Global Cycle Notes - Credit Suisse

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES AND

ANALYST CERTIFICATIONS.

CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION®

Client-Driven Solutions, Insights, and Access

Global Cycle Notes

Spring Loaded

The mild global growth slowdown that began in Q4 is set to end imminently. We

expect above-trend global industrial production growth for the rest of the year.

So far in 2014, some US de-stocking has coincided with bad weather and weak

Chinese data to cause a minor stretch of weakness within the global recovery

from Europe’s recession.

That recession caused stagnant manufacturing, demand, and trade trends

worldwide from mid-2011 until early 2013 (Exhibit 1). But by late 2013, global

industrial production was growing much faster than its longer-term trend, amid a

few signs of inventory accumulation in the United States.

In our view, the 3m/3m annualized growth rate of global industrial production will

rise from a local trough near 2.5% in June to a multi-month plateau above 6% at

year-end. If we are right, global growth in late 2013 will be stronger than it was

late last year.

Markets have disregarded early signs of improvement. However, a rebound in

cyclical momentum has the potential to reverse the duration rally since the

beginning of the year, in our view.

In this note, which is the first of a new monthly publication, we detail the reasons

for our view.

Exhibit 1: The Global Goods Sector (Production, Demand, Trade)

Real Log Levels

5.24

5.25

5.26

5.27

5.28

5.29

5.30

5.31

5.32

5.33

5.34

Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14

Euro Area recession (2011Q4-2013Q1)

Global IP ex-China, nominal IP weights

Global Goods Demand x-China, trend-adjusted

World Trade Volume

Goods Demand = Adjusted IP Components from (C + I + G+X-M)

June MomentumTrough

Source: Credit Suisse

Research Analysts

James Sweeney

212 538 4648

[email protected]

Neville Hill

44 20 7888 1334

[email protected]

Matthias Klein

44 20 7883 8189

[email protected]

Wenzhe Zhao

212 325 1798

[email protected]

Yiagos Alexopoulos

44 20 7888 7536

[email protected]

Axel Lang

212 538 4530

[email protected]

Jeremy Schwartz

212 538 6419

[email protected]

02 June 2014

Fixed Income Research

http://www.credit-suisse.com/researchandanalytics

02 June 2014

Global Cycle Notes 2

Key Points

Momentum rebound: Global IP Momentum to bottom near 2.5% in June and

reaccelerate above 6% by year-end.

Exhibit 2: Global IP Momentum

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

3m/3m ann.%

pre-crisis: average: 3%

Source: Credit Suisse, Thomson Reuters Datastream

Strong goods demand: Steady US consumer, slower but still-high Chinese growth and a

recovering Eurozone economy are sufficient to support solid Global demand growth.

Inventories: The second half 2013 inventory build has been brought under control. There

is plenty of scope for re-stocking.

A less synchronous cycle: Growth is unusually uncorrelated across major regions. PMI

New orders have turned higher in Japan and China from depressed levels. Euro area and

US growth remain above-trend but is slowing. The Euro area is in the final stages of its

slowdown while the US is decelerating in a technical reversal of its post-winter

bounceback (Exhibit 3).

Interest Rates: A rebound in cyclical momentum has the potential to reverse the duration

rally since the beginning of the year. Duration risk appetite is nearing Euphoria (Exhibit 5)

and we think developed market inflation is turning higher.

Risk Appetite: Global risk appetite has been range-bound at middling levels. A rebound in

Global IP Momentum should boost risk appetite in the absence of a severe short-term

interest rate spike.

Four requirements: We don't think a momentum rebound alone will be sufficient to trigger

sharply more-hawkish Fed expectations. That will require additional progress towards US

full employment.

https://plus.credit-suisse.com/r/Cf6Q9L

https://plus.credit-suisse.com/r/dibpAg

https://plus.credit-suisse.com/r/dibpAg

02 June 2014


Exhibit 3: PMI New Orders - North Atlantic-Asia Divide

38

42

46

50

54

58

62

09 10 11 12 13 14

US (Markit PMI) Euro Area

China (HSBC) Japan

Source: Credit Suisse, Markit

Exhibit 4: Global IP Momentum and Forward Rates

-10%

-5%

0%

5%

10%

15%

(250)

(200)

(150)

(100)

(50)

-

50

100

150

93 95 97 99 01 03 05 07 09 11 13

USD Swap, 5y5y Fwd, bps (LHS, dev from trend)

Global IP Momentum, % (RHS)


Exhibit 5: US Duration Risk Appetite

-7

-5

-3

-1

1

3

5

7

00 02 04 06 08 10 12 14

US Duration Risk Appetite

Euphoria

Panic


02 June 2014


Global Demand

Global goods demand is back on track after being derailed by Europe’s recession. The

slowdown in global demand from late-2011 to early-2013 was comparable to prior world

recessions, but now year-on-year demand growth is above average.

Global goods demand1 (x-China) has typically trended at 3-4% p.a. except during global

recessions (Exhibit 6). The chart illustrates the stylized fact that production is more volatile

than demand, and also shows how demand growth anchors trend production.

In March our goods demand measure reached 4.1% y/y, near the top end of the recent

range. This strength is partly attributable to a surge in Japanese spending before the April

consumption tax increase. A reversal in Japanese spending in April is likely to push global

demand growth down somewhat.

However, we expect a long period of 3-4% growth to follow, similar to the years before

2007, or between mid-2009 and mid-2011. In the second half of the year, industrial

production growth is likely to overshoot this demand trend, but over time, production

growth will converge to demand growth.

Exhibit 6: Global x-China Real Goods Demand Industrial Production y/y%

-15%

-10%

-5%

0%

5%

10%

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

Global Goods Demand, x-China

Global IP, x-China


PMI surveys, market indicators, inventory estimates and changes in industry structure all

matter for the industrial production outlook, but estimating the global goods demand trend

is the most important part of our forecast. An unexpected speedup or slowdown in demand

can cause an abrupt change in IP growth even if these other indicators signal a different

path. For example, an unexpected slowdown in demand may lead to an inventory

accumulation which slows production later.

Of course, understanding global goods demand starts with knowing its composition.

Exhibit 7 shows a breakdown of global goods demand adjusted according to industrial

inputs given by input-output tables of the various economies. (We make these adjustments

to create a measure of demand more comparable to global industrial production). The

composition of demand has changed significantly in recent years, especially for China,

where the share of global demand has tripled from 7% in 2004.

1 Our measure of global goods demand includes consumer goods purchases and business and government investment. We weight

each component by dollar sales and adjust weights according to the amount of industrial valued added involved in bringing each type of good to market. We exclude China from our preferred global aggregate for data quality reasons but China is very much part of our analysis. Methodological details are in a technical appendix of an earlier piece.

https://plus.credit-suisse.com/r/jjKiHB

02 June 2014


Exhibit 7: Composition of Global Goods Demand (2012 weights)

14%

10%

13%

6%

5%5%7%

13%

17%

10%US ConsumptionUS InvestmentEA ConsumptionEA InvestmentJapan ConsumptionJapan InvestmentChina ConsumptionChina InvestmentROW ConsumptionROW Investment


Exhibit 8 through 11 show the contributions of major economies to growth in Global

demand. Chinese investment, US goods consumption, and “rest of the world”

investment and consumption have been the major drivers of global goods demand in

recent years. These are the things that have required global manufacturing to grow. In

contrast, US, Japanese and European investment, and Japanese and European goods

consumption, have not grown much overall since 2000, so they have not required

growing factory output.

Note that Europe’s goods consumption and investment growth since 2001 has been near

zero. In 2012, Europe went from being a large economy not contributing to global demand

growth to being a large economy shrinking rapidly, causing a major global shock, which

was further inflamed by Europe’s growing current account surplus.

However, in 2013, European demand began to grow again, helping global demand and

global industrial production to snap back. Those who emphasize the low levels of

European investment or durable goods spending or sluggish growth rates in recovery miss

something important. These things do not grow much in normal times, so any period of

improvement in them, even from low levels, can help to drive above trend global growth.

In comparison, the US consumer has been a juggernaut since the early nineties, with only

2008 as an exception. Real goods spending has generally grown steadily, and recent

labor market trends do not suggest any imminent disruption. One interesting theme we will

be monitoring is whether the composition of US goods demand starts to transition from

being led by durables to being led by non-durables. A major risk is that durable goods

spending continues to slow and non-durables does not pick up the slack, leading to sub-

trend US demand.

Investment in the US has been more volatile and has contributed much less to global

growth than consumer spending since 2001. Our input-output table adjustment means that

the investment we are focusing on is mostly equipment, which involves lots of industrial

activity, rather than construction, which involves less, or software, which involves none.

We expect above trend equipment spending in the US in the second half of the year, but

do not expect a boom. Stronger investment is a major upside risk to our view.

02 June 2014


Exhibit 8: Real Global Goods Demand (China included, y/y%)

-7%

-5%

-3%

-1%

1%

3%

5%

7%

9%

81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13

OtherChinaJapanEAUSContribution to Global Goods Demand, y/y


Exhibit 9: Real Global Goods Demand Components, annualized growth rates

US EA Japan China Other

Cons. Inv. Cons. Inv. Cons. Inv. Cons. Inv. Cons. Inv.

1980-90 3.4% 3.4% 2.4% 2.4% 3.0% 5.2% 3.6% 4.5%

1990-01 3.8% 5.4% 1.8% 2.9% 1.3% -0.6% 9.4% 23.8% 3.1% 2.9%

2001-08 3.5% 2.5% 1.1% 2.5% 0.7% 0.8% 11.5% 18.9% 4.0% 6.2%

3/08-3/09 -5.5% -19.2% -3.7% -16.4% -5.3% -13.1% 16.5% 24.1% 0.8% -13.3%

3/09-9/11 3.1% 5.7% -0.2% 1.5% 4.0% -0.7% 12.6% 15.3% 4.1% 7.6%

9/11-3/13 3.8% 3.3% -2.4% -5.4% 2.0% 1.4% 11.5% 18.7% 3.3% 1.3%

3/13-2/14 2.5% 1.9% 1.5% 5.1% 5.1% 8.2% 9.4% 13.8% 4.6% 3.1%

3/01-2/14 2.7% 1.3% 0.1% 0.0% 1.3% -0.1% 12.0% 18.2% 3.7% 4.0%


Exhibit 10: G3 Goods Consumption, rebased in 2007 Exhibit 11: G3 Investment, rebased in 2007

90

95

100

105

110

115

07 08 09 10 11 12 13

G3

US

EA

Japan

75

80

85

90

95

100

105

07 08 09 10 11 12 13

G3

US

EA

Japan

Source: Credit Suisse, Source: Credit Suisse

02 June 2014


China’s final demand growth has slowed in recent years, reflected in most indicators other

than the suspiciously steady headline investment and retail sales data. However, since

China’s weight has grown so much in recent years, it can continue to be a major

contributor to global growth even if growth rates slip.

In summary, a steady US consumer, slower but still high Chinese growth, and a

recovering Eurozone economy are sufficient to support 3-4% global demand growth in the

next few years. Key upside risks could come from US and Eurozone investment, or a

strong rebound in China.

In the very short term, Japan presents a negative risk. Further out, we view a slowdown in

US durable goods consumption and a sharper slowdown in China as the biggest possible

negative developments.

Inventories

Exhibit 12 below is a long term picture of global industrial production and goods

demand with China excluded. One benefit of viewing these things together is that it

allows us to estimate changes in inventories during periods when demand growth and

production growth are different. For example, in early 2008 global goods demand

slowed relative to production, leading to an inventory build, which was rapidly reversed

in late 2008, as production collapsed relative to demand. This then led to an extremely

strong bounce in production.

Exhibit 13 is our imputed measure of global inventories based on deviations of global (x-

China) production and demand. We show it against the average change in GDP

inventories for the US, Europe and Japan, and note that our monthly time series is mostly

in line with the GDP measure, but is less volatile and may lead slightly. Our imputed

measure (in red) falls below zero when production falls relative to demand. In late 2013,

however, our measure captured a mild increase in inventories.

US data, on the other hand, suggested something larger was happening. US GDP data

showed a large increase in inventory investment in the second half of last year, which was

also visible in bottom-up data for the automobile sector, non-auto retailers, and aerospace

industries. However, much of this inventory build was reversed sharply in Q1.

Measured any way, inventories are difficult to estimate, especially since a larger part of

the global supply chain involves intermediate or in-transit inventories in places far from

their final markets. Our analysis here, however, suggests there was an inventory build

late last year, but it was not very large, and, in our view, it has largely been brought

under control recently.

The demand outlook, not the current inventory balance, will be the key driver for

production going from here, in our view.

02 June 2014


Exhibit 12: Global x-China Industrial Production vs. Goods Demand

Log Levels

4.5

4.6

4.7

4.8

4.9

5

5.1

5.2

5.3

5.4

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14

Global Industrial Production, x-China

Global Goods Demand x-China, trend-adjusted

Goods Demand = Adjusted IP Components from (C + I + G+X-M)

Exhibit 13: G3+ Inventory Change vs. Global Inventory Change Proxy

-350

-250

-150

-50

50

150

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

Jan-80 Jan-84 Jan-88 Jan-92 Jan-96 Jan-00 Jan-04 Jan-08 Jan-12

Global Inventory Change Proxy, x-China

G3+ GDP Inventory Change, rhs, 2005 bn USD


Lead Indicators

Cyclical indicators have begun to pick up, consistent with our view of a June momentum

trough. The May improvement in ISM New Orders, the best lead indicator for Global IP

Momentum, points to an imminent re-acceleration. At 56.9, ISM New Orders is consistent

with Global IP Momentum above 5% (Exhibit 14).

However, performance across the major regions is not synchronous at present

(Exhibit 15).

In particular, North Atlantic growth rates are elevated compared to historical trends, while

Asian growth rates are depressed. PMI new orders have turned higher in China and

Japan, albeit from very low levels. In the US and the euro area, PMI new orders are

trending lower, albeit at historically elevated levels (Exhibit 16).

02 June 2014


Exhibit 14: ISM New Orders and Global IP Momentum

-15%

-10%

-5%

0%

5%

10%

15%

20

25

30

35

40

45

50

55

60

65

70

95 97 99 01 03 05 07 09 11 13

ISM New Orders (lhs)

Global IP Momentum (rhs, 1m lag)


Exhibit 15: G3 and China IP Momentum

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

-15%

-10%

-5%

0%

5%

10%

12 13 14 15

(3m/3m % ann)

US Euro Area

Japan (rhs) China (rhs)

Forecast

Exhibit 16: PMI New Orders - North Atlantic-Asia Divide

38

42

46

50

54

58

62

09 10 11 12 13 14

US (Markit PMI) Euro Area

China (HSBC) Japan

Source: Credit Suisse, Markit

02 June 2014


The consequence of the unusually de-synchronized regional cycles is a slow bottoming of

growth. Momentum often turns within two months in the major regions. This time, we

expect a sequence of troughs between April and August.

The sequence of troughs is also unusual with Japan and China turning first, then the

euro area, and the US last. Momentum in two of the main countries, the US and China,

is thus moving in opposite direction in the next few months. That caps the downside for

Global IP Momentum and is one of the reason for the elevated Global IP Momentum

trough at trend-growth.

The recovery of developed markets was the key driver of above-trend growth in 2013

and countered wide-spread weakness across EM. We expect a more equal contribution

of emerging and developed markets to the Global IP re-acceleration in the remainder of

2014 (Exhibit 17). However, EM growth should only recover back to its pre-crisis

average, whereas developed markets are likely to experience a longer period of above-

trend growth.

Signs of a rebound in EM are already becoming apparent in the Credit Suisse Basic

Materials Index (CSBMI)2. Emerging economies are especially sensitive to the raw

materials sectors measured by the CSBMI and this indicator has consistently tracked

emerging market IP momentum with a slight lead (Exhibit 19).

Our preliminary estimate for the May CSBMI (-0.07) rises to its long-term average of zero

from the low end of its recent years’ range. This suggests the worst part of economic

slowdown in developing economies is likely to be behind us, which is corroborated by

rising Asian export data.

Exhibit 17: EM and DM IP Momentum

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

(3m/3m % ann)

EM IP momentum

EM Pre-Crisis Mean

DM IP momentum

DM Pre-Crisis Mean


2 The CSBMI is a monthly index constructed to summarize variation among 25 cyclically sensitive market indicators covering the

basic material sectors including chemicals, energy, materials, paper & packaging, and transportation & shipping. The CSBMI allows timely inference from high frequency market data without reliance on lagged economic data releases.

https://doc.research-and-analytics.csfb.com/doc?language=ENG&format=PDF&sectihttps://doc.research-and-analytics.csfb.com/doc?language=ENG&format=PDF&section_number=1&document_id=868551471on_number=1&document_id=868551471

02 June 2014


Exhibit 18: CSBMI (last six months and the prior year)

May 14* Apr14 Mar14 Feb14 Jan14 Dec13 May13

CSBMI -0.07 0.01 -0.13 -0.88 -1.05 0.20 0.13

CSBMI 3m ma -0.06 -0.33 -0.68 -0.57 -0.33 0.22 -0.42

Source: Credit Suisse *Preliminary estimate

Exhibit 19: CSBMI and Emerging Market IP Momentum

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

-6

-5

-4

-3

-2

-1

0

1

2

3

01 02 03 04 05 06 07 08 09 10 11 12 13 14

CSBMI 3mma

EM IP Momentum, rhs


Regional Developments

US IP: At the beginning of the year, we expected US IP to decelerate gradually from Q4

before picking up again in the second half of the year. However, the bounce-back from an

unseasonably cold winter has set us up for a large, swift, and quite technical momentum

cycle. We now see momentum in the US peaking near 6% in April. And from here we

expect a July trough before reaccelerating back towards 6% in the beginning of Q4.

While production growth should slow sequentially from its Feb-March strength, we expect

the deceleration will be short-lived. Markit PMI new orders, regional PMIs and auto

manufacturer production schedules are all pointing in the right direction, and we expect the

greatest strength to be concentrated in Q3. This should be supported by robust goods

demand. We expect steady trends in consumption to hold up, and both residential and

business investment should accelerate later this year. The risk of extreme weather from an

El Niño event this summer adds additional upside potential from utilities production.

Earlier in the year, excessive inventories (especially in autos) appeared to be a large

headwind towards US production (Exhibit 23). However, data revisions as well as some

genuine destocking have improved the outlook for inventories, allowing strong demand to

feed through directly into production growth.

The biggest risk to our view from here is the potential for disappointing business

equipment investment. Survey data last year suggested 2014 would finally see significant

contributions from this category, but so far this hasn’t been confirmed in the hard data. If

this investment fails to materialize, it would mute the acceleration in US momentum later in

the year.

02 June 2014


Exhibit 20: US IP Momentum and PMI New Orders Exhibit 21: US Motor Vehicle Production Schedules

-22%

-17%

-12%

-7%

-2%

3%

8%

13%

25

30

35

40

45

50

55

60

65

05 06 07 08 09 10 11 12 13 14 15

Markit PMI New Orders (1m lead)

IP 3m/3m% ann.(rhs)

10.0

10.2

10.4

10.6

10.8

11.0

11.2

11.4

11.6

11.8 projection(In millions)

Source: Credit Suisse, Thomson Reuters Datastream, Federal Reserve, Wards

Exhibit 22: Capital Goods Orders and Investment Exhibit 23: Retail Inventory-Sales Ratio

350

450

550

650

750

850

950

30

35

40

45

50

55

60

65

70

92 94 96 98 00 02 04 06 08 10 12 14

Th

ou

sa

nd

s

Core Capital Goods Orders

Equipment Investment (RHS)

1

1.2

1.4

1.6

1.8

2

2.2

2.4

2.6

95 97 99 01 03 05 07 09 11 13

Autos

ex Autos

Exhibit 24: Labour Income remains on Trend Exhibit 25: Retail Sales Resilience

4800

5000

5200

5400

5600

5800

6000

6200

2006 2007 2008 2009 2010 2011 2012 2013 2014

Wage and SalaryPayrolls4.6% Trend

5.75

5.80

5.85

5.90

5.95

6.00

6.05

6.10

00 04 08 12

US Real Retail Sales

(log level)


02 June 2014


China IP: A policy-guided cyclical slowdown is at an inflection point, led by selective policy

easing and improvement in external demand. However, Chinese growth should remain on

a slower trend relative to the pre-2008 average, due to its unbalanced growth model and

severe credit overhang.

We expect Chinese IP momentum to pick up modestly to 11% in Q3, slightly below its

October 2013 peak. In retrospect, a series of policy tightening measures prompted the

decline in IP Momentum last year. Although the market missed these developments in real

time, they are apparent from our policy proxies such as infrastructure investment and bank

loan growth (especially mortgage loans).

Tighter policy and weaker external demand drove March IP momentum to 6% early this

year, the lower bound of the unofficial “targeted range”. That prompted a reversal in

policy, amid sluggish labor market conditions, deteriorating sentiment, and evident

financial vulnerabilities.

Although infrastructure investment and easing of lending standards are slow and carefully

targeted, they have already appeared to impact economic activities. As shown in Exhibit

27, a broad range of leading indicators have rebounded from low levels, including PMI

New Orders and the CSBMI.

Domestic final demand is likely to stabilize, especially helped by stabilization in investment

growth. This should lead a short-lived re-stocking cycle at multiple stages of the production

chain, causing a growth upswing which we think has scope to surprise on the upside

relative to a still-bearish market consensus.

We expect healthier mortgage loan initiation and an easing of home buying restrictions to

reverse recent contractions in home sales, and to underpin residential investment going

forward. The latest data have shown a tentative stabilization in housing starts and a

rebound in cement output, an intermediate product which is particularly sensitive to

demand changes.

We also expect exports to benefit China in coming quarters, as Europe continues to

recover from recession and US consumer demand remains resilient. This should outweigh

the demand drag following the Japanese VAT hike. Recent data from China's main trade

partners has shown a pick-up. Furthermore, lead indicators such as export growth in

Korea and Taiwan, and PMI Export New Orders, have also rebounded.

02 June 2014


Exhibit 26: PMI New Orders show stabilization… Exhibit 27: …confirmed by broad range of activity proxies

35

40

45

50

55

60

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14

China IP Momentum, estimate from y/y data,

seasonally adjusted, 3m/3m ann.

HSBC PMI New Orders (rhs)

Source: Credit Suisse, NBS, CEIC

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

Jan-08 Jan-10 Jan-12 Jan-14

China IP Indicator, PCA

HSBC PMI New Orders

CSBMI, 2m lead

IP Momentum, derived from official Y/Y

Exhibit 28: Policy bias has turned Exhibit 29: Less tightening in mortgage lending

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

Jan-01 Jan-04 Jan-07 Jan-10 Jan-13

China IP Momentum (3m/3m% ann.)

Real Loan Growth Momentum, RHS

10.2

10.4

10.6

10.8

11

11.2

11.4

11.6

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

Jan-06 Jan-08 Jan-10 Jan-12 Jan-14

Quarterly Growth Rate of Mortgage Loan Stock,

SAResidential Building Floor Space Sold, SA log,rhs

Source: Credit Suisse, Thomson Reuters Datastream Source: Credit Suisse

Exhibit 30: Investment growth remains stable Exhibit 31: Other Asian exports signal acceleration

-5%

5%

15%

25%

35%

45%

55%

08 09 10 11 12 13 14

Infrastrucuture Investment: Utilities +

Transportation (13% )Real Estate Investment (20%)

Manufacturing Sector Investment(32%)

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

07 09 11 13

3m/3m ann.%

Taiwan

Korea

China (trade partner data)


02 June 2014


Euro area IP: Momentum has been decelerating since the beginning of the year, and we

expect it to reach a trough of -1% in June. The global slowdown put a drag on European

exports with domestic demand only partially offsetting this. However, lean inventories and

stronger goods demand should lead the acceleration of Euro area IP in the second half of

the year.

Higher disposable income, less tight credit conditions and lower uncertainty are finally

setting the stage for a pickup in durable goods consumption. Car sales are 12% up from

the bottom, but are still close to 50% below their pre-crisis levels in the periphery

(Exhibit 35). The improving macro environment, depressed levels of car sales and

stretched car life expectancy create a much more positive mix for demand. Consumer and

retail confidence indicators are pointing to an acceleration in retail sales.

On the investment front, the outlook is more mixed in the short-run. Boosted by

frontloaded transport equipment investment in the end of last year (due to changes in

emission regulations), euro area fixed investment has started 2014 on a weaker footing.

However, the pull-back is likely to be temporary. Investment intentions are at multi-year

highs, while the demand for credit has shown a sharp rise in the most recent surveys.

These trends suggest to us that Euro area IP momentum will accelerate above 5%

towards the end of the year. The inventory cycle represents an upside risk to our forecast.

No significant restocking has taken place in this recovery, a combination of limited access

to financing and high economic uncertainty. The completion of the ECB’s AQR and

potential measures from the ECB to increase lending to corporates could provide

companies with the much needed inventory financing, and provide an additional boost to

Euro area production.

02 June 2014


Exhibit 32: Euro area IP Momentum is in the final stage of slowdown

Exhibit 33: Very lean inventories should support output although financing remains a constraint

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25

30

35

40

45

50

55

60

65

70

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

PMI - new orders,1m lead

IP 3m/3m% ann.(rhs)

-5

0

5

10

15

20

25

85 87 89 91 93 95 97 99 01 03 05 07 09 11 13

Stocks of finishedproducts

Long-term avg

Exhibit 34: Consumer sentiment points to stronger retail spending

Exhibit 35: Car sales still have ample scope to recover

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

-36

-31

-26

-21

-16

-11

-6

-1

95 97 99 01 03 05 07 09 11 13

Euro Area ConsumerConfidence

Euro Area Retail Sales (yoy%,3mma, rhs)

30

40

50

60

70

80

90

100

110

120

06 07 08 09 10 11 12 13 14

Euro area

Italy

Germany

Spain

France

Exhibit 36: Investment should continue to rebound despite a likely near-term pull-back

Exhibit 37: Stronger domestic demand recently has countered persistent export weakness

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

25

30

35

40

45

50

55

60

65

98 00 02 04 06 08 10 12 14

EA PMI NewOrdersGFCF qoq% ann(rhs)

6.8

6.85

6.9

6.95

7

7.05

7.1

7.15

7.2

7.25

7.3

Jan

-07

Jul-

07

Jan

-08

Jul-

08

Jan

-09

Jul-

09

Jan

-10

Jul-

10

Jan

-11

Jul-

11

Jan

-12

Jul-

12

Jan

-13

Jul-

13

Jan

-14

Exports

Imports


02 June 2014


Japan IP: Japan has bucked the global slowdown in Q1 due to strong domestic demand

in the run-up to the consumption tax hike, but is now confronting a double-shock. The

severe drag on demand from the consumption tax hike is being exacerbated by the final

leg of the global momentum slowdown.

We expect Japanese IP Momentum to slow about 20pp in merely three months, an

extreme drop even for the standards of very volatile Japanese output. The recent bounce

in PMI New Orders in May, however, suggests that momentum is approaching its trough

and could start rebounding from extremely depressed levels in Q3.

Base effects will cause a sharp bounce-back in momentum. However, weak domestic

demand, especially consumption, leaves downside risks for IP growth during the

remainder of the year, making Japan dependent on external demand dynamics. The

recent pickup in exports suggests that stronger external demand will probably counter

some of the domestic demand weakness.

Exhibit 38: PMI New Orders suggest sharp slowdown is coming to an end

Exhibit 39: High-Frequency Indicators show severe demand drag after cons tax hike with little rebound

-65%

-45%

-25%

-5%

15%

35%

20

30

40

50

60

70

08 09 10 11 12 13 14

PMI - New Orders (lhs)

IP 3m/3m% ann. (rhs)

1m lag

-60%

-40%

-20%

0%

20%

40%

Sep 13 Nov 13 Jan 14 Mar 14 May 14

Department store sales

Supermarket store sales

Electronics retail store sales formajor 5 items

Exhibit 40: Investment has bounced ahead of the consumption tax hike

Exhibit 41: Japanese exports rebounded in April, as imports collapsed

600

650

700

750

800

850

900

950

1000

1050

1100

06 07 08 09 10 11 12 13 14

Core machinery orders

3 per. Mov. Avg. (Coremachinery orders)

8.2

8.3

8.4

8.5

8.6

8.7

8.8

8.9

9

07 08 09 10 11 12 13 14

Goods exports

Goods imports

Source: Credit Suisse, Thomson Reuters Datastream Source: Credit Suisse, Thomson Reuters Datastream

02 June 2014


Market Implications

We have written recently that there are four requirements for the market to price for a

significantly more hawkish Fed path. Those requirements are:

1. Higher inflation (particularly core inflation in the US rising near 2%).

2. Rising global industrial production momentum

3. Ongoing strength in credit markets

4. Further progress towards US full employment (unemployment rate below 6%)

Very soon, the first three of these will be in place, in our view. However, even if jobs

growth is strong in the next few months, it will likely take months before the US

unemployment rate is below 6%. Rising momentum alone is not enough to spark fears that

the Fed is behind the curve.

Many investors have been puzzled by the declines in US yields in recent months.

However, the rally in duration since the beginning of the year has occurred alongside

falling global growth momentum, as is often the case. Low inflation, dovish pol icy

statements and the pricing in of ECB cuts all have helped to reinforce the move lower

in yields.

Now that our duration risk appetite measure is nearing euphoria, inflation is troughing,

momentum is turning and the ECB may be about to complete the last major North Atlantic

policy ease of a cycle that goes back to 2007/8, we think it is time for the first stage of a

reversal. Our rates strategist, Carl Lantz, agrees that US duration has become rich and is

likely to reverse soon.

Recently, risky assets have begun to hint at this rebound. Emerging market assets have

been outperforming, perhaps driven by the early momentum rebound in place already

there. We think European and US numbers will be improving as well soon, and the EM

rebound will turn out to be a precursor to a more general pro-growth environment.

Rising momentum will be good for risk appetite as long as the move in yields is contained.

The equity and credit markets can likely easily handle the US 10-year yield returning to

3%. The risk, we believe, is that the US labor data, including wages, pick up sooner than

we think, sparking a rebellion from the Fed's guidance that sends short term rates much

higher. That would have the potential to usher in a far more difficult environment.

Exhibit 42: Global Risk Appetite and Global IP Momentum

-10

-8

-6

-4

-2

0

2

4

6

8

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

Jan 00 Jan 04 Jan 08 Jan 12

Global IP Momentum (3m/3m ann.%)

Global Risk Appetite, rhs


https://plus.credit-suisse.com/r/dkFRVv

https://plus.credit-suisse.com/r/dKgo8D

02 June 2014


Appendix: Global IP and GDP Forecast Update

Exhibit 43: Global Industrial Production - latest data and current estimates

Global Americas Asia Europe

m/m 3m/3m ann. y/y m/m y/y m/m y/y m/m y/y

Feb-14 0.3% 4.1% 4.3% 0.9% 2.9% -0.2% 6.6% 0.4% 2.3%

Mar-14 0.4% 4.3% 4.2% 0.6% 3.0% 0.7% 6.8% -0.3% 1.4%

Apr-14 -0.1% 3.4% 3.8% -0.4% 2.4% -0.2% 6.3% 0.3% 1.4%

May-14 0.3% 3.0% 4.0% 0.3% 2.9% 0.5% 6.0% -0.2% 1.8%

Jun-14 0.5% 2.3% 4.1% 0.1% 2.4% 1.0% 7.2% 0.1% 1.2%

Jul-14 0.7% 3.5% 4.3% 0.4% 3.1% 0.9% 6.7% 0.6% 1.8%

Aug-14 0.5% 4.9% 4.5% 0.5% 3.2% 0.6% 6.8% 0.2% 2.2%

Sep-14 0.6% 6.4% 4.5% 0.3% 2.8% 0.8% 6.9% 0.4% 2.5%


02

Ju

ne

20

14

Glo

bal C

ycle

No

tes

2

0

Credit Suisse Global Economics Forecasts 2014E 2015E 4Q to 4Q Annual Average

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 12 13E 14E 15E 12 13 14E 15E

Global Real GDP (y/y) 3.2 3.2 3.2 3.3 3.8 3.9 3.9 3.9 2.8 3.3 3.3 3.9 3.1 2.9 3.2 3.8

IP (y/y) 3.8 3.9 4.0 4.2 4.2 4.6 4.5 4.4 2.3 3.7 4.2 4.4 2.8 2.8 4.0 4.4

Inflation (y/y) 2.9 3.4 3.4 3.6 3.6 3.4 3.4 3.4 2.9 3.0 3.6 3.4 3.3 3.0 3.4 3.4

US Real GDP (q/q ann) -1.0 4.0 2.9 2.9 3.0 3.0 3.0 3.0 2.0 2.6 2.2 3.0 2.8 1.9 2.2 3.0

Inflation (y/y) 1.4 1.9 1.8 2.0 2.1 2.0 2.0 2.1 1.9 1.2 2.0 2.1 2.1 1.5 1.8 2.0

Policy rate (eop) 0-.25 0-.25 0-.25 0-.25 0-.25 0-.25 0-.25 0.50 ... ... … … ... ... ... …

10yr bond yield 2.72 3.00 3.30 3.65 3.75 3.75 ... ... ... … … … ... ... ... …

Japan Real GDP (q/q ann) 5.9 -4.3 2.0 1.6 2.3 -1.3 1.3 -1.2 -0.3 2.5 1.2 0.3 1.4 1.6 1.4 0.7

Inflation ex. fresh food (y/y) 1.3 3.1 2.6 2.3 2.1 0.5 0.5 1.7 -0.1 1.1 2.3 1.7 -0.1 0.4 2.3 1.2

Policy rate (eop) 0-0.1 0-0.1 0-0.1 0-0.1 0-0.1 0-0.1 0-0.1 0-0.1 ... ... … … ... ... ... …

10yr bond yield 0.60 0.75 0.80 0.85 ... ... ... ... ... ... … … ... … … …

USDJPY (eop) 102.72 102.96 107.56 112.22 120.00 ... ... ... ... ... … … ... … … …

Euro Area Real GDP (q/q ann) 0.8 1.4 2.1 2.1 2.3 2.3 2.3 2.3 -1.0 0.5 1.6 2.3 -0.6 -0.4 1.2 2.2

Inflation (y/y) 0.7 0.6 0.5 0.9 1.0 1.2 1.2 1.2 2.2 0.8 0.9 1.2 2.5 1.4 0.7 1.2

Policy rate (eop) 0.25 0.15 0.15 0.15 0.15 0.15 0.15 0.15 ... ... ... ... ... ... … …

10yr bund yield 1.59 1.85 1.95 2.10 ... ... ... ... ... ... ... ... ... ... ... ...

EURUSD (eop) 1.36 1.37 1.36 1.34 1.32 ... ... ... ... ... ... ... ... ... ... ...

UK Real GDP (q/q ann) 2.9 3.0 3.1 2.8 2.5 2.2 2.2 2.2 0.2 2.7 2.9 2.3 0.3 1.8 3.0 2.5

Inflation (y/y) 1.7 1.9 1.8 2.1 2.5 2.6 2.6 2.5 2.7 2.1 2.1 2.5 2.8 2.6 1.9 2.6

Policy rate (eop) 0.50 0.50 0.50 0.50 0.75 0.75 1.00 1.00 ... ... ... ... ... ... ... ...

10yr bond yield 2.72 2.95 3.05 3.15 ... ... ... ... ... ... ... ... ... ... ... ...

GBPUSD (eop) 1.65 1.70 1.73 1.74 1.76 ... ... ... ... ... ... ... ... ... ... ...

Switzerland Real GDP (q/q ann) 2.0 2.3 2.8 3.0 1.4 1.3 1.3 0.6 1.6 1.7 2.5 1.1 1.0 2.0 2.0 1.8

Inflation (y/y) 0.3 0.1 0.1 0.4 0.9 0.8 0.9 1.0 -0.3 0.3 0.4 1.0 -0.7 -0.2 0.2 1.0

Policy rate (eop) 0-.25 0-.25 0-.25 0-.25 0-.25 0-.25 0-.25 0-.25 ... ... ... ... ... ... ... ...

USDCHF (eop) 0.90 0.90 0.91 0.91 0.92 ... ... ... ... ... ... ... ... ... ... ...

NJA Real GDP (y/y) 6.3 6.2 6.2 6.2 6.6 6.8 6.9 7.0 6.7 6.3 6.2 7.0 6.1 6.1 6.1 6.7

Inflation (y/y) 3.2 4.2 4.1 4.5 4.4 4.4 4.3 4.3 3.3 3.9 4.5 4.3 4.2 4.1 4.1 4.1

China Real GDP (y/y) 7.4 7.1 7.0 7.0 7.8 7.9 7.9 7.9 7.9 7.7 7.0 7.9 7.7 7.7 7.1 7.9

IP (y/y) 8.7 9.1 9.4 9.4 9.4 9.4 9.5 9.5 10.0 10.0 9.4 9.5 10.1 9.7 10.0 10.3

Inflation (y/y) 2.3 3.1 2.9 3.5 3.5 3.6 3.5 3.6 2.1 2.9 3.5 3.6 2.6 2.6 3.0 3.5

India*** Real GDP (y/y) 5.4 5.7 6.3 6.2 5.6 5.9 6.1 6.8 4.7 4.7 6.2 6.8 4.6 4.8 6.0 6.3

EMEA Real GDP (y/y) 2.1 1.6 1.8 1.6 2.6 3.1 3.3 3.6 1.3 2.2 1.6 3.6 2.9 2.2 1.6 2.9

Inflation (y/y) 5.0 5.6 5.3 5.5 5.3 4.9 5.0 5.1 5.2 4.9 5.5 5.1 4.8 4.7 5.1 4.6

Latin America Real GDP (y/y) 1.5 2.0 2.4 2.8 3.1 3.1 3.1 2.9 2.9 2.1 2.8 2.9 2.8 2.4 2.2 3.3

Inflation (y/y) 9.4 9.5 9.9 10.1 10.0 9.6 9.4 9.1 6.1 8.4 10.1 9.1 6.2 7.5 9.9 9.5

Note: IMF PPP weights are used to compute regional and global aggregate figures; 10yr bond yield figures are averages for the last month of each quarter; * End of period. ** CPI ex. Fresh food; *** Annual figures for India are on fiscal year basis. Source: Credit Suisse

GLOBAL FIXED INCOME AND ECONOMICS RESEARCH

Ric Deverell Global Head of Fixed Income and Economics Research

+1 212 538 8964 [email protected]

GLOBAL ECONOMICS AND STRATEGY

James Sweeney, Chief Economist Co-Head of Global Economics and Strategy


Neville Hill Co-Head of Global Economics and Strategy


GLOBAL STRATEGY AND ECONOMICS

Matthias Klein +44 207 883 8189 [email protected]

Wenzhe Zhao +1 212 325 1798 [email protected]

Yiagos Alexopoulos +44 20 7888 7536 [email protected]

Axel Lang +1 212 538 4530 [email protected]

Jeremy Schwartz +1 212 538 6419 [email protected]

US ECONOMICS

James Sweeney

Head of US Economics

+1 212 538 4648

[email protected]

Jay Feldman

+1 212 325 7634

[email protected]

Dana Saporta

+1 212 538 3163

[email protected]

Xiao Cui

+1 212 538 2511

[email protected]

LATIN AMERICA (LATAM) ECONOMICS

Alonso Cervera

Head of Latam Economics

+52 55 5283 3845

[email protected]

Mexico, Chile

Casey Reckman

+1 212 325 5570

[email protected]

Argentina, Venezuela

Daniel Chodos

+1 212 325 7708

[email protected]

Latam Strategy

Juan Lorenzo Maldonado

+1 212 325 4245

[email protected]

Colombia, Peru

Di Fu

+1 212 538 4125

[email protected]

BRAZIL ECONOMICS

Nilson Teixeira

Head of Brazil Economics

+55 11 3701 6288

[email protected]

Daniel Lavarda

+55 11 3701 6352

[email protected]

Iana Ferrao

+55 11 3701 6345

[email protected]

Leonardo Fonseca

+55 11 3701 6348

[email protected]

Paulo Coutinho

+55 11 3701-6353

[email protected]

EURO AREA / UK ECONOMICS

Neville Hill

Head of European Economics

+44 20 7888 1334

[email protected]

Christel Aranda-Hassel

+44 20 7888 1383

[email protected]

Giovanni Zanni

+44 20 7888 6827

[email protected]

Violante di Canossa

+44 20 7883 4192

[email protected]

Steven Bryce

+44 20 7883 7360

[email protected]

Mirco Bulega

+44 20 7883 9315

[email protected]

EASTERN EUROPE, MIDDLE EAST AND AFRICA (EEMEA) ECONOMICS

Berna Bayazitoglu

Head of EEMEA Economics

+44 20 7883 3431

[email protected]

Turkey

Sergei Voloboev

+44 20 7888 3694

[email protected]

Russia, Ukraine, Kazakhstan

Carlos Teixeira

+27 11 012 8054

[email protected]

South Africa

Gergely Hudecz

+33 1 7039 0103

[email protected]

Czech Republic, Hungary, Poland

Alexey Pogorelov

+7 495 967 8772

[email protected]

Russia, Ukraine, Kazakhstan

Nimrod Mevorach

+44 20 7888 1257

[email protected]

EEMEA Strategy, Israel

JAPAN ECONOMICS NON-JAPAN ASIA (NJA) ECONOMICS

Hiromichi Shirakawa

Head of Japan Economics

+81 3 4550 7117

[email protected]

Takashi Shiono

+81 3 4550 7189

[email protected]

Dong Tao

Head of NJA Economics

+852 2101 7469

[email protected]

China

Robert Prior-Wandesforde

+65 6212 3707

[email protected]

Regional, India, Indonesia, Australia

Christiaan Tuntono

+852 2101 7409

[email protected]

Hong Kong, Korea, Taiwan

Dr. Santitarn Sathirathai

+65 6212 5675

[email protected]

Regional, Indonesia, Malaysia, Thailand

Michael Wan

+65 6212 3418

[email protected]

Singapore, Philippines

Weishen Deng

+852 2101 7162

[email protected]

China

mailto:[email protected]




Disclosure Appendix

Analyst Certification James Sweeney, Matthias Klein, Wenzhe Zhao, Yiagos Alexopoulos and Jeremy Schwartz each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

Important Disclosures Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail, please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and-analytics/disclaimer/managing_conflicts_disclaimer.html . Credit Suisse's policy is to publish research reports as it deems appropriate, based on developments with the subject issuer, the sector or the market that may have a material impact on the research views or opinions stated herein. The analyst(s) involved in the preparation of this research report received compensation that is based upon various factors, including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's Investment Banking and Fixed Income Divisions. Credit Suisse may trade as principal in the securities or derivatives of the issuers that are the subject of this report. At any point in time, Credit Suisse is likely to have significant holdings in the securities mentioned in this report. As at the date of this report, Credit Suisse acts as a market maker or liquidity provider in the debt securities of the subject issuer(s) mentioned in this report. For important disclosure information on securities recommended in this report, please visit the website at https://firesearchdisclosure.credit-suisse.com or call +1-212-538-7625. For the history of any relative value trade ideas suggested by the Fixed Income research department as well as fundamental recommendations provided by the Emerging Markets Sovereign Strategy Group over the previous 12 months, please view the document at http://research-and-analytics.csfb.com/docpopup.asp?ctbdocid=330703_1_en . Credit Suisse clients with access to the Locus website may refer to http://www.credit-suisse.com/locus For the history of recommendations provided by Technical Analysis, please visit the website at www.credit-suisse.com/techanalysis . Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.

Emerging Markets Bond Recommendation Definitions Buy: Indicates a recommended buy on our expectation that the issue will deliver a return higher than the risk-free rate. Sell: Indicates a recommended sell on our expectation that the issue will deliver a return lower than the risk-free rate.

Corporate Bond Fundamental Recommendation Definitions Buy: Indicates a recommended buy on our expectation that the issue will be a top performer in its sector. Outperform: Indicates an above-average total return performer within its sector. Bonds in this category have stable or improving credit profiles and are undervalued, or they may be weaker credits that, we believe, are cheap relative to the sector and are expected to outperform on a total-return basis. These bonds may possess price risk in a volatile environment. Market Perform: Indicates a bond that is expected to return average performance in its sector. Underperform: Indicates a below-average total-return performer within its sector. Bonds in this category have weak or worsening credit trends, or they may be stable credits that, we believe, are overvalued or rich relative to the sector. Sell: Indicates a recommended sell on the expectation that the issue will be among the poor performers in its sector. Restricted: In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Not Rated: Credit Suisse Global Credit Research or Global Leveraged Finance Research covers the issuer but currently does not offer an investment view on the subject issue. Not Covered: Neither Credit Suisse Global Credit Research nor Global Leveraged Finance Research covers the issuer or offers an investment view on the issuer or any securities related to it. Any communication from Research on securities or companies that Credit Suisse does not cover is a reasonable, non-material deduction based on an analysis of publicly available information.

http://www.csfb.com/research-and-analytics/disclaimer/managing_conflicts_disclaimer.html

http://www.csfb.com/research-and-analytics/disclaimer/managing_conflicts_disclaimer.html

https://firesearchdisclosure.credit-suisse.com/

https://firesearchdisclosure.credit-suisse.com/

http://research-and-analytics.csfb.com/docpopup.asp?ctbdocid=330703_1_en

http://research-and-analytics.csfb.com/docpopup.asp?ctbdocid=330703_1_en

http://www.credit-suisse.com/locus

http://www.credit-suisse.com/locus

www.credit-suisse.com/techanalysis

Corporate Bond Risk Category Definitions In addition to the recommendation, each issue may have a risk category indicating that it is an appropriate holding for an "average" high yield investor, designated as Market, or that it has a higher or lower risk profile, designated as Speculative, and Conservative, respectively.

Credit Suisse Credit Rating Definitions Credit Suisse may assign rating opinions to investment-grade and crossover issuers. Ratings are based on our assessment of a company's creditworthiness and are not recommendations to buy or sell a security. The ratings scale (AAA, AA, A, BBB, BB, B) is dependent on our assessment of an issuer's ability to meet its financial commitments in a timely manner. Within each category, creditworthiness is further detailed with a scale of High, Mid, or Low − with High being the strongest sub-category rating: High AAA, Mid AAA, Low AAA - obligor's capacity to meet its financial commitments is extremely strong; High AA, Mid AA, Low AA − obligor's capacity to meet its financial commitments is very strong; High A, Mid A, Low A − obligor's capacity to meet its financial commitments is strong; High BBB, Mid BBB, Low BBB − obligor's capacity to meet its financial commitments is adequate, but adverse economic/operating/financial circumstances are more likely to lead to a weakened capacity to meet its obligations; High BB, Mid BB, Low BB − obligations have speculative characteristics and are subject to substantial credit risk; High B, Mid B, Low B − obligor's capacity to meet its financial commitments is very weak and highly vulnerable to adverse economic, operating, and financial circumstances; High CCC, Mid CCC, Low CCC – obligor's capacity to meet its financial commitments is extremely weak and is dependent on favorable economic, operating, and financial circumstances. Credit Suisse's rating opinions do not necessarily correlate with those of the rating agencies.

References in this report to Credit Suisse include all of the subsidiaries and affiliates of Credit Suisse operating under its investment banking division. For more information on our structure, please use the following link: https://www.credit-suisse.com/who_we_are/en/This report may contain material that is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject Credit Suisse AG or its affiliates ("CS") to any registration or licensing requirement within such jurisdiction. All material presented in this report, unless specifically indicated otherwise, is under copyright to CS. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of CS. All trademarks, service marks and logos used in this report are trademarks or service marks or registered trademarks or service marks of CS or its affiliates. The information, tools and material presented in this report are provided to you for information purposes only and are not to be used or considered as an offer or the solicitation of an offer to sell or to buy or subscribe for securities or other financial instruments. CS may not have taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. CS will not treat recipients of this report as its customers by virtue of their receiving this report. The investments and services contained or referred to in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about such investments or investment services. Nothing in this report constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you. CS does not advise on the tax consequences of investments and you are advised to contact an independent tax adviser. Please note in particular that the bases and levels of taxation may change. Information and opinions presented in this report have been obtained or derived from sources believed by CS to be reliable, but CS makes no representation as to their accuracy or completeness. CS accepts no liability for loss arising from the use of the material presented in this report, except that this exclusion of liability does not apply to the extent that such liability arises under specific statutes or regulations applicable to CS. This report is not to be relied upon in substitution for the exercise of independent judgment. CS may have issued, and may in the future issue, other communications that are inconsistent with, and reach different conclusions from, the information presented in this report. Those communications reflect the different assumptions, views and analytical methods of the analysts who prepared them and CS is under no obligation to ensure that such other communications are brought to the attention of any recipient of this report. CS may, to the extent permitted by law, participate or invest in financing transactions with the issuer(s) of the securities referred to in this report, perform services for or solicit business from such issuers, and/or have a position or holding, or other material interest, or effect transactions, in such securities or options thereon, or other investments related thereto. In addition, it may make markets in the securities mentioned in the material presented in this report. CS may have, within the last three years, served as manager or co-manager of a public offering of securities for, or currently may make a primary market in issues of, any or all of the entities mentioned in this report or may be providing, or have provided within the previous 12 months, significant advice or investment services in relation to the investment concerned or a related investment. Additional information is, subject to duties of confidentiality, available on request. Some investments referred to in this report will be offered solely by a single entity and in the case of some investments solely by CS, or an associate of CS or CS may be the only market maker in such investments. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgment at its original date of publication by CS and are subject to change without notice. The price, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value of securities and financial instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments. Investors in securities such as ADR's, the values of which are influenced by currency volatility, effectively assume this risk. Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility, and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct their own investigation and analysis of the product and consult with their own professional advisers as to the risks involved in making such a purchase. Some investments discussed in this report may have a high level of volatility. High volatility investments may experience sudden and large falls in their value causing losses when that investment is realised. Those losses may equal your original investment. Indeed, in the case of some investments the potential losses may exceed the amount of initial investment and, in such circumstances, you may be required to pay more money to support those losses. Income yields from investments may fluctuate and, in consequence, initial capital paid to make the investment may be used as part of that income yield. Some investments may not be readily realisable and it may be difficult to sell or realise those investments, similarly it may prove difficult for you to obtain reliable information about the value, or risks, to which such an investment is exposed. This report may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the report refers to website material of CS, CS has not reviewed any such site and takes no responsibility for the content contained therein. Such address or hyperlink (including addresses or hyperlinks to CS's own website material) is provided solely for your convenience and information and the content of any such website does not in any way form part of this document. Accessing such website or following such link through this report or CS's website shall be at your own risk. This report is issued and distributed in Europe (except Switzerland) by Credit Suisse Securities (Europe) Limited, One Cabot Square, London E14 4QJ, England, which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. This report is being distributed in Germany by Credit Suisse Securities (Europe) Limited Niederlassung Frankfurt am Main regulated by the Bundesanstalt fuer Finanzdienstleistungsaufsicht ("BaFin"). This report is being distributed in the United States and Canada by Credit Suisse Securities (USA) LLC; in Switzerland by Credit Suisse AG; in Brazil by Banco de Investimentos Credit Suisse (Brasil) S.A or its affiliates; in Mexico by Banco Credit Suisse (México), S.A. (transactions related to the securities mentioned in this report will only be effected in compliance with applicable regulation); in Japan by Credit Suisse Securities (Japan) Limited, Financial Instruments Firm, Director-General of Kanto Local Finance Bureau (Kinsho) No. 66, a member of Japan Securities Dealers Association, The Financial Futures Association of Japan, Japan Investment Advisers Association, Type II Financial Instruments Firms Association; elsewhere in Asia/ Pacific by whichever of the following is the appropriately authorised entity in the relevant jurisdiction: Credit Suisse (Hong Kong) Limited, Credit Suisse Equities (Australia) Limited, Credit Suisse Securities (Thailand) Limited, having registered address at 990 Abdulrahim Place, 27 Floor, Unit 2701, Rama IV Road, Silom, Bangrak, Bangkok 10500, Thailand, Tel. +66 2614 6000, Credit Suisse Securities (Malaysia) Sdn Bhd, Credit Suisse AG, Singapore Branch, Credit Suisse Securities (India) Private Limited (CIN no. U67120MH1996PTC104392) regulated by the Securities and Exchange Board of India (registration Nos. INB230970637; INF230970637; INB010970631; INF010970631), having registered address at 9th Floor, Ceejay House, Dr.A.B. Road, Worli, Mumbai - 18, India, T- +91-22 6777 3777, Credit Suisse Securities (Europe) Limited, Seoul Branch, Credit Suisse AG, Taipei Securities Branch, PT Credit Suisse Securities Indonesia, Credit Suisse Securities (Philippines ) Inc., and elsewhere in the world by the relevant authorised affiliate of the above. Research on Taiwanese securities produced by Credit Suisse AG, Taipei Securities Branch has been prepared by a registered Senior Business Person. Research provided to residents of Malaysia is authorised by the Head of Research for Credit Suisse Securities (Malaysia) Sdn Bhd, to whom they should direct any queries on +603 2723 2020. This report has been prepared and issued for distribution in Singapore to institutional investors, accredited investors and expert investors (each as defined under the Financial Advisers Regulations) only, and is also distributed by Credit Suisse AG, Singapore branch to overseas investors (as defined under the Financial Advisers Regulations). By virtue of your status as an institutional investor, accredited investor, expert investor or overseas investor, Credit Suisse AG, Singapore branch is exempted from complying with certain compliance requirements under the Financial Advisers Act, Chapter 110 of Singapore (the "FAA"), the Financial Advisers Regulations and the relevant Notices and Guidelines issued thereunder, in respect of any financial advisory service which Credit Suisse AG, Singapore branch may provide to you. This research may not conform to Canadian disclosure requirements. In jurisdictions where CS is not already registered or licensed to trade in securities, transactions will only be effected in accordance with applicable securities legislation, which will vary from jurisdiction to jurisdiction and may require that the trade be made in accordance with applicable exemptions from registration or licensing requirements. Non-U.S. customers wishing to effect a transaction should contact a CS entity in their local jurisdiction unless governing law permits otherwise. U.S. customers wishing to effect a transaction should do so only by contacting a representative at Credit Suisse Securities (USA) LLC in the U.S. Please note that this research was originally prepared and issued by CS for distribution to their market professional and institutional investor customers. Recipients who are not market professional or institutional investor customers of CS should seek the advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents. This research may relate to investments or services of a person outside of the UK or to other matters which are not authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority or in respect of which the protections of the Prudential Regulation Authority and Financial Conduct Authority for private customers and/or the UK compensation scheme may not be available, and further details as to where this may be the case are available upon request in respect of this report. CS may provide various services to US municipal entities or obligated persons ("municipalities"), including suggesting individual transactions or trades and entering into such transactions. Any services CS provides to municipalities are not viewed as "advice" within the meaning of Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. CS is providing any such services and related information solely on an arm's length basis and not as an advisor or fiduciary to the municipality. In connection with the provision of the any such services, there is no agreement, direct or indirect, between any municipality (including the officials, management, employees or agents thereof) and CS for CS to provide advice to the municipality. Municipalities should consult with their financial, accounting and legal advisors regarding any such services provided by CS. In addition, CS is not acting for direct or indirect compensation to solicit the municipality on behalf of an unaffiliated broker, dealer, municipal securities dealer, municipal advisor, or investment adviser for the purpose of obtaining or retaining an engagement by the municipality for or in connection with Municipal Financial Products, the issuance of municipal securities, or of an investment adviser to provide investment advisory services to or on behalf of the municipality. If this report is being distributed by a financial institution other than Credit Suisse AG, or its affiliates, that financial institution is solely responsible for distribution. Clients of that institution should contact that institution to effect a transaction in the securities mentioned in this report or require further information. This report does not constitute investment advice by Credit Suisse to the clients of the distributing financial institution, and neither Credit Suisse AG, its affiliates, and their respective officers, directors and employees accept any liability whatsoever for any direct or consequential loss arising from their use of this report or its content. Principal is not guaranteed. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. Copyright © 2014 CREDIT SUISSE AG and/or its affiliates. All rights reserved.

Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments. When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only.

https://www.credit-suisse.com/who_we_are/en/

Date post:	26-Dec-2021
Category:	Documents
Upload:	others
View:	11 times
Download:	2 times

Global Cycle Notes - Credit Suisse

Documents