/// 28 October 2011 /// 11-38
Summary
It was high time
Major achievements
Last-minute agreement Markets relief Euro and stock markets surge
European leaders agreed on a threefold package to solve the debt crisis in the euro zone. ¾ Overview, page 2
The week in the US ¾ Page 4
The week in the Eurozone ¾ Page 5
Pension systems affected by the crisis Following the deterioration in public finances, governments are likely to reduce the generosity of the PAYG systems. ¾ Focus, page 7
Economic indicators ¾ Page 13
Market overview ¾ Page 15
Also in
The eurozone's seventeen member states managed to reach a last-minute agreement in the early hours of Thursday morning that aims to resolve the sovereign debt crisis (see Overview). Most importantly, they have come up with a comprehensive package that operates on several levels. First, it increases the clout of the EFSF bailout fund. Second, European banks accepted a 50% haircut on their portfolios of Greek debt securities. Third, the banks will strengthen their equity capital to bring the capital adequacy ratio to 9% by 2012. Fourth, Italy has pledged before its European partners to undergo another round of budget austerity. The financial markets welcomed this comprehensive agreement, which is seen as another step towards further integration of the eurozone. The European equity markets rallied jubilantly Thursday morning (Euro Stoxx 600 up +3.6%), while the EUR traded at 1.4247 against the USD, its highest level since the beginning of September. Yet there is still more work ahead for the European leaders. They have not yet decided on the terms for strengthening the leverage of the EFSF. The emerging countries and the IMF could be solicited for aid at the Cannes G-20 summit on 3 and 4 November. Stay tuned…
10-YEAR YIELD SPREAD BUND-OAT 1,40 1,20 1,00
0,97
0,80 0,60 0,40 0,20 0,00 01-11 03-11 05-11 07-11 09-11
27-oct.
Source : Thomson Datastream
THE WEEK ON THE MARKETS Week 24-10 11 > 27-10-11 À CAC 40 À S&P 500 Â Volatility (VIX) À Euribor 3m (%) À Libor $ 3m (%) Â OAT 10y (%) À Bund 10y (%) À US Tr. 10y (%) À Euro vs dollar À Gold (ounce, $) À Oil (Brent, $)
3 171 1 238 31.3 1.59 0.42 3.26 2.05 2.20 1.39 1 636 113.0
` ` ` ` ` ` ` ` ` ` `
3 369 1 285 25.5 1.59 0.43 3.13 2.16 2.39 1.41 1 729 114.0
+6.2 +3.7 -5.9 +0.5 +1.0 -12.9 +11.2 +19.2 +1.8 +5.7 +0.9
% % % bp bp bp bp bp % % %
economic-research.bnpparibas.com
Delphine Cavalier - Frédérique Cerisier Thibault Mercier
28 October 2011 – 11-38
Overview Major achievements On Thursday, 27 October 2011, the heads of state and government of the eurozone managed to reach a comprehensive agreement. The broad outlines of the new rescue package are presented below. On the whole, the agreement makes real progress, notably concerning the sustainability of Greek debt and the lifting of uncertainty about the situation in the banking sector. Yet several points remain unanswered and will have to be clarified in the weeks ahead.
Sustainable at last?
Greece, 10-year projection of the public debt/GDP ratio ─ 21 July agreement; ▬ 26 October agreement 200%
160%
1. Write down of part of Greek debt
140%
The heads of state and government of the eurozone reached an agreement to grant a new €100bn loan to Greece. This second emergency package, after the €110bn in loans approved in May 2010, should enable the Greek government to cover its financing needs through 2014 and to recapitalise the country's banks. As in May 2010, the IMF was asked to participate in this second bailout. At the same time, private investors in Greek bonds were invited to participate in a voluntary bond exchange in early 2012 that includes a 50% discount on the face value of the debt securities. According to the IMF's September forecast, the stock of Greek public debt will amount to €366bn at the end of 2011. Of this total, €78bn were issued as part of the first EU-IMF bailout in May 2010 (assuming the 7th tranche is paid out in December), €15bn are in very short-term instruments (less than a year) and we are assuming that the ECB holds €50bn in bonds acquired under the Securities Market Programme (SMP). This would bring the stock of debt held by the private sector, and potentially eligible for the debt swap, to €223bn (€366bn-€78bn-€15bn-€50bn). Assuming the participation rate is 90%, €200bn in Greek sovereign debt would be exchanged for new bonds with a nominal value of €100bn. According to the official statement, the euro zone member states will accompany the private sector's effort by providing €30bn in guaranties. We assume Greece would use this €30bn to purchase 30-year, zero coupon, AAA bonds to guarantee the face value of the swapped bonds. Assuming the 30-year AAA bonds offered a yield of 3.8%, the €30bn purchased today would be worth around €100bn in thirty years. Whether or not the guarantees are included in the €100bn package is not explicitly stated. Assuming it is additional financing, the total amount of public aid for Greece would come to €130bn.
21/07 summit
180%
27/10 summit
120% 100% 2012
2014
Chart 1
2016
2018
2020
Sources: IMF, BNPP
Lastly, assuming the IMF participates in the second bailout to the same proportion as the first (30%) but does not participate in the financing of guarantees, the EFSF bailout fund would be left covering €100bn (70%*€100bn+€30bn). The goal of the new rescue plan is to improve the sustainability of Greek public finances, which was patently lacking from the first bailout. From this perspective, the participation of the private sector is essential because the haircut included in the bond exchange immediately reduces Greece's public debt ratio. Assuming that €200bn in Greek government bonds held by private investors are brought to the bond swap, the gross reduction in the stock of debt would be €100bn. Yet collateralisation of the new bonds would create an additional financing need for the Greek government of €30bn. All in all, the net reduction in the stock of Greek debt would be €70bn, or about 30% of GDP. All other factors being equal, the public debt ratio would drop from 182% of GDP to 152% in 2012. By 2020, it would fall back to 120% of GDP under the bond exchange proposed on 26 October, compared to 152% of GDP under the 21 July proposal.
2. Reinforcing the capital of banks The European Banking Authority (EBA) estimates that additional capital of €106.5bn1 will be needed by the main European banks to reach a Core Tier 1 ratio of 9%, after taking into account all of their exposure to European sovereign debt at market price (at 30 September 2011). 1
The definitive figure will be released in November to take into account the amount of capital and exposure at 30 September.
2
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Delphine Cavalier - Frédérique Cerisier Thibault Mercier
The countries with the biggest needs are Greece (€30bn), Spain (€26bn) and Italy (over €14bn). The capital needs of the four main French banks are estimated at €8.8bn. The EBA is asking banks to meet this quantitative capital target by 30 June 2012 and to present their plans for reaching this goal by the end of 2011. In cooperation with the national supervisory authorities, the EBA will make sure the increase in solvency ratios will not pose a constraint on the financing of the economy. For capital increases, priority must be given to private sources of capital, and next to national governments, if necessary. The EFSF should be seen as a lender of last resort.
3. Leverage The heads of state also pledged to increase the EFSF's lending capacity to finance ailing states, but without extending the guarantees provided by the euro zone member states, and consequently, the fund's debt capacity (€440bn, of which about €250bn is still available). In addition to direct loans set up so far to help Ireland and Portugal, and which will probably be extended to Greece soon (see box), two other intervention options are now available as well. Option 1: Credit enhancement. The purpose is to facilitate the financing of a country that has access to market financing, albeit at excessively high rates. The EFSF would provide a partial guarantee to investors subscribing to new bond issues by the member state, which should increase demand for these securities and help lower yields. Option 2: Creation of one or more Special Purpose Investment Vehicles. The EFSF would be an investor alongside other public and private players (see box). The SPIV could make loans to an ailing state, notably to finance the recapitalisation of the banking sector, or purchase part of its debt on the primary or secondary markets. At this point, it remains to be seen just how willing the potential investors (IMF, sovereign funds, etc.) will be to join forces with the EFSF. These two new intervention options would clearly leverage the amount of financing offered to ailing states over and above the sums committed by the EFS. It is impossible to estimate the exact amount of leverage without more precise information on the partial guarantee rate (option 1) and the exact structure of the special purpose investment vehicle (option 2). The official statement estimates the leverage effect on the EFSF at about 4 or 5 fold.
3
28 October 2011 – 11-38
Extending the EFSF: the general idea Alongside the official statement, a working document provides a more precise idea of the way in which the EFSF could operate in the future without modifying its current structure. Option 1 (credit enhancement): The member state would issue bonds with a certificate of guarantee. In case of partial default, the investor would receive securities issued by the EFSF for the amount of the loss or the maximum amount of the fixed guarantee. The EFSF would issue these securities at the same time as the debt issue, and they would be purchased and held by the member state concerned via a loan granted by the EFSF. Given the EFSF's residual financing capacity (about €250bn) the total amount of debt that could be covered by this partial guarantee is estimated at €1,000bn, which implies leverage of four (see diagram below). To date, we still do not know the exact amount of the partial guarantee, so these figures are approximate. OPTION 1 (EUR bn) EFSF Loans to States
250
250
Bonds
STATES Funding needs EFSF bonds
1000 250
750
Unguaranteed debt
250 250
Guaranteed debt SPV EFSF loans
Option 2 (Special Purpose Investment Vehicle): SPIV financing would be structured in such a way that the funds contributed by the EFSF would be the first loss in case of partial default. Securities in the second tranche could be underwritten by long-term investors such as sovereign funds and venture capital funds (see diagram below). The least risky senior tranche would comprise more liquid shares; which are likely to interest a broad panel of investors. OPTION 2 (EUR bn) EFSF SPIV funding
250
250
Bonds
SPIV Senior Loans to States
1000
Mezzanine 250
Institutional investors Sovereign Wealth Funds Risk capital investor EFSF
In both options, leverage is obtained at the cost of a major increase in the risk profile of EFSF investments, since in both cases, the bailout fund would have to absorb the first losses following partial default by the country receiving assistance.
economic-research.bnpparibas.com
Alexandra Estiot
28 October 2011 – 11-38
The week in the US Decent growth, at last! Now, it’s unquestionable: the US economy did not double-dipped, since GDP actually accelerated in the third quarter, posting the highest rate of growth for 2011. After sluggish growth over the first half of the year (+0.4% in Q1 and +1.3% in Q2, on a quarterly annualised basis), GDP grew by 2.5% in Q3. The public sector kept on weighing down on overall demand, with government spending flat over the quarter. Government demand has been cutting overall GDP growth for a full year, now. Since it peaked, in 2010 Q3, public spending lost 2.4%, subtracting 0.6 points to overall GDP growth. This is to continue: while the budget consolidation process is still ongoing at the state and loc al levels of government, it will start as next year for the federal government. Additionally, the impact is way larger than the direct one on GDP figures. Since the summer of 2008, government (federal, state and local) payrolls have been cut by 1 114 000 employees: this represents 22% of the total decline in the US employment over the period. The government directly contributed to the decline in households’ labour income, even it was partly offset with a rise in benefits. With real disposable income constrained by a depressed labour market and rising commodity prices, in a context of deleveraging, households’ demand cannot be buoyant. It however held up quite well in Q3, with a 2.4% increase in consumption and even a small increase in residential investment (+2.4%). The main source of strength was thus in business spending and exports. Non-residential investment grew by an annualised 16.3%, spending on equipment and software being a particularly bright sport, at +17.4%. As for exports, they gained an annualised 4.0% in Q3, highlighting the continuous improvement of the US external competitiveness, achieved through a massive drop in unit labour costs, and helped by a declining dollar. The strengths within the Q3 GDP report are unquestionable. Even if, put together, the business and the external sectors represent only a small part of overall demand (23%, against 73% for households), they can feed a self-sustained recovery. For this to happen, the US economy “just” needs the households sector to hold up a little longer. Federal money would help… November is to be a decisive month, and everything will be decided in Washington D.C.. From the Congress, we wait for two things: the recommendations from the bi-partisan super committee on deficit reduction (before November 23rd) and the adoption of, at least, some parts of the American Jobs Act. From the Federal Reserve, we wait for some announcements next week, after the two-day meeting of the FOMC. Numerous Fed officials have been giving speeches recently. The split between doves and hawks is as marked as ever. However, some kind of consensus has been building up about the necessary 4
Still not fast, but way faster The US economy slowly accelerates
▌NBER-dated recession ; ─ GDP growth, q/q, saar, % 10.0 5.0 0.0 -5.0 -10.0 80
Chart 1
90
00
10
Source : US Department of Commerce and NBER.
Some spends, some saves GDP growth and its components % increase q/q, saar GDP Final Domestic Demand Private consumption Government spending Fixed Investment Residential Non residential Equipment & Software Structures Change in inventories (contrib.) Net exports (contrib.) Exports Imports
Table 1
2011Q3 2011Q2 2011Q1 2.5 1.3 0.4 3.2 1.4 0.3 2.4 0.7 2.1 0.0 -0.9 -5.9 13.7 9.2 1.2 2.4 4.2 -2.5 16.3 10.3 2.1 17.4 6.3 8.7 13.3 22.6 -14.4 -1.0 -0.3 0.3 0.2 0.2 -0.3 4.0 3.6 7.9 1.9 1.4 8.3
Source : US Department of Commerce
improvement of the Fed’s communication. If FOMC members will definitely announce something next Wednesday, we just hope it will not be a target for unemployment rate, even a medium-term one. Our view remains that, as the relationship between inflation and unemployment is not stable over time, monetary policy cannot target both. When the unemployment rate is structurally up, monetary policy cannot lower it even at the expense of a speed-up in inflation. Adopting such a dual target would undoubtedly end up with a loss of credibility, the very first asset of any central bank.
economic-research.bnpparibas.com
Clemente De Lucia
28 October 2011 – 11-38
The week in the eurozone ECB re-starts special LTRO – Italy still under pressure ECB actions
ECB liquidity injections to ease tensions
On 26 October, the ECB conducted its first special Longer Term Refinancing Operation (LTRO) with 1-year maturity, allotting €57bn. This will be followed by a second, final special LTRO with 13-month maturity in December. On 26 October, the ECB also conducted a regular 3-month LTRO, rolling over €44.6bn out of €85bn that matured on the same date. Consequently, half of the liquidity was rolled over into the 12-month LTRO. These operations further increased excess liquidity (liquidity provided by open market operations minus reserve requirements and autonomous factors). The market probably expected higher demand for liquidity at the 12-month LTRO. Demand may have been limited to some extent by expectations of lower interest rates. Consequently, we expect demand to be higher at the December special tender operation. The ECB decided to re-introduce these non-standard lending measures earlier this month in response to the significant rise in money market tensions, even though they never reached the stress levels observed after the collapse of Lehman Brothers. Since the ECB is still conducting all its regular refinancing operations with full allotment at fixed rate (1 week, 1 month and 3 month), there was not much pressure at the very short end. For longer maturities, however, conditions were much worse. Before the 12-month LTRO, the average duration of ECB liquidity was just 36 days. It now averages more than 70 days, and will rise even further after December's 13-month LTRO. This should help substantially reduce tensions at longer maturities. As a result, OIS/BOR spreads should narrow. Concerning the more controversial Securities Markets Program (SMP), the ECB recently scaled down its interventions on the secondary market. In August, after the Spanish and Italian authorities reassuringly expressed their intentions to consolidate their public finances, the ECB intervened massively on the market. Over the past two weeks, it has purchased an average of around €3bn in debt securities per week, compared with an average of about €14bn between mid August and September. The ECB is probably seeking greater reassurances that governments, namely Italy, are determined to implement previously adopted measures to consolidate public finances and stimulate growth. The message is clear: if a country takes action, the ECB is ready to help by buying debt securities, which should reduce interest rates. First, however, the ECB wants to see concrete action. As to standard monetary policy measures, i.e., interest rates, the ECB has some, albeit limited, room to manoeuvre. Its key refinancing rate, the refi rate, is at 1.5%, well above the key policy rates of other major central banks. Fears about the ability of some 5
OIS/BOR spreads
OIS/BOR 6 Months OIS/BOR 12 Months
OIS/BOR 3 Months
2,50 2,25 2,00 1,75 1,50 1,25 1,00 0,75 0,50 0,25 0,00 06
07
Chart 1
08
09
10
11
Source: Reuters EcoWin, Pro
countries to service their debts have created a vicious circle that is affecting the real economy. Survey data released during the week show that economic conditions deteriorated significantly this autumn. The Composite PMI for activity declined for the second consecutive month to 47.2 in October, the lowest level since July 2009, and well below 50, the level separating expansion from contraction. Unusually high uncertainty combined with tighter financial and monetary conditions is weighing on business activity. The eurozone economy needs a significant shock to snap business leaders and the markets out of a self-fulfilling pessimistic spiral and to restore confidence. Only bold action by policy makers is likely to suffice. Measures adopted by EU leaders on 26/27 October go in the right directions. Markets so far have positively reacted Survey data suggest that weaker growth prospects and lower commodity prices are reducing prices pressures. Inflation expectations have also moderated. All the necessary conditions seem to have come together for an easing of monetary policy. Under this environment, we expect the ECB to lower the refi rate to 1% by year-end.
Pressures on Italy All of the major rating agencies recently downgraded Italy's sovereign credit rating. These downgrades, combined with the recent intensification of financial distress, have raised fears about the country's ability to control its public debt trajectory at a time of high uncertainty and acute financial tensions. Over the summer,
economic-research.bnpparibas.com
Clemente De Lucia
when greater financial distress pushed Italian government bond yields significantly higher, the government decided to take further actions to consolidate its public finances. On 14 September, the cabinet adopted fiscal measures totalling EUR 60bn (3.6% of GDP) over the next three years. These measures will strengthen Italy's public finances by reducing the deficit to 1.6% of GDP next year (from around 4% this year). According to the government, Italy would balance its budget by 2013. On the revenue side, these measures include a VAT increase and a solidarity tax on the wealthiest households. On the expenditures side, the government decided to cut central government spending and to reform the tax and welfare systems, which should produce significant savings over the next four years. Measures were also adopted to reform the pension system. In particular, the retirement age for women working in the private sector will be gradually increased from 60 to 65 years. Fears about the ability of some countries to service their debts have created a vicious circle that is affecting the real economy. As the third largest economy in the eurozone, with one of the world's largest stocks of debt, Italy is a major source of concern for the markets. EU leaders are working on a comprehensive solution to solve the Greek debt problem, enhance the powers of the EFSF and create firewalls against contagion risks in the other eurozone economies. As Italy is under particular pressure, EU leaders asked the Italian government to provide a more precise timetable for implementing the adopted measures and to take further actions to strengthen the consolidation of public finances and to boost growth. Restoring market confidence is indeed the best way to stop contagion risks. The Italian government responded to the EU leaders by reaffirming its intention to implement all the previously adopted measures. It also decided to take further actions to reduce expenditures and increase revenues. In particular, to improve the sustainability of the pension system, the retirement age for both men and women will be raised to 67 years. The government will also sell assets totalling about €5bn a year over the next three years. It will steadily reduce the number of civil servants by reducing the number of parliamentarians and abolishing redundant local authorities.
to reduce its debt burden, it could use these resources more efficiently, stimulating growth-oriented investment rather than paying interest to bondholders.
Italian public finances are sustainable… Government assumption under the new austerity measures Debt ratio* Primary balance* Debt services* Total balance* Real GDP growth GDP deflator %, y/y Nominal GDP % y/y Implied interest rate % Note: *% of GDP
Table 1
2010 119,0 -0,1 4,5 -4,6 1,3 0,6 1,9 3,9
2011 120,5 0,9 4,8 -3,9 0,7 1,4 2,1 4,0
2012 119,1 3,7 5,3 -1,6 0,6 1,9 2,5 4,4
2013 116,1 5,4 5,5 -0,1 0,9 1,8 2,7 4,6
2014 112,5 5,7 5,5 0,2 1,2 1,8 3,0 4,7
Source: Ministry of Economy and Finance
Italy suffers from sluggish growth prospects. International organizations, such as the OECD and the European Commission, estimate Italy's real potential output growth rate between 0.5% and 0.3%. Structural reforms need to be made to boost employment, enhance competitiveness and deregulate services. The government has reassured its European peers that it will take action. In particular, the government listed several actions to promote and encourage jobs for young workers and women, to further deregulate local public services and professional services, and to reform the judicial system to reduce the length of legal disputes. Italy is also determined to reform collective wage bargaining by revising the regulations for hiring and firing workers. The new rules will also include dismissal of workers with permanent contracts for economic reasons. The Italian authorities have pledged to undertake all these measures according to a precise and binding timetable. According to government assumptions, the debt ratio should gradually decrease to 112.5% of GDP in 2014, after peaking at over 120% this year. Using less favourable assumptions for the deficit and growth, the debt ratio would also decrease as of 2012. EU leaders welcomed Italy's commitment to reducing its debt and adopting structural reforms.
It is worth stressing, however, that Italian debt dynamics are on a sustainable path, at least in the short term. To stabilise its debt (i.e. to keep the debt-to-GDP ratio at the same level as the previous year), Italy needs to make much smaller fiscal efforts than those needed by other countries within the eurozone. Yet this is not the optimal solution. If Italy were simply to stabilise its debt, the markets would probably lose confidence, pushing interest rates even higher. This risks seriously jeopardising Italy's debt sustainability. Given Italy's high debt stock, debt sustainability is highly sensitive to interest rate trends, even though the impact is partly offset by the relatively long average maturity of its debt (more than 7 years). Clearly, Italy must reduce its debt burden. High debt servicing costs undermine Italy's growth potential. If the country managed 6
28 October 2011 – 11-38
economic-research.bnpparibas.com
Raymond Van der Putten
28 October 2011 – 11-38
Focus Pension systems affected by the crisis Pension fund returns
The financial crisis has put pressure on pension arrangements in the OECD.
Average annual return in selected OECD countries, 2008-2010
Germany
Following the deterioration in public finances, governments are likely to reduce the generosity of the PAYG systems.
Netherlands Italy
Due to disappointing returns, the funding ratio of defined benefit schemes have fallen, which will weigh on the profitability of the sponsoring firms. These schemes are gradually phased out, and replaced by defined contribution schemes.
Canada Weighted average United States Spain
Australia
Pensioners’ incomes have become riskier. Governments have an important role to play in reducing these risks.
-10
-6
-4
-2
0
Chart 1
The increase in longevity and the financial crisis have put pressure on pension arrangements in the OECD. To deal with the longevity problem, many countries have increased the statutory retirement age. In this article, we will deal mainly with the problems ensuing from the financial crisis. The deterioration of government finances will make it more difficult for government to maintain the public pay-as-you-go (PAYG). Indeed, some countries such as Greece have already drastically reduced the generosity of the pension system. Also, the private pension systems have not remained unscathed. Assets values declined substantially in the 2008 downturn. Despite the rebound in 2009 and 2010, real pension returns amounted to -1.4% over the 2008-2010 (cf. Chart 1). The recent turmoil in financial markets has once more weakened the position of the pension funds.
The impact of the crisis Economic down turns are characterised by some stylised facts. In every economic downturn, employment growth slows or even declines. This will directly reduce the tax base and hence reduce social securities. As profits decline, equity prices are likely to fall (cf. Chart 2). The loosening of monetary policy in the OECD economies have has led to higher prices for bond holdings. However, lower interest rates are raising liabilities of defined benefit schemes and the costs of annuities. These stylized facts will affect pension systems and the way risks are distributed in different ways.
7
-8
2
4
Source: OECD
Stock markets have plummeted %, y/y
─ DJ Eurostoxx ; ▬ MSCI World; ▬ S&P 500 80 60 40 20 0 -20 -40 -60 01-08
07-08
01-09
Chart 2
07-09
01-10
07-10
01-11
07-11
Source: Global Insight
Uncertain outlook for unfunded defined benefit schemes… In the OECD countries, public pension systems are predominantly of the PAYG type. In these arrangements, benefits paid directly from current workers' contributions and taxes. The decline in the tax base means that contributions have to go up to make up for the shortfall in pension contributions. Moreover, tax transfers to the social security might have to be increase, in which case the costs are shared between taxpayers.
economic-research.bnpparibas.com
Raymond Van der Putten
In the latest recession, governments have in general opted for letting the automatic stabilisers work, in order not to deepen the downturn. However, this option is limited to the extent that financial markets could fear that the public sector indebtedness becomes unsustainable. Countries that have partly pre-financed their retirement system such as the US and Finland are in a more favourable situation, as they are able to run down their reserve fund before raising conditions. In first instance, pensioners are not affected. However, to limit the financial deficit, governments could decide to make the pension system less generous. In the past recession, this was done by not fully correcting benefits for price increases. As part of the getting the country” public finances back into health, the Greek government took even more drastic action such as lengthening the working history to be eligible to 40 year, instead of the previous 37; (ii) freeze pension benefits until 2012 and linking them afterwards to GDP fluctuations (iiii) reduce Easter, Christmas and summer bonuses.
…and cuts in notional defined contribution schemes To improve the sustainability of the pension system, some European countries (Sweden, Italy, Poland and Latvia) have transformed their traditional PAYG system in a notional defined contribution schemes. In this system, workers pay contributions in notional personal pension accounts, which are remunerated by a notional rate of return related to the growth in average earnings. Despite its complexities, the advantage of the scheme is that the system is actuarial fair, i.e. benefits are directly linked to contributions. In Sweden, the notional contribution amounts to 16% of payroll.1 On retirement, the notional account is converted in an annuity. In the Swedish case, pension benefits are indexed each year by wage growth less 1.6%, the latter factor representing the longterm growth rate of real wages. The pension fund assets consist of the capitalised sum of contributions and the system’s reserves, the so-called buffer fund. This fund has a long investment horizon and a large part of its assets are invested in equities.
28 October 2011 – 11-38
When the Balance Ratio falls below 1, a “brake” is automatically applied. This was done to avoid political decisions to restore financial balance. In 2008, as a result of the sharp fall in equity prices, the Swedish buffer funds experienced a negative return of 21.6%. This would imply a sharp reduction of benefits by 4.2%. The government decided that, instead of using the market value of the buffer funds, a three-year average should be used to value the funds. This reduced the indexation cut in 2009, with the drawback of making the reduction lasting for a longer period. A second response was to reduce taxes for people aged 65 and older. This maintained benefits for those receiving the lowest income-linked pensions.
The gradual disappearance of defined benefit schemes During an economic downturn, pension fund assets will decline, in particular for those funds that are heavily invested in equities. This will only be partly compensated by a rising prices for bonds due to the decline in interest rates. In a defined benefit system, this decline in interest rates will increase the present value of liabilities. Depending on the pension fund reserves, this could result in substantial funding gaps (= difference between assets and liabilities) in the defined benefit schemes. To fill the funding gap, pension contributions have to increase, or the sponsoring firm must make a one-off transfer to the pension fund. As pension funds can be rather large compared to the sponsoring firm, they have become a substantial burden for the sponsor firm. For example, General Motors is running the US’ largest private pension fund. Some have called the company “a hedge fund in disguise”.2 In April, the pension fund disclosed that its plans were underfunded by more than USD 27 billion. Companies in the US and the UK have been closing down these schemes for new members. This process has been accelerated by the introduction of the new accounting regulations, which obliged sponsoring firms to integrate the pension fund in their consolidated balance sheet. New employees have been offered less favourable defined contribution pensions (cf. Chart 3). In the UK, only 18% of the almost 7000 DB schemes were open, with 58% closed to new members and 21% to future accrual. In 2006. still 43% of the schemes were open for new members.
The stability of the system is measured by the balance ratio (BR): BR = (Buffer Fund + Contribution assets)/Pension Liabilities
1
In addition, Swedish workers pay 2.5% of payroll in a funded pension system.
8
2
Tony Jackson, Financial Times, 22 August 2010.
economic-research.bnpparibas.com
Raymond Van der Putten
In the US, financial asset holdings of private defined benefit funds declined by 28.6% in 2008, before staging a recovery: in 2009 (+14%) and 2010 (+7.5%). By mid 2011, these assets were still almost 11% lower than at their peak in 2008. This modest recovery might also reflect the continuing shift towards defined contribution plans.
US: The gradual disappearance of DB schemes assets, billion dollars
─ Defined benefits; ▬ defined contributions 4500
According to the consultancy firm Mercer, the financial position of private final salary funds seriously deteriorated in Q3 2011. It estimates that the aggregate deficit of the pension plans of the SP1500 companies increased to USD 512 billion by the end of September. The aggregate assets amounted to USD 1300 billion. The funding ratio -- assets/liabilities 72% -- was the lowest since World War II.
4000
This situation is likely to weigh on the profitability of the US companies operating DB schemes. The US Society of Actuaries expects that employers’ contributions will increase significantly over the next five years.3 This could make companies to decide to freeze their plans and leave the voluntary DB system.
500
In case of bankruptcy, the PBGC will take over the assets from the failed companies.4 Most of these plans are severely underfunded, in which case, the plans’ participants are likely to receive much less than they are expecting. The PBGC’s exposure to underfunded plans has sharply risen in recent years. In its latest annual report for FY2010, the PBGC estimates its exposure to losses in its single-employers scheme at USD 170 billion. More than 50% of these losses are concentrated in the manufacturing sector, primarily automobile/ auto parts and primary & fabricated metals. The exposure to the multi-employer scheme increased to USD 20 billion, due primarily to the addition of two large plans. The situation is even worst for the States’ public pension systems (cf. Chart 4). In FY2009, they reported an average funding rate of 78%. But this is probably much too optimistic, as the states discount their liabilities by an assumed rate of return on assets of around 8%. This looks much too optimistic in current market conditions. Using the Treasury yield curve, Novy-Marx and Rauh estimate that total liabilities could increase to USD 4 100 billion, of which USD 2 490 billion unfunded.5 The authors calculate that, with unchanged pension policies, contributions to these systems have to be increased immediately by a factor of 2.5, representing a tax increase of USD 1 398 per household on average.6 In the five most indebted states, the require tax raises could cost the
28 October 2011 – 11-38
3500 3000 2500 2000 1500 1000 0 90
92
94
96
00
02
04
Chart 3
06
08
10
Source: Federal Reserve
US: Underfunding of the State pension systems Deficit in billion dollars, assuming different discount rates ▌Current assumptions; ▌8%; ▌5.22%; ▌4.38% 0 -500 -1000
-659
-638
-1500 -2000 -2500
-1800 -2400
-3000
Chart 4
Source: Pew Center on the States, 2011
average household more than USD 2 000. The situation for these states could even worsen if households decide to move to less indebted states.
3
Society of Actuaries, 2011, “The rising tide of pension contributions post-2008”. 4 See Raymond Van der Putten, 2007, “The US pension system in crisis”, BNP Paribas Conjoncture, January. 5 Novy-Marx and Joshua Rauh, 2011, “Public Pension Promises: How big are they and What are They Worth”, Journal of Finance 66(4): 1207-1246. 6 Novy-Marx and Joshua Rauh, “The Revenue Demands of Public Pension Promises”, Mimeo, June 2011.
9
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Raymond Van der Putten
States could reduce their liabilities by applying the soft freeze, i.e. to close the DB scheme for new hires. This has already been the case in Utah and Alaska and is proposed in Florida. This will have only a very moderate effect, reducing the average household bill to USD 1 223. A hard freeze, i.e. refusing new benefit accruals for existing workers, could be more effective by reducing the household bill to USD 805. Although not uncommon in the private sector, this has not been implemented by any public DB scheme. In the UK, the situation was better. According to the Pension Protection Fund (PPF), asset values declined in 2008 by 4.3%, but recovered in 2009 and 2010 by 1.9% and 10.8% respectively. By mid 2011, the funding rate stood at 99.2%. In Q3, the financial position weakened again substantially, partly because of lower asset prices. The funding rate declined to 83.1% (cf. Chart 5). The decline will not automatically trigger off a recovery plan. The pension funds are insured at the Pension Protection Fund. This organisation levies risk-related premiums, which should give sponsoring firms an incentive to keep their scheme well funded. The Dutch pension funds entered “the Great Recession” in seemingly good shape. By end 2007, the funding rate stood at 144% of the nominal liabilities (cf. Chart 6).7 Only 2 of the 436 funds reported funding ratios below 105%, the minimum funding ratio for funds with an average risk profile. However, by end 2008, the funding rate had fallen to 95%. This was not only because of the fall in asset prices. In fact, the most important reason for the decline was the increase in the liabilities, following the decline in interest rates (cf. Chart 7). Those pension funds that had funding ratios below 105% had to propose a recovery plan to De Nederlandsche Bank (DNB), the central bank and regulator of the pension sector. These plans should increase the funding rate above the minimum reserve over a period of five years. Most funds announced that they would not (fully) adjust pensions for increases in the cost of living. This measure does not only affect pensioners, but also active members of their pension savings are also not adjusted. In addition, many funds announced hikes in pension contributions. Only in some exceptional cases, pension funds suggested to reduce pension benefits. DNB estimated that as result of these measures would reduce GDP by 0.75% by 2013.
28 October 2011 – 11-38
UK funds underfunded… Assets as % of liabilities 130 120 110 100 90 80 70 60 05
06
07
09
10
Chart 5
11
Source: PPF
… and Dutch funds close to the minimum Assets as % of liabilities 160 150 140 130 120 110 100 90 80 07
08
Chart 6
09
10
11
Source: DNB
Thanks to these measures, the average funding ratio improved in 2010, reaching 112% in Q1 2011 and the number of underfunded schemes declined to around 100. However, pension funds have come in serious trouble again in the course of 2011. The European sovereign crisis led to a strong demand for Dutch bonds, which lowered their yield. As a consequence the liabilities of the Dutch pension funds starting rising again. The civil servants pension fund ABP, with an invested capital of EUR 240 billion, reported that during Q3 its liabilities had increased by EUR 43 billion, while its assets had declined by EUR 7 billion. As a result, its funding ratio had declined in Q3 by 22 percentage points to only 90%.
7
The Dutch pension funds calculate their liabilities on the basis of their nominal obligations. If the funding rate is above 130%, pension funds will fully index the benefit.
10
08
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Raymond Van der Putten
The financial crisis identified two major weaknesses of the current financial framework for pensions (FTK). First, the discount rate, based on the yield curve for very safe assets, made liabilities very sensitive to changes in financial market conditions. The present value of liabilities has become very volatility despite the long maturity. Second, the recovery plans do not evenly spread the burden evenly across generations. These plans mainly operate by freezing nominal benefits. The Netherlands Bureau for Economic Policy Analysis (CPB) calculated that the pension losses related to the current crises were greatest for those born around 1950. As a result of the financial crisis, the replacement ratio for these generations could be 15 percentage points below the 70% target.8 In response to the increase in longevity and the financial markets crisis, government, trade-union and employers agreed on a revision of the pension system. To deal effectively with the increase in longevity, the mandatory retirement age will progressively increased to 66 by 2020. Pension contributions for employers and employees will be stable and not longer a function of the funding ratio. By fixing the pension premiums, the new Dutch pension system will resemble much more to a defined contribution scheme than a DB scheme. The investment risk is shifted to the scheme’s participants. The nominal pension guarantee will be abolished and pension funds will focus again on maintaining real pension benefits. To make liabilities, more robust vis-à-vis financial market fluctuations, pension funds are allowed to use the expected returns on their portfolio rather than the risk-free yield curve. This might induce pension funds to increase the risk profile of their portfolios to obtain higher yields. If the real funding rate falls below 100%, pension funds have 10 years to correct the shortfall by reductions on the indexation for all the participants in the fund. The pension rights for new participants will be accordingly adjusted. Pension funds should build up a so-called equalisation fund to compensate losses during financial crises. The pension agreement is like a magical trick. In the past, experts have argued that pensions could only be guaranteed when the nominal funding ratio is above 130%. At the moment, this ratio could have fallen well below 100%. This would imply that Dutch pension funds lack about EUR 300 billion (or 45% of GDP) to guarantee a price index-linked pension. This amount should come from high yields in the future. If yields fall short of expectations, it will be especially the younger generations that will foot the bill.
8
Caspar van Ewijk en Coen Teulings, 2011, “New pension contract inevitable”, CPB Policy Brief 1 (in Dutch).
11
28 October 2011 – 11-38
Decline in the funding ratio by source Since 2008, percentage points 10 5 0 -5 -10 -15 -20 -25 -30 -35 -40 -45 Bonds
Equities
Liabilities
Longevity
Other
Chart 7
Total
Source: CPB
Disappointing receipts for DC schemes In a defined contribution system, the fall of asset value in an economic downturn will reduce immediately the worker’s pension accumulation, depending on the size of the share of equities in the portfolio. In addition, as interest rates will decline, the price of annuities will go up. Younger workers can do nothing hoping that the economic situation will improve. If they are very forward-looking, they can also step up their savings to restore the size of their portfolio. For workers close to retirement, the situation is more difficult. If they have followed a prudent saving strategy by moving into fixedincome products, the effect on their individual pension fund will be limited. However, the price for their annuity has substantially risen. A response from these workers could be to postpone retirement or to accept lower consumption in retirement.
Conclusion In some respect, the future looks bright for older people. They can look forward to longer lives in better health than enjoyed by previous generations. However, their income position after retirement has become more uncertain, as the severe economic and financial crisis has weakened the public and private pension systems. Public finances have substantially deteriorated in all OECD countries since the outbreak of the crisis, adding to the doubts concerning the sustainability of the PAYG systems. If this trend is not reversed, the coming generations may have to foot the bill. In some countries, under pressure of the financial markets, the generosity of the social security system has already been reduced as part of the austerity packages. In countries that have introduced notional contribution systems, benefits had to be cut, to take into account the bad growth performance. In these cases,
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Raymond Van der Putten
the consequences for the lowest pensions have been minimised by lowering taxes for the elderly. Pensioners in countries that have opted for private pensions schemes are not better off. In particular, active members in DC schemes have suffered severe losses on their savings and might even have to postpone their retirement. In DB schemes, the losses have to be borne by the sponsoring enterprise. These are likely to weigh on their profitability in the coming years. Moreover, firms are increasingly abandoning this type of pension schemes. In the past decade, we have seen that investment risks have increasingly been shifted to active and passive members of pension schemes. This tendency could lead to too much risk taking by lower income groups and widespread poverty among them. Government policy can play an important role in riskreduction. In some countries, automatic enrolment in low-risk schemes has already been introduced. The recent Dutch pension agreement provides another interesting development. First, it will limit the risks for the sponsoring firms, by aiming at the stability of the contribution rates. Second, it aims at spreading the investment risk over more generations by using the expected return of the portfolio instead of the return on safe assets. The risk is that funds might overestimate these returns, in which case the investment losses are disproportionately bore by the younger generations. It will be one the task of DNB, the regulator of the Dutch pension industry, that the risks are spread in an equitable way.
12
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28 October 2011 – 11-38
OECD countries
28 October 2011 – 11-38
To watch from 28 October to 4 November 2011 United States
Eurozone
ISM surveys (October). Regional manufacturing surveys from the Fed of Philadelphia and New-York showed a quite marked improvement in October (data diffusion on Tuesday 1 November), which we expect to be mirrored in the national ISM survey. After 51.6 in September, we expect another increase in October, at or above 52.0. The improving sentiment is likely to be witnessed in the overall economy, as we expect the nonmanufacturing composite index to inch up from 53.0 in September to 54.0 in October.
Labour market report (October). The September report was very good news, with a monthly gain in non-farm payrolls of 103 000. Weekly initial claims are consistent with another increase in October, which could be even bigger. However, leading indicators for the US labour market have been fairly poor recently, so a surprise, either up or down, is not to be excluded (data diffusion on Friday 4 November). FOMC meeting. With the improvement of economic data since the last meeting, we highly doubt FOMC members will announce any additional easing next Wednesday. However, it seems that they would like to clarify prospects for monetary actions and could thus announce a set of measures to improve communication. They could emphasize the recent and apparent strengthening of the US economy, but they will undoubtedly remain very cautious. On the inflation front, they are likely to once more state that the recent acceleration of prices is coming from energy prices and will prove temporary given the current over-capacities.
Eurozone inflation (Flash estimate, October). Eurozone inflation increased by 0.5 pp to 3% in September. It is worth noticing, however, that a rebound was expected. Over the summer, indeed, changes in the treatment of seasonal factors in countries like Italy, had pushed down inflation. As these effects fade, many item prices rebounded. Inflation is likely to remain around 3% over the coming months (the flash estimate for October, to be released on 31 October should report inflation at around 2.9%). Nevertheless, the inflation profile for next year is more benign. Thanks to favourable base effects, energy prices, the largest contributor to inflation increases over the first half of the year, should moderate. In addition, a wider and negative output gap should slowly help ease core inflation (ex food and energy) which accounts for around 70% of total inflation. Headline inflation is therefore expected to decrease throughout next year. Germany, unemployment rate (October): In September, the unemployment rate slipped to 6.9%, the first decline since June. Down 0.1 points from the August figure, unemployment was at the lowest level since 1991. After declining at a moderate pace since May, the reduction in the number of jobless accelerated (-26,000, after -9,000 in August). Job creations, which are reported with a 1-month lag, held at 29,000 in August, which is short of the monthly average of 50,000 new jobs reported between early 2010 and June 2011. Employment nonetheless increased 1.3% year on year. The unemployment rate probably did not change much in October (figure to be released on Wednesday, 2 November), but employment should rise in the months ahead, albeit at a slower pace than at the beginning of the year, in keeping with the slowdown in economic growth.
United Kingdom CIPS manufacturing (October). In September, Markit/CIPS survey pointed that manufacturing output increased over the month. Manufacturing headline index bounced back above the 50-threshold, at 51.1. Nonetheless, over Q3, it stood a notch below 50. After Q2 contraction (-0.5% q/q), which was probably a consequence of the supply-chain disruption caused by the earthquake and tsunami in Japan, and the reduced number of working days in April (given the additional bank holiday for the royal wedding), output remained probably lacklustre in Q3 mirroring weak domestic demand coupled with slowing trade partners’ economies. In October, no marked amelioration is expected (data released on Tuesday 1 November). 13
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OECD countries
GDP (preliminary estimate) Q3. In Q2, GDP growth was anaemic, up 0.1% q/q, after 0.4% over the previous quarter. In particular, private consumption plunged (-0.8% q/q after -0.6% q/q), dampened by rising inflation, budget austerity and tight job market conditions. Q3 value added breakdown data release Tuesday 1 November) will be available with the first estimate: Manufacturing output hardly bounced back over the period, as stressed by the surveys. Conversely, services activity should have supported growth. Consequently, GDP growth is likely to be around 0.4% q/q.
CIPS services (October). In September, CIPS services pointed that activity in the sector continued to increase at a solid pace. Nonetheless, businesses are battling against tough competition, and input costs are continuing to rise at strong rates. Those that are more positive and are predicting activity to increase are looking to the 2012 Olympics for a boost. In October (data release Thursday 3 November), the activity index probably remained above the 50-threshold, in expansion zone for the tenth consecutive month.
14
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28 October 2011 – 11-38
OECD Team
28 October 2011 – 11-38
Markets overview The essentials over the week CAC 40
Week 24-10 11 > 27-10-11 À CAC 40 À S&P 500 Â Volatility (VIX) À Euribor 3m (%) À Libor $ 3m (%) Â OAT 10y (%) À Bund 10y (%) À US Tr. 10y (%) À Euro vs dollar À Gold (ounce, $) À Oil (Brent, $)
3 171 1 238 31.3 1.59 0.42 3.26 2.05 2.20 1.39 1 636 113.0
3 369 1 285 25.5 1.59 0.43 3.13 2.16 2.39 1.41 1 729 114.0
` ` ` ` ` ` ` ` ` ` `
+6.2 +3.7 -5.9 +0.5 +1.0 -12.9 +11.2 +19.2 +1.8 +5.7 +0.9
4 200 4 000 3 800 3 600 3 400 3 200
% % % bp bp bp bp bp % % %
3 369
Euro Dollar 1.55 1.50 1.45
2 800 2 600 27-oct.
2009 2010 2011
1.41
1.40 1.35
2.75 2.50 2.25 2.00 1.75 1.50
3 000
2 400
10 year bond yield, % 4.00 3.75 3.50 3.25 3.00 2.39
1.30
2.16
1.25 1.20
2009
2010
▬ Bunds
1.15
27-oct. 2011
2009
─ US Treasuries
27-oct. 2011
2010
Money & Bond Markets Interest Rates € BCE Eonia Euribor 3 month Euribor 12 Month $ Federal Reserve Libor 3 month Libor 12 month £ Bank of England Libor 3 month Libor 12 month Au 27-10-11
highest 11 1.50 0.92 1.59 2.12 0.25 0.43 0.93 0.50 0.99 1.76
1.50 1.72 1.62 2.20 0.25 0.43 0.93 0.50 0.99 1.76
le le le le le le le le le le
Yield curve € (%) 3.5 3.0 2.5 2.0 1.5 1.0 0.5 1W 1M 3 6 12 2A 5 7 10 30
0.0
▬ 27-10-11
2011
lowest 11
13/07 30/06 26/07 08/07 03/01 27/10 27/10 03/01 26/10 26/10
1.00 0.35 1.00 1.50 0.25 0.25 0.72 0.50 0.76 1.51
le le le le le le le le le le
03/01 07/02 10/01 03/01 03/01 15/06 13/06 03/01 03/01 03/01
2011(€) Yield (%)
+0.8% +1.2% +1.7%
+0.8% +1.2% +1.7%
+0.2% +0.7%
-4.9% -4.5%
+0.7% +1.3%
highest 11
€ Euro MTS 5-7y Bund 2 year Bund 10 year OAT 10 year Entreprises BBB $ Treasuries 2y Treasuries 10y Entreprises BBB
-2.0% £ Treasuries 2y -1.4% Treasuries 10y Capitalisés Au 27-10-11
3.69 0.60 2.16 3.13 5.80 0.32 2.39 4.33
4.24 1.91 3.49 3.79 6.34 0.85 3.72 4.76
le le le le le le le le
19/07 04/05 11/04 11/04 06/10 08/02 08/02 08/02
0.60 2.61
1.55 le 09/02 3.97 le 09/02
2011 2011(€)
lowest 11 3.16 0.37 1.65 2.51 4.81 0.16 1.72 3.89
le le le le le le le le
18/08 23/09 22/09 09/09 26/05 19/09 22/09 04/08
+1.2% +1.8% +9.8% +5.6% +0.2% +1.3% +11.1% +6.9%
0.51 le 11/08 +1.6% -1.2% 2.24 le 04/10 +12.0% +8.9% Perf. avec coupon réinvesti
Base Rates (%)
2 year bond yield
10y bond yield & spreads
2.75 2.50 2.25 2.00 1.75 1.50 1.25 1.00 0.75 0.50 0.25 0.00
2.00
23.90% 11.98% 8.17% 5.87% 5.35% 4.22% 3.13% 3.04% 2.62% 2.56% 2.16%
1.75 1.50 1.00 0.75
0.60
0.50
2010
▬ BCE
0.32
0.25
0.25
2009
─ 27-10-10
1.25
1.50
0.00
27-oct. 2011
2009 2010
─ Fed
▬ Bunds
27-oct. 2011
+1.2% +1.8% +9.8% +5.6% +0.2% -3.9% +5.4% +1.4%
Greece (2174 pdb) Portugal (981 pdb) Ireland (601 pdb) Italy (370 pdb) Spain (319 pdb) Belgium (206 pdb) France (97 pdb) Austria (87 pdb) Finland (46 pdb) Netherlands(40 pdb) Germany
─ US Treasuries
Forex & commodities EUR exchange rate versus US Dollar Pound Sterling Suiss Franc Yen Australian Dollar Chinese Yuan Brazilian Real Russian Rouble Indian Rupee Au 27-10-11
1.41 0.88 1.22 107.26 1.32 8.99 2.45 42.38 70.01
highest 11 1.49 0.90 1.32 122.74 1.43 9.67 2.53 43.68 70.01
le le le le le le le le le
02/05 04/07 11/02 08/04 17/03 02/05 23/09 26/09 27/10
lowest 11 1.29 0.83 1.03 101.75 1.29 8.48 2.18 39.17 58.43
le le le le le le le le le
11/01 +5.4% 11/01 +2.8% 10/08 -2.3% 03/10 -1.4% 01/08 +1.2% 03/10 +1.7% 07/01 +9.8% 08/03 +3.5% 11/01 +16.7% Variations
15
Spot price in dollars Oil, Brent Gold (ounce) Metals, LMEX Copper (ton) CRB Foods wheat (ton) Corn (ton)
highest 11
lowest 11
2011(€)
114.0
126.6 le 28/04
93.8 le 04/01
+16.5%
1 728.9 3 575.0 8 142.5
1 898.3 le 05/09 4 478.4 le 14/02 10 179.5 le 14/02
1 325.9 le 25/01 3 096.8 le 20/10 6 721.5 le 20/10
+15.7% -19.5% -20.0%
470.4 232.8 253.9
513.6 le 05/04 329.1 le 09/02 307.5 le 10/06
443.7 le 04/01 212.2 le 30/09 225.0 le 07/01
+1.3% -23.0% +3.6%
Au 27-10-11
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Variations
OECD Team
28 October 2011 – 11-38
Markets overview -suiteOil, Brent ( $ )
CRB Foods ( $ )
Metals (LMEX, $)
Gold ( $ )
130 120 110 100 90 80 70 60
540 510 480 450 420 390
4 800 4 400 4 000 3 600 3 200
2 000
114
470
30
270
27-oct.
1 000
1 600
27-oct.
27-oct.
2009 2010 2011
2009 2010 2011
2009 2010 2011
1 200
2 000
300
1 729
1 600 1 400
2 400
330
40
3 575
2 800
360
50
1 800
Equity indices
800
27-oct. 2009 2010 2011
Performance by sector (DJStoxx Europe) highest 11
World
MSCI World
2011 2011(€)
1 251
1 392 le 02/05
1 074 le 04/10
-2.3%
-7.3%
1 285
1 364 le 29/04
1 099 le 03/10
2.1%
-3.1%
22/09 22/09 12/09 12/09 04/10
-12.0% -11.5% -8.3% -6.0% -3.2%
-12.0% -11.5% -8.3% -6.0% -5.8%
496 le 05/10 726 le 05/10
-14.3% -15.1%
-14.0% -13.9%
North America S&P500
lowest 11
Europe DJ Euro Stoxx France, CAC 40 Germany, DAX 30 Spain, IBEX 35 UK, Footsie 100
241 3 369 6 338 9 271 5 714
Asia
MSCI, loc. Japan, Topix
536 763
Emergents
MSCI Emergent ($) China, Shanghai comp. India, BSE 30 Brazil, Bovespa Russia, RTS Au 27-10-11
994 2 436 17 289 59 270 1 593
297 4 157 7 528 11 113 6 091
le le le le le
18/02 18/02 02/05 17/02 08/02
663 le 18/02 975 le 21/02 1 206 3 057 20 561 71 633 2 124
le le le le le
02/05 18/04 03/01 12/01 08/04
201 2 782 5 072 7 641 4 944
831 2 317 15 792 48 668 1 217
le le le le le
le le le le le
04/10 21/10 05/10 08/08 05/10
-13.7% -18.1% -13.3% -14.7% -15.7% -27.8% -14.5% -22.1% -10.0% -13.0% Variations
Year 2011 to 27-10, € +2.4% -0.5% -1.0% -1.2% -4.0% -4.8% -5.5% -6.8% -7.5% -8.0% -10.5% -11.1% -11.8% -13.2% -13.8% -15.8% -16.8% -24.1% -26.5%
Health Oil & Gas Consumption Goods Food industry Telecoms Insurance Technology Retail Real Estate Chemical Media Utilities Car Construction Industry Travel & leisure Financial services Banks Commodities
S&P 500
Volatiliy (VIX, S&P 500)
MSCI World ( $ )
MSCI Emergent ( $ )
1 400 1 300 1 200 1 100
60.00
1 400 1 300 1 200 1 100 1 000
1 300 1 200 1 100 1 000 900 800
900
700
800
600
700
500
1 285
54.00 48.00
1 000
42.00
900
36.00
800
30.00
25.46
24.00
700
18.00
600
27-oct. 2009 2010 2011
12.00 2009
2010
27-oct. 2011
16
600
1 251
27-oct. 2009 2010 2011
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400
994
27-oct. 2009 2010 2011
28 October 2011 – 11-38
Most recent articles 21 October
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OCTOBER
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France : Greater vigilance The week in the US The week in the Eurozone Positive outcome The week in the US The week in the Eurozone Both sides of the Channel take action The week in the US The week in the Eurozone Belgium : Political Prospects Brighten Capital: mind the accurate numbers… The week in the US The week in the Eurozone Switzerland : exporters struggling Denmark elects its first female Prime Minister Oil is expensive : get used to it The week in the US The week in the Eurozone The sliding wealth of a nation Debt dynamics in Italy The EU helps those who help themselves The week in the US The week in the Eurozone Financial turmoil: what impact on the emerging countries ? Growth, nonetheless The week in the US The week in the Eurozone The austerity belt The week in the US The week in the Eurozone France : Summer revisions Germany : Public deficit below 3% of GDP as of 2011 The big issue The week in the US The week in the Eurozone Homework… The week in the US The week in the Eurozone Greece : Europe helps those who help themselves In the euro we trust… The week in the US The week in the Eurozone Mexico : between a rock & a hard place Each at his own pace… The week in the US The week in the Eurozone Nothing is routine about Greece… A pause in the global recovery The week in the US The week in the Eurozone French labour market: progress, but lots left to do
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`Public finance – European institutions Frédérique CERISIER
`Euro Zone, Italy - Monetary issues - Economic modelling Clemente De LUCIA
`United States, Canada - Globalisation Alexandra ESTIOT
`Spain, Portugal, Greece Thibault MERCIER
`United Kingdom, Ireland, Nordic Countries - Supervision of publications Caroline NEWHOUSE
`Germany, Austria, Switzerland Catherine STEPHAN
`Japan, Australia, Nederlands - Environnement - Pensions Raymond VAN DER PUTTEN
BANKING ECONOMICS
COUNTRY RISK Head
Deputy Head - Methodology, China, Vietnam `Africa, French-speaking countries Stéphane ALBY
`Latin America, Turkey
Sylvain BELLEFONTAINE
`Middle East – Scoring (CRISTAL) Pascal DEVAUX
`Russia and other CIS countries – Commodities Anna DORBEC
`Asia
Hélène DROUOT
`Africa, English and Portuguese-speaking countries Jean-Loïc GUIEZE
`Asia – Capital Flows Johanna MELKA
`Latin America
Valérie PERRACINO-GUERIN
`Central and Eastern Europe Alexandre VINCENT
CONSULTANT Guy LONGUEVILLE
economic-research.bnpparibas.com
Nos publications
Conjoncture traite chaque mois des grands sujets de l'actualité économique et des problèmes structurels.
EcoWeek étudie des sujets économiques spécifiques et au cœur des débats (chaque vendredi).
Conjoncture Taux Change assure un suivi mensuel détaillé de la conjoncture économique et des évolutions des taux d'intérêt et de change dans les grands pays de l'OCDE.
EcoFlash est un commentaire des principaux événements économiques (publication de données, décisions de politique économique) dans les heures qui suivent leur annonce, accompagné d'une analyse approfondie.
EcoTV, le rendez-vous mensuel des économistes de BNP Paribas. Chaque mois, Philippe d'Arvisenet et ses équipes décodent pour vous l'actualité économique et financière sur le plateau d'EcoTV en français et en anglais. Vous pouvez visualiser ces interviews via notre site internet.
EcoTV Week, le rendez-vous hebdomadaire des économistes de BNP Paribas. Dans un format court, de deux minutes, le programme, présenté par un(e) économiste du groupe, passe en revue les évènements de la semaine passée à venir. Ces vidéos sont disponibles sur notre site internet, en français et en anglais. Pour recevoir directement nos publications, vous pouvez vous abonner sur notre site
BNP Paribas est en France constituée en société anonyme. Son siège est situé au 16 boulevard des Italiens 75009 Paris. BNP Paribas est soumise à la régulation de la FSA (Financial Services Authority) pour les opérations d'investissement conduites au Royaume-Uni et est membre de la Bourse de Londres. Ce document reflète l’opinion de la Direction des Etudes Economique de BNP Paribas Les informations et opinions exprimées dans ce document ont été obtenues de sources d’information publiques réputées fiables, mais BNP Paribas ne garantit ni leur exactitude, ni leur exhaustivité. Toutes opinions ou prévisions ont un caractère provisoire.. BNP Paribas ne fait aucune déclaration ni ne peut garantir de façon expresse ou implicite que cette information ou ces opinions sont exactes et sa responsabilité ne saurait être engagée au titre de sa divulgation ou de son contenu. Ce document ne constitue ni un prospectus ni un appel public à l’épargne, ni une quelconque sollicitation auprès des investisseurs en vue de l’achat de titres ou aux fins d’effectuer tout autre investissement. Les informations et opinions contenues dans ce document sont publiées en vue d’aider les investisseurs, mais ne font pas autorité en la matière et ne sauraient dispenser l’investisseur d’exercer son propre jugement ; elles sont par ailleurs susceptibles d’être modifiées à tout moment sans notification et ne sauraient servir de seul support à une évaluation des sous-jacents mentionnés ci-dessus. Toute référence à une performance réalisée dans le passé sur un titre émis par l’émetteur ne constitue pas une indication d’une performance future. Aucune société du Groupe BNP Paribas n’accepte d’être tenue pour responsable au titre de pertes directes ou découlant d’une utilisation des informations contenues dans ce document. Les estimations et opinions contenues dans ce document reflètent notre jugement à la date de publication des présentes. BNP Paribas et l’ensemble des entités juridiques, filiales ou succursales (ensemble désignées ci-après « BNP Paribas »), sont susceptibles d’agir comme teneur de marché, d’agent ou encore à titre principal d’intervenir pour acheter ou vendre des titres émis par les émetteurs mentionnés dans ce document, ou des dérivés y afférents. BNP Paribas est susceptible notamment de détenir une participation au capital des émetteurs mentionnés dans ce document, de se trouver en position d’acheteur ou vendeur de titres ou de contrats à termes, d’options ou de tous autres instruments dérivés reposant sur l’un de ces sous-jacents. BNP Paribas, ses dirigeants ou employés, peuvent exercer ou avoir exercé des fonctions d’employé ou dirigeant auprès de tout émetteur mentionné dans ce document, ou ont pu intervenir en qualité de conseil auprès de ce(s) émetteur(s). BNP Paribas est susceptible de solliciter, d’exécuter ou d’avoir dans le passé fourni des services de conseil en investissement, de souscription ou tous autres services au profit de l’émetteur mentionné aux présentes (y compris et sans limitation agir en tant que conseil, arrangeur, souscripteur, prêteur) au cours des 12 derniers mois précédant la publication de ce document. BNP Paribas est susceptible, dans les limites autorisées par la loi en vigueur, d’avoir agi sur la foi de ou d’avoir utilisé les informations contenues dans les présentes, ou les travaux de recherche ou d’analyses sur le fondement desquels elles sont communiquées, et ce préalablement à la publication de ce document. BNP Paribas est susceptible d’obtenir une rémunération ou de chercher à être rémunéré au titre de services d’investissement fournis à l’un quelconque des émetteurs mentionnés dans ce document dans les 3 mois suivant sa publication. Tout émetteur mentionné aux présentes est susceptible d’avoir reçu des extraits du présent document préalablement à sa publication afin de vérifier l’exactitude des faits et sa véracité des informations sur le fondement desquelles il a été élaboré. Ce document est élaboré par le Groupe BNP Paribas. Il est conçu à l’intention exclusive des destinataires qui en sont bénéficiaires et ne saurait en aucune façon être reproduit en tout ou partie ou même transmis à toute autre personne ou entité sans le consentement préalable écrit de BNP Paribas. En recevant ce document, vous acceptez d’être engagés par les termes des restrictions ci-dessus. Déclaration de l’analyste. Chaque analyste responsable de la préparation et de la rédaction de ce document certifie que (i) les opinions qui y sont exprimées reflètent exactement son opinion personnelle sur l’ensemble des émetteurs (pris individuellement ou collectivement) ou des titres désignés dans ce document de recherche, et déclare que (ii) aucune composante de sa rémunération n’a été, n’est, ou ne sera liée, directement ou indirectement, aux recommandations et opinions exprimées ci-dessus. Etats-Unis : ce document est distribué aux investisseurs américains par BNP Paribas Securities Corp., ou par une succursale ou une filiale de BNP Paribas ne bénéficiant pas du statut de broker-dealer au sens de la réglementation américaine à des investisseurs institutionnels américains de premier rang. BNP Paribas Securities Corp., filiale de BNP Paribas, est un broker-dealer enregistré auprès de la Securities and Exchange Commission et est membre affilié de la National Association of Securities Dealers, Inc. BNP Paribas Securities Corp. n’accepte la responsabilité du contenu du document préparé par une entité non américaine du groupe BNP Paribas que lorsqu’il a été distribué à des investisseurs américains par BNP Paribas Securities Corp. Royaume-Uni : ce document a été approuvé en vue de sa publication au Royaume-Uni par BNP Paribas Succursale de Londres, une succursale de BNP Paribas dont le siège social est situé à Paris, France. BNP Paribas Succursale de Londres est régie par la Financial Services Authority (« FSA ») pour la conduite de son activité de banque d’investissement au Royaume-Uni, et est un membre du London Stock Exchange. Ce document a été préparé pour des investisseurs professionnels, n’est pas conçu à destination de clients relevant de la gestion privée au Royaume Uni tels que définis par la réglementation FSA, et ne saurait de quelconque façon être transmis à ces personnes privées. Japon : ce document est distribué à des entreprises basées au Japon par BNP Paribas Securities (Japan) Limited, par la succursale de Tokyo de BNP Paribas, ou par une succursale ou une entité du groupe BNP Paribas qui n’est pas enregistrée comme une maison de titres au Japon, à certaines institutions financières autorisées par la réglementation. BNP Paribas Securities (Japan) Limited, Succursale de Tokyo, est une maison de titres enregistrée conformément au Securities and Exchange Law of Japan et est membre de la Japan Securities Dealers Association. BNP Paribas Securities (Japan) Limited, Succursale de Tokyo, n’accepte la responsabilité du contenu du document préparé par une entité non japonaise membre du groupe BNP Paribas que lorsqu’il fait l’objet d’une distribution à des entreprises basées au Japon par BNP Paribas Securities (Japan) Limited, Succursale de Tokyo. Hong Kong : ce document est distribué à Hong Kong par BNP Paribas Hong Kong Branch, filiale de BNP Paribas dont le siège social est situé à Paris, France. BNP Paribas Hong Kong Branch exerce sous licence bancaire octroyée par l'Autorité Monétaire de Hong Kong et est réputée banque agréée par la Securities and Futures Commission pour l'exercice des activités de type Advising on Securities [Regulated Activity Type 4] en vertu des Securities and Futures Ordinance Transitional Arrangements. Singapour : ce document est distribué à Singapour par BNP Paribas Singapore Branch, filiale de BNP Paribas dont le siège social est situé à Paris, France. BNP Paribas Singapore exerce sous licence bancaire octroyée par l'Autorité Monétaire de Singapour et est dispensée de la détention des licences requises au titre de l'exercice d'activités réglementées et de la fourniture de services financiers en vertu du Securities and Futures Act et du Financial Advisors Act. © BNP Paribas (2011). Tous droits réservés
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