Economic Research:

U.S. Weekly Financial Notes: October Surprise

Credit Market Services: Beth Ann Bovino, U.S. Chief Economist, New York (1) 212-438-1652; [Link]@[Link] Satyam Panday, U.S. Economist, New York (212) 438-6009; [Link]@[Link] Research Contributor: Kaustubh Pandey, CRISIL Global Analytical Center, an S&P affiliate, Mumbai

Table Of Contents
Never Mind The Shutdown A Mixed Bag Factory Orders: More Gain Than Pain Financial Market Highlights

[Link]/RATINGSDIRECT

NOVEMBER 8, 2013 1
1215107 | 301674531

Economic Research:

U.S. Weekly Financial Notes: October Surprise

The Fed will have much to contemplate ahead of its December Federal Open Market Committee (FOMC) meeting, especially now that the new and revised jobs numbers may have alleviated some concerns officials expressed at the September meeting about the pace of jobs growth. It certainly has given pause to the market consensus that had moved taper expectations to March of next year. We are holding firm to a December taper start date (our forecast since June). Although there are risks the Fed may delay tapering, today's October jobs report gives no reason to increase the probability of an early 2014 taper start date. The economic releases this week include: Nonfarm payroll employment jumped by 204,000 jobs in October. Job growth in the two previous months was also much stronger than previously estimated. Employment in August and September rose by 238,000 jobs and 163,000 jobs, respectively. U.S. GDP rose by 2.8% in the third quarter, following growth of 2.5% in the second quarter. Personal income increased by 0.5% in September, matching the increase in August. Meanwhile, personal spending edged up by 0.2% in September after rising by 0.3% in August. Factory orders jumped by 1.7% in September, after edging down by 0.1% in August. The ISM Non-Manufacturing Index climbed to 55.4 in October from 54.4 in September. The Conference Board's leading economic indicator (a gauge of the outlook for the next three to six months) rose 0.7% for the second consecutive month in September. The University of Michigan Consumer Sentiment Index for November came in at 72.0, compared with October's final reading of 73.2. Initial jobless claims dipped by 9,000 to 336,000 in the week ended Nov. 2, down from the previous week's figure of 345,000. Continuing claims rose to 2.868 million in the week ended Oct. 26. The International Council of Shopping Center's measure for same-store sales was up 4.1% year over year in October, following a gain of 3.5% in September. Oil prices dropped to $94.37/barrel on Friday afternoon from the previous week's $94.91/barrel.

Never Mind The Shutdown

Heading into today's October employment announcement, both the pace of economic growth and the Fed's timing of tapering were up in the air. September's jobs report had shown a loss in momentum for job gains, and the October partial government shutdown certainly didn't help improve market expectations. The consensus was bracing for a dismal October's jobs gain, and, boy, did they get a huge surprise. The Bureau of Labor Statistics (BLS) reported that 204,000 nonfarm payroll jobs were added in October, following a revised increase of 163,000 for September (was 148,000) and after a revised gain of 238,000 for August (was 193,000). The figure was higher than both our 125,000 forecast and the 122,000 expected by consensus. The net revisions for August and September were up 60,000. Private payrolls gained 212,000 after a 150,000 increase in September, and average hourly earnings for all employees on private payrolls rose by 2 cents to $24.10. The overall jobs growth has averaged 190,000 per month over the past 12 months, and the 200,000-plus latest jobs gain is especially encouraging for the economy heading into the holiday season.

[Link]/RATINGSDIRECT

NOVEMBER 8, 2013 2
1215107 | 301674531

Economic Research: U.S. Weekly Financial Notes: October Surprise

The Fed will have much to mull over ahead of its December FOMC meeting, especially now that the new, revised jobs numbers may have alleviated some concerns expressed at the September meeting about the pace of jobs growth. The news certainly has given pause to the market consensus that had moved taper expectations to March of next year. We have been holding firm to a December taper start date (our forecast since June), and today's report gives us no reason to change it. The report reminds us that the political fallout from D.C. may have dampened our moods (consumer sentiment continued to decline to 72 for the early November reading--the seventh straight dip), but not the moods of businesses who are still hiring. The private-sector jobs gain was broad based, with the leisure and hospitality industry (L&H) leading the gains by 53,000 in October after a down month in September. The L&H component is more discretionary, and the healthy rebound does alleviate some fear of consumer caution. The retailers boosted hiring ahead of the holiday season by increasing their employment by 44,000, compared with an average monthly gain of 31,000 over the past 12 months. The professional and technical services industry continued to trend up (by 44,000), and the education and health services industry was up 23,000. The goods-producing sector also continued to trend up for a third month in a row, with manufacturing jobs advancing 19,000 and construction jobs gaining 11,000 following a boost of 18,000 in September. The continuing gains in manufacturing and construction come as no surprise since factory orders and the ISM Manufacturing Index both have indicated more gain than pain in the latest months. While the partial government shutdown had no discernible impact on estimated figures from the establishment survey data, the household survey data did include the furloughed government employees in its unemployed numbers. The inclusion led to an increase of reported temporary layoffs by 448,000, and the survey also showed a drop of 735,000 employed, reflecting the government shutdown. The unemployment rate derived from this survey data ticked up to 7.3% in October after dipping to 7.2% in September, a slightly lower increase than we had expected (7.4%). The lower-than-expected rise in the unemployment rate is partly because the labor force fell by another 720,000 in October to a new low of 62.8% from an already 35-year low participation rate of 63.2% in September. Given the lack of material impact of the government shutdown and the fact that October-furloughed workers are now back to work with back pay, today's report, together with better-than-expected reports out of both the manufacturing and nonmanufacturing sectors in October, provides modest upward pressure to our fourth-quarter growth forecast of annualized 2.3%.

A Mixed Bag
After a 10-day delay, resulting from the government shutdown, the long-awaited Bureau of Economic Analysis' (BEA) report for third-quarter GDP was released. We are now nearly halfway into the fourth quarter, so the BEA third-quarter GDP report is somewhat stale. Still, it gives a sense of whether momentum in the economy heading into the fourth quarter is strong enough to absorb the October shutdown shock. The BEA estimated in its advanced reading that third-quarter GDP grew at a 2.8% annualized pace. That was much stronger than the 2.0% annualized rate that consensus expected and our forecast of a 2.2% annualized pace for the quarter. Consumer spending was up by 1.5% (annualized)--a little softer than the 1.9% we expected. However, trade was robust, and both nonresidential and residential construction spending annualized gains of 12.3% and 14.6%, respectively, far exceeded the 6.2% and 12.6%

[Link]/RATINGSDIRECT

NOVEMBER 8, 2013 3
1215107 | 301674531

Economic Research: U.S. Weekly Financial Notes: October Surprise

respective gains that we expected. All major components reported gains. Given the worries markets had about the recovery, that's a real plus. Still, the 2.8% pace recorded for third-quarter GDP growth does overstate the true underlying growth momentum, given that much of the strength came from inventory accumulation. Inventory accumulation added about 0.8% to growth as businesses prepared for the holiday shopping season. Excluding inventories, final sales were up a more modest 2.0%. And while it's nice to see that businesses seemed optimistic enough in the third quarter to fill their shelves with products for Santa to buy, the government shutdown in the fourth quarter likely dented holiday moods. Fourth-quarter GDP growth will likely be a lot softer at about 2.3%. Over the last year, through the third quarter, quarterly growth has averaged about 1.6%, despite experiencing fiscal shocks of more than 2% (not including the government shutdown). But keep in mind that underlying economic momentum from the private sector has held up rather well, despite the fiscal shocks. If government spending was flat, growth would have been about 3.6%. We expect 2013 growth to be 1.6%. With the drag from fiscal austerity expected to be smaller next year, the economy will likely accelerate to a 2.5% pace in 2014. Momentum has moved higher since the second quarter, and the Fed will likely see the shutdown-propelled slowdown in the fourth quarter as temporary. Whether the Fed will decide that the underlying economic growth in the fourth quarter is strong enough to absorb both the temporary slowdown and the start of tapering bond purchases from the current $85 billion pace is an open question. Our base-case view is that the Fed will start in December--our forecast since June. But risks are high that they will want to wait a little longer, until they are convinced that the economic recovery is standing on solid ground.

Factory Orders: More Gain Than Pain

The double dose of manufacturing data that came out this week after the government shutdown delayed the August report only modestly moved the needle for the sector. But it moved the needle in the right direction. We expect an annualized 3.3% increase for equipment spending and an annualized 2.2% increase in third-quarter GDP growth and a 3.4% increase for equipment spending and a 1.6% increase in GDP for the year. The 1.7% month-over-month gain for U.S. factory orders in September was in line with market expectations. But it came after August factory orders were weaker than expected, falling 0.1% (consensus expected a 0.5% gain) and July orders were revised down to a 2.8% drop (previously down 2.4%). Once again, the huge gyrations in nondefense and defense aircraft orders explain the month-to-month swings in total factory orders. But we like to focus on orders and shipments for core capital goods, excluding aircraft and defense. Since core orders are a leading indicator for future business investment, they matter. Core orders for September were revised down to a negative 1.3% (was down 1.1%), but August core orders were revised up to an even greater 1.0% from a 0.4% rate. Core September shipments held at an unrevised negative 0.2%, but August shipments were revised up to a 1.4% rate (previously up 1.1%). Core orders and shipments for July were both revised up, to a negative 3.5% (was down 4.0%) and a negative 1.4% (previously down 1.7%), respectively. Taken together, the net revisions to core shipments and orders the last three months resulted in a minor net gain for equipment spending and growth in the

[Link]/RATINGSDIRECT

NOVEMBER 8, 2013 4
1215107 | 301674531

Economic Research: U.S. Weekly Financial Notes: October Surprise

third quarter. The good news is that, while we didn't see a big gain in the business sector, we also didn't see a big drag.

Financial Market Highlights

Below are the financial market highlights for the week ending Nov. 7, 2013.

Treasury yield curve

The 10-year Treasury yield rose to 2.75% on Friday afternoon from the previous week's 2.61%, after a slew of better-than-expected economic data, together with surprisingly upbeat October jobs data for the U.S., increased speculation that the U.S. Federal Reserve will moderate its asset purchases sooner than consensus expected. The increase represents a leap to the highest level in nearly two months. The rate of three-month Treasury bills increased 1 basis point (bp) to 5 bps this week. The two- to 10-year spread increased 11 bps to 234 bps over the week but was 91 bps above a year ago. The 10-year Treasury spread above inflation-protected bonds--a measure of inflation expectations--decreased 2 bps to 159 bps over the past week and was down 21 bps over the previous year.
Table 1

Treasury Yield Curve (Constant Maturities)

--Change over-(%) Three-month Six-month One-year Two-year Five-year 10-year 30-year Inflation Indexed Treasury (LT) Current level One week Four weeks 13 weeks One year 0.05 0.09 0.10 0.31 1.35 2.65 3.73 1.06 0.01 0.00 (0.01) (0.01) 0.05 0.11 0.11 0.13 0.01 0.02 (0.03) (0.05) (0.07) (0.02) 0.00 0.05 0.00 0.01 (0.02) 0.00 (0.02) 0.02 0.03 0.12 (0.05) (0.06) (0.09) 0.03 0.65 0.94 0.86 1.16

[Link]/RATINGSDIRECT

NOVEMBER 8, 2013 5
1215107 | 301674531

Economic Research: U.S. Weekly Financial Notes: October Surprise

Chart 1

Credit markets
Risk aversion decreased this week after stronger-than-expected economic data boosted investor confidence on the strength of the U.S. recovery. The equity market volatility index (VIX), a measure of the market's uncertainty, decreased to 13.21 from 13.44 the previous week. The T-bill-to-eurodollar (TED) spread, a measure of banks' willingness to lend, decreased to 19 bps this week. Fixed mortgage rates increased to 4.16% this week from 4.10% last week. Mortgage application decreased 7% in the week ended Nov. 1 after increasing 6.4% the previous week. The refinance index decreased 7.9% after rising 8.7% the week before, and the purchase index decreased 5.2% after a 2.3% gain.
Table 2

U.S. Credit Spreads

--Change over (%)-Current level One week Four weeks 13 weeks One year Money market Three-month euro 90-day corporate paper 0.24 0.06 (0.00) (0.02) (0.01) (0.06) (0.03) (0.03) (0.07) (0.12)

[Link]/RATINGSDIRECT

NOVEMBER 8, 2013 6
1215107 | 301674531

Economic Research: U.S. Weekly Financial Notes: October Surprise

Table 2

U.S. Credit Spreads (cont.)

Swap rates One-year Two-year Five-year 10-year 30-year Other key interest rates Prime rate 15-year mortgage 30-year mortgage Volatility markets VIX equity market volatility Swaption two-10 year Liquidity spreads (bps) Three-month eurodollar to three-month Treasury 10-year swaps to 10-year Treasury bps--Basis points. N.A.--Not applicable. 19.02 11.10 19.88 11.60 20.17 12.80 21.99 17.00 21.13 1.00 13.21 26.62 (0.23) (0.08) (5.30) (0.66) 0.76 (1.46) (5.02) (9.64) 3.25 3.27 4.16 0.00 0.07 0.06 0.00 (0.04) (0.07) 0.00 (0.16) (0.24) 0.00 0.58 0.76 0.29 0.42 1.50 2.77 3.68 (0.00) (0.01) 0.06 0.11 0.10 (0.04) (0.05) (0.07) (0.03) (0.01) (0.04) (0.06) (0.06) (0.04) 0.01 (0.03) 0.05 0.70 1.05 1.08

Fed policy and interest rate outlook

The Federal Open Market Committee (FOMC) statement after the Oct. 29-30 meeting was a bit less dovish than expected. The FOMC statement reiterated that economic activity expanded at a "moderate" pace and still said that downside risks have diminished. The statement said that the labor market has shown further improvement and that household and business spending increased. Notably absent from the statement was the concern, expressed in September, that "the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labor market." The final Fed policy meeting of the year is scheduled for Dec. 17-18. It will mark the departure of Chairman Ben Bernanke, who is retiring after almost eight years heading the central bank. We continue to expect the Fed to start tapering in December. Continued fiscal headwinds and inflation running below the committee's longer-run objective increase the chances that the Fed will wait until next year. Kansas City Fed President Esther George dissented for the seventh meeting in a row, citing the risk that the Fed's stimulus could create financial imbalances and cause long-term inflation expectations to rise. Minutes of the two-day FOMC meeting ended Sept. 18 showed that members remained concerned about "mixed" economic data, tightening financial conditions, and political strife in Congress. A number of Fed members pointed to heightened uncertainty about the course of federal fiscal policy over the coming months, including strains related to the debt ceiling debate. The participants were worried that, despite the improved labor market conditions since the Fed began QE3 a year ago, recent economic data was "on the disappointing side," and several members "were not yet adequately confident of continued progress." Several Fed officials said that tapering the bond purchases in September may trigger a further rise in interest rates, and, as a result, "a number" of Fed officials called for "a cautious approach." But other Fed policymakers who favored scaling back the purchases said recent reports "were broadly consistent" with the Fed's employment outlook in June. With the markets appearing to expect tapering in September, members raised

[Link]/RATINGSDIRECT

NOVEMBER 8, 2013 7
1215107 | 301674531

Economic Research: U.S. Weekly Financial Notes: October Surprise

concerns about the effectiveness of FOMC communications if the committee did not slow down asset purchases, a consideration that made the decision not to taper at the September meeting a relatively tough one for several members. In the end, "all members but one judged that it would be appropriate for the [policymaking] committee to await more evidence that progress would be sustained before adjusting the pace of asset purchases." The Fed's 12-district Beige Book (Oct. 16), which covered the period from September to the beginning of October, suggests that the U.S. economy grew at a "modest to moderate" pace, similar to the language used in the previous report. However, four of the Fed's 12 banking districts--Philadelphia, Richmond, Chicago, and Kansas City--reported that growth had slowed, while the other eight districts reported similar growth rates to the previous report. Construction and residential real estate activity improved during the period, although a number of districts reported concerns in the industry over rising mortgage rates. By comparison, nonresidential construction expanded at a slower rate. The manufacturing outlook was mixed; most districts reported stronger growth, but a handful saw growth slow. Contacts noted that direct effects from the government shutdown had been limited but that an extended shutdown could hinder manufacturing activity. Hiring activity improved modestly in the reporting period, but fiscal policy uncertainty has had some impact. Demand for skilled labor has generally remained high. Most of the districts reported an increase in consumer spending, largely as a result of growth in auto sales, particularly in the New York District, where sales were reported to be increasingly robust.
Table 3

Fed Policy And Interest Rate Outlook

--Change over-(%) Funds target Effective Current level One week Four weeks 13 weeks One year 0.25 0.08 0.00 0.00 0.00 (0.00) 0.00 (0.01) 0.00 (0.08)

Table 4

Fed Funds Futures Contracts (Yield)

--Change over (%)-Federal Open Market Committee meeting date Contract month Oct.29/30 Dec.17/18 Jan.28/29 Nov-13 Dec-13 Jan-14 Feb-14 Mar.18/19 April. 29/30 Mar-14 Apr-14 Current level (%) One week Four weeks 13 weeks 0.08 0.09 0.09 0.10 0.10 0.11 (0.01) 0.00 0.01 0.01 0.01 0.00 (0.02) (0.02) (0.02) (0.02) (0.02) (0.02) (0.03) (0.03) (0.04) (0.04) (0.03) (0.03)

Table 5

Euro Dollar Futures Curve

--Change over-(%) Nov-13 Dec-13 Jan-14 Current level One week Four weeks 13 weeks 0.17 0.18 0.18 0.00 0.00 0.00 (0.03) (0.04) (0.05) (0.05) (0.04) (0.05)

[Link]/RATINGSDIRECT

NOVEMBER 8, 2013 8
1215107 | 301674531

Economic Research: U.S. Weekly Financial Notes: October Surprise

Table 5

Euro Dollar Futures Curve (cont.)

Feb-14 Mar-14 Apr-14 0.20 0.20 0.21 0.01 0.00 0.00 (0.05) (0.05) (0.06) (0.06) (0.07) (0.07)

Global interest rates

Key central banks remain cautious in their outlooks. Recent trends include: The European Central Bank (ECB) reduced its benchmark interest rate to a record low of 0.25% at its Nov. 7 meeting as the economy is likely to face a prolonged period of low inflation, but no deflation. The Bank of England held its bank rate at 0.5% at its Oct. 10 meeting and maintained the size of its asset purchase program at 375 billion. The Bank of Japan (BoJ) left its monetary policy unchanged at its meeting held on Oct. 31. The BoJ will continue to increase the monetary base at an annual pace of about 60 trillion to 70 trillion ($617 billion to $719 billion), with purchases of Japanese government bonds at an annual pace of about 50 trillion. The People's Bank of China, in its Monetary Policy Committee (MPC) statement released on June 23, said it will fine tune its policies as needed and will continue to implement prudent monetary policy. The Reserve Bank of Australia left its key interest rate unchanged at a record low of 2.5% for a third consecutive time. The Bank of Canada held its target overnight rate at 1% on Sept. 4 because rising uncertainty in the global economy is expected to delay an anticipated pickup in exports and business investment in the country. The Norges Bank left its interest rate unchanged at 1.5% for the tenth time as it tackles low inflation and a depreciating currency. The central bank expects to keep the policy rate at the current level until the summer of 2014 and anticipates a rate hike only in the second or third quarter of next year. Sweden's Riksbank left its seven-day policy rate unchanged at 1% in the meeting held on Oct. 24 and signaled it may keep rates on hold longer than it previously assessed as it attempts to support a recovery. The Swiss National Bank retained the currency ceiling and its key interest rate near the target band of 0.00%-0.25% on Sept. 19. Poland's central bank left its key rate unchanged at 2.5% for the third consecutive session as the bank expects growth to remain sluggish and inflation to remain low. The Reserve Bank of New Zealand left its key rate unchanged at 2.5%--a record low--on Sept. 11 and reaffirmed its pledge to keep rates unchanged through the end of the year. South Korea's central bank left its key rates unchanged at 2.50% on Aug. 8 amid signs of recovery in Korea. However, policymakers remained cautious as a result of uncertainty over the U.S. Federal Reserve's stimulus program and China's slowing economy. The Bank of Thailand retained the main policy rate at 2.5% for the second time in a row at its Oct. 16 MPC meeting, as it deemed the current accommodative policy to be "necessary and appropriate" given the subdued state of Thailand's economy.
Table 6

Global Interest Rates

--Change over-(%) Current level One week Four weeks 13 weeks One year

12-month LIBOR rates U.S. 0.60 (0.01) (0.03) (0.07) (0.27)

[Link]/RATINGSDIRECT

NOVEMBER 8, 2013 9
1215107 | 301674531

Economic Research: U.S. Weekly Financial Notes: October Surprise

Table 6

Global Interest Rates (cont.)

Europe U.K. Swiss Japan 0.47 0.88 0.22 0.38 (0.02) 0.01 (0.00) (0.00) (0.00) (0.00) (0.01) (0.02) 0.00 0.01 (0.03) (0.03) (0.06) (0.20) (0.10) (0.13)

10-year bond yields U.S. Canada Europe U.K. Swiss Japan Aussie 2.65 2.78 1.71 2.69 1.08 0.60 4.03 0.11 0.10 (0.01) 0.08 (0.01) (0.00) 0.14 (0.02) (0.03) (0.08) (0.03) (0.05) (0.04) 0.06 0.02 0.12 0.15 0.05 (0.01) (0.21) 0.39 0.94 0.90 0.27 0.83 0.52 (0.29) 0.93

Foreign exchange rates

The dollar was mixed against most trading partners this week, after the stronger-than-expected jobs report increased speculation that Federal Reserve will reduce stimulus sooner rather than later. The euro fell against the dollar this week and was trading at $1.34/ on Friday afternoon from the previous week's $1.35/ after the ECB surprised markets by cutting interest rates to a record low in November. The yen weakened against the dollar this week and was trading at 98.96/$ on Friday afternoon from the previous week's 98.81/$. U.S. imports were essentially unchanged from July, at $228.0 billion. An increase in imports of services, mainly in travel, was counteracted by a decrease in goods, mostly consumer goods. The trade deficit ticked up to $38.8 billion in August from a revised $38.6 billion (was $39.1 billion) in July. Exports fell to $189.2 billion in August from $189.3 billion the prior month. The drop reflected a decrease in exports of goods, particularly industrial supplies and materials. The trade gap with China narrowed 0.6% to $29.9 billion after hitting a monthly record of $30.1 billion in July.
Table 7

Foreign Exchange Rates (Spot)

--Change over (%)-Current level One week Four weeks 13 weeks One year US$-Mexican pesos US$-C$ -US$ -US$ US$-Swiss francs US$- A$-US$ 13.22 1.05 1.34 1.61 0.92 98.09 0.95 1.55 0.30 (1.21) 0.36 0.98 (0.27) (0.01) 0.99 0.62 (0.75) 0.81 0.47 (0.07) 0.03 4.93 1.30 0.28 3.59 (0.48) 1.47 3.84 0.35 4.59 5.27 0.71 (3.17) 23.43 (9.13)

Commodity price indices

Commodity markets dropped this week as a strengthening dollar dampened the prices. Oil prices edged down to $94.37/barrel on Friday afternoon from the previous week's $94.91/barrel after a U.S. government report showed that crude supplies climbed for a sixth consecutive week. Investors also remain watchful of ongoing developments between

[Link]/RATINGSDIRECT

NOVEMBER 8, 2013 10
1215107 | 301674531

Economic Research: U.S. Weekly Financial Notes: October Surprise

Iran and the Western nations because a positive outcome could help lift sanctions and increase crude oil supplies. Natural gas prices decreased to $3.54/mmbtu from last week's $3.71/mmbtu. Gold prices fell to $1,285/ounce on Friday (early afternoon) from last week's $1,309/ounce after a better-than-expected jobs report stoked concerns for gold holders that the Federal Reserve might reduce its bond purchases soon. Livestock prices decreased 1.6% this week and were up 0.4% over the past year.
Table 8

Commodity Price Indices

--Change over (%)-Current level One week Four weeks 13 weeks One year CRB Gold (CME) Crude oil (CME) Natural gas (CME) GSCI Agriculture Livestock 273.76 1,312.46 94.32 3.49 608.88 627.32 2,105.88 (2.43) (2.39) (3.34) (2.96) (2.78) (2.26) (1.62) (4.59) (0.02) (8.42) (4.45) (4.60) (4.32) (0.01) (3.15) 1.10 (10.44) 5.52 (4.11) (1.64) 4.01 (6.57) (22.92) 9.99 (2.62) (3.69) (21.02) 0.38

U.S. equity market

Equity markets remained mixed this week as investors shrugged off positive economic data from China and the U.S. amid fears that the Federal Reserve might cut back its bond purchases sooner rather than later. The S&P 500, Dow, and Nasdaq opened higher on Friday morning and were trading at 1,763, 15,687, and 3,911, respectively. Stocks were bearish from October 2007 to March 2009, but record corporate profits and three rounds of the Fed's monetary stimulus have helped markets recover from the losses they suffered during the period. The S&P 500 is now up 22.65% from its Dec. 31, 2012, close of 1,426 and is up 158.72% from its March 9, 2009, low of 676.
Table 9

U.S. Equity Market

--Change over (%)-Current level One week Four weeks 13 weeks One year Standard & Poor's indices S&P 1500 S&P 500 S&P 400 S&P 600 Other indices Dow Jones Industrial Nasdaq Composite DJ Wilshire 15,642.75 3,917.55 18,748.46 0.29 (0.50) (0.26) 4.68 4.68 4.84 0.59 6.62 3.84 19.97 32.11 27.79 409.16 1,762.04 1,287.94 629.72 (0.10) (0.04) (0.45) (0.82) 5.12 5.25 3.93 4.86 3.71 3.62 3.61 6.08 26.15 25.29 30.52 37.84

U.S. equity market by sector

Equity sectors remained mixed this past week, through Thursday. The gainers were led by industrials, up 0.7%. This was followed by consumer staples and information technology, up 0.4% and 0.3%, respectively. During this past year,

[Link]/RATINGSDIRECT

NOVEMBER 8, 2013 11
1215107 | 301674531

Economic Research: U.S. Weekly Financial Notes: October Surprise

consumer discretionary, up by 36.8%, posted the largest gain. This was followed by health care and industrials, up by 32.9% and 32.7%, respectively.
Table 10

U.S. Equity Market Performance By Sector

--Change over (%)-Current level One week Four weeks 13 weeks One year S&P 500 Consumer discretionary Consumer staples Energy Financials Health care Industrials Information technology Materials Telecommunications Utilities 1,762.04 502.51 438.76 630.82 276.70 612.26 424.56 545.18 275.49 159.29 198.34 (0.04) 0.13 0.44 (0.05) (1.13) (0.09) 0.72 0.30 (0.65) (0.32) (0.03) 5.25 5.83 6.85 4.45 3.45 4.66 6.98 5.56 4.17 6.82 4.51 3.62 5.10 2.13 3.82 (0.36) 3.40 7.42 5.55 7.09 0.81 (0.55) 25.29 36.82 21.46 18.22 29.87 32.87 32.72 18.61 20.70 8.05 10.26

Global Standard & Poor's stock indices

The global equity markets remained mixed this week as increased speculation that the Federal Reserve may scale back stimulus as a result of faster-than-estimated economic growth overshadowed the ECB cutting a key interest rate. The decliners were led by Latin American markets, down 2.5%, closely followed by Asia-Pacific markets, down 1.2%. The gainers were led by European markets, up 0.5%. Japanese and American markets posted the largest 12-month gains, up 60.8% and 25.3%, respectively.
Table 11

Global Standard & Poor's Stock Indices

--Change over (%)-Current level One week Four weeks 13 weeks One year Global 1200 Global 100 S&P 500 Canada 50 LatAm 40 Europe 350 Japan 150 Asia Pac 50 Aussie 50 1,782.83 1,491.52 1,762.04 765.45 3,845.88 1,316.42 1,003.41 3,605.93 5,605.23 (0.52) (0.27) (0.04) (0.26) (2.53) 0.54 (0.54) (1.19) (0.00) 4.30 4.45 5.25 0.67 1.28 4.63 1.95 3.22 5.21 4.98 4.47 3.62 9.09 6.79 6.22 0.73 6.53 6.62 22.52 20.71 25.29 7.10 (7.45) 18.07 60.77 9.86 22.70

Global equity market performance by sector

International sectors lost this past week, through Thursday. The decliners were led by consumer discretionary, down 1.3%, followed by financials, down by 1.2%. During this past year, consumer discretionary stocks, up 38%, posted the largest gain. This was followed by health care and industrials, up 31.2% and 31.0%, respectively.

[Link]/RATINGSDIRECT

NOVEMBER 8, 2013 12
1215107 | 301674531

Economic Research: U.S. Weekly Financial Notes: October Surprise

Table 12

Global Equity Market Performance By Sector

--Change over (%)-Current level One week Four weeks 13 weeks One year S&P Global 1200 Consumer discretionary Consumer staples Energy Financials Health care Industrials Information technology Materials Telecommunications Utilities 1,782.83 2,364.75 2,388.22 2,717.16 1,144.27 2,250.12 2,010.67 1,994.29 2,455.78 1,229.90 1,325.62 (0.52) (1.30) (0.23) (1.01) (1.22) (0.57) (0.10) (0.17) (0.17) (1.05) (0.51) 4.30 2.44 4.38 2.90 1.33 3.75 3.29 3.76 3.68 2.89 0.62 4.98 4.07 1.93 4.42 3.58 3.03 6.88 6.31 6.78 7.67 1.10 22.52 38.00 19.10 12.62 28.57 31.19 31.01 21.55 4.91 18.60 11.55

Table 13

Economic Release Calendar

Date 11-Nov 12-Nov 13-Nov 14-Nov 14:00 8:30 Time Release No scheduled releases No scheduled releases Treasury budget (bil. $) Nonfarm productivity (%) Unit labor costs U.S. trade balance (bil. $) Initial jobless claims (000s) 15-Nov 8:30 Empire State Index Export trade prices Import trade prices 9:15 Industrial production (%) Capacity utilization (%) 10:00 18-Nov 19-Nov 20-Nov 8:30 8:30 8:30 Wholesale sales (%) No scheduled releases Employment Cost Index CPI (%) Q3 Oct 0.4 0.1 0.3 0.2 0.3 0.3 5.2 0 0.1 18 0.5 0.1 0.2 0.2 0.3 0.3 5.22 (0.1) 0.1 20.1 0.5 0.2 0.1 (0.1) 0.4 0.3 5.29 (0.1) 0.1 19.8 Oct Q3 Q3 Sep Nov-09 Nov Oct Oct Oct Oct Sep (100) 1.8 0.4 (38.2) 330 3.5 0.2 0.1 0.4 78.4 0.3 (104) 1.9 0.5 (39.0) 330.0 5.0 0.1 (0.3) 0.2 78.3 0.4 (147.9) 2.3 0 (38.8) 336 1.5 0.3 0.2 0.6 78.3 0.6 For Forecast Consensus Previous

(excluding food and energy) (%) Oct Retail sales (%) Retail sales (excluding auto) (%) Oct Oct Sep Oct Oct

10:00

Business inventories (%) Existing home sales (mil.)

21-Nov

8:30

PPI (%)

(excluding food and energy) (%) Oct 10:00 Philly Fed Index Nov

[Link]/RATINGSDIRECT

NOVEMBER 8, 2013 13
1215107 | 301674531

Copyright 2013 by Standard & Poor's Financial Services LLC. All rights reserved. No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor's Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an "as is" basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT'S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages. Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P's opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof. S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process. S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, [Link] (free of charge), and [Link] and [Link] (subscription) and [Link] (subscription) and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at [Link]/usratingsfees.

[Link]/RATINGSDIRECT

NOVEMBER 8, 2013 14
1215107 | 301674531