Global Economic Perspective

Transcription

1 JULY 2013 Perspectives from the Franklin Templeton Fixed Income Group Christopher Molumphy Michael Materasso Roger Bayston Michael Hasenstab John Beck DEALING WITH TALK OF FED TAPERING GLOBAL MARKETS: RETURN TO REALITY EUROPEAN OUTLOOK DEALING WITH TALK OF FED TAPERING The strong rise in US Treasury yields in May and June suggested that financial markets were generally taken aback by signals from the US Federal Reserve (Fed) that it stood ready to commence tapering its monthly purchases of Treasuries and mortgage bonds (currently valued at up to US$85 billion per month). However, we would argue that markets possibly overreacted to what appears to be a relatively cautious response by the Fed to changing economic circumstances. That caution was evident in the minutes from the latest Federal Open Market Committee (FOMC) minutes, released on July 10, which showed that many Fed policymakers want to see more gains in the US jobs market before they will assent to a slowing of asset purchases. Chart 1: Interest Rates 10-Year and 30-Year US Treasury Yield (%) May 1, 2013 July 15, May-13 Jun-13 Jul Year US Treasury Yield 30-Year US Treasury Yield Source: Bloomberg LP, data as of 7/15/13. Past performance does not guarantee future results. Nevertheless, money printing by the Fed cannot go on forever, especially as the US economy has continued to improve, however gradually. This improvement has been most evident in employment numbers. The unemployment rate stood at 7.6% in June, down from 8.1% in September 2012, when the latest Fed bond purchase program commenced, and the average monthly pace of payroll gains has risen to almost 200,000 in the past six months, compared with 97,000 over the six months before the bond-buying started. There has also been significant recovery in the housing market, as well as improvements in consumer confidence and spending. Yet for all the recent distress in the Treasuries market, the Fed has not changed its stance that the commencement of tapering is dependent on economic data, while Fed Chairman Ben Bernanke has said that he expects the jobless rate to be about 7% when the Fed halts asset purchases. But if it has taken nine months just to reduce the rate from 8.1% to 7.6%, then a 7% unemployment rate may be some time off, especially as the brightening jobs picture encourages people who had stopped looking for work to be counted in workforce statistics again. In any case, a gradual curtailment of money printing, possibly in late 2014, does not necessarily mean the end of loose monetary conditions. With inflation still sluggish and unemployment still well above the Fed s 6.5% threshold for possible increases in the federal funds target rate, many observers do not expect policy rates to be raised for quite some time, perhaps The final gross domestic product (GDP) reading for the first quarter was disappointing GDP growth was revised down to an annual rate of 1.8% from an earlier estimate of 2.4% and figures for the second quarter are likely to continue showing the effects of cuts to federal spending, disappointing growth and political turmoil in some US export markets Franklin Templeton Investments. All rights reserved. FRANKLIN TEMPLETON INSTITUTIONAL

2 Table 1: Average Annual Unemployment Rate Forecasts for the US (%) As of July 8, (Actual) MSR CBO Blue Chip FOMC MSR = 2014 Mid-Session Review (Forecast date: May 2013) CBO = Congressional Budget Office (February 2013 Baseline Economic Forecast) Blue Chip = June 2013 Blue Chip Consensus Forecast Extended with March 2013 Blue Chip Long-run Survey FOMC = Federal Reserve Open Market Committee (Forecast Central Tendency date: June 19, 2013) Source: 2014 Mid-Session Review, Budget of the US Government, July There is no assurance any forecast will be realized. However, US growth is expected by most forecasters, including the Fed, to pick up speed in the second half of Thus, in the interest of transparency, the Fed felt it appropriate to remind market participants that it will not be around to add ever more liquidity to financial markets. US equity markets generally have weathered the strain caused by Fed comments on tapering comparatively well, suggesting that many investors are confident that a progressive pullback in money printing by the Fed will not have a dramatic effect on what has been a steadily improving economy in which many US corporations have continued to do well. We also believe the hike in bond yields is not likely to derail the US housing recovery. Although housing starts have picked up, the past five years have seen subdued construction activity, and housing affordability has remained high in spite of the recent rise in long-term mortgage rates. Compared with US equities, price volatility in the market for US Treasuries and corporate bonds over the period has been much more violent the benchmark 10-year US Treasury yield rose from 1.68% at the beginning of May to about 2.50% in early July. But purchasing what have generally been regarded as safe haven US Treasuries had become a very crowded trade, and long-term Treasury bond rates had probably become unsustainably low. The Fed s reminder on tapering has seemingly brought an end to the complacency that underlay massive bond purchases and ushered in a period of greater volatility and increased risk premiums. Those investors who were holding longterm bonds in seeking to gain slightly more yield, hoping they would be able to exit quickly before higher interest rates caused asset prices to fall, have been hurt. Yet we think financial markets as a whole should be able to deal with further, gradual rises in bond yields. The prospect of some curtailment in Fed liquidity to the markets may even afford new opportunities as risk premiums potentially increase to what we would regard as more appropriate levels. GLOBAL MARKETS: RETURN TO REALITY Financial assets in emerging markets have been roiled by the increase in Treasury yields in recent weeks, as some of the large capital inflows triggered by the substantial additional liquidity provided by the Fed under its third quantitative easing program (QE3) have gone into reverse. However, we believe it is important to put the hike in perspective. We regard recent rises in market interest rates as normalization after a period of historically low rate levels in many places. And just as the Fed starts to contemplate reducing the pace of its easing, another central bank the Bank of Japan (BOJ) is about to step up its own version of quantitative easing, committing to spend US$1.4 trillion in open-ended asset purchases by the end of next year. Given generally low yields currently in Japan itself and what we think is limited domestic upside in many sectors, much of this money can potentially seep into other markets, including emerging markets, where economists have forecasted growth for 2013 as far higher than in developed markets. Chart 2: Global GDP Growth (%) Quarter-Over-Quarter Annualized Estimate World Advanced Economies Emerging Market and Developing Economies Source: World Economic Outlook Update, July By International Monetary Fund. All Rights Reserved. Shaded areas represent estimates. There is no assurance that any forecast will be realized. Having drawn the lessons from previous crises, a range of emerging countries appears more fiscally sound and has built up large currency reserves, which can serve as a cushion against capital outflows. Mexico has been one of the darlings of international investors over the past year, with portfolio capital inflow equivalent to 4% 5% of GDP per year, according to some estimates. Yet almost 20 years after the so-called Tequila crisis of 1994, Mexican currency reserves and flexible credit lines combined are at an all-time high and stand at more than three FRANKLIN TEMPLETON INSTITUTIONAL 2

3 times the size of portfolio inflows, according to International Monetary Fund calculations, thus potentially providing substantial protection against a sudden reversal of these inflows. Fundamentals (such as good growth, low indebtedness, high currency reserves and generally sound fiscal policy) will, we believe, continue to underpin many emerging markets that were hurt in recent weeks by talk of Fed tapering. There may be some short-term volatility, but as short-term stress is brought more under control, long-term trends appear to be reasserting themselves, and in an environment where capital is less freely available, a much greater and we think welcome differentiation seems to be occurring with countries and markets that have sound fundamentals and those that do not. Even though real US interest rates have moved slightly higher, we believe currently spreads still favor assets in countries that offer strong domestic growth prospects and whose central banks are not printing money, in our view. Many of these same countries could also benefit from the stronger US growth that the tapering of QE3 implies. As a consequence, we continue to think there are opportunities in emerging markets: Carefully chosen currencies, sovereign bonds and credit-market instruments could continue to offer interesting potential, although rising interest rates and their impact on some investments such as punts on long-duration local bonds may prove to be longer lasting. None of this is to deny that some developing economies have been suffering from homegrown growth challenges, ranging from widening trade deficits to popular unrest. The recent protests seen in large countries like Egypt, Brazil and Turkey are a reminder of this. As a consequence, growth prospects are seen by economists as weakening for a number of prominent emerging nations this year. But the downturn in imported inflation as a result of recent declines in commodity prices and generally solid public and private finances has increased the policy flexibility of many emerging-market central banks. In addition, emerging markets as a whole are far less reliant on capital inflows than they once were. Capital inflows from abroad are undoubtedly important, and foreign investors search for yield helps explain the large run-up in many markets for emerging-market debt in the past two years. But locally sourced financing is generally far more significant now than it was in 1997, leading us to believe that while a withdrawal of foreign liquidity is likely to cause short-term volatility, the doubts about solvency that plagued some emerging markets in the past have been largely dispelled. Chart 3: 1-Week SHIBOR Rate (%) June 3, 2013 June 28, /3/13 6/8/13 6/13/13 6/18/13 6/23/13 6/28/13 SHIBOR = Shanghai Interbank Offered Rate Source: SHIBOR, Copyright All Rights Reserved. July Market participants also seem to be arriving at a better understanding of the issues behind the spike in interbank lending rates seen in late June in China, when some benchmark rates rose to a record high of more than 25% at one point. The Shanghai Interbank Offered Rate (SHIBOR), which had mostly stayed below 4% this year, surged to more than 13% and the one-week rate to over 11%. The People s Bank of China (PBOC) earlier this year set a lower target for money-supply growth in a clear sign that it wants to contain liquidity in the financial system. The Chinese authorities also acted fairly bluntly to crack down on real-estate speculation earlier this year. The decision by the PBOC not to inject money into the banking system to relieve a shortage of liquidity at the end of the second quarter, thus causing the spike in interbank lending rates, is to be seen in a similar vein. This decision was an attempt to rein in excessive lending in China, especially the shadow banking sector, where much of the lending was not being regulated. Such willingness to tackle problems before they get out of hand should be welcomed, in our view, and should be seen in the context of a drive for wider banking reforms under China s newly appointed leadership. EUROPEAN OUTLOOK A reminder that the eurozone sovereign debt crisis is not quite over came on July 3, when Portuguese 10-year bond yields jumped in response to the resignation of two government ministers, including the finance minister, who felt obliged to step down in the face of dwindling political and public support for public spending cuts. Greek bond yields also rose, but Irish, Spanish and Italian bond markets remained relatively calm, suggesting that investors are differentiating between the fundamentals of the eurozone s most fragile economies. And Portugal, with its small modern industrial base, endemically low economic growth, and relatively poor levels of educational attainment, is definitely fragile. Ireland it is not, in our view. While Ireland is, by some measures, set to gain full access to the FRANKLIN TEMPLETON INSTITUTIONAL 3

4 markets and fund itself without official support when its threeyear international bailout program ends at the end of this year, the crisis that erupted in early July casts a shadow over Lisbon s ability to exit its bailout as scheduled in mid Just recently, Portugal was granted more time to work through its public debt issues, which include a persistent budget deficit and a debt-to-gdp ratio of roughly 120%. 1 But Portugal s ability to attract bond investors has been hampered by the rise in Treasury yields that has followed comments from the Fed that it intends to unwind the huge liquidity boost it has provided to markets through quantitative easing. In addition, eurozone leaders latest initiative to build a resilient eurozone banking union seems to put deposits by large corporations at risk of being bailed-in to rescue trouble-hit banks and may well encourage renewed capital movement away from Portugal to the benefit of banks in the region s north. Chart 4: 10-Year Portuguese Government Bond Yields June 3, 2013 July 15, Jun-3 Jun-22 Jul-11 Jul-31 Source: Bloomberg LP, data as of July 15, Past performance does not guarantee future results. More positively, Portugal has already met most of its funding needs for this year, and we would expect further help to inevitably be made available. Portugal s official creditors may also allow further relaxation of its fiscal targets, for example. The country may gain access to the eurozone s new bank bailout scheme, while the European Central Bank stands by its offer to intervene in bond markets and buy the debt of financially troubled countries that promise to reform their finances. As a consequence, it may be possible to circumscribe Portugal s problems, just as the crisis in Cyprus earlier this year was largely contained. However, the Portuguese crisis shows that acceptance of government austerity at a time of zero growth in southern Europe has likely reached the limits of acceptability. Thankfully, some still-fragile green shoots have started to appear in the eurozone. While still below the 50 point level that divides growth from contraction, Markit s final Purchasing Managers Index (PMI) for eurozone manufacturing rose to a 16- month high of 48.8 in June. The overall number is hardly a cause for rejoicing, but PMI numbers were above 50 in crisis-hit countries like Ireland and Italy, while there was only a marginal decline in output in Spain. There was even a small dip in unemployment in Spain in June for the fourth consecutive month. PMI data for the eurozone services sector also rose in June from a low base, suggesting that companies are becoming a little more optimistic about their outlook, while May retail sales data for the eurozone showed a surprising rise. Outside the eurozone, manufacturing activity in the UK soared to its highest level in two years in June, according to Markit. 2 Although first-quarter GDP growth was revised downward from an annualized rate of 0.6% to 0.3%, data from the housing and jobs market also suggested that the UK economy may have turned the corner. Unemployment fell slightly and average earnings growth increased in the first quarter of the year, according to the Office for National Statistics, which also reported that the services sector, which makes up more than three-quarters of the UK economy, grew by 2% in the year to end-april. Data on mortgage approvals and home prices released on June 30, also showed that the UK housing sector has been gaining momentum, while retail sales rose by 3.4% in May over the same month of In spite of the improvement in a leading indicator like the PMI number, the eurozone economy remains weak. Unemployment across the European Union countries that use the euro hit another all-time high in May. Across the eurozone, there were million people unemployed in that month, 67,000 higher than the previous month, producing an unemployment rate of 12.1%, according to Eurostat. Youth employment was over twice this level. Not surprisingly, car sales have plummeted. Car sales in May were down 5.9% from the year before, and it was the poorest May for car sales since At the beginning of July, the International Monetary Fund said it now expected that the Italian economy, the eurozone s third largest, would shrink by 1.8% this year worse than the 1.5% shrinkage it had previously forecast. 3 The country s sovereign credit rating was downgraded by Standard & Poor s in early July, just as renewed political instability was threatening its very fragile coalition government. 1. Source: Fiscal Monitor, April By International Monetary Fund. All Rights Reserved. 2. Source: Markit, as of July 1, Source: World Economic Outlook Update, July By International Monetary Fund. All Rights Reserved. FRANKLIN TEMPLETON INSTITUTIONAL 4

5 Some of the recent data releases also show a slowing of growth in Germany, up to now the eurozone s powerhouse. With high unemployment and a sluggish Germany, in our view, Europe is still a long way off from emulating even the US s subdued growth. Chart 5: 10-Year Government Bond Yield Spreads over German Bonds 1-Year Period Ended June 30, ,500 All investments involve risks, including possible loss of principal. Investments in foreign securities involve special risks including currency fluctuations, economic instability and political developments. Investments in emerging market countries involve heightened risks related to the same factors, in addition to those associated with these markets smaller size, lesser liquidity and lack of established legal, political, business and social frameworks to support securities markets. Such investments could experience significant price volatility in any given year. 3,000 2,500 2,000 Basis Points 1,500 1, Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Greece 10-Yr Bond Spread Portugal 10-Yr Bond Spread Spain 10-Yr Bond Spread Italy 10-Yr Bond Spread Source: Bloomberg LP. Past performance does not guarantee future results. FRANKLIN TEMPLETON INSTITUTIONAL 5

6 EUROLAND MACROECONOMIC DATA FINAL OUTPUT Gross Domestic Product (GDP) 1 2Q12 3Q12 4Q12 1Q13 GDP, Y/Y (%) Private Consumption, Y/Y (%) Gross Fixed Capital Formation, Y/Y (%) ECONOMIC INPUTS 1 FEB 13 MAR 13 APR 13 MAY 13 Retail Sales, Y/Y (%) Unemployment Rate (%) Industrial Production, Y/Y (%) INFLATION & WAGE PRESSURE Inflation Indicators¹ MAR 13 APR 13 MAY 13 JUN 13 Consumer Price Index (CPI), Y/Y (%) Core CPI, Y/Y (%) FINANCIAL MARKETS MAR 13 APR 13 MAY 13 JUN 13 Dow Jones EURO STOXX 50 Price Index EUR, Trailing P/E Ratio ECB Refinance Rate (%) Year Yield German Bunds (%) BALANCE OF PAYMENTS 1 Trade Balance JAN 13 FEB 13 MAR 13 APR 13 Billion Euro Current Account Balance 2Q12 3Q12 4Q12 1Q13 % GDP JAPAN MACROECONOMIC DATA FINAL OUTPUT Gross Domestic Product (GDP) 4 2Q12 3Q12 4Q12 1Q13 GDP, Q/Q ar (%) Private Consumption, Q/Q ar (%) Fixed Capital Formation, Q/Q ar (%) ECONOMIC INPUTS FEB 13 MAR 13 APR 13 MAY 13 Unemployment Rate (%) Industrial Production, Y/Y (%) Tertiary Index, Y/Y (%) Corporate Activities 3Q12 4Q12 1Q13 2Q13 Corporate Profit Growth (%) Tankan Quarterly Survey (index level) INFLATION Inflation Indicators 5 FEB 13 MAR 13 APR 13 MAY 13 Consumer Price Index (CPI), Y/Y (%) CPI ex-fresh Food, Y/Y (%) FINANCIAL MARKETS 2 MAR 13 APR 13 MAY 13 JUN 13 Nikkei 225, Trailing P/E Ratio Month Yield JGBs (%) Year Yield JGBs (%) BALANCE OF PAYMENTS Monthly Trade Balance 7 FEB 13 MAR 13 APR 13 MAY 13 Billion Yen Current Account Balance 9 2Q12 3Q12 4Q12 1Q13 % GDP Abbreviations: Q/Q ar: Quarter-over-quarter annualized rate. Y/Y: Year-over-year. 1. Source: European Union Source: Bloomberg. P/E ratios of Dow Jones EURO STOXX 50 Price Index and Nikkei- 225 Stock Average as calculated by Bloomberg. 3. Source: European Central Bank. 4. Source: Economic and Social Research Institute (ESRI), Cabinet Office, Government of Japan. 5. Source: Ministry of Internal Affairs and Communications, Japan. 6. Source: Ministry of Economy, Trade and Industry, Japan. 7. Source: Ministry of Finance, Japan. 8. Source: Bank of Japan. 9. Source: Bloomberg Indexes. Past performance does not guarantee future results, and results may differ over future time periods. Eurozone Real GDP, Y/Y (%) Source: European Union , as of March Past performance does not Consumer Price Index, Y/Y (%) Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 CPI Core CPI Source: European Union , as of June Past performance does not External Trade Balance, GDP (%) Q10 1Q11 1Q12 1Q13 Source: European Union , as of March Past performance does not Japan Real GDP, Q/Q ar (%) Source: ESRI, Cabinet Office, Government of Japan, as of March Past performance does not Consumer Price Index, Y/Y (%) May-08 May-09 May-10 May-11 May-12 May-13 CPI CPI ex Fresh Food Source: Ministry of Internal Affairs and Communications, Japan, as of May Past performance does not guarantee future results, and results may differ over future time periods. Visible Trade Balance, GDP (%) - - 1Q10 1Q11 1Q12 1Q13 Source: Ministry of Finance, Japan and Economic and Social Research Institute, Cabinet Office, Government of Japan, as of March 31, Past performance does not FRANKLIN TEMPLETON INSTITUTIONAL 6

7 US MACROECONOMIC DATA FINAL OUTPUT Gross Domestic Product (GDP) 1 4Q12 1Q13 2Q13E 2 3Q13E 2 Q/Q ar (%) ECONOMIC INPUTS CONSUMPTION/FINAL DEMAND Income/Savings 1 FEB 13 MAR 13 APR 13 MAY 13 Consumer Spending, Y/Y (%) Personal Income, Y/Y (%) Savings Rate (%) Employment MAR 13 APR 13 MAY 13 JUN 13 Unemployment Rate (%) Participation Rate (%) Nonfarm Payrolls (in thousands) Jobless Claims, 4-wk average (in thousands) Housing 5 FEB 13 MAR 13 APR 13 MAY 13 Existing Home Sales (in millions) Y/Y Change (%) INVESTMENT Corporate Earnings 6 4Q12E 1Q13E 2Q13E 3Q13E Earnings, Y/Y (%) Production & Utilization 7 FEB 13 MAR 13 APR 13 MAY 13 Industrial Production, Y/Y (%) Capacity Utilization (%) Nonresidential Fixed Investment 1 2Q12 3Q12 4Q12 1Q13 Y/Y (%) INFLATION & PRODUCTIVITY Inflation Indicators FEB 13 MAR 13 APR 13 MAY 13 Personal Consumption Expenditure (PCE), Y/Y (%) Core PCE, Y/Y (%) Consumer Price Index (CPI), Y/Y (%) Core CPI, Y/Y (%) Producer Price Index (PPI), Y/Y (%) Core Producer Prices, Y/Y (%) Productivity 3 2Q12 3Q12 4Q12 1Q13 Productivity, Q/Q ar (%) Unit Labor Costs, Q/Q ar (%) FINANCIAL MARKETS Valuation MAY 13 JUN 13 JUL 13E AUG 13E P/E S&P Fed Funds Rate 7, BALANCE OF PAYMENTS US Monthly Trade Deficit 1,9 FEB 13 MAR 13 APR 13 MAY 13 Billion USD US Current Account Deficit 2Q12 3Q12 4Q12 1Q13 Quarterly (in USD billion) Annualized (% GDP) Abbreviations: Q/Q ar: Quarter-over-quarter annualized rate. Y/Y: Year-over-year. E: Estimate. 1. Source: US Bureau of Economic Analysis, as of 6/30/ Source: Bloomberg Economic Forecasts, as of 6/30/ Source: US Bureau of Labor Statistics. 4. Source: US Department of Labor. 5. Source: Copyright National Association of Realtors. Reprinted with permission. 6. Source: Bloomberg. Corporate Earnings and P/E S&P 500 represented by Bloomberg s calculation of the earnings of S&P 500 Index components, as of 6/30/13. Standard & Poor s, S&P and S&P 500 are registered trademarks of Standard & Poor s Financial Services LLC. 7. Source: US Federal Reserve. At the December 16, 2008 meeting, the Federal Reserve cut the main US interest rate to a target rate between zero and 0.25%. 8. Source: Chicago Board of Trade (30-Day Federal Funds Futures Rate for July and August 2013), as of 6/30/ Source: US Census Bureau. 10. Source: Bloomberg Indexes. Past performance does not guarantee future results, and results may differ over future time periods. Gross Domestic Product (GDP), Q/Q ar (%) Source: US Bureau of Economic Analysis, as of March Past performance does not Personal Income & Expenditures, Y/Y (%) May-08 May-09 May-10 May-11 May-12 May-13 Consumer Spending Personal Income Source: US Bureau of Economic Analysis, as of May Past performance does not Nonfarm Payrolls & Unemployment Rate Thousands 1, ,000 Jun-08 Sep-09 Dec-10 Mar-12 Jun-13 Nonfarm Payrolls Net Charge Unemployment Rate (right-hand scale) Source: US Bureau of Labor Statistics, as of June All figures seasonally adjusted. Past performance does not guarantee future results, and results may differ over future time periods. Consumer Price Index, Y/Y (%) May-08 May-09 May-10 May-11 May-12 CPI Core CPI Source: US Bureau of Labor Statistics, as of May Past performance does not Productivity & Unit Labor Costs, Q/Q ar (%) Unit Labor Costs Productivity Source: US Bureau of Labor Statistics, as of March Past performance does not US Annualized Trade Deficit, GDP (%) Sources: US Census Bureau and US Bureau of Economic Analysis, as of March Past performance does not guarantee future results, and results may differ over future time periods Percent FRANKLIN TEMPLETON INSTITUTIONAL 7

8 Important Legal Information This article reflects the analysis and opinions of Franklin Templeton s Fixed Income Group, as of July 31, 2013, and may vary from the analysis and opinions of other investment teams, platforms, portfolio managers or strategies at Franklin Templeton Investments. Because market and economic conditions are often subject to rapid change, the analysis and opinions provided may change without notice. The analysis and opinions are intended for general information only and are not a recommendation or individual investment advice for any particular security, strategy or investment product. References to particular securities are only for the limited purpose of illustrating general market or economic conditions, and are not recommendations to buy or sell a security, or an indication of the author s holdings. Such securities may or may not be in one or more managed accounts from time to time. Statements of fact are from sources considered reliable, but no representation or warranty is made as to their completeness or accuracy. This article does not provide a complete analysis of every material fact regarding any market, country, region, industry or security. Although historical data is no guarantee of future results, these insights may help you understand our investment management philosophy. All investments are subject to certain risks. Any performance quoted is historical and, of course, past performance does not guarantee future results and results may differ over future time periods. This piece is intended for institutional investment management consultants or investors interested in Franklin Templeton institutional products and services. Various account minimums or other eligibility qualifications apply depending on the investment strategy or vehicle. franklintempletoninstitutional.com _GEP_US_INST FRANKLIN TEMPLETON INSTITUTIONAL 8