JPM Global Data Watch A 2014-08-02 1459429

Economic Research
August 1, 2014
Global Data Watch
Although growth has picked up, concerns about final demand linger
EM Asian trade and production bounces while Japan still slides
Its time for the Euro area to deliver above-trend growth
A pivot or another plotz?
A material lift in global growth is taking hold around midyear, as a rebound from
weakness the US and Japan is reinforcing a more modest acceleration in the Euro
area and Emerging Asia. These developments form the base for an anticipated
pivot to sustained above-trend global growth. If we are right, this episodes con-
tours should mirror growth pivots in earlier expansions (during 2003 and 1993).
This weeks data deluge provides important support for this view.
The constructive message from last weeks flash readings was confirmed in
the July global manufacturing PMI. With global output and orders readings
both holding stable at about 54, the PMI is consistent with 4.5% annualized
gains in factory output this quarter. Such an outcome would align with our
view that global GDP growth will accelerate by roughly a percentage point
from last quarters weak 2.2% annualized gain.
The 2Q US GDP release delivered a significant upside surprise with a 4%
annualized gain last quarter and an average of 0.7% annualized upside sur-
prise to the previous three quarters. Although the 2Q bounce needs to be
viewed alongside the deep contraction it followed, available July releases
employment, initial claims, auto sales, ISM manufacturing, PMI services
and consumer confidencepoint to growth momentum being maintained at
an above-trend pace this quarter.
Hard activity readings in EM Asia point to production and export growth
lifting sharply into mid year. It is also encouraging to see that the regional
output manufacturing PMI moved up 1.1 point in July to its highest level
since May 2011.
The false dawns of the past four years are fresh in our memories and it is far
too early too dismiss lingering concerns that the recent improvement could
prove transitory. Indeed, we are in the midst of the fourth episode of this ex-
pansion in which the US economy has delivered a two quarter average growth
rate over 3%. In the previous three, growth slipped back below trend. In two
of these episodes the growth slide was severe enough to produce a two quarter
average of sub-1% GDP growth.
Contents
US economy looks a little
different after the GDP report 13
Labor underutilization and wages
in the Euro area 15
Japans exports face both cy clical
and secular headwinds 17
EM Asia's credit woes 19
Changes in China's monetary policy
operational framework 23
Signals from Taiwan's ex porters
confirm global recovery 25
Global Economic Outlook Summary 4
Global Central Bank Watch 6
Nowcast of global growth 7
Selected recent research from
J.P. Morgan Economics
8
The J.P. Morgan View: Markets 9
Data Watches
United States 27
Euro area 35
Japan 41
Canada 45
Mexico 47
Brazil 49
Argentina 51
Chile 53
United Kingdom 55
Central Europe 59
South Africa 63
Australia and New Zealand 65
China, Hong Kong, and Taiwan 67
Korea 71
ASEAN 75
India 77
Asia focus 79
Regional Data Calendars 80
Bruce Kasman
(1-212) 834-5515
bruce.c.kasman@jpmorgan.com
JPMorgan Chase Bank NA
David Hensley
(1-212) 834-5516
david.hensley@jpmorgan.com
Joseph Lupton
(1-212) 834-5735
joseph.p.lupton@jpmorgan.com
www.jpmorganmarkets.com
0
1
2
3
4
2010 2011 2012 2013 2014 2015
% change over 2q, saar, 3Q forecast boxed
US real GDP
Source: BEA
-1
0
1
2
3
4
5
6
2010 2011 2012 2013 2014
% change over 2q, saar; 3Q est. boxed
US inventories and final sales of goods
Source: BEA
Final sales of goods
Non-farm
inventories
2
Economic Research
Global Data Watch
August 1, 2014
Bruce Kasman (1-212) 834-5515
David Hensley (1-212) 834-5516
Joseph Lupton (1-212) 834-5735
A central driver of the US and global mini-cycles has been
volatile corporate sector dynamics. In late 2010 and mid-2012
strong US goods demand contributed to a global industrial
upturn, reinforced by a stock building cycle. However, faced
with subsequent demand disappointment, firms quickly turned
cautious. A deceleration in business spending and stock build-
ing resulted, producing a downshift in growth.
With 2Q14 US growth being supported by a rebound in final
sales of goods and a 1.7%-pt contribution from inventories,
the sensitivity of growth to a negative demand shock could
again be pronounced. This message is reinforced by the sizea-
ble global increase in the finished goods inventory index in
the July PMI. It is against this backdrop, that the positive
message on US private final demand is encouraging. Growth
of domestic final sales at a 2.9% annualized rate last quarter
was stronger than expected and, if our forecast for this quarter
is realized, final sales will have increased 3% oya for the first
time in four years.
Waiting for Euro area demand lift
For much of this expansion, the Euro area has produced nega-
tive demand and financial shocks. Although these drags have
faded and the region exited recession, GDP growth still aver-
aged less than 1% during 1H14. The Euro area needs to be-
come a more important source of demand if we are pivoting,
and we expect growth to accelerate to a 2% pace during 2H..
The case for stronger Euro area growth is straightforward.
Confidence has recovered and financial conditions have im-
proved against a backdrop of very depressed levels of spend-
ing. We view recent developments as supportive of the view
that growth will accelerate this quarter. After last weeks re-
covery in the flash composite July PMI, this weeks EC sur-
vey showed economic sentiment holding at a level consistent
with 2%growth.
There are two supports that we anticipate will boost house-
hold spending in the coming months. The first is the decline
in unemployment that signals ongoing employment gains.
The second is the fall-off in headline inflation that points to
firmer purchasing power as food and energy prices fall. It is
noteworthy that German and French consumption indicators
posted solid gains in June.
The news on credit is also encouraging. According to the
ECBs bank lending survey, there was a broad easing of cred-
it standards in the second quarter. In particular, banks report-
ed a net easing of credit standards to corporates for the first
time since early 2007. Banks expect a further easing of lend-
ing standards in the current quarter. Also noteworthy is the
move down in borrowing rates for households and non-
financial businesses over the past couple of months. For
households, borrowing rates have declined by 10bps, while
for firms they have declined by 21bps. Perhaps not surprising-
ly, banks report increased loan demand by corporates and
households, a trend they expect to continue.
Although the data are moving in the right direction, the an-
nouncement of additional EU sanctions against Russia this
week highlights a risk to the outlook. We do not believe that
the Ukraine crisis has impacted the Euro area macro economy
yet, but there is understandable concern that there will be an
impact over time. Our judgment is that the current level of
sanctions will not alter the regional growth path. But we rec-
ognize the risk that sentiment could be affected more nega-
tively or conditions could worsen further.
Japan disappoints
Japans 1H14 performance is heavily impacted by the 3%
VAT hike introduced in April. Spending was front-loaded
ahead of the increase, which contributed to boomy 6.7% an-
nualized GDP growth in 1Q. This surge was followed by a
sharp decline in activity with the tax hike. Our forecast has
Japan stagnating in H1, but rebounding strongly this quarter.
With incoming data disappointing across a broad front, we
revised down our 2Q and 3Q GDP forecast to -7.5%q/q, saar
(from -6.5%) and 2.5% (from 3.0%), respectively, this week.
Although the first half now shows the economy contracting
modestly, we maintain our forecast of a significant bounce-
back, with growth expected to average 2.3% in 2H14more
than twice Japans trend growth rate.
June consumption indicators disappointed but continue to
show a bounce-back from the tax hike induced April lows.
June retail spending stands 1.4% above its 2Q average level,
and spending levels are recovering faster than after the 1997
tax hike. This partly reflects a solid fundamental backdrop for
consumers. This weeks labor market report shows the job-
95
97
99
101
103
Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct
1996-1997
2013-2014
Japan manufacturing around VAT tax hike
Source: J.P. Morgan
Index, Avg(t-6 to t-1) = 100, sa
VAT hike
3
Economic Research
Global Data Watch
August 1, 2014
Bruce Kasman (1-212) 834-5515
Joseph Lupton (1-212) 834-5735
offer to applicant ratio reaching its expansion high, with de-
pendent employment posting a solid gain. Summer bonuses
are also expected to boost income, a message likely to be con-
firmed by next weeks June Employers survey. The details of
this weeks Shoko Chukin surveywhere the nonmanufactur-
ing DI rose to 49.4 in July with the outlook DI predicting an
additional rise to 50.3also send a positive signal.
The more concerning element of Japanese growth is the disap-
pointing signal from industry. June industrial production fell
sharply and manufacturers expectations of lift in the coming
months do not fully offset this disappointment. Part of this poor
performance likely results from lost high-tech product competi-
tiveness and the ongoing shift of production abroad (see the RN
Japans exports faces both cyclical and secular headwinds), a
drag on growth that is expected to persist.
The slower-than-expected recovery in May and June, howev-
er, will have only a limited impact on BoJs policy. We think
that Governor Kuroda will remain bullish at his press confer-
ence after next weeks Monetary Policy Meetingholding on
to an upbeat near-term growth and inflation outlook and reit-
erating that 2% inflation (ex VAT) will be achieved in
FY2015. That said, we ultimately expect the BoJ will be dis-
appointed on both fronts.
Asias North-South demand divide
Disappointment on Japanese growth contrasts with the more
upbeat news from elsewhere in Asia. This weeks PMI and
trade data from EM Asia suggest that exports are lifting into
mid year, fueled by a combination of firmer global demand
and as a tech-related product launch cycle.
Stronger domestic demand growth is also an important ele-
ment of the forecast, and the leading edge of the regional de-
mand cycle is coming from Greater China. Taiwans 2Q GDP
released this week followed Chinas lead in showing a lift in
domestic activity is taking hold. This quarter, the lens is fo-
cused on Korea where a combination of fading drags, stronger
external demand and policy supports is expected to produce a
demand rebound. Indeed, Korean GDP growth is expected to
bounce towards 5% annualized growth this quarter.
The ASEAN group is expected to produce a more muted de-
mand recovery. Not only will the direct impact of a stronger
global tech cycle benefit North Asia more than ASEAN (from
the Norths greater integration into the tablet and Smartphone
supply-chains) but their domestic cycles appear more set for a
lift from policy. In particular Indonesia, which makes up half
of ASEAN GDP, faces still-tight policy settings and an ongo-
ing terms of trade shock in its key commodity exports.
CEE: Poland lags lifting elsewhere
The strength in German demand over the past year has pro-
vided a powerful lift to CEE, which saw real GDP growth
accelerate from just 1% annualized in 1H13 to 4% as of
1Q14. However, the loss of German momentum damped
growth last quarter. At the same time, geopolitical uncertain-
ties surrounding Ukraine have weighed on trade and business
confidence. In response, real GDP decelerated to a modest 2%
growth pace last quarter. CEE growth looks likely to pick
back up alongside the improving global backdrop, but the
latest data suggest this lift will be held back by a sluggish
Poland. While July PMI reports show Czech Republic and
Hungary rebounding, the Polish PMI made its fifth consecu-
tive decline and now stands at a 13-month low. On balance,
we believe risks are to the downside to the Polish outlook.
Argentina: No contagion, no growth
Argentina defaulted this week as funds deposited for debt ser-
vice were withheld as a legal consequence of its failure to reach
a settlement with a minority of holdout creditors. Admittedly,
the default establishes a contrast between the US and Europe
where courts cannot interrupt debt service payments. But Ar-
gentinas legal issues are not indicative of a lack of capacity or
willingness to pay that normally drives sovereign defaults. And
its limited leverage and limited cross-border financial linkages
downplay risk of contagion to other economies or credits.
The authorities expect the economy to decouple from head-
aches generated by debt transfer problems, and Argentine
bond prices remain relatively stable, reflecting market hopes
for an eventual settlement. As long as this view is validated,
contagion to domestic FX markets should remain limited.
With strict capital controls already in place, authorities are
inclined to keep the peso stable to emphasize that current debt
problems are different from past experiences. But irrespective
of the peso defense, the economy is set to continue to con-
tract. After falling at about a 1.5% annualized pace in 1H14, a
more severe slump is projected for 2H.
46
48
50
52
54
56
58
Jan 13 Apr 13 Jul 13 Oct 13 Jan 14 Apr 14 Jul 14
DI, sa
Manufacturing PMI - headline
Source: J.P. Morgan
Poland
Hungary
Czech Republic

4
Carlton Strong (1-212) 834-5612
carlton.m.strong@jpmorgan.com
Economic Research
Global Data Watch
August 1, 2014

J oseph Lupton (1-212) 834-5735

Global economic outlook summary
Real GDP Real GDP Consumer prices
%over a year ago %over previous period, saar %over a year ago
2013 2014 2015 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 4Q13

2Q14 4Q14 4Q15
United States 2.2 2.1 3.0 3.5 -2.1 4.0 3.0 3.0 3.0 1.2 2.1 2.1 1.9
Canada

2.0

2.2 2.6 2.7 1.2 2.2 2.5 2.7 2.8

0.9 2.5 2.3 2.0
Latin America 2.5 1.3 2.7 1.5 0.4 0.6 1.9 2.7 2.7 4.5 5.0 5.1 4.7
Argentina

2.9

-1.5 3.0 -1.8 -3.2 -0.1 -4.6 -1.4 5.0

10.7 36.0 35.0 40.0
Brazil 2.5 0.7 1.5 1.8 0.7 -1.0 1.1 2.6 1.1 5.8 6.3 6.3 6.3
Chile

4.1

2.5 3.5 -0.4 3.0 1.7 4.0 2.8 3.2

2.5 4.5 4.2 3.0
Colombia 4.7 5.0 4.5 3.7 9.7 2.0 4.0 4.0 5.0 1.8 2.8 3.2 3.0
Ecuador

4.5

3.3 4.0 4.7 2.0 1.5 2.0 2.5 3.5

2.3 3.4 3.5 4.0
Mexico 1.1 2.7 3.8 0.5 1.1 3.5 3.9 3.7 3.6 3.7 3.7 4.1 3.1
Peru

5.8

4.2 5.5 6.9 0.3 3.5 6.0 7.0 5.5

3.0 3.2 3.0 2.5
Uruguay 4.7 3.0 4.0 6.4 -1.8 4.5 6.0 4.0 3.0 8.6 8.1 7.8 7.3
Venezuela

1.3

-2.0 2.0 2.3 -10.0 -3.0 2.0 2.0 2.0 52.9 56.2 57.0 44.9

Asia/Pacific

4.6

4.5 4.7 4.3 5.4 2.1 5.1 5.0 4.8

3.2 3.3 3.0 3.3
Japan 1.5 1.0 1.3 0.3 6.7 -7.5 2.5 2.0 2.0 1.4 3.8 3.1 2.5
Australia

2.4

3.0 3.2 3.2 4.5 0.4 3.1 4.3 2.9

2.7 2.9 2.0 2.6
New Zealand 2.8 3.2 2.8 4.1 4.0 0.8 1.9 4.7 4.8 1.6 1.8 1.6 2.0
EM Asia

6.2

6.1 6.4 6.2 5.0 6.4 6.5 6.3 6.2

3.9 3.2 3.1 3.7
China 7.7 7.3 7.3 7.1 6.3 7.7 7.6 7.4 7.1 2.9 2.2 2.1 3.1
India

4.7

5.3 6.5 4.2 5.0 6.0 5.5 5.0 6.0

10.4

8.1

8.2

7.0
EM Asia ex China/India 4.0 4.0 4.5 5.1 2.3 3.9 4.8 4.6 4.4 3.3 3.2 2.9 3.4
Hong Kong

2.9

2.8 2.6 3.6 0.8 3.0 4.2 4.2 2.0

4.3 3.6 3.4 3.5
Indonesia 5.8 4.9 5.3 6.0 4.1 5.1 5.0 4.5 5.3 8.4 6.2 4.6 4.6
Korea

3.0

3.7 4.0 3.6 3.8 2.4 4.7 4.0 4.0

1.1

1.6

2.3

2.9
Malaysia 4.7 5.6 4.8 7.6 3.3 5.0 6.0 5.5 5.0 3.0 3.3 2.4 5.0
Philippines

7.2 6.0 6.4 6.1 4.9 7.8 5.7 5.7 6.6

3.5

4.0

3.6

3.8
Singapore 3.9 3.6 4.5 6.9 2.3 -0.8 5.7 7.4 4.9 2.0 2.4 1.1 2.4
Taiwan

2.1

4.0 3.9 7.6 1.9 5.9 4.0 4.2 3.8

0.6

1.6

1.7

1.7
Thailand 2.9 1.1 4.2 0.5 -8.2 3.5 4.0 4.0 4.2 1.7 2.6 2.9 3.8

Western Europe

0.1

1.4 2.2 1.6 1.2 1.4 1.8 2.2 2.2

1.0 0.8 0.9 1.3
Euro area -0.4 1.1 2.0 1.2 0.8 1.0 1.5 2.0 2.0 0.8 0.6 0.7 1.0
Germany

0.5

2.0 2.3 1.5 3.3 0.5 2.0 2.5 2.5

1.3

0.9

1.1

1.7
France 0.4 0.6 1.7 0.7 0.1 0.5 1.0 1.5 2.0 0.8 0.8 0.6 1.1
Italy

-1.8

0.0 1.3 0.5 -0.5 0.0 1.0 1.5 1.5

0.7

0.4

0.1 0.9
Spain -1.2 1.3 2.2 0.7 1.5 2.4 2.0 2.0 2.0 0.2 0.2 -0.1 0.0
Norway

2.0

1.9

2.3

2.0 1.9 2.0 1.9

2.1

2.3

2.3

1.8

1.6

2.2
Sweden 1.6 1.8 2.4 6.4 -0.4 1.0 2.0 2.5 2.5 0.1 0.0 0.6 1.6
United Kingdom

1.7

3.1 3.0 2.6 3.3 3.2 3.0 3.0 3.0

2.1

1.7

1.7

2.1
EMEA EM 2.0 1.8 2.5 3.2 0.6 1.2 2.1 2.1 2.4 5.1 5.7 5.3 4.3
Czech Republic

-0.9

2.8

2.8

6.1

3.2

1.8

2.0

2.3

4.2

1.1 0.0 1.0 1.9
Hungary 1.1 3.0 2.5 2.7 4.5 2.3 2.0 2.5 3.0 0.7 -0.1 0.6 2.9
Israel

3.4

3.3 3.8 3.3 2.9 3.3 3.6 4.5 3.2

1.9

1.0

1.3

1.9
Poland 1.6 3.2 3.2 2.8 4.5 2.0 3.0 3.5 3.5 0.7 -0.1 0.3 1.8
Romania

3.5

3.2 3.5 5.6 0.7 3.0 2.0 2.8 3.6

1.8

1.0

2.3

2.6
Russia 1.3 0.5 1.3 2.6 -3.4 0.8 1.5 1.5 1.0 6.4 7.6 6.6 4.5
South Africa

1.9

1.8 3.2 3.8 -0.6 0.9 4.5 3.8 2.9

5.4 6.5 6.5 5.8
Turkey 4.0 3.0 4.1 3.5 7.0 0.8 1.2 0.8 4.1 7.5 9.1 8.1 6.3

Global

2.5 2.6 3.3

3.1 1.7 2.2 3.2 3.4

3.3

2.3 2.6 2.5 2.6
Developed markets 1.3 1.7 2.4 2.3 0.8 1.1 2.4 2.6 2.5 1.2 1.9 1.8 1.8
Emerging markets 4.6

4.2 4.9

4.6

3.1 4.1 4.7

4.7

4.7

4.3 4.0 3.9 4.0

Global PPP weighted 3.0 3.1 3.7 3.5 1.8 2.9 3.6 3.7 3.7 2.8 2.9 2.9 2.9
Note: For some emerging economies seasonally adjusted GDP data are estimated by J.P. Morgan. Bold denotes changes from last edition of Global Data Watch, with arrows
showing the direction of changes. Underline indicates beginning of J.P. Morgan forecasts. Unless noted, concurrent nominal GDP weights calculated with current FX rates are used
in computing our global and regional aggregates. Regional CPI aggregates exclude Argentina, Ecuador and Venezuela.

5
Carlton Strong (1-212) 834-5612
carlton.m.strong@jpmorgan.com
Economic Research
Global Data Watch
August 1, 2014

J oseph Lupton (1-212) 834-5735

G-3 economic outlook detail
2013 2014 2015
2013 2014 2015 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q
United States

Real GDP 2.2 2.1 3.0 3.5 -2.1 4.0 3.0 3.0 3.0 3.0 2.5
Private consumption 2.4 2.3 2.9

3.7 1.2 2.5 2.8 2.7 3.3 3.3 2.8
Equipment investment 4.6 5.3 5.9 14.1 -1.0 7.0 5.0 7.0 6.0 6.0 5.0
Non-residential construction -0.5 7.2 6.9

12.8 2.9 5.3 7.0 8.0 8.0 6.0 6.0
Intellectual property products 3.4 3.5 3.3 3.6 4.7 3.5 4.0 4.0 3.0 3.0 3.0
Residential construction 11.9 3.5 13.6

-8.5 -5.3 7.5 15.0 15.0 15.0 13.0 13.0
Inventory change ($ bn saar) 63.6 68.4 62.0 81.8 35.2 93.4 74.7 70.4 64.5 64.7 59.8
Government spending -2.0 -0.7 -0.1

-3.8 -0.8 1.6 -0.4 -0.5 -0.2 -0.1 0.0
Exports of goods and services 3.0 3.2 5.5 10.0 -9.2 9.5 6.0 5.5 5.0 5.0 5.0
Imports of goods and services 1.1 4.0 5.2

1.3 2.2 11.7 1.5 4.0 5.5 6.0 6.0
Domestic final sales contribution 1.9 2.2 3.0 2.3 0.7 2.9 2.9 3.0 3.3 3.2 2.9
Inventories contribution 0.0 0.0 0.0

0.1 -1.1 1.7 -0.5 -0.1 -0.2 0.0 -0.1
Net trade contribution 0.3 -0.2 0.0 1.1 -1.7 -0.6 0.6 0.2 -0.1 -0.2 -0.2
Consumer prices (%oya) 1.5 1.9 2.0

1.2 1.4 2.1 2.0 2.1 2.1 1.8 1.9
Excluding food and energy (%oya) 1.8 1.8 1.9 1.7 1.6 1.9 1.9 1.9 2.0 1.8 1.9
Federal budget balance (%of GDP, FY) -4.1 -2.8 -2.6

Personal saving rate (%) 4.9 5.2 5.2 4.4 4.9 5.3 5.3 5.4 5.3 5.3 5.2
Unemployment rate (%) 7.3 6.2 5.6

7.0 6.7 6.2 6.1 5.9 5.7 5.6 5.5
Industrial production, manufacturing 2.6 3.3 3.2 4.2 1.4 6.7 3.0 3.0 3.0 3.0 3.0
Euro area

Real GDP -0.4 1.1 2.0 1.2 0.8 1.0 1.5 2.0 2.0 2.3 2.3
Private consumption -0.6 0.6 1.5

0.3 0.6 0.5 1.0 1.5 1.5 1.8 1.8
Capital investment -2.8 1.8 3.2 3.8 0.7 1.0 2.5 3.0 3.0 4.0 4.0
Government consumption 0.2 0.8 1.1

-1.3 2.7 0.5 0.5 1.0 1.0 1.5 1.5
Exports of goods and services 1.5 2.6 3.4 5.5 0.7 1.0 3.0 3.0 3.5 4.0 4.0

2.6 3.3 -1.0 3.0 3.5 4.0 4.5 4.5
Domestic final sales contribution -0.8 0.8 1.6 0.5 1.0 0.6 1.1 1.6 1.6 2.0 2.0
Inventories contribution -0.1 0.1 0.3

-0.8 0.8 -0.5 0.2 0.5 0.4 0.3 0.3
Net trade contribution 0.5 0.1 0.0 1.5 -1.0 0.9 0.1 -0.1 0.0 0.0 0.0
Consumer prices (HICP, %oya) 1.3 0.6 0.9

0.8 0.6 0.6 0.4 0.7 0.7 1.0 1.0
ex unprocessed food and energy 1.3 0.9 0.9 1.0 1.0 0.9 0.8 0.9 0.8 0.9 0.9
General govt. budget balance (%of GDP, FY) -3.0 -2.4 -2.3

Unemployment rate (%) 12.0 11.6 11.2 11.9 11.7 11.6 11.5 11.4 11.3 11.2 11.1
Industrial production -0.7 1.5 3.0

2.2 1.0 1.0 2.5 3.0 3.0 3.5 3.5
Japan

Real GDP 1.5 1.0 1.3 0.3 6.7 -7.5 2.5 2.0 2.0 2.2 3.5
Private consumption 2.0 0.2 1.5

1.5 9.2 -17.0 6.0 3.5 2.0 3.0 6.0
Business investment -1.4 5.8 2.4 6.6 34.2 -20.0 2.5 4.0 4.5 4.5 5.5
Residential construction 8.8 0.5 -3.2

18.2 13.0 -20.0 -20.0 -10.0 5.0 5.0 10.0
Public investment 11.5 5.3 -3.3 4.7 -10.5 5.0 10.0 5.0 -10.0 -10.0 -10.0
Government consumption 2.0 0.9 1.2

0.8 0.4 1.5 1.0 1.0 1.5 1.0 1.0
Exports of goods and services 1.6 6.7 4.5 1.8 26.3 -4.0 3.5 4.5 5.5 5.5 5.5

15.5 27.6 -25.0 10.0 5.5 5.5 6.5 10.0
Domestic final sales contribution 2.1 1.3 1.2 2.4 7.8 -11.2 3.6 2.4 1.5 2.5 4.2
Inventories contribution -0.3 -0.4 0.0

-0.3 -1.1 0.0 -0.2 -0.3 0.5 -0.2 -0.2
Net trade contribution -0.2 0.1 0.2 -1.8 0.1 3.7 -0.8 -0.1 0.1 -0.1 -0.6
Consumer prices (%oya) 0.4 2.9 2.0

1.4 1.5 3.8 3.4 3.1 3.0 1.3 1.2
General govt. net lending (%of GDP, CY) -8.9 -8.1 -6.8
Unemployment rate (%) 4.0 3.5 3.4

3.9 3.6 3.6 3.5 3.4 3.4 3.4 3.3
Industrial production -0.6 3.1 2.2 7.6 12.5 -14.3 1.0 4.0 4.5 4.5 5.5
Memo: Global industrial production
1.9 3.1 3.1 4.3 2.1 2.5 3.8 4.4 4.0 4.4 4.4
%oya
3.2 3.2 3.0 3.1 3.1 3.6 4.2 4.3

Note: More forecast details for the G-3 and other countries can be found on J.P. Morgans Morgan Markets client web site

6
J oseph Lupton (1-212) 834-5735
Economic Research
Global Data Watch
August 1, 2014

Olya E Borichevska (1-212) 834-5398
olya.e.borichevska@jpmorgan.com

Global Central Bank Watch

Official
Current
Change since (bp)
Last change Next mtg
Forecast Forecast (%pa)

rate rate (%pa)
05-07 avg Trough
1
Jul 11 next change
Sep 14 Dec 14 Mar 15 Jun 15 Sep 15
Global 2.34 -198 55 -34 2.31 2.32 2.33 2.34 2.44
excluding US 3.11 -113 69 -37 3.06 3.07 3.09 3.10 3.11
Developed 0.29 -320 0 -55 0.30 0.30 0.32 0.35 0.52
Emerging 6.05 -96 116 -22 6.10 6.12 6.12 6.11 6.07
Latin America 7.41 -334 160 -161 7.41 7.41 7.44 7.44 7.44
EMEA EM 6.11 -12 214 178 6.47 6.47 6.37 6.27 6.04
EM Asia 5.60 -19 112 -37 5.58 5.61 5.64 5.64 5.65
The Americas 1.59 -350 50 -41 1.52 1.52 1.52 1.54 1.80
United States Fed funds 0.125 -438 0 0 16 Dec 08 (-87.5bp) 29 Jul 14 3Q 15 (+25bp) 0.125 0.125 0.125 0.125 0.500
Canada O/N rate 1.00 -273 75 0 8 Sep 10 (+25bp) 3 Sep 14 2Q 15 (+25bp) 1.00 1.00 1.00 1.25 1.25
Brazil SELIC O/N 11.00 -425 375 -150 2 Apr 14 (+25bp) 3 Sep 14 on hold 11.00 11.00 11.00 11.00 11.00
Mexico Repo rate 3.00 -487 0 -150 6 Jun 14 (-50bp) 5 Sep 14 4Q 15 (+25bp) 3.00 3.00 3.00 3.00 3.00
Chile Disc rate 3.75 -94 325 -150 15 Jul 14 (-25bp) 14 Aug 14 15 Aug 14 (-25bp) 3.25 3.00 3.00 3.00 3.00
Colombia Repo rate 4.25 -306 125 -25 31 Jul 14 (+25bp) 29 Aug 14 29 Aug 14 (+25bp) 4.75 5.00 5.00 5.00 5.00
Peru Reference 3.75 -31 250 -50 10 Jul 14 (-25bp) 7 Aug 14 7 Aug 14 (-25bp) 3.50 3.50 4.00 4.00 4.00
Europe/Africa 1.58 -216 25 -38 1.51 1.51 1.52 1.54 1.52
Euro area Refi rate 0.15 -283 0 -135 5 Jun 14 (-10bp) 7 Aug 14 3Q 18 (+10bp) 0.15 0.15 0.15 0.15 0.15
United Kingdom Bank rate 0.50 -444 0 0 5 Mar 09 (-50bp) 7 Aug 14 1Q 15 (+25bp) 0.50 0.50 0.75 1.00 1.25
Norway Dep rate 1.50 -169 25 -75 14 Mar 12 (-25bp) 18 Sep 14 on hold 1.50 1.50 1.50 1.50 1.50
Sweden Repo rate 0.25 -231 0 -175 3 Jul 14 (-50bp) 4 Sep 14 on hold 0.25 0.25 0.25 0.25 0.25
Czech Republic 2-wk repo 0.05 -235 0 -70 1 Nov 12 (-20bp) 5 Sep 14 On hold 0.05 0.05 0.05 0.05 0.05
Hungary 2-wk dep 2.10 -503 0 -390 22 Jul 14 (-20bp) 26 Aug 14 4Q 15 (+20bp) 2.10 2.10 2.10 2.10 2.10
Israel Base rate 0.50 -375 0 -275 28 Jul 14 (-25bp) 25 Aug 14 1Q 15 (+25bp) 0.50 0.50 1.00 1.25 1.25
Poland 7-day interv 2.50 -202 0 -200 3 Jul 13 (-25bp) 2 Sep 14 Sep 14 (-50bp) 2.00 2.00 2.00 2.00 2.00
Romania Base rate 3.50 -469 0 -275 4 Feb 14 (-25bp) 4 Aug 14 30 Sep 14 (-25bp) 3.25 3.00 2.75 2.75 2.75
Russia Key pol rate 8.00 N/A N/A N/A 25 Jul 14 (+50bp) 25 Jul 14 1Q 15 (-25bp) 8.00 8.00 7.75 7.50 7.00
South Africa Repo rate 5.75 -254 75 25 17 Jul 14 (+25bp) 18 Sep 14 29 Jan 14 (+25bp) 5.75 5.75 6.00 6.25 6.50
Turkey 1-wk repo 8.25 -741 324 200 24 Jun 14 (-50bp) 27 Aug 14 27 Aug 14 (-25bp) 8.00 8.00 8.00 8.00 8.00
Asia/Pacific 3.81 14 91 -31 3.80 3.82 3.84 3.84 3.87
Australia Cash rate 2.50 -344 0 -225 6 Aug 13 (-25bp) 5 Aug 14 On hold 2.50 2.50 2.50 2.50 2.75
New Zealand Cash rate 3.50 -388 100 100 24 Jul 14 (+25bp) 11 Sep 14 11 Dec 14 (+25bp) 3.50 3.75 4.00 4.25 4.25
Japan O/N call rate 0.05 -17 0 0 5 Oct 10 (-5bp) 7 Aug 14 On hold 0.05 0.05 0.05 0.05 0.05
Hong Kong Disc. wndw 0.50 -548 0 0 17 Dec 08 (-100bp) 30 Jul 14 3Q 15 (+25bp) 0.50 0.50 0.50 0.50 0.75
China 1-yr working 6.00 -14 69 -56 7 Jul 12 (-31bp) - On hold 6.00 6.00 6.00 6.00 6.00
Korea Base rate 2.50 -165 50 -75 9 May 13 (-25bp) 14 Aug 14 14 Aug 14 (-25bp) 2.25 2.25 2.25 2.25 2.25
Indonesia BI rate 7.50 -237 175 75 12 Nov 13 (+25bp) 14 Aug 14 On hold 7.50 7.50 7.50 7.50 7.50
India Repo rate 8.00 113 325 0 28 Jan 14 (+25bp) 5 Aug 14 4Q 14 (+25bp) 8.00 8.25 8.25 8.25 8.25
Malaysia O/N rate 3.25 1 125 25 10 Jul 14 (+25bp) 18 Sep 14 1Q 15 (+25bp) 3.25 3.25 3.50 3.50 3.50
Philippines Rev repo 3.75 -331 25 -75 31 Jul 14 (-25bp) 15 Sep 14 1Q 15 (+50bp) 3.50 3.50 4.00 4.00 4.00
Thailand 1-day repo 2.00 -183 75 -125 12 Mar 14 (-25bp) 6 Aug 14 1Q 15 (+25bp) 2.00 2.00 2.25 2.50 2.50
Taiwan Official disc. 1.875 -71 62.5 0 30 Jun 11 (+12.5bp) 30 Sep 14 1Q 15 (+12.5bp) 1.875 1.875 2.00 2.00 2.00
1 Refers to trough end-quarter rate from2009-present Effective rate can be adjusted on daily basis 3 BoJ targets 60-70tn/year expansion in monetary base
Bold denotes move since last GDWand forecast changes. Underline denotes policy meeting during upcoming week. Aggregates are GDP-weighted averages.

7
J oseph Lupton (1-212) 834-5735
Economic Research
Global Data Watch
August 1, 2014


Nowcast global growth: 3Q14
Healthy start quarter
This week we roll our nowcaster tracking period to 3Q14.
Before turning to the current quarter, however, it is worth
noting that the nowcaster ended 2Q having seen some of the
upside risk-gap closed this week. The J .P.Morgan GDP
growth projection for last quarter was revised up in
response to much stronger-than-expected US GDP growth
that more than offset a downward revision to our J apan
outlook. That said, the 2Q tracking exercise still points to
1.1%-pt of upside risk that looks increasingly likely to
become yet another large error on the heels of 1Qs
disappointment.
Turning to the current quarter, the J .P. Morgan bottom-up
projection points to a 3.2% annualized gain in global GDP.
At the country level, there have been a few revisions with
J apan revised down and Malaysia revised up. On net, this
resulted in downward DM and global revisions. Still, the
bounce from last quarters 2.2% is noteworthy. If our call is
right, the global economy should pivot sharply this quarter
from below-trend growth in 1H14 to above trend in 2H14.
In the event the global pivot plays out, we should see it
confirmed in our nowcaster. However, given that our
nowcaster never saw the unusual dip in 1H14, we will track
our pivot call by watching to see that the nowcaster holds
near its recent solid levels. In this regard, the tracking
exercise begins this quarter with the nowcaster pointing to
3% annualized global GDP growth, just a touch weaker
than the J.P.Morgan forecast. It is worth noting that the last
time the nowcaster ran below the J .P.Morgan forecast was
precisely a year ago in J uly 2013.
Given that most of the data for 3Q is not available, the
nowcaster predicts underlying data based on the historical
averages of cross- and serial-correlations to fill out the
quarter. So far, the only datum available for 3Q is the
manufacturing PMI. Todays J uly manufacturing PMI
shows global factory output rising 4.4% annualized this
quarter, in line with the J .P.Morgan global GDP forecast
and thus, not surprisingly, the nowcaster projection.
Next Tuesday will deliver the all-industry PMI for J uly.
Based on the US and Euro area flash reports, we are
expecting a solid reading. If true, the nowcaster should pick
up and likely align with the J .P.Morgan forecast. After the
J uly PMI readings, the next important data input will be the
hard activity signals for J une. Global IP, retail sales, and
capital goods orders will become available in mid-August.
In the past, we have noted that there is a contemporaneous
correlation between equity markets and the nowcaster
reading. Given this, we note that during the first half of
2014 both the stock market and the nowcaster pointed to
solid gains. This might be another evidence of the strange
nature of 1Q global GDP result.

Global real GDP
%q/q, saar (Current forecast shaded)
2Q14

2Q14
Current Last week 4 weeks ago
J.P. Morgan 2.2 3.2 .. ..
Global Nowcaster 3.1 3.0 .. ..
Global PMI model 3.0 3.2 .. ..
Source: J.P. Morgan; Prior weeks' PMI model revised due to coding error

J.P. Morgan global aggregates
Quarters are %3m/3m,saar (PMIs avg level); Months are %m/m (PMIs level)
2Q14 3Q14 Jun 14 Jul 14 Aug 14 Sep 14
PMI, mfg 53.5 53.8 54.0 53.9 53.8 53.7
PMI, serv 54.3 55.5 55.8 55.7 55.5 55.4
IP 2.2 2.5 0.4 0.2 0.3 0.2
Retail sales 1.8 3.4 0.3 0.3 0.3 0.3
Auto sales 1.5 2.3 -0.7 0.5 0.2 0.3
Cap. orders 25.3 -2.5 4.2 -1.4 1.2 0.0
Nowcast 3.1 3.0 3.1 3.0 3.0 3.0
Note. Shaded values showforecasts computed by the Kalman filter estimates fromthe dynamic factor model.
Underlined values are our estimates based on available data and our judgment. Source: J.P. Morgan, Markit, and
national statistical agencies.

1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Jan 11 Jul 11 Dec 11 Jun 12 Dec 12 Jun 13 Dec 13 Jun 14
%q/q, saar; Box shows J.P. Morgan projection for 2Q14, 3Q14
Global real GDP
Nowcaster
(dashed line shows %m/m, saar)
Actual/JPM
(%q/q, saar)
Source:J.P.Morgan
-18
-12
-6
0
6
12
18
0
1
2
3
4
5
6
00 02 04 06 08 10 12 14
%3m, saar
J.P.Morgan Global GDP nowcast and equity prices
%3m
Global GDP nowcast
Equity price
(local FX)
Trend growth
Source: J.P. Morgan

8
Bruce Kasman (1-212) 834-5515
Economic Research
Global Data Watch
August 1, 2014

J oseph Lupton (1-212) 834-5735

Selected recent research
1
from J .P. Morgan Economics
Global
EM unemployment rates fall despite slower job growth, Jul 3, 2014
Global trade stuck in low gear, Apr 25, 2014
The winter of global GDP's disconnect, Apr 4, 2014

United States and Canada
US: a field guide to wage-watching, Jul 25, 2014
IP chimes in on US economic performance, Jul 18, 2014
US: labor market debates, past and future, Jul 11, 2014
Canada: BoC to fade inflation run-up, Jul 11, 2014
US: Are we under-investing? Jul 3, 2014
US food price inflation will get a little easier to swallow, Jul 3, 2014
US: housing reality is happier than the myths, Jun 27, 2014
US: Who are the involuntary part-timers? Jun 13, 2014
US: 5 reasons why productivity will remain stuck in the mud, Jun 6, 2014
Stressed US state and local budgets hold back spending, Jun 6, 2014
US: Stay thirsty my friends: the mechanics of liquidity-draining, May 30, 2014
Early 2014: stronger US bank lending, weaker GDP, May 30, 2014
US pipeline prices moving up, deflation risks fading, May 16, 2014

Western Europe
Mixed supply side message from Euro area labor market, Jul 25, 2014
All mixed up: fiscal flexibility and structural reformin the Euro area, Jul 25, 2014
UK: the household sector can cope with gradual rate rises, Jul 25, 2014
The issue with the Euro area debt rule: the Italian case, Jul 18, 2014
Taking stock of Euro area growth: 2014 down, 2015 up, Jul 11, 2014
Europe's politics are shifting in the periphery's direction, Jul 11, 2014
Greece returns to growth but still needs fiscal flexibility, Jul 11, 2014
Euro area wage growth: an update, Jul 3, 2014
Riksbank feels the pressure from low inflation, Jul 3, 2014
Euro area: time for a change. Renzi+Merkel=Renkel? Jun 27, 2014
Previewing the ECB's comprehensive assessment, Jun 20, 2014
UK: FPC to step up its macroprudential response, Jun 20, 2014
Britain & the EU: Not (yet) knockin' on the exit door, Jun 20, 2014
ECB tilts Euro area growth risks to the upside, Jun 13, 2014
Euro area: From Brussels with (not so tough) love, Jun 6, 2014
ECB delivers a big package and a big signal, Jun 6, 2014
UK: Your payrise is lost in the mail but should arrive soon, Jun 6, 2014
ECB: some thoughts about targeted LTROs, May 30, 2014
Credit in the Euro area and the UK: closer than you think, May 23, 2014
Euro area new fiscal forecasts, May 16, 2014
Sweden: tougher capital rules pave the way for July rate cut, May 16, 2014
What if Scotland votes yes? Some lessons from history, May 16, 2014
\An update on Euro area slack, May 9, 2014

Central Europe, Middle East, and Africa
Turkey: CAD still a vulnerability despite export resilience, Jul 25, 2014
Saudi Arabia: lessons from the 2009 H1N1 pandemic, Jun 13, 2014
Iraqi elections put al-Maliki closer to a third mandate, May 23, 2014
De-escalation = acceptance of Russias vision for Ukraine, Apr 11, 2014
Turkey: CBRTs flexibility on display, Apr 11, 2014
Japan
Japan: VAT shock fading, but recovery is not a done deal, Jul 3, 2014
Japan: new growth strategy focus is corporate governance, Jun 20, 2014
BoJ to stay on holdchange in reaction function, Jun 6, 2014
Japan: new growth strategy no game-changer, May 9, 2014

Non-Japan Asia and Pacific
Tracking expansion plans for Australia's corporate sector, Jul 18, 2014
EM Asia's exports: US lift offset by drags elsewhere, Jul 18, 2014
Hostile senators derailing Australia's budget repair job, Jul 11, 2014
Australias competitiveness slide: lower wages, anyone? Jul 3, 2014
Indias budget: what to expect when youre expecting, Jul 3, 2014
Falling terms of trade a hurdle for Aussie corporate sector, Jun 27, 2014
Australia's neutral cash rate ain't what it used to be, Jun 20, 2014
China's role in shaping Hong Kong's monetary conditions, Jun 20, 2014
Taiwan: macro implications of property market boom, Jun 20, 2014
India: a policy agenda for the new government, Jun 13, 2014
Forecast change: RBA no longer expected to ease, Jun 6, 2014
What's Okun not telling us about the Aussie labor market? May 30, 2014
Containing China's financial risk, May 30, 2014
Undercurrents in China's consumption, May 30, 2014
Indonesia's budget revisions reflect rising macro headwinds, May 30, 2014
Singapore: getting to the core (inflation) of the matter, May 30, 2014
Chinas property market: a major macro risk, May 23, 2014
Aussie 2014-15 Budget outcome: Hockeys stick, May 16, 2014
Chinas small steps toward structural changes, May 9, 2014
China: RRR as a sterilization instrument, May 9, 2014
Is Emerging Asias tech sector losing its cyclical mojo? May 9, 2014
Indonesia's credit cycle: watching the fuel gauge, May 9, 2014

Latin America
Brazil: fiscal deterioration in cyclical and policy drivers, Jul 3, 2014
Mexico's balance of payments: changes brewing, Jun 27, 2014

Special Reports and Global Issues
Pressures forcing the G4 central banks apart, July 16, 2014
Portugal after the clean exit, May 8, 2014
ECB needs to do a lot more to meet its mandate (but probably won't), May 1, 2014
India: elections, markets, & the tyranny of economic reality, Apr 2, 2014
Euro area inflation: the building downside risk, Mar 25, 2014
Euro area slack: there is much more than you think, Feb 3, 2014
India in 2014five questions that keep us awake, Jan 26, 2014
The US economic outlook in 2014, Jan 2, 2014
We will grow, but can we heal? 2014 global economic outlook, Dec 19, 2013
Ten questions about China, Dec 18, 2013
Enjoying the interval in the Euro area drama, Oct 24, 2013
US future isn't what it used to be: potential growth falls below 2%, Aug 12, 2013
Job gains to lag global growth lift, Jul 24, 2013
BoJ to succeed by failing to hit its inflation goal, Jul 24, 2013
Chinas financial sector: concerns about the mounting risks, Jul 18, 2013
The challenge of very low inflation in the Euro area, Jul 9, 2013
1. Research notes listed have been published in GDW; Special Reports and Global Issues are stand-alone features, but may also have appeared in some formin GDW.
9
Jan Loeys (1-212) 834-5874
jan.loeys@jpmorgan.com
Economic Research
Global Data Watch
August 1, 2014
The J.P. Morgan View: Markets
Not a fundamental correction
Asset allocation Sell off is consistent with large spec
positions, is not supported by any worsening in
fundamentals, and is not producing contagion. We
accept volatility, prefer liquid risk assets and stay OW
EM.
Economics Surveys and hard data remain consistent
with the global economy moving to a 3% plus growth
pace in Q3, with little sign of inflationary pressures, or
earlier Fed tightening. Ideal for risk markets.
Fixed Income Flat duration in DM and long in EM.
We keep a 110bp target for 10yr Spain and Italy vs.
Germany by year end.
Equities Technicals suggest the correction in the
S&P 500 is not over.
Credit Argentinas default should not result in
contagion.
FX We are flattening our overall USD position from
a net short. Be long USD vs G10, but short vs EM Asia.
Commodities We raise our aluminum, copper, zinc
and gold price forecasts, but lower nickel and silver.
Equities sold off heavily yesterday, somewhat out of the blue
and without a smoking gun, in our opinion. Global stocks are
now almost 3% below their peak from a few weeks ago.
Bonds are broadly flat on the week, and credit spreads are a
bit wider, but not greatly so. EM outperformed again in
equities, but is flattish to slightly down vs. DM in other asset
classes.
Our technical strategists have been highlighting the risk of an
equity market correction this past month given, among others,
extended long hedge fund positions (chart p. 10 and
JPMorgan View two weeks ago). We decided then that we
did not want to trade this as the downside did not appear
extreme to us, given no change in underlying fundamentals,
and the likelihood that we would be forced back into the
market relatively quickly, with no guarantee that we would be
able to buy back at a lower price than where we sold. We stay
with that view, even as we accept that corrections are
typically not over in one day as they lead often to follow-on
position squaring.
On the fundamental side, Q2 earnings are coming in more
than fine, with 10% plus gains oya so far in the US, Europe,
and Japan (ex financials and utilities). Activity data and
surveys are supporting our view that world growth is
rebounding to an above trend rate of over 3%, a pace we
expect to be kept into next year. Both the FOMC statement
and the US payrolls report suggest to us there is little inflation
pressure in the US and the Fed is in no hurry to hike rates
(see D. Silver, Focus: taking stock of wage inflation
measures, Aug 1). We stay of the opinion that the FOMC will
only start hiking in Q3 of next year.
Even with no change in modal views, risk markets can easily
fall if there is a rise in tail risks. Clearly, the conflagration in
the Middle East is not abating, but is probably not the cause
of the equity correction as oil prices are down over the past
month. We stay long energy, despite recent losses, both as a
hedge and because it provides ample carry. Argentinas
default is an isolated conflict that has no bearing on the
ability of Latam sovereigns to pay their debts. The escalating
East-West conflict around the Ukraine has greater potential,
but to us not yet. The main thing to watch is whether the
conflict starts interrupting the flow of energy.
At times, a sell off in markets itself creates contagion and in
turn worsens fundamentals that then feed back into a further
worsening of risk assets. So far, we are not seeing this.
Contagion with risk assets is currently very limited. The
dollar is up half a percent within G10, and 1.5% vs EM. But
EM credit has barely moved vs US spreads, and EM equities
are actually outperforming. There is no real flight to quality
into bonds, and if there were, it would improve borrowing
costs. High yield is getting hit hard and borrowing costs are
rising here, but this should be offset by improvements in bank
lending standards in the USA and Europe. Wealth effects on
consumer spending of the 3% drop in global stocks appear
negligible.
Impact on strategy. Despite the losses on our portfolio, we
feel comfortable with our asset allocation. We suspect heavy
long equity positions are in DM and not in EM. With Asian
EM activity data and surveys in particular impressing, and
little signs of contagion, we stay long EM Asia against DM in
equities and currencies. And with investor concerns focused
on the effect of earlier Fed hikes, we continue to hold most of
our longs in risk assets via equities and very little in credit.
US high yield last month lost as much as global equities
(-1.2% each). We continue to see the combination of value,
positions and fundamentals as much less favorable for credit
than for equities.
Fixed Income
Bonds are broadly unchanged on the week, despite solid
economic data during the week, and fireworks in the equity
market. To some degree, the impact of better economic data
has been offset by the sudden drop in equity prices. Our
medium-term macro story remains intact, with a solid growth
dynamic in US, UK and Euro. We believe the growth and
10
Economic Research
August 1, 2014
Jan Loeys (1-212) 834-5874
inflation outlook will create a divergence in monetary policy
and stick to our cross-market trades, with short duration in
US against long duration in the Euro area. The positive macro
outlook provides support to our medium-term view of tighter
peripheral spreads and we keep a 110bp target for 10Y
Spain and Italy vs. Germany by the end of the year
(GFIMS, Bassi et al., Aug 1).
In the US, we are bearish on duration but limit our short
trading to weeks leading up to payrolls. There has been a
well-defined intra-month pattern to Treasuries, with yields
rising in the week before the employment report, only to
decline over the following week. Our US fixed income
strategists now take profit on the tactical short they put
on last week. With the data calendar relatively light,
volatility still subdued and the strong pattern of yields falling
in the week following payrolls, we see an opportunity for
carry trading. See todays US FIMS for recommendations of
the most attractive carry trades at present.
Equities
World equity markets were down almost 2% this week across
most regions except Japan, which was flat. Eurostoxx 50 has
now erased all of this years gains and is now down on the
year. This weeks news around Russia has weighed heavily
on European equities, making it the worst performing
regional equity market on the week.
How serious is the current correction? While we see a valid
argument to underweight European equities (vs EM), we
see no fundamental support for the correction in the
S&P500 index given a robust US reporting season and
positive US economic news this week. In our mind, the
correction is similar to the five mini corrections, of 5% or so,
the S&P500 index has experienced since the summer of 2012,
after the euro area crisis ended. Each of these five corrections
proved a good opportunity to add risk.
How much further can the correction go? Our US equity
technical analyst expects the correction to last until early
September. But the absence of a broad multi-month
distribution pattern leaves the longer-term bull market intact.
(Tips Breakevens and S&P 500 Index Technical Update, J.
Hunter and S. Seceleanu, Jul 29).
Our EM OW vs. DM continues to perform well despite the
weakness in EM currencies breaching the previous high seen
on Apr 11. The positive data flow from Taiwan, Korea, and
China supports our overweight in Asia within EM. Our
sectoral overweight in US semiconductors lost money this
month, with the Philadelphia Semiconductor Index (SOX
Index) down 7% from its peak in mid July. Despite this,
YTD, semiconductors have outperformed the S&P500 by
around 10%. We believe mixed Q3 guidance has resulted in
the recent pullback, resetting expectations. As a result, we
exit the trade tactically for this quarter and look to re-
enter once the negative sentiment fades into Q4. Overall
we believe fundamentals in the segment remain positive and
there are no indications of a negative supply demand
imbalance. Moreover, semiconductor indicators such as unit
growth rates, margins, utilization rates, etc, are not suggestive
of a peaking in fundamentals (see Despite Recent Selloff,
Semi Fundamentals Remain Constructive, H. Sur et al., Jul 28).
Credit
There are some similarities between the current risk asset
decline and the sell-off we saw last year in May. Then, a
more hawkish Fed hurt the assets that had benefited the most
from the QE fueled search for yield. Foremost among these
were EM and HY credit. This time around, we find it hard to
argue the Fed has become much more hawkish, but signs of
some tightening in labor markets are likely resulting in
position squaring, once again hurting credit. However, the
-0.30
-0.20
-0.10
0.00
0.10
0.20
0.30
0.40
0.50
0.60
Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14
Macro HF: beta to the S&P500
Equity L/S HF: beta to the S&P500
Hedge fundmonitor
Rolling 21-day beta of macro and equity L/S hedge fundreturns to the returns on the
S&P500. The beta represents the average exposure of macro hedge funds to equities
Source: Datastream, Bloomberg, J.P. Morgan
-5 0 5 10
EM FX
US cash
GSCI TR
Topix*
EM Local Bonds**
MSCI Europe*
US Fixed Income
Global Gov Bonds**
US High Yield
MSCI AC World*
Europe Fixed Inc*
S&P500
US High Grade
Gold
EM $ Corp.
MSCI EM*
EMBIG
YTD returns through:
%, equities in lighter color.
31-Jul
Source: J.P. Morgan, Bloomberg
11
Economic Research
Global Data Watch
August 1, 2014
Jan Loeys (1-212) 834-5874
magnitude is far smaller. We expect this correction to be
short lived and it thus does not change our investment
strategy. We keep our small OW in credit.
Following Argentinas default and the expiry of the 30-day
Grace Period, the ISDA Determinations Committee has
decided that this event will trigger CDS. We do not expect
this event to result in any contagion to other markets as
Argentine bonds have been experiencing significant volatility
for sometime already and have traded on their own with little
correlation to anything else. Additionally, Argentinas weight
in the EMBIG index is less than 2% and it is not in the GBI-
EM or MSCI EM indices.
Foreign Exchange
After todays payrolls, the hard call for us is not the one-
year outlook. It is instead the next two months. The
medium-term call for a higher USD index remains anchored
in a view that the US economy will be breaking out in H2
after serial disappointment over the past three years, and that
2015 will deliver the sort of monetary policy divergences
required to generate a meaningful trend in the dollar index.
Hence, no change in the forecast for a 2% rise in JPM's trade-
weighted dollar index (JPMQUSD) by year end, nor in
benchmark currency targets for December like EUR/USD
1.30, USD/JPY 106, GBP/USD 1.67, AUD/USD 0.91,
USD/CAD 1.12, USD/BRL 2.35, but USD/MXN 12.80,
USD/CNY 6.15 and USD/KRW 1000.
The dollars near-term direction is less clear because a
good-but-not-great payroll frustrates momentum in the US 2-
yr required to give the dollar index its upward trend.
Normally we would simply affirm our summer-long strategy
of holding three buckets of trades: earning carry for another
few weeks in emerging markets (CNY); holding the odd USD
long versus a currency with a lot of tolerance for inflation
(NOK) or a major event risk (GBP); holding currencies of
counties with the strongest balance of payments (CHF,
KRW); and holding selective vol hedges, usually on a spread
basis (NZD/USD vs USD/MXN, EUR/USD and GBP/USD
vs EUR/GBP). Overall these themes have resulted in a net
short USD exposure, which has been profitable due to pair
selection but would have worked for the USD index this year.
Since the trade-weighted USD index is about unchanged this
year but non-USD currencies are higher yielding, a structural
short in the dollar this year would have generated alpha, as it
usually does in the years when the Fed is on hold.
But this time is different: We are neutralising USD
exposure for the first time in several months. Consider the
rationale more a risk bias than a strong directional one.
Weve thought for months that the US rates market and FX
vols have had a valuation problem, which exposed them to a
sharp correction if the US economy ever delivered consistent
growth with some inflation pressures. A shift in Fed tone
would helpeither Chair Yellens speech at Jackson Hole or
the September FOMC press conferencebut wasnt strictly
necessary since the market is priced even more dovishly than
the Feds somewhat dovish dot plot. Data prints over the past
month are evidencing more consistency on the activity and
price fronts than perhaps the US economy has posted this
cycle, while valuations remain poor and positions quite
skewed towards non-USD currencies. So while the position
changes are not large, they shift the Macro Portfolio from
overall short USD to flat USD, with shorts in G10 currencies
like NOK, GBP (existing) and JPY (new) offsetting longs in
EM Asian currencies like CNY, KRW and PHP.
Commodities
Commodities followed other risk assets lower this week,
with all sectors down. Our metals strategists have revised
their price forecasts, raising aluminum, copper, zinc and gold,
but lowering nickel. For copper, the Q4 forecast is in line
with forwards, suggesting our supply/demand expectations
are inline with the market. For zinc, our forecast represents a
fall of 11% vs. current market pricing, while nickel and
aluminum are expected to rise modestly in Q4. For gold, we
expect stronger Indian demand in H2 as import restrictions
are steadily relaxed; this is consistent with current market
pricing (Metals Quarterly, Kaneva et al., Jul 31).
Our chief commodity strategist, Colin Fenton,
recommends owning energy, aluminum and copper. We
have been long energy for two months, over which time
prices first rallied and then sold off and are now down 2%
since we opened the position (CMOS, Colin Fenton, Jul 31).
We stay long on still attractive carry, improving US refinery
demand, low inventories and our view that Libyan production
estimates are far too optimistic.
12
Economic Research
August 1, 2014
Jan Loeys (1-212) 834-5874
Forecasts & Strategy
Interest rates Current Sep-14 Dec-14 Mar-15 Jun-15
United States Fed funds rate 0.125 0.125 0.125 0.125 0.125
10-year yields 2.49 2.70 3.00 3.10 3.20
Euro area Refi rate 0.15 0.10 0.10 0.10 0.10
10-year yields 1.13 1.35 1.50 1.60 1.70
United Kingdom Repo rate 0.50 0.50 0.50 0.75 1.00
10-year yields 2.55 2.20 2.50 2.70 2.85
Japan Overnight call rate 0.05 0.05 0.05 0.05 0.05
10-year yields 0.53 0.55 0.55 0.65 0.70
Emerging markets GBI-EM - Yield 6.58 6.77
Credit Markets
US high grade (bp over UST) 128 110
Euro high grade (bp over Euro gov) 89 75
USD high yield (bp vs. UST) 412 375
Euro high yield (bp over Euro gov) 325 315
EMBIG (bp vs. UST) 302 275
EM Corporates (bp vs. UST) 331 300
Foreign Exchange
EUR/USD 1.34 1.34 1.30 1.30 1.28
USD/JPY 102 102 106 107 107
GBP/USD 1.68 1.71 1.67 1.68 1.66
AUD/USD 0.93 0.92 0.91 0.90 0.91
USD/BRL 2.27 2.30 2.35 2.45 2.50
USD/CNY 6.17 6.2 6.15 6.15 6.15
USD/KRW 1033 1000 1000 995 985
USD/TRY 2.13 2.15 2.15 2.15 2.15
Commodities Current 14Q3 14Q4 15Q1 15Q2
Brent ($/bbl) 105 115 112 105 110
Gold ($/oz) 1295 1300 1300 1300 1275
Copper ($/metric ton) 7124 7100 7050 7000 6800
YTD Equity Sector Performance* US Europe Japan EM$
Energy 11.8% 8.4% UW 7.9% UW 5.0% UW
Materials 8.6% 6.5% OW -2.0% UW 2.2% UW
Industrials 3.6% -0.7% OW 4.7% OW 5.6% OW
Discretionary 0.8% 1.9% N -3.7% OW 9.3% N
Staples 5.5% 5.3% UW 7.4% OW 4.6% UW
Healthcare 9.9% 10.5% N 6.0% UW 13.1% N
Financials 4.6% 0.5% OW -12.7% OW 7.2% N
Information Tech. 10.5% -3.0% OW 6.0% UW 15.9% OW
Telecommunications 7.8% -0.3% UW -2.5% OW 3.9% UW
Utilities 13.4% 15.6% N -5.3% UW 15.0% N
Overall 6.5% 4.5% -1.9% 8.1%
*Levels/returns as of July 31, 2014
Source: J.P. Morgan
Investment themes and impacts
Low growth means money stays easy
The current US recovery is the slowest since WWII.
Global growth will barely exceed potential. Easy money
stays for a long time.
Low macro vol drives carry trades
ZIRP and low macro vol make earning risk premia and
carry very attractive
Rotate risk from over-owned and -valued
to better valued and less owned risk assets. Credit
OWs are now small, and exposure is moved to equity,
EM and commodity roll.
OW EM across asset classes
Relative macro momentum is switching to EM. EM
growth expectations are stabilizing while those in DM
have come down badly. Investors seem UW EM, while it
offers better value. OW EM across bonds, FX, credit and
equities.
Avoid and hedge what is suspect
Our UWs are not just based on value and macro
momentum but also on what seems uncertain, coming
from event risk, such as the Middle East and China, or
from the unexplained (fall in U-rate and Q1 GDP).
Hedges include oil futures, UW US FI vs EU, UW US
equity vs EM.
Past half-time in the global business cycle
June marks the 5th anniversary of the recovery. Working
hypothesis is an 8-year recovery. That keeps equity rally
on track, but makes the credit rally mature.
Source: J.P. Morgan, GMOS, Jul 2, 2014.
Tactical overview
Direction Country Sector
Asset
allocation
Bullish risk EM OW Equities, HY
vs bonds.
Equities Long EM, Dax
Semiconductors;
J-REITs; cycls
Bonds
Flat Duration
in DM; long
in EM
EU vs. US,
UK. OW,
NZ, Spain;
AU, Brazil.
Credit Small OW EU HY, FINs, EM.
FX Long EM
Carry from:
COP,
CNY, PHP,
NGN
Long SEK, NOK vs.
EUR; short ZAR vs.
USD.
Comds Small OW
Energy on carry;
Copper on better
demand from China.
Source: J.P. Morgan

13
Robert E Mellman (1-212) 834-5517
robert.e.mellman@jpmorgan.com

Economic Research
Global Data Watch
August 1, 2014

Economic Research Note
US economy looks a little
different after the GDP report
Real GDP rose 4.0% in 2Q14, but with real final sales
up 2.3% and a big build in inventories
Upward revision to income is a plus for consumer
spending; lower estimate of profits is negative for capex
GDP forecast for 2H14 is still 3.0%, with somewhat
stronger final sales and a sharper inventory correction
Real GDP posted 4.0% saar growth in 2Q14, and growth for
the previous three quarters was revised up an average of
0.7%-pt per quarter. But the implications of the GDP report
for growth in 2H14 are mixed, as current data show a
modestly stronger trend in real final sales than expected (a
positive for near-term growth) accompanied by a substantially
larger inventory build in 2Q14 than expected (a negative for
near-term growth). Consequently, the J.P. Morgan forecast of
3.0% real GDP growth through 2H14 is unchanged.
The 4.0% increase in real GDP in 2Q14 consists of a
moderate 2.3% increase in real final sales and a 1.75pt
contribution to growth from the increase in the rate of
inventory accumulation. Growth of real final sales last quarter
was stronger than the 1.9% J .P. Morgan forecast, and the
trend in real final sales over the year through 1Q14 was
revised up to 1.8% (from 1.5%). The somewhat stronger trend
in final sales would, all else equal, tend to boost growth
prospects for the second half.
However, the large build in inventories in 2Q14 is an
offsetting negative. Growth of real private inventories reached
$93.4 billion in 2Q14, up from $35.2 billion in 1Q14 and
average growth of $64.0 billion over the year ended 1Q14.
Relative to the recent past, the largest increase in inventory
accumulation has been in manufacturing. The substantial
increase in farm inventories previously reported in the five
quarters through 1Q14 has been largely revised away.
It is difficult to know just how much inventories will subtract
from growth in the second half of this year. When inventory
accumulation reached comparable levels in 3Q10, inventories
took an average 1.3%-pts off of real GDP growth over the
next two quarters. And when inventory accumulation peaked
at a similar pace in 3Q13, inventories took an average 0.8%
off of real GDP growth over the following two quarters. But
when inventories reached a similarly elevated level in 4Q11,
inventories were essentially neutral for growth through much
of 2012. The forecast looks for inventories to take a little less
than a half percent off of growth in 2H14.
Consumer spending prospects a bit better
The outlook for consumer spending looks a bit stronger than it
did prior to the latest GDP release. Real consumer spending
increased 2.5% saar in 2Q14, surpassing our 1.9% forecast.
Moreover, prior estimates of spending growth were revised
up, to 1.2% from 1.0% in 1Q14 and to 2.8% from 2.3% in
2013 (4Q/4Q).
Probably more important for near-term spending, recent
growth of labor compensation and real disposable income has
been revised substantially higher. Real disposable income in
1Q14 was revised to growth of 3.5% saar (from 1.5%), and
real disposable income in 2Q14 increased 3.8% (above the
forecast of 3.1%). The shift to much stronger real income

-1
0
1
2
3
4
2011 2012 2013 2014
%ch saar
Real final sales of domestic product
Source: BEA
Over prior
quarter
Over year ago
-3
-2
-1
0
1
2
3
-25
25
75
125
2010 2011 2012 2013 2014
$bn, saar
Real private inventory accumulation and its contribution to growth
pct. pt. contrib. to real GDP growth
Source: BEA
Change in real
inventories
Contribution to annualized
real GDP growth
1.5
2.0
2.5
3.0
2012 2013 2014
%oya
Real consumer spending
Source: BEA
Current data
Pre-revision data
.
2Q14 sequential
growth rate, 2.5%

14
Economic Research
US economy looks a little different
after the GDP report
August 1, 2014

growth would normally be associated with a turn to stronger
spending growth.
To be sure, growth of real disposable income has substantially
outpaced growth of real consumer spending so far this year,
and the saving rate has increased from 4.4% in 4Q13 to 5.3%
in 2Q14. The implications of a higher saving rate for
consumer spending can be argued both ways. A pullback in
spending relative to income can be viewed as a sign of
consumer caution that is a negative for spending. Or it could
be viewed as a temporary spending pause and prelude to
reacceleration. This past weeks increase in the Conference
Board measure of consumer confidence to a new high for the
expansion and the recent strength in auto sales suggest that
the rise in the saving rate is not a symptom of a serious
deterioration in sentiment and that real consumer spending
will turn stronger in 2H14. The recent moderation in food and
energy price increases is another near-term positive for real
consumer spending.
Business spending prospects a bit weaker
The recent news on business fixed investment (BFI) is more
mixed. Real BFI increased 5.5% saar in 2Q14, a little short of
our 7.3% forecast. But there were modest upward revisions to
recent history, with business investment in 1Q14 revised up to
1.6% (from -1.2%) and BFI for 2013 revised up to 4.7%
(4Q/4Q) growth from 2.6%.
Whereas the recent trend in real disposable income had been
revised noticeably higher, providing more fuel for consumer
spending, the recent trend in corporate profits was revised
substantially weaker and may act as a restraint on business
spending. The level of adjusted after-tax earnings in 1Q14
was revised down 9.0% relative to the earlier government
estimates reflecting a lower prior-quarter level, a slightly
sharper drop in pretax earnings, and a substantial upward
revision to tax liabilities. Adjusted after-tax profits now show
a decline of 16.3% saqr in 1Q14.
Corporate earnings are not the only or even dominant influence
on capital spending. But the sharp drop in earnings early in the
year helps explain why real business fixed investment slowed
fromaverage growth of 7.9% saar in 2H13 to only 3.5% in 1H14,
and it is a potential negative for near-termcapital spending.
An increase in government spending
Another feature of growth in 2Q14 was a 1.6% saar increase
in real government spending, the largest increase since 3Q12
(when government spending was boosted by an anomalous
surge in military outlays). Details show that real federal
spending posted a modest decline. The total was boosted by
3.1% growth in real spending of state and local governments.
While state and local government spending has shifted from a
declining trend through 2012 to modest increases since, results
for 2Q14 were clearly boosted by a weather-related rebound
in construction spending. The underlying trend in real state
and local government spending is closer to 1.0% growth.
Slightly higher inflation
Revisions to the major price measures were relatively minor
but tended to be upward. Current data show the core PCE
price index running 1.25%oya in 1Q14 (revised up from
1.12%), and the core PCE price index increased 1.96% saar in
2Q14 (vs. J .P. Morgans forecast of 1.9%). The GDP price
index now shows an increase of 1.43%oya in 1Q14 (revised
up from 1.36%), and the increase in 2Q14 was 2.0% (vs.
J .P. Morgans forecast of 1.7%).

Real government spending

%ch saar
3Q13 4Q13 1Q14 2Q14
All government 0.17 -3.79 -0.83 1.61
Federal -1.21 -10.33 -0.14 -0.75
Defense 0.44 -11.43 -3.99 1.04
Other -3.94 -8.54 6.59 -3.73
State and Local 1.08 0.62 -1.25 3.12
Construction -1.19 -3.05 -12.51 16.09
All other 1.43 1.19 0.55 1.32
Source: BEA

1250
1350
1450
1550
1650
1750
2010 2011 2012 2013 2014
$bn, saar
Adjusted after-tax corporate profits
Source: BEA
Current
data
Pre-revision
data
-8
-6
-4
-2
0
2
4
2010 2011 2012 2013 2014
%ch saar
Real government spending
Source: BEA
Over prior
quarter
Over year ago

15
JPMorgan Chase Bank N.A, London Branch
David Mackie (44-20) 7134-8325
david.mackie@jpmorgan.com

Economic Research
Global Data Watch
August 1, 2014

Labor underutilization and
wages in the Euro area
Slack is greater than the unemployment rate suggests
It will be reabsorbed as unemployment falls
It will keep wage growth subdued
We recently discussed Eurostats four measures of labor
underutilization: individuals who are unemployed, inactive
individuals seeking work but not immediately available,
inactive individuals immediately available but not seeking
work, and part-timers who would like to work longer hours
(see Mixed supply side message from Euro area labor
market, GDW, J uly 23, 2014).
Our measure of the aggregate amount of underutilized labor in
the Euro areaadding the individual measures together after
applying a factor of 0.5 to underemployed part-timersshows
an increase from 13.7% of the labor force at the start of 2008
to 19.8% of the labor force at the start of this year. These data
suggest two things: first, an enormous amount of slack that
can be reabsorbed before the output gap is closed, and second,
very subdued wage growth for the indefinite future.
Unfortunately, these data only begin in 1Q08, so it is not
possible to look at previous cyclical experience. However, it
is possible to look at two economiesGermany and the
UKthat have seen a significant decline in unemployment
over recent years. If Eurostats measures of underutilization
really do represent additional labor supply, we would expect
to see two things: first, other measures of underutilization
falling alongside the decline in unemployment, second, wages
remaining unusually subdued relative to unemployment. This
is exactly what we see in the German and UK labor markets.
Our inclination is to think that similar developments will
occur in the rest of the region.
Potential additions to the labor force
Eurostat defines potential additions to the labor force as
individuals who are classified as economically inactive but
are either seeking work but not immediately available (e.g.,
students) or immediately available but not seeking work (e.g.,
discouraged workers). In the Euro area, as the unemployment
rate has risen by 4.7%-pts since 2008, this measure of labor
underutilization has risen by 0.9%-pt (as a percentage of the
labor force). For potential additions to the labor force to
represent additional labor supply, they would need to decline
as the business cycle moves forward. This is exactly what has
happened in Germany and the UK.

4.0
4.5
5.0
5.5
7
8
9
10
11
12
13
2008 2009 2010 2011 2012 2013 2014 2015
% of labor force, both scales
Euro area unemployment and potential additions to the labor force
Source: Eurostat
Unemployment
Potential additions
2.0
2.5
3.0
3.5
4.0
5
6
7
8
9
2008 2009 2010 2011 2012 2013 2014 2015
%of labor force, both scales
German unemployment and potential additions to the labor force
Source: Eurostat
Unemployment
Potential additions
3.0
3.3
3.6
3.9
5
6
7
8
9
2008 2009 2010 2011 2012 2013 2014 2015
UK unemployment and potential additions to the labor force
Source: Eurostat
Unemployment
Potential additions
3.0
3.5
4.0
4.5
7
8
9
10
11
12
13
2008 2009 2010 2011 2012 2013 2014 2015
% of labor force, both scales
Euro area unemployment and underutilized part-timers
Source: Eurostat
Unemployment
Underutilized
part-timers

16
Economic Research
Labor underutilization and wages in
the Euro area
August 1, 2014
David Mackie (44-20) 7134-8325
david.mackie@jpmorgan.com

In Germany the unemployment rate has been trending lower
since 2008, with a decline of 2.7%-pts from 1Q08 to 1Q14.
Meanwhile, over this period the number of potential additions
to the labor force has declined by 1.1%-pts. In fact, Germany
has seen a sharp fall in other inactive individuals as well,
which has contributed to a 2.8%-pts increase in the
participation rate since the beginning of 2008.
The UK provides a greater sense of cyclicality in these data.
From 2008 to 2010, unemployment and potential additions to
the labor force both rose; from 2011 onwards both have
declined. If anything, potential additions to the labor force
have fallen faster relative to unemployment than might have
been expected. Meanwhile, other inactive individuals have
actually increased since 2011, but the participation rate has
nevertheless moved higher.
Underutilized part-timers
Eurostat defines underutilized part-timers as those part-timers
who would like to work longer hours. There are no data on
full-time workers who would like to work longer hours. In the
Euro area, the number of underutilized part-timers has risen
by 0.9%-pt since the start of 2008. There is some debate about
whether this genuinely represents additional labor supply,
because a desire to work longer hours may reflect someone
else in the household losing their job. If that other member of
the household gets a new job, the part-timer may not wish to
work longer hours. The data do not enable us to discern the
extent of this effect. At the very least, we would expect to see
underutilized part-timers correlated with unemployment.
Firms are likely to increase utilization of existing employees
before adding new ones.
This is exactly what we see in the data. In Germany, the
number of underutilized part-timers has fallen by 2.1%-pts
since the start of 2008, alongside the decline in
unemployment. The sense of cyclicality in the UK is not as
striking as with potential additions to the labor force. The
number of underutilized part-timers rose through 2012, but
has declined only modestly since then even as unemployment
has fallen sharply.
What about wages
If Eurostats measures of labor underutilization really do
reflect additional slack, we would expect to see wage growth
remaining subdued relative to unemployment, as other
individuals exert some downward pressure. This is true in
both Germany and the UK. Negotiated wages have risen
somewhat in Germany, but less than might have been
expected given the extent of the decline in unemployment.
Meanwhile, wage growth remains very subdued in the UK
even as the unemployment rate has fallen sharply.

3.5
4.0
4.5
5.0
5.5
6.0
6.5
5
6
7
8
9
2008 2009 2010 2011 2012 2013 2014 2015
German unemployment and underutilized part-timers
Source: Eurostat
Unemployment
Underutilized
part-timers
3.5
4.0
4.5
5.0
5.5
6.0
6.5
5
6
7
8
9
2008 2009 2010 2011 2012 2013 2014 2015
UK unemployment and underutilized part-timers
Source: Eurostat
Unemployment
Underutilized
part-timers
1
2
3
4
4
6
8
10
12
03 05 07 09 11 13 15
%of labor force
German unemployment and negotiated wages
%oya, 4Q mov avg
Source: Eurostat and Destatis
Unemployment
Wages
0
1
2
3
4
5
6 4
5
6
7
8
9
03 05 07 09 11 13 15
%of labor force
UK unemployment and average earnings
%oya
Source: ONS
Unemployment
Average earnings

17
JPMorgan Securities Japan Co., Ltd.
Masamichi Adachi (81-3) 6736-1172
masamichi.x.adachi@jpmorgan.com

Economic Research
Global Data Watch
August 1, 2014

J apan's exports face both
cyclical and secular headwinds
Exports have remained weak despite the more than
30% JPY depreciation against USD since mid-2012
Weak cyclical demand from the global economy,
particularly in ASEAN countries, held back exports
along with two secular forces: off-shoring in
manufacturing and a loss of product competitiveness in
IT equipment
With the expected cyclical lift in global demand,
Japanese exports likely will pick up, though muted by
secular forces
Japanese exports have been weak despite sharp yen depreciation
frommid-2012. The Cabinet Office econometric model
(presented in 2011) shows that a 10% JPY depreciation against
the USD boosts real exports by 1.7% in the first year and 2.1%
in the second year, contributing 0.24%-pt and 0.23%-pt,
respectively, to real GDP growth. Between mid-2012, when
current prime minister Shinzo Abe was elected as head of the
ruling LDP, and 2H13, JPY depreciated about 25% against
the USD; and its J une-July average level (around 102) is 30%
lower, so exports could have risen about 4%, raising real GDP
by 0.6%-pt solely due to J PY depreciation. However, real
exports in 2Q14 are 2% lower than the 2012 average. Also,
the latest J une print showed a further decline, even though the
exports of some Asian neighbors have picked up.
In our view, the unexpected sluggishness in exports has
reflected both cyclical (weak external demand) and secular
forces (production off-shoring by J apanese companies and a
loss of product competitiveness in IT equipment). To us this
implies that J apanese exports will pick up with a lift in global
growth, but likely at a more moderate pace than in the past.
Cyclical factor: weak external demand
Typically one would expect to see export volume rise when a
countrys currency weakens materially, allowing price
declines in export markets. But weak external demand can
dampen volumes. Growth in Japans real exports has not
diverged substantially from the equivalent change in its trade
partners GDP (second chart). According to the BoJ 's estimate
of real exports by destination (third chart), exports to ASEAN
countries (11% of J apan's total exports in 2013) were
particularly weak in 2013, consistent with anemic domestic
demand in these countries. In the first half of this year, some
decline in exports to China (18% of total exports), NIEs
(22%), EU (10%), and US (18.5%) should be no surprise as
the global growth was the weakest of the expansion.
Secular forces (1): Off-shoring
While weak external demand cannot be ignored, it is not the
only reason for J apans feeble exports. Another key factor is a
secular rise in overseas production by J apanese manufacturers.
The uptrend of overseas production relative to domestic
production has continued since the 1980s, particularly in the
auto sector. The sector initially faced heavy political pressure
from the US to reduce auto exports to the US; the solution
was to establish factories in the US. Since the 1990s, the large
swing in J PY (mainly appreciation) and the expected secular
decline in domestic demand and labor supply associated with

70
90
110
130
150
170
190
210
50
100
150
200
85 90 95 00 05 10 15
2000=100, sa
Exports and USD/JPY
Yen
Source: MoF, BoJ, J.P. Morgan
USD/JPY
Nominal exports
Real exports
-6
-3
0
3
6
9
12
-60
-40
-20
0
20
40
60
00 02 04 06 08 10 12 14
%q/q saar for both scales
Japan's real exports and trade-weighted partners' GDP growth
Dashed line shows 2Q14 forecast
Source: BoJ, J.P. Morgan, J.P. Morgan forecast
Real exports
Trade partners' GDP
85
90
95
100
105
2012 2013 2014 2015
1Q12=100, sa, 2Q14 shows Apr/May average
Real exports by destination
Source: BoJ, J.P. Morgan
ASEAN (ex. Singapore)
China
US+EU
NIEs
(Korea, Taiwan, HK, SIngapore)

18
Economic Research
J apan's exports face both cyclical
and secular headwinds
August 1, 2014

a shrinking population and aging society pushed many firms
to increase off-shoring, especially in emerging Asia. The
sharp JPY appreciation after the global financial crisis
accelerated overseas investment (first chart), which likely led
to increased production capacity in new, more efficient
factories. It is rational for firms to increase output in new
overseas factories (or with new equipment) when global
demand rises, instead of raising domestic output for export.
The increase in overseas production is broad-based across
manufacturing sectors, but most visible in the auto sector.
Secular force (2): Loss of IT product
competitiveness
Another factor weakening exports is likely the loss of product
competitiveness in the information and communication (IT)
equipment sector, which cannot be regained via price
competition (at least in the short term). The share of J apanese
IT equipment (computers & office machines,
telecommunications equipment, and audio & video equipment)
in both US imports and Japans domestic supply (domestic
production plus imports) has been falling (second chart).
Japans traditional strength in consumer electronic goods sector
has been lost and the sector suffered a material loss of global
markets share. It is not clear why Japanese manufacturers have
lost their competitiveness in product development (recall the
Walkman and VCR in the 1980s), but Japanese brands are no
longer popular in TV-sets, PCs, or new categories such as smart
phones and tablets. It appears that JPY depreciation alone
cannot spur innovation in the short term, but the surge in profits
driven by the depreciation may create more roomfor
investment by Japanese firms that leads to the creation of new,
competitive products in the longer term.
Pricing behavior change? not much
Another explanation we hear is that J apanese firms pricing
behavior has changed from market-share-oriented to more
profitability-oriented. J apans export prices on a contracted
currency basis declined only 2%oya in 2013 while the prices
in yen jumped 12%. It is possible that some firms changed
behavior, but US import prices from J apan do not support that
view (third chart). One plausible explanation for the limited
decline in the export prices is that the contract currency is JPY,
rather than foreign currency, especially for sales to Asian
subsidiaries. Indeed, according to the MoF, 36.1% of Japans
total exports in 1H14 used the J PY as transaction currency,
versus 52.4% priced in USD, and 43.1% of those exports
priced in J PY were to Asian buyers. It looks likely that the
prices for goods that are priced in USD or other foreign
currencies declined as yen depreciated (actually, the nominal
effective exchange rate of yen declined 18%oya in 2013,
more than the yen price rise).
Near-term recovery looks likely, but...
Our global economic outlook looks for a clear pickup in
growth in 2H14. Thus, one headwind for J apans exports
cyclical weakness of global demandis shifting to support an
exports recovery. The recovery of the PMI new export orders
index in the J uly flash report, to above the neutral 50 level for
the first time since March, supports this view. But, we think
that the two secular forces discussed here will continue to
weigh on export volumes. We think the pickup of J apanese
export volumes will be rather modest and lag the revival in its
Asian neighbors. Our forecast looks for a less than 5% ar
increase in real exports over the next four quarters, which is
weak compared to the past recoveries.

0
10
20
30
40
50
60
86 91 96 01 06 11
%
Overseas investment and production ratio (manufacturing)
Source: BoJ
Production
FY13 shows 2Q to 4Q13
Investment
(through FY12)
40
50
60
70
80
90
5
10
15
20
25
30
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
%of total USimports
IT equipment: share of Japanese products in US imports and Japan
domestic supply
Source: US Census bureau, METI, J.P. Morgan
Imports from Japan
Domestic production for shipments to Japan
%of total supply
-40
-30
-20
-10
0
10
20
30
40 -8
-6
-4
-2
0
2
4
6
8
95 97 99 01 03 05 07 09 11 13 15
%oya
US import prices from Japan and USD/JPY
Source: BLS, J.P. Morgan
US import prices
from Japan
USD/JPY
%oya , reversed

19
J.P. Morgan Securities LLC
J ahangir Aziz (1-202) 585-1254
jahangir.x.aziz@jpmorgan.com
JPMorgan Chase Bank, N.A., Singapore Branch
Benjamin Shatil (65) 6882-2311
benjamin.shatil@jpmorgan.com
Economic Research
Global Data Watch
August 1, 2014

EM Asia's credit woes
While private sector leverage has fallen in developed
markets, it has continued to rise in EM Asia
China is the biggest contributor, but elsewhere, too,
credit concerns have become material
As a result, monetary authorities have become wary of
rapid credit expansion
This rise in credit concerns could dampen a long-
awaited turnaround in EM Asia corporate investment
We began the year arguing that much of EM Asias fortunes
in 2014 depended on two separate drivers: how strongly
higher DM growth translated into increased Asian exports and
the extent to which domestic demand would be weighed down
by relatively tight policy and financing constraints stemming
from the unwinding of excess credit and low profit margins.
After a dismal 1Q, DM growth has recovered, and with it
Asias 2Q exports have firmed. Greater China has led the
recovery with other countries expected to follow in 2H14.
However, domestic demand has continued to languish. While
in some cases (Korea and Thailand) one-off events were the
culprit, elsewhere a combination of tight policy, credit
concerns, and continued volatility in global demand has
dragged down domestic activity. Consumption has never been
EM Asias strong suit. Instead, much of the growth in
domestic demand is driven by investment. This is where the
tight credit conditions have been important. The unwinding of
past excesses in credit growth remains incomplete, and, as a
result, credit quality remains a problem. Regional monetary
authorities have become increasingly concerned and are likely
to keep credit conditions tight in the near term, which could
stifle investment.
The big picture: leverage rises post 2008
In contrasting developments, leverage in developed markets
(DMs) has come down since the 2008 crisis, reflecting policy
intervention, while in emerging markets (EMs), particularly in
Asia, it has risen significantly (first chart). EM Asias stock of
debt (including debt to domestic and foreign banks, corporate
bonds issued in domestic and foreign markets and offshore
borrowing by branches of domestic banks) stood at US$9.5
trillion in 4Q08, and rose to over US$21 trillion by end-2013.
Much of the increase was in domestic borrowing, which rose
from US$8.5 trillion to over US$19 trillion. Thus, while
recent investor anxiety has focused on EM Asias growing FX
liabilities, the rise in foreign borrowing has been less
dramatic, from US$1 to US$2.5 trillion over this period.

Source: BIS, J.P. Morgan



60
70
80
90
100
110
120
00 02 04 06 08 10 12 14
%of GDP
EM Asia: bank credit
DM
EM Asia
10
11
12
13
14
15
80
90
100
110
120
130
04 06 08 10 12
%of GDP, both scales
EM Asia: total debt
Domestic
Foreign
25
30
35
40
45
50
04 06 08 10 12
%
EM Asia: foreign debt
% exports
% FX reserves
0
2
4
6
8
10
12
14
04 06 08 10 12
%
EM Asia: foreign debt
% of total credit
% funding domestic credit

20
Economic Research
August 1, 2014
J ahangir Aziz (1-202) 585-1254

The story remains the same when the raw numbers are
deflated by GDP or exports. Total debt increased from 90% of
GDP in 4Q08 to nearly 120% of GDP, while foreign debt rose
from 11% of GDP to 14% of GDP (second chart previous
page). The vulnerabilities associated with corporate FX
exposure have risen. In the case of foreign borrowing, export
earnings and FX reserves are often used as metrics to assess
an economys vulnerability to sudden exchange rate changes.
And it is here where concerns are building. EM Asias foreign
liabilities are now a higher share of exports (nearly 50%) than
at any time in the past 10 years (third chart previous page). A
significant part of the increase has been due to the much
slower export growth in the past five years. But it still
underscores the increased potential for currency mismatch in
the private sector. Some of this concern is allayed by the
continued strong reserve accumulation that has capped the
rise in overall foreign indebtedness as a share of FX reserves
at just below the pre-crisis level.
However, along other commonly used dimensions of
vulnerability things dont look as disconcerting. Foreign
borrowing as a share of total credit is actually lower than
during pre-crisis years and banks havent increased their
reliance on overseas funds to finance domestic credit (fourth
chart previous page). It should be somewhat reassuring that
domestic financial institutions have, by and large, limited
exposure to FX shocks. Instead, corporates are directly
exposed to FX shocks.
Is this all just China?
The massive rise in Chinas total credit over 2009-10 and the
subsequent struggle to contain credit growth is well known.
Given the size of Chinas economy and new credit creation it
is natural to question whether much of EM Asias apparent
credit woes is just Chinas problem. To a large extent it is.
But even excluding China, EM Asias credit story is an
ongoing concern, except in Korea and Taiwan.
Leverage in China has traditionally been high, but the rise in
2009-10 following the government stimulus pushed credit to
unprecedented levels. Credit growth elsewhere in Asia almost
pales in comparison. But such unqualified comparisons can be
misleading. In China credit surged from the already-high
100% of GDP in 2Q08 to over 140% of GDP at present, with
the bulk of the increase (30%-pts of GDP) occurring in 2009-
10. In the rest of EM Asia the increase was less dramatic
from 79% of GDP to 89% (first chart)but the rise is still
substantial (second chart), particular in ASEAN in 2011-12,
when governments provided fiscal support to buttress against
natural disasters and other country-specific shocks, and
buoyant property markets encouraged sustained increases in
household debt.
Foreign borrowing in China doubled from 4% of GDP in
2008 while it grew more modestly in rest of EM Asia. As a
share of exportsthe more appropriate way to look at FX
liabilities, in our viewthe change in China was much
greater. As a share of exports, Chinas foreign liabilities rose
from just 15% of exports to 40% (third chart).
Given its massive reserves, this is not a major macroeconomic
vulnerability. But as with exports, Chinas foreign liabilities
as a share of FX reserves have doubled to 24% since 2008.
The comparable figure for EM Asia ex. China is much higher
at 67%, having risen from around 57% just before the crisis.



60
80
100
120
140
160
04 06 08 10 12
%GDP
EM Asia: domestic borrowing
China
EM Asia ex CN
-50
-25
0
25
MY SG TH KR ID IN
Series1
Series2
Change in %-pt of GDP
EM Asia: private sector debt
4Q02-4Q07
4Q08-4Q13
10
20
30
40
50
60
04 06 08 10 12
%exports
EM Asia: foreign borrowing
China
EM Asia ex CN

21
Economic Research
Global Data Watch
August 1, 2014
J ahangir Aziz (1-202) 585-1254

Foreign credit: substitute or complement?
From an overall EM Asia perspective there is no compelling
evidence that corporates borrowed abroad to overcome
financing constraints at home in the post-2008 period. Instead,
the rise in leverage in EM Asia appears to be largely a
domestic story. This is the case in EM Asia ex. China, where
foreign borrowing as a share of overall credit remained
broadly unchanged and its correlation with domestic credit
strongly positive at close to one. But thats not the case in
China, where foreign borrowing has been negatively
correlated with domestic borrowing (first chart). Chinas
corporates have sought foreign funding as a substitute for
domestic funds, especially when the PBOC tightened
domestic financial conditions after the credit blitz of 2009-10.
This difference in corporate behaviorin China foreign
borrowing substituting and elsewhere complementing
domestic fundingcan turn out to be crucial in how FX
liabilities evolve in the next few years.
Credit efficiency declines
The rise in credit, however, did not translate into the
economic growth to which EM Asia was accustomed. The
efficiency of credit declined across the board with an
increasing amount of credit being required to deliver the same
amount of real GDP growth (second chart). Much of this drop
in credit efficiency was associated with falling productivity
growth, reflecting the financial dislocation in 2008-09 and the
stagnation in global trade since 2012. The tradable sector has
typically been EM Asias more efficient growth driver.
However, with credit being directed more toward less
efficient nontradables sectors, such as housing and
infrastructure, the efficiency of credit fell. This decline in
credit efficiency is worrisome as it portends increases in
impaired loans. While headline nonperforming loans (NPLs)
havent risen sharply yet, there is widespread concern that the
potential NPLs in China could be substantial. Similarly, NPLs
and restructured loans in Indiawhere credit growth was
relatively subduedare already over 10% of total assets. This
problem isnt as severe in ASEAN, but there is palpable
discomfort with the rise in credit over 2011-12 and the
potential worsening of credit quality in coming years.
Domestic credit vulnerability rises
Another way of assessing credit vulnerabilities is using the
BISs credit gap measure (Countercyclical capital buffer
proposal, Bank for International Settlements, September 10,
2010). Essentially it is the gap between the actual credit-to-
GDP and the cyclically adjusted ratios. Rising leverage in
EMs often reflects financial deepening along with the effects
of ongoing structural and regulatory changes that evolve more
slowly than the business cycle. To accommodate such
changes, the cyclically adjusted credit-to-GDP ratio is
calculatedas suggested by BISby allowing the credit
cycle to be longer than the economic cycle.
There are two ways of interpreting this analytical measure. In
the BIS paper it is used as a proxy for the amount of capital
buffer needed by the financial system. Alternatively one can
interpret it as the amount of deleveraging needed to reduce
potential financial sector problems. The BIS uses a 10%-pt
gap as the threshold beyond which the credit gap indicates a
financial system that is seriously at risk.



-1.0
-0.5
0.0
0.5
1.0
05 07 09 11 13
16-qtrs rolling correlation
EM Asia: correlation between foreign and domestic borrowing
China
EM Asia ex CN
0.00
0.05
0.10
0.15
04 06 08 10 12
%-pt rise in GDP for 1%-pt rise in credit-to-GDP
EM Asia: credit efficiency
China
EM Asia ex CN
Pre-crisis avg
-20
-10
0
10
20
00 02 04 06 08 10 12
%-pts GDP, BIS measure
EM Asia: credit gap
China
EM Asia ex CN
BIS vulnerability threshold

22
Economic Research
August 1, 2014
J ahangir Aziz (1-202) 585-1254

Here, too, China stands out. The credit gap in China has risen
very sharply and now stands at around 14%-pts of GDP (third
chart previous page). Much of the credit buildup has occurred
between the big four state-owned banks and state-owned
enterprises (SOEs) and the investment arms of provincial
governments. Consequently, as in the 2005-06 bank
recapitalization, resolving the credit problem will largely
involve government resources, SOE reforms, and changes in
center-provincial fiscal relations with limited direct impact on
the rest of the economy.
However, the outlook is increasingly ominous. The credit gap
previously peaked at 13%-pts of GDP in 2003, prompting a
regulated reduction in credit expansion before banks were
finally recapitalized in 2005-06. The current credit gap is
higher than the 2003 peak, and while the pace of credit
expansion has slowed it is still growing faster than nominal
GDP, thereby increasing the economys leverage.
Will credit concerns constrain growth?
All this raises the question whether the rise in leverage in EM
Asia is holding back activity, particularly investment. There
isnt a uniform answer. In Korea and Taiwan, this is not a
problem given low debt levels. In China, the level of credit
outstanding is already uncomfortably high and concerns over
underlying credit quality have heightened. Credit growth
remains subdued in India, but here, too, credit quality is
already seen as constraining infrastructure investment. The
Indonesian authorities have clamped down on credit growth
over the last 18 months to curb imports and contain the
current account deficit. Investor apprehensions over Hong
Kong and Singapore banks exposure to China are also rising,
especially as the latter slows structurally. Elsewhere in
ASEAN, while credit growth or its quality isnt an immediate
worry, concerns over rapid money growth in the Philippines
and negative real interest rates in Malaysia have surfaced.
A critical element in the current sub-par growth dynamic in
EM Asia is the lackluster response of corporate investment to
the global recovery. To a large extent, the lack of sustained
pickup in export demand is the guilty party, but prima facie
credit tightening also appears to have played a big role in EM
Asia ex. China and India (first chart). The links across
investment, exports, and credit, are somewhat weaker in
China and India because infrastructure, which is largely
policy driven, is a much bigger part of investment in these
economies and internal corporate saving is a substantial
source of funding.
To assess the relative importance of credit and exports in EM
Asias investment cycle, we ran a quarterly panel regression
for the nine major regional economies (including China and
India) over 2007-13. The regression controlled for differences
across countries (to capture variations in regulatory
environment and market development) and across time (to
capture changes in the global economy and financial markets).
The estimation included up to two-quarter lags for the
dependent variable (investment growth) and the explanatory
variables (export and credit growth) to eliminate any serial
correlation. All variables were seasonally adjusted.
For EM Asia, on average, exports have a big impact on
investment (a 2.5%-pt increase in exports increased
investment by 1%-pt). However, the effect of credit is
statistically significant, robust to alternative specifications and
sample periods, and material: a 5%-pt increase in credit
growth raises investment 1%-pt (second chart). And so if
global growth picks up in the coming quarters as early
evidence suggests it should, providing domestic investment
the tailwind that has been missing so far, we think a
meaningful growth turnaround in EM Asia is possible.
However, the extent to which the regions banks and
monetary authorities are willing to facilitate the needed rise in
credit to fund adequately the investment upturn may turn out
to be crucial. If concerns over rising leverage and worsening
credit quality hold them back, then EM Asias investment
response could well be muted.

Source: CEIC, J.P. Morgan

Source: J.P. Morgan. (See text for explanation)
-4
-2
0
2
4
6
8
-4
-2
0
2
4
6
04 06 08 10 12
%q/q sa, 4qma, both scales
EM Asia ex CN & IN: investment and exports growth
Exports
Fixed investment
Credit
0.0
0.2
0.4
0.6
Exports Credit
%-pts, response of investment growthto 1%-pt change in exports and credit
EM Asia: investment growth's response
23
JPMorgan Chase Bank, N.A., Hong Kong
Haibin Zhu (852) 2800-7039
haibin.zhu@jpmorgan.com
Grace Ng (852) 2800-7002
grace.h.ng@jpmorgan.com
Economic Research
Global Data Watch
August 1, 2014
Lu Jiang (852) 2800-7053
lu.l.jiang@jpmorgan.com
Changes in China's monetary
policy operational framework
Pledged supplementary lending (PSL) is an innovative
monetary policy instrument
The PBOC is shifting toward targeted quantitative
measures, as credit transmission is inefficient
PSL does not imply a substantial easing in monetary
policy in 2H14
Last week, the media reported that Chinas central bank
provided a three-year, 1-trillion yuan pledged supplementary
loan (PSL) to the China Development Bank (CDB, China
banks: Implications of PBOCs PSL operation, July 22). No
official confirmation or details have been provided.
The introduction of PSL is not a surprise, as the PBOC
governor has hinted at this new instrument in recent speeches.
However, its size surpassed expectations, generating a
positive market response. In this note, we address the
following questions: What are the reasons for the PBOC to
introduce PSL? How do we read recent changes in Chinas
monetary policy operational framework? Does this PSL
operation imply a substantial monetary easing in 2H14?
What is PSL?
PSL is a facility through which the central bank provides
collateralized funding to financial institutions for lending to
targeted sectors, which allows the PBOC to adjust the supply
of base money. It is similar to the existing re-lending facility
except that re-lending does not require collateral. To some
extent, it is similar to the Funding-for-Lending Scheme (FLS)
in the UK and targeted LTROs adopted by the ECB.
According to PBOC governor Zhou Xiaochuan, PSL was
introduced for the following reasons. First, it is part of
targeted support measuresin the case of the PSL facility to
the CDB, to boost shanty town development. Second, it aims
to establish benchmark medium-term interest rates, in
preparation for future interest rate liberalization. Third, it
provides a new instrument to adjust the base money supply
CNY1 trillion in PSL is equivalent to a 100bp cut in the
reserve requirement ratio (RRR).
In response to the PSL announcement, we removed the two
50bp RRR cuts in our forecast. The argument for those RRR
cuts was that they would be introduced to sterilize the
slowdown in reserve money accumulation arising from the
turnaround in capital flows from inflows to outflows in recent
months (first chart). PSL provides an alternative way to adjust
base money growth, thus reducing the probability of RRR
cuts. Compared to RRR cuts, PSL allows the central bank to
affect the direction of credit flows, and is less costly since the
PBOC pays 1.6% interest on required reserves but charges
4%-6% for PSL funding.
Shift in monetary policy operational
framework
The introduction of PSL may signal a change in the
operational framework of monetary policy in China. In the
past, the PBOC controlled policy rates and aggregate credit
Source: PBOC, CEIC
Source: PBOC, CEIC
Source: PBOC, CEIC
-80
-40
0
40
80
120
2012 2013 2014
US$ billion
China's capital inflows
Monthly change in
banks' FX position
Hot money estimate
(adjusted by trade
balance and FDI)
0
1000
2000
3000
4000
5000
6000
03 04 05 06 07 08 09 10 11 12 13 14
RMB billion
Central bank bills (CB) outstanding
0
1000
2000
3000
4000
5
10
15
20
25
02 04 06 08 10 12 14
%
China: RRR and FX reserves
US$ billion
RRR for largebanks
FX reserves
24
Economic Research
Changes in China's monetary policy
operational framework
August 1, 2014
Haibin Zhu (852) 2800-7039
Grace Ng (852) 2800-7002
Lu Jiang (852) 2800-7053
via RRR, the supply of central bank bills and open market
operations (repos and reverse repos). The importance of these
instruments varied over time, with frequent use of central
bank bills in 2003-2007 (second chart previous page), RRR in
2006-2012 (third chart previous page), and open market
operations since 2013 (first chart).
At the start of this year, the PBOC shifted toward targeted
policy measures. Prior to the introduction of PSL, the PBOC
used targeted RRR cuts and re-lending to support agriculture
and small business, complemented by various liquidity
measures, including the standard lending facility (SLF)
introduced in 2013 (second chart), bilateral liquidity provision,
and differentiated and dynamic RRR for individual banks.
We think the main reason for the shift in the operational
framework of monetary policy was to enhance market
efficiency in credit allocation. Interest rate liberalization
remains incomplete. More important, banks lending
decisions are heavily distorted by the preferential treatment of
local government entities and SOEs, which crowds out
financing for small business and other business borrowers.
Thus, a general easing in credit often results in funds flowing
into undesirable areas, such as local governments, industries
experiencing overcapacity, and real estate developers.
A near-term solution, but long-run caveats
The adoption of targeted quantitative measures is an interim
solution to this problem until China establishes an efficient
market for credit allocation, but it could cause new problems.
First, the effectiveness of targeted support remains to be seen.
Even though PSL comes with lending requirements to
targeted sectors, once the liquidity is injected into the system
and the money multiplier process starts, the authorities have
no control over the direction of secondary credit flows.
Second, by PSL and other targeted measures, the central bank
is taking over some of the roles of fiscal and industrial policy.
Direct guidance from the PBOC on banks lending decisions
may by itself be problematic, as it conflicts with the long-term
target of letting markets determine resource allocation.
Third, unlike traditional quantitative measures (RRR, central
bank bills, and OMOs), which are directly observed by the
market, PSL, re-lending, and bilateral liquidity provision tend
to be implemented behind the scenes, which can cause
unnecessary market uncertainty. Unless disclosure of such
operations improves, policy transparency will suffer.
Because information on monetary policy operations is
incomplete, we focus on credit growth directly to assess the
PBOCs monetary policy stance. To that end, we do not think
the use of PSL implies a substantial monetary easing in 2H14.
We expect total social financing to reach CNY18.5 trillion in
2014, implying stable credit growth (16.2% TSF growth in
2014, vs. 16.5%oya in June 2014 and 17.9% in 2013). The
near-term priority of monetary policy operations is to lower
the funding cost for the real economy (third chart) through
stable liquidity provision, targeted support, and tightened
regulation of shadow banking activity. By tightening shadow
banking regulation and shifting some non-bank lending back
to the formal banking sector, the authorities aim to effectively
lower the intermediation costs in the overall financial system.
Source: PBOC, CEIC
Source: PBOC, CEIC
Source: CEIC
-900
-600
-300
0
300
600
900
03 04 05 06 07 08 09 10 11 12 13 14
RMB billion (negative means cumulative withdrawal of liquidity)
Open market operation: volume outstanding
Reverse repo
Repo
0
100
200
300
400
500
Jan 13 Apr 13 Jul 13 Oct 13 Jan 14 Apr 14
RMB billion
China: balance of Standard Lending Facility (SLF)
19.5
20.0
20.5
21.0
21.5
7.0
8.0
9.0
10.0
2012 2013 2014
%
China's lending rate
Average banklending
rate: general loans
Wenzhou private
lending rate (RHS)
Expected rates of return
of trust loans(1-2 years)
%

25
Grace Ng (852) 2800-7002
Lu J iang (852) 2800-7053
Economic Research
Global Data Watch
August 1, 2014

Signals from Taiwan's
exporters confirm global
recovery
Taiwans latest external trade data signal a benign 2H
outlook on global demand and Greater China exports
Signs of improving demand not confined to tech;
demand for non-tech products also improving
Notable inventory adjustments, combined with
improving demand, to support 2H industrial activity
Through midyear 2014, the global economy appears to be
accelerating from the subdued pace earlier in the year. Indeed,
J.P. Morgan forecasts global GDP growth to rise a full
percentage point fromthe average pace over the past eight
quarters, with above-trend demand growth in the DM world,
while China experiences a policy-induced recovery. The
increased demand should be felt among the major EM
exporters. The recent positive macro indicators fromTaiwan,
including manufacturing PMI, IP, export orders, and
merchandise trade, reinforce our benign 2H outlook for the
global economy.
Constructive outlook on 2H14 Greater
China export growth
A number of negative external shocks have struck Taiwan
since early 2011, including the J apan earthquake and the
related shock to the regional supply chain, the European
sovereign debt crisis, and the China slowdown. Taiwans
export sector and industrial activity finally returned to 1Q11
levels by 3Q13, and have since tracked a steady upward trend
(second chart).
Earlier this year, we proposed that Taiwans export sector and
manufacturing activity would continue to recover steadily
driven by the expected above-trend growth in the DM world,
even though Chinas growth would slow (see Taiwan
recovers alongside DM lift despite slowing China, GDW,
J anuary 17). While global growth disappointed in 1H14, the
latest signals from Taiwans export sector have been positive,
with sequential trend growth in export orders resuming at
9.3%3m/3m, saar in J une (vs. a 14.7% decline in March). In
particular, export orders from the US surged at 28.2%3m/3m,
saar in June, vs. -34.0% plunge in March, consistent with the
forecast that the US economy will return to above-trend
growth in 2H14. Interestingly, along with the latest pickup in
Chinas growth, even orders from China/Hong Kong, which
had underperformed in recent quarters, began to turn up,
rising 18.6%3m/3m, saar in June (vs. -7.5% in March).

Source: MOF, DGBAS, Markit, J. P. Morgan

Source: MOEA, MOF, DGBAS, J. P. Morgan

Source: MOEA, J. P. Morgan

Source: Taiwan MOEA, China Customs, HK C&SD, J. P. Morgan
-30
-15
0
15
30
45
60
48
50
52
54
56
58
60
Index, sa
Global manufacturing PMI and Taiwan real export s
%3m/3m, saar
2010 2011 2012 2013 2014
Global manufacturing PMI
- output
Taiwan export volume (adjusted
by export prices)
90
95
100
105
110
Index, 2011=100, sa, 3mma
Industrial production and export volume
2011 2012 2013 2014
IP
Customs exports,
in volume terms
90
95
100
105
110
115
120
Index, 1Q11=100, sa, 3mma
Export orders from G-3 and China/ Hong Kong
2011 2012 2013 2014
Export orders
from G-3
Export orders
from China/ HK
-40
-20
0
20
40
60
%3m/3m, saar
Taiwan export orders and China exports
2011 2012 2013 2014
Taiwan export orders
(ex-China/ Hong Kong)
- lead by one-month
China exports
(adjsuted for
"fake exports")

26
Economic Research
Signals from Taiwan's exporters
confirm global recovery
August 1, 2014
Grace Ng (852) 2800-7002
Lu J iang (852) 2800-7053

Meanwhile, given the tightly-knit Greater China
manufacturing supply chain, Taiwans export orders data have
reflected (and slightly led) Chinas export growth trend
(fourth chart previous page). As such, Taiwans solid export
orders hint at a benign outlook for the overall Greater China
export sector in 2H14.
Demand growth across tech and non-tech
Taiwans export performance is heavily tied to the tech cycle
(tech-related products account for about 40% of merchandise
exports), and especially the smart phone production cycle in
recent years. With US new tech orders rising 25.5%3m/3m,
saar in May, and with the semiconductor equipment book to
bill ratio rising to an elevated 1.09 in J une (the highest since
November last year), demand for Taiwans tech exports seem
well-supported in the near term.
The positive tone on external demand is not confined to the
tech sector, however. Indeed, Taiwans non-tech export orders
also rebounded smartly in J une, rising 14.5%3m/3m, saar (vs.
-5.4%, saar in March), led by solid growth in orders for
machinery (up 20.2% in J une) and chemical products (up
21.9%). These positive signals on non-tech demand is
consistent with a global outlook of improving corporate sector
capital spending, as well as the recent policy-driven pickup in
the Chinese economy.
Inventory conditions supportive of
industrial growth going into 2H
The notable decline in manufacturing inventory in recent
months adds potential near-term support for Taiwans
industrial cycle. According to the latest data flow, overall
manufacturing inventories fell 9.4%3m/3m, saar in May, with
tech inventories and falling 7.7% and non-tech inventories
falling 8.9%. As a result, the manufacturing inventory to
shipments ratio fell to 1.00 in May, the lowest level since
April 2011 (aside from Lunar New Year-related extreme
readings). Going into 2H14, improving external demand and
leaner inventory conditions should be supportive of growth in
Taiwans industrial activity.
Regarding the capex cycle, as the negative external shocks
in 2011-12 gradually faded, Taiwans gross fixed capital
investment grew solidly in 2013, rising 10.5%oya (following
the declines of 7.7%oya in 2011 and 8.8%oya in 2012).
While the capex cycle seems to have eased somewhat
(imports of capital goods were down 13.6%q/q, saar in 2Q),
this is likely payback for the strong expansion last year.
Improving global demand, if sustained, would likely pave
the way for a steady upturn in the Taiwan manufacturing
sectors capex growth in coming quarters.

Source: Taiwan MOF, US Census Bureau, CEIC, J. P. Morgan



Source: MOF, DGBAS, J. P. Morgan
-30
-15
0
15
30
45
-40
-20
0
20
40
60
%3m/3m, saar, both scales
Taiwan tech exports and US new tech orders
2011 2012 2013 2014
US new orders for
computers and
electronics products
Taiwan tech
exports
85
90
95
100
105
110
115
Index, 1Q11=100, sa, 3mma, volume terms
Export orders: nontech
2011 2012 2013 2014
Chemicals
Machinery
Base metals
-15
0
15
30
0.8
0.9
1.0
1.1
1.2
Ratio
Manufacturing inventory and inventory to shipment ratio
%3m/3m, saar
2010 2011 2012 2013 2014
Inventory to shipment
ratio
Manufacturing producer
inventory
-50
-25
0
25
50
75
100
%q/q, saar
Fixed investment and capital goods imports
2011 2012 2013 2014
Fixed investmentmachinery and
equipment
Capital goods
imports

27
Economic Research
Global Data Watch
August 1, 2014
United States
Real GDP growth in 2Q14 at 4.0% with major help
from inventories; forecast for 3Q14 and 4Q14 still 3.0%
Payroll growth moderates to 209,000 in July, the jobless
rate edges up to 6.2%, wage inflation stable
Labor supply has been stronger so far this year, appar-
ently responding to improving labor markets
Key economic releases this week include surprisingly strong
4.0% real GDP growth in 2Q14 and a J uly labor market report
that was a touch on the soft side of the recent trend, with pay-
roll employment slowing to 209,000 from an average 277,000
in 2Q14 and the jobless rate edging up 0.1% to 6.2%. These
reports have not changed the J .P. Morgan forecast, which still
looks for 3.0% real GDP growth both this quarter and next.
The composition of the 4.0% growth last quarter shows that
real final sales increased 2.3% and overall growth was boost-
ed by a large 1.7%-pt contribution from inventories. The re-
cent trend in real final sales (including upward revisions to
prior quarters) is a bit stronger than expected, a small positive
for 2H14 growth. But the inventory build is also larger than
expected, an offsetting negative for 2Q14 real GDP growth.
(See Research Note, US economy looks a little different after
the GDP report.) While payroll employment did moderate to
209,000 in J uly, the J.P. Morgan forecast had looked for
monthly job gains to slow to an average 205,000 in 2H14and
had viewed this pace as consistent with 3.0% real GDP
growth.
The important news in the labor market report is that the J anet
Yellen forecast of continued labor market slack and subdued
wage growth seems to be playing out, at least through July.
The unemployment rate increased 0.1% to 6.2% in July, as a
monthly rise in the labor force participation rate boosted labor
supply. Other measures of labor market slack, such as the
number working part-time because they could not find full-
time jobs, remains elevated. And average hourly earnings
continue to increase at a steady subdued pace of about 2%
(see Focus page).
Solid job growth, more labor supply
Solid but more moderate job growth: Payroll employment
increased 209,000 in July with a net upward revision of
15,000. The 209,000 rise in employment is well below the
gains the past few months but close to the 212,000 average in
all of 1H14. The J uly increase reflects job growth at a 1.8%
pace, well above the growth rate of labor supply and enough
to drive the unemployment rate down over time.
J ob growth in the goods-producing increased 58,000 in J uly,
the most since J anuary, with relatively strong gains of 28,000
in manufacturing (with 15,000 in motor vehicles and parts)
and 22,000 in construction. But private service-providing in-
dustries slowed hiring to 140,000 from an average 221,000 in
2Q14. State and local government employment is now on an
increasing trend, up 11,000 in J uly and an average 13,000 per
month so far this year.
Unemployment rate ticks up: Theunemployment rateedged
up to 6.2% in July as the 131,000 rise in the household survey
measure of employment lagged the larger increase in the labor
force associated with a monthly increase in labor force partic-
ipation. The unemployment rate had previously dropped very
quickly to 6.1% in June from 6.7% in March. Labor force
participation has been broadly stable since the end of last
year, a break in what had been a declining trend. As a result,
labor supply has increased at a 1.2% annual rate so far this
year (adjusted for the J anuary break in population estimates)
vs. a 0.4% decline in the year ended December 2013.
No acceleration in wage growth: The healing in the labor
market to date is still not enough to bring stronger wage gains
for workers. Average hourly earnings for all private workers
were unchanged in July, and hourly earnings for production
and nonsupervisory workers increased 0.2% samr. Hourly
earnings are now running 2.0%oya for all workers and
-2.5
0.0
2.5
5.0
2012 2013 2014
%ch saar
Real final sales and real GDP
Source: BEA
Real GDP
Real final
sales
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
62.5
63.0
63.5
64.0
2012 2013 2014 2015
%, sa
Labor force participation rate and labor supply
%ch saar over 6 months
Source: BLS, Haver adjustment of labor supply for January breaks in series
Labor force participation rate
Labor force growth

28
Economic Research
United States
August 1, 2014
2.3%oya for production and non-supervisory workers, growth
rates nearly exactly where they were at year-end 2013.
Consumer spending does a little better
Real consumer spending in 2Q14 increased 2.5% saar, strong-
er than expected based on data in hand before the GDP re-
lease. Monthly detail shows upward revisions to previously
released spending results that account for the quarterly result.
And they show the even larger upward revisions to real dis-
posable income that help explain the stronger tone of spend-
ing. Current figures show that real disposable income in-
creased 3.5% saar in 1Q14 (revised up from 1.5%) and 3.8%
in 2Q14 (above the J.P. Morgan forecast of 3.1%).
The J.P. Morgan forecast looks for a modest further accelera-
tion in spending growth this quarter to 2.8%, helped by a
moderation in food and energy prices and an associated slow-
ing in inflation. Real spending increased 0.2% samr in J une.
There is very little spending data for the quarter to date. But
J uly unit auto sales have come in at 16.5 mn. annual rate, at
the average pace in 2Q14. J une core inflation matched expec-
tations, with the core PCE price index increasing 0.14% samr
and 1.5%oya.
Mixed messages on manufacturing
Manufacturing output increased at a 6.7% pace in 2Q14. But
the detail of the GDP report shows a large $93.4 bn saar build
in inventories. The likelihood of an inventory correction
through 2H14 raises the prospect of slowing in both manufac-
turing output and imports before long. Both the labor market
survey and the J uly ISM and PMI manufacturing surveys pro-
vide some information, but with mixed messages.
The increase in motor vehicle industry employment in J uly
confirms that auto production had a good month. But detail
for the overall sector shows that hours-worked by production
workers in manufacturing declined 0.1% in J uly, vs. an aver-
age increase of 0.4% per month in 2Q14. And the one-month
diffusion index of manufacturing employment declined to
53.7 from an average 60.2 in 2Q14.
In contrast, the ISM and PMI surveys, which are both diffu-
sion indices, held at elevated levels in J uly even if they did
move in opposite directions. The final J uly PMI survey edged
down 1.5 points from an elevated June level to 55.8; J uly PMI
readings for output and new orders were close to their 2Q14
averages. The ISM manufacturing survey increased to 57.1,
its highest level since April 2011, with readings for new or-
ders (63.4), production (61.2) and employment (58.2) all hit-
ting new highs for the year. The one weak spot in the surveys
is export orders, which dropped to unusually low levels in
both. The ISM measure of imports fell to a new low for the
year.
Construction ends 1H with a flop
Monthly figures on construction spending are volatile and
subject to large revisions. But the J une results challenge the
J .P. Morgan forecast that both housing and private nonresi-
dential construction activity will be accelerating this quarter.
Total nominal construction spending declined 1.8% samr in
J une, new housing activity fell 0.7%, and nonresidential
spending declined 1.7%.
The 2H14 Census report on Homeownership and Vacancies
was out this past week and shows a continuation of negative
trends with regard to housing demand. The increase in house-
hold formation remains unusually weak and was up only 0.5%
saar (as seasonally adjusted by J .P. Morgan) and 0.4% oya.
What growth of housing demand there is continues to be bi-
ased towards rental units rather than homeownership. The
homeownership rate declined to 64.8% sa in 2Q14 from
65.0% in the prior quarter and reached its lowest level since
1995. Meanwhile homeownership and rental vacancy rates
continued to drop, with an especially large decline in the rent-
al vacancy rate to 7.5% nsa from 8.3% the prior quarter and
8.2% in the year-ago quarter. This is the lowest rental vacancy
rate since 1997 and will tend to put upward pressure on rents
(and the CPI) and tend to boost multifamily construction.
46
48
50
52
54
56
58
50
52
54
56
58
60
62
2012 2013 2014 2015
Sa, avg. of ISM and PMI surveys, both scales
Manufacturing surveys: total new orders and export orders
Source:ISM, Markit
New orders
Export orders
-30
-15
0
15
30
45
60
2012 2013 2014 2015
%ch saar over 3 months
Private construction spending
Source: Census
Nonresidential
Residential

29
Michael Feroli (1-212) 834-5523
michael.e.feroli@jpmorgan.com
Economic Research
Global Data Watch
August 1, 2014
Daniel Silver (1-212) 622-6039
daniel.a.silver@jpmorgan.com
Data releases and forecasts
Tue Markit services PMI
Aug 5 Index, sa
9:45am Flash Final
May Jun Jul Jul
Business activity 58.1 61.0 61.0 61.0
Incoming new business 58.7 60.8 57.6
Employment 52.8 56.1 52.8
Business expectations 79.3 76.3 69.6
Input prices 56.3 56.5 53.1
Prices charged 54.6 52.6 50.3
Backlogs of work 52.4 51.0 49.8
We believe that the Markit services PMIs activity index
will be unrevised at 61.0 between the flash and final J uly
reports and remain unchanged relative to the final read-
ing reported for J une. The activity index came in at its
highest level on recordin the limited history available
back to late 2009in both J une and J uly and with sepa-
rate regional service-sector data and a number of other
broader economic indicators also looking strong lately,
we think the services PMI will continue to come in at a
very favorable level in the upcoming report.
Tue ISM non manufacturing survey
Aug 5 Sa
10:00am Apr May Jun Jul
Nonmfg. index (NMI) 55.2 56.2 56.0 56.0
Business activity 60.9 62.1 57.5
New orders 58.2 60.5 61.2
Prices 60.8 61.4 61.2
We forecast that the ISM nonmanufacturing surveys
headline held at 56.0 in J uly. Many other indicators re-
lated to the service sectorincluding the Markit PMI
and some regional activity indexeshave generally
looked pretty strong in J uly and our forecast for the ISM
survey would keep it at a favorable, although not an es-
pecially boomy level. We do not expect much change in
the ISM nonmanufacturing surveys headlinea compo-
site of the four related subcomponentsbecause several
components already reported in the J uly PMI services
index looked mixed with respect to the related indexes in
the ISM survey; the activity reading from the PMI in J u-
ly was stronger than the related reading from the J une
ISM survey but the PMI's indexes on new orders and
employment from the J uly survey were below the related
indexes from the J une ISM survey.
Tue Factory goods report
Aug 5 %m/m, sa, unless noted
10:00am Mar Apr May Jun
New orders 1.5 0.8 -0.5 0.6
Shipments 0.4 0.4 0.1 0.3
Inventories 0.2 0.5 0.8 0.4
Inventory/sales ratio 1.30 1.30 1.31 1.31
We believe that nominal factory orders increased 0.6%
in J une while related shipments increased 0.3% and in-
ventories rose 0.4%. The advance durable goods report
has already shown increases in orders (0.7%), shipments
(0.1%), and inventories (0.4%) for durable goods during
the month. And we forecast that there were also gains in
nondurable orders (0.5%), shipments (0.5%), and inven-
tories (0.4%) in J une, largely because we that think these
nominal figures will get boosted by increases in prices.
Our forecast for nondurable inventories is slightly softer
than the assumptions used by the BEA in its advance re-
port on 2Q GDP. If our forecast for J une is correct and
there are no revisions, we would lower our tracking es-
timate of 2Q GDP growth by 0.1%-pts with rounding.
Wed International trade
Aug 6 $ bn, samr
Balance(BOP basis) -44.2 -47.0 -44.4 -43.0
Services 18.3 18.6 18.9 19.1
Merchandise -62.5 -65.7 -63.3 -62.1
Exports (%m/m) 2.9 -0.1 1.0 -0.1
Imports (%m/m) 3.1 1.1 -0.3 -0.6
We estimate that the nominal trade balance narrowed
from -$44.4bn in May to -$43.0bn in J une while the real
goods balance narrowed from -$52.0bn to -$49.2bn. We
expect that real merchandise trade flows contracted in
J une (exports: -0.2%, imports: -1.7%) largely as payback
from some of the recent strength in the data. After de-
clining between October 2013 and February 2014, real
goods exports jumped 18% saar over the three months
through May and the categories related to autos, nonauto
consumer goods, and other goods look especially
poised for some payback in J une. Real goods imports
have been even stronger lately, with the aggregate figure
up 22% saar over the three months through May and
strength across many of the main subcategories.
Our forecast for the trade data implies a very small up-
ward revision to 2Q growth relative to the assumptions
used by the BEA in its advance report on 2Q GDP, but
with rounding, our forecast and the assumptions are ba-
sically equivalent.
Thu Jobless claims
Aug 7
Thousands, sa
8:30am New claims (wr.) Continuing claims Insured
Wkly 4-wk avg Wkly 4-wk avg Jobless,%
May 24 304 313 2603 2635 2.0
May 31 313 311 2615 2622 2.0
Jun 7 318 316 2559 2600 1.9
Jun 14 314 312 2568 2586 2.0
Jun 21 313 315 2575 2579 2.0
Jun 28 316 315 2586 2572 2.0
Jul 5 305 312 2508 2559 1.9
Jul 12 303 309 2508 2544 1.9
Jul 19 279 301 2539 2535 1.9
Jul 26 302 297
Aug 2 300 296
1. Payroll survey week
Sources: ADP/Moodys Analytics, BEA, BLS, Census Bureau, Conference Board, Federal Re-
serve Board, ISM, J.P. Morgan forecasts, NAHB, NAR, NFIB, NY Fed, Markit, Philadelphia Fed,
Standard & Poors, University of Michigan, US Treasury

30
Economic Research
United States
August 1, 2014
We forecast that initial jobless claims edged down 2,000
to 300,000 during the week ending August 2. J uly tends
to be a volatile month for the claims data because of the
auto industrys summer plant shutdowns and Independ-
ence Day and with J uly now in the behind us, we think
the claims data will likely turn steadier for the time be-
ing. Through the recent volatility in some of the weekly
readings, the trend in initial claims has signaled improv-
ing labor market conditions and we expect this to contin-
ue to be the case in the upcoming report.
Fri Productivity and costs
Aug 8 Nonfarm business sector, %q/q, saar, unless noted
8:30am Prel
3Q13 4Q13 1Q14 2Q14
Productivity 3.5 2.3 -3.2 2.3
%oya 0.5 1.4 1.0 1.1
Output 5.4 3.8 -1.1 5.2
%oya 2.3 3.0 2.8 3.2
Hourly compensation 1.3 1.7 2.3 2.5
%oya 2.4 0.3 2.3 2.8
Unit labor costs -2.1 -0.6 5.7 0.2
%oya 1.9 -1.1 1.2 1.5
Hours 1.9 1.4 2.2 2.9
%oya 1.8 1.6 1.7 2.1
We estimate that nonfarm productivity increased 2.3%
saar in 2Q while unit labor costs edged up 0.2%. The 2Q
GDP report indicated that nonfarm output growth
bounced back strongly in 2Q following the contraction in
the first quarter and we think that hours increased more
modestly than output in 2Q, resulting in our expected
gain in productivity. We think hourly compensation in-
creased just a touch above the growth in productivity in
2Q, which should result in a very modest gain for unit
labor costs during the quarter.
The historic data in the upcoming productivity and costs
report will also be revised to reflect the annual revisions
to the NIPA data already reported by the BEA. With
nonfarm output revised down in 1Q and compensation
revised up, we expect a downward revision to produc-
tivity growth in 1Q (to -4.6% saar) and an upward revi-
sion to the growth reported in unit labor costs (to +10.3%
saar). Our forecasts for the 2Q data along with expected
revisions to 1Q and earlier quarters imply that productiv-
ity will be up 1.1% oya in 2Q and unit labor costs will
have increased 1.5% oya.
Review of past weeks data
Markit services PMI (flash)
Index, sa
May Jun Jul
Incoming new business 58.7 60.8 57.6
Business expectations 79.3 76.3 69.6
Input prices 56.3 56.5 53.1
Prices charged 54.6 52.6 50.3
The Markit services PMIs activity indexthe headline
measureheld at 61.0 in the flash J uly report, remaining at
the record high for this series that dates back to late 2009.
Most other details of the survey cooled off from very strong
levels in the J une report to still-respectable levels in the flash
J uly report, including the measures of new business (-3.2
points to 57.6), employment (-3.3 points to 52.8), and busi-
ness expectations (-6.8 points to 69.6). The surveys measure
of backlogs was more downbeat, with this indexwhich has
shown some large swings latelydeclining 1.2 points to 49.8
in the flash J uly report. The two price measures in the survey
also moved down in J uly. Overall, the J uly flash PMI is less
upbeat about the service sector than the J une survey, but the
PMI still looked pretty strong in the J uly report.
Pending home sales (Jul 28)
sa, unless noted
Apr May Jun
Total (mn, ar) 97.9 103.9 103.8 103.9 102.7
%ch m/m 0.5 6.1 6.0 0.0 -1.1
%oya (nsa) -9.3 -6.9 -6.2 -4.5
The pending home sales index declined 1.1% in J une, and the
increase in the index reported for May was revised down
slightly (from 6.1% to 6.0%). With pending home sales up in
the three months through May before the J une decline, the re-
cent trend in the data still looks decent, and we are likely to
see existing home sales continue to increase at least in the
very near term (pending home sales typically lead existing
home sales by one or two months). The housing data are un-
likely to be uniformly upbeat all of the time, but we think that
the recovery in the housing market will continue over time.
S&P/Case-Shiller home price index (Jul 29)
%oya, unless noted
Mar Apr May
20-city composite 12.4 10.8 9.9 9.3
%m/m, sa 1.2 1.3 0.2 0.1 0.2 -0.3
10-city composite 12.6 10.8 10.9 9.4
The Case-Shiller 20-city composite house price index de-
clined 0.3% samr in May and there were small offsetting revi-
sions to the changes reported for the prior two months (April
revised down, March revised up). The trend in the Case-
Shiller dataalong with many other related house price
measureshas clearly softened lately; the over-year-ago
change in the 20-city composite index cooled from its recent
peak of 13.7% oya in November 2013 to 9.3% oya in May
and the index was up 4.1% saar over the three months through

31
Economic Research
Global Data Watch
August 1, 2014
May (down from 9.9% saar over the previous three months).
The recent figures released in this weeks report came out
softer than anticipated, but we had been expecting the trend in
house prices to moderate because the strong gains from recent
years seemed unsustainable, especially considering the weak-
ening in housing demand late in 2013 and early this year.
Consumer confidence (Jul 29)
Sa
May Jun Jul
Conference Bd index 82.2 85.2 86.4 85.5 90.9
Present situation 80.3 85.1 86.3 88.3
Jobs plentiful 14.2 14.7 14.6 15.9
Jobs hard to get 32.2 31.8 30.7 30.7
Labor mkt diff -18.0 -17.1 -16.1 -14.8
Expectations 83.5 85.2 86.4 92.7
The Conference Board consumer confidence index jumped up
6.5 points to 90.9 in J uly off of a J une figure that was revised
up by 1.2 points. This was a stronger result than expected and
this latest increase brought the index up to a new high for this
expansion. The main details of the report were also pretty up-
beat, with the current conditions index rising 2.0 points to
88.3 in J uly and the more important expectations index pop-
ping up 6.3 points to 92.7 during the month. The labor market
differential in the surveycalculated as the % of respondents
reporting jobs plentiful less the % reporting jobs hard-to-
getalso improved to a new best for this expansion, increas-
ing from -16.1 in J une (revised from -17.1) to -14.8 in J uly.
This is a favorable sign for the labor market.
The Conference Board survey was not all good news, howev-
er, and the index on home buying planswhich can be very
volatiledropped down to its second-lowest monthly reading
since February 2012 in the J uly report. Other details showed
that the surveys mean inflation expectation nudged lower in
J uly but remained comfortably within the range of figures that
have been reported over the past year or so.
Gross domestic product (Jul 30)
%ch, q/q, saar, unless noted
Adv
4Q13 1Q14 2Q14
Real GDP 2.6 3.5 -2.9 -2.1 2.6 4.0
Final sales 2.7 3.9 -1.3 -1.0 1.9 2.3
Domestic final sales 1.6 2.7 0.3 0.7 2.3 2.8
Consumption 3.3 3.7 1.0 1.2 1.9 2.5
Equipment 10.9 14.1 -2.8 -1.0 9.9 7.0
Intellectual property 4.0 3.6 6.3 4.7 2.7 3.5
Nonres. structures -1.8 12.8 -7.7 2.9 8.6 5.3
Residential investment -7.9 -8.5 -4.2 -5.3 8.1 7.5
Government -5.2 -3.8 -0.8 -0.6 1.6
Net exports-pct.pt.contr. 1.0 1.1 -1.5 -1.7 -0.4 -0.6
Inventories-pct.pt.contr. 0.0 -0.3 -1.7 -1.2 0.7 1.7
Core PCE price index 1.3 1.2 1.9 2.0
(%oya) 1.2 1.3 1.1 1.2 1.5
GDP chain price index 1.6 1.5 1.3 1.7 2.0
(%oya) 1.4 1.4 1.6
Real GDP increased at a 4.0% annual rate in Q2, about a per-
centage point better than expected, and the Q1 hole was re-
vised up from -2.9% to -2.1%. Most of the Q1 upside surprise
was due to stronger-than-expected inventory building, which
added 1.7%-points to growth last quarter and could be a bit of
a headwind to GDP in the current quarter as businesses slow
production in order to work down stockpiles. Even so, the pic-
ture of the past is now showing steadier growth in final de-
mand, which increased at a 1.0% annual rate in the first half,
somewhat better than expected. In conjunction with favorable
early indicators for Q3, this should contribute to a feeling that
the economy is on solid ground and the prospects for steady
growth look encouraging. We continue to project 3.0%
growth in the last two quarters of the year; while the invento-
ry headwind does present a modest arithmetical challenge to
Q3 growth, we dont see the magnitude as large enough to
warrant a downward revision. For the Fed the implications,
are modestly hawkish, not necessarily because of the GDP
growth numbers which after Q1 they demonstrated they
were willing to look through but because the core PCE in-
flation numbers look a little firmer; through Q1 they were re-
vised up to 1.25% on a year-ago basis (up from 1.12% previ-
ously) and are up 1.48% in the year ending in Q2.
Stepping back from the quarter-to-quarter noise much of
which is driven by transitory fluctuation in inventories and
trade over the past four quarters real GDP expanded 2.4%;
in the five years of the expansion, GDP has grown on average
by 2.2%. Real final sales GDP excluding inventories rose
2.0% over the past year, and 1.8% on average since the ex-
pansion began. The big picture is one of modest, but remarka-
bly steady, growth.
Coming back to the most recent quarter, real consumer spend-
ing increased at a 2.5% pace, which is about a half point bet-
ter than expected. It appears that much of the upside surprise
came in health care spending, which rose at a 0.7% annual
rate; previously released monthly data were pointing to a
modest decline in medical outlays. Consumer spending on
goods rose at a 6.2% pace, driven by a bounce-back in spend-
ing on vehicles. Business fixed investment spending increased
at a 5.5% rate, which was perhaps a touch lighter than expec-
tations, but that disappointment was offset by an upward revi-
sion to Q1, which now shows cap-ex rising at 1.6% annual
pace (up from -1.2%). Residential investment increased at a
7.5% pace, close to expectations and the first increase since
13Q3. Overall, private domestic demand increased at a 3.1%
pace last quarter, 2.8% over the past four quarters, and 2.8%
on average since the expansion began.
Inventories increased at a chunky $93 billion rate last quarter,
almost all of which was in nonfarm inventories. The process
of normalizing inventories should subtract about 0.5-1.0%
from GDP in coming quarters. An 11.7% increase in imports
more than outweighed a 9.5% rise in exports, leading net
trade to subtract 0.6%-point from GDP, a little more than we
expected. Government spending was fairly strong, rising at a
1.6% pace, all of which was due to a 3.1% increase in state
and local spending, the most since early 2009. Fiscal drag
should be easing over time, though the swing to strength in
Q2 may have been a little exaggerated relative to that trend.
The 2Q GDP report contained revisions for the prior three
years. Real GDP growth was revised down in 2011 and 2012,
and revised up in 2013, but the level of revised GDP in 14Q1

32
Economic Research
United States
August 1, 2014
was less than five-hundredths of a percent different from the
previously released level. Gross domestic income was revised
up in 2012 and in 14Q1 and is now about a percent above
GDP. Some of that income appears to have made its way into
higher saving; the saving rate in Q2 stood at 5.3%, about a
half point higher than what we were looking for, but pretty
close to the average for the expansion. The GDP deflator in-
creased at a 2.0% rate, a touch firmer than expectations, lead-
ing nominal GDP to increase at a 6.0% rate, the largest in-
crease since Q3 of last year.
Employment cost index (Jul 31)
4Q13 1Q14 2Q14
Total(%q/q, sa) 0.5 0.3 0.6 0.7
Wages and salaries 0.5 0.3 0.6
Benefits 0.6 0.4 0.6 1.0
Total(%oya,nsa) 2.0 1.8 2.0
Wages and salaries 1.9 1.6 1.8
Benefits 2.2 2.1 2.2 2.5
The employment cost index (ECI) increased 0.7% saqr in 2Q
with wages and salaries up 0.6% and benefits jumping 1.0%.
We believe the ECI is one of the best single measures of infla-
tion pressure (as discussed here). The firm reading reported in
2Q, the strongest quarterly gain since 1Q08, might, at first
glance, seem like harbinger of an acceleration in inflation, but
the firming in the ECI in 2Q occurred after an unusually soft
1Q (+0.3% saqr) and broader trend in the ECI still looks pret-
ty tame at 2.0% oya. We think the trend in the ECI will likely
gradually drift higher in the coming quarters as the amount of
slack in the labor market slowly diminishes.
Labor-market report (Aug 1)
Sa
May Jun Jul
Payroll employment
(ch, m/m, 000s) 224 229 288 298 250 209
Private payrolls 224 228 262 270 245 198
Goods-producing 22 26 26 38 50 58
Construction 9 6 10 20 22
Manufacturing 11 16 25 39
Service-providing 202 262 200 150
Private service-providing 202 236 195 136
Wholesale trade 9 15 -1
Retail trade 11 40 29
Professional services 58 67 52
Temporary help 16 10 11
Education/health 62 59 38 45 17
Leisure and hospitality 45 39 23 21
Government 0 1 26 28 5 11
Average weekly hours 34.5 34.5 34.5
Index, hrs worked
0.2 0.2 0.2
Hourly earnings (%m/m) 0.2 0.2 0.2 0.0
(%oya) 2.1 2.0 1.9 2.2 2.0
Unemployment rate (%) 6.3 6.1 6.0 6.2
Participation rate (%) 62.8 62.8 62.9
Nonfarm employment increased by 209,000 in J uly, a cooling
from the 277,000 monthly average registered in the second
quarter, but still a solid reading consistent with above-trend
output growth. The unemployment rate actually ticked up to
6.2%, though the rise mostly reflects the labor force
participation rate edging up to 62.9% as more individuals re-
entered the workforce last month. Most of the other underuti-
lization numbers recently alluded to by the latest Fed state-
ment also indicate continued slack labor market conditions,
e.g., the number employed part time for economic reasons
barely budged from its high levels and the ranks of discour-
aged workers increased some. The now-closely-watched wage
measures in the employment report also gave no signal of
binding labor resource constraints: average hourly earnings
for all workers were flat on the month, and up 2.0% over the
past year. The marginal information in the J uly report is con-
sistent with Chair Yellens reading of labor market condi-
tions, namely, that the absence of labor cost pressures can al-
low the Fed to be patient in removing accommodation. Of
course, there will be another jobs report between now and the
next meeting in September, which can undo or reinforce the
message from the latest report, but in the meantime we think
the second-guessing of Yellens leadership should cool down.
The J uly report will probably do little to change perceptions
of the momentum of growth in the economy, as the growth in
hours worked last month was unchanged from the solid 2.4%
trend seen over the past year. We continue to look for 3.0%
growth this quarter and a first rate hike in 3Q15.
The industry breakdown of the 198,000 increase in private
sector employment featured an acceleration in goods-
producing employment growth to 58,000, while job adds in
the private service sector downshifted to 140,000. Within
goods producers, both construction and manufacturing saw
good increases, while all the major private service industries
experienced slowing relative to the hot pace seen in the prior
month. The average workweek has been remarkably steady,
unchanged at 34.5 hours over the past five months. The
0.04% increase in average hourly earnings left the year-ago
increase in wages at 2.0% a figure that has chopped around
between 1.8% and 2.2% for much of the past four years. The
series for production workers, which is arguably better meas-
ured, increased 0.2% last month and is up 2.3% on a year-ago
basis; after accelerating in early 2013, the year-ago growth in
production worker earnings has been steady for the past two
or three quarters around 2-1/4%.
The rise in the unemployment rate was only the second in-
crease in the last year and a half, and labor market reentrants
accounted for 141,000 of the 197,000 increase in unemploy-
ment last month. The one-tenth rise in the participation rate to
62.9% is an encouraging outcome, though that rate has in-
creased fifteen times since the end of the recession, and of
course the trend subsequently moved lower. The U-6 measure
of labor market underutilization which also includes mar-
ginally attached workers and persons employed part time for
economic reasons also ticked up a tenth.

33
Economic Research
Global Data Watch
August 1, 2014
Personal income (Aug 1)
%m/m, sa, unless noted
Apr May Jun
Personal income 0.3 0.4 0.5 0.4
Wages & salaries 0.3 0.2 0.4 0.4
Consumption 0.0 0.1 0.2 0.3 0.4
Real consumption -0.2 -0.1 -0.1 0.1 0.2
PCE price index 0.2 0.2 0.3 0.2
Core 0.18 0.17 0.20 0.14
Mkt-Based Core 0.2 0.2 0.2
Core (%oya) 1.4 1.5 1.4 1.5
Mkt-Based Core
1.3 1.4 1.3
Saving rate 4.5 5.2 4.8 5.3 4.9 5.3
Nominal personal income increased 0.4% in J une while real
consumer spending rose 0.2%. The PCE deflator increased
0.2% samr in J une (1.6% oya) while the core PCE deflator
rose 0.14% (1.5% oya). The J une report on personal income
and spending released the monthly details for these series to
match the quarterly data that had already been reported by the
BEA on J uly 30. And there was little information in the
monthly data to change our view of the economy.
ISM manufacturing survey (Aug 1)
Sa
May Jun Jul
Overall index 55.4 55.3 55.5 57.1
Production 61.0 60.0 61.2
New orders 56.9 58.9 63.4
Inventories 53.0 53.0 48.5
Supplier deliveries 53.2 51.9 54.1
Export orders 56.5 54.5 53.0
Imports 54.5 57.0 52.0
Prices 60.0 58.0 59.5
Markit manufacturing PMI (Aug 1)
Index, sa
Flash Final
Jun Jul Jul
Composite
1
57.3 56.3 56.5 55.8
New orders (30%) 61.2 59.8 59.5
Output (25%) 61.0 60.4 59.7
Employment (20%) 54.0 52.1 51.2
Sup. del. (15%, inv.) 46.8 48.8
Stks of purch (10%) 49.7 51.5 51.3
New export orders 50.6 50.6 50.3
Output prices 52.1 54.1 54.0
Input prices 57.6 56.7
Stocks of fin. goods 45.2 50.2
Quantity of purchases 57.9 58.3 57.4
ISM-weighted comp.
2
55.8 55.0 54.6
1. Weights in parentheses
2. Attributes ISM-composite weights (equal weights) to corresponding PMI series
The two national manufacturing surveys have both looked
pretty strong in recent months, but the J uly reports showed
contrasting signals regarding the change in momentum be-
tween J une and J uly. The ISM manufacturing surveys head-
line popped up from 55.3 in J une to 57.1 in J uly, reaching its
highest level since April 2011, and many of the surveys main
components came in at very strong levels in J uly. Meanwhile,
the Markit PMI surveys headline declined from a multiyear
high of 57.3 in June to 55.8 in J uly (revised down from 56.3
in the flash report for the month); several of the PMIs com-
ponents also cooled between J une and J uly but still looked
strong. Neither the ISM survey nor the PMI are very reliable
predictors of the monthly changes in the hard manufacturing
data, but we generally think that the PMI is the more reliable
of the two surveys. And the softening in the PMI between
J une and J uly is broadly consistent with the idea that activity
started cooling off in J uly following the strong second quarter
during which there was a significant buildup of inventories.
Construction spending (Aug 1)
%m/m, sa
Apr May Jun
Nominal 0.8 1.4 0.1 0.8 0.3 -1.8
Private 0.3 1.0 -0.3 0.4 0.0 -1.0
Residential 0.5 0.7 -1.5 -1.1 -0.4 -0.3
Nonresidential 0.1 1.2 1.1 2.1 0.5 -1.6
Public 2.1 2.4 1.0 1.6 0.9 -4.0
Nominal construction spending dropped 1.8% in June. This
was a much weaker result than expected, but the report also
contained some more favorable news in upward revisions to
the changes reported for April (from 0.8% to 1.4%) and May
(from 0.1% to 0.8%). The construction data related to GDP
came out a tiny bit stronger than the assumptions used by the
BEA in its advance report on 2Q growth on net, but we are
keeping our tracking estimate of 2Q real GDP at 4.0% with
rounding. The drop off in construction at the end of the se-
cond quarter was widespread across the main components
(private residential: -0.7%, private nonresidential: -1.6%, and
public: -4.0%) and sets up an unfavorable trajectory for the
data headed into the third quarter, but the construction data
are notoriously volatile and can be revised significantly.
Consumer sentiment (Aug 1)
Pre Fin
Jun Jul Jul
Univ. of Mich. Index
82.5 81.3 81.5 81.8
Current conditions 96.6 97.1 97.4
Expectations 73.5 71.1 71.8
Inflation expectations
Short-term 3.1 3.3 3.3
Long term 2.9 2.6 2.7
Home buying conditions 155 160 153
The University of Michigan consumer sentiment index was
revised up from 81.3 to 81.5 between the preliminary and fi-
nal J uly reports, but still showed a modest weakening relative
to the final figure reported for J une (82.5). The headline index
has basically drifted sideways since the end of last year and
perhaps the most notable detail in the final J uly report was the
upward revision to the surveys median five-year-ahead infla-
tion expectation measure. This measure had dropped down to
2.6% in the preliminary J uly report which was the lowest
reading reported since March 2009, but was revised up to
2.7% in the final J uly data which brings it more back into the
range of figures reported over the past few years.

34
Economic Research
Global Data Watch
August 1, 2014
Focus: taking stock of wage in-
flation measures
The Feds preferred measure of underlying inflationthe
core PCE price indexcame out modestly stronger than
expected this week including the annual revisions to the da-
ta. The 2Q GDP report showed that the core PCE price in-
dex increased 1.25% oya in 1Q (up slightly from 1.12% oya
before the revision) and 1.48% oya in 2Q (vs. the 1.44%
oya forecast). And the monthly index increased 1.49% oya
in June (vs. the 1.43% oya forecast). Even with these recent
figures coming in slightly stronger than expected, the trend
in core inflation still looks tame.
We look to a number of recent wage inflation measures as
forward-looking indicators regarding changes in core infla-
tion. In brief, these measures generally look consistent with
persistent labor market slack and a continued modest trend
in underlying inflation. As the amount of slack in the labor
market slowly diminishes over time, we expect that these
wage inflation measures will gradually drift higher and the
trend in core inflation will firm towards the Feds target.
We recently discussed some of the merits and faults of the-
se measures in A field guide to wage-watching (GDW,
J uly 25, 2014). The employment cost indexwhich we be-
lieve to be one of the best single measures of inflation pres-
sureincreased 0.7% saqr in 2Q. This was the strongest
quarterly gain since 1Q08, but it occurred right after an un-
usually soft increase reported for 1Q (0.3%). Smoothing
through some of the volatility in the quarterly changes, the
employment cost index increased 2.0% oya in 2Q, which
was in line with our forecast and not much different from
the comparable figures reported over the past few years.
The BLSs employment report also showed that average
hourly earnings for the private sector were flat in July and
up 2.0% oya. The series for earnings of production work-
erswhich we believe to be more reliable than the series
for all private-sector employeeslooked a little firmer, but
its growth was still modest. Earnings for production work-
ers increased 0.2% samr in J uly and 2.3% oya; the %oya
changes in this series have held between 2.2% and 2.4%
since September 2013.
The measure of median usual weekly earnings had a very
soft second quarter, increasing only 0.8% oya. This meas-
ure can be choppyeven on a %oya-basisso the weak-
ness in 2Q may not accurately represent the underlying
trend. When looking at a four-quarter rolling average, me-
dian earnings were up 1.7% oya in 2Q, a modest gain that
looks similar to the figures reported in recent years.
The BLS will report data on nonfarm unit labor costs (not
shown) on August 8. We believe that 2Q will be a soft
quarter for unit labor costs (0.2% saar) and that the broader
trend will continue to look modest (1.5%oya).
0.5
1.0
1.5
2.0
2.5
2008 2009 2010 2011 2012 2013 2014 2015
%oya
Core PCE price index
Source: BEA
Before annual revision
2.0%
0.5
1.5
2.5
3.5
4.5
5.5
0.0
0.5
1.0
1.5
90 95 00 05 10 15
%saqr
Employment cost index
%oya
Source: BLS
Quarterly change Over-year-ago
change
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2008 2009 2010 2011 2012 2013 2014 2015
%oya
Average hourly earnings: private sector
Source: BLS
All employees
Production and
nonsupervisory workers
0
2
4
6
8
90 95 00 05 10 15
%oya
Median weekly earnings
Source: BLS
Quarterly
Four-quarter
rolling average

35
Marco Protopapa (44-20) 7742 -7644
marco.protopapa@jpmorgan.com
Raphael Brun-Aguerre (44-20) 7134-8308
raphael.x.brun-aguerre@jpmorgan.com
Economic Research
Global Data Watch
August 1, 2014

Greg Fuzesi (44-20) 7134-8310
greg.x.fuzesi@jpmorgan.com

Euro area
July data flow supports our call for a pickup in GDP
growth this quarter
ECB bank lending survey signals broad easing in credit
conditions in 2Q14
Inflation ticked down a tenth to 0.4%oya
Last week, the PMI flash release bolstered our central view
that Euro area underlying growth momentum is set to
strengthen in 2H14, after disappointing in the first half. This
weeks batch of data has brought additional support for our
call, with positive news, especially on unemployment and
credit. On the inflation side, the J uly HICP number printed in
line with our forecast and now stands at 0.4%oya.
A wrap-up of this weeks data
The European Commissions economic sentiment indicator
ticked 0.1pt higher to 102.2, in line with its average since
March and close to its pre-recession average (first chart).
Survey-based measures had run ahead of the hard data in
2Q14, and the resilience of economic sentiment in J uly (in the
face of geopolitical tensions) is another signal supportive of a
pickup in activity in the current quarter. The quarterly survey
on capacity utilization in manufacturing for 2Q14 pointed to
only a small increase in the region, which remains almost 3pts
below its 2000-07 average of 82.6%. Corporates reported
slightly weaker export expectations and perceptions of their
competitive position on extra-EU markets, which arguably
reflect the EUR strength. Compared to the average of 2000-
07, finance and demand shortages remained the key factors
limiting production. Interestingly, labor shortages in the
periphery remain at historically low levels, including in Spain,
where the strong GDP growth recorded in 2Q14 (the flash
estimate surprised on the upside at 2.3%q/q, ar) did not
translate into a meaningful increase in labor shortages,
consistent with our assessment of abundant slack in the
periphery.
The June Euro area unemployment rate printed one-tenth
lower at 11.5%. The unemployment rate in the region has thus
declined five-tenths since the September 2013 peak, in a
gradual normalization on the back of the cyclical recovery. In
our view, the decline of unemployment in the face of weaker-
than-expected growth in 1H14 suggests that the reduced level
of fundamental uncertainty in the region, as for instance
measured by easing sovereign funding costs, is exerting a
positive impact on firms hiring decisions. The data
confirmed the broad improvements recorded by the Iberian
countries, where unemployment has been on a declining trend
since the first half of 2013. The Italian labor market also
showed the first downward move in the unemployment rate
from 12.6% to 12.3%; the Italian PMI had already signaled
improving employment prospects since May, and it is
encouraging that the hard data are aligning with the survey-
based information.
Some good news on the credit front from
the Bank lending survey
On the credit side, the ECB bank lending survey (BLS)
showed a broad easing in credit conditions for the Euro area
private sector in 2Q14. Banks reported a net easing of credit
standards to corporates, the first since early 2007. The net
percentage of banks reporting tighter credit standards fell
from 1% to -3% for non-financial corporates (a negative
number represents easing) and remained broadly stable (from
-5% to -4%) for mortgages. As regards corporates, the net
easing of credit standards was largely driven by a decline in
margins, more noticeable for loans with average risk
characteristics but evident also for riskier exposures.
After turning positive in the past quarter, both corporate and
households net loan demand (measured as the percentage
balance of banks reporting an increase) strengthened in 2Q14,
and banks reported that the trend of improving demand
conditions is set to continue going into 3Q14. Corporate loan
demand in 2Q14 rose moderately (from 2% to 4%), but the
current level is a large increase compared to the average of
2012-13 (-21%). Loan demand was supported not only by
rising needs related to inventories and working capital but
-6
-4
-2
0
2
07 08 09 10 11 12 13 14 15
Standard deviations from2000 to 2007 average
Euro area economic sentiment and composite PMI
Source: European Commission, Markit, J.P. Morgan
-500
0
500
1000
1500
7
8
9
10
11
12
13
99 01 03 05 07 09 11 13 15
%
Euro area unemployment
000s, change over threemonths
Unemployment rate
Unemployed (000s)
Source: Eurostat, J.P. Morgan

36
Economic Research
Euro area
August 1, 2014

Greg Fuzesi (44-20) 7134-8310

also by more favorable fixed investment prospects. Banks, on
balance, expect lending standards for corporates to continue
easing during 3Q14.
Improving perceptions about the macro environment and
business outlook, better bank liquidity, funding and capital
conditions, and the beneficial effect of easier funding
conditions for sovereigns were the key drivers of the easing in
lending standards. We have argued that the ECB BLS may
embed a tightening bias (Euro area bank lending standards are
probably easier than they look), a fact which seems to be
implicitly acknowledged by the ECB itself. After correcting
for this bias, credit availability for corporates has been easing
since around the middle of last year, gaining momentum in
early 2014. On this interpretation, the latest data would imply
a more meaningful degree of easing rather than the beginning
of an easing process.
Thus, it appears that the ongoing recovery in the region
(despite a disappointing first half), through its positive impact
on banks risk perceptions, is more than offsetting the
tightening pressure stemming from the comprehensive
balance sheet assessment and ensuing stress test. The
M3/credit report for J une also pointed to a decent
improvement in bank lending trends, and MFI lending rates in
recorded a solid downward move down in May-J une,
especially in the periphery.
While the J uly BLS survey was conducted after the J une ECB
meeting, it is probably too early to link banks reported
behavior to the incentive scheme embedded in the TLTROs as
it will arguably take time for banks to develop a
comprehensive response to it; nevertheless the improving
news on the credit front is encouraging, in our view. Our
growth forecast does not hinge in a material way on less
restrictive financing conditions, but, looking forward, a we
note that swifter normalization would be beneficial to
counteract any adverse impact from geopolitical tension.
Inflation ticked down another tenth in July
Euro area inflation continued to decline in J uly, but this
decline only reflects a move down in energy price inflation,
which fell 0.9%-pt to -1.0%oya. Food price inflation
(including alcohol and tobacco) also declined, but by a very
modest amount (-0.1%pt to -0.3%oya).
Core inflation (excluding food, alcohol, tobacco, and energy)
remained stable at 0.8%oya in July, and has been hovering
around that level for almost a year. The run rate of core
inflation has been hard to track recently due to temporary
factors (in particular Easter). Nonetheless, our seasonal
adjustment suggests that core prices were up 0.1%m/m in
J uly, after a similar increase in June. This outcome contrasts
with the flat outturns that were seen the prior three months.
We thus take comfort from the data and continue to think that
core inflation is likely to remain stable around 0.8%oya in the
second part of the year.
On an annual basis, our forecast sees headline inflation down
to 0.3%oya in August, followed by a rebound to 0.4%oya in
September. We then see headline inflation stable around
0.7%oya in the last three months of 2014. This volatility is
entirely driven by food and energy price inflation, while core
inflation is set to remain stable, in our view.
-20
0
20
40
60
80
02 04 06 08 10 12 14
Net % of banks reporting tighter lending standards
Changes in Euro area bank lending standards
Source: ECB, J.P. Morgan
Corporates
Household mortgages
-50
-25
0
25
02 04 06 08 10 12 14
Net %of banks reporting higher demand for loans
Changes in Euro area corporate demand for bank loans
Source: ECB, J.P. Morgan
0
1
2
3
10 12 14
%oya (dotted line is ECB target)
Euro area HICP inflation
Headline
Core (ex. food, alcohol,
tobacco, and energy)
Source: Eurostat

37
Greg Fuzesi (44-20) 7134-8310
Economic Research
Global Data Watch
August 1, 2014


Week of August 4 - 8
Output and surveys
Purchasing managers index final (services)
Apr May Jun Jul
Tue Euro area
Aug 5 Overall region 53.1 53.2 52.8 54.4
10:00am
9:55am Germany 54.7 56.0 54.6
9:50am France 50.4 49.1 48.2
9:45am Italy 51.1 51.6 53.9
9:15am Spain 56.5 55.7 54.8
Purchasing managers index final (composite)
Apr May Jun Jul
Tue Euro area
Aug 5 Overall region 54.0 53.5 52.8 54.0
10:00am
9:55am Germany 56.1 55.6 54.0
9:50am France 50.6 49.3 48.1
9:45am Italy 52.6 52.7 54.2
9:15am Spain 56.3 55.6 55.2
In line with the flash release, we expect a significant
increase in the Euro area composite PMI output index in
J uly. This increase should make up for the May-June
weakness and bring the PMI back to the April level (a
three-year high); part of this rebound should reflect the
unwinding of the calendar effects which had contributed to
a subdued 2Q14. We expect the services PMI to
outperform manufacturing. As regards country details, we
expect to see a broad-based pickup in services, with France
lagging Germany and the periphery.
Manufacturing orders
Mar Apr May Jun
Wed Germany
Aug 6 Volumes, sa
8:00am Total (%m/m) -2.8 3.4 -1.7
%oya 1.4 6.6 5.8
Domestic (%m/m) -0.6 1.1 -2.5
%oya 2.0 5.9 5.4
Foreign (%m/m) -4.5 5.0 -1.2
%oya 1.0 7.2 6.1
German orders were weak in May. The April/May average
was still 3.4% ar above 1Q14 but all of this was due to
bulk orders. Excluding bulk orders, the April/May average
was 6% ar below 1Q14. This was a very abrupt decline
given the solid upward trend in the data since early 2013. It
is possible that the holiday distortion that affected the IP
data in May played a role, although the case for this is less
strong with orders. We note, however, that while the
business surveys have slowed since the start of the year,
they were certainly not pointing to a dramatic fall in 2Q14.
For these reasons, we expect a large rebound in J une,
especially outside of bulk orders.
Industrial production
Mar Apr May Jun
Thu Germany
Aug 7 Production sector (%m/m sa) -0.8 -0.3 -1.8 2.0
8:00am %oya sa 2.8 1.4 1.2
Prod sec ex. constr (%m/m sa) -0.4 0.0 -1.4 2.0
%oya sa 1.8 1.4 1.7
Industry (%m/m, sa) -0.3 0.0 -1.6 2.5
%oya, sa 3.2 2.3 2.2
Mar Apr May Jun
Fri France
Aug 8 Ind production (%,m/m sa) -0.5 0.3 -1.7
8:45am %oya, sa -0.8 -2.4 -3.7
Manuf prod (%m/m sa) -0.4 0.0 -2.3
%oya, sa 1.5 -0.7 -3.0
Mar Apr May Jun
Wed Italy
Aug 6 Ind prod (%m/m sa) -0.4 0.5 -1.2 0.7
10:00am Ind prod (%oya, sa) 0.0 1.1 -1.2
German IP fell sharply in May, likely due to a holiday
distortion. In particular, a number of public holidays fell on
a Thursday, leading some workers to take off the Friday as
a bridge to a long weekend. The statisticians treat the
Friday as a normal working day, however, so that the
seasonal adjustment does not sufficiently correct for the
decline in output. We expect this distortion to unwind in
J une, with large monthly gains. Nevertheless, total IP is
likely to have contracted sharply in 2Q14, given the
weather-related payback in construction. In fact, based on
our forecast, it would be almost 5% ar below 1Q14.
Manufacturing will have declined by 1%q/q, saar, which is
also weak although the May distortion creates a positive
carry-over effect to 2Q14.
In Italy, we expect IP to partly rebound in J une, but that
would still leave Italian IP in 2Q14 below the 1Q14
outturn, due to the poor May print.
Real GDP
3Q13 4Q13 1Q14 2Q14
Wed Italy (flash estimate)
Aug 6 %q/q, sa -0.1 0.1 -0.1 0.0
11:00am %q/q, saar -0.6 0.5 -0.5 0.0
%oya -1.9 -0.9 -0.5
With a negative or at best flat IP in 2Q14, we also forecast
Italian GDP to be flat compared to the first quarter, still
showing a disconnect with the improvement suggested by
survey-based information.
Source: European Commission, Eurostat, ECB, FSO, Bundesbank, IFO, INSEE, ISAE, Istat, INE,
CBS, BNB, Markit, and J.P. Morgan forecasts

38
Economic Research
Euro area
August 1, 2014
Greg Fuzesi (44-20) 7134-8310


Demand and labor markets
Retail sales
Mar Apr May Jun
Tue Euro area
Aug 5 Total sales, volumes
11:00am %m/m, sa 0.3 -0.2 0.0 0.3
%oya, working-day adj. 1.2 1.8 0.7
Based on national data accounting for 70% of the region,
Euro area retail sales are likely to post a 0.3%m/m, sa,
gain. This would leave the 2Q14 level of retail sales 1.6%-
pt above the 1Q14 level in annualized terms.
On the basis of a broader set of monthly data (retail sales,
car registrations, consumer confidence, and the retail trade
confidence indicator from the European Commission),
household consumption is likely to have posted a decent
gain in 2Q14. Our tracking model suggests that this gain
could be close to 1%q/q, saar.
External trade and payments
Foreign trade
Mar Apr May Jun
Fri Germany
Aug 8 bn, values, sa
8:00am Trade balance 14.9 17.2 18.8
Trade balance - year earlier 17.8 16.9 15.2
Exports 91.5 93.9 92.9
%m/m -1.8 2.6 -1.1
Imports 76.6 76.7 74.1
%m/m -1.1 0.2 -3.4
Inflation
Producer prices
Mar Apr May Jun
Mon Euro area
Aug 4 %m/m nsa -0.2 -0.1 -0.1
11:00am %oya nsa -1.7 -1.2 -1.0
Consumer prices
Apr May Jun Jul
Thu Netherlands (final)
Aug 7 %m/m nsa 0.5 -0.3 -0.3
9:30am %oya nsa 1.2 0.8 0.9
HICP (%oya) 0.6 0.1 0.3
Output and surveys
Real GDP
4Q13 1Q14 2Q14
Spain (flash estimate)
%q/q, sa 0.2 0.4 0.5 0.5 0.6
%q/q, saar 0.7 1.5 1.9 2.0 2.3
%oya -0.2 0.5 0.6 1.2
The flash Spanish GDP estimate for 2Q14 (2.3%q/q, ar)
surprised on the upside, by 0.3% above the preliminary official
estimate of the Bank of Spain. Details are not known at this
stage, but the Spanish statistical office points to a stronger-than-
expected pickup in domestic demand (private consumption and
business investment).
European Commission survey
May Jun Jul
Euro area
%balance of responses, sa
Industrial confidence -3 -4 -4
Economic confidence 102.6 102.0 102.1 102.3 102.2
Recent production trend 4 2 0
Production expectations 9 7 8
Export order books -14 -15 -15
Stocks of fin. products 4 4 4
Selling-price exp. -1 0 0
Construction confidence -30 -32 -28
Retail confidence -2 -3 -2 -3
Service confidence 3.8 4.2 4.4 3.6
Consumer confidence -7.1 -7.5 -8.4
National business surveys
May Jun Jul
Italy (ISAE survey)
2000=100, sa
Producer confidence 99.8 100.1 100.0 99.9 99.7
The European Commissions economic sentiment indicator
ticked higher in J uly (0.1pt to 102.2), retaining the average level
reached since March. The indicator remained at a historically
high level. The construction subcomponent and, to a lesser
extent, manufacturing rose, but these gains were broadly offset
by weakness in consumer confidence, services, and retail.
Selling-price expectations remained subdued, with more marked
declines in services, especially in the periphery. Turning to
country details, Germany edged lower and France higher, but
the divergence between the two largest Euro area economies
remained elevated. In the periphery Italy rose to a three-year
high, while some declines were recorded in Spain (albeit
remaining at elevated levels) and Greece (where some payback
was expected after the J une surge). The second consecutive
decline in consumer confidence was driven by a worsening of
perceptions of future unemployment, and, to a lesser extent, of
the future general economic situation.

39
Economic Research
Global Data Watch
August 1, 2014
Greg Fuzesi (44-20) 7134-8310


Purchasing managers index final (manufacturing)
May Jun Jul
Euro area
Overall region 52.2 51.8 51.9 51.8
Germany 52.3 52.0 52.4
France 49.6 48.2 47.8
Italy 53.2 52.6 51.9
Spain 52.9 54.6 53.9
The final total manufacturing PMI for J uly remained unchanged
compared to J une at 51.8, one-tenth lower than the flash
estimate. For manufacturing, this is the weakest start of the
quarter since the beginning of the year, and likely reflects the
intensification of the Ukrainian crisis in late J uly. But the data
should be taken in the wider context of the parallel
improvement in services and of the protracted weak French
performance. Beyond the French disappointment, both
Germany and the periphery, despite contrasting movements,
maintained a solid pace of expansion.
In Germany, the output index rose 1.0pt to 53.8, alongside an
increase in new orders and especially export orders (reportedly
stemming from the US and Asia). France, on the other hand,
continued to genuinely disappoint: the output index plunged
2.4pts to 45.2; four running declines have effectively erased all
the progress recorded since the end of 2013; the French decline
was matched by falling orders, in particular domestic ones. In
the periphery, the output index fell 1.2pt in Italy, while the level
remained healthy (53.7), a softening of domestic and export
orders was observed, albeit the employment index held its
ground in expansion territory. The output index fell to a larger
extent in Spain (-2.4pts to a strong 54.2), but the decline
appears linked to some payback after sharp increases to an
above-trend level over 2Q14.
As regards the Euro area aggregate, the output index of the
manufacturing PMI was revised two-tenths lower, showing a
decline of 0.2pt to 52.7. Both new orders and export orders
ticked higher after marginal revisions, but the employment
index was revised four-tenths lower to 49.9, the first reading
below 50 in the year. The order-inventory ratios were largely
unrevised, remaining at the J une levels (slightly below the pre-
2008 average). Firming price pressures were confirmed on the
cost side, albeit with only modest pass-through of higher input
costs to final products.
Demand and labor markets
Unemployment
Apr May Jun
Euro area
Harmonized measure, %, sa (Eurostat)
Unemployment rate 11.6 11.6 11.5
May Jun Jul
Germany
Registered (ch m/m,
000s, sa) 25.0 9.0 -8.0 -12.0
000s, nsa 2882.0 2832.8 2871.3
Unempl. rate (%, sa) 6.7 6.7 6.7
Employment
Apr May Jun
Germany
Change m/m, 000s, sa 32.0 21.0 15.0 16.0
The J une Euro area unemployment rate printed one-tenth lower
at 11.5%. The unemployment rate in the region has thus
declined five-tenths since the peak of September 2013. The
J une data confirmed both the firming of the labor market in
Germany and the broad improvements recorded in the
periphery. Spain and Portugal confirmed the declining trend that
began in the first half of 2013. Encouragingly, the Italian labor
market also showed early signs of progress, with a three-tenths
downward move in the unemployment rate. By contrast, the
French labor market continued to falter.
Retail sales
Apr May Jun
Germany
Sales ex. autos and petroleum, volumes
%m/m, sa -1.5 -0.5 -0.6 -0.2 1.3
%oya, sa 0.4 0.9 -0.9 -0.1 2.5
Domestic consumption
Apr May Jun
France
Consumption of goods, real terms
%m/m, sa -0.2 0.0 1.0 0.7 0.9
%oya, sa -0.4 -0.6 -0.7 1.8
German retail sales were up strongly in 1Q14 (+6.0%q/q, saar),
thus a payback was likely in 2Q14. After J une report, the 2Q14
level in retail sales stands 1.3%-pts below the 1Q14 level in
annualized terms. The payback is thus not so large and the
trajectory of the monthly readings is encouraging. Retail sales
were down 0.5%m/min April, a little bit less in May (-0.2%m/m),
and a strong gain occurred in J une (1.3%m/m). The move up in
J une was broad-based across categories, with the exception of
IT and communication equipment. Our tracking model for
German consumer spending suggests that consumer spending is
set for a 0.7%q/q, saar gain in 2Q14. While retail sales and car
registrations have declined last quarter, consumer confidence
has increased notably. We note, however, that our tracking
estimate has been biased to the upside recently so that consumer
spending could come up a bit weaker than we expect.

40
Economic Research
Euro area
August 1, 2014
Greg Fuzesi (44-20) 7134-8310


French goods consumption was weak in 1Q14, falling 4.1%q/q,
saar due to VAT-related payback, while the mild winter led to a
big fall in energy consumption. Consumption of goods
recovered substantially in May and J une, by 0.7%m/m and
0.9%m/m, respectively. The move up in J une was broad-based
across categories. The only exception was household durables,
which were down 1.5%q/q, saar. Taking into account the latest
data, household consumption is up 4.1%q/q, saar, thus the move
down in 1Q14 resulting from the VAT hike was completely
offset. Based on the consumption and production data, the
outcome of our tracking model is consistent with our 0.5%q/q,
saar GDP forecast for the French economy in 2Q14
Inflation
Consumer prices
May Jun Jul
Euro area (flash)
HICP (%oya nsa) 0.5 0.5 0.4
Germany (prelim)
%m/m nsa -0.1 0.3 0.3
%oya 0.9 1.0 0.8
HICP (%oya) 0.6 1.0 0.8
Baden Wuerttemberg (%oya) 0.8 0.9 0.8
Bavaria (%oya) 0.6 0.7 0.7
Brandenburg (%oya) 0.8 0.9 0.9
Hesse (%oya) 0.7 0.9 0.6
North-Rhine West (%oya) 1.1 1.2 1.0
Saxony (%oya) 0.8 0.9 0.8
May Jun Jul
Italy (prelim)
%m/m, nsa -0.1 0.1 -0.1
%oya, nsa 0.5 0.3 0.1
HICP (%oya nsa) 0.4 0.2 0.0
May Jun Jul
Spain (flash)
HICP (%oya nsa) 0.2 0.0 -0.3
May Jun Jul
Belgium CPI
%m/m, nsa -0.1 0.1 0.2
%oya, nsa 0.4 0.3 0.3
See Euro area essay for details.
Producer prices
Apr May Jun
France
%m/m, nsa -0.2 -0.1 -0.6 -0.4 0.0
%oya, nsa -0.9 -0.7 -0.3 0.1 0.4
Apr May Jun
Italy
%m/m, nsa -0.2 -0.1 0.1
%oya, nsa -1.4 -1.4 -1.6
Import prices
Mar Apr May
Germany
%m/m, nsa -0.6 -0.3 0.0
%oya, nsa -3.3 -2.4 -2.1

41
JPMorgan Securities Japan Co.,
Ltd.
Economic Research
Global Data Watch
August 1, 2014
J apan
Real GDP forecast revised down to -7.5% from -6.5%
for 2Q and to 2.5% from 3.0% in 3Q
June hard data on consumption and manufacturing
were much weaker than expected
July Shoko Chukin survey is more upbeat, particularly
in nonmanufacturing sector
BoJ may highlight downside risk on growth, but
unlikely to signal further easing
With disappointing J une and J uly data reported this and last
week, we revised down our 2Q GDP forecast to -7.5%q/q,
saar (from -6.5%) and our 3Q forecast to 2.5% (from 3.0%).
While we believe that the economy remains on an uptrend
after the VAT hike in April, the pace of the recovery appears
to be slower than we expected. However, we still believe that
above 2% growth is possible in 2H14, with early signs of a
pickup in consumption and exports in the current quarter.
Indeed, the weakness of the hard activity data was broad-
based. Real exports slid for the second consecutive month in
J une as noted last week, and this weeks IP report showed
unexpected weakness in manufacturing activity. We attribute
the weakness to both cyclical and secular factors (see the
research note J apans exports face both cyclical and secular
headwinds in this GDW). The rise in J uly PMIs new export
orders and the recent increase in foreign machinery orders
suggest to us that exports will likely rise again soon on the
back of a pickup in the global economy, but the pace of
growth will likely be modest. We expect the same for IP.
Private consumption-related data were also weak. While we
think that the bad weather in June weighed on consumer
spending, the data prompted us to revise down our 2Q private
consumption forecast to an extremely weak -17% saar (from -
15%). In the coming weeks we expect consumption to recover,
as normal hot and humid summer weather returned in mid-
J uly. Still, the weakness of consumption up to mid-J uly
compelled us to revise down our 3Q consumption forecast to
6.0% (from 7.5%). The continued fall in core capital goods
shipments in the J une IP report was a further disappointment,
although manufacturers of these goods expect a notable
output rise in July.
The silver lining was the improvement of labor market
conditions in J une, with a further rise in job offers and
employment associated with a rise in the labor participation
rate. We expect the tightening labor market eventually to lead
to a rise in wages. June wages were disappointing, but we
think this preliminary print will be revised up in the final
report. In addition, the sentiment of small restaurants and
lodges improved in J uly, suggesting that households spent
more money on services than goods. If that is the case, the
softness of retail sales may be exaggerating the weakness in
consumption. Firms solid outlook in the business survey also
supports our view that the economy will grow above 2% in
2H14.
These weak readings on economic activity should concern
policymakers, who are quite bullish on the recovery. The odds
are increasing for BoJ action as well as for Prime Minister
Shinzo Abe delaying the 2015 VAT hike. However, we think
the odds of both policy change decisions are still low. We
expect the BoJ to revise down its FY2014 GDP forecast in
October from its bullish 1.0% call published in J uly, but the
potential growth rate in the BoJ s official view is below 0.5%
per year. Unless it believes that the economy will fall into
recession, we expect the Bank to argue that the labor market
will continue to tighten and that inflation will rise further. The
MoF, which has indicated its desire to raise the consumption
tax again, probably will persuade Prime Minster Abe with
some temporary fiscal easing, if necessary. In next weeks
BoJ policy meeting, board members may highlight downside
risks to growth, but the message will likely be unchanged, as,
in our view no additional easing is necessary now.
-15
-10
-5
0
5
10
15
-40
-20
0
20
40
05 07 09 11 13 15
%q/q saar for both scales, dashed lines show J.P. Morgan forecast
IP and real GDP
Source: METI, Cabinet Office, J.P. Morgan forecast
IP
Real GDP
90
95
100
105
110
Jan 13 Apr 13 Jul 13 Oct 13 Jan 14 Apr 14
2013=100, sa
IP and retail sales
Source: METI, J.P. Morgan
IP
Retail sales

42
Economic Research
J apan
August 1, 2014
JPMorgan Securities Japan Co.,
Ltd.
Manufacturing activity depressed
Industrial production was very weak in J une. The 3.3%m/m,
sa fall in J une is already a large disappointment, but the rise in
inventories and the inventory to shipments ratio, along with a
large downward revision of firms output projections (J une
actual at -3.0%, vs. the -0.7% projection in the May IP report)
suggest that manufacturers were too optimistic about the
pickup in demand. The manufacturers output survey
projected a 2.5% output rise in July (revised up from 1.5%
before) and a 1.1% increase in August, which, if realized,
would put 3Q output up 4.9%q/q, saar rise, even if September
production is unchanged from August. We think these
projections will be revised down again and, accordingly,
lowered our 3Q IP forecast to 1.0%q/q, saar from 2.5%.
The decline in output and shipments in J une was broad-based
in terms of sector and goods type. The only major sector (out
of 16) that showed no decline (0.0%) in output was other,
while only the electric machinery and electronic parts sectors
showed a gain in shipments. Among types of goods, only
producer goods for other uses showed a gain. Even non-
durable consumer goods shipments fell 1.0%m/m, sa in June,
echoing the limited pickup in J une retail sales, while
construction goods shipments continued to decline, consistent
with the decline in housing activity, and frequent reports that
public investment is not progressing due to a shortage of
construction workers.
June consumption-related data disappoint
Retail sales rose only 0.4%m/m, sa in J une after a 4.6% rise in
May and a 13.6% plunge in April, leaving the 2Q average
down 25.4% ar from 1Q, when sales rose 15.4%. The limited
pickup in J une was more notable in the separately reported
household spending, which is source data for the GDP
accounts and includes services that are not covered in retail
sales. Core real household spending (excluding items not used
for the GDP calculation) also rose only 0.4% after rising 0.6%
in May and plunging 13.8% in April, leaving the index down
29.8% saar from 1Q when the index rose 20.2%.
The limited pickup in June probably reflected bad weather,
such as unusual thunderstorms and low temperatures. We
believe that consumption fundamentals have improved
recently, as the labor market tightens. While the
unemployment rate rose to 3.7% in June from 3.5% in May,
the job-offers to applicants ratio continued to rise and the rise
in number of unemployed reflected an increase in new job
searchers and quits.
Meanwhile, June wages were also disappointing. Indeed,
headline total monthly earnings per employee increased only
0.4%oya after rising a revised 0.6% (from 0.8%) in May, and
recent peak at 0.7% in both April and May. The most
significant surprise was the meager 0.3% gain in special
payments, mainly summer bonuses. However, these
preliminary data probably exaggerate pay weakness. The
special payments are too weak relative to the other survey on
summer bonuses, and may repeat the 2013 pattern when the
weak preliminary special payments print in J une was revised
up from 0.4% to 2.1%, lifting total wages to 0.6%oya from
0.1%. The calculation of bonuses probably takes time, so
large firms likely have delayed reporting. We think wage
dynamics remain favorable with the labor market tightening.
Relatively solid business survey
Small firm sentiment in the Shoko Chukin survey continued
to recover in July. The manufacturing DI rose for the second
month in a row, marking 47.8 after 46.7 in J une, and 45.1 in
May, but remained below the 2013 average (48.1). Ahead,
manufacturers look for a 1.1pt decline in the sentiment DI in
August, mainly due to a predicted 8pt decline in autos, which
appears to reflect seasonality; the manufacturers business
conditions DI has fallen every August in the past seven years
averaging down 1.3pts (and a -6pts average in the auto sector),
probably because this sector tends to shut down its plants
during the Obon holidays (the week starting on August 11 this
year). We expect a decent rise in the manufacturing DI in
September. The nonmanufacturing DI rose to 49.4, from 47.7
in J une and May, and 45.2 in April, with the outlook DI
predicting an additional rise to 50.3. The upbeat mood among
consumer-oriented businesses (such as restaurants/hotels) is
encouraging. Retail trade sentiment did not recover in J uly,
staying at the relatively low 45 level marked in J une, although
with expectations of a 3pt gain in August.
Apart from general business sentiment, the sustained high
level of the employment DI (a high reading means that firms
perceive their employment as shortage) was consistent with
the tightening labor market suggested by the labor market
indicators.
40
42
44
46
48
50
52
54
DI, dashed lines show August outlook
Small firms business condition
Source: Shoko Chukin Bank
Manufacturing
Nonmanufacturing

43
Miwako Nakamura (81-3) 6736-1167
miwako.nakamura@jpmorgan.com
Economic Research
Global Data Watch
August 1, 2014
Week of August 4 8
During
Cabinet Office private consumption index
the %m/m, sa
week Mar Apr May Jun
Overall 4.9 -8.1 1.3 0.5
Available J une consumption indicators, including this
weeks nominal retail sales and real household spending in
the Household survey, suggest that recovery in consumer
spending from the extreme weakness immediately after the
tax hike, up to the end of 2Q, was slower than we had
thought. Note that we expect consumer spending to
accelerate in the coming months, supported by the
probable increase in summer bonuses and the tightening
labor market.
Tue
Services/composite PMIs
Aug 5 Diffusion index
Services (business activity) 46.4 49.3 49.0
Composite (output) 46.3 49.2 50.0
Fri
Balance of payments
Aug 8
Current account ( bn sa) -743 131 385 109
Trade balance -1588 -831 -555 -821
Services -295 -275 -213 -250
Income 1289 1418 1359 1360
Current transfers -150 -180 -208 -180
Current account ( bn nsa) 160 187 523 -236
Based on the already available customs trade data, we
expect that the trade deficit will widen again mainly due to
a solid rebound in imports from the weakness in the
previous two months, which was probably because of a
negative payback for the front-loading of demand ahead of
the VAT hike. Thus, the overall balance in J une should
show a smaller surplus than in May. Still, this forecast
looks for a better current account balance than in earlier
months (the CA was in an average deficit ofJ PY459 billion
in the three months to March).
Fri
Bank lending
Aug 8
%oya 2.2 2.4 2.5 2.5
%m/m, sa by J.P. Morgan 0.2 0.4 0.3
Bank lending appears to have been regaining momentum
in the past few months, with BoJ officials noting that
funding demand is now not limited to large firms and was
spreading to medium-sized and small firms in the previous
J une report. Firming corporate loan demand has yet to be
visible in other bank lending data, which is reported at the
end of the month, and breaks data down by type of
borrower, at least as of the J une report.
Fri
Economy Watchers survey
Aug 8 DI
2:00pm Apr May Jun Jul
Current conditions 41.6 45.1 47.7 48.5
Households 37.2 42.1 45.1
Business 48.5 47.4 50.3
We expect the J uly index to show further, albeit modest,
improvement from the tax hike-triggered plunge. Available
survey reports for the month suggest soft goods
consumption, which probably in part reflected adverse
weather, and still-depressed manufacturing activity.
Labor force survey (Jul 29)
%m/m, sa
Apr May Jun
Unemployment rate (%sa) 3.6 3.5 3.5 3.7
Labor force (%m/m, sa) -0.4 0.5 0.2
Total employment -0.4 0.6 0.0
Unemployed 0.0 -1.3 4.7
Job offers ratio (%sa) 1.08 1.09 1.09 1.10
The J une labor market reports point to continued tightening. The
job offers to applicants ratio extended its consecutive monthly
rise since October 2012 and now stands at the highest rate since
September 1992. The unemployment rate unexpectedly rose to
3.7%, sa, from 3.5% in May and 3.6% in the three months to
April; however, it reflected the higher labor participation rate
(which marked 59.62%, sa, very close to the recent high of
59.63% recorded in November 2013) and the number employed
at firms posted the second consecutive monthly rise (0.3%m/m,
sa after +0.4% in May and -0.5% in April) to a new historical
high.
The major reason for the rise in the job offers to applicants ratio
appears to be changing to an increase in job offers from a decline
in job applicants. The 3m/3m sequential change in new job offers
rose at 0.5% after having declined in the previous two months (-
1.1% in May and -0.2% in April). New job applicants also rose
0.8% in 3m/3m sequential terms in J une, after consecutive
monthly declines since J une 2011. The conditions relating to
regular workers are improving; The existing job offers ratio for
regular staff in J une reached 0.68 sa, 0.01pt higher than in May
and 0.06pt above the start of this year. This trend, if sustained,
would put upward pressure on average wages.
Household survey of expenditures (Jul 29)
%m/m sa, incl. agricultural worker households
Apr May Jun
All households
Real spending -13.3 -3.1 4.0 1.5
%oya -4.6 -8.0 -2.0 -3.0
Core -13.8 0.6 0.4
%oya -6.6 -6.4 -3.7
Worker households
Real disposable income -4.4 4.3 -4.6
Propensity to spend (%) 74.2 70.3 74.8
Source: CAO, Markit, BoJ, MoF, Statistic Bureau, J.P. Morgan forecasts

44
Economic Research
J apan
August 1, 2014
Miwako Nakamura (81-3) 6736-1167
miwako.nakamura@jpmorgan.com
Commercial sales (Jul 29)
%oya
Apr May Jun
Wholesale sales -3.0 -1.3 -0.7
Total retail sales -4.3 -0.4 -0.5 -0.6
%m/m sa -13.6 4.6 0.8 0.4
See main essay.
Shoko Chukin small firm survey (Jul 29)
Diffusion index
May Jun Jul
Sentiment index 46.6 47.3 49.5 48.7
Manufacturing 45.1 46.7 47.8
Nonmanufacturing 47.7 47.7 49.4
The headline index further recovered in J uly from the tax hike-
triggered plunge in April. However, the magnitude of recovery
was less than the survey forecast in the previous June report
(which looked for a rise to 49.6), and the current index level
was still below its 2013 average (49.1).
The manufacturing DI rose for the second month in a row, but
remained below the 2013 average (48.1), with industrial
machinery, electric machinery, and transport machinery
standing at above-neutral levels in J uly, while textiles,
woods/wood products, and printing remaining below 50. The
nonmanufacturing DI also rose in J uly; restaurants/hotels stood
out, with the sentiment DI rising solidly after the sharp ups and
downs in previous months with the expectation of another solid
gain in August, pointing to an upbeat mood about consumer
spending on services (the DI marked 52, after 47 in J une and 59
in May, with the outlook DI looking for a rise to 56; see also
main essay).
Industrial production-preliminary (Jul 30)
%m/msa
Apr May Jun
Production -2.8 0.7 -1.8 -3.3
Shipments -5.0 -1.0 -1.9
Inventories -0.5 3.0 1.9
Inventory/shipments ratio -1.6 4.0 3.5
See main essay.
Employers' surveypreliminary (Aug 1)
%oya
Apr May Jun
Total earnings per employee 0.7 0.6 0.9 0.4
Contract wages 0.2 0.4 0.4
Scheduled payments -0.3 0.0 0.3
Overtime payments 6.0 4.0 1.9
Special payments 16.1 8.0 0.3
Total hours worked -0.7 -0.8 0.5
Regular employment 1.4 1.4 1.5
Full-time workers 0.6 0.7 1.3
Part-time workers 3.3 3.1 1.9
See main essay.
Housing starts (Jul 31)
Apr May Jun
Housing units %oya -3.3 -15.0 -11.0 -9.5
%m/m, sa 1.3 -3.7 -0.5 1.3
Mn units, saar 0.91 0.87 0.87 0.88
Unit starts rose 1.3%m/m, sa in June, after a net 2.5% drop in
the previous two months. That said, the previous weakness left
2Q at -18.5%q/q, saar, which was better than -35.2% in 1Q but
still weak in absolute terms. The six-month moving average of
starts by floor space, a better indicator of real GDP residential
investment, which is in put-in-place terms, posted the fifth
consecutive and meaningful decline at -3.7%m/m, sa (it fell in
the previous four months by an average 2.6%). The result
suggests that housing construction continues to experience
negative payback for a front-loading of demand ahead of the tax
hike. We are currently expecting real GDP residential
investment to fall 20%q/q, saar in each of 2Q and 3Q of this
year, after having marked double-digit annualized rises in the
three quarters to 1Q.
Purchasing managers survey (manufacturing) - final (Aug 1)
Diffusion index
May Jun Jul
Overall index 49.9 51.5 50.8 50.5
Auto registrations (Aug 1)
May Jun Jul
Total %oya -5.6 -0.7 -1.5 0.6
Mn units saar 3.19 2.99 2.90 2.96
J.P. Morgan adjusted (incl. light vehicles)
Mn units saar 4.18 3.86 3.79
The J .P. Morgan adjusted measure of new auto registrations, a
better indicator for auto consumer spending in real terms, fell
1.8%m/m, sa in J uly. It was the fourth consecutive monthly
decline from the recent peak in J anuary (it fell by 7.6% in J une
and 1.5% in May), and it is unclear whether auto sales are
bottoming. That said, the CAOs weekly consumption report for
the fourth week in J uly, which was published this week,
includes auto dealers comments that auto sales have started to
improve, albeit only modestly. The pickup in consumer
spending was also felt by department stores and other large
retailers, and they noted that their sales started to firm in the
latter half of the month as the weather improved. Note, however,
that the FY 2014 auto sales outlook by the J apan Automobile
Manufacturers Association implies a further drop to 3.53
million units, saar, 6.9% below the J uly level, in the average of
the next eight months.
Source: METI, Shoko Chukin bank, MHLW, MLIT, Markit, JADA, J.P. Morgan forecasts

45
Silvana Dimino (1-212) 834-5684
silvana.dimino@jpmorgan.com
Economic Research
Global Data Watch
August 1, 2014
Canada
Monthly real GDP up 0.4%m/m, sa in May
Quarterly growth rate tracking 2.4%q/q, saar
indicating some upside risk to our 2.2%q/q, saar
forecast
June International Trade and July Labor Force Survey
to be released next week
Monthly real GDP increased a robust 0.4%m/m in May on a
solid rebound in goods production (+0.5%m/m) and a second
month of strength in services (0.4%m/m). Quarterly real GDP
is now tracking 2.4%q/q, saar growth in 2Q14, higher than
our forecast of 2.2%q/q, and a solid increase in June would
place significant upside risk to our forecast. Economy activity
is showing a marked rebound after real GDP grew just
1.2%q/q, saar in 1Q, the lowest rate of growth since 4Q12.
The better performance in industry-based real GDP in 2Q14 is
mostly due to a step-up in growth in the key sectors of
manufacturing, wholesale sales and retail sales compared with
very modest growth in 1Q. We will review our forecast next
week when the August 6 release of J une data on merchandise
trade clarifies the net export contribution to real GDP growth
in 2Q14.
Goods production rebounded a solid 0.5%m/m in May, more
than reversing the 0.4%m/m decrease in April. Rebounds in
energy extraction, construction, and manufacturing more than
offset continued weakness in utilities and agriculture.
Although it was revised lower in April, manufacturing is
growing solidly in 2Q. Manufacturing output is tracking a
3.2%q/q, ar increase in 2Q after a very modest 0.8%q/q, ar
growth rate in 1Q. A notable boost to manufacturing in 2Q is
coming from increased auto production.
Services were up 0.4%m/m for the second month in row.
Most sectors of services were higher in May, with the heavily
weighted categories of wholesale sales, retail sales, and
transportation & warehousing posting very solid gains. Motor
vehicles and parts have also helped boost the activity of
wholesalers to a 10.4%q/q saar tracking estimate in 2Q. The
real estate sector was up 0.6%m/m on a 7.2%m/m increase in
the output of real estate agents and brokers and as we
expected, construction reversed some of the weakness in
March and April, increasing 0.4%m/m in May. Along with
structure investment, we expect brokers commissions to
support growth in real residential investment in 2Q and
contribute positively to overall real GDP growth in 2Q.
Payrolls and wages tracking gains in 2Q
Payroll employment posted a solid gain in May with total
non-farm payrolls up 43,100 following a 10,000 decrease in
April, led by a jump in the service-sector payrolls. Payroll
employment growth in the services industries averaged almost
17,000 over the latest three months (March through May), but
the news on the goods-producing sector is not as constructive.
Good-producing partially recovered in May, increasing 7,000
after a 8,000 decline in April, but the May increase was the
first in three months. The 3-month average change dropped to
-3,800, the weakest since June of last year.
On wages, average weekly earnings were up 0.6%m/m in
May (2.6%oya) and hours worked were little changed over
the first two months of 2Q. In the J uly Monetary Policy
report, the Bank of Canada pointed to subdued growth in
wages as indicative of continued labor market slack and a
Canadian economy operating well below full capacity. They
highlighted the recent very tepid growth in the fixed-weight
index of average hourly earnings. While wage growth had
been very modest during 2H13 and through the first quarter of
2014averaging about 1.1%oyathe most recent data for
2Q (April/May average) is showing a firmer gain of 2.0%oya.
The recent lift is narrowly focused among sectors, however,
concentrated in the durables goods industries and mining and
energy extraction. Some of the step-up in wages in the
durable goods industries can be traced back to the renewed
-2
0
2
4
6
02 04 06 08 10 12 14
%oya
Fixed weight index of average hourly earnings
Source:Statistics Canada
Good-producing
Service producing
0.0
0.5
1.0
1.5
2.0
2.5
3.0
45
50
55
60
65
70
75
2012 2013 2014 2015
index, sa
CPI and price surveys
%oya
Source:Statistics Canada, Richard Ivey School of Business, RBC/Markit
Ivey
CPI
Markit

46
Economic Research
Canada
August 1, 2014
strength in the higher-paying auto sector and the mining and
energy sector posted double-digit annual gains in April and
May. Nevertheless, considering the Bank of Canada has
shown some preference for the indicator, the index bears
watching in future months for any signs of more widespread
wage pressure
Industrial producer prices decline further in
June
Industrial product prices edged down 0.1%m/m, nsa
(+3.0%oya) in J une after a 0.5%m/m, nsa decrease in May. In
the quarter overall, producer prices shot up to 3.4%oya in 2Q.
Although, the year-over-year change was a more moderate
2.6%oya excluding energy. The increase would have been
much higher except for the appreciation of the Canadian
dollar since March. Traded goods prices were lower over the
quarter than would have otherwise been the case.
July manufacturing PMI sending a positive
signal
Canadian manufacturing PMI posts a stronger reading in J uly
(the best reading since last November) signaling a positive
start to the third quarter. The overall manufacturing PMI
index ticked up 0.8pt to 54.3 in July with the details of the
survey showing broad-based improvement. The message is
encouraging and may be pointing to further gains in
manufacturing production and a pickup in factory hiring in
3Q. The output index moved up 1.4pts to 55.2 and the
cumulative increase of 3.5pts over June and J uly wipes out
the 1.8pt cumulative decline over the prior three months. The
forward-looking new orders index (+1.1pts) and new export
orders index (+0.6pt) also built on marked improvements in
J une. A higher new orders index and lower stocks of finished
goods translates to further improvement in the orders to
inventory ratio, a plus for the near-term outlook for
manufacturing. The employment index gained for the sixth
month in a row and is difficult to square with the generally
disappointing performance of manufacturing employment so
far in 2014. We get the first look at the J uly labor market next
week with the release of the July Labor Force Survey. The
input price index dropped 1pt in J uly and is now down a
cumulative 7.3pts since April, giving back about half the
increase between December and March when the CAD was
depreciating sharply. The Ivey PMI will be released next
week for July, but between April and J une the Ivey price
index has already given back all of the 13.4pt increase
between J anuary and March. Its likely that the decreases are
indicating a pull-back in consumer prices is ahead, in the
same way that the earlier surge foreshadowed the recent run-
up in consumer prices.
Week of August 4 8
Wed
International trade
Aug 6 Sa
Balance (C$ bn) 0.95 -0.96 -0.15 -0.2
Exports (%m/m) 1.2 -2.8 3.5 -0.9
Imports (%m/m) 1.0 1.6 1.6 -0.8
Real balance 0.06 -0.88 -0.29
Thu
Ivey PMI
Aug 7
Composite index (sa) 54.9 49.0 48.7 50.8
Purchasing index (sa) 54.1 48.2 46.9 53.0
Purchasing index (nsa) 51.1 52.2 49.7 50.0
1. Calculated and seasonally adjusted by J.P. Morgan
Thu
Building permits
Aug 7 %m/m, sa, unless as noted
Total -3.2 2.2 13.8 -2.5
%oya -5.7 -12.5 -6.4 1.8
Fri
Labor force survey
Aug 8 Sa
Employment (mn) 17.80 17.83 17.82 17.83
(ch, m/m, 000s) -28.9 25.8 -9.4 10.0
(%m/m) -0.2 0.1 -0.1 0.1
(%oya) 0.8 0.5 0.4 0.7
Labor force (mn) 19.13 19.17 19.19 19.19
(%m/m) -0.1 0.2 0.1 0.0
(%oya) 0.6 0.4 0.5 0.6
Avg hrly earnings (%oya) 1.6 1.6 1.9 1.6
Hours worked (%m/m) -1.9 1.1 -0.4 0.2
Industrial PPI (Jul 30)
%m/m, nsa, unless noted
Apr May Jun
Total -0.2 -0.5 -0.5 -0.1
%oya 3.9 3.4 2.6 3.0
Ex energy -0.2 -0.4 -0.7 -0.1
%oya 2.8 2.7 1.9 2.5
Monthly GDP (Jul 31)
Sa
Mar Apr May
Total,%m/m 0.1 0.1 0.4
%oya 2.1 2.1 2.3
Source: Statistics Canada, Richard Ivey School of Business, and J.P. Morgan forecasts

47
Banco J.P.Morgan, S.A., Institucin de Banca Mltiple,
J.P.Morgan Grupo Financiero
Gabriel Lozano (52-55) 5540-9558
gabriel.lozano@jpmorgan.com
Steven Palacio (52 55) 5283-1651
steven.palacio@jpmorgan.com
Economic Research
Global Data Watch
August 1, 2014

Mexico
Total credit remains trapped in a single-digit expansion
While credit to the public sector also moderated, we
expect it to remain supportive of infrastructure projects
According to the government, programmable public
spending accelerated 11% in 1H14
The credit cycle in Mexico continues to provide evidence that
its recovery is likely to take longer than expected. According
to this weeks release by the central bank (Banxico), total
bank credit growth took a step back in June, slowing 2.7%-pts
to 5.6%oya (real terms) and averaging 5.1% in the first half of
the year. J unes moderation hints at stubbornly tepid domestic
demand despite some signs of improvement. J unes drop was
broad-based, with consumer credit and business credit
throttling back slightly last month.
Consumer credit expanded 4.8%oya, and credit to firms
expanded 6.4%. Bucking the trend, housing credit edged up
0.1%-pt. to 5.2%oya. As has been the case throughout the
year, development bank credit has expanded at a double-digit
pace and is currently 18%oya higher year-to-date, while
commercial bank credit has remained subdued. In this regard,
the increase in development bank credit has not been large
enough to offset weakness in commercial banks credit,
especially considering that the development banking share
only represents around 14% of the total banking credit
portfolio.
Credit to the public from both private and development banks
also moderated last month, downshifting from 24.4%oya in
May to 13.2%oya last month. Despite this moderation, credit
to the public sector has accelerated strongly this year, which is
consistent with supportive fiscal policy and increased
government spending, particularly on infrastructure projects
(first chart). While the impact of increased public spending
has not yet become clearly visible in other economic
indicators, we expect an eventual catch-up in activity from
fiscal support in the second half of the year.
Yet, with infrastructure spending cooling at the end of 1H14
(second chart), we believe it will be paramount to start
observing spillover effects into the rest of the economy, and
particularly private consumption. Indeed, public capital
expenditure (in which infrastructure spending is considered)
has been the spearhead of the recovery in the use of public
resources, as the current expenditure has remained in line with
the behavior observed in previous years (third chart). While
some near-term moderation is expected after the strong boost
in 1H14, we could see another boost to public spending early
next year, as mid-term elections approach. In the months
Source: MoF, Banxico and J.P. Morgan. *3mma for infrastructure spending.
Source: INEGI.
Source: INEGI.
Source: INEGI.
-20
0
20
40
60
-40
-20
0
20
40
60
80
2011 2012 2013 2014
Credit to the public
sector
Infrastructure
spending (t-1)
%oya, both scales*
Credit to the public sector and infrastructure spending
-40
-20
0
20
40
60
Jan 11 Oct 11 Jul 12 Apr 13 Jan 14
Government expenditures: Infrastructure and subsidies
%oya 3mma
Infrastructure
Subsidies
-40
-20
0
20
40
60
80
Government programmable expenditure
%oya 3mma
Capital
expenditure
Current
-30
-20
-10
0
10
20
30
40
Government revenues
%oya 3mma
tax-related
non-tax

48
Economic Research
Mexico
August 1, 2014
Banco J.P.Morgan, S.A., Institucin de Banca Mltiple,
J.P.Morgan Grupo Financiero
Gabriel Lozano (52-55) 5540-9558
gabriel.lozano@jpmorgan.com

leading to the presidential elections of J uly 2012, we also saw
a meaningful jump in capex, albeit smaller than this years
boost. In all, according to this weeks report from the Ministry
of Finance, programmable public spending increased 11%oya
in 1H14.
Regarding government revenues, tax-related revenues
increased 11oya% in June, and 15.7%oya in 1H13, reflecting
the effect of the tax reform implemented at the beginning of
the year. Tax revenues have been the most important source
of income for the government, compared to non-tax resources,
in which oil revenues have declined 2.7% year-to-date. While
lower export prices in 1H14 has been the main explanation of
the 5.6% decline in oil revenues (5.6%oya), the lower
production platform in recent years remains the main source
of concern with respect to the decline in non-tax revenues. In
any case, the improvement in overall tax collection allowed
stabilization funds to register a meaningful boost in the first
half of 2014, reaching MXN$96.5 billion (US$7.4 billion), an
increment of 49.7% with respect to the balance observed at
the end of the first half of last year (US$4.97 billion)
Tue Consumer confidence, INEGI
Aug 5 Jan 2003=100
Composite 90.3 90.7 91.0 94.5
Tue Central bank foreign reserves
Aug 5 US$ bn
10:00am Jul 11 Jul 18 Jul 25 Aug 1
Gross reserves 190.3 190.2 190.2 __
Thu Consumer prices
Aug 7
9:00am Jun 1H Jun 2H Jul 1H Jul 2H
%2w/2w 0.08 0.04 0.20 0.06
Core 0.12 0.04 0.14 0.01
%oya 3.71 3.80 4.00 4.09
Core 3.09 3.09 3.20 3.26
Apr May Jun Jul
All items (%m/m) -0.19 -0.32 0.17 0.25
%oya 3.50 3.51 3.75 4.04
Core (%m/m) 0.29 0.09 0.21 0.17
%oya 3.11 3.00 3.09 3.23
Fri Fixed investment
Aug 8 %oya
9:00am Feb Mar Apr May
Total -1.4 2.1 -3.5 0.7
M&Eq 3.6 8.2 -4.5 3.3
Construction -4.3 -1.6 -2.9 -0.9
Fri Nominal wage settlements
Aug 8 %oya, one year ahead
Nominal increase 4.0 4.4 4.3 4.1
Real terms 0.5 0.9 0.5 0.1
Central bank foreign
reserves
US$ bn
Jul
11
Jul
18
Jul
25
Gross reserves 190.3 190.2 __ 190.2
Family remittances
Apr May Jun
Total (US$ bn) 2.0 2.1 2.0
%oya 1.9 4.6 4.9 4.5
IMEF PMI survey
Index, sa
May Jun Jul
Manufacturing 52.6 50.3 50.8 49.1
Non-manufacturing 50.5 50.3 50.5 50.1
Source: Banxico, IMEF, INEGI and J.P. Morgan forecasts

49
Banco J.P. Morgan S.A.
Fabio Akira (55-11) 4950-3634
fabio.akira@jpmorgan.com
Cassiana Fernandez (55-11) 4950-3369
cassiana.fernandez@jpmorgan.com
Emerging Markets Research
Global Data Watch
August 1, 2014

Brazil
Manufacturing production plunged in 2Q, reinforcing
the call for a formal recession in the 1H of the year
Weak credit growth, despite a decrease in delinquency
rates
Fiscal performance weakens on the back of lower
growth
This week, we saw June economic indicators portraying a
scenario of weak manufacturing output, slowing bank loans,
and deteriorating fiscal performance. June IP printed another
contraction of 1.4%m/m, sa, yielding a decline of 7.6%q/q,
saar for 2Q14. On the credit front, the J une bank credit report
showed continued signals of loan growth deceleration, along
with a silver lining of better delinquency rates for households,
in sync with the discussion in last weeks COPOM minutes.
Low growth is taking a clear toll on public finances through
lower cyclical revenues, and deteriorating debt dynamics.
Debt ratios are not at alarming levels yet, but the recent trend
is showing that an improvement in the primary fiscal effort is
necessary to keep solvency risks off investors radar.
IP plunged 7.6% in the 2Q14
IP fell less than expected in J une, with a durable goods
production plunge partly offset by an increase in mining
output. Even so, it was the fourth straight month/month
decline, the longest streak since August 2010. In J une, IP
decreased 1.4%m/m sa, above the market consensus and our
forecast of 2.3% and 2.5% drops, respectively. The IP
3m/3m, saar reading plunged 7.6% in J une, from a -2% print
in May and -1.2% in March, confirming that manufacturing
production will be a drag on 2Q GDP growth. As anticipated
by early coincident indicators, durable consumer goods
(-24.9%m/m sa) and capital goods production (-9.7%m/m
sa) weighed on IP performance in J une, due mostly to the
impact of the World Cup games on production, but also to
the weakness in sales and high levels of inventories in these
sectors. The weakness in capital goods production, along
with a decrease in building materials, raises concerns over
fixed investment growth this year. However, once again, the
weakness in capital and consumer durable goods production
was partially offset by an increase in mining production,
which increased 0.3%m/m sa. As we pointed out last month,
the mining sector has been the silver lining in IP reports
this year.
Deterioration in sentiment surveys, high inventory level and
uncertainty surrounding the election cycle should keep
manufacturing production sluggish in the short term. But the
recent decrease in capacity utilization levels hints at the
possibility of some improvement late this year without the
risk renewed inflation pressures on the need for capacity-
-60
-40
-20
0
20
40
04 06 08 10 12 14
%3m/3m saar
Brazil: Industrial production
Source: IBGE
-10
0
10
20
30
2008 2009 2010 2011 2012 2013 2014 2015
%oya, IPCA deflated
Brazil: Outstanding credit
Source: BCB and IBGE
Private banks
Public banks
4.1
4.6
5.1
5.6
6.1
6.6
7.1
7.6
Mar 11 Aug 11 Jan 12 Jul 12 Dec 12 May 13 Oct 13 Apr 14 Sep 14
%of arrears
Brazil: Delinquency from households
Source: BCB
Between 15 and 90 days
Over 90 days
1
2
3
4
03 05 07 09 11 13 15
12-month trailling sum, %of GDP
Source: BCB
Brazil: public sector primary balance

50
Emerging Markets Research
Brazil
August 1, 2014
Banco J.P. Morgan S.A.
Fabio Akira (55-11) 4950-3634
fabio.akira@jpmorgan.com
Cassiana Fernandez (55-11) 4950-3369
cassiana.fernandez@jpmorgan.com

creating investment spending. In all, despite the upward
surprise in the print, activity performance last quarter was
weak, with IP plunging 7.6%q/q, saar. Without further offsets
from services and agricultural production, we maintain our
forecast for a 1.1%q/q saar drop in 2Q14 GDP, scheduled for
release at the end of this month.
Decrease in households delinquency rates
BCBs J une bank credit report revealed another leg of
moderation in the growth rates of many credit segments, such
as vehicles and payroll loans, amid stabilization in credit
standards last month. The silver lining of the report was the
slight decline in households delinquency rates, despite many
signs of weakness in domestic demand and the job market
lately. However, it also suggests that the decrease in
delinquency rates should be read with caution, as
fundamentals still point to a worrisome outlook for credit
markets, with weakening net job creation signaled by the last
CAGED survey, persistent deterioration in business and
consumer confidence and tighter credit standards on average
this year. Overall, the weakness in credit growth rates, along
with the stabilization in delinquency rates, aligns with the
Central Bank decision to ease reserve requirements and
capital rules for banks, which would have a potential impact
of R$30-45 billion of higher liquidity for banks, according to
the BCBs own estimates.
Weak primary performance already
affecting debt dynamics
The June fiscal report for the consolidated public sector
printed a primary deficit of R$2.1bn, which was slightly
worse than the market consensus of a R$1.1bn deficit, and
better than our projection of -R$3.5bn. Although last months
result was an improvement over Mays dismal performance,
overall fiscal performance for the first half remains poor, with
the R$29.4bn primary surplus accumulated being the worst
performance in the first six months of the year since 2000.
Indeed, the 12-month trailing primary surplus continued to
decline to 1.36% of GDP, from 1.52% in May, moving further
from the targeted 1.9% of GDP at the end of this year. Even
with the central government making some effort to avoid
further acceleration in spending, spending is still growing
faster than net revenues due to the negative impact of slow
growth on tax collection, increasing the governments
dependence of one-off revenues to improve fiscal results in
2H14. Actually, according to the latest fiscal budget review,
the government expects one-off revenues of around 0.5% of
GDP over the next few months, mostly from oil and telecom
concessions and revenues from a new round of tax debt
renegotiations with the private sector.
The conjunction of much lower primary surplus, slow growth,
and rising interest rates is resulting in an inflexion in public
debt dynamics in several different measures. The net debt for
the consolidated public sector reached 34.9% of GDP in J une,
up from 33.6% last December, with debt service and the
currency appreciation adding 3.3%-pts to the net debt that was
not offset by the primary surplus and nominal GDP growth,
which contributed just 1.8%-pts of reduction in the debt/GDP
ratio. The more popular measure of gross debt of general
government also increased by 1.8%pts this year to 58.5% of
GDP. Although the level of public debt is not yet alarming,
the recent change on its dynamics clearly indicates the need to
improve the primary fiscal effort to avoid triggering negative
actions from the ratings agencies.
Week of August 4 8
Thu General prices (IGP-DI)
Aug 7
%m/m 0.5 -0.5 -0.6 -0.38
%oya 8.1 7.3 5.8 5.22
Fri Consumer prices (IPCA)
Aug 8
%m/m 0.7 0.5 0.4 0.12
%oya 6.3 6.4 6.5 6.62
Fiscal sector
Minus denotes surplus Apr May Jun
R$ bn
Primary -16.9 11.1 3.5 2.1
12-month sum, as %of GDP
Primary -1.9 -1.5 -1.3 -1.4
Nominal 3.1 3.5 3.6
Net debt, %of GDP 34.2 34.6 34.4 34.9
Apr
May Jun
%m/m, sa -0.5 -0.8 -2.5 -1.4
%oya, nsa -5.9 -3.4 -7.8 -6.9
Source: IBGE, BCB, FGV, and J.P. Morgan forecasts

51
Vladimir Werning (1-212) 834-4144
vladimir.werning@jpmorgan.com
Iker Cabiedes (1-212) 834-2349
iker.x.cabiedes@jpmorgan.com
Economic Research
Global Data Watch
August 1, 2014
Argentina
New debt problems as holdout creditor resolution fails
Domestic spillover depends on cue from bond market
FX will be used as an anchor to attempt a decoupling
Negotiations between Argentina and holdout creditors
reached an impasse this week. The government failed to
secure stays on US court orders blocking debt service in order
to avoid a default. For the moment, this means that NY court
orders will continue blocking the transfer of J une 30 debt
service (which Argentina deposited on time at the bondholder
trustee) after the expiry of the 30-day grace period on that
payment. The judicial order affects the payment of all
exchange securities (US$31 billion) which represent 29% of
Argentinas sovereign securities and 15% of Argentinas
reported sovereign debt.
Traditionally, debt problems are highly correlated with
devaluations, balance of payments adjustments, and
deterioration of macroeconomic performance. But
Argentinas legal issues are not indicative of a lack of
capacity or willingness to pay that traditionally have driven
sovereign defaults. Despite the drop after the end of the grace
period, bond prices remain high (first chart), suggesting the
price action in the bond market reflects investor hopes that
negotiation on a potential resolution will continue. This is
very relevant as bond market performance likely will dictate
the severity of spillovers to domestic market stability and
macroeconomic performance. As long as bond prices remain
high, they may corroborate the governments narrative and
limit contagion to the FX market.
We will more thoroughly assess the risks for the FX market
and the macroeconomic outlook when prospects of a
settlement with holdouts are either satisfied, or dashed, in the
days ahead. At this juncture, we think it is sufficient to
acknowledge that FX markets will take their cue from the
bond market and to note the following:
Benign liquidity trends in run-up to debt problems.
Following the devaluation in J anuary, we note that while
reserves are structurally burdened under the current policy
framework (energy deficit, lack of debt refinancing,
unresolved competitiveness issues), the central bank has
actually been purchasing USD in the spot market and
boosting reserves in the run-up to this weeks events
(second chart). Meanwhile, bank deposits have also
remained well behaved, unlike in the run-up to other crisis
events such as the 2001-02 debt crisis, the global crisis in
2008-09, or the tightening of capital controls in 2011-12).
Source: J.P. Morgan
Source: BCRA
Source: J.P. Morgan
Source: BCRA
60
65
70
75
80
85
90
95
100
Jan 14 Mar 14 May 14 Jul 14
US$, price
Peso devaluation
Benchmark sovereign bond: USD Discount '33 (NY law)
Supreme Court rejects the case
End of grace period
27
32
37
42
-200
-100
0
100
200
300
Jan 13 May 13 Sep 13 Jan 14 May 14
Net daily BCRA FX intervention and international reserves
US$ million, weekly avg. US$ bn
BCRA FX purchases or sales
International reserves
Paris Club payment
0
20
40
60
80
100
120
140
USD/ARS spot, %chg.
FX crawling peg: official exchange rate
oya
3m/3m, ar
14
16
18
20
22
24
26
28
30
Argentina peso reference rates
%p.a.
Interbank 3-month bank funding rate
(BADLAR)
BCRA 3-month bill
(LEBAC)

52
Economic Research
Argentina
August 1, 2014
Multiple factors mitigate spill-overs. Spill-over from
bond market headlines to the official and parallel FX
markets can be muted by several factors: Argentinas debt
problems are not driven by scarcity of funds but by an
interruption of debt service transfers, the sovereign is
deemed solvent, financial leverage is extremely low, also in
the private sector, banks are liquid, the current account is
not a problem, and strict capital controls limit the scope for
portfolio rebalancing.
Remaining transmission mechanisms. Notwithstanding
the above considerations, Argentine peso holders might still
be inclined to draw down on liquidity and increase hard
currency holdings. Exporters may delay shipments and
importers accelerate them to diminish and to multiply FX
operations at the official exchange rate, respectively. Banks
may restrict trade financing. These shifts would affect
reserves, activity, and employment. The market and
economic impact, however, would depend on how long
these pressures persistwhich we believe will be dictated
by the signal from the bond market.
The policy response will be biased to a stable official FX.
The government likely will defend the official peso level
aggressively in response to pressures in the official FX
market to signal that external contagion need not affect
domestic stability. Indeed, a stable official peso would be
instrumental in reinforcing the government narrative that
debt problems are technical and not meaningful.
Managing expectations about the official FX rate likely will
require intervention in the parallel FX market to limit the
gap, which would involve selling USD bonds from ANSeS
portfolio. If the cost of the official peso defense in terms of
reserve losses mounts, the authorities most likely will use
other policy tools to limit the reserve drawdown, including:
interest rate hikes (through either sterilization or
intervention in the FX futures market), tighter capital
controls, and administrative trade controls such as delaying
import authorizations.
Overall, we believe the extent to which the authorities
narrative that its debt problems originate in the legal
interruption of payments rather than scarcity of funds, can
tame FX market pressures depends on whether bond prices
remain consistent with that message. At lower bond prices,
the cost of defending the exchange rate (in terms of reserve
loss) increases and the feedback loop between deteriorating
fundamentals (declining liquidity) and falling bond prices can
become self-reinforcing, as happened last J anuary around the
time of the devaluation. In that month, reserves were
declining at a near-US$3 billion monthly pace (in contrast to a
glacial average monthly reserve decline of US$1.1 billion in
2013) and bond prices dropped sharply (even though litigation
risk was not imminent).
Fri Auto report
Aug 5 Official, %oya
Apr May Jun Jul
Production -21.6 -36.0 -19.8 ___
Exports -20.5 -39.2 -19.2 ___
Domestic sales -40.0 -40.9 -40.0 ___
Official
Apr May Jun
%oya -4.0 -4.9 __ -0.3
%m/m 0.8 -0.2 __ 2.1
Construction
Official
Apr May Jun
%oya -2.6 -4.6 ___ 0.6
Fiscal revenues
%oya
May Jun Jul
Tax revenues 35.1 35.5 ___
External trade-related 54.1 85.7 ___
Domestic activity-related 35.9 33.0 ___
Labor market-related 25.6 26.3 ___
Source: INDEC, J.P. Morgan forecasts

53
Economic Research
Global Data Watch
August 1, 2014
Chile
Soft economic data point to 1.9%oya growth in June
Sluggish growth and dovish minutes hint at more easing
As a result, we now forecast an additional 25bp rate cut,
for a terminal rate of 3.0% by year-end
J une economic activity reports evidenced downbeat growth in
both production and consumption, pointing at a 1.9%oya
expansion in the overall economic activity index (IMACEC),
implying 2.2%oya growth in 2Q14, down from 2.6% in 1Q.
On the supply front, mining is driving growth in industrial
output. IP expanded 1.7%oya in 2Q, vs.0.6% in 1Q. But,
excluding mining, IP declined 0.7% last quarter and 0.4% in
1Q (first chart). Manufacturing remains the main drag, falling
1.5%oya in 2Q (-1.0% in 1Q) and contracting 3.7%q/q, saar.
in 2Q, after expanding 0.8% in 1Q (second chart).
The mining story is a bit more constructive, with activity
expanding 4.0%oya in 2Q, from 1.7% in 1Q. However, a
sequential comparison shows considerable moderation at the
margin, as mining output fell 0.9%q/q, saar in 2Q, from
+4.7% in 1Q14. Moreover, while mining is the only sector in
which business sentiment remains in expansionary territory, it
has worsened over the last couple of months, pointing at
stabilization in mining activity growth ahead (third chart).
Finally, utilities output expanded 2.8% last quarter, up from
1.7% in 1Q. In sum, we expect mining to expand moderately,
around current levels and manufacturing to firm at the margin,
as both sectors benefit from a weaker peso in 2H.
On the demand side, retail sales continued to moderate,
leaving 2Q growth at 3.0%oya, down from 5.5% in 1Q and
well below the 9.7% gain posted in 2013. Consumption
remains subdued with retail sales falling 1.1%q/q, saar in 2Q,
from -3.5% in 1Q. This is consistent with the trends observed
in consumer confidence and credit, amid stable but still
relatively high inflation (4.3%oya in J une).
Overall, with year-to-date growth likely running at 2.4% in
1H14, we continue to forecast full-year real GDP growth at
2.5% (consensus: 2.9%). We anticipate market expectations
will gradually decline toward our below-consensus real GDP
forecast for 2014, which, coupled with easing inflation
concerns, increases the likelihood of further monetary easing.
In this context, the minutes of the J uly 15 BCCh policy
meeting released this week, highlighted that growth concerns
are back in the spotlight of BCCh debate. The board agreed
that growth driversparticularly those related to domestic
demandremain weak and had been below expectations and
potential. In addition, the board emphasized that the economic
downturn is hitting consumption and other associated sectors,
Source: INE and J.P. Morgan
Source: INE
Source: INE and ICARE
Source: INE
-2
-1
0
1
2
3
4
5
2012 2013 2014
%oya, 3mma
IP
IP ex. mining
-10
-5
0
5
10
15
2011 2012 2013 2014
Manufacturing production
%
3m/3m, saar
%oya, 3mma
%
50
52
54
56
58
60
62
64
66
68
70
-10
-8
-6
-4
-2
0
2
4
6
8
10
Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14
Production and business sentiment in the mining sector
%oya, 3mma
Production
Sentiment
-5
0
5
10
15
20
25
2011 2012 2013 2014
%
%3m/3m
saar
%oya,
3-mma
Retail sales

54
Economic Research
Chile
August 1, 2014
while the labor market and credit conditions continue to
worsen despite firm nominal wages. Thus, the increased slack
in capacity utilization suggests that the negative output gap is
widening, which, in turn, is reducing domestic inflationary
pressures and narrowing the current account deficit.
Against this backdrop we remain confident with our call for a
25bp rate cut in the next meeting (August 14). In fact, given
that we anticipate activity will remain subdued amid well-
anchored inflation expectations, we now forecast an
additional 25bp rate cut down the road to a terminal rate of
3.0% by year-end (from 3.25% previously).
Chile
Tue Economic activity (IMACEC)
Aug 5
Mar Apr May Jun
%oya 2.9 2.3 2.3 1.9
Thu Trade balance
Aug 7
Apr May Jun Jul
US$bn 0.9 1.5 0.6 __
US$bn, 12-month sum 4.2 5.3 5.4 __
Fri CPI
Aug 8
Apr May Jun Jul
%m/m nsa 0.62 0.34 0.05 0.15
%oya nsa 4.33 4.74 4.31 4.41
Manufacturing activity
Apr May Jun
%oya nsa 0.8 1.2 0.4 0.8 -0.7
Retail sales
Apr May Jun
%oya nsa 1.6 4.9 4.3 2.3
Source: INE, J.P. Morgan forecasts
Colombia
Week of August 4- 8
Mon Exports
Aug 4
Mar Apr May Jun
US$ bn 4.4 4.3 5.5 __
%oya -4.5 -13.1 2.9 __
Tue CPI
Aug 5
Apr May Jun Jul
%m/m nsa 0.36 0.21 0.09 0.05
%oya nsa 3.40 3.07 2.79 2.79
No data released.
Source: DANE, J.P. Morgan forecasts
Peru
Week of August 4- 8
Thu BCRP monetary policy meeting
Aug 7
May Jun Jul Jul
Reference rate 4.00 4.00 3.75 3.50
Fri Trade balance
Aug 8
Apr May Jun Jul
US$bn -0.2 -0.6 -0.7 __
US$bn, 12-month sum 0.1 -0.3 -0.8 __
CPI
May Jun Jul
%m/m nsa 0.23 0.16 __ 0.43
%oya nsa 3.56 3.45 __ 3.33
Source: INEI and BCRP, J.P. Morgan forecasts

55
JPMorgan Chase Bank N.A,
London Branch
Allan Monks (44-20) 7134-8309
allan.j.monks@jpmorgan.com
Economic Research
Global Data Watch
August 1, 2014
United Kingdom
Mortgage approvals rebounded in June
Credit growth remains weak overall
Signs that consumption growth is showing a modest
slowing in 3Q
With the manufacturing PMI sending the same message
from the output data
This weeks data send a clearer message that growth is
starting to slow. The manufacturing PMI reported a
significant decline while consumer confidence fell back.
There will be inevitable questions about how far growth will
slow from here, and next weeks J uly services PMI will help
to shed some light on that issue. But the data in hand remain
consistent with a fairly modest slowing in overall growth, and
are consistent with a still strong pace of expansion. We
continue to see GDP running in the 3% ballpark, but with the
economy transitioning from a rate slightly above this pace (as
reported in the 2Q GDP report) to one slightly below in 3Q.
This degree of slowing would vindicate rather than challenge
the BoEs forecast. And the main focus at presentbarring
any further large growth surprisescontinues to be the labor
market.
Mortgage approvals bounced back in June
The BoE reported a strong gain in mortgage approvals for
home purchase from 62,000 to 67,200 in June. Some increase
had looked likely following the bounce in last weeks BBA
numbers, but the gain reported by the BoE was larger than
expected. This is the first increase in approvals since J anuary,
and takes the monthly data back to levels last seen in March.
The rise was accompanied by gains in remortgaging activity
and mortgages for other purposes.
The decline in approvals in 1H14 had been attributed to the
BoE introducing lender guidelines on assessing loan
affordability for borrowers. But one uncertainty had been
whether these guidelines had created a permanent tightening
in loan availability, or a temporary slowdown in approvals
due to administrative delays. The jump higher in J une
provides some indication that the latter has been a significant
factor. Indications from the RICS suggest that some of the
heat in the housing market has dissipated lately, with new
buyer inquiries rising less quickly. But approvals remain low,
and there may be more gains in the coming months due to
backlogs being cleared. We expect approvals to continue
rising during 2H14.
40
45
50
55
60
65
70
75
80
10 11 12 13 14 15
000, sa
BoE mortgage approvals for home purchase
Source: BoE
-1.6
-1.2
-0.8
-0.4
0.0
0.4
0.8
1.2
1.6
2.0
2009 2010 2011 2012 2013 2014 2015
%m/m, sa, M4 lending, excludes effect of securitizations and loan transfers
Bank loans to households and PNFCs
Households
PNFCs
Source: BoE
-2
0
2
4
6
8
10
12
14
16
03 05 07 09 11 13 15
%3m/3m, saar
M4 money and credit: households and PNFCs
Money
Credit
Source: BoE
-10
-5
0
5
10
15
20
25
03 05 07 09 11 13 15
%3m/3m, saar
M4 lending to the private non-financial sector
HH secured
Firms Total private
nonfinancial
Source: ONS

56
Economic Research
United Kingdom
August 1, 2014
London Branch
Allan Monks (44-20) 7134-8309
Credit growth remains weak
The rest of the BoEs money and credit data for June show
relative stability. M4 mortgage lending continues to rise at a
2.4%3m/3m, saar pace, while unsecured credit is running at
4.6%. Private nonfinancial corporate (PNFC) loans contracted
over the month in June, but the trend appears to be toward
stabilization. Overall M4 credit to the real economy is running
at just above 2% while M4 money growth continues to
expand at just above 4%. Mortgage borrowing rates continue
to drift modestly higher, with the effective rate on new
mortgage loans rising from 3.13% to 3.15%. A larger rise in
2yr swap rates during June indicate that fixed rates may
continue to edge higher in the coming months. Overall,
though, mortgage rates have fallen significantly since mid-
2012.
House price gains soften
There have been signs of cooling in the housing market in
recent weeks, and a modest 0.1%m/m gain in Nationwide
house prices for J uly will reinforce that perception. House
price gains across both the Halifax and Nationwide measures
are still running close to 10% on a 3m/3m, saar basis. But the
last two monthly readings from these lenders have shown
either flat or slightly falling prices. This cooling may reflect
some fading of pent-up demand for home purchases that was
released in 1H14. Action by the FPC in J une may also have
served to calm expectations, although policy measures
adopted then were not designed to alter the central path of the
housing market. House price gains in 2H14 look set to come
in softer than the BoE had expected (close to 10%) at its June
FSR. This takes a little pressure off the FPC from here, but we
still expect further macroprudential measures aimed at
limiting upside risks from the FPC this year. Mortgage
approvals rebounded in June. And while price gains appear
likely to soften in the coming months, we expect prices at the
national level to continue rising.
Consumer confidence takes a step back
The Gfk reported a drop in consumer confidence from +1 to
-2 in J uly, with small declines throughout the other readings
of the survey. Confidence remains high despite the decline.
But together with the slowing in house price inflation, there is
a sense that indicators related to the consumer and housing are
slowing as Ben Broadbent noted in an interview this week.
These signs are not uniform: mortgage approvals bounced and
the CBI retail survey in J uly surged. Overall, however, our
consumer nowcast points to a slowing in underlying
consumption growth from 2.6%oya in May to 2.3% in July.
4.0
4.5
5.0
5.5
6.0
6.5
7.0
2.0
2.2
2.4
2.6
2.8
3.0
3.2
3.4
3.6
3.8
4.0
4.2
2010 2011 2012 2013 2014 2015
%
New mortgage rates
75% LTV
2yr fixed
Effective
(fixed and floating)
BoE tracker
90% LTV
2yr fixed
Source: BoE
-20
-15
-10
-5
0
5
10
15
07 09 11 13 15
%3m/3m, saar
House prices
Nationwide
Halifax
Source: Halifax and Nationwide
3
4
5
6
7
8
85 90 95 00 05 10
Nominal prices (Halifax/Nationwide avg.) relative to income per household
Real house prices
Source: ONS, Halifax, Nationwide
-40
-32
-24
-16
-8
0
2007 2008 2009 2010 2011 2012 2013 2014 2015
%balance, sa
Gfk consumer confidence survey
Source: ONS

57
Economic Research
Global Data Watch
August 1, 2014
London Branch
Allan Monks (44-20) 7134-8309
Manufacturing PMI points to slower growth
The overall index of the J uly PMI manufacturing survey fell
from 57.2 to 55.4 (J .P. Morgan: 57.0; consensus: 57.2) with
broad-based declines across its output, orders, and
employment readings. It may be tempting to attribute the drop
to the stronger currency. But the UK recovery has been
predominantly driven by domestic demand, and the J uly PMI
survey shows a larger decline in overall new orders (-2.8pts)
than its export orders reading (-1.7pts).
The output reading stands at 57.2 and is still very high
compared to its 53 averagesignaling the sector is still
growing far above its trend. The forward-looking orders
reading remains firm at 57.8. But motion in the survey
suggests activity growth is cooling. Recent activity indicators
in the UK have looked more mixed, but the PMI is a survey
we tend to put more weight on, and hence we think sends a
clearer message. We estimate that the drop in the J uly survey
is consistent with a slowing in manufacturing growth from a
4% pace to 3%.
With no hard data for 3Q, and in the absence of more
indicators about the other sectors in the economy, it remains
challenging to make precise statements about 3Q GDP
growth. The data so far still leave our 3%, ar GDP forecast
well within reach, although the risks to this forecast have
shifted a little to the downside. Next weeks services PMI will
give a sense of growth momentum in the largest sector of the
economy, which will be one of the last data points the BoE
will have prior to the August Inflation Report. The data are
likely to reinforce the BoEs view that growth in 2H14 will be
slightly softer. But at this stage, there does not appear to be
enough weakness in the data for the BoE to actually revise
down its forecast for 3Q growth, which in May was for the
post-revision data to show a GDP gain of 2.8%, ar.
-50
-40
-30
-20
-10
0
10
20
07 09 11 13 15
%balance, sa
Gfk consumer confidence: climate for major purchases
Source: Gfk
30
40
50
60
70
92 97 02 07 12
% balance, sa
PMI manufacturing: output reading
Source: Markit
40
45
50
55
60
65
2011 2012 2013 2014 2015
%balance, sa
Manufacturing PMI
New orders
New export
Source: Markit
-12
-8
-4
0
4
8
2007 2008 2009 2010 2011 2012 2013 2014 2015
%3m/3m, saar, based on a regressionl estimated from1992-2011
Manufacturing output
Actual
PMI model
Source: Markit

58
Economic Research
United Kingdom
August 1, 2014
London Branch
Allan Monks (44-20) 7134-8309
Mon PMI survey, construction
Aug 4 %balance, sa
Overall index 60.8 60.0 62.6
Tue PMI survey, services
Aug 5 %balance, sa
We look for some further moderation in J uly, but leaving
the business activity reading significantly above average
and consistent with still strong growth in services output.
Wed New car registrations
Aug 6 %3m/12m nsa
Total 13.7 13.2 7.3
Private (ex. business and fleet) 14.3 13.8 5.1
Wed Industrial production
Aug 6 Sa
IP (%m/m) 0.1 0.3 -0.7 0.4
%oya 2.5 2.9 2.2 1.3
Manufacturing (%m/m) 0.5 0.3 -1.4 0.8
%oya 3.4 4.3 3.7 2.4
The ONS assumed a partial rebound in IP when it
compiled its first estimate for 2Q GDP.
Thu
MPC rate announcement & asset purchase target
Aug 7
12:00pm No change in policy expected.
Fri Construction output
Aug 8 Sa, constant prices
%m/m -0.2 1.2 -1.1 1.0
As with IP, the ONS has assumed a strong rebound in
construction output in J une after its dip a month earlier.
Fri Trade balance
Aug 8 bn, seasonally adjusted
Total balance (goods) -8.3 -8.8 -9.2
Trade balance (services) 7.1 6.8 6.8
Total trade balance -1.2 -2.1 -2.4
Money supply
Sa
Apr May Jun
M4 ex. IOFCs (%m/m) 0.4 0.2 0.5
M4 ex. IOFCs (%3m/3m,
ar) 4.7 2.7 4.6
M4 (%m/m) -0.2 -0.1 0.1
M4 (%oya) -0.6 -0.8 -0.6
M4 lending (%m/m)
1
-0.7 0.3 0.0
M4 lending (%oya)
1
-4.6 -4.1 -3.8
1. Excludes the effect of securitization.
Net lending to individuals (BoE release)
bn, average
Apr May Jun
Consumer credit (ch, m/m) 0.7 0.7 0.4
Secured lending (ch, m/m) 1.7 2.0 2.0 2.3 2.1
Mortgage approvals (000s sa) 62.8 63.4 61.7 62.0 63.0 67.2
GFK consumer confidence
Sa
May Jun Jul
%balance 0 1 -2
PMI survey, manufacturing
%balance, sa
May Jun Jul
Overall index 57.0 56.8 57.5 57.2 57.0 55.4
Source: Rightmove, CBI, BBA, BCC, GFK, BRC Markit, SMMT, RICS, ONS, BoE,
and J.P. Morgan forecasts

59
Nora Szentivanyi (44-20) 7134-7544
nora.szentivanyi@jpmorgan.com
Nicolaie Alexandru-Chidesciuc (44 20) 7742-2466
nicolaie.alexandru@jpmorgan.com
Economic Research
Global Data Watch
August 1, 2014

Central Europe
CE-3 manufacturing PMIs stabilized in July, with sig-
nificant divergence at the country level
The Polish PMI declined for the fifth straight month on
the back of sharply weaker new export orders
CNB extended exchange rate commitment to 2016
With the EU having agreed on a more comprehensive set of
sanctions against Russia this week, there is understandable
concern about the economic impact the measures will have on
Central Europe. We have argued that, energy trade aside,
trade linkages with Russia are not profound enough for sanc-
tions to have a major macroeconomic impact on the region as
a whole. Nonetheless, continuing geopolitical tensions, in-
cluding counter-sanctions on the EU from Russia are likely to
further dampen business confidence and activity. The Polish
Economy Ministry estimates that sanctions imposed on Rus-
sia and Russian counter-sanctions on the EU will cut 0.6%-pts
from Polish GDP growth by year-end (our estimate was 0.3-
0.4%-pts prior to this weeks sanctions). As of August 1, Rus-
sia imposed a ban on most fruit and vegetable imports from
Poland, which it said could be extended to the entire EU.
Central Europes J uly manufacturing PMIs stabilized at their
second-quarter, posing modest downside risks to our forecast
of a 3Q GDP growth rebound (to 2.5%q/q, saar from 2% in
2Q). The stable aggregate reading masks significant diver-
gence at the country level: the Czech Republic and Hungary
registered impressive gains (overall index in the mid-50s), but
the Polish manufacturing PMI slid into recessionary territory
(49.4). External headwinds appear to be taking a more signifi-
cant toll on the Polish economy than its peers even though
Polish exports to Russia as a share of GDP are no higher than
for CEE peers (the share of total exports is higher, but exports
to GDP are lower; see table). Downside risks to our Polish
GDP growth forecast of 3% in 3Q14 have risen as the slow-
down is also increasingly visible in the hard data (June IP,
retail sales). Polish export growth is still holding up well as
exports to Western Europe and other developed markets have
offset the slump in exports to Russia and Ukraine. But any
setback to the recovery in Polish domestic demand or German
growth prospects would pose a challenge to our view.
CNB: EUR/CZK floor to stay until 2016
This week, the CNB Board unexpectedly extended its com-
mitment to keep EUR/CZK above (but close to) 27, saying it
would not exit the regime before 2016. The Board had already
extended its commitment by one quarter, to 2Q15, at the J une
meeting, so a further delay this week seemed unlikely. Never-
theless, the CNBs dovish bias is not surprising given the be-
nign inflation outlook and downside risks to the 2% CPI tar-
get. The announcement also brings the CNB closer to our
view of a late-2016 exit from the FX regime. We believe that
the exit from the current FX intervention regime will occur in
late 2016 with the first policy rate hike in early 2017, but risks
are tilted toward an earlier rate hike. Core inflation has turned
positive for the first time in many years and should accelerate
further on the back of the weaker koruna, stronger domestic
demand, and the shift in the labor market. The CNB antici-
pates that accelerating wage growth will push inflation al-
ready in 2H14.
The Central Europe data watch is published biweekly, next on August 15.
Source: Markit, Halpim
Source: GUS
CEE: direct trade links with Russia and Ukraine
Exports (% of total) Exports (% of GDP)
to Russia to Ukraine to Russia to Ukraine
Czech Rep. 3.1 0.9 2.1 0.6
Hungary 2.8 2.4 2.2 1.9
Poland 5.0 2.6 2.0 1.1
Romania 2.9 2.0 1.0 0.7
Source: IMF Direction of Trade Statistics
45
50
55
60
65
index, sa
Manufacturing PMI - new orders
Hungary
Poland
Czech
-15
-10
-5
0
5
10
15
20
Jul-13 Oct-13 Jan-14 Apr-14
to EU
to Russia &
Ukraine
Total
Polish goods exports by destination
%oya, nominal value, euro terms

60
Economic Research
Central Europe
August 1, 2014

Source: National Statistics, J.P. Morgan forecasts
Czech Republic:
Weeks of August 4 15
Wed External trade
Aug 6 CZK bn
Trade balance 49.5 40.8 34.8 41.1
Ytd 126.0 166.8 201.6 242.7
Ytd a year ago 95.3 129.8 157.1 189.3
Exports %oya 17.7 11.1 11.8 15.1
Imports %oya 12.6 10.0 9.9 13.3
We look for mild export contraction on seasonally-
adjusted data and this should translate into acceleration
on annual growth rates due to base effects. Imports likely
contracted even more as a payback after strong growth
recorded in May, but on annual rates likely accelerated
as well. Faster export than import growth should lead to
wider trade surplus in J une.
Wed Industrial output
Aug 6 %oya
Production, nsa 8.4 7.7 2.6 12.5
Production, wda 7.0 9.1 5.1 10.6
%m/msa 0.4 1.0 -1.5 1.1
Despite the fall the PMI registered in J une, we expect in-
dustrial sector to grow after a weak May. Yet, IP growth
during 2Q was probably weaker than in 1Q at 4.9% saar.
Mon Consumer prices
Aug 11 %oya
%oya 0.1 0.4 0.0 0.4
%m/m nsa 0.0 0.1 0.0 0.1
Food 3.3 2.5 -1.1 -0.1
Housing -2.2 -1.5 -1.4 -1.2
Transport -0.1 0.6 0.6 0.6
Weekly surveys are indicating a strong advance in fuel
prices, but still-falling food prices. Based on base effects,
the over-year-ago growth rate probably jumped to 0.4%,
but downside surprises are possible due to food and gen-
eral disinflationary environment.
Wed Balance of payments
Aug 13 CZK bn
Current account 23.7 -11.4 9.0 -5.5
YTD 72.3 60.8 69.8 64.3
YTD-a year ago 9.9 17.3 5.6 __
Trade balance 31.2 23.9 20.2 23.4
Service balance 6.5 5.9 5.5 5.9
Income balance -12.0 -51.1 -22.9 -38.6
Current transfers -2.1 9.9 6.2 3.8
Financial account -27.2 26.4 11.0 __
FDI, net 11.4 72.2 16.7 __
Portfolio investments 8.2 -18.4 -15.5 __
Other investments -40.9 -15.5 11.3 __
We look for larger trade surplus to be outweighed by a
sharp increase in dividend payments versus May. Thus,
the C/A balance likely turned negative in J une.
Thu Real GDP, preliminary
Aug 14 %oya unless otherwise stated
9:00am 3Q13 4Q13 1Q14 2Q14
Real GDP, sa -1.0 1.1 2.9 3.1
%q/q, saar 1.4 6.1 3.2 1.8
Growth in both IP and retail sales likely slowed in 2Q
from 1Q with the slowdown more pronounced for retail
sales. Therefore, we expect GDP growth to slow, but re-
main significantly above zero. Upside surprises are pos-
sible due to inventory rebuilding likely after falls record-
ed in both 4Q13 and 1Q14.
Review of past two weeks data
Monetary Policy Announcement
The CNB unexpectedly extended its exchange rate commitment
to 2016 (from 2Q15). See main essay.
Hungary:
Tue Retail trade
Aug 5 %change
%oya wda 8.5 6.3 4.9 6.8
%m/mswda 0.9 0.0 -0.1 0.0
Wed Industrial output
Aug 6 %oya
Production, wda 8.0 9.8 9.5 8.0
Production, nsa 10.6 10.2 9.6 8.0
%m/m swda 0.5 2.4 -1.0 0.0
Output likely stagnated in the month judging by the J une
manufacturing PMI (the output component slumped to
50.7 from 56.9 in May). The forecast would still imply an
impressive 10.6%q/q saar IP gain in 2Q as a whole. One of
the large car plants started producing with a third shift and
this brings some upside risk to the forecast.
Thu External trade
Aug 7 EUR mn
Trade balance 688 625 410 550
Ytd 1929 2558 2968 3524
Ytd a year ago 1630 2303 2794 3332

61
Economic Research
Global Data Watch
August 1, 2014

Source: National Statistics, J. P. Morgan forecasts
Tue Consumer prices
Aug 12 %oya
All items (KSH) -0.1 -0.1 -0.3 0.0
%m/m, nsa 0.1 -0.2 0.1 0.0
Food -0.5 -0.8 -1.3 __
Consumer durables -0.5 -0.6 -0.8 __
Fuel -1.9 0.9 0.9 __
Services 1.6 1.4 1.3 __
Core inflation 2.5 2.6 2.6 __
%m/m, sa 0.1 0.3 0.2 __
Regulated g&s (NBH) -6.4 -7.4 -7.6 __
Market g&s (NBH) 1.3 1.6 1.4 __
Inflation likely stabilized close to zero in J uly as declines
in food prices were offset by higher fuel, alcohol and to-
bacco, and service prices over the month.
Aug 14 %oya, unless otherwise stated
9:00am 3Q13 4Q13 1Q14 2Q14
Real GDP 1.9 2.7 3.5 3.5
%q/q saar 4.5 2.7 4.5 2.3
Monetary Policy Announcement
The NBH surprised with a larger-than-expected 20bp rate cut
(consensus and J.P. Morgan: 10bp) but clearly signaled that the
easing cycle is over. The NBH has been cutting continuously
for the last two years with the policy rate falling from 7% in
August 2012 to 2.1%. Apart from the slightly earlier end to the
easing cycle, there were no real surprises in the NBH's messag-
ing. In the press conference Governor Matolcsy said that the
20bp cut was justified by the inflation outlook, while ending the
cycle was aimed at removing uncertainty over the bottom of the
easing cycle. The base rate has now reached a level that will en-
sure achievement of the 3% CPI target and provide necessary
support to the real economy. The NBH issued forward guidance
stating that it expects to keep monetary conditions loose for a
sustained period. Inflationary pressures are seen remaining low
in a lasting way and low rates globally could support keeping
the policy rate at its current level for an extended period. The
governor said he did not see a reason to raise the policy rate un-
til end-2015. He did not rule out another rate cut cycle in the fu-
ture but said this did not look realistic now.
We stick to our call for the first rate hike to come in 4Q15 (to
2.5%) in response to accelerating inflation. We think the NBH
will be reluctant to raise rates before late 2015/early 2016 un-
less it is forced to do so by inflation developments. All of the
NBHs recent policy schemes (e.g., Funding for Growth, Self-
Financing Plan, HUF IRS auctions) create a disincentive for
rate hikes and the NBH will be looking to reduce interest costs
as much as possible without jeopardizing its inflation target, in
our view. We expect inflation to accelerate to 2.5% on average
in 2015 (from zero in 2014), reaching 2.9% by end-2015. Real
rates will turn negative in 2H15 according to our forecast, but
we do not think this will necessarily be a problem for the NBH
while the ECB and other central banks in the region are in eas-
ing mode. The projected pickup in inflation is due to base ef-
fects in food and energy (both fuel and regulated prices) as well
as rising core
inflation. The output gap is likely to remain negative over the
policy horizon, but its disinflationary impact will decline.
Poland:
Wed Balance of payments
Aug 13 EUR mn
2:00pm Mar Apr May Jun
CA balance 615 941 280 -169
YTD (bn) -0.8 0.2 0.5 0.3
YTD-a year ago (bn) -2.3 -1.7 -1.9 -1.8
Trade balance 484 733 175 __
Exports %oya 11 7 11 __
Imports %oya 3 6 10 __
Service balance 508 607 464 __
Income balance -1317 -1217 -1361 __
Current transfers 940 818 1002 __
Fin + cap balance -743 -459 956 __
FDI, net 803 -521 -1036 __
The C/A likely returned to a small deficit in J une driven by
a seasonal deterioration in the income balance. The modest
deterioration from year-earlier levels will be driven chiefly
by smaller EU fund inflows. By contrast, the trade surplus
likely continued to move higher as a number of high-
frequency indicators point to softening of Polish domestic
demand and this is likely to have weighed on imports.
Wed Consumer prices
2:00pm Apr May Jun Jan
All items 0.3 0.2 0.3 -0.2
%m/m, nsa 0.0 -0.1 0.0 -0.2
Food 0.3 -0.8 -0.9 __
Fuel -3.8 0.4 -0.6 __
Consumer prices likely declined 0.2%m/m in J uly on the
back of a large seasonal decline in food prices that out-
weighed modest increases in duel and core prices. The an-
nual CPI rate is likely to fall into negative territory owing
to base effects in food and the impact from last J ulys 48%
increase in waste disposal prices, which could push core
inflation down to around 0.5%oya from 1% in June.
Thu Real GDP
Aug 14 %oya, 2005 prices
10:00am 3Q13 4Q13 1Q14 2Q14
Real GDP 1.9 2.4 3.4 3.1
%q/q, saar 3.2 2.8 4.5 2.0

62
Economic Research
Central Europe
August 1, 2014

Source: National Statistics, J.P. Morgan forecasts
Thu Core inflation
Aug 14 %oya
2:00pm Apr May Jun Jan
CPIex. food and energy 0.8 0.8 1.0 0.5
CPIex. administered
prices -0.1 -0.2 -0.1 __
CPI15%trimmed mean 0.1 0.5 0.5 __
Avg. of four NBP measures 0.3 0.3 0.4 __
Retail sales
%oya, unless otherwise stated
Apr May Jun
Retail sales (nominal) 8.4 3.8 3.6 1.2
Real, CPI-adjusted 8.9 4.3 4.1 1.8
%m/m, sa 1.3 -1.7 1.2 -0.9
The slowdown in consumer spending gathered pace in J une and
looks increasingly broad-based. We had viewed the sharp slow-
down in May as payback for temporary factors in earlier months
(strong 1Q auto sales and an Easter-induced jump in food sales).
Weak food sales (2.4%oya) and automotive sales (-8.7%oya)
were again the main culprits in J une and it is likely that the tim-
ing of the Corpus Christi holiday (on a Thursday) was not cap-
tured by the normal seasonal/working day adjustments. But
sales of consumer durables and other core goods also weakened.
Average 2Q retail sales growth was unchanged from the 1Q14
pace in oya terms (5%), but the loss of momentum going into
3Q (3m/3m saar at -3% in J une) now looks more meaningful.
Romania:
Mon Retail sales
Aug 4 %oya
Retail sales, sa 10.9 5.3 10.1 11.4
%m/m, nsa 1.3 -3.0 1.9 1.4
We think that strong growth in retail sales continued in
J une supported by wage growth mainly. Yet, retail sales
advanced only 0.8% saar in 2Q from a little more than
20% in 1Q.
Mon Monetary policy announcement
Aug 4
We expect the NBR to keep the policy rate and reserve
requirements unchanged at next weeks meeting.
Mon Consumer prices
Aug 11 %oya
%oya 1.2 0.9 0.7 0.8
%m/m nsa 0.3 0.0 -0.3 -0.2
Mon Industrial output
Aug 11 %oya
Industrial output, nsa 10.8 1.4 12.5 __
Industrial output, sa 11.7 5.2 13.3 __
%m/m sa 1.2 -1.0 2.6 __
Food prices acted to push headline CPI lower, but RON
weakening versus EUR acted in the opposite direction.
We think the fall in food prices was more pronounced
than in J une, but downside surprises are still possible.
Regarding regulated prices, we expect the 2.5% hike in
natural gas prices to be compensated by the fall in elec-
tricity prices as a result of cheaper green certificates and
lower co-generation tax.
Wed Current account balance
Aug 13 EUR bn
Mar Apr May Jun
Current account 0.0 -0.1 -0.1 0.0
Ytd -0.2 -0.2 -0.4 -0.3
Ytd a year ago 0.0 -0.2 0.2 0.1
We expect narrower trade deficit and larger transfers
from the EU to be partly compensated by growing pay-
ments in the income account.
10:00am 3Q13 4Q13 1Q14 2Q14
Real GDP 4.2 5.4 3.9 3.8
%q/q saar 6.6 5.6 0.7 3.0
Weakness in both IP and retail sales would suggest GDP
slowdown in GDP growth in 2Q from 1Q. However, we
think that there was a pickup in fixed investments on the
back of increased public spending and also a strong in-
crease in output in agriculture. We maintain our forecast
of 3% saar for 2Q, but signal some downside risks.
No major data releases.

63
J.P. Morgan Securities plc
J os Cerveira (44-20) 7742-3556
jose.a.cerveira@jpmorgan.com
Economic Research
Global Data Watch
August 1, 2014
South Africa
GDP growth weakness persisted in 2Q14, with high fre-
quency indicators pointing to 1.5%q/q, saar growth
A strong rebound has likely been postponed to 4Q14,
due to the 3Q14 strike in manufactured metal
Although the trade deficit narrowed in 2Q14, the cur-
rent account deficit has likely widened to 5.4% of GDP
With two months of 2Q14 data in hand, our GDP growth
tracker points to 1.5%q/q, saar growth, a very modest pickup
from the 0.6% contraction in 1Q, as neither mining nor manu-
facturing has recovered from their first-quarter slumps. The
release of June manufacturing and mining production data
during the next two weeks will complete our growth tracking
exercise.
Mining output has likely expanded by only 1.1%q/q, saar af-
ter the first quarters 28.3% collapse, given that strikes in the
platinum sector, which started in late J anuary, lasted through-
out the quarter (a deal was struck by J une 23). Thus a real
rebound could not occur, despite somewhat better iron ore
output. Spillover from the platinum strike has spread to manu-
facturing production. Although mostly destined for export,
platinum is also transformed locally by export-oriented indus-
tries, the automobile sector in particular, for the production of
catalytic converters. Given the lengthy supply disruptions,
manufacturing output is likely to have stayed broadly flat in
2Q14, after falling 5.4%q/q, saar in 1Q14.
Although mining output should increase significantly in 3Q14,
a strong GDP growth rebound is likely to be postponed to
4Q14. Julys strike in the fabricated metals sectoran industry
deeply interconnected with the broader manufacturing and con-
struction sectorsis likely to have been significantly disruptive
across industry, forcing key automakers to halt production, for
example. We expect 2.6%q/q, saar GDP growth in 3Q14 and
3.9% in 4Q14, bringing full-year growth to 1.8%.
Trade balance narrows, but CAD likely to
have widened in 2Q14
Although the trade deficit narrowed in 2Q14, the massive
one-off dividend inflow during 1Q14 will most likely be un-
wound, leading to the current account deficit actually widen-
ing to around 5.4% of GDP, from 4.5%. Despite the weaker
rand, monthly exports have been oscillating around R80 bil-
lion for the past half year or so, limited by successive strikes
and still-weak Euro area demand. On a quarterly basis, ex-
ports dropped from R240 billion in 1Q14 to R235.6 billion in
2Q14 driven by lower iron ore sales (following record 4Q13
and 1Q14 exports) and the successive drops in platinum ex-
ports. Imports led the overall improvement in the trade bal-
ance, falling for three consecutive months in 2Q14 by a total
R13 billion, as oil imports adjusted after a one-off spike in
imports earlier in the year. Also, although we think the deficit
will widen again in 2Q14, there are finally signs that demand
for imported consumption goods is slowing, which we think
makes sense given the weakness in consumer demand. We
expect this trend will help support a narrowing in the current
account to 5.1% of GDP, from 5.8% in 2013.
The South Africa data watch is biweekly, next on August 15.
-10
-5
0
5
10
15
-1
0
1
2
3
4
5
6
10Q1 11Q1 12Q1 13Q1 14Q1 15Q1
%q/q saar
Manufacturing strikes prevent GDP rebound before 4Q14
%q/q saar
Source: Stats SA, J.P. Morgan
GDP
Manufacturing
40
60
80
100
120
140
2011 2012 2013 2014
Index: 2010=100
Mining output: platinum vs. the rest
Source: StatsSA, J.P. Morgan
Mining ex. platinum
Platinum
-10
-5
0
5
06 07 08 09 10 11 12 13 14
%of GDP
Current account breakdown
Source: SARB, J.P. Morgan
Trade
Invisibles
Current
account

64
Economic Research
South Africa
August 1, 2014
J os Cerveira (44-20) 7742-3556
Thu SARB official reserves
Aug 7 US$ bn, except noted
Gross reserves (R bn) 522.7 515.7 515.7 __
Gross reserves 49.6 49.2 48.6 __
International liquidity 44.9 44.5 44.8 __
Thu Manufacturing production
Aug 7 Volume output
Manufacturing (%oya) 1.0 -1.9 -3.7 2.4
%m/m, sa -2.0 3.7 -3.3 2.4
Wed Retail sales
Aug 13 %oya
Real 0.80 2.10 2.40 __
Nominal 5.60 7.10 8.10 __
Consumer prices
%oya, except as noted
Apr May Jun
CPI 6.1 6.6 6.7 6.6
%m/m, sa 0.5 0.2 0.4 0.3
Core 5.5 5.5 5.7 5.6
Monetary and credit aggregates
Apr May Jun
M3 7.0 7.6 __ 7.2
M0 7.9 5.4 __ 7.7
Private sector credit 8.3 8.3 __ 8.7
%m/m, nsa -0.1 0.5 __ 1.1
Credit to households 4.6 4.3 __ 4.3
Total domestic credit 7.4 8.0 __ 8.6
Quarterly Labor Force Survey
Change from previous quarter (000s)
4Q13 1Q14 2Q14
Total employment 141 -122 __ 39
Trade balance
R bn, except as noted
Apr May Jun
Trade balance -12.4 -6.6 -7.4 -3.1 -0.2
Exports 77.9 78.4 77.4 __ 80.3
%m/m -2.0 0.6 -0.7 __ 3.7
Imports 90.3 84.9 84.8 __ 80.5
%m/m -1.2 -5.9 -6.1 __ -5.1
Kagiso BER PMI
May Jun Jul
PMI (%weights) 44.3 46.6 __ 45.9
Business activity (25) 42.5 39.5 __ 39.4
New sales orders (30) 44.8 43.9 __ 45.4
Supply performance (15) 52.3 52.4 __ 59.4
Inventories (10) 50.1 58.8 __ 47.3
Employment (20) 37.2 49.3 __ 43.9
Memo: prices paid 70.8 73.8 __ 76.5
Business expectations 59.6 58.3 __ 55.4
PMI nsa 44.0 43.0 __ 41.9
New vehicle sales
May Jun Jul
Total vehicle sales -9.2 -2.4 __ -1.5
%m/m, nsa 7.4 6.8 __ 9.2
1
Source: Stats SA, SARB, SARS, DTI, BER, J.P. Morgan forecasts

65
J.P. Morgan Australia Limited
Stephen Walters (61-2) 9003-7980
stephen.b.walters@jpmorgan.com
Ben K J arman (61-2) 9003-7982
ben.k.jarman@jpmorgan.com
Economic Research
Global Data Watch
August 1, 2014
Tom Kennedy (61-2) 9003-7981
tom.kennedy@jpmorgan.com
Australia and New Zealand
Australian terms of trade resuming its descent
Unemployment rate to hit a new cycle high in next
weeks labor force survey
RBA staff facing downside risks in framing the August
SoMP projections
NZ labor market to have tightened again in 2Q, but
with wage growth still benign
The most important data release this week in Australia was
the trade price report, which showed a 5%q/q decline in the
terms of trade in 2Q. While not a surprise, this result makes
official the drag on realized trade outcomes, and on nominal
GDP growth, from the weaker spot commodity prices that
have prevailed this year. The J une credit growth and building
approvals were harder to read, surprising in opposite
directions, though we are fading the message from both: we
expect credit growth to stay low, while home building still has
more to contribute to real activity over the next year or so.
Next week brings the Australian labor force report for J uly.
We expect the unemployment rate to tick up to 6.1%, given
that domestic demand has faded further, and capacity
utilization in the NAB survey is moving lower again. The
RBA Board should hold the cash rate steady Tuesday, with
Fridays SoMP to gather more interest. The SoMP forecasts
should reflect the fact that the staff has been surprised on the
upside by growth (due to net exports) and core inflation
recently, but expect momentum in both to wane significantly
from here. In New Zealand, the labor market indicators are
expected to bring a decline in the unemployment rate, but
with wage growth staying soft.
Will the jobless rate hit a new peak in July?
Australias unemployment rate moved back up to cycle highs,
at 6.0%, in June and the participation rate appears to have
leveled out after a long period of decline. While leading
indicators of employment have stabilized somewhat, the
levels are too low to prevent the unemployment rate from
rising. We are particularly wary of the renewed slide in the
NAB index of capacity utilization, which correlates tightly
with the jobless rate. We expect modest job creation of 8,000
positions, which should push unemployment up to 6.1%.
While the participation rate has steadied, changes to the labor
force survey from J uly could affect its measurement. The
ABS is changing the classification of a jobseeker such that
checking advertisements is not enoughone needs to contact
the employer (directly or by applying for a job). This could
push a subset of the unemployed out of the labor force, and
therefore bias the participation and unemployment rates
lower. We are not assuming such an effect, though the
possibility does raise uncertainty around next weeks release.
SoMP to remain somber
In the last Statement on Monetary Policy (SoMP), the RBA
did not forecast a return to trend growth until 2H15. It is hard
to see how that date could be pushed out even further in next
weeks Statement, without warranting an interest-rate
response. Since the RBA is reluctant to ease further, we
expect the growth forecasts to be held relatively steady. But
even holding its year-end 2014 forecast at 2.75%, for
example, would represent a downgrade of near-term
momentum, given that the 1Q data delivered an upside
surprise. Official commentary since has emphasized that the
net exports strength seen in 1Q14 is unlikely to be sustained,
while consumer spending has lost steam moving into midyear,
and non-mining corporate activity still is subdued.
On the inflation front, there is, as with the growth numbers, a
positive carry-forward element that supports the near-term
projections, given the strength of core inflation in 2Q (and
more generally, over the past year). However, sub-trend
growth, weak wages, strong productivity, and currency effects
all argue for downside risks to the medium-term inflation
Source: ABS
Source: ABS, RBA
40
60
80
100
120
60 65 70 75 80 85 90 95 00 05 10 15
Index
Australia: terms of trade
0
1
2
3
4
5
6
04 05 06 07 08 09 10 11 12 13 14 15
%oya
Real GDP and RBA forecasts (May SoMP)

66
Economic Research
Australia and New Zealand
August 1, 2014
J.P. Morgan Australia Limited
Stephen Walters (61-2) 9003-7980
stephen.b.walters@jpmorgan.com
Ben K J arman (61-2) 9003-7982
ben.k.jarman@jpmorgan.com
Tom Kennedy (61-2) 9003-7981
tom.kennedy@jpmorgan.com
forecasts. This is all the more so, as the repeal of the carbon
tax having passed into law should be reflected in the RBAs
forecasts. We expect the December 2014 headline forecast to
be cut from 2.75% to around 2.25%, while core inflation
should move less, but still be biased toward the bottom half of
the target band on average over the forecast horizon.
Terms of trade resumes its decline
The terms of trade had been resilient in the first quarter of
2014, seemingly shrugging off the double-digit declines in
spot prices for key commodity categories. We had flagged
that this was simply a timing issue. The release of the 2Q data
confirmed that view, with a sharp decline in export prices
sending Australias terms of trade almost 5%q/q lower. The
previous quarter was also revised down from +0.4%q/q to
-0.5%q/q, taking some of the shine off the better-than-
expected outcome in 1Q. The largest export category, ores
and metals, saw prices fall 10%q/q, while coal, coke and
briquettes (-13%q/q), and non-monetary gold (-3.5%q/q) were
also weak.
NZ labor market to tighten a bit further
The New Zealand labor market data dump for 2Q14 occurs
next week. The theme of the HLFS has been robust gains in
employment, facilitated by a very elastic supply side, which
has prevented the unemployment rate from falling much.
Strong migration flows are a known positive for population
growth, but the participation rate has been rising quickly, too.
We see upside to the participation rate as limited from its
current all-time high, which means another quarter of solid
jobs growth (+0.6%q/q) should pull the unemployment from
6.0% down to 5.8%. The business surveys have been flagging
strong hiring appetite, but no more so now than a year ago,
and factor constraints similarly are not evident outside of
construction. We therefore expect wage growth to remain
subdued in 2Q. The quarterly rate of 0.5%q/q we forecast on
the private sector labor cost index does represent a step up
from 1Q, but annual wage growth should remain at the 1.6%-
1.7%oya lows that have held over the last four quarters.
Australia
Week of August 4 8
Tue RBA cash rate announcement
Aug 5
2:30pm May Jun Jul Aug
% 2.5 2.5 2.5 2.5
Tue Trade balance
Aug 5
A$ bn 0.7 -0.8 -1.9 -1.5
Thu Labor force survey
Aug 7
Employment (ch. 000s) 9.0 -5.0 16.0 8.0
Participation rate (%) 64.7 64.6 64.7 64.7
Fri Housing finance
Aug 8
%m/m -0.6 -0.2 0.0 0.0
Review of prior week's data
Terms of trade
4Q13 1Q14 2Q14
%q/q 0.0 0.4 -0.5 -6.5 -4.9
Private sector credit
Apr May Jun
%m/m 0.4 0.4 0.4 0.7
Building approvals
Apr May Jun
%m/m -5.8 9.9 10.3 -2.0 -5.0
New Zealand
Week of August 4 8
Wed Private wages ex. overtime
Aug 6
8:45am 3Q13 4Q13 1Q14 2Q14
%q/q 0.4 0.6 0.3 0.5
Wed Labor force survey
Aug 6
8:45am 3Q13 4Q13 1Q14 2Q14
Employment (%q/q) 1.2 1.0 0.9 0.6
Participation rate (%) 68.6 68.9 69.3 69.3
Review of prior week's data
No data releases of note.
Source: ABS, RBA, Stats NZ, J.P. Morgan forecasts

67
Haibin Zhu (852) 2800-7039
Grace Ng (852) 2800-7002
Economic Research
Global Data Watch
August 1, 2014

Lu J iang (852) 2800-7053
Greater China
China: July NBS manufacturing PMI rose again to 51.7
Hong Kong: retail sales continued to fall; will likely
remain sluggish
Taiwan: 2Q GDP rose a solid 3.8%oya, with recovery
across external and domestic fronts
Taiwans July manufacturing PMI rose notably to 55.8,
reinforcing constructive 2H14 growth outlook
Chinas manufacturing PMI compiled by the NBS and the
China Federation of Logistics and Purchasing rose again in
J uly, to 51.7 (vs. 51.0 in June). The July NBS PMI reading
was the highest since April 2012, and marked the fifth
consecutive monthly increase. Meanwhile, the final reading
for the J uly Markit manufacturing PMI came in at 51.7 (vs.
the flash reading of 52.0), up from 50.7 in June. Details
suggest that the sub-indices for output, new orders, and new
export orders all strengthened further in July (first table).
Taken together, the J uly PMI readings suggest that the
manufacturing sector has continued its decent 2Q recovery
momentum going into the current quarter.
In the NBS PMI report, a breakdown by type of enterprise
shows that the large enterprise PMI rose further to 52.6 in
J uly (vs. 51.5 in June); the medium-sized enterprise PMI
eased moderately to 50.1 (vs. 51.1 in June); and the small
enterprise PMI rose to 50.1 from 48.4 in J une. This is the first
time that the small enterprise PMI has come in above the 50-
threshold since April 2012, likely reflecting the impact of
recent policy support on the SME sector.
Economic and policy outlook
The further uptick in both the NBS and Markit manufacturing
PMIs in J uly, in addition to the set of J une macro data
indicating a decent upturn in industrial growth toward the end
of 2Q, reinforces our view that the economy is tracking solid
momentum going into 3Q. The recovery reflects the further
feed-through from the authorities recent pro-growth
measures as well as the improvement in global economic
conditions. In particular, on the domestic front, the significant
expansion in fiscal spending and credit growth in May and
J une and the recent accelerated relaxation of property
restrictions by local governments appear to have boosted
near-term sentiment on the economy. In addition, the uptick
in the J uly small enterprise PMI likely reflects the
governments recent policy support of the SME sector.
Looking into 2H14, on the external front, our global team
expects a solid pickup in developed economies growth,
which will provide support for Chinas export sector, along
with moderate weakening in CNY in recent months.
On the domestic front, the pro-growth measures will continue
to take effect, particularly for infrastructure investment in
targeted areas. On the other hand, while the recent selective
local relaxation of restrictive property measures helped
stabilize housing starts and real estate investment growth in
J une; whether the housing market will stabilize remains the
key risk factor for 2H14.
We expect policymakers to continue with exit policies,
including continued targeted support for certain sectors; to
maintain the current fiscal and monetary policy stance,
avoiding large-scale stimulus or tightening; and push through
structural reforms that help to generate new sources of growth.
The latest policy developments include this weeks
announcement of potential changes to the household
registration system, with around 100 million migrant workers
expected to be reclassified as urban residents by 2020.
On the credit front, we maintain our forecast of 16.2%oya
growth in TSF (in stock terms) and 13.6% bank loan growth.
On monetary policy, the central bank has reportedly begun to
introduce new alternative monetary policy instruments, such
as Pledged Supplementary Lending (PSL), which is similar to
the existing re-lending measure but requiring collateral assets
(bank loans, with different haircut ratios), providing a three-
year, 1-trillion yuan PSL to the China Development Bank
Source: NBS, Markit
China: NBS manufacturing PMI
Index, sa
2013 Apr-14 May-14 Jun-14 Jul-14
Overall (NBS) 50.8 50.4 50.8 51.0 51.7
Output 52.8 52.5 52.8 53.0 54.2
New Orders 51.7 51.2 52.3 52.8 53.6
New Export Orders 49.4 49.1 49.3 50.3 50.8
Source: NBS, CFLP
46
48
50
52
54
56
58
2010 2011 2012 2013 2014 2015
Index, sa
Markit PMI
NBS PMI
China: manufacturing PMIs

68
Economic Research
Greater China
August 1, 2014
Haibin Zhu (852) 2800-7039
Grace Ng (852) 2800-7002

Lu J iang (852) 2800-7053
(CDB). As the PSL provides a new instrument to adjust the
base money supply, we now expect no change in the RRR in
2H14. Overall, we do not think the use of PSL implies
substantial monetary easing in 2H14, though at the margin the
targeted approach of recent policy moves could improve the
transmission of credit to the real economy in the near term.
Overall, we expect the Chinese economy's 2H14 growth
momentum to be largely steady, with 7.6%q/q, saar growth
forecast for 3Q and 7.4% for 4Q. Our full-year 2014 GDP
growth forecast stands at 7.3%oya. Meanwhile, given the
further uptick in the J uly manufacturing PMIs, it appears that
the risk to our 3Q GDP forecast is tilted toward the upside,
especially the momentum continues to build.
Hong Kong: retail sales continued to fall
Hong Kongs retail sales continued to fall in J une, declining
7.5%oya, following -4.5%oya in May. On a seasonally
adjusted basis, sales contracted for the fifth consecutive
month, by 1.5%m/m, sa. Although strong gold-related sales
during the same period last year may have created a
particularly high base for this year, sales activity was still
quite soft in June. Sales of consumer durable goods, including
jewelry, watches, and valuable gifts as well as department
stores all fell on a sequential basis.
Sluggish growth of inbound tourism may have contributed to
the softness in retail sales. Growth in inbound tourism eased
to 6.9%oya in J une from 10.8%oya in May. On a sequential
basis, inbound tourism was flat, m/m in J une after increasing
1.6%m/m sa in May. Fundamental change in the composition
of inbound tourism over the past few years, particularly for
Mainland visitors is the driving force behind the moderation
in retail sales growth since 2012, compared to the boom
between 2010 and 2011 (second chart). The number of same-
day visitors now exceeds the number of overnight visitors
who spend 3.3 times as much per capita.
Retail sales growth is likely to remain soft in coming months,
though the base effect that weighed down the J une oya change
will start to fading away in J uly, in our view. Downside risks
to retail sales activity may come from the governments
potential cut of the number of Mainland tourists permitted
under the Individual Visitor Scheme (IVS), as well as
potential protest activity by Occupying Central. On the
domestic front, a still-solid labor market and improving
sentiment about the property market recently are expected to
boost household spending.
Taiwan: 2Q GDP rose at a solid pace
Taiwans advance 2Q14 GDP release beat expectations, with
GDP rising 3.8%oya, up from 3.1 in 1Q. According to the
official estimate, the economy expanded at a solid of 5.9%q/q,
saar pace in 2Q, well above our 4.8% forecast after slowing to
1.9% in 1Q.
The 2Q GDP release highlights a broad-based pickup in the
economy, across the external and domestic fronts. The export
sector appears to have benefited in from the step-up in global
economic momentum, with upside growth surprises in
Taiwans major export markets, China and the US. And
stronger exports appear to have fed through to domestic
Source: Hong Kong C&SD
Source: CEIC
Source: DGBAS
-10
0
10
20
30
2010 2011 2012 2013 2014 2015
%oya 3mma
Retail sales value and volume
Retail sales value
Retail sales volume
5
10
15
20
25
2007 2008 2009 2010 2011 2012 2013 2014
million people
Same-day
visitors
Overnight
visitors
Hong Kong: Mainland visitors
-5
0
5
10
15
10 11 12 13 14 15
% change
%oya
%q/q, saar
Taiwan: real GDP growth

69
Economic Research
Global Data Watch
August 1, 2014
Haibin Zhu (852) 2800-7039
Grace Ng (852) 2800-7002

Lu J iang (852) 2800-7053
demand, with both investment and private consumption
accelerating.
On the supply side, manufacturing production surged 9.6%q/q,
saar, consistent with the trend in monthly industrial
production. In the domestic service sector, wholesale and
retail trade activity, which are closely tied to private
consumption expenditures, accelerated to 7.2%q/q, saar in 2Q,
following a moderate decline in 1Q. Real estate activity
recovered modestly to expand 1.7%q/q, saar (vs. -3.6% in 1Q).
Finance and insurance services eased 0.8%q/q saar in 2Q, but
that followed strong growth in 1Q. Finally, accommodation
and food services, which tends to reflect tourism-related
activity, eased 5.4%q/q, saar in 2Q.
July manufacturing PMI rose notably
Taiwans July headline manufacturing PMI picked up notably
to 55.8, compared to the J une reading of 54.0. This is the third
consecutive monthly rise in the manufacturing PMI, with the
headline figure registering the highest level since April 2011.
The further solid gain in the July headline manufacturing PMI,
on the back of the strong 2Q GDP report as well as the
strength in the J une activity indicators, including IP,
merchandise exports, and export orders, reinforces prospects
for further solid growth in industrial activity going into 2H14.
Further details of the J uly manufacturing PMI report show a
broad-based upturn across major categories. The output
component rose 2.9pts to 58.9 in July. Regarding the forward-
looking demand indicators, new orders increased 2.1pts to
58.7 in J uly (adding to the notable 3.1pt gain in June), and
new export orders rose 1.8pts to 58.3 (adding to the 1.6pt gain
in June), registering their highest levels since J anuary and
March 2011, respectively. Meanwhile, the stock of finished
goods component turned up 1.7pts to 52.7 in J uly. The new
orders to inventory ratio was unchanged at 1.11 in July.
Improving global demand to support
Taiwans growth
The J.P. Morgan economics team forecasts a solid global
economic upturn in 2H14, with growth accelerating from an
estimated 2.0%q/q, saar pace in 2Q to near-3.4% average clip.
In the US, the latest data suggest improving labor market
conditions have begun to feed through to consumer demand,
and the housing market is expected to bounce back from
recent months softness. Encouragingly, the Chinese economy
picked up in 2Q, reflecting, we believe, the impact of recent
pro-growth measures.
Against the backdrop of a constructive global growth outlook
for 2H14, Taiwan stands to benefit from firming global
demand. Indeed, along with the solid 2Q GDP report, the
strength in the J une activity indicators, including IP and
exports, suggests that the economy picked up momentum
toward the end of 2Q. Looking ahead, we expect the positive
external environment to support Taiwans export and
industrial activity going into the second half. Steady
improvement in external demand, in turn, should support
sturdy growth in Taiwans domestic labor market and
corporate investment during 2H14.
Regarding the industrial cycle, the latest data showed that
Taiwans manufacturing inventories have fallen in recent
months, with the sequential downtrend reaching -9.4%3m/3m,
saar in May. The manufacturing inventory to shipments ratio
fell to 1.00, sa in May, its lowest level since April 2011 (aside
from Lunar New Year-related extremes). The steep downturn
in the manufacturing inventories, coupled with promising
signs of improving external demand, should lay the
groundwork for solid growth in industrial activity.
Reflecting this confluence of constructive developments, we
expect the Taiwanese economy to expand solidly in 2H,
averaging 4.1%q/q, saar. Reflecting the stronger-than-
expected 2Q GDP outturn, the full-year 2014 GDP growth
forecast now stands at 4.0%oya (previously: 3.8%oya).
Source: DGBAS, J.P. Morgan
Source: Markit, MOEA, J.P. Morgan
-8
-6
-4
-2
0
2
4
6
8
10
12
14
2013 2014
%q/q saar
Taiwan: GDP by industry
Manufacturing
Wholesale and
retail trade
Finance and
insurance
Accommodation and
food services
Real estate
-20
-10
0
10
20
30
40
35
40
45
50
55
60
65
70
10 11 12 13 14 15
Index
Taiwan: manufacturing PMI output and IP
%3m/3m, saar
Manufacturing PMI -
output
IP

70
Economic Research
Greater China
August 1, 2014
Haibin Zhu (852) 2800-7039
Grace Ng (852) 2800-7002

Lu J iang (852) 2800-7053
On monetary policy, our baseline scenario sees the Taiwanese
central bank beginning to raise major policy rates modestly by
12.5bp in March 2015. Meanwhile, considering the solid
improvement in recent macro data and the 2H14 growth
picture, the possibility of an earlier move, say by December
this year, cannot be ruled out completely, with the inflation
figures in coming months the key deciding factor.
China:
Week of August 4 8
Fri Merchandise trade
Aug 8
US$ bn
Apr May Jun Jul
Balance 18.5 35.9 31.6 32.6
Exports 188.5 195.5 186.8 201.4
%oya 0.9 7.0 7.2 8.3
Imports 170.1 159.6 155.2 168.8
%oya 0.9 -1.6 5.6 0.4
Sat Consumer prices
Aug 9
%change
%oya 1.8 2.5 2.3 2.5
%m/m, sa -0.2 0.7 0.2 0.2
Sat Producer prices
Aug 9
%oya
Producer (NBS) -2.0 -1.4 -1.1 -0.9
Producer (PBoC) -0.2 0.1 0.1 0.2
Sun Monetary aggregates
Aug 10
%oya, bn yuan
Apr May Jun Jul
M2 13.2 13.4 14.7 14.1
New loan creation 774.7 870.8 1080.0 684.4
Purchasing managers index (Aug 1)
Index
May Jun Jul
Overall (Markit) 49.4 49.4 50.7 50.7 52.0 51.7
Output 49.8 49.8 51.8 51.8 __ 52.8
Overall (NBS) 50.8 50.8 51.0 51.0 51.4 51.7
Output 52.8 52.8 53.0 53.0 __ 54.2
Source: NBS, Markit, and J.P. Morgan forecasts
Hong Kong:
Week of August 4 8
No data releases.
Retail sales volume (Jul 31)
%change
Apr May Jun
%oya -9.6 -9.6 -4.7 -4.5 -5.6 -7.5
%m/msa -2.3 -2.9 -0.3 0.1 1.5 -1.5
Source: Hong Kong Census and Statistics Department, and J.P. Morgan forecasts
Taiwan:
Week of August 4 8
Tue Consumer prices
Aug 5
%change
%oya 1.7 1.6 1.6 1.9
%m/m, sa 0.1 0.0 0.1 0.1
Thu Merchandise trade
Aug 7
US$ bn
Balance 2.5 5.3 1.9 2.5
Exports 26.6 26.7 26.8 27.0
%oya 6.2 1.4 1.2 6.7
Imports 24.1 21.4 24.9 24.5
%oya 5.8 -2.3 7.5 11.2
Real GDP (Jul 31)
%change
4Q13 1Q14 2Q14
%oya 2.9 2.9 3.1 3.1 3.5 3.8
%q/q saar 7.6 7.6 1.9 1.9 4.8 5.9
Markit manufacturing PMI (Aug 1)
Index, sa
May Jun Jul
Overall 52.4 52.4 54.0 54.0 54.3 55.8
Output 54.3 54.3 56.0 56.0 __ 58.9
Sources: Taiwan Ministry of Economic Affairs, DGBAS, and J. P. Morgan forecasts

71
JPMorgan Chase Bank, N.A., Seoul Branch
J iwon Lim (82-2) 758-5509
jiwon.c.lim@jpmorgan.com
Economic Research
Global Data Watch
August 1, 2014

South Korea
IP rebounded in June, with the gain narrowly based in
tech products
Domestic demand mixed, while business sentiment
stabilized
Non-vessel exports up modestly further in July
In Korea, non-farm all-industry output rebounded 2.1% in
J une, after having fallen for two months, supporting our view
that the 2Q slowdown in real GDP growth was skewed to
April and May, and that activity growth is poised for a
rebound in 3Q. Also supporting the 2H growth outlook, the
government announced a stimulus package last week, together
with the finance ministers comment that Koreas
macroeconomic policy will stay expansionary until domestic
demand shows meaningful signs of recovery. This weeks by-
election to vote for 15 lawmakers supported such a policy
move, with the ruling party winning a landslide victory to
consolidate its majority in the National Assembly.
IP bounced up, led by tech
Industrial production rebounded 2.9%m/m, sa in J une, fully
reversing Mays 2.8% decline. Manufacturing output rose
3.0%m/m, sa in June, after a 3.1% decline in May. On a
sequential trend basis, manufacturing production fell
4.2%3m/3m, saar, far underperforming the 4.3% rise in real
GDP manufacturing. The details of the IP report were less
encouraging, with production gains concentrated in the high-
tech sector. Among tech products, semiconductors increased
the most, surging 15.3%m/m, sa in J une, after having fallen
for four of the past five months. The NSO said that flash
memory and LCD panels led the gain. Production of other
tech products rebounded as well in J une, with electronic
components up 7.4%m/m, sa and electric video and audio
equipment up 6.4%. The exception was telecom and
broadcasting apparatus, which fell 5.7%, marking the fourth
consecutive monthly decline. In contrast, non-tech production
remained sluggish. While base metals and motor vehicle
output rose mildly, most other products softened. The NSO
estimated that non-tech production fell 1.2% in J une,
following a 1.7% drop in May.
Domestic demand mixed in June
Consumption good sales edged up 0.3%m/m, sa in June,
following a 1.2% gain in May. On a sequential basis,
consumption good sales declined 1.7%3m/3m, saar in June,
following a 0.6% drop in May. The sales gain in J une was
mainly led by autos, with non-auto sales estimated to have
fallen 0.9% in J une. Meanwhile, business equipment
investment dropped 1.4%m/m, sa in June, following an 0.8%
decline in May, while construction investment bounced
modestly.
Details of July customs trade encouraging
Customs exports edged down in J uly, but after a solid
3.3%m/m gain in June. Also, Julys setback was mainly due
to the large decline in vessels exports; excluding vessels,
exports increased 0.6% in July, on top of the 2.8% gain in
J une. We have put more focus in tracking non-vessel exports
as vessel shipments are made on a delivery basis, supposedly
reflecting vessel orders with 1~3-year lag. More notably,
customs imports moved up firmly in J uly. Crude oil imports
Source: NSO
Source: NSOand J.P. Morgan
Source; MoTIE, KITA, and J.P. Morgan
-4
-2
0
2
4
Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14
%m/m sa
%3m/3m
100
110
120
130
140
150
160
170
2012 2013 2014
2010=100
Producer's inventory ratio to shipments
High-tech only
Non tech
All manufacturing
-10
-5
0
5
10
2012 2013 2014
%m/m sa
Customs imports
%3m/3m

72
Economic Research
South Korea
August 1, 2014
JPMorgan Chase Bank, N.A., Seoul Branch
J iwon Lim (82-2) 758-5509
jiwon.c.lim@jpmorgan.com

rose the most, bolstered by price increases, but non-oil
imports also increased 1.3%, marking the second monthly rise.
This, in turn, supports our view that domestic demand is
expected to pick up in the current quarter, with 2Qs decline
exaggerated by one-off factors, while government policies
have been becoming more supportive, echoed by Bank of
Korea.
No data releases.
Current account (Jul 29)
US$ bn nsa
Apr May Jun
Balance 7.1 7.1 9.3 9.1 8.0 7.9
The seasonally adjusted current account surplus narrowed to
US$6.3 billion in J une from US$7.5 billion in May as the
merchandise trade surplus decreased notably, but was partially
offset by the rise in income gain. Exports stayed flat in J une,
after having dropped 6.2%m/m, sa in May; in turn, the
sequential trend dipped into negative territory for the first time
in five months. Meanwhile, imports firmly increased 4.5% in
J une, following a 0.6% gain in May.
FKI business survey (Jul 29)
Index, sa
May Jun Jul
One-month outlook 93.1 93.1 97.2 97.1 98.0 94.6
Current conditions 89.0 89.1 89.5 89.7 92.0 91.2
Business sentiment stayed mixed in J uly with outlook
components down while the assessment of current conditions
continued to recover. The newly announced government
stimulus package will likely boost the domestic economy, yet
companies appeared to be uncertain about some plans, such as
imposing taxes on a portion of cash reserves not used in
investments, dividends, or wage raises.
Industrial production (Jul 30)
%change
Apr May Jun
%oya 2.5 2.5 -2.1 -2.1 2.5 0.6
%m/msa -0.1 0.0 -2.7 -2.8 2.2 2.9
See main story.
Producer shipments and inventories (Jul 30)
%oya
Apr May Jun
Shipments 1.8 2.2 -1.5 -1.6 2.2 -0.6
Inventories 8.2 8.6 5.9 6.4 5.8 8.5
Producers shipments rebounded 2.2%m/m, sa in J une, after
having fallen for two straight months, while inventories also
rose 1.0%. Inventory gains in J une were skewed to the tech
sector, where shipments rebounded, thus this did not translate
into their ratio to shipments. Among tech products, the
inventory gain was most notable in telecom/broadcasting
apparatus, where production and shipments remained relatively
weak.
Composite leading indicator (Jul 30)
2005=100, sa
Apr May Jun
Index 118.8 118.8 119.1 119.1 119.2 119.7
Service activity (Jul 30)
%change
Apr May Jun
%oya 0.9 0.9 0.6 0.6 0.9 2.2
Service activity rose 1.6%m/m, sa in J une, following a 0.5%
rise in May, with the gain broadly based in key industries. The
largest gains were in the leisure and telecommunications sectors,
where temporary factors worked negatively in previous months.
Consumption goods sales (Jul 30)
%change
Apr May Jun
%oya 0.0 0.2 1.0 1.1 0.8 1.2
Consumer prices (Aug 1)
%change
May Jun Jul
%oya 1.7 1.7 1.7 1.7 1.7 1.6
%m/msa 0.2 0.2 0.1 0.1 0.2 0.1
Consumer prices stayed subdued in J uly, with rising 0.1% m/m
sa in J uly with fresh food and oil products prices down.
Excluding food and energy, core prices rose 0.3% in J uly after
having stayed flat in J une, suggesting underlying price pressures
building up modestly.
Customs trade (Aug 1)
US$ bn nsa
May Jun Jul
Trade balance 5.1 5.1 5.5 5.5 3.0 2.5
Exports 47.6 47.6 47.9 47.9 48.3 48.4
Imports 42.5 42.5 42.4 42.4 45.3 45.9
Purchasing Managers Index (Aug 1)
Index, sa
May Jun Jul
PMI - Manufacturing 49.5 49.5 48.4 48.4 48.9 49.3
The PMI rebounded in J uly after having declined for the past
three months. The gains were broadly based, yet most
components stayed below the neutral 50 level. The output PMI
rose the most notably, while forward looking new orders and
exports orders also moved up modestly.
Source: BoK, Markit, MoTIE, NSO, and J.P. Morgan forecasts
73
Economic Research
Global Data Watch
August 1, 2014
ASEAN
Recent data confirm recovery underway in Thailand;
looking for sustained improvement through 2H14
Current account surplus narrowing but capital flows
turn positive
Watching impact of govt. infrastructure projects on
public debt and external balances
The recent data flow from Thailand is highlighting a
turnaround in domestic activity into midyear, suggesting that
the economy is recovering after several quarters of sluggish
growth. In particular, private consumption and investment are
turning up tentatively, while firmer tech production is leading
an improvement in external demand. Stronger domestic
activity has lifted import demand, which has depressed the
trade surplus and led to a significantly narrower current
account surplus in 2Q compared to the 1Q level. But the
overall balance of payments has moved sideways as capital
flows have been positive, particularly flows into fixed
income, underscoring recent appreciation of the Thai baht.
Aside from the data flow, last weeks approval of a THB2.4
trillion (~20% of GDP) infrastructure spending program by
the military administration will need to be closely monitored
for its impact on the macro outlook. Our forecast for 2015
assumes that a portion of the spending goes ahead as planned
next year, leading to stronger GDP growth but likely also to
deterioration in the current account balance. The more
medium-term impact on public debt will also bear watching.
Some patchiness in the demand data
Thai manufacturing output unexpectedly fell 2.6%m/m, sa in
June, and the surprising softness in our proxy for domestic-
oriented production raises questions about the strength of the
recovery in domestic activity through end-2Q. We expect a
pickup in domestic demandalbeit a modest oneto
underpin acceleration in GDP growth through the second half.
But as the data sit, some of the upside risk to our expectation
of a 3.5%q/q, saar rebound in 2Q GDP looks to have been
taken out. In spite of softness in June, the underlying trend in
non-tech output (which tends to align closely with domestic
spending) has improved, suggesting domestic demand is
turning up after a very weak 1Q (first chart).
Output geared to external demand was the bright spot in the
June production report. Electronics output was particularly
strong, surging 5.8%m/m, sa, leaving tech production up
1.1%3m/3m, saar through the quarter (second chart). The
impulse from external demand has been weak so far this
yearand is tracking well below the level implied by the
Source: OIE, NESDB, J.P. Morgan
Source: OIE, J.P. Morgan
Source: BoT, J.P. Morgan
-20
-10
0
10
20
30
-60
-30
0
30
60
90
%3m/3m, saar
Thailand: non-tech manufacturing production and domestic PCE
%q/q, saar, NIPA basis
Production ex. tech
Private
consumption
07 09 11 13
46
48
50
52
54
56
58
-100
-50
0
50
100
150
200
%3m/3m, saar
Thailand: tech production and global PMI
DI, sa
Tech
production
Global PMI
07 09 11 13
-4
-2
0
2
4
US$ bn, 3mma
Thailand: balance of payments
2010 2011 2012 2013 2014
Current account
Capital account
BoP
-2
0
2
4
6
5
9
13
17
21
US$ bn, sa, 3mma, both scales
Balance
Imports Exports
Thailand: merchandise trade
2010 2011 2012 2013 2014
74
Economic Research
ASEAN
August 1, 2014
global PMIbut we expect stronger growth in the DM and
China to feed through into firmer production and export
growth in 2H14. The June trade data suggest that this
improvement is tentatively underway: exports rose 1.7%m/m,
sa, with strength in exports to the US and EU in particular.
Looking to 3Q, an improvement in Chinese demand should
support exports alongside better G-3 demand. Exports to
China accounted for 12% of Thailands total exports in the
year through May; in level terms, exports to China have been
a key source of weakness (first and second charts).
Off-setting trends in the BoP
The collapse in 1Q activity was mirrored in a slide in imports,
leading to a wider trade surplus and supporting an overall
current account (CA) balance of US$8.2 billion, the largest
quarterly surplus in five years. With activity accelerating in
2Q and import demand turning up, the CA surplus narrowed
to US$0.5 billion (third and fourth charts previous page).
Despite the narrowing in the CA surplus through 2Q, the
overall balance of payments has moved sideways. This trend
reflects stronger capital flows, which have turned positive
over the past couple of months. The more recent story has
been one of portfolio inflows, with foreign buying of fixed
income securities surging through early July, underpinning
some of the recent strengthening of THB (third chart).
Watching impact of infra spend
Aside from the incoming data, news reports suggest that the
military administration has approved a THB2.4 trillion (~20%
of GDP) public infrastructure spending program to be rolled
out over the next seven years. The plan appears to include the
construction of two high speed rail lines, worth about
THB750 billion or ~6.5% of GDP. Further details of the
spending (including the funding mechanism) are scheduled to
be released by the Budget Bureau and Transport Ministry
over the next month or so. The infrastructure plan has two
potential implications for next years macro outlook: stronger
fixed investment growth leading to an increase in capital
goods imports and deterioration in the CA, as well as a
possible medium-term rise in overall government debt.
Our 2015 forecast already assumes that some of the infra
spend will materialize. We anticipate growth accelerating to a
trend-like 4.2%y/y from 1.1% this year, and look for the CA
balance to flip into a small deficit of around 0.6% of GDP
after a small full-year surplus in 2014. But if the entire 20%
of GDP infra plan is realized this could translate into a larger-
than-expected increase in overall public debt in the medium
term. Public debt has risen to around 46% of GDP through
May, partly on account of the previous administrations rice
price guarantee scheme (fourth chart and see: Thailand:
fiscal transfers pushing up public debt).
Source: BoT, CEIC, J.P. Morgan
Source: BoT, TBMA, J.P. Morgan. Includes net buying/selling of corporate and government bonds.
Source: PDMO, J.P. Morgan
80
90
100
110
120
130
140
150
2010=100, sa
Thailand: exports by destination
2010 2011 2012 2013 2014
China
ASEAN
ex. Thailand
US, Japan, EU
-100
-50
0
50
100
0
3
6
9
12
15
%q/q saar, both scales
Thailand: exports to China and China real GDP
07 09 11 13 15
China GDP
Thailand's
exports to China
-5
0
5
10 28
29
30
31
32
33
34
USD/THB, inverted
Thailand: spot FX and net daily bond buying by foreigners
THB bn, 15dma
2010 2011 2012 2013 2014
Foreign bond flows
Spot FX
3.0
3.5
4.0
4.5
5.0
5.5
6.0
36
38
40
42
44
46
48
%
Thailand: public debt
THB tn
07 08 09 10 11 12 13 14
% of GDP
Level
75
Economic Research
Global Data Watch
August 1, 2014
ASEAN
Indonesia:
Mon Consumer prices
Aug 4 % change
%oya 7.3 7.3 6.7 4.2
%m/m, sa 0.3 0.3 0.1 0.3
Food, %oya 6.8 7.2 6.9 ___
Nonfood, %oya 7.4 7.3 6.6 ___
Mon Merchandise trade
Aug 4 US$ bn, nsa
Trade balance 0.7 -2.0 0.1 -0.3
Exports, %oya 1.1 -3.2 -8.1 -4.3
Imports, %oya -2.4 -1.3 -11.4 -7.8
Fri Real GDP
Aug 8 % change
8:00am 3Q13 4Q13 1Q14 2Q14
%oya 5.7 5.7 5.2 5.2
%q/q, saar 5.5 6.0 4.1 5.1
No data releases.
Malaysia:
Wed Merchandise trade
Aug 6 US$ bn, nsa
Trade balance 2.9 2.7 1.7 1.9
Exports 19.8 20.4 20.0 20.1
%oya 2.6 11.4 8.3 11.4
Imports 16.9 17.7 18.3 18.2
%oya -4.8 -1.6 4.5 9.4
No data released.
Philippines:
Tue Consumer prices
Aug 5 % change
Total, %oya 4.1 4.5 4.4 4.4
%m/m, sa 0.2 0.5 0.3 0.3
BSP monetary policy meeting (Jul 31)
% pa
May Jun Jul
Reverse repo rate 3.50 3.50 3.50 3.75
We had expected BSP to hike its policy rate in 4Q. Given
BSPs description of this weeks hike as preemptive, the
economys slower growth this year relative to recent years, and
the central banks contained inflation outlook, we see BSP as
having pulled forward our 4Q rate hike forecast rather than
having added to it. Thus, we expect BSP to stay on hold the rest
of this year, though we are retaining our call for another rate
hike in 1Q15.
In addition to the rate hike, BSP revised its inflation forecasts.
BSPs 2014 inflation forecast was revised down slightly to
4.3% from 4.4% while the 2015 forecast was basically left
unchanged at 3.7%. BSP also noted that its 2016 inflation
forecast stands at 2.8%. The more contained 2015 and 2016
forecasts are important as they fit within BSPs new target
range next year of 3%+/-1% (currently 4%+/-1%).
Singapore:
Mon Purchasing managers index
Aug 4 Index
PMI 51.1 50.8 50.5 50.8
PMIelectronics 50.4 50.4 50.7 51.0
No data releases.
Source: Central Bureau of Statistics, Indonesia; Department of Statistics, Malaysia; National
Statistical Coordination Board and National Statistics Office, Philippines; Singapore Department of
Statistics; J.P. Morgan forecasts
76
Economic Research
ASEAN
August 1, 2014
Thailand:
Wed BoT monetary policy meeting
Aug 6 % p.a.
2:30pm Mar Apr Jun Aug
Repo rate 2.00 2.00 2.00 2.00
We look for the BoT to remain on hold next week.
Political risks to growth have receded and the inflation
outlook remains contained; we do not expect BoT to begin
raising rates until next year. We expect the statement to
maintain a neutral tone.
Manufacturing production (Jul 28)
%change
Apr May Jun
All items, %oya -4.1 -4.1 -3.6 -6.6
%m/m, sa 1.2 1.1 1.0 -2.6
The surprise weakness in June production looks to have been
narrowly concentrated in output for domestic demand, which
fell 5.4%m/m, sa, after rising in each of the past couple of
months. Electronics and auto output registered their strongest
monthly rises so far this year, suggesting that external demand
accelerated through the end of the second quarter after several
sluggish months. Overall, manufacturing output ended 2Q down
3.1%q/q, saar, representing an easing in the pace of contraction
relative to April and May, but marking the seventeenth
consecutive month that production has contracted on a
sequential basis.
Merchandise trade (Jul 31)
US$ bn nsa
Apr May Jun
Trade balance 0.6 1.6 2.2 3.9
Exports, %oya -0.9 -1.2 3.7 3.8
Imports, %oya -13.8 -7.7 -4.9 -14.1
In line with the step back in domestic activity, imports tumbled
3.7%m/m, sa in June, bringing the sequential trend to
-5.5%3m/3m, saar. Exports rose 1.7%m/m, sa, reflecting an
improvement in shipments to most major markets, with strength
in exports to the US and EU in particular. Also see main story.
Consumer prices (Jul 31)
% change
May Jun Jul
All items, %oya 2.6 2.4 2.5 2.2
%m/m, sa 0.1 0.0 0.2 0.0
This softness in July price pressures reflected a move down in
energy and energy-related components in the CPI index, which
all registered sizeable declines. In all, energy prices were down
0.4%m/m, sa. The only components to register monthly rises
were medical care and recreation prices, which were both up
0.1%m/m, sa.
Private consumption index (Jul 31)
% change
Apr May Jun
%oya -0.8 -0.3 0.5 -1.0
%m/m, sa 0.1 0.5 0.7 -1.0
Private investment index (Jul 31)
% change
Apr May Jun
%oya -4.8 -2.9 -1.9 -2.6
%m/m, sa -0.2 0.6 0.5 -0.2
The private investment index edged down 0.2%m/m sa in June
on a fall in commercial car sales and construction activity, while
private consumption declined 1.0%m/m, sa, largely reflecting
weaker consumer goods imports. Business surveys were mixed,
with the current conditions index edging down 0.6pt but the 3-
month outlook rising 0.9pt. Also see main story.
Vietnam:
No data releases.
Merchandise trade (Jul 28)
US$ bn, nsa
May Jun Jul
Trade balance -0.4 -0.2 -0.1 0.5 -0.3
Exports, %oya 6.3 9.9 12.4 12.9 6.9
Imports, %oya 4.5 14.7 15.9 12.6 12.7
Source: Office for Industrial Economics, Thailand; Bank of Thailand; General Statistics Office of
Vietnam; J.P. Morgan forecasts
-10
-5
0
5
10
15
20
-50
0
50
100
2010 2011 2012 2013 2014 2015
%3m/3m, saar
Thailand: private domestic demand indicators
Private investment
Private consumption

77
J.P. Morgan India Private Limited
Sajjid Z Chinoy (91-22) 6157-3386
sajjid.z.chinoy@jpmorgan.com
Toshi J ain (91-22) 6157-3387
toshi.jain@jpmorgan.com
Economic Research
Global Data Watch
August 1, 2014
India
Inflation risks abate as monsoon continues to recover
However, July CPI to reaccelerate on rising food prices
RBI expected to be on hold in next weeks review
July PMI to surges to 17-month high
On the surface, inflation risks in India have abated over the
last month. Four weeks ago, oil prices almost touched
US$115, geopolitical risks in Iraq were rising, the monsoon
was tracking 40% below normal, and there was concern that
the new government would relax the fiscal stance to stimulate
aggregate demand.
A month later, the outlook is less ominous. Oil is back at
US$106 and the new governmentto its credithas signaled
it will pursue fiscal consolidation with the same vigor as the
previous government did. But, most of all, the rain gods have
finally begun to smile. Last week was the first this season in
which rainfall exceeded the norm, the cumulative rainfall
deficit has narrowed to about 23%, there are reports that
sowing is picking up, and the Indian weather bureau is more
sanguine about rainfall in the all-important month of August.
And even as perceived risks have abated, the data flow has
surprised positively. Core CPI inflation was essentially flat in
J uneand even though this likely reflects some
overshootingthe quarterly, annualized sequential
momentum of core CPI is down to 6.2% from 8.5% last
November. This suggests that the impact of tight fiscal and
monetary policies over the last 18 months has begun to tame
core inflation pressures. Who said core inflation is invariant to
monetary and fiscal policy? These developments have
induced many analysts to rush to lower their inflation
forecasts. Helped by a favorable base effect, many believe
inflation will be on a 5% handle in November and mean-
reverting to 6%-7% by early 2015. The implication is that
enough space will open up for the central bank to decisively
ease monetary policy in the coming months.
Policy response on food inflation will be key
That said, government needs to tackle food inflation head on,
releasing stocks of cereals, importing pulses and oilseeds,
cracking down on speculative hoarding, and transporting food
stocks quickly from surplus areas to deficit areas. The
government has signaled its intent on many of these fronts,
and increased minimum support prices for cereals by only 4%
this year (though the moderating impact of this is likely to be
offset by any production shortfall in a potential drought year).
And we think the RBI needs to maintain its anti-inflationary
stance to ensure wage pressures remain contained and
expectations remain anchored. All told, the need for
complementary policy stances in Delhi and Mumbai is strong.
RBI likely to be on hold next week
We expect the RBI to stay on hold next week. On the one
hand, we expect the central bank to recognize that inflation
risks (monsoon, oil) have abated over the last month, slack in
the economy is pushing down core inflation momentum, and
the new government is committed to fiscal consolidation and
fighting food inflation. Simultaneously, we expect the central
bank to recognize that the danger to food, and therefore a
more generalized spiral, has not passed just as yet.
The monsoon continues to improve by the day. If the rain
gods keep smiling the danger could yet pass, and we will take
out our 4Q14 rate hike call. But if the monsoon remains
deficient in August and sowing shortfalls remain significant,
the complex interplay between food prices, wages, and core
inflation would pose very real inflation risks down the line.
And, if that were to happen, reports of inflations demise
would have been greatly exaggerated.
0
2
4
6
8
10
12
14
16
1-Jun 8-Jun 15-Jun 22-Jun 29-Jun 6-Jul 13-Jul 20-Jul 27-Jul
Normal (average 1951-2000)
Actual
Rainfall (mm)
Source: IMD
India: Rainfall in 2014
47
50
53
56
59
Jul-12 Jan-13 Jul-13 Jan-14 Jul-14
Index
E d i h l
India: PMI manufacturing
Source: Markit

78
Economic Research
India
August 1, 2014
J.P. Morgan India Private Limited
Sajjid Z Chinoy (91-22) 6157-3386
sajjid.z.chinoy@jpmorgan.com
Toshi J ain (91-22) 6157-3387
toshi.jain@jpmorgan.com
July PMI gallops to 53
The industrial recovery that was evident in 2Q14 (see India:
IP consolidates gains and 2Q tracking almost 5.5%green
shoots of recovery or a false dawn? J PMM, J uly 11) has
made a solid start in the third quarter with the J uly
manufacturing PMI galloping 1.5 pts to 53the highest level
of the index since February 2013.
The output jumped 2.5 pts to 54.9 in J ulythe highest index
level in 17 monthsbut the more significant outturn was of
new orders. New orders jumped almost 3pts to 55.9, even as
export orders took a breather (declining by 1.5pts to 54.3,
after increasing in six of the last seven months). This outturn
implies is that domestic new orders lifted powerfully in J uly.
This could be significant because one of the drivers of the IP
acceleration in recent months has been consumer durable
production, underpinned by a pickup in auto sales. It was not
clear whether the lift in auto sales was transient, and simply
reflecting a front-loading of demand in anticipation of the
excise duty cut lapsing on June 30 (which has since been
extended), or something more organic. The lift in domestic
orders in J uly offers tantalizing hints that it could be the latter.
The only sour point was that input prices index surged 4.1pts
to 59.6 in July. In contrast, output prices dipped 1.7pts to
50.7. This combination suggests a significant squeeze on
margins in J uly. The dip in output prices is clearly
comforting, but given that output price increases could be
more infrequent and lagged given the menu costs involved,
we wouldnt be surprised if output prices will eventually have
to respond if input costs keep surging.
Week of Aug 4 Aug 8
Mon Services PMI Survey
Aug 4 Index, sa
10:30am Apr May June July
Index 48.5 50.2 54.4 -
Tue RBI monetary policy meeting
Aug 5 Bp
11:00am Jan Apr Jun Aug
Repo rate 8.00 8.00 8.00 8.00
Review of weeks data
Manufacturing PMI Survey (1 Aug)
Index, sa
Apr May June July
Index 51.3 51.4 51.5 53.0

79
Sin Beng Ong (65) 6882-1623
sinbeng.ong@jpmorgan.com
Economic Research
Global Data Watch
August 1, 2014

Asia focus: mixed trends in
bank credit and deposits
Regional banking-sector loan-to-deposit ratios (LDR) have
diverged in the past year. In Singapore and Indonesia, LDR
have risen strongly (chart and table). In contrast, Hong Kong
and the Philippines have seen a marked drop in the LDR ratio
over the same period. The change in the LDR is a function of
changes in both loans and deposits. The decline in growth of
bank deposits has been striking in the ASEAN-3 of
Singapore, Indonesia, and Malaysia, and also in Korea. It is
not entirely clear what has driven this slowing. Credit has
increased significantly in Singapore and Thailand.
In Singapore, the rise in the LDR is due to a 17.6% of GDP
rise in loans even as deposits have stagnated. In fact, bank
deposits in Singapore contracted 0.7%oya in May, the largest
contraction since the SARS crisis in 2002. In Indonesia, the
banking sectors LDR has risen and is due as much to a
modest rise in loans as it is to slowing deposit growth (charts
below). In Korea, slowing deposits have been the main
marginal driver of the rise in the LDR. In China, the LDR has
been stable despite strong loan growth, which rose by 9% of
GDP in the past year, and reflects the offset from deposits
growth. Similarly, Hong Kongs LDR has dropped due to a
solid rise in deposits.
Source: National sources and J.P. Morgan
Asia: banking sector loans and deposits
%GDP, LC, eop
2008 2009 2010 2011 2012 2013 1Q14 Chg
1

China 0.65 0.67 0.67 0.68 0.69 0.69 0.69 0.00
Deposits 145.6 166.2 170.7 162.1 171.2 177.7 184.4 13.3
Loans 94.8 111.1 113.9 109.7 117.5 122.4 126.6 9.1
Hong Kong 1.29 1.40 1.28 1.18 1.25 1.22 1.19 -0.07
Deposits 141.2 141.0 154.9 162.0 159.8 165.9 171.9 12.1
Loans 181.9 198.1 198.4 191.7 200.2 202.0 203.9 3.7
Indonesia 0.76 0.77 0.77 0.79 0.86 0.93 0.95 0.09
Deposits 26.8 27.4 28.9 30.4 32.0 31.0 30.5 -1.5
Loans 20.4 21.2 22.3 24.1 27.5 29.0 29.0 1.5
Japan 0.77 0.74 0.72 0.70 0.69 0.68 0.68 -0.02
Deposits 113.5 119.7 119.8 125.6 129.9 133.1 133.7 3.8
Loans 87.6 89.0 85.9 87.6 90.0 90.8 90.4 0.4
Korea 1.36 1.27 1.13 1.12 1.11 1.14 1.14 0.03
Deposits 61.5 63.6 67.3 69.5 71.3 69.8 69.5 -1.8
Loans 83.5 80.7 76.1 78.0 79.2 79.9 79.3 0.2
Malaysia 0.76 0.76 0.79 0.78 0.81 0.81 0.82 0.01
Deposits 127.7 132.6 131.3 136.8 139.6 140.1 139.8 0.2
Loans 96.9 100.5 104.3 107.2 112.4 113.4 114.5 2.1
Philippines 0.87 0.84 0.78 0.84 0.86 0.72 0.73 -0.13
Deposits 35.1 37.1 37.3 37.5 37.6 47.9 47.5 9.9
Loans 30.5 31.3 29.2 31.4 32.3 34.5 34.7 2.4
Singapore 0.78 0.72 0.74 0.87 0.95 1.07 1.07 0.12
Deposits 133.5 130.7 130.5 138.7 142.8 141.6 142.7 -0.1
Loans 104.5 93.9 97.1 120.7 135.1 151.3 152.6 17.6
Taiwan 0.97 0.91 0.92 0.92 0.92 0.91 0.91 -0.01
Deposits 147.8 150.0 150.9 156.7 152.8 154.6 156.9 4.1
Loans 143.2 136.2 139.1 145.0 141.1 140.9 143.4 2.3
Thailand 1.04 1.09 1.15 1.21 1.09 1.09 1.09 0.00
Deposits 80.7 73.8 72.3 80.8 85.5 91.8 94.4 8.9
Loans 84.0 80.1 83.2 97.9 93.2 100.4 102.8 9.5
1. 1Q14 less 2012; shaded area is loan/deposit ratio;
-0.15
-0.10
-0.05
0.00
0.05
0.10
0.15
SG ID KR MY CN TH TW JP HK PH
Change in ratio, 1Q14 less 2012, eop
Asia: banking sector loan to deposit ratios
-3
0
3
6
9
12
15
CN HK PH TH TW JP MY SG ID KR
Change, %pt of GDP, 1Q14 less 2012, eop
Asia: banking sector deposits
-3
0
3
6
9
12
15
18
SG TH CN HK PH TW MY ID JP KR
Change, %pt of GDP, 1Q14 less 2012, eop
Asia: banking sector loans

80

Economic Research
Global Data Watch
August 1, 2014
US economic calendar
Monday Tuesday Wednesday Thursday Friday
4 Aug
Senior loan officer survey
(2:00pm)
3Q
5 Aug
Services PMI (9:45am)
Jul final 61.0
ISM nonmanufacturing
(10:00am)
Jul 56.0
Factory orders (10:00am)
Jun 0.6%
6 Aug
International trade (8:30am)
Jun -$43.0bn
Announce 3-year note $26bn
Announce 30-year bond $16bn
7 Aug
Initial claims (8:30am)
w/e Aug 2 300,000
Consumer credit (3:00pm)
Jun
Chain store sales
Jul
8 Aug
Productivity and costs (8:30am)
2Q prelim2.3%
Unit labor costs 0.2%
Wholesale trade (10:00am)
Jun
11 Aug 12 Aug
NFIB survey (7:30am)
Jul
JOLTS (10:00am)
Jun
Federal budget (2:00pm)
Jul
Auction 3-year note $26bn
13 Aug
Retail sales (8:30am)
Jul
Business inventories (10:00am)
Jun
NewYork Fed President Dudley
(9:05am) and Boston Fed President
Rosengren (9:20am) speak on
wholesale funding in New York
14 Aug
w/e Aug 9
Import prices (8:30am)
Jul
Auction 30-year bond $16bn
Announce 5-year TIPS (r) $16bn
15 Aug
PPI (8:30am)
Jul
Empire State survey (8:30am)
Aug
TIC data (9:00am)
Jun
Industrial production (9:15am)
Jul
Consumer sentiment (9:55am)
Aug preliminary
18 Aug
NAHB survey (10:00am)
Aug
19 Aug
CPI (8:30am)
Jul
Housing starts (8:30am)
Jul
20 Aug
FOMC minutes
21 Aug
w/e Aug 16
Manufacturing PMI (9:45am)
Aug flash
Existing home sales (10:00am)
Jul
Philadelphia Fed survey
(10:00am)
Aug
Leading indicators (10:00am)
Jul
Auction 5-year TIPS (r) $16bn
Announce 2-year FRN(r) $13bn
22 Aug
25 Aug
Services PMI (9:45am)
Aug flash
New home sales (10:00am)
Jul
Dallas Fed survey (10:30am)
Aug
26 Aug
Durable goods (8:30am)
Jul
S&P/Case-Shiller HPI (9:00am)
Jun, 2Q
FHFA HPI (9:00am)
Jun, 2Q
Consumer confidence (10:00am)
Aug
Richmond Fed survey (10:00am)
Aug
27 Aug
Auction 2-year FRN(r) $13bn
28 Aug
w/e Aug 23
Real GDP (8:30am)
2Q second
Pending home sales (10:00am)
Jul
KC Fed survey (11:00am)
Aug
29 Aug
Personal income (8:30am)
Jul
Chicago PMI (9:45am)
Aug
Consumer sentiment (9:55am)
Aug final
Times shown are local.

81
Greg Fuzesi (44-20) 7134-8310

Economic Research
Global Data Watch
August 1, 2014
Euro area economic calendar
4 Aug
Euro area:
PPI (11:00am) Jun
5 Aug
Euro area:
PMI serv. & comp final (10:00am)
Jul
Services: 54.4%bal
Composite: 54.0%bal
Retail sales (11:00am) Jun
0.3%m/m
Germany:
Jul
France:
Jul
Italy:
PMI serv. & comp (9:45am) Jul
Spain:
PMI serv. & comp (9:15am) Jul
6 Aug
Germany:
Mfg orders (8:00am) Jun
Italy:
Jun 0.7%m/m
GDP prelim(11:00am) 2Q
0.0%q/q
7 Aug
Euro area:
ECB rate announcement (1:45pm)
Aug No change expected
Germany:
Industrial production (8:00am) Jun
2.0%m/m
France:
Foreign trade (8:45am) Jun
Netherlands:
CPI (9:30am) Jul
ECBs Draghi speaks in Frankfurt
(2:30pm)
8 Aug
Germany:
France:
Monthly budget situation (8:45am)
Jun
11 Aug 12 Aug
Germany:
ZEWbus. survey (11:00am) Aug
Italy:
CPI final (11:00am) Jul
13 Aug
Euro area:
Jun
Germany:
France:
Spain:
14 Aug
Euro area:
ECB monthly bulletin
GDP flash (11:00am) 2Q
HICP final (11:00am) Jul
Germany:
France:
15 Aug
18 Aug
Euro area:
19 Aug
Euro area:
Balance of payments (10:00am)
Jun
20 Aug
Germany:
PPI (8:00am) Jul
Netherlands:
CBS cons. conf. (9:30am) Aug
21 Aug
Euro area:
PMI mfg (10:00am) Aug
PMI serv. & comp (10:00am) Aug
EC cons. conf. flash (4:00pm) Aug
Germany:
France:
Belgium:
BNB cons. conf. (3:00pm) Aug
22 Aug
25 Aug
Germany:
IFObus. survey (10:00am) Aug
Belgium:
BNB bus. conf. (3:00pm) Aug
Netherlands:
CBS bus. conf. (9:30am) Aug
26 Aug 27 Aug
Germany:
GfK cons. conf. (8:00am) Sep
Retail sales(8:00am) Jul
France:
INSEE bus. conf. (8:45am) Aug
Italy:
ISAE cons. conf. (10:00am) Aug
28 Aug
Euro area:
M3 (10:00am) Jul
EC cons. conf. (11:00am) Aug
EC econ. sent. (11:00am) Aug
Germany:
Employment (9:55am) Aug
Unemployment (9:55am) Aug
CPI 6 states and prelim(8:00am)
Aug
Italy:
ISAE bus. conf. (11:00am) Aug
Spain:
CPI prelim(9:00am) Aug
GDP final (9:00am) 2Q
Belgium:
CPI Aug
29 Aug
Euro area:
HICP flash (11:00am)
Unemployment rate (11:00am)
France:
PPI (8:45am)
Italy:
CPI prelim(11:00am)
GDP final (12:00pm)
Highlighted data are scheduled for release on or after the date shown. Times shown are local.
82
JP Morgan Securities Japan Co., Ltd Economic Research
Miwako Nakamura (81-3) 6736-1167 Global Data Watch
miwako.nakamura@jpmorgan.com August 1, 2014
J apan economic calendar
4 Aug 5 Aug
PMI services/composite
(10:35am) Jul
Auction 10-year bond
6 Aug
Auction 6-month bill
7 Aug
BoJ Monetary Policy Meeting
8 Aug
Current account
(8:50am) Jun -236 bn yen, nsa
Bank lending
(8:50am) Jul 2.5%oya
Economy Watchers survey
(2:00pm) Jul 48.5, DI
BoJ Monetary Policy Meeting and
statement
BoJ governor Kurodas press
conference (3:30pm)
During the week: CAO private consumption index Jun 0.5%m/m, sa
11 Aug
M2
(8:50am) Jul
Tertiary sector activity index
(8:50am) Jun
Consumer sentiment
(2:00pm) Jul
BoJ monthly economic report
(2:00pm)
12 Aug
Producer prices
(8:50am) Jul
IP final
(8:50am) Jun
13 Aug
GDP 1st est.
(8:50am) 2Q
Minutes of Jul 14-15 BoJ Monetary
Policy Meeting (8:50am)
14 Aug
Private machinery orders
(8:50am) Jun
Auction 5-year note
15 Aug
18 Aug
Employers survey final
(10:30am) Jun
Construction spending
(2:00pm) Jun
Auction 1-year note
19 Aug
20 Aug
Trade balance
(8:50am) Jul
21 Aug
Reuters Tankan
(8:30am) Aug
PMI manufacturing preliminary

(10:35am) Aug
22 Aug
During the week: Department store sales Jul

25 Aug 26 Aug
Services producer prices
(8:50am) Jul
Shoko Chukin small firm
sentiment
(2:00pm) Aug
27 Aug 28 Aug
Auction 2-year note
29 Aug
Nationwide core CPI
(8:30am) Jul
All household spending
(8:30am) Jul
Unemployment rate
(8:30am) Jul
Job offers to applicants ratio
(8:30am) Jul
IP preliminary
(8:50am) Jul
Total retail sales
(8:50am) Jun
Housing starts
(2:00pm) Jul
Highlighted data are scheduled for release on or after the date shown. Times shown are local.

83

Economic Research
Global Data Watch
August 1, 2014
Canada economic calendar
4 Aug
Civic Day
Markets closed
5 Aug 6 Aug
International trade (8:30am)
Jun -C$0.2bn
7 Aug
Building permits (8:30am)
Jun -2.5%
Ivey PMI (10:00am)
Jul 53.0 (50.0 nsa)
J.P. Morgan composite index 50.8
8 Aug
Labor Force Survey (8:30am)
Jul 10,000 (0.1%)
Unemployment rate 7.0%
11 Aug
Housing starts (8:15am)
Jul
12 Aug 13 Aug
Teranet/National Bank HP Index
(9:00am)
Jul
14 Aug
New housing price index
(8:30am)
Jun
15 Aug
Manufacturing sales (8:30am)
Jun
New vehicle sales (8:30am)
Jun
Existing home sales (9:00am)
Jul
18 Aug 19 Aug 20 Aug
Wholesale sales (8:30am)
Jun
21 Aug 22 Aug
CPI (8:30am)
Jul
Jun
25 Aug 26 Aug 27 Aug 28 Aug
CFIB Business Barometer Index
(6:00am)
Aug
Current account (8:30am)
2Q
Payroll employment (8:30am)
Jun
29 Aug
Quarterly GDP (8:30am)
2Q
Monthly GDP (8:30am)
Jun
IPPI (8:30am)
Jul
All existing home sales are tentative. Times shown are local.
84

Economic Research
Global Data Watch
August 1, 2014
Latin America economic calendar
4 Aug
Argentina:
Tax collection Jul
Colombia:
PPI Jul
5 Aug
Argentina:
Auto report Jul
Brazil:
FIPE CPI Jul
Chile:
Economic activity Jun: 1.9%oya
Colombia:
CPI Jul: 0.05%m/m
CP Jul: 2.79%oya
Mexico:
Consumer confidence Jul: 91.9sa
Central bank reserves (Prior week)
Banamex economic survey
Uruguay:
CPI Jul: 0.60%m/m
Unemployment rate Jun
6 Aug
Brazil:
Vehicle sales and production Jul
Colombia:
CPI core Jul
7 Aug
Brazil:
IGP-DI Jul
Chile:
Trade balance Jul
Mexico:
CPI Jul:
Headline: 0.25%m/m
Core: 0.17%m/m
Headline: 4.04%oya
Core: 3.23%oya
Peru:
BCRP meeting
8 Aug
Brazil:
IPCA Jul
0.12%m/m
6.62%oya
Chile:
CPI Jul: 0.15%m/m
CPI Jul: 4.41%oya
Mexico:
GFI May: 0.7%oya
Nominal wages Jul: 4.2%oya
Peru:
Trade balance Jun
During the week: Chile: Auto report Jul Mexico: Auto report Jul
11 Aug
Brazil:
IGP-M1st release Aug
Mexico:
Industrial production Jun
Uruguay:
12 Aug
Mexico:
13 Aug
Mexico:
Banxico inflation report 2Q
14 Aug
Brazil:
Retail sales Jun
Chile:
BCCH meeting
Colombia:
BanRep minutes
15 Aug
Argentina:
CPI Jul
Brazil:
IGP-10 Aug
Economic activity Jun
Colombia:
Retail sales Jun
Peru:
Unemployment rate Jul
During the week: Brazil: Job creation Jul Colombia: Consumer confidence Jul Mexico: Formal employment Jul
18 Aug
Chile:
GDP 2Q
Current account 2Q
19 Aug
Argentina:
Unemployment rate 2Q
Brazil:
IGP-M2nd preview Aug
Colombia:
Trade balance Jun
Outstanding loans Jun
Mexico:
20 Aug
Argentina:
Brazil:
IPCA-15 Aug
Mexico:
Banamex economic survey
21 Aug
Argentina:
Consumer confidence Aug
Brazil:
Mexico:
Economic activity index Jun
GDP 2Q
22 Aug
Brazil:
Current account balance Jul
FDI Jul
Mexico:
CPI Aug 1H
During the week: Brazil: Tax collection Jul
25 Aug
Brazil:
Consumer confidence Aug
Mexico:
Retail sales Jun
Current account 2Q
Peru:
GDP 2Q
26 Aug
Brazil:
BCB credit report Jul
Mexico:
27 Aug
Brazil:
PPI manufacturing Jul
Mexico:
Trade balance Jul
28 Aug
Brazil:
IGP-MAug
Budget balance Jul
29 Aug
Argentina:
Industrial production Jul
Construction activity Jul
Brazil:
GDP 2Q
Net debt %of GDP Jul
Nominal budget balance Jul
Primary budget balance Jul
Chile:
Manufacturing index Jul
Retail sales Jul
Colombia:
BanRep meeting
Mexico:
Bank credit Jul
During the week: Colombia: Vehicle sales Jul Industrial confidence Jul Retail confidence Jul
Banco J.P. Morgan, S.A., Institucin de Banca
Mltiple, J.P. Morgan Grupo Financiero

85
Malcolm Barr (44-20) 7134-8326
Allan Monks (44-20) 7134-8309

Economic Research
Global Data Watch
August 1, 2014
UK and Scandinavia economic calendar
4 Aug
United Kingdom:
PMI Construction (9:30am) Jul
5 Aug
United Kingdom:
PMI Serv. & comp (9:30am) Jul
Services: 57.2%bal
Sweden:
Services PMI (8:30am) Jul
6 Aug
United Kingdom:
New car regs (9:00am) Jul
0.4%m/m
7 Aug
United Kingdom:
MPC rate announcement and
asset purchase target (12:00pm)
Aug No change expected
Sweden:
Budget balance (9:30am) Jul
House price data (9:30am) Jul
Norway:
IP Mfg (10:00am) Jun
8 Aug
United Kingdom:
Construction output (9:30am) Jun
1.0%m/m
Trade balance (9:30am) Jun
Sweden:
PES unemployment (8:00am) Jul
Industrial production & orders
(9:30am) Jun
IP (9:30am) Jun
Services production (9:30am) Jun
Norway:
Credit indicator growth (10:00am)
Jun
During the week: UK: Halifax HPI Jul (4-8 Aug)
11 Aug
Norway:
PPI (10:00am) Jul
12 Aug
United Kingdom:
BRC retail sales monitor (12:01am)
Jul
Sweden:
CPI (9:30am) Jul
13 Aug
United Kingdom:
Labor market report (9:30am) Jul
BoE quarterly inflation report
(10:30am)
Norway:
14 Aug
United Kingdom:
RICS HPI (12:01am) Jul
15 Aug
United Kingdom:
Index of services (9:30am) Jun
Real GDP prelim(9:30am) 2Q
Norway:
Trade balance (10:00am) Jul
During the week: Norway: CPI Jul (11-15 Aug)
18 Aug
United Kingdom:
Rightmove HPI (12:01am) Aug
19 Aug
United Kingdom:
CPI (9:30am) Jul
ONS HPI (9:30am) Jun
PPI (9:30am) Jul
20 Aug
United Kingdom:
CBI industrial trends Aug
MPC minutes (9:30am)
21 Aug
United Kingdom:
Public sector finances (9:30am) Jul
Retail sales (9:30am) Jul
Sweden:
Labor force survey (9:30am) Jul
Norway:
GDP (10:00am) 2Q
22 Aug
During the week: Norway: Consumer confidence 3Q (20-30 Aug)
25 Aug 26 Aug
Sweden:
PPI (9:30am) Jul
27 Aug
Sweden:
Consumer confidence (9:00am)
Aug
Economic Tendency survey
(9:00am) Aug
Household lending (9:30am) Jul
Norway:
AKU unemployment (10:00am) Jun
28 Aug
United Kingdom:
CBI distributive trades Aug
Sweden:
Retail sales (9:30am) Jul
Norway:
Mfg wage index (10:00am) 2Q
29 Aug
United Kingdom:
Gfk cons. conf. (12:05am)
Sweden:
Wage stats (9:30am) Jun
Norway:
Labor directorate unemployment
(10:00am)
During the week: UK: Nationwide HPI (25-29 Aug)

86
J os Cerveira (44-20) 7742-3556

Economic Research
Global Data Watch
August 1, 2014
Emerging Europe/Middle East/Africa economic calendar
4 Aug
Romania:
NBR rate decision
No change
Turkey:
CPI (10:00am) Jul
5 Aug
Czech Republic:
Hungary:
6.8%oya
Holiday: Israel
6 Aug
Czech Republic:
Industrial output (9:00am) Jun
10.6%oya, wda
CZK41.1bn
Hungary:
8.0%oya
NBH minutes (2:00pm)
7 Aug
Hungary:
EUR550mn
South Africa:
Gross reserves (8:00am) Jul
Manufacturing output (1:00pm) Jun
2.4%oya
8 Aug
Turkey:
During the week: Russia: CPI Jul (4-5 Aug)
11 Aug
Czech Republic:
CPI (9:00am) Jul
Romania:
CPI (10:00am) Jul
Russia:
Foreign trade Jun
12 Aug
Hungary:
CPI (9:00am) Jul
13 Aug
Czech Republic:
Current account (10:00am) Jun
Poland:
CPI (2:00pm) Jul
Current account (2:00pm) Jun
Romania:
Current account Jun
South Africa:
Retail sales (1:00pm) Jun
14 Aug
Czech Republic:
Hungary:
Poland:
Core inflation (2:00pm) Jul
Romania:
Turkey:
Current account (10:00am) Jun
15 Aug
Turkey:
Unemployment (10:00am) May
Israel:
CPI (2:00pm) Jul
Holiday: Poland, Romania
During the week: Russia: GDP flash 2Q (11-12 Aug), PPI Jul (17-19 Aug) Israel: GDP flash 2Q(17 Aug)
18 Aug
Czech Republic:
PPI (9:00am) Jul
Poland:
Budget balance (3:00pm) Jul
19 Aug
Poland:
Average gross wages and
Employment (2:00pm) Jul
Russia:
Retail sales, Unemployment &
Investment (4:00pm) Jul
20 Aug
Poland:
Industrial output (2:00pm) Jul
PPI (2:00pm) Jul
South Africa:
CPI (10:00am) Jul
Holiday: Hungary
21 Aug 22 Aug
During the week: Russia: Industrial output Jul (18-19 Aug)
25 Aug
Turkey:
Capacity utilization (2:30pm) Aug
Israel:
BoI rate decision (4:00pm)
26 Aug
Hungary:
NBH rate decision (2:00pm)
South Africa:
GDP (11:30am) 2Q
27 Aug
Hungary:
Unemployment (9:00am) Jun
Turkey:
CBRT rate decision (2:00pm)
28 Aug
Hungary:
PPI (9:00am) Jun
29 Aug
Czech Republic:
GDP (9:00am) 2Q
Poland:
GDP (10:00am) 2Q
NBP inflation expectations
(2:00pm) Aug
Turkey:
Foreign trade (10:00am) Jul
South Africa:
Private sector credit (8:00am) Jul
Budget (2:00pm) Jul
Trade balance (2:00pm) Jul
During the week: Poland: Retail sales Jul (25-26 Aug), Unemployment Jul (25-26 Aug)

87

Economic Research
Global Data Watch
August 1, 2014

Non-J apan Asia economic calendar
4 Aug
Australia:
New Zealand:
ANZ commodity price (1:00pm) Jul
Indonesia:
CPI (11:00am) Jul 4.2%oya
Trade balance Jun -US$0.3bn
Singapore:
PMI (9:30pm)
Jul 50.8
Holiday: Australia
5 Aug
Australia:
Trade balance (11:30am)
Jun -A$1.5bn
RBA official rate announcement
(2:30pm) No change
India:
RBI monetary policy meeting
(11:00am) No change
Indonesia:
GDP 2Q 5.2%oya
Philippines:
Taiwan:
6 Aug
Malaysia:
Trade balance (12:00pm)
Jun US$1.9bn
Thailand:
BoT monetary policy meeting
(2:30pm) No change
7 Aug
Australia:
Unemployment rate (11:30am)
Jul 6.1%
Taiwan:
US$2.5bn
8 Aug
Australia:
Housing finance (11:30am)
Jun 0.0%m/m
China:
Trade balance Jul US$32.6bn
During the week: India: Trade balance Jun (8-18 Aug) China: CPI, PPI Jul (9 Aug) 2.5%oya; Money supply Jul (10-15 Aug) 14.1%oya
11 Aug
Malaysia:
IP (12:01pm) Jun
Holiday: Thailand
12 Aug
Australia:
NAB business confidence
(11:30am) Jul
India:
CPI (5:30pm) Jul
IP (5:30pm) Jun
Philippines:
Exports (9:00am) Jun
Holiday: Thailand
13 Aug
China:
FAI (1:30pm) Jul
IP (1:30pm) Jul
Retail sales (1:30pm) Jul
Korea:
Export price index (6:00am) Jul
Import price index (6:00am) Jul
Unemployment rate (8:00am) Jul
Money supply (12:00pm) Jun
14 Aug
New Zealand:
Business NZ PMI (10:30am) Jul
Retail sales (10:45am) 2Q
India:
WPI (12:00pm) Jul
Indonesia:
BI monetary policy meeting
Korea:
BoK monetary policy meeting
(10:00am)
15 Aug
Hong Kong:
GDP (4:30pm) 2Q
Indonesia:
Current acct. balance 2Q
Malaysia:
Current acct. balance (6:00pm) 2Q
GDP (6:00pm) 2Q
Philippines:
OFWremittances Jun
Singapore:
Taiwan:
GDP (5:00pm) 2Q
Holiday: India, Korea
During the week: Singapore: GDP final 2Q (15-22 Aug)
18 Aug
Australia:
New motor vehicle sales
(11:30am) Jul
Hong Kong:
Unemployment rate (4:30pm) Jul
Singapore:
NODX (8:30am) Jul
Thailand:
GDP (9:30am) 2Q
Holiday: India
19 Aug
Korea:
PPI (6:00am) Jul
20 Aug
Malaysia:
CPI (5:00pm) Jul
Taiwan:
Export orders (4:00pm) Jul
21 Aug
China:
PMI Mfg. (9:45am) Aug
Hong Kong:
CPI (4:30pm) Jul
Holiday: Philippines
22 Aug
Taiwan:
Unemployment rate (8:30am) Jul
During the week: Vietnam: CPI Aug (24 Aug)
25 Aug
Hong Kong:
Singapore:
CPI (1:00pm) Jul
Taiwan:
IP (4:00pm) Jul
Holiday: Philippines
26 Aug
New Zealand:
Philippines:
Imports (9:00am) Jun
Singapore:
IP (1:00pm) Jul
27 Aug
Korea:
Consumer survey (6:00am) Aug
Taiwan:
Leading index (4:00pm) Jul
28 Aug
Hong Kong:
Korea:
Current account balance (8:00am)
Jul
Philippines:
GDP (10:00am) 2Q
Thailand:
Mfg. production Jul
29 Aug
Australia:
Pvt. sector credit (11:30am) Jul
New Zealand:
Building permits (10:45am) Jul
NBNZ business confidence
(1:00pm) Aug
Korea:
IP (8:00am) Jul
Thailand:
PCI (2:30pm) Jul
PII (2:30pm) Jul
During the week: Vietnam: Trade balance Aug (25-29 Aug) Philippines: Budget balance Jul (26-29 Aug)


Economic Research
Global Data Watch
August 1, 2014

Global Data Diary
Week / Weekend Monday Tuesday Wednesday Thursday Friday
2- 8 August 4 August 5 August 6 August 7 August 8 August
China Romania Australia Brazil Euro area Brazil
CPI, PPI (J ul) NBR mtg: no chg Trade balance (J un) Auto sales (J ul) ECB mtg: no chg IPCA (J ul)
India Turkey RBA mtg: no chg Czech Republic Germany China
Trade balance (J un) CPI (J ul) Chile IP (J un) IP (J un) Trade balance (J ul)
Japan United States GDP proxy (J un) Hungary Mexico France
CAO private con indx (J un) Sr loan officer srvy (3Q) India IP (J un) CPI (J ul) IP (J un)
Russia RBI mtg: no chg NBH minutes Norway Germany
CPI (J ul) United States Germany IP (J un) Trade balance (J un)
ISM non-mfg (J ul) Mfg orders (J un) Peru Japan
Global Ital y BCRP mtg: -25bp Economy wtchrs srvy (J ul)
Srv & all-ind PMI (J ul) GDP (2Q, prlm) South Africa BoJ mtg: no chg
Thailand IP (J un) Sweden
BoT mtg: no chg Taiwan IP (J un)
United Kingdom Trade balance (J ul) Turkey
IP (J un) United Kingdom IP (J un)
New car regs (J ul) MPC mtg: no chg United Kingdom
United States Trade balance (J un)
Trade balance (J un) United States
Productivity & costs (2Q)
9 8 August 11 August 12 August 13 August 14 August 15 August
Japan India China Brazil Brazil
Consumer sentiment (J ul) CPI (J ul) FAI (J ul) Retail sales (J un) GDP proxy (J un)
Mexico IP (J un) IP (J ul) Chile: BCCH mtg: -25bp Taiwan
IP (J un) Japan Retail sales (J ul) Czech Republic GDP (2Q)
Producer prices (J ul) Euro area GDP (2Q, flash) Turkey
United States IP (J un) Euro area Labor mrkt report (May)
NFIB survey (J ul) Japan GDP (2Q, flash) United Kingdom
J OLTS (J un) GDP (2Q, 1
st
est) France: GDP (2Q, prlm) GDP (2Q, prlm)
Korea Germany: GDP (2Q, prlm) United States
Labor mrkt report (J ul) Hungary: GDP (2Q, prlm) Empire state srvy (Aug)
Mexico Indonesia IP (J ul)
Banxico inflation rprt (2Q) BI mtg: no chg UMich cons snt prlm (Aug)
United Kingdom Japan
Labor mrkt report (J ul) Prvt mchinery ordrs (J un)
BoE inflation report Korea: BoK mtg: -25bp
United States Poland: GDP (2Q, prlm)
Retail sales (J ul) United Kingdom
RICS HPI (J ul)
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