The art of common sense

The Economy at a Glance

April 1
1, 2010
Portfolio manager Torgeir Høien
 Expect more Eurozone Turmoil
• Activity indicators for manufacturing slipped a little from February to March in most countries, but they still
signal strong growth in the global economy. The activity indicators for the service sector are not in yet, but I do
not expect them to change the picture.
• Th world
The ld was hit by
b some severe shocks
h k ini the
th first
fi t quarter,
t th mostt dramatic
the d ti off these
th b i the
being th massive
i
earthquake in Japan. Irrespective of what some irresponsible Keynesians are saying, this will have a marked
negative impact on the Japanese economy. We expect negative growth in the first two quarters of this year,
and only modest growth from 2010 to 2011. The other tremors from the first quarter will probably recede over
the coming months.
months The Libyan civil war may continue to rage for some time,time but Saudi has pushed up its oil
production to fill the Libyan vacuum.
• The European Central Bank (ECB) is going to be a first mover among the big central banks and will hike its
policy rate from 1 to 1.25 percent in April. However, we do not expect this to be the first in a series of
tightenings Also,
tightenings. Also we expect the Bank of England to follow in the ECB ECB’s s footsteps quite soon,
soon and the US
Federal Reserve too will probably change direction this summer or early autumn. Hence, short term interest
rates are set to move up over the coming quarters, though the pace will be modest this year.
• The fiscal stance continues to deteriorate in the Eurozone, with Dublin injecting ever more taxpayer money into
y
its rotten bank system. In Portugal
g the situation became much worse,, with p public deficits for 2009 and 2010
much worse than previously thought and a vote of no-confidence for the ruling Socialist party. Portugal needs
a bail-out, like Greece and Ireland, but the caretaker government in Lisbon is not able to sign any such
agreement. With large redemptions in April and June, and a new government in place in early June at the
earliest, this crisis may escalate. The underlying problem in the Eurozone is that some of its members are
clearly insolvent and even its most solid member states have too much debt and too little political capital to
come to their rescue with anything other than new loans. At some stage bond holders will have to take a hit, as
that is the only way to put peripheral finances on a solid footing.
Gross Domestic Product in Advanced Economies

Seasonally adjusted GDP levels

135,0 Israel 135,0

Australia
130,0 130,0
Mainland-Norway
125,0 125,0
New Zealand
Canada
120,0 120,0
Index, 2008:1 = 100

Index, 2008:1 = 100

US
115,0 115,0
Sweden
Eurozone
110,0 110,0
Finland
UK
105,0 105,0

100,0 100,0

Japan
95,0 95,0
Denmark
90,0 90,0

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2007 2008 2009 2010
Sources: Reuters EcoWin and SKAGEN
 Gross Domestic Product in Advanced Economies
Index, 2008:1 = 100

Index, 2008:1 = 100

 Productivity

GDP per hour worked in the business sector

112,5 112,5
US
110,0 110,0

107,5 107,5
Mainland Norway
Index, 2000:1 = 100

Index, 2000:1 = 100

105,0 105,0
UK
102,5 102,5

100,0 100,0

97 5
97,5 97 5
97,5
Eurozone

95,0 95,0
Sweden
92,5 92,5
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2007 2008 2009 2010
Source: EcoWin
Manufacturing Production in Advanced Economies
Index, Jan. 2007 = 100

Index, Jan. 2007 = 100

Manufacturing Production in Emerging Economies

Seasonally adjusted levels of manufacturing production

170 170
China ((s.a. by
y SKAGEN))
160 160
Taiwan
South Korea
150 150
India (s.a. by SKAGEN)
Thailand
140 140
Index, Jan. 2007 = 100

Index, Jan. 2007 = 100

Turkey
Brazil
130 130
Russia (s.a. by SKAGEN)
120 Mexico 120

110 110

100 100

90 90
South Africa
Hungary
80 80

70 70

jan mar mai jul sep nov jan mar mai jul sep nov jan mar mai jul sep nov jan mar mai jul sep nov jan
2007 2008 2009 2010 2011
Source: Reuters EcoWin
PMI Manufacturing in Advanced Economies

PMI manufacturing
70 70

Switzerland
65 65
Sweden
60 60
Norway
55 55
US
ex

ex
Diffusion inde

Diffusion inde
50 EMU 50

45 45
New Zealand
40 40
UK
35 35
Japan
Australia
30 30
Hong Kong
25 25

jan mar mai jul sep nov jan mar mai jul sep nov jan mar mai jul sep nov jan mar mai jul sep nov jan mar
2007 2008 2009 2010 2011
Sources: Reuters EcoWin and Bloomberg
PMI Manufacturing in Emerging Economies

PMI manufacturing
70 70
China
65 65
Israel
60 60
India
55 55
ex

ex
Diffusion inde

Diffusion inde
50 50

45 45
Turkey Mexico
40 40
South Africa Brazil
35 35
South Korea
Russia
30 30
Taiwan
25 25

jan mar mai jul sep nov jan mar mai jul sep nov jan mar mai jul sep nov jan mar mai jul sep nov jan
2007 2008 2009 2010 2011
Sources: Reuters EcoWin and Bloomberg
Diffusion Ind
dex
PMI Services

Diffusion Ind
dex
USD p
per ton
USD per barrell
Commodity Prices

USD per barrell

USD p
per ton
Freight rates

Freight rates
12000 12000

10000 10000

8000 8000
Dry commodities
6000 6000

4000 4000

2000 2000

0 0
150 150
130 130
Crude oil
110 110
90 90
70 70
50 50
30 30

jan apr jul okt jan apr jul okt jan apr jul okt jan apr jul okt jan apr
2007 2008 2009 2010 2011
Source: Reuters EcoWin
Index, Jan. 2008 = 100
Retail Sales in Constant Prices

Index, Jan. 2008 = 100

Export in USD

Europe and North America Asia and Latin America

175 175 175 175
China
US
Japan
150 150 150 150
South Korea

125 125 125 125

UK Germany
100 100 100 100
France Mexico
Italy
75 75 75 75
Spain
Brazil
Sveits
50 50 50 India 50

25 25 25 25

0 0 0 0
2007 2008 2009 2010 2011 2007 2008 2009 2010 2011

Source: Reuters EcoWin Source: Reuters EcoWin

Import in USD

Europe and North American Asia and Latin America

250 250 250 250
Kina
225 225 225 225
US
Japan
200 200 200 200
Germany
Sør-Korea
175 175 175 175
UK
U Mexico
150 150 150 150
France India
125 125 125 125
Italy Brasil
100 Spain 100 100 100

75 75 75 75

50 50 50 50

25 25 25 25

0 0 0 0
2007 2008 2009 2010 2011 2007 2008 2009 2010 2011

Source: Reuters EcoWin Source: Reuters EcoWin

Employment

Employment
150,0 64,50

147,5 64,25

145,0 64,00

142,5 63,75
Eurozone (l.s.)
140,0 63,50
US (l.s.) Japan (r.s.)
137,5 63,25

135,0 63,00

132,5 62,75

130,0 62,50

127,5 62,25

j
jan mar maii j l
jul sep nov j
jan mar maii j l
jul sep nov j
jan mar maii j l
jul sep nov j
jan mar maii j l
jul sep nov jjan
2007 2008 2009 2010 2011
Source: Reuters EcoWin
Percent
Unemployment

Percent
Inflation in Advanced Economies

Annual change in CPI

17 UK 17
Eurozone
15 15
Norway
13 13
Sweden
11 11
Germany
9 9
Percent

Percent
US
7 7
Switzerland
5 5
Japan
3 3

1 1

-1 -1

-3 -3

jan mar mai jul sep nov jan mar mai jul sep nov jan mar mai jul sep nov jan mar mai jul sep nov jan mar
2007 2008 2009 2010 2011
Source: Reuters EcoWin
Consumer Price Levels in Advanced Economies

Seasonally adjusted consumer price levels

115,0 115,0
UK
Norway
112,5 112,5
US
Sweden
110,0 110,0
EMU
Canada
10
107,5 10
107,5
Germany
Switzerland (SA by SKAGEN)
105,0 105,0
Japan

102,5 102,5

100,0 100,0

97,5 97,5

jan mar mai jul sep nov jan mar mai jul sep nov jan mar mai jul sep nov jan mar mai jul sep nov jan mar
2007 2008 2009 2010 2011
Sources: Reuters EcoWin and SKAGEN
Inflation in Emerging Economies

Annual change in CPI

17,0 Russia 17,0

India (wholesale prices)
14,5 Brazil 14,5
China
Mexico
12,0 12,0
Hungary
South Korea
9,5 9,5

7,0 7,0

4,5 4,5

2,0 2,0

-0,5 -0,5
Poland
Taiwan
-3,0 -3,0

j
jan mar maii j l
jul sep nov j
jan mar maii j l
jul sep nov j
jan mar maii j l
jul sep nov j
jan mar maii j l
jul sep nov j
jan mar
2007 2008 2009 2010 2011
Source: Reuters EcoWin
Index, Jan. 200
08 = 100
Consumer Price Levels in Emerging Economies

Index, Jan. 200

08 = 100
Core Inflation in Advanced Economies
Percentt

Percentt
 Core Consumer Price Levels in Advanced Economies
Index, Jan. 2008 = 100

Index, Jan. 2008 = 100

Core Inflation in Emerging Economies

Annual change in core CPI

15,0 15,0
Brazil
Turkey
12,5 12,5
Mexico
South Korea
10,0 10,0
Colombia
China
7,5 7,5
Hungary

5,0 5,0

2,5 2,5

0,0 0,0
Thailand
Taiwan
-2,5 -2,5

jan mar mai jul sep nov jan mar mai jul sep nov jan mar mai jul sep nov jan mar mai jul sep nov jan mar
2007 2008 2009 2010 2011
Source: Reuters EcoWin
Core Consumer Price Levels in Emerging Economies

Seasonally adjusted core consumer price levels

125,0 125,0

122,5 122,5

120,0 120,0
Brazil
117,5 117,5
Index, Jan. 2008 = 100

Index, Jan. 2008 = 100

Hungary
115,0 115,0
South Korea (s.a. by SKAGEN)
112,5 112,5
China (s.a. by SKAGEN)
110,0 110,0
Taiwan (s.a. by SKAGEN)
107,5 107,5

105,0 105,0

102,5 102,5

100,0 100,0
jan mar mai jul sep nov jan mar mai jul sep nov jan mar mai jul sep nov jan mar mai jul sep nov jan
2007 2008 2009 2010 2011
Sources: Reuters EcoWin and SKAGEN
Policy Rates and Overnight Rates

US Eurozone
6 6 6,0
Lending rate

5 5 5,0

Policy rate
4 4 4,0

3 3 3,0

Target rate
2 2 2,0

O
Overnight
i ht rate
t Overnight rate
1 1 1,0

Deposit rate

0 0 0,0
2007 2008 2009 2010 2011 jan mai sep jan mai sep jan mai sep jan mai sep jan
2007 2008 2009 2010 2011
Source: Reuters EcoWin Source: Reuters EcoWin
Policy Rates and Overnight Rates

UK Switzerland
7 7 7,0 7,0

6 6 6,0 6,0
Overnight rate

5 5 5,0 5,0

4 4 4,0 4,0
Policy rate
Policy rate
3 3 3,0 3,0
Overnight rate

2 2 2,0 2,0

1 1 1,0 1,0

0 0 0,0 0,0
2007 2008 2009 2010 2011 2007 2008 2009 2010 2011

Source: Reuters EcoWin Source: Reuters EcoWin

Expected Overnight Rates
Percent

Percent
Treasury Bills and Interbank Interest Rates

3 months T-bill 3 month interbank rate

6 6 7 7

6 6
5 5

5 5
4 4

UK
3 3
Germany
2 2
US
1 1
4 4
GBP
3 3
EUR
2 2
USD
1 1

0 0 0 0
2007 2008 2009 2010 2011 2007 2008 2009 2010 2011

Source: Reuters EcoWin Source: Reuters EcoWin

Risk Premium in Interbank Rates

3 month 3 month
400 400 400 400

350 350 350 350

300 300 300 300

USD
250 250 250 250

EUR
200 200 200 200

GBP DKK
150 150 150 150
SEK
100 100 100 100
JPY

50 50 50 50

0 0 0 0
2007 2008 2009 2010 2011 2007 2008 2009 2010 2011

Source: Reuters EcoWin Source: Reuters EcoWin

10 Year Nominal Interest Rates

10 year Treasury yields

5,0 5,0

45
4,5 45
4,5
US
4,0 4,0

3,5 3,5

30
3,0 30
3,0
Percentt

Percentt
France
2,5 2,5
Japan
2,0 2,0

15
1,5 15
1,5

1,0 1,0

0,5 0,5

jan mar mai jul sep nov jan mar mai jul sep nov jan mar mai jul sep nov jan mar
2008 2009 2010 2011
Source: Reuters EcoWin
Expected Annual Inflation Next 10 Years
Percent

Percent
Percentage poiints
10 Year Risk Premiums

Percentage poiints
10 Year Risk-Free Real Interest Rates
Percent

Percent
Base Money

US and Eurozone UK and Switzerland

2,50 1,4 225 130

Eurozone (r.s.)
120
2,25 1,3 200

US (l.s.) Switzerland (r.s.) 110

2,00 1,2 175
100

1,75 1,1 150 90

UK (l.s.)
1,50 1,0 125 80

70
1,25 0,9 100
60
1,00 0,8 75
50

0,75 0,7 50 40

2007 2008 2009 2010 2011 2007 2008 2009 2010 2011

Source: Reuters EcoWin Source: Reuters EcoWin

Broad Money

Level Annual growth

150 150 20,0 20,0
UK UK
US 17,5 17,5
140 140 Sveits
Eurozone 15,0 15,0
US
130 130 12,5 12,5
Switzerland
Japan
Japan 10,0 10,0
120 120
7,5 7,5

110 110 5,0 5,0

2,5 2,5
100 100
0,0 0,0
Eurosonen
90 90 -2,5 -2,5

2007 2008 2009 2010 2011 2007 2008 2009 2010 2011

Source: Reuters EcoWin Source: Reuters EcoWin

US Industrial Indicators

National indicators Regional indicators

70 100,0 50
70
NIFB Small Businesss Optimism (r.s.) 30
65 97,5
60
ISM manufacturing (l.s.) 10
60 95,0 50
-10 Chicago PMI (r.s.)
Kansas Fed (l.s.) 40
55 92,5 -30
Philadelphia Fed (l.s.)
-50 30
50 90,0

30 20
45 87,5
10
0
40 85 0
85,0 -10
10
ISM services (l.s.) Dallas Fed (r.s.) -20
-30
35 82,5 New York Fed (l.s.)
-50 -40
Richmond Fed (r.s.)
30 80,0 -70 -60
2007 2008 2009 2010 2011 jan mai sep jan mai sep jan mai sep jan
2008 2009 2010 2011
Source: Reuters EcoWin Source: Reuters EcoWin
 US Consumption Indicators

Retail sales
400 400

375 375

350 350
Billion USD
D

Billion USD
D
325 325

Index

Index
Total

300 300

275 275
Ex autos and gas
250 250

225 225

2007 2008 2009 2010 2011

Source: Reuters EcoWin

 The US Labor Market

Thousand
Million
Eurozone Indicators
Eurozone Consumption Indicators

Consumer confidence Retail sales

9 115 110 110

109 109
8 110
108 108
7 105 Current prices
Italy (r.s.) 107 107
6 100
106 106
Tyskland (l.s.)
5 95 105 105

4 90 104 104

103 103
3 85 Constant prices
102 102
2 80
France (l.s.) 101 101
1 75 100 100
2007 2008 2009 2010 2011 2007 2008 2009 2010
Source: Reuters EcoWin Source: Reuters EcoWin
Eurozone GDPs

Seasonally adjusted GDP since Q1 2007 Seasonally adjusted GDP since Q1 2007
115 115 115 115
Slovakia
113 113 Malta
Luxemburg 110 110
110 110 Cyprus
Netherland
108 108 105 105
Germany
105 105
Belgium 100 100
103 103
Portugal
100 100 95 95
Austria Slovenia
98 98 Spain
France 90 90
95 95 Greece
Fi l d
Finland
93 93 Irland
85 85
Italy Estonia
90 90

88 88 80 80

Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3
2007 2008 2009 2010 2007 2008 2009 2010
Source: Reuters EcoWin Source: Reuters EcoWin
Eurozone Interest Rate Spreads

Spread to 10-year German bund Spread to 10-year German bund

10 10
9,50 9,50
9 9
8,50 8,50 Greece
8 8
7,50 7,50 Ireland
7 7
Portugal
6,50 6,50 6 6
Austria S i
Spain
5,50 5,50 5 5
France Italy
4,50 4,50 4 4
Finland Belgium
3,50 3,50 3 3
Netherlands
2,50 2,50 2 2

1,50 1,50 1 1

0,50 0,50 0 0

-0,50 -0,50 -1 -1

2007 2008 2009 2010 2011 2007 2008 2009 2010 2011

Source: Reuters EcoWin Source: Reuters EcoWin