You are on page 1of 12

Global Economic Research December 4, 2009

Highlights Index
2 Forecasts
The Week — Jobs and confidence.
3 The Week
Canada — Exiting the recession in Q3.
4 Canada
United States — Non-farm payrolls surprise on the
upside. Leading employment indicators point to further 5 United States
6 Mexico & Developing Americas
Mexico — Central bank sees higher inflation in 2010 but
amid continued slackness. 7 Europe & Asia/Oceania

Latin America — Indicators turn in favour of renewed local 8 Industry & Commodity
spending in Peru.
9 Market Metrics / Fiscal Policy
International — Reserve Bank of Australia announces third
successive rate hike; RBNZ unlikely to follow. 10 Economic Tables

Industry I — Strong investment fund interest in base 11 Financial Tables

Industry II — Rising sales point to a double-digit gain in New Releases
North American vehicle production in 2010.
Global Auto Report (12/04)

Foreign Exchange Outlook (December 2009)

Fiscal Pulse: N.B.’s 2010-11 Budget (12/01)

Auto News Flash (12/01)

Global Forecast Update (12/01)

Special Report: 2010-11 Economic and Market

Outlook Report (12/01)

Special Report: 2010-11 Economic and Market

Outlook Presentation (12/01)

Scotiabank Commodity Price Index (11/30)

Scotia Economics
Scotia Plaza 40 King Street West, 63rd Floor This Report is prepared by Scotia Economics as a resource for the
clients of Scotiabank and Scotia Capital. While the information is from
Toronto, Ontario Canada M5H 1H1
sources believed reliable, neither the information nor the forecast shall
Tel: (416) 866-6253 Fax: (416) 866-2829 be taken as a representation for which The Bank of Nova Scotia or
Email: Scotia Capital Inc. or any of their employees incur any responsibility.

Weekly Trends is available on:, Bloomberg at SCOE and Reuters at SM1C
Global Economic Research December 4, 2009

Economic Performance (annual % change unless otherwise indicated)
2000-08 2009e 2010f 2011f 2000-08 2009e 2010f 2011f
Canada United States
Real GDP 2.6 -2.6 2.7 2.8 2.4 -2.5 3.3 2.5
Consumer Prices 2.3 0.3 1.7 2.1 2.9 -0.4 2.1 2.3
Pre-tax Profits 7.7 -33.0 17.5 10.0 5.3 -5.3 13.0 7.0
Federal Budget Balance ($bn) 8.4 -56.0 -46.0 -30.0 -196 -1417 -1320 -1050
Current Account Balance ($bn) 21.0 -44.5 -37.1 -27.2 -601 -438 -521 -580
Merchandise Trade Balance ($bn) 58.2 -7.2 -1.3 7.5 -655 -510 -603 -675
Motor Vehicle Sales (000s)* 1,605 1,470 1,525 1,570 16.4 10.2 11.5 12.2
Motor Vehicle Production (000s)* 2,590 1,425 1,750 1,850 11.5 5.6 7.1 7.4
Housing Starts (000s)* 207 142 160 165 1.65 0.58 0.78 1.14
Employment 1.9 -1.6 0.7 1.5 0.7 -3.7 0.3 2.2
Jobs Created (000s)* 302 -281 119 258 0.89 -5.13 0.41 2.87
Unemployment Rate (%) 6.9 8.4 8.7 8.4 5.1 9.3 10.1 9.6

Mexico Euro zone

Real GDP 2.8 -6.8 3.4 3.1 1.9 -3.8 1.3 1.1
Consumer Prices 5.1 3.8 5.5 4.2 2.2 0.8 1.3 1.8

Latin America (Excl. Mexico) Asia

Real GDP 3.8 -0.3 3.6 3.7 5.2 1.1 4.9 4.7
Consumer Prices 8.1 7.1 7.9 4.4 1.6 0.4 1.6 1.9
*In the United States, millions.

Commodity Prices (US$ annual average)

2000-08 2009e 2010f 2011f
Pulp (tonne) 662 720 790 850
Newsprint (tonne) 574 560 580 670
Lumber (mfbm) 286 178 215 240
Copper (lb) 1.72 2.32 2.95 3.30
Zinc (lb) 0.73 0.74 0.85 0.90
Nickel (lb) 7.16 6.85 7.45 7.50
WTI Oil (bbl) 49.93 62 90 92
Nymex Natural Gas (US$/mmbtu) 6.15 4.15 5.50 5.50
Wheat (tonne) 223 454 305 290

Financial Markets (end of period, % unless otherwise indicated)

09Q4f 10Q1f 10Q2f 10Q3f 10Q4f 11Q1f 11Q2f 11Q3f
3-month T-bill 0.30 0.35 0.40 1.05 1.75 2.10 2.30 2.25
5-year Canada 2.40 2.55 3.10 3.20 3.75 3.85 3.65 3.55
10-year Canada 3.25 3.60 3.95 4.10 4.50 4.80 4.60 4.55
3-month T-bill (Yield) 0.05 0.15 0.35 1.00 1.75 2.10 2.30 2.25
5-year Treasury 2.15 2.35 2.90 3.00 3.60 3.75 3.60 3.55
10-year Treasury 3.30 3.75 4.15 4.40 4.80 5.10 4.90 4.85
3-month T-bill 0.25 0.20 0.05 0.05 0.00 0.00 0.00 0.00
5-year 0.25 0.20 0.20 0.20 0.15 0.10 0.05 0.00
10-year -0.05 -0.15 -0.20 -0.30 -0.30 -0.30 -0.30 -0.30
Canadian Dollar (USD/CAD) 1.04 1.02 1.00 0.98 0.97 0.97 0.96 0.95
Canadian Dollar (CAD/USD) 0.96 0.98 1.00 1.02 1.03 1.03 1.04 1.05
Yen (USD/JPY) 87 90 88 86 85 86 87 89
Euro (EUR/USD) 1.50 1.53 1.56 1.58 1.60 1.60 1.59 1.58
Sterling (GBP/USD) 1.65 1.65 1.66 1.67 1.68 1.70 1.70 1.68
Mexican Peso (USD/MXN) 13.3 13.5 13.6 13.7 13.8 13.9 13.9 14.0

Global Economic Research December 4, 2009

The Week Past, Present & Prospects

Aron Gampel
(416) 866-6259

The Job-Creation Engine Cranks Back To Life

There is no greater confidence indicator than the job market, and an eye-popping +159,000. This improving trend in
today’s bullish November employment reports suggest that the employment has been foreshadowed by the
Canadian and U.S. economies are beginning to build momentum as accelerating decline in initial unemployment
the recovery takes hold. Expect that the next round of confidence insurance claims, highlighting the extent to which
surveys will be materially stronger, with both households and the recession grip in the U.S. economy is lessening.
businesses signalling even better times ahead. And don’t forget the third amigo, Mexico, whose
job market has been improving as well in recent
150 EMPLOYMENT RECOVERY We are manoeuvring ourselves out of a
months as the revival in U.S. and global demand
(M/M 000's CHANGE) very deep hole. Including last month’s
100 took hold.
outsized hiring gain of 79,000 in Canada,
we have now added 94,000 net new jobs Today’s Canadian and U.S. employment results
0 since the beginning of August, recouping highlight the fundamental turn for the better in
-50 almost 25% of the massive 414,000 underlying economic conditions. Low borrowing
CANADA employment cuts that occurred in the nine costs are underpinning affordability, which along
months beginning last October. The public with improving employment, are bolstering
sector has accounted for around 57% of purchasing power. With retail activity on the mend,
Sep-08 Apr-09 Nov-09
0 the new positions, highlighting the the inventory restocking cycle is driving ahead. And
-100 positive impact of government-sponsored government stimulus is increasingly percolating
-200 job creation programmes, and with the though the economies. Although it may be
-300 promise of more forthcoming. But the premature to sound the ‘all clear’ claxon —
private sector is also contributing to the considering last week’s Dubai World’s debt blowout
turnaround, with ‘private paid’ and mainly and the lingering effects associated with the
-600 UNITED full-time positions recouping roughly 10% simultaneous deleveraging of the household and
STATES of prior job losses. Not every sector and financial sectors in the United States — confidence
region is participating in the jobs revival, in the sustainability of the economic rebound
but we are, nonetheless, witnessing the underway has clearly improved.
much-anticipated broadening in hiring gains. Even Ontario, which
Policymakers will be breathing a big sigh of relief now
suffered the most over the past year, has clawed back one-quarter of
that there are more signs that the recovery has taken
its recession-induced job losses.
hold. However, the recovery is still in nascent territory,
The employment picture is also brightening in the United States. and from a Canadian perspective, there are many U.S.-
Although payrolls still shrank by 11,000 — this was the smallest specific structural and competitive challenges to
reduction in almost two years of non-stop and hefty job cuts — the overcome. But the worst of the downturn is behind us,
upward revisions to prior cuts in September and October amounted to with better times ahead of us. ■

Global Economic Research December 4, 2009

Canada Neil Tisdall (416) 866-6252

Alex Koustas Review

(416) 866-4212 Employment — There were 79,100 new jobs added in November according to Statistics Canada’s Labour
Force Survey release, the largest monthly increase
since September 2008. The gains were almost evenly
split between full-time and part-time positions, and
Canada Claws Its Way Out Of The Recession consisted of 54,300 public positions, 56,900 private
Canada clawed its way out of the recession in the third quarter of positions, while 32,000 self-employed jobs were lost.
Construction, agriculture and transportation were the
2009, with GDP advancing an annualized 0.4% q/q. Consumer only three sectors that declined on a m/m basis. The
spending and business investment posted their largest gains since the manufacturing sector gained 12,600 jobs, while the
fourth quarter of 2007, helping to offset the drag of a widening export finance and insurance sector increased by 12,200, two
gap. Government expenditures rose an annualized 7.9% q/q, the of the strongest sectors on the November report. The
unemployment rate fell 0.1% to 8.5%, and remains
largest advance since 1998, as stimulus programs kicked off, helping
close to its 11-year high of 8.7% that occurred
to pull Canadian economic growth back into positive territory. September 2009, although we are still well off the
jobless levels experienced in the early 1990s when
LUKEWARM GDP RECOVERY Consumer spending rose 3.2% q/q
unemployment topped 12%.
10 (Q/Q % CHANGE A.R.) annualized, and is expected to continue to
PERSONAL IPPI — The IPPI dipped 0.3% m/m in October, its
show solid growth into 2010. Steadying
second consecutive decline. U.S. dollar weakness was
0 employment will help support consumer the cause for the drop, as Canadian producers are
-5 confidence, while strengthening housing often paid in U.S. dollars — raw materials and
-10 GDP prices will help to rebuild household petroleum products rose 2.5% and 1.6% m/m

-15 wealth. Though still cautious, consumers respectively, and excluding the exchange rate factors,
the IPPI would have risen by 0.4% m/m. The motor
-20 appear to be testing the waters, as the
vehicle industry was the biggest negative non-
savings rate edged down slightly to 4.8%, exchange rate factor, as it was down 1.5% m/m on the
INVESTMENT while outlays advanced. index, its seventh straight decline.

-35 Business investment advanced 4.7% q/q Preview

07 08 09
annualized, led by investment in Building Permits (12/07)
machinery & equipment — due in part to
Housing Starts, BoC Policy Announcement (12/08)
retooling at auto plants — while a resurgence in the housing market
Merchandise Trade Balance (12/10)
led to an 8.1% q/q annualized increase in residential investment.
Although activity in both segments is expected to cool off somewhat, New Housing Price Index (12/11)

positive growth is expected in the new year, a trend not seen since
Canada’s export gap widened considerably as import growth far outpaced
resource exports and suppressing shipments of durable
the growth in exports. Significant investment in industrial goods, autos
and machinery — necessary to kick-start production — led to a large
trade imbalance. The resulting export gains will likely be carried over That Canada has escaped from the recession this
into the next several quarters, as manufacturing activity ramps up and quarter is a testament to our healthier household
finished goods are shipped back across the U.S. border. Resources will balance sheets and stable financial system.
also provide some reprieve, with commodity prices poised to continue However, the modest recovery to date highlights
their recovery amid increasing global industrial activity. However, the ongoing trade and competitive hurdles that we must
Canadian dollar will continue to temper gains, squeezing margins on overcome in order to record stronger growth. ■

Global Economic Research December 4, 2009

United States Neil Tisdall (416) 866-6252

Gorica Djeric Review

(416) 866-4214 ISM Indices — The ISM manufacturing index fell more than expected in November, dropping from 55.7 to
53.6. Declines in prices and employment contributed to
the weakness, as employment fell from 53.1 to 50.8,
and prices from 65.0 to 55.0. Even with the greater
Employment Report Surprises On The Upside than expected drop, the index remains above 50 —
The much-awaited non-farm payrolls report for November hit the tape signaling that the manufacturing industry is still
expanding. The same cannot be said for the non-
this morning, surprising on the upside, and considerably so. The U.S. manufacturing sector, which dipped below 50 for the
economy shed 11,000 payroll positions last month, the smallest first time in three months. The non-manufacturing index
contraction since January 2008. While one month does not make a fell to 48.7 from 50.6 in October, although the
trend, payroll declines have been moderating — at an accelerating pace employment component slowed its contraction from
41.1 to 41.6 — an important factor considering non-
— and leading employment indicators point of further stabilization.
manufacturing employment makes up 86% of the U.S.
LEADING EM PLOYM ENT INDICATORS Even upon excluding government hiring, workforce.
60 34.5
6-month % chng, hours/week, results were not significantly different. Construction Spending — Total construction
50 3mma, sa 3mma, sa 34.3
Private sector workforce contracted by spending edged up in October, following five
AVERAGE WORK 34.1 consecutive, and eleven of twelve monthly declines. A
WEEK (RHS) 18,000, also the least since the beginning of
33.9 4.2% m/m increase in residential construction kept the
30 2008. Taking away seasonal adjustments monthly data positive, as commercial, manufacturing
— which can sometimes be sizeable — the and public projects all experienced decreased
10 HIRING (LHS) print, here too, would only have differed spending. With October’s small 0.04% increase,
0 modestly, coming in at -19,000. What’s spending is -14.4% y/y, second only to last month’s
33.1 -15.8% y/y figure as the lowest y/y data on record.
-10 more, revisions to the September and
October data were positive. There were Preview
ECONOM IC REASONS (LHS) 159,000 fewer job losses, bringing the Consumer Credit (12/07)
-30 32.5
03 04 05 06 07 08 09 three month total to -275,000, much less
Wholesale Trade (12/09)
than in June alone.
Trade Balance, Treasury Statement (12/10)
The unemployment rate — a lagging employment indicator — moderated Retail Sales, Trade Price Indices, Business
to 10%, from 10.2% in the previous month. The broader measure — Inventories, Consumer Sentiment (12/11)
which also includes discouraged, marginally-attached and underemployed
workers — edged back to 17.2%, from the all-time high of 17.5%. The
jobless rate is expected to remain above the 10% mark through 2010. As Leading employment indicators — average work
the economic recovery gains momentum, discouraged workers will re- week, manufacturing overtime, temporary help
enter the labour market, pushing the unemployment rate even higher, services and part-time workers for economic reasons
before it slowly begins to turn back down. — have also exhibited improving trends. These series
can signal turning point in the labour market by up to
The labour market, no doubt, remains fragile. The diffusion of losses
two quarters, and are well worth monitoring. The
remains widespread across industries. However, while caution still
average work week lengthened to 33.2 hours, from
outweighs optimism, businesses are slowly getting back on track.
33.0, the biggest increase since early 2003.
Private service-providing companies added 51,000 bodies to the deck.
Aside from the education & healthcare services, which expanded by Newswire reports indicate that Washington is
40,000 employees, professional & business services registered a gain considering rechanneling some of the TARP funds
of 86,000. After revisions of September and October data, this was to help support the labour market, as banks have
their third straight monthly increase. repaid much of what they have borrowed. ■

Global Economic Research December 4, 2009

Mexico Developing Americas

Oscar Sánchez
Peru: Less Unemployment & Inflation
(416) 862-3174
Peruvian consumer prices fell again in November on
the back of lower food costs and transport fares, with
the yearly inflation rate dropping to a record low 0.3%.
Prices fell 0.11% m/m, the most in the past three
Higher Inflation In 2010 In The Midst Of Economic Slack months, contradicting analysts’ expectations of a slight
After exiting from recession in the third quarter of 2009, economic
conditions in Mexico will continue to improve through 2010. External Reduced price pressures are enhancing the prospects
of a turnaround in household spending which has
demand gains on the back of the U.S. industrial rebound are now
continued to grow during 2009 although at a lowering
disseminating through to the rest of the sectors with the economy pace. Private consumption represents 67% of
having everything in its favour to drive it forward. aggregated demand in Peru, going a long way in
explaining last year’s over 9.8% GDP growth. After an
Accommodative monetary conditions in the form of relatively low 8.7% y/y expansion in 2008, consumer spending gains
interest rates and a weakened exchange rate are bound to continue to have been positive in 2009 but trended down reaching
pull demand in the coming months. Notwithstanding this week’s 1.5% y/y rate in the third quarter. Improving labour
stellar performance by the Mexican peso which traded at some point market conditions support the expectation of a rebound
in consumer spending early in 2010, as joblessness
close to the 12.50 per dollar level, closing the week at 12.6, the
has trended down to a below year-earlier
currency is still over 15% lower than were it was a year ago. unemployment rate of 7.6% in October.

With the general tone with respect to Mexican fixed income and Public sector outlays in Peru have matched the
equity securities having changed dramatically in the past ten days on downward trend in both private consumption and
investment, with public investment averaging a 21% y/y
the back of improving economic activity indicators, analyst
expansion up to the third quarter. Solid government
perceptions of a hawkish view on the part of the Banco de Mexico are spending has helped bolster domestic demand partially
being peso supportive. compensating for the contraction in private investment
demand, as a fiscal stimulus package equivalent to 2.5%
The central bank published on Wednesday an addendum to its third- of GDP has been implemented by the government.
quarter inflation report correcting its views on inflation for 2010-11, After five years of public sector surpluses, the fiscal
now that the budget implications are clearer (to access the document accounts moved into deficit this year and will remain
please refer to: that way through 2010. Inflation will not be a concern
publicaciones/informes-periodicos/trimestral-inflacion/% next year which is consistent with the recently
published central bank forecasts. The monetary
7BF64F6DE0-189A-503A-167B-646FADD668FA%7D.pdf ). The
authorities expect GDP to expand by 5% y/y in 2010
monetary institution sees yearly inflation picking up again to a 4.75- following 1.8% growth in 2009.
5.25% range in the next twelve months, to converge back towards the
The currency continues to strengthen as foreign direct
3% target at the end of 2011. One-time effects of budget approved tax investment flows have improved persistently in 2009,
increases in 2010 are to blame for the short-term pickup, with the with the quarterly inflow for July-September being the
corresponding pronounced downward trajectory on the back of largest since the first three months of 2008. Peru has
general slackness in conditions with an output gap foreseen to remain one of the most business friendly investment regimes
within the Americas, ranking 56 among 181 countries in
in negative territory through 2011.
the Doing Business 2010 World Bank Survey.
This week’s manufacturing purchasing managers’ index for
November (both from the national statistical agency and the institute
of finance executives survey) fell slightly but remained north of the also slowed somewhat, but which has improved for
expansionary threshold. These indicators have echoed the ISM 4 consecutive months, with production and orders
manufacturing indicator in the United States, whose latest observation displaying persistent gains for at least six months. ■

Global Economic Research December 4, 2009

Europe & Asia/Oceania ECB Begins To Phase Out Longer-Term

Re-Financings; Rates On Hold
The European Central Bank (ECB) is preparing to
Erik Nilsson cautiously withdraw its extraordinary liquidity measures,
(416) 866-4205 but will be in no hurry to raise its benchmark interest rate.
In its last rate meeting of the year, the ECB’s Governing
Council opted to leave the refinancing rate unchanged at
1.0%; however, President Jean-Claude Trichet also
confirmed that the December 16th refinancing operation
Reserve Bank of Australia Announces Third will represent the final 12-month allotment, and that 6-
Successive Rate Hike; RBNZ Unlikely To Follow month refinancings will conclude on March 31st, 2010.
The termination of these measures reflects the central
The Reserve Bank of Australia (RBA) will likely continue its tightening bank’s view that “not all our liquidity measures are
monetary stance in 2010, though at a less frenetic pace, as it closed off needed to the same extent as in the past”, as “overall
2009 with three successive monthly rate hikes. This week’s decision to financing conditions continue to improve”. In his formal
statement following the Council meeting, Trichet
bump the Cash Rate up another 25 basis points to 3.75% was surprising, expressed cautious optimism about the economic
since it appears incompatible with the RBA’s repeated assertions that outlook, anticipating growth “at a moderate pace” in 2010
monetary policy adjustment would be ‘gradual’. Interestingly, although and “low inflationary pressure over the medium term”.
the RBA has never before raised rates in three successive months, We do not expect the ECB to adjust its benchmark
interest rate until mid-2010, at which point the gradual
Governor Glenn Stevens still described the “material adjustments” to
recovery in private sector credit demand and in
policy in that manner. In announcing the central bank’s decision, consumer price inflation may prompt a precautionary 25
Stevens noted the improved prospects for private sector spending and basis point increase as part of the monetary
“early signs” of a turnaround in labour market conditions. In any event, normalization process. The Governing Council views the
the most recent flurry of statistical releases offers ample justification for risks to growth as “broadly balanced”. Nevertheless, it is
clear that - apart from a possible temporary boost to the
a slower pace of policy tightening in 2010. Consumer spending growth
rate of expansion as a result of inventory swings - any
is moderate, as the 0.3% m/m increase in retail sales in October recovery in private sector spending, particularly
followed a 0.2% dip the previous month. Private sector credit was consumer spending, will be moderate. While labour
unchanged in October and has increased by a meagre 0.3% over the market conditions may be stabilizing — the jobless rate
past six months; moreover, private home sales fell for a second held steady at 9.8% in October — this is up almost two
percentage points from a year earlier; moreover, in
consecutive month, reversing the 11.4% m/m surge in August. In
Germany, total employment dipped back to its lowest
addition, corporate profits weakened for a fourth consecutive quarter, level since January 2008. After hovering at or below the
slipping 2.1% q/q. With the RBA likely to remain in the vanguard of zero mark for six consecutive months, consumer price
monetary policy tightening, the period of Australian dollar appreciation inflation in the euro zone has moved back into positive
is not yet at an end. We expect the currency to break through parity with territory. The ‘flash’ estimate for the November figure is
0.6% m/m, still comfortably below the ECB’s target of
the USD before retrenching.
“close to, but less than 2%”; as such, the most recent
The challenges facing Reserve Bank of New Zealand (RBNZ) are inflation data have not elicited any policy response, other
than to reinforce the ECB’s determination to withdraw its
intensifying. We expect the RBNZ to hold the line for at least several extraordinary liquidity measures in a gradual and orderly
more months, although the arguments favouring a precautionary rate manner.
hike are beginning to accumulate. In particular, home building
approvals continue to spike higher; the monthly trend rate is 2.7%, well as the monetary authorities — to ‘talk down’ the
according to Statistics New Zealand. The RBNZ’s Official Cash Rate currency. A bump-up in interest rates would only
has been held at 2.5% since April, and a modest preemptive adjustment exacerbate this problem. We believe that there is still
to limit the risk of a housing “bubble” might appear appropriate. scope for a further modest appreciation of the New
However, the central bank is understandably reluctant to raise rates in Zealand dollar, but that it will be among the early
view of the potential impact on the exchange rate. Markets have thus far casualties when negative sentiment vis-à-vis the U.S.
been relatively indifferent to official efforts — by the government as dollar eventually begins to subside. ■

Global Economic Research December 4, 2009

Industry & Commodity Investment Fund Interest In Copper Still Strong

LME copper prices (a bellwether) remain at an
exceptionally lucrative US$3.19 per pound in early
Patricia Mohr December — 153% above the cyclical low in mid-
(416) 866-4210 December 2008. China has massively restocked copper
in 2009 — taking advantage of bargain prices in early
2009 — and now holds about 800,000 tonnes, of which
200,000 tonnes are held by the Strategic Reserve
Bureau. While China’s copper imports fell by 40% m/m in
Commodity Prices Rally Further in October/November October, imports were still at normal levels compared
with 2007-08 and prices have been little impacted.
After easing in September, Scotiabank’s Commodity Price Index
rallied back strongly in October, rising 6.8% m/m. The All Items The positive sentiment underlying copper prices reflects: 1)
Beijing and Chinese investors/fabricators are likely ‘willing’
Index has advanced by 11.4% from its cyclical low in April, with all holders of these stocks; underlying demand for copper in
sub-components rising in October. Recent weakness in the U.S. dollar China will advance by 23% in 2009 and by at least 8% in
— particularly against the euro — continued to boost commodity 2010, assuming greater availability of scrap next year.
prices into November, with investors attracted to ‘hard assets’ such as Copper scrap is still in short supply; 2) global hedge funds
and investors still believe there is good value in commodities
gold, silver and copper. While a better-than-expected U.S.
as an ‘asset class’ — particularly vis-à-vis low yielding U.S.
employment report for November has bolstered the U.S. dollar today, Treasury securities; and 3) investment funds expect re-
the dollar is still expected to move irregularly lower in 2010. Most stocking of basic materials across the G7, once these
commodities are priced internationally in U.S. dollars; a lower dollar economies fully recover, after massive liquidation late last
facilitates higher prices, with increases translating into less in euros, year.

yen and other overseas currencies.

silver prices and slight gains in sulphur and uranium
SCOTIABANK COMMODITY The Oil & Gas Index led the advance in
300 prices more than offset somewhat softer steel-alloy
PRICE INDEX overall commodity prices in October
(1997=100) prices (molybdenum and cobalt). Spot gold prices
250 (+20.1% m/m). WTI oil prices (the
touched a new all-time record high over US$1,226
bellwether for North America) jumped
200 per ounce on December 4, though profit-taking has
from US$69.54 per barrel in September to
pared prices to US$1,174 today. The Reserve Bank
US$75.71 in October and edged up further
150 of India purchased 200 tonnes of gold directly from
to US$78 in November (with considerable
the IMF a month ago, cutting in half the 403.3
100 day-to-day volatility, linked to U.S. dollar
tonnes the IMF might have sold on the open market
fluctuations and the ebb & tide of
50 (to boost its long-term finances and provide low-
expectations over the strength and
interest loans to developing countries). China and
‘sustainability’ of U.S. economic recovery).
0 Russia are also boosting their holdings.
00 02 04 06 08 10
Canadian natural gas export prices also
The Forest Products Index strengthened markedly in
rallied modestly, with NYMEX prices
October (+3.1% m/m). Newsprint prices are
rebounding from a low of only US$2.51 per mmbtu in early September
beginning to pull up rapidly from levels below
to a high of US$5.19 on November 27. While U.S. gas-in-storage
average cash costs for North American mills (up
continued to build through mid-November and is at record levels (close
US$35 to US$480). Tight world supplies boosted
to maximum storage capacity), traders have bid up prices, recognizing
NBSK pulp prices to US$800 per tonne in the
that even the lowest-cost of the new natural gas ‘shale’ basins cannot be
United States in October and to US$830 in
‘economically’ developed at recent low prices. NYMEX prices plunged
November. A strong yen is also allowing Canadian
through much of the third quarter of this year, as the U.S. recession cut
J-grade lumber producers to increase prices in
industrial demand (-12% ytd) in the face of more-than-ample supplies.
Japan. Finally, the Agricultural Index posted a
The Metal & Mineral Index also posted a strong gain in October slight 0.8% m/m gain, with seasonally stronger
(+3.0% m/m). Broad-based strength in base metals, a surge in gold & wheat, barley and canola prices. ■

Global Economic Research December 4, 2009

Industry & Commodity Alex Koustas (416) 866-4212

Carlos Gomes Widespread Employment Growth

(416) 866-4735 Canada’s 0.5% m/m advance in employment was widely spread across Canada, with nine out of the ten provinces
showing gains.

Employment in Ontario continued to trend upwards,

Auto Cycle Drives Double-Digit Output Gain In 2010 displaying a gain of 0.4%. its 5th increase in 6 months. In
addition, full-time employment continued to rebound, a
The global car sales recovery continues to gain momentum. Overall further sign of economic recovery for the hard-hit province.
purchases (including U.S. volumes) posted a double-digit year-over- Likewise Quebec appears to be turning the corner after
year increase in October, the strongest gain since August 2007, and posting its third increase in the past 4 months.

accelerated further in November. In the United States, sales climbed Manitoba, Saskatchewan and Nova Scotia posted
to an annualized 10.4 million units in October and strengthened to gains of 0.5% m/m, 0.3% m/m and 0.3% m/m,
sustaining positive year-to-date employment growth.
10.9 million in November, rebounding from a September slowdown
of 9.2 million after the expiry of the ‘cash-for-clunkers’ program. We Employment in Alberta dropped later than in most other
provinces, as a tight labour market allowed employers
believe that sales will continue to strengthen in coming months, and
to cut hours before jobs. As a result, labour markets
that the impact of the ‘sales pull ahead’ from the government subsidy have yet to stabilize, though this months 0.7% gain will
has run its course. hopefully mark the beginning of a turnaround.

VEHICLE PRODUCTION Improving U.S. sales, combined with

extremely low dealer inventories, will lead In addition, stable new vehicle prices in Canada and
1300 000's of mn's of 18
units units a.r. to a double-digit gain in North American the United States — partly due to a shift towards
16 vehicle output next year. Despite the sharp smaller cars — have lifted vehicle affordability to
1000 14 increase in vehicle production since August the highest level on record. We estimate that a
900 when dealer stocks plunged to a record low, typical U.S. household now has to work only 13
800 U.S. AUTO overall inventories have barely increased weeks to purchase a new car. This is nearly 20% less
and are still more than 40% below the year- than the average of the past decade and about 30%
600 8 end average of the past 20 years (see chart). lower than in the mid-nineties, when automakers
AMERICAN 6 Furthermore, we believe that rising vehicle began to promote vehicle leasing as a way to boost
PRODUCTION U.S. sales will become the main driver industry volumes.
300 4
underpinning gains in vehicle output across
06 07 08 09 10
North American production is scheduled to climb to
North America going forward.
an annualized 10.8 million units for the final months
Vehicle purchases in the United States have reversed the downward of 2009. This represents a double-digit increase
sales trend, with volumes advancing above a year earlier in three of from the third quarter, and further gains are
the past four months alongside a nascent economic recovery. This scheduled for the opening months of 2010. Ford and
represents the best performance since late 2006, and will be supported General Motors recently announced sharp increases
by rising real incomes going forward. In particular, real disposable in their first-quarter 2010 North American
income is now advancing in excess of 2% y/y — the fastest pace since assemblies — 58% y/y at Ford and 75% at General
mid-2007, prior to the start of the U.S. recession. Income from private Motors. In fact, we estimate that overall first-quarter
sector employment has been advancing since April 2009, and will production will likely climb nearly 10% above
support household spending going forward, especially with U.S. current levels. This increase will continue to boost
unemployment insurance claims now at the lowest level since early economic activity across North America, adding at
September 2008 — just prior to the collapse of Lehman Bros., which least 0.5 percentage points to GDP growth in the
precipitated the downward spiral in the global economy. opening months of 2010. ■

Global Economic Research December 4, 2009

Market Metrics Highlights

Markets & Monetary Policy — Last week, Dubai World, a
state-owned entity, asked its creditors for a six-month
Gorica Djeric Mary Webb standstill on US$60 billion of debt. In response, the Central
(416) 866-4214 (416) 866-4202 Bank of the UAE reassured that it stands behind local and
foreign banks and will make a liquidity line of an unspecified
size available at 50 bps over 3-month LIBOR. In a separate
statement, Dubai's Finance Department indicated that it does
not guarantee the debt of Dubai World. Company officials
CANADIAN DOLLAR 1.65 said that they are in “constructive” talks with banks about
1.10 (EUR/USD)
(CAD/USD) restructuring US$26 billion of debt, adding that the rest of the
1.05 liabilities are on “a stable financial footing.”
1.00 1.50 China’s State Council announced that the country
1.45 would allow foreign firms and individuals to establish
0.95 limited partnerships firms beginning March 2010, as to
"stabilise and expand" foreign investment.
1.30 In line with expectations, Australia continued to tighten
its monetary policy for the third straight month. The
0.80 RBA raised the cash rate 25bps to 3.75%. The
statement omitted to reiterate that the RBA “is prudent
0.75 1.15 to lessen gradually the degree of monetary stimulus”
12/7/07 12/5/08 12/4/09 12/7/07 12/5/08 12/4/09
leaving the door open as to the Bank’s next move.

In contrast, the ECB kept its overnight rate unchanged

CANADIAN INTEREST U.S. INTEREST RATES at 1%. The statement reaffirmed that the rates will
6.0 6.0
RATES (%) remain low for an extended period of time, even as the
5.0 5.0 liquidity measures are slowly being scaled back. The
10-YEAR twelve month lending program to banks, which is set to
4.0 4.0 T-BOND expire in December, will not be renewed.
In a surprise move, the Bank of Japan implemented a
3.0 3.0
new ¥10 trillion lending program. The move came in
response to growing concerns that deflation and rising
2.0 2.0
yen could threaten Japan’s economic recovery.
1.0 BA 1.0 LIBOR The New York Fed announced that it will be conducting
“small-scale, real value” tri-party reverse repo
0.0 0.0 transactions in coming weeks. The Fed highlighted that
12/7/07 12/5/08 12/4/09 12/7/07 12/5/08 12/4/09 this was a test, and no indication of a change in the
Bank’s monetary policy stance.
S&P/TSX S&P500
16000 1600 Note: Latest observation taken at time of writing.
15000 1500
1400 Highlights
1300 Fiscal Policy — New Brunswick, in the first provincial
1200 Budget for fiscal 2010-11 (FY11), announced a $749
1100 million FY11 shortfall and edged its FY10 deficit wider
11000 to $754 million (2.8% of provincial GDP). After a record
10000 $661 million capital investment plan for FY10, N.B. is
stepping up its infrastructure commitment to $896
9000 800
million for F11 to help sustain the economic recovery.
8000 700 N.B.’s ambitious four-year tax reform plus lower power
7000 600 rates with Hydro-Québec’s purchase of NB Power’s
12/7/07 12/5/08 12/4/09 12/7/07 12/5/08 12/4/09 assets should aid N.B. in balancing its books by FY15.

Global Economic Research December 4, 2009

Economic Tables
Canada 2008 09Q1 09Q2 Latest United States 2008 09Q1 09Q2 Latest
Real GDP (annual rates) 0.4 -6.2 -3.1 0.4 (Q3) Real GDP (annual rates) 0.4 -6.4 -0.7 2.8 (Q3)
Current Acc. Bal. (C$B, ar) 8.1 -31.1 -47.8 Current Acc. Bal. (US$B, ar) -706 -418 -395
Merch. Trade Bal. (C$B, ar) 46.9 4.2 -6.6 -11.1 (Sep) Merch. Trade Bal. (US$B, ar) -840 -496 -462 -571 (Sep)
Industrial Production -4.2 -8.6 -12.6 -12.4 (Sep) Industrial Production -2.2 -11.5 -13.5 -7.0 (Oct)
Housing Starts (000s) 211 140 128 157 (Oct) Housing Starts (millions) 0.90 0.53 0.54 0.53 (Oct)
Employment 1.5 -1.3 -1.8 -1.1 (Nov) Employment -0.4 -3.1 -4.0 -3.4 (Nov)
Unemployment Rate (%) 6.2 7.6 8.3 8.5 (Nov) Unemployment Rate (%) 5.8 8.1 9.3 10.0 (Nov)
Retail Sales 3.4 -5.3 -5.0 -3.3 (Sep) Retail Sales -1.2 -10.2 -10.7 -2.1 (Oct)
Auto Sales (000s) 1641 1370 1422 1509 (Sep) Auto Sales (millions) 13.2 9.5 9.6 10.9 (Nov)
CPI 2.4 1.2 0.1 0.1 (Oct) CPI 3.8 0.0 -1.2 -0.2 (Oct)
IPPI 4.3 0.8 -4.1 -6.3 (Oct) PPI 6.3 -1.9 -4.3 -1.9 (Oct)
Pre-tax Corp. Profits 5.7 -30.8 -42.9 Pre-tax Corp. Profits -17.6 -23.1 -16.1

Mexico Brazil
Real GDP 1.3 -7.9 -10.1 Real GDP 4.7 -1.5 -0.9
Current Acc. Bal. (US$B, ar) -15.8 -13.9 3.4 Current Acc. Bal. (US$B, ar) -28.2 -19.8 -8.5
Merch. Trade Bal. (US$B, ar) -17.3 -7.8 3.1 1.2 (Oct) Merch. Trade Bal. (US$B, ar) 25.0 12.0 43.8 7.4 (Nov)
Industrial Production -0.7 -9.8 -11.5 -5.7 (Sep) Industrial Production 2.9 -13.8 -11.3 -3.0 (Oct)
CPI 5.1 6.2 6.0 4.5 (Oct) CPI 5.5 6.9 5.5 4.5 (Oct)

Argentina Italy
Real GDP 6.8 2.0 -0.8 Real GDP -1.0 -6.0 -5.9
Current Acc. Bal. (US$B, ar) 7.1 5.4 18.1 Current Acc. Bal. (US$B, ar) -0.08 -0.10 -0.07 -0.07 (Sep)
Merch. Trade Bal. (US$B, ar) 12.6 14.2 25.2 14.2 (Oct) Merch. Trade Bal. (US$B, ar) -16.6 -23.3 1.4 -15.7 (Sep)
Industrial Production 0.6 -12.6 -8.6 -4.1 (Oct) Industrial Production -3.4 -21.2 -22.9 -16.0 (Sep)
CPI -3.0 -21.7 -39.6 6.5 (Oct) CPI 3.3 1.4 0.8 0.3 (Oct)

Germany France
Real GDP 1.0 -6.7 -5.8 Real GDP 0.4 -3.8 -3.1
Current Acc. Bal. (US$B, ar) 243.9 108.0 131.2 164.0 (Sep) Current Acc. Bal. (US$B, ar) -64.0 -34.5 -77.1 -71.1 (Sep)
Merch. Trade Bal. (US$B, ar) 261.1 128.0 171.1 169.9 (Sep) Merch. Trade Bal. (US$B, ar) -36.6 -43.1 -29.7 -14.5 (Sep)
Industrial Production 0.0 -20.0 -19.2 -12.8 (Sep) Industrial Production -2.9 -18.0 -15.8 -11.0 (Sep)
Unemployment Rate (%) 7.8 8.0 8.2 8.1 (Nov) Unemployment Rate (%) 7.9 8.9 9.4 10.1 (Oct)
CPI 2.6 0.8 0.3 0.3 (Nov) CPI 2.8 0.7 -0.2 -0.2 (Oct)

Euro Zone United Kingdom

Real GDP 0.5 -5.0 -4.8 Real GDP 0.6 -5.0 -5.5
Current Acc. Bal. (US$B, ar) -89.4 -198 -108 -88 (Sep) Current Acc. Bal. (US$B, ar) -42.8 -24.8 -65.7
Merch. Trade Bal. (US$B, ar) -0.9 -40.3 68.2 36.9 (Sep) Merch. Trade Bal. (US$B, ar) -173.5 -119.4 -123.2 -140.9 (Sep)
Industrial Production -1.8 -18.2 -18.2 -14.1 (Sep) Industrial Production -3.1 -12.5 -11.7 -10.3 (Sep)
Unemployment Rate (%) 7.5 8.8 9.3 9.8 (Oct) Unemployment Rate (%) 5.7 7.0 7.8 7.8 (Aug)
CPI 3.3 0.9 0.2 -0.1 (Oct) CPI 3.6 3.0 2.1 1.5 (Oct)

Japan Australia
Real GDP -0.7 -8.4 -7.1 Real GDP 2.4 0.3 0.6
Current Acc. Bal. (US$B, ar) 157.1 105.7 134.0 206.0 (Sep) Current Acc. Bal. (US$B, ar) -47.6 -15.0 -35.1
Merch. Trade Bal. (US$B, ar) 21.7 -23.9 33.7 55.7 (Oct) Merch. Trade Bal. (US$B, ar) -4.6 12.3 2.4 -20.0 (Sep)
Industrial Production -3.4 -34.0 -27.6 -14.0 (Oct) Industrial Production 2.8 -3.5 -3.8
Unemployment Rate (%) 4.0 4.4 5.2 5.1 (Oct) Unemployment Rate (%) 4.2 5.3 5.7 5.8 (Oct)
CPI 1.4 -0.1 -1.0 -2.5 (Oct) CPI 4.4 2.5 1.5

China South Korea

Real GDP 9.0 6.1 7.9 Real GDP 2.2 -4.2 -2.2
Current Acc. Bal. (US$B, ar) 426.1 Current Acc. Bal. (US$B, ar) -6.4 34.3 52.7 59.3 (Oct)
Merch. Trade Bal. (US$B, ar) 296.2 248.8 136.3 287.9 (Oct) Merch. Trade Bal. (US$B, ar) -13.3 12.1 68.5 45.5 (Oct)
Industrial Production 5.4 11.0 8.9 16.1 (Nov) Industrial Production 3.0 -15.9 -6.4 4.2 (Oct)
CPI 1.2 -1.2 -1.7 -0.5 (Oct) CPI 4.7 3.9 2.8 2.4 (Nov)

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

Global Economic Research December 4, 2009

Financial Tables
Interest Rates (%, end of period)

Canada 09Q2 09Q3 Nov/27 Dec/04* United States 09Q2 09Q3 Nov/27 Dec/04*
BoC Overnight Rate 0.25 0.25 0.25 0.25 Fed Funds Target Rate 0.25 0.25 0.25 0.25
3-mo. T-bill 0.25 0.31 0.32 0.28 3-mo. T-bill 0.18 0.11 0.02 0.04
10-yr Gov’t Bond 3.36 3.31 3.23 3.32 10-yr Gov’t Bond 3.53 3.31 3.21 3.47
30-yr Gov’t Bond 3.86 3.84 3.84 3.91 30-yr Gov’t Bond 4.33 4.05 4.20 4.41
Prime 2.25 2.25 2.25 2.25 Prime 3.25 3.25 3.25 3.25
FX Reserves (US$B) 44.6 58.1 55.9 (Oct) FX Reserves (US$B) 70.4 123.3 123.6 (Oct)

Germany France
3-mo. Interbank 1.07 0.65 0.60 0.58 3-mo. T-bill 0.54 0.36 0.39 0.40
10-yr Gov’t Bond 3.39 3.22 3.17 3.24 10-yr Gov’t Bond 3.73 3.54 3.43 3.48
FX Reserves (US$B) 44.9 61.3 62.6 (Oct) FX Reserves (US$B) 29.0 45.2 45.3 (Oct)

Euro-Zone United Kingdom

Refinancing Rate 1.00 1.00 1.00 1.00 Repo Rate 0.50 0.50 0.50 0.50
Overnight Rate 0.40 0.53 0.36 0.34 3-mo. T-bill 4.85 4.85 4.85 4.85
FX Reserves (US$B) 214.4 285.2 286.9 (Oct) 10-yr Gov’t Bond 3.69 3.59 3.55 3.71
FX Reserves (US$B) 45.1 57.5 57.7 (Oct)
Japan Australia
Discount Rate 0.30 0.30 0.30 0.30 Cash Rate 4.25 3.25 3.25 3.00
3-mo. Libor 0.39 0.29 0.24 0.22 10-yr Gov’t Bond 5.52 5.36 5.21 5.38
10-yr Gov’t Bond 1.36 1.30 1.26 1.30 FX Reserves (US$B) 40.0 40.5 41.8 (Oct)
FX Reserves (US$B) 996.2 1030.8 1033.9 (Oct)

Exchange Rates (end of period)

USD/CAD 86.04 93.50 94.18 95.04 ¥/US$ 96.36 89.70 86.54 89.88
CAD/USD 1.16 1.07 1.06 1.05 US¢/Australian$ 80.65 88.28 90.63 91.46
GBP/USD 1.646 1.598 1.650 1.651 Chinese Yuan/US$ 6.83 6.83 6.83 6.83
EUR/USD 1.403 1.464 1.499 1.489 South Korean Won/US$ 1272 1176 1175 1156
JPY/EUR 0.74 0.76 0.77 0.75 Mexican Peso/US$ 13.185 13.502 12.942 12.648
CHF/USD 1.09 1.04 1.01 1.01 Brazilian Real/US$ 1.953 1.766 1.743 1.727

Equity Markets (index, end of period)

United States (DJIA) 8447 9712 10310 10357 U.K. (FT100) 4249 5134 5246 5322
United States (S&P500) 919 1057 1091 1101 Germany (Dax) 4809 5675 5686 5818
Canada (S&P/TSX) 10375 11395 11464 11475 France (CAC40) 3140 3795 3721 3847
Mexico (Bolsa) 24368 29232 30775 31811 Japan (Nikkei) 9958 10133 9082 10023
Brazil (Bovespa) 51465 61518 67082 67859 Hong Kong (Hang Seng) 18379 20955 21135 22498
Italy (BCI) 958 1144 1070 1113 South Korea (Composite) 1390 1673 1525 1625

Commodity Prices (end of period)

Pulp (US$/tonne) 660 770 800 800 Copper (US$/lb) 2.32 2.78 3.06 3.19
Newsprint (US$/tonne) 495 445 480 480 Zinc (US$/lb) 0.71 0.87 1.00 1.07
Lumber (US$/mfbm) 186 184 224 232 Gold (US$/oz) 934.50 995.75 1166.50 1190.25
WTI Oil (US$/bbl) 69.89 70.61 76.05 75.75 Silver (US$/oz) 13.94 16.45 17.98 18.83
Natural Gas (US$/mmbtu) 3.84 4.84 5.19 4.61 CRB (index) 249.96 259.39 273.09 276.55
* Note: Latest observation taken at time of writing.