摩根-10月投資策略

GlobalEquityStrategy

3rdOctober2022

EquityStrategy

PrabhavBhadani,CFA

(44-20)7742-4404

prabhav.bhadani@

J.P.MorganSecuritiesplc

NityaSaldanha,CFA

(4420)77429986

nitya.saldanha@

J.P.MorganSecuritiesplc

MislavMatejka,CFAAC

(4420)71349741

mislav.matejka@

J.P.MorganSecuritiesplc

KarishmaManpuria,CFA

(9122)61574115

karishma.manpuria@

J.P.MorganIndiaPrivateLimited

AnamilKochar,CFA

anamil.kochar@

J.P.MorganIndiaPrivateLimited

Seetheendpagesofthispresentationforanalystcertificationandimportantdisclosures.

J.P.Morgandoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.

TableofContents

EquityOutlook……………………..

KeyDrivers

1.Activityweaknessishere,butmostareexpectingthisbynow…

protracteddownturn,orabalancesheetrecession,isunlikely

2.Bondyieldsarelookingoversoldnow,andFedmightnotneedto

deliveronalreadypricedinhawkishnesstoachievetheiraims…..………...

3.Earningstoholdupbetterthaninpastrecessions………...……….…...

4.InternationalP/Esarebelowaverage,evenwithhandicapped

earnings…USisrelativelylessattractive………………

5.Sentimentindicatorsarenearrecordlows………………...…………..…

Keydriversofpositioning:1.Bondyields–CyclicalsandFinancialsshow

astrongpositive,andcruciallycoincident,correlationtoyields……………...

2.USDdirectionmattersforregionalcalls,inparticularforEMequities,

andforcommodities…equitiestypicallypreferredfallingUSD……………….

RegionalAllocation

EM……….………………...……..…………………..………….

Eurozone……..……...…...……………..………

UK……………..……………….…………….

Japan…………...………..………..………….

US……………..……..………

RestoftheWorld……………..………………..

RegionalandAssetAllocation,withIndextargets…………….

ThemesandBaskets…………..…………..……

2

3

14

30

37

48

52

55

65

67

79

93

104

111

115

116

117

SectorAllocation

141

Energy

142

Materials

145

Industrials

151

Discretionary

154

Staples

158

Healthcare

159

Financials

161

RealEstate

169

Technology

171

CommunicationServices

174

Utilities

176

TechnicalIndicators

179

EquityFlows

183

SectorValuations

184

Bondsareoversold,yieldsarelikelytogetcappedbypeakinginflation,peakinginflationexpectations,aswellasbyactivityweakness…

?Wearguedlastweekthatbondsarelikelybecomingoversold,asFedandinflationsentimenthavemovedtoextremes.Webelievethatwearealreadystartingadisinflationphase,asinflationremainsalaggingindicatorofgrowth.Moreconcretesignsofpeakinginflation,aswellasofthepeakinginflationexpectations,andfinallytheweaknessinactivityallsuggestbondyieldsshouldbecappedgoingforward–seepages6-12.ThisisdrivingourcallfromlastweektolookforareboundintheGrowthstyle-Tech.

?Ontheactivityside,realM1,ourleadindicator,keepspointingtofurtherPMIsoftness–page15.Earningshavebeenveryresilient,butarelikelytofinallyshowarolloverinQ3.Here,wethinkthattheactivityresetiswhatinvestorsneedtoseeinordertostartlookingthrough,“baddatamightbeseenasgood”.Inaddition,whileneartermisstayingchallenging,thebacktestofISMneworders/inventoriesratiofromtheselevelshashistoricallyalmostalwaysseenmeaningfullyhighermarketsoverthenext12months.Theoneexceptionwas1973,butthenFedfundsmovedtodoubledigitterritory,somethingwhichwebelievewewillstayfarfromthistimearound.Overall:

?1)Activitymomentumislikelytostayweaknearterm,butadeepretrenchment,oraprolongedperiodofbalancesheetadjustment,isunlikely,inourview.Housepricesarelikelytolevelofffromhighs,butnotfallmuch.Strongbanksbalancesheetswillhelpkeepcreditflowing.Labourmarketissettoweaken,butwillremainresilientinthelongertermcontext.Eurozonegaspriceslikelyhavetwowayriskfromhere,notjusttheupsiderisk.JPMassessmentisthatevenwithzerosupplyfromRussiagoingforward,therewillnotbeaneedforoutages,andundernormalwinterconditions,attheworstpointthegasstoragewillstillbeat30%+fullthiswinter.TheChineseactivityhurdleratefromhereisveryeasy.

?2)MoneymarketsarepricingFedterminalrateat4.6%,butthatmightnotbedeliveredonintheend,andmightnotneedtobedeliveredoninorderforFedtoachievetheiraims.Asactivitysoftenstowardscontraction,Fedislikelytobecomemoredatadependent.USDisat20-25yearhighs,andisnowabovethelevelsimpliedbyregionalratedifferentials–page35.

?3)Europeanearningsrevisionsarestayingstubbornlyinpositiveterritory,andhaveopenedupagapwithweakeningPMIs–page38.Thisisunprecedented,butcouldcontinuetoalargeextent.Ourviewisthatearningswillseeweakness,recessionisourbasecase,buttheyshouldholdupmuchbetterthistimearoundthanduringpastdownturns.Ourlatestprojectionsarefor10%fallinEuropeanEPSin2023–page40.

?4)Internationalequitieshavederatedtoadiscounttohistoricalaverages,at9-11xforwardP/Es,andstilloffersignificantcushionvsbondyields–page48,whichalsoremainmeaningfullybelowtheirlongtermaverages,barUK.Evenwithearningsrepricing,theinternationalequitymultiplesarenotdemanding.USisrelativelylessattractiveinthisrespect.

?5)Sentimentmetricsareatrecordlows,andpositioningappearsverylight.SeasonalsturnmuchmorefavourableinOct-Decperiod.

3

…UKremainsaregionalOW,givenextremevaluationdiscount,aswellasatailwindforexportersfromweakFX…keepOWFTSE100vsFTSE250…

?Bigpicture,welookedforregionalconvergencethisyear.WhileFXmovesareverysignificant,andUSDreturnsremainrelativelystrongerfortheUS,wecontinuetobelievethatinlocalcurrencytermsInternationalequitieswillbetradinglesspoorlythantheUS.Theonsetofgeopoliticalvolatilityweakenedtherisk-rewardforEurozoneinparticular,butwethinkthefundamentalcaseforregionalconvergenceremains.

?OWUK.WedonotthinkthepositiverelativecaseforlargecapUKstockshaschanged,despitetheunhelpfulfiscaldevelopmentsinthepastfewweeks.LastNovemberweupgradedUKtoOW,after6yearsofacautiousstance,takingadvantageofitsprolongedunderperformance.TheUKisstilltradingatarecorddiscountvsotherregions,itoffersthehighestdividendyieldglobally,andexportersbenefitsignificantlyfromweakGBP.WebelievethatBoEwillbesuccessfulinstabilisingtheUKbondmarketvolatility.WithinUK,weheldOWFTSE100vsFTSE250pairtradeoverthepastyear,andstillbelievethistradeshouldbeactive.

?EMremainshostagetoUSD,andtopoorChinasentiment.TheinvestorbearishnessonChinaisverysignificant,butonthepositivesideChinamarkethasdonepoorlyeversinceFebruary2021,theregulatoryuncertaintyappearstobereducing,thebigtailriskofzeroCOVIDlockdownsisintheopen,withsomeeasinginrestrictionslikely,especiallyastheupcomingpartycongressmovesbehindus,thereisaprobablefurtherstimulusahead,withacceleratingM2,andtheactivityhurdlerateintoyearendisexceptionallyeasy.

?Eurozoneremainsintheshadowofgeopolitics.WeacknowledgethatourfundamentalconstructivestanceonEurozoneisunlikelytoworkaslongasRussia-Ukraineheadlinesdominatethenarrative,withpotentialforfurthersignificantescalationnotinsignificant,butwebelievethatEurozonescreensattractive.OnP/Erelativemetric,EurozoneistradingatarecorddiscounttotheUS.WethinkthatECBwillbesuccessfulinkeepingperipheralspreadsundercontrol.WithinEurozone,wepreferdomesticplaystoexporters,andperipherytocore.

?NeutralJapan,butlookingincreasinglyattractive.Japanislikelytoperformbetterintoyearend,asreopeninggainstraction,andastheshifttogrowthfocusbypolicymakersisrealised.WebelieveamoveawayfromYCCisalsoneededformorefavourablesentimentonJapantosustain,whichcouldbeforthcoming.AweakYenistypicallyatailwindforJapanesestocks,butdilutestheperformanceinthecommoncurrency.

?NeutralUS.TheUSistradingatrelativeP/EandEPShighs,butshouldbeactingasasafehavenduringtheextremesofthegeopoliticaluncertainty.

?UWpartsofRoW,focusedonSwitzerland,HKandNewZealand.

4

…whileValuewasourkeyOWenteringtheyear,wecalledlastweekfora

renewedtacticalbounceinGrowthstyle,andTechinparticular

?OurfundamentalpositioningenteringtheyearwastobelongValuevsGrowth.PartsofGrowthhavedoneverypoorlyinthepast12months,asyieldsrepriced–page59,andhavederated.Wedonotseetheconvergencetradeasoverlongerterm,butafterValuehadanotherstrongspellinAug/Sept–seepage60,wethinkthatGrowthstylecanpickupagain,andTechsectorinparticular.Thisisespeciallyifyieldsdonotmovefurtherhigherfromhere.

?PartsofValueremainafundamentalbuy,inparticulartheBanks,butweacknowledgethatBanksarenotlikelytoperformaslongasgeopoliticsisdominating,andwhilebondyieldsarestalling.Fundamentallythough,BanksareseeingimprovingNIMs,andalreadyshowasubstantialgaptheyopenedupwithbondyields–page164.Theystilllookverycheap,on0.5xP/B,theirbalancesheetsareresilientthistimearound,withnoneedfordilution,evenifprovisioningincreases.Dividendsarereturningtothesectorwithahealthy,andwellcovered,6.1%yield.RussiaexposureappearslimitedintermsofitsimpactonBanks’capitalbase.

?WeupgradedEnergylastAugust,givenits20%underperformanceduringthesummerof‘21–page142,andthesectorhadaverystrongrunoverthepastyear.Shortterm,therecouldbetacticalprofittakinginthesector,asreturnshavebeenfrontloaded,andasBrenthasstalled.MininghadaweakerrecentspellonChinaconcerns,butwethinkChinastimuluswillrampup,andironorepricescouldstabiliseintoseasonallystrongerOct-Febperiod;westayOW.

?Consumerexposurehasalsobeenhitbygeopoliticsandbypurchasingpowersqueeze,butwefinditfundamentallyattractive,givenresilientconsumerbalancesheets.WeareOWAutosandTravel.

?WeheldanOWTechin2020,aswellasthewholeof2019,buttookprofitsinHardwareandSoftwareatthestartofNovember‘20.WecontinuetobelievethatTechfundamentalsaresupportive,throughstrongbalancesheets,significantbuybacksandstructuraltailwinds,makingthisaverydifferentsetupto2001,buttherelativeoutperformancewasdramaticandthecyclicalbackdropforTechislesspositive,especiallyifrealratesarerising–seepages171-173.Tacticallythough,weadvisetobuySemisandPayments,posttheir50%weakness.

?WeareUWtraditionalDefensives,whichshouldnothavelegstotheirbouncebeyondthegeopoliticaldislocation–RealEstate,StaplesandHealthcare,onstretchedvaluations,mixedearningsdelivery,andlikelynotasharshearningsrecessionfortherestofthemarket,butareOWDefensiveValuesector–Telecoms.

?Outofkeythemes,wehighlight:beneficiariesofthelikelyeasinginsupplychaindislocations–JPDEUSC,Winnersfromtheretooling/decarbonisationofEuropeanIndustry/Structures–JPDEURTL,EMplays–JPDEEMEX,andWinnersandlosersofrisingbondyields–JPDERBYBandJPDERBYL.

5

Growth-Policytrade-offislikelytoimproveaswemoveintoyearend…bondsarenowoversold…

?Sofarytd,equitiesenduredachallengingtrade-off,astheactivityoutlookwasdowngraded,whileatthesametimecentralbanksrateprojectionswererevisedmeaningfullyhigher.Intoyearendwebelievethereislikelytobesomeeasingintheseheadwinds.Bondyieldshadasignificantmovehigheroverthepastyear,pressuringequityvaluations,butwenotebondsappearoversoldnow.

MoveinFedFundsfuturesandUSFRIytd

450

400

350

300

250

200

150

100

50

90.0

89.5

89.0

88.5

88.0

87.5

87.0

86.5

Jan-22Feb-22Mar-22Apr-22May-22Jun-22Jul-22Aug-22Sep-22Oct-22

Fedfundsfutures-Dec'22(bp)JPMUSFRI,rhs

Source:BloombergFinanceL.P.

US10Yand2YBondRSI

80

70

60

50

40

30

20

10

Oct21

Apr21

Jul21

Jan21

Apr22

Jul22

Jan22

US2YbondRSI

3070

US10YbondRSI

Source:BloombergFinanceL.P.

6

…inflationwilllikelyshowmoreconcretesignsofrollingover…

?Inflationisstillsettomovemateriallylower.WedonotbelievethattherecentincreasedFedhawkishnessshouldbeextrapolated.Gasolinepriceshavemoveddown,andremaintiedtotheheadlineCPI,asdoesBrent.

USCPIandAverageGasolineprice($/gallon)

8%

6%

4%

2%

0%

-2%

50%

30%

10%

-10%

-30%

-50%

0607080910111213141516171819202122

USCPI,%y/yUSAverageGasolineprice($/gallon),%y/y-rhs

USgasolineprice

5.5

5.3

5.1

4.9

4.7

4.5

4.3

4.1

3.9

3.7

3.5

Jan-22Feb-22Mar-22Apr-22May-22Jun-22Jul-22Aug-22Sep-22

USaveragegasolineprice($/gallon)

Source:BloombergFinanceL.P.

USheadlineCPIvsBrent*

130%

110%

90%

70%

50%

30%

10%

-10%

-30%

-50%

-70%

060708091011121314151617181920212223

Brent,%yoyUSCPI%yoy-(rhs)

8%

7%

6%

5%

4%

3%

2%

1%

0%

-1%

Source:BloombergFinanceL.P.

Source:BloombergFinanceL.P.,JPMorgan,*assumingJPMforecasts

7

7.8%

6.8%

5.8%

4.8%

3.8%

2.8%

1.8%

…inflationexpectationsarepeaking…

EuroArea:consumerpricetrendsovernext12months

60

50

40

30

20

10

0

-10

85899397010509131721

Euroarea-Consumerpricetrendsovernext12m,%balance

Source:E.C.,J.P.Morgan

US,EurozoneandUKinflationforwards

4.5%

4.0%

3.5%

3.0%

2.5%

2.0%

1.5%

1.0%

151617

1819

20

21

22

0708091011121314

Eurozone

UK

US5Y5Yinflationforward

Source:BloombergFinanceL.P.

8

USexpectedinflation,consumersurveys

7%

6%

5%

4%

3%

2%

16171819202122

USexpectedinflation,NYFed1yahead(%oya,median)

NYFed3yahead

Umich5-10yahead

Umich1yahead

Source:Umich,FRBNY,J.P.Morgan

ZillowrentindexvsUScoreCPI–rentcomponent

20%

18%

16%

14%

12%

10%

8%

6%

4%

2%

0%

1617181920212223

Zillowobservedrentindex,%y/y(bfby6months)

USCPIUrbanConsumersOwnersEquivalentRentofResidencesy/y(rhs)

Source:BloombergFinanceL.P.

USManufacturingPMI–SuppliersDeliveryTimes

USlabourforceparticipationrate

…pricingindicatorsaremovingdown,andsupplydislocationsareeasing…perhapstheparticipationratecouldshowfurtherimprovement…

ContainershipsoutsidethePortsofLosAngeles/LongBeach

55

50

45

40

35

30

25

20

15

10

0709111315171921

USManufacturingPMI-SuppliersDeliveryTimesMedian

120

90

60

30

0

Jan20Apr20Jul20Oct20Jan21Apr21Jul21Oct21Jan22Apr22Jul22

ShipsatanchorandonapproachShipswithin25milesofport

Source:J.PMorganEconomicsResearch

Source:J.P.Morgan

NFIBsurvey-Planstoraisepricesinthenext3months

55

50

45

40

35

30

25

20

15

10

5

10111213141516171819202122

NFIB-Planstoraisepricesinnext3months

64.0

63.5

63.0

62.5

62.0

61.5

61.0

60.5

60.0

Jan-18Jul-18Jan-19Jul-19Jan-20Jul-20Jan-21Jul-21Jan-22Jul-22

USlabourforceparticipationrate,%

Source:J.P.Morgan

Source:BloombergFinanceL.P.

9

…inflationforwardsarenowcappedbytheoilprice,andaremovingdown…

USinflationforwardsandBrent

3.2%3.0%2.8%2.6%2.4%2.2%2.0%1.8%1.6%

111213141516171819202122

US5Y5YinflationforwardBrent($/bbl)-rhs

130

110

90

70

50

30

10

Source:BloombergFinanceL.P.

10

…thegapbetweenbreakevensandbondyieldsthatwasinforcefor2yearshasfullyclosed…

US10Ybreakevensand10Ybondyield

3.2%

2.4%

1.6%

0.8%

111213141516171819202122

US10YbreakevensUS10Ybondyield(rhs)

4.5%

4.0%

3.5%

3.0%

2.5%

2.0%

1.5%

1.0%

0.5%

Source:BloombergFinanceL.P.

11

5.1%

4.6%

4.1%

3.6%

3.1%

2.6%

2.1%

1.6%

1.1%

0.6%

…bondyieldsshouldalsobecappedfromherebyactivityweakness

USManufacturingPMIandbondyields

63

61

59

57

55

53

51

49

47

10111213141516171819202122

USManufacturingPMIUS10Ybondyield(rhs)

Source:BloombergFinanceL.P.

12

InAugustandSeptember,Value-FinancialsandCommodities-leadagain…weseethisasagoodentrypointforarenewedtacticalbounceinGrowthandTech

Stoxx600sectorsrelativeperformance

sincethestartofAugust

11.1%

10.1%

Banks

Insurance

8.9%

4.8%

3.1%

Energy

BasicResources

Auto&Parts

2.4%

1.0%

0.4%

Utilities

Travel&Leis

Food&Bev

0.0%

-0.5%

-1.5%

-1.9%-3.0%-3.1%

-3.1%

Chemicals

Pers&H/HGds

Con&Mat

Telecoms

-5.3%

-6.5%

-7.0%

Media

HealthCare

FinancialSvs

Industrials

Technology

Retail

-14.0%

RealEstate

-20%-15%-10%-5%0%5%10%15%

Stoxx600sectors'relativeperformancesince1stAug'22Source:BloombergFinanceL.P.*COB22ndSeptember‘22

USandEuropeanGrowthvsValue

105

100

95

90

85

80

75

?

Jan22Feb22Mar22Apr22May22Jun22Jul22Aug22Sep22

MSCIUSGrowthvsValueMSCIEuropeGrowthvsValue

Source:Datastream

MSCIUSandEuropeTechrelativeytd

102

100

98

96

94

92

90

100

95

90

85

80

75

Jan-22Feb-22Mar-22Apr-22May-22Jun-22Jul-22Aug-22Sep-22Oct-22

MSCIUSTechrelativeMSCIEuropeTechrelative(rhs)

Source:Datastream

13

JPMGDPforecasts,byregion

2021

RealGDP

%oya

2022E

2023E

UnitedStates

5.7

1.7

0.9

Eurozone

5.2

3.2

0.4

UnitedKingdom

7.4

3.4

0.3

Japan

1.7

1.6

1.5

EmergingMarkets

7.2

3.3

3.2

Global

5.9

2.7

1.8

10

0

-10

-20

-30

-40

-50

-60

Fundamentally:1)Aperiodofactivitycontractionisuponus,butitdoesn’tneedtobedeep,norprolonged…

?Thecurrentgeopoliticaldislocationandthesqueezeonconsumerincomeshasdentedwhatwouldotherwisehavebeenarecoveryyear,asCOVIDdislocationseased.

?Wearelikelytoembarkonaperiodofcontractionahead,butweareunlikelytohaveapainfulspellofbalancesheetadjustment,inourview.

J.P.MorganglobalmanufacturingPMI

JPMGlobalmanufacturingPMIsummary

Jan'22Feb'22Mar'22Apr'22May'22Jun'22Jul'22Aug'22

53.2

51.365.352.249.751.060.9

48.6

53.7

52.266.553.751.051.661.3

48.1

52.9

50.962.551.4

48.6

52.3

48.661.850.548.251.563.8

48.8

52.3

49.660.750.947.951.661.5

48.8

52.2

52.559.350.149.551.460.5

50.0

51.1

50.058.748.948.050.458.3

50.5

GlobalPMI

OutputFutureoutputNewordersExportordersEmployment

OutputpricesFingoodsinventory

50.3

49.450.456.7

50.5

Orders/Fin

goods1.071.121.061.041.041.000.970.95Source:J.P.Morgan

Source:BloombergFinanceL.P.,S&PGlobal

14

GoogleActivityIndexforDMcountries

Jan20Apr20Jul20Oct20Jan21Apr21Jul21

UK,GoogleActivityIndexGermany

Source:J.P.Morgan

Oct21Jan22Apr22Jul22

USCanada

…ourrealM1leadindicatorispointingtocontinuedPMIsweaknessahead…

?EurozoneM1,akeyleadindicator,ispointingtofurtherdownsidetoPMIs.MostclientswespeaktobelievePMIswillmovedeeperintocontractionterritory,andarereluctanttostepintothemarketuntilthismaterializes.Inasense,badnewsonthisfrontmightbeneededinordertostartlookingthrough.

EurozoneM1growth(deflatedbyHICP)vsPMI

62

57

52

47

42

37

32

27

989900010203040506070809101112131415161718192021222324

RecessionEurozoneCompositePMIM1,deflatedusingHICP,%y/y(broughtforwardby9m)

15

10

5

0

-5

-10

-15

Source:BloombergFinanceL.P.,S&PGlobal

15

Apr51

-1%

0%

8%

7%

Jun51

0%

7%

6%

11%

Jun56

5%

2%

0%

4%

Jul73

-1%

6%

-9%

-20%

Sep74

10%

3%

30%

27%

Apr80

4%

16%

30%

31%

Oct81

2%

-3%

-3%

12%

Oct08

-4%

-7%

-6%

21%

Dec08

-3%

-13%

6%

28%

Apr20

3%

16%

25%

50%

Jul22

11%

Average

Median

%positive

2%

2%

55%

3%

2%

60%

9%

6%

70%

17%

16%

90%

…h(huán)owever,otherleadindicatorsarelessnegative,suchasnominalM1and

orders/inventoriesratio…fromtheselevels,markettendedtobeup

?ThenominalM1,withoutCPIadjustment,showsnofurtherdownsidetoPMIs.

?TheneworderstoinventoriesratioforUSISMwasinJulynearthebottomofitshistoricalobservations,inthe2ndpercentileoverthelast70+years.Thissuggeststhatmeanreversionisincreasinglylikely.

?Historically,whenISMnewordertoinventoriesratiohitlevelssimilartothose,the12monthforwardreturnswerestronglypositiveoverthelast70+years.Onlyin1973equitiesweredown,butthenFedfundsmovedtodoubledigit.

SPXperformancewhenNewOrderstoInventorieshits0.84forthefirsttime

SPXPerformancewhenNewOrderstoinventorieshits0.84orbelowforthefirsttime

+1m

+3m

+6m

+12m

Source:BloombergFinanceL.P.*0.84

16

EurozonenominalM1growthvscompositePMI

62

57

52

47

42

37

32

27

989900010203040506070809101112131415161718192021222324

RecessionEurozoneCompositePMIM1,%y/y(broughtforwardby9m)

20

15

10

5

0

-5

-10

-15

Source:BloombergFinanceL.P.,S&PGlobal

ISMManufacturingNewOrderstoInventories

2.5

2.3

2.1

1.9

1.7

1.5

1.3

1.1

0.9

0.7

0.5

485358636873788388939803081318

ISMManufacturingNewOrderstoInventoriesMedian+1.5Stdev-1.5Stdev

Source:BloombergFinanceL.P

Gaspriceandavailabilityarethewildcards,butourcallisfornoshortages,andforlowergaspricefromhere

?Gasstorageshavebeenfillingaheadofexpectations,andJPMassessmentisthattherelikelywon’tbeaneedforoutages,evenifRussiansupplydoesn’tresume.

EUnaturalgasstorage,%full

100

90

80

70

60

50

40

30

20

10

0

1316191121151181211241271301331361

EUgasstorage-5-yearrange(in%)5-yearaverage20212022

Source:J.P.MorganCommoditiesResearch

EUnaturalgasprice

310

260

210

160

110

60

Jan22Feb22Mar22Apr22May22Jun22Jul22Aug22Sep22

EurozoneNaturalGasForwardPriceRussiainvadesUkraineNS1Closure

Source:BloombergFinanceL.P.

17

56

54

52

50

48

46

44

42

9%

4%

-1%

-4.0%

-6%

Postpartycongress,weexpectbetterChinadataflow,especiallyrelativetocurrentdownbeatprojections…baseeffectsaremucheasiernow…

?ThesentimentwithrespecttoChinaisverydownbeatthesedays.Wethinkthatpostthepartycongresssomerestrictionswillstarttoease,allowingbettertractionoftheeasingpolicy.

?Thehurdlerateisveryeasyfromhere.

Chinasteeldemand

20%

15%

10%

5%

0%

-5%

-10%

-15%

-20%

-25%

-30%

Mar-18Sep-18Mar-19Sep-19Mar-20Sep-20Mar-21Sep-21Mar-22

ChineseapparentsteeldemandYoYgrowth(%)

Source:J.P.MorganMetals&MiningResearch

18

ChinacompositePMI

Jan-21Apr-21Jul-21Oct-21