Credit Suisse, European Economics, Dec 19, 2013.

8/13/2019 Credit Suisse, European Economics, Dec 19, 2013.

1/12

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS.

CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION

Client-Driven Solutions, Insights, and Access

European Economics

Every little helpsEuro area October industrial production was dismal. The contraction inoutput was sharp and broad based at the country and component level, evenafter stripping out some erratic and volatile factors.

Hidden by the poor headline, though, October IP momentum improved marginally. We think it should pick up further this quarter and early next year,continuing to support the streak of poor, but positive, GDP readings seen sinceQ2.

This view is based on (relatively) brighter surveys, which are betterpredictors of growth than industrial production particularly when relyingon partial quarterly information. Moreover, we observe that:

the recovery so far has not been artif icially boosted by inventoriesaccumulation: supply and demand have been moving in sync; and

demand is showing signs of recovery, at the household, corporate andexternal level.

The overall evidence is not only consistent with a positive GDP reading inQ4, in our view, but with some speed -up in the recovery next year.

Magnitudes will probably remain poor, though. And, considering how low the

bar is, triple -dip scares will be frequent , in our view. Low inflationarypressures are a consequence of the sub-optimal recovery. The combination ofthese two factors will likely keep the focus on the ECB and calls for furthermonetary policy easing.

In the rest of this note, we look at the various components of demand, arguingthat each of them should contribute a bit more to growth in 2014. Every littlehelps.

The level of stocks is low, with room for some accumulation against a backdropof improving confidence. Even very timid improvements in economic conditions

and labour market conditions more specifically should support consumerspending . Indeed, the first evidence of stabilization in retail sales happenedearly this year, against a gloomier backdrop. As such, there is scope for

stronger household spending, as much as corporate spending. Corporates donot lack the means to invest and may have a growing need to do so in a far lessuncertain environment. Finally, weaker demand in the euro area than globallyshould help to keep the contribution to growth from net trade positive too.

Research AnalystsChristel Aranda-Hassel

+44 20 7888 1383 [email protected]

Steven Bryce+44 20 7883 7360

[email protected]

Mirco Bulega+44 20 7883 9315

[email protected]

Violante Di Canossa+44 20 7883 4192

[email protected]

Neville Hill+44 20 7888 1334

[email protected]

Axel Lang+44 20 7883 3738

[email protected]

Giovanni Zanni+44 20 7888 6827

[email protected]

19 December 2013Economics Research

http://www.credit-suisse.com/researchandanalytics

8/13/2019 Credit Suisse, European Economics, Dec 19, 2013.

2/12

19 December 2013

European Economics 2

Every little helpsOctober euro area industrial production was very weak, down more than 1% on themonth, after a 0.2% m/m fall in September. The IP report was disappointing across theboard, with a significant contraction in core manufacturing. All countries in the euro, withthe exception of Italy, recorded a negative print, with Ireland punching above its weight, onthe back of a 12% m/m fall in its IP index. Volatile energy production fell by 4% m/m,shaving off around a point. As such, adjusting for Ireland and energy, we estimate euroarea manufacturing output may have fallen by around 0.5% m/m in October. A lessdaunting figure but still a negative one.

The October outturn questions our view of a modest recovery in the euro area. Arewe on the verge of a third dip recession? Extrapolating from our monthly GDP indicatorwould suggest there is a risk (Exhibit 1).

Exhibit 1: A weak start of the quarterEuro area GDP monthly indicator

96

97

98

99

100

101

102

103

07 08 09 10 11 12 13

Oct

Q3

Q2

Source: Credit Suisse, Thomson Reuters Datastream

But, industrial production momentum improved marginally in October and we thinkmomentum should pick up further this quarter and early next year, avoiding a triple-dip and supporting the streak of poor but positive GDP readings seen since Q2. Givenhow low the bar is, though, triple-dip scares will be frequent, but it should not materialise,in our view. As we describe below, all the components of GDP should contribute to aslightly more vibrant recovery in 2014. Indeed, first signs of improvements were evidentearlier this year. Better underlying conditions next year open the door for strongercontributions, in our view.

Hard data versus surveysFirst of all, the PMIs are telling a different story from industrial production. Themanufacturing index, for instance, didnt really budge in October. Actually, it rose in sevenof the last eight months, up six points from the April local low. The composite PMI hasbeen range-bound at around 52 in the last four months, not strong, but consistent withgrowth at around 1% on an annualized basis, far from a negative GDP print.

Violante Di Canossa+44 20 7883 4192

[email protected]

Neville Hill+44 20 7888 1334

[email protected] Bulega

+44 20 7883 [email protected]

8/13/2019 Credit Suisse, European Economics, Dec 19, 2013.

3/12

19 December 2013

European Economics 3

Exhibit 2: Composite and Exhibit 3: manufacturing PMIs

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

25

30

35

40

45

50

55

60

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Composite PMI, lhs

GDP, q/q, 2qma, rhs

-20

-15

-10

-5

0

5

10

15

-6

-4

-2

0

2

4

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

IP, 3m/3m, 2m lag, lhs

PMI, orders-stocks, rhs

Source: Credit Suisse, Thomson Reuters DataStream, Markit Source: Credit Suisse, Thomson Reuters DataStream, Markit

To test the quality of the two different sets of statistics hard and soft data inpredicting GDP growth, we run some simple regressions. Firstly, we employed asindependent variables the last reading per quarter of the composite PMI. Secondly, weused quarterly changes in industrial production. Finally, we tested the predictive power ofthe IP at the beginning of the quarter, replicating the current situation when only a partialset of information for the quarter is available.

Strong evidence in favour of soft data is provided, as Exhibit 4 shows. Indeed, in thePMI regression, the R-squared is the highest among the three and the T-statistics ensurethat our coefficients are statistically significant. However, the one based on industrialproduction momentum also seems to be a fairly reliable model, presenting a notablegoodness of fit and an adequate degree of robustness. As to be expected, we will rely lesson the third model, where incomplete quarterly information results in lower R-squared andT-statistics.

Exhibit 4: Regressions resultsSample size goes from Q4 1998 to Q3 2013

Coefficient T-Stat Adj R-Square Estimate for Q4 GDP

Composite PMI 0.09 11.63 0.86 0.3IP 3m/3m 0.30 14.65 0.79 0.1IP 1m/3m 0.35 8.48 0.55 0.0

Source: Credit Suisse

The most reliable model, i.e., the one based on the PMI, suggests a moderateincrease in Q4 GDP by 0.3% q/q, while the model based on IP momentum, assumingsome reversal in November and a flat reading in December, predicts a softer GDP growthof 0.1% q/q. Lastly, it is worth noting that, despite the weak October IP, even the modelbased on the first month's industrial production still points to a neutral quarter for GDPgrowth. Consequently, a negative Q4 print is unlikely, in our view, unless weakerNovember and December IP materialise.

8/13/2019 Credit Suisse, European Economics, Dec 19, 2013.

4/12

19 December 2013

European Economics 4

Exhibit 5: Regression based on PMI Exhibit 6: Regression based on IPWith Q4 GDP models estimate With Q4 GDP models estimate

0.3

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.00.5

1.0

1.5

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

ActualFitted

0.1

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.00.5

1.0

1.5

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

ActualFitted

Source: Credit Suisse, Thomson Reuters Datastream Source: Credit Suisse, Thomson Reuters Datastream

Demand versus supply: inventoriesLooking into next year, we think the recovery should continue and gain some speed.Growth appears to be fairly balanced and self-sustained. It has not beenaccompanied by a build-up in stocks. Inventories have mostly subtracted from growthin the last couple of years and had only recorded a notable positive contribution in Q3(Exhibit 7). That said, surveys suggest that Q3's rise is somewhat erratic (and inventoriesare indeed estimated as errors and residuals in the national accounts).

There is no compelling evidence of a significant amount of unwanted inventories inthe euro area. The level of stocks, as reported by the European Commission survey,

remains well below its long term average and has fallen (Exhibit 8). The PMI index ofstocks of finished goods was 48.4 in December, just a touch above its long term average(Exhibit 9). The IP-to-order ratio has been showing some inventory accumulation duringthe summer months (Exhibit 10). The ratio, however, has been coming off recently and it islikely to go back to its trend in October.

Overall, evidence from the high frequency indicators suggests that companies have beenextremely cautious following the financial crisis, keeping their stocks at minimum levels. Inthe last few years, production closely followed domestic demand, with little, if any,accumulation of stocks. A pick-up in confidence would probably be matched by someinventories accumulation a source of marginal upside risk for 2014.

8/13/2019 Credit Suisse, European Economics, Dec 19, 2013.

5/12

19 December 2013

European Economics 5

Exhibit 7: Inventories contributions to GDP growth Exhibit 8: Low level of stocksq/q contribution, percentage points European Commission survey . Do you consider that your present stocks of

finished goods are: more than adequate, adequate, less than adequate ?

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

1997 1999 2001 2003 2005 2007 2009 2011 2013

-2

0

2

4

6

8

10

12

14

16

18

20

22

97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

Long term avg

Source: Credit Suisse, Thomson Reuters DataStream Source: Credit Suisse, Thomson Reuters DataStream

Exhibit 9: And corporates remain cautious Exhibit 10: IP overtook orders for a whilePMI manufacturing, stocks of finished goods . The level of finished productwhich has come off the production line and is awaiting shipment/sales (in units,not money) this month compared with the situation one month ago ?

IP-order ratio, detrended. Credit Suisse estimate for October orders

40

42

44

46

48

50

52

97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Long term avg

-10

-5

0

5

10

15

97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Source: Credit Suisse, Thomson Reuters Datastream Source: Credit Suisse, Thomson Reuters Datastream

8/13/2019 Credit Suisse, European Economics, Dec 19, 2013.

6/12

19 December 2013

European Economics 6

Household spendingTentative signs of stabilization have already been reported by retail sales. After a fewmonths of stabilisation at low levels, sales have picked up modestly and are now 0.7%above their December 2012 trough, thanks to improvements both in retail and car sales.

Exhibit 11: Retail sales picking up Exhibit 12: As well as car salesIncluding cars, index Car registrations, index

114

115

116

117

118

119

120

121

10 11 12 13

70

75

80

85

90

95

100

10 11 12 13 Source: Credit Suisse, Thomson Reuters DataStream Source: Credit Suisse, Thomson Reuters DataStream

On a 6m/6m annualized basis, retail sales growth has been running at around 1.5% fromas low as -3% at the beginning of the year. The close relationship with consumerconfidence, pictured in Exhibit 12, is pointing to little room on the upside for the time being.Consumer confidence is consistent with sales growth running between 1% and 1.5% atthe end of the year. But, the next move up in sales should be expected in conjunction

with further improvements in the labour market, as suggested by the close correlationbetween confidence and changes in the unemployment rate depicted in Exhibit 14.

Exhibit 13: Consumer spending Exhibit 14: influenced by job prospects

-5

-4

-3

-2

-1

0

1

2

3

4

5

-35

-30

-25

-20

-15

-10

-5

0

5

97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

Consumer confidence, lhs

Retail sales incl cars,6m6m ann, rhs

-0.6

-0.2

0.2

0.6

1.0

1.4

-40

-35

-30

-25

-20

-15

-10

-5

0

97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Consumer confidence, lhs

6 months change inunemployment rate, rhs,inverted

Source: Credit Suisse, Thomson Reuters DataStream Source: Credit Suisse, Thomson Reuters DataStream

8/13/2019 Credit Suisse, European Economics, Dec 19, 2013.

7/12

19 December 2013

European Economics 7

We dont believe the modest growth rates we expect to see in 2014 will be sufficient topush down the unemployment rate meaningfully. However, we think it will be enough forthe rate to edge down marginally, providing some timid support to confidence andultimately spending.

Signs of stabilization in the unemployment rate are already evident, as shown in Exhibit 15.The upward trend ended and the euro area unemployment rate has been stable at 12% for

nearly a year now. A similar trend albeit around higher levels is clear in the peripherytoo. Moreover, it is worth noting that this has happened in conjunction with the recession,not the recovery. As such, even mild positive growth should provide some furtherroom for the labour market to improve, boding well for sales.

Exhibit 15: Unemployment rate in the euro area Exhibit 16: and at the country level

6

7

8

9

10

11

12

13

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 5

10

15

20

1999 2000 2001 2003 2004 2006 2007 2008 2010 2011 2013

Germany

France, Netherlands, Belgium

Periphery 5

Source: Credit Suisse, Thomson Reuters Datastream Source: Credit Suisse, Thomson Reuters Datastream

Corporate spendingThe improvement in domestic demand since the spring has been common tocorporate as well as consumer spending. As Exhibit 17 shows, having fallen by 8% inthe 2011-13 recession (after a 16% drop in the 2008-09 recession), investment hasstabilized in the last couple of quarters. Given investment's capacity to contributesignificantly to any volatility in output, it is important for this upswing to continue andstrengthen.

Although bank deleveraging and the associated decline in lending to corporates shouldmaintain a stiff headwind against a strong recovery in investment, we would note that thesecond derivative or the "credit impulse", which matters most for growth has turned(see European Economics Peripheral Data Monitor: Credit where Credit is Due ). Andcorporates across the euro area are relatively cash-rich. Over the last few years thecorporate sector has been running a much higher financial balance than usual, meaningthere is capacity for firms to boost spending on investment from existing cashflows ratherthan needing to borrow. So we do not think corporates lack the means to invest.

8/13/2019 Credit Suisse, European Economics, Dec 19, 2013.

8/12

19 December 2013

European Economics 8

Exhibit 17: Euro area real investment growthExhibit 18: Euro area corporate sector financialbalance

q/q% As % GDP

-7

-6

-5

-4

-3

-2

-1

0

1

2

3

2006 2007 2008 2009 2010 2011 2012 2013

-4

-3

-2

-1

0

1

1999 2001 2003 2005 2007 2009 2011 2013 Source: Credit Suisse, Thomson Reuters Datastream Source: Credit Suisse, Thomson Reuters Datastream

Corporates may have a growing need to invest, as well. Net investment has beenespecially weak in the euro area in the last few years, meaning that the capital stock isbecoming increasingly obsolete. Our view has been that the euro area financial crisis of2010-12 was a powerful brake on corporate spending. Given the high levels of uncertainty

and the tail risk of a catastrophic financial collapse it is unsurprising that corporatebehavior was cautious.

Uncertainty has abated with the crisis, though. One simple metric of this is the Europeanpolicy uncertainty index, which has fallen steadily over the past 12 months (Exhibit 19). Itis also evident in the improvement in business confidence, especially the forward-looking

components, from the lows.These three factors - corporates having:

the financial wherewithal; and

the need to invest; as well as

reduced uncertainty

should all make for stronger corporate spending. And there is evidence for that. Forexample, the latest European Commission surveys show that corporates expect a realincrease in spending of over 3% next year. As Exhibit 20 below shows, that is thestrongest anticipated increase in spending for over a decade. And that fits with our latestproprietary survey of European corporates (see Credit Suisse Executive Panel: Corporate

spending

turning point confirmed ).

8/13/2019 Credit Suisse, European Economics, Dec 19, 2013.

9/12

19 December 2013

European Economics 9

Exhibit 19: Uncertainty abatesExhibit 20: Euro area investment intentions for thecoming year

European policy uncertainty index Survey taken in October-November of the prior year (%)

50

70

90

110

130

150

170

190

210

1999 2001 2003 2005 2007 2009 2011 2013

-8

-6

-4

-2

0

2

4

1999 2001 2003 2005 2007 2009 2011 2013 Source: Scott Baker, Nicholas Bloom and Steven J. Davis at www.PolicyUncertainty.com,Credit Suisse

Source: European Commission, Credit Suisse

Given that investment has been growing at an annualized pace of around 1% since thespring, this suggests that corporate spending should make a stronger contribution to euroarea demand growth in the coming six to twelve months.

Foreign demandFinally, we also think there is scope for net trade to make a stronger contribution toeuro area demand growth. The slump in domestic demand during the last recessionmeant that net trade was a consistently positive contributor to GDP growth, as imports fell

sharply. The stabilization in domestic demand discussed above means that the slump inimports should come to an end. But, given how insipid the improvement in demand shouldbe relative to the euro area's export markets we still think there is scope for net tradeto contribute more.

Indeed, that still looks to be the case. As Exhibit 21 shows, having moderated somewhatin Q3, the euro area's trade balance looks to be resuming its upwards trend. And we thinkthere is scope for the export side to do more. As Exhibit 22 shows, export growth has beenparticularly weak this year. In part, that looks to have been a lagged response to the(Europe-driven) slowdown in global trade growth. However, as the chart also makes clear,the upswing in global cyclical indicators especially since the summer augurs well for amarked acceleration in euro area export growth in 2014.

8/13/2019 Credit Suisse, European Economics, Dec 19, 2013.

10/12

19 December 2013

European Economics 10

Exhibit 21: Euro area trade balance Exhibit 22: Euro area real export growth As % GDP

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

1999 2001 2003 2005 2007 2009 2011 2013

30

35

40

45

50

55

60

-25

-20

-15

-10

-5

0

510

15

20

1999 2001 2003 2005 2007 2009 2011 2013

Global PMI new orders, 6m lead, rhs

Real exports, y/y%, 3mma, lhs

Source: Markit, Credit Suisse Source: Markit, Credit Suisse

8/13/2019 Credit Suisse, European Economics, Dec 19, 2013.

11/12

GLOBAL FIXED INCOME AND ECONOMIC RESEARCHDr. Neal Soss

Global Head of Economics and Demographics Research(212) 325 3335

[email protected]

Eric MillerCo-Head, Securities Research & Analytics

(212) 538 [email protected]

ECONOMICS AND DEMOGRAPHICS RESEARCH

GLOBAL / US ECONOMICS

Dr. Neal Soss(212) 325 [email protected]

Jay Feldman(212) 325 7634 [email protected]

Dana Saporta(212) 538 [email protected]

Isaac Lebwohl(212) 538 [email protected]

LATIN AMERICA (LATAM) ECONOMICS

Alonso CerveraHead of Latam Economics52 55 5283 [email protected], Chile

Casey Reckman(212) 325 [email protected] Argentina, Venezuela

Daniel Chodos(212) 325 [email protected] Strategy

Juan Lorenzo Maldonado(212) 325 4245 [email protected], Peru

Di Fu(212) 538 [email protected]

BRAZIL ECONOMICS

Nilson TeixeiraHead of Brazil Economics55 11 3701 [email protected]

Daniel Lavarda55 11 3701 [email protected]

Iana Ferrao55 11 3701 [email protected]

Leonardo Fonseca55 11 3701 [email protected]

Paulo Coutinho55 11 [email protected]

EURO AREA / UK ECONOMICSNeville HillHead of European Economics 44 20 7888 [email protected]

Christel Aranda-Hassel44 20 7888 [email protected]

Giovanni Zanni44 20 7888 [email protected]

Violante di Canossa44 20 7883 [email protected]

Axel Lang44 20 7883 [email protected]

Steven Bryce44 20 7883 [email protected]

Mirco Bulega44 20 7883 [email protected]

EASTERN EUROPE, MIDDLE EAST AND AFRICA (EEMEA) ECONOMICSBerna BayazitogluHead of EEMEA Economics 44 20 7883 [email protected]

Sergei Voloboev44 20 7888 [email protected], Ukraine, Kazakhstan

Carlos Teixeira27 11 012 [email protected] Africa

Gergely Hudecz33 1 7039 [email protected] Republic, Hungary, Poland

Alexey Pogorelov7 495 967 [email protected], Ukraine, Kazakhstan

Natig Mustafayev44 20 7888 [email protected] and EEMEA cross-country analysis

Nimrod Mevorach44 20 7888 [email protected] Strategy, Israel

JAPAN ECONOMICS NON-JAPAN (NJA) ECONOMICSHiromichi ShirakawaHead of Japan Economics 81 3 4550 [email protected]

Takashi Shiono81 3 4550 [email protected]

Dong TaoHead of NJA Economics852 2101 [email protected]

Robert Prior-Wandesforde65 6212 [email protected], India, Indonesia, Australia

Christiaan Tuntono852 2101 [email protected] Kong, Korea, Taiwan

Santitarn Sathirathai65 6212 [email protected], Malaysia, Thailand

Michael Wan65 6212 [email protected], Philippines

Weishen Deng852 2101 [email protected]

GLOBAL DEMOGRAPHICS & PENSIONS RESEARCHDr. Amlan RoyHead of Global Demographics44 20 7888 [email protected]

Sonali Punhani44 20 7883 [email protected]

Angela Hsieh44 20 7883 [email protected]

8/13/2019 Credit Suisse, European Economics, Dec 19, 2013.

12/12

Disclosure AppendixAnalyst CertificationThe analysts identified in this report each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal vieabout all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.References in this report to Credit Suisse include all of the subsidiaries and affiliates of Credit Suisse operating under its investment banking division. For more information on our structure, please use the followinghttps://www.credit-suisse.com/who_we_are/en/This report may contain material that is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, statcountry or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject Credit Suisse AG or its affiliates ("CS") to any registration or lrequirement within such jurisdiction. All material presented in this report, unless specifically indicated otherwise, is under copyright to CS. None of the material, nor its content, nor any copy of it, may be altered in anytransmitted to, copied or distributed to any other party, without the prior express written permission of CS. All trademarks, service marks and logos used in this report are trademarks or service marks or registered trademaror service marks of CS or its affiliates. The information, tools and material presented in this report are provided to you for information purposes only and are not to be used or considered as an offer or the solicitation ofoffer to sell or to buy or subscribe for securities or other financial instruments. CS may not have taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. CS will not trrecipients of this report as its customers by virtue of their receiving this report. The investments and services contained or referred to in this report may not be suitable for you and it is recommended that you consult aindependent investment advisor if you are in doubt about such investments or investment services. Nothing in this report constitutes investment, legal, accounting or tax advice, or a representation that any investmentstrategy is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you. CS does not advise on the tax consequences of investments and you are advised to contactan independent tax adviser. Please note in particular that the bases and levels of taxation may change. Information and opinions presented in this report have been obtained or derived from sources believed by CS to bereliable, but CS makes no representation as to their accuracy or completeness. CS accepts no liability for loss arising from the use of the material presented in this report, except that this exclusion of liability does not appthe extent that such liability arises under specific statutes or regulations applicable to CS. This report is not to be relied upon in substitution for the exercise of independent judgment. CS may have issued, and may in future issue, other communications that are inconsistent with, and reach different conclusions from, the information presented in this report. Those communications reflect the different assumptions, views and analytmethods of the analysts who prepared them and CS is under no obligation to ensure that such other communications are brought to the attention of any recipient of this report. CS may, to the extent permitted by lawparticipate or invest in financing transactions with the issuer(s) of the securities referred to in this report, perform services for or solicit business from such issuers, and/or have a position or holding, or other material intereeffect transactions, in such securities or options thereon, or other investments related thereto. In addition, it may make markets in the securities mentioned in the material presented in this report. CS may have, within the lthree years, served as manager or co-manager of a public offering of securities for, or currently may make a primary market in issues of, any or all of the entities mentioned in this report or may be providing, or have providwithin the previous 12 months, significant advice or investment services in relation to the investment concerned or a related investment. Additional information is, subject to duties of confidentiality, available on request. Sinvestments referred to in this report will be offered solely by a single entity and in the case of some investments solely by CS, or an associate of CS or CS may be the only market maker in such investments. Paperformance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimat

contained in this report reflect a judgment at its original date of publication by CS and are subject to change without notice. The price, value of and income from any of the securities or financial instruments mentioned inreport can fall as well as rise. The value of securities and financial instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financinstruments. Investors in securities such as ADR's, the values of which are influenced by currency volatility, effectively assume this risk. Structured securities are complex instruments, typically involve a high degree and are intended for sale only to sophisticated investors who are capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financiand political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility, and the credit quality of any issuer or reference issuer. Any investor intein purchasing a structured product should conduct their own investigation and analysis of the product and consult with their own professional advisers as to the risks involved in making such a purchase. Some investmendiscussed in this report may have a high level of volatility. High volatility investments may experience sudden and large falls in their value causing losses when that investment is realised. Those losses may equal yoriginal investment. Indeed, in the case of some investments the potential losses may exceed the amount of initial investment and, in such circumstances, you may be required to pay more money to support those losses.Income yields from investments may fluctuate and, in consequence, initial capital paid to make the investment may be used as part of that income yield. Some investments may not be readily realisable and it may be difficto sell or realise those investments, similarly it may prove difficult for you to obtain reliable information about the value, or risks, to which such an investment is exposed. This report may provide the addresses of, or cohyperlinks to, websites. Except to the extent to which the report refers to website material of CS, CS has not reviewed any such site and takes no responsibility for the content contained therein. Such address or hyperlin(including addresses or hyperlinks to CS's own website material) is provided solely for your convenience and information and the content of any such website does not in any way form part of this document. Accessing website or following such link through this report or CS's website shall be at your own risk. This report is issued and distributed in Europe (except Switzerland) by Credit Suisse Securities (Europe) Limited, One Cabot SqLondon E14 4QJ, England, which is authorised by the Prudential Regulation Authority ("PRA") and regulated by the Financial Conduct Authority ("FCA") and the PRA. This report is being distributed in Germany bySuisse Securities (Europe) Limited Niederlassung Frankfurt am Main regulated by the Bundesanstalt fuer Finanzdienstleistungsaufsicht ("BaFin"). This report is being distributed in the United States and Canada by CrSuisse Securities (USA) LLC; in Switzerland by Credit Suisse AG; in Brazil by Banco de Investimentos Credit Suisse (Brasil) S.A or its affiliates; in Mexico by Banco Credit Suisse (Mxico), S.A. (transactions relatesecurities mentioned in this report will only be effected in compliance with applicable regulation); in Japan by Credit Suisse Securities (Japan) Limited, Financial Instruments Firm, Director-General of Kanto Local FBureau (Kinsho ) No. 66, a member of Japan Securities Dealers Association, The Financial Futures Association of Japan, Japan Investment Advisers Association, Type II Financial Instruments Firms Association; elsewhin Asia/ Pacific by whichever of the following is the appropriately authorised entity in the relevant jurisdiction: Credit Suisse (Hong Kong) Limited, Credit Suisse Equities (Australia) Limited, Credit Suisse Securities (TLimited, having registered address at 990 Abdulrahim Place, 27 Floor, Unit 2701, Rama IV Road, Silom, Bangrak, Bangkok 10500, Thailand, Tel. +66 2614 6000, Credit Suisse Securities (Malaysia) Sdn Bhd, Credit Sui

AG, Singapore Branch, Credit Suisse Securities (India) Private Limited regulated by the Securities and Exchange Board of India (registration Nos. INB230970637; INF230970637; INB010970631; INF010970631), hregistered address at 9th Floor, Ceejay House, Dr.A.B. Road, Worli, Mumbai - 18, India, T- +91-22 6777 3777, Credit Suisse Securities (Europe) Limited, Seoul Branch, Credit Suisse AG, Taipei Securities Branch, PT CrSuisse Securities Indonesia, Credit Suisse Securities (Philippines ) Inc., and elsewhere in the world by the relevant authorised affiliate of the above. Research on Taiwanese securities produced by Credit Suisse AG, TaipeSecurities Branch has been prepared by a registered Senior Business Person. Research provided to residents of Malaysia is authorised by the Head of Research for Credit Suisse Securities (Malaysia) Sdn Bhd, to whomthey should direct any queries on +603 2723 2020. This report has been prepared and issued for distribution in Singapore to institutional investors, accredited investors and expert investors (each as defined under thFinancial Advisers Regulations) only, and is also distributed by Credit Suisse AG, Singapore branch to overseas investors (as defined under the Financial Advisers Regulations). By virtue of your status as an institutioinvestor, accredited investor, expert investor or overseas investor, Credit Suisse AG, Singapore branch is exempted from complying with certain compliance requirements under the Financial Advisers Act, Chapter 110Singapore (the "FAA"), the Financial Advisers Regulations and the relevant Notices and Guidelines issued thereunder, in respect of any financial advisory service which Credit Suisse AG, Singapore branch may provideyou. This research may not conform to Canadian disclosure requirements. In jurisdictions where CS is not already registered or licensed to trade in securities, transactions will only be effected in accordance with applicsecurities legislation, which will vary from jurisdiction to jurisdiction and may require that the trade be made in accordance with applicable exemptions from registration or licensing requirements. Non-U.S. customers wto effect a transaction should contact a CS entity in their local jurisdiction unless governing law permits otherwise. U.S. customers wishing to effect a transaction should do so only by contacting a representative at CrSuisse Securities (USA) LLC in the U.S. Please note that this research was originally prepared and issued by CS for distribution to their market professional and institutional investor customers. Recipients who are market professional or institutional investor customers of CS should seek the advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation ocontents. This research may relate to investments or services of a person outside of the UK or to other matters which are not authorised by the PRA and regulated by the FCA and the PRA or in respect of which thprotections of the PRA and FCA for private customers and/or the UK compensation scheme may not be available, and further details as to where this may be the case are available upon request in respect of this report. CSmay provide various services to US municipal entities or obligated persons ("municipalities"), including suggesting individual transactions or trades and entering into such transactions. Any services CS providmunicipalities are not viewed as "advice" within the meaning of Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. CS is providing any such services and related information solely on an arlength basis and not as an advisor or fiduciary to the municipality. In connection with the provision of the any such services, there is no agreement, direct or indirect, between any municipality (including the offimanagement, employees or agents thereof) and CS for CS to provide advice to the municipality. Municipalities should consult with their financial, accounting and legal advisors regarding any such services provided by In addition, CS is not acting for direct or indirect compensation to solicit the municipality on behalf of an unaffiliated broker, dealer, municipal securities dealer, municipal advisor, or investment adviser for the purp

obtaining or retaining an engagement by the municipality for or in connection with Municipal Financial Products, the issuance of municipal securities, or of an investment adviser to provide investment advisory serviceson behalf of the municipality. If this report is being distributed by a financial institution other than Credit Suisse AG, or its affiliates, that financial institution is solely responsible for distribution. Clients of that institutiocontact that institution to effect a transaction in the securities mentioned in this report or require further information. This report does not constitute investment advice by Credit Suisse to the clients of the distributing fininstitution, and neither Credit Suisse AG, its affiliates, and their respective officers, directors and employees accept any liability whatsoever for any direct or consequential loss arising from their use of this report or its coPrincipal is not guaranteed. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.Copyright 2013 CREDIT SUISSE AG and/or its affiliates. All rights reserved.Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principacan be eroded due to changes in redemption amounts. Care is required when investing in such instruments.When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, youwill be requested to pay the purchase price only.