EFTA01458642.pdf

Global Equities While good U.S. economic data is normally positive for the Eurostoxx, the impact of lower U.S. inflation or 15 Valuation wage growth data on Europe is less known. mll* 14 But if you assumed this worked against Fed rate hikes, then it could move EUR/USD up again in the 13 short term — often not a positive for the Eurostoxx. 12 A fading tailwind from a weak EUR would have an 11 • impact on Eurozone companies, particularly on 2016 earnings. Equity investors are already focusing on 10 next year, so this could affect current levels. 0 The good news is that ECB knows all this and should 8 include the EUR as a factor in any decision to expand or prolong its quantitative easing (QE) program, if . 4b e re le 4)14. le 1043 / Eurozone economic data should deteriorate. 410 IP The earnings exposure of the Eurostoxx to China is about 15-20% with the German market being the most Figure 1. Eurostoyar50 price/earnings TIE; valuations' exposed. So downward revisions to earnings per Source: Bloomberg Finance LP. Deutsche AWM. Data as of September 30. 2015. share (EPS) estimates would not surprise. • Next 12 months, consensus estimates. Lower valuations will, of course, price in negative news from China to some extent. But the impact of Focus of the week China on other emerging markets could create further Equities: Any ECB decision on QE expansion or problems — and not only for European markets. prolongation will likely factor in the implications of Global Fixed Income the EUR exchange rate for Eurozone equities. — Eurozone GDP growth picked up to +1.5% YoY in Q2 Fixed Income: Eurozone bond yields remain more 2015, up from around +0.75% a year ago. influenced by disinflation concerns than evidence — Normally, such an improvement in growth would have that economic growth is picking up. been expected to push government bond yields higher. — However, Eurozone bond yields currently look more influenced by the disinflation impulse coming from 3 Eurozone COOSUMOf price China and commodities. It looks as though worries 25 inflation. yeaeon-year about inflation trump growth, so far this year. 2 French 10 year governmenl bond yield — The quantitative easing (i.e. bond buying) program by 1.5 the ECB has also increased demand and thus the 1 prices of government bonds, thereby reducing yields, mainly in the first quarter of this year. 05 — The chart shows the currently close correlation 0 between government bond yields in the Eurozone as (proxied for by the French 10 year yield) and inflation. .1 — Should the disinflation impulse from China/ commodities get more obvious, as the ECB hinted at in its last press conference, a further fall in inflation 4, "tee," # GIP 0 1 E9 ittle O, # cannot be ruled out. The latest inflation release showed Figure 2 Eurozone inflation and government bond yields compared consumer prices falling by -0.1% YoY in September Source. Bloomberg Finance LP. Deutsche AWM. after +0.2% the month before. Data as of September 30. 2015. No assurance can be given that any forecast or target can be achieved. Forecasts are based on assumptions, estimates, opinions and hypothetical models which may prove to be incorrect. Past performance is not indicative of future returns. Investments come with Deutsche Asset risk. The value of an investment can fall as well as rise and you might not get back the 3 Wealth Mahanerrtent amount originally Invested at any point in time. Your capital may be at risk. October 2. 2015 CONFIDENTIAL — PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0 118643 CONFIDENTIAL SDNY_GM_00264827 EFTA01458642