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Global activity began to grow again in the spring and the outlook appears much more positive, thanks to the pro-active economic policies introduced in the industrialized world, as well as in a number of emerging countries.The pick-up in activity has been fastest in Asia, mainly driven by China. The pace of recovery has been slower in the US and Europe but is now clearly in evidence.The improvement in global trade confirms the trend reversal. However, the employment indicators remain deeply negative. This is because activity levels have remained very low despite the recovery. The persistence of high unemployment therefore provides full justification for keeping monetary and budgetary policy very accommodative.

In the United States, the recession is over. Industrial output increased in the third quarter and investment indicators paint a favorable picture. Surveys of business leaders point to a strong rebound in activity. The index that summarizes perceptions of their market environment suggests - for the first time since summer 2008 - that activity is set to rise. With inventories at low levels, firms are now increasing their production to meet demand from both domestic and overseas markets.

Consumption, meanwhile, received a substantial boost from the car scrappage program introduced in the summer. GDP growth should therefore be positive in the third quarter of 2009.

In Asia, activity picked up over the summer. Indicators for China, Japan, South Korea, and other countries in the region signal a strong rise in activity. Domestic demand has benefited from massive stimulus packages (especially in China), economic behavior has adapted very quickly to the new macro conditions and trade within the region has increased. The economic cycle has returned to something approaching normal.

The Euro zone is gradually climbing out of recession, but some countries are faring better than others. Activity has been increasing in France and Germany since May (though remains at low levels), while any indication of progress in Italy and Spain remains fragile. However, there are signs that the Euro zone is starting to benefit significantly from the more positive global environment. Surveys of European business leaders reveal more optimism than a few months ago. In a context of pared-back inventories, the rise in order levels has had a very marked effect on expectations.

Our macroeconomic analysis

Written by Philippe Waechter, Chief Economist of Natixis Asset Management

anticipations Monthly

october 2009

anticipations Monthly

october 2009

The equity markets are rising. The market environment has continued to improve and corporate earnings prospects are considerably enhanced. Against a backdrop of low inflation risk, and with monetary policy remaining accommodative for the foreseeable future, the bond markets have remained stable.

n Money marketThe central banks have left interest rates on hold at a very low level, and have continued to adopt unconventional measures to enable the credit market to return to “normal”. Given the lack of pressure on production capacity and on the labor market, inflation risk is low, thereby validating the highly accommodative policies of the central bankers. To have a more significant effect on expectations, the monetary authorities in the industrialized countries have often reiterated the long-term nature of this strategy.

n Bond marketsThe government bond markets remained stable in September. Given the low inflation expectations and long-term maintenance of accommodative monetary policies, there is not much risk of pressure on government bond yields.

n Equity marketsThe end to the global recession and enhanced corporate earnings prospects have boosted the equity markets. This scenario seems to be firmly in place. The DJ Eurostoxx 50 has risen 5 % since the Investment Committee last met, while the CAC 40 is up 5.2 % and the Standard & Poor’s index has put on 5.6 %.

n Currency marketThe dollar continued to lose value against all currencies in September, especially the yen and the euro. After benefiting from its safe haven status at the height of the crisis, the greenback is currently being affected by the reduction in investor risk aversion. Investors are now seeking better returns elsewhere. The short-term weakness in the dollar seems unlikely to change, even if global activity improves.

n CommoditiesAfter rising sharply in the first half of the year, the oil price stabilized at around USD 70 over the summer. Nonetheless, the price remains highly dependent on expectations for global growth. Gold remains very strong, offset by the fall in the dollar.

Our market analysis

www.am.natixis.com

Written on 20/10/2009

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Our asset allocation bias

*weighting gap vs. strategic allocation of an investorScale from -- to ++

We are “neutral” on the bond market and have a “positive” attitude towards equities.

(1) Investment committee on 02/09/2009.(2) Investment committee on 24/09/2009.

Risk categories

Risk sub-categories

Tactical allocation*

Commentary

Sept. 09(1) Oct. 09(2)

Fixed income = = We remain “neutral”. The lack of inflationary pressure and continuation of current monetary policies for an extended period suggest long-term bond yields will remain stable.

Equities + + We remain “positive” on equities. The pick-up in activity and expected improvement of corporate earnings will boost the equity markets.

Fixed income

United States - - We remain “negative”. The possibility of a stronger rebound than expected in the US could put pressure on US bond yields at the long end.

Euro = =We remain “neutral”. Long-term bond yields should remain stable since the ECB has kept in place a highly accommodative monetary policy and in view of the restructuring activity implemented by commercial banks.

UK - - We remain “negative” in light of concerns over the financing of the country’s public debt.

Emerging countries = = We remain “neutral”.

Japan = = We remain “neutral”. The Bank of Japan should keep interest rates close to zero given its fledgling recovery and persistent deflation.

Euro issuers Corporate + + We remain “positive”. The market is currently supported by abundant liquidity, a reduction in supply and the expected improvement of corporate earnings.

Equities

United States + + We remain “positive”. The equities markets should benefit from a strong rise in activity.

Euro + + We remain “positive”. The pick-up in activity should lead to an improvement in corporate earnings.

UK + + We remain “positive”.

Japan = = We remain “neutral”. Japan’s recovery appears fragile due to the weakness of internal demand and deflationary pressures.

Currencies(against the euro)

Dollar = = “Neutral”: the euro/dollar exchange rate should stabilize.

Yen = = “Neutral”: we expect the yen to stabilize against the euro.

Pound Sterling = = “Neutral”: sterling should remain stable.

CommoditiesOil = = We remain “neutral”. The oil price already factors in an expected upturn in global demand.

Gold = = We remain “neutral”: the price per ounce will probably stabilize after having risen sharply.

anticipations Monthly

october 2009

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