1. society
2. work
3. unemployment

First
Insights.
OCTOBER 2014 – A quarterly publication from the Economic and Market Research team
Welcome to the Q3 14
edition of ‘First Insights’,
the quarterly publication
from the Colonial First
State Global Asset
Management Economic
and Market Research
(EMR) team.
Contents
Section 1: The Great Divergence
1
Section 2: Chart Pack
7
Section 3: Market Watch15
Section 4: Economic Forecasts October 2014
20
Section 5: Recent Research Reports October 2014
23
Historically, much of the research published by the EMR
team has been, by its very nature, ad-hoc. We have focused
our publications on the macroeconomic developments
and events that impact markets and that are important to
investors – whenever they occur.
However, after much thought and discussion with our
stakeholders, we have decided to begin a regular quarterly
publication – First Insights.
Each July, October, January and April, we will deliver our
latest views and insights into the key macroeconomic
factors in the global economy, and highlight how we
expect they will affect markets.
We trust that you, our clients, find the new First Insights
quarterly publication informative and a very useful addition
to the research provided by the EMR team. We welcome
any feedback, comments and questions and look forward to
discussing our views with you.
Economic and Market
Research Team
Head of Economic and Market Research
Stephen Halmarick
[email protected]
Senior Analyst, Economic and Market Research
James White
[email protected]
Senior Analyst, Economic and Market Research
Belinda Allen
[email protected]
Section 1
The Great Divergence
2
1
0
-1
2004
-2
2014
This divergence in both economic and policy outcomes has already
helped create a significant increase in financial market volatility.
With ongoing financial market volatility likely, this will no doubt
create both risks and opportunities.
%
2013
In contrast, we expect both the European Central Bank (ECB) and
the Bank of Japan (BoJ), for different reasons, to maintain interest
rates at zero and embark on more aggressive quantitative easing.
“On average, the global economy is growing about average”
Australian major trading partners growth and global
manufacturing Purchasing Managers Index (PMI)
2012
Indeed, we expect the Bank of England (BoE), the US Federal
Reserve (the Fed), the Reserve Bank of Australia (RBA) and the Bank
of Canada (BoC) to all begin raising interest rates in 2015 – in that
order. After its current pause, we also expect the Reserve Bank of
New Zealand (RBNZ) to resume tightening in early 2015.
However, this ‘average’ economic performance masks a significant
divergence among the world’s largest economies. This divergent
economic outlook is expected to lead to a diverging policy outlook.
2011
Despite some increased uncertainty in recent weeks, over the
coming 6-12 months we see the generally ongoing positive
developments in the $ Bloc nations, especially with regard
to employment, to see the start of a monetary policy
normalisation process.
In the words of the RBA Governor, “on average, the global economy is
growing about average.” That is, global economic growth at just under
4% in 2015 (IMF Forecasts, October 2014) is close to the average for the
global economy.
2009
This is now changing and volatility has begun to rise. We see
the ‘great divergence’ as the most significant event for financial
markets in the next year or more.
The Global Economy:
2010
Since the onset of the global financial crisis (GFC) most of the world’s
major central banks have been implementing similar policies. Many
central banks dropped interest rates as far as they dared and for
those who hit the zero-bound, they then implemented various
forms of quantitative easing (QE). This policy prescription has
helped asset markets post solid returns in recent years and had seen
volatility in global markets hit new lows.
2008
The Great Divergence
In currency markets, the US dollar (USD) is now on the move, generally
strengthening against most major currencies. We would expect this
trend to continue, especially against the Euro (EUR) and the Japanese
Yen (JPY), but also against currencies such as the UK Pound (GBP), the
Australian dollar (AUD), the Canadian dollar (CAD) and the New Zealand
dollar (NZD).
2007
In this essay we look in some detail at this divergence
between the world’s major economies and conclude that
financial market volatility looks set to remain a key feature
in the months and year ahead. This will no doubt continue
to create some risks, but also opportunities.
The performance of equity markets could continue to be mixed, as
higher interest rates and wider credit spreads have a negative impact.
Stronger labour markets and increased capital investment could also be
negatives for equities, as the wages share of the economy grows at the
expense of the profit share and as less money becomes available for
dividends. But in the medium-term, equity investors are likely to focus
on the positive aspects of the stronger economy in the $ Bloc markets
and the expectation of improving profitability.
2006
This ‘great divergence’ refers to the significant difference
in economic performance and policy outlook between
the $ Bloc1 nations on the one hand and Europe and
Japan on the other.
Higher short-dated interest rates are expected, and eventually we
expect to see longer-dated bond yields rise across the $ Bloc. However,
this cyclical pick up in bond yields could be limited, as has been the
case recently, by reduced inflation expectations and the liquidity
generated by the ECB and BoJ and the ongoing ‘hunt for yield’. Credit
spreads could widen in the $ Bloc as higher interest rates put pressure
on company balance sheets and as concerns over market liquidity
impact spreads.
2005
Global financial market volatility has increased significantly
in the past few weeks. We see this development as a
natural flow-on from what could be termed the ‘great
divergence’.
 MTP GDP growth* (quarterly) —Global Manufacturing PMI ** (monthly)
* Aggregated using Australia’s export shares ** Level of PMI rescales to match MTP GDP growth
Source: Reserve Bank of Australia (RBA)
1 The $ Bloc includes the US, UK, Australia, Canada and New Zealand
1
1. The Great Divergence
The United States:
At 5.9% as at September, the US unemployment rate is fast
approaching the Fed’s measure of full-employment (estimated at
5.2%-5.5%). Although it is certainly true to say that the unemployment
rate is likely giving an overly-optimistic view of the strength of the
labour market (as has been highlighted by Fed Chair Janet Yellen), it is
also equally true that the labour market is in significantly better shape
than it has been for a number of years. Progress is occurring more
rapidly than the Fed had expected.
US unemployment rate and the full-employment estimate
% unemployment rate and non-accelerating inflation rate of
unemployment (NAIRU)
%
12
11
10
stimulus program (QE3) since December 2013. From a peak of
$US85bn per month, bond purchases are now down to just $US15bn
per month and are widely expected to be reduced to zero at the next
Federal Open Market Committee (FOMC) meeting on 28-29 October.
Following the end of QE3, the next step for the Fed will be to raise
interest rates. Despite recent developments in financial markets, we
continue to expect the first rate hike in this cycle from the Fed will be
at the 16-17 June 2015 FOMC meeting.
This monetary policy normalisation process is expected to take place
with the Fed raising both the Interest on Excess Reserves (IOER),
currently at 25bp, and the Reverse Repo Rate program (RRP), currently
at 5bp, in a corridor in which the effective Fed Funds rate will trade.
Once this monetary policy normalisation process gets underway, we
expect the Fed Funds rate to be around 1%-1.25% by the end of 2015,
2.5%-2.75% by the end of 2016 and then to the (new) neutral rate of
3.5% in 2017.
This monetary policy tightening path is consistent with the Fed’s
own monetary policy projections published in September 2014. It is,
however, significantly more aggressive than the tightening path the
US markets have priced in. Indeed, markets have been moving in the
opposite direction in recent weeks. However, we continue to expect
eventual increases in the short-end of the US yield curve to match our
(and the Fed’s) tightening expectations in 2015 and beyond.
9
8
7
6
5
4
3
2
1
1950
1960
1970
1980
1990
2000
2010
—US Unemployment Rate —CBO Estimate of Short–Term NAIRU
Projected path of US short rates and market expectations
Monetary policy tightening out to 2017
%
Source: Bloomberg and CBO. Data to 30 September 2014
4.0
3.5
In terms of inflation, after being in a 1%-1.5%/yr range for a number
of years the rate of inflation in the US has recently turned up. There is,
however, a growing view that inflation may begin to turn down again
on the back of the strength of the USD and lower commodity prices –
especially oil. Nevertheless, the US Fed continues to forecast inflation to
trend higher in a 1.5%-2% range in the years ahead.
3.0
—Futures Implied Rate – 29 August
—Futures Implied Rate – 18 September
—Futures Implied Rate – 22 October
—Lower bound – EMR forecast
—Upper bound – EMR forecast
2.5
2.0
1.5
1.0
US Inflation
%/yr Headline Consumer Price Index (CPI) and Core personal
consumption expenditure (PCE)
%/yr
6
5
0.5
0.0
2014
2015
2016
2017
Source: Bloomberg and Colonial First State Global Asset Management (CFSGAM)
4
3
The United Kingdom:
2
1
The UK economy was growing at a relatively robust 3.0%/yr as at
Q3 14. While the pace of growth could moderate to around 2.5%
in the year ahead, the economy is being supported by the housing
and construction market. In addition, the signs on corporate capital
expenditure are improving and the services sector is strengthening.
0
-1
-2
2013
2014
2011
2012
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
-3
—Headline CPI —PCE Core
Source: Bloomberg. Headline CPI to 30 September 2014 . Core PCE to 31 August 2014
With the improved economic outlook in the US, the Fed has been
progressively reducing or ‘tapering’ its quantitative easing bond
2
FIRST INSIGHTS QUARTERLY OCTOBER 2014
However, the greatest source of positive news in the UK has been
the labour market. From a peak of 8.4% at the end of 2011, the
unemployment rate has fallen to 6% in the three months to August
2014. This decline has been more rapid than the BoE’s expectations.
This is very good news for a broadening and deepening of the UK
economic recovery.
UK unemployment rate and inflation rate
Strong labour market, but limited inflation pressures
Australian dollar begins to slide
AUD/USD and RBA Commodity price index`
% 9.0
%
6
8.5
5
8.0
140.0
1.2
120.0
1.0
100.0
7.5
0.8
4
7.0
80.0
6.5
3
6.0
0.6
60.0
2012
2014
2010
2008
2006
2004
1982
2013
2014
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2001
2002
2000
—UK unemployment (LHS)—UK CPI (RHS)
2002
0.0
0
1998
0.0
4.0
2000
0.2
1996
20.0
1994
1
1992
4.5
1990
0.4
1988
40.0
1986
2
1984
5.5
5.0
—US–RBA Commodity Index (LHS)—AUD/USD (RHS)
Source: RBA. Data to 30 September 2014
Source: Bloomberg. Data to 31 August 2014
Based on the ongoing improvement in the UK economy, we expect
that the BoE will be the next major $ Bloc central bank to begin the
monetary policy normalisation process.
We are looking for an increase in the Bank Rate from the current 0.5%
in H1 15. The Governor of the BoE, Mark Carney, has stated that a rate
hike in “the spring” would be consistent with the BoE’s outlook for the
economy, but that he would need to be confident about the prospect
for higher wages growth before raising rates.
However, despite the strong labour market, both wages growth and
inflation remain very subdued, helping the BoE to remain patient on
rate hikes. At just 1.2%/yr in September, the UK CPI is near the lows
seen post-GFC, while the ex-food and energy core rate is running at just
1.5%. These rates remain below the BoE’s 2% inflation target – following
a number of years of over-shooting the target from 2010-2012.
Australia:
Australian economic data continues to show an economy running a
little below trend. The transition in growth away from mining related
capital spending towards net exports, housing and infrastructure is well
underway – but the path forward is not a smooth one.
After running at 3% in mid-2014, the headline inflation rate has
moderated to 2.3% as at Q3 14 as the carbon price comes off. The
underlying rate of inflation is 2.55% and is expected to remain well
within the RBA’s 2%-3% target range in the year ahead.
Given the benign inflation outlook, our view has been that for the RBA
to join the $ Bloc trend to tighten monetary policy two things would
need to occur – a fall in the AUD and a fall in the unemployment rate.
The former now looks to be underway with the AUD down to around
$US0.86-$US0.88 against a resurgent USD, well off the peak of
$US0.95 around the middle of the year. We would expect further
downside for the AUD in the months ahead.
The other key for the RBA is the unemployment rate. The RBA usually only
begins to raise interest rates once the unemployment rate has established
a firmly downward trend. At 6.1% in September the unemployment rate
remains elevated and is yet to firmly establish a downward trend.
Australian unemployment rate and cash rate
Unemployment rate needs to fall before rate hikes
%
9.0
8.0
8.0
7.0
%
6.0
7.0
5.0
6.0
4.0
5.0
3.0
2.0
4.0
1.0
3.0
1997
1999
2001
2003
2005
2007
2009
2011
2013
0.0
—Unemployment Rate (LHS)—Official Cash Rate (RHS)
Source: Bloomberg. Data to 30 September 2014
The other key development for Australia is in the housing market.
Demand for investor lending in the residential market has shot higher in
recent months. The RBA has expressed concern over the “imbalances”
in the housing market and has indicated that they could be persuaded
to use macro-prudential tools to better target housing lending.
While any use of macro-prudential tools could impact on the timing of
future monetary policy tightening, we expect the RBA to follow the US
Fed and begin to raise official interest rates around mid-2015. By this
stage, we expect the AUD to be lower and for the unemployment rate
to be in a firm downward trend.
3
1. The Great Divergence
Canada:
The BoC has held the overnight rate target at 1.0% since September
2010. Since that time economic growth has fluctuated around a
1%/yr-3%/yr range, but with little consistent momentum. This is not
surprising given Canada’s reliance on the US economy and as a major
exporting nation.
New Zealand:
Canadian economic growth
Annual pace of GDP growth
%/yr
The better economic outlook and move higher in inflation is set
to see the BoC join the generalised $ Bloc tightening cycle in Q3
15 – following on from the first rate hike from the US Fed. The BoC
could then be expected to progressively raise the official interest rate
through H2 15 and into 2016 – in-line with moves by the US Fed.
The New Zealand economy showed very strong momentum in the
first half of 2014 – with Q2 14 growth at 3.9%/yr. Low interest rates, a
record high level for the terms of trade, the rebuild of Christchurch, a
strong housing market and immigration inflows were all supporting the
economy.
8
6
4
2
0
New Zealand strong growth momentum
GDP – Actual v potential
-2
%
8.0
-4
6.0
2014
2013
2011
2012
2010
2009
2008
2007
2006
2005
2004
2003
2001
2002
2000
-6
—GDP %/yr
2.0
Source: Bloomberg. Data to 31 July 2014
However, the stronger US economy and the ongoing very easy nature
of financial conditions in Canada are expected to see growth accelerate
to the upper end of this range through 2015 (2.5%/yr in Q2 14). Recent
data for September shows the unemployment rate dropping to 6.8% well down on the GFC peak of 8.7% and the lowest rate in almost
six years.
Perhaps most significantly, the pace of inflation (as measured by the
BoC’s measure of core CPI) remained at 2.1%/yr in September, well up
from the levels around 1%-1.5% that prevailed through 2013 and H1 14
and is now above the mid-point of the BoC’s 1%-3% inflation target.
Canada inflation moves higher – Monetary policy set to
follow
Bank of Canada Core CPI and Overnight target rate
%
7
-2.0
RBNZ estimates
-4.0
2000
2002
2004
2006
2008
2010
2012
2014
—Potential —Actual
Source: Reserve Bank of New Zealand (RBNZ). Data to 30 September 2014
In response to the strong growth at the end of 2013 and into 2014,
the RBNZ decided to lift interest rates. From the post-GFC low of 2.5%,
the OCR was progressively raised between March and July by 100bp
to 3.5%.
We would expect the monetary policy tightening path to resume in
March 2015. The RBNZ expects a very smooth and gradual upward
drift in the 90-day bank bill rate over the next few years – peaking at
4.8% in late 2017.
5
4
Our expectations on monetary policy include a further 100bp of
tightening to 4.5%, stretched out from March 2015 to early 2016.
3
2
Although we note that New Zealand’s inflation rate fell to just 1.0%/yr
in Q3 14, from 1.6%/yr in Q2 14.
1
—Core CPI %/yr —Overnight Lending Rate
Source: Bloomberg. Date to 30 September 2014
FIRST INSIGHTS QUARTERLY OCTOBER 2014
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
0
2000
0.0
This process is now in “pause-mode”, with the RBNZ stating clearly in
September that they would take some time to assess the impact of
higher interest rates and a fall in key commodity prices.
6
4
4.0
New Zealand OCR and 90 day bill rate
Modest further tightening ahead
%
EU Inflation rate
Growing risk of deflation
%
9.0
RBNZ
estimates
8.0
5
4
7.0
3
6.0
5.0
2
4.0
3.0
1
2.0
0
1.0
0.0
1999 2001
2003 2005 2007 2009
2011
2013
2015 2017
—Official cash rate —90 day bank bill
-1
2000
2002
2004
2006
2008
2010
2012
2014
—EU CPI %/yr
Source: Bloomberg and RBNZ. Data to 31 August 2014. RBNZ estimates to
Source: Bloomberg. Data to 30 September 2014
September 2017
This deflation risk was recently highlighted by the President of the ECB,
Mario Draghi, and prompted further aggressive monetary policy action
in early September.
Europe:
Unfortunately, the outlook for Europe (EU) is not so positive. Economic
growth in the EU has slowed again and momentum on the reform
agenda looks to be suffering from fatigue and political uncertainties.
Not only are some of the peripheral EU nations still in the slow lane, but
the big countries – Germany, France, Italy – also look to have their fair
share of issues.
EU economic growth rate
GDP %/yr
%
6
In addition, with the ECB President stating that interest rates could fall
no further, he announced that the ECB will begin purchasing assetbacked securities (ABS) and covered bonds.
Draghi pledged to push the ECB’s balance sheet back up towards the
2012 level of close to €3 trillion, rather than the current level near
€2.0 trillion. This increase is expected to be through a combination of
the ABS and covered bond purchases, but will also include the ECB’s
targeted long-term refinancing operation (TLTRO) – which got off to a
very slow start in mid-September.
Referring to the asset purchase program as ‘credit easing’ (CE)
Draghi stated that “we want to make sure that these ABS are being
used to extend credit to the real economy. Today’s measures are
predominantly orientated to credit easing.”
4
2
0
There has also been recent speculation that the ECB will look to buy
non-financial sector corporate bonds.
-2
Full-blown quantitative easing (QE), ie the purchase of sovereign bonds
by the ECB, looks like it will, however, remain a very difficult bridge for
the ECB to cross – especially given clear reluctance by the Bundesbank
and some others to go this far.
-4
-6
2000
The ECB has cut its main refinancing operation interest rate to just 5bp,
while the deposit facility rate now stands at -20bp. These interest rate
reductions continue a long chain of policy easing.
2002
2004
2006
2008
2010
2012
2014
—EU GDP growth %/yr
Source: Bloomberg. Data to 30 June 2014
However, if the economic and inflation outlook continues to
deteriorate, and if the ECB’s balance sheet proves more difficult to
expand, it would not be surprising to see Draghi push the ECB towards
QE late in 2014 or early in 2015.
The biggest concern for the EU is, however, the significant risk of
deflation. At just 0.3%/yr in September the annual rate of inflation in
the EU is very low and the risk of a move into outright deflation is all
too real.
5
1. The Great Divergence
Japan:
All eyes on the US Fed:
The key to Japan is the ongoing policy of Abenomics (named after
Prime Minister Abe). As part of the “Three Arrows” policy the BoJ is
implementing a large scale qualitative and quantitative easing (QQE)
program, with official interest rates at zero.
The dominant factor in the global economy and markets over the
year ahead is expected to be the ongoing divergence between the
economic outlook and policy outcomes in the $ Bloc nations on one
hand and Europe and Japan on the other.
The BoJ’s target is to reach an inflation rate of 2% by 2015. Such
a move would be a dramatic change after decades of very low or
negative inflation (ie. deflation).
Despite the recent sharp increase in global market volatility, positive
economic trends are expected to see the start of the monetary policy
normalisation process in the $ Bloc nations; with rate hikes expected by
the BoE, RBNZ, US Fed, RBA and BoC – in that order – through 2015.
Indeed, when the QQE program started in early 2013 the annual
inflation rate in Japan was -0.9%/yr. This national headline inflation rate
is now at 3.3%/yr, but a significant part of this increase is due to the
rise in Japan’s Consumption Tax from 5% to 8% on 1 April 2014. Ex the
tax increase Japan’s inflation rate is around 1.5%, with some softness in
the economic data generally expected to push the inflation rate back
down to a range around 1%-1.5% in the months ahead.
Japan – Headline and Core inflation
Affected by Consumption tax increase
5
4
3
2
1
0
-1
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2000
-3
2001
-2
—Headline CPI %/yr —CPI ex food ex energy %/yr
Source: Bloomberg. Data to 31 August 2014
Speculation is mounting that the BoJ may need to increase the size
and scale of its QQE program – up from the current goal of increasing
the balance sheet by JPY60tr-JPY70tr at an annual pace.
While this remains an option, it is also likely that the BoJ will extend
out by at least a year the time-frame in which it is implementing QQE
and trying to hit the 2% inflation target – taking the QQE program well
into 2016.
As a result, we expect the BoJ to maintain zero interest rates and
lengthen and increase its QQE bond purchasing program in the
months ahead.
6
FIRST INSIGHTS QUARTERLY OCTOBER 2014
However, both the BoJ and the ECB are expected to keep interest rates
near-zero through 2015 and embark on further aggressive quantitative
easing programs.
This ‘great divergence’ between the developed nations is expected to
have a significant impact on financial markets:
–– Higher short-rates in the $ Bloc nations are expected to eventually
put upward pressure on government bond yields in those countries although this is likely to occur with yields starting from very low levels.
–– The increase in longer-dated yields in the $ Bloc nations could be
limited by lower inflation expectations and international investor
demand as yields in Europe and Japan remain at extraordinarily
low levels.
–– Yield curves could be expected, therefore, to flatten as shorter dated
yields rise faster than longer-dated yields.
–– Credit spreads could widen in the US as investors move out of bond
markets and may face liquidity concerns.
–– Equity market performance could be more mixed. A stronger US
economy is a positive for equities, but this could be offset by an
increase in business capital spending and labour costs – at the
expense of dividends and short-term profits.
–– The USD should continue to strengthen. This will especially be the
case against the EUR and Yen, but also against the other $ Bloc
currencies, GBP, AUD, CAD and NZD.
–– Most significantly, we should expect to see a continued rise in
financial market volatility – across all asset classes.
Section 2
Chart Pack
United States
Approaching the dual mandate! - employment
The US unemployment rate is near a six-year low at 5.9% in
September – with a monthly gain in employment of 248k
after a weaker number in August (revised up to +180k).
The unemployment rate is now just 0.1% point higher
than the Congressional Budget Office’s forecast for the
short term non-accelerating rate of unemployment
(NAIRU). This suggests the Fed is closing very quickly on at
least one-half of its dual mandate.
% 12
10
8
6
4
2015
2010
2005
2000
1995
1990
1985
1980
1975
1970
1965
1955
1950
0
1960
2
—US Unemployment Rate —CBO Estimate of Short-Term NAIRU
Source: Bloomberg and CBO. Data to 30 September 2014
Approaching the dual mandate? - inflation
%/yr
6
Headline inflation in the US is running at 1.7%/yr as at
September and has fallen from close to 2% in recent
months.
5
4
3
Core personal consumption expenditure (PCE) inflation is
now at 1.5%/yr and looks to be trending sideways.
2
1
This trend to slightly lower inflation in the near-term may
give the US Fed some ammunition in its desire to tighten
monetary policy only slowly. The recent strength in the
US dollar and lower oil prices will also help keep a lid on
US inflation.
0
-1
-2
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
-3
—Headline CPI —PCE Core
Source: Bloomberg. Headline CPI to 30 September 2014 . Core PCE to 31 August 2014
Market is under-pricing Fed rate hikes
%
4.0
3.5
3.0
In our view the market is under-pricing the extent and pace
of official interest rate hikes in the US.
—Futures Implied Rate – 29 August
—Futures Implied Rate – 18 September
—Futures Implied Rate – 22 October
—Lower bound – EMR forecast
—Upper bound – EMR forecast
This underpricing is not only relative to our own view on
the Fed, but also compared to what the Fed itself is telling
the market via the ‘dot plots’.
2.5
Indeed, the extent of ‘under-pricing’ in the market has
increased in October.
2.0
1.5
1.0
0.5
0.0
2014
2015
2016
2017
Source: Bloomberg and CFSGAM
7
2. Chart Pack
United States
US business investment is recovering
$US trn
%/yr
2200
15%
2050
10%
1900
5%
1750
0%
1600
-5%
1450
-10%
1300
2014
2012
2010
2008
2006
-20%
2004
1000
2002
-15%
2000
1150
US business investment is finally beginning to increase
in the US, which will be critical for a broadening and
deepening of the US economic recovery.
The concern to date is that this investment increase has
been centred on the energy sector and that the recent
falls in the oil price and the strength of the US dollar
could act to limit investment incentives in this sector at least in the short term.
 US Gross Private Domestic Investment Nonresidential Investment (LHS)
— US Gross Private Domestic Investment Nonresidential – annual growth (RHS)
Source: Bloomberg. Data to 30 June 2014
US dollar spot index has rallied sharply
Index
130
After a number of years of trending sideways, the US dollar
has begun to move higher. This appreciation has been
particularly strong against the Euro and Japanese Yen
which reflects the view that the US economic recovery
has seen an end to quantitative easing in the US and will
see an increase in interest rates through 2015. In contrast,
interest rates are stuck near zero in both Europe and Japan
and quantitative easing looks like it will be ramped higher.
Cyclically, therefore, we should expect to see more US
dollar strength in the months ahead.
120
110
100
90
80
2014
2012
2010
2008
2006
2004
2000
60
2002
70
Source: Bloomberg. Data to 21 October 2014
Mid-term elections loom – current Senate composition
The US mid-term elections on Tuesday 4 November could
be significant.
Current opinion polls point to the Republican Party
winning a majority in the Senate, which combined
with the majority they already have in the House of
Representatives, would mean that the Republicans have
a majority in both Houses.
n Democrats n Republicans
Source: Bloomberg
8
FIRST INSIGHTS QUARTERLY OCTOBER 2014
For the next two years, until the November 2016
Presidential election, the US would then likely see very
little in the way of major policy reform as the two
Republican Houses come up against the Democratic
President.
United Kingdom
UK economy growing nicely f GDP growth
%
The UK economy continues to surprise on the upside,
with growth of 3.0%/yr in Q3 14. While growth could
moderate a little in the quarters ahead, the strength
of the economy and, more specifically, the labour
market, should help the BoE begin the monetary policy
normalisation process in H1 2015.
6
4
2
0
-2
-4
2013
2014
2011
2012
2010
2009
2008
2007
2006
2005
2004
2003
2001
2000
-8
2002
-6
—UK GDP %/yr
Source: Bloomberg. Data to 30 September 2014.
UK unemployment rate falling fast
000s 400
9
300
8
200
7
%
6
100
5
0
4
-100
At 6.0% in the three months to August, the
unemployment rate has fallen sharply from the GFC
peak of 8.4% and is now well below the BoE’s previous
end of 2014 forecast.
3
-200
2
2013
2014
2011
2012
2010
2009
2008
2007
2006
2005
2004
2003
0
2002
1
-400
2001
-300
2000
One of the key areas of strength for the UK economy
has been the labour market.
 UK unemployment Growth, 3m on 3m, 000s (LHS) —UK unemployment Rate % (RHS)
Source: Bloomberg. Data to 31 August 2014
Lower inflation but the BoE has a challenge
%
6
Surprisingly, the strength of the overall UK economy and,
more specifically the labour market, has not yet fed into UK
inflation or wages growth.
5
Indeed, both these measures of cost pressures have
moderated in recent months.
4
3
However, given the lags usually involved in these sectors of
the economy, we would expect to see some generalised
upward trend in both inflation and wages growth through
2015 and beyond and this should help bring the BoE to the
monetary policy tightening table.
2
1
0
2001
2003
2005
2007
2009
2011
2013
—Inflation —Wages
Source: Bloomberg. Inflation data to 30 September 2014 and wages data to 31 July 2014
9
2. Chart Pack
Europe
Euro-area growth has turned down, further downside expected
%
Europe-wide economic growth is declining again. Q2
14 GDP was running at just 0.7%/yr and downside risks
remain. Not only are some of the peripheral European
nations experiencing significant economic weakness,
but some of the larger economies - Germany, Italy,
France, are also softening.
6
5
4
3
2
1
This economic weakness has been exacerbated by the
economic sanctions against Russia, with German exports
also down sharply in August.
0
-1
-2
-3
Further economic weakness across Europe is supporting
the ECB’s aggressive monetary policy actions.
-4
-5
-6
2000
2002
2004
2006
2008
2010
2012
2014
—EU GDP growth %/yr
Source: Bloomberg. Data to 30 June 2014
Inflation or deflation?
%
5
The biggest risk to Europe remains outright deflation. At an
annual inflation rate of just 0.3%/yr the EU is just one bad
print away from deflation.
4
3
This deflation risk is a driving force behind the ECB’s
aggressive monetary policy action.
2
With further downside risks to inflation we expect that the
ECB will eventually have to move towards sovereign bond
quantitative easing.
1
0
-1
2000
2002
2004
2006
2008
2010
2012
2014
—EU CPI %/yr
Source: Bloomberg. Data to 30 September 2014
ECB aiming to increase the size of its balance sheet
 tn
3.5
As part of its monetary policy easing plans, the ECB
has pledged to return its balance sheet back to around
its peak of 2012, near €3 trillion. This would imply an
increase from current levels of around €1 trillion.
3.0
2.5
The ECB hopes to achieve this goal via a combination
of the targeted long-term refinancing operation (TLTRO)
and purchases of asset-backed securities and covered
bonds.
2.0
1.5
1.0
0.5
0
2006
2007
2008
2009
2010
2011
—ECB Balance Sheet
Source: Bloomberg. Data to 3 October 2014
10
FIRST INSIGHTS QUARTERLY OCTOBER 2014
2012
2013
2014
However, the ECB may not be able to buy enough of
these bonds and the first round of TLTRO was underwhelming. The ECB could be forced, therefore, to
eventually start buying sovereign bonds in a full-blown
QE program.
Asia
China property prices by City Tier
Index
130
China’s property market continues its substantial
slowdown. The slowdown began in late 2013 and has
accelerated in the course of 2014. The slowdown is a
consequence of the rapid rise in prices through 2013
and the subsequent tightening policies that emerged
over the course of the last year. The tightening began
with the hikes in the SHIBOR rate in mid-2013. While
there has been some evidence that sales are increasing,
the physical construction cycle remains in the downturn phase and has yet to stabilise.
125
120
115
110
105
100
06/2014
01/2014
06/2013
01/2013
06/2012
01/2012
01/2011
90
06/2011
95
—Average —Tier 1—Tier 2 —Tier 3
Source: CEIC
China shift from textile exports
Ratio
10
As its currency strengthens and labour becomes more
expensive, the argument goes that China should be less
competitive. But in reality, much of China’s strength
comes from productivity. A good way to highlight
this is through looking at the volume of low value add
manufacturing exports, such as textiles, relative to
high-tech exports. In the early 2000s, China’s exports
moved rapidly to high-tech and capital goods relative
to textiles, but of late this trend has slowed. While
other economies have benefited from cheap labour,
China maintains growth in low-value exports like textiles
through productivity improvement.
8
6
4
2
0
2002
2004
2006
2008
2010
2012
2014
—Mechanical and Electronic to textiles —Hi-tech to textiles
Source: CEIC
Asia PMIs
Index
60
Asian PMIs have seen substantial improvement in the
last quarter. For five of the major Asian economies, PMIs
are all higher over the quarter. The strongest increases
have been in Japan and Taiwan. As importantly, all five
economies have PMI results that are above the important
level of 50. Part of the increase reflects much stronger
conditions in key export markets. Taiwan in particular is
seeing much stronger export orders for the first time in
two years.
55
50
-14
Au
g
ay
-14
M
No
v-1
3
Fe
b14
M
ay
-13
Au
g13
-13
Fe
b
No
v-1
1
Fe
b12
M
ay
-12
40
Au
g12
No
v-1
2
45
—Korea —Japan—Taiwan —India—China
Source: HSBC
11
2. Chart Pack
Asia
The Philippines mobile phone subscribers
One of the most apparent trends in global emerging
economies is the dramatic increase in the consumption
of electronic equipment over the last 15 years. This
data applies to mobile phones in the Philippines, but is
replicated across Asia. According to McKinsey, consumption
of communications equipment, recreational goods and
household products in emerging economies have risen by
545%, 605% and 240% respectively between 2000 and
2010. These growth rates far out-run actual GDP change in
the same period and reflect a substantial improvement in
first and second round productivity growth.
120,000,000
100,000,000
80,000,000
60,000,000
40,000,000
20,000,000
0
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
—No of mobile telephone subscriber: Total
Source: CEIC
Japan’s Tankan Index Large Manufacturers - points to growth
Index
40
After moderating to +12 in June 2014 (from +17 in March)
after the increase in the Consumption Tax on 1 April to
8% from 5%, the Large Manufacturers Tankan index rose
to +13 in September.
30
20
10
0
This index still lags behind the post Abenomics peak
of +17 in March and is adding to concerns that the
economic bounce back from the tax hike has been
insufficient to see inflation push sustainably towards the
2% target.
-10
-20
-30
-40
-50
-60
-70
2000
2002
2004
2006
2008
2010
2012
2014
—Tankan business conditions large enterprises – Manufacturing
Source: Bloomberg. Data to 30 September 2014
Japan’s inflation rising, wages need to catch up
%
4
The primary goal of Abenomics is to get the inflation
rate up to 2% on a sustainable basis. From -0.9%/yr at
the start of the process, inflation had climbed to 1.5%/yr
just prior to the Consumption Tax hike. Post the tax hike
the headline inflation rate jumped to a high of 3.7%/yr
in May, but is at 3.3%/yr as at August 2014.
2
0
-2
Further declines back to a range around 1%-1.5% are
expected in the months ahead as the impact of the tax
hike washes through the data.
-4
-6
-8
2000
2002
2004
2006
2008
2010
—CPI —Wages growth
Source: Bloomberg. Data to 31 August 2014
12
FIRST INSIGHTS QUARTERLY OCTOBER 2014
2012
2014
Wages growth has recently also accelerated given the
tax hike and this will be important to ensure a sustained
increase in consumer activity.
Australia
Economic growth rate has recovered
%
6
RBA
forecasts
5
Australia’s economic growth rate surprised on the
upside in Q2 14, coming in at 3.1%/yr.
However, growth is expected to moderate through
H2 14 and into 2015 as the sources of economic
growth in Australia continue to transition from mining
related capex to net exports, housing and infrastructure
spending.
4
3
The RBA sees growth moderating to around 2.5% into
2015, before accelerating again through 3% into 2016.
2
1
0
2000
2002
2004
2006
2008
2010
2012
2014
2016
—GDP growth %/yr
Source: Bloomberg, data to 30 June 2014. RBA forecasts from August Statement on Monetary Policy
Unbalanced lending in the housing market
$Abn
12
The RBA has recently described the housing lending
market as “unbalanced” given that lending to investors
has recently passed lending to owner-occupiers for the
first time ever.
10
8
This investor interest in housing seems centred around
Sydney and Melbourne and has an element of domestic
investor interest, international investor demand and buying
through self-managed superannuation funds – although
the data on each of this sectors is hard to come by.
6
4
2
0
2000
2002
2004
2006
2008
2010
2012
2014
—Owner occupied new homes —Owner-occupiers – established refinancing
—Investor new houses —Investor – established homes
Source: ABS. Data to 31 July 2014
This lending ‘imbalance’ is leading the RBA to publically
debate the merits of macro-prudential controls, rather
than higher interest rates, to try and limit the macroeconomic implications of any rapid slowdown in this
sector of the market.
Australian dollar still looks overvalued compared to iron ore price fall
Iron ore price $US / mt
210
AUD USD
1.2
190
1.1
170
1.0
150
0.9
130
110
0.8
90
0.7
70
50
2009
2010
2011
2012
2013
2014
The Australian dollar has finally begun to shift lower. Part
of this depreciation is due to the recent strength of the
US dollar, which is up against most currencies.
However, the AUD is also being led lower by some
significant falls in key Australian commodity prices,
especially for iron ore.
It is worthwhile noting, however, that as the lowest cost
producer of iron ore in global markets, the impact on
Australian producers is likely to be significantly lower
than that on other global suppliers.
0.6
—Iron Ore (LHS)—AUD USD (RHS)
Source: Bloomberg. Data to 23 October 2014
13
2. Chart Pack
Australia and New Zealand
Australia’s unemployment rate elevated amongst data issues
000s
%
80
8
60
7
6
40
5
20
4
0
3
-20
2
-40
-60
2000
1
2002
2004
2006
2008
2010
2012
2014
0
n Employment change(LHS)—Unemployment rate (RHS)
Australia’s labour force data has been very volatile of
late and the Australian Bureau of Statistics (ABS) has
admitted that the seasonal adjustment factor they use
for this series has broken down, so only ‘original’ data
has been reported for the past 3 months.
Trying to interpret Australia’s employment data is
therefore now even harder than it was previously, a
certainly an unsatisfactory situation.
Nonetheless, the data does show a slight drift
upwards in Australia’s unemployment rate to 6.1% in
September.
The RBA will be looking for the unemployment rate
to begin to trend lower on a sustainable basis before
turning their mind to monetary policy tightening.
Source: ABS. Data to 30 September 2014
NZ GDP likely to have peaked
%
New Zealand economic growth accelerated to 3.9%/yr
in Q2 14, supported by the previous low level of interest
rates, record high dairy prices, the housing market and
reconstruction activity in the Canterbury district.
8
6
4
However, this growth momentum should moderate
through H2 14 and into 2015 on the back of the 100bp
of monetary policy tightening from the RBNZ and a
recent sharp fall in dairy prices.
2
0
-2
-4
2000
2002
2004
2006
2008
2010
2012
2014
Source: Bloomberg. Data to 30 June 2014
NZ Terms of trade at record highs, but falls expected as dairy price weakens
Index
1500
Index
300
1400
250
1300
200
1200
1100
150
1000
100
900
800
2000
2002
2004
2006
2008
2010
2012
2014
50
—Terms of trade Index (LHS)—CBA NZ Commodity Dairy Price Index in USD (RHS)
Source: Bloomberg. Terms of trade to 30 June 2014, CBA NZ Commodity Price Index to 30 September 2014
14
FIRST INSIGHTS QUARTERLY OCTOBER 2014
The New Zealand dollar has begun to depreciate against
the stronger US dollar and this has been welcome news for
the RBNZ and the export sector.
New Zealand’s terms of trade also looks set to decline
meaningfully in coming quarters with dairy prices well
off their highs and as other key commodity markets
respond to slower growth amongst New Zealand’s major
trading partners.
Section 3
Market Watch
Financial markets overview – equities and bonds
*All returns and yields are in local currency terms.
After strong asset market returns in the second quarter of 2014, global
financial market volatility picked up in the third quarter, leading to mixed
results in global equity and bond markets. Geopolitical risks remained
centre stage, with an escalation of security issues in the Middle East as well
as growing concern over the Ebola outbreak.
US equity markets were buoyed for most of the quarter as the US Federal
Reserve (‘the Fed’) continued its taper of the quantitative easing (‘QE3’)
program and the chance of an interest rate hike still appeared to be a
distant prospect. However, deteriorating sentiment towards the economic
outlook in Europe was not offset by further aggressive monetary policy
action by the European Central Bank (‘ECB’), with European equity markets
ending the quarter in the negative.
Overall volatility remained low in the quarter, as measured by the Chicago
Board Options Exchange Volatility Index (‘the VIX’). The Index averaged
13.05 over Q3 14, compared to 12.76 in Q2 14 and 14.25 in 2013. It is
expected volatility will continue to pick up as the first US Fed tightening
comes closer.
As noted, the US Fed continued its reduction or ‘tapering’ of the QE3
bond asset purchase program over Q3 14. At both its July and September
meeting the Fed tapered by $US10bn, with bond buying down to $US15bn
per month in September. The Fed has suggested that they will finish the
QE3 program in October 2014 with a final $US15bn taper.
At the same time as the Fed appeared to be closing in on its first move
in interest rates, the European Central Bank (‘ECB’) moved in the opposite
direction. Official interest rates were cut further, with the main refinancing
rate cut by 10 basis points to 0.05% and a “credit easing” program
announced. These decisions were driven by falling inflation expectations
and signs of a deteriorating economic outlook.
This divergent policy outlook continues to highlight the start of the “great
divergence” in terms of market outcomes, particularly currency moves,
bond yields and the growth outlook. This is expected to the largest driver
of financial markets over the next 12 months.
Overall global developed equity markets fell in the September quarter, with
the sharpest falls occurring in the month of September. US dollar strength
was a key theme impacting all asset classes, with the US dollar spot index
rising 7.7% to its highest level since June 2010. This had a significant
impact on emerging market equities and commodities over the quarter.
US dollar strength was driven by further signs of improvement in the US
economy and the market fine tuning its views of the timing of the first
move by the Fed.
Overall, the MSCI World Developed Markets Index fell by 2.6% in the
quarter to return 10.0% over 12 months.
In the US, the S&P500 Index (+0.6%) reached a new all-time high on 18
September, before falling into quarter end, post the September Federal
Reserve meeting and the realisation by investors that interest rate rises
were likely to occur in mid-2015. High frequency US economic data also
showed an economy growing above trend, with Q2 14 GDP growth revised
up to a 4.6% seasonally-adjusted-annualised-rate, driven by upgrades to
business investment and indicating a broadening and deepening of US
economic growth. The energy (-10.0%) sector was the weakest performer
given the fall in the oil price (-13.5%), while IT (+3.4%) outperformed.
European equities (Euro Stoxx 50 Index, -0.1%) retreated over geopolitical
risks, with further sanctions against Russia and also signs that Europe’s
largest economy, Germany was slowing. Falls came despite aggressive
policy action by the ECB, with concerns over the medium term outlook
for inflation and economic growth. There was also the realisation that
more aggressive fiscal policy action and structural reform was required by
national governments, with limits as to what ECB measures alone could
achieve. In equity markets, Germany (-3.6%) fell heavily, while Italy (-1.8%),
Spain (-0.9%) and France (-0.1%) posted more modest falls. UK (-1.8%) also
fell despite the Scottish referendum resulting in a ‘no’ vote.
The Japanese equity market (Nikkei 225 Index, +6.7%) rose sharply, assisted
by falls in the Japanese yen. The JPY fell 8.2% over the quarter, buoying the
earnings of Japanese exporters.
The MSCI EM Index fell by 4.3% in Q3 14, underperforming the developed
world index, with falls largely driven by the stronger US dollar. The Russian
market retreated on geopolitical concerns, falling 4.4%, while the JCI Index
in Indonesia rose 5.3% on the election win by Joko Widodo and the hope
for reform in that country. The JPMorgan EMBIG sovereign bond yield rose
by 45bp to finish at 5.76% by September quarter-end.
Weakness in September resulted in a negative return for the Australian
sharemarket in the first quarter of the 2014/15 financial year. The S&P/ASX
200 Accumulation Index declined by 0.50%.
Longer-dated sovereign bond yields in the US, UK, Europe and Japan
finished the September quarter lower. The 10-year US Treasury bond
ended the quarter little changed (-5bp), reaching a 14-month low of
2.27% on 28 August, before increasing as bonds came under some
pressure in September amid heightened market expectations that the
US Fed was getting closer to a first rate hike. However, the Fed resisted
pressure to signal an earlier-than-expected normalisation of policy in 2015
at its FOMC meeting, though there was an increase in FOMC member
interest rate forecasts. This, together with weaker economic data releases
in China and Europe, along with an escalation of geo-political event risk
in the Middle East and Hong Kong, triggered a global turn in momentum
which pushed yields lower at quarter-end. The 10-year US Treasury yield
finished Q3 14 at a yield of 2.43% (-5bp).
Ten-year German Bund yields rallied sharply by 35bp to 0.90% over
the quarter, as economic data continued to disappoint and inflation
expectations continued to fall, reaching 5-year lows in September. The
10-year UK Gilt yield fell by 36bp to 2.31% during the September quarter,
dragged lower by risk aversion associated with a weakening of the
economic growth outlook in continental Europe and rising geopolitical
risks. The 10-year JGB yield remained range bound during the September
quarter, finishing 6bp lower at 0.50%.
Longer-dated Australian bond yields followed a similar trajectory to the
US Treasury. The 10-year Commonwealth Government Securities (CGS)
yield declined by 6bp to 3.48%, performing broadly in-line with the
equivalent US Treasury yield (-5bp to 2.43%). Longer-dated CGS remained
well bid with little sign that a weakening in the Australian dollar (AUD) was
sapping still-strong international demand for higher-yielding AAA-rated
Australian paper.
15
3. Market Watch
United States
–– Taper time: The US Fed continued its ‘tapering’ of its QE3 bond
purchase program by $US10bn in both its July and September
meeting. By September 2014, the Fed’s monthly asset purchases
were $US15bn per month, down from $US85bn per month at the
end of 2013. In addition, the Fed is expected to complete its QE
exit in October 2014.
–– In addition the Fed laid outs its “Policy Normalization Principles
and Plans” at its September meeting, which were last updated
in June 2011. In brief, the Fed will move the federal funds rate
into the target range set by the FOMC primarily by adjusting the
interest rate its pays on excess reserve balances, but will also
utilise the overnight repurchase agreement facility and other
supplementary tools to help control the federal funds rate.
–– The Fed intends to reduce its balance sheet in a gradual and
predicable manner by ceasing to reinvest payments of coupon
income on securities it owns, but expects to do this after it begins
raising rates. The Fed also does not anticipate selling agency
mortgage-backed securities as part of the normalisation process.
In the medium-term it is anticipated that the Federal Reserve will
hold no more securities than necessary to implement monetary
policy efficiently and effectively and it will hold primarily Treasury
securities.
–– New forecasts: At its September meeting, the FOMC members
updated their key economic and interest rate forecasts. Revisions
for 2015 and 2016 were minimal. The Fed expects growth of
2.3%-2.5% in 2017 and an unemployment rate of 4.9%-5.3%, ie.
below the long-run estimate of 5.2%-5.5%. Inflation in 2017 is
expected to be on-target at 1.9%-2.0%. For end 2015, the ‘dot’
for the median Fed Funds rate has moved from 1.125% (ie. a
range of 1%-1.25%) to 1.375% (ie. a range of 1.25%-1.5%). The
range for 2015 is 0.125% to 2.875%.
16
FIRST INSIGHTS QUARTERLY OCTOBER 2014
–– For end 2016, the median ‘dot’ has moved from 2.5% to 2.875%
(ie. a range of 2.75%-3.0%). The range of forecasts for 2016 is a
wide 0.375% to 4%.
–– For 2017, the Fed is forecasting a median of 3.75% for the Fed
Funds rate and a range of 2% to 4.375%
–– Approaching the dual mandate: In a sign that the US economy
is now having a job creation recovery, the unemployment rate
reached 5.9% at the end of September 2014, down from 6.1% at
the end of June 2014. Over the quarter 671,000 jobs were added
to the US economy and the unemployment rate inched ever closer
to full-employment, which according to the Congressional Budget
Office is currently 5.8%. This suggests the Fed is ever closer to onehalf of its dual mandate. However, other measures of the labour
market, including long-term unemployed, the participation rate
and wages growth, all suggest there is more slack in the labour
market than at first glance. The other side of the dual mandate,
inflation, suggests the Fed remains someway from meeting its
objective. US CPI slowed to 1.7%/yr to August 2014, down from
2.1%/yr in June. Lower food and energy prices contributed to
the fall and suggests a degree of weaker inflation pressures than
expected at this point in the economic cycle.
–– Strong Q2 GDP growth: After a weak Q1 14 due to a cold winter,
Q2 14 GDP data was recorded at its third estimate at 4.6% on a
seasonally-adjusted-annualised-rate. This is the fastest rate since
Q4 11, and was driven by increased investment by businesses and
improved household consumption. Leading indicators suggest
growth should remain above trend in Q4 14, with the University
of Michigan Consumer Confidence Index rising from 82.5 at end
of June to 84.6 at end of September while the ISM Manufacturing
Index also rose from 55.3 to 56.6 over the same period.
Europe
United Kingdom
–– Interest rates hit the lower bound in Europe: The ECB cut
all three of its key interest rates in a somewhat surprise move
at its 2 October 2014 meeting. The main refinancing operation
interest rate was cut by 10bp to just 5bp, the marginal
lending facility rate was cut by 10bp to 30bp, and the deposit
facility rate has been cut by 10bp to -20bp. These interest
rate reductions continue a long chain of policy easing. ECB
President, Mario Draghi announced that interest rates could
fall no further and the ECB would embark on a “credit easing”
program that aims to increase the size of its balance sheet
back up towards the 2012 level of close to €3 trillion from the
current level of closer to €2 trillion. The ECB will buy covered
bonds and asset-backed securities as part of this program with
the increase in its balance sheet also taking into account its
Targeted Longer-Term-Refinancing-Operation (TLTRO).
–– Bank of England stays the course: The Bank of England
(BoE) left interest rates on hold over the quarter, although in
both August and September, two members, Ian McCafferty
and Martin Weale, of the nine member board voted to increase
the Bank Rate by 25bp. This was the first dissent since July 2011.
These two members argued that economic circumstances
were sufficient to justify an immediate rise in the Bank Rate
and even after this rise, policy would remain extremely
supportive. The BoE Governor, Mark Carney, stated that a
rate hike in “the spring” 2015 would be consistent with the
BoE’s outlook for the economy, but that he would need to be
confident about the prospect for higher wages growth before
moving to raise interest rates. At this stage, inflation figures
are showing no signs for an immediate rise in the Bank Rate.
Inflation numbers for August, the most recent data, shows
headline inflation at 1.5%/yr, well below the BoE’s 2% target
and core inflation at 1.9%/yr.
–– Economic outlook deteriorates: In announcing the further
monetary policy easing, the ECB also lowered its growth and
inflation forecasts. For 2014, GDP growth is now estimated at
0.9% (1.0% previously), with 2015 growth estimated at 1.6%
(1.7% previously). The 2016 growth forecast was revised up
marginally from 1.8% to 1.9%. Inflation is now forecast at 0.6%
in 2014 (previously 0.7%), with the 2015 estimate unchanged
at 1.1% and the 2016 forecast unchanged at 1.4%. In terms of
recent economic data, preliminary GDP data released indicated
flat growth for Q2 14, taking annual growth to just 0.7%/yr.
Importantly, Germany contracted over the quarter, recording
-0.2%/qtr, while Italy recorded its second quarter of negative
growth. On the upside, Spain continued its economic recovery,
with growth of 0.6%/qtr recorded.
–– Inflation continues to head quickly towards deflation:
Annual inflation slowed to 0.3%/yr in September, from 0.5%/
yr in June. Deflation remains the key risk in Europe. Recent
ECB action as well as these inflation numbers helped the euro
depreciate over the quarter, falling 7.8% against the US dollar.
–– UK economy strengthens: The UK economy has been
growing strongly, with Q2 14 growth at 0.9%/qtr and 3.2%/
yr, supported by consumer spending (+0.6%/qtr), government
spending (+1.0%/qtr) and business investment (+3.3%/qtr)
and indicates the UK economic recovery is broadening and
deepening. This growth has been reflected in continued
improvements in the labour market. The UK unemployment
rate fell to 6.2% as at July 2014, down from 6.6% three months
prior. Employment growth has accelerated to 2.6%/yr. The
unemployment rate has retreated despite a strong uptick in
the participation rate. However despite these improvements
in the labour market, there have not been any signs of wages
growth, which stood at 0.7%/yr in August 2014, down from
1.9%/yr as at March.
–– Scotland votes ‘no’: The people of Scotland voted to remain
within the UK by a margin of 55%-45% at a referendum on
18 September.
17
3. Market Watch
18
Japan
China
− No change from the Bank of Japan: The Bank of Japan’s
(BoJ) policy board decided by unanimous vote to leave current
monetary policy settings unchanged, as expected at all
meetings over the quarter. The BoJ will continue to carry out
money market operations so that the monetary base increases
by around ¥60-70trn a year. It is currently expected that the BoJ
will eventually announce an acceleration of its asset purchases
as part of its QQE program.
− Growth finished Q2 14 in a reasonable state: Q2 14 GDP data
was released showing 2% growth over the quarter, compared to 1.5%
in Q1 14. This took the annual growth rate to 7.5%, up from 7.4% for
the 12 months to March 2014. The expansion from earlier in the year
was assisted by the government’s mini-stimulus measures that were
introduced over the quarter. These included bringing forward railway
spending, reducing reserve requirement ratios for some lenders and
fine tuning tax policies.
− Economic data in Japan mixed: The quarterly Tankan
index was released for Q3 14, with the large manufacturers
index rising 1 point to 13, helped by increasing orders from
the US and the recent depreciation of the Yen. However for
large non-manufacturers. the index fell by 6 points to 13, with
the fall largely driven by the increase in the consumption tax.
The outlook for large non-manufacturers also fell by 2 points
to 13. Other data (predominantly for August, but released in
September) was mixed, still dealing with the after-effects of the
consumption tax rise. Machine orders (+35.5%/yr); bank lending
(2.3%/yr); unemployment rate (3.5%), retail sales (+1.9%/
mth, 1.2%/yr), consumer confidence (41.2pts); composite PMIs
(52.8pts, up from 50.0pts in June). Japanese inflation did begin
to fall, down to 3.3%/yr in August from a peak of 3.7%/yr in May
post the consumption tax hike. The final estimate for Q2 14 GDP
was -1.8% for the quarter and -7.1% in a seasonally-adjustedannualised-rate, led lower by falls in consumption post the
sales tax hike.
− However mixed signals for Q3 14: The HSBC manufacturing PMI
averaged 50.7 for the September quarter, compared to 49.4 in the
June quarter, however there were mixed signals elsewhere on the
Chinese economy. Industrial production slowed to 6.9%/yr for August,
compared to 8.8%/yr three months prior. There has also been a
slowdown in fixed asset investment and retail sales. Inflation pressures
remain well contained, with CPI data for August recorded at 2.0%/yr,
compared to 2.5%/yr in May.
FIRST INSIGHTS QUARTERLY OCTOBER 2014
− Concerns reflected in falling iron ore price: Over the September
quarter, the iron ore price fell 17% which took the iron ore price to
$US78.05 per dry metric tonne for 62% fines on rising supply and
questions over the demand profile from China. The iron ore price has
now fallen 46% from its most recent peak in August 2013.
−P
roperty market continues to slow, but new measures
announced: Property prices continued to weaken with prices in 68
out of 70 cities falling in August, compared to 15 out of 70 in May. The
weakness in the residential property market prompted policy makers to
ease property restrictions for the first time since the GFC. The People’s
Bank of China (PBOC) has lowered down-payments and mortgage
rates for those applying for a loan to buy a second home. It was also
announced that people applying for mortgages to buy a second home
may be treated as first-time home buyers as long as they have paid
off their previous mortgage. These new policies are a response to the
weaker property market data evident in recent months.
Australia and New Zealand
− The RBA on hold: The Reserve Bank of Australia (‘RBA’) left the cash
rate unchanged at 2.5% at its Board meetings during the September
quarter, which means interest rates have now been left on hold for
thirteen months. There was no change to the Board’s neutral policy
‘guidance’ and signal that there is likely to be “a period of stability in
interest rates”. Instead the RBA has turned its attention to the housing
market. The RBA minutes for its September meeting stated “for
investors in housing, the pick-up in housing credit growth had been
more pronounced than for owner-occupiers, with investor demand
particularly strong in Sydney and, to a lesser extent, Melbourne”.
“Members further observed that additional speculative
demand could amplify the property price cycle and increase the
potential for property prices to fall later. The main risks in such a
scenario would likely be to the stability of the macro-economy rather
than the financial system, particularly if households were to react to
declines in their wealth by cutting back on their spending”.
− This raised discussion on whether the RBA, in conjunction with
the Australian Prudential Regulation Authority (APRA), will look at
introducing new macro prudential tools to cool the housing market,
with a focus on the investor segment in particular. This discussion
is ongoing. As at June 2014 annual house price growth was 10.4%
compared to 5.3% a year earlier.
− Economy still running slightly above trend: Australian GDP growth
increased by 0.5%/qtr to 3.1%/yr, down slightly from its 3.4%/yr pace
in Q1 14 but still just above trend growth. The main contributors to
growth were Inventories (+0.9%pts), household consumption (+0.3%pts)
and private gross fixed capital formation (+0.3%pts). Offsetting this was
net exports which detracted -0.9%points after its strong contribution
in Q1 14. Economic data for the third quarter was mixed with the
Westpac-Melbourne Institute index of consumer confidence averaging
95.13 in Q3 14 compared to 96.33 in Q2 14. Issues surrounding Budget
changes continue to negatively impact sentiment. Retail sales growth
as a result has been hovering at just above 5% the past three months.
Business confidence fared better with the NAB Business confidence
survey remaining well above its 2013 average, with the latest figure
of 7.8, compared to the 2013 average of 3.1. Survey methodology
changes and seasonality issues have led to interpretation problems with
recent employment figures, with data being revised significantly. The
unemployment rate for September was 6.1%, compared to 6.0% at the
end of June.
− Australian dollar falls sharply. The Australian dollar (AUD) fell
sharply in the September quarter, down by 7.3% to finish September
at $US0.8746, the lowest level since January 2014. The Australian
dollar retreated on concerns over weaker China data and iron ore price
weakness. There were concerns over the Australian housing market and
the possibility of new macro prudential tools to be introduced. However
USD strength was a key factor for the falls. Despite these falls, the RBA
in its October meeting still described the Australian dollar as being
“high by historical standards” given recent falls in commodity prices.
− New Zealand economy recorded fast pace of growth: Q2 14
GDP data showed the New Zealand economy recording growth of
0.7%/qtr and 3.9%/yr, well above trend growth. It is expected this
growth rate will moderate over coming quarters, with the fall in the
terms of trade due to lower dairy prices and a slowdown in domestic
economic activity due to the Reserve Bank of New Zealand (RBNZ)
lifting interest rates four times between March and July 2014 to 3.5%.
There are, however, still positive sources of growth, driven largely
by record net migration and continued construction activity from
the earthquake rebuild. The NZ dollar has started to retreat, like the
Australian dollar, but has been assisted by the RBNZ intervening in the
currency market and selling net $NZ521mn of NZ dollars in August.
19
Section 4
Economic Forecasts October 2014
United States
USA
%/yr
GDP
Inflation – Core PCE
Monetary policy – Rates
Monetary policy –
Other
2014
Consensus
2.2
1.5
0%-0.25%
QE3 ends in October
2014. No rate hike.
2014
EMR
2.1
1.5
0%-0.25%
2015
Consensus
3.0
1.8
0.95%
2015
EMR
3.0
1.8
1.0%-1.25%
QE3 ends in Rate hikes start Q3 Rate hikes start June
October 2014.
15 and continue
2015 and continue
No rate hike.
through H2 15.
through H2 15.
Comments:
–– GDP: After the weather affected Q1 14 GDP slump of -2.1%saar, the
Q2 14 GDP report showed a stronger-than-expected rebound of
+4.6%saar. This recovery was led by a welcome pick-up in business
capital spending, with solid gains also in consumer spending and
demand for services.
–– Data into Q3 14 has showed ongoing recovery in the US economy,
especially the labour market – with a 248k rise in September
employment and a decline in the unemployment rate to 5.9%.
Further gains in employment, wages, consumer spending and capital
expenditure should see growth move to 3%/yr over the second half
of 2014 and well into 2015. Beyond that growth should ease back as
monetary policy normalisation gets underway.
2016
Consensus
2.9
2.0
2.0%
2016
EMR
3.0
2.0
2.5%-2.75%
Long Term
Consensus
2.5
2.0
3.75%
Long Term
EMR
2.0
2.0
3.5%
Rate hikes continue Rate hikes continue Rate hikes continue
through 2016.
through 2016. towards new neutral
rate of 3.75%.
Rate hikes peak at
new neutral rate of
3.5%.
–– Inflation: After moving up to a little over 1.5%/yr in May, the US
Core PCE measure of inflation has drifted marginally lower in recent
months. The strength of the USD is expected to put some further
downward pressure on inflation and we have lowered our 2014
estimate to 1.5% from 1.6% and our 2015 estimate to 1.8% from
2.0%. Further out we see inflation at the Fed’s 2% target.
–– Monetary policy: The Fed’s QE3 bond purchase program is expected
to end at the 28-29 October FOMC with a final ‘taper’ of $US15bn.
–– We continue to expect the first rate hike in June 2015, with tightening
to follow at each meeting after that through H2 15. Further rate hikes
are then expected through 2016 and 2017 on the way to the (new)
neutral rate around 3.5%.
–– Once QE3 ends, the Fed is not expected to sell any of the bonds it
holds on balance sheet, but is expected (by us) to begin to cease
reinvesting coupon income in H2 2015.
United Kingdom
UK
%/yr
GDP
Inflation – CPI
Monetary policy – Rates
Monetary policy –
Other
2014
Consensus
3.0
1.7
0.5%
2014
EMR
3.2
1.6
0.5%
2015
Consensus
2.6
1.8
1.4%
2015
EMR
2.6
2.0
1.5%
2016
Consensus
2.3
2.0
N/A
No further QE.
No rate hike.
No further QE.
No rate hike.
Rate hikes to
begin H1 15.
Rate hikes to
begin H1 15.
Further modest
rate hikes.
Comments:
–– GDP: Economic growth in the UK has continued to strengthen, rising
by 3.2%/yr in Q2 14. We hold to our 2014 forecast of 3.2%, but have
revised up our 2015 forecast to 2.6% (previously 2.5%). The primary
source of upside surprise in the UK remains the labour market, as the
unemployment rate continues to decline.
–– Inflation: After a number of years of over-shooting the BoE’s 2%
inflation target (ie. inflation was 4.5% in 2011, 2.8% in 2012 and 2.6%
in 2013), the pace of inflation looks like it will remain under the target
in 2014, with a forecast of 1.6% in 2014. Over the next few years we
continue to expect the inflation rate to average around 2%.
20
FIRST INSIGHTS QUARTERLY OCTOBER 2014
2016
EMR
2.5
2.0
2.5%
Long Term
Consensus
2.5
2.0
2.5%
Long Term
EMR
2.0
2.0
3.0%
Further modest
Rates to settle
Rates to settle
rate hikes. around new neutral. around new neutral.
–– Monetary policy: With the unemployment rate having fallen to 6.0%
the time for the first rate hike from the BoE is drawing near. However,
low inflation and wages growth has seen us push back the first rate
hike from Q4 14 to H1 15. Further rate hikes are then expected
through 2015 and 2016 as the monetary policy normalisation process
continues. No further quantitative easing is expected in the UK.
Europe
Europe
%/yr
GDP
Inflation – CPI
Monetary policy – Rates
Monetary policy – Other
2014
Consensus
0.8
0.5
0.05%
2014
EMR
0.8
0.5
0.05%
2015
Consensus
1.2
1.0
0.05%
2015
EMR
1.0
0.9
0.05%
2016
Consensus
1.5
1.4
N/A
Targeted LTRO and Targeted LTRO and Targeted LTRO and
asset purchases.
asset purchases.
asset purchases.
Targeted LTRO and
asset purchases,
including sovereign
bond QE.
Targeted LTRO and
asset purchases.
Comments:
–– GDP: The economic data coming out of Europe continues to disappoint.
In quarterly terms growth was just 0.3%/qtr in Q1 14 and 0.2%/qtr in
Q2 14. The risk, therefore, of the whole of the EU slipping back into
recession (ie. two negative quarters) has grown. In annual terms growth
has slowed to just 0.7%/yr in Q2 14 and calendar 2014 forecast have
been revised down by both us and the consensus. Indeed, growth
forecasts for the EU have been revised lower right across the forecast
period out to the long term.
–– Inflation: The biggest risk to the EU now looks to be outright deflation,
with the annual pace of inflation at just 0.3%/yr in September.
Aggressive policy action by the ECB and the sharp weakening of the
EUR should help push inflation up from current levels, but the inflation
forecasts have also been lowered across the forecast horizon.
2016
EMR
1.5
1.3
0.05%
Long Term
Consensus
1.6
1.5
N/A
Long Term
EMR
1.0
1.0
2.0
Targeted LTRO and Significant period of Significant period of
asset purchases, very easy monetary very easy monetary
including sovereign
policy.
policy.
bond QE.
–– Monetary policy: Led by Mario Draghi, the ECB has eased monetary
policy more aggressively. The main repo rate has been cut to just
0.05%, while the rate the ECB pays banks for deposits is now -0.2%.
Draghi has pledged to return the ECB’s balance sheet to around
€3 trillion from closer to €2 trillion currently, through a combination of
the TLTRO (targeted long-term refinancing operation) and asset-backed
and covered bond purchases. We think, however, that to achieve
the balance sheet objective the ECB will need to eventually begin a
sovereign bond QE program.
Japan
Japan
%/yr
GDP
Inflation – CPI
Monetary policy – Rates
Monetary policy – Other
measures
2014
Consensus
1.0
2.8
0%
2014
EMR
1.2
2.8
0%
2015
Consensus
1.2
1.8
0%
2015
EMR
1.3
1.8
0%
2016
Consensus
0.8
1.9
0%
2016
EMR
1.2
2.0
0%
Long Term
Consensus
1.0
2.0
0%
Long Term
EMR
1.25
2.0
0%
Steady QQE.
Steady QQE.
Steady QQE.
QQE extended
out to 2016.
QQE remains
in place.
Extended QQE
remains in place.
QQE eventually
wound back.
QQE eventually
wound back.
Comments:
–– GDP: After surging by 6%/yr in Q1 14 ahead of the 1 April increase in
the Consumption Tax from 5% to 8%, GDP fell by -7.1%/yr in Q2 14.
In quarterly terms a gain of 1.5%/qtr in Q1 14 was replaced by a fall
of -1.8%/qtr in Q2 14. Data released so far for Q3 14 shows a more
limited rebound than expected and so 2014 growth forecasts have
been revised down by both us and the consensus. 2015 GDP forecasts
remain little changed at this stage, but there would be further risk
around the 1 October 2015 planned increase in Consumption Tax to
10%. Longer term, growth will likely remain close to 1.0%/yr
–– Inflation: Japan’s inflation rate has jumped on the back of the tax hike
and stands at 3.3%/yr as at August. Once the tax hike effect washes
out, inflation is set to fall back to around 1%-1.5%. This will
see inflation remain well below the BoJ’s 2% target.
–– Our 2015 and 2016 inflation forecasts incorporate the next increase in
the Consumption Tax, from 8% to 10%, expected on 1 October 2015.
–– Monetary policy: With disappointing economic growth and below
target inflation, we expect the BoJ to extend the timetable for its QQE
program out to 2016 and to increase the size of its balance sheet
expansion. This will likely see the BoJ buy up to 100% of net new
issuance of Japanese government bonds in the months and
years ahead.
21
4. Economic Forecasts October 2014
China
China
%/yr
GDP
Inflation – CPI
2014
Consensus
7.3
2.3
2014
EMR
7.4
2.3
2015
Consensus
7.0
2.8
Comments:
–– GDP: China’s GDP stabilised in 2012 and 2013 at 7.7% yr, although this
was well down from the 9%-10% growth rates experienced through
2008-2011. Into 2014 growth has moderated to 7.3%/yr as at Q3 14
and recent data points to some further slowdown through Q4 14.
Growth expectations for both calendar 2014 and 2015 have been
moderated a little, but overall growth is still likely to remain in the 7%7.5% range that the government is aiming for.
Australia
Australia
%/yr
GDP
Inflation – CPI
Monetary policy – Rates
2014
Consensus
3.0
2.6
2.5%
2014
EMR
3.0
2.6
2.5%
2015
Consensus
2.9
2.5
3.0%
Comments:
–– GDP: Economic growth in Australia has surprised to the upside over H1
14, with growth of 3.1%/yr as at Q2 14. Australia’s economy continues
to transition away from growth dominated by mining capex to other
sources, including net exports, housing and infrastructure spending.
Income growth, however, remains soft as the terms of trade and
wages growth slow. Growth is expected to moderate through H2 14
and into 2015, but we continue to expect average growth of 3% for
both years – close to the consensus.
–– Inflation: Australia’s headline inflation rate was running at 3% in Q2
14, right at the top of the RBA’s 2%-3% target range. Inflation is
moderated to 2.3%/yr as at Q3 14 as the abolition of the carbon price
2015
EMR
7.2
2.7
2016
Consensus
7.0
2.9
2016
EMR
7.0
2.5
Long Term
Consensus
6.3
3.0
Long Term
EMR
6.0
3.0
–– In the next 10 years or so, China is likely to be able to maintain
a growth rate around 6%/yr. This implies the Chinese economy
expanding by about 80% in the coming decade.
–– Inflation: China’s inflation has been very well-behaved. From mid-2012,
Chinese inflation has averaged 2.4%/yr and it is unlikely inflation will
accelerate in the next year. The current rate as at Q3 14 stands at just
1.6%/yr. Investment in pork production has weighed on pork prices
(an important element of inflation) and broader services inflation
seems to have peaked in early 2014.
–– In the longer term China has shown itself to be very capable of
managing inflation over the course of a cycle.
2015
EMR
3.0
2.6
3.0%
2016
Consensus
3.15
2.8
N/A
2016
EMR
3.0
2.75
4.0%
Long Term
Consensus
3.0
2.5
No clear
consensus
Long Term
EMR
3.0
2.5
4.5%
lowered utility costs. The recent fall in the AUD could, however see
inflation drift a little higher again later in 2015 and into 2016.
–– Monetary policy: The RBA has held the cash rate steady at 2.5%
since August 2013 and continues to state that a “period of stability”
remains in prospect. With inflation well within target the RBA will need
to see both the AUD and the unemployment rate fall from current
levels before they contemplate tightening monetary policy. We have
pushed the first tightening from the RBA into Q3 15, after the US
Fed begins the policy normalisation process. The tightening cycle
is, however, unlikely to be too aggressive, moving the cash rate to
around 3% in 2015 and to 4%-4.5% in the medium-term.
New Zealand
New Zealand
%/yr
GDP
Inflation – CPI
Monetary policy – Rates
2014
Consensus
3.5
1.5
3.5%
2014
EMR
3.3
1.5
3.5%
2015
Consensus
2.85
2.2
4.3%
Comments:
–– GDP: The New Zealand economy started 2014 with strong
momentum and growth as at Q2 14 was a solid 3.9%/yr. A strong
housing market, record high dairy prices and strong construction
activity were key drivers. However, mindful of this strength the RBNZ
tightened monetary policy by a total of 100bp through March-July
2014 and implemented some limits on housing credit. This policy
tightening and a recent sharp fall in dairy prices is expected to see the
growth momentum slow through into 2015 and 2016.
–– Inflation: The RBNZ has an inflation target of 1%-3%. As at Q3 14
the headline inflation rate was running at just 1.0%/yr. The RBNZ’s
22
FIRST INSIGHTS QUARTERLY OCTOBER 2014
2015
EMR
3.0
2.25
4.5%
2016
Consensus
2.5
2.2
N/A
2016
EMR
2.5
2.5
4.5%
Long Term
Consensus
2.5
2.0
N/A
Long Term
EMR
3.0
2.5
5.0%
monetary policy tightening through March-July 2014 was based on
the view, however, that with GDP growth running above potential
the risks to inflation were on the upside. However, in the September
Monetary Policy Statement the RBNZ noted that the expected
increase in inflation should be modest.
–– Monetary policy: After tightening policy by 100bp through MarchJuly 2014 the RBNZ is now in “pause” mode, taking the time to assess
the impact of past tightening. We expect this pause to last until
March 2015, when a modest tightening cycle is set to resume. This
should also be in the context of the start of the monetary policy
normalisation process in the other $ Bloc nations.
Section 5
Recent Research Reports October 2014
The following is a list of the key research reports released by the Economic
and Market Research team over recent months. Please click on the link to
view the full report.
Australian Q2 14 Inflation: Stumblin’ in
http://www.cfsgam.com.au/uploadedFiles/Content/Insights/Economic_Research_Note/Australiaa%20Q2%2014%20Inflation.pdf
23 July 2014
First Insights
http://www.cfsgam.com.au/uploadedFiles/Content/Insights/Economic_Research_Note/First%20Insights%20Draft%202.pdf
30 July 2014
US Federal Reserve: Here I go again
http://www.cfsgam.com.au/uploadedFiles/Content/Insights/Economic_Research_Note/US%20Fed%20Reserve%20-%20July%202014.pdf
31 July 2014
The Travelling Economist: US Report
http://www.cfsgam.com.au/uploadedFiles/Content/Insights/Articles/20578%20GAM%20US%20travelling%20economist_v01.pdf
6 August 2012
Asian Insights: China and Global Trade
http://www.cfsgam.com.au/uploadedFiles/Content/Insights/Articles/Asia%20Insights%20-%20China%20and%20Global%20Trade.pdf
21 August 2014
European Central Bank: Slip to the void
http://www.cfsgam.com.au/uploadedFiles/Content/Insights/Articles/Economic%20Research%20Note%20Eurpoean%20Central%20Bank%20
September%202014.pdf
5 September 2014
Asian Insights: Reflexivity in the Fragile Five
http://www.cfsgam.com.au/uploadedFiles/Content/Insights/Articles/Asian%20Economic%20Insights%20Reflexivity%20in%20the%20Fragile%20Five.pdf
18 September 2014
US Federal Reserve: It’s about time
http://www.cfsgam.com.au/uploadedFiles/Content/Insights/Articles/140918_US_Fed_Reserve_Its_about_time.pdf
18 September 2014
UK Economic Update: In a big country
http://www.cfsgam.com.au/uploadedFiles/Content/Insights/Articles/1409122_ScottishReferendum.pdf
24 September 2014
Travelling Economist in New Zealand: One step ahead
http://www.cfsgam.com.au/uploadedFiles/Content/Insights/Articles/Travelling%20Economist%20New%20Zealand%202014%20Economic%20Review.pdf
8 October 2014
Asian Insights: The middle income trap
http://www.cfsgam.com.au/uploadedFiles/Content/Insights/Articles/Asia%20Insights%20-%20The%20Middle%20Income%20Trap.pdf
9 October 2014
Australia Q3 14 inflation:
http://www.cfsgam.com.au/au/insto/Insights/Australia_Q3_14_inflation__All_right_now/
22 October 2014
Equity Preference Index
http://www.cfsgam.com.au/au/insto/Equity_Preference_Index/Home/
23 October 2014
23
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