Investor Education Summit 2018

Volatility’s return—A time to be offensive or defensive?

POLITICS, MARKETS, SOCIAL DISRUPTION:WHAT WILL IMPACT THE MARKETS FOR THE REMAINDER OF 2018 AND INTO 2019

Frank Kelly Head of Government & Public Affairs—Deutsche Bank

For Institutional Investor and Registered Representative use only. Not to be shared with the public.

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Here are ten issues we believe are going to move the markets both

positively and negatively in 2018 and early 2019

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• Despite the bluster and denials, the noose was tightened. And it is China doing the tightening (and loosening):

• Case in Point: The Friendship Bridge was closed for repairs – literally. 80 percent of China/DPRK trade

goes over this bridge. When will it be re-opened? When “repairs” are complete...

• Recent discussions between Pyongyang and Seoul are promising.

• But tariffs on China appear to correspond to backsliding of negotiations with Pyongyang.

• Meanwhile, Japan announced plans to build two aircraft carriers (first since end of WWII). Buying billions in anti-missile systems; China building 3rd carrier –military risk escalating in entire region.

10. North Korea: Was the Friendship Bridge a catalyst? And did the China trade war blow it?

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• Saudi Arabia is well into the Vision 2030: an ambitious plan to transform the country from an oil producing state into the world’s leading tech and investment state.

• Biggest challenges lie in demographic trends, workforce transition (70 percent of population is under the age of 30) and ongoing competition in global oil market.

• But the Saudi Aramco IPO pull-back and other projects that are slowing and/ or not getting off the ground beg the question: Just how far can the Deputy Crown Prince push the Kingdom?

• And how long before there is a backlash to the significant social changes he has allowed?

9. The Middle East: Saudi Arabia, Iran, Turkey andSyria: What next for all of them?

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Deputy Crown Prince Mohammed bin Salman

Source: Bloomberg, CIA Factbook; Scowcroft Group

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• The Rial has plummeted to new lows in recent weeks; It has lost approximately 70 percent of its value this year alone.

• Street protests are increasing across the country in defiance of the religious and military leadership.

• Complaints range from the price of eggs to corruption of building inspectors which has led to fallen buildings.

• Revolutionary Guard has ramped up the political pressure against President Rhouhani; more than 300 functionaries were recently arrested and tried – in one day – with sentences ranging from death to 20 years in prison.

• Iran increasingly is looking to China for assistance. China is Iran’s #1 trading partner and buyer of Iranian oil.

Iran: Renewed sanctions brought intense economic and political tensions.

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• The Lira has plunged as much as 40 percent this year; Inflation is at 20 percent and growing – estimates as high as 40 percent by year end.

• President Erdogan has endangered US-Turkish relations over his imprisonment of a US pastor – incurring (mild) US sanctions and Trump’s wrath.

• Turkey cannot afford to leave NATO yet seems determined to move as far away from the alliance as he can without severing the relationship.

• Meanwhile, Turkey is entangled in Syria and does not have a game plan to get out.

• The real question: what is Erdogan’s strategy and where does Turkey go from here?

Turkey: The most vulnerable emerging market seems to be locked in perpetual crisis

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8. A Strong and Focused Federal Reserve Chair and Vice Chairs keep the economy steady

• Federal Reserve Chair Jerome (Jay) Powell is a strong and deliberative leader who will likely continue the monetary policy of Janet Yellen.

• Powell is a highly experienced Washington insider (born and raised) with excellent political instincts to go with superb market and monetary experience.

• Teaming up with him is his brother from another mother: Randall (Randy) Quarles, Vice Chair for Supervision and Regulation. Quarles strengths are deep in both regulation and monetary policy – an understand the intersection of both.

• And now Richard Clarida is on board as the new Vice Chair for Monetary Policy. Marvin Goodfriend and Michelle Bowman are close to being confirmed. And John Williams is in place at the New York Fed.

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7. US mid-term elections: Will Republicans lose theHouse in November? Highly likely now.

• The growing market assumption is Republicans will control of the House in November. Polls in recent months have suggested a “wave” is on the way to blow them out.

• But Democrats are increasingly facing internal factionalism and challenges (i.e. the Sanders/Warren wing vs. the Old Timers –see Feinstein, Pelosi, etc. being challenged).

• Big question: will tax cut impact, lack of legislative battles help give Republicans enough cover to hold on?

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Source: NBC News

Republicans May have a Harder Time Holding onto control of the US Senate

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So, with all the books and controversy, who do you believe? And will any of this impact the elections?

Source: Survey Monkey; Axios

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5. Venezuela: The great regional destabilizer?

• The average Venezuelan has lost approximately 30 pounds in the last year.

• More than 2.3 million Venezuelan’s have fled the country (total population is 32 million).

• Colombia, Brazil, Mexico, Chile are becoming overrun with refugees who have little or no chance to settle.

• With inflation now beyond 1 million percent and President Maduro’s recent currency devaluation, how much longer can the country continue at this rate? Opposition groups are splintered.

• Questions are also growing as to overall economic and political impact on the region. Case in point: will the refugee crisis create a new political crisis in Colombia?

Source: Washington Post

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6. The growth of populism globally: How does it end?Does it end?

• One of the more perplexing questions of this decade: How far will it go and when will it end?

• The answers may lie in demographics and technology – both of which are increasingly seen as a threat to the average middle class worker.

• Demographic downturns in Europe, the United States, Russia and other advanced countries and regions have clearly led to heightened demographic shifts.

• But what about technology? The rise of the driverless car and truck, the use of drones for commercial use, robotics and artificial intelligence. How can the average worker keep up much less hope for prosperous future for his or her children (child)?

• The potential risks are enormous and until leaders begin to talk about these huge societal and cultural shifts in a constructive manner, most social scientists believe the populists movements will continue to grow and gain momentum.

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• Western sanctions are taking a sizeable and painful bite out of Russia’s economy.

• And more sanctions are on the way: among them bans on Russian Sovereign Debt.

• The US Congress – and a growing number of US voters – are sick and tired of hearing about Russian hacking of US campaigns, of ”fake news” and general interference in US interests. And they want action.

• How far will Putin push this?• Watch for the growing stand-off in the

Sea of Azov. 25 percent of Ukrainian GDP comes from steel exported from here through the Black Sea to the rest of the world. Russia is beginning to choke off the route.

4. Russia: What real threat does Putin actually pose?Enough for new, crushing sanctions for US

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Sources: World Bank: Washington Post; IISS

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Trying to keep up with President Trump and his trade policy decisions has everyone confused and increasingly agitated.Here is a quick break-down:

NAFTA: Bilateral with Mexico is done. But Trump clearly hates Trudeau and is holding fast on compromising. So is Trudeau and Canada is between a rock and a hard place. A breakthrough could come at any time – or not for months to come.

China: A complicated vision by the Trump Administration (which there is a split between his senior advisors). Do not expect this to be settled in 2018.

Everyone Else (Japan, South Korea, etc.): Who knows? No focus from Trump team at this point.

EU: There was apparently a deal with EU President Juncker. But there is no written agreement, no follow-up meetings or talks, no idea what we might expect next.

3. Trade Wars: NAFTA or “HAFTA”? How does it endwith China? Anything going on with the EU?

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• The recent Chinese Communist Party Congress altered the essential vision and strategy of China. In essence, China will now more holistically engage around the world beyond trade.

• In other words, expanded political and military engagement globally.

2. China, China, China everywhere: The Emergenceof the new global political power

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Chinese military base, Djibouti

“String of Pearls”

Strategy:

Locations where China either has

or is currently negotiating to

establish military bases.

For internal use onlyGovernment & Public AffairsDeutsche Bank

1. Who…what… when…

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Francis J. KellyManaging Director & HeadGovernment & Public Affairs AmericasDeutsche Bank801 17th Street, N.W.Suite 300Washington, DC 20006DC Office: 202-626-7022Email: francis.j.kelly@db.com

This material is provided to you for informational purposes only and absent written consent from Deutsche Bank, may not be transmitted in whole or in part in any format to any other party. This material was prepared by Corporate Communications and Public Affairs within Deutsche Bank AG or one of its affiliates (collectively “Deutsche Bank”). No representation or warranty, either express or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein, nor is it intended to be a complete statement or summary of the securities, markets or developments referred to in the materials. This material is based upon information that Deutsche Bank considers reliable as of the date hereof. Assumptions, estimates and opinions contained in this document constitute our judgment as of the date of the document and are subject to change without notice. Deutsche Bank is not responsible for updating any of the information contained herein. This material is intended for your personal use and Deutsche BankIs not soliciting the purchase or sale of any security or transaction, or participation in any particular trading strategy.

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