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Weekly commentary on economic and financial market developments April 17, 2014

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Will U.S. Earnings Continue To Defy The Doomsayers? ......................................................................... Derek Holt

Bank Of Canada On A Long Pause — But Rate Ambivalence Might Have To Go .........................Derek Holt & Dov Zigler

Canada’s Housing Market Transitioning To Slower Growth ............................................................. Adrienne Warren

Here Comes The U.S. Consumer! ......................................................................................Derek Holt & Dov Zigler

An Extended Commercial Aerospace Up-Cycle ............................................................................... Carlos Gomes

Saskatchewan — Growth Attracts Population ................................................................................... John Bulmer

A Look At The Euro Area Core — Germany And France ............................................... Sarah Howcroft & Frédéric Prêtet

Latin America Week Ahead: For The Week Of April 21 - 25 .............................................................. Eduardo Suárez

2-11 Economics

Key Data Preview.................................................................................................................................... A1-A2

Key Indicators ......................................................................................................................................... A3-A4

Global Auctions Calendar ....................................................................................................................... A5-A6

Events Calendar .......................................................................................................................................... A7

Global Central Bank Watch .......................................................................................................................... A8

Forecasts ..................................................................................................................................................... A9

Latest Economic Statistics .................................................................................................................. A10-A11

Latest Financial Statistics ........................................................................................................................... A12

A1-A12 Forecasts & Data

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Economics

2 April 17, 2014

Global Views THE WEEK AHEAD

Will U.S. Earnings Continue To Defy The Doomsayers?

Please see our full indicator, central bank, auction and event calendars on pp. A3-A8.

U.S. — Earnings Deluge

Next week’s market tone will be largely set by a massive earnings dump just as the minor 1.5% correction (and shrinking) in the S&P500 since the peak in early April was fed by concern ahead of the earnings season much more so than anything related to the Fed or economic fundamentals. No fewer than 160 firms listed on the S&P500 release earnings and 32 firms will do likewise on the Nasdaq exchange. According to Bloomberg, among the key names will be Netflix, Apple, Facebook, Microsoft, Starbucks, Amazon, McDonald’s, BoNY-M, Xerox, AT&T, Procter & Gamble, Boeing, Dow, Delta, Time Warner, UPS, 3M, Visa, Colgate-Palmolive, Ford, and State Street. The earnings beat ratio is positive so far, with about two-thirds of firms beating analysts’ earnings estimates and that has defied the doomsayers yet again.

Data might also play a role. It hasn’t all been about the weather, as some sectors of the US economy also responded adversely to higher borrowing costs since last spring. Next week, we’ll get an important round of updates on two of those sectors — housing and business investment.

Will twin measures of the housing market’s health continue to diverge (see chart)? Tuesday’s existing home sales and the next day’s new home sales figures for the month of March have been on divergent paths since last summer. One reason is that resales have been partly dragged lower by virtue of the fact that the vast improvement in house prices and the concomitant decline in the number of households in negative equity positions have led to declines in foreclosure and short sales. This has obviously affected resales and not new home sales. Why else these twin gauges of home sales have been on divergent paths is not clear, but a drop in the leading indicator of pending home sales points to another weak print for resales while new home sales are expected to rise.

The other classic interest-sensitive reading will be durable goods orders, and they are expected to register a second consecutive monthly gain. That’s likely to be driven by the transportation sector. Boeing, for instance, reported 163 plane orders in March which was up from 74 in February. Consensus also expects a third monthly gain in core durable goods orders excluding transportation.

The US Treasury will auction 2s, 5s, and 7s next week.

Canada — Is The Economy Going Vertical?

Hardly, is the short answer to the question posed above. After the recent manufacturing report, however, one cannot be blamed for thinking as much. We’re skeptical about the magnitude of the gain in new orders and unfilled orders — both of which went absolutely vertical of late (see chart) — partly because it is narrowly based in the transportation sector (second chart). Weather is an inadequate explanation as the order book didn’t take anything close to a big enough hit over the period of the storms in order to justify the large recent gain. Currency translation effects are another unsatisfying explanation as CAD did not depreciate by anywhere close to enough to justify the size of the recent order book gains.

Regardless, the rest of the economy is performing at a much less impressive pace and we’ll probably be reminded of that next week with retail and wholesale figures that will round out our February GDP call. January’s gain in the volume of retail sales eclipsed all but only about 10% of the past decade’s monthly increases. That may be unlikely to repeat as it was a one-time bounceback from the harsh hit the prior month during which Alberta was hit by the worst snowstorm in a century and Ontario-eastward was hit by a severe ice storm on the prime shopping weekend

Derek Holt (416) 863-7707 [email protected]

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Will U.S. Home Sales Continue To Diverge?

Source: US Census Bureau, NAR, Bloomberg, Scotiabank Economics.

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Economics

3 April 17, 2014


… continued from previous page

right before Christmas. If we give back a little in February’s retail sales, then it will add additional downward pressure to the annualized and seasonally adjusted pace of growth in the volume of retail sales in 2014Q1 which stands at a paltry 0.4% and as a weight against Q1 GDP growth. A similar line of reasoning might apply to wholesale sales.

Canada’s earnings season begins in earnest next week with 19 firms slated to release earnings and led by firms like Rogers, CP and CN, and Potash Corp.

Also note that former Fed Chairman Ben Bernanke slips across the border to speak at the Economic Club of Canada in Toronto on “Eight Years of Crisis Management At The Federal Reserve And The Way Forward.”

Canada also auctions 10 year notes on Wednesday.

Europe — Sentimental Ways

Europe’s main focus will be of a sentimental sort, as surveys represent the main market risk. In particular, the April readings for purchasing managers indices covering the manufacturing sector and German business confidence are at risk of continued decline as European businesses become more reserved in the face of risks such as instability in Ukraine and tensions with Russia. As the accompanying chart shows, sentiment surveys have reversed the gains that were registered over 2013H2. We already know that ZEW investor confidence fell again in April, and consensus expects flat to lower readings for the PMI (Wednesday) and IFO business confidence (Thursday) gauges.

Pound sterling and gilts could be exposed to the risk of a negative print for retail sales. The March report is expected to post a small amount of payback for the large gain in February. Recall that the January month-over-month gain exceeded consensus expectations by about a factor of three and was significantly driven by housing-related strengths. A drop would continue the oscillating pattern of large gains followed by large drops since December. Minutes to the Bank of England’s meeting on April 10th are an added market vulnerability and in the context of an ongoing decline in inflation. The next meeting on May 8th could be more insightful since the quarterly Inflation Report arrives the following week and thus the Monetary Policy Council will have a forward eye on forecast risks.

Asia-Pacific — China PMI, Abenomics, and NZ$/A$ risks

The Reserve Bank of New Zealand is expected to continue a hiking campaign it started last month when it became the first to hike among central banks in relatively advanced economies. Consensus is unanimous in its call for a 25bps hike in the cash target rate to 3%. What is tempering expectations for the magnitude of further rate hikes, however, is the recently modest pace of inflation that,at 1.5% y/y in 2014Q1, lies well within the 1-3% policy band that itself might be under downward pressure by virtue of the sharp and broad based appreciation in the NZ$ since about last August (see chart).


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Ukraine’s Dampening Effect On Confidence

Source: Bloomberg, IFO Institute, ZEW, Markit, Scotiabank Economics.

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Economics

4 April 17, 2014



If the fresher inflation reading for the city of Tokyo is any guide, then Japan’s national CPI inflation print could climb further next week. The City of Tokyo has already reported a 1.3% y/y pace of headline inflation in March that was up from 1.1% in February, and that might mean modest upward pressure on national CPI following the 1.5% rise in February. Tokyo CPI has been tracking below national CPI throughout about half of the Abenomics era that started with policy rumours dating back to September 2012. That said, breadth remains an issue as much of the pick-up in inflation remains driven by energy and food prices. BoJ-engineered yen depreciation drove import costs higher and, given Japan’s reliance upon imported energy, energy prices also climbed. Keeping nuclear reactors off-line in the wake of the Tōhuko disaster also imposed an electricity price shock on Japanese consumers and businesses. There is rising evidence that such pressures are spilling over into other price categories. On the face of it, that might be encouraging to supporters of Abenomics. We remain of the view that cool wage growth is being eroded by rising prices skewed toward energy and food and in a manner that is depressing inflation-adjusted wages and thus crowding out purchasing power following a weak round of annual wage increases. Absent easier access to credit which does not appear to be forthcoming, Japanese consumers are likely to spend more upon what they have to and less upon non-staples which should be broadly disinflationary on the second-round effects. Another Abenomics update will be released in the form of export figures for March into the Monday market open. We expect a continuation of the pattern of higher prices via yen depreciation driving growth in the value of exports, while the volume of exports has continued to move sideways ever since 2010. On average, Japanese firms are not selling a higher volume of goods in the Abenomics era — they are just receiving more depreciated yen and hoarding the proceeds.

The private sector version of China’s purchasing managers’ index is not expected to halt the slide that has been in place since last October, but a cooler recent pace of contraction in exports might temper the magnitude of the PMI decline. When it lands into Wednesday’s markets, this may feed a risk-off concern — all else equal. At risk here is whether a new post-crisis-recovery low will be set and, at a 48 reading in March, there isn’t far to go compared to a 47.6 print in August 2012 (recall that a reading below 50 signals a contracting manufacturing sector).

The Reserve Bank of Australia might not like what it sees in next week’s inflation print that is expected to jump a half percentage point to 3.2% y/y in 2014Q1. Swaps traders have moved toward pricing in most of a quarter point rate hike by the RBA within a year’s time. Weighed against this, however, are concerns about slowing growth in China.

Other releases will include a rate decision by the Bank of Thailand after the central bank cut its policy rate in March given downside risks to the economy stemming from political instability. Also, South Korean GDP growth is expected to cool the pace of the ascent since early last year, and Philippines trade rounds out the hits.

LatAm markets will be focused upon rate decisions by the central banks of Mexico and Colombia and no change is expected by either of them. Travel to clients in both countries including a recent visit to Colombia has me more impressed about the economic vibrancy of the two countries. As usual, please refer to Eduardo Suarez’s week ahead column for LatAm markets in our weekly Global Views report.


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Japan’s Import Price Shock Is Distorting CPI

Source: MIAC, Scotiabank Economics.

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Source: Bloomberg, Scotiabank Economics.

% change since Sept. 2, 2013

Strong NZ$ Should Temper RBNZ’s Hiking Bias

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Economics

5 April 17, 2014

Global Views CANADIAN MONETARY POLICY

The BoC is probably on a long pause, but market risks will arise when it is pressured to drop references to inflation downsides and rate cuts, perhaps in July or October.

Do you call a central bank neutral if it says it doesn’t know whether rates are going higher or lower by some marginal amount next, or do you call it dovish because it is strongly signalling no pressure to begin hiking interest rates for a very extended period of time? We continue to lean toward the latter interpretation and the BoC’s latest statement and Monetary Policy Report (MPR) reinforce that dovish view.

Nevertheless, the BoC may have to drop its reference to inflation downside risks and rate cut possibilities by the July or perhaps October Monetary Policy Report. The challenge at that point for the BoC will be to increasingly emphasize longer-run dovish rate guidance in order to avert a rise in CAD and higher short-term interest rates that would be counter-productive to BoC policy goals.

Dropping Ambivalence Over A Cut Or A Hike….

As headline and core inflation measures gradually come off their lows (chart 1) we think that the BoC’s emphasis upon how “….downside risks to inflation remain important” will come to be tagged by markets as persisting for too long, and the BoC will face the awkward challenge of having to back off its guidance that the direction of the next rate move remains uncertain amid cut possibilities as inflation downsides fade. We still think that rate hikes are a long way off, but the risk lies in markets getting spooked when the BoC ultimately shifts away from language focused on downside risks to inflation.

….Will Need To Be Countered By Stronger Long-Run Guidance

That will require putting greater emphasis upon longer-run policy guidance behind a prolonged rate pause in order to avert counter-productive market reactions. The framework for this already exists in part as the BoC expects it to take two years from here (i.e., 2016Q1/Q2) before spare capacity is fully closed off (chart 2)and that beyond this point the economy is not expected to trip into excess demand conditions that would challenge the BoC’s 2% inflation target. The BoC delayed closure of the output gap in the April MPR’s forecasts, and the longer-run views are consistent with the explanation provided in Governor Poloz’s speech on March 18th in that tightening is not what will keep actual growth in line with potential. That’s because the BoC is saying they expect structural headwinds against growth to line-up actual and potential growth rates over the longer haul post-2015. On this view, a return to 2% inflation is as good as it gets and that’s consistent with our bias that the BoC could be faced with an unprecedented policy lag in raising rates well behind the Fed and/or at a much slower pace in favour of the Canadian front-end relative to the US and at the expense of CAD valuations. On a related note, we continue to see the Fed as a limiting factor on the BoC’s policy flexibility through the currency implications.

Bank Of Canada On A Long Pause — But Rate Ambivalence Might Have To Go

Dov Zigler (416) 862-3080 [email protected]


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Source: Statistics Canada, Bloomberg, Scotiabank Economics.

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Economics

6 April 17, 2014

Global Views CANADIAN MONETARY POLICY


The BoC might also have to further emphasize why it thinks that "temporary" upsides to CPI may be coming through CAD depreciation and higher energy. Basically, the BoC views slightly stronger near-term inflation as a temporary base effect adjustment that then zeros the clock thereafter. That's what we argued they would do. The alternative was to have expressed more concern about longer-lived CAD pass-through effects into inflation through import prices and they didn't do that here. While it’s possible that the currency repeats large bouts of depreciation each year over the BoC’s forecast horizon (they don’t forecast CAD, and only take the recent spot at least publicly), the BoC is expressing a tendency to require evidence that sustained percentage declines in CAD will occur. That would then make CPI adjustments more than just a one-off level adjustment through the import price mechanism that should be passively looked through.

Overall, our message is that we still expect the BoC to stay focused on implementing an accommodative monetary policy, not least of which because it has emphasized the importance of stimulating exports in order to rotate the sources of growth away from a mature household sector on the path toward closing the output gap. Moreover, we continue to expect inflation to remain below the BoC’s target as we argued in our article on pp.5-7 of the April 4th issue of Global Views here. The challenge for the BoC will be walking the communication tightrope as inflation rises closer to target — and markets may not necessarily cooperate with the BoC’s desired policy path.

For our fuller review of the BoC’s recent rate statement, Monetary Policy Report and press conference please go here, and for our views on how the BoC likely faces an unprecedented lag behind Federal Reserve policy rate changes either in timing and/or magnitude go here.



http://www.gbm.scotiabank.com/English/bns_econ/globalviews140404.pdf

http://www.gbm.scotiabank.com/English/bns_econ/scotiaflash20140416B.pdf

http://www.gbm.scotiabank.com/English/bns_econ/cmsr140327.pdf

Economics

7 April 17, 2014

Global Views

HOUSING

Canadian housing activity is likely to be more of a headwind than a tailwind for the economy in 2014-15.

Canada’s long housing cycle is turning. Residential investment stalled last year, as affordability constraints tempered home sales, and builders scaled back the number of new developments. We expect the sector will remain on a more subdued trajectory over the next several years, imposing a modest drag on output growth.

Housing has been a major driver of growth over the past decade. Residential investment expanded at an average 4.2% annual rate from 2000-12, almost double overall GDP growth of 2.2%. The sector directly contributed almost 0.3 percentage points annually to real GDP growth over this period. Residential investment accounts for close to a 7% share of overall output — last seen at the end of the late-1980s housing boom (chart 1).

Housing also generates significant spillovers to a range of other goods and service industries. Homebuilders and renovators rely on wholesalers and manufacturers to supply building materials, heating and cooling systems, and household appliances and fixtures. New construction requires engineering services for land and infrastructure development. Existing home sales generate substantial ancillary spending for retailers and manufacturers of household goods, movers, and financial and real estate service providers.

Quantifying the size of these indirect economic benefits is difficult. However, studies based on input-output tables have typically yielded an industry output multiplier of around 1.5, implying a $1 billion investment in housing — through new construction, renovations and/or resale activity — generates a $1.5 billion increase in real output across the economy. Combining direct and indirect impacts, and housing’s contribution to annual GDP growth from 2000-12 is probably closer to 0.4 percentage points (chart 2).

These estimates do not account for third-round impacts stemming from increases in labour income, or wealth effects from rising home prices. Housing assets have generated $1.7 trillion in net new wealth for Canadian households since 2000 (chart 3). Assuming a wealth effect of 5 cents to the dollar, this may have added upwards of $6 billion annually to retail, renovation and other household spending.

Looking to 2014-15, resale activity is forecast to edge slightly lower, as rising mortgage rates, combined with high home prices and stricter mortgage regulations, strain affordability. A softer sales and pricing environment should in turn dampen renovation activity, and further slow the pace of new construction.

The impact of a softening housing market will be felt broadly. Apart from construction, industries most affected by a housing slowdown include manufacturing, retail & wholesale trade, finance, insurance & real estate, and professional services. The likelihood of smaller household wealth gains as house price growth slows — or adjusts lower — will reinforce a more cautious trend in consumer spending.

Adrienne Warren (416) 866-4315 [email protected]

Canada’s Housing Market Transitioning To Slower Growth

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Source: Statistics Canada, Scotiabank Economics

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Economics

8 April 17, 2014

Global Views US MACRO COMMENT

Consumer spending is poised to soar in Q2 and is backed by some of the strongest measures of consumer finances on record.

We argue that, by some important metrics, US household finances may be the healthiest they’ve been not just since before the crisis — but ever. This isn’t unambiguously true across all measures (note underemployment and further room to recover prior losses in house prices), but it is for several key metrics. The fruits of such financial health are likely to become much more evident during the current quarter.

Indeed, many of the ingredients are present for a solid consumer outlook. The debt service burden – payments as a share of after-tax incomes — stands at a record low (chart 1). There are several reasons why — some temporary (debt write-offs in bankruptcies, abnormally low interest rates), and some longer-lived (households abstained from borrowing and shifted toward locking in longer-term mortgage rates).

Further, household net worth lies at a record high (chart 2) and the gains are flowing to many people including the wealthy through stocks and to main street thanks to the strongest string of uninterrupted house prices gains since before the crisis. Yes, more rapid jobs growth would be nice, but the pace is ok while the bigger influence will be the release of pent-up demand from the vast majority of Americans who count themselves in the workforce and who do have jobs and behaved well by restructuring their finances over the post-crisis period.

Also note the vast improvement in the share of homeowners in a negative equity position (chart 3). Improving house prices have caused far fewer American homeowners to engage in short-sales and foreclosure sales. As adaptive household expectations adjust to rising house prices, buyers will become more comfortable factoring in capital gains expectations as an added impetus to buying a home. As higher interest rates loom over the forecast horizon, we also think that banks will be more incentivized to lend on wider interest margins and households may expedite demand in order to get low rates while the getting is good.

All that said, the first quarter was miserable for consumer spending largely due to temporary weather-related reasons, but the second quarter should be much better. According to the St. Louis Fed’s inflation-adjusted retail sales figures, the volume of retail sales fell 1.6% q/q at an annualized rate in Q1 despite the solid rise in March and because of the severity of the blow incurred at the hands of foul weather. Given that momentum shifted higher at the end of the quarter as a hand-off into Q2, even if there is zero monthly growth in each of the three months of Q2, there would still be a quarterly gain in inflation-adjusted retail sales of 3.4%. Thus, a soft Q1 GDP print will give way to a big upside into Q2. If the months in Q2 were to average spending gains in keeping with the post-crisis monthly average, then the volume of retail sales could climb by as much as 6% in Q2 over Q2 at annualized rates for a massive turnaround in consumer fortunes. Watch for consensus to be revising Q2 GDP growth forecasts materially higher (four-handled?) and for the market to increasingly think the Fed is falling behind. For how long and by how much such upsides persist beyond Q2 partly depends upon confidence and psychology in the aftermath of the deep recession.

Here Comes The U.S. Consumer!



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Source: Federal Reserve, Scotiabank Economics.

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U.S. Household Net Worth & AssetsBack Above Pre-Crisis Levels...

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Economics

9 April 17, 2014

Global Views

AEROSPACE SECTOR

The commercial aerospace industry cycle continues to gain momentum, with orders accelerating last year and lifting the backlog even further. Global passenger air traffic also remains solid, led by double-digit growth in China and the Middle East. Airline profitability has improved significantly and will likely surpass the 2010 peak this year, as global economic growth picks up to about 3.5%. In contrast, the fundamental backdrop continues to weaken for the defence sector. Revenue for military contractors posted a single-digit decline in 2013 and a similar result is expected over the coming year, pressuring margins.

Record Commercial Aerospace Backlog

Despite record aircraft shipments last year, orders were more than double the pace of production, lifting the industry backlog to record highs. The recent Singapore Airshow added further to the backlog, with orders totalling US$32 bn, more than triple the US$10 bn spent at the 2010 Airshow. Among the major manufacturers, the backlog is 8 years at Boeing and even greater at Airbus, prompting the company to announce higher output.

The Asia-Pacific region is expected to become the world’s biggest air transport market by 2016, prompting air carriers in Asia to order new planes to meet the explosive demand, especially for short-range travel. Domestic traffic in China rose 12% last year, triple the 4% advance in 2012. Meanwhile, traffic rose 12% in the Middle East last year and 8% in Latin America — more than double the advance in the developed markets.

Airbus and Boeing are looking to harvest the benefits of their innovation in recent years when they developed the 787, A350 and A380. Over the next several years, new products will likely be incremental improvements, rather than clean sheet development. Smaller commercial aircraft manufacturers, such as Bombardier are at a different stage. While Bombardier’s CSeries is in flight testing, the order intake has been weaker than expected. The company is also developing the Lear 85 and Global 7000/8000 business jets. Despite Bombardier’s challenges, aerospace orders and shipments continue to surge in Canada, lifting the order backlog to record highs. For the three months ending February, the aerospace backlog has soared 30% year-over-year and now accounts for more than half of Canada’s overall unfilled manufacturing orders.

Defence Cutbacks And Margin Pressure Continue

Congress passed the Bipartisan Budget Act of 2013 (BBA) late last year, which reduced the US$52 bn FY14 sequester cut mandated by the Budget Control Act of 2011 (BCA) by US$22 bn. Nevertheless, the Defense Budget still faces a US$30 bn cutback to its FY14 budget, and contractors will face a further mid- single-digit decline in revenue.

Highlighting the ongoing cutbacks, the Pentagon recently announced that it will reduce the size of the Army to pre-world war II levels and eliminate the popular A-10 aircraft and Lockheed Martin’s U-2 spy plane to meet the 2015 spending caps. While the United States still accounts for nearly 40% of global military spending, budget cutbacks have forced contractors to increasingly seek orders from foreign countries. Foreign sales at the four largest military contractors have increased by 5% per annum over the past four years, and now account for nearly one-quarter of their overall revenue.

Carlos Gomes (416) 866-4735 [email protected]

An Extended Commercial Aerospace Up-Cycle

Source: IATA, IMF, company reports, Scotiabank Economics.

Source: IATA, IMF, company reports, Scotiabank Economics.

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Economics

10 April 17, 2014

Global Views PROVINCES

Growth is forecast to moderate in 2014, after last year’s surge.

Following a strong economic expansion since 2003, Saskatchewan’s employment advanced 3.4% in 2013 and its estimated output growth was 3.7%, in part due to record crop production. This year and next, the pace of Saskatchewan’s expansion, though still substantial, is expected to moderate. While resource sector diversification is expected to help sustain its momentum, more normal crop output, soft potash prices and a further pullback in housing starts from historic highs are anticipated.

Pointing to Saskatchewan’s economic momentum is its 1.8% population gain last year — the only province other than Alberta to benefit from net interprovincial migration. With job creation matching its population inflows, Saskatchewan’s unemployment rate of about 4%, is the lowest among the provinces. Though employment gains are expected to soften in 2014, they should still top 1%, maintaining upward pressure on wages.

Saskatchewan’s rapid job creation has been a boon to new housing construction. Despite falling nearly 17% last year, housing starts were still very high (middle chart). Though a further correction is expected, the forecast for housing starts remains elevated. Last year’s unit home sales were resilient, down only 2.5%, supported by relatively affordable average house prices compared with household after-tax income.

More normal growing conditions will likely limit agriculture’s contribution to output this year, after double-digit production gains for most crops and record yields for wheat, peas, flaxseed, canola, lentils, oats and barley last year. However, increased shipments of oil by rail, outsized Prairie grain & oilseed harvests and severe weather have stressed the national transportation system, causing delivery bottlenecks, which should gradually lessen this spring.

Other farming receipts rose by 3% y/y over the first three quarters of 2013, led by eggs, poultry and hogs. Supporting research in agriculture and other areas is the National Synchrotron Radiation Research Center.

Further oil production gains are anticipated for Saskatchewan through the forecast horizon, following a 2.9% increase in 2013, with 4.9% higher drilling activity contributing to the gain (bottom chart).

Potash mining is forecast to support the province’s business investment in 2014, though it will likely start tapering next year. The withdrawal of Uralkali from the Russian-Belarus marketing arrangement lowered the price received by about 20%, but Saskatchewan’s potash production rose 10% supported by higher demand from the U.S. and emerging Asia.

Uranium mining prospects should brighten due to the likely restarting of at least some of Japan’s nuclear power generators. Saskatchewan is well positioned to benefit from this demand especially following the completion of the world’s second largest high-grade uranium mine at Cigar Lake.

In 2014, the third coal-fired unit at the Boundary Dam power station will be restarted, retrofitted with the world’s first and largest commercial-scale carbon capture & sequestration system, lowering its carbon emissions.

John Bulmer (416) 866-4212 [email protected]

Saskatchewan — Growth Attracts Population

For more information see: John Bulmer, Provincial Trends: Saskatchewan, Scotiabank Economics, April 2014.

PopulationJanuary 2014: 1.1m, 3.2% of Cda, 1.8% y/yNet International Immigration: +13,100Net Interprovincial Migration: +1,400

2000-12 13f 14f 15fReal GDP, % change 2.1 3.7 2.4 2.7

Employment, % change 1.0 3.4 1.3 1.5Employ/Pop.* Rate, % 65.0 67.3 67.0 67.1Unemployment Rate, % 5.0 4.0 4.1 4.1

Housing Starts, 000s 4.7 8.3 7.6 7.2Auto Sales, 000s 43 58 59 60

* Working-age population.Source: Statistics Canada, Scotiabank Economics.

Saskatchewan: Economic Outlook

0

4

8

12

16

00 03 06 09 12 15

Source: CMHC, CREA.

Saskatchewan: Home Sales & Housing Starts

000s of units, saar

Housing Starts

Home Sales

f

1990-2010average starts

0

5

10

15

20

25

02 04 06 08 10 12

Potash(tonnes)

* 12-month moving sum. Source: Ministry of the Economy.

Saskatchewan:Resource Production

Crude Oil (m3)

millions*

http://www.gbm.scotiabank.com/English/bns_econ/ptrends_sk.pdf

Economics

11 April 17, 2014

Global Views

Economics / Fixed Income Strategy

EUROPE

Germany leading cyclical recovery; France still challenged by fiscal adjustment.

Combined, Germany and France account for half of the euro area’s annual output. They are each other’s biggest trading partners and represent the primary export markets for several other euro zone members. The region cannot regain a sustainable economic growth path without a recovery in each of these countries.

In Germany, domestic demand is gaining momentum. Real GDP growth will likely pick up from a meager 0.4% in 2013 to 1¾% on average in 2014-15, leading the euro area’s pace. The first quarter is shaping up to be especially robust, with industrial production and retail sales posting solid gains. Forward-looking business surveys suggest some moderation in the rate of recovery in the second quarter. Local demand has been underpinned by a strong labour market (at just above 5%, the jobless rate is hovering around a post-reunification low and is the second-lowest in the European Union), as well as low private sector interest rates and a relatively supportive fiscal stance.

France’s economic recovery on the other hand is lagging. We project growth of around ¾% this year (up from 0.2% in 2013), followed by a slight acceleration to 1% next year. Hard data proved disappointing in the first two months of 2014, suggesting a moderation in the pace of real GDP growth to around 0.1% q/q in the first quarter from 0.3% in the prior three months. Although higher business surveys of late suggest some catch-up in the second quarter, all in all, the French recovery remains in a fragile position. This limits the prospect of any significant improvement in the unemployment rate — currently at a record-high 10.4%. External competitiveness continues to be inhibited by high relative unit labour costs, which have exceeded those in Germany and the broader euro area since prior to the global recession (see top chart).

Germany’s public finances and triple-A credit rating status remain sound. The general government recorded an overall balanced budget in 2013, with a small surplus on the structural balance for the first time since reunification (see bottom chart). The government has pledged to maintain a balanced budget — overall and structurally — over the medium term, with only €6.5 billion in new borrowing slated for 2014 and no new debt starting in 2015. Germany’s external position is also strong; a substantial current account surplus (measuring 6.5-7% of GDP) will be sustained in 2014-15 thanks to an outsized merchandise trade surplus. Over the medium term imports will likely outpace exports, causing the surplus to narrow to some extent.

Meanwhile, France’s fiscal consolidation efforts are ongoing. The general government deficit has fallen from a peak of 7.5% of GDP in 2009 to 4.3% in 2013 and will continue to edge lower in the coming years. The government has unveiled a new reform agenda focused on reducing the corporate tax burden by some €40 billion over the next three years to be financed by spending cuts. However, it is not yet clear where the expenditure savings will be found and we remain skeptical of the administration’s budget deficit targets (below 3% of GDP in 2015). The current account gap narrowed to 1.6% of GDP in 2013 from a high of 2.2% in 2012 on account of an improvement in the income balance, and the shortfall will likely remain around this level in 2014-15. After losing its triple-A rating status last year, France has seen its sovereign credit profile deteriorate further. In November, Standard & Poor’s (S&P) lowered the nation’s long-term foreign-currency rating by one notch to “AA”. Fitch and Moody’s retain ratings of “AA+” and “Aa1”, respectively, though Moody’s holds a “negative” outlook on its assessment and we do not exclude the risk of another downgrade in the coming months.

Frédéric Prêtet (00 33) 17037-7705 [email protected]

Sarah Howcroft (416) 862-3174 [email protected]

A Look At The Euro Area Core — Germany And France

90

95

100

105

110

115

120

00 03 06 09 12

Germany

France

Euro area

Unit Labour Costs

Source: Eurostat.

2005=100

-5 -4 -3 -2 -1 0 1 2

Overall

Structural**

Primary

Euro area

France

Germany

General Government Deficits*

* Estimated 2013. ** % of potential GDP. Source: IMF.

% of GDP

Foreign Exchange Strategy

12 April 17, 2014

Global Views

LATAM FX correlations to major market benchmarks have been very low over recent weeks, but among the higher correlations remaining are MXN’s with the S&P500, and CLP’s with copper. Accordingly, next week’s release of PMI data for both China and the US, should be important to monitor, as they are likely to be major drivers of the performance of our long MXN/CLP trading bias. On the central bank front, we are scheduled to get MPC meetings in BanRep and Banxico, but both are widely expected to leave rates unchanged.

Week-ahead views:

Brazil: BCB governor Tombini said he expects the economy to expand 2% in 2014, which is slightly above the market consensus. The governor said both the current account and public deficits remain comfortably financed, and that March inflation was pushed upwards by a food price shock, which is receding (which was seen by market players as a sign that BRL appreciation tolerance could recede). Both Governor Tombini and Director Hamilton highlighted their view that the tightening delivered to date is working its way through the system, and should help contain inflationary pressures. We sense that the market is still trying to form a clear view on whether the BCB will deliver a final 25bps hike before entering a “pause period”. Our view is that it is not yet a done deal, as the evolution of inflation expectations and the performance of BRL between now and the next meeting are likely to be important parts of the puzzle. Consistent with our view, DI’s are pricing a 50% chance of a 25bps hike. For next week, local markets are closed on Monday due to Easter holidays, after which the current account data release and the BCB weekly survey of economists are likely to be the highlights. In particular, the BCB’s survey will be tracked for whether expectations breach the top-side of the inflation tolerance band (they were 6.47% in the latest survey), while the current account will be watched for signs that the previous weakness in BRL helped alleviate some current account pressure (although much of the real’s weakness has been reversed since March). We believe USD/BRL needs to correct to the top-side in order to help re-balance the Brazilian economy, but with carry ranging from 10% - 12.5%, and the world seemingly in “reach-for-yield mode”, it is hard to see a catalyst that will drive the BRL to correct materially. Accordingly, despite believing the cross should move higher, we are neutral on USD/BRL (as opposed to favouring a greenback long).

Chile: This looks set to be a very slow week on the data front, with the BCCh traders’ survey being the major release. Outside of the scarce data pipeline, developments in the incoming government’s reform plans are worth monitoring, as are news on the global mining front. Our LATAM mining team recently published a report highlighting the challenges of Chile’s copper industry (including having some of the world’s “least attractive” copper projects once we take all costs into account), which will likely be a major headwind for CLP in our view. In addition, China’s PMIs will likely be relevant. Our strategic bias remains to be long MXN/CLP, although the trade gave up an important part of our gains in the past couple of weeks.

Colombia: After a holiday-shortened week, Colombian markets come back to the release of 2 major events: the publication of the trade balance, and BanRep MPC meeting, where all but 2 of the 14 analysts surveyed by Bloomberg are expecting the overnight lending rate to remain unchanged

Peru: S&P published a report analyzing the impact that tapering will have on the banking systems of some EMs, comparing the impact it has had on Brazil, Chile, India, Peru, South Africa, Indonesia and Turkey. The agency concluded that within the group, the most resilient are likely to be Chile, India, Indonesia and Peru. In addition to the banking system being well placed, Peru seems to have the strongest external position among the major LATAM economies, and is forecast to grow at the second strongest pace in LATAM by most of the major IFIs. On the currency front, USD/PEN has not been the most exciting FX in LATAM, hovering within a 3% wide band of 2.75—2.82 since the start of October last year. Our bias is currently to trade that range

Mexico: There is a large number of tier-1 releases taking place this week, including US PMIs, Mexican retail sales, monthly economic activity, and CPI. Mexican data has kicked off the year very soft, and retail sales are expected to continue to reflect weak confidence (despite an improvement in formal employment). However, monthly economic activity is expected to show a slight upswing. On the inflation front, consensus looks for continued receding price pressures which, if true, are likely to be emphasized by Banxico on Friday, as it continues to highlight an “on-hold” stance. From a trading perspective, our bias is still to be strategically long MXN/CLP.

Eduardo Suárez (416) 945-4538 [email protected]

Latin America Week Ahead: For The Week Of April 21 - 25

Foreign Exchange Strategy

13 April 17, 2014

Global Views

McKinsey Institute discusses Mexico’s productivity challenge

As the potential benefits of the ongoing reform process in Mexico are debated, the McKinsey Global Institute published a timely and very interesting analysis of the productivity lag in Mexico, and how it has led the country to basically stagnate over the past 3 decades, after a strong performance in the 1950- 1980 period (led by urbanization, education improvements, etc.).

According to the study, the low “average” productivity of the country, is the result of poor performance by smaller firms in the country. The study finds that firms of 3-5 employees actually dropped 6% per year); mid-size companies stagnated (11-500 employees had 1% productivity gains); while the larger, and more integrated larger firms actually compare favourably in terms of productivity gains with the rest of the world (firms of over 1,000 employees had productivity gains of 6% per year). The 2013 reforms seek to solve many of the productivity constraints:

A factor that is seen as a constraint on growth, is an estimated “financing gap” of US$60bn for small- and medium-sized companies. On this front, it will be interesting to monitor if the 2013 reform helps alleviate SMEs’ funding constraints.

Mexico’s electricity costs about 70% more than it does in the US, which the energy reform seeks to correct.

The country has inadequate infrastructure, particularly in water & transportation (particularly airports & rail), which trail the “world average”. The estimated investment needs are US$923bn by 2025.

Finally, despite spending a large share of public resources on education, the results are poor. On this front the 2013 reform is seen as a partial solution to the problem.


Eduardo Suárez (416) 945-4538 [email protected]

GDP per

capita 1990

(US$)

% of US

in 1990

Compound

annual growth

(1990 ‐ 2012)

GDP per capita

2012 (US$)

% of US

in 2012

US 36,674$ 100.0% 1.4% 49,428$ 100.0%

Chile 6,790$ 18.5% 4.0% 16,132$ 32.6%

Mexico 11,158$ 30.4% 1.3% 14,943$ 30.2%

China 1,740$ 4.7% 8.5% 10,371$ 21.0%

Brazil 7,221$ 19.7% 1.6% 10,292$ 20.8%

Peru 4,682$ 12.8% 3.5% 9,990$ 20.2%

Colombia 6,269$ 17.1% 2.1% 9,891$ 20.0%

India 1,572$ 4.3% 4.8% 4,431$ 9.0%

Source: McKinsey Global Institute, ScotiaFX Strategy.

http://www.mckinsey.com/insights/americas/a_tale_of_two_mexicos

Economics

14 April 17, 2014

Global Views KEY DATA PREVIEW

Key Data Preview

CANADA

Canadian retail sales (April 23) are likely to soften in February following a 1.3% m/m figure in January, and we’re looking for a 0.1% m/m tally on the month. The strong January number only somewhat compensated for a -1.9% m/m decline in December, and so the type of flat print that we’re anticipating would still leave the quarter looking soft. Our call is informed by a few factors. First, automotive sales were weak on the month, with Scotiabank’s Carlos Gomes expecting a fairly flat outcome. Second, the survey of large retailers pointed to a pretty weak month overall (although the SLR has thrown us for a loop in the past). Gasoline prices were a positive leading indicator, and point to some moderate strength, which should mitigate weakness in other sectors.

UNITED STATES

We’re looking for a strong durable goods orders number for March (April 24) on the order of 2%, with almost all of the leading indicators pointing in positive directions. 163 planes were ordered at Boeing in March compared to 74 in February, which alone ought to lift durables into decently positive territory. Also, the ISM manufacturing index was strong, printing a modest improvement in terms of its headline print and a similar improvement in terms of new orders, pointing to core strength in durables. The one soft spot here is that vehicle assemblies softened slightly in December, and there is a tendency for assemblies to correlate with new orders — pointing to possible weakness from the autos sector. Capital goods orders and shipments picked up in Q4 before dropping moderately to start Q1 2014 (see chart). We’re looking for improvement in capital goods orders as the quarter progresses.

New home sales, while not on a tear, have at least been proceeding at a solid pace since January, with sales hovering at the 450,000 annualized pace with the exception of a couple of months in the middle of last year when the Fed’s tipping of tapering caused mortgage costs to rise and spooked home-buyers. Since then, it’s been steady as she goes for new home sales. We’re anticipating more of the same, looking for a 445,000 number when new home sales numbers for March are released on April 23. Pending home sales have been slipping pointing to overall home sale weakness (see chart), but foot traffic of prospective buyers in model homes, which speaks directly to momentum in new home sales, has been solid, limiting our pessimism in the new home sales category.

In contrast to new home sales, existing home sales (April 22) have been weakening consistently since the middle of last year (see chart), and the combination of higher interest costs and higher home prices are having a deleterious effect on the pace of housing activity (more so than on new home sales, surprisingly). The drop in pending home sales and soft mortgage purchase applications, combined with the ominous trend in this sector have us looking for a slight drop to 4.5m annualized sales in March from 4.6m in February.

A1



3

3.5

4

4.5

5

5.5

6

200

250

300

350

400

450

500

10 12 14

New Home SalesExisting Home Sales (RHS)]

thousands

Source: Census Bureau, NAR, Scotiabank Economics

U.S. Home SalesNew & Existing Home Sale Divergence

millions

90

100

110

120

130

12 13 14Mortgage Purchase AppsPending Home Sales

Index Level. 1/1/2011=100

Source: MBA, NAR, Scotiabank Economics

Housing Leading IndicatorsNot So Strong...

45

50

55

60

65

70

75

06 08 10 12 14

Orders

Shipments

US$,Billions

Source: Census Bureau, Scotiabank Economics

Capital Goods Orders & Shipments(Non-Defense, Ex-Air)

Getting Back to Pre-Crisis Levels

Economics

15 April 17, 2014

Global Views KEY DATA PREVIEW


EUROPE

Business surveys in the euro area for the most part retain a downward bias. Next week, the release of the April PMIs on Wednesday and the German IFO on Thursday will likely provide further signs of slowing momentum in the region as a whole as we move into the second quarter (though, outcomes will vary from one country to another). For the IFO, the drop in the survey’s expectations component in recent months — also evident in the ZEW indicator — suggests a possible decline in the headline index in April. We expect the indicator to lose roughly one point, falling to 109.8, which is still safely above the average of the last ten years, implying that Germany’s economic recovery remains on track. For the euro area aggregate PMIs, there remains a downward bias in manufacturing given the impact of softer global demand; however, on the services side, we may see a small upward tick mirroring the recent rise in consumer confidence. As a whole, we look for the composite measure to edge lower to 52.9 from 53.1 in March. The French manufacturing PMI rose above the neutral 50-mark for the first time since July 2011, marking a 33-month high; some payback is expected this month, though the index should stay in expansionary territory. All of this suggests that the euro area quarterly real GDP pace could slow from around ½% q/q in the first quarter to just ¼% in the April-June period.

A2

Sarah Howcroft (416) 862-3174 [email protected]

102

104

106

108

110

112

44

46

48

50

52

54

Jan-13 May-13 Sep-13 Jan-14

Euro Area Composite PMI & German IFO Index


PMI, lhs

IFO, rhs

Economics

1

Global Views

April 17, 2014

KEY INDICATORS

Key Indicators for the week of April 21 – 25

Forecasts at time of publication. Source: Bloomberg, Scotiabank Economics.

A3

North America

Europe

Country Date Time Indicator Period BNS Consensus LatestUS 04/21 10:00 Leading Indicators (m/m) Mar -- 0.7 0.5

CA 04/22 08:30 Wholesale Trade (m/m) Feb 0.4 0.7 0.8MX 04/22 09:00 Unemployment Rate (%) Mar -- 4.6 4.7US 04/22 10:00 Existing Home Sales (mn a.r.) Mar 4.5 4.6 4.6US 04/22 10:00 Existing Home Sales (m/m) Mar -- -1.1 -0.4US 04/22 10:00 Richmond Fed Manufacturing Index Apr -- -1.0 -7.0

US 04/23 07:00 MBA Mortgage Applications (w/w) APR 18 -- -- 4.3CA 04/23 08:30 Retail Sales (m/m) Feb 0.1 0.4 1.3CA 04/23 08:30 Retail Sales ex. Autos (m/m) Feb 0.1 0.3 1.0MX 04/23 09:00 Retail Sales (INEGI) (y/y) Feb -- 0.4 -0.3US 04/23 10:00 New Home Sales (000s a.r.) Mar 445 450 440

US 04/24 08:30 Continuing Claims (000s) APR 12 2765 2780 2739US 04/24 08:30 Initial Jobless Claims (000s) APR 19 310 315 304US 04/24 08:30 Durable Goods Orders (m/m) Mar 2.0 1.9 2.2US 04/24 08:30 Durable Goods Orders ex. Trans. (m/m) Mar 0.5 0.5 0.1MX 04/24 09:00 Bi-Weekly Core CPI (% change) Apr 15 -- 0.1 0.1MX 04/24 09:00 Bi-Weekly CPI (% change) Apr 15 -- -0.2 0.1

MX 04/25 09:00 Global Economic Indicator IGAE (y/y) Feb -- 1.6 0.8US 04/25 09:55 U. of Michigan Consumer Sentiment Apr F 83.0 83.0 82.6MX 04/25 10:00 Overnight Rate (%) Apr 25 3.50 3.50 3.50

Country Date Time Indicator Period BNS Consensus LatestEC 04/22 10:00 Consumer Confidence Apr A -- -9.3 -9.3

FR 04/23 03:00 Manufacturing PMI Apr P -- 51.9 52.1FR 04/23 03:00 Services PMI Apr P -- 51.3 51.5GE 04/23 03:30 Manufacturing PMI Apr P -- 53.8 53.7GE 04/23 03:30 Services PMI Apr P -- 53.3 53.0EC 04/23 04:00 Composite PMI Apr P 52.9 53.0 53.1EC 04/23 04:00 Manufacturing PMI Apr P 52.5 53.0 53.0EC 04/23 04:00 Services PMI Apr P 52.5 52.5 52.2UK 04/23 04:30 PSNB ex. Interventions (£ bn) Mar 12.0 11.0 9.3

GE 04/24 04:00 IFO Business Climate Survey Apr 109.8 110.4 110.7GE 04/24 04:00 IFO Current Assessment Survey Apr 114.0 115.5 115.2GE 04/24 04:00 IFO Expectations Survey Apr 105.9 105.9 106.4TU 04/24 07:00 Benchmark Repo Rate (%) Apr 24 10.00 10.00 10.00

UK 04/25 04:30 Retail Sales ex. Auto Fuel (m/m) Mar -0.3 -0.5 1.8UK 04/25 04:30 Retail Sales with Auto Fuel (m/m) Mar -0.3 -0.4 1.7RU 04/25 05:30 One-Week Auction Rate (%) Apr 25 7.00 7.00 7.00FR 04/25 12:00 Jobseekers Net Change (000s) Mar -- -- 31.5

Economics

2

Global Views

April 17, 2014

Latin America

KEY INDICATORS

Key Indicators for the week of April 21 – 25


A4

Asia Pacific

Country Date Time Indicator Period BNS Consensus LatestJN 04/20 19:50 Merchandise Trade Balance (¥ bn) Mar -- -1066.0 -802.5JN 04/20 19:50 Adjusted Merchandise Trade Balance (¥ bn) Mar -- -1298.9 -1133.2JN 04/20 19:50 Merchandise Trade Exports (y/y) Mar -- 7.2 9.8JN 04/20 19:50 Merchandise Trade Imports (y/y) Mar -- 15.5 9.0

TA 04/21 04:00 Export Orders (y/y) Mar -- 4.7 5.7MA 04/21 05:00 CPI (y/y) Mar -- -- 3.5AU 04/21 20:00 Conference Board Leading Index (%) Feb -- -- 0.2TA 04/21 20:30 Unemployment Rate (%) Mar 4.05 4.05 4.05PH 04/21 Balance of Payments (US$ mn) Mar -- -- 345.0SK 04/21 Department Store Sales (y/y) Mar -- -- -2.4

JN 04/22 01:00 Coincident Index CI Feb F 113.4 -- 113.4JN 04/22 01:00 Leading Index CI Feb F 108.5 -- 108.5JN 04/22 01:00 New Composite Leading Economic Index Feb F -- -- 108.5HK 04/22 04:30 CPI (y/y) Mar -- 4.2 3.9HK 04/22 04:30 Unemployment Rate (%) Mar 3.1 3.1 3.1AU 04/22 21:30 Consumer Prices (y/y) 1Q 3.0 3.2 2.7CH 04/22 21:45 HSBC Flash China Manufacturing PMI Apr P -- 48.5 48.0

SI 04/23 01:00 CPI (y/y) Mar -- 1.1 0.4TH 04/23 03:30 BoT Repo Rate (%) Apr 23 2.00 2.00 2.00TA 04/23 04:00 Industrial Production (y/y) Mar -- 3.1 7.0NZ 04/23 17:00 RBNZ Official Cash Rate (%) Apr 24 2.75 3.00 2.75SK 04/23 19:00 GDP (y/y) 1Q P 3.7 3.8 3.7

SK 04/24 17:00 Consumer Confidence Index Apr -- -- 108.0JN 04/24 19:30 National CPI (y/y) Mar 1.6 1.7 1.5JN 04/24 19:30 Tokyo CPI (y/y) Apr -- 3.1 1.3PH 04/24 21:00 Imports (y/y) Feb -- -- 21.8PH 04/24 21:00 Trade Balance (US$ mn) Feb -- -- -1376.0TH 04/24 Customs Trade Balance (US$ mn) Mar -- 1000.0 1767.0VN 04/24 CPI (y/y) Apr -- -- 4.4

JN 04/25 00:30 All Industry Activity Index (m/m) Feb -- -- 1.0SI 04/25 01:00 Industrial Production (y/y) Mar -- 6.5 12.8

Country Date Time Indicator Period BNS Consensus LatestCO 04/23 17:00 Trade Balance (US$ mn) Feb -- -65.0 157.4

BZ 04/25 09:30 Current Account (US$ mn) Mar -- -6200.0 -7445.4CO 04/25 Overnight Lending Rate (%) Apr 25 3.25 3.25 3.25

Economics

3

Global Views

April 17, 2014

AUCTIONS

Global Auctions for the week of April 21 – 25


A5

North America

Europe

Country Date Time EventUS 04/21 11:00 U.S. Fed to Purchase USD3.25-4.00 Bln NotesUS 04/21 11:30 U.S. to Sell 3-Month BillsUS 04/21 11:30 U.S. to Sell 6-Month Bills

CA 04/22 10:30 Canada to Sell CAD5.325 Bln 98-Day BillsCA 04/22 10:30 Canada to Sell CAD2.025 Bln 168-Day BillsCA 04/22 10:30 Canada to Sell CAD2.025 Bln 350-Day BillsUS 04/22 11:00 U.S. Fed to Purchase USD0.90-1.15 Bln NotesUS 04/22 11:30 U.S. to Sell 4-Week BillsMX 04/22 12:30 5Y Fixed YieldMX 04/22 12:30 10Y I/L YieldUS 04/22 13:00 U.S. to Sell 2-Year Notes

US 04/23 11:00 U.S. Fed to Purchase USD2.00-2.50 Bln NotesCA 04/23 12:00 Canada to Sell 10-Year BondsUS 04/23 13:00 U.S. to Sell 5-Year Notes

US 04/24 11:00 U.S. Fed to Purchase USD0.45-0.70 Bln NotesUS 04/24 13:00 U.S. to Sell 7-Year Notes

US 04/25 11:00 U.S. Fed to Purchase USD0.90-1.15 Bln Notes

Country Date Time EventNE 04/22 04:30 Netherlands to Sell 0.5% 2017 BondsSP 04/22 04:30 Spain to Sell 3-Month and 9-Month BillsBE 04/22 05:30 Belgium to Sell 3% 2019 BondsNE 04/22 06:00 Netherlands to Sell 3-Month BillsNE 04/22 06:00 Netherlands to Sell 6-Month BillsBE 04/22 07:00 Belgium to Sell 2.6% 2024 BondsBE 04/22 07:00 Belgium to Sell 5% 2035 BondsFR 04/22 08:50 France to Sell Bills

SW 04/23 05:03 Sweden to Sell SEK3.5 Bln 4.25% 2019 Bonds

SP 04/24 04:30 Spain to Sell BondsIT 04/24 05:00 Italy to Sell I/L and Zero Coupon Bonds

SW 04/24 05:03 Sweden to Sell I/L BondsUK 04/24 05:30 U.K. to Sell GBP4 Bln 1.75% 2019 Bonds

Economics

4

Global Views

April 17, 2014

AUCTIONS

Global Auctions for the week of April 21 – 25


A6

Asia Pacific

Latin America

Country Date Time EventJN 04/22 04:00 Japan Auction for Enhanced-LiquidityCH 04/22 23:00 China to Sell 5-Year Bonds

JN 04/23 23:35 Japan to Sell 3-Month BillJN 04/23 23:45 Japan to Sell 2-Year Bonds

Country Date Time EventBZ 04/22 11:00 Brazil to Sell I/L Bonds due 5/15/2019 - NTN-BBZ 04/22 11:00 Brazil to Sell I/L Bonds due 5/15/2023 - NTN-BBZ 04/22 11:00 Brazil to Sell I/L Bonds due 8/15/2030 - NTN-BBZ 04/22 11:00 Brazil to Sell I/L Bonds due 8/15/2040 - NTN-BBZ 04/22 11:00 Brazil to Sell I/L Bonds due 8/15/2050 - NTN-B

CO 04/23 11:30 5Y UVR I/L YieldCO 04/23 11:30 5Y UVR I/L Total Peso BidsCO 04/23 11:30 5Y UVR I/L Amount Pesos SoldCO 04/23 11:30 5Y UVR I/L Bid/Cover RatioCO 04/23 11:30 7Y UVR I/L YieldCO 04/23 11:30 7Y UVR I/L Total Peso BidsCO 04/23 11:30 7Y UVR I/L Amount Pesos SoldCO 04/23 11:30 7Y UVR I/L Bid/Cover RatioCO 04/23 11:30 20Y UVR I/L YieldCO 04/23 11:30 20Y UVR I/L Total Peso BidsCO 04/23 11:30 20Y UVR I/L Amount Pesos SoldCO 04/23 11:30 20Y UVR I/L Bid/Cover RatioCL 04/23 12:00 1M Bill Yield

BZ 04/24 11:00 Brazil to Sell Bills due 4/1/2015 - LTNBZ 04/24 11:00 Brazil to Sell Bills due 4/1/2016 - LTNBZ 04/24 11:00 Brazil to Sell Bills due 1/1/2018 - LTNCL 04/24 12:00 1M Bill Yield

Economics

5

Global Views

April 17, 2014

EVENTS


Events for the week of April 21 – 25

A7

North America

Europe

Latin America

Asia Pacific

Country Date Time EventCA 04/22 10:30 Canada Finance Minister Oliver Speaks at Halifax ChamberUS 04/22 11:45 Former Fed Chairmen Bernanke Speaks at Economic Club

CA 04/23 11:45 Ontario Finance Minister Sousa Speaks at Economic ClubCA 04/23 12:00 Finance Minister Joe Oliver Speaks to Montreal Board of Trade

CA 04/25 09:45 Canadian Finance Minister Oliver Speaks at Economic ClubMX 04/25 10:00 Overnight Rate

Country Date Time EventSP 04/22 03:00 Spain's Industry Minister Soria Speaks in Madrid

UK 04/23 04:30 Bank of England MinutesPO 04/23 08:00 Bank of Portugal Releases Spring Economic BulletinPO 04/23 Portugal Releases Year-to-Date Budget ReportPO 04/23 Portugal's Coelho Speaks at Conference on Post-Troika Period

EC 04/24 05:00 ECB President Mario Draghi Speaks in AmsterdamTU 04/24 07:00 Benchmark Repurchase RateEC 04/24 12:15 ECB Vice President Vitor Constancio Speaks in Madrid

SZ 04/25 04:00 SNB's Jordan Speaks at SNB's AGM, BernEC 04/25 04:30 ECB Supervisory Chair Daniele Nouy Speaks in AmsterdamRU 04/25 05:30 One-Week Auction RateFR 04/25 France Sovereign Debt Rating Published by S&PEC 04/25 EFSF Sovereign Debt Rating Published by S&PIT 04/25 Italy Sovereign Debt Rating Published by FitchSP 04/25 Spain Sovereign Debt Rating Published by Fitch

Country Date Time EventJN 04/22 20:25 BOJ Deputy Governor Nakaso Speech in Kyoto

TH 04/23 03:30 BoT Benchmark Interest RateNZ 04/23 17:00 RBNZ Official Cash Rate

Country Date Time EventCO 04/22 10:00 Colombian central bank chief Uribe speaks to lawmakers

CO 04/25 Overnight Lending Rate

Economics

6

Global Views

April 17, 2014

Global Central Bank Watch

CENTRAL BANKS

A8


NORTH AMERICARate Current Rate Next Meeting Scotia's Forecasts Consensus ForecastsBank of Canada – Overnight Target Rate 1.00 June 4, 2014 1.00 --

Federal Reserve – Federal Funds Target Rate 0.25 April 30, 2014 0.25 --

Banco de México – Overnight Rate 3.50 April 25, 2014 3.50 3.50

EUROPERate Current Rate Next Meeting Scotia's Forecasts Consensus ForecastsEuropean Central Bank – Refinancing Rate 0.25 May 8, 2014 0.25 --

Bank of England – Bank Rate 0.50 May 8, 2014 0.50 0.50

Swiss National Bank – Libor Target Rate 0.00 June 19, 2014 0.00 --

Central Bank of Russia – One-Week Auction Rate 7.00 April 25, 2014 7.00 7.00

Hungarian National Bank – Base Rate 2.60 April 29, 2014 2.50 2.50

Central Bank of the Republic of Turkey – 1 Wk Repo Rate 10.00 April 24, 2014 10.00 10.00

Sweden Riksbank – Repo Rate 0.75 July 3, 2014 0.75 --

Norges Bank – Deposit Rate 1.50 May 8, 2014 1.50 --

ASIA PACIFICRate Current Rate Next Meeting Scotia's Forecasts Consensus ForecastsReserve Bank of Australia – Cash Target Rate 2.50 May 6, 2014 2.50 2.50

Reserve Bank of New Zealand – Cash Rate 2.75 April 23, 2014 2.75 3.00

People's Bank of China – Lending Rate 6.00 TBA -- --

Reserve Bank of India – Repo Rate 8.00 June 3, 2014 8.00 --

Bank of Korea – Bank Rate 2.50 May 8, 2014 2.50 --

Bank of Thailand – Repo Rate 2.00 April 23, 2014 2.00 2.00

Bank Indonesia – Reference Interest Rate 7.50 May 8, 2014 7.50 --

LATIN AMERICA

Rate Current Rate Next Meeting Scotia's Forecasts Consensus ForecastsBanco Central do Brasil – Selic Rate 11.00 May 28, 2014 11.00 --

Banco Central de Chile – Overnight Rate 4.00 May 15, 2014 4.00 --

Banco de la República de Colombia – Lending Rate 3.25 April 25, 2014 3.25 3.25

Banco Central de Reserva del Perú – Reference Rate 4.00 May 8, 2014 4.00 4.00

AFRICA

Rate Current Rate Next Meeting Scotia's Forecasts Consensus ForecastsSouth African Reserve Bank – Repo Rate 5.50 May 22, 2014 5.50 --

Fed: The improving tone of economic data in the U.S. is likely to bring questions of monetary policy normalization back to the forefront. BoC: Improving data and diminishing downside risks to inflation have us expecting that the BoC might face a communications conundrum in the months to come. Please see our article “BoC on a Long Pause – But Rate Ambivalence May Have to Go” for further discussion. Banco de Mexico will maintain its policy-setting interest rate unchanged at 3.5% when it meets on April 25th. Economic activity remains relatively fragile and the recent rhetoric by the US central bank officials does not merit any imminent adjustment to the local rate outlook. Derivatives markets suggest that the next interest rate hike will not materialize until mid-year in 2015. Meanwhile, the Mexican peso has been in steady recovery mode since early February.

Colombia’s central bank will announce a monetary policy decision on April 25th. We do not anticipate any change to the administered short-term rate currently set at 3.25%. In line with other core emerging-market currencies in the region, the Colombian peso has regained an appreciating bias over the past month, somewhat offsetting currency-linked price pressures. Inflation, however, has been edging higher for four consecutive months closing March at 2.5% y/y.

We do not expect the Turkish central bank to adjust reference interest rates when it meets next Thursday. Although Prime Minister Erdogan – bolstered by his party’s victory in the March local elections – has called for immediate rate cuts to support economic activity, the central bank Governor has stated that any easing would come in “measured steps”. The bank has already begun to boost liquidity through its regular repo auctions. Thus, any formal policy easing will likely be side-lined until inflation begins to decelerate (the headline rate rose by half a percentage point to 8.4% y/y in March) and there is further evidence of stabilization in both the currency and the political situation. Likewise, the central bank of Russia will likely leave monetary conditions unchanged after its meeting next Friday. Substantial currency depreciation in the start of 2014 is beginning to have an impact on prices, with both the headline and core inflation measures jumping higher in March (to 6.9% y/y and 6.0%, respectively). On the growth front, conditions remain strained amid continued unrest in Ukraine; the composite PMI reached a multi-year low in March and investment in productive capacity posted a second consecutive large decline in February. The US dollar-denominated trade balance also narrowed in February to its lowest level since August 2012, reflecting the ruble’s fall. Overall, it is possible that output contracted in the first quarter of the year, but high inflation and financial volatility leave little room to maneuver for the central bank.

Responding to solid economic growth momentum and a pick-up in inflation, the Reserve Bank of New Zealand (RBNZ) raised the official cash rate by 25 basis points to 2.75% in March, becoming the first central bank within the developed economies universe to hike rates in recent years. We expect the RBNZ to remain on hold next week, as the disinflationary impact of the strong New Zealand dollar allows monetary conditions to be tightened only gradually. The Bank of Thailand provided further monetary stimulus following the March 12th policy meeting, cutting the benchmark interest rate by 25 bps to 2.0% in response to muted inflationary pressure, combined with persistent political uncertainty which has dampened economic growth momentum. We do not anticipate another rate reduction next week.

North America

Europe

Asia Pacific

Latin America

Africa

Economics

7

Global Views

April 17, 2014

FORECASTS

A9

Forecasts as at March 26, 2014* 2000-12 2013e 2014f 2015f 2000-12 2013e 2014f 2015f

Output and Inflation (annual % change) Real GDP Consumer Prices2

World13.7 2.9 3.4 3.6

Canada 2.2 2.0 2.2 2.5 2.1 0.9 1.4 1.9 United States 1.9 1.9 2.8 3.0 2.5 1.5 1.6 1.9 Mexico 2.4 1.1 2.7 3.7 4.7 4.0 4.2 4.0

United Kingdom 1.7 1.9 2.5 2.0 2.3 2.0 2.1 2.4 Euro zone 1.3 -0.4 1.0 1.3 2.1 0.8 1.1 1.3

Japan 0.9 1.5 1.4 1.2 -0.3 1.6 1.5 2.1 Australia 3.1 2.4 2.7 2.9 3.0 2.7 3.0 2.9 China 9.3 7.7 7.3 7.0 2.4 2.5 2.8 3.5 India 7.2 4.6 5.2 5.7 6.7 6.4 5.5 6.5 Korea 4.2 3.0 3.1 2.9 3.1 1.1 2.2 2.5 Thailand 4.2 2.8 3.5 4.5 2.7 1.7 2.5 2.8

Brazil 3.4 2.3 2.0 2.5 6.5 6.0 6.0 5.5 Chile 4.5 4.1 4.1 4.5 2.9 3.0 3.1 3.0 Peru 5.6 5.1 5.4 5.6 2.6 2.9 3.0 2.5

Central Bank Rates (%, end of period) 13Q4 14Q1f 14Q2f 14Q3f 14Q4f 15Q1f 15Q2f 15Q3f

Bank of Canada 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00Federal Reserve 0.25 0.25 0.25 0.25 0.25 0.25 0.50 0.75European Central Bank 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25Bank of England 0.50 0.50 0.50 0.50 0.50 0.75 1.00 1.25Swiss National Bank 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00Reserve Bank of Australia 2.50 2.50 2.50 2.50 2.75 3.00 3.25 3.50

Exchange Rates (end of period)

Canadian Dollar (USDCAD) 1.06 1.13 1.16 1.15 1.12 1.12 1.13 1.13Canadian Dollar (CADUSD) 0.94 0.88 0.86 0.87 0.89 0.89 0.88 0.88Euro (EURUSD) 1.37 1.40 1.37 1.33 1.30 1.28 1.26 1.25Sterling (GBPUSD) 1.66 1.65 1.66 1.65 1.64 1.64 1.63 1.61Yen (USDJPY) 105 102 104 107 109 110 111 112Australian Dollar (AUDUSD) 0.89 0.87 0.86 0.88 0.88 0.89 0.89 0.89Chinese Yuan (USDCNY) 6.1 6.1 6.1 6.0 6.0 5.9 5.9 5.9Mexican Peso (USDMXN) 13.0 13.2 13.1 13.2 13.4 13.5 13.5 13.5Brazilian Real (USDBRL) 2.36 2.34 2.38 2.40 2.45 2.48 2.48 2.50

Commodities (annual average) 2000-12 2013 2014f 2015f

WTI Oil (US$/bbl) 60 98 97 92Brent Oil (US$/bbl) 62 109 108 106Nymex Natural Gas (US$/mmbtu) 5.45 3.73 5.20 4.75

Copper (US$/lb) 2.22 3.32 3.08 3.00Zinc (US$/lb) 0.78 0.87 0.96 1.30Nickel (US$/lb) 7.64 6.80 7.20 8.50Gold, London PM Fix (US$/oz) 745 1,410 1,320 1,375

Pulp (US$/tonne) 730 941 985 985Newsprint (US$/tonne) 585 608 607 630Lumber (US$/mfbm) 274 356 390 400

1 World GDP for 2003-12 are IMF PPP estimates; 2013-15f are Scotiabank Economics' estimates based on a 2012 PPP-weighted sample of 38 countries. 2 CPI for Canada and the United States are annual averages. For other countries, CPI are year-end rates.

* See Scotiabank Economics 'Global Forecast Update' report for additional forecasts & commentary.

Brazil

India South Korea Thailand

Chile Peru

Japan

Canada

United States

Mexico

United Kingdom

Australia China

Euro Zone

Economics

8

Global Views

April 17, 2014

ECONOMIC STATISTICS

Source: Bloomberg, Global Insight, Scotiabank Economics.

A10

North America

Canada 2013 13Q3 13Q4 Latest United States 2013 13Q3 13Q4 Latest Real GDP (annual rates) 2.0 2.7 2.9 Real GDP (annual rates) 1.9 4.1 2.6 Current Acc. Bal. (C$B, ar) -60.7 -59.2 -64.0 Current Acc. Bal. (US$B, ar) -379 -385 -324 Merch. Trade Bal. (C$B, ar) -6.8 -5.3 -9.0 3.5 (Feb) Merch. Trade Bal. (US$B, ar) -704 -714 -687 -741 (Feb) Industrial Production 0.4 0.8 0.4 1.8 (Feb) Industrial Production 2.9 2.6 3.4 4.1 (Mar) Housing Starts (000s) 188 194 194 157 (Mar) Housing Starts (millions) 0.93 0.88 1.01 0.95 (Mar) Employment 1.3 1.3 1.0 1.2 (Mar) Employment 1.7 1.8 1.8 1.6 (Mar) Unemployment Rate (%) 7.1 7.1 7.0 6.9 (Mar) Unemployment Rate (%) 7.4 7.2 7.0 6.7 (Mar) Retail Sales 2.5 3.2 3.1 3.7 (Jan) Retail Sales 4.4 4.7 3.8 3.7 (Mar) Auto Sales (000s) 1745 1785 1757 1661 (Feb) Auto Sales (millions) 15.5 15.7 15.6 16.3 (Mar) CPI 0.9 1.1 0.9 1.5 (Mar) CPI 1.5 1.6 1.2 1.5 (Mar) IPPI 0.4 0.8 0.4 -1.8 (Feb) PPI 1.2 1.2 0.8 1.7 (Mar) Pre-tax Corp. Profits -2.6 1.2 2.9 Pre-tax Corp. Profits 3.4 3.5 4.8

Mexico Real GDP 1.1 1.4 0.7 Current Acc. Bal. (US$B, ar) -22.3 -22.5 -18.6 Merch. Trade Bal. (US$B, ar) -1.0 -4.1 7.4 11.7 (Feb) Industrial Production -0.7 -0.5 -0.4 0.7 (Feb) CPI 3.8 3.4 3.7 3.8 (Mar)

Euro Zone 2013 13Q3 13Q4 Latest Germany 2013 13Q3 13Q4 Latest Real GDP -0.4 -0.3 0.5 Real GDP 0.5 0.6 1.4 Current Acc. Bal. (US$B, ar) 288 259 474 227 (Feb) Current Acc. Bal. (US$B, ar) 273.9 239.8 342.4 227.5 (Feb) Merch. Trade Bal. (US$B, ar) 230.3 209.1 283.3 258.3 (Feb) Merch. Trade Bal. (US$B, ar) 265.7 262.0 288.6 256.8 (Feb) Industrial Production -0.7 -1.1 1.5 1.8 (Feb) Industrial Production 0.0 -0.1 3.0 4.8 (Feb) Unemployment Rate (%) 11.9 12.0 11.9 11.8 (Feb) Unemployment Rate (%) 6.9 6.8 6.9 6.7 (Mar) CPI 1.4 1.3 0.8 0.5 (Mar) CPI 1.5 1.6 1.3 1.0 (Mar)

France United Kingdom Real GDP 0.3 0.3 0.8 Real GDP 1.7 1.8 2.7 Current Acc. Bal. (US$B, ar) -36.6 -47.9 -13.1 -68.3 (Feb) Current Acc. Bal. (US$B, ar) -111.5 -160.5 -138.5 Merch. Trade Bal. (US$B, ar) -46.7 -48.7 -46.2 -29.6 (Feb) Merch. Trade Bal. (US$B, ar) -168.5 -184.2 -172.8 -180.5 (Feb) Industrial Production -0.5 -1.4 0.6 -0.8 (Feb) Industrial Production -0.3 -0.4 2.3 2.7 (Feb) Unemployment Rate (%) 10.3 10.3 10.2 10.4 (Feb) Unemployment Rate (%) 7.6 7.6 7.2 6.9 (Jan) CPI 0.9 0.9 0.6 0.6 (Mar) CPI 2.6 2.7 2.1 1.6 (Mar)

Italy Russia Real GDP -1.8 -1.9 -0.9 Real GDP 1.3 1.3 2.0 Current Acc. Bal. (US$B, ar) 16.1 28.5 46.3 4.9 (Feb) Current Acc. Bal. (US$B, ar) 32.8 -1.5 8.9 Merch. Trade Bal. (US$B, ar) 40.3 41.4 58.6 43.0 (Feb) Merch. Trade Bal. (US$B, ar) 15.0 14.3 15.7 12.4 (Feb) Industrial Production -3.1 -3.6 -0.4 0.1 (Feb) Industrial Production 0.4 0.6 1.4 1.4 (Mar) CPI 1.2 1.0 0.6 0.3 (Mar) CPI 6.8 6.4 6.4 6.9 (Mar)

Europe

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

Economics

9

Global Views

April 17, 2014

ECONOMIC STATISTICS

Source: Bloomberg, Global Insight, Scotiabank Economics.

A11

Asia Pacific

Australia 2013 13Q3 13Q4 Latest Japan 2013 13Q3 13Q4 Latest Real GDP 2.4 2.4 2.8 Real GDP 1.5 2.4 2.5 Current Acc. Bal. (US$B, ar) -44.0 -54.9 -41.6 Current Acc. Bal. (US$B, ar) 33.6 54.5 -56.5 72.0 (Feb) Merch. Trade Bal. (US$B, ar) 20.1 12.7 20.5 29.0 (Feb) Merch. Trade Bal. (US$B, ar) -117.0 -119.4 -146.1 -133.2 (Feb) Industrial Production 3.6 2.1 2.8 Industrial Production -0.6 2.0 5.8 7.1 (Feb) Unemployment Rate (%) 5.7 5.7 5.8 5.8 (Mar) Unemployment Rate (%) 4.0 4.0 3.9 3.6 (Feb) CPI 2.4 2.2 2.7 CPI 0.4 0.9 1.4 1.5 (Feb)

South Korea China Real GDP 3.0 3.4 3.7 Real GDP 7.7 7.8 7.7 7.4 (Q1) Current Acc. Bal. (US$B, ar) 79.9 95.1 99.4 54.3 (Feb) Current Acc. Bal. (US$B, ar) 182.8 Merch. Trade Bal. (US$B, ar) 44.1 43.1 53.2 50.0 (Mar) Merch. Trade Bal. (US$B, ar) 259.2 244.2 360.3 92.5 (Mar) Industrial Production 0.2 1.0 0.6 0.3 (Feb) Industrial Production 9.7 10.2 9.7 8.8 (Mar) CPI 1.3 1.4 1.1 1.3 (Mar) CPI 2.5 3.1 2.5 2.4 (Mar)

Thailand India Real GDP 2.9 2.7 0.6 Real GDP 4.6 4.8 4.7 Current Acc. Bal. (US$B, ar) -2.8 0.4 3.0 Current Acc. Bal. (US$B, ar) -49.3 -5.2 -4.2 Merch. Trade Bal. (US$B, ar) 0.5 1.7 1.3 3.9 (Feb) Merch. Trade Bal. (US$B, ar) -12.9 -9.8 -10.2 -10.5 (Mar) Industrial Production -3.1 -3.9 -6.7 -4.4 (Feb) Industrial Production 0.6 1.9 -0.9 -1.9 (Feb) CPI 2.2 1.7 1.7 2.1 (Mar) WPI 6.3 6.6 7.1 5.7 (Mar)

Indonesia Real GDP 5.8 5.6 5.7 Current Acc. Bal. (US$B, ar) -28.5 -8.5 -4.0 Merch. Trade Bal. (US$B, ar) -0.3 -1.0 0.8 0.8 (Feb) Industrial Production 5.8 7.2 0.9 0.9 (Jan) CPI 6.4 8.0 8.0 7.3 (Mar)

Brazil 2013 13Q3 13Q4 Latest Chile 2013 13Q3 13Q4 Latest Real GDP 2.1 1.9 1.7 Real GDP 4.1 5.0 2.7 Current Acc. Bal. (US$B, ar) -81.4 -68.5 -83.8 Current Acc. Bal. (US$B, ar) -4.3 -13.7 -9.7 Merch. Trade Bal. (US$B, ar) 2.6 5.9 16.7 1.3 (Mar) Merch. Trade Bal. (US$B, ar) 9.0 -2.0 3.1 20.4 (Mar) Industrial Production 1.3 0.5 0.2 1.6 (Feb) Industrial Production 3.0 4.9 2.5 2.6 (Feb) CPI 6.2 6.1 5.8 6.2 (Mar) CPI 1.9 2.2 2.3 3.5 (Mar)

Peru Colombia Real GDP 2.2 4.5 5.1 Real GDP 4.3 5.4 4.9 Current Acc. Bal. (US$B, ar) -10.2 -2.5 -2.2 Current Acc. Bal. (US$B, ar) -12.7 -3.8 -3.4 Merch. Trade Bal. (US$B, ar) 0.1 0.1 0.2 0.1 (Feb) Merch. Trade Bal. (US$B, ar) 0.2 0.0 0.1 0.2 (Jan) Unemployment Rate (%) 5.9 5.8 5.8 6.9 (Mar) Industrial Production -1.7 -1.3 0.3 2.8 (Feb) CPI 2.8 3.1 2.9 3.4 (Mar) CPI 2.0 2.3 1.8 2.5 (Mar)

Latin America

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

Economics

10

Global Views

April 17, 2014

FINANCIAL STATISTICS

* Latest observation taken at time of writing. Source: Bloomberg, Scotiabank Economics.

A12

Interest Rates (%, end of period)

Canada 13Q4 14Q1 Apr/10 Apr/17* United States 13Q4 14Q1 Apr/10 Apr/17*BoC Overnight Rate 1.00 1.00 1.00 1.00 Fed Funds Target Rate 0.25 0.25 0.25 0.25 3-mo. T-bill 0.92 0.89 0.91 0.94 3-mo. T-bill 0.07 0.03 0.03 0.03 10-yr Gov’t Bond 2.76 2.46 2.44 2.43 10-yr Gov’t Bond 3.03 2.72 2.65 2.68 30-yr Gov’t Bond 3.23 2.96 2.97 2.93 30-yr Gov’t Bond 3.97 3.56 3.52 3.48 Prime 3.00 3.00 3.00 3.00 Prime 3.25 3.25 3.25 3.25 FX Reserves (US$B) 71.8 77.0 (Feb) FX Reserves (US$B) 133.5 134.2 (Feb)

Germany France 3-mo. Interbank 0.24 0.27 0.27 0.29 3-mo. T-bill 0.15 0.19 0.18 0.19 10-yr Gov’t Bond 1.93 1.57 1.52 1.51 10-yr Gov’t Bond 2.56 2.08 2.02 1.99 FX Reserves (US$B) 67.4 66.0 (Feb) FX Reserves (US$B) 50.8 55.8 (Feb)

Euro Zone United Kingdom Refinancing Rate 0.25 0.25 0.25 0.25 Repo Rate 0.50 0.50 0.50 0.50 Overnight Rate 0.45 0.69 0.21 0.20 3-mo. T-bill 0.40 0.39 0.38 0.38 FX Reserves (US$B) 331.2 339.0 (Feb) 10-yr Gov’t Bond 3.02 2.74 2.62 2.67

FX Reserves (US$B) 92.4 93.8 (Feb)

Japan Australia Discount Rate 0.30 0.30 0.30 0.30 Cash Rate 2.50 2.50 2.50 2.50 3-mo. Libor 0.09 0.07 0.07 0.07 10-yr Gov’t Bond 4.24 4.08 4.05 3.96 10-yr Gov’t Bond 0.74 0.64 0.61 0.61 FX Reserves (US$B) 49.7 43.0 (Feb) FX Reserves (US$B) 1237.2 1255.5 (Feb)

Exchange Rates (end of period)

USDCAD 1.06 1.11 1.09 1.10 ¥/US$ 105.31 103.23 101.53 102.27CADUSD 0.94 0.91 0.91 0.91 US¢/Australian$ 0.89 0.93 0.94 0.93GBPUSD 1.656 1.666 1.679 1.681 Chinese Yuan/US$ 6.05 6.22 6.21 6.22EURUSD 1.374 1.377 1.389 1.383 South Korean Won/US$ 1050 1065 1040 1039JPYEUR 0.69 0.70 0.71 0.71 Mexican Peso/US$ 13.037 13.058 13.063 13.060USDCHF 0.89 0.88 0.88 0.88 Brazilian Real/US$ 2.362 2.272 2.207 2.248

Equity Markets (index, end of period)

United States (DJIA) 16577 16458 16170 16419 U.K. (FT100) 6749 6598 6642 6623 United States (S&P500) 1848 1872 1833 1863 Germany (Dax) 9552 9556 9455 9403 Canada (S&P/TSX) 13622 14335 14308 14468 France (CAC40) 4296 4392 4413 4430 Mexico (IPC) 42727 40462 40448 40891 Japan (Nikkei) 16291 14828 14300 14418 Brazil (Bovespa) 51507 50415 51127 51153 Hong Kong (Hang Seng) 23306 22151 23187 22760 Italy (BCI) 1041 1181 1181 1162 South Korea (Composite) 2011 1986 2009 1992

Commodity Prices (end of period)

Pulp (US$/tonne) 990 1030 1030 1030 Copper (US$/lb) 3.35 3.01 3.01 3.01 Newsprint (US$/tonne) 605 605 605 605 Zinc (US$/lb) 0.95 0.90 0.92 0.93 Lumber (US$/mfbm) 372 354 336 N/A Gold (US$/oz) 1204.50 1291.75 1320.50 1299.00 WTI Oil (US$/bbl) 98.42 101.58 103.40 104.51 Silver (US$/oz) 19.50 19.97 20.24 19.62 Natural Gas (US$/mmbtu) 4.23 4.37 4.66 4.70 CRB (index) 280.17 304.67 310.19 310.91

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April 17, 2014

Global Views

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April 17, 2014

Global Views

Foreign Exchange Strategy This publication has been prepared by The Bank of Nova Scotia (Scotiabank) for informational and marketing purposes only. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable, but no representation or warranty, express or implied, is made as to their accuracy or completeness and neither the information nor the forecast shall be taken as a representation for which Scotiabank, its affiliates or any of their employees incur any responsibility. Neither Scotiabank nor its affiliates accept any liability whatsoever for any loss arising from any use of this information. This publication is not, and is not constructed as, an offer to sell or solicitation of any offer to buy any of the currencies referred to herein, nor shall this publication be construed as an opinion as to whether you should enter into any swap or trading strategy involving a swap or any other transaction. The general transaction, financial, educational and market information contained herein is not intended to be, and does not constitute, a recommendation of a swap or trading strategy involving a swap within the meaning of U.S. Commodity Futures Trading Commission Regulation 23.434 and Appendix A thereto. This material is not intended to be individually tailored to your needs or characteristics and should not be viewed as a “call to action” or suggestion that you enter into a swap or trading strategy involving a swap or any other transaction. You should note that the manner in which you implement any of the strategies set out in this publication may expose you to significant risk and you should carefully consider your ability to bear such risks through consultation with your own independent financial, legal, accounting, tax and other professional advisors. Scotiabank, its affiliates and/or their respective officers, directors or employees may from time to time take positions in the currencies mentioned herein as principal or agent, and may have received remuneration as financial advisor and/or underwriter for certain of the corporations mentioned herein. Directors, officers or employees of Scotiabank and its affiliates may serve as directors of corporations referred to herein. All Scotiabank products and services are subject to the terms of applicable agreements and local regulations. This publication and all information, opinions and conclusions contained in it are protected by copyright. This information may not be reproduced in whole or in part, or referred to in any manner whatsoever nor may the information, opinions and conclusions contained in it be referred to without the prior express written consent of Scotiabank. ™Trademark of The Bank of Nova Scotia. Used under license, where applicable. Scotiabank, together with “Global Banking and Markets”, is a marketing name for the global corporate and investment banking and capital markets businesses of The Bank of Nova Scotia and certain of its affiliates in the countries where they operate, all members of the Scotiabank group and authorized users of the mark. The Bank of Nova Scotia is incorporated in Canada with limited liability and is authorised and regulated by the Office of the Superintendent of Financial Institutions Canada. The Bank of Nova Scotia and Scotiabank Europe plc are authorised by the UK Prudential Regulation Authority. The Bank of Nova Scotia is subject to regulation by the UK Financial Conduct Authority and limited regulation by the UK Prudential Regulation Authority. Scotiabank Europe plc is authorised by the UK Prudential Regulation Authority and regulated by the UK Financial Conduct Authority and the UK Prudential Regulation Authority. Details about the extent of The Bank of Nova Scotia's regulation by the UK Prudential Regulation Authority are available on request. Scotiabank Inverlat, S.A., Scotia Inverlat Casa de Bolsa, S.A. de C.V., and Scotia Inverlat Derivados, S.A. de C.V., are each authorized and regulated by the Mexican financial authorities.Not all products and services are offered in all jurisdictions. Services described are available in jurisdictions where permitted by law.

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Scotiabank Economics

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