WIXLIB

AgendaPart I Macro and Market ReviewPart II Short-Term Focus and Strategy11

ECBHighly Dovish ECB To Delay Rate Hike And Start New TLTRO ECB Meeting Pessimistic About Growth This Year: The meeting held rate unchanged but downgraded economicgrowth and inflation forecasts with 2019/2020 GDP growth rate downgraded to 1.1% and 1.3% respectively, and statedeconomic growth outlook still faced downside risk. In terms of forward guidance, it expects to maintain the low rateunchanged until ‘at least through the end of 2019’ (‘at least through the summer of 2019’ in prior meeting). Reinvestmentwas consistent with the prior meeting citing it would persist until a fairly long period after first rate hike. Provide Banking Liquidity, Boost Current Easing Policy: Implement quarterly TLTRO with each duration of 2 years,starting fro 2019/9 to 2021/3 to maintain the good lending environment. TLTRO between 2014 and 2017 would graduallymature after 2020/6. Without new round of low rate loans to banks, Italy and Spain financial institutions would be hit themost. As Draghi said, short-term Euro zone outlook was worse than expected so ECB stayed cautious to ‘increase theresilience of economy’, clearly turning dovish.ECB Downgraded Growth And Inflation ForecastItaly And Spain To Benefit From New TLTROSource: (L)ECB, 2019/3/7, (R)Bloomberg, 2018/11/312

EUR StrategyECB More Dovish Than Expected, EUR To Maintain Weakness In 1H19 EUR Plunged After ECB Meeting: ECB was more dovish than market expected. Though we previously believe EUR toconsolidate at low in 1H19, but 1% depreciation of EUR after meeting was still weaker than our expectation. As EUR is theheaviest weighted currency in DXY(57%), it boosted DXY to close at 97.67, rising to Dec high intraday. EUR To Maintain Weakness In 1H19: ECB new round of TLTRO was within market expectation. It was mainly to solveinterbank credit and liquidity issue instead of massive easing. According to Goldman Sachs analysis, monetary easingwould be negative to EUR but credit improving policy would actually be positive to EUR. The real reason for EUR plungewas a more dovish ECB than market expected. Besides amending to keep the low rate ‘at least through the summer of2019’ to ‘at least through the end of 2019’ in the forward guidance, more importantly ECB slashed economic growthforecast with 2019 from 1.7% to 1.1% and large downgrade in 2020. Economic outlook concerns increased financialmarket volatility, leading EUR to breach the lower end of consolidation range. Without real improvement in global economy,we hold 1H19 EUR weakness, USD strength. 2H19 EUR recovery relies on the effect of China/Eurozone stimulus policy.EUR Breached Range Low After ECB MeetingWeak EUR Not From TLTRO But Outlook ConcernMonetary EasingImpact On EURImproving CreditPolicy ImpactOn EURSource: (L)Bloomberg, 2019/3/8, (R)Goldman Sachs, 2019/2/2813

Rate StrategyOutlook Concern And Delayed Rate Hike, Cut Germany 10Y Yield TargetGermany 10-yr Treasury VoluntaryReason: ECB has set the dovish tone. As weakmanufacturing is one of the three major risks, PMI fellbelow 50 indicated it would take time to confirm outlookbottoming out. Germany treasury yield was still underpressure in the short-term so we downgrade 1Q19 and2Q19 target price to 0.30% and 0.35% respectively.Improved Employment Bright Spot In Feb PMI Euro Zone PMI Deteriorated: Fed composite PMI finalrose to 51.9 but manufacturing fell to 49.3. New ordersand new export orders were both underperforming inmanufacturing, but improvement in employment indexcould help Euro Zone to avoid recession. Outlook Risks Downward, Rate Hike Delay: Draghimentioned three major risks and stated relevant outlookfactors could ‘stay in a longer time’. Conclusion:maintain the low rate until end of 2019 and implementTLTRO. Major countries’ treasury yield fell significantly.Slowing Outlook Not Recession, Cautious ECBSource: (L)IHS Markit, 2019/2/1, (R)Bloomberg, 2018/7/21 2019/3/714

Rate StrategyBOE Turned Dovish, Benchmark Yield Would Be At Low BOE Turned Dovish, Yield Cliff Fell: BOE governorCarney stated the “fog of Brexit” was creating a seriesof tensions in the economy so BOE downgraded2019/2020 GDP growth forecast to 1.2% and 1.5%,lowest in 10 years, widely interpreted as a dovish BOE. Falling Inflation: Due to falling oil price in 4Q, Janinflation fell to 1.8%, first time in 2 years to fall belowBOE’s 2% target. In the N6M, with lower energy priceand weaker pound, inflation might not hit BOE target ofaverage 2.2% set last year.GILT 10-yr VoluntaryReason: BOE turned dovish so investors furtherdelayed the expected rate hike, depressing treasuryyield. Brexit vote was extended to 3/12, increasing therisk of no deal Brexit shock. Considering outlook andinflation stable, we downgrade 1Q19/2Q19 target to1.35%.BOE Slashed GDP ForecastGILT 10-yr Yield Fell After Dovish BOEBrexit UncertaintyTriggered BOE toSlash The GDPGrowth ForecastFor 2019/2020Source: (L)Goldman Sachs, 2019/2/7, (R)Bloomberg, 2018/8/24 2019/3/7

Rate StrategySouth Africa Inflation Surprisingly Fell, SARB Rate Hike Unlikely Jan Inflation Surprisingly Fell Below 4.5% Target:Jan inflation fell from prior 4.5% to 4%, much lower thanmarket consensus of 4.3%, mainly due to food andtransportation price slide. Fuel prices such as crude oilhave fallen to ease inflationary pressure. Weak Outlook Does Not Support Rate Hike: Asleading indicator has fallen slightly, South Africa outlookwas not very optimistic. With 2019 budget bailout ofEskom ruled out other infrastructure investment andelectricity shortage due to strike, outlook was dim.SARB Policy oluntaryReason: Expect weak oil price would lower petroleumprice in SA to 10-month low. Without major depreciationin ZAR, import price inflation was contained. SARBwould be less concern about inflation so we downgradethe rate target to remove the prior one hike expected.We think SARB would maintain 6.75% unchanged.Leading Indicator Fell, Uncertain OutlookRecent Low Inflation Hit Mar Rate Hike Chance110Transportation PriceFall led Dec CPIYOY to go lowerLeading108106104102100989694Source: (L)JP Morgan, 2019/2/23, (R)Bloomberg, 2016/2 16/12/12016/10/12016/8/12016/6/12016/4/12016/2/192

BOJHardly Any Move In Mar BOJ, Apr Meeting Crucial Japan Manufacturing Outlook Still Unclear: Japan Jan export fell 5.3% MOM, the largest fall since Sep 18. Jan industrialproduction fell 4.3% while Feb manufacturing PMI fell to 48.9. Though Japan manufacturing momentum continues to beweak, domestic related outlook was relatively stable with Fed services PMI returning to 52.3. Hardly Any Move In Mar BOJ, Apr Meeting Crucial: Considering the mixed Japan outlook and current levels of JPY and10-yr JGB yield, we think BOJ Mar meeting would not have large changes. But Apr BOJ meeting would be more importantas BOJ would release yearly economic outlook forecast up to 2021. If global outlook does not improve with major centralbanks continue to be dovish, we think BOJ might change its attitude towards easing. Though the benchmark rate is likely tobe held, BOJ might increase the bond purchase program to lower the yield.Jan Japan Manufacturing data Were WeakJapan 10-yr Treasury Yield At The LowJapan 10-yr Treasury Yield Returned ToPositive, Expect Consolidation At LowSource: (L)Nomura, 2005/01 2019/01, (R)Bloomberg, 2018/03 2019/0317

US Equity Strategy2800 Resistance Breakthrough Requires Multiple Factors US Equity Reflected Dovish Fed And Lower Trade Risk: USequity has rallied 11% YTD with P/E ratio returning to long-termaverage, reflecting the dovish Fed and lower trade risk. Marketrumored trade deal to sign on 3/27, expect diminishing impact.US Equity Faces 2800 Resistance, Breakthrough RequiresMultiple Factors: S&P500 has challenged and failed to breakthrough 2800 since Aug 18. While it approaches 2800 again, wethink, in the Mar windows period of financial results, further rallyrequires US economy to bottom out, automotive trade deal toprogress, Fed to confirm the end of QT. Any of the above newscould trigger market volatility.US Equity Reflected Dovish Fed/Sino-US TalkMonitoring FactorsMarket ReactionFed Turning DovishUpwardOptimistic Sino-US TalkUpwardCorporate EarningsConfidenceNeutralUS Economy Bottom-outNeutralFundamentalDownwardUS Equity Fund Outflow YTDUS Equity Faces 2800 Resistance HurdleUnit: Mil USDResistance: 2800200DMARSI (14D) 70 Overbought 30 OversoldSource: (L)Bloomberg, 2019/3/4, (R)EPFR, 2019/3/4, Compiled by CTBC Bank18

Energy StrategyGeopolitics Affects 2Q19 Oil Price And Energy Sector 1Q19 Crude Oil Balanced: Saudi planned to further cuts in Mar but Russia planned to accelerate its behind schedulecuts in end of Mar/Apr while US production and inventory rose. Overall we maintain 1Q19 Brent 66/barrel target. Expect 2Q19 Oversupply Narrows: 1. Venezuela sanction cuts its output, 2. US oil rig count 1Q19 fell, negative toupstream equipment sector, delaying 2Q19 US oil production, 3. US to maintain current waiver of Iranian oil in May, 4.Expect OPEC only to respond to Trump oil policy in amending output cut in Jun. With 3Q19 demand recovery, weexpect OPEC to shrink output cut with Brent in 60 70/barrel in 2Q19. Sino-US Deal Increases US Oil/Gas Purchase Benefits Energy Sector In 2H19: Sources of China crude oil importwere dispersed from Russia (15%), Saudi(11%), Iraq and Angola. US crude export average 1900k barrel/day last yearwith 250k to China. With rising US oil output and export, if China boosts US purchase, 2H19 premium between Brentand WTI could reduce from 10 to 6. China LNG import is 60% of total gas import, mainly from Australia, Qatar andMalaysia totaling 72% and only 4% from US. Higher purchase will benefit US Integrated Energy Producers.2Q19 Oil Price Affected By US, OPEC US Waiver Of Iranian Oil Scenario AnalysisMaintainCurrentWaiverIf Brent is above 65/barrel in early May, US islikely to maintain the current waiver, 2Q19 Brenttarget would be 66/barrelCutWaiverIf Iran oil export reduces 150k-250k barrels/day,oil price could rise 2/barrelTotalBanIf Iran oil export reduces 500k barrels/day, oilprice could rise 5/barrelSource: Bloomberg, 2019/3/6, Compiled by CTBC Bank, 2019/3/619

Target PriceTarget Price – Rates/FISource: Compiled by CTBC Bank, 2019/3/8: TP Adjustment20

Target PriceTarget Price - EquitySource: Compiled by CTBC Bank, 2019/3/8: TP Adjustment21

Target PriceTarget Price – FX/CommoditySource: Compiled by CTBC Bank, 2019/3/8: TP Adjustment22

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NPC/CPPCC 2019 Policies And Targets In Line With Expectation 7 2019 Government Work Report, Fiscal Policy At Focus: In 2019/3/5 NPC, Primer Li downgraded China 2019 GDP growth target to 6% 6.5% in the government work report, in line with market expectation. We think 2019 6% would be the bottom line for economic growth.