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Global Markets Chart Book 1
GLOBAL MARKETS
CHART BOOK1stJun.
2012
High-grade bond yields plunge to record lows
The 10-year US Treasury yield fell by more than 35bp in May, hitting arecord low of less than 1.6% as investors sought refuge in high-grade
government bonds. The main trigger for the rally was a renewed flare up in
the euro-zone crisis after the first round of Greeces general election
produced no clear winner. This raised the prospect of the countrys early exit
from EMU and ignited fears about the risks of currency redenomination in
the euro-zone more generally. Concerns grew about the prospects for larger,
troubled countries in the region with fragile banking sectors at risk of
depositor flight, especially Spain. 10-year government bond yields in
Germany and the UK dropped even more sharply than in the US.
Money markets saw a suggestion from the latest US FOMC meeting that athird round of quantitative easing is not completely off the agenda. (Page 2.)
Government bonds in the 10-year sector in the US, Germany and the UK allplummeted to record lows. (Page 3.)
Swap spreads increased in the US as implied volatility in the stock marketpicked up and the yield curve flattened further. (Page 4.)
Credit marketssaw spreads for US BBB-rated bonds in the 7-10 year sectorincrease substantially, but yields barely rose. (Page5.)
Equitiesperformed poorly in Japan in particular as the yen remained strong.(Page 6.)
Emerging markets came under more pressure as investors appetite for riskwaned. The EMBI+ bond spread over Treasuries rose above 4% for the first
time this year. (Page 7.)
Currencymarkets saw the dollar gain ground against sterling and the euro inparticular, but not against the yen. (Page 8.)
Volatilityin the US dollar/euro exchange rate increased. (Page 9.) Correlation between US government bonds and yen/dollar turned
significantly more positive. (Page 10.)
Asset returns. The price of oil fell sharply again.(Page 11.)
Our forecasts have been updated and are detailed at the end of thispublication. (Page 12.)
John Higgins
Senior Markets Economist
Direct Line: +44 (0)20 7811 3912
Switchboard: +44 (0)20 7823 5000
Fax: +44 (0)20 7823 [email protected]
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Global Markets Chart Book 2
Money MarketsThe Fed continued its Operation Twist in May (1). The minutes of Mays FOMC meeting suggested that one or
two more voting members were open to the idea of additional monetary easing, at least if the US recovery faded.
One key message from the ECBs press conference was that it was not obviously prepared to sanction additionalsupport measures for the euro-zone economy, despite signs of weakness in the business survey data. However, the
tone of the minutes of the MPCs meeting in May suggested that the door to more quantitative easing in the UK is
still open. Elsewhere, the Bank of Japan announced no further increase in the size of its Asset Purchase Program in
May. Overall, investors remained confident that interest rates will still be very low in a couple of years time (2).
The ECBs LTRO operations have reduced tensions in the interbank market (3) and lowered the cost of dollarfunding (4), but investors remain concerned by the build-up of imbalances in the TARGET2 settlement system thatreflects the reticence of banks in strong economies to lend directly to those in weaker economies. The linkages
between the health of countries banking systems and their sovereign borrowing costs remain very strong (5 & 6).
1. US Federal Reserve Banks US Treasuries Held OutrightBy Remaining Time To Maturity ($bn)
2. Expected Overnight Interest Rates In 2 Years Time (%)(Derived From Overnight Indexed Swap Markets)
3. 3m Libor-OIS Spreads* (bp) 4. 3-Month Currency Basis SwapEuros vs. US Dollars (bp)
5. Selected Current Euro-zone Sov. 10-year Govt. Bond Yields& Est. Eurosystem TARGET2 Balances At End-March (%)
6. 5-Year Credit Default Swaps (Euro-zone) (bp)
Sources Thomson Datastream, Bloomberg, Capital Economics
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12
>10yr
5yr10yr
1yr>
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Global Markets Chart Book 3
Government Bonds
The 10-year US Treasury yield fell by more than 35bp in May, hitting a record low of less than 1.6% (1). Thetrigger for the rally was a renewed flare up in the euro-zone crisis after the first round of Greeces general election
produced no clear winner. Concerns also grew about the prospects for larger, troubled countries in the region
with fragile banking sectors at risk of depositor flight, especially Spain. The expectation of continued ultra-loose
monetary policy provided support to Treasuries (2), with the Fed hinting that more quantitative easing was not
completely off the agenda. The drop in the 10-year nominal Treasury yield was driven both by a decline in the
real yield and in the breakeven rate of inflation (3).
The 10-year Bund yield dropped even more sharply to a record low of around 1.2%. Although the 5-yearsovereign credit default swap premium in Germany has risen since the end of March, the country has benefitedfrom its perceived status as a sounder credit than most of its regional peers (4). Reflecting growing fears that Spain
and Italy are now being sucked deeper into the crisis, the yield spread of 10-year government bonds in these
countries over Bunds rose (5). Finally, the 10-year nominal JGB yield dropped to around 0.8% (6).
1. 10-Year Government Bond Nominal Yields (%) 2. US 10-Year Treasury Yield, US 10-Year OIS Rate& US Implied Overnight Rate In 2 Years Time (%)
3. Decomposition Of 10-Year US Treasury Yield (%) 4. Selected Euro-zone Sov. 5-Year CDS Premiums & 10-yearGovernment Bond Yields, Change Since End Mar-2012 (bp)
5. Selected Euro-zone 10-Year Government Bond SpreadsOver 10-Year German Bunds (bp)
6. 10-Year Government Bond Nominal Yields (%)
Sources Thomson Datastream, Bloomberg, Capital Economics
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
USGermanyUK
0.0
1.0
2.0
3.0
4.0
5.0
0.0
1.0
2.0
3.0
4.0
5.0
Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12
10yr US Treasury Yield10yr US Overnight Indexed Swap RateUS Implied Overnight Rate, In 2 Years' Time*
*3-day moving average
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
Nominal YieldReal yield - TIPSBreak-even Inflation Rate
-75
-50
-25
0
25
50
75
100
125
150
-75
-50
-25
0
25
50
75
100
125
1505-Year Sovereign CDS Premium
10-year government bond yield
0
250
500
750
1,000
1,250
1,500
0
250
500
750
1,000
1,250
1,500
Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
Italy
Spain
Portugal
*3 day moving averages
0.5
0.7
0.9
1.1
1.3
1.5
1.7
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12
US (LHS)
Japan (RHS)
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Global Markets Chart Book 4
Swap Spreads
The spread of US dollar interest rate swaps over US Treasuries of an equivalent maturity rose further in May inboth the 10-year (1) and, to a greater extent, the 2-year sectors (2).
A pick-up in implied volatility in the US stock market may have been one factor behind the increase in the 10-year swap spread (3).
An additional flattening of the US yield curve may have also played a role (4). A flatter curve provides corporateborrowers with less incentive to refinance long-dated debt with shorter-dated debt. This usually tends to result in a
decrease in long-dated fixed rate receiving in the swap market.
Meanwhile, the poor state of the US public finances probably continued to provide an explanation for therelatively low level of the swap spread by historical standards (5).
Finally, the US 5-year CDS/asset swap basis increased significantly further in May (6).
1. 10-Year US Treasury Swap Spread (bp) 2. 2-Year US Treasury Swap Spread (bp)
3. 10-Year US Treasury Swap Spread & VIX 4. 10-Year US Treasury Swap Spread & US Treasury YieldCurve Slope
5. 10-Year US Treasury Swap Spread & US Budget Balance 6. US 5-Year Credit Default Swap Premium & US 5-Year SwapSpread (bp)
Sources Thomson Datastream, Bloomberg, Capital Economics
-10
-5
0
5
10
15
20
25
30
-10
-5
0
5
10
15
20
25
30
Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-120
10
20
30
40
50
60
0
10
20
30
40
50
60
Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12
0
10
20
30
40
50
60
70
-20
0
20
40
60
80
100
120
140
160
1990 1993 1996 1999 2002 2005 2008 2011
10-Year US Treasury Swap Spread, (bp, LHS)
VIX, % (RHS)
-300
-250
-200
-150
-100
-50
0
50
100
150
-20
0
20
40
60
80
100
120
140
160
1990 1993 1996 1999 2002 2005 2008 2011
10-Year US Treasury Swap Spread (bp, LHS)
2 minus 10-Year US Treasury Yield (bp, RHS)
-12
-10
-8
-6
-4
-2
0
2
4
-20
0
20
40
60
80
100
120
140
160
1990 1993 1996 1999 2002 2005 2008 2011
10-Year US Treasury Swap Spread, (bp, LHS)
US Budget Balance*, (% of GDP, RHS)
*12m rolling inc. CE interpolations
0
10
20
30
40
50
60
70
0
10
20
30
40
50
60
70
Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
CDS Premium
Swap Spread
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Global Markets Chart Book 5
Credit Markets 7-10 year corporate bond spreads in the West increased further in May as the euro-zone crisis flared up (1). For
BBB-rated US corporate borrowers, spreads rose by about 35bp, to nearly 3% (2).Assuming a 40% recovery rate,
the estimated implied probability of default within the next five years was around 22% at the end of the month (3).
Although credit spreads tend to fluctuate with the economic cycle (4), we do not expect the US economic recoveryto be especially strong. Accordingly, we do not expect spreads to contract much from here, especially while the
euro-zone crisis continues to brew.
That being said, US corporate bonds should continue to benefit from ultra-loose monetary policy via its favourableimpact on Treasuries. Corporate bond yields are therefore unlikely to rise by much indeed, they barely rose in the
BBB-rated, 7-10 year sector in May. They could even grind lower as they did during much of the 1940s (5). Firmsalso appear to be in a fairly healthy financial state. The liquid assets held by US non-financial companies at the end
of last year were at their highest level as a share of short-term liabilities in more than half a century (6).
1. 7-10 Year Average Corporate Bond Spread (bp) 2. US 7-10 Year, BBB-Rated Corporate Bond Spread (bp)
3. US 7-10 Year BBB-Rated Corporate Bond Spread& Implied Probability Of Default
4. US Industrial Production & Corporate Bond Spread
5. US 10-Year Treasury Yield & Moodys Seasoned BaaCorporate Bond Yield (%)
6. Liquid Assets Of US Non-Farm, Non-FinancialCompanies
Sources Thomson Datastream, Federal Reserve, Capital Economics
0
100
200
300
400
500
600
0
100
200
300
400
500
600
Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
US
Euro-zone
UK
Japan
0
100
200
300
400
500
600
700
800
0
100
200
300
400
500
600
700
800
2000 2002 2004 2006 2008 2010 2012
Dotted line is average since 2000
0
10
20
30
40
50
60
0
100
200
300
400
500
600
700
800
2000 2002 2004 2006 2008 2010 2012
BBB-Rated 7-10 Year US CorporateBond Spread vs. Treasuries (bp) (LHS)
Implied Probability* Of DefaultWithin 5 Years (%) (RHS)
*40% assumed recovery rate
-20
-15
-10
-5
0
5
10
15
200
100
200
300
400
500
600
700
1960 1970 1980 1990 2000 2010
US Baa Corporate Bond Spread (bp) (LHS)
US Industrial Production (%, y/y) (Inv.) (RHS)
0
2
4
6
8
10
12
0
2
4
6
8
10
12
1925/2002 1930/2007 1935/2012 1940/2017 1945/2022 1950/2027
Corp. Bond Yield (1925-1950)
Corp. Bond Yield (2002-)
Treasury Yield (2002-)
Treasury Yield (1925-1950)
Jun-1932
Apr-1938
10
20
30
40
50
60
70
2
3
4
5
6
7
8
9
10
1952 1962 1972 1982 1992 2002 2012
As A Percentage Of Total Assets (LHS)
As A Percentage Of Short-Term Liabilities (RHS)
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Global Markets Chart Book 6
EquitiesStock markets fell sharply in May as investors appetite for risk cooled. The S&P 500 fell about 6%, but this decline
was trumped by both the German DAX (-7%) and the UK FTSE 100 (-7%). However, Japans Topix recorded the
worst performance down nearly 11% (1).
Japanese equities were once again undermined by the persistent strength in the yen (2). Meanwhile, the relativeperformance of euro-zone and US equities continued to be closely tied to movements in the dollar/euro exchange
rate (3).
Euro-zone equity markets appeared to remain attractively valued from a historical perspective (4), unlike USequities (5). At the end of May, the 10-year cyclically-adjusted price/earnings ratio for the non-financial sector was
nearly ten points lower in the euro-zone as a whole than in the US the biggest gap in a decade (6).
1. Equity Indices (Rebased, 1st Jan 2010=100) 2. Japan vs. US Non-Financial Equity Markets &Yen/Dollar
3. Euro-zone vs. US Non-Financial Equity Markets &Dollars/Euro
4. Cyclically-Adjusted Price/Earnings Ratios(Selected Euro-zone Countries)
5. 10-Year Cyclically-Adjusted Real P/E Ratio (S&P 500)& Tobins Equity Q (US Non-Financial Corporate Sector)
6.Cyclically-Adjusted Price/Earnings RatiosUS vs. Euro-zone (Non-Financial Sector)
Sources Thomson Datastream, Bloomberg, Wright, Shiller, CE
70
80
90
100
110
120
130
140
150
70
80
90
100
110
120
130
140
150
Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
US (S&P 500)
Euro-zone (German DAX)
UK (FTSE 100)
Japan (Topix)
60
70
80
90
100
110
120
70
75
80
85
90
95
100
Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12
Yen/Dollar (LHS)
Ratio of Japanese to US Non-FinancialEquity Markets (Jan-08=100) (RHS)
50
60
70
80
90
100
110
1.10
1.20
1.30
1.40
1.50
1.60
1.70
Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12
Dollars/Euro (LHS)
Ratio of Euro-zone to US Non-FinancialEquity Markets (Jan-08=100) (RHS)
0
2
4
6
8
10
12
14
16
18
0
2
4
6
8
10
12
14
16
18Non-Financial Sector
Financial Sector
Total Market
0
10
20
30
40
50
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
1900 1920 1940 1960 1980 2000
Tobin's Equity Q For The Non-Farm, Non-Financial Corporate Sector (LHS)
S&P 500 Price/10-Year Average EarningsRatio (Real) (RHS)
Dotted lines are est. geometric annual averages (1900-2011)
(Includes CE estimatesthrough 29-May-2012)
-20
-10
0
10
20
30
40
50
60
-20
-10
0
10
20
30
40
50
60
1985 1990 1995 2000 2005 2010
US Less Euro-zone
US
Euro-zone
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Global Markets Chart Book 7
Emerging MarketsThe spread of the JP Morgan EMBI+ Global Index over Treasuries rose by more than 90bp in May to well above
400bp for the first time this year (1). Contributions to the substantial increase in the overall EMBI+ spread during
the month were broad-based. The biggest contribution came from Venezuela, where there is considerable
uncertainty about the political outlook and whose economy is heavily reliant on crude oil, the price of which
dropped sharply during the month (2).
Equities in emerging markets generally fared less well than those in developed markets. Emerging Europe faredworst in this regard among the main emerging market regions given its close ties to the euro-zone, while Asia ex
Japan performed least badly (3). That being said, the stock market in India fell sharply in dollar terms as foreign
investors withdrew capital (4).
The dollar strengthened nearly 4% against the currencies of the USs other important trading partners (5). Amongthe BRICs, the Russian rouble fell by about 12% against the greenback as the price of oil retreated (6).
1. EMBI Spread vs. US Corporate Bond Spread vs. CE EstimateOf S&P 500 Equity Risk Premium (bp)
2. Approximate Contributions To Change In EMBI+ StrippedSpread (bp) (30-Apr-12 to 31-May-12)
3. Developed & Regional Emerging Equity Market Indices($ Basis, Rebased at Jan-09 = 100)
4. Foreign Flows Into Indian Stock Market vs. Sensex
5. US Dollar Trade-Weighted Indices(Rebased at Jan-07=100)
6. Selected Emerging Market Currencies vs. US Dollar(Rebased at Jan-07=100)
Sources Thomson Datastream, Bloomberg, Capital Economics
0
100
200
300
400
500
600
0
100
200
300
400
500
600
Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
US 7-10 Year, BBB-Rated Corp. Bond Spread
S&P 500 CE Equity Risk Premium
EMBI+ Spread
-5
0
5
10
15
20
25
30
-5
0
5
10
15
20
25
30 EMBI % weights at 1-May-2012 shown in brackets
70
90
110
130
150
170
190
210
230
250
70
90
110
130
150
170
190
210
230
250
Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
Developed MarketsEmerging EuropeAsia ex JapanLATAM
-20
-10
0
10
20
30
40
50
7,500
10,000
12,500
15,000
17,500
20,000
22,500
25,000
2007 2008 2009 2010 2011 2012
Indian Stock Market (Sensex, LHS)
Net Foreign Flows Into Indian StockMarket ($bn, 12m rolling, RHS)
80
85
90
95
100
105
110
115
120
80
85
90
95
100
105
110
115
120
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
Broad
Major
Other Imp. Trading Partners (EM Proxy)
60
70
80
90
100
110
120
130
140
150
60
70
80
90
100
110
120
130
140
150
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
Russian Ruble
Brazilian RealChinese Renminbi
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Global Markets Chart Book 8
CurrenciesThe euro fell sharply against the US dollar during May. The trigger was the escalation of the euro-zone crisis, which
prompted an increase in investors perceptions of sovereign credit risk in the euro-zone relative to in the US (1). The
gap between the expected level of interest rates in the euro-zone and the US in a years time also remained very small,
thereby underpinning the greenback (2). Investors increased aversion to risk, which was reflected in the poor
performance of equities, also fuelled save haven demand for the US currency (3). Otherwise, speculative positioning
in favour of the US currency against the euro increased sharply to a new record level (4).
Sterling also lost ground against the dollar, but strengthened against the euro. The latter was again probably due to ashift in investors perceptions of relative sovereign credit risk in the UK and the euro-zone (5).
By contrast, the dollar weakened slightly against the yen amid the hunt for safety. The yen also remains supported by asmall US/Japan short-term interest rate differential (6) and a relatively conservative policy stance from the BoJ.
1. US Dollar/Euro & 5-Year Euro-zone vs US Sovereign CreditDefault Swap Premiums
2. US Dollar/Euro & Expected Interest Rate Differentials
3. US Dollar/Euro & US S&P 500 4. US Dollar/Euro & CFTC Net Non-Commercial Positioning
5. Euro/UK Pound Sterling & 5-Year Euro-zone vs. UKSovereign Credit Default Swap Premiums
6. Yen/US Dollar & US-Japan Yield Differential
Sources Thomson Datastream, Bloomberg
1.00
1.10
1.20
1.30
1.40
1.50
1.600
50
100
150
200
250
300
Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12
Euro-zone* Minus US 5yr Sovereign CDS Spread(bp) (LHS)Dollars/Euro (Inv.) (RHS)
*10 countries (ex Greece),Q4 2011 GDP-weighted
1.15
1.20
1.25
1.30
1.35
1.40
1.45
1.50
1.55
-100
-50
0
50
100
150
200
250
300
Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12
EUR less US O/N rate, 12m Forward (bp) (LHS)*
Dollars/Euro (RHS)
*3 day moving average
600
800
1000
1200
1400
1600
1800
1.10
1.20
1.30
1.40
1.50
1.60
1.70
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
Dollars/Euro (LHS)
US S&P 500 (RHS)
-250
-200
-150
-100
-50
0
50
100
150
200
1.00
1.10
1.20
1.30
1.40
1.50
1.60
1.70
1.80
1.90
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
Net Speculative* Longs: Euro vs. Dollar (000s) (RHS)Dollars/Euro (LHS)
N.B. Difference in timing of weekly data
*Non-commercial
1.00
1.05
1.10
1.15
1.20
1.25
1.30
1.35
Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12
-50
0
50
100
150
200
250
300 Euro-zone* Minus UK 5yr Sov. CDS (bp) (LHS)
Euro/Sterling (RHS)
*10 countries (ex Greece), Q4 2011 GDP-weighted70
80
90
100
110
120
130
-100
0
100
200
300
400
500
2006 2007 2008 2009 2010 2011 2012
US minus Japan 2-YearGovernment Bond Yield(Basis Points, LHS)
Yen/Dollar (RHS)
US yield lowerrelative to
Japan yield,yen stronger
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Global Markets Chart Book 9
VolatilityVolatility in the US Treasury market declined slightly in May (1).US equity market volatility also fell a little (2), but did implied volatility increased sharply (3).The volatility of the dollar against the euro increased (4), but not as much as implied volatility for the pair (5).The volatility of oil and gold prices both rose, but remained at low levels compared to recent years (6).
1. 10-Year Government Bond Yield Volatility(30-day historical, annualised)
2. Stock Market Price Volatility(30-day historical, annualised)
3. S&P 500 Volatility(Annualised)
4. Currency Volatility(30-day historical, annualised)
5. Currency Volatility(1-month, implied)
6. Commodity Price Volatility(30-day historical, annualised)
Sources Thomson Datastream, Bloomberg, Capital Economics
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
USEuro-zone (Germany)UK
Japan
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
US (S&P 500)
Euro-zone (DJ Stoxx)UK (FTSE 100)
Japan (Topix)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
Actual (30-DayHistorical)
Implied (1 Month)
0%
5%
10%
15%
20%
25%
30%
35%
40%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
Dollar/EuroDollar/SterlingDollar/YenEuro/Sterling
0%
5%
10%
15%
20%
25%
30%
35%
40%
0%
5%
10%
15%
20%
25%
30%
35%
40%
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
Dollar/EuroDollar/SterlingDollar/YenEuro/Sterling
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
110%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
110%
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
Brent Crude Oil
Gold
7/31/2019 Global Markets Chart Book (Jun 12)
10/12
Global Markets Chart Book 10
CorrelationThe correlation between US government bonds and US equities became slightly less negative in May (1).The positive correlation between euro-zone equities and dollar/euro declined (2).The positive correlation between emerging market equities and emerging market bonds increased (3).The correlation between US government bonds and yen/dollar turned significantly more positive (4).The positive correlation between US equities and gold decreased (5).The positive correlation between dollar/euro and oil fell (6).
1. Equities & 7-10 Year Government Bonds(Correlation of Daily Returns During Past 6m)
2. Equities & Currencies(Correlation of Daily Returns During Past 6m)
3. Emerging Market Equities & Various Assets(Correlation of Daily Returns During Past 6m)
4. 7-10 Year Government Bonds & Currencies(Correlation of Daily Returns During Past 6m)
5. US Equities & Commodities(Correlation of Daily Returns During Past 6m)
6. Commodities & Currencies(Correlation of Daily Returns During Past 6m)
Sources Thomson Datastream, Bloomberg, Capital Economics
-1.00
-0.80
-0.60
-0.40
-0.20
0.00
0.20
0.40
-1.00
-0.80
-0.60
-0.40
-0.20
0.00
0.20
0.40
Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
US Equities & US BondsGerman Equities & German BondsUK Equities & UK Bonds
Japanese Equities & Japanese Bonds
-0.80
-0.60
-0.40
-0.20
0.00
0.20
0.40
0.60
0.80
1.00
-0.80
-0.60
-0.40
-0.20
0.00
0.20
0.40
0.60
0.80
1.00
Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
US Equities & Dollar/YenEurozone Equities & Dollar/EuroUK Equities & Dollar/Sterling
Japanese Equities & Dollar/Yen
-0.60
-0.40
-0.20
0.00
0.20
0.40
0.60
0.80
1.00
1.20
-0.60
-0.40
-0.20
0.00
0.20
0.40
0.60
0.80
1.00
1.20
Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
EM Equities & Dollar/YenEM Equities & EM BondsEM Equities & US EquitiesEM Equities & US Bonds
-0.80
-0.60
-0.40
-0.20
0.00
0.20
0.40
0.60
0.80
1.00
1.20
-0.80
-0.60
-0.40
-0.20
0.00
0.20
0.40
0.60
0.80
1.00
1.20
Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
US Bonds & Dollar/YenGerman Bonds & Dollar/EuroUK Bonds & Dollar/Sterling
Japanese Bonds & Dollar/Yen
-0.60
-0.40
-0.20
0.00
0.20
0.40
0.60
0.80
1.00
1.20
-0.60
-0.40
-0.20
0.00
0.20
0.40
0.60
0.80
1.00
1.20
Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
US Equities & Gold
US Equities & Brent Crude (Dated)
US Equities & Base Metals
-0.20
0.00
0.20
0.40
0.60
0.80
1.00
-0.20
0.00
0.20
0.40
0.60
0.80
1.00
Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
Brent Crude (Dated) & GoldDollar/Euro & GoldDollar/Euro & Brent Crude (Dated)
7/31/2019 Global Markets Chart Book (Jun 12)
11/12
7/31/2019 Global Markets Chart Book (Jun 12)
12/12
Global Markets Chart Book 12
Forecast Summary
Latest (1st Jun.)End End End End End End
Q312 Q412 Q113 Q213 2012 2013
Official Interest Rates
US 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25 0-0.25
Euro-zone 1.00 1.00 1.00 1.00 1.00 1.00 1.00
Japan 0-0.10 0-0.10 0-0.10 0-0.10 0-0.10 0-0.10 0-0.10
UK 0.50 0.50 0.50 0.50 0.50 0.50 0.50
Currencies
$ / 1.23 1.15 1.10 1.10 1.10 1.10 1.10
/ $ 78 75 70 70 70 70 70
$ / 1.53 1.50 1.45 1.45 1.45 1.45 1.45
/ 0.81 0.77 0.76 0.76 0.76 0.76 0.76
/ 119 113 102 102 102 102 102
Bonds (10 year unless stated)
US 1.54 1.50 1.50 1.50 1.50 1.50 1.50
Germany 1.16 1.25 1.50 1.75 2.00 1.50 2.50
Japan 0.82 0.75 0.75 0.75 0.75 0.75 0.75
UK 1.50 1.50 1.50 1.50 1.50 1.50 1.50
EM (JP Morgan EMBI+ Spread, bp) 419 450 475 450 450 475 400
Stock markets
US (S&P 500) 1310 1350 1350 1350 1350 1350 1350
Germany (DAX 30) 6138 6000 5750 5750 5750 5750 5750
Japan (Nikkei 225) 8440 8250 8000 8000 8000 8000 9000
UK (FTSE 100) 5294 5150 5000 5000 5000 5000 5000
EM (MSCI $ Index) 906 900 900 950 950 900 1000
Commodities
Brent Crude Oil ($pb) 101 100 95 95 90 95 85
Gold ($/oz.) 1552 1800 2000 2000 2000 2000 2000
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