mi guide to the markets - j.p. morgan...and future results. guide to the markets - europe. data as...
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Guide to the Markets
MARKET INSIGHTS
Europe | |3Q 2020 As of 30 June 2020
2
Global Market Insights Strategy Team
Vincent JuvynsLuxembourg
Tilmann Galler, CFAFrankfurt
Maria Paola ToschiMilan
Shogo MaekawaTokyo
Lucia Gutierrez MelladoMadrid
Tai HuiHong Kong
Marcella ChowHong Kong
Ian HuiHong Kong
Yoshinori ShigemiTokyo
Kerry Craig, CFAMelbourne
Dr. Jasslyn Yeo, CFASingapore
Karen WardLondon
Ambrose Crofton, CFALondon
Chaoping Zhu, CFAShanghai
Jai Malhi, CFALondon
Manuel Arroyo Ozores, CFAMadrid
Agnes LinTaipei
Michael Bell, CFALondon
John ManleyNew York
Samantha AzzarelloNew York
Dr. David Kelly, CFANew York
Dr. Cecelia MundtNew York
Meera Pandit, CFANew York
Tyler Voigt, CFANew York
Gabriela SantosNew York
David LebovitzNew York
Jordan JacksonNew York
Jennie LiNew York
Hugh Gimber, CFALondon
Max McKechnieLondon
3
Page reference
� Global economy
4. Global growth5. Global Purchasing Managers’ Index (PMI) for manufacturing6. Global inflation7. Global core inflation and inflation expectations8. Global fiscal policy9. Global monetary policy10. Global currencies11. Global trade12. Productivity and population growth13. Global Covid-19 infection rates14. Global travel and navigation app usage15. US GDP16. US Economic Monitor17. US business surveys18. US business investment19. US consumer20. US labour market21. US non-farm payrolls and initial jobless claims22. US Conference Board indicators23. US household and corporate finances24. US inflation25. US Federal Reserve policy rate26. US politics27. US focus: Labour market and consumer dynamics28. Eurozone GDP29. Eurozone business investment30. Eurozone consumer31. Eurozone labour market32. Eurozone unemployment33. Eurozone inflation34. European Central Bank policy rate35. Eurozone debt36. Eurozone government debt and bond spreads37. Eurozone focus: EU recovery fund and government support for
jobs38. UK GDP39. UK consumer40. UK inflation41. UK focus: Labour market and trade42. Japan GDP43. China GDP44. China debt45. China inflation and policy rates46. Emerging market currencies and current account47. Emerging market structural dynamics48. Emerging market focus: EM debt vulnerabilities
� Equities
49. Global earnings expectations and equity valuations50. Global income51. Global equity sector weights52. Equity net issuance and dividend payout ratios53. US earnings54. US equity valuations55. US valuations and subsequent returns56. Equity market factors57. US bull and bear markets58. US equity market drawdowns and recoveries59. Europe earnings60. Europe equity valuations61. Europe large, mid and small capitalisation equities62. UK earnings63. European stocks and currencies64. Japan earnings65. Japan equity market and currency66. Emerging market equity drivers67. Emerging market equity valuations and subsequent returns68. Equity focus: US sector performance and earnings in recessions69. World stock market returns
� Fixed income
70. Global government bond yields71. US investment-grade bonds72. US high yield bonds73. Europe and UK investment-grade bonds74. Europe high yield bonds75. Emerging market bonds76. Fixed income focus: US debt and yields77. Global fixed income spreads and returns
� Other assets
78. Oil79. Metals80. Alternative sources of diversification81. Alternative investments: Real assets82. Sustainable investment strategies83. Sustainable investment performance and market size84. Asset return expectations85. The cost of hedging
� Investing principles
86. Life expectancy87. The effect of compounding88. Cash investments89. Long-term asset returns90. Annual returns and intra-year declines91. Asset class risk-return trade-off92. S&P 500 and fund flows93. US asset returns by holding period94. Asset class returns (EUR)
4
|GTM – Europe
-10
-8
-6
-4
-2
0
2
4
6
'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
Global growth
Real GDP growth Contribution to global real GDP growth% change year on year % change year on year
Source: (Left) BEA, Eurostat, Japan Cabinet Office, ONS, Refinitiv Datastream, J.P. Morgan Asset Management. Forecasts are from J.P. Morgan Securities Research. (Right) Refinitiv Datastream, World Bank, J.P. Morgan Asset Management. EM is emerging markets. DM is developed markets. Past performance and forecasts are not reliable indicators of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
4
Global economy
China
EM ex-China
DM ex-US
US
Global
-3
-2
-1
0
1
2
3
4
5
'85 '88 '91 '94 '97 '00 '03 '06 '09 '12 '15 '18
2020 forecast
-4,7%
-5,6%
-6,4%
-9,2%UK
US
Eurozone
Japan
5
42,4 47,8
39,5 46,4
45,4 49,6
39,4 47,4
40,6 52,3
36,6 45,2
45,4 47,5
38,3 49,0
41,1 49,4
39,2 51,0
40,0 47,3
42,1 41,9
40,7 50,1
39,8 49,8
38,4 40,1
50,7 51,2
28,6 39,1
41,3 43,4
41,9 46,2
30,8 47,2
38,3 51,6
38,3 38,6
36,2 49,4
2011 2012 2014 20162008 2009 2010'20
2013 20192015 2017 2018 '20
India
Indonesia
Greece
Germany
China
USUK
Eurozone
France
Italy
Spain
Ireland
Japan
Korea
Global
Developed
Emerging
Taiwan
MexicoBrazil
Russia
SwitzerlandSweden
Eur
ozon
eD
evel
oped
Em
ergi
ngGlobal Purchasing Managers’ Index (PMI) for manufacturing
Source: Markit, J.P. Morgan Asset Management. The Global Purchasing Managers’ Index (PMI) for manufacturing assesses the economic health of the sector by surveying manufacturing businesses regarding output, new orders, stocks of purchases, supplier delivery times and employment. A score of 50 indicates that economic activity is neither expanding nor contracting, above 50 indicates expansion. The colours range from red to yellow to green, where red is below 50, yellow is at 50 and green is above 50. Quarterly averages are shown, except the two most recent monthly data points. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
GTM – Europe |
Global economy
5
May Jun
6
Global inflation
Source: Bank of Mexico, DGBAS, ECB, Goskomstat of Russia, IBGE, India Ministry of Statistics & Programme Implementation, Japan Ministry of Internal Affairs & Communication, Korean National Statistical Office, National Bureau of Statistics China, ONS, Refinitiv Datastream, Riksbank, Statistics Indonesia, Swiss National Bank, US Federal Reserve, J.P. Morgan Asset Management. Figures shown are for headline inflation and are % change year on year. Heatmap colours are based on the respective central bank target inflation rates. Blue is below target, white is at target and red is above target. India inflation data for April and May was not recorded due to inability to record prices during the lockdown phase. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Global economy
GTM – Europe | 6
India
Indonesia
Greece
Germany
USUK
EurozoneFrance
ItalySpain
Ireland
JapanChina
Korea
Global
Developed
Emerging
Taiwan
MexicoBrazil
Russia
SwitzerlandSweden
Eur
ozon
eD
evel
oped
Em
ergi
ng
2,6 2,7 2,7 2,7 2,8 2,4 2,1 1,9 1,9 2,2 2,4 2,3 2,1 2,1 2,0 1,9 2,0 2,4 2,7 2,9 2,8 2,2 1,3 1,0
2,3 2,4 2,3 2,1 2,3 1,9 1,6 1,4 1,4 1,6 1,8 1,5 1,5 1,4 1,3 1,3 1,2 1,5 1,7 1,8 1,7 1,1 0,3 0,1
3,0 3,1 3,2 3,5 3,5 3,1 2,9 2,7 2,6 3,1 3,3 3,4 3,2 3,2 3,1 3,0 3,3 3,8 4,2 4,7 4,4 3,9 3,0 2,5
2,0 2,2 2,1 2,1 2,3 1,9 1,5 1,4 1,5 1,4 1,7 1,2 1,3 1,0 1,0 0,8 0,7 1,0 1,3 1,4 1,2 0,7 0,3 0,1
2,3 2,6 2,6 2,5 2,5 2,2 1,9 1,4 1,6 1,3 1,5 1,1 1,4 1,3 1,3 1,1 0,9 1,2 1,6 1,7 1,6 0,8 0,4 0,4
1,9 1,9 1,9 1,9 2,3 2,1 1,6 1,4 1,5 1,3 2,0 1,4 1,6 1,7 1,4 1,2 1,1 1,1 1,5 1,7 1,7 1,4 0,9 0,6
1,4 1,9 1,6 1,5 1,7 1,6 1,2 0,9 1,1 1,1 1,1 0,9 0,8 0,3 0,5 0,2 0,2 0,2 0,5 0,4 0,2 0,1 0,1 -0,3
2,3 2,3 2,2 2,3 2,3 1,7 1,2 1,0 1,1 1,3 1,6 0,9 0,6 0,6 0,4 0,2 0,2 0,5 0,8 1,1 0,9 0,1 -0,7 -0,9
1,0 0,8 0,9 1,1 1,8 1,1 0,6 0,5 0,8 1,0 1,1 0,6 0,2 0,4 0,1 0,2 -0,3 0,5 1,1 1,1 0,4 0,2 -0,9 -0,7
0,7 1,0 0,9 1,2 1,1 0,8 0,8 0,8 0,7 1,1 1,7 1,0 1,1 0,5 0,6 0,6 0,6 0,8 1,1 1,1 0,9 0,5 -0,3 -0,8
2,1 2,2 2,1 2,5 2,4 2,1 2,2 2,0 1,9 1,8 2,1 2,1 1,6 1,5 1,3 1,3 1,6 1,8 1,7 1,5 1,3 0,8 -0,2 0,1
0,9 1,2 1,3 1,1 1,1 1,0 0,8 0,7 0,7 0,7 1,1 0,5 0,7 0,4 0,5 0,1 -0,3 -0,3 -0,1 0,2 -0,2 -0,4 -1,0 -1,0
2,4 2,5 2,7 2,4 2,4 2,3 2,1 1,8 1,9 1,9 2,1 2,0 2,0 2,1 1,7 1,7 1,5 1,5 1,3 1,8 1,7 1,5 0,8 0,5
2,9 2,9 2,7 2,3 2,5 2,2 1,9 1,6 1,5 1,9 2,0 1,8 1,6 1,8 1,7 1,7 1,8 2,1 2,3 2,5 2,3 1,5 0,3 0,1
0,7 0,9 1,3 1,2 1,4 0,8 0,3 0,2 0,2 0,5 0,9 0,7 0,7 0,5 0,3 0,2 0,2 0,5 0,8 0,7 0,4 0,4 0,1 0,1
1,9 2,1 2,3 2,5 2,5 2,2 1,9 1,7 1,5 2,3 2,5 2,7 2,7 2,8 2,8 3,0 3,8 4,5 4,5 5,4 5,2 4,3 3,3 2,4
3,2 3,4 3,4 3,0 3,3 3,4 3,2 2,8 2,7 2,5 2,8 3,1 2,8 2,8 3,1 3,1 2,9 2,7 2,6 2,7 3,0 3,0 2,7 2,2
1,5 1,1 1,4 2,1 2,0 2,0 1,3 0,8 0,5 0,4 0,6 0,7 0,7 0,6 0,0 -0,4 0,0 0,2 0,7 1,5 1,1 1,0 0,1 -0,3
1,4 1,8 1,5 1,7 1,2 0,3 -0,1 0,2 0,2 0,6 0,7 0,9 0,9 0,4 0,4 0,4 0,4 0,6 1,1 1,9 -0,2 0,0 -1,0 -1,2
4,9 4,2 3,7 3,7 3,4 2,3 2,1 2,0 2,6 2,9 3,0 3,0 3,2 3,1 3,3 4,0 4,6 5,5 7,4 7,6 6,6 5,9 N/A N/A
4,4 4,5 4,2 4,5 4,6 4,0 3,7 3,8 3,9 4,6 4,9 4,7 3,4 3,2 3,4 2,9 2,5 3,3 4,3 4,2 4,0 3,3 2,4 1,9
4,7 4,8 4,9 5,0 4,9 4,7 4,8 4,4 3,9 4,0 4,4 4,3 4,0 3,8 3,2 3,0 3,0 3,0 2,8 3,2 3,7 3,3 2,2 2,8
2,3 2,5 3,1 3,4 3,5 3,8 4,3 5,0 5,2 5,3 5,2 5,1 4,7 4,6 4,3 4,0 3,8 3,5 3,0 2,4 2,3 2,5 3,1 3,1Ju
n
Apr
Mar
Dec
Jan
Feb
2018
Mar
May
Jun
Jul
Aug
Nov
Sep
Oct
Dec
Jan
2019
Feb
May
Apr
Jul
Aug
Sep
Oct
Nov
2020
7
|GTM – Europe
-2
-1
0
1
2
3
4
5
'07 '09 '11 '13 '15 '17 '19
Global core inflation and inflation expectations
Core inflation Market-based inflation expectations% change year on year %, 5y5y inflation swap
Source: (Left) Bank of Japan, BLS, Eurostat, ONS, Refinitiv Datastream, J.P. Morgan Asset Management. CPI is the Consumer Price Index. Core inflation for the US is defined as CPI excluding food and energy. Core inflation for Japan is defined as CPI excluding fresh food and energy. Core inflation for the UK and the eurozone is defined as CPI less energy, food, alcohol and tobacco. Japan core CPI has been adjusted down by 2% from April 2014 to March 2015 to remove the estimated impact of the consumption tax hike over this period. (Right) Bloomberg, J.P. Morgan Asset Management. 5y5y inflation swap represents the market’s expectation of five-year average inflation, starting in five years’ time. Data for Japan starts in March 2007 due to data availability. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Headline inflation target
-2
-1
0
1
2
3
4
5
'07 '09 '11 '13 '15 '17 '19
Japan
UK
US
Eurozone
7
Global economy
US
Eurozone
Japan
UK
8
|GTM – Europe
12,311,3
9,4
6,2
3,5 3,4 2,7
6,55,3
4,13,1
1,9 1,2 0,72,6
24,0
31,5
16,9
34,0
10,6
16,2
5,44,2
0,5
9,7
1,1
4,9
0,50
5
10
15
20
25
30
35
40
Global fiscal policy
Global discretionary fiscal stimulus measures in re sponse to Covid-19% of 2020 nominal GDP, based on IMF estimates
Source: IMF Fiscal Monitor, IMF World Economic Outlook, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
8
Revenue and spending measures Loans, equity injections and guarantees
Developed markets Emerging markets
Global economy
US Japan Germany UK Italy Spain France Brazil S. Africa China Korea Russia India Mexico
9
|GTM – Europe
0
2
4
6
8
10
12
14
16
18
20
22
24
-2
-1
0
1
2
3
4
5
6
7
8
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
Forecast*
Global monetary policy
Central bank balance sheetsUSD trillions
Source: (Left) Bank of England (BoE), Bank of Japan (BoJ), Bloomberg, European Central Bank (ECB), J.P. Morgan Securities Research, UK Debt Management Office, US Federal Reserve (Fed), J.P. Morgan Asset Management. Chart data includes the eurozone, Japan, UK and US. 2020 estimates are from J.P. Morgan Asset Management’s Global Fixed Income, Currency and Commodities team. (Right) BoE, BoJ, ECB, Fed, Refinitiv Datastream, Swiss National Bank (SNB), J.P. Morgan Asset Management. Global central bank balance sheet is the sum of the balance sheets of the BoE, BoJ, ECB, Fed and SNB. *Balance sheet forecast assumptions: BoE to have net asset purchases totalling GBP 300 bn during 2020; BoJ to have net asset purchases of JPY 2,5 tn per month; ECB to have net asset purchases totalling EUR 1,35 tn in 2020; Fed to have net asset purchases of USD 120 bn per month; SNB balance sheet to increase by CHF 15 bn per month. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Global economy
9
Global central bank balance sheet
12-month change in balance sheet
Major central bank purchases and government bond is suanceUSD trillions
-5
-4
-3
-2
-1
0
1
2
3
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
Net government bond issuance
Central bank government bond QE purchases
Net government bond supply
10
|GTM – EuropeGlobal currencies
USD real effective exchange rate and interest rate differential Global real effective exchange rate valuationsIndex level (LHS); % (RHS) % premium / discount relative to its average since 1999
Source: (All charts) J.P. Morgan Securities Research, Refinitiv Datastream, J.P. Morgan Asset Management. DM is developed markets and the yield is calculated as a GDP-weighted average of the 10-year government bond yields of Australia, Canada, France, Germany, Italy, Japan, Switzerland and the UK. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Global economy
10
USD broad real effective exchange rate
-1,0
-0,5
0,0
0,5
1,0
1,5
2,0
2,5
3,0
90
95
100
105
110
115
120
125
130
135
'96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
US minus DM 10-year government bond yield
-40 -30 -20 -10 0 10 20
Developed markets
Emerging markets
China
India
Switzerland
US
Russia
Australia
Eurozone
South Korea
Canada
UK
Sweden
Japan
Norway
South Africa
Mexico
Brazil
Turkey
11
|GTM – Europe
-25
-20
-15
-10
-5
0
5
10
15
20
25
'01 '03 '05 '07 '09 '11 '13 '15 '17 '190 5 10 15 20 25 30 35 40 45
Global trade
Exports of goods Global export volumes% of nominal GDP, 2019 % change year on year, three-month moving average
Source: (Left) IMF Direction of Trade, IMF World Economic Outlook, J.P. Morgan Asset Management. (Right) CPB Netherlands, Refinitiv Datastream, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Global economy
11
Brazil
US
Eurozone
Canada
India
China
Russia
Mexico
Japan
Korea
UK
China
EM ex-China
US
Eurozone
Other
Emerging markets
Developed markets
12
|GTM – Europe
-1,0
-0,8
-0,6
-0,4
-0,2
0,0
0,2
0,4
0,6
0,8
1,0
1,2
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
4,0
4,5
5,0
'58 - '67 '68 - '77 '78 - '87 '88 - '97 '98 - '07 '08 - '19
Productivity and population growth
Drivers of US GDP growth Global working-age population growthAnnualised % change Annualised % change
Source: (Left) BEA, BLS, J.P. Morgan Asset Management. GDP drivers are calculated as the average annualised growth between 4Q from the preceding year in the period and 4Q of the last year of the period. (Right) United Nations (UN) Department of Economic and Social Affairs, J.P. Morgan Asset Management. Working-age population is defined as aged 15-69. Data from 2020 onwards are UN forecasts. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Global economy
2000-2020 2020-20401980-2000
Growth in workers + Growth in real output per worker
Growth in real GDP
12
US UK Eurozone Japan
1,6%
2,2%
1,9%
1,4%1,1%
0,7%
2,8% 1,0% 1,3% 1,6% 1,9% 1,0%
4,5%
3,2% 3,2%3,0% 3,0%
1,7%
13
|GTM – EuropeGlobal Covid-19 infection rates
Source: (All charts) Johns Hopkins CSSE, J.P. Morgan Asset Management. Cases include both laboratory confirmed and “presumptive positive” cases. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Daily increase in Covid-19 cases Daily increase in C ovid-19 casesSeven-day moving average Seven-day moving average
0
5.000
10.000
15.000
20.000
25.000
30.000
35.000
40.000
0
100
200
300
400
500
600
700
800
900
1.000
0
5.000
10.000
15.000
20.000
25.000
30.000
35.000
40.000
45.000
0
1.000
2.000
3.000
4.000
5.000
6.000
7.000
8.000
9.000 France
Germany
Italy
Spain
UK
US (RHS)
Russia (RHS)
South Korea
China
India (RHS)
South Africa (RHS)
Brazil (RHS)
13
Global economy
Mar ’20 Apr ’20 May ’20 Jun ’20 Jul ’20 Mar ’20 Apr ’20 May ’20 Jun ’20 Jul ’20
14
|GTM – Europe
0
20
40
60
80
100
120
Jan ’20 Feb ’20 Mar ’20 Apr ’20 May ’20 Jun ’20 Jul ’20
Global travel and navigation app usage 14
Travel and navigation app usage Travel and navigatio n app usage% of 2019 average % of 2019 average
Source: (All charts) App Annie, J.P. Morgan Asset Management. Data is sourced from App Annie with over 600 travel and navigation apps globally, including Google Maps, Uber, Airbnb and Booking.com. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
0
20
40
60
80
100
120
Russia
South Korea
China
India
South Africa
Brazil
Spain
US
Germany
Italy
UK
France
Global economy
Jan ’20 Feb ’20 Mar ’20 Apr ’20 May ’20 Jun ’20 Jul ’20
15
|GTM – EuropeUS GDP
Contribution to US real GDP growth and ISM composit e% change year on year (LHS); index level (RHS)
Source: BEA, Bloomberg, ISM, Refinitiv Datastream, J.P. Morgan Asset Management. The Institute for Supply Management (ISM) composite is an economy-weighted average of the manufacturing and non-manufacturing surveys. A score of 50 indicates that economic activity is neither expanding nor contracting, above 50 indicates expansion. ISM data is shown with quarterly frequency. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Global economy
Average since 2000
1Q20
2,1% 0,3%
15
Change in inventories
Net exports
Investment
Consumption
Government
ISM composite (RHS)
30
35
40
45
50
55
60
65
-8
-6
-4
-2
0
2
4
6
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
16
|GTM – Europe
0
10
20
30
40
50
60
70
80
90
100
US Economic Monitor
US economic indicatorsPercentile rank relative to historic data since 1990
Source: BLS, Conference Board, ISM, Refinitiv Datastream, J.P. Morgan Asset Management. Elevated recession risk flags are shown when the underlying indicator is at a level consistent with the onset of any of the past three US recessions, as determined by NBER. Transformations used for each of the indicators are: % change year on year for the Leading Economic Index and consumer confidence present situation, index level for Leading Credit Index, ISM non-manufacturing and ISM manufacturing new orders and three-month moving average of monthly absolute change for non-farm payrolls. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Global economy
Broad indicators
Latest
Higher recession risk
Consumer and services Manufacturing Labour marketElevated
recession risk
Lower recession risk
Key:
16
ConferenceBoard Leading
Economic Index
ConferenceBoard Leading Credit Index
Consumer confidence:
Present situation
ISM non-manufacturing
ISMmanufacturing:
New orders
Non-farm payrolls
17
|GTM – Europe
25
30
35
40
45
50
55
60
65
70
75
'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
US business surveys
US ISM manufacturing: New orders US ISM non-manufact uringIndex level Index level
Source: (All charts) ISM, Refinitiv Datastream, J.P. Morgan Asset Management. Periods of “recession” are defined using US National Bureau of Economic Research (NBER) business cycle dates. Elevated recession risk line is shown as the highest value of the underlying indicator observed at the start of the past three US recessions, as determined by NBER. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Global economy
Recession
17
Elevated recession risk
Elevated recession risk
35
40
45
50
55
60
65
'98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
18
|GTM – Europe
-20
-10
0
10
20
30
40
-20
-15
-10
-5
0
5
10
15
20
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
US business investment
US future capex intentions and business investment% change year on year (LHS); index level (RHS)
Source: BEA, Dallas Fed, Kansas City Fed, New York Fed, Philadelphia Fed, Refinitiv Datastream, Richmond Fed, J.P. Morgan Asset Management. Future capex intentions is an average index level of the five aforementioned Fed districts equally weighted, displayed using a three-month moving average. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Future capex intentions
Global economy
18
Business investment
19
|GTM – EuropeUS consumer
US consumer confidence: Present situation US house prices relative to income% change year on year Index level
Source: (Left) Conference Board, Refinitiv Datastream, J.P. Morgan Asset Management. (Right) OECD, Refinitiv Datastream, J.P. Morgan Asset Management. Periods of “recession” are defined using US National Bureau of Economic Research (NBER) business cycle dates. Elevated recession risk line is shown as the highest value of the underlying indicator observed at the start of the past three US recessions, as determined by NBER. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Global economy
Recession
19
80
90
100
110
120
130
140
'79 '84 '89 '94 '99 '04 '09 '14 '19
Elevated recession risk
-100
-75
-50
-25
0
25
50
75
100
125
'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
20
|GTM – EuropeUS labour market
US unemployment rate and wage growth%, wage growth is year on year
Source: BLS, Refinitiv Datastream, J.P. Morgan Asset Management. Wage growth is average hourly earnings of total private production and non-supervisory employees. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Global economy
Unemployment
Wage growth
20
May 2020: 13,3%
May 2020:6,7%
0
2
4
6
8
10
12
14
16
'67 '72 '77 '82 '87 '92 '97 '02 '07 '12 '17
21
|GTM – Europe
-1.200
-1.000
-800
-600
-400
-200
0
200
400
'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
US non-farm payrolls and initial jobless claims
US non-farm payrolls US initial jobless claimsMonthly change in thousands, three-month moving average Thousands, 12-week moving average
Source: (All charts) BLS, Refinitiv Datastream, J.P. Morgan Asset Management. Periods of “recession” are defined using US National Bureau of Economic Research (NBER) business cycle dates. Elevated recession risk line is shown as the highest value of the underlying indicator observed at the start of the past three US recessions, as determined by NBER. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Global economy
21
Recession
Elevated recession risk
-7.300May 2020: -6.517
200
300
400
500
600
700
800
900
1.000
1.100
'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
3.410May 2020: 3.407
22
|GTM – Europe
Recession
US Conference Board indicators
US Leading Economic Index US Leading Credit Index% change year on year
Source: (All charts) Conference Board, Refinitiv Datastream, J.P. Morgan Asset Management. Periods of “recession” are defined using US National Bureau of Economic Research (NBER) business cycle dates. Elevated recession risk line is shown as the highest value for the Leading Economic Index and lowest for the Leading Credit Index at the start of the past three US recessions, as determined by NBER. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Elevated recession risk
Index level
Elevated recession risk
Lending conditions tightening
Global economy
22
-15
-10
-5
0
5
10
15
'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20-4
-2
0
2
4
6
8
'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
23
|GTM – Europe
-6
-4
-2
0
2
4
6
50
55
60
65
70
75
80
'90 '94 '98 '02 '06 '10 '14 '180
1
2
3
4
5
6
7
8
9
50
60
70
80
90
100
110
'90 '94 '98 '02 '06 '10 '14 '18
US household debt and net saving US non-financial co rporate debt and net saving% of nominal GDP % of nominal GDP
Source: (All charts) BEA, Refinitiv Datastream, US Federal Reserve, J.P. Morgan Asset Management. Household net saving is defined as net disposable income minus final consumption expenditure. Non-financial corporate net saving is defined as the difference between gross savings (less net capital transfers paid and excluding foreign earnings retained abroad) and capital expenditures. Non-financial corporate net saving data has been smoothed in 2018 to account for the Tax Cuts and Jobs Act of 2017. Periods of “recession” are defined using US National Bureau of Economic Research (NBER) business cycle dates. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Recession
US household and corporate finances
Non-financial corporate debt
Non-financial corporate net
saving
Householddebt
Household net saving
Global economy
23
24
|GTM – Europe
-3
-2
-1
0
1
2
3
4
5
6
'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20-2
-1
0
1
2
3
4
5
6
'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
Average since 2000
May2020
Headline CPI 2,2% 0,1%
Core CPI 2,0% 1,2%
US inflation
US headline and core inflation US core goods and ser vices inflation% change year on year % change year on year
Source: (All charts) BLS, Refinitiv Datastream, J.P. Morgan Asset Management. CPI is the Consumer Price Index. Core CPI is defined as CPI excluding food and energy. Core goods CPI is defined as goods CPI excluding food and energy. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Global economy
Average since 2000
May2020
Services CPI 2,8% 1,9%
Core goods CPI 0,0% -1,0%
Headline inflation target
24
25
|GTM – Europe
0
1
2
3
4
5
6
7
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23
US Federal Reserve policy rate
Federal funds policy rate expectations% Fed funds rate and market expectations
Source: Bloomberg, US Federal Reserve, J.P. Morgan Asset Management. Market expectations are calculated using OIS forwards. MBS: Mortgage-backed securities, CMBS: Commercial mortgage-backed securities. Past performance is not a reliable indicator of current and future results. The list of policy actions is not exhaustive. Guide to the Markets - Europe. Data as of 30 June 2020.
Global economy
25
Federal funds rate
Market expectations on 30 June 2020 (mean)
Other Federal Reserve policy actions in 2020
Restarted asset purchase programme• Purchases of Treasuries and agency MBS are now unlimited• Expanded the programme to include agency CMBS
Launched a Primary (PMCCF) and Secondary Corporate Credit Facility (SMCCF)
Restarted Term Asset-Backed Securities Loan Facility (TALF), and launched Municipal Liquidity Facility to purchase short-term notes directly from US states
Enhanced US dollar liquidity swap arrangements with a wide range of central banks
New Paycheck Protection Program Liquidity Facility (PPPLF) and Main Street Lending Program to support funding to small businesses
26
|GTM – Europe
-20
-15
-10
-5
0
5
10
US politics
Trump vs. Biden polling in swing states US voters that view economic conditions as excellen t or good% points spread % of total survey respondents
Source: (Left) 270 to Win, RealClearPolitics.com, J.P. Morgan Asset Management. EC is electoral college. *The 102 votes in swing states are shown in the chart except for Nebraska’s 2nd congressional district, which has one vote in the electoral college. (Right) Pew Research Center, J.P. Morgan Asset Management. Pew Research Center April 2020; Question: Thinking about the nation’s economy, How would you rate economic conditions in this country today…as excellent, good, only fair, or poor? Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Global economy
26
0
10
20
30
40
50
60
70
80
90
100
'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
Gives Democrats 270+ votesGives Republicans 270+ votes
Trump lead
Biden lead
232 votes in lean Democrat states
204 votes in lean Republican states
102 votes* in swing states
270 to win presidency
Republican / Lean Republican
Democrat / Lean Democrat
Total
37%
23%
11%
Range of poll results since 1 April
Median
Michigan Pennsylvania Arizona Florida Wisconsin North Carolina
+16 +20 +11 +29 +10 +15ECvotes per state
27
|GTM – Europe
40
50
60
70
80
90
100
110
120
'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
US focus: Labour market and consumer dynamics
Global economy
27
0
2
4
6
8
10
12
14
16
18
20
'67 '71 '75 '79 '83 '87 '91 '95 '99 '03 '07 '11 '15 '19
Temporary layoffs
Permanent layoffs
US unemploymentMillions of people
US consumer income and spendingIndex level, rebased to 100 at February 2020
Source: (Left) BLS, Refinitiv Datastream, J.P. Morgan Asset Management. (Right) BEA, Refinitiv Datastream, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Consumer spending
Income post tax and government benefitsEmployment income
28
|GTM – EuropeEurozone GDP
Contribution to eurozone real GDP growth and composit e PMI% change year on year (LHS); index level (RHS)
Source: Eurostat, Markit, Refinitiv Datastream, J.P. Morgan Asset Management. PMI is Purchasing Managers’ Index where a score of 50 indicates that economic activity is neither expanding nor contracting, above 50 indicates expansion. PMI data is shown with quarterly frequency. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Global economy
28
Change in inventories
Net exports
Investment
Consumption
Government
Composite PMI (RHS)
25
30
35
40
45
50
55
60
65
-10
-8
-6
-4
-2
0
2
4
6
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
Average since 2000
1Q20
1,4% -3,1%
29
|GTM – Europe
-50
-40
-30
-20
-10
0
10
20
-15
-10
-5
0
5
10
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
Eurozone business investment
Eurozone business investment and investment confiden ce% change year on year (LHS); index level (RHS)
Source: Eurostat, Refinitiv Datastream, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Global economy
29
Business investment Investment goods industry confidence
30
|GTM – Europe
0
50
100
150
200
250
'80 '84 '88 '92 '96 '00 '04 '08 '12 '16 '20-25
-20
-15
-10
-5
0
'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
Eurozone consumer
Eurozone consumer confidence Eurozone house prices rel ative to incomeIndex level Index level
Source: (Left) European Commission, Refinitiv Datastream, J.P. Morgan Asset Management. (Right) OECD, Refinitiv Datastream, J.P. Morgan Asset Management. Light grey columns indicate recession in the eurozone. Pre-2000, recessions are determined by a recession occurring in either Germany or at an EU-15 level. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Global economy
30
Germany
Spain
France
Italy
Recession
31
|GTM – Europe
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
4,0
4,5
5,0
3
4
5
6
7
8
9
10
11
12
13
'98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
Eurozone labour market
Eurozone unemployment rate and wage growth%, wage growth is year on year
Source: ECB, Refinitiv Datastream, J.P. Morgan Asset Management. Wage growth is compensation per employee. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Global economy
31
Wage growthUnemployment
May 2020:7,4%
1Q20:0,3%
32
|GTM – Europe
0
4
8
12
16
20
24
28
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
Eurozone unemployment
Germany, France, Italy and Spain unemployment rates%
Source: Eurostat, Refinitiv Datastream, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
32
Spain
Germany
France
Italy
Global economy
33
|GTM – Europe
-0,5
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20-1
0
1
2
3
4
5
'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
Average since 2000
June 2020(flash)
Services CPI 1,9% 1,2%
Core goods CPI 0,6% 0,2%
Eurozone inflation
Eurozone headline and core inflation Eurozone core goo ds and services inflation% change year on year % change year on year
Source: (All charts) Eurostat, Refinitiv Datastream, J.P. Morgan Asset Management. CPI is the Consumer Price Index. Core CPI is defined as CPI less energy, food, alcohol and tobacco. Core goods CPI is defined as goods CPI less energy, food, alcohol and tobacco. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Global economy
33
Headline inflation target
Average since 2000
June 2020(flash)
Headline CPI 1,7% 0,3%
Core CPI 1,4% 0,8%
34
|GTM – Europe
-1,0
-0,5
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
4,0
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23
European Central Bank policy rate
European Central Bank policy rate expectations% deposit rate and market expectations
Source: Bloomberg, European Central Bank, J.P. Morgan Asset Management. Market expectations are calculated using OIS forwards. Past performance is not a reliable indicator of current and future results. The list of policy actions is not exhaustive. Guide to the Markets - Europe. Data as of 30 June 2020.
Global economy
34
ECB deposit rate
Market expectations on 30 June 2020 (mean)
European Central Bank policy actions in 2020
Launched the Pandemic Emergency Purchase Programme (PEPP)• Up to €1.35trn of purchases, which will run until at least June 2021• Increased flexibility on issuer and maturity limits• Short-term deviations from the capital key permitted • Greek bonds are eligible for purchase
Expanded existing Asset Purchase Programme (APP) by €120bn for 2020
Expanded eligibility of non-financial commercial paper for the Corporate Sector Purchase Programme (CSPP)
Enhanced multiple forms of Longer-Term Refinancing Operations to backstop liquidity
Bonds downgraded to junk since 7 April are eligible collateral to access ECB lending
35
|GTM – EuropeEurozone debt
Eurozone debt to GDP ratios Eurozone debt service ratios% of nominal GDP % of disposable income
Source: (All charts) Bank for International Settlements, Refinitiv Datastream, J.P. Morgan Asset Management. Debt refers to gross debt. Debt service ratios are a GDP-weighted average of France, Germany, Italy and Spain. For the household sector, gross disposable income is the amount of money that all of the individuals in the household sector have available for spending or saving after income distribution measures (for example, taxes, social contributions and benefits) have taken effect. For the non-financial corporate sector, gross disposable income is essentially akin to gross operating surplus before dividends or interest are paid. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Global economy
Non-financial corporatesHouseholds
35
32
33
34
35
36
37
38
39
40
5,0
5,5
6,0
6,5
7,0
7,5
'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '2040
50
60
70
80
90
100
110
120
'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
Households
Non-financial corporates
Government
36
|GTM – EuropeEurozone government debt and bond spreads
France, Germany, Italy and Spain government debt to GDP European 10-year government bond spreads over G ermany% of nominal GDP % spread
Source: (Left) Bank for International Settlements, Refinitiv Datastream, J.P. Morgan Asset Management. Italy and France data are four-quarter moving averages. Debt refers to gross debt. Dotted lines represent the IMF forecasts for government debt to GDP in 2020. (Right) Refinitiv Datastream, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Germany
Spain
France
Italy
Global economy
Spain
France
Italy
36
0
1
2
3
4
5
6
7
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '200
20
40
60
80
100
120
140
160
180
'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
37
|GTM – Europe
3%
2%4%
9%6%
4% 12% 11%
-2% -2% -2% -2% -2%-2%
-1%
-2%-80
-60
-40
-20
0
20
40
60
Eurozone focus: EU recovery fund and government support for jobs 37
Global economy
Beneficiaries and contributors of EU recovery fund proposal* Proportion of jobs that have received government su pportEUR billions, labels are % of GDP % of total employment
Source: (Left) European Commission, J.P. Morgan Asset Management. Countries shown are the top eight net beneficiaries / contributors. *Current expectations of the European Commission’s proposal. Yet to be accepted and ratified by EU members. (Right) Bundesagentur für Arbeit, INE, INSEE, Istat, ONS, Refinitiv Datastream, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Net beneficiaries
Net contributors
0
10
20
30
40
50
60
Italy France UK Germany Spain
38
|GTM – EuropeUK GDP
Contribution to UK real GDP growth and composite PM I% change year on year (LHS); index level (RHS)
Source: Markit, ONS, Refinitiv Datastream, J.P. Morgan Asset Management. PMI is Purchasing Managers’ Index where a score of 50 indicates that economic activity is neither expanding nor contracting, above 50 indicates expansion. PMI data is shown with quarterly frequency. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
38
Global economy
Change in inventories
Net exports
Investment
Consumption
Government
Composite PMI (RHS)
25
30
35
40
45
50
55
60
65
-10
-8
-6
-4
-2
0
2
4
6
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
Average since 2000
1Q20
1,9% -1,7%
39
|GTM – Europe
-40
-30
-20
-10
0
10
20
'87 '92 '97 '02 '07 '12 '17
UK consumer
UK consumer confidence UK house prices relative to incomeIndex level, three-month moving average Index level
Source: (Left) GfK, Refinitiv Datastream, J.P. Morgan Asset Management. (Right) OECD, Refinitiv Datastream, J.P. Morgan Asset Management. Light grey columns indicate recession. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Recession
39
Global economy
40
50
60
70
80
90
100
110
120
130
'87 '92 '97 '02 '07 '12 '17
40
|GTM – Europe
-6
-4
-2
0
2
4
6
'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20-1
0
1
2
3
4
5
6
'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
UK inflation
UK headline and core inflation UK core goods and ser vices inflation% change year on year % change year on year
Source: (All charts) ONS, Refinitiv Datastream, J.P. Morgan Asset Management. CPI is the Consumer Price Index. Core CPI is defined as CPI less energy, food, alcohol and tobacco. Core goods CPI is defined as goods CPI less energy, food, alcohol and tobacco. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Average since 2000
May2020
Headline CPI 2,0% 0,5%Core CPI 1,7% 1,2%
Average since 2000
May2020
Services CPI 3,3% 1,9%Core goods CPI -0,6% 0,1%
40
Global economy
Headline inflation target
41
|GTM – EuropeUK focus: Labour market and trade
UK employment by sector UK trade with partnersThousands % of nominal GDP of exporting country/region, 2019
Source: (Left) HMRC, ONS, Refinitiv Datastream, J.P. Morgan Asset Management. Total jobs are as of 4Q 2019, with jobs furloughed the cumulative amount of employees who have been put on the UK government Job Retention Scheme (JRS). (Right) Eurostat, IMF, ONS, Refinitiv Datastream, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Global economy
41
Jobs not furloughed
Jobs furloughed
0
2
4
6
8
10
12
14
16
18
20
0
1.000
2.000
3.000
4.000
5.000
UK exportsto EU
UK exports to World ex-EU
EU exportsto UK
World ex-EU exports to UK
42
|GTM – EuropeJapan GDP
Contribution to Japan real GDP growth and manufactu ring PMI% change year on year (LHS); index level (RHS)
Source: Japan Cabinet Office, Markit, Refinitiv Datastream, J.P. Morgan Asset Management. PMI is Purchasing Managers’ Index where a score of 50 indicates that economic activity is neither expanding nor contracting, above 50 indicates expansion. PMI data is shown with quarterly frequency. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
42
Global economy
Change in inventories
Net exports
Investment
Consumption
Government
Manufacturing PMI (RHS)
Average since 2000
1Q20
0,9% -1,9%
30
34
38
42
46
50
54
58
62
-10
-8
-6
-4
-2
0
2
4
6
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
43
|GTM – Europe
-10
-5
0
5
10
15
20
'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20-10
-5
0
5
10
15
20
25
'96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
China GDP
Contribution to China real GDP growth China industri al production and retail sales% change year on year % change year on year
Source: (Left) National Bureau of Statistics of China, Refinitiv Datastream, J.P. Morgan Asset Management. Forecast is from J.P. Morgan Securities Reseach. (Right) National Bureau of Statistics of China, Refinitiv Datastream, J.P. Morgan Asset Management. Industrial production is a three-month moving average and retail sales is a six-month moving average. Past performance and forecasts are not reliable indicators of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Global economy
43
Industrial production
Retail sales
1Q 20202020
forecast
-6,8% 1,8%
Consumption
GDP growth
Investment
Net exports
44
|GTM – Europe
0
5
10
15
20
25
30
35
40
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '200
20
40
60
80
100
120
140
160
180
'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
China debt
China debt to GDP ratios China credit growth% of nominal GDP % change year on year
Source: (Left) Bank for International Settlements, Refinitiv Datastream, J.P. Morgan Asset Management. Debt refers to gross debt. (Right) People’s Bank of China (PBoC), J.P. Morgan Asset Management. This chart includes two measures of credit ranging from the narrowest – bank lending – to the more extensive broad credit. Specifically, bank lending is the sum of all loans made by the commercial banking system to domestic borrowers. Broad credit includes all finance provided to non-financial entities in private and public sectors. Broad credit is all funding to domestic borrowers, including bank lending, trust loans, entrusted loans, bankers’ acceptances, corporate bonds, equity financing by non-financial enterprises, asset-backed securities, loan write-offs, central government and local government bonds. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Households
Government
Global economy
Non-financial corporates
44
Broad credit
RMB bank lending
45
|GTM – Europe
5
10
15
20
25
30
0
1
2
3
4
5
6
7
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20-10
-5
0
5
10
15
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
China inflation and policy rates
China inflation China interbank rate and reserve requirement ratio (RRR)% change year on year % rate
Source: (Left) Bloomberg, Refinitiv Datastream, J.P. Morgan Asset Management. CPI is the Consumer Price Index. Core CPI is defined as CPI excluding food and energy. PPI is the Producer Price Index. (Right) People’s Bank of China, Refinitiv Datastream, J.P. Morgan Asset Management. Average RRR for large and small banks. SHIBOR is the three-month interbank rate. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Average since 2007
May2020
Headline CPI 2,8% 2,4%
Core CPI 1,3% 1,1%Headline PPI 1,0% -3,7%
RRRSHIBOR
Global economy
45
46
|GTM – Europe
-40
-30
-20
-10
0
10
20
30
'92 '96 '00 '04 '08 '12 '16 '20-2,4
-2,0
-1,6
-1,2
-0,8
-0,4
0,0
0,4
0,8
1,2
1,6
'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
Emerging market currencies and current account
EM currencies vs. US dollar EM current account balance% from fair value, relative to US dollar % of nominal GDP
Source: (Left) J.P. Morgan Asset Management. Fair value is based on nominal exchange rates relative to PPP exchange rates and is adjusted for GDP per capita. (Right) Bloomberg, J.P. Morgan Asset Management. EM currencies and current account balances are created using the current weighted average of JPM GBI-EM Global Diversified Index countries. Current account balance is the balance of a country’s net trade in goods and services, its net earnings on cross-border investments and its net transfer payments. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Global economy
46
EM currencies expensive relative to USD
EM current account balance improving
+1 std. dev.
-1 std. dev.
Average
47
|GTM – Europe
USA
JPNDEU
GBRFRA
CAN
ITAESP
AUS
NLD
CHN
IND
BRAMEX
TUR
KOR
RUS
IDN
ARG
SAU
THA
HKG
ZAF
-10.000
0
10.000
20.000
30.000
40.000
50.000
60.000
0 20 40 60 80 100
Emerging market structural dynamics
Urbanisation, real GDP per capita and population si ze Share of global real GDPUrbanisation rates, %, and GDP per capita, USD, bubble size is population %
Source: (Left) World Bank, J.P. Morgan Asset Management. Urbanisation rate refers to the proportion of the total population living within an urban area defined by national statistical offices. Countries are labelled using three-letter International Organisation of Standardisation country codes. (Right) Refinitiv Datastream, World Bank, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe.Data as of 30 June 2020.
GD
P p
er c
apita
Urbanisation rate
Global economy
47
Emerging markets
Developed markets
0
0
5
10
15
20
25
30
'70 '75 '80 '85 '90 '95 '00 '05 '10 '15
US
Eurozone
China
Japan
India
48
|GTM – EuropeEmerging market focus: EM debt vulnerabilities
Emerging market government debt to GDP in local and foreign currency% of nominal GDP, 4Q 2019
Source: Institute of International Finance: Global Debt Monitor, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Global economy
48
0
20
40
60
80
100
120
Foreign currency
Local currency
49
|GTM – Europe
-50
-40
-30
-20
-10
0
10
20
30
40
50
0x
5x
10x
15x
20x
25x
30x
35x
40x
Global earnings expectations and equity valuations
Consensus estimates for global earnings per share g rowth Global forward price-to-earnings ratios % change year on year, earnings per share growth estimates x, multiple
Source: (Left) FTSE, IBES, MSCI, Refinitiv Datastream, Standard & Poor’s, TOPIX, J.P. Morgan Asset Management. MSCI indices are used for Europe ex-UK and EM. UK is FTSE All-Share, US is S&P 500 and Japan is TOPIX. Data used are in local currency, except for EM, which is in US dollars. Year on year growth rates are calculated based on earnings estimates for the end of the calendar year. For Japan the end of the year is the fiscal year, which ends on the 31 March of the following year. (Right) IBES, MSCI, Refinitiv Datastream, Standard & Poor’s, J.P. Morgan Asset Management. MSCI indices are used for all regions/countries (due to data availability), except for the US, which is represented by the S&P 500. 23 March 2020 marks the recent trough of the S&P 500. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
49
Equities
US UKEuropeex-UK
Japan EM
80x
US UKEuropeex-UK
Japan EM
20212020 2021 vs. 2019
Range since 1990
Average since 1990
Current
23 March 2020
77x
50
|GTM – Europe
0
1
2
3
4
5
6
7
MSCI WorldFTSE All-Share MSCI Europe ex-UKS&P 500 MSCI EMMSCI Japan
-0,5
0,00,9
2,2 2,6 2,7
5,0 5,1 5,66,5
7,5
9,9
-2
0
2
4
6
8
10
MSCI Europe
Cash Global REITsEM equity EM debtGermanBunds
Global infrastructure
DM high yield
Global transport
Global convertibles
Euro IG DM equity
Global income
Equity index yields% yield
Source: (Top) Bloomberg Barclays, BofA/Merrill Lynch, Clarkson, Drewry Maritime Consultants, MSCI, Refinitiv Datastream, J.P. Morgan Asset Management.Additional yield often comes with associated capital and/or liquidity risk. Global transport yield is as of March 2020 and global infrastructure yield is as of December 2019. Yields for the bond indices are yield to worst and dividend yields for the equity indices. Global transport levered yield is rental income minus operating expenses, debt amortisation and interest expenses, expressed as a percentage of equity value. Global convertibles: Bloomberg Barclays Global Convertibles; DM equity: MSCI World; EM equity: MSCI EM; German bunds: Germany 10-year yield; Euro IG: Bloomberg Barclays Euro Agg. – Corporates; Global REITs: FTSE NAREIT Index; DM high yield: BofA/Merrill Lynch Developed Markets High Yield Constrained; EM debt: J.P. Morgan EMBI Global; Global infrastructure: MSCI Global Infrastructure Asset Index – Low risk. (Bottom) Bloomberg, FTSE, MSCI, Refinitiv Datastream, Standard & Poor’s, J.P. Morgan Asset Management. Buyback yield is last 12 months’ buybacks divided by the market cap of the index. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Equities
50
Average Europe inflation: 1,3%(12 months to May 2020)
Fixed income
Equity
Alternatives
% yieldAsset yield comparison
Buyback yield
Dividend yield
51
|GTM – Europe
0
5
10
15
20
25
30
35
40
IndustrialsHealth Care Cons. StaplesFinancials UtilitiesIT MaterialsEnergyCons. Discr. Comm. Serv.
0
5
10
15
20
25
IndustrialsHealth Care Cons. StaplesFinancials UtilitiesIT MaterialsEnergyCons. Discr. Comm. Serv.
Global equity sector weights
Global equity sector weights
MSCI World Growth and Value sector weights
% of total market cap
% of total market cap
Source: (Top) MSCI, Refinitiv Datastream, Standard & Poor’s, J.P. Morgan Asset Management. Indices are all MSCI, except for US, which is S&P 500. (Bottom) MSCI, Refinitiv Datastream, J.P. Morgan Asset Management. Real estate is not included in these sector breakdowns due to the small size of the weight in each index. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Equities
51
Europe ex-UK EMUS UK
MSCI World Growth MSCI World Value
52
|GTM – Europe
20
30
40
50
60
70
'06 '08 '10 '12 '14 '16 '18 '20
Equity net issuance and dividend payout ratios
US and Europe net equity issuance Dividend payout ra tiosUSD billions, 12-month rolling %, three-month moving average
Source: (Left) Bernstein, Bloomberg, J.P. Morgan Asset Management. Net equity issuance is equity issuance minus buybacks. (Right) FTSE, MSCI, Refinitiv Datastream, Standard & Poor's, J.P. Morgan Asset Management. US: S&P 500; Europe ex-UK: MSCI Europe ex-UK; UK: FTSE All-Share; EM: MSCI Emerging Markets. Dividend payout ratio shows 12-month trailing dividend per share divided by 12-month trailing earnings per share. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Equities
52
Europe ex-UK
US
UK
EM
-1.000
-800
-600
-400
-200
0
200
400
'04 '06 '08 '10 '12 '14 '16 '18 '20
Europe ex-UK
US
UK
53
|GTM – EuropeUS earnings
S&P 500 earnings and performance US nominal GDP grow th and earnings growthNext 12 months’ earnings per share estimates (LHS); index level (RHS) % change year on year
Source: (Left) IBES, Refinitiv Datastream, Standard & Poor’s, J.P. Morgan Asset Management. Earnings data is based on 12-month forward estimates. (Right) BEA, IBES, Refinitiv Datastream, Standard & Poor’s, J.P. Morgan Asset Management. Earnings data is last 12 months’ earnings per share. Nominal GDP forecasts are from J.P. Morgan Securities Research. Past performance and forecasts are not reliable indicators of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Equities
53
S&P 500 index level
S&P 500 forward EPS
-40
-30
-20
-10
0
10
20
30
40
-6
-4
-2
0
2
4
6
8
10
'86 '90 '94 '98 '02 '06 '10 '14 '18 '22
US nominal GDP
S&P 500 trailing EPS
2020 / 2021 nominal GDP forecasts
0
500
1.000
1.500
2.000
2.500
3.000
3.500
10
30
50
70
90
110
130
150
170
190
'86 '90 '94 '98 '02 '06 '10 '14 '18
54
|GTM – Europe
Cons. Discr.
Industrials
Energy
S&P 500
Utilities
IT
Financials
Cons. Staples
Comm. Serv.
Health Care
Materials
10
12
14
16
18
20
22
24
26
'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
US equity valuations
S&P 500 forward P/E ratio S&P 500 forward P/E ratio sector breakdownx, multiple % premium / discount of the P/E ratio relative to average since 1995
Source: (Left) FactSet, IBES, Refinitiv Datastream, Robert Shiller, Standard & Poor’s, J.P. Morgan Asset Management. P/E ratio calculated using IBES earnings estimates for next 12 months. P/E data may differ from Guide to the Markets - US, which uses FactSet earnings estimates. Shiller cyclically-adjusted P/E (CAPE) is price-to-earnings ratio adjusted using trailing 10-year average inflation-adjusted earnings. P/B ratio is trailing price-to-book ratio. (Right) IBES, Refinitiv Datastream, Standard & Poor’s, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Average: 15,9x
Valuation measureAverage
since 1990
Latest
Shiller CAPE ratio 25,9x 30,0x
P/B ratio 2,9x 3,4x
Equities
54
30 Jun 2020:21,8x
-20 -10 0 10 20 30 40 50 60 70
95,8
39,2
22,4
21,8
21,6
20,4
17,2
24,3
14,0
19,3
15,9
Current P/E ratio
400
112%
392%
Premium relative to history
55
|GTM – EuropeUS valuations and subsequent returns
S&P 500 forward P/E ratios and subsequent 1-year re turns S&P 500 forward P/E ratios and subsequent 10-y ear returns%, annualised total return* %, annualised total return*
Source: (All charts) IBES, Refinitiv Datastream, Standard & Poor’s, J.P. Morgan Asset Management. *Dots represent monthly data points since 1988, which is earliest available. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Equities
55
-60
-40
-20
0
20
40
60
8,0x 11,0x 14,0x 17,0x 20,0x 23,0x
Current level
-20
-15
-10
-5
0
5
10
15
20
25
30
8,0x 11,0x 14,0x 17,0x 20,0x 23,0x
Current level
56
|GTM – Europe
90
100
110
120
130
140
150
160
'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
Equity market factors
Equities
S&P 500 Quality/S&P 500 relative performance MSCI Wo rld Growth and Value forward P/E ratioRelative total return index level, rebased to 100 in 1990 x, multiple
Source: (Left) J.P. Morgan Asset Management Quantitative Beta Solutions, Standard and Poor’s, J.P. Morgan Asset Management. S&P 500 Quality index is the top quartile quality stocks in the S&P 500 determined by JPMAM Quantitative Beta Strategies based on measures of profitability, financial risk and earnings quality. Periods of “recession” are defined using US National Bureau of Economic Research (NBER) business cycle dates. (Right) MSCI, Refinitiv Datastream, J.P. Morgan Asset Management. Forward P/E ratio is the price to 12-months forward ratio, as published by MSCI. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Recession
56
8
12
16
20
24
28
32
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
Value
Growth
57
|GTM – Europe
-70
-60
-50
-40
-30
-20
-10
0
'58 '60 '62 '64 '66 '68 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
0
100
200
300
400
500
600
'58 '60 '62 '64 '66 '68 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
US bull and bear markets
S&P 500 bull markets, %
S&P 500 bear markets, %
Source: (All charts) Bloomberg, Refinitiv Datastream, Standard & Poor’s, J.P. Morgan Asset Management. A bear market represents a 20% or more decline from the previous market high using a monthly frequency; a bull market represents a 20% increase from a market trough. Charts and labels refer to price return. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
60 months101%
147 months582%
32 months74%
50 months86%
74 months126%
60 months229%
43 months80% 26 months
48%
57
Equities
17 months-57%
30 months-49%
3 months-34%
20 months-27%
21 months-48%
18 months-36%
8 months-22%6 months
-28%
131 months401%
Duration:19 Feb-23 MarPrice return: -34%
Duration:Since 23 MarPrice return: 39%
58
|GTM – EuropeUS equity market drawdowns and recoveries
S&P 500 drawdowns and recoveries% price return since market peak
Source: Refinitiv Datastream, Standard & Poor’s, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Trading days after S&P 500 market peak
58
Equities
-60
-50
-40
-30
-20
-10
0
0 180 360 540 720 900 1.080 1.260 1.440 1.620 1.800
2020
1987 2007 20001980 19731968
59
|GTM – Europe
0
200
400
600
800
1.000
1.200
1.400
1.600
1.800
0
20
40
60
80
100
120
140
'88 '92 '96 '00 '04 '08 '12 '16 '20-50
-40
-30
-20
-10
0
10
20
30
40
50
-6
-4
-2
0
2
4
6
8
10
'97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19 '21
Europe nominal GDP growth and earnings growth
Europe earnings
MSCI Europe earnings and performanceNext 12 months’ earnings per share estimates, EUR (LHS); index level (RHS) % change year on year
Source: (Left) IBES, MSCI, Refinitiv Datastream, J.P. Morgan Asset Management. Earnings data is based on 12-month forward estimates. (Right) Eurostat, IBES, MSCI, Refinitiv Datastream, J.P. Morgan Asset Management. Earnings data is last 12 months’ earnings per share. Nominal GDP forecasts are from J.P. Morgan Securities Research. Past performance and forecasts are not reliable indicators of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Equities
59
MSCI Europe index level
MSCI Europe forward EPS
Eurozone nominal GDP
MSCI Europe trailing EPS
2020 / 2021 nominal GDP forecasts
60
|GTM – Europe
-20 0 20 40 60 80
Cons. Discr.
Industrials
Energy
Materials
Utilities
Cons. Staples
Health Care
Financials
MSCI Europe
Comm. Serv.
IT
7
9
11
13
15
17
19
21
23
25
27
'90 '94 '98 '02 '06 '10 '14 '18
Europe equity valuations
MSCI Europe forward P/E ratio MSCI Europe forward P/ E ratio sector breakdownx, multiple % premium / discount of the P/E ratio relative to average since 1995
Source: (Left) FactSet, IBES, MSCI, Refinitiv Datastream, J.P. Morgan Asset Management. P/E ratio calculated using IBES earnings estimates for next 12 months. Cyclically-adjusted P/E (CAPE) is price-to-earnings ratio adjusted using trailing 10-year average inflation-adjusted earnings. P/B ratio is trailing price-to-book ratio. (Right) IBES, MSCI, Refinitiv Datastream, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
30 Jun 2020:17,4x
Average: 14,4x
Valuation measure
Average since 1990
Latest
CAPE ratio 19,4x 16,6x
P/B ratio 2,1x 1,7x
60
Equities
21,1
23,7
21,6
18,5
17,4
26,9
16,4
19,6
18,1
11,4
14,6
Current P/E ratio
Premium relative to history
61
|GTM – Europe
7
9
11
13
15
17
19
21
23
25
'95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '1950
100
150
200
250
300
350
400
450
500
'95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19
Europe large, mid and small capitalisation equities
MSCI Europe large, mid & small cap performance MSCI Europe large, mid & small cap valuationsIndex level, rebased to 100 in Jan 1995 x, 12-month forward price-to-earnings ratio
Source: (All charts) MSCI, Refinitiv Datastream, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Mid & small cap
Large cap
Mid & small cap
Large cap
61
Equities
62
|GTM – Europe
1.500
2.000
2.500
3.000
3.500
4.000
4.500
100
150
200
250
300
350
'99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19 '21
UK earnings
FTSE All-Share earnings and performance FTSE All-Sha re earnings per share growthNext 12 months’ earnings per share estimates, GBP (LHS); index level (RHS) % change year on year
Source: (All charts) FTSE, IBES, Refinitiv Datastream, J.P. Morgan Asset Management. Earnings data are based on 12-month forward estimates. Margin growth is the growth rate of earnings per share divided by sales per share. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Equities
62
FTSE All-Share index level
FTSE All-Share forward EPS
Margin growth
Sales growth
Earnings growth
-40
-30
-20
-10
0
10
20
30
40
50
60
'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
63
|GTM – EuropeEuropean stocks and currencies
Index level (LHS); US dollars per UK pound (RHS)
Source: (Left) MSCI, Refinitiv Datastream, J.P. Morgan Asset Management. (Right) FTSE, Refinitiv Datastream, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Equities
63
FTSE All-Share and sterling vs. US dollar
GBPUSD
FTSE All-Share
Sterling depreciating
1,0
1,2
1,4
1,6
1,8
2,0
2,2
500
1.000
1.500
2.000
2.500
3.000
3.500
4.000
4.500
'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
MSCI Europe and euro vs. US dollarIndex level (LHS); US dollars per euro (RHS)
EURUSD
MSCI Europe
Euro depreciating
0,8
0,9
1,0
1,1
1,2
1,3
1,4
1,5
1,6
1,7
400
600
800
1.000
1.200
1.400
1.600
'99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19
64
|GTM – Europe
0
500
1.000
1.500
2.000
2.500
3.000
0
20
40
60
80
100
120
140
160
180
'88 '92 '96 '00 '04 '08 '12 '16 '20
Japan earnings
TOPIX earnings and performance TOPIX earnings per sh are growthNext 12 months’ earnings per share estimates, JPY (LHS); index level (RHS)
Source: (All charts) FactSet, IBES, Refinitiv Datastream, TOPIX, J.P. Morgan Asset Management. Earnings data are based on 12-month forward estimates. Margin growth is the growth rate of earnings per share divided by sales per share. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Equities
64
% change year on year
TOPIX index level
TOPIX forward EPSMargin growth
Sales growth
Earnings growth
-80
-60
-40
-20
0
20
40
60
80
100
'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
65
|GTM – EuropeJapan equity market and currency
TOPIX and the yen vs. US dollarIndex level (LHS); Japanese yen per US dollar (RHS)
Source: Refinitiv Datastream, TOPIX, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
USDJPY (inverted)
TOPIX
Equities
Yen depreciating
65
70
80
90
100
110
120
130
140400
600
800
1.000
1.200
1.400
1.600
1.800
2.000
'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
66
|GTM – EuropeEmerging market equity drivers
EM/DM relative equity performance and growth gap EM/ DM relative equity performance and USD REERRelative index level (LHS); %, next 12 months’ growth estimates (RHS) Relative index level (LHS); index level (RHS)
Source: (Left) Consensus Economics, Refinitiv Datastream, J.P. Morgan Asset Management. “EM minus DM GDP growth” is consensus estimates for emerging markets growth in the next 12 months minus consensus estimates for developed markets growth in the next 12 months, provided by Consensus Economics. (Right) J.P. Morgan Securities Research, MSCI, Refinitiv Datastream, J.P. Morgan Asset Management. For all charts, EM equity is MSCI Emerging Markets and DM equity is MSCI World. Relative equity performance is calculated from price indices in USD, and is rebased to 100 in 1997. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Equities
66
EM equity outperformance & USD weakening
EM growth & equity outperformance
EM minus DM GDP growth
EM / DM relative equity performance
USD REER (inverted)
EM / DM relative equity performance
-1
0
1
2
3
4
5
10
40
70
100
130
160
'97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19
85
95
105
115
125
13520
40
60
80
100
120
140
160
180
'97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19
67
|GTM – EuropeEmerging market equity valuations and subsequent returns
MSCI EM price-to-book ratio MSCI EM price-to-book ratio and subsequent 10-year returnsx, multiple %, annualised total return*
Source: (All charts) MSCI, Refinitiv Datastream, J.P. Morgan Asset Management. *Dots represent monthly data points since 1996, which is earliest available. MSCI EM Index returns are in USD. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Average: 1,8xEquities
67
0,8
1,0
1,2
1,4
1,6
1,8
2,0
2,2
2,4
2,6
2,8
3,0
'96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
30 Jun 2020:1,6x
-20
-10
0
10
20
30
0,8x 1,3x 1,8x 2,3x 2,8x 3,3x
Current level
68
|GTM – EuropeEquity focus: US sector performance and earnings in recessions 68
Equities
-60
-40
-20
0
20
40
60
80
S&P 500 sector performance S&P 500 earnings-per-share (EPS) in recessions% price return Index level, rebased at pre-recession earnings peak, 12-month forward EPS
Source: (Left) Refinitiv Datastream, Standard & Poor’s, J.P. Morgan Asset Management. (Right) ) IBES, Refinitiv Datastream, Standard & Poor's, J.P. Morgan Asset Management. Earnings data is based on IBES 12-month forward consensus estimates. Dates refer to the year of the peak in 12-month forward earnings-per-share. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
19 Feb peak to 23 Mar low
Change since 23 Mar low
Change since 19 Feb peak
Months after peak in 12-month forward EPS
50
60
70
80
90
100
110
0 6 12 18 24 30 36 42
2007
2000
1989
2020
69
-23,0% TOPIX -40,6%
73,5% MSCI EM
62,8%
28,3% Asia ex-
Jp 15,6%
5,5% US S&P
500 2,1%
20,8% Asia ex-
Jp 19,7%
26,7% US S&P
500 32,4%
29,5% US S&P
500 13,7%
24,4% TOPIX 12,1%
15,3% US S&P
500 12,0%
24,8% Asia ex-
Jp 35,9%
0,4% US S&P
500 -4,4%
33,9% US S&P
500 31,5%
-3,1% US S&P
500 -3,1%
17,8% US S&P
500 20,5%
11,5% US S&P
500 9,1%
-33,7% US S&P
500 -37,0%
67,2% Asia ex-
Jp 67,2%
27,5% MSCI EM
14,4%
-5,7% Portfolio
-7,5%
18,1% Europe 16,4%
21,5% TOPIX 54,4%
19,7% Asia ex-
Jp 7,7%
12,9% US S&P
500 1,4%
14,9% MSCI EM
10,1%
21,0% MSCI EM
31,0%
-6,8% Portfolio
-9,1%
26,9% Portfolio
24,5%
-4,7% Asia ex-
Jp -3,6%
15,5% MSCI EM
16,8%
7,2% Portfolio
5,9%
-40,2% Portfolio -40,3%
36,0% Portfolio
34,9%
23,9% TOPIX 1,0%
-7,5% Europe -8,8%
16,8% MSCI EM
17,4%
20,5% Europe 22,3%
16,2% Portfolio
8,6%
8,8% Portfolio
2,2%
9,5% Portfolio
8,5%
12,7% Portfolio
21,8%
-9,4% TOPIX -16,0%
26,9% Europe 24,6%
-7,5% TOPIX -8,2%
14,4% Portfolio
16,1%
6,0% TOPIX 3,5%
-43,3% Europe -38,5%
32,6% Europe 28,6%
23,1% US S&P
500 15,1%
-9,6% TOPIX -17,0%
15,8% Portfolio
17,2%
16,2% Portfolio
24,1%
11,8% MSCI EM
5,6%
8,8% Europe 5,4%
8,9% Asia ex-
Jp 6,4%
11,2% TOPIX 22,2%
-9,8% Asia ex-
Jp -12,0%
21,4% TOPIX 18,1%
-8,0% Portfolio
-6,8%
14,1% Asia ex-
Jp 15,6%
5,9% Asia ex-
Jp 4,4%
-49,8% Asia ex-
Jp -47,7%
22,5% US S&P
500 26,5%
20,4% Portfolio
10,9%
-14,3% Asia ex-
Jp -14,6%
14,2% US S&P
500 16,0%
-1,1% Asia ex-
Jp 6,2%
10,1% TOPIX 10,3%
1,5% Asia ex-
Jp -5,3%
6,6% TOPIX 0,3%
10,9% Europe 13,7%
-9,9% MSCI EM
-9,7%
21,1% MSCI EM
18,5%
-9,7% MSCI EM
-5,4%
12,9% Europe 13,4%
4,5% Europe 4,4%
-50,8% MSCI EM
-45,7%
1,5% TOPIX 7,6%
11,7% Europe 7,5%
-15,4% MSCI EM
-12,5%
5,9% TOPIX 20,9%
-6,5% MSCI EM
3,8%
7,4% Europe 5,2%
-4,9% MSCI EM
-5,4%
3,2% Europe 7,9%
7,0% US S&P
500 21,8%
-10,0% Europe -10,0%
20,7% Asia ex-
Jp 18,2%
-12,5% Europe -11,2%
8,8% TOPIX 11,3%
4,1% MSCI EM
4,3%
World stock market returns
Source: MSCI, Refinitiv Datastream, Standard & Poor’s, TOPIX, J.P. Morgan Asset Management. Annualised return covers the period 2008 to 2019. Hypothetical portfolio (for illustrative purposes only and should not be taken as a recommendation): 35% Europe; 30% S&P 500; 15% EM; 10% Asia ex-Japan; 10% TOPIX. All indices are total return. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
GTM – Europe |
Equities
69
EUR
Local
2010 201620122008 2011 YTD2009 2013 2014 2015 2017 2Q ’202018Ann.
return since ’08
2019
70
|GTM – EuropeGlobal government bond yields
Nominal 10-year government bond yields Real 10-year government bond yields% yield % yield
Source: (All charts) Bloomberg, J.P. Morgan Asset Management. Real government bond yields are the difference between nominal bond yields and inflation breakeven yields and so reflect inflation-protected yields. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
70
US
Germany
UK
Fixed income
US
Germany
UK
-1
0
1
2
3
4
5
6
7
'98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20-3
-2
-1
0
1
2
3
4
5
'98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
71
|GTM – Europe
0
1
2
3
4
5
6
7
'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
US investment-grade bonds
US investment-grade spread%, option-adjusted spread over US government bond yield
Source: (Left) Bloomberg Barclays, Refinitiv Datastream, J.P. Morgan Asset Management. Index is Bloomberg Barclays US Corporate Investment Grade. (Right) Bloomberg Barclays, J.P. Morgan Asset Management. Index used is Bloomberg Barclays US Agg. Corporate – Investment Grade. Fallen angels are credit names that have been downgraded from investment-grade rating to high yield. Rising stars are credit names that have been upgraded from high yield status to investment-grade. YTD is year-to-date. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Fixed income
71
30 Jun 2020:1,5%
US investment-grade fallen angels and rising stars% of the index (par value, average for the year)
Rising stars
Fallen angels
-10
-8
-6
-4
-2
0
2
4
'98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
YTD
72
|GTM – EuropeUS high yield bonds
Fixed income
72
US high yield ex-energy spread and defaults%, default rate (LHS); %, option-adjusted spread (RHS)
Source: (All charts) Bloomberg Barclays, J.P. Morgan Securities Research, J.P. Morgan Asset Management. HY spreads are using the Bloomberg Barclays US High Yield Energy and ex-Energy indices. Default rates are defined as the par value percentage of the total market trading at or below 50% of par value and include any Chapter 11 filing, prepackaged filing or missed interest payments. *2020 default rate is for the last 12 months. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
US high yield energy sector spread and defaults%, default rate (LHS); %, option-adjusted spread (RHS)
0
3
6
9
12
15
18
21
24
0
2
4
6
8
10
12
14
16
18
20
'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '200
3
6
9
12
15
18
21
24
0
2
4
6
8
10
12
14
16
'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
Latest
Ex-energy default rate* (LHS) 3,9%
Ex-energy spread (RHS) 5,8%
Latest
Energy default rate* (LHS) 18,6%
Energy spread (RHS) 9,8%
73
|GTM – Europe
0
1
2
3
4
5
6
7
'00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
Europe and UK investment-grade bonds
Euro and UK investment-grade spreads%, option-adjusted spread over local government bond yield
Source: (Left) Bloomberg Barclays, Refinitiv Datastream, J.P. Morgan Asset Management. Indices are Euro inv. grade: Bloomberg Barclays Euro Agg. – Corporate; UK inv. grade: Bloomberg Barclays Sterling Agg. – Corporate. (Right) Bloomberg Barclays, J.P. Morgan Asset Management. Index used is Bloomberg Barclays Euro Agg. Corporates – Investment Grade. Fallen angels are credit names that have been downgraded from investment-grade rating to high yield. Rising stars are credit names that have been upgraded from high yield status to investment-grade. YTD is year-to-date.Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Euro
UK
Fixed income
73
30 Jun 2020:1,8%
30 Jun 2020:1,5%
Euro investment-grade fallen angels and rising star s% of the index (par value, average for the year)
Rising stars
Fallen angels
-5
-4
-3
-2
-1
0
1
2
'01 '03 '05 '07 '09 '11 '13 '15 '17 '19
YTD
74
|GTM – EuropeEurope high yield bonds
Fixed income
74
0
3
6
9
12
15
18
21
24
0
2
4
6
8
10
12
14
16
18
20
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
Euro high yield spread and defaults%, default rate (LHS); %, option-adjusted spread (RHS)
Source: BofA/Merrill Lynch, Refinitiv Datastream, J.P. Morgan Securities Research, J.P. Morgan Asset Management. Option-adjusted spread shown for BofA/Merrill Lynch Euro Non-Financial High Yield Constrained. Defaults are defined as bonds downgraded to C rating. The calculation universe is based on par value percentage of the EUR and GBP HY Non-Financials Corporate bond universe. Defaults include missed coupon payments, restructuring and distressed exchanges. *2020 default rate is for the last 12 months. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
34%40Latest
Default rate* (LHS) 1,5%
Spread (RHS) 5,4%
75
|GTM – Europe
2
3
4
5
6
7
8
9
10
11
'08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
Emerging market bonds
Real 10-year government bond yields% yield, local currency
Source: (Left) Bloomberg, J.P. Morgan Asset Management. Real yield is calculated by using nominal yield less current CPI for the respective countries. India and Malaysia real yields are calculated using inflation data for March and April 2020, respectively, given data availability. (Right) J.P. Morgan DataQuery, J.P. Morgan Asset Management. EM sovereigns local currency is the J.P. Morgan GBI-EM; EM sovereigns USD is the J.P. Morgan EMBIG; EM corporates USD is the J.P. Morgan CEMBI. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Fixed income
75
Developed markets
Emerging markets
Corporate and sovereign EMD spreads %, spread over 10-year US Treasury
Average since 2008
Latest
EM sovereigns local 4,2% 4,0%
EM sovereigns USD 3,7% 4,5%
EM corporates USD 3,6% 4,1%
-2
-1
0
1
2
3
4
5
6
7
76
|GTM – Europe
0
20
40
60
80
100
120
140
160
'15 '25 '35 '45 '55 '65 '75 '85 '95 '05 '15
Fixed income focus: US debt and yields
US federal debt outstanding US nominal GDP growth and 10-year Treasury yield% of nominal GDP, by fiscal year %, nominal GDP growth is % change year on year
Source: (Left) Haver Analytics, US Office of Management and Budget, J.P. Morgan Asset Management. Dotted line represents J.P. Morgan Asset Management forecast. Forecast accounts for all of the fiscal packages announced to date and assumes an additional USD 1 trillion in fiscal spending in both this and the following fiscal year. (Right) BEA, Haver Analytics, Robert Shiller, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Fixed income
76
1915-4
-2
0
2
4
6
8
10
12
14
16
'15 '25 '35 '45 '55 '65 '75 '85 '95 '05 '15
US nominal GDP 10-year moving average
US 10-year Treasury yield
1915
77
|GTM – Europe
1,5 1,5 1,8
4,45,4
6,5
2,5
3,72,8
6,6
8,9
10,9
0
2
4
6
8
10
12
14
16
18
20 21,0% US HY 17,5%
6,1% Euro HY
6,1%
5,9% US Treas.
0,9%
16,6% US IG
14,5%
8,7% US Treas.
8,7%
11,2% Euro HY 11,2%
10,0% US HY 7,6%
13,5% EM Debt 10,2%
2,4% Euro IG 2,4%
2,7% US HY -2,3%
16,5% EM Debt 14,4%
5,0% US IG 5,0%
8,6% EM Debt 11,2%
9,0% EM Debt
6,6%
10,1% Euro HY 10,1%
1,4% Infl Linked
1,4%
2,4% US IG -2,5%
16,5% US HY 14,4%
2,0% Euro Gov
2,0%
7,0% US HY 9,5%
8,0% US IG 5,7%
9,3% US IG 6,1%
0,2% Euro Gov
0,2%
1,3% Portfolio
-1,4%
11,1% Portfolio
10,0%
1,1% Portfolio
1,2%
6,5% US IG 9,0%
6,9% Euro HY
6,9%
8,1% Portfolio
6,4%
-2,9% Portfolio
4,2%
1,0% Euro Gov
1,0%
10,7% Euro HY 10,7%
-1,2% Euro IG -1,2%
5,3% Euro IG 5,3%
6,7% Portfolio
5,4%
4,7% Euro IG
4,7%
-4,0% EM Debt
9,3%
0,2% EM Debt
-4,6%
8,8% US Treas.
6,9%
-1,6% Infl Linked
-1,6%
4,5% Portfolio
5,9%
5,7% US Treas.
3,4%
4,1% US Treas.
1,0%
-5,6% US HY 7,5%
-1,3% Euro IG -1,3%
6,8% Euro Gov
6,8%
-1,9% EM Debt
-1,9%
3,9% Infl Linked
3,9%
4,7% Euro Gov
4,7%
3,8% Infl Linked
3,8%
-6,5% US IG 6,4%
-1,5% Infl Linked
-1,5%
6,6% Infl Linked
6,6%
-4,9% US HY -4,8%
1,7% Euro Gov
1,7%
4,4% Euro IG 4,4%
3,2% Euro Gov
3,2%
-10,1% US Treas.
2,3%
-3,7% Euro HY -3,7%
6,2% Euro IG
6,2%
-5,1% Euro HY
-5,1%
-1,8% US Treas.
0,5%
2,9% Infl Linked
2,9%
Global fixed income spreads and returns
Fixed income spreads Fixed income returns%, option-adjusted spread
Source: (All charts) Bloomberg Barclays, BofA/Merrill Lynch, J.P. Morgan Economic Research, Refinitiv Datastream, J.P. Morgan Asset Management. 23 March 2020 marks the recent high in US credit spreads. UK IG: Bloomberg Barclays Sterling Agg. – Corporates; US HY: BofA/Merrill Lynch US High Yield Constrained; EM Debt: J.P. Morgan EMBI Global; Euro HY: BofA/Merrill Lynch Euro Non-Financial High Yield Constrained; US IG: Bloomberg Barclays US Agg. – Corporate – Investment Grade; US Treasuries: Bloomberg Barclays US Agg. Gov. – Treasury; Euro IG: Bloomberg Barclays Euro Agg. – Corporate; Euro Gov.: Bloomberg Barclays Euro Agg. Government; Infl Linked: Bloomberg Barclays Euro Gov. Inflation-Linked. Hypothetical portfolio (for illustrative purposes only and should not be taken as a recommendation): 20% Euro Gov.; 15% US Treasuries; 10% Linkers; 15% US IG; 10% Euro IG; 10% US HY; 5% Euro HY; 15% EM Debt. Annualised return covers period 2008 to 2019. Returns are unhedged in euros and local currencies. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
|
Fixed income
77
€:
LCL:
Range since 2000
Average
Current
20172016 2018 2019 2Q ’20YTDAnn. return
since ’08
US IGEuro IG UK IG US HYEuro HYEMD
(USD Sov.)
23 March 2020
78
|GTM – EuropeOil
Source: (Left) Baker Hughes, Bloomberg, J.P. Morgan Asset Management. (Right) EIA, Refinitiv Datastream, J.P. Morgan Asset Management. Dotted lines are J.P. Morgan Asset Management estimates based on announced cuts. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Other assets
78
WTI crude oil price and US rig countUSD/barrel (LHS); number of rigs (RHS)
RigsOil price
0
200
400
600
800
1.000
1.200
1.400
1.600
1.800
0
20
40
60
80
100
120
140
160
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
Crude oil production by countryMillion barrels per day
US
OPEC (ex-Saudi Arabia & Iraq)
Russia
Saudi Arabia
Iraq
0
5
10
15
20
25
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22
79
|GTM – Europe
-1,0
-0,8
-0,6
-0,4
-0,2
0,0
0,2
0,4
0,6
0,8
1,0
1,21.000
1.100
1.200
1.300
1.400
1.500
1.600
1.700
1.800
'12 '13 '14 '15 '16 '17 '18 '19 '20
Metals
Gold vs. real US 10-year Treasury yield$ per Troy ounce (LHS); %, inverted (RHS)
Source: (Left) Refinitiv Datastream, J.P. Morgan Asset Management. Real yield is the US 10-year Treasury inflation-protected security yield. (Right) Bloomberg, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Other assets
79
30 Jun 2020
Gold (LHS) $1.784
Real 10-year yield (RHS) - 0,7%
Metal pricesIndex level, rebased to 100 in Jan 2007
0
25
50
75
100
125
150
175
200
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
Nickel
Copper
Zinc
Aluminium
80
|GTM – EuropeAlternative sources of diversification
Source: (Left) CBOE, Hedge Fund Research Indices (HFRI), Refinitiv Datastream, J.P. Morgan Asset Management. Macro hedge fund (total return in USD) relative performance is calculated relative to MSCI Europe (total return in local currency). VIX is the implied volatility of S&P 500 Index based on options pricing.(Right) Hedge Fund Research Indices (HFRI), Refinitiv Datastream, J.P. Morgan Asset Management. 2000 bear market is from 31 March 2000 to 31 October 2002, 2008 bear market is from 31 October 2007 to 28 February 2009, 2020 bear market is from 31 January 2020 to 30 April 2020. Hedge fund strategies are defined in the HFRI hedge fund strategy classification system. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Other assets
80
Hedge fund style returns during bear markets% total return
VIX
Macro hedge fund relative performance & volatilityIndex level (LHS); % change year on year (RHS)
2000 bear market
2008 bear market
2020 bear market
Macro hedge fund relative performance to MSCI Europe
-40
-20
0
20
40
60
80
0
10
20
30
40
50
60
70
'94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
-40
-30
-20
-10
0
10
20
30
81
|GTM – Europe
0
1
2
3
4
5
6
7
0 5 10 15 20
% annual compound return in EUR
Alternative investments: Real assets
Source: (Left) MSCI, J.P. Morgan Asset Management. Infrastructure returns represented by the “low risk” category of the MSCI Global Quarterly Infrastructure Asset Index. Data show rolling one-year returns from income and capital appreciation. The chart shows the full index history, beginning in the first quarter of 2009. (Right) 2020 Long-Term Capital Market Assumptions, J.P. Morgan Multi-Asset Solutions, J.P. Morgan Asset Management. The resulting projections include only the benchmark return associated with the portfolio and do not include alpha from the underlying product strategies within each asset class. The assumptions are presented for illustrative purposes only. Past performance and forecasts are not reliable indicators of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Other assets
81
Global core infrastructure returns%, rolling 4-quarter returns from income and capital appreciation
Income
Capital appreciation
Expected returns and volatility in coming 10-15 yea rs
Com
poun
d re
turn
Volatility
60% Eurozone large cap40% Euro government bonds
60% Eurozone large cap10% Euro government bonds
10% Europe ex-UK core real estate10% Global infrastructure equity10% Macro hedge funds hedged
100% Eurozone large cap
100% Euro government bonds
-5
0
5
10
15
20
'09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19
82
Sustainable investment strategies
Source: J.P. Morgan Asset Management. Guide to the Markets - Europe. As of 30 June 2020.
| 82
ESG INTEGRATION: Consideration of material ESG information as part of the investment decision-making process
DEDICATED SUSTAINABLE STRATEGIES
EXCLUSIONS POSITIVE TILT BEST-IN-CLASS THEMATIC IMPACT
The exclusion from a fund or portfolio of
certain sectors, companies or practices based on specific ESG
criteria
An investment style in which the portfolio will
be tilted towards sectors, companies or projects with positive ESG characteristics, while also excluding companies based on
ESG criteria
A comparative investment style that
involves investing only in companies that lead
their peer groups in ESG performance, while
also excluding companies based on
ESG criteria
Top-down investment approach, investments
in themes or assets specifically related to
sustainability
Investments made with the primary goal of achieving specific,
positive environmental/social benefits while also
delivering a financial returnO
ther assets
GTM – Europe
83
|GTM – Europe
0
2
4
6
8
10
12
14
16
Sustainable investment performance and market size
Sustainable investment assets under managementUSD trillions
Source: (Left) MSCI, Refinitiv Datastream, J.P. Morgan Asset Management. The MSCI World ESG Leaders Index is a capitalization weighted index that provides exposure to companies with high Environmental, Social and Governance (ESG) performance relative to their sector peers. The MSCI World Governance-Quality Index aims to reflect the performance of a strategy that is seeking to capture both the financial and corporate governance aspects of Quality investing. (Right) Global Sustainable Investment Alliance (GSIA), J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
17%
114%25%
19%
8%
2016
Compound annual growth rate
2018
Other assets
83
Europe US Japan Canada Australia/New Zealand
MSCI World ESG performanceIndex level in USD, rebased to 100 at Jan 2020
MSCI World
MSCI World Governance-Quality
MSCI World ESG leaders
Jan ’20 Feb ’20 Mar ’20 Apr ’20 May ’20 Jun ’20 Jul ’2060
65
70
75
80
85
90
95
100
105
110
84
|GTM – Europe
0
2
4
6
8
10
12
14
16
18
Asset return expectations
2020 Long-Term Capital Market Assumptions expected returns in coming 10-15 years%, annualised return in EUR
Source: 2020 Long-Term Capital Market Assumptions, J.P. Morgan Multi-Asset Solutions, J.P. Morgan Asset Management. Returns are nominal and in EUR. Past returns are calculated from the start of 2009 up to the end of 2019, or the most recent available data. The projections in the chart above are based on J.P. Morgan Asset Management’s proprietary long-term capital market assumptions (10-15 years) for returns of major asset classes. The resulting projections include only the benchmark return associated with the portfolio and do not include alpha from the underlying product strategies within each asset class. The assumptions are presented for illustrative purposes only. Past performance and forecasts are not reliable indicators of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Other assets
84
Fixed income
Equity
Alternatives
Historical return since 2009
Euro cash Euro government bonds
Euro government inflation-linked
bonds
Euro investment-grade corporate
bonds
US large cap Global infrastructure
European ex-UK core real estate
Eurozone large cap
EM equity
85
|GTM – Europe
-4,0
-3,5
-3,0
-2,5
-2,0
-1,5
-1,0
-0,5
0,0
'16 '17 '18 '19 '20
The cost of hedging
Hedging cost heatmap Rolling hedging costsCurrent annualised hedging cost based on 3-month FX forwards %, annualised hedging cost based on 3-month FX forwards
Source: (All charts) Bloomberg, J.P. Morgan Asset Management. A positive number implies that an investor gains a yield pickup when hedging currency risk, and a negative number implies that an investor pays to hedge currency risk, based on 3-month FX forward rates. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
…and hedged into home currency
USD EUR GBP JPY
Foreign asset in…
USD - - 0,8% - 0,2% - 0,5%
EUR + 0,8% - + 0,6% - 0,3%
GBP + 0,2% - 0,6% - - 0,3%
JPY + 0,5% - 0,3% + 0,3% -
Hedging getting more expensive
USD asset to EUR
Positive = yield pickup to hedgeNegative = cost to hedge
85
Other assets
86
|GTM – EuropeLife expectancy
Probability of reaching ages 80 and 90% probability, persons aged 65, by gender and combined couple
Source: ONS 2016-2018 Life Tables, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results.Guide to the Markets - Europe. Data as of 30 June 2020.
Men
Women
Couple – at least one lives to specified age
Investing
principles
86
67
24
76
35
92
51
0
20
40
60
80
100
80 years 90 years
87
|GTM – Europe
0
100.000
200.000
300.000
400.000
500.000
600.000
700.000
25 30 35 40 45 50 55 60 650
20.000
40.000
60.000
80.000
'86 '90 '94 '98 '02 '06 '10 '14 '18
The effect of compounding
€5.000 invested annually with 5% growth per year €5. 000 investment with/without income reinvestedEUR EUR, MSCI Europe returns
Source: (Left) J.P. Morgan Asset Management. For illustrative purposes only, assumes all income reinvested, actual investments may incur higher or lower growth rates and charges. (Right) Bloomberg, MSCI, J.P. Morgan Asset Management. Based on MSCI Europe Index and assumes no charges. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Investing
principles
Starting at age 35
Starting at age 25
Without dividends reinvested
With dividends reinvested
Age
€354.000
€640.000
87
€72.000
€25.000
88
|GTM – Europe
0
1
2
3
4
5
-1.000
0
1.000
2.000
3.000
4.000
5.000
'01 '03 '05 '07 '09 '11 '13 '15 '17 '19
0
10
20
30
40
50
60
70
80
90
100
0 5 10 15 20 25 30 35 40
Cash investments
Income generated by €100.000 in a three-month bank depositEUR (LHS); % change year on year (RHS)
Source: (Left) Bloomberg, Eurostat, J.P. Morgan Asset Management. Inflation is the percentage change year on year for the eurozone harmonised index of consumer prices. Data shown are yearly averages. (Right) J.P. Morgan Asset Management. For illustrative purposes only, assumes no return on cash and an inflation rate of 2%. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Investing
principles
88
Income Inflation
EUR, thousandsEffect of 2% inflation on purchasing power of €100. 000
Years
€100.000
€44.5002020: €0
2008: €4.600
89
|GTM – Europe
0
1
10
100
1.000
10.000
1900 1920 1940 1960 1980 2000 2020
Long-term asset returns
Total return of $1 in real termsUSD, log scale, total returns
Source: Bloomberg, Bloomberg Barclays, FactSet, Shiller, Siegel, Standard & Poor’s, J.P. Morgan Asset Management. Pre 2010 returns: Shiller, Siegel; from 2010: Equities: S&P 500; Bonds: Bloomberg Barclays US Treasury 20+ year Total Return Index; Cash: Bloomberg Barclays US Treasury Bills Total Return Index. Latest point as of end of 2019. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Investing
principles
89
Equities: $2.448
Bonds: $14
Cash: $2
Annualised real returns
1900–2019 2000–2019
Equities 6,7% 3,9%
Bonds 2,2% 5,4%
Cash 0,6% -0,4%
90
|GTM – EuropeAnnual returns and intra-year declines
MSCI Europe intra-year declines vs. calendar-year r eturnsDespite average intra-year drops of 15,2% (median 12,0%), annual returns are positive in 31 of 40 years%
Source: MSCI, Refinitiv Datastream, J.P Morgan Asset Management. Returns are local currency price returns. Intra-year decline refers to the largest market fall from peak to trough within a short time period during the calendar year. Returns shown are calendar years from 1980 to 2019. YTD is year-to-date. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Intra-year decline
Calendar-year return
Investing
principles
90
13
2
15
34
16
39
21
-18
22
28
-19
13
6
34
-8
12
20
35
20
28
-4
-18
-31
17
9
22
16
3
-41
23
4
-12
12
18
2 24
10
-13
20
-13-11
-15
-7-4
-11
-3
-10
-35
-6
-11
-24
-11
-18
-4
-16
-6 -5
-12
-31
-9-12
-35-37
-22
-8-6
-12 -12
-48
-26
-15
-25
-15-12 -12
-17-15
-4
-18
-7
-34
-50
-40
-30
-20
-10
0
10
20
30
40
'80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
YTD
91
|GTM – Europe
0
1
2
3
4
5
6
7
8
9
10
0 2 4 6 8 10 12 14 16 18
Asset class risk-return trade-off
Historic risk vs. return for selected asset classes%, annualised return 2004 – 2019 in EUR
Source: Bloomberg Barclays, MSCI, Refinitiv Datastream, J.P. Morgan Asset Management. Volatility is the standard deviation of annual returns since 2004. Cash: JP Morgan Cash EUR (3M); Euro government bonds: Bloomberg Barclays Euro Aggregate - Treasury; Global investment-grade bonds: Bloomberg Barclays Global Aggregate – Corporate; Emerging market debt: J.P. Morgan EMBI Global; Global high yield bonds: Bloomberg Barclays Global High Yield; Global equities: MSCI All-Country World Index (includes developed and emerging markets). Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Investing
principles
Volatility
Com
poun
d re
turn
91
Higher return
Higher risk
Cash
Euro government bonds
Global investment-grade bonds
Emerging market debtGlobal equities
Global high yield bonds
92
|GTM – Europe
0
500
1.000
1.500
2.000
2.500
3.000
3.500
-100
-75
-50
-25
0
25
50
75
100
125
150
175
'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
S&P 500 and fund flows
US mutual fund and ETF flows and S&P 500USD billions, three-month net flows (LHS); index level (RHS)
Source: FactSet, Investment Company Institute, J.P. Morgan Asset Management. Fund flows are US long-term equity fund flows with ETF flows included from 2006 onwards. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.In
vesting
principles
92
Avoid selling at the bottom
3-month net fund flows S&P 500 index level
93
|GTM – Europe
48% 49%
30%24% 24%
21%17% 17% 18%
13% 15%
-18%-24%
-7% -3% -1% -3%0% 1%
4%1%
4%
-50
-25
0
25
50
75
61%
-43%
US asset returns by holding period
Range of equity and bond total returns%, annualised total returns, 1950-present
Source: Strategas/Ibbotson, J.P. Morgan Asset Management. Large cap equity represents the S&P 500 Composite and Bonds represents the Strategas/Ibbotson US Government Bond Index and US Long-term Corporate Bond Index. Returns shown are per annum and are calculated based on monthly returns from 1950 to latest available and include dividends. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
Investing
principles
Large cap equity
Bonds
50/50 portfolio
93
1-yr rolling 5-yr rolling 10-yr rolling 20-yr rolling
94
Asset class returns (EUR)
Source: Bloomberg Barclays, FTSE, J.P. Morgan Economic Research, MSCI, Refinitiv Datastream, J.P. Morgan Asset Management. Annualised return covers the period from 2008 to 2019. Vol. is the standard deviation of annual returns. Govt bonds: Bloomberg Barclays Global Aggregate Government Treasuries; HY bonds: Bloomberg Barclays Global High Yield; EMD: J.P. Morgan EMBI Global; IG bonds: Bloomberg Barclays Global Aggregate – Corporates; Cmdty: Bloomberg Commodity; REITs: FTSE NAREIT All REITS; DM Equities: MSCI World; EME: MSCI EM; Hedge funds: HFRI Global Hedge Fund Index; Cash: JP Morgan Cash Index EUR (3M). Hypothetical portfolio (for illustrative purposes only and should not be taken as a recommendation): 30% DM equities; 10% EM equities; 15% IG bonds; 12,5% government bonds; 7,5% HY bonds; 5% EMD; 5% commodities; 5% cash; 5% REITs and 5% hedge funds. All returns are total return, in EUR, and are unhedged. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 30 June 2020.
GTM – Europe |
Investing
principles
94
Govt bonds 15,9%
EME 73,5%
REITs 36,4%
EMD 12,1%
REITs 18,3%
DM Equities 21,9%
REITs 44,8%
REITs 13,9%
HY bonds 17,7%
EME 21,0%
Govt bonds 4,6%
DM Equities 30,8%
Govt bonds 3,2%
DM Equities 16,8%
REITs 10,6%
EME 28,6%
Cash 5,7%
HY bonds 54,4%
EME 27,5%
REITs 10,9%
HY bonds 17,8%
Portfolio 3,3%
EMD 20,2%
EMD 12,8%
Cmdty 15,1%
DM Equities 8,1%
IG bonds 1,3%
REITs 30,4%
IG bonds 2,6%
EME 15,5%
HY bonds 9,8%
REITs 20,1%
IG bonds -3,9%
DM Equities 26,7%
Cmdty 24,9%
Govt bonds 9,9%
EME 16,8%
HY bonds 2,7%
DM Equities 20,1%
DM Equities 11,0%
EME 14,9%
Portfolio 1,7%
HY bonds 0,8%
EME 21,1%
Cash -0,1%
REITs 11,3%
EMD 9,0%
HY bonds 17,5%
EMD -6,3%
Portfolio 25,4%
HY bonds 22,8%
IG bonds 7,8%
EMD 16,7%
Hedge Funds 2,1%
IG bonds 17,5%
HY bonds 8,4%
EMD 13,5%
Cash -0,3%
REITs 0,7%
Portfolio 18,8%
Hedge Funds -1,3%
HY bonds 9,6%
DM Equities 8,5%
DM Equities 17,4%
Hedge Funds -19,3%
EMD 24,2%
DM Equities 20,1%
HY bonds 6,6%
DM Equities 14,7%
Cash 0,2%
Portfolio 16,2%
Govt bonds 7,7%
REITs 12,6%
HY bonds -3,0%
EMD 0,2%
EMD 16,5%
EMD -1,9%
Portfolio 9,5%
Portfolio 6,8%
Cmdty 15,5%
Portfolio -20,9%
REITs 23,5%
EMD 19,8%
Cash 1,7%
Portfolio 10,7%
REITs -1,3%
HY bonds 13,9%
IG bonds 7,4%
DM Equities 11,4%
EMD -4,0%
Cash -0,3%
HY bonds 14,6%
Portfolio -4,1%
EMD 8,6%
IG bonds 6,5%
Portfolio 11,7%
HY bonds -23,1%
IG bonds 15,5%
Portfolio 18,9%
Portfolio 1,2%
IG bonds 9,5%
IG bonds -4,0%
Hedge Funds 13,2%
Hedge Funds 7,3%
Portfolio 10,3%
REITs -4,0%
Portfolio -1,6%
IG bonds 13,6%
HY bonds -4,7%
IG bonds 6,0%
Govt bonds 4,9%
EMD 11,2%
Cmdty -32,3%
Cmdty 15,2%
Govt bonds 13,3%
DM Equities -1,8%
Hedge Funds 1,9%
EME -6,5%
Govt bonds 13,0%
Portfolio 6,4%
IG bonds 7,4%
IG bonds -4,2%
Hedge Funds -2,0%
Hedge Funds 10,6%
DM Equities -5,5%
Hedge Funds 3,6%
EME 4,1%
Hedge Funds 9,2%
REITs -34,1%
Hedge Funds 9,9%
IG bonds 13,2%
Hedge Funds -5,8%
Cash 1,2%
Govt bonds -8,4%
EME 11,8%
Cash 0,1%
Hedge Funds 5,6%
Govt bonds -5,8%
DM Equities -3,6%
Cmdty 9,7%
EME -9,7%
Cmdty 2,7%
Hedge Funds 2,0%
IG bonds 7,5%
DM Equities -37,2%
Cash 2,3%
Hedge Funds 12,5%
Cmdty -10,4%
Govt bonds 0,3%
EMD -10,6%
Cash 0,3%
EME -4,9%
Govt bonds 4,7%
Hedge Funds -6,9%
Cmdty -6,8%
Govt bonds 7,5%
REITs -15,1%
Cash 0,0%
Cash 1,0%
Govt bonds 7,3%
EME -50,8%
Govt bonds -0,6%
Cash 1,1%
EME -15,4%
Cmdty -2,6%
Cmdty -13,4%
Cmdty -5,5%
Cmdty -16,1%
Cash -0,1%
Cmdty -10,7%
EME -9,9%
Cash -0,3%
Cmdty -19,4%
Govt bonds -0,5%
Cmdty -4,0%
Cash 1,7%
2010 20122011 20162009 2013 2014 2015
Ann. return
since ’08 Vol.20182017 20192008 2Q ’20YTD
J.P. Morgan Asset Management: Index definitions
All indexes are unmanaged and an individual cannot invest directly in an index. Index returns do not include fees or expenses. The S&P 500 Index is widely regarded as the best single gauge of the U.S. equities market. This world-renowned index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. Although the S&P 500 Index focuses on the large-cap segment of the market, with approximately 75% coverage of U.S. equities, it is also an ideal proxy for the total market. An investor cannot invest directly in an index. The Russell 1000 Index ® measures the performance of the 1,000 largest companies in the Russell 3000. The Russell 1000 Growth Index ® measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. The Russell 1000 Value Index ® measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values. The MSCI Emerging Markets IndexSM is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. As of June 2007, the MSCI Emerging Markets Index consisted of the following 25 emerging market country indices: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.The MSCI ACWI (All Country World Index) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. As of June 2009 the MSCI ACWIconsisted of 45 country indices comprising 23 developed and 22 emerging market country indices. The Tokyo Price Index (TOPIX) is a capitalization-weighted index lists all firms that are considered to be under the 'first section' on the TSE, which groups all of the large firms on the exchange into one pool. The second section groups all of the remaining smaller firms.The FTSE 100 Index is an index of the 100 largest companies (by market capitalization) in the United Kingdom.The FTSE All Share Index is an index of the 630 largest companies (by market capitalization) in the United Kingdom.The MSCI Value and Growth IndicesSM cover the full range of developed, emerging and All Country MSCI Equity indexes. As of the close of May 30, 2003, MSCI implemented an enhanced methodology for the MSCI Global Value and Growth Indices, adopting a two dimensional framework for style segmentation in which value and growth securities are categorized using different attributes - three for value and five for growth including forward-looking variables. The objective of the indexdesign is to divide constituents of an underlying MSCI Standard Country Index into a value index and a growth index, each targeting 50% of the free float adjusted market capitalization of the underlying country index. Country Value/Growth indices are then aggregated into regional Value/Growth indices. Prior to May 30, 2003, the indices used Price/Book Value (P/BV) ratios to divide the standard MSCI country indices into value and growth indices. All securities were classified as either "value" securities (low P/BV securities) or "growth" securities (high P/BV securities), relative to each MSCI country index.The following MSCI Total Return IndicesSM are calculated with gross dividends:This series approximates the maximum possible dividend reinvestment. The amount reinvested is the dividend distributed to individuals resident in the country of the company, but does not include tax credits.The MSCI Europe IndexSM is a free float-adjusted market capitalization index that is designed to measure developed market equity performance in Europe. As of June 2007, the MSCI Europe Index consisted of the following 16 developed market country indices: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom. West Texas Intermediate (WTI) is underlying commodity in the New York Mercantile Exchange's oil futures contracts. The Bloomberg Barclays U.S. Aggregate Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. This U.S. Treasury Index is a component of the U.S. Government index. The Bloomberg Barclays High Yield Index covers the universe of fixed rate, non-investment grade debt. Pay-in-kind (PIK) bonds, Eurobonds, and debt issues from countries designated as emerging markets (e.g., Argentina, Brazil, Venezuela, etc.) are excluded, but Canadian and global bonds (SEC registered) of issuers in non-EMG countries are included. The Bloomberg Barclays Euro-Aggregate Index consists of bond issued in the euro or the legacy currencies of the sovereign countries participating the European Monetary Union (EMU).The Global Bond Index Emerging Market Broad Diversified Index (GBI-EM) is a comprehensive global local emerging markets index, and consists of liquid, fixed-rate, domestic currency government bonds.
The Bloomberg Barclays Global Aggregate Corporate Index consists of corporate issues in Europe, the US and Asia-pacific regions. The J.P. Morgan EMBI Global Index includes U.S. dollar denominated Brady bonds, Eurobonds, traded loans and local market debt instruments issued by sovereign and quasi-sovereign entities.The JPMorgan Corporate Emerging Markets Bond Index (CEMBI): The CEMBI tracks total returns of US dollar-denominated debt instruments issued by corporate entities in Emerging Markets countries, and consists of an investable universe of corporate bonds. Both indices are also available in Diversified version. The MSCI World High Dividend Yield Index is composed of those securities that have higher-than-average dividend yield within its parent index, a track record of consistent dividend payments and the capacity to sustain future dividend payments.
J.P. Morgan Asset Management: Risks and disclosures
The Market Insights program provides comprehensive data and commentary on global markets without reference to products. Designed as a tool to help clients understand the markets and support investment
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Copyright 2020 JPMorgan Chase & Co. All rights reserved.
Prepared by: Karen Ward, Tilmann Galler, Vincent Juvyns, Maria Paola Toschi, Michael Bell, Hugh Gimber, Ambrose Crofton, Jai Malhi and Max McKechnie.
Unless otherwise stated, all data as of 30 June 2020 or most recently available.
Guide to the Markets - Europe
JP-LITTLEBOOK
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