Perspectivas de Mercado Fincor (Outubro 2012)

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  • 1. October 2012 Monthly Perspectives n For important disclosures, refer to the Disclosure Section, located at the end of this report.
  • 2. September ‐ HighlightsECB and FED doesn´t disappoint… New policies 2012 to 4.5% in 2013. The government’sannounced by the ECB and the FED were the main projections seems to be based in an economichighlights in September. In Europe, the ECB left outlook that could be too optimistic.interest rates unchanged but announced a newsovereign debt purchase scheme in order to re‐ Euro‐zone continues in recession territory…establish the effectiveness of monetary Business and consumer confidence remainstransmission in the Euro‐area. In the US, the central depressed. Spain and Italy seem particularlybank announced an open‐ended QE3. $40bn of weak. In Spain, non‐performing loans reached aMortgage Backed Securities will be bought every new high in July. Comments from Bank of Spainmonth until the outlook for the labor market has suggested a really weak economy during the thirdimproved. quarter. France, Italy and Greece unveiled belt‐ tightening budgets for next year.… which supported risk assets: A more aggressivestance by the ECB and the FED has supported a … but the US economy is still expanding at acontinuing higher allocation to risk by investors. moderate rate: the housing market recovery is continuing. However, housing makes up a smallSpain was again on the news at the end of the part of GDP. The industry sector continues tomonth: Spain’s 2013 budget was announced and it struggle against weak export markets.targets a reduction in the deficit from 6.3% in
  • 3. September – Financial MarketsSovereign Debt Markets Stock MarketsCountry Maturity Last September Year‐to‐date Country Indices Last Price Chg. % MTD Chg. % YTD Change (bps) Change (bps) Portugal PSI 20 5202.76 4.08% -5.31%Germany 2 Years 0.041% 7.6 ‐10.3 Spain IBEX35 7708.5 3.88% -10.01% 5 Years 0.533% 19.9 ‐22.5 France CAC 40 3354.82 -1.71% 6.17% 10 Years 1.457% 12.3 ‐37.2 Germany DAX 30 7216.15 3.52% 22.34% UK FTSE 100 5742.07 0.54% 3.05%France 2 Years 0.191% 4.8 ‐61.8 Italy FTSE MIB 15095.84 -0.03% 0.04% 5 Years 0.945% 2.2 ‐96.8 Switzerland SMI 6495.88 1.69% 9.43% 10 Years 2.207% 4.9 ‐94.1 Euro-zone Euro Stoxx 50 2454.26 0.56% 5.94%Italy 2 Years 2.399% ‐39.7 ‐271.8 US S&P500 1440.67 2.42% 14.56% 5 Years 4.058% ‐75.1 ‐214.0 US Nasdaq 3116.23 1.61% 19.62% 10 Years 5.118% ‐72.9 ‐199.0 Brazil Bovespa 59175.86 3.71% 4.27% Mexico Mexbol 40866.96 3.67% 10.22%Spain 2 Years 3.368% ‐28.8 6.4 5 Years 4.687% ‐81.4 54.1 Japan Nikkei 225 8870.16 0.34% 4.91% Hong Kong Hang Seng 20840.38 6.97% 13.05% 10 Years 5.945% ‐91.2 85.7 Commodities CurrenciesPortugal 2 Years 5.135% ‐45.6 ‐1092.5 5 Years 7.070% ‐79.4 ‐870.9 Last Price Chg. % MTD Chg. % YTD Last Price Chg. % MTD Chg. % YTD 10 Years 8.995% ‐31.6 ‐436.6 CRB 495.06 0.9% 2.7% Euro/$ 1.2865 2.18% -0.74%US 2 Years 0.250% 3.0 1.1 WTI Oil 92.02 -4.9% -6.4% £/Euro 1.2555 -0.44% 4.52% 5 Years 0.644% 5.4 ‐18.8 Brent Oil 112.19 -1.6% 7.6% Euro/Yen 100.41 1.66% 0.75% 10 Years 1.654% 10.6 ‐22.2 Gold 1771.3 4.5% 13.3% Eur/CHF 1.20858 0.60% -0.68%
  • 4. ECB: Draghi does it again…• Following his August 2nd speech “The Euro is o Seniority: the ECB will renounce any claim Irreversible”, Mario Draghi announced a program to seniority in the treatment of its bond for outright sovereign purchases (maturities holdings accumulated under the OMT between 1 and 3 years), in order to re‐establish program (pari passu); the effectiveness of monetary policy transmission. o Sterilization: the purchases will be fully Key characteristics are: sterilized; o Transparency: OMT holdings will be o Conditionality: a request for support to the published on a weekly basis. EFSF/ESM is necessary. Such program can take the form of a full program or a 2-year Government bonds - precautionary program. Purchases will occur 7% Spain and Italy Mario Draghis  Speech "The Euro  as long as the program implied is Irreversible" 6% conditionality is respected. It might be terminated when its objectives have been 5% 4.9% OMT is announced Yield to maturity reached or when there is non‐compliance 4% with the program; 3.0% 4.0% o Coverage: only for future cases of EFSF/ESM 3% programs. Also possible for countries under 2% Spain Italy 2.3% a current program, when they regain market access (Ireland, Portugal, Greece and 1% 01-Jun 01-Jul 01-Ago 01-Set 01-Out Cyprus); Source: Bloomberg
  • 5. What have Mario Draghi said? 3500 ECB Total Assets 3000• “OMT will enable us to address severe distortions 2500 in Government Bond Markets which originate Billion € 2000 from, in particular, unfounded fears on the part of 1500 investors of the reversibility of the Euro”; 1000• He didn´t announced any details on acceptable 500 yields or spreads that could govern potential 0 interventions. But broad liquidity conditions will be taken into account;• The reason why the ECB will be buying bonds with Source: Bloomberg a maturity not higher than 3 years is that “we act ECB Main Refinancing Rate independently in determining monetary policy”. 5.00% The ECB may sell the purchased bonds on the 4.50% 4.00% secondary market if it concludes there’s non‐ 3.50% compliance with the program by the country; 3.00%• As happened with the LTRO, The OMT will create 2.50% 2.00% excess liquidity. The decision to sterilize it is 1.50% probably aimed at reassuring that the OMT 1.00% program will not jeopardize the ECB´s mandate 0.50% 0.00% regarding price stability. Source: Bloomberg
  • 6. ECB said that economic growth should remain weak…• Bundesbank announced its opposition to the Eurozone: GDP Growth program. It thinks that the ECB mandate should 3.20% 2.90% only be price stability; 1.70% 2.00% 1.40% 1.40%• Spain and Italy are the countries that might 0.30% 0.40% benefit the most from the program. Nevertheless, -0.50% those countries will need to keep implementing structural reforms in order to increase their economy’s competitiveness; -4.40%• From the ECB: “Economic growth in the Euro Area 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 is expected to remain weak, with the ongoing Source: Bloomberg tensions in the financial markets and heightened Eurozone: CPI uncertainty weighing on confidence and 3.28% sentiment”. GDP growth forecast for 2012 was cut 2.69% from ‐0.1% to ‐0.4% and in 2013 from 1% to 0.5%; 2.40% 2.19% 2.18% 2.13%• Again from the ECB: “Inflation rates are expected 1.90% 1.80% to remain above 2% throughout 2012, to fall 1.58% below that level again in the course of next year and to remain in line with price stability over the 0.29% policy‐relevant horizon”. The Inflation increase during 2012 were due to higher energy prices. 2005 2006 Source: Bloomberg 2007 2008 2009 2010 2011 2012 2013 2014
  • 7. German court gives green light to the ESM.• The positive German Court´s decision should now allow the ESM to be ratified, nearly two Survey results on confidence in years after is was first proposed;• The German Constitutional Court ruled that the German institutions (response in %) ESM bail‐out fund is not against the German Domestic political parties constitution; European Commission• Nonetheless, it placed a €190bn cap on Federal government liabilities, unless Parliament decides to provide Bundestag (lower chamber) additional guarantees; Bundesrat (upper chamber)• ESM will now gradually increase its total lending Federal President capacity, in order to reach €500bn by July 2013. Constitutional court Until then, the EFSF will be allowed to fill the gap Constitution to ensure a total lending capacity of €500bn 0 10 20 30 40 50 60 70 80 90 from now on; Source: Institut für Demoskopie Allensbach, FAZ• Together with ECB’s Outright Monetary Transactions program (OMT), European authorities hope that a substantial firewall could now be in place. Will it be enough to meet Spain and Italy’s joint financing needs?• The ECB can now deliver…
  • 8. Europe Economy: Business sentiment remains depressed.• The Irish economy narrowly avoided a contraction in Q2 2012. GDP growth is estimated Europe: PMI Manufacturing indices to have been 0.0% qoq, with a subdued 62 France Germany domestic demand. Revised data for Q1 2012 Italy Eurozone 58 UK showed a ‐0.7% qoq contraction;• Ifo business survey (Sep) – The headline 54 composite business indicator fell. The 50 deterioration was driven by declines in both the 46 current conditions and expectations indices. The sentiment in the German manufacturing sector 42 Jan-10 Set-10 Mai-11 Jan-12 Set-12 Mai-13 seems to be falling rapidly; Source: Bloomberg• Business sentiment remains depressed across Germany: Ifo business survey Europe, despite the recent good news (ECB 125 decision, German constitutional court decision, 120 115 Dutch general elections and written proposal on 110 banking union). PMI manufacturing indices for 105 France, Italy, UK and Germany are all below 50. 100 The divergence between the German (up from 95 90 44.7 to 47.3) and the French survey (down to Jan-10 Set-10 Mai-11 Jan-12 Set-12 Mai-13 42.6 from 46.0) is quite striking. Should we Headline composite Business Indicator Current Conditions Index expect an ECB rate cut, especially with the euro Expectation Index exchange rate rising? Source: Bloomberg
  • 9. Spain: NPLs reached a new 1000 900 Spain: LoansHistorical high. 800 € Billion 700• According to the Bank of Spain, non‐performing 600 Lo ans Househ olds 500 Loans for the month of July reached 9.88% of 400 Lo ans Non Fin ancial Corp orations total loans, above the 1993 previous high; 300 2002 2004 2006 2008 2010 2012• With the economy stuck in a recession, a weak labor market and an increased risk aversion to Spain: Deposits 1200 20% Spanish assets, bank deposits have been 1000 15% decreasing. Moreover, the declining banking 800 10% loans trend shows that the economy’s € Billion 600 5% deleveraging process is continuing; 400 Total Depos its 0%• Last week’s joint statement from the German, 200 YoY Growth Rate (right scale) -5% Dutch and Finnish ministers increased market 0 2002 2004 2006 2008 2010 2012 -10% doubts on whether the rest of euro‐zone will 10% Spain: Non-performing bear the costs of providing support for the 8% loans region’s banking sector. Will a full‐blown 6% banking union really happen in the euro‐zone?• The head of the Catalan regional government 4% announced that early regional elections will take 2% place on 25th November this year (rather than 0% 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012 in 2014 as scheduled). Source: European Cental Bank, Bank of Spain
  • 10. Spain’s 2013 Budget and new economic reforms.• Spain’s 2013 budget targets a reduction in the deficit from 6.3% of GDP in 2012 to 4.5% in 2013. Macro assumptions and fiscal forecasts 2011 2012 2013 2014 An 1.5% contraction is expected for 2012, Assumed GDP growth (% yoy) 0.7 ‐1.5 ‐0.5 1.2 followed by a 0.5% fall next year. Will the later Output gap (%) ‐4.6 ‐4.7 ‐3.8 ‐2.7 forecast prove to be too optimistic? Fiscal balance and target (% GDP) ‐8.9 ‐6.3 ‐4.5 ‐2.8• Tax revenues are expected to increase by just Change in fiscal balance (% GDP) 0.4 2.6 1.8 1.7 under 4% (Will it be possible with the local Fiscal tightening (% GDP) 0.0 2.7 1.4 1.2 economy stuck in a recession?). Ministry Primary fiscal tightening (% GDP) 0.5 3.5 2.0 1.1 spending is going to be cut by 8.9% and public Source: Ministry of Treasury and Public Administration servant wages should be frozen;• New laws should be introduced in the next 6 Spain: EC Economic Sentiment months to liberalize the energy, services and 120 Index telecom sectors. New measures are expected to reform public administration and reform the labor market (including wage bargaining); 100• These two announcements can probably help Spain to demand support from an EFSF/ESM 80 program by fulfilling required conditionality;• The Oliver Wyman bottom‐up Stress Test results, published last Friday, revealed a capital deficit 60 2006 2007 2008 2009 2010 2011 2012 post tax effects of €53.7bn. Source: Bloomberg
  • 11. Spain: Stress Test results reveal Capital needs ‐ Base Scenario (€bn) Financial Expected Loss Capital excess Capital excessa €53.7bn capital deficit. Instituion Santander BBVA ‐ UNNIM Loss 22 20 Absorption (pre‐tax) (post‐tax) 43 31 21.3 10.9 19.2 10.9• This is an important milestone in the ongoing La Caixa 22 32 10.2 9.4 restructuring process that has been agreed upon Sabadell ‐ CAM Kutxabank ‐ Cajasur 18 5 22 8 4.4 3.4 3.3 3.1 with Eurogroup on July 20, 2012; Unicaja ‐ CEISS Popular ‐ Pastor 7 15 8 16 1.0 0.5 1.3 0.7• The financial institutions which have shortfalls Bankinter 2 3 0.6 0.4 Libercaja 11 11 0.4 0.5 will have to prepare recapitalization plans. Their BMN 6 6 ‐0.4 ‐0.4 Banco Valencia 4 2 ‐1.7 ‐1.8 business plans will be reviewed in early October. NCG 9 6 ‐3.6 ‐4.0 The recapitalization period should last until mid‐ Catalunya Banc BFA ‐ Bankia 13 30 6 17 ‐6.2 ‐12.2 ‐6.5 ‐13.2 2013. Recapitalization plans could include asset Total 183 212 ‐24.1 ‐25.9 sales, capital raising and liability management Capital needs ‐ Adverse Scenario (€bn) Capital Capital exercices; Financial Expected Loss excess excess Instituion Loss Absorption (pre‐tax) (post‐tax)• According to the results published, Popular has a Santander 34 59 24.4 25.3 €3.2bn capital deficit. The bank has a €700mn BBVA ‐ UNNIM 31 40 8.2 11.2 La Caixa 33 37 3.9 5.7 pending right issue; Kutxabank ‐ Cajasur 7 9 1.8 2.2 Sabadell ‐ CAM 25 26 0.6 0.9• In June, the Spanish government hired Bankinter 3 4 0.3 0.4 consultants Oliver Wyman and Roland Berger to Unicaja ‐ CEISS BMN 10 9 9 6 ‐0.9 ‐3.1 0.1 ‐2.2 conduct a transparency exercise. A top‐down Libercaja 16 12 ‐3.4 ‐2.1 Banco Valencia 6 2 ‐3.4 ‐3.5 stress test on the 14 largest Spanish banking Popular ‐ Pastor 22 17 ‐5.5 ‐3.2 NCG 13 6 ‐6.8 ‐7.2 groups assessed the aggregate capital shortfall at Catalunya Banc 17 7 ‐10.5 ‐10.8 €16‐25bn in the base case and €52‐62bn under BFA ‐ Bankia 43 19 ‐23.7 ‐24.7 Total 270 252 ‐57.3 ‐53.7 adverse scenarios. Source: Oliver Wyman Report
  • 12. Italy: a weak economic backdrop… 2012 E 2013 F New Previous New Previous• Mario Monti’s government has pursued an Budget Deficit (% GDP) 2.6% 1.7% 1.8% 0.5% ambitious agenda of fiscal consolidation and Debt‐to‐GDP ratio 126.4% 123.4% 126.1% 121.5% structural reforms, not always with success. Real GDP growth rate ‐2.4% ‐1.2% ‐0.2% Nonetheless, it has been in line with what the Source: Italian Government Italy: Current Account Balance European policymakers are keen to see; (% GDP) 4%• The large size of government refinancing makes Italy sensitive to changes in market sentiment; 2%• Market pressure could be the trigger to Italy 0% demand some degree of sovereign support. Once -1.91% Spain applies for financial support, market -2% pressures on Italy may increase; -4%• ECB’s Outright Monetary Transactions mechanism 1988 1991 1994 1997 2000 2003 2006 2009 2012 could be important to reduce Italy’s funding costs. Source: Bloomberg Italy: Real GDP Conditionality (beyond what’s already been 6% (% YoY) agreed) could be a political problem, mainly 4% because of the technocratic nature of the current 2% 0% government; -2%• Forward looking indicators points to a weak -2.60% -4% economy. Local firms expects a further -6% deterioration in their order books. Italy’s current -8% account deficit is narrowing. 2000 2003 2006 2009 2012 Source: Bloomberg
  • 13. Greece’s pain continues. 10% Greece: GDP Growth 8%• The leaders of Greece’s fractious coalition 6% 4% government announced a basic agreement over 2% an austerity package that will allow the country to 0% cut €11.5bn in expenses and raise €2bn through -2% -4% new taxes; -6%• The Government intends to cut pensions and -8% salaries. Moreover, it wants to improve and -10% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 increase tax collection; Source: Bloomberg• Antonis Samaras intends to make a formal request at next month’s EU summit for the country’s Greece: Redemptions Calendar of Tradable Debt (M) program to be extended by 2 years until 2016. The problem is how to meet the additional funding 286.956,00 € that would be required;• Troika is still pushing Greece towards new measures that could deepen labor market reforms 143.710,00 € and reform the local public administration;• Greece’s 2013 budget will probably sustain the 59.459,00 € country’s severe economic recession. 14.031,00 € 13.212,00 € 15.818,00 € 7.055,00 € 3.442,00 € 23.040,00 € 5.823,00 € 1.366,00 € 2012 2013 2014 2015 2016 2017 2018 2019 2020 >2021 Total Source: Bloomberg
  • 14. France unveils a tough budget.• The Government announced that it will implement new austerity measures to cut its France: Government Deficit as % of GDP Budget Deficit to 3% of the GDP in 2013, from 7.50% 7.10% 4.5% this year;• Taxes on big companies will generate €10bn, 5.20% mainly through the removal of various tax 4.50% deductions and exemptions. €10bn expected to 3.30% 3.00% be raised from household will hit top earners; 2.90% 2.30% 2.70%• A freeze in nominal terms in government spending is expected to save €10bn in 2013;• A new 45% marginal income tax will apply to earned income above €150,000 a year; 2005 2006 2007 2008 2009 2010 2011 2012F 2013F• The French debt agency projects that France´s Source: Bloomberg and French Government debt should increase to more than 91% of GDP next year. Nonetheless, France has borrowed at record low levels of interest, recently.
  • 15. US Economy: still expanding at a moderate rate…• The global slowdown is taking a greater toll in ISM Activity Indices the US manufacturing sector. Manufacturing 70 output fell by 0.7% mom. The forward‐looking ISM Manufacturing remained below 50 in 60 August; 53.7 50 49.6• Other parts of the economy are less exposed to overseas events. The ISM non‐manufacturing 40 ISM Non-Manufacturing Index has risen to 53.7, from 52.6; ISM Manufacturing Index• The economy only created 96,000 jobs in 30 1997 1999 2001 2003 2005 2007 2009 2011 2013 August. The employment‐to‐population ratio is Source: Bloomberg at a 12‐month low of 58.3%;• Retail sales excluding motor vehicles, gasoline Change in Non-Farm Payroll Employment (000s) and NAHB Market Index and building materials fell by 0.1 mom in August. 400 40 Nonetheless, this fall may partly be a payback 300 37 35 30 after the strong rise in July; 200 25• The continuing recovery in the NAHB 100 94 20 15 homebuilders index points to increased 0 10 confidence in the sector; -100 5• Despite higher gasoline prices, the Conference -200 2010 2011 2012 2013 0 Board measure of US consumer confidence Change in Non-Farm Payroll Employment (3 month average) increased to a seven‐month high in September. National Association of home builders Market Index (right scale) Source: Bloomberg
  • 16. FED announced an open‐ended QE3 Unemployment rate: FOMC• “The Committee seeks to foster maximum 10% Economic Projections employment and price stability. The Committee is 9% Max average concerned that, without further policy 8% Min 7% accommodation, economic growth might not be 6% strong enough to generate sustained improvement 5% in Labor Market Conditions”; 4% 2005 2006 2007 2008 2009 2010 2011 2012E 2013F 2014F 2015F• $40bn in Mortgage Backed Securities will be purchased per month. the Fed intends to continue GDP: FOMC Economic Projections 5% those purchases until the outlook for the labor 4% market has improved; 3% 2%• The FOMC extended its conditional commitment to 1% leave its policy rate at near zero until mid 2015. -1% -2% Additionally, the FED added that "a highly -3% Max average Min accommodative stance of monetary policy will -4% 2005 2006 2007 2008 2009 2010 2011 2012E 2013F 2014F 2015F remain appropriate for a considerable time after Core PCE inflation: FOMC Economic Projections the economy strengthens.“; 2.5%• Operation TWIST will be maintained until the end of Max average Min the year; 2.0%• Future policy action will depend on how economic 1.5% conditions develop, particularly the unemployment rate. 1.0% 2005 2006 2007 2008 2009 2010 2011 2012E 2013F 2014F 2015F Source: Bloomberg; US Federal Reserve
  • 17. Will QE3 be a success? 1600 S&P500 End of QE2 QE3 End of QE2 Start• Only one FOMC member voted against QE3. QE1 1400 According to Jeffrey Lacker, Richmond FED’s President: “Further Monetary stimulus is now 1200 QE1 Start unlikely to result in a discernible improvement in 1000 growth, but if it does, it’s also like to cause an Operation unwanted increase in inflation”; 800 TWIST  Start• Will a further fall in mortgages rates help the 600 housing recovery, when rates are already a low 2008 2009 2010 2011 2012 levels? Additionally, many household will still not Source: Bllomberg; US Federal Reserve qualify for a new loan;• QE programs have usually a positive effect on FED Total Assets stock markets; 3000.00• QE3 should increase the Federal Reserve’s 2500.00 monetary base even further. What will be the 2000.00 End of Operation QE2 TWIST  long‐term consequences of that Balance Sheet Billion $ QE2 Start Start End of 1500.00 expansion? Nonetheless, bank loans have been QE1 increasing more moderately; 1000.00• Are higher inflation expectations going to be the 500.00 QE1 Start result of QE3 announcement? 0.00 2008 2009 2010 2011 2012 Source: Bllomberg; US Federal Reserve
  • 18. Bank of Japan increased its QE Program.• Bank of Japan announced that it will increase its Japan: GDP Growth (YoY) Asset Purchase Program in ¥10Tn to ¥80,2Tn. This 6% 4% will be done by buying ¥5Tn of Treasury Discount 2% Bills and ¥5Tn in Japanese Government Bonds 0% (JGB); -2%• The increased short‐term purchasing budget is -4% targeted to end by June 2013. The long‐term JGB -6% purchasing budget is extended to the end of -8% December 2013; -10% 1996 1998 2000 2002 2004 2006 2008 2010 2012• Also important was the decision to abolish the Source: Bloomberg 10bp minimum bidding yield on long‐term JGB purchases; BoJ Total Assets 160,000• The Central Bank is trying to increase the economy’s growth rate. Moreover, the bank might 140,000 also want to prevent a higher appreciation of its JPY million 120,000 currency. As BOJ Governor’s Shirakawa said: “a 100,000 stronger Yen causes a decline in exports and 80,000 corporate profits as well as a deterioration in 60,000 business sentiment”; 40,000• BoJ has revised its 2012 growth forecasts from 1998 2000 2002 2004 2006 2008 2010 2012 2.3% to 2.2%. Source: Bloomberg
  • 19. A triangle between Japan, China and Taiwan• The dispute is over the control of Senkaku (in Japanese) / Diaoyu (in Chinese) Islands. Controlled by Japan since 1895, the archipelago, with 5 small islands, is located on the East China Sea;• Different interpretations of the islands’ history explain the dispute. The Chinese claim that they discovered the archipelago in the XXIV Century. The Japanese say that their country legally incorporated the islands after the first Sino‐ Japanese War in 1895. They claim that they found the islands inhabited with no signs of being under China’s control prior to 1895;• After WWII, United States occupied the archipelago. It was returned to Japanese control in 1971;• The dispute started in 1969, after United Nations stated that the area could be rich in oil and gas.
  • 20. Iran threats to block the Strait of Hormuz• Following various sanctions from Western nations due to Iran’s nuclear program, the country threatened to block the Strait of Hormuz, in an effort to hamper Europe access to oil;• Netanyahu claimed that diplomatic and economic sanctions have failed to prevent Iran from developing its nuclear program. According to the Israeli prime minister, the world should set a clear limit for Iran’s nuclear enrichment program (“red line” for Tehran);• Meanwhile, the US and 29 other countries led some mine‐clearing exercises in the Gulf Persian region;• And what about Iran? It undertook military exercises with missiles capable to hit warship vessels.
  • 21. Portugal Economy ‐ New Portuguese Companies –austerity measures are BCP’s right issueexpected.• The Government should announce new measures • BCP issued €500mn through a rights offering. to comply with Troika’s 5th quarterly review. The 12,500,000,000 new shares will be issued at a new budget targets are: 5% of GDP in 2012, 4.5% subscription price of €0.04. The new shares are in 2013 and 2.5% in 2014; expected to start trading on October 10th;• The Portuguese economy should contract 3% in • Results from the rights offering will be 2012 and 1% in 2013; published tomorrow. Let´s see if there´s going• Additional measures will have to be announced as to be any change in the bank’s shareholders the planned increase of the employee’s social structure; contribution (from 11% to 18%) in combination • There’s been increased news flow regarding a with a reduction of employer’s rate (from 23.75% possible Zon‐Sonaecom merger. Optimus’ CEO to 18%) caused wide‐spread protests and forced underlined the benefits of a merger between the Portuguese Government to cancel them. the two companies during an interview to a Portuguese newspaper.
  • 22. October – What to expect?• ECB meeting: Will the bank announce a interest Event calendar for October rate cut? Probably not. But, Draghi may indicate Oct 1 China Manufacturing PMI that the bank could reduce the policy rate US ISM further in the future and push the deposit rate EZ PMI Manufacturing into negative territory; Oct 3 US First presidential debate elections• US Q3 earnings season is poised to start. The Oct 4 EZ ECB meeting S&P 500 Q3 EPS forecast dropped 4.8% from June to the end of August. The trend flattened Oct 5 US Change in Non‐Farm Payrolls in September; Oct 8‐9 EU Eurogroup/Ecofin meetings• Will Spain ask for EFSF/ESM support? The Oct 11 US US Elections‐Vice presidential debate Spanish Government seems to remain undecided regarding a bailout. Key regional Oct 12‐14 IMF Annual meeting elections will be held on October 21st. After Oct 15 US Advance retail sales these elections, the Spanish treasury faces large Oct 16 US Second presidential debate redemptions on 29Th and 31st of October (total Oct 18‐19 EU European Council meeting of €20.3bn). Pressure from the market, other European countries or the ECB could ultimately Oct 22 US Third presidential debate push Spain to ask for EFSF/ESM support; Oct 24 US FOMC meeting• Economic data from the US, the euro‐zone and GER IFO ‐ Business Climate China will be followed closely.
  • 23. US Equity Market… Unstoppable? S&P 500: Historical NTM P/E 35• S&P 500 has risen 14.56% YTD; 30 P/E• Central Banks to the Rescue – Market’s 25 NTM P/E (x) response to monetary policy stimulus is usually 20 positive. QE3 and the extension of Operation 15 Twist by the FED has allowed the “risk on” trade 3-yr rolling average 13.59 10 to continue; 5• What could stop the rally? 0 o We continue to look carefully to economic data and earnings growth; Source: Standard&Poors o The fiscal cliff and uncertain election outcomes. These two issues could S&P 500: 12 month EPS growth rate (Operating earnings. Estimates are bottom up) progressively become more important for 47.3% the market; 18.8% o A setback in Eurozone that increases risk 18.5% 23.8% 14.7% 13.0% 15.1% 13.4% aversion; 8.6% 14.8% 5.4% o QE side effects – Will long‐run inflation expectations rise? Inflation expectations -5.9% are one of the main drivers of equity -30.8% multiples. -40.0%• Until one of these issues grab headlines, the current market rally could continue. Source: Standard&Poors
  • 24. US Equity Market: Q3 earnings report will start.• Given the current macro environment, Q3 Operating Earnings Per Share 2011 Q3 2011 Q4 2012 Q1 2012 Q2 2012 Q3 2012 report season will probably confirm the by Economic Sector Change Est. Forecast current earnings slowdown trend; S&P 500 qoq 1.7% -6.2% 2.1% 4.9% -1.7%• FedEx, Caterpillar and Intel have provided new yoy 17.3% 8.2% 7.4% 2.3% -1.1% and lower, earnings guidance; Consumer qoq -3.7% 7.7% -12.0% 7.9% 1.1% Discretionary yoy 16.9% 10.5% 5.1% -1.5% 3.5%• Q3 2012 EPS estimates have been falling, Consumer Staples qoq 2.2% 0.9% -9.0% 8.3% 1.6% which should provide some cushion; yoy 10.0% 5.7% 2.8% 1.7% 1.1%• The rally has been driven by a compression of Energy qoq 8.7% -28.8% 14.7% 6.0% -10.7% the risk premium related to the European yoy 68.2% 10.3% 6.6% -5.9% -22.7% sovereign crisis. QE also became an important Financials qoq 13.4% -9.6% -3.0% 11.5% -3.2% yoy 14.3% 18.1% 4.8% 10.9% -5.4% driver of return; qoq -6.9% -3.9% 12.8% -4.0% 3.6%• Going forward, are more supportive data on Health Care yoy 3.5% 3.5% 8.4% -3.0% 7.9% growth and earnings going to be necessary to qoq -1.8% -0.4% 1.1% 12.6% -5.2% Industrials sustain the rally? yoy 12.2% 3.4% 20.2% 11.4% 7.5% S&P500: Weekly Number of Companies Information qoq -4.8% 26.5% -10.7% -1.6% 1.5% Reporting Earnings Technology yoy 9.3% 17.2% 15.2% 5.9% 12.8% 176 Materials qoq -27.9% -52.3% 126.2% 5.4% -26.0% yoy 20.6% -45.3% -14.7% -18.0% -15.8% 88 Telecommunication qoq 9.6% -37.9% 57.0% 20.5% -19.2% Servies yoy 6.0% -25.8% -0.5% 28.7% -5.1% 35 5 11 Utilities qoq 43.9% -43.8% 28.4% -10.1% 49.3% yoy 0.5% 7.4% -5.4% -6.6% -3.1% 01-05 08-12 15-19 22-26 29-31 Source: Bloomberg Source: Standard&Poors
  • 25. Monsanto should begin the US earnings season.• 315 companies from the S&P500 index are expected to report earnings during October. The 4th week will be the most important, with more than 35% of the total companies expected to report;• Below, we list some US blue chips stocks that should announce its Q3 2012 earnings during the month. Day Company Estimated EPS ($)  Day Company Estimated EPS ($)  03 MONSANTO CO ‐ 0.44    19 GENERAL ELECTRIC CO 0.36    09 CHEVRON CORP 2.99    MCDONALDS CORP 1.48    ALCOA INC 0.01    MORGAN STANLEY 0.23    12 WELLS FARGO & CO 0.86    AMERICAN EXPRESS CO 1.08    GOOGLE INC‐CL A 10.52    23 APPLE INC 8.89    JPMORGAN CHASE & CO 1.15    XEROX CORP 0.25    24 BOEING CO/THE 1.12    15 CITIGROUP INC 0.97    CATERPILLAR INC 2.27    16 INTEL CORP 0.50    AT&T INC 0.63    COCA‐COLA CO/THE 0.50    25 UNITED PARCEL SERVICE‐CL B 1.07    GOLDMAN SACHS GROUP INC 2.09    UNITED STATES STEEL CORP 0.01    17 HALLIBURTON CO 0.70    COLGATE‐PALMOLIVE CO 1.38    PEPSICO INC 1.16    AMAZON.COM INC ‐ 0.09    BANK OF AMERICA CORP 0.15    26 FORD MOTOR CO 0.28    18 MICROSOFT CORP 0.60    EXXON MOBIL CORP 1.89    YAHOO! INC 0.26    MOTOROLA SOLUTIONS INC 0.73    JOHNSON & JOHNSON 1.21    PROCTER & GAMBLE CO/THE 0.96    VERIZON COMMUNICATIONS INC 0.65    CONOCOPHILLIPS 1.13    PHILIP MORRIS INTERNATIONAL 1.38    30 PFIZER INC 0.53    Source: Bloomberg Source: Bloomberg
  • 26. Charts we are watching. Citigroup Economic Surprise Indices Major Economies US 80• The economic surprises indices showed a Eurozone positive evolution during the last few months. 40 This too has been a positive support for risk 0 assets. After this upward movement, are we -40 going to see a new deterioration? -80 -120 Jan-11 Jun-11 Nov-11 Apr-12 Sep-12 Source: Bloomberg S&P 500 and Euro Stoxx 50 1600 5500 5000 • The US market is getting closer to its pre‐crisis 1400 4500 peak. The European market (measured by 4000 1200 Euro Stoxx 50 index) is clearly lagging. The 3500 sovereign debt crisis is taking its toll. 1000 3000 2500 800 2000 600 1500 1996 2000 2004 2008 2012 S&P 500 Euro Stoxx 50 (Right Scale) Source: Bloomberg
  • 27. Charts we are watching. China: PMI Manufacturing 60 55• China’s underlying growth momentum has not 50 shown a meaningful recovery so far. 45 40 35 2005 2006 2007 2008 2009 2010 2011 2012 Source: Bloomberg S&P500: Monthly Average Return 1.48% 1.44% 1.26% 1.24% • The 4th quarter usually shows a positive return. However, one must not forget that S&P 0.55% 0.75% 0.74% 0.61% 0.41% 500 already displays significant gains since the beginning of 2012. US Presidential election (November 6th) and the fiscal cliff issue could -0.19% -0.15% increase stock market’s volatility. -1.11% January February March April May June July August September October November December Source: Bloomberg
  • 28. Disclosure SectionThis research report is based on information obtained from sources which we believe to be credible and reliable, but isnot guaranteed as to accuracy or completeness. All the information contained herein is based upon informationavailable to the public.The recipient of this report must make its own independent assessment and decisions regarding any securities orfinancial instruments mentioned herein.This report is not, and should not be construed as an offer or a solicitation to buy or sell any securities or relatedfinancial instruments. The investment discussed or recommended in this report may be unsuitable for investorsdepending on their specific investment objectives and financial position.The material in this research report is general information intended for recipients who understand the risks associatedwith investment. It does not take account of whether an investment, course of action, or associated risks are suitablefor the recipient.Investors should seek financial advice regarding the appropriateness of investing in any securities or investmentstrategies discussed or recommended in this research report and should understand that the statements regardingfuture prospects may not be realized. Investors may receive back less than initially invested. Past performance is not aguarantee for future performance.Fincor – Sociedade Corretora, S.A. accepts no liability of any type for any indirect or direct loss arising from the use ofthis research report.Recommendations and opinions expressed are our current opinions as of the date referred on this research report.Current recommendations or opinions are subject to change as they depend on the evolution of the company or maybecome outdated as a consequence of changes in the environment.Fincor ‐ Sociedade Corretora, S.A. provides services of reception, execution, and transmission of orders.
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