Global Market Update

4th September 2015

In case you didn't realize the global economy has been stumbling this year

Beware the global growth divergences

We have been talking about diverging growth prospects between economies and regions for some time. Another of the
key divergences is the gap between business confidence and consumer confidence.

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Emerging markets
China's official PMI lowest since 2012 as stimulus fails to gain traction. Chinese FX reserves may have dropped by as
much as $200B in the last few weeks of August, and outflows seem to be accelerating .

Export bellwethers Korea and Taiwan clearly suffering from the dearth in global trade, but tentative stabilization?

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If China devalues further - more disinflation & lower for longer rates.

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Now on to the US
While the financial media has fixated on the death cross, in which the 50-day moving average of an index falls below
the 200-day average, it can send false signals.
We prefer to plot markets over a much longer period -- often by weekly or monthly moves.
Watch 10-month and 20-month moving averages, pointing out that bear markets usually show a 10-month average
going under a 20-month during the early days of the plunge, as was the case in 2001 and 2008.
While the S&P 500 isnt quite there, its getting closer...

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Looking at the internals of Americas Augusts manufacturing report, the data was pretty weak. As shown in the table,
seven out of the ten subcomponents declined on a month/month basis, while nine out of ten declined on a y/y basis.
One notable aspect of the report was the fact that Export Orders fell to their lowest levels since May 2009. That is no
doubt due in large part to the strength in the dollar and weakness in international economies. On the flipside, while
exports are slowing, there has not been much in the way of growth in imports. The index for that component actually
fell to its lowest level since January 2013.

Crude Oil
The chart below shows the average absolute daily percentage change in crude oil over a rolling ten trading day period
since the beginning of 2008. Through Tuesday afternoon, the average daily move in WTI has been a gain or loss of 5%.
The last time the average daily move was this high was back in March 2009. Periods like this have been few and far
between.

APPENDIX 1

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Disclaimer
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