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Global Economics Report - September 2014

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A monthly summary of global economic performance including employment, trade, business conditions, leading indicators and regional data.

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Global Economics Report - September 2014

  1. 1. . Laird Research - Economics Sep 15, 2014 Where we are now . . . . . . . . . . . . . . . . . . . . . . . . 1 Indicators for US Economy . . . . . . . . . . . . . . . . . . . 2 Global Financial Markets . . . . . . . . . . . . . . . . . . . . 3 US Key Interest Rates . . . . . . . . . . . . . . . . . . . . . . 8 US In ation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 QE Taper Tracker . . . . . . . . . . . . . . . . . . . . . . . . . 10 Exchange Rates . . . . . . . . . . . . . . . . . . . . . . . . . . 11 US Banking Indicators . . . . . . . . . . . . . . . . . . . . . . 12 US Employment Indicators . . . . . . . . . . . . . . . . . . . 13 US Business Activity Indicators . . . . . . . . . . . . . . . . 15 US Consumption Indicators . . . . . . . . . . . . . . . . . . 16 US Housing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Global Business Indicators . . . . . . . . . . . . . . . . . . . 19 Canadian Indicators . . . . . . . . . . . . . . . . . . . . . . . 22 European Indicators . . . . . . . . . . . . . . . . . . . . . . . 24 Chinese Indicators . . . . . . . . . . . . . . . . . . . . . . . . 26 Global Climate Change . . . . . . . . . . . . . . . . . . . . . 27 Where we are now Welcome to the Laird Report. It’s job is to stick a the pin on the global economy’s map that says ”You are here”. We present a com-pendium of economic data from around the world to help figure this out. The Great Divergence seems to be the new theme in economics. North America seems to be in good shape with inflation ticking up to the goldilocks zone of 2% and employment slowly recovering. Europe continues to be a mess, though again we are seeing some recovery in employment. The challenge with Europe continues to be deflation - prices simply aren’t strengthening the way that policy makers hoped. The vaunted Quantitative Easing program which is currently being wound down by the US is actually being picked up by the Europeans. Europe-wide data shows inflation is still very low. The headwinds of the economy now seem to be pointing to de ation in a number of countries. QE in the US was brought in because of fiscal paralysis, so the Fed gave the economy a monetary boost – Europe seems to be indicating they will try the same thing. China also continues to slow. Chinese officials were concerned about bubbles and have been slowly been letting the steam out of the system to catch up with the rest of the world. The retail sales growth numbers are slowing down, and other measures like industrial production and fixed asset investment are weak. Australia is a good proxy for what is going on in China because it is heavily resource driven and the main customer is China - and Australia is being hit as well. Formatting Notes The grey bars on the various charts are OECD recession indicators for the respective countries. In many cases, the last available value is listed, along with the median value (measured from as much of the data series as is available). Subscription Info For a FREE subscription to this monthly re-port, please visit sign up at our website: www.lairdresearch.com Laird Research, Sep 15, 2014
  2. 2. Indicators for US Economy Leading indicators are indicators that usually change before the economy as a whole changes. They are useful as short-term predictors of the economy. Our list includes the Philly Fed’s Leading Index which summarizes multiple indicators; initial jobless claims and hours worked (both decrease quickly when demand for employee services drops and vice versa); purchasing manager indicies; new order and housing per-mit indicies; delivery timings (longer timings imply more demand in the system) and consumer sentiment (how consumers are feeling about their own financial situation and the economy in general). Leading Index for the US Index: Est. 6 month growth −3 −1 1 2 3 Growth Contraction median: 1.40 Jul 2014: 1.57 Initial Unemployment Claims 1000's of Claims per Week 200 400 600 median: 352.00 Sep 2014: 304.00 Manufacturing Ave. Weekly Hours Worked Hours 39 40 41 42 43 44 median: 40.60 Aug 2014: 42.00 ISM Manfacturing − PMI Index: Steady State = 50 30 40 50 60 70 median: 53.20 Aug 2014: 59.00 expanding economy contracting economy Manufacturers' New Orders: Durable Goods Billions of Dollars 150 200 250 300 median: 182.51 Jul 2014: 300.22 ISM Manufacturing: Supplier Deliveries Index 40 50 60 70 median: 51.60 Slower Deliveries Aug 2014: 53.90 Faster Deliveries Capex (ex. Defense & Planes) Percent change (3 months) 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 −10 −5 0 5 median: 0.86 Jul 2014: 2.64 Chicago Fed National Activity Index Index Value 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 −4 −2 0 2 median: 0.08 Jul 2014: 0.39 U. Michigan: Consumer Sentiment Index 1966 Q1 = 100 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 50 70 90 110 median: 88.30 Aug 2014: 82.50 www.lairdresearch.com Sep 15, 2014 Page 2
  3. 3. Global Financial Markets Global Stock Market Returns Country Index Name Close Date Current Value Weekly Change Monthly Change 3 month Change Yearly Change Corr to S&P500 Corr to TSX North America USA S&P 500 Sep 12 1,985.5 -1.1% t 2.7% s 2.9% s 17.9% s 1.00 0.57 USA NASDAQ Composite Sep 12 4,567.6 -0.3% t 4.1% s 6.3% s 22.9% s 0.90 0.49 USA Wilshire 5000 Total Market Sep 12 21,041.4 -1.1% t 2.8% s 2.8% s 17.4% s 0.99 0.57 Canada S&P TSX Sep 12 15,531.6 -0.2% t 1.7% s 4.2% s 22.3% s 0.57 1.00 Europe and Russia France CAC 40 Sep 12 4,441.7 -1.0% t 6.7% s -2.5% t 8.2% s 0.55 0.31 Germany DAX Sep 12 9,651.1 -1.0% t 6.4% s -2.9% t 13.6% s 0.57 0.42 United Kingdom FTSE Sep 12 6,807.0 -0.7% t 2.6% s -0.5% t 3.3% s 0.47 0.37 Russia Market Vectors Russia ETF Sep 12 24.6 -3.0% t 2.3% s -6.5% t -9.8% t 0.49 0.25 Asia Taiwan TSEC weighted index Sep 12 9,223.2 -2.0% t 0.7% s 0.2% s 12.1% s 0.22 0.11 China Shanghai Composite Index Sep 05 2,326.4 4.9% s 4.8% s 13.4% s 9.6% s -0.05 0.14 Japan NIKKEI 225 Sep 12 15,948.3 1.8% s 5.2% s 6.5% s 10.9% s -0.06 0.07 Hong Kong Hang Seng Sep 12 24,595.3 -2.6% t -0.4% t 6.1% s 7.2% s -0.02 0.23 Korea Kospi Sep 12 2,041.9 -0.4% t 0.0% s 1.5% s 1.9% s -0.13 -0.03 South Asia and Austrailia India Bombay Stock Exchange Sep 12 27,061.0 0.1% s 4.6% s 5.8% s 36.8% s 0.07 0.09 Indonesia Jakarta Sep 12 5,143.7 -1.4% t 0.2% s 4.2% s 18.1% s 0.16 -0.00 Malaysia FTSE Bursa Malaysia KLCI Sep 12 1,855.6 -0.7% t 0.3% s -1.0% t 4.7% s -0.04 -0.07 Australia All Ordinaries Sep 12 5,532.3 -1.2% t 0.2% s 2.3% s 5.6% s -0.12 0.11 New Zealand NZX 50 Index Gross Sep 12 5,224.0 -0.6% t 3.3% s 0.6% s 12.5% s 0.04 0.21 South America Brasil IBOVESPA Sep 12 56,928.0 -6.2% t 0.9% s 3.9% s 6.8% s 0.28 0.32 Argentina MERVAL Buenos Aires Sep 12 11,054.1 6.1% s 30.7% s 37.0% s 151.5% s 0.28 0.15 Mexico Bolsa index Sep 12 45,799.7 -0.9% t 2.4% s 7.5% s 12.3% s 0.46 0.30 MENA and Africa Egypt Market Vectors Egypt ETF Sep 12 73.6 -3.4% t -0.1% t 5.1% s 58.8% s -0.04 0.11 (Gulf States) Market Vectors Gulf States ETF Sep 12 34.3 0.4% s 4.6% s 3.9% s 41.5% s 0.18 -0.01 South Africa iShares MSCI South Africa Index Sep 12 68.2 -6.2% t -5.0% t -0.2% t 10.1% s 0.53 0.33 (Africa) Market Vectors Africa ETF Sep 12 32.2 -4.4% t -4.2% t -1.9% t 13.3% s 0.57 0.56 Commodities USD Spot Oil West Texas Int. Sep 08 $92.6 -0.3% t -5.1% t -11.8% t -15.5% t 0.18 0.26 USD Gold LME Spot Sep 12 $1,237.2 -2.1% t -5.6% t -1.9% t -7.7% t -0.07 -0.10 Note: Correlations are based on daily arithmetic returns for the most recent 100 trading days. www.lairdresearch.com Sep 15, 2014 Page 3
  4. 4. S&P 500 Composite Index The S&P 500 Composite Index is widely regarded as the best single gauge of the large cap U.S. equities market. A key figure is the valua-tion level of the S&P500 as measured by the Price/Earnings ratio. We present two versions: (1) a 12-month trailing earnings version which reflects current earnings but is skewed by short term variances and (2) a cyclically adjusted version which looks at the inflation adjusted earn-ings over a 10 year period (i.e. at least one business cycle). Forecasted earnings numbers are estimates provided by S&P. S&P 500 Profit Margins and Overall Corporate Profit Margins (Trailing 12 months) Percent 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 14 12 10 8 6 4 2 0 14 12 10 8 6 4 2 0 Percent Total Corporate Profits (% of GDP) − median: 6.2%, Q2/14: 10.6% Net Profit Margin (S&P 500 Earnings / Revenue) − median: 6.6%, Q2/14: 9.0% S&P Quarterly Earnings (USD$ Inflation Adjusted to current prices) US Financial Crisis Savings and Loans Crisis Reported Earnings Operating Earnings 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 40.00 35.00 30.00 25.00 20.00 15.00 10.00 5.00 0.00 −5.00 40.00 35.00 30.00 25.00 20.00 15.00 10.00 5.00 0.00 −5.00 Tech Bubble Japanese Asset Bubble Asian Financial Crisis House Bubble Eurozone crisis Oil Crisis I Oil Crisis II Gulf War High Inflation Period Vietnam War Afganistan/Iraq War Trailing P/E Ratios for S&P500 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 50 40 30 20 10 0 50 40 30 20 10 0 Multiple Multiple 12−month P/E ( median = 17.4, Sep = 18.5) 10−year CAPE ( median = 19.4, Sep = 24.9) www.lairdresearch.com Sep 15, 2014 Page 4
  5. 5. S&P 500 Composite Distributions This is a view of the price performance of the S&P 500 index com-panies. The area of each box is proportional to the company’s market cap, while the colour is determined by the percentage change in price over the past month. In addition, companies are sorted according to their industry group. FB 7.7% AAPL 6% USB MS Financials ORCL 2.7% GOOG 2.7% MSFT 10% IBM 2% BK BLK ADP YHOO PNC MU ADBE CSCO QCOM INTC 4.5% V 1.7% AFL CME TRV BEN EMC DFS PSA EBAY HPQ MA TXN CRM FIS STX BRK−A 9.3% WFC 3.2% JPM 5.8% BAC 11% C 8.6% AXP GS AIG MET SPG COF AMT ACE STT CB HCN VTR HST L RF TWX F GM Consumer Discretionary HD 12% AMZN 7.6% ABT ACT MDT JNJ 5.4% COV MCK PFE 2.7% MRK TWC UA TIF M TGT JCI UNH BMY BIIB GILD 16% LLY TMO SYK AET CI A MYL DIS 5.4% MCD NKE DTV TJX DG LB RL APC RTN DE GD ITW GE 2.6% BHI HES WMB Energy CMI UTX UNP 11% NOC DAL NSC MMM 3.6% NBL OXY COP WM IR UPS BA CAT FDX PCP ETN GLW LUV Telecommunications APD Services Materials Utilities MON DD KMB WAG WMT 4.2% PX GIS CL PG 4.8% KO SO CVS PM 3.2% PEP 4.8% MO MDLZ COST ADM NI NEE KR K EL SYY XOM −1.1% CVX SLB −2.9% HAL EOG PSX SE VLO RIG DOW LYB PPG IP AA CF DUK D EIX ED VZ −1.6% T −1.4% Information Technology Health Care Industrials Consumer Staples <−25.0% −20.0% −15.0% −10.0% −5.0% 0.0% 5.0% 10.0% 15.0% 20.0% >25.0% % Change in Price from Aug 01, 2014 to Sep 11, 2014 Average Median Median Median Sector Change P/Sales P/Book P/E Health Care 5.7% s 3.3 4.0 23.6 Financials 5.5% s 3.0 1.5 18.3 Information Technology 5.0% s 3.3 4.0 21.7 Industrials 4.7% s 1.6 3.3 20.4 Consumer Discretionary 4.7% s 1.6 4.2 20.5 Average Median Median Median Sector Change P/Sales P/Book P/E Consumer Staples 4.7% s 1.9 5.3 20.4 Utilities 4.0% s 1.4 1.6 17.0 Materials 2.8% s 1.6 3.4 23.2 Energy -0.6% t 2.0 1.8 18.8 Telecommunications Services -1.1% t 1.4 2.0 23.1 www.lairdresearch.com Sep 15, 2014 Page 5
  6. 6. US Equity Valuations A key valuation metric is Tobin’s q: the ratio between the market value of the entire US stock market versus US net assets at replacement cost (ie. what you pay versus what you get). Warren Buffet famously follows stock market value as a percentage of GNP, which is highly (93%) correlated to Tobin’s q. We can also take the reverse approach: assume the market has valuations correct, we can determine the required returns of future es-timated earnings. These are quoted for both debt (using BAA rated securities as a proxy) and equity premiums above the risk free rate (10 year US Treasuries). These figures are alternate approaches to under-standing the current market sentiment - higher premiums indicate a demand for greater returns for the same price and show the level of risk-aversion in the market. Tobin's q (Market Equity / Market Net Worth) and S&P500 Price/Sales Tobin Q (median = 0.75, Mar = 1.11) S&P 500 Price/Sales (median = 1.32, Jun = 1.72) Paying up for growth 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 1.75 1.50 1.25 1.00 0.75 0.50 0.25 1.75 1.50 1.25 1.00 0.75 0.50 0.25 Buying assets at a discount Equity and Debt Risk Premiums: Spread vs. Risk Free Rate (10−year US Treasury) 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 10% 8% 6% 4% 2% 0% 10% 8% 6% 4% 2% 0% Implied Equity Premium (median = 4.2%, Aug = 4.9%) Debt (BAA) Premium (median = 2.0%, Aug = 2.3%) www.lairdresearch.com Sep 15, 2014 Page 6
  7. 7. US Mutual Fund Flows Fund flows describe the net investments in equity and bond mutual funds in the US market, as described in ICI’s “Trends in Mutual Fund Investing” report. Note however that this is only part of the story as it does not include ETF fund flows - part of the changes are investors entering or leaving the market, and part is investors shifting to ETF’s from mutual funds. US Net New Investment Cash Flow to Mutual Funds US$ billions (monthly) 2007 2008 2009 2010 2011 2012 2013 2014 −40 −20 0 20 40 Domestic Equity World Equity Taxable Bonds Municipal Bonds US Net New Investment Cash Flow to Mutual Funds US$ billions (Monthly) 2007 2008 2009 2010 2011 2012 2013 2014 −60 −40 −20 0 20 40 60 Flows to Equity Flows to Bonds Net Market Flows www.lairdresearch.com Sep 15, 2014 Page 7
  8. 8. US Key Interest Rates Interest rates are often leading indicators of stress in the financial system. The yield curve show the time structure of interest rates on government bonds - Usually the longer the time the loan is outstanding, the higher the rate charged. However if a recession is expected, then the fed cuts rates and this relationship is inverted - leading to negative spreads where short term rates are higher than long term rates. Almost every recession in the past century has been preceeded by an inversion - though not every inversion preceeds a recession (just most of the time). For corporate bonds, the key issue is the spread between bond rates (i.e. AAA vs BAA bonds) or between government loans (LIBOR vs Fedfunds - the infamous “TED Spread”). Here a spike correlates to an aversion to risk, which is an indication that something bad is happen-ing. US Treasury Yield Curves Forward Instantaneous Rates (%) 13 14 Sep 11, 2014 (Today) 3.0 Aug 11, 2014 (1 mo ago) Jun 11, 2014 (3 mo ago) 11 Sep 2013 (1 yr ago) 15 16 17 18 19 20 21 22 23 24 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2.5 2.0 1.5 1.0 0.5 0.0 3 Month & 10 Yr Treasury Yields 96 7% 10 Yr Treasury 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 6% 5% 4% 3% 2% 1% 0% 3 Mo Treasury Spread AAA vs. BAA Bond Spreads 9% 8% 7% 6% 5% 4% 9% 8% 7% 6% 5% 4% Percent AAA BAA median: 91.00 Sep 2014: 66.00 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 300 200 100 0 300 200 100 0 Spread (bps) LIBOR vs. Fedfunds Rate 7% 6% 5% 4% 3% 2% 1% 0% 7% 6% 5% 4% 3% 2% 1% 0% Percent 3 mos t−bill LIBOR median: 37.00 Sep 2014: 21.23 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 300 200 100 0 300 200 100 0 Spread (bps) www.lairdresearch.com Sep 15, 2014 Page 8
  9. 9. US In ation Generally, the US Fed tries to anchor long run inflation expectations to approximately 2%. Inflation can be measured with the Consumer Price Index (CPI) or the Personal Consumption Expenditures (PCE) index. In both cases, it makes sense to exclude items that vary quickly like Food and Energy to get a clearer picture of inflation (usually called Core Inflation). The Fed seems to think PCI more accurately reflects the entire basket of goods and services that households purchase. Finally, we can make a reasonable estimate of future inflation ex-pectations by comparing real return and normal bonds to construct an imputed forward inflation expectation. The 5y5y chart shows expected 5 year inflation rates at a point 5 years in the future. Neat trick that. Consumer Price Index Percent 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 6% 5% 4% 3% 2% 1% 0% −1% 6% 5% 4% 3% 2% 1% 0% −1% US Inflation Rate YoY% (Jul = 2.0%) US Inflation ex Food & Energy YoY% (Jul = 1.9%) Personal Consumption Expenditures Percent (Year over Year) 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 −1 0 1 2 3 4 5 6 PCE Inflation Rate YoY% (Jul = 1.6%) PCE Core Inflation YoY% (Jul = 1.5%) 5−Year, 5−Year Forward Inflation Expectation Rate Percent 08 09 10 11 12 13 14 15 16 17 18 19 −1 0 1 2 3 4 5 6 5 year forward Inflation Expectation Actual 5yr Inflation (CPI measure) Actual 5yr Inflation (PCE Measure www.lairdresearch.com Sep 15, 2014 Page 9
  10. 10. QE Taper Tracker The US has been using the program of Quantitative Easing to pro-vide monetary stimulous to its economy. The Fed has engaged in a series of programs (QE1, QE2 & QE3) designed to drive down long term rates and improve liquidity though purchases of treasuries, mor-gage backed securites and other debt from banks. The higher demand for long maturity securities would drive up their price, but as these securities have a fixed coupon, their yield would be decreased (yield coupon / price) thus driving down long term rates. In 2011-2012, “Operation Twist” attempted to reduce rates without increasing liquidity. They went back to QE in 2013. The Fed chairman suggested in June 2013 the economy was recover-ing enough that they could start slowing down purchases (“tapering”). The Fed backed off after a brief market panic. The Fed announced in Dec 2013 that it was starting the taper, a decision partly driven by seeing key targets of inflation around 2% and unemployment being less than 6.5%. These charts track that progress. QE Asset Purchases to Date (Treasury Mortgage Backed Securities) Trillions 2.5 2.0 1.5 1.0 0.5 0.0 2.5 2.0 1.5 1.0 0.5 0.0 Treasuries QE1 QE2 Operation Twist QE3 Taper Mortgage Backed Securities Total Monthly Asset Purchases (Treasury + Mortgage Backed Securities) 200 150 100 Billions 50 0 −50 −100 200 150 100 50 0 −50 −100 Month to date Sep 10: $4.7 Inflation and Unemployment − Relative to Targets Percent 10 8 6 4 2 0 10 8 6 4 2 0 Target Unemployment 6.5% Target Inflation 2% U.S. 10 Year and 3 Month Treasury Constant Maturity Yields Percent 5 4 3 2 1 0 5 4 3 2 1 0 Short Term Rates: Once at zero, Fed moved to QE Long Term Rates: Moving up in anticipation of Taper? 2008 2009 2010 2011 2012 2013 2014 www.lairdresearch.com Sep 15, 2014 Page 10
  11. 11. Exchange Rates 10 Week Moving Average CAD Exchange Rates 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 0.62 0.71 0.81 0.90 1.00 1.09 USA / CAD 0.55 0.61 0.66 0.72 0.77 0.82 Euro / CAD 59.16 74.71 90.26 105.81 121.36 136.91 Japan / CAD 0.38 0.44 0.49 0.55 0.61 0.67 U.K. / CAD 0.59 0.98 1.36 1.74 2.12 2.51 Brazil / CAD CAD Appreciating CAD Depreciating 1 Month Change in Rates versus Average 3.0% 1.5% −1.5% −3.0% Euro 2.6% UK 2.8% Japan 1.4% South Korea −1.0% China −1.2% India −1.2% Brazil −1.8% Mexico −2.0% USA 0.7% Canada −0.7% % Change over 3 months vs. Canada BRA −0.9% ARG −0.2% KRW 2.9% JPY −3.0% AUS −1.8% RUS −7.0% CHN 2.2% IND −0.3% USA 2.2% EUR −2.2% MXN 0.3% ZAR −0.6% −10.0% −8.0% −6.0% −4.0% −2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% CAD appreciating CAD depreciating www.lairdresearch.com Sep 15, 2014 Page 11
  12. 12. US Banking Indicators The banking and finance industry is a key indicator of the health of the US economy. It provides crucial liquidity to the economy in the form of credit, and the breakdown of that system is one of the exac-erbating factors of the 2008 recession. Key figures to track are the Net Interest Margins which determine profitability (ie. the difference between what a bank pays to depositors versus what the bank is paid by creditors), along with levels of non-performing loans (i.e. loan loss reserves and actual deliquency rates). US Banks Net Interest Margin Percent 3.5 4.0 4.5 median: 3.95 2014 Q2: 3.10 Repos Outstanding with Fed. Reserve Billions of Dollars 50 150 250 median: 52.86 Sep 2014: 267.60 Bank ROE − Assets between $300M−$1B Percent 0 5 10 15 median: 12.84 2014 Q2: 9.42 Consumer Credit Outstanding % Yearly Change −5 0 5 10 15 20 median: 7.05 Jul 2014: 6.50 Total Business Loans % Yearly Change −20 0 10 20 median: 7.83 Aug 2014: 11.41 US Nonperforming Loans Percent 1 2 3 4 5 median: 2.34 2014 Q2: 2.26 St. Louis Financial Stress Index Index 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 0 2 4 6 median: −0.0085 Sep 2014: −1.28 Commercial Paper Outstanding Trillions of Dollars 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 1.0 1.4 1.8 2.2 median: 1.36 Sep 2014: 1.05 Residential Morgage Delinquency Rate Percent 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 2 4 6 8 10 median: 2.30 2014 Q2: 7.39 www.lairdresearch.com Sep 15, 2014 Page 12
  13. 13. US Employment Indicators Unemployment rates are considered the “single best indicator of current labour conditions” by the Fed. The pace of payroll growth is highly correlated with a number of economic indicators.Payroll changes are another way to track the change in unemployment rate. Unemployment only captures the percentage of people who are in the labour market who don’t currently have a job - another measure is what percentage of the whole population wants a job (employed or not) - this is the Participation Rate. The Beveridge Curve measures labour market efficiency by looking at the relationship between job openings and the unemployment rate. The curve slopes downward reflecting that higher rates of unemploy-ment occur coincidentally with lower levels of job vacancies. Unemployment Rate Percent median: 6.25 11 10 9 8 7 6 4 Aug 2014: 6.10 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 5 11 10 9 8 7 6 5 4 Percent 4 5 6 7 8 9 10 2.0 2.5 3.0 3.5 4.0 Beveridge Curve (Unemployment vs. Job Openings) Unemployment Rate (%) Job Openings (% total Employment) Dec 2000 − Dec 2008 Jan 2009 − Jun 2014 Jul 2014 Participation Rate Percent 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 63 64 65 66 67 median: 66.10 Aug 2014: 62.80 Total Nonfarm Payroll Change Monthly Change (000s) 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 −500 0 500 median: 161.00 Aug 2014: 142.00 www.lairdresearch.com Sep 15, 2014 Page 13
  14. 14. There are a number of other ways to measure the health of employ-ment. The U6 Rate includes people who are part time that want a full-time job - they are employed but under-utilitized. Temporary help demand is another indicator of labour market tightness or slack. The large chart shows changes in private industry employment lev-els over the past year, versus how well those job segments typically pay. Lots of hiring in low paying jobs at the expense of higher paying jobs is generally bad, though perhaps not unsurprising in a recovery. Median Duration of Unemployment Weeks 5 10 15 20 25 median: 8.60 Aug 2014: 13.20 (U6) Unemployed + PT + Marginally Attached Percent 8 10 12 14 16 median: 9.70 Aug 2014: 12.00 4−week moving average of Initial Claims Jan 1995 = 100 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 50 100 150 200 median: 108.22 Sep 2014: 93.47 Financial Activities 0 200 400 600 Unemployed over 27 weeks Millions of Persons 35 30 25 20 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 0 1 2 3 4 5 6 7 median: 0.78 Aug 2014: 2.97 Services: Temp Help Millions of Persons 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 1.5 2.0 2.5 median: 2.24 Aug 2014: 2.90 15 Annual Change in Employment Levels (000s of Workers) Average wages ($/hour) Private Industry Employment Change (1 year) Construction Durable Goods Education Health Services Information Leisure and Hospitality Manufacturing Mining and Logging Nondurable Goods Other Services Professional Business Services Retail Trade Transportation Utilities Wholesale Trade Circle size relative to total employees in industry www.lairdresearch.com Sep 15, 2014 Page 14
  15. 15. US Business Activity Indicators Business activity is split between manufacturing activity and non-manufacturing activity. We are focusing on forward looking business indicators like new order and inventory levels to give a sense of the current business environment. Manufacturing Sector: Real Output YoY Percent Change −10 0 10 20 median: 6.07 2014 Q2: 10.45 ISM Manufacturing − PMI Index 30 40 50 60 70 Aug 2014: 59.00 manufac. expanding manufac. contracting ISM Manufacturing: New Orders Index Index 30 40 50 60 70 80 Aug 2014: 66.70 Increase in new orders Decrease in new orders Non−Manufac. New Orders: Capital Goods Billions of Dollars 40 50 60 70 median: 57.22 Jul 2014: 72.44 Average Weekly Hours: Manufacturing Hours 39 40 41 42 43 median: 41.10 Aug 2014: 42.00 Industrial Production: Manufacturing YoY Percent Change −15 −5 0 5 10 median: 3.30 Jul 2014: 5.29 Total Business: Inventories to Sales Ratio Ratio 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 1.1 1.2 1.3 1.4 1.5 1.6 median: 1.37 Jul 2014: 1.29 Chicago Fed: Sales, Orders Inventory Index 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 −0.5 0.0 0.5 Above ave growth Jul 2014: 0.05 Below ave growth ISM Non−Manufacturing Bus. Activity Index Index Growth Contraction 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 35 45 55 65 Aug 2014: 65.00 www.lairdresearch.com Sep 15, 2014 Page 15
  16. 16. US Consumption Indicators Variations in consumer activity are a leading indicator of the strength of the economy. We track consumer sentiment (their expec-tations about the future), consumer loan activity (indicator of new purchase activity), and new orders and sales of consumer goods. U. Michigan: Consumer Sentiment Index 1966 Q1 = 100 50 60 70 80 90 110 median: 88.30 Aug 2014: 82.50 Consumer Loans (All banks) YoY % Change 0 10 20 30 median: 7.10 Aug 2014: 3.42 Accounting Change Deliquency Rate on Consumer Loans Percent 2.5 3.0 3.5 4.0 4.5 median: 3.48 2014 Q2: 2.26 New Orders: Durable Consumer Goods YoY % Change −30 −10 10 30 median: 3.86 Jul 2014: 7.82 New Orders: Non−durable Consumer Goods YoY % Change −20 0 10 20 median: 3.87 Jul 2014: 0.12 Personal Consumption Housing Index Index −0.4 0.0 0.2 0.4 median: 0.02 above ave growth Jul 2014: −0.10 below ave growth Light Cars and Trucks Sales Millions of Units 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 10 12 14 16 18 20 22 median: 14.76 Aug 2014: 17.45 Personal Saving Rate Percent 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 2 4 6 8 10 median: 5.60 Jul 2014: 5.70 Real Retail and Food Services Sales YoY % Change 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 −10 −5 0 5 median: 2.36 Jul 2014: 2.43 www.lairdresearch.com Sep 15, 2014 Page 16
  17. 17. US Housing Housing construction is only about 5-8% of the US economy, how-ever a house is typically the largest asset owned by a household. Since personal consumption is about 70% of the US economy and house val-ues directly impact household wealth, housing is an important indicator in the health of the overall economy. In particular, housing investment was an important driver of the economy getting out of the last few recessions (though not this one so far). Here we track housing prices and especially indicators which show the current state of the housing market. 15 20 25 30 35 150 200 250 300 Personal Income vs. Housing Prices (Inflation adjusted values) New Home Price (000's) Disposable Income Per Capita (000's) Jul 2014 r2 : 88.5% Range: Jan 1964 − Jul 2014 New Housing Units Permits Authorized Millions of Units 0.5 1.0 1.5 2.0 2.5 median: 1.36 Jul 2014: 1.06 New Home Median Sale Price Sale Price $000's 100 150 200 250 Jul 2014: 269.80 Homeowner's Equity Level Percent 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 40 50 60 70 80 median: 66.52 2014 Q1: 53.64 New Homes: Median Months on the Market Months 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 4 6 8 10 12 14 median: 5.00 Jul 2014: 3.50 US Monthly Supply of Homes Months Supply 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 4 6 8 10 12 median: 5.90 Jul 2014: 6.00 www.lairdresearch.com Sep 15, 2014 Page 17
  18. 18. US Housing - FHFA Quarterly Index The Federal Housing Finance Agency provides a quarterly survey on house prices, based on sales prices and appraisal data. This gener-ates a housing index for 355 municipal areas in the US from 1979 to present. We have provided an alternative view of this data looking at the change in prices from the peak in the 2007 time frame. The goal is to provide a sense of where the housing markets are weak versus strong.The colours represent gain or losses since the start of the housing crisis (defined as the maximum price between 2007-2009 for each city). The circled dots are the cities in the survey, while the background colours are interpolated from these points using a loess smoother. Change from 2007 Peak − Q2 2014 50% 40% 30% 20% 10% 0% −10% −20% −30% −40% −50% Today's Home Prices Percentage Change from 2007−2009 Peak Frequency −75% −50% −25% 0% 25% 50% 75% Year over Year Change − Q2 2014 10% 8% 6% 4% 2% 0% −2% −4% −6% −8% −10% YoY Change in this quarter YoY Percent Change Frequency −15% −10% −5% 0% 5% 10% 15% www.lairdresearch.com Sep 15, 2014 Page 18
  19. 19. Global Business Indicators Global PMI Reports The Purchasing Managers’ Index (PMI) is an indicator reflecting purchasing managers’ acquisition of goods and services. An index read-ing of 50.0 means that business conditions are unchanged, a number over 50.0 indicates an improvement while anything below 50.0 suggests a decline. The further away from 50.0 the index is, the stronger the change over the month. The chart at the bottom shows a moving av-erage of a number of PMI’s, along with standard deviation bands to show a global average. Global PMI − August 2014 Eurozone 50.7 MEX 56.1 52.1 Global PMI 52.6 TWN 40.0 42.0 44.0 46.0 48.0 50.0 52.0 54.0 56.0 58.0 60.0 Contracting Steady Expanding KOR 50.3 JPN 52.5 VNM 50.3 IDN 49.5 ZAF 49.0 AUS 47.3 BRA 50.2 CAN 54.8 CHN 50.2 IND 52.4 RUS 51.0 SAU 60.7 USA 57.9 Global PMI Monthly Change Eurozone −1.1 MEX 0.3 0.6 Global PMI 0.2 TWN −5.0 −4.0 −3.0 −2.0 −1.0 0.0 1.0 2.0 3.0 4.0 5.0 Deteriorating PMI Change Improving KOR 1.0 JPN 2.0 VNM −1.4 IDN −3.2 ZAF 3.1 AUS −3.4 BRA 1.1 CAN 0.5 CHN −1.5 IND −0.6 RUS 0.0 SAU 0.6 USA 2.1 Purchase Managers Index (Manufacturing) − China, Japan, USA, Canada, France, Germany, Italy, UK, Australia Business Conditions Expanding 04 05 06 07 08 09 10 11 12 13 14 30 40 50 60 70 30 40 50 60 70 Business Conditions Contracting www.lairdresearch.com Sep 15, 2014 Page 19
  20. 20. Global PMI Chart This is an alternate view of the global PMI reports. Here, we look at all the various PMI data series in a single chart and watch their evolution over time. Red numbers indicate contraction (as estimated by PMI) while green numbers indicate expansion. Global PMI 48.7 48.7 48.9 49.6 50.0 51.5 50.9 51.2 50.4 50.6 50.6 50.8 51.6 51.8 52.1 53.1 53.3 53.0 53.2 52.4 51.9 52.2 52.6 52.4 52.6 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13 Aug 13 Sep 13 Oct 13 Nov 13 Dec 13 Jan 14 Feb 14 Mar 14 Apr 14 May 14 Jun 14 Jul 14 Aug 14 United States Canada Mexico Brazil Eurozone Netherlands Ireland Poland Spain Czech Republic Italy France Germany Greece United Kingdom Russia Turkey Saudi Arabia South Africa Japan Korea China Taiwan Vietnam Indonesia India Australia 51.5 51.1 51.0 52.8 56.1 55.8 54.3 54.6 52.1 52.3 52.0 53.7 53.1 52.8 51.8 54.7 55.0 53.7 57.1 55.5 55.4 56.4 57.3 55.8 57.9 53.0 52.4 51.4 50.4 50.4 50.5 51.7 49.3 50.1 53.2 52.4 52.0 52.1 54.2 55.6 55.3 53.5 51.7 52.9 53.3 52.9 52.2 53.5 54.3 54.8 55.1 54.4 55.5 55.6 57.1 55.0 53.4 52.2 51.7 51.7 51.3 49.7 50.8 50.0 50.2 51.9 52.6 54.0 52.0 51.7 51.8 51.9 51.8 51.5 52.1 49.3 49.8 50.2 52.2 51.1 53.2 52.5 51.8 50.8 50.4 50.4 48.5 49.4 49.9 50.2 49.7 50.5 50.8 50.4 50.6 49.3 48.8 48.7 49.1 50.2 46.3 46.1 45.4 46.8 46.1 47.9 47.9 46.8 46.7 48.3 48.8 50.3 51.4 51.1 51.3 51.6 52.7 54.0 53.2 53.0 53.4 52.2 51.8 51.8 50.7 49.7 50.7 48.9 48.2 49.6 50.2 49.0 48.0 48.2 48.7 48.8 50.8 53.5 55.8 54.4 56.8 57.0 54.8 55.2 53.7 53.4 53.6 52.3 53.5 51.7 50.9 51.8 52.1 52.4 51.4 50.3 51.5 48.6 48.0 49.7 50.3 51.0 52.0 52.7 54.9 52.4 53.5 52.8 52.9 55.5 56.1 55.0 55.3 55.4 57.3 48.3 47.0 47.3 48.2 48.5 48.6 48.9 48.0 46.9 48.0 49.3 51.1 52.6 53.1 53.4 54.4 53.2 55.4 55.9 54.0 52.0 50.8 50.3 49.4 49.0 44.0 44.5 43.5 45.3 44.6 46.1 46.8 44.2 44.7 48.1 50.0 49.8 51.1 50.7 50.9 48.6 50.8 52.2 52.5 52.8 52.7 52.9 54.6 53.9 52.8 48.7 48.0 47.2 48.2 46.0 48.3 49.9 49.1 49.5 50.1 51.0 52.0 53.9 53.4 54.5 55.4 54.7 55.9 56.5 55.5 56.5 57.3 54.7 56.5 54.3 43.6 45.7 45.5 45.1 46.7 47.8 45.8 44.5 45.5 47.3 49.1 50.4 51.3 50.8 50.7 51.4 53.3 53.1 52.3 52.4 54.0 53.2 52.6 51.9 49.8 46.0 42.7 43.7 44.5 44.6 42.9 43.9 44.0 44.4 46.4 48.4 49.7 49.7 49.8 49.1 48.4 47.0 49.3 49.7 52.1 51.2 49.6 48.2 47.8 46.9 44.7 47.4 46.0 46.8 46.0 49.8 50.3 49.0 48.1 49.4 48.6 50.7 51.8 51.1 51.7 52.7 54.3 56.5 54.8 53.7 54.1 52.3 52.0 52.4 51.4 42.1 42.2 41.0 41.8 41.4 41.7 43.0 42.1 45.0 45.3 45.4 47.0 48.7 47.5 47.3 49.2 49.6 51.2 51.3 49.7 51.1 51.0 49.4 48.7 50.1 49.6 48.1 47.3 49.2 51.2 50.5 47.9 48.6 50.2 51.3 52.9 54.8 57.2 56.3 56.5 58.4 57.3 56.7 56.2 55.3 57.3 57.0 57.5 55.4 52.5 51.0 52.4 52.9 52.3 50.0 52.0 52.0 50.8 50.6 50.4 51.7 49.2 49.4 49.4 51.8 49.4 48.8 48.0 48.5 48.3 48.5 48.9 49.1 51.0 51.0 50.0 52.2 52.5 51.6 53.1 54.0 53.5 52.3 51.3 51.1 51.2 49.8 50.9 54.0 53.3 55.0 53.5 52.7 53.4 51.7 51.1 50.1 48.8 48.5 50.3 59.8 57.0 58.9 58.1 58.5 58.9 58.0 57.3 56.6 56.6 57.5 58.7 56.7 57.1 58.7 59.7 58.6 57.0 58.5 57.0 59.2 60.1 60.7 47.1 49.5 47.4 49.1 53.6 49.3 50.5 50.4 51.6 52.2 56.5 49.1 51.5 51.6 50.5 50.3 51.5 50.3 47.4 44.3 46.6 45.9 49.0 47.7 48.0 46.9 46.5 45.0 47.7 48.5 50.4 51.1 51.5 52.3 50.7 52.2 52.5 54.2 55.1 55.2 56.6 55.5 53.9 49.4 49.9 51.5 50.5 52.5 47.5 45.7 47.4 48.2 50.1 49.9 50.9 52.0 52.6 51.1 49.4 47.2 47.5 49.7 50.2 50.4 50.8 50.9 49.8 50.4 50.2 49.5 48.4 49.3 50.3 49.2 49.8 50.2 50.6 51.5 50.4 50.4 51.6 50.4 49.2 48.2 47.7 50.1 50.2 50.9 50.8 50.5 49.5 48.5 48.0 48.1 49.4 50.7 51.7 50.2 46.1 45.6 47.8 47.4 50.6 51.5 50.2 51.2 50.7 47.1 49.5 48.6 50.0 52.0 53.0 53.4 55.2 55.5 54.7 52.7 52.3 52.4 54.0 55.8 56.1 47.9 49.2 48.7 50.5 49.3 50.1 48.3 50.8 51.0 48.8 46.4 48.5 49.4 51.5 51.5 50.3 51.8 52.1 51.0 51.3 53.1 52.5 52.3 51.7 50.3 51.6 50.5 51.9 51.5 50.7 49.7 50.5 51.3 51.7 51.6 51.0 50.7 48.5 50.2 50.9 50.3 50.9 51.0 50.5 50.1 51.1 52.4 52.7 52.7 49.5 52.8 52.8 52.9 53.7 54.7 53.2 54.2 52.0 51.0 50.1 50.3 50.1 48.5 49.6 49.6 51.3 50.7 51.4 52.5 51.3 51.3 51.4 51.5 53.0 52.4 45.3 44.1 45.2 44.3 44.3 40.2 45.6 44.4 36.7 43.8 49.6 42.0 46.4 51.7 53.2 47.7 47.6 46.7 48.6 47.9 44.8 49.2 48.9 50.7 47.3 www.lairdresearch.com Sep 15, 2014 Page 20
  21. 21. OECD International Trade Data The OECD calculates import and export values for member coun-tries. Figures are seasonally adjusted and measured in billions of US dollars. Red lines indicate exports, while blue lines indicate imports. Green lines indicate the zero level. The top part of the graph shows the changes in exports and imports on a year-over-year basis, while the bottom part shows the difference between exports and imports for that given month (i.e. the trade bal-ance) China YoY Change 40 20 0 −20 −40 Balance 08 09 10 11 12 13 14 40 30 20 10 0 −10 US YoY Change 40 20 0 −20 −40 −60 Balance 08 09 10 11 12 13 14 0 −20 −40 −60 −80 Canada YoY Change 10 5 0 −5 −10 −15 Balance 08 09 10 11 12 13 14 0 2 4 6 −2 Germany YoY Change 20 0 −20 −40 Balance 08 09 10 11 12 13 14 30 25 20 15 10 0 5 Japan YoY Change 20 10 0 −10 −20 −30 Balance 08 09 10 11 12 13 14 10 0 5 −5 −10 South Korea YoY Change 15 10 0 5 −5 −10 −15 Balance 08 09 10 11 12 13 14 0 2 4 6 −2 −4 India YoY Change 15 10 5 0 −5 −10 Balance 08 09 10 11 12 13 14 0 −5 −10 −15 Australia YoY Change 0 2 4 6 −2 −4 −6 Balance 08 09 10 11 12 13 14 0 1 2 3 4 −1 −2 Eurozone YoY Change 40 20 0 −20 −40 −60 −80 Balance 08 09 10 11 12 13 14 20 10 0 −10 www.lairdresearch.com Sep 15, 2014 Page 21
  22. 22. Canadian Indicators Retail Trade (SA) YoY Percent Change −5 0 5 10 median: 4.76 Jun 2014: 5.90 Total Manufacturing Sales Growth YoY Percent Growth −20 0 10 20 median: 4.13 Jun 2014: 6.88 Manufacturing New Orders Growth YoY Percent Growth −30 −10 0 10 20 30 median: 4.46 Jun 2014: 1.62 Sales and New Orders (SA) YoY Percent Change −20 0 10 20 Sales New Orders (smoothed) 10yr Government Bond Yields 0 2 4 6 8 10 median: 5.80 Aug 2014: 2.00 Manufacturing PMI 50 51 52 53 54 55 Aug 2014: 54.80 Tbill Yield Spread 3mo vs 10 yr Spread (10yr − 3mo) 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 −1 0 1 2 3 4 median: 1.36 Aug 2014: 1.06 Inflation (total and core) YoY Percent Change 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 −1 0 1 2 3 4 median: 1.94 Jul 2014: 2.11 Total Core Inventory to Sales Ratio (SA) Ratio 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 1.3 1.4 1.5 1.6 median: 1.35 Jun 2014: 1.39 www.lairdresearch.com Sep 15, 2014 Page 22
  23. 23. 6.9 7.0 7.1 7.2 7.3 7.4 7.5 7.6 1.3 1.5 1.7 1.9 Beveridge Curve (Mar 2011 − May 2014) Unemployment Rate Vacancy rate (Industrial) Mar 2011 − Dec 2012 Jan 2013 − Apr 2014 May 2014 Property vs. Rent Prices Owned Property Price Index Rent Price Index 50 100 150 40 60 80 100 Calgary Montreal Vancouver Toronto Unemployment Rate (SA) Percent 3 4 5 6 7 8 9 10 Canada 7.0% Alberta 4.9% Ontario 7.4% Debt Service Ratios (SA) Percent 4 6 8 10 Canada 7.0% Alberta 4.9% Ontario 7.4% Housing Starts and Building Permits (smoothed) YoY Percent Change 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 −40 −20 0 20 40 Permits Starts www.lairdresearch.com Sep 15, 2014 Page 23
  24. 24. European Indicators Unemployment Rates Percentage 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 0 5 10 15 20 25 30 Business Employment Expectations Index 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 −40 −20 0 10 Industrial Orderbook Levels Index 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 −60 −40 −20 0 20 Country Employment Expect. Unempl. (%) Bond Yields (%) Retail Turnover Manufacturing Turnover In ation (YoY %) Industry Orderbook PMI Series Dates Aug 2014 Aug 2014 Aug 2014 Jul 2014 Jul 2014 Jul 2014 Aug 2014 Aug 2014 France -10.0 s 10.3 s 1.41 t 105.3 t 110.0 s 0.6 u -22.2 s 46.9 t Germany -2.8 t 4.9 t 0.95 t NA 113.9 s 0.8 t -10.5 t 51.4 t United Kingdom 6.8 t 6.4 u 2.12 t 111.7 t NA 1.9 s 8.9 s 52.5 t Italy -8.1 t 12.6 s 2.63 t NA NA 0.0 t -23.2 t 49.8 t Greece 1.0 t 27.0 t 6.09 t NA NA -0.8 s -16.8 t 50.1 s Spain -6.4 t 24.5 t 2.17 t NA NA -0.4 t -12.2 s 52.8 t Eurozone (EU28) -2.8 t 10.2 u 1.97 t 104.6 t 108.6 t 0.7 s -13.1 s NA www.lairdresearch.com Sep 15, 2014 Page 24
  25. 25. Government Bond Yields Long Term Yields % 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 0 2 4 6 8 10 Economic Sentiment Index 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 60 70 80 90 110 130 Consumer Confidence Index 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 −100 −60 −20 0 20 Inflation (Harmonized Prices) 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 0 2 4 6 median: 2.00 Jun 2014: 0.50 Euro Area US Harmonized Inflation: Jun 2014 AUT 1.7% BGR −1.1% NOR 2.2% DEU 0.8% GBR 1.9% ESP −0.4% FIN 1.0% FRA 0.6% HUN 0.5% GRC −0.8% IRL 0.5% ISL 2.3% ITA 0.0% POL 0.0% ROU 1.5% SWE 0.4% −1.0%0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% YoY % Change in Prices PMI: August 2014 40.042.0 44.0 46.0 48.0 50.0 52.0 54.0 56.0 58.060.0 Contracting Steady Expanding BRA 50.2 CAN 54.8 DEU 51.4 ESP 52.8 FRA 46.9 GBR 52.5 GRC 50.1 IRL 57.3 ITA 49.8 MEX 52.1 POL 49.0 SAU 60.7 TUR 50.3 USA 57.9 PMI Change: Jul − Aug −5.0−4.0 −3.0 −2.0 −1.0 0.0 1.0 2.0 3.0 4.0 5.0 Deteriorating PMI Change Improving CAN 0.5 DEU −1.0 ESP −1.1 FRA −0.9 GBR −2.9 GRC 1.4 IRL 1.9 ITA −2.1 POL −0.4 TUR 1.8 USA 2.1 www.lairdresearch.com Sep 15, 2014 Page 25
  26. 26. Chinese Indicators Tracking the Chinese economy is a tricky. As reported in the Fi-nancial Times, Premier Li Keqiang confided to US officials in 2007 that gross domestic product was “man made” and “for reference only”. In-stead, he suggested that it was much more useful to focus on three alter-native indicators: electricity consumption, rail cargo volumes and bank lending (still tracking down that last one). We also include the PMI - which is an official version put out by the Chinese government and differs slightly from an HSBC version. Finally we include the Shanghai Composite Index as a measure of stock performance. Manufacturing PMI 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 40 45 50 55 60 Aug 2014: 50.20 Shanghai Composite Index Index Value (Monthly High/Low) 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 1000 2000 3000 4000 5000 6000 Aug 2014: 2217.20 Electricity Generated 100 Million KWH (log scale) 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 1000 2000 3000 5000 Aug 2014: 4959.00 Electricity Generated Long Term Trend Short Term Average Consumer Confidence Index Index 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 98 100 102 104 106 108 median: 103.00 Jul 2014: 104.40 Exports YoY Percent Change 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 −20 0 20 40 60 80 median: 19.30 Aug 2014: 9.40 Retail Sales Growth YoY Percent Change 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 10 15 20 median: 13.15 Aug 2014: 11.90 www.lairdresearch.com Sep 15, 2014 Page 26
  27. 27. Global Climate Change Temperature and precipitation data are taken from the US National Climatic Data Center and presented as the average monthly anomaly from the previous 6 months. Anomalies are defined as the difference from the average value over the period from 1961-1990 for precipitation and 1971-2000 for temperature. Average Temperature Anomalies from Jan 2014 - Jun 2014 −4.0 −3.0 −2.0 −1.0 0.0 1.0 2.0 3.0 4.0 −4 −2 0 2 4 Cooler Anomalies in Celcius Warmer Anomalies in Celcius Average 6 month Precipitation Anomalies from Feb 2014 - Jul 2014 −40.0 −30.0 −20.0 −10.0 0.0 10.0 20.0 30.0 40.0 −40 −20 0 20 40 Drier Anomalies in millimeters Wetter Anomalies in millimeters www.lairdresearch.com Sep 15, 2014 Page 27

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