Capital Markets & Thematic Research

February 27th 2015
“Lean times?”
As we explained in last week’s FridayMail, more and more highquality issuers can afford to offer negative bond yields. Attractive
bond yields are becoming scarcer around the globe, putting
investors on a diet. At the same time, the Greek budget is in for lean
times, too. Even if Athens has agreed with the “institutions” on an
extension of the bail-out programme until the end of June, it will not
receive financial support immediately. The agreement will bring
some relief for Greek banks, though (not least because Greek bonds
will probably become eligible for ECB refi operations again).
Despite the tense situation, not least with regard to the still
unresolved conflict in Ukraine, stock prices rose in both Europe and
the US at the beginning of the week and crossed the thresholds of
18,000 (Dow Jones) and 11,000 (DAX), respectively. Market
participants‘ trust in the central banks‘ willingness to act works like a
sedative, and the ECB’s ultra-expansionary monetary policy is a treat
for the European stock markets in particular.
“A repricing of the Fed’s and the Bank of England’s monetary
policy will remain one of the key investment themes during the
coming months.”
Speaking of monetary policy: Even though Fed Governor Janet
Yellen’s testimony statements were largely regarded as dovish, the
Fed is slowly moving towards its first rate hike – while the global
bond markets are still not willing to believe that. A repricing of the
Fed’s and the Bank of England’s (BoE) monetary policy will
therefore remain one of the key investment themes during the
coming months. Meanwhile, the PMIs suggested that the US
upswing is still intact, despite recently disappointing data. While the
downtrend in consumer prices might trigger a deflation discussion
in North America, too, the oil price slide is the main reason for the
price decline. In the medium term, the economic uptrend – and the
labour-market recovery in particular – should increase inflationary
pressures. Interestingly, according to the minutes of its January
meeting, even the Bank of Japan does not seem to see any necessity
for additional monetary stimulus, as downward risks to inflation
abate.
With the data calendar full, it makes sense to focus on what is really
important during the coming week. Investors will want to see
Publications
Dividends instead of low interest rates
Historically low interest rates – not to say
negative – and a need for the developed
world to lower its debt all create a good
environment for taking advantage of the
benefits offered by dividends.
Outperforming the Low-yield Environment
It was at our 2012 Investment Forum in
Hong Kong that we identified financial
repression as the dominant issue affecting
economies and markets for the foreseeable
future. Three years later, our chief investment officers and economic strategists
were once again in this dynamic city to
discuss how our long-term view on capital
markets has evolved. Read more in our
global CIO’s summary.
Chart of the week: Bund yields at historically low levels
Sources: Datastream, Allianz GI Global Capital Markets & Thematic Research , data as of
February, 2015
FridayMail
whether China’s growth rates continue to decline (HSBC services
PMI, due on Wednesday). After disappointing PMIs for January, the
preliminary HSBC index for manufacturing was a ray of hope.
Nevertheless, further cuts in the minimum reserve requirements
and even in key rates as well as increases in construction and
infrastructure investment cannot be ruled out, as the Beijing
government will tolerate a growth slowdown only to a certain
extent. And China is not the only country which might reduce its key
rate again. Several other emerging markets, such as India and
South Korea, might do so, too, as their inflation rates are below their
central banks’ targets. Brazil is an exception; there, stubbornly high
inflation suggests that rates will be hiked again.
In Europe, two central bank councils will meet on Thursday. The
results will probably show that the ECB and the BoE are divided by
more than just the Channel. While the eurosystem will start largescale asset purchases in March, the BoE is slowly moving towards the
first rate hike. Thus, the divergence within the G4 government bond
markets will continue to exist. The BoE’s latest minutes have shown
that the British central bankers do not fully agree with the market’s
dovish interpretation of commodity price-driven disinflation. Rather,
they expect that a better labour market situation might result in
stronger wage growth and, in turn, domestic price pressures. The
British PMIs, which are due on Monday and Wednesday, will give
more insight into the economic momentum.
The ECB meeting, in turn, will bring new macroeconomic forecasts
and more details on quantitative easing. In the run-up, investors will
probably focus on preliminary consumer price inflation in February
(due on Monday), seeing that inflation dropped to a historical low of
-0.6% y/y in January.
In the US, several important economic indicators are due, such as the
ISM indices (Monday and Wednesday), household spending and
income, construction spending (both on Monday) and industrial
order intake (Thursday). Any setbacks due to the cold winter
weather at the end of January should be temporary. The labour
market report, which will be released on Friday, will be particularly
interesting, as it will pave the way for the Fed meeting in March.
The Beige Book (Wednesday) and the results of the bank stress tests
(Thursday) will be closely observed, too. If the Fed deletes the
important word “patience” from its statement, the way will be free
for a turnaround in monetary policy at the second-next meeting in
June. However, the Fed bankers might emphasise the data
dependency of monetary policy in the coming weeks in order to
preserve some flexibility.
Is the end of the lean times on the
bond markets approaching? Not in
the near future. Yours
Ann-Katrin Petersen
Follow us on Twitter and be up to
date with our latest research.
Ann-Katrin Petersen
Assistant Vice President, Global
Capital Markets & Thematic
Research
Upcoming political Events 2015
March:
04.-05. March
05. March
09.-10. March
15. March
16.-18. March
17.-18. March
Bank of England Policy Meeting
ECB Governing Council Meeting
Eurogroup/ECOFIN Meetings
US debt ceiling suspension ends
Bank of Japan Monetary Policy Meeting
FOMC Meeting
 Overview political events 2015
Other Publications:
Liquid Alternatives
Hedge Funds Review on how the fast-growing
alternatives unit of AllianzGI shows there is
room in the market for low-risk low-returning
investments.
Global Capital Markets & Thematic Research
goes MP3, iPod & Blackberry:
 to our publications
 to our twitter feed
 to our podcasts
The views and opinions expressed herein, which are subject to change without notice, are those of the issuer or its affiliated companies at the
time of publication. Certain data used are derived from various sources believed to be reliable, but the accuracy or completeness of the data is
not guaranteed and no liability is assumed for any direct or consequential losses arising from their use. The duplication, publication, extraction
or transmission of the contents, irrespective of the form, is not permitted.
This material has not been reviewed by any regulatory authorities. In mainland China, it is used only as supporting material to the offshore
investment products offered by commercial banks under the Qualified Domestic Institutional Investors scheme pursuant to applicable rules and
regulations.
This document is being distributed by the following Allianz Global Investors companies: Allianz Global Investors U.S. LLC, an investment adviser
registered with the U.S. Securities and Exchange Commission (SEC); Allianz Global Investors Europe GmbH, an investment company in
Germany, authorized by the German Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin); Allianz Global Investors Hong Kong Ltd. and RCM
Asia Pacific Ltd., licensed by the Hong Kong Securities and Futures Commission; Allianz Global Investors Singapore Ltd., regulated by the
Monetary Authority of Singapore [Company Registration No. 199907169Z]; and Allianz Global Investors Japan Co., Ltd., registered in Japan as a
Financial Instruments Business Operator; Allianz Global Investors Korea Ltd., licensed by the Korea Financial Services Commission; and Allianz
Global Investors Taiwan Ltd., licensed by Financial Supervisory Commission in Taiwan.
FridayMail
Calendar Week 10:
Monday
• Eurozone:
 CPI (Feb) (-0.6% y/y)
 Unemployment Rate (Jan) (11.4%)
 Data on ABS and Covered bond purchases
• Germany:
 Retail Sales (Jan) expt. +0.4% m/m (+0.6%m/m)
• US:
 Construction Spending (Jan) +0.4% m/m (+0.4% m/m)
 ISM Manufacturing (Feb) 53.4 (53.5)
 Personal Income (Jan) +0.4% m/m (+0.3% m/m)
 Personal Spending (Jan) -0.1% m/m (-0.3% m/m)
• UK:
 Markit Manufacturing PMI (Feb) (53.0)
• Italy:
 Markit Manufacturing PMI (Feb) (49.9)
 GDP annual (2014) (-1.9% y/y)
• Russia:
 HSBC Manufacturing PMI (Feb) (47.6)
Payment Redemptions: Italy (2bn CHF)
Tuesday
• Eurozone:
 PPI (Jan) (-1.0% m/m)
• US:
 ISM New York (Feb)(44.5)
• Japan:
 Monetary Base (Feb) (+37.4% y/y)
Reports: Merck
Payment Redemptions: Greece (8.36bn EUR)
Wednesday
• Eurozone:
 Retail Sales (Jan) (+0.3% m/m)
• US:
 MBA Mortgage Applications (CW9)
 ADP Employment Change (Feb) +218K (+213K)
 ISM Non-Manuf. Composite (Feb) 56.5 (56.7)
 Federal Reserve releases Beige Book
• UK:
 Markit Services PMI(Feb) (57.2)
• Italy:
 Markit Services PMI (Feb) (51.2)
• Russia:
 HSBC Services PMI (Feb) (43.9)
• Japan:
 Markit Services PMI (Feb) (51.3)
• China:
 HSBC Services PMI (Feb) (51.8)
Reports: Henkel
Thursday
• Eurozone:
 Press conference on results from ECB Council meeting incl.
inflation and growth projections
• Germany:
 Factory Orders (Jan) (+4.2% m/m)
• US:
 Initial Jobless Claims (CW9)
 Continuing Claims (CW8)
 Factory Orders (Jan) -0.5% m/m (-3.4% m/m)
 Federal Reserve: Results from bank stress tests
• UK:
 Results from BoE Policy meeting (Feb) (+3.9% m/m)
• Russia:
 CPI (Feb) (+3.9% m/m)
Reports: Adidas, Continental, Carrefour
Payment Redemptions: France (7.87 bn JPY)
Friday
• Eurozone:
 GDP sa (4Q) (+0.3% q/q)
• Germany:
 Industrial Production (Jan) (+0.1% m/m)
• US:
 Change in nonfarm payrolls (Feb) +243K (+257K)
 Unemployment Rate (Feb) 5.6% (5.7%)
 Trade Balance (Jan) -42.5bn USD (-46.6bn USD)
Payment Redemptions: Greece (1.2bn EUR)
The views and opinions expressed herein, which are subject to change without notice, are those of the issuer or its affiliated companies at the
time of publication. Certain data used are derived from various sources believed to be reliable, but the accuracy or completeness of the data is
not guaranteed and no liability is assumed for any direct or consequential losses arising from their use. The duplication, publication, extraction
or transmission of the contents, irrespective of the form, is not permitted.
This material has not been reviewed by any regulatory authorities. In mainland China, it is used only as supporting material to the offshore
investment products offered by commercial banks under the Qualified Domestic Institutional Investors scheme pursuant to applicable rules and
regulations.
This document is being distributed by the following Allianz Global Investors companies: Allianz Global Investors U.S. LLC, an investment adviser
registered with the U.S. Securities and Exchange Commission (SEC); Allianz Global Investors Europe GmbH, an investment company in
Germany, authorized by the German Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin); Allianz Global Investors Hong Kong Ltd. and RCM
Asia Pacific Ltd., licensed by the Hong Kong Securities and Futures Commission; Allianz Global Investors Singapore Ltd., regulated by the
Monetary Authority of Singapore [Company Registration No. 199907169Z]; and Allianz Global Investors Japan Co., Ltd., registered in Japan as a
Financial Instruments Business Operator; Allianz Global Investors Korea Ltd., licensed by the Korea Financial Services Commission; and Allianz
Global Investors Taiwan Ltd., licensed by Financial Supervisory Commission in Taiwan.