global views 06-06-14scotiabankfiles.azureedge.net/.../internacionales/2014/gviews060614.pdf ·...

Foreign Exchange Strategy Fixed Income Strategy Fixed Income Research Emerging Markets Strategy Portfolio Strategy Economics

Weekly commentary on economic and financial market developments

Global Views

Corporate Bond Research

Contact Us

Global Views is available on scotiabank.com, Bloomberg at SCOT and Reuters at SM1C

June 6, 2014

This Week’s Featured Chart

Key Data Preview A1-A2

Key Indicators A3-A5

Global Auctions Calendar A6

Events Calendar A7-A8

Global Central Bank Watch A9

Forecasts A10

Latest Economic Statistics A11-A12

Latest Financial Statistics A13

Forecasts & Data

Economics

China And The US Consumer Are On The Mend 2-4

Derek Holt

Car Sales Continue To Strengthen In Developed Markets 5

Carlos Gomes

Rising Energy Prices Squeeze Household Budgets 6

Adrienne Warren

US Labour Slack Is Heavily Cyclical And Canada Shows Why 7

Derek Holt

Bank Of Canada Has To Explain Inflation Downside Concerns More Fully 8

Derek Holt

The Provinces Reset Their Budget Paths 9

Emily Jackson & Mary Webb

Core Europe Regional Outlook 10-11

Pablo Bréard & Sarah Howcroft

South Korea & Singapore Enjoy The Benefits Of Improving Global Demand 12

Tuuli McCully

Harsh Drought Highlights The Risks of Brazil’s Hydroelectric Dependence 13

Rory Johnston

Fixed Income Strategy

UK — Fancy A Wager? 14-15

Alan Clarke

European Central Bank June Decision — Super Mario Is Back! 16-18

Frédéric Prêtet

Foreign Exchange Strategy

Latin America Week Ahead: For The Week Of June 9 - 13 19-20

Eduardo Suárez

4

5

6

7

8

9

10

11

07 08 09 10 11 12 13 14

U.S. & Canadian Unemployment Rates Converge

Source: BLS, Statistics Canada, Global Insight, Scotiabank Economics.

unemployment rate, %

U.S.

Canada -Official

Canada -Adjusted to Match U.S.

Economics

Global Views

June 6, 2014

2

China And The US Consumer Are On The Mend

Please see our full indicator, central bank, auction and event calendars on pp. A3-A9.

Asia-Pacific — Chinese Exports In Recovery Mode

China’s economy is on the mend compared to concerns that spanned the winter months. That should be more evident in next week’s trade figures that hit markets into the Monday open and which should be a constructive influence. Exports are expected to resume material growth in the six-handled percentage range from year-ago levels compared to an 18% rate of annual decline this past February that had spooked markets. At issue is that the base effect of artificially strong export growth a year ago will fully drop out of the figures for this May as the year-ago reference point shifts to a much softer trajectory than had been evident over the first several months of 2013. What’s going on? Over a year ago, the yuan was appreciating and that fed efforts by exporters to over-invoice their reported figures as a natural hedge. That then transitioned toward under-invoicing earlier this year as the People’s Bank of China moved to widen the trading bands around the yuan and push it toward the lower end through a concerted effort to depreciate the currency which, in turn, motivated the opposite desire to hedge against currency movements by reporting artificially low figures. This effect has now largely shaken off. While many economists realized it as a distorting influence on trade growth over the past year, markets did not understand this argument terribly well and took the weakness in reported export figures earlier this year at face value instead of treating it as a data head fake, at least in part.

Also due out will be Chinese figures for CPI inflation, credit growth, retail sales, and industrial production. As the government increases spending on targets including railways and broader infrastructure and the People’s Bank of China lowers reserve ratio requirements and injects fresh liquidity into markets, the policy bias in China is to take out insurance against further downside risks in an effort to preserve its 7.5% GDP growth target. Default risks across China’s shadow banking sector remain material over 2014H2 but improved fundamentals may be a significant offset from a market standpoint.

The Reserve Bank of New Zealand is widely expected to hike its policy rate by 25bps for the third straight time while other Asian central banks remain on hold in policy decisions from the Bank of Japan, Bank Indonesia and Bank of Korea. Across the Tasman Sea, the Reserve Bank of Australia has faced considerably improved employment trends so far this year compared to the concerns over 2013H2. Next week’s Australian employment report should continue this positive backdrop and that’s part of the reason behind the renewed appreciation in the Australian dollar over the course of this year. The Bloomberg consensus of economists anticipates rate increases by the end of this year or early next year.

Whether India continues to witness ebbing inflation will be a regional focal point in the wake of the drop from over 11% yearly gains in consumer prices late last year to sub 9% this year. Regional data will be rounded out via export figures from India and the Philippines, and industrial production figures for South Korea, India and Malaysia.

Canada — Ontario Election Uncertainties

Ontario’s provincial election will be held on Thursday and the results will be available shortly after polls close that evening. Recent polls have been volatile and have failed to point to one party being clearly and consistently in the lead. Polls of individual voter intentions, however, are of limited use in a first-past-the-post electoral system and given a fair undecided component that can swing abruptly by the actual voting day. Ask Quebeckers or British Columbians based upon their relatively recent electoral experiences. We’re therefore offering little by way of guidance over a potential victor.

Data flow will pose modest domestic market risk and will book-end the week. Housing starts for May arrive on Monday and they are expected

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

THE WEEK AHEAD

2

15

20

25

30

35

40

45

05/03 05/08 05/13 05/18 05/23 05/28 06/02

Ontario Election Opinion Poll Results

Liberals

Conservative

NDP

%

2

Economics

Global Views

June 6, 2014

3

… continued from previous page

to track somewhat lower given the decline in the volume of residential building permits into Spring. Manufacturing shipments for April land on Friday and they are expected to notch the fourth straight monthly gain.

Also note that BoC Governor Stephen Poloz and the recently promoted Senior Deputy Governor Carolyn Wilkins will hold a joint press conference to release the BoC’s Financial System Review on Thursday. Anything is fair game in the press conference, though it’s likely that Governor Poloz will stick to the same script as the recent BoC statement. Having said that, an astute reporter would be wise to probe for much more detailed perspectives from the BoC on why it continues to worry about downside risks to inflation. In fact, the more granular work on export prospects that has been done recently by the BoC could be wisely followed up — or should have been preceded — by much more granular work on inflation risks given that it’s price stability that is the BoC’s official mandate. Also note that Canada auctions 30 year real return bonds on Wednesday.

US — How Much Pent-Up Consumer Demand Will Be Released In Q2?

How much pent-up consumer demand may be released into Q2 following weather-interrupted spending patterns in Q1? This is not the only question behind our bullish view on Q2 GDP growth, but it’s a key one, and retail sales for the month of May will advance the debate in what we expect to be a positive way. April’s 0.3% inflation-adjusted decline in total consumer spending followed a rise of 0.8% in March and just meant that some of the March surge was taken back on base effects. That was also true of narrower retail sales that climbed 1.3% m/m in March in inflation-adjusted terms and then slipped 0.2% in April. It’s now possible that the April softness will give way to the resumption of solid growth over the rest of the quarter. Indeed, monthly total spending gains of about 0.5% per month in May and June would lift the inflation-adjusted quarterly consumption gain to 3.8% in Q2 over Q1 assuming no revisions. That’s very possible in my view. It will take until the end of the month to get a handle on total consumption, but next Thursday’s retail sales print for May will provide solid guidance. In the wake of the roughly 5% rise in the volume of auto sales during May and a modest rise in gasoline prices, we’re expecting a fairly solid retail sales gain on the month.

In a broader sense, the consumer drivers are becoming considerably more favourable. Levels of employment and hours worked have now recovered all of the crisis losses and moved to new record highs (see chart). Debt service payments as a share of incomes are at a record low as households abstained from borrowing and refinanced at record lower fixed mortgage rates. Net worth is at a record high, and over two years of house price gains have motivated material trickle-down effects onto main street that raise modest prospects for wealth effects on consumption. Improved house prices have resulted in a sharp reduction in under-water mortgages over the last 12-24 months, and fewer people are asking for permission to engage in short sales or foreclosure sales since they are incorporating capital gains expectation into the housing equation. Against this backdrop, unsold new housing inventories have never been leaner, and resale housing inventories are sharply abating; the combined effects will be to force builders to put more shovels in the ground to meet trend growth in new home sales over our forecast horizon. Lowered credit scores at some key US banks and a sharp rise in jumbo mortgages over the past year are signs that lenders are in the nascent phase of easier lending conditions in recognition of the vastly improved household fundamentals — and with more to come in our view. Our advice remains to get behind this sharp improvement in the household sector and its ability to drive a material pick-up in growth this quarter and over the longer haul.


THE WEEK AHEAD

128

130

132

134

136

138

140

90

92

94

96

98

100

102

06 07 08 09 10 11 12 13 14

Source: BLS, Bloomberg, Scotiabank Economics.

millions

Who Says Employment Markets Remain A Consumer Headwind?

U.S. Aggregate Weekly Hours (LHS)

U.S. Non-farmPayrolls (RHS)

index, 2007=100

Economics

Global Views

June 6, 2014

4


Other releases will be less significant including the latest University of Michigan consumer sentiment on Friday, and whether weekly jobless claims continue to shake off Memorial Day holiday distortions. The US auctions 3s, 10s and 30s, and Federal Reserve speak will be focused upon St. Louis Fed President James Bullard and Boston Fed President Eric Rosengren.

Europe — Rebound At European Factories?

European markets won’t really matter to the global risk trade next week because the macro release and event schedules are pretty tame. If anything, a modest data schedule should be constructive via expectations for rebounds in industrial production in countries like France, the UK and Italy. The UK unemployment rate is expected to hit a new low point not reached since early 2009, while the National Institute of Economic & Social Research’s monthly GDP print that tracks growth over the preceding three months will reach for the seventeenth consecutive rise and the fourteenth straight month above a half-point rise, but against the backdrop of a tough to continue trend of 1% or slightly lower monthly gains over the past three months. The accelerating pattern of growth is accompanied by house price pressures that have been partly motivated by the Bank of England’s funding-for-lending scheme that — unlike the ECB’s recently announced program — does not exclude mortgages.


THE WEEK AHEAD

Economics

Global Views

June 6, 2014

5

Car Sales Continue To Strengthen In Developed Markets

Sales pace improves in all regions.

Car sales in the major developed nations of North America, Western Europe and Japan accelerated in May, climbing 7% y/y, up from a 5% gain through April. The improvement was led by a 10.5% advance in the United States, but sales also quickened in other regions. In particular, while purchases in Japan remained below a year earlier in response to a hike in the sales tax in April, the decline eased to only 5.6% y/y — half of the previous month’s fall-off. The strengthening in car sales across the developed world is consistent with recent data pointing to a pick-up in global economic growth during the month of May. In particular, several indicators suggest that new order activity accelerated last month, lifting the backlogs for both manufacturers and service providers.

In the United States, passenger vehicle sales climbed to a seasonally adjusted 16.7 million units in May, the highest level in nearly eight years and well above the 16.1 million units that had been expected. The improvement reflects a strengthening labour market and healthy household balance sheets that are enabling households to replace their aging clunkers with top quality new vehicles. As in previous months, crossover utility vehicles (CUVs) led the way. CUV sales jumped 19% y/y in May and now total nearly double the level of mid-2005 when overall U.S. passenger vehicle volumes hit a monthly peak of more than 20 million units. CUVs became the largest segment of the U.S. auto market in 2009 and now account for 27% of overall sales, 7 percentage points above the previous market leader — mid-size cars.

Despite CUVs outperforming, purchases advanced above a year earlier in every segment, prompting automakers to boost their third-quarter North American production schedule to an annualized 17.4 million units, up from 17.1 million units in the second quarter. This represents the highest level since the first half of 2000, when vehicle assemblies in North America reached a peak of more than 18 million units. Mexico will post the largest gain, with vehicle output climbing 9% above a year earlier due to the recent opening of several new auto assembly plants by Japanese automakers. However, production will also strengthen in both the United States and Canada.

Passenger vehicle sales in Canada set a record last month, climbing to an annualized 1.89 million units and surpassing the previous peak of 1.88 million set in January 2008. As in the United States, the rapidly growing CUV segment led the way, soaring 17% above a year earlier. The record-setting sales pace of recent months combined with the recent launch of ‘employee pricing’ by General Motors, virtually guarantees that full-year 2014 Canadian sales will climb to record highs. April through June are the industry’s highest volume months, accounting for more than 30% of overall annual sales.

Purchases in the four largest auto markets of Western Europe rose 3% above a year earlier, even as activity weakened in Italy. The United Kingdom led the way, but purchases rebounded in Germany — the largest market in the region — alongside strengthening economic conditions. The German economy expanded 0.8% quarter-over-quarter in the opening months of 2014, the fastest pace in three years. Consumer confidence is at the highest level in more than seven years, lifting vehicle replacement demand. For example, used car prices — a leading indicator of new vehicle sales — have been gaining momentum over the past year and are now surging 16% y/y, one of the fastest gains on record. This represents a sharp reversal from declining prices through the opening months of 2013, and is a clear indication of the improving auto industry fundamentals in Germany.

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

AUTOS

5

7

9

11

13

15

17

19

07 08 09 10 11 12 13 14

Auto Sales Strengthen

United States

WesternEurope

millions of units, 3MMA

Source: Scotiabank Economics.

Economics

Global Views

June 6, 2014

6

Rising Energy Prices Squeeze Household Budgets

Rising energy prices are eroding the purchasing power of Canadian households, and will likely reinforce a more cautious consumer spending profile over the coming year.

The average cost of energy products and other utilities used in household operations and motor vehicle transportation has risen roughly 5% this year, amid broad-based increases in gasoline, fuel oil, natural gas, electricity and water. Spending on energy products is fairly inelastic in the short-term, as most households are limited in their ability to quickly or substantially alter their daily household activities and/or driving patterns. A 5% increase in average energy prices could divert as much as $4 billion from other less discretionary purchases.

Despite conservation efforts and technological efficiency advances, the share of household expenditures allocated to energy products and other utilities has been trending higher since the late-1990s. Outlays totaled a record $88 billion (annualized) in the first quarter of 2014, accounting for 8½% of all household expenditures — about a percentage point above its long-term average (chart 1).

A discernible long-term upward trend in the cost of energy products is fuelling the growing household energy bill. The retail price of gasoline, fuel oil, electricity and water have all notably outpaced broad inflation since the 1980s, and increasingly so since the new millennium (chart 2). Natural gas prices also outpaced inflation over this period, though pressures have eased in recent years as new production technologies bolster North American supplies.

The rapid expansion in industrial activity among emerging markets has been a major factor in lifting global energy demand. Meanwhile, periodic bouts of geopolitical tension have added to supply concerns. Domestically, the pressures of population growth, industrial expansion and aging infrastructure have raised electricity and water costs.

Gasoline accounts for roughly half of household energy expenditures. Its share of the average household budget has steadily increased over the past decade and a half, reversing the declining trend from the early 1980s through the mid-1990s. In part, significant gains in motor vehicle fuel efficiency have been moderated by a shift in consumer preferences toward less fuel-efficient light trucks.

Given the potential for real energy prices to continue to drift higher over the medium term, there is a strong economic incentive for Canadians to reduce their energy consumption — or at least slow its rise. Any potential savings could be redirected to other spending, saving or paying down debt. Longer-term, reducing energy consumption would lower the sensitivity of household spending and the overall economy to any future price shocks.

Encouragingly, progress is being made in home energy efficiency. As a share of household spending, housing-related energy costs have trended lower over the past two decades. Increased energy demand stemming from growing air conditioning use and the proliferation of personal computers and electronic devices has been offset by improvements in efficiency in a number of areas, including home heating systems, appliances and lighting fixtures. Canada’s housing stock itself is becoming more energy efficient, reflecting the elevated pace of new construction and renovation activity, as well as the growing shift to less energy-intensive high-density living.

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

CANADA

0

100

200

300

400

500

600

80 85 90 95 00 05 10

Chart 2: Consumer Prices

Source: Statistics Canada, Scotiabank Economics

index 1980=100Gasoline

Total CPI

Water, Fuel & Electricity

6

7

8

9

10

80 85 90 95 00 05 10

Chart 1: Household Spending On Energy & Other Utilities


% of total expenditures

1981-2013 average

Economics

Global Views

June 6, 2014

7

US Labour Slack Is Heavily Cyclical And Canada Shows Why

Evidence from Canada shows why a sharp decline in the US labour force participation rate is heavily cyclical and not mostly demographics.

There is more slack in the US labour market than commonly accepted and Canada’s experience helps to prove this point. This conclusion figures prominently into the debate over the efficacy of Federal Reserve policy actions and the pace of withdrawing monetary policy stimulus.

That's because the two countries offer a unique way of testing the theory that an aging workforce explains most of the drop in the US labour force participation rate by virtue of the fact that the age structures of their populations are nearly identical. As chart 1 depicts, the two countries' population pyramids are very close to one another. The US is a little heavier in the younger tail thanks to a higher fertility rate particularly across the southern states (to the greater benefit of US housing and consumer markets than Canada’s), but the share of the populations represented in all other age cohorts are a near-perfect match to one another. Therefore, if demographics really is such an obvious and dominating influence on movements in the labour force participation rate, then both countries should have experienced comparable declines in their labour force participation rates as baby boomers age into retirement.

Not so, however, in that the steep decline in the US participation rate has exceeded Canada's by several orders of magnitude (chart 2), and this is true even after accounting for measurement differences. Canada’s participation rate has dropped from a peak of 67.8% in late 2007 to 66.1% as of last month. The US participation rate has declined from 66.4% in early 2007 to 62.8% now. The decline of 1.7 points in the Canadian rate is less than half of the 3.6 point decline in the US over this similar period. Furthermore, some of the decline in the Canadian labour force participation rate is also likely to have been cyclical itself, and the slightly older age structure of the Canadian population should mean that Canada would have a bigger participation rate problem than the US if demographics really were the main culprit.

One might retort that the smaller decline in the Canadian rate is because the two economies have performed very differently over the crisis era as Canada ran a better banking sector, had a stronger fiscal position, prospered under supportive commodity prices, and had its deep crisis in the 1990s. That's precisely our point! It's the economy and non-demographic factors that matter more than demographics. Indeed even the disastrous early 1990s Canadian experience taught us that.

It may well be that over time an additional insulating factor against demographic change could be that older cohorts are choosing to remain attached to the work force longer than previously. Chart 3 makes this point and what’s remarkable is how rising participation rates for workers aged over 55 fly in the face of the broader decline in the economy’s participation rate even though there remains a steep drop-off on participation rates from the under-50 cohorts into the over-55 groups.

The broadest implication here is that by using the Canadian example we side more with the Fed's bias that much of the decline in the participation rate is cyclical. That, in turn, could keep the pace of monetary belt tightening relatively slow in terms of this one consideration.

US-CANADIAN MACRO COMMENT Derek Holt (416) 863-7707 [email protected]

60

61

62

63

64

65

66

67

68

69

76 82 88 94 00 06 12Source: BLS, Statistics Canada, Scotiabank Economics.

%

Participation Rates

U.S. Participation

Rate

Canada Participation

Rate

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

0-4 10-14

20-24

30-34

40-44

50-54

60-64

70-74

80-84

Canada(2013)U.S. (2012)

Source: Statistics Canada, U.S. Census Bureau

US and Canadian Population Pyramids Are Identical

Age Cohorts

%

0

10

20

30

40

50

60

70

50 58 66 74 82 90 98 06 14

Source: BLS, Scotiabank Economics.

US participation rates, %

Older Cohorts On The Rise

Ages 55-64

Ages 65+

Economics

Global Views

June 6, 2014

8

Bank Of Canada Has To Explain Inflation Downside Concerns More Fully

Does the BoC still stand by inflation pass-through estimates?

As we had expected, the latest BoC policy statement referenced how headline inflation has risen back to target "sooner than anticipated" and core "has drifted up slightly." Thus far, the BoC’s messaging is consistent with our view that its ambivalence toward the direction of the next rate move and warnings about downside risks to inflation are potentially on the way out later in the summer in favour of greater emphasis being placed upon long-pause arguments. The recent June policy statement could therefore represent a first step toward softening the argument as a necessary acknowledgement that inflation has bounced off of its lows in 2013.

Although that path may lie ahead, the BoC is not going there just yet. The BoC said that "increased risks to economic growth leave downside risks to the inflation outlook as important as before," but that perspective is likely to become less defensible as the summer wears on. Ditto on the growth risks which appear to be a backward-looking assessment at Q1 weather effects, as a Q2 acceleration from a soft Q1 is likely, including on the export side after a very soft Q1. Indeed, the BoC faces a greater sales job to explain why in the near-term "downside risks to the inflation outlook [are] as important as before" which we see differently. We would expect much greater depth on the issue in the July MPR to be convinced that the BoC is correctly flagging such downside risks to inflation. A full update on BoC thinking toward import-price pass-through effects would be helpful as import price inflation sharply accelerates (chart 1), and in a broadly based manner (chart 2) — something the BoC has only recently begun to acknowledge. It’s possible that such pressures get absorbed in record-high retailer and wholesaler margins (chart 3), but this is by no means clear to us.

The ultimate key here may be whether the BoC still stands by its prior estimate that a 10% trade-weighted depreciation in CAD (which lies within the recent experience) lifts core inflation by a half percent within two years (chart 4). If so, why the downsides talk? One complication is that this estimate is drawn from a sample period that is skewed toward the pre-crisis environment. The reality remains, however, that the BoC’s inflation forecasts have been too low this year (see page 7 here).

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

-15

0

15

30

-2.5

0.0

2.5

5.0

10 12 14

CPI, Y/Y (LHS)

Import Prices, Y/Y (RHS)

%


Canada Import Prices Pass Through to CPI to Materialize?

%

-20 -15 -10 -5 0 5 10 15

Other

Animal and vegetable oils

Machinery and transport

Beverages and tobacco

Mineral fuels

Crude materials

Total

Miscellaneous mfg. articles

Manufactured goods

Chemicals

Food and live animals

Broadly Based Import Price Pressures

Source: Statistics Canada, Scotiabank Economics.

Apr 2014 y/y % change by category of

import price

http://www.gbm.scotiabank.com/English/bns_econ/globalviews140523.pdf

Economics

Global Views

June 6, 2014

9

The Provinces Reset Their Budget Paths

The challenge of sustainable deficit elimination spurs new policy.

This week’s Budget from Quebec’s new administration leaves the combined provincial deficit for fiscal 2013-14 (FY14) at $14.2 billion, wider than the aggregate shortfall from the spring 2013 Budget estimates. The FY14 combined provincial deficit may, in fact, narrow significantly early this summer when the three most western Provinces release their final FY14 results incorporating the buoyant late FY14 oil & natural gas prices.

For FY15, this spring’s Budgets indicate three Provinces expecting black ink and a combined deficit narrowing to $13.6 billion, similar to the final FY13 level. With six Provinces deferring their balanced budget targets, and capital programs for FY15 raised in several jurisdictions, aggregate provincial debt has shifted higher. The revised mid-decade peak in their aggregate debt burden, however, is still expected to remain below the high of the mid-1990s at just over 33% of GDP.

The Provinces over the past year have faced setbacks, including in several cases a significantly slower-than-expected economic expansion. For calendar 2014, Scotiabank Economics in January 2013 forecast for Canada a 2.4% rise in real GDP, a 4.3% increase in nominal GDP and a 1.2% gain in employment (side chart). In our latest forecast on May 29th, our projections for 2014 are lower at 2.2%, 3.6% and 0.8%, respectively. We still expect Canada’s nominal GDP growth, a broad proxy for government revenue gains, to reach 4.0%, but in 2015. Importantly, the assist from a strengthening U.S. economy should benefit provinces such as New Brunswick, Quebec and Ontario that are seeking broader expansion.

There is some evidence across the provinces of ‘austerity fatigue’ following consecutive years of restraint. Yet the setbacks in a number of instances have spurred longer-term adjustments, in retirement benefits and other areas, to achieve more sustainable paths. Quebec’s new Budget responds to the possibility of a substantially wider FY15 shortfall by outlining the first steps in an extensive two-year restructuring covering taxes (plus tax expenditures) and government services.

Mary Webb (416) 866-4202 [email protected]

Emily Jackson (416) 863-7463 [email protected]

FISCAL

Target forFY15b Balance

$Ch vs $Ch vs $ Ch $ Ch. $ Ch. BudgetFinal Bud Rev Final Bud Rev Final vs Bud Final vs Bud. Rev. vs Bud. 2014 FY10 FY11 FY12 FY13 FY14r FY15b

NL -33 262 594 109 974 915 -195 -204 -349 215 -538 -0.1 2.0 2.9 -0.6 -0.9 -1.4 FY16PE -74 10 -63 -9 -84 -42 -79 -4 -52 7 -40 -1.5 -1.2 -1.6 -1.4 -0.9 -0.7 FY16NS -269 219 585 138 -256 134 -302 -91 -562 -579 -279 -0.8 1.6 -0.7 -0.8 -1.4 -0.7 FY18NB -696 47 -618 122 -245 204 -508 -325 -564 -85 -391 -2.4 -2.1 -0.8 -1.6 -1.8 -1.2 FY18

QC -3,174 1,083 -3,150 1,050 -2,628 1,172 -1,600 0 -3,100 -3,100 -2,350 -1.0 -1.0 -0.8 -0.4 -0.8 -0.6 FY16ON -19,262 2,068 -14,011 2,675 -12,969 3,347 -9,220 5,600 -11,300 443 -12,505 -3.2 -2.2 -2.0 -1.4 -1.6 -1.8 FY18

MB -185 370 -181 286 -1,001 -563 -580 -120 -432 86 -357 -0.4 -0.3 -1.8 -1.0 -0.7 -0.6 FY17SK -409 -384 -13 609 -105 -159 37 23 591 441 71 -0.7 0.0 -0.1 0.0 0.7 0.1 Surplus

AB** 0 0 0 0 0 0 0 0 1,393 1,844 2,644 0 0 0 0 0.4 0.8 Surplus

BC -1,810 965 -241 1,024 -1,814 -889 -1,146 -178 175 22 184 -0.9 -0.1 -0.8 -0.5 0.1 0.1 Surplus

All Prov. -25,912 4,640 -17,098 6,004 -18,128 4,118 -13,592 4,701 -14,200 -706 -13,560 -1.7 -1.0 -1.0 -0.8 -0.7 -0.7

Federal -55,598 -1,798 -33,372 2,828 -26,279 6,021 -18,929 2,171 -13,800 4,900 -3,600 -3.5 -2.0 -1.5 -1.0 -0.7 -0.2 FY16__________* Post-transfer. QC pre-transfer FY10 final: -$3.6 bn.; Ontario's FY13 Budget estimate includes April 2012 changes. ** Alberta pre-transfer consolidated deficits on a Fiscal Plan basis are: FY10: -$1.0 bn;

FY11:-$3.4 bn; FY12:-$23 mn; FY13:-$2.8 bn. Alberta for FY14 and FY15: operational balances. Source: Provincial documents; Statistics Canada; nom. GDP & fed. deficit fcsts: Scotiabank Economics.

The Provinces' Budget Balances* $ millions unless otherwise noted

FY10 FY11 FY12 FY13 FY14r % of GDP

0

1

2

3

NL PE NS NB QC ON MB SK AB BC CA

Jan. 31, 2013

May 29, 2014

Scotiabank Economics Employment Forecasts

annual % change, 2014

Forecast Prepared:

* May 29, 2014, employment forecast for NS: 0%. Source: Scotiabank Economics, Global Forecast Update.

Economics

Global Views

June 6, 2014

10

Core Europe Regional Outlook

Economic, debt and financial market stabilization is ongoing in the region, but downside risks to the recovery and longer-term structural challenges remain.

Uneven Growth & Monetary Policy Dynamics Among Core European Economies

The core economies of Europe are experiencing a slow and gradual recovery from the deep contraction initially triggered by the 2008-09 global financial crisis. While Germany remains the continent’s primary growth engine, the prospects for the United Kingdom (UK), Switzerland and Sweden are also promising for 2014-15. During the first quarter of 2014 output expanded strongly in Germany and the UK, building on the positive trends established in 2013. With sustained momentum, the UK will likely be the growth leader among developed economies this year, advancing by 2.8%. In Germany, where recuperating domestic demand is now taking over as the main economic driver, real GDP growth will land around the 1.8% mark. France stagnated at the start of 2014 and the recovery will likely resume at a subdued pace in the coming quarters, limiting growth to below 1% for the year. Sweden and Switzerland are well positioned for gains in the 2-2.5% range, near their respective trend rates, though developments in both economies are contingent on a pick-up in external demand, particularly in Europe. The Bank of England (BoE) is expected to become the first major central bank to raise its policy interest rate, by the first quarter of 2015. Meanwhile, still fragile growth prospects and disinflation concerns will prolong the European Central Bank’s (ECB) monetary easing campaign.

Robust Capital Flows Reflected in Regional Currency Equity Market Strength

Strong capital inflows into European equity markets at the start of 2014 — driven by an expected narrowing of growth differentials between advanced and emerging-market economies, together with concerns about China’s growth outlook — have instilled a positive view for corporate earnings. Ongoing fiscal consolidation efforts and prompt intervention of multilateral financial institutions to support the process of sovereign deleveraging have also underpinned the resilience of the euro (EUR), despite the relatively fragile economic recovery of the euro area compared to peer high-income countries. However, the trend is starting to shift and the outlook for the EUR against the US dollar is negative, especially as the ECB shows a willingness to weaken the currency. Beyond the euro zone, financial market metrics indicate a marked preference for the British Pound (GBP) and Swiss Franc (CHF) over the Swedish Krone (SEK).

Debt Consolidation Underway; Longer-Term Structural Reforms Needed

General government debt levels have begun to move lower in Germany and Switzerland and are nearing a peak in Sweden, France and the UK. The process of gradual deficit reduction evident most countries in Europe is encouraging. Although the fiscal shortfalls of the UK and France continue to exceed the European Union (EU) mandated limit of 3% of GDP, they have been trimmed down from very high levels. Nevertheless, considerable challenges remain to ensuring a sustainable downward debt trajectory, most obviously for France, where low growth and inflation combined with a persisting primary budget deficit (excluding interest payments) will continue to pressure the debt-to-GDP ratio higher in the absence of further material budget consolidation. Global investor unease regarding European sovereign debt

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

Pablo Bréard (416) 862-3876 [email protected]

EUROPE

0 1 2 3

France

Euro Area

Germany

Switzerland

U.K.

Sweden

2014-15F

2004-13

Real GDP Growth

y/y % change

Source: IMF, Scotiabank Economics.

0 20 40 60 80 100

France

Euro Area

Germany

Switzerland

U.K.

Sweden

2014-15F

2004-13

General Government Gross Debt

% of GDP

Source: IMF, Scotiabank Economics.

Economics

Global Views

June 6, 2014

11


sustainability has not disappeared entirely, yet it has eased considerably. Germany, Sweden and Switzerland continue to enjoy membership in the elite group of AAA-rated countries while both the UK and France have been subject to downgrade revisions. Credit ratings have now stabilized for the most part, although France and the UK remain subject to a “negative” outlook from one of the three major ratings agencies. The effect of aging populations on public finances will pose considerable policy challenges down the road. Reforms to pension and social security systems and measures to boost labour market participation, especially for females, will be needed. Some governments have already made progress in these areas.

Continued Banking Sector Stabilization; Ongoing Challenges Linked to Household Debt & Property Markets

The UK’s economic rebound has proven robust despite lingering concerns regarding the systemic strength of domestic financial institutions (some of which remain subject to ongoing state intervention) and increasing imbalances in the real estate market. The gradual erosion of banking secrecy in Switzerland has emerged as a threat to the sector’s competitive advantage and a source of intensified diplomatic tensions with the US and the EU. Sovereign and corporate de-leveraging efforts have been rewarded with improved access to European bond markets, yet the high degree of household indebtedness remains a structural challenge in parts of the region. Household debt to disposable income ratios are well above 100% in the UK, Sweden and Switzerland. Finally, policymakers are still concerned about the potential development of housing bubbles, as housing price inflation in excess of nominal GDP growth has led to overvaluation in certain property segments.

Enhanced Regional Governance; Geo-Political Risks Remain in Place

Following elections in May, the eighth European Parliament will convene in July under an expanded set of decision-making powers and responsibilities. Since the onset of the debt crisis, the economic governance structure of the EU has gradually been improved by stepped-up institutional monitoring and enforcement of national budgets and reform programs. Over the coming months, in order to restore credibility to the banking sector and in concert with the ECB’s “Comprehensive Assessment” of euro area banks’ balance sheets, EU regulators will perform stress tests on 124 of the region’s biggest lenders. Heightened diplomatic and military tensions associated with the Ukraine/Russia conflict will remain a source of instability over the near term. Nevertheless, there is a sense of cautious optimism that Germany can act as an effective broker to resolve the conflict. Energy prices seem to be incorporating a geopolitical risk premium, yet there is no evidence at present of an imminent supply disruption.

EUROPE



Economics

Global Views

June 6, 2014

12

South Korea & Singapore Enjoy The Benefits Of Improving Global Demand

The economic outlook of the two externally oriented economies continues to recuperate.

The outlook for South Korean and Singaporean economies is favourable as exports continue to pick up reflecting stronger demand globally. Both nations have faced similar challenges in establishing a sustainable economic recovery due to their reliance on foreign trade, with exports of goods and services equivalent to close to 60% of GDP in South Korea and 200% in Singapore. Signs of accelerating momentum are now evident; net exports increased by around 11% y/y and 16% y/y in South Korea and Singapore, respectively, in the first quarter of the year.

Complementing the improving external environment, both economies maintain solid domestic demand momentum as labour market conditions underpin household spending and a favourable global outlook supports investment activity. Healthy government finances further buttress the encouraging macroeconomic context; both nations will record fiscal surpluses in 2014-15, according to the International Monetary Fund. South Korean real GDP grew by 4.0% y/y in the first quarter of the year, while Singapore’s output increased by 4.9%. We expect modest outperformance by Singapore to be maintained over the next couple of years, with its economy expanding by 4% annually compared with an advance of around 3.4% in South Korea.

South Korea and Singapore produce similar goods such as electronics, machinery and mineral fuels, with the former’s auto industry being the major differentiating factor. In terms of goods produced, the South Korean export sector is more diversified than that of Singapore. Nevertheless, Singapore is less dependent on one single export destination as its market consists of a larger number of countries. Malaysia is Singapore’s main trading partner, purchasing 12% of shipments, while South Korea relies relatively heavily on demand from China, which is the endpoint for 26% of all Korean exported goods.

Singapore is very well-positioned to benefit from globalization; it ranks second (out of 148) in the World Economic Forum’s 2013-2014 Global Competitiveness Index, while South Korea is placed in the 25th position. Singapore enjoys a respectable performance across all dimensions of the index, while South Korea’s assessment is diminished by its fairly weak quality of public and private institutions, the rigidity and inefficiencies of its labour market, as well as poorly functioning financial markets. Similarly, Singapore’s regulatory environment is more conducive to the starting and operation of a local firm; the World Bank’s Ease of Doing Business Index places Singapore on the very top, though South Korea does not fare poorly either, being placed in the 7th position in the world. Despite Singapore’s aforementioned favourable attributes, one of the persisting challenges that the economy faces is its low productivity growth. According to the Conference Board statistics, over the past 10 years Singapore’s labour productivity (per hour worked) has increased on average by 1% annually, while the corresponding figure for Korea is over 4%. Accordingly, the Singaporean government continues its long-term efforts to increase productivity and innovation through focused measures in its 2014-15 Budget.

Tuuli McCully (416) 863-2859 [email protected]

ASIA

-12

-7

-2

3

8

Jan-13 Jul-13 Jan-14

Source: Bloomberg.

y/y % change, 3-m MA

Export Growth

Singapore

Korea

Korean Exports(2013)

U.S.(11%)

Euro Area (6%)

Other (46%)

China(26%)

Japan (6%)Hong (5%)

KongSource: IMF Direction of Trade Database.

Singaporean Exports(2013)

Malaysia(12%)

Euro Area (7%)

Other (48%)

China(12%)

Indonesia(10%)

Source: IMF Direction of Trade Database.

HongKong(11%)

Economics

Global Views

June 6, 2014

13

Harsh Drought Highlights The Risks of Brazil’s Hydroelectric Dependence

Drought-strained hydroelectric supplies in Brazil are hurting the government’s balance sheet and threatens to damage an already fragile economic outlook.

Brazil’s worst drought in decades is overextending the country’s power sector, which depends on hydroelectricity for the vast majority of generation. With less than a week until the World Cup kicks off, the government is striving to keep the lights on; these efforts, however, are putting tremendous financial strain on the government as well as distorting the market mechanisms that would normally bring the system into equilibrium. Any shock to the price or supply of electricity would significantly and negatively affect Brazil’s already anemic economic growth.

Hydropower accounts for roughly 80% of the electricity Brazil generates in a given year, providing the Brazilian economy with cheap, clean energy. In drought conditions, however, the rains that normally replenish the reservoirs are absent and thermal backup stations must pick up the slack. Power generation costs increase as producers are forced onto the spot market to purchase coal, oil, and natural gas to fuel the plants. As reservoir capacity falls, upward pressure on wholesale electricity prices increases (top chart).

Exacerbating factors further, the government slashed electricity rates in early 2014 from an average pre-tax consumer rate of R$300.11/MWh in January to R$243.27/MWh in March. Despite the rising cost of wholesale electricity, distributors are unable to raise rates accordingly (middle chart), which has necessitated capital infusions for distributors from the central government. These bailouts temporarily put off the consumer rate increases and the subsequent “load-shedding” (i.e. demand reductions) that would naturally bring the system into equilibrium. In fact, the opposite is occurring: Brazil recorded its highest-ever electricity demand in January.

The situation will likely get worse before it gets better. The rainy season normally begins replenishing reservoirs in December and levels continue to rise until May, when the dry season begins. Over the past decade, reservoir levels in Brazil’s southeast region (the largest hydroelectric producer) have increased an average of 24% over the course of the rainy season; this year, they decreased by 14% (bottom chart). With such shallow reservoirs heading into the dry season, the next six months will significantly strain the system.

Brazilian policy makers are aiming to balance the fiscal burden of electricity subsidies against the risk of fanning inflation and hurting the economic competitiveness of Brazilian industry. However, substantive reforms are unlikely to take shape until after the national election in October. Even without electricity rate increases, Brazilian aluminum producers are cutting production in the wake of falling aluminum prices; higher electricity costs will only serve to worsen this trend. Regardless of what direction the government takes, the Brazilian economy is intimately linked to the water cycle and the strained situation will persist until much-needed rain begins to fall.

Rory Johnston (416) 862-3908 [email protected]

LATIN AMERICA

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

900.0

Jan-11 Jan-12 Jan-13 Jan-14

Wholesale Benchmark

Rate

Rate w Taxes

Wholesale vs Consumer Price

Weighted regional averages.Source: ANEEL, CCEE, Scotiabank Economics

$R/MWh

0% 50% 100%

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

December

May

Historical Southeast Reservoir Capacity - Rainy Season ChangeHistorical Southeast Reservoir

Capacity - Rainy Season Change

Weighted regional averages. . Source: ONS, Scotiabank Economics.

+18%

+16%

+39%

+40%

+27%

+4%

+46%

+10%

+40%

—14%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

100

200

300

400

500

600

700

800

900

Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

Wholesale Price, LHS

Capacity, RHS

Price & capacity figures are weighted averages. Source: CCEE, ONS, Scotiabank Economics.

Wholesale Electricity Price & Southeast Reservoir Capacity$R/MWh


Global Views

June 6, 2014

14

UK — Fancy A Wager?

Next week’s labour report could be a major determinant of how soon we will see the first BoE rate hike. In particular, wage inflation was much lower than expected last month. Another downward surprise next week would seriously dent the chances of a rate hike before the end of the year.

Wages are the new celebrity indicator

A key focal point for the Bank of England in helping to determine the timing of the first rate hike is how much slack there is in the economy. A good proxy for this is wage inflation. Employment has been surging of late and the unemployment rate has fallen like a stone. Yet, wage inflation has been somewhat disappointing — running at around 1.5% y/y. The implication is that despite rapid hiring, there remains considerable slack which has held back wage increases. If that is the case and there is considerable residual slack, then the Monetary Policy Committee can afford to delay the first rate hike.

Wages are also an important barometer of how much household disposable income is growing. If the combination of employment growth and wage inflation sufficiently outpaces CPI inflation, then this should support robust consumer spending growth. Right now, rapid hiring is doing all of the heavy lifting, given employment growth of almost 2½% y/y. That is the fastest pace of growth for 25 years! (Chart 1).

A more normal pace of employment growth is around 1% y/y. The point is that this break-neck pace of hiring is unlikely to support disposable income growth forever. So unless wage inflation starts to pull its weight, disposable income growth and the pace of consumer spending growth are at risk. Wage inflation tells us about slack and the prospects for growth.

‘Normal’ wage inflation used to be in the region of 4.5% y/y. The Bank of England assumes that wage inflation will recover to around 2½% y/y by the end of the year. However, there is a serious danger that the underlying wage inflation series posts a reading of 1.0% y/y or lower next week, having slowed from 1.4% in February.

Wages are Up but Earnings are Down

Headline Average Weekly Earnings (AWE) represents the growth in the average company wage bill. This can go up (or down) for several reasons. Clearly if firms on average increase everyone’s pay rate by x%, that will push up the headline AWE series. However, if firms increase their headcount, or increase the proportion of full-time relative to part-time workers, that will also inflate the average company wage bill and hence the pace of headline AWE wage inflation. Our assumption had been that in a rapid hiring environment, we would see a triple whammy for the AWE — wages rising, bigger headcounts and more full-time versus part-time workers. In fact, we have seen the opposite.

The AWE is made up of two components — the wage contribution and the employment contribution. The wage contribution (as the name suggests) captures the effect of explicit pay increases. That component is actually running faster than the headline AWE as firms on average have raised wages.

Alan Clarke (44 207) 826-5986 [email protected]

Employment (% y/y)

2.4% y/y - Fastest for 25 Years!

-4

-3

-2

-1

0

1

2

3

4

1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014Source:

Chart 1: Employment Growth (% y/y)


Global Views

June 6, 2014

15


However, the average company pay bill is rising less quickly because the other component of the AWE, i.e., the employment contribution, is posing a drag. Clearly we are seeing rapid hiring, however these jobs have tended to be lower quality jobs. This increased concentration in lower-paid jobs is subtracting around ½% point from headline wage inflation (Chart 2).

Although self-employment is not captured by the AWE data, it is a decent proxy for what is going on in the labour market. Self-employment has accounted for over half of the increase in overall hiring in recent months. So while there has been a substantial increase in the number of people in employment, these jobs have tended to be less productive and lower-paid jobs — which explains why the ‘employment contribution’ of the AWE has fallen — holding back over AWE inflation.

Wage inflation could fall below 1%!!

Next week’s wage inflation data need to be seen in the context of what was happening a year ago. Last April, the top rate of income tax was lowered from 50% to 45%. Hence there was an incentive for firms to delay bonuses from March (or even earlier) until April to take advantage of the lower rate of income tax. This caused a massive increase in the headline measure of wages (up by 3.6% m/m) during April. If that jump is not matched this April, then the % y/y pace of wage inflation will slump. That appears to be what the consensus is assuming, with the median expectation that AWE including bonuses slumps from 1.7% 3m/yr down to just 1.2% y/y. We are a little less downbeat since we believe that there has been a persistent change in the calendar timing for bonus payments. If a firm paid a bonus in April last year instead of March, there is a good chance that they stuck with that for this year. At the end of the day, the measure that includes bonuses is polluted and the BoE will treat it with caution.

The measure that will make or break the BoE outlook is average earnings excluding bonuses. There are similar (although much smaller) base effects for this measure. A ‘normal’ % m/m gain in this measure has been in the range of -0.2% m/m to +0.2% m/m. Last April saw a bumper 0.5% m/m gain. Our forecast assumes that this 0.5% m/m gain is matched. That would push the % 3m/yr rate down from 1.3% to 1.1%. If that 0.5% m/m is not matched, then there is a good chance that we see a 1% reading or lower. We only need to see a -0.1% m/m reading in order to push the % 3m/yr reading below 1%.

The consensus at the time of writing is for a 1.2% 3m/yr reading. That implies a 0.6% m/m gain — i.e., even faster than last April. We think this is too high and a downward surprise could seriously dent any residual expectations of a BoE rate hike before the end of the year.

Alan Clarke (44 207) 826-5986 [email protected]

Employment contribution typically reflects an increase / decreasein the relative number of employees in a high -paying industry.

Average Weekly Earnings - Employment Contribution (% y/y)

0

-1.25

-1.00

-0.75

-0.50

-0.25

0.00

0.25

0.50

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Source:

Chart 2: Employment Contribution to Headline AWE


Global Views

June 6, 2014

16

European Central Bank June Decision — Super Mario Is Back!

Bold, Unanimous Action

The ECB raised hopes last month that it was prepared to take bold action in June, and it didn’t disappoint.

Not only was the action bold, it was unanimous, which reinforced the impact of the ECB’s measures. It also showed that Draghi’s leadership inside the board is strengthening.

The decision to announce a full set of measures also illustrates some follow-through on the “whatever it takes” commitment from some time ago.

The key measures were:

1. The deposit rate was cut into negative territory to -0.10%. The refi rate was also cut by 10bp to 0.15% while the marginal rates drop by 35bp to 0.40%.

2. The main refinancing operations (MROs) were prolonged as fixed-rate tender procedures with full allotment for as long as necessary, and at least until the end of the Eurosystem’s reserve maintenance period ending in December 2016.

3. The SMP sterilisation programme ended, which will immediately increase liquidity in the system by €165 bn. However, on this issue, the ECB may face legal challenges.

4. A 4-year targeted long-term refinancing operation (maturing Sept 2018 and at fixed rate +0.1% above the MRO) amounting to €400bn initially and intended to improve bank lending to the euro area non-financial private sector (excluding housing loans). The first two “TLTROs” will be conducted in September and December of this year. By that time the ECB will have a pretty good view on the strength of the banking sector through the asset quality review (AQR). So, in a way, this timing avoids impacting the AQR.

5. Intensified preparatory work related to outright purchases of asset-backed securities (ABS). By this decision, the ECB showed that it has made a big step toward entering into some form of quantitative easing (QE).

Addressing EUR strength and the lack of credit growth

The ECB president made it clear that this package is intended to achieve three aims:

First, strengthen the ECB’s forward guidance that accommodative monetary policy will stay in place for a prolonged period. “Longer than previously thought”.

Second, deal with the strength of the EUR which has been one of the key factors behind lower-than-expected inflation. In that sense, the decision to cut the deposit rate to -0.1% was made in view of the success of the Danish central bank’s efforts to lower the DKK.

Third, speed up the recovery process by enhancing the liquidity available for banks to offer credit through in particular the targeted LTRO or the ABS programme.

Potential impact on the market

Lower the euro.

Further rally on short-term rates through a stronger commitment to keep rates low for a sustainable period.

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


Global Views

June 6, 2014

17


Steepen the yield curve beyond the 5Y as the ECB wants to speed up / strengthen the recovery process.

Provide support for the rally in peripheral yields as the “low rate environment” amplifies the search for yield. From a macroeconomic perspective also, the willingness of the ECB to reflate the economy and push inflation higher is also a support for the sustainability of eurozone sovereign debt.

On the Linker market: Higher breakevens and inflation swaps with an outperformance of 2Y in 2Y inflation swaps or a flatter 5Y/10Y inflation swaps curve. At the end of the day, however, the performance on the Linker market will be linked to the scale of the drop in the euro.

The updated ECB staff projections reaffirmed the belief that the recovery in growth is ongoing, but emphasised the increased nervousness on the inflation outlook (see Table).

Unsurprisingly, following the weaker-than-expected Q1 GDP number, the ECB revised down its 2014 GDP growth forecast from 1.2% to 1.0%. This assumption suggests around a +0.3% q/q per quarter pace of expansion over the coming three quarters. For 2015, the forecast was revised slightly up to 1.7% from 1.5%, largely due to base effects. For 2016, the scenario was unchanged at 1.8%.

The changes were more significant for inflation, with the entire profile shunted lower. While a significant downside adjustment for this year was to be expected, the cut in 2015 and 2016 (at a time when commodity prices are higher than in March) illustrates the nervousness on core inflation. By Q4 2016, inflation is no longer seen as coming back to price stability at 1.7% y/y but now stands at 1.5% y/y.

English lessons

How does the ECB’s TLTRO differ from Bank of England’s Funding for Lending Scheme (FLS)?

The fee / incentives are similar, but different. For TLTRO there are two phases:

Phase 1) Two TLTROS in Sep-14 and Dec-14 enable participants to use the scheme up to 7% of outstanding non-housing non-financial loans (as at end-April 14)

Phase 2) From Mar-15 to Jun-16, for every 1 EUR of new net lending (i.e., gross lending less redemptions) a participant can tap the TLTRO for 3 EUR.

The fee is the MRO rate plus 10bp.

So this is a little different than the BoE FLS. The fee for the FLS went down by a set formula for each institution as more net lending was provided. By contrast, the fee is the same for the ECB TLTRO irrespective of how much



Global Views

June 6, 2014

18


new net lending is provided. However, the more new net lending an institution provides, the more access to cheap funding that institution will get to refinance other existing more expensive borrowings.

There is also a cleverly designed safety feature. The UK experience of the FLS showed that some lenders were wary of using the FLS for fear of facing a penal borrowing rate if their net lending turned negative. These lenders feared big redemptions on existing loans, which are completely outside of their control. The ECB has addressed this by stating that if net lending turns negative, then that institution will have to repay its TLTRO at the end of 2016 (instead of the end of 2018).

Doubts?

There is of course a question mark regarding the capacity of this new TLTRO to lift credit growth in view of the lack of success of previous LTROs. However, today’s situation is different. First, we are in a recovery now and risk aversion has receded. So, the environment is more favourable and the last ECB survey showed less tightening in banking credit conditions. Second, the latest ECB lending survey also showed renewed appetite from the demand side for borrowing. Thirdly, the structure of the TLTRO explicitly encourages financial institutions to increase their net lending. Admittedly, the TLTROs where increased new net lending is rewarded through the scheme are almost a year away (Mar-15-Jun-16) — why are we waiting!!!

Nonetheless, all in all, today’s actions create a better environment for the transmission of monetary policy.



Global Views

June 6, 2014

19

Latin America Week Ahead: For The Week Of June 9 - 13

Week-ahead highlights

Although the week looks fairly quiet in the developed world from a data pipeline perspective, in LATAM, the week contains a number of tier-1 releases. In the US, the main events look set to be the release of retail sales and Fed speakers Bullard and Rosengren on Monday, which should be watched. However, the slim US data pipeline opens the opportunity for LATAM FX to continue to diverge based on domestic factors. In Colombia, the run-up to the elections will be interesting, as the two candidates continue to elaborate on their plans to differentiate from each other in an election that looks tough to call (June 15th). BRL remains supported by its high carry, and seemingly by FX intervention by both the central bank and FinMin. In PEN, the BCRP seems likely to set a ceiling on the sol’s USD cross as inflation remains stubborn. For MXN and CLP, our bias remains to be long MXN/CLP.

Week-ahead views:

Brazil: The BCB’s latest minutes seemed to signal that the rate hike cycle is over (at least for now), as growth concerns took a more important place in the central bank’s debate. However, both the minutes and the statement did not seem to fully shut the door on anything. There still seems to be some residual inflationary pressure, so this week’s inflation data will be important to watch, as well as the BCB’s weekly survey to monitor expectations. However, the BCB has repeated that it believes a portion of its tightening is still running its course through the pipelines, signaling that even if we saw some residual upwards momentum in inflation or its expectations, the rate hike cycle is likely at an end for now (material surprises could change this, but we don’t see it as anywhere near a base case). On the growth front, this week’s retail sales and monthly economic activity will likely be a key direction provider, as recent data has been a big disappointment due to the leveraged stated of consumer balance sheets (whose debt service to disposable income ratio has remained flat at around 21.5% since last November, which is still too high in our view).

In our view, there are still many hurdles to overcome before growth can sustainably accelerate, which include deleveraging in important parts of the economy, but also a tax overhaul (i.e. on Thursday, Fiat’s CEO said Brazil has the highest tax burden on cars of any economy globally; underscoring the 18% y/y drop in May’s auto production in the country), and changing incentives for investment. The other important part of the puzzle we get this week is formal job creation. In our opinion, although consumers are still highly leveraged, the high rates on consumer loans mean that their capacity to pay is more determined by employment than interest rate sensitivity (although Moody’s on Thursday warned that public banks’ loan portfolio quality started deteriorating since the second half of 2013), so employment is a key indicator to watch. For BRL, the big debate now is what the BCB’s intervention policy will be going forward, with the increase in swap auctions and the IOF measure from last week signaling the central bank does not want the currency to weaken much further. It is interesting that over the course of this week, both FinMin Mantega and the director of BNDES defended the role of the development bank in supporting investment.

Chile: We expect this week’s main event to be the central bank’s MPC meeting, where consensus is looking for unchanged rates, although the easing bias is expected to remain in place. Earlier this week, Governor Vergara hinted that the central bank is likely to revise its growth forecast lower, which we don’t expect to be a shock to the market, given weakness in recent data. Vergara also prepared us for the possibility that inflation will remain above target for a few months before edging down towards the target. However, he was fairly clear in signaling that with inflation persistently high, rate cuts will have to wait (today’s 4.7% CPI reinforces the message). In addition to the MPC meeting, next week we are expecting the release of the trade balance, where consensus looks for a surplus of ~US$1bn.

Colombia: With 10 days to go before the second round of the presidential elections, the latest poll by “el Tiempo” puts President Santos marginally ahead of opposition candidate Zuluaga (who won round 1), with the president leading 41.9% to 37%. However, RCN’s latest poll gave Zuluaga 49% and Santos 41%. The election seems too close to call, as different polls seem to alternate on which candidate is ahead. On the FX

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

http://latino.foxnews.com/latino/news/2014/06/05/brazil-auto-production-down-18-pct-in-may/

http://online.wsj.com/articles/chile-central-banker-signals-rate-cuts-on-hold-1401903371?tesla=y&mg=reno64-wsj

http://online.wsj.com/articles/brazils-central-bank-expects-growth-to-be-less-intense-this-year-1401972271?tesla=y&mg=reno64-wsj


Global Views

June 6, 2014

20


front, FinMin Cardenas once again said he is worried about the peso’s strength (an increasingly frequent message) which suggests that the FX intervention program will at least be extended, and potentially increased (which we think will depend on how markets are progressing). We are looking forward to reading BanRep’s MPC meeting minutes, after being caught offside in the last two decisions. In the first we did not expect the hike due to FX concerns (thinking the central bank would view broad financial conditions as having been tightened by currency appreciation), while in the second instance we took the central bank’s signal that they had started the hiking cycle early so that tightening could be gradual as a sign that it would be an intermittent cycle as data was evaluated… Both were the wrong call. Accordingly, we will look for guidance from the upcoming minutes. The other part of the debate we will be interested in is the exchange rate, as we seek guidance on what will be done with the FX intervention program.

Mexico: Banxico is widely expected to leave the O/N rate unchanged today, but it will be interesting to look for any changes in the central bank’s perception of the economy. Our sense is that we are seeing a gradual upswing in activity, but that some components of domestic demand remain sluggish. On the data front, the release of CPI data will be interesting to watch, as will AMIA’s auto sector data, as well as industrial and manufacturing production (which is somewhat of the engine of the economy). In addition, we see the release of gross fixed investment data as a useful metric of confidence in the business sector, but we may need to wait for clarity on secondary legislation before we see a true upswing. Reform discussions should also heat up, as extraordinary sessions on the telecoms and energy secondary legislation kick off.

Peru: This week is relatively heavy with tier-1 events, with the BCRP’s MPC meeting being the highlight, although the reference is likely to remain unchanged. The latest inflation print came in a little stronger than anticipated (3.56%), and remains above target, but the central bank’s action has so far been on the FX front, and reserve requirement adjustments. It will be interesting to see if there are any changes in bias. In addition, it will be important to watch the trade balance release, where a deficit of -US$440mn is expected by consensus. The sol remains range-bound since last January, with the BCRP setting a ceiling.

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

Economics

Global Views

June 6, 2014

21

Key Data Preview

CANADA

We’re looking for a bump higher in Canadian manufacturing sales by 0.4% m/m when numbers for April are released on June 13. Our call is premised on a mix of strong data that showed exports of machinery higher by 1.8% m/m and exports of cars higher by 2.4% m/m — that’s the good news. The bad news is that prices for refined petroleum products fell by 0.2% m/m and a big drop in new orders in March pulled the absolute level of orders down substantially, below levels seen prior to a defense order-induced surge in the new orders numbers in February (see chart). That should cap momentum moving forward, and generally speaking, leaves us more than moderately skeptical that a manufacturing rebound will materialize later this year.

UNITED STATES

We’re looking for healthy growth in U.S. retail sales (June 12) on the order of 0.4% m/m, with a smaller gain (0.2% m/m) coming after excluding auto sales. Yes, you’ve guessed it, we think that auto dealer sales should be very strong on the month after industry sources reported a 4.5% m/m increase in sales volumes of new cars — a post-crisis high that is in-line with the 16.85m annual average of sales from 2000-2007 — i.e. before the pre-crisis slump (see chart). Other indicators are… fairly mixed. Gasoline prices were roughly flat (+0.4% m/m), so prices shouldn’t give much of a lift in that category. The ICSC index of store sales was weak on the month (-1.5% m/m) pointing to a ceiling on gains.

The federal Treasury budget statement for May lands on June 11, and the deficit so far in FY2014 (i.e., since October 2013) stands at USD -306bn vs. USD -487bn at this point in FY2013 – an improvement of USD 181bn. FY2013’s deficit came in at USD680bn vs. USD1.09tn in FY2012 (see chart). FY2014’s pace of deficit contraction is not pointing to a comparable improvement as the effects of the expiry of some Bush-era tax cuts plus the spending growth slow-down associated with the political wrangling in Congress had the most radical impact on FY2013. Still, economic growth has government tax revenues rising at a solid pace this year, and should cause the deficit to be whittled down further.

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


A1

35

40

45

50

55

60

07 08 09 10 11 12 13 14

New Orders

Shipments

C$, Billions


Canadian Manufacturing Sales & OrdersNew Orders Volatility...

1

1.5

2

2.5

3

3.5

4

4.5

8

10

12

14

16

18

20

22

05 07 09 11 13Auto SalesInventories (RHS)

Millions

Source: Bloomberg, Scotiabank Economics

Too Much Too Soon?U.S. Vehicle Sales & Inventories

Millions

-12

-10

-8

-6

-4

-2

0

-1600

-1400

-1200

-1000

-800

-600

-400

-200

0

2009 2010 2011 2012 2013 2014 2015

Deficit (lhs)

Deficit as % of GDP (rhs)USD, Bn %

US Budget Defict:Rapid Improvement, Still Huge

Source: CBO, Scotiabank Economics; Dates are Fiscal Years

CBO Forecast

U.S. Budget Deficit

Economics

Global Views

June 6, 2014

22

Tuuli McCully (416) 863-2859 [email protected]


EUROPE

The Turkish economy decelerated in the first quarter of 2014; we anticipate that real GDP expanded by 3.5% y/y, down from 4.4% in the final quarter of 2013. Ongoing softness is concentrated on the domestic demand side, as previously robust consumer spending is under strain from higher interest rates (the central bank raised rates significantly in the January before partly reversing the move in May) and higher unemployment (above 10%). Tighter credit conditions have reduced the rate of consumer loan growth by half since late last year, from 28% y/y in September-October to 14% in May. Meanwhile, exports have performed well so far this year, rising by 8.9% y/y in the first quarter, while imports shrunk 2.2%. These factors have supported a narrowing in the current account deficit (as intended by the central bank), which diminished to its smallest — albeit still elevated — level in five quarters in the January-March period. We expect further moderation in activity in the coming quarters, limiting growth to 2.4% for the year as a whole.

LATIN AMERICA

Brazilian economic performance continues to be very disappointing during the first months of the year. Recent data on industrial production and retail sales as well as consumer and business confidence surveys confirm a marked deterioration in growth projections; we have adjusted our forecast accordingly and we now estimate that real GDP will expand by 1.5% this year.

ASIA

The Bank of Japan (BoJ) will convene on June 12-13th for its monthly monetary policy meeting. The members of the Policy Board of the BoJ will focus on assessing the impact of the April consumption tax increase on inflation and economic growth. For the time being, we expect the policymakers to maintain the current policy stance of expanding the nation’s monetary base by ¥60-70 trillion annually (by 30-35% in 2014 as a whole), which would take it to around ¥270 trillion by the end of the year. We assess that the BoJ will likely provide additional monetary stimulus by potentially extending and increasing the asset purchase program in the coming months if the tax hike leads to a prolonged stalling of economic momentum.

Neil Shankar (416) 866-6781 [email protected]



A2

0

2

4

6

8

10

12

14

Mar-11 Mar-12 Mar-13 Mar-14

Turkey Real GDP Growth

y/y % change

Source: Bloomberg, Scotiabank Economics.

0

10

20

30

40

50

60

0

50

100

150

200

250

Jan-13 Jul-13 Jan-14

y/y % change

LHS

RHS

Source: Bloomberg.

Japan's Monetary Base

¥ tns

Economics

Global Views

June 6, 2014

1

Key Indicators for the week of June 9 – 13

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

North America

Europe

A3

Country Date Time Indicator Period BNS Consensus LatestPO 06/09 06:00 Real GDP (q/q) 1Q F -0.7 -0.7 -0.7

FR 06/10 02:45 Industrial Production (m/m) Apr 0.5 0.3 -0.7FR 06/10 02:45 Manufacturing Production (m/m) Apr 0.5 0.4 -0.7TU 06/10 03:00 Real GDP (y/y) 1Q 3.5 4.2 4.4IT 06/10 04:00 Industrial Production (m/m) Apr -- 0.4 -0.5UK 06/10 04:30 Industrial Production (m/m) Apr 0.5 0.4 -0.1UK 06/10 04:30 Manufacturing Production (m/m) Apr 0.3 0.4 0.5IT 06/10 05:00 Real GDP (q/q) 1Q F -0.1 -0.1 -0.1

UK 06/11 04:30 Average Weekly Earnings (3-month, y/y) Apr 1.7 1.2 1.7UK 06/11 04:30 Employment Change (3M/3M, 000s) Apr 280.0 270.0 283.0UK 06/11 04:30 Jobless Claims Change (000s) May -30.0 -25.0 -25.1UK 06/11 04:30 ILO Unemployment Rate (%) Apr 6.7 6.7 6.8

FR 06/12 02:45 CPI (y/y) May 0.7 0.7 0.7FR 06/12 02:45 CPI - EU Harmonized (m/m) May 0.0 0.1 0.0FR 06/12 02:45 CPI - EU Harmonized (y/y) May 0.8 0.8 0.8EC 06/12 05:00 Industrial Production (m/m) Apr 0.2 0.5 -0.3

SP 06/13 03:00 CPI (y/y) May F 0.2 0.2 0.2SP 06/13 03:00 CPI - EU Harmonized (y/y) May F 0.2 0.2 0.2IT 06/13 04:00 CPI - EU Harmonized (y/y) May F 0.4 0.4 0.4EC 06/13 05:00 Employment (q/q) 1Q -- -- 0.1EC 06/13 05:00 Trade Balance (€ mn) Apr -- 16.3 17088.4

Country Date Time Indicator Period BNS Consensus LatestCA 06/09 08:15 Housing Starts (000s a.r.) May 185.0 185.0 195.3MX 06/09 09:00 Bi-Weekly Core CPI (% change) May 31 -- 0.1 0.1MX 06/09 09:00 Bi-Weekly CPI (% change) May 31 -- 0.1 -0.4MX 06/09 09:00 Consumer Prices (m/m) May -- -0.4 -0.2MX 06/09 09:00 Consumer Prices (y/y) May -- 3.5 3.5MX 06/09 09:00 Consumer Prices Core (m/m) May -- 0.1 0.3

US 06/10 10:00 Wholesale Inventories (m/m) Apr -- 0.5 1.1

US 06/11 07:00 MBA Mortgage Applications (w/w) JUN 6 -- -- -3.1MX 06/11 09:00 Industrial Production (m/m) Apr -- -- -0.1MX 06/11 09:00 Industrial Production (y/y) Apr -- -0.2 3.4US 06/11 14:00 Treasury Budget (US$ bn) May -- -130.0 106.9

CA 06/12 08:30 Capacity Utilization (%) 1Q -- 82.4 82.0CA 06/12 08:30 New Housing Price Index (m/m) Apr -- 0.2 0.2US 06/12 08:30 Initial Jobless Claims (000s) JUN 7 310 309 312US 06/12 08:30 Continuing Claims (000s) MAY 31 2580 2612 2603US 06/12 08:30 Export Prices (m/m) May -- 0.2 -0.4US 06/12 08:30 Import Prices (m/m) May -- 0.2 -0.4US 06/12 08:30 Retail Sales (m/m) May 0.4 0.6 0.1US 06/12 08:30 Retail Sales ex. Autos (m/m) May 0.2 0.4 0.0CA 06/12 09:00 Teranet - National Bank HPI (y/y) May -- -- 4.9US 06/12 10:00 Business Inventories (m/m) Apr -- 0.4 0.4

CA 06/13 08:30 Manufacturing Shipments (m/m) Apr 0.4 0.8 0.4US 06/13 08:30 PPI (m/m) May 0.2 0.1 0.6US 06/13 08:30 PPI (y/y) May 2.5 2.4 2.1US 06/13 09:55 U. of Michigan Consumer Sentiment Jun P 83.5 83.0 81.9

Economics

Global Views

June 6, 2014

2


Asia Pacific


A4

Country Date Time Indicator Period BNS Consensus LatestCH JUN 7-8 Exports (y/y) May -- 6.7 0.9CH JUN 7-8 Imports (y/y) May -- 6.0 0.8CH JUN 7-8 Trade Balance (USD bn) May -- 22.6 18.5

JN 06/08 19:50 Bank Lending (y/y) May -- -- 2.1JN 06/08 19:50 Current Account (¥ bn) Apr -- 287.7 116.4JN 06/08 19:50 GDP (q/q) 1Q F 1.5 1.4 1.5JN 06/08 19:50 Trade Balance - BOP Basis (¥ bn) Apr -- -640.0 -1133.6

JN 06/09 01:00 Consumer Confidence May -- 37.6 37.0JN 06/09 02:00 Eco Watchers Survey (current) May -- 45.0 41.6JN 06/09 02:00 Eco Watchers Survey (outlook) May -- 52.0 50.3TA 06/09 04:00 Exports (y/y) May -- 4.0 6.2TA 06/09 04:00 Imports (y/y) May -- 10.2 5.8TA 06/09 04:00 Trade Balance (US$ bn) May -- 2.9 2.5NZ 06/09 18:45 Manufacturing Activity 1Q -- -- 6.3JN 06/09 19:50 Tertiary Industry Index (m/m) Apr -- -3.5 2.4JN 06/09 19:50 Japan Money Stock M2 (y/y) May -- 3.2 3.4JN 06/09 19:50 Japan Money Stock M3 (y/y) May -- 2.7 2.8PH 06/09 21:00 Exports (y/y) Apr -- -- 12.4PH 06/09 21:00 Unemployment Rate (%) Apr -- -- 7.5AU 06/09 21:30 Home Loans (%) Apr -- 0.2 -0.9AU 06/09 21:30 Investment Lending (% change) Apr -- -- -0.8CH 06/09 21:30 CPI (y/y) May 2.3 2.4 1.8CH 06/09 21:30 PPI (y/y) May -- -1.5 -2.0CH JUN 9-15 Aggregate Financing (CNY bn) May -- 1400.0 1553.8CH JUN 9-15 New Yuan Loans (bn) May -- 750.0 774.7IN JUN 9-16 Exports (y/y) May -- -- 5.26IN JUN 9-16 Imports (y/y) May -- -- -15.00NZ JUN 9-13 Business NZ PMI May -- -- 55.2NZ JUN 9-13 REINZ House Sales (y/y) May -- -- -20.2NZ JUN 9-13 REINZ Housing Price Index (m/m) May -- -- 0.1

JN 06/10 02:00 Machine Tool Orders (y/y) May P -- -- 48.7SK 06/10 19:00 Unemployment Rate (%) May 3.7 3.5 3.7AU 06/10 21:00 Consumer Inflation Expectation (%) Jun -- -- 2.4

MA 06/11 00:01 Industrial Production (y/y) Apr -- 4.0 4.3NZ 06/11 17:00 RBNZ Official Cash Rate (%) Jun 12 3.00 3.25 3.00JN 06/11 19:50 Machine Orders (m/m) Apr -- -10.8 19.1SK 06/11 21:00 BoK Base Rate (%) Jun 12 2.50 2.50 2.50AU 06/11 21:30 Employment (000s) May -- 10.0 14.2AU 06/11 21:30 Unemployment Rate (%) May 5.8 5.9 5.8ID JUN 11-12 BI Reference Interest Rate (%) Jun 12 7.50 7.50 7.50

IN 06/12 08:00 CPI (y/y) May 8.9 -- 8.6IN 06/12 08:00 Industrial Production (y/y) Apr -- -- -0.5SI 06/12 22:00 Unemployment Rate (%) 1Q F 2.1 2.1 2.1JN JUN 12-13 BoJ Monetary Base Target (¥ tn) Jun 13 270.0 -- 270.0

JN 06/13 00:30 Capacity Utilization (m/m) Apr -- -- 0.4JN 06/13 00:30 Industrial Production (y/y) Apr F 4.1 -- 4.1SI 06/13 01:00 Retail Sales (y/y) Apr -- -2.6 -3.9CH 06/13 01:30 Fixed Asset Investment YTD (y/y) May -- 17.1 17.3CH 06/13 01:30 Industrial Production (y/y) May -- 8.8 8.7CH 06/13 01:30 Retail Sales (y/y) May -- 12.2 11.9HK 06/13 04:30 Industrial Production (y/y) 1Q -- -- 0.5

Economics

Global Views

June 6, 2014

3


Latin America


A5

Country Date Time Indicator Period BNS Consensus LatestPE 06/09 Trade Balance (USD mn) Apr -- -- -440.8

BZ 06/12 08:00 Retail Sales (y/y) Apr -- 5.9 -1.1CL 06/12 18:00 Nominal Overnight Rate Target (%) Jun 12 4.00 4.00 4.00PE 06/12 19:00 Reference Rate (%) Jun 4.00 4.00 4.00

BZ 06/13 07:30 Economic Activity Index NSA (y/y) Apr -- -1.4 -0.1

Economics

Global Views

June 6, 2014

4

Global Auctions for the week of June 9 – 13

A6

North America

Europe


A6

Country Date Time EventUS 06/09 11:00 U.S. to Fed Purchase USD0.85-1.10 Bln NotesUS 06/09 11:30 U.S. to Sell 3-Month BillsUS 06/09 11:30 U.S. to Sell 6-Month Bills

US 06/10 11:00 U.S. to Fed Purchase USD2.50-3.25 Bln NotesUS 06/10 11:30 U.S. to Sell 4-Week BillsUS 06/10 13:00 U.S. to Sell 3-Year Notes

US 06/11 11:00 U.S. to Fed Purchase USD0.85-1.10 Bln NotesCA 06/11 12:00 Canada to Sell 30-Year Real-Return BondsUS 06/11 13:00 U.S. to Sell 10-Year Notes Reopening

US 06/12 11:00 U.S. to Fed Purchase USD0.55-0.80 Bln NotesUS 06/12 13:00 U.S. to Sell 30-Year Bonds Reopening

Country Date Time EventNE 06/10 4:30 Netherlands to Sell Up to EUR3.5 Bln 0.5% 2017 BondsNO 06/10 5:00 Norway to Sell NOK3 Bln 4.25% 2017 BondsEC 06/10 5:10 ECB Main Refinancing Operation ResultEC 06/10 5:10 ECB Long-Term Refinancing Operation ResultUK 06/10 5:30 U.K. to Sell GBP3.25 Bln 2.75% 2024 BondsEC 06/10 7:00 ECB Open Market Operation Result

IT 06/11 5:00 Italy to Sell 12-month BillsSZ 06/11 5:30 Switzerland to Sell BondsGE 06/11 5:30 Germany to Sell EUR4 Bln 0.25% 2016 Bonds

IT 06/12 5:00 Italy to Sell 3-year BondsSW 06/12 5:03 Sweden to Sell SEK1 Bln 0.25% I/L 2022 Bonds on June 12UK 06/12 5:30 U.K. to Sell GBP1.4 Bln 0.125% I/L 2019 Bonds

Asia Pacific

Country Date Time EventAU 06/09 21:00 Australia Plans to Sell I/L BondCH 06/09 23:00 China to Sell 3-Year Saving BondsCH 06/09 23:00 China to Sell 5-Year Saving Bonds

JN 06/10 04:00 Japan Auction for Enhanced-LiquidityCH 06/10 23:00 China to Sell 1-Year BondsJN 06/10 23:35 Japan to Sell 2-Month Bill

AU 06/11 20:30 Australia Plans to Sell BillsJN 06/11 23:35 Japan to Sell 3-Month BillJN 06/11 23:45 Japan to Sell 5-Year Bonds

Latin America

Country Date Time EventBZ 06/11 11:00 Brazil to Sell Bills due 10/01/2014 - LTNBZ 06/11 11:00 Brazil to Sell Bills due 4/1/2016 - LTNBZ 06/11 11:00 Brazil to Sell Bills due 1/1/2018 - LTNBZ 06/11 11:00 Brazil to Sell Fixed-rate bonds due 1/1/2021 - NTN-FBZ 06/11 11:00 Brazil to Sell Fixed-rate bonds due 1/1/2025 - NTN-FCO 06/11 11:30 5Y Fixed Amount SoldCO 06/11 11:30 10Y Fixed Amount SoldCO 06/11 11:30 15Y Fixed Amount Sold

Economics

Global Views

June 6, 2014

5

Events for the week of June 9 – 13

North America

Europe


A7

Country Date Time EventCA JUN 3-7 Canadian Prime Minister Harper Visits Poland, Belgium, France

MX JUN 4-7 Mexican Oil Congress Held in Acapulco

US 06/07 U.S. Vice President Biden Visits UkraineCA 06/07 Canadian Prime Minister Harper Attends Ukraine Inauguration

CA JUN 8-9 Canadian Prime Minister Harper Meets Australian Prime Minister

US 06/09 9:10 Fed's Bullard Speaks on U.S. Economic Outlook in FloridaUS 06/09 13:30 Fed's Rosengren Speaks in GuatemalaCA 06/09 International Economic Forum of the Americas in Montreal

CA 06/10 10:30 Alberta Premier Hancock Speaks at Heavy Oil Conference

CA 06/12 10:30 Bank of Canada publishes its Financial System ReviewCA 06/12 11:15 BoC Governor Poloz, Senior Dep. Wilkins hold press conferenceCA 06/12 Ontario Holds Elections

Country Date Time EventIT 06/07 5:00 Renzi Speaks in Naples

IT 06/09 5:00 Bank of Italy Report on Balance-Sheet AggregatesGE 06/09 Merkel, Cameron, Rutte, Reinfeldt Meet at Swedish SummitFI 06/09 Russian Foreign Minister Lavrov to Visit Finland June 9-10

EC 06/10 3:00 EU's Barroso, Rehn Speak at Brussels Economic ForumFI 06/10 4:00 ECB's Liikanen Speaks at Bank of Finland Briefing in HelsinkiEC 06/10 5:30 European Commission's Buti Speaks at Brussels Economic ForumEC 06/10 10:00 ECB's Mersch, Poland's Belka Speak at Brussels Economic ForumEC 06/10 11:15 EU's Van Rompuy Speaks at Brussels Economic ForumEC 06/10 End of Eurosystem Reserve Maintenance PeriodSP 06/11 4:15 ECB's Mersch Speaks in BarcelonaPO 06/11 8:00 Bank of Portugal Releases Summer Economic BulletinGE 06/11 11:00 Schaeuble, Greece's Stournaras Hold Panel Discussion in BerlinPO 06/11 Bank of Portugal Releases Data on Banks

EC 06/12 4:00 ECB Publishes Monthly ReportSP 06/12 6:45 Bank of Spain's Duran Speaks in Madrid

SP 06/13 3:30 ECB's Linde Speaks in MadridUK 06/13 U.K. Sovereign Debt Rating Published by S&P, FitchIT 06/13 Italy Sovereign Debt Rating May Be Published by Moody'sFR 06/13 France Sovereign Debt Rating Published by Fitch

Economics

Global Views

June 6, 2014

6

Events for the week of June 9 – 13

A9

Asia Pacific


A8

Latin America

Country Date Time EventIN JUN 8-9 Indian Upper House Holds Meeting

AU 06/09 12:00 RBA's Stevens Speech in San FranciscoIT 06/09 Italian Prime Minister Renzi Visits China, Vietnam, Kazakhstan

NZ 06/11 17:00 RBNZ Official Cash RateNZ 06/11 17:05 RBNZ Governor Wheeler News ConferenceSK 06/11 21:00 BoK 7-Day Repo RateID 06/11 Bank Indonesia Reference Rate

JN 06/12 BOJ 2014 Monetary Base TargetJN 06/12 Bank of Japan Monetary Policy Statement

Country Date Time EventCL 06/12 18:00 Overnight Rate TargetPE 06/12 19:00 Reference Rate

Economics

Global Views

June 6, 2014

7

Global Central Bank Watch

NORTH AMERICARate Current Rate Next Meeting Scotia's Forecasts Consensus ForecastsBank of Canada – Overnight Target Rate 1.00 July 16, 2014 1.00 --

Federal Reserve – Federal Funds Target Rate 0.25 June 18, 2014 0.25 0.25

Banco de México – Overnight Rate 3.00 July 11, 2014 3.50 --

EUROPERate Current Rate Next Meeting Scotia's Forecasts Consensus ForecastsEuropean Central Bank – Refinancing Rate 0.15 July 3, 2014 0.15 --

Bank of England – Bank Rate 0.50 July 10, 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 7.50 June 16, 2014 7.50 7.50

Hungarian National Bank – Base Rate 2.40 June 24, 2014 2.40 2.30

Central Bank of the Republic of Turkey – 1 Wk Repo Rate 9.50 June 24, 2014 9.50 --

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

Norges Bank – Deposit Rate 1.50 June 19, 2014 1.50 --

ASIA PACIFICRate Current Rate Next Meeting Scotia's Forecasts Consensus ForecastsReserve Bank of Australia – Cash Target Rate 2.50 July 1, 2014 2.50 2.50

Reserve Bank of New Zealand – Cash Rate 3.00 June 11, 2014 3.25 3.25

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

Reserve Bank of India – Repo Rate 8.00 August 5, 2014 8.00 --

Bank of Korea – Bank Rate 2.50 June 11, 2014 2.50 2.50

Bank of Thailand – Repo Rate 2.00 June 18, 2014 2.00 --

Bank Indonesia – Reference Interest Rate 7.50 June 12, 2014 7.50 7.50

LATIN AMERICA

Rate Current Rate Next Meeting Scotia's Forecasts Consensus ForecastsBanco Central do Brasil – Selic Rate 11.00 July 16, 2014 11.00 --

Banco Central de Chile – Overnight Rate 4.00 June 12, 2014 4.00 4.00

Banco de la República de Colombia – Lending Rate 3.75 June 20, 2014 3.75 --

Banco Central de Reserva del Perú – Reference Rate 4.00 June 12, 2014 4.00 --

AFRICARate Current Rate Next Meeting Scotia's Forecasts Consensus ForecastsSouth African Reserve Bank – Repo Rate 5.50 July 17, 2014 5.50 --

BoC: The latest BoC statement acknowledged that inflation has picked up (due in part to the weak C$), but tried to talk down the CPI upside. We think that this can only go on for so long, and believe that there is a solid risk that the BoC’s ambivalence toward the direction of the next rate move and warnings about downside risks to inflation are potentially on the way out later in the summer. Fed: Strong jobs numbers out of the U.S. (217k in May, spot on with the 2014 average) continue to give the Fed all of the justification that it needs to continue with its gradual and deliberate monetary policy normalization path.

Economic divergence has emerged as the norm amongst the relatively well performing economies in the South Pacific Americas, Peru and Chile. Recent data confirm a steady weakening of economic conditions in Chile influenced by multiple factors such as lower mining-related investment, growth-deterring tax adjustments and somewhat decelerating domestic consumption. We are, however, expecting the central bank to keep its reference rate unchanged on June 12th, with a possible easing bias in the coming months. As for Peru, we do not envisage a change in the current monetary stance, in line with the rhetoric from central bank officials and current growth and inflation trends (although Mexico’s unexpected rate decision raises a question about forward guidance practices in Latin America). Both the Peruvian sol and Chilean peso maintain a stable trading bias.

The Reserve Bank of New Zealand (RBNZ) will likely continue to tighten monetary conditions by raising the official cash rate by another 25 basis points (bps) next week. The official cash rate was raised by 50 bps between March and April to the current level of 3.0% as the RBNZ aims to limit general inflation pressure in the robustly growing economy. In Indonesia, persistent inflationary pressures prompted the central bank to raise the reference rate by 175 bps last year to the current level of 7.5% in an effort to direct the rate of inflation towards its target corridor, which is set at 3½-5½% y/y for 2014 and 3-5% for 2015. As consumer price inflation closed 2013 at 8.4% y/y, we expect the reference rate to be maintained at the current level of 7.5% for the foreseeable future. The Bank of Korea will likely maintain its benchmark rate at 2.5% as inflationary pressures in South Korea still remain relatively low with consumer prices increasing by 1.7% y/y in May.

North America

Europe

Asia Pacific

Latin America

Africa


A9

Economics

Global Views

June 6, 2014

8

Forecasts as at May 29, 2014* 2000-12 2013 2014f 2015f 2000-12 2013 2014f 2015f

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

World13.7 3.0 3.3 3.6

Canada 2.2 2.0 2.2 2.5 2.1 0.9 1.8 1.8 United States 1.9 1.9 2.4 3.2 2.5 1.5 1.8 2.0 Mexico 2.4 1.1 2.7 3.7 4.7 4.0 4.2 4.0

United Kingdom 1.7 1.8 2.8 2.1 2.3 2.0 1.8 2.1 Euro zone 1.3 -0.4 1.0 1.4 2.1 0.8 0.9 1.3

Japan 0.9 1.6 1.4 1.2 -0.3 1.6 2.3 1.9 Australia 3.1 2.4 2.7 2.9 3.0 2.7 2.9 2.9 China 9.3 7.7 7.3 7.0 2.4 2.5 2.6 3.1 India 7.2 4.6 5.2 5.7 6.7 6.4 5.3 5.8 Korea 4.2 3.0 3.6 3.2 3.1 1.1 2.2 2.5 Thailand 4.2 2.9 2.0 4.0 2.7 1.7 2.5 2.8

Brazil 3.4 2.3 2.0 2.5 6.5 5.9 6.0 5.5 Chile 4.5 4.1 3.4 4.1 2.9 2.9 3.6 3.2 Peru 5.5 5.6 5.3 5.6 2.6 2.9 2.8 2.8

Central Bank Rates (%, end of period) 13Q4 14Q1 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 0.10 0.10 0.10 0.10 0.10 0.10Bank 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 1.11 1.10 1.11 1.12 1.14 1.14 1.12Canadian Dollar (CADUSD) 0.94 0.90 0.91 0.90 0.89 0.88 0.88 0.89Euro (EURUSD) 1.37 1.38 1.37 1.33 1.30 1.28 1.26 1.25Sterling (GBPUSD) 1.66 1.67 1.70 1.68 1.67 1.65 1.63 1.61Yen (USDJPY) 105 103 104 107 109 110 111 112Australian Dollar (AUDUSD) 0.89 0.93 0.93 0.94 0.92 0.89 0.89 0.89Chinese Yuan (USDCNY) 6.1 6.2 6.2 6.2 6.1 6.1 6.0 6.0Mexican Peso (USDMXN) 13.0 13.1 13.0 13.1 13.2 13.3 13.2 13.2Brazilian Real (USDBRL) 2.36 2.27 2.38 2.40 2.45 2.48 2.48 2.50

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

WTI Oil (US$/bbl) 60 98 99 95Brent Oil (US$/bbl) 62 109 108 108Nymex Natural Gas (US$/mmbtu) 5.45 3.73 4.60 4.50

Copper (US$/lb) 2.22 3.32 3.08 3.00Zinc (US$/lb) 0.78 0.87 0.95 1.25Nickel (US$/lb) 7.64 6.80 8.30 10.75Gold, London PM Fix (US$/oz) 745 1,410 1,300 1,375

Pulp (US$/tonne) 730 941 985 985Newsprint (US$/tonne) 585 608 607 630Lumber (US$/mfbm) 274 356 380 400

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

A10

Forecasts as at May 29, 2014*

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

Economics

Global Views

June 6, 2014

9

North America

Canada 2013 13Q4 14Q1 Latest United States 2013 13Q4 14Q1 Latest Real GDP (annual rates) 2.0 2.7 1.2 Real GDP (annual rates) 1.9 2.6 -1.0 Current Acc. Bal. (C$B, ar) -60.3 -62.6 -49.5 Current Acc. Bal. (US$B, ar) -379 -324 Merch. Trade Bal. (C$B, ar) -7.3 -9.0 4.9 -7.7 (Apr) Merch. Trade Bal. (US$B, ar) -702 -676 -729 -789 (Apr) Industrial Production 0.4 0.5 2.6 3.9 (Apr) Industrial Production 2.9 3.5 3.8 3.2 (Apr) Housing Starts (000s) 188 194 175 195 (Apr) Housing Starts (millions) 0.93 1.03 0.92 1.07 (Apr) Employment 1.3 1.0 0.8 0.4 (May) Employment 1.7 1.8 1.7 1.8 (May) Unemployment Rate (%) 7.1 7.0 7.0 7.0 (May) Unemployment Rate (%) 7.4 7.0 6.7 6.3 (May) Retail Sales 3.2 4.0 3.9 3.9 (Mar) Retail Sales 4.3 3.8 2.4 4.2 (Apr) Auto Sales (000s) 1744 1758 1698 1695 (Mar) Auto Sales (millions) 15.5 15.6 15.6 16.7 (May) CPI 0.9 0.9 1.4 2.0 (Apr) CPI 1.5 1.2 1.4 2.0 (Apr) IPPI 0.4 0.5 2.6 -3.9 (Apr) PPI 1.2 0.8 1.5 3.1 (Apr) Pre-tax Corp. Profits -1.7 4.3 6.8 Pre-tax Corp. Profits 3.4 4.8 6.6

Mexico Real GDP 1.1 0.7 1.8 Current Acc. Bal. (US$B, ar) -25.9 -30.2 -18.1 Merch. Trade Bal. (US$B, ar) -1.0 7.4 -4.8 6.1 (Apr) Industrial Production -0.7 -0.4 1.6 3.4 (Mar) CPI 3.8 3.7 4.2 3.5 (Apr)

Euro Zone 2013 13Q4 14Q1 Latest Germany 2013 13Q4 14Q1 Latest Real GDP -0.4 0.5 0.9 Real GDP 0.5 1.4 2.3 Current Acc. Bal. (US$B, ar) 288 474 228 346 (Mar) Current Acc. Bal. (US$B, ar) 273.9 342.4 265.7 323.4 (Mar) Merch. Trade Bal. (US$B, ar) 230.3 283.3 192.4 313.1 (Mar) Merch. Trade Bal. (US$B, ar) 265.5 284.4 263.7 248.6 (Mar) Industrial Production -0.7 1.5 1.4 0.5 (Mar) Industrial Production 0.1 3.1 4.1 3.0 (Mar) Unemployment Rate (%) 11.9 11.9 11.8 11.7 (Apr) Unemployment Rate (%) 6.9 6.9 6.8 6.7 (May) CPI 1.4 0.8 0.6 0.7 (Apr) CPI 1.5 1.3 1.2 2.6 (May)

France United Kingdom Real GDP 0.4 0.8 0.8 Real GDP 1.7 2.7 3.1 Current Acc. Bal. (US$B, ar) -36.6 -13.1 -59.6 -43.4 (Mar) Current Acc. Bal. (US$B, ar) -111.5 -138.5 Merch. Trade Bal. (US$B, ar) -46.3 -46.1 -42.1 -42.9 (Mar) Merch. Trade Bal. (US$B, ar) -168.5 -172.8 -176.7 -169.1 (Mar) Industrial Production -0.5 0.7 -0.2 -0.8 (Mar) Industrial Production -0.3 2.3 2.5 2.3 (Mar) Unemployment Rate (%) 10.3 10.2 10.4 10.4 (Apr) Unemployment Rate (%) 7.6 7.2 6.8 (Feb) CPI 0.9 0.6 0.7 0.7 (Apr) CPI 2.6 2.1 1.7 1.8 (Apr)

Italy Russia Real GDP -1.8 -0.9 -0.5 Real GDP 1.3 2.0 Current Acc. Bal. (US$B, ar) 20.7 57.9 -0.1 16.7 (Mar) Current Acc. Bal. (US$B, ar) 32.8 8.9 Merch. Trade Bal. (US$B, ar) 40.3 58.6 37.8 64.2 (Mar) Merch. Trade Bal. (US$B, ar) 15.0 15.7 17.0 19.7 (Mar) Industrial Production -3.1 -0.4 0.0 -0.1 (Mar) Industrial Production 0.4 1.4 1.1 2.4 (Apr) CPI 1.2 0.6 0.4 0.4 (Apr) CPI 6.8 6.4 6.4 7.6 (May)

Europe

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

Economic Statistics

Source: Bloomberg, Global Insight, Scotiabank Economics.

A11

Economics

Global Views

June 6, 2014

10

Asia Pacific

Australia 2013 13Q4 14Q1 Latest Japan 2013 13Q4 14Q1 Latest Real GDP 2.4 2.7 3.5 Real GDP 1.6 2.5 2.7 Current Acc. Bal. (US$B, ar) -48.6 -50.4 -19.0 Current Acc. Bal. (US$B, ar) 33.6 -56.5 -32.6 13.7 (Mar) Merch. Trade Bal. (US$B, ar) 20.1 20.5 26.2 33.0 (Apr) Merch. Trade Bal. (US$B, ar) -117.1 -149.0 -176.2 -98.8 (Apr) Industrial Production 3.6 2.4 5.7 Industrial Production -0.6 5.8 8.3 4.1 (Apr) Unemployment Rate (%) 5.7 5.8 5.9 5.8 (Apr) Unemployment Rate (%) 4.0 3.9 3.6 3.6 (Apr) CPI 2.4 2.7 2.9 CPI 0.4 1.4 1.5 3.4 (Apr)

South Korea China Real GDP 3.0 3.7 3.9 Real GDP 7.7 7.7 7.4 Current Acc. Bal. (US$B, ar) 79.9 99.4 60.3 85.5 (Apr) Current Acc. Bal. (US$B, ar) 182.8 Merch. Trade Bal. (US$B, ar) 44.1 53.2 20.8 64.2 (May) Merch. Trade Bal. (US$B, ar) 259.2 360.3 67.1 221.4 (Apr) Industrial Production 0.2 0.6 1.2 2.4 (Apr) Industrial Production 9.7 9.7 8.8 8.7 (Apr) CPI 1.3 1.1 1.1 3.0 (May) CPI 2.5 2.5 2.4 1.8 (Apr)

Thailand India Real GDP 2.9 0.6 Real GDP 4.7 4.6 Current Acc. Bal. (US$B, ar) -2.8 3.0 8.2 Current Acc. Bal. (US$B, ar) -49.3 -4.2 Merch. Trade Bal. (US$B, ar) 0.5 1.3 2.2 0.6 (Apr) Merch. Trade Bal. (US$B, ar) -12.8 -10.2 -9.5 -10.1 (Apr) Industrial Production -3.1 -6.7 -7.1 -4.6 (Apr) Industrial Production 0.6 -0.8 -0.5 -0.5 (Mar) CPI 2.2 1.7 2.0 2.6 (May) WPI 6.3 7.1 5.3 5.2 (Apr)

Indonesia Real GDP 5.8 5.7 Current Acc. Bal. (US$B, ar) -29.1 -4.3 Merch. Trade Bal. (US$B, ar) -0.3 0.8 0.4 -2.0 (Apr) Industrial Production 6.0 1.5 3.8 4.9 (Mar) CPI 6.4 8.0 7.8 7.3 (May)

Brazil 2013 13Q4 14Q1 Latest Chile 2013 13Q4 14Q1 Latest Real GDP 2.3 1.9 1.8 Real GDP 4.1 2.7 2.6 Current Acc. Bal. (US$B, ar) -81.1 -83.3 -100.7 Current Acc. Bal. (US$B, ar) -4.3 -9.7 -3.2 Merch. Trade Bal. (US$B, ar) 2.6 16.7 -24.3 8.5 (May) Merch. Trade Bal. (US$B, ar) 8.0 3.1 8.3 11.4 (Apr) Industrial Production 2.3 0.0 -0.4 -2.2 (Apr) Industrial Production 3.1 2.5 0.6 1.2 (Apr) CPI 6.2 5.8 5.8 6.3 (Apr) CPI 1.9 2.3 3.2 4.3 (Apr)

Peru Colombia Real GDP 5.8 6.9 Real GDP 4.3 4.9 Current Acc. Bal. (US$B, ar) -10.2 -2.2 Current Acc. Bal. (US$B, ar) -12.7 -3.4 Merch. Trade Bal. (US$B, ar) 0.1 0.2 -0.3 -0.4 (Mar) Merch. Trade Bal. (US$B, ar) 0.2 0.1 -0.2 -0.3 (Mar) Unemployment Rate (%) 5.9 5.8 6.8 6.3 (Apr) Industrial Production -1.8 0.2 4.4 9.8 (Mar) CPI 2.8 2.9 3.4 3.6 (May) CPI 2.0 1.8 2.3 2.9 (May)

Latin America

Economic Statistics

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

Source: Bloomberg, Global Insight, Scotiabank Economics.

A12

Economics

Global Views

June 6, 2014

11

Financial Statistics

A12

Interest Rates (%, end of period)

Canada 13Q4 14Q1 May/30 Jun/06* United States 13Q4 14Q1 May/30 Jun/06*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 0.94 0.93 3-mo. T-bill 0.07 0.03 0.03 0.03 10-yr Gov’t Bond 2.76 2.46 2.25 2.32 10-yr Gov’t Bond 3.03 2.72 2.48 2.60 30-yr Gov’t Bond 3.23 2.96 2.78 2.84 30-yr Gov’t Bond 3.97 3.56 3.33 3.44 Prime 3.00 3.00 3.00 3.00 Prime 3.25 3.25 3.25 3.25 FX Reserves (US$B) 71.8 76.3 77.2 (Apr) FX Reserves (US$B) 133.5 133.2 133.2 (Apr)

Germany France 3-mo. Interbank 0.24 0.27 0.25 0.21 3-mo. T-bill 0.15 0.19 0.12 0.08 10-yr Gov’t Bond 1.93 1.57 1.36 1.35 10-yr Gov’t Bond 2.56 2.08 1.77 1.70 FX Reserves (US$B) 67.4 66.8 67.2 (Apr) FX Reserves (US$B) 50.8 53.1 54.0 (Apr)

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 0.45 0.10 3-mo. T-bill 0.40 0.39 0.39 0.38 FX Reserves (US$B) 331.0 338.2 339.8 (Apr) 10-yr Gov’t Bond 3.02 2.74 2.57 2.66

FX Reserves (US$B) 92.4 97.3 95.0 (Apr)

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 3.66 3.77 10-yr Gov’t Bond 0.74 0.64 0.58 0.60 FX Reserves (US$B) 49.7 54.1 54.4 (Apr) FX Reserves (US$B) 1237.2 1247.5 1251.1 (Apr)

Exchange Rates (end of period)

USDCAD 1.06 1.11 1.08 1.09 ¥/US$ 105.31 103.23 101.77 102.59CADUSD 0.94 0.91 0.92 0.91 US¢/Australian$ 0.89 0.93 0.93 0.93GBPUSD 1.656 1.666 1.676 1.680 Chinese Yuan/US$ 6.05 6.22 6.25 6.25EURUSD 1.374 1.377 1.364 1.364 South Korean Won/US$ 1050 1065 1020 1020JPYEUR 0.69 0.70 0.72 0.71 Mexican Peso/US$ 13.037 13.058 12.858 12.908USDCHF 0.89 0.88 0.90 0.89 Brazilian Real/US$ 2.362 2.272 2.242 2.248

Equity Markets (index, end of period)

United States (DJIA) 16577 16458 16717 16914 U.K. (FT100) 6749 6598 6845 6858 United States (S&P500) 1848 1872 1924 1949 Germany (Dax) 9552 9556 9943 9987 Canada (S&P/TSX) 13622 14335 14604 14833 France (CAC40) 4296 4392 4520 4581 Mexico (IPC) 42727 40462 41363 42752 Japan (Nikkei) 16291 14828 14632 15077 Brazil (Bovespa) 51507 50415 51239 52929 Hong Kong (Hang Seng) 23306 22151 23082 22951 Italy (BCI) 1041 1181 1174 1199 South Korea (Composite) 2011 1986 1995 1995

Commodity Prices (end of period)

Pulp (US$/tonne) 990 1030 1030 1030 Copper (US$/lb) 3.35 3.01 3.17 3.02 Newsprint (US$/tonne) 605 605 605 605 Zinc (US$/lb) 0.95 0.90 0.94 0.94 Lumber (US$/mfbm) 372 354 328 314 Gold (US$/oz) 1204.50 1291.75 1250.50 1247.50 WTI Oil (US$/bbl) 98.42 101.58 102.71 102.64 Silver (US$/oz) 19.50 19.97 19.00 19.03 Natural Gas (US$/mmbtu) 4.23 4.37 4.54 4.73 CRB (index) 280.17 304.67 305.48 305.25

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

A13

Global Views

June 6, 2014

Fixed Income Strategy (London) www.gbm.scotiabank.com © 2012, The Bank of Nova Scotia This material, its content, or any copy of it, may not be altered in any way, transmitted to, copied or distributed to any other party without the prior express written consent of ScotiabankTM. This material has not been prepared by a member of the research department of Scotiabank, it is solely for the use of sophisticated institutional investors, and this material does not constitute investment advice or any personal recommendation to invest in a financial instrument or “investment research” as defined by the Financial Services Authority. This material is provided for information and discussion purposes only. An investment decision should not be made solely on the basis of the contents of this publication. It is not to be construed as a solicitation or an offer to buy or sell any financial instruments and has no regard to the specific investment objectives, financial situation or particular needs of any recipient. It is not intended to provide legal, tax, accounting or other advice and recipients should obtain specific professional advice from their own legal, tax, accounting or other appropriate professional advisers before embarking on any course of action. The information in this material is based on publicly available information and although it has been compiled or obtained from sources believed to be reliable, such information has not been independently verified and no guarantee, representation or warranty, express or implied, is made as to its accuracy, completeness or correctness. Information included in this material related to comparison performance (whether past or future) or simulated performance (whether past or future) is not a reliable indicator of future returns. This presentation is not directed to or intended for use by any person resident or located in any country where the distribution of such information is contrary to the laws of such country. Scotiabank its directors, officers, employees or clients may currently or from time to time own or hold interests in long or short positions in any securities referred to herein, and may at any time make purchases or sales of these securities as principal or agent. Scotiabank may also have provided or may provide investment banking, capital markets or other services to the companies referred to in this communication.

TM 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, including Scotia Capital Inc., Scotia Capital (USA) Inc., Scotiabanc Inc.; Citadel Hill Advisors L.L.C.; The Bank of Nova Scotia Trust Company of New York; Scotiabank Europe plc; Scotia Capital (Europe) Limited; Scotiabank (Ireland) Limited; Scotiabank Inverlat S.A., Institución de Banca Múltiple, Scotia Inverlat Casa de Bolsa S.A. de C.V., Scotia Inverlat Derivados S.A. de C.V. – all members of the Scotiabank Group and authorized users of the mark. The Bank of Nova Scotia is incorporated in Canada with limited liability. Scotia Capital Inc. is a member of CIPF. Scotia Capital (USA) Inc. is a registered broker-dealer with the SEC and is a member of the NASD and SIPC. The Bank of Nova Scotia, Scotiabank Europe plc, Scotia Capital (Europe) Limited and Scotia Capital Inc. are each authorised and regulated by the Financial Services Authority (FSA) in the U.K. Scotiabank Inverlat, S.A., Scotia Inverlat Casa de Bolsa, S.A. de C.V., and Scotia Derivados, S.A. de C.V., are each authorized and regulated by the Mexican financial authorities. Fixed Income Strategy (Paris) Disclaimer © 2011, The Bank of Nova Scotia This material, its content, or any copy of it, may not be altered in any way, transmitted to, copied or distributed to any other party without the prior express written consent of Scotiabank™. This material has not been prepared by a member of the research department of Scotiabank, it is solely for the use of sophisticated institutional investors, and this material does not constitute investment advice or any personal recommendation to invest in a financial instrument or “investment research” as defined by the Financial Services Authority. This material is provided for information and discussion purposes only. An investment decision should not be made solely on the basis of the contents of this publication. It is not to be construed as a solicitation or an offer to buy or sell any financial instruments and has no regard to the specific investment objectives, financial situation or particular needs of any recipient. It is not intended to provide legal, tax, accounting or other advice and recipients should obtain specific professional advice from their own legal, tax, accounting or other appropriate professional advisers before embarking on any course of action. The information in this material is based on publicly available information and although it has been compiled or obtained from sources believed to be reliable, such information has not been independently verified and no guarantee, representation or warranty, express or implied, is made as to its accuracy, completeness or correctness. Information included in this material related to comparison performance (whether past or future) or simulated performance (whether past or future) is not a reliable indicator of future returns. This presentation is not directed to or intended for use by any person resident or located in any country where the distribution of such information is contrary to the laws of such country. Scotiabank its directors, officers, employees or clients may currently or from time to time own or hold interests in long or short positions in any securities referred to herein, and may at any time make purchases or sales of these securities as principal or agent. Scotiabank may also have provided or may provide investment banking, capital markets or other services to the companies referred to in this communication.

Disclaimer

Global Views

June 6, 2014

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.

Disclaimer

Scotiabank 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]

For general and publication-related inquiries, contact

us by telephone, email and/or fax.

Scotiabank Economics

This report has been prepared by Scotiabank Economics as a resource for the clients of Scotiabank. 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. Neither Scotiabank nor its affiliates accepts any liability whatsoever for any loss arising from any use of this report or its contents. TM Trademark of The Bank of Nova Scotia. Used under license, where applicable.

Disclaimer

Global Views

June 6, 2014

global views 06-06-14scotiabankfiles.azureedge.net/.../internacionales/2014/gviews060614.pdf ·...

Documents