Research Sydney Open 16 April 2013 Global Macro Daily Falling commodity prices = lower inflation Market Insights and Events Global 4 • Despite risk premium considerations not favouring the USD currently, we expect North America 4 a stronger USD over the medium term, especially against low yielding currencies. Asia Pacific 5 EEMEA 5 This is supported by aggressive monetary policy easing in Japan and weak Latin America 5 economic prospects in the euro area and the UK, in contrast to stable growth in the US (see Focus below). The next 24 hours North America 6 • A sustained drop in commodity prices (particularly gold and crude) would be a Europe 6 major positive driver for India. We estimate that the current account balance Asia Pacific 6 could improve by nearly 1%. Full Story EEMEA 6 • Given the recent fall in global commodity prices and the Thai baht’s appreciation, Latin America 7 we have lowered our Thai inflation forecast for the year to 2.9%. Full Story Calendar 8 • The National Association of Home Builders (NAHB) index of home builder Contacts 9 sentiment declined to 42 in April. Full Story Elsewhere, the Empire State manufacturing index fell to 3.1 in April from 9.2 in March. Full Story • Chinese industrial production was softer than expected for the second consecutive month. Production of industrial goods declined in line with softer fixed investment. Full Story Meanwhile, Q1 GDP slowed to 7.7%y/y from 7.9% in Q4. Full Story • In Europe, we have updated our monthly inflation profiles taking into account the latest information available from last week's country releases. Full Story In the UK, March consumer and producer price data will be released on Tuesday. We have a slightly above-consensus forecast for CP (at 2.9%). • On Wednesday, we expect the UK MPC minutes to show the same vote split as in the March meeting. Full Story Focus FX risk premia or fundamentals? Aroop Chatterjee The FX markets have seen large moves over the past month. Whereas markets were range-trading for much of March, realized volatility in the major FX crosses (G4 currencies) has been distinctly higher in April. Are these moves driven by fundamentals or risk premia? We believe fundamentals – relative monetary policy and economic outlooks – have largely been responsible for these trends. Aggressive monetary policy easing in Japan and weak economic prospects in the euro area and the UK contrast with relatively stable growth in the US (despite the recent soft patch of economic data). As a result, we expect the recent USD strengthening trend against the rest of the G4 (low yielding currencies) to persist in the months ahead. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES STARTING AFTER PAGE 9 Barclays | Global Macro Daily FIGURE 1 FIGURE 2 EUR/USD spot versus risk-neutral fair value GBP/USD spot versus risk-neutral fair value 1.70 2.30 1.60 2.10 1.50 1.90 1.40 1.70 1.30 1.50 1.20 1.30 1.10 1.10 Jun-05 Jun-07 Jun-09 Jun-11 Jun-05 Jun-07 Jun-09 Jun-11 EURUSD spot EURUSD RNFV GBPUSD spot GBPUSD RNFV Source: Bloomberg, Haver Analytics, Barclays Research Source: Bloomberg, Haver Analytics, Barclays Research To investigate whether risk premia or fundamentals have been responsible for FX market movements, we need to be able to disentangle these over the short run – a difficult exercise, in our view. Although fair value models do exist for FX, these tend to be focused on establishing a level for the exchange rate over the medium term. Further, despite the fact that FX and asset prices (nominal interest rates, equities, commodities, etc.) can at times demonstrate strong relationships, these are rarely stable. The risk-neutral fair value Instead, we follow the work of Clarida (2012) 1, who shows that a structural relationship can be derived between nominal FX, national price levels and yields on long-term inflation- linked bonds. The structural relationship implies a “risk-neutral fair value” for the exchange rate based on the relative price of inflation linked bonds – the portion that is driven by fundamentals. Divergences between spot exchange rates and the risk-neutral fair value are then being driven by risk premia. Figures 1-3 show how the major USD-crosses compare with their risk-neutral fair value levels. By and large, the pictures are consistent with our qualitative views on the size and direction of risk premia in FX (the gap between the spot and risk-neutral fair value lines). The positive correlation between exchange rates and their risk-neutral fair values implies that market moves have followed fundamentals (Figure 4). Indeed, this correlation measure for EUR/USD has flipped to positive from being negative as recently as mid-March 2013. Fundamentals have become modestly USD positive Peripheral European issues have meant that EUR/USD has traded with a large negative risk premium since 2011. This risk premium has normalized since July 2012 as a result of the ECB’s actions and remained modest even though the flare-up in political risk, notably in Italy in addition to Cyprus, led to some modest widening in March. More importantly, the risk- neutral fair value for EUR/USD has declined about 3% over the past few months, reflecting the improved economic prospects in the US (the real yield differential has become more USD positive). 1 Clarida, Richard, “Get Real: Interpreting Nominal Exchange Rate Fluctuations,” International Journal of Central Banking, 2009. 16 April 2013 2 Barclays | Global Macro Daily FIGURE 3 FIGURE 4 USD/JPY spot versus risk-neutral fair value 60-day correlation of exchange rates and their risk-neutral fair values 135 80 125 60 40 115 20 105 0 95 -20 85 -40 75 -60 Jun-05 Jun-07 Jun-09 Jun-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 USDJPY spot USDJPY RNFV EURUSD GBPUSD USDJPY Source: Bloomberg, Haver Analytics, Barclays Research Source: Bloomberg, Haver Analytics, Barclays Research Negative risk premia have been persistently weighing on GBP/USD since the global financial crisis. Although the risk premia have become smaller recently, this has happened largely on account of a decline in the risk-neutral fair value instead of an appreciation in the GBP/USD spot rate. The tolerance of higher inflation by the BoE/Treasury has made real yield differentials less favourable for the GBP versus the USD. Figure 3 shows that USD/JPY has traded close to its risk-neutral fair value until November 2012. Indeed the BoJ’s unanticipated easing has now pushed the risk premium in USD/JPY to extremely positive levels (more than 2 standard deviations above the risk-neutral level). We would expect the higher risk premium to continue to build in the cross as the currency overshoots. However, it also suggests that further USD/JPY upside may remain limited unless relative fundamentals begin catching up – if real yields in Japan fall further as the BoJ easing continues and the US economy is able to emerge from its soft patch. 16 April 2013 3 Barclays | Global Macro Daily MARKET INSIGHTS AND EVENTS Global Trend for global auto registrations should continue to support global IP Julian Callow, Tal Shapsa We find that moderate trend growth in global auto registrations continues, although this has been highly dependent upon growth in Chinese registrations. Within advanced economies, the pace of US auto registrations has become a little flatter in recent months, which would not be surprising, given the significant tax increases on 1 January. Euro area auto registrations appear to be bottoming out, helped by improvement in southern Europe. Full Story North America US FI Outlook for April 16: The bull flattening continues Ajay Rajadhyaksha, Dean Maki TIC data for February show that foreign investors net sold $8bn in US long-term fixed income securities, driven by $16bn in agency securities. They neither net purchased nor sold coupon Treasuries, compared with buying $21bn/m over the previous six months. China net purchased $9bn of coupon Treasuries, and Japan net sold $7bn, driven by both private and official investors. Full Story US home builder sentiment falls further in April Cooper Howes The National Association of Home Builders (NAHB) index of home builder sentiment declined to 42 in April, below our forecast (44) and the consensus (45). The decrease was driven by a drop in the present sales (45, previous: 47) and prospective buyers traffic (30, previous: 34) indices while the future sales index rose modestly to 53 (previous: 50). Full Story Empire State manufacturing index falls in April, but employment improves Cooper Howes The Empire State manufacturing index declined to 3.1 in April from 9.2 in March, below our expectation (7.5) and the consensus (7.0) but above the six-month average of 0.5. There were notable decreases in the new orders (2.2, previous: 8.2) and shipments (0.8, previous: 7.8) sub-indices, and the inventories index remained in negative territory with a print of -4.6 (previous: -5.4). Full Story Asia Pacific India: Gold and oil prices - Major silver linings? Siddhartha Sanyal, Rahul Bajoria The drop in commodity prices, particularly in gold and crude oil, if sustained, could be a major positive driver for India. The immediate and most visible effect would be on the current account balance, which could improve by nearly 1% of GDP in FY 13-14, on our estimates. A reduction in oil under-recoveries would also reduce the necessity for domestic fuel price hikes, which contribute over 25% to current inflation. Full Story 16 April 2013 4 Barclays | Global Macro Daily China: A closer look at the March IP, FAI, property sector and retail sales data Steven Lingxiu Yang, Jian Chang, Yiping Huang Industrial production growth posted a downside surprises for the second month in a row. Investment goods production declined, in line with softer fixed-asset investment growth. Infrastructure investment remains robust, offsetting slow property and manufacturing growth. Property investment slowed, and faces more headwinds as property starts edged lower. Property sales were strong in March as the public rushed to conclude transactions before new policies take effect. Full Story Thailand: Lowering our 2013 inflation forecasts; stay overweight ThaiGBs Rahul Bajoria, Rohit Arora Given the recent fall in global commodity prices, the THB's appreciation and our commodities team's downward revisions to their crude oil price forecasts, we have lowered our inflation forecasts. This year, we now expect headline inflation to be 2.9% (previously 3.6%) and core inflation to be 1.7% (previously 1.9%). For 2014, we have reduced our headline inflation forecast to 3.2% (previously: 3.8%). The downward revisions are driven mainly by our expectations of lower fuel prices, as well as more benign demand-led price projections. Full Story EEMEA Israel inflation moderates further, fiscal policy changes Daniel Hewitt, Piotr Chwiejczak Israel CPI eased to 1.3% y/y, mainly due to base effects from last year. Inflation is likely to decline next month also due to base effects, and then rise in the next three months. Increases in indirect taxes could push inflation higher. The BoI does not hold a rate setting meeting in April. We think the BoI is likely to keep its base rate unchanged at 1.75% at its next meeting in May, barring an unexpected steep decline in Israel's growth indicators. We retain our recommendation to receive 10y nominal bonds. Full Story Latin America Venezuela: Elections result increases uncertainty Alejandro Arreaza, Alejandro Grisanti The official result of the presidential election announced by CNE gave Nicolas Maduro a very tight victory. But this has not been recognized by the opposition, which has claimed irregularities in the process and has asked for a recount. The high uncertainty about the political situation in the short term is likely to be taken negatively by the market. Given his relatively weak position, Maduro could face difficulties with expected reform. Full Story 16 April 2013 5 Barclays | Global Macro Daily THE NEXT 24 HOURS North America US – Inflation: We expect a 0.1% m/m decline in the CPI in March, consistent with an NSA index print of 233.0, down from 232.166 in February. The gasoline component is likely to be the largest contributor – we have factored in a 4.5% decline, fully reflecting the effect of the seasonal factor. Elsewhere, we expect a small gain in food prices and a 0.2% increase in core inflation. The latter is likely to be driven by a continuation of the trend for modest monthly gains in core services prices. US – Housing starts: We expect housing starts to rise 2.5% m/m in March, to 940,000 units. Homebuilder sentiment has stabilized in recent months, and we look for starts to stay elevated relative to previous quarters. Underlying our forecast is the expectation that single- family starts move higher to 625,000 units (saar) while multi-family starts to increase to 315k. This is reflective of the gradual climb in single-family permit activity and a rebound in multi-family permit activity. A reading of 940,000 would leave the 3mma at 922,000, above the Q4 average of 904,000 units and the Q3 average of 774,000. We continue to expect residential construction to add to GDP growth in the coming quarters. US – IP: We look for growth of 0.3% in industrial production and 0.2% in manufacturing output in March. Timely indicators have generally softened relative to February, with a decline in the ISM and weakness in manufacturing employment and hours worked in the latest employment report. Europe Euro area – Final inflation: We look for the final euro area March HICP inflation rate to be left unrevised at 1.7% from the preliminary estimate, consistent with a 1.2% m/m rise. Our forecast is very close to the rounding point, so we do not entirely rule out a 1.8% print if the remaining countries to publish their inflation data (Austria, Finland, Slovakia) were to yield significant upside surprises. We project the core inflation rate to accelerate 0.1pp, to 1.4%, although we don’t exclude it from going to 1.5%. Finally, we forecast the HICPx tobacco index to come at 116.95, after 115.55 in February. UK – Inflation: We forecast March CPI inflation to increase to 2.9% y/y (from 2.8% in February). We look for both RPI and RPIx to increase by 3.4% y/y (from 3.2% in February). We expect inflation to persist above the BoE's 2% target in the medium term. UK – PPI: We expect input prices to have increased by 0.5% m/m in March (from 3.2% in February) as a result of sterling weakness and an increase in electricity prices. We forecast output prices to have increased by 0.5% m/m (from 0.8% previously), with higher oil prices contributing to the increase to some extent. We forecast the increase in core output prices to slow to 0.3% m/m. Asia Pacific No significant events or releases EEMEA Turkey – Overnight rates: We think the CBT is likely to cut the repo and borrowing rates in expectation of rising QE-related capital inflows. Poland – Core inflation: Core inflation will likely continue to decline at an accelerating pace. Ukraine – Retail trade: Deflation will likely maintain retail sales figures at elevated levels. 16 April 2013 6 Barclays | Global Macro Daily Latin America No significant events or releases. 16 April 2013 7 Barclays | Global Macro Daily CALENDAR Monday 15 April Period Prev 2 Prev 1 Latest Forecast Consensus - Greece: FM S tournaras and IMF Chief Thomson speak on " Overcoming stagnation: re-igniting Greece's potential" in Athens 00:30 US : Chicago Fed P resident E vans (FOMC voter) speaks in Massachusetts 02:35 US : Atlanta Fed P resident Lockhart (FOMC non-voter) speaks in Iowa 21:00 E 17: E CB P resident Draghi speaks at University of Amsterdam - P eru: E conomic activity index, % y/ y F eb 6.8 4.3 6.2 5.9 - 09:30 Australia: Home loans, % m/ m F eb -0.6 -2.1 -0.3 R - 2.0 A 09:30 Australia: Investment lending, % m/ m F eb -3.2 -2.4 4.4 - 1.8 A 10:00 China: Industrial production, % y/ y Mar 10.1 10.3 9.9 10.2 9.5 A 10:00 China: F ixed asset investments, YTD % y/ y Mar 20.7 20.6 21.2 21.3 20.9 A 10:00 China: R etail sales, % y/ y Mar 14.9 15.2 12.3 12.5 12.4 A 10:00 China: GDP , % y/ y Q1 7.6 7.4 7.9 7.9 7.7 A 14:00 m y) F inland: HICP , % m/ (y/ Mar 0.2 (3.5) 0.0 (2.6) 0.6 (2.5) 0.6 (2.6) 0.5 (2.5) A 14:30 India: WP I, % y/ y Mar 7.31 6.62 6.84 6.3 5.96 A 17:00 E 17: Trade balance sa, € bn F eb 10.0 10.3 8.7 R - 12.0 A 19:00 Israel: CP I, % y/y Mar 1.6 1.5 1.5 1.3 1.3 A 20:00 P oland: CP I, % y/ y Mar 2.4 1.7 1.3 0.9 1.0 A 20:30 US : E mpire S tate mfg, index Apr -7.8 10.0 9.2 7.5 3.1 A 21:00 US : Net long-term TIC flows, $ bn F eb 57.0 64.2 25.7 - -17.8 A 22:00 US : NAHB housing market, index Apr 47 46 44 44 42 A 10:30 K orea: 10y B onds auction K R W1800bn 12:00 Malaysia: 91d/ 91d/ 210d B ills auction 1.5/ MYR 1.5/ 1.0bn 17:30 Holland: DTB 31J ul2013, New 31Oct2013 € 1-2;1-2 bn 20:50 F rance: B TF 18J ul13, 03Oct2013, 03Apr2014 4 2 1.7 € 3.6/ + 1.6/ + 1.3/ bn Tuesday 16 April Period Prev 2 Prev 1 Latest Forecast Consensus 09:30 Australia: RB A board minutes Apr 19:00 Turkey: B enchmark repo rate, % Apr 5.50 5.50 5.50 5.25 5.25 19:00 Turkey: Overnight lending rate, % Apr 8.75 8.50 7.50 7.50 7.25 19:00 Turkey: Overnight borrowing rate, % Apr 4.75 4.50 4.50 4.00 4.00 20:00 US : New York Fed P resident Dudley (FOMC voter) speaks in New York 21:00 E 17: E CB P resident Draghi speaks at a debate in the E uropean P arliament in S trasbourg 21:00 US : Chicago Fed P resident E vans (FOMC voter) speaks in Illinois 09:30 Australia: Vehicle sales, % m/ (y/m y) Mar 2.6 (17.2) -2.2 (10.9) 0.0 (9.4) - - 15:00 m S lovakia: HICP , % m/ ( y/ y) Mar -0.1 (3.4) 0.7 (2.5) 0.0 (2.2) 0.0 (1.9) (2.2) 16:00 Austria: HICP , % m/ (y/m y) Mar 0.2 (2.9) -0.6 (2.8) 0.3 (2.6) 0.7 (2.1) - 16:30 m y) UK : CP I, % m/ (y/ Mar 0.5 (2.7) -0.5 (2.7) 0.7 (2.8) 0.4 (2.9) 0.3 (2.8) 16:30 m y) UK : R P I, % m/ (y/ Mar 0.5 (3.1) -0.4 (3.3) 0.7 (3.2) 0.6 (3.4) 0.4 (3.3) 16:30 m y) UK : R P Ix, % m/ (y/ Mar 0.4 (3.0) -0.4 (3.3) 0.7 (3.2) 0.6 (3.4) 0.4 (3.2) 16:30 m y) UK : Input prices, % m/ (y/ Mar 0.1 (0.6) 1.3 (1.9) 3.2 (2.5) 0.5 (1.4) -0.2 (0.7) 16:30 UK : Output prices, % m/ (y/m y) Mar -0.1 (2.2) 0.2 (2.1) 0.8 (2.3) 0.5 (2.1) 0.3 (2.0) 16:30 UK : Core output prices, % m/ (y/ m y) Mar 0.0 (1.5) 0.3 (1.4) 0.3 (1.3) 0.3 (1.5) 0.2 (1.4) 17:00 m y) E 17: F inal HICP , % m/ (y/ Mar -1.0 (2.0) 0.4 (1.8) ...(1.7) P 1.2 (1.7) 1.2 (1.7) 17:00 m y) E 17: 'E urostat' core (HICP x fd, alc, tob, ene), % m/ (y/ Mar 0.5 (1.5) -1.8 (1.3) 0.3 (1.3) 1.7 (1.4) (1.4) 17:00 E 17: HICP ex tobacco, index (2005 = 100) Mar 116.39 115.13 115.55 116.95 - 17:00 E 17: ZE W economic sentiment index Apr 31.2 42.4 33.4 - - 17:00 Germany: ZE W economic expectations index Apr 31.5 48.2 48.5 - 41.0 19:00 B razil: IGP -10 inflation, % m/ m Apr 0.42 0.29 0.22 - 0.32 20:00 P oland: Core inflation, % y/ y Mar 1.4 1.4 1.1 0.9 1.0 20:30 m y) US : CP I, % m/ (y/ Mar 0.0 (1.7) 0.0 (1.6) 0.7 (2.0) -0.1 (1.6) 0.0 (1.6) 20:30 US : Core CP I, % m/ (y/m y) Mar 0.1 (1.9) 0.3 (1.9) 0.2 (2.0) 0.2 (2.0) 0.2 (2.0) 20:30 US : CP I, NS A index Mar 229.601 230.280 232.166 233.0 232.953 20:30 US : Housing starts, k saar Mar 982 910 917 940 930 20:30 US : B uilding permits, k saar Mar 909 904 939 - 943 21:15 US : Industrial production, % m/ m Mar 0.1 0.2 0.8 0.3 0.2 21:15 US : Capacity utilization, % Mar 77.8 77.8 78.3 78.5 78.4 - Malaysia: 10.5y B onds auction (to 30/ 04) - 10:00 J apan: 5y J GB Auction ¥ 2600 bn 16:30 S pain : 6m (18Oct2013) & 12m Letras (16Apr2014) € 4 bn 17:00 Greece: 13-week bill € 1.25 bn 17:30 B elgium: TC 18J ul13, 17Apr13 € 4 bn Note: All times are Singapore time. Sources: Reuters, Market News, Bloomberg, Barclays Research 16 April 2013 8 Barclays | Global Macro Daily RESEARCH CONTACTS Larry Kantor Head of Research +1 212 412 1458 firstname.lastname@example.org Stu Linde Jeff Meli Ajay Rajadhyaksha Julian Callow Koon Chow Head of Equity Research Co-Head of FICC Research Co-Head of FICC Research Head of International Economics Head of EM Strategy +1 212 526 4009 +1 212 412 2127 +1 212 412 7669 +44 (0)20 7773 1369 +44 (0)20 777 37572 email@example.com firstname.lastname@example.org email@example.com firstname.lastname@example.org email@example.com Michael Gavin Christian Keller Michael Pond Jose Wynne Head of Asset Allocation Head of EM Research Head of Inflation-Linked Research Head of FX Research +1 212 412 5915 +44 (0)20 7773 2031 +1 212 412 5051 +1 212 412 5923 firstname.lastname@example.org email@example.com firstname.lastname@example.org email@example.com US Dean Maki Helima Croft Barry Knapp Michael Gapen Alejandro Grisanti Head of US Economics Research Head of North American Head of US Equity Strategy Head of US Asset Allocation Co-Head of Latin America FICC +1 212 526 1731 Commodities Research +1 212 526 5313 +1 212 526 8536 Research firstname.lastname@example.org +1 212 526 0764 email@example.com firstname.lastname@example.org +1 212 412 5982 email@example.com firstname.lastname@example.org Marcelo Salomon Rajiv Setia Joseph Abate Aroop Chatterjee Peter Newland Co-Head of Latin America FICC Head of US Rates Research Fixed Income Strategy Head of FX Quantitative Strategy US Economics Research Research +1 212 412 5507 +1 212 412 7459 +1 212 412 5622 +1 212 526 3153 +1 212 412 5717 email@example.com firstname.lastname@example.org email@example.com firstname.lastname@example.org email@example.com Anshul Pradhan Fixed Income Strategy +1 212 412 3681 firstname.lastname@example.org Europe Laurent Fransolet Tim Whittaker Philippe Gudin de Vallerin Kevin Norrish Guillermo Felices Head of European FICC Research Head of European Equity Research Head of European Economics Head of EMEA and Asia Pacific Head of European Asset Allocation and European Rates Strategy +44 (0)20 313 46696 Research Commodities Research +44 (0)20 355 52533 +44 (0)20 7773 8385 email@example.com +33 (0) 1 4458 3264 +44 (0)20 7773 0369 firstname.lastname@example.org email@example.com firstname.lastname@example.org email@example.com Cagdas Aksu Antonio Garcia Pascual Simon Hayes Moyeen Islam Dennis Jose European Rates Strategy Chief Euro Area Economist Head of UK Economics UK Rates Strategy European Equity Strategy +44 (0)20 777 35788 +44 (0)20 313 46225 +44 (0)20 7773 4637 +44 (0)20 7773 4675 +44 (0)20 313 43777 firstname.lastname@example.org email@example.com firstname.lastname@example.org email@example.com firstname.lastname@example.org Sreekala Kochugovindan Joao Toniato Raghav Subbarao Asset Allocation European Equity Strategy Chief FX Options Strategist +44 (0)20 777 32234 +44 (0)20 313 34813 +44 (0)20 7773 4144 sreekala.kochugovindan email@example.com firstname.lastname@example.org @barclays.com Asia Pacific Jon Scoffin Tetsufumi Yamakawa Nigel Chalk Igor Arsenin Kieran Davies Head of Research, Asia Pacific Head of Research, Japan Head of Emerging Asia Research Head of Emerging Asia Rates Economist – Australia and +65 6308 3217 +81 3 4530 1130 +65 6308 2625 Strategy Research New Zealand email@example.com tetsufumi.yamakawa @barclays.com firstname.lastname@example.org +65 6308 2801 +61 2 933 46164 email@example.com firstname.lastname@example.org Takashi Hashimoto Yiping Huang Chotaro Morita Kyohei Morita Yoshio Takahashi Head of Japan Equity Research Chief Economist, Emerging Asia Head of Japan Fixed Income Strategy Chief Economist, Japan Head of Non-Yen Strategy, Japan +81 3 4530 2956 +852 2903 3291 +81 3 4530 1717 +81 3 4530 1688 +81 3 4530 1686 email@example.com firstname.lastname@example.org email@example.com firstname.lastname@example.org email@example.com Rahul Bajoria Hamish Pepper Nick Verdi Economist - India, Malaysia, FX Strategist FX Strategist Thailand +65 6308 2220 +65 6308 3093 +65 6308 3511 firstname.lastname@example.org email@example.com firstname.lastname@example.org 16 April 2013 9 Analyst Certification We, Joseph Abate and Aroop Chatterjee, hereby certify (1) that the views expressed in this research report accurately reflect our personal views about any or all of the subject securities or issuers referred to in this research report and (2) no part of our compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this research report. Important Disclosures: Barclays Research is a part of the Corporate and Investment Banking division of Barclays Bank PLC and its affiliates (collectively and each individually, "Barclays"). For current important disclosures regarding companies that are the subject of this research report, please send a written request to: Barclays Research Compliance, 745 Seventh Avenue, 17th Floor, New York, NY 10019 or refer to http://publicresearch.barclays.com or call 212-526-1072. Barclays Capital Inc. and/or one of its affiliates does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that Barclays may have a conflict of interest that could affect the objectivity of this report. Barclays Capital Inc. and/or one of its affiliates regularly trades, generally deals as principal and generally provides liquidity (as market maker or otherwise) in the debt securities that are the subject of this research report (and related derivatives thereof). Barclays trading desks may have either a long and / or short position in such securities and / or derivative instruments, which may pose a conflict with the interests of investing customers. Where permitted and subject to appropriate information barrier restrictions, Barclays fixed income research analyst(s) regularly interact with its trading desk personnel to determine current prices of fixed income securities. Barclays fixed income research analyst(s) receive compensation based on various factors including, but not limited to, the quality of their work, the overall performance of the firm (including the profitability of the investment banking department), the profitability and revenues of the Fixed Income, Currencies and Commodities Division ("FICC") and the outstanding principal amount and trading value of, the profitability of, and the potential interest of the firms investing clients in research with respect to, the asset class covered by the analyst. To the extent that any historical pricing information was obtained from Barclays trading desks, the firm makes no representation that it is accurate or complete. All levels, prices and spreads are historical and do not represent current market levels, prices or spreads, some or all of which may have changed since the publication of this document. The Corporate and Investment Banking division of Barclays produces a variety of research products including, but not limited to, fundamental analysis, equity-linked analysis, quantitative analysis, and trade ideas. Recommendations contained in one type of research product may differ from recommendations contained in other types of research products, whether as a result of differing time horizons, methodologies, or otherwise. In order to access Barclays Statement regarding Research Dissemination Policies and Procedures, please refer to https://live.barcap.com/publiccp/RSR/nyfipubs/disclaimer/disclaimer-research- dissemination.html. Disclaimer: This publication has been prepared by the Corporate and Investment Banking division of Barclays Bank PLC and/or one or more of its affiliates (collectively and each individually, "Barclays"). It has been issued by one or more Barclays legal entities within its Corporate and Investment Banking division as provided below. It is provided to our clients for information purposes only, and Barclays makes no express or implied warranties, and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to any data included in this publication. Barclays will not treat unauthorized recipients of this report as its clients. Prices shown are indicative and Barclays is not offering to buy or sell or soliciting offers to buy or sell any financial instrument. Without limiting any of the foregoing and to the extent permitted by law, in no event shall Barclays, nor any affiliate, nor any of their respective officers, directors, partners, or employees have any liability for (a) any special, punitive, indirect, or consequential damages; or (b) any lost profits, lost revenue, loss of anticipated savings or loss of opportunity or other financial loss, even if notified of the possibility of such damages, arising from any use of this publication or its contents. Other than disclosures relating to Barclays, the information contained in this publication has been obtained from sources that Barclays Research believes to be reliable, but Barclays does not represent or warrant that it is accurate or complete. Barclays is not responsible for, and makes no warranties whatsoever as to, the content of any third-party web site accessed via a hyperlink in this publication and such information is not incorporated by reference. The views in this publication are those of the author(s) and are subject to change, and Barclays has no obligation to update its opinions or the information in this publication. The analyst recommendations in this publication reflect solely and exclusively those of the author(s), and such opinions were prepared independently of any other interests, including those of Barclays and/or its affiliates. This publication does not constitute personal investment advice or take into account the individual financial circumstances or objectives of the clients who receive it. The securities discussed herein may not be suitable for all investors. Barclays recommends that investors independently evaluate each issuer, security or instrument discussed herein and consult any independent advisors they believe necessary. The value of and income from any investment may fluctuate from day to day as a result of changes in relevant economic markets (including changes in market liquidity). The information herein is not intended to predict actual results, which may differ substantially from those reflected. Past performance is not necessarily indicative of future results. This communication is being made available in the UK and Europe primarily to persons who are investment professionals as that term is defined in Article 19 of the Financial Services and Markets Act 2000 (Financial Promotion Order) 2005. It is directed at, and therefore should only be relied upon by, persons who have professional experience in matters relating to investments. The investments to which it relates are available only to such persons and will be entered into only with such persons. Barclays Bank PLC is authorised and regulated by the Financial Services Authority ("FSA") and a member of the London Stock Exchange. The Corporate and Investment Banking division of Barclays undertakes U.S. securities business in the name of its wholly owned subsidiary Barclays Capital Inc., a FINRA and SIPC member. Barclays Capital Inc., a U.S. registered broker/dealer, is distributing this material in the United States and, in connection therewith accepts responsibility for its contents. Any U.S. person wishing to effect a transaction in any security discussed herein should do so only by contacting a representative of Barclays Capital Inc. in the U.S. at 745 Seventh Avenue, New York, New York 10019. Non-U.S. persons should contact and execute transactions through a Barclays Bank PLC branch or affiliate in their home jurisdiction unless local regulations permit otherwise. Barclays Bank PLC, Paris Branch (registered in France under Paris RCS number 381 066 281) is regulated by the Autorité des marchés financiers and the Autorité de contrôle prudentiel. Registered office 34/36 Avenue de Friedland 75008 Paris. This material is distributed in Canada by Barclays Capital Canada Inc., a registered investment dealer and member of IIROC (www.iiroc.ca). Subject to the conditions of this publication as set out above, Absa Capital, the Investment Banking Division of Absa Bank Limited, an authorised financial services provider (Registration No.: 1986/004794/06. Registered Credit Provider Reg No NCRCP7), is distributing this material in South Africa. Absa Bank Limited is regulated by the South African Reserve Bank. This publication is not, nor is it intended to be, advice as defined and/or contemplated in the (South African) Financial Advisory and Intermediary Services Act, 37 of 2002, or any other financial, investment, trading, tax, legal, accounting, retirement, actuarial or other professional advice or service whatsoever. Any South African person or entity wishing to effect a transaction in any security discussed herein should do so only by contacting a representative of Absa Capital in South Africa, 15 Alice Lane, Sandton, Johannesburg, Gauteng 2196. Absa Capital is an affiliate of Barclays. In Japan, foreign exchange research reports are prepared and distributed by Barclays Bank PLC Tokyo Branch. Other research reports are distributed to institutional investors in Japan by Barclays Securities Japan Limited. Barclays Securities Japan Limited is a joint-stock company incorporated in Japan with registered office of 6-10-1 Roppongi, Minato-ku, Tokyo 106-6131, Japan. It is a subsidiary of Barclays Bank PLC and a registered financial instruments firm regulated by the Financial Services Agency of Japan. Registered Number: Kanto Zaimukyokucho (kinsho) No. 143. Barclays Bank PLC, Hong Kong Branch is distributing this material in Hong Kong as an authorised institution regulated by the Hong Kong Monetary Authority. Registered Office: 41/F, Cheung Kong Center, 2 Queen's Road Central, Hong Kong. This material is issued in Taiwan by Barclays Capital Securities Taiwan Limited. This material on securities not traded in Taiwan is not to be construed as 'recommendation' in Taiwan. Barclays Capital Securities Taiwan Limited does not accept orders from clients to trade in such securities. This material may not be distributed to the public media or used by the public media without prior written consent of Barclays. This material is distributed in South Korea by Barclays Capital Securities Limited, Seoul Branch. All equity research material is distributed in India by Barclays Securities (India) Private Limited (SEBI Registration No: INB/INF 231292732 (NSE), INB/INF 011292738 (BSE), Registered Office: 208 | Ceejay House | Dr. Annie Besant Road | Shivsagar Estate | Worli | Mumbai - 400 018 | India, Phone: + 91 22 67196363). Other research reports are distributed in India by Barclays Bank PLC, India Branch. Barclays Bank PLC Frankfurt Branch distributes this material in Germany under the supervision of Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin). This material is distributed in Brazil by Banco Barclays S.A. This material is distributed in Mexico by Barclays Bank Mexico, S.A. Barclays Bank PLC in the Dubai International Financial Centre (Registered No. 0060) is regulated by the Dubai Financial Services Authority (DFSA). Principal place of business in the Dubai International Financial Centre: The Gate Village, Building 4, Level 4, PO Box 506504, Dubai, United Arab Emirates. Barclays Bank PLC-DIFC Branch, may only undertake the financial services activities that fall within the scope of its existing DFSA licence. Related financial products or services are only available to Professional Clients, as defined by the Dubai Financial Services Authority. Barclays Bank PLC in the UAE is regulated by the Central Bank of the UAE and is licensed to conduct business activities as a branch of a commercial bank incorporated outside the UAE in Dubai (Licence No.: 13/1844/2008, Registered Office: Building No. 6, Burj Dubai Business Hub, Sheikh Zayed Road, Dubai City) and Abu Dhabi (Licence No.: 13/952/2008, Registered Office: Al Jazira Towers, Hamdan Street, PO Box 2734, Abu Dhabi). Barclays Bank PLC in the Qatar Financial Centre (Registered No. 00018) is authorised by the Qatar Financial Centre Regulatory Authority (QFCRA). Barclays Bank PLC-QFC Branch may only undertake the regulated activities that fall within the scope of its existing QFCRA licence. Principal place of business in Qatar: Qatar Financial Centre, Office 1002, 10th Floor, QFC Tower, Diplomatic Area, West Bay, PO Box 15891, Doha, Qatar. Related financial products or services are only available to Business Customers as defined by the Qatar Financial Centre Regulatory Authority. This material is distributed in the UAE (including the Dubai International Financial Centre) and Qatar by Barclays Bank PLC. This material is distributed in Saudi Arabia by Barclays Saudi Arabia ('BSA'). It is not the intention of the publication to be used or deemed as recommendation, option or advice for any action (s) that may take place in future. Barclays Saudi Arabia is a Closed Joint Stock Company, (CMA License No. 09141-37). Registered office Al Faisaliah Tower, Level 18, Riyadh 11311, Kingdom of Saudi Arabia. Authorised and regulated by the Capital Market Authority, Commercial Registration Number: 1010283024. This material is distributed in Russia by OOO Barclays Capital, affiliated company of Barclays Bank PLC, registered and regulated in Russia by the FSFM. Broker License #177-11850-100000; Dealer License #177-11855-010000. Registered address in Russia: 125047 Moscow, 1st Tverskaya-Yamskaya str. 21. This material is distributed in Singapore by the Singapore branch of Barclays Bank PLC, a bank licensed in Singapore by the Monetary Authority of Singapore. For matters in connection with this report, recipients in Singapore may contact the Singapore branch of Barclays Bank PLC, whose registered address is One Raffles Quay Level 28, South Tower, Singapore 048583. Barclays Bank PLC, Australia Branch (ARBN 062 449 585, AFSL 246617) is distributing this material in Australia. It is directed at 'wholesale clients' as defined by Australian Corporations Act 2001. IRS Circular 230 Prepared Materials Disclaimer: Barclays does not provide tax advice and nothing contained herein should be construed to be tax advice. Please be advised that any discussion of U.S. tax matters contained herein (including any attachments) (i) is not intended or written to be used, and cannot be used, by you for the purpose of avoiding U.S. tax-related penalties; and (ii) was written to support the promotion or marketing of the transactions or other matters addressed herein. Accordingly, you should seek advice based on your particular circumstances from an independent tax advisor. © Copyright Barclays Bank PLC (2013). All rights reserved. No part of this publication may be reproduced in any manner without the prior written permission of Barclays. Barclays Bank PLC is registered in England No. 1026167. Registered office 1 Churchill Place, London, E14 5HP. Additional information regarding this publication will be furnished upon request.