Global Roundup - RBC Wealth Management

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Market Scorecard – December 14, 2012 Govt Bonds (bps chg) Yield 1 week MTD YTD US 2-Yr Tsy 0.234% -0.4 -1.2 -0.5 US 10-Yr Tsy 1.702% 8.1 8.7 -17.4 Canada 2-Yr 1.127% 6.1 5.9 17.1 Canada 10-Yr 1.791% 8.1 9.1 -15.0 UK 2-Yr 0.326% 7.2 1.1 -0.1 UK 10-Yr 1.862% 11.9 8.7 -11.5 Germany 2-Yr -0.043% 3.4 -5.3 -18.7 Germany 10-Yr 1.348% 5.3 -3.8 -48.1 Commodities (USD) Price 1 week MTD YTD Gold (spot $/oz) 1,695.30 -0.5% -1.1% 8.4% Silver (spot $/oz) 32.24 -2.5% -3.5% 15.8% Copper ($/ton) 8,052.00 0.5% 0.9% 6.1% Oil (WTI spot/bbl) 86.73 0.9% -2.5% -12.2% Oil (Brent spot/bbl) 111.70 3.1% -1.2% 2.8% Natural Gas ($/mlnBtu) 3.15 -5.6% -9.1% 5.5% Agriculture Index 462.39 -3.0% -3.4% 6.5% Currencies Rate 1 week MTD YTD US Dollar Index 79.58 -1.0% -0.7% -0.7% CAD/USD 1.01 0.2% 0.8% 3.6% USD/CAD 0.99 -0.2% -0.8% -3.5% EUR/USD 1.32 1.8% 1.4% 1.6% GBP/USD 1.62 0.8% 0.9% 4.0% AUD/USD 1.06 0.7% 1.3% 3.5% USD/CHF 0.92 -1.8% -1.1% -2.1% USD/JPY 83.48 1.2% 1.2% 8.5% EUR/JPY 109.88 3.0% 2.6% 10.3% EUR/GBP 0.81 1.0% 0.4% -2.3% EUR/CHF 1.21 0.0% 0.2% -0.7% USD/SGD 1.22 -0.1% 0.0% -5.9% USD/CNY 6.25 0.3% 0.3% -0.8% USD/BRL 2.09 0.5% -2.3% 11.7% Source: Bloomberg. Note: Bond yields in local currencies. Copper and Agriculture Index data as of Thursday’s close. Dollar Index measures USD vs. six major currencies. Currency rates refl ect market convention (CAD/USD is the exception). Currency returns quoted in terms of the fi rst currency in each pairing. Data as of 9:31 pm GMT 12/14/12. Examples of how to interpret currency data: CAD/USD 1.01 means 1 Canadian dollar will buy 1.01 U.S. dollars. CAD/USD 3.6% return means the Canadian dollar rose 3.6% vs. the U.S. dollar year to date. USD/JPY 83.48 means 1 U.S. dollar will buy 83.48 yen. USD/JPY 8.5% return means the U.S. dollar rose 8.5% vs. the yen year to date. Markets & the Economy Equity liquidity is drying up across regions as more and more market participants take a break for the holidays. As additional portfolio managers go on vacation over the next two weeks, we expect equity volatility to increase, just like it normally does at the end of each year. One market has already experienced heightened volatility recently, but not because of the calendar. For the second-straight week China’s Shanghai Composite Index led major stock markets—only this time it surged 4.3% on Friday. While improved manufacturing data helped boost the Shanghai Composite, other factors also played a role (see page 4). The Shanghai rally took a number of North American and European cyclical stocks along with it, specifi cally steel, infrastructure, and mining equipment companies with exposure to China. The Materials sector was the bestperforming S&P 500 sector for the week, rising 1.6%. In the U.S., once again there was little progress in resolving fi scal cliff provisions, yet the market gave Washington more breathing room, closing only slightly lower for the week. Federal Reserve Chairman Ben Bernanke surprised analysts by moving away from setting a time frame on the zero interest rate policy and announced specifi c economic measures that will help drive interest rate decisions (see page 3). More importantly, European Union fi nance ministers signed a deal to give the European Central Bank (ECB) supervisory powers over the region’s banks. Yet again, as often has been the case in the development of the eurozone crisis, this agreement is a positive step in the right direction, though it does not solve the issue. Key points have been left unaddressed (see page 4 for analysis). Special Report: 2013 Outlook RBC Wealth Management’s strategy team has compiled a special edition of Global Insight, which discusses our 2013 outlook in detail, as well as key themes investors should consider. RBC’s base-case forecast for 2013: The investment focus pivots toward the U.S. where economic activity accelerates in the second half of the year. China’s economy should gather momentum. These developments would have positive implications for growth in Canada, the U.K., and Europe. Stocks deliver worthwhile returns and outperform bonds. Valuations are undemanding in most markets and cheap in select Asia Pacifi c and European markets. In fi xed income, defensive positioning is our preferred strategy with an emphasis on shorter maturities, favorably mispriced sectors, selective credits, and ample liquidity. 20 18 16 14 U.S. GDP is Still Well Below Potential While it should begin to catch up soon, it would take strong growth to reach potential GDP by 2017. Actual Projected Implied growth of 4.4% per annum for 4 years 12 Recession GDP 10 Potential GDP 2000 2005 2010 2015 2020 Source - RBC Wealth Management, Congressional Budget Offi ce (CBO), National Bureau of Economic Research Potential GDP is the CBO’s estimate of the output the economy would produce with a high rate of use of its capital and labor resources. 1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0 2 GLOBAL INSIGHT WEEKLY – DECEMBER 14, 2012
A great deal hinges on policy. The U.S. fi scal cliff negotiations could conclude in a way that produces more, not less, uncertainty. Separately, there is a possibility European debt and banking issues will fl are up again. RBC’s Global Insight 2013 Outlook report expands on our base-case forecast and alternative scenarios. It also includes articles about Europe, emerging market equities, the shale oil revolution, gold, and a deep analysis of fi xed income markets. Following is a brief sampling of interesting statistics and analyses in the report: Global GDP could accelerate to 3.5% in real terms in 2013 compared to just under 3% in 2012. Typically, such growth is consistent with equity returns of 5%-10%. Corporate revenue growth expectations seem too cautious. 2013 consensus sales forecasts of 3.5% in the U.S. and 2.6% in Europe are well below the International Monetary Fund’s 4.9% global nominal GDP forecast (includes infl ation). Normally, U.S. corporations tend to grow sales at roughly 2% above the rate of global nominal GDP growth. Canada’s GDP growth is rarely more than a fraction of a percent different from that of the U.S. and is almost always headed in the same direction. However, in recent years, the degree to which it outperforms or underperforms the U.S. has been increasingly explained by the infl uence of Chinese growth on commodity prices and shipments. Europe Inc. is not eurozone GDP. Europe offers a wealth of world-class, global companies that generate a mere 50% of aggregate revenues in Europe. The dividend yield of the Continental European market is an attractive 4%, the second-highest of all regional markets after Markets & the Economy the United Kingdom. On a cyclically-adjusted basis, the European price-to-earnings (P/E) ratio is 38% below its 30-year average. It is also at a 44% discount to the U.S. P/E ratio, the widest gap over the same period. 2013 marks an important turning point for emerging economies. According to IMF estimates, it will be the fi rst year the total GDP of emerging nations exceeds that of advanced economies (see page 4 chart). We believe the underperformance of emerging market equities compared to developed market stocks (particularly U.S. stocks) appears close to an end. In the global gold market, central banks emerged as a new source of buying power in 2010 after two decades of being net sellers. As a group, central banks grew to represent an impressive 10% of all demand in 2011 and have slightly exceeded this level so far in 2012. We believe the long-term uptrend in gold prices has further to run. To access the Global Insight 2013 Outlook, please contact your RBC advisor, private banker, or relationship manager. Gold Discovered (M oz) As Gold Discoveries Declined, Gold Prices Surged 180 160 140 120 100 80 60 40 20 0 1990 1992 1994 1996 Gold Discovered World Mine Production Gold Price 1998 2000 2002 2004 2006 2008 Source - Metal Economics Group, RBC Dominion Securities Note: Represents 189 gold deposits discovered since 1990, each with at least 2M oz of gold in total reserves, reserves, resources and past production (or at least 1M oz in reserves). 2010 $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 Gold Price Global Roundup United States The Fed’s new strategy to set formal economic thresholds for the unemployment rate (6.5%) and infl ation expectations (2.5%) to help determine interest rate policy was not without controversy. While the thresholds seem clear cut at fi rst blush, Chairman Bernanke’s comments indicated they aren’t so clear. He essentially admitted what our economists have long asserted: the unemployment rate is a poor measure of the labor market. Our chief U.S. economist wrote, “Of all the indicators that the Fed could have chosen, we remain surprised that they chose to highlight the unemployment rate.” Furthermore, we believe the infl ation expectation threshold gives the Fed some policy fl exibility—after all, it will be based on the Fed’s own infl ation forecast. Our economist wrote, “In other words, as long as their forecast (not the actual observed infl ation rate) is below 2.5%, they will not have to raise rates. How convenient.” Coming up: Housing data (Dec 18-20); Philly Fed (Dec 20); Durable Goods (Dec 21). Canada Canadian equities ended the week higher, lifted by Consumer Staples, Consumer Discretionary, and Financial stocks, while Materials suffered. Notable strength was seen in Progress Energy after the Canadian government approved the company’s acquisition by Petronas. Canadian government bond yields moved higher across the yield curve with the largest increase in yields experienced in maturities of 10-years or greater. Canadian Manufacturing sales declined 1.4% in October, well below consensus expectation which had forecast a 0.1% decrease. The decline was the largest since January 2012, as inventories reached their highest level since January 2009. 3 GLOBAL INSIGHT WEEKLY – DECEMBER 14, 2012
Page 1: DECEMBER 14, 2012 RBC Wealth Manage
Page 5 and 6: Important Disclosures Analyst Certi

Global Roundup - RBC Wealth Management

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