Barclays Euro Weekly

transcript

ResearchEuropean Economics & Rates Strategy

4 October 2013

PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES STARTING AFTER PAGE 37

Euro Weekly Economics

Euro area: Europe slowly leaving the demons behind 3 Cyclical indicators show euro area growth strengthening while retail sales growth and a reversal in the deterioration of the labour market to some upside risk on consumption.

UK: Politics start to drive economic policy 5 The centrality of the economy to the political discourse was underscored by several new policy announcements designed to cement the governments standing.

Rates Strategy

Euro Area: EUR long end and UFR committee proposal 20 We think the proposed UFR committee changes might help to make the EUR 10s/30s curve slightly more resilient to a US-led potential flattening of the 10s/30s developed market curves. However, we would not chase the 10s/30s steepening, even if carry is still attractive.

Money Markets: Liquidity evolution under the ECBs attention 23 Over the past month, euro short rates have declined, reflecting dovish Fed comments and the ECBs suggestion of the possibility of another LTRO. We expect the 1y1y Eonia forward to keep trading at 35-45bp.

Sovereign Spreads: Q4 and 2014-15 Supply Outlook 26 We forecast gross supply for the remainder of 2013 at c.168bn, resulting in total net issuance of just under 48bn. We look for 2014 gross bond issuance in the euro area to show a decrease of about 5bn, with total gross issuance forecast at 872bn.

UK: Post-supply flattening bias in long gilts 30 Some concession seems likely into upcoming ultra-long supply. However, the relatively light supply schedule and improving funding position of defined benefit schemes suggests that the long end can richen, and the curve flatten into year-end.

Covered Bonds and SSA: Short-term supply and Spain relative value update 33 In this weeks AAA Investor, we provide an update on supply conditions in the covered bond and SSA markets. We also look at relative value opportunities in Spain between covered bonds and senior unsecured debt.

Scandinavia: Sweden: Ready for a change of pace? 34 With the cyclical outlook improving, we still see value in holding SEK/EUR 1y1y/1y2yfwd steepeners. We also recommend entering 3m Sep 14/Sep 15 steepeners and hold on to our 10y SGB ASW wideners.

UK Inflation-Linked: Priced to go 36 The IL19 is cheap into its forthcoming auction, and offers structural value but concerns about the depth of structural 5y linker demand may constrain any outperformance.

Volatility: Long GBP 3m*5y 37 We recommend buying GBP 3m*5y low-strike receivers, delta-hedged and initiating 1m vs. 3m*5y calendar spread as current implied vol levels on 5y tails are low enough to benefit from volatility due to the data-dependent guidance introduced by the MPC.

Economics

Philippe Gudin +33 (0)1 4458 3264 philippe.gudin@barclays.com Rates Strategy

Laurent Fransolet +44 (0)20 7773 8385 laurent.fransolet@barclays.com

Global Traders Guide 7

Global Economics Calendar 8

Critical events calendar for US, Euro Area, Japan and UK 15

Euro Data Review and Preview 17

UK Data Review and Preview 19

Global Supply Calendar 41

Global Bond Yield Forecasts 42

All content in this report is previously published. The Economics section is excerpted from Global Economics Weekly. Rates Strategy is excerpted from the Global Rates Weekly. Calendars and key events are excerpted from the Global Traders Guide. View the full reports, including analyst certifications and other required disclosures, by clicking on the hyperlinks of these publications or by going to our research portal on Barclays Live.

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Barclays | Euro Weekly

4 October 2013 2

EURO AREA ECONOMIC FORECASTS

% change q/q

2012 2013 2014 Calendar year average

Q1 Q2 Q3 Q4 Q1 Q2 Q3E Q4E Q1E Q2E Q3E Q4E 2011 2012 2013E 2014E

Real GDP -0.1 -0.3 -0.1 -0.5 -0.2 0.3 0.2 0.3 0.3 0.4 0.4 0.4 ... ... ... ...

Real GDP (saar) -0.4 -1.1 -0.4 -1.9 -0.6 1.2 0.7 1.1 1.2 1.6 1.6 1.5 ... ... ... ...

Real GDP (y/y) -0.2 -0.5 -0.7 -1.0 -1.0 -0.5 -0.2 0.6 1.1 1.2 1.4 1.5 1.6 -0.6 -0.3 1.3

Private consumption -0.4 -0.6 -0.1 -0.5 -0.2 0.2 0.0 0.1 0.1 0.2 0.2 0.2 0.3 -1.4 -0.6 0.5

Public consumption -0.3 -0.3 -0.2 0.1 0.0 0.4 0.0 0.1 0.1 0.2 0.2 0.2 -0.1 -0.6 0.2 0.6

Investment -1.1 -1.9 -0.4 -1.2 -2.2 0.3 0.1 0.3 0.4 0.7 0.8 0.7 1.7 -3.7 -3.5 1.8

- Residential construction -0.5 -1.6 -0.2 -1.5 -1.6 0.7 -0.2 -0.1 0.0 0.2 0.4 0.3 0.2 -3.3 -2.8 0.5

- Non-residential construction -2.2 -2.0 -0.4 -1.3 -2.9 -0.5 0.0 0.1 0.3 0.4 0.5 0.5 -0.5 -4.9 -4.8 1.0

- Non-construction investment -0.8 -2.0 -0.5 -1.0 -2.2 0.4 0.3 0.7 0.8 1.0 1.1 0.9 4.0 -3.2 -3.1 3.2

Inventories contribution (pp) 0.0 -0.1 -0.2 -0.2 0.4 -0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.2 -0.5 0.1 0.0

Final dom. demand cont. (pp) -0.5 -0.8 -0.2 -0.5 -0.5 0.2 0.0 0.1 0.2 0.3 0.3 0.3 0.5 -1.7 -1.0 0.8

Net exports contribution (pp) 0.4 0.5 0.2 0.1 0.0 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.9 1.6 0.5 0.4

Industrial output (ex construct.) -0.5 -0.7 0.2 -2.0 0.2 0.6 -0.1 0.3 0.3 0.3 0.4 0.5 3.2 -2.3 -0.9 1.2

Employment (q/q) -0.2 -0.1 -0.1 -0.3 -0.4 -0.2 -0.1 0.0 0.1 0.1 0.2 0.2 0.3 -0.7 -1.0 0.3

Unemployment rate % 10.9 11.3 11.5 11.8 12.0 12.1 12.0 12.1 12.2 12.2 12.2 12.1 10.2 11.4 12.0 12.2

CPI inflation (y/y) 2.7 2.5 2.5 2.3 1.9 1.4 1.3 1.1 1.0 1.3 1.1 1.2 2.7 2.5 1.4 1.2

Core CPI (ex food/energy) y/y 1.5 1.6 1.6 1.5 1.4 1.1 1.0 0.9 1.0 1.1 1.0 0.9 1.4 1.5 1.1 1.0

Current account % GDP 0.9 1.2 1.5 1.8 2.5 2.6 2.7 2.8 2.8 2.8 2.8 2.8 0.1 1.3 2.6 2.8

Government balance % GDP -4.2 -3.7 -2.9 -2.3

Refi rate (period end %) 1.00 1.00 0.75 0.75 0.75 0.50 0.50 0.50 0.50 0.50 0.50 0.50 1.00 0.75 0.50 0.50

Note: All numbers expressed in % q/q unless otherwise specified. Source: Barclays Research

SUMMARY OF VIEWS

Direction Negotiations in the US on the debt ceiling/government shutdown should set the tone for markets in Europe. On the supply side, the focus will be on Italian supply next week, although Italian politics are unlikely to attract the same level of attention going forward (despite the Italian Senate committees decision to expel Berlusconi) following PM Lettas successful confidence vote. UK: Short rates remain under pressure as the term premium is rising and data have continued to surprise to the upside.

Curve/ curvature

Hold onto receive EUR 5y5y/5y10y/5y15y fwds. Hold onto pay EUR 5y10y/5y15y/5y20y fwds. UK: Some steepening likely into ultra-long supply at the end of October, but into year end, the long end should outperform

outright and on the curve . Pay GBP 1y3yfwd/1yr4yr fwd spread.

Swap spreads

EUR: Keep long 10s/30s ASW box in France. EUR: Keep long Bund ASW on a strategic basis, keep long Bund ASW on the Bobl/Bund ASW box. GBP: More QE looks unlikely for now, leaving spreads vulnerable given gilt supply outlook for next few years remains heavy.

Other spread sectors

SEK: Keep SEK 1y1y/1y2yfwd steepeners versus EUR and SEK 10y ASW wideners. Hold Spain 5s/10s/30s. Long 5-8y Netherlands and Finland versus France. Long 8-9y Belgium versus France.

Inflation Euro: Steepness of real yield curve and lack of supply susceptible to support in the very long end. UK: IL19 offers structural value, but depth of demand for the sector is unclear.

Volatility Buy EUR 6m (5-30y) curve floors contingent on 5y swap rate below a certain level to hedge an unexpected risk-flare in the Eurozone.

Buy EUR 6y*5y vs. 1y*(5y5y) to position for a steepening of the vol surface Source: Barclays Research


4 October 2013 3

EURO AREA OUTLOOK

Europe slowly leaving the demons behind Cyclical indicators show euro area growth strengthening while retail sales growth and a

reversal in the deterioration of the labour market to some upside risk on consumption.

As the ECB repeated last months messages, we continue to expect a VLTRO to be triggered before year end to help establish the single supervisor mechanism.

Political impasse in Italy was resolved as PDL dissenters support the government. Short-term risks have somewhat abated but Italys political future is still unclear.

This weeks data releases pave the way for better days ahead September final PMIs came in higher for the sixth consecutive month, this time rising by 0.7 points to 52.2, owing mainly to a robust catch up by the service sector, reaching levels not seen in more than two years (June 2011). Overall, this months rise was once again driven by stronger forward-looking and employment components. On a country level, France is catching up while Italy surged on services increasing by nearly 4 points. Spain, Ireland and, to a lesser extent, Germany consolidated. Our PMI-based GDP indicator for the euro area is now in line with our forecast of 0.2% q/q GDP growth. For countries, GDP indicators are in line with our Q3 forecast in Germany (+0.4% q/q), slightly more pessimistic in France (-0.1% vs. 0.0%) and slightly more optimistic in Italy (0.1% vs. 0.0%) and Spain (+0.3% vs. 0.1%). That said, over the recent quarter, PMIs have been downwards biased in France and upwards biased in Spain, hence we see this weeks release as further support of our expectations. Looking ahead, we do not expect surveys to improve much further as their current levels are already consistent with GDP accelerating very gradually in the coming quarters.

August retail sales in the euro area came in on the stronger side, posting a +0.7% m/m increase in addition to being revised up from +0.1% to +0.5% in July. With a +0.7% q/q carry over for Q3, retail sales now point to some upside risks to our forecast of flat consumption in the third quarter. While we do not see private consumption a main driver of activity neither this year nor next we acknowledge that rising consumption supported stronger-than-expected growth in Q2 and might surprise again on the upside. In particular, labour markets have now turned the corner and any stronger-than-anticipated improvement in

Fabrice Montagne +33 (0) 1 4458 3236 fabrice.montagne@barclays.com

FIGURE 1 PMI employment component edging up across the euro area

FIGURE 2 Excess job shedding relative to GDP seems to be over

Source: Haver Analytics, Barclays research Source: Eurostat, Haver analytics, Barclays Research

Stronger PMIs slightly above the 50 point mark supports our gradual recovery scenario

Retail sales point to some upside risk to our private consumption forecast in Q3 while labour markets have turned around

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Euro Area FranceGermany ItalySpain

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96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Real GDP (% q/q, 1 quarter lag, LHS)

Unemployed (thous, % 3mma, RHS, inverted) F

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4 October 2013 4

employment will have a direct effect through rising revenues and an indirect effect through confidence. Euro area unemployment of 12.0% in August was stable versus July (revised down) and down 0.1pp versus June.

ECB keeps all options on the table to avoid liquidity accidents ECB president Mario Draghi repeated the previous Governing Council message that it was seeking to keep all options open. His economic assessment showed downwards risks on growth while the picture for inflation was seen are balanced. We continue to envisage another very long-term refinancing operation (VLTRO) before year end if the liquidity surplus continues to shrink in the coming months and pushes Eonia higher. An interest rate cut remains unlikely in our view, unless economic activity takes a step back and the forward guidance is likely to remain unchanged in the coming months with the next step being to remove the downward bias should the economic situation further improve. Concerning the upcoming Asset Quality Review (AQR), Mr Draghi repeated that details will be released in the second half of October. In his own words, to be credible, the AQR will need to be rigorous and transparent.

Italy: an epic week ends on a reassuring note for short-term political stability When Mr Berlusconi announced his party would withdrew support for the government, fears that political instability would bring the country a few month back to when President Napolitano struggled to form a government. Under the pressure of his own party dissenters, Mr Berlusconi eventually backed down and PM Letta passed confidence vote in Parliament on Wednesday. This epic showdown gives a temporary conclusion to months of political mayhem during which Investors have been favouring low key Spain to facetious Italy. Since 1st of August the 10 year yield spread between Italy and Spain has widened 40bp to the point that Spanish 10 year rates fell below Italian beginning of September.

Looking ahead, it is unclear whether Mr Berlusconis PDL party will remain as one or whether Mr Alfano will lead the dissenters to split and create a new political formation. The support of the dissenters for the current government should nonetheless lower the risk of political upheaval in the short term. But whatever the arithmetic, any governing majority will remain fragile until the electoral law is changed. Hence, we continue to think that snap elections will be held in Q1/(early) Q2 next year but a plausible alternative scenario would be that this government holds on until mid 2015 conditional to further PDL dissenters or 5SM support.

ECB dancing sideways waiting for next years banking union to provide the much expected game changing drive to a euro area sustained recovery

Political mayhem in Italy deters investors showing preference for Spain

FIGURE 3 ECB: Monetary policy expectation cooling down (1Y1Y fwd)

FIGURE 4 Italy paying the price for political instability (10Y bond yield)

Source: Barclays Live Source: Haver Analytics, Barclays Research

Political future still to be determined but short-term risks abate

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4 October 2013 5

UK OUTLOOK

Politics start to drive economic policy The centrality of the economy to the political discourse was underscored by several

new policy announcements designed to cement the governments standing.

The government has brought forward the second leg of its Help to Buy scheme, a measure that is likely to add to house price pressures.

The Chancellor also announced plans for a new fiscal rule and his intention to hold fuel duty fixed for the rest of the parliament.

Ever since the global financial crisis, the economy has been central to the political discourse in the UK, and remains so. The opposition Labour Party saw a sharp increase in its lead in the polls last week following the announcement that it would freeze domestic energy prices. Pollsters have warned that such bounces often prove fleeting, however, and the Conservatives still hope that their greater poll standing on economic competence will secure them an outright majority in the May 2015 election.

Despite the fact that the general election is still more than 18 months away, the parties have begun positioning themselves for that battle, with several eye-catching measures announced at the recent party conferences. In particular, the government has brought forward the second leg of its Help to Buy housing support scheme, announced its intention to introduce a new fiscal rule and said it hopes to hold fuel duty unchanged for the remainder of the parliament.

To recapitulate, the governments Help to Buy scheme has two parts (which we label HtB1 and HtB2). HtB1 is already in operation, and provides a low-cost equity loan to first-time buyers for the purchase of newly-built properties. HtB1 has been generally lauded for encouraging more house building and revitalising interest from first-time buyers, and there is plenty of anecdotal evidence to support this assessment.

HtB2, by contrast, has been criticised by many commentators, sometimes in colourful and withering terms. The scheme, which is now to come into operation next week, three months ahead of the original schedule, aims to increase the provision of mortgages with a loan to value (LTV) ratio above 80% by providing insurance for the lender against a first-

Simon Hayes +44 (0)20 7773 4637 simon.hayes@barclays.com

FIGURE 1 Houses remain expensive relative to household income

FIGURE 2 The PMIs suggest upside risks to our Q3 GDP growth estimate

Source: Haver Analytics, Barclays Research Source: Haver Analytics, Barclays Research

The government this week made several new policy announcements to counter opposition gains on economic policy

The controversial second leg of Help to Buy has been brought forward by three months

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4 October 2013 6

tranche loss in the event of default. HtB2 is broader in scope than HtB1: availability will not be restricted to first-time buyers, nor to the purchase of newly built houses. The governments view is that the absence of higher LTV mortgages is a sign of market failure and is socially undesirable. Critics, however, have claimed the policy may encourage a return to high-risk lending and is likely to provide an undesirable boost to prices.

The problem in assessing the likely consequences of HtB2 is that, at the time of writing, we do not know the price of the insurance, which is crucial because it will determine the take-up of the scheme by the lenders. It is also worth noting that, according to a report in the Financial Times, lenders are generally lukewarm on the scheme, and only the two government-controlled banks have so far signed up to it. The schemes launch could therefore be something of a damp squib.

In our view, the threat to financial stability from HtB2 is likely to be small. It will require borrowers to put down a deposit of at least 5% of the value of the property (ie the LTV is capped at 95%), an amount that was considered normal for many years prior to the financial crisis. Moreover, the government has asked the Bank of Englands Financial Policy Committee to assess the scheme annually. However, HtB2 is likely to add to price pressures in the housing market, and with house prices already stretched relative to household incomes (Figure 1) it is not clear what economic benefit is likely to flow from this.

The government currently operates under a single fiscal mandate, which is to have the cyclically-adjusted current budget in surplus at a rolling five-year horizon. The fact that the horizon rolls has prompted criticism that the target imposes inadequate discipline. This week, Chancellor Osborne announced that he plans to introduce a new fiscal mandate committing the government to running a budget surplus by 2020. He indicated that this would be achieved by continuing to squeeze welfare and other public spending, potentially paving the way for tax cuts towards the end of what would be a decade-long austerity drive.

The Chancellor also said he plans to freeze fuel duty for the remainder of this parliament, so long as he can find the necessary savings to pay for it within the existing spending envelope. This move is designed to counter the Labour Partys accusation that the improvement in the economy is not being reflected in households living standards. The measure is not large, however, knocking only about 0.05pp off annual CPI inflation.

The ongoing improvement in the economy was evident in the September PMIs, released this week. Although all three of them services, manufacturing and construction declined on the month, the implied pace of expansion remained high. Our composite PMI implies GDP growth of about 0.9% q/q in Q3, above our official estimate of 0.7% growth (Figure 2).

With economic management apparently top of the agenda for the 2015 election we have probably entered a period in which there is an increased likelihood of snap policy announcements, driven more by political expediency than by longer-term economic considerations. The oversight of the Office for Budget Responsibility should provide some assurance that new measures will be properly costed and that their effect on the public finances are accurately assessed. However, with the austerity debate now extending into the next parliament, the fiscal discipline running up to the election may be somewhat flexible, so that public finance consolidation poses less of a headwind to demand than has previously been the case.

We do not see HtB2 as a threat to financial stability, but it is likely to boost house prices, with questionable benefit

The Chancellor is to commit to delivering a budget surplus in the next parliament

The proposed fuel duty freeze should have a small moderating effect on inflation

As the election looms, public finance consolidation is likely to be less of a drag on demand


4 October 2013 7

GLOBAL TRADERS GUIDE

Key data and events

US Next week sees various international meetings (10-13 Oct.) in Washington and the

release of the IMFs latest forecasts. Policymakers are likely to emphasise the need for resolution in the US Congressional fiscal stand-off.

Europe We expect Aug. French IP to have increased by 0.5% m/m (Thu.; consensus: 0.6%; last:-

0.6%). We forecast Aug. Italian IP to have risen by 0.5% m/m (Thu.; consensus: 0.7%; last: -1.1%). In Germany, we project Aug. IP to have bounced back, recording a growth of 2.0% m/m (Wed.; consensus: 1.0%; last: -1.7%).We and the consensus look for the preliminary estimates of Sep. HICP for Germany (Fri.; last: 1.6% y/y), Spain (last: 0.5% y/y) and Italy (last: 0.9% y/y) to be confirmed in the final releases. We and the consensus estimate German Aug. factory orders to have inched upward by 1.0% m/m as foreshadowed by strong VDMA machinery orders (Tue.; last: -2.7%).

In the UK, we expect the BOE to maintain its policy rate at 0.50% and asset purchases at 375bn (Thu.). We forecast Aug. IP to have risen by 0.1% m/m (Wed.; consensus: 0.4%; last: 0.0%) and manufacturing output to have increased by 0.2% m/m (consensus: 0.4%; last: 0.2%). We expect Aug. trade deficit to have narrowed to 9.0bn (Wed.; consensus: -8.8bn; last: -9.9bn).

Asia In Japan, we look for Aug. core machinery orders to have increased by 4.2% m/m (Thu.;

consensus: 2.5%; last: 0.0%). Q2 capex rose 1.2% q/q, the first gain in six quarters, according to the second preliminary GDP release. We and the consensus expect Chinese Sep. exports to have increased by 5.0% y/y (next Sat.; last: 7.2%). We project Chinese imports to have grown by 6.3% y/y (consensus/last: 7.0%). We forecast Sep. new CNY loans disbursed to have fallen to CNY675.0bn (Thu.; consensus: CNY658.6bn; last: CNY711.3bn). We look for Aug. Indian IP growth to have declined to 2.0% y/y (Fri.; last: 2.6%). We expect Bank Indonesia to hike the FASBI rate 25bp but to keep the BI rate unchanged (Tue.; consensus/last: 7.25%).


4 October 2013 8

GLOBAL WEEKLY CALENDAR

Note: All times reported in GMT. Some data or events are boxed to indicate their importance to financial markets. Market events are highlighted in light blue. Auction sizes are all Barclays estimates

Period Prev -3 Prev -2 Prev -1 Forecast Consensus

17:00 Colombia: CPI, % m/m Sep 0.23 0.04 0.08 - 0.18


22:30 Australia: AIG/HIA construction PCI, index Sep 39.5 44.1 43.7 - -


- Luxembourg: Parliament dissolved09:30 E17: ECB Executive Board member Asmussen speaks on "Markets in Transition" in Germany11:15 E17: ECB Executive Board member Praet speaks on Japanese economy in Brussels

- Philippine: Foreign Reserves, USD bn Sep 81.3 83.2 82.9 - -- Ukraine: CPI, % y/y (to 10/10) Sep -0.1 0.0 -0.4 -0.2 -0.4

00:30 Taiwan: CPI, % y/y Sep 0.60 0.06 -0.79 -0.3 0.1005:30 Australia: Foreign Reserves, AUD bn Sep 51.9 55.5 55.7 - -08:00 Taiwan: Exports, % y/y Sep 8.7 1.6 3.6 -1.5 -1.208:00 Norway: Manufacturing production, % m/m (y/y) Aug -1.7 (2.8) 2.9 (6.1) 0.1 (5.7) - -0.109:00 Singapore: Foreign Reserves, USD bn Sep 259.8 261.1 261.9 - -09:00 Malaysia: Foreign Reserves, USD bn Sep 136.1 137.8 134.8 - -11:30 Chile: Economic activity index, % y/y Aug 3.8 4.1 5.3 4.1 3.812:30 Canada: Building permits, % m/m Aug 5.8 -10.6 20.7 - -19:00 US: Consumer credit, chg, $ bn Aug 16.0 11.9 10.4 14.0 12.021:00 New Zealand: NZIER business opinion, index Q3 20 23 32 - -23:01 UK: BRC total sales, % y/y Sep 2.9 3.9 3.6 - -23:01 UK: RICS house price balance Sep 22 37 40 40 4223:50 Japan: Current account SA, JPY bn Aug 623.3 646.2 333.7 443.9 643.6

- Malaysia: 5y/7y/10y Bonds auction (to 31/10) -02:30 Korea: 3y/30y Bonds auction KRW 1850/700 bn04:00 Malaysia: 91d/154d/210d Bills auction MYR 1.0/1.0/0.5 bn09:30 Holland: DTC 30 Dec2013, 30 Jun 2014 1-2;1-2 bn12:50 France: BTF 02Jan2014, 20Mar2014, 18Sep2014 3.6-4.0;1.4-1.8;1.2-1.6 bn


- Indonesia: Bank Indonesia Reference rate, % Oct 6.50 7.00 7.25 7.25 7.2516:25 US: Cleveland Fed President Pianalto (FOMC non-voter) speaks in Pennsylvania16:30 US: Philadelphia Fed President Plosser (FOMC non-voter) speaks in Pennsylvania

- Singapore: GDP, advance estimate, % y/y (to 14/10) Q3 1.5 0.2 3.8 3.8 3.8- Japan: Economy watchers' DI Sep 53.0 52.3 51.2 - 52.0

00:30 Australia: Business confidence, index Sep -0.6 -3.4 5.7 - -00:30 Australia: Business conditions, index Sep -7.9 -7.1 -6.3 - -00:30 Australia: Job advertisements, % m/m Sep -1.6 -1.1 -2.0 - -00:30 Australia: Overseas arrivals, % m/m Aug - - - - -05:45 Swi: Unemployment rate (adj), % Sep 3.2 3.2 3.2 - 3.206:00 Germany: Trade balance sa, bn Aug 13.6 17.0 16.1 - 15.006:30 France: BdF industrial business sentiment, index Sep 96.4 94.9 96.5 - -06:45 France: Trade balance, bn Aug -5.8 -4.5 -5.1 - -4.806:45 France: Budget, year-to date, bn Aug -72.6 -59.3 -80.8 - -07:00 Spain: Industrial production (wda), % y/y Aug -1.5 -2.2 -1.4 - -0.307:15 Swi: CPI, % m/m (y/y) Sep 0.1 (-0.1) -0.4 (0.0) -0.1 (0.0) - 0.2 (-0.1)07:15 Swi: Retail sales, % y/y Aug 1.5 2.3 0.8 - 1.010:00 Germany: Factory orders, %m/m (y/y) Aug -0.5 (-1.8) 5.0 (5.6) -2.7 (2.0) 1.0 (4.1) 1.0 (4.0)11:00 Chile: CPI, % m/m Sep 0.6 0.3 0.2 0.4 0.511:00 Brazil: IGP-DI inflation, % m/m Sep 0.76 0.14 0.46 1.35 1.5012:15 Canada: Housing starts, thous saar Sep 193.4 193.0 180.2 - 175.012:30 Canada: Int'l merchandise trade, $ bn Aug -1.3 -0.5 -0.9 - -0.712:30 US: Trade balance, $ bn Aug -43.7 -34.5 -39.1 -40.0 -39.3

Saturday 05 October

Sunday 06 October

Monday 07 October

Tuesday 08 October


4 October 2013 9



21:45 New Zealand: Card spending, % m/m Sep 1.3 0.4 0.4 - 0.423:00 New Zealand: House prices, % y/y Sep 7.6 8.1 8.5 - -23:01 UK: BRC shop price index Sep -0.2 -0.5 -0.5 - -23:30 Australia: Consumer confidence, % m/m Oct 0.0 3.5 4.7 - -02:00 Japan: 10y JGBi Auction 200 bn08:00 Holland: 5y DSL Tap 2.5 bn09:00 Indonesia: 3m/1y Bills auction -09:00 Indonesia: 5y/15y/20y/30y Bonds auction -09:00 Greece: 26-week t-bill 1 bn09:30 Germany: OBLi Auction 1 bn09:30 UK: 2019 Linker Auction 1.75 bn17:00 US: 3y Note Auction $ 30 bn


- Brazil: Selic overnight rate, % Oct 8.00 8.50 9.00 9.50 9.5014:00 US: Chicago Fed President Evans (FOMC voter) speaks in Washington17:45 E17: ECB Executive Board members Cur speaks on "Economic Consequences of Low Interest Rates" in Geneva18:00 US: Minutes of FOMC meeting released Sep 17-1822:00 E17: ECB President Draghi speaks at Harvard Kennedy School in Cambridge, USA07:00 Czech: CPI, % y/y Sep 1.6 1.4 1.3 1.2 1.208:30 UK: Industrial output, % m/m (y/y) Aug 0.0 (-2.3) 1.3 (1.4) 0.0 (-1.6) 0.1 (-1.0) 0.4 (-0.7)08:30 UK: Manufacturing output, % m/m (y/y) Aug -0.7 (-2.9) 2.0 (2.1) 0.2 (-0.7) 0.2 (0.8) 0.4 (1.0)08:30 UK: Visible trade balance, bn Aug -8.8 -8.2 -9.9 -9 -8.809:00 Greece: HICP, % y/y Sep -0.3 -0.5 -1.0 2.6 (-0.9) -10:00 Germany: Industrial production, % m/m (y/y) Aug -1.2 (-1.2) 2.0 (0.1) -1.7 (-2.2) 2.0 (-0.4) 1.0 (-1.4)12:00 Brazil: IPCA inflation, % m/m Sep 0.26 0.03 0.24 0.36 0.3313:00 Mexico: CPI, % m/m Sep -0.06 -0.03 0.28 - 0.4614:00 US: Wholesale inventories, % m/m Aug -0.6 -0.2 0.1 0.2 0.321:00 New Zealand: ANZ truckometer, % m/m Sep -8.0 10.0 -1.5 - -21:30 New Zealand: Business PMI, index Sep 55.2 59.5 57.5 - -23:50 Japan: Index of tertiary industry activity, % m/m Aug 1.2 -0.5 -0.4 0.3 0.423:50 Japan: Core machinery orders, % m/m Aug 10.5 -2.7 0.0 4.2 2.523:50 Japan: Bank lending, including shinkin, % y/y Sep 1.9 2.0 2.0 1.9 -09:30 Germany: 5y OBL Auction 4 bn17:00 US: 10y Note Auction $ 21 bn


- Global: IMF/World Bank annual meeting (to 13/10)- G20: G20 Meeting in Washington (to 11/10)

01:00 Korea: South Korea 7-day Repo rate, % Oct 2.50 2.50 2.50 2.50 2.5008:00 E17: ECB publishes monthly bulletin Oct11:00 UK: BoE Bank rate decision, % Oct 0.50 0.50 0.50 0.50 0.5011:00 UK: BoE asset purchase decision, bn Oct 375 375 375 375 37513:45 US: St. Louis Fed President Bullard (FOMC voter) speaks in Missouri16:20 E17: ECB President Draghi speaks at Economic Club of New York, USA17:45 US: Fed Governor Tarullo (FOMC voter) speaks in Washington18:30 US: San Francisco Fed President Williams (FOMC non-voter) speaks in Idaho19:00 E17: ECB Executive Board member Asmussen speaks on " The End of the Crisis - Euro Vision?" in Washington, USA23:00 Peru: Reference rate, % Oct 4.25 4.25 4.25 4.25 -

- China: Foreign reserves, USD bn (to 15/10) Sep 3534.5 3514.8 3496.7 - 3520.0- China: New loans, CNY bn (to 15/10) Sep 860.5 699.9 711.3 675 658.6- China: M2 growth, % y/y (to 15/10) Sep 14.0 14.5 14.7 14.0 14.0- India: Exports, % y/y (to 15/10) Sep -4.6 11.6 13.0 - -- Egypt: CPI, % y/y Sep 9.8 10.3 9.7 10.1 -

00:00 Australia: Inflation expectations, % m/m Oct 2.6 2.3 1.5 - -00:30 Australia: Employment change, k Sep 8.5 -11.4 -10.8 30.0 15.000:30 Australia: Unemployment rate, % Sep 5.7 5.7 5.8 5.8 5.8

Tuesday 08 October

Wednesday 09 October

Thursday 10 October


4 October 2013 10



00:30 Australia: Participation rate, % Sep 65.3 65.1 65.0 - 65.001:00 Philippines: Total exports, % y/y Aug -0.8 4.1 2.3 14.0 18.104:01 Malaysia: Industrial production, % y/y Aug 3.3 3.7 7.6 5.7 5.906:45 France: Industrial production, % m/m (y/y) Aug -0.4 (0.8) -1.4 (-0.1) -0.6 (-1.8) 0.5 (-2.9) 0.6 (-2.6)07:00 Romania: CPI, % y/y Sep 5.4 4.4 3.7 2.0 2.207:00 Denmark: CPI, headline, % m/m (y/y) Sep -0.1 (0.9) -0.3 (0.6) 0.1 (0.4) - 0.3 (0.4)07:30 Sweden: CPI Headline, % m/m (y/y) Sep -0.2 (-0.1) -0.1 (0.1) 0.1 (0.1) 0.6 (0.3) 0.5 (0.2)07:30 Sweden: CPIF, % m/m (y/y) Sep -0.1 (0.9) -0.1 (1.2) 0.1 (1.2) 0.6 (1.1) 0.6 (1.1)07:30 Sweden: CPI, index level Sep 313.99 313.55 313.84 315.24 315.1607:30 Sweden: Industrial production, % m/m (y/y) Aug 3.3 (-5.3) 0.7 (-3.7) 0.7 (-3.7) - 0.6 (-4.1)07:30 Netherlands: HICP, % m/m (y/y) Sep -0.5 (3.2) 0.4 (3.1) -0.2 (2.8) 0.2 (2.5) 0.4 (2.7)08:00 Italy: Industrial production, % m/m (y/y) Aug 0.1 (-4.4) 0.2 (-2.7) -1.1 (-4.3) 0.5 0.7 (-4.3)08:00 Norway: CPI, headline, % m/m (y/y) Sep -0.4 (2.1) 0.4 (3.0) -0.1 (3.2) 0.9 (3.2) 0.9 (3.1)08:00 Norway: CPI-ATE, underlying, % m/m (y/y) Sep -0.3 (1.4) 0.4 (1.8) -0.1 (2.5) 0.9 (2.2) 0.9 (2.2)09:00 Greece: Unemployment rate, % Sep 27.1 27.6 27.9 - -10:00 Portugal: HICP, % m/m (y/y) Sep 0.1 (1.2) -0.2 (0.8) -0.7 (0.2) 0.2 (0.0) -10:00 Ireland: HICP, % m/m (y/y) Sep 0.1 (0.7) -0.1 (0.7) 0.1 (0.0) 0.0 (0.1) -12:30 Canada: New house price index, % m/m (y/y) Aug 0.1 (1.8) 0.2 (1.8) 0.2 (1.9) - -12:30 US: Initial jobless claims, thous (4wma) 04-Oct 310 (315) 307 (309) 308 (305) 310 (309) 30712:30 US: Import prices, % m/m (y/y) Sep -0.4 (0.1) 0.1 (0.9) 0.0 (-0.4) 0.2 0.312:30 US: Non-petroleum import prices, % m/m (y/y) Sep -0.3 (-0.2) -0.6 (-0.7) -0.2 (-1.0) 0.0 -18:00 US: Treasury budget balance, $ bn (to 16/10) Sep -34.6 ('10) -62.8 ('11) 75.2 ('12) 100.0 60.021:45 New Zealand: Food prices, % m/m Sep 2.1 0.5 -0.5 - -23:50 Japan: M2/M3, % y/y Sep 3.8/3.0 3.7/3.0 3.7/3.0 3.7/3.0 3.7/3.023:50 Japan: Corporate goods price index, % y/y Sep 1.2 2.3 2.4 2.1 2.302:00 Japan: 30y JGB Auction 700 bn09:00 Italy: 12m BOT 8 bn17:00 US: 30y Bond Auction $ 13 bn


- E17: ECB Executive Board members Praet, Cur and Asmussen speaks at IIF in Washington, USA15:00 US: Fed Governor Powell (FOMC voter) speaks in Washington

- Serbia: HICP, % y/y Sep 9.8 8.6 7.3 5.7 -- Costa Rica: Econ. activity index, % y/y Aug 2.2 2.7 3.0 - -

06:00 Germany: Final HICP, % m/m (y/y) Sep 0.4 (1.9) 0.0 (1.6) 0.0 (1.6) P 0.0 (1.6) 0.0 (1.6)06:00 Germany: Final CPI, % m/m (y/y) Sep 0.5 (1.9) 0.0 (1.5) 0.0 (1.4) P 0.0 (1.4) 0.0 (1.4)06:00 Sweden: Unemployment rate (PES), % Sep 4.4 4.7 4.8 - 4.707:00 Hungary: CPI, % y/y Sep 1.9 1.8 1.3 1.2 1.307:00 Spain: Final HICP, % y/y Sep -1.1 (1.9) 0.2 (1.6) (0.5) P 0.8 (0.5) 0.5 (0.5)08:00 Italy: Final HICP, % m/m (y/y) Sep -1.8 (1.2) 0.0 (1.2) 1.8 (0.9) P 1.8 (0.9) 1.8 (0.9)08:00 Italy: Final CPI, % m/m (y/y) Sep 0.1 (1.2) 0.4 (1.2) -0.3 (0.9) P -0.3 (0.9) -0.3 (0.9)12:00 India: Industrial production, % y/y Aug -2.8 -1.8 2.6 2.0 -12:30 Canada: Unemployment rate, % Sep 7.1 7.2 7.1 - 7.112:30 Canada: Net change in employment, k Sep -0.4 -39.4 59.2 - 15.012:30 Canada: Participation Rate, % Sep 66.7 66.5 66.6 - -12:30 US: PPI, % m/m (y/y) Sep 0.8 (2.5) 0.0 (2.1) 0.3 (1.4) 0.2 0.2 (0.6)12:30 US: Core PPI, % m/m (y/y) Sep 0.2 (1.7) 0.1 (1.2) 0.0 (1.1) 0.2 0.1 (1.3)12:30 US: Retail sales, % m/m Sep 0.7 0.4 0.2 0.2 0.212:30 US: Retail sales ex autos, % m/m Sep 0.2 0.6 0.1 0.3 0.412:30 US: Core retail sales, % m/m Sep 0.2 0.5 0.2 0.3 0.513:55 US: Michigan consumer sentiment-p index Oct 85.1 82.1 77.5 72.0 77.014:00 US: Business inventories, % m/m Aug -0.1 0.1 0.4 0.2 0.309:00 Italy: BTP Auctions 5 bn09:00 Italy: CCT Auction 1.5 bn

Friday 11 October

Thursday 10 October


4 October 2013 11



- China: Exports, % y/y Sep -3.1 5.1 7.2 5.0 5.0- China: Imports, % y/y Sep -0.8 10.9 7.0 6.3 7.0


21:45 New Zealand: PSI, index Sep 55.1 58.2 53.2 - -


13:00 E17: Eurogroup meeting in Luxembourg- New Zealand: REINZ Housing price index, %m/m (to 18/1 Sep 0.0 -0.5 2.1 - -

00:30 Australia: Home loans, % m/m Aug 1.6 2.6 2.4 - -00:30 Australia: Investment lending, % m/m Aug 1.1 -0.5 2.9 - -01:30 China: CPI, % y/y Sep 2.7 2.7 2.6 - 2.801:30 China: PPI, % y/y Sep -2.7 -2.3 -1.6 - -1.406:00 Finland: HICP, % m/m (y/y) Sep -0.1 (2.3) 0.0 (2.5) -0.1 (2.0) 0.6 (2.0) -06:30 India: WPI, % y/y Sep 5.16 5.79 6.10 - -09:00 E17: Industrial production, % m/m (y/y) Aug -0.4 (-1.9) 0.6 (-0.4) -1.5 (-2.1) - 0.5 (-2.2)12:00 India: CPI, % y/y Sep 9.87 9.64 9.52 - -02:30 Korea: 5y Bonds auction KRW 1850 bn

09:00 Germany: 6M Bubill 3 bn

12:50 France: BTF auction 7 bn


- Ireland: Government presents 2014 Budget00:30 Australia: RBA board minutes Oct07:00 E28: ECOFIN meeting in Luxembourg13:00 Greece: PM Samaras speaks on "The necessity of Europe'' at European Parliament in Brussels

- Peru: Economic activity index, % y/y Aug 4.8 4.4 4.5 - -00:30 Australia: Vehicle sales, % m/m (% y/y) Sep 3.6 (6.9) -3.6 (3.0) 0.8 (0.2) - -06:45 France: HICP, % m/m (y/y) Sep 0.2 (1.0) -0.3 (1.2) 0.5 (1.0) -0.3 (1.0) -06:45 France: CPI, % m/m (y/y) Sep 0.2 (0.9) -0.3 (1.1) 0.5 (0.9) -0.3 (0.8) -06:45 France: CPI ex tobacco index Sep 125.78 125.35 125.90 125.54 -08:30 UK: CPI, % m/m (y/y) Sep -0.2 (2.9) 0.0 (2.8) 0.4 (2.7) - -08:30 UK: RPI, % m/m (y/y) Sep -0.1 (3.3) 0.0 (3.1) 0.5 (3.3) - -08:30 UK: RPIx, % m/m (y/y) Sep -0.1 (3.3) 0.0 (3.2) 0.5 (3.3) - -08:30 UK: Input prices, % m/m (y/y) Sep 0.2 (4.0) 1.2 (5.1) -0.2 (2.8) - -08:30 UK: Output prices, % m/m (y/y) Sep 0.1 (2.0) 0.2 (2.1) 0.1 (1.6) - -08:30 UK: Core output prices, % m/m (y/y) Sep -0.1 (0.9) 0.1 (1.1) 0.0 (1.0) - -08:30 Italy: General govt. debt, bn Aug 2074.6 2075.1 2072.9 - -09:00 E17: ZEW economic sentiment index Oct 32.8 44.0 58.6 - -09:00 Germany: ZEW economic expectations index Oct 36.3 42.0 49.6 - 48.012:00 Poland: CPI, % y/y Sep 0.2 1.1 1.1 - -12:30 US: Empire State mfg index Oct 9.5 8.2 6.3 - -13:00 Canada: Existing home sales, % m/m Sep 3.3 0.2 2.8 - -13:00 Canada: Teranet/National Bank HP index Sep 157.0 158.2 159.1 - -15:30 Israel: CPI, % y/y Sep 2.0 2.2 1.3 - -19:00 Argentina: CPI, % m/m Sep 0.8 0.9 0.8 - -21:45 New Zealand: CPI, % q/q Q3 -0.2 0.4 0.2 0.8 -23:30 Australia: Leading index, % m/m Aug -0.1 0.0 0.6 - -08:30 Spain: 6m & 12m Letras 4 bn09:00 Greece: 13-weeek 1.25 bn09:30 Belgium: 3m and 12m t-bill 4 bn

Saturday 12 October

Sunday 13 October

Monday 14 October

Tuesday 15 October


4 October 2013 12



07:30 Thailand: Benchmark interest rate, % Oct 2.50 2.50 2.50 - -18:00 US: Fed Beige Book report released21:30 US: Kansas City Fed President George (FOMC voter) speaks in Oklahoma06:00 E28: New car registrations, % y/y Sep -5.9 5.0 -5.0 - -07:00 Slovakia: HICP, % m/m ( y/y) Sep 0.2 (1.7) -0.1 (1.6) -0.2 (1.4) 0.3 (1.4) -08:00 Austria: HICP, % m/m (y/y) Sep -0.2 (2.2) -0.6 (2.0) 0.2 (1.8) 0.7 (1.6) -08:30 UK: ILO unemployment rate, % Aug 7.8 7.8 7.7 - -08:30 UK: Claimant count unemployment, k Sep -29.4 -36.3 -32.6 - -08:30 UK: Average weekly earnings, % 3m/y Aug 1.8 2.2 1.1 - -08:30 UK: Core average earnings, % 3m/y Aug 1.0 1.1 1.0 - -09:00 E17: Final HICP, % m/m (y/y) Sep -0.5 (1.6) 0.1 (1.3) ... (1.1) P 0.5 (1.1) 0.3 (1.1)09:00 E17: 'Eurostat' core (HICP x fd, alc, tob, ene), % m/m (y/y)Sep -0.9 (1.1) 0.2 (1.1) ... (1.0) P 0.7 (1.0) -09:00 E17: HICP ex tobacco, index (2005 = 100) Sep 117.07 116.39 116.53 117.09 -09:00 E17: Trade balance sa, bn Aug 13.5 13.5 11.1 - -11:00 Brazil: IGP-10 inflation, % m/m Oct 0.43 0.15 1.05 - -11:30 Brazil: Economic activity index, % y/y Aug 2.3 2.4 3.4 - -12:00 Poland: Core inflation, % y/y Sep 0.9 1.4 1.4 - -12:30 US: CPI, % m/m (y/y) Sep 0.5 (1.8) 0.2 (2.0) 0.1 (1.5) - -12:30 US: Core CPI, % m/m (y/y) Sep 0.2 (1.6) 0.2 (1.7) 0.1 (1.8) - -12:30 US: CPI, NSA index Sep 233.504 233.596 233.877 - -13:00 US: Net long-term TIC flows, $ bn Aug -25.2 -67.0 31.1 - -14:00 US: NAHB housing market index Oct 56 58 58 - -21:00 New Zealand: ANZ job ads, % m/m Q1 0.3 4.0 -1.4 - -02:00 Japan: 5y JGB Auction 2600 bn09:30 Portugal: 3m & 9m t-bills 1.25-1.5 bn09:30 Germany: 2y Schatz Auction 5 bn


- Serbia: Repo rate, % Oct 11.00 11.00 11.00 - -11:45 US: Dallas Fed President Fisher (FOMC non-voter) speaks in New York16:45 US: Chicago Fed President Evans (FOMC voter) speaks in Wisconsin16:45 US: Kansas City Fed President George (FOMC voter) speaks in Oklahoma18:45 US: Minneapolis Fed President Kocherlakota (FOMC non-voter) speaks in Montana21:00 Chile: Overnight rate target, % Oct 5.00 5.00 5.00 - 5.0000:00 New Zealand: Consumer confidence, % m/m Oct -3.3 2.7 -3.4 - -00:30 Australia: NAB business confidence, index Q3 -6 2 -1 - -00:30 Australia: Imports of goods, % m/m Sep - - - - -00:30 Singapore: Non-oil domestic exports, % y/y Sep -9.4 -1.9 -6.2 - -07:30 Sweden: Unemployment rate (sa), % Sep 9.1 (7.9) 7.2 (7.8) 7.3 (8.0) - -08:00 E17: ECB current account sa, bn Aug 20.0 19.8 16.9 - -08:30 UK: Retail sales, % m/m (y/y) Sep 0.2 (1.9) 1.2 (3.0) -0.9 (2.1) - -08:30 UK: Retail sales exl. fuel, % m/m (y/y) Sep 0.2 (1.9) 1.2 (3.2) -1.0 (2.3) - -09:00 E17: Construction output, % m/m (y/y) Aug 0.8 (-3.7) 0.9 (-2.7) 0.3 (-1.2) - -12:30 US: Initial jobless claims, thous (4wma) 11-Oct 307 (309) 308 (305) ... - -12:30 US: Housing starts, thous saar Sep 835 883 891 - -12:30 US: Building permits, thous saar Sep 918 954 926 - -13:15 US: Industrial production, % m/m Sep 0.1 -0.3 0.4 - -13:15 US: Capacity utilization, % Sep 77.8 77.6 77.8 - -14:00 Philadelphia Fed mfg index Oct 19.8 9.3 22.3 - -08:30 Spain: SPGB Auctions 3.5 bn08:50 France: OAT Auctions 8.5 bn09:50 France: OATi /ei Auctions 1.5 bn

Wednesday 16 October

Thursday 17 October


4 October 2013 13



00:10 Australia: RBA Head of Financial Stability Ellis speaks on capital market dysfunctionality in Sydney01:00 Australia: RBA Gov. Stevens speaks on The UK and Australia: Shared history, shared outlook in Sydney18:00 US: Chicago Fed President Evans (FOMC voter) speaks in Illinois02:00 China: GDP, % y/y Q3 7.9 7.7 7.5 - 7.702:00 China: Industrial production, % y/y Sep 8.9 9.7 10.4 - 10.302:00 China: Fixed asset investments, YTD % y/y Sep 20.1 20.1 20.3 - 20.302:00 China: Retail sales, % y/y Sep 13.3 13.2 13.4 - 13.407:30 Netherlands: Consumer confidence index Oct -38.0 -33.0 -33.0 - -12:00 Brazil: IPCA-15 inflation, % m/m Oct 0.07 0.16 0.27 - -12:30 Canada: CPI, % m/m (y/y) Sep 0.2 (1.2) 0.1 (1.3) 0.1 (1.1) - -12:30 Canada: Core CPI, % m/m (y/y) Sep 0.2 (1.3) 0.1 (1.4) 0.0 (1.3) - -12:30 Canada: CPI, NSA index Sep 123.0 123.1 123.1 - -13:00 Belgium: Consumer confidence index Oct -16.0 -12.0 -7.0 - -14:00 US: Leading indicators index, % m/m Sep 0.0 0.5 0.7 - -19:00 Argentina: Economic activity index, % y/y Aug 9.3 6.9 5.1 - -02:00 Japan: Liquidity Enhancement Auction 300 bn

Friday 18 October


4 October 2013 14

GLOBAL KEY EVENTS

Note: *Second round, ** Due by end-May, 2014 Sources: Central banks, IMF, European Commission, Reuters, Bloomberg, Market News, Barclays Research

Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14

Forthcoming central bank announcement datesNorth AmericaFOMC meeting 30 - 18 29 - 19 30 - 18 30 - 17FOMC minutes - 20 - - - - - - - - - -Fed's Beige Book 16 - 4 - - - - - - - - -Bank of Canada 23 - 4 22 - 5 16 - 4 16 - 3EuropeECB "policy" meeting 2 7 5 9 6 6 3 8 5 3 7 4ECB monthly bulletin 9 14 12 16 13 13 10 15 12 10 14 11ECB "non-policy" meeting 17 21 19 22 19 19 16 21 17 17 - 17Bank of England 9-10 6-7 4-5 8-9 5-6 5-6 9-10 7-8 4-5 9-10 6-7 3-4BoE Inflation Report - 13 - - 12 - - 14 - - 13 -BoE minutes 23 20 18 22 19 19 23 21 18 23 20 17Riksbank 24 6 17 - 13 - 9 - - 3 - -SNB - - 12 20 - - - - 19 - - 18Norges Bank 24 - 5 - - - - - - - - -Asia/RoWBank of Japan 03-04,31 20-21 19-20 21-22 17-18 10 7-8,30 20-21 12-13 - - -BoJ minutes 9 6,26 26 27 21 14 11 7,26 18 - - -Reserve Bank of Australia 1 5 3 - 4 4 1 6 3 1 5 2RBNZ 31 - 12 30 - 13 24 - 12 - - 11Key international meetingsIMF/IBRD 10-13 - - - - - 11-13 - - - - -EU Summit 24-25 - 19-20 - - 14-15 - - - - - -ECOFIN 15 12 10 - - - - - - - - -G20 10-11 - 15-16 - 22-23 - - - - - - -G8 - - - - - - - - 04-05 - - -ElectionsArgentina (Legislative) 27 - - - - - - - - - - -Belgium (Parliamentary) - - - - - - - 25 - - - -Chile (Presidential) - 17 15* - - - - - - - - -Colombia (Presidential) - - - - - - - 25 15* - - -Czech Republic (Parliamentary) 25-26 - - - - - - - - - - -European (Parliamentary) - - - - - - - 22-25 - - - -Egypt (Presidential) - - - - - - Apr - - - - -Hungary (Parliamentary) - - - - - - - May - - - -India (Parliamentary) - - - - - - - May# - - - -Indonesia (Parliamentary) - - - - - - 9 - - - - -Indonesia (Presidential) - - - - - - - - - Jul - -Iraq (General) - - - - - Mar - - - - - -Isreal (Presidential) - - - - - - - - Jun - - -Luxembourg (Parliamentary) 20 - - - - - - - - - - -South Africa (General) - - - - - - Q2 - - - - -Sweden (General) - - - - - - - - - - - 14Turkey (Municipal) - - - - - Mar - - - - - -Turkey (Presidential) - - - - - - - - Jun - - -


4 October 2013 15

CRITICAL EVENTS CALENDAR FOR US, EURO AREA, JAPAN AND UK

Date Country Event Likely outcome: Our assessment

October, 2013

Oct Japan Decision on whether to go ahead with April 2014 VAT hike (tbc)

VAT hike plan (from 5% to 8% in April 2014) likely to be approved after 1 October release of BoJ Tankan

Oct Estonia Local elections

07-Oct Luxembourg Parliament dissolved

07-08 Oct Japan PM Abe attends APEC meeting

09-10 Oct UK BoE Policy meeting

10-11 Oct G20 G20 Meeting (Washington) Various international meetings in Washington and the release of the IMF's latest forecasts. Policymakers are likely to emphasise the need for resolution in the US Congressional fiscal stand-off. 10-13 Oct Global IMF/World Bank annual meeting

11-Oct Italy 5.0bn BTP Auctions

11-Oct Italy 1.5bn CCT Auctions

14-Oct Euro area Eurogroup meeting (Luxembourg)

15-Oct EU ECOFIN meeting (Luxembourg)

15-Oct Ireland Government presents 2014 Budget

Mid Oct Euro area ECB communication on bank asset quality review

Mid Oct EU Deadline for submitting 2014 draft budget plans to the European commission

Mid Oct Italy Government presents Stability Law We expect the government to present fiscal measures (worth up to EUR5bn) to keep the general government budget deficit below 3.0% of GDP this year

Mid Oct US Debt ceiling likely to be breached from mid-October

We expect the debt ceiling to be increased, but this event has been used in the past as leverage to enact further deficit reduction

Mid Oct Japan Extraordinary Diet session convenes (TBA) PM Abe calls this "the session for growth strategy implementation"

16-Oct US Fed's Beige Book

17-Oct Spain 3.5bn SPGB Auctions

19-Oct Italy Appeal Court rules on the length of a public office ban sentenced against former PM Silvio Berlusconi in August

20-Oct Luxembourg Parliamentary Elections

24-25 Oct EU EU Summit (Brussels) EU leaders will discuss progress toward a more integrated EMU, and might discuss some EC proposals for more coordination of economic policies

28-Oct Italy 1.0bn BTPei Auctions

28-Oct Belgium 3.0bn 5y, 7y & 10y BGB Auctions

30-Oct US FOMC meeting We do not expect tapering in the pace of asset purchases at this meeting

31-Oct Japan BoJ MPM and semi-annual Outlook Report Focus on revisions to FY 13-14 core CPI forecasts

End Oct EU

Deadline for the European commission to adopt an opinion requesting a revised budget plan in case of serious non-compliance with the treaties.

November, 2013

05-Nov EU EC to publish autumn forecasts (by end of November the latest)

06-07 Nov UK BoE Policy meeting

07-Nov Euro area ECB Governing Council meeting

11-Nov Euro area Eurogroup meeting (Brussels)

12-Nov EU ECOFIN meeting (Brussels)


4 October 2013 16

Date Country Event Likely outcome: Our assessment

13-Nov UK BoE Inflation report

Mid Nov EU

EC publishes the annual growth survey (by end December the latest) and overall assessment of budget plans (by end November the latest)

20-21 Nov Japan BoJ monetary policy meeting

December, 2013

04-Dec US Fed's Beige Book

04-05 Dec UK BoE Policy meeting

05-Dec Euro area ECB Governing Council meeting

09-Dec Euro area Eurogroup meeting (Brussels)

10-Dec EU ECOFIN meeting (Brussels)

15-16 Dec G20 G20 Meeting (Australia)

18-Dec US FOMC meeting

19-20 Dec EU EU Summit (Brussels)

19-20 Dec Japan BoJ monetary policy meeting

End Dec Japan Deadline for settling TPP negotiations

Note: All times are local. Source: Barclays Research


4 October 2013 17

DATA REVIEW & PREVIEW: EURO AREA Philippe Gudin, Francois Cabau, Antonio Garcia Pascual, Fabio Fois, Thomas Harjes, Fabrice Montagne, Apolline Menut

Review of last weeks data releases

Main indicators Period Previous Barclays Actual Comments

E17: "Flash" HICP, % y/y Sep 1.3 1.1 1.1 Inflation dropped; in line with our below-consensus

E17: Final manufacturing PMI, index Sep 51.1 P 51.1 51.1 Final manufacturing PMIs: fragile recovery confirmed

Italy: Unemployment rate, % Aug 12.1 R - 12.2 Labour market dynamics unfold in line with our expectations

E17: Unemployment rate, % Aug 12.0 R 12.1 12.0 Unemployment down for a third month in a row

E17: ECB Interest rate announcement, % Oct 0.50 0.50 0.50 Avoiding liquidity accidents

E17: Final composite PMI, index Sep 52.1 P 52.1 52.2 In line with our 0.2% q/q Q3 GDP forecast

E17: Retail sales, % m/m (y/y) Aug 0.5 (-0.7) R - 0.7 (-0.3) Upside risks to our Q3 private consumption forecast

Preview of week ahead

Monday 07 October Period Prev - 3 Prev - 2 Prev - 1 Forecast Consensus

- Luxembourg: Parliament dissolved

09:30 E17: ECB Executive Board member Asmussen speaks on "Markets in Transition" in Germany

11:15 E17: ECB Executive Board member Praet speaks on Japanese economy in Brussels

08:00 Norway: Manufacturing production, % m/m (y/y) Aug -1.7 (2.8) 2.9 (6.1) 0.1 (5.7) - -0.1

Tuesday 08 October Period Prev - 3 Prev - 2 Prev - 1 Forecast Consensus

05:45 Swi: Unemployment rate (adj), % Sep 3.2 3.2 3.2 - 3.2

06:00 Germany: Trade balance sa, bn Aug 13.6 17.0 16.1 - 15.0

06:30 France: BdF industrial business sentiment, index Sep 96.4 94.9 96.5 - -

06:45 France: Trade balance, bn Aug -5.8 -4.5 -5.1 - -4.8

06:45 France: Budget, year-to date, bn Aug -72.6 -59.3 -80.8 - -

07:00 Spain: Industrial production (wda), % y/y Aug -1.5 -2.2 -1.4 - -0.3

07:15 Swi: CPI, % m/m (y/y) Sep 0.1 (-0.1) -0.4 (0.0) -0.1 (0.0) - 0.2 (-0.1)

07:15 Swi: Retail sales, % y/y Aug 1.5 2.3 0.8 - 1.0

10:00 Germany: Factory orders, %m/m (y/y) Aug -0.5 (-1.8) 5.0 (5.6) -2.7 (2.0) 1.0(4.1) 1.0 (4.0)

Germany Factory orders: We expect industrial orders to move further along their upward trend, as foreshadowed by strong VDMA machinery orders for August.

Wednesday 09 October Period Prev - 3 Prev - 2 Prev - 1 Forecast Consensus

17:45 E17: ECB Executive Board members Cur speaks on "Economic Consequences of Low Interest Rates" in Geneva

22:00 E17: ECB President Draghi speaks at Harvard Kennedy School in Cambridge, USA

09:00 Greece: HICP, % y/y Sep -0.3 -0.5 -1.0 2.6 (-0.9) -

10:00 Germany: Industrial production, % m/m (y/y) Aug -1.2 (-1.2) 2.0 (0.1) -1.7 (-2.2) 2.0 (-0.4) 1.0 (-1.4)

Germany Industrial production: We expect industrial production to bounce back after the July drop, displaying high volatility during the holiday season.

Thursday 10 October Period Prev - 3 Prev - 2 Prev - 1 Forecast Consensus

- Global: IMF/World Bank annual meeting (to 13/10)

- G20: G20 Meeting in Washington (to 11/10)

08:00 E17: ECB publishes monthly bulletin Oct

16:20 E17: ECB President Draghi speaks at Economic Club of New York, USA

19:00 E17: ECB Executive Board member Asmussen speaks on " The End of the Crisis - Euro Vision?" in Washington, USA

06:45 France: Industrial production, % m/m (y/y) Aug -0.4 (0.8) -1.4 (-0.1) -0.6 (-1.8) 0.5 0.6 (-2.6)

07:00 Denmark: CPI, headline, % m/m (y/y) Sep -0.1 (0.9) -0.3 (0.6) 0.1 (0.4) - 0.3 (0.4)

07:30 Sweden: CPI Headline, % m/m (y/y) Sep -0.2 (-0.1) -0.1 (0.1) 0.1 (0.1) 0.6 (0.3) 0.5 (0.2)


4 October 2013 18

Thursday 10 October (continued) Period Prev - 3 Prev - 2 Prev - 1 Forecast Consensus

07:30 Sweden: CPIF, % m/m (y/y) Sep -0.1 (0.9) -0.1 (1.2) 0.1 (1.2) 0.6 (1.1) 0.6 (1.1)

07:30 Sweden: CPI, index level Sep 313.99 313.55 313.84 315.24 315.16

07:30 Sweden: Industrial production, % m/m (y/y) Aug 3.3 (-5.3) 0.7 (-3.7) 0.7 (-3.7) - 0.6 (-4.1)

07:30 Netherlands: HICP, % m/m (y/y) Sep -0.5 (3.2) 0.4 (3.1) -0.2 (2.8) 0.2 (2.5) 0.4 (2.7)

08:00 Italy: Industrial production, % m/m (y/y) Aug 0.1 (-4.4) 0.2 (-2.7) -1.1 (-4.3) 0.5 0.7 (-4.3)

08:00 Norway: CPI, headline, % m/m (y/y) Sep -0.4 (2.1) 0.4 (3.0) -0.1 (3.2) 0.9 (3.2) 0.9 (3.1)

08:00 Norway: CPI-ATE, underlying, % m/m (y/y) Sep -0.3 (1.4) 0.4 (1.8) -0.1 (2.5) 0.9 (2.2) 0.9 (2.2)

09:00 Greece: Unemployment rate, % Sep 27.1 27.6 27.9 - -

10:00 Portugal: HICP, % m/m (y/y) Sep 0.1 (1.2) -0.2 (0.8) -0.7 (0.2) 0.2 (0.0) -

10:00 Ireland: HICP, % m/m (y/y) Sep 0.1 (0.7) -0.1 (0.7) 0.1 (0.0) 0.0 (0.1) -

G20 G20 meeting: Various international meetings in Washington and the release of the IMF's latest forecasts. Policymakers arelikely to emphasise the need for resolution to the US Congressional fiscal stand-off.

France Industrial production: We expect August French IP to make up some of Julys fall by increasing by about 0.5% m/m (-2.9% y/y) on stronger manufacturing and energy production. Carry over into Q3 would still be quite low at -1.4% q/q (after +1.4% in Q2). This is consistent with an ongoing gradual improvement across the board, as well as in line with our forecast of flat GDP in Q3 after +0.5% growth in Q2.

Sweden Inflation report: We expect both headline and the Riksbanks preferred inflation measure CPIF to increase 0.6% m/min September brining inflation to 0.3% y/y and 1.1% y/y, respectively. We expect these increases primarily to be driven by seasonal price hikes on clothing and footwear. This is slightly higher than the Riksbanks latest estimate (CPI 0.23% y/y; CPIF 1.05% y/y).

Italy Industrial production: We expect Italian IP to have increased 0.5% m/m in August, after declining 1.1% m/m in July.Consistent with our expectation that industrial output declined 0.6% q/q in the third quarter of the year, we continue to forecast flat GDP growth in Q3.

Norway Inflation report: We expect both headline and core inflation to increase by 0.9% m/m, bringing the inflation rate to3.4% and 2.2%, respectively. While we expect the recent spike in core-inflation to prove partly temporary, we still see some upside risks to the Norges Bank' latest forecast (Q3 2.1%).

Friday 11 October Period Prev - 3 Prev - 2 Prev - 1 Forecast Consensus

- E17: ECB Executive Board members Praet, Cur and Asmussen speaks at IIF in Washington, DC

06:00 Germany: Final HICP, % m/m (y/y) Sep 0.4 (1.9) 0.0 (1.6) 0.0 (1.6) P 0.0 (1.6) 0.0 (1.6)

06:00 Germany: Final CPI, % m/m (y/y) Sep 0.5 (1.9) 0.0 (1.5) 0.0 (1.4) P 0.0 (1.4) 0.0 (1.4)

06:00 Sweden: Unemployment rate (PES), % Sep 4.4 4.7 4.8 - 4.7

07:00 Spain: Final HICP, % m/m (y/y) Sep -1.1 (1.9) 0.2 (1.6) (0.5) P 0.8 (0.5) 0.5 (0.5)

08:00 Italy: Final HICP, % m/m (y/y) Sep -1.8 (1.2) 0.0 (1.2) 1.8 (0.9) P 1.8 (0.9) 1.8 (0.9)

08:00 Italy: Final CPI, % m/m (y/y) Sep 0.1 (1.2) 0.4 (1.2) -0.3 (0.9) P -0.3 (0.9) -0.3 (0.9)


4 October 2013 19

DATA REVIEW & PREVIEW: UNITED KINGDOM Blerina Urui

Review of last weeks data releases

Main Indicators Period Previous Barclays Actual Comments

Consumer credit, bn Aug 0.6 0.6 0.6 Both secured and unsecured lending increased as expected while mortgage approvals rose to their highest since Feb 2008, paving the way for a further pick-up in mortgage lending.

Mortgage lending, bn Aug 0.8 R 1.0 1.0

Mortgage approvals, k Aug 60.9 R 61.5 62.2

M4 money supply, % m/m Aug 0.6 - 0.7

Manufacturing PMI, index Sep 57.1 R 58.0 56.7 Headline activity expanded at a slower pace

Construction PMI Sep 59.1 60.0 58.9 Construction PMI was broadly unchanged

Services PMI Sep 60.5 61.0 60.3 Services PMI consistent with a solid pace of expansion

Halifax house price index, % m/m (3m/y) Sep 0.3 R (5.4) - 0.3 (6.2) House prices increased for the eight consecutive month

Preview of the next week

Monday 07 October Period Prev - 3 Prev - 2 Prev -1 Forecast Consensus

There are no significant data releases scheduled

Tuesday 08 October Period Prev - 3 Prev - 2 Prev -1 Forecast Consensus

00:01 BRC total sales, % y/y Sep 2.9 3.9 3.6 - -

00:01 RICS house price balance Sep 22 37 40 40 42

RICS house prices: We expect the September RICS house price balance to remain unchanged at a seven-year high of 40, confirming therecent pick-up observed in housing activity as indicated by other housing market data from the likes of Nationwide and Halifax.

Wednesday 09 October Period Prev - 3 Prev - 2 Prev -1 Forecast Consensus

00:01 BRC shop price index Sep -0.2 -0.5 -0.5 - -

09:30 Industrial output, % m/m (y/y) Aug 0.0 (-2.3) 1.3 (1.4) 0.0 (-1.6) 0.1 (-1.0) 0.4 (-0.7)

09:30 Manufacturing output, % m/m (y/y) Aug -0.7 (-2.9) 2.0 (2.1) 0.2 (-0.7) 0.2 (0.8) 0.4 (1.0)

09:30 Visible trade balance, bn Aug -8.8 -8.2 -9.9 -9.0 -8.8

Industrial production: We forecast the August manufacturing production to increase by 0.2% m/m, consistent with the recoveryseen in manufacturing PMI data recently. While mining and quarrying is expected to contract, the utilities component is likely topost a healthy gain. Overall, we expect industrial production to increase marginally by 0.1% m/m.

Visible trade balance: We expect the August visible trade deficit to narrow slightly to 9.0bn, owing to a slight improvement intrade with Non-EU countries. Nevertheless, the UK's external position remains weak.

Thursday 10 October Period Prev - 3 Prev - 2 Prev -1 Forecast Consensus

12:00 BoE Bank rate decision, % Oct 0.50 0.50 0.50 0.50 0.50

12:00 BoE asset purchase decision, bn Oct 375 375 375 375 375

BoE interest rate announcement: We expect the BoE's MPC to keep its policy on hold with Bank rate at 0.50% and assetpurchases at 375bn. The recent pick up in activity indicators is unlikely to motivate the MPC to change its course of action giventhat inflation remains above target and the labour market situation continues to be fragile.

Friday 11 October Period Prev - 3 Prev - 2 Prev -1 Forecast Consensus

There are no significant data releases scheduled


4 October 2013 20

EURO AREA RATES STRATEGY

EUR long end and UFR committee proposal We think the proposed UFR committee changes might help to make the EUR 10s/30s curve slightly more resilient to a US-led potential flattening of the 10s/30s developed market curves. However, we would not chase the 10s/30s steepening, even if carry is still attractive.

This week Ultimate Forward Rate (UFR) committee, which was asked by The Dutch State Secretary of Social Affairs to assess and recommend possible adjustments on the existing UFR framework (DNB UFR), announced its recommendations after also taking into account feedback from 18 domestic and international market participants. Our understanding of the committees overall recommendations are summarised below.

1. The UFR level will move from a fixed number (4.2%) to a 10y moving average of the 1y20y forward rate, which was about 3.90% as at end of July.

2. The committee sees the start point of the UFR method, 20y, as a First Smoothing Point (FSP) instead of a Last Liquid Point (LLP). This is mostly a definitional change.

3. In the existing DNB UFR, fixed UFR (4.20%) is reached at the 60y point. Under the new committee UFR (CUFR), forward rates eventually converge towards the UFR level (around 50y) but never actually reach it. Similarly to the modified version of the UFR that was agreed in September last year (ie the existing DNB UFR), the calculation of 20y+ discount factors still include some form of market forwards in that part of the curve, which was a shortcoming of the original version of the UFR in summer 2012 (see Opportunities in the EUR long end with a modified UFR framework).

4. The committee estimates that the funding ratio for an average Dutch pension fund rises by 1.1% and that contributions decline very slightly1 compared with the existing methodology as of July 31. Also, the relative changes in the funding ratio under CUFR vs DNB UFR do not always have to be in the same direction; a lower or higher trending yield environment is likely to make a difference. However, overall, the relative changes are unlikely to be big.

1 Despite the fact that the UFR with the proposed changes is lower as of July 31, the funding ratio still improves. The reason for this is largely that the exiting DNB UFR uses the average of the discount curve over the past three months while CUFR uses the discount curve as of 31 July. And in the three months into end of July, rates sold off across the board due to Fed tapering concerns.

Cagdas Aksu +44 (0)20 7773 5788 cagdas.aksu@barclays.com

FIGURE 1 In 2012, the EUR long end steepened significantly owing to regulatory change, before flattening from spring 2013

FIGURE 2 but the 2012 steepening was also global due to extremely accommodative monetary policies

Source: Barclays Research


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4 October 2013 21

5. Importantly, under CUFR, the delta risk profile for an average pension fund does not change massively vs the latest DNB UFR2 either. There is some delta risk hedging shift from the 40y, 30y, 25y points on the curve to the 20y point. However, still, the difference in delta risk profile between CUFR and DNB UFR is nowhere near that between the original summer 2012 version of the UFR (which had important shortcomings) and the existing DNB UFR (ie the modified version of the original summer 2012 version).

Implications of the proposed changes DNB reported in a press release on 1 October3 that none of these proposed changes will be implemented in the 2014 transition year and that it will maintain the existing DNB UFR framework. Therefore, even if funds wanted to act and make hedging changes on the back of the Committees proposals, they are not likely to be in a rush. Despite not having the English version of the full release for now, our initial take is that overall these proposed changes are unlikely to lead to any substantial moves in the long end of the EUR yield curve, unlike last year, for the reasons we outline below.

1. Last year in spring, when the discounting framework changes from a market-based to a UFR approach started to be seriously considered by regulators, it represented an important change for the market: it was the first time any concrete proposals had emerged despite several years of discussions around this issue. Also, since then, ahead of the final UFR framework was agreed by DNB in September/October 2012, many pension funds that wanted to recalibrate themselves with the UFR discounting shifted their hedges from the 40/50y area to 20y area already. Therefore, the lack of timing urgency of the proposed changes, relatively minor differences vs the DNB UFR, and the fact that most funds that wanted to shift their hedges along the curve are largely done by now, will prevent a big resteepening of the ultra long end curve in our view. However, owing to small shifts of delta risk profile from the ultra long end to 20y in relative terms, the 20s/50s curve could still see some marginal steepening.

2. Alongside the regulatory changes, another factor that pushed the EUR long end curve significantly steeper in 2012 was the aggressively accommodative monetary policy globally (eg Fed started QE3 etc), which saw long-end curves steepen further in all developed markets. Since May this year, the Fed has been preparing to unwind these policies, as a result of which the 10s/30s curves have re-flattened globally during the summer before partially reversing this move since September. While the ECB still remains dovish, it is generally reluctant to introduce new accommodative policies given the recent improvement in economic data. More importantly, even if the ECB introduces more accommodative measures, such as a refi rate cut, or even another LTRO, unless the direction of US monetary policy changes from gradually-less-accommodation going forward, we would expect the 10y+ parts of the EUR curve to remain vulnerable to a flattening. Consequently, our preferred part of the EUR curve for steepening is between the 2/3y and 10y.

3. Overall, we think the proposed changes might help to make the EUR 10s/30s curve slightly more resilient to a potential US-led flattening of the 10s/30s developed market curves going forward. While US rates have lost their bearish momentum somewhat after the September FOMC meeting, future strong data could still change the picture in the coming months, potentially leading to more flattening pressure in 10s/30s globally. As such, just based on the proposed changes by the UFR committee, we would not chase the 10s/30s steepening even if carry is still attractive (20bp) over a year.

2 The full details of the proposed changes is only available in Dutch at the moment at the following link: http://www.rijksoverheid.nl/documenten-en-publicaties/kamerstukken/2013/10/01/kabinetsreactie-op-het-advies-van-de-commissie-ultimate-forward-rate-ufr.html The delta risk profile chart can be seen on Figure 8 at page 54. 3 http://www.dnb.nl/en/news/news-and-archive/persberichten-2013/dnb297414.jsp

The proposed changes will likely not be in place before 2015


4 October 2013 22

4. Given that potentially there might be somewhat more receiving appetite in the 20y sector as a result of the changes, the RV carry trade structures that benefit from paying the 20y sector might look initially less attractive. However, carry from paying the belly in an RV trade like EUR 5y10y fwd/5y15y fwd/5y20y fwd is still 17.5bp over a year; and the structure looks much lower than the levels implied from the steepness of the long-end curve (we look at EUR 5y5y/15y15y fwd curve spread for this Figure 4). This latter argument combined with our expectation that new hedging shifts will be much less than last year based on the UFR committees proposed changes, we think picking up 17.5bp positive carry from paying EUR 5y10y fwd/5y15y fwd/5y20y fwd is still better value than 20bp carry in 10s/30s steepeners over a year, considering the risk scenarios.

FIGURE 3 US led outright market sell-off in the belly of the curve has resulted in a flattening in 10y+

FIGURE 4 Paying the belly on EUR 5y10y/5y15y/5y20 is still probably a better carry trade than 10s/30s steepeners

Source: Barclays Research Source: Barclays Research

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4 October 2013 23

MONEY MARKETS

Liquidity evolution under the ECBs attention Over the past month, euro short rates have declined, reflecting dovish Fed comments and the ECBs suggestion of the possibility of another LTRO. We expect the 1y1y Eonia forward to keep trading at 35-45bp.

The ECBs October meeting brought very little new information about the outlook for monetary policy. As expected, the ECB left policy interest rates and forward guidance unchanged. During the Q&A session, ECB President Draghi mentioned the LTRO (as he did in his hearing at the EU Parliament on 23 September) as among the available instruments to counteract any effect from tightening liquidity conditions on euro money market rates. However, he did not provide any suggestion on the timing of the operation or on its structure (eg, maturity, cost of borrowing, etc)4. Asked how the ECB would avoid another LTRO to cause an increase in banks government bond purchases, he said the ECB could shape an LTRO the best possible way to respond to any needs. In particular, he explained that collateral policies would be adapted to market developments and noted that the ECB could envisage accepting ABS mezzanine tranches backed by SME loans as collateral.

The ECBs latest comments have not changed our view. Another interest rate cut remains unlikely, in our opinion, unless economic activity takes a step back. Forward guidance is likely to remain unchanged in the coming months, with the next step likely to be the removal of the downward bias should the economic situation continue to improve. We continue to envisage another very long-term refinancing operation (VLTRO), likely with different characteristics (eg, fixed to the current benchmark rate, open-ended, with specific collateral) as the most likely instrument for the ECB to use to address the tightening liquidity conditions should this result in an increase in Eonia fixing (and consequently Eonia rates) volatility.

4 The day after the October press conference, Bloomberg reported that ECB President Mario Draghi had tasked a panel to study options for new bank funding measures aimed at dealing with any future liquidity shortages.

Giuseppe Maraffino +44 (0)20 3134 9938 giuseppe.maraffino@barclays.com

Very little new information about the outlook for monetary policy from the ECBs September meeting

We still see another LTRO as more likely than a refi rate cut

FIGURE 1 ECB meeting - Eonia forward curve: move over the last month

FIGURE 2 Tentative expectation on surplus and Eonia evolutions

Source: Barclays Research Note: Our prediction on the evolution of the liquidity surplus is based on: thestrong assumption of constant autonomous factors; full roll of existing ECBliquidity operations; no further LTROs; unchanged policy rates; gradualrepayment of the 3y LTROs at an average of EUR3bn per week; and roll ofremaining 3y liquidity at maturity into the 3m LTRO. Source: EBF, ECB, Barclays Research

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4 October 2013 24

Liquidity conditions and Eonia movements Over the past month, liquidity conditions have tightened moderately as the surplus has declined 29bn to 216bn. The drop is due to the 21bn decline in OMO liquidity (due to 3y LTROs repayments) and the 8bn increase in autonomous factors (that have been quite volatile in the period). Even if the surplus has moved close to the psychological limit of 200bn, Eonia fixing has remained broadly unchanged at about 8bp (with the exception of the spike on 30 September, mainly due to end-of-quarter effects).

The significant drop in Eonia volume the day before the public holiday in Germany (3 October), from 30bn to 12bn, has allowed us to estimate the contribution to Eonia volume by German banks to approximately 18bn (more than half of the entire volume of the Eonia reported market). Interestingly, despite the sharp drop in volume, the fixing (calculated as the weighted average of the lending rates reported by panel banks) has remained unchanged at 7.9bp. This suggests a very low dispersion among panel banks contributions. Also, last year the changes in volumes were similar (drop from 25bn to 12bn the day before the public holiday), but the effect on fixing was slightly more pronounced (-0.8bp to 8.7bp), suggesting that, on average, German banks contributions were greater than the average of non-German banks contributions., This could also mean that over the past year, non-German banks have probably increased their lending rates while German banks have kept them broadly stable.

German banks accounting for more than half of Eonia (reported) volume (also because the contribution of other banks has declined) could be an important towards understanding the relationship between Eonia and the liquidity surplus. At present, German banks ECB borrowing amounts to a mere 10bn (they are a net lender to the ECB of about 96bn, excluding the usage of 1-week term deposit, which at the end of August amounted to 73.4bn), suggesting less dependence on general Eurosystem liquidity conditions (their ECB borrowing was much higher in the past). Therefore, German banks contributions to the EONIA market should be less sensitive to movement of the liquidity surplus, although it is not clear how German banks in the Eonia panel adjust their lending rates, especially to other small German banks, and to which extent the weekly drain auctions rates are a reference for them in terms of the lending rate in the overnight unsecured liquidity market. This, given the relatively high volume reported by German banks, might imply a reduction in the fixings sensitivity to the surplus, which would mean a more stable Eonia fixing even in a context of the surplus moving well below 200bn.

Possibility of another LTRO has started to be priced in Market expectations of ECB actions have changed over the past month (Figure 1). The Eonia curve has bull flattened since the ECB September meeting, when President Draghi warned that the ECB was ready to act if further passive tightening of liquidity conditions emerged, which could trigger an increase in EONIA fixing (at about 8bp at that time). Moreover, the (unexpected) dovish message by the Fed at the September FOMC meeting and the fact that President Draghi mentioned (for the first time ) the LTRO among the available instruments to counteract passive tightening of liquidity conditions at his hearing at the EU Parliament further support the decline in EU short rates. It is worth noting that the 1y1y Eonia forward has rallied from the highest level since the allotment of the two 3y LTROs, 59bp, to the current level of 36bp, in line with our expectations.

Moreover, the term premium component embedded in money market rates has declined but not disappeared (Figure 4). Indeed, looking at maturities beyond 2015, the bull flattening was much less pronounced (Figure 3). This is because long maturities are much more affected in general by major central banks expectations of a general increase in policy rates (this part of the money market curve is more sensitive to moves in the US rates market) and the normal term premium this far out in the money market curve, rather than a

The surplus is now close to 200bn, but Eonia fixing has remained broadly unchanged at 8bp

German banks contribution to the Eonia market

might be a factor favouring the stability of Eonia fixing

Bull flattening since mid-September

Flattening up to 2y tenors; the curve remains steep at longer maturities


4 October 2013 25

specific expectation of the ECBs policy rates. This has supported our view to maintain our red/greens steepening exposures

The Eonia forward curve continues to price in gradual normalisation of the fixing within the monetary policy corridor due to tightening liquidity conditions from 3y LTRO repayments. However, while at the beginning of September fully normalisation of Eonia was priced in by the end of December 2014, markets now expect this to happen in September 2015. More specifically, for the March 2015 reserve period (just after the natural maturity of the two 3y LTROs), EONIA fixing is priced at 33bp, which means no normalisation of EONIA (assuming an unchanged refi rate at 50bp) and likely discounts some probability of liquidity being re-injected into the market, via an LTRO.

Another possible interpretation of the shape of the Eonia curve could be expectations of Eonia normalisation to a lower refi rate (ie, expectation of a 25bp refi rate cut), in a context of low excess liquidity (ie, no further liquidity operations), as EONIA fixing pricing at 25bp for the November 2014 reserve period seems to suggest. However, such an interpretation also suggests a change in the monetary policy stance in the first half of 2015, with the first refi rate hike that seems fully priced by August 2015 (Eonia is priced at 51bp).

Since we believe it is unlikely the refi rate cut tool is used to address any issues related to the possible increase in Eonia fixing owing to the decline in the liquidity surplus, we are more confident in interpreting the current shape of the Eonia curve as the result of rising expectations of other liquidity operations.

Trading recommendations The very front end of the Eonia curve should remain driven by current and expected Eurosystem liquidity conditions. As long as the decline in the surplus does not increase volatility of the fixing, we do not expect any major move up to the 1y part of the curve. Post 1-year rates are likely to remain sensitive to more global factors. Concrete suggestions of VLTRO would trigger a rally in short rates with a flattening of the money market curve up to the 2- or 3-year tenors.

In general, with the ECB not adding new information to the markets, we continue to expect a period of range trading, with the 1y1y Eonia forward at range 35-45bp. We maintain our steepening exposure to golds/blues (1y3y forward vs 1y2y Eonia forward)

Markets have postponed the full normalisation of Eonia at around the MRO rate; further ECB actions are priced in the curve now

FIGURE 3 Long part of the Eonia curve has remained steep

FIGURE 4 Decomposition of the 3m Euribor: Spot and forward

Source: Barclays Research Source: Bloomberg, Barclays Research

0

10

20

30

40

50

60

70

Oct-12 Dec-12 Mar-13 Jun-13 Sep-13

1y2y fwd vs 1y1y fwd1y3y fwd vs 1y2y fwd1y4y fwd vs 1y3y fwd1y5y fwd vs 1y4y fwd

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

3m Euribor 3m 1y fwd 3m 2y fwd 3m 3y fwd

Current ECBOIS-ECBLibor-OISTerm premium

Resulting 3m Euribor market levels


4 October 2013 26

SOVEREIGN SPREADS

Q4 and 2014-15 Supply Outlook We forecast gross supply for the remainder of 2013 at c.168bn, resulting in total net issuance of just under 48bn. We look for 2014 gross bond issuance in the euro area to show a decrease of about 5bn, with total gross issuance forecast at 872bn.

Including account issuance thus far in 2013, we forecast the Eurozones total issuance requirements for the remainder of Q4 at c.168bn. We predict redemptions of c.120bn, resulting in total net issuance of just over 45bn over the next three months. However, the majority of net issuance needs will fall in November, when support from redemptions will be the second-lowest of any month in 2013, resulting in November being the fourth- heaviest issuance month of this year. The highly rated core will account for the bulk of net issuance, with Germany, France Belgium and Holland combined accounting for 39bn. However, Austria will see negative net supply of 10bn due to a bond redemption in October, and negligible issuance needs following a new 5y issued in September.

Net issuance requirements elsewhere are more mixed. The recent increase in Italian debt issuance plans to up to c.240bn of BTP, CCT and CTZ issuance, means that the sovereign has the highest need of any issuer, c.54bn, in the remainder of Q4. However, redemptions at the beginning of November and December will result in a small net issuance requirement of 16bn, and with a potential BTP Italia due in the quarter, marketable bond issuance could be negligible. Spain also has large redemptions of c.16bn at end-October; and with lower auction sizes likely until end-2013, we expect net issuance requirements for that period of just over 1bn.

FIGURE 1 Forecast gross and net issuance by month and country for the remainder of 2013 ( bn)

Germany France Italy Spain Belgium Holland Portugal Finland Austria Greece Ireland Total

Rest of Oct 13

Gross Issuance 17.0 18.0 17.5 4.0 2.5 2.5 0.0 1.5 0.0 0.0 0.5 63.5

Redemptions 16.0 21.6 0.0 16.2 0.0 0.0 0.0 0.0 13.1 0.0 0.0 66.9

Net 1.0 -3.6 17.5 -12.2 2.5 2.5 0.0 1.5 -13.1 0.0 0.5 -3.4

Nov-13

Gross Issuance 13.0 17.0 25.5 8.0 2.5 5.5 0.0 0.0 1.7 0.0 0.0 73.1

Redemptions 0.0 0.0 18.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 18.1

Net 13.0 17.0 7.4 8.0 2.5 5.5 0.0 0.0 1.7 0.0 0.0 55.0

Dec-13

Gross Issuance 9.0 4.5 11.0 5.5 0.0 0.0 0.0 0.0 1.5 0.0 0.0 31.5

Redemptions 15.0 0.0 20.0 0.0 0.2 0.0 0.0 0.0 0.0 0.0 0.0 35.2

Net -6.0 4.5 -9.0 5.5 -0.2 0.0 0.0 0.0 1.5 0.0 0.0 -3.7

Rest of 2013

Total Gross Issuance 39.0 39.5 54.0 17.5 5.0 8.0 0.0 1.5 3.2 0.0 0.5 168.1

Total Redemptions 31.0 21.6 38.1 16.2 0.2 0.0 0.0 0.0 13.1 0.0 0.0 120.2

Total Net 8.0 17.9 15.9 1.3 4.8 8.0 0.0 1.5 -10.0 0.0 0.5 47.9


Longer-term issuance forecasts 2014-15 Figure 2 outlines our expectations for supply in 2014-15. Forecasts are from official sources where available for 2014, and where unavailable, from our estimates of cash deficits plus forecast bond redemptions. For the programme countries, we use redemption and bond issuance and EU/IMF funding levels from the official programme documents or from National Treasury sources where available. We assume that net T-bill issuance will remain flat y/y and that financing needs will be met entirely from capital market issuance. Therefore, we would be mindful that other forms of financing used (such as ECP, retail

Huw Worthington +44 (0)20 7773 1307 huw.worthington@barclays.com Cagdas Aksu +44 (0)20 7773 5788 cagdas.aksu@barclays.com


4 October 2013 27

issuance, MTN issuance, privatisation revenues, etc) could reduce the ultimate bond issuance requirements, as has been the case in the past few years.

Our initial expectations for individual gross bond issuance in the euro area for 2014 show a decrease of about 5bn, with total gross bond issuance forecast at 872bn (and a total funding requirement of 903bn), versus a current 2013 estimate of 877.5bn for gross bond supply. Net bond issuance including redemptions from programme countries is expected to fall by some 65bn in 2014 to 224bn. These forecasts assume no bond issuance from Greece, despite a 4.4bn financing gap in its current official 2014 programme. However, we assume Portugals additional financing needs of 9bn, as identified by the IGCP, will be met by bond issuance. We also believe Ireland will continue to access bond markets although pre-funding in 2012 and 2013 means that 2014 requirements have already been met and the 7bn target reflects a smoothing of funding needs in 2014 and 2015 combined.

In terms of individual gross issuance, Maria Canatta said Italian gross debt issuance in 2014 would be broadly similar to that in 2013. We expect bills supply to remain flat; thus, 240bn of BTP, CCTs and CTZs supply will leave Italy as the largest issuer by some distance. France has forecast 174bn of bond issuance net of buybacks (although this will likely be eventually reduced to reflect buybacks of bonds redeeming in 2014 that take place in Q4). We do, however, assume an additional 18bn of issuance to fund buybacks of debt falling due in subsequent years (ie, 192bn funding in gross terms). Thereafter, Germanys draft budget released on 13 August foresees c.108bn of 5y, 10y and 30y supply, alongside total schatz and bills supply of 109bn, translating into expected bond issuance of 158bn, which could be supplemented by c.10bn of linker issuance. We expect supply in the Netherlands to be similar to the 50bn in 2013. Spain has announced total debt issuance will be 243.9bn in 2014. There will be no contribution in net issuance terms from bills; thus, a bond supply target of about 130bn, compared with c.121bn this year, seems likely, in our opinion, although that does not include any requirement for regional funding.

Of the smaller issuers, in Belgium we forecast a total funding requirement of c.37bn, although the announced 2014 OLO issuance could be a little lower than this, as MTN and retail issuance make up the balance. Notably, however, there will be no additional borrowing to fund a so-called popular borrowing plan in Belgium, with household savings locked in for five years, but enjoying a 10pp reduction in the withholding tax to 15% to be used to finance socially responsible projects in the public and private sectors (including lending to SMEs). A high level of redemptions in Austria should see supply increase to as much as 30bn in 2014, while Finlands bond funding ne

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