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Road to 2018 –
its raining; the road
is getting muddy;
crosswinds are
increasing
September, 2015
Market Presence

Founded in 1866 and headquartered
in Columbus, Ohio

$66 billion in bank assets

The principal markets for services are
Huntington's six-state retail banking
franchise: Ohio, Michigan,
Pennsylvania, Indiana, West Virginia,
and Kentucky

700 branches; 1,400 ATMs

$12 billion in managed assets for
individuals and institutional clients

Listed on NASDAQ, Ticker: HBAN

Member of S&P 500 Index
2
Road to 2018 – Updates since Fall, 2014
Our view is that 2018 potentially represents a turning-point in:
•
global economic leadership changes to either the Millennials or Emerging Market consumers
•
government debt-stress comes back as borrowing increases to finance social programs
•
inflation trends go higher with commodity prices, more government borrowing, Millennial transition
On the road, we are now seeing new developments:
1.
2.
China’s policymakers are having difficulty trying to pull-off three transitions:
a)
Stock market open to all investors – long and short.
b)
Export & Investment focused economy moving towards a Consumer focused.
c)
Industrial economy moving towards a service economy.
Central banks are diverging.
a)
US and UK want to normalize, while most all others are still easing.
3.
Commodities are moving lower.
4.
Government keeps expanding.
5.
Global growth continues to come under pressure.
3
1) China
4
China Macro –
GDP growth rate is slowing; stocks are rolling over
China Nominal GDP vs. Shanghai Composite - Local Currency
8,000
7,000
6,000
 GDP up 20x since 1992
5,000
 Shanghai stocks up 6.4x since 1992
China GDP
(Yuan) =
636462.70
800,000
700,000
600,000
500,000
400,000
4,000
Shanghai
Composite
= 3205.99
3,000
300,000
200,000
2,000
100,000
90,000
80,000
70,000
60,000
50,000
40,000
1,000
900
800
700
600
500
30,000
400
20,000
300
10,000
200
'90
'08
'06
'04
'02
'00
'98
'96
'94
'92
Nominal Gdp, Total, Cny - China, Peoples Rep Of (Left)
SSE Composite Index - Price Index (Right)
'10
'12
'14
Source = FactSet
5
China Macro –
Renminbi is now in focus
Inverted
Chinese Real GDP Growth YoY% vs. Renminbi/US Dollar Exchange Rate
16
15
14
14.40
12.40
14.00
14.20
12.10
11.10
14.50
12.80
9.20
9.50
10.50
13.10
8.20
9.70
10.40
11.30
7.50
9.80
10.40
13.10
10.10
11.00
6.60
12.00
10.40
10.00
9.10
10.90
9.60 10.70
12.70
10.00
8.90
7.50
10.00
10.60 11.20
10.90
8.30
RMB per
7.60
9.70 11.20
11.00
Dollar =
9.00 8.00
10.30
9.30
10.80 10.10
11.30
6.38
8.10 8.50
10.90
9.60
9.20
7.70 7.69
8.30 8.40
10.60
10.20
6.97
7.90 7.72
9.10 8.90 8.90
6.95
9.30 7.61
7.20 7.60 8.10
7.35
7.56
7.80 8.90
7.37
14.80
14.20 12.40
13.30
13.30
12.40
13.60 14.00
14.30
11.00
12.90
13
15.10
12
11
10
9
7.76
7.75
8
7.37
7.42
4.5
5
5.5
6
6.5
7
7.5
8
8.5
7
9
6
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Real Gdp, Total, Ytd Y/Y Change, Percent - China, Peoples Rep Of (Left)
FX Rate - Spot Mid - China Renminbi per US Dollar (Right)
Source = FactSet
6
China Macro –
Policymakers want the blue line higher, but it won’t move
Source = Ned Davis Research
7
China Macro –
Dr. Copper is pointing to a slower Chinese economy
Copper ($ per pound)
5
5
4.5
4.5
4
4
3.5
3.5
3
3
2.5
Copper (per
pound) =
$2.34
2.5
2
2
1.5
1.5
1
1
0.5
0.5
0
0
'66 '68 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14
High Grade Copper (NYM $/lbs) Continuous Contract - Futures Price Close
Recession Periods - United States
Source = FactSet
8
2) Global Central Banks
9
Central Banks –
Three groups and three different paths
Global Central Banks - Effective Benchmark Interest Rates
20
19
18
17
16
15
14
13
12
11
10
9
8
7
6
5
4
3
2
1
0
-1
'06
'07
'08
'09
'10
'11
US Effective Federal Funds Rate - Yield
Official Bank Rate, Percent - United Kingdom
Japan Basic Discount & Loan Rate - Yield
China 6 Months-1 Year Rate On RMB Loans - Yield
Eurozone Main Refinancing Operations Minimum Bid Rate - Yield
Swiss Target 3-Month LIBOR Rate - Yield
Brazil =
14.25%
Russia =
8.25%
India = 7.25%
China =
4.60%
UK = 0.50%
Japan =
0.30%
US = 0.14%
ECB = 0.05%
Sw eden =
-0.35%
Sw iss =
-0.75%
'12
'13
Sweden Repo Rate - Yield
India Repo Rate - Yield
Brazil Target Selic Rate - Yield
'14
20
19
18
17
16
15
14
13
12
11
10
9
8
7
6
5
4
3
2
1
0
-1
'15
Russia Refinancing Rate - Yield
Recession Periods - United States
Source = FactSet
10
1
2
3
The Fed, the 10-Year and the Stock Market –
History says they move the same direction
S&P 500 Index vs. 10-year Treasury Yield vs. Effective Fed Funds
13
12
11
10
9
8
7
6
5
4
3
2
1
0
2,300
2,200
2,100
S&P 500 =
2,000
1972.18
1,900
1,800
1,700
1
2
1,600
3
1,500
1,400
1,300
1,200
1,100
1,000
900
800
700
10yr Yield = 600
2.22%
500
Fed Funds 400
Rate =
300
0.14%
200
'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
S&P 500 - Price Index (Left)
US Effective Federal Funds Rate - Yield (Right)
US Benchmark Bond - 10 Year - Yield (Right)
Recession Periods - United States
Source = FactSet
11
US Interest Rates –
American savers should get some interest again
Fed Funds vs. 2-year Treasury Yield
9
9
8
8
7
7
The Fed members think
Fed Funds Rate going here,
hear and here.
6
6
5
5
4
4
3
3
2
2
2yr Yield =
0.74%
Fed Funds
= 0.25%
1
0
1
0
'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18
Government Benchmarks 2 Year, Bid, Yield, Percent, Close - United States
Policy Rates Fed Funds Target Rate, Percent - United States
Recession Periods - United States
Source = FactSet
12
Fed Funds Rate vs. Borrowing –
Loan growth was positive in the last three Fed cycles
Consumer Credit and Mortgage Debt ($ billions) vs. Fed Funds Rate
12,000
9
11,000
8
10,000
1
9,000
2
3
Mortgage
Debt =
$9379.26
8,000
7
6
7,000
5
6,000
4
5,000
4,000
Consumer
Credit =
$3422.10
3,000
3
2
2,000
Fed Funds
Rate =
0.25%
1,000
0
1
0
'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Consumer Credit Outstanding, Total, Sa, Bil Dollars - United States (Left)
US Federal Funds Target Rate - Yield (Right)
Debt Outstanding - Total Households - Home Mortgage, D.3 - United States (Left)
Recession Periods - United States
Source = FactSet
13
Velocity of Money –
The Fed (and Banks) would like this higher
US Money Growth Rates and Velocity
50
2.3
2.2
40
2.1
30
2
1.9
20
1.8
MZM =
7.15%
M2 =
6.18%
10
1.7
1.6
Velocity of
Money
1.5
(M2) =
1.50x
0
-10
1.4
'65 '67 '69 '71 '73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15
(% 1YR) Money supply M2, USD, SA - United States (Left)
(% 1YR) Money Zero Maturity (Mzm) Money Stock, Sa - United States (Left)
Velocity Of Money (M2), Ratio - United States (Right)
Recession Periods - United States
Source = FactSet
14
3) Commodities
15
CRB Index vs. China LEI –
These two items are closely correlated
Bloomberg Commodity Index vs. China LEI
108
500
450
Energy = 31%
Agriculture = 30%
Livestock = 5%
Ind. Metals = 17%
Prec. Metals = 16%
106
400
104
350
300
102
250
Bloomberg
Commodity
Index =
183.18
China LEI =
98.70
200
150
100
98
100
96
50
'96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Leading Index Total, 1996=100 - China, Peoples Rep Of (Right)
Bloomberg Commodity Index - Index Total Return Level (Left)
Recession Periods - United States
Source = FactSet
16
US Energy Focus –
US production of crude oil and natural gas rising
US Natural Gas and Crude Oil Production
10,000
2.6
Crude Oil =
9337.00
9,000
Natural Gas
= 2.35
2.4
8,000
2.2
7,000
2
6,000
1.8
5,000
1.6
4,000
1.4
3,000
1.2
'80
'82
'84
'86
'88
'90
'92
'94
'96
'98
'00
'02
'04
'06
'08
'10 '12
'14
U.S. Crude Oil Field Production (Thousand Barrels Per Day) - United States (Right)
Eia Monthly Energy Review, Primary Energy Production By Source, Natural Gas (Dry), Quadrillion Btu Usd - United States (L
Recession Periods - United States
Source = FactSet
17
4) Government Expansion
18
US Government Focus –
Government rising as a percent of GDP
Federal Government vs. GDP Growth
30
30
25
Federal
Govt % of
GDP =
22.42%
20
25
20
15
15
10
10
Nominal
5
GDP YoY%
change =
3.66%
0
5
0
-5
-5
'47 '49 '51 '53 '55 '57 '59 '61 '63 '65 '67 '69 '71 '73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13
(% 1YR) Gross Domestic Product, Bil. $, Saar - United States
(Federal Govt Current Receipts & Expenditures, Current Expenditures, Bil. $, SAAR - United States / Gross Domestic Product, Bil. $, SAAR - United States) *
Recession Periods - United States
Trendline: Linear
Trendline: Linear
Source = FactSet
19
US Government Focus –
Three areas catching our attention
Recent government trends:
1. Mandate that large foundations & endowments distribute between 5%
and 8% of market value per year.
2. Have stock buybacks considered financial engineering and/or stock
manipulation.
3. Focus on “Stakeholder” vs. “Shareholder”.
20
US National Income Components –
Wages giving way to Profits as productivity rises
US Nominal GDP, Wages, Profits and Investment (Bil.)
20,000
18,000
16,000
56
Nominal
GDP =
$17902.00
52
Wages =
43.18%
44
48
40
14,000
36
12,000
32
28
10,000
24
8,000
Investment
= 20.33%
6,000
20
16
4,000
Profits =
10.19%
2,000
12
8
4
0
0
'47 '50 '53 '56 '59 '62 '65 '68 '71 '74 '77 '80 '83 '86 '89 '92 '95 '98 '01 '04 '07 '10 '13
Nominal Gdp, Total, Saar, Bil Usd - United States (Right)
(National Income, Corporate Profits After Tax, Excl. IVA And CCAdj, SAAR, Bil USD - United States / GDP, Current Prices, SAAR, Bil USD - United States) * 100 (Left)
(National Income, Compensation of Employees, Wages And Salaries Accruals, SAAR, Bil USD - United States / GDP, Current Prices, SAAR, Bil USD - United States) * 100
(Gross Domestic Capital Formation, SAAR, Bil USD - United States / GDP, Current Prices, SAAR, Bil USD - United States) * 100 (Left)
Recession Periods - United States
Source = FactSet
21
5) Global Growth Under Pressure
22
Global Economic Overview –
Growth was 3.4% in 2013 & 2014; 2015 estimate at 3.3%
Global GDP = $77.8 trillion
2016 GDP growth estimate (IMF) = 3.8%
20000
18000 $17,419
16000
14000
12000
$10,360
10000
8000
6000
$4,601
$3,852
4000
$2,829
$2,941
$2,346
$2,144
2000
0
3.0%
6.3%
Source = Bloomberg/IMF
1.2%
1.7%
1.5%
2.2%
0.7%
1.2%
$2,066
$1,860
7.5%
$1,786
0.2%
$1,453
2.1%
$1,410
3.2%
$1,404
3.5%
$1,282
2.5%
3.0%
Source = GDP data are 6/15 numbers from Bloomberg; 2016 GDP growth projections are from IMF (7/15)
23
Global GDP Trends –
IMF forward estimates for real GDP growth
Region
2014 Actual
2015 Forecast
2016 Forecast
US
2.4
2.5
3.0
EuroZone
0.8
1.5
1.7
UK
2.9
2.4
2.2
Japan
-0.1
0.8
1.2
China
7.4
6.8
6.3
India
7.3
7.5
7.5
Brazil
0.1
-1.5
0.7
Source = International Monetary Fund, July-2015 World Economic Outlook
24
Global Stock Market Trends –
Success is where government buys or CB’s support
Top-10 Global Economies - Stock Index Performance Indexed One-Year
140
140
120
120
100
China CSI
300 =
43.97%
Japan
Nikkei 225
= 22.47%
Europe
Stox x 600 =
6.08%
India
Sensex =
-1.33%
S&P 500 =
-1.56%
UK FTSE
100 =
-8.38%
Brazil
Bovespa =
-23.92%
80
60
40
20
0
-20
-40
100
80
60
40
20
0
-20
-40
Sep
Oct
Nov
Dec
Jan
FTSE 100 - Index Price Level - 100
STOXX Europe 600 - Index Price Level - 100
India S&P BSE SENSEX - Index Price Level - 100
Brazil Bovespa Index - Index Price Level - 100
Feb
Mar
Apr
May
Jun
Jul
Aug
Japan Nikkei 225 - Index Price Level - 100
China Shenzhen SE / CSI 300 Index - Index Price Level - 100
S&P 500 - Index Price Level - 100
Source = FactSet
25
Global Consumer Spending Trends –
Non-OECD countries now outspending 34 OECD countries
Global Consumer Spending - OECD (34 countries) vs. Non-OECD
35,000
35,000
Non-OECD
($mil.) =
$31450.47
OECD
($mil.) =
$28067.45
30,000
30,000
25,000
25,000
20,000
20,000
15,000
15,000
10,000
10,000
5,000
5,000
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Household Final Consumption Expenditure, Etc., USD, Non-OECD - High Income / 100000000
Household Final Consumption Expenditure, Etc., USD, OECD - High Income / 1000000000
Recession Periods - United States
Source = FactSet
26
6) Summary Items On-Our-Mind
27
Road to 2018 – Current Thoughts
1.
Global economic leadership switching back to the US – and that may
continue into 2018 on low inflation, low interest rates, positive
employment, low commodity prices.
2.
Emerging market consumer spending is becoming more dominant –
and increases could understate global economic growth estimates.
3.
Stocks near all-time highs and bond yields near all-time lows –
something will eventually need to give but it may not be until later this
decade.
4.
Developed market economies are generally seeing less governmentdebt-stress – though this condition may only last into 2018.
5.
Supply outpacing Demand seems prevalent for most all goods and
basic materials – robust M&A likely to continue.
28
Disclosures and Disclaimers
The opinions expressed herein are those of The Huntington Trust, and may not actually come to pass. This information is current
as of the date of the presentation and is subject to change at any time, based on market and other conditions. Prior to making any
financial or investment decision, you should assess, or seek advice from a professional regarding, whether any particular
transaction is relevant or appropriate to your individual circumstances.
Index performance is used throughout this presentation to illustrate historical market trends and performance. Indexes are
unmanaged and do not incur investment management fees. An investor is unable to invest in an index. Past performance is no
guarantee of future results.
Not FDIC Insured
Offer No Bank Guarantee
Not Insured By Any Federal Government Agency
May Lose Value
Not A Deposit
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