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Citigold
Weekly Market Update | 26 January 2015
Citigold
Weekly Market Update
26 January 2015
Central banks keep on giving

Modest yet improving data from China
Citi Economic Surprise Index
CESIUSD Index
Last week, the European Central Bank (ECB) surprised markets with a
larger, longer, open-ended asset purchase program.


CESIEUR Index
CESICNY Index
60
30
The program totaling €60 bn per month, beginning in March 2015, was
on the high side of expectations. It includes government bonds and
agencies, as well as covered bond and asset-backed securities.
The potentially open-ended nature is the most significant aspect of the
announcement, as the purchases will continue until at least September
2016 and there is a sustained adjustment in the inflation path.

Citi analysts believe that the larger than expected package bolsters their
bullish stance on Eurozone equities and credit.

In addition, the Bank of Canada cut rates by 25bp, instead of an expected
hike. And a week earlier, both the Swiss National Bank and the Reserve
Bank of India eased rates.
0
-30
-60
Oct-14
Nov-14
Dec-14
Source: Bloomberg as of 23 January 2015
Divergent bond performance
Accumulated 3-month Bond Index Returns
World Govt Bonds Index
HY Index
Global EMD Index
2%
1%
0%
-1%
-2%
-3%
-4%
-5%
-6%
Performance

The ECB’s quantitative easing (QE) provided further support to global
equity markets with the MSCI AC World up 2.11% last week.

US equities grinded higher with the Dow Jones and S&P 500 up 0.92% and
1.60% respectively.

European equities finished to the upside with the Stoxx Europe 600 up
5.10% while Japanese equities also rose with the Nikkei and Topix higher
3.84% and 2.9% respectively.

Oct-14
Nov-14
Asian equities continue to outperform
Accumulated 3-month Equity Index Returns
MSCI World


MSCI Asia
Emerging Markets also finished the week positive as the MSCI EM index
gained 3.49% with the Emerging Europe leading the way (MSCI Emerging
Europe: +5.65%) The MSCI Asia ex Japan rose 3.18% with most markets
higher except China’s Shanghai composite (SHCOMP: -0.73%).
Asset Allocation

MSCI EM
6%
4%
2%
0%
-2%
-4%
-6%
-8%
-10%
Oct-14

Dec-14
Source: Bloomberg as of 23 January 2015
Equities — Citi analysts remain constructive on global equities. They think
the bull market is maturing but it is too early to call its end given the profits
cycle.
Credit — Citi analysts see further spread tightening in their base case and
retain a preference for High Yield over Investment Grade in Europe and US.
Rates — Medium term, Citi analysts forecast higher yields across the major
government bond markets. European bonds may outperform on a relative
basis.
Commodities — Citi analysts expect heightened seasonality in 2015 and the
possibility of v-shaped price recoveries and sell-offs for the various sectors.
After recent oil price falls, the question is not “if” but “when” markets will
balance, and Citi analysts base case expectation is that this occurs in 2H15,
with a rebound in store for winter 2015-16 or early 2016.
Nov-14
Dec-14
Source: Bloomberg as of 23 January 2015
Week Ahead Key Data and Event
Date
Country
Prior
Citi Fct
27-Jan
US
Durable Goods Orders
Data & Event
Period Survey
Dec
0.4%
-0.7%
-1.0%
29-Jan
EC
M3 Money Supply YoY
Dec
3.5%
3.1%
3.9%
29-Jan
EC
Economic Confidence
Jan
101.6
100.7
101.4
30-Jan
JN
Overall Household Spending YoYDec
-2.3%
-2.5%
-2.3%
30-Jan
EC
CPI Estimate YoY
Jan
-0.5%
-0.2%
-0.5%
30-Jan
JN
Industrial Production YoY
Dec P
0.3%
-3.7%
0.7%
30-Jan
US
GDP Annualized QoQ
4Q A
3.1%
5.0%
3.0%
30-Jan
TA
GDP Annual YoY
4Q
3.5%
2.1%
3.6%
30-Jan
IN
GDP Annual Estimate YoY
1Q R
--
4.5%
5.6%
30-Jan
EC
Unemployment Rate
Dec
11.5%
11.5%
11.4%
30-Jan
US
U. of Mich. Sentiment
Jan F
98.2
98.2
98.0
1-Feb
CH
Manufacturing PMI
Jan
50.2
50.1
--
Source: Bloomberg as of 23 January 2015
Page 1
Citigold
Weekly Market Update | 26 January 2015
Drivers and Risks By Market
United States



Driver: 4Q real GDP is set to post another sold consumption-led gain of about 3%.
The healthy pace of growth at the end of the year was not an oil story – most of
the benefit from oil price declines should occur in the first half of 2015. However,
the latest retail sales report seemed to move in the opposite direction, showing
stalling momentum at the end of the year. Citi analysts believe this was a
temporary pullback and may lead to faster growth in coming quarters.
Risk: Fed policy concerns may restrain multiple expansion prospects. In addition,
some disappointment in emerging economies and a lacklustre though improving
Europe could hold back the earnings story from powerful appreciation.
Implication: Low oil prices may present some opportunity within the retailing and
consumer durable sectors. Citi analysts see opportunities in Financials (Banks and
REITs) as well as IT (Software & Hardware).
2200
2100
2000
1900
1800
1700
1600
S&P 500
1500
Source: Bloomberg as of 23 January 2015
Europe

Driver: On January 22, the ECB announced a broad-based outright purchase
(QE) programme under which it will buy €60bn of public and private debt
securities per month. This exceeded Citi analysts’ expectations and general
market consensus. Even so, changes to the ECB’s stance or additional measures
may still be needed in the future to achieve the ECB’s inflation target or to
respond to future adverse shocks.
390
370
350
330
310
290

Risk: Deflation remains a risk but Citi analysts think that much is already priced
in. Political risks also remain around 2015 elections in Greece, Portugal and Spain
all offering the potential to rile markets.

Implication: To benefit from the QE, Citi analysts’ strategy includes (1) Search for
yield – Dividend stocks (Insurance, Telecoms, Banks, Autos), (2) European high
yield bonds, (3) Cyclicals/Financials over Defensives and (4) Stocks with a strong
balance sheet and high sales exposure to the US.
DJ Stoxx TMI
270
Source: Bloomberg as of 23 January 2015
Japan



Driver: Citi analysts expect the recovery to continue through 2015 thanks to
declines in oil prices, further yen depreciation caused by differences in directions
of monetary policy between the US and Japan and wage increases. According to
Citi analysts’ top-down estimates, TOPIX earnings per share could increase 14.6%
yoy in 2015, above the bottom-up consensus estimate of 10% in 2015.
Risk: Downside risks include earlier than expected US’s rate hikes, heightened
geopolitical risks, problems related to nuclear reactor decommissioning, and the
emergence of a financial crisis in Europe and/or China.
Implication: Given falling crude prices have a positive impact on the earnings of
Japanese firms, sell-offs in Japanese equities may represent a buying opportunity.
Citi analysts prefer autos and tires exporters, brokerage and insurance.
1600
1500
1400
1300
1200
1100
Japan Topix
1000
Source: Bloomberg as of 23 January 2015
Asia

Driver: After the correction, Citi analysts believe MSCI China offers a good entry
point (macro to stabilize with oil dividend and gradual reforms).

Risk: Some of China’s biggest brokerages were stopped from adding margintrading as regulators are tightening control of margin investing after the recent big
surge in the local stock markets. Policy risks are increasing volatility in the market.
620

Implication: In terms of sectors, Citi analysts prefer: prefer health care, I.T.,
Consumer discretionary, Transportation, Insurance and Real Estate.
600
580
560
540
520
500
MSCI Asia ex JP
480
Source: Bloomberg as of 23 January 2015
Page 2
Citigold
Weekly Market Update | 26 January 2015
Currency Forecast
Last price
Currency 23-Jan-15
Weekly Market Performance
Forecasts
Mar-15
Jun-15
Sep-15
Dec-15
Mar-16
(19 – 23 January 2015)
G10-US Dollar
Euro
EURUSD
1.12
1.14
1.12
1.10
1.08
1.05
Japanese yen
USDJPY
117.8
118
124
129
132
134
British Pound
GBPUSD
1.50
1.52
1.50
1.47
1.44
1.41
Swiss Franc
USDCHF
0.88
0.85
0.90
0.95
0.99
1.03
Australian Dollar
AUDUSD
0.79
0.80
0.76
0.73
0.72
0.71
3.2%
MSCI AsiaXJapan
New Zealand
NZDUSD
0.75
0.75
0.71
0.68
0.67
0.66
3.1%
HK Hang Seng
Canadian Dollar
USDCAD
1.24
1.20
1.22
1.25
1.26
1.27
2.9%
Japan TPX Index
2.5%
Korea KOSPI
USDCNY
6.23
6.23
6.26
6.29
6.27
MSCI Emerging Europe
Europe Stoxx Europe 600
UK FTSE 100
4.3%
Taiwan TAIEX
3.6%
EM Asia
Chinese Renminbi
5.7%
5.1%
6.23
2.2%
MSCI Latin America
2.1%
MSCI AC World
Hong Kong
USDHKD
7.75
7.76
7.77
7.79
7.78
7.78
Indonesian Rupiah
USDIDR
12,459
12,830
12,999
13,170
13,167
13,127
Indian Rupee
USDINR
61.44
62.8
63.3
63.9
64.1
64.2
Korean Won
USDKRW
1084.02
1,107
1,122
1,137
1,140
1,140
Malaysian Ringgit
USDMYR
3.60
3.65
3.66
3.67
3.66
3.64
Philippine Peso
USDPHP
44.17
45.3
45.6
45.9
46.0
46.0
Singapore Dollar
USDSGD
1.34
1.35
1.36
1.37
1.37
1.37
Thai Baht
USDTHB
32.57
33.3
33.4
33.6
33.5
33.4
Taiwan Dollar
USDTWD
31.32
32.0
32.1
32.2
32.2
32.1
Russian Ruble
USDRUB
63.71
64.0
63.6
63.2
63.9
64.7
South African Rand
USDZAR
11.40
11.69
11.88
12.07
12.13
12.17
Brazilian Real
USDBRL
2.58
2.78
2.83
2.89
2.92
2.94
Mexican Peso
USDMXN
14.66
14.7
14.5
14.2
14.1
14.1
1.6%
US S&P 500
1.5%
China HSCEI
1.1%
Gold
0.8%
Citi Global Emerging Mkt Sovereigns
0.4%
Citi High Yield
0.3%
Citi World Broad Inv Grade
China Shanghai Composite
-0.7%
Oil
-6.4%
-10%
0%
10%
EM Europe
EM Latam
Source: Bloomberg as of 23 January 2015
\\
Market Performance (Year-To-Date)
(As of 23 January 2015)
Source: Bloomberg as of 23 January 2015
Short Rates and 10-Year Yield Forecasts
Last price
23-Jan-15
2Q15
3Q15
4Q15
1Q16
2Q16
0.25
0.25
Europe Stoxx Europe 600
5.3%
HK Hang Seng
5.2%
MSCI Emerging Europe
MSCI AsiaXJapan
0.50
0.50
4.1%
UK FTSE 100
3.6%
China Shanghai Composite
China HSCEI
2.3%
Short Rates (End of Period)
0.25
Gold
8.1%
4.2%
Forecasts
1Q15
9.2%
1.8%
Taiwan TAIEX
0.75
1.5%
Citi World Broad Inv Grade
1.1%
Korea KOSPI
0.6%
Citi Global Emerging Mkt Sovereigns
0.3%
MSCI AC World
US
0.25
Japan
0.10
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
10-Year Yield (Period Average)
US
1.80
1.95
2.20
2.35
2.55
2.65
2.65
Japan
0.24
0.25
0.35
0.40
0.45
0.50
0.50
Euro Area
0.36
0.55
0.55
0.65
0.65
0.75
0.75
Citi High Yield
0.1%
MSCI Latin America
-0.2%
Japan TPX Index
-0.3%
US S&P 500
-0.3%
-14.4%
Source: Citi Research and Bloomberg as of 23 January 2015
-20%
Oil
0%
20%
Source: Bloomberg as of 23 January 2015
Page 3
Citigold
Weekly Market Update | 26 January 2015
World Market At Glance
Last price
52-Week
52-Week
23-Jan-15
High
Low
1 week
1 month
Historical Returns (%)
1 year
Year-to-date
418.25
434.24
382.57
2.11%
-0.44%
3.39%
0.27%
Dow Jones Industrial Average 17672.60
18103.45
15340.69
0.92%
-1.95%
9.11%
-0.84%
S&P 500
2051.82
2093.55
1737.92
1.60%
-1.46%
12.22%
-0.34%
NASDAQ
4757.88
4814.95
3946.03
2.66%
-0.16%
12.78%
0.46%
439.05
506.61
409.57
2.97%
-0.48%
-9.35%
0.72%
US / Global
MSCI World
Europe
MSCI Europe
Stoxx Europe 600
370.37
372.31
302.48
5.10%
7.65%
11.33%
8.12%
FTSE100
6832.83
6904.86
6072.68
4.31%
3.56%
0.88%
4.06%
CAC40
4640.69
4673.30
3789.11
5.96%
7.55%
8.40%
8.61%
DAX
10649.58
10704.32
8354.97
4.74%
7.33%
10.58%
8.61%
NIKKEI225
17511.75
18030.83
13885.11
3.84%
-0.70%
11.57%
0.35%
Topix
1403.22
1454.22
1121.50
2.90%
-0.70%
8.99%
-0.30%
MSCI Emerging Market
990.89
1104.31
906.25
3.49%
4.09%
2.79%
3.62%
MSCI Latin America
2721.61
3720.81
2455.16
2.21%
-0.27%
-8.69%
-0.22%
MSCI Emerging Europe
126.37
198.14
106.52
5.65%
-0.43%
-34.57%
5.20%
Japan
Emerging Markets
MSCI EM Middle East & Africa
Brazil Bovespa
280.82
341.09
248.54
4.78%
2.67%
-11.07%
3.71%
48775.30
62304.88
44904.83
-0.49%
-4.16%
0.94%
-2.46%
820.99
1421.07
578.21
6.65%
3.27%
-40.58%
3.83%
587.17
608.06
508.53
3.18%
5.20%
9.67%
4.16%
Russia RTS
Asia
MSCI Asia ex-Japan
Australia S&P/ASX 200
5501.82
5679.50
5052.20
3.82%
2.25%
4.54%
1.68%
China HSCEI (H-shares)
12260.06
12400.40
9159.76
1.52%
4.99%
21.27%
2.30%
China Shanghai Composite
3351.76
3406.79
1974.38
-0.73%
10.52%
64.13%
3.62%
Hong Kong Hang Seng
24850.45
25362.98
21137.61
3.10%
6.50%
9.31%
5.28%
India Sensex30
29278.84
29408.73
19963.12
4.11%
6.44%
36.99%
6.47%
Indonesia JCI
5323.89
5325.04
4286.44
3.41%
3.60%
18.41%
1.85%
Malaysia KLCI
1803.08
1896.23
1671.82
3.41%
3.09%
-0.29%
2.38%
Korea KOSPI
1936.09
2093.08
1876.27
2.54%
-0.15%
-0.59%
1.07%
Philippines PSE
7548.93
7552.84
5886.01
0.77%
5.05%
22.35%
4.40%
Singapore STI
3411.50
3419.30
2953.01
3.36%
2.37%
10.04%
1.38%
Taiwan TAIEX
9470.94
9593.68
8230.46
3.64%
4.10%
10.19%
1.76%
Thailand SET
1598.33
1603.89
1258.05
5.31%
4.39%
22.16%
6.72%
Commodity
Oil
Gold spot
45.59
107.73
44.20
-6.37%
-20.19%
-53.15%
-14.42%
1294.10
1392.22
1131.24
1.07%
9.98%
2.37%
9.22%
Source: Bloomberg as of 23 January 2015
Page 4
Citigold
Weekly Market Update | 26 January 2015
Disclaimer
“Citi analysts” refers to investment professionals within Citi Research (“CR”), Citi Global Markets Inc. (“CGMI”) and voting members of the Citi Global
Investment Committee. For important disclosures concerning companies covered by Citi's Equity Research analysts, please refer to the attached link:
https://www.citivelocity.com/cvr/eppublic/citi_research_disclosures.
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