Professional Documents
Culture Documents
C-Space - Jun 2019 - Final PDF
C-Space - Jun 2019 - Final PDF
C-Space - Jun 2019 - Final PDF
Essential Market
Insights for the
C-Suite
Hailey Orr
Capital Markets Strategist
+1 (212) 250-8844
hailey.orr@db.com
Stephanie Kendal
Capital Markets Strategist
+1 (212) 250-4354
±´©¶¥°¹¥¶¨¥²³²·¸¶¥¨¸³²¥°°½§¥°°©¨·¬Ɔ^°³²_³¶·¬Ĩ·¬Ɔ stephanie-e.kendal@db.com
(stone lions) in Chinese and colloquially called ‘Foo Dogs’ in the
¡©·¸»©¶©Î¶·¸²¸¶³¨¹§©¨¸³¬²¥¥·¥«ª¸¸³¸¬©¥²½²¥·¸½
court (206 BC–220 AD) from Persian emissaries traveling
¸¬©°¹§¶¥¸º©°¯³¥¨²ª¥§¸¸¬©»³¶¨·¬Ɔ·¸¬³¹«¬¸¸³¦©
derived from šer, the Persian word for lion. Seen in Buddhism
as a protector of spiritual teaching, or dharma, the image
of the lion was welcomed by the Chinese as an auspicious
symbol of protection and, by sixth century BC, had come to
symbolize prosperity, wealth and good fortune when positioned
in accordance with the metaphysical practices of feng shui.
To this day, guardian lions can be seen protecting the entrance
to businesses and homes in yin/yang pairings, the male (yang)
guarding the external structure, with his paw on a representation
of the world, and the female (yin) with hers on a lion cub,
symbolizing her role as guardian of the building’s inhabitants.
³·¸±´³¶¸¥²¸»°°»©Î²¨¸¬©¨³³¶·³´©²²«³¶§°³·²«¸³
new opportunities, marking a beginning or an ending?
This presentation has been prepared by Deutsche Bank’s Capital Markets Strategy team within the Corporate Finance division, and does not necessarily
represent the views of our Research department or Deutsche Bank’s “House View”. Deutsche Bank | C-Space | June 2019
Contents
¥¸Î§¥¸³²²§©¶¸¥²¸½ #
The Hierarchy
of Vulnerability
Geopolitical & Policy Risk Rising Post WW2 trade policy consensus
breaking down
Geopolitical risk premium in
oil markets has increased
# of DM protectionist measures
for global markets are likely to arise from developed market economies.
Brent: $61
In Europe, existential questions remain front and center, with Italian risk high and the outlook for Brexit
Rising Italian sovereign credit risk Sterling signaling more
negotiations looking every bit as protracted and complex as we had feared. With the Withdrawal Agreement “disorderly” Brexit path
5 yr Italy CDS
already causing a change in Government, the longer and more arduous task of negotiating the future EU-UK GBP/USD
relationship will be an exceptionally challenging endeavor. Europe’s high exposure to China growth, trade 1.50
policy and oil prices are also a concern. 221 bps
While geopolitical and policy risk have been high for much of the post-crisis period, the concern today
becomes: (i) the unpredictable paths from policy error; (ii) the sheer number of complex policy issues
1.26
concurrently “in play”; (iii) the ability of late cycle economies and fully valued markets to absorb such risks;
¥²¨^º_¸¬©·¸¶©²«¸¬³ª¸¬©¨©º©°³´©¨©§³²³±½´³°§½¸³³°¯¸¸³·¹Ñ§©²¸°½¶©·´³²¨ (-12%)
1.15
Jan 2018 Jun 2019 Jan 2016 Jun 2019
In the May 2019 European Parliamentary elections, the Centre-right and Centre-left 2020 US election risk looms large US sanctions grip on Iran tightening
parties lost their combined majority as more Eurosceptic parties made notable gains Iran oil production, m/b/d
4.0
S&P 500:
Change in seat distribution
+15%
National
-18 conservative
2.2
Jan 2019 Jun 2019 Jan 2017 May 2019
-14 Left-wing
Right-wing +21
Source: (1) Global Trade Alerts. Shows total implemented measures that are almost certainly discriminatory towards foreign commercial interests.(2-8) Bloomberg. Data
Source: (1) European Parliament via BBC. Statista. as of June 14, 2019.
10 11
Europe / UK Risks
— “No Deal” Brexit
scenarios
— ¥¹¸³¸¥¶Ï·²
November
— Vulnerability to trade /
China risk
— ³²Î¨©²§©² China Risks
United States Risks policy toolkit
— Growth deceleration
— Italian risk (political,
— China and trade policy — More assertive US policy
economic)
— ¶¥¸Î§¥¸³² — SOE & corporate debt
— Late cycle dynamics — Political stability
(i.e., Hong Kong)
— Corporate earnings
recession — US & South China Sea
— 2020 election campaign
rhetoric
Middle East Risks
— “Big tech” scrutiny — Oil price risk
— US-Iran tension &
sanctions
— Regional Sunni-Shia
tensions
Developed
— Syria, migrants,
non-state actors
Economies Pose
³·¸«²Î§¥²¸ Latin America Risks
Macro Risk — Venezuela crisis (politics,
oil, economy)
— Mexico (public policy
Global Risks
— Global growth slowdown
uncertainty, economy)
As we enter the 2H of 2019, it — Declining trade volumes
— Argentina (recession,
is interesting to note that the currency risk) — Tech sector intervention
±³·¸·«²Î§¥²¸±¥§¶³¸¬¶©¥¸· — Migrant caravans, refugees, — Rising nationalism / populism
security risks
for global markets arise from — Vulnerability to China,
— Idiosyncratic EM risk
— Cybersecurity
developed market economies trade, commodity prices
Equities
sectors: +2.4%
At initial glance, US equities near record highs and Global economic policy +8% 3%
Commodities
To be sure, the re-pricing in 2019 for rising policy $70 $350
risk has been formidable. Chinese equities are
Jan 1997 May 2019
sharply underperforming global stocks. Defensives
have outpaced cyclicals. Oil and copper have again WTI:
$52
had bear market 20% corrections. Bond and equity ¸¥¶Ï·®¹·¸¥ª©»¨¥½·°¥¸©¶³³¯²«¸³!³°´¶§©· (-21%) $264
volatility has diverged. Global bond yields have (-22%)
could just as easily move sharply lower (US-China $40 $250
dropped sharply lower. escalation) or higher (US-Iran escalation). Jan 2019 Jun 2019 Jan 2018 Jun 2019
Equally important questions arise from the sheer While strong market rallies on a US-China trade
Bond & stock market volatility Energy HY credit spreads back to late
challenge of pricing policy risk in this market. In the deal or a Fed rate cut are quite possible, we see the
diverging
g g 2018 wides
same week in early June, the US dropped steel and balance of risk tilted more toward the likelihood of a
30 100
1 750
¥°¹±²¹±¸¥¶Ï·³²©¼§³³²°½¸³¸¬¶©¥¸©²#[ #9 global market still underpricing policy risk. MOVE: 76
628 bps
US risk assets have not priced in as much policy risk as other markets globally VIX: 16 +298 bps
10 40
4 200
Credit
-0.5% (-7 bps)
May 2018 Jun 2019 Jan 2018 Jun 2019
10 yr UST yields moving sharply lower Global negative yielding securities have
16
increased 25% in 2019
20 yr 428 bps
10 yr 2.9% $13 $12 tn
avg: 18 avg: 566
2.09%
(-60 bps)
0 0 0
2.0% $0
2009 2019 2009 2019 2009 2019
Jan 2019 Jun 2019 Dec 2009 Jun 2019
³¹¶§©^_§³²³±§·¥²¨¸¶¥¸©«½°³¦¥°©§³²³±§´³°§½¹²§©¶¸¥²¸½²¨©¼·¥»©«¬¸©¨²¨©¼³ª §³¹²¸¶©·¸¬¥¸¶©Ð©§¸·¸¬©¶©°¥¸º©ª¶©µ¹©²§½³ª³»²[
country newspaper articles that contain a trio of terms pertaining to the economy, policy and uncertainty. (2-4) Bloomberg. Data as of June 14, 2019. Source: (1-10) Bloomberg. Data as of June 14, 2019.
14 15
Currency markets have been an early indicator of rising policy risk Asian currencies have depreciated sharply as trade risk escalated in 2H 2018 and Q2 2019
Unexpected USD strength on safe EMFX under pressure on trade and Bloomberg Asia currency index USD/TWD
haven flows & rate divergence China concerns
DXY index MSCI EMFX index 107 30.5
99 1750
31.53
(-2%)
+10%
(-2%) (-2%)
USD/KRW USD/CNY
Mexican Peso falls on ratings CAD softer, in part, on USMCA
changes and Trump trade threats uncertainty 1100 6.6
USD/MXN USD/CAD
18.50 1.31
1.33 1,185
19.15
6.92
(-6%)
(-3%)
(-2%)
(-2%) 1250 7.0
Jan 2019 Jun 2019 Jan 2019 Jun 2019
20.00 1.37
Jan 2019 Jun 2019 Jan 2019 Jun 2019
Trade heavy Euro and Swedish Kroner have also declined with escalating trade risk
JPY outperforming on AUD/JPY weakness provides good
EUR/USD USD/SEK
·¥ª©[¬¥º©²Ð³»· proxy for China trade & slowdown
USD/JPY AUD/JPY 1.25 7.5
107 81
108
1.12
9.46
75
+4% (-10%)
(-7%) (-17%)
113 74 1.08 10.0
Jan 2019 Jun 2019 Jan 2019 Jun 2019 Jan 2018 Jun 2019 Jan 2018 Jun 2019
Source: (1-6) Bloomberg. Data as of June 14, 2019. Currency axis inverted to show depreciation. Source: (1-6) Bloomberg. Data as of June 14, 2019. Currency axis inverted to show depreciation.
16 17
¬©·´©©¨¥²¨±¥«²¸¹¨©³ª #9¥²¨¬²¥¸¥¶Ï·»³¹°¨¦©
The Hierarchy of Vulnerability a shock to the global economy and markets if not “back-tracked”
on a path toward resolution in the months ahead
A bilateral rift with multi-lateral consequences
After recovering $11 trillion from January to April, global equities have declined
approximately $3 trillion since May 1 on the back of escalating US-China trade policy
$90 Less resilient
Fed hiking into trade war / Fed “on hold” / US-China Since May 1
China (currency, markets, economy)
China slowdown China stabilizes escalation
Since
Q4 2018 Jan 1 – Apr 30 May 1
(-$10.5 tn) +$10.7 tn 2019 (-$3.0 tn) Commodities (oil, industrial metals)
(-$3.0 tn)
Is the market still
$54
Oct 2018 Jun 2019 underpricing global
Global Trading Volumes (lower, redirected) policy and economic
Tech and industries high beta to trade and economic risk (energy, industrials, consumer, slowdown risk?
financials) have underperformed since policy escalation in early May
S&P 500 sub-sector performance since May 1, 2019
Europe (trade, economy)
s
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ap
is
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Global Manufacturing & Industrial Sector
S&
l
Re
En
Te
Te
M
In
Fi
U
C
4%
The relative impact of tariff escalation on USD IG industry sectors has been directionally
similar to equities
US High Yield (spreads wider, less origination)
IG sector spread moves, bps, since May 1, 2019
30
0
US Economy ^β¥²§¥°§³²¨¸³²·§³²·¹±©¶_
ry
to
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ia
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ds
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ia
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st
ta
ca
Au
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oo
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til
ap
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ec
is
nc
Ba
ra
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rv
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lth
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ita
sp
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H
si
ap
an
Ba
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Tr
More resilient
Source: (1-2) Bloomberg. Data as of June 14, 2019. (3) IFR. Thomson Reuters. Data as of June 12, 2019.
18 19
Escalating policy risk has impacted manufacturing more than services, and
certain industry sectors more than others (auto, agriculture, semis, cyclicals)
2019 manufacturing PMI decline Monthly change in US
preceding services PMI manufacturing jobs declining
Net change, thousands
57 35
Services
Manufacturing 50.9
50.5
50
3
48 0
Jan 2018 May 2019 Apr 2018 May 2019
62 55
Manufacturing PMI: 49.4
50 50
47.7
Services PMI: 49.4
45 48
Jan 2018 May 2019 Jan 2018 May 2019
US auto: (-17%)
60 -35%
Jan 2016 May 2019 Jan 2018 Jun 2019
Forecasts Advanced
Economies 2018 2019E Change
Emerging
Economies 2018 2019E Change
Source: DB Global Markets Research (FX. Rates. Commodities. Economics). Source: (1) DB Global Markets Research (Economics).
22
N
Now this is not the end. It is not even
tthe beginning of the end. But it is, ¬²¯²«Ï©¶©²¸°½
perhaps, the end of the beginning.
Winston Churchill, UK Prime Minister, war hero & writer
About Trade Risk
Delineating Between Policy Tools The answers to these questions will have implications for markets and the global
economy for decades to come
Declining global trade volumes Rising global protectionist measures Has the technology sector
Y/Y growth rates # of DM protectionist measures Is US Huawei policy an become a new arena for US-
20% 1100 1,037 3 attempt to maximize China rivalry given the sector’s
leverage on a trade deal? economic, geopolitical and
national security implications?
China:
C World: Ç¥¶Ï·¥¶©¥¦©¥¹¸ª¹°¸¬²«È
$
$41bn (-$875bn)
$0 President Trump in “live” CNBC interview on June 10, 2019
2000 2019 -$1,000
Source: (1) UNCTAD. Volume growth rates of merchandise exports and imports, quarterly. (2) Global Trade Alerts. Shows total implemented measures that are almost
certainly discriminatory towards foreign commercial interests. (3-4) US Bureau of Economic Analysis. US Census Bureau. US services surplus is 12 month/4 quarter
rolling sum. Source: (1) CIB Capital Markets Strategy.
26 27
China
The Trump “put”: The S&P 500 Initial
9¸¥¶Ï·
on $200bn ¸¥¶Ï·¶¥·©¨
3000 ¸¥¶Ï· China goods to 25%
Description: To date, equity markets have
played a role in the escalations and de-
©·§¥°¥¸³²·³ª¶¹±´¸¶¥¨©´³°§½Y#
2,650 has been a floor below which President
Trump has not escalated.
Implication:¥¶¯©¸´¥¶¸§´¥²¸·¶·¯
underestimating the potential for significant
policy pivots by assuming the market
provides a robust floor for tail risk scenarios. 2200
Jan 2017 Jun 2019
¬©³»©°°Ç´¹¸Èβ¥²§¥° 100.5
§³²¨¸³²·Y²Ð¥¸³²
Description: The tightening of US financial Tighter
conditions in late 2018 caused Chair Powell
¸³§©¥·©¸«¬¸©²²«©§°²²«²ª°¥¸³²²
2019 may precipitate an easing cycle sooner
than anticipated.
Implication:±³¶©¨³º·¬©¨±¥½¥§¸¹¥°°½ Looser
give President Trump the runway to be more
assertive on US-China policy than he may 98.5
otherwise be. Jun 2018 Jun 2019
Source: DB Global Markets Research (Ruskin. Chadha. “Is there A Trump Put? S&P 500 2650?”). (1,3) Bloomberg. Data as of June 14, 2019. (2) DB Global Markets
Research (Economics).
28 29
1. China’s low cost production & wealthy US consumption 1. Trade policy disruption (tariff and non-tariff barriers)
2. ¬²¥Å··¹¶´°¹·©·ª¹²¨²«¨©Î§¸·^´¹¶§¬¥·©·_ 2. US moving supply chains “away from China”
3. China’s currency managed or pegged to the US Dollar
3. China diversifying “away from the West” (Belt & Road)
4. China based supply chains combined with US management
and technology expertise 4. Tech sector restrictions, digital warfare & cyber-incursions
5. China’s rising middle class & US MNC sales 5. More confrontational public policy and legal architecture
terror” and “post crisis recovery”, a coherent and strong US-China policy fell S. 75 Preventing SBA Assistance from Going to China Act of 2019 Rubio (R-FL)
US Senate
S. 152 Telecommunications Denial Order Enforcement Act Cotton (R-AR)
behind the rapid pace of China’s rise economically and geopolitically S. 188 Border, Law Enforcement, Operational Control, and Sovereignty Act of 2019 Hyde-Smith (R-MS)
¦°°¸³¶©µ¹¶©¥²¹²§°¥··Î©¨²¸©¶¥«©²§½¶©´³¶¸³²¸¬©´³°¸§¥°²Ð¹©²§©³´©¶¥¸³²·³ª¸¬©
S. 480 Rubio (R-FL)
Government of China and the Communist Party of China with respect to the United States
S. 987 U.S.-China Economic and Security Review Act of 2019 Coons (D-DE)
A bill to control the export to the People’s Republic of China of certain technology and intellectual
1990s: “The End of History” S. 1459
property important to the national interest of the United States, and for other purposes
Hawley (R-MO)
To limit funding for any extension of the New START Treaty or any successor agreement
S. 1433 unless the agreement includes the People’s Republic of China and covers all strategic and Cotton (R-AR)
— Triumph of liberal democratic order (“the end of history”) non-strategic nuclear forces of the Russian Federation.
— Computer and internet revolution accelerates S. 1092 Sanction Entities in China for Undermining Rules, Exploiting Intellectual Property Act of 2019 Cruz (R-TX)
— Globalization, free trade and multi-lateral institutions S. 939 CONFUCIUS Act Kennedy (R-LA)
A concurrent resolution recognizing that Chinese telecommunications companies such as
— EU formed, Euro launched, WTO founded and NAFTA signed S.Con.Res.10
Huawei and ZTE pose serious threats to the national security of the United States and its allies
Gardner (R-CO)
A resolution commending the Government of Canada for upholding the rule of law and
expressing concern over actions by the Government of the People’s Republic of China in
S.Res.96 Risch (R-ID)
response to a request from the United States Government to the Government of Canada
for the extradition of a Huawei Technologies Co., Ltd executive
2000s: “The War on Terror” S.335 ZTE Enforcement Review and Oversight Act Rubio (R-FL)
A bill to amend the United States-Hong Kong Policy Act of 1992 to require a report on how the
S. 1824 Cruz (R-TX)
— The West vs. Islamic fundamentalism (9/11, Iraq, Afghanistan) People’s Republic of China exploits Hong Kong to circumvent the laws of the United States
— China joins WTO, rise of EM and commodities super cycle A resolution supporting measures taken by the Government of Taiwan to deter, or if so
S. Res. 228 Hawley (R-MO)
compelled, defeat, aggression by the Government of the People’s Republic of China
— Deregulation and global imbalances A resolution recognizing the 30th anniversary of the Tiananmen Square massacre and
S. Res. 221 condemning the intensifying repression and human rights violations by the Chinese Gardner (R-CO)
— “The Great Moderation” unwinds; Global Financial Crisis Communist Party and the use of surveillance by Chinese authorities
S. 1625 United States 5G Leadership Act Wicker (R-MS)
S. 1634 South China Sea and East China Sea Sanctions Act of 2019 Rubio (R-FL)
US House of Representatives
— Proliferation of the digital economy H.R. 595 Denying Chinese Investors Access to US Small Business Aid Act Collins (R-NY)
H.R. 602 Telecommunications Denial Order Enforcement Act Gallagher (R-WI)
— Widening inequality gaps
H.R. 739 Cyber Diplomacy Act of 2019 McCaul (R-TX)
— Rising nationalism / populism (Brexit, Trump pivots, protectionism)
Expressing the sense of the House of Representatives that the United States
H.Res. 248 One-China Policy does not commit it to the People’s Republic of China’s One-China Chabot (R-OH)
Principle, and for other purposes
To limit funding for any extension of the New START Treaty or any successor agreement
2020s: US-China Rebalancing & Globalization Revisited H.R. 2707 unless the agreement includes the People’s Republic of China and covers all strategic and
non-strategic nuclear forces of the Russian Federation.
Cheney (R-WY)
H.R. 2565 U.S.-China Economic and Security Review Act of 2019 Sherman (D-CA)
— Globalization backlash ³¹²¸©¶²«¸¬©¬²©·©³º©¶²±©²¸¥²¨³±±¹²·¸¥¶¸½·³°¸§¥°²Ð¹©²§©
H.R. 1811 Smith (R-NJ)
— Tech sector intervention (competition, regulation, cybersecurity) Operations Act
H.R. 2903 Blocking Investment in Our Adversaries Act Banks (R-IN)
— Climate change, the environment and resource limitations
Remembering the victims of the violent suppression of democracy protests in Tiananmen
— US-China rebalancing: competition, rivalry and confrontation H.Res. 393
Square and elsewhere in China on June 3 and 4, 1989, and calling on the Government of
McGovern (D-MA)
the People’s Republic of China to respect the universally recognized human rights of all
people living in China and around the world
H.R. 2841 Zero Tolerance for Electronics Theft Act Chabot (R-OH)
Source: CIB Capital Markets Strategy Source: (1) Peck Madigan Jones.
32
32 33
¬²¥Å·¥º©¶¥«©¸¥¶Ï¶¥¸©·§°±¦²«³²«³³¨·¥²¨ª¥°°²«ª³¶¸¬©¶©·¸³ª¸¬©»³¶°¨
2018 2019
June 1
United States Sept 24
20.7%
18.3% 18.2% 16.5%
Aug 23
14.4%
July 6
April 2 May 1 July 1 10.1% Nov 1
Jan 1
8.4% 8.3% 7.2%
8.0%
8.0% 8.0%
6.9% 6.7% 6.7% 6.7%
All other exporters
China’s imports from the US have declined much more rapidly than imports from elsewhere
during the trade war
Total US imports
Y¬²¥¥¶Ï··²« Index, Jan 2018=100
120 Nov 1
from China: #9¸¥¶Ï·³²·¸!Y"¬²¥©¼´³¶¸·
Source: (1) DB Global Markets Research. Peterson Institute for International Economics. USTR. People’s Republic of China’s Ministry of Commerce and Ministry of ³¹¶§©^_©¸©¶·³²²·¸¸¹¸©ª³¶²¸©¶²¥¸³²¥°§³²³±§·Ç¶¹±´¥·³¸¸©²¬²¥³³»©¶¸·¥¶Ï·¹·¸³»¥¶¨º©¶½³²©°·©È¶¥¨©¥´¥¶¯©¸§§©··¥´
Finance. US Census Bureau. Total China imports from US based on 2018 full year data. (International Trade Centre). China’s Ministry of Finance. MFN is most favored nation. ITA is Information Technology Agreement.
34 35
©¨¹§©¨¸¥¶Ï·
©¨¹§©¨²³²[¸¥¶Ï¦¥¶¶©¶·ª³¶·³´©¶¥¸²«³²·¬³¶©
©¨¹§©¨«³³¨·¸¶¥¨©¨©Î§¸
Substantive IP protection
¹°°¥²¨±±©¨¥¸©©°±²¥¸³²³ª¸¥¶Ï·
SOE reform
Source: (1) CIB Capital Markets Strategy. New York Times. WSJ. Financial Times
36 37
“If the President “declares a national emergency” “to deal with any unusual and extraordinary threat,
Ǫ¸¬©©§¶©¸¥¶½³ª³±±©¶§©Çβ¨·¸¬¥¸¥²¥¶¸§°©·¦©²«±´³¶¸©¨²¸³¸¬©²¸©¨¸¥¸©·²·¹§¬
which has its source in whole or substantial part outside the United States, to the national security,
quantities or under such circumstances as to threaten to impair the national security,” then the President
foreign policy, or economy of the United States” under Section 202(a) (50 U.S.C. §1701(a)), “the President
is authorized to take “such other actions as the President deems necessary to adjust the imports of such
may ... investigate, block during the pendency of an investigation, regulate, direct and compel, nullify,
article so that such imports will not threaten to impair the national security.” ”
void, prevent or prohibit, any acquisition, holding, withholding, use, transfer, withdrawal, transportation,
importation or exportation of, or dealing in, or exercising any right, power, or privilege with respect to, or
¶¥¨©¼´¥²·³²§¸³ª'$ S ! ^¦_\^§_
transactions involving, any property in which any foreign country or a national thereof has any interest by
any person, or with respect to any property, subject to the jurisdiction of the United States.” ”
²¸©¶²¥¸³²¥°±©¶«©²§½§³²³±§³»©¶·§¸³ª'%%
³¹¶§©^_³²«¶©··³²¥°©·©¥¶§¬©¶º§©Ç¶©·¨©²¸¥°¹¸¬³¶¸½³º©¶¶¥¨©±´³·²«¥¶Ï·¥²¨¹¸©·È^¥¸°¥²©º©¶©¥¹¼©»·_Ƕ¹±´¨±²·¸¶¥¸³²¥¶Ï
Actions (Sections 201, 232, and 301): Frequently Asked Questions”
38 39
Technology Restrictions
Executive order banning US companies from buying or using certain foreign-made telecommunications equipment X
Restrictions on US government entities from using Huawei and other China-based technology X
'¨©ª©²·©·´©²¨²«¦°°¦¥²²²«·©¶º§©·Y©µ¹´±©²¸ª¶³±Îº©¬²©·©¦¥·©¨§³±´¥²©·¥²¨¥Ñ°¥¸©· X X X
Including Huawei on US “Entity List” X
Export restrictions on emerging and foundational technologies, critical technologies and intellectual property X X X
M&A and Market Access
Opposition to President Xi’s tech focused ‘Made in China 2025’ plan X X
Broadened CFIUS mandate to include transactions involving a non-controlling share X X X X X X X
CFIUS scrutiny of transactions involving critical infrastructure, technologies or maintenance of sensitive data X X X X X X X
National Security intervention in tech M&A X X X X X X X
Reports, Hearings & Investigations
Policy papers and reports on China’s unfair technology transfer and intellectual property dealings X X X X
USTR Section 301 update document in response to unfair technology transfer and intellectual property dealings X
Hearings on Chinese espionage and cybersecurity X X X
Sanctions violations penalties for Chinese telecommunications companies X X X
²¸©¶²¥¸³²¥°³¦¦½²«Ï³¶¸·
International lobbying on national security threat posed by certain Chinese companies X X X X X X
Restricting intelligence sharing with allies who continue to work with Huawei X X
Outreach to US universities regarding joint tech / R&D work with Chinese companies X X
Cybersecurity
Investigations & charges against APT-10 hacking group X X
Investigations into cyber attacks on US private companies X X X
Visa Restrictions
Tighter tech sector visa approval processes X X
¸¹¨©²¸º·¥¶©·¸¶§¸³²·^´¶³¬¦¸³²·ª³¶¥²½³²©¥··³§¥¸©¨»¸¬·§©²¸Î§`©²«²©©¶²«²·¸¸¹¸©·¥Ñ°¥¸©¨»¸¬¬²¥Å·¶±½_ X X X
³¹¶§©^_©§¯¥¨«¥²³²©·Ñ§©³ª¸¬©¶¥¨©©´¶©·©²¸¥¸º©²³§·±³²«¶©··³±±©¶§©©´¥¶¸±©²¸©´¥¶¸±©²¸³ª¹·¸§©©´¥¶¸±©²¸³ª©ª©²·©
40 41
Huawei
Global policy action toward Huawei
Huawei revenue growth since 2014 Huawei was the 5th largest R&D spender
Huawei revenue, Yuan, bn globally in 2018, as the company strives Adversarial
to build its 5G network
USA France
800 Consumer business Other revenue 2018, USD, bn Government ban on Huawei enacted Legislation remains under review as to
Samsung in August 2018 with additional restricting the Chinese telecom giant.
$15.5
executive orders to restrict Huawei, ¹¶³´©¥²Ï¥¶·²·¸©¶ª¥º³¶·¦¶³¥¨
Alphabet $15.4 ZTE equipment more broadly. EU action.
Volkswagon $15.1
Microsoft $14.1 Canada Australia
Huawei $13.1 South China Morning Post warns that The Oceanic nation banned Huawei for
Intel $12.6 Huawei likely faces 5G ban in Canada use in its 5G infrastructure, though it was
after arrest of Huawei CFO in Vancouver. noted to have paid Huawei $1 million
Apple $11.1
Former PM Stephen Harper backs for research in February due to “poor
Roche $10.2 this stance. government coordination.”
Johnson & Johnson $10.1
0
2011 2012 2013 2014 2015 2016 2017 2018 Daimler $10.0 Taiwan Poland
The Taiwanese government-subsidized Considering Huawei ban after the
Industrial Technology Research Institute arrest of spies in early January. Huawei
Huawei has the largest market share of ...and is leading the race to develop 5G has blocked Huawei smartphones and ¶©·´³²¨·¦½³Ï©¶²«·©§¹¶¸½°¥¦ª¥§°¸½
existing mobile infrastructure… Number of 5G standard technical computers from accessing its internal in early February.
network, and government considers
2G/3G/LTE market share, 2018 contributions by company
blacklisting Huawei and ZTE according Japan
Huawei 11,423 to Nikkei. Washington Post reports that Japan has
31%
Ericsson 10,351 Ç©Ï©§¸º©°½¦¥²²©¨È¹¥»©¥²¨¤ª¶³±
27%
Hisilicon 7,248 EU government related projects.
22% Nokia 6,878 ³Ñ§¥°·¥¶©§³²·¨©¶²«¸¥¶«©¸©¨
QUALCOMM 4,493 bans on Huawei tech for 5G rollouts in Mexico
Samsung 4,083 sensitive national security areas. Mexico has partnered with Huawei to
11% ZTE 3,738 provide telecom rollouts, though the
Intel 3,502 New Zealand USMCA includes clauses that trade deals
5% 4% New Zealand followed its ANZAC partner with China could be cause for expulsion
LG Electronics 2,909
Australia in banning Huawei amid from the North American pact.
CATT 2,316
security concerns.
Huawei Ericsson Nokia ZTE Samsung Other NTT DOCOMO 2,135
MediaTek 1,482
NEC 1,346
Mixed Outlook
Huawei is also a growing share of the Though the company has far more Belgium India
smartphone hardware space traction in Europe rather than the US The Belgium Centre for Cybersecurity Economic Times of India reports that India
Share of smartphones, unit sales to end users Share of smartphones by country reportedly considers ban on the use of ·¹²°¯©°½¸³¦¥²¹¥»©ª¶³±#©Ï³¶¸·
¹¥»©©µ¹´±©²¸³Î¶±²¨§¥¸³²·¥¶© despite heavy U.S. pressure, but the company
13% Italy 24% ³Ï©¶©¨¦½«³º©¶²±©²¸·´³¯©·´©³´°© is banned from 5G trials in September 2018
in favor of Sweden-based Ericsson.
Spain 19%
10% UK
9% Germany 12% UK ministers plan new laws that bar the Norway
Chinese telecoms infrastructure giant The government of the Nordic nation is
7% France 12% from “sensitive” infrastructure projects considering a ban on Huawei products for
6% related to 5G. British Telecom stops its 5G rollout, according to Reuters. No
5% Switzerland 6%
4% short of full ban. ³Ñ§¥°¦¥²¬¥·½©¸¦©©²©²¥§¸©¨
2% UK 6%
2% Italy Germany
Canada 2% Under Consideration, but has not yet Government rules out outright ban,
©²¥§¸©¨¥²½Î¶±¶©·¸¶§¸³²·¥²¨¬¥· though stricter security measures remain
US 1%
2010 2011 2012 2013 2014 2015 2016 2017 2018 denied reports it will do so. under review.
Source: (1) S&P Capital IQ. (2) 2018 EU Industrial R&D Investment Scorecard. (3) IHS Markit. (4) Statista. Iplytics as of December 2018. (5) Gartner. Statista. (6) Statista
Global Consumer Survey. Survey conducted from Jan to Mar 2019 with samples of 8,000 and 20,000 people depending on the selected countries. Source: Real Money. “Chart of the Day: Huwaei’s Trade War Scorecard.” Kevin Curran. February 11, 2019.
42 43
Selected companies
that have announced
Huawei restrictions
of varying types:
Germany
UK
Canada
Taiwan
US
Source: Wall Street Journal, @declanganley. h/t @MattGarrett3. Information provided on this infographic is compiled from Huawei’s press announcements, news
reports and statements by carriers and is subject to change.
44 45
Huawei Marine’s
Undersea Cable
Network
Approximately 95% of intercontinental
º³§©¥²¨¨¥¸¥¸¶¥Ñ§·§¥¶¶©¨¦½
undersea cables. Huawei has over 90
ongoing projects to build new cables or
upgrade existing infrastructure.
Source: Huawei Marine. TeleGeography. Wall Street Journal (“America’s Undersea Battle With China for Control of the Global Internet Grid”, March 13, 2019).
46 47
Contemplating “Nuclear” Options
China’s Formidable Policy Toolkit While we expect China policy to continue to be “measured and balanced”, the sharp
©·§¥°¥¸³²²[¬²¥¸¶¥¨©§³²Ð§¸¬¥·´¹¸ª³¹¶´¶©º³¹·°½¹²©¼´©§¸©¨´³°§½¸³³°·
“on the table” in a way not considered before
While the US may have comparatively more leverage in a trade war, China also has a
·«²Î§¥²¸¥²¨¨º©¶·©´³°§½¸³³°¯¸»¬§¬·¬³¹°¨²³¸¦©³º©¶°³³¯©¨¦½±¥¶¯©¸· 1 Rare Earth element (REE) export restrictions
³¸©²¸¥°²©»¸¥¶Ï±©¥·¹¶©· There is historical precedent for China to use its near-monopoly Share of global rare earth production
on the sourcing and processing of REEs as a tool in international 100% 71% 12%
Other:
negotiations: i) in 2010, China put a two-month ban on REE US: 9%
¼·¸²«¸¥¶Ï· ¥·©¸¥¶Ï¶¥¸©ª³¶©¼·¸²«·¸[!¸¥¶Ï·^>¦²³ª«³³¨·_ exports to Japan; ii) in 2015, the US won a WTO suit against China: 71%
China for its taxes and quotas on REE exports aimed at resource
conservation. A 2010 US GAO study redirected US policy
to reduce REE dependency and vulnerability, however, the
study also noted that rebuilding US REE production and Australia: 9%
List 4 ©»¸¥¶Ï·³²¶©±¥²²«©¼´³¶¸·¸³¬²¥^¥´´¶³¼±¥¸©°½>¦²³ª«³³¨·_
processing supply chains could take 15 years. 0%
1960 2018
Rare Earth Battlegrounds The US relies on China for production or processing of most of the Earth’s 17 rare
minerals critical for thousands of technology and industrial applications
Since the 1990s, China has developed a
Atomic # Element Sample applications
near-monopoly (eclipsing US leadership from
the 1980s) on the sourcing and processing of 21 Scandium ´³¶¸²«©µ¹´±©²¸ ·Ð¹³¶©·§©²¸Y©²©¶«½·¥º²«°«¬¸·°¥·©¶·¥°°³½·
many of the Earth’s 17 REEs that have critical
applications for thousands of products in Cell phones & larger display screens, lighting, medical treatments, surgical supplies,
the aerospace, defense, technology, energy,
39 Yttrium superconductors, catalysts, alloys
consumer electronics and other industries.
Studio lighting & projector lights, camera and telescope lenses, catalytic converters,
Further, China has been very clear that it would 57 Lanthanum й¨§¥¸¥°½¸§§¶¥§¯²«¶©§¬¥¶«©¥¦°©¦¥¸¸©¶©·
not stand idle while the US placed restrictions
on the sale of US technology components that
Electric motors & generators used in hybrid cars and wind turbines, specialized glass,
China’s use of this tool is not without 59 Praseodymium aircraft engines, permanent magnets, alloys, ceramics, lasers
precedent, as evidenced by China’s two month
ban on REE exports to Japan in 2010. The US Permanent magnets (for modern vehicles, aircrafts, consumer electronics), alloys,
also won a 2015 WTO suit against China for 60 Neodymium ceramics, lasers
its taxes and quotas on REE exports aimed at
Nuclear batteries for guided missiles, watches, pacemakers. Possible use as portable
resource conservation. While a US GAO study 61 Promethium x-ray source
in 2010 has redirected US policy to reduce
REE dependency and vulnerability, that same Optical lasers, permanent magnets, headphones, small motors and pickups, electric
study concluded that rebuilding the US REE 62 Samarium guitars, IV radiation cancer treatment, lasers
production and processing supply chain could
TVs, printing of Euro banknotes, control rods in nuclear reactors, lasers,
take 15 years. 63 Europium optoelectronic devices
65
China gadolinium oxide price, CNY per metric tons China dysprosium metal price, CNY per kg °©§¸¶³²§¨©º§©·±©¨§¥°¼[¶¥½·°¥·©¶¨©º§©·Ð¹³¶©·§©²¸°«¬¸²«ª¹©°§©°°·
Terbium
Magnet production, coloring for glass and cubic zirconia, microwave equipment,
67 Holmium ceramics, lasers
68
¹§°©¥¶¶©¥§¸³¶§³²¸¶³°¶³¨·§³°³¶²«¥«©²¸²«°¥¾©·¥²¨«°¥··©·¥±´°Î©¶·¥²¨
Erbium °¥·©¶·´¬³¸³«¶¥´¬§Î°¸©¶·
70
³¶¸¥¦°©¼[¶¥½±¥§¬²©··¸¶©··«¥¹«©·¸³±³²¸³¶©Ï©§¸·³ª©¥¶¸¬µ¹¥¯©·¥²¨
Ytterbium explosions, health care, atomic clocks
71
¥²§©¶¸¬©¶¥´½¥«©¨©¸©¶±²¥¸³²³ª±©¸©³¶¸©·¥²¨±²©¶¥°·´©¸¶³°©¹±¶©Î²²«
Lutetium °©²·©·±¥«²«Ð¹¨§¥¸¥°½¸§§¶¥§¯²«
Source: (1-2) Bloomberg. Data as of Jun 14, 2019. Source: (1) DB Global Markets Research “Rare Earth Pressure Point” (Hsueh). Rare Earth Technology Alliance.
50 51
¥¸Î§¥¸³²²§©¶¸¥²¸½
¬³¹«¬´³··¦°©¶¥¸Î§¥¸³²² '»°°¦©º©¶½¨Ñ§¹°¸¸³¥§¬©º©¦©ª³¶©½©¥¶©²¨
Largest US trading partners
Imports & exports, 2017
©½¶©±¥²²«·¸©´·
China $656bn
Reports to Congress and Public
Canada $588bn
At least 30 days before submitting implementing bill: Submission of draft statement of administrative
Mexico $561bn
1 ¥§¸³²¥²¨§³´½³ªÎ²¥°°©«¥°¸©¼¸³ª¸¬©¥«¶©©±©²¸©§¸³²$^¥_^_^_
Japan $207bn
ª¸©¶©²¸©¶²«²¸³¥«¶©©±©²¸^²³¨©¥¨°²©·´©§Î©¨_¹¦±··³²³ª§³´½³ªÎ²¥°°©«¥°¸©¼¸³ª¸¬©
Germany $173bn 2 agreement, draft implementing bill, statement of administrative action, and supporting materials.
Section 6(a)(1)(E).
South Korea $122bn
¸¸±©¶©·¨©²¸·¹¦±¸·§³´½³ªÎ²¥°°©«¥°¸©¼¸³ª¸¬©¥«¶©©±©²¸Submission of environmental
UK $110bn 3 review, employment impact review, and plan for implementing and enforcing the agreement.
Section 5(d)(1), (d)(2), (e).
France $84bn
India $76bn
Congressional Consideration of Agreement
Mexico $52.6bn
45 days after submission of implementing bill: Ways and Means must report bill (or automatic
Japan $40.3bn
5 discharge).
Canada $38.4bn
$18.2bn
Germany
6 15 days thereafter: House must vote on bill.
South Korea $13.8bn
UK $9.5bn
7 15 days thereafter: Senate Finance must report bill (or automatic discharge).
Italy $4.5bn
Slovakia $3bn
8 15 days thereafter: Senate must vote on bill.
Sweden $2bn
Finland $1.7bn 30 days prior to entry into force with respect to a party: written notice to Congress that the
9 President has determined that the party has taken measures necessary to comply with the
Rest of world $7.7bn agreement. Section 6(a)(1)(G).
Source: (1) World Bank. WITS. Trade in goods and services. (2) US Department of Commerce. Source: (1) Peck, Madigan and Jones.
52
Markets Pricing More Disorderly UK market sentiment has trailed the EU following June 2016 referendum
Brexit Scenario
120
sentiment
EU sentime
FX markets have been pricing in a more disorderly Brexit outcome with weakness in both
Sterling and Euro
GBP/USD EUR/USD EUR/GBP
0.89
1.12
1.26 UK sentime
sentiment
(-12%) (-10%)
1.20 1.07 0.82 80
Jan 2018 Jun 2019 Jan 2018 Jun 2019 Jan 2018 Jun 2019 Jan 2010 May 2019
Sterling has been one of the worst performing G10 currencies since the Brexit Referendum UK equities underperforming global stocks Renewed weakness in UK equities
Total return basis since Jun 23, 2016 since the Brexit referendum relative to Europe in 2019
35% 18%
+5.5%
+0.2% MSCI
MSCI all Europe
world: ex UK:
(-1.7%) (-2.3%) (-2.4%) (-2.6%) (-2.9%) (-3.0%) +26% +13%
(-5.3%)
Canada
Euro
Denmark
New Zealand
Japan
Australia
Norway
Switzerland
UK
Sweden
-10% -2%
Jun 2016 Jun 2019 Jan 2019 Jun 2019
Source: (1-3) Bloomberg. Data as of June 10, 2019. Sentiment is European Commission Economic Sentiment. Calculated from the European Commission’s Business
Source: (1-3) Bloomberg. Data as of June 13, 2019. FX returns are on total return basis as of June 23, 2016. US is trade weighted performance, all others calculated ¥²¨³²·¹±©¶¹¶º©½·³²·¸¶¹§¸©¨ª¶³±²¨¹·¸¶¥°§³²Î¨©²§©²¨§¥¸³¶·©¶º§©§³²Î¨©²§©²¨§¥¸³¶§³²·¹±©¶§³²Î¨©²§©²¨§¥¸³¶§³²·¸¶¹§¸³²§³²Î¨©²§©
with USD base. ²¨§¥¸³¶¥²¨¸¬©¶©¸¥°¸¶¥¨©§³²Î¨©²§©²¨§¥¸³¶
56
A number of scenarios are still “in play” for Brexit. While a general election is DB’s base case,
risk of a “No Deal” exit have increased.
Parliament
EU not EU
Scenario Details blocks
receptive receptive
“No-Deal”
Scenarios driving this outcome include: i) the newly selected PM calls
ª³¶¥²©¥¶°½©°©§¸³²_¥²³§³²Î¨©²§©º³¸©·¸¶««©¶©¨¥²¨¥²©»
Early General government cannot be formed in two weeks; iii) Parliament blocks
Election a new government’s bid for “No Deal”. If current polls, or the EU
election results are any indicator, mainstream parties (Conservative &
Labour) could lose seats to more polarized parties.
Source: (1) DB Global Markets Research (Harvey “Brexit update: a race to the bottom” June 11, 2019. “Brexit update: May resigns, what happens next?” May 24, 2019). DB Global Markets Research (Economics. Harvey “Brexit update: a race to the bottom”. “Brexit update: May resigns, what happens next?”)
60 61
Once selected, the new PM will face a deeply divided Conservative Party and
The UK’s political contest will take place in two phases and is a narrow majority in Parliament
expected to yield a new Prime Minister by late July
Narrow government majority Parliament divided on customs union
Current
urrent state of the parties Indicative votes: Clarke’s Customs Union Motion
Phase 1 Phase 2 313 Narrow governing majority
264 272
247
ur
io ish
r l
C nis ic
er
oc ra
as leader of — 10 candidates — Conservative
en
iv
U
o t
th
bo
de al
em at
ha t
ni ra
e
t
at t t
nd
va
e
em ib
n
O
U oc
N o
La
ng
Conservative party initially nominated party members
D L
Sc
pe
ser
Against For
on
D
º³¸©³²Î²¥°¸»³
In
— Will stay on as — Conservative MPs
C
interim PM until new vote in multi-step candidates to select
leader found elimination process conservative party Parliament opposed to a “No Deal” Brexit In the unlikely event of a second referendum
¸³·©°©§¸¸»³Î²¥° leader / PM Indicative votes: Fysh’s “No Deal” Motion the country is still divided on leaving the EU
— Agrees not to
present Withdrawal candidates — Approximately
Agreement to 160,000 members of 422 52%
139
July 2 ©»¥¶°¥±©²¸·¸·
Recent polls and the outcome of EU parliamentary elections indicate mainstream parties
have lost favorability
July 20 ¥¶°¥±©²¸·¹±±©¶¶©§©··¦©«²· Current polls for political parties
50%
Liberal
Sep 29 - Oct 2 UK Conservative Party Conference democrat: 24%
Conservatives:
19%
Oct 17 - 18 Last scheduled EU summit ahead of October 31 Article 50 deadline Labour: 19%
Oct 31 Brexit deadline with default option “No Deal” / “hard” Brexit
0% UKIP: 1%
Source:: (1-3) House of Commons. Narrow majority of 4 in the Parliament includes the Conservative Party and the DUP. (4) WhatUKThinks.org Polling data as of May
Source: (1) DB Global Markets Research (Oliver Harvey. “Brexit update: a race to the bottom”, “Brexit update: May resigns, what happens next?”) 20, 2019. (5) YouGov. Data as of May 29, 2019
62 63
Withdrawal Agreement & As the UK and EU negotiate their future framework in the years ahead, numerous models
for economic, political and trade relationships with the EU will be considered
Future Framework
On November 14, 2018 the 585 page draft Withdrawal Agreement was released.
While the agreement has been endorsed by the EU 27, former UK PM Theresa May was
unable to achieve ratification in the UK Parliament. Ukraine/UK
Association
Selected key components of the Withdrawal Agreement EEA/Norway Agreement CETA/Canada WTO
— Run through end 2020 with option to extend one time by up to two years Gradual
''9¸¥¶Ï·³²
Transition period — Continued application of EU law in UK without UK participation in EU ¤©¶³¸¥¶Ï· reduction
industrial goods Subject to
institutions & governance except on ³ª¸¥¶Ï·³²
¥¶Ï· eliminated. common WTO-
agriculture/ industrial goods.
Agriculture/ ¦¥·©¨¸¥¶Ï·
— Retain current rights for all who arrive before transition period ends 笲« Agriculture/
笲«©¼§°¹¨©¨
笲«©¼§°¹¨©¨
Citizens’ Rights — More stringent immigration laws thereafter
— > 3 million EU citizens in UK, > 1 million UK nationals in EU
Outside Outside, custom Outside Outside
Governance
— After transition period, disputes settled by joint committee followed by Customs union (Rules of Origin agreement could (Rules of Origin (Rules of Origin
binding arbitration checks) be incorporated checks) checks)
— ¸³ª¥°°²¸³©¼·¸²«·½·¸©±³ªÎ²¥²§¥°±¥¶¯©¸¥§§©··Ç©µ¹º¥°©²§©È
Financial markets Goal of Limited
— Similar access for US and Japan Regulatory
Regulatory status harmonization
regulatory regulatory None
harmonization cooperation
— Close relationship between UK and EU on services, investment and
Future Trade sectorial cooperation
Agreement — UK may negotiate but not sign 3rd party trade agreements during EU levels of Potentially EU
Services access levels of access
Limited Limited
transition period
— ¥²¨¦©·¸©Ï³¶¸¸³¬¥º©ª¹¸¹¶©¸¶¥¨©¨©¥°§³²§°¹¨©¨·¼±³²¸¬·
before end of transition period Freedom of Some Visa
— If not, backstop arrangement – UK and EU to form a temporary single
Immigration movement with Visa liberalization free access for None
Ireland & emergency break professionals
customs territory and Northern Ireland would follow EU single market
Northern Ireland rules. Goods checked when entering Northern Ireland from rest of UK.
— At any point after transition, UK or EU could decide backstop Informal Formal alignment
arrangement no longer necessary, but must decide together cooperation on with EU foreign
Security & defense ª³¶©«²¥Ï¥¶· and/or security
None None
— ¦³¹²¨¦½¨©§·³²·³²Î·¬©¶©·¹²¸°¸¶¥²·¸³²´©¶³¨©²¨· and security policy
Fisheries
— ©´¥¶¥¸©¸¶¥¨©¥«¶©©±©²¸¸³¦©¨©¸©¶±²©¨³²Î·¬©¶©·
— Spanish-British cooperation on citizens’ rights, environment, goods, Budget contributions Substantial Likely substantial None None
Gibraltar police and customs matters
— Protect rights of 11,000 Cypriots living and working in the areas of the Subject to EFTA Subject to
British Bases in sovereign military bases EU law/ECJ None None
Cyprus Court arbitration panel
— EU law will continue to apply
Source: (1) The European Commission “The EU-UK Withdrawal Agreement Explained.” Source: (1) DB Global Markets Research “Brexit, Kiev-style: towards an Association Agreement” (Harvey).
64 65
Economic & Policy Implications In a “No Deal” scenario, barriers will rise for key export destinations as well as
key investment sources
of “No Deal” Brexit UK goods export destinations (2017) Net UK inward FDI flows (2017)
A “No Deal” Brexit would have varying impact across the UK economy EU
Forecasted economic effects as of 2018 (% change) North 26% Japan
8% Europe America 29%
4% 6% 7%
56% 24%
Asia US
-8% 14% 27% Rest of
world Canada 4%
14%
Africa 3%
-30%
Rest of world 2% South America 1%
-48%
Market probability for BoE action by DB revised its forecast to expect only 25 bps
Commercial House GDP Bank rate: avg Bank rate: ²Ð¥¸³² Unemployment
property prices prices over years 1-3 peak level rate
YE 2019 has changed dramatically tightening by YE 2020 vs. 75 bps previously
Expectation in Expectation in
Jan 2019 Jun 2019 Prior forecast Q4 ‘20:
Slower growth and Sterling weakness have raised the risk of stagflation 66% 1.50%
June 2016:
Brexit vote
0.84% 12 bps
bp
(-1.25%)
0.7% 0.0%
-4%
Jan 2019 Jun 2019 Jan 2018 Jun 2019
Mar 2015 Mar 2019
Source: (1) Bank of England. Statista. (2) DB Global Markets Research (Economics). (3-4) Bloomberg. Data as of June 10, 2019. UK business investment is rolling 4 ³¹¶§©^_¦·©¶º¥¸³¶½³ª§³²³±§³±´°©¼¸½¼´³¶¸¦½¨©·¸²¥¸³² %^ _³¹·©³ª³±±³²·¶©Î²«¥´©¶Ç³¶©«²¶©§¸²º©·¸±©²¸¸¥¸·¸§·È¥¸¥¥·³ª
quarter average. March 25, 2019. (3-4) DB Global Markets Research (Economics). (5-6) Bloomberg. Data as of June 11, 2019.
66
Bull steepenings generally take
place when the market starts
to see the risk of recession
prompting the Fed to act.
Seema Shah, Senior Investment Strategist,
Principal Global Investors
Corporate Strategy,
Uncertainty &
Recession Risk
Global Growth Decelerating DB and market consensus have revised most major 2019 GDP forecasts lower in recent months.
While global growth has been dropping closer to the low 3% levels, it is concerning to observe
how many large global economies will grow at rates below 1.5% in 2019
2019 Y/Y GDP growth
Commodity prices are trading at 50 year lows vs. S&P 500 earnings, a development that Emerging markets Developed markets
amplifies both global growth concerns and the asset price distortions created by
extraordinary imbalances in global monetary and fiscal accommodation -2% -1% 0% 1% 2% 3% 4% 5% 6% 7% 8%
General commodity leading price indicator index / S&P 500 India
6.5%
10 6.2% China
4.8%
Indonesia
3.3% Global
50 year
low
1.4% Canada
1.3% Mexico
1.3%
France
Euro area
1.1%
0.9% Russia
0.7% Brazil
0.7%
0.5%
Germany
-40 Japan
Jan 2016 Jun 2019 -1.4% Argentina
Source: (1-2) Bloomberg. Data as of June 13, 2019. David Wilson. Commodity index is S&P GSCI total return index. Widely used as the leading measure of general
§³±±³¨¸½´¶§©±³º©±©²¸·¥²¨²Ð¥¸³²²¸¬©»³¶°¨©§³²³±½ Source: (1) DB Global Markets Research (Economics). IMF forecast where DB not available.
70 71
US financial conditions tightening in the 2H 2018 was sharp enough to end the Europe’s large manufacturing and trade driven sectors have been deep in contraction territory
current Fed tightening cycle. With its capital markets based economy, financial Manufacturing PMI Germany export and global trade growth, y/y
markets contagion is the most rapid channel, and often underestimated, through 65 25%
which policy escalation impacts US economic fundamentals.
106
Tighter Global
trade
growth
France: +2.4%
50.6
50 Germany
Looser Italy:
export
49.7
growth:
(-1.0%)
95
2000 2019 Euro area:
47.7
S&P 500 earnings recessions in the absence of economic recessions are reasonably rare
events, having happened only 4x since 1970 (with low oil or a strong dollar a factor on Germany:
each occasion). With the global and US economy slowing, a 2019 earnings recession 44.3
remains high risk, whether the US and China strike a trade deal, or not. 40 -25%
100%
% Jan 2017 May 2019 2006 2019
Source: (1) Bloomberg. Data as June 13, 2019. (2) DB Global Markets Research (Arita). FactSet. Data as of June 13, 2019. Q4 2008 (-62.4% earnings growth, Q4 2009: Source: (1) Bloomberg. Data as of June 13, 2019. (2) UNCTAD. Volume growth rates of merchandise exports and imports, quarterly. Bloomberg. Data as of June 13,
181% earnings growth. 2019. (3) Pictet Wealth Management.
72 73
89.1
99.8
Repurchase Intellectual Key performance Employment
property indicators agreement
20 98
2012 2019 2012 2019
6.8
42.0
Equity stake Share Corporate Preferred
5 26 valuation governance stock
2012 2019 2012 2018
64.6
88.1
75.2
105.1
³¹¶§©^[&_¬©ª¼©§¹¸º©¥«¥¾²©³²Î¨©²§©²¨©¼¹¯©³´¸±·±²¨©¼©§³²³±½[J±³·¸³´¸±·¸§·±¥°°¦¹·²©··³´¸±·±
²¨©¼¦¹·²©··§³²Î¨©²§©²¨©¼°³³±¦©¶«¥¸¥¥·³ª¹²©! '³²ª©¶©²§©³¥¶¨¹·²©··³¹²¨¸¥¦°©§³²³±§¹¸°³³¯²¨©¼¥·©¨³²
survey conducted quarterly of Business Roundtable member CEO plans for hiring and capital spending and their expectations for sales over the next six months. Taking
the factors together, the survey signals the direction of the US economy.
74 75
Corporate Capital Expenditure Slowing Headwinds for Global and Cross Border M&A
²§©¸¬©«°³¦¥°Î²¥²§¥°§¶··§³¶´³¶¥¸©Y·´©²¨²«¬¥·³¹¸´¥§©¨§¥´¸¥°©¼´©²¨¸¹¶© As rising policy risk has adversely impacted global growth, global M&A volumes have
on structures and equipment, while stock buybacks have steadily risen higher than overall declined over 20% in 2019
capex volumes Global M&A volumes, USD tn # of global M&A transactions
¬¥²«©²´¶º¥¸©Î¼©¨²³²[¶©·¨©²¸¥°²º©·¸±©²¸ S&P 500, total, quarterly, USD bn $4.5 55,000
80% 215
(-22%) (-36%)
IP R&D: Buybacks: decline decline
+68% $192bn
Equipment: Capex: 2019 YTD: 2019 YTD:
+48% $162bn $1.7tn 18,257
Capex: Dividends:
+37% $121bn
$0.0 0
2000 2019 2000 2019
Structures:
(-9%)
Cross border M&A volumes have been hit particularly hard by rising uncertainty
²§©¸¬©´¥··¥«©³ª¸¥¼¶©ª³¶±°©··³Ï·¬³¶©§¥·¬¬¥·¦©©²¶©´¥¸¶¥¸©¨¸³¸¬©¸¬¥²
2019 YTD: 2019 YTD:
¥²¸§´¥¸©¨³¶©¶©§©²¸°½§¥´©¼·´©²¨²««¶³»¸¬¬¥·¨©§©°©¶¥¸©¨¥·¸¶¥¨©´³°§½
$442bn $231bn
uncertainty and global growth have adversely impacted strategic decision making
©´¥¸¶¥¸©¨´¶³Î¸·¦½§³±´¥²©·¦² `§¬¥²«©²´¶º¥¸©Î¼©¨²³²[¶©·¨©²¸¥°
investment $0.0 $0.0
$300 5%
15% 2000 2019 2000 2019
³¹¶§©^"_¹¥¶¸©¶°½¨¥¸¥¥·³ª¹²©! '¶º¥¸©Î¼©¨²³²[¶©·¨©²¸¥°²º©·¸±©²¸·«¶³···²§©" %^ [!_°³³±¦©¶«¥¸¥¥·³ª¹²©! ' Source: (1-6) Thomson Reuters. Data as of June 11, 2019. US is any involvement.
76 77
©¥¶°½%#9³ª·¹¶º©½©¨§³±´¥²©··©©¥²©«¥¸º©¦¹·²©··±´¥§¸ª¶³±¬«¬©¶¸¥¶Ï· ²¶©·´³²·©¸³©·§¥°¥¸²«¸¥¶Ï·±¥²½§³±´¥²©·¥¶©¶©·¸¶¹§¸¹¶²«¸¬©¶¬²¥³´©¶¥¸³²·³¶
»¬°©®¹·¸¹²¨©¶¬¥°ª¬¥º©©¼´©¶©²§©¨²³²[¸¥¶Ï¶©¸¥°¥¸³¶½±©¥·¹¶©·ª¶³±¬²¥ ¨©°¥½²«²º©·¸±©²¸¨©§·³²·³¹¸¬©¥·¸·¥¥²¨©¼§³¬¥º©¦©©²¸¬©°¥¶«©·¸¦©²©Î§¥¶©·
of relocated supply chains.
How will the combined tariffs impact your business operations in China?
How are tariffs and US-China trade tensions impacting your business strategy?
52%
35%
33%
42%
38% 25%
23%
34%
20%
27% 27%
25% 14%
10% 10%
14%
3% 3%
10% 10%
Have you experienced any non-tariff retaliatory measures since tariffs were first implemented in If you have relocated China-based manufacturing facilities to other countries because of the
July 2018? tariffs and concerns over the future of US-China trade relations, where have you relocated?
53%
60%
20% 20%
25%
14% 14%
7% 6%
4% 4% 3% 11%
8%
6% 6% 4% 4%
No Increased Slower Slower Complications Others Challenges Increased Products Rejected
change inspections customs approval from with US ¨Ñ§¹°¸½ rejected by licenses
clearance increased employee completing customs or other
No plans Southeast Asia Mexico India Elsewhere US East Asia Europe
bureaucratic visa investment applications
subcontinent
oversight applications deals
Source: (1) AmCham China survey. Nearly 250 responses from AmCham China and AmCham Shanghai’s member companies to assess the impact of the increase in US
¥²¨¬²©·©¸¥¶Ï·³²§³±´¥²©·³´©¶¥¸²«²¬²¥¦³º©·¹¶º©½µ¹©·¸³²·»©¶©«º©²¸¬©Ç¬©§¯¥°°¸¬¥¸¥´´°½È²·¸¶¹§¸³²»¬©²¶©·´³²¨²«
78 79
HY OA
OAS
Structural headwinds (aging demographics, technology, globalization) and slower global
growth have weighed more heavily on the reflation trade than the prospect of a Fed cutting
rates when the unemployment rate is at a 50 year low
Core PCE #½©¥¶²Ð¥¸³²¦¶©¥¯©º©²
Fed target 2%
2.0% 2.3% 2.5% 0
Fed target 2%
1996 1997 1998 1999 2000
1.6%
1.54%
“It is just not credible that the US can remain an oasis of prosperity
¹²¥Ï©§¸©¨¦½¥»³¶°¨¸¬¥¸·©¼´©¶©²§²««¶©¥¸°½²§¶©¥·©¨·¸¶©··È
0.5% 1.0% Alan Greenspan, Fed Chair (1998)
Jan 2017 Apr 2019 Jan 2017 Jun 2019
Source: (1-5) Bloomberg. Data as of June 13, 2019. Source: (1) CreditSights. “Fed Cuts, 1998 Parallel” (Reynolds). Bloomberg. Data as of June 14, 2019.
80 81
2019 10 Year UST yields have traded sharply lower than consensus forecasts just 6 months Global negative yielding securities have grown 25% in 2019 with European and Japanese
ago. DB now expects the 10 year UST yield to trade as low as 1.85% late this summer on the benchmark rates negative out to 10 years, and beyond
back of a more dovish Fed, escalating trade risk and US recession risk concerns.
Negative
Benchmark
10 yr
15 yr
20 yr
30 yr
1 yr
2 yr
5 yr
3.4%
2019 consensus 10 year UST forecast as of December 2018: 3.32% Positive policy rate
Revised DB 2019
Multi-century
10 Year UST Forecast Germany (-0.40%) (-0.26%)
lows
Q2: 2.00% World’s 3rd
Q3: 2.05% Japan (-0.10%) (-0.14%) & 4th largest
Q4: 2.15% economies
3.6%
Belgium (-0.40%) 0.16%
UK 0.75% 0.84%
US-UK:
1.25% US 2.50% 2.09%
1.0%
Jun 2018 Jun 2019
Source: (1-2) Bloomberg. Data as of June 14, 2019. Source: (1) Bloomberg. Data as of June 13, 2019. US benchmark is the upper bound. ECB is the deposit facility rate.
82 83
US Recession Risk Assessment 1s-2s inverted on Dec 24, 2018 1s-5s inverted on Dec 24, 2018
0.5% 1.1%
While 2019 US recession risk remains low, and would likely require an exogenous policy escalation to
happen this year, a number of economic models (Fed, DB, consensus) have been pointing to a rapid rise
in such risk over recent months. More likely, the US economy has been rapidly decelerating from the
fiscal sugar highs of mid 2018 (growth >4%) toward its normal long term trend growth rate of 2%.
Looking to the year ahead, however, a number of important economic and market metrics are signaling
US recession by late 2020, potentially creating a complicated overlap with the November 2020 US
Presidential election. While we agree that post crisis factors unique to this cycle have contributed to
yield curve inversion, we would nonetheless conclude that the yield curve is sending some important
signals regarding the economy, and should not be dismissed. Specifically, a Fed study in August 2018
highlighted the 3 month – 10 year curve inversion as the most accurate predictor of US recessions, with -0.4% (-16 bps) -0.4% (-16 bps)
a lead time between 6 and 17 months in each case.
Jan 2017 Jun 2019 Jan 2017 Jun 2019
With growth slowing and US-China trade policy risk escalating, DB is now forecasting three pre-emptive
Fed rate cuts in 2019 at the July, September and December meetings, bringing Fed Funds down to 1s-7s inverted on Dec 31, 2018 2s-5s inverted on Dec 3, 2018
1.63% by year end. While some at DB suggest that Fed cuts will serve to sustain the expansion, others
maintain that the impact on the economic cycle may be limited. In our opinion, US recession may come 1.7% 0.8%
sooner than expected.
When the cycle does turn, be it 2020 or 2021, our expectation would be for a mild and short US
recession by historic standards (given low leverage with the US consumer and financial system).
2s-10s has not yet inverted 3M-10yr inverted on Mar 22, 2019, and
Cleveland Fed again on May 9, 2019
model: 35%
1.4% 2.1%
NY Fed model:
model
30%
26 bps
Source: (1) Bloomberg. Data as of June 13, 2019. Source: (1-6) Bloomberg. Data as of June 13, 2019.
84 85
Market Signals for US Recession Risk
While each of these signals does not necessarily indicate a US recession, they are
nonetheless useful signals to watch
Past peak/ Past peak/
Already Already
Metric Not yet beginning to Metric Not yet beginning to
happened happened
turn turn
1s – 7s curve inversion
NASDAQ 20% correction
1s – 10s curve inversion
Russell 2000 20% correction
3M – 10yr curve inversion
3M spot – 3M yield 18M forward curve inversion US auto stocks 20% correction
°³³±¦©¶«Î²¥²§¥°§³²¨¸³²·²¨©¼·¬¥¶´¸«¬¸©²²«
Oil prices < $50 a barrel
Corporate credit markets
Industrial metals index 20% correction
B & CCC high quartile net debt / EBITDA > 7.0x
Copper 20% correction
Median HY net debt / EBITDA > 4.5x
Actual HY net debt / EBITDA sharp spike Bloomberg commodities index 20% correction
Source: (1) St. Louis Fed. Federal Reserve Board. KKR (McVey. “Outlook for 2019: The Game Has Changed”). Bloomberg. *Real house prices based on the Case-Shiller
US National Home Price Index, Jan 2000 = 100. Expected change in employment is those who expect less unemployment-those who expect more + 100
86 87
Economic Signals for US Recession Risk
While each of these signals does not necessarily indicate a US recession, they are
nonetheless useful signals to watch
Past peak/ Past peak/
Already Already
Metric Not yet beginning Metric Not yet beginning to
happened happened
to turn turn
Loan delinquencies
Housing sector
Direct automobile loan delinquencies > 2.5%
Existing home sales recent avg < long avg Indirect automobile loan delinquencies > 2.5%
Residential investment/GDP recent avg < long avg Bank credit card loan delinquencies > 3.5%
Pending home sales prolonged decline Property improvement loan delinquencies > 2.0%
PMI data
30 yr mortgage rates recent avg < long avg
ISM US manufacturing PMI < 43
Real house prices* recent avg < long avg
ISM US non-manufacturing PMI < 49
Building permits (single unit) < 800k/month
ISM new orders index < 50
Labor market
ISM business employment index < 50
Unemployment rate steady/sharp rise from cycle low Chicago PMI < 50
Business investment
Average hours worked y/y decline
³²¶©·¨©²¸¥°Î¼©¨²º©·¸±©²¸·¬¥¶´¨©§°²©
Change in jobless claims > 10% increase y/y
Durable goods orders sharp decline
Payrolls decline in 3 month average
Heavy truck sales sharp decline
¸°¥²¸¥©¨»¥«©«¶³»¸¬·«²Î§¥²¸½`½¨©§°²©
Equipment Capex y/y decline
Univ. of Michigan 12 month employment expectations sharp decline
below 60 ©²³¶°³¥²³Ñ§©¶°³¥²·¸³°¥¶«©Î¶±·M 9¸«¬¸©²²«
Source: (1) St. Louis Fed. Federal Reserve Board. KKR (McVey. “Outlook for 2019: The Game Has Changed”). Bloomberg. *Real house prices based on the Case-Shiller
US National Home Price Index, Jan 2000 = 100. Expected change in employment is those who expect less unemployment-those who expect more + 100 . Recent
average is 4Q average vs long term average is 3 year average.
88 89
120 months
0%
% -6%
%
0 5 10 15 20 25 30 35 40 0 10 20 30 40 50 60 70 80 90 100 110 120
Quarters through expansion Months through expansion
Federal government debt has ballooned to its highest level during a post WWII recovery, Accommodative Federal Reserve policy, corporate tax cuts and deregulation have all
though low interest rates have helped keep debt service costs low helped US stock exchanges reach new all-time highs
Change in government debt Change in Dow Jones
0%
100% 89% 0%
300%
+208%
-10%
0%
% -50%
0%
0 5 10 15 20 25 30 35 40 0 10 20 30 40 50 60 70 80 90 100 110 120
Over 20 million jobs have been created in the current economic expansion, Household net worth increased by $47 trillion in the current expansion, largely driven by
a sluggish pace relative to history stock gains and the recovery in home prices
Change in jobs Change in household net worth
35%
% 60%
%
52
52%
15%
%
-3% %
-10%
0 10 20 30 40 50 60 70 80 90 100 110 120 0 5 10 15 20 25 30 35 40
³¹¶§©^[!_¡Çª¸©¶©§³¶¨[³²«¼´¥²·³²©¶©Å·¡¬¥¸³¹°¨²³§¯¸¬©§³²³±½Ï³¹¶·©È³±±©¶§©©´¥¶¸±©²¸¶©¥·¹¶½©´¥¶¸±©²¸ ³¹¶§©^[!_¡Çª¸©¶©§³¶¨[³²«¼´¥²·³²©¶©Å·¡¬¥¸³¹°¨²³§¯¸¬©§³²³±½Ï³¹¶·©È³±±©¶§©©´¥¶¸±©²¸¶©¥·¹¶½©´¥¶¸±©²¸
Labor Department. Labor Department.
90 91
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Delicate Underestimating
Balancing Act US Tax Reform
20 Themes to Watch in 2H 2018
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Dec 2017 Nov 2017 Nov 2017 Oct 2016 Sep 2016 Sep 2016
Oct 2017 Sep 2017 Jul 2017 Jul 2016 Jun 2016 Jun 2016
May 2017 May 2017 Apr 2017 Apr 2016 Mar 2016 Feb 2016
Feb 2017 Jan 2017 Nov 2016 Jan 2016 Nov 2015 Sep 2015
Tom Joyce is a Managing Director and Capital Markets Strategist within Deutsche Bank’s
Corporate Finance division. Based in New York, Tom heads a team that creates customized
analytical content for multi-national US corporates and Fortune 500 companies. His team
provides in depth analysis on the impact of economic, political, public policy and regulatory
dynamics on the US credit, foreign exchange, rates and commodities markets.
Sep 2015 Jul 2015 Jun 2015 Tom has over 20 years of Investment Banking experience at Lehman Brothers (10 years) and
Deutsche Bank (13 years) in New York, London, Hong Kong, and San Francisco. Over the last 12 years, Tom created
and built the Capital Markets Strategy role within Deutsche Bank’s Investment Bank, the only position of its kind on
Wall Street. He has previously served as the host of the Corporate Finance Monday morning meeting (4 years) and
the Managing Director Promotion Committee (2 years).
Tom’s educational background includes a year of study at Oxford University from 1991 - 1992, a Bachelor of Arts
in Political Science from Holy Cross College in 1993, and a MBA from Kellogg Business School, Northwestern
University in 2000.
Tom resides in New Canaan, CT with his wife and four sons, where he serves on the Board of Trustees of the
New Canaan Library, and the Board of the New Canaan Football (Soccer) Club. He also coaches youth soccer,
basketball and lacrosse.
Mar 2015 Mar 2015 Jan 2015
Hailey R. Orr
Director +1 (212) 250-8844 | hailey.orr@db.com
Hailey Orr is a Director in Deutsche Bank’s Capital Markets Strategy group, within the
Corporate Finance division. The team provides market based content for corporate
clients to assist in strategic decision making. Focus areas include the impact of
economic, political, public policy and regulatory dynamics on the US credit, foreign
exchange, rates and commodities markets. Hailey is also on the steering committee
of the Americas Women’s Network and helps lead the University of Michigan Global
Markets recruiting team.
Nov 2014 Oct 2014 Jul 2014
Prior to joining Capital Markets Strategy, Hailey spent nearly three years in Deutsche Bank’s Consumer
Equity Specialty Sales group. As part of the Global Markets division, her team focused on providing insights,
opinions, and flow updates on the consumer equity space to the bank’s largest institutional investor clients.
Hailey graduated with honors from the University of Michigan’s Ross School of Business with a BBA and a
minor in International Studies.
Stephanie E. Kendal
Analyst +1 (212) 250-4354 | stephanie-e.kendal@db.com
Disclaimer Acknowledgements
The information herein is believed to be reliable and has been obtained from sources believed to be
reliable, but we make no representation or warranty, express or implied, with respect to the fairness, Deutsche Bank Global Markets Research China Expertise
correctness, accuracy, reasonableness or completeness of such information. In addition we have no Binky Chadha, Equity Strategist Graham Allison (Political Scientist & Professor, Harvard
obligation to update, modify or amend this communication or to otherwise notify a recipient in the event
Sameer Goel, Asia Macro Strategist JFK School of Government)
that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes
or subsequently becomes inaccurate. Oliver Harvey, Macro Strategist Robert Daly (Director, Kissinger Institute on China & the US)
Michael Hsueh, Macro Strategist Elizabeth Economy (Director for Asia Studies, CFR)
We are not acting and do not purport to act in any way as an advisor or in a fiduciary capacity. We
therefore strongly suggest that recipients seek their own independent advice in relation to any Matthew Luzzetti, US Economist Richard Haass (President, CFR)
investment, financial, legal, tax, accounting, or regulatory issues discussed herein. Analyses and Craig Nicol, Macro Strategist Jennifer M. Harris (Senior Fellow, Brookings Institute)
opinions contained herein may be based on assumptions that if altered can change the analyses or Ryan Hass (Fellow, Brookings Institute)
Jim Reid, Credit Strategist
opinions expressed. Nothing contained herein shall constitute any representation or warranty as to
future performance of any financial instrument, credit, currency rate or other market or economic Alan Ruskin, FX Strategist Perry Kojodjojo (FX Strategist, DB)
measure. Furthermore, past performance is not necessarily indicative of future results. Brett Ryan, US Economist Philippe Le Corre (Senior Fellow, Harvard University)
This communication is provided for information purposes only. It is not an offer to sell, or a solicitation Kevin Nealer (Partner, The Scowcroft Group)
of an offer to buy any security, nor to enter into any agreement or contract with Deutsche Bank AG or George Saravelos, FX Strategist
any affiliates. Any offering or potential transaction that may be related to the subject matter of this Torsten Slok, International Economist William H. Overholt (Senior Research Fellow, Harvard
communication will be made pursuant to separate and distinct documentation and in such case the JFK School of Government)
Parag Thatte, Equity Strategist
information contained herein will be superseded in its entirety by such documentation in final form. Stephen Roach (Economist, Yale University’s
This presentation has been prepared by members of our investment banking department and does not Mark Wall, European Economist
Jackson Institute)
²©§©··¥¶°½¶©´¶©·©²¸¸¬©º©»·³ª³¹¶©·©¥¶§¬¨©´¥¶¸±©²¸³¶©¹¸·§¬©¥²¯Å·Ç¬³¹·©º©»È¬· Justin Weidner, US Economist
presentation speaks only as of the date it is given, and the views expressed are subject to change based Jonathan D. Spence (Yale University – retired)
Robin Winkler, FX Strategist
upon a number of factors, including market conditions. §¬¥©°´©²§©¶^·¥¥§Î§¬©ª§³²³±·¸_
Francis Yared, Macro Strategist
Yi Xiong (China Economist, DB)
Because this communication is a summary only it may not contain all material terms, and therefore Steven Zeng, US Rates Strategist
this communication in and of itself should not form the basis for any investment decision. Financial Zhiwei Zhang, (China Equity Strategist & Economist, DB)
instruments that may be discussed herein may not be suitable for all investors, and potential investors
must make an independent assessment of the appropriateness of any transaction in light of their ©¹¸·§¬©¥²¯³º©¶²±©²¸Ï¥¶·
own objectives and circumstances, including the possible risks and benefits of entering into such a Other Policy & Market Expertise
¶¥²§·©°°½©¥¨³ª³º©¶²±©²¸Ï¥¶·
transaction. By accepting receipt of this communication the recipient will be deemed to represent that Ted Murphy (Partner, Baker McKenzie)
they possess, either individually or through their advisers, sufficient investment expertise to understand Drew Cantor (Peck, Madigan, Jones)
the risks involved in any purchase or sale of any financial instrument discussed herein. If a financial
instrument is denominated in a currency other than an investor’s currency, a change in exchange rates
Design Credit Kristen Harper (Peck, Madigan, Jones)
may adversely affect the price or value of, or the income derived from, the financial, and any investor Summer Verwers, Lemon Whistle Media ©Ï©§¯^©§¯¥¨«¥²³²©·_
in that financial instrument effectively assumes currency risk. Prices and availability of any financial Lillian Santos, Williams Lea Tag at Deutsche Bank Glenn Reynolds (Chief Global Strategist, CreditSights)
instruments described in this communication are subject to change without notice.
Ron Loyd, Williams Lea Tag at Deutsche Bank ©Ï¬¥´¶³^©§¯¥¨«¥²³²©·_
Securities and investment banking activities in the United States are performed by Deutsche Bank
Securities Inc., member NYSE, FINRA and SIPC, and its broker-dealer affiliates. Lending and other
commercial banking activities in the United States are performed by Deutsche Bank AG, and its banking
affiliates. This communication and the information contained herein is confidential and may not be
reproduced or distributed in whole or in part without our prior written consent.
This presentation has been prepared by DB’s Capital Markets Strategy team within the
Corporate Finance division, and does not necessarily represent the views of our Research
department or Deutsche Bank’s “House View”.
Ǭ©¶©·²³²·¸¥²§©³ª¥²¥¸³²¦©²©Î¸¸²«ª¶³±´¶³°³²«©¨»¥¶ª¥¶©È
Sun Tzu, The Art of War (544 – 496 BC)