Global Economic Research August 3, 2010 @ 07:30 EST

Daily Points
CAPITAL MARKETS RESEARCH
Derek Holt (416) 863-7707
derek_holt@scotiacapital.com
Gorica Djeric (416) 862-3080 — Tracking the numbers
gorica_djeric@scotiacapital.com

On Deck for Tuesday, August 3 BoC Events

Country Date ET Indicator Period BNS Consensus Latest BoC Overnight Lending Rate
US 08/03 (07:45) ICSC Chain Store Sales - Weekly (w/w) Jul. 31 -- -- 0.6 Current Rate: 0.50%
US 08/03 (08:30) Personal Income (m/m) Jun 0.2 0.2 0.4 Next Move: September 8 @ 1.0%
US 08/03 (08:30) Personal Consumption (m/m) Jun 0.1 0.1 0.2 Bias: Neutral
US 08/03 (08:30) PCE Deflator (y/y) Jun -- 1.3 1.9
US 08/03 (08:30) PCE ex. Food & Energy (y/y) Jun 1.3 1.3 1.3
US 08/03 (10:00) Factory Orders (m/m) Jun -0.5 -0.3 -1.4
US 08/03 (10:00) Pending Home Sales (m/m) Jun -4.0 3.7 -30.0
US 08/03 (17:00) Total Vehicle Sales (mn a.r.) Jul 11.9 11.6 11.1
US 08/03 (17:00) Domestic Vehicle Sales (mn a.r.) Jul 8.9 8.9 8.6
US 08/03 (17:00) ABC Consumer Confidence (index) Aug. 01 -- -46 -48
Fed Events

KEY POINTS: Fed Funds Target Rate

 RBA keeps its cash rate unchanged at 4.5% Current Rate: 0-0.25%
Next Move: September 8 @ 0-
 Australian retail sales continue to decelerate; building permits down 0.25%
 US personal income and spending expected to advance at a slower clip Bias: Dovish
 US factory orders to retreat on survey period bias
 US pending home sales continue to pull back
 No macro releases in Canada today
 This week’s CND macro highlights: July employment report
 This week’s US macro highlights: July employment report, June personal
income & spending, June factory orders, ISM surveys

CANADA
No fundamental releases, notable speeches or government bond auctions
scheduled for today.

This will be a slow week for Canadian macro releases with only two top-line
indicators: July employment report (Friday, 10:00amET) and June building
permits (Thursday, 8:30amET).

Canada has added on 403,000 jobs since last July — exceeding our optimistic Key International Events
forecast — a major source of support to consumer spending. We expect a more
modest gain of 20,000 in July on a strong base effect. The unemployment rate
ECB
is likely to remain unchanged at 7.9%, well below the U.S. jobless rate, under- Current Rate: 1.00%
lining once again Canada’s outperformance relative to the United States. The Next Move: August 5 @ 1.00%
tail risk lies in a correction from last month’s outsized gain of 93,200. Bias: Dovish

BoE
While building permits are a volatile indicator, they help monitor develop- Current Rate: 0.50%
ments in the housing market. Canadian building permits plunged 10.8% m/m Next Move: August 5 @ 0.50%
in May, but remained elevated. Building intentions are expected to retreat Bias: Dovish
further in June, with our forecast looking for a 2% m/m decline, partly as
BoJ
some demand may have been front-loaded prior to the implementation of the Current Rate: 0.10%
HST on July 1st. Next Move: August 10 @ 0.10%
Bias: Dovish
The Bank of Canada will auction three-year notes at noon on Wednesday.
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Global Economic Research August 3, 2010

Daily Points

UNITED STATES
Yesterday’s release of the July ISM manufacturing index revealed that the manufacturing sector posted its third straight month of
deceleration, moving down to 55.5. All components remained in the expansionary territory (above 50). Production activity and or-
ders eased, while export orders and employment climbed higher. July PMI surveys from around the world (the euro zone, Britain,
Asia) showed that while industrial output continued to expand, it waned from the more rapid pace registered in the earlier months. In
the euro-zone region, the survey found that the manufacturing rebound was heavily supported by German exports, with the French
index down to its lowest level in ten months.

Fed Chairman Bernanke delivered a speech yesterday on “Challenges for the Economy and State Governments” at the Southern
Legislative Conference 64th Annual meting. He said that, while the United States has “a considerable way to go” to a full economic
recovery, “rising demand from households [— supported by improving wages in the next few quarters, as opposed to job gains —]
and from businesses should help sustain growth.” “We are maintaining strong monetary policy support for the recovery,” he said
during the Q&A session, without talking about any further steps the Fed could take.

Today we get June updates on personal income & spending (8:30amET), factory orders (10:00amET) and pending home sales
(10:00amET).

Personal income is likely to have continued to improve in June. Corresponding non-farm payroll data support this view, estimating
a 0.2% monthly increase in the proxy for labour income, slightly slower growth than experienced in March through May. House-
hold spending is forecast to decelerate to 0.1% m/m, as headline retail sales — which account for 40% of consumer spending, but
capture goods only — disappointed more than expected in June.

Factory orders are anticipated to have fallen by 0.5% m/m in June. While data on the durable goods orders have already been re-
leased, this report will provide more insight on the developments in the non-durable segment. It is worth noting that a sharp decline
of 1.0% m/m in durable goods orders did not reflect the complete data, as the majority of the 49 Boeing commercial aircraft orders
— up from 5 in May — were booked late in the month, and have yet to be captured in the survey results.

In the aftermath of the expiry of the first-time homebuyer’s tax credit, we expect that pending home sales pulled back further in
June, but at a much more moderate clip than the 30% m/m plunge experienced in May. Traffic of prospective buyers slipped in both
June and July.

Looking ahead to the remainder of the week, two major releases remain to be published: July non-farm payrolls (Friday,
8:30amET) and July ISM non-manufacturing index (Wednesday, 8:30amET).

July non-farm payrolls will garner the most attention. The headline employment print is likely to be distorted, as temporary Census
hiring started to unwind in June, and will continue to do so until September. We expect the top print to contract by 40,000 in July.
Private-sector payrolls are forecast to ink a gain of about 100,000, in line with the average monthly gain so far this year. We expect
that state and local government hiring was reduced by another 10,000 to 12,000, on deteriorating public finances. However, the tail
risk lies on the upside, if the Census figures are reliable, as the weekly report shows that the temporary census payrolls increased by
33,000 in the first half of the month, which coincides with the survey period for the non-farm payrolls report.

The ISM’s non-manufacturing index is predicted to have moved a touch lower in June, to 53.0 from 53.8 in the previous reading.
While the recovery in the manufacturing sector is starting to spill over to the services industry, the housing sector — a key factor —
remains a significant drag. The results of the Richmond Fed services survey were mixed.

There are no government bond auctions scheduled in the United States. For the FOMC, the blackout period has begun — with the
next meeting scheduled for August 10 — and will last until the Friday following the meeting. The Federal Reserve Bank of San
Francisco will host a hearing on the Home Mortgage Disclosure Act on Thursday from 8:30amET to 1:00pmET.

INTERNATIONAL
The international economics docket has so far been relatively light on top-tier indicators, with Australian releases dominating the
headlines this morning. In line with expectations, the Reserve Bank of Australia (RBA) left its key lending rate steady at 4.5% for
the fourth straight meeting. The Reserve Bank Governor Stevens indicated that current interest rates were around the average level
of the past decade. Last week’s release of most recent CPI data showed that inflationary pressures remain benign, giving the RBA
some room to maneuver. “With (economic) growth likely to be close to trend, inflation close to target and the global outlook re-
maining somewhat uncertain, the board judged this setting of monetary policy to be appropriate,” the RBA Governor said in a state-
ment. The RBA meets again on September 7, two weeks after the federal election.

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Global Economic Research August 3, 2010

Daily Points

Australian retail sales grew by less than expected in June, up 0.2% m/m versus the consensus call for a 0.4% gain. Sales volumes were
up 0.7% m/m, slightly below market expectations of 0.8% m/m. Growth in retail sales has been slowing down since the beginning of
the year. June’s result was boosted by spending on household goods, which rose 1.3% m/m, and restaurant purchases, up 0.6% m/m.
In a separate report, building approvals continued to trend lower for the third straight month in June.

E q u i ti e s % c hange:
FixedIncome Government YieldCurves (%): L a st Cha nge 1 Da y 1 -w k 1 -m o 1 -y r
S & P /T S X 1 1 7 1 3 .4 3 - 1 5 .2 1 - 0 .1 - 0 .0 4 .6 8 .6
2-YEAR 5-YEAR 10-YEAR 30-YEAR D o w 30 1 0 6 7 4 .3 8 2 0 8 .4 4 2 .0 1 .4 1 0 .2 1 4 .9
S &P 500 1 1 2 5 .8 6 2 4 .2 6 2 .2 1 .0 1 0 .1 1 2 .3
Last 1-day 1-wk Last 1-day 1-wk Last 1-day 1-wk Last 1-day 1-wk N a sd a q 2 2 9 5 .3 6 4 0 .6 6 1 .8 - 0 .0 9 .7 1 4 .3
DAX 5 3 7 9 .9 2 - 1 7 .1 9 - 0 .3 0 .3 1 1 .2 1 4 .9
U.S. 0.53 0.56 0.64 1.56 1.64 1.79 2.90 2.96 3.05 4.03 4.06 4.08
FTSE 6 3 0 1 .3 1 9 .1 8 0 .1 1 .5 8 .0 1 6 .1
CANADA 1.42 1.54 1.58 2.24 2.38 2.43 3.08 3.18 3.23 3.67 3.76 3.78 N ikke i 9 6 9 4 .0 1 1 2 3 .7 0 1 .3 2 .1 5 .3 - 6 .4
Hang Se ng 2 1 4 5 7 .6 6 4 4 .8 7 0 .2 2 .3 7 .8 3 .1
GERMANY 0.76 0.79 0.88 1.65 1.68 1.77 2.67 2.70 2.77 3.38 3.40 3.43 CAC 3 7 4 4 .4 1 - 7 .6 2 - 0 .2 2 .1 1 1 .8 7 .7
C o m m o d i ti e s % c hange:
JAPAN 0.16 0.16 0.15 0.36 0.36 0.36 1.04 1.06 1.06 1.72 1.74 1.79 W T I C ru d e 8 1 .6 3 0 .2 9 0 .4 5 .3 1 3 .2 1 4 .0
N a tu r a l G a s 4 .7 3 0 .0 3 0 .7 1 .3 1 .0 1 7 .4
U.K. 0.78 0.80 0.95 2.06 2.09 2.25 3.32 3.35 3.52 4.26 4.28 4.39 G o ld 1 1 8 8 .5 0 1 9 .5 0 1 .7 0 .4 - 1 .1 2 6 .6
S ilve r 1 8 .1 1 0 .4 5 2 .5 0 .6 0 .7 3 2 .9
Foreign- U.S. Spreads (bps): C R B In d e x 2 7 6 .8 5 2 .5 0 0 .9 3 .8 8 .8 4 .0
C u rre n cie s % c hange:
CANADA 88 98 95 67 74 64 18 22 18 -36 -31 -30 USDCAD 1 .0 2 2 7 - 0 .0 0 0 2 - 0 .0 - 1 .2 - 3 .8 - 4 .1
EUR US D 1 .3 2 5 9 0 .0 0 7 9 0 .6 2 .0 5 .8 - 8 .0
GERMANY 23 23 24 9 5 -2 -22 -27 -28 -65 -67 -65 U S D JP Y 8 6 .0 2 0 0 - 0 .4 8 0 0 - 0 .6 - 2 .1 - 2 .0 - 9 .7
AUDUSD 0 .9 1 3 4 - 0 .0 0 0 3 - 0 .0 1 .2 8 .8 8 .5
JAPAN -38 -40 -49 -120 -128 -144 -185 -191 -199 -230 -232 -229 GBPUSD 1 .5 9 5 4 0 .0 0 6 7 0 .4 2 .3 5 .4 - 5 .8
USDCHF 1 .0 3 5 3 - 0 .0 0 3 6 - 0 .3 - 2 .4 - 2 .8 - 2 .3
U.K. 25 24 31 50 45 46 42 39 47 23 22 31

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