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BrieF
morning video
http://www.youtube.com/bloombergbrief

Economics 02.21.13
Thursday
NEWS, ANALYSIS & CoMMENTARY

www.bloombergbriefs.com

Bloomberg economist Joseph Brusuelas previews the days economics data releases.

Inflation, Jobless claims, Euro-Area PMIs, china

WHAT TO WATCH: U.S. inflation probably slowed in January to 1.6 percent from 1.7 percent, economists said, 8:30 a.m. Initial jobless claims may have climbed for the first time in three Scott Johnson weeks to 355,000, according to estimates, 8:30 a.m. Sales of previously owned homes probably fell 0.8 percent last month, 8:30 a.m. Euro-area services and manufacturing contracted in February at a faster pace than economists forecast. China told local authorities to decisively curb real estate speculation and take steps to rein in the property market. The U.K.s budget surplus swelled in January on income from the Bank of Englands quantitative easing program.
DayBook:

data reports (new york time)

TIME EVENT SurVEy AcTuAl PrIOr

8:30 8:30 8:30 8:30 8:30 8:30 8:30 8:30 8:58 9:45 9:45 10:00 10:00 10:00 10:00 10:00 TBA

US CPI (MoM) US CPI ExF&E (MoM) US CPI (YoY) US CPI ExF&E (YoY) US CPI Core Index SA US CPI NSA US Initial Jobless Claims US Continuing Claims US Markit US PMI Prelim. US Bloomberg Eco. Exp. US Bloomberg Con. Com. US Ex. Home Sales Revis. US Philadelphia Fed. US Existing Home Sales US Ex. Home Sales (MoM) US Leading Indicators US Mortgage Delinquencies

0.1% 0.2% 1.6% 1.8% 231.938 230.3 355K 3150K 55.5 1.1 4.90M -0.8% 0.2% -

0.0% 0.1% 1.7% 1.9%

- 231.475 - 229.601 341K 3114K -7 -35.9 -5.8 4.94M -1.0% 0.5% 7.4%

ECONOMICS: Markit U.S. preliminary PMI, 8:58 a.m. Mexican retail sales, 9 a.m. Philadelphia Fed business outlook, 10 a.m. Feds Bullard, 12:30 p.m. Feds Williams, 1 p.m. The U.S. plans to sell $9 billion in 30-year TIPS. Feds Fisher, 9:15 p.m. GOVERNMENT: U.S. Senator Charles Grassley said he wants more details on loans received by Jack Lew before the Senate Finance Committee votes on whether to confirm the Treasury secretary nominee. Chinas state-owned news agency said claims the nations military is behind global cyber attacks are full of loopholes. COMPANIES: Wal-Mart earnings, 7 a.m. Hewlett-Packard earnings, after close. MARKETS: Asian stocks plunged. European shares fell the most in more than two weeks. The euro weakened. WTI oil extended the biggest decline in three months.

Big Picture: CommEnTary By JoSEPh BrUSUElaS, BloomBErg EConomIST

lack of Access to Banks May Help Explain Weak recovery

economic-events calendar
TIME

6:45 12:30 13:00 13:15 17:30 21:15

EC US US UK AU US

Barnier Speaks at FESE Event Feds Bullard Speaks on Monetary Policy Feds Williams Speaks on Monetary Policy Bank of Englands David Miles Speaks RBAs Stevens Semi-Annual Testimony Feds Fisher Speaks on Economy

10Y spreads: distance From HigHs

Europe France Belgium Spain Portugal Italy Ireland Greece -2,589.4 -2581.3 -2500 -2000 -1500 -1000 -500 0 -1,106.5 -1095.9 10Y Spread Distance From Highs (Yesterday) 10Y Spread Distance From Highs (Today) -332.9 -328.5 -127.4 -124.4 -275.4 -272.1 -285.5 -281.0

a growing proportion of the U.S. population lacks full access to financial services. The lack of financial intermediation may be contributing to liquidity constraints that have hindered consumption and overall growth in the current weak recovery. a full 29 percent of U.S. households are either underserved or not served at all by the domestic financial system, according to data from the Federal Deposit Insurance Corporation based on their second annual national Survey of Unbanked and

Underbanked households. Within that group, 8.2 percent have no relationship with the banking system and 20.1 percent are underbanked, meaning that while they may have bank accounts, they must also rely on alternative financial services (aFS), such as payday lenders and check cashing companies, to meet financial needs. It isnt just the poor who lack access to banks. about 23 percent of households earning between $30,000 and $50,000 report being underbanked, and 18.9 percent
continued on next page

-275.2 -267.0 -487.9 -483.0

-3000

Keenes Corner
1 2 3 4 5 6 7 8 9 10 11

Gina Martin Adams has the lowest S&P 500 forecast on the Street, and is Back Page standing by it

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Big Picture JoSEPh BrUSUElaS

continued from page 1
45

GDP Per Capita Explains Variation in Lack of Access to Financial Services

Mississippi Texas

of those bringing in $50,000 to $75,000 report the same. according to the FDIC, at least one quarter of all U.S. households tapped an aFS product in 2011. In 2009 the FDIC estimated that the aFS sector transaction volumes exceeded $320 billion annually more than double the current fiscal drag due to the increase in the payroll tax in 2013 and this may actually underestimate the size of the market due to the scope and relatively undefined nature of the aFS industry. according to regression analysis by the World Bank, gDP per capita, used as a proxy for national income, explains about 70 percent of the variation in access to bank services around the world. This has direct implications for growth. a wide range of academic work has demonstrated positive causal relationships between an increase in financial development and growth across large cross-country samples. This is no different for the U.S. Using gDP per capita as a proxy for national income, U.S. incomes have fallen 2 percent since 2006, which may provide at least a partial explanation for the increase in non-traditional financial services over the same period. Essentially, those who are underserved by financial services represent americas domestic emerging market, which is an untapped reservoir of opportunity. The news on this front is not all bad. one example of private innovation is the 2012 american Express and Wal-mart joint venture known as Bluebird to offer pre-paid cards to facilitate basic transactions, a move clearly targeting the underbanked working class poor and the growing portion of the middle class that may be trading down during a period of stagnant or outright declines in real wages. Further innovations in mobile money and P2P lending, or by web lenders that sometimes partner with big banks to reach these cohorts, also represents an opportunity.

Unbanked and Underbanked (Percentage)

40 35 30 25 20 15

Lousiana Kentucky North Carolina

California Arkansas

Alabama

Wisconsin

10 25,000

30,000

35,000

40,000

45,000

50,000

55,000

60,000

65,000

GDP Per Capita by State ($)

Source: FDIC, Census Bureau, Bloomberg

Banking Status of U.S. Households (Percent)

Underbanked 20% Status Unknown 3%

Unbanked 8%

Fully Banked 69%

Source: Federal Insurance Deposit Corporation

another explanation for the large proportion of the U.S. population that lacks access to banks may be found in the strong correlation between general income inequalities and the lack of access to the full spectrum of financial services. When compared to other advanced industrial states, the gInI coefficient, a measure of income inequality, is abnormally high for the U.S. at 46.3, compared the U.k at 34, Canada at 32.1, australia at 30.5 and germany at 27.0. not surprisingly, the percent-

age of the adult population without formal banking relationships in the U.S. is above those countries as well, only trailing countries with well-known grey or black financial markets, such as Italy and greece. given a likely period of austerity for the U.S., the development of full access to the domestic system of finance and the ability to tap lines of credit to smooth out consumption during periods of reduced aftertax income and slower growth are critical to the outlook for overall economic activity.

FOLLOW JOSEPH BRUSUELAS ON TWITTER FOR REGULAR UPDATES AND ADDITIONAL INSIGHTS

>>> @joebrusuelas
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MArkET cAllS
By BloomBErg nEWS

FACE
Michael Feroli of JPMorgan Chase forecasts no change in the consumer price index in January after December also showed no change.

OFF
Kevin Harris of Informa Global Markets predicts an increase of 0.2 percent. The median Bloomberg survey forecast is for an increase of 0.1 percent.

Will Tseng, a trader at mirae asset global Investments, said the 200-day moving average for Treasury 10-year yields is leveling out after falling for 18 months, indicating the decline in rates is losing momentum. There is bearish momentum in the Treasury market, he said. The long-term moving average has changed from a downward trend to flat. It wont be a big jump, but it will be a slow upward trend in yields. Ouri Mimran, an analyst at natixis, said Stoxx 600 Banks Index may rally as much as 18 percent in the next three months if it can break through its intraday high of 180.06 reached on Jan. 30. Upside potential for banking stocks over the next few weeks remains intact, he said. Todd Elmer, a strategist at Citigroup, said investors should buy new Zealands dollar after markets misinterpreted a speech by central bank governor graeme Wheeler as signaling intervention to weaken the currency. The market is interpreting the

rBnZs declaration of surrender in the currency wars as a rallying cry, he said. This should provide an opportunity to buy the new Zealand dollar on the dip. Gordon Rodrigues, investment director at hSBC global asset management, predict more gains in Indian bonds as cooling prices boost room for rate cuts. Bart Melek, head of commodity strategy at TD Securities, said palladium may surge to $1,000 an ounce by early 2014 as the slumping yen lifts Japans car exports. healthy automobile demand, especially in asia, makes us very bullish about palladium, he said. a weakening yen will boost exports of Japanese cars and in turn accelerate demand for palladium.

Pamela McCloskey, a technical analyst at Credit Suisse, said gold may fall as low as $1,523 an ounce after failing to stay above the 23.6 percent retracement level from the all-time high of $1.921.15. The lower highs and the lower lows have formed a staircase formation, and prices are climbing down, she said. gold looks weak on the charts. Bespoke Investment Group said this weeks rise in the U.S. average price of gasoline above $3.75 a gallon may precede a stock-market decline in the next six months. There have only been four other periods where prices at the pump rose above $3.75 per gallon since may 2008, according to the firm. rising gas prices have not been friendly to the stock market.

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u.S. cArTOgrAPHy

joseph brusuelas, bloomberg economist

The unbanked and underbanked by State

The demographics of the unbanked and underbanked in the U.S. are striking; a full 42 percent of households that earn between $15,000 and $50,000 per year report not being fully served by the domestic banking community, according to the FDICs second annual national Survey of Unbanked and Underbanked households. on a regional basis the south contains only 37.3 percent of all U.S. households, yet a full 45.5 percent of all unbanked households reside there. The midwest and northeast have the lowest unbanked rates, both at 7.1 precent.

Unbanked

Underbanked

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Euro-Area Minimum Wage Variations Mask Price Differences

Luxembourg 2000 Belgium
Netherlands Ireland
500 1500 1000

OVErNIgHT
By BloomBErg nEWS

Romania

Bulgaria Latvia
Lithuania Czech Republic

euroPe

France U.K. U.S.

Slovenia Minimum Wage in Spain Euros Per Month Malta Source: Bloomberg, Eurostat

Estonia Slovakia Hungary

Poland Greece Portugal

a composite PmI for manufacturing and services industries in the euro zone fell to 47.3 in February from 48.6 in January, markit Economics said. The services PmI dropped to 47.3 from 48.6, while the manufacturing gauge slipped to 47.8 from 47.9. Germanys manufacturing PMI increased to 50.1 in February from 49.8 in January, while the services PmI fell to 54.1 from 55.7, markit Economics said. Frances manufacturing PMI climbed to 43.6 in February from 42.9 in January, while the services PmI fell to 42.7 from 43.6, markit Economics said. The U.K. saw its budget surplus widen in January as the Treasury received the first payment of gilt coupon income from the Bank of Englands quantitative easing program. The surplus excluding government support for banks was 11.4 billion pounds, compared with 6.4 billion pounds a year earlier. Switzerlands exports rose 3.7 percent in January from a month earlier and imports dipped 0.5 percent, resulting in a trade surplus of 2.13 billion Swiss francs. Denmarks retail sales fell 0.8 percent in January from December, when they dropped 0.2 percent. From a year earlier, sales declined 1.6 percent. The jobless rate in the Netherlands rose to 7.5 percent in January from 7.2 percent in December.

The monthly minimum wage within the EU varies between 157 euros in romania and 1,874 euros in luxembourg. That compares with 998 euros in the U.S. The disparity between EU members is reduced from a ratio of one-to-12 to one-to-six when price differences are taken into account. In the euro area, the minimum wage only applies to certain sectors in germany and Cyprus, while Italy has no minimum. Niraj Shah, Bloomberg Economist

Around the weB new research and commentary on the Web The New York Feds Liberty Street Economics blog examines primary dealers waning role in Treasury auctions. on December 12, 2012, primary government securities dealers bought just 33 percent of the new ten-year Treasury notes sold at auction. This was one of the lowest shares on record and far below the 68 percent average for ten-year notes.
http://goo.gl/Wt7b6

An IMF working paper looks at the ways in which countries are dealing with private debt distress in the wake of the European financial crisis. For households, where the problem in some countries is large but no established best practice exists, reforms have generally sought to allow debtors a fresh start while minimizing moral hazard and preserving bank solvency and credit discipline. For the corporate sector, efforts have focused on facilitating debt restructuring.
http://goo.gl/YHgr6

An ECB working paper examines the macroeconomic variables that significantly affect non-performing loan ratios. In the case of exchange rates, the direction of the effect depends on the extent of foreign exchange lending to unhedged borrowers which is particularly high in countries with pegged or managed exchange rates. In the case of share prices, the impact is found to be larger in countries which have a large stock market relative to gDP.
http://goo.gl/Ucr6L

AsiA

a leading index for Chinas economy rose to 253.4 in January from 251 in December, the Conference Board said. The coincident index climbed to 233.7 from 232.2. Hong Kongs unemployment rate climbed to 3.4 percent in the three months ended Jan. 31 from 3.3 percent in the previous period.

Follow Kevin Depew on Twitter for regular updates and additional insights @kevindepew Named one of the 101 Best Finance People to follow on Twitter by Business Insider

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FED WATcH

joshua Zumbrun and aki ito, bloomberg news

Fed Signals Possible Slowing of QE Amid Debate Over Policy risks

The Federal reserve signaled it may consider slowing the pace of asset purchases as officials extended a debate over whether record monetary easing risks unleashing inflation or fueling assetprice bubbles. Several participants at the Federal open market Committees Jan. 29-30 meeting emphasized that the committee should be prepared to vary the pace of asset purchases, either in response to changes in the economic outlook or as its evaluation of the efficacy and costs of such purchases evolved, according to the minutes of the gathering released yesterday. Policy makers in December started debating when to halt bond buying that has pushed the Feds assets to more than $3 trillion, prompting warnings by some officials that the program will complicate an eventual withdrawal of stimulus. With inflation below their long-term goal of 2 percent, policy makers are forging ahead with record accommodation to

Fed Balance Sheet Pushes Above $3 Trillion

3.5 3 2.5 Trillions ($) 2 1.5 1 0.5 2007

Fed Balance Sheet

2008

2009

2010

2011

2012

2013

Source: Bloomberg

FARBAST INDEX<GO>

stoke an economy that shrank 0.1 percent last quarter. The Fed has pushed the benchmark interest rate close to zero and

expanded its balance sheet to more than $3 trillion.

AUSTRALIA ECONOMIC SUMMIT

Apr 10, 2013

HOW SAFE IS THE AUD?

BLOOMBERG L.P. SYDNEY SPEAKERS ANNE ANDERSON UBS GLOBAL ASSET MANAGEMENT RAY ATTRILL NATIONAL AUSTRALIA BANK HON. JOE HOCKEY, MP COMMONWEALTH OF AUSTRALIA LAUNA INMAN BILLABONG INTERNATIONAL LIMITED +MORE Request an invitation.

bloomberglink.com

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cENTrAl BANk MONITOr

michael mcdonough, bloomberg economist

global central Banks likely to Maintain Easing Policies for Now

Substantial central bank easing through quantitative easing and rate cuts is helping fuel a global risk rally with the mSCI World Index up more than 6 percent year-to-date. The U.S. Federal reserve will likely continue to purchase mBS and Treasury securities throughout the year, while the Bank of Japan may take a more dovish approach under new leadership to achieve its 2 percent inflation target.
ECB: While a strengthening euro poses risks for growth, the ECB has indicated the current policy stance remains accommodative and will remain on hold. The current benchmark rate is 45 basis points above what would be implied by the Taylor rule, according to Bloombergs Taylor rule function {TAYL <GO>} implying potential room for additional easing if necessary.

Bloomberg Brief Global Central Bank Monitor

Policy Rate Ticker APDR1T Curncy RBATCTR Index BJIRONRR Index BZSTSETA Index BUBIRATE Index CABROVER Index CHOVCHOV Index CHLR12M Index CORRRMIN Index CKDRRATE Index CZBRREPO Index DERE index EGBRLR Index EURR002W Index HKBASE Index HBBRATE Index ICBRANN Index RSPOYLD Index IDBIRATE Index ISBRATE Index BOJDTR Index JORRRATE Index KIBODISC Index LTRFREF Index LREPRR Index MAOPRATE Index MXONBR Index MOBRRC Index NZOCRS Index NOBRDEP Index OCBOREPO Index PAPRSBP Index PRRRONUS Index PPCBON Index PORERATE Index QAIRRR Index ROKEPOL Index RREFRATE Index SRREPO Index SIBCON Index SARPRT Index KORP7DR Index SWRRATEI Index SZLTTR Index TAREDSC Index BTRR1DAY Index TUBR1WRA Index CUAE1-7 Index UKRBDIS Index UKBRBASE Index FDTR Index VNBOLOAN Index VNDIBASE Index
Source: Bloomberg

Japan: Prime minister Shinzo abe will likely soon announce the BoJs new governor, who will probably take a far more aggressive approach to achieve the 2 percent inflation target, which may continue reducing upward pressure on the yen. BoJ announcements on march 7 and april 4 may shed some light on the new governors agenda.

U.S.: With a strong enough improvement in labor market data to warrant an end to the Federal reserves newest round of easing still far off, mBS and Treasury security purchases will likely continue for the foreseeable future. on the policy rate side the Fed remains unlikely to increase rates until 2015.

Country Argentina Australia Bahrain Brazil Bulgaria Canada Chile China Colombia Croatia Czech Rep. Denmark Egypt Euro zone Hong Kong Hungary Iceland India Indonesia Israel Japan Jordan Kuwait Latvia Lebanon Malaysia Mexico Morocco New Zealand Norway Oman Pakistan Peru Philippines Poland Qatar Romania Russia Saudi Arabia Singapore South Africa South Korea Sweden Switzerland Taiwan Thailand Turkey U.A.E. Ukraine UK U.S. Venezuela Vietnam

Next ForeMeets cast 3/5 3/6 2/28 3/6 3/14 2/22

3.00%

3.75%

3/7 3/20 3/7 3/7

3/7 3/8 3/26

4/5 3/7 3/14

3/20 3/14 4/17 3/14 3/21 2/20 3/26 3/7 3/20

2.75% 5.50% 0.50%

Policy Rate 12.20% 3.00% 2.25% 7.25% 0.01% 1.00% 5.00% 6.00% 4.00% 7.00% 0.05% 0.30% 10.25% 0.75% 0.50% 5.50% 6.00% 6.75% 5.75% 1.75% 0.10% 4.75% 2.00% 2.50% 10.00% 3.00% 4.50% 3.00% 2.50% 1.50% 1.00% 9.50% 4.25% 3.50% 3.75% 4.50% 5.25% 8.25% 2.00% 0.03% 5.00% 2.75% 1.00% 0.00% 1.88% 2.75% 5.50% 1.00% 7.50% 0.50% 0.25% 16.32% 9.00%

3M Chg 250 4.60% -25 0 0 -3 3.25% 0 0 0 -75 0 0 0.70% 10 0 0.30% 0 0 -75 0 -25 0 -25 -0.55% 0 0 0 0 0 0 4.26% 0 0 0.85% 0 2.20% 0 0 -50 0 -25 -75 0 0 0 0 1 0 3.70% 0 1.65% -25 0.80% 0 0 0 -25 0 0 2.95% 0 0.20% 0 -13 0

Taylor Rule

6M Chg 250 -50 0 -75 -7 0 0 0 -100 0 -45 10 0 0 0 -150 25 -25 0 -50 0 0 -50 -100 0 0 0 0 0 0 0 -250 0 -50 -100 0 0 25 0 0 0 -25 -50 0 0 -25 -25 0 0 0 0 -66 0

1Y Chg 210 -125 0 -325 -17 0 0 -56 -100 0 -70 -40 0 -25 0 -150 125 -75 0 -75 0 0 -50 -100 0 0 0 -25 0 -25 -100 -250 0 -75 -75 0 -25 25 0 2 -50 -50 -75 0 0 -25 0 -25 0 0 -153 0

CPI y/y 11.1% 2.2% 2.6% 6.2% 4.4% 0.8% 1.6% 2.0% 2.0% 4.7% 1.9% 1.3% 6.3% 2.2% 3.7% 3.7% 4.2% 11.2% 4.6% 1.5% -0.1% 6.7% 2.6% 0.6% 10.1% 1.3% 3.3% 2.6% 0.9% 1.3% 2.8% 8.1% 2.9% 3.0% 1.7% 1.4% 6.0% 7.1% 3.9% 4.3% 5.4% 1.5% 0.0% -0.3% 1.2% 3.4% 7.3% 0.6% -0.2% 2.7% 1.7% 21.6% 7.1%

3M CPI Chg Target

2.0-3.0 4.5 +/-2 2.0 +/-1 3.0 +/-1 4.0P 3.0 +/-1 2.0 +/-1

Prior 12M

Est. 2Q13 2.88% 7.13% 1.00% 5.00% 6.00% 4.50% 0.00% 0.25% 0.75% 4.88% 5.50% 6.38% 5.75% 1.50% 0.10%

Est. 3Q11 2.88% 7.13% 1.00% 5.13% 6.00% 4.63% 0.00% 0.25% 0.75% 4.88% 5.50% 6.25% 5.88% 1.50% 0.10%

Est. 4Q13 2.88% 7.13% 1.13% 5.25% 6.13% 4.63% 0.13% 0.13% 0.75% 4.88% 5.50% 6.25% 6.00% 1.63% 0.10%

<2.0 3.0

4.5 +/-1 1.0-3.0 1.0

3.0 +/-1 1.0-3.0 2.5

3.13% 4.38% 2.63% 1.50% 4.25% 3.50% 3.38% 8.00% 5.00% 2.63% 0.88% 0.00% 2.00% 2.63% 5.50% 0.50% 0.25%

3.13% 4.38% 2.63% 1.63% 4.25% 3.50% 3.25% 8.00% 5.00% 2.63% 0.88% 0.00% 2.00% 2.75% 5.50% 0.50% 0.25%

3.25% 4.38% 2.75% 1.63% 4.25% 3.75% 3.25% 7.88% 5.00% 2.75% 0.88% 0.00% 2.13% 2.88% 5.25% 0.50% 0.25%

4.0 +/-1 2.5 +/-1 3.0 +/-1 6.0-7.0

3.0-6.0 2.0-4.0 2 <2.0P 0.5-3.0 5.5

2.0 1.5-2.0P

This monitor looks at 53 countries central bank policies, as well as each countrys latest annual headline inflation rate, inflation targets where available and economists consensus forecasts of rate increases for the rest of the year. The monitor can be accessed by typing MONITOr SAMPlE 50816 <gO> on the terminal. It can also be added directly to any Bloomberg Launchpad. Enter keywords SAMPlE MONITOr in the Launchpad toolbar, select the sample monitor component and search on keyword BrIEF.

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FrENcH MONITOr

niraj shah, bloomberg economist

France, which accounts for 21.2 percent of euro-area output, may fail to match the regions average growth rate as the nation teeters on the brink of a third recession in four years. While France is the only euro-area nation where the degree of fiscal tightening is larger this year than last, according to the EU, Francois hollande told his cabinet yesterday the downturn will make narrowing the deficit to 3 percent of gDP this year impossible. That may force the government into additional spending cuts to balance the budget by 2017.

GDP
%
1.5 1.0

Spending
French GDP Shrinks

Tax/Spending Cut Mix

0.5
0.0 -0.5 -1.0 -1.5 -2.0

Taxes

Spending Cuts
France GDP (QoQ)
Recession
2005

2006

2007

2008

2009

2010

2011

2012

Source: Bloomberg

Source: Bloomberg

Billion Euros

10

12

14

16

18

20

a record gap between the French and euro-area services PmIs in January suggests French gDP may underperform the euro-area average. Quarterly growth has matched that of the region since the inception of the single currency in 1999, averaging 0.3 percent a quarter. While Frances original 2013 budget plan was based on a forecast of 0.8 percent growth, economists now predict gDP will rise between 0.1 percent and 0.3 percent. The economy contracted 0.3 percent in the fourth quarter.

The government may be forced to make more spending cuts to achieve its goal of a balanced budget by 2017. It plans 20 billion euros in tax increases and 10 billion euros in spending cuts this year. Even so, state spending is forecast to rise to 56.3 percent of gDP this year, according to government figures, the second-highest level in Europe. Taxes accounted for 45 percent of gDP in 2011 versus an average of 37 percent for nations in the oECD.

Tktkkttktktkktk
% 0
-1 -2 -3 -4 -5 -6 -7 -8 1990 1992 1994 Source: Bloomberg 1996 1998 2000 2002 2004 2006 2008 2010

Competitiveness
Decades in Deficit
45 40 35 30 25 20
15

Labor Cost Index

10 5
French Budget Deficit as a % of GDP

Source: Eurostat

France, which hasnt balanced its budget since 1974, has promised to eliminate its deficit by 2017. The shortfall has averaged 3.9 percent of gDP over the last decade. The government forecasts the debt-to-gDP ratio to peak at 91.3 percent this year before declining to a projected 82.9 percent in 2017. The average loss of export market share since 1999 has been 2 percentage points a year for France compared with a 1.1 percentage point gain a year for germany, according to the EU.

The World Economic Forum ranks France the 21st most-competitive nation, with germany seventh. French companies are underperforming, with seven of the 10 worst-performing stocks in the Euro Stoxx 50 index this year based in France, led by Vivendi and France Telecom. The largest job losses in Europe this year have been announced by Peugeot and renault, totaling 18,700. Credit agricole, Frances third-largest bank by market value, reported a record fourth-quarter loss yesterday.

ECONOMIC WORKBENCH: Have Our Data Make Your Point

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MArkET INDIcATOrS

MSCI EQUITY INDICES

TICKER
MXCA Index MXUS Index MXAR Index MXBR Index MXCL Index MXCO Index MXMX Index MXPE Index MXAT Index MXBE Index MXCZ Index MXDK Index MXFI Index MXFR Index MXDE Index MXGR Index MXHU Index MXIE Index MXIT Index MXNL Index MXNO Index MXPL Index MXPT Index MXRU Index MXES Index MXSE Index MXCH Index MXGB Index MXEG Index MXIL Index MXJO Index MXMA Index MXZA Index MXAU Index MXCN Index MXHK Index MXID Index MXIN Index MXJP Index MXKR Index MXLK Index MXMY Index MXNZ Index MXPH Index MXPK Index MXSG Index MXTH Index MXTR Index

COUNTRY Canada U.S. Argentina Brazil Chile Colombia Mexico Peru Austria Belgium Czech Rep. Denmark Finland France Germany Greece Hungary Ireland Italy Netherlands Norway Poland Portugal Russia Spain Sweden Switzerland UK Egypt Israel Jordan Morocco South Africa Australia China Hong Kong Indonesia India Japan Korea Sri Lanka Malaysia N. Zealand Philippines Pakistan Singapore Thailand Turkey

LAST PRICE 1603.2 1444.1 1383.6 2727.9 2545.5 1329.0 7349.1 1461.9 111.2 64.8 273.4 4768.7 77.3 102.3 106.8 14.9 1065.4 26.7 47.0 82.0 2401.9 1666.4 52.4 818.0 87.3 9071.3 973.9 1863.8 1228.5 191.7 228.4 288.6 993.6

1D %Chg -0.7% -1.3% -2.4% -1.8% -1.5% 0.0% -0.7% -1.8% -2.0% -1.7% -1.4% -0.9% -2.0% -1.8% -1.9% -2.9% -2.1% -1.5% -2.9% -2.3% -1.3% -1.3% -1.6% -2.1% -1.8% -1.3% -1.3% -1.7% 0.4% -2.3% 0.6% -0.5% -1.0% -2.4% -2.0% -1.5% 0.0% -1.5% -1.2% -0.4% 0.2% 0.1% -1.8% 0.4% -0.5% -0.7% -1.3%

YTD %Chg 2.4% 6.0%

YoY %Chg 1.1% 10.8%

30D Chart

FORWARD PE 12M 13.1 13.4 4.8 10.6 17.2 16.2 17.9 12.2 10.4 13.9 9.6 16.2 14.9 11.2 11.1 16.1 8.3 17.3 10.0 11.7 10.5 11.6 13.7 n.a 10.8 13.8 14.1 12.0 7.2 7.9 n.a 12.0 12.1 13.9 10.3 16.0 14.2 14.6 14.3 8.3 n.a 13.7 16.3 18.0 7.0 n.a 12.5 10.6

10Y GOVERNMENT BOND YIELDS

TICKER
GCAN10YR Index USGG10YR Index

COUNTRY Canada US Argentina *Brazil (5Y) Colombia Mexico Austria Belgium Czech Rep. Denmark Finland France Germany Greece Hungary *Ireland (9Y) Italy Netherlands *Norway (9Y) Poland Portugal *Russia (9y) Spain Sweden Switzerland UK Israel *South Africa (9Y) Australia China Hong Kong Indonesia India Japan Korea Malaysia N. Zealand Philippines Pakistan Singapore Thailand Turkey

LAST 1D CHG YIELD BPS

North America

YTD BPS 21.9 22.2

YoY BPS -2.7 -8.0

30D CHART

5Y CDS

North America

Latin America

Latin America

2.02% 1.98% 9.13% 4.92% 5.06%

-0.4 -3.0 -0.6 0.0 -0.1 -2.8 -1.8 -0.3 -5.8 -4.4 -2.2 -5.4 4.1 14.0 -2.7 5.4 -3.0 -3.9 0.0 5.8 1.6 0.7 -7.9 -2.0 -5.2 -1.0 -0.1 -5.0 -2.0 -1.3 0.4 0.3 -0.3 -2.0 0.2 -1.2 19.8 0.0 2.0 0.6 0.0

41.3 2415.5 126.5 99.8 101.2 45.1 75.8 54.7 30.4 29.4 83.9 41.5 300.0 171.2 247.1 51.1 18.8 91.9 385.6 146.7 258.8 20.1 49.4 122.8 169.6 43.8 64.9

Europe

10.4% -37.9% 0.0% -19.9% 6.3% -3.1% -2.3% 12.0% 3.2% 18.2% -8.5% -4.7% -0.9% 1.8% 3.7% 27.1% -7.4% -18.3% 6.7% 18.2% 5.0% -1.6% 0.7% 6.2% -0.1% 7.2% 16.0% -5.9% 6.2% -0.1% 2.1% 3.2% -3.3% -6.6% 0.4% 8.8% 4.9% 2.3% -6.1% 2.5% 3.8% 1.7% 1.3% -7.7% -2.1% -9.0% 7.3% 7.3% 10.1% 19.9% 6.7% 6.3% 3.4% 13.1% 4.1% -10.8% 3.9% 6.3% -2.8% -23.1% -1.7% 13.1% 7.8% -0.1% 4.0% 7.9% -0.8% 12.1% 1.2% 5.5% -3.9% 1.2% 15.2% 6.6% 3.5% 5.2% -0.1% 17.7% 2.3% 10.6% 14.4% 4.4% 18.2% 1.6% 25.9% 0.0% 13.8% 36.9% 21.7% 6.7% 17.3% 27.6%

GEBR5Y Index COGR10Y Index GMXN10YR Index

61.8 -56.0 -268.0 -31.5 -121.1 19.9 -105.5 42.3 -115.7 23.7 -133.0 68.3 -21.1 27.4 -63.1 26.1 -73.8 28.4 -38.2 8.0 -12.4 -1.5 36.4 38.1 32.1 -76.4 -50.0 -7.5 46.5 25.2 31.3 3.0 -219.0 -385.6 -95.5 -59.6 -5.3 -147.2 -618.6 -170.1 8.4 4.7 -3.2 -7.7 -60.0

Europe GAGB10YR Index GBGB10YR Index CZGB10YR Index GDGB10YR Index GFIN10YR Index GFRN10 Index GDBR10 Index GGGB10YR Index GHGB10YR Index GIGB9YR Index GBTPGR10 Index GNTH10YR Index GNOR9YR Index POGB10YR Index GSPT10YR Index RUGE9Y Index GSPG10YR Index GSGB10YR Index GSWISS10 Index GUKG10 Index

Middle East & Africa

1.95% 2.48% 2.07% 1.75% 1.80% 2.26% 1.60% 11.10% 6.19% 4.40% 4.48% 1.86% 2.33% 4.06% 6.25% 4.11% 5.19% 2.00% 0.78% 2.14% 4.03% 6.42% 3.54% 3.58% 1.34% 5.27% 7.81% 0.74% 3.02% 3.48% 3.90% 4.17% 12.09% 1.61% 3.61% 6.48%

Middle East & Africa

GISR10YR Index

GSAB9YR Index GACGB10 Index GCNY10YR Index HKGG10Y Index GIDN10YR Index GIND10YR Index GJGB10 Index GVSK10YR Index MGIY10Y Index GNZGB10 Index PDSF10YR Index PKIB10YR Index MASB10Y Index GVTL10YR Index TGBY10T0 Index

Asia/Pacific

3.1 -140.9 26.4 -1.0 71.9 7.4 -24.0 -4.9 -14.0 -55.7 5.0 -4.7 0.2 -36.3 -22.0 -83.0

Asia/Pacific

1019.4 62.9 11779.2 5588.2 758.1 595.6 586.7 633.8 574.4 99.9 1110.3 403.5 1737.5 542.8

71.9 67.0 46.5

-2.4 4.0 38.8 -19.2 -22.7 -81.1 61.0 -90.0 31.0 10.0 9.8 25.3 0.0 -329.0

137.8

OTHER INDICATORS
TICKER
$$SWAP10 Curncy $$SWAP2 Curncy USGGBE01 Index .2Y10Y Index .10YV3MSP Index .TED3M Index .LIBORIOS Index JPEIPLSP Index .AAA10Y Index .AAABAA Index MUNSMT10 Index VIX Index SKEW Index

SPREAD/RATE/INDEX 10Y US Swap Spread 2Y US Swap Spread 1Y Breakeven Rate 2Y10Y Spread 3M10Y 3M Ted Spread 3M Libor/OIS EMBI+ Spread IG Corp Spread IG HY Corp Spread Muni Spread CBOE VIX Index CBOE Skew Index

Fixed Income

LAST PRICE

1D Chg YTD bps/% bps/% 0.5 0.3 1.5 -2.6 -2.9 0.0 0.2 5.0 2.9 0.0 2.4 1.8 2.2 1.2 21.5 14.6 -9.3 -1.2 15.9 5.8 -2.0 -2.8

YoY bps/% -0.8 -13.5 0.3 -3.5 -13.6 -25.9 -23.8 -66.6 13.0 -36.0 0.8

30D CHART

1Y Z-SCORE -0.2 -0.6 1.5 1.2 0.8 -1.9 -1.4 -0.9 0.9 -6.5 -0.9 -0.8 0.9

TICKER

CURRENCIES
CURRENCY Argentine Peso Brazilian Real Canadian Dollar Chilean Peso Colombian Peso Mexican Peso British Pound Czech Koruna Danish Krone Euro Hungarian Forint Norwegian Krone Polish Zloty Romanian Leu Russian Ruble Swedish Krona Swiss Franc Turkish Lira Ukranian Hryvnia Israeli Shekel S. African Rand Australian Dollar Chinese Renminbi HK Dollar Indian Rupee Indonesian Rupiah Japanese Yen Singapore Dollar N. Zealand Dollar S. Korean Won Thai Baht Taiwan Dollar Euro-Pound Euro-NOK Euro-Swiss Franc

Americas ARS Curncy BRL Curncy CAD Curncy CLP Curncy COP Curncy MXN Curncy GBP Curncy CZK Curncy DKK Curncy EUR Curncy HUF Curncy NOK Curncy PLN Curncy RON Curncy RUB Curncy SEK Curncy CHF Curncy TRY Curncy UAH Curncy

LAST PRICE

1D YTD %CHG %CHG 0.2% 0.3% 0.3% 0.2% 0.0% 0.6%

YoY %CHG

30D CHART

1Y Z-SCORE -23.0 -0.3 1.5 -1.0 0.0 -0.7 -2.8 -0.3 -0.7 0.8 -0.2 -0.5 -0.5 -0.9 -0.5 -1.4 -0.2 -0.1 0.8 -1.6 0.0 -0.5 -1.1 -0.1 0.3 1.2 2.7 -0.2 0.9 -1.0 -1.8 0.4 2.6 0.5 1.9

8.0 15.9 2.5 172.5 186.3 17.2 14.7 264.2 197.1 94.0 93.5

5.02 1.96 1.02 473.11 1791.70 12.80

Europe

-2.1% -13.3% 4.6% -12.6% -2.7% -2.2% 1.3% 2.0% -1.4% -1.0% 0.4% 0.0% -6.3% -1.6% -0.1% -0.1% -0.5% -2.0% -2.4% 1.3% 0.4% 1.1% -1.8% -0.6% -1.1% -3.5% -2.6% -0.7% -0.4% -2.5% 0.3% -0.4% -1.1% -2.2% 3.5% -2.1% -2.3% -1.7%

Equity

14.7 19.3% 124.5 -4.4%

-18.5% -19.3% 2.6% -3.9%

COMMODITIES
TICKER
C 1 Comdty

COMMODITY Corn Coffee Sugar Wheat Aluminum Copper Gold Silver Crude (Brent) Crude (WTI) Gasoline Natural Gas

Agricultural

LAST PRICE

1D %Chg -0.3% -1.3% -1.0% -0.7% -1.4% -1.4% -0.6% -0.6% -1.2% -1.4% -1.6% -0.7% -0.6% -0.4% -0.2% -1.1% 0.4%

YTD %Chg

YoY %Chg

30D CHART

VOLATILITY

KC1 Comdty
SB1 Comdty W 1 Comdty

Metals

698.3 139.1 18.2 733.5

0.0% 10.9% -3.3% -32.0% -6.9% -28.4% -5.7% 15.9% -0.1% -8.1% -2.6% -7.3% -6.4% -10.8% -5.7% -17.4% 2.8% -6.1% 2.2% -11.3% 7.0% -2.0% -2.9% 24.0% 0.5% 5.2% 2.8% -0.4% -5.0% -8.0% 4.1% -5.0% -4.6% -7.6%

14.1 26.1 20.1 ILS Curncy 17.6 ZAR Curncy 17.3 15.3 12.2 25.4 12.1 14.5 21.3 37.2

Middle East & Africa

1.52 -0.1% 19.31 1.1% 5.66 0.8% 1.32 -0.7% 222.01 1.4% 5.68 1.5% 3.17 1.1% 3.33 0.9% 30.41 0.8% 6.43 1.3% 0.93 0.5% 1.79 0.6% 8.14 0.0% 3.68 8.94 0.3% 0.3%

Asia/Pacific

1.4% 1.5% -5.2% -13.4% -1.5% -4.0% -0.1% 0.9% -0.1% 0.0% 0.9% -9.6% 0.7% -6.9% -6.8% -14.4% -1.5% 1.3% 0.6% 0.0% -2.0% 3.4% 2.4% 2.8% -2.0% -0.3% -6.2% -1.9% -1.7% -3.1% 0.7% -1.7%

LA1 Comdty
HG1 Comdty GC1 Comdty SI1 Comdty CO1 Comdty CL1 Comdty XB1 Comdty NG1 Comdty

2044.0 355.6 1568.0 28.5 114.2 93.9 301.0 3.3

Energy

Indices

CRY Index CRB index BDIY Index Baltic Dry Index GI1 COMB Index GS Cmdty Index CMCITR Index UBS-Bloomberg Cmdty DBLCDBAT Index DBIQ Diversified Ag Index Source: Bloomberg. Updated at 5:45 a.m. EDT

296.6 735.0 666.2 1297.7 217.2

6.6 22.5 8.5 EURGBP Curncy 7.3 EURNOK Curncy 6.9 EURCHF Curncy

AUD Curncy CNY Curncy HKD Curncy INR Curncy IDR Curncy JPY Curncy SGD Curncy NZD Curncy KRW Curncy THB Curncy TWD Curncy

Euro Crosses

1.02 -0.1% 6.24 0.0% 7.76 0.0% 54.52 0.8% 9723.00 0.4% 93.11 -0.5% 1.24 0.1% 0.83 -0.2% 1086.24 0.7% 29.88 0.1% 29.63 0.3% 0.9 -0.7% 7.5 0.7% 1.2 -0.2%

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02.21.13 www.bloombergbriefs.com Bloomberg Brief | economics

11

Keenes Corner
Gina Martin Adams, director/senior strategist, Wells Fargo Securities LLC, talks to Tom keene about why she stands by her 2013 S&P 500 forecast of 1,390.

longer-term drag. Were not going to have a whole lot of resolution on march 1. Were probably going to have some more piecemeal measures, and were going to be addressing this throughout the second quarter, maybe even through the third quarter and fourth quarter of this year, as lawmakers are unable to come together to agree on a longer-term solution. Q: You were talking about slowing earnings growth, but how much of your lower target on the S&P 500 is a result of Washington and whats happening or not happening? A: Its a significant piece. In my estimation, fiscal spending, and the regulatory environment broadly, is about a quarter of the multiple that investors are willing to pay for stocks. So the idea that government spending as a share of gDP is stagnant at an incredibly high level is a drag on broader risk tolerance. one of the things that could improve the risk tolerance environment would be a resolution of the debt and deficit situation here in the U.S. Q: A recent front-page story on The USA Today finds mom and pop getting back into the markets. And mutual funds, it turns out, are doing well. Twothirds of all stock mutual funds have posted new record highs. The question is, why, with the Dow still 1 percent away from its 2007 high? A: It all depends on your definition of confidence. In 2011, we had close to 14 straight weeks of inflows. So far weve had about half that. So you can have pretty strong inflows for a period of time. Unfortunately, inflows are a contrary indicator. go back in time and look and positive inflows tend to come at peaks in stock markets. Q: All of a sudden we have stocks practically back at all-time highs, and fund flows are the highest theyve been in five years. A: right, exactly. Its just this confluence of events that, unfortunately, everything signals were getting closer to a top than we are to a buying point. The other thing thats underappreciated is just how negative fund flows were at the tail end of last year and how much make-up were doing for that presently. most people took money out of funds at the tail end of last year because they were worried about

taxation changes, and thats switched so far this year.

(This interview was condensed and edited.)

Todays guests: Ralph Schlosstein, Evercore Partners; Abby Joseph Cohen, goldman Sachs; William Rudin, Rudin Management; Michelle Meyer, Bank of America; William Irving, Fidelity

on air listen on the radio at these regularly scheduled times and dates.
SUrVEIllanCE

Q: You have the lowest 2013 S&P 500 forecast on the street at 1,390. Thats a long way to fall from these recent highs, Gina, but youre sticking to your bearish guns, arent you? A: I am. This year so far looks a lot like 2011. We started off with very strong fund flows, a lot of optimism. Everybodys bullish, from traders to individuals to advisers, but unfortunately, earnings are pretty weak. you have the combination of overly optimistic sentiment and weak fundamentals. Q: In a recent research note, you observed that the guidance from companies has actually has been particularly weak. Thats really your concern, right? A: yes, we have this whole idea that were going to get through this trough, and I think thats whats fueling a lot of this optimism. Unfortunately, companies are telling us, we havent gotten through it yet. Second quarter guidance continues to come in lower. Third quarter guidance is coming lower, as well. So suddenly were going to have to start thinking about the second half of the year. are we actually going to get a bounce-back in the second half? Q: We have Alan Simpson and Erskine Bowles teaming up again. Now, their proposed deficit reduction plan is $2.4 trillion over 10 years, much more than the administration is looking for. Does this give you confidence at least, Simpson-Bowles back together, the dream team of debt, bipartisanship? A: I would love to see someone actually listen to Simpson and Bowles and do something similar to what they recommend. I mean, this is the quintessential problem, I think, facing the market right now. Were all assuming by march 1 were going to have this finished. I dont know that we will. I think this is going to be a

Weekdays 7:00 am-10:00 am. Tom keene joins ken Prewitt for Bloomberg Surveillance
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