current global economy and its outlook · 2016-05-20 · © 2016 cme group. all rights reserved....
TRANSCRIPT
© 2016 CME Group. All rights reserved.
Current Global Economy
and its Outlook
Blu Putnam, Chief Economist & Managing Director,
CME Group, Inc.
April 2016
© 2016 CME Group. All rights reserved.
Investment advice is neither given nor intended
The research views
expressed herein
are those of the
author and do not
necessarily
represent the views
of CME Group or its
affiliates.
All examples in this
presentation are
hypothetical
interpretations of
situations and are
used for
explanation
purposes only.
This report and the
information herein
should not be
considered
investment advice
or the results of
actual market
experience.
2
© 2016 CME Group. All rights reserved.
Futures trading is not suitable for all investors, and involves the risk of loss. Futures are a leveraged investment, and because only a percentage of
a contract’s value is required to trade, it is possible to lose more than the amount of money deposited for a futures position. Therefore, traders
should only use funds that they can afford to lose without affecting their lifestyles. And only a portion of those funds should be devoted to any one
trade because they cannot expect to profit on every trade. All references to options refer to options on futures.
Swaps trading is not suitable for all investors, involves the risk of loss and should only be undertaken by investors who are ECPs within the
meaning of section 1(a)12 of the Commodity Exchange Act. Swaps are a leveraged investment, and because only a percentage of a contract’s
value is required to trade, it is possible to lose more than the amount of money deposited for a swaps position. Therefore, traders should only use
funds that they can afford to lose without affecting their lifestyles. And only a portion of those funds should be devoted to any one trade because
they cannot expect to profit on every trade.
Any research views expressed are those of the individual author and do not necessarily represent the views of the CME Group or its affiliates.
CME Group is a trademark of CME Group Inc. The Globe Logo, CME, Globex and Chicago Mercantile Exchange are trademarks of Chicago
Mercantile Exchange Inc. CBOT and the Chicago Board of Trade are trademarks of the Board of Trade of the City of Chicago, Inc. NYMEX, New
York Mercantile Exchange and ClearPort are registered trademarks of New York Mercantile Exchange, Inc. COMEX is a trademark of Commodity
Exchange, Inc. KCBOT, KCBT and Kansas City Board of Trade are trademarks of The Board of Trade of Kansas City, Missouri, Inc. All other
trademarks are the property of their respective owners.
The information within this presentation has been compiled by CME Group for general purposes only. CME Group assumes no responsibility for
any errors or omissions. Additionally, all examples in this presentation are hypothetical situations, used for explanation purposes only, and should
not be considered investment advice or the results of actual market experience.
All matters pertaining to rules and specifications herein are made subject to and are superseded by official Exchange rules. Current rules should be
consulted in all cases concerning contract specifications.
Copyright © 2015 CME Group. All rights reserved.
Disclaimer
© 2016 CME Group. All rights reserved.
• US Economy
• Commodity Markets & Global Economy
• Interpretations of Quantitative Easing and Negative
Rates
• Japanese Economy & Markets Dynamics
Current Global Economy and its Outlook:
Presentation Topics
4
© 2016 CME Group. All rights reserved.
• Long-Run Potential US real GDP growth only 2%
• Inflation low in US due to commodity supply boom and
demographics, not China deceleration
• Federal Reserve rate rises delayed, maybe only one or
two in second half of 2016.
• US Presidential election
- Congressional gridlock likely to continue
- Future budgets depend as much on US Senate
election as the Presidential vote
- US Dollar likely to be seen internationally as
becoming a more risky currency
US Economy
5
© 2016 CME Group. All rights reserved.
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
Qu
arte
rly
US
Re
al G
DP
vs
Pre
vio
us
Qu
arte
r (A
nn
ual
ize
d)
Source: St. Louis Federal Reserve Bank FRED Database (GDPC1).
US Real GDP
2002-07 AVG = 2.77%
2009/H2-15 AVG = 2.11%
2016-17 Estimated AVG = 1.50%
2008-09/H1 AVG = -2.89%
© 2016 CME Group. All rights reserved.
0%
1%
2%
3%
4%
5%
6%
7%
Year
-ove
r-Ye
ar In
flat
ion
//
Pe
rce
nt
Inte
rest
R
ate
Source: Federal Reserve Bank of St. Louis FRED Database (PCEPILFE, FEDFUNDS)
US Core Inflation and Federal Funds Rate
???Core Inflation
Federal Funds Rate
© 2016 CME Group. All rights reserved.
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
Year
-ove
r-Ye
ar In
flat
ion
//
Pe
rce
nt
Inte
rest
R
ate
Source: Federal Reserve Bank of St. Louis FRED Database (PCEPILFE, FEDFUNDS)
US Core Inflation and 10-Year Treasury Yield
???
US Treasury 10-year
Core Inflation
© 2016 CME Group. All rights reserved.
• Slowing global growth – No one engine of growth
• Commodity production boom
• New commodity market dynamics
- Metals and all rebounding off lows of 2015
• End of Fear of Ever Lower Prices
• Finding new trading ranges
- Technology of Oil
• More efficient transportation
• More efficient extraction techniques
• US shale oil production now the swing producer /
price setter for global crude oil
Commodities and Global Growth
9
© 2016 CME Group. All rights reserved.
0% 3% 6% 9% 12%
US
UK
Euro-Zone
Japan
China
India
Brazil
Russia
Source: World Bank via Bloomberg Professional.
Global Growth Deceleration
2016-17 Est
2010-2015
2002-2007
© 2016 CME Group. All rights reserved. 11
0
20
40
60
80
100
120P
rice
s In
dex
ed
to
30
Ju
ne
20
15
= 1
00
Source: Bloomberg Professional (CL, HG, IO, Most Active Contract Prices)
Oil, Copper, Iron Ore: Bouncing off their Lows
Iron Ore
Copper
Oil
© 2016 CME Group. All rights reserved.
• US Federal Reserve -- $3.6 trillion of QE since
September 2008 – Virtually no inflation.
• European Central Bank -- € 1.3 trillion of QE since 2008
– Virtually no inflation.
• Bank of Japan -- ¥ 250 trillion of QE since December
2012 – Virtually no inflation.
• Negative rates are a tax on the banking system.
• The costs are unlikely to be passed on to consumers.
• Higher taxes virtually never stimulate credit growth.
Quantitative Easing (QE) did not create
Inflation, and Negative Rates are not likely
to work either
12
© 2016 CME Group. All rights reserved. 13
$0
$1
$2
$3
$4
$5
US$
Tri
llio
ns
Source: Federal Reserve Bank of St. Louis FRED Database
Composition of Federal Reserve Assets
Long-Term Treasuries
Short & Medium Term
Mortgage-BackedSecurities
Other
© 2016 CME Group. All rights reserved. 14
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
1999 2001 2004 2006 2009 2011 2014
Euro
Bill
ion
s
Source: European Central Bank Monthly Bulletins, obtained through the Bloomberg Professional.
European Central Bank Assets
Securities & Govt Debt
Loans
Other
FX and Gold
© 2016 CME Group. All rights reserved. 15
¥0
¥50
¥100
¥150
¥200
¥250
¥300
¥350
¥400
¥450
Trill
ion
s o
f Ja
pan
ese
Ye
n
Source: Bank of Japan (www.boj.or.jp)
Bank of Japan Assets
Japanese Government Securities
Loans
© 2016 CME Group. All rights reserved. 16
-6%
-4%
-2%
0%
2%
4%
6%
-4% -2% 0% 2% 4% 6% 8%
De
gre
e o
f St
imu
lus
Nominal Interest Rate (Assuming 2% Inflation)
Source: CME Group, Strategic Intelligence & Analytics
Different Interpretations of Negative Rates
Negative Rates are a tax and discourage economic activity
The more negative the nominal rates, the more the stimulus -- Linear Thinking
© 2016 CME Group. All rights reserved. 17
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Year
-ove
r-Ye
ar P
erc
en
t C
han
gein
Co
nsu
me
r P
rice
Ind
ex
Source: Bloomberg Professional (JCPNGEN)
Japanese Inflation
Sales Tax Rise
© 2016 CME Group. All rights reserved.
• Bank of Japan negative rates are a tax on the banking
system; do not increase lending; have been followed
by yen appreciation
• Central bank asset purchases do not increase lending;
do reduce liquidity of bond markets
• Long-Run potential Japan real GDP growth in the 1% to
1.5% range.
Japanese Economy
18
© 2016 CME Group. All rights reserved.
• Slower global growth typically leads to increased
global political risk
• Demographic divide (young economies compared to
mature economies) is becoming more of a challenge to
global growth
• Era of lower commodity prices may bring some
improvements in global growth only after commodities
find their trading ranges and fear of further declines in
prices have abated. That is what is happening in 2016.
• Markets have become more volatile, as they appear to
be learning to live with more realistic expectations
Market Dynamics
19
© 2016 CME Group. All rights reserved. 20
0
60
120
180
240
300
360
19
71
19
74
19
77
19
80
19
83
19
86
19
89
19
92
19
95
19
98
20
01
20
04
20
07
20
10
20
13
20
16
Yen
pe
r U
S D
olla
r
Source: Bloomberg Professional (JPY)
Japanese Yen per US Dollar
© 2016 CME Group. All rights reserved. 21
0
30
60
90
120
150
0
5,000
10,000
15,000
20,000
25,000
Dec
-201
0
May
-201
1
Oct
-201
1
Mar
-201
2
Au
g-20
12
Jan
-201
3
Jun
-201
3
No
v-20
13
Ap
r-20
14
Sep
-201
4
Feb
-201
5
Jul-
2015
Dec
-201
5
May
-201
6
Yen
per
USD
(R
iisin
g lin
e is
dep
reci
atin
g ye
n)
Nik
kei 2
25 In
dex
Source: Bloomberg Professional (JPY & NKY)
Japanese Equities and the Yen
Yen per USD, Right Scale >>>
<<< Nikkei 225, Left Scale
© 2016 CME Group. All rights reserved. 22
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
Sto
ck In
dex
Val
ue
, No
FX
Ad
just
me
nt
Source: Bloomberg Professional (INDU & NKY)
The Japan Nikkei 225 and the US Dow Jones Industrial Average Since 1970
Japan Nikkei 225
US Dow Jones Ind Average