20 in 20: Eurozone Monthly Chart Book (May 2014) 20 Charts in 20 Minutes or less to share our view on the Eurozone

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1 Monthly Report Macro Report May, Friday China Merchants Securities (Hong Kong) Hong Kong Equity Research in : Eurozone Monthly Chart Book (May ) Charts in Minutes or less to share our view on the Eurozone Key data: Eurozone equity indices performed mixed in April, but major indices edged up; STOXX up 1.% in April Euro continued to appreciate in April, up.3% vs the USD April Eurozone flash composite PMI rose to. from 3.1 April Eurozone flash CPI rose to.7% YoY, core CPI up to 1.% YoY, reducing pressure to ease monetary policy April sentiment indicators continued to show a broad trend of improving sentiment in Overview: April s major news event was the ECB monetary policy meeting, at which they said for the first time the possibility of QE was being discussed in depth. If a QE program in the Eurozone is created, it will likely be allocated according to the size of member countries. We believe the ECB will be hesitant to implement QE unless data deteriorates significantly. Inflation and loans data over the next several months will be important to speculate on the ECB s monetary policy direction. European equity markets registered mixed performances in April, with roughly half of the countries up and half down. With that being said, the major stock indices of the region were up, with the STOXX up 1.%, the DAX up.3%, the FTSE up.%, and the CAC up.%. The two main countries involved in the Ukraine crisis were the some of the ones that showed the biggest monthly movement. In the bond market, the major news was Greece s return to the bond markets early in the month. Investor appetite was strong for the Greek bond issuance. Overall on the month, yields declined in expectation of a QE program, and the CDS spreads continued to narrow. The Euro s performance was mixed in April, fluctuating under.3 ppt for most of the major currencies. The biggest outliers were the EURCNY, EURSEK, and EURKRW pairs, mostly reflecting developments concerning the paired currency rather than the Euro itself. In general, the halt of the appreciation trend should be a relief to exporters in the region. We still forecast the Euro to depreciate gradually in the months ahead. In terms of macroeconomic indicators, indicators published in April were mostly positive. CPI inflation rebounded to.7% YoY, and core inflation rose 1.% YoY, reversing the dip in March. Real economic indicators continued to improve, and the data out so far implies the 1Q GDP will accelerate as expected, and that Q is off to a good start. Lynn SONG lynnsong@cmschina.com.hk Dr. Cliff Zhao, CFA wenlizhao@cmschina.com.hk Dr. David Xie xieyx@cmschina.com.cn Key forecasts U.S. % E E GDP 1.9. CPI Unemployment 7..7 Current Account /GDP Fiscal balance /GDP Policy rate.. Dollar index Eurozone % E GDP -..9 CPI Unemployment.1. Current Account /GDP..3 Fiscal balance /GDP Policy rate.. EUR/USD Japan % E GDP CPI.3. Unemployment. 3.9 Current Account /GDP.9 1. Fiscal balance /GDP Policy rate.1.1 USD/JPY Source: Bloomberg,CMS(HK) To access our research reports on the Bloomberg terminal, type CMHK <GO> 1

2 月度报告 宏观报告 年 月 日 ( 星期五 ) 招商证券 ( 香港 ) 有限公司证券研究部 图解欧元区..欧元区月度图表速览 ( 年 月 ) 分钟 个图, 分析欧元区 核心数据 : 欧元区国家股指在 月的表现参差, 但主要的股指略上升 ;STOXX 股指在 月上升了 1.% 欧元在 月份继续升值, 跟美元比升值了.3% 月欧元区综合 PMI 初值从 3.1 上升至. 月欧元区 CPI 通胀初值上升至同比.7%, 核心 CPI 上升至同比 1.%, 减低了放宽货币政策的压力 月欧元区经济情绪指标继续了年初以来改善的势头 概览.. 月份的主要新闻是欧洲央行的货币政策会议, 欧洲央行曾表示会上将首次深入讨论量化宽松的可能性 倘若在欧元区建立量化宽松计划, 将可能根据成员国的大小来分配 我们相信除非数据严重转差, 否则欧洲央行不一定会推出量化宽松政策 未来数月的通胀和贷款数据对预测欧洲央行的货币政策方向具有重要作用 欧洲股市 月份的表现好坏参半 虽然如此, 区内主要股指均上升,STOXX 股指上升了 1.% DAX 指数上升了.3% 富时 指数上升了.%, 以及 CAC 股指上升了.% 涉及乌克兰危机主要的两个国家在 月份的波动则最大 债市方面, 主要的新闻包括希腊在月初回归债券市场 市场对希腊债券的投资意欲颇强 整个月份而言, 收益率因预期量化宽松计划而下跌, 信贷违约掉期的息差则继续收窄 欧元 月份的表现反复, 兑大部分主要货币的波动均在.3 个百分点以内 偏离最多的是欧元兑人民币 欧元兑瑞典克朗和欧元兑南韩圜, 主要是反映有关两种货币的发展, 而不仅是欧元本身 总体上, 升势暂停使区内的出口商可以松一口气 我们仍然预测未来数月欧元将逐步贬值 宏观指标方面, 月份公布的指标大都正面 CPI 通胀数据回升至同比.7%, 核心通胀数据则升至同比 1.%, 扭转了 3 月份的跌势 实体经济指标持续好转, 至今公布的数据显示 年一季度的 GDP 将如预期般加快增长, 年 季度将会有一个好开始 宋林 lynnsong@cmschina.com.hk 赵文利博士, CFA wenlizhao@cmschina.com.hk 谢亚轩博士 xieyx@cmschina.com.cn 主要预测 美国 % E E GDP 1.9. CPI 失业率 7..7 外贸顺差 /GDP 财政赤字 /GDP 央行基准利率.. 美元指数 欧元区 % E GDP -..9 CPI 失业率.1. 外贸顺差 /GDP..3 财政赤字 /GDP 央行基准利率.. 欧元 / 美元 日本 % E GDP CPI.3. 失业率. 3.9 外贸顺差 /GDP.9 1. 财政赤字 /GDP 央行基准利率.1.1 美元 / 日元 资料来源 : 彭博, 招商证券 ( 香港 ) 彭博终端报告下载 : CMHK <GO>

3 Introduction The in report is our effort to provide readers with an easy to digest, quick commentary on key market and economic indicators in the Eurozone. We aim to provide a monthly report featuring selected charts and brief commentary to allow for readers to process the general macroeconomic environment and market conditions of the Eurozone, ideally readable in minutes or less. Via this monthly publication, we hope to share our views on key developments and provide a quick glance. For more in-depth analysis, we ask readers to continue to consult our other publications. I. Stock market Chart 1: STOXX Index ended March at a higher level than February, trading above the 3mma,,, 3, 3,, Chart : STOXX remained at relatively expensive levels by the P/E measure SD +1 SD Mean -1 SD - SD, STOXX 3 month moving average STOXX P/E Ratio Chart 3: Stock indices performed mixed in April, with Ukrainian stocks up but Russian still under pressure (.) (.) (.) (1.) (.) (.3) (.7) % change (1 month) 8.8 PFTS (Ukraine) FTSE (UK) CAC (France) STOXX (EZ) FTSE MIB (Italy) IBEX (Spain) SAX (Sweden) DAX (Germany KAX (Denmark) BEL (Belgium) WIG (Poland) PSI (Portugal) ISEQ (Ireland) MICEX (Russia) ASE (Greece) Chart : Most indices have still gained on the year as region in general recovers (.3) % change (ytd) PFTS (Ukraine) FTSE MIB (Italy) PSI (Portugal) CAC (France BEL (Belgium) KAX (Denmark) SAX (Sweden) STOXX (EZ) IBEX (Spain) ISEQ (Ireland) FTSE (UK) DAX (Germany WIG (Poland) ASE (Greece) MICEX (Russia) To access our research reports on the Bloomberg terminal, type CMHK <GO> 3

4 European equity markets registered mixed performances in April, with roughly half of the countries up and half down. With that being said, the major stock indices of the region were up, with the STOXX up 1.%, the DAX up.3%, the FTSE up.%, and the CAC up.%. The two main countries involved in the Ukraine crisis were the some of the ones that showed the biggest monthly movement, with Ukraine up on the month as the risk of rapid escalation diminished on the month, but Russia dropped further on the month as sanctions were imposed amid continuing conflict. The volatile Greek stock exchange also took a major dip as the country returned to the bond markets, allowing for investors seeking exposure in Greece another avenue. In terms of valuation, the STOXX index crawled closer to the + standard deviation mark, showing the index is becoming relatively more expensive. In contrast, currently Greek equities have a P/E ratio at.7, at historically low levels and cheaper than comparative countries. II. Currency Chart : EURUSD ended the month roughly even, while EURGBP depreciated, reducing pressure on exporters Chart : Euro rose most against CNY and SEK, fell sharply against KRW EURCNY EURSEK EURUSD EURCHF EURRUB EURAUD EURDKK EURJPY EURCAD EURGBP EURKRW EURUSD, LHS EURGBP, RHS % Change (1 month) The Euro s performance was mixed in April, fluctuating below.3 ppt for most of the major currencies. As seen in Chart, the biggest outliers were the EURCNY, EURSEK, and EURKRW pairs, mostly reflecting developments concerning the paired currency rather than the Euro itself. Overall, it was encouraging news that the Euro halted the appreciation trend that was seen over the first quarter of the year, as it will reduce some pressure on exporters and promote further exports. Additionally, halting the appreciation trend will also limit the drag on inflation. Mario Draghi claimed ECB estimates showed that the appreciation of the Euro since has caused a difference of.-. ppt of inflation. Overall, market expectations for ECB easing may create some depreciation pressure on the Euro; this should slightly outweigh the overall appreciation pressure tied to the recovery trend of the Eurozone, leading to a small depreciation. To access our research reports on the Bloomberg terminal, type CMHK <GO>

5 1/ / / / 1/ / / / 1/ / / / 1/ / III. Bond market Chart 7: Eurozone year bond yields continued to converge, Greece issued first bonds Chart 8: Eurozone CDS spreads declined across the board in April Portugal Greece Spain Italy Germany France Eurozone year bond yields showed a continued convergence trend in April, and the yields dipped slightly across the board. Conditions in the periphery countries are improving, leading to lower borrowing costs for these countries. Quantitative easing measures would also help in further reducing the bond yields. As the prospect of QE appears to be growing increasingly likely, the bond markets will also price in the possibility of a major QE, as seen in declining yields. Germany yr CDS spread, LHS France yr CDS spread, LHS Italy yr CDS spread, RHS Spain yr CDS spread, RHS Overall, CDS spreads have been on the decline, illustrating that cost of insuring against sovereign default has declined notably, as the region gradually moves past the sovereign debt crisis era. During the month of April, CDS spreads were mostly on a declining trend, continuing the status quo after a brief spike due to the Ukrainian crisis. To access our research reports on the Bloomberg terminal, type CMHK <GO>

6 IV. Macro Economy Chart 9: Eurozone GDP growth set to improve in 1Q, release date May 1 th Chart : ECB benchmark interest rate was unchanged, though there is a possibility of a further cut - - Forecast 1Q:.% QoQ Eurozone GDP (% QoQ) Eurozone GDP (% YoY) ECB Main Refinancing Rate (%) ECB deposit facility (%) ECB marginal lending rate (%) Sources: European Central Bank, CMS (HK) Thus far, the data published so far in indicates that the overall macroeconomic environment is improving. Key real economic indicators as well as sentiment have improved. 1Q GDP is still set to improve from Q s.% QoQ, and we currently forecast growth to be at.% QoQ in 1Q. The benchmark interest rate in the Eurozone is at historically low levels. A further cut would bring the benchmark deposit rate to unprecedented negative levels. Furthermore, the added benefit of another rate cut will be relatively small, leading us to believe that the ECB is more likely to hold rates than make another cut in the near future. Chart : Eurozone CPI inflation dropped to a year low, will stay in period of weak prices Chart : Eurozone PPI remained weak on energy prices Eurozone Inflation (% YoY), LHS Core Inflation (% YoY), LHS Food Inflation (% YoY), LHS Energy Inflation (% YoY), RHS Eurozone PPI (% MoM), RHS Eurozone PPI (% YoY), LHS Eurostat published the flash estimate for April HICP inflation, which registered at.7% YoY, up from March s.% YoY, reversing the drop in March. An encouraging development was the core CPI figure, which rose to 1.% YoY from.7% YoY. The.3 ppt upswing was a bigger To access our research reports on the Bloomberg terminal, type CMHK <GO>

7 gain than the headline CPI number, also rebounding to February s level. While this level is undeniably still a lower than desirable number for the ECB (which targets % YoY inflation), further deterioration would have put enormous pressure on the ECB to drastically ease monetary policy in the upcoming May 8th meeting. Overall, the rebound was in line with our expectations, due to the more favourable base effect, as well as the overall improvement in economic sentiment. While May s data is unlikely to move more than two tenths of a percentage point, the unfavourable base effect in June and July will cause more downward pressure on inflation and may be a catalyst for possible supportive measures. Chart : Unemployment rate to show gradual improvement, but still at uncomfortably high levels 3 1 Chart : Industrial production data edged up in February, likely to remain weakly positive Eurozone unemployment (%) Germany unemployment (%) France unemployment (%) Italy unemployment (%) Spain unemployment (%) Greece unemployment (%) The labor market in the Eurozone continues to be challenging, as unemployment rates remain high with youth unemployment in particular disastrously high. Periphery countries appear to have bottomed out and are now gradually improving, but several major countries including France and Italy have yet to implement necessary labor market reform. Overall we expect unemployment to remain at high levels in, but to edge down incrementally as periphery country conditions improve. Eurozone IP growth (% MoM), RHS Eurozone IP growth (% YoY), LHS February s industrial production growth performed in line with market expectations, edging up slightly from January s performance. Germany, France, and Spain registered low positive growth, while Italy registered negative growth after a strong January. Muted IP growth is a sign that the recovery will remain modest, as per our expectations. Given strong PMI performance, we expect March IP data to continue to improve, but IP will not be the driving force of growth in the Eurozone. To access our research reports on the Bloomberg terminal, type CMHK <GO> 7

8 / / / / 9/ / 7/ / / / 3/ 8/ 1/ / / / 9/ / Chart 1: Retail sales growth remained unchanged at.8% YoY Chart 1: February trade data showed large trade surplus and improving growth Eurozone retail sales growth (% MoM) Eurozone retail sales growth (% YoY) February s retail sales growth remained unchanged on a YoY basis at.8% YoY, but slowed on an MoM basis to.% from.%. Encouragingly, core retail sales (ex energy and food) grew by.8% MoM, illustrating continuingly solid domestic demand. With a low base effect and improving consumer sentiment, retail sales are likely to improve modestly in the Eurozone as a whole in. Trade balance (EUR bn), SA, RHS Export (% YoY) Import (% YoY), NSA Sources: CEIC, Bloomberg, CMS (HK) February s trade data brought positive news for the region. The February data in and of itself performed well, with the trade surplus at EUR 1. bn, and export growth at a strong 3.% YoY. Furthermore, January s trade data was revised significantly upward to EUR.9 bn from EUR.9 bn. This data release indicates that net exports should contribute positively to growth in. Chart 17: PMI data rebounded to reach a 3 month high Chart 18: M3 and loans data edged down, as borrowing demand remains downtrodden Eurozone manufacturing PMI Eurozone services PMI Eurozone M3 growth (% YoY) Eurozone loan growth (% YoY) April s Eurozone Flash PMI hit a 3 month high, significantly exceeding market forecasts, and at an expansionary level for the th consecutive month. The rise of the composite PMI was mostly due to the services, which rose.9 ppt on the month, while Money supply data continued to remain at weak levels in March data, deteriorating further from February s already weak levels. The weak M3 growth primarily reflects the lack of lending in the Eurozone. The overall trend of weak money supply data puts To access our research reports on the Bloomberg terminal, type CMHK <GO> 8

9 manufacturing rose.3 ppt. Growth of new orders, job creation, and backlogs of work are positive signs for sustained growth in May. further pressure on the ECB to ease monetary policy, however, as it has been consistently weak, the March data is unlikely to have any additional impact. Chart 19: Eurozone housing prices continued to grow at the same slow pace Chart : Most sentiment indicators improved in April, reflecting overall recovery process Housing price index (199=) Housing prices (% YoY) Eurozone business sentiment (LHS) Eurozone consumer sentiment (RHS) Eurozone countries have seen their housing markets perform relatively weakly over the past several years, and the trend continued in March, with both the housing price index and the YoY growth of prices unchanged from February. Housing prices grew at around 1%, remaining at the lowest rate since early for the second consecutive month. Currently, despite various efforts to boost the housing market such as the golden visa programs to attract foreign buyers, we view there is not a sufficient catalyst to boost prices on a notable scale until the economic recovery improves. Eurozone business sentiment dipped slightly to., down from. (revised up), however, this value was still the second highest in the past 33 months. Eurozone consumer sentiment continued to improve in April, improving to -8.7, showing the overall trend of improving sentiment is still in place. Germany s ZEW and IFO surveys also indicated improvement of sentiment in the region. Overall, we expect Eurozone sentiment to improve in the coming months as economic recovery gains traction, but there may be peaks and valleys reflecting news and the fragility of the recovery process. To access our research reports on the Bloomberg terminal, type CMHK <GO> 9

10 Eurozone Economic Calendar Date & Time (Beijing/HK) Economic Indicator Country Previous Consensus Forecast 1:: Markit Manufacturing PMI Germany :: Markit Manufacturing PMI European Monetary Union :: Unemploy ment Rate European Monetary Union.9%.9% 18:: European Commission Releases Economic Grow th Forecasts European Monetary Union :: Eurogroup meeting European Monetary Union 1:3: Sentix Investor Confidence European Monetary Union.% 1 1:: Markit PMI Composite European Monetary Union 3.1 1:: Markit Serv ices PMI European Monetary Union. 17:: Retail Sales (YoY) European Monetary Union. 18:: Factory Orders n.s.a. (YoY) Germany.% 18:: Industrial Production n.s.a. w.d.a. (YoY) Germany.8% 18:: Industrial Production s.a. (MoM) Germany.. 19:: ECB Interest Rate Decision European Monetary Union.% :3: ECB Monetary policy statement and press conference European Monetary Union :: Exports (MoM) Germany -. :: Imports (MoM) Germany.% :: Trade Balance s.a. Germany??.7B :: Consumer Price Index (MoM) Germany.3% :: Consumer Price Index (YoY) Germany 1% :: Harmonised Index of Consumer Prices (MoM) Germany.3% :: Harmonised Index of Consumer Prices (YoY) Germany. 17:: ZEW Surv ey - Current Situation Germany 9. 17:: ZEW Surv ey - Economic Sentiment Germany 3. 17:: ZEW Surv ey - Economic Sentiment European Monetary Union 1. 17:: Industrial Production w.d.a. (YoY) European Monetary Union 1.7% 1 :: European Council meeting European Monetary Union 1 :3: Gross Domestic Product (YoY) France. 1 :: Gross Domestic Product s.a (QoQ) Germany. 1 :: Gross Domestic Product w.d.a (YoY) Germany. 1 1:: ECB Monthly Report European Monetary Union 1 17:: Consumer Price Index - Core (YoY) European Monetary Union. 1 17:: Consumer Price Index (MoM) European Monetary Union. 1 17:: Consumer Price Index (YoY) European Monetary Union. 1 17:: Gross Domestic Product s.a. (QoQ) European Monetary Union. 1 17:: Gross Domestic Product s.a. (YoY) European Monetary Union 1% 1 17:: Trade Balance n.s.a. European Monetary Union??3.B 1 17:: Trade Balance s.a. European Monetary Union??3.9B 1:: Markit PMI Composite European Monetary Union 3 :: Gross Domestic Product n.s.a (YoY) Germany. 3 :: Gross Domestic Product s.a (QoQ) Germany. 3 :: Gross Domestic Product w.d.a (YoY) Germany. 3 1:: IFO - Business Climate Germany :: IFO - Current Assessment Germany.3 3 1:: IFO - Expectations Germany 1.3 :: European Parliament election 8 :: Gfk Consumer Confidence Survey Germany :: Unemploy ment Rate s.a. Germany.7 3 :: Retail Sales (MoM) Germany -. 3 :: Retail Sales (YoY) Germany -.19 Source: FXStreet, CMS (HK) To access our research reports on the Bloomberg terminal, type CMHK <GO>

11 May, Friday Investment Ratings Rating OVERWEIGHT NEUTRAL UNDERWEIGHT Definition Expected to outperform the market index by > % over the next months Expected to outperform or underperform the market index by % or less over the next months Expected to underperform the market index by >% over the next months Disclaimer This document is prepared by China Merchants Securities (HK) Co., Limited ( CMS HK ). CMS HK is a licensed corporation to carry on Type 1 (dealing in securities), Type (dealing in futures), Type (advising on securities), Type (advising on corporate finance) and Type 9 (asset management) regulated activities under the Securities and Futures Ordinance (Chapter 71). This document is for information purpose only. Neither the information nor opinion expressed shall be construed, expressly or impliedly, as an advice, offer or solicitation of an offer, invitation, advertisement, inducement, recommendation or representation of any kind or form whatsoever to buy or sell any security, financial instrument or any investment or other specific product. The securities, instruments or strategies discussed in this document may not be suitable for all investors, and certain investors may not be eligible to participate in some or all of them. Certain services and products are subject to legal restrictions and cannot be offered worldwide on an unrestricted basis and/or may not be eligible for sale to all investors. The information and opinions, and associated estimates and forecasts, contained herein have been obtained from or are based on sources believed to be reliable. CMS HK, its holding or affiliated companies, or any of its or their directors, officers or employees ( CMS Group ) do not represent or warrant, expressly or impliedly, that it is accurate, correct or complete and it should not be relied upon. CMS Group will not accept any responsibility or liability whatsoever for any use of or reliance upon this document or any of the content thereof. The contents and information in this document are only current as of the date of their publication and will be subject to change without prior notice. Past performance is not indicative of future performance. Estimates of future performance are based on assumptions that may not be realized. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. Opinions expressed herein may differ or be contrary to those expressed by other business divisions or other members of CMS Group as a result of using different assumptions and/or criteria. This document has been prepared without regard to the individual financial circumstances and investment objectives of the persons who receive it. Use of any information herein shall be at the sole discretion and risk of the user. Investors are advised to independently evaluate particular investments and strategies, take financial and/or tax advice as to the implications (including tax) of investing in any of the securities or products mentioned in this document, and make their own investment decisions without relying on this publication. CMS Group may have a long or short position, make markets, act as principal or agent, or engage in transactions in securities of companies referred to in this document and may also perform or seek to perform investment banking services or provide advisory or other services for those companies. This document is for the use of intended recipients only and this document may not be reproduced, distributed or published in whole or in part for any purpose without the prior consent of CMS Group. CMS Group will not be liable for any claims or lawsuits from any third parties arising from the use or distribution of this document. This document is for distribution only under such circumstances as may be permitted by applicable law. This document is not directed at you if CMS Group is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available to you. In particular, this document is only made available to certain US persons to whom CMS Group is permitted to make available according to US securities laws, but cannot otherwise be made available, distributed or transmitted, whether directly or indirectly, into the US or to any US person. This document also cannot be distributed or transmitted, whether directly or indirectly, into Japan and Canada and not to the general public in the People s Republic of China (for the purpose of this document, excluding Hong Kong, Macau and Taiwan). Hong Kong China Merchants Securities (HK) co., Ltd., Address: 8/F, One Exchange Square, Central, Hong Kong Tel: Fax: South Korea China Merchants Securities International Seoul Office Address: One IFC #8, 3 Yeouido-dong, Yeongdeungpo-gu, Seoul 1-87, Korea Tel: Fax: 彭博终端报告下载 : CMHK <GO>