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Economics 08.27.13
Tuesday
news, Analysis & commentary
WHAT TO WATCH:

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U.S. Consumer Spending, U.S. Home Prices, Syria

U.S. consumer spending probably fell to 79 in August from 80.3 in July, 10 a.m. The U.S. S&P/ Case-Shiller index of home prices in 20 cities probably Darshini Shah climbed 12.1 percent in June from the same month last year, 9 a.m. Federal Reserve Bank of San Francisco President John Williams speaks on a panel titled Challenges for Monetary Policy: Views from the Trenches in Gothenburg, Sweden, 6.50 a.m.
Daybook:

Mortgage Applications Plunge on Fed Taper data reports (new york time)
time EVENT Survey Actual PRIOR

7:00 7:30 7:30 9:00 9:00 9:00 9:00 9:00

BZ FGV Construction Costs 0.22% TU Ind. Confidence Index TU Capacity Utilization US S&P/CS 20-City MoM US S&P/CS HPI NSA US S&P/CS US HPI YoY US S&P/CS US HPI NSA - - 1.00% 159.3 - - 0 79 - - - - - - 1.0%

- - - - - - - - - - - - - - -

0.73% 108.7 75.5% 1.05% 156.14 136.7 -11 80.3 14.9 17.9% 11.7% 73 67 69.7 -2.0%

ECONOMICS: Richmond Feds manufacturing survey for August, 10 a.m. German business confidence rose to the highest level in 16 months in August. GOVERNMENT: The U.S. and its allies moved closer to a decision on retaliatory military strikes in Syria. COMPANIES: Daniel Loebs Third Point LLC activist hedge-fund firm has amassed a 5.7 percent stake in Sothebys. MARKETS: Chinas stocks rose to a two-week high. Philippine stocks sank to a two-month low. The cost of puts on an exchange-traded fund of gold mining stocks dropped to a two-year low. Robusta coffee stockpiles were poised to slump to a 13-year low. The yen climbed against all of its 16 major counterparts. Brazils real extended the biggest three-month drop among major currencies. The Turkish lira tumbled to 2 against the dollar for the first time. Thailands baht fell toward a three-year low.

US S&P/CS Comp.-20 YoY 12.10%

- 12.17% - 10.17%

10:00 US Richmond Fed Mfg. Ind. 10:00 US Consumer Confidence 12:00 FR Jobseekers Net Change 15:00 AR Supermarket Sales YoY 15:00 AR Shop Center Sales YoY 17:00 SK Business Survey Mfg. 17:00 SK Bus. Survey Non-Mfg. 20:00 AU CBA/HIA House Afford. 21:30 AU Const. Work Done

Big Picture: Commentary by Richard Yamarone, Bloomberg Economist

Economic Data Suggest Sub-Par U.S. Recovery to Continue

Last weeks U.S. economic data pointed to continued expansion, albeit at the same sub-par pace thats characterized the recovery since the end of the Great Recession. The Conference Boards U.S. leading index of 10 economic indicators advanced 0.6 percent in July and is slowly creeping higher. The Kansas City Feds manufacturing survey also posted higher readings in the composite index, the new orders volume index and the composite six months forward index. Meanwhile, the Chicago Feds national activity index fell again last month, suggesting the economy will continue operating below its long-term average. As well, executive comments last week were almost entirely negative, which is disconcerting for the broader economic outlook. The higher readings in the Kansas City Fed survey shouldnt be surprising essentially all manufacturing gauges have been showing gains. But the concerning aspect of the survey was the fact that the associated forward-looking comments in
continued on next page

economic-events calendar
TIME

6:50 7:00 12:30 8/28 8/29 8/29

US EC CA US US US

Feds Williams Speaks on Monetary Policy ECBs Coeure Speaks in Sweden BOC Deputy Gov. Murray Speaks at CABE U.S. FDIC Holds Open Session Feds Bullard to Speak in Tennessee Feds Lacker Speaks in Virginia

10Y Spreads: Distance From Highs

Europe France Belgium Spain

10Y Spread Distance From Highs (Yesterday) 10Y Spread Distance From Highs (Today)

-385.7 -381.5 -133.7 -131.8 -272.4 -271.3 -381.8 -377.2

Portugal
Italy

-1,094.2 -1091.2

Ireland
Greece -2,716.7 -2693.8 -2500 -2000 -1500 -1000

-304.1 -298.3 -493.9 -489.5

-3000

-500

Keenes Corner
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Vincent Reinhart on the September taper and challenges facing the Back Page next Fed chairman

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big picture Richard Yamarone

continued from page 1

Leading Economic Indicators and Real GDP Growth

8 12 10 8 6 4 2 0 -2 -4 -6 -8 -10 -12 -14 -16 -18 -20

the release were all negative. We continue to see soft demand and uncertain outlook, one executive noted. Companies just do not want to commit to anything long-term, another observed. Subdued reports and assessments also came from the quarterly earnings reports and conference calls from many retailers last week, among them Sears Holding, Kohls, Wal-Mart, Aeropostale, Abercrombie & Fitch, Stage Stores, and Staples. Perhaps the most meaningful comment came from Targets CEO, Gregg Steinhafel, who lowered guidance for the retailers earnings. For the balance of this year, our U.S. outlook envisions continued cautious spending by consumers in the face of ongoing household budget pressures, Steinhafel said. The dour outlook from executives came against the backdrop of the Kansas City Feds Economic Symposium in Jackson Hole, Wyoming over the weekend where, given the absence of Fed Chairman Ben Bernanke, little information was obtained on the timing of the Feds tapering of asset purchases. The question heading into the central banks Sept. 17-18 meeting is whether the economy will come under stress from higher longer term interest rates in anticipation of Septaper. Chart three at right shows the recent upturn in 10-year Treasury rates. Pressure from higher rates may force the Fed to refrain from reducing the pace of its asset purchases. Based on the current economic data, disinflation and potentially deflation likely remain the central banks greatest concerns. This isnt about the deflators or consumer price index, but wages and incomes thats what the Fed watches. And wages and incomes will only improve once employment improves. Unfortunately, the Fed cannot control employment. Its a very different economy today than in the 1950s when the U.S. was a manufacturing behemoth and activity (growth, cap spending, hiring) responded quickly to Fed policy changes. For example, it took on average about 20 months to recover the jobs lost during the first eight post-World War II recessions. During the 1990 and 2001 recessions, when 82 percent of U.S. employment was in the services sector, it took an average of 40 months to restore the jobs lost. The Fed alone wont be able to provide the solution to U.S. labor market ills.

Year-Over-Year Percentage

Year-Over-Year Percentage

4 2 0 -2 -4 -6 -8 '85
GDP (lhs) LEI (rhs)

GDP CYOY <Index> <GO>, LEI TOTL <Index> <GO>

'95

'05

Source: Bureau of Economic Analysis, The Conference Board

Kansas City Fed Manufacturing Index Shows Modest Gain

30

20 10
0

-10
-20 -30 Jul-01

Jul-03

Jul-05

Jul-07

Jul-09

Jul-11

Jul-13

Source: FRB Kansas City

KCLSSACI <Index>

U.S. 10-Year Treasury Yields Long Decline May Be Ending

18%
16%

14%
12%

10%
8%

6%
4%

2%
0% 1980 1985 1990 1995 2000 2005 2010

Source: Bloomberg

GT10 <GOV'T>

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Market Calls
By Bloomberg News

TWEET OF THE DAY

For simple solutions to follow tweets about companies, industries and markets on the Bloomberg terminal run TWTR<GO> Brian Wesbury, Chief Economist, First Trust; Fmr Chief Economist, Joint Economic Cmmte; Kellogg MBA; Love God, my wife & kids, NCAA football, hockey, and freedom. http://www.ftplp.com ter place than we were five years ago. Credit Suisse Group AG has raised its year-end forecast for the Brazilian central banks benchmark Selic lending rate to 10 percent, from a previous forecast of 9.25 percent. The risk of inflation increasing substantially suggests that it is necessary to promote monetary tightening in greater magnitude and for a longer period, the bank said. Dariusz Kowalczyk, a senior economist at Credit Agricole CIB, believes the Indian rupee is likely to continue to be under pressure, given rising gold and oil prices. Any major dip in the dollar-rupee exchange rate should be seen as a buying opportunity for the pair given lack of sufficient measures that would turn around Indias weak fundamentals, he said.

Makoto Kikuchi, chief executive officer at hedge fund advisory firm Myojo Asset Management Japan, expects the Nikkei 225 to end 2013 at 11,500. If Japan is chosen to host the 2020 Olympics and the Fed scales back asset purchases, shares may rise, he said, providing the best opportunity to sell Japanese shares. Gold prices may stay between $1,000 an ounce and $1,400 an ounce for a couple of years , according to Warren Gilman, chief executive officer of CEF Holdings Ltd. Thats predominantly because gold has to get used to, and it still seems to be adjusting, to the taper and rising real interest rates globally, Gilman said. Mark Zandi, chief economist at Moodys Analytics Inc. expects the U.S. economy to grow at 3.3 percent in 2014 after 1.7 percent this year and reaching 4.1 percent in 2015. As we move into next year, the better private economy will start to shine through, he said. We are in a much bet-

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German Business Confidence Rises for Fourth Month

3.0
Expectations for the Next 6 Months Recovery
IFO Survey (Number of Standard Deviations From 10-Year Average)

overnight
BY bloomberg news

Boom

ASIA

1.0

Aug 2013

-1.0

Growth in annual profit for Chinas industrial companies quickened to 11.6 percent in July from 6.3 percent in June, according to the National Bureau of Statistics. Hong Kongs exports rose 10.6 percent in July from a year earlier. This was higher than a median estimate of a 3.5 percent increase from 11 economists. Imports rose 8.3 percent.

-3.0

Feb 2009

Oct 2008

-5.0
-3.0

Recession -2.0 -1.0 0.0 1.0 Current Business Situation

Slowdown
2.0 3.0

Europe

Source: Bloomberg, IFO

German business confidence rose to the highest level in 16 months in August, beating forecasts and indicating that the recovery in Europes largest economy is gathering pace. The Ifo business climate index, based on a survey of 7,000 executives, climbed to 107.5 from 106.2 in July. Thats the highest since April 2012.
Niraj Shah, Bloomberg Economist

Finlands manufacturing confidence fell to its lowest since January. Business confidence fell to minus 12 this month from a revised minus 8 in July, the Confederation of Finnish Industries said today. The figure was minus 7 a year ago and its long-term average is 2. A separate report from Statistics Finland showed that Finnish consumer confidence was unchanged at 5 in August, below its longterm average of 12.3. Hungarys jobless rate fell to 10.1 percent in July from 10.3 percent a month earlier. This was in line with the median estimate of seven economists in a Bloomberg News survey. Spains mortgage capital lending fell 43.2 percent in June from a year earlier, compared with a 24.9 percent decline in May. Mortgages for housing fell an annual 42.2 percent in June, compared with a 29 percent decline in May. Spains INE revised 2012s GDP contraction to 1.6 percent from 1.4 percent. Growth in 2011 was revised to 01. percent from 0.4 percent. The GDP contraction for 2009 was revised to 3.8 percent from 3.7 percent. Data for 2009 is definitive, while data for 2010 and 2011 are provisional and data for 2012 an estimate. The Dutch producer confidence rose to minus 1.6 in August from minus 3.5 a month earlier. The median estimate of three economists was for the index to rise to minus 3.1.

Around the Web New research and commentary on the Web Josiah Neeley, in a guest column for the Noahpinion blog, asks if there is a difference between religion and monetary policy. On one level, the idea that you can make a society richer by printing out green pieces of paper (or, even worse, by changing a few digits on a computer screen) sounds absurd. But then, the idea that a giant metal tube could float through the air sounds pretty absurd too. Technology is like that, and money (including fiat money) is a technology just as much as air travel.
http://goo.gl/lbGTpC

A National Bureau of Economic Research working paper looks at different ways of measuring positive alpha. We provide empirical bounds on the expected disagreement with a traditional alpha and study the cross sectional effects of disagreement and investor heterogeneity on the flow response to past fund alphas. The effects are both economically and statistically significant.
http://goo.gl/uMrXF9

An IMF working paper looks at similarities and differences between Islamic and cooperative banks. Greater risk sharing among cooperative bank stakeholders, using mechanisms embedded in Islamic financial products, may strengthen cooperatives financial resilience.
http://goo.gl/04Aai9

The Webs best Economics Blogs are on Bloomberg. Click {STNI BESTEcoNomIcSBlogS <go>}
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German Election
While certain European leaders may hope to see Angela Merkel defeated in the German federal election on Sept. 22, they will probably be disappointed. With three weeks to go until Election Day, it looks as if Merkel will remain chancellor, either with her present coalition with the liberal Free Democrats, or by joining up with the Social Democrats. Still, the latest polls indicate that the race remains tight. Whether Merkel remains chancellor, or her Social Democratic challenger Peer Steinbrck comes out first, one thing is certain: Germany will remain committed to the euro. Yes, there are likely to be more euroskeptical voices in the next parliament. Yes, one can sense the subtle but growing resistance among German citizens against further transfers of German money to other euro-zone countries which may over time erode parts of the liberal-conservative camp. And yes, an increasing number of public officials, economists and advisors to the government doubt that the euro zone can be kept together in its current form. Yet, the political elite remains committed to the monetary union. Not only the next chancellor, but also about two thirds of the next Bundestags members will continue to support the euro. This is for two main reasons. First, they know that Germany by itself is too small to compete in the globalized and multipolar world of the 21st century. Second, nobody in Berlin wants to go down in history as part of a group that let the great European peace project fail. In the longer term, however, this consensus can only be maintained if Europe regains its strength and reforms its institutions. The three root causes for the euro crisis must be addressed: (1) too much public debt in euro-zone countries, (2) a growing competitiveness gap between those countries that have become lean and dynamic over the past decade and those that did not, and (3) a lack of political institutions and instruments that can correct these imbalances. What this means is that the next German

Guest Commentary by Jan F. Kallmorgen of Bohnen Kallmorgen & Partner

Germany to Remain Committed to Euro Regardless of Election Outcome

Chancellor lets assume it to be Merkel will have no choice but to be tough on underperforming euro-zone countries, demanding structural reforms and using the time Mario Draghi bought with his whatever it takes speech last year. France and Italy are clearly the countries policy makers in Berlin worry most about. Spain is a concern as well. All three governments need to show strong leadership to overcome the significant public resistance against reforms like cutting public spending, liberalizing labor markets or reforming pension systems. mechanisms to channel cash into the weaker economies. Institutionally, Merkel will use her strong position in the EU to push for more intergovernmental agreements, putting control into the hands of national governments rather than the European Commission. And if, in the end, all the Six Packs, Fiscal Pacts and European Semesters still arent enough, the hope is that financial markets will exert the necessary pressure to force reforms, as painful as that may be. This whole process will take years, not months. In a positive scenario, France, Italy and Spain will move in the right direction, Portugal and Ireland will continue to follow the program, and the EU will find a solution for Greece and Cyprus. If this scenario becomes reality, and that is a big if, Europe will have made an enormous jump. The root problem of the euro zone that the monetary union was established despite vast differences in competitiveness and fiscal discipline would at least partially be fixed. Then the EU can finally in earnest implement what should have been done from the time that the euro was introduced in 1999: a fiscal, economic and political union, with the banking union currently on its way. Then, and only then, we may also see Eurobonds. Still, do not expect this to happen until the end of the decade. Merkel stands for re-election to lead Germany and Europe along this path. She will continue to do so in her analytical, balancing, listen-first and step-by-step approach, while being mindful of the concerns of her voters, the Constitutional Court and the Bundesbank. Although she will not be a loud leader, she will work hard to make the EU more agile, flexible and dynamic until the end of her next term in 2017. If she succeeds with this in her style, Germany may earn a new title: The Female Hegemon.
Jan F . Kallmorgen is a partner of Bohnen Kallmorgen & Partner (www.bohnen-kallmorgen.com), a public affairs firm based in Berlin and Washington, DC.

Whether Merkel remains chancellor, or her Social Democratic challenger Peer Steinbrck comes out first, one thing is certain: Germany will remain committed to the euro.

Merkel and her cabinet are not criticizing Paris, Rome and Madrid publicly. However, when they meet bilaterally or at one of the many EU summits, voters can assume they dont mince their words about what they expect of these three governments. At the same time, Berlin is supportive: it has allowed sinner countries more time to reach the EUs deficit goals; it does not resist the loose monetary policy of the ECB; and it has helped create numerous transfer

Grocer List: PRICES + BRANDS + DEMOGRAPHICS

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<GO>

INDUSTRY RESEARCH

BI

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Market Indicators

MSCI EQUITY INDICES

TICKER
MXCA Index MXUS Index MXAR Index MXBR Index MXCL Index MXCO Index MXMX Index MXPE Index MXAT Index MXBE Index MXCZ Index MXDK Index MXFI Index MXFR Index MXDE Index MXGR Index MXHU Index MXIE Index MXIT Index MXNL Index MXNO Index MXPL Index MXPT Index MXRU Index MXES Index MXSE Index MXCH Index MXGB Index MXEG Index MXIL Index MXJO Index MXMA Index MXZA Index MXAU Index MXCN Index MXHK Index MXID Index MXIN Index MXJP Index MXKR Index MXMY Index MXNZ Index MXPH Index MXPK Index MXSG Index MXTH Index MXTR Index

COUNTRY Canada U.S. Argentina Brazil Chile Colombia Mexico Peru Austria Belgium Czech Rep. Denmark Finland France Germany Greece Hungary Ireland Italy Netherlands Norway Poland Portugal Russia Spain Sweden Switzerland U.K. Egypt Israel Jordan Morocco South Africa Australia China Hong Kong Indonesia India Japan Korea Malaysia N. Zealand Philippines Pakistan Singapore Thailand Turkey

LAST PRICE 1610.9 1585.0 1574.3 2130.1 1868.3 1143.6 6590.4 1099.2 115.8 69.1 243.0 4877.1 81.5 111.7 114.1 14.5 964.7 31.0 48.0 93.0 2440.0 1700.0 51.9 717.6 92.1 9393.2 1025.1 1906.2 1103.7 179.8 183.6 252.3 1031.6

1D %Chg

YoY %Chg

52W Min 1485 1291 948 2,053 1,846 1,028 5,951 1,020 92 59 223 4,229 65 94 97 10 946 25 43 76 2,250 1,543 45 668 79 7,819 824 1,659 992 180 181 252 910 872 51 9,851 4,487 672 439 509 569 91 838 352 1,553 459 937K

Average 52W Last Max 1624 1634 1629 2842 2601 1393 7772 1681 119 72 329 5032 83 115 117 16 1107 32 53 96 2478 1810 56 863 96 9679 1083 2023 1291 203 235 324 1041 1069 66 12380 6149 796 794 592 653 110 1224 515 1823 573 1327K

FORW. PE 12M 13.4 14.6 5.1 9.4 14.7 15.4 17.6 10.8 10.0 15.0 9.3 15.2 14.4 12.0 11.2 12.2 8.1 26.7 10.5 13.0 10.5 12.2 13.9 na 11.8 14.7 14.2 11.8 7.3 8.2 n.a. 11.6 13.1 13.9 8.4 14.3 13.8 13.5 13.8 8.0 14.9 15.6 20.2 8.4 n.a. 12.1 9.4

10Y GOVERNMENT BOND YIELDS

TICKER
GCAN10YR Index USGG10YR Index

COUNTRY Canada U.S. Argentina Brazil Chile Colombia Mexico Peru Austria Belgium Czech Rep. Denmark Finland France Germany Greece Hungary Ireland Italy Netherlands Norway Poland Portugal Russia Spain Sweden Switzerland U.K. Israel South Africa Australia China Hong Kong Indonesia India Japan Korea Malaysia N. Zealand Philippines Pakistan Singapore Thailand Turkey

LAST 1D CHG YoY YIELD BPS BPS

North America

52W Min 1.7 1.5 9.1 4.7 4.4 3.9 1.5 1.9 1.5 1.0 1.3 1.7 1.2 8.1 4.9 4.4 3.8 1.5 1.7 3.1 5.2 2.7 4.0 1.4 0.4 1.5 3.5 6.0 2.9 3.4 0.5 5.1 7.1 0.4 2.7 3.1 3.2 3.0 10.7 1.3 3.3 6.5

Average Last

52W Max 2.8 2.9 11.6 7.6 6.4 5.9 2.3 2.9 2.6 2.1 2.2 2.5 1.9 24.0 7.5 6.0 5.8 2.3 2.8 5.0 9.6 4.7 6.9 2.5 1.1 2.7 4.4 8.4 4.1 4.1 2.6 8.7 9.2 0.9 3.7 4.1 4.7 5.2 12.2 2.8 4.2 8.3

5Y CDS 51.7 21.0 2745 197.8 97.9 130.1 123.6 143.0 30.3 65.4 60.2 24.0 21.7 70.6 28.2 325.4 143.2 236.0 48.8 14.5 90.8 471.8 204.0 229.4 17.3 n.a 36.2 126.2 248.0 51.7 117.4 n.a. 281.7 n.a. 68.1 82.9 155.9 48.2 148.7 n.a. n.a. 118.9 237.2

North America

Latin America

0.0% 6.7% -0.4% 17.8% -0.9% -1.1% -1.4% -0.8% -1.8% -1.2% -1.2% -1.4% 0.0% -0.7% -1.4% -1.4% -1.5% -3.1% -0.7% -2.0% -1.7% -1.4% -0.5% -1.2% -1.3% -1.5% -1.8% -1.7% -1.2% -0.7% 44.6% -19.8% -20.4% -3.2% 2.5% -21.5% 22.6% 15.4% -25.3% 10.2% 19.7% 15.8% 15.6% 29.8% 0.5% 20.0% 5.4% 19.9% 4.9% 7.2% 15.4% -7.0% 13.7% 16.7% 22.2% 11.3%

2.65% 2.77% 10.88% 7.11% 6.31% 5.73% 2.29% 2.75% 2.37% 2.04% 2.15% 2.45% 1.87% 10.23% 6.42% 4.40% 4.41% 2.27% 2.75% 4.39% 6.56% 4.45% 4.48% 2.46% 1.11% 2.62% 3.97% 8.25% 3.93% 4.01% 2.59% 8.74% 8.57% 0.75% 3.66% 3.97% 4.61% 3.75% 12.01% 2.65% 4.13% 6.48%

Latin America

-4.3 -2.0

81.9 111.5 85.0 52.0 89.9 n.a. 25.9 25.0 0.0 94.6 62.3 38.1 51.3 -94.0 -385.6 -130.0 52.5 96.8 -48.0 -294.5 119.1 -190.6 105.6 55.4 107.8 -18.0 106.7

GEBR10Y Index COGR10Y Index GMXN10YR Index GRPE10Y Index GAGB10YR Index GBGB10YR Index CZGB10YR Index GDGB10YR Index GFIN10YR Index GFRN10 Index GDBR10 Index GGGB10YR Index GHGB10YR Index GIGB9YR Index GBTPGR10 Index GNTH10YR Index GNOR9YR Index POGB10YR Index GSPT10YR Index RUGE10Y Index GSPG10YR Index GSGB10YR Index GSWISS10 Index GUKG10 Index

-16.4 -1.0 0.5 -3.0

Europe

Europe

Middle East & Africa

Middle East & Africa

-1.1 -2.0 -5.9 -3.4 -1.4 -1.1 -2.9 20.2 2.0 -2.7 2.9 -1.8 -1.2 -3.3 0.3 -3.2 1.8 -2.0 -1.3 -10.0 -6.0 -0.4

Asia/Pacific

-1.4% -4.7% -1.3% -4.2% 1.1% -18.4% -0.1% -20.5% -0.9% 10.6% 0.2% -0.5% -0.7% -3.6% -3.4% -0.5% 0.0% -1.2% -0.1% -4.4% -0.6% -1.2% -1.4% -2.4% 18.9% 8.9% 11.5% -9.9% 1.8% 51.0% -1.5% 3.6% 13.0% 17.6% 38.3% -0.8% -1.8% 1.7%

GISR10YR Index

GSAB10YR Index GACGB10 Index GCNY10YR Index HKGG10Y Index GIDN10YR Index GIND10YR Index GJGB10 Index GVSK10YR Index MGIY10Y Index GNZGB10 Index PDSF10YR Index PKIB10YR Index MASB10Y Index GVTL10YR Index TGBY10T0 Index

Asia/Pacific

1049.4 58.6 11292.5 4486.6 699.2 701.1 542.7 609.7 103.4 980.7 490.1 1616.5 461.6 948328

-8.0 73.3 2.0 66.0 -2.1 186.0 22.7 263.2 23.3 37.6 -2.1 -6.5 -1.0 60.0 1.8 47.6 -3.4 94.3 2.7 -128.2 0.0 2.0 -5.0 124.0 -3.0 77.8 0.0 -329.0

OTHER INDICATORS
TICKER
$$SWAP10 Curncy $$SWAP2 Curncy USGGBE01 Index .2Y10Y Index .10YV3MSP Index .TED3M Index .LIBORIOS Index JPEIPLSP Index .AAA10Y Index .AAABAA Index MUNSMT10 Index VIX Index SKEW Index

CURRENCIES
52W Min 1 9 (1.0) 133 148 17 14 229 169 82 85 11.3 112.5 52W Min 455 113 16 628 1,728 302 1,212 19 98 84 257 2.6 276 661 601 218 201 179 Average 52W Last Max 26 20 2.6 253 286 35 29 389 208 144 114 22.7 131 Average 52W Last Max 812 184 22 903 2201 385 1794 35 119 108 334 4.4 321 1179 694 262 250 222 1Y ZSCORE 2.0 (0.1) (0.3) 5.8 6.3 (1.2) (1.0) 1.3 0.5 (1.4) 0.6 (0.6) (0.4) RSI 30D 43.6 41.7 48.1 47.8 53.7 54.6 58.6 64.3 59.1 56.9 51.7 47.9 57.2 65.9 55.8 51.3 54.0 55.2 TICKER
ARS Curncy BRL Curncy CAD Curncy CLP Curncy COP Curncy MXN Curncy GBP Curncy CZK Curncy DKK Curncy EUR Curncy HUF Curncy NOK Curncy PLN Curncy RON Curncy RUB Curncy SEK Curncy CHF Curncy TRY Curncy UAH Curncy ILS Curncy ZAR Curncy AUD Curncy CNY Curncy HKD Curncy INR Curncy IDR Curncy JPY Curncy SGD Curncy NZD Curncy KRW Curncy THB Curncy TWD Curncy EURGBP Curncy EURNOK Curncy EURCHF Curncy

SPREAD/RATE/INDEX 10Y US Swap Spread 2Y US Swap Spread 1Y Breakeven Rate 2Y10Y Spread 3M10Y 3M Ted Spread 3M Libor/OIS EMBI+ Spread IG Corp Spread IG HY Corp Spread Muni Spread CBOE VIX Index CBOE Skew Index COMMODITY Corn Coffee Sugar Wheat Aluminum Copper Gold Silver Crude (Brent) Crude (WTI) Gasoline Natural Gas

LAST PRICE

Fixed Income

1D Chg YoY bps/% bps/% 0.1 -0.3 0.0 -2.4 -7.6 -5.6 -0.1 0.8 2.1 0.0 1.2 1.0 -1.4 8.8 0.1 -0.2 101.0 114.5 -13.2 -13.5 56.7 5.6 -52.0 -1.4 -1.4 -5.0 YoY %Chg -35.5% -31.9% -15.3% -24.4%

CURRENCY Argentine Peso Brazilian Real Canadian Dollar Chilean Peso Colombian Peso Mexican Peso British Pound Czech Koruna Danish Krone Euro Hungarian Forint Norwegian Krone Polish Zloty Romanian Leu Russian Ruble Swedish Krona Swiss Franc Turkish Lira Ukranian Hryvnia Israeli Shekel S. African Rand Australian Dollar Chinese Renminbi HK Dollar Indian Rupee Indonesian Rupiah Japanese Yen Singapore Dollar N. Zealand Dollar S. Korean Won Thai Baht Taiwan Dollar Euro-Pound Euro-NOK Euro-Swiss Franc

LAST PRICE

Americas

1D YoY %CHG %CHG 0.1% -17.8% 1.3% -14.6% 0.2% -5.9% 0.5% -6.2% 0.5% -5.3% 0.5% -0.5%

52W Min 4.6 1.9 1.0 467.1 1759.0 12.0 1.5 18.6 5.5 1.3 212.0 5.5 3.1 3.2 29.9 6.3 0.9 1.7 8.0 3.5 8.2 0.9 6.1 7.7 51.7 9464.0 77.5 1.2 0.8 1054.7 28.7 28.9 0.8 7.3 1.2

Average Last

52W Max 5.6 2.5 1.1 518.5 1940.6 13.4 1.6 20.3 6.0 1.4 238.2 6.3 3.4 3.6 33.3 6.8 1.0 2.0 8.2 4.0 10.4 1.1 6.4 7.8 65.6 11337 103.2 1.3 0.9 1161.2 32.2 30.2 0.9 8.2 1.3

1Y ZSCORE 4.3 6.6 3.1 2.7 6.4 0.4 -0.8 -0.6 -1.3 1.3 0.0 1.6 -0.5 -1.1 2.1 -0.7 -0.9 10.7 0.3 -1.7 4.8 -7.1 -2.8 0.2 9.4 10.8 2.5 2.2 -1.6 0.0 2.0 1.4 1.8 7.0 1.6

18.5 18.0 0.8 239.7 270.4 20.1 15.7 359.9 183.6 89.0 108.0 15.0 118.7

5.63 2.38 1.05 512.73 1925.85 13.26 1.55 19.26 5.59 1.33 224.80 6.05 3.18 3.33 33.19 6.53 0.92 2.02 8.12 3.65 10.35

Europe

Equity

COMMODITIES
Agricultural

TICKER C 1 Comdty
KC1 Comdty SB1 Comdty W 1 Comdty LA1 Comdty HG1 Comdty GC1 Comdty SI1 Comdty CO1 Comdty CL1 Comdty XB1 Comdty NG1 Comdty

LAST PRICE

1D %Chg

512.5 113.8 16.6 652.0 1858.3 332.1 1411.4 24.3

Metals

-0.6% -0.2% -0.2% -0.4%

Middle East & Africa

-0.4% -1.8% 0.4% 3.1% 0.2% 6.6% -0.2% 6.7% 0.7% -0.9% 0.3% -3.6% 0.4% 2.7% 0.5% 7.4% 0.5% -3.8% 0.3% 1.1% -0.1% 4.2% 1.1% -10.7% -0.1% -0.2% 1.1% 10.0% 0.2% -18.4%

Energy

0.5% -2.2% 0.0% -4.5% 1.3% -15.6% 1.2% -21.7% 0.7% -0.6% 0.8% 11.9% 0.6% -5.9% 0.2% 32.6% 0.7% -4.3% 0.6% 62.5% 0.4% -2.8% -0.4% -8.6% 2.0% -13.9% -0.7% -1.9%

Asia/Pacific

111.6 106.8 296.9 3.5 292.9 1165.0 651.0 228.0 209.2 194.5

Indices

CRY Index CRB index BDIY Index Baltic Dry Index GI1 COMB Index GS Cmdty Index CMDI3MO Index Bloomberg 3M Cmdty DBLCDBAT Index DBIQ Diversified Ag Index CMDIBASS Index Bloomberg Base Metal Source: Bloomberg. Updated at 5:45 a.m. ET

0.90 -0.9% -13.7% 6.12 0.0% 3.8% 7.76 0.0% 0.0% 65.60 2.0% -15.1% 11337.0 4.5% -15.9% 97.73 -0.8% -19.4% 1.28 0.2% -2.5% 0.78 -0.8% -3.7% 1116.28 0.3% 1.7% 32.18 0.6% -2.8% 30.02 0.2% -0.2%
Euro Crosses

0.86 0.2% 8.08 0.0% 1.23 -0.4%

-8.0% -9.6% -2.3%

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This document is being provided for the exclusive use of TEHANI PERERA at BLOOMBERG/ SINGAPORE OFFICE
08.27 .13 www.bloombergbriefs.com Bloomberg Brief | Economics

Keenes Corner
Vincent Reinhart, chief U.S. economist, Morgan Stanley, talks to Tom Keene about the September Fed taper and challenges awaiting the next Fed Chairman.

Q: The big question is what does the Fed do next from your perspective? Youve been there. What do they do? A: Theyve signaled what they are going to do next. They are going to start tapering in September. There is an employment report between now and then and the decision is somewhat data dependent, but most likely, in our forecast, a 200,000 net gain in jobs gets the Fed what it wants, the ability to start heading for the exit while Chairman Ben Bernanke is still on watch. Q: Why do they want to do it now? A: Number one, it is a policy that has diminishing marginal effectiveness so they dont really think they are taking away much additional accommodation. Two, they are a little more confident about the economy and dont see the need for extra accommodation. And three, quantitative easing was about sending a signal about their support for the economy and their willingness to stay accommodative. They think they have a better way of sending that signal through the thresholds, the guidance on the unemployment rate and inflation. So essentially, they have a shiny, new toy and theyre playing with that rather than QE. Q: If they do that, how do the markets react? A: We saw that the first move toward the exit was kind of messy, when they put on the possibility of a fairly quick taper. The basic problem is the Fed has to separate its two policy instruments; there is a decision on the balance sheet and there is a decision on the path for interest rates. When they first put the idea of heading for the exit, i.e., tapering on the table, those two decisions really werent distinct. They worked harder to convince market participants they were going to keep rates low for a real long time.

Q: Frame for us where our labor growth is and productivity growth are. A: A financial crisis really hits the level and rate of growth of GDP. We have lived through that. Three years ago, Carmen and I presented a paper at Jackson Hole where we showed that 10 years after a severe financial crisis, the level of GDP per capita is 15 percent below what the trends of the 10 years prior to the crisis would have predicted. Ten years is a long time, 15 percent is a big amount. The financial crisis is dislocating. However, it is further and further in our rear view mirror and the drag on growth has receded. I understand the arguments we havent gotten good productivity growth of late, i.e., weve been getting more jobs for the GDP weve seen. But capex is picking up as firms add to the physical capital stock and people regain some union capital skills. Then we can return to close to the previous rate of growth. Q: You used to live this when you were with the Fed. How good are the forecasts of our central bank? A: Not very, but that is true about all forecasters. The Federal Reserve Board staff are very good at adding up the near-term picture, the in-quarter and next-quarter outlooks for GDP, employment, and the like. The basic fact is a medium-term forecast of the sort you need to set monetary policy is based on things youre not really sure about, like the rate of growth of potential output, the level of the natural rate, the level of equilibrium real interest rate. For instance, why is inflation so low right now? Hard to know. Why are they confident that inflation will pick up back toward a goal of 2 percent? Hard to know. When monetary policy is made, it is made in an environment of uncertainty. Q: If they do start tapering in September, the next Fed chair, whoever it is, is going to have to live with the policy that they adopt. Should it be Janet Yellen, Larry Summers or someone else? A: Its a decision for the president. I think there are two things you can be sure about. Number one is the next Fed chair will not be as self-effacing as the current one because Ben Bernanke is basically global maximum for that. And number two, the president has got to nominate someone who can do the job. Thats fairly obvious. What the Committee has been doing is layering on a structure of communica-

tions, establishing precedent, which really will constrain, at least at the beginning, the next Fed chair.
(This interview was condensed and edited.)

Todays guests: Leo Hindrey, founder of InterMedia,YES Network; Bill George, Harvard; Dana Telsey, Telsey Advisory Group; Robyn Karnauskas, Deutsche Bank Securities; John Stoltzfus, Oppenheimer

On Air Listen on the radio at these regularly scheduled times and dates.
Surveillance

Weekdays 7:00 AM-10:00 AM. Tom Keene joins Ken Prewitt for Bloomberg Surveillance
Bloomberg

on the EconomY MondayThursday 7:00-8:00 PM. Tom Keene interviews high-profile guests and looks at the economy.

PodCast Listen on the web at http://www.bloomberg.com/podcasts/surveillance/ Also available on the Bloomberg terminal: BPOD <GO> Twitter / On Demand
Full interviews are available at Tom Keene on Demand http://www.bloomberg.com/tvradio/ radio/ and follow him on twitter @tomkeene

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