Weekly Trends July 23

8/9/2019 Weekly Trends July 23

1/12

The Week A happy, though subdued global anniversary.

Canada Retail sales take a dip to start the summer,

however growth is expected to continue through the year.

United States Housing acts as a drag on second-quarter

GDP growth.

Mexico Domestic demand gains captured in recently

published data.

Latin America Puerto Rico's successful implementation

of fiscal austerity and economic recovery.

Europe Markets require time to digest EU bank stress

test results; seven out of 91 banks require more capital.

Asia / Oceania Indian central bank expected to increase

interest rates once again next week.

Industry Grain prices are poised for recovery.

Highlights

Global Economic Research July 23, 2010

Index

2

3

4

5

6

7

8

9

10

11

12

Forecasts

The Week

Canada

United States

Mexico & Developing Americas

Europe

Asia / Oceania

Industry & Commodity

Market Metrics / Fiscal Policy

Economic Tables

Financial Tables

Scotiabank Commodity Price Index (07/21)

New Releases

Scotia Economics

Scotia Plaza 40 King Street West, 63rd Floor

Toronto, Ontario Canada M5H 1H1

Tel: (416) 866-6253 Fax: (416) 866-2829

Email: [email protected]

This Report is prepared by Scotia Economics as a resource for the

clients of Scotiabank and Scotia Capital. While the information is from

sources believed reliable, neither the information nor the forecast shall

be taken as a representation for which The Bank of Nova Scotia or

Scotia Capital Inc. or any of their employees incur any responsibility.

Weekly Trendsis available on: www.scotiabank.com, Bloomberg at SCOE and Reuters at SM1C
http://www.scotiacapital.com/English/bns_econ/bnscomod.pdfhttp://www.scotiacapital.com/English/bns_econ/bnscomod.pdf


2/12

2


Forecasts

Economic Performance (annual % change unless otherwis e indicated)

2000-08 2009 2010f 2011f 2000-08 2009 2010f 2011f

Real GDP 2.6 -2.5 3.4 2.6 2.4 -2.4 3.2 2.6Consumer Prices 2.3 0.3 1.9 2.3 2.9 -0.3 1.8 1.7

Pre-tax Profits 7.8 -32.3 26.0 12.5 5.3 -3.8 25.0 11.0Federal Budget Balance ($bn) 8.4 -48.0 -43.0 -28.0 -197 -1413 -1380 -1220

Current Account Balance ($bn) 20.5 -43.5 -31.3 -29.2 -596 -378 -434 -477Merchandise Trade Balance ($bn) 58.1 -4.6 6.5 7.5 -648 -507 -617 -685

Motor Vehicle Sales (000s)* 1,605 1,461 1,525 1,570 16.4 10.4 11.5 12.2Motor Vehicle Production (000s)* 2,590 1,425 2,200 2,300 11.5 5.6 7.8 8.1Housing Starts (000s)* 207 149 190 175 1.65 0.55 0.65 0.95

Employment 1.9 -1.6 1.4 1.5 0.7 -4.3 -0.2 2.2Jobs Created (000s)* 301 -272 237 251 0.86 -5.87 -0.23 2.84

Unemployment Rate (%) 6.9 8.3 8.1 7.9 5.1 9.3 9.6 9.1

Real GDP 2.8 -6.5 4.8 3.5 1.9 -4.1 0.8 1.0Consumer Prices 5.1 3.6 4.9 4.6 2.2 0.9 1.3 1.7

Real GDP 3.8 -0.4 4.6 3.7 5.2 1.4 5.4 4.8Consumer Prices 8.1 7.0 7.9 4.5 1.6 0.8 2.0 2.0

*In the United States, millions.

Commodity Prices (US$ annual average)

2000-08 2009 2010f 2011f Pulp (tonne) 662 720 970 815Newsprint (tonne) 574 560 600 680Lumber (mfbm) 286 178 235 240

Copper (lb) 1.72 2.34 3.10 3.10Zinc (lb) 0.73 0.75 0.88 0.85Nickel (lb) 7.16 6.50 8.95 8.95

WTI Oil (bbl) 49.93 62 79 80Nymex Natural Gas (US$/mmbtu) 6.15 4.15 4.75 4.75Wheat (tonne) 223 454 305 290

Financial Markets (end of period , % unless otherwise ind icated)

10Q1 10Q2f 10Q3f 10Q4f 11Q1f 11Q2f 11Q3f 11Q4f CANADA3-month T-bill 0.30 0.61 1.05 1.20 1.70 2.15 2.35 2.305-year Canada 2.90 2.33 2.50 2.70 2.85 3.05 3.20 3.5010-year Canada 3.57 3.08 3.15 3.25 3.45 3.55 3.65 3.95

UNITED STATES3-month T-bill (Yield) 0.15 0.17 0.20 0.22 0.40 0.95 1.55 1.85

5-year Treasury 2.54 1.77 1.95 2.15 2.35 2.45 2.65 3.1510-year Treasury 3.83 2.93 3.00 3.10 3.25 3.45 3.80 4.25

CANADIAN-US SPREADS3-month T-bill 0.15 0.44 0.85 0.98 1.30 1.20 0.80 0.455-year 0.36 0.56 0.55 0.55 0.50 0.60 0.55 0.3510-year -0.26 0.15 0.15 0.15 0.20 0.10 -0.15 -0.30

Canadian Dollar (USDCAD) 1.02 1.06 1.01 1.00 0.99 0.98 0.97 0.97Canadian Dollar (CADUSD) 0.98 0.94 0.99 1.00 1.01 1.02 1.03 1.03Yen (USDJPY) 93 88 93 95 97 98 99 100Euro (EURUSD) 1.35 1.22 1.17 1.19 1.21 1.22 1.24 1.26Sterling (GBPUSD) 1.52 1.49 1.48 1.50 1.51 1.52 1.54 1.55Mexican Peso (USDMXN) 12.4 12.9 12.7 12.8 12.9 13.0 13.1 13.2

Latin America (Excl. Mexico) Asia

Mexico Euro zone

Canada United States

Commodity Prices (US$ annual average)

2000-08 2009 2010f 2011fPulp (tonne) 662 720 970 815Newsprint (tonne) 574 560 600 680Lumber (mfbm) 286 178 235 240

Copper (lb) 1.72 2.34 3.05 3.05Zinc (lb) 0.73 0.75 0.88 0.85Nickel (lb) 7.16 6.50 8.95 8.95

WTI Oil (bbl) 49.93 62 79 80Nymex Natural Gas (US$/mmbtu) 6.15 4.15 4.75 4.75Wheat (tonne) 223 454 305 290


3/12

3


Anniversary

A year ago, there were few if any meaningful signs that the global

economy was emerging from a steep recession and credit crisis, even

though financial markets were flashing green for go. A year later and

a year of comparatively good if not great growth internationally, there

are increasing signs that the global economy is losing some

momentum, and that credit problems in certain markets persist, with

financial markets signalling yellow for caution.

A year ago, consumers were in hibernation. A year later, households are

opening up their wallets and buying again, although the overall pace of

expenditures remains on the sluggish side outside of the rapidly

expanding emerging economies. Many of the large, advanced nations

that have been saddled with major-league housing corrections, the U.S.,

the U.K., Ireland, and Spain, for example, are witnessing a concerted

effort by households to pay down debt, save more, and spend less.

A year ago, inventories had been driven down to extraordinary levels

as production was curtailed, plants shuttered, and employees cut. Ayear later, production has ramped up and inventory shelves are being

restocked, though private sector hiring is generally lagging in the

advanced nations outside of Canada and Australia.

A year ago, commodity prices were rocketing higher on the back of a

renewed boom in the emerging economies, notably China, but India

and Brazil as well. A year later, commodity prices have either

steadied or slipped back a notch alongside a slowing in some of

Chinas high growth real estate markets, and the trade repercussions

associated with the moderation in global demand.

A year ago, global stock markets were already climbing sharply

higher from their recession depths, on their way to recordingimpressive rebounds in anticipation of improving corporate revenues.

Investors increasingly became less risk averse, recycling their savings

out of the perceived safety of U.S.-dollar Treasury assets. A year later,

many companies around the world are reporting solid results, though

equities are giving back some of their gains, likely in anticipation of

more challenging times ahead. Investors have once again become

more defensive and risk averse.

Aron Gampel

(416) 866-6259

[email protected]

The Week Past, Present & Prospects

A year ago, inflation pressures were gradually

unwinding in most regions. A year later, inflation

pressures are still unwinding in most regions

around the world, a response to the excess capacity

that the recession built up in labour, product and

real estate markets. A few countries, Spain and

Japan for example, are experiencing deflationary

conditions, though some nations, India for

example, are experiencing high and/or rising

inflation.

A year ago, policymakers had significantly opened

their monetary and fiscal taps. A year later, some

higher-growth nations have already begun the

process of closing the taps. Higher-growth and less

debt-burdened countries among both the advanced

and emerging nations have begun the process of

raising borrowing costs. Interest rates are rising in

India, Brazil, South Korea, Canada, Australia, and

Norway, for example. Fiscal consolidation is already

underway in the U.K. and on the continent, with the

G20 nations, including the United States, committed

to begin the process of restoring budgetary

discipline now that the recovery has taken hold.China has implemented credit tightening initiatives

and is allowing the yuan to creep higher.

A year ago, financial institutions were beginning to

slowly reopen the credit taps as the global downturn

was arrested and began to turn around. A year later,

the rebuilding of balance sheets is well underway,

with the forthcoming capital deepening and

regulatory overhaul expected to reinforce the more

cautious lending environment.

A year ago, confidence was low and slow to turn to

the upside. A year later, confidence is higher, buthas been relatively fast to turn to the downside. In

this unusually uncertain environment, expect

policymakers to gradually normalize their policy

settings, businesses to pursue moderate expansion

plans and fortify their revenue streams, and

households to remain cautious shoppers and bigger

savers.


4/12

4


Retail Sales Take A Dip To Start The Summer

Strong employment gains and a booming housing market led to a

vigorous rebound in retail sales earlier in the year, as consumer

confidence improved dramatically. However, after a period of

significant consumer credit expansion amid stimulative monetary

conditions, Canadians have started to ebb their expenditures

somewhat. The Bank of Canadas gradual withdrawal of

accommodative policy measures, coupled with increased volatility in

financial markets, and cooling housing markets, have served to take

some of the steam out of consumer expenditure growth.

Retail sales slipped for a second straight

month in May down 0.2% m/m

marking the first consecutive sales decline

since 2008. Nonetheless, sales on a year-

to-date basis still remain quite strong, up

6.7% over the same five-month period as

last year.

A decline in gasoline and auto sales once

again weighed on overall purchases. Lower

prices at the pump depressed receipts for

gasoline, down 2.4%, while a 0.5%

pullback in auto sales was mainly

attributable to lower volumes. The

expiration of the home renovation tax credit has been particularly

difficult for building material & garden centres, with a 4.3% m/m

decline marking yet another disappointing month for the segment.

Overall, six of the eleven retail segments experienced declines, with core

sales (ex-autos) dropping 0.1%.

However, sales did increase 0.4% in volume terms, as lower gasoline

prices and discounts at clothing and footwear retailers likely generated

increased consumer activity. Retailers continue to be proactive in their

efforts to lure cautious shoppers, all while keeping a close eye on

inventories. Employee pricing initiatives by a number of auto

manufacturers are likely to lead to increased sales postings over the

summer months.

Alex Koustas

(416) 866-4212

[email protected]

Overall, the upward trend in retail sales growth is

expected to continue, though at a more modest pace,

alongside healthy gains in employment and the slow

recovery of the U.S. economy. Strength in

consumer confidence numbers up roughly 15%

y/y suggests a healthy outlook for retailers.

Canada

Review

BoC Policy Announcement The Bank of Canada

(BoC) increased its overnight rate 25 basis points this

week to 0.75%, following a June 1st hike of the same

amount. Canada is the first G7 nation to embark on a

policy tightening cycle, reflecting the relatively stronger

pace of domestic demand. Nonetheless, the BoC

revised lower its forecast for Canadian GDP growth for

this year and next, to 3.5% and 2.9% respectively,

given a weaker profile for global growth and more

modest consumer spending here at home.

Notwithstanding price distortions caused by recent or

upcoming changes in provincial indirect taxes, the BoC

expects total and core inflation to remain near its 2.0%

inflation target through the forecast period, consistent

with gradual rate hikes. However, given a high degree

of uncertainty with respect to the outlook for inflation

and growth, BoC Governor Mark Carney said in a press

conference following the rate hike that there is no

preordained path for interest rates in this country. We

continue to forecast a further 25 basis point hike in

September.

CPI Consumer inflation pressures eased in June,with the headline index up 1.0% y/y (from 1.4% in

May), and the BoCs core measure of CPI slowing to

1.7% y/y (from 1.8%). On a monthly (seasonally-

adjusted) basis, total CPI fell 0.2% m/m, primarily due

to a sharp drop in energy prices, though core prices

edged up only by a modest 0.1% m/m.

Preview

IPPI & RMPI (07/29)

Real GDP (07/30)

Neil Tisdall (416) [email protected]

-8

-6

-4

-2

0

2

4

6

8

10

Jan-09 Jul-09 Jan-10

50

60

70

80

90

100

SALES & CONFIDENCE

REMAIN STRONG

RETAIL

SALES

(LHS)

CONSUMER

CONFIDENCE

(RHS)

y/y % changeindex:

2002=100


5/12

5


Housing Market Continues To Struggle

Headline housing starts disappointed already-weak expectations.

However, the fact that permits were up and all of the decline in

Junes starts was focused on lower value-added multiple-family units

makes the drop in headline starts somewhat less disconcerting.

Single-family homes retreated only 0.7%m/m from a rate of 457,000 in May to

454,000 in June. It was multiple-family

units that accounted for the headline drop

in total starts, falling 21.5% m/m.

Building permits rose 2.1% m/m, posting

their first increase since March. However,

it was condos that led the gain up 19.6%

m/m offsetting the 3.4% fall in single-

family issuance, its third straight monthly

decline.

The most recent homebuilders sentiment

survey was a disappointment, with the overall index now only slightly

stronger than the record low set in January 2009. Whats more, the

number of prospective homebuyers touring model homes fell again,

signaling the likelihood of further declines in builder confidence, as

falling foot traffic precedes a likely further decline in sales.

Housing will be a clear drag on second-quarter GDP growth. It is

worth noting that it is not existing or pending home sales that need to

be used in judging the impact of the housing market activity on the

U.S. economy, since it is primarily new home construction that

represents how housing flows into GDP.

Resales are mostly just paper swaps between parties, with little value

added in the transaction from a GDP accounting standpoint. Value

added to the economy comes from incremental increases in the

housing stock. Housing starts are now back to the lowest level since

last October, but not as low as Octobers 529,000 print. On a quarterly

basis, starts fell 2.4% q/q in the second quarter, or 10% at an

annualized rate. Further, it is single-family home construction that is

Gorica Djeric

(416) 866-4214

[email protected]

taking it hard, as relatively cheap and lower value-

added multiples stand up stronger, and that worsens

the hit to GDP.

That said, housing is half the share of GDP today

than it was five years ago. While it carries influence

as a confidence factor applied to consumer

spending, it has fallen sharply in its importance to

overall GDP growth compared to, say, business

investment, which now accounts for about triple

housings weight. Global retooling by businessesnow matters more to GDP growth.

In the years ahead, we expect generally flat house

prices to result from the gradual release of shadow

inventories. Basel III will amplify this risk, as a

greater emphasis gets placed on capital

preservation.

United States

Review

Existing Home Sales Existing home sales fell 5.1%

m/m in June, the second drop in as many months,

reversing solid gains in March and April. The decline

was slightly less than market expectations. With a still-

high unemployment rate, and homebuying tax

incentives long passed, weak resale figures in the

housing market will likely extend through the summer,

and into the fall.

Leading Indicators The U.S. composite leading

indicator fell 0.2% m/m in June, dragged down by

building permits and stock prices. This follows a 0.5%

gain in May, and a 0.1% decline in April. Aprils declinewas the first since March 2009, when the economy was

first coming out of recession.

Preview

New Home Sales (07/26)

S&P Case-Shiller Home Price Index, Consumer

Confidence, Richmond Fed Index (07/27)

Durable Goods Orders, Beige Book (07/28)

Employment Cost Index, GDP, Chicago PMI,

Consumer Sentiment (07/30)

Neil Tisdall (416) [email protected]

-200

-150

-100

-50

0

50

100

150

200

00 02 04 06 08 10

HOUSING STARTS - PERMITS

(000, SAAR)

SINGLES ONLY

ALL


6/12

6


Several Indicators Point To Domestic Demand Gains

Slowly but surely Mexicos local demand is starting to climb out of

the slump that resulted from last years recession. Notwithstanding the

stellar recovery in foreign demand observed since the second half of

2009 which has led to a rebound in manufacturing sector activity

back to pre-crisis levels activity in domestically oriented sectors

has been lagging the countrys economic comeback.

In fact, while latest industrial output figures (seasonally adjusted)

already show the manufacturing sector having returned within a

whisker of the level observed at the top of the previous cycle in mid-

2008, the domestically oriented construction sector still lies close to

10% below that peak.

This picture, however, has been changing painstakingly with output in

construction slowly creeping up by 2% so far in 2010. The incipient

recovery in the building sector has manifested in investment figures as

well, with edification expanding by over 2% so far this year, as the

recovery in the seasonally adjusted index has already retraced morethan half the loss that resulted from the collapse in capital formation

during 2009. Yearly comparisons of construction sector performance

can only track these developments with a lag as the change in the

trend is only captured until the second quarter.

Retail sales indicators published earlier in the week follow a similar

script as the higher frequency data, as seasonally adjusted sales

figures registered a 0.7% pickup during May, having expanded in four

out of the five months reported so far this year. This is in a way

noteworthy as consumer confidence gauges have lagged the recovery

with perceived future employment and income prospects improving

slowly. This coincides with recently noted monthly increases in bankcredit flows to consumers which had been contracting for over a year.

Inflation indicators for June are also indicative of improving domestic

demand. Within a context of subdued overall price pressures, an

upward trend in core-services inflation can be detected starting in May

and continuing through the June figures (this trend was further

supported in this weeks CPI report for the first two weeks of July).

Oscar Snchez

(416) 862-3174

[email protected]

Mexico

This in our view points as well to domestic demand

pressures starting to come into play. In summary,

the Mexican economy is gearing back towards a

sustainable recovery path with spare capacity still

conditioning the inflationary outlook.

Mexico Developing Americas

Puerto Ricos Dramatic Economic Turn

The Puerto Rican economy has experienced a

dramatic turnaround after three years of uninterrupted

economic decline. Consumer spending and

manufacturing activity are leading the way,

underpinned by improving labour market conditions

and an uptick in international trade.

The nascent recovery is being supported by an

ambitious and aggressive fiscal plan implemented by

the government of the Commonwealth backed by the

fiscal stabilization package instituted last year in the

United States. Although the near-term outlook forPuerto Rico will still be shaped by sizeable

disbursements from the governments fiscal

stabilization plan that are programmed to amount to

US$1.5 billion in the next six months, recent evidence

already supports a successful implementation of the

fiscal impulse.

Having bottomed back in February, value added within

the island, as approximated by the economic activity

index, increased by 0.8% q/q (not annualized and

seasonally adjusted) so far in the second quarter with

data up to May. Although seasonally adjusted figures

are not readily available, an advance in retail sales of

over 13% on a yearly basis during the first quarter was

significant. The improvement in spending indicatorshas come on the back of persistent employment gains,

as over 18,000 jobs have been created since January.

Notwithstanding the surprising economic comeback,

the most impressive performance has come out of the

public sector balance, as government revenues for

FY2010 were over 2% larger than the previous year,

having surpassed budgeted estimates for the second

fiscal year in a row, after at least four years of

overestimations (fiscal years run July/June).

The recent developments continue to support our

February 2010 estimation of a 2.5% economic

expansion during FY2011, which would represent the

first yearly expansion in five years.

Mexico Developing Americas


7/12


8/12

8


Further Monetary Tightening Expected In India

The Reserve Bank of India (RBI) is expected to raise the benchmark

repo rate once again after its July 27th monetary policy decision.

While economic growth prospects in India remain encouraging

the RBI anticipates an 8% rise in GDP in the current fiscal year

(ending March 31

st

, 2011) with an upside bias central bankgovernor Duvvuri Subbarao has already described inflationary

conditions as worrisome. The closely watched wholesale price

index is rising at an annual rate of 10.5% (some measures of

consumer price inflation show even larger gains) with the central

bank currently targeting a rate of 5.5% a year hence. The central

bank has already increased the benchmark repo rate three times so

far this year.

Within the context of the solid economic recovery, the administration

of Prime Minister Manmohan Singh decreed late in June a cut in fuel

subsidies. Fuel price controls represented roughly 1% of GDP out of

the government budget for fiscal year ended in March 2010, with the

reduction in subsidies expected to contribute to the governments

efforts to tackle an elevated fiscal imbalance. The authorities are

facing an urgent need to cut the general government deficit that blew

out to 11% of GDP in FY2009 (April/March) from 4.8% in the

preceding 12 months. The authorities are aiming to take the shortfall

down to 5.5% of GDP in FY2010.

The Indian government thus permitted state refiners to raise prices of

gasoline by about 3.5 rupees a litre and those of diesel by 2 rupees.

The fiscal policy moves were made with a high degree of caution as

authorities initially stated that gasoline prices would be freed fully.

After the decision, however, its apparent that diesel prices will remain

subject to official curbs for now, to be liberated at a later stage.

Highly subsidized prices of kerosene and cooking gas were also

raised, but only modestly, remaining as well under official control for

the time being.

The policy decision provoked a nationwide strike called by the

opposition parties. However, the strikes were effective only in the

provinces dominated by the opposition, while business went on within

Oscar Snchez

(416) 862-3174

[email protected]

normal conditions in regions controlled by the ruling

Congress Party. There is therefore a low probability

at this stage of a rollback in the fuel price increases,as government perceptions of the need for fiscal

prudence clearly dominate perceptions of benefits

that more populist measures could entail. As some

inflationary effects of the higher fuel costs are

likely to continue to be felt in coming months, the

RBI will have no option but to remain in monetary

policy tightening mode.

Asia / Oceania Malaysia Follows In Indias Fiscal FootstepsThe Malaysian government announced an adjustment

in fuel and sugar subsidies effective July 16 th, 2010.

Although relatively elevated fuel prices can be sourced

as a rationale for the measure, the policy decision will

likely further improve general perceptions of sound

government finances.

Malaysia was one of the first countries within Asia to

announce spending cuts for 2010. This indicated early

on the governments determination to address the poor

fiscal position as economic stimulus measures

implemented in 2009 widened the public deficit to 7% of

GDP, from 4.8% in 2008. The recently enacted lapse in

fuel and sugar subsidies leaves this years 5.6% of GDP

target for the public deficit highly achievable.

Economic activity in Malaysia is in line to continue toadvance in the second quarter after the record 10.1%

yearly gain in the first. Manufacturing output expanded

by 3.3% m/m in May, recovering from the previous

month slowdown. The recovery in industrial output has

been supported by strong export performance, with the

value of foreign shipments picking up at a 22% y/y rate

during May. Although the countrys solid performance

has not permeated into significant price pressures, the

monetary policy committee of Bank Negara Malaysia

decided last week to raise interest rates for the third

time this year. The overnight policy rate was increased

by 25 basis points to 2.75%. Although the abolition of

fuel and sugar subsidies are likely to have an

inflationary impact, the effect is likely to be minimal asCPI inflation has remained below its 10-year average,

reaching 1.6% y/y in May.

Malaysia is on track to grow by at least 4% this year,

following a relatively moderate 1.7% contraction in

2009. With interest rates trending higher and economic

conditions on the mend, we expect the ringgits

appreciating bias to persist through the balance of the

year, taking the exchange rate (currently 3.2 per US

dollar) to 3.1 by end-2010.


9/12

9


Reduced Investor Risk Appetite Pushes Down

Commodity Prices

After tumbling in May, Scotiabanks Commodity Price Index lost

further ground in June, declining 1.9% m/m, but remained 21.4%

above the April 2009 cyclical low. Prices retreated alongside the

spectre of slowing growth in China of critical importance to rawmaterial demand ongoing concern over the sovereign debt crisis in

Europe and little financial market confidence in the sustainability of

the U.S. industrial recovery (+8.2% y/y in June), once restocking and

fiscal stimulus fades.

After surging in early April likely the

high-water mark for 2010 the Metal &

Mineral Index declined in June for the

second consecutive month, falling 3.6%

m/m. Base metal prices moved lower

alongside concern over the outlook for

China which accounts for almost 40% of

world consumption of the four key base

metals due to bank credit curbs,

government measures to prevent a

property-market bubble in Tier 1 cities and

decelerating output gains in some industries

(currently operating near full capacity). The

release of economic statistics for China on July 15 confirmed a

slowing economy, with GDP up 10.3% y/y in Q2 after explosive

growth of 11.9% in Q1. Chinas economy will likely wane further in

Q3, though growth should still advance by 10% in 2010, slowing to

9% in 2011. In our view, China will reflate its economy quickly

should growth slow more than desired.

While edging down following release of Chinas Q2 data, industrial

metal prices remain quite lucrative, reassured by Chinas still-solid

growth. LME copper prices at US$3.14 per pound on July 22 yield

57% profit margins over average world mine break-even costs.

Spot gold prices reached an all-time record high of US$1,265.30 per

ounce in intraday trading on June 25 and are currently US$1,194

Patricia Mohr

(416) 866-4210

[email protected]

Industry & Commodity

supported by high government deficits relative to

GDP in many euro zone countries as well as in the

United States and Japan, calling into question the

integrity of paper currencies. However, gold prices

moderated in early July, as Chinas State

Administration of Foreign Exchange stated that

there will be a limit on gold holdings within its

foreign exchange reserves due to the relatively small

size of the gold market and the potential for China to

push up prices should it buy on the open market.

The Forest Products Index pulled back sharply in

June (-7.1% m/m). While NBSK pulp prices reacheda new record high of US$1,020 per tonne and U.S.

newsprint, uncoated freesheet and supercalendered-A

paper also strengthened, lumber and OSB prices

plunged from recent very profitable levels. Prices

faltered with an end to inventory restocking by U.S.

dealers and in reaction to weaker U.S. new home

sales and housing starts, following expiry of the first-

time homebuyers tax credit in April.

On a more positive note, the Oil & Gas Index firmed

up in June (+3.4%). Light and heavy crude oil prices

in Alberta rallied back, after a sharp correction inMay, and natural gas export prices were bolstered by

a heat wave in the United States. The exodus of

drilling rigs has begun in the U.S. Gulf of Mexico, in

response to the current moratorium on new

exploration and development activity, pointing to

tighter U.S. domestic supplies in 2011. The

Agricultural Index also rebounded in June (+3.3%).

Grain Prices Poised For Recovery

After sliding in recent years, world grain prices appear

poised for improvement. Global ending stocks of

coarse grains are projected to drop to 16% of

consumption in 2010-11, down from 17% in 2009-10

and 18% in 2008-09 the result of lower U.S. corn

stocks and severe drought in Russias Volga & Urals

regions and in Kazakhstan, cutting barley output.

Canadian barley plantings last spring were also low.

Estimates of world wheat production are being pared

due to excessive rain in Canada (-23% in 2010-11) and

severe dryness across Russias entire spring wheat

belt in the FSU-12 during the planting season. CBOT

traders are increasing their long positions in corn and

soybeans and cutting short positions in wheat.

0

50

100

150

200

250

300

00 02 04 06 08 10

SCOTIABANK COMMODITY

PRICE INDEX

(INDEX: JAN 2000=100)


10/12

1


Market Metrics

0.75

0.80

0.85

0.90

0.95

1.00

1.05

1.10

7/25/08 7/24/09 7/23/10

CANADIAN DOLLAR

(CADUSD)

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7/25/08 7/24/09 7/23/10

CANADIAN INTEREST

RATES

(%)

10-YEAR

GOC

3-MONTH

BA

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7/25/08 7/24/09 7/23/10

U.S. INTEREST RATES

(%)

10-YEAR

T-BOND

3-MONTH

LIBOR

7000

8000

9000

10000

11000

12000

13000

14000

15000

7/25/08 7/24/09 7/23/10

S&P/TSX

(INDEX)

0 20 40 60 80 100

BC

AB

SK

MB

ON

QC

NBNS

NL

HYDRO ELECTRIC POWER

GENERATION

(2009, % SHARE OF TOTAL

GENERATION)

Source: Statistics Canada

1.15

1.20

1.25

1.30

1.35

1.40

1.45

1.50

1.55

1.60

1.65

7/25/08 7/24/09 7/23/10

EURO

(EURUSD)

Neil Tisdall

(416) 866-6252

[email protected]

Mary Webb

(416) 866-4202

[email protected]

Markets The TSX improved on last weeks close

thanks to price gains in the commodities sector, and

although the index gave back some of its gains on

Wednesday, it rebounded and stabilized on Thursday

and Friday. The S&P 500 followed a similar pattern,

thanks not to gains in commodities, but to gains in the

telecom sector.

Perhaps expected to, but not having a large effect on

the markets, were the results of European bank stress

tests which were largely successful. All the banks

tested in France, the Netherlands, the United Kingdom

and Portugal passed the tests, while one German, one

Greek, and five Spanish banks didnt meet the

standards. In all, 91 banks were tested, and despite

having only seven fail, the test did little to calm fears

that the European banking system is potentially

unstable. (For further details on the EU stress tests,please see page 7.)

Perhaps due to risk and investor uncertainty, both WTI

oil and gold experienced price increases over the week,

with gold moving up US$9.50/oz to $1190.50 on Friday,

and oil increasing US$2.05/bbl to $78.59.

Fiscal Policy New Brunswick, after the sale of

power generation assets from NB Power to Hydro-

Qubec did not proceed last spring, plans to re-integrateNB Powers generation, nuclear, transmission and

distribution subsidiaries, after dividing the utility in 2004.

The re-integrated utility is expected to provide potential

annual savings of $8 million plus greater transparency

and accountability on issues such as rates regulation.

NB Powers new mandate includes developing, with a

sustainable rate structure, a long-term electricity supply

plan and a debt management strategy, alongside annual

investments in electricity efficiency.

N.B. and Nova Scotia are two of several provinces

challenged to competitively service new power demand

without extensive hydro-electricity capacity. Following the

Atlantic Premiers recent commitment to greater energy

co-operation, NB Power and Nova Scotia Power Inc. areexploring a second transmission connection of up to 500

MW, adding to the existing 300 MW connection, to raise

system reliability and support renewable energy. N.S. is

targeting 25% renewable energy generation by 2015 and

40% by 2020, co-operating on one option, tidal power,

with N.B. and Maine.

Note: Latest observation taken at time of writing.


11/12

1


Economic Tables

Canada 2009 09Q4 10Q1 Latest United States 2009 09Q4 10Q1 LatestReal GDP (annual rates) -2.5 4.9 6.1 Real GDP (annual rates) -2.4 5.6 2.7Current Acc. Bal. (C$B, ar) -43.5 -40.8 -31.3 Current Acc. Bal. (US$B, ar) -378 -404 -436Merch. Trade Bal. (C$B, ar) -4.6 1.7 4.8 -6.0 (May) Merch. Trade Bal. (US$B, ar) -507 -560 -605 -653 (May)Industrial Production -10.0 -7.7 -0.4 3.6 (Apr) Industrial Production -9.3 -3.7 2.7 8.4 (Jun)Housing Starts (000s) 149 180 198 193 (Jun) Housing Starts (millions) 0.55 0.56 0.62 0.55 (Jun)Employment -1.6 -1.4 0.5 2.2 (Jun) Employment -4.3 -4.0 -2.4 -0.1 (Jun)Unemployment Rate (%) 8.3 8.4 8.2 7.9 (Jun) Unemployment Rate (%) 9.3 10.0 9.7 9.5 (Jun)

Retail Sales -2.9 2.3 7.3 -0.6 (May) Retail Sales -7.1 2.1 6.3 5.0 (Jun)Auto Sales (000s) 1459 1509 1557 1468 (May) Auto Sales (millions) 10.3 10.8 11.0 11.1 (Jun)CPI 0.3 0.8 1.6 1.0 (Jun) CPI -0.4 1.4 2.4 1.1 (Jun)IPPI -3.4 -3.4 -0.6 -4.8 (May) PPI -2.6 1.4 4.9 2.8 (Jun)Pre-tax Corp. Profits -32.3 -12.1 16.8 Pre-tax Corp. Profits -2.4 53.9 48.2

Mexico BrazilReal GDP -6.5 -2.3 4.3 Real GDP -0.1 3.9 8.0

Current Acc. Bal. (US$B, ar) -5.5 -1.1 -2.2 Current Acc. Bal. (US$B, ar) -24.3 -49.0 -48.6Merch. Trade Bal. (US$B, ar) -4.6 0.1 1.5 -4.1 (Jun) Merch. Trade Bal. (US$B, ar) 25.4 16.5 3.5 27.3 (Jun)

Industrial Production -7.3 -1.9 5.5 -2.8 (May) Industrial Production -7.3 6.2 17.3 -0.3 (May)CPI 5.3 4.0 4.8 3.7 (Jun) CPI 5.2 3.9 3.9 5.2 (Jun)

Argentina ItalyReal GDP 0.9 2.6 6.8 Real GDP -5.1 -2.8 0.5

Current Acc. Bal. (US$B, ar) 11.5 6.0 -1.5 Current Acc. Bal. (US$B, ar) -0.07 -0.07 -0.10 -0.07 (May)Merch. Trade Bal. (US$B, ar) 16.9 14.3 8.5 22.9 (May) Merch. Trade Bal. (US$B, ar) -6.9 -8.1 -46.9 -29.5 (May)Industrial Production 0.1 5.4 9.0 9.8 (Jun) Industrial Production -18.3 -9.3 3.1 -17.1 (May)CPI -26.9 -9.4 35.7 11.0 (Jun) CPI 0.8 0.8 1.4 1.3 (Jun)

Germany FranceReal GDP -4.9 -2.2 1.5 Real GDP -2.8 -0.5 1.4Current Acc. Bal. (US$B, ar) 168.1 279.5 173.9 33.8 (May) Current Acc. Bal. (US$B, ar) -52.2 -86.6 -22.2 -126.4 (May)Merch. Trade Bal. (US$B, ar) 190.3 273.5 187.1 159.1 (May) Merch. Trade Bal. (US$B, ar) -31.0 -35.3 -33.2 -52.5 (May)

Industrial Production -15.5 -8.0 6.0 -7.7 (May) Industrial Production -13.1 -4.3 5.5 -9.0 (May)Unemployment Rate (%) 8.2 8.2 8.1 7.7 (Jun) Unemployment Rate (%) 9.4 9.8 9.9 9.9 (May)CPI 0.3 0.4 0.8 0.9 (Jun) CPI 0.1 0.4 1.3 1.5 (Jun)

Euro Zone United KingdomReal GDP -4.1 -2.1 0.6 Real GDP -4.9 -2.9 -0.2Current Acc. Bal. (US$B, ar) -77.5 40 -141 -252 (May) Current Acc. Bal. (US$B, ar) -23.7 9.4 -72.1Merch. Trade Bal. (US$B, ar) 54.9 121.5 15.3 9.4 (May) Merch. Trade Bal. (US$B, ar) -127.8 -137.4 -136.6 -141.7 (May)Industrial Production -14.9 -7.3 4.8 -9.7 (May) Industrial Production -10.2 -6.1 0.0 -9.0 (May)Unemployment Rate (%) 9.4 9.8 9.9 9.9 (May) Unemployment Rate (%) 7.6 7.8 8.0 7.8 (Apr)CPI 0.3 0.4 1.1 1.4 (Jun) CPI 2.2 2.1 3.3 3.2 (Jun)

Japan AustraliaReal GDP -5.3 -1.4 4.2 Real GDP 1.3 2.8 2.7Current Acc. Bal. (US$B, ar) 141.7 151.8 222.1 157.3 (May) Current Acc. Bal. (US$B, ar) -40.3 -71.4 -56.5Merch. Trade Bal. (US$B, ar) 28.3 77.1 83.7 54.3 (May) Merch. Trade Bal. (US$B, ar) -3.2 -22.6 -10.1 27.5 (May)Industrial Production -21.8 -5.1 27.1 -10.3 (May) Industrial Production -2.8 0.6 3.4

Unemployment Rate (%) 5.1 5.2 4.9 5.2 (May) Unemployment Rate (%) 5.6 5.6 5.3 5.1 (Jun)CPI -1.4 -2.0 -1.2 -2.4 (May) CPI 1.8 2.1 2.9

China South KoreaReal GDP 9.1 10.7 11.9 Real GDP 0.2 6.0 8.1Current Acc. Bal. (US$B, ar) 297.1 Current Acc. Bal. (US$B, ar) 42.7 42.2 5.3 45.9 (May)Merch. Trade Bal. (US$B, ar) 195.7 244.6 57.0 240.3 (Jun) Merch. Trade Bal. (US$B, ar) 42.3 46.0 13.7 77.1 (Jun)Industrial Production 16.1 16.1 14.8 7.6 (Jun) Industrial Production -1.3 18.0 26.7 12.2 (May)CPI 1.9 1.9 2.4 2.9 (Jun) CPI 2.8 2.4 2.7 2.6 (Jun)

All data expressed as year-over-year % change unless otherwise noted.


12/12

1


Financial Tables

Interest Rates (%, end of period)

Canada 10Q1 10Q2 Jul/16 Jul/23* United States 10Q1 10Q2 Jul/16 Jul/23*

BoC Overnight Rate 0.25 0.50 0.50 0.75 Fed Funds Target Rate 0.25 0.25 0.25 0.25

3-mo. T-bill 0.30 0.61 0.69 0.63 3-mo. T-bill 0.15 0.17 0.15 0.14

10-yr Govt Bond 3.57 3.08 3.16 3.22 10-yr Govt Bond 3.83 2.93 2.92 2.94


Prime 2.25 2.50 2.50 2.75 Prime 3.25 3.25 3.25 3.25

FX Reserves (US$B) 54.2 56.5 55.9 (May) FX Reserves (US$B) 119.7 116.5 113.1 (May)

Germany France

3-mo. Interbank 0.49 0.67 0.78 0.82 3-mo. T-bill 0.31 0.30 0.39 0.41


FX Reserves (US$B) 59.9 60.2 60.9 (May) FX Reserves (US$B) 46.6 48.1 46.1 (May)

Euro-Zone United Kingdom

Refinancing Rate 1.00 1.00 1.00 1.00 Repo Rate 0.50 0.50 0.50 0.50

Overnight Rate 0.40 0.54 0.49 0.52 3-mo. T-bill 4.85 4.85 4.85 4.85

FX Reserves (US$B) 283.1 285.1 283.2 (May) 10-yr Govt Bond 3.94 3.36 3.33 3.43FX Reserves (US$B) 55.7 57.6 60.0 (May)

Japan Australia

Discount Rate 0.30 0.30 0.30 0.30 Cash Rate 4.00 4.50 4.50 4.50

3-mo. Libor 0.18 0.18 0.18 0.18 10-yr Govt Bond 5.78 5.09 5.12 5.20

10-yr Govt Bond 1.40 1.09 1.09 1.08 FX Reserves (US$B) 39.0 34.9 33.2 (May)

FX Reserves (US$B) 1022.2 1015.3 1015.3 (Mar)

Exchange Rates (end of period)

USDCAD 1.02 1.06 1.06 1.04 /US$ 93.47 88.43 86.57 87.34CADUSD 0.98 0.94 0.95 0.96 US/Australian$ 91.72 84.08 86.89 89.33

GBPUSD 1.518 1.495 1.530 1.542 Chinese Yuan/US$ 6.83 6.78 6.77 6.78

EURUSD 1.351 1.224 1.293 1.286 South Korean Won/US$ 1131 1222 1203 1199

JPYEUR 0.79 0.92 0.89 0.89 Mexican Peso/US$ 12.365 12.941 12.935 12.773

USDCHF 1.05 1.08 1.05 1.05 Brazilian Real/US$ 1.781 1.805 1.782 1.762

Equity Markets (index, end of period)

United States (DJIA) 10857 9774 10098 10344 U.K. (FT100) 5680 4917 5159 5313

United States (S&P500) 1169 1031 1065 1094 Germany (Dax) 6154 5966 6040 6167

Canada (S&P/TSX) 12038 11294 11570 11660 France (CAC40) 3974 3443 3500 3610

Mexico (Bolsa) 33266 31157 31783 32674 Japan (Nikkei) 11090 9383 9686 9431

Brazil (Bovespa) 70372 60936 62339 65669 Hong Kong (Hang Seng) 21239 20129 20250 20815

Italy (BCI) 1138 972 1028 1021 South Korea (Composite) 1693 1698 1738 1758

Commodity Prices (end of period)

Pulp (US$/tonne) 910 1020 1020 1020 Copper (US$/lb) 3.55 2.96 3.04 3.17

Newsprint (US$/tonne) 565 618 618 618 Zinc (US$/lb) 1.07 0.78 0.83 0.86

Lumber (US$/mfbm) 280 188 217 218 Gold (US$/oz) 1115.50 1244.00 1189.25 1190.50

WTI Oil (US$/bbl) 83.76 75.63 76.01 78.54 Silver (US$/oz) 17.50 18.74 18.42 18.17

Natural Gas (US$/mmbtu) 3.87 4.62 4.52 4.62 CRB (index) 273.34 258.52 264.21 266.60

* Note: Latest observation taken at time of writing.

Weekly Trends July 23

Documents

Transcript of Weekly Trends July 23