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ECONOMIC MONITOROctober 13, 2016
Prepared by:
Dr. Martin Murenbeeld &
Chantelle Schieven
ECONOMIC MONITOR
Dynamic Funds Economics2
Financial Markets Overview
The US election has dominated the newswires in recent weeks and we doubt this will change before November 8. In the wake of some tawdry tape revelations the probability of a Trump victory has plunged to about 15% on betting sites. While this removes some uncertainty regarding the early onset of US protectionism (i.e. Trump’s tariffs on Chinese exports to the US, for example), we remind the reader in the article starting on page 3 that a Clinton Administration may also have to consider dollar devaluation, in lieu of protectionism, in order to boost US growth and bring the global economy back into some semblance of balance. (Clinton is also no “friend” of China - going by her speeches!) The Federal Reserve is forecast to stay out of the political fray by foregoing a hike in November, though several officials have indicated that meeting is “live”. We continue to forecast the Fed will hike in December! We have noted often there is no compelling reason for a 25 basis-point hike in November or December (such a small hike has symbolic value only); indeed, the US economy would benefit from more inflationary growth (as would most highly indebted economies). We also assume the Bernard Sanders faction of the Democrat Party, the party now very likely to be in the White House after January 2017, will not be overjoyed with a Fed anxious to raise interest rates in an environment of still very low labor-force participation rates. But the Fed is intent upon a hike, for better or worse!The charts on the US economy, starting on page 21, also do not make a compelling argument for
a hike. The latest Fed of New York “Nowcast” of GDP in 2016-Q3 is 2.2% (and 1.3% for Q4), while the Fed of Atlanta’s “GDPNow” projection is 2.1% for Q3. Growth will not very robust for 2016-H2.The IMF has downgraded the global economy yet again in its October Economic Outlook, and its outlook for Canada dropped from 1.4% and 2.1% to 1.2% and 1.9% for 2016 and 2017 respectively. The Bank of Canada will no doubt lower its own forecast for 2016 in its October Monetary Policy Report due on October 19. (The July Report’s forecast was 1.3% and 2.2% for 2016 and 2017 respectively.) Despite these downgrades, bond yields have risen significantly in recent weeks. Fear that both the ECB and the BoJ will end QE (quantitative easing) before long, and that the US will turn to fiscal stimulus in 2017 are rampant. Short duration is desirable! The baseline forecasts this month call for: 1.► The FED to hike in December;2.► The BANK OF CANADA to stand pat on
interest rates this year and probably next;3.► BOND YIELDS in the US and Canada to rise
on the back of more fiscal expansion in the US and uncertainty regarding ECB and BoJ policy going forward;
4.► The CANADIAN DOLLAR to trend sideways; 5.► The US DOLLAR to trend flat/up until after
November - a Clinton Administration will have to think about how it can “devalue” the dollar (much preferred over protectionism) thereafter.
3Dynamic Funds Economics
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asel
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See
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4-45
fo
r our
alte
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ive
scen
ario
s.
Sou
rce:
Wal
l Stre
et J
ourn
al, F
eder
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eser
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unde
e E
cono
mic
s
ECONOMIC MONITOR
Dynamic Funds Economics4
The US Should Devalue the Dollar ... And here is how!
Martin Murenbeeld
After recent developments on the US political front (including the second debate on October 9 and revelations on Trump’s “locker-room” behavior) the probability of Trump being elected President on November 8 has dropped to 15.4%. The likelihood of Clinton being elected has in turn risen to 83.0%*. The issue of unfair trade and dollar overvaluation will not go away however under a Clinton Presidency; her speeches have revealed a number of “Trump-like” views when it comes to US trade with China (and with other countries seen to be taking unfair advantage of the global trading system with taxes, currency manipulation, non-reciprocal legislation, impediments to imports and investment, etc.).
Our reports have frequently suggested that the US should devalue the US dollar. The global economy has serious imbalances; these imbalances affect employment and inflation in the “deficit” regions quite negatively, and create serious policy problems for these regions. (The US is a “deficit” region relative to Asia and Europe, for example, and the southern half of the Eurozone is a “deficit” region relative to the northern half.)
Historically chronic “deficit” countries/regions eventually adopt protectionist policies, which then risk another global recession or worse; or they decide to unilaterally devalue. The latter is preferable!
Recently, the IMF and other supra-national bodies have been warning of the perils of protectionism (no doubt the result of Trump’s overt protectionism). Unfortunately however, the IMF has
*(https://www.electionbettingodds.com/,10/11/16)
212 www.dundeeeconomics.com
(1) The Dollar is Overvalued …The dollar should be devalued … !
60
70
80
90
100
110
120
130
140
150
73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15
Last month: September 2016
US recession
Source: Wall Street Journal, Federal Reserve, Dundee Economics
US Dollar IndicesFed Major (March 1973=100)
Murenbeeld-EFXR0 (Jan 1999=100)
Murenbeeld-NEFXR (Jan 1999=100)
213 www.dundeeeconomics.com
A headwind for GDP:• The US foreign balance (X-M) is contributing to US
GDP – US imports (M) are contributing to foreign GDP however …
• (I) Investment (notably non-residential) will remain weak because of an overvalued dollar - which doesn’t help US GDP either …
A headwind for inflation:• The US imports deflation - frustrating Fed efforts
to boost inflation
(2) The Overvalued Dollar …… is a major headwind for the US economy …
been mostly asleep at the switch when it comes to demanding a more appropriate currency alignment globally.
(We remind readers that in the run-up to the Bretton Woods agreement in 1944 Keynes argued – unsuccessfully – in favor of financial penalties for countries that run persistent surpluses. His thinking was that surplus countries
5Dynamic Funds Economics
I. August 15, 1971On August 15, 1971 President
Nixon levied a 10% tariff on all foreign goods entering the US (and took the dollar off the “gold-exchange standard”); these tariffs were not removed until other currencies, and specifically the yen and the deutschemark, were revalued upwards against the dollar.
The Smithsonian Agreement later that year formalized the results of this action: the dollar was devalued against gold (from $35 to $38 an ounce) and other currencies were revalued against the dollar. The net effect was an approximate 10% devaluation of the dollar against a basket of the world’s major currencies.
Background: throughout the 1960’s global irritation with US balance of payments (BoP) deficits increased; these deficits bled dollars into the international economy and, inevitably, into the foreign exchange reserves of a number of “surplus” countries – including Germany and Japan. (It was pointed out that in the event all global “reserve” dollars were presented at the US Treasury in exchange for gold, the US would
not have sufficient gold reserves to satisfy the conversion – at least not with gold valued at $35/ounce.)
Overseas officials argued that the US needed to do something about its BoP “problem”. The US responded with the argument that a number of foreign currencies, notably those from economies healing from the devastation of WWII, should be revalued against the dollar instead. This
215 www.dundeeeconomics.com
owned enterprises who undersell in the global market to hurt our companies, and it discriminates against American companies … We all know we are losing jobs. … China wants to keep people employed while they try to figure out what to do about their economy … They’re trying to solve their domestic economic problems on the backs of American workers ...
3. “We have to prevent China/other countries from manipulating their currencies to gain an unfair price advantage” (https://www.hillaryclinton.com/speeches/)
… For Both Republicans and DemocratsClinton angry with current trade practises too …!
1. “I will prevent countries like China from abusing global trade rules and reject trade agreements that don’t meet our high standards of raising wages, creating good paying jobs, and enhancing our national security” (https://www.hillaryclinton.com/issues/manufacturing/)
2. “China is, by far, the worst rule breaker in the world … China dumps cheap products in our markets, subsidizes state-
214 www.dundeeeconomics.com
2. I am going to instruct my Treasury Secretary to label China a currency manipulator. Any country that devalues their currency in order to take advantage of the United States will be met with sharply, and that includes tariffs and taxes
3. If China does not stop its illegal activities, including its theft of American trade secrets, I will use every lawful presidential power to remedy trade disputes, including the application of tariffs
“Declaring America's Economic Independence” - June 28, 2016
The Dollar is a Political Issue …Trump wants “fair” trade … and a lower dollar …?
1. I'm going to direct the Secretary of Commerce to identify every violation oftrade agreements a foreign country is currently using to harm our workers. I will then direct all appropriate agencies to use every tool under American and international law to end these abuses
needed to be “disciplined” along with deficit countries. (Hey, you can’t have a “deficit” region without a “surplus” region!) Persistent imbalances should eventually also necessitate currency revaluation!)
We believe that the US dollar is grossly overvalued today. This commentary discusses how the US has engineered a devaluation in the past, and how it could do so again.
ECONOMIC MONITOR
Dynamic Funds Economics6
argument fell on deaf ears however, for similar reasons China and others do not like their currencies to rise against the dollar today. To be sure, the US took a number of steps during the 1960’s to curb capital outflows (capital outflows were the essence of US BoP deficits at that time – not trade deficits), including the imposition of regulations to limit the outward-flow of foreign direct investment (FDI) and interest equalization taxes to stop foreign entities from borrowing dollars in the US.
In 1971 however the US trade balance began slipping into deficit, and the US Administration concluded enough was enough. It levied a 10% tariff on foreign goods coming into the US!
Lesson 1: The US can force dollar devaluation by limiting access to its domestic market with tariffs and other trade barriers.
II. The 1985 Plaza AccordThe G-5 concluded the Plaza Accord in
September 1985; it was an accord to devalue the dollar against the other G-5 currencies. (The G-5 included Japan, Germany, France and the UK, along with the US.)
Wikipedia notes the following: “Between 1980 and 1985 the dollar had appreciated by about 50% against the Japanese yen, Deutsche Mark, French Franc and British pound, the currencies of the next four biggest economies at the time. This caused considerable difficulties for American industry but at first their lobbying was largely ignored by government.”
I remember it well; I personally lost a fair bit of money betting against the dollar prior to the Plaza Accord (whereupon I learned that “the market can stay irrational for longer than I can stay solvent”).
Background: the election of Ronald Reagan in 1980 together with Fed Chair Volcker’s record high interest rate policy led to a surge of capital flowing into the US. (the FF rate hit 19% in 1981 and 10-year Treasuries yielded nearly 16%!) By 1985 corporate America was fed up, the
current account deficit of the US hit a record 3.4% of GDP, and Congress was ready to pass protectionist laws.
The Plaza Accord proved so successful in devaluing the dollar that the Louvre Accord of February 1987 was required to stop the dollar from further declines. It had given back all of its 50% rise!
Lesson 2: The US can engineer dollar devaluation through direct agreement with its key trading partners.
III. What’s Next?Currently, US trade deficits are near record
highs, though the US current account deficit is “only” 2.8% of GDP – having benefited from a major reduction in oil imports since 2006 when the CA deficit was over 6% of GDP. The US economy has posted some of its lowest post-recession growth rates since WWII, inflation is below target and the percentage of the population at work is near levels last seen in the late 1970’s. Academic studies (as well as The Economist’s Big Mac Index) suggest the US dollar is seriously overvalued, and some studies are starting to question whether trade with China (specifically) has been as beneficial for the US as theory suggests it should have been.
Calls for countervailing duties abound as both presidential candidates have sworn to correct the massive US trade imbalance with China (if not also with Japan and Europe).
Based on present trends, a Trump Administration will likely employ the lessons of August 15, 1971 (Lesson 1) and limit imports from China and elsewhere with the imposition of tariffs. Presumably, once the dollar is more appropriately priced (i.e. 40% lower against the RMB, for example) these tariffs will be lifted.
If this happens there will be a period of extreme turmoil in global financial and currency markets – there was in 1971! With the US no longer the same global economic hegemon it
7Dynamic Funds Economics
was in 1971 however, a global trade war cannot be ruled out; China and other countries can, and likely will, retaliate against US exports.
A Clinton Administration is more likely to have learned from Lesson 2, and call for a Plaza Accord II. I doubt this will be successful however, because China is not as pliable as the G-5 was in 1985. Furthermore, under both Bush and Obama Administrations the US Treasury has made numerous appeals to China and other countries to stop “predatory” currency and trade practices, often threatening to name these countries currency manipulators (which then opens the legal door to countervailing duties). To no avail!
Without China’s agreement to let the dollar decline, I doubt other Asian currencies (and the euro) will rise significantly against the dollar. A Clinton Administration may therefore eventually also have to decide whether unilateral tariffs and countervailing duties indeed promise the best hope for dollar devaluation.
There is another route to currency devaluation however; the US can devalue the dollar by direct currency market intervention. This is after all how other countries keep their currencies undervalued, and it is legal (although not generally done by the reserve currency country)!
Global currency reserves total about $11 trillion dollars; these reserves expand primarily because of currency intervention – i.e. when central bank sell domestic currency for dollars and other convertible currencies global reserves rise. The $11 trillion therefore indicates that currency manipulation is/ has been a very common practice.
Fred Bergsten, the then Director of the Peterson Institute of International Economics, gave the following testimony before Congress in 2010:
“There is one, directly monetary, measure that the United States should contemplate taking against China: direct purchases of renminbi to counter China’s direct purchases of dollars. It is
absurd, especially from a US national perspective but also from the standpoint of global financial stability, that other countries set the exchange rate of the dollar …
In principle there could be little objection to such ‘countervailing currency intervention’ [CCI] against manipulation by another country that was keeping its exchange rate substantially undervalued as a result. In practice, the United States could easily adopt such a policy against any currency that is generally convertible, such as the euro if it too became substantially undervalued …
… Countervailing currency intervention [CCI] would be decidedly superior to countervailing duties to deal with the problem of manipulated exchange rates. Undervalued currencies subsidize all of the exports of the country in question and pose a barrier of equivalent magnitude to all of its imports. Countervailing duties [tariffs, etc.] address only exports of individual products from such a country on a case-by-case basis and do not apply to its imports at all…”
A Proposed Strategy to Correct the Chinese Exchange Rate, C. Fred Bergsten - Director, Peterson Institute for International Economics – in testimony before the Treasury Department’s Committee on Banking, Housing and Urban Affairs - United States Senate, September 16, 2010
The idea of countervailing currency intervention (CCI) never took; yes, the US has intervened in foreign exchange markets from time to time, but always in cooperation with other countries. A reserve-currency country does not normally intervene in FX markets for the purposes of devaluing its own currency; other countries generally retain the prerogative of setting the price of their own currencies in terms of the reserve currency!
(This is why Fred Bergsten and some other observers have questioned whether the dollar’s reserve currency role is really still in the national interest of the US. A reserve currency invariably becomes overvalued when other countries are
ECONOMIC MONITOR
Dynamic Funds Economics8
free to set their own exchange rates against the reserve currency.)
Lesson 3: the US can devalue the dollar with direct currency market intervention.
So how would the US go about it? The US Treasury will have to instruct its agent in international financial matters, the Federal Reserve Bank of NY, to employ the assets of the Exchange Stabilization Fund (ESF) and sell dollars in FX markets.
“Whenever necessary, the [ESF] trading desk buys or sells foreign currencies on behalf of the Treasury … for intervention purposes. Treasury and Federal Reserve foreign exchange operations are closely coordinated and typically are conducted jointly. … The ESF does not provide financing to the Federal Reserve System for foreign exchange operations. Rather, the Federal Reserve participates with its own funds…” (see Fed Point, FRBNY: Exchange Stabilization Fund, May 2007 – bolding added).
CCI requires money, and the FRBNY will have to come up with $billions to commence the program! Fortunately, the Federal Reserve has unlimited funds. It follows that US CCI is dollar devaluation with a QE4 component! Indeed, intervention funded by a central bank is (always) an extremely stimulative monetary policy, as we have seen in China and elsewhere. US CCI would be no different; the Fed might well need to supply, or at least be ready to supply, hundreds of billions of dollars for FX intervention.
(The old-fashioned way of devaluing had a government/central bank announce over a weekend that its currency would commence trading Monday morning at new, lower cross-rates. Imagine the US Treasury announcing one of these weekends that in conjunction with the FRBNY it is prepared “to do whatever it takes” to see the dollar trade at $1.50 euro and 5.00 RMB the following Monday!)
IV ConclusionDollar devaluation can be engineered with
tariffs, by agreement with trading partners, or through direct currency market intervention. One should not pretend dollar devaluation will go smoothly or be immediately appreciated overseas. There will be blood, as they say. But my point is that it can be done, and it has been done in recent history.
Addendum We have read several arguments that dollar
overvaluation is now “last year’s problem”. China is busy selling dollars of late, and buying RMB in order to stop the RMB from declining.
This is true, but somewhat irrelevant in my view. China has made a bit of a mess of it; it has allowed capital to flow into the country these last 15 years or so without letting the RMB rise sufficiently to choke off “fluff” investment. China welcomed the employment gains domestically
Source: The Economist
9Dynamic Funds Economics
from all this capital, and was largely unconcerned with the employment losses abroad.
“The shock of trade with China was different than the shock of U.S. trade with other countries such as Mexico, Japan and Asian “tiger” economies such as Taiwan and Hong Kong, research shows. The scale of import competition from China was immense, dislocating millions of U.S. manufacturing workers, who had trouble adjusting and finding new work”, (WSJ, 08/11 – bolding added).
The fact that some “fluff” investment is now leaving China, along with the $ billions amassed by those Chinese families who have profited from the massive capital flows into China, is not an argument against restoring global balance. There is a serious, continuing, global demand shortage; Asia still needs to consume much more of its own output. It’s not clear that a new Administration in the US will condone picking up slack in global demand by the US economy consuming more foreign output at the cost of domestic output. Indeed, while there is never a good time to restore global balance the US would appear to have come to the end of its tether on this.
The Economist noted in an article entitled “Free Trade – Coming and Going”! (October 1, 2016) “… China’s accession to the WTO [in 2001] caused a big shock. The country’s size, and the speed at which it conquered rich-world markets
for low-cost manufacturing, makes it unique. By 2013 it had captured one-fifth of all manufacturing exports worldwide, compared with a share of only 2% in 1991 …
David Autor of the Massachusetts Institute of Technology (MIT), David Dorn of the University of Zurich and Gordon Hanson of the University of California, San Diego, looked into [US] job losses more closely, [and] they found something worrying. At least one-fifth of the drop in factory jobs during [1999-2011] was the direct result of competition from China …
In other rich countries, regions or industries with heavy exposure to Chinese imports also suffered material losses in factory jobs. A study of Spain’s jobs market by Vicente Donoso, of the Complutense University of Madrid, and others found that provinces with the greatest exposure to Chinese imports saw the largest falls in the share of manufacturing employment between 1999 and 2007 …” (bolding added).
We have noted many times that if China was the size of Jamaica no one would care what policies it followed or how cheap its currency was. But China and the rest of SE Asia encompass more than two billion hardworking, entrepreneurial people. If the currencies of that region are significantly undervalued global problems will inevitably follow ... and they now have!
Dynamic Funds Economics10
ECONOMIC MONITOR
MONTHLY REVIEW ►CANADA – ECONOMIC GROWTH
-10
-8
-6
-4
-2
0
2
4
6
8
90 92 94 96 98 00 02 04 06 08 10 12 14 16
CANADA GROSS DOMESTIC PRODUCT
Annualized growth rate Last quarter: 2016 Q2
Source: Statistics Canada
-1.6-1.4-1.2-1.0-0.8-0.6-0.4-0.20.00.20.40.60.81.0
2008 2009 2010 2011 2012 2013 2014 2015 2016
CANADA MONTHLY GDP
Last month: July 2016Percent change month-to-month
Source: Statistics Canada
-10
-8
-6
-4
-2
0
2
4
6
8
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
CANADA GDP FORECAST
Annualized quarterly rate of change
Forecastthrough
2016
Source: Statistics Canada, Dundee Economics
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
13-Q3 13-Q4 14-Q1 14-Q2 14-Q3 14-Q4 15-Q1 15-Q2 15-Q3 15-Q4 16-Q1 16-Q2
ConsumptionInvestmentGovernmentNet Exports
CONTRIBUTION TO GDP IN RECENT QUARTERS0.5%3.3% -0.9% -0.5%3.9% 0.5% 3.7% 2.1% -1.6%2.8% GDP
Contributionto GDP %
** Average of last 12 quarters: 1.56%Source: Statistics Canada
2.2% 2.5%
-10
-8
-6
-4
-2
0
2
4
6
8
90 92 94 96 98 00 02 04 06 08 10 12 14 16
CANADA GROSS DOMESTIC PRODUCT
Annualized growth rate Last quarter: 2016 Q2
Source: Statistics Canada
-1.6-1.4-1.2-1.0-0.8-0.6-0.4-0.20.00.20.40.60.81.0
2008 2009 2010 2011 2012 2013 2014 2015 2016
CANADA MONTHLY GDP
Last month: July 2016Percent change month-to-month
Source: Statistics Canada
The Canadian economy declined -1.6% (annualized) in 2016-Q2; the decline was due to a sharp
decline in exports as a result of the massive wildfires.
Monthly GDP increased 0.5% in July.
Growth for all of 2016 is shaping up to be less than 1.0%.
11Dynamic Funds Economics
-16
-12
-8
-4
0
4
8
12
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
CANADA INDUSTRIAL PRODUCTION
Last month: July 2016Percent change year-over-year
Source: Statistics Canada
69
72
75
78
81
84
87
90
87 90 93 96 99 02 05 08 11 14
CANADA CAPACITY UTILIZATION
Last Quarter: 2016-Q2
Percent
Source: Statistics Canada
Average 1968 to date 82.2
MONTHLY REVIEW ►CANADA – ECONOMIC GROWTH
-8
-6
-4
-2
0
2
4
6
8
10
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
CANADA RETAIL SALES
Last month: July 2016Percent change year-over-year
Includes price changes
Source: Statistics Canada
-30
-25
-20
-15
-10
-5
0
5
10
15
20
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
CANADA MANUFACTURING SHIPMENTS
Last month: July 2016Percent change year-over-year
Source: Statistics Canada
-16
-12
-8
-4
0
4
8
12
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
CANADA INDUSTRIAL PRODUCTION
Last month: July 2016Percent change year-over-year
Source: Statistics Canada
69
72
75
78
81
84
87
90
87 90 93 96 99 02 05 08 11 14
CANADA CAPACITY UTILIZATION
Last Quarter: 2016-Q2
Percent
Source: Statistics Canada
Average 1968 to date 82.2
Industrial production remains negative ...
... and capacity utilization is trending sideways/down.
Retail sales growth has declined again in recent months.
Dynamic Funds Economics12
ECONOMIC MONITOR
MONTHLY REVIEW ►CANADA – ECONOMIC GROWTH
-40
-30
-20
-10
0
10
20
30
40
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
CANADA MANUFACTURING NEW ORDERS
Last month: July 2016Percent change year-over-year
Source: Statistics Canada
1.20
1.25
1.30
1.35
1.40
1.45
1.50
1.55
1.60
1.65
1.70
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
CANADA INVENTORY-TO-SHIPMENTS RATIO
Last month: July 2016
Source: Statistics Canada
-40
-30
-20
-10
0
10
20
30
40
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
CANADA MANUFACTURING NEW ORDERS
Last month: July 2016Percent change year-over-year
Source: Statistics Canada
1.20
1.25
1.30
1.35
1.40
1.45
1.50
1.55
1.60
1.65
1.70
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
CANADA INVENTORY-TO-SHIPMENTS RATIO
Last month: July 2016
Source: Statistics Canada
... and the inventory ratio continues to trend sideways.
... new orders are down ...
Manufacturing shipments continue to disappoint ...
-8
-6
-4
-2
0
2
4
6
8
10
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
CANADA RETAIL SALES
Last month: July 2016Percent change year-over-year
Includes price changes
Source: Statistics Canada
-30
-25
-20
-15
-10
-5
0
5
10
15
20
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
CANADA MANUFACTURING SHIPMENTS
Last month: July 2016Percent change year-over-year
Source: Statistics Canada
13Dynamic Funds Economics
-100
-80
-60
-40
-20
0
20
40
60
80
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
CANADA JOB CREATION
Last month: September 2016000s, 3-month moving average
Source: Statistics Canada
5.5
6.0
6.5
7.0
7.5
8.0
8.5
9.0
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
CANADA UNEMPLOYMENT RATE
Last month: September 2016Percent
Source: Statistics Canada
MONTHLY REVIEW ►CANADA – LABOUR MARKET
64.0
64.5
65.0
65.5
66.0
66.5
67.0
67.5
68.0
90 92 94 96 98 00 02 04 06 08 10 12 14 16
CANADA LABOUR FORCE PARTICIPATION RATE
Last month: September 2016
Source: Statistics Canada
% of non-institutional population 16 and over in the labor force
CANADA AVERAGE WEEKLY EARNINGS
-4
-2
0
2
4
6
8
10
12
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Last month: July 2016Percent change year-over-year
Total
Public Administration
Source: Statistics Canada
-100
-80
-60
-40
-20
0
20
40
60
80
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
CANADA JOB CREATION
Last month: September 2016000s, 3-month moving average
Source: Statistics Canada
5.5
6.0
6.5
7.0
7.5
8.0
8.5
9.0
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
CANADA UNEMPLOYMENT RATE
Last month: September 2016Percent
Source: Statistics Canada
... the labour force participation rate increased however.
... but the unemployment rate remained at 7.0% ...
Labour market data were stronger than expected for September ...
Dynamic Funds Economics14
ECONOMIC MONITOR
CANADA INDUSTRIAL PRODUCT PRICE INFLATION
-10
-8
-6
-4
-2
0
2
4
6
8
10
12
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Last month: August 2016Percent change year-over-year
Source: Statistics Canada
-2
-1
0
1
2
3
4
5
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Headline CPICore CPI
CANADA CONSUMER PRICE INFLATION
Target band
Last month: August 2016Percent change year-over-year
Source: Statistics Canada
0
2
4
6
8
10
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Difference (inflationexpectation)Long term bond
CANADA INFLATION EXPECTATIONS
Last month: September 2016
Source: Bank of Canada, Dundee Economics
100
120
140
160
180
200
220
240
260
280
300
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
CANADA HOUSING STARTS
Last month: August 2016
000s, total, all areas
Source: Canada Mortgage & Housing Corporation
Headline CPI declined to 1.1% in August from 1.3% in July and core
CPI declined from 2.1% to 1.8% .
Industrial product price inflation has been negative for the last seven
months, wages have declined and inflation expectations are stable.
We do not expect inflation to be an issue for the Bank
of Canada in 2016/2017.
64.0
64.5
65.0
65.5
66.0
66.5
67.0
67.5
68.0
90 92 94 96 98 00 02 04 06 08 10 12 14 16
CANADA LABOUR FORCE PARTICIPATION RATE
Last month: September 2016
Source: Statistics Canada
% of non-institutional population 16 and over in the labor force
CANADA AVERAGE WEEKLY EARNINGS
-4
-2
0
2
4
6
8
10
12
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Last month: July 2016Percent change year-over-year
Total
Public Administration
Source: Statistics Canada
MONTHLY REVIEW ►CANADA – INFLATION
CANADA INDUSTRIAL PRODUCT PRICE INFLATION
-10
-8
-6
-4
-2
0
2
4
6
8
10
12
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Last month: August 2016Percent change year-over-year
Source: Statistics Canada
-2
-1
0
1
2
3
4
5
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Headline CPICore CPI
CANADA CONSUMER PRICE INFLATION
Target band
Last month: August 2016Percent change year-over-year
Source: Statistics Canada
15Dynamic Funds Economics
... led by higher prices in Toronto and Vancouver. (This may
change in coming months!)
New house prices continue to increase at a steady rate ...
0
2
4
6
8
10
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Difference (inflationexpectation)Long term bond
CANADA INFLATION EXPECTATIONS
Last month: September 2016
Source: Bank of Canada, Dundee Economics
100
120
140
160
180
200
220
240
260
280
300
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
CANADA HOUSING STARTS
Last month: August 2016
000s, total, all areas
Source: Canada Mortgage & Housing Corporation
CANADA NEW HOUSE PRICES
40
50
60
70
80
90
100
110
120
81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15-12
-8
-4
0
4
8
12
16
20
Source: Statistics Canada
Index, 2007=100
Last month: July 2016
Percent change year-over-year
-4 -2 0 2 4 6 8
St. John'sHalifax
Fredericton
MontrealOttawa-Hull
Toronto
KitchenerWinnipeg
Regina
SaskatoonCalgary
Edmonton
VancouverVictoria
CANADA NEW HOUSE PRICES
July 2016
Percent change year-over-year
Source: Statistics Canada
CANADA NEW HOUSE PRICES
40
50
60
70
80
90
100
110
120
81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15-12
-8
-4
0
4
8
12
16
20
Source: Statistics Canada
Index, 2007=100
Last month: July 2016
Percent change year-over-year
-4 -2 0 2 4 6 8
St. John'sHalifax
Fredericton
MontrealOttawa-Hull
Toronto
KitchenerWinnipeg
Regina
SaskatoonCalgary
Edmonton
VancouverVictoria
CANADA NEW HOUSE PRICES
July 2016
Percent change year-over-year
Source: Statistics Canada
Housing starts are trending sideways.
MONTHLY REVIEW ►CANADA – HOUSING MARKETHousing market data remain mixed from region to region, but official concern over rapid increases in Vancouver and Toronto house prices has been rising (with Vancouver now levying a property transfer tax on foreign purchases).
Dynamic Funds Economics16
ECONOMIC MONITOR
CANADA – TERANET HOUSE PRICE INDEX
50
75
100
125
150
175
200
00 02 04 06 08 10 12 14 16-8
-4
0
4
8
12
16
Source: Teranet (National Bank)
Composite 11 City Index
Last month: August 2016
Percent change year-over-year
TORONTO – TERANET HOUSE PRICE INDEX
60
80
100
120
140
160
180
200
220
00 02 04 06 08 10 12 14 16-12
-8
-4
0
4
8
12
16
20
Source: Teranet (National Bank)
Index Percent change year-over-year
Last month: August 2016
VANCOUVER – TERANET HOUSE PRICE INDEX
50
75
100
125
150
175
200
225
250
275
00 02 04 06 08 10 12 14 16-15
-10
-5
0
5
10
15
20
25
30
Source: Teranet (National Bank)
Index Percent change year-over-year
CALGARY – TERANET HOUSE PRICE INDEX
60
80
100
120
140
160
180
200
00 02 04 06 08 10 12 14 16-20
-10
0
10
20
30
40
50
Source: Teranet (National Bank)
Index
Percent change year-over-year
Last month: August 2016
Last month: August 2016
CANADA – TERANET HOUSE PRICE INDEX
50
75
100
125
150
175
200
00 02 04 06 08 10 12 14 16-8
-4
0
4
8
12
16
Source: Teranet (National Bank)
Composite 11 City Index
Last month: August 2016
Percent change year-over-year
TORONTO – TERANET HOUSE PRICE INDEX
60
80
100
120
140
160
180
200
220
00 02 04 06 08 10 12 14 16-12
-8
-4
0
4
8
12
16
20
Source: Teranet (National Bank)
Index Percent change year-over-year
Last month: August 2016
MONTREAL – TERANET HOUSE PRICE INDEX
40
60
80
100
120
140
160
00 02 04 06 08 10 12 14 16-3
0
3
6
9
12
15
Source: Teranet (National Bank)
Index
Percent change year-over-year
OTTAWA – TERANET HOUSE PRICE INDEX
60
80
100
120
140
160
00 02 04 06 08 10 12 14 16-3
0
3
6
9
12
Source: Teranet (National Bank)
Index
Percent change year-over-year
Last month: August 2016
Last month: August 2016
VANCOUVER – TERANET HOUSE PRICE INDEX
50
75
100
125
150
175
200
225
250
275
00 02 04 06 08 10 12 14 16-15
-10
-5
0
5
10
15
20
25
30
Source: Teranet (National Bank)
Index Percent change year-over-year
CALGARY – TERANET HOUSE PRICE INDEX
60
80
100
120
140
160
180
200
00 02 04 06 08 10 12 14 16-20
-10
0
10
20
30
40
50
Source: Teranet (National Bank)
Index
Percent change year-over-year
Last month: August 2016
Last month: August 2016
MONTHLY REVIEW ►CANADA – HOUSING MARKET
According to Teranet house price indices, existing house prices (11-city composite) increased 11.4% (year-over-year) in August. Existing house prices increased 25.8% in Vancouver and 14.6% in Toronto; elsewhere prices were more subdued or declined.
MONTREAL – TERANET HOUSE PRICE INDEX
40
60
80
100
120
140
160
00 02 04 06 08 10 12 14 16-3
0
3
6
9
12
15
Source: Teranet (National Bank)
Index
Percent change year-over-year
OTTAWA – TERANET HOUSE PRICE INDEX
60
80
100
120
140
160
00 02 04 06 08 10 12 14 16-3
0
3
6
9
12
Source: Teranet (National Bank)
Index
Percent change year-over-year
Last month: August 2016
Last month: August 2016
17Dynamic Funds Economics
0
2
4
6
8
10
12
14
16
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Last month: July 2016
Percent change year-over-year
CANADA CONSUMER CREDIT GROWTH
Source: Bank of Canada
250
300
350
400
450
500
550
600
07 08 09 10 11 12 13 14 15 16
Last month: July 2016
$ volume, billions
CANADA CONSUMER CREDIT
Source: Bank of Canada
0
2
4
6
8
10
12
14
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Last month: July 2016Percent change year-over-year
CANADA RESIDENTIAL MORTGAGE CREDIT GROWTH
Source: Bank of Canada
500
600
700
800
900
1000
1100
1200
1300
1400
07 08 09 10 11 12 13 14 15 16
Last month: July 2016
$ volume, billions
CANADA RESIDENTIAL MORTGAGE CREDIT
Source: Bank of Canada
-2
0
2
4
6
8
10
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Last month: August 2016Percent change year-over-year
CANADA TOTAL BUSINESS CREDIT GROWTH
Source: Bank of Canada
1000
1100
1200
1300
1400
1500
1600
1700
1800
07 08 09 10 11 12 13 14 15 16
Last month: August 2016
$ volume, billions
CANADA TOTAL BUSINESS CREDIT
Source: Bank of Canada
MONTHLY REVIEW ►CANADA – CREDIT AND DEBT
0
2
4
6
8
10
12
14
16
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Last month: July 2016
Percent change year-over-year
CANADA CONSUMER CREDIT GROWTH
Source: Bank of Canada
250
300
350
400
450
500
550
600
07 08 09 10 11 12 13 14 15 16
Last month: July 2016
$ volume, billions
CANADA CONSUMER CREDIT
Source: Bank of Canada
0
2
4
6
8
10
12
14
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Last month: July 2016Percent change year-over-year
CANADA RESIDENTIAL MORTGAGE CREDIT GROWTH
Source: Bank of Canada
500
600
700
800
900
1000
1100
1200
1300
1400
07 08 09 10 11 12 13 14 15 16
Last month: July 2016
$ volume, billions
CANADA RESIDENTIAL MORTGAGE CREDIT
Source: Bank of Canada-2
0
2
4
6
8
10
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Last month: August 2016Percent change year-over-year
CANADA TOTAL BUSINESS CREDIT GROWTH
Source: Bank of Canada
1000
1100
1200
1300
1400
1500
1600
1700
1800
07 08 09 10 11 12 13 14 15 16
Last month: August 2016
$ volume, billions
CANADA TOTAL BUSINESS CREDIT
Source: Bank of Canada
Consumer credit growth has picked up somewhat; mortgage credit growth is expanding at about 6% year-over-year.
Dynamic Funds Economics18
ECONOMIC MONITOR
55
60
65
70
75
80
85
90
95
100
105
110
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
CANADIAN DOLLAR
Source: Wall Street Journal
US Cents
WeeklyLast date: October 7, 2016
0
20
40
60
80
100
120
140
160
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
OIL PRICENYMEX
Weekly, Friday dataLast date: October 7, 2016US$/bbl
Source: Wall Street Journal
55
60
65
70
75
80
85
90
95
100
105
110
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
CANADIAN DOLLAR
Source: Wall Street Journal
US Cents
WeeklyLast date: October 7, 2016
0
20
40
60
80
100
120
140
160
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
OIL PRICENYMEX
Weekly, Friday dataLast date: October 7, 2016US$/bbl
Source: Wall Street Journal
4000
6000
8000
10000
12000
14000
16000
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
S&P/TSX COMOSITE
Index
Weekly, Friday dataLast date: October 7, 2016
Source: Thomson Reuters DataStream
1000
1500
2000
2500
3000
3500
4000
4500
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Energy Sector Index50-day moving average200-day moving average
TSX ENERGY
Daily, last date: October 7, 2016
Oil prices increased to around $50 after the latest OPEC get-together.
... along with the TSX Composite Index.
The Canadian dollar has trended sideways in recent
weeks (as forecast) ...
MONTHLY REVIEW ►CANADA – ASSET PRICES
19Dynamic Funds Economics
4000
6000
8000
10000
12000
14000
16000
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
S&P/TSX COMOSITE
Index
Weekly, Friday dataLast date: October 7, 2016
Source: Thomson Reuters DataStream
1000
1500
2000
2500
3000
3500
4000
4500
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Energy Sector Index50-day moving average200-day moving average
TSX ENERGY
Daily, last date: October 7, 2016
500
1000
1500
2000
2500
3000
3500
4000
4500
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Materials Sector Index
50-day moving average
200-day moving average
TSX MATERIALS
Daily, last date: October 7, 2016
600
900
1200
1500
1800
2100
2400
2700
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Industrials Sector Index50-day moving average200-day moving average
TSX INDUSTRIALS
Daily, last date: October 7, 2016
The Consumer Staples, Telecommunications and Utilities sectors have all retreated from the highs set at the beginning of September.
Source: Thomson Reuters Datastream
MONTHLY REVIEW ►CANADA – TSX GICS SECTORS
500
1000
1500
2000
2500
3000
3500
4000
4500
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Materials Sector Index
50-day moving average
200-day moving average
TSX MATERIALS
Daily, last date: October 7, 2016
600
900
1200
1500
1800
2100
2400
2700
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Industrials Sector Index50-day moving average200-day moving average
TSX INDUSTRIALS
Daily, last date: October 7, 2016
600
800
1000
1200
1400
1600
1800
2000
2200
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Consumer Discretionary Sector Index
50-day moving average
200-day moving average
TSX CONSUMER DISCRETIONARY
Daily, last date: September 5, 2016
1000
1500
2000
2500
3000
3500
4000
4500
5000
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Consumer Staples Sector Index
50-day moving average
200-day moving average
TSX CONSUMER STAPLES
Daily, last date: September 5, 2016
600
800
1000
1200
1400
1600
1800
2000
2200
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Consumer Discretionary Sector Index
50-day moving average
200-day moving average
TSX CONSUMER DISCRETIONARY
Daily, last date: September 5, 2016
1000
1500
2000
2500
3000
3500
4000
4500
5000
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Consumer Staples Sector Index
50-day moving average
200-day moving average
TSX CONSUMER STAPLES
Daily, last date: September 5, 2016
0
500
1000
1500
2000
2500
3000
3500
4000
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Health Care Sector Index50-day moving average200-day moving average
TSX HEALTH CARE
Daily, last date: October 7, 2016
700
900
1100
1300
1500
1700
1900
2100
2300
2500
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Financials Sector Index50-day moving average200-day moving average
TSX FINANCIALS
Daily, last date: October 7, 2016
0
500
1000
1500
2000
2500
3000
3500
4000
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Health Care Sector Index50-day moving average200-day moving average
TSX HEALTH CARE
Daily, last date: October 7, 2016
700
900
1100
1300
1500
1700
1900
2100
2300
2500
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Financials Sector Index50-day moving average200-day moving average
TSX FINANCIALS
Daily, last date: October 7, 2016
50
100
150
200
250
300
350
400
450
500
550
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Info Tech Sector Index50-day moving average200-day moving average
TSX INFORMATION TECHNOLOGY
Daily, last date: October 7, 2016
400
600
800
1000
1200
1400
1600
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Telecom Sector Index
50-day moving average
200-day moving average
TSX TELECOMMUNICATIONS
Daily, last date: October 7, 2016
0
1
2
3
4
5
6
7
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
CANADA GOVERNMENT BONDS
T-bills
10-year bond
Percent
Source: Bank of Canada
Weekly, Friday dataLast date: October 7, 2016
1000
1200
1400
1600
1800
2000
2200
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Utilities Sector Index50-day moving average200-day moving average
TSX UTILITIES
Daily, last date: October 7, 2016
50
100
150
200
250
300
350
400
450
500
550
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Info Tech Sector Index50-day moving average200-day moving average
TSX INFORMATION TECHNOLOGY
Daily, last date: October 7, 2016
400
600
800
1000
1200
1400
1600
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Telecom Sector Index
50-day moving average
200-day moving average
TSX TELECOMMUNICATIONS
Daily, last date: October 7, 2016
Dynamic Funds Economics20
ECONOMIC MONITOR
-1.0
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
06 07 08 09 10 11 12 13 14 15 16
CANADA-US LONG TERM YIELD DIFFERENTIALS
WeeklyLast date: October 7, 2016
10-Year
30-Year
Source: Bank of Canada, Federal Reserve
3
4
5
6
7
8
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
CANADA LONG-TERM CORPORATE BOND YEILDS Percent
Source: Thomson Reuters Datastream
Weekly, Friday dataLast date: October 7, 2016
-1.0
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
06 07 08 09 10 11 12 13 14 15 16
CANADA-US LONG TERM YIELD DIFFERENTIALS
WeeklyLast date: October 7, 2016
10-Year
30-Year
Source: Bank of Canada, Federal Reserve
3
4
5
6
7
8
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
CANADA LONG-TERM CORPORATE BOND YEILDS Percent
Source: Thomson Reuters Datastream
Weekly, Friday dataLast date: October 7, 2016
0
1
2
3
4
5
6
7
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
CANADA GOVERNMENT BONDS
T-bills
10-year bond
Percent
Source: Bank of Canada
Weekly, Friday dataLast date: October 7, 2016
1000
1200
1400
1600
1800
2000
2200
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Utilities Sector Index50-day moving average200-day moving average
TSX UTILITIES
Daily, last date: October 7, 2016
The Canadian 10-year bond yield has hovered around
1.0% in recent weeks ...
... and Canada-US long term differentials have widened
in recent weeks.
... long-term corporate bond yields have hovered around 3.7% ...
MONTHLY REVIEW ►CANADA – INTEREST RATES
21Dynamic Funds Economics
-6
-4
-2
0
2
4
6
8
10
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Last month: August 2016
$ volume, billions
CANADA TRADE BALANCE
Source: Thomson Reuters Datastream
-6
-4
-2
0
2
4
6
00 03 06 09 12 15
Last quarter: 2016-Q2
Percent of GDP
CANADA CURRENT ACCOUNT BALANCE
Source: Thomson Reuters Datastream
-6
-4
-2
0
2
4
6
8
10
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Last month: August 2016
$ volume, billions
CANADA TRADE BALANCE
Source: Thomson Reuters Datastream
-6
-4
-2
0
2
4
6
00 03 06 09 12 15
Last quarter: 2016-Q2
Percent of GDP
CANADA CURRENT ACCOUNT BALANCE
Source: Thomson Reuters Datastream
... and both export and import growth have been negative
for the last six months!
... Canada’s trade deficit declined in August but remains elevated ...
The current account deficit increased to 4.0.% of GDP in 2016-Q2 ...
-40
-30
-20
-10
0
10
20
30
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Last month: August 2016
Percent change year-over-year
CANADA IMPORT/EXPORT GROWTH
Source: Thomson Reuters Datastream
Imports
Exports
MONTHLY REVIEW ►CANADA – CURRENT ACCOUNT AND TRADE BALANCE
Dynamic Funds Economics22
ECONOMIC MONITOR
The leading indicator continues to point to only moderate growth.
... Atlanta Fed’s GDPNow estimate for 2016-Q3 is 2.1%. (Our forecast
for all of 2016 is 1.5%-2.0%.)
The third estimate of US GDP growth in 2016-Q2 was revised up to 1.4% from 1.1% (s.a.a.r) ...
US GROSS DOMESTIC PRODUCT
-10
-8
-6
-4
-2
0
2
4
6
8
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Annualized growth rate Last quarter: 2016-Q2
Source: US Bureau of Economic Analysis
-3.5
-3.0
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US LEADING INDICATOR
Last month: August 2016Percent change month-to-month
Source: The Conference Board
-2
-1
0
1
2
3
4
13 Q3 13 Q4 14 Q1 14 Q2 14 Q3 14 Q4 15 Q1 15 Q2 15-Q3 15-Q4 16-Q1 16-Q2
ConsumptionInvestmentGovernmentNet Exports
CONTRUBTION TO GDP IN RECENTQUARTERS0.9% 0.8%2.0% 2.6% 2.0%-1.2% 4.0% 5.0% 2.3% 1.4%3.1% 4.0% GDP
Contribution to GDP %
** Average of last 12 quarters: 2.2%Source: US Bureau of Economic Analysis
MONTHLY REVIEW ►UNITED STATES – ECONOMIC GROWTH
US GROSS DOMESTIC PRODUCT
-10
-8
-6
-4
-2
0
2
4
6
8
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Annualized growth rate Last quarter: 2016-Q2
Source: US Bureau of Economic Analysis
23Dynamic Funds Economics
MONTHLY REVIEW ►UNITED STATES – ECONOMIC GROWTH
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
13 Q3 13 Q4 14 Q1 14 Q2 14 Q3 14 Q4 15 Q1 15 Q2 15 Q3 15 Q4 16 Q1 16 Q2
Durable GoodsNondurable GoodsServices
C: HOUSEHOLD CONSUMPTION1.5% 1.1%1.6% 1.9% 1.8%1.3% 2.6% 2.5% 3.1% 2.9%1.3% 2.3% C**
Contribution to GDP %
** Average of last 12 quarters: 2.0%
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
13 Q3 13 Q4 14 Q1 14 Q2 14 Q3 14 Q4 15 Q1 15 Q2 15 Q3 15 Q4 16 Q1 16 Q2
NonresidentialResidentialInventories
I: INVESTMENT-0.4%-0.6%1.6% 0.2% 0.4%-1.1% 1.8% 1.5% 0.5% -1.3%2.1% 0.9% I**
Contributionto GDP %
** Average of last 12 quarters: 0.4%Source: US Bureau of Economic Analysis
Source: US Bureau of Economic Analysis
-1.0
-0.5
0.0
0.5
1.0
1.5
13 Q3 13 Q4 14 Q1 14 Q2 14 Q3 14 Q4 15 Q1 15 Q2 15 Q3 15 Q4 16 Q1 16 Q2
Federal
State/Local
G:GOVERNMENT0.2% 0.3%0.5% 0.6% 0.3%0.2% 0.5% -0.1% -0.3%-0.4% -0.5% G**
Contributionto GDP %
** Average of last 12 quarters: 0.1%
0.0%
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
13 Q3 13 Q4 14 Q1 14 Q2 14 Q3 14 Q4 15 Q1 15 Q2 15 Q3 15 Q4 16 Q1 16 Q2
ExportsImportsNet
X-M: FOREIGN BALANCE
-0.5%-1.1% -1.7% 0.1%1.3% -1.2% -0.4% 0.5% 0.0% 0.2%0.1% X-M**
Contribution to GDP %
** Average of last 12 quarters: -0.3%Source: US Bureau of Economic Analysis
Source: US Bureau of Economic Analysis
-0.5%
The largest contribution to US growth in 2016-Q2 came from
Household Consumption (services). Investment was the biggest drag on GDP growth and Government
Expenditures also subtracted from GDP growth in the second quarter.
-3.5
-3.0
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US LEADING INDICATOR
Last month: August 2016Percent change month-to-month
Source: The Conference Board
-2
-1
0
1
2
3
4
13 Q3 13 Q4 14 Q1 14 Q2 14 Q3 14 Q4 15 Q1 15 Q2 15-Q3 15-Q4 16-Q1 16-Q2
ConsumptionInvestmentGovernmentNet Exports
CONTRUBTION TO GDP IN RECENTQUARTERS0.9% 0.8%2.0% 2.6% 2.0%-1.2% 4.0% 5.0% 2.3% 1.4%3.1% 4.0% GDP
Contribution to GDP %
** Average of last 12 quarters: 2.2%Source: US Bureau of Economic Analysis
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
13 Q3 13 Q4 14 Q1 14 Q2 14 Q3 14 Q4 15 Q1 15 Q2 15 Q3 15 Q4 16 Q1 16 Q2
Durable GoodsNondurable GoodsServices
C: HOUSEHOLD CONSUMPTION1.5% 1.1%1.6% 1.9% 1.8%1.3% 2.6% 2.5% 3.1% 2.9%1.3% 2.3% C**
Contribution to GDP %
** Average of last 12 quarters: 2.0%
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
13 Q3 13 Q4 14 Q1 14 Q2 14 Q3 14 Q4 15 Q1 15 Q2 15 Q3 15 Q4 16 Q1 16 Q2
NonresidentialResidentialInventories
I: INVESTMENT-0.4%-0.6%1.6% 0.2% 0.4%-1.1% 1.8% 1.5% 0.5% -1.3%2.1% 0.9% I**
Contributionto GDP %
** Average of last 12 quarters: 0.4%Source: US Bureau of Economic Analysis
Source: US Bureau of Economic Analysis
-1.0
-0.5
0.0
0.5
1.0
1.5
13 Q3 13 Q4 14 Q1 14 Q2 14 Q3 14 Q4 15 Q1 15 Q2 15 Q3 15 Q4 16 Q1 16 Q2
Federal
State/Local
G:GOVERNMENT0.2% 0.3%0.5% 0.6% 0.3%0.2% 0.5% -0.1% -0.3%-0.4% -0.5% G**
Contributionto GDP %
** Average of last 12 quarters: 0.1%
0.0%
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
13 Q3 13 Q4 14 Q1 14 Q2 14 Q3 14 Q4 15 Q1 15 Q2 15 Q3 15 Q4 16 Q1 16 Q2
ExportsImportsNet
X-M: FOREIGN BALANCE
-0.5%-1.1% -1.7% 0.1%1.3% -1.2% -0.4% 0.5% 0.0% 0.2%0.1% X-M**
Contribution to GDP %
** Average of last 12 quarters: -0.3%Source: US Bureau of Economic Analysis
Source: US Bureau of Economic Analysis
-0.5%
Dynamic Funds Economics24
ECONOMIC MONITOR
-15
-10
-5
0
5
10
15
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
US RETAIL SALES
Last month: August 2016Percent change year-over-year
Nominal
Source: US Census Bureau
30
35
40
45
50
55
60
65
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Last month: September 2016Index
Below 50 indicates contraction
US ISM MANUFACTURING INDEX
Source: Institute for Supply Management
Retail sales growth is trending sideways ...
... but the ISM service index increased sharply in September!
... as is the ISM manufacturing index ...
-15
-10
-5
0
5
10
15
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
US RETAIL SALES
Last month: August 2016Percent change year-over-year
Nominal
Source: US Census Bureau
30
35
40
45
50
55
60
65
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Last month: September 2016Index
Below 50 indicates contraction
US ISM MANUFACTURING INDEX
Source: Institute for Supply Management
30
35
40
45
50
55
60
65
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Last month: September 2016Index
Below 50 indicates contraction
US ISM SERVICE SECTOR INDEX
Source: Institute for Supply Management
-18
-15
-12
-9
-6
-3
0
3
6
9
12
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
US INDUSTRIAL PRODUCTIONPercent change year-over-year
Source: Thomson Reuters Datastream
Last month: August 2016
MONTHLY REVIEW ►UNITED STATES – ECONOMIC GROWTH
25Dynamic Funds Economics
... and durable goods orders are trending sideways.
... industrial capacity utilization, although up from recent lows,
remains depressed ...
Industrial production has been negative year-over-year for the ninth month through August ...
66
68
70
72
74
76
78
80
82
84
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
US INDUSTRIAL CAPACITY UTILIZATION
Last month: August 2016
Average 1968 to date 80.2
Percent
Source: Thomson Reuters Datastream, Dundee Economics
US DURABLE GOODS ORDERS
200
210
220
230
240
250
260
270
280
290
300
12 13 14 15 16
Last month: August 2016$ US Billions
Source: Thomson Reuters Datastream, Dundee Economics
66
68
70
72
74
76
78
80
82
84
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
US INDUSTRIAL CAPACITY UTILIZATION
Last month: August 2016
Average 1968 to date 80.2
Percent
Source: Thomson Reuters Datastream, Dundee Economics
US DURABLE GOODS ORDERS
200
210
220
230
240
250
260
270
280
290
300
12 13 14 15 16
Last month: August 2016$ US Billions
Source: Thomson Reuters Datastream, Dundee Economics
MONTHLY REVIEW ►UNITED STATES – ECONOMIC GROWTH
30
35
40
45
50
55
60
65
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Last month: September 2016Index
Below 50 indicates contraction
US ISM SERVICE SECTOR INDEX
Source: Institute for Supply Management
-18
-15
-12
-9
-6
-3
0
3
6
9
12
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
US INDUSTRIAL PRODUCTIONPercent change year-over-year
Source: Thomson Reuters Datastream
Last month: August 2016
Dynamic Funds Economics26
ECONOMIC MONITOR
... and the Case-Shiller Home Price Index continues to advance
around 5% year-over-year.
... new home prices are trending modestly higher, while existing home
sales appear to be leveling ...
Source: Thomson Reuters Datastream
50
70
90
110
130
150
170
190
210
230
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16-20
-15
-10
-5
0
5
10
15
20
25CASE-SHILLER HOME PRICE INDEX
Case-Shiller Index, s.a.
Last month: July 2016
Percent change year-over-year
Jan 2000 = 100
-800-700-600-500-400-300-200-100
0100200300400500
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Last month: September 2016000s, monthly change3-month moving average
Source: US Bureau of Labor Statistics
US JOB CREATION
0.3
0.5
0.7
0.9
1.1
1.3
1.5
1.7
1.9
2.1
2.3
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
US HOUSING STARTS
Last month: August 2016Millions of dwelling units
Source: US Census Bureau
0
200
400
600
800
1000
1200
1400
1600
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 163000
3600
4200
4800
5400
6000
6600
7200
7800
New home salesExisting home sales
US NEW AND EXISTING SINGLE FAMILY HOME SALES
Last month: August 2016
000s 000s
Source: US Census Bureau, National Association of Realtors
0.3
0.5
0.7
0.9
1.1
1.3
1.5
1.7
1.9
2.1
2.3
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
US HOUSING STARTS
Last month: August 2016Millions of dwelling units
Source: US Census Bureau
0
200
400
600
800
1000
1200
1400
1600
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 163000
3600
4200
4800
5400
6000
6600
7200
7800
New home salesExisting home sales
US NEW AND EXISTING SINGLE FAMILY HOME SALES
Last month: August 2016
000s 000s
Source: US Census Bureau, National Association of Realtors
Housing starts have leveled off at just over 1.1 million units ...
MONTHLY REVIEW ►UNITED STATES – HOUSING MARKET
27Dynamic Funds Economics
MONTHLY REVIEW ►UNITED STATES – LABOUR MARKET
Source: Thomson Reuters Datastream
50
70
90
110
130
150
170
190
210
230
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16-20
-15
-10
-5
0
5
10
15
20
25CASE-SHILLER HOME PRICE INDEX
Case-Shiller Index, s.a.
Last month: July 2016
Percent change year-over-year
Jan 2000 = 100
-800-700-600-500-400-300-200-100
0100200300400500
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Last month: September 2016000s, monthly change3-month moving average
Source: US Bureau of Labor Statistics
US JOB CREATION
3
4
5
6
7
8
9
10
11
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
US UNEMPLOYMENT RATE
Last month: September 2016Percent
Source: US Bureau of Labor Statistics
6
8
10
12
14
16
18
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
US BROADER UNEMPLOYMENT RATE (U6)
Last month: September 2016Percent
Source: US Bureau of Labor Statistics
Unemployment rate plus workers that are discouraged, marginally attached and those
working part-time (for economic reasons).
3
4
5
6
7
8
9
10
11
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
US UNEMPLOYMENT RATE
Last month: September 2016Percent
Source: US Bureau of Labor Statistics
6
8
10
12
14
16
18
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
US BROADER UNEMPLOYMENT RATE (U6)
Last month: September 2016Percent
Source: US Bureau of Labor Statistics
Unemployment rate plus workers that are discouraged, marginally attached and those
working part-time (for economic reasons).
62
63
64
65
66
67
68
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
US LABOUR FORCE PARTICIPATION RATE
Last month: September 2016Percent
Source: US Bureau of Labor Statistics
% of non-institutional population 16 and over in the labor force
-10
-8
-6
-4
-2
0
2
4
6
8
10
12
07 08 09 10 11 12 13 14 15 16
CUMULATIVE WORKERS ADDED BY AGE
Last month: September 2016
*Source: US Bureau of Labor Statistics, Dundee Economics
Cumulative workers added since January 2007
Workers aged 20 to 54
Workers aged 55 and older
62
63
64
65
66
67
68
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
US LABOUR FORCE PARTICIPATION RATE
Last month: September 2016Percent
Source: US Bureau of Labor Statistics
% of non-institutional population 16 and over in the labor force
-10
-8
-6
-4
-2
0
2
4
6
8
10
12
07 08 09 10 11 12 13 14 15 16
CUMULATIVE WORKERS ADDED BY AGE
Last month: September 2016
*Source: US Bureau of Labor Statistics, Dundee Economics
Cumulative workers added since January 2007
Workers aged 20 to 54
Workers aged 55 and older
Source: US Bureau of Labor Statistics
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
90 92 94 96 98 00 02 04 06 08 10 12 14 16
US HOURLY EARNINGS
Last month: September 2016Percent change year-over-year
Seasonally adjusted
Production and nonsupervisory employees
All Employees
0
10
20
30
40
50
60
70
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
US REASONS FOR UNEMPLOYMENT
Last month: September 2016Percent
*Includes persons who completed temporary jobsSource: US Bureau of Labor Statistics
Percent of unemployed
Job losers*
Reentrants
Job Leavers
New Entrants
US labour market data remains mixed; 156 thousand jobs were created in September, and the 3-month moving average now stands at 192 thousand. The unemployment rate ticked up to 5.0%, due to an increase in labour force participation rate (which remains low). Meanwhile, the underemployed and those losing jobs remains elevated.
Dynamic Funds Economics28
ECONOMIC MONITOR
MONTHLY REVIEW ►UNITED STATES – WAGE INFLATION
Source: US Bureau of Labor Statistics
-12
-9
-6
-3
0
3
6
9
12
15
18
90 92 94 96 98 00 02 04 06 08 10 12 14 16
US MANUFACTURING UNIT LABOUR COSTS
Last quarter: 2016-Q2
Percent change year-over-year
Source: US Bureau of Labor Statistics
1
2
3
4
5
6
90 92 94 96 98 00 02 04 06 08 10 12 14 16
US EMPLOYMENT COST INDEX - TOTAL
Last quarter: 2016-Q2
Total – Includes BenefitsPercent change year-over-year
Source: US Bureau of Labor Statistics
-12
-9
-6
-3
0
3
6
9
12
15
18
90 92 94 96 98 00 02 04 06 08 10 12 14 16
US MANUFACTURING UNIT LABOUR COSTS
Last quarter: 2016-Q2
Percent change year-over-year
Source: US Bureau of Labor Statistics
1
2
3
4
5
6
90 92 94 96 98 00 02 04 06 08 10 12 14 16
US EMPLOYMENT COST INDEX - TOTAL
Last quarter: 2016-Q2
Total – Includes BenefitsPercent change year-over-year
Source: US Bureau of Labor Statistics
-2
0
2
4
6
8
10
90 92 94 96 98 00 02 04 06 08 10 12 14 16
US HOURLY WAGE COMPENSATION INDEX
Last quarter: 2016-Q2
Percent change year-over-year
Source: US Bureau of Labor Statistics
-6
-4
-2
0
2
4
6
90 92 94 96 98 00 02 04 06 08 10 12 14 16
US BUSINESS UNIT LABOUR COSTS
Last quarter: 2016-Q2
Percent change year-over-year
Source: US Bureau of Labor Statistics
1
2
3
4
5
6
90 92 94 96 98 00 02 04 06 08 10 12 14 16
US EMPLOYMENT COST INDEX - PARTIAL
Last quarter: 2016-Q2
Partial – Wages and Salaries onlyPercent change year-over-year
Source: US Bureau of Labor Statistics
-3
-2
-1
0
1
2
3
4
5
6
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
TotalCore
US CONSUMER PRICE INFLATION
Last month August 2016Percent change year-over-year
Seasonally adjusted
Source: US Bureau of Labor Statistics
-2
0
2
4
6
8
10
90 92 94 96 98 00 02 04 06 08 10 12 14 16
US HOURLY WAGE COMPENSATION INDEX
Last quarter: 2016-Q2
Percent change year-over-year
Source: US Bureau of Labor Statistics
-6
-4
-2
0
2
4
6
90 92 94 96 98 00 02 04 06 08 10 12 14 16
US BUSINESS UNIT LABOUR COSTS
Last quarter: 2016-Q2
Percent change year-over-year
US wage inflation is trending sideways. Although hourly earnings have increased, overall labour cost declined in 2016-Q2 for all businesses and for manufacturing more specifically.
Source: US Bureau of Labor Statistics
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
90 92 94 96 98 00 02 04 06 08 10 12 14 16
US HOURLY EARNINGS
Last month: September 2016Percent change year-over-year
Seasonally adjusted
Production and nonsupervisory employees
All Employees
0
10
20
30
40
50
60
70
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
US REASONS FOR UNEMPLOYMENT
Last month: September 2016Percent
*Includes persons who completed temporary jobsSource: US Bureau of Labor Statistics
Percent of unemployed
Job losers*
Reentrants
Job Leavers
New Entrants
29Dynamic Funds Economics
-1
0
1
2
3
4
5
6
7
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
DifferenceLong-term Bond30-yr Inflation-Protected Bonds
US INFLATION EXPECTATIONS
Last month: September 2016
The “difference” is a measure of inflation expectations!
Percent
Source: Federal Reserve, Dundee Economics
-7
-6
-5
-4
-3
-2
-1
0
1
79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 1560
70
80
90
100
110
120
130
140US CURRENT ACCOUNT BALANCE
US$ index (EFXR0)
Current account as percent of GDP
Source: US Census Bureau, WSJ, Dundee Economics
Last quarter: 2016-Q2
MONTHLY REVIEW ►UNITED STATES – INFLATION
Both headline and core inflation rates are trending sideways
and likely to remain low ...
... PCE inflation remains well below the Fed’s target ...
... and inflation expectations are also stable/low.
-8
-6
-4
-2
0
2
4
6
8
10
12
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Finished Goods (disc.)Finished Goods core (disc.)Final Demand (new)Final Demand Core (new)
US PRODUCER PRICE INFLATION
Last month: August 2016Percent change year-over-year
Source: US Bureau of Labor Statistics
-2
-1
0
1
2
3
4
5
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
TotalCore
Last month: August 2016
Percent change year-over-year
Fed’s Target
US PERSONAL CONSUMPTION EXPENDITURE INFLATION
Source: US Bureau Economic Analysis
Source: US Bureau of Labor Statistics
1
2
3
4
5
6
90 92 94 96 98 00 02 04 06 08 10 12 14 16
US EMPLOYMENT COST INDEX - PARTIAL
Last quarter: 2016-Q2
Partial – Wages and Salaries onlyPercent change year-over-year
Source: US Bureau of Labor Statistics
-3
-2
-1
0
1
2
3
4
5
6
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
TotalCore
US CONSUMER PRICE INFLATION
Last month August 2016Percent change year-over-year
Seasonally adjusted
-8
-6
-4
-2
0
2
4
6
8
10
12
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Finished Goods (disc.)Finished Goods core (disc.)Final Demand (new)Final Demand Core (new)
US PRODUCER PRICE INFLATION
Last month: August 2016Percent change year-over-year
Source: US Bureau of Labor Statistics
-2
-1
0
1
2
3
4
5
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
TotalCore
Last month: August 2016
Percent change year-over-year
Fed’s Target
US PERSONAL CONSUMPTION EXPENDITURE INFLATION
Source: US Bureau Economic Analysis
Dynamic Funds Economics30
ECONOMIC MONITOR
... and the sharp contraction in the petroleum deficit!
The US trade deficit has been flat in recent months on the back
of weaker domestic growth ...
The US current account deficit is rising again, which is one reason we expected the US
dollar to decline in 2017-2018.
-90
-80
-70
-60
-50
-40
-30
-20
-10
0
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Petroleum Balance
Non-Petroleum Balance
-90
-80
-70
-60
-50
-40
-30
-20
-10
0
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16-900
-800
-700
-600
-500
-400
-300
-200
-100
0
Monthly Trade Balance Goods
12 mo moving total Goods
US Trade Balance With World
Last date: August 2016 12 mo. moving total, bn$
Source: US Census Bureau
billion$
US Trade Balance With World
Last date: August 2016
Source: US Census Bureau
billion$
-90
-80
-70
-60
-50
-40
-30
-20
-10
0
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Petroleum Balance
Non-Petroleum Balance
-90
-80
-70
-60
-50
-40
-30
-20
-10
0
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16-900
-800
-700
-600
-500
-400
-300
-200
-100
0
Monthly Trade Balance Goods
12 mo moving total Goods
US Trade Balance With World
Last date: August 2016 12 mo. moving total, bn$
Source: US Census Bureau
billion$
US Trade Balance With World
Last date: August 2016
Source: US Census Bureau
billion$
-1
0
1
2
3
4
5
6
7
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
DifferenceLong-term Bond30-yr Inflation-Protected Bonds
US INFLATION EXPECTATIONS
Last month: September 2016
The “difference” is a measure of inflation expectations!
Percent
Source: Federal Reserve, Dundee Economics
-7
-6
-5
-4
-3
-2
-1
0
1
79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 1560
70
80
90
100
110
120
130
140US CURRENT ACCOUNT BALANCE
US$ index (EFXR0)
Current account as percent of GDP
Source: US Census Bureau, WSJ, Dundee Economics
Last quarter: 2016-Q2
MONTHLY REVIEW ►UNITED STATES – CURRENT ACCOUNT AND TRADE BALANCE
31Dynamic Funds Economics
The US continues to post very large trade deficits with
China, the EU, and Japan.
-18
-15
-12
-9
-6
-3
0
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16-180
-150
-120
-90
-60
-30
0
-10
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16-100
-90
-80
-70
-60
-50
-40
-30
-20
-10
0US TRADE BALANCE WITH JAPAN
Last date: August 2016
Source: US Census Bureau
12 mo. moving total, bn$billion$
US TRADE BALANCE WITH EUROPEAN UNION
Last date: August 2016
Source: US Census Bureau
12 mo. moving total, bn$billion$
-40
-35
-30
-25
-20
-15
-10
-5
0
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16-400
-350
-300
-250
-200
-150
-100
-50
0
-50
-45
-40
-35
-30
-25
-20
-15
-10
-5
0
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16-500
-450
-400
-350
-300
-250
-200
-150
-100
-50
0
Crude Oil
Crude Oil, 12-mo moving total
Total Energy Related PetroleumProducts, 12- mo moving total
US IMPORTS OF CRUDE OIL
Last date: August 2016billion$ 12-mo. moving total, bn$
Source: US Census Bureau
US TRADE BALANCE WITH CHINA
Last date: August 2016
Source: US Census Bureau
12 mo. moving total, bn$billion$
MONTHLY REVIEW ►UNITED STATES – TRADE BALANCE
-12
-10
-8
-6
-4
-2
0
2
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16-90
-75
-60
-45
-30
-15
0
15US TRADE BALANCE WITH CANADA
Last date: August 2016
Source: US Census Bureau
12 mo. moving total, bn$billion$
300
900
1500
2100
2700
3300
3900
4500
5100
08 09 10 11 12 13 14 15 16
FEDERAL RESERVE BALANCE SHEETTotal Assets in Billions
Last date: October 5, 2016
Other Assets
Currency Swap lines
Liquidity to Banks
Commercial Paper Market
Securitization Market (support for mortgages)
Agency Debt
US Treasuries
Other CreditExtensions
Source: Thomson Reuters Datastream
-40
-35
-30
-25
-20
-15
-10
-5
0
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16-400
-350
-300
-250
-200
-150
-100
-50
0
-50
-45
-40
-35
-30
-25
-20
-15
-10
-5
0
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16-500
-450
-400
-350
-300
-250
-200
-150
-100
-50
0
Crude Oil
Crude Oil, 12-mo moving total
Total Energy Related PetroleumProducts, 12- mo moving total
US IMPORTS OF CRUDE OIL
Last date: August 2016billion$ 12-mo. moving total, bn$
Source: US Census Bureau
US TRADE BALANCE WITH CHINA
Last date: August 2016
Source: US Census Bureau
12 mo. moving total, bn$billion$
-18
-15
-12
-9
-6
-3
0
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16-180
-150
-120
-90
-60
-30
0
-10
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16-100
-90
-80
-70
-60
-50
-40
-30
-20
-10
0US TRADE BALANCE WITH JAPAN
Last date: August 2016
Source: US Census Bureau
12 mo. moving total, bn$billion$
US TRADE BALANCE WITH EUROPEAN UNION
Last date: August 2016
Source: US Census Bureau
12 mo. moving total, bn$billion$
Dynamic Funds Economics32
ECONOMIC MONITOR
Since QE3 ended in 2014, the Fed’s balance sheet has stabilized
at just over $4.5 trillion. Even as the Fed slowly increases
short-term interest rates the balance sheet will remain elevated
for the foreseeable future.
... but M2-velocity continues to plunge!
The M2 money supply increased at 7.5% year-over-year in August ...
MONTHLY REVIEW ►UNITED STATES – MONETARY POLICY
-12
-10
-8
-6
-4
-2
0
2
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16-90
-75
-60
-45
-30
-15
0
15US TRADE BALANCE WITH CANADA
Last date: August 2016
Source: US Census Bureau
12 mo. moving total, bn$billion$
300
900
1500
2100
2700
3300
3900
4500
5100
08 09 10 11 12 13 14 15 16
FEDERAL RESERVE BALANCE SHEETTotal Assets in Billions
Last date: October 5, 2016
Other Assets
Currency Swap lines
Liquidity to Banks
Commercial Paper Market
Securitization Market (support for mortgages)
Agency Debt
US Treasuries
Other CreditExtensions
Source: Thomson Reuters Datastream
6
7
8
9
10
11
12
13
2007 2008 2009 2010 2011 2012 2013 2014 2015 20160.0
1.5
3.0
4.5
6.0
7.5
9.0
10.5US M2 MONEY SUPPLY
M2 money supply trillions$
Last month: August 2016
Percent change year-over-year
Source: Federal Reserve
1.4
1.5
1.6
1.7
1.8
1.9
2.0
2.1
2.2
2.3
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
US M2 VELOCITY Velocity (Nominal GDP/ M2)
Last date: 2016 Q2
Velocity measures the turnover rate of the money supply as it is used to purchase goods and services
Source: Federal Reserve, Bureau of Economic Analysis, Dundee Economics
6
7
8
9
10
11
12
13
2007 2008 2009 2010 2011 2012 2013 2014 2015 20160.0
1.5
3.0
4.5
6.0
7.5
9.0
10.5US M2 MONEY SUPPLY
M2 money supply trillions$
Last month: August 2016
Percent change year-over-year
Source: Federal Reserve
1.4
1.5
1.6
1.7
1.8
1.9
2.0
2.1
2.2
2.3
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
US M2 VELOCITY Velocity (Nominal GDP/ M2)
Last date: 2016 Q2
Velocity measures the turnover rate of the money supply as it is used to purchase goods and services
Source: Federal Reserve, Bureau of Economic Analysis, Dundee Economics
33Dynamic Funds Economics
MONTHLY REVIEW ►UNITED STATES – HOUSEHOLD DEBT
0.3
0.4
0.5
0.6
0.7
0.8
2005 2008 2011 2014-12
-6
0
6
12
18US HOME EQUITY REVOLVING DEBT
Percent change year-over-year$ Trillion
Source: Federal Reserve
Last quarter: 2016 Q2
0.5
0.6
0.7
0.8
0.9
2005 2008 2011 2014-12
-6
0
6
12US CREDIT CARD DEBT
Percent change year-over-year$ Trillion
Source: Federal Reserve
Last quarter: 2016 Q2
0
2
4
6
8
10
12
14
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$ trillions
Source: Federal Reserve
Mortgage
Home Equity
Credit Card Other
Last quarter: 2016 Q2
US TOTAL HOUSEHOLD DEBT
4
5
6
7
8
9
10
2005 2007 2009 2011 2013 2015-10
-5
0
5
10
15
20US MORTGAGE DEBT
Percent change year-over-year$ Trillion
Source: Federal Reserve
Last quarter: 2016 Q2
0
2
4
6
8
10
12
14
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$ trillions
Source: Federal Reserve
Mortgage
Home Equity
Credit Card Other
Last quarter: 2016 Q2
US TOTAL HOUSEHOLD DEBT
4
5
6
7
8
9
10
2005 2007 2009 2011 2013 2015-10
-5
0
5
10
15
20US MORTGAGE DEBT
Percent change year-over-year$ Trillion
Source: Federal Reserve
Last quarter: 2016 Q2
0.3
0.4
0.5
0.6
0.7
0.8
2005 2008 2011 2014-12
-6
0
6
12
18US HOME EQUITY REVOLVING DEBT
Percent change year-over-year$ Trillion
Source: Federal Reserve
Last quarter: 2016 Q2
0.5
0.6
0.7
0.8
0.9
2005 2008 2011 2014-12
-6
0
6
12US CREDIT CARD DEBT
Percent change year-over-year$ Trillion
Source: Federal Reserve
Last quarter: 2016 Q2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
2005 2008 2011 20143
6
9
12
15
18
21
24US STUDENT LOAN DEBT
Percent change year-over-year$ Trillion
Source: Federal Reserve
Last quarter: 2016 Q2
0.6
0.7
0.8
0.9
1.0
1.1
1.2
2005 2008 2011 2014-15
-10
-5
0
5
10
15US AUTO LOAN DEBT
Percent change year-over-year$ Trillion
Source: Federal Reserve
Last quarter: 2016 Q2 0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
2005 2008 2011 20143
6
9
12
15
18
21
24US STUDENT LOAN DEBT
Percent change year-over-year$ Trillion
Source: Federal Reserve
Last quarter: 2016 Q2
0.6
0.7
0.8
0.9
1.0
1.1
1.2
2005 2008 2011 2014-15
-10
-5
0
5
10
15US AUTO LOAN DEBT
Percent change year-over-year$ Trillion
Source: Federal Reserve
Last quarter: 2016 Q2
Total US household debt, at $12.3 trillion, increased only slightly in 2016-Q2. Mortgage debt, the largest component of household debt, is not increasing significantly, but auto and student debt are. Home equity revolving debt continues to decline.
Dynamic Funds Economics34
ECONOMIC MONITOR
... but US equity markets have come off all-time highs set at the beginning of September.
... total household assets (and net-worth) set new highs in 2016-Q2 ...
Consumer confidence is on the rise ...
MONTHLY REVIEW ►UNITED STATES – WEALTH CREATION
0
20
40
60
80
100
120
1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014
Total AssetsTotal LiabilitiesNet Worth
US HOUSEHOLD SECTOR – NET WORTHTrillion $
Last quarter: 2016-Q2
0
20
40
60
80
100
120
140
160
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
US CONSUMER CONFIDENCE INDEX
Last month: September 20161985 = 100
Source: The Conference Board
Source: Federal Reserve, Thomson Reuters Datastream0
20
40
60
80
100
120
1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014
Total AssetsTotal LiabilitiesNet Worth
US HOUSEHOLD SECTOR – NET WORTHTrillion $
Last quarter: 2016-Q2
0
20
40
60
80
100
120
140
160
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
US CONSUMER CONFIDENCE INDEX
Last month: September 20161985 = 100
Source: The Conference Board
Source: Federal Reserve, Thomson Reuters Datastream
600
900
1200
1500
1800
2100
2400
03 04 05 06 07 08 09 10 11 12 13 14 15 16
S&P 500
Weekly, Friday dataLast date: October 7, 2016
Source: Thomson Reuters Datastream
100
200
300
400
500
600
700
800
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Energy Sector Index
50-day moving average
200-day moving average
S&P 500 ENERGY
Daily, last date: October 7, 2016
35Dynamic Funds Economics
The Energy, Financials, and (to a lesser extent Materials) sectors have lagged the S&P500 index.
Source: Thomson Reuters Datastream
MONTHLY REVIEW ►UNITED STATES – S&P500 GICS SECTORS600
900
1200
1500
1800
2100
2400
03 04 05 06 07 08 09 10 11 12 13 14 15 16
S&P 500
Weekly, Friday dataLast date: October 7, 2016
Source: Thomson Reuters Datastream
100
200
300
400
500
600
700
800
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Energy Sector Index
50-day moving average
200-day moving average
S&P 500 ENERGY
Daily, last date: October 7, 2016
100
130
160
190
220
250
280
310
340
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Materials Sector Index
50-day moving average
200-day moving average
S&P 500 MATERIALS
Daily, last date: October 7, 2016
100
150
200
250
300
350
400
450
500
550
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Industrials Sector Index
50-day moving average200-day moving average
S&P 500 INDUSTRIALS
Daily, last date: October 7, 2016
100
130
160
190
220
250
280
310
340
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Materials Sector Index
50-day moving average
200-day moving average
S&P 500 MATERIALS
Daily, last date: October 7, 2016
100
150
200
250
300
350
400
450
500
550
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Industrials Sector Index
50-day moving average200-day moving average
S&P 500 INDUSTRIALS
Daily, last date: October 7, 2016
100
200
300
400
500
600
700
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Consumer Discretionary Sector Index50-day moving average200-day moving average
S&P 500 CONSUMER DISCRETIONARY
Daily, last date: October 7, 2016
150
200
250
300
350
400
450
500
550
600
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Consumer Staples Sector Index50-day moving average200-day moving average
S&P 500 CONSUMER STAPLES
Daily, last date: October 7, 2016
100
200
300
400
500
600
700
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Consumer Discretionary Sector Index50-day moving average200-day moving average
S&P 500 CONSUMER DISCRETIONARY
Daily, last date: October 7, 2016
150
200
250
300
350
400
450
500
550
600
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Consumer Staples Sector Index50-day moving average200-day moving average
S&P 500 CONSUMER STAPLES
Daily, last date: October 7, 2016
200
300
400
500
600
700
800
900
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Health Care Sector Index
50-day moving average
200-day moving average
S&P 500 HEALTH CARE
Daily, last date: October 7, 2016
0
100
200
300
400
500
600
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Financials Sector Index
50-day moving average
200-day moving average
S&P 500 FINANCIALS
Daily, last date: October 7, 2016
200
300
400
500
600
700
800
900
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Health Care Sector Index
50-day moving average
200-day moving average
S&P 500 HEALTH CARE
Daily, last date: October 7, 2016
0
100
200
300
400
500
600
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Financials Sector Index
50-day moving average
200-day moving average
S&P 500 FINANCIALS
Daily, last date: October 7, 2016
150
300
450
600
750
900
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Info Tech Sector Index
50-day moving average
200-day moving average
S&P 500 INFORMATION TECHNOLOGY
Daily, last date: October 7, 2016
60
80
100
120
140
160
180
200
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Telecom Sector Index50-day moving average200-day moving average
S&P 500 TELECOMMUNICATION
Daily, last date: October 7, 2016
0
1
2
3
4
5
6
05 06 07 08 09 10 11 12 13 14 15 16
US INTEREST RATESWeekly dataLast Date: October 7, 2016
US Government 10-year yield
T-Bills
Percent
Source: Federal Reserve
50
75
100
125
150
175
200
225
250
275
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Utilities Sector Index50-day moving average200-day moving average
S&P 500 UTILITIES
Daily, last date: October 7, 2016
150
300
450
600
750
900
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Info Tech Sector Index
50-day moving average
200-day moving average
S&P 500 INFORMATION TECHNOLOGY
Daily, last date: October 7, 2016
60
80
100
120
140
160
180
200
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Telecom Sector Index50-day moving average200-day moving average
S&P 500 TELECOMMUNICATION
Daily, last date: October 7, 2016
Dynamic Funds Economics36
ECONOMIC MONITOR
... but the yield on high-yield bonds have declined.
The yield on AAA corporate bonds has risen in recent weeks
but remains very low ...
The yield on 10-year Treasuries has increased slightly from recent lows.
0
1
2
3
4
5
6
05 06 07 08 09 10 11 12 13 14 15 16
US INTEREST RATESWeekly dataLast Date: October 7, 2016
US Government 10-year yield
T-Bills
Percent
Source: Federal Reserve
50
75
100
125
150
175
200
225
250
275
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Utilities Sector Index50-day moving average200-day moving average
S&P 500 UTILITIES
Daily, last date: October 7, 2016
AAA CORPORATE BOND YIELDS
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
05 06 07 08 09 10 11 12 13 14 15 16
Percent Moody’s AAA Yield
4
8
12
16
20
24
05 06 07 08 09 10 11 12 13 14 15 16
HIGH YIELD BOND YIELDSPercent - Merrill Lynch High Yield Corporate Bond Yield
Source: Wall Street Journal
Source: Thomson Reuters Datastream
Weekly dataLast Date: October 7, 2016
Weekly dataLast Date: October 7, 2016
AAA CORPORATE BOND YIELDS
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
05 06 07 08 09 10 11 12 13 14 15 16
Percent Moody’s AAA Yield
4
8
12
16
20
24
05 06 07 08 09 10 11 12 13 14 15 16
HIGH YIELD BOND YIELDSPercent - Merrill Lynch High Yield Corporate Bond Yield
Source: Wall Street Journal
Source: Thomson Reuters Datastream
Weekly dataLast Date: October 7, 2016
Weekly dataLast Date: October 7, 2016
MONTHLY REVIEW ►UNITED STATES – INTEREST RATES
37Dynamic Funds Economics
The US dollar has trended sideways in recent months.
We think the dollar has peaked for this cycle ...
... but its decline will be slow and hesitant. (The UK pound has
declined significantly since the BREXIT vote for example, which
affects the US dollar index.)
75
80
85
90
95
100
105
110
115
120
125
13005 06 07 08 09 10 11 12 13 14 15 16 16
Units per US dollar
JAPANESE YEN
Source: Wall Street Journal
65
70
75
80
85
90
95
100
05 06 07 08 09 10 11 12 13 14 15 16
Weekly, last date: October 7, 2016
US DOLLAR INDEX - NEWEFXR
Source: Wall Street Journal
Euro, Yen, Pound, Rupee,Cdn$, Yuan, Swiss Franc, Aus$
Weekly, last date: October 7, 2016
75
80
85
90
95
100
105
110
115
120
125
13005 06 07 08 09 10 11 12 13 14 15 16 16
Units per US dollar
JAPANESE YEN
Source: Wall Street Journal
65
70
75
80
85
90
95
100
05 06 07 08 09 10 11 12 13 14 15 16
Weekly, last date: October 7, 2016
US DOLLAR INDEX - NEWEFXR
Source: Wall Street Journal
Euro, Yen, Pound, Rupee,Cdn$, Yuan, Swiss Franc, Aus$
Weekly, last date: October 7, 2016
5.5
6.0
6.5
7.0
7.5
8.0
8.505 06 07 08 09 10 11 12 13 14 15 16
CHINESE RENMINBI (YUAN)Units/US$Axis inverted
115
130
145
160
175
190
205
220
05 06 07 08 09 10 11 12 13 14 15 161.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
PoundEuro
Pound - UScents/Pound
POUND STERLING AND EUROEuro - US$/euro
Source: Wall Street Journal
Source: Thomson Reuters Datastream
Weekly, last date: October 7, 2016
Weekly, last date: October 7, 2016
MONTHLY REVIEW ►INTERNATIONAL – EXCHANGE RATES
5.5
6.0
6.5
7.0
7.5
8.0
8.505 06 07 08 09 10 11 12 13 14 15 16
CHINESE RENMINBI (YUAN)Units/US$Axis inverted
115
130
145
160
175
190
205
220
05 06 07 08 09 10 11 12 13 14 15 161.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
PoundEuro
Pound - UScents/Pound
POUND STERLING AND EUROEuro - US$/euro
Source: Wall Street Journal
Source: Thomson Reuters Datastream
Weekly, last date: October 7, 2016
Weekly, last date: October 7, 2016
Dynamic Funds Economics38
ECONOMIC MONITOR
Government bond yields are off recent lows, and may well have bottomed, finally, for the cycle.
Ironically, US Treasuries are “high yield” government
bonds these days ... !
1
2
3
4
5
6
05 06 07 08 09 10 11 12 13 14 15 16
US 10-YEAR BOND YIELD
Source: Thomson Reuters Datastream
0
1
2
3
4
5
6
05 06 07 08 09 10 11 12 13 14 15 16 16
UK 10-YEAR BOND YIELD
Source: Thomson Reuters Datastream
Weekly dataLast date: October 7, 2016
Weekly dataLast date: October 7, 2016
1
2
3
4
5
6
05 06 07 08 09 10 11 12 13 14 15 16
US 10-YEAR BOND YIELD
Source: Thomson Reuters Datastream
0
1
2
3
4
5
6
05 06 07 08 09 10 11 12 13 14 15 16 16
UK 10-YEAR BOND YIELD
Source: Thomson Reuters Datastream
Weekly dataLast date: October 7, 2016
Weekly dataLast date: October 7, 2016
-1
0
1
2
3
4
5
05 06 07 08 09 10 11 12 13 14 15 16
Weekly dataLast date: October 7, 2016
GERMANY 10-YEAR BOND YIELD
Source: Thomson Reuters Datastream
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
05 06 07 08 09 10 11 12 13 14 15 16
JAPAN 10-YEAR BOND YIELD
Source: Thomson Reuters Datastream
Weekly dataLast date: October 7, 2016
MONTHLY REVIEW ►INTERNATIONAL – BOND YIELDS
-1
0
1
2
3
4
5
05 06 07 08 09 10 11 12 13 14 15 16
Weekly dataLast date: October 7, 2016
GERMANY 10-YEAR BOND YIELD
Source: Thomson Reuters Datastream
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
05 06 07 08 09 10 11 12 13 14 15 16
JAPAN 10-YEAR BOND YIELD
Source: Thomson Reuters Datastream
Weekly dataLast date: October 7, 2016
39Dynamic Funds Economics
MONTHLY REVIEW ►INTERNATIONAL – LEADING INDICATORS
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016-6.0
-4.5
-3.0
-1.5
0.0
1.5
3.0
4.5
6.0EUROZONE LEADING INDICATORS
Source: Thompson Reuters Datastream, OECD
% month-to-month
% year-over-year
-0.9
-0.6
-0.3
0.0
0.3
0.6
0.9
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016-9
-6
-3
0
3
6
9OECD LEADING INDICATORS
Last month: August 2016
Source: Thompson Reuters Datastream, OECD
% month-to-month
% year-over-year
Last month: August 2016
-1.2
-0.9
-0.6
-0.3
0.0
0.3
0.6
0.9
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016-12
-9
-6
-3
0
3
6
9BRIICS LEADING INDICATORS
Source: Thompson Reuters Datastream, OECD
% month-to-month
% year-over-year
-1.6
-1.2
-0.8
-0.4
0.0
0.4
0.8
1.2
1.6
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016-10.0
-7.5
-5.0
-2.5
0.0
2.5
5.0
7.5
10.0CHINA LEADING INDICATORS
Source: Thompson Reuters Datastream, OECD
% month-to-month
% year-over-year
Last month: August 2016
Last month: April 2016
-0.3
-0.2
-0.1
0.0
0.1
0.2
0.3
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016-3
-2
-1
0
1
2
3INDIA LEADING INDICATORS
% month-to-month
% year-over-year
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016-4.8
-3.6
-2.4
-1.2
0.0
1.2
2.4
3.6JAPAN LEADING INDICATORS
Source: Thompson Reuters Datastream, OECD
% month-to-month
% year-over-year
Last month: August 2016
Last month: August 2016
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016-6.0
-4.5
-3.0
-1.5
0.0
1.5
3.0
4.5
6.0EUROZONE LEADING INDICATORS
Source: Thompson Reuters Datastream, OECD
% month-to-month
% year-over-year
-0.9
-0.6
-0.3
0.0
0.3
0.6
0.9
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016-9
-6
-3
0
3
6
9OECD LEADING INDICATORS
Last month: August 2016
Source: Thompson Reuters Datastream, OECD
% month-to-month
% year-over-year
Last month: August 2016
-1.2
-0.9
-0.6
-0.3
0.0
0.3
0.6
0.9
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016-12
-9
-6
-3
0
3
6
9BRIICS LEADING INDICATORS
Source: Thompson Reuters Datastream, OECD
% month-to-month
% year-over-year
-1.6
-1.2
-0.8
-0.4
0.0
0.4
0.8
1.2
1.6
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016-10.0
-7.5
-5.0
-2.5
0.0
2.5
5.0
7.5
10.0CHINA LEADING INDICATORS
Source: Thompson Reuters Datastream, OECD
% month-to-month
% year-over-year
Last month: August 2016
Last month: April 2016
-0.3
-0.2
-0.1
0.0
0.1
0.2
0.3
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016-3
-2
-1
0
1
2
3INDIA LEADING INDICATORS
% month-to-month
% year-over-year
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016-4.8
-3.6
-2.4
-1.2
0.0
1.2
2.4
3.6JAPAN LEADING INDICATORS
Source: Thompson Reuters Datastream, OECD
% month-to-month
% year-over-year
Last month: August 2016
Last month: August 2016
The OECD’s leading indicators point to subdued growth, with the exception of India’s LI.
-0.9
-0.6
-0.3
0.0
0.3
0.6
0.9
1.2
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016-6
-4
-2
0
2
4
6
8UK LEADING INDICATORS
Last month: July 2016
Source: Thompson Reuters Datastream, OECD
% month-to-month
% year-over-year
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016-6.0
-4.5
-3.0
-1.5
0.0
1.5
3.0
4.5
6.0CANADA LEADING INDICATORS
Last month: August 2016
% month-to-month
% year-over-year
Source: Thomson Reuters Datastream, OECD
-0.9
-0.6
-0.3
0.0
0.3
0.6
0.9
1.2
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016-6
-4
-2
0
2
4
6
8UK LEADING INDICATORS
Last month: July 2016
Source: Thompson Reuters Datastream, OECD
% month-to-month
% year-over-year
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016-6.0
-4.5
-3.0
-1.5
0.0
1.5
3.0
4.5
6.0CANADA LEADING INDICATORS
Last month: August 2016
% month-to-month
% year-over-year
Dynamic Funds Economics40
ECONOMIC MONITOR
COMMODITY PRICES1. Bank of Canada Commodity Price Indices (Weekly data to October 7, 2016)
250
300
350
400
450
500
550
600
650
700
750
800
10 11 12 13 14 15 16
Bank of Canada Total Commodity Index
20 commodities produced in Canada
TOTAL COMMODITY
275
300
325
350
375
400
425
450
10 11 12 13 14 15 16
Bank of Canada Total CommodityLess Energy Index
TOTAL LESS ENERGY
400
600
800
1000
1200
1400
1600
1800
2000
2200
10 11 12 13 14 15 16
Bank of Canada Energy Index
ENERGY
180
200
220
240
260
280
300
320
340
10 11 12 13 14 15 16
Bank of Canada Agriculture Index
AGRICULTURE
450
500
550
600
650
700
750
800
850
10 11 12 13 14 15 16
Bank of Canada Industrial Materials Index
METALS AND MINERALS
250
300
350
400
450
500
550
600
650
700
750
800
10 11 12 13 14 15 16
S&P GSCI COMMODITY
Energy weight: 75% 150
175
200
225
250
275
300
325
350
375
10 11 12 13 14 15 16
Reuters-Jefferies CRB Index
REUTERS/JEFFERIES CRB
Energy weight: 33%100
120
140
160
180
200
220
240
10 11 12 13 14 15 16
25 commodities
ECONOMIST COMMODITY PRICE
2. Other Indices (Weekly data to October 7, 2016)
The recent uptrend in commodity prices has stalled ...
... but if we are right on the US dollar rolling over, we’d expect some improvement in commodity prices in 2017.
Sources: Bank of Canada, Thomson Reuters Datastream, The Economist
41Dynamic Funds Economics
COMMODITY PRICES3. Metals (Weekly data to October 7, 2016)
6000
8000
10000
12000
14000
16000
18000
20000
22000
24000
26000
28000
30000
10 11 12 13 14 15 16
US$/tonne
NICKEL
100
150
200
250
300
350
400
450
500
10 11 12 13 14 15 16
COPPERUS cents/lb
1300
1500
1700
1900
2100
2300
2500
2700
10 11 12 13 14 15 16
US$/tonne
ZINC
1400
1600
1800
2000
2200
2400
2600
2800
3000
10 11 12 13 14 15 16
US$/tonne
ALUMINUM
1500
1750
2000
2250
2500
2750
3000
10 11 12 13 14 15 16
US$/tonne
LEAD
700
900
1100
1300
1500
1700
1900
2100
10 11 12 13 14 15 16
GOLDUS$/oz
800
900
1000
1100
1200
1300
1400
1500
1600
1700
1800
1900
2000
10 11 12 13 14 15 16
US$/oz
PLATINUM
1000
1500
2000
2500
3000
3500
4000
4500
5000
10 11 12 13 14 15 16
US cents/oz
SILVER
The price of metals dependent upon global growth (i.e. copper) remain subdued. Gold and silver have declined slightly on concern that central banks are going to end QE programs.
Sources: LME, LBMA, Wall Street Journal
Dynamic Funds Economics42
ECONOMIC MONITOR
COMMODITY PRICES4. Energy (Weekly data to October 7, 2016)
20
30
40
50
60
70
80
90
100
110
120
130
10 11 12 13 14 15 16
NY oilBrent oil
US$/bbl
SPOT OIL PRICES
1
2
3
4
5
6
7
10 11 12 13 14 15 16
Henry Hub
US$/million BTU
NATURAL GAS
10000
11000
12000
13000
14000
15000
16000
10 11 12 13 14 15 16
TSX Composite13 wk ma52 wk ma
S&P/TSX INDEX
800
1000
1200
1400
1600
1800
2000
2200
10 11 12 13 14 15 16
S&P 50013 wk ma52 wk ma
S&P500 INDEX
7500
9000
10500
12000
13500
15000
16500
18000
19500
10 11 12 13 14 15 16
DJI13 wk ma52 wk ma
DOW JONES INDUSTRIALS
1500
2000
2500
3000
3500
4000
4500
5000
5500
10 11 12 13 14 15 16
NASDAQ13 wk ma52 wk ma
NASDAQ INDEX
EQUITY MARKETS 5. North America (Weekly data to October 7, 2016)
North American equity markets have retreated from recent highs. We remain constructive on the S&P 500 and S&P/TSX , but we cannot rule out significant volatility this fall. The US political environment is still very uncertain and US growth remains subdued.
Oil prices increased to just over $50 per barrel after OPEC agreed to limit production. However, nothing is certain when it comes to OPEC, so we’ll have to wait and see. Low oil prices are hurting OPEC revenues however ... !?
Source: Thomson Reuters Datastream
43Dynamic Funds Economics
6000
8000
10000
12000
14000
16000
18000
20000
22000
10 11 12 13 14 15 16
JAPAN
Nikkei4000
6000
8000
10000
12000
14000
10 11 12 13 14 15 16
GERMANY
DAX12000
15000
18000
21000
24000
27000
30000
33000
10 11 12 13 14 15 16
INDIA
Bombay SENSEX
1500
2000
2500
3000
3500
4000
4500
5000
5500
10 11 12 13 14 15 16
CHINA
Shanghai Composite 600
800
1000
1200
1400
1600
1800
2000
2200
2400
10 11 12 13 14 15 16
RUSSIA
RTS-1
1200
1300
1400
1500
1600
1700
1800
1900
2000
2100
10 11 12 13 14 15 16
MSCI EAFE INDEX
35000
40000
45000
50000
55000
60000
65000
70000
75000
10 11 12 13 14 15 16
BRAZIL
Bovespa1000
1100
1200
1300
1400
1500
1600
1700
1800
1900
10 11 12 13 14 15 16
MSCI WORLD INDEX
EQUITY MARKETS 6. Around the world (Weekly data through October 7, 2016)
27000
30000
33000
36000
39000
42000
45000
48000
51000
10 11 12 13 14 15 16
MEXICO
Mexican IPC
Source: Thomson Reuters Datastream
ECONOMIC MONITOR
Dynamic Funds Economics44
Exchange Rates - Comparison of Scenarios*Actual Projected
16-I 16-II 16-III 12-Oct Nov Dec Jan 17-I 17-II 17-III 17-IVUS Dollar incl Cdn$Scenario A 99.32 101.5 103.6 105.2 108.0 108.6 109.1Scenario B 98.69 93.61 93.66 95.80 95.01 95.32 95.17 95.17 94.43 93.45 92.02Scenario C 92.49 91.44 90.41 89.21 85.89 84.25 83.16Probability-Weighted 95.51 95.98 96.18 96.31 95.82 95.09 94.22
Canadian DollarScenario A 1.385 1.400 1.420 1.440 1.465 1.470 1.475Scenario B 1.373 1.288 1.304 1.326 1.330 1.340 1.335 1.335 1.330 1.325 1.325Scenario C 1.300 1.295 1.290 1.280 1.255 1.250 1.245Probability-Weighted 1.336 1.344 1.345 1.348 1.345 1.343 1.343
Japanese YenScenario A 106.0 109.0 111.0 112.5 115.0 116.0 116.0Scenario B 115.4 108.2 102.5 104.2 100.5 100.5 100.5 100.5 100.0 99.5 98.5Scenario C 99.0 98.0 97.0 96.0 93.0 91.00 90.00Probability-Weighted 101.5 102.0 102.3 102.4 102.0 101.5 100.8
British PoundScenario A 116.6 112.3 108.0 104.9 98.7 97.2 95.3Scenario B 143.1 143.5 131.6 122.2 121.0 121.0 121.0 121.0 122.1 124.2 128.4Scenario C 126.5 129.9 133.3 136.8 146.2 152.2 157.2Probability-Weighted 120.8 120.2 119.6 119.3 119.9 121.7 124.2
EuroScenario A 1.060 1.030 1.000 0.980 0.940 0.935 0.925Scenario B 1.102 1.129 1.116 1.102 1.100 1.100 1.100 1.100 1.120 1.150 1.200Scenario C 1.140 1.160 1.180 1.200 1.260 1.290 1.310Probability-Weighted 1.100 1.098 1.095 1.095 1.110 1.131 1.159
Australian DollarScenario A 70.76 69.64 68.31 67.36 65.87 65.65 65.42Scenario B 72.14 74.60 75.71 75.67 75.19 74.63 74.91 74.91 75.19 75.47 75.47Scenario C 77.69 77.99 78.29 78.91 80.48 80.80 81.12Probability-Weighted 74.71 74.22 74.10 74.02 74.18 74.35 74.37
Chinese Yuan/RmbScenario A 6.800 6.850 6.950 7.050 7.300 7.500 7.600Scenario B 6.542 6.534 6.667 6.719 6.720 6.750 6.800 6.800 6.850 6.700 6.500Scenario C 6.720 6.720 6.710 6.700 6.500 6.350 6.200Probability-Weighted 6.740 6.768 6.815 6.838 6.875 6.813 6.700
Indian RupeeScenario A 68.50 69.75 71.00 72.00 73.50 74.00 75.00Scenario B 67.50 66.89 66.97 66.82 67.00 67.50 68.00 68.00 68.00 67.00 66.00Scenario C 66.25 65.75 65.25 64.75 64.00 63.50 63.00Probability-Weighted 67.19 67.63 68.06 68.19 68.38 67.88 67.50
* Scenario A: Pound/Euro/RMB Weak - US Dollar Very Strong - Non-US Growth Weakens Scenario B: Modest US Growth - Clinton Administration Attemps Dollar Weakening Scenario C: Fed Does Not Hike - Brexit Delayed - ECB/BoJ End QE
Source: WSJ, Thomson Reuters Datastream, Dundee Economics
45Dynamic Funds Economics
Interest Rates - Comparison of ScenariosActual Projected
16-I 16-II 16-III 12-Oct Nov Dec Jan 17-I 17-II 17-III 17-IV
Canadian Interest RatesT-Bills (91-day)Scenario A 0.53 0.54 0.55 0.65 0.90 1.15 1.30Scenario B 0.46 0.52 0.53 0.50 0.51 0.50 0.50 0.50 0.50 0.50 0.50Scenario C 0.50 0.25 0.25 0.20 0.20 0.20 0.20Probability-Weighted 0.52 0.48 0.48 0.51 0.60 0.68 0.74
10-year BondsScenario A 1.40 1.55 1.70 1.90 2.15 2.35 2.50Scenario B 1.20 1.33 1.04 1.21 1.20 1.30 1.25 1.35 1.45 1.50 1.60Scenario C 0.90 0.80 0.75 0.65 0.60 0.55 0.50Probability-Weighted 1.23 1.31 1.33 1.44 1.57 1.66 1.75
Target Overnight RateScenario A 0.50 0.50 0.50 0.58 0.83 1.08 1.25Scenario B 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50Scenario C 0.50 0.25 0.25 0.25 0.25 0.25 0.25Probability-Weighted 0.50 0.46 0.46 0.49 0.58 0.67 0.73
US Interest RatesT-Bills (90-day)Scenario A 0.44 0.46 0.58 0.75 0.92 1.08 1.25Scenario B 0.29 0.26 0.31 0.36 0.36 0.57 0.60 0.60 0.60 0.60 0.68Scenario C 0.35 0.32 0.32 0.20 0.10 0.08 0.05Probability-Weighted 0.39 0.49 0.55 0.59 0.64 0.69 0.79
10-year BondsScenario A 1.95 2.10 2.25 2.45 2.70 2.95 3.10Scenario B 1.82 1.72 1.58 1.77 1.75 1.85 1.85 1.95 2.10 2.15 2.25Bonds - Scenario C 1.50 1.40 1.30 1.15 1.05 1.00 0.95Probability-Weighted 1.78 1.87 1.91 2.01 2.15 2.26 2.35
Fed Funds RateScenario A 0.60 0.62 0.63 0.77 0.93 1.10 1.27Scenario B 0.36 0.37 0.41 0.44 0.44 0.60 0.62 0.62 0.62 0.62 0.70Scenario C 0.41 0.39 0.37 0.25 0.12 0.10 0.10Probability-Weighted 0.49 0.58 0.59 0.62 0.65 0.71 0.81
*Scenario A: Growth/Inflation Accelerate - Four Fed hikes Scenario B: Fed Hikes in December - Bank of Canada Stands Pat Scenario C: US Growth Stalls - Fed and Bank of Canada Cut RatesSource: WSJ, Thomson Reuters Datastream, Dundee Economics
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Views contained in this report regarding a particular company, security, industry or market sector are the views of the writer and do not necessarily represent the views of Dynamic Funds, its affiliates and subsidiaries. Views expressed should not be considered a recommendation to buy or sell nor should they be relied upon as investment advice. Information contained in this report is current as of the date of publication and has been obtained from third party sources believed to be reliable. Dynamic Funds, its affiliates and subsidiaries does not warrant or make any representations regarding the use or the results of the information contained herein in terms of its correctness, accuracy, timeliness, reliability, or otherwise, and does nor not accept any responsibility for any loss or damage that results from its use.
© Copyright 2016 1832 Asset Management L.P. All rights reserved. Reprinted with permission.Dynamic Funds® is a registered trademark of its owner, used under license, and a division of 1832 Asset Management L.P.
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