EFTA01458641.pdf

Perspective from Larry V. Adam, U.S. Wealth Management CIO and Chief Investment Strategist od o " ';;L A I '.•(J The third quarter of 2015 was dominated by weak The disappointing September jobs report (+142K jobs global trade and deteriorating commodity prices (DJ created) will likely continue to fuel the debate over the Commodity Index —14.5% QoQ) that clouded the timing of the Fed's first rate hike. With two global growth outlook, especially for the emerging consecutive months of below 150K jobs being markets. Commodity producing countries such as created, Fed funds futures suggest the first rate hike Russia and Brazil ended the quarter in recession while will not happen until March 2016 at the earliest. emerging market (EM) currencies fell to a record low. Ironically, with the understanding that the economy is As a result, aggressive measures were taken by approaching full employment San Francisco Fed central banks as the People's Bank of China devalued President John Williams yesterday said a gain of its currency at the fastest pace since 2014, India, "above 100,000 or 150,000 [jobs] would be good to China, Canada, Korea and Russia cut rates and the me," suggesting that the rate of healing is naturally Fed delayed its long awaited rate hike. While U.S. slowing and expected. The bottom line is that our growth was resilient due to better domestic demand U.S. economist, Josh Feinman, believes that Fed and improving housing market, the ongoing policymakers will bide their time, holding their powder deterioration in the energy renaissance weighed on at the October FOMC meeting and waiting for more manufacturing as seen by the ISM Manufacturing evidence before making their decision in December. Index falling to a two-year low. As a result, U.S. GDP The recent slower pace of improvement in the labor is on pace to slow from 3.9% (2Q15) to 2.5% (3Q15). market likely makes the hurdle for lift-off in December As the global growth outlook became uncertain, risk higher, but a move at that meeting remains very assets suffered. Global equities (MSCI AC World in much alive. Next week, the September meeting USD -9.3% QoQ) fell at the fastest pace since 3Q11. FOMC Minutes will be released (Thursday) and In addition, emerging markets (MSCI EM in USD provide additional insights into the differing opinions -17.8%) underperformed developed markets (MSCI (e.g. Lacker's dissent) within the committee. EAFE in USD -10.2%) by the widest margin since I.::; T; . 4Q08. The U.S. fared better than Japan (MSCI Japan Next week (Thursday), kicks of the "unofficial" start to in USD —10.7% and Europe (MSCI Europe ex UK in 3Q15 eamings season. With the Fed on hold until USD -8.0%) but posted its worst quarterly decline December and equity markets remaining highly since 3Q11 (-6.4%). The sell off in risky assets also volatile, the new focus for market direction is the spilled into high yield and emerging market bonds health of corporate earnings. While Alcoa is the only which fell sharply (-4.9% and -2.4%, respectively). In major company to release eamings next week, contrast, the sell off sparked a flight to quality as eamings season kicks into full gear in the weeks of Treasuries (+1.8%) and the Dollar (+0.8%) rallied. October 12th, 19th and 26th when nearly 80% of the S&P 500 companies report earnings. Currently, consensus expects earnings to decline 3.3% (YoY) led by weakness in commodity-related sectors (e.g. energy and materials). However, we expect eamings to ultimately beat expectations by —3-5% to come in Larry Adam, flat to slightly positive YoY. U.S. Wealth Management CIO and Chief Investment Strategist Deutsche Asset & Wealth Management CONFIDENTIAL — PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0 118641 CONFIDENTIAL SDNY_GM_00264825 EFTA01458641