WEEKLY MARKET UPDATE
Weekly Market Update | 17 December 2014
WEEKLY MARKET UPDATE
17 December 2014
Oil price hit multi-year lows
Modest yet improving macro environment
Citi Economic Surprise Index
US equities posted one of their worst weekly performances of 2014,
courtesy of lackluster data out of China, Japan and the eurozone, along
with a tumble for Greek stocks on political uncertainty.
As a result, we saw oil prices hit multi-year lows, with pressure
exacerbated by OPEC and the IEA both cutting their global oil demand
forecasts for 2015. Energy stocks and materials issues were the worst
performers, with WTI crude closing below the $58 per barrel mark for the
first time since May 2009
This week, the FOMC's statement will be in focus. Recent US data has
resuscitated rate hike expectations and speculation has ramped back up
regarding a significant change to the language of the Fed's statement. Citi
is sticking to the view that the Fed may hike rates only in Dec 15.
CESIUSD Index
CESIEUR Index
CESICNY Index
60
30
0
-30
-60
-90
Sep-14
Oct-14
Nov-14
Source: Bloomberg as of 12 December 2014
High Yield Bonds hardest hit
Accumulated 3-month Bond Index Returns
World Govt Bonds Index
HY Index
Global EMD Index
2%
Performance
1%
0%
Global equities tumbled 3.77% in the week led by weakness in oil & gas
stocks as crude oil prices continue to fall to levels not seen in over five
years. The S&P 500 and Dow Jones fell 3.52% and 3.78% respectively.
The European equity markets plunged with the Stoxx Europe 600 losing
5.82%. Japanese equities also finished lower as the Nikkei and Topix fell
3.06% and 3.18% respectively.
Within Emerging Markets, MSCI Latin America and MSCI Emerging
Europe slid 8.66% and 8.78% hit by the sharp declines in oil prices.
Meanwhile, MSCI Asia ex Japan stocks lost 2.62%. Within the region, the
only market which closed on a positive note was China as the Shanghai
Comp gained 0.02%.
-1%
-2%
-3%
-4%
-5%
Sep-14
Oct-14
Nov-14
Source: Bloomberg as of 12 December 2014
EM equities dragged down by oil prices
Accumulated 3-month Equity Index Returns
MSCI World
MSCI EM
MSCI Asia
2%
0%
-2%
-4%
-6%
-8%
-10%
-12%
-14%
Asset Allocation
Equities — Despite a more constructive view for 2015, very near-term
caution is warranted. Sharp declines in crude oil have re-ignited fears and
equities seem vulnerable to pullbacks.
Credit — We see further spread tightening in our base case. Given the
potential ECB QE, we prefer European over US credits. Lower oil prices are
a risk to US HY where the energy is the biggest sector.
Rates — Medium term, we forecast higher yields across the major
government bond markets. EMU and Japanese bonds may outperform on a
relative basis.
Commodities — We expect flaccid commodity demand growth through 2015
and are neutral-to-bearish across the complexes.
Sep-14
Oct-14
Nov-14
Source: Bloomberg as of 12 December 2014
Week Ahead Key Data and Event
Date
Country
15-Dec
US
Industrial Production MoM
Data & Event
16-Dec
CH
16-Dec
16-Dec
Period Survey
Prior
Citi Fct
Nov
0.7%
-0.1%
0.9%
HSBC China Manufacturing PMI
Dec P
49.8
50.0
--
EC
Markit Eurozone Services PMI
Dec P
51.5
51.1
50.2
EC
Markit Eurozone Composite PMI
Dec P
51.5
51.1
50.4
16-Dec
EC
Markit Eurozone Manufacturing PMI
Dec P
50.5
50.1
49.7
17-Dec
US
CPI MoM
Nov
-0.1%
0.0%
-0.2%
17-Dec
SG
Non-oil Domestic Exports YoY
Nov
3.9%
-1.5%
5.2%
18-Dec
US
Leading Index
Nov
0.6%
0.9%
0.6%
18-Dec
US
Initial Jobless Claims
13-Dec
295K
294K
290K
19-Dec
JN
All Industry Activity Index MoM
Oct
0.0%
1.0%
0.1%
Source: Bloomberg as of 12 December 2014
Page 1
Weekly Market Update | 17 December 2014
Drivers and Risk By Market
United States
Driver: The Fed recently released the quarterly US Flow of Funds data for Q3 2014
which is a very useful indicator to get a sense of the stage of the credit cycle. So far
the credit cycle continues to be supportive of equity outperformance over credit in
our view. US corporates are still taking advantage of low rates to finance equity
friendly activity via credit markets, and we have seen increased M&A activity, share
buybacks and dividend payouts.
Risk: While strong 2015 earnings outlook and other fundamental metrics do signal
equity upside, sentiment appears to be not supportive.
Implication: Sector preferences next year remain Information Technology and
Financials alongside large caps and value styles.
End-2014 Target: 2000
End-2015 Target: 2200
2200
2100
2000
1900
1800
1700
1600
Source: Bloomberg as of 12 December 2014
Europe
Driver: We stay bullish on European equities with our end-2015 Stoxx target of 400.
Our bull case is based on (1) the ECB’s QE; (2) modest nominal GDP growth; (3)
10-15% earnings growth; (4) cheap valuations and; 5) rising equity demand.
S&P 500
1500
End-2014 Target: 370
End-2015 Target: 400
360
350
340
330
Risk: Recent developments in Greece have highlighted political risks in the
Eurozone. The situation in Greece is unique and we do not expect events there to
trigger a major crisis in the region, but political risks may rise more broadly in 2015.
Implication: We prefer Financials/Cyclicals and strong balance sheet
sectors/surplus cash flows. We overweight Banks, Insurance, Resources, Autos,
Health Care and Tech.
320
310
300
290
DJ Stoxx TMI
280
Source: Bloomberg as of 12 December 2014
Japan
Driver: Abe’s coalition won more than two-thirds seats with the LDP winning 291
seats in Lower House election and Komeito 35 for a total of 326. Without major
disruptions in Abenomics, Japanese equities may receive more inflows on the
GPIF’s expansion in Japanese equity investment and the BoJ’s additional
purchases.
Risk: The Business Outlook Survey for the 4Q revealed a notable downward
revision of capital investment plans at small firms, as well as some delay in actual
spending at large firms. If PM Abe’s growth strategy does not prove a catalyst,
business leaders may not step up capex.
Implication: We overweight financials, which are appealing in valuations and
positively affected by Abenomics; consumer cyclicals, which should benefit from yen
weakness and the recovery in the US economy; and industrials, which should
benefit from improvement in capex in Japan and the US.
End-2014 Target: 1390
End-2015 Target: 1650
1500
1450
1400
1350
1300
1250
1200
1150
1100
1050
1000
Japan Topix
Source: Bloomberg as of 12 December 2014
Asia
Driver: In the week of 10 December, Asia funds saw inflows while US, European
and other EM funds suffered outflows. We remain bullish on EM Asia on cheap
valuations, strong earnings, and main beneficiary of weaker commodity prices
support. We also expect China’s authorities to take more easing measures to,
including two rate cuts (25bps each) by mid-2015 and 3-4 RRR cuts (50bps each)
in 2015 (with one rate cut and RRR cut in Q1).
Risk: In China, M2 growth edged down from 12.6% in Oct to 12.3% in Nov, lower
than market expectations. While property investment remains a drag, there is no
sign of a quick reversal of the growth downtrend yet.
Implication: Citi’s 2015 MSCI Asia ex Japan target is 630 currently. With outlooks
for a stronger US$, higher rates and commodity prices, we prefer China, Taiwan
and Singapore.
End-2014 Target: 610
End-2015 Target: 630
620
600
580
560
540
520
500
480
MSCI Asia ex JP
460
Source: Bloomberg as of 12 December 2014
Page 2
Weekly Market Update | 17 December 2014
Currency Forecast
Currency 12-Dec-14
Weekly Market Performance
Forecasts
Last price
Mar-15
Jun-15
Sep-15
Dec-15
Mar-16
G10-US Dollar
(8 – 12 December 2014)
(04/07/2014~04/11/2014)
Euro
EURUSD
1.25
1.16
1.12
1.09
1.07
1.05
Japanese yen
USDJPY
118.8
121
124
126
128
130
British Pound
GBPUSD
1.57
1.48
1.44
1.40
1.37
1.35
Swiss Franc
USDCHF
0.96
1.04
1.08
1.11
1.15
1.18
Australian Dollar
AUDUSD
0.82
0.84
0.81
0.80
0.79
0.78
New Zealand
NZDUSD
0.78
0.75
0.73
0.71
0.69
Canadian Dollar
USDCAD
1.16
1.15
1.17
1.18
1.19
Hong Kong
USDCNY
6.19
USDHKD
7.75
6.19
7.78
6.23
7.79
6.23
6.18
7.80
7.79
Citi World Broad Inv Grade
0.0%
China Shanghai Composite
-1.9%
Taiwan TAIEX
-2.4%
Citi High Yield
-2.5%
Citi Global Emerging Mkt Sovereigns
0.68
-2.6%
MSCI AsiaXJapan
1.19
-3.1%
China HSCEI
EM Asia
Chinese Renminbi
Gold
2.5%
0.5%
6.13
USDIDR
12467
12,265
12,414
12,500
12,500
12,500
Indian Rupee
USDINR
62
62.2
62.4
62.5
62.6
62.7
Korean Won
USDKRW
1103.14
1,107
1,119
1,124
1,122
1,120
Malaysian Ringgit
USDMYR
3.50
3.37
3.39
3.40
3.39
3.39
Philippine Peso
USDPHP
44.58
45.3
45.6
45.7
45.5
45.4
Singapore Dollar
USDSGD
1.31
1.31
1.32
1.33
1.33
1.33
Thai Baht
USDTHB
32.83
33.2
33.5
33.5
33.4
33.3
Taiwan Dollar
USDTWD
31.31
31.1
31.4
31.4
31.1
30.8
HK Hang Seng
-3.2%
Japan TPX Index
-3.3%
Korea KOSPI
-3.5%
US S&P 500
7.78
Indonesian Rupiah
-3.1%
MSCI AC World
-3.8%
Europe Stoxx Europe 600
-5.8%
UK FTSE 100
-6.6%
MSCI Latin America
-8.7%
MSCI Emerging Europe
-8.8%
Oil
-12.2%
-20%
-10%
0%
10%
Source: Bloomberg as of 12 December 2014
EM Europe
Russian Ruble
USDRUB
58.28
49.4
50.2
50.9
51.2
2.6
South African Rand
USDZAR
11.59
11.22
11.34
11.41
11.43
0.00
Market Performance (Year-To-Date)
EM Latam
Brazilian Real
USDBRL
2.65
2.69
2.73
2.76
2.79
2.82
Mexican Peso
USDMXN
14.76
13.5
13.4
13.4
13.3
13.2
(As of 12 December 2014)
38.9%
Source: Citi Research and Bloomberg as of 12 December 2014
Citi World Broad Inv Grade
7.5%
Short Rates and 10-Year Yield Forecasts
Forecasts
Last price
12-Dec-14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
Short Rates (End of Period)
US
0.25
0.25
0.25
0.25
0.25
0.50
0.50
Japan
0.1
0.1
0.1
0.1
0.1
0.1
0.1
Euro Area
0.05
0.05
0.05
0.05
0.05
0.05
0.05
US
2.08
2.35
2.70
2.85
2.90
2.95
3.00
Japan
0.40
0.45
0.45
0.45
0.55
0.55
0.60
10-Year Yield (Period Average)
Euro Area
0.62
0.65
0.65
0.85
1.00
1.15
1.25
7.5%
Japan TPX Index
6.1%
Citi Global Emerging Mkt Sovereigns
4.8%
Taiwan TAIEX
3.9%
China HSCEI
1.4%
Gold
1.1%
MSCI AsiaXJapan
0.7%
Europe Stoxx Europe 600
0.0%
MSCI AC World
-0.1%
Citi High Yield
-0.2%
HK Hang Seng
-4.5%
Korea KOSPI
-6.6%
UK FTSE 100
MSCI Latin America
-18.4%
MSCI Emerging Europe
-35.7%
-41.3%
-50%
Source: Citi Research and Bloomberg as of 12 December 2014
China Shanghai Composite
US S&P 500
8.3%
Oil
0%
50%
Source: Bloomberg as of 12 December 2014
Page 3
Weekly Market Update | 17 December 2014
World Market At Glance
Historical Returns (%)
Last price
52-Week
52-Week
12-Dec-14
High
Low
1 week
1 month
1 year
Year-to-date
US / Global
MSCI World
408.74
434.24
382.57
-3.77%
-2.70%
4.23%
0.05%
DJIA
17280.83
17991.19
15340.69
-3.78%
-1.88%
9.79%
4.25%
S&P 500
NASDAQ
2002.33
4653.60
2079.47
4810.86
1737.92
3946.03
-3.52%
-2.66%
-1.76%
-0.46%
12.78%
16.39%
8.33%
11.42%
MSCI Europe
433.81
506.61
411.49
-4.78%
-2.12%
-4.89%
-10.06%
Stoxx Europe 600
330.54
351.04
302.48
-5.82%
-1.36%
6.54%
0.69%
FTSE100
6300.63
6904.86
6072.68
-6.56%
-4.70%
-2.24%
-6.64%
CAC40
4108.93
4598.65
3789.11
-7.03%
-1.70%
0.98%
-4.35%
DAX
9594.73
10093.03
8354.97
-4.88%
4.17%
6.41%
0.45%
NIKKEI225
17371.58
18030.83
13885.11
-3.06%
1.01%
13.23%
6.63%
Topix
1399.65
1454.22
1121.50
-3.18%
1.64%
12.67%
7.48%
MSCI Emerging Market
938.41
1104.31
913.65
-4.80%
-5.79%
-5.36%
-6.41%
MSCI Latin America
2610.44
3720.81
2610.44
-8.66%
-13.20%
-17.22%
-18.44%
MSCI Emerging Europe
128.81
201.75
127.89
-8.78%
-16.84%
-34.12%
-35.67%
MSCI EMEA
267.13
341.09
267.13
-7.73%
-11.39%
-16.34%
-18.66%
48001.98
62304.88
44904.83
-7.68%
-9.39%
-4.23%
-6.81%
799.18
1467.85
784.53
-12.06%
-23.53%
-42.65%
-44.61%
Europe
Japan
Emerging Markets
Brazil Bovespa
Russia RTS
Asia
MSCI Asia ex-Japan
557.69
608.06
508.53
-2.62%
-2.25%
1.95%
1.13%
Australia S&P/ASX 200
5219.57
5679.50
5047.50
-2.17%
-4.46%
3.10%
-2.48%
China HSCEI (H-shares)
11236.39
11949.99
9159.76
-3.14%
4.72%
2.50%
3.89%
China Shanghai Composite
2938.17
3091.32
1974.38
0.02%
17.79%
33.38%
38.86%
Hong Kong Hang Seng
23249.20
25362.98
21137.61
-3.14%
-2.88%
0.13%
-0.25%
India Sensex30
27350.68
28822.37
19963.12
-3.89%
-2.35%
30.70%
29.19%
Indonesia JCI
5160.43
5262.57
4109.31
-0.53%
2.21%
22.51%
20.74%
Malaysia KLCI
1732.99
1896.23
1698.13
-0.94%
-4.58%
-5.50%
-7.18%
Korea KOSPI
1921.71
2093.08
1885.53
-3.27%
-2.32%
-2.35%
-4.46%
Philippines PSE
7224.21
7413.62
5709.34
-0.09%
-0.12%
25.37%
22.66%
Singapore STI
3324.13
3387.84
2953.01
-0.01%
1.23%
8.67%
4.95%
Taiwan TAIEX
9027.33
9593.68
8230.46
-1.95%
1.22%
7.97%
4.83%
Thailand SET
1514.95
1603.89
1205.44
-5.18%
-3.01%
11.70%
16.65%
57.81
107.73
56.25
-12.20%
-25.10%
-40.71%
-41.26%
1222.50
1392.22
1131.24
2.51%
5.15%
-0.25%
1.40%
Commodity
Oil
Gold spot
Source: Citi Research and Bloomberg as of 12 December 2014
Page 4
Weekly Market Update | 17 December 2014
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