COUNCIL UPDATE:
JANUARY 2014
Adrian Blundell-Wignall
Special Advisor on Financial Markets to the OECD Secretary General.
Council 20 January 2014
Central Bank Money
2
0 100 200 300 400 500 600
Jan‐07 Jul‐07 Jan‐08 Jul‐08 Jan‐09 Jul‐09 Jan‐10 Jul‐10 Jan‐11 Jul‐11 Jan‐12 Jul‐12 Jan‐13 Jul‐13 Jan‐14 Jul‐14 Jan‐15 Jul‐15
Index Money Base Index
Fed Reserve ECB
UK Japan
1
US Bond Yields and the Cost of Equity
3
2.5 4.5 6.5 8.5 10.5 12.5 14.5 16.5 18.5 20.5
Jan‐85 May‐86 Sep‐87 Jan‐89 May‐90 Sep‐91 Jan‐93 May‐94 Sep‐95 Jan‐97 May‐98 Sep‐99 Jan‐01 May‐02 Sep‐03 Jan‐05 May‐06 Sep‐07 Jan‐09 May‐10 Sep‐11 Jan‐13 May‐14
BAA Corp
S&P Eq.Earn.Yld Hi Yld Corp AAA Corp Cost of Equity
%
2
China Imports: Global Base Metal Prices
4 -80 -60 -40 -20 0 20 40 60 80 100
-55 -35 -15 5 25 45 65
Jan/99 Sep/00 May/02 Jan/04 Sep/05 May/07 Jan/09 Sep/10 May/12 Jan/14 Sep/15
China Imports RBA Base Metals $
%yoy
3
US & China: National Investment & Saving
5
0 10 20 30 40 50 60
Mar‐60 Mar‐62 Mar‐64 Mar‐66 Mar‐68 Mar‐70 Mar‐72 Mar‐74 Mar‐76 Mar‐78 Mar‐80 Mar‐82 Mar‐84 Mar‐86 Mar‐88 Mar‐90 Mar‐92 Mar‐94 Mar‐96 Mar‐98 Mar‐00 Mar‐02 Mar‐04 Mar‐06 Mar‐08 Mar‐10 Mar‐12
% GDP
US Ntl. Saving US Ntl. Inv.
China Ntl Saving China Ntl Inv
4
Inverted Monetary Conditions Index led 18m (short & long rates, exchange rate, equity prices), vs IP
6
‐10
‐8
‐6
‐4
‐2 0 2 4 6
‐25
‐20
‐15
‐10
‐5 0 5 10
15 % MCI USA Inverted led 18 Mths v IP % point
IP USA(LHS)
MCI USA inverted led 18 months(RHS)
5
Components of Europe MCI: Bonds & Exchange rate Headwinds (Rise=Tightening, Fall=Easing)
7
‐5
‐4
‐3
‐2
‐1 0 1 2 3
Jan‐07 Jun‐07 Nov‐07 Apr‐08 Sep‐08 Feb‐09 Jul‐09 Dec‐09 May‐10 Oct‐10 Mar‐11 Aug‐11 Jan‐12 Jun‐12 Nov‐12 Apr‐13 Sep‐13 Feb‐14 Jul‐14 Dec‐14
3m rate 12m Change 10y Bond 12m Change
Exch Rate 12m % times weight Equity 12 % times weight
6
Europe Inverted Monetary Conditions Index led 12m (short
& long rates, exch. rate, equity prices), vs IP
8
‐10
‐8
‐6
‐4
‐2 0 2 4 6
‐25
‐20
‐15
‐10
‐5 0 5 10
15 % MCI EU Inverted & Led 12 Months vs IP % point
IP EU
MCI EU(RHS)
7
Components of US MCI: Bonds & Exchange rate Headwinds (Rise=Tightening, Fall=Easing)
9
‐5
‐4
‐3
‐2
‐1 0 1 2 3
Jan‐07 Jun‐07 Nov‐07 Apr‐08 Sep‐08 Feb‐09 Jul‐09 Dec‐09 May‐10 Oct‐10 Mar‐11 Aug‐11 Jan‐12 Jun‐12 Nov‐12 Apr‐13 Sep‐13 Feb‐14 Jul‐14 Dec‐14
Fed Funds 12m Change 10y Bond 12m Change
Exch Rate 12m % times weight Equity 12 % times weight
8
Inverted Monetary Conditions Index Japan (short
& long rates, exch. rate, equity prices, oil) vs IP
10
‐2
‐1.5
‐1
‐0.5 0 0.5 1 1.5 2
‐35
‐25
‐15
‐5 5 15 25
35 % MCI JAPAN Inverted & Led 12 Months vs IP % point
IP JAP
MCI JAP(RHS)
9
Components of JAPAN MCI: Bonds & Exchange rate Headwinds (Rise=Tightening, Fall=Easing)
11
‐3
‐2
‐1 0 1 2 3
Jan‐07 Jun‐07 Nov‐07 Apr‐08 Sep‐08 Feb‐09 Jul‐09 Dec‐09 May‐10 Oct‐10 Mar‐11 Aug‐11 Jan‐12 Jun‐12 Nov‐12 Apr‐13 Sep‐13 Feb‐14 Jul‐14 Dec‐14
3m rate 12m Change 10y Bond 12m Change
Exch Rate 12m % times weight Equity 12 % times weight
10
Distance to Default (3 Std. Dev.= Safe) : Risky EU Banks Rallying
12
‐25 0 25 50
‐1 0 1 2 3 4 5 6 7 8 9
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63 65 67
Stock Price (% 3M chg)
US Banks European Banks
DTD At September 30th, 2013
11
US & Europe T1 Capital Ratio: IFRS, GAAP & Basel Definitions
13
0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0
2005 2006 2007 2008 2009 2010 2011 2012 2013 Q3
%
US T1 Capital Ratio (GAAP) US T1 Capital Ratio (IFRS) 5% Regulatory Leverage Ratio Tier 1 Europe IFRS
12
European Large Bank Share Prices Lagging
14
0 0.2 0.4 0.6 0.8 1 1.2
Jan/07 Jun/07 Nov/07 Apr/08 Sep/08 Feb/09 Jul/09 Dec/09 May/10 Oct/10 Mar/11 Aug/11 Jan/12 Jun/12 Nov/12 Apr/13 Sep/13 Feb/14 Jul/14 Dec/14
STOXX DB UBS HSBC BCS CS
13
Mixed Picture for Smaller US Banks—and the Volcker Anomaly?
15
‐0.1 0.1 0.3 0.5 0.7 0.9 1.1 1.3 1.5
Jan/07 Jun/07 Nov/07 Apr/08 Sep/08 Feb/09 Jul/09 Dec/09 May/10 Oct/10 Mar/11 Aug/11 Jan/12 Jun/12 Nov/12 Apr/13 Sep/13 Feb/14 Jul/14 Dec/14
S&P Fifth Third M&T PNC US Bancor Suntrust Zion
14
