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February 7, 2014
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2-8
Economics
2-3

Yellen Going For Gold .....................................................................................................................Derek Holt
4-5

Are Canadians Managing Home Equity More Prudently Than Americans Did? .............................Derek Holt & Dov Zigler
6

Still Waiting On Canada’s Export Recovery .................................................................................. Adrienne Warren
7

Chile Retains Top-Credit Quality Status............................................................................................Pablo Bréard
8

U.S. Near-Term Federal Deficit Reduction ..........................................................................................Mary Webb
9-11
Emerging Markets Strategy

12-18
19
Fixed Income Strategy

Eurozone Inflation — Or Lack Of It ................................................................................................... Alan Clarke

UK: As Good As It Gets .................................................................................................................. Alan Clarke

ECB February Decision — Waiting For Another Month! .................................................................... Frédéric Prêtet
Foreign Exchange Strategy

20-21








Latin America Week Ahead: For The Week Of February 10 - 14 ........................................................ Eduardo Suárez
Portfolio Strategy

A1-A14
Are Investors Abandoning EM Bonds? ........................................................................ Araceli Espinosa & Joe Kogan
Portfolio Strategy Asset Mix — February Update ..............................................................................Vincent Delisle
Forecasts & Data
Key Data Preview.................................................................................................................................... A1-A2
Key Indicators ......................................................................................................................................... A3-A5
Global Auctions Calendar ....................................................................................................................... A6-A7
Events Calendar ..................................................................................................................................... A8-A9
Global Central Bank Watch ........................................................................................................................ A10
Forecasts ................................................................................................................................................... A11
Latest Economic Statistics .................................................................................................................. A12-A13
Latest Financial Statistics........................................................................................................................... A14
Global Views is available on scotiabank.com, Bloomberg at SCOT and Reuters at SM1C
THE WEEK AHEAD
Global Views
Economics
Derek Holt (416) 863-7707
[email protected]
Yellen Going For Gold

Please see our full indicator, central bank, auction and event calendars on pp. A3-A10.
Canada — Federal Budget To Be Hidden Behind Yellen
The Federal Budget on Tuesday not only occurs during the first week of the Olympics, but perhaps more
importantly on the very day planned long ago for Fed Chair Janet Yellen's first semi-annual testimony before
Congress that will be repeated the next day before the House. Market effects are much more likely to arise from
Yellen’s testimony earlier in the day. Canadian market effects are also likely to be subdued because the Budget
is not expected to be a path-breaking one for two reasons. First, even at the best of times, most of the contents
are typically floated in advance which limits the surprise factor on budgets these days. Budgets just are not the
events they used to be before the age of instant scrutiny via newswires and the Internet, as the focus shifted
toward risk management of the major initiatives. To that effect, guidance from Federal Finance remains to
expect deficit elimination by fiscal year 2015-16. Second, the ruling Federal Conservative Party is likely to prefer
waiting until the next annual budget before perhaps rolling out more significant initiatives in advance of the
October 2015 Federal election. Scotiabank’s Mary Webb will be in the analyst lock-up in Ottawa and will share
her perspectives shortly after the veil is lifted.
Data risk will be subdued. Housing starts could show a negative weather effect when January's print lands on
Monday. Friday's manufacturing shipments for December will be parsed for signs of moderation in the context of
an otherwise upbeat second half of 2013 for that sector. Strength in manufacturing new orders might point to
further gains, but export data for the same month suggests that the auto sector and petroleum products might
exert a downward influence on the headline.
Bank of Canada Deputy Governor John Murray speaks on “Promoting Canada’s Economic and Financial WellBeing” on Monday, and Canada auctions 30-year bonds on Wednesday.
US — Yellen Meets Extraordinary Measures
We've seen this play before. What does the Fed do when Washington is working in ways counter-productive to
the recovery? Fortunately, Fed Chair Janet Yellen will have until March 19th to consider the answer to this
question as that's the date of her first FOMC statement as leader. She won't need the answer in time for her
semi-annual testimony before the House on Tuesday and the Senate on Thursday because of the fact that she
doesn’t have to lead an actionable policy move until March 19th, unless developments turn considerably worse
between meetings. She may well just flag it as an unknown that the Fed is aware of. By March 19th, we'll know
whether the dual chambers were able to raise the debt ceiling, or have courted default risk. The US Treasury
begins to employ emergency measures to avert such an outcome starting this coming week. Treasury
Secretary Jack Lew has guided markets to believe that such emergency powers will be exhausted by the end of
February. We doubt that this deadline will exhaust the full realm of imaginative ways of getting around the debt
ceiling, but each option carries substantial risk and merely pursuing them would risk further unfavourable action
by rating agencies and markets.
Data risk will be dominated by Thursday’s retail sales print for January. Consensus is expecting a flat print, but
the risk to retail sales is clearly skewed toward a drop given another decline in auto sales, a small rise in
gasoline sales, and weaker chain store sales. The biggest risk, however, lies in terms of how weather fouls up
spending on non-auto related categories as well as the volume of gasoline demanded as miles driven probably
fell during a harsh month for winter snow storms. Industrial production may get a weather boost in Friday's
release as utilities crank up output to meet electricity and heating demands during a very cold month of January,
but an offset to this argument could be less industrial demand as bad weather disrupted activity in one of the
coldest and snowiest months of January in recent memory. The University of Michigan's consumer sentiment
reading will probably slip on deteriorating stock markets when the preliminary print for February is released on
Friday.
2
February 7, 2014
THE WEEK AHEAD
Global Views
Economics
Derek Holt (416) 863-7707
[email protected]
… continued from previous page
The US Treasury auctions 3s, 10s and 30s next week. In addition to Yellen, four other Fed speakers take to
the podium and the tone from them is likely to be hawkish on balance. Philadelphia Fed President Charles
Plosser (voting, hawk) is likely to remain steadfast in his support for further reductions in asset purchase by the
Federal Reserve. Ditto from Dallas Fed President Richard Fisher (voting, hawk) who joins Plosser as the Fed’s
two perennial hawks. Richmond Fed President Jeffrey Lacker (nonvoting, hawk) speaks on financial stability
and is likely to do likewise. St. Louis Fed President James Bullard (nonvoting, moderate) speaks on a panel
about the economy and monetary policy.
Europe — Carney's Latest Guidance Revision
Bank of England Governor Mark Carney has already revised the rate guidance he and the Monetary Policy
Council of the Bank of England rolled out last August. He is expected to do so again on Wednesday in the form
of the BoE's quarterly inflation report. Markets have tested the Governor in his first eight months on the job in no
small part because the initial promise to keep rates on hold until late 2016 was made contingent upon a small
difference between the 7.7% actual unemployment rate in August and a 7% policy threshold. The
unemployment rate has dropped to 7.1% as at last November, and is likely at or below 7% now. This forced the
BoE to revise its guidance once already, and next week will bring forth fresh forecasts for growth, inflation
and the unemployment rate and thus with it the possibility of refreshed guidance as Carney recently
flagged that “The MPC will consider a range of options to update our guidance”. Scotiabank’s London-based
UK strategist Alan Clarke will share his immediate impressions with clients.
Germany releases Q4 GDP and consensus expects a repeat of the Q3 gain of 0.3% q/q growth that would
continue to demonstrate a fairly tepid rate of overall expansion in the German economy. Scotiabank’s Parisbased European strategist Frederic Pretet will provide his impressions of the print alongside other GDP figures
on the docket from Italy and France.
Lesser developments will include the release of industrial production figures for Italy and France, EC totals for
industrial output and trade, and French nonfarm payrolls. Sweden’s Riksbank is expected to leave its key repo
rate unchanged at 0.75% after cutting at the December meeting in light of housing risks.
Asia — Are Chinese Policy Efforts To Cool Credit Excesses Working?
Is the Chinese credit bubble finally slowing down? Data on
Chinese credit growth and inflation are both due out this week,
and one of the key questions is whether or not aggregate credit
continued to expand to start 2014 at a pace similar to the very
rapid expansion seen last year. Curtailing credit growth has
been a stated policy of both the PBOC and the fiscal authorities
— but the actual credit numbers haven’t really slowed down
particularly severely. The other side of the coin is inflation, and
whether or not overall Chinese CPI is due to break out at a
rapid rate in light of the swell of credit unleashed. Consensus
expects that inflation will remain anchored in the 2.5% area
when the January figures are released early on February 14th.
Trade figures on the 12th round out the Chinese data flow.
In terms of central bank announcements in Asia, Bank
Indonesia has a statement on the 13th, and while consensus is
looking for stability, hawkishness leading into further rate hikes
seems to be in the cards for the medium term as Indonesia
continues to weather a major depreciation of the IDR. The Bank
of Korea has a rate announcement on the 13th as well at which
it is expected to remain on hold.
3
Chinese Aggregate Financing
Very Strong in 2012-13... But Finally Slowing?
20000
CNY, Billions
18000
16000
14000
12000
10000
8000
6000
4000
Rolling 12-month sum
2000
0
08
09
10
11
12
13
Source: PBOC, Scotiabank Economics
February 7, 2014
CANADIAN MACRO COMMENT
Global Views
Economics
Derek Holt (416) 863-7707
[email protected]
Dov Zigler (416) 862-3080
[email protected]
Are Canadians Managing Home Equity More Prudently Than Americans Did?

Canadian home equity cash-outs have been strong, but are more likely going toward
paying off debt while preserving aggregate home equity than was the case in the US.
During the glory days of the US housing boom, a commercial for
a California bank unwittingly captured the essence of what was
wrong within the financial system when it showed a man leaving
the front door of his home only to go to an ATM installed on the
side of his house and withdraw cash. The implication was that
home equity cash-outs could be used as a way of securing funds
for almost any purpose, including discretionary consumption.
Chart 1
Home Equity Take-Out In Canada
70
$ billions
60
50
40
Are Canadians now doing the same thing? On the face of it, the
answer would appear to be yes especially in proportionate terms
(chart 1), but the reality beneath the surface appears to be rather
different. The evidence is more supportive of a view that says
Canadian home equity withdrawals (HEWs) are being used to
facilitate constructive deleveraging while preserving home
equity than was the case in the US.
30
20
10
0
07
08
09
10
11
12
13
Hard data on home equity cash-outs in Canada are difficult to
come by, and so we're left to rely on survey-generated numbers
Source: CAAMP, Scotiabank Economics.
from the Canadian Association of Accredited Mortgage
Professionals. That goes with the usual cautions regarding
U.S. Household Credit and Withdrawals
Chart 2
2000 y/y change, $bn
survey-based evidence — but it's the best we have to go by. The
$bn 100
numbers show nearly C$60 billion in gross home equity cash-outs
by Canadians last year. After netting out estimates of what goes
1500
75
Household
back in by way of home improvements, the net withdrawal was
Credit
just under $50 billion in 2013 but we cannot also break out how
1000
50
(LHS)
much of the HEW flows also go toward paying down mortgage
debt as opposed to total household debt. The survey
500
25
underestimates gross HEW amounts withdrawn over years prior
to 2013 because the survey previously under-represented cash0
0
outs through home equity lines of credit (HELOCs) as opposed to
Household Equity
Withdrawals (RHS)
mortgages. In the earliest years for the data, the withdrawal
-500
-25
estimates only captured equity taken out at the time of renewal
94 96 98 00 02 04 06 08 10 12
and thus biased the estimates at the start of the available time
Source: Federal Reserve Board, Freddie Mac, Scotiabank
period even lower. Therefore, whereas it appears as though
Canadians withdrew about $280 billion in equity from their homes
Chart 3
Canadian Household Credit and
over the past seven years (numbers are only available through
Withdrawals
2007), the true amount might therefore have been considerably
140 y/y change, $bn
$bn 70
larger.
There is, however, a key distinction between the Canadian
and US experiences. Whereas Americans’ survey responses
claimed to be virtuous in their uses of such funds by way of using
a fair portion to pay down often higher-cost debt, the broad macro
evidence would suggest this was not the case — a point that has
become well understood with the course of events over recent
years. Actions speak louder than words, and Chart 2 shows that
strong cash-out activity was accompanied by persistently strong
growth in household debt in the US until both forms of activity
skidded off the rails into the crisis. Chart 3 shows the opposite
4
120
60
Household
Credit
(LHS)
100
80
50
40
Gross Household
Equity Withdrawals
(RHS)
60
30
40
20
08
09
10
11
12
13
Source: Statistics Canada, CAAMP, Scotiabank
February 7, 2014
CANADIAN MACRO COMMENT
Global Views
Economics
Derek Holt (416) 863-7707
[email protected]
Dov Zigler (416) 862-3080
[email protected]
… continued from previous page
case in Canada: as cash-out volumes have been strong,
household debt growth has sharply decelerated. Slower debt
growth has multiple drivers no doubt, including the impact of
tightened macroprudential rules and more importantly a maturing
point of the housing and consumer cycle in Canada that points
to a waning interest in borrowing as heavily as was once the
case. While cohort data that would examine whether those who
are making home equity withdrawals really are the same ones
paying off debt is not available, it would appear to be the case
that withdrawals are at least partly going toward debt reduction
in terms of the macro stylized facts for the Canadian household
sector in aggregate.
The concluding task entails expressing Canadian home equity
cash-outs relative to variables that matter in order to give a
sense of the relative magnitudes and exposures. Last year,
gross cash-outs equalled about 6% of total consumer spending,
2% of total home equity, and 3% of total household debt.
Chart 4
Canadians Have More Home Equity
80
real estate equity as % of real estate assets
Canada
70
60
US
50
40
30
Includes households, non-profits
and unincorporated business.
90
93
96
99
02
05
08
11
Since the evidence points to cash-outs displacing debt growth in
Source: U.S. Federal Reserve, Statistics Canada,
Scotiabank Economics.
Canada, one could well conclude that the vulnerabilities
associated with such activity are less acute than in the US at the
peak of its boom. Indeed, doing as they say they are doing in CAAMP’s survey of the uses of such HEWs by
way of using cash-outs partly to deleverage can be viewed as a constructive process by Canadian
households. The cost thus far has been nothing like the erosion of home equity that occurred in the US (chart
4). As such, whereas IMF economists once perhaps under-estimated that home equity withdrawals (HEW)
had a temporary negative effect on personal saving by US households equal to about one dollar of reduced
saving for every five dollars of home equity withdrawals (go here), the effect is likely considerably less
significant in Canada. 5
February 7, 2014
CANADA
Global Views
Economics
Adrienne Warren (416) 866-4315
[email protected]
Still Waiting On Canada’s Export Recovery

A weaker Canadian dollar should lead to an improvement in Canada’s real net trade
performance in 2014, though ongoing competitiveness issues combined with a potential
softening in overall terms-of-trade will likely keep the nominal trade balance in deficit.
Canada’s external trade performance continues to disappoint.
Despite a modest but gradual strengthening in global industrial
activity, and a moderate pace of domestic spending that has
restrained import demand, external trade remains a drag on the
Canadian economy. Based on revised data released this week,
we estimate that net trade subtracted close to a percentage point
from GDP growth in the fourth quarter of last year.
Chart 1: Canadian Dollar &
Net Export Volumes
1.70
$bns
USDCAD
1.60
120
100
1.50
1.40
forecast
Historically, there has been a strong inverse relationship between
the value of the Canadian dollar and net export volumes (chart 1).
All else equal, the lagged impact of the roughly 10% depreciation
in the currency over the past year should lead to a gradual
narrowing in Canada’s real net trade deficit in 2014, through
improved export competitiveness and reduced import competition.
At the same time, the declining export-orientation of many
Canadian manufacturers over the past decade may have
weakened this historical correlation. Our current forecast has the
turnaround beginning in the first quarter of 2014.
40
1.20
Canadian
Dollar (LHS)
1.10
Even with a positive turn in trade volumes, the overall impact on
Canada’s nominal trade balance may be tempered by weakening
terms-of-trade. Historically, there has been a modest positive
correlation between the value of the Canadian dollar and
Canada’s terms-of-trade (chart 2); commodity prices, especially
energy, are a bigger determinant (chart 3). All else equal,
Canadian dollar weakness should lower our terms-of-trade, with
the rise in Canadian dollar export prices more than offset by a
broader increase in import costs. Our forecast for key export
commodities is flat to moderately higher prices in 2014.
20
0
1.00
0.90
Net Export
Volumes (RHS)
0.80
81
86
91
96
01
06
-20
-40
11
Source: Scotiabank Economics
Chart 2: Canadian Dollar &
Terms-of-Trade
1.20
index
CADUSD
1.10
1.20
1.10
Terms-of-Trade
(RHS)
1.00
1.00
0.90
0.90
0.80
0.80
forecast
0.70
Sectors that stand to benefit the most from currency depreciation
have a high export intensity (e.g. transportation equipment,
machinery, chemicals) as well as a relatively low share of
imported inputs (e.g. forestry products, agricultural products).
Based on net exposure (exports minus imports), the wood & paper
industry for one appears well positioned. Still, market-specific
demand and supply factors will ultimately determine industry
outcomes.
80
60
1.30
The combination of a softer loonie and the continuing cyclical
recovery in U.S. consumer spending and housing construction
should provide a boost to Canadian exporters this year. However,
the potential for continued export underperformance in the face of
ongoing competitiveness challenges, including market share
losses to lower-cost emerging markets such as China and Mexico,
remain a downside risk to our Canadian growth forecast for 2014.
Weaker exports would in turn slow the growth trajectory for
business hiring and capital investment.
140
0.70
Canadian
Dollar (LHS)
0.60
0.60
81
86
91
96
01
06
11
Source: Scotiabank Economics
Chart 3: Commodity Prices &
Terms-of-Trade
3000
index
index
2500
1.20
1.10
2000
1.00
Terms-of-Trade
(RHS)
1500
0.90
1000
0.80
forecast
500
0.70
BoC Commodity Price Index,
Energy (LHS)
0
81
86
91
96
01
06
0.60
11
Source: Scotiabank Economics
6
February 7, 2014
LATIN AMERICA
Global Views
Economics
Pablo Bréard (416) 862-3876
[email protected]
Chile Retains Top-Credit Quality Status

Pro-growth policy mix to continue; new government takes office in March.
The Chilean peso (CLP) has been immersed in a weakening phase against the US dollar (USD) since last
October, mainly triggered by exogenous factors. Heightened global risk aversion affecting emerging-market
assets combined with lower commodity prices and a concerted preference to increase USD holdings have all
been factors weighing on the currency. Non-deliverable forward (NDF) markets point towards further weakness
in line with our view for the first half of the year. Thereafter, we expect the CLP to enter a stabilization phase as
Chile begins to benefit from renewed impetus in major advanced economies.
Chile counts on a solid external debt profile, retaining the highest sovereign credit rating within Latin America. All
international rating agencies maintain a “stable” outlook on the country’s long-term foreign-currency sovereign
credit ratings, which are currently set as follows: Aa3 (Moody’s), AA– (Standard & Poor’s), and A+ (Fitch). Credit
default swaps and yield spreads over US bonds position Chile at the top of the Latin American sovereign credit
charts. Credible macroeconomic policies, a sound financial sector and a benign debt maturity profile are at the
core of such favourable global perception of Chilean creditworthiness.
The Chilean economy, which is estimated to have expanded by 4.0% in 2013 remains in a phase of gradual
deceleration which will likely extend through the first half of 2014. However, we estimate that economic activity
will begin to expand at a faster rate later in the year and reach 4.5% in 2014-15 supported by an improved
external growth outlook and a gradual recovery of investment activity once the new administration takes over.
The growth outlook remains extremely sensitive to external factors affecting metal markets developments.
The central bank is immersed in a pro-growth monetary policy stance in the context of a somewhat contained
inflation scenario. We estimate that consumer price inflation will remain in line with the official 3% +/- 1% target
over the next 24 months. The monetary authorities reduced the policy-setting short-term interest rate by 50
basis points (bps) to 4.5% over the past four months; further cuts may be in store in the near term. Once the
heightened financial market volatility associated with the normalization of US monetary policy subsides, we
believe that Chilean consumer price inflation will also tend to stabilize within current levels.
The Chilean external sector remains highly sensitive to economic developments in China and the US which will
undoubtedly have an impact on the country’s terms of trade as well as on potential demand for the country’s
main exports. We estimate that the current account deficit will range between 3.5% and 4% of GDP over the
next 18 months on the back of a slight deterioration in the country’s trade balance (due to adjusting metal prices)
while crude oil prices may decline. The incoming government reaffirmed its commitment to the structural fiscal
rule which has allowed Chile to weather external shocks in the past.
The political environment will be dominated by the transition to a new government. The coalition administration
of President-elect Michelle Bachelet, with a simple majority in both houses of congress, will take office in March
2014. Following the appointment of a new Cabinet, the new government has hinted that the policy agenda will
initially be centred on introducing major changes to the current educational regime to meet growing demands
from society amidst escalating social tensions in this regard. Beyond educational reform, changes to the income
tax regime and redefinition of the energy matrix (in favour of fostering the development of the hydroelectricity
sector and boosting power production) will also be in the policy agenda.
The Chilean financial sector remains sound and well capitalized, as indicated in the assessment by the World
Economic Forum’s Global Competitiveness Report. Domestic credit growth by deposit-taking financial
institutions remains in deceleration mode, yet at still attractive rates of around 10% per year. The
internationalization of the Chilean banking sector is firmly advancing following the recent investment by a large
Brazilian financial group. Local pension funds, which count on US$163 billion (equivalent to 59% of GDP) in
assets under management (AUM), maintain a bias towards dollarization of investment portfolios, in line with
increasing demand for better established equity securities issued in high-income economies. Foreign-currency
portfolio investments (which accounted for 42% of total AUM) increased by 21% y/y during 2013.
7
February 7, 2014
FISCAL
Global Views
Economics
Mary Webb (416) 866-4202
[email protected]
U.S. Near-Term Federal Deficit Reduction

Declining red ink trims net marketable borrowing, for now.
The outlook through fiscal 2024 (FY24)1 released by the U.S.
Congressional Budget Office (CBO) this week projects, under
current policy settings, an FY14 federal deficit $46 billion
narrower than its prior May 2013 outlook, followed by deficits
from FY15 to FY23 that are a cumulative $1.05 trillion wider
(top chart). The CBO’s forecast of an FY14 deficit of $514
billion (3.0% of GDP), improving upon the FY13 shortfall of
$680 billion (4.1% of GDP), reflects revenue growth of 9.2%
versus an expenditure increase of just 2.6%. In part, the
decline in FY14 red ink reflects higher reported receipts from
Fannie Mae and Freddie Mac and, as of FY14, no allocation
for disaster relief after $48 billion was appropriated in FY13
for the Hurricane Sandy recovery efforts.
The CBO’s February outlook relative to its May 2013
projection outlines wider deficits from FY15 to FY17, but the
anticipated shortfalls still average less than $550 billion
annually. Thus even with sizeable non-budgetary cash needs,
for items such as student loans and other credit programs2,
the publicly held debt is expected to edge lower relative to
GDP (middle chart). With lower net marketable borrowing
requirements over the next few years, and the introduction of
a new borrowing instrument as of January — a two-year
Floating Rate Note — the U.S. Treasury has indicated that the
2- and 3-year bond auction sizes will be trimmed, possibly as
of May. In part this adjustment reflects that the FRNs are
expected to raise at least $156 billion annually, depending
upon the size of their two re-openings each quarter.
CBO Projections of
U.S. Federal Deficit
400
0
forecast
-400
May 2013
-800
-1200
February 2014
US$ billions
-1600
FY00 04
08
12
16f
20f
24f
Source: Congressional Budget Office.
U.S. Federal Publicly Held Debt
25
year-end,
US$ trillions
20
84
% of GDP
72
forecast
% of GDP,
RHS
15
60
10
48
5
36
Publicly Held Debt, LHS
After FY17, the CBO expects steadily larger deficits, widening
from $655 billion in FY18 to more than $1 trillion annually as
of FY22. While anticipated growth in output and the GDP
price deflator are somewhat more moderate, the essential
challenge remains escalating expenditures as the population
ages, federal subsidies for health insurance expand, health
care costs per beneficiary increase and the net interest
expense climbs as interest rates, adjusted for inflation, rise
back towards their historical averages on a substantially
expanded debt burden. The cost pressures are reflected in
the upward trajectory of mandatory spending relative to GDP
(bottom chart) that includes Social Security, Medicare and
Medicaid. Conversely, discretionary outlays relative to GDP
are expected to fall to unrealistically low levels under current
legislation. Entitlement restructuring — less painful if phased
in over a number of years — remains elusive and progress
before the mid-term elections on other key issues, such as
immigration reform is uncertain, leaving difficult decisions to
the second half of the decade.
24
0
FY00 03
06
09
12
15f 18f 21f 24f
Source: Congressional Budget Office.
Mandatory vs. Discretionary Spending
16
% of GDP
Mandatory
12
Mandatory 40-Yr Avg
Discretionary 40-Yr Avg
8
Discretionary
4
forecast
0
FY00
04
08
12
16f
20f
24f
Source: Congressional Budget Office.
1
The U.S. federal fiscal year-end is September 30. All dollar data in the article are US dollars. 2 In FY14, the U.S. Treasury has reinvested the Thrift Savings Plan’s G Fund in Treasury securities after disinvesting in 2013 due to debt ceiling restraints.
8
February 7, 2014
Global Views
Emerging Markets Strategy
Araceli Espinosa (5255) 9179-5237
[email protected]
Joe Kogan (212) 225-6541
[email protected]
Are Investors Abandoning EM Bonds?
The following article was published on February 5, 2014.
While survey data has been showing large outflows from local currency bond funds since last May,
more comprehensive data from 10 emerging market governments reveals a rosier picture. Although
some countries have experienced moderate outflows in the last two quarters, countries with strong
outlooks like Mexico have not lost any investors so far.
Another week of large redemptions from funds investing in local currency emerging market debt, combined
with the recent currency losses in many emerging market countries, likely scared many investors about the
prospects for local currency fixed-income investments for 2014. But how much money is actually leaving
emerging market countries, as opposed to leaving the funds that are typically surveyed?
Differences between survey and government data
Investors like to follow survey data because it tracks investor sentiment on a high-frequency basis, often daily
or weekly. The methodology used by survey firms like EPFR has two problems, however. First, only certain
investors such as mutual funds are included in the sample, since these investors are required to report daily
inflows and redemptions for regulatory reasons. As a result, the sample is heavily weighted towards retail
investors and away from long-term strategic investors like sovereign wealth funds. Second, and likely as a
result of the focus on retail investors, the data is often backwards looking. Statistical tests demonstrate that
emerging market redemptions normally follow poor EM returns. The evidence that these high-frequency fund
inflows and outflows can actually predict future price movements is much weaker, likely in part because funds
can anticipate these flows themselves and therefore maintain cash balances to buffer the impact of any
sudden redemptions.
Instead, a more comprehensive picture of investor sentiment is provided by data on non-resident holdings
published by individual country governments, as this data covers almost all investors. Consider the stark
differences: According to EPFR, in the last seven months of the year, net outflows from local currency EM
funds exceeded $20bn, or around 20% of fund assets. Meanwhile, non-resident holdings of Latin American
sovereign bonds during the summer and fall, as reported by each country, remained mostly stable. That
discrepancy implies that some foreign investors were actually buying when retail investors were selling. Note
that as outflows from the funds participating in the survey continue, this discrepancy could get larger because
the sample will become a smaller and smaller portion of the actual EM investor base. For this reason, we saw
little reason to expect a sudden capital reversal during most of last year.
Latest data releases in Latin America
Nevertheless, the recent release of December data for Peruvian bonds has caused us to revisit the analysis,
as foreign holdings of nominal government bonds abruptly dropped from 59% to 55%. Most of the reduction
occurred in the short and intermediate sections of the curve; currency appreciation is probably more important
for investors in this part of the curve, and perhaps currency weakness has caused investors to re-evaluate
their bond investments. Since yields are significantly lower in Peru than in Mexico, investors may rotate out of
Peru soberanos once they realize they can no longer count on the steady currency appreciation of previous
years. In contrast, so far, the government data shows no outflows from Colombia, with December non-resident
holdings at 6.6%, almost the same as reported at the end of October, and significantly higher than the 4.5%
reported at the end of April.
Yet, to really get an idea of foreign sentiment about Latin America, we need to look at the larger countries —
Brazil and Mexico. Foreign holdings in these two countries were $134bn and $87bn USD-equivalent, far larger
than the $7bn foreigners held in Peru and $4bn in Colombia. In Brazil, non-resident holdings were 14.6% in
9
February 7, 2014
Global Views
Emerging Markets Strategy
Araceli Espinosa (5255) 9179-5237
[email protected]
Joe Kogan (212) 225-6541
[email protected]
… continued from previous page
April; they rose to a peak of 17.2% in September and fell to 16.1% by the end of the December. This 1.1%
decrease in holdings implies that non-residents decreased their positions in Brazil by around 6%. While
double-digit yields must have tempted some investors, it seems that a poor economic outlook is finally having
an impact on foreign sentiment.
Mexico is the most interesting story, and coincidentally, the country where we can get more frequent updates
than in the rest of Latin America. Despite recent market volatility, foreign holdings have remained stable at
around 57% of nominal bonds outstanding. Even though the currency depreciated significantly in January,
available data until the 22nd of January is not showing outflows. Thus, investors may be starting to
discriminate more between countries, with Mexico receiving the largest benefits.
Figure 1. Non-resident ownership of local bonds around the world
Source: IIF, individual country statistics. Graph shows foreign ownership of both government-issued nominal and inflation-linked
bonds. The numbers may differ from ownership of just nominal bonds mentioned in the text above, since foreigners focus on
nominal bonds in Latin America. For example, non-residents hold 57% of nominal Mbonos but only 37% of all government bonds.
Emerging market countries outside of Latin America
We have already discussed one of the “Fragile Five,” Brazil, where outflows have only recently started and net
inflows for 2013 were still highly positive. Similarly, in South Africa, while non-residents reduced their
exposure to the country’s bonds in November and December, net inflows for 2013 were still positive, although
only barely. (That observation is based on balance of payments type flow data to all bonds, not just
government bonds). Turkey is seeing non-resident ownership decrease by 1% of bonds outstanding per
quarter, such that non-resident ownership has returned to 2012 levels. As shown in Figure 2, some countries
have actually received inflows in the fourth quarter, namely Hungary and Indonesia, and, in Latin America,
Mexico and Colombia.
10
February 7, 2014
Global Views
Emerging Markets Strategy
Araceli Espinosa (5255) 9179-5237
[email protected]
Joe Kogan (212) 225-6541
[email protected]
… continued from previous page
Figure 2. Change in non-resident ownership by quarter in 2013
Source: IIF, individual country statistics. Graph shows percentage points change in ownership in consecutive quarters.
Fourth quarter data is not yet available for Korea, Malaysia, and Thailand.
Conclusions
The trend in investor sentiment toward local currency instruments has certainly shifted, but so far is not as
negative as some figures would suggest. Retail investors are obviously pulling back, but certain long-term
investors have easily taken their place. More vulnerable countries are seeing some outflows, but so far those
outflows are small relative to the reversals we have seen before. Consider for example, that non-resident
holdings in Peru dropped from 36% to 17% during the period of 2008 to 2009, while in Mexico they fell from
27% to 21% in less than four months. Relative to these numbers, a couple of quarters of outflows of 1% of
bonds outstanding do not seem so bad. Nevertheless, not all countries have built up the reserves to weather
outflows as Peru and Mexico had. To the extent that some countries may have relied on prior inflows to finance
current account deficits, we might see some adjustments going forwards with even a moderate reversal.
The good news is that investors are not decreasing their positions indiscriminately. Motivated perhaps by
economic reforms and the potential for ratings upgrades, investors have not reduced positions in Mexico. That
idea is consistent with what the Ministry of Finance has been saying for years — that the composition of its
investor base has changed significantly toward long-term investors.
Meanwhile new markets continue to develop. Colombia received inflows every quarter in 2013, despite
weakness in its currency. This country is a still a niche market with relatively little foreign presence, and it is
benefitting from the government’s effort to entice foreign entry through a decrease in tax rates and a
simplification of tax rules. We do not yet have holdings data for January 2014, but we would not be surprised to
see a slowdown in inflows or even some outflows as a result of not just the 5% currency depreciation in that
month, but also government statements favouring a weaker currency. Still, in the long-run, we would expect
longer-term non-resident investors to increase positions, thanks to the high real yields available in that country.
While we have focused on local currency flows, as this is the most recent source of concern both for country
governments and for investors, we should mention that the pattern we see for hard currency bonds is not so
different. Survey data has been showing significant outflows from hard currency funds since May. Nevertheless,
gross issuance of global bonds from Latin America has continued at a steady pace. Issuance in 2013 was
$122bn, higher than any previous year, at least since the financial crisis. Not surprisingly, issuance was low in
January by historical standards, as January is usually a good month for origination, and concessions have
probably increased to around 10bp. Still, once this bout of volatility passes, we could see issuance resume.
11
February 7, 2014
Global Views
Fixed Income Strategy
Alan Clarke (44 207) 826-5986
[email protected]
Eurozone Inflation — Or Lack Of It
Inflationary pressures are distinctly lacking in the eurozone. Last week saw the second consecutive downward
surprise in eurozone inflation, with the flash estimate easing to 0.7% y/y against expectations for 0.9% y/y.
German inflation surprised on the downside for the second consecutive month and contrary to the ECB
assumption that the prior month’s fall should be temporary.
Mathematically, in order for the eurozone aggregate measure of inflation to have been so low (in light of the
German, Italian and Spanish preliminary data that have already been released) the French HICP must have
been very low — probably in the region of 0.6% y/y (earlier estimates had been closer to 1.0% y/y). That is
despite January’s VAT hike which we thought would have added around 0.3 percentage points. In the event, it
seems that France has followed Italy in showing near zero impact from higher indirect taxes. We won’t know
this for sure until the French data are released (20 February), but something drastic would have to have
happened elsewhere in the region for this not to have been the case.
Close to but…



The ECB’s mandate is to keep inflation close to but below 2%;
For the last 6 months or so inflation has been close to but below 1%;
We think that there is a serious risk that inflation falls to close to but below 0%.
The depressed inflationary picture is more evident the deeper that we look under the surface. Chart 1 shows
the headline inflation reading on a country-by-country basis. Only two countries in the eurozone are anywhere
near 2% - the rest are well below and several are close to zero.
Chart 1: Eurozone Country by Country Breakdown
Similarly, Chart 2 shows inflation on a component-by-component basis. Only one component (alcohol and
tobacco) is above 2% (in turn that is probably reflective of tax hikes). All other components are far more muted
and below their respective average pace over the last 5 years.
12
February 7, 2014
Global Views
Fixed Income Strategy
Alan Clarke (44 207) 826-5986
[email protected]
… continued from previous page
Chart 2: HICP Inflation Breakdown by Component
Last but not least, Chart 3 shows a more simplified breakdown of eurozone inflation based on ‘the Big 3’. The
‘Big 3’ refers to the three key categories of inflation within the HICP. Namely:



Energy;
FAT (Food, Alcohol and Tobacco); and
Core
Chart 3: The Big 3 Contributions to Eurozone Inflation
This breakdown helps to highlight where the main sources of inflation are coming from (or not as the case
may be). In the case of the eurozone, in contrast to the previous 3 years, energy prices are contributing
absolutely nothing to the current pace of inflation. The contribution from FAT has been dwindling as the
effects of last year’s agricultural commodity price spike have unwound. This has left core components as the
main contributor to headline inflation. Even this component has seen its contribution to overall inflation halving
over the last twelve months, down to around 0.5 percentage points.
13
February 7, 2014
Global Views
Fixed Income Strategy
Alan Clarke (44 207) 826-5986
[email protected]
… continued from previous page
Where Next?
Looked at from the perspective of ‘the Big 3’, the only way is down. The FAT component is subdued and
unlikely to go any higher given a lack of any food crisis of late and no fresh sin taxes in the pipeline. Similarly,
energy price inflation is non-existent. There are no major base effects to change that (if anything there is a
moderate downward base effect due to push down on inflation fairly soon) and crude oil prices have been
stable to slightly down of late.
That leaves core inflation in the driving seat. It is hard to argue anything apart from a further slowdown in core
inflation. The eurozone economy has the biggest gap between the unemployment rate and the NAIRU of any
developed economy. That points towards slowing underlying inflation. The EUR exchange rate was on a rising
trend through last year — pointing to slowing imported inflation. Last but not least, individual eurozone
economies are striving for greater competitiveness to rebalance their economies and pursue an export-led
recovery. This has helped to narrow current account deficits but that typically results in slowing inflation.
All in all, that points to a serious risk that the next stop for eurozone inflation is zero. We will return to this
issue in our new and improved ‘Inflation Station’ publication later in the month. For now the focus will be on
how and when the ECB will respond to signs that deflation is on the ECB’s doorstep.
14
February 7, 2014
Global Views
Fixed Income Strategy
Alan Clarke (44 207) 826-5986
[email protected]
UK: As Good As It Gets
Survey Readings Topping Out
Both the UK manufacturing and services sector PMI surveys disappointed expectations during January; both
fell by ½ point to 56.7 and 58.3 respectively. For the services sector index, this was the third consecutive
monthly decline and extended the losing streak to 4.2 points. We expect further downside for both surveys
over the coming months.
Our LILI (Leading Indicator for Leading Indicators) model helps to provide an early warning of the likely future
trend in the PMI surveys. The model weights together movements in the effective exchange rate, the real
central bank policy rate, the shape of the yield curve, peripheral spreads, money supply growth, house price
inflation and the ted spread. The resulting LILI index helps to gauge how accommodative (or restrictive)
conditions are in the economy. When conditions are looser than average it is typically a sign that survey
readings will improve and vice versa.
This time a year ago, the LILI model had posted a sharp loosening in conditions, helped by the weakening in
the GBP exchange rate, narrowing in peripheral bond spreads and rising equity prices. In turn that proved to
be a reliable signal of the subsequent surge in the PMI surveys.
Unfortunately the situation has reversed in
recent months. The LILI model has shown
that conditions have become far less
accommodative, down from almost 2
standard deviations looser than average to
only just in accommodative territory still. The
relationship suggests that both PMI surveys
should continue to fall from upper-50
territory down to lower-50 territory (Chart 1).
Chart 1: CIPS Manufacturing vs LILI Model
Don’t Panic!
First and foremost, our emphasis is that
despite the falls, both surveys currently
remain at elevated levels. That is above
previous cyclical peaks! Furthermore, the
consensus forecast for GDP growth this year
(in line with our own of 2.5% y/y) points to a
slowdown in the quarter-to-quarter growth
rate. Hence a moderate downward trend in the PMI surveys merely confirms what the majority of forecasters
were already expecting.
Furthermore, there is currently a massive residual between the CIPS services survey and the hard services
output component of GDP (Chart 2). The CIPS services index would have to fall a long way before it is
pointing to an outright slump in hard output.
Recoveries (or slowdowns) are seldom a straight line affair. Hence it isn’t a no-brainer that these surveys will
continue to slide in the coming months — or GDP for that matter. In particular, the commentary that
accompanied the CIPS surveys acknowledged that the poor weather in January had probably contributed to
the latest weakening and asserted that February could see some catch-up. Nonetheless, we would be
surprised if both surveys have not lost further ground by the middle of the year.
15
February 7, 2014
Global Views
Fixed Income Strategy
Alan Clarke (44 207) 826-5986
[email protected]
… continued from previous page
While the UK surveys have been losing ground, it
has not been the same story on the continent.
The eurozone composite PMI has risen by 1 point
to 52.9 over the last 4 months with Italy notably
enjoying the bounceback. There has been a
tendency for the eurozone PMIs (for no
particularly logical reason) to lag behind the trend
in the UK, hence some catch-up was reasonable
on this basis. Moreover, given the relationship
between the surveys and the eurozone LILI
model, there is also good reason for sentiment to
have caught up (Chart 3).
We have our doubts that the surveys will rise that
much further. In particular, the LILI for the
eurozone never registered particularly
accommodative conditions — they are barely in
accommodative territory. In addition, the impact
of softening overseas developments is a potential
dampener (assuming that there was some
substance to the weakening in the ISM).
Chart 2: CIPS Services vs GDP Business Services Output
Chart 3: Eurozone Composite PMI vs LILI
To summarise, our LILI model has highlighted
that monetary conditions have become less
accommodative in the UK and this is starting to
bear down on upstream indicators such as the
PMIs. There is more downside to come on the
back of this relationship. However, this should be
seen as a cooling off rather than a seizing up.
These surveys remain at historically elevated
levels and are merely nudging down towards
levels consistent with a still-respectable pace of
GDP growth. The eurozone surveys are one step
behind and have continued to rise. However, we
suspect that the extent of further upside is
probably limited.
16
February 7, 2014
Global Views
Fixed Income Strategy
Frédéric Prêtet (00 33) 17037-7705
[email protected]
ECB February Decision — Waiting For Another Month!
ECB statement — Strengthening forward guidance… but waiting for additional data

As we and the consensus expected, there were no policy changes from the ECB. However, it is true that
it could have been a close call and market speculations have been mounting over recent days regarding
a potential surprise move. The lack of any clear indication regarding the ECB’s next move was therefore
seen as disappointing and the immediate reaction was for the euro to erase all of its recent weakness.

It is true that this status quo and the tone of the press statement gave the feeling of some paralysis at the
ECB. With the refi rate already at 0.25% and deposit rate at 0%, extra actions involve, in some cases,
going into “unchartered territory”. While the ECB president once again repeated that the board is “ready
to consider all available instruments”, it sounds that there is difficulty to gather a broad majority inside the
board to any specific action. Does it mean that the ECB will be in a prolonged wait and see environment?
We do not think so and, as already indicated by the ECB president, the March meeting could be a big
rendez-vous. In this regards, we keep our main scenario of rate cuts taking place in a one month time.

First, Mr. Draghi recognised that the ECB is not fully comfortable with the inflation development. While
repeating once again that it does not see a risk of deflation in the euro area and that the outlook for price
development continue to be broadly balanced, the ECB now fully recognises and is “alert” that “we are
now experiencing a prolonged period of low inflation”. So, in our view, it raises very much the probability
for potential additional actions.

Despite this “alert” situation, the ECB president justifies the current status quo by taking a longer
perspective on inflation rather than focusing on the recent developments and weaker than expected
January figures. He thus stressed positive leading indicators, especially on the growth side to remove the
deflationary risk. Also, the poor development in both money supply and credit growth at the end of last
year were party dismissed as being negatively and temporarily distorted by the AQR. However, he gave a
number of data to be tracked over the coming month which could alter this assessment and change the
mood inside the board.

These volatility points will be:

On the growth side with the release of Q4 GDP data on Friday, February 14th which was
clearly pointed out by M. Dragihi. The consensus is looking for a +0.3% q/q rise after a weak
+0.1% q/q rise in Q3. Our own forecast is between 0.2%/0.3% but coming industrial production
data will help to fine tune this forecast. So, it will confirm the ECB’s scenario of a “gradual
recovery”. Furthermore, we expect all major countries to show positive quarterly growth, meaning
that the recovery is broadening. So, if confirmed, this figure should rather favour a status quo.
While not clearly mentioned by the ECB president and more risky in our view could rather be
February business surveys (like PMIs on February 20th) as there is the risk that the past
appreciation of the euro as well as lower growth momentum in emerging markets could start
weighting on sentiment. The ECB recognised that the volatility in emerging markets and its
potential impact on the growth scenario was a point of focus for the board.

On the monetary side with the release of January M3 and credit growth data on February
27th. The ECB president clearly expects some improvement on this side given that end of last
year was “temporarily” distorted. However, we think that the last ECB lending survey was a bit
disappointing, suggesting that banks were rather slower than expected in easing credit
conditions. So, there could be some risk of a disappointing outcome on this side.
17
February 7, 2014
Global Views
Fixed Income Strategy
Frédéric Prêtet (00 33) 17037-7705
[email protected]
… continued from previous page

On the price side with February inflation data on February 28th. While not clearly mentioned
as the ECB president likely wanted to avoid, like at last month’s press conference, to be too
much tied to a specific figure, any weaker than expected outcome could refuel the pressure to
act. It will indeed change the ECB’s inflation scenario of a 1.1% inflation trend for this year. It is
already worth noticing that the base effect in energy will not be very helpful as they increased by
1.2% m/m in February last year. Our current forecast is for yoy Eurozone inflation to edge down
to 0.6% in February from 0.7% in January. Furthermore, we will also look in particular for any
downside surprise in core inflation. The ECB president seems to suggest that low core inflation
mainly comes from countries engaged in a strong economic adjustment program. However, there
are now a majority of Eurozone member states where core inflation is below the 1% line, raising
the risk of deflationary pressure spilling over between countries.

Finally, new ECB staff forecasts to be released next month will be under focus as the ECB
president indicated that it will also integrate an outlook on 2016. We would say that any inflation
forecast below the 1.5% line by this time will likely question the ECB’s mandate of medium-term
price stability and push for additional action.
18
February 7, 2014
Global Views
Foreign Exchange Strategy
Eduardo Suárez (416) 945-4538
[email protected]
Latin America Week Ahead: For The Week Of February 10 - 14
After this week which was replete with tier-1 US data, the coming one will be somewhat slower on that front but
we still get retail sales, manufacturing production, US industrial production, and U. Michigan consumer
confidence. However, the tone for next week is likely to be partly influenced by today’s non-farm payrolls release
as risks related to a Fed policy shift are part of what appears to have put markets under pressure. Our sense is
that the data point was in somewhat of a “sweet-spot” for LATAM FX, as it was strong enough to avoid US
growth concerns, but also weak enough to avoid leading to fears that Fed policy normalization could accelerate.
Emerging Markets (EM) have stabilized over the past couple of sessions, but our sense is that many of the
underlying themes that drove the correction we saw in January remain in the background, and are likely to be
recurring themes, driving occasional bouts of volatility. Accordingly, our bias remains to focus on alfa rather than
beta trades, by crossing regional FX versus each other to avoid the risk of directional USD bets. On this front,
our favoured trades remain long MXN/CLP (premised on the rebound of the US economy, Mexico’s lower
dependence on commodities, and the structural reform story) and long PEN/COP (with PEN having a more
diversified commodity basket and relative appetites for currency weakness by central banks).
Week-ahead views:
Brazil: Today’s release of lower-than-anticipated inflation (5.59% vs a 5.65% consensus) is likely to put
downward pressure on DI rates, which are currently pricing in another 50bps hike for the next meeting.
However, it is also worth bearing in mind that the government has signaled that inflation has become a priority
for the administration, as rising prices appear to now be seen as one of the most politically costly problems
ahead of next year’s presidential elections. This has seemingly prompted a more concerted effort to tighten the
fiscal stance in order to reduce inflationary pressures, and the risk of further eroding investor sentiment. On this
front, it will be worth watching for further signs of where the government will set the primary surplus target for
2014 — which could factor into the prospects for credit ratings downgrades. On the data front, next week
features retail sales, the monthly economic activity index, and formal job creation, which are all worth watching.
BRL continues to gradually slide, although intervention has made the currency’s depreciation steadier.
Chile: This looks set to be a very quiet week on the data front, with the two major releases being the BCCh’s
traders’ and economists’ surveys, which will be interesting to watch for signs of whether the volatility in global
markets has altered expectations regarding the central bank’s easing prospects.
Colombia: This week’s highlight is likely to be the release of BanRep’s MPC meeting minutes on Friday, which
should be monitored for the central bank’s discussion on both FX and rates. The central bank is now the only
one in LATAM which continues to accumulate FX reserves despite the weakening trend that hit regional FX to
start the year. Accordingly, we see BanRep underperforming its Andean peer PEN.
Mexico: FinMin Videgaray said the first oil contracts for the private sector could come as soon as late 2014. So
far, our sense is that the reform has been well received by private players, but more clear guidance is likely to
be available after secondary legislation is approved, which is expected between now and April. Despite the
government’s hopes for late 2014 contracts, we believe it is worth bearing in mind that in the past there have
been delays in EMs, including Mexico, on project auctions. On the data front, this looks set to be a busy week,
with gross fixed investment & AMIA auto-sector data, manufacturing and industrial production all in the pipeline.
In addition, we are scheduled to get Banxico’s Quarterly Inflation Report and Banxico’s MPC meeting minutes,
which will be important to watch, given inflation and monetary policy are once again market relevant topics.
Peru: This week’s highlight is likely to be the BCRP’s MPC meeting, where the reference rate is widely expected
to be left unchanged, but an update of the central bank’s views will still be interesting. In addition we also get
important data on the monthly economic activity index, the trade balance and unemployment.
19
February 7, 2014
Global Views
Portfolio Strategy
Vincent Delisle (514) 287-3628
[email protected]
Portfolio Strategy Asset Mix — February Update
This comment was originally published on February 4, 2014.
Asset Mix: EM Vortex Hits Cyclical Sentiment
Overweight (OW); Market Weight (MW); Underweight (UW)
Gimme Shelter? Defensive leadership appears set to continue in February and we would not fight the near
term malaise. Sentiment is shaky and the ongoing S&P 500 sell-off could extend further. Still, we do not
expect a sustained period of equity underperformance. The S&P 500 and U.S. 10-Yr Yields are already
tracking the ISM stumble (exhibits 1 and 2), and our U.S. LEI points to 3%’ish GDP growth in H1/14. Unless
the U.S. macro picture materially deteriorates, this Q1 pullback could prove to be an opportunity to add to
equities. We also believe the recent softness in U.S. data may prove temporary as post-winter activity
accelerates and low inventories fuel new orders. However, weak Chinese momentum and EM anxiety could
persist in the near term. Globally, the silver lining has come from a pick-up in Eurozone activity in January
(PMI up to 53.9 in January, three-year high). Our recommended tactical asset mix (versus a neutral
benchmark) is unchanged at +5% Equities; -10% Bonds; +5% Cash (see Exhibit 3).
Exhibit 1 - ISM Manufacturing vs. S&P 500 QOQ (2000-2014)
Exhibit 2 - ISM and 10-Yr U.S. Yields (2000-2014)
Source: Scotiabank GBM Portfolio Strategy, Bloomberg.
Source: Scotiabank GBM Portfolio Strategy, Bloomberg.
Exhibit 3 - Scotiabank GBM Asset Mix – February 2014 Update
Equities
Asset Mix
Benchmark Recommended
60%
65%
Canada (TSX)
5%
U.S. (S&P 500)
22%
MSCI EAFE
18%
(1. Europe, 2. Japan, 3. Australia)
Far East ex-Japan
10%
LatAm
5%
Bonds
Government
Corporate
Cash (91-D Tbills)
Exhibit 4 - Tactical Asset Mix Signals – February 2014
Change From
Last
Last 3M Trend
5%
26%
22%
30%
30%
10%
16%
14%
0%
5%
Equity vs. Bonds (U.S.)
+10%
-
+14%
+9%
+15%
+14%
+8%
Equity vs. Bonds (Canada)
+11%
-
+12%
+1%
+0%
+9%
+6%
Cyclical vs. Defensive Sectors +9%
-
+7%
+5%
+0%
+7%
+3%
MW
Sector Strategy (S&P 500)
9%
3%
40%
Q4-13 Q3-13 Q2-13 Q1-13 Q4-12
Global Equity
Canada
OW
-
MW
OW
UW
MW
U.S.
OW
+
OW
OW
OW
MW
UW
Europe (Western Europe)
UW
+
OW
MW
OW
OW
OW
Far East (ex-Japan)
UW
-
UW
UW
UW
OW
MW
LatAm
UW
=
UW
UW
UW
UW
MW
Source: Scotiabank GBM Portfolio Strategy estimates
Source: Scotiabank GBM Portfolio Strategy estimates
20
February 7, 2014
Global Views
Portfolio Strategy
Vincent Delisle (514) 287-3628
[email protected]
… continued from previous page
Asset Mix & Global Equity Screens. Equity exposure is declining in both our U.S. and Canadian asset mix
models in light of weaker ISM and LEI momentum, as well as deteriorating earnings revisions. See exhibits 5
and 6 for equity versus bond indications. Equity overweight signals from our model decline to +5% in the U.S.
(versus +16% average in Q4/13) and to +7.5% in Canada (versus +13% in Q4/13). In terms of global equity
allocations, the DM over EM bias remains elevated, mainly on improved European signals. See Exhibit 7 for
updated DM versus EM barometer.
Exhibit 5 – U.S. Tactical Asset Mix* (Recommended
Equity Weighting)
80%
Exhibit 6 – Canada Tactical Asset Mix* (Recommended
Equity Weighting)
80%
25%
Overw eight Equities
20%
75%
30%
Overweight Equities
75%
20%
15%
70%
70%
10%
65%
60%
0%
60%
-5%
55%
10%
65%
5%
0%
55%
-10%
-10%
50%
50%
-15%
30%
20%
10%
0.2
-0.2
-10%
-0.4
0%
-10%
-10%
-20%
-20%
-30%
-30%
Risk-Off
Trade
Extended
-50%
-40%
Oct-09
Oct-08
Oct-07
Oct-06
Oct-05
Oct-04
Oct-03
Oct-02
Dec-14
Dec-13
Dec-12
Dec-11
Dec-10
Dec-09
Dec-08
Dec-07
Dec-06
Dec-05
Dec-04
-30%
Dec-03
-1
-50%
Bonds "relative"
Overbought
-60%
Dec-02
Sep-13
10%
0%
-40%
-20%
Overw eight
Emerging
-0.8
Sep-11
20%
10%
-60%
Oct-14
0%
20%
Oct-13
0
40%
30%
Oct-12
0.4
30%
Oct-11
MSCI DM Less EM 3M Rolling
Rel. Return - RHS
50%
S&P 500 "relative"
Overbought
Risk-On
Trade
Extended
40%
-0.6
Sep-09
50%
Oct-10
Overw eight Developed
0.6
Sep-07
Sep-01
Sep-13
Sep-11
Sep-09
Sep-07
Sep-05
Sep-03
Sep-01
Sep-15
Exhibit 8 - Scotiabank Strategy U.S. Risk-On/Risk-Off
Indicator* (2002-2013)
Exhibit 7 - Developed vs. Emerging Markets Barometer
1
-30%
*Model Based on ISM, Risk-On/Risk-Off, LEI, Revision Ratio,
P/E, TSX 200 Day MA
Neutral = 60% Equity/40% Bond Split
Source: Scotiabank GBM Portfolio Strategy, Bloomberg
*Model Based on ISM, Risk-On/Risk-Off, LEI, Revision Ratio,
P/E, S&P 500 200 Day MA
Neutral = 60% Equity/40% Bond Split
Source: Scotiabank GBM Portfolio Strategy, Bloomberg,
Thomson Financial.
0.8
TSX Less Canada
Bonds 3M Rolling - RHS
Overweight Bonds
40%
-25%
Sep-05
Overw eight Bonds
40%
-20%
45%
-20%
S&P 500 Less U.S.
Bonds 3M Rolling - RHS
Sep-03
45%
*S&P 500 less long-term government bonds (TLT) 3M rolling
relative return
Source: Scotiabank GBM Portfolio Strategy, Bloomberg.
Source: Scotiabank GBM Portfolio Strategy estimates, Bloomberg.
21
February 7, 2014
KEY DATA PREVIEW
Global Views
Economics
Derek Holt (416) 863-7707
[email protected]
Dov Zigler (416) 862-3080
[email protected]
Key Data Preview
CANADA
Can Canadian manufacturing sustain its winning
streak? We’re skeptical that the very rapid pace of
gains in Canadian manufacturing sales seen to start Q4
(a cumulative +1.7% in October and November) will
continue into December and we’re looking for a soft
0.1% m/m number. Our rationale is: a) automotive
output declined in the U.S. and, coupled with soft
exports of cars out of Canada (-1.1% m/m) seems to
have slowed in Canada too, and b) refined petroleum
products output in Canada also may have been slower
too as evinced by soft exports in that sector (-8% m/m).
On the plus side, machinery exports were up and new
orders were strong in September and October as well,
which is why we’re looking for a flat number and not an
outright decline. Note that even a flat print in volume
terms would leave manufacturing tracking for a 7% q/q
SAAR gain in real terms.
55
Canadian Manufacturing Sales & Orders
H2 2013 Bump, No Trend
C$, Billions
50
45
New Orders
Shipments
40
10
11
12
13
Source: Statistics Canada, Scotiabank Economics
Did a colder-than-usual January impede residential construction in Canada? We’re looking for housing
starts to have held steady in the 185k/month annualized range in January after the pace of building permits
treaded water in October and November. Very cold weather across the country, including unusually cold
weather in the prairies (recall news items comparing the temperature in Winnipeg this January to the
temperature on Mars) could weigh on construction on the margin, although the very low not-seasonallyadjusted levels of housing starts in January in any event imply that the seasonally adjusted figures that we see
account for significant-enough downside from weather effects.
UNITED STATES
Retail sales in the U.S. are one of the data series that
do seem to get whipped around fairly considerably by
weather (in contrast to, say, jobs or the ISM index,
where the evidence is less persuasive one way or the
other and the impacts harder to disentangle). As the
table to the right shows, extreme weather conditions
caused by Nor’easters do tend to line up with hiccups in
retail sales — and therefore the five days lost to winter
storms on the east coast in January 2014 ought to
weigh on results. Combined with soft car sales (at -1%
m/m, probably a symptom of the same issue), we’re
anticipating a decline in retail sales of -0.2% m/m on
headline, with a flat reading ex-autos.
Deviation of Storm from 3‐
Month Storm T‐1 Storm T+1 Average Rank
1 0.8
‐0.8 1.6
‐1.33
2 0.8
‐0.8 1.6
‐1.33
3 0.5
‐1.4 1.8
‐1.70
4 1.2
‐0.6 0.9
‐1.10
5 ‐0.5
0.2
1
‐0.03
6
0
0.1 2.2
‐0.67
7 ‐0.6
1.6 1.9
0.63
Retail Sales During Months With Significant Northeast Snowstorms Storm
March‐93
January‐96
February‐03
January‐05
February‐07
February‐10
February‐94
U.S. industrial production in January could also be a
victim of the recent autos weakness, but in this case,
we’re looking at an inventory story more than a weather-related tale in forecasting a soft 0.1% m/m increase.
U.S. auto inventories have gotten ahead of sales by a decent margin, and restocking should curtail autos
production, which accounts for 5% of industrial production. In terms of the weather impact, winter storms can
be a wash when it comes to utilities, with cold weather tending to result in more utilities use in homes but less
in industrial applications, with the results sometimes even being dramatically lower utility output (e.g. utilities
output fell quite a bit in both January and February 2011 amidst a long and tough streak of storms).
A1
22
February 7, 2014
KEY DATA PREVIEW
Global Views
Daniela Blancas (416) 862-3908
[email protected]
Economics
Sarah Howcroft (416) 862-3174
[email protected]
Tuuli McCully (416) 863-2859
[email protected]
… continued from previous page
EUROPE
Fourth-quarter real GDP data for the euro area will be released on
February 14th. On the heels of a subdued 0.1% q/q gain in the third
quarter, we anticipate output growth of 0.2% q/q (0.3% y/y) in the
October-December period, in line with the European Central Bank’s
ongoing assessment of a moderate — albeit fragile and uneven —
recovery. Germany will once again lead the way, with an expected 0.3%
q/q advance, while France will be softer at around 0.1%. Italy will likely
see its first positive GDP print since the second quarter of 2011, with a
0.1% q/q increase. The peripheral economies of Portugal and Greece
will also report GDP estimates next week, with conditions there
continuing to gradually improve with Portugal having already exited
recession and Greece’s pace of decline slowing considerably in recent
quarters. All told, although the recovery is underway, the pace of
expansion in the euro area remains below the trend in potential growth
(around 0.3-0.4% q/q), implying that the region’s large output gap, high
unemployment and deflationary risks will persist for the time being.
Euro Area Real GDP
0.8
0.6
q/q %
change
0.4
0.2
0
-0.2
Euro area
-0.4
Germany
France
-0.6
Italy
-0.8
13Q1
13Q2
13Q3
13Q4f
Source: Bloomberg, Scotiabank Economics.
LATIN AMERICA
Next week, December retail sales (February 13th) and the central bank economic activity index (February 14th)
will be released in Brazil. The country’s economic performance remains subdued amidst relatively high
inflation, disappointing industrial activity and rising social discontent over public-services infrastructure
insufficiency. Ahead of the World Cup (June-July) and the presidential elections (October), the government
has accelerated its spending in the last few quarters, raising concerns over fiscal sustainability. At the
beginning of 2013, the government unveiled an economic plan to boost industrial activity; however, the effect
faded once the stimulus ended. As a result, industrial activity expanded by a mild 1.3% y/y in 2013 following
the 2.5% plunge registered in 2012. On a positive note, with unemployment remaining at record low levels
(4.3% as of December) and inflation relatively high but decelerating, retail sales showed improvement toward
the end of the year. We anticipate that economic activity will continue to recover at a very moderate pace, with
industrial output lagging the rebound while the retail sector will outperform.
ASIA
Malaysia will release fourth-quarter real GDP data on February 12th. We
estimate that the country’s output increased by 4.6% y/y following a
5.0% gain in the July-September period, taking economic expansion to
4½% for 2013 as a whole. Activity continues to be driven by domestic
demand, particularly household spending and investment; private
consumption is underpinned by higher incomes, supportive labour
market conditions, low interest rates, and government subsidies to
several socioeconomic groups. Investment activity is held up by
infrastructure projects as well as outlays in consumer-related services
sectors, and the oil and gas industry. With China and Japan being
among the most important export destinations, their economic
performance will be significant for Malaysian exporters; regardless, net
exports will likely not be a major growth contributor given the strength of
import demand. We expect the Malaysian economy to grow by around
5% annually in 2014-15.
A2
23
Malaysian Real GDP Growth
7
y/y %
change
6
forecast
5
4
3
2
1
0
Mar-11
Mar-12
Mar-13
Source: Bloomberg, Scotiabank Economics.
February 7, 2014
KEY INDICATORS
Global Views
Economics
Key Indicators for the week of February 10 – 14
North America
Country Date Time Indicator
CA
02/10 08:15 Housing Starts (000s a.r.)
Period
Jan
BNS
185.0
Consensus
184.0
Latest
187.5
Dec
Dec
Dec
----
0.2
1.0
0.5
0.1
-1.4
0.5
MX
MX
US
02/11 09:00 Industrial Production (m/m)
02/11 09:00 Industrial Production (y/y)
02/11 10:00 Wholesale Inventories (m/m)
US
CA
US
02/12 07:00 MBA Mortgage Applications (w/w)
02/12 09:00 Teranet - National Bank HPI (y/y)
02/12 14:00 Treasury Budget (US$ bn)
FEB 7
Jan
Jan
----
---28.5
0.4
3.8
53.2
CA
US
US
US
US
US
02/13
02/13
02/13
02/13
02/13
02/13
08:30
08:30
08:30
08:30
08:30
10:00
New Housing Price Index (m/m)
Continuing Claims (000s)
Initial Jobless Claims (000s)
Retail Sales (m/m)
Retail Sales ex. Autos (m/m)
Business Inventories (m/m)
Dec
FEB 1
FEB 8
Jan
Jan
Dec
-3000
335
-0.2
0.0
--
0.1
2968
330
0.0
0.1
0.4
0.0
2964
331
0.2
0.7
0.4
CA
US
US
US
US
US
02/14
02/14
02/14
02/14
02/14
02/14
08:30
08:30
08:30
09:15
09:15
09:55
Manufacturing Shipments (m/m)
Export Prices (m/m)
Import Prices (m/m)
Capacity Utilization (%)
Industrial Production (m/m)
U. of Michigan Consumer Sentiment
Dec
Jan
Jan
Jan
Jan
Feb P
0.1
---0.1
80.0
0.2
-0.1
-0.1
79.3
0.2
80.5
1.0
0.0
0.0
79.2
0.3
81.2
Period
Dec
Dec
Dec
BNS
----
Consensus
-0.2
0.3
0.9
Latest
1.3
0.2
1.4
Europe
Country Date Time Indicator
FR
02/10 02:45 Industrial Production (m/m)
FR
02/10 02:45 Manufacturing Production (m/m)
IT
02/10 04:00 Industrial Production (y/y)
FR
EC
02/12 02:45 Current Account (€ bn)
02/12 05:00 Industrial Production (m/m)
Dec
Dec
---
--0.3
-1.9
1.8
GE
GE
SW
02/13 02:00 CPI (y/y)
02/13 02:00 CPI - EU Harmonized (y/y)
02/13 03:30 Riksbank Interest Rate (%)
Jan F
Jan F
Feb 13
1.3
1.2
0.75
1.3
1.2
0.75
1.3
1.2
0.75
FR
GE
FR
HU
SP
SP
IT
PD
PO
RU
EC
EC
GR
02/14
02/14
02/14
02/14
02/14
02/14
02/14
02/14
02/14
02/14
02/14
02/14
02/14
4Q P
4Q P
4Q P
4Q P
Jan F
Jan F
4Q P
4Q P
4Q P
Feb 14
4Q A
Dec
4Q A
0.1
0.3
--0.2
0.3
0.1
--5.50
0.2
---
0.2
0.3
-0.1
2.5
0.2
0.3
0.1
2.9
0.1
5.50
0.2
14.5
--
-0.1
0.3
-0.1
1.8
0.2
0.3
0.0
1.9
0.2
5.50
0.1
17.1
-3.0
01:30
02:00
02:45
03:00
03:00
03:00
04:00
04:00
04:30
04:30
05:00
05:00
05:00
GDP (q/q)
Real GDP (q/q)
Non-Farm Payrolls (q/q)
GDP (y/y)
CPI (y/y)
CPI - EU Harmonized (y/y)
Real GDP (q/q)
GDP (y/y)
Real GDP (q/q)
One-Week Auction Rate (%)
GDP (q/q)
Trade Balance (€ bn)
Real GDP NSA (y/y)
Forecasts at time of publication.
Source: Bloomberg, Scotiabank Economics.
1
A3
February 7, 2014
KEY INDICATORS
Global Views
Economics
Key Indicators for the week of February 10 – 14
Asia Pacific
Country
JN
JN
JN
MA
Date
02/09
02/09
02/09
02/09
Time
18:50
18:50
18:50
23:01
Indicator
Bank Lending (y/y)
Current Account (¥ bn)
Trade Balance - BOP Basis (¥ bn)
Industrial Production (y/y)
Period
Jan
Dec
Dec
Dec
BNS
-----
Consensus
--685.4
-1260.0
5.5
Latest
2.3
-592.8
-1254.3
4.4
JN
TA
TA
TA
CH
CH
IN
JN
JN
IN
AU
AU
AU
PH
02/10
02/10
02/10
02/10
02/10
02/10
02/10
02/10
02/10
02/10
02/10
02/10
02/10
02/10
00:00
03:00
03:00
03:00
06:59
06:59
06:59
06:59
06:59
07:59
19:30
19:30
19:30
20:00
Consumer Confidence
Exports (y/y)
Imports (y/y)
Trade Balance (US$ bn)
Aggregate Financing (CNY bn)
New Yuan Loans (bn)
Exports (y/y)
Eco Watchers Survey (current)
Eco Watchers Survey (outlook)
Imports (y/y)
Home Loans (%)
House Price Index (y/y)
Investment Lending (% change)
Exports (y/y)
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Dec
4Q
Dec
Dec
---------------
-0.0
-7.1
1.6
1930.0
1100.0
-55.5
--0.7
8.6
-13.8
41.3
1.2
10.1
2.2
1232.2
482.5
3.50
55.7
54.7
-15.25
1.1
7.6
1.5
18.8
SK
JN
JN
JN
JN
02/11
02/11
02/11
02/11
02/11
18:00
18:50
18:50
18:50
18:50
Unemployment Rate (%)
Machine Orders (m/m)
Tertiary Industry Index (m/m)
Japan Money Stock M2 (y/y)
Japan Money Stock M3 (y/y)
Jan
Dec
Dec
Jan
Jan
3.0
-----
3.0
-3.8
-0.3
4.20
3.4
3.0
9.3
0.6
4.20
3.4
JN
MA
MA
MA
CH
CH
CH
IN
IN
NZ
AU
AU
SK
TH
02/12
02/12
02/12
02/12
02/12
02/12
02/12
02/12
02/12
02/12
02/12
02/12
02/12
02/12
01:00
05:00
05:00
05:00
06:59
06:59
06:59
07:00
07:00
16:30
19:30
19:30
20:00
22:30
Machine Tool Orders (y/y)
Current Account Balance (MYR mns)
Annual GDP (y/y)
GDP (y/y)
Exports (y/y)
Imports (y/y)
Trade Balance (USD bn)
CPI (y/y)
Industrial Production (y/y)
Business NZ PMI
Employment (000s)
Unemployment Rate (%)
BoK Base Rate (%)
Consumer Confidence Economic
Jan P
4Q
2013
4Q
Jan
Jan
Jan
Jan
Dec
Jan
Jan
Jan
Feb 13
Jan
--4.5
4.6
---9.5
---5.9
2.50
--
--4.7
4.7
1.0
4.0
24.1
9.2
-1.0
-15.0
5.9
2.50
--
28.1
9842.0
5.6
5.0
4.3
8.3
25.6
9.9
-2.1
56.4
-22.6
5.8
2.50
61.4
ID
CH
CH
02/13 06:59 BI Reference Interest Rate (%)
02/13 20:30 CPI (y/y)
02/13 20:30 PPI (y/y)
Feb 13
Jan
Jan
7.50
2.5
-1.5
7.50
2.4
-1.6
7.50
2.5
-1.4
SI
IN
CH
ID
02/14
02/14
02/14
02/14
Dec
Jan
Jan
4Q
-6.0
---
-7.0
5.6
2.9
--
-8.7
6.2
3.3
-8449.0
00:00
01:30
06:59
06:59
Retail Sales (y/y)
Monthly Wholesale Prices (y/y)
Actual FDI (y/y)
Current Account Balance (US$ mn)
Forecasts at time of publication.
Source: Bloomberg, Scotiabank Economics.
2
A4
February 7, 2014
KEY INDICATORS
Global Views
Economics
Key Indicators for the week of February 10 – 14
Latin America
Country Date Time Indicator
PE
02/10 06:59 Trade Balance (USD mn)
Period
Dec
BNS
--
Consensus
--
Latest
-197.0
BZ
BZ
PE
02/13 06:00 Retail Sales (m/m)
02/13 06:00 Retail Sales (y/y)
02/13 18:00 Reference Rate (%)
Dec
Dec
Feb
--4.00
0.2
5.0
--
0.7
7.0
4.00
BZ
PE
PE
BZ
02/14
02/14
02/14
02/14
Dec
Dec
Jan
Dec
-----
-1.2
--1.9
-0.3
4.8
5.7
1.3
05:30
06:59
06:59
07:59
Economic Activity Index SA (m/m)
Economic Activity Index NSA (y/y)
Unemployment Rate (%)
Economic Activity Index NSA (y/y)
Forecasts at time of publication.
Source: Bloomberg, Scotiabank Economics.
3
A5
February 7, 2014
AUCTIONS
Global Views
Economics
Global Auctions for the week of February 10 – 14
North America
Country
US
US
US
US
US
US
US
US
US
US
US
US
Date
02/10
02/10
02/10
02/10
02/10
02/10
02/10
02/10
02/10
02/10
02/10
02/10
Time
11:00
11:30
11:30
11:30
11:30
11:30
11:30
11:30
11:30
11:30
11:30
11:30
Event
U.S. Fed to Purchase USD2.25-2.75 Bln Notes
3M High Yield Rate
3M Direct Accepted %
3M Bid/Cover Ratio
3M Indirect Accepted %
6M Direct Accepted %
6M Indirect Accepted %
6M High Yield Rate
6M Bid/Cover Ratio
U.S. to Sell 3-Month Bills
U.S. to Sell 6-Month Bills
U.S. to Sell USD50 Bln Cash Management Bills
CA
CA
CA
US
US
US
US
US
MX
MX
MX
MX
MX
MX
MX
MX
MX
MX
MX
US
US
US
US
US
02/11
02/11
02/11
02/11
02/11
02/11
02/11
02/11
02/11
02/11
02/11
02/11
02/11
02/11
02/11
02/11
02/11
02/11
02/11
02/11
02/11
02/11
02/11
02/11
10:30
10:30
10:30
11:30
11:30
11:30
11:30
11:30
12:30
12:30
12:30
12:30
12:30
12:30
12:30
12:30
12:30
12:30
12:30
13:00
13:00
13:00
13:00
13:00
Canada to Sell CAD4.650 Bln 98-Day Bills
Canada to Sell CAD1.800 Bln 182-Day Bills
Canada to Sell CAD1.800 Bln 364-Day Bills
4W Direct Accepted %
4W Indirect Accepted %
4W Bid/Cover Ratio
4W High Yield Rate
U.S. to Sell 4-Week Bills
1M T-Bill Yield
1M T-Bill Bid/Cover Ratio
1M T-Bill Amount Sold
3M T-Bill Yield
3M T-Bill Bid/Cover Ratio
3M T-Bill Amount Sold
6M T-Bill Yield
6M T-Bill Bid/Cover Ratio
6M T-Bill Amount Sold
3Y I/L Yield
3Y Fixed Yield
3Y Direct Accepted %
3Y Indirect Accepted %
3Y Bid/Cover Ratio
3Y High Yield Rate
U.S. to Sell 3-Year Notes
US
CA
CA
CA
US
US
US
US
02/12
02/12
02/12
02/12
02/12
02/12
02/12
02/12
11:00
12:00
12:00
12:00
13:00
13:00
13:00
13:00
U.S. Fed to Purchase USD1.00-1.25 Bln Notes
Canada to Sell 30-Year Bonds
30Y Auction Size
30Y Auction Yield
10Y High Yield Rate
10Y Bid/Cover Ratio
10Y Indirect Accepted %
U.S. to Sell 10-Year Notes
US
US
US
US
US
02/13
02/13
02/13
02/13
02/13
13:00
13:00
13:00
13:00
13:00
30Y High Yield Rate
30Y Direct Accepted %
30Y Bid/Cover Ratio
30Y Indirect Accepted %
U.S. to Sell 30-Year Bonds
US
02/14 11:00 U.S. Fed to Purchase USD1.00-1.25 Bln Notes
Source: Bloomberg, Scotiabank Economics.
4
A6
February 7, 2014
AUCTIONS
Global Views
Economics
Global Auctions for the week of February 10 – 14
Europe
Country Date Time Event
GE
02/10 05:30 Germany to Sell EUR2 Bln 182-Day Bills
FR
02/10 08:50 France to Sell Bills
NE
GR
UK
NO
02/11
02/11
02/11
02/11
04:30
05:00
05:30
06:00
Netherlands to Sell 2019 Bonds
Greece to Sell 13-Week Bills (To be confirmed)
U.K. to Sell GBP1.3 Bln 0.125% I/L 2024 Bonds
Norway to Sell Bonds
IT
SW
SZ
GE
02/12
02/12
02/12
02/12
05:00
05:03
05:30
05:30
Italy to Sell 12-Month Bills
Sweden to Sell 5-Year Bonds
Switzerland to Sell Bonds
Germany to Sell EUR5 Bln 2016 Bonds
IT
UK
UK
02/13 05:00 Italy to Sell 3-Year Bonds
02/13 05:30 U.K. to Sell Bonds
02/13 05:30 U.K. to Sell GBP1.75 Bln 3.75% 2052 Bonds
Asia Pacific
Country Date Time Event
AU
02/10 19:00 Australia Plans to Sell Index Linked Bonds
CH
02/11 22:00 China to Sell 5-Year Bonds
JN
NZ
JN
02/12 03:00 Japan Auction for Enhanced-Liquidity
02/12 20:05 New Zealand Plans to Sell NZD200 Mln Inflation-Indexed Bond
02/12 22:35 Japan to Sell 3-Month Bill
JN
02/13 22:45 Japan to Sell 5-Year Bonds
Latin America
Country
BZ
BZ
BZ
BZ
BZ
Date
02/11
02/11
02/11
02/11
02/11
Time
11:00
11:00
11:00
11:00
11:00
Event
Brazil to Sell I/L Bonds due 5/15/2019 - NTN-B
Brazil to Sell I/L Bonds due 5/15/2023 - NTN-B
Brazil to Sell I/L Bonds due 8/15/2030 - NTN-B
Brazil to Sell I/L Bonds due 8/15/2040 - NTN-B
Brazil to Sell I/L Bonds due 8/15/2050 - NTN-B
CO
CO
CO
CO
CO
CO
CO
CO
CO
CO
CO
CO
02/12
02/12
02/12
02/12
02/12
02/12
02/12
02/12
02/12
02/12
02/12
02/12
10:30
10:30
10:30
10:30
10:30
10:30
10:30
10:30
10:30
10:30
10:30
10:30
5Y Fixed Yield
5Y Fixed Total Bids
5Y Fixed Amount Sold
5Y Fixed Bid/Cover Ratio
10Y Fixed Yield
10Y Fixed Total Bids
10Y Fixed Amount Sold
10Y Fixed Bid/Cover Ratio
15Y Fixed Yield
15Y Fixed Total Bids
15Y Fixed Amount Sold
15Y Fixed Bid/Cover Ratio
BZ
BZ
BZ
BZ
02/13
02/13
02/13
02/13
11:00
11:00
11:00
11:00
Brazil to Sell Bills due 4/1/2015 - LTN
Brazil to Sell Bills due 4/1/2016 - LTN
Brazil to Sell Bills due 1/1/2018 - LTN
Brazil to Sell Floating-rate Notes due 3/1/2020 - LFT
Source: Bloomberg, Scotiabank Economics.
5
A7
February 7, 2014
EVENTS
Global Views
Economics
Events for the week of February 10 – 14
North America
Country Date Time Event
CA
02/10 12:50 Bank of Canada Deputy Governor Murray Speaks in Sudbury
CA
02/10 19:00 Former BoE Governor Dodge Speaks at TFSA
CA
US
US
CA
US
02/11
02/11
02/11
02/11
02/11
08:50
09:00
10:00
12:00
20:00
Bank of Canada Deputy Governor Lane Speaks in Toronto
Fed's Plosser Speaks on Economic Outlook in Newark, Delaware
Fed's Yellen Delivers Monetary Policy Report to House
Canada Releases Labour Force Survey
Fed's Lacker Speaks on Financial Stability at Stanford
US
US
02/12 08:45 Fed's Bullard Speaks on Monetary Policy in New York
02/12
MSCI Quarterly Index Review
US
02/13 10:30 Fed's Yellen Testifies Before Senate Banking Committee
Europe
Country Date Time Event
GE
02/08 06:00 Merkel, McAllister Hold News Conference After CDU Party Talks
PO
SP
EC
EC
02/10 03:00 Portugal's Portas Speaks at Breakfast Conference in Madrid
02/10 05:30 Spain PM, Budget Minister Speak in Madrid
02/10 06:00 EU Foreign Ministers Hold Meeting in Brussels
02/10 13:00 Trichet Speaks in Athens
SP
EC
EC
EC
PO
NO
02/11
02/11
02/11
02/11
02/11
02/11
03:00
03:00
04:00
06:30
Economy Minister Luis de Guindos Speaks in Madrid
EU's Almunia Speaks at Competition Conference in Brussels
EU General Affairs Ministers Hold Meeting in Brussels
EU's Thomas Wieser Speaks in Frankfurt
Bank of Portugal Releases Data on Banks
Oslo Energy Forum Holds 2014 Conference
SP
GE
PO
SP
EC
02/12
02/12
02/12
02/12
02/12
04:00
05:00
05:00
06:15
10:30
IMF to Release Report For Spain 5th Review of Banks
German Economy Ministry Presents Half-Year Economic Forecasts
Portugal's Silva, Italy's Napolitano to Speak at Conference
ECB's Praet Speaks at Event in Madrid
ECB President Draghi Speaks in Brussels
SW
SP
NO
EC
UK
UK
EC
02/13 03:30 Riksbank Interest Rate
02/13 09:40 BOS' Duran Speaks in Madrid
02/13 12:00 Norges Bank Gov. Olsen Makes Annual Speech
02/13 18:00 EU's Barnier in Washington Feb. 14-15
02/13
Last Day of Commons Session Before February Recess
02/13
Commons By-Election in Wythenshawe & Sale East
02/13
EU Leaders Hold Summit in Brussels
RU
EC
IT
02/14 04:30 One-Week Auction Rate
02/14 06:00 ECB Announces 3-Year LTRO Repayment
02/14
Italy Sovereign Debt Rating May Be Published by Moody's
Source: Bloomberg, Scotiabank Economics.
6
A8
February 7, 2014
EVENTS
Global Views
Economics
Events for the week of February 10 – 14
Asia Pacific
Country Date Time Event
CH
02/10
China Minister Zhijun to Meet With Taiwan's Minister Yu-chi
SK
AU
ID
02/12 20:00 BoK 7-Day Repo Rate
02/12 20:25 RBA Assistant Governor Debelle Speaks at Forum in Sydney
02/12
Bank Indonesia Reference Rate
AU
02/13 17:05 RBA Assistant Governor Kent Gives Speech in Sydney
Latin America
Country Date Time Event
PE
02/13 18:00 Reference Rate (%)
Source: Bloomberg, Scotiabank Economics.
7
A9
February 7, 2014
CENTRAL BANKS
Global Views
Economics
Global Central Bank Watch
NORTH
AMERICA
North America
Rate
Bank of Canada – Overnight Target Rate
Current Rate
1.00
Next Meeting
March 5, 2014
Scotia's Forecasts
1.00
Consensus Forecasts
--
Federal Reserve – Federal Funds Target Rate
0.25
March 19, 2014
0.25
--
Banco de México – Overnight Rate
3.50
March 21, 2014
3.50
--
Fed: Slow job growth in December and January ought to have the FOMC at least thinking twice about continuing down the tapering path without pausing
for a breather, although it will get a chance to look at February jobs figures as well before it meets on March 19th for Janet Yellen’s first meeting at the
helm. BoC: An uptick in jobs in January (and a surge in manufacturing in Q4 2013) should have the BoC content to continue down its current monetary
policy guidance path – and to wait and see what the pass-through from the weaker CAD into CPI will be.
EUROPE
Europe
Rate
European Central Bank – Refinancing Rate
Current Rate
0.25
Next Meeting
March 6, 2014
Scotia's Forecasts
0.00
Consensus Forecasts
-0.50
Bank of England – Bank Rate
0.50
March 6, 2014
0.50
Swiss National Bank – Libor Target Rate
0.00
March 20, 2014
0.00
--
Central Bank of Russia – One-Week Auction Rate
5.50
February 14, 2014
5.50
5.50
Hungarian National Bank – Base Rate
2.85
February 18, 2014
2.75
2.75
Central Bank of the Republic of Turkey – 1 Wk Repo Rate
Sweden Riksbank – Repo Rate
10.00
0.75
February 18, 2014
February 13, 2014
10.00
0.75
-0.75
Norges Bank – Deposit Rate
1.50
March 27, 2014
1.50
--
We do not anticipate any further monetary easing after the quarter-point rate cut executed by Sweden’s Riksbank at its last policy-setting meeting in
December. The headline inflation rate was unchanged at 0.1% y/y in December, though the policy-relevant core measure picked up from 0.7% to 0.8%.
The minutes from the last meeting indicated a small probability of another rate cut this month; however, with economic data on balance portraying an
improving growth outlook, we expect the repo rate to be left at 0.75% until early next year. The Russian central bank will likely leave the benchmark oneweek auction rate unchanged at 5.50% next week. After dropping 7% versus the US dollar in the opening weeks of 2014, the ruble has seen a small
correction over the last week on the back of easing risk aversion, in line with some other emerging-market currencies. Meanwhile, January inflation data
showed the headline rate dipping to 6.1% y/y from 6.5% in December. These developments have eased some of the earlier pressure on the bank to tighten
policy in response to increased emerging-market sell-off pressure.
Asia Pacific
ASIA
PACIFIC
Rate
Reserve Bank of Australia – Cash Target Rate
Current Rate
2.50
Next Meeting
March 3, 2014
Scotia's Forecasts
2.50
Consensus Forecasts
--
Reserve Bank of New Zealand – Cash Rate
2.50
March 12, 2014
2.75
2.75
People's Bank of China – Lending Rate
6.00
TBA
--
--
Reserve Bank of India – Repo Rate
8.00
April 1, 2014
8.00
--
Bank of Korea – Bank Rate
2.50
February 12, 2014
2.50
2.50
Bank of Thailand – Repo Rate
2.25
March 12, 2014
2.00
--
Bank Indonesia – Reference Interest Rate
7.50
February 13, 2014
7.50
7.50
Inflationary pressures in South Korea remain low with consumer price inflation at 1.1% y/y in December. Accordingly, the Bank of Korea’s monetary policy
stance will likely remain accommodative in the coming quarters, with the benchmark rate set at 2.50%. In Indonesia, a monetary tightening bias will remain
in place; nevertheless, we do not anticipate a rate hike to take place next week. The reference rate was raised by 175 bps between June and November to
the current level of 7.50%, and another small increase may take place in the coming months. Tighter monetary conditions will help limit inflationary
pressures and stabilize the Indonesian rupiah, which has faced a persistent weakening bias in recent months. Nevertheless, annual inflation will likely
continue to exceed the central bank’s target corridors, which are set at 3½-5½% for 2014 and 3-5% for 2015. Consumer price inflation closed 2013 at 8.4%
y/y.
LATIN
AMERICA
Latin America
Rate
Banco Central do Brasil – Selic Rate
Current Rate
10.50
Next Meeting
February 26, 2014
Scotia's Forecasts
10.75
Consensus Forecasts
--
Banco Central de Chile – Overnight Rate
4.50
February 18, 2014
4.50
4.25
Banco de la República de Colombia – Lending Rate
3.25
February 28, 2014
3.25
3.25
Banco Central de Reserva del Perú – Reference Rate
4.00
February 13, 2014
4.00
--
We maintain our view that the central bank of Peru will keep the reference rate unchanged at 4.0% at the next meeting on February 13th. Headline inflation
has decelerated in the last three months; however, it remains close to the upper limit of the central bank’s tolerance range. Although economic activity
softened somewhat last year, output growth remains solid and we expect continued advances above the 5% y/y mark in the 2014-15 period.
Africa
AFRICA
Rate
South African Reserve Bank – Repo Rate
Current Rate
5.50
Next Meeting
March 27, 2014
Scotia's Forecasts
5.00
Consensus Forecasts
--
Forecasts at time of publication.
Source: Bloomberg, Scotiabank Economics.
8
A10
February 7, 2014
FORECASTS
Global Views
Forecasts as at January 30, 2014*
Economics
2000-12
Output and Inflation (annual % change)
2013e
2014f
2015f
2000-12
2013e
2014f
2015f
2
Real GDP
Consumer Prices
World1
3.7
2.9
3.5
3.6
Canada
Canada
UnitedUnited
StatesStates
MexicoMexico
2.2
1.9
2.4
1.8
1.9
1.3
2.4
3.0
3.3
2.5
3.0
3.7
2.1
2.5
4.7
0.9
1.5
3.9
1.1
1.5
4.3
1.9
1.9
4.0
Kingdom
UnitedUnited
Kingdom
Euro Zone
Euro zone
1.7
1.3
1.9
-0.5
2.5
0.9
1.8
1.3
2.3
2.1
2.0
0.8
2.2
1.2
2.4
1.4
Japan Japan
Australia
Australia
China China
India India
Korea South Korea
Thailand
Thailand
0.9
3.1
9.3
7.2
4.3
4.2
1.8
2.4
7.7
4.5
2.8
3.2
1.8
2.7
7.3
5.2
3.4
3.5
1.2
2.9
7.0
5.7
3.5
4.5
-0.3
3.0
2.4
6.7
3.1
2.7
1.4
2.7
2.5
6.2
1.1
1.7
1.5
3.0
2.8
6.6
2.2
2.5
2.1
2.9
3.5
6.3
2.5
2.8
3.4
4.5
5.7
2.3
4.4
5.1
2.3
4.4
5.4
2.5
4.7
5.6
6.5
3.2
2.6
6.0
2.5
2.9
6.0
3.0
3.0
5.5
3.0
2.5
13Q4
14Q1f
14Q2f
14Q3f
14Q4f
15Q1f
15Q2f
15Q3f
1.00
0.25
0.25
0.50
0.00
2.50
1.00
0.25
0.00
0.50
0.00
2.50
1.00
0.25
0.00
0.50
0.00
2.50
1.00
0.25
0.00
0.50
0.00
2.50
1.00
0.25
0.00
0.50
0.00
2.75
1.00
0.25
0.00
0.75
0.00
3.00
1.00
0.25
0.00
1.00
0.00
3.25
1.00
0.25
0.00
1.25
0.00
3.50
1.06
0.94
1.37
1.66
105
0.89
6.1
13.0
2.36
1.13
0.88
1.33
1.65
102
0.87
6.1
13.5
2.55
1.15
0.87
1.30
1.66
104
0.86
6.0
13.1
2.40
1.12
0.89
1.27
1.65
107
0.88
6.0
13.2
2.45
1.11
0.90
1.25
1.64
109
0.88
6.0
13.4
2.50
1.10
0.91
1.25
1.64
110
0.89
5.9
13.4
2.52
1.10
0.91
1.24
1.63
111
0.89
5.9
13.4
2.55
1.10
0.91
1.24
1.61
112
0.89
5.9
13.5
2.55
Commodities (annual average)
2000-12
2013
2014f
2015f
WTI Oil (US$/bbl)
Brent Oil (US$/bbl)
Nymex Natural Gas (US$/mmbtu)
60
62
5.45
98
109
3.73
92
108
4.20
90
108
4.25
Copper (US$/lb)
Zinc (US$/lb)
Nickel (US$/lb)
Gold, London PM Fix (US$/oz)
2.22
0.78
7.64
745
3.32
0.87
6.80
1,410
3.15
0.98
7.25
1,270
3.05
1.40
7.60
1,375
Pulp (US$/tonne)
Newsprint (US$/tonne)
Lumber (US$/mfbm)
730
585
274
941
608
356
970
612
390
970
645
400
Brazil
Brazil
Chile
Chile
Peru Peru
Central Bank Rates (%, end of period)
Bank of Canada
Federal Reserve
European Central Bank
Bank of England
Swiss National Bank
Reserve Bank of Australia
Exchange Rates (end of period)
Canadian Dollar (USDCAD)
Canadian Dollar (CADUSD)
Euro (EURUSD)
Sterling (GBPUSD)
Yen (USDJPY)
Australian Dollar (AUDUSD)
Chinese Yuan (USDCNY)
Mexican Peso (USDMXN)
Brazilian Real (USDBRL)
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' (http://www.gbm.scotiabank.com/English/bns_econ/forecast.pdf)
for additional forecasts & commentary.
9
A11
February 7, 2014
ECONOMIC STATISTICS
Global Views
Economics
North America
Canada
Real GDP (annual rates)
Current Acc. Bal. (C$B, ar)
Merch. Trade Bal. (C$B, ar)
Industrial Production
Housing Starts (000s)
Employment
Unemployment Rate (%)
Retail Sales
Auto Sales (000s)
CPI
IPPI
Pre-tax Corp. Profits
2012 13Q2 13Q3 Latest
1.7 1.6 2.7
-62.2 -63.7 -61.9
-12.0 -7.3 -7.4 -19.9 (Dec)
1.1 -0.1 0.9
1.4 (Dec)
215 190 195 188 (Dec)
1.2 1.2 1.3
0.6 (Dec)
7.3 7.1 7.1
7.2 (Dec)
2.5 2.7 3.2
3.1 (Nov)
1673 1744 1777 1708 (Nov)
1.5 0.8 1.1
1.2 (Dec)
1.1 -0.1 0.9 -1.4 (Dec)
-4.9 -8.2 -1.1
Mexico
Real GDP
Current Acc. Bal. (US$B, ar)
Merch. Trade Bal. (US$B, ar)
Industrial Production
CPI
3.9 1.6 1.3
-14.6 -19.9 -21.8
0.0 -3.4 -4.1
2.6 -0.3 -0.5
4.1 4.5 3.4
United States
Real GDP (annual rates)
Current Acc. Bal. (US$B, ar)
Merch. Trade Bal. (US$B, ar)
Industrial Production
Housing Starts (millions)
Employment
Unemployment Rate (%)
Retail Sales
Auto Sales (millions)
CPI
PPI
Pre-tax Corp. Profits
2012 13Q2 13Q3 Latest
2.8 2.5 4.1
-440 -386 -379
-741 -700 -711 -706 (Dec)
3.6 2.1 2.4
3.7 (Dec)
0.78 0.87 0.88 1.00 (Dec)
1.7 1.6 1.8
1.7 (Dec)
8.1 7.5 7.2
6.7 (Dec)
5.1 4.7 4.7
4.0 (Dec)
14.4 15.5 15.7 15.3 (Dec)
2.1 1.4 1.6
1.5 (Dec)
1.9 1.5 1.2
1.2 (Dec)
18.5 3.7 3.5
19.9 (Dec)
-1.4 (Nov)
4.0 (Dec)
Europe
Euro Zone
Real GDP
Current Acc. Bal. (US$B, ar)
Merch. Trade Bal. (US$B, ar)
Industrial Production
Unemployment Rate (%)
CPI
2012 13Q2 13Q3 Latest
-0.6 -0.6 -0.3
162 293 259 443 (Nov)
122.0 267.9 209.1 304.2 (Nov)
-2.5 -0.9 -1.1 -0.5 (Nov)
11.3 12.0 12.1 11.9 (Dec)
2.5 1.4 1.3
0.9 (Dec)
Germany
Real GDP
Current Acc. Bal. (US$B, ar)
Merch. Trade Bal. (US$B, ar)
Industrial Production
Unemployment Rate (%)
CPI
2012 13Q2 13Q3 Latest
0.9 0.5 0.6
240.8 240.3 235.2 386.5 (Dec)
245.2 251.7 261.3 304.7 (Dec)
-0.5 -0.5 -0.1
2.9 (Dec)
6.8 6.9 6.8
6.8 (Dec)
2.0 1.5 1.6
1.4 (Dec)
France
Real GDP
Current Acc. Bal. (US$B, ar)
Merch. Trade Bal. (US$B, ar)
Industrial Production
Unemployment Rate (%)
CPI
0.0 0.5 0.2
-57.3 -19.9 -49.7 -61.3 (Nov)
-52.1 -44.1 -47.7 -45.6 (Dec)
-2.5 0.6 -1.5 -1.4 (Nov)
10.2 10.8 10.9 10.8 (Dec)
2.0 0.8 0.9
0.7 (Dec)
United Kingdom
Real GDP
Current Acc. Bal. (US$B, ar)
Merch. Trade Bal. (US$B, ar)
Industrial Production
Unemployment Rate (%)
CPI
0.3 2.0 1.9
-92.7 -35.3 -167.6
-172.4 -156.4 -183.8 -151.6 (Dec)
-2.5 -0.7 -0.3
1.8 (Dec)
8.0 7.8 7.6
7.1 (Oct)
2.8 2.7 2.7
2.0 (Dec)
Italy
Real GDP
Current Acc. Bal. (US$B, ar)
Merch. Trade Bal. (US$B, ar)
Industrial Production
CPI
-2.6 -2.2 -1.8
-8.1 20.2 28.5
12.4 49.4 41.4
-6.4 -3.5 -3.8
3.1 1.2 1.0
Russia
Real GDP
Current Acc. Bal. (US$B, ar)
Merch. Trade Bal. (US$B, ar)
Industrial Production
CPI
45.8
50.0
-7.0
0.6
(Nov)
(Nov)
(Nov)
(Dec)
3.4
74.8
16.0
-5.3
5.1
1.2
3.4
14.2
0.3
7.2
1.2
0.6
14.4
-0.1
6.4
16.6 (Nov)
0.8 (Dec)
6.5 (Dec)
All data expressed as year-over-year % change unless otherwise noted.
Source: Bloomberg, Global Insight, Scotiabank Economics.
10
A12
February 7, 2014
ECONOMIC STATISTICS
Global Views
Economics
Asia Pacific
Australia
Real GDP
Current Acc. Bal. (US$B, ar)
Merch. Trade Bal. (US$B, ar)
Industrial Production
Unemployment Rate (%)
CPI
2012 13Q2 13Q3 Latest
3.6 2.4 2.3
-64.1 -31.9 -52.8
5.9 32.4 12.6 57.2 (Dec)
4.8 5.0 2.7
5.2 5.6 5.7
5.8 (Dec)
1.8 2.4 2.2
Japan
Real GDP
Current Acc. Bal. (US$B, ar)
Merch. Trade Bal. (US$B, ar)
Industrial Production
Unemployment Rate (%)
CPI
2012 13Q2 13Q3 Latest
1.4 1.3 2.4
60.4 70.0 54.5 -71.1 (Nov)
-85.8 -89.9 -117.5 -133.2 (Dec)
0.2 -3.1 1.9
5.9 (Dec)
4.4 4.0 4.0
3.7 (Dec)
0.0 -0.3 0.9
1.6 (Dec)
South Korea
Real GDP
Current Acc. Bal. (US$B, ar)
Merch. Trade Bal. (US$B, ar)
Industrial Production
CPI
2.0 2.3 3.3
48.1 79.2 75.9
28.5 57.6 43.1
1.2 -1.7 1.0
2.2 1.2 1.4
(Dec)
(Dec)
(Dec)
(Dec)
China
Real GDP
Current Acc. Bal. (US$B, ar)
Merch. Trade Bal. (US$B, ar)
Industrial Production
CPI
10.4 7.5 7.8
193.1
230.7 264.5 244.4 307.7 (Dec)
10.3 8.9 10.2
9.7 (Dec)
2.5 2.7 3.1
2.5 (Dec)
Thailand
Real GDP
Current Acc. Bal. (US$B, ar)
Merch. Trade Bal. (US$B, ar)
Industrial Production
CPI
6.5
-1.5
0.5
2.1
3.0
India
Real GDP
Current Acc. Bal. (US$B, ar)
Merch. Trade Bal. (US$B, ar)
Industrial Production
WPI
5.1 4.4
-91.5 -21.8
-16.0 -16.7
0.7 -1.0
7.5 4.8
Chile
Real GDP
Current Acc. Bal. (US$B, ar)
Merch. Trade Bal. (US$B, ar)
Industrial Production
CPI
2012 13Q2 13Q3 Latest
5.6 4.0 4.7
0.0 -6.8 -13.8
12.4 5.4 -1.8
1.8 (Dec)
3.4 1.4 4.9
2.3 (Dec)
3.0 1.7 2.2
2.8 (Dec)
Colombia
Real GDP
Current Acc. Bal. (US$B, ar)
Merch. Trade Bal. (US$B, ar)
Industrial Production
CPI
4.2
-12.1
0.4
-0.3
3.2
Indonesia
Real GDP
Current Acc. Bal. (US$B, ar)
Merch. Trade Bal. (US$B, ar)
Industrial Production
CPI
77.1
43.8
1.2
1.1
2.9
-7.2
-0.3
-5.1
2.3
2.7
-0.9
1.7
-3.9
1.7
2.0 (Dec)
-6.7 (Dec)
1.7 (Dec)
6.2 5.8
-24.4 -10.0
-0.1 -1.0
4.1 6.8
4.3 5.6
5.6
-8.4
-1.0
7.1
8.6
1.5 (Dec)
-1.9 (Nov)
8.4 (Dec)
4.8
-5.2
-9.9
1.7
6.6
-10.1 (Dec)
-2.1 (Nov)
6.2 (Dec)
Latin America
Brazil
Real GDP
Current Acc. Bal. (US$B, ar)
Merch. Trade Bal. (US$B, ar)
Industrial Production
CPI
Peru
Real GDP
Current Acc. Bal. (US$B, ar)
Merch. Trade Bal. (US$B, ar)
Unemployment Rate (%)
CPI
2012 13Q2 13Q3 Latest
0.9 3.1 1.9
-54.2 -74.2 -68.5
19.4 8.3 5.9 31.8 (Dec)
-2.6 3.1 0.3 -3.0 (Dec)
5.4 6.6 6.1
5.9 (Dec)
9.2
-7.1
0.5
7.0
3.7
5.6
-3.1
-0.1
5.7
2.5
4.4
0.1
5.8
3.1
-0.2 (Nov)
5.7 (Dec)
2.9 (Dec)
3.9
-2.5
0.4
0.0
2.1
5.1
-3.6
0.0
-1.6
2.3
0.1 (Nov)
-0.6 (Nov)
1.9 (Dec)
All data expressed as year-over-year % change unless otherwise noted.
Source: Bloomberg, Global Insight, Scotiabank Economics.
11
A13
February 7, 2014
FINANCIAL STATISTICS
Global Views
Economics
Interest Rates (%, end of period)
Canada
BoC Overnight Rate
3-mo. T-bill
10-yr Gov’t Bond
30-yr Gov’t Bond
Prime
FX Reserves (US$B)
13Q3
1.00
0.97
2.54
3.07
3.00
71.3
13Q4
1.00
0.92
2.76
3.23
3.00
71.8
Jan/31
1.00
0.89
2.34
2.93
3.00
71.8
Feb/07*
1.00
0.88
2.40
3.00
3.00
(Dec)
Germany
3-mo. Interbank
10-yr Gov’t Bond
FX Reserves (US$B)
0.15
1.78
65.7
0.24
1.93
67.4
0.25
1.66
67.4
0.24
1.66
(Dec)
Euro Zone
Refinancing Rate
Overnight Rate
FX Reserves (US$B)
0.50
0.18
332.5
0.25
0.45
331.2
0.25
0.23
331.2
0.25
0.13
(Dec)
Japan
Discount Rate
3-mo. Libor
10-yr Gov’t Bond
FX Reserves (US$B)
0.30
0.09
0.69
1240.8
0.30
0.09
0.74
1237.2
0.30
0.08
0.62
1237.2
0.30
0.08
0.62
(Dec)
1.03
0.97
1.619
1.353
0.75
0.90
1.06
0.94
1.656
1.374
0.69
0.89
1.11
0.90
1.644
1.349
0.73
0.91
1.10
0.91
1.640
1.361
0.72
0.90
15130
1682
12787
40185
52338
950
16577
1848
13622
42727
51507
1041
15699
1783
13695
40880
47639
1056
945
605
359
102.33
3.56
990
605
372
98.42
4.23
990
605
370
97.49
4.94
United States
Fed Funds Target Rate
3-mo. T-bill
10-yr Gov’t Bond
30-yr Gov’t Bond
Prime
FX Reserves (US$B)
13Q3
0.25
0.01
2.61
3.68
3.25
136.7
13Q4
0.25
0.07
3.03
3.97
3.25
133.5
Jan/31
0.25
0.02
2.64
3.60
3.25
133.5
Feb/07*
0.25
0.08
2.67
3.65
3.25
(Dec)
France
3-mo. T-bill
10-yr Gov’t Bond
FX Reserves (US$B)
0.06
2.32
54.6
0.15
2.56
50.8
0.10
2.23
50.8
0.15
2.24
(Dec)
United Kingdom
Repo Rate
3-mo. T-bill
10-yr Gov’t Bond
FX Reserves (US$B)
0.50
0.40
2.72
93.3
0.50
0.40
3.02
91.2
0.50
0.40
2.71
91.2
0.50
0.40
2.71
(Dec)
Australia
Cash Rate
10-yr Gov’t Bond
FX Reserves (US$B)
2.50
3.81
45.9
2.50
4.24
49.7
2.50
4.00
49.7
2.50
4.15
(Dec)
¥/US$
US¢/Australian$
Chinese Yuan/US$
South Korean Won/US$
Mexican Peso/US$
Brazilian Real/US$
98.27
0.93
6.12
1075
13.091
2.217
105.31
0.89
6.05
1050
13.037
2.362
102.04
0.88
6.06
1081
13.357
2.413
102.23
0.90
6.06
1074
13.352
2.385
15695
1783
13713
40184
47700
1060
U.K. (FT100)
Germany (Dax)
France (CAC40)
Japan (Nikkei)
Hong Kong (Hang Seng)
South Korea (Composite)
6462
8594
4143
14456
22860
1997
6749
9552
4296
16291
23306
2011
6510
9306
4166
14915
22035
1941
6572
9294
4226
14462
21637
1923
990
605
366
98.31
4.95
Copper (US$/lb)
Zinc (US$/lb)
Gold (US$/oz)
Silver (US$/oz)
CRB (index)
3.31
3.35
0.85
0.95
1326.50 1204.50
21.68
19.50
285.54 280.17
3.22
0.89
1251.00
19.31
283.31
3.27
0.92
1259.25
19.87
289.15
Exchange Rates (end of period)
USDCAD
CADUSD
GBPUSD
EURUSD
JPYEUR
USDCHF
Equity Markets (index, end of period)
United States (DJIA)
United States (S&P500)
Canada (S&P/TSX)
Mexico (IPC)
Brazil (Bovespa)
Italy (BCI)
Commodity Prices (end of period)
Pulp (US$/tonne)
Newsprint (US$/tonne)
Lumber (US$/mfbm)
WTI Oil (US$/bbl)
Natural Gas (US$/mmbtu)
* Latest observation taken at time of writing.
Source: Bloomberg, Scotiabank Economics.
12
A14
February 7, 2014
Global Views
DISCLAIMER
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February 7, 2014
Global Views
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February 7, 2014
Global Views
DISCLAIMER
Foreign Exchange Strategy
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February 7, 2014
Global Views
DISCLAIMER
Portfolio Strategy
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Global Views
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