Economics

http://research.cibcwm.com/res/Eco/EcoResearch.html

Weekly Market Insight

June 24, 2011

NORTH AMERICAN & INTERNATIONAL ECONOMIC HIGHLIGHTS

The Emperor Has No Clothes
by Benjamin Tal
If the real measure of intelligence is what you do when you dont know what to do, then the next few weeks
and months will test the economic IQ of both Bernanke and Carney.
At this point most would agree that the current economic situation is not clearer than when both central
bankers described the outlook as unusually uncertain. And this was before Tunisia, before Egypt, before
Libya and before Japan. Add to the fog an increased nervousness about China and eurozone debt and the
current economic environment might be even more uncertain than unusually uncertain.
So what do you do when you dont know what to do? At the minimum you dont take chances. And thats
why we expect both central banks to be extremely conservative over the next year.
Sure, people have been musing about QE3 but Bernanke again showed no signs of going that route this
week. The end of QE2 come June 30th will be a non-event, not only because the efficient discounting
mechanism called the financial market has already priced it in, but mainly because of the fact that there is little
to price in. By almost any measure, QE2 was not a major force impacting the market, since as opposed to QE1,
it was relatively narrow in scope and was introduced in an improved economic environment.
So if QE2 was not very effective, chances are that QE3 would be even less effective. And if you are Bernanke
you have two options: use an ineffective weapon and reveal your helplessness, or keep this ineffective weapon
in reserve as a perceived potential tool, while hoping that nobody in the crowd exclaims that the emperor has
no clothes.
Simply put, applying QE3 would be more risky than not applying it. And the Feds lack of ammunition is why
earlier this week its chief made it very clear that Washington should take it slow when dealing with the deficit.
While in the US the main problem is that monetary policy is not working, in Canada the opposite the caseit
is working too well. This was the first recession ever that real household credit continued to expand, reflecting
a relatively secure household sector vs. an American consumer that lost 60% of its confidence. Add to that a
Canadian banking sector that was willing to lend and here in Canada we were firing on all cylinders while the
US was lacking firepower.
Interest rates effectively stimulated the economy on their way down, but with the Canadian debt-to-income
ratio now at a new record high, rates will be even more effective on their way up. This increased sensitivity of
the economy to monetary policy will limit the ability of the Bank of Canada to raise rates. The surprise will be
how little tightening in monetary policy it will take to slow down a Canadian consumer that is already stepping
on the brakes.

CIBC WORLD MARKETS INC.

Market Snapshot
Current*

yesterday*

a week ago*

a month ago*

a year ago*

TED SPREAD (bps)

10Y / 2Y SPREAD (bps)
2Y SWAP SPREAD (bps)

24
255
28

24
256
28

22
258
27

21
258
19

43
243
36

3M T-Bill (%)

0.01

0.01

0.03

0.04

0.11

LIBOR 1 MONTH (%)

LIBOR 3 MONTH (%)

0.19
0.25

0.19
0.25

0.19
0.25

0.19
0.25

0.35
0.54

2-YR BOND (%)

5-YR BOND (%)
10-YR BOND (%)

0.35
1.45
2.90

0.35
1.46
2.91

0.37
1.54
2.95

0.48
1.71
3.06

0.68
1.91
3.11

A Rated / 10Y TREASURY (bps)

B Rated / 10Y TREASURY (bps)
BB Rated / 10Y TREASURY (bps)

149
517
329

155
516
335

145
490
312

136
465
303

181
659
448

US

CANADA
PRIME / BA SPREAD (bps)

180

180

180

180

183

CDOR 3 MONTH (%)

CDOR 3 MONTH / 3M T-BILL SPREAD (bps)

1.17
29

1.18
30

1.18
25

1.20
25

0.83
26

10Y / 2Y SPREAD (bps)

145

144

145

153

161

2-YR BOND (%)

5-YR BOND (%)
10-YR BOND (%)

1.45
2.10
2.90

1.47
2.12
2.91

1.50
2.18
2.94

1.53
2.34
3.06

1.62
2.54
3.24

A Rated / 10Y TREASURY (bps)

BBB Rated / 10Y TREASURY (bps)
CAN Sovereign Agency / 10Y TREASURY (bps)

114
201
39

121
206
43

113
197
35

111
189
31

135
199
52

90.9
4.2
34.7
1515.0
657.5
1323.8
27.5
693.3

90.8
4.2
35.2
1521.3
610.0
1310.3
26.4
641.8

93.4
4.4
35.7
1536.2
679.8
1355.0
26.0
711.0

100.9
4.5
38.0
1534.0
811.5
1387.5
22.9
746.3

75.8
4.8
18.4
1228.4
465.8
962.8
16.5
349.8

0.982
1.421
1.395
80.260
1.601
0.837

0.981
1.415
1.388
80.550
1.597
0.839

0.982
1.428
1.403
80.190
1.616
0.848

0.977
1.424
1.392
81.090
1.643
0.857

1.044
1.224
1.277
90.150
1.489
1.111

COMMODITIES
WTI CRUDE FUTURE (US$ / bbl.)
NATURAL GAS (US$ / MMBtu)
SILVER (US$ /t oz.)
GOLD (US$ / t oz.)
WHEAT (US / bu.)
SOYBEANS (US / bu.)
SUGAR (US / lb.)
CORN (US / bu.)
FX
C$ / US$
US$ / EURO
C$/ EURO
YEN / US$
US$ / BRITISH POUND
SWISS FRANCS / US$
* As of 11:00 a.m.
Note: Data is for reference only.

Weekly Market Insight

CIBC WORLD MARKETS INC.

International Stock Indexes
Thursday, June 23, 2011

DAILY
Index (Regiona/Country)

52 WEEK
% Chg
+

High

Low

2074.96
1362.84
256.39
220.94
0

2028.31
1351.18
250.88
215.71
0

2045.79
1361.5
253.06
216.36
0

-29.17
7.9
-3.33
-4.58
0

-1.41
0
-1.3
-2.07
0

0
0.58
0
0
0

4599.4
4540.5
24919.49
239.34
2693.42
21905.1
17754.55
3829.63
168.7
9652.41
830.85
1567.19
3474.03
12518.22
4252.82
3057.52
2064.96
6871.68
8619.39
1020.09
0

4560.5
4500.2
24247.77
233.36
2630.34
21632.87
17482.21
3801.7
167.08
9553.3
822.78
1562.2
3454.44
12363.28
4237.47
3029.19
2048.06
6871.68
8559.33
1013.38
0

4561.4
4500.5
24857.67
238.65
2688.25
21759.14
17727.49
3823.65
167.55
9596.74
825.51
1563.19
3461.81
12508.42
4241.14
3044.72
2055.86
6871.68
8567.28
1014.13
0

-29.4
-32.1
424.15
3.8
38.93
-100.83
176.86
1.82
-0.76
-32.69
-3.48
-4.16
4.35
139.01
-4.14
1.89
-8.04
-56.06
-53.76
-9.73
0

-0.64
-0.71
0
0
0
-0.46
0
0
-0.45
-0.34
-0.42
-0.27
0
0
-0.1
0
-0.39
-0.81
-0.62
-0.95
0

2526.24
2786.09
274.32
2736.43
2551.6
1224.4
391.16
6450.59
3857.89
7237.2
22497.38
19894.48
332.79
464.17
48837.12
7116.15
6634.56
1882.16
10171.3
338.75
6107.81
61715.5
5773
11636.24
0

2483.52
2722.04
267.96
2713.42
2512.06
1208.3
384.51
6360.01
3774.27
7118.52
22051.87
19425.88
326.86
451.92
48485.26
7003.39
6427.55
1822.38
9910.5
333.95
5961.97
60465.07
5663.3
11451.06
0

2491.56
2730.86
268.68
2713.98
2513.47
1210.3
385.4
6367.44
3787.79
7149.44
22304.4
19468.31
328.57
453.11
48485.26
7030.95
6480.11
1829.97
9942.6
334.52
5991.09
61589.91
5674.38
11453.72
0

-33.93
-64.21
-5.63
...
-44.65
-14.8
-6.06
-101.12
-83.58
-128.75
-234.77
-545.8
-5.6
-11.06
...
-116.57
-116.46
-48.41
-283.6
-5.32
-122.35
371.95
-98.61
-182.44
0

3324.73
61858.97
13060.56
4712.05
35392.69
80648.3
0

3263.35
61194.09
12838.81
4660.44
35026.98
79875.62
0

3313.88
61194.09
12979.58
4694.88
35326.66
80158.86
0

-19.7
...
-80.98
-16.21
-72.78
283.24
0

1226.13
30792.87
31703.89

1211.08
30295.08
31414.09

1211.08
30326.54
31634.17

-21.08
-466.33
112.84

Close

Chg

YTD
% chg

% Chg

3-yr
% chg

High

Low

-2
-7.1
-0.3
-2.3
0

2262.21
1548.75
274.64
238.76
0

1699.63
1272.45
203.56
176.81
0

14.8
unch.
18.9
17.2
0

-6.9
-4
-2.3
-3.8
0

0
0
1.74
1.62
1.47
0
1.01
0.05
0
0
0
0
0.13
1.12
0
0.06
0
0
0
0
0

-5.9
-5.2
-6.9
-2
-4.3
-5.5
-13.6
3.2
-8.1
-6.2
-8.2
2.9
4.6
4
1
-4.6
0.2
3.6
-4.5
-1.8
0

5064.9
4971.2
29974.75
278.82
3159.51
24964.37
21004.96
3872.95
198.35
10857.53
974.63
1574.49
3577.44
12681.94
4397.3
3313.61
2228.96
7811.82
9145.35
1109.92
0

4250.6
4222.1
20950.68
208.48
2363.95
19842.2
17441.44
2871.55
156.93
8605.15
766.73
1299.5
2933.82
9516.42
3290.98
2820.35
1671.82
4470.78
7254.06
793.19
0

1.3
0.5
7.3
6.3
4.7
4.9
unch.
31.2
-5.7
-3.3
-6.2
17.9
13.5
27.7
27.2
6.9
18.2
49.3
12.9
27.9
0

-5.5
-5.2
4
-1.4
-0.9
-1.4
7.4
17.4
-15.2
-11.5
-15.1
9.4
1.7
3.9
19.3
0.7
6.2
40.5
2.8
9.7
0

-1.34
-2.3
-2.05
0
-1.75
-1.21
-1.55
-1.56
-2.16
-1.77
-1.04
-2.73
-1.68
-2.38
0
-1.63
-1.77
-2.58
-2.77
-1.57
-2
0
-1.71
-1.57
0

0
0
0
Closed
0
0
0
0
0
0
0
0
0
0
Closed
0
0
0
0
0
0
0.61
0
0
0

-3.7
-2.2
-2.1
-6.6
-2.5
-1.2
-9.7
-16.9
-0.4
3.4
4.6
-3.5
-7.3
-6.9
2.1
-7.3
-4
3.4
0.8
-9.2
-6.9
-6.7
-3.8
-0.9
0

2768.65
3068
296.96
3000.7
2770.81
1276.3
441.74
7912.33
4157.14
7527.64
24451.38
23178.38
374.19
513.6
50371.74
8126.63
7565.66
2123.56
11113
375.82
6717.25
71543.26
6091.3
12060.79
0

2287.92
2507.83
240.62
2223.63
2329.6
1100.1
357.73
6134.78
3332.46
5816.2
20221.37
18848.56
306.27
367.63
39366.83
7019.28
4950.56
1288.72
9160.4
305.38
5942.25
54534.28
4805.8
9139.65
0

3.2
3.2
5.9
11.8
2.3
6.4
1.5
-0.8
6.5
16.9
4.6
-2.4
-0.2
12.5
20.2
-2.7
20.3
30.4
3.7
4.9
-5.2
10.1
11.3
18.1
0

-5.3
-7.3
-6.5
-12.6
-9.1
-8
-1.8
-9.7
-5.7
2.8
2.9
-13.2
-9.1
-6.2
4.1
-9.8
-4.5
-7.9
-7.1
4.2
-5.2
17.9
unch.
7.1
0

-0.59
0
-0.62
-0.34
-0.21
0
0

0
Closed
0
0
0
0.35
0

-6
-11.7
-3.4
-4.7
-8.4
22.7
0

3664.82
72995.69
14270.53
5040.97
38696.24
81049.83
0

2185.01
60865.27
11092.5
4025.17
31156.97
63843.32
0

44
-6.1
11.2
15.2
9.3
24
0

16.6
-1.8
-4
15.5
6.2
29.8
0

-8.7
-5.6
-1.5

1341.89
33094.06
33094.06

1061.56
26009.53
26009.53

10.7
10.6
16.6

2.4
-0.2
0.2

Global
The Global Dow (World)
The Global Dow Euro (World)
DJ Global Index (World)
DJ Global ex U.S. (World)
Asia Pacific

Asia Pacific
All Ordinaries (Australia)
S & P/ASX 200 (Australia)
DJ CBN China 600 (China)
Dow Jones China 88 (China)
Shanghai Composite (China)
Hang Seng (Hong Kong)
Bombay Sensex (India)
Jakarta Composite (Indonesia)
Nikkei 300 (Japan)
Nikkei Stock Avg (Japan)
Topix Index (Japan)
Kuala Lumpur Composite (Malaysia)
NZSX-50 (New Zealand)
KSE 100 (Pakistan)
Manila Composite (Philippines)
Straits Times (Singapore)
Kospi (South Korea)
Colombo Stock Exchange (Sri Lanka)
Weighted (Taiwan)
SET (Thailand)
Europe

Europe
Stoxx Europe 50 (Europe)
Euro Stoxx 50 (Euro zone)
Euro Stoxx (Euro zone)
ATX (Austria)
Bel-20 (Belgium)
PX 50 (Czech Republic)
OMX Copenhagen (Denmark)
OMX Helsinki (Finland)
CAC 40 (France)
DAX (Germany)
BUX (Hungary)
FTSE MIB (Italy)
AEX (Netherlands)
All-Shares (Norway)
WIG (Poland)
PSI 20 (Portugal)
DJ Russia Titans 10 (Russia)
RTS Index (Russia)
IBEX 35 (Spain)
SX All Share (Sweden)
Swiss Market (Switzerland)
Istanbul National 100 (Turkey)
FTSE 100 (U.K.)
FTSE 250 (U.K.)
Americas

Americas
Merval (Argentina)
Sao Paulo Bovespa (Brazil)
S & P/TSX Comp (Canada)
Santiago IPSA (Chile)
IPC All-Share (Mexico)
Caracas General (Venezuela)
Other Countries

Other Countries
Tel Aviv (Israel)
Johannesburg All Share (South Africa)
Johannesburg All Share (South Africa)
*Europe, Australia, Far East; U.S.-dollar terms.

Weekly Market Insight

Three year percent change is annualized.

-1.71 0
-1.51 0
0 0.36

Sources: Reuters; WSJ.com

CIBC WORLD MARKETS INC.

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Weekly Market Insight