MACRO HIGHLIGHTS    Global Strategy - db140weekender - Luke Templeman    Macro: German economy – Angela Merkel’s hiking holiday in Italy comes weeksbefore Germany’s election which international observers hope will bring somefiscal loosening. Critics of German thriftiness, point to public debt at 67per cent ofoutput, barely half of Italy and well below France and Spain at about 100per cent.Concurrently, many complain Germany has unfairly benefited from ultra-looseECB policy. True, Germany has saved ?260bn in interest on public debt since thefinancial crisis, equivalent to eight per cent of annual output. But as a proportionof GDP, others including France, Spain and Italy have saved more. Furthermore,should a downturn follow the ECB normalising policy, Germany’s fiscal strengthshould make the eurozone’s core more resilient. So while some, including theIMF and OECD, argue that higher deficits finance themselves through increasedgrowth, Germany’s electoral candidates should be more sceptical.    Europe Strategy- European Equity Strategy- Sebastian Raedler    Overweight UK & Germany, underweight France, Italy & Spain. European equitieshave fallen by 6% from their May peak on the back of euro strength, a softeningin Euro area macro momentum and rising geopolitical tensions, with the cyclicalindices, Germany and France, underperforming sharply. While our model forFrench equities points to further downside, Germany is starting to look attractive:    we have 3% upside to our year-end DAX target (versus 0% upside for the Stoxx600), it is now the second-cheapest index on our European valuation scorecard(behind only the UK) and the market offers a hedge against the risk that EUR/USD falls back to the levels suggested by interest rate differentials (~1.10). As aconsequence, we raise Germany from underweight to a small overweight. France,on the other hand, tends to underperform when Euro area PMIs weaken relativeto those globally (as suggested by our economists’ respective growth forecasts)and when European equities pull back (in line with our projections).

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