scotiabank aug 09 daily points

8/9/2019 ScotiaBank AUG 09 Daily Points

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Scotia Economics

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This Report is prepared by Scotia Economics as a resource f

clients of Scotiabank and Scotia Capital. While the information is

sources believed reliable, neither the information nor the forecas

be taken as a representation for which The Bank of Nova Sco

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

On Deck for Monday, August 9

DailyPoints Tracking the numbers

Global Economic Research

CAPITAL MARKETS RESEARCH

Derek Holt (416) [email protected]

Gorica Djeric (416) [email protected]

August 9, 2010 @ 07:30 EST

KEY POINTS:

Silly talk of the BoC being done

Will Germanys trade surpluses keep rising as the euro climbs?

Asian trade figures a plus for global growth readings

Australian mortgage activity tumbles; more than just a rate reaction

No Canadian releases today

No US releases today

CDN week ahead: housing, trade and supply

US week ahead: Fed meeting, retail sales, supply, CPI,

Int'l week ahead: China, global jobs, and eurozone GDP

CANADA

After returning from vacation, the first observation is that the latest BoCcommentaries are out of whack with reality in our view. One bad jobs reportand suddenly the market chatter is leaning toward doubting that the BoC willkeep hiking. Throw out the jobs report is our advice, and stick to the overallplot of a central bank that has every reason in the world to keep on hiking.We dont trust that so many jobs were created as reported in the second quar-

ter, and certainly dont believe that the July report was any better in terms ofits reliability, but smooth out the trend and Canada remains among a selectfew global leaders in the job growth tally. As for the July report, since whendid teachers face above average job risk as to motivate a 65,000 reduction ineducation sector employment in one month? No, this was mostly due to theongoing problems StatsCan is having in adjusting for a shift to temporarycontracts and concomitant problems in applying proper seasonal adjustments.The steep decline of 30,000 jobs in the finance, insurance and real estate ser-vices component is also tough to swallow. The overall jobs headline simplyreflects a long-expected give back on base effects as exceptionally strong jobgrowth in earlier months was bound to disappoint at one point or another, butthe components to the report leave us feeling uneasy about the Labour ForceSurveys usefulness in recent months. Unlike the U.S., however, we havenothing else to really go by as a timely guide to whats really going on inCanadian job markets.

On balance, our thinking on the BoC is unchanged from the Capital Pointsarticle we published on July 23rd (Why the BoC Can Sustainably Jump theFed). The Fed remains mired in a liquidity trap within a deleveraging con-text, while the BoCs monetary policy is working all too well in stokingcredit excesses that have Canadian households leveraging to levels that will

Fed Events

Fed Funds Target RateCurrent Rate: 0-0.25%Next Move: September 8 @ 0-0.25%Bias: Dovish

Key International Events

ECBCurrent Rate: 1.00%Next Move: September 2 @ 1.0Bias: Dovish

BoE

Current Rate: 0.50%Next Move: September 9 @ 0.5Bias: Dovish

BoJCurrent Rate: 0.10%Next Move: August 10 @ 0.10%Bias: Dovish

BoC Overnight Lending RateCurrent Rate: 0.50%Next Move: September 8 @ 1.0Bias: Neutral

BoC Events

Country Date ET Indicator Period BNS Consensus Latest

No releases


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Daily Points

Global Economic Research August 9, 2010

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surpass Americans within 6-12 months. Canadian money multipliers remain very high, unlike US multipliers that continue to re-flect the failure of monetary policy to stoke credit demand and encouraging broad money to grow alongside narrow money. TheFederal Reserve has run out of effective options that carry any significance to the real economy (see Bernankes Options are VeryLimited, page 6 of Capital Points, July 23rd), while the BoC faces the opposite problem of managing reputational risk should lowrates for too long put it down the same path as the Fed by way of the too-low-for-too-long criticism.

The rest of the Canadian week ahead is looking light. Housing will dominate attention tomorrow, and the focus will shift to tradeon Wednesday. Housing starts are on tap for tomorrow, with Julys expectations pointed toward a small decline to the 184k markfrom the prior 193k reading in June. New house prices for June are also due out tomorrow and are important in gauging sheltercost drivers of core inflation. Canada also auctions 2 year notes at noon on Wednesday.

UNITED STATES

Aside from the FOMC meeting (again, see our July 28th CP for why we think the Fed has no real options left), July retail salesfigures forecast to post a 0.4% gain will be one of the biggest potential market movers in the United States this week. Lead-ing indicators and private surveys give mixed guidance. Second-quarter results revealed that some retail sales strength was front-loaded to the first quarter. Going forward, private-sector employment gains need to pick up and American need to feel more secureabout their jobs for the consumer sentiment to truly strengthen. US statistical agencies will also release updates on July consumerprices on Friday and June international trade balance on Wednesday.

INTERNATIONALGermanys trade surplus widened more than expected in June, but the euros rise to the 1.33 zone against the greenback may welldash hopes for a sustained trade recovery. Exports climbed 3.8% m/m in seasonally adjusted terms, or more than double consensusexpectations. That said, it was mostly due to a downward revision to the May export numbers. Imports climbed by a lesser pace of1.9% in June over May, and beat expectations by more than downward revisions to the May figures can explain. Faster exportgrowth than import gains meant a wider than expected trade balance. But an 11% appreciation in the euro against the USD dashessome of the hopes than the Euros earlier deprecation can sustain trade out-performance by picking up market share in global mar-kets. The euro still remains about 12% lower than the December 2009 peak.

Australian mortgage loans tumbled again in June, reversing more than the one-shot gain that had been posted for May. An up-ward revision to the May figures (now +3% m/m versus an initial 1.9% estimate) explains part of the June disappointment via ahigher than expected starting point. But the 3.9% m/m decline in June over May is the tenth downtick in the past twelve months.Thus, the decline started before the RBA started to raise rates with its first hike coming last October, with the first hits to mortgagefinancing coming starting in July of last year. Declining mortgage financing activity has more to do with the staged expiration ofhomebuyer incentives than rate responsiveness, and reflects the limited impact of stimulus measures and how much future demandwas transferred to the period during which home buying subsidies were available.

Asian trade figures werent perfect, but generally a plus for global growth indicators. Japans current account surplus fell asharp 18.2% y/y to 1.05 trillion in June, below the median forecast. This marks the second straight month of decline, a first inover ten months. While the trade surplus expanded by 26.6% y/y in June, on strong exports to the Asian region, the income surplusnearly halved, on a weakening performance of countrys foreign investments. In the first half of the year the current account surplusexpanded by nearly 50% on record-high exports to Asia and the United States. That main takeaway here is clearly that the Asianexport engine continues to march forward. That was also reflect in Taiwans trade surplus that came in better than expected, ris-ing to US$2.16 billion in July, up from US$1.41 billion in the prior month. Exports increased for the ninth straight month, up38.5% y/y in July, fueled by strong demand for electronics products and basic metals. Imports beat expectations, expanding by42.7% y/y.

As for the rest of the week ahead, a data dump with July updates on Chinas key macroeconomic figures (retail sales, trade, in-dustrial production, urban fixed asset investment, CPI, PPI) scheduled for Tuesday evening is likely to garner the mostmarket attention this week, providing insight on whether one of the worlds most vital economies is cooling down more than ex-pected. The ongoing environmental campaign targeted at energy-intensive factories may be dampening industrial production,but is unlikely to obstruct the underlying momentum.


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A handful of central banks are scheduled to meet, including the Fed, the Bank of Japan, the Norges Bank, the Bank of Korea andthe Central Bank of Chile. With the exception of Chile an economy experiencing a strong recovery despite February's devas-tating earthquake all other central banks are expected to hold their key overnight rates steady, as they continue to monitor do-mestic and global economic developments.

On the global macro front, a number of countries (the composite euro zone region, Germany, Greece, Hong Kong, Spain) will

release their preliminary second-quarter GDP estimates. Australia, the United Kingdom and South Korea will post their Julyemployment figures.

Source: Bloomberg. All quotes reflect Bloomberg data as at the time of publishing.While this source is believed to be reliable, Scotia Capital cannot guarantee its accuracy.

Fixed Income

Last 1-day 1-wk Last 1-day 1-wk Last 1-day 1-wk Last 1-day 1-wk

U.S. 0 .51 0 .51 0 .56 1.49 1.51 1.64 2 .82 2 .82 2 .96 4 .02 4 .00 4 .06

CANADA 1.44 1.52 1.46 2 .24 2 .33 2 .30 3.07 3 .11 3 .11 3 .65 3 .67 3 .70

GERMANY 0 .73 0 .75 0 .79 1.52 1.52 1.68 2 .52 2 .52 2 .70 3 .21 3 .21 3 .40

JAPAN 0 .15 0 .15 0 .16 0 .35 0 .36 0 .36 1.03 1.06 1.06 1.68 1.74 1.74

U.K. 0 .78 0 .78 0 .80 1.99 1.98 2 .09 3 .24 3 .22 3 .35 4 .18 4 .17 4 .28

CANADA 92 101 91 74 82 66 25 29 15 -37 -33 -37

GERMANY 22 24 23 2 1 5 -30 -30 -27 -80 -79 -67

JAPAN -3 7 -36 - 40 -115 -115 -12 8 -179 -175 -191 -23 4 - 226 -2 32

U.K. 27 27 24 50 48 45 42 41 39 17 17 22

Governm ent Yield Curves (%):

Foreign - U.S. Spreads (bps):

2-YEAR 5-YEAR 10-YEAR 30-YEAR

Equities

Last Change 1 Day 1-wk 1-mo 1-yr

S&P/TSX 11799.97 25.20 0.2 0.6 2.0 8.4

Dow 30 10653.56 -21.42 -0 .2 1.8 4.5 13.7

S&P 500 1121.64 -4.17 -0.4 1.8 4.1 11.0

Nasdaq 2288.47 -4.59 -0.2 1.5 4.2 14.4

DAX 5404.27 71.88 1.3 0.1 5.3 14.2

FTSE 6339.92 80.29 1.3 0.8 4.5 16.1

Nikkei 9572.49 -69.63 -0 .7 0.0 -0.1 -8.1

Hang Seng 21801.59 122.79 0.6 1.8 7.0 7.0

CAC 3773.10 57.05 1.5 0.6 6.2 7.2

Commodities

WTI Crude 81.75 1.05 1.3 0.5 7.4 15.3

Natural Gas 4.49 0.02 0.4 -4.6 1.9 22.1

Gold 1207.75 15.25 1.3 3.3 1.1 25.3

Silver 18.30 0.00 0.0 1.0 2.4 24.9

CRB Index 274.71 -2.96 -1.1 0.1 5.4 3.9Currencies

USDCAD 1.0294 0.0020 0.2 0.6 -0.4 -5.5

EURUSD 1.3262 -0.0018 -0.1 0.6 4.9 -6.2

USDJPY 85 .5600 0 .0500 0.1 -1.1 -3.5 -11.9

AUDUSD 0.9190 0.0008 0.1 0.6 4.7 9.8

GBPUSD 1.5958 0.0015 0.1 0.4 5.9 -3.2

USDCHF 1.0398 0.0008 0.1 0.1 -1.7 -4.2

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scotiabank aug 09 daily points

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