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Macroeconomic Update October 2013
October 27th 2013
Chris Callahan
Sarah Fadel
CSO
Economic Analyst
This presentation is for informational purposes only, and is not an offer to buy or sell or a
solicitation to buy or sell any securities, investment products or other financial product or service,
an official confirmation of any transaction, or an official statement of Limestone Capital Investment
Club. Any views or opinions presented are solely those of the author and do not necessarily
represent those of Limestone Capital.
Canada Overview
TSX 2013 Performance
Key Events

TSX Performance 2013
13500

13000
12500

R² = 0.0236
12000
11500
10/8/13
10/22/13
9/24/13
9/10/13
8/27/13
8/13/13
7/30/13
7/16/13
7/2/13
6/18/13
6/4/13
5/7/13
5/21/13
4/9/13
4/23/13
3/26/13
3/12/13
2/26/13
2/12/13
1/29/13
1/15/13
1/1/13
11000
Stocks in Canada had a positive performance during the
last month. Rallied 555 points or 4.32 percent during
the last 30 days
Canada will relax rules on foreign investment for the
United States, Mexico and 12 other countries as a result
of its free trade pact with the European Union.
Stephen Poloz (Bank of Canada Governor) made some
very insightful comments as to his belief in central banks
roll in controlling unemployment.
• “It’s difficult to look at just the unemployment as
some magic number”
• Further suggesting that Poloz’s main focus will be
on the inflation targets
Major News



Canada and European Union unveiled a historic free-trade agreement. The biggest deal Canada has ever made as a
Country.
Canadian food giant Maple Leaf Foods Inc is facing a potential breakup as it puts its $1.6-billion bakery unit up for sale, at
the same time as potential suitors target its meat division.
Sales of new homes in the Toronto housing market appear to be rebounding but activity in the country's largest market has a
long way to go to match 2012 levels.
1
United States Overview
Dow Jones Industrial Average Performance
Key Points
 Stocks in the United States had a positive performance
during the last month.
 Rallied 242 points or 1.58 percent during the last 30
days.
 Janet Yellen to be appointed as Fed Reserve Chair.
• Comments on controlling unemployment through
central banking very telling.
 The Fed’s balance sheet has soared from $800 billion in
2008 to $3.7 trillion today.
 The Thomson Reuters/University of Michigan's final
reading on the overall index of consumer sentiment fell
to 73.2 in October from 77.5 in September.
• 2013 Low
Dow Jones Industrial Average Performance 2013
16000
15500
15000
14500
R² = 0.7062
14000
13500
13000
10/8/13
10/22/13
9/24/13
9/10/13
8/27/13
8/13/13
7/30/13
7/16/13
7/2/13
6/4/13
6/18/13
5/7/13
5/21/13
4/9/13
4/23/13
3/26/13
3/12/13
2/26/13
2/12/13
1/29/13
1/15/13
1/1/13
12500
Major News



JPMorgan Chase & Co. (JPM) agreed to pay $5.1 billion to settle Federal Housing Finance Agency claims related to home
loans and mortgage-backed securities the company sold toFannie Mae and Freddie Mac, resolving part of a $13 billion accord
the firm is negotiating with the government.
The dollar had its first back-to-back weekly losses against the euro in a month as weaker-than-forecast economic data
added to bets the Federal Reserve will put off slowing stimulus to help the U.S. economy strengthen.
Treasury 10-year yields touched the lowest level since July as additional reports showed consumer confidence fell for a
third month and durable-goods orders excluding transportation unexpectedly declined
2
Government Bond Yields
Canada Government Bond 10Y
3
Key Highlights

Government Bond Yield (%)
2.8
2.6

2.4
2.2

2
1.8
Canada's Government Bond Yield for 10 Year Notes
declined 14 basis points during the last 30 days
Less expensive for Canada to borrow money from
investors.
During the last 12 months, Canada government bond yield
advanced 0.58 percent.
1.6
1.4
1.2
1
1/1/13
1/2/13 1/3/13
1/4/13
1/5/13
1/6/13
1/7/13
1/8/13
1/9/13 1/10/13
United States Government Bond 10Y
3.5
Key Highlights

Government Bond Yield (%)
3

2.5

2
1.5
1
1/1/13
1/2/13 1/3/13
1/4/13
1/5/13
1/6/13
1/7/13
1/8/13
1/9/13 1/10/13
3
United States Government Bond Yield for 10 Year Notes
declined 12 basis points during the last 30 days
Less expensive for United States to borrow money from
investors.
During the last 12 months, United States government
bond yield advanced 0.75 percent.
Canada Inflation Indicators:
2013 Official Inflation
1.4
Key Highlights

Inflation Rate (%)
1.2

1
0.8
0.6
The inflation rate in Canada was recorded at 1.10
percent in September of 2013.
Canada Inflation Rate averaged 3.22 Percent from 1915
until 2013, reaching an all time high of 21.60 Percent in
June of 1920 and a record low of -17.80 Percent in June
of 1921.
0.4
0.2
0
-0.2
-0.4
1/1/13
2/1/13
3/1/13
4/1/13
5/1/13
6/1/13
7/1/13
8/1/13
9/1/13
2013 CPI
Key Highlights

CPI (monthly)
135
125

115
105

95
85
75
4
In Canada, the Consumer Price Index or CPI measures
changes in the prices paid by consumers for a basket of
goods and services.
Consumer Price Index (CPI) in Canada increased to
123.30 Index Points in September of 2013 from 123.10
Index Points in August of 2013.
Reaching an all time high of 123.30 Index Points in
September of 2013
Canada Inflation Indicators:
2013 PPI
Key
Key
Highlights
Points

Canada Producer Price Index
117
116.5

116
115.5
115

114.5

114
1/1/13
(1)
2/1/13
3/1/13
4/1/13
5/1/13
6/1/13
7/1/13
8/1/13
Source: Tradingeconomics.com
5
In Canada, the Producer Price Index measures the
average change in price of goods and services sold by
manufacturers and producers in the wholesale market
during a given period.
Producer Prices in Canada increased to 116.60 Index
Points in August of 2013 from 116.40 Index Points in
July of 2013. Producer Prices in Canada is reported by
the Statistics Canada.
Reached an all time high of 116.70 Index Points in March
of 2013
Record low of 17.20 Index Points in January of 1956.
Canada Economic Indicators:
GDP Annual Growth
Key Highlights
 The Gross Domestic Product (GDP) in Canada expanded
1.40 percent in the second quarter of 2013 over the
same quarter of the previous year.
GDP Annual Growth (%)
4
3.5
3
2.5
2
1.5
1
0.5
0
4
Retail Sales
Key Highlights
Retail Sales (%)
 Retail Sales in Canada increased 2.70 percent in August
of 2013 over the same month in the previous year.
 Reaching an all time high of 10.50 Percent in December of
1997 and a record low of -6.50 Percent in December of
2008. In Canada, the year-over-year change in Retail sales
compares the aggregated sales of retail goods and
services during a certain month to the same month a year
ago.
3
2
1
0
-1
-2
-3
-4
1/1/07
1/4/07
1/7/07
1/10/07
1/1/08
1/4/08
1/7/08
1/10/08
1/1/09
1/4/09
1/7/09
1/10/09
1/1/10
1/4/10
1/7/10
1/10/10
1/1/11
1/4/11
1/7/11
1/10/11
1/1/12
1/4/12
1/7/12
1/10/12
1/1/13
1/4/13
1/7/13
-5
(1)
Source: Tradingeconomics.com
6
Canada Economic Indicators:
Current Account
10
Key Highlights
 Canada recorded a Current Account deficit of 14.58
Billion CAD in the second quarter of 2013.
 Current Account is the sum of the balance of trade
(exports minus imports of goods and services), net factor
income (such as interest and dividends) and net transfer
payments (such as foreign aid).
Current Account Balances (bn)
5
0
-5
-10
-15
-20
3/1/09 8/1/09 1/1/10 6/1/10 11/1/10 4/1/11 9/1/11 2/1/12 7/1/12 12/1/12 5/1/13
Balance of Trade
4000
Key Highlights

Balance of Trade (m)
3000
2000
1000

0
-1000
-2000
-3000
1/1/11 4/1/11 7/1/11 10/1/11 1/1/12 4/1/12 7/1/12 10/1/12 1/1/13 4/1/13 7/1/13
(1)
Source: Tradingeconomics.com
7
Recorded a trade deficit of 1306 Million CAD in
August of 2013. Exports amount to more than 45% of its
GDP. The United States is by far its largest trading
partner, accounting for about 79% of exports and 54% of
imports as of 2008. Canada is one of the few developed
nations that are a net exporter of energy.
Canada imports mostly machinery and equipment, motor
vehicles and parts, electronics, chemicals, electricity and
durable consumer goods
United States Inflation Indicators:
Official Inflation
6
Key Highlights

Inflation Rate (%)
5
The inflation rate in the United States was recorded at
1.50 percent in August of 2013.
4
3
2
1
0
-1
-2
-3
1/1/07
9/1/07
5/1/08
1/1/09
9/1/09
5/1/10
1/1/11
9/1/11
5/1/12
1/1/13
Consumer Price Index
Key Highlights

CPI (monthly)
255
235

215
195
175

155
135
115
95
75
1/1/13
(1)
2/1/13
3/1/13
4/1/13
5/1/13
6/1/13
7/1/13
8/1/13
Source: Tradingeconomics.com
8
In the United States, the Consumer Price Index or CPI
measures changes in the prices paid by consumers for a
basket of goods and services.
Consumer Price Index (CPI) in the United States
increased to 233.53 Index Points in August of 2013
from 233.32 Index Points in July of 2013.
Reaching an all time high of 233.53 Index Points in
August of 2013
United States Inflation Indicators:
2013 PPI
Key
Key
Highlights
Points

United States Producer Prices Index
198.5
198
197.5
197
196.5
196
195.5
195
194.5
194
193.5
193


1/1/13
(1)
2/1/13
3/1/13
4/1/13
5/1/13
6/1/13
7/1/13
8/1/13
Source: Tradingeconomics.com
9
Producer Prices in the United States increased to
197.90 Index Points in August of 2013 from 197.30
Index Points in July of 2013.
Reached an all time high of 197.90 Index Points in
August of 2013
Record low of 27.20 Index Points in January of 1950
United States Economic Indicators:
GDP Annual Growth
6
Key Highlights

GDP Annual Growth (%)
5
4
The Gross Domestic Product (GDP) in the United States
expanded 2.50 percent in the second quarter of 2013
over the previous quarter.
3
2
1
0
-1
-2
1/3/10
1/7/10 1/11/10 1/3/11
1/7/11 1/11/11 1/3/12
1/7/12 1/11/12 1/3/13
Retail Sales
15
Key Highlights

Retail Sales (%)
10
5
0
-5
-10
-15
1/1/07
(1)
1/9/07
1/5/08
1/1/09
1/9/09
1/5/10
1/1/11
1/9/11
1/5/12
1/1/13
Source: Tradingeconomics.com
10
Retail Sales in the United States increased 4.70
percent in August of 2013 over the same month in
the previous year.
United States Economic Indicators:
Current Account
0
Key Highlights
 Current Account deficit of 98893 USD Million in the
second quarter of 2013.
 Current Account is the sum of the balance of trade
(exports minus imports of goods and services), net factor
income (such as interest and dividends) and net transfer
payments (such as foreign aid).
Current Account Balances (bn)
-50000
-100000
-150000
-200000
-250000
2/1/07 9/1/07 4/1/08 11/1/08 6/1/09 1/1/10 8/1/10 3/1/11 10/1/11 5/1/12 12/1/12
Balance of Trade
0
Key Highlights

Balance of Trade (m)
-10000
-20000

-30000

-40000
-50000
-60000
1/1/11 4/1/11 7/1/11 10/1/11 1/1/12 4/1/12 7/1/12 10/1/12 1/1/13 4/1/13 7/1/13
(1)
Source: Tradingeconomics.com
11
Recorded a trade deficit of 38800 USD Million in
August of 2013. The United States Balance of Trade
averaged -32081.43 USD Million from 1992 until 2013
Reached an all time high of -831 USD Million in February
of 1992
Record low of -67351 USD Million in August of 2006.
Currency Strength Analysis
Canada Currency
Canada Exports
CAD/USD Close
Canada - Exports
1.1
47000
45000
1
43000
41000
0.9
39000
37000
0.8
35000
33000
0.7
31000
29000
0.6
1/9/01 1/11/02 1/1/04 1/3/05 1/5/06 1/7/07 1/9/08 1/11/09 1/1/11 1/3/12 1/5/13
27000
1/1/01 1/3/02 1/5/03 1/7/04 1/9/05 1/11/06 1/1/08 1/3/09 1/5/10 1/7/11 1/9/12
Results
Year
(1)
AUD/USD
Exports
2001
0.66527
$419102.8
2012
1.00793
$462440.8
Return
51.51%
10.34


51.51% Increase in CAD/USD from 2001 – 20012
10.34% Increase in exports over the same time period
Source: Tradingeconomics.com
12
Currency Strength Analysis
Australia Currency
Australia Exports
AUD/USD Close
Australia - Exports
32000
1.3
1.2
27000
1.1
1
22000
0.9
0.8
17000
0.7
0.6
12000
0.5
Results
Year
(1)
AUD/USD
Exports
2001
0.55511
$158,107
2012
1.04993
$300,577
Return
89.14%
90.11%


89.14% Increase in AUD/USD from 2001 – 20012
90.11% Increase in exports over the same time period
Source: Tradingeconomics.com
13
1/1/13
1/5/12
1/9/11
1/1/11
1/5/10
1/9/09
1/1/09
1/5/08
1/9/07
1/1/07
1/5/06
1/9/05
1/1/05
1/5/04
1/9/03
1/1/03
1/5/02
1/1/01
1/9/01
7000
1/10/13
1/1/13
1/4/12
1/7/11
1/10/10
1/1/10
1/4/09
1/7/08
1/10/07
1/1/07
1/4/06
1/7/05
1/10/04
1/1/04
1/4/03
1/7/02
1/10/01
1/1/01
0.4
Canada Export Data by Sector
Year Over Year % Change of Canada’s Exports by Sector
YOY Change (%)
Year
2012
Manufacturing Exports
4.18%
Utility Exports
Mining, Oil & Gas Exports
-5.12%
-1.32%
Agriculture, Forest, Hunting Exports
10.90%
CAD/USD
-1.04%
2011
7.52%
0.36%
19.38%
4.23%
4.21%
2010
10.99%
-15.29%
18.31%
-4.36%
13.06%
2009
-23.19%
-37.00%
-40.43%
-19.47%
-8.13%
2008
-6.34%
21.68%
44.51%
16.36%
0.95%
2007
-3.21%
29.77%
5.91%
12.58%
6.85%
2006
-2.27%
-22.87%
0.01%
15.83%
9.84%
2005
0.92%
54.63%
24.89%
12.65%
12.87%
2004
6.69%
8.53%
11.64%
-6.80%
16.70%
2003
-22.46%
2.24%
23.64%
-24.51%
39.31%
2002
-2.25%
-56.99%
-10.08%
4.57%
-4.86%
2001
-2.56%
3.89%
3.26%
18.62%
-12.28%
14
Canada Manufacturing Exports Regression
Manufacturing Exports Regressed Against Dollar
Results


R squared variable very low.
No clear or strong relationship
15
Canada Manufacturing Exports Regression
Oil and Gas Exports Regressed Against Dollar
Results




R squared suggests possible relationship
For every one percentage unit increase in CAD/USD, there is a roughly 1.593777 (%) increase in O&G exports
Further testing needed in order to verify
However, No clear inverse relationship
16