global views 01-31-14

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Global Views

Weekly commentary on economic and financial market developments January 31, 2014

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Markets Will Need A Dose Of Olympic Athleticism ................................................................................. Derek Holt

Global Forecast Update: Growing Pains ...........................................................................................Aron Gampel

Repricing Of Risk In Emerging Markets Adds To USD Support ......................................... Pablo Bréard & Camilla Sutton

Emerging Market Differentiation Has Further To Go ................................................................Derek Holt & Dov Zigler

Commodity Prices Approach Bottom ................................................................................................Patricia Mohr

Prairies Will Continue To Drive Canadian Auto Sales To Record Highs ................................................ Carlos Gomes

Mexican Corporates And Economic Reforms ................................................................ Araceli Espinosa & Joe Kogan

ECB February Preview — A Closer Call Than Expected ................................................................... Frédéric Prêtet

2-10 Economics

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

Key Indicators ......................................................................................................................................... A3-A5

Global Auctions Calendar ............................................................................................................................ A6

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

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

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

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

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

A1-A12 Forecasts & Data

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11-14 Emerging Markets Strategy

15-17 Fixed Income Strategy

Economics

2 January 31, 2014

Global Views THE WEEK AHEAD

Markets Will Need A Dose Of Olympic Athleticism

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

Canada — Was December’s Job Crusher A Fluke?

Was the December job print a fluke or a harbinger of something more sinister brewing in Canadian job markets? We’ll find out next Friday when the January print for the Labour Force Survey hits the wires. Recall that Canada lost 46,000 jobs in December against consensus expectations for a trend 15,000 pace of gains. The survey of household job market sentiment is so volatile that hanging one’s hat on a particular month’s call rightly often succumbs to more sensibly emphasizing the trend. That trend, however, is also not terribly rosy. Canada gained only about 100,000 jobs for all of 2013 which was one-third of the pace of job gains registered the previous year and the weakest year for job growth of the recovery period. We continue to think that structural trends put Canada relatively out of favour on job growth compared with the United States over the full cycle ahead. We remain concerned about structural peaks across most housing and consumer variables in Canada combined with ongoing lagged effects of macroprudential rule tightening and more recently softening cyclical supports via weak job growth and rising trend borrowing costs. This is juxtaposed against evidence that households are actively pursuing home equity financing cash-outs in the context of waning cyclical supports as evidenced by the accompanying chart that we feel underestimates years prior to 2013 because of previously incomplete capture of this activity.

Next Thursday, we’ll be watching for some evidence that the BoC’s long-awaited rotation of growth into exports may be coming closer to fruition. The prior round of figures for November showed a decline in export activity. At an annualized pace, export volumes are tracking lower by 2.7% q/q in Q4 or almost triple the previous quarter’s pace of contraction, and net trade therefore remains a downside influence on Canadian economic growth. That puts the economy on the path to underperforming US GDP growth for the third consecutive quarter after having done so for the full year of 2012 in support of our long established relative underperformance theme that continues to reprice the currency. Long and variable lags on when currency movements and stronger US growth impact Canadian exports make forecasting a potential turnaround in the trade account a treacherous undertaking. Achieving this export turnaround will be made particularly difficult as the US lessens its dependence upon imported energy including slower than usual growth in demand for Canadian energy exports. Canada’s sensitivity to this risk is greater than ever as energy exports have doubled in their share of total exports over the past decade to about one-quarter today. Canada will also face ongoing import market share challenges at the hands of competitors in Asia and increasingly Mexico.

BoC Senior Deputy Governor Tiff Macklem speaks on Friday but the topic will not be disclosed until next week. Macklem leaves the BoC on May 1st to become Dean of the University of Toronto’s business school.

Canada auctions 10s on Wednesday, and earnings season heats up with 19 firms listed on the TSX slated to release. Key names include Bell Aliant, Westjet, Genworth, Suncor, BCE, Shoppers and a blend of resource plays. The key banks that guide much of the Canadian credit space won’t begin releasing until toward month’s end.

United States — The Week Comes To A Climax With The Debt Ceiling And Nonfarm

A key risk on the week could entail looking for an intensification of headline risk in the debate over raising the debt ceiling. After having been suspended as part of the agreement to end the federal government’s shutdown last October, the ceiling will be reinstated next Friday. In practice, the effective deadline could be considerably later, should emergency measures be invoked again. The stakes are high, as rating agencies like Fitch have stated it is a key issue affecting the rating of the US government. After recent speculation that the debt

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

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Home Equity Take-Out In Canada

Source: CAAMP, Scotiabank Economics.

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Economics

3 January 31, 2014


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ceiling would not become truly binding until perhaps as late as Spring, Treasury Secretary Jack Lew cut a letter advising that emergency measures will run out by late February because accelerated and higher tax refunds have hurt flexibility because the government shutdown delayed the start of the tax season and more heavily concentrated tax receipts. We’re optimistic that a crisis will be averted and the US will not default, and would revisit earlier work we’ve shared with clients on more extreme measures that could be called upon if necessary. That notwithstanding, the issue could make for political theatrics.

Fed speak also returns next week. It will be Janet Yellen’s first week on the job as the new Chairman, but she will take a pass on speaking engagements. The focus will instead be upon one voting FOMC member (Philadelphia’s Charles Plosser) and four nonvoting members (Lacker, Evans, Lockhart and Rosengren).

Data risk will be concentrated upon jobs. Following the sharp downside disappointment to nonfarm payrolls in December when job growth slowed to 74,000 and well below consensus expectations, we’ll test the theory that this was just temporary softness due to bad weather. True, those reporting they could not get to work due to bad weather soared to the highest December tally on record (see chart). But to count as being off payrolls, one has to have been unable to get to work and not be paid for the entire nonfarm reference period. Making it in to work even for just an hour or two over the sampling reference period counts one on payrolls. That may have been true for some, but we judge it as an enormous stretch to assume it was a dominant influence. Instead, either nonfarm’s weakness was coincident to other softer reports like durable goods orders and pending home sales, or the lagged effects of the government shutdown in October may have worked through hiring decisions in negative fashion by December which itself would suggest only short-lived weakness. Regardless, ADP’s private payrolls print on Wednesday will likely be looked through by markets weary of its poor track record in providing heads-up signs to nonfarm watchers.

Additional data risk will include ISM manufacturing, construction spending, vehicle sales, factory orders, ISM services, and trade.

Fed up with earnings season yet? We hope not because 92 firms on the S&P500 release next week. Among the bigger names will be Genworth, Time Warner, Coca-Cola, Merck, Walt Disney, Prudential and Estee Lauder.

Europe — Pressure On The ECB To Add Stimulus, and The BoE To Subtract

Europe’s two main central banks will issue policy decisions on Thursday next week, and the relative context couldn’t be more different. With Eurozone headline CPI inflation running at sub-1% year-ago rates, pressure is on the ECB to provide more concrete signals as to what it plans to do — if anything — to reachieve its inflation target within a reasonable time period. No one within the Bloomberg consensus anticipates an ECB rate cut next week, and if true, then the bulk of the attention will be placed upon President Draghi’s ensuing press conference. At the current policy rate of 0.25%, cutting rates would mean potentially breaching the absolute lower zero bound and delving into the uncharted waters of a negative policy rate (i.e., charging depositors to keep money on hold). This tactic has been used by Sweden in 2009-10, and Denmark in mid-2012. It would penalize holders of excess liquidity and thus — it is hoped — encourage them to put it more aggressively to work. The dicey part of the play comes through potentially disrupting money markets and stoking financial instability, and further harming bank profit margins when Europe is attempting to strengthen its banking system.

An added risk clearly entails close monitoring of emerging market risks including some of those at Europe’s back door. Thus far, the risk of smaller economies creating systemic risk like a Cyprus or Greece scenario is mitigated by currency flexibility in the most severely tested EMs. In short, currencies are doing what they should to reprice poor country finances in the context of less generous capital market flows as the Federal Reserve


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Weather’s Worse December Effectnot at work due to bad weather

Source: BLS, Bloomberg, Scotiabank Economics.

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Economics

4 January 31, 2014



cools the pace of stimulus being pumped into global markets. That said, what is not fully clear is the degree to which other major markets may suffer spillover effects stemming from challenges in some economies like Turkey. As the accompanying chart depicts, the most pressured EMs are the ones with large twin current account and fiscal deficits. One of our core principles has always entailed heavily differentiating across risks to individual EMs and the ones in the worst shape are the relative few found in the lower left quadrant.

The Bank of England faces a task opposite to that of the ECB — how to manage against market expectations for rate hikes in a decently performing economy. Governor Mark Carney recently remarked that “Even though employment is growing and unemployment has fallen, [the recovery] still has some way to run before it would be appropriate to consider moving away from the emergency setting of monetary policy.” He also recently remarked that “The MPC will consider a range of options to update our guidance” which is thought to put the pressure either upon a possible but relatively rare accompanying statement to next week’s rate decision or to more fully explain updated guidance in the BoE’s Inflation Report due out on February 12th.

Against this backdrop, data risk will be more subdued in whatever role it may play within European and global markets. Germany releases factory orders, trade, and industrial production. France also updates trade figures. Italy releases its manufacturing PMI and CPI, and the EC add-up for retail sales is also on the docket. UK data will be back-end loaded with late-week releases for the manufacturing PMI, trade, industrial production and a monthly GDP estimate for January.

Asia-Pacific — Indian and Indonesian GDP, and The RBA

Can the RBA convince markets that the AUD should slide further? The main event in Asian markets will be an interest rate statement by the RBA on Thursday which will come on the heels of an economic data dump the day before (retail sales and trade figures are both due out). Futures are not pricing in a meaningful probability of a rate cut after stronger-than-anticipated inflation figures for Q4 pointed to the possibility that the depreciation of the AUD is passing through to inflation (and therefore the RBA might not be willing to go through with an even more aggressive easing of monetary policy). Markets have remained bearish on the AUD since then, but that has been a function of pessimism on China – and not expectations of RBA dovishness.

How fragile are the so-called ‘fragile five’ emerging markets? GDP numbers from Indonesia will offer more insight into 20% of that question, with the consensus view being… that the outlook is pretty soft. Consensus is looking for Indonesian GDP to have contracted by 1.6% q/q in Q4 (the data are due out on Monday) and for CPI to remain elevated when figures are released on Tuesday. A government estimate of Indian economic growth for Q1 2014 will be released too, which adds additional market risk in the case that India’s statistics office becomes concerned that recent interest rate hikes will mean less growth. The East Asian data docket rounds out with inflation figures out of the Philippines as well as a Bank of Philippines interest rate statement at which the central bank is expected to hold rates (although some within consensus are looking for a hike in light of the company’s red-hot economic performance this year). The Bank of Philippines announcement will come on the heels of CPI data which is expected to show inflation stable at 4% y/y. Rounding out the data calendar, New Zealand will release jobs numbers and trade figures are due out of Malaysia.

Asia’s Monday market open will also be focused upon weekend data out of China. The state’s purchasing managers’ index for the manufacturing sector will be watched to see if it confirms weakness in the private sector PMI. This is not assured given differences in the survey samples, with the focus in the private PMI upon smaller manufacturers in export-oriented coastal cities.


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Source: IMF, Bloomberg, Scotiabank Economics.

Current Account & Government Net LendingNo Surprise that Rupee Has Been Nailed

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Current Account,% of GDP, 2013e

General Gov't Net Lending & Borrowing, % of GDP, 2013eVERY HIGH

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VERY LOW DEFICIT RISK

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Economics

5 January 31, 2014

Global Views

GLOBAL FORECAST UPDATE

The global economy should be able to regain, and importantly, sustain increased traction in 2014 and beyond. There is considerable pent-up demand for goods and services, and business activity and hiring are improving, especially among the advanced economies. Short-term interest rates remain at historically pro-growth levels in many high-income countries. Japan is still relying upon considerable monetary stimulus to bolster activity, although the U.S. Fed has begun to gradually dial back on its ‘bond-buying’ program. The purchasing power of many consumers is being bolstered by lower food costs and relatively stable gasoline prices. And the rising trend in the price of home and equity assets is bolstering wealth in countries with more established and developed financial markets.

Scotiabank Economics expects the global economy to expand by 3.5% in 2014 and by a further 3.6% in 2015, over half a percentage point greater than the sub-3% average of the prior two years. Even so, the early-year performance could well be affected by the disruption to commerce caused by abnormal weather conditions. Near-term prospects also are being recalibrated in the wake of the increased volatility and spreading softness in equity prices internationally, and importantly, the significant currency realignments now dominating foreign exchange markets. A number of affected emerging market economies, for example India, Brazil and Turkey, have had to raise interest rates sharply to counteract heightened exchange rate instability, counter inflationary pressures and restore investor and business confidence.

Among the advanced economies this year and next, the United States will regain its front-runner growth status, with consumers responding to much improved spending fundamentals, industrial activity benefiting from ramped-up production of tight, light oil, and the overall economy experiencing significantly less fiscal drag. The Congressional leadership has orchestrated a multi-year budget truce that will help underpin confidence. Most of the euro zone's peripheral nations have begun to post positive growth, with the sharp improvement in internal competitiveness providing a much-needed support for exports and job markets. The U.K. is benefitting from the strength of housing and construction activity, sustained deleveraging forces, and continuing foreign investment. Japan's recovery has taken hold, with potentially more monetary stimulus in the offing to counter the hefty and successive Value Added Tax (VAT) increases needed to help contain the country's massive public sector deficits. Canadian exporters of oil, transportation equipment, machinery, forestry and building materials, and business services should increasingly benefit from strengthening demand from the United States and other advanced economies, with earnings bolstered by the large and continuing depreciation of the Canadian dollar. Nevertheless, Canada's improving performance will be restrained by less buoyant consumer activity as households focus on managing their high levels of debt, and businesses adjust to longstanding competitive issues on the productivity front.

The core group of emerging market economies in the Asia-Pacific region should post on average somewhat weaker output growth in 2014 and 2015 relative to their above-trend performances in recent years. China’s real GDP is expected to increase by a globe-leading 7.3% this year and 7% next year, but below the 7.7% advance in 2013, and the average gain of 10% in the 2000-2012 period. The country’s new leadership is acting to rein in excessive debt growth and investments in both the private and public sectors. However, the nation’s output should remain relatively strong, benefitting from the continuing urbanization of at least 10 million people annually, increasing wage and wealth gains that should support consumption, ongoing accumulation of foreign exchange reserves (totaling US$3.8 trillion) and improving export receipts alongside the strengthening recovery

Aron Gampel (416) 866-6259 [email protected]

Growing Pains

Source: Bloomberg, Scotiabank Economics.

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Argentine PesoIndonesian Rupiah

Turkish LiraBrazilian Real

South African RandIndian RupeeChilean Peso

Russian RubleMalaysian Ringgit

Australian DollarThai Baht

Colombian PesoCanadian Dollar

Norwegian KroneMexican Peso

Peruvian Nuevo SolTaiwanese DollarHungarian ForintSingapore Dollar

Czech KorunaHong Kong Dollar

Japanese YenNew Zealand Dollar

Chinese YuanRomanian LeuSwedish Krona

South Korean WonPolish Zloty

Danish KroneBulgarian Lev

EuroIsraeli ShekelIceland Krona

Swiss Franc

% change versus USD since May 22, 2013

Currency Shifts Since Taper Talk Began

Economics

6 January 31, 2014

Global Views GLOBAL FORECAST UPDATE


in the advanced economies. Thailand’s export- and investment-led growth will fall short of expectations in view of the dampening effect of increased political unrest on tourism and domestic spending. India’s economy is forecast to advance by 5.2% in 2014 and 5.7% in 2015, though the need to raise interest rates to quell inflation could reinforce the sub-par pace of domestic spending which has fallen short of expectations. However, industrial activity in South Korea, Singapore and Taiwan is improving, pointing to an upswing in global trade.

Most of the larger Latin American countries should record relatively good economic performances. Output growth in Mexico is expected to average 3.3% this year and 3.7% in 2015. The U.S. revival will provide a strong boost to Mexican suppliers of autos, airplanes, machinery, and building materials. Taking advantage of the country's lower production costs and advantageous geographic location, firms from around the world have invested considerably in new plants which have expanded the country's industrial capacity and raised its productivity. The Mexican government has also introduced a number of pro-growth policy and reform initiatives that should help boost medium-term prospects, including increased public sector expenditures as well as a strategy to increase foreign investment needed to help the country develop its large energy reserves. Chile, Colombia and Peru are expected to grow 4.4%, 4.8% and 5.4% this year, respectively, supported by sizeable public sector expenditures to upgrade aging infrastructure. Output in Brazil should continue to post comparatively moderate growth of 2.3% this year, following a similar advance in 2013 and tepid growth of only 1.0% in 2012. Exports are expected to get a lift from the over 13% depreciation of the real as global demand improves, though lingering softness for many key commodity prices will limit export earnings. As well, high inflation has forced policymakers to raise interest rates repeatedly in Brazil, a development that could restrain many debt-burdened consumers.

Nevertheless, the road to faster global growth remains uneven. There are nations with chronic fiscal problems that need to be addressed, particularly in the advanced high-income world. Some emerging market economies are structurally misaligned. Other countries are beset by chronic private and/or public sector indebtedness, prolonged economic stagnation, and growing income inequality. Some nations are experiencing excessive credit growth and asset price inflation which require tighter monetary settings, while others are dealing with persistent disinflation pressures. Many nations must ramp up infrastructure spending to accommodate expanded exports and reduce congestion costs. Lagging productivity and output trends in many countries suggest that a large number of businesses should utilize their strong earnings and large cash reserves to boost plant and equipment investments. Elections are set for Thailand, India, Indonesia, Colombia and Brazil this year. Event risk, such as the territorial dispute brewing between Japan and China, and severe climatic events and natural catastrophes, appears to have become more frequent and intrusive.

Increased financial market volatility also presents challenges. Sizeable currency adjustments are being triggered by changing economic and policy conditions. The progressively weaker yen reflects Japan’s increased policy commitment to put the economy on a more robust growth trajectory. A stronger-than-expected rebound in the U.K. economy has provided a strong, albeit temporary lift to sterling, while the euro zone’s emergence from its multi-year recession has been a magnet for renewed capital inflows which have helped stabilize the euro currency. An even larger global impact has been felt by the advent of ‘tapering’ by the Federal Reserve. The U.S. dollar has strengthened about 5% on a trade-weighted basis over the past year, bolstered by increasing capital inflows attracted by the United States’ improving economic performance, the monetary shift to reduced bond purchases, and the upward trend in longer-term borrowing costs. The currencies of many countries internationally have been staggered by sharp capital outflows, particularly those underperforming emerging market economies with large debt burdens magnified by chronic current account imbalances.

The Canadian dollar has not been immune, declining by almost 11% since last year’s early January peak of parity to about US$0.895. Against the backdrop of a resurgent U.S. economy and greenback, Canada and the loonie have felt the strain of a reduced pace of domestic-led growth, the absence of appreciable gains in a number of key commodity prices, crude oil in particular, and a central bank that is focusing more on the weakening in domestic inflation trends. While downward pressure on the Canadian dollar is likely to persist, the currency realignment is part of the adjustment process, with a more competitively valued loonie helping to bolster export earnings.

Aron Gampel (416) 866-6259 [email protected]

Economics

7 January 31, 2014

Global Views

Economics / Foreign Exchange Strategy

FOREIGN EXCHANGE

Renewed volatility in emerging-market (EM) currency and securities markets is unlikely to be the catalyst to derail the upswing in global economic activity. Momentum is picking up in most regions within the high-income world. The United States is at the core of the broad-based global growth pick-up. We view the sharp adjustment in EM valuations as a natural phase of risk repricing and potential demand for US financial assets. We maintain our view that the US dollar (USD) will strengthen against the major currencies over the next 12 months, supported by widening and increasingly attractive growth and interest rate differentials. The ongoing normalization of monetary conditions in the US — reflecting an improved US economic outlook — will continue to sway near-term capital flows, and more relevant, opening the debate about the timing and sequence of upward moves in administered short-term interest rates by the US Federal Reserve, the Bank of England and the European Central Bank.

The Canadian dollar (CAD) is expected to weaken against the USD throughout the first half of the year on the back of relative monetary policy and growth outlooks as well as concern over energy-related trade flows However, CAD should stabilize in the second half of the year as the combination of a US recovery and a weak CAD support the export sector. We expect CADUSD to close the year at 0.90.

The Mexican peso (MXN) is expected to remain under pressure in the near term, influenced by generalized financial stress in emerging-market jurisdictions. Nevertheless, investors remain very sensitive to the structural reform process underway and the potential for higher GDP growth rates once key reforms (energy, financial sector, telecommunications) are implemented. Brazil has been at the forefront of the heightened emerging-market stress; however, decisive central bank intervention should help stabilize the Brazilian real (BRL) within the 2.45-2.50 range during the second half of the year.

Commodity price adjustments are not following a uniform pattern, instilling an added dose of volatility and uncertainty to currencies such as the Australian dollar (AUD), the Chilean peso (CLP) and the South African rand (ZAR). The likelihood of crude oil price decline is on global investors’ radar screens, and energy-exporting nations (such as Russia, Venezuela and Colombia) might see their commodity-linked currencies adversely affected by a downward directional trend; complicated further by EM vulnerabilities.

Within Europe, there is a clear distinction between flows in core currencies in advanced nations versus top-tier emerging-markets. The EUR has been supported by the ongoing economic recovery and a return of flows; however, the fundamental backdrop continues to struggle which we expect will leave the ECB dovish for longer and weigh on the euro, pushing the EURUSD rate down to 1.25 by the end of the fourth quarter of 2014. Meanwhile, the Russian ruble (RUB) and the Turkish lira (TRY) have been major casualties in this renewed phase of global risk aversion, and there are no signs of an imminent stabilization phase. The outlook for the UK has improved. We have revised higher our British pound (GBP) outlook on the back of an expected interest rate hike in the first quarter of 2015 and improved investor sentiment; however, we caution that the currency is already priced to perfection and accordingly upside is likely to prove temporary. We expect GBPUSD to close the year at 1.64.

In the Asia/Pacific region, China remains a factor of stabilization in times of disorderly global currency adjustments. With US$3.8 trillion in foreign exchange reserves (20% higher than 12 months ago), the Chinese authorities maintain enough power to dictate the Chinese yuan (CNY) exchange rate versus the USD at leisure. We believe that the gradual appreciation phase may be temporarily interrupted should the process of asset price correction in emerging-market assets escalate further. We expect the USDCNY rate to close the year at 5.98. In January, the Japanese yen (JPY) came off its lows on risk aversion, reminding markets that it faces two-way risk. From here the combination of loose monetary policy, the implementation of the sales tax increase and government policy are likely to support a further depreciation in JPY in the second half of 2014. The Reserve Bank of Australia is attempting to implement a verbal 0.90 ceiling on the currency; accordingly the near-term Australian dollar (AUD) trend is likely to be lower but as the global economy improves the currency should stabilize.

Repricing Of Risk In Emerging Markets Adds To USD Support

Camilla Sutton (416) 866-5470 [email protected]

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

Economics

8 January 31, 2014

Global Views EMERGING MARKETS

One of the main themes always advanced by Scotiabank Economics has entailed heavily differentiating across Emerging Markets (EMs). That is truer now than ever.

As chart 1 demonstrates, such differentiation is more apparent in FX markets than perhaps often recognized. Many currencies have cheapened against the USD over the period during which the Fed’s taper talk unfolded, but the degree to which this has occurred has differed significantly. We think the second round effects of assessing what has happened recently could well put greater emphasis upon relative risks.

Why? Witness the rest of the accompanying charts that help to sort through the relative economic imbalances. By multiple measures, several nations across the EM space are paying a price for a sustained focus upon leveraged growth and structural rigidities that have not adapted to the post-boom years in the developed economies. Underlying challenges were often papered over by debt and lax regulation, while the Fed threw a security blanket over world markets. As that security blanket gets withdrawn, it is separating the strong and the weak.

At greatest risk are countries down and to the right in chart 2, up and to the right in chart 3, and down and to the left in chart 4. There are many other factors to assess in considering country risk, but such relative positions help to highlight the reasons why countries like South Africa, Turkey, and India — among others — have received unwanted attention by global markets.

The worst configuration for an EM has been a currency peg and a large external imbalance. Argentina, Venezuela, and Ukraine all have pegs that they have struggled to maintain. Argentina had to abandon its peg and devalue; the Ukraine has struggled to maintain its peg; and bond yields spiked in Venezuela and the Ukraine.

A sharp inflow of capital into EM markets may have been wanted less by some than others, but it delayed the process of global rebalancing. That rebalancing is now clearly underway but some EMs will find the task at hand more difficult than others. We maintain the view that within reason, the Fed is likely to discount EM concerns (go here).

Emerging Market Differentiation Has Further To Go

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


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* 2010 Private Debt. Source: IMF, Bloomberg, Scotiabank Economics.

What Qualifies as 'Lots of Debt'?

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Current Account & Government Net LendingNo Surprise that Rupee Has Been Nailed

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General Gov't Net Lending & Borrowing, % of GDP, 2013eVERY HIGH

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Bulgarian LevPolish Zloty

Israeli ShekelSouth Korean Won

Hungarian ForintCzech Koruna

Ukrainian HryvniaPeruvian New Sol

Mexican PesoMalaysian Ringgit

Colombian PesoPhilippine PesoRussian Ruble

Thai BahtChilean PesoIndian RupeeBrazilian Real

South African RandIndonesian Rupiah

Turkish LiraArgentine Peso

CurrencyPerformanceSince May 1,2013

External Imbalances + Weak Growth = Bad Situation

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Chart 1

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Source: IMF, World Bank, Scotiabank Economics.

External Debt vs. Reserves: Problems Looming?

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External Debt,% of GDP, 2013e

Reserves, % of GDP, 2013e

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External Imbalances + Weak Growth = Bad Situation

External Debt vs. Reserves: Problems Looming?

What Qualifies as ‘Lots of Debt’? Current Account & Government Net Lending

No Surprise That Rupee has Been Nailed

Chart 4

http://www.gbm.scotiabank.com/English/bns_econ/cmsr130904.pdf

Economics

9 January 31, 2014

Global Views

COMMODITIES

Gold holds its ground as Fed tapers further, catching a bid from its ‘safe-haven’ status.

Scotiabank’s Commodity Price Index ended 2013 on a weak note, falling -1.2% m/m and -6.8% below a year ago — the second consecutive annual decline. All sub-components lost ground in December.

However, signs point to a bottoming in the All Items Index in early 2014. Prospects for stronger U.S. economic growth (+3%), with China’s GDP still likely to advance by more than 7% this year, should provide a modestly positive backdrop for commodity markets (despite the lower private-sector HSBC-Markit PMI Index for China’s manufacturing in January). Growth in the global manufacturing sector in late 2013 posted its best performance since 2011:Q2 — led by an improvement in the G7 — boosting base metal orders & local price premia. Moreover, the correction in metal & mineral prices is largely over, with gold likely touching bottom in late June 2013, prospects beginning to improve for potash and Japan likely to restart at least some of its nuclear reactors (utilities have already applied for permits to restart 16 of 50 reactors). Nickel prices have also edged up, after Indonesia implemented a January 12 export ban on unprocessed ores.

In December, the Metal & Mineral Index lost further ground (-0.9% m/m and -18.2% yr/yr). Gold prices corrected again mid-month, following the Fed’s December 18 announcement that it would reduce its ‘asset purchase program’ — the monthly purchase of mortgage-backed securities & longer-dated Treasury bonds — by US$10 bn to US$75 bn beginning in January. However, gold held its ground just above the previous low of US$1,180 — reached last June after the Fed Chairman initially announced that ‘quantitative easing’ would likely soon be tapered. Gold actually rallied initially to US$1,266, after a second round of tapering was announced by the Fed on January 29, catching a bid as a ‘safe-haven’ amid fresh emerging-market concerns.

While gold remains vulnerable to reduced ‘liquidity’ in the United States, chances are good that gold has bottomed. The US$1,180 level is close to the 2013 ‘all-in sustaining cash costs’ of 20% of the world’s highest-cost gold producers; even with sharp cost-cutting, lower prices of about US$1,050, if sustained, would likely trigger mine production cuts. Gold is currently trading at US$1,240 and should rally to US$1,375 in 2015, on prospects for higher inflation in the second half of the decade.

Partially offsetting softer precious metal prices in December was a strong rally in base metals. LME copper ended 2013 on a strong note at US$3.26 per pound and climbed further in January to US$3.31. Copper remains one of the most lucrative of all commodities, yielding a 29% profit margin over average world breakeven costs including depreciation. A rumour that China’s State Reserve Bureau might buy 300,000 tonnes of copper in 2014, believing prices to be near a cyclical low, would wipe out this year’s projected ‘surplus’. Actual supply & demand conditions were firm in late 2013, given the strength of China’s underlying copper consumption, which accelerated by 12% in 2013, and a shortage of copper scrap. While new mine supply continues to come on stream globally, recent concern over China’s copper demand — pushing prices to US$3.22 late month — is overdone.

Patricia Mohr (416) 866-4210 [email protected]

Commodity Prices Approach Bottom

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Economics

10 January 31, 2014

Global Views

AUTOS

Canadian passenger vehicle sales climbed 4% last year to a record 1.74 million units. Western Canada led the way, but every region posted higher sales in 2013, with six provinces reporting record volumes.

We expect purchases to climb to a record 1.76 million units in 2014, bolstered by a strengthening global economy and continued low interest rates. New vehicle affordability is at the best level in two decades, partly linked to manufacturer incentives, and consumer confidence is expected to strengthen as the pace of job creation picks up.

Alberta will be the auto industry’s growth leader in 2014. Vehicle sales in Alberta climbed to a record 257,000 units last year — 3% above the pre-recession high of 249,000 units. We expect volumes to advance to 262,000 units in 2014, bolstered by a buoyant labour market, record population inflows and ongoing energy sector investments. Household income in the province is advancing by more than 6% y/y and unemployment is less than 5%. Population growth has accelerated to 3.5% — the fastest pace in more than three decades. Light truck manufacturers will continue to benefit most from the strength in Alberta’s auto market, as these models account for more than 75% of overall volumes. Alberta represents 20% of all light truck sales in Canada, but only 8% of car purchases. The gap is even wider in the lucrative pickup truck segment, with Alberta accounting for 30% of overall volumes.

The other Prairie Provinces will also outpace the gains in the rest of Canada. Vehicle purchases in Saskatchewan climbed to a record-high 58,000 units in 2013 and will approach 60,000 units over the next two years. Meanwhile, sales in Manitoba totalled 54,000 units last year — the highest level since the mid-1980s, and will likely set new highs of 56,000 units by mid-decade. Activity in both provinces was bolstered by record harvests in 2013. However, over the coming year, economic growth in Manitoba will be driven by stronger exports, especially to the United States, and construction of several hydroelectric and non-residential projects. The order backlog is bulging for the province’s transportation and aerospace industries, and exports have started to ramp up in both sectors. In Saskatchewan, a robust labour market and ongoing expansion of several resource projects have boosted population inflows to the fastest pace in more than four decades. In fact, highlighting the upside potential for vehicle sales across the Prairies, the region now accounts for half of the growth in Canada’s vehicle-buying population, but only 21% of overall vehicle purchases.

Car and light truck sales in British Columbia reached 180,000 units last year — the fourth-highest level on record — and are expected to edge up to 182,000 in 2014 alongside improving export prospects, especially in forest products and mining, and a boost to confidence from the potential start of construction of at least one LNG project.

Vehicle purchases in Ontario increased to 646,000 units last year — the second-highest level on record. Household purchases led the way, climbing 5% to 555,000 units. We expect a further gain to 650,000 units in 2014, as a strengthening U.S. economy and the recent depreciation of the Canadian dollar point to a better performance for Ontario’s manufacturing sector. In particular, the auto sector will rebound from last year’s setback caused by re-tooling at several assembly plants. Both exports and manufacturing shipments climbed above a year earlier in the final months of 2013 — a significant improvement from a 3% y/y slide in the first half of the year.

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

Prairies Will Continue To Drive Canadian Sales To Record Highs

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Emerging Markets Strategy

11 January 31, 2014

Global Views

The following article was published on January 28, 2014.

Mexican corporates have fared well in the past year, despite the turmoil caused by tapering in the summer. Spreads of most higher-rated issuers recovered by the end of the year, while average spreads of lower lower-rated names tightened, typically led by a few names in each rating category.

Corporate spreads are of course affected by a variety of country and global factors, and we would be hesitant to attribute that tightening to economic reforms. Consider for example that Mexican government external debt, which should benefit more directly from some of the reforms, actually widened around 10bp in the middle of the curve and 20bp in the long-end in the last twelve months. Still, many investors are naturally wondering how much of the reforms are already priced in Mexican markets and how to position to benefit from the long-term effects of these reforms. To address these questions, we consider some of the recent developments in both spreads and fundamentals of major corporate bond issuers.

Overall Conclusions

Before proceeding to the sector by sector analysis, we should point out some of the broad conclusions and common themes. First, while many sectors as a whole will benefit from liberalization, leading companies currently operating in those sectors may suffer from increased competition. In some cases, say Pemex, we think the opportunities are so large, that the benefits should far outweigh the costs. At the other extreme, the near-term effect of the telecom reform will be a decrease in margins for America Movil as a result of a forced breakup of its near monopoly position. The banking sector lies somewhere in between, and we see both costs and benefits from the recent financial reform.

Second, in many cases the impacts of the reforms are still hard to predict. Many analysts and journalists have focused on the need to see secondary legislation, which in the case of the energy sector is expected by April 19, 2014. For example, while we know that CFE will face increased competition from the private sector, we don’t know yet how the government intends to make the company more profitable. We would emphasize, however, that implementation of reforms over the next few years is just as important as the details of the secondary legislation. Just because the government has the right to auction off the exploration rights to a particular energy deposit doesn’t mean it will immediately do so, as we learned in the many years of delays experienced in implementing the “incentive-contracts” permitted under the Energy Reform of 2008. In other words, politics could

Mexican Corporates And Economic Reforms

Mexican corporate spreads tightened over the past few months, especially in the lower-rated names, and were not significantly hurt by tapering. Nevertheless, the market is not yet rewarding firms most directly affected by reforms, either because the opportunities created by those reforms are offset by higher competition, or because investors prefer to wait for secondary legislation and implementation. We review by industry which firms should be most affected, and how those firms have performed in the market.

Joe Kogan (212) 225-6541 [email protected]

Araceli Espinosa (5255) 9179-5237 [email protected]

Figure 1. Mexican corporate bond spreads by rating

Source: Bloomberg, Scotiabank GBM


12 January 31, 2014

Global Views

remain an obstacle even after the approval of secondary legislation. President Peña Nieto´s success in pushing through significant reforms so far bodes well for an expedited process but it is hard to be sure. Thus, for some industries, the effects of the reforms and their timing remain hard to predict.

Third, our analysis suggests that in many cases Mexican corporate spreads are still not pricing in any positive benefits from the economic reforms. Part of the reason justifiably lies in the uncertainty, complexity, and long-term nature of the potential effects of those reforms, as we have explained. Another reason is that many of the companies most directly affected have such good credit profiles that markets are accustomed to ignoring fundamental news. From a credit risk perspective, does it really matter if America Movil’s margins in Mexico drop from a high of 44% by a few percentage points? Markets regularly shrug off news on the fundamentals of investment grade corporates — try to remember the last time that Pemex earnings reports had an effect on market prices for example. That complacency seems mistaken. For Pemex, the reforms have the potential to significantly reshape the trends in oil reserves, which after all are what matters most for the longer-maturity bonds. Our telecom equity analyst warns that regulators can cause margins to drop rapidly when they’re trying to prove a point, as happened in Turkey. The market will pay attention eventually, but it is hard to know when.

Energy Sector

We start our analysis with the energy sector, as this sector is directly affected by the largest reform.

Pemex stands to benefit the most, thanks to a decreased tax burden, better governance, and the ability to participate in joint ventures with foreign companies, yet we see little movement in spreads as a result of the reforms. Pemex spreads did dip in December when reforms were approved, but returned to levels in line with 2013 averages by early January (Figure 2).

Pemex has mostly continued to trade in line with CFE, which is also affected by the energy reform, but in a different way. We think that Pemex stands to benefit more than CFE from the reforms since the highest margins are found in upstream oil exploration. Both Pemex and CFE could face new competition in their core businesses, but it is hard to know the extent of that competition until secondary legislation is implemented.

Mexichem has a joint venture with Pemex, but this was approved prior to the Energy Reform and we doubt that this joint venture is key to its fundamentals anyway. Its spreads remain stable.

Telecom and Media

Corporates in the telecom and media sector are also directly affected. America Movil will face increased competition and a breakup of its near-monopoly position. Meanwhile, Televisa faces the prospect of new




Figure 2. Corporates in energy and industrial sectors



13 January 31, 2014

Global Views

competition in broadcast television, including from America Movil which expects to receive a license and to invest $350mn USD in this business. In contrast to telecom, where the competitors are already in place and the effects of competition will be felt immediately, competition in television will take longer to develop as a result of the investment required. Televisa could gain in the long-run from its alliance with Iusacell, but in the near term that venture is losing money from subsidizing handsets and from number portability.

America Movil spreads did rise in 2013, consistent with the reforms, but also likely as a result of planned expansion in Europe, which was not received well by investors. The bonds have since recovered much of their losses, and have diverged from Televisa.

Banking

Certainly if the overall benefits to the economy from the reforms materialize, banks will have a lot more projects to finance including infrastructure for the energy sector.

More directly, the financial reform includes provisions for a credit bureau, which should facilitate lending; it also changes bankruptcy law to expedite recovery. On the other hand, the law also aims to increase competition between banks with provisions that include the mobility of collateral to facilitate refinancing, the prohibition of tying, and the lowering of ATM fees. The required creation of additional credit loss reserves could reduce capital ratios.




Figure 3. Corporates in telecom and media


Figure 4. Corporates in the banking sector



14 January 31, 2014

Global Views

We don’t think markets have responded to these developments, however. Bancomer spreads are largely unchanged from earlier in the year; meanwhile, Banorte spreads did tighten but we think that is mostly due to the capital increase this summer.

Consumer Sector

The consumer sector would only benefit indirectly from the increase in long-term economic growth and subsequent effect on consumer wealth. In the near term, personal tax rates have increased for the upper class, but it is unlikely the demand should be affected significantly by either factor. In fact, some of these consumer products like tortillas are inferior goods — that is, in good times, consumers may dine out more and buy fewer packaged products in supermarkets. It is not surprising to find little impact in this sector.

Construction Sector

Construction firms should perform well, thanks not just to an increase in overall growth, but also to new projects facilitated by the energy reform. Spreads of Cemex and ICA have been compressing over the past two years, but we are not sure what portion of that change can actually be attributed Mexican reforms. Cemex has benefitted from a stabilization in some of its US and European operations. Meanwhile, both ICA and Cemex were hurt by delays in 2013 on government infrastructure spending.




Figure 5. Corporates in the consumer sector


Figure 6. Corporates in the construction sector


Fixed Income Strategy

15 January 31, 2014

Global Views

A closer call than previously thought

The European Central Bank (ECB) will meet this Thursday and following last month’s dovish comments by the ECB president, speculation for possible additional actions has increased over the past month with the euribor curve shifting lower. Our main scenario indeed looks for additional rate cuts, both in the refi rate as well as a possible negative deposit rate. We expect this move to be taking place either at the March or April meetings. However, we recognise that, in view of the recent developments on inflation, the probability to have some action as soon as next week has clearly mounted and it could be a very close call, especially as Mr. Draghi proved to surprise the market.

Last month, the ECB president gave, in our view, three potential factors that could force further actions from the central bank and we want to address each of them and how they could play for this meeting.

A new downside surprise on inflation => Increases the possibility of immediate action.

Given that it is the compass of the ECB’s credibility, it remains the key driver and recent developments clearly increased the possibility of action.

January eurozone inflation proved once again lower than expected, easing to 0.7% yoy from 0.8% yoy. More important, core inflation failed to show any significant rebound from its record 0.7% yoy low reached in December, moving up to just 0.8% yoy in January. If we get rid of the impact of the French VAT rate hike, eurozone core inflation probability did not even accelerate and remains stuck in a zone of high deflationary risk (below 1.0%). This clearly challenges last month’s ECB statement, which indicated that the slowdown in December core inflation was just a “one off” event, and increases the probability of inflation undershooting the ECB’s inflation scenario.

Monetary developments also increased this risk with yoy M3 growth slowing down to 1.0% in December, well below the 4.5% yoy mark which is supposed to be in line with medium term price stability. In addition, credit growth failed to show any improvement, falling -2.3% yoy. While the last ECB lending survey reported an easing in tightening conditions on banks’ loans for both banks and households, the outcome proved to be a bit disappointing compared to the expectations announced in the previous survey. So, banks are slower than expected in improving the transmission of the monetary policy, dampening the growth recovery and prolonging deflationary pressures.

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

ECB February Preview — A Closer Call Than Expected

Chart 1: Lowering expectations on ECB rates

Chart 2: Eurozone core inflation significantly undershooting “price stability”

Price stability


16 January 31, 2014

Global Views


On Inflation fixed income markets, expectations are moving lower. For example, 10Y euro inflation swaps dropped to close to 1.70%, around historical lows. Breaking below this level will challenge the ECB’s assessment that medium term inflation remains anchored and favouring a scenario where inflation will come back towards price stability at some point. In the past, breaking below this 1.70% level prompted the ECB to act.

Higher money market rates => favours the status quo.

The ECB is well aware that with lower excess liquidity as LTRO repayment continues, there could be rising volatility in money market rates, with especially eonia rate disconnecting from the deposit rate and moving higher. The ECB president has clearly mentioned that any prolonged spike in money market rates away from the refi rate would raise nervousness and push for some actions. Mid-January experienced this kind of spike with both the eonia and the 1Y1Y eonia moving higher than the refi rate. Since then, the situation has normalised with both moving in line or even slightly below the refi rate. In this context, it should favour the status quo.

Business and confidence surveys => favour the status quo.

Over the past months, both business and consumer confidence have moved higher. As an example, the eurozone PMI manufacturing index has even moved higher than the 52 level which in the past push the ECB to hike rates. It has thus strengthened the ECB’s recovery scenario. With confidence moving up both on the supply and the demand side, it also adds to the view that this recovery is broadening across sectors and becoming therefore more sustainable. In the meantime, recent hard data through a bounce-back in November eurozone industrial production or in retail sales will comfort the ECB’s sentiment that the reality of the recovery is catching up with these bullish surveys.

However, any renewing weakness in confidence will be seen as worrying. On this issue, we will then closely watch business confidence surveys in the next two three months. In our view, looking to the traditional lag in the pass-through between swings in the EUR/USD exchange rate and business surveys, there are indeed risks that the euro appreciation seen over the past six to eight months could start to have a material negative impact.


Chart 3: ECB rates changes & 10Y euro inflation swaps

Chart 4: Recent tensions in money market normalising


17 January 31, 2014

Global Views


All in all, it seems that the arbitrage between all of these above-mentioned arguments still favours a status quo for next Thursday. However, we recognised that the outlook on inflation remains the most important one and we have learned over the past year not to underestimate Mr. Draghi’s reaction function when the ECB thinks that there could be significant changes to its inflation scenario. The latest metrics on inflation risks (HICP, M3, inflation expectations) could trigger some action. So, be prepared for higher market volatility and nervousness as we get closer to this meeting.


Chart 5: Business survey, the bright spot

Economics

18 January 31, 2014

Global Views KEY DATA PREVIEW

Key Data Preview

CANADA

Jobs data for January are due out on Feb. 7th, and we’re looking for a moderate pick-up in employment to the 20k area after the 46k drop in employment in Canada in December. The December decline left employment growth in Canada substantially weaker than recent decent numbers from the real economy, with employment averaging 13.6k jobs/month compared to GDP growth that we expect averaged closer to 2.5% y/y in 2013. One theory here is that soft growth during the Q3 2012 to Q2 2013 period (the average growth rate was 1.4% during that four quarter period) is the culprit — as the chart to the right shows, employment typically grows in a lagged relationship to GDP, and the weak growth during that period ought to have shown up in 2013 (and to pass out of the picture into 2014). That said, wages and hours worked were weak and have remained weak into the end of 2013, so there are no signs of labour market tightness in Canada — throwing a wrench into the GDP-centric logic. The test of that optimistic interpretation will be the jobs numbers over the next quarter.

We’re looking for the Canadian merchandise trade balance to come in at C$-0.4 billion for December as we think that a major uptick in the price of the heavy crude that Canada exports should eliminate some of the October/November weakness (see chart). Crude export volumes could be higher too after November GDP figures pointed to an uptick in the energy sector, which could mean an uptick in exports in the subsequent month. The risk here is that the C$ weakened quite considerably in December, which may have lifted import costs. We expect that to be more of a factor in Q1 2014 data than it has been in Q4 2013.

UNITED STATES

Was December’s weak U.S. nonfarm payrolls number a fluke? Was it related to weather conditions? Payback from the government shutdown in October? A sign of a weakening economy in line with softer home sales data for December? These explanations seem plausible to us (with the exception of the weather story), but we put a little more emphasis on the government shutdown theory and the ‘fluke’ interpretation, leading us to anticipate a 200k number for January. The government shutdown interpretation would auger a major bounceback in line with what was seen once the U.S. got past the government shutdown in the mid-1990s (see chart). Another factor to consider is that January is the month that features the biggest add to the raw jobs figure from seasonal adjustment — and outsized adjustments in recent years have brought with them large gains in the seasonally adjusted jobs numbers.

After a very large improvement was booked in the nominal trade deficit in November, we’re expecting a bit of a pay-back in December. We’re looking for exports of agricultural products and petroleum products to fall off moderately, leaving the trade deficit much lower than in years past, but at US$-36 billion, a touch worse than the relatively low US$-34.3 billion seen in November.

A1

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


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Canada: Okun's Law Applies Here Too

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Jobs Quickly Deteriorated During Clinton Shutdowns - Then Bounced

Source: BLS, Scotiabank Economics.

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Economics

19 January 31, 2014

Global Views KEY DATA PREVIEW


EUROPE

German factory orders and industrial production (IP) data for December will be released next week on Thursday and Friday, respectively. Both indices posted hefty gains in November of around 2% m/m following contractions in the prior month. We expect a roughly flat performance in December IP and a slight contraction in orders (-0.2% m/m). Persistent currency strength remains concerning for German manufacturers and this was likely one of the factors weighing on activity (the euro gained 1.1% versus the US dollar in December). In addition, some survey indicators experienced a dip at the end of the year, including the IFO “current assessment” index, which tracks sentiment among firms in the manufacturing, construction, wholesale and retail industries. A flat monthly IP reading will nonetheless leave the year-over-year expansion rate near 3%, implying a 2½% y/y average for the fourth quarter, which is the fastest pace in two years. Although the monthly data will remain bumpy as the economic recovery is still quite fragile, we expect the annual IP pace to remain in positive territory, picking up from 0% overall in 2013 to 2½% in 2014 as the global economy gains momentum.

LATIN AMERICA

Inflation has recently intensified in Mexico and will likely remain elevated in the coming months. After decreasing to 3.4% y/y in October, headline inflation accelerated to close to 4% in December, due to hikes in public transport tariffs and the adjustment in some agricultural product prices. The increase in some taxes resulting from the fiscal reform (effective January 2014) will continue to fuel consumer prices, taking headline inflation to above the central bank’s 2-4% tolerance band in the short-term. We expect consumer price inflation to have increased by 4.6% y/y in January. The central bank has stated that the effect will be temporary; however, in the latest monetary policy announcement, authorities highlighted that the balance of risks has deteriorated and that inflation could also be affected by the recent depreciation of the Mexican peso (MXN). Additionally, policymakers indicated that second-round effects stemming from higher taxes and the pass-through effect from the weaker MXN on inflation are not expected, but they will remain prepared to act if need be. In our view, inflation will remain high at least in the first half of the year, putting more pressure on the central bank to tighten monetary conditions.

ASIA

Indonesia will release fourth quarter GDP data on February 5th. We estimate that the country’s output expanded by 5.4% y/y following a 5.6% gain in the July-September period, taking growth to 5.7% for the year as a whole. Momentum continues to be driven by household spending, as indicated by solid consumer confidence and retail sales data. Credit growth continues to exceed the 20% y/y mark, though signs of deceleration are evident. While investment momentum is slowing, government spending will likely underpin activity on the back of pre-election outlays (general elections will be held in April 2014, followed by a presidential vote in July); this, combined with a gradually recovering export sector, will likely translate into an average real GDP growth of 5⅔% in 2014-15.

A2

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

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

Daniela Blancas (416) 862-3908 [email protected]

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Economics

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Global Views

January 31, 2014

KEY INDICATORS

Key Indicators for the week of February 3 – 7

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

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North America

Europe

Country Date Time Indicator Period BNS Consensus LatestUS 02/03 06:59 Domestic Vehicle Sales (mn a.r.) Jan 11.9 12.0 11.7US 02/03 06:59 Total Vehicle Sales (mn a.r.) Jan 15.7 15.7 15.3CA 02/03 08:30 IPPI (m/m) Dec -- 0.3 0.1CA 02/03 08:30 Raw Materials Price Index (m/m) Dec -- 2.0 -4.1US 02/03 10:00 Construction Spending (m/m) Dec 0.4 0.0 1.0US 02/03 10:00 ISM Manufacturing Index Jan 57.2 56.0 56.5

US 02/04 10:00 Factory Orders (m/m) Dec -1.0 -1.6 1.8US 02/04 10:00 IBD/TIPP Economic Optimism Index Feb -- -- 45.2

US 02/05 07:00 MBA Mortgage Applications (w/w) JAN 31 -- -- -0.2US 02/05 08:15 ADP Employment Report (000s m/m) Jan 190.0 190.0 238.2CA 02/05 08:30 Building Permits (m/m) Dec -- 2.0 -6.7US 02/05 10:00 ISM Non-Manufacturing Composite Jan 52.0 53.7 53.0

CA 02/06 08:30 Merchandise Trade Balance (C$ bn) Dec -0.4 -0.7 -0.9US 02/06 08:30 Initial Jobless Claims (000s) FEB 1 335 335 348US 02/06 08:30 Continuing Claims (000s) JAN 25 2950 -- 2991US 02/06 08:30 Productivity (q/q a.r.) 4Q P -- 2.5 3.0US 02/06 08:30 Trade Balance (US$ bn) Dec -36.0 -36.0 -34.3US 02/06 08:30 Unit Labor Costs (q/q a.r.) 4Q P -- -0.5 -1.4

CA 02/07 08:30 Employment (000s m/m) Jan 20.0 20.0 -44.0CA 02/07 08:30 Unemployment Rate (%) Jan 7.2 7.1 7.2US 02/07 08:30 Nonfarm Employment Report (000s m/m) Jan 200.0 183.5 74.0US 02/07 08:30 Unemployment Rate (%) Jan 6.7 6.7 6.7MX 02/07 09:00 Consumer Prices (m/m) Jan 0.98 -- 0.57MX 02/07 09:00 Consumer Prices (y/y) Jan 4.57 -- 3.97MX 02/07 09:00 Consumer Prices Core (m/m) Jan 0.92 -- 0.33US 02/07 15:00 Consumer Credit (US$ bn m/m) Dec 11.0 12.0 12.3

Country Date Time Indicator Period BNS Consensus LatestIT 02/03 03:45 Manufacturing PMI Jan 53.5 53.2 53.3FR 02/03 03:50 Manufacturing PMI Jan F 48.8 48.8 48.8GE 02/03 03:55 Manufacturing PMI Jan F 56.3 56.3 56.3EC 02/03 04:00 Manufacturing PMI Jan F 53.9 53.9 53.9UK 02/03 04:30 Manufacturing PMI Jan 56.8 57.3 57.3IT 02/03 Budget Balance (€ bn) Jan -- -- 15.0UK 02/03 Halifax House Price (3 month, y/y) Jan 7.2 7.2 7.5

UK 02/04 04:30 PMI Construction Jan -- 61.5 62.1EC 02/04 05:00 PPI (m/m) Dec -- 0.2 -0.1IT 02/04 05:00 CPI (y/y) Jan P -- 0.6 0.7IT 02/04 05:00 CPI - EU Harmonized (y/y) Jan P 0.6 0.6 0.7

IT 02/05 03:45 Services PMI Jan 48.5 48.8 47.9FR 02/05 03:50 Services PMI Jan F 48.6 48.6 48.6GE 02/05 03:55 Services PMI Jan F 53.6 53.6 53.6EC 02/05 04:00 Composite PMI Jan F 53.2 53.2 53.2EC 02/05 04:00 Services PMI Jan F 51.9 51.9 51.9UK 02/05 04:30 Services PMI Jan 58.0 59.0 58.8EC 02/05 05:00 Retail Trade (m/m) Dec -- -0.7 1.4

GE 02/06 06:00 Factory Orders (m/m) Dec -0.2 0.1 2.1UK 02/06 07:00 BoE Asset Purchase Target (£ bn) Feb 375 375 375UK 02/06 07:00 BoE Policy Announcement (%) Feb 6 0.50 0.50 0.50EC 02/06 07:45 ECB Announces Interest Rates (%) Feb 6 0.25 0.25 0.25

Economics

2

Global Views

January 31, 2014

KEY INDICATORS



A4

Europe (continued from previous page)

Asia Pacific

Country Date Time Indicator Period BNS Consensus LatestGE 02/07 02:00 Trade Balance (€ bn) Dec -- 17.3 18.1FR 02/07 02:45 Central Government Balance (€ bn) Dec -- -- -87.0FR 02/07 02:45 Trade Balance (€ mn) Dec -- -5000 -5680SP 02/07 03:00 Industrial Output NSA (y/y) Dec -- -- 0.2UK 02/07 04:30 Industrial Production (m/m) Dec 0.6 0.6 0.0UK 02/07 04:30 Manufacturing Production (m/m) Dec 0.5 0.6 0.0UK 02/07 04:30 Visible Trade Balance (£ mn) Dec -9639 -9300 -9439GE 02/07 06:00 Industrial Production (m/m) Dec 0.0 0.3 1.9

Country Date Time Indicator Period BNS Consensus LatestAU 02/02 19:30 Building Approvals (m/m) Dec -- -0.5 -1.5AU 02/02 19:30 ANZ Job Advertisements (m/m) Jan -- -- -0.7CH 02/02 20:00 Non-manufacturing PMI Jan -- -- 54.6ID 02/02 23:00 Exports (y/y) Dec -- 1.7 -2.4ID 02/02 23:00 CPI (y/y) Jan 8.2 8.3 8.4ID 02/02 23:00 Core CPI (y/y) Jan -- 5.1 5.0

JN 02/03 00:00 Vehicle Sales (y/y) Jan -- -- 18.7JN 02/03 Official Reserve Assets (US$ bn) Jan -- -- 1266.8TH 02/03 CPI (y/y) Jan 1.8 1.8 1.7TH 02/03 Core CPI (y/y) Jan -- 1.0 0.9ID 02/03 Imports (y/y) Dec -- -3.0 -10.6ID 02/03 Trade Balance (US$ mn) Dec -- 729.0 776.8ID 02/03 Consumer Confidence Index Jan -- -- 116.5SK 02/03 18:00 CPI (y/y) Jan 1.1 1.1 1.1SK 02/03 18:00 Core CPI (y/y) Jan -- -- 1.9JN 02/03 18:50 Monetary Base (y/y) Jan -- -- 46.6HK 02/03 21:30 Purchasing Managers Index Jan -- -- 51.2AU 02/03 22:30 RBA Cash Target Rate (%) Feb 4 2.50 2.50 2.50

HK 02/04 03:30 Retail Sales - Value (y/y) Dec -- 7.2 8.5HK 02/04 03:30 Retail Sales - Volume (y/y) Dec -- 6.8 9.0NZ 02/04 16:45 Unemployment Rate (%) 4Q 6.2 6.0 6.2NZ 02/04 16:45 Employment Change (y/y) 4Q -- 2.4 2.4PH 02/04 20:00 CPI (y/y) Jan 4.2 4.1 4.1

ID 02/05 Annual GDP (y/y) 2013 5.7 5.7 6.2ID 02/05 Real GDP (y/y) 4Q 5.4 5.4 5.6SI 02/05 08:30 Purchasing Managers Index Jan -- -- 49.7AU 02/05 19:30 Retail Sales (m/m) Dec -- 0.5 0.7AU 02/05 19:30 Trade Balance (AUD mn) Dec -- -225.0 -118.0TA 02/05 19:30 CPI (y/y) Jan 0.5 0.6 0.3

PH 02/06 03:00 Overnight Borrowing Rate (%) Feb 6 3.50 3.50 3.50CH 02/06 20:45 HSBC Services PMI Jan -- -- 50.9MA 02/06 23:01 Exports (y/y) Dec -- 10.0 6.7MA 02/06 23:01 Imports (y/y) Dec -- 8.2 6.4MA 02/06 23:01 Trade Balance (MYR bn) Dec -- 9.4 9.7

JN 02/07 00:00 Coincident Index CI Dec P -- 111.4 110.7JN 02/07 00:00 Leading Index CI Dec P -- 111.9 111.1NZ 02/07 06:59 QV House Prices (y/y) Jan -- -- 10.0

Economics

3

Global Views

January 31, 2014

KEY INDICATORS



A5

Latin America

Country Date Time Indicator Period BNS Consensus LatestPE 02/01 00:00 Consumer Price Index (m/m) Jan -- 0.2 0.2PE 02/01 00:00 Consumer Price Index (y/y) Jan 3.0 2.9 2.9

BZ 02/03 07:00 PMI Manufacturing Index Jan -- -- 50.5BZ 02/03 12:00 Trade Balance (FOB) - Monthly (US$ mn) Jan -- -- 2654.0

BZ 02/04 06:00 Industrial Production SA (m/m) Dec -- -1.5 -0.2BZ 02/04 06:00 Industrial Production (y/y) Dec -- 0.2 0.4

CL 02/05 06:30 Economic Activity Index SA (m/m) Dec -- -- 0.5CL 02/05 06:30 Economic Activity Index NSA (y/y) Dec -- 2.2 2.8CO 02/05 19:00 Consumer Price Index (m/m) Jan -- 0.6 0.3CO 02/05 19:00 Consumer Price Index (y/y) Jan 2.1 2.2 1.9

BZ 02/07 06:00 IBGE Inflation IPCA (y/y) Jan 5.9 5.7 5.9CL 02/07 06:00 CPI (m/m) Jan -- 0.2 0.6CL 02/07 06:00 CPI (y/y) Jan 2.9 3.0 3.0BZ 02/07 10:00 IBGE Inflation IPCA (m/m) Jan -- 0.6 0.9

Economics

4

Global Views

January 31, 2014

AUCTIONS

Global Auctions for the week of February 3 – 7


A6

North America

Country Date Time EventUS 02/03 11:30 3M High Yield RateUS 02/03 11:30 3M Direct Accepted %US 02/03 11:30 3M Bid/Cover RatioUS 02/03 11:30 3M Indirect Accepted %US 02/03 11:30 6M Direct Accepted %US 02/03 11:30 6M Indirect Accepted %US 02/03 11:30 6M High Yield RateUS 02/03 11:30 6M Bid/Cover RatioUS 02/03 11:30 U.S. to Sell USD28 Bln 3-Month BillsUS 02/03 11:30 U.S. to Sell USD20 Bln 6-Month Bills

US 02/04 11:30 52W Direct Accepted %US 02/04 11:30 52W Bid/Cover RatioUS 02/04 11:30 52W Indirect Accepted %US 02/04 11:30 52W High Yield RateUS 02/04 11:30 U.S. to Sell USD18 Bln 52-Week BillsUS 02/04 11:30 4W Direct Accepted %US 02/04 11:30 4W Indirect Accepted %US 02/04 11:30 4W Bid/Cover RatioUS 02/04 11:30 4W High Yield RateUS 02/04 11:30 U.S. to Sell 4-Week Bills

CA 02/05 12:00 Canada to Sell 10-Year BondsCA 02/05 12:00 10Y Auction SizeCA 02/05 12:00 10Y Auction Yield

Europe

Country Date Time EventNE 02/03 05:00 Netherlands to Sell 3-Month BillsNE 02/03 05:00 Netherlands to Sell 6-Month BillsFR 02/03 08:50 France to Sell Bills

DE 02/04 04:30 Denmark to Sell BondsAS 02/04 04:30 Austria to Sell 3.8% 2062 Bonds on Feb. 4AS 02/04 04:30 Austria to Sell 1.15% 2018 Bonds on Feb. 4GR 02/04 05:00 Greece to Sell EUR625 mln 182-Day BillsUK 02/04 05:30 U.K. to Sell GBP4 Bln 1.75% 2019 Bonds

GE 02/05 04:30 Germany to Sell EUR4 Bln 1% 2019 Bonds

SP 02/06 04:30 Spain to Sell BondsFR 02/06 04:50 France to Sell BondsSW 02/06 05:03 Sweden to Sell SEK1 Bln 1% I/L 2025 Bonds

Asia Pacific

Country Date Time EventJN 02/03 22:45 Japan to Sell 10-Year Bonds

JN 02/04 22:35 Japan to Sell 6-Month Bill

JN 02/05 22:35 Japan to Sell 3-Month BillJN 02/05 22:45 Japan to Sell 30-Year Bonds

Economics

5

Global Views

January 31, 2014

EVENTS


Events for the week of February 3 – 7

A7

North America

Europe

Country Date Time EventUS 02/01 Yellen Replaces Bernanke as Fed Chairman

US 02/03 09:00 U.S. Treasury Secretary Lew Speaks at Bipartisan Policy CenterCA FEB 3-9 Canada, Israel Hold Free Trade Negotiations

US 02/04 08:30 Fed's Lacker Speaks on the Economy in Winchester, VirginiaUS 02/04 10:00 U.S. CBO Releases Budget and Economic OutlookUS 02/04 12:30 Fed's Evans Speaks on Monetary Policy in Detroit

US 02/05 12:30 Fed's Plosser Speaks on Economic Outlook in Rochester, NYUS 02/05 13:40 Fed's Lockhart Speaks on Economy in Birmingham, Alabama

US 02/06 10:00 Fed's Tarullo and regulators testify on financial stabilityUS 02/06 17:30 Fed's Rosengren Speaks at New College in Sarasota, Florida

CA 02/07 15:25 Bank of Canada Deputy Governor Macklem Speaks in Montreal

Asia Pacific

Country Date Time EventTH FEB 1-2 Thailand General Elections

IN 02/03 01:00 India Overseas Investment Board MeetingNZ 02/03 13:30 Prime Minister Key Speaks in AucklandAU 02/03 22:30 RBA Cash Rate Target

PH 02/06 03:00 BSP Overnight Borrowing RateAU 02/06 19:30 RBA Statement on Monetary PolicyNZ 02/06 20:00 Prime Minister Key Speaks in Sydney

Country Date Time EventSP JAN 31-FEB 2 Spain's Governing Party Holds National Conference

GE FEB 2-3 German SPD Leadership Holds Two-Day Conclave: Potsdam

SP 02/03 03:00 Economy Minister Luis de Guindos Speaks in MadridSP 02/03 04:00 IMF to Release Report For Spain 5th Review of BanksEC 02/03 13:30 EU Parliament Panel Hearing on ECB Oversight Board Vice Chair

GE 02/04 06:00 Merkel Meets With Turkish Premier Erdogan

UK 02/06 07:00 Bank of England Bank RateUK 02/06 07:00 BOE Asset Purchase TargetEC 02/06 07:45 ECB Announces Interest RatesEC 02/06 07:45 ECB Deposit Facility RateEC 02/06 07:45 ECB Marginal Lending FacilityEC 02/06 08:30 ECB'S Draghi Holds Press Conference After Rate Decision

EC 02/07 05:45 ECB's Mersch Speaks in DublinEC 02/07 06:00 ECB's Provopolous Speaks in LondonEC 02/07 06:00 ECB Announces 3-Year LTRO RepaymentGE 02/07 08:00 Merkel Gives Speech in Weimar Before CDU Leadership Meeting

Economics

6

Global Views

January 31, 2014

Global Central Bank Watch

CENTRAL BANKS

A8


NORTH AMERICARate Current Rate Next Meeting Scotia's Forecasts Consensus ForecastsBank of Canada – Overnight Target Rate 1.00 March 5, 2014 1.00 --

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 --

EUROPERate Current Rate Next Meeting Scotia's Forecasts Consensus ForecastsEuropean Central Bank – Refinancing Rate 0.25 February 6, 2014 0.25 0.25

Bank of England – Bank Rate 0.50 February 6, 2014 0.50 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 2.72

Central Bank of the Republic of Turkey – 1 Wk Repo Rate 10.00 February 18, 2014 10.00 --

Sweden Riksbank – Repo Rate 0.75 February 13, 2014 0.75 --

Norges Bank – Deposit Rate 1.50 March 27, 2014 1.50 --

ASIA PACIFICRate Current Rate Next Meeting Scotia's Forecasts Consensus ForecastsReserve Bank of Australia – Cash Target Rate 2.50 February 3, 2014 2.50 2.50

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 7.75 --

Bank of Korea – Bank Rate 2.50 February 12, 2014 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 --

LATIN AMERICA

Rate Current Rate Next Meeting Scotia's Forecasts Consensus ForecastsBanco Central do Brasil – Selic Rate 10.50 February 26, 2014 10.75 --

Banco Central de Chile – Overnight Rate 4.50 February 18, 2014 4.50 --

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 --

AFRICARate Current Rate Next Meeting Scotia's Forecasts Consensus ForecastsSouth African Reserve Bank – Repo Rate 5.50 March 27, 2014 5.00 --

Fed: The most recent FOMC meeting did not imply that the Fed is sufficiently concerned about developments in Emerging Markets so as to let recent volatility impact the trajectory of monetary policy. We don’t expect developments in EM to deter the Fed unless events take a dramatic turn for the worse. BoC: With trade data for December due out on Feb. 6, the BoC will have an opportunity to further gauge if the much hoped-for ‘rotation towards exports’ is materializing.

The European Central Bank (ECB) and Bank of England (BoE) will hold their second meetings of the year next Thursday. We do not anticipate any interest rate changes at this juncture. Pressure has increased on the ECB to address persistent deflationary concerns; the CPI fell again unexpectedly in January, to 0.7% y/y from 0.8%, against consensus expectations for a slight rise. While unconventional policy measures are the more likely choice in the current environment, we see scope for rate cuts should inflation continue to disappoint in the coming months. ECB President Draghi has discussed the possibility of buying packages of private sector bank loans as a way to ward off deflation risks and stimulate credit activity, and he could signal that such a policy measure is forthcoming at next week’s meeting. The BoE’s 7% unemployment rate threshold is fast approaching, with the rate falling to 7.1% as of November. However, we do not anticipate any policy tightening once the threshold is reached, but rather, the bank will likely revert to a more conventional rate-setting policy. We expect the first interest rate hike to occur in early 2015.

Monetary authorities of the Reserve Bank of Australia will meet next week. We expect the Cash Target Rate to be kept unchanged at 2.50%. Intensifying inflationary pressures in Australia are lowering the likelihood of further monetary stimulus in the near term. Consumer price inflation accelerated to 2.7% y/y at end-2013 from 2.2% in the third quarter. Core prices rose by 2.6% y/y, remaining within the RBA’s 2-3% inflation target.

North America

Europe

Asia Pacific

Latin America

Africa

Economics

7

Global Views

January 31, 2014

FORECASTS

A9

Forecasts as at January 30, 2014* 2000-12 2013e 2014f 2015f 2000-12 2013e 2014f 2015f

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

World13.7 2.9 3.5 3.6

Canada 2.2 1.8 2.4 2.5 2.1 0.9 1.1 1.9 United States 1.9 1.9 3.0 3.0 2.5 1.5 1.5 1.9 Mexico 2.4 1.3 3.3 3.7 4.7 3.9 4.3 4.0

United Kingdom 1.7 1.9 2.5 1.8 2.3 2.0 2.2 2.4 Euro zone 1.3 -0.5 0.9 1.3 2.1 0.8 1.2 1.4

Japan 0.9 1.8 1.8 1.2 -0.3 1.4 1.5 2.1 Australia 3.1 2.4 2.7 2.9 3.0 2.7 3.0 2.9 China 9.3 7.7 7.3 7.0 2.4 2.5 2.8 3.5 India 7.2 4.5 5.2 5.7 6.7 6.2 6.6 6.3 Korea 4.3 2.8 3.4 3.5 3.1 1.1 2.2 2.5 Thailand 4.2 3.2 3.5 4.5 2.7 1.7 2.5 2.8

Brazil 3.4 2.3 2.3 2.5 6.5 6.0 6.0 5.5 Chile 4.5 4.4 4.4 4.7 3.2 2.5 3.0 3.0 Peru 5.7 5.1 5.4 5.6 2.6 2.9 3.0 2.5

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

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

Exchange Rates (end of period)

Canadian Dollar (USDCAD) 1.06 1.13 1.15 1.12 1.11 1.10 1.10 1.10Canadian Dollar (CADUSD) 0.94 0.88 0.87 0.89 0.90 0.91 0.91 0.91Euro (EURUSD) 1.37 1.33 1.30 1.27 1.25 1.25 1.24 1.24Sterling (GBPUSD) 1.66 1.65 1.66 1.65 1.64 1.64 1.63 1.61Yen (USDJPY) 105 102 104 107 109 110 111 112Australian Dollar (AUDUSD) 0.89 0.87 0.86 0.88 0.88 0.89 0.89 0.89Chinese Yuan (USDCNY) 6.1 6.1 6.0 6.0 6.0 5.9 5.9 5.9Mexican Peso (USDMXN) 13.0 13.5 13.1 13.2 13.4 13.4 13.4 13.5Brazilian Real (USDBRL) 2.36 2.55 2.40 2.45 2.50 2.52 2.55 2.55

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

WTI Oil (US$/bbl) 60 98 92 90Brent Oil (US$/bbl) 62 109 108 108Nymex Natural Gas (US$/mmbtu) 5.45 3.73 4.20 4.25

Copper (US$/lb) 2.22 3.32 3.15 3.05Zinc (US$/lb) 0.78 0.87 0.98 1.40Nickel (US$/lb) 7.64 6.80 7.25 7.60Gold, London PM Fix (US$/oz) 745 1,410 1,270 1,375

Pulp (US$/tonne) 730 941 970 970Newsprint (US$/tonne) 585 608 612 645Lumber (US$/mfbm) 274 356 390 400

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

* See Scotiabank Economics 'Global Forecast Update' (http://www.gbm.scotiabank.com/English/bns_econ/forecast.pdf) for additional forecasts & commentary.

Brazil

India South Korea Thailand

Chile Peru

Japan

Canada

United States

Mexico

United Kingdom

Australia China

Euro Zone

Economics

8

Global Views

January 31, 2014

ECONOMIC STATISTICS

Source: Bloomberg, Global Insight, Scotiabank Economics.

A10

North America

Canada 2012 13Q2 13Q3 Latest United States 2012 13Q2 13Q3 Latest Real GDP (annual rates) 1.7 1.6 2.7 Real GDP (annual rates) 2.8 2.5 4.1 Current Acc. Bal. (C$B, ar) -62.2 -63.7 -61.9 Current Acc. Bal. (US$B, ar) -440 -386 -379 Merch. Trade Bal. (C$B, ar) -12.0 -10.7 -10.2 -11.3 (Nov) Merch. Trade Bal. (US$B, ar) -741 -703 -715 -647 (Nov) Industrial Production 1.1 -0.1 0.9 0.3 (Nov) Industrial Production 3.6 2.1 2.4 3.7 (Dec) Housing Starts (000s) 215 190 195 188 (Dec) Housing Starts (millions) 0.78 0.87 0.88 1.00 (Dec) Employment 1.2 1.2 1.3 0.6 (Dec) Employment 1.7 1.6 1.7 1.6 (Dec) Unemployment Rate (%) 7.3 7.1 7.1 7.2 (Dec) Unemployment Rate (%) 8.1 7.5 7.2 6.7 (Dec) Retail Sales 2.5 2.7 3.2 3.1 (Nov) Retail Sales 5.1 4.7 4.7 4.0 (Dec) Auto Sales (000s) 1673 1744 1777 1708 (Nov) Auto Sales (millions) 14.4 15.5 15.7 15.3 (Dec) CPI 1.5 0.8 1.1 1.2 (Dec) CPI 2.1 1.4 1.6 1.5 (Dec) IPPI 1.1 -0.1 0.9 -0.3 (Nov) PPI 1.9 1.5 1.2 1.2 (Dec) Pre-tax Corp. Profits -4.9 -8.2 -1.1 Pre-tax Corp. Profits 18.5 3.7 3.5

Mexico Real GDP 3.9 1.6 1.3 Current Acc. Bal. (US$B, ar) -14.6 -19.9 -21.8 Merch. Trade Bal. (US$B, ar) 0.0 -3.4 -4.1 19.9 (Dec) Industrial Production 2.6 -0.3 -0.5 -1.4 (Nov) CPI 4.1 4.5 3.4 4.0 (Dec)

Euro Zone 2012 13Q2 13Q3 Latest Germany 2012 13Q2 13Q3 Latest Real GDP -0.6 -0.6 -0.3 Real GDP 0.9 0.5 0.6 Current Acc. Bal. (US$B, ar) 162 293 259 443 (Nov) Current Acc. Bal. (US$B, ar) 240.8 240.3 235.2 350.3 (Nov) Merch. Trade Bal. (US$B, ar) 122.0 267.9 209.1 304.2 (Nov) Merch. Trade Bal. (US$B, ar) 245.1 249.6 262.4 304.6 (Nov) Industrial Production -2.5 -0.9 -1.1 -0.5 (Nov) Industrial Production -0.4 -0.5 -0.1 1.9 (Nov) Unemployment Rate (%) 11.3 12.0 12.1 11.9 (Dec) Unemployment Rate (%) 6.8 6.9 6.8 6.8 (Dec) CPI 2.5 1.4 1.3 0.9 (Dec) CPI 2.0 1.5 1.6 1.4 (Dec)

France United Kingdom Real GDP 0.0 0.5 0.2 Real GDP 0.3 2.0 1.9 Current Acc. Bal. (US$B, ar) -57.3 -19.9 -49.7 -61.3 (Nov) Current Acc. Bal. (US$B, ar) -92.7 -35.3 -167.6 Merch. Trade Bal. (US$B, ar) -52.9 -43.2 -48.6 -50.5 (Nov) Merch. Trade Bal. (US$B, ar) -172.4 -155.9 -182.6 -182.1 (Nov) Industrial Production -2.5 0.6 -1.5 -1.4 (Nov) Industrial Production -2.5 -0.5 -0.1 -1.4 (Nov) Unemployment Rate (%) 10.2 10.8 10.9 10.8 (Dec) Unemployment Rate (%) 8.0 7.8 7.6 7.1 (Oct) CPI 2.0 0.8 0.9 0.7 (Dec) CPI 2.8 2.7 2.7 2.0 (Dec)

Italy Russia Real GDP -2.6 -2.2 -1.8 Real GDP 3.4 1.2 1.2 Current Acc. Bal. (US$B, ar) -8.1 20.2 28.5 45.8 (Nov) Current Acc. Bal. (US$B, ar) 74.8 3.4 0.6 Merch. Trade Bal. (US$B, ar) 12.4 49.4 41.4 50.0 (Nov) Merch. Trade Bal. (US$B, ar) 16.0 14.2 14.4 16.6 (Nov) Industrial Production -6.4 -3.5 -3.8 -7.0 (Nov) Industrial Production -5.3 0.3 -0.1 0.8 (Dec) CPI 3.1 1.2 1.0 0.6 (Dec) CPI 5.1 7.2 6.4 6.5 (Dec)

Europe

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

Economics

9

Global Views

January 31, 2014

ECONOMIC STATISTICS

Source: Bloomberg, Global Insight, Scotiabank Economics.

A11

Asia Pacific

Australia 2012 13Q2 13Q3 Latest Japan 2012 13Q2 13Q3 Latest Real GDP 3.6 2.4 2.3 Real GDP 1.4 1.3 2.4 Current Acc. Bal. (US$B, ar) -64.1 -31.9 -52.8 Current Acc. Bal. (US$B, ar) 60.4 70.0 54.5 -71.1 (Nov) Merch. Trade Bal. (US$B, ar) 5.9 32.4 12.5 6.5 (Nov) Merch. Trade Bal. (US$B, ar) -85.8 -89.9 -117.5 -133.2 (Dec) Industrial Production 4.8 5.0 2.7 Industrial Production 0.2 -3.1 1.9 5.9 (Dec) Unemployment Rate (%) 5.2 5.6 5.7 5.8 (Dec) Unemployment Rate (%) 4.4 4.0 4.0 3.7 (Dec) CPI 1.8 2.4 2.2 CPI 0.0 -0.3 0.9 1.6 (Dec)

South Korea China Real GDP 2.0 2.3 3.3 Real GDP 10.4 7.5 7.8 Current Acc. Bal. (US$B, ar) 48.1 79.2 75.9 77.1 (Dec) Current Acc. Bal. (US$B, ar) 193.1 Merch. Trade Bal. (US$B, ar) 28.3 57.6 43.1 43.8 (Dec) Merch. Trade Bal. (US$B, ar) 230.7 264.5 244.4 307.7 (Dec) Industrial Production 1.2 -1.7 1.0 1.2 (Dec) Industrial Production 10.3 8.9 10.2 9.7 (Dec) CPI 2.2 1.2 1.4 1.1 (Dec) CPI 2.5 2.7 3.1 2.5 (Dec)

Thailand India Real GDP 6.5 2.9 2.7 Real GDP 5.1 4.4 4.8 Current Acc. Bal. (US$B, ar) -1.5 -7.2 -0.9 Current Acc. Bal. (US$B, ar) -91.5 -21.8 -5.2 Merch. Trade Bal. (US$B, ar) 0.5 -0.3 1.7 2.0 (Dec) Merch. Trade Bal. (US$B, ar) -16.0 -16.7 -9.9 -10.1 (Dec) Industrial Production 2.1 -5.1 -3.9 -6.7 (Dec) Industrial Production 0.7 -1.0 1.7 -2.1 (Nov) CPI 3.0 2.3 1.7 1.7 (Dec) WPI 7.5 4.8 6.6 6.2 (Dec)

Indonesia Real GDP 6.2 5.8 5.6 Current Acc. Bal. (US$B, ar) -24.4 -10.0 -8.4 Merch. Trade Bal. (US$B, ar) -0.1 -1.0 -1.0 0.8 (Nov) Industrial Production 4.1 6.8 7.1 -1.9 (Nov) CPI 4.3 5.6 8.6 8.4 (Dec)

Brazil 2012 13Q2 13Q3 Latest Chile 2012 13Q2 13Q3 Latest Real GDP 0.9 3.1 1.9 Real GDP 5.6 4.0 4.7 Current Acc. Bal. (US$B, ar) -54.2 -74.2 -68.5 Current Acc. Bal. (US$B, ar) 0.0 -6.8 -13.8 Merch. Trade Bal. (US$B, ar) 19.4 8.3 5.9 31.8 (Dec) Merch. Trade Bal. (US$B, ar) 12.4 5.4 -1.8 1.8 (Dec) Industrial Production -2.7 3.1 0.4 0.3 (Nov) Industrial Production 3.4 1.4 4.9 2.3 (Dec) CPI 5.4 6.6 6.1 5.9 (Dec) CPI 3.0 1.3 2.1 3.0 (Dec)

Peru Colombia Real GDP 9.2 5.6 4.4 Real GDP 4.2 3.9 5.1 Current Acc. Bal. (US$B, ar) -7.1 -3.1 Current Acc. Bal. (US$B, ar) -12.1 -2.5 -3.6 Merch. Trade Bal. (US$B, ar) 0.5 -0.1 0.1 -0.2 (Nov) Merch. Trade Bal. (US$B, ar) 0.4 0.4 0.0 0.1 (Nov) Unemployment Rate (%) 7.0 5.7 5.8 5.7 (Dec) Industrial Production -0.3 0.0 -1.6 -0.6 (Nov) CPI 3.7 2.5 3.1 2.9 (Dec) CPI 3.2 2.1 2.3 1.9 (Dec)

Latin America

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

Economics

10

Global Views

January 31, 2014

FINANCIAL STATISTICS

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

A12

Interest Rates (%, end of period)

Canada 13Q3 13Q4 Jan/24 Jan/31* United States 13Q3 13Q4 Jan/24 Jan/31*BoC Overnight Rate 1.00 1.00 1.00 1.00 Fed Funds Target Rate 0.25 0.25 0.25 0.25 3-mo. T-bill 0.97 0.92 0.89 0.88 3-mo. T-bill 0.01 0.07 0.05 0.01 10-yr Gov’t Bond 2.54 2.76 2.40 2.36 10-yr Gov’t Bond 2.61 3.03 2.72 2.66 30-yr Gov’t Bond 3.07 3.23 2.97 2.94 30-yr Gov’t Bond 3.68 3.97 3.63 3.61 Prime 3.00 3.00 3.00 3.00 Prime 3.25 3.25 3.25 3.25 FX Reserves (US$B) 71.3 71.8 71.8 (Dec) FX Reserves (US$B) 136.7 133.5 133.5 (Dec)

Germany France 3-mo. Interbank 0.15 0.24 0.27 0.23 3-mo. T-bill 0.06 0.15 0.14 0.14 10-yr Gov’t Bond 1.78 1.93 1.66 1.66 10-yr Gov’t Bond 2.32 2.56 2.38 2.23 FX Reserves (US$B) 65.7 67.4 67.4 (Dec) FX Reserves (US$B) 54.6 50.8 50.8 (Dec)

Euro Zone United Kingdom Refinancing Rate 0.50 0.25 0.25 0.25 Repo Rate 0.50 0.50 0.50 0.50 Overnight Rate 0.18 0.45 0.19 0.16 3-mo. T-bill 0.40 0.40 0.40 0.40 FX Reserves (US$B) 332.5 331.2 331.2 (Dec) 10-yr Gov’t Bond 2.72 3.02 2.77 2.71

FX Reserves (US$B) 93.3 91.2 91.2 (Dec)

Japan Australia Discount Rate 0.30 0.30 0.30 0.30 Cash Rate 2.50 2.50 2.50 2.50 3-mo. Libor 0.09 0.09 0.08 0.08 10-yr Gov’t Bond 3.81 4.24 4.05 4.00 10-yr Gov’t Bond 0.69 0.74 0.63 0.62 FX Reserves (US$B) 45.9 49.7 49.7 (Dec) FX Reserves (US$B) 1240.8 1237.2 1237.2 (Dec)

Exchange Rates (end of period)

USDCAD 1.03 1.06 1.11 1.11 ¥/US$ 98.27 105.31 102.31 102.17CADUSD 0.97 0.94 0.90 0.90 US¢/Australian$ 0.93 0.89 0.87 0.87GBPUSD 1.619 1.656 1.648 1.645 Chinese Yuan/US$ 6.12 6.05 6.05 6.06EURUSD 1.353 1.374 1.368 1.350 South Korean Won/US$ 1075 1050 1080 1081JPYEUR 0.75 0.69 0.71 0.73 Mexican Peso/US$ 13.091 13.037 13.460 13.363USDCHF 0.90 0.89 0.89 0.91 Brazilian Real/US$ 2.217 2.362 2.398 2.416

Equity Markets (index, end of period)

United States (DJIA) 15130 16577 15879 15732 U.K. (FT100) 6462 6749 6664 6476 United States (S&P500) 1682 1848 1790 1779 Germany (Dax) 8594 9552 9392 9252 Canada (S&P/TSX) 12787 13622 13718 13653 France (CAC40) 4143 4296 4161 4142 Mexico (IPC) 40185 42727 40980 40772 Japan (Nikkei) 14456 16291 15392 14915 Brazil (Bovespa) 52338 51507 47787 47196 Hong Kong (Hang Seng) 22860 23306 22450 22035 Italy (BCI) 950 1041 1068 1060 South Korea (Composite) 1997 2011 1941 1941

Commodity Prices (end of period)

Pulp (US$/tonne) 945 990 990 990 Copper (US$/lb) 3.31 3.35 3.28 3.22 Newsprint (US$/tonne) 605 605 605 605 Zinc (US$/lb) 0.85 0.95 0.92 0.89 Lumber (US$/mfbm) 359 372 376 370 Gold (US$/oz) 1326.50 1204.50 1267.00 1251.00 WTI Oil (US$/bbl) 102.33 98.42 96.64 97.86 Silver (US$/oz) 21.68 19.50 20.19 19.31 Natural Gas (US$/mmbtu) 3.56 4.23 5.18 4.76 CRB (index) 285.54 280.17 282.54 283.20

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Global Views

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