EUROPE/UNITED KINGDOM To all intents and purposes the Euro area is in recession QoQ % Euro area GDP QoQ (LHS) YoY % Euro area GDP YoY (RHS) 6 3 1-1 - - - -3 Jun Jun 3 Jun 6 Jun 9 Jun 1 Source: Eurostat, Macquarie Research, August 1 retail spending is clearly trending up YoY % 1 8 6 - - -6 Jan Feb 3 Apr 6 May 9 Jul 1 Source: ONS, Macquarie Research, August 1 Euro area PMI 7 6 6 3 3 Retail sales volumes Retail sales volumes - 3mma Euro area Mfg PMI (LHS) Euro area Sentix Survey (RHS) Jan 3 Nov Sep 6 Jul 8 Jun 1 Apr 1 Source: Markit, Sentix, Macquarie Research, August 1-6 3 1-1 -3 - European and economics The road ahead Event This week we get the Euro area PMI data for August. Outlook Euro area GDP for Q1 came out directly in line with expectations last week, falling -.%QoQ. With GDP flat in 1Q1, technically speaking the Euro area economy is not in recession (two consecutive quarters of declining GDP). But with GDP.% lower than it was in 3Q11 (see first chart in grey column opposite) in reality it is. The data were, however, generally better-than-expected. Unemployment claims fell 6k, against expectations for 6k rise. The Olympics may have played some role in this month s strong outcome. But more generally the labour market continues to hold up incredibly well given the state of the economy. Questions about underlying productivity growth are going to persist for some time to come. retail sales also gave cause for optimism. In volume terms sales rose.3%mom in July against expectations for a -.1% decline. There were also chunky upward revisions to the prior data. The trend in retail spending is now very clearly up (see second chart opposite). In fact it s the strongest uptrend in the data since 6. The only disappointment was inflation, which bucked the recent trend, rising to.6%yoy from.%yoy against expectations for a small fall. But with external inflationary pressures fading, and the domestic economy in recession, this is likely to prove to be just a blip. This week we get the flash PMI data for August. The market is looking for small gains across the board. We are more concerned. Leading indicators such as the Sentix survey continue to point to the likelihood of further falls this month (see third chart opposite). But looking further ahead we think a turn in the critically important developed world production cycle may not be far off. There are tentative signs that global final demand is now improving rather than deteriorating housing and consumer spending is improving, infrastructure spending in China is picking up, retail sales are trending up, and globally auto sales have been strong recently. If this continues a turn up in the global production cycle will follow as sure as night follows day. August 1 Macquarie Capital (Europe) Limited Key releases this week Day Release Previous Macquarie Market Thurs Euro area Mfg PMI, Aug. 3.7. German Mfg PMI, Aug 3. 3. 6. French Mfg PMI, Aug 3. 3.. Euro are consumer confidence, Aug -1. -1.8-1. Fri GDP, Q1 -.7%QoQ -.%QoQ -.%QoQ Source: Bloomberg, Macquarie Research, August 1 Please refer to the important disclosures and analyst certification on inside back cover of this document, or on our website www.macquarie.com/disclosures.
European and economics Key release for the week ahead Importance/ Market Sensitivity Last/ Mkt Forecast Thurs Euro area Mfg PMI, Aug High./. German Mfg PMI, Aug High 3./3. French Mfg PMI, Aug High 3./. Risk Momentum is clearly down for this key indicator of the economic cycle. And the leading indicators are mixed. The Sentix survey suggests further falls are likely, while new orders minus inventories suggest the headline series has already fallen too far. We think the PMI fell further in August, so see downside risk to the market s expectation for a small rise. The German PMI has been surprisingly weak given the structural strength of the domestic economy and the exports sector s relatively strong competitive position. The French PMI has held up surprisingly well. But in our view the risk is that it declined further in August. Euro area consumer confidence, Aug Medium -1./ Euro area consumer sentiment has been deteriorating fairly sharply recently. It s unlikely this trend was broken in August. Fri GDP, Q ( nd release) High -.7%QoQ/-.%QoQ Source: Bloomberg, Macquarie Research, August 1 The Q GDP was much worse than expected and the market is looking for a small upward revision with the second release. This looks reasonable to us. We will also get details on the drivers of the weak GDP outcome in Q1. August 1
European and economics The week ahead in charts Fig 1 The Euro area PMI probably declined further in August Fig The German PMI may have already fallen too far Sentix Economic Indicator (LHS) Mfg PMI - Euro area (RHS) 7 6 3 6, 1-1 - -3 - - 3-6 3 Jan 3 Jul Jan 6 Aug 7 Feb 9 Aug 1 Mar 1 PMI - Germany (LHS) 6 PMI (New orders minus inventories) - Germany (RHS) 6 1 1 - -1 3-1 3 - - -3 Jan 98 Feb Mar Apr May 6 Jun 8 Jul 1 Aug 1 Source: Sentix, Markit, Datastream, Macquarie Research, August 1 Source: Markit, Datastream, Macquarie Research, August 1 Fig 3 Small downside risk here this month Fig Consumer sentiment is weakening quite sharply French Mfg PMI (LHS) 7 French Mfg PMI - New order minus inventories (RHS) 6 1 6 1 - -1-1 3-3 - Jan 99 Dec Nov Oct Sep 6 Aug 8 Jul 1 Jun 1 - -1-1 - - -3-3 - Long-run average Consumer sentiment - Euro area Jan 8 Aug 89 Mar 9 Oct 98 May 3 Dec 7 Jul 1 - -1-1 - - -3-3 - Source: Markit, Datastream, Macquarie Research, August 1 Source: European commission, Macquarie Research, August 1 Fig GDP was very weak in Q1 QoQ % Chg. 1. 1... -. -1. -1. -. GDP QoQ - (LHS) GDP YoY - (RHS) YoY % Chg 8 6 - - -6 -. Mar Mar 3 Mar 6 Mar 9 Mar 1-8 Source: ONS, Macquarie Research, August 1 August 1 3
European and economics The month ahead August 13 MONDAY TUESDAY WEDNESDAY THURSDAY FRIDAY REI HOING PRICE INDEX, JUL (13 th - 16 th AUG) Jun:.3% Exp: ~ CURRENT ACCOUNT, JUN (6) May: -.1b Exp: -.1b CONSTRUCTION OUTPUT, JUN (9) May:.1% 1 A BINESS CONFIDENCE, JUL (13) Jun: -3 Exp: ~ PPI, JUL (13) Jun:.1% Exp:.% RETAIL SALES, JUL (13) Jun: -.% Exp:.3% BINESS INVENTORIES, JUN (1) May:.3% Exp:.% REAL RETAIL SALES, JUN QTR (, MON) Mar qtr: -.6% Exp:.3% GDP (prelim), JUN QTR (9) Mar qtr:.% Exp: -.% INDTRIAL PRODUCTION, JUN (9) May:.6% Exp: -.7% GDP (prelim), JUN QTR (6) Mar qtr:.% Exp:.% ZEW SURVEY, AUG (9) Jul: 1.1 Exp: 17. GDP (prelim), JUN QTR (3) Mar qtr:.% Exp: -.1% CPI, JUL (3) Jun:.1% Exp: -.% CPI, JUL (83) Jun: -.% Exp: -.1% RPI, JUL (83) Jun: -.% Exp: -.% 1 A RBA MEETING MINUTES, AUG (13) 1 MARKET HOLIDAY FERRAGOSTO A CONSUMER CONFIDENCE, AUG (3) Jul: 99.1 Exp: ~ WAGE COST INDEX, JUN QTR (13) Mar qtr:.9% Exp:.8% CPI, JUL (13) Jun:.% Exp:.% NET LONG TERM TIC FLOWS, JUN (13) May: $.b Exp: $9.b INDTRIAL PRODUCTION, JUL (131) Jun:.% Exp:.% CAPACITY UTILIZATION, JUL (131) Jun: 78.9% Exp: 79.% NAHB HOING MARKET INDEX, AUG (1) Jul: 3 Exp: 3 EXISTING HOME SALES, JUL (1 th -16 th AUG) Jun: -1.3% Exp: ~ BOE MEETING MINUTES, AUG (83) EMPLOYMENT CHANGE, JUN (83) May: 181k 3m/3m Exp: 16k 3m/3m UNEMPLOYMENT RATE, JUN (83) May: 8.1% Exp: 8.1% WEEKLY EARNINGS EX BON, JUN (83) May: 1.8% 3mth y/y Exp: 1.9% 3mth y/y FOMC MEETING MINUTES, AUG (18) EXISTING HOME SALES, JUL (1) Jun:.37m RETAIL SALES, JUN (13) May:.3% 16 A RBA ASSISTANT GOVERNOR DEBELLE WILL BE A PANEL DISCSANT AT THE DEEPER INSIGHTS SERIES FORUM 1, SYDNEY AVERAGE WEEKLY EARNINGS, MAY QTR (13) Feb qtr: 1.1% Exp: 1.1% HOING STARTS, JUL (13) Jun: 76k Exp: 78k BUILDING PERMITS, JUL (13) Jun: 76k Exp: 766k CPI, JUL (9) Jun: -.1% Exp: -.% RETAIL SALES, JUL (83) Jun:.1% Exp: -.1% 3 NEW HOME SALES, JUL (1) Jun: 3k HOE PRICE INDEX, JUN (1) May:.8% (8) Jul:. PMI SERVICES (prelim), AUG (8) Jul: 7.9 PMI COMPOSITE (prelim), AUG (8) Jul: 6. CONSUMER CONFIDENCE (prelim), AUG (1) Jul: -1. GDP (final), JUN QTR (6) Jun qtr (prelim): ~ (73) Jul: 3. PMI SERVICES (prelim), AUG (73) Jul:.3 (7) Jul: 3. PMI SERVICES (prelim), AUG (7) Jul:. HSBC PMI MANUFACTURING (flash), AUG (3) Jul: 9. 17 LEADING INDICATORS, JUL (1) Jun: -.3% Exp:.% CPI, JUL (13) Jun: -.% Exp:.% PPI - INPUTS, JUN QTR (, THU) Mar qtr:.3% Exp: ~ PPI - OUTPUTS, JUN QTR (, THU) Mar qtr: -.1% Exp: -.% CURRENT ACCOUNT, JUN (8) May: 1.9b Exp: ~ TRADE BALANCE, JUN (8) May: 6.3b Exp:.b PPI, JUL (6) Jun: -.% Exp:.3% A RBA GOVERNOR STEVENS APPEARS BEFORE THE HOE OF REPRESENTATIVES STANDING COMMITTEE ON ECONOMICS, CANBERRA, (3, THU) DURABLE GOODS ORDERS, JUL (3) Jun: 1.6% TRADE BALANCE, JUL (, THU) Jun: $331m GDP (prelim), JUN QTR (83) Mar qtr: -.7% MNI BINESS SENTIMENT (flash), AUG (3) Source: Bloomberg, Macquarie Research, August 1 August 1
European and economics The month ahead August/September 7 MONDAY TUESDAY WEDNESDAY THURSDAY FRIDAY IFO INDEX, AUG (8) Jul: 13.3 8 CONSUMER CONFIDENCE, AUG (1) Jul: 6.9 NATIONWIDE HOE PRICES, AUG (8 th AUG 1 st SEP) Jul: -.7% 9 A CONSTRUCTION WORK DONE, JUN QTR (13) Mar qtr:.% GDP (prelim), JUN QTR (13) Jun qtr (adv): 1.% PERSONAL CONSUMPTION (prelim), JUN QTR (13) Jun qtr (adv): 1.% CORE PCE (prelim), JUN QTR (13) Jun qtr (adv): 1.8% BEIGE BOOK, AUG (18) PENDING HOME SALES, JUL (1) Jun: -1.% PPI, JUL (13) Jun: -.3% CPI (prelim), AUG (1) Jul:.% BINESS CONFIDENCE, AUG (18) Jul: 9 CONSUMER CONFIDENCE, AUG (9) Jul: 86. 3 A PRIVATE CAPITAL EXPENDITURE, JUN QTR (13) Mar qtr: 6.1% BUILDING APPROVALS, JUL (13) Jun: -.% NEW HOME SALES, JUL (1) Jun:.8% CORE PCE, JUL (13) Jun:.% PERSONAL INCOME, JUL (13) Jun:.% PERSONAL SPENDING, JUL (13) Jun:.% CURRENT ACCOUNT, JUN QTR (13) Mar qtr: -CA$1.3b NB BINESS CONFIDENCE, AUG (1) Jul: 1.1 BUILDING PERMITS, JUL (, WED) Jun:.7% CONSUMER CONFIDENCE (final), AUG (9) ECONOMIC CONFIDENCE, AUG (9) Jul: 87.9 INDTRIAL CONFIDENCE, AUG (9) Jul: -1. UNEMPLOYMENT CHANGE, AUG (7) Jul: 7k UNEMPLOYMENT RATE, AUG (7) Jun: 6.8% BINSS CONFIDENCE, AUG (9) Jul: 87.1 GFK CONSUMER CONFIDENCE, AUG (3) Jul: -9 NET CONSUMER CREDIT, JUL (83) Jun:.66b MORTGAGE APPROVALS, JUL (83) Jun:.k 31 A PRIVATE SECTOR CREDIT, JUL (13) Jun:.3% FACTORY ORDERS, JUL (1) Jun: -.%, GDP, JUN (13) May:.1% GDP, JUN QTR (13) Mar qtr: 1.9% UNEMPLOYMENT RATE, AUG (9) Jun: 11.% CPI (flash), AUG (9) Jul:.% UNEMPLOYMENT RATE (prelim), JUL (8) Jun: 1.8% CPI (prelim), AUG (9) Jul: -1.7% PPI, JUL (1) Jun: -.1% MNI BINESS SENTIMENT, AUG (13) PMI MANUFACTURING, AUG (1, SAT) Jul:.1 3 MARKET HOLIDAY LABOUR DAY A COMPANY OPERATING PROFITS, JUN QTR (13) Mar qtr: -.% RETAIL SALES, JUL (13) Jun: 1.% JOB ADVERTISEMENTS, AUG (13) Jul: -.8% COMMODITY PRICE INDEX, AUG (63) Jul: 9.8 TD INFLATION GAUGE, AUG (3) Jul:.% (8) (7) (7) PMI MANUFACTURING, AUG (7) Jul:.3 PMI MANUFACTURING, AUG (83) Jul:. PMI NON MANUFACTURING, AUG (1) Jul:.1 A RBA INTEREST RATE DECISION, SEP (3) Aug:.% CURRENT ACCOUNT BALANCE, JUN QTR (13) RP DATA HOE PRICE INDEX, AUG (3) Jul: ~ ISM MANUFACTURING, AUG (1) Jul: 9.8 CONSTRUCTION SPENDING, JUL (1) Jun:.% PPI, JUL (9) Jun: -.% PMI CONSTRUCTION, AUG (83) Jul:.9 A GDP, JUN QTR (13) Mar qtr: 1.3% NONFARM PRODUCTIVITY (final), JUN QTR (13) Jun qtr (prelim): 1.6% UNIT LABOUR COSTS (final), JUN QTR (13) Jun qtr (prelim): 1.7% BANK OF INTEREST RATE DECISION, SEP (13) Aug: 1.% PMI SERVICES (prelim), AUG (8) PMI COMPOSITE (prelim), AUG (8) RETAIL SALES, JUL (9) Jun:.1% PMI SERVICES (prelim), AUG (7) PMI SERVICES (prelim), AUG (7) PMI SERVICES, AUG (7) Jul: 3. PMI SERVICES, AUG (83) Jul: 1. 6 A EMPLOYMENT CHANGE, AUG (13) Jul: 1.k UNEMPLOYMENT RATE, AUG (13) Jul:.% PARTICIPATION RATE, AUG (13) Jul: 6. ISM NON SERVICES, AUG (1) Jul:.6 ECB INTEREST RATE DECISION, SEP (13) Aug:.7% GDP (prelim), JUN QTR (9) Mar qtr: ~ FACTORY ORDERS, JUL (1) Jun: -1.7% UNEMPLOYMENT RATE, JUN QTR (3) Mar qtr: 9.6% UNEMPLOYMENT CHANGE, JUN QTR (3) Mar qtr: 86k BANK OF ENGLAND INTEREST RATE DECISION, SEP (13) Aug:.% 7 A TRADE BALANCE, JUL (13) Jun: A$9m NONFARM PAYROLLS, AUG (13) Jul: 163K UNEMPLOYMENT RATE, AUG (13) Jul: 8.3% AVERAGE HOURLY EARNINGS, AUG (13) Jul:.1% EMPLOYMEMT CHANGE, AUG (13) Jul: -3.k UNEMPLOYMENT RATE, AUG (13) Jul: 7.3% BUILDING PERMITS, JUL (13) Jun: -.% CURRENT ACCOUNT, JUL (6) Jun: 16.b TRADE BALANCE, JUL (6) Jun: 17.9b INDTRIAL PRODUCTION, JUL (1) Jun: -.9% TRADE BALANCE, JUL (6) Jun: -.9b INDTRIAL PRODUCTION, JUL (83) Jun: -.% MANUFACTURING PRODUCTION, JUL (83) Jun: -.9% PPI INPUT, AUG (83) Jul: 1.3% PPI OUTPUT, AUG (83) Jul:.% CPI, AUG (13, SUN) Jul: 1.8% y/y PPI, AUG (13, SUN) Jul: -.9% y/y INDTRIAL PRODUCTION, AUG (3, SUN) Jul: 9.% y/y FIXED ASSET INVESTMENT, AUG (3, SUN) Jul:.% y/y RETAIL SALES, AUG (3, SUN) Jul: 13.1% y/y Source: Bloomberg, Macquarie Research, August 1 August 1
Important disclosures: Recommendation definitions Macquarie - Australia/New Zealand Outperform return >3% in excess of benchmark return Neutral return within 3% of benchmark return Underperform return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 1 month forward market dividend yield Macquarie Asia/Europe Outperform expected return >+1% Neutral expected return from -1% to +1% Underperform expected return <-1% Macquarie First South - South Africa Outperform expected return >+1% Neutral expected return from -1% to +1% Underperform expected return <-1% Macquarie - Canada Outperform return >% in excess of benchmark return Neutral return within % of benchmark return Underperform return >% below benchmark return Macquarie - A Outperform (Buy) return >% in excess of Russell 3 index return Neutral (Hold) return within % of Russell 3 index return Underperform (Sell) return >% below Russell 3 index return Volatility index definition* This is calculated from the volatility of historical price movements. Very high highest risk Stock should be expected to move up or down 6 1% in a year investors should be aware this stock is highly speculative. High stock should be expected to move up or down at least 6% in a year investors should be aware this stock could be speculative. Medium stock should be expected to move up or down at least 3 % in a year. Low medium stock should be expected to move up or down at least 3% in a year. Low stock should be expected to move up or down at least 1 % in a year. * Applicable to Australian//Canada stocks only Recommendations 1 months Note: Quant recommendations may differ from Fundamental Analyst recommendations Financial definitions European and economics All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/ listed stocks are modelled under IFRS (International Financial Reporting Standards). Recommendation proportions For quarter ending 3 June 1 AU/ Asia RSA A CA EUR Outperform.67% 61.% 3.3%.8% 69.3% 6.6% (for coverage by MCA, 9.% of stocks followed are investment banking clients) Neutral 3.%.11% 36.99%.1% 8.% 33.69% (for coverage by MCA, 8.1% of stocks followed are investment banking clients) Underperform 13.83% 16.89% 9.9%.1%.7% 19.71% (for coverage by MCA,.% of stocks covered are investment banking clients) Company Specific Disclosures: Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/disclosures. Analyst Certification: The views expressed in this research reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this research. The analyst principally responsible for the preparation of this research receives compensation based on overall revenues of Macquarie Group Ltd (ABN 9 1 169 79, AFSL No. 3186) ( MGL ) and its related entities (the Macquarie Group ) and has taken reasonable care to achieve and maintain independence and objectivity in making any recommendations. General Disclosure: This research has been issued by Macquarie Securities (Australia) Limited (ABN 8 83 16, AFSL No. 3897) a Participant of the Australian Securities Exchange (ASX) and Chi-X Australia Pty Limited. This research is distributed in Australia by Macquarie Equities Limited (ABN 1 7 93, AFSL No. 37) ("MEL"), a Participant of the ASX, and in New Zealand by Macquarie Equities New Zealand Limited ( ME ) an X Firm. Macquarie Private Wealth s services in New Zealand are provided by ME. Macquarie Bank Limited (ABN 6 8 83, AFSL No. 37) ( MBL ) is a company incorporated in Australia and authorised under the Banking Act 199 (Australia) to conduct banking business in Australia. None of MBL, MGL or ME is registered as a bank in New Zealand by the Reserve Bank of New Zealand under the Reserve Bank of New Zealand Act 1989. Any MGL subsidiary noted in this research, apart from MBL, is not an authorised deposit-taking institution for the purposes of the Banking Act 199 (Australia) and that subsidiary s obligations do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of that subsidiary, unless noted otherwise. This research is general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice, you should consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision. This research has been prepared for the use of the clients of the Macquarie Group and must not be copied, either in whole or in part, or distributed to any other person. If you are not the intended recipient, you must not use or disclose this research in any way. If you received it in error, please tell us immediately by return e-mail and delete the document. We do not guarantee the integrity of any e-mails or attached files and are not responsible for any changes made to them by any other person. Nothing in this research shall be construed as a solicitation to buy or sell any security or product, or to engage in or refrain from engaging in any transaction. This research is based on information obtained from sources believed to be reliable, but the Macquarie Group does not make any representation or warranty that it is accurate, complete or up to date. We accept no obligation to correct or update the information or opinions in it. Opinions expressed are subject to change without notice. The Macquarie Group accepts no liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this research and/or further communication in relation to this research. The Macquarie Group produces a variety of research products, recommendations contained in one type of research product may differ from recommendations contained in other types of research. The Macquarie Group has established and implemented a conflicts policy at group level, which may be revised and updated from time to time, pursuant to regulatory requirements; which sets out how we must seek to identify and manage all material conflicts of interest. The Macquarie Group, its officers and employees may have conflicting roles in the financial products referred to in this research and, as such, may effect transactions which are not consistent with the recommendations (if any) in this research. The Macquarie Group may receive fees, brokerage or commissions for acting in those capacities and the reader should assume that this is the case. The Macquarie Group s employees or officers may provide oral or written opinions to its clients which are contrary to the opinions expressed in this research. Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/disclosures. August 1 6