Rodrigo C. Serrano, CFA +52 1 55 3045 9010 rcs2164@columbia.

edu Mexico City, Mexico

Chinas threats: deflation & slowing growth

September, 2015
1

Web site: 12252214477887.tumblr.com

Agenda / Overview

U.S. 10-year Treasury: (Buy) China key factor in Fed hike plans. (9/21/15)

S&P 500: All is not well. Cautiously neutral (7/26/15)

Gold: Patience; easy money to continue. Neutral but increasingly bullish (8/10/15).

Euro: Resolution favors bulls. Neutral (7/27/15)

U.S.: Are expectations too high in 3Q15?

Eurozone: firewalls working; catalyst approaches.

China/Asia: thinning ice slows reform, raises fear.

U.S. 10-year: Buy on China uncertainty

Weak China impacts global trade and
economy. EMs are colateral damage.
Feds new focus on international
developments places China as a key
factor to Feds rate hike plans.
Risks: Overreaction or stabilization in
Chinas weakness, and building US
inflationary pressures
Buy (on 9/21/2015) from Conditionally
bullish (on 8/16/15).

30

China's balancing act

USDCNY devaluation a drop in the bucket

25
15
10

5
0

Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11
Jan-12
May-12
Sep-12
Jan-13
May-13
Sep-13
Jan-14
May-14
Sep-14
Jan-15
May-15

YoY, %

20

Fixed Asset Investment

Retail Sales
Chart: SCR

Chinas National Bureau of Statistics, Yahoo, Freestockcharts RCS

3

S&P 500: All is not well.

U.S. economic growth helping offset
bearish events abroad (China).
Stronger dollar, global weakness
threaten earnings.
Rate hike expectations tightening
financial conditions worldwide.
Breadth weak, Dow Jones divergence,
Cautiously neutral (7/26/15).

US GDP: recovery weaker than expected

Bloomberg, WSJ, RCS

Falling breadth

Euro: Resolution favors bulls

Bull case: Greek deal provides clarity within region-wide economic
pick up, due to 3 stimuli.
Bear case: Political risk increases in Greece, while first review of
reform progress occurs in October.
Watching: political developments. Neutral (7/27/15).

Eurozone PMIs

60
58
56
54
Index

52
50
48
46
44
42

Manufacturing

Markit, Bloomberg, RCS

Services

Jun-15

Apr-15

Feb-15

Dec-14

Oct-14

Aug-14

Jun-14

Apr-14

Feb-14

Dec-13

Oct-13

Aug-13

Jun-13

Apr-13

Feb-13

Dec-12

Oct-12

Aug-12

40

Gold: Patience; easy money to continue

Bull case: China-induced deflationary forces and weak global

economy lead to continued monetary easing.
Bear case: price action; accelerating recovery in Europe; U.S.
growth, and stabilization in China.
Watching: Does currency war continue? Neutral but increasingly
bullish (8/10/15).
U.S.: Current vs. rate hike levels

Freestockcharts.com, David Rosenberg, RCS

6

U.S.: Are expectations too high in 3Q15?

55
50
45
40

New Orders 6M Avg

1.0

3.0
MoM, %

SAAR, (%)

Apr-15

Nov-14

Jun-14

Aug-13

Mar-13

Oct-12

May-12

Dec-11

Jan-14

ISM 3M Avg

Leading indicator

0.5

2.5
2.0
1.5

0.0
-0.5

1.0
0.5

-1.0

0.0
7-Aug
Atlanta Fed

Consensus

ISM, Atlanta Fed, Conference Board, RCS

Backlogs 6M Avg

Oct-06
Apr-07
Oct-07
Apr-08
Oct-08
Apr-09
Oct-09
Apr-10
Oct-10
Apr-11
Oct-11
Apr-12
Oct-12
Apr-13
Oct-13
Apr-14
Oct-14
Apr-15

3.5

GDPNow

Jul-11

Feb-11

Sep-10

Apr-10

Nov-09

Jun-09

Jan-09

35

Aug-08

60

Mar-08

Service sector

65

Index

Economic growth helped by service

sector, labor market, and housing.
Leading indicators dont flag oncoming
slowdown.
But, be mindful of reduced confidence,
and prelim data, denting high
expectations.

3 Mth Avg.

6 per. media mvil (3 Mth Avg.)

Eurozone: firewalls working; catalyst approaches

Economic growth picking up solidifies financial firewalls and

limits political contagion.
Short-term execution risk on 3rd Greek rescue
Periphery 10-year yields

14

15

12

13

10

11
9
%

-1

Italy

European Central Bank, Bloomberg, RCS

Spain

Portugal 10 Yr Yield (RHS)

May-15

Jan-15

Sep-14

May-14

Jan-14

Sep-13

May-13

Jan-13

Sep-12

May-12

Jan-12

Sep-11

May-11

Jan-11

Sep-10

May-10

Jan-10

Sep-09

May-09

Jan-09

Oct-06
Mar-07
Aug-07
Jan-08
Jun-08
Nov-08
Apr-09
Sep-09
Feb-10
Jul-10
Dec-10
May-11
Oct-11
Mar-12
Aug-12
Jan-13
Jun-13
Nov-13
Apr-14
Sep-14
Feb-15

YoY, (%)

M1 growth

China/Asia: thinning ice slows reform, raises fear

20
10
0
-10
-20
-30
Apr-15

Dec-14

Aug-14

Apr-14

Dec-13

Aug-13

Apr-13

Dec-12

Aug-12

Apr-12

Dec-11

Aug-11

Apr-11

Dec-10

Aug-10

-40
Dec-09

30

Apr-10

Government statistics doubted as

high-frequency data conflict.
Officials extraordinary actions mark
step back in reforms.
Military tensions (South China Sea)
may dampen investment.

YoY, %

China - new loans (LC)

40

12M rolling avg.

China home prices

China - total energy consumption

40
30

YoY, %

20
10
0
-10

Chinese National Bureau of Statistics and National Energy Administration, Bloomberg, Investing.com, RCS

Jul-15

Mar-15

Nov-14

Jul-14

Mar-14

Nov-13

Jul-13

Mar-13

Nov-12

Jul-12

Mar-12

Nov-11

Jul-11

Mar-11

Nov-10

Jul-10

Mar-10

Nov-09

Jul-09

-20

Additional info and Disclosure

Details on my investment theses available on my website (SCR):
Home page: http://12252214477887.tumblr.com
My views: http://12252214477887.tumblr.com/myviews

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These are my personal views.

Please refer to your financial advisor for asset allocation decisions.