JUL 15 Wells Fargo Global Chartbook_July 2010

8/9/2019 JUL 15 Wells Fargo Global Chartbook_July 2010

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This report is available on wellsfargo.com/research and on Bloomb erg WFEC

July 15, 2010

E co n o m ic s Gr o u p

Special Commentary

Executive Sum mar y: Is Global Recovery Still in the Cards?The seizing of financial markets that followed Lehman Brothers failure in Septembercaused the global economy to fall into its deepest recession in decades. By the spring ofindustrial production (IP) in the 30 countries that comprise the Organisation for Econ

Cooperation and Development (OECD) had entered its steepest downturn in decades (FigBut the policy responseunprecedented monetary easing, expansionary fiscal policy anshoring up of private-sector balance sheetsled to stabilization in economic activity in midthat subsequently morphed into global recover

220o

urd

-2 y. Although IP in the OECD countries curre

arly 10 percent below its pre-recessi e rebound has been quite sharp, at lasured by the year-over-year growth rate.

Figure 1

00809,mic

e 1).the

009ntly

stands newhen me

on peak, th east

OECD Industrial ProductionYear-over-Year Percent Change

-15%

-10%

-5%

0%

5%

10%

-20%

15%

-10%

-5%

0%

5%

10%

-20%

81 85 89 93 97 01 05 09

-

OECD Industrial Production: Apr @ 9.8%

Figure 2

U.S. Trade Weighted Dollar Major IndexMarch 1973=100

65

75

80

85

90

95

100

105

110

115

0

65

70

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 201

70

75

80

85

90

95

100

105

110

115

Major Currency Index: Jul @ 77.2

erg LP

e. Theestern

Asiannary fiscal policy. North American economies

and amajors have

been positive, albeit weak, over the past few quarters.

However, some investors fear that the global economy is about to slip back into recession. Beforewe discuss the likelihood of another global recession, lets first consider the genesis of economicdownturns. Recessions typically happen when something in the economy becomes unbalanced,

Global Char tbook: July 2010

C o n t e n t s P a g e

World 3ited States 4

6ed Kingdom 7

lia 8 9

10e 11

13d 14

wan 15ntina 16il 17

18

19 201

d 22ia 23Africa 24y 25

Dollar 26Energy 27Metals 28

UnEurozone 5

JapanUnit

AustraCanadaNorway Singapor

h Korea 12SoutSweden

zerlanSwitTai

ArgeBrazChile

ChinaIndiaMexico 2PolanRussSouthTurke

Source: IHS Global Insight, Organisation for Economic Cooperation and Development, Bloomband W ells Fargo Securities, LLC

Among the major regions of the world, economic growth in Asia has been strongest to datfinancial systems of most Asian economies were not nearly as leveraged as those of their w

counterparts, so banks in the region were able to ramp up lending again. In addition, mostgovernments responded to the crisis with expansioare growing again as well. The U.S. economy has been in recovery mode for roughly a year,self-sustaining expansion recovery appears to be under way in Canada. Europe lags otherregions of the world in terms of economic recovery, but growth rates in European economie


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Global Chartbook: July 2010 WELLS FARGO SECURITIES, LLCJuly 15, 2010 ECONOMICS GROUP

2

and the subsequent correction tends to weaken the overall economy. For example, theU.S. recession of the early 1980s occurred because growth in aggregate demand outsgrowth in aggregate supply in the late 1970s, which subsequently led to high inflation. Tthen tightened monetary policy significantly, throwing the economy into recession. LikewJapanese and German recessions of the early 1990s were caused by high inflation (grodemand again outstripping growth in supply) that led to excessive monetary tightening

recently, excessive credit growth led to overinvestment in residential real estate, not onlUnited States but also in some other major foreign economies. The

painfutrippedhe Fedise, the wth in. More

y in theinevitable bursting of the rea

enewedcurren

agoanothert loadscent atnstrain

r two, but we do not anticipatealready

. Firstina andn thoseonetaryntrol atprevent

amming on the brakes. Although we expect that, we do

sperityand the

xt five

ence os that

ead itshad the

ects of fiscat have aresents.

t fiscaseeable

is note in fact occur, would probably not

pull down the rest of the world, which is growing at a decent clip at present. As shown in the

forecast table on page 29, we expect global GDP growth in 2011 to be slower than in 2010However, another global recession, which is generally associated with a global GDP growth ratethat is slower than 2- percent or so, is not the most likely scenario.

estate bubbles caused the global economy to tumble into a deep recession.

So, are there any signs of imbalance in the global economy at present that could lead to rrecession? The United States still has a current account deficit and China still has aaccount surplus, but these imbalances are smaller today than they were a few yearsTherefore, massive dumping of U.S. assets by foreigners, which would probably lead tofinancial crisis, does not seem very likely. American consumers still have fairly hefty deb

but the household debt-to-disposable income ratio has come down to less than 115 perpresent from 125 percent in late 2007. We believe that balance-sheet adjustments will cogrowth in American consumer spending over the next year opanicked deleveraging. Real estate bubbles in the economies that experienced them have

burst, so another sharp downturn in house prices does not seem likely.

There appears to be two imbalances that could potentially lead to another global recessioninflation rates have crept up in some important developing countries, notably in Brazil, ChIndia. There is a risk that central banks could tighten too much, leading to recessions ieconomies. However, we think the risk of global recession that is induced by excessive mtightening in the developing world is rather low. Inflation rates are not generally out of copresent, and expectations of slower growth in most advanced economies will likelycentral bankers in developing countries from sleconomic growth in most developing economies will slow somewhat in the quarters aheadnot expect those countries to slip back into recession.

In our view, fiscal deficits in many advanced economies pose the bigger risk to global proGreece, Portugal and Spain have announced significant fiscal retrenchment programs,United Kingdom plans a fiscal adjustment worth roughly 10 percent of GDP over the ne

years. Germany, which is fiscally sound, is also contemplating budget cuts. The experiCanada, which made a fiscal adjustment equivalent to 9 percent of GDP in the 1990s, showsignificant fiscal retrenchment can be successfully achieved. However, Canada spradjustment out over a period of almost a decade rather than just a few years, and it

benefit of strong global growth at the time to offset the contractionary effretrenchment. Moreover, Canada, which accounts for only 2 percent of global GDP, did nodebilitating effect on the global economy. A deep recession in the Eurozone, which repnearly 20 percent of global GDP, would have a more profound effect on the global economy

However, we do not look for a deep recession in the euro area. We certainly expect tharetrenchment will exert powerful headwinds on European economic growth for the forefuture, and we acknowledge that the probability of a mild recession in the euro areainsignificant. However, a mild European recession, should on


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Global Chartbook: July 2010 WELLS FARGO SECUR ITIES, LLCJuly 15, 2010 ECONOMICS GROUP

3

WorldOECD Industrial Production

Index, 2005=100

981 1985 1989 1993 1997 2001 2005 2009

40

60

80

100

120

40

60

80

100

120

1

OECD Industrial Production: Apr @ 99.0

Global Purchasing Manager's IndicesDiffusion Index

2004 2005 2006 2007 2008 2009 2010

30

35

40

45

50

55

60

65

30

35

40

45

50

55

60

65

Global PMI Manufacturing: Jun @ 55.0

Global PMI Services: Jun @ 54.9

Courtesy of J.P. Morgan

The global economy is bouncing back from itsdeepest downturn in decades, thoughindustrial production in the OECD nationsremains well below its pre-recession peak.Purchasing manager indices have generallyremained in expansion territory, suggestingthat the global recovery remains intact. Mostregions of the world are growing again, with

10 will be

We forecast that CPI inflation rateswill trend higher this year, but runaway globalinflation la the 1970s does not seem likely.

Asia clearly in the vanguard.

Some investors fear that the global economywill slide back into recession later this year orearly next year as fiscal tightening takes hold insome countries. Although we project thatgrowth in the second half of 20slower than in the first half of the year, we donot foresee a double-dip recession.

Not only have interest rates been reduced tounprecedented lows, but major central bankshave enacted quantitative easing programs

via unconventional purchases of private-sectorassets. Central banks in some major countriese.g., Australia and Canada) have st( arted to

hike rates again, but the Fed, the ECB and theBank of Japan remain firmly on hold.

Deep global recession and the collapse incommodity prices caused inflationarypressures to recede significantly. Commodityprices have risen off their lows, but elevatedunemployment rates have kept a lid on wageinflation.

Central Bank Policy Rates

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

ECB: Jul @ 1.00%

Bank of Canada: Jul @ 0.50%

US Federal Reserve: Jul @ 0.25%

Bank of England: Jul @ 0.50%

Global CPIYear-over-Year Percent Change

1995 1998 2001 2004 2007 2010

0%

2%

4%

6%

8%

10%

12%

14%

16%

Forecast

0%

2%

4%

6%

8%

10%

12%

14%

16%

Source: U.S. Department of Commerce, U.S. Department of Labor

and Wells Fargo Securities, LLC


4/30


4

United StatesReal GDP

Bars = CAGR Line = Yr/Yr Percent Change

%

%

%

%

0%

0%

0%

0%

0%

0%

2000 2002 2004 2006 2008 2010

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

-8.0

-6.0

-4.0

-2.0

0.

2.

4.

6.

8.

10.

GDPR - CAGR: Q1 @ 2.7%

GDPR - Yr/Yr Percent Change: Q1 @ 2.4%

Forecast

Retail Sales Ex. Motor Vehicles & Gasoline Stations3-Month Moving Average

%

%

%

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

-15%

-12%

-9%

-6%

-3%

0%

3%

6%

9%

12%

-15%

-12%

-9

-6

-3

0%

3%

6%

9%

12%

Year-over-Year Percent: Jun @ 4.2%

Retail Sales, ex. Autos & Gas, 3-Month Annual Rate: Jun @ 3.8%

The United States endured its deepest postWorld War II recession in 2008-2009, but real

GDP subsequently expanded for threeconsecutive quarters and all indicators suggestthat the economy posted another positive

solid gains over the past few

project that

ency measures that were put in place

more than a year ago, we do not look for anincrease in the fed funds rate until next year.

growth rate in the second quarter of 2010. Some of the rise in economic activity since the

middle of last year reflects the temporaryeffects of government stimulus and a transientswing in inventories. However, core measuresof consumer spending and business spending

ve postedhamonths.

The labor market is finally starting to recoveras private sector payrolls have risen in seven

out of the last eight months. That said, it willtake years to fully recover the 8.4 million jobslost during the downturn, and theunemployment rate, which currently stands at9.5 percent, will likely remain elevated for the

reseeable future. Moreover, wefothe pace of economic recovery will remain slowas consumers continue to delever.

Core measures of inflation are very benign atpresent, which allows the Federal Reserve tokeep rates low for an extended period.

Although the Fed has started to remove somemerge

Private Sector Employment ChangeChange in Employment, In Thousands

0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-1000

-800

-600

-400

-200

0

200

400

600

-1000

-800

-600

-400

-200

200

400

600

Private Sector Employment: Jun @ 83.0

CPI vs. Core CPIYear-over-Year Percent Change

%

%

%

%

%

%

%

%

%

%

92 94 96 98 00 02 04 06 08 10

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

CPI: May @ 2.0%

Core CPI: May @ 0.9%

Source: U.S. Department of Commerce, U.S. Department of Labor

and Wells Fargo Securities, LLC


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5

EurozoneEurozone Real GDP

Bars = Compound Annual Rate Line = Yr/Yr % Change

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

2000 2002 2004 2006 2008 2010

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

-12.

-10.

-8.

-6.

-4.

-2.

0.

2.

4.

6.

Compound Annual Growth: Q1 @ 0.8%

Year-over-Year Percent Change: Q1 @ 0.6%

Eurozone Industrial Production IndexYear-over-Year Percent Change

%

%

%

%

%

%

%

1997 1999 2001 2003 2005 2007 2009

-21%

-18%

-15%

-12%

-9%

-6%

-3%

0%

3%

6%

9%

12%

-21

-18

-15

-12

-9

-6

-3

0%

3%

6%

9%

12%

IPI: May @ 9.3%

3-Month Moving Average: May @ 9.0%

Following its 5 percent contraction betweenearly 2008 and mid-2009, the Eurozone

economy has started to recover. However, thepace of the recovery remains painfully slowwith real GDP up only 0.7 percent between thenadir in Q2 2009 and Q1 2010. Recentmonthly indicators point to continued growthin the second quarter. Industrial production inthe April/May period was 2.3 percent abovethe first-quarter average, and the

anufacturing PMI poim nts to continued

s

ed austerity

d.Indeed, we believe the ECB will keep its mainpolicy rate at 1.00 percent, where it has beenmaintained since May 2009, well into 2011.

expansion through June. However, the recovery in the Eurozone is

hardly self-sustaining at present as growth inprivate domestic demand (consumer spending

and business fixed investment spending) haremained sluggish. The main driver behindrecovery at present appears to be net exports.

Another global financial crisis, stemming thistime from the debt problems of someEuropean governments, seems to have beenaverted, at least for now. However, someeconomies in the euro area face a bleak

onomic future. Much-needecmeasures will exert powerful headwinds ongrowth over the next few years.

Weak growth and benign inflation imply thatthe European Central Bank can keep monetarypolicy accommodative for an extended perio

Government Debt and Deficits

Percent of GDP

0%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

120%

Greece Ireland Portugal Spain

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

120%

10%

Debt

DeficitEurozone Consumer Price Inflation

Year-over-Year Percent Change

%

%

%

%

%

%

%

1997 1999 2001 2003 2005 2007 2009

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

Core CPI: Jun @ 0.9%

CPI: Jun @ 1.4%

Source: Bank of England, EuroStat, IHS Global Insight, StatisticsCanada and Wells Fargo Securities, LLC


6/30


6

JapanJapanese Real GDP


%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-20%

-15%

-10%

-5%

0%

5%

10%

-20%

-15%

-10%

-5

0%

5%

10%



Volume of Japanese Foreign TradeYear-over-Year Percent Change

%

%

%

%

%

%

%

%

%

%

1998 2000 2002 2004 2006 2008 2010-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

-50

-40

-30

-20

-10

0%

10

20

30

40

50

Export Volume: May @ 36.4%

Import Volume: May @ 20.1%

Japans economy is showing preliminary signsof slowing, but is not yet signaling a return to

recession. In fact, the economy got off to astronger-than-expected start this year whenfirst-quarter GDP advanced at a 5.0 percentannualized rate. Strong export growth to Chinaand the rest of Asia, combined with steadyconsumer spending growth stoked bygovernment incentives, has helped the country

emerge fromre a deep recession over thepast year.

We anticipate a marked slowing in Japanesegrowth in the second half of the year into 2011,guided by slowing consumer spending growthand plateauing business spending growth.

Even so, Japans GDP growth should average a

e entrenched as a result. We are forecasting consumer prices to dropanother 0.9 percent in 2010 after falling1.3 percent last year.

healthy 3.4 percent this year, slowing toaround 1.6 percent in 2011.

A steeper-than-expected decline in exportgrowth is a major downside risk to the forecasttoday. A plunging euro and global financialmarket volatility is bringing Japanese investors

back home, pushing up the yen and reducingng-term Japanese interest rates. A strong yenlo

could crimp exports and intensify deflationarypressures on an already weakening economy.

Deflation appears mor

Japanese Exchange RateJPY per USD

996 1998 2000 2002 2004 2006 2008 2010

80

90

100

110

120

130

140

150

80

90

100

110

120

130

140

150

1

JPY per USD: Jul @ 88.6Japanese Consumer Price Index


%

%

%

0%

0%

0%

0%

1998 2000 2002 2004 2006 2008 2010

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

-3.0

-2.0

-1.0

0.

1.

2.

3.

"Core" CPI: May @ -1.6%

CPI: May @ -0.9%

Source: Bloomberg LP, IHS Global Insight and

Wells Fargo Securities, LLC


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7

United KingdomU.K. Real GDP


0%

0%

%

%

%

%

0%

0%

0%

0%

2000 2002 2004 2006 2008 2010

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

-12.

-10.

-8.0

-6.0

-4.0

-2.0

0.

2.

4.

6.


Year-over-Year Percent Change: Q1 @ -0.2%

U.K. Purchasing Managers' IndicesIndex

000 2002 2004 2006 2008 2010

30

35

40

45

50

55

60

65

30

35

40

45

50

55

60

65

2

UK Manufacturing: Jun @ 57.5

UK Services: Jun @ 54.4

After six consecutive quarters of contraction in which real GDP fell more than 6 percent,

economic growth in the United Kingdom hasreturned to positive territory again. However,the recovery remains frustratingly slow, withGDP up only 0.7 percent between Q3 2009 and

ained

reduction, which should exert

economicrecovery becomes more firmly established.Thus, we expect the Bank to be on hold wellinto next year.

Q1 2010. It appears that the economy accelerated in the

second quarter. The volume of retail sales wasup 1.0 percent in the April-May period relativeto the first quarter, and PMIs for the

anufacturing and service sectors remmwell in expansion territory through June.

On June 22, Chancellor of the ExchequerOsborne presented his budget blueprint for the

next five fiscal years. Osborne is looking tomake a fiscal correction worth roughly10 percent of current GDP through fiscal year2016. Spending cuts will account for the bulk

f the deficitoheadwinds on economic growth over the next

year or two. The overall rate of CPI inflation is well above

the Bank of Englands target of 2 percent atpresent, and the increase in the value-addedtax that will go into effect on January 4 shouldkeep inflation elevated into early 2011. Thatsaid, we believe the Bank of England willrefrain from raising rates until

U.K. Deficit ReductionCumulative Contribution, Billions of Pounds

0

2011 2012 2013 201

20

40

60

80

100

120

140

4 2015 2016

0

20

40

60

80

100

120

140

Due to Tax Increases

Due to Spending Reductions

Fiscal Year

U.K. Consumer Price IndexYear-over-Year Percent Change

1997 1999 2001 2003 2005 2007 2009

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

CPI: Jun @ 3.2%

Source: Bank of England, EuroStat, IHS Global Insight, Bloomberg,

LP and Wells Fargo Securities, LLC


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8

AustraliaAustralian Real GDP


2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%



Australian Exchange Rate and CRB IndexUSD per AUD, Index

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

150.0

200.0

250.0

300.0

350.0

400.0

450.0

500.0

0.400

0.500

0.600

0.700

0.800

0.900

1.000AUD Exchange Rate: Jul @ 0.84 (Left Axis)

CRB Index: Jun @ 258.5 (R ight Axis)

The Australian economy expanded at a2.0 percent annualized rate in the first quarter.

It was the fifth consecutive quarter of growthfor the economy. The largest contribution togrowth came from public sector spending whileexports actually weighed on growth in the

eflected in the roughly

ny RBA

move from here is as much a reflection onglobal economic developments as it is anassessment of the domestic recovery.

quarter. Prospects for the Australian economy are not

as bright as they were just few months ago. When financial markets began to get jitteryabout the sovereign debt crisis in Europe, the

Aussie dollar began to slide. Since mid-April,the currency has slipped about 6 percent on

balance against the greenback due toexpectations of slower global growth. The

hand-wringing that has weighed on commodityprices has been r7 percent decline in the CRB index during thesame time period.

Since September 2009, the RBA has raised thecash target rate 150 bps to its present level of4.50 percent. At its July meeting, the bank leftrates unchanged and affirmed that the currentlevel is appropriate pending furtherinformation about international and localconditions. Inflation is presently in the upperhalf of the target zone. However, with anunstable outlook for the Eurozone, a

Australian Consumer Price IndexYear-over-Year Percent Change

%

0%

0%

0%

0%

0%

1995 1998 2001 2004 2007 2010

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

-2.0

0.

2.

4.

6.

8.

Overall CPI : Q1 @ 2.9%

Australian Retail Sales and HousingYear-over-Year Percent Change, 3-Month Moving Average

%

%

%

%

%

%

1998 2000 2002 2004 2006 2008 2010

-60.0%

-30.0%

0.0%

30.0%

60.0%

90.0%

-8.0

-4.0

0.0

4.0

8.0

12.0

Retail Sales: May @ 1.6% (Left Axis)

Housing Approvals: May @ 35.1% (Right Axis)




9/30


9

CanadaCanadian Real GDP


%

%

%

%

0%

0%

0%

0%

0%

2000 2002 2004 2006 2008 2010

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

-8.0

-6.0

-4.0

-2.0

0.

2.

4.

6.

8.



Canadian EmploymentMonth-over-Month Change in Employment, In Thousands

2002 2004 2006 2008 2010

-150

-125

-100

-75

-50

-25

0

25

50

75

100

125

-150

-125

-100

-75

-50

-25

0

25

50

75

100

125

Change in Employment: Jun @ 93.2K

6-Month Moving Average: Jun @ 51.4K

The Canadian economy grew at a 6.1 percentpace in the first quarter. Gains were led by

increases in consumer spending as well asmanufacturing. It was the fastest pace ofgrowth in Canada since the 1990s, and itincreased the pressure on the Bank of Canada

of April came in

hich would be

this year are likely, in our view, but will need to be weighed against theprobability of further financial troubles inEurope.

(BoC) to increase rates.

For the second quarter in a row, nearly half ofthe growth in the first quarter came from thequickening pace of consumer spending.However recent signs suggest the Canadianconsumer might be losing some momentum.Retail sales data for the monthmuch weaker than expected, declining2.0 percent on the month.

Canadian employers have added to payrollsevery month so far this year. In fact, theCanadian economy has added more than300,000 jobs so far this year, wcommensurate with job growth of roughly3 million in the United States.

The BoC has become the first central bankfrom a G7 nation in this economic cycle to raiseits key lending rate. The 25 bp increase bringsthe overnight rate to 0.50 percent. The BoChad to balance the need to stabilize fast-pacedeconomic growth at home against the risk offinancial market disruptions in Europe.Further hikes

Canadian Retail SalesYear-over-Year Percent Change, 3-Month Moving Average

%

%

0%

0%

0%

0%

2000 2002 2004 2006 2008 2010

-8.0%

-4.0%

0.0%

4.0%

8.0%

12.0%

-8.0

-4.0

0.

4.

8.

12.

Total: Apr @ 7.4%

Excluding Autos: Apr @ 6.1%

Central Bank Policy Rates

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

US Federal Reserve: Jul @ 0.25%

Bank of Canada: Jul @ 0.50%

Source: Bloomberg LP, IHS Global Insight andWells Fargo Securities, LLC


10/30


10

NorwayNorwegian Real GDP


%

%

0%

0%

0%

0%

0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-8.0%

-4.0%

0.0%

4.0%

8.0%

12.0%

16.0%

-8.0

-4.0

0.

4.

8.

12.

16.

Compound Annual Growth Rate: Q1 @ -0.5%


Norwegian Real GDPYear-over-Year Percent Change

%

%

0%

5%

0%

5%

0%

5%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010-3.0%

-1.5%

0.0%

1.5%

3.0%

4.5%

6.0%

7.5%

-3.0

-1.5

0.

1.

3.

4.

6.

7.

Mainland GDP : Q1 @ 1.1%


After experiencing a mild recession in2008/2009, economic growth has returned to

the Norwegian economy. Although real GDPedged down 0.5 percent (annualized rate) inthe first quarter, the outturn reflects weaknessin the countys oil and gas sector. Mainland

DP, which excludes the energy sectoG r, has

first quartersuggests

e is low

, the pace ofmonetary tightening will likely remain quiteslow if economic growth does not strengthenand inflation remains benign.

expanded for four consecutive quarters.

That said, the pace of recovery in Norway isslow at present. Mainland GDP has risenonly 1.1 percent since its nadir in Q1 2009, andthe sluggish pace of growth in manufacturingproductionjust 0.2 percent in the April/Mayperiod relative to thethat economic growth in the second quarter

remained lackluster. There are not many inflationary pressures in

the Norwegian economy at present. The overallrate of CPI inflation has receded to 1.9 percent,and the core rate of inflation is lower at only.3 percent. The unemployment rat1

only 2.8 percent at presentbut wages haveshown few signs of acceleration yet.

Norges Bank, the countrys central bank, hasslowly raised its main policy rate to2.00 percent at present from 1.25 percent lastOctober, the last rate hike occurring on May 5.

Although the Bank will probably hike ratesfurther in the months ahead

Norwegian Manufacturing ProductionYear-over-Year Percent Change

-10%

-6%

-4%

-2%

0%

2%

4%

6%

8%

1997 1999 2001 2003 2005 2007 2009

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

-8%Manufactring Production: May @ 2.6%

Norwegian Consumer Price IndexYear-over-Year Percent Change

2000 2002 2004 2006 2008 2010

-2%

0%

2%

4%

6%

-2%

0%

2%

4%

6%

CPI: Jun @ 1.9%



11/30


11

SingaporeSingapore Real GDPYear-over-Year Percent Change

0%

0%

0%

0%

0%

0%

0%

0%

2000 2002 2004 2006 2008 2010

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

-15.

-10.

-5.

0.

5.

10.

15.

20.


Singapore Manufacturing PMIIndex

2000 2002 2004 2006 2008 201040

45

50

55

60

65

70

40

45

50

55

60

65

70

Singapore Manufacturing PMI: Jun @ 51.3

Singapores economy is coming off a sizzlingfirst half of the year, as economic activity and

exports bounce back rapidly from the 2009economic and financial crisis. There is littlesign in the economic data, as yet, of an impactfrom the sovereign debt crisis in Europe,though some impacts are sure to show up

before too long. Because Singapore is such asmall, globally-open economy, it will be highly

nsitive to any pseregional trade.

Singapores manufacturing recovery remainedsolid through the second quarter. Although themanufacturing PMI slipped back a bit in June,it has been above the critical 50 level that

signals expansion for 14 consecutive months.Production and new order expansion has beenmuch stronger than manufacturingemployment, which has edged back intoontraction territory. Retail sales h

ullback in global growth or

ave been

y band on the Singaporedollar, allowing the currency to appreciate.This is how Singapore effectively tightensmonetary policy.

clagging the rest of the economy, dropping 5.7percent in May on a year-ago basis.

Singapores consumer inflation held steady inay, rising 3.2 percent from a year ago. LastM

year at this time, inflation was barely visiblewith consumer inflation at 0.2 percent.

The rise in inflation over the past year has beenenough for the Monetary Authority to beginmoving the currenc

Singapore Retail SalesYear-over-Year Percent Change

-20%

-10%

-5%

0%

5%

10%

15%

20%

25%

2005 2006 2007 2008 2009 2010

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

-15%

Retail Sales: May @ -5.7%

Singapore Consumer Price IndexYear-over-Year Percent Change

%

%

0%

0%

0%

0%

0%

0%

0%

0%

0%

1998 2000 2002 2004 2006 2008 2010

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

-2.0

-1.0

0.

1.

2.

3.

4.

5.

6.

7.

8.

CPI: May @ 3.2%




12/30


12

South KoreaSouth Korean Real GDP


%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

-25%

-20%

-15%

-10%

-5

0%

5%

10%

15%

20%



South Korean Industrial Production IndexYear-over-Year Percent Change

1998 2000 2002 2004 2006 2008 2010-30%

-20%

-10%

0%

10%

20%

30%

40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

IPI: May @ 21.4%


South Koreas economic outlook has been littlechanged by the turmoil in global financial

markets, though downside risks are building. Abigger-than-expected drop in export growth onslowing Chinese, U.S. and European demand

would have a larger-than-average impact on

duction is now

et has firmed nicelyover the past year. June unemploymentdropped back to 3.5 percent from 4.8 percentin January.

South Koreas economic prospects. The year got off to a strong start, which will

help the annual increases look impressive,even if the country experiences a sharppullback in activity into the end of the year. Wecurrently anticipate South Korean GDP growthof 6.1 percent in 2010, slowing to around3.7 percent in 2011.

So far, there is no sign in the economic datathat the economy is about to suddenly turncold. South Korean industrial production

jumped another 2.6 percent in May to a newrecord high. Industrial pro21.5 percent higher than a year ago, largely dueto a resurgence of exports.

Export growth continued to beat analystexpectations through June, though the year-on-year growth rates are starting to slow ondifficult comparisons from a year ago. The

volume of exports in June was up 20 percenton a year-ago basis.

South Koreas labor mark

South Korean Export & Import VolumesYear-over-Year Precent Change, 3-Month Moving Average

2000 2002 2004 2006 2008 2010

-20%

-10%

0%

10%

20%

30%

40%

-20%

-10%

0%

10%

20%

30%

40%

Volume of Exports: May @ 20.1%

Volume of Imports: May @ 23.8%

South Korean Unemployment RatePercent and 12-Month Moving Average

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

Unemployment Rate: Jun @ 3.5%

12-Month Moving Average: Jun @ 3.8%




13/30


13

SwedenSwedish Real GDP


2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-20%

-15%

-10%

-5%

0%

5%

10%

-20%

-15%

-10%

-5%

0%

5%

10%



Swedish Manufacturing PMI

002 2003 2004 2005 2006 2007 2008 2009 201030

35

40

45

50

55

60

65

70

30

35

40

45

50

55

60

65

70

2

Swedish Manufacturing PMI: Jun @ 62.4%

After enduring a fairly painful recessionrealGDP tumbled nearly 8 percent between

Q4 2007 and Q1 2009economic growth hasreturned to Sweden. Indeed, real GDPexpanded 5.9 percent at an annualized rate inthe first quarter of 2010 relative to the

revious qup arter on the strength of domestic

t

thin the Swedish economy. Although theRiksbank likely will hike further in the monthsahead, it probably wont slam on the brakes.

demand. Most monthly indicators suggest that the

economy expanded further in the secondquarter. Industrial production shot up5.1 percent in the April/May period relative tothe previous quarter, and the high level of themanufacturing PMI in June points in thedirection of further strength. The value of retail

spending in the April-May period grew1.1 percent relative to the first-quarter average.

The deep recession caused the unemploymentrate to rise sharply. Although there are

ntative indications that the unemploymenterate may be stabilizing, it remains near9 percent, the highest rate in about 10 years.

The Riksbank (the countrys central bank) cutits main policy rate to only 0.25 percent lastsummer, and high unemployment and benigninflation allowed the central bank to maintainthe unprecedented low level for its policy ratefor nearly a year. However, the Riksbank hikedrates by 25 bps on July 1, citing recent streng

Swedish Unemployment Rate

Not Seasonally Adjusted

1997 1999 2001 2003 2005 2007 2009

4%

6%

8%

10%

12%

4%

6%

8%

10%

12%


Unemployment Rate: May @ 8.8%

5

Swedish Consumer Price IndexYear-over-Year Percent Change

%

%

%

%

%

%

%

%

1997 1999 2001 2003 2005 2007 2009

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

CPI: Jun @ 0.9%




14/30


14

SwitzerlandSwiss Real GDP


%

%

%

0%

0%

0%

0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

-6.0

-4.0

-2.0

0.

2.

4.

6.



Swiss Manufacturing PMIDiffusion Index

97 1999 2001 2003 2005 2007 2009

30

35

40

45

50

55

60

65

70

30

35

40

45

50

55

60

65

70

19

Swiss Manufacturing PMI: Jun @ 65.7

Switzerland experienced a mild recession inlate 2008/early 2009, but real GDP hassubsequently grown for three consecutivequarters. Not only have exports rebounded,

which has helped to boost growth in the veryopen Swiss economy, but domestic demand is

ne in the unemployment rate

--vis the

get for three-month SwissLIBOR at 0.25 percent, where it has beenmaintained since March 2009, for theforeseeable future.

growing again as well.

The few data releases that we have from thesecond quarter suggest that growth hasremained positive. The manufacturing PMIstood at a very high level through June, and theKOF leading economic indicator rose in Juneto its highest level in four years. In addition,the recent declisuggests that the labor market is starting tostrengthen.

However, 50 percent of Swiss exports aredestined for the euro area. Fiscal retrenchmentin the euro area in conjunction with recentappreciation of the Swiss franc viseuro likely will exert some headwinds on Swissexport growth in the months ahead.

The overall rate of CPI inflation is just0.5 percent at present, and the core rate ofinflation is only 0.2 percent. With benigninflation and uncertainties about the economicoutlook, the Swiss National Bank (SNB) canafford to keep its tar

Swiss Unemployment RateSeasonally Adjusted

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

Unemployment Rate: Jun @ 3.9%

Swiss Consumer Price IndexYear-over-Year Percent Change

%

%

%

%

%

%

%

%

%

%

%

1997 1999 2001 2003 2005 2007 2009

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

CPI: Jun @ 0.5%




15/30


15

TaiwanTaiwanese Real GDPYear-over-Year Percent Change

0%

5%

0%

5%

0%

5%

0%

5%

0%

5%

0%

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

-10.0%

-7.5%

-5.0%

-2.5%

0.0%

2.5%

5.0%

7.5%

10.0%

12.5%

15.0%

-10.

-7.

-5.

-2.

0.

2.

5.

7.

10.

12.

15.


Taiwanese RatesOvernight Rate, 10-Yr Government Bonds

2000 2002 2004 2006 2008 2010

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

Overnight Rate: Jul @ 0.19%

Taiwan 10-Yr Government: Jul @ 4.02%

Taiwans economic expansion remains robustdespite volatile global financial markets. Twoimportant developments stand out over the pastmonth. As we expected, Taiwans central bank

was one of the few globally to recently raise itsbenchmark interest rate, and on the trade front,

aiwan signed a controvT ersial trade agreement

mpanies will also gain

rts continue to exceed analystexpectation, surging another 16.4 percent inMay. Exports are now 57.9 percent above a

with Mainland China.

The Economic Co-operation FrameworkAgreement (ECFA) removes tariffs on hundredsof products, and stands to boost bilateral trade

with China that already totals $110 billion a year. Economically, the deal benefits Taiwanmore than China, but it will also give Chinamore political leverage and inroads into Taiwanlonger term. Taiwans coaccess to Chinese service sectors in banking andinsurance.

Despite growing fears of a global economicslowdown, Taiwans central bank raised its

benchmark interest rate for the first time since2008 on June 24th, joining other Asiancountries such as India and Malaysia in raising

borrowing costs. The bank increased thediscount rate on 10-day loans to banks to 1.375percent from a record low 1.25 percent. On June30, the central bank also raised the interest rateit pays on reserves to banks to reflect increasedfunding costs.

Taiwans expo

year ago.Taiwanese Merchandise Trade Balance

Billions of New Taiwan Dollars, Not Seasonally Adjusted

0-60.

-20.0

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

1998 2000 2002 2004 2006 2008 2010

-60.0

-40.0

-20.0

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

-40.0Merchandise Trade Balance: Jun @ 43.2 TWD

12-Month Moving Average: Jun @ 66.9 TWD

Taiwanese Exchange RateTWD per USD

0

0

0

0

0

0

0

2000 2002 2004 2006 2008 2010

30.00

31.00

32.00

33.00

34.00

35.00

36.00

30.0

31.0

32.0

33.0

34.0

35.0

36.0

TWD per USD: Jul @ 32.088




16/30


16

ArgentinaArgentine Economic Activity Index


1998 2000 2002 2004 2006 2008 2010

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

Economic Activity: Apr @ 9.7%

Argentine Consumer Price IndexYear-over-Year Percent Change

2004 2005 2006 2007 2008 2009 2010

0%

2%

4%

6%

8%

10%

12%

14%

0%

2%

4%

6%

8%

10%

12%

14%

Consumer Price Index: Jun @ 11.0%

After the slowdown created by the globalturmoil, the Argentine economy is booming

again. The economy posted a 6.8 percentgrowth rate during the first quarter of the yearcompared to the same quarter a year earlier as

both personal consumption expenditures andovernment expenditures surgedg by

nce

s

ngperformance of 4.7 percent. We expect thegovernment to continue its spending spree in2011 as the presidential elections approach.

7.3 percent and 8.4 percent, respectively.

The biggest negative during the first quarter ofthe year, other than the fact that governmentconsumption continues to surge, was thatexports of goods and services increased by only4.2 percent while imports of goods and servicessurged by 30.1 percent, all compared to thesame quarter a year earlier. This performa

of exports and imports suggests that theArgentine currency is overvalued again.

The Fernndez-Kirchner administration,unable to keep inflation under tabs, is trying tocombat the real appreciation of the currency,

which has been caused by acceleratinginflation, by imposing trade restrictions on

ports from different countries. This iimcreating misgivings against the Argentinegovernment outside of the country.

We have increased the forecast for 2010economic growth for Argentina to 5.9 percent.For 2011, we expect the economy to slow downa bit but achieve a relatively stro

Argentine Exchange Rate

BRL per USD

04 05 06 07 08 09 10

2.50

2.75

3.00

3.25

3.50

3.75

4.00

2.50

2.75

3.00

3.25

3.50

3.75

4.00

ARS per USD: Jul @ 3.934

Argentine Merchandise Trade BalanceMillions of USD, Not Seasonally Adjusted

000

000

$0

000

000

000

1998 2000 2002 2004 2006 2008 2010

-$2,000

-$1,000

$0

$1,000

$2,000

$3,000

-$2,

-$1,

$1,

$2,

$3,

Merchandise Trade Balance: May @ USD $1,905M




17/30


17

BrazilBrazilian Real GDP


2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-15%

-12%

-9%

-6%

-3%

0%

3%

6%

9%

12%

-15%

-12%

-9%

-6%

-3%

0%

3%

6%

9%

12%



Brazilian Consumer Price IndexYear-over-Year Percent Change

1998 2000 2002 2004 2006 2008 2010

0%

3%

6%

9%

12%

15%

18%

0%

3%

6%

9%

12%

15%

18%

CPI: Jun @ 4.8%

The Brazilian economy is surging again afterthe brief period marked by the worldwide

financial crisis. And this strong growth ishelping the whole of South America. Brazil isbecoming the center of influence it has always wanted to be, and it has happened under the

residency of Luiz Inacio Lula da Silp va, much

e

t inflation

ate ofLula da Silvas Workers Party, is going to winthe elections. Thus, it will be interesting to seeif she can continue Lulas success story.

to the dismay of the Brazilian right.

The Brazilian economy grew by an impressive11.4 percent annualized growth during the firstquarter. Even though growth has slowed sincethen, we are increasing our forecast for this

year to 7.2 percent. While there are some risksin this forecast due to the central bankstightening of monetary policy, the economy

should have no problem posting strong growthduring the year. For next year, we expect theconomy to remain strong but to slow downfrom todays record-breaking pace.

As expected, the rate of inflation has started toaccelerate, and the central bank has tightenedmonetary policy to counteract this acceleration

prices. However, we do not expecinto get out of hand and expect the country toremain strong with stable prices.

The only domestic risk for the Brazilianeconomy this year and next remains thepresidential elections later this year. Right nowit seems that Dilma Rousseff, the candid

Brazilian Merchandise Trade Balance

Millions of USD, Not Seasonally Adjusted

000

000

$0

000

000

000

000

000

000

1998 2000 2002 2004 2006 2008 2010

-$2,000

-$1,000

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

-$2,

-$1,

$1,

$2,

$3,

$4,

$5,

$6,

Merchandise Trade Balance: May @ $3,443

Brazilian Exchange RateBRL per USD

99 00 01 02 03 04 05 06 07 08 09 10

1.00

1.50

2.00

2.50

3.00

3.50

4.00

1.00

1.50

2.00

2.50

3.00

3.50

4.00

BRL per USD: Jul @ 1.763




18/30


18

ChileChilean Real GDP


2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-15%

-12%

-9%

-6%

-3%

0%

3%

6%

9%

12%

-15%

-12%

-9%

-6%

-3%

0%

3%

6%

9%

12%

Compound Annual Growth: Q1 @ -5.9%


Chilean Consumer Price IndexYear-over-Year Percent Change

1998 2000 2002 2004 2006 2008 2010

-4%

0%

4%

8%

12%

-4%

0%

4%

8%

12%

CPI: Jun @ 1.2%

The Chilean economy dropped by anannualized growth rate of 5.9 percent during

the first quarter of the year, due, in large part,to the devastating earthquake. However, theearly indication for the economys performanceduring the second quarter of the year is verypromising. According to the index of economicactivity, the Chilean economy surged by

.1 percent during May of this year7 compared

nt drop in imports

index. However, domestic

consumption is not enough to keep the Chileaneconomy from slowing down during the secondhalf of the year.

to the same month a year earlier.

After recovering considerably from last yearscollapse, Chilean exports and imports plungedagain in June, threatening the strong recoveryin economic activity seen in other indicators.Exports dropped by a strong 21.8 percent year-

on-year in June, while imports plunged by 56.8percent during the same period of time. Thisdrop was on top of the 25.7 percent drop inexports and the 38.8 percerecorded in June of last year, all compared toJune of the previous year.

It is clear that the Chilean economy was booming until May of this year. However, wemay see some slowdown coming down thepipeline, especially if trade continues to

weaken. Having said this, the domesticeconomy continues to surge, as portrayed bythe retail sales

Chilean Retail SalesYear-over-Year Percent Change

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-6%

-3%

0%

3%

6%

9%

12%

15%

-6%

-3%

0%

3%

6%

9%

12%

15%

Retail Sales: May @ 18.0%


Chilean Exchange RateBRL per USD

99 00 01 02 03 04 05 06 07 08 09 10

400

500

600

700

800

400

500

600

700

800

CLP per USD: Jul @ 537.100




19/30


19

ChinaChinese Real GDP


0%

0%

0%

0%

0%

%

%

%

2000 2002 2004 2006 2008 2010

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

0.

2.

4.

6.

8.

10.0

12.0

14.0


Chinese Loan GrowthYear-over-Year Percent Change

99 01 03 05 07 09

0%

5%

10%

15%

20%

25%

30%

35%

0%

5%

10%

15%

20%

25%

30%

35%

Chinese Loan Growth: Jun @ 18.2%

Real GDP growth in China came rocketingback from the sharp slowdown that occurred inlate 2008/early 2009. Because Chinese banks

were not overly leveraged, the governmentdirected them to increase lending aggressively.In addition, the government stimulated theeconomy via acceleration of planned

10.3 percent in the second

away appreciation of the renminbi because Chinese authorities generally do notchange economic policies in a dramaticfashion.

infrastructure spending.

With the economy firmly back on track, thegovernment directed banks earlier this year toslow down the pace of credit creation beforeinflation becomes an issue. And the slowdownin real GDP growthfrom 11.1 percent in thefirst quarter toquartersuggests that its efforts have bornsome fruit.

Will Chinese authorities tighten too much?Probably not. Not only has growth started toslow, but CPI inflation may be starting to rollover. In addition, the decline in the stockmarket, which is down 25 percent since mid-

pril, and evidence suggesting that hA ouseprices are no longer rising, reduces the needfor the government to slam on the brakes.

On June 19, Chinese authorities decided toreintroduce some flexibility into the

yuan/dollar exchange rate. As the forecast onpage 29 makes clear, however, we do notexpect run

Chinese Fixed Investment SpendingYear-over-Year Percent Change

0%

%

%

%

%

%

%

2000 2002 2004 2006 2008 2010

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

0.

10.0

20.0

30.0

40.0

50.0

60.0

Fixed Investment Spending: Jul @ 25.5%

Chinese CPI InflationYear-over-Year Percent Change

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-4%

-2%

0%

2%

4%

6%

8%

10%

-4%

-2%

0%

2%

4%

6%

8%

10%

Overall CPI: Jun @ 2.9%

Non-food CPI: Jun @ 1.5%




20/30


20

IndiaIndian Real GDP


2004 2005 2006 2007 2008 2009

0%

3%

6%

9%

12%

0%

3%

6%

9%

12%


Indian Industrial Production IndexYear-over-Year Percent Change

%

%

%

%

0%

0%

0%

1997 1999 2001 2003 2005 2007 2009

0.0%

3.0%

6.0%

9.0%

12.0%

15.0%

18.0%

0.0

3.0

6.0

9.0

12.

15.

18.3-Month Moving Average: May @ 14.0%

Real GDP growth in the Indian economy hasfluctuated over the past year or so due to the

effects of last years drier-than-normalmonsoon. The agricultural sector accounts forroughly 15 percent of Indian GDP, and rainfallamounts can have a noticeable effect on theoverall rate of GDP growth.

Monsoons aside, the underlying state of theIndian economy is rather strong at present.The year-over-year rate of industrialproduction growth dipped a bit in May, but thehigh reading on the manufacturing PMIsuggests that growth held up well in June. Notonly have exports been strong, but theexplosion in auto salesup 29 percent in the

second quarter relative to the same period in

ble

he Reserve Bankof India has started to take back some of itsprevious rate cuts by hiking its main policy rate

by 75 bps since mid-March.

2009shows that Indian consumers are aliveand well.

Wholesale price inflation, which is the benchmark inflation gauge in India, has shotup this year. The numerous indices of CPIinflation are all in double-digit territory, and

ey likely will remain there for the foreseeathfuture due to the recent decision by thegovernment to remove fuel price subsidies.

In response to strong growth and the potentialfor inflation to move higher, t

Indian Wholesale Price InflationYear-over-Year Percent Change

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-2%

0%

2%

4%

6%

8%

10%

12%

14%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

Wholesale Price Inflation: Jun @ 10.6%

Reserve Bank of India Repo RatePercent

0

0

0

0

0

0

2007 2008 2009 2010

0.00

2.00

4.00

6.00

8.00

10.00

0.0

2.0

4.0

6.0

8.0

10.0

Repo Rate: Jul @ 5.50%




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21

MexicoMexican Real GDP


0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

2004 2005 2006 2007 2008 2009 2010

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

-12.

-10.

-8.

-6.

-4.

-2.

0.

2.

4.

6.

8.


Mexican Industrial Production IndexYear-over-Year Percent Change

0%

0%

%

0%

0%

0%

0%

2004 2005 2006 2007 2008 2009 2010

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

-15.

-10.

-5.0

0.

5.

10.

15.

Mexican Industrial Production: May @ 8.4%

The Mexican economy has continued to growduring the second quarter of the year, but there

are initial signs that growth is slowing down.Both the coincident and leading indicatorsposted negative rates of growth during April ofthis year. While it is too early to call this adouble-dip, it is clear that the economy istarting to slow down, most likes ly following the

e see

entral bank

will not be able to support economic activityfor the rest of the year. Economic activity willaccelerate if the U.S. consumer remains strong.

lead of the U.S. economy.

Mexican industrial production seems to havepeaked in March of this year when it posted a

year-earlier rate of 7.8 percent but sloweddown to a 6.1 percent rate in April. Industrialproduction in Mexico is highly dependent onU.S. consumer demand and thus will probably

reflect the latest slowdown in U.S.consumption during the second quarter of the

year. Therefore, dont be surprised if windustrial production in Mexico slowing downfurther during the next several months.

On the positive side, consumer prices havecontinued to moderate as the economy

weakened during the second quarter of thear. This will guarantee that the cye

will remain on the sidelines and keep interestrates at current low levels.

However, domestic consumption will not beenough for the economy to start acceleratingagain, and thus current monetary expansion

Mexican Consumer Price IndexYear-over-Year Percent Change

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

2%

4%

6%

8%

10%

12%

2%

4%

6%

8%

10%

12%

CPI: Jun @ 3.7%

Mexican Exchange RateMXN per USD

0

0

0

0

0

0

0

0

0

2000 2002 2004 2006 2008 2010

8.00

9.00

10.00

11.00

12.00

13.00

14.00

15.00

16.00

8.0

9.0

10.0

11.0

12.0

13.0

14.0

15.0

16.0

MXN per USD: Jul @ 12.79




22/30


22

PolandPolish Real GDP


1996 1998 2000 2002 2004 2006 2008 2010

0.0%

3.0%

6.0%

9.0%

0.0%

3.0%

6.0%

9.0%


Polish Employment GrowthYear-over-Year Percent Change

05 2006 2007 2008 2009 2010-3

-2

-1

0

1

2

3

4

5

6

7

-3

-2

-1

0

1

2

3

4

5

6

7

20

Employment Growth: May @ 0.5%

Polands economic growth slowed in the firstquarter to 3.0 percent year over year, down

slightly from the 3.3 percent pace of the fourthquarter. Growth was driven by a 2.2 percentrise in government consumption, which wastriple the pace of the prior quarter, as well as a2.2 percent increase in personal consumption.Trade also contributed as exports rose slightlymore than imports. Fixed capital formation,however, was a big drag, falling 12.4 percent asthe harshest winter in decades thwartedconstruction projects. Resumption of theseprojects will likely show up in the secondquarter data.

Employment rose 0.5 percent year over year inMay, the first increase since January 2009.However, the unemployment rate, at11.9 percent, remains higher than a year agoand wage growth rema

ins subdued, suggesting

presidential election. Although the marketscheered the win, reforms could be difficult topass as local and parliamentary elections loom.

support from personal consumption will likelyremain constrained.

Weak demand continues to put downwardpressure on inflation, which fell to 2.2 percent

year over year in May, down from Aprils2.4 percent and the lowest since August 2007.This will allow the central bank to keep interestrates at record lows.

Bronislaw Komorowski, who is pro-businessand pro-European Union, won the July 4

Polish Unemployment RateNot Seasonally Adjusted

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

0

5

10

15

20

25

0

5

10

15

20

25

1990

Unemployment Rate: May @ 11.9%

Polish Consumer Price IndexYear-over-Year Percent Change

0%

0%

0%

0%

0%

0%

0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

0.

2.

4.

6.

8.

10.

12.

CPI: Jun @ 2.3%



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23

RussiaRussian Real GDP


%

%

%

%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

-12%

-10%

-8

-6

-4

-2

0%

2%

4%

6%

8%

10%


Russian Merchandise Trade BalanceBillions of USD, Seasonally Adjusted

001 2003 2005 2007 2009$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

$20

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

$20

2

Merchandise Trade Balance: May @ $12.2B

Russias GDP growth finally turned positive inthe first quarter for the first time since the

third quarter of 2008, rising 2.9 percent from a year ago. Trade fueled the bulk of growth asthe trade surplus more than doubled from a

year ago thanks to a surge in exports, drivenprimarily by the rising demand for oil.Household consumption also contributed,rising 0.3 percent on a year-ago basis, a vastimprovement from the 9.4 percent plunge inthe fourth quarter. The contraction ininvestment continued, dropping 7.1 percent,

but this was an improvement over the9.5 percent fourth quarter decline.

Despite being much higher than a year ago, thetrade surplus has shrunk since January asimports have risen twice as much as exports.Exports have actually dropped over the pa

st

ment rate

annual inflation down to just 5.7 percent inJuneextremely low by Russian standards.This will keep interest rates low for some time.

couple of months as the global economy hassoftened, whereas imports continued to rise.

Retail sales growth continued to improve,rising 11.7 percent in May from a year ago. Therubles strong appreciation from the lows of

09, along with a falling unemploy20and rising real wages, are supporting therebound in domestic demand.

Yet, spending growth remains weak comparedto historical trends. This, along with a strongerruble compared to a year ago, has pushed

Russian Retail SalesYear-over-Year Percent Change

1998 2000 2002 2004 2006 2008 2010

-20%

0%

20%

40%

60%

80%

100%

120%

-20%

0%

20%

40%

60%

80%

100%

120%

Retail Sales: May @ 11.7%

Russian Consumer Price IndexYear-over-Year Percent Change

2002 2003 2004 2005 2006 2007 2008 2009 2010

4%

6%

8%

10%

12%

14%

16%

18%

20%

4%

6%

8%

10%

12%

14%

16%

18%

20%

CPI: Jun @ 5.7%



24/30


24

South AfricaSouth African Real GDP


%

%

%

%

0%

0%

0%

0%

0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

-8.0

-6.0

-4.0

-2.0

0.

2.

4.

6.

8.



South African UnemploymentRate

0%

0%

0%

0%

Jan 08 Apr 08 Jul 08 Oct 08 Jan 09 Apr 09 Jul 09 Oct 09 Jan 10

20.0%

22.0%

24.0%

26.0%

20.

22.

24.

26.Unemployment Rate: Q1 @ 25.2%

In the first quarter of 2010, the South Africaneconomy posted its third consecutive quarter

of economic expansion, growing at a4.6 percent annualized pace. After a nastyrecession in 2009, the economy is rebounding.

Finance Minister Gordhan has made remarksabout the economic impact of the World Cup.Greece was in a similar position to benefiteconomically from the Summer Games in2004. In our analysis of IMF current accountdata, we were unable to find a discernable

jump in spending for either personal orbusiness travel, nor did we find an above trendrate of growth in other sectors. However,Other Services: Personal, Cultural and

Recreational showed a spike in spending that was more than $600 million dollars higherthan average in 2004. That comprises roughly2 percent of the overall economy, a big number

be sure, but the impact faded the followitoyear. So, any lift from hosting the games or inthis case, the World Cup, is only temporary.

The unemployment rate in South Africa isamong the highest in the world. Though there

ng

fairly benign, the South AfricanReserve Bank has cover to ease rates further atits July 22nd meeting, should the SARB deem itnecessary.

is some evidence that consumers are spendingagain, retail sales are back in positive growthterritory on year-over-year basis.

With inflation

Real South African Retail SalesYear-over-Year Percent Change

2003 2004 2005 2006 2007 2008 2009 2010

-9%

-6%

-3%

0%

3%

6%

9%

12%

15%

18%

-9%

-6%

-3%

0%

3%

6%

9%

12%

15%

18%

Wholesale & Retail Sales: May @ 4.6%

South African Consumer Price IndexYear-over-Year Percent Change

2003 2005 2007 2009

0%

3%

6%

9%

12%

15%

0%

3%

6%

9%

12%

15%

CPI: May @ 4.6%




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25

TurkeyTurkish Real GDP

Year-over-Year Percentage Change

0%

5%

0%

%

%

%

0%

5%

0%

5%

0%

5%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-15.0%-15.

-12.

-10.

-7.5

-5.0

-2.5

0.

2.

5.

7.

10.

12.

5%

-10.0%

-7.5%

-5.0%

-2.5%

0.0%

2.5%

5.0%

7.5%

10.0%

12.5%

-12.Year-over-Year Percent Change: Q1 @ 11.7%

Turkish Merchandise Trade BalanceMillions of USD, Not Seasonally Adjusted

000

000

000

000

000

000

000

000

000

000

$0

2002 2004 2006 2008 2010-$10,000

-$

-$10,

-$9,

-$8,

-$7,

-$6,

-$5,

-$4,

-$3,

-$2,

-$1,

,000

-$8,000

-$7,000

-$6,000

-$5,000

-$4,000

-$3,000

-$2,000

-$1,000

$0

9Merchandise Trade Balance: May @ -4,834.2 USD

Turkeys economy grew 11.7 percent on a year-over-year basis in the first quarter, up from 6.0

percent in the fourth quarter. The big increasereflects base effects, as the economy hit bottomin the first quarter of 2009. Nonetheless,manufacturing led the way with a 20.6 percent

jump. Real estate rose 11.4 percent, andconstruction rose 8.0 percent. Agriculture sawa 3.8 percent dip. Growth was entirelydomestic driven as the trade deficit nearly

ipled from a year ago as imports rose almostrsix times as much as exports.

The strength in imports is a result of a strongerdomestic economy and a rising demand forinputs used in manufactures for export.

Industrial production was up 15.6 percent on a year-ago basis in May, led by production ofelectrical machinery, medical equipment andfabricated metal products. Motor vehicle andparts production gr

t

owth has cooled to

nger liracompared to a year ago, has kept prices incheck and will likely keep interest rates athistorically low levels for some time.

26.0 percent year over year, down from 71.1percent in February.

Although the economy has strengthened,inflation remains muted. Consumer prices rose

just 8.4 percent year over year in June, thesmallest increase since January. Theunemployment rate has declined from a yearago, but it remains much higher than the pre-

crisis average. This, along with a stro

Turkish Industrial Production IndexYear-over-Year Percent Change

0%-25.

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

1998 2000 2002 2004 2006 2008 2010

-25.0%

-20.0%

5.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

-20.0%

-1

IPI: May @ 15.6%


Turkish Consumer Price IndexYear-over-Year Percent Change

0%

0%

0%

0%

0%

0%

0%

1998 2000 2002 2004 2006 2008 2010

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

0.

20.

40.

60.

80.

100.

120.

CPI: Jun @ 8.4%



26/30


26

Dollar Exchange RatesU.S. Trade Weighted Dollar Major Index

March 1973=100

00 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

65

70

75

80

85

90

95

100

105

110

115

65

70

75

80

85

90

95

100

105

110

115

20

Major Currency Index: Jul @ 77.2

Euro-zone Exchange RateUSD per EUR

1999 2001 2003 2005 2007 2009

0.80

0.90

1.00

1.10

1.20

1.30

1.40

1.50

1.60

1.70

0.80

0.90

1.00

1.10

1.20

1.30

1.40

1.50

1.60

1.70

USD per EUR: Jul @ 1.270

The weighted-average value of the dollar versus major currencies has trended higher

this year. Some of the greenbacks biggest gainshave come at the expense of the euro and otherEuropean currencies. The dollar slipped versusmany emerging market currencies earlier this

ear, but it has regained its footing ovey r the

ed

ve trended higher over the

past few weeks as risk aversion has risen. The appreciation of the dollar versus European

currencies this year reflects the strongereconomic upturn to date in the United Statesthan on the other side of the Atlantic Ocean. Inaddition, the Eurozones widely publicizfiscal problems have reduced the attractivenessof euro assets in the eyes of many investors.

The United States current account deficit hasnarrowed considerably over the past few years,which exerts fewer headwinds on the dollar. Atthe same time, net capital inflows into the

nited States haUpast year or so, which have also helped boostthe greenback.

Wells Fargo projects the dollar will appreciatemodestly over the next few quarters versusmost major currencies, as the U.S. economicrecovery continues to prompt foreign buyingof higher-yielding U.S. assets. However,commodity and emerging market currencies

will likely appreciate further on a trend basis,as commodity prices continue to grind higherand as increasing levels of risk tolerance causecapital to flow to those countries.

Monthly Net Securities PurchasesBillions of Dollars

$0

2004 2005 2006 2007 2008 2009 2010

-$120

-$80

-$40

$0

$40

$80

$120

$160

-$120

-$80

-$40

$40

$80

$120

$160

Net Securities Purchases: Apr @ $83 Billion

3-Month Moving Average: Apr @ $90 Billion

Current Account DeficitQuarterly in Billions of Dollars, Seasonally Adjusted

0

0

0

0

0

0

$0

0

92 94 96 98 00 02 04 06 08

-$240

-$200

-$160

-$120

-$80

-$40

$0

$40

-$24

-$20

-$16

-$12

-$8

-$4

$4

Balance on Current Account: Q1 @ $-109.0 B

Source: Bloomberg LP, Federal Reserve Board, IHS Global Insight,

Intl. Monetary Fund and Wells Fargo Securities, LLC


27/30


27

EnergyCrude Oil

NYMEX Front-Month Contract, Dollars per Barrel

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

$0

$20

$40

$60

$80

$100

$120

$140

$160

$0

$20

$40

$60

$80

$100

$120

$140

$160

Crude Oil: Jul @ $76.09

Crude Oil InventoryYear-over-Year Percent Change

%

%

%

%

2005 2006 2007 2008 2009 2010

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

-20

-15

-10

-5

0%

5%

10%

15%

20%

25%

Oil Inventory: Jul @ 2.5%

Oil prices remained volatile during thelast quarter as the U.S. and world economy

traveled a very patchy road with the Europeansovereign debt crisis weighing on commodityprices. Furthermore, an appreciating U.S.dollar had its own effect on the price of oil,

which dropped to the low $70s at the height ofthe European debt crisis. However, emergingmarket growth trumped all other effects and oil

ices regained strengprthe second quarter.

We still expect emerging market economicstrength to keep the price of petroleum fairlyhigh during the rest of the year. However, therisk to this forecast will increase if economic

growth in developed and emerging marketeconomies slows down. Furthermore, crude oilinventory growth has turned

th during the last part of

positive, which

wdownaround the world have increased, the growth inemerging markets is still supportive ofrelatively high commodity prices.

should keep petroleum prices from increasingtoo much during this year.

Meanwhile, as expected, natural gas prices inthe United States have trended upward in thepast several months, but remain fragile.Markets seem to expect the BP oil spill to putupward pressure on natural gas and oil pricesin the near future if deepwater exploration andproduction is limited by political fiat.

While the risks of an economic slo

Natural GasHenry Hub Spot, Dollars per MMBTU

2005 2006 2007 2008 2009 2010

$0

$2

$4

$6

$8

$10

$12

$14

$16

$0

$2

$4

$6

$8

$10

$12

$14

$16

Natural Gas: Jul @ $4.44

Natural Gas StorageYear-over-Year Percent Change

2005 2006 2007 2008 2009 2010

-30%

-15%

0%

15%

30%

45%

-30%

-15%

0%

15%

30%

45%

Natural Gas Storage: Jul @ -1.6%



28/30


28

MetalsCRB Metals Index

Index

0

2002 2004 2006 2008 2010

0

200

400

600

800

1,000

1,200

200

400

600

800

1,000

1,200

CRB Metals Index: Jul-9 @ 716.99

Copper PriceDollars per Pound

0

0

0

0

0

0

2002 2004 2006 2008 2010

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

Copper: Jul-9 @ $3.05

The recovery in metals prices faltered duringthe second quarter of the year as the European

sovereign debt crisis sent shockwaves throughthe world market reminiscent of the 2008post-Lehman Brothers collapse. Recently,markets have pointed to another recoveryphase helped by the recent recovery of the euroand the weakness of the U.S. dollar, asreflected by the CRB Metals Index. While it istoo early to know if this recovery has teeth, at

ast the fact that prices are nolea good sign for the markets.

One of our biggest concerns is the strength andsustainability of emerging market growth,

basically driven by China. If there are

indications that Chinese growth is starting toslow down considerably, then we can seeanother round of weakness for metals prices. Asecond, and important, risk is related torenewed concerns about lingering Eurozone

longer falling is

the year due to thestill strong level of inventories, which haveremained stable but very high compared to theearly part of this decade.

growth and debt issues that could potentiallywreak havoc on world economic growth again.

Aluminum and copper prices were not theexception during this correction. However,copper prices remain very strong compared tothe prices experienced during the early part ofthis decade.

Meanwhile, aluminum prices could see furtherweakness during the rest of

Aluminum PriceDollars per Pound

0

5

0

5

0

5

2002 2004 2006 2008 2010

$0.50

$0.75

$1.00

$1.25

$1.50

$1.75

$0.5

$0.7

$1.0

$1.2

$1.5

$1.7

Aluminum: Jul-9 @ $0.90

Aluminum InventoriesThousands of Metric Tons, London Metal Exchange

0

0

0

0

0

2002 2004 2006 2008 2010

0

500

1,000

1,500

2,000

50

1,00

1,50

2,00

Aluminum: Jul-9 @ 1,565,600



29/30


30/30

W ells Fargo Secur ities, LLC Econom ics Group

er-Krieg l HeadDiane Schumak Globa of Research& Economic

(7(2

[email protected]

04) 715-8437 diane12) 214-5070

John E. Silvia, Ph.D. Chief Econom (7 wellsfargo.comist 04) 374-7034 john.silvia@

Mark Vitner Senior Econ (7 [email protected] 04) 383-5635 mark.vitne

Jay Bryson, Ph.D. Econ (7 [email protected] omist 04) 383-3518 jay.bry

Scott Anderson, Ph.D. (612 [email protected] Economist ) 667-9281 scott.a

Eugenio Aleman, Ph.D. Senior Economist (6 [email protected]) 667-0168 eugenio.j

Sam Bullard enior Econ (7 [email protected] omist 04) 383-7372 sam.b

Anika Khan ist (7 [email protected] 04) 715-0575 anika.

Azhar Iqbal Econometrician (704) 383-6805 [email protected]

Ed Kashmarek Economist (612) 667-0479 [email protected]

Tim Quinlan Economist (704) 374-4407 [email protected]

Kim Whelan Economic Analyst (704) 715-8457 [email protected]

Documents

JUL 15 Wells Fargo Global Chartbook_July 2010