MARKET INSIGHTS. Guide to the Markets. Europe 2Q 2018 As of 31 March 2018

Transcription

1 MARKET INSIGHTS Guide to the Markets Europe 2Q 218 As of 31 March 218

2 Global Market Insights Strategy Team Dr. David Kelly, CFA New York David Lebovitz New York Dr. Cecelia Mundt New York Gabriela Santos New York Samantha Azzarello New York Alex Dryden, CFA New York Jordan Jackson New York John Manley New York Tyler Voigt New York Karen Ward London Michael Bell, CFA London Nandini Ramakrishnan London Ambrose Crofton London Jai Malhi London Manuel Arroyo Ozores, CFA Madrid Lucia Gutierrez Mellado Madrid Tilmann Galler, CFA Frankfurt Maria Paola Toschi Milan Vincent Juvyns Luxembourg Tai Hui Hong Kong Marcella Chow Hong Kong Ian Hui Hong Kong Hannah Anderson Hong Kong Dr. Jasslyn Yeo, CFA Singapore Chaoping Zhu, CFA Shanghai Yoshinori Shigemi Tokyo Shogo Maekawa Tokyo Abigail Yoder, CFA New York Kerry Craig, CFA Melbourne 2

3 Page reference Global economy 4. Global growth 5. Global Purchasing Managers Index (PMI) for manufacturing 6. Global unemployment 7. Global inflation 8. Global core inflation 9. Global central bank policy 1. Global currencies 11. Global trade 12. Productivity and population growth 13. US GDP 14. US corporates 15. US consumer 16. US labour market 17. US inflation 18. US Federal Reserve policy rate 19. US debt 2. US focus: Fiscal expansion 21. Eurozone GDP 22. Eurozone corporates 23. Eurozone consumer 24. Eurozone labour market 25. Eurozone unemployment 26. Eurozone inflation 27. European Central Bank policy rate 28. Eurozone debt 29. Eurozone government debt 3. European politics 31. Eurozone focus: ECB projections 32. UK GDP 33. UK consumer 34. UK inflation 35. UK focus: Brexit impact on currency and bond yields 36. Japan GDP 37. Japan inflation 38. China GDP 39. China debt 4. China inflation and policy rates 41. Emerging markets GDP and inflation 42. Emerging markets currencies and current account 43. Emerging markets structural dynamics 44. Emerging markets focus: China s research drive Equities 45. Global equity earnings and valuations 46. US stock market 47. US earnings 48. US equity macro correlations 49. US equity valuations 5. US valuations and subsequent returns 51. Equities and interest rates 52. US bull and bear markets 53. Equity income 54. US sector returns and valuations 55. Europe stock market 56. Europe earnings 57. Europe equity macro correlations 58. Europe equity market and currency 59. Europe equity valuations 6. Europe large, mid and small capitalisation equities 61. Europe sector returns and valuations 62. UK earnings 63. Japan stock market 64. Japan earnings 65. Japan equity market and currency 66. Emerging markets performance and earnings expectations 67. Emerging markets equity drivers 68. Emerging markets equity valuations and subsequent returns 69. Correlation and volatility 7. World stock market returns Fixed income 71. Fixed income yields and interest rate risk 72. US nominal and real 1-year government bond yields 73. US yield curve 74. US investment-grade bonds 75. US high yield bonds 76. Europe nominal and real 1-year government bond yields 77. Europe and UK investment-grade bonds 78. Europe high yield bonds 79. Emerging markets bonds 8. Global fixed income spreads and returns Other assets 81. Commodities 82. Gold 83. Stock-bond correlation and downside protection 84. Alternative investments 85. Sustainable investing 86. Asset markets in coming years Investing principles 87. Life expectancy 88. Cash investments 89. The power of compounding 9. Annual returns and intra-year declines 91. Impact of being out of the market 92. US asset returns by holding period 93. Asset class returns (EUR) 3

4 Global growth 4 Real GDP growth % change year on year 6 Global economy ' '2 '4 '6 '8 '1 '12 '14 '16 '18 Source: BEA, Bloomberg, Eurostat, Japan Cabinet Office, ONS, Thomson Reuters Datastream, J.P. Morgan Asset Management. Forecasts are from Bloomberg contributor composite. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March 218. US Eurozone UK Japan 218 consensus forecast 2,8% 2,4% 1,5% 1,3% 4

5 Global Purchasing Managers Index (PMI) for manufacturing 5 Global economy Eurozone Developed Emerging Global Developed Emerging Eurozone France Germany Italy Spain Greece Ireland Sweden Switzerland UK US Japan China Indonesia Korea Taiwan India Brazil Mexico Russia ' Feb Mar 54,1 53,4 55,7 54,9 51,9 51,3 58,6 56,6 55,9 53,7 6,6 58,2 56,8 55,1 56, 54,8 56,1 55, 56,2 54,1 59,9 55,9 65,5 6,3 55, 55,1 55,3 55,6 54,1 53,1 51,6 51, 51,4 5,7 5,3 49,1 56, 55,3 52,1 51, 53,2 53,4 51,6 52,4 5,2 5,6 5 Source: Markit, J.P. Morgan Asset Management. The Global Purchasing Managers Index (PMI) assesses the economic health of the manufacturing sector by surveying output and employment intentions. A score of 5 indicates that economic activity is neither expanding nor contracting, above 5 indicates expansion. The colours range from red to yellow to green, where red is below 5, yellow is at 5 and green is above 5. Quarterly averages are shown, except the two most recent monthly data points. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March 218.

6 Global unemployment 6 Global economy Unemployment rates % 13 Eurozone UK US 11 Japan ' '2 '4 '6 '8 '1 '12 '14 '16 '18 Source: BLS, Eurostat, Japan Ministry of Internal Affairs & Communications, ONS, Thomson Reuters Datastream, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

7 Global inflation Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Global economy Feb 7 Eurozone Developed Emerging Global Developed Emerging Eurozone France Germany Italy Spain Greece Ireland Sweden Switzerland UK US Japan China Indonesia Korea Taiwan India Brazil Mexico Russia 1,6 1,6 1,5 1,6 1,5 1,5 1,7 1,8 1,9 2,1 2,4 2,2 2,1 2,1 2, 1,8 1,8 2, 2,1 2, 2,2 2,2 2,1 2,3,5,5,5,6,5,6,9 1,1 1,2 1,5 2, 2,1 1,8 1,9 1,6 1,4 1,5 1,7 1,8 1,6 1,8 1,8 1,8 1,8 3,4 3,4 3,2 3,2 3,2 2,9 3, 3,1 3,1 2,9 3,2 2,4 2,5 2,6 2,6 2,4 2,3 2,6 2,6 2,7 2,7 2,9 2,5 3,2, -,2 -,1,1,2,2,4,5,6 1,1 1,8 2, 1,5 1,9 1,4 1,3 1,3 1,5 1,5 1,4 1,5 1,4 1,3 1,1 -,1 -,1,1,3,4,4,5,5,7,8 1,6 1,4 1,4 1,4,9,8,8 1, 1,1 1,2 1,2 1,3 1,5 1,3,1 -,3,,2,4,3,5,7,7 1,7 1,9 2,2 1,5 2, 1,4 1,5 1,5 1,8 1,8 1,5 1,8 1,6 1,4 1,2 -,2 -,4 -,3 -,2 -,2 -,1,1 -,1,1,5 1, 1,6 1,4 2, 1,6 1,2 1,2 1,4 1,3 1,1 1,1 1, 1,2,5-1, -1,2-1,1 -,9 -,7 -,3,,5,5 1,4 2,9 3, 2,2 2,6 2, 1,6 1,7 2, 1,8 1,7 1,8 1,2,7 1,2 -,7 -,4 -,2,2,2,4 -,1,6 -,2,3 1,5 1,4 1,7 1,7 1,5,9,9,6 1,,5 1,1 1,,2,4 -,6 -,2 -,2,1,1 -,4 -,3 -,4 -,2 -,2,2,3,6,7, -,6 -,2,4,2,5,5,5,3,7 1,2 1,,8 1,2 1,1 1,2,8 1,1 1,3 1,7 1,5 1,9 1,4 2, 1,8 1,8 2,3 2,2 2,2 1,7 1,9 1,7 1,6 1,6-1, -,5 -,5 -,6 -,5, -,3 -,3 -,2 -,2,3,7,5,7,4,4,6,5,8,8,8 1,1,8,5,5,3,3,5,6,6 1,,9 1,2 1,6 1,8 2,3 2,3 2,7 2,9 2,6 2,6 2,9 3, 3, 3,1 3, 3, 2,7,9 1,1 1, 1,,8 1,1 1,5 1,6 1,7 2,1 2,5 2,7 2,4 2,2 1,9 1,6 1,7 1,9 2,2 2, 2,2 2,1 2,1 2,2, -,3 -,5 -,4 -,4 -,5 -,5,1,5,3,4,3,2,4,4,4,4,7,7,2,6 1, 1,4 1,5 2,3 2,3 2, 1,9 1,8 1,3 1,9 2,1 2,3 2,1 2,5,8,9 1,2 1,5 1,5 1,4 1,8 1,6 1,9 1,7 1,8 1,5 2,9 4,5 3,6 3,3 3,5 3,2 2,8 3,1 3,3 3,6 3, 3,5 3,8 3,6 4,2 4,3 4,4 3,9 3,8 3,7 3,6 3,3 3,6 3,3 3,2,8 1,,8,7,4,5 1,4 1,5 1,5 1,3 2, 1,9 2,2 1,9 2, 1,9 2,3 2,6 2,1 1,8 1,3 1,5 1, 1,5 2, 1,9 1,2,9 1,2,6,3 1,7 2, 1,7 2,2 -,1,2,1,6 1,,8 1,,5 -,3,3 1,2,9 2,2 4,8 5,5 5,8 5,8 6,1 5, 4,4 4,2 3,6 3,4 3,2 3,7 3,9 3, 2,2 1,5 2,4 3,3 3,3 3,6 4,9 5,2 5,1 4,4 9,4 9,3 9,3 8,8 8,7 9, 8,5 7,9 7, 6,3 5,4 4,8 4,6 4,1 3,6 3, 2,7 2,5 2,5 2,7 2,8 3, 2,9 2,8 2,6 2,5 2,6 2,5 2,7 2,7 3, 3,1 3,3 3,4 4,7 4,9 5,4 5,8 6,2 6,3 6,4 6,7 6,4 6,4 6,6 6,8 5,6 5,3 7,3 7,3 7,3 7,5 7,2 6,9 6,4 6,1 5,8 5,4 5,1 4,6 4,3 4,1 4,1 4,4 3,9 3,3 3, 2,7 2,5 2,5 2,2 2,2 Source: Bank of Mexico, DGBAS, ECB, FactSet, Federal Reserve, Goskomstat of Russia, IBGE, India Ministry of Statistics & Programme Implementation, Japan Ministry of Internal Affairs & Communication, Korean National Statistical Office, National Bureau of Statistics China, Riksbank, Statistics Indonesia, Swiss National Bank, UK Office for National Statistics (ONS), J.P. Morgan Asset Management. Figures are % change year on year. Heatmap colours are based on the respective central bank target inflation rates. Blue is below target, white is at target and red is above target. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March 218.

8 Global core inflation 8 Core inflation % change year on year Average since 2 Latest 4 UK 1,7% 2,4% Global economy 3 2 Headline inflation target US Eurozone Japan 2,% 1,8% 1,4% 1,% -,1%,5% ' '2 '4 '6 '8 '1 '12 '14 '16 '18 Source: Bank of Japan, BLS, Eurostat, ONS, Thomson Reuters Datastream, J.P. Morgan Asset Management. CPI is the Consumer Price Index. Core inflation for the US and Japan is defined as CPI excluding food and energy. Core inflation for the UK and the eurozone is defined as CPI less energy, food, alcohol and tobacco. Japan core CPI has been adjusted down by 2% from April 214 to March 215 to remove the estimated impact of the consumption tax hike over this period. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

9 Global central bank policy 9 Market expectations for policy rate Central bank balance sheets % USD billions 3, 18. Forecast* Global economy 2,5 2, 1,5 1, US UK Eurozone Switzerland UK Japan Eurozone US,5 Switzerland 6., Japan 4. -, , Mar 18 Mar 19 Mar 2 Mar 21 Mar 22 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 '19 9 Source: (Left) Bloomberg, J.P. Morgan Asset Management. Expectations calculated using OIS forwards. (Right) Bank of England (BoE), Bank of Japan (BoJ), European Central Bank (ECB), Swiss National Bank (SNB), Thomson Reuters Datastream, US Federal Reserve (Fed), J.P. Morgan Asset Management. *Balance sheet forecast assumptions: BoE to have zero net purchases until the end of 19; BoJ to have an ann. purchase pace of 2tn yen until the end of 18, then a reduction in the ann. monthly purchase rate to 15tn yen for the first half of 219, and a further reduction to 1tn yen for the second half of 219; ECB to have net purchases of EUR 3bn per month from Apr 18 to Sep 18 and then reduce monthly purchases to EUR 15bn in Oct 18 and to zero asset purchases after Dec 18; Fed forecast is based on a monthly reduction of USD 3bn and then stepping up the monthly reduction by a further USD 1bn in each subsequent quarter until reaching a maximum of USD 5bn reduction per month, depending on the monthly maturity schedule of the balance sheet. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March 218.

10 Global currencies 1 Global economy Real effective exchange rates Index level rebased to 1 in 21, broad real effective exchange rate (REER) USD GBP EUR JPY '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '1 '3 '5 '7 '9 '11 '13 '15 '17 Source: J.P. Morgan Securities Research, Thomson Reuters Datastream, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

11 Global trade 11 Global economy Exports of goods Global export volumes % of GDP, 217 % change year on year, three-month moving average 8 US US Eurozone China 7 EM ex-china EM Canada Eurozone 6 Global Other DM UK 5 Brazil 4 India China Russia Mexico Japan Korea '12 '13 '14 '15 '16 '17 Source: (Left) IMF Direction of Trade, IMF World Economic Outlook October 217, J.P. Morgan Asset Management. (Right) CPB Netherlands, Thomson Reuters Datastream, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

12 Productivity and population growth 12 Drivers of US GDP growth Average year on year % change 5, 4,5% 4,5 Growth in workers + Growth in real output per worker Growth in real GDP Global working-age population growth Annualised % change 1,2 1, Global economy 4, 3,5 3, 2,5 1,6% 3,2% 3,3% 3,1% 2,9%,8,6,4,2, 2, 1,5 1, 2,2% 1,9% 1,4% 1,1% 1,4%,5% -,2 -,4 -,6,5 -, , 2,8% 1,% 1,3% 1,7% 1,8%,9% '58-'67 '68-'77 '78-'87 '88-'97 '98-'7 '8-'17 Source: (Left) BEA, BLS, J.P. Morgan Asset Management. GDP drivers are calculated as the average annualised growth between 4Q of the first and last year. (Right) United Nations (UN) Department of Economic and Social Affairs, J.P. Morgan Asset Management. Working-age population is defined as aged Data from 22 onwards are UN forecasts. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March , US UK Eurozone Japan 12

13 US GDP 13 Contribution to US real GDP growth and ISM manufacturing % change year on year (LHS); Index level (RHS) 6 65 Global economy Government Change in inventories Net exports Investment Consumption ISM Manufacturing (RHS) Average since 2 4Q17 2,% 2,6% ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 3 Source: BEA, ISM, Thomson Reuters Datastream, J.P. Morgan Asset Management. The Institute for Supply Management (ISM) survey assesses the economic health of the manufacturing sector by surveying output and employment intentions. A score of 5 indicates that economic activity is neither expanding nor contracting, above 5 indicates expansion. ISM data is shown with quarterly frequency. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

14 US corporates 14 US future capex intentions and business investment Index level (LHS); % change year on year (RHS) 4 2 Future capex intentions Global economy Business investment -3 ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18-2 Source: BEA, Dallas Fed, Kansas City Fed, New York Fed, Philadelphia Fed, Richmond Fed, Thomson Reuters Datastream, J.P. Morgan Asset Management. Capex intentions is an average index level of the five aforementioned fed districts equally weighted displayed using a three-month moving average. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

15 US consumer 15 US consumer confidence Index level 18 Recession US house prices relative to income Index level 15 Global economy '7 '75 '8 '85 '9 '95 ' '5 '1 '15 8 '7 '75 '8 '85 '9 '95 ' '5 '1 '15 Source: (Left) Conference Board, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Right) OECD, Thomson Reuters Datastream, J.P. Morgan Asset Management. Light grey columns indicate recessions determined by NBER. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

16 US labour market 16 US unemployment rate and wage growth %, wage growth is year on year 12 Global economy 1 8 Unemployment 6 4 Mar 218: 4,1% 2 Wage growth Mar 218: 2,4% '67 '72 '77 '82 '87 '92 '97 '2 '7 '12 '17 Source: BEA, Thomson Reuters Datastream, J.P. Morgan Asset Management. Wage growth is average hourly earnings of total private production and nonsupervisory employees. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

17 US inflation 17 US headline and core inflation Average February US core goods and services inflation Average February % change year on year since % change year on year since Headline CPI 2,2% 2,2% Services CPI 2,8% 2,6% 6 Core CPI 2,% 1,8% Core goods CPI,% -,5% 5 Global economy Headline inflation target ' '2 '4 '6 '8 '1 '12 '14 '16 '18-3 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 Source: (All charts) BLS, Thomson Reuters Datastream, J.P. Morgan Asset Management. CPI is the Consumer Price Index. Core CPI is defined as CPI excluding food and energy. Core goods CPI is defined as goods CPI excluding food and energy. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

18 US Federal Reserve policy rate 18 Federal funds policy rate expectations % Fed funds rate, FOMC and market expectations 7 FOMC March 218 forecasts* Change in real GDP, 4Q to 4Q 2,7 2,4 2, Global economy Unemployment rate, 4Q 3,8 3,6 3,6 PCE inflation, 4Q to 4Q 1,9 2, 2,1 Federal funds rate US Fed FOMC March forecasts (median) 3 Market forecast on 31 March 218 (mean) 2 1 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '2 Source: Bloomberg, US Federal Reserve, J.P. Morgan Asset Management. *Forecasts are median estimates of Federal Open Market Committee (FOMC) participants. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

19 US debt 19 Global economy US debt to GDP ratios US debt service ratios % of nominal GDP % of disposable income Government Households 1 8 Non-financial corporates Non-financial corporates Households 36 4 ' '2 '4 '6 '8 '1 '12 '14 ' ' '2 '4 '6 '8 '1 '12 '14 '16 '18 19 Source: (All charts) Bank for International Settlements, Thomson Reuters Datastream, J.P. Morgan Asset Management. Debt refers to gross debt. For the household sector, gross disposable income is the amount of money that all of the individuals in the household sector have available for spending or saving after income distribution measures (for example, taxes, social contributions and benefits) have taken effect. For the non-financial corporate sector gross disposable income is essentially akin to gross operating surplus before dividends or interest is paid. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March 218.

20 US focus: Fiscal expansion 2 US fiscal balance and unemployment % (LHS); % of nominal GDP (RHS) Global economy Unemployment rate Larger fiscal deficit & higher unemployment Recession Forecast '61 '63 '65 '67 '69 '71 '73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '1 '3 '5 '7 '9 '11 '13 '15 '17 '19 '21 Source: BEA, J.P. Morgan, Thomson Reuters Datastream, J.P. Morgan Asset Management. Unemployment rate is a yearly average. Fiscal balance and unemployment for 218 and 219 are using J.P. Morgan Securities Research forecasts. Light grey columns indicate recessions determined by NBER. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March 218. Fiscal balance (inverted) 2 2

21 Eurozone GDP 21 Contribution to eurozone real GDP growth and composite PMI % change year on year (LHS); index level (RHS) 6 65 Global economy Government Change in inventories Net exports Investment Consumption Composite PMI (RHS) Average since 2 4Q17 1,3% 2,7% ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 Source: Eurostat, Markit, Thomson Reuters Datastream, J.P. Morgan Asset Management. PMI is Purchasing Managers Index where a score of 5 indicates that economic activity is neither expanding nor contracting, above 5 indicates expansion. PMI data is shown with quarterly frequency. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

22 Eurozone corporates 22 Eurozone future capex intentions and business investment Index level, Q4 moving average (LHS); % change year on year (RHS) 6 Future capex intentions 1 Global economy Business investment -1-6 ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18-15 Source: Eurostat, IFO, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

23 Eurozone consumer 23 Eurozone consumer confidence Index level Recession 5 Eurozone house prices relative to income Index level 25 Global economy Spain France Italy Germany ' '2 '4 '6 '8 '1 '12 '14 '16 '18 '8 '84 '88 '92 '96 ' '4 '8 '12 '16 Source: (Left) European Commission, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Right) OECD, Thomson Reuters Datastream, J.P. Morgan Asset Management. Light grey columns indicate recession. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

24 Eurozone labour market 24 Eurozone unemployment rate and wage growth %, wage growth is year on year 13 Unemployment Wage growth 5 12 Global economy Feb 218: 8,5% Q17: 1,8% '98 '99 ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 1 Source: ECB, Thomson Reuters Datastream, J.P. Morgan Asset Management. Wage growth is compensation per employee. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

25 Eurozone unemployment 25 Germany, France, Italy and Spain unemployment rates % 28 Global economy Spain 12 Italy 8 France 4 Germany ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 Source: Eurostat, Thomson Reuters Datastream, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

26 Eurozone inflation 26 Global economy Eurozone headline and core inflation Eurozone core goods and services inflation % change year on year Average February % change year on year Average February 5 since ,5 since Headline CPI 1,7% 1,1% Services CPI 1,9% 1,3% Core CPI 1,4% 1,% 3, Core goods CPI,6%,6% 4 3 Headline inflation target 2,5 2, 2 1,5 1 1,,5, -1 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 -,5 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 Source: (All charts) Eurostat, Thomson Reuters Datastream, J.P. Morgan Asset Management. CPI is the Consumer Price Index. Core CPI is defined as CPI less energy, food, alcohol and tobacco. Core goods CPI is defined as goods CPI less energy, alcohol and tobacco. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

27 European Central Bank policy rate 27 Global economy European Central Bank policy rate expectations % deposit rate, market expectations 4, 3,5 3, 2,5 2, ECB staff March 218 forecasts* Real GDP growth 2,4 1,9 1,7 Unemployment rate 8,3 7,7 7,2 CPI (y/y) 1,4 1,4 1,7 1,5 1, ECB deposit rate Market forecast on 31 March 218 (mean),5, -,5-1, ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 '19 '2 Source: Bloomberg, European Central Bank, J.P. Morgan Asset Management. *Forecasts are made by ECB staff. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

28 Eurozone debt 28 Eurozone debt to GDP ratios Eurozone debt service ratios % of nominal GDP % of disposable income 11 8 Non-financial corporates Households Non-financial corporates 41 Global economy Government Households ' '2 '4 '6 '8 '1 '12 '14 '16 ' ' '2 '4 '6 '8 '1 '12 '14 '16 '18 28 Source: (All charts) Bank for International Settlements, Thomson Reuters Datastream, J.P. Morgan Asset Management. Debt refers to gross debt. Debt service ratios are a GDP-weighted average of France, Germany, Italy and Spain. For the household sector, gross disposable income is the amount of money that all of the individuals in the household sector have available for spending or saving after income distribution measures (for example, taxes, social contributions and benefits) have taken effect. For the non-financial corporate sector gross disposable income is essentially akin to gross operating surplus before dividends or interest is paid. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March 218.

29 Eurozone government debt 29 France, Germany, Italy and Spain government debt to GDP % of nominal GDP 16 Global economy Italy France Spain Germany 2 ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 Source: Bank for International Settlements, Thomson Reuters Datastream, J.P. Morgan Asset Management. Debt refers to gross debt. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

30 European politics 3 Global economy Eurozone real GDP levels Index level rebased to 1 at 1Q Spain 14 Eurozone Germany 135 France Italy Survey results: Do you support the euro? % answering yes 9 Nov 13 Nov 16 Nov '99 '1 '3 '5 '7 '9 '11 '13 '15 '17 4 Italy France Spain Germany Source: (Left) Eurostat, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Right) Eurobarometer survey, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

31 Eurozone focus: ECB projections 31 ECB staff real GDP growth projections ECB staff inflation projections % change year on year % change year on year 2, , Global economy 2,4 2,2 2, 1, ,8 1,6 1, ,6 1,2 1,4 Mar 17 Jun 17 Sep 17 Dec 17 Mar 18 Forecasts made in: 1, Mar 17 Jun 17 Sep 17 Dec 17 Mar 18 Forecasts made in: Source: (All charts) ECB, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

32 UK GDP 32 Contribution to UK real GDP growth and composite PMI % change year on year (LHS); index level (RHS) 6 65 Global economy Government -4 Change in inventories 4-6 Net exports Investment Consumption Composite PMI (RHS) Average since 2 4Q17 1,9% 1,4% 35-8 ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 3 Source: Markit, ONS, Thomson Reuters Datastream, J.P. Morgan Asset Management. PMI is Purchasing Managers Index where a score of 5 indicates that economic activity is neither expanding nor contracting, above 5 indicates expansion. PMI data is shown with quarterly frequency. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

33 UK consumer 33 UK consumer confidence Index level, 3-month moving average 2 Recession UK house prices relative to income Index level 13 Global economy '87 '92 '97 '2 '7 '12 '17 4 '87 '92 '97 '2 '7 '12 '17 Source: (Left) GfK, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Right) OECD, Thomson Reuters Datastream, J.P. Morgan Asset Management. Light grey columns indicate recession. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

34 UK inflation 34 UK headline and core inflation UK core goods and services inflation % change year on year Average February % change year on year Average February 6 since since Headline CPI 2,% 2,7% 6 Services CPI 1,3% 2,4% Core CPI 1,7% 2,4% Core goods CPI -,8% 2,5% Global economy Headline inflation target ' '2 '4 '6 '8 '1 '12 '14 '16 '18-6 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 Source: (All charts) ONS, Thomson Reuters Datastream, J.P. Morgan Asset Management. CPI is the Consumer Price Index. Core CPI is defined as CPI less energy, food, alcohol and tobacco. Core goods CPI is defined as goods CPI less energy, food, alcohol and tobacco. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

35 UK focus: Brexit impact on currency and bond yields 35 Global economy Sterling 2-year US Treasury and UK Gilt yields Exchange rate, GBPUSD: US dollars per pound; GBPEUR: euros per pound % 1,8 2,5 Brexit referendum Brexit referendum Sterling 1,7 weakening 1,6 1,5 GBPUSD 2, 1,5 1,4 1,3 1,2 1,1 1,,5 UK 2-year Gilt US 2-year Treasury GBPEUR 1, '1 '11 '12 '13 '14 '15 '16 '17 '18, '1 '11 '12 '13 '14 '15 '16 '17 '18 Source: (All charts) Thomson Reuters Datastream, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

36 Japan GDP 36 Contribution to Japan real GDP growth and composite PMI % change year on year (LHS); index level (RHS) 6 62 Global economy Government Change in inventories Net exports Investment Consumption Manufacturing PMI (RHS) Average since 2 4Q17,9% 2,1% ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 3 Source: Japan Cabinet Office, Markit, Thomson Reuters Datastream, J.P. Morgan Asset Management. PMI is Purchasing Managers Index where a score of 5 indicates that economic activity is neither expanding nor contracting, above 5 indicates expansion. PMI data is shown with quarterly frequency. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

37 Japan inflation 37 Global economy Japan headline and core inflation Japan core goods and services inflation % change year on year Average February % change year on year Average February since since Headline CPI,1% 1,5% 6 Core goods CPI -,8% 1,1% Core CPI -,1%,5% Services CPI,1%,3% 4 Headline inflation 5 target ' '2 '4 '6 '8 '1 '12 '14 '16 ' ' '2 '4 '6 '8 '1 '12 '14 '16 '18 Source: (All charts) Japan Ministry of Internal Affairs & Communications, Thomson Reuters Datastream, J.P. Morgan Asset Management. CPI is the Consumer Price Index. Core CPI is defined as CPI excluding food and energy. Core goods CPI is defined as goods CPI excluding food and energy. Increase in Japan inflation measures between 214 and 216 can be attributed to the impact of the consumption tax hike over this period. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

38 China GDP 38 Global economy Contribution to China real GDP growth 218 China industrial production and retail sales 217 consensus % change year on year % change year on year forecast 2 25 GDP growth 6,9% 6,5% Investment Consumption 15 Net exports Retail sales Industrial production -5 '9 '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 '96 ' '4 '8 '12 '16 Source: (Left) Bloomberg, National Bureau of Statistics of China, Thomson Reuters Datastream, J.P. Morgan Asset Management. Forecast is from Bloomberg contributor composite. (Right) National Bureau of Statistics of China, Thomson Reuters Datastream, J.P. Morgan Asset Management. Industrial production is a threemonth moving average and retail sales is a six-month moving average. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

39 China debt 39 China debt to GDP ratios China credit growth % of nominal GDP % change year on year 18 Non-financial corporates 4 Global economy Total social financing Broad credit Government 15 1 RMB bank lending 2 Households 5 39 ' '2 '4 '6 '8 '1 '12 '14 '16 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 Source: (Left) Bank for International Settlements, Thomson Reuters Datastream, J.P. Morgan Asset Management. Debt refers to gross debt. (Right) People s Bank of China (PBoC), J.P. Morgan Asset Management. The broad credit measure consists of all reported bank claims on the domestic economy, plus bankers acceptances, entrusted loans, trust loans, new net corporate bond and non-financial equity financing, issuance of asset-backed securities and interbank loans. Total social financing is a measure of total funds provided to the economy, tabulated from bank loans to individuals and corporations, as well as equity and bond financing to non-financial corporations. RMB bank lending is the sum of all bank-reported claims on domestic borrowers. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March 218.

40 China inflation and policy rates 4 Global economy China inflation China interbank rate and reserve requirement ratio (RRR) Average February % change year on year since % rate 15 7 Headline CPI* 2,8% 2,9% Core CPI 1,3% 2,5% SHIBOR RRR Headline PPI** 1,% 3,7% '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 5 Source: (Left) Bloomberg, Thomson Reuters Datastream, J.P. Morgan Asset Management. *CPI is the Consumer Price Index. Core CPI is defined as CPI excluding food and energy. **PPI is the Producer Price Index. (Right) PBoC, Thomson Reuters Datastream, J.P. Morgan Asset Management. Average RRR for large and small banks. SHIBOR is the 3-month interbank rate. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

41 Emerging markets GDP and inflation 41 EM GDP growth EM inflation % change year on year % change year on year 1 14 Forecast Forecast Global economy Commodity countries Other EM countries 4 2 Commodity countries Other EM countries -4 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 41 Source: (All charts) IMF, national statistics agencies, J.P. Morgan Securities Research, J.P. Morgan Asset Management. Other EM countries are China, India, Malaysia, Mexico, Philippines, Poland, Romania, Thailand, Turkey, Vietnam. Commodity countries are Argentina, Brazil, Chile, Colombia, Indonesia, Kazakhstan, Peru, Russia, South Africa, Venezuela. GDP and inflation aggregates are calculated using the mid-weight average, which is the mean of GDP-weighted average and simple average. Forecasts are from J.P. Morgan Securities Research. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March 218.

42 Emerging markets currencies and current account 42 Global economy EM currencies vs. US dollar EM current account balance % from fair value, relative to US dollar % of GDP EM currencies expensive relative to USD Average +1 std. dev. 1,,5, -,5-1, EM current account balance improving -1-1 std. dev. -1,5-2 -2, -3 '92 '96 ' '4 '8 '12 '16-2,5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 Source: (Left) J.P. Morgan Asset Management. Fair value is based on nominal exchange rates relative to PPP exchange rates and adjusted for GDP per capita. (Right) Bloomberg, J.P. Morgan Asset Management. EM currencies and current account balances are created using the current weighted average of JPM GBI-EM Global Diversified Index countries. Current account balance is the balance of a country s net trade in goods and services, its net earnings on cross-border investments and its net transfer payments. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

43 Emerging markets structural dynamics 43 Urbanisation and economic growth Share of global real GDP Urbanisation rates, % and GDP per capita, USD, % 7. 3 Global economy GDP per capita US South Korea US Eurozone China China India Urbanisation rate Japan 5 Germany India '7 '75 '8 '85 '9 '95 ' '5 '1 '15 Source: (Left) IMF, J.P. Morgan Asset Management. Urbanisation rate refers to the proportion of the total population living within an urban area defined by national statistical offices. (Right) Thomson Reuters Datastream, World Bank, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

44 Emerging markets focus: China s research drive 44 US and China R&D expenditure % of nominal GDP 3, US Global economy 2,5 2, China 1,5 1,,5, '91 '92 '93 '94 '95 '96 '97 '98 '99 ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 Source: OECD, J.P. Morgan Asset Management. R&D is research and development. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

45 Global equity earnings and valuations 45 Global earnings per share NTM USD earnings per share estimates, rebased to 1 in Jan Global forward price to earnings ratios x, multiple 4x 75x Equities US Japan EM 35x 3x 25x 2x Current One year ago Range since 199 Average since x 1 8 Europe 1x 6 5x 4 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 Source: (Left) FTSE, IBES, MSCI, Standard & Poor s, Thomson Reuters Datastream, J.P. Morgan Asset Management. NTM is next 12 months. (Right) IBES, MSCI, Standard & Poor s, Thomson Reuters Datastream, J.P. Morgan Asset Management. Valuations refer to 12-month forward price-to-earnings ratios for Europe ex-uk, US, Japan, UK and emerging markets. Valuation and earnings charts use MSCI indices for all regions/countries, except for the US, which is the S&P 5. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March 218. x US Europe ex-uk UK Japan EM 45

46 US stock market 46 S&P 5 Index Log scale 1. Recession Tech bust (2) 1. Black Monday (1987) Oil shocks (1973 & 1979) Global financial crisis (28) Equities 1 Great Depression ( ) World War II ( ) 1 Vietnam War ( ) World War I ( ) 1 ' '1 '2 '3 '4 '5 '6 '7 '8 '9 ' '1 Source: Robert Shiller, Standard & Poor s, Thomson Reuters Datastream, J.P. Morgan Asset Management. Light grey columns indicate recessions determined by NBER. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

47 US earnings 47 S&P 5 earnings and performance Next 12 months earnings per share estimates (LHS); index level (RHS) S&P 5 EPS S&P 5 index level S&P 5 earnings growth % change year on year Start of year earnings growth expectations Delivered earnings growth Current earnings growth expectations Equities '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 ' '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 Source: (All charts) IBES, Standard & Poor s, Thomson Reuters Datastream, J.P. Morgan Asset Management. Expected earnings growth and delivered earnings growth are calculated using IBES consensus estimates for next 12 months EPS and last 12 months EPS, respectively. Year on year growth rates are calculated using year-end data. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

48 US equity macro correlations 48 Leading economic indicator vs. S&P 5 performance Index level 3. S&P 5 index level Leading economic indicator 11 Initial jobless claims vs. S&P 5 performance Index level (LHS); thousands, three-month moving average (RHS) S&P 5 index level Initial jobless claims 3. 7 Equities Recession '97 '99 '1 '3 '5 '7 '9 '11 '13 '15 '17 7 '97 '99 '1 '3 '5 '7 '9 '11 '13 '15 '17 2 Source: (Left) Conference Board, Standard & Poor s, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Right) BLS, Standard & Poor s, Thomson Reuters Datastream, J.P. Morgan Asset Management. Light grey columns indicate recessions determined by NBER. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

49 US equity valuations 49 S&P 5 forward P/E ratio x, multiple 26 Valuation measure Average since 199 Latest Shiller cyclically adjusted P/E ratio 25,6x 32,8x 24 P/B ratio 2,9x 3,2x March 218: 16,5x Equities Average: 15,8x 12 1 '9 '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 Source: IBES, FactSet, Robert Shiller, Standard & Poor s, Thomson Reuters Datastream, J.P. Morgan Asset Management. P/E ratio calculated using IBES earnings estimates for next twelve months. P/E data may differ from Guide to the Markets US, which uses FactSet earnings estimates. Shiller cyclically adjusted P/E is priceto-earnings ratio adjusted using trailing 1-year average inflation-adjusted earnings. P/B ratio is trailing price-to-book ratio. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

50 US valuations and subsequent returns 5 Forward P/E ratios and subsequent 1-year returns Forward P/E ratios and subsequent 1-year returns %, annualised total return* %, annualised total return* 6 Current level 3 Current level Equities ,x 11,x 14,x 17,x 2,x 23,x -2 8,x 11,x 14,x 17,x 2,x 23,x Source: (All charts) IBES, Standard & Poor s, Thomson Reuters Datastream, J.P. Morgan Asset Management. *Dots represent monthly data points since 1988, which is earliest available. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

51 Equities and interest rates 51 Correlations between weekly equity returns and interest rate movements Rolling two-year correlation of weekly returns of the S&P 5, MSCI Europe Index and the 2-year US Treasury yield, 1984-present,8,6 Positive relationship between yield movements and equity returns S&P 5 MSCI Europe,4 Equities Correlation,2, -,2 -,4 Negative relationship between yield movements and equity returns -, year US Treasury yield Source: MSCI, Standard & Poor s, Thomson Reuters Datastream, J.P. Morgan Asset Management. Returns are based on price index only and do not include dividends. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

52 US bull and bear markets 52 Equities S&P 5 declines from all-time highs, % '28 '33 '38 '43 '48 '53 '58 '63 '68 '73 '78 '83 '88 '93 '98 '3 '8 '13 '18 Characteristics of past bear and bull markets* 4 Recession 2% market decline Macro Bear markets Bull markets Return before peak environment Market corrections Market Bear Duration Bull Bull Duration peak return (months) Recession start date return (months) months months 1 Crash of 1929 excessive leverage, irrational exuberance Sep % Fed Tightening premature policy tightening Mar Jun % 58 27% 119% 3 Post WWII crash post-war demobilisation, recession fears May Apr Flash crash of 1962 flash crash, Cuban Missile Crisis Dec Jun Tech crash of 197 economic overheating, civil unrest Nov Jun Stagflation OPEC oil embargo Jan May Volcker Tightening campaign against inflation Nov Oct crash programme trading, overheating markets Aug Aug Tech bubble extreme valuations, dot com boom/bust Mar Dec Global Financial Crisis leverage/housing, Lehman collapse Oct Oct Current cycle Mar MEDIAN - 42% % 68 27% 39% Source: Bloomberg, NBER, Robert Shiller, Standard & Poor s, J.P. Morgan Asset Management. *A bear market represents a 2% or more decline from the previous market high using a monthly frequency; a bull market represents a 2% increase from a market trough. Periods of recession are defined using US National Bureau of Economic Research (NBER) business cycle dates. Chart and table show price return. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

53 Equity income 53 S&P 5 total return index: Dividends and capital appreciation %, average annualised returns 2 Capital appreciation Dividends 1 13,9% 13,6% 12,6% 15,3% 3,% 4,4% 1,6% 4,7% 5,4% 6,% 5,1% 3,3% 4,2% 4,4% 2,5% -5,3% 1,8% -2,7% 11,6% 6,% 2,1% 3,9% Equities s 194s 195s 196s 197s 198s 199s 2s Sources of income % yield Eurozone average inflation: 1,7% (12 months to February 218), Euro cash,5 German Bunds,9 Euro IG 2,1 Global convertibles Source: (Top) Ibbotson, Standard & Poor s, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Bottom) Barclays, BofA/Merrill Lynch, FTSE, Thomson Reuters Datastream, J.P. Morgan Asset Management. Euro IG: Bloomberg Barclays Euro Aggregate Credit - Corporate; Global convertibles: Bloomberg Barclays Global Convertibles; EM equity: MSCI EM; Global REITs: FTSE NAREIT Index; DM high yield: BofA/Merrill Lynch Developed Markets High Yield Constrained; EM debt: J.P. Morgan EMBI Global. Yields for the bond indices are yield to maturity and dividend yields for the equity indices. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March ,4 EM equity 3,5 MSCI Europe 4,6 Global REITs 6, 6, DM high yield EM debt

54 US sector returns and valuations 54 S&P 5 Index Financials Materials Real estate Industrials Cons. discr. Tech Energy Health care Cons. staples Telecom Utilities S&P 5 S&P 5 weight Russell Growth weight Russell Value weight YTD 14,7% 2,9% 2,8% 1,2% 12,7% 24,9% 5,7% 13,7% 7,7% 1,9% 2,9% 1,% 3,5% 3,5% 2,4% 12,7% 18,6% 38,7%,8% 12,5% 6,4%,9%,% 1% 27,1% 2,9% 4,6% 8,2% 6,8% 9,3% 1,7% 13,6% 8,1% 2,9% 5,9% 1% -1, -5,5-5, -1,6 3,1 3,5-5,9-1,2-7,1-7,5-3,3 -,8 Weights Equities 217 Since market peak* Since market low** 22,2 23,8 1,8 21, 23, 38,8-1, 22,1 13,5-1,3 12,1 21,8 17,6 67, 59, 11,4 219,4 29,6 9,4 174,3 151,3 42,9 84,7 111,4 542, 297,7 489,5 478,2 639,3 548,6 1,4 342,2 252,5 172,9 223,2 372,4 Return Beta to US 1,44 1,3 1,28 1,21 1,13 1,7 1,,74,58,56,42 1, β Forward P/E ratio 13,x 15,9x 16,9x 16,9x 19,7x 17,9x 19,6x 15,3x 17,3x 1,5x 16,2x 16,5x Average since 1995 Trailing P/E ratio 12,8x 13,9x 15,2x 16,3x 17,7x 2,4x 17,5x 17,7x 17,2x 16,3x 14,x 16,x 15,3x 22,5x 37,x 2,8x 21,x 29,5x 17,6x 28,2x 2,4x 7,x 17,8x 21,2x P/E Average since ,5x 18,6x 34,2x 2,x 19,4x 25,6x 18,x 24,4x 19,6x 21,3x 15,8x 19,7x Dividend yield Average since ,% 2,1% 3,7% 2,% 1,4% 1,3% 3,2% 1,8% 3,1% 5,6% 3,7% 2,1% 2,3% 2,6% 4,4% 2,1% 1,5%,9% 2,4% 1,8% 2,6% 4,% 4,1% 2,1% Div 54 Source: FactSet, Russell Investment Group, Standard & Poor s, J.P. Morgan Asset Management. All calculations are cumulative total return in USD, not annualized, including dividends for the stated period. * Since market peak represents period 9 October 27 to end of last quarter. ** Since market low represents period 9 March 29 to end of last quarter. Forward P/E ratio is a bottom-up calculation based on the most recent S&P 5 Index price, divided by consensus estimates for earnings in the next 12 months (NTM), and is provided by FactSet Market Aggregates. Trailing P/E ratios are bottom-up values defined as month-end price divided by the last 12 months of available reported earnings. This methodology is used to allow proper comparison of sector level data to broad index level data. Dividend yield is calculated as the next 12-month consensus dividend divided by most recent price. Averages are since October 1995 due to data availability. Past performance is not indicative of future returns. Guide to the Markets - Europe. Data as of 31 March 218.

55 Europe stock market 55 MSCI Europe Index Log scale 5. Recession Tech bust (2) Global financial crisis (28) Eurozone debt crisis Equities 5 Black Monday (1987) Iraq invasion of Kuwait (199) Brexit referendum (216) Oil shocks (1973 & 1979) 5 '7 '75 '8 '85 '9 '95 ' '5 '1 '15 Source: MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. Light grey columns indicate recessions in Germany prior to 2 and eurozone post 2. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

56 Europe earnings 56 MSCI Europe earnings and performance Next 12 months earnings per share estimates (LHS); index level (RHS) 13 MSCI Europe EPS MSCI Europe 1.8 index level MSCI Europe earnings growth % change year on year 4 Start of year earnings growth expectations Delivered earnings growth 32 Current earnings growth expectations Equities '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 ' '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 Source: (All charts) IBES, MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. EPS is earnings per share. Expected earnings growth and delivered earnings growth are calculated using IBES consensus estimates for next 12 months EPS and last 12 months EPS, respectively. Year on year growth rates are calculated using year end-data. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

57 Europe equity macro correlations 57 MSCI Europe and composite PMI Index level 1.8 MSCI Europe Recession 65 MSCI Europe and consumer confidence Index level Europe consumer confidence Equities Europe composite PMI 6 '99 '1 '3 '5 '7 '9 '11 '13 '15 ' MSCI Europe '99 '1 '3 '5 '7 '9 '11 '13 '15 ' Source: (Left) Bloomberg, Markit, MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. The composite Purchasing Managers Index (PMI) assesses the economic health of the manufacturing and services sector by surveying output and employment intentions. Dashed line at 5 indicates that economic activity is neither expanding nor contracting, above 5 indicates expansion. (Right) European Commission, MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. Light grey columns indicate recession. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March 218.

58 Europe equity market and currency 58 MSCI Europe vs. the euro Index level (LHS); US dollars per euro (RHS) 1.8 MSCI Europe 1, ,6 1, ,4 Equities EURUSD 1,3 1,2 8 1,1 1, 6 Euro appreciating,9 4 '99 '1 '3 '5 '7 '9 '11 '13 '15 '17,8 Source: MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

59 Europe equity valuations 59 MSCI Europe forward P/E ratio x, multiple Valuation measure Average since 199 Latest Cyclically adjusted P/E ratio 19,5x 17,7x P/B ratio 2,1x 1,8x Equities March 218: 13,9x 15 Average: 14,4x '9 '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 Source: FactSet, IBES, MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. P/E ratio calculated using IBES earnings estimates for next twelve months. Cyclically adjusted P/E is price-to-earnings ratio adjusted using trailing 1-year average inflation-adjusted earnings. P/B ratio is trailing price-to-book ratio. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

60 Europe large, mid and small capitalisation equities 6 MSCI Europe large, mid and small cap performance Index level, rebased to 1 in 2 35 Small cap 3 25 Equities 2 15 Mid cap 1 Large cap 5 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 Source: MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Managament. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

61 Europe sector returns and valuations 61 MSCI Europe Financials* Health care Cons. staples Cons. disc. Industrials Materials Energy Telecom Utilities Tech MSCI Europe Europe ex-uk weight Growth weight Value weight 21,2% 11,9% 13,1% 1,9% 13,2% 8,4% 7,5% 3,7% 3,6% 5,1% 1% 6,6% 15,3% 22,3% 13,3% 19,3% 9,6% 1,2%,7% 1,4% 1,% 1% 36,1% 8,5% 4,1% 8,4% 7,% 7,2% 13,7% 6,7% 5,9%,1% 1% Weights YTD -3,7-4,8-7,1-1,7-3,5-5,3-4,2-8,1-1,9-1,6-4,2 Equities 217 Since market peak** Since market low*** 15,5 7,9 13,2 12,1 18,1 21,9 8,8 4,4 1,6 21,7 13,7-22,6 12,9 131,5 92,5 48,9 29, 37,9 42, 6,2 42,1 36,3 241,5 195,9 232,6 331,9 27,2 22,7 1,2 14,7 79,3 259,3 197,2 Return Beta to Europe 1,36,66,64,95 1,11 1,28 1,1,81,87,97 1, β Forward P/E ratio 11,4x 15,x 17,9x 12,3x 16,4x 13,7x 13,2x 13,6x 12,9x 2,6x 13,9x Average since 1995 Trailing P/E ratio 12,1x 17,6x 17,x 14,9x 14,8x 12,8x 13,3x 13,8x 13,9x 17,x 14,7x 12,7x 15,5x 19,3x 13,1x 17,8x 14,2x 15,2x 13,6x 13,3x 21,9x 15,1x P/E Average since ,8x 19,4x 18,5x 17,8x 17,2x 14,5x 14,3x 14,3x 14,5x 19,9x 16,6x Dividend yield Average since ,2% 3,2% 3,% 2,9% 2,6% 2,9% 5,5% 5,% 4,7% 1,5% 3,5% 3,6% 2,4% 2,6% 2,6% 2,7% 3,% 4,% 4,% 4,4% 1,7% 3,1% Div Source: MSCI, Thomson Reuters Datastream, J.P Morgan Asset Management. All calculations are total return in local currency, not annualised. Technology and Telecomms have forward and trailing P/E averages since 25 due to data availability. *Financials no longer includes real estate, which is now a separate section making up 2.4% of the MSCI Europe Value index and.3% of the MSCI Europe growth index. It is not included in the chart due to a lack of historical data for the sector. ** Since market peak represents period 9 October 27 to end of latest quarter. *** Since market low represents period 9 March 29 to end of latest quarter. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

62 UK earnings 62 FTSE All-Share earnings and performance Next 12 months earnings per share estimates (LHS); index level (RHS) 32 3 FTSE All-Share EPS FTSE All-Share index level FTSE All-Share earnings growth % change year on year 52 Start of year earnings growth expectations 44 Delivered earnings growth Current earnings growth expectations Equities '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 ' '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 Source: (All charts) FTSE, IBES, Thomson Reuters Datastream, J.P. Morgan Asset Management. EPS is earnings per share. Expected earnings growth and delivered earnings growth are calculated using IBES consensus estimates for next 12 months EPS and last 12 months EPS, respectively. Year on year growth rates are calculated using year end-data. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

63 Japan stock market 63 TOPIX Index Log scale Recession Japan property bubble bursts (199) Tech bust (2) Global financial crisis (28) Equities 1. Oil shocks (1973 & 1979) Japan-US automotive friction (1981) Black Monday (1987) Japan s financial crisis (1997) The Great East Japan Earthquake (211) 1 1 '51 '56 '61 '66 '71 '76 '81 '86 '91 '96 '1 '6 '11 '16 Source: Thomson Reuters Datastream, TOPIX, J.P. Morgan Asset Management. Light grey columns indicate recession. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

64 Japan earnings 64 TOPIX earnings and performance Index level, next 12 months earnings estimates (LHS); index level (RHS) TOPIX EPS TOPIX index level TOPIX earnings growth % change year on year Equities Start of year earnings growth expectations Delivered earnings growth 2 '7 '9 '11 '13 '15 ' '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 Source: (All charts) IBES, Thomson Reuters Datastream, TOPIX, J.P. Morgan Asset Management. EPS is earnings per share. Expected earnings growth and delivered earnings growth are calculated using IBES consensus estimates for next 12 months EPS and last 12 months EPS, respectively. Year on year growth rates are calculated using year end-data, which is on 31 March for Japan, with the calendar year continuing until 31 March of the following year. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

65 Japan equity market and currency 65 TOPIX vs. the yen Index level (LHS); Japanese yen per US dollar (RHS) 2. TOPIX Equities USDJPY (inverted) 12 6 Yen appreciating 13 4 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 14 Source: Thomson Reuters Datastream, TOPIX, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

66 Emerging markets performance and earnings expectations 66 EM vs. DM growth and equity performance EM earnings expectations by region %, next 12 months growth estimates (LHS); index level (RHS) Consensus EPS for next 12 months, US dollar, rebased to 1 in 26 5 EM minus DM GDP growth EM growth & equity outperformance EM Asia Equities EM Latin America EM Europe MSCI EM / MSCI DM -1 '97 '99 '1 '3 '5 '7 '9 '11 '13 '15 ' '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 Source: (Left) Consensus Economics, Thomson Reuters Datastream, J.P. Morgan Asset Management. EM DM GDP growth is consensus estimates for emerging markets growth in the next 12 months minus consensus estimates for developed markets growth in the next 12 months, provided by Consensus Economics. Index level is a relative index level rebased to 1 at (Right) IBES, MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. EPS is earnings per share. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

67 Emerging markets equity drivers 67 EM equity relative performance and commodities Relative index level rebased to 1 at 1997 (LHS); index level (RHS) 19 MSCI EM / MSCI DM CRB Commodity Index 65 Relative EM / DM equity performance and USD REER Relative index level rebased to 1 at 1997 (LHS); index level (RHS) 18 MSCI EM / MSCI DM USD REER (inverted) Equities EM equity outperformance & commodity prices rising EM equity outperformance & USD weakening '97 '99 '1 '3 '5 '7 '9 '11 '13 '15 ' '97 '99 '1 '3 '5 '7 '9 '11 '13 '15 ' Source: (Left) Commodity Research Bureau, MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. (Right) BIS, MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. For all charts, MSCI EM and MSCI DM returns are in USD. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

68 Emerging markets equity valuations and subsequent returns 68 MSCI Emerging Markets: Price-to-book ratio MSCI EM price-to-book ratio and subsequent 1-year returns x, multiple %, annualised total return* 3, 3 Current level 2,75 2,5 2,25 31 March 218: 1,8x 2 Equities 2, 1,75 Average: 1,8x 1 1,5 1,25-1 1,,75 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 '18-2,8x 1,3x 1,8x 2,3x 2,8x 3,3x Source: (All charts) MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. *Dots represent monthly data points since 1996, which is earliest available. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

69 Correlation and volatility 69 Cross country equity index correlation VIX volatility index %, rolling six-month average pairwise correlations Index level, implied volatility of S&P 5 Index based on options pricing,9 6 Increasing correlation between different,8 countries equity 5 markets,7 4 Equities,6,5 3,4 2,3 1,2 '95 '97 '99 '1 '3 '5 '7 '9 '11 '13 '15 '17 '95 '97 '99 '1 '3 '5 '7 '9 '11 '13 '15 '17 Source: (Left) Bloomberg, J.P. Morgan Asset Management. Correlation calculated from 1 market indices. (Right) CBOE, Thomson Reuters Datastream, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

70 World stock market returns 7 EUR Local Q18-23,% TOPIX -4,6% 73,5% MSCI EM 62,8% 35,4% Small Cap 24,4% 5,5% US S&P 5 2,1% 2,8% Asia ex-jp 19,7% 27,2% Small Cap 35,8% 29,5% US S&P 5 13,7% 24,4% TOPIX 12,1% 16,6% Small Cap 14,5% 24,8% Asia ex-jp 35,9% -,9% MSCI EM,8% 1-yr ann. 1,7% US S&P 5 8,5% -33,7% US S&P 5-37,% 67,2% Asia ex-jp 67,2% 28,3% Asia ex-jp 15,6% 3,5% HDY Equity 1,5% 18,1% Europe 16,4% 26,7% US S&P 5 32,4% 19,7% Asia ex-jp 7,7% 12,9% US S&P 5 1,4% 15,3% US S&P 5 12,% 21,% MSCI EM 31,% -1,4% TOPIX -4,7% 1,3% Small Cap 8,7% -38,% HDY Equity -34,4% 4,2% Small Cap 4,8% 27,5% MSCI EM 14,4% -5,7% Small Cap -8,7% 16,8% MSCI EM 17,4% 21,5% TOPIX 54,4% 16,5% Small Cap 6,8% 11,5% Small Cap 2,8% 14,9% MSCI EM 1,1% 12,4% Portfolio 21,4% -1,7% Asia ex-jp,5% 6,8% Portfolio 5,8% Equities -38,6% Small Cap -4,4% -4,4% Portfolio -4,1% 37,6% Portfolio 35,8% 34,% HDY Equity 3,2% 23,9% TOPIX 1,% 23,1% US S&P 5 15,1% -5,8% Portfolio -7,5% -7,5% Europe -8,8% 16,3% Small Cap 18,4% 15,6% Portfolio 17,1% 2,5% Europe 22,3% 15,3% Portfolio 23,6% 16,2% HDY Equity 8,7% 15,3% Portfolio 8,2% 8,8% Europe 5,4% 8,3% Portfolio 1,9% 14,3% HDY Equity 13,1% 1,1% Portfolio 9,% 11,2% TOPIX 22,2% 1,9% Europe 13,7% -2,8% Small Cap -1,6% -2,9% Portfolio -2,1% 6,8% HDY Equity 6,2% 6,2% TOPIX 4,2% -43,3% Europe -38,5% 32,6% Europe 28,6% 2,9% Portfolio 11,1% -9,6% TOPIX -17,% 14,2% US S&P 5 16,% 13,9% HDY Equity 2,5% 11,8% MSCI EM 5,6% 6,3% HDY Equity,3% 8,9% Asia ex-jp 6,4% 8,2% Small Cap 19,1% -3,1% US S&P 5 -,8% 6,2% Asia ex-jp 4,9% -49,8% Asia ex-jp -47,7% 22,5% US S&P 5 26,5% 16,2% HDY Equity 8,% -14,3% Asia ex-jp -14,6% 13,6% HDY Equity 14,% -1,1% Asia ex-jp 6,2% 1,1% TOPIX 1,3% 1,5% Asia ex-jp -5,3% 6,6% TOPIX,3% 7,% US S&P 5 21,8% -4,1% HDY Equity -2,7% 4,1% MSCI EM 4,5% -5,8% MSCI EM -45,7% 1,5% TOPIX 7,6% 11,7% Europe 7,5% -15,4% MSCI EM -12,5% 5,9% TOPIX 2,9% -6,5% MSCI EM 3,8% 7,4% Europe 5,2% -4,9% MSCI EM -5,4% 3,2% Europe 7,9% 5,3% HDY Equity 14,7% -4,2% Europe -4,2% 4,% Europe 4,2% Source: MSCI, Standard & Poor s, Thomson Reuters Datastream, TOPIX, J.P. Morgan Asset Management. Annualised return covers the period 28 to 217. HDY Equity: MSCI AC World High Dividend Yield Index; Small Cap: MSCI The World Small Cap Index. Hypothetical portfolio (for illustrative purposes only and should not be taken as a recommendation): 3% Europe; 2% S&P 5; 15% EM; 1% Asia ex-japan; 1% TOPIX; 1% HDY equity and 5% small cap. All indices are total return. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

71 Fixed income yields and interest rate risk 71 Fixed income Current and historical yields for selected indices % yield, fluctuations over the last 1 years* Illustration of the impact a 1% rise in local interest rates may have on selected indices % change, assumes a parallel shift in the yield curve and spreads are maintained Euro Treasury: 1-3 years Euro Treasury: 1-3 years Euro Treasury: 1+ years Euro Treasury: 1+ years US Treasury: all years US Treasury: all years Euro inv. grade Euro inv. grade US inv. grade US inv. grade Euro high yield Euro high yield US high yield US high yield Global EMD EMD local convertibles (USD Sov.) Global EMD EMD local convertibles (USD Sov.) How to interpret this chart Max Average Current Min Price return Total return Source: (All charts) Thomson Reuters Datastream, J.P. Morgan Asset Management. *Historical yield range is based on the last 1 years of data, with the exception of global convertibles, which is based on nine years, due to data availability. Fixed income sectors shown are Europe Treasury 1-3: Bloomberg Barclays Europe Government Agg. 1-3 Years; Europe Treasury 1+: Bloomberg Barclays Europe Government Agg. 1+ Years; US Treasury: Bloomberg Barclays US Agg. Treasury; Euro inv. grade: Bloomberg Barclays Euro Agg. Corporates; US inv. grade: Bloomberg Barclays US Corporate Investment Grade; Euro high yield: BofA/Merrill Lynch Euro Non-Financial High Yield Constrained; US high yield: BofA/Merrill Lynch US High Yield Constrained; Global convertibles: Bloomberg Barclays Credit/Rate Sensitive; EMD USD Sov.: J.P. Morgan EMBI Global; EMD local: JPM GBI-EM Composite. For illustrative purposes only. Change in bond price is calculated using both duration and convexity, with the exception of Convertibles, which is historical change. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

72 US nominal and real 1-year government bond yields 72 Nominal and real 1-year US Treasury yields % Fixed income Implied inflation expectations Nominal Real -2 '62 '64 '66 '68 '7 '72 '74 '76 '78 '8 '82 '84 '86 '88 '9 '92 '94 '96 '98 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 Source: Bloomberg, J.P. Morgan Asset Management. Real yields are US Treasury Inflation Protected Securities (TIPS). Implied inflation expectations is the breakeven index rate. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

73 US yield curve 73 Yield curve Yield curve inversion and recession %, 1-year Treasury yield minus 2-year Treasury yield Recession Number of months from 3 Curve inversion to S&P 5 S&P 5 Yield curve peak peak to 2 inversion before start of date recession recession Curve inversion to recession Aug Sep Fixed income -1 Dec Feb Dec Median '78 '82 '86 '9 '94 '98 '2 '6 '1 '14 '18 Average Source: (All charts) Bloomberg, Federal Reserve, Thomson Reuters Datastream, J.P. Morgan Asset Management. Date of yield curve inversion is taken from the first point the yield curve spread goes below zero, for two consecutive months. Light grey columns indicate recessions determined by NBER. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

74 US investment-grade bonds 74 US investment-grade spread US investment-grade leverage measures % yield, option-adjusted spread over local government bond yield x, leverage (LHS); x, interest coverage ratio (RHS) 7 3, Net leverage , , Fixed income ,5 Interest coverage 1 8 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 1, 6 ' '2 '4 '6 '8 '1 '12 '14 '16 '18 Source: (Left) Bloomberg Barclays, Thomson Reuters Datastream, J.P. Morgan Asset Management. Index is Bloomberg Barclays US Corporate Investment Grade. (Right) J.P. Morgan Securities, J.P. Morgan Asset Management. Net leverage is net debt to earnings before interest, tax, depreciation and amortisation (EBITDA). Interest coverage ratio is EBITDA over interest expense. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

75 US high yield bonds 75 US high yield spread and defaults US high yield leverage measures % defaults (LHS); % yield, option-adjusted spread (RHS) x, leverage and interest coverage ratio , Defaults Spread Interest coverage ratio 1 2 4, , 6 Fixed income ,5 3, Net leverage ' '2 '4 '6 '8 '1 '12 '14 '16 '18 2,5 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 75 Source: (Left) BofA/Merrill Lynch, J.P. Morgan Economic Research, J.P. Morgan Asset Management. HY spread is using the BofA/Merrill Lynch US High Yield Constrained index. Default rates are defined as the par value percentage of the total market trading at or below 5% of par value and include any Chapter 11 filing, prepackaged filing or missed interest payments. 218 default data is not shown as full year data is not yet available. (Right) J.P. Morgan Economic Research, J.P. Morgan Asset Management. Net leverage is net debt to earnings before interest, tax, depreciation and amortisation (EBITDA). Interest coverage ratio is EBITDA over interest expense. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March 218.

76 Europe nominal and real 1-year government bond yields 76 Nominal and real 1-year Bund yields % Nominal Fixed income 2 Implied inflation expectations -2 '91 '92 '93 '94 '95 '96 '97 '98 '99 ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 Source: Bloomberg, J.P. Morgan Asset Management. Real yields are inflation-linked German government bonds. Implied inflation expectations is the breakeven index rate. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March 218. Real 76

77 Europe and UK investment-grade bonds 77 Euro and UK investment-grade spreads Euro investment-grade leverage measures % yield, option-adjusted spread over local government bond yield x, leverage (LHS); x, interest coverage ratio (RHS) 7 4, Net leverage Interest coverage , , 11 Fixed income 3 2 UK 2,5 2, Euro ' '2 '4 '6 '8 '1 '12 '14 '16 '18 1,5 '1 '3 '5 '7 '9 '11 '13 '15 '17 7 Source: (Left) Bloomberg Barclays, Thomson Reuters Datastream, J.P. Morgan Asset Management. Indices are Euro inv. grade: Bloomberg Barclays Euro Agg. Corporates; UK inv. grade: Bloomberg Barclays Sterling Agg. Corporates. (Right) J.P. Morgan Securities, J.P. Morgan Asset Management. Net leverage is net debt to earnings before interest, tax, depreciation and amortisation (EBITDA). Interest coverage ratio is EBITDA over interest expense. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

78 Europe high yield bonds 78 European high yield spread and defaults European high yield leverage measures %, defaults (LHS); % yield, option-adjusted spread (RHS) x, leverage and interest coverage ratio Defaults Spread 6, % Interest coverage ratio 18 6, , , Fixed income ,5 4, 3,5 Net leverage ' '2 '4 '6 '8 '1 '12 '14 '16 '18 3, '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 78 Source: (Left) BofA/Merrill Lynch, Thomson Reuters Datastream, J.P. Morgan Asset Management. Spread to worst is BofA/Merrill Lynch Euro Non-Financial High Yield Constrained. Default rates are reported by JPMAM GFICC Quantitative Research Group. Defaults are defined as a bond rated as Ca or lower. The calculation universe is based on par value percentage of the BofA ML Global High Yield Index (HW) that is covered by Moody s and filtered for EUR Developed Markets Ex- Financial. 218 default data is not shown as full year data is not yet available. (Right) J.P. Morgan Economic Research, J.P. Morgan Asset Management. Net leverage is net debt to earnings before interest, tax, depreciation and amortisation (EBITDA). Interest coverage ratio is EBITDA over interest expense. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March 218.

79 Emerging markets bonds 79 Real 1-year government bond yields % yield, local currency 7 Developed markets Corporate and sovereign EMD spreads % spread over 1-year US Treasury Emerging markets 9 8 Average since 28 Latest EM sovereigns local 4,2% 3,9% EM sovereigns USD 3,6% 3,3% 4 EM corporates USD 3,7% 2,9% Fixed income '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 Source: (Left) Bloomberg, J.P. Morgan Asset Management. Real yield is calculated by using nominal yield less current CPI for the respective countries. (Right) J.P. Morgan DataQuery, J.P. Morgan Asset Management. EM sovereign local currency is the J.P. Morgan GBI-EM; EM sovereigns USD is the J.P. Morgan EMBIG; EM corporate USD is the J.P. Morgan CEMBI. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

80 Global fixed income spreads and returns 8 Fixed income spreads %, option-adjusted spread 2 18 Current 16 Range since 1998 Average 14 Fixed income returns Q18 : 22,4% US IG Lcl: 7,5% 2,2% EM Debt 5,5% 19,6% US Treas. 5,1% 12,8% EM Debt 1,2% 12,3% US Treas.,8% 1,6% US IG -,7% 21,% US HY 17,5% 13,5% EM Debt 1,2% 1,1% Euro HY 1,1% 6,1% Euro HY 6,1% 2,4% Euro IG 2,4% 1,4% Infl Linked 1,4% 1,4% Euro Gov 1,4% 1,1% Infl Linked 1,1% -,4% Euro IG -,4% 1-yr ann. 1,1% US HY 8,% 9,2% EM Debt 7,1% 7,8% US IG 5,7% Fixed income , 1,1 1,3 Euro IG US IG UK IG Euro HY US HY EM Sov. (USD) 3,1 3,8 3,3 16,7% US HY 2,5% 15,3% Portfolio 7,2% 13,1% Euro Gov 13,1% 8,4% Euro IG 8,4% 5,5% Euro HY 5,5% 5,3% Infl Linked 5,3% 6,4% Portfolio,1% 6,3% US HY -4,6% 1,7% Euro Gov 1,7%,8% Infl Linked,8%,5% Euro HY,5% -,6% Euro IG -,6% 9,3% US IG 6,1% 8,1% Portfolio 6,4% 4,7% Euro IG 4,7% 4,1% US Treas. 1,% 3,8% Infl Linked 3,8% 3,2% Euro Gov 3,2%,2% Euro Gov,2% -2,9% Portfolio 4,2% -4,% EM Debt 9,3% -5,6% US HY 7,5% -6,5% US IG 6,4% -1,1% US Treas. 2,3% -,6% Euro HY -,6% -1,8% Portfolio -,6% -3,3% US HY -,9% -3,5% US Treas. -1,2% -4,1% EM Debt -1,8% -4,6% US IG -2,3% 7,7% Euro HY 7,7% 6,8% Portfolio 5,6% 5,4% US Treas. 3,3% 4,9% Euro Gov 4,9% 4,8% Euro IG 4,8% 3,% Infl Linked 3,% 8 Source: (All charts) Barclays, BofA/Merrill Lynch, J.P. Morgan Economic Research, Thomson Reuters Datastream, J.P. Morgan Asset Management. US HY: BofA/Merrill Lynch US High Yield Constrained; EM Debt: J.P. Morgan EMBI+; Euro HY: BofA/Merrill Lynch Euro Non-Financial High Yield Constrained; US IG: Bloomberg Barclays US Agg. Corporate Investment Grade; US Treasuries: Bloomberg Barclays US Agg. Gov. Treasury; Euro IG: Bloomberg Barclays Euro Agg. Credit Corporate; Euro Gov.: Bloomberg Barclays Euro Agg. Government; Infl Linked: Bloomberg Barclays Euro Gov. Inflation-Linked. Hypothetical portfolio (for illustrative purposes only and should not be taken as a recommendation): 2% Euro Gov.; 15% US Treasuries; 1% Linkers; 15% US IG; 1% Euro IG; 1% US HY; 5% Euro HY; 15% EM Debt. Annualised return covers period 28 to 217. Returns are unhedged in euro and local currencies. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March 218.

81 Commodities 81 WTI crude oil price and US rig count USD/barrel (LHS); number of rigs (RHS) Metal prices Index level, rebased to 1 in Jan Oil price Rigs Copper Aluminium Zinc Other assets 4 2 '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 ' Nickel '7 '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 Source: (Left) Baker Hughes, Bloomberg, J.P. Morgan Asset Management. (Right) Bloomberg, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

82 Gold 82 Gold vs. real US 1-year Treasury yields Gold price $ per Troy ounce (LHS), % inverted (RHS) $ per Troy ounce 1.9-1, 2.5 Real yields (inverted) Change since 21 low Change since 211 peak YTD change Gold +41,6% -27,5% +1,5% 2. -,5 Inflation-adjusted gold price Gold price, 1. Other assets 1.3 Gold 1. '12 '13 '14 '15 '16 '17 '18,5 1, 5 31 Mar 218: $1.323 '78 '82 '86 '9 '94 '98 '2 '6 '1 '14 '18 Source: (All charts) Thomson Reuters Datastream, J.P. Morgan Asset Management. Inflation-adjusted gold price is the historic gold price in today s money, converted using the US Consumer Price Index. The 21 low is defined as April 21, and the 211 peak is defined as August 211. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

83 Stock-bond correlation and downside protection 83 Rolling six-month stock and bond correlations Hedge fund returns in different market environments Of total return on US equities (S&P 5) and US Treasuries (1-yr) %, average total return in up and down months, ,,5 Stock and bond returns moving in the same direction 4 2 1,3 2,9,5 1,,4, -1,1 -,7-2 -,5 Other assets -1, '92 '97 '2 '7 '12 '17-4 S&P 5 HFRI FW* -3,8 US bonds** HFRI FW* S&P 5 up S&P 5 down Bonds up Bonds down Source: (Left) Thomson Reuters Datastream, J.P. Morgan Asset Management. (Right) Barclays, Hedge Fund Research, Standard & Poor s, Thomson Reuters Datastream, J.P. Morgan Asset Management. *HFRI FW is Hedge Fund Research Index Fund Weighted. **US bonds is the Bloomberg Barclays US Aggregate Bond Index. Downside protection refers to attempting to minimise the impact of any falls in the underlying investments. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March

84 Alternative investments 84 US infrastructure returns Public vs. private equity returns %, allowed return on equity over cost of debt %, MSCI AC World total return vs. Global Buyout & Growth Equity Index* Recession MSCI ACWI Global Buyout & Growth Equity Index 14,1 14,1 12 Infrastructure electric 12 12,6 1 1,8 8 Infrastructure natural gas 8 9, 9,7 6 Utility bond 6,1 Other assets yr US Treasury '7 '8 '9 ' '1 Source: (Left) Bloomberg, Regulatory Research Associates, J.P. Morgan Asset Management. Light grey columns in chart indicate US recessions determined by National Bureau of Economic Research (NBER). (Right) Cambridge Associates, MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. *Data as of 3Q17. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March ,4 5 years 1 years 15 years 2 years 84

85 Sustainable investing 85 Environmental, social and governance considerations Carbon emissions Water & waste Biodiversity Global equities Price index MSCI ACWI ESG Leaders MSCI ACWI Labour management Health & product safety Privacy & data security 1 85 Other assets Management & oversight Board composition Ownership & pay '8 '9 '1 '11 '12 '13 '14 '15 '16 '17 '18 85 Source: MSCI, Thomson Reuters Datastream, J.P. Morgan Asset Management. Both MSCI ACWI and MSCI ACWI ESG Leaders are in USD, rebased to 1 at the inception of the ESG Leaders index. MSCI ACWI ESG Leaders is a capitalisation-weighted price index that provides exposure to companies with high Environmental, Social and Governance (ESG) rankings relative to their sector peers and excludes companies with involvement in alcohol, gambling, tobacco, nuclear power and weapons. ESG rankings are given to companies based on the MSCI framework. The MSCI ESG Leaders index aims to target the sector weights of the underlying indices to limit systematic risk introduced by the ESG selection process. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March 218.