Transcript The Current Global Financial Economic Outlook

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Steven V. Le, Ph.D.
Professor of Finance
Department of Finance
College of Business Administration
California State University, Long Beach
E-mail: [email protected]
Tel. 562-985-4569 or 562-985-1608
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The Current Global Financial &
Economic Outlook
UNDERSTANDING THE COMPLEXITY OF THE GLOBAL
ECONOMY AND FINANCIAL MARKETS
2
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Table of Contents
Title
Slide #
Crude Oil Price and Stock Markets
04 - 13
The U.S. Economic Outlook & Projections
14 - 78
The Labor, RE, Credit and Commodities Markets
79 - 116
The Global Economy
117 - 139
Efficient Frontiers
140 - 143
Valuation Model
144 - 145
S&P 500 Charts
146 - 149
3
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Crude Oil Price and Stock Markets
4
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Crude Oil Price
1/20/16
5
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Coming Up Short: Budget Deficit
1/19/16
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Budget Deficits in Gulf States
1/4/15
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General Government Fiscal Balance
10/24/15
Fiscal deficits are at record highs for
oil exporters in the Middle East and
north Africa, thanks to a halving of the
oil price since 2014 to around $50 a
barrel. The IMF estimates that oilexport revenues will be $360 billion
lower this year than if prices had
remained at 2014 levels. Governments
are already adjusting to the new price,
cutting spending and running down
foreign-exchange reserves—though
this will prove unsustainable if, as
looks likely, the oil price stays low.
More extensive reforms are needed,
including promoting a more
diversified private sector. This year
the region’s economy is forecast to
expand by 2.5%.
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Exposure To Sovereign Wealth Funds
2/10/16
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Stock Markets: 12/31/2014 - 02/09/2016
Countries
Denmark (OMXCB)
World bond market (Citigroup)
Japan (Nikkei 225)
Japan (Topix)
Hedge Funds (HFRX)
Belgium (Bel 20)
United States (S&P 500)
United States (DJIA)
France (CAC 40)
Switzerland (SMI)
World, Dev'd (MSCI)
Netherlands (AEX)
World, All (MSCI)
Austria (ATX)
Germany (DAX)
Euro Area (FTSE Euro 100)
Europe (FTS Eurofirst 300)
Euro Area (DJ STOXX 50)
Sweden (OMXS30)
Italy (FTSE/MIB)
Norway (OSEAX)
Britain (FTSE 100)
Australia (All Ordinaries)
Spain (Madrid SE)
Canada (S&P TSX)
Greece (Athex Comp)
% Change on 12/31/14 in $ terms
6.7
0.8
-5.7
-5.9
-7.9
-9.3
-10.1
-10.7
-12.1
-12.7
-13.0
-14.0
-14.2
-14.3
-14.9
-16.1
-16.1
-18.0
-18.2
-18.7
-19.4
-19.9
-22.2
-27.0
-30.7
-49.7
10
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Emerging Stock Markets: 12/31/2014 - 02/09/2016
Countries
Hungary (BUX)
China (SSEB, $ terms)
EMBI (JP Morgan)
Pakistan (KSE)
Israel (TA-100)
South Korea (KOSPI)
Russia (RTS, $ terms)
Czech Republic (PX)
Indonesia (JSX)
Taiwan (TWI)
Chile (IGPA)
Hong Kong (Hang Seng)
Thailand (SET)
China (SSEA)
India (BSE)
Malaysia (KLSE)
Argentina (MERV)
Mexico (IPC)
Poland (WIG)
EM (MSCI)
Singapore (STI)
South Africa (JSE AS)
Saudi Arabia (Tadawul)
Turkey (ISE)
Egypt (Case 30)
Brazil (BVSP)
Colombia (IGBC)
% Change on 12/31/14 in $ terms
28.8
21.9
1.9
-3.9
-5.7
-8.1
-11.9
-13.5
-16.7
-17.8
-18.3
-18.7
-19.0
-19.4
-19.6
-20.7
-21.4
-22.7
-23.2
-23.6
-27.1
-29.2
-30.0
-33.3
-38.0
-45.5
-47.2
11
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Performance of Activists Stocks
1/30/16
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Stock Markets - Economy Disconnect
1/20/16
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The U.S. Economic Outlook
14
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Trade Weighted Change in the Dollar
2/2/16
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Currency Woes
1/30/16
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Dollar Discord
2/2/16
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International Trade
2/5/16
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Shipping Cost Index
2/9/16
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Shipping Freight Rate: Below Break-even Point
2/10/16
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Goods and Services
1/29/16
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MANUFACTURING AT A GLANCE
MANUFACTURING AT A GLANCE
January 2016
Index
Series
Series
Percentage
Index
Index
Point
Direction
Jan
Dec
Change
PMI®
48.2
48
0.2
Contracting
New Orders
51.5
48.8
2.7
Growing
Rate
of
Trend*
Change
(Months)
Slower
4
From
1
Contracting
Production
50.2
49.9
0.3
Growing
Employment
45.9
48
-2.1
Contracting
50
49.8
0.2
Unchanged
From
1
Contracting
Supplier Deliveries
Faster
2
From
1
Faster
Inventories
43.5
43.5
0
Contracting
Same
Customers' Inventories
51.5
51.5
Prices
33.5
33.5
Backlog of Orders
43
Exports
47
7
0
Too High
Same
6
0
Decreasing
Same
15
41
2
Contracting
Slower
8
51
-4
Contracting
From
1
Growing
Imports
51
45.5
5.5
Growing
From
1
Contracting
OVERALL ECONOMY
Growing
Faster
80
Manufacturing Sector
Contracting
Slower
4
Last updated 02/9/2016
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Manufacturing Index
2/1/16
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Industrial Production
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Capacity Utilization
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Empire State Manufacturing Index
26
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Philadelphia Fed Survey
1/21/16
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Chicago Business Barometer
1/29/16
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Factory Orders
2/4/16
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Durable Goods Orders
1/28/16
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ISM Non-Manufacturing Index
2/3/16
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Construction Spending
2/1/16
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January Vehicle Sales
2/2/2016
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Inventories-to-Sales Ratio
2/12/16
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U.S. Business Investment
2/3/16
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Consumer Sentiment
2/12/16
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Consumer Confidence
1/26/16
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Retail Sales
2/12/16
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Real Disposable Income
2/1/16
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Real Personal Consumption Expenditures
2/1/16
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After Tax Corporate Profits
12/22/15
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Producer Price Index, Yearly % Chg
1/15/16
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Consumer Price Index, Yearly % Chng
1/20/16
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Annual Gains
2/5/16
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Import and Export Prices
2/12/16
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Real GDP Growth
1/29/16
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Building Blocks of Growth
1/21/16
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Leading Economic Indicators
1/22/16
48
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Efficient Frontiers 2015-2016
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The WSJ Economic Projection
50
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GDP (Annual)
51
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Oil Prices
52
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Unemployment
53
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10 Year Note
54
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Housing Starts
55
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Federal Funds Rate
56
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The Next Hike
57
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Recession Risks Rising
58
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Divergence of Opinion
2/11/16
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Baron’s Outlook: 2016
60
Barron’s Outlook 2016
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GDP
2016
S&P 500
2016
S&P 500 EPS
2016
10-YEAR TREASURY
2016
Federated Investors
2.60%
2500
$125
2.50%
JPMorgan
2.30%
2200
$123
2.75%
Barclays Capital
2.50%
2200
$111
2.60%
Citi Research
2.50%
2200
$132.50
2.30%
Columbia Threadneedle
2.50%
2200
$126
2.40%
Morgan Stanley
1.90%
2175
$125.90
2.70%
BlackRock
2.60%
2175
$125
2.75%
Prudential International
2.80%
2250
$122
3.25%
Goldman Sachs
2.30%
2100
$120
3%
Bank of America Merrill
Lynch
2.50%
2200
$125
2.65%
COMPANY
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TD Economic Projection
62
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Contribution to Real GDP Growth
1/29/16
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Standard & Poor’s Outlook
64
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S&P’s Targets
1/11/16
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Federal Reserve’s Economic Projection
66
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San Francisco: GDP Growth
1/14/16
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San Francisco: Unemployment Rate
1/14/16
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San Francisco: Inflation
1/14/16
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Richmond: Real GDP
2/1/16
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Small Business Economic Index
73
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Small Business Optimism Index
2/11/16
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Small Business Sales
2/11/16
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Small Business Earnings
2/11/16
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Additional U.S.
Economic data
77
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Nominal Trade Deficit ($blns)
2/5/16
78
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The Labor Market
79
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Job Openings
2/9/16
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Payroll Measures
2/3/16
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Annual Returns
2/5/16
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Nonfarm Payroll
2/5/16
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Jobless Claims
2/11/16
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Civilian Unemployment Rate
2/5/16
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Unemployment Rate
2/5/16
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Not Participating
1/7/15
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Number of Unemployed people per Job Opening
1/12/16
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The Real Estate Market
89
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NAHB/Wells Fargo National Housing Market Index
90
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Case-Shiller 20-City
Home Price Index
1/26/16
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FHFA House Price Index
1/26/16
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Existing Home Sales
1/22/16
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New Home Sales and Mortgage Rate
1/27/16
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Housing Start
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Looking Up
1/28/16
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The Credit Market
97
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Consumer Credit
2/5/16
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U.S. Bond Yield
The spread (the interest premium over
government borrowing rates) paid by
junk-bond issuers has risen by nearly
three-and-a-half percentage points
since March last year (see chart). The
gap is now nearly as great as it was
during the euro crisis of 2011,
although it is less than half as wide as
it was after Lehman Brothers
collapsed in 2008.
1/30/16
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Yield Curve
2/6/16
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Negative Deposit Rates
Like its peers in Denmark, the euro
area, Sweden and Switzerland, the
Bank of Japan will charge commercial
banks for holding deposits with it.
Almost a quarter of the world’s GDP
now comes from countries with
negative rates. Though they defy
convention, they have proved a useful
addition to the central-banking toolkit.
The lowest deposit rate set by the
central bank acts as a floor for shortterm interest rates in money markets
and for borrowing rates generally.
Borrowing costs across Europe have
tumbled, helping the fight against
deflation and driving down exchange
rates.
2/6/16
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Falling Interest Rates
2/11/16
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Venezuela: 36.86% High Yield Bond
2/8/16
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Venezuela’s Inflation
2/3/16
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The Commodity Market
105
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Commodity-Price Index
02/11/16
106
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Awash in Supply
1/20/16
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Commodity Price Changes
12/20/15
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Thicker than Water
1/30/16
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An Emerging Glut in Crude Oil
12/9/15
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Iran’s Crude Oil Production
1/22/16
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Cash Cost of Onshore Production
Simon Flowers of Wood Mackenzie,
an industry consultancy, says that
even at $30 a barrel, only 6% of
global production fails to cover its
operating
costs.
It
may
be
uneconomic to drill new deepwater
wells at prices under $60 a barrel, he
says, but once they are built it may
still make economic sense to keep
them running at prices well below
that (see chart 2).
1/23/16
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Crude Oil Price
2/11/16
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U.S. Private Investment in Energy
America is both a large producer and
consumer of oil. At the start of 2015,
JPMorgan, a bank, reckoned that cheap oil
would boost GDP by around 0.7%—a
boost to consumers’ purchasing power
equivalent to 1% of GDP, offset by a
smaller drag from weaker oil-industry
investment. It now reckons the outcome
was between a contraction of 0.3% and a
boost of a measly 0.1%. Consumers may
have saved more of the windfall than had
seemed likely and the share of oil-related
capital spending in total business
investment in America, which had steadily
risen for years, has fallen by half (see
chart 3).
1/23/16
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Oil’s Tumble and Demand Worries
2/10/16
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Oil Companies’ Net Income
1/28/16
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The Global Economy
117
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Eurozone PMI and GDP
2/3/16
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U.K. PMI
2/11/16
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Germany PMI and GDP
2/11/16
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Italy PMI and GDP
2/11/16
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Spain PMI and GDP
2/11/16
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France PMI and GDP
2/11/16
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Japan PMI
2/1/16
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Japan’s 10-year Government Bond Yield
2/9/16
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Japan: More Easing
1/29/16
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China’s GDP
On January 19th, China reported its
official annual GDP growth figure
for 2015 at 6.9%, just a shade lower
than 2014’s 7.3%. That is some
achievement, given the turmoil in
emerging markets and the sheer size
($10 trillion) of the economy. But
the plunging Chinese stockmarket,
the global commodity collapse and
downward pressure on the yuan have
fuelled a prevalent view that reality
is grimmer. The two main concerns
are that growth is weaker than the
government says, and that much
worse lies ahead.
1/21/16
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China PMI
2/1/16
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China: GDP and Energy Consumption
1/25/16
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Devaluation
2/10/16
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India PMI
2/1/16
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Market Russia Mnf PMI
2/1/16
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The World Bank Economic Projections
133
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Global Real GDP Growth
1/6/16
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Global Output, Prices and Jobs
02/11/16
135
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Global Output, Prices and Jobs
2/11/16
136
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International Monetary Fund (IMF) Economic Projections
137
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IMF: GDP Growth
1/20/16
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IMF: GDP Growth
1/22/16
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Efficient Frontier
Helping you see the risk…
140
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Efficient Frontiers (2014-2016)
141
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Efficient Frontiers 2015-2016
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Efficient Frontiers (FEB-2016)
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Valuation
Help you see the opportunities…
144
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VALUATION MODEL (JAN-2016 data)
Dependent Variable: PricetoBook
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S&P 500 Stock Charts
146
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12/14/15
S&P 500 Composite
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www.barchart.com
S&P 500 (1/1/2007 – 1/13/2016)
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Dow Jones Industrial Average