global macro barcap

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RESEARCH 13 December 20

PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES STARTING AFTER PAGE 14

GLOBAL MACRO SURVEY

Fiscal issues to prevail in 2011

More than three out of five institutional investors believe that fiscal issues will

prevail in 2011, according to our inaugural Barclays Capital Global Macro Survey,

which captured the views of more than 2,000 institutional investors on the outlook

for 2011. Among the respondents, which included hedge funds, money managers,

proprietary trading and corporate trading desks, 37% cited increasing concerns

about advanced-economy fiscal issues and a further 25% cited a euro-area crisis

as the key themes to dominate financial markets in 2011. Fears of asset price

bubbles and inflation seem to have dissipated somewhat, with only one in six (17%)

citing them as concerns in 2011.

Despite the focus on fiscal issues, only 4% of clients surveyed believe that a full-

fledged euro-area crisis, with a break-up of the EUR, is a likely outcome

suggesting that an overwhelming majority think the euro area will be able to pull

out of the crisis. Indeed, more than 50% of investors say that the impact of the

sovereign debt crisis on EUR over the next quarter will be modest, as clients expect

the situation to deteriorate but remain under control. Moreover, 56% of investors

believe that the European sovereign problems will either remain contained within

the periphery, or affect banks with limited implications outside of financials.

57% of respondents believe that the end game of the peripheral debt crisis will

be a bailout of countries other than Greece, while only one in three are

expecting a default/restructuring of at least one peripheral sovereign. We agreewith these findings and believe that at least in 2011 a European default is unlikely

(even if it is difficult to be categorical given the fluidity of the situation). Still,

respondents who believe that it makes sense to be short Italy and Spain outnumber

those who believe it is better to be long those names by a ratio of 2 to 1.

The U.S. is set to experience a period of below-trend growth, according to 86%

of respondents. Among them, 55% believe that the U.S. will not experience a new

round of quantitative easing, while 31% believe that the below-trend growth will

lead to QE3. Investors expectation of below-trend growth stands in contrast to the

consensus view among economists that growth will be between 2.6% and 2.8% in

2011. This suggests that either investors have a more bearish view of 2011 growth

than economists, or, more likely, they may be overestimating U.S. trend growth(which in our view is now 2.25%). Indeed, fewer than 8% of respondents subscribe

to our above consensus view that private demand will pick up and generate growth

north of 3% in 2011. Still, in line with the improved economic data following the

summers soft patch, fewer than 6% of investors expect a double-dip recession in

the U.S.

Piero Ghezzi

+44 (0) 20 3134 2190

[email protected]

Global Macro Survey Results

Macro

Equities

Credit Rates

Foreign Exchange

Emerging Markets

About the Global Macro Survey

The Barclays Capital Global Macro Survey w

launched on 29 November and captured t

views of 2,007 participants who responded

a questionnaire on Barclays Capital Live.

Among the respondents, 30% were EM a

FX investors; the remaining 70% were almo

equally divided between equities, rates a

credit. All respondents were asked to answ

seven global macro questions. After th

investors were asked to answer the questio

relevant to their asset class of interest.
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Barclays Capital | Global Macro Survey

13 December 2010 2

39.5% of respondents believe that the Fed is making a policy mistake by having

monetary policy that is too easy, while an almost equal number (40.6%) say that it is

the ECB that is making a policy mistake by being too hawkish. The divide between

investors is symptomatic of the uncertainty about the eventual effectiveness of the

policy tools available to policymakers. Interestingly, only 13% of investors believe that

all three central banks the FED, the ECB and the BoE will be hiking by the end of

2011, compared with 48% who believe that none will be hiking next year1.

Investors are also almost evenly divided on the effect of QE2 on the USD over the

next few months: 45% believe that QE2 is unlikely to have a large impact on the USD as

the Fed will not telegraph a change in course in the near future, while 37% think that it

may be mostly negative on the dollar as a weak dollar is part of the Feds strategy.

The survey suggests that technicals are favorable. More than 30% of investors say

they have light exposure, compared with only 13% who indicate they are running

large (10%) or at limit (3%) exposures. Interestingly, however, almost 20% of

investors believe other investors are running large or at limit exposures.

The asset classes of choice in 2011 are equities (40%) and commodities (34%).

Fewer than 10% expect USTs to outperform. Among equity investors, the majority

believes the main catalysts for a potential correction are either a deterioration of the

European periphery debt crisis (28%) or monetary tightening in China/EM (26%).

Global FX investors like Asian EM (32%) and commodity currencies (27%).

The overriding theme in EM appears to be growth 40% of investors in EM believe

that the currencies and equity markets likely to outperform are those with strong

growth stories regardless of carry and valuation. In addition, more than 50% of

investors believe that assets that will do best will be those of high-growth Asia. This is

consistent with the view that we have expressed in the past ( Advanced Emerging

Markets: The Road to Graduation) that high growth stories normally dont get fully

priced in and hence there is a positive correlation between high growth and asset price

outperformance. Accordingly, 60% of investors believe that global asset allocation intoEM and EM economic outperformance are going to be the main EM market drivers in

2011. And in striking contrast with the past, only 4% of investors believe that political or

policy-related events in EM will be a dominant factor in performance.

When it comes to risks for EM performance, 46% of investors believe a significant

China slowdown would rank first, well above the 19% of respondents who believe

that it would be a European periphery debt crisis. In our view, the uniformity of

positive views on EM (see The Emerging Markets Quarterly: A crowded consensus) is

one of the reasons for taking some of the potential triggers very seriously.

1 Most of the client responses came before ECBs 2 December announcement that it will postpone tightening untilconditions warrant such action.
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13 December 2010

MACRO

What do you expect the key theme for financial markets will be for 2011? What is the most likely outcome for the eu

17%

6%

25%

12%

37%

3%

0%

10%

20%

30%

40%

50%

60%

70%

Asset-price

bubbles and

inflation globally

Double-dip

recession and

disinflation in the

US

Euro-area cr is is Improved risk

sentiment

Increasing

concerns about

advanced

economies

fiscal

deterioration

QE3

57%

33%

0%

10%

20%

30%

40%

50%

60%

70%

Bailout by EU/IMF o f

peripheral countries o ther

than Greece

Default /restructuring o

debt of at least o ne

peripheral s ov ereign

What is the most likely outcome for the US?Which asset will perform best in 2011?

31%

6%

8%

55%

0%

10%

20%

30%

40%

50%

60%

70%

Below-trend growth leading

to further policy easing

Double-dip recession Pr ivate demand picks up

leading to sustainable

growth

Sustained period o f

positive, but below-trend,

growth without further

policy easing

34%

10%

0%

10%

20%

30%

40%

50%

60%

70%

Co mmo dit ies Credit E


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13 December 2010

How would you characterize the size of positions you are currently running interms of your risk limit or capacity?

How do you believe that other investors arrisk limit or capacity?

3%

56%

10%

31%

0%

10%

20%

30%

40%

50%

60%

70%

At Limit Average Large Light

3%

51%

0%

10%

20%

30%

40%

50%

60%

70%

At Limit Average

For the remainder of the survey, please select one area that best describes your

primary focus:

23%

12%

25%

18%

22%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

CREDIT EM EQUITIES FX RATES


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13 December 2010

EQUITIES

What factor was the top catalyst for the equity market rally from late August? What is your outlook for equities for 1H11

2%

19%

54%

19%

6%

0%

10%

20%

30%

40%

50%

60%

70%

Expectations of an

extension of the

current tax rates

Improving

macroeconomic

outlook

QE2 Strong earnings The U.S. midterm

elections

28%25%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

A bro ad range A c ont inued rally A m

co

What do you view as the most significant risk or catalyst for a correction? What sectors do you expect to perform be

26%28%

20%

10%

16%

0%

10%

20%

30%

40%

50%

60%

Chinese & EM

monetary policy

tightening owing to

rising inflation

European sov ereign

crisis reignites

M acro data

deterioration i.e.

unemployment rises

to 10%

Public policy

stalemate leading to

dollar crisis

Weakening

co rporate earnings

16%13%

0%

10%

20%

30%

40%

50%

60%

70%

Defensive sectors Early stage cyclicalsectors consumer

discretionary,

financials

High yie


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13 December 2010

Which factor is most bullish for US equities for 2H11?

22%

8%12%

26%

11% 12%8%

0%

10%

20%

30%

40%

50%

60%

70%

All of the aboveEarnings growth Fed QE

purchases and

the portfolio

rebalance eff ect

Improving

macroeconomic

growth

Increasing

dividends and

buybacks

None of the

above equities

are going to

underperform fo r

some or all of

the reasons cited

previously or

others we have

not mentioned

Valuation


7/16


13 December 2010

CREDIT

Where do you expect CDX IG OTR to end 1H 2011(currently 93; range YTD 76-131)?

Which of these strategies is likely to gener

7% 6%

18%

37%

32%

0%

5%

10%

15%

20%

25%

30%

35%

40%

120 105-120 80-95 95-105

27%

36%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%50%

Increasing duration to

take advantage of steep

credit curves

M oving do wn in credi

quality

By the end of 2011, the European sovereign crisis will Where do you expect financial spreads to months (currently 63bp wide; YTD range 4

47%

34%

8%

3%

9%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

have aff ected the

spreads o f

peripherals and

banks, with few

implications outside

financials

have been t he

catalyst for

underperformance

of European credit

across sectors

have caus ed

widespread

underperformance

of credit across

regions

have dissipat ed

without m ajor

implications for

markets

have put press ure

on peripherals,

without affecting the

rest

23%

6%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Co mpress by 10-

20bp

Compress by 20+ bp Rema

+


8/16


13 December 2010

Given the current market environment, what is the most attractive part of the bankcapital structure?

14%13%

43%

16%14%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Common Stock Deposits Senior Debt Sub Debt Tier 1


9/16


13 December 2010

RATES

Who is most likely to make a policy mistake? Which of these - the Fed, the BoE and the 2011?

8%5%

41% 39%

7%

0%

10%

20%

30%

40%

50%

60%

The BoE by being

behind the curve on

inflation

The BoE by not doing

QE2

The ECB by

tightening policy to o

quickly

The Fed by doing too

much QE2

The Fed by not doing

enough QE2

13%11%

0%

10%

20%

30%

40%

50%

60%

70%

80%

All t hree will be hiking

by end 2011

Bo th the BoE and the

ECB will be hiking

None o

hiki

How much QE2 will the Fed do? From here, what is the best trade for 2011

27%

3%

57%

13%

0%

10%

20%

30%

40%

50%

60%

70%

1000bn 2000bn or more 600bn, as announced Less than 600bn

34%

11%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Curve flatteners in

the US, UK and euro

Long Germany

outright or vs US

Lon

bre

eve


10/16


13 December 2010

What is the best trade in US rates? What is the best trade in European rates?

20%

13%

17%

34%

17%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

10s/30s steepeners Lo ng MB S Lo ng outright, as 10y

rates will trade below

2%

Short across the

curve

Swap spreads

wideners

15%17%

0%

10%

20%

30%

40%

50%

60%

70%

Long Italy and Spain Long long-end

German rates, as the

Bund yield will trade

below 2%

Shor

o


11/16


13 December 2010

FOREIGN EXCHANGE

What do you think the most underpriced risk for G10 FX is: What is the most likely effect on the EUR oquarter?

26%

9%

13%

25%

8%

5%

13%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Chinese growth

slows s harply

Commodity prices

increase quickly

Currency

war/protectionism

Euro area

problems escalate

Geopolitical crisisNone of the above USD crisis

53%

14%

0%

10%

20%

30%

40%

50%

60%

70%

M odestly negative -

the situation will

deteriorate but

remain under co ntrol

Neutral - it matters

but there will be little

news over the next

quarter

Not hin

affect

the

What is the most likely effect on the USD of Fed policy over the next quarter? Which currency grouping offers the best rbuy?

37%

45%

6%9%

4%

0%

10%

20%

30%

40%

50%

60%

70%

M odestly negative

a weak USD is part of

the Feds s trategy if

the USD appreciates

it will send more

dovish comments

Neutral the Fed is

unlikely to change its

plans one way or the

ot her over the next

few months

Po sitive US growth

will mean that the

Fed does not need

to m eet its current

planned purchases

Very negative a

weak USD is the

primary short-term

goal of F ed policy,

and what the Fed

wants, the Fed gets

Very negative but

because the market

loses f aith in US

monetary policy, not

because the Fed

wants a v ery weak

USD

32%

27%

9%

0%

10%

20%

30%

40%

Asian EM the

engine of growth

Commodity

currencies

loose monetary

policy and strong

global growth will

dominate

European

currencies

outside the EU

the periphera

problems wil

divert Europea

funds to othe

parts of the

continent


12/16


13 December 2010

Which currency grouping offers the best risk-reward over the next quarter as asell?

3%

9% 11%

28%27%

5%

17%

0%

10%

20%

30%

40%

Asian EM

China blows

up

Asian EM

too much is

priced in

Commodity

currencies

growth will

slow and they

are likely to be

the primary

losers

European

currencies

growth will

come last to

Europe, a

weak euro

area will

depress all

European

currencies

G4 (USD, EUR,

JPY, GBP)

just look at

their

economies,

com pare and

contrast with

others

LatAm EM a

weak US and

concerns

about capital

inflows

dominate

Safe havens

(JPY, CHF,

USD, EUR)

loose

monetary

policy and

strong global

growth will

dampen fears


13/16


13 December 2010

EMERGING MARKETS

What do you expect will be the dominant driver of EM asset market performancein 2011?

On a risk-adjusted basis, what EM asset m2011?

11%

21%23%

37%

4% 4%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%50%

Asset-price

bubbles

Commodity

price shocks,

inflation and EM

monetary

tightening

EM economic

outperformance

Global asset

allocation into

EM

Monetary-policy

normalization in

industrial

economies

Political or

policy-related

events in EM

13%

38%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Corporate c redit Equ it ies Ext

What region is likely to outperform in 2011? What will be more important in 2011?

6%

52%

16%

26%

0%

10%

20%

30%

40%

50%

60%

Africa Asia EM EA Latin America

51%

0%

10%

20%

30%

40%

50%

60%

Getting the asset right


14/16


13 December 2010

What is the biggest downside risk to EM asset markets in 2011? In EM FX, what is your highest conviction

23%

19%

6%

46%

6%

0%

10%

20%

30%

40%

50%

60%

Commodity price

shock and inflation

European debt crisis Political problems in

EM

Significant

slowdown in China

Weak industrial-

economy growth

23%

7%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Currencies where

authorities are less

inclined to impose

capital controls

Currencies with high

beta to global risk

factors

Curren

carry,

valu

st

In EM external debt, what is your favourite long position?

27%

37%

26%

10%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

C orpo rat e c redit H igh qualit y, liquid

so vereign credits

High-yield sovereigns Smaller, off-the-run

sovereigns


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Analyst Certification(s)I, Piero Ghezzi, hereby certify (1) that the views expressed in this research report accurately reflect my personal views about any or all of the subjectsecurities or issuers referred to in this research report and (2) no part of my compensation was, is or will be directly or indirectly related to the specificrecommendations or views expressed in this research report.

Important DisclosuresFor current important disclosures regarding companies that are the subject of this research report, please send a written request to: Barclays CapitalResearch Compliance, 745 Seventh Avenue, 17th Floor, New York, NY 10019 or refer to https://ecommerce.barcap.com/research/cgi-bin/all/disclosuresSearch.pl or call 212-526-1072.Barclays Capital does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that Barclays Capitalmay have a conflict of interest that could affect the objectivity of this report. Any reference to Barclays Capital includes its affiliates. Barclays Capital and/oran affiliate thereof (the "firm") regularly trades, generally deals as principal and generally provides liquidity (as market maker or otherwise) in the debt

securities that are the subject of this research report (and related derivatives thereof). The firm's proprietary trading accounts may have either a long and /or short position in such securities and / or derivative instruments, which may pose a conflict with the interests of investing customers. Where permittedand subject to appropriate information barrier restrictions, the firm's fixed income research analysts regularly interact with its trading desk personnel todetermine current prices of fixed income securities. The firm's fixed income research analyst(s) receive compensation based on various factors including,but not limited to, the quality of their work, the overall performance of the firm (including the profitability of the investment banking department), theprofitability and revenues of the Fixed Income Division and the outstanding principal amount and trading value of, the profitability of, and the potentialinterest of the firms investing clients in research with respect to, the asset class covered by the analyst. To the extent that any historical pricing informationwas obtained from Barclays Capital trading desks, the firm makes no representation that it is accurate or complete. All levels, prices and spreads arehistorical and do not represent current market levels, prices or spreads, some or all of which may have changed since the publication of this document.Barclays Capital produces a variety of research products including, but not limited to, fundamental analysis, equity-linked analysis, quantitative analysis,and trade ideas. Recommendations contained in one type of research product may differ from recommendations contained in other types of researchproducts, whether as a result of differing time horizons, methodologies, or otherwise.


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No. 09141-37). Registered office Al Faisaliah Tower | Level 18 | Riyadh 11311 | Kingdom of Saudi Arabia. Authorised and regulated by the Capital MarketAuthority, Commercial Registration Number: 1010283024.This material is distributed in Russia by Barclays Capital, affiliated company of Barclays Bank PLC, registered and regulated in Russia by the FSFM. BrokerLicense #177-11850-100000; Dealer License #177-11855-010000. Registered address in Russia: 125047 Moscow, 1st Tverskaya-Yamskaya str. 21.This material is distributed in India by Barclays Bank PLC, India Branch.This material is distributed in Singapore by the Singapore branch of Barclays Bank PLC, a bank licensed in Singapore by the Monetary Authority ofSingapore. For matters in connection with this report, recipients in Singapore may contact the Singapore branch of Barclays Bank PLC, whose registeredaddress is One Raffles Quay Level 28, South Tower, Singapore 048583.Barclays Bank PLC, Australia Branch (ARBN 062 449 585, AFSL 246617) is distributing this material in Australia. It is directed at 'wholesale clients' asdefined by Australian Corporations Act 2001.IRS Circular 230 Prepared Materials Disclaimer: Barclays Capital and its affiliates do not provide tax advice and nothing contained herein should beconstrued to be tax advice. Please be advised that any discussion of U.S. tax matters contained herein (including any attachments) (i) is not intended orwritten to be used, and cannot be used, by you for the purpose of avoiding U.S. tax-related penalties; and (ii) was written to support the promotion ormarketing of the transactions or other matters addressed herein. Accordingly, you should seek advice based on your particular circumstances from anindependent tax advisor. Copyright Barclays Bank PLC (2010). All rights reserved. No part of this publication may be reproduced in any manner without the prior writtenpermission of Barclays Capital or any of its affiliates. Barclays Bank PLC is registered in England No. 1026167. Registered office 1 Churchill Place, London,E14 5HP. Additional information regarding this publication will be furnished upon request.

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