EUROPEAN INVESTMENT STRATEGY

WEEKLY REPORT
BCA House
View Matrix If This Is ‘Japanification’, Then Bring It On!
September 12, 2019
Periodical The structural message for equities: prefer equities over bonds. As long as the global
In this Issue: 10-year bond yield remains below 2 percent, the equity market’s rich valuation is under-
FF Japanification:
pinned, albeit the long-term return from equities is likely to be a feeble low single-digit.
Bring It On!................ 2
FF Countering The
Counterarguments..... 4
The structural message for bonds: overweight the higher yielding versus the lower yielding
FF The Real Reason quality sovereigns, most notably overweight U.S. T-bonds versus German bunds. 10-year
For Ultra-Low Bond yields cannot rise much – maybe only 50-100 basis points – before the rise destabilises
Yields......................... 5
FF What Does This Mean equity and other risk-asset valuations. But 10-year yields that are deeply in negative ter-
For Stocks, Bonds, And ritory can fall even less.
Currencies?................ 7
FF Fractal Trading
System....................... 8
The structural message for currencies: tilt towards lower yielding currencies, with a prefer-
FF Cyclical ence for the yen. Once monetary policy is already ultra-accommodative, a central bank’s
Recommendations... 10 ability to devalue its currency becomes more and more constrained.
FF Structural
Recommendations... 11

CHART OF THE WEEK

Embrace ‘Japanification’
% %
5-YEAR GOVT. BOND YIELD:
9 JAPAN 9
EURO AREA
8 8

7 7

6 6

Editorial Board 5 5
Dhaval Joshi
Chief European 4 4
Investment Strategist
3 3
Mohamed El Shennawy
Research Associate
2 2
Garry Evans
Senior Vice President 1 Euro area 1
Mathieu Savary
0 0
Vice President

Robert Robis -1 Japan -1

© BCA Research 2019
Senior Vice President

1990 1995 2000 2005 2010 2015

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Discover CHART 2 CHART 3

Japan Is Not A ‘Basket Case’ Japan Is Doing Just Fine
what you
REAL GDP PER HEAD REAL GDP PER HEAD
can do 140
(OF WORKING AGE POP.)*:
140
(OF TOTAL POP.)*:
GERMANY Japan 130 GERMANY 130
with BCA FRANCE FRANCE
135 135
Analytics. ITALY
SPAIN 125
ITALY
SPAIN 125
130 U.K. 130 U.K.
Japan
U.S. U.S.
CANADA 120 CANADA 120
125 125
JAPAN JAPAN

120 120 115 115

115 115
110 110

110 110

105 105
105 105

100 100
100 100

© BCA Research 2019 © BCA Research 2019

2000 02 04 06 08 10 12 14 16 18 20 2000 02 04 06 08 10 12 14 16 18 20
SOURCE: OXFORD ECONOMICS, OECD. SOURCE: OXFORD ECONOMICS, OECD.
*REAL GDP DIVIDED BY WORKING AGE (15-64) POPULATION *REAL GDP DIVIDED BY TOTAL POPULATION INDEXED TO
INDEXED TO 100 AT Q1 1999. 100 AT Q1 1999.

‘Japanifica- Japanification: Bring It On!

tion’ is a
state that
Europe
I have always been bemused and perplexed by people using ‘Japanification’ as a pejorative for the
European economy (Chart of the Week). In the west, the received wisdom is that Japan is a ‘basket
case’, a fate to be avoided at all costs. Yet nothing could be further from the truth: Japan is, in many
should not ways, an economic role model to which Europe and the rest of the western world should aspire.
eschew; it
Over the past twenty years, Japan’s productivity growth has outperformed all the other major econo-
is a state
mies (Chart 2). To be clear, this is based on real GDP per head of working age (15-64) population,
that Europe the cohort of people who generate economic output. Still, some people counter that this definition
should flatters Japan’s productivity growth by omitting the significant number of over 65s who work, and that
espouse. a fairer definition should divide by the total population. Yet even on this alternative definition, Japan
has been doing just fine, performing better than France and broadly in line with Canada (Chart 3).

Japan’s real output per head has improved while consumers have enjoyed genuine price stability
(Chart 4). Meaning zero inflation, and not the ‘fake price stability’ of 2 percent inflation that central
banks are trying – and failing – to reach.

Moreover, contrary to what the Philips Curve would have you believe, the absence of inflation does
not mean there is a reserve army of the unemployed. Japan’s unemployment rate, at 2.2 percent,
is one of the lowest in the world. As is income inequality (Chart 5). While life expectancy is one of
the highest in the world.

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In Japan, CHART 4 CHART 5

Japan Has Enjoyed Genuine …And The Absence Of Extreme
living Price Stability… Income Inequality
standards
PALMA RATIOS*:
have been 104
JAPAN CONSUMER PRICE INDEX
104 1.9
U.S.
1.9
U.K.
rising for the JAPAN
many, and 102 102 1.8
U.S.
1.8

not just for 100 100 1.7 1.7

the few.
98 98 1.6 1.6

96 96 1.5 1.5

U.K.
94 94 1.4 1.4

92 92 1.3
Japan 1.3

90 90 1.2 1.2

88 88 1.1 1.1
© BCA Research 2019 © BCA Research 2019

90 95 2000 05 10 15 20 09 10 11 12 13 14 15 16 17 18 19
*Source: OECD.
*The Palma ratio is the share of all income received by the 10%
people with highest disposable income divided by the share
of all income received by the 40% people with the
lowest disposable income.

This combination of rising productivity, genuine price stability, absence of extreme income inequality,
and rising life expectancy means that, in Japan, living standards have been rising for the many, and
not just for the few. In turn this has meant that while populist backlashes have erupted elsewhere
in the world, Japan has remained a paragon of political stability.

In all of these important regards, ‘Japanification’ is a state that Europe should not eschew; it is a
state that Europe should espouse.

40th Anniversary Investment Conference

Credit & Market Cycles: What’s Next?

Featured Speaker
Professor Russel Napier
Co-Founder,
Investment Research Portal ERIC

investmentconference.bcaresearch.com

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Discover Countering The Counterarguments CHART 6

Japan’s Rising Public Indebtedness Counter-
what you Nevertheless, in the interests of a balanced balanced A Plunge In Private Indebtedness
can do debate, we must address the main counterar-
%
JAPAN: DEBT AS % OF GDP
%

with BCA guments: 240 240

Analytics. 220 Public** 220

First, isn’t Japan’s declining population evi-
200 200
dence of a national malaise? No. Japan lacks
living space. Its mountainous islands are habit- 180 180

able on only tiny slivers along the coasts, and 160 160

these are among the most densely populated Private*

140 140
regions in the world. Therefore, as the journal-
120 120
ist and Japan specialist Eamonn Fingleton ex-
100 100
plains, Japan’s low birth rate is a fundamental
national policy that can be traced back to the 80 80

late 1940s. 60 60

40 40
Japan lacks Shorn of empire, Japan faced a major food se-
living space. curity problem. At a stroke, Japanese officials 20
© BCA Research 2019
20

stopped dead in its track a huge baby boom

1990 1995 2000 2005 2010 2015 2020
which took hold between 1946 and 1948. Ever SOURCE: BIS.
*CREDIT (MARKET VALUE) TO PRIVATE NON FINANCIAL
afterwards Japan has enjoyed – yes, that is the SECTOR, FROM ALL SECTORS (% OF GDP)
**CREDIT (MARKET VALUE) TO GENERAL GOVERNMENT -
appropriate word – a low birth rate. Although PROVIDED BY ALL SECTORS (% OF GDP)

the program’s rationale is not recognized in the

West, it is fully understood in the East and both Singapore and China went on to formulate similar
policies.

Clearly, a nation whose working population is shrinking will produce less than it otherwise might
have, but this doesn’t mean the economy is a basket case. Far from it. On a per head basis, as we
have shown, Japan is doing just fine, and the imbalance between workers and retirees will gradually
work out as people adjust their retirement ages (just as they will have to in the west).

A second counterargument is that Japan’s government indebtedness has skyrocketed to over 200
percent of GDP, the highest among any major economy. But this increase in public debt was needed
as a crucial counterbalance to a sharp decline in private indebtedness, and thereby prevent a deep
slump (Chart 6). Japan’s total indebtedness has remained broadly flat for decades.

Third, the Nikkei 225, at 21,500 today, is barely at half of its 39,000 peak value in 1989. The
simple explanation is that the main determinant of any long-term return is the starting valuation.
The 1989 peak bubble valuation was so extreme – a price to sales of 2.2 compared to 0.75 today
– that the subsequent dire returns were baked in the cake (Chart 7).

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The main CHART 7

Japan’s Bubble Was So Extreme That Subsequent Dire Returns Were Inevitable
determinant %

of any
2.0
long-term
return is 1.5 -5

the starting
valuation. 1.0 0

0.5
10

15

JAPAN:
PRICE TO SALES MULTIPLE (LS) 20
SUBSEQUENT 10-YEAR RETURN* (RS, INVERTED)
© BCA Research 2019

1982 1987 1992 1997 2002 2007 2012 2017

* TOTAL ANNUALIZED NOMINAL RETURN (CAPITAL PLUS INCOME).

Fourth, Japanese bond yields have been near-zero or negative for almost two decades, which some
commentators claim is a classic sign of an economy in ‘secular stagnation’. But as we have shown,
these ultra-low yields have coexisted with a Japanese economy that is doing just fine. More recently,
the residents of Switzerland and Sweden will vouch for the same thing – that negative bond yields
categorically do not mean that their economies are ‘basket cases’.

But have these economies progressed only because they have these ultra-low bond yields? No, the
charts in this report show no (inverse) relationship between bond yields and long-term productivity
growth. Which begs the question: if ultra-low bond yields are not a sign of an economy stuck in a
funk, what are they a sign of?

The Real Reason For Ultra-Low Bond Yields

Today, like a stuck record, the ECB will repeat again that inflation remains well short of its 2 per-
cent target (Chart 8), but that its resolve to reach the target is unwavering. Just as it was at the last
meeting… last year… the year before that… and five years before that!

Instead of loosening even further, the ECB should be explaining why, in spite of years of negative
interest rates and trillions of euros of QE, inflation expectations have barely budged.

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Discover As the ECB will not provide the explanation, we CHART 8

Inflation Is Stuck Well Short Of
what you will. The public’s expected inflation – a funda-
The 2 Percent Target
can do mental input into economists’ models during %
5-YEAR ANNUALISED CPI INFLATION:
%

with BCA the past half-century – is not well defined when JAPAN
EURO AREA
Analytics. an economy has reached price stability, as it 4 4

has now.
3 3
Confirming what this publication has previously
argued, Professor Jeffrey Frankel of Harvard
2 2
University explains “most people pay little at-
tention to the inflation rate when price growth
is as low as it has been in recent years.” As a 1 1

result, argues a paper from the NBER, large

policy change announcements in the U.S., 0 0

the U.K., and the euro area seem to have only

limited effects on the inflation expectations of -1 -1

households and firms. 1

© BCA Research 2019

Most people However, as most economists and central 1990 1995 2000 2005 2010 2015

pay little banks fear that their credibility is at stake,

attention to they remain fixated on the need to reach the 2 CHART 9
the inflation percent inflation target. This requires them to Unemployment Rates Are At
double down, triple down, and then quadruple Multi-Decade Lows
rate when % %
price growth down on extreme accommodation, even though JAPAN: UNEMPLOYMENT RATE

is as low as it prices are stable, the economy is progressing, 5.5 5.5

has been in and unemployment rates have declined to

5.0 5.0
recent years. multi-decade lows (Chart 9).

4.5 4.5
So in answer to our previous question, ultra-
low bond yields are not a sign of an economy
4.0 4.0
stuck in a funk; they are a sign of central banks
that are chasing the wrong inflation target, and 3.5 3.5

that are too scared to change the target for the

3.0 3.0
damage it would do to their credibility.

2.5 2.5

1
Please see http://conference.nber.org/conf_papers/ 2.0 2.0
f117592.pdf and the European Investment Strategy Special
© BCA Research 2019
Report ‘The Case Against Secular Stagnation’ August 29,
2019 available at eis.bcaresearch.com.
1985 1990 1995 2000 2005 2010 2015

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On a What Does This Mean For Stocks, CHART 10

10-Year Bond Yields Can Rise By Only
structural Bonds, And Currencies? 50-100 Basis Points
horizon, Ultra-low bond yields are coexisting with econo-
% %

prefer mies that are doing fine, as we have seen in AVERAGE OF EURO AREA, U.S., CHINA,
7-10 YEAR BOND YIELDS
equities over Japan, Switzerland, and Sweden. But at such 3.5 3.5
bonds. low yields, the unattractive asymmetry of lim-
ited bond price upside with unlimited downside
justifies exponentially higher valuations for 3.0 3.0

equities and other risk-assets.

So the structural message for equities is: as 2.5 2.5

long as the global 10-year bond yield remains

below 2 percent, the equity market’s rich valua-
2.0 2.0
tion is underpinned. And on anything other than
a trading horizon, equities are to be preferred
over bonds – albeit the long-term return from 1.5 1.5
equities is likely to be a feeble low single-digit.
© BCA Research 2019
The structural message for bonds is: 10-year
2010 2012 2014 2016 2018
yields cannot rise much – maybe only 50-100
basis points – before the rise destabilises eq-
uity and other risk-asset valuations, thereby acting as a limiter (Chart 10). But given that there is
a lower bound to policy interest rates, 10-year yields that are deeply in negative territory can fall
even less. Hence, the risk-reward dynamic suggests going overweight the higher yielding versus
the lower yielding quality sovereigns: most notably, overweight U.S. T-bonds versus German bunds.

The structural message for currencies is essentially the opposite to that for bonds: tilt towards lower
yielding currencies because in a ‘race to the bottom’, a central bank’s ability to devalue its cur-
rency becomes more and more constrained. But which low yielding currency? As Japan has already
undergone its ‘Japanification’, we like the yen.

Dhaval Joshi,
Chief European Investment Strategist
[email protected]

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Discover Fractal Trading System*

what you With geopolitical risks having ebbed somewhat, a good tactical trade would be to lean against the
can do technically overbought conditions in high-quality government bonds. Hence, this week’s recom-
with BCA mended trade is to short the U.S. 10-year T-bond setting a profit target of 1.5 percent with a sym-
Analytics. metrical stop-loss. In yield terms, this broadly equates to a target yield of 1.9% and stop-loss at
1.5%.

Tactically For any investment, excessive trend following and groupthink can reach a natural point of instabil-
underweight ity, at which point the established trend is highly likely to break down with or without an external
bonds. catalyst. An early warning sign is the investment’s fractal dimension approaching its natural lower
bound. Encouragingly, this trigger has consistently identified countertrend moves of various mag-
nitudes across all asset classes.

U.S. 10-YEAR T-BOND 65-DAY FRACTAL DIMENSION

3.00 3.00

2.50 2.50

2.00 2.00

1.50 1.50

1.25 1.25
The lower bound of the fractal dimension
signals an imminent liquidity shortage

U.S. 10-YEAR T-BOND PRICE

160 160

155 155

150 150

145 145

140 140
© BCA Research 2019

2014 2015 2016 2017 2018 2019

* For more details please see the European Investment Strategy Special Report “Fractals, Liquidity & A Trading Model,”
dated December 11, 2014, available at eis.bcaresearch.com.

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Fractal Trading System

The post-June 9, 2016 fractal trading model rules are:
1. When the fractal dimension approaches the lower limit after an investment has been in an established trend it is a potential trigger
for a liquidity-triggered trend reversal. Therefore, open a countertrend position.
2. The profit target is a one-third reversal of the preceding 13-week move. Apply a symmetrical stop-loss.
3. Close the position at the profit target or stop-loss. Otherwise close the position after 13 weeks.
4. Use the position size multiple to control risk. The position size will be smaller for more risky positions.

PROFIT TARGET / MAXIMUM TRADING RULE

INITIATION POSITION
POSITIONS STOP-LOSS RETURN RETURN** COMMENTS
DATE SIZE
(%) (%)* (%)
SHORT U.S. 10-YEAR T-BOND 12-SEP-19 1.5 1 OPEN POSITION
LONG SPAIN VERSUS BELGIUM 22-AUG-19 3.5 1 2.6 2.6 OPEN POSITION
SHORT NICKEL VERSUS COPPER 8-AUG-19 10.0 0.25 NONE -2.5 OPEN POSITION
SHORT NEW ZEALAND ELECTRICITY VERSUS MARKET 25-JUL-19 7.0 0.5 3.0 -3.2 OPEN POSITION
SHORT ASX 200 VERSUS FTSE100 11-JUL-19 2.0 1 1.4 -2.0
SHORT ATHEX COMPOSITE VERSUS EUROSTOXX 600 4-JUL-19 7.0 0.5 6.0 1.6 OPEN POSITION
SHORT EURO AREA INDUSTRIALS VERSUS MARKET 27-JUN-19 2.0 1 2.4 2.0
SHORT MSCI ALL-COUNTRY WORLD 20-JUN-19 4.0 1 4.2 4.0
SHORT FINANCIAL SERVICES VERSUS MARKET 13-JUN-19 2.0 1 0.9 -1.2 OPEN POSITION
SHORT RUSSIA (MOEX) VERSUS JAPAN (NIKKEI) 6-JUN-19 5.0 0.5 7.3 2.5
SHORT BITCOIN 23-MAY-19 27.0 0.1 4.3 -2.7
SHORT NZX 50 VERSUS FTSE100 16-MAY-19 2.0 1 2.8 2.0
SHORT CHINA VERSUS JAPAN 2-MAY-19 2.5 1 11.3 2.5
SHORT TECH VERSUS HEALTHCARE 25-APR-19 6.5 0.5 12.0 3.3
SHORT WTI / LONG LMEX 18-APR-19 5.0 0.5 15.2 2.5
SHORT 10-YEAR OAT 4-APR-19 1.3 1 0.7 -1.3
LONG SEK/NOK 28-MAR-19 1.5 1 0.5 -1.5
LONG AUD/CNY 14-MAR-19 1.5 1 1.6 1.5
LONG ALUMINIUM VERSUS TIN 28-FEB-19 6.5 0.5 8.4 3.3
LONG NIKKEI 225 VERSUS HANG SENG 14-FEB-19 4.5 1 3.4 1.4
SHORT 30-YEAR T-BONDS 7-FEB-19 3.0 1 1.3 -3.0
LONG DAX VERSUS 30-YEAR BUND 31-JAN-19 2.5 1 7.4 2.5
SHORT INDIAN RUPEE VERSUS PAKISTAN RUPEE 17-JAN-19 3.0 1 1.2 -3.0
LONG GLOBAL INDUSTRIALS VERSUS UTILITIES 10-JAN-19 3.0 1 3.6 3.0
LONG LITECOIN AND ETHEREUM 20-DEC-18 60.0 0.05 60.7 3.0
LONG EUR/NZD 13-DEC-18 2.5 1 3.0 2.5
LONG MIB VERSUS EUROSTOXX 29-NOV-18 5.0 0.5 3.9 1.3
LONG EM / SHORT DM 22-NOV-18 2.5 1 7.7 2.5
LONG NICKEL / SHORT PALLADIUM 15-NOV-18 14.0 0.25 NONE -3.5
LONG PORTUGAL / SHORT HUNGARY 25-OCT-18 6.0 0.5 1.0 -3.0
SHORT AUSTRALIAN TELECOMS VERSUS INSURANCE 18-OCT-18 7.0 0.5 NONE -3.5
LONG CRB INDUSTRIALS VERSUS MSCI WORLD 11-OCT-18 2.0 1 15.9 2.0
LONG EUROSTOXX50 VERSUS NIKKEI225 4-OCT-18 3.5 1 10.3 3.5
SHORT U.S. TELECOM / LONG U.S. AUTOS 20-SEP-18 9.0 0.33 9.1 -3.0
SHORT PALLADIUM/LONG COPPER 13-SEP-18 6.0 0.5 0.2 -3.0
LONG CHINA / SHORT INDIA 6-SEP-18 9.0 0.33 9.5 3.0
SHORT EUROPEAN HEALTHCARE VERSUS BANKS 30-AUG-18 10.0 0.25 8.2 0.6
LONG BASIC RESOURCES VERSUS CHEMICALS 23-AUG-18 3.5 1 3.6 3.5
LONG EM / SHORT DM 2-AUG-18 2.5 1 NONE -2.5
LONG GOLD 19-JUL-18 3.0 1 0.2 -3.0
SHORT TRADE-WEIGHTED DOLLAR 5-JUL-18 2.0 1 0.8 -0.8
SHORT CONSUMER SERVICES VERSUS
28-JUN-18 2.5 1 1.2 -2.5
CONSUMER GOODS
SHORT EURO AREA ENERGY VERSUS
14-JUN-18 6.0 0.5 0.6 -2.3
FINANCIALS
LONG PLATINUM / SHORT NICKEL 7-JUN-18 14.0 0.25 7.8 2.0
LONG PLN / USD 31-MAY-18 3.5 1 3.1 2.1
LONG POLAND / SHORT ITALY 17-MAY-18 5.0 0.5 7.8 2.5
SHORT EURO AREA ENERGY VERSUS
3-MAY-18 5.0 0.5 6.3 2.5
GLOBAL BASIC MATERIALS
LONG SEK / GBP 19-APR-18 3.0 1 3.9 3.0
10-YEAR BONDS: SHORT SPAIN / LONG GERMANY 12-APR-18 1.0 2 5.5 2.0
LONG AUD/NOK 5-APR-18 2.0 1 3.2 2.0
SHORT NICKEL / LONG LEAD 22-MAR-18 8.0 0.5 4.0 -4.0
SHORT HELSINKI OMX / LONG EUROSTOXX 600 15-MAR-18 3.0 1 3.6 3.0
SHORT CHILEAN PESO / USD 8-MAR-18 2.7 1 6.1 2.7
LONG GLOBAL UTILITIES VERSUS MARKET 8-FEB-18 3.5 1 5.4 3.5
LONG USD/ZAR 1-FEB-18 6.0 0.5 6.5 3.0
SHORT JAPANESE ENERGY VERSUS MARKET 25-JAN-18 8.0 0.5 9.4 4.0
SHORT S&P500 / LONG EUROSTOXX50 11-JAN-18 2.0 1 0.1 -2.0
SHORT PALLADIUM 4-JAN-18 6.0 0.5 15.0 3.0
* THE MAXIMUM RETURN CAPTURES THE POSITION’S POINT OF MAXIMUM PROFIT (UNWEIGHTED BY THE POSITION SIZE).
** THE TRADING RULE RETURN IS WEIGHTED BY THE POSITION SIZE.

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Cyclical Recommendations
INITIATION/
ASSET ALLOCATION MODIFICATION RETURN (%) COMMENTS
DATE

INITIATION/
EQUITY ALLOCATION MODIFICATION RETURN (%) COMMMENTS
DATE
LONG EURO STOXX50 VERSUS NIKKEI 225 11-JUL-19 1.3

LONG BANKS VERSUS INDUSTRIALS 11-JUL-19 -3.4

LONG EURO STOXX50 VERSUS SHANGHAI COMPOSITE 2-MAY-19 2.2

RETURN IS BASED ON EVOLVING

LONG GERMANY, FRANCE, IRELAND AND SWITZERLAND
31-JAN-19 4.2 ALLOCATION. INITIATION DATE
VERSUS MARKET
WAS 13-NOV-14

RETURN IS BASED ON EVOLVING

SHORT NORWAY AND NETHERLANDS VERSUS MARKET 2-MAY-19 3.0 ALLOCATION. INITIATION DATE
WAS 13-NOV-14

LONG EUROPEAN HEALTHCARE VERSUS INDUSTRIALS 27-JUN-19 1.4

LONG FTSE100 VERSUS FTSE250 23-FEB-17 -2.2

INITIATION/
BONDS, RATES, AND CURRENCY ALLOCATIONS MODIFICATION RETURN (%) COMMENTS
DATE
LONG YEN / SHORT EURO 1-FEB-18 14.5

WAS LONG EUR/GBP FROM

31-MAR-16 TO 29-JUN-17 AND
LONG EURO AND SWEDISH KRONA / SHORT DOLLAR 24-AUG-17 4.0
LONG EURO/USD FROM 29-JUN-17
TO 24-AUG-17

LONG EURO / SHORT YUAN 22-DEC-16 8.4

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Structural Recommendations
INITIATION/
ASSET ALLOCATION MODIFICATION RETURN (%) COMMENTS
DATE
LONG DAX VERSUS 30-YEAR BUND 31-JAN-19 -9.0

LONG HEALTHCARE AND U.S. T-BOND GERMAN BUND SWITCHED

13-MAR-14 66.5
(40:60 COMBINATION) TO T-BOND ON 23-APR-15

INITIATION/
EQUITY ALLOCATION MODIFICATION RETURN (%) COMMENTS
DATE
LONG EUROPEAN CLOTHES VS. MARKET 6-DEC-18 18.0
LONG TERM INVESTORS
LONG ANIMAL CARE BASKET VERSUS EUROSTOXX600 10-AUG-17 3.5
CAN GO LONG ONLY
LONG GERMAN CONSUMER SERVICES VERSUS
24-JAN-13 9.6
THE MARKET
LONG GERMAN REAL ESTATE EQUITIES /
5-APR-12 55.9
SHORT EURO AREA EQUITIES

LONG PERSONAL PRODUCTS VERSUS MARKET 22-DEC-11 53.9

LONG COMPUTER HARDWARE VERSUS MARKET 22-DEC-11 75.5

LONG HEALTHCARE VERSUS MARKET 14-APR-11 22.7

INITIATION/
BONDS, RATES, AND CURRENCY ALLOCATIONS MODIFICATION RETURN (%) COMMENTS
DATE
LONG 30-YEAR T-BOND AND BTP /
30-MAY-19 6.1
SHORT 30-YEAR BUND AND BONO
LONG 10-YEAR ITALIAN BTPS /
20-DEC-18 5.3
SHORT 10-YEAR SPANISH BONOS
LONG DEC 2022 EURODOLLAR /
30-NOV-17 -1.0 LEVERED UP 5 TIMES
SHORT EURIBOR FUTURES

LONG 5-YEAR U.K. GILTS 8-OCT-14 13.9

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Closed Fractal Trades

PROFIT TARGET / MAXIMUM TRADING RULE
INITIATION POSITION
TRADES CLOSED IN 2018 STOP-LOSS RETURN RETURN**
DATE SIZE
(%) (%)* (%)
SHORT BITCOIN 21-DEC-17 $12750/28000 0.1 139.5 2.9
LONG SILVER 14-DEC-17 4.5 1 11.6 4.5
SHORT WTI CRUDE 30-NOV-17 7.5 0.33 2.6 -2.5
SHORT NIKKEI 225 / LONG EUROSTOXX50 9-NOV-17 3.0 1 1.0 -3.0
LONG NZD / USD 2-NOV-17 3.0 1 6.8 3.0
SHORT COPPER / LONG TIN 26-OCT-17 5.0 0.5 5.9 2.5
LONG IBEX 35 / SHORT EUROSTOXX50 12-OCT-17 2.5 1 2.1 1.7
LONG U.K. PERSONAL AND HOUSEHOLD GOODS /
21-SEP-17 4.5 0.5 1.5 0.1
SHORT U.K. FOOD AND BEVS.
SHORT RUB / USD 9-MAR-17 3.0 1 1.5 -3.0
LONG TIN / SHORT COPPER 23-FEB-17 5.0 0.5 13.4 2.5
SHORT MSCI AC WORLD 9-FEB-17 2.5 1 NONE -2.5
SHORT BASIC MATERIALS EQUITIES 2-FEB-17 3.5 1 2.5 0.8
LONG NOK/RUB 26-JAN-17 2.0 1 3.2 2.0
SHORT ITALY MIB / LONG HONG KONG HANG SENG 12-JAN-17 6.0 0.5 9.5 3.0

PROFIT TARGET / MAXIMUM TRADING RULE

INITIATION POSITION
TRADES CLOSED IN 2017 STOP-LOSS RETURN RETURN**
DATE SIZE
(%) (%)* (%)

SHORT NORWAY / LONG SWITZERLAND 19-OCT-17 2.0 1 1.5 -2.0

10-YEAR BONDS: LONG CANADA /
5-OCT-17 1.0 2 1.7 2.0
SHORT GERMANY
LONG USD / CAD 14-SEP-17 2.5 1 5.9 2.5
SHORT BASIC MATERIALS VERSUS MARKET 7-SEP-17 2.5 1 2.5 2.5
SHORT NICKEL / LONG SILVER 31-AUG-17 8.0 0.5 9.2 4.0
SHORT MSCI TURKEY / LONG EUROSTOXX600 17-AUG-17 5.0 0.5 9.7 -2.5
SHORT MSCI CHINA / LONG MSCI EM 3-AUG-17 2.5 1 NONE -2.5
LONG USD/CAD 27-JUL-17 2.5 1 3.5 2.5
LONG MEDIASET ESPANA / SHORT IBEX35 20-JUL-17 5.0 0.5 2.5 -2.5
LONG DM / SHORT EM 29-JUN-17 3.0 1 NONE -3.0
LONG NICKEL / SHORT PALLADIUM 15-JUN-17 10.0 0.5 29.7 5.0
SHORT EURO / DOLLAR 8-JUN-17 2.0 1 1.2 -2.0
LONG NICKEL / SHORT TIN 25-MAY-17 6.5 0.5 27.0 3.3
SHORT CAC40 / LONG EUROSTOXX600 11-MAY-17 1.5 1 1.3 0.7
10-YEAR BONDS: SHORT PORTUGAL / LONG SPAIN 4-MAY-17 2.5 1 NONE -2.5
LONG FTSE100 / SHORT IBEX35 27-APR-17 4.0 1 4.7 4.0
LONG SUGAR / SHORT ALUMINIUM 13-APR-17 10.0 0.5 1.5 -5.0
SHORT AEX 16-MAR-17 2.5 1 0.8 -2.5
LONG GOLD 15-DEC-16 4.0 1 8.8 4.0
SHORT GREEK 10-YEAR BOND 8-DEC-16 4.0 1 7.2 4.0
LONG ITALY / SHORT FRANCE 10-YEAR BOND 5-DEC-16 0.6 2 1.3 1.2
LONG PLATINUM / SHORT PALLADIUM 24-NOV-16 8.0 0.5 9.8 4.0
SHORT FRENCH BANKS / LONG CAC40 3-NOV-16 6.0 0.5 1.7 -3.0
LONG SILVER / SHORT LEAD 13-OCT-16 8.0 0.5 5.5 -4.0
* THE MAXIMUM RETURN CAPTURES THE POSITION’S POINT OF MAXIMUM PROFIT (UNWEIGHTED BY THE POSITION SIZE).
** THE TRADING RULE RETURN IS WEIGHTED BY THE POSITION SIZE.

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Closed Fractal Trades

PROFIT TARGET / MAXIMUM TRADING RULE
INITIATION POSITION
TRADES CLOSED IN 2016 STOP-LOSS RETURN RETURN**
DATE SIZE
(%) (%)* (%)

LONG COPPER / SHORT TIN 27-OCT-16 6.5 0.5 26.5 3.3

LONG SEK / NOK 6-OCT-16 2.0 1 1.9 -2.0
LONG PLATINUM / SHORT PALLADIUM 6-OCT-16 7.5 0.5 13.4 3.8
LONG ALUMINIUM / SHORT LEAD 22-SEP-16 6.5 0.5 8.3 3.3
LONG U.K. TELECOMS / SHORT FTSE 100 8-SEP-16 4.0 1 1.3 -4.0
SHORT MSCI EMERGING MARKETS 25-AUG-16 3.5 1 4.0 3.5
SHORT SEMICONDUCTORS 11-AUG-16 6.5 0.5 0.1 -3.3
SHORT U.K. A-RATED CORPORATE BONDS 11-AUG-16 4.0 1 5.1 4.0
SHORT U.K. A-RATED CORPORATE BONDS 28-JUL-16 2.6 1 0.3 -2.6
LONG SWISS / SHORT U.K. 10-YEAR 21-JUL-16 1.7 1 0.5 -1.7
LONG U.K. TELECOMS / SHORT U.K. ENERGY 14-JUL-16 8.0 0.5 12.2 4.0

LONG U.K. HOMEBUILDERS /

30-JUN-16 12.0 0.5 16.6 6.0
SHORT EUROSTOXX 600

LONG U.K. CLOTHING AND ACCESSORIES 9-JUN-16 6.0 1 19.4 -6.0

SHORT EUROPEAN COMPUTER SERVICES 2-JUN-16 4.5 1 12.5 4.5
SHORT SOYBEAN FUTURES 19-MAY-16 10.0 0.5 2.0 -1.5
SHORT CONSTRUCTION AND BUILDING MATERIALS 12-MAY-16 3.0 1 7.0 3.0
SHORT BASIC MATERIALS 28-APR-16 10.0 0.5 6.6 1.4
SHORT EQUITIES (MSCI WORLD) 21-APR-16 4.0 1 3.6 3.6

SHORT TURKEY ISTANBUL 100 /

7-APR-16 5.0 0.5 10.5 2.5
LONG EUROSTOXX 50

SHORT GERMAN INDUSTRIALS / LONG DAX 24-MAR-16 2.0 1 NONE -3.6

SHORT 30-YEAR JGBS /

24-MAR-16 10.0 0.5 1.2 -0.6
LONG CANADIAN 30-YEAR BONDS

SHORT AEX / LONG EUROSTOXX 50 3-MAR-16 4.0 1 1.7 1.6

LONG CAC 40 / SHORT FTSE100 25-FEB-16 3.0 1 3.3 3.0
SHORT U.K. GOLD MINERS 18-FEB-16 20.0 0.25 NONE -4.2
LONG SWISS BONDS / SHORT GERMAN BOND 18-FEB-16 0.8 3 0.1 -3.3

LONG EUROPEAN CONSUMER FINANCE /

4-FEB-16 10.0 0.5 2.3 0.9
SHORT EUROSTOXX 600

LONG POUND / DOLLAR 21-JAN-16 4.0 1 2.9 0.5

SHORT IRISH EQUITIES / LONG EUROSTOXX 50 14-JAN-16 8.0 0.5 4.2 1.5
SHORT EUROPEAN RENEWABLE ENERGY 7-JAN-16 5.0 1 17.6 5.0
SHORT EUROPEAN BREWERS 10-DEC-15 5.0 1 8.3 4.3
* THE MAXIMUM RETURN CAPTURES THE POSITION’S POINT OF MAXIMUM PROFIT (UNWEIGHTED BY THE POSITION SIZE).
** THE TRADING RULE RETURN IS WEIGHTED BY THE POSITION SIZE.

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Closed Fractal Trades

TARGET MAXIMUM TRADING RULE
INITIATION
TRADES CLOSED IN 2015 RETURN RETURN RETURN
DATE
(%) (%)* (%)

SHORT 7-YEAR GERMAN BUNDS / LONG CANADIAN

3-DEC-15 5.0 3.1 2.2
7-YEAR BONDS

SHORT GERMAN TECHNOLOGY VERSUS HE MARKET 19-NOV-15 5.0 1.1 -2.5

LONG 10-YEAR DANISH BONDS /

5-NOV-15 5.0 0.8 0.7
SHORT 10-YEAR GERMAN BUNDS

SHORT EUROPEAN TOYS SECTOR 21-OCT-15 5.0 3.8 -2.5

SHORT CAC40 / LONG EUROSTOXX 50 7-OCT-15 5.0 2.4 1.2

LONG ZAR / YEN 9-SEP-15 2.5 6.3 2.5

LONG AEX / SHORT ISEQ 9-SEP-15 5.0 6.3 -2.5

LONG ZAR / YEN 2-SEP-15 2.5 2.0 -1.3

LONG GOLD 12-AUG-15 5.0 3.8 0.0

LONG CAD / GBP 22-JUL-15 2.5 1.2 -0.9

LONG NZD /AUD AND NZD / CAD 1-JUL-15 2.5 3.8 2.5

LONG GERMAN BUND 10-JUN-15 5.0 3.8 3.0

SHORT SHANGHAI A SHARE / LONG EUROSTOXX 600 3-JUN-15 5.0 26.8 -2.5

SHORT SHANGHAI A SHARE / LONG EUROSTOXX 600 27-MAY-15 5.0 22.1 5.0

SHORT HANG SENG 15-APR-15 5.0 3.4 1.3

LONG TIN 8-APR-15 5.0 NONE -5.0

SHORT GBP / EUR 1-APR-15 2.5 2.6 1.7

SHORT GBP / EUR 4-MAR-15 2.5 2.2 0.4

SHORT GERMAN AUTOS VS. THE MARKET 18-FEB-15 5.0 2.0 -1.7

LONG AUD / USD 4-FEB-15 2.5 1.8 1.0

LONG TRADE WEIGHTED EURO 28-JAN-15 5.0 1.3 0.3

LONG MXN / USD 14-JAN-15 2.5 0.7 -1.7

SHORT EUROPEAN RETAILERS, LONG EUROSTOXX 600 7-JAN-15 5.0 0.4 0.2

* WITHIN 8 WEEKS OF INITIATION.

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Closed Recommendations
INITIATION CLOSE TOTAL RETURN LINK TO
RECOMMENDATIONS CLOSED IN 2018/19
DATE DATE (%) REPORTS
SHORT 30:60:10 PORTFOLIO OF EQUITIES: BONDS: OIL 8-MAY-19 22-AUG-19 -1.0 22-AUG-19
LONG EUROPEAN AIRLINES VERSUS MARKET 1-FEB-18 11-JUL-19 -35.8 11-JUL-19
LONG EURO AREA RETAILERS / SHORT U.S RETAILERS 15-JUN-17 11-JUL-19 -32.4 11-JUL-19
LONG EUROSTOXX VERSUS EUROSTOXX50 23-FEB-17 11-JUL-19 0.3 11-JUL-19
LONG EURO STOXX AND SHORT VIX TERM STRUCTURE
30-MAR-16 11-JUL-19 50.1 11-JUL-19
(100:40 COMBINATION)
LONG GERMAN CONSUMER SERVICES / SHORT GERMAN EXPORTERS 24-SEP-15 11-JUL-19 -2.4 11-JUL-19
LONG SPANISH REAL ESTATE EQUITIES VERSUS MARKET 23-APR-15 11-JUL-19 -1.9 11-JUL-19
LONG SWISS EQUITIES AND CASH (50:50 COMBINATION) 22-JAN-15 11-JUL-19 20.1 11-JUL-19
LONG SPANISH BANK EQUITIES / SHORT AUSTRALIAN BANK EQUITIES 18-JUN-14 11-JUL-19 -6.3 11-JUL-19
LONG EURO AREA TELECOMS VERSUS MARKET 8-AUG-13 11-JUL-19 0.3 11-JUL-19
SHORT U.K. CONSUMER SERVICES VERSUS THE MARKET 7-MAR-13 11-JUL-19 -9.2 11-JUL-19
LONG 10-YEAR NORWEGIAN BONDS / SHORT 10-YEAR GERMAN BUNDS 30-NOV-17 11-JUL-19 -4.1 11-JUL-19
LONG 10-YEAR U.K. GILTS / SHORT 10-YEAR IRISH BONDS 30-NOV-17 11-JUL-19 2.7 11-JUL-19
LONG 10-YEAR ITALIAN BONDS / SHORT 10-YEAR FRENCH OATS 16-NOV-17 11-JUL-19 -1.1 11-JUL-19
LONG 10-YEAR U.K. GILTS / SHORT 10-YEAR GERMAN BUNDS 9-NOV-17 11-JUL-19 -0.4 11-JUL-19
LONG DEC 2019 3M STERLING FUTURE 25-FEB-16 11-JUL-19 1.4 11-JUL-19
LONG DEC 2019 EURODOLLAR FUTURE 25-FEB-16 11-JUL-19 -2.6 11-JUL-19
LONG 10-YEAR DANISH BONDS / SHORT 10-YEAR GERMAN BUNDS 5-NOV-15 11-JUL-19 3.7 11-JUL-19
LONG 5-YEAR GERMAN CPI INFLATION SWAP 14-NOV-13 11-JUL-19 0.4 11-JUL-19
OVER 10-YEAR BONDS: LONG U.S. / SHORT GERMANY 25-JUL-13 11-JUL-19 -5.6 11-JUL-19
LONG 10-YEAR U.K. GILTS / SHORT 10-YEAR SWEDISH BONDS 14-FEB-13 11-JUL-19 -0.5 11-JUL-19
VIX FUTURE: LONG NEAR-MONTH / SHORT FAR-MONTH 27-FEB-14 11-JUL-19 1.5 11-JUL-19
SHORT SOVEREIGN YIELD SPREAD FUTURES (ITALY VS. GERMANY) 3-NOV-12 11-JUL-19 2.6 11-JUL-19
LONG VIX (S&P 500) / SHORT VDAX (DAX) (10% EXPOSURE) 20-OCT-11 11-JUL-19 6.7 11-JUL-19
LONG 10-YEAR SPANISH BONDS / SHORT 10-YEAR FRENCH OATS 12-NOV-15 4-JUL-19 9.4 4-JUL-19
LONG 10-YEAR PORTUGESE BONDS VERSUS EURO AREA 24-OCT-13 4-JUL-19 48.2 4-JUL-19
LONG EUROPEAN BANKS RELATIVE PLUS U.S. T-BOND
29-NOV-18 23-MAY-19 3.2 23-MAY-19
(25:75 COMBINATION)
LONG INDUSTRIAL COMMODITIES VERSUS EQUITIES 11-0CT-18 14-FEB-19 1.0 14-FEB-19
LONG EUROSTOXX 600 / SHORT MSCI WORLD EX. U.S.
20-SEP-12 29-OCT-18 -17.8 1-NOV-18
(CURRENCY UNHEDGED)
LONG IRELAND / SHORT SPAIN 12-APR-12 26-OCT-18 17.7 1-NOV-18
SHORT BASIC MATERIALS VERSUS MARKET 30-NOV-17 04-OCT-18 7.1 20-SEP-18
LONG GLOBAL 30-YEAR GOVERNMENT BONDS 10-MAY-18 04-OCT-18 0.0 20-SEP-18
SHORT BANKS VERSUS HEALTHCARE 01-FEB-18 30-AUG-18 22.6 30-AUG-18
SHORT TURKISH LIRA / LONG SOUTH AFRICAN RAND 20-MAR-14 23-AUG-18 104.9 23-AUG-18
SHORT POLAND / LONG EUROSTOXX600 29-JUN-17 17-MAY-18 11.9 17-MAY-18

LONG EQUITY PLUS AT-THE-MONEY PUT OPTION (MARCH 2018 EXPIRY) 27-JUL-17 31-MAR-18 8.5 27-JUL-17

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Closed Recommendations - continued

INITIATION CLOSE TOTAL RETURN LINK TO
RECOMMENDATIONS CLOSED IN 2017
DATE DATE (%) REPORTS

SHORT EURO AREA BANKS VERSUS MARKET 3-DEC-15 14-SEP-17 4.8 14-SEP-17

INITIATION CLOSE TOTAL RETURN LINK TO

RECOMMENDATIONS CLOSED IN 2015/16
DATE DATE (%) REPORTS
LONG 10-YEAR U.K. GILTS AND SPANISH BONOS (50:50 COMBINATION) 7-APR-16 22-SEP-16 6.6 22-SEP-16
LONG U.K. A RATED CORPORATE BONDS 13-OCT-11 28-JUL-16 42.4 28-JUL-16
LONG EURO / SHORT DOLLAR 30-OCT-14 31-MAR-16 -11.4 31-MAR-16
SHORT POUND / LONG DOLLAR 20-FEB-14 31-MAR-16 17.2 31-MAR-16
LONG DEC 2018 EURODOLLAR / SHORT DEC 2018 EURIBOR 5-NOV-15 25-FEB-16 3.9 25-FEB-16
LONG DEC 2017 3M STERLING FUTURE 11-JUN-15 25-FEB-16 5.2 25-FEB-16
LONG OVER 10-YEAR AGGREGATE EURO AREA BOND 28-NOV-13 10-DEC-15 31.7 10-DEC-15
ITALIAN GOVT. BONDS: 2-10 YEAR FLATTENER 27-SEP-12 10-DEC-15 33.2 10-DEC-15
LONG DEC 2017 EURODOLLAR / SHORT DEC 2017 EURIBOR 23-APR-15 5-NOV-15 1.5 5-NOV-15
LONG NETHERLANDS EQUITIES / SHORT U.K. EQUITIES 28-MAR-13 18-JUN-15 30.4 18-JUN-15
LONG JUNE 2016 3M STERLING FUTURE (LEVERED UP 5 TIMES) 27-FEB-14 11-JUN-15 0.5 11-JUN-15
LONG EURO AREA LARGE CAPS / SHORT EURO AREA SMALL CAPS 1-NOV-12 5-MAR-15 -12.1 5-MAR-15
PROTECTOR PORTFOLIO 4-AUG-11 22-JAN-15 44.1 22-JAN-15

INITIATION CLOSE TOTAL RETURN LINK TO

RECOMMENDATIONS CLOSED IN 2014
DATE DATE (%) REPORTS
LONG GERMAN EQUITIES / SHORT SWISS EQUITIES 9-JUN-14 13-NOV-14 -7.6 13-NOV-14
LONG GERMAN & ITALIAN EQUITIES / SHORT FRENCH &
8-MAR-12 13-NOV-14 -2.8 13-NOV-14
SPANISH EQUITIES
SHORT SEPTEMBER 2014 EURO / DOLLAR CALL OPTION STRIKE 1:45 20-MAR-14 25-SEP-14 1.4 SEP 25/14
LONG POLISH AND CZECH EQUITIES (50:50) VERSUS EUROPE 7-NOV-13 5-AUG-14 -1.4 AUG 7/14
LONG GREEK EQUITIES VERSUS EURO AREA 17-OCT-13 5-AUG-14 -2.1 AUG 7/14
LONG SWISS EQUITIES / SHORT EURO AREA EQUITIES 8-SEP-11 5-JUN-14 2.3 JUN 5/14
SHORT COPPER 21-FEB-14 29-MAY-14 2.9 MAY 29/14
LONG SWISS AND ITALIAN 10-YEAR BONDS (50:50 RATIO) 9-AUG-12 3-APR-14 14.8 APR 3/14
SHORT TURKISH LIRA / LONG U.S. DOLLAR 7-NOV-13 20-MAR-14 10.1 MAR 20/14
LONG DOW JONES LUXURY INDEX / SHORT EURO STOXX 14-APR-11 20-MAR-14 32.5 MAR 20/14
SHORT MARCH 2014 EURO / DOLLAR CALL OPTION STRIKE 1.45 31-OCT-13 6-MAR-14 0.9 OCT 31/13
LONG JUNE 2014 3M STERLING FUTURE 4-JUL-13 27-FEB-14 0.6 FEB 27/14
VIX FUTURE: LONG NEAR-MONTH / SHORT FAR-MONTH (20% EXPOSURE) 9-JAN-14 30-JAN-14 3.1 JAN 30/14

EURO STOXX VOLATILITY FUTURES: LONG 1-MONTH / SHORT 6-MONTH

16-MAY-13 9-JAN-14 0.1 JAN 9/14
(10% EXPOSURE)

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European Asset Performance

LAST 1-WEEK 1-MONTH YEAR-TO-DATE
CURRENCY PERFORMANCES VERSUS THE DOLLAR*
(%) (%) (%) (%)
EURO/USD 1.1 0.7 -1.6 -2.8
GBP/USD 1.2 2.1 2.2 -2.0
CHF/USD 1.0 -0.5 -2.3 -0.2
SWE/USD 9.7 1.4 -1.3 -6.9
DEN/USD 9.0 1.6 -0.4 -2.7
NOR/USD 6.8 0.5 -1.5 -2.6

LAST 1-WEEK 1-MONTH YEAR-TO-DATE

10-YEAR GOVERNMENT BOND YIELD
(%) (BPs) (BPs) (BPs)
U.K. 0.6 9.8 12.1 -64.8
GERMANY -0.6 8.9 6.3 -77.4
SWITZERLAND -0.9 9.2 14.6 -68.0
SWEDEN -0.2 13.3 14.1 -72.4

1-WEEK 1-MONTH YEAR-TO-DATE

EQUITY SECTOR PERFORMANCE**
(%) (%) (%)
ENERGY 3.6 3.0 0.9
MATERIALS 4.2 6.1 11.7
CAPITAL GOODS 3.6 4.9 21.2
COMMERCIAL SERVICES & SUPPLIES -2.8 -1.4 19.7
TRANSPORTATION 2.5 5.3 18.4
AUTOMOBILES & COMPONENTS 7.6 9.0 11.5
CONSUMER DURABLES & APPAREL 3.0 3.2 29.3
HOTELS, RESTAURANTS & LEISURE -1.7 0.8 10.6
MEDIA 1.4 2.0 9.0
RETAILING 2.8 7.5 29.5
FOOD & STAPLE RETAILING 3.5 7.5 8.1
HOUSEHOLD & PERSONAL PRODUCTS -3.8 3.7 15.5
HEALTH CARE & EQUIPMENT SERVICES -2.2 1.4 23.0
PHARMACEUTICALS & BIOTECHNOLOGY -3.0 -0.6 12.7
BANKS 8.0 7.7 -1.4
DIVERSIFIED FINANCIALS 4.1 7.3 17.7
INSURANCE 5.7 3.8 15.3
REAL ESTATE -0.4 0.3 2.3
SOFTWARE & SERVICES -0.1 -0.5 20.0
TECHNOLOGY HARDWARE & EQUIPMENT 1.8 -3.7 2.8
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENTS 8.6 11.6 43.4
TELECOMMUNICATION 0.0 3.1 0.3
UTILITIES -2.5 2.3 14.5
* POSITIVE PERCENTAGE CHANGE DENOTES APPRECIATION VERSUS THE US DOLLAR.
** BASED ON 10 GICS SECTORS; EXPRESSED IN LOCAL CURRENCY TERMS; SOURCE: MSCI INC. (SEE LAST PAGE).

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European Asset Performance

1-WEEK 1-MONTH YEAR-TO-DATE
COUNTRY EQUITY PERFORMANCE - LARGE CAP* CHANGE CHANGE CHANGE
(%) (%) (%)
U.K. -0.2 0.2 6.2
SWITZERLAND 1.1 2.3 20.1
FRANCE 2.1 5.2 17.7
GERMANY 3.5 5.7 11.3
NETHERLANDS 2.0 6.6 25.5
AUSTRIA 6.0 0.3 6.2
ITALY 2.1 7.9 13.7
SPAIN 3.4 4.8 7.7
PORTUGAL -0.1 2.4 15.2
IRELAND 0.5 7.0 30.8
BELGIUM 0.7 0.6 29.9
FINLAND 2.4 -1.5 1.4
DENMARK -4.2 0.5 13.6
NORWAY 4.2 4.5 0.5
SWEDEN 4.3 5.7 12.7

1-WEEK 1-MONTH YEAR-TO-DATE

COUNTRY EQUITY PERFORMANCE - SMALL CAP* CHANGE CHANGE CHANGE
(%) (%) (%)
U.K. 1.2 3.7 11.9
SWITZERLAND 3.0 5.1 15.9
FRANCE 1.3 2.9 18.6
GERMANY 1.9 2.0 13.7
NETHERLANDS 3.4 1.2 19.6
AUSTRIA 2.2 3.3 10.2
ITALY 1.7 5.1 13.3
SPAIN 2.0 3.9 5.9
PORTUGAL 3.7 4.3 -4.1
IRELAND 5.4 3.2 -1.3
BELGIUM -0.3 1.8 24.2
FINLAND 3.9 6.4 11.0
DENMARK 0.1 1.8 0.5
NORWAY 2.9 3.9 3.8
SWEDEN -1.3 0.8 17.5
* EXPRESSED IN LOCAL CURRENCY TERMS; SOURCE: MSCI INC. (SEE LAST PAGE).

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Indicators To Watch - Bond Yields

% % % %
2-YEAR GOVERNMENT BOND YIELD: 2-YEAR GOVERNMENT BOND YIELD:
3.5 GERMANY 3.5 3.5 GERMANY 3.5
PORTUGAL BELGIUM
3.0 IRELAND 3.0 3.0 SPAIN 3.0
ITALY
2.5 2.5 2.5 2.5

2.0 2.0 2.0 2.0

1.5 1.5 1.5 1.5

1.0 1.0 1.0 1.0

.5 .5 .5 .5

0 0 0 0

-.5 -.5 -.5 -.5

-1.0 -1.0 -1.0 -1.0

-1.5 -1.5 -1.5 -1.5

© BCA Research 2019 © BCA Research 2019

JAN JUL JAN JUL JAN JUL JAN JUL JAN JUL JAN JUL JAN JUL JAN JUL JAN JUL JAN JUL
2015 2016 2017 2018 2019 2015 2016 2017 2018 2019

% % % %

2-YEAR GOVERNMENT BOND YIELD: 2-YEAR GOVERNMENT BOND YIELD:

GERMANY GERMANY
1.5 FRANCE 1.5 1.5 FINLAND (3-YEAR) 1.5
NETHERLANDS AUSTRIA

1.0 1.0 1.0 1.0

.5 .5 .5 .5

0 0 0 0

-.5 -.5 -.5 -.5

© BCA Research 2019 © BCA Research 2019

JAN JUL JAN JUL JAN JUL JAN JUL JAN JUL JAN JUL JAN JUL JAN JUL JAN JUL JAN JUL
2015 2016 2017 2018 2019 2015 2016 2017 2018 2019

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BCA RESEARCH INC. EUROPEAN INVESTMENT STRATEGY - WEEKLY REPORT SEPTEMBER 12, 2019

Indicators To Watch - Interest Rate Expectations

% % % %
INTEREST RATE EXPECTED INTEREST RATE EXPECTED
5.0 IN DECEMBER 2018*: 5.0 5.0 IN JUNE 2019*: 5.0
U.S. U.S.
4.5 U.K. 4.5 4.5 U.K. 4.5
EURO AREA EURO AREA
4.0 4.0 4.0 4.0
SWITZERLAND SWITZERLAND
3.5 3.5 3.5 3.5

3.0 3.0 3.0 3.0

2.5 2.5 2.5 2.5

2.0 2.0 2.0 2.0

1.5 1.5 1.5 1.5

1.0 1.0 1.0 1.0

.5 .5 .5 .5

0 0 0 0

-.5 -.5 -.5 -.5

-1.0 -1.0 -1.0 -1.0

© BCA Research 2019 © BCA Research 2019

JAN JUL JAN JUL JAN JUL JAN JUL JAN JUL JAN JUL JAN JUL JAN JUL JAN JUL JAN JUL
2015 2016 2017 2018 2019 2015 2016 2017 2018 2019
* BASED ON DECEMBER 2018 EURODOLLAR, SHORT STERLING, * BASED ON JUNE 2019 EURODOLLAR, SHORT STERLING,
EURIBOR AND EUROSWISS FUTURES CONTRACTS. EURIBOR AND EUROSWISS FUTURES CONTRACTS.
SOURCE: BLOOMBERG BARCLAYS INDICES. SOURCE: BLOOMBERG BARCLAYS INDICES.

% % % %
INTEREST RATE EXPECTED INTEREST RATE EXPECTED
5.0 IN DECEMBER 2019*: 5.0 5.0 IN JUNE 2020*: 5.0
U.S. U.S.
4.5 U.K. 4.5 4.5 U.K. 4.5
EURO AREA EURO AREA
4.0 4.0 4.0 4.0
SWITZERLAND SWITZERLAND
3.5 3.5 3.5 3.5

3.0 3.0 3.0 3.0

2.5 2.5 2.5 2.5

2.0 2.0 2.0 2.0

1.5 1.5 1.5 1.5

1.0 1.0 1.0 1.0

.5 .5 .5 .5

0 0 0 0

-.5 -.5 -.5 -.5

-1.0 -1.0 -1.0 -1.0

© BCA Research 2019 © BCA Research 2019

JAN JUL JAN JUL JAN JUL JAN JUL JAN JUL JAN JUL JAN JUL JAN JUL JAN JUL JAN JUL
2015 2016 2017 2018 2019 2015 2016 2017 2018 2019
* BASED ON DECEMBER 2019 EURODOLLAR, SHORT STERLING, * BASED ON JUNE 2019 EURODOLLAR, SHORT STERLING,
EURIBOR AND EUROSWISS FUTURES CONTRACTS. EURIBOR AND EUROSWISS FUTURES CONTRACTS.
SOURCE: BLOOMBERG BARCLAYS INDICES. SOURCE: BLOOMBERG BARCLAYS INDICES.

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Archive Of Previous Reports

Please click on the links below to view reports:

1. Brexit: Rock Meets Hard Place - September 5, 2019

2. The Case Against ‘Secular Stagnation’ - August 29, 2019
3. Stocks, Bonds, Or Cash? - August 22, 2019
4. Are Markets Going Up Or Down? - August 8, 2019
5. How Central Banks Have Misunderstood Inflation - July 25, 2019
6. What Goes On Between Those Walls? BCA’s Diverging Views In The Open - July 19, 2019
7. Picking Countries The Right Way Again - July 11, 2019
8. The Interest Impulse Is Fading - July 4, 2019
9. Bund Yield, How Low Can You Go? - June 27, 2019
10. A Pivotal Moment For Monetary Policy - June 20, 2019
11. As Goes Europe, So Goes The World - June 13, 2019
12. Why The Neutral Rate Of Interest Is Zero - June 6, 2019
13. Europe’s Huge Imbalances Are A Force For Self-Preservation - May 30, 2019
14. Why The Consensus On Growth Is Wrong - May 23, 2019
15. Corrections And Catalysts - May 16, 2019
16. Suffering Market Vertigo - May 2, 2019
17. Can Euro Stoxx Outperformance Continue? - April 25, 2019
18. The Biggest Risks To The European And Global Economy Are... - April 18, 2019
19. Monetarists, Keynesians, And Modern Monetary Theory - April 11, 2019
20. Why 2019 Is The Opposite Of 2018 (An Update) - April 4, 2019
21. Europe Vs. America: The Big Call - March 28, 2019
22. The Rule Of 4 Becomes The Rule Of 3 - March 21, 2019
23. Important Message From The Currency Markets - March 14, 2019
24. Opulence And Rebellion: Made In France - March 7, 2019
25. Why A Catastrophic No-Deal Might Be Good... For The EU - February 28, 2019
26. A European Cycle ‘Made In China’- February 21, 2019
27. What Are The Markets Telling Us? - February 14, 2019
28. Why 2019 Is A Pivotal Year For Monetary Policy - February 7, 2019
29. The Bounce Back? - January 31, 2019
30. Europe’s ‘Negative Spaces’ - January 24, 2019

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