Economic Research

October 12, 2012

Global Data Watch
 Fiscal drag will persist in 2013 but shift geographic focus from Europe to the US  Capex slump viewed as temporary but needs to be watched  EMU summit not expected to deliver much  China data reports to confirm slow acceleration back toward trend

European Summit to remind inv estors of a long road ahead Germany : taking a look at the grow th slow dow n Aussie ex ports performing w ell giv en global headw inds Indonesia: tracking signs of a credit cy cle inflection Global Economic Outlook Summary 21 4 6 7 8 9 23 31 35 39 41 43 45 47 49 53 55 57 61 65 67 71 72 19 17 13

Fiscal drag to persist but rotate regionally in 2013
We forecast a modest acceleration in the global economy toward year-end as the recent combination of faster consumption growth and still-sluggish manufacturing sector sets the stage for a fading inventory drag and firming business sentiment. This week’s poor September car sales were a reminder that at least some of the pickup in consumer spending was due to temporary factors. However, the key challenge to our near-term forecast remains the recent poor performance of the capital goods sector. To the extent that the recent swoon in G3 capital goods orders represents a shift to broadly based business retrenchment, a new powerful drag will weigh on global growth. However, we take comfort that the tone of September readings from global surveys, US labor markets, and financial markets suggest that firms remain in a modestly expansionary mode, and that the drop in 3Q capex will prove temporary. Indeed, an upturn in capital spending into year-end is incorporated in our forecast. Policy also will play a central role in the 2013 outlook. Policy uncertainty or expectations about next year’s stance may already be influencing activity including the recent softness of business demand. Our forecast incorporates policy that on the whole tempers the lift in global growth that is now taking shape. In large part this judgment is driven by the view that fiscal policy will remain quite restrictive. Even after assuming that an agreement is reached that avoids the worst of the US fiscal cliff outcomes, we anticipate a developed world fiscal drag of more than one percent of GDP next year. The fiscal stance for EM countries is expected to be broadly neutral. The offset to global fiscal drag—and what is now approaching two full years of subpar global growth—by monetary authorities looks small. Notwithstanding the broadening in the set of countries that have eased—with Brazil, Korea, and Australia delivering the most recent cuts—global policy rates have fallen only 43bp over the past year.

Global Central Bank Watch Now cast of global grow th Selected recent research from J.P. Morgan Economics The J.P. Morgan View : Markets Data Watches United States Euro area Japan Canada Mex ico Brazil Argentina Chile and Colombia United Kingdom Russia Turkey Australia and New Zealand China, Hong Kong, and Taiw an Korea ASEAN Asia focus Regional Data Calendars

Structural fiscal tightening
% of GDP 0.5 0.0 -0.5 -1.0 -1.5 -2.0 2010 2011 2012 2013 EMU

Global IP and retail sales
%3m/3m, saar 7 6 5 4 3 Retail sales IP 12 10 8 6 4 2 0 2011 2012 -2 2013

Bruce Kasman
JPMorgan Chase Bank NA

David Hensley
JPMorgan Chase Bank NA

Joseph Lupton
JPMorgan Chase Bank NA

US 2014

2 1 2010

JPMorgan Chase Bank NA Bruce Kasman David Hensley

Joseph Lupton

Economic Research Global Data Watch October 12, 2012

G-3 capital goods indicators and global capital expenditures
%3m/3m saar; adjusted for Tohoku earthquake 25 20 15 10 5 0 -5 -10 -15 -20 -25 2009 Capex %q/q saar 20 15 10 5 0 -5 -10 -15 -20 2013

data confirm that policy is getting traction, with growth expected to surpass 4% annualized in 2H12. By contrast, we recently scaled back our expectations for policy easing and economic growth in China (more below).

Capex slump seen as temporary
This week’s reports brought additional confirmation of a downshift in global capex last quarter. August data show that G-3 capital goods shipments, which are a close proxy for global business equipment spending, are on track for a decline of around 4% annualized in 3Q12. The growth of global capex already was very soft in 1H12, averaging near 1.5% ar. With G-3 shipments recently falling, the forecast assumes that global capex declined in 3Q12. Already, the deceleration in capex has offset some of the recent pickup in global retail sales, prolonging the soft patch in manufacturing. A continued decline in capex likely would undermine the forecast for a modest pickup in global growth, while raising the odds of a broader pullback in business spending. Temporary dips in capex are not uncommon during economic expansions, and we are viewing the 3Q decline in this way, expecting some bounce back into year-end. As noted above, the first look at September data and the behavior of financial markets supports this call. Even more reassuring, and consistent with our global forecast, would be a return to growth in G-3 capital goods shipments and orders in the next few months.

Shipments Orders 2010 2011 2012

Against the backdrop of global policy stances that restrain growth, the role of policy in relative performance is important to understand. It is in the Euro area where we think policy shifts will do the most to improve the growth picture. The ECB’s OMT program is anticipated to help fix peripheral credit markets broken by sovereign stress. To be sure, Euro area fiscal policy will continue to tighten. But the structural fiscal tightening in the region as a whole is set to fall from over 1.5% of GDP in 2012 to near 1% of GDP in 2013. Underpinning this forecast is an ongoing shift in the region’s approach to fiscal austerity, in which budget overshoots due to recession are no longer met with demands for additional structural tightening. The Italian government, for example, recently doubled its budget deficit forecast this year, without taking corrective action. And the plans the Troika has agreed with Portugal also allow for at least partial operation of automatic stabilizers. The forecast shows the Euro area as a whole crawling out of recession next year, with GDP rising 1.1% next year on a 4Q/4Q basis. In contrast, the US fiscal drag in 2013 is likely to be somewhat larger than the 1% drag experienced in 2012. Moreover, risks are increasing that not all of the fiscal cliff tightening will be avoided, in which case the drag could be significantly larger. There is some room for Fed policy to cushion this blow. However, the degree of fiscal tightening makes it hard to see any meaningful acceleration in the US economy in coming quarters. Our forecast maintains average US growth around 2%, an outcome that will require solid underlying performance in interest-sensitive components of private demand. In the emerging markets, it is Brazil that is being afforded the broadest policy lift. Policy interest rates reached a new low after this week’s 25bp cut, with the central bank signaling a low-for-long stance that we think will extend through late 2013. This stance is complemented by more expansionary fiscal policy, including measures targeted to boost consumption and investment, as well as more generous funding from the national development bank (BNDES). The latest activity

An anticlimactic EMU summit
Although the ECB has yet to purchase a single bond under its new OMT, the announcement of the program continues to stabilize markets, which this week took a two-notch downgrade to Spain’s credit rating in their stride. The balm of ECB support looks increasingly important given that next week’s summit of European leaders is unlikely to deliver much substantive progress on institution building. One unintended consequence of ECB action is that politicians will feel less urgency to deliver across a spectrum of contentious issues. In particular, we doubt that disparate views on which banking burdens should be shared will be reconciled at this point. The combination of a credible but conditional central bank liquidity backstop, alongside the promised banking union, could limit the degree of fiscal integration needed for the region’s viability. To the extent that these innovations both guarantee market access for sovereigns, and make markets more comfortable holding a higher level of sovereign debt, they provide a large part of the benefit that would come from Eurobonds. If the region is prepared to operate with a higher steady-state level of debt, rather than insisting on a path that

JPMorgan Chase Bank NA Bruce Kasman David Hensley

Joseph Lupton

Economic Research Global Data Watch October 12, 2012

Euro area auto sales and auto output
Mn units, saar 11.0 10.5 10.0 9.5 9.0 8.5 8.0 2010 2011 Sales 2012 Output

%3m, saar 60 40 20 0 -20 -40 2013

by a drop in car sales that was partly related to the diplomatic dispute with Japan. Inflation likely moderated to 1.8%oya, though the relief is expected to prove temporary, with inflation forecast to move above 3%oya early next year.

Divergent outlooks from BoK and MAS
Recent data reports from Korea did not deliver reliable confirmation of the turn in the manufacturing cycle, with September exports firming amid softening survey data. Against this backdrop, the Bank of Korea cut the base rate by 25bp to 2.75% and downgraded its growth outlook significantly. However, this week’s decision was not unanimous, and we maintain our call that the BoK will go on hold for the rest of the year, and throughout 2013 barring an unexpected shift in growth. Although there was speculation that the Monetary Authority of Singapore also might ease at this week’s meeting, officials chose to maintain their stance. The MAS’s decision reflects its concern that tightening labor market conditions might feed through to wage and price inflation; diminished worry about external growth in light of recent G-3 policy actions; and a belief that the global tech demand will recover next year.

will lower debt to 60% of GDP, difficult fiscal journeys will be substantially shortened. Though this week’s Summit will demonstrate that further institution building is hard, we doubt it will show that what is needed is out of reach.

Humps and bumps in Euro area data
The Euro area business surveys have been sending a clear message of ongoing recession in 3Q12. However, the incoming IP data have not been playing to this script, even in the periphery. With back-to-back gains in July and August, Euro area IP is tracking up 4% ar so far in 3Q12, after almost one year of contraction. Seasonal adjustment problems are likely contributing to this, and the surge in auto production is hard to square with sliding car sales in the region. Even so, part of the IP strength will likely be reflected in next month’s GDP estimates for 3Q, followed by a reversal in 4Q. Hence, we have raised our GDP forecast for 3Q12 by 1%-pt to zero and have reduced our 4Q forecast by the same amount to -1.5% ar. While IP and GDP may show a larger contraction this quarter, we still think the economy’s underlying momentum is poised to improve in response to easing financial market conditions and reduced uncertainty. This lift will best be tracked via the monthly business surveys.

NBR running against regional easing trend
Rising inflation, currency pressure, and very low GDP growth have created a policy dilemma for Romania’s central bank. Until now, the slumping economy has caused the NBR to look past the escalation in inflation, but we think increasing FX pressure will force the bank to change approach and hike rates by early next year. FX weakness also will aggravate the difficulty of meeting the heavy schedule of repayments on external debt (about €12 billion during the next two years). The IMF repeatedly has asked for tighter monetary policy, and probably early next year it will intensify the pressure on the NBR to tighten as otherwise FX reserves will decline quickly. The view on rates in Romania is unique in the region, but it certainly runs against the general easing trend. In Serbia, the central bank is tightening monetary policy to stabilize the currency and to limit second-round effects from rising food prices. The Russian central bank is not worried about the currency, but it is concerned that supply shocks might filter into inflation and inflation expectations.

Reports to show slight growth lift in China
In China, next week’s release of 3Q GDP and September activity data are expected to bolster confidence that economic growth is lifting very gradually toward trend. The GDP report is anticipated to show that growth rose modestly to 7.4%q/q saar (our seasonal adjustment), up from 6.7% in 2Q (although on a year-over-year basis, we still expect growth to bottom in 4Q). In September, IP is projected have advanced 1.0%m/m, with a possible boost from front-loading ahead of October’s week-long national holiday. Fixed asset investment likely continued at a steady pace near 20%oya. In particular, railway-related investment reportedly has surged as fiscal policy support gains traction. Similarly, retail sales likely posted stable monthly growth, with any upside probably eliminated

Editor: Sandy Batten

JPMorgan Chase Bank NA David Hensley Carlton Strong

Joseph Lupton

Economic Research Global Data Watch October 12, 2012

Global economic outlook summary
Real GDP
% over a year ago

Real GDP
% over previous period, saar

Consumer prices
% over a year ago

2011 The Americas United States Canada Latin America Argentina Brazil Chile Colombia Ecuador Mexico Peru Uruguay Venezuela Asia/Pacific Japan Australia New Zealand Asia ex Japan China Hong Kong India Indonesia Korea Malaysia Philippines Singapore Taiwan Thailand Africa/Middle East Israel South Africa Europe Euro area Germany France Italy Spain United Kingdom Emerging Europe Bulgaria Czech Republic Hungary Poland Romania Russia Turkey Global Developed markets Emerging markets 1.8 2.6 4.2 8.9 2.7 6.0 5.9 8.0  3.9 6.9 5.7 4.2 -0.7 2.1 1.3 7.4 9.3 5.0 6.5 6.5 3.6 5.1 3.8 4.9 4.0 0.1 4.6 3.1 1.5 3.1 1.7 0.5 0.4 0.9 4.8 1.7 1.7 1.6 4.3 2.5 4.3 8.5 3.0 1.3 6.1

2012 2.1 2.2 2.9 3.3 1.4 5.4 4.3 4.0 3.9 6.0 3.5 5.0 2.0 3.5 2.6 6.1 7.6 1.2 5.6 5.7  2.4 4.7 5.3 2.1 1.1 5.8 3.0 2.1 -0.4  1.0 0.1 -2.3  -1.5 -0.3 2.7 1.0 -1.1 -1.2 2.4 0.6 3.6 2.8 2.4 1.2 4.7

2013 1.9 2.1 3.7 2.2 4.1 4.5 4.5 4.0 3.6 7.0 4.0 0.0 0.6 2.5 2.9 6.4 8.0 3.2 6.0 3.5  3.3 2.9 3.5 3.4 3.9 2.7 3.1 3.0 0.2 1.4 0.0 -0.6 -1.3 1.5 2.7 1.5 0.9 0.7 2.1 0.9 3.0 3.7 2.6 1.2 5.1
   

1Q12 2.0 1.8 2.8  2.4 0.5 5.1 0.9 4.2  4.9 8.3 11.8 10.1 5.3 5.6 4.1 7.2 6.5 2.4 6.1 4.6 3.5 5.8 12.6 10.0 1.5 50.8 3.1 2.7 0.0 2.0 0.1 -3.3 -1.3 -1.2 2.4 … -3.1 -3.5 2.4 0.5 3.7 … 3.0 1.7 5.3

2Q12 1.3 1.9 2.4  -3.2 1.6 7.1 6.7 4.8  3.5 6.0 2.1 0.6 0.7 2.6 2.3 5.7 6.7 -0.4 5.3 6.2 1.1 5.9 0.9 -0.7 3.5 13.9 3.4 3.2 -0.7 1.1 -0.1 -3.3 -1.7 -1.5 1.3 … -0.8 -0.9 1.6 1.9 1.5 … 1.8 0.4 4.2

3Q12 1.4  1.9 4.5 8.0 4.8 3.0 2.8 4.0 3.5 5.5 9.0 3.5 -2.0 1.5 1.5 5.6  7.4 2.0 5.2 4.0  2.0 2.5 1.2 -1.6 1.8 2.0 2.0 0.3 0.0 1.0 0.5 -1.0 -1.5 2.0 1.2 … -1.2 -1.0 1.2 -1.0 1.8 …
    

4Q12 2.0 2.0 4.0 6.0 4.6 4.0 3.8 4.0 3.5 6.0 -9.0 -3.0 -0.8 1.8 3.5 6.3 8.2 2.5 5.0 3.0 3.5 1.5 1.2 8.2 3.8 2.0 2.8 -1.2 -1.5 0.0 -1.5 -2.5 -4.5 0.5 2.1 … -1.3 -0.5 1.6 0.8 3.0 …
    

1Q13 1.5 2.1 3.3 0.0 3.8 4.0 4.2 4.0 4.0 8.0 12.0 -3.0 1.4 3.8 3.7 6.4 8.0 3.5 5.8 3.0  3.5 2.0 4.5 6.1 4.5 1.5 4.9 5.9 0.8 1.5 0.0 0.0 -1.0 1.5 2.8 … 2.1 1.0 1.8 1.2 3.5 … 2.7 1.4 5.1

2Q13 2.3 2.1 3.6 1.5 4.0 5.0 5.5 4.0 3.2 8.0 7.0 0.0 1.6 2.5 3.3 6.5 8.2 3.5 6.0 4.0  3.5 3.0 4.5 -1.2 4.6 2.0 6.1 3.8 0.8 2.0 0.5 0.3 0.5 2.0 2.5 … 1.0 1.5 2.4 -0.4 3.0 … 2.9 1.7 5.2

3Q13 2.5 2.2 3.9 0.5 4.3 5.0 5.5 5.0 3.3 7.0 9.0 3.0 1.3 1.8 2.0 6.8 8.2 5.0 6.8 4.0  4.0 3.5 4.5 4.5 4.8 2.0 6.1 3.6 1.3 2.5 1.0 0.8 0.5 2.5 3.8 … 4.3 1.8 3.5 3.2 4.0 … 3.2 1.9 5.6

4Q11 3.3 2.7 7.2 9.6 6.7 4.0 3.9 5.5 3.5 4.5 8.3 28.5 -0.3 3.1 1.8 4.9 4.6 5.7 8.4 4.1 4.0 3.2 4.7 5.5 1.4 4.0 2.5 6.1 2.9 2.6 2.6 3.7 2.7 4.6 6.4 … 2.4 4.1 4.6 3.4 6.8 9.2 3.8 2.7 5.7

2Q12 1.9 1.6 6.0 9.9 5.0 3.1 3.4 5.1 3.9 4.1 8.0 22.3 0.2 1.2 1.0 3.9 2.9 4.2 10.1 4.5 2.4 1.7 2.9 5.3 1.7 2.5 1.6 5.7 2.5 2.1 2.3 3.6 1.9 2.8 5.0 … 3.4 5.5 4.0 1.9 3.9 9.4 2.8 1.8 4.6

4Q12 1.9  2.4 6.3 10.0 5.5 2.5 3.1 4.2 4.4 3.4  7.6 23.4 0.0 1.7 1.7 3.3 2.2 2.5 9.8 3.9 1.9 1.1 2.3 4.1 2.1 1.3 1.3 5.3 2.5 2.1 1.9  3.2  3.4  2.7 6.1 … 2.9 5.9 3.7 4.7 6.7 7.7 2.8 1.9 4.5

2Q13 1.6  2.0 7.3 11.0 5.6 3.1 3.2 4.4 4.1 2.8 7.2 37.3 -0.2 2.7 1.8 3.8 3.3 2.7 9.0 2.2 3.0 1.2 2.3 3.3 1.8 1.1 1.5 5.4 2.0 1.8 1.3  2.3  2.9  2.6 6.2 … 2.4 5.0 2.6 6.4 7.4 6.9 2.8 1.6 5.0

1.9  0.5  4.6 

2.0  0.3  5.0

Memo: 2.7  2.6  3.4  3.2  Global — PPP weighted 3.8 3.0 3.2 3.6 2.4 3.2 3.8 4.2 3.3 3.3 Note: For some emerging economies, 2012-2013 quarterly forecasts are not available and/or seasonally adjusted GDP data are estimated by J.P. Morgan. Bold denotes changes from last edition of Global Data Watch, with arrows showing the direction of changes. Underline indicates beginning of J.P. Morgan forecasts. On July 6 we shifted to using concurrent nominal GDP weights in computing our global and regional aggregates from a static 5-year average GDP weight. We maintain the use of current FX rates but still report PPP-based aggregates. For details, see research note "Global economic aggregates get new weights” in July 6, 2012 GDW.


JPMorgan Chase Bank NA David Hensley Carlton Strong

Joseph Lupton

Economic Research Global Data Watch October 12, 2012

G-3 economic outlook detail
Percent change over previous period; seasonally adjusted annual rate unless noted
2012 2011 United States Real GDP Private consumption Equipment investment Non-residential construction Residential construction Inventory change ($ bn saar) Government spending Exports of goods and services Imports of goods and services Domestic final sales contribution Inventories contribution Net trade contribution Consumer prices (%oya) Excluding food and energy (%oya) Federal budget balance (% of GDP, FY) Personal saving rate (%) Unemployment rate (%) Industrial production, manufacturing Euro area Real GDP Private consumption Capital investment Government consumption Exports of goods and services Imports of goods and services Domestic final sales contribution Inventories contribution Net trade contribution Consumer prices (HICP, %oya) ex unprocessed food and energy General govt. budget balance (% of GDP, FY) Unemployment rate (%) Industrial production Japan Real GDP Private consumption Business investment Residential construction Public investment Government consumption Exports of goods and services Imports of goods and services Domestic final sales contribution Inventories contribution Net trade contribution Consumer prices (%oya) General govt. net lending (% of GDP, CY) Unemployment rate (%) Industrial production Memo: Global industrial production %oya 1.8 2.5 11.0 2.8 -1.4 31.0 -3.1 6.7 4.8 1.8 -0.2 0.1 3.1 1.7 -8.6 4.3 9.0 4.3 1.5 0.1 1.6 -0.1 6.4 4.2 0.3 0.1 1.0 2.7 1.7 -4.1 10.2 3.5 -0.7 0.1 1.2 5.7 -2.8 2.0 -0.1 6.3 0.6 -0.5 -0.8 -0.3 -9.5 4.6 -2.3 4.2 2012 2.1 1.9 6.0 8.8 12.0 58.3 -1.7 2.9 2.9 1.9 0.2 0.0 2.1 2.1 -7.7 3.8 8.1 4.4 -0.4 -1.0 -3.4 -0.1 2.9 -0.4 -1.3 -0.5 1.4 2.6 1.8 -3.8 11.3 -1.9 2.0 2.2 3.7 1.7 7.7 2.1 2.3 6.9 2.6 0.0 -0.6 0.1 -9.9 4.3 -1.0 2.0 2013 1.9 1.7 3.7 4.3 18.7 58.7 -0.7 3.3 3.2 2.0 0.0 0.0 1.5 1.6 -5.5 4.2 7.9 2.2 0.2 -0.2 -0.4 -0.2 3.8 2.8 -0.2 -0.1 0.6 1.8 1.5 -2.8 11.5 0.8 0.6 0.0 3.8 3.1 -0.6 1.0 1.9 4.2 0.7 0.1 -0.3 -0.1 -10.1 4.1 0.4 3.1 1Q 2.0 2.4 5.4 12.8 20.6 56.9 -3.0 4.4 3.1 2.3 -0.4 0.1 2.8 2.2 3.6 8.3 9.8 0.0 -0.8 -4.7 0.6 2.7 -0.6 -1.2 -0.2 1.4 2.7 1.9 10.9 -2.0 5.3 5.0 -6.3 -6.3 15.2 4.4 14.3 9.1 4.3 0.1 0.9 0.3 4.5 5.1 6.4 2.8 2Q 1.3 1.5 4.8 0.6 8.4 41.4 -0.7 5.2 2.8 1.5 -0.5 0.2 1.9 2.3 4.0 8.2 1.0 -0.7 -1.4 -5.7 0.0 5.1 2.4 -1.9 -0.1 1.3 2.5 1.8 11.3 -2.1 0.7 0.5 5.6 3.8 7.2 0.6 5.0 6.7 1.0 -0.2 -0.1 0.2 4.4 -7.7 -1.1 2.4 3Q 1.4 1.7 -4.8 -10.0 14.5 76.1 0.4 -4.2 0.2 1.0 1.0 -0.6 1.7 2.0 3.9 8.1 -0.3 0.0 -1.0 -3.0 -1.0 2.0 0.0 -1.3 0.4 0.9 2.6 1.7 11.3 2.5 -2.0 -2.0 -1.0 5.0 15.0 2.0 -10.0 5.0 0.5 -0.1 -2.4 0.0 4.2 -14.0 0.8 1.3 4Q 2.0 2.5 3.0 8.0 15.0 59.0 -0.3 2.0 2.0 2.5 -0.5 0.0 1.9 1.9 3.6 8.0 2.0 -1.5 -0.5 -2.0 -1.0 3.0 2.0 -0.9 -1.2 0.5 2.5 1.6 11.5 -3.5 -0.8 -1.2 8.0 5.0 5.0 1.0 -1.8 4.5 0.1 0.0 -0.9 0.0 4.2 -12.0 1.1 1.5 1Q 1.5 1.0 4.0 6.0 18.0 63.4 -1.1 3.0 3.0 1.4 0.1 -0.1 1.4 1.8 4.0 8.0 2.0 0.8 -0.3 0.5 0.0 4.0 3.0 0.0 0.2 0.6 2.0 1.6 11.5 1.5 1.4 0.6 3.0 3.0 -3.0 0.8 5.8 4.5 1.3 -0.1 0.3 -0.4 4.1 12.0 4.8 1.3 2013 2Q 2.3 1.5 6.0 6.0 23.0 63.1 -1.2 6.0 4.0 2.1 0.0 0.2 1.6 1.5 4.2 7.9 3.0 0.8 0.3 1.5 0.0 4.0 3.5 0.4 0.0 0.4 2.0 1.6 11.5 2.5 1.6 0.5 3.0 0.0 -5.0 0.8 6.2 3.0 0.9 0.1 0.5 -0.2 4.1 8.0 4.5 2.7 3Q 2.5 2.0 7.0 8.0 25.0 57.2 -1.0 7.0 6.0 2.7 -0.2 0.0 1.5 1.5 4.4 7.9 4.0 1.3 0.8 1.5 0.5 5.0 4.5 0.8 0.0 0.4 1.7 1.5 11.4 2.5 1.3 0.5 4.0 2.0 -10.0 0.8 4.0 3.0 1.0 0.1 0.2 -0.1 4.1 5.0 4.6 3.7 4Q 3.0 2.5 8.0 9.0 25.0 50.9 -1.0 7.0 6.0 3.2 -0.2 0.0 1.4 1.5 4.4 7.8 4.0 1.5 1.3 2.0 0.5 5.0 4.5 1.2 -0.1 0.4 1.5 1.5 11.4 3.0 2.3 2.5 5.0 5.0 -10.0 0.8 4.0 4.0 1.9 0.4 0.1 0.1 4.0 5.0 4.9 4.7

Note: More forecast details for the G-3 and other countries can be found on J.P. Morgan’s Morgan Markets client web site


5bp) 24 Oct 12 8 Sep 10 (+25bp) 10 Oct 12 (-25bp) 17 Jul 09 (-25bp) 12 Jan 12 (-25bp) 24 Aug 12 (-25bp) 12 May 11 (+25bp) 23 Oct 12 28 Nov 12 26 Oct 12 18 Oct 12 26 Oct 12 8 Nov 12 On hold 3Q 13 (+25bp) 4Q 13 (+25bp) On hold On hold On hold On hold 2Q 13 (-50bp) 0.96 0.75 3.50 1.50 0.75 7.50 0.125 1.00 7.00 2.JPMorgan Chase Bank NA David Hensley Michael Mulhall Joseph Lupton Economic Research Global Data Watch October 12.50 5.49 5.125 1.75 5.50 2.75 7.50 0.875 2.75 1.00 5.25 4.75 4.25 6.54 1.00 4.00 2.50 6.75 4.50 6.75 5.94 0.85 3.00 2.74 Cash rate Cash rate O/N call rate Disc.125 1.96 0.50 1.75 2.05 0.00 5.00 5.00 5.75 8.00 4.25 4.75 1.95 0.68 2.75 3.50 6.03 5.125 1.75 3.50 2. Aggregates are GDP-weighted averages.75 4.75 0.75 3.75 5.50 0.25 6.25 3.05 0.94 0.45 0.00 2.50 6.50 6.05 0.00 3.03 5.75 5.5bp) Refers to trough end-quarter rate from 2009-present ² Effective rate adjusted on daily basis Bold denotes move since last GDW and forecast changes.25 4.75 5.45 0.875 -71 62.125 1.75 2.72 2-wk dep Base rate 7-day interv Base rate Repo rate Repo rate Effctve rate 2 Oct 12 (-25bp) 10 Mar 11 (-50bp) 5 Oct 10 (-5bp) 7 Jul 12 (-31bp) 11 Oct 12 (-25bp) 9 Feb 12 (-25bp) 17 Apr 12 (-50bp) 5 May 11 (+25bp) 26 Jul 12 (-25bp) 25 Jan 12 (-25bp) 5 Nov 12 25 Oct 12 30 Oct 12 9 Nov 12 9 Nov 12 30 Oct 12 8 Nov 12 25 Oct 12 17 Oct 12 4Q 12 Dec 12 (-25bp) 1Q 13 (+25bp) On hold On hold On hold On hold On hold 1Q 13 (-25bp) On hold On hold 28 Nov 12 (-25bp) On hold 3.25 4.75 0.47 0.25 3.75 4.53 5.54 6.75 7.25 4.25 4.56 6.08 5.75 2.50 5.51 1.00 0. 2012 Global Central Bank Watch Official rate Global excluding US Developed Emerging Latin America EMEA EM EM Asia The Americas United States Canada Brazil Mexico Chile Colombia Peru Uruguay Europe/Africa Euro area Refi rate United Kingdom Bank rate Czech Republic 2-wk repo Hungary Israel Poland Romania Russia South Africa Turkey Asia/Pacific Australia New Zealand Japan Hong Kong China Korea Indonesia India Malaysia Philippines Thailand 1 Current Change since (bp) Jul 11 -45 -53 -31 -72 -291 65 -42 -59 0 0 -525 0 -25 25 0 100 -31 -75 0 -50 50 -100 25 -100 N/A -50 -43 -39 -150 0 0 0 -56 -50 -100 0 0 -75 -25 1 rate (%pa) 05-07 avg Trough Last change Next mtg Forecast next change Forecast (%pa) Dec 12 Mar 13 Jun 13 Sep 13 Dec 13 2.49 5.05 0.75 3.00 5.05 0.50 8.65 0.51 1.25 7.00 0.75 5.25 8.50 0.875 2.50 2.68 2.75 0.00 4.50 5.68 2.5 0 30 Jun 11 (+12.50 2.75 3.50 5.45 Fed funds O/N rate SELIC O/N Repo rate Disc rate Repo rate Reference Reference 0.00 1.75 3.45 2.50 5.05 0.54 6.03 5.00 2.75 5.63 6.03 5.26 2.75 5.75 4.65 0.00 1.50 6.50 0.00 4.00 3.25 4.00 2.50 6.00 4.00 3.25 3.69 2.75 4.65 0.50 2.50 0.50 1.11 5.75 0.75 0.25 5.75 0.75 1.00 4.50 6.00 4.75 2. wndw 1-yr working Base rate BI rate Repo rate O/N rate Rev repo 1-day repo 3.11 5.25 4.75 4.65 0.51 1.25 4.00 0.75 5.51 5.75 4.00 7. 1.12 5.875 17 Dec 08 (-100bp) 25 Oct 12 Taiwan Official disc. 6 .75 3.00 3.25 8.25 5.75 5.50 5.75 4.50 5.75 8.10 5.75 5.75 7.50 6.00 2.25 9.51 1.25 4.25 5.25 2.26 2.10 6.29 3.25 0.12 5.50 5.75 2.00 3.51 5.55 1.00 7.75 0.12 5.00 2.25 9.50 0.50 5.10 5.25 2.50 6.00 1.875 2.75 1.75 1.75 5.00 3.25 4.25 9.50 5.75 2.67 28 Sep 12 (+25bp) 29 Dec 12 5 Jul 12 (-25bp) 5 Mar 09 (-50bp) 27 Sep 12 (-25bp) 25 Sep 12 (-25bp) 25 Jun 12 (-25bp) 9 May 12 (+25bp) 29 Mar 12 (-25bp) 13 Sep 12 (+25bp) 19 Jul 12 (-50bp) N/A² 8 Nov 12 8 Nov 12 1 Nov 12 30 Oct 12 29 Oct 12 7 Nov 12 2 Nov 12 Nov 12 22 Nov 12 18 Oct 12 On hold On hold Feb 13 (-15bp) 1Q 13 (-25bp) On hold 7 Nov 12 (-25bp) Feb 13 (+25bp) Nov 12 (+25bp) Jan 13 (-50bp) N/A² 0.57 6.25 2.82 3.25 8.10 5.65 0.00 3.57 0.75 4.54 6.00 3.00 -211 -136 -298 -152 -465 -145 -31 -388 -438 -273 -800 -337 31 -256 19 175 -221 -223 -444 -215 -63 -200 23 -294 N/A -329 -1011 5 -269 -488 -17 -548 -14 -140 -412 113 -24 -331 -83 43 48 0 66 0 106 104 28 0 75 0 0 450 175 300 275 10 0 0 0 125 175 125 0 N/A 0 7 84 25 0 0 0 69 75 0 325 100 0 175 16 Dec 08 (-87.00 5.25 2. Underline denotes policy meeting during upcoming week.00 3.00 7.875 2.125 1.

1%.7 Current 1.4 6. the common factor of commodity prices suggests global IP growth of 4.1 0. Global manufacturing output %3m.2 0.6 -7.1 0.7 1.6 -2. saar 2.2 -1.2 -22.0 IP -1. we anticipated a better outcome than the 12.0 Memo: Global IP nowcast (ann.6 J. 2012 Nowcast of global growth: 3Q still tracking 1.7%.1 -4.8 0. Nov 16 7 Aug 03 Aug 10 Aug 17 Aug 24 Aug 31 Sep 07 Sep 14 Sep 21 Sep 28 Oct 05 Oct 12 Oct 19 Oct 26 .2 2.7 -1. the third solid monthly increase out of the past four.8 1. serv 51. our aggregates of auto sales and capital goods surprised on the downside.8 -22. Though we already had known about the incentives hangovers in Japan and Brazil and the post-VAT hike slump in Spain.9 1wk 0.5 0.1 1. Global manufacturing also did better. Brent crude oil advanced nearly 4%. We had used preliminary versions of each of these in last week’s nowcast. while base metals and agricultural commodities edged down roughly 2%.P.1 54.6 52. Months are %m/m (PMIs level) 2Q12 3Q12 Jul 12 Aug 12 PMI. Morgan bottom-up global GDP forecast was nudged higher to 1.6 0. with an expected drop in output of 0.4 1.0 -2. Both indicate that global growth continued to bump along at roughly the same sub-trend level as in 2Q.5 -0.2 0. after the release of the flash October PMIs for the US.2 Industrial metals -2.Morgan Nowcast Jul 27 Nov 02 Nov 09 Global real GDP %q/q.7 1.0 -7.4 0. Likewise.7 -2.9 1.0 1. Morgan global aggregates Quarters are %3m.JPMorgan Chase Bank NA Joseph Lupton David Hensley Economic Research Global Data Watch October 12. versus last week’s expectation of a 0.3 3.5% in September. We will introduce our first nowcast for 4Q in the October 26 Global Data Watch. the poor results for Germany and China were not available until this week.6 1. Global auto sales slumped 5.2%m/m rise.9 52.0 4. Nowcast is 13-week annualized change 18 12 6 0 -6 2010 Implied by Mfg PMI (thru Sep) Actual (thru Aug ) Implied by commodity price nowcast (thru Oct 12) 2011 2012 2013 Commodity price decomposition % change over respective period Total 1wk 4wk Oil 3.7 -2.P. Nowcasting global real GDP.  Advances in both global retail sales volume and industrial output were a bit stronger than expected in August.3 48.9 Agriculture -1. Euro area.4 -8.0 2.4%m/m sa. running basically stagnant since early this year.P.8 52. Actual output has split the difference through August.P.4 1.7 3Q12 Last week 1. and China.6 -3.saar (PMIs avg level).2 Note.0 -0.0 J. The idiosyncratic movement is the residual.5 -1.8 8.0 0. Taken together the common factor moved a bit higher. rate) = 13wk 14.8 47.4 PMI.P.4 2.9 1. Morgan Nowcaster (DFM-Eco) Global PMI model 1.9% this week. Though every component of our global manufacturing output PMI moved constructively in September.5 1. Orders -15. Shaded values show forecasts computed by the Kalman filter estimates from the dynamic factor model.7 4 weeks ago 1. Underlined values are our estimates based on available data.4 Retail sales 2.5 7.7%  While the official J. 3Q2012 %q/q.3 Auto sales 16.7%. A mix of upside and downside surprises netted to a tiny decline in the model’s 3Q estimate (unchanged when rounded). and August G-3 capital goods orders. Oil is Brent while industrial metals and agriculture are the J.7 Cap. saar. with output unchanged monthon-month. August retail sales. against expectations of a small gain.  We officially rolled out updates to a number of our global indicators included in the DFM-Eco nowcaster model this week: September auto sales. Taking a longer-run smoothed basis.6% tumble in Japanese capital goods orders.2 2.5 -3.6 Sep 12 48.  Commodity prices were again mixed this week. the nowcast model projects that factory sector momentum remained weak.  In contrast. This is far better than the contraction implied by our September PMI.5 -2.1 -5. We had penciled in a 0.5 0. Common movements for each are given by the common factor scaled by each commodity’s individual loading weight. August IP.2% annualized (this is roughly half the gain the model wanted in midSeptember).2 1.8 Common + Idiosyncratic 4wk 13wk 1wk 4wk 13wk -1.8 1.4 6.2% decline. Morgan commodity curve indexes. our nowcast held steady at 1. Real retail sales grew 0. saar (current forecast shaded) 2Q12 J. our G-3 index fell 2.0 -2.6 Note.7 1.6 4. mfg 51. The week’s rise is consistent with roughly 2% annualized IP growth.1 48.

Aug 31. but mostly track the neutral rate lower. Oct 5. 2012 Australia: margin pressure to be the acid test for labor market. supply overhang has vanished. Aug 10. 2012 Global inflation falls below target. Aug 10. 2012 Global economic aggregates get new weights. 2012 The BoJ eased. higher inflation later. Sep 7. 2012 Japan Macroeconomic impacts of Japan/China dispute. 2012 Euro area: a look at the drags facing Euro area consumers. Jun 22. Aug 10. but still stronger than. and Europa. 2012 What’s ahead for Canadian monetary policy? May 18. Oct 5. 2012 US spring slowdown: the same only a lot different. Sep 28. Sep 14. and Africa South Africa: perfect storm leads to likely GDP contraction. 2012 US: FOMC preview. 2012 US: putting the For Rent signs up on more front doors. Feb 10. 2012 US manufacturing and construction have switched roles. 2012 Getting a grip on the surprising strength of US wage growth. Oct 5. 2012 Latin America: agriculture price spike adds inflation risk. 2012 Global manufacturing will remain weak in 3Q.P. 2012 Egypt: transition in disarray. 2012 A downgrade to global growth. 2012 RBA cuts help. Jul 5. 2012 US medical services spending now in slow-growth mode. Sep 28. Sep 21. 2012 MENA: higher food prices pose contraints for policymakers. Oct 5.JPMorgan Chase Bank NA. Sep 7. 2012 Europe’s busy political September. Research notes listed have been published in GDW. Jun 29. Aug 31. 2012 Selected recent research1 from J. Sep 14. 2012 US: would a decent economy be too much to ask for? Jul 20. 2012 UK: revisiting the hop. Feb 17. Jun 21. 2012 Euro area: awaiting a decline in core inflation. Oct 5. Sep 7. 2012 Japan: hope and anxiety. Aug 3. 2012 Japan’s tax hike: small step toward debt sustainability. Middle East. Sep 7. 2012 1. Sep 14. Aug 31. 2012 US house prices are up. Charybdis. Sep 5. 2012 Brazil at a crucial juncture to address potential growth. 2012 Turkey: macro improvement led by strong exports. Aug 31. 2012 US: the Treasury-Fed discord. 8 . 2012 Revisiting the US seasonal echo effects. Aug 3. 2012 What next from the ECB? Previewing SMP’s big brother. Jul 13. Jun 8. 2012 Model linkages between global GDP and oil prices. 2012 A brief history of Indonesia’s fiscal financing. 2012 Figuring the drivers of ASEAN’s rebalancing. Special Reports and Global Issues are stand-alone features. 2012 Expecting a wide but shallow global monetary easing cycle. 2012 PBoC’s quantitative measures: RRR and OMO. 2012 UK: Chancellor likely to delay the target for debt reduction. Jul 6. Aug 24. Jun 15. ECB shock and deliver. Jun 15. 2012 Japan: recession or stagnation. Morgan’s global nowcasters. Aug 3. 2012 Euro area growth: a better 2013 in prospect. Jul 6. 2012 Brazil: BRL close to. fair value. 2012 Singapore: MAS to ease or not to ease? A tough question. Jul 27. 2012 Global inflation to fall close to target midpoint in 2Q12. that is the question. 2012 Implications of China’s recent capital flow reversal. 2012 US: the Fed’s novus ordo seclorum. Aug 17. 2012 Taiwan trade hinges on G-3 demand as China stabilizes. 2012 Brazil: challenges to increasing public investment spending. Oct 5. 2012 EM inflation slide tempered by jump in agriculture prices. the Fed won’t be buying your equities from you. 2012 United States and Canada US: the impact of higher dividend and cap gains taxes. but may also have appeared in some form in GDW. Jul 27. Aug 17. 2012 Poland: lower CPI trajectory raises odds of 1Q13 rate cut. and slump in productivity. risks to the downside. Sep 21. what's next? Sep 21. 2012 Korea: micro policy to ease HH debt servicing burden. 2012 Moving towards a much larger ECB balance sheet. Aug 17. 2012 Russia: stronger house prices a sign output gap has closed. Jul 31. Aug 10. Aug 24. 2012 ECB takes a big step forward but with qualifications. 2012 Euro area inflation differentials: largely a tax story. Jun 29. 2012 South Africa: CPI re-weighting to lift inflation projections.P. 2012 US: drought means lower GDP now. 2012 Latin America Chile: a conscientious objector faces "currency war" draft. 2012 India’s falling potential growth. Sep 7. Jun 15. 2012 The French Budget: Scylla. 2012 Upside risk to outlook for sluggish global consumer. skip. 2012 Western Europe A NEET way to look at Euro area unemployment. Aug 24. May 11. 2012 US inflation will be hibernating through the winter. Oct 5. 2012 Special Reports and Global Issues The time is always now: introducing J. Sep 14. Feb 10. 2012 Australia’s mining investment boom is far from over. consumption by the elderly. 2012 Mixed messages in Emerging Asia’s manufacturing data. Mar 9. 2012 Japan: nonmanufacturers are performing well. Sep 21. Sep 7. 2012 Chinese housing market revisited. Jul 27. Sep 21. 2012 Central Europe. 2012 Non-Japan Asia and Pacific China’s local government stimulus: castles in the air. Sep 28. Sep 21. 2012 Sorry. 2012 Another good week in the Euro area. 2012 US: interest income in an era of ultra-low interest rates. Sep 28. Morgan Economics Global Fed. 2012 Antipodean imbalances: the devil is in the detail. Aug 24. 2012 Household deleveraging is not preventing a UK recovery. 2012 Most US families feeling poorer because they are. New York Bruce Kasman Joseph Lupton David Hensley Economic Research Global Data Watch October 12. Aug 31. Jun 15. Jul 20. Aug 31. Apr 6. 2012 Japan: how worrisome is the nuclear power plant shutdown? May 11. 2012 US slowdown: it's not just about the uncertainty. Jun 8. Jun 29. 2012 Germany may want to slow down on Europe. but…. 2012 Hungary’s LTRO: fizzle rather than bang. 2012 Gauging the upside to the global outlook. Jun 15. Sep 21. Jun 22. 2012 Malaysia: the math behind the energy balance. Jul 6. 2012 Breaking Good: US consumer gets unexpected help. 2012 Tracking a low-level bottom in global growth. Oct 5. 2012 Global impact of the Euro area crisis. Jul 13. Aug 24. May 18.

given the need to merge sovereignty. despite no clear change in fundamentals. We are only at the beginning of the 3Q earnings season. US elections. even as upcoming political events will likely create shorter-term volatility. Other risk markets. are not following equities this time.JPMorgan Chase Bank NA Jan Loeys J. but also reflecting a long-standing yield compression toward core markets. and are giving back most of their gains of the past one to two weeks.and short-term issues. credit. it supports taking some chips off the table. given the uncertainty about the RBA’s reaction function engendered by last week’s rate cut. This risk-premium-focused strategy into equities. both parties will soon have to seek compromise on avoiding a recession caused by fiscal tightening. EMU members seem to be unable to make major decisions without being subject to undue pressure (detailed analysis by Alex White in this GDW). inevitable political posturing. if not on risk prices. without going as far as neutral.  Equities: US earnings season favors domestically-oriented stocks and US Financials. which we expect to hold given an extremely tight supplydemand balance. credit. as is our view. however. One is the Fed-fueled compression of US MBS spreads. but essentially remain in the very narrow range they have held since the summer. then investors will over time gradually switch some of their defensive holdings into betterreturn. even as the underlying PMI orders and inventory data do hint at this coming rebound. In GDP terms. Irrespective of who wins the election.  Fixed income: We prefer German Bunds to US Treasuries.  Currencies: We launch a Chinese Economic Surprise Index. triggered by a more dovish central bank. Why? We have argued that equities and other risk markets can rally despite lackluster growth as they offer high risk premia against events that will not all materialize. Nikolaos Panigirtzoglou Economic Research Global Data Watch October 12. That leaves the US election and the nearing fiscal cliff. Unfortunately. We do not foresee a major change in direction or worsening of the territorial conflict with Japan.P. Morgan Securities Ltd. due to better IP data in 3Q that we do not think will last. commodities. Equity markets are trading heavy. We stay medium-term positive on risk assets. Profit margins then hit new highs and world growth has since fallen below potential.  Credit: We expect further spread tightening in US HG as the lack of credit supply brought about by QE3 is not fully priced in. We don’t see huge volatility from data or earnings surprises. The EU Summit on Oct 18-19 has an ambitious agenda on both long. each of which with potentially momentous impact. We are reluctant to oppose this outperformance. although increasing uncertainty around US fiscal cliff posturing creates downside risk on US 4Q and 1Q. The most important shift has been the better tone in Euro area sovereign debt markets. Hence.P.  Commodities: Stay long Brent time spreads on Middle East uncertainty. but what we have is in line with subdued expectations for small oya drops. except for moving 1% in growth from 3Q to 4Q in the Euro area. and carry assumes volatility will remain subdued and markets will be buffeted by only modest adverse shocks. as neither side wants to show their cards yet. indicating we are largely seeing profittaking after the hefty rally in stocks over the last four months. Another is the marked outperformance of Australian bonds. In our view. valuefocused strategy to be long assets with high risk premia. as it appears extremely unlikely one party will have a blocking majority. and the euro periphery. if the world turns out less ugly and volatile than what most feared. Here we have to tread more carefully as the next few weeks will see another EU Summit. But global equities are up 10%. let alone short risk assets. We share the broad view that the promise of the OMT backstop marks a major step forward in 9 . But as a result. and the yearend decisions on taxes. such as credit. and Chinese leadership change. equities. but riskier asset classes. and carry trades. and aggregate earnings now also showing almost no movement anymore. There are no meaningful changes in growth forecasts this week. Morgan View: Markets Patience during political season  Asset allocation: No changes in our medium-term. Fixed income Bonds edged higher on the week. there is not as much sign of a rebound as we had hoped. can easily have a depressing effect on economic activity. On the last. 2012 The J. But into the election. thanks to the ECB’s OMT promise.  Economics: No major forecast changes. But the lack of an imminent crisis. global growth in 4Q at 2% is now barely different from the previous two quarters. means to us that not much progress is likely to be made. That overall stability masks some striking crosscurrents. the top priority of Chinese leaders will likely be stability and continuity. This leaves us with the political surprise factor. The recent rebound in Chinese equities shows the market is hoping for positive news coming out of the Communist Party Congress on Nov 8. with macro volatility having collapsed over the past two years.

It is still 8% below its post-Lehman peak seen in May 2011. Thus. Nikolaos Panigirtzoglou Economic Research The J. but the trade has yet to perform. Defensive equity sector overweight. As we argued last week a subpar 2% pace in global GDP growth for 3Q is not enough to change the pattern of stagnation seen in S&P500 EPS since 3Q11. $40 billion of Agency MBS purchases and $60 billion of coupon payments per month will drive a $75 billion/month shortfall of spread product going forward. but this is not enough of an impetus. The US reporting season is generating a small positive surprise. With short covering largely behind us. the US reporting season provides two interesting sectoral themes. similar to 2Q’s $25.0 2. before the May crash. We believe such strong technicals are not fully priced in .P. 2012 the Euro area’s crisis management. At the time. Germany. so such an outturn would represent a small positive surprise of around 3%. and lower-quality credit and equity markets sold off. Financials will likely be one of the bright spots in 3Q driven by improving credit and loan demand and a solid recovery in US housing. and thus move to a more defensive stance. suggesting a focus on US-centric stocks. including by cutting overweights in the EMU core vs. First. This week’s macro news was rather mixed. The rebound in the September global manufacturing PMI induced us last week to re-enter our Cyclical vs.JPMorgan Chase Bank NA Jan Loeys J. Treasuries rallied. Equities Global equities have paused over the past five weeks. a 3% surprise in the 2Q reporting season failed to lift equity markets during the first half of July. The peak year of personal bankruptcies was 2005 and those records are removed from credit reports after 2012.2. similar to the previous reporting season. These include a fall in Spain’s Target2 balance and bond managers’ shift to overweight peripheral bonds. Second. the equity market appears to be lacking strong drivers. Morgan versus consensus % 4.P. However. which is the resetting of the credit scores for millions of Americans. There is not enough impetus in the macro picture either. We thus look for a 3Q EPS of around $26. for the first time since 2010. But for the near term. we should see rapid improvements in the credit quality of millions of Americans in 2013. Morgan Securities Ltd. we are wary of a Spanish downgrade from Moody’s to below investment-grade.8 3.4 3. Yet even as issuers take advantage of low all-in yields to push net supply across all USD spread product toward our forecast of $25 billion/month. Morgan Consensus Chinese Economic Surprise Index Bal of pos vs. 10 2012 global GDP growth forecasts: J. Morgan View: Markets October 12. following three months of strong gains. Our US Equity Strategist Tom Lee points out that a tailwind is also building for US Financials into 2013. raising doubts about the anticipated rebound in global manufacturing. US high-grade is now back to pre-August 2011 levels. MSCI AC World at 330 is practically unchanged since the beginning of September and is at the same level as at the end of April.P. and adding outright longs in German Bunds. At 160bp. as reported in our European Duration Survey.6 2.8 and little changed from 3Q11.P. domestically-oriented US companies are the ones whose earnings are outperforming.2 3. The bottom-up analyst forecast is $25. and are encouraged by some tentative signs of capital returning to the periphery.8 Jan 11 Apr 11 Jul 11 Oct 11 Jan 12 Apr 12 Jul 12 J. and the Fed’s activity in mortgage markets seems to be bolstering demand for highquality corporates as MBS portfolio holdings are replaced. neg surprises as % of total releases 72 48 24 0 -24 -48 -72 Nov 10 Feb 11 May 11 Aug 11 Nov 11 Feb 12 May 12 Aug 12 Credit Spreads gave a mixed picture this week as US high-grade tightened.2 1.

vent much weakness in China-linked currencies. currency markets still look listless. The trade-weighted dollar and aggregate FX volatility are unchanged this week. Given that OMT can be seen as the ECB taking the role of lender of last resort. which recovered all of the week’s earlier decline to finish broadly flat. it isn’t clear that the commodity currencies would decline that much or for that long. the last before the November leadership transition. which comes with an attractive entry point given the UK’s recent outperformance. particularly ahead of two massive weeks for US earnings and Chinese data. Earnings look well on track to be unimpressive but in line with expectations. FX volumes are below average. They argue for a long in Euro vs. but how much? The China Economic Surprise Index described in this week’s FXMW provides some guidance. and commodity FX relative value (AUD/CAD).. although both were lower than previous USDA estimates.3%). Foreign exchange Apart from a few trend reversals this week. while the conflict is limited to sporadic border skirmishes. Morgan Securities Ltd. USDA data out this week showed lower-than-expected corn stocks but soybeans were in line with expectations and wheat stocks were higher. We have argued that easy money from the world’s central banks wouldn’t deliver easy returns immediately since the global economy looked flaccid.P. CD Player. China releases its usual array of activity data next week. Syrian crude output is very small and world oil markets are already insulated from a supply disruption caused by the sanctions and logistical constraints affecting Syrian production. Agriculture prices have historically exhibited an element of mean reversion precisely due to this dynamic. In our GMOS portfolio. NZD. Our colleagues in credit derivatives strategy continue to cite liquidity as the overarching theme in European credit markets. commodity currencies were rich. they feel that financial conditions between the UK and Europe will normalize and so examined relative value ideas between the two this week. but this does further raise uncertainty in an already tense situation and is likely at least partially responsible for the rally in oil this week. Trades are mostly unchanged this week and geared around three themes: carry (long NZD/USD). If China observes its usual political-business cycle by engineering stronger growth in the year after the transition. we have few strong priors on this month’s releases so combine limited commodity FX longs (long NZD/USD) with a relative value trade (sell downside in an oversold cross like AUD/CAD). whereas months with negative surprises are associated with small declines (about 0. UK in investment grade corporates. Oct 10). and central bank intervention likely. See Saul Doctor and team. and manager returns are flat-lining for some composites. This hedge has worked very well over the past weeks and we maintain it. this one tracks the balance of positive versus negative surprises on monthly Chinese data releases since 2009. Regardless. Identical to the US Economic Activity Surprise Index (US EASI) we developed over 10 years ago. Months when the balance of surprises is positive are associated with 2% rises that month in commodity currencies. This caused a sharp rally in grains. The threat to these pipelines seems low. Eric Beinstein and his team elaborate in this week’s CMOS. 2012 and expect further spread tightening to occur. less sovereign stress in Europe (long EUR/GBP and short EUR/Scandi puts). to hedge our long risk exposures against an oil shock. In GMOS. Should China disappoint again as the index shows it has been doing for the past two months (third chart previous page). EM Asia). we remain short agriculture on the argument that the US harvest is essentially over and that planting conditions for the new crops are much improved and high prices mean much higher future supply.JPMorgan Chase Bank NA Jan Loeys J. Nikolaos Panigirtzoglou Economic Research Global Data Watch October 12. This remains the outlook and—unfortunately—an exercise in patience. Of more concern is the possible threat to the 1mbd of crude exports that pass through Turkey from Azerbaijan and Iraq to the Mediterranean around 50 miles from the Syrian border (see Daily Oil Note. and we believe they have peaked over the summer and will gradually move lower over the coming months. Any data improvement should lift currencies in China’s orbit (AUD. given the proximity of the leadership transition. we remain long Brent time spreads. led by oil as tensions between Turkey and Syria escalated further. Fenton et al. just as the Bank of England has done over the last three years. expectation for imminent stimulus would probably pre- 11 . Commodities Commodities are up around 2% this week.

9% *Levels/returns as of Oct 11.60 0.6% 18.P.50 13Q2 105 1775 8700 8.98 6.2% EM YTD ($) 5.1% -0.9% 17.30 1110 1.4% 5.3% YTD Return* 9.5% 3.50 1.50 1.5% 19.9% 18.75 Jun-13 1.65 0.4 1.6% 8.05 0.0% 15.50 1. UST) EM Corporates (bp vs.2% 5.75 Sep-13 1.5% 28.0% Sector Allocation * Energy Materials Industrials Discretionary Staples Healthcare Financials Information Tech.7% 14.8% 4.9% 24.9% 19.9% 12.32 1125 1.25 0.3% 8.80 0. 2012 Interest rates United States Euro area United Kingdom Japan GBI-EM hedged in $ Fed funds rate 10-year yields Refi rate 10-year yields Repo rate 10-year yields Overnight call rate 10-year yields Yield .2% 5.6% 12.4% 1. UST) JPMorgan JULI Porfolio Spread to Treasury iBoxx Euro Corporate Index JPMorgan Global High Yield Index STW iBoxx Euro HY Index EMBI Global JPM EM Corporates (CEMBI) Quarterly Averages Commodities Brent ($/bbl) Gold ($/oz) Copper ($/metric ton) Corn ($/Bu) Current 114 1754 8242 7.0% 9.05 0.52 12Q4 105 1725 8300 8.25 1100 1. Morgan Securities Ltd. 2012 Local currency except MSCI EM $ 12 .5% 19.9% 11.1% -3.3% 14.50 1.00 YTD Return* 2.5% 8.00 0.77 5.30 78.125 2.90 Jun-13 0.7% Credit Markets US high grade (bp over UST) Euro high grade (bp over Euro gov) USD high yield (bp vs.05 0.50 1.2% 0.30 78 1.00 0.02 6.72 0.80 Mar-13 1.0% 12.125 2.5% -18.1% 15.2% 7. Morgan View: Markets October 12.8% 19.125 1.32 79 1.3% Foreign Exchange EUR/USD USD/JPY GBP/USD USD/BRL USD/CNY USD/KRW USD/TRY Current 1.9% 6.65 0.61 2.00 0.63 2.50 1.70 3m cash YTD Return* index in USD EUR JPY GBP BRL CNY KRW TRY 0.02 6.P.65 0.2% 7.62 2.3% Japan YTD -4.95 0.6% 0.50 1.0% -3.27 1111 1.45 0.1% 10.9% 13.3% 0.8% 13. UST) Euro high yield (bp over Euro gov) EMBIG (bp vs.0% 17.9% 2.25 13Q3 120 GSCI Index Energy Precious Metals Industrial Metals Agriculture YTD Return* -1.1% 2.6% 18.8% 1.50 0.6% Equities S&P Nasdaq Topix FTSE 100 MSCI Eurozone* MSCI Europe* MSCI EM $* Brazil Bovespa Hang Seng Shanghai SE Current 1427 3044 718 5793 144 1111 996 59162 21136 2105 (local ccy) 15.5% 25.8% 13.62 2.2% 12.70 0.125 2.9% 17.00 Index Mar-13 0.90 6.125 2.05 0.8% 11.0% -13. Nikolaos Panigirtzoglou Economic Research The J.3% 11.75 13Q1 112 1750 8500 8.0% 2.2% -10.9% 10. Telecommunications Utilities Overall YTD 6.79 Current 159 190 573 753 292 340 Dec-12 0.95 Sep-13 0.5% -3.65 1.32 1125 1.6% 5.7% 16.2% YTD Return US Europe YTD 0.50 0.JPMorgan Chase Bank NA Jan Loeys J.0% 11.0% 4.04 6.34 79 1.8% 10.30 79 1.50 1.Global Diversified Current 0.1% 17.05 1.0% 5.75 1.5% 12.50 1.4% 14.9% 21.81 Dec-12 1.00 6.5% 11.

in a package that seems sufficiently dense that leaders will be unable to navigate their way to a substantive agreement. it may make incremental progress overall (insofar as it will at least force the region to address some areas of disagreement that have been conveniently ignored in the past). We think the outcomes will probably leave the region leaning 13 What to expect Investors who have been following European politics over the past two years will have become used to Summits that overpromise or under-deliver. the periphery will push Germany for pro-growth policies and transfers  Expect a broad vision on regional objectives. disagreements becoming more obvious. it will highlight the length of the political journey that has yet to be traveled in order to deliver permanent structural and institutional reform. However. Proposal will continue to be more about symbolism than substance in the near term. Background tussle on speed with which the region needs to act. the region needs to deliver further progress in the direction of burden sharing. Small chance of Spain surprising on support request. However. but little detail on banking union. and disagreement about burden sharing and growth. We expect significant divisions to remain over the long-term move toward banking union and shared supervision. The region’s commitment will be put to the test at the European Leaders’ Summit at the end of next week (October 18-19). which will prevent the region from taking a significant step forward. particularly if Greek Troika discussions not complete. The content of the debate will also be difficult to address. but all substantive discussion pushed to December. We are more optimistic about progress on new budgetary mechanisms although we think that these will amount to less in practice than many appear to believe. We think this Summit may come to be seen as an important missed opportunity in the long term. Unlikely to see substantive progress. We expect discussion of seven or eight key line items designed to shape the region’s response to the crisis. and on balance between structural and EU wide institutional reform. The fatal flaw for next week’s Summit is likely to be an agenda that tries to do much. Possible discussion of Treaty change. We also expect the fundamental disagreement about official sector burden-sharing—as to whether it is backward-looking or forward-looking—to remain unresolved. in our view a long-term resolution of the problems faced by the Euro area will require institutional and structural reform in addition to a central bank willing to stand behind the integrity of the currency. We expect to see an overly ambitious agenda. or Greece and Spain. On a more positive note. while the Summit is unlikely to resolve any issues permanently. centered on changes to welfare systems and labor markets. Our concern is that the removal of acute financial market stimulus may reduce the political incentive to deliver these institutional and structural changes.A. 2012 Economic Research Note Proposal Burden sharing Likely outcome Reinforcement of German views on legacy assets. No resolution on whether burden sharing will ultimately be prospective or retroactive. including movement on banking union and genuine steps toward fiscal integration (precisely how far the region may need to move in order to reach a stable equilibrium is open to debate). Possible indication that timeframe on introduction will be pushed back. On an institutional level. London Branch Alex White Economic Research Global Data Watch October 12. Debate over Commission plan to move toward fiscal integration. but unlikely. with key tail risks clearly contained. Progress likely in principle. More pressure on Germany to support pro-growth policies following IMF revisions. in doing so. There are usually a range of reasons for this. integration. Likely little progress. We do not expect significant outcomes on Greece or Spain. Likely more discussion of transactions tax. although we don’t discount the possibility that the Summit could surprise. Review of progress on the Growth Compact won’t be substantive. The structural aspects of reform will need to be reflected in domestic policy within Euro area member states. as well as strategies to deal with European banking sector stress.JPMorgan Chase Bank N. which are difficult to make in the full glare of . Some member states may indicate shift to greater domestic focus. but unlikely to see precise details. Possible small assurances to Ireland. Some discussion but likely not substantive. Banking union Banking sector EMU budget Growth Fiscal integration Spain & Greece Other issues media attention. not least the fact that compromise agreements require concessions. European Summit to remind investors of a long road ahead  Europe has set itself an excessively ambitious agenda for the next Leader’s Summit on October 18-19  Germany will push for the periphery to make domestic structural change. but in the short term we see concerns around European event risk being significantly less acute than in the pre-OMT world. expect some progress on an EMU budget  The Summit will highlight how much remains to be done in order to deliver institutional change…  …and thereby underscore the crucial importance of the OMT in relieving pressure on the Euro area The ECB’s commitment to stand behind the region has transformed the response to the European crisis in important ways.

but we expect the substance of the debate to be framed by two primary areas of disagreement. In substance. It needs to counter the political 14 A tough debate on burden-sharing One of the most prominent of the main line items for discussion at the Summit will be the different perspectives on burden sharing. where France and Germany in particular stand some way apart. In preparing for this discussion. but Ireland’s problems may be more likely to be addressed in the future through other forms of debt relief. There was intensive discussion of the need to restructure Greece’s debt burden. This may seem an arcane point. it is hard to see Germany. particularly Ireland. and fiscal integration. 2012 more heavily on the prospect of monetary policy intervention with the Summit providing a reminder to the market that political authorities are not yet able to deliver on structural or institutional changes in the near term. will push for more commitments on structural reform (to welfare/labor markets. burden sharing.” We don’t think leaders will be successful in securing consensus. the Netherlands. The periphery. and France. In Europe. and Finland rowing back from their recent stated position that they will not take on the burden of the region’s legacy banking assets. The first of these is about growth. which saw the final touches being put on Europe’s bailout mechanism (then the EFSF. and the European core. rather than the ESM) after a painful period of ratification beset by legal difficulties. who instead wanted to see burden sharing before they signed away significant parts of their sovereignty. we see a high risk of public disagreement between France and Germany in particular. but it has direct impacts for the fiscal positions of several member states. London Branch Alex White Economic Research European Summit to remind investors of a long road ahead October 12. passing the Fiscal Compact that President Hollande had previously promised to renegotiate or reject. We expect Irish Prime Minister Enda Kenny to be vocal at the Summit. Finance Minister Moscovici has publicly urged Germany to focus on the “dynamics of the European crisis. this may not prove crucial in the long term. In many ways this will be déjà vu all over again. As a result. impact of this concession by making further gains on burdensharing and growth. leading to renewed demands for amendments to the Euro area’s austerity focus.. As a result. through ECB intervention and a change to the terms of the package it received through the EFSF (recognizing the political difficulties this may cause in Germany and elsewhere). In itself. Germany. Oct 5). The French Government has just been through a difficult political period. but the two main parts of the region will talk past each other on the sequencing. which was felt to be unsustainable.e. In the long term we do expect Ireland to receive additional support. and as a result goes into the Summit with big expectations and relatively little room for maneuver. with disagreement over banking union replacing discussion of the Fiscal Compact for example. all of these developments need to take place. This discussion will be closely related to the second fundamental issue we expect to be in play at the Summit—the sequencing of structural and institutional reform. Chancellor Merkel went into the meeting seeking further commitments on economic governance (a Fiscal Pact) from her European partners.JPMorgan Chase Bank N. beyond the ECB.A. The German view is much more skeptical on the “need for speed” (see “Germany may want to slow down on Europe. Only in Ireland is the total sum of the government’s exposure to a legacy banking sector asset problem genuinely material in terms of a member state’s overall fiscal path. Investors with longer memories will recall a crucial European Summit in mid-October 2011 (almost exactly the same day a year ago). will continue to push for major institutional changes (centered on burden sharing) to occur quickly on a European level—to which Germany will object. The draft set of Summit conclusions that have been leaked by the European Commission call on leaders to address this issue once and for all by agreeing on “the exact operational criteria that will guide bank recapitalization by the ESM in full respect of the 29 June Euro Area Statement. which we have highlighted previously. change will continue to happen slowly.” GDW. and we expect him to push for further steps to be taken. Germany will most likely demur. France and Germany to clash The Summit will discuss a wide range of specific proposals. The main difference of view is whether burden sharing (both for banks and sovereigns) is to be applied retroactively or prospectively—i. as a way out of the current crisis or as part of the new steady state equilibrium the region is working toward.” which in his view remain acute and mean that the region must continue to act quickly. As we have suggested. French Government figures have been making a significant play of the need for more urgent regional action in the near term. investors can expect the region to offer up a range of inconclusive debate about the areas we lay out below.” which will be reviewed at the Summit. We also expect further pressure on Germany and the European core following the IMF’s revision of its fiscal multiplier assumptions. President Hollande has poured substantial political capital into securing progress on his “Growth Compact. all of these debates remain current a year later. We think it is .) to take place at a domestic level within the periphery. France will push for specific time-bound commitments on banking union. We think these different perspectives on growth. and the speed of change will frame most of the discussions that take place at this Summit and further reduce the likelihood of substantive agreement. institution building. We expect all of these differences of view to be crystallized at the Summit. etc.

with shared supervision potentially introduced in 2014. with enough EU states now signed up to introduce “enhanced cooperation” (essentially a shared mechanism that would be introduced across part but not all of the EU). There will clearly be impacts for the banking sector. who will want nothing to do with this project. we think it is unlikely to make serious progress and will seek to pursue some form of domestic Volcker rule on a separate track. the idea of proposing substantive moves toward a system of shared deposit guarantee schemes and resolution arrangements is almost certainly a non-starter. we think that President Hollande is unlikely to make much progress at this Summit. and a further sense of alienation from those. even the Commission recognized that they would get nowhere on these issues in the near term. London Branch Alex White Economic Research Global Data Watch October 12. although we don’t expect this Summit to produce anything substantive by way of details. Without any details of who pays. progress is on the idea of a shared budgetary mechanism for the Euro area.or six-year time horizon. Disagreement over banking union The debate on burden sharing will be linked in some ways to discussion of the Commission’s banking union proposals. moving more in the direction of national level implementation if European level agreement is hard to reach. notable among which is the issue of how precisely the SSM is to work in practice.” while recognizing that its “role and functions would need to be defined. 2012 unlikely that other commitments to Ireland will be made clear at this Summit. The European Commission is in favor of moving toward “a central budget. Most of the region sees the SSM (changing the referee) as being fundamentally more important than Liikanen (changing some of the rules of the game) in the near term. but think that the proposed budget would add very little to the institutional soundness of the region apart from that already provided by the ESM (indeed it is not impossible that the ESM itself could ultimately be rebranded as some form of “EMU treasury” at some later date). such as the Netherlands. with a number of member states concerned about the way in which the recommendations may be implemented (particularly if they are connected to the proposals around banking union). All of these issues remain highly contentious. There is some possibility of others. We see several other potential areas of disagreement. It was notable that early drafts of the European Commission’s proposals on banking union included details of a payment mechanism that were removed from the final proposals. any proposal that hands control of all Euro area banks to the ECB is likely a non-starter. In the context of a German election year. Potential next steps on burden sharing would only be substantively discussed at that point (and would then take time to build). There is also likely to be disagreement about the control and oversight of any supervisory mechanism (Germany would like to see controls based on economic weight rather than one member. It is possible that we could see a reframing of the commitments on when banking union is supposed to be introduced. It is notable that the latest proposals for a Euro area budget do at least appear to anticipate that the mechanisms for fiscal solidarity would be specific to the Euro area and not be covered by the Multiannual 15 . and what its scope will be. though limited. and we do not expect any resolution at this stage. the whole integrationist aspect of banking union remains somewhat still-born in the near term. and Finnish position alongside recognition that the structure of Ireland’s obligations to the EU and ECB would be subject to renegotiation in the future. We think that the fundamental issue of “who pays and how” will continue to be too sensitive to discuss at this stage. role. which reflect many of the region’s existing disagreements over the sequencing of liability and control mechanisms. we expect Leaders to discuss some of the implications of the recent Liikanen report on bank structure. however. There is a substantive gulf of understanding with one perspective seeing banking union complete after around five to six years. we also expect discussion of a financial transactions tax (FTT) to be taken up in the margins of the Summit. one vote). A possible compromise on the whole issue would see a reiteration of the German. Dutch. The most likely outcome from the Summit itself is an agreement to disagree in the near term with the debate about bank structure and supervision likely to be reconsidered at a later date.JPMorgan Chase Bank N. notably the UK. In addition to Liikanen. There are also major questions around the precise powers and resources that the ECB will be able to access in pursuit of its A Euro area budget and more integration One area where we do expect some. but Kenny could receive private assurances that encourage him to temper the amount of pressure he places on Germany et al at this stage. perhaps giving a more realistic time frame than January 2013. From the German perspective. We continue to believe that the French perspective (shared by the Commission) is wholly unrealistic. France wants to see a ban on certain types of banking activities by the end of 2012. and reviewed for around two years.” and hopes that the region will make progress at this Summit. We expect German support in principle for this idea. The French and Italian conception of what banking union means sees a Single Supervisory Mechanism (SSM) up and running in January of 2013 with burden sharing on the region’s banks to follow shortly thereafter.A. however. The German view of banking union sees progress over a five. There is a possibility of further disagreement here. and another seeing it largely complete in around five to six months. Different approaches on banking and tax Although it is unlikely to appear as a major line item in the Summit conclusions.

and think that progress on the integration agenda will be largely confined to positive words. the Summit communiqué will probably be largely insubstantial or backward looking. even if only as far as a completed banking union. We do however expect some general statements about the desirability of a long-term move in the direction of further fiscal integration. There are risks that Franco-German disagreements spill over in a damaging way. This highlights the central dilemma of the path ahead for the region. Leaders may seek private assurances from Chancellor Merkel that she will remain supportive of the idea of ECB intervention (reflecting ongoing political nervousness in the background). As far as Spain is concerned. Leaders will likely continue to debate them at the next major Summit in December. but we expect leaders to make a sustained effort to keep them under control. A more substantive discussion may happen when the Commission’s final report is published in December. we don’t expect a program request at this stage. however. but it is not completely impossible that Prime Minister Rajoy could deliver a piece of political theatre and pronounce himself willing to make a formal request if the Summit reaches some arbitrary criteria of his choosing. Investors should look out for progress on the areas that are key to long-term institution building: burden sharing and banking union. Over the past few days the Spanish government has been attempting to link a support request to movement on banking union. but provides little in the way of concrete detail on which leaders will be able to agree. This reflects the need to appease the UK and other non-Euro area member states that fear having to pay for Euro area integration. with the OMT removing acute pressure we expect decreasing political incentives for action. 2012 Financial Framework (MFF). We don’t see this as being particularly credible. After the Summit…. which is unusually large at €31. Check for institutional progress Despite the potential for major disagreement. London Branch Alex White Economic Research European Summit to remind investors of a long road ahead October 12.JPMorgan Chase Bank N. However.” This report has already been published. focused on the progress made since June (the delivery of the OMT and the ESM). There is a great deal of pressure on the Greek government to deliver a credible package to the Troika before the Summit begins that would enable leaders to reflect on progress made. We think that much of this debate will remain on hold until after next year’s German election. there may be some broader discussion in the margins of the Summit about the role of the ECB in containing peripheral stress. There is widespread recognition that a change to the European Treaty (TFEU) will likely be required at some point if the region is to move in the direction of further integration. We think it is wholly unrealistic to expect that leaders will agree on anything of substance at this stage. the Commission sees the centerpiece of this Summit as a discussion of the other steps toward integration laid out in its interim report “Toward a genuine economic and monetary union. which is the question of how to introduce binding control mechanisms on individual members to which they are prepared to sign up. None of this is likely to become public. may ultimately be split into separate segments. We think there is a roughly even chance of Greece being able to deliver in advance of the Summit. Unfortunately at this stage we don’t expect substantive progress on any of these issues. We think there is a chance that the next tranche. when the debate over banking union has itself only just begun. Spain and Greece We expect discussion of both Spain and Greece to dominate the sidelines of the debate in Brussels but we don’t expect progress at this stage. is the possibility of Treaty change. although that will not likely be signaled at this point. the region’s internal debate over integration is likely to keep skating around the central issue. which implies that it believes that the timing of any request is a pos16 . We don’t expect any progress on this core issue at this stage.A.5 billion. One other question which will hang over this Summit to some extent. However. It reflects the Commission’s four-point plan to move through banking union to fiscal and economic integration and the building of more political structures at the European level. In addition to all this. the detailed discussion of whether and how to release the next tranche of support will likely take place later in October and into November. we expect the tone coming out of this Summit to be reasonably constructive—if for no other reason than that the amount of pressure being applied is so much less than in June. although it is possible. Oct 21 Oct 24 Nov 7 Early Nov Nov 22 Nov 22-23 Late Nov Nov 25 Dec 3 Dec 3-5 Early Dec Early Dec Mid Dec Dec 13-14 Spain: regional elections ECB: Draghi in front of Bundestag EC: Autumn forecasts Possible deal on Greece ECB: Governing Council Meeting EU Summit (to discuss the 2014-2020 European budget) Likely deal on support for Cyprus Spain: Catalan elections Eurogroup meeting Germany: CDU party congress Possible Spanish request Ireland: Troika review Most European Parliaments not in session European Council Summit (will debate “final” fiscal integration plan) sible point of leverage. or to impact the ECB’s stance. Beyond this. which could leave the long-term institutional reform agenda withering on the vine. however. Regardless of whether it does so or not.

but domestic demand is still an export-dependent engine Many view Germany as having a large role to play in the rebalancing of the Euro area economy. but that was entirely due to exports as domestic demand stagnated. In particular. the still trend-like growth of the economy (at a 1. At the sector level. though. While we tend to prefer the more output-focused methodology of the PMI. the German economy grew at an above-trend pace. Tracking German GDP %q/q saar. The stagnation of domestic demand in 1H12 owed much to corporates responding to external uncertainty by curtailing their capital investments—machinery capex contracted at a 6% ar pace in 1H12 and subtracted 0. and therefore the overall message is that the economy is still struggling to turn around convincingly. Their message is mixed. Caution prevails in the domestic economy While we often take the services PMI as a gauge of domestic demand. 2012 Economic Research Note Euro area composite PMI output index DI.JPMorgan Chase Bank N. the German economy has expanded at a trend-like pace in 1H12. the above-trend growth in the German economy was entirely driven by domestic demand. Only residential construction is lifting more clearly in an environment of very low interest rates and easy credit conditions. with domestic demand stagnating. suggesting close to 1% ar growth in this part of the economy. but the September level of the IFO points to a contraction of a similar amount. The available monthly indicators of demand suggest that this is not yet changing. Germany’s export-oriented corporate sector responded in typical fashion by turning more cautious. In particular. Exports may improve in the coming months. Capital spending was cut and job creation has now slowed sharply.A. but without this stimulus the German economy still seems to find it difficult to generate significant growth domestically. the manufacturing PMI points to a 5%q/q saar IP decline in 3Q12 and still a 2% ar pace of contraction at the end of the quarter in September. causing domestic demand to stagnate  Outlook is favorable for next year. For 3Q12. models estimated over 1998 to 2007 period. Last year. the September level of the PMI points to a return to marginal growth of almost 0. especially via a sustained pickup in wage and domestic demand growth. both the German composite PMI and the IFO are signaling zero growth. ex Germany 2011 2012 2013 Germany Germany: taking a look at the growth slowdown  Domestic demand accounted for strong growth in 2011  External uncertainty turned corporates more cautions this year.5%q/q saar at the end of the quarter. about the last month. so there is still a question about the near-term outlook for the industrial sector (despite the puzzlingly strong IP data in 3Q). with all of that accounted for by domestic demand. But. in 1H12. The details of the manufacturing PMI were mixed. the services PMI has held close to the 50 level. which is in turn impacting the outlook for consumer spending. But as the Euro area debt crisis intensified and the global economy slowed. boxes shows Sept 10 8 6 4 2 0 -2 2010 2011 2012 2013 GDP Tracking using PMI Tracking using IFO expectations German IP %q/q saar 20 10 0 -10 -20 96 98 PMI-based estimate 00 02 04 06 08 10 Sep PMI 12 14 IP (Manufacturing) Jul/Aug IP What are the business surveys saying? What are the business surveys currently saying about growth? The surveys have declined sharply since the start of the year. other data are raising more questions about how well domestic demand is performing.5%-pt from annualized 17 . the surveys suggest services activity may still be expanding modestly. But. the IFO cannot be ignored on statisical grounds. Last year. sa 62 58 54 50 46 42 2010 Euro area.5% ar pace) relied entirely on net trade. however. London Branch Greg Fuzesi Economic Research Global Data Watch October 12. which is broadly offsetting the contraction in manufacturing. Overall.

incomplete. no clear improvement is taking place. shipments and imports may still post a gain in 3Q12. and capital goods orders (+1. nominal 8 7 6 5 4 3 2 1 90 95 000s 000s 30 25 20 15 € bn 10 5 00 05 10 ket. 2qma. An underlying improvement has certainly taken place. The decline in reported capacity utilization in manufacturing to below its long-run average also suggests a reduced need for exanding the capital stock in the near term. possibly reflecting temporary cutbacks by local and regional government). Unfortunately.g.JPMorgan Chase Bank N.A. . the indicators have also been more mixed. but it may take longer for a deeper behavioral shift to take place.7%oya last year to a 2. Overall. In terms of actual spending.8%m/m). the construction data have turned more mixed. as negotiated pay growth has accelerated from 1. Housing permits are up 7% so far this year. The business surveys in September pointed to very little new job creation.5%m/m) increasing. 2012 GDP growth. there seems to be more to come from the residential segment.5%m/m) and domestic capital goods orders plunged (-6. and financing conditions are very loose (with mortgage rates falling to a new record low in August). capital goods imports (+4. in response to the very easy credit conditions). and is currently being impacted by a price drag. the latest developments suggest that German domestic demand is ultimately still very dependent on the export performance of the corporate sector. as exports improve. The part of the domestic economy that is still looking buoyant is residential construction. Via a resilient labor mar18 German real GDP and domestic spending 1H08 = 100 105 95 85 75 2008 2009 2010 Capex (machinery. But. the sharp slowdown in hiring implies that hourly wage growth will be the main driver of disposable income growth in the near term. retail sales and car registrations point to a consumption decline in 3Q12. but domestic shipments fell again in August (-2. The greater caution of the corporate sector is also impacting consumers. as firms appear to be displaying a willingness to retain staff (as they did during the 2008-09 recession). Overall. unless revised. Hence. but the weakness of orders does not yet point to a sustained stabilization.6%m/m). But. London Branch Greg Fuzesi Economic Research Germany: taking a look at the growth slowdown October 12. corporates continue to protect consumers from downside risks. Unfortunately. and the monthly employment data are aligning themselves with that message. Outside of the residential segment. and there are questions about the recent momentum in the nonresidential construction segment and about public construction (which plunged in 1Q12. wages and income are for whole economy totals 8 6 4 2 0 -2 -4 03 05 07 09 11 13 Real disposable income Nominal wages German residential housing permits € bn. proved short-lived. The positive signs in July. We expect growth to pick up again soon. with domestic capital goods shipments (+4%m/m). Households remain upbeat about their income positions and are reporting a high propensity to make large purchases. equipment) 2011 2012 2013 Residential construction Consumer spending German employment growth %q/q saar 4 3 2 1 0 -1 -2 98 00 02 04 06 08 10 12 Employment PMI-based estimate Sep PMI German wages and disposable income %q/q saar.7%oya average so far this year.. real disposable incomes have only grown at a 1%q/q saar pace in recent quarters and may slow in 2H12. the monthly house price indices are continuing last year’s upward trend. although it is too small as a share of the economy to drive growth in a meaningful way. Hence. We would be surprised if the employment indices in the surveys weakened a lot further. but that leaves questions over the ability of consumer spending and domestic investment to lift more independently (e. and household credit is yet to pick up meaningfully. the way this feeds through to effective wages and real disposable income is noisy. Detailed import data are not yet available for August.

with the peak in mining investment activity. and global GDP growth. However. Using a regression (first chart next page) based on our projections for iron ore prices. as we have previously pointed out (see “Australia’s mining investment boom is far from over. China is the only country to have seen an increase in the proportion of exports received from Australia over the past five years. an estimate that suggests upside risk to our official forecast of 5.” GDW.P.3%oya. the lowering of real GDP growth forecasts for both China and Japan has raised . albeit at a more modest pace. Chinese IP. the European Union. The largest offsetting declines have been experienced in Japan. coal exports have also increased. with exports to China now accounting for 30% of Australia’s total exports. there remains a large volume of work still in the investment pipeline. up from 16% five years ago. export volumes are expected to increase at an average pace of 7. despite softer-than-expected global growth so far in 2012. which of course is what necessitated the vast capex pipeline in 19 Will demand hold? In addition to falling commodity prices. these sharp price declines have seen various resource companies postpone or cancel investment projects that have become uneconomical at these lower prices. and remains well above the longer-term average of 3.1%oya until at least 4Q13. 13 further questions about the durability of Australia’s export mix. rising from 13% in 2008 to 17% in the most recent data. and the United States—admittedly all regions that have had their own political and economic difficulties since 2008. Morgan Australia Limited Tom Kennedy Economic Research Global Data Watch October 12. At the same time. 2012 Economic Research Note Australia's two major export markets % of total ex ports 35 30 25 20 15 10 2008 % of total 30 25 20 15 10 5 0 China Japan Korea EU 27 India US NZ UK Taiwan Aussie exports performing well given global headwinds  Australia’s trade flows have become increasingly narrow over the past few years. based on current projections. In January 2008. the increased reliance on trade with China increases the risks to Australia’s outlook. Japan China 2009 2010 2011 2012 2013 Major export destinations Iron ore fines price US$ per mt 200 150 100 50 0 93 98 03 08 J. Unsurprisingly. most likely to occur during 2014. demand for Australia’s key exports has remained healthy. among the top 10 major export destinations.P. by destination and good  Net exports contribution to GDP set to turn positive following peak in investment activity  Improving external accounts to soften the blow of waning capex Since 2008. The risk associated with such narrowly-focused trade flows has become evident over the past few months. Morgan forecasts Destination not the only risk The acceleration in exports to China has been driven largely by a surge in demand for iron ore and coal. especially considering the question marks that exist over the sustainability of Chinese growth. Aug 31). In fact. as both iron ore and coal prices declined to multi-year lows. Australia’s trade mix has become increasingly concentrated. Further upside exists to the extent that Australia’s export output has been constrained by supply-side factors. iron ore accounted for 13% of total goods exports.7%oya. Although that economy’s continued demand for commodities helped Australia skirt recession during the financial crisis. However. despite these recent cancellations. but this has rapidly increased over the past four years to 23% of shipments (the vast majority of which have been sent to China). and volumes are forecast to remain elevated for at least the next 18 months (our forecast horizon).J.

Following the anticipated peak in mining capex in 2014. which. With export output itself not yet online. with over A$900 billion in capital expenditure currently in the mining investment pipeline. despite the increased demand for commodity exports over the past decade. it is apparent that the beneficial impact of the net exports of GDP component will provide a somewhat offsetting impact to lower levels of capital investment anticipated in coming years.P. should see LNG output increase rapidly in the coming quarters. This suggests that export volumes could well be stronger for a given level of Chinese growth than the recent historical sensitivities indicate. which were largely attributable to record prices for both iron ore and coal. These lower levels of investment should see demand for capital imports dissipate. as the rapid increase in private capex has been accompanied by a surge in capital imports. 2012 the first place. Although the exact contribution that net trade will make to growth is unclear. In terms of export values. it is likely the resource boom will shift to the production and export phase as output from previous investment ramps up. assuming that the Productivity Commission’s forecast of a two-year lag between project commencement and output reaching normal capacity holds. it is likely that value growth will track below that of volumes. net exports of GDP has been a consistent drag on economic growth as import volumes have continually outpaced exports. Currently. results in more favorable net export volumes. which will prove to be beneficial for the trade balance as export volumes remain elevated. This export growth is expected to be driven largely by continual demand for both iron ore and coal from China over the coming years. although the reliance on these commodities will dissipate as LNG exports begin to comprise a larger portion of the total export basket. Morgan Australia Limited Tom Kennedy Economic Research Aussie exports performing well given global headwinds October 12. . the impact of the resources boom to date has been captured in the national accounts through very strong business investment growth. Following the peak in capital expenditure in 2014. the role that trade has had in growth is set to improve as the diminishing need for mining-related capital 20 imports.J. with much of the mining-related machinery and equipment having to be imported from offshore. considering that commodity prices are expected to remain significantly lower than their 2011 record highs. However. nine of the 10 largest projects in Australia’s investment pipeline are LNGrelated. Capital imports Net exports: contribution to annual GDP growth What about GDP? As mentioned. coupled with healthy demand for key commodity groups. The impact on the trade balance has been less favorable. with the economy continually recording annual trade deficits over the past decade—excluding the consecutive surpluses in 2010 and 2011. This demand for capital goods imports has weighed heavily on the external accounts. increasing upside risk for our current export projections. the benefit of this expenditure is only evident in the national accounts through the capex channel. Export volumes %oy a 25 20 15 10 5 0 -5 -10 96 A$ bn 900 800 700 600 500 400 300 00 % -pts 2 1 0 -1 -2 00 01 02 03 04 05 06 07 08 09 10 11 12 Actual Model Average growth since 2000 98 00 02 04 06 08 10 12 14 A$ bn -18 Capex -15 -12 -9 -6 02 04 06 08 10 12 Capital imports and capital expenditure External accounts to receive welcome boost The current phase of the resources boom involves large-scale investment in the construction and development of infrastructure required to extract commodities.

The preliminary Michigan consumer confidence survey Merchandise export and import volumes %ch saar over 3 months 24 12 Imports Exports 0 Japan tsunami. along with a healthy 0. regional manufacturing surveys from the New York Fed (Monday) and Philly Fed (Thursday) and the Homebuilders survey (Tuesday). With additional data on August foreign trade and wholesale inventories out this past week. Markets will be watching consumer indicators ahead of the holiday selling season.0% samr bounce in June. but the Labor Department indicates that the drop mainly reflects results from one large state. The reading for export orders was slightly better in September (48.8pts to 83.0% saar in 2Q12 including a hefty 3. while overall exports of goods 23 . Initial jobless claims plummeted 30.JPMorgan Chase Bank NA Robert E Mellman Economic Research Global Data Watch October 12. Exports have broken lower Despite the slowdown in foreign markets during the first half.4% saar (from 1.6% from annualized growth last quarter. But recent increases in consumer confidence suggest that spending could be a bit stronger than might be expected on the basis of job and income growth alone. There is very little currentquarter data in hand to test this forecast. in line with the pace for the quarter as a whole. But improvement in new orders as reported in both September ISM surveys is broadly consistent with the forecast of slightly better growth this quarter.5% increase in core retail sales.6% in August on the heels of a 2. merchandise export volumes increased 7.5) than the June-August average (47. Merchandise export volumes declined 2.0 1. However. The ISM manufacturing measure of export orders correctly signaled the abrupt change in trend when it broke below 50 in June. will condition views on activity early in the quarter. reflecting firstweek-of-the-quarter technical issues rather than labor market improvement.15% rise in real consumer spending for the month. The foreign trade report for August confirms that the period of strong growth is now over. but annual growth has been weakest to those areas with slumping demand of late. Claims had receded below their recent trend in late September in the two weeks following the week of the last labor market survey.5 Jan 11 Apr 11 Jul 11 Oct 11 Jan 12 Apr 12 Jul 12 Core PCE price index Core CPI for October increased 4.000 in the first week of October. but with data in hand it appears that real net exports will subtract 0. supply disruptions Apr 11 Jul 11 Oct 11 Jan 12 Apr 12 Jul 12 -12 Jan 11 Measures of core inflation. This is a new high for the expansion (although still low by standards prior to the last recession). the component most highly correlated with spending on durables. boosted by stronger auto sales and higher gasoline prices. and the upcoming report for the week of October 13 (with possible revisions to the prior week) should give a better sense whether claims are trending lower into the fourth quarter. So will the upcoming weekly reading on initial jobless claims. consumer price inflation was also high in September and that increase would imply a lackluster 0. The upcoming September retail sales report is expected to post an impressive 1. with September forecasts %ch saar over 3 months 3.5 1. And increases in confidence from the recent July lows have been concentrated in expectations. The first October business surveys.5 2.5%). real GDP growth last quarter is tracking just a bit lighter than expected and the quarterly real GDP forecast is revised slightly lower to 1. slightly more than in the prior forecast. further rise in housing The economy continues to expand but at a lackluster pace. Exports by destination are not seasonally adjusted. And exports so far in the quarter are running 4.0 0. Continued modest income growth and the prospect of possible payroll tax increases in January are likely to limit gains in holiday spending this year.0% samr increase in monthly sales.0) but still points to further weakness ahead. The forecast continues to call for a modest acceleration to 2.0 2.9% at an annual rate below their 2Q12 average.3% drop in July.1. exports are declining as are imports of capital goods  September price data confirm a rise in energy prices and continued slowing of core inflation  Consumer confidence up in October. first Oct business surveys apt to show sluggish mfg. Import volumes are also down slightly. For example.0% growth this quarter. 2012 United States  Net exports are a substantial drag on growth in 3Q12.

But the core PPI was unchanged. a new low for the expansion. The PPI results. although the decline has not been as sharp as for exports. reversing most of the unusually large 0. nsa 3. and the former increased 6.1% pace over the past three months. and the decline in the unemployment rate. and core capital goods shipments started declining over the summer.0% samr in August and are up at a 6. Based on the September PPI. exports of capital goods increased 1. However. the third consecutive monthly increase. Morgan). Consumers may well be responding to the recent increases in equity prices. near the bottom of the recent range. The expectations component is a closer correlate of spending on durables than current conditions. reflecting the recession in Europe and severe slowdown across most of Asia.2%-pt to 2. the latest monthly foreign trade data highlight the weakness in domestic demand. the third consecutive substantial decline for a cumulative drop of 17. taking the confidence measure to a new high for the expansion. Import volumes have declined 3. Meanwhile.3%oya (from 1. along with the forecast for the September core CPI (out Tuesday) point to an unchanged reading for the core PCE price index in September.1%. The 5-year-ahead expectations for the economic outlook spiked 10pts in October and 27pts in the last two months. Thus. its lowest reading since October 2011. The trend in import volumes has also been down over the past few months.3 3.4% samr in September. Detail on the price of medical services in the PPI is used as source data for the price of medical services in the PCE price index. the tentative forecast looks for the PCE price for medical services to decline 0.9 2.0% growth when the quarter began). For a while it seemed that the weakness in the capital goods business might be concentrated in foreign demand.0pts and accounted for most of the rise in the overall index in October and over the past few months. But it is interesting to note how much consumer attitudes have changed recently regarding the longer-term economic outlook.6% increase in August. If realized.1.8pts to 83.5% in August) and bring the 6-month run rate to only 0. The September PPI increased 1. exports to Europe are down 5. The other notable detail in the preliminary October report is the moderation of inflation expectations. Core inflation continues to slow Inflation commentary over the past several weeks has highlighted the sharp increase in the price of gasoline in August and September along with the slowing trend in core consumer price inflation. to -4. house prices.P.6% saar over the past three months despite an increase in oil imports. this would bring this measure of inflation to 1.7 2.8% saar. 2012 have slowed to 1. Nonoil import volumes are down at a 6. One-year-ahead inflation expectations receded to 3.6%. The forecast for real business spending on equipment and software for 3Q12 is being revised lower again. Volumes of imported capital goods declined 1.7% last week and a forecast of 7.1 2.JPMorgan Chase Bank NA Robert E Mellman Economic Research United States October 12.2% at an annual rate over this period. The early September price reports reinforce these themes. And 5-year-ahead inflation expectations dropped 0.8% saar (from -2. Trade report a negative for capital spending: Core capital goods orders have been trending lower since last spring.1% samr on much higher gasoline prices.4% saar over the past six months (as sa by J.5%oya. Import and export volumes: capital goods ex autos %ch saar over 3 months 40 30 20 10 0 -10 -20 Jan 11 Apr 11 Jul 11 Oct 11 Jan 12 Apr 12 Jul 12 Imports Exports Michigan consumer survey: 5-year-ahead expectations Index.1% rate.5 2013 Confidence up. nsa 105 95 85 75 65 55 45 2010 2011 2012 Inflation Economic outlook %.8%oya and are down 14.0% samr in August. inflation expectations down The preliminary October consumer sentiment survey from the University of Michigan increased 4. the August trade report only reinforces the message from core capital goods activity of a sharp falloff in domestic demand for capital goods. 24 .

5% in September while sales at gasoline stations increased 3.2 0. on average. Reports already available show that manufacturing inventories increased 0.4 3. Empire State survey and ISM-weighted composite Index.6% in August. and building materials 01 03 05 07 Mon Oct 15 10:00am Business inventories %m/m sa.6 7. Retail sales control measures %ch over 3 months. more specifically.8 0.6 0.1 -0.7 Aug 0. the headline measures and new orders indexes increased in the regional and national surveys last month. Sales of building materials should continue to climb back after plunging between March and June. However.6% during the month.5 2.0% increase for September to follow similarly-sized gains the prior two months.0 -0.3 49. the manufacturing data have deteriorated significantly over the past few months.4 -2.8 0.9 the survey data reported for September.4 50.7 1. gasoline.29 Jul 0. sa 65 60 55 50 45 40 09 11 35 6 1.8 0. which would be in line with the recent trend. we forecast that retail sales increased 0.7 Jul 0.5 0.5 Oct -6. sa 40 20 0 -20 -40 Derived-composite General business conditions Index.4 -14. sa Jul General bus. saar 20 10 0 -10 -20 -30 Control plus gasoline stations 05 07 09 11 Control: total excluding gasoline. auto.1 2.0 1.1 0.6 16. We believe sales at motor vehicles and parts dealers increased 1.1 0. and building materials We forecast that retail sales increased 1.8 -5.1 -10.9 0. conditions New orders Shipments Unfilled orders Prices paid Prices received Composite 7.1% decline reported for August. We forecast that retail inventories increased 0. Mon Oct 15 8:30am Empire State survey Diffusion indices.29 We estimate that nominal business inventories increased 0. we believe sales of the so-called “control group” increased 0.2 1.8% in August.0 We believe the Empire State manufacturing survey’s headline increased 4.1 1.3 -13. and we forecast a 1.1 0. Excluding these categories.0 Sep -10.9 19.6%.9 0. and our forecast would represent a bounce back from a 0.5 2. and we think gasoline prices will provide a lift to the nominal data on sales at gasoline stations. and we think other retail inventories increased 0. An increase in unit auto sales has already been reported for the month.2 0.0 0.8 0.5 Aug -5. 2012 Data releases and forecasts Mon Oct 15 8:30am Retail sales %m/m sa Jun Total Ex autos Ex autos and gas Building materials Control group¹ Plus gasoline -0.6 0. dealers.7 52.6 1.JPMorgan Chase Bank NA Robert E Mellman Michael Feroli Daniel Silver Jimmy Coonan Economic Research Global Data Watch October 12. this improvement was observed in the Empire State survey.8 -0.8 0. though there was some improvement in 25 . while wholesale inventories increased 0.8 1.4 -2.5% in September.0 0.4pts to -6.8 -14.6 1. industry data point to an increase in inventories of motor vehicles and parts during the month.3 -0.28 Aug 0.6 0.0% in September. automotive dealers. Away from all of these categories.6 2.4%.0 in October.7 10.1 -0.8 1.5 4. Retail sales ex.1 1. these sales have been choppy lately.7 Sep 1.6 0.2 5.0 2. so we think it has some catching up to do in October.1 -0.5 0.3 -0. In general.7 -0.4%.27 Jun 0.5%.1 0. unless noted May Inventories Manufacturing Wholesale Retail inventories Ex autos Autos Inventory/sales ratio 0.

We anticipate rising prices for gasoline.1 -4. We expect that a similar dynamic played out in September with another surge in energy prices and moderate increases in food and core prices.2 -0. Although airfares have eased for the three months through August.20 2.0 -1. food.0% in September.5 1.0% in September while utilities production increased 0.13% (+2.3 1.31 -2. unless noted Jun Total %oya (nsa) Core %oya (nsa) Core services Core goods Food Energy Housing Owners’ eq.0 1.7 -0. which is still fairly mild for the series.2 77.7%.7 -4. We anticipate that such a low growth rate was not sustained and that core prices moved up 0.9 77.2 -0.13 2.09 2.1 0.4 0.2 -0. Core prices increased an especially soft 0.3 05 07 09 11 We forecast that the consumer price index increased 0.0 After accelerating in May and June. which is in line with the average monthly increase for the series.2 0. nsa 3.1 0.1 -0.5 0.2 76.22 -0. These declines signal a 0.0 0.5 0.0 1.1% decline in manufacturing production in September with production of motor vehicles and parts dropping 4.2 -0.05 1.6 -0.4 Aug 0. We expect that this trend continued in September with a 0.2% drop.2 0. with energy prices providing the bulk of the lift to the headline index.3 0.2% range since last September.3 78.1 79.18 0.12 0.4 2. fuel oil.2 -0.4 -0.0 0. Industry data point to increased mining activity during the month. we anticipate that they firmed 0.0 1.3 0.0 Sep 0. which is comparable to the August increase for the series.3% increase in the food CPI.4 2. along with other components of prices received by farmers.5% in September (+1.5 0. We forecast a 0.0 0.5 0.5 -2.2 0.2 0.7 0.0 0. Food price increases have remained in a narrow 0. 2012 Tue Oct 16 8:30am CPI %m/m sa. Tue Oct 16 9:15am Industrial production %m/m sa.3%.5 1. We forecast that such prices increased 0.2 77.1 -0.3 0.1 -0. New vehicles prices moved up 0. We expect the food CPI to break a bit above this range as effects from the run up in spot grain prices begin to transmit through the food production Manufacturing 0. and the weather in September likely led to a boost in utilities production. and natural gas based on our seasonal adjustment of relevant spot price movements.2 -1. Prices for lodging away from home tumbled in July and August. We forecast that tenants’ rent firmed 0.3 4.9 0. medical care prices have settled back to more moderate increases.6 Jul 0.9 0.5 0.2 78.20 0.2 5. we forecast that mining production increased 1. Consumer prices %oya.0%oya).1 0. unless noted Jun Industrial production Manufacturing Motor vehicles and parts High-tech Mfg ex motor vehicles Business equipment Capacity utilization (%.2 0.5 2. We anticipate that OER increased a more moderate 0.20% in September.05% in August.6 0. and core prices (which exclude food and energy).4 0.2 -0.5 0.7 Aug -1.0 1.0 2.8 0.5 Jul 0.4 0.2 0.5% in September based on rising jet fuel prices. Used vehicle prices tend to lag the Manheim Used Vehicle Index. In August we saw gains in energy. Rising fruit prices.3 -0. nsa 6 4 2 0 -2 -4 Headline CPI Core CPI %oya.1 -0.9 -1.5 -0.0 -2.2 0.2 Sep 0.2% in September.7 0. which should send energy prices up 4.6 1.7 0.4% drop in used vehicle prices in September.2% in August and we expect a similar increase in September. Owners’ equivalent rent moved up 0.0 0. Industry figures point to a drop in motor vehicle production during the month but data on hours worked for other segments of the manufacturing sector signal modest growth outside the auto industry.9%oya). the largest gain for the series since 2008.0% to 0. Away from the important manufacturing sector.0 0.1 0.4 0. which fell each month from April through August.9 78.22% in September.19 -0. signal a 0. 26 . rent Rent Lodging away from home Apparel New vehicles Used vehicles Airfares Communication Medical care 0.3%.9 0.10 0.26 0.2% and other manufacturing production increasing 0.JPMorgan Chase Bank NA Robert E Mellman Michael Feroli Daniel Silver Jimmy Coonan Economic Research United States October 12.9 We believe industrial production increased 0.4 0.26% in August.6 0.

saar Jun Starts Single-family starts Multifamily starts Permits 0. so we think the upcoming report will show an increase in claims that undoes most of the decline reported for the previous week.000 to 365.0 0.5 NAHB survey 0 05 06 07 08 09 10 11 12 13 0.54 0.22 0.5% and an increase in permits of 3. For the important single-family data. permits have been trending steadily higher since early in 2011.75 0.000 saar in September while housing permits increased 2.JPMorgan Chase Bank NA Robert E Mellman Michael Feroli Daniel Silver Jimmy Coonan Economic Research Global Data Watch October 12. NAHB survey and single-family housing starts Index.0 95 97 99 01 03 05 07 09 11 Permits We forecast that the NAHB survey’s headline increased 2pts to 42 in October.5 0.8%. Multifamily starts and permits have been trending higher since late in 2009 though the monthly readings for these series are often very volatile.6 2.24 0.) Wkly 4-wk avg Aug 4 Aug 11 Aug 18¹ Aug 25 Sep 1 Sep 8 Sep 15¹ Sep 22 Sep 29 Oct 6 Oct 13¹ 364 369 374 377 367 385 385 363 369 339 365 369 365 369 371 372 376 379 375 376 364 359 Continuing claims Wkly 4-wk avg 3313 3320 3331 3332 3304 3275 3281 3288 3273 3305 3312 3325 3324 3322 3311 3298 3287 3279 Insured Jobless.000 saar.000 decline in claims reported for the prior week was mostly due to one state which may have reflected an issue with seasonal adjustment.6 60 1.4% to 820.6 2. Other data related to the housing market have picked up recently as well. Payroll survey week Wed Oct 17 8:30am Housing starts Mn units.75 0.0 Starts 1.% 2.82 We estimate that housing starts were unchanged at 750.0 1.5%.8% during the month. The state-level initial claims data for the week ending October 6 will be reported along with the national claims data for the week ending October 13. and we think the housing market will continue to improve.5 40 20 Housing starts 1. The Department of Labor indicated that the 30.6 2.5 Tue Oct 16 10:00am Homebuilders survey Sa Jul Housing market Present sales Prospective buyer traffic 35 36 28 Aug 37 38 30 Sep 40 42 31 Oct 42 1.000 during the week ending October 13 (which is the survey period for the October employment report). saar 2. saar 06 08 10 12 2. sa 80 Mn. and we forecast a decline of 3.0 Thu Oct 18 8:30am Jobless claims 000s. and we expect this to have continued through September with We forecast that initial jobless claims increased 26. sa New claims (wr. increasing 26pts over the year through September. saar 20 Manufacturing 10 0 -10 -20 -30 Ex autos an increase in permits of 1.52 0.6 2. and we forecast an increase in starts of 9. Starts have been pushing higher since late 2011 but the negative gap between starts in permit-issuing areas and permits reported for August points to a pullback in starts in September. The seasonal factors can often create volatility in the claims data around the change of the quarter and Columbus Day.53 0.0 0.81 Aug 0.75 0. These figures should reveal which state led to the large drop in claims during the 27 .51 0.23 0.6 2. This survey has been improving lately. Single-family starts and permits Mn.80 Sep 0.6 2.6 2. We believe both starts and permits bounced back in September after declining in August. 2012 Manufacturing production including and excluding autos %ch over 3 months.22 0.6 2.76 Jul 0.73 0.

1 -59.47 2.4 6.0 10.1%. sa 70 60 50 40 30 Continuing jobless claims (first 26 weeks of UI) 000s.6 -7.6 Aug -44.3 -1. The survey was still weak in September.5 Jul -42.5% to 4.5 -11. so we think we will see some improvement in the survey reported for October.JPMorgan Chase Bank NA Robert E Mellman Michael Feroli Daniel Silver Jimmy Coonan Economic Research United States October 12.2 15.7 1.0 in October.65 -3.6 -44.8 21.4 -57.3 -6. The limited data available for local markets look consistent with some pullback in existing home sales in September.1 Balance (BOP basis) Services Merchandise Exports (%m/m) Imports (%m/m) The trade deficit in August widened to $44.5 billion the prior month. conditions New orders Shipments Inventories Prices paid Prices received Composite -12. dropping 1. sa Jul General bus. saar) %m/m %oya nsa Months’ supply (nsa) Single-family Median price (%oya) 4. The slowing in global growth is now making itself more evident in the export data.3 -57.0 17.37 -5. sa 700 600 500 400 300 200 2007 2008 2009 2010 2011 2012 Philadelphia Fed survey and ISM-weighted composite Index.8 45. Net exports appear likely to subtract 28 .5 8.6 2007 2008 2009 2010 2011 2012 Thu Oct 18 10:00pm Philadelphia Fed survey Diffusion indices. sa 7000 6000 5000 4000 3000 2000 Fri Oct 19 10:00am Existing home sales Jun Total (mn.5%.5 15. samr Jun -41.0 14.2 9.5 -57.5 6.9 15. 1986=100.0 -0. Review of past week’s data NFIB Small-Business Optimism survey (Oct 9) Index.9pts to 1.0 5.4 5.0 15.4 0.9 24. but the relevant indicators signal that existing home sales declined in September.2 6.3 -1.0 -21.5 Sep 4.2 billion from $42. 2012 week ending October 6.4 1.6 Sep -1.8 -42.8 11. sa 60 40 20 0 -20 -40 -60 01 03 05 07 09 11 Derived-composite General business conditions Index. but the increase in new orders (from -5. as imports edged down 0.9 11. we suspect it was a heavily populated state (most likely California).7 Aug 4.0 We believe existing home sales declined 3.5 Jul 4.2 Oct 1.0 Aug 92. on net.9 -6.2 -1.4% and on a year-ago basis exports are up only 1.9 -0.3 9.9 1.0 4.5 to 1.1 -0. The housing market appears to be generally improving.2 21.1 6.65 million saar in September.0 Sep 92. the slowest pace of the expansion. International trade (Oct 11) $ bn. but pending home sales—which typically lead existing home sales by one or two months—edged lower over these two months.6 45.2 2. sa Optimism Index Capex plans Hiring plans Planned price increase Jul 91.5 7.7) created a favorable dynamic for upcoming activity.82 7.2 -21.0 We think the Philadelphia Fed survey’s headline increased 2.3 Aug -7. Initial jobless claims 000s.9 -58.0 19.3 11.5 3. over the past two months exports are down 3.1 -5.9 -8.0 -0.9 to -21.0%. Existing home sales increased in both July and August.0 -0.7 6.2 6.0 17. but exports fell quite a bit more.8 -1.0) and the large drop in inventories (from -6.2 44.7 8. crossing back into positive territory for the first time since April.

but in year-ago terms one of the bigger declines has taken place—not surprisingly— in exports to Europe.1%oya.6 Univ. Despite the increase in headline prices.2 0.3 0.3 Aug 0. in the preliminary October data.8 165 Oct 78. unless noted Import prices %oya Ex. This reading for the longer-term measure was a new low for the cycle and was last reported this low during the recession in March 2009 and December 2008.2 2.5 3.6%-pt from GDP growth in 3Q.2 0.2 Sep 1. the largest increase since March. One of the larger declines was an 8. The geography of exports is reported on a not seasonally adjusted basis. which are down 5. the largest gain since January.2 -0.1% in August. Rising gasoline.6 -0.6 79. PPI crude goods firmed 2.0 2. Based on information in the PPI report. leaving the PPI up 2. 29 .2%.7 -0.2 0.2%.0%.4% in September.5%.2% for a second month. Consumer goods prices were unchanged and nonfuel industrial supplies dipped 0.1 3. Light truck prices gained 0.3 4.6 3. petroleum imports fell 1. which likely accounts for some of the firmness in nonfuel prices.7% in September. unless noted Finished goods %oya (nsa) Core %oya (nsa) Energy Cars Trucks Core intermed. Taking a closer look within core prices.8% versus last August.5 -0. Despite the September increase and an August gain that was revised up to 1.8 1. Consumer sentiment (Oct 12) Michigan preliminary Aug 74. The intermediate goods PPI popped 1.1% in September on rising fuel and nonfuel prices.9pts to 88.6%.2 -0.9% between early August and early September (when import prices are collected).6 0. core prices (which exclude food and energy) were unchanged in September.3%. though the drop merely seems to be reversing a 16.6% over the prior year. but it is still positive to see sentiment improving. However. Capital goods prices increased 0.4 Sep 0. Nonfuel prices moved up 0.1 0. the second consecutive monthly rise in energy prices. Core crude Jul 0. The two expectation measures specifically regarding the economy also reached new highs for the recovery in October. One of the more disappointing aspects of the report was the continued decline in capital goods imports.6 -0.4 2.5% and the core intermediate increased by the same amount in September. import prices have declined 0.4 -0.5 The producer price index for finished goods jumped 1.JPMorgan Chase Bank NA Robert E Mellman Michael Feroli Daniel Silver Jimmy Coonan Economic Research Global Data Watch October 12.1% and 2.0pts to 79.1 -1.2 2. Sentiment related to personal finances and income expectations improved in October but remain weak by historical standards.7 0.1 -0.4 0.7% increase that took place the prior month. the lowest reading for the series since February 2010. after running quite strong the prior three months. In September. which alongside the weak capital goods shipments figures signal reduced domestic appetite by US business for expanding capital outlays.0 2.1% drop in capital equipment prices (a category that includes light trucks).0 157 Sep 78.2%. The median one-year-ahead and five-year-ahead inflation expectations both declined by 0.2 1. their lowest print since October 2011. The nominal trade-weighted dollar depreciated 0.4%.9 -0. the story for September was not entirely one of firming prices.6 1. which is likely making up for an unusually large 0.2 -0.6 -0. of Mich.7 -2. The decline in exports occurred across a number of categories.0 0.1 in the preliminary October report.5 -1. Producer price index (Oct 12) %m/m sa.1% in September on rising energy and food prices.2%.3 2.2 2.5 3.3 85. 2012 around 0. these increases suggest that some firming may be in the pipeline for PPI finished goods.5 1.6%.7 65. In fact.3%. This rise was likely not substantially influenced by the summer surge in spot feed grain prices since the US is not a major importer of the products most affected by the Midwest drought.4 1. Import prices (Oct 11) %m/m nsa.3% drop in food and beverage exports. Turning to the details of nonfuel prices.2 -0. rising crude oil and fuel oil prices sent fuel prices up 4. Details of the report show that the current conditions index (+2. Auto imports cooled off.6 152 The import price index increased 1.1 2. Food prices firmed 0. as ex. the first monthly increase for the series since April. Taken together.1 Aug 1.5 3.7 2.7% in September.2%-pt to 3. The slight decline in imports took occurred despite a price-led increase in nominal crude petroleum imports. The level of sentiment still looks low by historical standards.1%.5 6.7 73.7 -3.0 83. The indexes related to the labor market were mixed in October even with the favorable headlines associated with the September employment report (most of the sampling for the Michigan survey was done before the employment data were released).1 1. the September increase in food prices was largely driven by a spike in vegetable prices. and other data related to consumer spending have been soft. the fourth consecutive drop for the series. we anticipate that the PCE medical care services deflator dropped 0. and natural gas prices sent the energy PPI up 4.5 0. but increases have been moderating since July. which may appear to reflect a drought effect.6% increase in August. Core ex light vehicles were also unchanged in September.3 0. auto prices slipped 0. which is fairly soft considering we expect that they started to come under pressure from the summer spike in feed grain prices.1 2. which was a new peak for the expansion. This decline reflects the current weakness in US capital spending.9 -1. Much of the weakness in core prices was due to a 0. fuel oil.1 88.5) both improved in the October report. Index (nsa) Current conditions Expectations Inflation expectations Short term Long term Home buying conditions The University of Michigan consumer sentiment index increased 4. food prices popped 1.6) and expectations measure (+6.0 0. down 3. fuel import prices %oya Jul -0.3 88.0 -3.3 0. respectively. and vehicle prices increased 0. down another 1.8pts to 83.1 -0.8% and the crude core rose 1. a little more than our previous estimate.

 Measures of core inflation—which exclude food and energy and reflect underlying inflation pressures—have been easing lately.8 2. tame for the next few years.0 1.6 2.5 2. 2012 Focus: mixed measures of inflation expectations  Measures of inflation expectations have been mixed recently and some of the closely-tracked ones are sending very different signals. but similar.4 00 02 04 06 08 10 12 5yr-5yr forward breakeven inflation rate % 3. We forecast that the core CPI will be up only 1. Comparable values have been observed in the past without unhinging inflation expectations.4 3. the 5-year/5-year forward breakeven inflation rate has been trending higher for about a year now.8%. saar.8% saar (reported October 29). September data are forecasts 4 3 2 1 0 -1 2008 %oya 5 4 3 2 1 0 -1 06 07 08 09 10 11 12 13 Core PCE price index PCE price index Core CPI Core PCE price index 2009 2010 2011 2012 2013 PCE price indexes Forecast 30 . we think that inflation expectations are anchored and that persistent slack in the labor market will keep wage inflation. The latest readings for this measure have been around 2.6% during the month. results from the comparable consumer price indexes (not shown).1% saar over the three months through September (reported on October 16) and that growth in the core PCE price index—the Fed’s preferred measure of underlying inflation—will be even softer at +0.6% in December 2008 and March 2009).0% target through the end of 2013 (on a year-ago basis).2pt to 2. We expect slightly firmer. though it has cooled a touch since the middle of September. and we believe this will continue to be the case in the upcoming reports for September.  The preliminary University of Michigan consumer sentiment survey for October reported that the median five-yearahead inflation expectation declined 0. which are on the high end of the range reported over the past few years.2 3. and subsequently general inflation.0 2. there has not been a reading this low since the early stages of the financial crisis (this measure previously printed 2.  Looking out over a longer time span. we believe that inflation measured by the PCE price index (as well as the related core measure) should remain below the Fed’s 2.0 2. Michigan survey: median five-year-ahead inflation expectations % 3.  In contrast to the Michigan survey data. Both of these figures would represent the softest respective three-month growth rates since December 2010 and the growth rate for the core PCE price index would be one of the softest of the recovery to date.JPMorgan Chase Bank NA Daniel Silver Economic Research Global Data Watch October 12. This was the lowest figure reported in the recovery to date.5 2010 2011 2012 2013 Core inflation measures %ch over 3 months.7% or 2. Overall.

mainly because the business surveys are much weaker. Euro area GDP %q/q saar 4Q11 Euro area Old New Germany France Italy Spain -1. the third quarter will still show almost a 2% annualized increase and set up a much weaker 4Q. In particular.1 -3. There was also an 11.0 0. It may be that in France.5 -1.1 -3. Euro area IP increased 0. We are 99 01 03 05 07 09 11 13 Euro area IP.5 -4. auto manufacturers have been trying to increase inventory to guard against possible industrial action (due to plant closures).1 -2.5 0.0 0.6%m/m in August. and it is also not entirely clear how the national account statisticians will use them when they prepare the 3Q12 GDP reports next month. excl.0 1. This means that even if we assume a 2%m/m IP plunge in September.0 -1. we are going halfway by raising our 3Q12 GDP forecast by 1%-pt to zero. rather than revisions to July and August.3 2Q12 -0.0 1Q12 0. Hence. this is exaggerated by a 31 .7 3Q12 f -1.5%q/q saar.0 -1. which left the July/August average up 4% annualized on the 2Q12 level.0 0.7 1. construction 1Q08 = 100 105 100 95 90 85 80 75 2008 2009 2010 2011 2012 2013 Euro area. which are harder to explain. In Spain. together with other activity indicators.7 -0. excl.5 -1.9 -2. Unfortunately.5 4Q12 f -0. Revisions at the country level follow a similar pattern.motor vehicles 1H08=100 110 100 90 80 70 60 50 2008 2009 2010 2011 2012 2013 unwilling to go quite so far. We are however willing to make some allowance for the strong IP data in our GDP forecast. half of the large increase reported so far for 3Q12 owes to surging auto production. while a broad range of production categories have improved. with statistical question marks  We nevertheless allow for better IP in our 3Q12 GDP estimate.5 -2. with 3Q better and 4Q worse than previously.0 0.6 0. 2012 Euro area  Next week’s Euro area summit to be a reminder of difficult path toward greater political integration  But. Crucially. we assume that the payback will come in the form of a sharp drop in September. box shows 3Q11 tracking estimate 5 0 -5 -10 GDP (actual) Tracking model Rotating our 3Q and 4Q GDP forecasts The August IP reports were surprisingly strong in the core countries and across the periphery. But. ECB’s OMT announcement continues to limit financial market stress  Euro area IP surprises on upside in August.5 Tracking Euro area GDP %q/q saar. The manufacturing part is up even more at 4. Germany Germany Euro area IP .4%m/m jump in Italy in August.3 -0.0 2. most likely in September. Nevertheless.3 -1. and are reducing our 4Q12 estimate by the same amount to -1.1 -0. the 2H12 average is unaffected. we think that even a 1%q/q saar GDP increase is possible in 3Q12.8% annualized so far in 3Q12. If we put this into a tracking tool for Euro area GDP. which is at odds with the anecdotal evidence of weakening demand and pressure for production cutbacks.JPMorgan Chase Bank N. But. the details clearly point to large payback.A. There are clear questions about likely problems with the seasonal adjustment of the data. Overall.3 -1. the ECB’s willingness to engage in OMT continues to limit the level of stress in financial markets and reduces the pressure on politicians of having to move too quickly toward more integration. London Branch Greg Fuzesi Raphael Brun-Aguerre Economic Research Global Data Watch October 12. huge gains have also been reported in Germany. offset by payback in 4Q12 Next week’s EU summit will be a reminder of the long road ahead that the region faces in moving toward a more politically and fiscally integrated monetary union. The data for autos show back-to-back gains of around 6%m/m in July and August.3 -1.

8 billion.8 2.5 -0. Thus.0 2016 -0. so the government may not raise the full amount of additional taxes estimated in July.000.5%.0 2017 -0. and the official forecast assumes a mere 0. which we continue to expect to materialize as we move into next year. nsa 0 -20 -40 -60 -80 -100 -120 Jan Apr Jul Oct 2011 Path consistent with govt forecast if monthly sa deficit is constant 2012 Insights about the 2013 French budget France released the details of its 2013 budget last week.8 2014 -2.5 0.1 0.0 -0.0 90.7% of GDP this year. which would be a large achievement considering the low level of domestic activity: French output has been little changed for the last three quarters.5 2.6 86.9 0.0 marginal income tax tranche of 45% for incomes higher than €150.A.5 89.0 -2. while the remaining part will be evenly divided between household and corporate tax increases.8%oya GDP improvement next year.1 -0.5 2.3 2013 -3.2 billion. public investment is set to decline by €1. 2012 VAT effect. a large part of the fiscal consolidation in 2013 relies on additional measures estimated at €30 billion. In the details. with respect to the official deficit objective of 3. Euro area IP 1Q08 = 100 105 100 95 90 85 80 75 70 2008 2009 2010 2011 Germany France Italy Spain 2012 2013 Tracking the 2012 French budget The French central government’s August budget balance number was released this week.2 billion were adopted at the end of July. Of that amount.300). Our own forecast is that French GDP growth will only reach 0.2 0. we continue to watch the business surveys for signs of underlying lift. Implementation risks are also likely in our view.7 2012 -4.7% of GDP. against an official projection of 4.6 85.2 -0.1 -0. a large part of which has yet to be reflected in the budget figures.0% of GDP next year. . the slippage this year should be limited. Given the statistical factors that may be impacting the data and given that the IP gains are hard to square with anecdotal evidence and the much weaker business surveys.1 0. Instead. one third will be met by spending cuts.9 2.2 -0.0 -0. London Branch Greg Fuzesi Raphael Brun-Aguerre Economic Research Euro area October 12.0 1. We thus think that the general government deficit this year will reach 4.5%-pt to 3.1%oya this year against an official projection of 0. It showed a modest €5.0 0.0 billion. which likely supported spending in 3Q12 and will weigh even more on spending in 4Q12.5 -3. it still looks like some slippage is likely.5 -0.3%oya.3 0.2 billion. we would downplay the significance of the forecast change.7 -0.0 2015 -1.3 -1. Defense spending will also be reduced by €2. the government will create an additional 32 French fiscal plan %GDP for fiscal indicators and %oya for GDP 2011 Budget balance Of which: Central government Other central admin. Thus.1 0.1 0. and extraordinary spending will decline by €2.JPMorgan Chase Bank N. transfers to regional and local governments will decrease by €1.0 0. capital gain taxes will increase in the housing sector.3 -1.8 82. 120 110 100 90 80 70 Euro area IP 1Q08 = 100 Ireland Germany Portugal Greece 2008 2009 2010 2011 2012 2013 French cumulative monthly budget balance € bn.2 -4. On the revenue side.8 billion). partly achieved by a lower number of public sector workers (by around 1. and taxes on polluting activities will increase.2 91.1 0.2 -2.1 -0. Local governments Social security Government debt Assumed real GDP -5.3 88. credit tax exemptions benefiting companies will be partly removed.0 -0. The government plans to reduce the deficit level by 1. Taking these amounts into account.0 0. But additional measures estimated at €7. and the 2012 budget also includes a precautionary reserve worth €6 billion.6 -1. spending cuts will be met by a lower budget allocated to ministries (down €2.1 billion improvement with respect to the same period last year.

2012 Data releases and forecasts Week of October 15 . 33 .7 -0. core-X)1 HICP (%oya. offset by payback in 4Q12.5 -0.9 Aug 0.8%m/m in August) and is up just over 2% ar so far in 3Q.3 -4. The increases in auto production are hard to reconcile with anecdotal evidence.3 -0.4 1.5 0.0 0.0 -0.5%oya as a result of the September VAT hike from 18% to 21%. with the July/August average up 4% annualized on the 2Q12 level. For more details.6 -1.6 Sep We expect Euro area headline inflation to be revised down one tenth to 2.2 0. In fact.8 -0.8 1.JPMorgan Chase Bank N.19 Review of past week’s data Output and surveys Industrial production Jun Jun Jul Aug Euro area %m/m sa %oya Germany Prod.5 0.4 0. In the region overall. including the peripheral countries.4 0.9 -3.7 7.4 1.6 Jul 0.8 1. intermediate goods production was flat in August and is up only marginally so far in 3Q.3 -7.0 157.6 -2. we are incorporating some of the strength into our GDP forecast.0 -2.4 Inflation Consumer prices Jun Tue Oct 16 11:00am Euro area (final) HICP (%m/m.8 1.4%oya as fuel prices continued to surge.3 -0.3 0.6 Aug 0.4 2.5 0. The August IP reports were much stronger than expected.3 147.4 1. Since the publication of the Euro area flash estimate in the final days of September.5 -2.2 -1. both in the core and in the periphery.5 -1.1%oya and two tenths to 2.4 148.2 0.4 0.6%oya.1 2.4 1.1 -6.9 9.A. sector (%m/m sa) %oya sa Prod sec ex constr(%m/m sa) %oya sa Industry (%m/m sa) %oya sa France IP (%m/m sa) %oya sa Manuf prod (%m/m sa) %oya sa Italy IP (%m/m sa) IP (%oya sa) -0.6 1. the improvement in the summer has been broadbased across the region.7 0. France.5 0.5 0.9 2. nsa) HICP (%oya.7 -2. alcohol. and energy. The category that accounted for most of the strong gains is auto production.7%m/m and tracking up almost 5% ar so far in 3Q12.7 -1. The capital goods category rose 0.5 Aug -0.1 0.4 External trade and payments Foreign trade May Tue Oct 16 11:00am Euro area € bn.6 0.2 -1.0 0.5 1. This reflects particularly strong increases in Germany.8 -0.6 -2.3 0. almost all Euro area countries are tracking decent increases so far in 3Q12.2 0.8 -1.8 -0. which points to weak orders and manufacturers trying to manage down their production levels (one exception is France. Spanish inflation increased seven tenths to 3. Nevertheless. see this week’s Euro area essay.7 2.4 1. and much less of this owed to auto production in Germany.4 Sep 0. By country.6 0.1 -7.1 0.9 154.5 -0.2%oya. tobacco. Within the capital goods category.9 1. sa Trade balance Trade balance—year earlier Exports %m/m sa Imports %m/m sa 6.0 -2.7 Jul 0.6 -0. 2.7%m/m in August and is up over 8% ar so far in 3Q12. nsa) HICP (%oya.6%m/m in August.7 1. by one tenth to 2.3 -1.5 1. and Italy.5 -0.6%m/m in July and 6%m/m in August.9 -0. core-XX)2 HICP (%m/m.5 -0. Consumer goods production rose strongly however (1.8 1.3 154.3 -0.6 -1. rising 0.2 -7. IP rose 0.5 2. London Branch Greg Fuzesi Raphael Brun-Aguerre Economic Research Global Data Watch October 12.3 -2. France.4 -0.4 1. Excluding unprocessed food and energy.5 -1.7 1.4 -1.7 -0. where reports suggest that producers ramped up production in August to build inventory levels ahead of possible strike action). Producer prices Jun Fri Oct 19 8:00am Germany %m/m nsa %m/m sa %oya nsa -0. ex-tobacco) -0.2 -3.0 -2.0 -0.7 0.9 -2.1 -2. a number of countries have released their final inflation figures.7 1.5 -1. In the detail.5 -1. which surged 5.6 2.0 0. Italian inflation also increased a tenth to 3.9 -1.9 1.4 -0. It is possible that the data are being impacted also by problems with the seasonal adjustment.1 Jul -0. The country releases so far suggest Euro area inflation will be revised down one tenth. respectively. and Italy.6 -0.0 146. But inflation declined in Germany and France.3 -1.6 -2.4 1. Excluding food. both machinery and electrical/optical goods production declined in August but are still up modestly so far in 3Q12.7 -6.6 0. The manufacturing part did even better. largely offsetting inflation increases in Spain and Italy.

4 76. The details of the country releases were also informative in a number of ways.1 10.3 10.2 2. Inflation Consumer prices Jul Germany (final) %m/m nsa %m/m sa %oya nsa HICP (%oya) France %m/m nsa Index ex tob nsa %oya nsa HICP (%oya) Italy (final) %m/m nsa %oya nsa HICP(%oya nsa) Spain (final) %m/m nsa %oya nsa HICP(%oya nsa) 0.8 0. In the remaining countries.4 76.0%m/m in real terms.8 18.3 11. and the %3m/3m annualized rate is still running at a solid 7% on both measures. French inflation printed two tenths lower at 2.2 Aug 0. as well as final figures for countries such as Belgium and the Netherlands.7 125.JPMorgan Chase Bank N.7 0.9%-pt in the two months prior to September. the new export orders index in the manufacturing PMI had slumped to 39.4 124.3 2. and we think Spanish inflation has now peaked.A.7 0.1 -2. this effect will not be strong enough to lift inflation further.2 0.2 0. it looks like Euro area inflation will be revised down a tenth to 2.2 3.4%oya.0 3.5 0.4 in September.1 3. we observed a frontloading of the VAT pass-through as headline inflation already increased 0.9% pace on real imports.6%oya. especially for services related to tourism.2 2.6%-pts since June and only a marginal effect remains to be seen. values.1 1.4 0.0 2.6 -0. The export expectations index in the IFO had declined to -1. The export data are firm relative to the business surveys.4 0.06 2.2 -2.8%m/m in August).4 in August before it recovered somewhat to 42.3 German and Spanish HICP inflation was unrevised with respect to their flash releases. In our view.4 0.1 76.9 2.1 3.0 3.74 1.7 1. the introduction of the new VAT rate of 21% (up from 18%) contributed to lift prices by 1.3 124.9 -0.4 1.7 16. Fuel prices in France declined 0.year earlier Exports %m/m Imports %m/m Jul Aug 16. The cumulative impact has now reached 1. which subtracted 0.7 2. and Italian inflation rose 0. and fell for the third consecutive month in real terms (by 0.4 3. and headline inflation rose seven tenths to 3.3 0.2 16. Exports of goods rose 2.9 92. German inflation declined a tenth to 2.22 1.0 2. In particular.4%m/m in nominal terms and 2. which point to stagnant or slightly declining real exports.9%m/m in September. They edged up in nominal terms.2 34 .4 2.5 Sep 0.3%-pt from lower energy prices.2 3. During the summer. Taking these data into account.1 2.0 0.5%oya as the 3%-pt VAT hike to 21% lifted prices.7 95.9 2. Due to the relative strength of exports. 2012 External trade and payments Foreign trade Jun Germany € bn.1 2. London Branch Greg Fuzesi Raphael Brun-Aguerre Economic Research Euro area October 12.9%m/m.1%oya and Spanish inflation rose seven tenths to 3. Imports were softer.9 16.2%oya. But prices also declined substantially in the service sector.1 -0. 76.4 76.4 -1.7 0. but this reflects gains a few months back.7 Trade balance Trade balance .1%-pt to 3. the trade surplus jumped close to its all-time high.4 in August and deteriorated a bit further in September to -3.4 3. The %3m/3m saar rate is still running at a decent 5. In Spain.3 13.5%oya.2.6 2.3 German exports remained on a firm upward trajectory in August. French inflation declined partly as a result of the lower tax rate applied to fuel products in September.

the hung Diet is decisively negative. a further fall in consumption looks likely at least in the near future.7pts). To be sure. the downside risks to this view remain high. the DIs of business-related firms worsened 4.2. and are probably strengthening. We expect that sentiment will continue to worsen for a while. especially in Japan. but that will not likely be sufficient to boost growth materially. the IMF’s outlook for Japan (2. further evidence of weak global equipment investment  Private consumption picked up in August. the Japanese Cabinet Office’s real consumption index released this week showed a notable contraction of a key component of domestic private demand in 3Q. In this regard. Machinery orders plunged in August Total machinery orders plunged 12. and the IMF published its latest World Economic Outlook.4pts in September to 41. Respondents’ comments highlighted the China/Japan dispute. the lowest level since May last year (two months after the Tohoku earthquake). With the recent emergence of additional downside risk from the dispute with China. it looks likely that the trend of the Japanese economy is weakening more and faster than the views of officials (including the BoJ and Japanese government). but the pace was faster than we had expected. even though we do expect two consecutive quarters of contraction in the GDP (technical recession). 3mma for both scales 3000 Total 2500 2000 800 1500 1000 02 03 04 05 06 07 08 09 10 11 12 Core domestic 700 600 1000 900 1100 Small firms’ sentiment worsened with the dispute with China The headline current conditions DI in the Economy Watchers survey fell 2. Political deadlock is generally a strong headwind for the global economy.3% in August after two months of de35 . Economy Watchers survey overall current index DI 60 50 40 30 20 10 02 03 04 05 06 07 08 09 10 11 12 Machinery orders Yen bn.6%.9pts) and employment-related firms (-1. The Economy Watchers survey is conducted later (at the end of month) than the Shoko Chukin survey (in the middle of the month). Core domestic private machinery orders (which exclude orders from electric utility companies and those for ships) fell more moderately at 3. In our view. Also. Even in Japan. Japan is no exception. the machinery orders report provided further evidence of the softness in domestic capex and the sharp fall in external demand for Japanese equipment. We expect another monetary easing at the end of October. Ltd. Looking at the components. so the recent dispute with China likely had a larger impact on the Economy Watchers survey. especially among manufacturers and tourist-related firms. we also have revised down our global outlook over the past three to six months.JPMorgan Securities Japan Co.0pts.2% real growth in 2012 and 1. which revised down its global GDP growth forecast for 2012 and 2013 from the July update (a detailed report was released in April). The current development warrants nearterm policy support. With the sharp fall in auto sales in September due to the end of government subsidies. Masamichi Adachi Economic Research Global Data Watch October 12. sa. more than those of households (-1. we do not think that Japan has slid into a recession. in addition to the common negative factors of weakening external demand and a strong yen. The downward revision of the global outlook is not surprising. based on a milder decline in the Shoko Chukin small firm survey. our base case scenario looks for some (but less) recovery in global growth next year after near-term uncertainties (such as the US fiscal cliff) fade away.0% and 0.6%m/m sa in August.2% in 2013) seems too optimistic in our view—our forecast looks for 2. Still. The deterioration of sentiment was not a surprise. close cooperation between a strong government and the BoJ is necessary to address the challenges facing Japan. However. In line with the official view. 2012 Japan  Small firms’ sentiment worsened with concerns over the impact of the China-Japan dispute  Total machinery orders plunged in August. relatively firm business and consumer sentiment so far may prevent a second-round effect from the decline in manufacturing activity to the overall economy.. but trend appears to be downward The IMF/World Bank annual meeting is being held in Tokyo this week. Indeed. further evidence of the weakness in global equipment investment.

Ltd. it appears that manufacturers’ demand has been softening lately.5% left the 3m/3m sequential change at -2. The jump in August was not surprising as bad weather had likely been a drag on consumption in June and July. There are also other reasons that bank lending continues to grow. Meanwhile. but the risk is still skewed to the downside. particularly the dispute between China and Japan. Our current forecast already looks for a further 1. With auto registrations (sales) plunging in September. Masamichi Adachi Economic Research Japan October 12.P.3%q/q saar decline in 3Q. the MoF decided to delay expenditures as much as possible.JPMorgan Securities Japan Co. Second. indicating that external demand for Japanese equipment manufacturers has fallen sharply. in year-on-year terms.2%q/q saar contraction in con- 36 .2%oya from 1. overall loan demand remains weak.0% annualized.5%m/m sa in August. loan demand related to reconstruction activity remains high. Private consumption weakening The Cabinet Office’s private consumption index unexpectedly jumped 1. Since the DPJ-led government is still struggling to pass the legislation that allows the government to issue deficit bonds (new JGBs). but the downward revision to July to -1. and it is stronger than the official outlook (-4.7%m/m sa plunge in foreign orders in August.6%) and June (+5. plunged 13. Morgan 6 Bank lending %oya 6 4 2 0 -2 -4 2008 2009 2010 2011 2012 2013 sumption in 4Q after a 2. mn. In domestic orders. However. First. overall consumption is expected to decline in the month. but the uptrend of consumption has probably weakened since the end of 2Q with the softening in labor income (a decline in summer bonuses) and the fading of pent-up consumption demand from last year when consumer spending was restrained by the disaster. except noncore electric utility companies. which is equal to our forecast for 3Q GDPbased consumption. it is difficult to expect that external demand will pick up materially in the near future.7% ar. including volatile orders from the noncore sectors. Real consumption and auto registrations 2005=100 sa 108 106 104 102 100 98 96 94 02 03 04 05 06 07 08 09 10 11 12 Auto registration 5 4 3 2 Consumption Units.0% from -0. local governments are now borrowing from banks to compensate for the temporary shortage of funds. although the main reason for the decline in August was a fall in defense-related orders. it should be noted that the total domestic private orders. M&A transactions and mortgage loan demand have recently been on rising trends. a notable acceleration from 0. The August orders’ level is 40. 2012 cent gains in July (+4. especially with low business investment. The decline in August may be exaggerated as the fall of orders in big ticket items (railroad vehicles) was cited in the report. but the weak trend seems to be clear.8%) presented in August.9% lower than the recent peak in January this year.5% in 2Q. It seems that reconstructionrelated orders are now weakening.7%m/m sa in August and is tracking a 22.1%oya. -7.. Finally. except possibly for new smart phones. However. it should be noted that at least a part of this acceleration reflects a special factor related to the central government’s initiative to delay the distribution of local allocation tax to local governments. including the local tax grants. However. More worrisome was the 14. it is difficult to expect that consumption will strengthen in the near future.1%m/m sa after a 13.1% in August.3% annualized relative to the 2Q average. which is certainly negative for the GDP-based capex in near future. This suggests that firms’ spending (investment) behavior is not yet on a downtrend.6% annualized from 2Q when the orders fell off a cliff at -52.3% plunge in 2Q. leaving 3Q up 1. which leaves the Jul/Aug average down 42. With recent news of a softer Asian economy and the dispute between Japan and China. As a result. Bank lending increased from special factor The pace of bank lending edged up in September to 1. sa by J. public orders fell again in August.6%). electric power companies still contributed to the overall lending growth with the need to finance higher input (mainly liquid natural gas) costs and bond redemptions. The average of July and August is up 4.0% decline in 3Q.5% plunge in July. but nonmanufacturers are holding up relatively well. showing some recovery from the 15. And given the more downbeat information on the overall economy.

9 2.3 0.3 Jul -1.9 Jul 12.8 44.0 Aug 0.0 -2.2 4.7 42. Morgan: ¥635 billion.2 1.8 Jul 4.2 Aug See main essay.7 39. The services deficit was smaller in August than in July but the trend is for a wider deficit. Consumer sentiment (Oct 11) DI.1 3.7 -3.7 See main essay.0 Aug 40.6 39.. the merchandise trade and services deficits likely will be larger given the dispute with China (see “Macroeco- 1.5 2.2 40.4 -0.0 Aug 1.7 37.7 0.0 -3.4 5. the current account surplus will not likely turn into deficit in coming months.7 Aug -1.2 The current account surplus was somewhat larger than expected in August.4 Jun 10.3 -15.8 Wed Oct 17 2:00pm Construction spending %oya May Public Private Residential Nonresidential 10.2 -1.19 Mon Oct 15 1:30pm Industrial production—final %m/m sa May Production Shipments Inventories Inventory/shipments ratio Operating ratio Production capacity (%oya) -3. the track record of this sentiment index in predicting actual consumer spending has been poor. it looks like the income surplus is on a gradual rising trend.5 -1.2 -1. ex for ships and from utilities Manufacturing Core nonmanufacturing Foreign 5. up from ¥335.4 billion in July. This sentiment survey has yet to point to any downturn in the trend of consumption. which jumped from ¥118 billion to ¥128 billion.2 1. However.6 -9. So.2 42.1 3.JPMorgan Securities Japan Co.9 DI nomic impacts of Japan/China dispute. Cabinet Office private consumption index (Oct 10) Jun %m/m sa -1.1 2. mainly from direct investment income. Bank lending (Oct 11) %oya Jul Bank lending Adjusted for special items 0. This component is volatile. The CAO’s consumer sentiment index fell 0. Looking ahead.” GDW.5 Aug 43.1 Sept 1. The relatively large gain in the surplus reflected a smaller trade deficit in the month. public spending in this survey is the key input for public investment in GDP. See main essay. recording ¥722.4 -1.2 1.7 42.0 50.5 40.3 -0.6 -2.3 -1.1 in September.8 52.0 -0. Still. but remained above the recent low in July (39.6 -2. 37 . the current account surplus has been broadly flat through this year.2 40. Since reconstruction activity has been delayed. 2012 Data releases and forecasts Week of October 15 . The surprise in August was a larger-than-expected income surplus.6 12. which was not a surprise given the already reported custom trade balance.3 billion.1 40.1 44.9 1. we expect that the uptrend of this demand will continue for while.0 Aug -2.2 41.7 40.P.7 1.1 5.3 Construction spending data are a second-tier indicator that rarely receives much attention. 2012). Economy Watchers survey (Oct 10) Jul Current conditions Households Business Employment 44. Ltd. Overall.3 0.4 36. given that the income surplus is expected to rise gradually or at least to be stable at a high level.6 -14.2 40. The trend of the trade deficit has been relatively stable since the beginning of this year with declines in both nominal exports and imports. However.1 1.9 3.5 -3.5 -1. so it is difficult to identify a trend from monthly changes. especially for real changes. and August report did not break that trend.6 39. Miwako Nakamura Masamichi Adachi Economic Research Global Data Watch October 12. The DI asks whether a respondent thinks that now is a good time to purchase durable goods.4pt to 40.4 -1.0 52.8 Sept 40. stable sentiment does not assure firm actual consumption. The level has been broadly flat since March this year.1 Aug 43.1 1. sa (J. consensus: ¥520 billion).4 -0. but confirmation from this indicator is important.4 2.3 -0. From the three-month average.7 -2.7).6 38. Review of past week’s data Balance of payments (Oct 9) Jun Current account (¥ bn sa) Trade balance Services Income Current transfers Current account (¥ bn nsa) 774 -167 -195 1214 -78 433 Jul 335 -477 -279 1181 -90 625 Aug 635 -211 -225 1170 -99 351 722 -236 -246 1278 -74 455 Machinery orders (Oct 11) %m/m sa Jun Domestic private sector.8 42.9 -1.9 Jul -0. sa Jul Consumer sentiment Standard of living Income growth Labor market conditions Durable goods purchases1 39. Oct 5. at least in the near future.5 1.6 42.2 -2.3 Jun 0.5 See main essay.

9 0.3 Sept 2. mainly due to the rise in prices of petroleum products. The domestic corporate goods price index (CGPI) rose modestly again in September at 0. the key financial product for households that want to take risk. rose in September.0 1. In oya terms. 2012 In the details. International terms of trade derived from this survey deteriorated a bit in September.7 Aug 0. 2010-based Jul Domestic CGPI (%oya) Export prices Import prices -0.3 -1. It seems that individuals who are taking risks are now shifting their portfolio to foreign bonds from investment trusts that are backed by equities. Export prices were flat. Excluding petroleum products. as the broad liquidity measure.2% rise in August. mainly due to a 1.2 -0. so it is difficult to judge if there is a change in trend. fell more rapidly in September (-3.9 -2. mainly due to the hike in energy prices. The result was consistent with business surveys that show firm nonmanufacturing activity.4% in both the month and the quarter. up 2.7%) from 2Q (-2. sa 50 45 40 35 30 25 Sentiment Consumption %3m/3m saar 16 8 0 -8 -16 -24 of oya rise was exactly that same as in August and 2Q.7% decline in 2Q. However. Consumer goods rose 0.4%oya) and 3Q (-2. but remain somewhat higher than the trend from 2002. suggesting that the deflation in the core CPI will soon ease (note that Japan’s core CPI excludes only fresh food and includes energy).2%).1%).7 Aug 0.3%) and 1Q (-0. intermediate materials (+0. Indeed. corporate goods prices were basically flat between July and September after having declined from falling commodity prices. By stage of demand. raw materials (+2.8 Jul -0.5%.3 0.4% in September and 1. The pace 38 . Note that the recent acceleration of the gain in L partly reflects a technical estimate in the preliminary print.8%) from 2Q (+0. while import prices jumped 1.8 0.2% rise in imported nondurable goods (propane gas). Accordingly.0%q/q ar. income growth actually edged up in September.8%) fall in July.2 -1. prices at all stages. manufacturing activity (industrial production) is tracking a sharp decline of close to 15% annualized in 3Q even after a 7. Miwako Nakamura Masamichi Adachi Economic Research Japan October 12.3 0.. Index of tertiary sector activity (Oct 12) Jun %m/m sa %oya 0. it should be noted that the rise reflects the liquidity preference of money holders (households and nonfinancial corporates).2 0.7% (from 0.4 0.4%). While the perception of the labor market condition is relatively soft. investment trusts.6 05 06 07 08 09 10 11 12 Corporate goods prices index (Oct 12) %m/m nsa. showing no particular change (improvement or worsening) recently.8 0. We think that sentiment will worsen further in coming months. Still.3%). Money stock (Oct 12) %oya Jul M2 L 2. sa 104 102 100 98 96 IP 94 92 2007 2008 2009 2010 2011 2012 90 80 70 2013 Tertiary sector index all sectors 120 110 100 The M2 (high liquidity) maintained a relatively solid rise.8% annualized lower than the 2Q average. Ltd.5 0. the fall before August left 3Q down 3.7%).5%.1 0. L.3 Aug 2.9%q/q saar in 3Q.8 -0. showing broad stability. the index was down 1.4%).7%oya) and 3Q (+0. and final goods (+0.0 2. the rise in foreign bonds accelerated in September (+5.3%) and 3Q (+3.0%) and 1Q (-0.JPMorgan Securities Japan Co. Consumer sentiment and real consumption Index. The average of July and August is only 0. the oya decline eased notably.0 Sept 0.4 0.4 0.8%). picked up in August as expected after a revised 0. On the other hand.7 -2.4 0.3%m/m nsa after a 0.1 0.6%m/m saar in September and 2.0 0. all four component DIs have been broadly stable. which covers almost all sectors except manufacturing. not a rise in credit. In L.8% in 3Q.2 0.7 Tertiary sector index and IP 2005=100. rose at a much more moderate pace in September (0. leaving the oya rise at 2.5 The tertiary sector activity index. although capital goods in the final goods category fell a bit (-0.

3%q/q for 3Q versus an 11.3%m/m in August following a 7. indicating that net exports could be a slight drag on 3Q overall GDP. pointing to weak business investment spending in 3Q. Thus far in 3Q. they are 0. 2012 Canada  Trade balances narrow slightly in August  But trade still likely a drag on overall growth in 3Q  Weak capex implications from August trade figures  Next week sees release of key BoC survey The August trade figures released this week continued to show the trade sector being a net drag on overall activity—a reflection of the external headwinds that are buffeting the economy. The real trade deficit narrowed in August from July. real imports are down 0. Housing starts retreated 2. It should be noted. For example.7%q/q surge in 2Q.6% from a year ago.6%m/m drop in July. Nominal imports collapsed 3. Machinery and equipment imports fell 1. This was the sixth month of the previous seven in which the trade balance posted a deficit. not revival of exports. But. holding to the strong gains made in August.4%m/m drop in imports of industrial goods and materials. the monthly real trade figures do not line up as well with quarterly net exports as they had previously. the monthly real trade figures show that the real deficit widened slightly in 2Q while the revised national account figures show a slight narrowing. while imports edged up 0. though construction will obviously be ongoing on the surge in structures started in 2Q. for residential investment in the 3Q national accounts.6% from a year earlier. reflecting declines in every sector except energy. monthly rate 2 0 -2 -4 -6 -8 -10 -12 3Q avg 1Q avg 2Q avg 4Q avg 06 08 10 12 Real exports and imports 2002 C$ bn 45 40 35 30 25 01 03 05 Exports 07 09 11 Imports Real capital equipment purchases q/q %chg saar.1%m/m). Energy imports rose for the first time in three months. however.5% below the 2Q average. 3Q12 is estimate from Jul/Aug data Est from imports 40 20 0 -20 -40 -60 00 Actual 02 04 06 08 10 12 ada recently conducted a major revision to its national accounts data.0%m/m on top of a 1. the July/August average is still slightly wider than the 2Q average.34 billion). Nominal exports were down 1. This points to a weak reading.32 billion from a wider-than-previously-released C$2. Real (chain weighted) imports slumped 2. By sector.5% from the 2Q average. exports were generally up with a sharp decline in exports of industrial goods and materials (-6. The nominal trade deficit narrowed in August to C$1.1%m/m) offsetting increases in other major sectors.9%m/m in August on top of a 2. after four consecutive monthly increases. while exports were little changed (-0. the 3Q capex picture is getting gloomier. on the margin. Though the August decline in imports was widespread.53 billion shortfall in July (previously -C$2. Both the nominal and real trade deficits narrowed slightly but this reflected weakness in imports.2%m/m decline in July. 39 . Consumer sentiment treaded water in September. that Statistics Can- Monthly real merchandise trade balance Chained 2002 C$ bn. Canadian businesses import about 70% of their purchases of machinery and equipment—so these imports are a very useful leading indicator of business investment spending. real exports are down 1% from the 2Q average.7%m/m decline in July. while imports of machinery and equipment fell for the second consecutive month. Thus far in 3Q.7%m/m jump in July. and as a result.JPMorgan Chase Bank NA Sandy Batten Silvana Dimino Economic Research Global Data Watch October 12. Real (chain weighted) exports were essentially unchanged in August following a 1. it was led by a 7. but were down 5. Meanwhile.1%m/m. So far in 3Q.

8 Fri Oct 19 8:30am Consumer price index %m/m nsa. Offsetting some of the strength will be metal products.4 -3. unless noted May Sales New orders Unfilled orders Inventories Inventory-shipments ratio 0. The external sector will likely be a drag on overall growth in 3Q.4 -1. were up 5.0 0. With external headwinds now blowing harder than at the previous survey. the headline rate will be below the BOC target midpoint (2%) for the fifth month in a row.JPMorgan Chase Bank NA Sandy Batten Silvana Dimino Economic Research Canada October 12.5% after six consecutive monthly declines.2 -6. Sharp monthly decreases in energy shipments have held down total shipments since April.0 2.6 1.2 1.2 1. We continue to expect that external events will be the primary guide to the course of monetary policy over the near term. However.19 Tue Oct 16 8:30am Manufacturing report %m/m sa. In August.34 -2.7 -0. Prices in that sector were down in August and have been weak since March.3 1. Energy shipments should provide a large boost to the total.2 2.3 1.2 0. 2012 Since Canada is a small.34 International trade (Oct 11) Sa Jun Balance (C$ bn) Exports (%m/m) Imports (%m/m) Real balance Jul Aug -1.6 Aug 0.4 1.8 1.93 -1.2 2. Thu Oct 18 8:30am Wholesale sales Sa May Total.2 0.3 Aug 0.4 1. Gasoline prices should push the index up again in September.5 1. Crude petroleum exports were the standout— increasing 9.1 7.1 1.8 1.5 0. External headwinds are clearly blowing hard—as reflected in the recent deterioration in export performance.2 -0.4 2.5%oya.2 -2. At a 1.3 1. The recent pickup in global commodity prices is being reflected in an associated rise.1 2.0 Sep 0. We still look for the next BoC rate action to be a hike—but not until July 2013. turning up for the first time in four months.3 Jul 0.0 209.3 205.0 Data releases and forecasts Week of October 15 . inflation expectations have remained anchored.9 6.4 40 .7 1.6 16.0 220.5 Jun -0. the terms of trade play an outsize role in the determination of domestic income.5 1. %m/m %oya 0.6 -1.8 225.6 4.63 -8.3%m/m.32 -0.8 1.9 -2.2 -3. so a turnaround in that sector is overdue.0 -0.4 -2.0 The headline CPI is expected to increase 0. although a seasonal boost is expected from clothing and the education category.0 1.3 6.2 0.32 Jul -1. Core inflation should remain tame at 1.4 -3.0 1.8 4.4 223. Changes in global commodity prices are a key factor behind changes in Canada’s terms of trade. in the terms of trade.3 -6. open economy.0 5.2 Aug 0.34 Jun -0.4 1.6 -2.53 -1. Exports of energy products.5 -0.36 Aug 1.73 Manufacturing shipments are expected to recover robustly in August after two months of negative readings.3 -2.1%.3%oya expected pace in September.40 -9.55 -9.2 1.2 -1.2 1.5 -5.1 1.6 0. as they did in August.3 0. Review of past week’s data Housing starts (Oct 9) Sa Jul Total (000) (%m/m) (%oya) Aug Sep 208.3 1.4 1. The most recent couple of surveys have portrayed very strong capex and hiring intentions with capacity utilization above its long-term average. Next week sees the release of the Bank of Canada’s quarterly Business Outlook Survey. The auto sector is also expected to contribute to the August gain as production numbers were strong in the month.5 -0.1 1.1 -9.6 Jul -0.6 0. This report continues to underscore the outsize role global events are playing in determining the near-term course for both the Canadian economy and Canadian policy. New house prices (Oct 11) Nsa Jun Total.93 -2. %m/m %oya 0.2 0. the CPI for gasoline was up 2.6 -8.0 2.1 1.7 1.56 -9.1 -1. unless noted Jun Total CPI %oya BoC core CPI %oya Ex food & energy %oya CPI-XFET (%oya) -0. it will be interesting to see how the business outlook has been affected. albeit slight thus far. already reported for August. This contains key gauges of business expectations—for investment spending and employment—as well for inflation and measures of capacity utilization. mostly due to higher prices.7%.1 Jul -0.

energy tariff increase will damp 4Q  King allows for “aiming off” the inflation target. Near 10% of that adjustment was applied to the July data. it looks like construction output will offset that effect. A key question. leaving manufacturing output running at -2. Entertainment. and the rest will come over August and September. The size of this adjustment is near £600 million. while the business surveys had been flagging falling output. but the mid-November implementation is coming a bit later than we had penciled in. a gain that would be almost Tracking manufacturing output via the PMI survey %3m/3m.16% on the quarterly change in GDP. but our best guess is that will translate into a near 2% sa decline for 3Q. The ONS has informed us that.6%q/q nsa in 3Q. became the second supplier to announce a winter increase in tariffs this week. While the ONS has stated that it will treat ticket sales as household expenditure in 3Q.5%q/q sa gain. That would take nearly 0. and Recreation heading will be made to reflect the Games. the largest of the UK suppliers.5%q/q sa. nsa 10 9 8 7 6 2010 2011 2012 2013 Domestic energy bills in the CPI % ar. The seasonal adjustment the ONS makes to the data is somewhat variable. the main effect of the August IP data is not on the 3Q GDP estimate. is how the Olympics may affect the data on services output for 3Q. and we suspect September will see some payback. both scales. the ONS data had edged toward a flat sequential trend. The magnitude of the increase is broadly in line with what we had assumed in building our inflation forecasts for late 2012. We will fine-tune our inflation forecast after 49 . London Branch Allan Monks Malcolm Barr Economic Research Global Data Watch October 12. 3Q looks to be tracking a near 0. forecasts from September 2012 onward 25 20 15 10 5 0 -5 -10 -15 -20 2010 70 60 50 40 30 20 10 0 -10 -20 2014 oya 3m/3m 2011 2012 2013 entirely attributable to the normalization in working days after a bank holiday affected 2Q. Given the step up in output in July. If we put all of the data together. 2012 United Kingdom  3Q GDP still tracking near 0. After July’s post-bank holiday bounce. it has not been clear how this would be captured on the output side of the data. however. It looks increasingly likely that the weakness in the underlying trend in output will demonstrate itself with the 4Q GDP data. saar. which drives the early estimates of GDP. Energy tariffs on the rise British Gas. we assume that the ONS will pencil in flat manufacturing output in August and a small decline in overall IP. and should lift output in the affected sector by just under 11% in the quarter. an adjustment to the data under the Arts. based on a bivariate model estimated from 1992-2011 8 PMI model 4 0 -4 -8 12 2007 Actual 2008 2009 2010 2011 2012 2013 Monthly construction output £bn. a similar magnitude to the Olympics boost.8%3m/3m saar. On that basis. the August data are not much of a surprise. After a small decline in August. within the Index of Services output.14%-pt off the quarterly growth rate of GDP. or 0.A. While the Olympics will act to push the estimate of 3Q GDP growth upward. but doesn’t show how  Weale joins those likely not to vote for more QE in November The IP and manufacturing output numbers for August were significantly weaker than expected. however. construction output looks set to rise by close to 1. Oil and gas output has risen a cumulative 9% in the last three months. but to create a more negative trajectory for the data looking into 4Q. For the purposes of the 3Q GDP preliminary estimate (due Oct 25).JPMorgan Chase Bank N. An average 6% increase in its domestic gas and electricity prices will take effect from November 16.

Some have interpreted King’s speech as a suggestion that the MPC is currently (and has recently been) “aiming off” by seeking higher-than-target inflation in the medium term. however. London Branch Allan Monks Malcolm Barr Economic Research United Kingdom October 12. While a £50 billion extension of gilt purchases looks most likely.6% in October. NIESR would often call for tighter monetary policy on the basis of the behavior of headline inflation rate. Weale voted for higher rates as inflation rose during early 2011. But while a number of MPC members flirted with this argument for tighter policy before the crisis. Three members of the MPC (Dale. 2012 next week’s September CPI release and as other energy suppliers respond to the move by British Gas. Broadbent. Even in this case. will be the next key input into our view. rather than explicitly suggesting the MPC should “aim off” the inflation target. lifting the headline CPI inflation rate from what is likely to be a local low point in September at 2. “Aiming off” ain’t nothing new Mervyn King’s speech on 20 years of inflation targeting offered a defense of the UK’s evolving policy framework. where a flexible inflation-targeting regime is being supplemented by macroprudential tools. Charlie Bean gave a speech back in 2003 arguing that such action required no change in the existing MPC remit. The British Gas move suggests that. After joining the MPC. Weale backs away from further QE Comments in a newspaper interview from Martin Weale this week suggest he may not support an extension of QE at the November meeting. relative to our prior forecast of a bounce to 2. The headlines were grabbed by his acknowledgement that. before supporting an extension of asset purchases in October. The increase in energy tariffs will lift the sequential rate of inflation above that in underlying nominal incomes. and mean that the putative recovery in real income growth receives another short-term knock. and it has been one of the reasons why we have forecast that 4Q GDP growth will not show much acceleration from the pace underlying the noisy 2Q and 3Q prints. Weale stated that he was concerned at the stickiness of inflation at above-target rates. a £25 billion move is possible. due next week. through the crisis.5%oya as we move through year-end still looks about right. the MPC may need to set interest rates that “aim off” the inflation target in order to limit financial imbalances. But the view that the CPI will move up to run close to or slightly above 2. and how does it establish how much undershoot of inflation (and 50 . instances of members allowing it to drive their vote on policy were relatively rare. he said that the need for further monetary stimulus was not three-year horizon. and while acknowledging the near stagnation in GDP. it is not clear that he viewed such action as likely to drive inflation below the target at the two. is far from new. weaker growth) it is prepared to tolerate in the near term to deliver greater financial stability? These questions will be made more complicated in the future by the interaction of monetary policy with macroprudential tools. The key difficulty with “aiming off” is not theoretical but practical—how should such a policy be calibrated? How does the central bank establish how much additional tightening is needed to limit the relevant financial imbalance. and that the MPC’s shift in responses does not simply reflect the greater volatility of the economic environment. We very much doubt that MPC members would agree that they are “aiming off” the target currently. These remarks do not come as much of a surprise. King’s speech added very little on these key issues other than calling for more research. Sir Andrew Large voted persistently for tighter policy over late 2003 to mid-2005. while producing an inflation forecast that suggests that they are not predisposed toward easing further.JPMorgan Chase Bank N. the move back up will be a bit more muted in the month. But we continue to think the remaining six members will back an extension of QE.A. His concerns on the buildup of debt encouraged him to err toward the more hawkish view on what was needed to meet the inflation target over in two to three years. and strikes us as more likely than no extension at all. The idea that the MPC could limit the buildup of financial imbalances by setting monetary policy tighter than its medium-term inflation forecast would justify. Our utilities team has been flagging to us the likelihood of these increases in tariffs for some time. and Weale) look set to vote against further QE in November. and of upside risk in its mediumterm inflation forecast. But it is more difficult to demonstrate conclusively that the mean of the MPC’s medium-term inflation objective has shifted. even with macroprudential tools in place. Under Weale’s directorship.2%oya (the September data are due on Tuesday). citing concerns about the rapidity of the buildup of household debt. The minutes of the October meeting. We would agree that the MPC has become more tolerant of realized inflation overshoots. Our CPI projection had assumed the bulk of the energy price impact would come in October.

On the core inflation number.0 2.7 Ex bonuses 1.2 3. Utility bill increases will.8 Jul 1. 2012 Data releases and forecasts Week of October 15 . push inflation back upward over the coming months.8 -0.6 Aug -9.) Net debt to GDP (%) Net debt to GDP (%) ex fin it.5 8.2 -0. we suspect there is still scope for some payback of the recent gains.1 4.0 4.1 Jul 63. int.7 2.5 1.0 Aug Aug Sep -12 Rightmove house price index Nsa %m/m Jul -1.1 Sep 13. but nothing within the labor market data itself has sent a clear signal that a slowdown is in prospect.8 2.6 Jul 0.5 14.8 2.6 1.9 2.1 2.8 Aug -0. Although the trend in retail sales is toward modest gains.1 241.2 -2. beverages.2 Sep -0.2 Aug 2.4 8. int.6 4. Our best guess is that the minutes will suggest that is the case. sa Including auto fuel (%m/m) Ex auto fuel (%m/m) Ex auto fuel (%oya) Ex auto fuel (%3m/3m saar) Jun 0.9 0.4 58. CPI ex food.3 Employment rate 58.6 Oct Tue Oct 16 9:30am Retail prices %oya CPI Core CPI1 RPI (1987=100) RPI RPIX Jun 2.1 1. Tue Oct 16 9:30am ONS monthly house price data Nsa All dwellings (%oya) May 2. Fri Oct 19 9:30am Increases in retail sales over May and June took the level of sales volumes up significantly. and that level has been largely sustained through the last couple of releases.1 244. around £10 billion higher than projected by the OBR.2 Aug 2.8 Private sector ex bonuses 2. The forecast hence shows a further decline in the claimant count measure of unemployment.7 136.4 0. Retail sales Volumes.8 65.5 2.6 12. tobacco. energy. Headline inflation is likely to fall sharply as increases in utility bills a year ago drop out of the calculation.0 1.8 12. PPI output ex food.A.7 4. 51 .0 -1.2 0.8 Jul 2.7 Jul 0. but a more modest one than over July-August. and tobacco.6 2.5 2. but will be ambiguous as to whether that constitutes a majority on the committee.8 Jun 1.4 2.1 Three months to: May Labor force survey (all percentage rates.0 Aug 1.0 3.5 -13.0 66.7 May Average weekly earnings (3mma %oya sa) Headline 1.2 2. and petroleum products. nsa PSNCR PSNB PSNB (ex.9 Jul -25. Key will be whether the minutes continue to flag that a number of members believe further stimulus is likely to be necessary. the forecast allows for a bounce back in core goods prices in sequential terms after some unusually deep discounting through the summer.2 -0.1 Jun 63.0 Aug -15.2 Sep 1. however. Wed Oct 17 9:30am BoE’s minutes of MPC meeting The vote to hold both rates and the amount of asset purchases was likely unanimous.4 0.0 65.9 Sep 2.1 135.0 Aug Thu Oct 18 9:30am Business survey data suggest the recent strength in employment growth will not be sustained. alcohol.8 1.5 136.9 2.2 Tue Oct 16 9:30am Producer prices Nsa Input prices (%m/m nsa) %oya nsa Output prices (%m/m nsa) %oya nsa Core output1(%m/m nsa) %oya nsa Jun -2.1 May Change over three months Employment (000s) 168.2 Unemployment rate 8.) Current budget (ex.1 Jul 236.7 Aug -2.1 1.3 242.6 58.4 Sep -0. Public sector finances £ bn.3 Jun 2.1 1.4 -2.2 1.JPMorgan Chase Bank N.1 243. sa) Activity rate 63. Jun -0.2 -0.4 -11.0 4.1 1.0 -0.9 Jul -13.1 1.19 Mon Oct 15 12:01am Wed Oct 17 9:30am Labor market statistics Sa Claimant count (000s ch m/m) Claimant count rate (%) Jun 1.0 Jun 202.6 2.4 14.8 2. London Branch Allan Monks Malcolm Barr Economic Research Global Data Watch October 12. fin.4 Jul 2.9 The forecast would leave the deficit on track to record a full year outturn near £130 billion. fin.1 3.2 3.4 2.

6 Sep 1. London Branch Allan Monks Malcolm Barr Economic Research United Kingdom October 12.1 2.3 -0.0 Aug -0.5 -3.5 -7.6 -7.9 Jul 2.9 RICS sales and stocks 30 25 20 15 10 5 2007 52 Average per surveyor.1 5.5 -9.JPMorgan Chase Bank N.9 22.0 52.9 Construction output Nsa.4 RICS housing market survey %bal.1 22.4 50.9 BRC retail sales monitor %oya Like for like sales Total Jul 0.4 54.1 -1.4 -3.2 3.5 Sep 49.5 -1.7 Aug -9.3 51.1 -1.2 -3.6 14.5 52.1 -0. sa 80 70 60 50 40 30 20 97 99 01 03 05 07 09 11 13 Permanent placements Temporary placements 6.1 5.6 -1.7 Aug -18.0 Industrial production Sa IP (%m/m) %oya Manufacturing(%m/m) %oya Jun -2.2 Markit jobs report %.9 -0.8 -2.9 65.7 51.9 -0.0 -3.2 Aug 2.8 22.2 64.6 -22.7 -4.6 Aug 48. sa 100 Sales 90 80 70 Stocks 60 50 2008 2009 2010 2011 2012 2013 .8 5.1 -0.3 -1.7 Trade balance £ bn.8 15.3 Jul -7. sa Jun Trade balance Goods Services Total trade balance -10. sa Jul Prices in last 3 months Stocks of homes on books Sales in last 3 months Sales to stocks ratio (%) New buyer enquiries -23.5 3.7 -4. constant prices % m/m Jun -3.2 -4.6 Aug -0.9 66.8 22.9 -3.2 Sep -15.1 -17. both scales.8 14.8 3.3 -0. balance.9 3.2 -0. 2012 Review of past week’s data Markit report on jobs % balance.1 14.4 1.3 Jul 2.2 67.3 -0. sa Jul Permanent placements Permanent salaries Availability of permanent staff 47.2 15.A.

however. In New Zealand. after a long period of emphasizing the stability of the unemployment rate in the low 5s. Of course. A speech delivered this week by the Deputy Governor (discussed in greater detail below) hints that further analysis by the Bank on the state of the labor market had revealed that the numbers may have been flattered by structural adjustments. and showed household sentiment posting only a modest gain despite a cut to the cash rate. The consumer and business confidence surveys also were released this week. had been tracking at multi-year lows. Structural Change and Recent Economic Developments. and in Lowe’s speech. The tone of most news items. which will require further policy easing given the still-limited transmission of low rates to credit growth so far. owing to accumulated slack and persistent currency strength. such a motivation would be further strengthened given the perceived spillovers from excess liquidity provision by the G-4 to AUD. Australia: employment and labor force %oya 5 4 3 2 1 0 -1 04 06 08 10 12 Employment Labor force %oya 4 3 2 1 0 Australia: employment 000s 8500 Full time 000s 3500 3300 3100 7500 Part time 7000 05 06 07 08 09 10 11 12 13 2900 2700 8000 rates. where we expect to get more clarity on last week’s surprise easing of policy. as hinted in last week’s decision. We were of a similar view. though it will still be interesting to see whether there are broader echoes of a more dovish approach to policy.1% to 5. we anticipate the 3Q CPI result to again print slightly below the lower bound of the RBNZ’s target band in annual terms. while it was clear that the Banks’ top brass had changed their collective mind. RBA Deputy Governor Phil Lowe spoke on “The Labor Market. the October minutes will add less value than they would have before Deputy Governor Lowe’s speech. with firms becoming increasingly upbeat on the economic outlook. Recent commentary has left us with the impression that the Board now is more inclined to focus on stimulating non-mining investment.4% in September. with the focus shifting to the RBA Board minutes. we were lacking an obvious catalyst. mention of the shift in the reaction functions of the Fed and the ECB was conspicuous in its absence in the official rate decision: the minutes may shed light on whether the Board felt the case for policy easing was strengthened on the grounds of treading water relative to the major central banks. suggesting that the solid pace of real GDP growth in the second quarter may not be as unsustainable as first thought. 2012 Australia and New Zealand  Australian unemployment rate jumps to 5. helps explain the Board’s about-face. while all the sub-indices on business conditions lost ground. which prior to this week’s data.4% due to an increase in labor force participation  Rise in jobless rate occurs just as RBA officials are turning their attention elsewhere  NZ firms more upbeat. which saw the unemployment rate climb from 5. which are distorting the participation and unemployment Lowe concedes labor market weaker This week. Morgan Australia Limited Stephen Walters Ben K Jarman Tom Kennedy Economic Research Global Data Watch October 12. and comes after a stellar 3%m/m rise in the month prior.P. whether of a domestic or global nature. Also. this was in line with our forecast. had firmed since the September meeting. The underlying trend in card spending remains solid. particularly in light of the surprisingly downbeat labor survey results for 1H12.” Lowe conceded though that while there is al57 . despite the creation of 14. The rising jobless rate was explained by a lift in participation. we were somewhat confused as to precisely which piece of information had proven the “final straw” for the Board. Next week. retail card sales posted a decline of 0. but to hear the Deputy Governor say it.J. Minutes to fill in the gaps In the immediate aftermath of the RBA’s decision to cut rates last week. the NZIER business opinion survey showed a reasonable improvement in sentiment.500 jobs. offsetting much of the weakness in labor demand. so.6%m/m. In the other data released this week. The data flow slows down in the week ahead. For that reason. retail card spending still on a solid trend The data highlight this week was the Australian Labor Force Survey (LFS). on the global front.

The persistently low unemployment rate has been an anchor for policy through the last couple of years and has made the Bank reluctant to cut rates without a clear signal from the inflation data. the persistently high level of vacancies (which hints at a persistent level of latent demand for labor that is unsatisfied for frictional reasons).J. and the multi-year low in the employment to population ratio that was hit last month. employment growth actually beat expectations in September (J. The unemployment rate pushed higher from 5. and the other measures of labor utilization firmed a little. Both pieces of commentary made it clear that the Board had seen enough weakness on the demand side to conclude that the labor market had lost momentum. a view that is supported by Lowe.000 new 58 . the structural changes the economy has undergone in recent years appear significant. Morgan Australia Limited Stephen Walters Ben K Jarman Tom Kennedy Economic Research Australia and New Zealand October 12.4%. Morgan and consensus: +5. and the “Recent Outcomes” section of Lowe’s speech makes clear why. the Deputy Governor makes this clear in reference to the decline in average hours worked and the employment to population ratio. The fact that aggregate labor demand has slowed is not controversial. The employment to population ratio held steady at its cycle low of 61. This had been disguised. That changed last week. Total hours worked jumped 0.P. Lowe puts some of this down to increased geographic mobility—the willingness of workers to pursue “fly in/fly out” opportunities in the resources sector. Indeed. we concluded that falling participation could not be explained by any clear.500 was overwhelmed by the 53. The implications of the September data are colored by the clear shift in perspective from the Reserve Bank over the last couple of weeks. Over the last six months. The unemployment rate has only stayed low because of a fall in participation. or by looking at the dispersion of employment growth across industries. by a puzzling decline in participation.” This is all despite the fact that the labor market clearing mechanism appears more efficient now than ever: both the average level and variation of unemployment by region are lower now than 10 years ago.5%m/m. which also had been reflected in weaker trends in hours worked. such that net employment growth of 14.3%m/m.1% to 5. given that the composition of the report in recent months has seen some odd divergences.P. this week’s reshuffling actually sees all of the moving parts snap into place relative to where the demand-side narrative was tracking already.000).” Whether measured by time in one’s current job. However. and average hours per worker rose 0. But the most important points made were those that clarify the RBA Board’s about-face last week. The participation rate rose two tenths. Consolidating the argument that the rise in the jobless rate reflects a realignment with fundamentals rather than being “news” about the state of the labor market. for example. such that “consumers have become quite concerned about rising unemployment. too. which was at least partially unwound in the September data. in that sense. Jobless rate catches up to fundamentals The headline release in Australia this week was the September labor force survey. Both last week’s Board decision to cut rates 25bp. That heightened state of adjustment has led to a “general sense of uncertainty”. “there is some evidence that the changes taking place have led to a higher rate of job turnover than has been the case. though. and Deputy Governor Lowe’s speech earlier this week showed officials no longer clinging as tightly to the jobless rate as the best single measure of inflation pressure. which at first glance appeared to be a bit of a mess. and. job advertisements and the business surveys have shown a clear deterioration in employment prospects.68%. sustainable driver that related to a genuine fall in the pool of potential labor. In our investigations on this. Australia: consumer expectations over the next twelve months Index 140 120 100 80 60 40 00 02 04 06 08 10 12 Economy Family finances heads added to the labor force. it may not have mattered whether we got the final catharsis of a rise in the jobless rate. 2012 ways “a degree” of structural change occurring.

indicating that pessimists continue to outweigh optimists. although the limited pass-through by the major banks (the big four only lowered the SVR by 18bp20bp) would certainly have capped the extent of these gains. The trading and profitability indexes were among the larger drags on the headline release. with both new orders and expected selling prices 59 Consumers more upbeat. New Zealand: electronic card transactions %oya 10 8 Core retail 6 4 2 0 2008 %oya 10 GDP QSBO business situation 5 50 0 0 -50 -100 90 95 00 05 10 2009 2010 2011 2012 2013 Total Retail New Zealand: GDP and QSBO business situation net % balance. Weakness in the conditions indices was broad-based. with the six-month-ahead business situation index ticking up from +22 to +24. with consumers’ expectations for their own finances over the next 12 months edging higher (up 2. highlighting the difficulties experienced by those sectors facing structural drags from import competition and subdued demand for consumer goods.6%m/m. This week’s data failed to outperform those historical benchmarks. By sector. The forwardlooking employment index in this industry also jumped from +9 to +18 in 3Q. This is the third consecutive month in which the confidence and conditions indexes have drifted in opposite directions. such that both the sentiment and trading activity indices softened in seasonally adjusted terms. the NAB employment index. consumers remain pessimistic on the economic outlook with the “economy over the next five years” index falling 4. that the point is to track the growth outlook. The details of the survey were quite similar to those of the September release. and those in the services industry.4%m/m). and the associated cost measures are running hot in sympathy. The building industry is still pretty chipper.5%q/q ar could be sustained. We would emphasize though. with business confidence improving from -3 to 0 in September. while the improvement in the operating environment remains to be seen. there were no great surprises. Morgan Australia Limited Stephen Walters Ben K Jarman Tom Kennedy Economic Research Global Data Watch October 12. In contrast to this improvement. with the deviation in the September report a likely consequence of the timing of the release (September 18October 1). 2qtrs ago 100 -5 NZ business outlook improves The NZIER business survey for 3Q followed the firming path in the monthly business surveys. indicating that firms remain cautious on the hiring front. remained in the red. Specifically. Merchants. rising 1%m/m. the “surprise” rate cut by the RBA last week would no doubt have buoyed confidence. though. The drivers of the gain were largely as expected. as with the monthly business surveys.P. Despite the gains seen in the confidence survey. falling to -7 from -2. the forward-looking nsa numbers correlate particularly well with official (sa) GDP performance. Elsewhere. the improvement in the raw activity expected index from +8 to +18 therefore suggests the 2Q growth pace of 2-2. presumably reflecting the absence of pricing power. . but conditions remain challenging The unpredictable path of the NAB business survey continued this week. Domestically. historically there is a clear tailwind to sentiment as we move from winter through to spring. which when coupled with stagnant capacity utilization indicates that demand will remain tepid over the coming months. The headline data are reported nsa. though profitability remains a drag. with the outlook for firms’ general business situation improving from a -4 to +8 net balance. firms’ perceptions of the operating environment deteriorated. but only just The Westpac-Melbourne Institute consumer confidence index increased as expected in October. declining to -3 from 3 and -5 and -2. with all the major subcomponents declining over the month. And the outlook for exporting manufacturers improved. and on that front.J. As a result. confidence has received a welcome boost. which has been tracking in negative territory since April. respectively. which would have captured the constructive steps taken by the ECB and Federal Reserve. this is the eighth consecutive month that the index has printed below the pivotal 100 level. profitability in the retail sector fell sharply (down 21 to -29). the forward orders component of the release also recorded a sharp decline. 4qma. Worryingly. with conditions slipping to -3 from 0. Over the longer term. 2012 Business confidence improves. So seasonal issues aside.8%m/m). while the general outlook for the economy over the same period is expected to soften (-2. are also becoming more optimistic. as well as speculation of further easing by the RBA in early October.

suffering the expected payback after a record 2.0 4.6 2. 2012 picking up. which has been gaining momentum since 1Q12.0 3. On the domestic front.1 Sep 1. and merely stalled in September. The new Policy Targets Agreement signed by incoming RBNZ Governor Wheeler has hardened that target by specifically nominating a focus on the midpoint of the band.19 Tue Oct 16 8:45am Consumer prices 4Q11 %q/q %oya -0. rather than wearing a large hangover. though the payback was reasonably slight in magnitude.0 Aug 2.5 1.5 65.0 65.6 60 .0 ___ Sep -2. retail card spending contracted 0. The nominal effective exchange rate appreciated 1. though.7 Sep 5.0 ___ Sep 0.0 65.5%q/q.0 5. About the only factor arguing for stronger inflation in 3Q is the persistent strength in the housing group. presumably increasing the Bank’s intolerance of significant deviations.2 5.1 ___ Aug 3.5%) means that pricing power nevertheless remains weak.9 Underlying trend in retail encouraging In the other data released this week.3 1.5 Review of past week's data NAB business confidence Jul Index 3.9%q/q.4%q/q rise in headline CPI in the third quarter. The Phillips curves show that momentum in inflation is more tightly correlated with GDP growth than with the levels of output.2 Oct 1. Morgan Australia Limited Stephen Walters Ben K Jarman Tom Kennedy Economic Research Australia and New Zealand October 12.3 1. After a 0.0 65. we do not think that means much for policy in practice. which will have continued into 3Q12. though we are comforted by the resilience of spending overall in the face of deleveraging constraints. Australia Data releases and forecasts Week of October 15 .4 0.7%m/m surge in August.19 Mon Oct 15 11:30am Inflation to have remained benign in 3Q Tradeables inflation has been a significant drag on overall consumer price outcomes in New Zealand. Housing finance Sa May %m/m -0.6 2Q12 0. The surprise came in fuel sales.J. All four core retail categories lost some ground. which is significant for exporters of milk powder.6 6.7 6.6%m/m in September. and our forecasts show the recovery in growth as returning inflation to the midpoint of the band within a year anyway. which had skyrocketed 12%m/m.5 2.6 Jun 1. and keeps in check the solid underlying trend in sales.0 Jul -1.0 ___ Aug -2.6 Aug 5. but the yawning output gap (of around -1.0 Labor force survey Jul Unemployment rate (%) Employment (ch.3%q/q print in 2Q. Further unwinding of the previous rise (likely driven by price effects) in this category will be a drag on spending near term. which will keep annual inflation skimming along the bottom of the RBNZ’s 1%-3% target band.P.0 3Q12 0.9%m/m).7 5. This in part reflects the better outcomes for global dairy prices of late. The contraction was just as broad-based as the surge in the previous month. Review of past week’s data Retail card transactions Sa Jul %m/m -1. we expect a 0.0 New Zealand Data Releases and forecasts Week of October 15 .2 -12.2 4. the outlook is a little more nuanced.8 1Q12 0. reflecting supplyside shortfall in housing construction (rents) and electricity generation capacity (energy prices). but nevertheless argues that prices will remain wellcontained. 000s) Participation rate (%) 5.2 Westpac-MI consumer confidence Aug %m/m -2. Until the new Governor demonstrates otherwise.4 14. while oil prices gave up around 3.1 -9. with the largest decline occurring in apparel sales (-0. This means that the surprising strength of growth in 1H will help arrest the slide in quarterly inflation.

000 Thursday 18 Oct Initial claims (8:30am) w/e prior Sat 365.1% Capacity utilization 78.000 Permits 820. Louis Fed President Bullard speaks on economy in St. Louis (1:10pm) San Francisco Fed President Williams speaks on economy in San Francisco (8:30pm) Tuesday 16 Oct CPI (8:30am) Sep 0.9% Empire State survey (8:30am) Oct -6.0 Business inventories (10:00am) Aug 0.0% Ex auto 0.A..5% Core 0. and press conference (2:30pm) Auction 5-year note $35 bn 25 Oct Initial claims (8:30am) w/e prior Sat Durable goods (8:30am) Sep Pending home sales (10:00am) Sep KC Fed survey (11:00am) Oct Auction 7-year note $29 bn 26 Oct Real GDP (8:30am) 3Q advance Consumer sentiment (9:55am) Oct final 29 Oct Personal income (8:30am) Sep Dallas Fed survey (10:30am) Oct Senior loan officer survey (2:00pm) 4Q 30 Oct S&P/Case-Shiller HPI (9:00am) Aug Consumer confidence (10:00am) Oct Housing vacancies (10:00am) 3Q Minneapolis Fed President Kocherlakota speaks in Minnesota (8:00pm) 31 Oct ADP employment (8:15am) Oct Employment cost index (8:30am) 3Q Chicago PMI (9:45am) Oct Announce 3-year note $32 bn Announce 10-year note $24 bn Announce 30-year bond $16 bn San Francisco Fed President Williams speaks on monetary policy in New York (12:45pm) 1 Nov Initial claims (8:30am) w/e prior Sat Productivity and costs (8:30am) 3Q preliminary Manufacturing PMI (8:58am) Oct final ISM manufacturing (10:00am) Oct Construction spending (10:00am) Sep Light vehicle sales Oct 2 Nov Employment (8:30am) Oct Factory orders (10:00am) Sep 5 Nov ISM nonmanufacturing (10:00am) Oct 6 Nov JOLTS (10:00am) Sep Auction 3-year note $32 bn 7 Nov Consumer credit (3:00pm) Sep Auction 10-year note $24 bn 8 Nov Initial claims (8:30am) w/e prior Sat International trade (8:30am) Sep Chain store sales Oct Auction 30-year bond $16 bn 9 Nov Import prices (8:30am) Oct Consumer sentiment (9:55am) Nov preliminary Wholesale trade (10:00am) Sep 72 . New York Daniel Silver Economic Research Global Data Watch October 12. projections (2:00pm).JPMorgan Chase Bank N.6% New York Fed President Dudley speaks in New York (8:00am) Richmond Fed President Lacker speaks on economy in Virginia (12:45pm) St.000 Philadelphia Fed survey (10:00am) Oct 1.13% TIC data (9:00am) Aug Industrial production (9:15am) Sep 0.2% Manufacturing -0.65 mn 22 Oct 23 Oct Richmond Fed survey (10:00am) Oct FOMC meeting Auction 2-year note $35 bn 24 Oct Manufacturing PMI (8:58am) Oct flash New home sales (10:00am) Sep FHFA HPI (10:00am) Aug FOMC statement (12:30pm).2% NAHB survey (10:00am) Oct 42 Fed Governor Raskin speaks on regulation in Boston (12:00pm) Atlanta Fed President Lockhart speaks in Atlanta (12:00pm) Wednesday 17 Oct Housing starts (8:30am) Sep 750. 2012 US economic calendar Monday 15 Oct Retail sales (8:30am) Sep 1.0 Leading indicators (10:00am) Sep Auction 30-year TIPS (r) $7 bn Announce 2-year note $35 bn Announce 5-year note $35 bn Announce 7-year note $29 bn Friday 19 Oct Existing home sales (10:00am) Sep 4.

London Greg Fuzesi Economic Research Global Data Watch October 12. (11:00am) Oct Sector accounts (10:00am) 2Q Germany: Retail sales (8:00am) Sep Spain: HICP flash (8:00am) Oct GDP flash (9:00am) 3Q Belgium: CPI (11:15am) Oct 31 Oct Euro area: HICP flash (11:00am) Oct Unemployment rate (11:00am) Sep ECB bank lending survey (10:00am) Oct Germany: Employment (9:55am) Sep Unemployment (9:55am) Oct France: PPI (8:45am) Sep Cons. survey (11:00am) Oct Italy: Foreign trade (10:00am) Aug Tuesday 17 Oct Wednesday 18 Oct Thursday 19 Oct Friday Belgium: BNB cons. (10:00am) Oct 29 Oct Germany: CPI 6 states and prelim (8:00am) Oct 30 Oct Euro area: EC capacity utilization (11:00am) 4Q EC bus. (8:00am) Nov France: INSEE cons. composite Germany: PMI flash (9:30am) Oct Mfg. conf. composite Italy: ISAE cons. nsa Trade balance (10:00am) Aug Germany: ZEW bus. (9:30am) Oct 26 Oct Germany: GFK cons. conf. of mfg goods (8:45am) Sep Italy: CPI prelim (11:00am) Oct PPI (12:00pm) Sep 1 Nov 2 Nov Euro area: PMI Mfg final (10:00am) Oct Germany: PMI Mfg final (9:55am) Oct France: PMI Mfg final (9:50am) Oct Italy: PMI Mfg final (9:45am) Oct Spain: PMI Mfg final (9:15am) Oct 5 Nov 6 Nov Euro area: PMI services & composite final (10:00am) Oct PPI (11:00am) Sep Germany: PMI services & composite final (9:55am) Oct Mfg orders (12:00pm) Sep France: PMI services & composite final (9:50am) Oct Italy: PMI services & composite final (9:45am) Oct Spain: PMI services & composite final (9:15) Oct 7 Nov Euro area: Retail sales (11:00am) Sep Germany: Industrial production (12:00pm) Sep 8 Nov Euro area: ECB rate announcement (1:45pm) No change expected Germany: Foreign trade (8:00am) Sep France: Trade balance (8:45am) Sep Netherlands: CPI (9:30am) Sep 9 Nov Germany: CPI final (8:00am) Oct France: Industrial production (8:45am) Sep Monthly budget situation (8:45am) Oct Italy: Industrial production (10:00am) Sep Highlighted data are scheduled for release on or after the date shown. conf. (3:00pm) Oct Netherlands: CBS cons. conf. conf. Times shown are local. conf. conf. conf. conf. services. services. services. (11:00am) Oct EC cons.JPMorgan Chase Bank. (8:45am) Oct Italy: ISAE bus.6%oya. (9:30am) Oct Euro area: BoP (10:00am) Aug Germany: PPI (8:00am) Sep 22 Oct 23 Oct Euro area: EC cons conf prelim (4:00pm) Oct France: INSEE bus. 2012 Euro area economic calendar Monday 15 Oct 16 Oct Euro area: HICP final (11:00am) Sep 2. (3:00pm) Oct 24 Oct Euro area: PMI flash (10:00am) Oct Mfg. conf. conf. composite Import prices (8:00am) Sep France: PMI flash (8:45am) Oct Mfg. (8:45am) Oct Belgium: BNB bus. (10:00am) Oct 25 Oct Euro area: M3 (10:00am) Sep Italy: Contractual wages (10:00am) Sep Netherlands: CBS bus. 73 .

Ltd Miwako Nakamura Economic Research Global Data Watch October 12. Times shown are local..JP Morgan Securities Japan Co. 74 . 2012 Japan economic calendar Monday 15 Oct IP final (1:30 pm) Aug BoJ Deputy Governor Yamaguchi’s address at Securities Analysts Association of Japan’s 50th Anniversary meeting(10:35 am) Auction 5-year note Tuesday 16 Oct 17 Oct Wednesday 18 Oct Thursday 19 Oct Friday Construction spending (2:00 pm) Aug All sector activity index (1:30 pm) Aug BoJ Governor Shirakawa’s address at meeting of credit unions (3:45 pm) Auction 3-month bill Auction 20-year bond Auction 1-year note 22 Oct Reuters Tankan (8:30 am) Oct Trade balance (8:50 am) Sep BoJ bank loan officers survey (8:50 am)3Q Nationwide department store sales (2:30 pm) Sep BoJ Governor Shirakawa’s address at branch managers’ meeting 23 Oct 24 Oct 25 Oct Corporate service prices (8:50 am) Sep 26 Oct Nationwide core CPI (8:30 am) Sep Auction 3-month bill Auction 2-year note During the week: Shoko Chukin small firm survey Oct 29 Oct Total retail sales (8:50 am) Sep 30 Oct All household spending (8:30 am) Sep Unemployment rate (8:30 am) Sep Job offers to applicants ratio (8:30 am) Sep IP preliminary (8:50 am) Sep BoJ Monetary Policy Meeting and statement BoJ outlook report (3:00pm) BoJ Governor Shirakawa’s press conference (3:30 pm) 31 Oct PMI manufacturing (8:15 am) Oct Nominal wages (10:30 am) Sep Housing starts (2:00 pm) Sep 1 Nov Auto registrations (2:00 pm) Oct 2 Nov Minutes of Oct 4-5 BoJ Monetary Policy Meeting (8:50 am) Auction 3-month bill Auction 10-year bond 5 Nov PMI services/composite (8:15 am) Oct 6 Nov 7 Nov 8 Nov Current account (8:50 am) Sep Bank lending (8:50 am) Oct Machinery orders (8:50 am) Sep Economy Watchers survey (2:00 pm) Oct 9 Nov M2 (8:50 am) Oct Consumer sentiment (2:00 pm) Oct Auction 6-month bill During the week: CAO private consumption index Sep Auction 3-month bill Auction 40-year bond Highlighted data are scheduled for release on or after the date shown.

2012 Canada economic calendar Monday 15 Oct New vehicle sales (8:30am) Aug National Balance Sheet Accounts (8:30am) 2Q Existing home sales (9:00am) Sep BoC Business Outlook Survey (10:30am)3Q BoC Senior Loan Officer Survey (10:30am)3Q BoC Governor Mark Carney speaks at the Vancouver Island Economic Alliance Summit in Nanaimo. Times shown are local.3% (1.4% (1.3%oya) Core 0.JPMorgan Chase Bank NA Silvana Dimino Economic Research Global Data Watch October 12.8% Friday 19 Oct CPI (8:30am) Sep 0. British Columbia (3:20pm) Tuesday 16 Oct Manufacturing sales (8:30am) Aug 1.5%oya) 22 Oct 23 Oct Retail sales (8:30am) Aug Bank of Canada rate announcement (9:00am) 24 Oct Monetary Policy Report (10:30am) Teranet/National Bank HP Index (9:00am) Sep 25 Oct Payroll employment (8:30am) Aug 26 Oct 29 Oct 30 Oct IPPI (8:30am) Sep 31 Oct Monthly GDP (8:30am) Aug 1 Nov RBC manufacturing PMI (9:30am) Oct 2 Nov Labor force survey (8:30am) Oct 5 Nov Building permits (8:30am) Sep 6 Nov Ivey PMI (10:00am) Oct 7 Nov CFIB Business Barometer Index (6:00am) Oct 8 Nov Housing starts (8:15am) Oct International trade (8:30am) Sep New housing price index (8:30am) Sep 9 Nov All existing home sales are tentative.2% Wednesday 17 Oct Nonresidential construction (8:30am) 3Q Thursday 18 Oct Wholesale sales (8:30am) Aug 0. 75 .

63%m/m nsa Fipe CPI Oct 15 Colombia: Trade balance Aug Thursday 18 Oct Brazil: COPOM meeting minutes Chile: BCCh meeting Colombia: Retail sales Aug -0.2% During the week: Argentina: Budget balance Sep Brazil: Tax collections Sep CAGED formal job creation Aug Colombia: Tax revenues Aug Mexico: Pension funds report Sep 22 Oct Mexico: Retail sales Aug Banamex survey of economic expectations 23 Oct Argentina: Trade balance Sep Brazil: FGV: IPC-S Oct 22 Current account balance Sep FDI Sep Mexico: Central bank reserves (Prior week) 24 Oct Mexico: IGAE (GDP proxy) Aug CPI Oct 1H 25 Oct Argentina: IP Sep Brazil: Consumer confidence Oct Unemployment rate Sep Mexico: Trade balance Sep 26 Oct Brazil: BCB credit report Sep Colombia: Banrep meeting Mexico: Banxico meeting During the week: 29 Oct Brazil: Central government budget Sep 30 Oct Brazil: IGP-M Oct Primary budget balance Sep Net debt as % of GDP Sep Chile: Retail sales Sep Manufacturing index Sep Mexico: Central bank reserves (Prior week) PS budget balance Sep 31 Oct Chile: Unemployment rate Sep Colombia: Unemployment rate Sep Mexico: Commercial bank credit Sep 1 Nov Brazil: FGV: IPC-S Oct 31 IP Sep PMI Manufacturing Oct Trade balance Oct Mexico: Banxico survey of economic expectations Remittances Sep Manufacturing PMI (IMEF) Oct Non-manufacturing PMI (IMEF) Oct Peru: CPI Oct WPI Oct Uruguay: CPI Oct Trade balance 2 Nov Colombia: PPI Oct During the week: Argentina: Government tax revenue Oct Colombia: CPI Oct 5 Nov Brazil: Fipe CPI Oct Mexico: Consumer confidence Oct 6 Nov Brazil: PMI Services Oct Mexico: Central bank reserves (Prior week) Uruguay: Unemployment rate Sep 7 Nov Brazil: IGP-DI Oct IPCA Oct Mexico: Gross fixed investment Aug Inflation report 3Q 8 Nov Brazil: FGV: IPC-S Nov 7 Peru: BCRP meeting Mexico: CPI Oct 9 Nov Brazil: IGP-M 1st release Nov Colombia: Banrep meeting minutes Mexico: Banxico meeting minutes Employment report 3Q During the week: Argentina: Tax revenues Oct Brazil: Commodity price index Oct Vehicle production (ANFAVEA) Oct Colombia: Tax revenues Sep Auto sales Oct Mexico: Auto report Oct 76 .5%oya Unemployment rate Sep Tuesday 16 Oct Brazil: FGV: IPC-S Oct 15 Mexico: Central bank reserves (Prior week) Wednesday 17 Oct Brazil: IGP-10 Oct 0.JPMorgan Chase Bank. 2012 Latin America economic calendar Monday 15 Oct Peru: Economic activity index Aug 6. New York Carmen Collyns Economic Research Global Data Watch October 5.1%oya IP Aug -3.61%m/m nsa IGP-M 2st release Oct Mexico: Unemployment rate Sep 5.5%oya Friday 19 Oct Argentina: Economic activity Aug Brazil: IPCA-15 Oct 0.

77 . conf.m/m.JPMorgan Chase Bank (ex. nsa (PSNB ex.2%oya ONS HPI (9:30am) Aug PPI (9:30am) Sep Wednesday 17 Oct MPC minutes (9:30am) Labor market report (9:30am) Sep Claimant count 12.) BoE’s Bailey and Tucker speak in London 22 Oct 23 Oct BBA mortgage lending (9:30am) Sep 24 Oct CBI industrial trends (11:00am) Oct and 4Q 25 Oct Real GDP (9:30am) 3Q Index of services (9:30am) Aug 26 Oct 29 Oct M4 & M4 lending final (8:30am) Sep Net lending to individuals (9:30am) Sep 30 Oct CBI distributive trades (11:00am) Oct 31 Oct Gfk cons. auto fuel) Friday 19 Oct Public sector finances (9:30am) Sep £13. 2012 UK economic calendar Monday 15 Oct Rightmove HPI (12:01am) Oct Tuesday 16 Oct CPI (9:30am) Sep 2.0k. int. fin.9bn. (12:01am) Oct 1 Nov PMI Mfg (9:30am) Oct 2 Nov PMI Construction (8:30am) Oct During the week: Nationwide HPI Oct (29-31 Oct) 5 Nov PMI Services (9:30am) Oct 6 Nov New car regs (9:30am) Oct BRC retail sales monitor (12:01am) Oct Industrial production (9:30am) Sep 7 Nov 8 Nov Markit jobs report (12:01am) Oct Trade balance (9:30am) Sep MPC rate announcement & Asset purchase target (12:00pm) No change expected 9 Nov Construction output (9:30am) Sep and 3Q Quoted mortgage interest rates (9:30am) Oct During the week: Halifax HPI Oct (5-9 Nov) Times shown are Thursday 18 Oct Retail sales (9:30am) Sep -0. London Branch Malcolm Barr Allan Monks Economic Research Global Data Watch October 12.

4% Investment Sep 2%oya Turkey: Consumer confidence (10:00am) Sep Israel: GDP final 2Q Wednesday 17 Oct Poland: PPI (2:00pm) Sep 1. Poland 2 Nov Hungary: PMI (9:00am) Oct Poland: PMI (9:00am) Oct Romania: PPI (10:00am) Sep NBR rate decision Holiday: Turkey Holiday: Hungary During the week: Russia: CBR rate decision (1-9 Nov) South Africa: Quarterly labor force survey 3Q (1-4 Nov) 5 Nov Czech Republic: Retail sales (9:00am) Sep Romania: Retail sales (10:00am) Sep Turkey: CPI (10:00am) Oct PPI (10:00am) Oct Holiday: Russia 6 Nov Czech Republic: Industrial output (9:00am) Sep Trade balance (9:00am) Sep Russia: CPI Oct 7 Nov Hungary: Budget balance (4:00pm) Oct Poland: NBP rate decision 25bp cut South Africa: Gross reserves (8:00am) Oct 8 Nov Czech Republic: Unemployment (9:00am) Oct Hungary: Trade balance (9:00am) Sep Turkey: Industrial output (10:00am) Sep 9 Nov Czech Republic: CPI (9:00am) Oct Hungary: Industrial output (9:00am) Sep Romania: Industrial output (10:00am) Sep Trade balance (10:00am) Sep Russia: Foreign trade Sep During the week: South Africa: Manufacturing output (5-9 Nov) Times shown are local.JPMorgan Chase Bank N.5%oya Employment (2:00pm) Sep 0.6% Holiday: Hungary 24 Oct South Africa: CPI (10:00am) Sep 25 Oct Hungary: Retail sales (9:00am) Aug South Africa: PPI (11:30am) Sep Holiday: Turkey 26 Oct Holiday: Hungary During the week: Holiday: Turkey 29 Oct South Africa: Private sector credit (8:00am) Sep Israel: BoI rate decision (5:30pm) no change 30 Oct Hungary: Unemployment (9:00am) Sep NBH rate decision (2:00pm) South Africa: Budget (2:00pm) Sep 31 Oct Hungary: PPI (9:00am) Sep Poland: NBP inflation expectations (2:00pm) Oct Turkey: Foreign trade (10:00am) Sep South Africa: Trade balance (2:00pm) Sep 1 Nov Czech Republic: PMI (9:30am) Oct CNB rate decision (1:00pm) Russia: Manufacturing PMI (8:00am) Oct South Africa: Kagiso PMI (11:00am) Oct Turkey: PMI (10:00am) Oct Holiday: Hungary. Unemployment Sep 5. London Branch Anthony Wong Economic Research Global Data Watch October 12.1%oya.1%oya Current account (2:00pm) Aug -€989mn Romania: Current account Aug -€3. 78 .5%oya Turkey: Unemployment (10:00am) Jul 8.7%oya Industrial output (2:00pm) Sep -4.0bn ytd Russia: PPI Sep 1%m/m Industrial output Sep 1.A.1% Israel: CPI (6:30pm) Sep 2. 2012 Emerging Europe/Middle East/Africa economic calendar Monday 15 Oct Czech Republic: Current account (10:00am) Aug CZK-12.5%oya South Africa: Retail sales (1:00pm) Aug Thursday 18 Oct Hungary: Average gross wages (9:00am) Aug Turkey: CBRT rate decision (2:00pm) 100bp cut in the upper band Friday 19 Oct 22 Oct Poland: Core inflation (2:00pm) Sep 23 Oct Poland: Unemployment (10:00am) Sep Retail sales (10:00am) Sep Turkey: Capacity use (2:30pm) Oct 74.0%oya Russia: Retail sales Sep 4.6%y/y During the week: Tuesday 16 Oct Poland: Average gross wages 2:00pm) Sep 2.1bn PPI (9:00am) Sep Poland: CPI (2:00pm) Sep 4.

5%m/m China: CPI (9:30am) Sep 1. sa Friday 19 Oct Taiwan: Export orders (4:00pm) Sep 1. (10:00am) Oct Thailand: CPI (11:00am) Oct Holiday: Philippines 2 Nov Australia: PPI (11:30am) 3Q New Zealand: ANZ commodity price (1:00pm) Oct Holiday: Philippines During the week: 5 Nov Australia: Trade balance (11:30am) Sep Retail sales (11:30am) Sep Singapore: PMI (9:30pm) Oct Taiwan: CPI (8:30am) Oct During the week: 6 Nov Australia: RBA rate announcement (2:30pm) Philippines: CPI (9:00am) Oct 7 Nov 8 Nov Indonesia: BI monetary policy meeting Malaysia: IP (12:00pm) Sep BNM monetary policy mtg. (Markit) (9:45am) Oct Hong Kong: Retail sales (4:30pm) Sep India: Trade balance (11:00am) Sep PMI mfg. PPI (9:30am) Oct FAI.0%oya.8%oya Import price index (6:00am) Sep -3. Singapore Branch Benjamin Shatil Economic Research Global Data Watch October 12.9%oya Wednesday 17 Oct Malaysia: CPI (5:00pm) Sep 1.3%.4%oya Singapore: NODX (8:30am) Sep US$12.5%oya Hong Kong: Unemployment rate (4:30pm) Sep 3.8%oya PPI (9:30am) Sep -3. PII (2:30pm) Sep Trade balance (2:30pm) Sep 1 Nov China: PMI mfg. N.1%oya During the week: Tuesday 16 Oct New Zealand: CPI (8:45am) 3Q 0. Taiwan: Trade balance (4:00pm) Oct 9 Nov China: CPI.3%oya India: WPI (12:00pm) Sep Korea: Export price index (6:00am) Sep -1. (10:30am) Oct Indonesia: CPI (11:00am) Oct Trade balance (11:00am) Sep Korea: Trade balance (9:00am) Oct CPI.4%oya FAI (10:00am) Sep 20. Singapore Holiday: New Zealand During the week: Holiday: Hong Kong.A.. sector credit (11:30am) Sep Building approvals (11:30am) Aug New Zealand: NBNZ business confidence (1:00pm) Oct Building permits (10:45am) Sep Korea: IP (8:00am) Sep Taiwan: GDP prelim (8:30am) 3Q Thailand: PPC. 79 . Retail sales (1:30pm) Oct Korea: BoK monetary policy mtg.1%oya Philippines: OFW remittances Aug 4. ytd IP (10:00am) Sep 9.7%oya 22 Oct Hong Kong: CPI (4:30pm) Sep Taiwan: Unemployment rate (8:30am) Sep 23 Oct Singapore: CPI (1:00pm) Sep Taiwan: IP (4:00pm) Sep 24 Oct Australia: CPI (11:30am) 3Q China: Flash PMI (10:30am) Oct Vietnam: CPI Oct Holiday: India 25 Oct New Zealand: RBNZ rate announcement(9:00am) Hong Kong: Trade balance (4:30pm) Sep Philippines: BSP monetary policy mtg. (NBS) (9:00am) Oct PMI mfg.(9:00am) Malaysia: Trade balance (12:00pm) Sep China: Money supply Oct (10-15 Nov) Times shown are local. Malaysia. Thailand Philippines: Budget balance Sep (22-26 Oct) Thailand: Mfg.9%oya Singapore: Retail sales (1:00pm)Aug 2.0%oya Retail sales (10:00am) Sep 12. Philippines.JPMorgan Chase Bank.2bn Thailand: BoT monetary policy meeting (2:30pm) No change Thursday 18 Oct China: GDP (10:00am) 3Q 7. IP.(4:00pm) Imports (9:00am) Aug Singapore: IP (1:00pm) Sep 26 Oct New Zealand: Trade balance (10:45am) Sep Korea: GDP prelim (8:00am) 3Q Consumer survey (6:00am) Oct Taiwan: Leading index (4:00pm) Sep Holiday: Indonesia. 2012 Non-Japan Asia economic calendar Monday 15 Oct Australia: Housing finance (11:30am) Aug 2. production Sep (26-29 Oct) Vietnam: Trade balance Oct (24-31 Oct) 29 Oct 30 Oct India: RBI monetary policy meeting (11:00am) Korea: Current account balance (8:00am) Sep 31 Oct Australia: Pvt. PMI mfg (8:00am) Oct Taiwan: PMI mfg.

Canada: The information contained herein is not. alternatively. To the extent that the information contained herein references securities of an issuer incorporated.P. advisor or lender with respect to securities or issuers referenced in this report. In other EEA countries. Copyright 2012 JPMorgan Chase Co. Singapore branch is regulated by the Monetary Authority of Singapore. the information contained herein or the merits of the securities described herein. The investments and strategies discussed may not be suitable for all investors.P. including the quality and accuracy of research. General: Information has been obtained from sources believed to be reliable but JPMorgan does not warrant its completeness or accuracy except with respect to disclosures relative to JPMS and/or its affiliates and the analyst’s involvement with the issuer. Morgan Securities Australia Limited (JPMSAL) (ABN 61 003 245 234/AFS License No: 238066) is a Market Participant with the ASX and regulated by ASIC. a prospectus.P. JPMorgan and/or its affiliates and employees may act as placement agent. only to persons of a kind described in Article 19 (5). in Canada or any province or territory thereof.Morgan Saudi Arabia Ltd. This report should not be distributed to others or replicated in any form without prior consent of JPMorgan. Revised September 29. Any offer or sale of the securities described herein in Canada will be made only under an exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under applicable securities laws or. JPMSAL does not issue or distribute this material to “retail clients. Additional information available upon request. Morgan Bank International LLC.P.P. JPMorgan Chase Bank. and any representation to the contrary is an offense.P.A. an offer to sell securities described herein. Opinions and estimates constitute our judgment at the date of this material and are subject to change without notice. an advertisement. The firm’s overall revenues include revenues from its investment banking and fixed income business units.A. J. The recipient of this material must not distribute it to any third party or outside New Zealand without the prior written consent of JPMSAL. pursuant to an exemption from the dealer registration requirement in the relevant province or territory of Canada in which such offer or sale is made. Dubai Branch. This report has been issued in the U. N.P. For the purposes of this paragraph the terms “wholesale client” and “retail client” have the meanings given to them in section 761G of the Corporations Act 2001. Morgan is the global brand name for J. Morgan Securities Asia Private Limited is regulated by the MAS and the Financial Services Agency in Japan. 1 .P.. and European Economic Area (EEA): Investment research issued by JPMS plc has been prepared in accordance with JPMS plc’s Policies for Managing Conflicts of Interest in Connection with Investment Research. habitually invest money. is a member of NYSE and SIPC. the report has been issued to persons regarded as professional investors (or equivalent) in their home jurisdiction. New Zealand: This material is issued and distributed by JPMSAL in New Zealand only to persons whose principal business is the investment of money or who. Seoul branch. if you have any doubts you should consult your investment advisor. Morgan Securities LLC (JPMS) and its non-US affiliates worldwide. J.Morgan Securities Inc. 47 and 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 (all such persons being referred to as “relevant persons”). Korea: This report may have been edited or contributed to from time to time by affiliates of J. J. in the course of and for the purposes of their business. (JPMSL) is a member of the London Stock Exchange and is authorized and regulated by the Financial Services Authority. a public offering.P. J.. is authorized by the Capital Market Authority of the Kingdom of Saudi Arabia (CMA). Morgan Securities (Far East) Ltd. any trades in such securities must be conducted through a dealer registered in Canada. Australia: This material is issued and distributed by JPMSAL in Australia to “wholesale clients” only. and J. Morgan Equities Limited is a member of the Johannesburg Securities Exchange and is regulated by the FSB. This document must not be acted on or relied on by persons who are not relevant. Any investment or investment activity to which this document relates is only available to relevant persons and will be engaged in only with these persons.” The recipient of this material must not distribute it to any third party or outside Australia without the prior written consent of JPMSAL. licence number 35-07079. J. The information contained herein is under no circumstances to be construed as investment advice in any province or territory of Canada and is not tailored to the needs of the recipient.P. Morgan Securities (Asia Pacific) Limited (CE number AAJ321) is regulated by the Hong Kong Monetary Authority.P. JPMorgan Chase Bank. All rights reserved.. Changes in rates of exchange may have an adverse effect on the value of investments. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. J. Principal Trading: JPMorgan and/or its affiliates normally make a market and trade as principal in fixed income securities discussed in this report. Morgan Australia Limited (ABN 52 002 888 011/AFS License No: 238188) is regulated by ASIC and J. and under no circumstances is to be construed as.P. J. or solicitation of an offer to buy securities described herein. Legal Entities: J.P. is a member of the NFA. N.K.P..P. Morgan Cazenove is a brand name for equity research produced by J. The investments discussed may fluctuate in price or value. J. JPMSAL does not issue or distribute this material to members of “the public” as determined in accordance with section 3 of the Securities Act 1978. Morgan Securities Ltd. 38. Morgan Securities Ltd. client feedback.JPMorgan Chase Bank NA Michael Mulhall Economic Research Global Data Watch October 12. 2012 Global Data Diary Week / Weekend 13 – 19 October China  Trade report (Sep)* Monday 15 October China  CPI (Sep) India  WPI (Sep) Russia  IP (Sep) United States  Retail sales (Sep)  NY Fed survey (Oct)  Busnss inventories (Aug) Tuesday 16 October Euro area  HICP final (Sep) Russia  Retail sales (Sep) United Kingdom  CPI (Sep) United States  CPI (Sep)  IP (Sep)  NAHB survey (Oct) Wednesday 17 October Poland  IP (Sep) Singapore  NODX (Sep) Thailand  BoT mtg: no chg United Kingdom  Labor market report (Sep)  MPC minutes (Oct) United States  Housing starts (Sep) Thursday 18 October Brazil  COPOM mtg mins (Oct) China  FAI (Sep)  IP (Sep)  Retail sales (Sep)  GDP (3Q) Chile  BCCh mtg: no chg Turkey  CBRT mtg United Kingdom  Retail sales (Sep) United States  Philly Fed survey (Oct) Friday 19 October Canada  CPI (Sep) Japan  Shirakawa speech Taiwan  Export orders (Sep) United States  Existing home sales (Sep) * published October 13 20 – 26 October 22 October 23 October Canada  BoC mtg: no chg Euro area  EC cons conf plm (Oct) France  INSEE bus conf (Oct) Taiwan  IP (Sep) 24 October Australia  CPI (3Q) China  Markit mfg PMI flash (Oct) Euro area  Flash PMI (Oct) Italy  ISAE cons conf (Oct) United States  Flash mfg PMI (Oct)  New home sales (Sep)  FOMC mtg: no chg  Bernanke press conf 25 October Euro area  M3 (Sep) Hong Kong  Trade report (Sep) New Zealand  RBNZ mtg: no chg Philippines  BSP mtg: no chg Singapore  IP (Sep) United Kingdom  GDP (3Q) United States  Durable goods (Sep)  Pending home sales (Sep) 26 October Brazil  BCB credit report (Sep) Colombia  BanRep mtg: no chg France  INSEE bus conf (Oct) Germany  GFK cons conf (Nov) Italy  ISAE bus conf (Oct) Japan  CPI (Sep) Korea  GDP (3Q) Mexico  Banxico mtg: no chg United States  GDP (3Q)  UMich cons sent fnl (Oct) Japan Japan  Shoko Chukin survey (Oct)  Reuters Tankan (Oct)  Trade report (Sep)  BoJ loan officer surv (3Q)  Shirakawa speech Analysts’ Compensation: The research analysts responsible for the preparation of this report receive compensation based upon various factors. Morgan Futures Inc. JPMorgan Chase Bank.K. U. competitive factors and overall firm revenues. Past performance is not indicative of future results. Morgan Equities Limited. is a member of FDIC and is authorized and regulated in the UK by the Financial Services Authority.. J. 2012. Clients should contact analysts at and execute transactions through a JPMorgan entity in their home jurisdiction unless governing law permits otherwise. No securities commission or similar regulatory authority in Canada has reviewed or in any way passed judgment upon these materials.P. formed or created under the laws of Canada or a province or territory of Canada. J.

Sign up to vote on this title
UsefulNot useful