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f AECS Equity Research Economics Global weekly outlook M o nda y , J u ly 1 4 , 2 0 14 The major events of note for this week are certainly going to be Fed chief Janet Yellen’s testimony before US Congress on Tuesday, with hopes of insight into the central bank’s monetary policy outlook, and the release of China’s gross domestic product (GDP) figure for 2Q2014, expected to expand 7.4%, and should continue to perform better in 2H2014. Figure 1: Portugal bank spooked 2012 flashback % 6.50 Portugal 10yrs yield 6.00 5.50 5.00 4.50 Unchanged dovish with a mixed bag data in US: Yellen’s testimony will be of interest for this week’s economic calendar amid hopes that it will provide some insight into US monetary policy outlook. Even so, we believe that the status quo of a dovish stance from the FOMC minutes in the past week has been priced into the result of the US bond auction, and that the Fed’s stance will persist for an extended period. Other US economic data offers a mixed bag. To start with, retail sales data is set to maintain positive momentum, notably quarter-to-quarter, with a rise of 0.6% QoQ and 0.5% QoQ for June’s core retail sales. But housing data is likely to resume its uptrend after construction suffered under the harsh winter. June’s forecast consensus for housing starts and building permits are 1,025k and 1,037k, respectively, rising from May’s 1,001k and 1,005k. But, despite the four-year high of 19.28 for the Empire manufacturing index, it is likely to edge lower to 17.0 in June. The Philly Fed business index is expected to fall from 17.8 to 16.0. Both indices should remain in resilient territory. 4.00 3.50 3.00 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Sources: Bloomberg, AECS Research Europe staying on the edge of juncture: Obviously, the Euro area’s economic data remains unlikely to provide us with a sufficiently compelling story as June’s consumer price index (CPI) is expected to merely confirm its flash estimate of 0.5% YoY and industrial production is set to soften from 0.8% MoM to 0.3% MoM in June. The lingering low inflation and lackluster economy will inevitably be prolonged. Also, banking sector concerns have erupted again after Portuguese banks last week missed to make their payments on commercial paper. And undoubtedly, the business sentiment index in Germany will continue worsening from 29.8 to 28.2 in June (despite their World Cup win). Although confidence has greatly improved since the zone’s central bank chairman Mario Draghi promised to do whatever it takes to solve the crisis in 2012, it seems that deep-rooted problems remains unresolved. Chinese economy is set to grow 7.4% in 2Q2014: This growth (7.4% YoY and 1.8% QoQ) comes with thanks to the weakening CNY driving net exports higher and a manufacturing sector that has gradually recovered – the PMI rose above 50 for the first time since January 2014 to 50.7 in June. Looking beyond 2Q2014 data, we believe China’s economy is likely to perform better in 2H2014, since historical data suggests that the GDP in 3Q and 4Q usually accounts for around 25% and 30% of total GDP, which are more significant than the figures for 1Q and 2Q. Economist/Strategist Ratasak Piriyanont [email protected] Tel: 662-659-3382 Senior Economist/Strategist Isara Ordeedolchest [email protected] Tel: 662-659-3378 Global Outlook Figure 1: US economic data %YoY 15.00 Retail sales %YoY %YoY 10 Core retail sales %YoY 10.00 5 5.00 0 0.00 -5 -5.00 -10 -10.00 -15 Industrial production %YoY Capacity utilization rate (RHS) % 85 80 75 70 -15.00 65 -20 Consensus Previous 0.6% 0.3% 0.1% Retail sales % MoM Core retail sales 0.5% % MoM Sources: Bloomberg, AECS Research 60 Consensus Previous Industrial production % MoM 0.3% 0.6% Capacity utilization 79.3% 79.1% Figure 2: US economic data '000 Housing starts Building permits Index 50 2,500 Philly fed manf. Index Empire state manf. Index (RHS) 40 40 30 2,000 Index 50 30 20 20 10 1,500 10 0 0 -10 1,000 -10 -20 -20 -30 500 0 -40 -30 -50 -40 Consensus Previous Housing starts 1025k 1001k Philly Fed index Consensus 16.0 Previous 17.8 Building permits 1037k 1005k Empire manf. index 17.0 19.28 Sources: Bloomberg, AECS Research Figure 3: Euro area economic data %YoY CPI %YoY Index Core CPI %YoY %YoY 100.00 5.00 German zew EU area Zew Industrial production %YoY (RHS) 80.00 15 10 4.00 60.00 5 40.00 3.00 0 20.00 -5 2.00 0.00 -10 1.00 -20.00 -15 -40.00 0.00 -20 -60.00 -1.00 -80.00 Consensus Previous Euro CPI % YoY 0.5% 0.5% Euro Core CPI % YoY 0.8% 0.8% -25 Consensus Previous Zew German 28.2 29.8 Zew Euro area n/a 58.4 Sources: Bloomberg, AECS Research Monday, July 14, 2014 Page 2 of 4 Global Outlook Figure 4: UK economic data %YoY 6.00 UK CPI %YoY UK Core CPI %YoY '000 150 Claimant count change % 9 Unemployment 8.5 5.00 100 8 4.00 7.5 50 3.00 7 6.5 2.00 0 6 5.5 1.00 -50 5 0.00 4.5 -100 -1.00 Consensus Previous UK CPI % YoY 1.6% 1.5% UK Core CPI % YoY 1.7% 1.6% 4 Claimant count change Unemployment rate Consensus Previous -27.0k -27.4k 6.5% 6.6% Sources: Bloomberg, AECS Research Figure 5: UK economic data %YoY China GDP %YoY %YoY 13.00 25.00 Retail sale %yoy Retail sale %yoy (6 months moving average) 12.00 20.00 11.00 10.00 15.00 9.00 10.00 8.00 7.00 5.00 6.00 0.00 5.00 Consensus China GDP % YoY 7.4% Previous 7.4% China retail sales % YoY Consensus Previous 12.5% 12.5% Sources: Bloomberg, AECS Research Monday, July 14, 2014 Page 3 of 4 AECS Investment Research – Recommendation Definitions Sector Recommendations Stock Recommendations OVERWEIGHT: The industry, as defined by the analyst’s coverage universe, is expected to outperform the relevant primary market index by at least 10% over the next 12 months. BUY: Expecting positive total returns of 15% or more over the next 12 months. NEUTRAL: The industry, as defined by the analyst’s coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months. HOLD: Expecting total returns of not more than -10% to +10% over the next 3 months. UNDERWEIGHT: The industry, as defined by the analyst’s coverage universe, is expected to underperform the relevant primary market index by 10% over the next 12 months. SELL: Expecting negative total returns of 15% or more over the next 12 months Disclaimers The disclosure of survey results from the Thai Institute of Directors Association (IOD) regarding corporate governance is in accordance with the policy of the Office of the Securities and Exchange Commission of Thailand. The IOD survey is based on information from a company listed on the Stock Exchange of Thailand and/or the Market for Alternative Investment as a matter of public record and is accessible by general public investors. Therefore, the survey result comes from the perspective of a third party. It does not represent an evaluation of operations neither is it based on inside information. The survey result given pertains to the date appearing in the IOD’s Corporate Governance Report of Thai Listed Companies. As a result, the survey may be subject to change after that date. AEC Securities Plc. (AECS) neither confirms nor certifies the accuracy of such survey results. The opinions and information contained herein are based on sources believed to be reliable, but AECS does not guarantee their accuracy, completeness or correctness. This information is not to be construed as an offer, invitation or solicitation to buy or sell the securities covered in this report. AECS accepts no liability whatsoever for any direct, indirect or consequential loss arising from any use of this document or its contents. AEC Securities Public Company Limited 63 Athenee Tower, 17th Floor Wireless Rd, Lumpini, Patumwan, Bangkok 10330 Tel. 02 659 3376 Fax 02 659 3390 www.aecs.com Monday, July 14, 2014 Page 4 of 4