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2012


Every month SYZ Asset Management publishes "1 month in 10 snapshots", a review of global economic
activity. Since an image can be more telling than words, every month we select 10 charts illustrating the key
data that has marked economic and financial activity over the month, decoding their meaning with a brief
explanation.

A publication of the Research & Analysis team - SYZ Asset Management - Tel. +41 (0)58 799 10 00 - [email protected]
Author: Adrien Pichoud

This document is based on graphics the data of which were collected in the course of 2012.
At the start of this new year we have chosen to give you a review not of last December alone but of
the year 2012 as a whole. So here is "1 year in 10 snapshops" 2012!

Index


1.
Global economy - The three announced disasters have been avoided
2.
United States - Right to the edge of the cliff...
3.
United States - The recovery in real estate speeds up
4.
Euro zone - Stabilization ... in recession
5.
Euro zone - Mario Draghi, saviour of the euro
6.
Japan - Towards a much more accommodative monetary policy?
7.
Asia - Exports rebound
8.
Bonds - A one-way year
9.
The greenback regains its colour, but gold loses some of its radiance
10.
Energy - The American revolution

1. Global economy - The three announced disasters have been avoided

* A sigh of relief. That is probably a concise but
ACTIVITY INDICES IN CHINA AND THE U.S. AND EUR/USD
accurate summary of the year 2012. None of
the three major risks identified at the 55
1.36
beginning of the year finally materialized.
1.34
* The fear that the U.S. economy might relapse
54
into recession, caused by a slowdown in the
number of jobs being created, was avoided
1.32
thanks to the recovery in real estate, the drop
in energy prices and the Fed's interventions.
53
1.30
* The Chinese economy finally staged a "soft
landing" for its growth, even showing signs of
52
1.28
a recovery during the autumn.
* The euro zone did not break up and saw the
1.26
level of stress in the financial system decrease
51
considerably following the decisive
1.24
intervention by the president of the ECB.
50
* Thus at the start of 2013 it has to be
1.22
observed that the risks of imminent disaster
have receded in each of the world's three
main economies. Which means we can look
49
1.20
J
F
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A
M
J
J
A
S
O
N
D
J
towards 2013 with a little more hope!
US - ISM MANUF ACT URING
CHINA - PMI MANUF ACT URI NG
EUR/ USD(R.H.SCALE)
Source: T homson Reuters Datastream

This document has been produced purely for the purpose of information and does not therefore constitute an offer or a recommendation to
invest or to purchase or sell shares, nor is it a contractual document. The opinions expressed reflect our judgement on the date on which it was
written and are therefore liable to be altered at any time without notice. We refuse to accept any liability in the event of any direct or indirect
losses, caused by using the information supplied in this document.

2012

2. United States - Right to the edge of the cliff...
*

After a first half-year marked by a slowdown
SYZ US DOMESTIC ACTIVITY INDEX AND GDP (YOY %)
in the dynamic in the United States, the
10
3
economy showed signs of firming up during
the 3rd quarter, driven in particular by the
5
2
good performance of household consumption.
0
* However, the prospect of a sudden tightening
1
of budgetary policy at the beginning of 2013
-5
(the now-famous "fiscal cliff", which could well
0
have plunged the United States into recession
-10
if no agreement was reached between
-1
Republicans and Democrats) weighed on -15
confidence and activity during the last few
-2
months of the year, in particular with regard
-20
to investment expenditures.
-3
-25
* Like what happened during the summer of
2011, uncertainty over future fiscal policy had
-4
-30
a negative impact on domestic activity. This
uncertainty was only partially dispelled during
-35
-5
2008
2009
2010
2011
2012
the very last hours of 2012...
SYZ US dom est ic act ivit y index (U. of Michigan-based)
US G DP YoY%(R.H. SCALE)
Source: T homson Reut ers Dat ast ream


3. United States - The recovery in real estate speeds up
* After having collapsed from 2006 to 2008 and HOUSING STARTS, BUILDING PERMITS AND HOMEBUILDERS'
then stagnated in 2009/2010, construction
ACTIVITY INDEX
had already shown signs of recovery in 2011.
But 2012 was the year in which the return to
2400
100
growth was confirmed in this sector.
2200
90
* Housing starts and building permits increased
2000
80
by 24% and 28% respectively and the
homebuilders' activity index improved 1800
70
strongly, reaching its highest level since 2006.
1600
60
* This movement was made possible by a
combination of favourable factors: the shorter
1400
50
supply of housing after two years of a virtual
standstill of activity; the drop in the 1200
40
unemployment rate; the decline in mortgage
1000
30
interest rates to an all-time low (3.5% for a
30-year loan), fuelled by the Fed's purchases
800
20
of MBS.
600
10
* Thus the construction sector and real estate
more generally (with the resumption of rising
400
0
prices) again became an engine of US growth
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
US - HO USI NG ST ART S
in 2012.
US - BUI LDI NG PERMI T S
US - NAHB HO MEBUI LDERS ACT I VI T Y I NDEX(R. H. SCALE) Source: T homson Reuters Datastream

4. Euro zone - A stabilization ... in recession
* Three years after the beginning of the
PMI COMPOSITE INDICES (MANUFACTURING + SERVICES)
European sovereign debt crisis, the Euro zone 65
"at last" officially went into recession in the 3rd
quarter of 2012. The economies in the south
of the monetary union had already been in 60
recession since the end of 2011 but it will
have taken a slowdown in the north of the 55
zone for the whole of the currency area to
post a negative growth rate for two
consecutive quarters (and probably for the 50
year 2012 as a whole).
* However, the activity indicators tended to 45
stabilize from the middle of the year onwards,
suggesting a halt in the deterioration thanks 40
to the various measures announced by the
political and monetary authorities (and
probably helped by the rebound of activity in 35
the rest of the world).
* European growth therefore appears to have 30
stabilized during the last few months of 2012.
2006
2007
2008
2009
2010
2011
2012
2013
EMU
GER
FRA
ITA
SPA
So urc e: B lo o m berg, SYZ A M
But in negative territory...

This document has been produced purely for the purpose of information and does not therefore constitute an offer or a recommendation to
invest or to purchase or sell shares, nor is it a contractual document. The opinions expressed reflect our judgement on the date on which it was
written and are therefore liable to be altered at any time without notice. We refuse to accept any liability in the event of any direct or indirect
losses, caused by using the information supplied in this document.

2012

5. Euro zone - Mario Draghi, saviour of the euro
* The tensions in the euro zone quickly surfaced
EURO ZONE: INTEREST RATES ON 10-YEAR GOVT. BONDS
again in spring 2012, following a brief easing
made possible by the ECB's liquidity 9
26 July 2012
injections: a partial default and the risk of a
disorderly exit from the euro zone by Greece,
8
growing fears about the Spanish banks and a
deterioration of Spain's public finances...
7
* In July, Spanish 10-year interest-rate surged
to above 7%, pushing systemic risk to a new
6
peak. One man and one sentence were
enough to change everything: the president of
5
the ECB, Mario Draghi, declared on July 26
that "the ECB is ready to do whatever it takes
4
to preserve the euro".
* The ECB was now committed to acting as
3
lender of last resort in order to ensure the
sustainability of the monetary union. On the
2
financial markets the risk premium for the risk
of a break-up of the euro subsided, while
1
interest-rate spreads narrowed again and the
J
F
M
A
M
J
J
A
S
O
N
D
J
G ER
I T A
stock markets rose...
F RA
SPA
BEL
I RE
Source: T homson Reut ers Dat ast ream


6. Japan - Towards a much more accommodative monetary policy?
* The Japanese economy is suffering from many
DOLLAR AGAINST YEN (USD/JPY) AND NIKKEI 225 IN 2012
ills, which are the cause of persistent deflation
and successive growth setbacks. One of the
88
125
ills afflicting the Japanese economy lies in the
high level of the yen, resulting from the
relative conservatism displayed by the Bank of
86
120
Japan on monetary policy.
* Thus any potential change has a direct
84
115
influence on the currency. At the beginning of
the year the hope of seeing the BoJ adopt a
proactive quantitative easing programme had
82
110
caused a first downward movement in the
value of the yen, a hope which was soon
dashed.
80
105
* In the autumn the election of Mr. Abe as
Prime Minister on a programme that included
a far-reaching reform of the way in which the
78
100
BoJ functions, triggered a further depreciation
in the yen, which reached its lowest level
since mid-2010. Japanese equities greatly
76
95
benefited from this. All they have to do now is
J
F
M
A
M
J
J
A
S
O
N
D
USD/ JPY
live up to the expectations for 2013!
NIKKEI 225 (100 = 01. 01. 2012)(R.H. SCALE)
Source: T homson Reut ers Dat ast ream

7. Asia - Exports rebound
* The slowdown in the growth of the emerging
YEAR-ON-YEAR CHANGE IN EXPORTS IN ASIA
economies from early 2011 to mid-2012 may
have been partially attributable to certain
50
domestic factors (a return to normal of
budgetary and monetary policies).
40
* But it is above all the slowdown in global
growth that was the cause. The lack of
30
dynamism in the United States, deflation in
Japan and above all Europe's slide into
20
recession had heavily weighed on final
demand for manufactured goods produced in
10
the emerging economies.
*
0
In this respect the rebound of the Asian
economies' exports from summer 2012
onwards is a good indicator of the reversal of
-10
the trend in global growth. Better-oriented
consumption in the United States and the
-20
halting of the negative spiral in Europe
enabled the main engine of growth in those
-30
00
01
02
03
04
05
06
07
08
09
10
11
12
economies to get moving again at the end of
CHI NA - EXPO RT YoY 3M MAV
I NDO NESI A - EXPO RT YoY 3M MAV
the year.
KO REA - EXPO RT YoY 3M MAV
HO NG KO NG - EXPO RT YoY 3M MAV
Source: T homson Reut ers Dat ast ream

This document has been produced purely for the purpose of information and does not therefore constitute an offer or a recommendation to
invest or to purchase or sell shares, nor is it a contractual document. The opinions expressed reflect our judgement on the date on which it was
written and are therefore liable to be altered at any time without notice. We refuse to accept any liability in the event of any direct or indirect
losses, caused by using the information supplied in this document.

2012

8. Bonds - A one-way year
*

The fixed-income securities markets had a
PERFORMANCE OF THE BOND INDICES IN 2012
spectacular year in 2012, marked by a 120
virtually uninterrupted upward trend and
some spectacular performances: nearly 20%
for High Yield or emerging debt, more than
10% for European bonds and nearly 5% for
115
global government bonds, despite the low
level of interest rates.
*
110
This movement results from weak global
growth, the absence of inflationary pressures
and increasingly accommodative monetary
policies in the developed world (QE 2.5 and
105
3.0 of the Fed, LTRO and potential OMT of the
ECB, the BoE's QE).
*
100
In a context of financial repression
(manipulation of interest rates by the
authorities to force savers to
invest/consume), the search for yield is
95
inexorably pushing investors towards
J
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A
M
J
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A
S
O
N
D
CG BI W O RLD G O VERNMENT BO NDS
Bof A ML G LO BAL HI G H YI ELD
increasingly risky assets.
Bof A EMU G O VERNMENT
JPM EMBI G LO BAL CO M PO SI T E
Bof A EMU CO RPO RAT E
Source: T homson Reut ers Dat ast ream


9. The greenback regains its colour, but gold loses some of its radiance
*

Since 2008 the US dollar has been hovering
GOLD (USD/OZ) AND US DOLLAR TRADE-WEIGHTED
around its lowest level in line with investors'
(INVERTED)
risk aversion. While it remains the benchmark
2000
68
safe haven in times of peak tension (fall 2008,
spring 2010, summer 2011) it suffers from
70
1800
ultra-expansionary monetary and budgetary
policies when investors start searching again
72
for yield.
1600
74
* However, the gradual improvement in the
U.S. economic situation and the incipient 1400
76
rebalancing of budgetary policy expected in
2013 offset the additional easing of the Fed's
78
1200
policy and allowed the greenback to end the
80
year at the same level it had started at.
1000
*
82
Gold, for its part, recorded a 12th consecutive
year of rising prices in 2012, but its dynamic
800
84
appeared to have run out of steam with the
decrease in macro-economic risks. It's not
600
86
certain there will be a 13th year of rising gold
2009
2010
2011
2012
G O LD - (USD/ O Z )
prices...
US DO LLAR T RADE-W EI G HT ED - I NVERT ED SCALE(R. H. SCALE)
Source: T homson Reut ers Dat ast ream

10. Energy - The American revolution
*

OIL AND GAS PRICES, IN NEW YORK AND LONDON
Just below the surface of the U.S. economy's
good performance in 2012 is the now-famous
160
20
energy revolution that is at work in the United
Oil price differential
States. The development of the exploitation of
US/Europe
18
shale gas and oil was a major factor in the
140
U.S. growth dynamic in 2012.
16
120
* The direct and indirect repercussions are
14
indeed numerous: the energy cost differential
100
between the United States and Europe or Asia
12
affords US companies a sizeable competitive
advantage and has a knock-on effect on their
80
10
earnings and international positioning (it is
one of the factors in the trend towards re-
8
60
industrialization of the US economy).
6
*
40
But exploration activities are also a substantial
4
factor that has supported domestic demand,
engendering investment expenditures, 20
2
Gas price differential
employment, demand for housing,
US/Europe
consumption, tax revenues... The energy
0
0
revolution is actively contributing to the
00
01
02
03
04
05
06
07
08
09
10
11
12
O I L - LO NDO N BRENT (USD/ BBL)
NAT URAL G AS - LO NDO N I CE (USD/ MMBT U)(R.
recovery of the US economy.
O I L - US W T I CUSHI NG (USD/BBL)
NAT URAL G AS - US HENRY HUB (USD/ MMBT U)(R. H. SCALE)
Source: T homson Reut ers Dat ast ream



This document has been produced purely for the purpose of information and does not therefore constitute an offer or a recommendation to
invest or to purchase or sell shares, nor is it a contractual document. The opinions expressed reflect our judgement on the date on which it was
written and are therefore liable to be altered at any time without notice. We refuse to accept any liability in the event of any direct or indirect
losses, caused by using the information supplied in this document.