The document provides an overview and analysis of recent developments in equities, fixed income, currencies and commodities markets. It discusses the following key points: - Equities were flat with the S&P 500 rising 0.1% and developed markets down 0.5%. The US PMI came in at 48.6 indicating contraction and weakness in the machinery and metals sectors due to a weak Eurozone and slowing China. - Bonds were flat with US Treasury yields falling 4 basis points. The Japanese government bond yield sits at 0.3% with its 2-year yield in negative territory, prompting the shift to equities. - The US dollar strengthened on expected rate hikes while the Euro faces

1. JP Capital
Perspective is everything
December 2, 2015
Equities The S&P 500 barely budged rising only 0.1% in the past week with the markets
closed for a U.S holiday, while the developed market index was down 0.5%
Fixed Income Bonds were flat with the yield on the ML high yield index rising 10 basis
points and the benchmark U.S Treasury falling 4 basis points to 2.22%
Currencies The dollar broke through the 100 level on the trade weighted index (DXY) in
anticipation of a rate hike, however with the U.S now in contractionary territory, this may be
a false dawn
Commodities Gold continues its slide falling almost 2% to $1,057 per ounce while oil
rebounded marginally to hit $41.7 per barrel
Market roundup
Source: Bloomberg, Spot returns. All data as of last Friday’s close. Past performance is no guarantee of future returns
Equities
Total Return in USD (%)
Level WTD MTD YTD
DJIA 17,798.5 -0.1 1.1 2.2
Nasdaq 5,127.5 0.5 1.6 9.5
S&P 500 2,090.1 0.1 0.8 3.5
MSCI World 1,700.3 -0.1 -0.2 1.3
Fixed Income
Total Return in USD (%)
Yield WTD MTD YTD
U.S. 10- Year Treasury 2.24 0.4 -0.6 1.1
U.S. Corporate Master 3.49 0.2 -0.3 0.2
ML High Yield 8.07 -0.1 -2.4 -2.3
Commodities & Currencies
Total Return in USD (%)
Level WTD MTD YTD
Gold Spot 1,057 -1.9 -7.4 -10.8
WTI Crude $/Barrel 41.7 3.3 -10.5 -21.7
Current Prior Week End Prior Month End 2014 Year End
EUR/USD 1.06 -0.50 -3.75 -12.44
USD/JPY 122.8 0.0 1.8 2.5

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EQUITIES
Plummeting PMI
Over the long term, equities rise for one thing
and one thing only: economic growth. The
purchasing managers index (PMI) provides
insights into economic growth prospects and
are highly accurate measurements of
upcoming activity or financial performance of
equity markets. The latest U.S PMI came in
48.6, down from the expansionary reading of
50.1 month over month. A reading below 50
indicates bearish business prospects, while
above 50, bullish. Within the machinery sector
of the U.S economy, a weak Eurozone and a
slowing China is causing the major headaches,
while in the Metals sector, they site a strong
dollar is impacting sales to China as “they can
buy in Europe”. If the Federal Reserve does
indeed go for a rate rise in December, the
greenback will continue to appreciate, causing
further downward pressure on U.S demand.
Last week, Jon touched upon the Mexican peso
and the strange divergence between the
inflation rate and the peso. Even though those
market factors are causing headline panic, the
economy still posted a PMI reading of 53.0,
unchanged from October, but more
importantly, Mexico has recorded an
expansionary figure for the 26th consecutive
month.
Amid all the turmoil from a lower oil price and
a widening trade balance, Mexican
manufactures remain bullish on domestic
demand which then begs the question: are
there equity investment opportunities in
Mexico?
Next- FX update: Draghi’s dilemma
Exhibit 1: Robust Mexican domestic demand
Source: Markit
Year to date, the main Mexican stock index
has returned 1.97%; 4.17% on a year on
year basis. We remain cautious on Mexico
because of the degrading sentiment
towards emerging markets and with
companies such as América Móvil
(AMóvil), Axtel, Alfa, TV Azteca and ICA
all having large debt piles denominated in
U.S dollars, they will be under pressure as
the U.S begins its tightening cycle.
Over the last five years, the external debt
held by Mexico’s private businesses (in
pesos) has increased by 86%. In nominal
terms, the total amount has reached 1.69
trillion pesos (roughly $105 billion), 117%
more than at the beginning of 2010. In the
second quarter of 2015, the debt in dollar
terms of América Móvil and Axtel
exploded by 37% and 48% respectively.
Ironic that as the Fed loads up, Mexican
corporates are continuing on the dollar
debt binge.

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FOREIGN
EXCHANGE
Draghi’s dilemma
Next- Commodities update: Oil heads lower
Exhibit 2: Draghi surely won’t disappoint…
Euro How much in a pickle is Mario Draghi in? Quite a big one to be honest. Inflation is near zero
percent; the CPI was expected to grow by 0.2% and has only grown 0.1%. If you think about it, it is
not that bad, we just missed by 0.1%. However, let’s not forget that the target inflation rate is 2%, and
that target was established in order to have a stable currency. This is becoming quite a bit of a
problem for M. Draghi, because he does not know what else to do. The figures are coming home
every week lower than expected, and it does not seem to be getting any better at all. The USD and
even the yen are getting stronger by the minute against the euro, and this does not seem to help. A
survey shows that there is now a 65% chance that Mario Draghi will increase his €60bn of asset
purchases and a near 80% chance that the QE programme will go past the September 2016 due date.
We absolutely agree with this view, if this is the case, and we have Janet Yellen increasing the rates in
two weeks, well it just promises to be a bad day for the euro. Even if that is too happen we don’t
believe that the parity will happen before the end of the year, and maybe even until the end of
January 2016. A lot depend on what Draghi will say tomorrow; if he is as dovish as he normally is,
then it could potentially be a disaster for the euro.
Yuan On a more optimistic note, the yuan has passed the test to become part of the IMF reserve
currency. It does not mean a lot for us as individuals, but it really shows that China is including
themselves a little bit more as part of our global economy, they are now less closed, and that is good,
it really confirms the importance that China has on our global market.

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COMMODITIES
Next- Bond update: What hike?
Source: Bloomberg
Oil- Yes, I know, we are talking about oil again, but it is important, it always is. Ok so what
happened this week, well aside from the fact that oil keeps depreciating in value and all, the
OPEC ministers have met in Vienna. That is pretty exciting, especially that our worst fear has
been confirmed. Effectively, they all met to agree that they will increase production. That is right.
The supply of oil is already outrageously large, so why are they doing it? Well this could be more
political than anything, but they argue that they want to extend their market share as the US is
slowly reducing their production. The problem is that an increase in supply only means one
thing that the price will go down further; it is as simple as that. This is what was said at the
meeting “Iran, Iraq, Libya and several of the other OPEC members are going to increase production
substantially during the coming years”. Worst than that, Iran, which are the fifth largest producer of
the OPEC group, have decided that within a week of the US sanctions dropping, they will
increase production by 500,000 a day, and by 1million a day within the next 6 months. Adding on
to that, the very strong dollar is pushing the price of oil further down. If someone tells you the
price will go back to $55 or so soon, don’t listen to them!
Gold- Next few coming weeks are not looking good for gold at all. The Fed is expected to raise
rates, and so push the dollar to a strong finish for the year. This means that investors are selling
more and more gold. The commodity is being seriously impacted by the strong dollar, and there
is not a lot it can do about it at the moment. The commodity is currently valued at $1,067 an
ounce. A Bloomberg survey shows that investors sold 49.3 metric tons in November, which is
about three times as much as they bought in the previous three months combined. Last week
gold even touch a five-year low. It seems that the commodities market is still stuck, and can’t
find a way out, or at least the dollar is not letting them grow.
Exhibit 3: Still no sign of bottoming
Saudi signal’s surge

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FIXED INCOME
Shinzo Abe came to power late 2012. Since
then, the Nikkei has gifted extraordinary
returns and the country has under gone a
revolution. It is one thing as a leader to promise
results and reforms, but Mr Abe has delivered
in his monetary stimulus, fiscal stimulus and
the longer-term structural reform agenda. More
women have entered the labour force, which
over time will fundamentally change the labour
dynamics in Japan. In terms of business
investment from the manufacturing sector, the
PMI for November came in at 52.6, up from
52.4 in October. This is significant. When many
economies around the world are contracting in
PMI terms, Japan remained robust amid a low
growth environment. This clearly means
domestic demand is holding up and driving
the economy forward, which has implications
for policy going forward and thus Japanese
rates. The 10 year Japanese Government bond
sits at a low 30 basis points (0.3%), with the 2
year in negative territory at -0.02%. It is no
wonder the GPIF has rotated its allocation to
equities, due to the pretty dismal returns/ loss
in domestic debt.
Exhibit 4: Abenomics absolute return
The man from Japan
Source: Nikkei
The big question is where does Japan go
from here? The equity scene will likely
benefit from continued loose policy, in
both monetary and fiscal, with the
Japanese yen likely to depreciate further
relative to the U.S, as policy diverges into
2016. Fiscal wise, Japan’s debt ratio is
very high. The policy needs to achieve
two things. Provide the right business
conditions, while at the same time,
tighten and restore some of the loose
fiscal position that has been built up over
time. It is a fine balancing act, but Shinzo
Abe seems the right man to kick start
Japan. For the Japanese debt market,
monetary policy will remain the key
driver. That should continue into 2016
with no sign of a taper in the Bank of
Japan’s statements. Assuming this is the
case, yields will remain at these historic
low levels, with the Goldilocks scenario
continuing for equity markets, that is
multiple expansion, weaker currency
tailwinds and low yielding assets
elsewhere.

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JP Capital
Perspective is everything
Jonathan Taubert
FX and Commodities
Pete McCarthy
Equities and Fixed Income
JP Capital Team
Going forward Eurozone M3 money supply rose 5.3% year on year, versus 4.9% in October. M3
is a very accurate predictor of recessionary periods and expansionary phases. Such methods
should be employed rather than the traditional inflation targeting measures in many central
banks today. The U.S third quarter GDP was revised up to 2.1% (seasonally adjusted), from a
prior reading of 1.5%. The University of Michigan Consumer Sentiment Index (UMCSI) came in
91.3, from 93.1 in October. This coupled with contractions in manufacturing sector expectations,
will likely result in a weak U.S economy over the next 6-12 months. Even given those comments,
the Fed will feel pressured to raise interest rates, causing further upward pressure on the dollar.
These factors do not put the U.S in our favored region for both equity and bond investments.
That said, the currency will be hard to predict. A rising interest rate environment points towards
a stronger dollar, but the weaker fundamentals in the economy may prompt the authorities to
implement a looser stance going forward, or at least refrain from the impending tightening,
limiting the upward move in the dollar index. On the flipside, U.S strength should help the
Eurozone, currency wise, but also giving the struggling region a stronger export market.