15428264-79b4-407c-b2ba-fdcc40374596

9 October 2009
Economics & FI/FX Research
Friday Notes
The world-wide recovery continues, but will lose momentum early next year
Upward. The global economy is clearly back on a growth path. Real GDP in the US as well as in Germany should even have posted strong growth in the past quarter. But we also expect the rest of Europe to have grown again for the first time since the beginning of 2008. The tangible recovery also looks set to continue in the current quarter. Thereafter, however, the momentum should slow appreciably. We do not, however, expect a renewed slide into recession. US. But in spring 2010, the US economy will merely stagnate. This gels with the fact that leading economic indicators have already lost momentum over recent weeks. While most are still posting respectable gains, their growth rates are already slowing appreciably (pages 3-5 & chart below). Strains are resulting from the end of fiscal stimulus programs. Europe. Leading indicators in Europe should continue to trend higher for somewhat longer, driven by the ongoing upswing in the industrial sector, since inventories still have to be replenished. Once, however, the global economy loses momentum again at the beginning of 2010, EMU-wide growth should also slow not least because investment will remain weak for a lengthy period and jobs will continue to be lost (pages 6-7). Central banks. The central banks are, therefore, not in any rush to reverse their highly expansionary monetary policy quickly. This was also the message of the ECB at its press conference yesterday. Similar signals are coming from the Fed. Further topics: Weekly Comment: Bluff (page 2). Commodities: Only temporary relief on the oil market (page 8). Data outlook: ZEW growth expectations appear to have peaked; US retail sales in reverse gear (page 11). Market outlook: EUR in demand, govies tending higher (page 18).
Contents Weekly Comment____________________________ 2 Research Notes _____________________________ 3 Data Monitor_______________________________ 11 FI Outlook_________________________________ 18 FX Outlook ________________________________ 19 MIB View _________________________________ 21 MIB Forecasts _____________________________ 22 Calendar__________________________________ 25
MIB MACRO FORECASTS

in % yoy GDP EMU CPI EMU GDP Germany CPI Germany GDP Italy CPI Italy GDP US CPI US 2008 0.6 3.3 1.0 2.6 -1.0 3.3 0.4 3.8 2009 -4.0 0.3 -4.7 0.4 -5.1 0.8 -2.5 -0.4 2010 0.8 1.3 2.0 1.0 0.4 1.5 1.9 2.3
MIB FI/FX FORECASTS

2009/10 EMU 3M (%) EMU 10Y (%) US 3M (%) US 10Y (%) EUR-USD USD-JPY Oil Price 31-Dec 0.80 3.45 0.30 3.70 1.47 95 65 31-Mar 0.90 3.60 0.50 3.85 1.52 98 70 30-Jun 30-Sept 1.05 3.85 0.85 4.10 1.55 100 70 1.20 4.10 1.25 4.40 1.50 103 75
MOMENTUM SLOWING APPRECIABLY Index of US leading indicators, change in % (annual rate)

20 1M change 15 10 5 0 -5 -10 -15 01/05 3M change
Global Head of Research & Chief Strategist Thorsten Weinelt, CFA (HVB) +49 89 378-15110 thorsten.weinelt@unicreditgroup.de Head of Economics & FI/FX Research Marco Annunziata, Ph.D. (HVB) Chief Economist +44 20 7826-1770 marco.annunziata@unicreditgroup.co.uk Editor Nikolaus Keis (HVB) +49 89 378-12560 nikolaus.keis@unicreditgroup.de Editorial deadline Friday, 09. Oct., 12:00H Bloomberg UCGR
07/05
01/06
07/06
01/07
07/07
01/08
07/08
01/09
07/09
Source: Thomson Datastream, UniCredit Research
Internet www.globalresearch.unicreditmib.eu
Bayerische Hypo- und Vereinsbank AG
UniCredit CAIB Group
page 1
See last pages for disclaimer.
9 October 2009
Friday Notes
Bluff
In a relevantly uneventful press conference, Trichet came under pressure on two issues: FX developments, and the situation in the European financial system in the light of the September Long-Term Refinancing Operation. On FX, he tried to signal that there is serious international commitment to limit further EUR-USD upside but markets will quickly call the bluff. Coordinated intervention is clearly not in the cards, and without it the ECB has run out of ammunition on the FX front. Trichet was cautiously optimistic that the reduced demand at the September LTRO signals ongoing normalization, but steered clear of commenting on what kind of banks are still using the auction there is dichotomy emerging in the eurozone banking system here, and it could become a serious headache for the ECB. Overall, I see clear confirmation of our view that the ECB is in no hurry to walk to the exit and will continue to ask government to exit first, while keeping the refi rate on hold for at least another year. On FX, Trichet tried to signal as convincingly as possible that the eurozone and the US are united in their desire to limit further upward moves in EUR-USD but it sounded like a bluff, and the market will quickly call it. In particular, Trichet intimated that the US is not currently adopting a benign neglect policy (our currency, your problem), and that global policymakers would monitor and coordinate as needed, united in their belief that disorderly exchange rate movements should be avoided. Asked whether such coordination might include joint interventions, Trichet noted he never comments on FX intervention issues but was probably not displeased at the question. More significant, however, is what Trichet did not say: he did not express concern that the ongoing appreciation of the EUR might pose a threat to the recovery. The problem, as I have highlighted in previous notes, is that the G20 cannot square the circle of pushing for a reduction in global imbalances while avoiding further USD weakness. The question therefore becomes once again how to divide the burden of appreciation, and here only China can lighten the euros burden. As long as markets remain skeptical of a possible coordinated intervention, which at this stage would probably need Chinas implicit blessing, there is nothing the ECB can do. With short-term market rates near zero and an inflation target to safeguard down the line, the ECB really has run out of ammunition on this front. We continue to target EUR-USD at 1.55 by the middle of next year. Trichet expressed some cautious satisfaction on the result of the September LTRO: he noted that most observers see the reduced demand for liquidity as a sign of normalization, but said it was too early to draw conclusions. More significantly, he declined twice to comment on possible identifying characteristics of the banks participating in the auction. My colleague
Aurelio Maccario has highlighted in previous notes that there is a clear dichotomy emerging in the eurozones financial system, with more solid institutions regaining access to other providers of liquidity like money market funds, and others left with the ECB as their one and only source of funding. I believe this will remain an extremely important issue in the coming months and possibly quarters, and might well become one of the ECBs worst headaches. Trichet emphasized once again that banks need to do their part to help the economic recovery, and once again exhorted them to strengthen their capital base, if necessary availing themselves of governmentprovided instruments. This time, however, he also noted as very encouraging the recent efforts by a number of eurozone banks to raise additional capital on the private market. The ECB is treading a fine line here, where caution sometimes clashes with clarity: on the one hand, it urges banks to raise more capital, while on the other hand it says that the results of its own stress testing exercise show that the systemically important banks already have sufficient capital to withstand even a very adverse risk scenario. On lending, Trichets tone was very balanced: he noted that the ongoing deceleration in lending to non-financial corporations was in line with the usual delayed response to an economic slowdown, so that further deceleration in lending could be expected in the coming months even though economic activity has stabilized. He also noted, however, that in a recent ECB survey of small and medium enterprises, nearly 80% of respondents reported a positive attitude from their lenders in response to credit requests. This confirms that there is as yet no evidence of a credit crunch, even though the risk of a credit squeeze needs to be monitored. Inflation expectations were another hot topic, and Trichet was asked whether the recent rise in 5Y5Y forward measures was a concern: he played it down, stressing that considering both market and survey measures, the overall conclusion was that inflation expectations remain well anchored and in line with the banks target. Overall, this confirms our view that monetary conditions will remain accommodative for quite some time, with the ECB looking for signs of reduced liquidity demand to provide some automatic unwinding before it even considers walking towards the exit. We expect short-term market rates to remain very low for the remainder of the year and to normalize only gradually in 2010, with the refi still on hold for the next 12 months.
Marco Annunziata, Ph.D. (HVB) +44 20 7826-1770 marco.annunziata@unicreditgroup.eu
page 2
9 October 2009
Friday Notes
Rise in US leading indicators has started to lose momentum again
We expect that the strong, but primarily technical recovery of the US economy will continue until the beginning of 2010. Thereafter, economic growth will slow down perceptibly, and in the spring, real GDP will probably even only stagnate. This gels with the fact that many leading economic indicators have started to lose momentum again of late. While they are generally still posting respectable growth rates, their increases have in some cases slowed considerably. This is clearly visible in manufacturing. But momentum is also fading in construction and the household sector. The primary culprit here is the end of the cash for clunkers program. As uncertainty about the economic outlook increases, investors might become increasingly skittish again, and rising risk aversion could ultimately result in the partial reversal of some of the recent market movements. For that reason, the development of leading indicators should be monitored very closely.
Rise in leading indicators is slowing

This outlook gels with the fact that many leading economic indicators have started to lose momentum again in recent weeks. While they are generally still posting respectable growth rates, their increases have in some cases slowed considerably. The monthly rise in the Conference Boards Index of Leading Indicators, for example, has weakened from an annualized 17% in May to 7% in August. As a result, the 3M rate fell from 13% to 9% (cf. chart). The situation is similar for the weekly leading indicator published by the Economic Cycle Research Institute (ECRI). Since mid-August, its 12W increase has slowed from an annualized 60% to 30%.
MONTHLY RISE HAS MORE THAN HALVED Index of leading indicators, rates of change in % (annualized)
20 1M change 3M change 15 10 5 0 -5 -10 -15 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09
Strong growth up to the end of the year

After the recession ended in August, the US economy probably grew at a strong 3% annual rate in 3Q. For the current quarter, we still expect a solid increase of no less than 3%. Growth momentum will, therefore, remain strong by the end of the year (cf. chart). But thereafter, the US economy will probably slow perceptibly again, and in spring 2010 once the fiscal programs and the support from the inventory cycle have run their course real GDP will probably even only stagnate.
W-SHAPED RECOVERY Real GDP, in % qoq (annual rate)
5.0
Source: The Conference Board, Thomson Datastream, UniCredit Research
All sectors are affected

When calculating its Index of Leading Indicators, the Conference Board combines ten indicators from the following five sectors: Manufacturing (new orders, vendor deliveries, average working hours) Private residential construction (building permits) Labor market (initial jobless claims) Household sector (consumer confidence) Financial sector (S&P500, yield spread, real M2 money supply) Manufacturing is traditionally the most cyclical sector of the economy. In the last couple of months, it again benefited disproportionately from the end of the global recession. On top of that, US automakers ramped up production in July after the bankruptcy-related closures in spring. Ahead of this production rebound, new orders increased at an annual rate of
2.5
0.0
-2.5
-5.0 forecast (estimate for III/09) -7.5 I/08 III/08 I/09 III/09 I/10 III/10
Source: BEA, Thomson Datastream, UniCredit Research
page 3
9 October 2009
Friday Notes
roughly 20% (cf. chart next page). In August, however, they fell again for the first time since March, and the 3M increase slowed from 14% to 6%.
NEW ORDERS DOWN AGAIN FOR THE FIRST TIME New orders in manufacturing, rates of change in % (annualized)
60 1M change 40 20 0 -20 -40 -60 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 3M change
The strong recovery of the private residential construction sector is probably the surprise of recent months. Currently, it looks as if residential investment increased more than 10% in 3Q. The main reason for this strong rise is presumably that investments were cut back too much during the crisis. The number of building starts per 10,000 residents, for example, hit a new all-time low of 1.3 before the start of the recession, the number was roughly five times as high (cf. chart). After it became clear that the recession was drawing to a close and, at the same time, access to credit eased again slightly, some of the postponed construction projects were apparently implemented. But given the still huge oversupply of homes for sale, we do not expect this strong recovery to continue. The leading building permits confirm this assessment: Even on a renewed solid gain in September, the annualized 3M change would slow down to about 15%; in July, the number had still been 65%!
FEWER CONSTRUCTION PROJECTS PER RESIDENT THAN EVER BEFORE Building permits per 10,000 residents
Source: Census Bureau, Thomson Datastream, UniCredit Research

10 9 8 7 6 5 4 3 2 1 Jan-70
It is, however, not only the slower increase in new orders that suggests the upside potential for industrial production might have peaked. In the latest ISM report, the inventory component also improved to 42.5 from 34.4. That is the highest reading since last October and, according to the ISM, a reading of over 42.6 is already consistent with an increase in real inventories. That means that more and more sectors have completed their destocking, while at the same time the increase in new orders has started to slow down. The closing of this gap (cf. chart) implies that the rise in industrial production is bound to lose momentum in the coming months.
THE GAP IS CLOSING Manufacturing ISM sub-indicators
70 65 60 55 50 45 40 35 30 25 New Orders Inventories 20 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09
Jan-75
Jan-80
Jan-85
Jan-90
Jan-95
Jan-00
Jan-05
Source: Census Bureau, BEA, Thomson Datastream, UniCredit Research
The situation on the labor market remains very tense. Since the beginning of the recession, the US economy has lost 7.2 million jobs and according to the Bureau of Labor Statistics preliminary estimate, the comprehensive benchmark revision will add another 800k in losses. The only good news is that that the pace of job losses has slowed since the beginning of the year from roughly 650k per month to 250k. The ongoing bleak situation on the labor market is, at the same time, the key drag on consumer confidence. Primarily because of the concerns about job security and the income situation, household sentiment fell in September (Conference Board survey), even as at the same time the stock market rally continued and gasoline prices eased.
Source: ISM, Bloomberg, UniCredit Research
page 4
9 October 2009
Friday Notes
Uncertainty raises nervousness

Our warning of a perceptible economic slowdown may appear somewhat premature at the moment. We do after all expect growth rates of 2% to 3% for the current and the upcoming quarter. Those increases are, however, attributable solely to a technical rebound of the inventory cycle and to the fiscal stimulus program. An initial taste of what might happen once these measures expire was provided by auto sales in September. After the cash for clunkers program ended in late August, car sales plummeted by 35% mom and are now only just above the cyclical low reached in February (cf. chart). Even though the adverse effects after the end of the inventory cycle and the other fiscal programs will probably come much less abruptly come they will! Barring a miraculous recovery on the labor market and a strong rise in real disposable incomes, personal consumption will not be in a position to fill this gap and ensure a strong, self-sustained economic recovery.
AUTO SALES COLLAPSED AFTER CASH FOR CLUNKERS PROGRAM EXPIRES Auto sales, in % mom
30 20 10 0 -10 -20 -30 -40 Jan-06
Do not get us wrong: There will undoubtedly be some more strong data releases in recent weeks that surprise investors on the upside. But at the same time, the number of negative surprises should gradually increase. The mounting uncertainty about the economic outlook that accompanies more mixed data is in turn increasing the nervousness on markets. After strong economic numbers and the spectacular stock market rally had apparently erased all memory of the bad experience of last year, risk aversion is then likely to increase again. And this could ultimately lead to a reversal of some of the recent market movements.
Dr. Harm Bandholz (HVB) +1 212 672-5957 harm.bandholz@us.unicreditgroup.eu
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Source: Bloomberg, UniCredit Research
page 5
9 October 2009
Friday Notes
Eurozone: growth improvement continues at a slower pace
The September round of business surveys shows that growth momentum in the eurozone continues to pick up, but there are signs that the pace of improvement is starting to slow. The key question is whether this is a prelude to a nearterm outright weakening of activity indicators, or just temporary fatigue after months of tangible improvement within a trend that remains firmly upwards. Our baseline scenario is somewhere in between. We expect leading indicators to continue trending higher through year-end, supported by a further acceleration in the industrial sector as stocks are (at least in part) rebuilt. However, we continue to see a strong case for a renewed growth slowdown in early 2010, when easing momentum on a global scale, no capex recovery and ongoing job shedding are set to weigh on the eurozone GDP performance.
of expectations and was the smallest since March. Moreover, the indicator remains stuck below the expansion threshold. Note that a slower pace of improvement is not only a PMI story. The German Ifo last month improved less than expected to 91.3 vs. the previous 90.5, while Italys manufacturing confidence surprised clearly to the downside and marked the first decline since March, pushed lower by a worse orders assessment. In contrast, all survey indicators in France continue to surprise to the upside.
How much upside potential for manufacturing?

Admittedly, putting too much emphasis on a single months figure is not appropriate, particularly after the previous strong gains that lifted the factory PMI by almost 15pp between April and August. However, it is also true that the new orders-tostocks ratio, which tends to lead reliably the headline PMI, in September stabilized after having been on a steep upward trend since the beginning of the year (see chart)
WHAT ARE NEW ORDERS AND STOCKS TELLING US?
70 1.35 1.25 1.15 1.05 0.95 0.85 0.75 Manufacturing PMI New orders-to-stock-ratio (RS, smoothed) 07/99 01/01 07/02 01/04 07/05 01/07 07/08 0.65 0.55
Still rising, but at a slower pace

In September, eurozone business surveys sent a message of further improvement, but with signs of less dynamic momentum. Taken together, the PMIs were not too far away from expectations, and generally consistent with marginally positive GDP growth in 3Q (versus our new forecast of +0.4% qoq). However, while the services PMI build on recent gains and moved up 1 pp to 50.9, the performance of the manufacturing index which, in our view, has the largest upside potential was slightly disappointing. True, the improvement to 49.3 vs. 48.2 took the factory index to the highest level since May 2008, but the monthly gain fell short
COMPOSITE PMI IMPROVES FURTHER
1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 -2.0 -2.5 I/99 I/00 I/01 I/02 I/03 I/04 I/05 I/06 I/07 I/08 I/09 Real GDP, in % qoq Composite PMI (RS) 39 35 67 63 59 55 51 47 43
65 60 55 50 45 40 35 30 01/98
Source: Markit, UniCredit Research
There are two possible interpretations of this. The bullish argument stresses that the last time the ordersstocks ratio was at the current high level (1.23), the factory PMI hovered around 56.5, implying that it is just a matter of time before we see the headline PMI rising into stronggrowth territory. In other words, this reasoning assumes that there was no break in the relationship between the level of new orders-stocks and the PMI, while we are probably witnessing a change in the lag with which the latter responds to the former (in the past, this lag averaged one month). The less optimistic point of view is based on the assumption that manufacturers remain extremely cautious about the sustainability of the upswing and therefore decide to keep inventories much leaner than in past recovery episodes. If this is the case, then the headline PMI should not be expected to
Source: Eurostat, Markit, UniCredit Research
page 6
9 October 2009
Friday Notes
rise to the same extent of the new orders-stocks ratio, and if the ratio starts easing, the PMI would probably follow suit relatively quickly. We could, therefore, already be approaching the peak of the factory PMI trajectory. Our gut feeling is that the truth lies somewhere in between, and that the upside potential for the manufacturing sector has not been exhausted yet. We expect the factory PMI to reach the 52.5-53 area by the end of the year, with the services index likely to follow suit. Thereafter, however, a renewed loss of momentum seems likely, in synch with a foreseeable slowdown of factory momentum on a global scale as inventory rebuilding runs its course and the boost of car scrapping premia in several major economies fades.
with our forecast that sees the path of quarterly changes in capex flattening out no earlier than mid-2010, with a more robust recovery expected only in 2011.
Labor market under severe pressure

September business surveys also confirmed that the labor market remains in poor shape. Our employment indicator built on hiring intentions in the services, industrial and construction sector is improving only marginally, and last month rose to -2.1 standard deviations below the long-term average from a -2.6 trough hit in H1 2009. Based on past elasticity, this value still points to a drop in employment of around 1.5% annualized. The PMIs also tell a story of continuing job shedding, given that not only is the Composite Employment Index well below the 50 threshold, but it actually fell back in September to 44.6 on renewed weakness in the services sector.
FIRMS ARE STILL FIRING STAFF
2.0 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 -2.0 -2.5 -3.0 -3.5 I/98 I/99 I/00 I/01 I/02 I/03 I/04 I/05 I/06 I/07 I/08 I/09 UniCredit labor market indicator Employment (RS, in % yoy) 3.0 2.5 2.0 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 -2.0 -2.5
Capex unlikely to recover soon

In our Euro Compass 4Q 2009, we showed a range of indicators that we monitor carefully to assess capex prospects virtually in real time. We highlighted that the most informative indicator tends to be the services sector assessment of past demand conditions, as reported by the EC monthly survey, which explains about 85% of the variance in the yoy change in capex. After having troughed in May at almost 3 standard deviations below its long-term average, the assessment of past demand conditions rose fairly strongly up to August, when it settled at -1.8 standard deviations below the mean. In September, the upward momentum lost steam and the indicator held steady vs. the previous month.
CAPEX HAS BOTTOMED OUT, BUT NO QUICK RECOVERY
40 30 20 10 0 -10 -20 -30 I/96 I/97 I/98 I/99 I/00 I/01 I/02 I/03 I/04 I/05 I/06 I/07 I/08 I/09 EC survey "recent demand in services" Capital expenditures (RS, in % yoy) -20 15 10 5 0 -5 -10 -15
Source: EC, Eurostat, UniCredit Research
Source: EC, Eurostat, UniCredit Research
This seems to confirm our skepticism about a prompt capex recovery. While it is true that sentiment is a very important driver of firms investment plans and business sentiment has risen tangibly from its lows it is also clear that there are several headwinds that argue against a genuine recovery in business investment, most notably the record-low level of capacity utilization and the ongoing steep decline in bank lending to the corporate sector. In a nutshell, we remain confident
Considering the very slow pace of improvement in labor market indicators seen so far and our expectations for growth momentum to resume easing early next year, its quite unlikely that firms will start hiring anytime soon. Moreover, the current massive degree of labor underutilization due to the widespread use of short-term work contracts or temporary layoffs implies that any unexpected increase in output will be first met using already existing staff, rather than by expanding payrolls. The implications are clear-cut: the unemployment rate will continue drifting higher for several more months, likely throughout 2010. In our forecasts, we assume that the unemployment rate will peak at just below 11% at the end of next year (from the current 9.6%), with high chances of a jobless recovery thereafter.
Marco Valli (HVB Milan) +39 02 8862 8688 marco.valli@unicreditgroup.de
page 7
9 October 2009
Friday Notes
Only temporary relief on crude oil markets
The financial crisis and the related global recession have defused the situation on the crude oil market. Lower demand, in conjunction with a raft of previously initiated oil projects, contributed to a strong increase in OPECs free production capacity. The relaxation is, however, only temporary. We expect the International Energy Agency (IEA) to raise its demand projections for 2009 and 2010 by another roughly 300,000 bpd. The reason for this is the strong growth of consumption in China. Crude oil production of non-OPEC states peaked in 2007. After a stagnation phase in 2009-2011, we expect production to decline by 2 mbpd by 2014. OPEC will ultimately have to take up the slack to avert a spike in the oil price. The short-term relief on the crude oil market is also becoming evident in the futures curve. The gap between the 12M and the 1M future for crude oil has narrowed from USD 20 to USD 5. This makes stockpiling less attractive.
and increases more strongly than projected in 2010

The reason for the upward revision in demand is the clear improvement in the global economic development. Since inventories in industrialized countries have declined strongly, a plus in new orders triggers an increase in industrial production and, therefore, a disproportionately strong economic recovery. Above and beyond that, economic demand in Emerging Markets appears to be growing considerably more quickly than thought so far. This could also be the big surprise for 2010. Therefore, global demand for crude oil will probably increase also more strongly than expected in the scenarios so far! The main reason will be China. First, the latest Chinese economic data show very strong growth, and second, China is becoming more and more important for the global economy. Similar to the situation for industrial metals, the influence of Emerging Markets on demand for oil is also increasing from year to year. China and Indias share of global demand for crude oil has, for example, increased from 5.3% to 13% since 1990. Auto sales in China surged 90% yoy in August. Even though this reading is distorted on the upside by a very low pre-year reading (start of the Olympic Games), the Chinese auto market is displaying a high momentum and has, in the interim, become a significant global player.
CHINAS AUTO MARKET OVERTAKES THE US annualized auto sales, mn units
25 Auto sales in the US Auto sales in China
Demand falls much less than expected in 2009

In its September monthly report, the IEA raised its projections for global crude oil demand by 500,000 bpd for both 2009 and 2010. For 2009, it now projects demand of 84.4 mbpd, and for 2010 it forecasts 85.7 mbpd. The decline in demand in 2009 therefore was reduced from 2.4 to 1.9 mbpd. Nevertheless, it remains the strongest fall-off in demand since 1982! We expect that the all-time high for demand so far of 86.5 mbpd will not be exceeded before 2011.
DEMAND RECOVERS IN 2010, BUT NEW HIGH ONLY IN 2011
20
mn units
15
10
4 3 2 1 mn b/d 0 -1 -2 -3 -4 -5 1980 1983
Global oil demand, change yoy

0 01/05 07/05 01/06 07/06 01/07 07/07 01/08 07/08 01/09 07/09
Source: Bloomberg, China Automotive Information Network, UniCredit Research
1990 US-recession 1987 Stock market
Financial crisis
2001 US-recession/terrorist attacks
1986
1989
1992
1995
1998
2001
2004
2007 2010e
Source: International Energy Agency, UniCredit Research
In the first six months of 2009, 8% more autos were sold in China than in the US! While auto sales in the US plummeted during the recession, the trend in China continues to point sharply north. In August, the US market may have regained the pole position once again, but this is attributable solely to the "cash for clunkers" program, i.e. to the US variant of the scrapping premium. In September, US auto sales fell to their lowest level since February 2009.
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9 October 2009
Friday Notes
The IEA expects Chinese demand for oil to increase by 4.6% to 8.3 mbpd in 2009 and by 4.0% to 8.6 mbpd in 2010. There is particularly high demand for oil products such as bitumen because of the current boom in Chinese infrastructure expansion projects. So far, the IEA assumed that demand here will decline in the second half of 2009 and the entire year 2010. If, however, the stimulus measures of the Chinese government were to be retained and, above and beyond that, the stockpiles of oil products may to be lower than expected (there are no official numbers for these!), then there is considerable upside potential for the estimates of Chinese crude oil consumption. We expect the IEA to revise up its demand projections in its coming monthly reports by a further 200,000-300,000 bpd. A good indicator here is the volume of crude oil processed in China. For the first eight months of 2009, there was an increase of 4.4% yoy. In the last three months, the rate of change has, however, accelerated to almost 10%.
CHINAS DEMAND FOR OIL IS GROWING SUBSTANTIALLY MORE QUICKLY THAN EXPECTED
China: Processed crude oil Brent (RS)
of crude oil, for example, have already fallen from 375 million barrels in May 2009 to 338 million barrels at the end of September 2009. By the end of the year, we expect a further decline to 320 million barrels.
TEMPORARY EASING OF TENSION ON THE CRUDE OIL MARKET
Effective OPEC Spare Capacity Non-OPEC Oil production (RS) UniCredit Forecast (RS)
8 7 6 5 mn b/d 4 3 2 1 0 2000 2001
52 51 50 49 48 47 46 45 44 mn b/d
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Source: International Energy Agency, UniCredit Research

8.5 160 140 120 mn b/d 7.5 100 80 60 6.5 40 20 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 USD per barrel
8.0
7.0
6.0 Jan-07
Source: Bloomberg, China Economic Information Net, UniCredit Research
Oil production of non-OPEC countries falls more strongly than expected

As the second surprise for 2010, we could see a substantially stronger decline in the crude oil production of non-OPEC states than generally expected. The financial crisis and the related recession have temporarily defused the situation on the crude oil market. Since, at the same time, a raft of large oil projects was completed, OPECs free production capacity increased in 2009 from 2.1 to 5.9 mbpd (cf. chart next column). This is, for the time being, reducing the risk premium in the oil price. This is also becoming apparent in the futures curve. The gap between the 12M contract and the 1M contract has, for example, narrowed from roughly USD 20 to currently only USD 5. This has made stockpiling unattractive. US stockpiles
If global GDP growth were to remain at a relatively low 3.0% in the coming years, then OPECs free production capacity is expected to remain high until 2014. This constitutes fundamental relief for the crude oil market. We are, however, not so optimistic. We expect non-OPEC oil production to decline and that this will compel OPEC to increase its oil production. Our forecast is based on a Hubbert curve model, into which we have plugged the historical development of production and an estimate for the total amount of recoverable crude oil from non-OPEC countries. Peak production was reached in 2007. From 2007 to 2014, this means a decline in production of 2 mbpd. Our scenario for the crude oil market therefore remains intact. Our target price for 2009 for Brent and WTI is USD 65, for 2010 it is USD 75 p/b, in each case calendar year averages.
Jochen Hitzfeld (HVB) +49 89 378-18709 jochen.hitzfeld@unicreditgroup.de
page 9
2014
9 October 2009
Friday Notes
Data Monitor Europe Preview of the coming week

Tuesday, October 13
GERMANY, ZEW GROWTH EXPECTATIONS
October Diffusion index MIB 55.0 Cons. 59.0 Sep 57.7 Aug 56.1
DECLINE INDICATED
Growth expectations
90 70 50 30 10 -10 -30 -50 -70 01/03 ZEW growth expectations Sentix - Institutionals (RS) 01/04 01/05 01/06 01/07 01/08 01/09 40 30 20 10 0 -10 -20 -30 -40 -50
The ZEW growth expectations have improved rapidly in recent months to clearly above the long-term average. This underpins the foreseeable, strong economic recovery in the second half of 2009. By around spring, the recovery should, however, slow perceptibly once important, temporary support measures fizzle out. Accordingly, it is likely that the ZEW, which looks six months into the future, will gradually pass its peak. This is also suggested by the second decline in the European sentix (cf. chart).
FRANCE, CONSUMER PRICES

September in % yoy MIB -0.2 Cons. -0.2 Aug -0.2 July -0.5
STILL IN NEGATIVE TERRITORY

4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 -0.5 -1.0 01/03 01/04 01/05 01/06 01/07 01/08 01/09 Consumer prices, in % yoy
Consumer inflation is likely to stabilize in September, benefiting from a sharp monthly drop in gasoline prices and still subdued food prices. On the other hand, core inflation should resume moderating after the sharp increase recorded in August, when it rose 0.6 pp (mainly to an unusual price surge in clothing).
Source: Thomason Datastream, UniCredit Research
UK, CONSUMER PRICES

September in % yoy MIB 1.4 Cons. 1.3 Sept 1.6 Aug 1.7
EDGING DOWN
5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 01/02 01/03 01/04 01/05 01/06 01/07 01/08 01/09 01/10 CPI headline (in % yoy) CPI ex energy and seasonal food (in % yoy)
We expect a further mild drop in September CPI, largely due to a favorable base effect on housing, as last years hikes in utility bills drop out of the computation of the yoy rate. This effect will more than offset upward pressure associated with a base effect on transport costs.
page 10
9 October 2009
Friday Notes
Wednesday, October 14
EMU, INDUSTRIAL PRODUCTION
August in % mom MIB 2.0 Cons. 0.8 July -0.3 June -0.6
THE INDUSTRIAL RECESSION IS CLOSE TO AN END

3 2 10 5 0 -5 -10 -15 Industrial production (in % mom) Industrial production (in % yoy, RS) 01/01 01/03 01/05 01/07 01/09 -20 -25
For the first time since May 2008, in August the output component of manufacturing PMI climbed above the 50 threshold. The close correlation between industrial production and the output component implies that the industrial recession could come to an end already in 3Q. For August, on the basis of the strong national industrial production figures (especially Italy), we expect a 2.0% mom bounce (from -0.3% of the prior month).
1 0 -1 -2 -3 -4 01/99
Source: Eurostat, UniCredit Research
Thursday, October 15
EMU, CONSUMER PRICES
September in % mom in % yoy MIB 0.1 -0.3 Cons. -0.3 Aug 0.3 -0.2 July -0.7 -0.7
HEADLINE READING STILL IN NEGATIVE TERRITORY

5.0 4.0 3.0 2.0 1.0 ECB target zone 0.0 -1.0 01/05
CPI headline (in % yoy) CPI core (in % yoy)
MIB forecast
We expect the final reading to confirm the preliminary -0.3% yoy. The fall in the inflation rate vs. August was probably due to the steep drop in the price of oil products, and a further decline in food inflation. In contrast, core inflation is seen as stable, though risks are to the downside. We will probably need to wait until November before seeing the inflation rate return into positive territory.
01/06
01/07
01/08
01/09
01/10
Source: Eurostat, UniCredit Research
Tullia Bucco (HVB Milan) +39 02 8862-2079 tullia.bucco@unicreditgroup.de Chiara Silvestre (HVB, Milan) chiara.silvestre@unicreditgroup.de
Alexander Koch (HVB) +49 89 378-13013 alexander.koch1@unicredigroup.de Marco Valli (HVB Milan) +39 02 8862-8688 marco.valli@unicreditgroup.de
page 11
9 October 2009
Friday Notes
Data Monitor US Preview of the coming week

Wednesday, October 14
RETAIL SALES
September in % mom MIB -2.0 Cons. -1.8 Aug 2.7 July -0.2
8
PAYBACK TIME AS CASH FOR CLUNKERS PROGRAM ENDED

12
Following the expiration of the cash for clunkers program in late August, car sales plunged 35% in September. In addition, we expect a reversal of the sales increases in most other categories that occurred in August and are not sustainable in our view. This is corroborated by chain-store sales, which according to the ICSC were down % in September. Finally, gas prices rose much less than in August (+0.5% vs. 5%), so that nominal sales of gas stations barely added to the headline figure in September.
4 0 -4 -8 -12 01/00 Retail sales (in % yoy) Retail sales, ex autos (in % yoy)
01/01
01/02
01/03
01/04
01/05
01/06
01/07
01/08
01/09
IMPORT PRICES
September in % mom in % yoy MIB 0.2 -11.6 Cons. 0.2 Aug 2.0 -15.0 July -0.7 -19.2
BENIGN INCREASE IN IMPORT PRICES DESPITE WEAK USD

25 20 15 10 5 0 -5 -10 -15 -20 -25 01/97 01/99 01/01 01/03 01/05 01/07 01/09 Import prices (in % yoy) Import prices ex petroleum (in % yoy)
Energy prices rose slightly in September on a seasonally adjusted basis. This should have lifted overall import prices mildly. But due to the expiration of the negative base effect, the yoy rate should have risen noticeably. Import prices for consumer goods continued to fall in recent months despite the weaker USD. Most likely explanation is the huge underutilization of capacities in virtually all Asian export-oriented countries. Exporters competition to maintain market share in view of smaller global demand is likely to keep prices low for the time being.
FOMC MINUTES, SEPTEMBER 23
STEADY POLICY FOR NOW

Key interest rates in %
8 7 6 5 4 3 2 1 0 01/99 01/00 01/01 01/02 01/03 01/04 01/05 01/06 01/07 01/08 01/09 01/10 Fed funds target rate 3M Eurodollar 3M Eurodollar FRAs MIB forecast (3M) MIB forecast (target rate) MIB forecast
While the statement after the September 23 FOMC meeting acknowledged that growth picked up, it at the same time warned that substantial resource slack is likely to continue. Against this backdrop, the Committee continued to anticipate that rates will be kept at exceptionally low levels for an extended period. Last week, Vice Chairman Don Kohn reiterated this view and emphasized again that the Fed has the necessary tools to act if the time is right.
page 12
9 October 2009
Friday Notes
Thursday, October 15
CONSUMER PRICES
September Headline, in % mom Core rate, in % mom MIB 0.2 0.1 Cons. 0.3 0.1 Aug 0.4 0.1 July 0.0 0.1
CORE RATE HEADING TOWARDS ZERO

6.0 5.0 4.0 3.0 2.0 1.0 0.0 -1.0 -2.0 -3.0 01/03 01/04 CPI headline (in % yoy) CPI core (in % yoy)
Gasoline prices rose mildly in September on a seasonally adjusted basis. The monthly increase of 0.2% should lift the headline inflation rate to -1% yoy. Core inflation, in contrast, continues to trend lower. Due to the significant underutilization of resources, in particular the high unemployment rate and high rental vacancy rates, we expect core inflation to decline towards % by the middle of next year. That would be the lowest level since the beginning of the series in the late 50s.
01/05
01/06
01/07
01/08
01/09
01/10
INITIAL JOBLESS CLAIMS

October 10 in thousands MIB 525 Cons. 525 3 Oct 521 26 Sep 554
LABOR MARKET REMAINS SHAKY

In thousands
700 650 600 550 500 450 400 350 300 250 01/00 01/01 01/02 01/03 01/04 01/05 01/06 01/07 01/08 01/09 Jobless claims (thousands, weekly) 4-week moving average
Following the solid decline in early October, initial jobless claims are now 22% below their cyclical peak of 674k reached in late March, indicating that the pace of layoffs has slowed noticeably. In addition, continuing claims are also trending lower. This improvement is mostly due to the reduction in layoffs, but hires also rose slightly of late. We expect that the gradual improvement in jobless claims continues for the time being. However, in order to indicate stable payrolls, initial claims would have to fall further to about 400k.
Friday, October 16
INDUSTRIAL PRODUCTION & CAPACITY UTILIZATION
September Industrial production, in % mom Capacity utilization in % MIB 0.0 69.7 Cons. 0.1 69.7 Aug 0.8 69.6 July 1.0 69.0
CAR-RELATED BOOST IS OVER

10 8 6 4 2 0 -2 -4 -6 -8 -10 -12 -14 01/97 Industrial production (in % yoy) Capacity utilization (in %, RS) 01/99 01/01 01/03 01/05 01/07 01/09 89 87 85 83 81 79 77 75 73 71 69 67
Industrial output in July and August was boosted by huge increases in car production after the bankruptcyrelated closings of many plants earlier this year. According to production schedules, however, the planned adjustment is almost complete, so that the car sector added only mildly to the headline figure in September. In addition, the manufacturing ISMs production component and aggregate hours worked both eased in September, indicating slightly weaker output in other sectors.
page 13
9 October 2009
Friday Notes
CONSUMER CONFIDENCE UNIVERSITY OF MICHIGAN (PRELIMINARY)

October MIB 71.5 Cons. 73.5 Sept 73.5 Aug 65.7
MOOD AMONG HOUSEHOLDS WORSENED AGAIN

Consumer confidence index
155 140 125 110 95 80 65 50 35 20 01/00 Conference Board University of Michigan 01/01 01/02 01/03 01/04 01/05 01/06 01/07 01/08 01/09
According to the daily Rasmussen survey, consumer confidence in early October stayed close to the September level. On the one hand, the Michigan index should have benefited from lower gasoline prices. But this was probably more than offset by the somewhat weaker stock market and the sluggish labor market even as the U of Michigan survey puts less weight on the labor market and households income situation than the Conference Boards index.
Dr. Harm Bandholz (HVB) +1 212 672 5957 harm.bandholz@us.unicreditgroup.eu
page 14
9 October 2009
Friday Notes
Review Europe
German industry stages a strong rebound
German industrial production was up a robust 1.7% mom in August. The broad-based improvement confirms that German companies are well under way to show a very strong performance in the third quarter. Moreover, companies in the construction sector are increasingly benefiting from the German fiscal stimulus package, reflected by the +4.2 mom rise in August construction activity. Even if one simply assumes a flat industrial production reading in September, German industry will register one of its best quarterly results after reunification (+2.0%). Even a record-high rise cannot be excluded any longer, given the substantial increase in new orders in previous months. The reasons for this remarkable pattern are straightforward: A pick-up in foreign demand and favorable new-orders-to-inventory ratios. Orders in August/July were up a hefty 7.8% compared to the second quarter, the strongest dynamic since reunification after already +5.5% qoq in 2Q (see chart). Since the end of the free fall in March, new orders have reversed now almost one-third of the preceding collapse.
NEW ORDERS, AS %, QOQ
10 5 0 -5 -10 -15 -20 Q1/90 Q1/92 Q1/94 Q1/96 Q1/98 Q1/00 Q1/02 Q1/04 Q1/06 Q1/08
One has, however, to distinguish strictly between short-term prospects and medium-term perspectives. In the short-run, there is more in the pipeline in terms of hard data as suggested by new orders figures and business expectations. We therefore stick to our view that overall GDP growth will be 1% in 3Q. At year-end, momentum will still be strong by historical standards. Looking beyond, it is very likely that the speed of the recovery cannot be sustained. Once the fiscal stimulus packages across countries are fizzling out and inventories are at higher levels, momentum will subside.
Alexander Koch (HVB), CFA +49 89 378-13013 alexander.koch1@unicreditgroup.de
Source: Bundesbank, UniCredit Research
page 15
9 October 2009
Friday Notes
US Review
Non-manufacturing ISM rises to highest level in 16 months
The Institute for Supply Managements (ISM) non-manufacturing purchasing managers index rose in September to 50.9, which is the highest level since May 2008. The headline index was lifted most by solid increases in the important production and new orders subindexes. While the employment index improved as well, at 44.3 it still remained at a weak level (cf. chart). According to a special question, asked with the September report, 44% of respondents said that their industry will benefit from the American Recovery and Reinvestment Act. The same portion indicated that their company will benefit from the program.
SENTIMENT IMPROVES BUT EMPLOYMENT IS LAGGING ISM non-manufacturing
60 55 50 45 40 35 30 Jan-06
DELEVERAGING OF HOUSEHOLD SECTOR GOES ON Consumer credit, change since September 2008, in USD bn
20 0 -20 -40 -60 -80 -100 -120 -140 Total Revolving (credit cards) Nonrevolving (car loans) Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09
Source: Federal Reserve, Thomson Datastream, UniCredit Research
Dr. Harm Bandholz (HVB) +1 212 672 5957 harm.bandholz@us.unicreditgroup.eu
Composite index Employment index Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09
Source: ISM, Thomson Datastream, UniCredit Research
Consumer credit falls for 7th consecutive month

According to the Federal Reserve, consumer credit outstanding fell another USD 12bn in August. This decline marks the first time consumer credit has contracted seven months in a row since 1991. Credit hasn't contracted for eight consecutive months since the Fed started tracking it in 1943. Since September 2008, consumer credit outstanding fell a cumulative USD 116bn, or 4% (cf. chart). The largest decline occurred in revolving consumer credit, which mostly comprises credit card debt. Due to problems to securitize those loans, credit standards have been raised considerably. The (involuntary) deleveraging of private households, therefore, goes on. In addition, non-revolving loans, which are mostly car loans, also continued to decline in August. This comes as a surprise as auto sales soared that month due to the cash for clunkers program.
page 16
9 October 2009
Friday Notes
Fixed Income Outlook

The generally positive sentiment in FI markets was hurt by a poorly received 30Y UST auction. Supported by high liquidity and the outlook for low key rates "forever", we are positive on FI for the near term.
development as an exaggeration, which is likely to be reversed over the coming days, at least partly. The sell-off in the strip was responsible for increases in 2Y Bund yields and swap rates. With a price correction in the near-term Euribor future contracts, we should also witness lower front-end levels in the yield curves. Next week will bring a raft of economic data out of the US (retail sales, industrial production, and CPI, to name a few) and only second-tier data out of the euro zone (ZEW index being the highlight). The tone in the market will be set by the progressing 3Q earnings season. Investors will look at past profits, whether those come from cost-cutting measures or increased revenues, and on the prospects provided by the companies' CEOs. For sure, not all companies will pass the exam in all four dimensions, and market sentiment will likely get a hit from time to time. Still, we are confident that the overall positive market attitude will survive the earnings season. We also draw comfort from the analysis of our equity strategists whereby EuroStoxx valuation is relatively cheap and investor positioning weak. They expect further advances in major equity indices. Adding our view for "zero rates forever" and taking into account the fact that presently (almost) nothing can deter FI markets from remaining strong, we are very constructive on FI markets going into next week.
EURIBOR DEC09 IS PUNISHED BY LIQUIDITY CONCERNS
1.10
UST auction deters the good feeling

The EMU bond market traded in positive territory for a better part of the past week. Some pressure at the front end was encountered by the strong performance in long and ultra-long maturities. On Friday, yields jumped across the curve in all major countries in reaction to a poor 30Y UST auction. The 2-30Y Bund spread tightened by about 10bp and has now reached the lower boundary of its 6-month trading range. The long end of the curve benefitted from yield hunters trying to capture yield to maturity which is anywhere close to the 4% mark. The 30Y UST auction on Thursday was described as very poor. It is a well-known pattern that during a UST refunding week, one auction disappoints whereas the other auctions show "good" or even "stellar" results. Markets rally on stellar auctions and sell-off in reaction to poorly received auctions. For one, these factors cancel each other out; second, we do not observe a lasting impact from "failed" UST auctions. In this sense, we do not regard Friday's sell-off in the FI universe as a harbinger for next week's performance. Institutional investors have accumulated tons of liquidity in recent months. As the end of the year approaches, these investors are likely to feel the need to become invested. Part of the funds will find their way into the govie market and here, given tiny returns at the front and, in maturities from 5 years out. Over the past few days, near-term Euribor futures contracts have suffered. The Dec09 contract fell 12 cents between Wednesday and Friday. First, some market participants reportedly expected Jean-Claude Trichet to announce measures that would reduce excess liquidity in the system. From the very beginning, we regarded those expectations as totally unfounded at this point in time. As it turned out, Trichet was mum on that issue which caused a brief set-back in Euribor contracts. Second, some investors are concerned that excess liquidity in the system will shrink too much in the coming months. Depending on the rollover assumptions for maturing ECB tender operations, excess liquidity is forecast to decline from EUR 107bn currently to as low as EUR 50bn over the coming weeks. We made similar calculations and come to the projection that excess liquidity in the euro system will probably shrink to EUR 68bn by mid-December. Hence, we agree with other analysts that there will most probably be a decline in excess reserves in the weeks to come. Where we disagree, however, is to use this as a reason to seriously adjust expectations for 3M Euribor fixings. We regard the most recent
Eu ribor Dec09
1.00
0.90
0.80
0.70
0.60 3- Ju l
17 -Jul
31-Ju l
14 -Aug
28-A ug
11 -Sep
25-S ep
9-O ct
Kornelius Purps (HVB) +49 89 378-12753 kornelius.purps@unicreditgroup.de
page 17
9 October 2009
Friday Notes
Forex Outlook
Trichet failing to deliver any strong message against the euros strength at yesterday's ECB meeting contributed to boost EUR-USD further. It managed to break the 1.4765 resistance level and will now test 1.48 area. The EUR should remain well bid also next week. Only very disappointing 3Q earning results could spark some weakness. But any drop in EUR-USD should be considered as an opportunity to return long at cheaper levels.
Towards more EUR strength

The main event of this week in the G-10 world has been the unexpected RBA rate hike by 25bp to 3.25%. The Australian central bank statement pointed to the increase of the growth rate of trading partners (especially China), as well as expectations for internal growth close to trend in 2010, as the main reasons for the early hike. Interestingly, the RBA move fuelled speculation that the RBNZ could well be the next central bank to start a hiking cycle. As a consequence, not only has the AUD appreciated across the board, but NZD has appreciated as well. At this stage, it will be interesting to see how the AUD will perform going forward. Indeed, since the Lehman collapse, G-10 FX movements have been mainly driven by swings in risk appetite/risk aversion. Interest rate differentials have lost their importance as a currency driver as rates have been slashed across the board. Our view is that the FX world will remain led by global factors rather than domestic ones at least until the first half of 2010. Nevertheless, the recent RBA move has obviously brought the debate of interest rate differentials back into fashion. More specifically, should we expect the AUD moves to be more driven over time by monetary policy expectations rather than by risk aversion/risk appetite related factors? The table below selects those currencies that are most positively/negatively correlated with the variables listed on the left hand side column (oil, gold and copper prices, US stocks and volatility of US stocks) and compares the last 10-days with the last 20-day rolling correlations between daily changes in these variables and daily returns in the currencies listed. AUD crosses display the highest correlations in the G10 world with commodity prices as well as with US stocks and the volatility of US stocks. Moreover, there is no evidence pointing at the weakening of the correlations coefficients in the 10dd time span vs. the 20dd time span; if anything, we observed a strengthening of the correlation of AUD crosses in the 10dd time span. This seems to confirm that currently global factors have not lost their power in explaining the AUD performance. Indeed, a caveat needs to be taken into consideration here.
Australian economic performance is heavily dependent on Chinese demand and this has played a crucial role in the RBA decision to hike the key rate. Domestic growth was surely a trigger for the decision but first and foremost external growth was cited as the main reason behind the move. Indeed, the day after the RBA move, the greenback was weaker across the board. So the move was viewed more as a signal of improving global recovery prospects than as a sign of relative strength of Australia vs. other countries. In this respect, the two elements (rate hike and improving global outlook) are quite related at this stage. The good news here is that both these factors point to a strengthening of the AUD going forward. Indeed, the only threat to this scenario might arise if the RBA might realize that the hike was indeed premature. This will surely imply a sharp weakening of the Australian dollar across the board. Next week, the focus will be on 3Q US earnings releases. Our view is that the recent RBA move should offer the AUD a cushion even in case of a less exuberant US earnings season, provided there is no dovish rhetoric from the RBA or bleak data releases from the Australian economy over the coming weeks. Looking ahead, our recommendation is to take a dvantage of the RBA move by going long AUD-JPY. On the one hand, we expect the BoJ to be the last central bank to hike rates in the G-10 universe, so investors would take advantage of the widening interest rate differentials. On the other hand, the gradual resurfacing of risk appetite should lead to a revival of carry trades. The lack of surprises from the BoE meeting relieved investors who had feared the possible extension of QE measures, with cable finally managing to break 1.60 and rally towards 1.61, while EUR-GBP was sent under the 0.92 base. While on a medium-term perspective we see cable coming back to 1.65, we acknowledge that the outlook remains uncertain in the short term. Next week, cable's performance should be mainly driven by 3Q earnings results via the traditional risk aversion/ risk appetite channel, but the CPI and unemployment releases in the UK could spark some weakness again if they disappoint expectations. In case of disappointing corporate results, cable would test again the 1.58 area, while on better-thanexpected results cable could break through 1.62 again and try an attack on the 1.63 resistance level. Turning back to the EUR, at yesterdays ECB meeting, Trichet basically reiterated the G-20 rhetoric, saying that excessive FX movements are adverse for the economy, but he avoided delivering any strong message against the euros strength. This contributed to boost EUR-USD further, which managed to break the 1.4765 resistance level and test 1.48. At this stage, our view is that investors would need either very aggressive rhetoric against the EUR or very disappointing news on the eurozone economy to start selling the EUR massively. As we do not expect any of these conditions to
page 18
9 October 2009
Friday Notes
materialize, the EUR should remain well bid. Actually, only very disappointing 3Q results could spark some weakness next week, but any drop in EUR-USD should be considered as an opportunity to return long at a cheaper level: we would thus take advantage of any drop at around 1.46 to return long. Data-wise, the calendar will be pretty full in the US next week, including retail sales, CPI, industrial production and the preliminary release of the Michigan Consumer Confidence, but this should not add any new element to the ongoing economic outlook: we expect data to come in on the weak side, confirming our view that the pace of recovery is not accelerating. In the eurozone, the focus should be on the German ZEW and eurozone industrial production. In any case, investors are by now quite familiar with the idea that the road to the recovery is still bumpy and thus our impression is that while better-than-expected data could ultimately push the EUR further up vs. the greenback, data slightly below expectations would if anything only have a temporary weakening effect.
G-10 FX CORRELATION TABLE
10 days Oil price (return) Gold price (return) Copper price (return) S&P 500 (return) VIX Index (change) Oil price (return) Gold price (return) Copper price (return) S&P 500 (return) VIX Index (change) CAD-CHF 71.1% AUD-USD 82.3% SEK-CHF 87.3% AUD-CHF 74.9% USD-CAD 73.4% EUR-CAD -71.3% USD-SEK -94.3% USD-CAD -84.9% EUR-AUD -77.8% AUD-CHF -73.8% -56.7% -63.4% -75.8% -77.4% -64.2% 65.0% 62.8% 72.6% 82.5% 65.5% 20 days MOST POSITIVE 10 days 20 days SEK-CHF 69.9% EUR-USD 82.3% AUD-USD 86.2% AUD-USD 72.9% EUR-AUD 71.5% USD-CAD -71.1% USD-CAD -88.9% USD-SEK -83.2% NOK-AUD -74.2% AUD-USD -73.7% -64.2% -66.5% -68.1% -87.2% -74.5% 52.7% MOST NEGATIVE EUR-SEK -67.6% EUR-SEK -83.5% EUR-AUD -81.8% EUR-CAD -71.7% AUD-JPY -69.4% -61.4% -52.3% -75.8% -64.6% -62.6% 68.1% 81.4% 72.9% 68.4% 10 days NOK-CHF 58.5% SEK-CHF 81.0% AUD-CHF 81.5% AUD-JPY 70.6% NOK-NZD 68.0% 33.3% 64.7% 77.9% 69.6% 26.0% 20 days
Chiara Cremonesi (HVB) +44 207 8261771 chiara.cremonesi@unicreditgroup.eu
page 19
9 October 2009
Friday Notes
MIB View Our Global Picture

Global economy
The global recession has run its course. Real global GDP looks to have expanded again in the third quarter. It is, however, mostly a technical rebound that is already facing the threat of another setback in the first half of 2010, then followed by a slight upward trend (W shape). For the first time since World War II, global economic activity will, however, fall 1.2% on average for 2009, weighted for purchasing power parities. At market exchange rates, the decline is even twice as strong. For 2010, we expect real GDP to rise 2.9% on a PPP basis. That is, however, clearly below trend. GDP in industrialized countries will contract by 3.6% this year. All recessions of the 70s and 80s pale in comparison. The regions most strongly affected are Japan (-5.5%), followed by the euro zone (-4%) and the US (-2.5%). Next year, the industrialized countries will post only modest growth. China and Emerging Asia were the first to achieve the trend reversal. They will remain clearly at the top of the growth league also in 2010.
Since the beginning of October 2008, the ECB has lowered its key interest rate by a total of 325bp. At the same time, it extended the maturity of the refi transactions to up to 12 months. It is also buying covered bonds. Since the economic upswing shouldn't be sustainable, the ECB probably won't raise its key interest rate from currently 1% in 2010.
Government bond markets

Beyond short-term consolidation periods (profit taking), declining risk aversion combined with improving macroeconomic data and corporate news will see government bond yields trending upward again. Since the supply of government bonds will surge, US 10Y yields will reach the 4% level in spring 2010, and are expected to trend higher also thereafter. 10Y Bund yields should roughly mimic the pattern of their US counterparts, reaching 4% by summer next year.
Exchange rates
After a temporary consolidation phase, EUR-USD should strengthen again and, over the medium term, advance to the 1.50-1.55 range. The upward primary trend is analogous to the W-shaped recovery of the global economy subject to considerable fluctuations. We expect JPY to weaken steadily for the remainder of this year and in 2010.
OUR MACRO FORECASTS
in % yoy GDP EMU CPI EMU GDP Germany CPI Germany GDP Italy CPI Italy GDP US CPI US 2008 0.6 3.3 1.0 2.6 -1.0 3.3 0.4 3.8 2009 -4.0 0.3 -4.7 0.4 -5.1 0.8 -2.5 -0.4 2010 0.8 1.3 2.0 1.0 0.4 1.5 1.9 2.3
US
The US economy exited the recession already in 3Q 2009. GDP should have been able to report pretty robust growth in the summer months of 3% (annual rate). But that is merely "borrowed" growth. We expect an expansion of "only" 1% for the first half of 2010. Support of private consumption is still missing for a self-sustaining upswing. The recovery will be W-shaped. After slashing the federal funds target rate by a total of a whopping 425 basis points (bp) to 1% in the wake of the housing recession and the deep financial market crisis, the Fed switched to a zero-rate interest policy in midDecember of last year. The Fed is now pursuing a Quantitative Easing Policy. Since the economic upswing should not be sustainable, the US central bank will likely adhere to its current ultra-expansionary monetary policy well into next year.
OUR FI/FX & OIL PRICE FORECASTS
Euro zone
The euro zone left the recession sooner than expected previously. Real GDP should have grown again in 3Q. There is, however, a striking dichotomy within the EMU. Germany and France already turned the corner, the rest is lagging behind. Similar to the US, the upswing is not likely to be sustainable. The initial V should soon become a W. On average for 2009, real GDP will nevertheless contract by a whopping 4%. And growth of 0.8% in 2010 is attributable partly to a statistical overhang.
2009/10 EMU 3M (%) EMU 10Y (%) US 3M (%) US 10Y (%) EUR-USD USD-JPY Oil Price
31-Dec 0.80 3.45 0.30 3.70 1.47 95 65
31-Mar 0.90 3.60 0.50 3.85 1.52 98 70
30-Jun 1.05 3.85 0.85 4.10 1.55 100 70
30-Sept 1.20 4.10 1.25 4.40 1.50 103 75
page 20
9 October 2009
Friday Notes
Macro Forecasts
GDP, real (%, yoy) World economy * Industrialized countries * US Euro area Germany ** France Italy Spain Austria UK Switzerland Sweden Japan Developing countries * Asia China India Latin America Brazil Central and Eastern Europe Russia Consumer prices, CPI (%, yoy) US core rate (ex food & energy) Euro area, HICP core rate (ex food & energy) Germany France Italy Spain Austria UK Switzerland Sweden Japan GDP, real (%, qoq) US (annualized) Euro area Germany France Italy Spain Austria UK Switzerland Sweden Japan Consumer prices, CPI (%, yoy) US core rate (ex food & energy) Euro area, HICP core rate (ex food & energy) Germany France Italy Spain Austria UK Switzerland Sweden Japan 2003 3.7 1.9 2.5 0.8 -0.2 1.1 0.1 3.1 0.8 2.8 -0.2 2.1 1.4 6.6 8.2 10.0 6.9 2.2 1.1 5.7 7.3 2003 2.3 1.5 2.1 1.8 1.0 2.1 2.7 3.0 1.3 1.4 0.6 1.9 -0.2 III/08 -2.7 -0.4 -0.3 -0.2 -0.8 -0.6 -0.4 -0.7 -0.4 -1.0 -1.0 III/08 5.2 2.5 3.8 1.8 2.9 3.3 4.0 5.0 3.7 4.8 3.0 4.3 2.2 2004 4.8 3.0 3.6 1.9 0.7 2.2 1.4 3.3 2.5 3.3 2.5 3.5 2.7 7.6 8.6 10.1 7.9 6.0 5.7 6.9 7.2 2004 2.7 1.8 2.1 1.8 1.7 2.1 2.2 3.4 2.1 1.3 0.8 0.4 0.0 IV/08 -5.4 -1.8 -2.4 -1.4 -2.1 -1.1 -1.0 -1.8 -0.6 -5.0 -3.5 IV/08 1.5 2.0 2.3 1.9 2.9 1.8 2.8 2.5 2.2 3.9 1.6 2.4 1.1 2005 4.4 2.5 3.1 1.8 0.9 1.9 0.8 3.6 2.5 2.1 2.6 3.3 1.9 7.4 9.0 10.4 9.1 4.7 3.2 5.5 6.4 2005 3.4 2.2 2.2 1.4 1.6 1.7 1.9 3.6 2.3 2.0 1.2 0.5 -0.3 I/09 -6.4 -2.5 -3.5 -1.3 -2.6 -1.6 -2.7 -2.4 -0.9 -0.9 -3.1 I/09 -0.2 1.7 1.0 1.6 3.1 0.6 1.5 0.5 1.1 3.0 0.0 0.7 -0.1 2006 4.9 2.9 2.7 3.0 3.4 2.4 2.1 3.9 3.5 2.8 3.6 4.4 2.0 8.2 9.8 11.6 9.7 5.7 3.8 6.7 7.7 2006 3.2 2.5 2.2 1.4 1.6 1.7 2.1 2.8 1.5 2.3 1.1 1.4 0.2 II/09 -0.7 -0.1 0.3 0.3 -0.5 -1.1 -0.5 -0.7 -0.3 -0.2 0.9 II/09 -0.9 1.8 0.2 1.6 1.7 -0.2 0.9 -0.7 0.3 2.1 -0.7 -0.5 -1.1 2007 5.0 2.7 2.1 2.7 2.6 2.3 1.5 3.7 3.5 3.0 3.6 2.9 2.4 8.6 10.6 13.0 9.3 5.7 5.9 6.5 8.1 2007 2.9 2.3 2.1 1.9 2.3 1.5 1.8 2.8 2.2 2.3 0.7 2.2 0.1 III/09p 3.7 0.4 1.0 0.3 0.0 -0.1 0.3 0.2 0.6 0.3 1.5 III/09p -1.6 1.5 -0.3 1.3 0.8 -0.4 0.1 -0.9 0.0 1.5 -0.9 -1.2 -2.1 2008 2.8 0.5 0.4 0.6 1.0 0.3 -1.0 1.2 2.0 0.7 1.8 -0.5 -0.7 6.3 7.7 9.0 7.3 4.2 5.1 4.0 5.6 2008 3.8 2.3 3.3 1.8 2.6 2.8 3.3 4.1 3.2 3.6 2.4 3.4 1.4 IV/09p 3.0 0.3 0.7 0.3 0.3 -0.1 0.5 0.3 0.5 0.5 0.8 IV/09p 1.1 1.4 0.5 1.2 0.2 0.3 0.7 0.9 0.7 1.5 -0.2 0.0 -1.5 2009f -1.2 -3.6 -2.4 -4.0 -4.7 -2.2 -5.1 -3.5 -3.8 -4.4 -1.2 -4.8 -5.5 2.6 5.7 7.0 4.5 -1.5 -1.5 -5.7 -7.4 2009f -0.4 1.6 0.3 1.4 0.4 0.1 0.8 -0.1 0.4 2.0 -0.5 -0.3 -1.0 I/10p 2.0 0.1 0.5 0.2 0.1 -0.2 0.2 0.2 0.4 0.3 0.5 I/10p 2.1 1.1 1.1 0.9 -0.1 0.9 1.3 1.5 1.3 2.2 0.9 0.9 -1.0 2010f 2.9 1.5 1.9 0.8 2.0 1.0 0.4 -0.7 1.1 1.1 1.4 1.5 2.5 5.4 7.5 8.5 6.5 2.5 3.5 1.3 1.3 2010f 2.3 0.8 1.3 0.5 1.0 1.1 1.5 1.7 1.2 2.0 1.1 1.2 0.0 II/10p 0.5 0.2 0.2 0.2 0.1 -0.2 0.3 0.4 0.2 0.4 0.1 II/10p 2.5 0.7 1.2 0.6 0.6 1.0 1.3 1.8 1.3 2.0 1.2 1.2 -0.7
Comments: * The GDP shares used for aggregation are based on the purchasing-power-parity (PPP) valuation of country GDPs GDP = Gross Domestic Product, HICP = Harmonized Index of Consumer Prices, CPI = Consumer Price Index, f = forecast
page 21
9 October 2009
Friday Notes
Interest & Exchange Rate Forecasts (I)

INTEREST RATE FORECASTS (%, END QUARTER)
2009/10 Eurozone bond market Refi rate 3M Euribor 2Y 5Y 10Y 30Y 10Y swap spread (in bp) US Treasury Market Fed funds target rate 3M USD Libor 2Y 5Y 10Y 30Y 10Y swap spread (in bp) Japan Target rate 3M JPY Libor 10Y JGB United Kingdom Repo rate 3M GBP Libor 10Y Gilt Switzerland 3M CHF Libor mid target rate 3M CHF Libor 10Y Swissie 0.25 0.29 2.014 0.25 0.35 2.25 0.25 0.40 2.40 0.25 0.50 2.75 0.50 0.70 3.15 0.50 0.55 3.39 0.50 0.60 3.75 0.50 0.80 3.90 0.50 0.90 4.15 0.50 0.95 4.50 0.10 0.34 1.29 0.10 0.40 1.40 0.10 0.45 1.50 0.10 0.50 1.60 0.10 0.55 1.80 0.13 0.28 0.94 2.29 3.30 4.12 16 0.25 0.30 1.15 2.58 3.70 4.45 20 0.25 0.50 1.40 2.78 3.85 4.60 10 0.25 0.85 1.80 3.10 4.10 4.80 10 0.75 1.15 2.40 3.50 4.40 5.10 10 1.00 0.74 1.32 2.35 3.17 3.89 30 1.00 0.80 1.30 2.43 3.45 4.15 20 1.00 0.90 1.45 2.58 3.60 4.30 15 1.00 1.05 1.90 2.93 3.85 4.45 15 1.00 1.20 2.40 3.25 4.10 4.60 10 current end-Q4 end-Q1 end-Q2 end-Q3
EXCHANGE RATE FORECASTS (END QUARTER)

current EUR-USD EUR-JPY EUR-GBP EUR-CHF USD-JPY GBP-USD USD-CHF 1.4719 131.37 0.9216 1.5181 89.26 1.5971 1.0315 end-Q4 1.47 140 0.88 1.53 95 1.68 1.04 end-Q1 1.52 149 0.85 1.57 98 1.79 1.03 end-Q2 1.55 155 0.85 1.58 100 1.83 1.02 end-Q3 1.50 155 0.83 1.59 103 1.81 1.06
COMMODITY PRICE FORECASTS

current Oil price (Brent, USD/b) DJ commodity price index 69.37 261.75 end-Q4 65 275 end-Q1 70 290 end-Q2 70 290 end-Q3 75 310
page 22
9 October 2009
Friday Notes
Interest & Exchange Rate Forecasts (II)

INTEREST RATE FORECASTS (%, END QUARTER)
2009/10 Sweden Key rate 3M rate 10Y government bond yield 10Y spread to Bunds (in bp) Norway Key rate 3M rate 10Y government bond yield 10Y spread to Bunds (in bp) Canada Key rate 3M rate 10Y government bond yield 10Y spread to Bunds (in bp) Australia Key rate 3M rate 10Y government bond yield 10Y spread to Bunds (in bp) New Zealand Key rate 3M rate 10Y government bond yield 10Y spread to Bunds (in bp) 2.50 3.10 5.51 234 2.50 2.80 5.80 235 2.50 2.95 6.05 245 2.75 3.25 6.40 255 3.00 3.50 6.65 255 3.00 3.64 5.22 206 3.00 3.40 5.50 205 3.25 3.70 5.75 215 3.50 4.05 6.05 220 3.75 4.25 6.30 220 0.25 0.50 3.36 20 0.25 0.60 3.40 -5 0.25 0.65 3.60 0 0.25 0.70 4.00 15 0.25 0.80 4.30 20 1.25 2.02 4.05 89 1.25 2.00 4.30 85 1.50 2.15 4.55 95 1.75 2.30 4.85 100 2.00 2.45 5.15 105 0.25 0.51 3.17 1 0.25 0.60 3.55 10 0.25 0.75 3.75 15 0.50 0.95 4.10 25 0.75 1.15 4.40 30 current end-Q4 end-Q1 end-Q2 end-Q3
EXCHANGE RATE FORECASTS (END QUARTER)

current EUR-SEK EUR-NOK EUR-CAD EUR-AUD EUR-NZD USD-SEK USD-NOK USD-CAD AUD-USD NZD-USD EUR-USD 10.3028 8.3175 1.5529 1.6306 1.9954 6.9997 5.6511 1.0550 0.9027 0.7377 1.4719 end-Q4 9.95 8.55 1.54 1.71 2.07 6.77 5.82 1.05 0.86 0.71 1.47 end-Q1 9.80 8.40 1.55 1.71 2.05 6.45 5.53 1.02 0.89 0.74 1.52 end-Q2 9.60 8.25 1.53 1.68 2.01 6.19 5.32 0.99 0.92 0.77 1.55 end-Q3 9.50 8.10 1.52 1.61 1.88 6.33 5.40 1.01 0.93 0.80 1.50
page 23
9 October 2009
Friday Notes
Economic Event & Data Release Calendar

Date Time (ECB) 14:30 18:15 Tue, 13 Oct '09 1:01 8:45 8:45 10:30 10:30 11:00 11:00 19:15 Wed, 14 Oct '09 7:00 10:30 10:30 10:30 11:00 13:00 14:30 14:30 14:30 15:15 16:00 Thu, 15 Oct '09 6:30 8:00 10:00 10:00 11:00 11:00 11:00 13:25 14:30 14:30 14:30 14:30 14:30 14:30 16:00 Fri, 16 Oct '09 10:00 11:00 11:05 15:00 15:15 15:15 16:00 Country Indicator Period MIB est. Consensus Prev. period (Bloomberg) -33 -31.959 09 October to 16 October 2009 Fri, 09 Oct '09 US US UK FR FR UK UK GE GE US JN JN JN UK UK UK EMU US US US US GE US JN EMU EC IT GE EMU EMU GE US US US US US US US IT EMU IT US US US US Trade balance (USD bn) Fed's Kohn Speaks on Monetary Policy Research in Washington House price (RICS, balance) Consumer price index (in % y-o-y) Current account balance (EUR bn) CPI core (in % y-o-y) Consumer price index (in % y-o-y, harmonized) ZEW survey - current situation (index) ZEW survey - expectations (index) New York Fed's Dudley Speaks to International Bankers in NYC BOJ Target Rate Bank of Japan key rate (in %) Consumer confidence (Nationwide, index) Average earnings (in % y-o-y, 3M moving average) Jobless claims (change in thousands) Unemployment rate (in %) Industrial production (in % m-o-m) MBA mortgage applications Import prices (in % m-o-m) Retail sales ex autos (in % m-o-m) Retail sales (in % m-o-m) ECB's Bini Smaghi Speaks in Freiburg Business inventories (in % m-o-m) Industrial production (in % y-o-y) New passenger car registration (EU 25, in % y-oy) ECB Publishes Oct. Monthly Report (Text) Consumer price index (in % y-o-y) Germany's Leading Economic Institutes Present Joint Outlook Core CPI (in % y-o-y) Consumer price index, CPI (in % y-o-y) ECB's Trichet Speaks on 'Lessons From Crisis', Frankfurt Initial jobless claims (in thousands) CPI ex food & energy (core, in % y-o-y) Consumer price index (in % y-o-y) CPI ex food & energy (core, in % m-o-m) Consumer price index (in % m-o-m) NY Fed Empire State Manufacturing Survey Philadelphia Fed Business Outlook Survey Trade balance (EUR bn) Trade balance (EUR bn) Current account balance (EUR bn) Net long-term capital inflows (TIC, USD bn) Capacity utilization (in %) Industrial production (in % m-o-m) University of Michigan consumer confidence Oct 9 Sep Sep Sep Sep Oct Oct Aug Aug Aug Aug Sep Sep Oct 69.7 0.0 71.5 69.7 0.1 73.5 0.1 0.2 525 525 1.4 -1.4 0.1 0.3 18 12.0 521 1.4 -1.5 0.1 0.4 18.88 14.1 4107 6776.6 3334 15.288 69.6 0.8 73.5 Sep Sep -0.3 1.2 -0.3 1.3 -0.2 Oct 0.2 0.2 Aug Sep Sep -0.8 -1.0 -18.7 3.3 Sep Aug Sep Sep Aug Oct 9 Sep Sep Sep -2.0 0.2 0.2 0.2 -1.8 2.0 0.1 41.3 1.4 25 25.0 0.8 0.1 40.4 1.7 24.4 24.4 -0.3 16.4 2.0 1.1 2.7 Sep Sep Aug Sep Sep Oct Oct 55.0 1.4 1.7 1.3 -68.3 59.0 -0.2 15.0 -0.2 10.7 -0.2 -1.2 1.8 1.6 -74.0 57.7 Aug
*: Asterisked releases are scheduled on or after the date shown; sa = seasonal adjusted, nsa = not seasonally adjusted, wda = working day adjusted
page 24
9 October 2009
Friday Notes
Economic Event & Data Release Calendar The week after

Date Time (ECB) 3:00 19:00 Tue, 20 Oct '09 8:00 10:00 14:30 14:30 14:30 14:30 14:30 14:30 Wed, 21 Oct '09 Country Indicator Period MIB est. Consensus (Bloomberg) Prev. period 19 October to 23 October 2009 Mon, 19 Oct '09 US US FR FR GE IT US US US US US US EMU EMU EMU 10:30 20:00 Thu, 22 Oct '09 8:45 8:45 8:45 10:00 10:00 10:30 10:30 16:00 16:00 Fri, 23 Oct '09 8:45 10:00 10:30 10:30 11:00 14:30 16:00 UK US FR FR FR IT EMU UK UK US US FR GE UK UK EMU US US Bernanke, Yellen Give Remarks at S.F. Fed Conference NAHB housing market index Services PMI (index) Manufacturing PMI (index) Producer price index, PPI (in % y-o-y) Industrial orders (in % m-o-m) Housing starts (in thousands) Building permits (in thousands) PPI ex food & energy (core, in % y-o-y) Producer price index, PPI (in % y-o-y) PPI ex food & energy (core, in % m-o-m) Producer price index, PPI (in % m-o-m) Composite PMI (index) Services PMI (index) Manufacturing PMI (index) Bank of England Releases Minutes of Interest Rate Decision Fed Releases Beige Book Economic Report Business confidence expectations Business confidence production outlook Business confidence overall (INSEE) Retail sales (in % m-o-m) Current account balance (EUR bn) Bank of England Releases Trends in Lending Report Retail sales (in % m-o-m) OFHEO house price index (in % m-o-m) Leading indicators (Conference Board, in % m-o-m) Household consumption (manufactured goods, in % m-o-m) ifo business climate (index) Real GDP (in % y-o-y) Real GDP (in % q-o-q) New orders (in % m-o-m) Fed's Bernanke Delivers Address at Boston Fed Conference Existing home sales (in mn) Sep 5.4 5.1 Sep Aug Sep Sep Oct Q3 Q3 Aug 0.4 0.0 0.3 0.6 -1.0 91.3 -5.5 -0.6 2.1 Oct Oct Oct Aug Aug -11 -16 85 -0.4 6.6 Oct Oct Oct Sep Aug Sep Sep Sep Sep Sep Sep Oct Oct Oct 51.1 50.5 0.1 0.3 609 595 20 19 53.2 53.0 -6.9 3.2 598 580 2.3 -4.3 0.2 1.7 51.1 50.9 49.3
*: Asterisked releases are scheduled on or after the date shown; sa = seasonal adjusted, nsa = not seasonally adjusted, wda = working day adjusted
page 25
9 October 2009
Friday Notes
Disclaimer
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page 26
9 October 2009
Friday Notes
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For this reason, to make an investment decision by relying solely on the information stated here may not result in consequences that meet your expectations. Notice to Investors in Japan This document does not constitute or form part of any offer for sale or subscription for or solicitation of any offer to buy or subscribe for any securities and neither this document nor any part of it shall form the basis of, or be relied on in connection with or act as an inducement to enter into, any contract or commitment whatsoever. Notice to UK investors This communication is directed only at clients of Bayerische Hypo- und Vereinsbank AG, Bayerische Hypo- und Vereinsbank AG, London Branch, UniCredit CAIB AG, UniCredit CAIB Securities UK Ltd. or Bayerische Hypo- und Vereinsbank AG Milan Branch who (i) have professional experience in matters relating to investments or (ii) are persons falling within Article 49(2)(a) to (d) (high net worth companies, unincorporated associations, etc.) of the United Kingdom Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 or (iii) to whom it may otherwise lawfully be communicated (all such persons together being referred to as relevant persons). This communication must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this communication relates is available only to relevant persons and will be engaged in only with relevant persons. Notice to U.S. investors This report is being furnished to U.S. recipients in reliance on Rule 15a-6 ("Rule 15a-6") under the U.S. Securities Exchange Act of 1934, as amended. Each U.S. recipient of this report represents and agrees, by virtue of its acceptance thereof, that it is such a "major U.S. institutional investor" (as such term is defined in Rule 15a-6) and that it understands the risks involved in executing transactions in such securities. Any U.S. recipient of this report that wishes to discuss or receive additional information regarding any security or issuer mentioned herein, or engage in any transaction to purchase or sell or solicit or offer the purchase or sale of such securities, should contact a registered representative of UniCredit Capital Markets, Inc. (UCI Capital Markets). Any transaction by U.S. persons (other than a registered U.S. broker-dealer or bank acting in a broker-dealer capacity) must be effected with or through UCI Capital Markets. The securities referred to in this report may not be registered under the U.S. Securities Act of 1933, as amended, and the issuer of such securities may not be subject to U.S. reporting and/or other requirements. Available information regarding the issuers of such securities may be limited, and such issuers may not be subject to the same auditing and reporting standards as U.S. issuers. The information contained in this report is intended solely for certain "major U.S. institutional investors" and may not be used or relied upon by any other person for any purpose. Such information is provided for informational purposes only and does not constitute a solicitation to buy or an offer to sell any securities under the Securities Act of 1933, as amended, or under any other U.S. federal or state securities laws, rules or regulations. The investment opportunities discussed in this report may be unsuitable for certain investors depending on their specific investment objectives, risk tolerance and financial position. In jurisdictions where UCI Capital Markets is not registered or licensed to trade in securities, commodities or other financial products, transactions may be executed only in accordance with applicable law and legislation, which may vary from jurisdiction to jurisdiction and which may require that a transaction be made in accordance with applicable exemptions from registration or licensing requirements. The information in this publication is based on carefully selected sources believed to be reliable, but UCI Capital Markets does not make any representation with respect to its completeness or accuracy. All opinions expressed herein reflect the authors judgment at the original time of publication, without regard to the date on which you may receive such information, and are subject to change without notice. UCI Capital Markets may have issued other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. These publications reflect the different assumptions, views and analytical methods of the analysts who prepared them. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is provided in relation to future performance. UCI Capital Markets and any company affiliated with it may, with respect to any securities discussed herein: (a) take a long or short position and buy or sell such securities; (b) act as investment and/or commercial bankers for issuers of such securities; (c) act as market makers for such securities; (d) serve on the board of any issuer of such securities; and (e) act as paid consultant or advisor to any issuer. The information contained herein may include forward-looking statements within the meaning of U.S. federal securities laws that are subject to risks and uncertainties. Factors that could cause a companys actual results and financial condition to differ from expectations include, without limitation: political uncertainty, changes in general economic conditions that adversely affect the level of demand for the companys products or services, changes in foreign exchange markets, changes in international and domestic financial markets and in the competitive environment, and other factors relating to the foregoing. All forward-looking statements contained in this report are qualified in their entirety by this cautionary statement This document may not be distributed in Canada or Australia.
page 27
9 October 2009
Friday Notes
UniCredit Research*
Thorsten Weinelt, CFA Global Head of Research & Chief Strategist +49 89 378-15110 thorsten.weinelt@unicreditgroup.de Dr. Ingo Heimig Head of Research Operations +49 89 378-13952 ingo.heimig@unicreditgroup.de

Marco Annunziata, Ph.D., Chief Economist +44 20 7826-1770 marco.annunziata@unicreditgroup.eu
Economics & Commodity Research

Global Economics Dr. Davide Stroppa, Global Economist +39 02 8862-2890 davide.stroppa@unicreditgroup.de European Economics Dr. Aurelio Maccario, Chief Eurozone Economist +39 02 8862-8222 aurelio.maccario@unicreditgroup.de Andreas Rees, Chief German Economist +49 89 378-12576 andreas.rees@unicreditgroup.de Marco Valli, Chief Italian Economist +39 02 8862-8688 marco.valli@unicreditgroup.de Stefan Bruckbauer, Chief Austrian Economist +43 50505 41951 stefan.bruckbauer@unicreditgroup.at Tullia Bucco +39 02 8862-2079 tullia.bucco@unicreditgroup.de Chiara Corsa +39 02 8862-2209 chiara.corsa@unicreditgroup.de Dr. Loredana Federico +39 02 8862-3180 loredana.federico@unicreditgroup.eu Alexander Koch, CFA +49 89 378-13013 alexander.koch1@unicreditgroup.de Chiara Silvestre chiara.silvestre@unicreditgroup.de US Economics Dr. Harm Bandholz, CFA +1 212 672 5957 harm.bandholz@us.unicreditgroup.eu Commodity Research Jochen Hitzfeld +49 89 378-18709 jochen.hitzfeld@unicreditgroup.de Nikolaus Keis +49 89 378-12560 nikolaus.keis@unicreditgroup.de
EEMEA Economics & FI/FX Strategy

Cevdet Akcay, Ph.D., Chief Economist, Turkey +90 212 319-8430, cevdet.akcay@yapikredi.com.tr Dmitry Gourov, Economist, EEMEA +43 50505 823-64, dmitry.gourov@caib.unicreditgroup.eu Hans Holzhacker, Chief Economist, Kazakhstan +7 727 244-1463, h.holzhacker@atfbank.kz Anna Kopetz, Economist, Baltics +43 50505 823-64, anna.kopetz@caib.unicreditgroup.eu Marcin Mrowiec, Chief Economist, Poland +48 22 656-0678, marcin.mrowiec@pekao.com.pl Vladimir Osakovsky, Ph.D., Head of Strategy and Research, Russia +7 495 258-7258 ext.7558, vladimir.osakovsky@unicreditgroup.ru Rozlia Pl, Ph.D., Chief Economist, Romania +40 21 203-2376, rozalia.pal@unicredit.ro Kristofor Pavlov, Chief Economist, Bulgaria +359 2 9269-390, kristofor.pavlov@unicreditgroup.bg Goran aravanja, Chief Economist, Croatia +385 1 6006-678, goran.saravanja@unicreditgroup.zaba.hr Pavel Sobisek, Chief Economist, Czech Republic +420 2 211-12504, pavel.sobisek@unicreditgroup.cz Gyula Toth, Economist/Strategist, EEMEA +43 50505 823-62, gyula.toth@caib.unicreditgroup.eu Jan Toth, Chief Economist, Slovakia +421 2 4950-2267, jan.toth@unicreditgroup.sk
Global FI/FX Strategy

Michael Rottmann, Head +49 89 378-15121, michael.rottmann1@unicreditgroup.de Dr. Luca Cazzulani, Deputy Head, FI Strategy +39 02 8862-0640, luca.cazzulani@unicreditgroup.de Chiara Cremonesi, FI Strategy +44 20 7826-1771, chiara.cremonesi@unicreditgroup.eu Dr. Stephan Maier, FX Strategy +39 02 8862-8604, stephan.maier@unicreditgroup.eu Giuseppe Maraffino, FI Strategy +39 02 8862-2027, giuseppe.maraffino@unicreditgroup.de Armin Mekelburg, FX Strategy +49 89 378-14307, armin.mekelburg@unicreditgroup.de Roberto Mialich, FX Strategy +39 02 8862-0658, roberto.mialich@unicreditgroup.de Kornelius Purps, FI Strategy +49 89 378-12753, kornelius.purps@unicreditgroup.de Herbert Stocker, Technical Analysis +49 89 378-14305, herbert.stocker@unicreditgroup.de
Publication Address
UniCredit Markets & Investment Banking Bayerische Hypo- und Vereinsbank AG UniCredit Research Arabellastrasse 12, D-81925 Munich Tel. +49 89 378-12559 Fax +49 89 378-13024 Bloomberg UCGR Internet www.globalresearch.unicreditmib.eu
* UniCredit Research is the joint research department of Bayerische Hypo- und Vereinsbank AG (HVB), UniCredit CAIB Group (CAIB), UniCredit Securities (UniCredit Securities),
UniCredit Menkul Deerler A.. (UniCredit Menkul), UniCredit Bulbank, Zagrebaka banka, UniCredit Bank, Bank Pekao, Yapi Kredi, UniCredit Tiriac Bank and ATFBank.
page 28

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9 October 2009

Economics & FI/FX Research

MIB MACRO FORECASTS

MIB FI/FX FORECASTS

MOMENTUM SLOWING APPRECIABLY Index of US leading indicators, change in % (annual rate)

Source: Thomson Datastream, UniCredit Research

Bayerische Hypo- und Vereinsbank AG

UniCredit CAIB Group

See last pages for disclaimer.

Economics & FI/FX Research

Marco Annunziata, Ph.D. (HVB) +44 20 7826-1770 marco.annunziata@unicreditgroup.eu

Bayerische Hypo- und Vereinsbank AG

UniCredit CAIB Group

See last pages for disclaimer.

Economics & FI/FX Research

Rise in US leading indicators has started to lose momentum again

Rise in leading indicators is slowing

Strong growth up to the end of the year

Source: The Conference Board, Thomson Datastream, UniCredit Research

All sectors are affected

Source: BEA, Thomson Datastream, UniCredit Research

Bayerische Hypo- und Vereinsbank AG

UniCredit CAIB Group

See last pages for disclaimer.

Economics & FI/FX Research

Source: Census Bureau, Thomson Datastream, UniCredit Research

Source: Census Bureau, BEA, Thomson Datastream, UniCredit Research

Source: ISM, Bloomberg, UniCredit Research

Bayerische Hypo- und Vereinsbank AG

UniCredit CAIB Group

See last pages for disclaimer.

Economics & FI/FX Research

Uncertainty raises nervousness

Dr. Harm Bandholz (HVB) +1 212 672-5957 harm.bandholz@us.unicreditgroup.eu

Source: Bloomberg, UniCredit Research

Bayerische Hypo- und Vereinsbank AG

UniCredit CAIB Group

See last pages for disclaimer.

Economics & FI/FX Research

Eurozone: growth improvement continues at a slower pace

How much upside potential for manufacturing?

Still rising, but at a slower pace

Source: Markit, UniCredit Research

Source: Eurostat, Markit, UniCredit Research

Bayerische Hypo- und Vereinsbank AG

UniCredit CAIB Group

See last pages for disclaimer.

Economics & FI/FX Research

Labor market under severe pressure

Capex unlikely to recover soon

Source: EC, Eurostat, UniCredit Research

Source: EC, Eurostat, UniCredit Research

Marco Valli (HVB Milan) +39 02 8862 8688 marco.valli@unicreditgroup.de

Bayerische Hypo- und Vereinsbank AG

UniCredit CAIB Group

See last pages for disclaimer.

Economics & FI/FX Research

Only temporary relief on crude oil markets

and increases more strongly than projected in 2010

Demand falls much less than expected in 2009

4 3 2 1 mn b/d 0 -1 -2 -3 -4 -5 1980 1983

Global oil demand, change yoy

Source: Bloomberg, China Automotive Information Network, UniCredit Research