Quantic Asset Management Monthly Review April 2019 Find out more about our services by visiting https://www.quantic-am.com/en/and https://www.tirthas.com/

1. MARKET REVIEW
APRIL 2019

2. MARKET REVIEW
SUMMARY
The U.S. President Donald Trump is restarting his “war campaign” for the
2020 election. His enemies serve as ammunition to the so-called struggle for
global dominance. This is a dangerous rhetoric which could put in danger the
relationships between the United States and its trade partners across the
world.
The European Commission (EC) cut the eurozone growth forecast to 0.1%
despite the surprising GDP growth in Italy and Spain. The eurozone GDP was
quite close to trend growth with Germany reporting a rise in exports and
industrial output better than forecast. The unemployment rate fell slightly
with the manufacturing sector still weak. Services and sentiment still hold
relatively well.
Japan’s earnings fundamentals remain sluggish, but strategists think this
has been increasingly priced in through de-rating. The slowing in external
demand and the easing in manufacturing sector conditions are expected to
be offset by the boost from consumption being brought forward as an
October 2019 increase in the consumption tax is “ante portas.”
British Prime Minister Theresa May is thinking to set a date for her departure
since she failed to get the Brexit deal through Parliament, leaving the
government in a state of limbo. Theresa May is thinking how she can bring
the two rival factions in Parliament to agree on a Brexit solution which would
also be accepted by the EU.
The trade-related uncertainty has pushed local investors to sell their
holdings. Although the latest tariff escalation reduced the short sentiment,
many analysts think it won’t have a lasting impact on China’s economic
fundamentals. Indeed, the US has less leverage with Chinese exports today
than some years ago. However, the message is that US-China relations
have changed and there is probably no going back.

3. FULL REPORT
The global expansion is continuing to lose steam, risks are raising faster
comparing to few months ago. Global growth has been particularly
disappointing, as trade growth both within the countries and with external
partners has stalled. Business and consumer confidence have plummeted in
advanced economies as trade tensions persist, the high levels of policy
uncertainty created in the
European Union and the pace of
China’s economic slowdown.
Although the outlook for the
global economy remains
reasonably far from recession,
investment outlook has softened in
some countries. In most advanced
economies, inflation remains
subdued, unemployment rates are
low and wage growth has picked
up. Long-term bond yields are low, consistent with the subdued outlook for
inflation. Risk premiums also remain low.
The main uncertainty on micro continues to be the outlook for household
consumption, which is being affected by a protracted period of low-income
growth and declining housing prices.
The labour market remains strong. Strong employment growth has led to
some pick-up in wage growth, which is a welcome development. The demand
for credit by investors in the housing market has slowed noticeably as the
dynamics of the housing market have changed.

4. Inflation data was noticeably lower than expected and suggest subdued
inflationary pressures across much of the economy. Looking forward, inflation
is expected to pick up, but only gradually.
These are the reasons why the Central Banks' Boards judged that it was
appropriate to hold the monetary policy stance unchanged up to now. Monetary
policy normalisation has been on pause in major economies, with some analysts
justifying it because of growing uncertainty, weaker growth prospects and
contained inflation.
Clearly opposing President
Trump’s views, the US Federal
Reserve (Fed) decided to continue
to have on hold its monetary
policy. Based on this guidance, the
Fed's securities portfolio will settle
higher than market participants
had expected a few months ago.
The European Central Bank
(ECB) expects to leave its policy
rate unchanged until at least the
end of 2019, three months later
than previously signaled. This
reflects noticeable downward revisions by the ECB to its near-term economic
growth and inflation forecasts, and its view that risks are tilted to the downside.
Market pricing is broadly consistent with this policy guidance. The ECB
confirmed without sharing details the third series of lending operations to
eurozone area banks on favorable terms, beginning in September 2019.
The Bank of Japan (BoJ) continues to provide monetary stimulus by
maintaining very low interest rates and expanding its balance sheet. At its April
2019 meeting, the BoJ stated that it expects to leave its policy settings

5. unchanged until at least the second quarter of 2020. Market participants expect
the current policy stance to be maintained for an extended period. Inflation
forecasts have been consistently revised lower during the past year, with
inflation now expected to reach 1.3% by 2020 compared with expectations of
1.8% a year ago (and against a target of 2%).
Bank of England (BoE) officials continue to point to the outcome of Brexit
as a significant source of uncertainty, noting that it is likely to shape the next
move in the BoE's policy rate, which could be either up or down. Market
participants expect that the BoE’s benchmark rate will be increased during mid-
2021, a little later than previously expected.
Some central banks have signaled a more accommodative outlook for
policy settings, citing the weaker outlook for growth and downside risks. The
Bank of Canada (BoC) stated that its monetary policy settings are expected to
remain more accommodative than previously anticipated. Market pricing
suggests that its benchmark interest rate will remain unchanged for some time.
The Reserve Bank of New Zealand (RBNZ) is busy lowering its interest rates
and the market pricing suggests that the policy rate is expected to be lowered
again by early next year.
Global growth
is projected to ease
further from 3.4% in
2019 to 3.3% in
2020. It has been
revised downwards
in almost all G20
economies, with
particularly large
revisions in the euro
area for both 2019

6. and 2020, driven by weakness in Germany and Italy, but also in the UK, Canada
and Turkey.
The continued uncertainty
about trade policies remains a
significant drag to global
investment, jobs and, ultimately,
living standards. Even if the United
States and China conclude a trade
agreement, new restrictions may be
put in place in specific trade-
sensitive sectors. The White House
and China view themselves as
aggressive rivals fighting for global influence and geopolitical power.
Although a trade deal seemed at hand in recent weeks, Trump
administration officials have accused China of reneging on agreements that had
been made over months of negotiations. In order to press Beijing to return to
its previous commitments, Washington raised tariffs on Chinese products of
$200 billion worth from 10% to 25%. China announced immediately that it
would retaliate. The threats of escalation and of likely retaliation will increase
investors’ uncertainty and risks. The President Trump administration’s abrupt
Chinese tariff hike raise strong doubts on whether the world’s two largest
economies can reach a deal to quell their escalating trade war in the coming
weeks. President Trump tweeted that his relationship with Chinese President Xi
Jinping “remains a very strong one" and “there is absolutely no need to rush.”

7. There is considerable
uncertainty about the extent of China’s
slowdown. The government has put in
place sizeable monetary and fiscal
stimulus, including tax cuts and
infrastructure investment. However,
the long-term results are still far.
Meanwhile, corporate sector
indebtedness is at very high level,
posing risks to financial stability. China
has significantly contributed to global growth for the past two decades.
Countries in East Asia could be particularly hard hit by a slowdown in Chinese
demand growth. Reduced demand in China would also affect global confidence,
particularly in the advanced economies. Overall, taking direct trade and
confidence effects into account, the simulations suggest that a decline of 2%
in the growth rate of demand in China for two years would lower global GDP
growth by over 0.5% in the first year already.
In Europe
further weakness
coming from China,
Germany, Italy and
the United Kingdom
could quickly spread
to other European
economies, given
the importance of
trade links across
the EU: EU countries trade more between themselves than with the rest of the
world, and very often goods or services are produced across several countries.
In the eurozone area, where most credit to firms is distributed through banks,
the weakness could be aggravated if sovereign yield increased, raising banks’

8. funding costs and in turn reducing credit supply, dampening investment and
consumption, and ultimately jobs. Taking advantage of accommodative
monetary conditions, eurozone area governments should coordinate fiscal and
structural policies to revive growth both in the short and medium term. A
moderate fiscal stimulus targeted at public investment, would lift growth during
the time it takes for structural reforms to deliver their full effect. On the
structural front, there is ample scope for reforms to encourage innovation and
business dynamic in Europe by streamlining permits and licenses, improving
the transparency of regulation and reducing barriers for entry in network
industries, professional services and retail sector. The co-ordinated fiscal and
structural policy action would also benefit workers and give a necessary boost
to wages.
Brexit is an immediate downside risk. Since the Brexit referendum it was
already seen a clear dent in the growth rate of investment in the UK. According
to the OECD's estimations, it could amount to 2% of GDP for the United
Kingdom
by 2020
already.
By 2020,
the UK
GDP
reduction
would be
over 3%,
equivalent
to a cost per household of GBP 2200 (in today’s prices). The labour productivity
would be held back by a drop in foreign direct investment and a smaller pool
of skilled workers. By 2030, a scenario suggested that GDP reduction would be
over 5% – with the cost of Brexit equivalent to GBP 3200 per household (in
today’s prices). Brexit would also hold back GDP growth in other European
economies, particularly in the near term resulting to heightened uncertainty

9. which could affect the future of Europe. In contrast, if the UK remained a
member of the European Union and further reforms of the Single Market would
enhance living standards on both sides.
A sharper-than-expected
slowdown in global growth
could trigger corporate bonds
downgrades or even defaults.
The outstanding stock of
corporate bonds at the end of
2018 was twice that of 2008 in
real terms (approximately USD
13 trillion). The quality of
outstanding debt has
continued to decline, and there are signs that corporate earnings growth has
begun to slow. Significant bond repayments are also due in emerging-market
economies in the next three years, especially in China.
The yields of long-term government bonds have declined to be near
historically low levels. In Germany and Japan, long-term yields are again close
to the record low levels seen in 2016. The declines in bond yields since late last
year have reflected a noticeable fall in real yields and lower inflation
compensation. This is consistent with the downward revisions to
macroeconomic projections by central banks and market participants, and the
lowering of policy rate expectations. In addition, term premiums – the
compensation that investors demand for the additional risk of holding long-
term rather than short-term bonds – have declined reaching record low levels.

10. EXCHANGE RATES % APRIL % YTD INDICES % APRIL % YTD
EUR/USD -0.03% -1.95% EURO STOXX 4.86% 17.10%
USD/JPY 0.51% 1.07% S&P 500 3.93% 17.51%
GBP/USD -0.02% 2.69% DJ 2.56% 14.00%
USD/CHF 1.11% 2.45% NIKKEI 4.97% 11.21%
USD/CAD 0.29% -1.83% DAX 7.10% 16.91%
EUR/JPG 0.54% -0.64% FTSE MIB 2.80% 19.41%
EUR/GBP -0.02% -4.29% FTSE 100 1.91% 10.26%
YIELDS % APRIL % YTD COMMODITIES % APRIL % YTD
10Y T BOND 0.10% -0.13% OIL (BRENT) 6.45% 35.32%
10Y BUND 0.08% -0.14% OIL (WTI) 6.27% 40.74%
10Y BOND 0.08% -0.03% GOLD -0.68% 0.08%
Images Source: Bloomberg

11. Let us help you find the best
investment opportunities for you.
IMPORTANT INFORMATION
Quantic is a trading name of AFX Capital Markets Ltd, an investment firm,
authorized and regulated by the Cyprus Securities Exchange Commission
(CySEC), license no. 119/10 and registration no. 253014
RISK WARNING
CFDs are leveraged instruments and carry a high degree of risk to your
capital and may not be suitable for all investors. The value of investments
and the income from them can go down as well as up and you may not
recover the amount of your original investment. Past performance is no
guarantee of future success. Seek independent financial advice if necessary.
If you are unsure of the risks involved in trading CFDs, or if you do not
understand the risks, you should seek independent professional financial
advice before making any investment decisions.

12. LEGAL DISCLOSURE
The direct investing service doesn’t give personal advice on investments. Tax
rules can change in future. Their effects on you will depend on your individual
circumstances.
Any views, opinions, estimates, forecasts, and statements of financial market
trends that are based on current market conditions, constitute the judgement
of the portfolio manager and are subject to change without notice. Any
disclosure, reproduction, distribution or other use of this information by an
individual or entity, without previous written authorization by AFX Capital
Markets Ltd, is strictly prohibited.
The address for AFX Capital Markets Ltd is Arch. Kyprianou 2 & Ayiou
Andreou, G.Pavlides Building, 3rd Floor, 3036 Limassol, Cyprus. We provide
portfolio management services to the remainder of the EU under the MiFID
Passporting Regime on a Cross-Border basis.
The content of this newsletter is for informational purposes only and under
no any circumstances can be considered to be a solicitation or an offer to sell
/ purchase the services offered by AFX Capital Markets Ltd.
This newsletter should not be regarded as a constituting investment, legal,
taxation, or any other type of advice. It has been prepared by a team of
professionals at AFX Capital Markets Ltd on the basis of the information
available at the time of writing. This document is perceived to be reliable and
it accurately reflects our team’s personal views. The company disclaims any
responsibility for the correctness and accuracy of this content.
Please note that the market review is copyrighted and proprietary, and all
rights are reserved. Any recording, rebroadcast or other use of this
presentation, in whole or in part, without the prior written consent of Quantic
is strictly prohibited.