content-documents/house-oversight-nov/2a/HOUSE_OVERSIGHT_014400.md

metadata

title: 'House Oversight: Estate Documents (Nov 12) (HOUSE_OVERSIGHT_014400)'
source: 'House Oversight: Estate Documents (Nov 12)'
sourceUrl: https://www.justice.gov/epstein
date: '2026-01-01'
category: House Oversight
eftaNumber: HOUSE_OVERSIGHT_014400
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ocrChars: 2321
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engine: engine undisclosed (ep-nov-12.greg.technology mirror)
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externalCredit: ep-nov-12.greg.technology
externalUrl: https://ep-nov-12.greg.technology

1. Upturn in inventory cycle: Defensives Cyclicals We expect cyclicals to outperform defensives, premised on our end-2017 $/* estimate of *120, and this is supported by our above-consensus economic growth outlook. Our Japan economist sees a shift to fiscal easing, firms countering the tight labor market by increasing capex, and estimates industrial production to grow 3.5% and 3.6% in 2017 and 2018, respectively. With the inventory cycle exiting a "contraction" phase and entering a "recovery" phase, conditions are likely to remain conducive to cyclicals outperforming defensives (Chart 1, Exhibit 3).
2. Higher inflation, rates: Deflation stocks→Inflation stocks Up to 1H16, the Japan equity market saw continued preference for deflationary stocks as domestic inflation remained subdued and the JGB curve underwent excessive bull flattening. Defensives outperformed cyclicals (Chart 1), growth outperformed value (Chart 2), and stocks that benefit from a low-yield environment (REITs) outperformed the converse (banks, insurance; Chart 3). However, we expect conditions to reverse into 2017. We see US Treasury yields rising and Japanese core CP| inflation recovering to + 1.4% yoy by 2018 and core- core to +1.1% yoy. Stronger inflation and higher foreign yields should steepen the JGB yield curve above10yr, while below 10yr should escape from downward pressure as BoJ rate cut expectations recede. Against this backdrop, we expect to see a rotation from deflation to inflation stocks, which in addition to cyclicals means banks and insurance should outperform REITs within the financial sector (Chart 3). This is also in line with the global rotation expected by Michael Hartnett (The Flow Show: The Inflation Era Begins 10 November 2016).
3. Nikkei winner of steeper UST and strong macro In a scenario of strong external demand and US rate hikes (particularly with curve steepening), Japan equities tend to be the winner on a local currency basis, led by cyclicals, banks and insurance stocks (Exhibit 4). Resurgence in the "Japan macro trade" of short yen / buy equities is also a possibility. Our Buy-rated stocks in bank, insurance and cyclical sectors are listed in Table 1. Shusuke Yamada, CFA M FX/Equity Strategist Merrill Lunch (Japan) lobal Research Bankof America T Merrill Lynch HOUSE_OVERSIGHT_014400