Investment Research — General Market Conditions

4 August 2010

Monitor
Global: Business Cycle Monitor
Summary and outlook
 Global leading indicators continued to decline in July showing further signs of slowing
growth in H2. Especially, China is coming to a halt but US indicators also point to a more Key leading indicators to watch
front-loaded slowdown. Europe has been the positive surprise with Germany looking
strong. Commodity prices have recovered somewhat but overall still point to a slowdown.
 German factory orders: Aug 5
The Baltic Dry index is slightly higher but overall still at a low level.  OECD lead. indicators: Aug 6
 Indicators suggest a more front-loaded slowdown than expected. This is probably a  German ZEW: Aug 17
consequence of the European debt crisis from spring and a stronger impact from Chinese  German ifo: Aug 17
tightening measures than previously expected.
 Euro flash PMI: Aug 25
 We expect a further gradual slowdown of leading indicators in H2 and there is a rising risk
that global growth could slip below potential growth towards the end of the year. This  US ISM / Global PMI: Sep 1
points to continued high market volatility and downward pressure on bond yields as
declining leading indicators will spur fears of a double-dip.

Details
 Global PMI new orders fell again in July to 54.0 from 55.7 in June. This was the third
consecutive decline. However, the figures still point to growth slightly above trend.

 In the US, ISM fell again in July to 55.5. Our ISM model points to a broadly flat reading in
the coming months and we expect it to reach 53-54 by year-end.

 Euroland delivered the only positive surprise as both PMI and the German ifo point to
robust growth. German factory orders also paint an upbeat picture. However, some of the
more forward-looking indicators could be a warning of slowing ahead. OECD’s leading
indicator, the PMI order-inventory balance and German ZEW have come well off the
peaks. Scandi leading indicators are slightly softer but generally point to decent growth
rates.
 Asia is showing signs of slowing growth. Chinese PMI has shown the biggest deterioration
with PMI new orders falling further below 50. Japanese industrial production has also
stagnated after several quarters of sharp increases. CEE indicators continue to indicate
strong growth rates, but some signs of slowdowns are also emerging. Activity in Brazil
has stagnated a bit as both PMI and industrial production are weakening.

Global PMI and OECD leading indicator PMI new orders manufacturing

Index USA Index 70

70
China
60 60

50 50
Euroland
40 40

30 30 Chief Analyst
Allan von Mehren
20 20
+45 45 12 80 55
00 02 04 06 08 10 alvo@danskebank.dk

Source: Markit and Reuters Ecowin Source: Markit and Reuters Ecowin

Note: OECD+6 is OECD plus 6 largest emerging markets

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Monitor

US
Danske Markets’ ISM model Order-inventory balance vs. ISM
65 Index Index 65 75 Index Index 75
ISM manufacturing
60 60 70 70
65 65
55 55
60 60
50 50 55 55
ISM
45 45 50 50
45 45
40 40
Model +6months (1987-present) 40 40
35 35 ISM new orders less
35 35
inventories, standardized
30 30 30 30
98 99 00 01 02 03 04 05 06 07 08 09 10 11 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

Source: Reuters Ecowin Source: Reuters Ecowin

Inventory demand ratio vs. ISM Leading indicator vs. manufacturing production
15 3 mth chg., % AR Index 80 20 % m/m, AR 20
3 mth growth, AR %
15 << OECD leading indicator, USA, 2 mths lead 15
10 << Danske Bank US 70
inventory - demand ratio 2MA, 2m lead 10 10
5 5
5 60
0 0
0 50 -5 -5
-10 -10
-5 40 -15 -15
ISM >> -20 Manufacturing pro- -20
duction, 3 mth avg. >>
-10 30 -25 -25
98 99 00 01 02 03 04 05 06 07 08 09 10 98 99 00 01 02 03 04 05 06 07 08 09 10

Source: Reuters Ecowin Source: Reuters Ecowin

Eurozone
Eurozone: Ifo expectations vs GDP PMI New orders vs. inventories balance

Source: Reuters Ecowin Source: Markit and Reuters Ecowin

Germany: ZEW vs. Ifo expectations Germany: Industrial orders vs. OECD leading indicator

Source: Reuters Ecowin Source: Reuters Ecowin

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UK and Switzerland
UK: PMI on sectors UK: Industrial orders vs. leading indicators
4 Standardised 4 20 % 1m, AR
Standardised Net bal 25
3 3 15
2 UK PMI manufacturing 2 10
CBI industrial orders >> 13
1 1 0
5
0 0 -13
0
-1 -1 -25
-2 -2 -5 -38
-3 UK PMI service -3 -10 -50
US ISM, new ord << OECD leading indicator, UK
-4 -4 -15 5 mths lead -63
-5 -5 -20 -75
98 99 00 01 02 03 04 05 06 07 08 09 10 98 99 00 01 02 03 04 05 06 07 08 09 10

Source: Markit and Reuters Ecowin Source: Reuters Ecowin

Switzerland: KOF vs. GDP Switzerland: OECD leading indicator vs. industrial production

Index 6 105.0 Index % y/y 15

3 % y/y Industrial production >>
<< KOF (3m lead) 5
102.5 10
4
2
3 100.0 5
1 2
97.5 0
1
0 0 95.0 -5
GDP >>
-1 -1
92.5 -10
-2
<< OECD leading indicator, Switz.
-2 -3 90.0 -15
98 99 00 01 02 03 04 05 06 07 08 09 10 98 99 00 01 02 03 04 05 06 07 08 09 10

Source: Reuters Ecowin Source: Reuters Ecowin

Scandinavia
Denmark: Manufacturing confidence vs GDP Denmark: Confidence indicators

Source: Reuters Ecowin Source: Reuters Ecowin

Norway: PMI vs industrial production Norway: Manufacturing production vs. confidence

Source: Markit and Reuters Ecowin Source: Reuters Ecowin

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Sweden: IP vs business surveys Sweden: Leading indicator vs. activity index

3 Standardised 10 25 Index 12.5
% 6m/6m, AR % y/y
5
1 15 Activity index >> 7.5
0
-5 5
-1 2.5
-10
<< NIER Business survey -5
-15
-3 -2.5
<< Manufacturing PMI -20 -15 << OECD leading indicator, Sweden
-5 -25 2 mths lead -7.5
-25
IP ex energy >> -30
-7 -35 -35 -12.5
00 01 02 03 04 05 06 07 08 09 10 98 99 00 01 02 03 04 05 06 07 08 09 10

Source: Markit and Reuters Ecowin Source: Reuters Ecowin

Finland: Confidence indicators vs industrial production Finland: Leading indicators vs. industrial production

Net bal % 6m chng 25 20.0 % m/m AR % 6m chng 25

30 << Manufacturing sector Industrial production >>
15.0
15 15
10 10.0
5 5.0 5
-10
-5 0.0 -5
-30
-5.0
<< Construction sector -15 -15
-50 -10.0 << OECD leading indicators
Industrial production >>
5mth lag
-70 -25 -15.0 -25
00 01 02 03 04 05 06 07 08 09 10 00 01 02 03 04 05 06 07 08 09 10

Source: Reuters Ecowin Source: Reuters Ecowin

CEE/CIS
CEE: Manufacturing PMI orders CEE: Industrial production
70 Index 70 30 % y/y (3MA) 30
Index Poland % y/y (3MA)
60 60 20 20
10 10
50 50
Hungary 0 0
40 40 Czech Republic
-10 -10
Poland
30 30 -20 -20
Czech Republic Hungary
20 20 -30 -30
00 01 02 03 04 05 06 07 08 09 10 98 99 00 01 02 03 04 05 06 07 08 09 10

Source: Markit and Reuters Ecowin Source: Reuters Ecowin

Russia: PMI vs. industrial production Ukraine: Industrial production

70 Index 20 30 % y/y 30
% y/y Industrial production % y/y
65 Industrial production, Russia >> 15 20 20
60 10
10 10
55 5
50 0 0 0
45 -5 -10 -10
40 << PMI new orders, manufacturing Russia -10
-20 -20
35 -15
30 -20 -30 -30
25 -25 -40 -40
98 99 00 01 02 03 04 05 06 07 08 09 10 02 03 04 05 06 07 08 09 10

Source: Markit and Reuters Ecowin Source: Reuters Ecowin

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China
Industrial production vs. PMI Leading indicator vs. industrial production
106 Index Industrial production>> % y/y 25.0

104 20.0

102 15.0

100 10.0

98 5.0
<<Leading indicator
96 0.0
00 01 02 03 04 05 06 07 08 09 10

Source: Markit and Reuters Ecowin Source: Reuters Ecowin

Inventories Industrial production and real export

Source: Markit and Reuters Ecowin Source: Markit and Reuters Ecowin

Japan
PMI vs. industrial production Reuters Tankan vs. Industrial production

Source: Markit and Reuters Ecowin Source: Reuters Ecowin

OECD leading indicators vs. industrial production Inventories

Source: Reuters Ecowin Source: Reuters Ecowin

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Other Asia
Asia: Industrial production South Korea: Industrial production vs. exports

28 % y/y Index 65.0 12.5 % 3m/3m % 3m/3m 40

23 << Industrial production
60.0 7.5 20
<< IP Emerging Asia
18
2.5
13 55.0 0
-2.5
8 50.0 Exports >> -20
3 -7.5
45.0 -12.5 -40
-3
PMI Emerging Asia >>
-8 40.0 -17.5 -60
00 01 02 03 04 05 06 07 08 09 10 00 01 02 03 04 05 06 07 08 09 10

Source: Reuters Ecowin Source: Reuters Ecowin

Taiwan: Industrial production vs. exports Thailand: Industrial production and export
20 % 3m/3m % 3m/3m 20 Jan. 2006 = 100
140 140
10 10 Exports
130 130
0 0
120 120
-10 -10 110 110
Exports
-20 -20 Industrial production
100 100
Industrial production
-30 -30 90 90
00 01 02 03 04 05 06 07 08 09 10 06 07 08 09 10

Source: Reuters Ecowin Source: Reuters Ecowin

LATAM and Commodities

Brazil: Industrial production Mexico: Industrial production vs. PMI

Source: Reuters Ecowin Source: Reuters Ecowin

Baltic Dry freight index and metal prices CRB metals vs. industrial production

Source: Reuters Ecowin Source: Reuters Ecowin

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Disclosure
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