Markets Roundup Research
Transcription
Markets Roundup Research
Markets Roundup Research 1 3 Oc t ob e r 2 0 1 4 Falling inflation expectations in the eurozone and US CONTENTS Financial markets remain under pressure (p.1 – p.6). Market Movers 2 Economics Weekly The Chart of the Week shows medium-term inflation expectations in Calendar 7 the eurozone and US. We wouldn’t argue that financial markets are in Central Bank Policies 8 panic mode at the moment, but at least there is a growing amount of Forecast Table 9 nervousness as a broader set of asset prices started to correct since around mid-September. Indeed, we regularly discussed the past months that relatively illiquid asset classes, such as US high yield bonds and Interest Rates (3M – 1yr) small caps, were under pressure. Apart from these early warning signals, 10 the correction in financial markets shouldn’t have come as a complete Gov’t Bond Yields (2yr – 10yr) surprise. After all, we and others more than once argued that central 11 banks’ aggressive monetary stimulus measures resulted in strong Interest Rate & Bond Futures inflation in especially financial asset prices even though global growth 12 remained modest and debt levels high from a historical perspective. Accordingly, valuations became detached from fundamentals, in our Equities, Currencies & Commodities view. As the Fed intends to withdraw its support from the markets, it 13 should probably be replaced by private sector leverage in order to keep DATA RELEASES asset price inflation as strong as it was the last years. Yet, leverage in financial markets already increased strongly as is, for example, reflected United States by rising margin debt. As always, market participants find all kind of 14/10 Small business index reasons to explain why asset price inflation will remain - basically forever 15/10 Retail sales - strong, but there always comes a time that reality kicks in and 15/10 Beige book investors realise that ‘not all is fine and dandy’. Will this be such a 16/10 Industrial production moment? Central bank policy makers will certainly notice the rise in 16/10 Housing market index uncertainty as the Fed’s FOMC minutes signaled last week that some Fed 17/10 Housing starts/permits members became more cautious in September already. And indeed, these developments coincide with a drop in medium-term Eurozone inflation expectations (an important parameter for central banks). 14/10 Consumer prices (Fr) Accordingly, 2009-2011 memories are rushing back as in each of these 14/10 EU court hearing OMT years the Fed’s exit plans eventually remained plans. 14/10 ZEW investor conf (Ger) 14/10 Industrial production 15/10 Draghi speech 16/10 Consumer prices (final) Chart of the Week: Inflation expectations are declining again Percentage 3.6 3.4 3.2 United Kingdom 3.0 14/10 Consumer prices 2.8 15/10 Labour market report 09/10 BoE meeting RESEARCH 2.6 Fed tightening monetary policy??? QE2 2.4 2.2 2.0 Duncan de Vries 1.8 Erwin Langewis Apr-2004 QE1 Apr-2006 E: [email protected] Important disclosures appear on the final page of this document Apr-2008 QE2 preannounced QE3 Operation Twist Apr-2010 Apr-2012 Five-year, five-year forward inf lat ion expectations (eurozone) Five-year f orward breakeven inflation rate (US) Apr-2014 M ARKET MOVERS: REVIEW & PREVIEW witnessed in 2007, according to S&P data (6.26 times Ebitda versus an average of 6.23 in 2007). United States The combination of weakening (expected) global growth (as confirmed last week by the IMF), It’s quite entertaining to see that at a time that spreading financial market volatility starts to rise, an tighter USD liquidity increasing number of and relatively to rising financial market volatility. As said many times before the past months, why would markets For example, the IMF considered that some equity fight the Fed this time? valuations are ‘frothy’ and that downside risks have That said, this combination of factors is also a risen, while the Fed warned that the leveraged loan, negative development for parties that are short small-caps, the stocks starts risks conditions resulted in worry about so-called bubbles in asset classes. biotechnology institutions geopolitical and farmland USD (i.e. that borrowed in USDs) as it ‘markets’ are frothy (indeed this seems to become strengthens the USD. Unfortunately, one of these the new ‘buzzword’). parties includes a number of emerging market countries that gratefully used the availability of USD Guess what; these were the institutions that liquidity that was created by the Fed. Countries like were Brazil, India, Indonesia, Turkey and South Africa are the inflation main by source promoting of financial central bank market liquidity the well-known countries that might suffer from the injections (the IMF now argues that the ECB should relatively tightening of USD liquidity conditions that purchase government bonds) and actually pushing contributed to the appreciating USD. new money into the financial system. This helped to facilitate debt levels to even higher levels than in The fall in commodity, and especially oil, prices 2007 and, in our view, massive speculation in clearly doesn’t help these countries either. This financial markets. As a consequence of the enormous also comes at a bad time for Russia as the country wall of money, volatility was reduced to tries to defend its currency from falling further as extremely low levels and this created a FALSE foreign capital leaves the country, the country failed sense of security. For example, the chart from the again to raise less than the amounts offered in a NY Fed shows relative volatility since April 1994. For bond sale and economic prospects are deteriorating. instance, only 7% of historical monthly S&P 500 Although the country still has ample foreign exchange observations had a lower volatility. Yet, volatility is and gold reserves (see chart) to defend the ruble, the clearly on the rise. longer this situation endures the more uncertain market parties will become. This is already reflected Excess liquidity reduced market volatility in cross currency basis swaps as financial parties are Percentage willing to pay a premium to obtain dollars for rubles 25 (see chart again). 20 Russia under pressure 15 10 5 0 2-year interest rat es 10-year int erest rates Jul-14 M ay-13 S&P 500 index M ay-07 Now, the Fed tries to dampen risks in specific markets via regulatory tools. For example, the Fed Rubble bn Basis points 700 1200 650 1000 600 800 550 600 500 400 450 200 400 0 350 -200 300 2008 has increased oversight of the leveraged loan market -400 2009 2010 2011 2012 Russian reseves (LS) 2013 2014 3-year cross-currency basis swap (RS) to a deal-by-deal review as terms and structures of deals deteriorated further this year. Total debt levels Apart for large leveraged buyouts rose to levels last macroeconomic agenda was light. One of the few from interesting Markets Roundup 2 financial reports was markets, the one last week’s showing that 13 October 2014 consumer credit increased at a still strong USD Q4, supported by credit growth, but we remain 13.5bn in August. The underlying data showed that cautious about the strength of investment growth revolving credit (e.g. credit cards) declined, but non- after Q3 given global softness. revolving credit (e.g. student and auto loans) rose again. Consequently, this didn’t help to take away Overall, concerns about bubble forming in auto loan deteriorated due to a combination of factors. debt Tightening USD liquidity conditions are one of these as subprime lending has become financial market sentiment has increasingly popular. As a share of total new factors. lending, subprime loans make up close to 23%, monetary policy (US/UK versus eurozone/Japan) is according to Fed data. We don’t buy arguments such reflected (amongst others) in FX markets, which as that low delinquency rates indicate that no trouble could is ahead, as this is forecasting the future with participants that are short the USD. For the US, this backward looking data. The Fed’s actions have means that the strength of the economy will remain resulted in a search for yield that facilitated the highly resurgence of strong demand for this ‘asset class’. demand. Even though markets have started to push True, total auto loan debt is a relatively small asset their rate hike expectations backwards, we stick to class (about USD 905bn in Q2), but increasing risk our view that market expectations will move a bit taking in this segment is a reflection of risk taking in back further in time as central bank policy makers other parts of the economy as well. now openly start to discuss their concerns about Moreover, the have serious dependent (expected) consequences on (credit divergence in for driven) economic domestic foreign growth. Additionally, we now don’t expect the Fed to adjust its ‘considerable time’ forward Business investments expected to pick-up guidance in the FOMC statement this month. Average age at year-end of private fixed assets 25 Indeed, this should help to put some downward 20 pressures on the USD as well. 15 This week’s macroeconomic agenda will focus on 10 retail sales and industrial production data. Retail 5 0 1925 sales are expected to have fallen slightly, mainly owing to falling gasoline prices and a decline in auto 1935 1945 1955 1965 1975 Financial corporates 1985 1995 2005 sales. Core retail sales growth, however, is expected Non-f inancial corporat es to remain solid, supported by iPhone sales. Talking about credit growth, it could be positive for Eurozone short-term economic growth prospects. Yet, if the borrowed money isn’t used for productive investments then economic growth is only brought Also the macroeconomic agenda in the eurozone was forward at best. light with the focus being on the start of the week as Even though there are a lot of investments in non- German factory orders and industrial production data productive assets, it is more encouraging to see that were released. As was widely cited the past week in business investments picked-up as well. The recent the news, the collapse of German factory orders (- levels of the ISM manufacturing index, a rising 5.7% mom) and industrial production (-4.0%) capacity utilisation rate (78.8% in August versus a in long-run average rate of 80.6%) and relatively ‘old’ momentum in the eurozone weakened even fixed assets suggest that business investments could before the economy gained traction. True, the pick-up further. decline in production seems to be exacerbated by the At the same time, however, the capacity utilisation timing of holidays as it resulted in firms shutting rate is still below long-run average levels and the down production in August instead of July this year, chart shows that especially the average age of the - but this can certainly not explain it all. not capital intensive - financial sector has risen. Annual industrial production growth trended lower Accordingly, we anticipate business investments to from 4.9% early this year to -2.8% in August. The positively contribute to GDP growth in Q3 and also in sanctions imposed on Russia and a loss of global Markets Roundup 3 August was another signal that growth 13 October 2014 growth momentum likely played an important role developments policymakers like to see, suggesting too. This was also confirmed by Germany’s export that they will continue to keep their feet on the data as exports declined 5.8% in August, which more stimulus pedals as long as they are allowed to do so than reversed the 4.8% jump in July. Export levels by the markets. Indeed, those policies will aggregate are now at the same levels as in mid-2012. existing imbalances of which some people will benefit Accordingly, last week’s data even increased risks that Germany will report a and others certainly not. second consecutive quarter of contracting economic This week’s agenda is heavy as it includes a number activity in Q3 (i.e. after -0.2% qoq in Q2) as we are of speeches from ECB policy makers (including Draghi increasingly and Weidmann), which will certainly result in a activity sceptical can fully that rising compensate service for sector weakness number of noteworthy headlines. elsewhere. Also, finance ministers will meet today and tomorrow to discuss EU recommendations to member states on So, here we are. Borrowing costs of several fiscal and economic policy. The fiscal and economic countries are at record low levels as the ECB cut situation in Italy and especially France will certainly its policy rates to basically 0%, offered almost be free liquidity to banks and intends to purchase Bundesbank President Weidmann said: “France, as loans from banks balance sheets. Yet, instead of the second largest euro area country, is decisive and rising growth momentum, momentum starts to needs to serve as a role model”. Will the ‘dog that fall. And to be clear, also the money printing central doesn’t bite’ (i.e. the European Commission) bite banks in the US, UK and Japan were not able to after all? In the coming two weeks we will know ‘print’ robust economic growth. We are quite sure more, although it seems likely that France will first be that central bankers will not question their past asked for a new budget. It is, however, worrisome decisions, but will rather scratch their heads over that French Finance Minister Sapin said that the what else they can purchase. Commission “cannot censure, it cannot reject” any amongst the topics being discussed. As budgets. Will EU commissioner Moscovici - Hollande’s finance minister about 6 months ago - fine France (it Population trends spell slower growth potential Million can propose an interest-bearing deposit of 0.2% of Percentage 202 30 GDP or even an actual fine of 0.2%-0.5% of GDP as 200 29 France is placed in an Excessive Deficit Procedure) for 198 28 196 budget discipline as the first ever eurozone country 27 194 26 the coming months? And what will be the response of 25 France 188 24 questions, but it doesn’t decrease uncertainty and 186 23 192 190 184 2003 2005 2007 2009 2011 Tot al populat ion ( 20 t o 64 years, LS) Italy)? We cannot answer these probably raises the popularity of anti-euro parties. 22 2001 (and 2013 On Friday, new GDP estimates will be released by Old dependency rat io (60 & over t o 20 t o 59 years, RS) Eurostat that will show that GDP levels will be higher Will even lower rates support economic growth? It is than previously reported (probably by around 1.9%), an understatement that we are sceptical about it. mainly due to accounting adjustments. One of our long-held views is that high indebtedness will continue to dampen growth prospects. Moreover, Furthermore, the European Court of Justice will structural reforms are needed in most countries to consider arguments on the legality of the ECB’s OMT promote productivity. And at least as important are programme demographic developments. The chart shows that whereas a growing population supported domestic government consumers (and typically thus results in fewer Markets Roundup certainly not purchase debt. In addition, the anti-euro Alternative for Germany party has built on its support saving and less credit growth), but increases are could make an announcement on (new) purchases of population affects the ratio of producers to These it continue to undermine the ECB’s willingness/ability to turned negative recently. In addition, an ageing spending. which expected until mid-2015 or so, but this process could demand in the pre-crisis years, the population size public (under government bonds) tomorrow. No final ruling is after it won 7.1% of the vote in European Parliament the 4 13 October 2014 election as it received between 9.7%-12.2% in three taken so far, such as new rules to curb risky regions the past months. The success of this party mortgage lending, fail to prevent risks to the financial that exists since early 2013 can be partly explained system. We have addressed this issue before. As the by the unease of Germans about the ECB’s actions. BoE seems on the verge of raising interest rates (it at Indeed, Bundesbank President Weidmann said last least hopes to do that next year), this situation could week that the ECB would be on “a dangerous path” if put highly indebted households into trouble. it starts buying government bonds. But so far, Yet again, it was, amongst others, the IMF that Germans have been basically the only vocal critics supported about the ECB’s actions. We expect more easing by boosts inflation in certain markets. Keeping interest the ECB, but think that the markets were hoping for rates at artificially low levels results in risk taking too much in the short-term. that could become a problem once interest rates extraordinary monetary support that normalise (or overshoot). As regards macroeconomic data, French CPI inflation and the German ZEW investor confidence index Last week, a couple of housing market data should attract most attention. After a series of showed that the housing market stalls at high German data disappointed recently, the ZEW index levels, while forward looking indicators show will some certainly attract a lot of attention. Given cracks. The BoE showed in its Credit deteriorating sentiment in financial markets and bad Conditions survey that the mortgage availability news headlines, we expect the index to fall again in index fell within three months from 8.2 in Q2 to -28.5 September. French CPI (HICP) inflation is expected to in Q3. This was the lowest level since the final fall to 0.4%. quarter of 2008 and the first reading below 0 since 2012. Not only the availability of mortgages declined, but the survey also showed that demand for home United Kingdom loans decreased significantly over the last three months. The survey comes amid signs of a loss of Just as in the US and eurozone, also the UK momentum in the housing market after the FPC took macroeconomic calendar was light. Movements in the steps to limit riskier lending and banks introduced markets were, however, heavy. affordability tests. Two weeks ago, the Nationwide house price index showed that property values dipped Most attention was taken by the IMF which expects in September as house prices fell on a monthly basis that - in sharp contrast to the eurozone - the UK for the first time in one and a half year. However, economy Olivier house prices are still 9.4% higher than a year ago. Blanchard, the IMF’s Chief Economist, said that This was also confirmed by the Halifax house price the UK is leaving the financial crisis behind and growth showing an increase of 9.6% 3m/yoy. continues to expand strongly. will achieve decent growth outstripping the rest Not all is bright and shiny anymore of the G7, including the US, this year. For what Percentage it’s worth, the IMF expects the economy to expand by 75 3.2% this year and 2.7% next year (when the US 50 economy should expand 3.1% and the eurozone 25 1.3%). The IMF said that growth rebounded and 0 becomes more balanced as business investments -25 pick-up along with household spending. But the -50 report also noted that British household debt worth -75 140% of disposable income remains high, despite 2007 falling from its pre-crisis peak of over 160%. This makes households very vulnerable to interest rate But more forward looking indicators point at slower hikes. growth. The RICS house price balance survey fell to a On the same line, the IMF warned that ‘buoyant’ still relatively high 30% and the BoE credit survey house prices pose ‘challenges’ for a number of showed that the outlook index for prices fell from countries, including the UK. It said that measures 0.7% in Q2 to -10.1% in Q3. may be needed to cool the housing market if actions Markets Roundup 2008 2009 2010 2011 2012 2013 2014 Households demand of secured lending for house purchase, past 3 months A bilit y of secured credit f or households, past 3 months 5 13 October 2014 Not only the housing sector seems to cool a bit as figures production surveys showed was were that slower manufacturing after weaker PMI two weeks ago. published Manufacturing output for August rose just 0.1%, down from 0.3% in July. Annual growth showed an increase from 3.5% in July to 3.9% in August, but this growth rate was inflated by base effects as output declined in August 2013. Total industrial production held ground as it was up 2.5% (yoy), although it remained flat compared to July. However, the PMI suggests production could fall in coming months. All in all, financial markets reacted with a drop in equity prices and 10-year Gilt yields fell by 13bps, breaking the year to date lows. Money markets almost fully priced out rate hikes for early 2015 and now see only 3 hikes of 25bp each for the end of 2015. This is in sharp contrast to two months ago, when rate hikes at the end of 2014 were priced in. Accordingly, we are witnessing how addicted financial markets and the ‘real’ economy have become to central bank’s monetary support. Intentions to tighten monetary policy alone resulted in weakness in several places. Let’s hope that economies will not be confronted with stronger headwinds as we can only guess what the consequences will be! This week’s focus will be on inflation and labour market reports. Headline inflation and core inflation are both expected to fall to 1.4% and 1.8%, respectively. Average weekly earnings excluding bonus (3m/yoy) potentially moved a tat higher to 0.8%. A combination of easing CPI inflation and subdued wage pressures will strengthen the markets’ view that there is not enough evidence for the BoE to hike rates in the near-term. Markets Roundup 6 13 October 2014 ECONOMIC CALENDAR 13 OCTOBER – 17 OCTOBER, 2014 UNITED STATES Date Time Tuesday 14 October 13:30 14:30 14:30 14:30 14:30 14:30 14:30 20:00 15:15 15:15 15:15 16:00 14:30 14:30 14:30 14:30 15:55 Wednesday 15 October Thursday 16 October Friday 17 October BN Survey Prior Sep Sep Sep Sep Sep Sep Sep 95.6 -0.10% 0.20% 0.30% 0.30% 1.80% 1.70% 96.1 0.60% 0.30% 0.50% 0.40% 1.80% 1.80% Sep Sep Sep Oct Sep Sep Sep Sep Oct P 0.40% 79.00% 0.30% 59 1002K 4.80% 1032K 2.80% 84 -0.10% 78.80% -0.40% 59 956K -14.40% 998K -5.60% 84.6 Indicator US US US US US US US US US US US US US US US US US NFIB Small Business Optimism Retail Sales Advance MoM Retail Sales Ex Auto MoM Retail Sales Ex Auto and Gas Retail Sales Control Group PPI Final Demand YoY PPI Ex Food and Energy YoY Federal Reserve Beige Book Industrial Production MoM Capacity Utilization Manufacturing (SIC) Production NAHB Housing Market Index Housing Starts Housing Starts MoM Building Permits Building Permits MoM Univ. of Michigan Confidence GE FR FR GE GE EC EC GE GE EC EC EC EC EC EC EC EC Wholesale Price Index YoY CPI EU Harmonized MoM CPI EU Harmonized YoY ZEW Survey Current Situation ZEW Survey Expectations Industrial Production SA MoM Industrial Production WDA YoY CPI EU Harmonized MoM CPI EU Harmonized YoY Trade Balance SA CPI MoM CPI YoY CPI Core YoY EU27 New Car Registrations Construction Output MoM Construction Output YoY After ESA 2010 Adoption UK UK UK UK UK UK UK UK UK UK UK UK UK CPI YoY CPI Core YoY RPI YoY RPI Ex Mort Int.Payments (YoY) PPI Input NSA YoY PPI Output NSA YoY PPI Output Core NSA YoY Claimant Count Rate Jobless Claims Change Average Weekly Earnings 3M/YoY Weekly Earnings ex Bonus 3M/YoY ILO Unemployment Rate 3Mths Employment Change 3M/3M EUROZONE Date Time Monday 13 October 08:00 08:45 08:45 11:00 11:00 11:00 11:00 08:00 08:00 11:00 11:00 11:00 11:00 08:00 11:00 11:00 12:00 Tuesday 14 October Wednesday 15 October Thursday 16 October Friday 17 October Indicator Sep Sep Sep Oct Oct Aug Aug Sep F Sep F Aug Sep Sep F Sep F Sep Aug Aug BN Survey Prior --0.30% 0.40% 15 0 -1.60% -0.90% 0.00% 0.80% 13.3B 0.40% 0.30% 0.70% ---- -0.60% 0.50% 0.50% 25.4 6.9 1.00% 2.20% 0.00% 0.80% 12.2B 0.10% 0.30% 0.70% 2.10% 0.00% 0.40% UNITED KINGDOM Date Time Tuesday 14 October 10:30 10:30 10:30 10:30 10:30 10:30 10:30 10:30 10:30 10:30 10:30 10:30 10:30 Wednesday 15 October Indicator Sep Sep Sep Sep Sep Sep Sep Sep Sep Aug Aug Aug Aug Source: Bloomberg News Weekly snapshot of financial market developments in the United States, euro zone and United Kingdom BN Survey Prior 1.40% 1.80% 2.30% 2.40% -6.70% -0.30% 0.90% 2.80% -35.0K 0.70% 0.80% 6.10% 30K 1.50% 1.90% 2.40% 2.50% -7.20% -0.30% 0.90% 2.90% -37.2K 0.60% 0.70% 6.20% 74K CENTRAL BANK POLICIES United States – FOMC Policy interest rate: Federal funds target rate Next Meetings: 29 October, 17 December, 28 January Last action: -75/100 bps on 16 December 2008 Policy Outlook: The Fed funds rate has been cut to an unprecedented target range of 0-0.25%. Furthermore, the Fed started to purchase assets and after Operation Twist ended in 2012, decided to increase the size of asset purchases per month by a further USD 40bn. A total of USD 15bn of agency MBSs and Treasury securities are purchased per month. The QE programme is expected to end next month, while interest rate hikes are expected in June 2015. FOMC minutes: 19 November, 7 January, 28 January Eurozone – ECB Policy interest rate: Main refinancing rate Next Meetings: 6 November, 4 December, 22 January Last action: -10 bps on 4 September 2014 Policy Outlook: The ECB lowered its key policy rates by 10bps in September. The refi rate is at 0.05% (deposit rate at 0.20%) and expected to remain at this level for an extended period. No rate hikes are expected before 2016 at least. In addition to liquidity injections (TLTROs), the ECB will start purchasing private sector assets (ABS and covered bonds) in October. As the central bank is still relatively dovish, there are risks for more actions later this year. United Kingdom - Bank of England Policy interest rate: Repo rate Next Meetings: 6 November, 4 December, 8 January Last action: -50 bps on 5 March 2009 Policy Outlook: Even though inflation rates are expected to remain at elevated levels, we expect the BoE to keep rates unchanged at 0.50% for the foreseeable future given a still weak economic recovery. The MPC purchased about GBP 375bn of assets. Rate hikes are expected in Q2 2015, but risks have shifted somewhat to Q1 2015. BOE minutes: 22 October, 19 November, 17 December Markets Roundup 8 13 October 2014 FORECAST TABLE 2012 2013 2014 2012 2013 2014 Yearly averages Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 (quarter-on-quarter) (year-on-year) 0.7 3.1 0.1 2.0 0.4 1.3 0.6 1.6 1.0 2.0 0.7 2.6 -0.7 1.6 0.8 1.8 0.7 1.4 0.8 1.5 2.8 1.9 1.6 (year-on-year) 1.7 1.9 1.7 1.4 1.6 1.2 1.4 1.6 1.6 1.8 2.2 1.5 1.6 Federal funds rate * 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 10 yr Treasury yield * 1.63 1.76 1.85 2.49 2.65 2.95 2.72 2.53 2.49 2.50 1.76 2.95 2.56 -0.2 -0.7 -0.5 -1.0 -0.2 -1.2 0.3 -0.6 0.1 -0.3 0.3 0.5 0.2 0.9 0.0 0.7 0.2 0.8 0.2 0.7 -0.5 -0.4 0.7 2.6 2.2 1.7 1.6 1.1 0.8 0.5 0.5 0.5 0.7 2.5 1.3 0.6 0.75 0.75 0.75 0.50 0.50 0.25 0.25 0.25 0.05 0.05 0.75 0.25 0.15 0.2 0.9 -0.5 0.3 0.0 -0.3 0.7 0.5 0.3 0.6 0.4 1.4 0.7 2.1 -0.2 1.2 0.3 1.5 0.4 1.5 0.9 0.6 1.7 2.0 2.0 1.4 1.8 1.6 1.3 1.2 1.2 1.2 1.4 2.0 1.5 1.3 1.44 1.32 1.29 1.73 1.80 1.90 1.57 1.25 1.00 1.10 1.32 1.90 1.23 -0.6 -1.9 -0.8 -1.7 0.3 -1.3 -0.3 -1.5 0.2 -0.6 0.6 0.7 -0.4 0.1 0.5 0.9 0.0 0.8 0.1 0.3 -1.3 -0.7 0.4 2.3 2.9 3.0 2.9 2.4 1.7 0.8 0.9 1.0 1.0 2.3 2.8 1.0 0.8 0.2 -0.1 0.2 0.5 0.7 0.8 2.0 0.8 1.8 0.7 2.7 0.9 3.1 0.6 3.0 0.3 2.7 0.2 2.4 0.3 1.8 2.8 United States GDP Consumer Price Inflation Eurozone GDP (quarter-on-quarter) (year-on-year) Consumer Price Inflation (year-on-year) ECB refi rate * Germany GDP (quarter-on-quarter) (year-on-year) Consumer Price Inflation (year-on-year) 10 yr bond yield * Netherlands GDP (quarter-on-quarter) (year-on-year) Consumer Price Inflation (year-on-year) United Kingdom GDP (quarter-on-quarter) (year-on-year) Consumer Price Inflation 2.2 2.7 2.8 2.7 2.8 2.1 1.7 1.9 1.7 1.6 2.7 2.6 1.8 BoE bank rate * (year-on-year) 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 10 yr bond yield * 1.73 1.83 1.77 2.44 2.70 3.00 2.74 2.67 2.43 2.70 1.83 3.00 2.60 *end of period Markets Roundup 9 13 October 2014 INTEREST RATES (3M – 1YR): ACTUALS & CURVE Policy Interest Rates (%) 3m Interest Rates minus Policy Rate (bps) 7 350 6 300 250 5 200 4 150 3 100 50 2 0 1 -50 0 13/10/2012 13/10/2013 United States Eurozone -100 13/10/2012 13/10/2014 13/10/2013 United States United Kingdom 3m Interest Rates (%) 13/10/2014 Eurozone United Kingdom 12m minus 3m Interest Rates (%) 7.0 125 6.0 100 75 5.0 50 4.0 25 3.0 0 2.0 -25 1.0 -50 0.0 13/10/2012 13/10/2013 USD Libor Euribor -75 13/10/2012 13/10/2014 13/10/2013 United States GBP Libor 12m Interest Rates (%) 13/10/2014 Eurozone United Kingdom 1 yr Interest Rate Swap Spread (bps) 7.0 250 6.0 225 200 5.0 175 4.0 150 125 3.0 100 2.0 75 50 1.0 25 0.0 13/10/2012 13/10/2013 USD Libor Source: Bloomberg Markets Roundup Euribor 0 13/10/2012 13/10/2014 13/10/2013 Eurozone GBP Libor 13/10/2014 United Kingdom Update: 10/13/14 8:13 10 13 October 2014 GOVERNMENT BOND YIELDS (2YR – 10YR): ACTUALS & CURVE 2 yr Benchmark govt Bond Yields (%) 10 yr minus 2 yr govt Bond Yields (%) 4.0 2.0 3.0 1.0 2.0 1.0 0.0 0.0 -1.0 13/10/2012 13/10/2013 United States Eurozone -1.0 13/10/2012 13/10/2014 United Kingdom 13/10/2013 United States 10 yr Benchmark govt Bond Yields (%) Eurozone 13/10/2014 United Kingdom 10 yr Interest Rate Swap Spread (bps) 4.0 100 3.5 75 3.0 50 2.5 2.0 25 1.5 0 1.0 -25 0.5 0.0 13/10/2012 13/10/2013 -50 13/10/2012 13/10/2014 13/10/2013 United States United States Eurozone Estimate of Inflation Expectations (%)* 0 4 -2 2 US TIPS 2017 (indexed to CPI) 13/10/2014 United Kingdom United Kingdom Real govt indexed Bond Yields (%) -4 13/10/2012 Eurozone 13/10/2013 0 13/10/2012 13/10/2014 13/10/2013 13/10/2014 FR OATei 2017 (indexed to Euro CPI) United States (CPI) Eurozone (CPI) United Kingdom (RPI) UK IL Gilts 2017 (indexed to RPI) * Difference between nominal government bond yield and inflation-indexed bond yield ("breakeven inflation") with the same maturity (2017) Source: Bloomberg Markets Roundup Update: 10/13/14 8:13 11 13 October 2014 INTEREST RATE & BOND FUTURES: MARKET EXPECTATIONS United States: 3m Eurodollar* United States: 10yr treasury yield* 3.0 4.0 2.5 3.5 2.0 3.0 1.5 2.5 1.0 2.0 0.5 1.5 0.0 Current DEC 14 MAR 15 JUN 15 SEP 15 1.0 Current DEC 15 Euro zone: 3m Euribor DEC 14 MAR 15 JUN 15 Euro zone: 10yr govt Bond Yield 4.0 4.5 3.5 4.0 3.0 3.5 2.5 3.0 2.0 2.5 1.5 2.0 1.0 1.5 0.5 0.0 Current DEC 14 MAR 15 JUN 15 SEP 15 1.0 Current DEC 15 United Kingdom: 3m Sterling DEC 14 MAR 15 JUN 15 United Kingdom: 10yr GILT Yield 5.0 4.0 4.5 3.5 4.0 3.0 3.5 2.5 3.0 2.0 2.5 2.0 1.5 1.5 1.0 1.0 0.5 0.5 0.0 Current DEC 14 Current ** MAR 15 JUN 15 0.0 Current SEP 15 Two weeks ago DEC 14 MAR 15 One month ago * Forward interest rates and bond yields implied by futures contracts. Source: Bloomberg Markets Roundup Update: 10/13/14 8:13 12 13 October 2014 EQUITIES, CURRENCIES AND COMMODITIES Major Equity Markets Major Currencies 2200 1.6 7000 1.0 1.5 2000 1800 0.9 1.4 6000 0.8 1.3 1600 1400 1.2 5000 0.7 1.1 1200 1000 4000 0.6 1.0 800 0.5 0.9 600 13/10/2012 3000 13/10/2014 13/10/2013 S&P 500 (LS) FTSE Eurotop300 (LS) 0.8 13/10/2012 EUR/USD (LS) FTSE100 (RS) 0.4 13/10/2014 13/10/2013 Commodity Prices EUR/GBP (RS) USD/GBP (RS) Oil Price* 150 200 130 180 110 160 90 70 140 50 120 30 100 31/07/2012 10 13/10/2012 31/07/2013 DJAIG Index Source: Bloomberg; Update: 13/10/2013 Spot price (USD) 13/10/2014 Spot price (EUR) 10/13/14 8:13 * West Texas Intermediate (WTI) Cushing Crude Oil Spot Price Disclaimer Certain statements in this presentation prepared by NIBC Bank N.V. (“NIBC”) are not historical facts but “forward-looking” statements. 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