Provided for the exclusive use of [email protected] ...mchinn/db_monthlychartbook_5mar20.pdf · Global Macro Outlook: Uncertainty about the coronavirus, the policy response,

Global Macro Outlook: Uncertainty about the coronavirus,

the policy response, and the electionTorsten Slok, Ph.D.

Chief EconomistManaging Director

60 Wall StreetNew York, New York 10005

Tel: 212 250 [email protected]

March 2020

DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 066/04/2019.

Deutsche Bank

Research

Distributed on: 05/03/2020 15:48:08 GMT

7T2se3r0Ot6kwoPa

Provided for the exclusive use of [email protected] on 2020-03-05T16:14+00:00. DO NOT REDISTRIBUTE

Deutsche Bank Research 1Torsten Slok, [email protected] +1 212 250-2155 March 2020

Source: FRB, DB Global Research

Once Fed does 50bps intra-meeting they normally go 50bps again at next regular meeting

Date Action Action at next FOMC Event

22-Jan-08 Cut 75bps Cut 50bps Financial crisis

17-Sep-01 Cut 50bps Cut 50bps September 11th

18-Apr-01 Cut 50bps Cut 50bps Slowing economy

3-Jan-01 Cut 50bps Cut 50bps Dot com bubble

15-Oct-98 Cut 25bps Cut 25bps LTCM crisis

A history of recent Fed intermeeting rate cuts



Impact of coronavirus on global growth

Source: DB Global Research

-4

-2

0

2

4

6

8

-4

-2

0

2

4

6

8World (G4)* GDP growth

Pre virus Feb 5 baselineNew baseline Worse case

%q/q AR %q/q AR

-4-3-2-1012345

-4-3-2-1012345

US GDP growth


%q/q AR %q/q AR

* Weighted average of US, EA, China and Japan

-5-4-3-2-10123

-5-4-3-2-10123

EA GDP growthPre virus Feb 5 baselineNew baseline Worse case

%q/q AR %q/q AR

-10-8-6-4-2024

-10-8-6-4-2024

Germany GDP growthPre virus Feb 5 baselineNew baseline Worse case

%q/q AR %q/q AR



Impact of coronavirus on global growth


-10

-5

0

5

10

15

-10

-5

0

5

10

15

China GDP growth


%q/q AR %q/q AR

-8

-6

-4

-2

0

2

4

6

-8

-6

-4

-2

0

2

4

6

Japan GDP growth


%q/q AR %q/q AR



Number of months U.S. economy in recession

0

10

20

30

40

50

60

70

80

90

1780

s17

90s

1800

s18

10s

1820

s18

30s

1840

s18

50s

1860

s18

70s

1880

s18

90s

1900

s19

10s

1920

s19

30s

1940

s19

50s

1960

s19

70s

1980

s19

90s

2000

s20

10s

#

0

10

20

30

40

50

60

70

80

90#

US: Since 1776 we have never before had a decade without a recession

Source: NBER, Wikipedia, DB Global Research



1. Coronavirus: Impact and policy response2. Trade war uncertainty3. Election uncertainty

4. Positive effects of the 2018 corporate tax cut fading5. US consumer delinquency rates moving higher6. Corporate credit fundamentals more vulnerable

Investment implications for rates, FX, credit, and equities

Risks to the outlookProvided for the exclusive use of [email protected] on 2020-03-05T16:14+00:00. DO NOT REDISTRIBUTE


Risk #1:Coronavirus



Coronavirus: Transmission channels and impact on GDP and CPI


Many transmission channels to the economy:

1. Quarantining and self-quarantining2. Social distancing3. Cancellation of travel, conferences, sports events etc.4. Fewer tourists staying at hotels and eating at restaurants5. Negative sentiment impact on consumer spending6. Negative impact of fewer hours worked on consumer spending7. Negative impact of lower stock prices on consumer spending8. Tighter financial conditions impacting corporates and households9. Deteriorating confidence for companies and households10. Heightened uncertainty for businesses about demand11. Supply chain disruptions

1 to 10 are deflationary shocks11 is inflationary shock1 to 11 are negative for GDP



Number of coronavirus cases

Source: WHO, DB Global Research

150

300

600

1200

2400

4800

9600

4

40

400

4000

40000

400000

0 15 30 45 60 75 90

Log scaleLog scale

Number of days since out break

World : number of cases of SARS and COVID-19

COVID-19: World (ls) COVID-19 : Outside of China (ls) SARS (rs)



Coronavirus: New confirmed vs New recovered

Source: Coronavirus COVID-19 Global Cases by John Hopkins CSSE, DB Global Research

Number of coronavirus confirmed vs recovered cases

0

2000

4000

6000

8000

10000

12000

14000

16000

20-J

an

22-J

an

24-J

an

26-J

an

28-J

an

30-J

an

1-Fe

b

3-Fe

b

5-Fe

b

7-Fe

b

9-Fe

b

11-F

eb

13-F

eb

15-F

eb

17-F

eb

19-F

eb

21-F

eb

23-F

eb

25-F

eb

27-F

eb

29-F

eb

2-M

ar

0

2000

4000

6000

8000

10000

12000

14000

16000

# NumbersNew confirmed New recovered

# Numbers



China: domestic sales: passenger cars

-90

-70

-50

-30

-10

10

30

15 16 17 18 19 20

% y/y

-90

-70

-50

-30

-10

10

30% y/y

China: Car sales declined 80% yoy in February

Source: China Passenger Car Association, Bloomberg Finance LP, Haver Analytics, DB Global Research

Note: Latest February figure is based on preliminary figure.



China: PMI

25

30

35

40

45

50

55

60

65

05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Index

25

30

35

40

45

50

55

60

65

IndexManufacturing PMI Service PMI

China PMIs

Source: CFLP, CNBS, NBS, Haver Analytics, DB Global Research



Coronavirus: Impact on US economic growth


Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q4/Q4 -2020 Q4/Q4-2021

Pre virus baseline 1.7 2.2 2.6 2.5 2.3 2.2

Previous (Feb 5 baseline) 1.4 2.4 2.6 2.5 2.2 2.1

New baseline 0.6 -0.6 2.5 3.8 1.6 2.5

New baseline minus previous baseline -0.8 -3.0 -0.1 1.3 -0.6 0.4



Tourism as a share of GDP in different countries

Source: OECD, DB Global Research

Tourism as a share of GDP

0

2

4

6

8

10

12

14

Por

tuga

l

Spa

in

Mex

ico

Fran

ce

Sw

eden

Aus

tria

Indo

nesi

a

Ger

man

y

Aus

tralia

Sou

th A

frica US

Can

ada

Den

mar

k

Japa

n

0

2

4

6

8

10

12

14

% GDP% GDP

Note: Data is for 2018 or latest available.



Number of hospital beds per 1000 people high in Japan and Korea


Hospital beds per 1000 population: 2018 or latest available

0

2

4

6

8

10

12

14

Japa

nK

orea

Rus

sia

Ger

man

yA

ustri

aH

unga

ryC

zech

Pol

and

Lith

uani

aFr

ance

Slo

vak

Bel

gium

Latv

iaE

ston

iaS

witz

erla

ndLu

xem

bour

gS

love

nia

Chi

naG

reec

eA

ustra

liaN

orw

ayP

ortu

gal

Net

herla

nds

Finl

and

Italy

Isra

elS

pain

Irela

ndIc

elan

dTu

rkey US

New

Zea

land UK

Can

ada

Den

mar

kS

wed

enC

hile

Col

ombi

aM

exic

oC

osta

Ric

aIn

done

sia

Indi

a

0

2

4

6

8

10

12

14

Per 1000population

Per 1000population



Risk #2:Trade war uncertainty



More downside risks to corporate capex spending

-24

-20

-16

-12

-8

-4

0

4

8

12

16

95 96979899 000102 030405 060708 091011 12131415 161718 1920

% y/y

-24

-20

-16

-12

-8

-4

0

4

8

12

16

% y/yCore capital goods shipmentsNon-residential business fixed investment

Source: Census, BEA, Haver Analytics, DB Global Research

Corporate tax cut begins



Contribution of various components in q/q growth rate of nonresidential fixed investment

-5

0

5

10

15

20

10 11 12 13 14 15 16 17 18 19

% q/q AR

-5

0

5

10

15

20

% q/q AR

Structures: Oil & power Equipment and structures: non-oil and powerIP Private nonresidential fixed investment

Current capex slowdown is broad-based

Source: BEA, Haver Analytics, DB Global Research

2014-16: Capex slowdown driven by energy

2018-today: Capex slowdown broad-based



Risk #3:Election uncertainty



United States: Voter turnout rates, 1789-2018

0

10

20

30

40

50

60

70

80

90

100

1789

1799

1809

1819

1829

1839

1849

1859

1869

1879

1889

1899

1909

1919

1929

1939

1949

1959

1969

1979

1989

1999

2009

2019

Voting eligible population turnout

rate

0

10

20

30

40

50

60

70

80

90

100

Voting eligible population turnout

ratePresidential election Midterm election

Voter turnout in Midterm and Presidential elections since 1789

Source: http://www.electproject.org/, DB Global ResearchNote: The voting-eligible population (VEP) represents an estimate of persons eligible to vote regardless of voter registration status in an election



Change in Turnout rates in Midterm elections, 1794-2018election to election change

-15

-10

-5

0

5

10

15

1794

1804

1814

1824

1834

1844

1854

1864

1874

1884

1894

1904

1914

1924

1934

1944

1954

1964

1974

1984

1994

2004

2014

2024

% point

-15

-10

-5

0

5

10

15

% point

Record jump in voter turnout in 2018 midterm elections

Source: http://www.electproject.org/, DB Global Research

Note: Turnout rates are calculated from The voting-eligible population (VEP). VEP represents an estimate of persons eligible to vote regardless of voter registration status in an election



Jump in voter turnout in Florida in 2018

Source: U.S. Census Bureau Historical Reported Voting Rates, DB Global Research

Change in voter Turnout rates in midterm elections: Florida

-10

-5

0

5

10

15

1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018

%point

-10

-5

0

5

10

15

% point

Note : Reported Voting for Total Voting-Age Populations for Congressional Elections



Jump in voter turnout in Michigan in 2018


Change in voter Turnout rates in midterm elections: Michigan

-10

-5

0

5

10

15

1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018

% point

-10

-5

0

5

10

15% point




Jump in voter turnout in Ohio in 2018


Change in voter Turnout rates in midterm elections: Ohio

-10

-5

0

5

10

15

1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018

%point

-10

-5

0

5

10

15% point




Jump in voter turnout in Pennsylvania in 2018


Change in voter Turnout rates in midterm elections: Pennsylvania

-10

-5

0

5

10

15

1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018

% point

-10

-5

0

5

10

15

% point




Jump in voter turnout in Wisconsin in 2018


Change in voter Turnout rates in midterm elections: Wisconsin

-10

-5

0

5

10

15

1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018

%point

-10

-5

0

5

10

15

% point




Univ. of Michigan consumer sentiment: high school or less

40

50

60

70

80

90

100

110

78 82 86 90 94 98 02 06 10 14 18

Index,Q1-66=100

40

50

60

70

80

90

100

110

Index,Q1-66=100

Pre-virus: Very high sentiment for consumers with high school degree or less education

Source: University of Michigan, Haver Analytics, DB Global Research



Looking ahead, do you expect that at this time next year you will be financially better off than now, or worse off than now?

0

10

20

30

40

50

60

70

Aug

-77

Feb

-82

Sep

-84

Jul-8

6

Jan-

88

Jul-9

0

Jan-

91

Oct

-91

Dec

-93

Oct

-98

Feb

-01

May

-02

Jul-0

5

Jan-

12

Jan-

18

%

0

10

20

30

40

50

60

70

%

Better off Worse off

Record high levels of optimism among consumers

Source: Gallup, DB Global Research



Trump job approval rating not too different from Obama or Clinton at this point in presidency

Presidential job approval

0

10

20

30

40

50

60

70

80

90

100

0 10 20 30 40 50 60 70 80 90 100110120130140150160170180190200

First 200 weeks

%

0

10

20

30

40

50

60

70

80

90

100

%Trump Clinton Obama

Source: American Presidency Project, Gallup, DB Global Research



Net migration into the US down 40% in recent years

Source: U.S. Census Bureau, Vintage 2019 Population Estimates, DB Global Research

Net migration between the United States and Abroad

0

200

400

600

800

1000

1200

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019*

Thousands

0

200

400

600

800

1000

1200

Thousands

* Data shown for 2019 are projections. Each year represents the annual estimates period ending on June 30. Released data will report 2010 as a quarter year(April 1, 2010-June 30, 2010) instead of a full year



10% of voters in 2020 will be foreign born

Source: PEW Research, DB Global Research

Percent of U.S. eligible voters who are foreign born

5

6

7

8

9

10

2000 2008 2012 2016 2018 20205

6

7

8

9

10

%%

Note: Data for 2020 from Pew Research Center projections based on U.S. Census Bureau population projections.



Gallup Survey: Americans' views on what foreign trade means for the U.S.

0

10

20

30

40

50

60

70

80

90

1992 2000 2001 2003 2005 2008 2011 2013 2015 2017 20190

10

20

30

40

50

60

70

80

90

% Opportunity for economic growth % Threat to the economy

Views on foreign trade

Source: Gallup Survey, DB Global Research



Gallup Survey: Percentage saying Trade is opportunity for economic growth, by party ID

0

10

20

30

40

50

60

70

80

90

1992 2000 2002 2005 2008 2011 2013 2015 2017 2019

%

0

10

20

30

40

50

60

70

80

90

%Republicans Democrats

Views on trade by party




Source: US Census Bureau BDS, DB Global Research

United States : Share of employment by size of firm

0.45

0.47

0.49

0.51

0.53

0.55

1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016

Ratio

0.45

0.47

0.49

0.51

0.53

0.55

Ratio<500 Employess >=500 Employess

US economy more and more dominated by big firms



The share of income going to the Bottom 50% of the population is down in the US and unchanged in Europe

Share of national income: bottom 50% percentile

12

13

14

15

16

17

18

19

1990 1993 1996 1999 2002 2005 2008 2011 2014 2017

%

12

13

14

15

16

17

18

19

%US Europe

Source: Saez (2019), Blanchet, Chancel & Gethin (April 2019), WID, DB Global Research



The share of income going to the Top 1% is up 6%-points in the US and 2%-points in Europe

Share of national income: top 1% percentile

89

101112131415161718192021

1990 1993 1996 1999 2002 2005 2008 2011 2014 2017

%

89101112131415161718192021

%US Europe

Source: Saez (2019), Blanchet, Chancel & Gethin (April 2019), WID, DB Global Research



10% of the US population own 84% of all stocks held by households

Percent of total investment assets held, by wealth distribution

0

20

40

60

80

100

Business equity Stocks, directly or indirectlyowned*

Non-home real estate

%

0

20

40

60

80

100

%

Top 10% Bottom 90%

Source: Edward N. Wolff, (2018), Survey of Consumer Finances, DB Global Research

* Includes direct ownership of stocks and indirect ownership through mutual funds, trusts, and IRAs, Keogh plans, 401(k) plans, and other retirement accounts

84%

16%



US: Negative savings rate for the bottom 90% of the population

Net saving rates across the income distribution

-0.06

-0.04

-0.02

0.00

0.02

0.04

0.06

0.08

0.10

0.12

1970s 1980s 1990s 2000s 2010s-0.06

-0.04

-0.02

0.00

0.02

0.04

0.06

0.08

0.10

0.12Top 1% Next 9% Bottom 90%

Source: Mian, Straub & Sufi “The Saving Glut of the Rich and the Rise in Household Debt,” (Nov 2019), DB Global Research

Note: The saving of the top 1% is defined to be the after-tax income of the top 1% of the income distribution minus personal consumption of the top 1% of the income distribution, scaled by national income. Net saving of the other two groups is similarly defined. Averages for the decades are shown.



Democratic candidates’ policy proposals

Source: Candidates’ campaign websites, Politico, DB Global Research

Joe Biden Bernie Sanders

• Raises minimum wage to $ 15/hr• Rolls back the rate cut of capital gains tax and restores it to almost 40% • Raises corporate tax rate to 28%• Intends to make two years of community college or other high quality

education and would eliminate payments on undergraduate federal student payments for those earning less than $ 25,000 annually and everyone else will pay 5% of their discretionary income

• Would nearly triple teacher pay

• Raises minimum wage to $ 15/hr• Proposes an “extreme wealth tax” on the top 0.1% households whose net worth is above $ 32

million• Companies with large gaps between CEOs and median worker pay would see progressively

higher corporate tax rates• Would raise $ 4.35 trillion over the next decade and cut the wealth of billionaires in half over 15

years• Would break up too-big-to-fail banks• Enact a federal jobs guarantee act• Proposes to bring back the Glass-Steagall act• Supports free college education and cancel all of the student debt• Supports a starting salary of $ 60,000 for teachers

Would keep the Affordable Care Act and would build on it by giving Americans more choice on public insurance like Medicaid & reducing health care costs and making the health care system less complex

• Proposes Medicare for All, single-payer national health insurance program completely free at the point of service

• Proposes eliminating $ 81 billion past-due medical debt

Does not want to use tariffs to pressure other countries; also would want changes made to the UMSCA agreement and supports joining CPTPP

Suggests rewriting all trade deals to prevent outsourcing of jobs and raise wages

Supports nuclear power to tackle climate change; suggests a possible creation of 10 million jobs on the right strategy for climate change

Create a Green New Deal which makes 100% renewable energy and create 20 million jobs and rebuilding infrastructure to create a 100% sustainable energy system

Supports citizenship for Dreamers and leaves Sec 1325 in place Supports Citizenship for Dreamers and wants to repeal Sec 1325



Rich countries tend to have a bigger middle class, except the United States

Source: OECD report “Under Pressure: The Squeezed Middle Class” (2019), DB Global Research

Note: Middle-income classes and median incomes are defined relative to equivalised household disposable income. The middle-income class comprises individuals in households with incomes that are between 75% and 200% of the median.

ISLCZE

NORSVK NLD DNK

HUN

FRA

FINSVN AUTBEL

POLJPN

SWE

LUXCHE

DEU

KOR

IRL

PRT

ITA

CAN

GBR

AUS

GRC

ESP

LVA

ISRTUREST

LTUUSA

CHL

MEXRUS

CHN

BRAIND

ZAF

30

40

50

60

70

80

0 5000 10000 15000 20000 25000 30000 35000 40000

Middle-income share (%)

Median income (USD per year, PPP adjusted)

Share of population in middle-income households and annual median income

US at same level as China, Turkey, Russia



More people delaying medical treatment for financial reasons

Within the last twelve months, have you or a member of your family put off any sort of medical treatment because of the cost you would have to pay?

5

10

15

20

25

30

35

2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

%

5

10

15

20

25

30

35

%

% put off treatment for any condition % Put off treatment for serious condition




10

11

12

13

14

15

16

17

18

19

20

1967 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011 2015 2019

%

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$Number of beneficiaries receiving benefit as % of US resident population (ls)

Average amount per receipient (rs)

Source: Social Security Administration (SSA), Census, Haver Analytics, DB Global Research

20% of the US population receive social security benefitsProvided for the exclusive use of [email protected] on 2020-03-05T16:14+00:00. DO NOT REDISTRIBUTE


Fiscal crises in advanced economies normally triggered by a sudden loss of market confidence

Fiscal crises episodes (1980-2016)

0%10%20%30%40%50%60%70%80%90%

100%

Advancedeconomies (AEs)

Emerging Markets(EMs)

Low-incomecountries (LICs)

Total

Loss of market confidence Credit event

Exceptionally large official financing Implicit domestic default

%

Source: Debt Is Not Free (IMF working paper, January 2020), DB Global Research



Risk #4:Positive effects of the 2018

corporate tax cut fading



Source: S&P, Bloomberg Finance LP, Haver Analytics, DB Global Research

S&P 500 composite

0

50

100

150

200

250

300

350

98 99 0001 02 03 04 05 0607 08 09 10 11 1213 14 15 16 17 1819

$, bln

0

50

100

150

200

250

300

350

$, blnBuybacks Dividends Capital expenditures

2018 corporate tax cut boosted buybacks

2018 corporate tax cut boosted dividends

and buybacks

Capex used to be double of dividends

and buybacks



Corporate profits after tax with IVA & CCAdj as % of GDP

6

7

8

9

10

11

12

13

60 65 70 75 80 85 90 95 00 05 10 15 20

%

6

7

8

9

10

11

12

13%

Late-cycle:Corporate profits coming down as a share of GDP




What’s the source of the rally in the stock market since 2009? Buybacks

Cumulative net purchases of US corporate equities

-2000

-1000

0

1000

2000

3000

4000

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

$ billion

-2000

-1000

0

1000

2000

3000

4000

$ billionHouseholds Non-financial corporationsForeign sector Other domestic buyers

Source: FRB, Haver Analytics, DB Global Research

Note: Other domestic institutions includes Property-Casualty Insurance Companies, Life Insurance Companies, Private Pension Funds, Federal government retirement funds and state/local government employment defined benefit retirement funds



Risk #5:US consumer credit quality deteriorating



Credit card interest rate at highest levels in decades

Source: Federal Reserve Board, Haver Analytics, DB Global Research

Commercial bank interest rate: credit cards, accounts assessed interest

11

12

13

14

15

16

17

18

95 98 01 04 07 10 13 16 19

%

11

12

13

14

15

16

17

18

%

Note: This rate is the annualized ratio of total finance charges at all reporting banks to the total average daily balances against which the finance charges were assessed



Auto loan interest rates increased by 2%-points in 2018

Auto loan interest rate

2

3

4

5

6

7

8

08 09 10 11 12 13 14 15 16 17 18 19

%

2

3

4

5

6

7

8%

36 month used car 60 month new car




Delinquency rates moving up for consumers

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

% Balance

4

5

6

7

8

9

10

11

12

13

14

% BalanceAuto loan delinquencies (90+ days, ls)Credit card delinquencies (90+ days, rs)




Consumer Expenditure Survey: Motor vehicle purchases & vehicle finance charges as a share of average consumer expendtiure

0

1

2

3

4

5

6

7

8

9

Lowest 20 %income quintile

Second incomequintile

Third incomequintile

Fourth incomequintile

Highest 20%income quintile

%

0

1

2

3

4

5

6

7

8

9

%

2006 2009 2018

Auto loans: Lower income groups currently at 2006 levels in terms of debt and interest payments

Source: BLS, Haver Analytics, DB Global Research



Interest rate on 36-month auto loan by FICO score

0

2

4

6

8

10

12

14

16

18

720-850 690-719 660-689 620-659 590-619 500-589

%

0

2

4

6

8

10

12

14

16

18

%

December 2015 February 2020

US: Auto loan interest rates higher across all FICO scores

Source: myfico.com, DB Global Research



80% of new cars sold are financed.And 20% of new car sales are subprime

Share in total new auto loan originations in Q4 2019

0

20

40

60

80

100

Subprime Prime

%

0

20

40

60

80

100

%

Source: New York Fed Consumer Credit Panel/Equifax, DB Global Research



Average amount financed on new car loans moving higher

Finance companies: new car loans: average amount financed

22000

24000

26000

28000

30000

32000

08 09 10 11 12 13 14 15 16 17 18 19 20

$

22000

24000

26000

28000

30000

32000$




Delinquency rates moving higher

Source: BLS, ABA, Haver Analytics, DB Global Research

2

4

6

8

10

12

65 70 75 80 85 90 95 00 05 10 15 20

%

1.2

1.6

2.0

2.4

2.8

3.2

3.6

%Unemployment rate (ls)Delinquency rate on consumer loans (rs, 12m lead)

Note: Composite consumer loans consists of eight loan types: personal, automobile direct & indirect, mobile homes, recreational vehicles, marine financing loans, property improvement and home equity and second mortgage loans.

4 years

5 years1 year

?



Credit card delinquencies above 2008 levels for smaller lenders

Source: Federal Reserve Board, Haver Analytics, DB Global Research

Credit card loans: delinquency rate

2

3

4

5

6

7

07 08 09 10 11 12 13 14 15 16 17 18 19 20

%

2

3

4

5

6

7

%

100 largest insured commercial banks Other insured commercial banks



Consumer credit quality deteriorating despite wages growing faster for low-wage workers at the moment

Wage growth for low, middle, and high wage workers

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

%y/y, 36 month MA

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

%y/y,36 month MALow wage Mid wage High wage




Risk #6:IG and HY markets



A turn in the credit cycle is a potential headwind for GDP growth


…but there is more and more differentiation at the bottom of the

credit spectrum…

FICO score

…which suggests the credit cycle is turning, for both corporates

and consumers…

AAA

Credit rating

850

BBB

CCC 300

670

High-quality borrowers can still get financing for capex projects

and consumer spending…

…which is a headwind for GDP growth because for capex and

consumer spending the marginal buyer has been lower-quality

borrowers…

…for example, 20% of auto loans go to subprime borrowers



FRB Senior loan officer survey

-65

-50

-35

-20

-5

10

25

40

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

% Net Bal

-65

-50

-35

-20

-5

10

25

40

% Net BalBanks' willingness to lend consumersBanks' reporting stronger demand for C&I loans


January 2019: Fed turns dovish and

banks’ willingness to lend doesn’t rebound

Banks’ willingness to lend and corporate demand for loans declining despite the Fed turning dovish and cutting rates



Banks’ willingness to lend to consumers moving lower despite Fed cutting rates

FRB Sr Officers Survey: Banks' Willingness to Lend to Consumers

-80

-60

-40

-20

0

20

40

60

80

65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21

%

-80

-60

-40

-20

0

20

40

60

80%




US leveraged loans: Recent acceleration in downgrades

US Leveraged loans: ratio of downgrades to upgrades

0

1

2

3

4

5

6

2003 2005 2007 2009 2011 2013 2015 2017 20190

1

2

3

4

5

6

Rolling 12 months

Source: S&P LCD/LSTA, Deutsche Bank Credit: Securitization CLO Research, DB Global Research



2019 Leveraged loan downgrades, by industryTop 15 sectors

0%

2%

4%

6%

8%

10%

12%B

usin

ess

equi

pmen

t and

serv

ices

Hea

lth c

are

Ele

ctro

nics

/ele

ctric

Oil

and

gas

Ret

aile

rs (

othe

rth

an fo

od/d

rug)

Telc

omm

unic

atio

ns

Che

mic

al/P

last

ics

Util

ities

Non

ferr

ous

met

als/

min

eral

s

Food

ser

vice

Leis

ure

Bro

adca

st r

adio

and

tele

visi

on

Food

pro

duct

s

Dru

gs

Indu

stria

leq

uipm

ent 0%

2%

4%

6%

8%

10%

12%

Source: S&P LCD, DB Global Research

Industry distribution of downgrades of leveraged loans in 2019Provided for the exclusive use of [email protected] on 2020-03-05T16:14+00:00. DO NOT REDISTRIBUTE


Market cap of Bloomberg Barclays corporate indexes

0

1

2

3

4

5

6

7

8

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

$ Trl

0

1

2

3

4

5

6

7

8

$ Trl

Aaa Aa A Baa Ba B Caa & below

Source: Bloomberg Finance LP, DB Global Research

US credit markets have grown from $2trn in 2008 to $7trn today.All driven by much more BBB and single-A paper outstanding



Investment grade yields have never been lower than they are today

Source: LUACYW Index <GO>, Bloomberg Finance LP, DB Global Research

2

4

6

8

10

12

2

4

6

8

10

12

86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20

%% Bloomberg Barclays US corporate yield to worst



Duration of IG index: 8 yearsDuration of HY index: 4 years


2

3

4

5

6

7

8

9

2

3

4

5

6

7

8

9

90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20

# years# years Duration of IG and HY corporate bond indicesIG HY

Note: Bloomberg Barclays corporate bond indices used. Duration is Macaulay duration.



Share of market value in Bloomberg Barclays USD IG

0

25

50

75

100

90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20

%

0

25

50

75

100

%BBB A AA AAA

50% of the IG index is BBB




Hedging costs coming down for European and Japanese investors who want to buy US fixed income

Source: Steven Zeng, Bloomberg Finance LP, DB Global Research

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2014 2015 2016 2017 2018 2019 2020

%% 1yr hedge cost for USD in annual yield (rolling 6m FX forwards)JPY 12m hedge cost EUR 12m hedge cost




Holdings of corporate and foreign bonds as % of corporate and foreign bond outstanding

0

10

20

30

40

50

60

70

1955 1963 1971 1979 1987 1995 2003 2011 20190

10

20

30

40

50

60

70

%

Foreigners Mutual funds Life insurance Banks Households

%

Foreign appetite for US IG and HY

Share of credit held by foreigners moving up again



Low primary dealer inventory of corporate bonds relative to the stock of IG and HY outstanding

Source: FRB-NY, FRB, Haver Analytics, DB Global Research

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

USD trn

0

50

100

150

200

250

300

USD blnTotal stock of US corporate bonds outstanding (ls)Primary dealer inventory of corporate bonds (rs)



How vulnerable are markets to a redemption shock?Funds with estimated liquidity shortfalls

account for half of all high-yield fund assetsAsset Share of Funds with HQLA Shortfalls

(Percent of sector’s assets)

0

5

10

15

20

25

30

35

40

45

50

Fixed-income funds High-yield funds

%

0

5

10

15

20

25

30

35

40

45

50

%

Jun. 30, 2017 Mar. 31, 2019

Source: IMF GFSR October 2019, DB Global Research

Note: Total AUM of funds analyzed: $10.5trn. The exercise assumes that redemption shocks are equivalent to the worst percentile of funds’ monthly asset outflows during 2000–19. If these shocks cannot be absorbed, funds suffer liquidity shortfalls.



Modest decline in share of loans that are covenant-lite

Annual New Issue First-Lien Covenant-Lite Loans %

80%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%20

04

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

1/1

- 10/

31/1

8

1/1

- 10/

31/1

9

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Source: Deutsche Bank Credit Securitization CLO Research, DB Global Research



Spread between BBB and AAA

Source: IHS Markit, FRB, Haver Analytics, DB Global Research

Ratio of spreads of iBoxx 10+ USD Domestic BBB and AAA annual yields with 10 year treasury note

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

05 07 09 11 13 15 17 19

Ratio

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

Ratio

Note: The chart plots (iBoxx BBB 10+ yield – 10y treasury yield) ratio with (iBoxx AAA 10+ yield – 10y treasury yield)



U.S.: 30-year fixed-rate mortgages

2

4

6

8

10

12

14

16

18

20

1971

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2015

2017

2019

%

2

4

6

8

10

12

14

16

18

20

%

US mortgage rates near all-time lows

Source: FHLMC, Haver Analytics, DB Global Research



Labor market and housing market



2000

4000

6000

8000

10000

12000

14000

16000

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Thous.

2000

4000

6000

8000

10000

12000

14000

16000

Thous.Job openings Unemployed persons

Source: BLS, JOLTS, DB Global Research

Labor market less tight but still more job openings than unemployed people



In 2010 there were 7 unemployed workers per job opening. Now it’s less than 1

Number of unemployed workers per job opening

0

1

2

3

4

5

6

7

8

09 10 11 12 13 14 15 16 17 18 19 20

Number

0

1

2

3

4

5

6

7

8Number




JOLTS: layoffs and discharges:Total

1400

1600

1800

2000

2200

2400

2600

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Thous.

0.8

1.0

1.2

1.4

1.6

1.8

2.0

%

Level (ls) Rate (rs)

Layoffs moving a bit higher




Number of work stoppages: beginning in year

0

100

200

300

400

500

47 52 57 62 67 72 77 82 87 92 97 02 07 12 17

# Number

0

100

200

300

400

500

# Number

Number of work stoppages moving up




Median wage growth

0

1

2

3

4

5

6

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

%y/y

0

1

2

3

4

5

6

%y/y

All occupations

Maids and housekeeping cleaners *

Building & grounds cleaning & maintenance occupations **

Wage growth across occupations


* Maids and housekeeping cleaners - Perform any combination of light cleaning duties to maintain private households or commercial establishments, such as hotels andhospitals, in a clean and orderly manner. Duties may include making beds, replenishing linens, cleaning rooms and halls, and vacuuming.** Building & grounds cleaning & maintenance - This major group comprises the following occupations: First-Line Supervisors of Housekeeping and Janitorial Workers ; First-Line Supervisors of Landscaping, Lawn Service, and Groundskeeping Workers ; Janitors and Cleaners, Except Maids and Housekeeping Cleaners ; Maids and Housekeeping Cleaners ; Building Cleaning Workers, All Other ; Pest Control Workers ; Landscaping and Groundskeeping Workers ; Pesticide Handlers, Sprayers, and Applicators, Vegetation ; Tree Trimmers and Pruners ; Grounds Maintenance Workers, All Other.



Univ. of Michigan: current value of stock market investments: median

0

20

40

60

80

100

120

140

160

180

200

98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Thous.$

0

20

40

60

80

100

120

140

160

180

200

Thous.$

Pre-virus: Self-reported value of stock market investments

Source: University of Michigan, Haver Analytics, DB Global Research



Average hourly wage per worker, by establishment age and cohort

18

19

20

21

22

23

24

25

4 9 14 19 24 29 34 39 44 49 54 59 64 69 74 79 84 89 94 99

Age in quarters

$

18

19

20

21

22

23

24

25

$

1990s expansion 2001 recession 2002–07 expansion

2007–09 recession 2009–forward expansion

Older companies pay higher wages

Source: Elizabeth Weber Handwerker, David S. Piccone Jr, and Elizabeth Cross, "Occupational employment and wage differences across cohorts of establishments," Monthly Labor Review, U.S. Bureau of Labor Statistics, January 2020, DB Global Research



Job switching rate, Q1 2018

0

2

4

6

8

10

12

Edu

catio

nal S

ervi

ces

Util

ities

Fina

nce

and

Insu

ranc

e

Man

ufac

turin

g

Hea

lth C

are

and

Soc

ial A

ssis

tanc

e

Man

agem

ent o

f Com

pani

es a

ndE

nter

pris

es

Info

rmat

ion

Who

lesa

le T

rade

Oth

er S

ervi

ces

(exc

ept P

ublic

Adm

inis

tratio

n)

Arts

, Ent

erta

inm

ent,

and

Rec

reat

ion

Ret

ail T

rade

Pro

fess

iona

l, S

cien

tific

, and

Tec

hnic

alS

ervi

ces

Tran

spor

tatio

n an

d W

areh

ousi

ng

Rea

l Est

ate

and

Ren

tal a

nd L

easi

ng

Con

stru

ctio

n

Agr

icul

ture

, For

estry

, Fis

hing

and

Hun

ting

Min

ing,

Qua

rryin

g, a

nd O

il an

d G

asE

xtra

ctio

n

Acc

omm

odat

ion

and

Food

Ser

vice

s

Adm

inis

trativ

e an

d S

uppo

rt an

d W

aste

Man

agem

ent a

nd R

emed

iatio

n S

ervi

ces

%

0

2

4

6

8

10

12%

Sectors with high and low job switching rates

Source: Census, Longitudinal Employer-Household Dynamics, DB Global Research

Note: The chart plots the share of new hires who were a part of a job-to-job move with a short or no observed nonemployment spell in the total employment in each industry



Share of hires from the same industry, Q1 2018

0102030405060

Man

agem

ent o

f Com

pani

es a

ndE

nter

pris

es

Util

ities

Arts

, Ent

erta

inm

ent,

and

Rec

reat

ion

Who

lesa

le T

rade

Oth

er S

ervi

ces

(exc

ept P

ublic

Adm

inis

tratio

n)

Man

ufac

turin

g

Info

rmat

ion

Tran

spor

tatio

n an

d W

areh

ousi

ng

Min

ing,

Qua

rryi

ng, a

nd O

il an

dG

as E

xtra

ctio

nA

dmin

istra

tive

and

Sup

port

and

Was

te M

anag

emen

t and

Rem

edia

tion

Ser

vice

sP

rofe

ssio

nal,

Sci

entif

ic, a

ndTe

chni

cal S

ervi

ces

Fina

nce

and

Insu

ranc

e

Ret

ail T

rade

Con

stru

ctio

n

Edu

catio

nal a

nd H

ealth

Ser

vice

s

Acc

omm

odat

ion

and

Food

Ser

vice

s

%

0102030405060

%

Share of hires from within the same industry

Source: Indeed Hiring Lab, Census, Longitudinal Employer-Household Dynamics, DB Global ResearchNote: The chart plots the share of new hires in an industry who switched jobs from the same industry



Share of job hires that were persistently unemployed in Q1 2018

0

10

20

30

40

50

60Fi

nanc

e an

d In

sura

nce

Min

ing,

Qua

rryin

g, a

nd O

il an

d G

asE

xtra

ctio

n

Util

ities

Who

lesa

le T

rade

Man

ufac

turin

g

Man

agem

ent o

f Com

pani

es a

ndE

nter

pris

es

Info

rmat

ion

Tran

spor

tatio

n an

d W

areh

ousi

ng

Rea

l Est

ate

and

Ren

tal a

nd L

easi

ng

Hea

lth C

are

and

Soc

ial A

ssis

tanc

e

Pro

fess

iona

l, S

cien

tific

, and

Tec

hnic

alS

ervi

ces

Con

stru

ctio

n

Adm

inis

trativ

e an

d S

uppo

rt an

d W

aste

Man

agem

ent a

nd R

emed

iatio

n S

ervi

ces

Ret

ail T

rade

Oth

er S

ervi

ces

(exc

ept P

ublic

Adm

inis

tratio

n)

Acc

omm

odat

ion

and

Food

Ser

vice

s

Agr

icul

ture

, For

estry

, Fis

hing

and

Hun

ting

Arts

, Ent

erta

inm

ent,

and

Rec

reat

ion

Edu

catio

nal S

ervi

ces

%

0

10

20

30

40

50

60%

Where do the long-term unemployed find jobs?

Source: Census, Longitudinal Employer-Household Dynamics, DB Global ResearchNote: The chart plots the share of hires who were not employed on the first day of the quarter in the total new hires in each industry



Gallup Survey on Retirement age in United StatesWhen Do You Expect to Retire?

0

5

10

15

20

25

30

35

40

45

1995

Dec

15-

18

1995

Nov

6-8

2002

Apr

8-1

1

2003

Apr

7-9

2004

Apr

5-8

2005

Apr

4-7

2006

Apr

10-

13

2007

Apr

2-5

2008

Apr

6-9

2009

Apr

6-9

2010

Apr

8-1

1

2011

Apr

7-1

1

2012

Apr

9-1

2

2013

Apr

4-1

4

2014

Apr

3-6

2015

Apr

9-1

2

2016

Apr

6-1

0

2017

Apr

5-9

2018

Apr

2-1

1

% of Nonretirees

0

5

10

15

20

25

30

35

40

45

% of Nonretirees

Under 59 60-64 65 Over 65

People delaying retirement




Do you approve or disapprove of labor unions?

0

10

20

30

40

50

60

70

80

1936 1946 1956 1966 1976 1986 1996 2006 2016

%

0

10

20

30

40

50

60

70

80

%Approve (%) Disapprove (%)

US: More support for labor unions in recent years




25.6 - 32.2

22.9 – 25.6

21.2 – 22.9

20.1 – 21.2

18.2 – 20.1

14.3 – 18.2

Source: Cooper, Daniel, and Gorbachev,Olga and Jose Luengo-Prado. 2019. “Consumption, Credit, and the Missing Young.” FRB Boston Working Paper series , DB Global Research

Note: “Count Missing Young” is based on population counts of young adults in both the census and the CPP (×20 since the CPP is a 5 percent sample of US population).

Count Missing Young, Aged 18 to 34: State-Level Variation2007 2018

More young people do not have access to creditProvided for the exclusive use of [email protected] on 2020-03-05T16:14+00:00. DO NOT REDISTRIBUTE


Child care affordability of Millennials for center-based infant child carein United States

Source: The US and The High Price of Child Care: 2019, DB Global Research

>35%

30-35%

<25%

NR

Percent of Millennial income spent on Centre-based infant care

Costs of child care as % of median income in each state

25-30%



Average Annual Household Expenses by category in United States National Average: 2018 cost

$0

$5,500

$11,000

$16,500

$22,000

Childcare Housing College TuitionTransportation Food Healthcare

$

$0

$5,500

$11,000

$16,500

$22,000

$

Average annual household expenses on child care: $22,000

Source: The US and The High Price of Child Care: 2019, DB Global Research



-2

0

2

4

6

8

10

85 90 95 00 05 10 15 20

%

-2

0

2

4

6

8

10

%Fed Fund Target rateCore PCE inflation (%y/y)Underlying Inflation Gauge:Full data set measure

Underlying inflation metrics trending lower

Source: FRB, BEA, FRBNY, Haver Analytics, DB Global Research



United States: Inventory of existing homes for sale

1.3

1.8

2.3

2.8

3.3

3.8

4.3

1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

Millions

2

3

4

5

6

7

8

9

10

11

12

Months

Total Existing Homes Available for Sale (ls) Months' Supply of Total Existing Home

Source: NAR, Haver Analytics, DB Global Research

Inventory of existing homes for sales at multi-decade lowsProvided for the exclusive use of [email protected] on 2020-03-05T16:14+00:00. DO NOT REDISTRIBUTE


US: The median house is 38 years old

Median age of Owner-occupied housing in United States

31 31

32 32

33 33

34

35

36 36

37 37

38

30

31

32

33

34

35

36

37

38

39

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Years

30

31

32

33

34

35

36

37

38

39

Years

Source: U.S. Census Bureau, 2005-2017 American Community Survey 1-Year Estimates, DB Global Research



Number of OECD countries with rising and falling residential property prices (year-over-year)

0

10

20

30

40

50

60

70

80

90

100

71 74 77 80 83 86 89 92 95 98 01 04 07 10 13 16 19

%

0

10

20

30

40

50

60

70

80

90

100

%

Rising property prices Falling prices

Home prices falling in more countries

Source: OECD, Haver Analytics, DB Global Research



Poverty Headcount ratio

0%

10%

20%

30%

40%

50%

60%

70%

1980 1985 1990 1995 2000 2005 2010 20150%

10%

20%

30%

40%

50%

60%

70%Sub-Saharan Africa South Asia China World Latin America + Caribbean

World: Share of population living on less than $2 per day

Source: World Bank, Haver Analytics, DB Global ResearchPoverty headcount ratio at $1.90 a day (2011 PPP) (% of population)



Investment implications



The hunt for yield – how will it reverse?


Fed funds 10y IG HY Equities Emerging Markets

Three risks for disruptive reversal:1) US recession2) Rising Treasury supply3) Big fiscal expansion boosting inflation

Risk spectrum

Risk-free assets Risky assets



Source: FRB, Bloomberg Finance LP, DB Global Research

The market is almost always wrong about what the Fed will do

0

1

2

3

4

5

6

0

1

2

3

4

5

6

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22

%% Fed fund futures at different points in time

The market was wrong

The market was wrong

Why would the market be right

today?



Disconnected from gold: JPY no longer safe-haven?

60

70

80

90

100

110

120

1301000

1100

1200

1300

1400

1500

1600

1700

1800

1900

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Yen/US$$/Troy Oz United States: Gold vs USDJPY

Gold price (ls) USDJPY (inverted axis,rs)

Source: WSJ, FRB, Haver Analytics, DB Global Research



Disconnected from gold: CHF no longer safe-haven?

Source: WSJ, FRB, Haver Analytics, DB Global Research

1000

1100

1200

1300

1400

1500

1600

1700

18000.84

0.86

0.88

0.90

0.92

0.94

0.96

0.98

1.00

1.02

1.042016 2017 2018 2019 2020

$/Troy OzSwiss Franc/US$ United States: Gold price vs Swiss Franc/US$

Swiss Franc/US$ (Inverted axis,ls) Gold price (rs)



Global sectoral debt as % of GDP

0255075

100125150175200225250275300325

1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

%

0255075100125150175200225250275300325

%Households Non-fin corporates Government Financial Corporates

Global debt as a share of GDP essentially unchanged since mid-2009

Source: IIF Global Debt Monitor, DB Global Research



US: Basically no goods inflation since the mid-1990s


-8

-4

0

4

8

12

16

20

-8

-4

0

4

8

12

16

20

58 63 68 73 78 83 88 93 98 03 08 13 18

%y/y%y/y Core CPI goods Core CPI services



Downtrend in bid-to-cover ratios for US Treasuries


1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

RatioRatio Treasury auction results : bid-to-cover ratio

2-year 10-year



-50

0

50

100

150

200

250

300

-50

0

50

100

150

200

250

300

11 12 13 14 15 16 17 18 19 20

bpsbps US - Germany 10 year yield differential

10-year rates: Spread between Treasuries and Bunds narrowing




Real GDP growth volatility in United States5-year rolling Standard Deviation of

annualised quarterly Real GDP change

0

1

2

3

4

5

6

7

8

1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012 20170

1

2

3

4

5

6

7

8

GDP volatility very low




Number of free countries in the world

Source: freedomhouse.org, DB Global Research

30

40

50

60

70

80

90

100

30

40

50

60

70

80

90

100

1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018

NumberNumberTotal number of countriesFree Not Free Partly Free

Note: The latest 2019 survey includes 195 countries.The status designation of Free, Partly Free, or Not Free, which is determined by the average of the political rights and civil liberties ratings, indicates the general state of freedom in a country or territory. The political rights and civil liberties ratings range from 1 to 7, with 1 representing the most free and 7 the least free. Free: Andorra, Antigua and Barbuda, Australia, Bahamas, Belgium, Belize, Canada, Cape Verde, Costa Rica, Croatia, El Salvador, France, Germany, Grenada, Iceland, India, Israel, Japan, Kiribati, Latvia, Lithuania, Monaco, Mongolia, Namibia, Netherlands, New Zealand, Palau, Peru, Poland, Portugal, Samoa, San Marino, Sao Tome and Principe, Slovakia, Spain, St. Lucia, St. Vincent and the Grenadines, Suriname, Taiwan, Tunisia, Tuvalu, United Kingdom, Vanuatu,Partly Free: Albania, Armenia, Bangladesh, Bhutan, Bolivia, Bosnia and Herzegovina, Burkina Faso, Colombia, Comoros, Cote d'Ivoire, Dominican Republic, Ecuador, Fiji, Georgia, Guatemala, Guinea, Guinea-Bissau, Haiti, Honduras, Hungary, Indonesia, Jordan, Kenya, Kosovo, Kuwait, Kyrgyzstan, Lebanon, Lesotho, Liberia, Macedonia, Madagascar, Malawi, Malaysia, Maldives, Mali, Mexico, Moldova, Montenegro, Morocco, Mozambique, Myanmar, Nepal, Niger, Nigeria, Pakistan, Papua New Guinea, Paraguay, Philippines, Serbia, Seychelles, Sierra Leone, Singapore, Sri Lanka, Tanzania, The Gambia, Togo, Ukraine, Zambia, Zimbabwe,Not Free: Afghanistan, Algeria, Angola, Azerbaijan, Bahrain, Belarus, Brunei, Burundi, Cambodia, Cameroon, Central African Republic, Chad, China, Congo (Brazzaville), Congo (Kinshasa), Cuba, Djibouti, Egypt, Equatorial Guinea, Eritrea, Eswatini, Ethiopia, Gabon, Iran, Iraq, Kazakhstan, Laos, Libya, Mauritania, Nicaragua, North Korea, Oman, Qatar, Russia, Rwanda, Saudi Arabia, Somalia, South Sudan, Sudan, Syria, Tajikistan, Thailand, Turkey, Turkmenistan, Uganda, United Arab Emirates, Uzbekistan, Venezuela, Vietnam, Yemen.



Greece: Government bond yield 10 year

0

5

10

15

20

25

30

35

40

1998 -Jan

2000 -Jan

2002 -Jan

2004 -Jan

2006 -Jan

2008 -Jan

2010 -Jan

2012 -Jan

2014 -Jan

2016 -Jan

2018 -Jan

2020 -Jan

%

0

5

10

15

20

25

30

35

40%

Greek 10-year rates below 1%

Source: Bank of Greece, Haver Analytics, DB Global Research



Oil demand by sector

0

10

20

30

40

50

60

70

80

90

100

2010 2015 2020 2030

%

0

10

20

30

40

50

60

70

80

90

100

%

Trucks Cars Non-combusted Industry Non-road Buildings Power

Only 40% of oil demand goes to Cars and Trucks

Source: BP Energy Outlook 2019, DB Global Research

Estimates->



U.S. stock ownership*

50.0

52.5

55.0

57.5

60.0

62.5

65.0

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

%

50.0

52.5

55.0

57.5

60.0

62.5

65.0%

The share of the population holding stocks has not recovered since the financial crisis

Source: Gallup survey, DB Global Research

* Do you, personally or jointly with a spouse have any money invested in the stock market right now –either in an individual stock or a stock mutual fund or in a self-directed 401(k) or IRA?



0

1

2

3

4

5

6

7

16 17 18 19 20

%

0

1

2

3

4

5

6

7

%Bloomberg Barclays Muni HY yield to worst Fed funds target rate

HY muni interest rates down from almost 7% in 2016 to 3.5% today

Source: Bloomberg Finance LP, Federal Reserve, Haver Analytics, DB Global Research



Foreigners projected to buy $1trn in Treasuries over the coming years

Source: Treasury, DB Global Research

Foreign holdings of US treasuries

5.0

5.5

6.0

6.5

7.0

7.5

8.0

2016 2017 2018 2019 2020 2021 2022

$, tn

5.0

5.5

6.0

6.5

7.0

7.5

8.0

$, tn

Note: Projected assuming that foreigners continue to hold 40% of US treasuries outstanding; treasuries outstanding for 2020, 2021, 2022projected as the sum of previous year outstanding marketable debt and Deutsche Bank’s projections for treasury’s financing needs and debtissuance as laid out in our Global Fixed Income Outlook, 19 December 2019



Steady decline in labor union membership


Share of employees who are labor-union members

0.0%

2.5%

5.0%

7.5%

10.0%

12.5%

15.0%

17.5%

20.0%

22.5%

1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 20190.0%

2.5%

5.0%

7.5%

10.0%

12.5%

15.0%

17.5%

20.0%

22.5%All employees Private sector



G7: Interest payments as a share of GDP


Net general government interest payments, 2019

-0.1

0.20.5

0.81.1

1.41.7

2.0

2.32.6

2.93.2

3.5

Italy US UK France Germany Australia Canada Japan-0.1

0.20.5

0.81.1

1.41.7

2.0

2.32.6

2.93.2

3.5

% GDP% GDP

Note: Forecast for 2019Q4



Small cap stocks underperforming

Source: Wall Street Journal, Standard & Poor’s, Haver Analytics, DB Global Research

0.48

0.50

0.52

0.54

0.56

0.58

0.60

0.62

0.64

0.66

0.48

0.50

0.52

0.54

0.56

0.58

0.60

0.62

0.64

0.6620

07

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

RatioRatio Ratio: Russell 2000 vs S&P 500



6 days: Fastest correction in the S&P500 on record


Time taken for S&P500 to correct 10% from peak

0

20

40

60

80

100

120

140

160

180

200

Aug

81M

ar-6

0Ju

n-69

Mar

-68

Jun-

53Ap

r-62

Feb-

84Ja

n-90

Apr-7

3M

ay-6

6Au

g-15

Aug-

46Se

p-99

Nov

-18

Oct

-56

Oct

-87

Nov

-07

Aug-

90Au

g-98

Feb-

46Ap

r-00

Oct

-97

Oct

-55

Feb-

18Fe

b-20

# days

0

20

40

60

80

100

120

140

160

180

200

# days



Investorbase of advanced economies, 2019-Q2 (as % of total)

0%

20%

40%

60%

80%

100%

Gre

ece

Ger

man

y

Net

herla

nds

Irela

nd

Aust

ralia

Portu

gal

Finl

and

Den

mar

k

Nor

way

Swed

en

Uni

ted

Stat

es

Aust

ria

Fran

ce

New

Zea

land

Uni

ted

King

dom

Belg

ium

Can

ada

Spai

n

Slov

enia

Kore

a

Switz

erla

nd

Italy

Japa

n

Cze

ch R

epub

lic

0%

20%

40%

60%

80%

100%

Foreign official Foreign banks Foreign nonbanksDomestic central bank Domestic banks Domestic nonbanks

Who owns different countries’ government bonds?

Source: IMF Sovereign investor base estimate by Arslanalp and Tsuda, DB Global Research

Note: Coverage is for general government



Investorbase of EM countries, 2019 Q2 (% of total)

0

20

40

60

80

100

Latv

iaLi

thua

nia

Bul

garia

Indo

nesi

a

Ukr

aine

Phi

lippi

nes

Egy

pt

Col

ombi

aP

olan

d

Rom

ania

Turk

ey

Per

u

Uru

guay

Mex

ico

Hun

gary

Indi

a

Mal

aysi

aC

hina

Bra

zil

Chi

leTh

aila

nd

Rus

sia

Sou

th A

frica

%

0

20

40

60

80

100

%

Foreign official Foreign banks Foreign nonbanksDomestic central bank Domestic banks Domestic nonbanks

EM: Who owns different countries’ government debt?

Source: IMF Sovereign investor base estimates by Arslanalp and Tsuda , DB Global Research

Note: Coverage is for general government



Fed outlook – Fed to cut another 50bps at next FOMC meeting

Coronavirus and election uncertainty are headwinds for consumer spending and capex spending. Fading positive effects of 2018 tax cuts, slowing labor market, and late-cycle headwinds in consumer and corporate credit weighing on the broader US economic outlook.

Bond markets- Still downside risks to rates. Steeper curve likely

Uncertainty about Coronavirus impacting the Fed. Fading positive effects of 2018 tax cuts, slowing labor market, and late-cycle headwinds in consumer and corporate credit weighing on rates.

Credit- Credit spreads wider as slowdown continues

Dovish central banks and negative interest rates abroad without a US recession is bull case for US credit. Global QE and lower hedging costs means more foreign demand for US credit. But slower growth and deteriorating credit fundamentals and more Treasury supply argues for wider IG and HY spreads.

Stock markets- Policy uncertainty a risk

Virus uncertainty, trade war uncertainty, and election uncertainty are downside risks to equities. Low rates and dovish Fed are upside risks.

FX- Dollar down

2020 growth outlook flat for US, up for Europe. Gap between US long rates and German long rates expected to narrow further.

Commodities- Coronavirus and slower global growth

Coronavirus and slower global growth having negative impact on commodity prices.

Emerging markets- Imbalances in some EM countries

Coronavirus is a negative for commodity exporters. Flat US growth outlookis a risk to EM. But dovish Fed and ECB with no recession helpful for EM.

Investment implications summarized




Torsten Slok, Ph.D.

• Chief Economist, Managing Director• Deutsche Bank Securities, Inc.

Torsten Slok joined Deutsche Bank Securities in the fall of 2005. Mr. Slok’s Economics team has been top-ranked by Institutional Investor in

fixed income and equities since 2010, including #1 in 2019. Slok currently servesas a member of the Economic Club of New York Prior to joining the firm, Mr. Slok worked at the OECD in Paris in the Money and

Finance Division and the Structural Policy Analysis Division. Before joining theOECD he worked for four years at the IMF in the Division responsible for writing theWorld Economic Outlook and the Division responsible for China, Hong Kong, andMongolia. Mr. Slok studied at University of Copenhagen and Princeton University. He has

published numerous journal articles and reviews on economics and policy analysis,including in Journal of International Economics, Journal of International Money andFinance, and The Econometric Journal.



05/03/2020 21:10:14 2010 DB Blue template

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Backtested, hypothetical or simulated performance results have inherent limitations. Unlike an actual performance record based on trading actual client portfolios, simulated results are achieved by means ofthe retroactive application of a backtested model itself designed with the benefit of hindsight. Taking into account historical events the backtesting of performance also differs from actual account performancebecause an actual investment strategy may be adjusted any time, for any reason, including a response to material, economic or market factors. The backtested performance includes hypothetical results thatdo not reflect the reinvestment of dividends and other earnings or the deduction of advisory fees, brokerage or other commissions, and any other expenses that a client would have paid or actually paid. Norepresentation is made that any trading strategy or account will or is likely to achieve profits or losses similar to those shown. Alternative modeling techniques or assumptions might produce significantlydifferent results and prove to be more appropriate. Past hypothetical backtest results are neither an indicator nor guarantee of future returns. Actual results will vary, perhaps materially, from the analysis.

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