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United States
CIO WM Research | 14 November 2014
Top of the Morning daily podcast
Deeper dive
What would
OPEC do?
What we are watching
02
• “Week in Review/Preview“ with
David Wang, Fixed Income Analyst
US economic data
www.ubs.com/topofthemorning
The Fed and Bank of England
Global leading indicators03 Dashboard 05
“The cease-fire is in name only at this point”
What you need to know – Review
General Philip Breedlove,
NATO supreme allied commander Europe on the conflict in Ukraine
1 China announced that the Shanghai-Hong Kong Mutual
235,000 rise. However, the data for the prior two months was revised
Market Access (MMA) program will launch on November 17.
higher by net 31,000. Strong employment gains translated into a
The trading link connects the bourses in Shanghai and Hong Kong
drop in the unemployment rate from 5.9% to 5.8%. This level is
and will provide international investors direct access to Shanghai
already below the Federal Reserve’s most recent forecast for the end
stocks for the first time. Meanwhile, mainland
of the year. Additionally, the four-week average of
investors will be able to purchase shares in Hong
initial weekly jobless claims retreated to its lowest
“The current US
Kong-listed firms. Investors reacted positively
level since April 2000. In contrast, Eurozone induswith the Shanghai Composite Index jumping
trial production figures in September did not indiunemployment rate
2.3%. The Hang Seng Index added 0.8% on the
cate a meaningful uptick while October inflation
day. We believe the MMA will push stocks
figures remained largely unchanged at low levels.
is already below
toward their fair values, though this does not
are overweight US equities and high yield
the Fed’s most recent We
change our fundamental view on the broad
bonds as well as the US dollar relative to the euro.
market. We advise investors to continue focusforecast for the end
4 Global crude oil prices resumed their
ing on sectors that can deliver growth amid softof the year.”
ening economic activity. For more details please
downward trend as the Brent price fell below
refer to our publication, “MMA: Are you ready
USD 80/bbl, a 50-month low. Markets continto board?” We are neutral on Chinese stocks.
ued to focus on the moves of OPEC member states. Oil ministers
from the UAE and Kuwait said that they were not concerned
2 Russia’s central bank completed its transition to a fully
about the current price levels, and the latter added that his counflexible exchange rate regime by removing its dual-currency
try had no plans to cut output. At the same time, Iraq reduced its
trading band and terminating a policy of daily regular foreign interofficial selling price for US В­customers while raising prices for Asia
ventions. However, it retained its commitment to intervening if it
and Europe, following a similar Saudi move earlier.
sees threats to financial stability. It also restricted ruble liquidity temporarily in an attempt to decrease speculative bets. At the same
time, the central bank said it expected the economy to stagnate in
2015 and to grow just 0.1% in 2016. In addition, the bank slashed
Level
1-w chg
YTD chg
its medium-term inflation target to 4% from 5%. The currency ralMarket moves
lied as much as 5% intra-day on Monday before it reverted to its
S&P 500
2,039
0.46%
12.30%
DJIA
17,653
0.64%
8.65%
depreciation path on Tuesday. In other news, Russia signed an
Nasdaq
4,680
0.93%
13.26%
agreement to supply gas to China, settled in ruble and yuan, markNikkei 225
17,491
3.62%
7.36%
ing the second such deal this year between the two nations. For
Eurostoxx 50
3,057
–1.46%
–1.68%
more details please refer to our publication, “Russia: Reaffirming our
MSCI EM
993
0.14%
–0.99%
base case.” We are neutral on Russian assets and the USDRUB.
Gold
$ 1163/oz
1.59%
–3.30%
Which got us thinking …
3 The US labor market continued to show strength while
Eurozone data was mixed. Non-farm payrolls increased by 214,000
in October, which slightly disappointed consensus expectations of a
ab
Brent crude oil
US 10-year yield
VIX
$ 77.9/bbl
2.34%
13.80
–5.96%
–5bps
+0.1pts
–29.68%
–69bps
+0.1pts
Source: Bloomberg, as of 14 November 2014, EST 3 am
This week’s editorial
It’s the Most Wonderful Time of the Year
Robert Samuels, Equity Sector Strategist, Wealth Management Americas
04
This report has been prepared by UBS Financial Services Inc. and UBS AG. Please see important disclaimer on page 8. Sections of this report
were originally published outside the US and have been customized for US distribution.
Deeper dive
14 November 2014
What would OPEC do?
We haven’t faced such a bleak situation since
the global financial crisis. In recent years, my
Saudi colleague usually served as the swing
producer when needed. One would think the
Kingdom’s USD 737bn of foreign exchange
reserves and nearly 10В million barrels a day
(mbpd) of production would give it the latitude to sell less oil for a while to restore order
in the market. Yet it hasn’t done so – I need to
analyze the situation.
Dominic Schnider
Analyst
Tobias Hochstrasser
Strategist
The following is a fictitious diary entry from
an OPEC oil minister
Dear Diary,
The atmosphere at our annual meeting in
Vienna on the 27 November is likely to be
unusually gloomy. The 30% plunge in
global crude oil prices since the end of June
has been quite a shock to all of us.
What’s more, Brent prices of USD 80/bbl
leave most of us about USD 10–50 per barrel shy of what we need to balance our
budgets. Of course, such concerns are not
mine alone. I believe about half of the 12
OPEC nations also require an oil price north
of USD 100/bbl to avoid a big budget
shortfall.
How could this happen?
It seems pretty simple: global production
growth exceeds consumption growth. The
rise of US shale output over the past two
years has become a thorn in our side. As a
result, oil production outside OPEC is
expanding at a lofty 1.7mbpd pace this year
while growth estimates for demand have
recently been lowered to under 1mbpd.
Further, financial speculators have jumped
on the bandwagon as short positions in the
futures market have built up significantly.
And I recently read an interesting statistic:
last year global oil imports totaled around
56mbpd, so every USDВ 10 fall in oil prices
saves oil-importing nations USDВ 560m a
day. Good for them. Not so good for us.
Something needs to happen. What about
our traditional reaction – production cuts?
What if we don’t cut oil production?
If we don’t take action at the upcoming
OPEC meeting, the Brent price could decline
below USD 75/bbl and WTI to USD 70/bbl.
That is an unappealing prospect for me,
and many of my less fiscally prudent colleagues would be in even worse shape.
For a start, to really hurt US shale producers
we would need to allow WTI, the US benchmark price for crude oil, to slide to USD
60–65/bbl. Unfortunately, that could be
more painful for some of us than for US
drillers. Our club produces around
30.5mbpd. Such a price plunge would cost
us more than USD 300m a day, or around
USD 110bn over the course of a year. Worse
still, while such a price move would curb US
supply growth meaningfully at first, the
moment we let the price rise again, those
nimble В­foreign producers would start drilling again. We would be back to square
one.
Of course, it’s possible the oil price will
В­self-correct. Declines like these function like
tax cuts or monetary stimulus in nations like
the US. The economic windfall generated
could boost global growth and oil demand,
which in turn would raise the price. However, that will take time. So oil demand will
not ride to the rescue in the short run.
I think, over the longer term, the future
remains bright for us. Although many
emerging markets are no longer growing as
fast as they did a few years ago, they still
have not approached energy consumption
levels in Europe, let alone the US. One of
my economists tells me that the average
В­Chinese and Indian citizen uses only around
Brent oil prices dropped 30% since the end of June
and now trade at 4-year lows
Crude oil output from US shale drillers has been
a game changer in the last six years
Closing price of Brent front-month futures contract, in USD/bbl
Monthly US crude oil production in million barrels per day
150
10
130
9
110
8
90
7
70
6
50
5
30
2006
2007
Brent oil price
2008
2009
2010
2011
2012
2014
4
1954
1964
1974
1984
1994
2004
200-day moving average
Source: Bloomberg, UBS, as of 13 November 2014
2
2013
CIO WM Research 14 November 2014
Source: US Department of Energy, UBS, as of 13 November 2014
Please see important disclaimer and disclosures at the end of the document.
The bottom line / What we are watching
1.1 liters and 0.5 liters, respectively, of oil a
day. Typically, Europeans consume four to
eight times as much and Americans up to
16 times more. A lot of catch-up demand
exists, but now I’m straying from the problem at hand.
What if we cut oil production?
I must admit that OPEC members have not
always collaborated harmoniously. Pushing
up the oil price requires cooperation and
sacrifice from all. Some of us may have
been a bit too generous to our populations
in recent years. Also, as a group, we will be
14 November 2014
forced to accommodate rising production
from Iraq, which for years has been exempt
from the collective agreements on supply.
That said, taking action to restore some
balance in the oil market shouldn’t require
too much hardship. I don’t see any real oil
glut. Days of inventory cover of oil in OECD
countries are close to their five-year average, while inventories in the US are slightly
above it. A cut of just 500,000–750,000
barrels per day might scare enough speculators to do the trick. And the rising pace of
US production won’t last forever. Already
by next year US tight oil supply growth
should moderate to 1.2mbpd.
In the meantime, I believe prices could be
boosted back above USDВ 90 a barrel. It will
require the collective will of all OPEC member countries as Saudi Arabia may not
want to shoulder the entire burden of the
production cuts.
The message seems to be that “united we
stand and divided the oil price will fall.”
Dominic Schnider and Tobias Hochstrasser
The bottom line
We believe that it makes economic sense for OPEC to
cut production: failure to do so will lead to a steep fall
in revenue. A small production cut north of 0.5mbpd
should be sufficient to stabilize the market. We attach a
60% probability to such an action. In our view, maxiPreferred investment views
Asset Class
Most preferred
Equities
US small and mid caps (пѓћ)
US technology
US capex
North American energy
independence
• Cancer therapeutics
• e-Commerce ()
• Benefit from reform in Mexico
•UK
• Emerging markets (пѓ )
•
•
•
•
• Government bonds
• Emerging market corporate
bonds (пѓ )
•
•
•
•
Fixed income
Least preferred
US high yield
Mortgage IOs (пѓћ)
US senior loans
Commercial mortgage-backed
securities
Foreign
exchange
•USD
•GBP
Alternative
investments
• Credit alternatives to diversify
bond portfolios
•EUR
•CHF
mizing OPEC’s revenues remains the path to a potential
new equilibrium and not the equilibrium state itself.
Assuming OPEC cuts, we feel comfortable with our
2015 average price guidance at USD 94/bbl for Brent
and USD 88/bbl for WTI.
What we are watching – Preview
1 US economic data: US retail sales will be released on 14
November while industrial production will follow on 17 November.
Both economic figures have shown robust annual growth rates of
above 4 % in recent months. We expect this trend to continue and
remain overweight US risk assets and the US dollar relative to the euro.
2 The Federal Reserve and Bank of England: Both central
banks will release their minutes on 19 November, providing insights
into the likelihood of rising rates. Strong US labor market data has
put pressure on the Fed to hike rates. We are overweight the US
dollar and British pound.
3 Global leading indicators: Preliminary purchasing manager
indices around the world will be published on 20 November. Our
focus is on whether the recent stimulus measures in China have supported growth momentum and on Eurozone indicators, which we
expect to remain sluggish.
пѓћ Recent upgrades пѓ Recent downgrades
4 There will be an abundance of housing data being released
next week. The November National Association of Home Builders
Housing Market Index will be announced on Tuesday. On Wednesday, October housing starts and building permits will be revealed
and on Thursday, October existing home sales will be announced.
For more information, please see the most recent UBS House View: Investment Strategy Guide.
Source: UBS CIO WMR, as of 23 October 2014
5 On 18 November, the Federal Reserve will be releasing
minutes from its 28-29 October meeting.
Cash
Sections of this report were originally published outside the US on
13 November 2014 and have been customized for US distribution.
6 On Tuesday, the October Producer Price Index will be
announced. On Thursday, the October Consumer Price Index (CPI)
will be revealed. According to Bloomberg surveys, economists are
expecting a -0.1% m/m decline in CPI for October, due in part to
low fuel costs.
Recent issues of “Deeper dive”
• What does the Bank of Japan's latest QE mean? (7 November 2014)
• Mission accomplished? (31 October 2014)
3
CIO WM Research 14 November 2014
• How is this sell-off shaping up? (17 October 2014)
• Are emerging markets ready for reform? (10 October 2014)
Please see important disclaimer and disclosures at the end of the document.
Editorial
14 November 2014
It’s the Most Wonderful Time of the Year
Robert Samuels
Equity Sector Strategist,
Wealth Management Americas
2014 was going to be the year of the U.S. consumer. After
moderate real consumption growth of 2.2%, on average,
during the recovery, all key household fundamentals had
improved at the dawn of the year. Real disposable income
accelerated after U.S. households had absorbed personal
income tax hikes in early 2013. Financial asset and house
prices continued to climb and net worth to disposable
income was rapidly approaching its pre-crisis peak. The
personal savings rate had risen to a comfortable level of
around 4%. After a contentious fight and a government
shutdown, Democrats and Republicans finally agreed to a
two-year budget plan, tentatively shelving political brinkmanship. Finally, consumer credit growth had accelerated,
a sign that U.S. consumers were willing to borrow more
freely to finance their consumption.
Fast forward to November and year-to-date real consumption has been disappointing at 1.9%. While harsh winter
effects depressed consumer durable consumption in 1Q14,
the expected snapback in 2Q14 was uninspiring at an annualized 2.5% rate and 3Q14 showed a lack of follow-through
with annualized growth of 1.9%. What went wrong? U.S.
households seem to have grown more cautious, as witnessed by an increase in the savings rate to almost 6%. This
is very odd behavior considering that the net worth to disposable income ratio is consistent with a savings rate of
2%. That difference is hard to reconcile unless one is willing
to accept a pervasive change in U.S. consumer attitudes.
Another explanation could be that median to low income
families have not yet enjoyed a strong labor market recovery
and therefore they have increased their savings rate, pushing up the average savings rate.
So here we sit on the eve of Black Friday and the all-important holiday shopping season and there is a sense of optimism in the air. In fact, the National Retail Federation (NRF)
expects holiday sales to rise 4.1% this year to USD 616
billion, which would mark the first time since 2011 that
holiday sales grew by more than 4%. There are some signs
that retailers may be beginning to see a tailwind from the
4
CIO WM Research 14 November 2014
economy, led by healthier labor markets, higher consumer
confidence and, most recently, a significant decline in gas
prices.
In addition to an improving macro outlook, there are other
factors that lead us to be more upbeat on holiday spending, which can represent almost one-third of a retailer’s
annual sales and 40-50% of annual profits. Last year’s
weather was incredibly disruptive with harsh winter storms
that negatively impacted mall traffic at inopportune times.
This year’s forecast (fingers crossed) calls for milder temperatures and less precipitation. Also, retail inventories are
in better position this year heading into the holidays, and
while we expect the environment to remain highly competitive —with stores opening even earlier this year on
Thanksgiving — there should be a little bit less pressure on
margins.
With regards to holiday shopping trends, we expect online
sales to exhibit strong growth, with the NRF calling for a
9-11% rise in 2014 to USD 105 billion of e-Commerce
sales. Also, mobile commerce continues to grow exponentially as it is now very easy to buy anything from apparel to
footwear to furniture from your mobile phone. And what
will people be looking to buy? Consumer electronics and
athletic-inspired apparel will likely be high on most people’s wish lists. Finally, while free shipping around the holiday is now part of the price of doing business, “Buy Online,
Pickup In-Store” is becoming much more commonplace
and is a viable option for those looking to make a lastminute holiday purchase.
So at the end of the day, we are not very worried about the
lackluster consumer performance this year and expect to
see a pickup in the next several quarters. Historically, consumer spending eventually catches up with household fundamentals. After all, if all drivers of consumer spending are
improving, why shouldn’t households increase their spending rates? Therefore, we continue to expect real consumption growth acceleration to around 3% in the coming
quarters, which in turn will help fuel the recent pickup in
business fixed investment growth. And if the consumer
finally decides to open his/her wallet this holiday season, it
definitely will be the most wonderful time of the year.
Kind Regards,
Robert Samuels
Thomas Berner
Please see important disclaimer and disclosures at the end of the document.
Dashboard
14 November 2014
Strategy and performance
Cross asset and equities
Tactical Asset Allocation
Market Returns
Asset Classes
MTD
YTD
2013
0.3%
4.7% 22.8%
Fixed Income
–0.7%
0.9%
Commodities
–1.5%
–7.8% –9.5%
Equity
––– ––
underweight
–
n
neutral
+
++
+++
overweight
–2.6%
Total return indices in USD
Note: Indexes used to calculate returns are MSCI All Country World (for Equity), Barclays Capital Global
Aggregate Index (for Fixed Income), Dow Jones-UBS Commodity Index Total Return
Source: UBS Chief Investment Office/CIO WMR, as of 13 November 2014
Tactical Asset Allocation
Market Returns
Equities
MTD
YTD
11.6% 32.5%
Large-Cap Growth
1.2%
12.1% 33.5%
Mid-Cap
0.9%
11.2% 34.8%
Small-Cap
0.2%
2.1%
–0.2%
–3.0% 22.8%
–2.3%
1.3%
++ +++
overweight
1.3%
1.3% 4.4% 43.1%
Cons. Staples
1.0%
2.9% 14.3% 26.1%
–1.7% –2.4% –2.1% 25.1%
Energy
Financials
0.0%
1.3% 12.0% 35.6%
Healthcare
0.2%
0.7% 23.8% 41.5%
Industrials
0.4%
1.9% 8.7% 40.7%
Technology
1.2%
2.0% 18.4% 28.4%
Materials
1.5%
1.5% 7.7% 25.6%
1.8% 10.4% 11.5%
2.4%
1.0%
+
Cons. Discr.
–1.4% –0.8% 22.1% 13.2%
Large-Cap Value
n
neutral
38.8%
–2.6%
Total return indices in USD
––– ––
–
underweight
n
neutral
+
++ +++
Total return indices in USD
overweight
Note: S&P 500 Sector Indexes used to calculate returns.
Source: UBS CIO WMR, as of 13 November 2014
Tactical Asset Allocation
Market Returns
International Developed Equities
MTD
EMU
UK
Note: Indexes used to calculate returns are Russell 3000 (for US), Russell 1000 Value, Russell 1000
Growth, Russell Mid Cap, Russell 2000 (for Small-Cap), MSCI EAFE (for Int’l Developed), MSCI EMF (for
Emerging Markets).
Source: UBS Chief Investment Office/CIO WMR, as of 13 November 2014
S&P 500 forecast
CIO WMR
6-month rolling price target
2050
2013 earnings per share actual
USD 110
2014 earnings per share estimate
USD 120
2015 earnings per share estimate
USD 129
Source: UBS CIO WMR, as of 13 November 2014
Tactical deviations from benchmark: Scale for charts – Symbol Description/Definition
+
++
+++
moderate overweight
vs. benchmark
overweight vs.
benchmark
strong overweight vs.
benchmark
–
––
–––
moderate underweight
vs. benchmark
n
Neutral, i.e. on
benchmark
underweight vs.
benchmark
strong underweight vs.
benchmark
Notes
This represents the tactical asset allocation for a moderate, taxable investor without alternative
investments.
See the latest UBS House View: Investment Strategy Guide for an interpretation of the tactical
deviations and an explanation of the corresponding benchmark allocation.
Tactical time horizon is approximately six months.
Total return market performance is from Bloomberg as of close of business on source date, using
representative indices, and is provided for information only.
Past performance is no indication of future performance.
5
CIO WM Research 14 November 2014
YTD 2013
Utilities
11.0% 33.6%
–
––– ––
underweight
Weekly MTD
Telecom
1.0%
Emerging Markets
Market Returns
US Equity Sectors
2013
US
Int’l Developed
Tactical Asset Allocation
YTD
2013
–1.6%
–8.3% 30.0%
0.0%
–3.5% 20.7%
1.3%
–1.3% 27.3%
Australia
–1.7%
3.9%
4.3%
Canada
0.6%
4.8%
6.4%
Switzerland
1.2%
3.4%
27.6%
NA
NA
NA
Japan
Other
–––
––
underweight
–
n
neutral
+
++
+++
overweight
Total return indices in USD
Note: MSCI Region or Country Indexes used to calculate returns.
Source: UBS Chief Investment Office/WMR, as of 13 November 2014
The overweight and underweight recommendations represent tactical deviations
that can be applied to any appropriate benchmark portfolio allocation. They reflect
CIO WMR’s assessment of market opportunities and risks in the respective asset
classes and market segments. The benchmark allocation is not specified here. Please
see the most recent UBS House View: Investment Strategy Guide for definitions/explanations of benchmark allocation. They should be chosen in line with the risk profile
of the investor. Note that the Regional Equity and Bond Strategy is provided on an
unhedged basis (i.e., it is assumed that investors carry the underlying currency risk
of such investments). Thus, the deviations from the benchmark reflect our views of
the underlying equity and bond markets in combination with our assessment of the
associated currencies.
+
–
Indicates +/– change
Terms and Abbreviations
EMU = European Monetary Union and is comprised of European countries that have adopted the
Euro as their currency, Int’l = international, MTD = month-to-date, USD = US dollar,
YTD = year-to-date.
Please see important disclaimer and disclosures at the end of the document.
Dashboard
14 November 2014
Strategy and performance
Fixed income and currencies
Tactical Asset Allocation
Market Returns
Fixed income
Tactical Asset Allocation
USD Taxable Fixed Income
MTD
YTD
2013
US
0.0%
5.1%
–2.0%
Treasuries
Government
0.0%
4.0%
–2.6%
TIPS
Municipal
–0.2%
8.1%
–2.6%
Agencies
IG Corporates*
–0.2%
6.6%
–2.0%
Agency MBS
HY Corporates
–0.2%
4.5%
7.4%
Int’l Developed
–1.2%
–2.0% –3.1%
Emerging Markets
–0.9%
6.3%
–
––– ––
underweight
n
neutral
+
–4.1%
Market Returns
MTD
YTD
2013
–3.3%
0.0%
4.8%
–0.1%
5.1%
–9.4%
0.0%
3.5%
–1.8%
0.1%
5.3%
–1.4%
IG Corporate*
–0.2%
6.8%
–1.5%
HY Corporates
–0.2%
4.6%
7.4%
0.6%
14.9%
–3.7%
Preferred Securities
++ +++
overweight Total return indices in USD
––– ––
–
underweight
n
neutral
+
++ +++
overweight
Total return indices in USD
Note: Indexes used to calculate returns are Barclays Capital (BarCap) US Aggregate, BarCap US Aggregate Government, BarCap Municipal Bond, BarCap US Aggregate Credit (for IG), BarCap US Aggregate
Corp HY, BarCap Global Aggregate ex-USD (for Int’l Developed), BarCap Emerging Markets Government
and BarCap Global Emerging Markets USD (50% of each for Emerging Markets).
*Investment grade corporates are overweight in non-taxable portfolios but underweight in most taxable
portfolios.
Source: UBS Chief Investment Office/CIO WMR, as of 13 November 2014
Note: Indexes used to calculate returns are Bank of America Merrill Lynch (BoA ML) US Treasury, BoA ML
US Inflation-Linked Treasury, BoA ML US Composite Agency, BoA ML US Mortgage Backed Securities,
BoA ML US Corporate, BoA ML US High Yield Constrained, BoA ML Fixed Rate Preferred Securities.
*Investment grade corporates are overweight in non-taxable portfolios but underweight in most taxable
portfolios.
Source: UBS CIO WMR, as of 13 November 2014
Tactical Asset Allocation
Tactical Asset Allocation
Market Returns
Foreign exchange
MTD
YTD
2013
USD
NA
NA
NA
EUR
–0.4%
–9.2%
4.2%
GBP
–1.8%
–5.1%
1.9%
JPY
3.1%
9.9%
21.4%
CHF
0.1%
7.9%
–2.5%
Other
NA
–––
––
underweight
–
n
neutral
+
NA
NA
++
+++
overweight
Change against USD
Source: UBS Chief Investment Office/CIO WMR, as of 13 November 2014
Tactical deviations from benchmark: Scale for charts – Symbol Description/Definition
+
++
+++
moderate overweight
vs. benchmark
overweight vs.
benchmark
strong overweight vs.
benchmark
–
––
–––
moderate underweight
vs. benchmark
n
Neutral, i.e. on
benchmark
underweight vs.
benchmark
strong underweight vs.
benchmark
Notes
This represents the tactical asset allocation for a moderate, taxable investor without alternative
investments.
See the latest UBS House View: Investment Strategy Guide for an interpretation of the tactical
deviations and an explanation of the corresponding benchmark allocation.
Tactical time horizon is approximately six months.
Emerging markets comprises corporate and sovereign bonds. In Foreign exchange, other refers to
other developed currencies.
Total return market performance is from Bloomberg as of close of business on source date, using
representative indices, and is provided for information only.
Past performance is no indication of future performance.
6
CIO WM Research 14 November 2014
Market Returns
International Developed Fixed Income
MTD
EMU
UK
Japan
YTD
2013
–0.2% –1.0%
6.8%
–0.9% 4.1%
–0.8%
–3.2% –6.9% –16.1%
Other
NA
––
–––
underweight
–
n
neutral
+
NA
NA
++
+++
Total return indices in USD
overweight
Note: BarCap Region or Country Indexes used to calculate returns.
Source: UBS Chief Investment Office/CIO WMR, as of 13 November 2014
The overweight and underweight recommendations represent tactical deviations
that can be applied to any appropriate benchmark portfolio allocation. They reflect
CIO WMR’s assessment of market opportunities and risks in the respective asset
classes and market segments. The benchmark allocation is not specified here. Please
see the most recent UBS House View: Investment Strategy Guide for definitions/explanations of benchmark allocation. They should be chosen in line with the risk profile
of the investor. Note that the Regional Equity and Bond Strategy is provided on an
unhedged basis (i.e., it is assumed that investors carry the underlying currency risk
of such investments). Thus, the deviations from the benchmark reflect our views of
the underlying equity and bond markets in combination with our assessment of the
associated currencies.
The scale above does not pertain to the USD taxable fixed income table. The symbols
in that table describe varying degrees of preference in a USD taxable fixed income
portfolio.
+
–
Indicates +/– change
Terms and Abbreviations
EMU = European Monetary Union and is comprised of European countries that have adopted the
Euro as their currency, HY = high yield, Int’l = international IG = investment grade,
MBS = mortgage-backed securities, MTD = month-to-date, USD = US dollar, YTD = year-to-date.
Please see important disclaimer and disclosures at the end of the document.
Dashboard
14 November 2014
Earnings calendar
The Earnings Calendar provides publicly announced reporting dates and times of companies covered by Wealth Management
Research Americas. Reporting dates and times are subject to change by the reporting companies.
Date
Company
Ticker
17-Nov-2014
Urban Outfitters, Inc.
URBN
18-Nov-2014
Dick's Sporting Goods, Inc.
DKS
19-Nov-2014
Lowe's Cos., Inc.
LOW
20-Nov-2014
Williams-Sonoma, Inc.
WSM
Company
Ticker
Company
Ticker
The Home Depot, Inc.
HD
Medtronic, Inc.
MDT
Gap, Inc.
GPS
Source: Bloomberg, UBS, as of 13 October 2014
Key economic indicators
Date
Indicator
Period
Time (ET)
Unit
Consensus
Previous
17-Nov-14
Empire State Manufacturing Survey
November
8:30 AM
level
10.0
6.2
17-Nov-14
Indutrial Production
October
9:15 AM
m/m
0.2%
1.0%
17-Nov-14
Capacity Utilization
October
9:15 AM
level
79.3%
79.3%
18-Nov-14
Final Demand Producer Price Index (PPI)
October
8:30 AM
m/m
–0.1%
–0.1%
18-Nov-14
PPI less Food and Energy
October
8:30 AM
m/m
0.1%
0.0%
18-Nov-14
Housing Market Index
November
10:00 AM
index
55
54
19-Nov-14
Housing Starts
October
8:30 AM
level
1025k
1017k
19-Nov-14
Housing Permits
October
8:30 AM
level
1040k
1031k
20-Nov-14
Jobless Claims
For Week, 15
November
8:30 AM
level
280k
290k
20-Nov-14
Consumer Price Index (CPI)
October
8:30 AM
m/m
–0.1%
0.1%
20-Nov-14
CPI less Food and Energy
October
8:30 AM
m/m
0.2%
0.1%
20-Nov-14
Purchasing Managers Index Manufacturing
Index Flash
November
9:45 AM
level
56.5
55.9
20-Nov-14
Existing Home Sales
October
10:00 AM
level
5.15mn
5.17mn
20-Nov-14
Leading Economic Indicators
October
10:00 AM
m/m
0.5%
0.8%
20-Nov-14
Philadelphia Fed Survey
November
10:00 AM
level
18.3
20.7
Source: Bloomberg, UBS, as of 13 October 2014
UBS forecast estimates are published on Friday evenings in Economic Perspectives by economists employed by UBS Investment Research, a part of UBS Investment Bank.
m/m = month-over-month, q/q = quarter-over-quarter, k = thousand, bn = billion, y/y = year-over-year, mn = million
7
CIO WM Research 14 November 2014
Please see important disclaimer and disclosures at the end of the document.
Appendix
14 November 2014
Investing in Emerging Markets
Investors should be aware that Emerging Market assets are subject to, amongst others, potential risks linked to currency volatility, abrupt changes in the cost of capital and the economic growth outlook, as well as regulatory and sociopolitical risk, interest
rate risk and higher credit risk. Assets can sometimes be very illiquid and liquidity conditions can abruptly worsen. WMR generally
recommends only those securities it believes have been registered under Federal U.S. registration rules (Section 12 of the Securities
Exchange Act of 1934) and individual State registration rules (commonly known as “Blue Sky” laws). Prospective investors should be
aware that to the extent permitted under US law, WMR may from time to time recommend bonds that are not registered under US
or State securities laws. These bonds may be issued in jurisdictions where the level of required disclosures to be made by issuers is not
as frequent or complete as that required by US laws.
For more background on emerging markets generally, see the WMR Education Notes, “Emerging Market Bonds: Understanding
Emerging Market Bonds,” 12 August 2009 and “Emerging Markets Bonds: Understanding Sovereign Risk,” 17 December 2009.
Investors interested in holding bonds for a longer period are advised to select the bonds of those sovereigns with the highest credit
ratings (in the investment grade band). Such an approach should decrease the risk that an investor could end up holding bonds on
which the sovereign has defaulted. Sub-investment grade bonds are recommended only for clients with a higher risk tolerance and
who seek to hold higher yielding bonds for shorter periods only.
Disclaimer
Chief Investment Office (CIO) Wealth Management (WM) Research is published by UBS Wealth Management and UBS Wealth
Management Americas, Business Divisions of UBS AG (UBS) or an affiliate thereof. CIO WM Research reports published outside the US
are branded as Chief Investment Office WM. In certain countries UBS AG is referred to as UBS SA. This publication is for your information
only and is not intended as an offer, or a solicitation of an offer, to buy or sell any investment or other specific product. The analysis
contained herein does not constitute a personal recommendation or take into account the particular investment objectives, investment
strategies, financial situation and needs of any specific recipient. It is based on numerous assumptions. Different assumptions could
result in materially different results. We recommend that you obtain financial and/or tax advice as to the implications (including tax)
of investing in the manner described or in any of the products mentioned herein. Certain services and products are subject to legal
restrictions and cannot be offered worldwide on an unrestricted basis and/or may not be eligible for sale to all investors. All information
and opinions expressed in this document were obtained from sources believed to be reliable and in good faith, but no representation
or warranty, express or implied, is made as to its accuracy or completeness (other than disclosures relating to UBS and its affiliates).
All information and opinions as well as any prices indicated are current only as of the date of this report, and are subject to change
without notice. Opinions expressed herein may differ or be contrary to those expressed by other business areas or divisions of UBS as a
result of using different assumptions and/or criteria. At any time, investment decisions (including whether to buy, sell or hold securities)
made by UBS AG, its affiliates, subsidiaries and employees may differ from or be contrary to the opinions expressed in UBS research
publications. Some investments may not be readily realizable since the market in the securities is illiquid and therefore valuing the
investment and identifying the risk to which you are exposed may be difficult to quantify. UBS relies on information barriers to control
the flow of information contained in one or more areas within UBS, into other areas, units, divisions or affiliates of UBS. Futures and
options trading is considered risky. Past performance of an investment is no guarantee for its future performance. Some investments
may be subject to sudden and large falls in value and on realization you may receive back less than you invested or may be required to
pay more. Changes in FX rates may have an adverse effect on the price, value or income of an investment. This report is for distribution
only under such circumstances as may be permitted by applicable law.
Distributed to US persons by UBS Financial Services Inc., a subsidiary of UBS AG. UBS Securities LLC is a subsidiary of UBS AG and an
affiliate of UBS Financial Services Inc. UBS Financial Services Inc. accepts responsibility for the content of a report prepared by a non-US
affiliate when it distributes reports to US persons. All transactions by a US person in the securities mentioned in this report should be
effected through a US-registered broker dealer affiliated with UBS, and not through a non-US affiliate. The contents of this report have
not been and will not be approved by any securities or investment authority in the United States or elsewhere.
UBS specifically prohibits the redistribution or reproduction of this material in whole or in part without the prior written permission of
UBS and UBS accepts no liability whatsoever for the actions of third parties in this respect.
Version as per May 2014.
В© UBS 2014. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved.
8
CIO WM Research 14 November 2014
Please see important disclaimer and disclosures at the end of the document.
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