Global Economic Weekly：US Nonfarm Payrolls Yet to Significantly Boost US Dollar, German Bond Yields Rise Sharply

9 May 2015 Please read the "Special Disclaimer" Section on the last page Securities Research Report Global Economy US Nonfarm Payrolls Yet to Significantly Boost US Dollar, German Bond Yields Rise Sharply Global Economic Weekly Weekly Review  US nonfarm payrolls didn’t significantly boost US dollar, while yields on German bonds rose substantially. This week, US data were slightly lower than expected overall. April ISM non-manufacturing PMI hit a five-month high, unemployment rate recorded a seven-year low, but the nonfarm payrolls increase slightly missed expectations. Overall, US economy is very likely to rebound in 2Q, but the rally is slower than expected at present. April Eurozone composite PMI declined MoM, but still in expansion. There were three major events during the week: ① Increase in US nonfarm payrolls returned to over 200,000, with the rate lower than expectation, which had yet to boost expectations for US dollar interest rate raise. ② Yields on 10-year German bonds increased 515bp from 0.075% on April 20 to 0.59%. ③ British Premier Cameron won the British election on May 8. Deficit cut and pro-growth economic policies are expected to continue. But his guarantee to carry out a referendum on whether to quit EU in 2017 may bring uncertainty to British and European trade. This week, Nasdaq index slightly decreased 0.04%, while Dow Jones and S&P 500 rose 0.4% and 0.9%, respectively. European stocks rose amid fluctuations. Yields on US and German bonds rose 2bp and 17bp to 2.14% and 0.55%, respectively. Decrease in US dollar index decelerated, down 0.7% for the week. The price of gold remained unchanged. The price of WTI crude oil rose 0.4%, while that of Brent oil dropped 1.6% over the week.  The fundamental does not support such a sharp rebound. Affected by the raised oil price in Saudi Arab, impeded export in Libya (by demonstrations in Eastern ports), slight drop in crude oil inventory in the US and the weakening US dollar, Brent oil hit a 2015 high of 67 dollars a barrel on Wednesday (May 6). On YTD basis, the biggest gains of Brent and WTI crude are 50% and 47.6%, respectively. In our opinion, the fundamental does not support such a sharp rebound. The slightly improved short-term demand (mainly from oil refiners in Europe and North America) and the mild slowdown of US crude oil supply (the slowdown does not exceed expectation) are still not capable to digest excessive supply of about 1.5 million-2 million barrels a day efficiently. The crude oil inventory in the US fell, but is still close to its historical high of 487 million barrels (higher than the 5-year-average of 380 million barrels). OPEC and Russia’s oil output remains unchanged, while China and other emerging countries’ April macro stats are significantly weak than March, implying the growth of demand may not coming soon. Therefore, we believe the risk of oil price decline is cumulating and the oil price rise driven by improved fundamental are more likely to happen in Q4 (oil price may stay low in medium and long term). Maintain our opinion that crude oil will maintain at US$55-US$60 in 2015.  Yields on German bonds rose rapidly partially on upward oil prices and rising inflation expectations. In recent two weeks, German bond yields Analyst: Rong Cui 021-22167199 cuirong@ebscn.com Practice license number: S0930513080004 Analyst: Gao Xu 010-56513082 gaoxu@ebscn.com Practice license number: S0930512080004 Macroeconomic performance vs. forecast index Next week’s key data and events Date Economic Data 5/12/2015 US JOLTs Vacancy 5/13/2015 US Retail Sales 5/13/2015 EU Q1GDP 5/15/2015 Michigan Consumer Confidence Index Watch Everbright Macro Grasp the Economic Pulse U.S. Japan Eurozone Emerging Markets 股票报告网整理http://www.nxny.com 2015-05-09 Global Economy Weekly Please read the "Special Disclaimer" Section on the last page - 2 - Securities Research Report climbed rapidly, driving significant selloffs in bond markets of developed countries. The 10-year German bond yield rose 515bp from April 20’s low of 0.075% to a high level of 0.59% at the end of May 7. We think rising oil prices and inflation expectations were only part of the reasons (because increases in oil prices and inflation expectations have emerged since early 2015, rather than new changes in the recent two weeks). We are more inclined to believe that this mainly represented a correction after the previous flood of funds into the bond market (due to the ECB’s QE and the Greek debt crisis); with the timing (April 21) in line with the moment when Bill Gross, Jeff Gundlach and other institutions showed a bearish outlook for German debt (they questioned the sustainability o