JUL 23 UniCredit Friday Notes

23 July 2010 Economics & FI/FX Research
Friday Notes
Contents
Slowdown ahead Weekly Comment____________________________ 2
Research Notes _____________________________ 3
■ Turning. While global GDP growth accelerated up until recently, there is Data Monitor_______________________________ 10
FI Outlook_________________________________ 17
now mounting evidence pointing to a tangible slowdown. The OECD FX Outlook ________________________________ 18
leading economic indicators, one of the most reliable and most forward- CIB View _________________________________ 20
looking yardsticks for the global economy, are already heading clearly CIB Forecasts _____________________________ 21
Calendar__________________________________ 24
south (cf. chart below). Their still high level does, however, argue against
a double-dip recession. CIB MACRO FORECASTS
■ US. The slowdown is already evident in the hard numbers. Recent in % yoy 2009 2010 2011
economic indicators were generally weaker than expected. In the second GDP EMU -4.1 1.0 1.3
quarter, real GDP probably grew at an annual rate of only 2¼% (IV/09: CPI EMU 0.3 1.5 1.8
+5.6%). For the first half of 2011, we expect only 2% (pages 3-5). GDP Germany -4.9 1.8 1.5
■ Fed. The central bank is also becoming increasingly concerned about CPI Germany 0.3 1.1 1.6
the economy, since the retarding effects of the inventory cycle and the GDP Italy -5.1 0.9 1.0
expiring fiscal programs will soon be joined by the headwind from higher CPI Italy 0.8 1.6 1.9
taxes. There is, therefore, a growing risk that the Fed will initiate its
GDP US -2.4 3.0 2.4
tightening cycle later than projected so far. It may possibly wait until
CPI US -0.3 1.8 2.2
summer next year.
CIB FI/FX FORECASTS
■ EMU. In Europe, the spring quarter should have still been pretty good.
2010/11 30-Sept 31-Dec 31-Mar 30-Jun
That, however, is attributable solely to a technical reaction to the poor
EMU 3M (%) 0.95 1.20 1.28 1.35
start to the year because of the cold winter weather and not to the
EMU 10Y (%) 3.00 3.25 3.45 3.50
recovery of final domestic demand. But GDP growth is set to slow down,
although maybe not as pronounced or as early as projected given the US 3M (%) 0.60 0.75 1.05 1.55
recent upbeat readings of PMIs as well as the German Ifo climate index. US 10Y (%) 3.40 3.80 4.20 4.30
■ ECB. The retarding effects of the inventory cycle and fiscal policy EUR-USD 1.24 1.22 1.20 1.18
measures are being joined by external strains. This is increasing the risk USD-JPY 91 95 100 106
that the ECB will also have to postpone the first rate hike, especially if Oil Price 78 85 80 80
today's bank stress test results disappoint investors (pages 6-7 & 8-9).
■ Further topics:
– Weekly Comment: Ready, stress, go! (page 2)
– Data outlook: Higher eurozone inflation due to a base effect;
US consumers becoming more skeptical (page 10).
– Market outlook: Euro to come under renewed pressure? (page 18) Global Head of Research & Chief Strategist
Thorsten Weinelt, CFA (UniCredit Bank)
GLOBAL GROWTH LOSING MOMENTUM +49 89 378-15110
thorsten.weinelt@unicreditgroup.de
15 1.07
longer-term average Head of Economics & FI/FX Research
10 1.05 Marco Annunziata, Ph.D. (UniCredit Bank)
Chief Economist
5 1.03 +44 20 7826-1770
marco.annunziata@unicreditgroup.co.uk
0 1.01
Editor
-5 0.99
Nikolaus Keis (UniCredit Bank)
-10 0.97 +49 89 378-12560
nikolaus.keis@unicreditgroup.de
-15 0.95
Editorial deadline
-20 0.93 Friday, 23. Jul., 12:00H
OECD Industrial production (6M rate of change, in%)
-25 0.91
OECD leading indicators (detrended, RS) Bloomberg
-30 0.89 UCGR
01/97 01/99 01/01 01/03 01/05 01/07 01/09
Internet
www. research.unicreditgroup.eu
Source: Datastream, UniCredit Research
UniCredit Research page 1 See last pages for disclaimer.

Friday Notes
Ready, stress, go! The greatest upside, in my view, still comes from the leeway that
individual national regulators can exploit in outlining the results of
their stress tests. Spain remains the lynchpin: Spanish
Perhaps never before has such a major transparency effort been
policymakers seem to realize that they have perhaps the most to
prepared and launched with such secrecy. With only a few
gain from greater transparency, they were the first to push
hours to go before the publication of the stress test results,
for publication of the results and they have extended the
we know very little about the assumptions and methodology.
tests to cover a substantial share of their banking system;
Even worse, in the last few days there have been concerns
today, they should continue on this track by providing as
that the results might not be easily comparable across
much detail as possible on the tests, and outlining the strategy to
countries, partly because of heterogeneous assumptions on
follow up on the weaker banks. The Spanish banking system,
government bonds – the very concern that forced the publication
with a high ratio of loans to total assets, has been particularly
of the stress test results in the first place. In addition, political
vulnerable to the impact of the recession and in particular to
leaders from some eurozone countries have been on the wires
the contraction in the real estate sector; but on the other hand, it
suggesting that their banking systems are in a fine shape, and
benefits from a high reliance on retail deposits as a funding
all the banks involved would pass the tests. An IMF report
source (cf. Economic Special by Loredana Federico1). If the
released Wednesday, while based on dated information, was a
stress tests show that the banking system can absorb the
clear reminder of the reluctant and recalcitrant attitude of many
ongoing private sector deleveraging – with recapitalization
European policymakers to the idea of publishing the results.
and government help if and as needed – then the relatively
low level of public debt will look much more reassuring. And
As the whole purpose of the exercise is to increase transparency
if it looks like the Spanish system is sufficiently resilient, then
and bolster confidence, we have definitely started on the
risks of EMU-wide contagion will be substantially reduced.
wrong foot. The only thing that has been strengthened so far
is the impression that the eurozone is plagued by a lack of
Realistically, it will take some time for investors to absorb
coordination that risks undermining even the best intentions,
and process the information, given that we will have one
and that national interests continue to trump the common
release by the Committee of European Banking Supervisors
good. The silver lining however is that this should have
(CEBS) followed by individual national releases. Depending on
served as pragmatic expectation management: very few
the extent (if any) to which assumptions and methodologies
investors now expect the European stress tests to provide a
differ across countries, and on the extent to which the level
silver bullet or to even approximate the positive impact that
of details released differs across countries, it might require
the US stress tests had a year ago. The scope for
quite a bit of work to figure out the implications for the
disappointment should therefore have been reduced.
different banking systems and the eurozone financial sector
as a whole. The immediate impact is therefore likely to be
The risk of “accidents” is still significant, however: The biggest
stronger for individual institutions, and especially for those
risk is that the stress tests might be perceived as a weak
placed at the extremes of the distribution, that is banks
“pro-forma” exercise, or even worse an attempt to whitewash
passing the tests with flying colors and banks showing
and pretend that all is well. To avoid this risk, governments
instead a significant shortfall in capital.
will have to come clean, point to the weakest pockets of their
banking systems and initiate remedial action for the most Marco Annunziata, Ph.D. (UniCredit Bank)
fragile banks. A secondary risk is that differences of treatment 44 20 7826-1770
across regulatory jurisdictions might increase confusion on marco.annunziata@unicreditgroup.eu
the relative standing of different banking systems, causing
higher volatility in the risk measures of different banks – it
would indeed be a shame if relatively stronger banks found
themselves even temporarily under heavier pressure simply
for having been tested with more stringent criteria.
1
Eurozone: Waiting for the EU-wide stress test

Friday Notes
RETAIL SALES DECLINE

US economy lost further
momentum around mid-year Retail sales ex autos, gasoline and building material:
annualized 3M change in %
■ The US economy probably expanded 2¼% in the second 15
quarter. That is considerably less than the 3% we had

10
expected thus far. The downward revision became necessary
due to weaker data from three sectors: private consumption,
5
net exports and inventories.
■ Moreover, regional business surveys flag that the 0
manufacturing sector will continue to lose momentum in

-5
the second half of the year. This is a clear indication that
the support from the inventory cycle is waning.
-10
Jan-92 Jan-95 Jan-98 Jan-01 Jan-04 Jan-07 Jan-10
■ At the beginning of 2011, growth is bound to slow even
further, as the expiration of the Bush tax cuts is likely to Source: Census Bureau, Thomson Datastream, UniCredit Research
hurt private consumption expenditures.
Net exports probably shaved more than half a percentage

Weaker growth in the spring point off growth in the past quarter. While real exports in April
This coming Friday, the Bureau of Economic Analysis will and May were an annualized 8% above the 1Q average, real
release its advance GDP estimate for the second quarter. imports even increased by 15%. As a result, the real trade
We expect an increase of 2.3% annual rate, less than the 3% we deficit rose in May to its highest level since early 2009 (cf. chart).
had seen so far.2 The downward revision became necessary Even as we expect the real trade deficit to narrow slightly again in
primarily because of weaker data for private consumption, June, net exports probably subtracted 0.3-0.4 percentage
net exports and inventories. points more from growth than expected so far.
Initially, it looked as if private consumption expenditures started TRADE DEFICIT RISING STEADILY
the second quarter on a very strong note: After increasing
2.1% in March – the strongest gain since January 2006 – Real trade balance (only goods), in USD bn
retail sales rose another solid 0.6% in April. Accordingly, we -35
had until recently still expected that household spending
-40
might increase by 3+% in the second quarter. In the interim,
however, not only was the growth rate for April revised down -45
to 0.3%, but retail sales even reported two consecutive
-50
declines in May (-1.1%) and June (-0.5%). That was due in part
to lower energy prices, which reduces nominal sales at gas -55
stations, and to the expiration of the “cash for appliances“ -60

program, which had boosted demand for household
-65
appliances in March and April. But sales in the less volatile
core group, which excludes cars, gasoline and building -70
material, have weakened noticeably, too. They even fell an Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10
annualized 1½% in the last three months (cf. chart next

Source: Census Bureau, Thomson Datastream, UniCredit Research
column). Apart from the slump during the Great Recession,
that is the strongest decline since the statistics began in the
early 90s. Accordingly, we are revising our expectation for Last but not least, the inventory build-up has also slowed in
2Q consumption growth down to 2.3% from 2.7%. recent months. As a reminder: In 4Q09 and 1Q10, private
inventories added 3.8 and 1.9pp, respectively, to growth.
They were, therefore, responsible for two-thirds of the entire
GDP growth in these two quarters. In order to continue
stimulating growth, the stockpiling would have to accelerate
further, as the growth contribution is derived from the change
of the inventory change. Recently, however, the stockpiling
2
See: US: Moderate growth and downside risks, Friday Notes dated has not only failed to accelerate further – it has even slowed
9 July 2010.

Friday Notes
(cf. chart). In nominal terms, inventories increased by only COMPANIES EXPECT WEAKER ORDERS
0.4% and 0.1%, respectively, in April and May, after rising by
60 40
0.6% and 0.7% at the end of 1Q.
30
50
20
STOCKPILING SLOWING 10
40
0
Business inventories, in % mom
30 -10
1.0
-20
Real Nominal 20
-30
0.5
-40
10
0.0 Expectations for new orders 6M hence* -50
Durable goods orders (annualized 6M change in %, RS)
0 -60
-0.5 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
-1.0
*Average of the surveys of the New York and Philly Fed
-1.5 Source: Census Bureau, Thomson Datastream, UniCredit Research
-2.0
Jan-09 May-09 Sep-09 Jan-10 May-10
Higher taxes to hurt consumption at
Source: Census Bureau/BEA, Thomson Datastream, UniCredit Research the beginning of 2011
At the beginning of 2011, growth will then probably slow
The question is, though, how much of this slowdown is even further due to the expiration of the Bush tax cuts. If
attributable to lower prices, because, ultimately, it is the devel- Congress does not act to make these tax cuts permanent, all
opment of real inventories that is relevant for the contribution income tax, capital gains and dividend tax rates will rise at
to real growth. So far, official data on real inventories are the beginning of 2011. President Obama currently plans to
only available for the month of April. But this too shows a extend the tax cuts for households with an annual income of
slowdown. It therefore remains to be seen whether and if so, to up to USD 250,000. But the Congressional Budget Office,
what extent, the most important growth factor of recent months CBO, estimates that even in this event federal tax revenues
was able to contribute again to GDP growth in the second – i.e. household tax payments – are bound to increase in 2011
quarter. Thus far, we expect a positive contribution of 0.4pp. by more than USD 80bn; that is no less than 0.75% of current
consumption expenditures.3 In any event, we expect the
Less support from the inventory cycle (partial) expiration of the tax cuts will hurt household
spending in the first half of 2011. The extent of the strain can
in the second half of the year of course only be quantified in greater detail once the details
Consequently, the US economy entered the second half of the of the new tax program have been released.
year with less momentum than previously anticipated. The
loss of dynamic is particularly evident in the manufacturing OUR GDP FORECAST FOR THE US
sector, where business surveys indicate that the slowdown
Real GDP and components, in % qoq (annual rate)
continues to intensify. One question in the regional Fed’s
II/10 III/10 IV/10 I/11 II/11 2010 2011
manufacturing surveys relates to expectations for new orders
GDP 2.3 2.3 2.2 2.0 2.0 2.8 2.1
six months hence. In spring 2009, this forward-looking
Consumption 2.3 2.3 2.3 2.0 2.0 2.2 2.2
component had been one of the first to signal the strong
Investments 5.7 5.2 5.8 5.8 5.9 2.2 5.9
increase in durable goods orders (cf. chart next column).
Public spending 0.5 0 1.0 1.0 1.0 0.2 0.8
Now, its perceptible decline suggests this boom has run its
course. We interpret the deterioration in the orders outlook Source: UniCredit Research
as a clear signal that the support for the economy from the
inventory cycle is fading even more quickly than we had Dr. Harm Bandholz, CFA (UniCredit Bank)
+1 212 672-5957
already anticipated. For that reason, we are adjusting our
harm.bandholz@us.unicreditgroup.eu
growth expectations for the second half of the year down to
2¼% from 2½%.
3
Congressional Budget Office, An Analysis of the President’s Budgetary Proposals
for Fiscal Year 2011, March 2010.

Friday Notes
Eurozone GDP: strong 2Q, the second quarter/beginning of the third quarter ranged from
0.7% qoq (our Composite PMI) to 0.30% (EC survey).
slowdown ahead Probably, the “true” figure is somewhere in between, meaning
that survey indicators need to fall quite steeply during the
■ Eurozone GDP likely rose strongly in 2Q, by at least 0.6% summer before they start signaling downside risks to our
qoq (vs. 0.2% in 1Q), with risks tilted to the upside. GDP projections for 2H. Actually, after the upbeat July flash
PMIs and German business climate index, we see risks for
■ The solid GDP reading mostly reflects a strong export the next six months skewed more towards a less pronounced
performance, while the contribution of inventories probably or delayed slowdown.
declined significantly after the whopping 1pp recorded in
the first quarter. Construction bounces back
■ Construction witnessed a technical rebound after the very As widely expected, construction recovered substantially after the
cold winter, but its underlying trend remains weak. Private weather-related slump of the first quarter. The technical
consumption likely remained depressed, dragged down by rebound was particularly evident in Germany, where
a large contraction in car sales. construction output in April-May surged by more than 15% vs.
1Q, leaving the sector on track to add 0.8pp to domestic quarterly
■ Exports have started to slow, but at a moderate pace so far. GDP – implying a +0.2/0.3pp boost for the eurozone as a whole.
We expect GDP growth to ease to around 1% annualized
in 2H, and we continue to see the risk of a double-dip GERMAN CONSTRUCTION COMES TO THE RESCUE
recession as low (around 10%).
30
German construction output (in % mom)
2Q GDP up 0.6%, with upside risks 25
German construction output (3M rate of change, %, RS)
20
In the eurozone, the second quarter probably witnessed a
15
significant pick-up in GDP momentum. Our most updated
10
forecast is for an acceleration to 0.6% qoq (vs. 0.2% in 1Q),
recently revised up by 0.1pp to take into account a surprisingly 5
strong industrial recovery. Moreover, our GDP Tracker signals 0
that risks to our call may well be to the upside. Eurostat will -5
release the GDP flash estimate on 13 August. Here are the -10
main growth themes for 2Q. -15
01/06 01/07 01/08 01/09 01/10
Industry leads the way up

Source: Bundesbank, UniCredit Research
In May, the 3M/3M growth rate of the eurozone IP series stood
at 3.1% (non annualized), while our preferred gauge of industrial
activity – a weighted average of national IP data that allows Given that the strong rise in eurozone capital goods production in
neutralizing the often instable seasonal factor estimated by April-May should be the prelude to at least another small
Eurostat – signals 2.6%, the second strongest reading in at capex increase, total fixed investment probably rose strongly
least fifteen years. This surge reflects in large part the boost in 2Q, we estimate by 1% qoq, if not more. This would be the
coming from exports which, judging from a mix of surveys first positive reading in two years. However, the temporary
and hard data, probably were up another solid 2-2.5% qoq. nature of the construction rebound makes it likely that this
In contrast, the contribution of inventories is likely to have sector will revert towards its underlying trend already in 3Q,
moderated substantially after stocks added one full percentage meaning that residential and commercial real estate investment
point to GDP growth in 1Q. The residual of the regression of will probably resume shrinking during the summer, with the
the manufacturing PMI on the new orders-stock ratio seems only support coming from public works
to have peaked for this cycle, a signal that inventories’
contribution to GDP growth may be starting to ebb. Due to Households remain under pressure
the increasing signs of easing in global growth, we see the
The consumption leg of our GDP Tracker suggests that
impulse of exports and inventories moderating in the coming
weakness in household spending extended into the second
months, without final domestic demand being able to take up
quarter. After having posted a 0.1% qoq drop in the first
the baton. This should lead to a substantial deceleration in GDP
three months of the year, consumption probably shrank by a
growth in 2H, probably to a pace of only 1% annualized.
similar amount in 2Q. Once again, the main drag is likely to
Business surveys suggest that GDP momentum at the end of
have been car sales, down 7.4% qoq after the end of the

Friday Notes
scrapping premium in France and Italy – our own seasonally industrial surveys, both national and referred to the whole
adjusted data indicate a particularly poor performance in the latter eurozone. For the time being, the PMI is telling us that
country. The retail sales component of our consumption exports have started to slow – the export orders index
model shows some tentative signs of life, but the recovery peaked in March at 58.8 and in July was down to 55.1 – but
remains extremely weak, and we don’t expect any meaningful the deceleration is unfolding at a moderate pace and from
improvement to materialize soon. In June, the retail PMI very strong levels.
remained below 50 for the sixth consecutive month, while the
upward trend in consumer confidence came to a halt in the PMI SHOWS A STILL STRONG EXPORT PERFORMANCE
wake of the announced fiscal tightening across the area.
6
July 2010
CAR SALES ON A STEEP DOWNWARD TREND 4
2
25
Car registrations (in % mom)
20 0
Car registrations (i3M rate of change, %, RS)
15 -2
10 -4
5 -6
0 Exports (in % qoq)
-8
-5 PMI-based Model
-10
-10 01/98 01/00 01/02 01/04 01/06 01/08 01/10
-15
-20 Source: Markit, UniCredit Research

01/04 01/05 01/06 01/07 01/08 01/09 01/10
Taken at face value, the survey signals 9% annualized

Source: Eurostat, UniCredit Research
export growth at the beginning of the third quarter, which
provides a good buffer in the face of an orderly slowdown in
The positive news is that employment is stabilizing, the global growth in the months ahead. We continue to think that
unemployment rate is flattening out, and precautionary chances of a renewed dip into recession are slim, somewhere
savings have started to ease, mirroring the labor market around 10%.
improvement. Once the car-related drag begins to fade,
probably starting already in the summer, private consumption Marco Valli (UniCredit Bank Milan)
should first stabilize, and then resume growing, though at a +39 02 8862-8688,
marco.valli@unicreditgroup.de
very modest pace. Fiscal consolidation and slowing wage
dynamics leave no room for any meaningful spending recovery
throughout the forecast horizon.
Low risk of a double-dip recession

With increasing signs of moderating world growth, the downward
trend in eurozone business surveys, particularly the export-
related components, deserves close monitoring in the coming
months in order to assess the risk of a double-dip recession.
In this respect, the export orders index of the factory PMI is
the key variable to watch, because its informative content by
far beats the one of the export assessment reported by the
EC survey and by any other national manufacturing survey –
among which Belgium’s BNB ranks first with a comfortable
margin. Moreover, the PMI export orders outperform also the
first principal component extracted from a large dataset of

Friday Notes
ECB not under stress We see two main issues here. The first one is whether the
ECB may soon start feeling uncomfortable with this trend of
rising short-term rates, particularly now that the Fed has
■ Interbank rates have entered an upward trend that led to a
signaled some downside risks to US growth and inflation.
moderate tightening of monetary conditions. However, this
The second one deals with the interbank rate path and the
doesn’t worry the ECB, given that the rate increase is
ECB strategy after the publication of bank stress test results.
totally demand driven, i.e. by a drop in excess liquidity.
■ We analyze two scenarios for interbank rates and the ECB not worried by higher interbank
ECB strategy after the publication of stress test results. rates
The answer to the first question was given by Trichet in the 8 July
■ If stress test results turn out to be a roughly neutral factor for
press conference. Back then, he openly stated that higher
financial markets, the trend of diminishing excess liquidity
interbank rates are totally demand driven and do not reflect a
should continue, and so will the upward trajectory of
change in the ECB’s monetary policy stance, given the
interbank rates.
ECB’s unchanged commitment to provide unlimited liquidity at
1W and 3M maturities. We think this is a sensible argument
■ If the market reacts negatively to the publication of stress
and the ECB can’t be accused of remaining passive on this
test results, tensions in the money market will most likely
front. In fact, while the first leg of the upward trajectory in
resume, leading to an increase of the average liquidity need
Euribor rates was mostly due to resurfacing counterparty risk
of the banking sector as a whole. This should contribute to
in the wake of the escalating debt crisis – and here the ECB
stop, if not reverse, the rise in interbank rates.
reacted properly on 10 June by initiating three more 3M
refinancing operations with full allotment – the second leg of
■ In the case that this automatic stabilization mechanism doesn’t
the Euribor adjustment, which started in July, has been
prove enough to stem tensions in money market rates, the
totally driven by a drop in excess liquidity as banks bid less
ECB will probably extend the provision of unlimited
funds than the ones expiring (cf. chart). In other words, short-
liquidity to six or even twelve months.
term rates are now drifting towards the refi rate to reflect the
perceived better shape of the financial sector, also visible in
(Slightly) tighter monetary conditions the diminishing appeal of the ECB’s overnight facility.
The recent increase in euro area money market rates comes at a
critical juncture, when signs of slowing global growth are becom- EXCESS LIQUIDITY IN THE EMU
ing increasingly clear and stress test results loom. After the
trough at the end of March at 0.63%, the 3M Euribor rate has 400
Excess liquidity (in EUR bn)
climbed to around 0.90%, with an acceleration of the upward 350
Excess liquidity smoothed (in EUR bn)
trend after the expiry of the first 12M LTRO on 30 June 300
(cf. chart). So far, the impact on the economy of higher 250
interbank rates is equivalent to a 25bp hike in the refi rate at 200
times of normal functioning of monetary policy. 150

100
50
3M LIBOR: RECENT DYNAMICS
0
2.50 -50
3M Euribor (%) 3M USD Libor (%) -100
2.25
3M GBP Libor (%) 01/07 07/07 01/08 07/08 01/09 07/09 01/10 07/10
2.00
1.75
Source: Bloomberg, UniCredit Research
1.50
1.25
1.00 This sort of adjustment mechanism is exactly what the ECB
0.75 had in mind when it adopted the fixed-rate, full-allotment
0.50 policy, and the central bank can therefore afford to be
0.25 relatively relaxed about moderately higher interbank rates at
0.00 this stage. After all, the monetary policy stance remains
01/09 04/09 07/09 10/09 01/10 04/10 07/10
strongly expansionary, as recently emphasized by some
ECB officials. Remember that at the height of the crisis, the
Source: Bloomberg, UniCredit Research ECB decided not to lower the refi rate all the way down to
zero; instead, the bank held the policy rate at 1%, but allowed

Friday Notes
for an endogenous further easing in monetary conditions by This means that at the beginning of 2011 unlimited liquidity will
flooding the market with liquidity and lowering the ECB be available only at regular 1W MROs. Under these
deposit rate to 0.25%, widening the spread with the refi. assumptions, the upward trend of the 3M Euribor rate will
Responding to elevated uncertainty and counterparty risk, probably see a bump at the end of September when there
the banking sector took up an enormous amount of excess will be the simultaneous expiry of 3M, 6M and 12M operations
liquidity, so that short-term market rates fell substantially for a total of EUR 225bn: regardless of how much of this
below the refi. For the ECB this served two purposes. First, it liquidity will be rolled over in the 3M auction, the maturity
allowed the bank to bolster its anti-inflation reputation by of outstanding liquidity will shorten noticeably. All in all,
arguing that it was not following the Fed and the BoE to a the 3M Euribor should rise above the refi already in 4Q10
zero interest rate policy (ZIRP); second, it set the stage for (which is our current view). At that point, carefully calibrated
an eventual initial tightening of monetary conditions without rhetoric hinting at a prolonged period of stable policy rates
the need to hike the refi. This is what seems to be happening should allow the ECB to stabilize money market rates just
now, as some improvement in underlying conditions results in above the refi rate for some time. A clear upward trend in
an endogenous tightening of the monetary stance. This has interbank rates will probably resume only late next year, in
two advantages: first, it avoids the political noise associated anticipation of the first refi rate hike that we see at end-2011.
with a policy rate move; second, it can be automatically
slowed or reversed if conditions change, as the ECB is still 2. The market reacts negatively to the publication of stress test
offering unlimited liquidity. results, either because the stress scenarios are perceived
as too benign (and consequently the capital need is seen
Stress tests and interbank rates: as too low to be reliable), or because the coverage is
considered insufficient to identify all the critical positions
a scenario analysis within individual countries (we recall that results will cover
Let’s now come to the ECB strategy after the publication of at least 50% of each national banking sector); or because
stress test results. We see two main possible scenarios: differences in methodology and assumptions at the national
level are too significant to allow for a meaningful cross-country
1. Stress test results turn out to be a roughly neutral factor for comparability of results. The third appears at the time of
financial markets, with investors not particularly concerned writing as the biggest risk, and the Committee of European
by the absence of a sovereign default scenario and not-too- Bank Supervisors (CEBS) has not yet been able to clarify
aggressive haircuts assumptions. This could happen either whether stress assumptions differ across countries, especially
because the absence of the sovereign default scenario as regards the treatment of sovereign bonds. If this is the
has been widely anticipated and therefore represents no case, tensions in the money market will most likely resume,
surprise to forward looking financial markets, or because leading to an increase of the average liquidity need of the
financial markets are truly convinced that the actual sovereign banking sector as a whole. With the ECB still committed
risk in the euro area has materially declined after the ECB to provide unlimited liquidity, higher demand will lead to
started buying government bonds. In either case, the higher excess liquidity in the system, contributing to stop,
stress test results would be seen as a fairly reliable proxy for if not reverse, the rise in interbank rates. In the case that
the soundness of the financial sector, and the plausibility this automatic stabilization mechanism doesn’t prove
of these results would be reflected in the fact that not all enough to stem tensions in money market rates, the ECB
the banks pass the test but approximately 10-20% of them has two options: lowering the refi rate, which we deem as
require new capital. In this relatively benign environment, very unlikely, or extending the provision of unlimited liquidity
the trend of diminishing excess liquidity should continue – to six or even twelve months. The announcement of a
though probably not in a smooth and linear fashion – and new 6M operation in the late summer will imply some risks
so will the upward trajectory of interbank rates. Note that of a later-than-currently projected start to the tightening
the process would involve some volatility: as some banks cycle, while a 12M operation would probably be consistent
would fail the test, markets would watch how their situation is with a delay of rate hikes into 2012.
being addressed, whether with attempts to raise new
capital on the market, or via direct government intervention. Marco Annunziata, Ph.D. (UniCredit Bank)
+44 20 7826-1770
The sooner and the faster these situations are addressed, marco.annunziata@unicreditgroup.eu
the lower the volatility will be. The ECB would then be
monitoring the situation closely but refraining from any Marco Valli (UniCredit Bank Milan)
+39 02 8862-8688,
active intervention. Most likely, there won’t be any 3M marco.valli@unicreditgroup.de
operation beyond the three already announced for 3Q,
with the final one taking place at the end of September
with maturity at year-end, when there will also be the
expiry of EUR 97bn of liquidly from the last 12M LTRO.

Friday Notes
Data Monitor Europe – Preview of the coming week
Tuesday, 27 July
EMU, M3 M3 GROWTH NEAR THE ZERO LEVEL
June CIB Cons. May Apr

16
in % yoy -0.1 -0.1 -0.2 -0.2
M3 (in % yoy)
14
Loans to private sector (3M rate of change, smoothed, in %)
M3 annual growth rate is expected to hover in the zero 12
neighborhood also in June (up to -0.1% from the -0.2% 10
of the previous month), with a slight increase in the
8
monthly flow, which should come back into positive
6
territory. Improvement will be widespread over all
4
components, involving both loans to the household
sector (to show some stabilization) and loans to non- 2
ECB's M3 growth reference value
financial corporations. 0
-2
01/99 01/01 01/03 01/05 01/07 01/09
Source: Thomson Datastream, UniCredit Research
GERMANY, GFK CONSUMER CLIMATE LITTLE MOVEMENT IN CONSUMER CONFIDENCE
July CIB Cons. June May GfK Index

Index 3.6 3.6 3.5 3.5
20
The start of budget consolidation slated for the coming

15
year and the hike of social insurance contributions are
weighing on households’ income expectations. In contrast,
10
job fears have continued to decline, resulting in a higher
willingness to consume. Overall, therefore, we currently
5
expect no material movements in the consumer climate.
-5
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: GfK, UniCredit Research
Wednesday, July 28
GERMANY, CONSUMER PRICES CORE RATE REMAINS MUTED (IN % YOY)
July CIB Cons. June May

4.0
in % mom 0.1 -- 0.1 0.1 Headline inflation Core rate (ex energy & food)
3.5
in % yoy 1.0 1.2 0.9 1.2 3.0
2.5
Energy prices trended lower in the course of the month. 2.0
In contrast, prices for package tours should have followed 1.5
the seasonal pattern and spiked at the beginning of the 1.0
main vacation period. Overall, we expect a slight uptick 0.5
in consumer prices both mom and yoy. Core inflation 0.0

-0.5
should be relatively unchanged at just over ½%.
-1.0
01/05 07/05 01/06 07/06 01/07 07/07 01/08 07/08 01/09 07/09 01/10
Source: Federal Statistical Office, UniCredit Research

Friday Notes
Thursday, 29 July
EMU, ECONOMIC CONFIDENCE ECONOMIC CONFIDENCE STILL CLOSE TO THE CYCLE HIGH

99.7 99.0 98.7 98.4 120 20
110 10
The ESI (Economic Sentiment Indicator) is expected to
continue its moderate recovery trend in July. We expect 100 0
to see further modest signs of improvement in the
industry and services components, while we already 90 -10
know from the preliminary estimate released yesterday
80 -20
that consumer confidence posted a nice increase. Given
that in the recent recovery phase the EC survey rose 70 EC economic sentiment -30
less than the PMIs, it is plausible to assume that, even EC consumer confidence (RS)
when the PMIs will resume easing, the downward trend in 60 -40
the ESI will be more moderate than the one of the PMIs. 01/99 01/01 01/03 01/05 01/07 01/09
GERMANY, UNEMPLOYMENT FURTHER IMPROVEMENT (UNEMPLOYED IN MN)
July CIB Cons. Jun May

5.5
in ‘000 mom, sa -15 -15 -21 -41
not seasonally adjusted
in ‘000 mom, nsa 20 -- -89 -164 seasonally adjusted
5.0
Corporate hiring plans signal an ongoing, across-the- 4.5

board improvement on the labor market. However, the
start of the summer vacation period in some federal 4.0
states should already have triggered a limited uptick in the

3.5
not adjusted number for July. Adjusted for seasonal factors,
we expect the thirteenth consecutive monthly decline. 3.0
2.5
01/92 01/94 01/96 01/98 01/00 01/02 01/04 01/06 01/08 01/10
Source: Federal Employment Agency, UniCredit Research
ITALY, BUSINESS CONFIDENCE BUSINESS CONFIDENCE POINTS SLIGHTLY SOUTH

120
96.0 96.5 96.1 96.2
115
110
Business confidence is expected to retrace marginally
105
in July. The support coming from ongoing resilience of new
100
orders – especially foreign – will be offset by the negative
95
impact that should stem from a slight pick-up in inventories 90
and by the potential stabilization of the production 85
outlook. 80
75 ISAE-Business confidence
70
65
01/99 01/01 01/03 01/05 01/07 01/09

Friday Notes
Friday, 30 July
EMU, CONSUMER PRICES INFLATION IS SET TO RE-ACCELERATE IN JULY

in % mom -0.5 -- 0.0 0.1 4.5
Consumer prices (seasonally adjusted, in % yoy)
4.0
in % yoy 1.6 1.8 1.4 1.6 Core rate (seasonally adjusted, in % yoy)
3.5
3.0
In July, the headline inflation rate is expected to resume
2.5
rising due to an energy base effect. Risks to our 1.6%
2.0
forecast are to the downside. Food inflation exited
1.5
negative territory in June and is likely to continue on a well
1.0
established moderate upward trajectory. Endogenous 0.5
price pressures remain very weak and the trend in core 0.0
inflation remains downwards. -0.5
-1.0
01/99 01/01 01/03 01/05 01/07 01/09
Source: Eurostat, UniCredit Research
ITALY, CONSUMER PRICES BACK ON THE RISE

in % mom 0.2 -- 0.0 0.1 0.6 4.4
0.5 4.0
in % yoy 1.5 1.5 1.3 1.4
0.4 3.6
0.3 3.2
After having marginally slowed also in June, Italian
0.2 2.8
inflation is expected to back on the rise to 1.5%,
0.1 2.4
interrupting the easing trend since April. The main swing
0.0 2.0
factor is likely increasing gas prices, which should drive up -0.1 1.6
the housing component. We see 2010 inflation at 1.6%. -0.2 1.2
-0.3 CPI (in % mom ) CPI (in % yoy, RS) 0.8
-0.4 0.4
-0.5 0.0
01/99 01/01 01/03 01/05 01/07 01/09
Source: Istat, UniCredit Research
Tullia Bucco (UniCredit Bank Milan) Chiara Corsa (UniCredit Bank Milan)
+39 02 8862-2079 +39 02 8862-2209
tullia.bucco@unicreditgroup.de chiara.corsa@unicreditgroup.de
Alexander Koch, CFA (UniCredit Bank) Chiara Silvestre (UniCredit Bank Milan)
+49 89 378-13013 chiara.silvestre@unicreditgroup.de
alexander.koch1@unicreditgroup.de
Marco Valli (UniCredit Bank Milan)

+39 02 8862-8688,
marco.valli@unicreditgroup.de

Friday Notes
Data Monitor US – Preview of the coming week
Monday, 26 July
NEW HOME SALES DEMAND FOR NEW HOMES AT RECORD-LOWS

1600
In thousands annualized 325 320 300 446
1400
Following the expiration of the homebuyer tax credit,
1200
new home sales plunged to a new all-time low in May! For
June, we expect only a minor rebound. The assumed level 1000
of an annualized 325k units would still be the second-
800
lowest since statistics began in 1963. That shows that,
without the tax credit, demand for homes is still lackluster. 600
New home sales (in thousands, saar)
400
6-month moving average
200
01/00 01/02 01/04 01/06 01/08 01/10
Tuesday, 27 July
S&P/CASE SHILLER HOME PRICE INDEX HOUSE PRICES CONTINUE TO EDGE UP
May CIB Cons. Apr Mar In % yoy

In % yoy 5.1 3.7 3.8 2.3
20
Inflation
The widely followed S&P/Case Shiller home price index 15
rose 3.8% over the last twelve months, the highest yoy 10
rate since autumn 2006. And due to a positive basis 5
effect, we expect the yoy rate to accelerate further to 0
more than 5%, which would be the highest level since
-5
August 2006. On a monthly basis, however, the pace of the
-10
price increases has slowed again of late. This moderation
-15
is likely to intensify in the coming months due to the end
of the tax credit for homebuyers. In general, we continue -20
Deflation
to expect that huge (shadow) inventories of unsold -25
01/00 01/02 01/04 01/06 01/08 01/10
homes will prevent a significant house price appreciation
for the time being. Source: Thomson Datastream, UniCredit Research

Friday Notes
CONSUMER CONFIDENCE – CONFERENCE BOARD CONSUMER CONFIDENCE SLIPPED FURTHER
July CIB Cons. June May Consumer confidence index

51.0 51.8 52.9 62.7
155
The Conference Board’s consumer confidence index fell 140

Conference Board University of Michigan
to a three-month low in June. The major factors behind 125
the deterioration in the mood of households were a 110
weaker economic and labor market outlook, a weaker 95
stock market, and the oil spill in the Gulf of Mexico.
80
While the oil spill has apparently been stopped, other
65
problems are still looming. The daily Rasmussen Survey
50
confirmed that consumer sentiment declined further in July.
35
20
01/00 01/02 01/04 01/06 01/08 01/10
Wednesday, 28 July
DURABLE GOODS ORDERS SLOWER GROWTH IN NEW ORDERS

25
In % mom 0.5 0.8 -0.6 2.9
20
15
Durable goods orders fell in May, following five consecutive
10
monthly increases. The decline was caused by a 30% drop
5
in civilian aircraft orders. The core group of nondefense 0
capital goods orders ex aircraft, in contrast, rose another -5
2.1% in May, more than reversing the 2.7% decline in -10
April. The latest regional manufacturing surveys signal, -15
however, that the manufacturing sector has started to -20 Durable goods (in % yoy)
lose some momentum, due to fading support from the -25 All goods (in % yoy)
inventory cycle and lackluster capex spending. Accordingly, -30

01/00 01/02 01/04 01/06 01/08 01/10
we expect a more moderate increase in new orders for June.
Thursday, 29 July
BEIGE BOOK NO NEED TO ACT
The Beige Book summarizes comments received from Key interest rates in %
businesses and other contacts in the twelve Fed districts.
8
The latest report stated, “economic activity continued to Fed funds target rate CIB forecast
improve […], although many Districts described the pace 7 3M Eurodollar
of growth as “modest”. While the current report should 6 3M Eurodollar FRAs
reiterate that the economy continues to improve, the 5
CIB forecast (3M)
overall tone could be a bit more cautious. The latest
4
manufacturing surveys, for example, declined significantly in
New York and Philadelphia, signaling that the massive 3
support from the inventory cycle is fading. In addition, 2

we are interested in the assessment of the labor market 1
situation, particularly any reports about the transition
0
from temporary to permanent workers.
01/99 07/00 01/02 07/03 01/05 07/06 01/08 07/09 01/11

Friday Notes
Friday, 30 July
REAL GDP, ADVANCE ONGOING BUT MORE MODERATE GROWTH
II/10 CIB Cons. I/10 IV/09

8
in % qoq annualized 2.3 2.5 2.7 5.6 CIB forecast
in % yoy 3.2 -- 2.4 0.1 6
4
The US economy likely expanded for the fourth straight
2
quarter. We expect that real GDP grew an annualized 2.3%
in the second quarter. While private consumption, business 0
fixed investment and inventories added to growth, net -2

exports likely were a drag (for more information, please -4
see my research note). Real GDP (in % qoq, ann.)
-6
Longterm average
-8
01/00 01/02 01/04 01/06 01/08 01/10
EMPLOYMENT COST INDEX LABOR COST PRESSURE TO STAY BENIGN
II/10 CIB Cons. I/10 IV/09

8
in % qoq 0.4 0.5 0.6 0.4
Employment cost index (in % yoy)
7 Wages & salaries (in % yoy)
The Employment Cost Index, ECI, rose in the first Benefits (in % yoy)
6
quarter at the fastest pace since autumn 2008. That
increase was largely triggered by a 1.4% rise in private 5
industry benefits. Wages & salaries, in contrast, edged
4
up by a moderate 0.4%. Due to the still significant
underutilization of the labor force, upward pressure on 3
wages & salaries and benefits should have remained 2

benign in 2Q.
1
I/02 I/03 I/04 I/05 I/06 I/07 I/08 I/09 I/10
Dr. Harm Bandholz, CFA (UniCredit Bank)

+1 212 672 5957
harm.bandholz@us.unicreditgroup.eu

Friday Notes
Review Europe The German economy is likely to maintain a solid momentum

for the rest of this year. With the latest sharp rebound in
domestic business confidence figures, we see marked
German Ifo: The party goes on upside risks to our GDP forecast of 2.0% (adjusted) for 2010.
The Ifo business climate index unexpectedly jumped from Nevertheless, although a deceleration in the economic
101.8 to 106.2. It was the strongest increase since reunification. dynamic is likely to be postponed, it still remains inevitable.
The rise was driven by a massive increase not only in the The important impulses from abroad are about to lose steam,
current situation component from 101.1 to 106.8, but as clearly indicated by the latest noticeable downward trend
expectations were also up very strongly from 102.4 to 105.5, in the OECD leading indicators. Temporary support factors
reversing two preceding declines and climbing to the highest are phasing out and also the upswing in Emerging Asia is
level since October 1994. Export expectations were reported going to shift down a gear. But this is definitely no reason to
to have stabilized at last month's high level. The strong end the party now.
improvement was broad based among sectors.
Alexander Koch, CFA (UniCredit Bank)
+49 89 378-13013
The latest Ifo survey and the release of advance PMI data alexander.koch1@unicreditgroup.de
allow for only one comment: Wow! The German business
model still remains in full swing at the beginning of the
second half of the year. Driven by the recent very brisk
demand from abroad, industry is recovering impressively
from the preceding slump. Auto producers are currently even
reporting that extra shifts are necessary to work off new
orders, and order books in machinery appear already well
filled for this year. Subsequently, domestic business has also
been stabilizing again, reflected in higher sentiment readings
for construction and above all trade – supported by the
further improvement in the labor market conditions. And Ifo
further highlighted that especially the beverage industry
profited from the FIFA World Cup and the heat wave. All in
all, after the unanimously expected strong rebound of the
economy in spring, the environment for the second half of
the year looks more solid than initially anticipated. The
tailwind still remains very strong.
IFO INDEX
120
Overall climate
115
Expectations
110 Current conditions
105
100
95
90
85
80
75
1995 1997 1999 2001 2003 2005 2007 2009
Source: Ifo, UniCredit Research

Friday Notes
EUR-USD EXCHANGE RATE THEN AND NOW

Fixed Income Outlook
Percentage change in the 20 trading days before and after the stress
test release
■ Currencies and bond markets extensively follow the script
of the US bank stress test release. 10
US stress test release EU stress test release
8
■ Risk of rising yields in core countries of the euro zone
6
therefore persists, and tactical duration immunization still
looks meaningful. 4
2
On schedule: Currencies…
0
Last week, we focused on the issue of the stress test results,
-2
and with just a few hours before the scheduled release
(18:00 CET) this issue is naturally still a hot item. Neither -4
-20 -15 -10 -5 0 5 10 15 20
Moody’s one-notch downgrade of the Irish rating to Aa2 nor
a "dovish" speech by Bernanke were able to budge currencies
Source: Bloomberg, UniCredit Research
and bond markets from the path, outlined last week, which is
based on the experiences of the US stress test at the
beginning of May 2009. For that reason, we are also dedicating ...and bonds
this note to a comparison "then and now" in even greater
detail. Our current recommendations are clearly delineated Last but not least, bond markets are also trading within the
anyway. The decision of our equity market colleagues to anticipated ranges. It doesn’t matter whether one looks at the
upgrade the banking sector on tactical considerations serves 10Y Bund yield, 10Y EUR swap rate or aggregated 7-10Y
as a proxy here. There is an explicit and extremely close yields in the EGB universe; it is the calm before the storm.
correlation between movements in the key currencies. The
USD index, but also the EUR-USD exchange rate, is tracking 10Y BUND YIELD THEN AND NOW
the trends of May 2009 with great precision. The movement Change (in bp) in the 20 trading days before and after the stress test
release
is naturally also benefiting from the recently intensifying
"double dip/deflation" debate in the US, while the ECB is 60
US stress test release EU stress test release
wallowing in underlying optimism. 50
40
USD-INDEX THEN AND NOW
30
Percentage change in the 20 trading days before and after the stress 20
test release
10
4
US stress test release EU stress test release 0
2
-10
0
-20
-20 -15 -10 -5 0 5 10 15 20
-2
-4 Source: Bloomberg, UniCredit Research

-6
-8 Since we do not assume a worst-case scenario (refinancing

requirement in individual countries is so high that recourse
-10
-20 -15 -10 -5 0 5 10 15 20
must be made to the EUR 750bn aid package), the next two
weeks will probably be dominated by moderately rising
Source: Bloomberg, UniCredit Research yields. Bottom line: It only remains to stress once again the
recommendation we made last week. Benchmark-oriented
investors should neutralize any active duration exposure – at
least in the short term.
Michael Rottmann (UniCredit Bank)

+49 89 378 15121
michael.rottmann1@unicreditgroup.de

Friday Notes
Forex Outlook EUR-USD: again stressed by US data?

The stress tests clearly put the piecemeal approach of EU
■ View: Mixed US data releases should be the driver next policy makers and regulators in dealing with EU financial
week and contribute to further USD stabilization. issues once more in the limelight. Furthermore, they might
fail to actually dissipate fears about the effective resilience of
■ EUR: Investors’ reaction to the stress test results and EU banks in case downside scenarios to the economy should
increasing risk aversion due to softening US economic really materialize. Markets might consider the purported
data releases might increasingly weigh on EUR-USD. methodologies and parameters employed as too soft against
the backdrop of current EMU government bond spreads.
■ GBP: EUR-GBP might remain trapped in the 0.83-0.85 band, This apparently soft approach to improving financial sector
while some further softening in cable to around 1.52-1.51 stability in Europe hardly helped the medium-term prospects
is a buy opportunity. of the EUR. Indeed, the recovery in EUR-USD, which was
underway since the beginning of June, stalled this week,
Stress-testing FX investors although the eurozone PMIs surprisingly firmed again.
Therefore, rejection at the 1.30 level might already favor
Tonight’s disclosure of the EU Bank Stress Test results should
again a more bearish outlook on the cross. The loss of
finally lift the veil on which European banks will need to raise
momentum in EUR-USD might as well be partly ascribable to
additional capital following weeks of speculation, which
increasing worries on the state of the US economy, which
hardly helped the EUR to develop further upside potential.
this week started to help again the greenback as explained
The never-ending speculation, first on the methodologies
above, following an intermediate period in which bad US
and parameters to be applied in the stress test, then on
data were considered EUR positive. The eurozone’s own
which banks have passed or failed the test and, eventually,
economic data releases such as the firming July flash CPI
on when and in what way the results will be disseminated
and the still declining German jobless numbers might not be
unnerved FX investors and contributed to halt the EUR-USD
enough to awaken renewed interest in EUR-USD next week,
recovery.
although here much will obviously depend on how FX
investors actually will receive the stress test results. A warm
Worries about the US economy will easily continue to be the
welcome for the results could indeed lead to renewed tests
major driver in the FX market in the coming weeks following
of the 1.30 level and above, but in our view this would again
this week’s softening in US housing data. However, the
represent an attractive selling opportunity for a medium-term
market reaction to downbeat US economic figures might be
target at 1.25, once the 1.2735 base would be broken. On
changing as equity markets now are trading sideways after
the other hand, and probably slightly more likely, the market
their strong recovery during the first part of July. A negative
tonight could be disappointed by the stress test outcome and
equity market reaction to economic data releases and a
in this case, although a major part of the results have
subsequent increase in risk aversion, as has already partly
probably already been leaked via media reports, we expect
occurred following Bernanke's semi-annual monetary policy
EUR-USD to trade relatively swiftly through the 1.2735 base
report to Congress this week, could eventually turn the tide in
next week for an initial 1.25 target thereafter.
favor of some USD recovery. Bernanke’s testimony, underlining
that the economic outlook remained unusually uncertain and
that the Fed was prepared to take more policy action if EUR-GBP caught in the 0.83-0.85 band
needed, fomented fears of economic weakness in the US The BoE minutes for July revealed no big surprises as the
and consequently allowed the greenback to stabilize. The MPC voted 7-1 in favor of keeping rates steady, with Andrew
winner of the week was the JPY, which again benefited from Sentance again being the lone dissenter, favoring an early
the US growth worries and which resisted BoJ intervention rate hike. However, as he seems unlikely to find other MPC
fears, notwithstanding its current strength. members to join him in the hawkish camp, we change our
BoE call and expect the BoE to leave the base rate
The main driver next week should again be important US unchanged at 0.5% during the reminder of this year before
data releases. Housing and durable goods orders data at the raising it slightly to 0.75% in 1Q11. However, we still favor
beginning of the week might be relatively upbeat, but lower sterling over the EUR and the greenback for the remainder of
readings of US consumer confidence, 2Q GDP and the the year and beyond. Having said that, on a 6M horizon,
Chicago PMI may again lead to spikes in risk aversion, EUR-GBP might be less prone to a fall below 0.80 with BoE
especially if the Fed Beige Book will display a worsening in rates on hold, while cable still should rise to 1.57 or slightly
US economic conditions. This might stabilize the greenback above. In the medium term, EUR-GBP should still continue
further as quite good US corporate earnings currently fail to to oscillate in the 0.83-0.85 band, even following the firmer
significantly lift risk appetite in favor of other currencies. UK retail sales and GDP readings this week, as no top-tier

Friday Notes
data will be published in the UK next week and as both the

UK and the eurozone will continue to be characterized by their
fair share of budget woes in the medium term. Regarding
GBP-USD, the outlook may be slightly more straight-forward.
Although in the near term the weakening of US data releases
could put the important 1.5150 support level at risk if risk
aversion should increase, we consider the 1.51-1.52 area as quite
attractive to return long again in cable. UK fundamentals
should continue to outpace US ones and subsequently
1.5450 should become a distinct possibility in cable in the
medium term.
Dr. Stephan Maier (UniCredit Bank Milan)

+39 02 8862 8604
stephan.maier@unicreditgroup.eu

Friday Notes
CIB View – Our Global Picture ■ Taking into account the recent escalation of the sovereign
debt crisis together with the weak foundation of the current
Global economy recovery, the ECB should leave its key interest rate
unchanged at currently 1% well into next year. We expect
■ The Great Recession ran its course last autumn. Real
the first hike in 4Q11 (25 bp). But the central bank will continue
worldwide GDP growth even accelerated up until spring. It
to remove excess liquidity again at a measured pace.
was, however, no more than a technical rebound after the
preceding economic collapse that is already facing another
setback. But we do not expect a double-dip recession. Government bond markets
Global economic growth should not re-accelerate before ■ The expected US monetary tightening in 1H 2011 in
late next year. conjunction with growing risk appetite will send government
US bond yields higher (again) later this year, albeit moderately.
■ For 2010, we expect real GDP to rise 4.4% on a PPP basis Combined with the growing supply of Treasuries, long-
(2011: +4.1%; 2009: -1%). Economic activity in industrialized term US yields (10Y) should reach the 3.80% level at the
countries should post only a modest 2.4% increase (2011: end of this year and 4.30% by end-June 2011. 10Y Bund
+2%), after having contracted by 3.1% in 2009. China and yields should barely rise over the next couple of months,
Emerging Asia, which were the first to achieve a trend reaching 3¼% at the end of this year and 3.50% six
reversal last year, will clearly remain at the top of the months later.
growth league.
Exchange rates
US ■ The debt crisis should continue to weigh on the euro
■ After exiting the Great Recession last autumn, real GDP beyond short-term fluctuations. We expect EUR-USD to
growth accelerated to a strong 5.6% in 4Q09 and a weaken again, testing the 1.20 mark in 1Q11. Headwind
satisfactory 2.7% in 1Q10, respectively. But this pace of is also coming from the widening of the transAtlantic
expansion was not sustainable. Growth was primarily fuelled interest rate & yield spread since the Fed will start its
by the re-stocking process as well as the advance effects tightening cycle well before the ECB. We also expect the
due to federal fiscal programs such as the "cash for JPY to weaken over the next year or so. USD-JPY should
clunkers" program. It was therefore borrowed growth from rise to the 100 mark at the end of March next year.
the future. Hence, we expect growth to decelerate further
toward 2% in 1H11 before gaining momentum again late
OUR MACRO FORECASTS
next year. For 2010 as a whole, we expect real GDP to grow
by 2.8% (2011: 2.1%; 2009: -2.4%). in % yoy 2009 2010 2011
GDP EMU -4.1 1.0 1.3
■ The current US growth moderation argues against a rise CPI EMU 0.3 1.5 1.8
in the Fed funds rate any time soon. We expect the Fed to GDP Germany -4.9 1.8 1.5
stick to its Zero Interest Rate Policy (target rate currently CPI Germany 0.3 1.1 1.6
at 0%-0.25%) this year, followed by a first rate hike during
GDP Italy -5.1 0.9 1.0
1H11. This will be preceded by a further gradual removal of
CPI Italy 0.8 1.6 1.9
its Quantitative Easing measures.
GDP US -2.4 3.0 2.4
CPI US -0.3 1.8 2.2
Eurozone
■ The eurozone exited its deepest recession since WWII
OUR FI/FX & OIL PRICE FORECASTS
also in autumn last year. But it was primarily the
turnaround in the inventory cycle, the growth effects of 2010/11 30-Sept 31-Dec 31-Mar 30-Jun
economic stimuli programs and improving net exports that EMU 3M (%) 0.95 1.20 1.28 1.35
lent a helping hand. After a weather-related rebound last EMU 10Y (%) 3.00 3.25 3.45 3.50
quarter, the exceptionally slow pace of the recovery should US 3M (%) 0.60 0.75 1.05 1.55
continue. But we do not expect the EMU-wide economy to US 10Y (%) 3.40 3.80 4.20 4.30
fall back into recession again. Eurozone GDP should grow
EUR-USD 1.24 1.22 1.20 1.18
by only 1% this year, after having contracted by 4.1% last
USD-JPY 91 95 100 106
year. For 2011, we expect EMU-wide GDP growth of 1¼%.
Oil Price 78 85 80 80

Friday Notes
Macro Forecasts
GDP, real (%, yoy) 2004 2005 2006 2007 2008 2009 2010f 2011f
World economy * 4.7 4.3 4.9 5.0 3.0 -0.6 4.4 4.1
Industrialized countries * 2.9 2.5 2.8 2.5 0.5 -3.1 2.4 2.0
US 3.6 3.1 2.7 2.1 0.4 -2.4 2.8 2.1
Euro area 1.9 1.8 3.1 2.8 0.4 -4.1 1.0 1.3
Germany ** 0.7 0.9 3.4 2.6 1.0 -4.9 1.8 1.5
France 2.3 2.0 2.4 2.3 0.1 -2.5 1.4 1.3
Italy 1.4 0.8 2.1 1.4 -1.3 -5.1 0.9 1.0
Spain 3.3 3.6 4.0 3.6 0.9 -3.6 -0.4 0.6
Austria 2.5 2.5 3.5 3.5 2.0 -3.5 1.3 1.4
UK 3.0 2.2 2.9 2.6 0.5 -4.9 1.2 1.8
Switzerland 2.5 2.6 3.6 3.6 1.8 -1.4 2.0 1.5
Sweden 3.5 3.3 4.6 3.4 -0.6 -5.1 2.7 2.1
Japan 2.7 1.9 2.0 2.4 -0.7 -5.3 2.7 1.8
Developing countries * 7.4 7.0 7.9 8.3 6.0 2.4 6.7 6.4
Asia 8.6 9.0 9.8 10.6 7.7 6.9 9.2 8.3
China 10.1 10.4 11.6 13.0 9.6 9.1 10.5 9.0
India 7.9 9.1 9.7 9.3 6.4 5.7 9.4 8.4
Latin America 6.0 4.7 5.7 5.7 4.2 -1.8 4.8 4.0
Brazil 5.7 3.2 3.8 5.7 5.1 -0.2 7.1 4.2
Central and Eastern Europe 7.5 6.1 7.2 6.9 4.0 -5.9 3.0 4.1
Russia 7.2 6.4 7.7 8.1 5.6 -7.9 3.4 5.0
Consumer prices, CPI (%, yoy) 2004 2005 2006 2007 2008 2009 2010f 2011f
US 2.7 3.4 3.2 2.9 3.8 -0.3 1.5 1.7
core rate (ex food & energy) 1.8 2.1 2.5 2.3 2.3 1.7 1.0 1.2
Euro area, HICP 2.1 2.2 2.2 2.1 3.3 0.3 1.5 1.7
Germany 1.7 1.6 1.6 2.3 2.6 0.3 1.1 1.4
France 2.1 1.7 1.7 1.5 2.8 0.1 1.5 1.5
Italy 2.2 2.0 2.1 1.8 3.3 0.8 1.6 1.9
Spain 3.0 3.4 3.6 2.8 2.8 4.1 1.5 1.6
Austria 2.1 2.3 1.5 2.2 3.2 0.5 1.8 2.0
UK 1.3 2.0 2.3 2.3 3.6 2.1 3.2 2.6
Switzerland 0.8 1.2 1.1 0.7 2.4 -0.5 1.1 1.1
Sweden 0.4 0.5 1.4 2.2 3.5 -0.3 1.5 1.5
Japan 0.0 -0.3 0.2 0.0 1.4 -1.3 -1.0 -0.3
GDP, real (%, qoq) I/09 II/09 III/09 IV/09 I/10f II/10f III/10f IV/10f
US (annualized) -6.4 -0.7 2.2 5.6 2.7 2.3 2.3 2.2
Euro area -2.5 -0.1 0.4 0.1 0.2 0.6 0.3 0.2
Germany -3.5 0.4 0.7 0.2 0.2 0.9 0.5 0.4
France -1.4 0.2 0.3 0.5 0.1 0.5 0.3 0.2
Italy -2.9 -0.3 0.4 -0.1 0.4 0.2 0.2 0.2
Spain -1.7 -1.0 -0.3 -0.1 0.1 0.0 0.0 0.1
Austria -2.1 -0.5 0.7 0.3 -0.1 0.7 0.5 0.5
UK -2.6 -0.7 -0.3 0.4 0.3 0.5 0.4 0.4
Switzerland -1.1 -0.1 0.5 0.9 0.4 0.6 0.4 0.3
Sweden -3.0 0.7 -0.3 0.4 1.4 0.3 0.4 0.5
Japan -2.8 0.7 0.3 0.4 0.2 0.2 0.3 0.4
Consumer prices, CPI (%, yoy) I/09 II/09 III/09 IV/09 I/10f II/10f III/10f IV/10f
US -0.2 -1.0 -1.6 1.5 2.4 1.8 1.0 0.9
Euro area, HICP 1.0 0.2 -0.4 0.4 1.1 1.5 1.6 1.7
Germany 0.8 0.2 -0.2 0.4 0.8 1.1 1.1 1.4
France 0.6 -0.2 -0.4 0.4 1.3 1.6 1.5 1.5
Italy 1.5 0.9 0.1 0.7 1.3 1.4 1.6 1.9
Spain 0.5 -0.7 -1.0 0.2 1.2 1.5 1.4 1.8
Austria 1.1 0.3 0.0 0.6 1.4 2.0 1.9 1.9
UK 3.0 2.1 1.5 2.1 3.3 3.5 3.1 2.9
Switzerland 0.0 -0.7 -1.0 -0.2 1.1 1.2 1.0 1.1
Sweden 0.8 -0.5 -1.2 -0.4 1.0 1.3 1.6 1.9
Japan -0.1 -1.0 -2.2 -1.8 -1.1 -1.3 -1.0 -0.8
Comments: *The GDP shares used for aggregation are based on the purchasing-power-parity (PPP) valuation of country GDPs
** Real GDP 2010 unadjusted: +1.9% GDP = Gross Domestic Product, HICP = Harmonized Index of Consumer Prices, CPI = Consumer Price Index, f = forecast

Friday Notes
Interest & Exchange Rate Forecasts (I)

INTEREST RATE FORECASTS (%, END QUARTER)
2010/11 current end-Q3 end-Q4 end-Q1 end-Q2

Eurozone bond market
Refi rate 1.00 1.00 1.00 1.00 1.00
3M Euribor 0.88 0.95 1.20 1.28 1.35
2Y 0.69 0.85 1.05 1.15 1.30
5Y 1.60 1.83 2.10 2.30 2.40
10Y 2.65 3.00 3.25 3.45 3.50
30Y 3.34 3.60 3.80 3.95 4.00
10Y swap spread (in bp) 26 25 25 25 20
US Treasury Market
Fed funds target rate 0.13 0.25 0.25 0.75 1.25
3M USD Libor 0.50 0.60 0.75 1.05 1.55
2Y 0.56 0.85 1.30 2.00 2.40
5Y 1.68 2.11 2.55 3.15 3.45
10Y 2.94 3.40 3.80 4.20 4.30
30Y 3.96 4.25 4.60 4.70 4.75
10Y swap spread (in bp) 0 10 15 20 20
Japan
Target rate 0.10 0.10 0.10 0.10 0.10
3M JPY Libor 0.24 0.30 0.35 0.40 0.40
10Y JGB 1.08 1.40 1.50 1.60 1.65
United Kingdom
Repo rate 0.50 0.50 0,50 0.75 1.50
3M GBP Libor 0.74 0.80 0.95 1.20 1.85
10Y Gilt 3.35 3.55 3.70 3.90 4.00
Switzerland
3M CHF Libor mid target rate 0.25 0.25 0.25 0.50 0.75
3M CHF Libor 0.14 0.10 0.30 0.60 0.85
10Y Swissie 1.42 2.00 2.25 2.45 2.35
EXCHANGE RATE FORECASTS (END QUARTER)

EUR-USD 1.2880 1.24 1.22 1.20 1.18
EUR-JPY 112.01 113 116 120 125

EUR-GBP 0.8408 0.82 0.78 0.75 0.72
EUR-CHF 1.3443 1.29 1.27 1.30 1.33
USD-JPY 86.97 91 95 100 106

GBP-USD 1.5318 1.52 1.57 1.60 1.63
USD-CHF 1.0438 1.04 1.04 1.08 1.13
COMMODITY PRICE FORECASTS

Oil price (Brent, USD/b) 75.70 78 85 80 80
DJ commodity price index 261.62 290 310 310 310

Friday Notes
Interest & Exchange Rate Forecasts (II)

INTEREST RATE FORECASTS (%, END QUARTER)

Sweden
Key rate 0.50 0.50 0.75 1.00 1.50
3M rate 0.88 0.95 1.10 1.55 2.00
10Y government bond yield 2.68 3.20 3.65 3.90 4.15
10Y spread to Bunds (in bp) 3 20 40 45 65
Norway
Key rate 2.00 2.25 2.50 2.75 3.00
3M rate 2.68 2.80 3.00 3.20 3.40
Canada
Key rate 0.75 0.75 0.75 1.00 1.25
3M rate 0.94 1.00 1.10 1.30 1.50
Australia
Key rate 3.50 4.75 5.00 5.25 5.25
3M rate 4.95 5.05 5.30 5.50 5.50
New Zealand
Key rate 2.75 3.00 3.25 3.50 3.50
3M rate 3.33 3.40 3.70 3.85 4.00
EXCHANGE RATE FORECASTS (END QUARTER)

EUR-SEK 9.4086 9.50 9.45 9.40 9.35
EUR-NOK 7.9500 7.70 7.65 7.60 7.55
EUR-CAD 1.3344 1.20 1.22 1.28 1.30
EUR-AUD 1.4409 1.33 1.30 1.29 1.30
EUR-NZD 1.7742 1.68 1.63 1.60 1.62
USD-SEK 7.3047 7.66 7.75 7.83 7.92

USD-NOK 6.1729 6.21 6.27 6.33 6.40
USD-CAD 1.0362 0.97 1.00 1.07 1.10
AUD-USD 0.8938 0.93 0.94 0.93 0.91
NZD-USD 0.7260 0.74 0.75 0.75 0.73
EUR-USD 1.2880 1.24 1.22 1.20 1.18

Friday Notes
Economic Event & Data Release Calendar

Time Consensus
Date (ECB) Country Indicator Period CIB est. (Bloomberg) Prev. period
23 July to 30 July 2010
Mon, 26 Jul '10 0:00 UK House price (Nationwide, in % yoy) Jul 7.2 8.7
0:00 GE Import price index (in % yoy) Jun 8.5
16:00 US New home sales (in thousands) Jun 325 320 300
Tue, 27 Jul '10 GE Retail sales (real, in % mom) Jun 3.0

8:00 GE GfK consumer confidence Aug 3.6 3.6 3.5
10:00 EMU M3 money supply (in % yoy, 3M moving average) Jun -0.2 -0.2
10:00 EMU M3 money supply (in % yoy) Jun -0.1 -0.1 -0.2
15:00 US S&P/Case-Shiller home priceindex (in % yoy) May 5.1 3.7 3.8
16:00 US Conference Board consumer confidence Jul 51.0 51.8 52.9
Wed, 28 Jul '10 GE Harmonized CPI (in % yoy) Jul 1.0 0.8
GE Consumer price index, CPI (national, in % yoy) Jul 1.0 1.2 0.9
7:00 JP Tankan survey small business Jul 47.4
10:00 EC ECB Publishes Bank Lending Survey
13:00 US MBA mortgage applications Jul 23 7.6
14:30 US Durable goods orders ex transportation (in % mom) Jun 0.5 1.6
14:30 US Durable goods orders (in % mom) Jun 0.5 0.8 -0.6
20:00 US Fed Releases Beige Book Economic Report
Thu, 29 Jul '10 8:45 FR Producer price index, PPI (in % mom) Jun 0.3 0.0
9:30 IT Business confidence overall (ISAE, index) Jul 96.0 96.5 96.1
9:55 GE Unemployment rate (in %) Jul 7.6 7.7
9:55 GE Unemployment change (in thousands) Jul -15 -15 -21
10:30 UK Mortgage approvals (in thousands) Jun 48.25 49.815
11:00 EMU European Commission services sentiment (index) Jul 4 4
11:00 EMU European Commission manufacturing sentiment (index) Jul -5 -6
11:00 EMU European Commission economic sentiment (index) Jul 99.7 99.0 98.7
11:00 EMU European Commission consumer confidence climate (index) Aug -14.0 -14.1
11:00 EMU European Commission business climate (index) Jul 0.39 0.37
14:30 US Initial jobless claims (in thousands) Jul 23 464
Fri, 30 Jul '10 1:01 UK Consumer confidence (GFK, index) Jul -20 -19
1:15 JP PMI (Nomura) Jul 53.9
1:30 JP Unemployment rate (in %) Jun 5.2 5.2
1:30 JP Core consumer price index (in % yoy) Jun -1.6 -1.6
1:30 JP Consumer price index (ex fresh food, in % yoy) Jun -1.1 -1.2
1:30 JP Consumer price index (in % yoy) Jun -0.7 -0.9
1:50 JP Industrial production (in % yoy) Jun 18.9 20.4
10:00 IT Producer price index, PPI (in % yoy) Jun 3.8
11:00 IT Consumer price index (in % yoy) Jul 1.5 1.5 1.3
11:00 EMU Consumer price index, CPI (in % yoy, flash estimate) Jul 1.6 1.8 1.4
11:00 EMU Umemployment rate (in %) Jun 10.0 10.0
11:30 SZ KOF business climate Jul 2.3 2.25
14:30 US Employment cost index (in % qoq) Q2 0.4 0.5 0.6
14:30 US PCE deflator (in % qoq annualized) Q2 1.0 0.7
14:30 US Real GDP (in % qoq annualized) Q2 2.3 2.5 2.7
15:45 US Chicago Purchasing Managers Index Jul 56.0 59.1
15:55 US University of Michigan consumer confidence Aug 67.5 66.5
*Asterisked releases are scheduled on or after the date shown; sa = seasonal adjusted, nsa = not seasonally adjusted, wda = working day adjusted

Friday Notes
Economic Event & Data Release Calendar – The week after

Time Consensus
Date (ECB) Country Indicator Period CIB est. (Bloomberg) Prev. period
02 August to 06 August 2010
Mon, 02 Aug '10 9:30 SZ Manufacturing PMI (index) Jul 65.7

9:45 IT Manufacturing PMI (index) Jul 54.3
9:50 FR Manufacturing PMI (index) Aug 53.7
9:55 GE Manufacturing PMI (index) Aug 61.2
10:00 EMU Manufacturing PMI (index) Aug 56.5
10:30 UK Manufacturing PMI (index) Jul 57.5
16:00 US Construction spending (in % mom) Jun -0.2
16:00 US ISM manufacturing (index) Jul 56.2
18:00 IT New car registration (in % yoy) Jul -19.1
20:00 IT Budget balance (EUR bn) Jul 4.3
Tue, 03 Aug '10 UK House price (HBOS, in % 3M yoy) Jul 6.3

9:15 SZ Consumer price index (in % yoy) Jul 0.5
11:00 EMU Producer price index, PPI (in % yoy) Jun 3.1
14:30 US PCE core inflation (in % mom) Jun 0.2 0.2
14:30 US Personal expenditures (in % m-om) Jun 0.2 0.2
14:30 US Personal income (in % mom) Jun 0.3 0.4
16:00 US Pending home sales (in % mom) Jun -30.0
16:00 US New orders (in % mom) Jun -1.4
23:00 US Auto sales (in mn) Jul 11.08
Wed, 04 Aug '10 9:45 IT Services PMI (index) Jul 51.5

9:50 FR Services PMI (index) Aug 61.3
9:55 GE Services PMI (index) Aug 57.3
10:00 EMU Composite PMI (index) Aug 56.7
10:00 EMU Services PMI (index) Aug 56
10:30 UK Services PMI (index) Jul 54.4
11:00 EMU Retail sales (volume, in % mom) Jun 0.1
14:15 US ADP employment index (change in thousands mom) Jul 13
16:00 US ISM Non-manufacturing (index) Jul 53.8
Thu, 05 Aug '10 12:00 GE Industrial orders (in % mom) Jun -0.5
13:00 UK Bank of England repo rate (in %) Jul 23 0.5 0.5
13:45 EMU ECB refi rate (in %) Jul 23 1.0 1.0
14:30 EC Trichet Speaks at ECB Monthly News Conference
Fri, 06 Aug '10 7:45 SZ Unemployment rate (in %) Jul 3.9

8:45 FR Budget balance (EUR bn) Jun -67.9
8:45 FR Trade balance (EUR bn) Jun -5.5
10:00 IT Industrial production (in % mom) Jun 1.0
10:30 UK Producer price index, manuf. products (in % mom) Jul -0.3
10:30 UK Industrial production (in % mom) Jun 0.7
11:00 IT Real GDP (in % yoy) Q2 0.5
11:00 IT Real GDP (in % qoq) Q2 0.4
12:00 GE Industrial production (in % mom) Jun 2.6
12:00 GE Industrial production (in % yoy) Jun 12.4
14:30 US Unemployment rate (in %) Jul 9.5
14:30 US Non-farm payrolls (change in thousands mom) Jul -125
21:00 US Consumer credit (USD bn) Jun -9.1
*Asterisked releases are scheduled on or after the date shown; sa = seasonal adjusted, nsa = not seasonally adjusted, wda = working day adjusted

Friday Notes
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Friday Notes
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Friday Notes
UniCredit Research*
Thorsten Weinelt, CFA Dr. Ingo Heimig
Global Head of Research & Chief Strategist Head of Research Operations
+49 89 378-15110 +49 89 378-13952
thorsten.weinelt@unicreditgroup.de ingo.heimig@unicreditgroup.de
Economics & FI/FX Research
Marco Annunziata, Ph.D., Chief Economist

+44 20 7826-1770
marco.annunziata@unicreditgroup.eu
Economics & Commodity Research EEMEA Economics & FI/FX Strategy

Global Economics Gyula Toth, Head of EEMEA FI/FX Strategy
Dr. Davide Stroppa, Global Economist +43 50505 823-62, gyula.toth@caib.unicreditgroup.eu
+39 02 8862-2890
davide.stroppa@unicreditgroup.de Cevdet Akcay, Ph.D., Chief Economist, Turkey
+90 212 319-8430, cevdet.akcay@yapikredi.com.tr
European Economics
Matteo Ferrazzi, Economist, EEMEA
Andreas Rees, Chief German Economist +39 02 8862-8600, matteo.ferrazzi@unicreditgroup.eu
+49 89 378-12576
andreas.rees@unicreditgroup.de Dmitry Gourov, Economist, EEMEA
+43 50505 823-64, dmitry.gourov@caib.unicreditgroup.eu
Marco Valli, Chief Italian Economist
+39 02 8862-8688 Hans Holzhacker, Chief Economist, Kazakhstan
marco.valli@unicreditgroup.de +7 727 244-1463, h.holzhacker@atfbank.kz
Stefan Bruckbauer, Chief Austrian Economist Marcin Mrowiec, Chief Economist, Poland
+43 50505 41951 +48 22 656-0678, marcin.mrowiec@pekao.com.pl
stefan.bruckbauer@unicreditgroup.at Vladimir Osakovsky, Ph.D., Head of Strategy and Research, Russia
Tullia Bucco +7 495 258-7258 ext.7558, vladimir.osakovskiy@unicreditgroup.ru
+39 02 8862-2079 Rozália Pál, Ph.D., Chief Economist, Romania
tullia.bucco@unicreditgroup.de +40 21 203-2376, rozalia.pal@unicredit.ro
Chiara Corsa Kristofor Pavlov, Chief Economist, Bulgaria
+39 02 8862-2209 +359 2 9269-390, kristofor.pavlov@unicreditgroup.bg
chiara.corsa@unicreditgroup.de
Goran Šaravanja, Chief Economist, Croatia
Dr. Loredana Federico +385 1 6006-678, goran.saravanja@unicreditgroup.zaba.hr
+39 02 8862-3180
loredana.federico@unicreditgroup.eu Pavel Sobisek, Chief Economist, Czech Republic
+420 2 211-12504, pavel.sobisek@unicreditgroup.cz
Alexander Koch, CFA
+49 89 378-13013 Jan Toth, Chief Economist, Slovakia
alexander.koch1@unicreditgroup.de +421 2 4950-2267, jan.toth@unicreditgroup.sk
Chiara Silvestre
chiara.silvestre@unicreditgroup.de
Global FI/FX Strategy
US Economics Michael Rottmann, Head
+49 89 378-15121, michael.rottmann1@unicreditgroup.de
Dr. Harm Bandholz, CFA
+1 212 672 5957 Dr. Luca Cazzulani, Deputy Head, FI Strategy
harm.bandholz@us.unicreditgroup.eu +39 02 8862-0640, luca.cazzulani@unicreditgroup.de
Chiara Cremonesi, FI Strategy
Commodity Research +44 20 7826-1771, chiara.cremonesi@unicreditgroup.eu
Jochen Hitzfeld Dr. Stephan Maier, FX Strategy
+49 89 378-18709 +39 02 8862-8604, stephan.maier@unicreditgroup.eu
jochen.hitzfeld@unicreditgroup.de
Armin Mekelburg, FX Strategy
Nikolaus Keis +49 89 378-14307, armin.mekelburg@unicreditgroup.de
+49 89 378-12560
nikolaus.keis@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
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Arabellastrasse 12
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Tel. +49 89 378-18927 - Fax +49 89 378-18352 www.research.unicreditgroup.eu
*UniCredit Research is the joint research department of UniCredit Bank AG (UniCredit Bank), UniCredit CAIB Group (UniCredit CAIB), UniCredit Securities (UniCredit Securities),
UniCredit Menkul Değerler A.Ş. (UniCredit Menkul), UniCredit Bulbank, Zagrebačka banka, UniCredit Bank, Bank Pekao, Yapi Kredi, UniCredit Tiriac Bank and ATFBank.

JUL 23 UniCredit Friday Notes

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JUL 23 UniCredit Friday Notes

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23 July 2010 Economics & FI/FX Research

UniCredit Research page 1 See last pages for disclaimer.

UniCredit Research page 2 See last pages for disclaimer.

RETAIL SALES DECLINE

■ The US economy probably expanded 2¼% in the second 15

quarter. That is considerably less than the 3% we had

■ Moreover, regional business surveys flag that the 0

manufacturing sector will continue to lose momentum in

Net exports probably shaved more than half a percentage

stations, and to the expiration of the “cash for appliances“ -60

annualized 1½% in the last three months (cf. chart next

UniCredit Research page 3 See last pages for disclaimer.

UniCredit Research page 4 See last pages for disclaimer.

strong industrial recovery. Moreover, our GDP Tracker signals 0

Industry leads the way up

UniCredit Research page 5 See last pages for disclaimer.

-20 Source: Markit, UniCredit Research

Taken at face value, the survey signals 9% annualized

Low risk of a double-dip recession

UniCredit Research page 6 See last pages for disclaimer.

(cf. chart). So far, the impact on the economy of higher 250

interbank rates is equivalent to a 25bp hike in the refi rate at 200

times of normal functioning of monetary policy. 150

UniCredit Research page 7 See last pages for disclaimer.

UniCredit Research page 8 See last pages for disclaimer.

Data Monitor Europe – Preview of the coming week

June CIB Cons. May Apr

Source: Thomson Datastream, UniCredit Research

GERMANY, GFK CONSUMER CLIMATE LITTLE MOVEMENT IN CONSUMER CONFIDENCE

July CIB Cons. June May GfK Index

The start of budget consolidation slated for the coming

Source: GfK, UniCredit Research

July CIB Cons. June May

main vacation period. Overall, we expect a slight uptick 0.5

in consumer prices both mom and yoy. Core inflation 0.0

Source: Federal Statistical Office, UniCredit Research

UniCredit Research page 9 See last pages for disclaimer.

July CIB Cons. June May

Source: Thomson Datastream, UniCredit Research

GERMANY, UNEMPLOYMENT FURTHER IMPROVEMENT (UNEMPLOYED IN MN)

July CIB Cons. Jun May

Corporate hiring plans signal an ongoing, across-the- 4.5

states should already have triggered a limited uptick in the

Source: Federal Employment Agency, UniCredit Research

ITALY, BUSINESS CONFIDENCE BUSINESS CONFIDENCE POINTS SLIGHTLY SOUTH

July CIB Cons. June May

Source: Thomson Datastream, UniCredit Research

UniCredit Research page 10 See last pages for disclaimer.

July CIB Cons. June May

Source: Eurostat, UniCredit Research

ITALY, CONSUMER PRICES BACK ON THE RISE

July CIB Cons. June May

Source: Istat, UniCredit Research

Marco Valli (UniCredit Bank Milan)

UniCredit Research page 11 See last pages for disclaimer.

Data Monitor US – Preview of the coming week

June CIB Cons. May Apr

Source: Thomson Datastream, UniCredit Research

May CIB Cons. Apr Mar In % yoy

UniCredit Research page 12 See last pages for disclaimer.

CONSUMER CONFIDENCE – CONFERENCE BOARD CONSUMER CONFIDENCE SLIPPED FURTHER

July CIB Cons. June May Consumer confidence index

The Conference Board’s consumer confidence index fell 140

Source: Thomson Datastream, UniCredit Research