBAL INSIGHT WEEKLY
October 17, 2014
2
U N I T E D S T AT E S
Kelly Bogdanov – San Francisco
■
■
■
■
Stocks were quite volatile, but damage was mitigated. At its
worst point, the S&P 500 had fallen 4.5% for the week (9.5%
from the September all-time high), but regained its sea legs
Thursday and rallied Friday as attention shifted to corporate
earnings and dovish central bank comments; short covering
also helped. The S&P 500 closed down only 1.0% for the
week. Industrials led, jumping 2.3% with the help of strong
General Electric earnings and robust Honeywell
Q3 numbers. Health care and consumer staples lagged,
falling 2.8% and 2.3%, respectively.
Hedge-fund pain once again took a toll. The dissolution
of the merger between Chicago-based AbbVie and
Ireland-based Shire inflicted losses on arbitrage funds
that were assuming the deal would hold despite changes
in tax inversion regulations. This deal was widely owned
by arbitrage funds. We believe the dissolution prompted
forced selling in the health care sector and broader market
and increased volatility, particularly during Wednesday’s
swoon.
So far, so good for Q3 earnings. In addition to strong
showings from GE and Honeywell, Goldman Sachs and
Morgan Stanley reported good quarters, and a number
of large banks (C, JPM, WFC, BAC) had respectable
results, particularly considering interest rate headwinds.
Transportation bellwether CSX reported great results, and
the stock spiked to a new high. Intel and Schlumberger
were solid. These reports and others signal to us Q3 growth
should exceed the current 6.9% y/y consensus forecast and
could reach the high-single digits. While Q4 guidance has
been modest (management teams have no incentive to go
out on a limb), it’s been within the range of expectations.
Treasury market volatility was extreme, particularly when
the 10-year yield plunged 37 basis points to 1.86% midday
Wednesday, a level not seen since May 2013. That was the
fourth-largest intraday basis point decline in yields since
January 2008. The 10-year yield bounced back and closed
at 2.14% that session and climbed to 2.195% late Friday.
While weak U.S. economic data contributed to the plunge
in yields, RBC Capital Markets believes liquidity issues
exacerbated the move and increased volatility. Three factors
are straining liquidity: (1) Banks hold less Treasuries than
they used to due to regulatory changes, so they are less able
to step in and stabilize the market when it’s volatile; (2) the
government is issuing less debt so there is a diminished
supply of Treasuries; and (3) more hedge funds are involved
in algorithmic trading of Treasuries than before.
GLOBAL INSIGHT WEEKLY
Canadian Crude Benchmarks Have Outperformed WTI & Brent
Performance since June 20
WTI (left axis)
Brent (left axis)
Canadian Light (right axis)
Canadian Heavy (right axis)
US$/bbl
115
110
-20.0%
-21.8%
-15.7%
-11.8%
C$/bbl
115
110
105
105
100
100
95
95
90
90
85
85
80
80
75
20-Jun-2014
20-Jul-2014
20-Aug-2014
Source: Bloomberg; Natural Resources Canada
20-Sep-2014
75
Source - RBC Dominion Securities, Bloomberg; data through 10/10/14
CANADA
Patrick McAllister & Alana Awad – Toronto
■
The S&P/TSX finished flat after a series of volatile sessions.
An improvement in risk sentiment and a modest bounce in
crude benchmarks helped the energy sector outperform.
■
Canadian oil benchmarks have fared well relative to WTI
and Brent since June (see chart). The decline in the Canadian
dollar has acted as a natural hedge for domestic producers
as U.S. dollar-denominated benchmarks have fallen.
Differentials for Canadian heavy oil have compressed and
look poised to improve further as Enbridge’s Flanagan South
Pipeline comes online and BP’s Whiting refinery continues to
ramp up processing of heavy feedstock.
■
Energy services stocks were hit particularly hard during
the correction. Valuations based on forward estimates
appear to have corrected to historically attractive levels.
However, estimates could move lower if crude prices remain
depressed. More clarity should be forthcoming as producers
affirm 2015 capital spending budgets towards year end.
■
Bond yields ended slightly lower after a significant midweek
sell-off. Two-year bonds outperformed the U.S. on
conjecture of a delayed rate hike schedule. Canadian 2-year
bond yields are currently pricing in a small chance of a rate
cut, although it is unlikely this is representative of sentiment.
■
Preferred shares continue to see price weakness across the
group, but most of the pressure has been concentrated in
October 17, 2014
3
■
■
■
Equity markets continued their negative trend during the
week due to fears of a global macroeconomic slowdown
and negative macroeconomic data. The STOXX Europe 600
fell 0.9%, mainly driven by the energy and cyclical sectors.
Euro area industrial production was down 1.8% y/y in
August, confirming weak German macroeconomic data,
announced the week of October 6, that showed a slowdown
of the economic activity in the largest country by GDP
in the eurozone. The U.K. FTSE 100 fell 0.5%, with the
heavy-weighted oil & gas sector one of the main negative
contributors due to the falling oil price.
U.K. inflation fell to 1.2% y/y in September, below the
1.4% the market expected and down from August’s 1.5%.
Lower fuel prices, the rise in the value of sterling, and
continued competition among supermarkets were the main
contributors to the weak data. Given the Bank of England’s
(BoE) 2% inflation target, the scenario for a potential
interest rates hike remains uncertain.
U.K. unemployment, on the contrary, continued its trend
of positive surprises, falling to 6.0% in August from 6.2% in
July. Despite this, the average earnings growth remained
subdued, growing only 0.9% y/y. In RBC Capital Markets’
opinion, upward wage pressures will be more visible as spare
capacity in the economy continues to be absorbed. It believes
the 2015 wage settlements at the turn of the year will carry
the most weight for the BoE in terms of making judgement
on the appropriate timing of its first rate hike.
-15.9%
Resources
Technology
Health Care
-5.8%
-4.9%
-0.8%
Utilities
Consumer Goods
-7.7%
-6.9%
Materials
-8.1%
STOXX 600
Telecom.
-10.7%
-8.9%
Consumer Svcs.
-10.8%
Frédérique Carrier & Davide Boglietti – London
-13.7%
EUROPE
Banks
Performance of the STOXX Europe 600 and Major Sectors Since June 10 Peak (%)
-11.0%
Credit spreads moved wider in both corporate and provincial
bonds during the week, but then tightened in on Friday as we
continue to see increased volatility. We continue to monitor
energy issuers as a potential source of credit vulnerability,
but note these bonds have held up to date—even in instances
where equities have sold off significantly.
Industrials
■
Europe’s Equity Losses Vary Greatly By Sector
Oil & Gas
certain pockets, including select energy issuers, low resetspread issues, and already discounted issues.
S
Source - RBC Dominion Securities, Bloomberg; data through 10/17/14
■
The over three-week long pro-democracy protests in Hong
Kong are showing signs of easing. Student leaders agreed
to talks proposed by Chief Executive Leung Chun-ying on
Friday. Also, Hong Kong police removed road barricades
and cleared demonstrators in the Mong Kok district hours
after the announcement, facing limited resistance.
■
China recorded strong trade data in September. Export
growth rose 15.3% y/y, continuing the solid expansion
since March. Imports jumped 7% versus market economists’
estimate of a 2% drop. China’s M2 money supply increased
moderately by 12.9% y/y, up from 12.8% in August. Total
social financing, a broader measure of credit in the
economy, also recovered to RMB 1.05T in September from
RMB 957.4B in August.
■
Malaysia is planning infrastructure investment of at least
75 billion ringgit ($23B) to achieve the country’s growth
targets. The government will focus on projects that would
significantly impact the economy and can be rapidly
executed, according to Economic Planning Minister Abdul
Wahid Omar. The Bank of Korea cut its benchmark interest
rate—the second reduction in two months—by 25 basis
points to bolster the economy.
A S I A PA C I F I C
Yufei Yang – Hong Kong
■
Asian equities moved lower over the week. The MSCI Asia
Pacific Index fell 1.3%, the sixth consecutive weekly drop,
led by Japan. TOPIX declined 5.3% for the week after the yen
rose by the most since April. The Shanghai market also fell
1.4% after touching a new 2014 high in the previous week;
the Hong Kong market saw little change.
GLOBAL INSIGHT WEEKLY
October 17, 2014
4
M A R K ET S C O R E C A R D
Data as of October 17, 2014
Equities (local currency)
Level
S&P 500
1 Week
MTD
YTD
12 Mos
Govt Bonds (bps chg)
Yield
1 Week
MTD
YTD
12 Mos
1,886.76
-1.0%
-4.3%
2.1%
8.9%
U.S. 2-Yr Tsy
0.371%
-5.3
-19.6
-0.9
6.1
16,380.41
-1.0%
-3.9%
-1.2%
6.6%
U.S. 10-Yr Tsy
2.195%
-8.5
-29.4
-83.3
-39.4
NASDAQ
4,258.44
-0.4%
-5.2%
2.0%
10.2%
Canada 2-Yr
0.980%
-7.2
-14.4
-15.7
-19.7
Russell 2000
1,082.33
2.8%
-1.8%
-7.0%
-1.8%
Canada 10-Yr
1.950%
-6.3
-19.6
-80.8
-61.1
Dow Industrials (DJIA)
S&P/TSX Comp
14,227.68
0.0%
-4.9%
4.4%
9.1%
U.K. 2-Yr
0.690%
-1.2
-13.6
12.6
21.5
FTSE All Share
3,369.59
-0.3%
-4.7%
-6.6%
-3.9%
U.K. 10-Yr
2.189%
-2.8
-23.6
-83.3
-55.7
STOXX Europe 600
318.68
-0.9%
-7.1%
-2.9%
0.9%
Germany 2-Yr
-0.052%
0.3
3.0
-26.5
-23.3
8,850.27
0.7%
-6.6%
-7.3%
0.4%
Germany 10-Yr
0.859%
-2.8
-8.8
-107.0
-100.8
23,023.21
-0.3%
0.4%
-1.2%
-0.3%
2,341.18
-1.4%
-1.0%
10.6%
7.0%
MTD
YTD
12 Mos
Nikkei 225
14,532.51
-5.0%
-10.1%
-10.8%
-0.4%
India Sensex
26,108.53
-0.7%
-2.0%
23.3%
27.9%
3,167.73
-1.7%
-3.3%
0.0%
-0.6%
Brazil Ibovespa
55,723.79
0.7%
3.0%
8.2%
0.7%
Mexican Bolsa IPC
43,273.50
-0.4%
-3.8%
-16.0%
7.6%
Commodities (USD)
Price
German DAX
Hang Seng
Shanghai Comp
Singapore Straits Times
Gold (spot $/oz)
Silver (spot $/oz)
Copper ($/ton)
1 Week
MTD
YTD
12 Mos
Currencies
Rate
U.S. Dollar Index
1 Week
85.20
-0.8%
-0.9%
6.5%
7.0%
CAD/USD
0.89
-0.7%
-0.7%
-5.8%
-8.8%
USD/CAD
1.13
0.7%
0.7%
6.2%
9.6%
EUR/USD
1.28
1.0%
1.0%
-7.2%
-6.7%
GBP/USD
1.61
0.1%
-0.8%
-2.8%
-0.5%
AUD/USD
0.88
0.9%
0.2%
-1.7%
-9.1%
USD/CHF
0.95
-1.1%
-0.9%
6.0%
4.9%
1,238.17
1.2%
2.5%
2.7%
-6.2%
USD/JPY
106.89
-0.7%
-2.5%
1.5%
9.2%
17.29
-0.6%
1.9%
-11.2%
-21.0%
EUR/JPY
136.39
0.3%
-1.5%
-5.8%
1.9%
6,604.00
-1.5%
-1.7%
-10.5%
-8.3%
EUR/GBP
0.79
1.0%
1.8%
-4.5%
-6.3%
Oil (WTI spot/bbl)
82.75
-3.6%
-9.2%
-15.9%
-17.8%
EUR/CHF
1.21
-0.1%
0.1%
-1.6%
-2.1%
Oil (Brent spot/bbl)
86.29
-4.3%
-8.9%
-22.1%
-20.9%
USD/SGD
1.28
-0.1%
-0.1%
1.0%
2.9%
3.77
-2.4%
-8.6%
-10.9%
0.3%
USD/CNY
6.13
-0.1%
-0.2%
1.2%
0.5%
312.66
3.0%
6.9%
-11.1%
-16.9%
USD/BRL
2.44
0.5%
-0.3%
3.3%
13.4%
Natural Gas ($/mmBtu)
Agriculture Index
Source - Bloomberg. Note: Equity returns do not include dividends, except for the German DAX. Bond yields in local currencies. Copper and Agriculture Index data as of Thursday’s close.
Dollar Index measures USD vs. six major currencies. Currency rates reflect market convention (CAD/USD is the exception). Currency returns quoted in terms of the first currency in each
pairing. Data as of 9:35 pm GMT 10/17/14.
Examples of how to interpret currency data: CAD/USD 0.89 means 1 Canadian dollar will buy 0.89 U.S. dollar. CAD/USD -8.8% return means the Canadian dollar fell 8.8% vs. the U.S.
dollar year to date. USD/JPY 106.89 means 1 U.S. dollar will buy 106.89 yen. USD/JPY 9.2% return means the U.S. dollar rose 9.2% vs. the yen year to date.
U P CO M I N G EV E N TS
132 S&P 500 companies scheduled to report earnings during the week
MON, OCT 20
WED, OCT 22
THU, OCT 23
THU, OCT 23, cont.
China Q3 GDP (7.2% y/y)
China HSBC Manuf. PMI (49.9)
China Property Prices
U.S. Leading Index (0.7% m/m)
China Industrial Prod. (7.5% y/y)
BoE MPC minutes
Eurozone Markit Manuf. PMI (50.0)
FRI, OCT 24
China Fixed Assets ex Rural
U.S. CPI (1.6% y/y)
Eurozone Markit Svcs. PMI (52.0)
U.K. Q3 GDP (0.7% q/q, 3.0% y/y)
TUE, OCT 21
U.S. CPI Core (1.8% y/y)
Eurozone Consumer Confid. (-12.0)
U.S. New Home Sales (470K)
Japan Exports (6.6% y/y)
Canada Retail Sales
Germany Markit Manuf. PMI (49.5)
SUN, OCT 26
Europe Debt-to-GDP Ratios
BoC meeting
Germany Markit Svcs. PMI (55.0)
ECB Bank Stress Test Results
Germany Consumer Confid. (8.1)
Brazil elections round II
U.S. Existing Home Sales (5.1M)
All data reflect Bloomberg consensus forecasts where available
GLOBAL INSIGHT WEEKLY
October 17, 2014
5
AUTHORS
Kelly Bogdanov – San Francisco, United States
[email protected]; RBC Capital Markets, LLC.
regardless of a firm’s own rating categories. Although RBC Capital Markets, LLC
ratings of Top Pick (TP)/Outperform (O), Sector Perform (SP) and Underperform (U)
most closely correspond to Buy, Hold/Neutral and Sell, respectively, the meanings
are not the same because our ratings are determined on a relative basis (as
described below).
Patrick McAllister – Toronto, Canada
[email protected]; RBC Dominion Securities Inc.
Alana Awad – Toronto, Canada
[email protected]; RBC Dominion Securities Inc.
Frédérique Carrier – London, United Kingdom
[email protected]; Royal Bank of Canada Investment Management (UK) Ltd.
Davide Boglietti – London, United Kingdom
[email protected]; Royal Bank of Canada Investment Management (UK) Ltd.
Yufei Yang –Hong Kong, China
[email protected]; RBC Dominion Securities Inc.
D I S C LO S U R E S A N D D I S C L A I M E R
Analyst Certification
All of the views expressed in this report accurately reflect the personal views of the
responsible analyst(s) about any and all of the subject securities or issuers. No
part of the compensation of the responsible analyst(s) named herein is, or will be,
directly or indirectly, related to the specific recommendations or views expressed by
the responsible analyst(s) in this report.
Important Disclosures
In the U.S., RBC Wealth Management is comprised of RBC Capital Markets, LLC.
In Canada, RBC Wealth Management includes, without limitation, RBC Dominion
Securities Inc., which is a foreign affiliate of RBC Capital Markets, LLC. This report
has been prepared by RBC Capital Markets, LLC. Alana Awad, Patrick McAllister,
and Yufei Yang, employees of RBC Wealth Management USA’s foreign affiliate RBC
Dominion Securities Inc.; and Davide Boglietti and Frédérique Carrier, employees of
RBC Wealth Management USA’s foreign affiliate Royal Bank of Canada Investment
Management (UK) Limited; contributed to the preparation of this publication.
These individuals are not registered with or qualified as research analysts with
the U.S. Financial Industry Regulatory Authority (“FINRA”) and, since they are not
associated persons of RBC Wealth Management, they may not be subject to NASD
Rule 2711 and Incorporated NYSE Rule 472 governing communications with subject
companies, the making of public appearances, and the trading of securities in
accounts held by research analysts.
In the event that this is a compendium report (covers six or more companies), RBC
Wealth Management may choose to provide important disclosure information
by reference. To access current disclosures, clients should refer to http://www.
rbccm.com/GLDisclosure/PublicWeb/DisclosureLookup.aspx?EntityID=2 to view
disclosures regarding RBC Wealth Management and its affiliated firms. Such
information is also available upon request to RBC Wealth Management Publishing,
60 South Sixth St, Minneapolis, MN 55402.
References to a Recommended List in the recommendation history chart may
include one or more recommended lists or model portfolios maintained by RBC
Wealth Management or one of its affiliates. RBC Wealth Management recommended
lists include a former list called the Prime Opportunity List (RL 3), the Guided
Portfolio: Prime Income (RL 6), the Guided Portfolio: Large Cap (RL 7), the Guided
Portfolio: Dividend Growth (RL 8), the Guided Portfolio: Midcap 111 (RL9), the
Guided Portfolio: ADR (RL 10), and the Guided Portfolio: Global Equity (U.S.) (RL 11).
RBC Capital Markets recommended lists include the Strategy Focus List and the
Fundamental Equity Weightings (FEW) portfolios. The abbreviation ‘RL On’ means
the date a security was placed on a Recommended List. The abbreviation ‘RL Off’
means the date a security was removed from a Recommended List.
Distribution of Ratings
For the purpose of ratings distributions, regulatory rules require member firms
to assign ratings to one of three rating categories - Buy, Hold/Neutral, or Sell -
GLOBAL INSIGHT WEEKLY
Rating
Distribution of Ratings - RBC Capital Markets, LLC Equity Research
As of September 30, 2014
Investment Banking Services
Provided During Past 12 Months
Count
Percent
Count
Percent
Buy [Top Pick & Outperform]
Hold [Sector Perform]
Sell [Underperform]
858
683
98
52.35
41.67
5.98
308
151
8
35.90
22.11
8.16
Explanation of RBC Capital Markets, LLC Equity Rating System
An analyst’s “sector” is the universe of companies for which the analyst provides
research coverage. Accordingly, the rating assigned to a particular stock represents
solely the analyst’s view of how that stock will perform over the next 12 months
relative to the analyst’s sector average. Although RBC Capital Markets, LLC ratings of
Top Pick (TP)/Outperform (O), Sector Perform (SP), and Underperform (U) most closely
correspond to Buy, Hold/Neutral and Sell, respectively, the meanings are not the
same because our ratings are determined on a relative basis (as described below).
Ratings:
Top Pick (TP): Represents analyst’s best idea in the sector; expected to provide
significant absolute total return over 12 months with a favorable risk-reward ratio.
Outperform (O): Expected to materially outperform sector average over
12 months.
Sector Perform (SP): Returns expected to be in line with sector average over
12 months.
Underperform (U): Returns expected to be materially below sector average over
12 months.
Risk Rating:
As of March 31, 2013, RBC Capital Markets, LLC suspends its Average and Above
Average risk ratings. The Speculative risk rating reflects a security’s lower level of
financial or operating predictability, illiquid share trading volumes, high balance
sheet leverage, or limited operating history that result in a higher expectation of
financial and/or stock price volatility.
Valuation and Price Target Impediments
When RBC Wealth Management assigns a value to a company in a research report,
FINRA Rules and NYSE Rules (as incorporated into the FINRA Rulebook) require
that the basis for the valuation and the impediments to obtaining that valuation
be described. Where applicable, this information is included in the text of our
research in the sections entitled “Valuation” and “Price Target Impediment”,
respectively.
The analyst(s) responsible for preparing this research report received
compensation that is based upon various factors, including total revenues of
RBC Capital Markets, LLC, and its affiliates, a portion of which are or have been
generated by investment banking activities of the member companies of RBC
Capital Markets, LLC and its affiliates.
Other Disclosures
Prepared with the assistance of our national research sources. RBC Wealth
Management prepared this report and takes sole responsibility for its content
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time to time perform investment banking or other services for, or solicit investment
banking or other business from, any company mentioned in this report.
October 17, 2014
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Research Resources
This document is produced by the Global Portfolio Advisory Committee within RBC
Wealth Management’s Portfolio Advisory Group. The RBC WM Portfolio Advisory
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The Global Industry Classification Standard (“GICS”) was developed by and is
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& Poor’s Financial Services LLC (“S&P”) and is licensed for use by RBC. Neither
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Disclaimer
The information contained in this report has been compiled by RBC Wealth
Management, a division of RBC Capital Markets, LLC, from sources believed to be
reliable, but no representation or warranty, express or implied, is made by Royal
Bank of Canada, RBC Wealth Management, its affiliates or any other person as to its
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report constitute RBC Wealth Management’s judgment as of the date of this report,
are subject to change without notice and are provided in good faith but without
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may be offered to their residents, as well as the process for doing so. As a result, the
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To Singapore Residents: This publication is distributed in Singapore by RBC
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Past performance is not indicative of future performance.
Copyright © RBC Capital Markets, LLC 2014 - Member NYSE/FINRA/SIPC
Copyright © RBC Dominion Securities Inc. 2014 - Member CIPF
Copyright © RBC Europe Limited 2014
Copyright © Royal Bank of Canada 2014
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October 17, 2014
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