1. 1 of 4
Market Pulse
Investment Weekly Week 22 | May 2015
Greece running out of time
The wait on rates continues
Bank recovery sustains itself
Goodbody Wealth Management
Bernard Swords
Chief Investment Officer
T +353 1 667 0400 E bernard.k.swords@goodbody.ie
Jude O’Reilly
Senior Research Analyst
T +353 1 667 0400 E jude.c.o’reilly@goodbody.ie

2. 2 of 4
DateInvestment Weekly
Market Pulse
More Greek drama
The Greek negotiations are dragging on but some progress
has been made. Sources have been saying that changes on
taxation measures and industry liberalisation have moved ahead.
The sticking points appear to be labour market reforms and
social welfare reductions - in particular, pensions. Time is not on
the side of the negotiators. During June Greece has to repay
€1.6 billion to the IMF starting on 5 June. As the timetable
shortens, the chance of an ‘accident’ increases. Meantime the
Greek economy continues to suffer, degrading the country’s
ability to service its debt.
View
The remaining issues are the most contentious. Confidence in the
Greek government’s handling of negotiations has been declining -
opinion polls put it at less than 40% now. However, opinion polls
also show more than 70% of Greeks wish to remain in the euro
area. The political will is fragile in Greece but still inclined towards
reaching an agreement. So much effort has been expended at this
stage, and the amount of money involved is small in a euro area
context, that it is difficult to believe that some form of agreement
cannot be achieved.
Fed in no hurry
The Fed’s latest thinking on interest rates, contained in the
minutes of the April meeting, has not ruled out a June hike,
but the wording came as close as possible to doing just that.
That’s because the minutes dealt with the disappointing
performance of the US economy in the first quarter. Many
temporary and transient features depressed growth, while some
doubt was cast on the reliability of calculations. Comments
elsewhere were benign. Inflation remains below the target band
due to the impact of a stronger US dollar and the lower oil price.
While some of this will reverse, inflation is likely to remain low.
View
The delay on rate rises is hardly a surprise at this stage, but
there was always a small probability of it happening. The FOMC
now sees the risks to its forecasts as ‘tilted to the downside’ -
a slight downgrade from the March minutes, when they were
described ‘tilted a little to the downside.’ There was also an
acknowledgement that some of the weakness could be longer
lasting and that private demand was disappointing as consumers
seemed to be saving most of benefit of lower energy costs.
Action
Any agreement that gets us through to the end of June
will allow for a third financial assistance programme to be
negotiated. That, in turn, would permit the disbursement of
further funds to Greece. Getting Greece off the agenda for a
little while should prompt a relief rally for euro area assets.
Action
April’s minutes were slightly more benign than March’s with
greater concerns expressed about the strength of the US
economy. The Fed is unlikely to increase interest rates until
it is absolutely certain that the economy is growing close to
trend levels. At the moment that looks like Q4 as the earliest
date, which means a longer wait for a policy change.
Market performance
Current Prior MTD YTD
FT World (local) 275.60 0.8% 1.6% 7.6%
FT World (euros) 304.15 3.6% 2.9% 16.3%
Iseq 6291.50 2.1% 4.0% 20.4%
FT 100 7031.72 0.4% 1.0% 7.1%
Euro Stoxx 377.24 1.6% 1.5% 18.0%
S&P500 2126.06 0.2% 1.9% 3.3%
Oil
Brent 65.11 -3.6% -2.5% 13.1%
Week 22 | May 2015
Market performance
Current Prior Year end
Bond markets (10 year yields)
Euro area 0.61 0.64 0.54
UK 1.93 1.89 1.76
US 2.21 2.17 2.17
Currencies
Dollar/euro 1.098 1.137 1.21
Sterling/euro 0.709 0.726 0.78
Source: Bloomberg
+=

3. 3 of 4
DateInvestment Weekly
Market Pulse
Evolving Theme
Upgrades continue for banks
Earnings expectations for the euro area equity market have
increased since the start of the year, from +14% at the start of
January to +18% now. Undoubtedly, a weakening euro has been
a significant factor. However, there are also more internal forces
at work. Evidence for these factors can be seen in increasing
growth forecasts for the financial sector and banking industry -
from +28% to +40% and from +43% to +70%, respectively.
The performance of banks from the end of January compared
to the broader market also shows that domestic dynamics are
having an impact.
The most recent quarterly results showed signs that banks are
increasingly focusing on growth and profits. What was previously
only evident in bank survey data is now apparent in increased
loan demand for northern European banks. Policy action by
the ECB through lowering bank funding costs combined with
increased corporate and consumer confidence due to QE have
finally led to increased loan demand. This has happened at
the same time as economic growth rates have been upgraded,
which has knock-on positive effects for banks. In time, this will
lead to higher interest income.
Banks are benefiting from increased capital markets activity,
too, as investors and corporates take action to protect and
respond to interest rate and exchange rate volatility. Corporates
have also issued more debt due to extraordinarily low interest
rates. Improved corporate confidence has led to more takeovers
and IPOs. Together this has led to higher earnings. Fees and
commissions from investment product sales are also increasing
as bank customers switch out of low-yielding deposits.
We recommend BNP Paribas, Bank of Ireland and the iShares
Euro Stoxx Banks ETF.
Week 22 | May 2015
Euro Stoxx Banks ETF
Source: Bloomberg
82
84
86
88
90
92
94
96
98
100
102
12.0
12.5
13.0
13.5
14.0
14.5
15.0
15.5
16.0
16.5
17.0
30-Dec-14 19-Jan-15 08-Feb-15 28-Feb-15 20-Mar-15 09-Apr-15 29-Apr-15 19-May-15
EuroStoxx Bank ETF Relative
“Increasing demand by emerging markets
consumers for branded consumer products means
the growth offered by the consumer staples
sector is attractive in a low-growth environment.”
Jude O’Reilly, Senior Research Analyst
Investment Strategy
Consumer staples look attractive
Consumer staples companies have delivered attractive returns
for clients for the past number of years. The sector has risen
+73% over the past three years and +129% over the past five.
With share prices rising faster than earnings the valuation of
these companies has increased. This has raised concerns for
some, which we will address in some detail.
The consumer staples sector is valued at 19.1x 2016 earnings.
This compares to the wider market at 15.1x, so a 27% premium.
The sector valuation is higher than its historical average.
However, compared to the wider market this is in-line with its
historical average. So, it has a high absolute valuation but a fair
relative valuation, which is more relevant. There are many factors
influencing the higher than normal market valuation but a key
influence is the relative attractiveness versus bonds due to low
interest rates.
Recent earnings delivery by the consumer sector has been
weaker than normal. However, the market has been willing to
look through this to future earnings potential. In 2014 earnings
growth for the sector was only +1.4% and only +3.4% is expected
this year. Weak emerging market growth and depreciating
currencies have been headwinds for a sector that generates much
of its profit and growth in that region. This is especially so for US
companies. The weakening euro has insulated some European
companies from this effect. Undoubtedly rising US interest rates
will have an impact on emerging markets, but a large part of the
adjustment has already taken place. Expected earnings growth for
2016 is a more respectable +9.4%.
Some commentators describe the consumer staples sector as
a ‘bond proxy’, but we think that is incorrect. The utilities sector
and telecoms, which have dividend yields of 3.8% and 3.9%
respectively, fall into that category. However, consumer staples
dividend yield of 2.6% is only marginally higher than the market’s
at 2.5%. With interest rates close to zero a dependable and
growing dividend yield of 2.6% is attractive.
We therefore favour the consumer staples sector compared to
utilities and telecoms.

4. Dublin
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www.goodbody.ie Wealth Management | Corporate Finance | Capital Markets
4 of 4
Prepared by:
Bernard Swords, Chief Investment Officer (does not hold a position in any of the listed stocks)
Jude O’Reilly, Senior Research Analyst (does not hold a position in any of the listed stocks)
Produced on 25 May 2015
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