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OCTOBER 3, 2008


Are Stocks Cheap?

• Congress Passes Bailout Bill…

After Global Equity Markets First Hammered
by Bailout Uncertainty, Credit Market Strains

• U.S. Economic Downturn Deepens

• Canadian Growth Unsustainably Strong in July

• Commodities Tumble on Global Growth Fears

• ECB Softens Tone—Rate Cut Coming

• Wachovia Bought by Wells Fargo, not Citigroup

Our Thoughts
After the latest bout of intense volatility and clear signs the U.S. economy
is on the ropes, markets are now fully priced for a 50 basis point rate cut
from the Federal Reserve this month, with many looking at an imminent
move. This prospect was priced in even before the fate of the massive
rescue package in the second try in the House was known. The
DOUGLAS PORTER macroeconomic case for renewed rate relief is mounting rapidly, amid a
string of weak U.S. results for September: (1) the ISM for manufacturing posted its
biggest monthly drop in almost 25 years, falling to a recession-like 43.5 last month, (2)
auto sales plunged 27% y/y, with plenty of remarks about tight credit crimping
activity, and (3) payrolls fell 159,000, their largest drop this cycle, and the survey was
taken even before the worst of the financial storm hit.
There is some concern that a rate cut could be washed aside by the relentless rise
in credit spreads. Arguably the most unsettling development in recent weeks has been
the steep back-up in Libor, with 3-month US$ rates rising another 57 bps this week to
4.33%. It’s fair to ask how much good a 50-bp cut from the Fed would do when market
rates are rising by more than that amount in the space of a week. Still, the combination
of the rescue package, a Fed rate cut, and the flood of liquidity measures by all central
banks may help stem the rising tide in interbank rates. The fact that two banks (Wells
Fargo and Citigroup) were competing to buy Wachovia could be viewed in a positive
light. Meantime, the Fed has cranked up the size of its balance sheet massively in recent
weeks, as it sometimes seems to be the lender of only resort these days. In the past week
alone, the Fed increased various credit lines by $284 billion, and other central banks are
also opening the taps wider. In addition, the Bank of England appears poised to cut rates
next week, and the ECB revealed that a rate cut was discussed at this week’s policy
meeting, a clear prelude.
The case for a cut in Canada is also building (see Ben’s piece) and the central
bank is ramping up its liquidity measures. The extraordinary hit to the TSX this week
made the case that much louder. After outperforming almost all other markets
through the first half of the year, the rising tide of the global credit crisis fully washed
over the TSX, with the index sliding more than 13% in the space of just five sessions
dating back to last Friday. The TSX was pounded in two separate 7% down days, with
the first hit delivered to all global markets by the House’s nay vote and the deepening
credit strains, and the second was a serious sideswiping from commodities.
Commodity price measures are not just back to levels of a year ago, but all the way
back to levels prevailing in late 2005, and the sell-off is taking no prisoners. A
darkening global growth outlook and a rejuvenated U.S. dollar—which had its best
week in years—have both pounded on resource prices.
In case you are looking for a shred of optimism: No fewer than three bear
markets have been halted in their tracks in the second week of October in the past two
decades alone. In 1990, 1998, and 2002, the S&P 500 hit bottom in that period. Is the
fourth time a charm? Of course, a real optimist would hope that the bottom was
reached in the first week of October in this episode. A pessimist would note this latest
bear actually began in the second week of October last year, and that the third week
of October has a bit of history itself.

PAGE 2 – FOCUS – OCTOBER 3, 2008

Our Thoughts

It looks like the Bank of Canada may follow in the Fed’s footsteps. In the past
two weeks, we’ve seen July GDP surge 0.7% and August inflation accelerate
in Canada. Usually, that combination would not be conducive to rate cuts,
but the GDP gain is simply unsustainable, as the big increases were in oil &
gas output and manufacturing. And, inflation is likely to retreat with
commodity prices falling and the economy slowing.
Given the recent dramatic turn of events in global financial markets and the
intensifying credit market strains, we now expect the Bank of Canada to cut rates at the
October 21 meeting, if not sooner. The two downside risks cited by the Bank—the U.S.
economy and credit conditions—have worsened markedly over the past three weeks.
The U.S. economy is in recession and the economic data stateside have deteriorated
further. Canada will feel the knock-on effects of the U.S. downturn. In addition, the
global slowdown is undercutting commodity prices, which will in turn weigh on
domestic demand in Canada. Meantime, credit conditions have tightened globally.
While Canada has fared better than most, we have been impacted as well. In response,
the Bank of Canada initiated at least $20 bln in PRAs in an attempt to calm money
markets. With these key risks intensifying, the Bank’s forecasts for Canadian growth and
inflation have likely been revised down, opening the door for easing at, or perhaps
before, the next scheduled meeting.

The credit crisis is taking big bites out of economic activity around the
world, and even the strongest Canadian provinces are not immune. The
challenge facing Central Canada is well-documented—a manufacturing
sector burdened by competitiveness issues and a deepening U.S.
downturn. While Ontario managed to skirt technical recession in Q2, real
ROBERT KAVCIC GDP was up only 0.2% y/y, the slowest pace in four years. Exports
continued to weigh on growth—final domestic demand was up a solid 4.2% y/y. The
outlook is even weaker as the credit crunch continues to take its toll on U.S. growth.
Meantime, the outlook for the once-resilient western provinces is now also
deteriorating. A global economic slowdown has dragged oil prices down more than
$50 in the space of just three months, to levels close to those that represent break-
even prices for marginal oil sands projects—most reports peg this in the $80-$90
range. At the same time, tighter credit conditions threaten to hit the resource and
agriculture sectors. While large oil companies have built up plenty of cash during the
commodity boom, the junior energy and farm sectors tend to be more financing-
dependent. Finally, tighter lending standards and declining confidence threaten to
weigh further on western housing markets that have led the country for the past four
years—average prices are down in B.C. for the first time since 2001, and residential
construction in Alberta is running at half the pace of last year. This is not a death
sentence for the economy of Western Canada—job growth and consumer spending
are still solid, and near-$100 oil will keep cash from existing projects flowing. Rather,
it’s meant to point out that no region of the country is fully sheltered from the howling
credit crisis, and a period of modest economic growth is in the cards out west after a
four-year boom.

PAGE 3 – FOCUS – OCTOBER 3, 2008

Jennifer Lee, Economist

Real GDP at Basic Prices +0.7% (July)
CANADA Conference Board’s Consumer Confidence Index
• Despite decent economic +2.6 pts to 85.7 (Sep.)
data this week, equities Industrial Product Prices -0.2% (Aug.)
pummelled, led by
Raw Material Prices -7.7% (Aug.)
Auto Sales +1.7% y/y (Sep.)
• CAD weakens markedly

Conference Board’s Consumer Confidence Index Nonfarm Payrolls -159,000 (Sep.)
UNITED STATES +1.3 pts to 59.8 (Sep.) Unemployment Rate unch at 6.1% (Sep.)—5-yr high
• Congress passes package Personal Income +0.5% (Aug.) Manufacturing ISM -6.4 pts to 43.5 (Sep.)
• Economic downturn sped Average Hourly Earnings +0.2% (Sep.) Factory Orders -4.0% (Aug.)
up in September Nonmanufacturing ISM -0.4 pts to 50.2 —but still Construction Spending unch (Aug.)
• Latest merger news: Wells expanding Real Personal Spending unch (Aug.)
Fargo and Wachovia. What Chicago PMI -1.2 pts to 56.7 (Sep.)—
about Citigroup? Redbook -1.3% (Sep. 27 wk)
but still expanding
Auto Sales -27% y/y (Sep.)
S&P Case-Shiller House Prices -16.3% y/y (July)
Challenger reports announced layoffs rise
33% y/y (Sep.)
EUROPE Initial Claims +1k to 497k (Sep. 27 wk)

Eurozone—Consumer Prices slowed to Eurozone—Economic Confidence -0.8 pts to

EUROPE +3.6% y/y (Sep. P) 87.7 (Sep.)
• ECB stays on hold but rate Eurozone—Producer Prices -0.5% (Aug.) Eurozone—Manufacturing PMI revised down to
cut discussed as Trichet Eurozone—Retail Sales +0.3% (Aug.) 45.0 (Sep. F)
acknowledges downside Eurozone—Jobless Rate +0.1 ppts to 7.5% (Aug.)
Eurozone—Services PMI revised up to 48.4 (Sep. F)
risk to economy
Germany—Unemployment -29,000 (Sep.) U.K.—Manufacturing PMI -4.3 pts to 41.0 (Sep.)
• European governments
Germany—Retail Sales +3.1% (Aug.) U.K.—Services PMI -3.2 pts to 46.0 (Sep.)
swoop in to nationalize
banks U.K.—GfK Consumer Confidence +4 pts to -32 (Sep.) U.K.—Credit Conditions tighten (Q3)
• Ireland and Greece Italy—Jobless Rate +0.2 ppts to 6.8% (Q2)
guarantee deposits

Retail Sales +0.7% (Aug.) Tankan Survey -8 pts to -3 (Q3)

JAPAN Jobless Rate +0.2 ppts to 4.2% (Aug.)
• Recession already here? Household Spending -4.0% y/y (Aug.)
Industrial Production -3.5% (Aug. P)

Indications of stronger growth and a move toward price stability are good news for the economy.

PAGE 4 – FOCUS – OCTOBER 3, 2008


Are Stocks Cheap?

TABLE 1 Robert Kavcic, Economic Analyst
S&P 500 – Peak to Trough Decline Stock markets are in the grip of the worst downturn since
Decline* Duration the bursting of the technology bubble. With prices now
Year (percent) (months) deep in bear market territory, and record-breaking point
1974 -46% 21 moves almost a daily phenomenon, it begs the question:
2001 -40% 23
Are stocks cheap yet? While valuation metrics give mixed
1970 -33% 19
2008 -29% 12 results, stocks generally look to be on the cheap side, but
1982 -24% 20 the earnings numbers on which those valuations are based
1957 -19% 17 remain subject to downside risk.
1990 -16% 5
1953 -12% 8 The equity bear market is now a year old, with the S&P 500
1960 -12% 15 down 29% from its October-07 peak. This puts the current
* calculations based on month-end selloff in-line with the average post-war recession
experience (Table 1). The current episode is outdone only
CHART 1 by the tech-wreck—a bear market exaggerated by high
CORPORATE RISK SURGES technology valuations—and two cases in the 1970s. Still,
United States (ppts) at almost 12 months old, the bear market lags the
BAA – Long-Term Treasuries historical norm of about 16 months in duration.
The widely used Fed valuation model compares the
earnings yield offered by stocks (essentially the inverse of
3.0 the p/e ratio) to the yield on government bonds, suggesting
2.5 that stocks are cheap when their earnings yield more than
Treasuries. With earnings yields still relatively high and bond
yields probing multi-decade lows, this simple model
1.5 suggests that the S&P 500 is 44% undervalued at current
1.0 levels. But, the model contains some major flaws that need
04 05 06 07 08 to be addressed in the current environment. First, with 10-
year Treasury yields near the lowest level since the 1950s,
CHART 2 the basic Fed model is losing reliability. That is, as interest
STANDARD VALUATION MODEL IGNORES RISK rates fall toward zero, the implied fair value of stocks
S&P 500 (percent)
approaches infinity—case in point is the Japanese Nikkei,
80 Overvalued which is unrealistically 75% undervalued by this measure.
Adjusted Also, the basic model discounts future earnings at a risk-free
40 Model rate. It seems unreasonable to discount volatile corporate
earnings at a risk-free rate in the current environment,
which has seen corporate yield spreads surge (Chart 1) and
0 earnings consistently miss expectations. To account for this
-20 risk, we add the spread between corporate BAA rates and
-40 Fed 10-year Treasuries to the basic model. This risk-adjusted
Undervalued version suggests that, while less attractive than under the
82 87 92 97 02 07 basic model, the S&P 500 is still 13% undervalued at current
levels (Chart 2).

PAGE 5 – FOCUS – OCTOBER 3, 2008


As with any valuation model, the quality of the inputs is a

CHART 3 critical consideration. In this case, the only flimsy variable is
EARNINGS ESTIMATES STILL HIGH the forward-year earnings estimate, which faces considerable
S&P 500* (percent) downside risk—analysts are currently projecting a sharp 42%
Forward-Year Consensus Earnings Growth rebound in S&P 500 operating earnings over the next year.
Consumer Disc. While financial earnings are expected to bounce back from
Telecom negative levels, cyclical sectors including consumer
Technology discretionary, technology, energy and materials are all pricing
Health Care in double-digit growth even as credit conditions deteriorate,
Consumer Staples global economic activity continues to weaken and profit
Utilities margins contract (Chart 3). As such, these sectors will likely
face downward revisions in the coming quarters.

0 10 20 30 40 50 That said, how far do earnings still have to fall? U.S.

* Financials excluded (not meaningful) corporate profits have been firmly in a cyclical downtrend
since 2006Q3, but remain about 20% above normalized
CHART 4 levels (Chart 4). We calculate normalized earnings by
PROFIT RECESSION IN FULL SWING taking the historical average share of profits from nominal
United States ($blns) GDP—a proxy for profit margins. While down from its
2,000 cyclical high, the current 10.9% profit margin has about 2
ppts further to fall before reaching postwar-average levels,
1,500 Profits 20% a reversion that would offset much of the undervaluation
seen in most earnings-based measures.
1,000 Normalized*
Given the clear and present earnings risk, it’s worth
500 considering some non-earnings based valuation measures.
The equity q-ratio compares the market value of
0 nonfinancial corporate equity to the replacement value of
80 85 90 95 00 05 corporate assets. When the ratio is less than 1, as it is
* Nominal GDP × Average Profit Share currently, it implies that the cost of buying the equity
market is cheaper than the cost of building the underlying
CHART 5 businesses from scratch. By this measure, stocks look the
NON-EARNINGS MEASURES LEND SUPPORT most attractive they’ve been since 1992 (Chart 5). A related
Equity Q-Ratio* S&P 500 – Price-to-Book Value measure that includes the financial sector is the S&P 500
2.0 6
price-to-book value, and it’s down sharply from the 1999
5 peak and also at a 16-year low. These asset-based
4 valuation measures appear supportive of stock prices,
particularly outside the financial sector.
1.0 3

2 The Bottom Line: A range of metrics suggests that valuations

0.5 have indeed moved into attractive territory and at least don’t
pose a headwind to stock prices. However, the market will
0.0 0 continue to grapple with the possibility of a long earnings
56 66 76 86 96 06 56 66 76 86 96 06
recession, and a turnaround in corporate profits will need to
* (market value of equity / current value of corporate net worth, nonfarm nonfinancial sector)
be on the horizon to drive stocks higher on a sustained basis.

PAGE 6 – FOCUS – OCTOBER 3, 2008

Economic Forecast

2008 2009 ANNUAL

CANADA I II III IV I II III IV 2007 2008 2009
Real GDP (q/q % chng : a.r.) -0.8 0.3 1.7 u -0.4 v 0.6 v 1.4 v 2.0 v 2.4 2.7 0.7 1.0 v
Consumer Price Index (y/y % chng) 1.8 2.3 3.5 3.4 3.4 2.5 1.9 2.1 2.1 2.7 2.5
Unemployment Rate (%) 5.9 6.1 6.1 6.4 6.6 6.7 6.6 6.6 6.0 6.1 6.6
Housing Starts (000s : a.r.) 234 220 197 190 188 185 184 183 228 210 185
Current Account Balance ($blns : a.r.) 17.8 27.0 10.1 5.2 0.4 v -2.5 v -4.4 v -5.5 v 13.6 15.0 -3.0 v
Interest Rates
(average for the quarter : %)

Overnight Rate 3.83 3.00 3.00 2.67 v 2.50 v 2.50 v 2.58 v 3.17 v 4.35 3.13 v 2.69 v
3-month Treasury Bill 2.99 2.54 2.31 2.04 v 2.00 v 2.34 v 2.85 v 3.36 v 4.14 2.47 v 2.64 v
10-year Bond 3.73 3.67 3.63 3.38 v 3.40 v 3.57 3.76 3.94 4.27 3.60 3.67
Canada/U.S. Interest Rate Spreads
(average for the quarter : bps)

90-day 90 89 79 78 v 57 v 60 v 74 88 u -34 84 v 70 v
10-year 7 -22 -23 -12 u -13 u -17 u -21 u -24 u -36 -12 -19 u
Real GDP (q/q % chng : a.r.) 0.9 2.8 -0.6 v -0.6 0.5 v 1.4 v 2.2 u 2.5 u 2.0 1.5 0.8 v
Consumer Price Index (y/y % chng) 4.2 4.3 5.3 4.3 3.6 2.7 1.5 1.6 2.9 4.5 2.3
Unemployment Rate (%) 4.9 5.3 6.0 6.4 6.6 6.8 6.8 7.0 4.6 5.6 6.8
Housing Starts (mlns : a.r.) 1.05 1.03 0.91 0.83 0.80 0.83 0.89 0.95 1.34 0.96 0.87
Current Account Balance ($blns : a.r.) -703 -733 -702 -643 -609 -577 -553 -539 -731 -695 -570
Interest Rates
(average for the quarter : %)

Fed Funds Target Rate 2.75 2.00 2.00 1.50 v 1.50 v 1.50 v 1.58 v 2.08 v 5.00 2.06 v 1.67 v
3-month Treasury Bill 2.09 1.66 1.52 1.26 v 1.43 v 1.74 v 2.11 v 2.48 v 4.47 1.63 v 1.94 v
10-year Note 3.66 3.88 3.86 3.49 v 3.53 v 3.74 v 3.96 v 4.18 v 4.63 3.73 v 3.85 v
(average for the quarter)
US¢/C$ 99.6 99.0 96.0 93.0 v 92.0 v 91.2 v 90.4 v 89.6 v 93.5 96.9 v 90.8 v
C$/US$ 1.004 1.010 1.042 1.075 1.087 1.097 1.107 1.117 1.074 1.033 1.102
¥/US$ 105 105 108 108 v 110 v 114 113 111 118 106 v 112 v
US$/Euro 1.50 1.56 1.50 1.39 v 1.38 v 1.35 v 1.33 v 1.31 v 1.37 1.49 v 1.34 v
US$/£ 1.98 1.97 1.89 1.77 1.74 1.73 1.72 1.70 2.00 1.90 1.72
Note: Blocked areas represent BMO Capital Markets forecasts
Up and down arrows indicate changes to the forecast uv

PAGE 7 – FOCUS – OCTOBER 3, 2008

Key for Next Week

CANADA Douglas Porter, CFA, Deputy Chief Economist

Housing Starts There will be a string of housing-related data next week, including building permits for
Wednesday, 8:15 am August on Monday, housing starts for September on Wednesday, and new home
Sep. (e) 205,000 a.r. prices for August on Friday. They are all expected to point in the same direction—
Consensus 209,000 a.r.
Aug. 211,000 a.r. slowdown. Only the starts data will have been in any way affected by the latest severe
flare-up in financial turmoil, although it’s too soon to see a major impact. We look for a
drop in starts to the 205,000 area, which masks a much more serious slowdown in
single-family activity. Those starts have dropped back to their lowest level since the
start of the decade in recent months, as only buoyant condo activity has held up the
broader figures. That support is expected to give way over the next year.

Employment Coming just days before the federal election, and during the midst of the financial
Friday, 7:00 am hurricane, the September employment report will carry some outsized attention.
Sep. (e) unch However, since the survey was conducted in the middle of the month (i.e. before the
Consensus +12,500 (+0.1%)
Aug. +15,200 (+0.1%) worst of the turmoil), the results may lack fireworks. Looking through the recent big
Unemployment Rate swings in employment, there has been no net new job creation over the past six
Sep. (e) 6.2% months, and we expect a similar no-growth story for September, with the risks tilted to
Consensus 6.2%
Aug. 6.1% the downside. That may compare favourably with the 9-month string of job losses in
Average Hourly Wages the U.S., but it’s a long way from last year’s average monthly gain of 30,000. The
Sep. (e) +3.7% y/y subdued performance is expected to bump up the unemployment rate a tick to 6.2%,
Aug. +3.8% y/y
matching the highest level since late 2006, and up from the 5.8% secular low at the
start of the year. Average wages are likely to moderate a bit further to a 3.7% y/y pace,
well down from the scorching 4.9% peak also seen at the start of the year.

Merchandise Trade Surplus Exports likely weakened in August amid a pullback in commodity prices and slowing
Friday, 8:30 am U.S. spending. That should cut the trade surplus to $4.2 billion from July’s $4.9 billion,
Aug. (e) $4.2 bln taking it to a six-month low. But we likely “ain’t seen nothing yet” on the trade front,
Consensus $4.7 bln
July $4.9 bln with resource prices in retreat and the U.S. consumer battening down the hatches. As
recently as late last year, the surplus dipped to $2 billion, and it could easily go lower
still if the U.S. economy takes a serious step back. Net exports look to remain the
biggest drag on the Canadian economy for quite some time yet.

Bank of Canada Surveys In an already crowded economic calendar on Friday, the Bank of Canada will for the
Friday, 10:30 am first time release the results of its Senior Loan Officer Survey. This will provide some
clear evidence if lending standards have been significantly changed in Canada in
recent months. (The only caveat would be that the survey may already be a tad dated,
since it was likely conducted prior to the most intense financial turmoil.) Perhaps
providing an early read, Governor Carney said in last week’s speech that “there is no
evidence at this point that our corporations are facing unusual credit restrictions”. In
addition, the Bank will also release its usual Business Outlook Survey, and it’s expected
to show some ratcheting back in expectations for sales, employment and capital
spending, as well as less serious price pressures.

PAGE 8 – FOCUS – OCTOBER 3, 2008

Key for Next Week

UNITED STATES Jennifer Lee, Economist

FOMC Minutes The minutes to the Federal Reserve’s September 16th meeting (when the decision to
Tuesday, 2:00 pm stay on hold was unanimous) will be mildly interesting, if to get a handle on how
nervous policymakers were becoming. Remember, the meeting was just two days
after Lehman went belly-up and Bank of America bought Merrill Lynch. The amount of
discussion regarding inflation concerns will also be of interest, especially by Fisher,
given that in the press release, the reference to “elevated energy prices” was removed.

Pending Home Sales Look for pending home sales to drop for the second straight month in August. We are
Wednesday, 10:00 am calling for a 1% decline in this leading indicator of housing activity, adding to July’s
Aug. (e) -1.0% outsized 3.2% fall. This will leave sales just slightly below year-ago levels, as dramatically
Consensus -1.1%
July -3.2% reduced prices and foreclosures beckon to potential homebuyers with the ability to
obtain credit. Anecdotal reports also suggest that foreigners are taking advantage of
these times as their opportunity to dip their toes into the U.S. housing market.

Trade Deficit The August trade deficit is expected to narrow but only modestly. Crude oil prices
Friday, 8:30 am dropped, on average, by about $15/bbl in the month but it takes time to show up in
Aug. (e) $59.5 bln the trade data. Meantime, after possibly hitting rock bottom in July, the Fed’s trade-
Consensus $59.0 bln
July $62.2 bln weighted U.S. dollar surged in August, which will curb already-slowing export activity.
Also, the exports component in the manufacturing ISM series leads the trade numbers
by a month or two and the component edged lower in June and July, suggesting that
exports grew at a slower pace in August. Finally, China’s trade surplus continued to
widen in the month. Look for a trade shortfall of about $60 bln in the month.

PAGE 9 – FOCUS – OCTOBER 3, 2008

Financial Markets Update
Canadian Money Market
Call Money 3.00 3.00 0 0 -125
Prime Rate 4.75 4.75 0 0 -125
U.S. Money Market
Fed Funds (effective) 2.00 2.00 0 0 -225
Prime Rate 5.00 5.00 0 0 -225
3-Month Rates
Canada 1.35 1.83 -48 -100 -247
United States 0.53 0.84 -32 -124 -271
Japan 0.56 0.57 -1 -2 1
Eurozone 5.34 5.14 20 38 66
United Kingdom 6.27 6.26 1 53 28
Australia 7.99 7.74 25 81 107
Bond Markets
2-year Bond
Canada 2.61 2.83 -22 -11 -114
United States 1.74 2.10 -36 -57 -131
10-year Bond
Canada 3.80 3.68 12 33 -19
United States 3.69 3.85 -16 -1 -33
Japan 1.45 1.47 -2 -2 -6
Germany 3.91 4.16 -25 -9 -39
United Kingdom 4.37 4.55 -18 -1 -14
Australia 5.29 5.61 -33 -34 -104
Currencies (% CHANGE)
US¢/C$ 92.46 96.75 -4.4 -1.8 -7.7
C$/US$ 1.082 1.034 — — —
¥/US$ 105.68 106.01 -0.3 -1.9 -5.4
US$/Euro 1.3748 1.4614 -5.9 -3.6 -5.8
US$/£ 1.773 1.845 -3.9 0.4 -10.7
US¢/A$ 77.47 83.10 -6.8 -5.0 -11.5
CRB Futures Index 326.79 364.57 -10.4 -11.1 -8.9
Oil (generic contract) 94.58 106.89 -11.5 -11.0 -1.5
Natural Gas (generic contract) 7.38 7.63 -3.3 -0.9 -1.4
Gold (spot price) 829.35 878.75 -5.6 3.2 -0.5
S&P/TSX Composite 11242 12126 -7.3 -12.3 -18.7
S&P 500 1139 1213 -6.1 -8.3 -22.4
Nasdaq 2022 2183 -7.4 -10.4 -23.8
Dow Jones Industrial 10645 11143 -4.5 -5.1 -19.7
Nikkei 10938 11893 -8.0 -10.4 -28.5
Frankfurt DAX 5725 6064 -5.6 -6.6 -29.0
London FT100 4926 5088 -3.2 -6.0 -23.7
France CAC40 4019 4163 -3.5 -4.2 -28.4
S&P ASX 200 4695 4905 -4.3 -3.7 -25.9
* as of 10:30 am

PAGE 10 – FOCUS – OCTOBER 3, 2008

OCTOBER 6 – OCTOBER 10 Global Calendar

Leading Index Machine Orders

Aug. P (e) 89.2 Aug. (e) -2.7% -2.2% y/y
July 91.4 July -3.9% -4.7% y/y
Machine Tool Orders Minutes from the September BoJ
BoJ Monthly Report Monetary Policy Meeting
Bank of Japan Monetary Policy Sep. P
Meeting (October 6-7) Aug. -13.9% y/y


Factory Orders Real GDP Trade Surplus Industrial Production
Aug. (e) -0.5% -4.7% y/y Q2 F (e) -0.2% +1.4% y/y Aug. (e) €12.0 bln Aug. (e) -0.8% -2.6% y/y
July -1.7% -0.7% y/y Q1 +0.7% +2.1% y/y July €13.9 bln July +1.2% -2.0% y/y
GERMANY Manufacturing Production
Industrial Production Aug. (e) -0.9% -3.1% y/y
Aug. (e) -0.3% -2.8% y/y July +1.5% -2.3% y/y
July -1.8% -0.6% y/y ITALY
FRANCE ECB Monthly Report Industrial Production
Trade Deficit Aug. (e) +0.6% -4.0% y/y
Aug. (e) €4.5 bln July -1.1% -3.2% y/y
July €4.8 bln

Industrial Production Nationwide Consumer Confidence Trade Deficit Non-EU

Aug. (e) -0.2% -2.0% y/y Sep. (e) 49 Aug. (e) £7.6 bln £4.6 bln
July -0.4% -1.9% y/y Aug. 52 July £7.7 bln £4.7 bln
Manufacturing Production
Aug. (e) -0.2% -1.6% y/y
July -0.2% -1.4% y/y Bank of England Monetary Policy
Meeting (October 8-9)

Employment Trade Deficit
Sep. (e) unch Aug. F (e) $2.2 bln
Aug. +14,600 July $1.1 bln
Reserve Bank of Australia Monetary Jobless Rate
Sep. (e) 4.3%
Policy Meeting
Aug. 4.1%
Sep. (e) +0.7% +0.6%
Aug. +0.6% +0.4%
OCTOBER 6 – OCTOBER 10 North American Calendar

8:30 am Building Permits 8:15 am Housing Starts 7:00 am Employment

Aug. (e) -3.0% Sep. (e) 205,000 a.r. Sep. (e) unch
July +1.8% Consensus 209,000 a.r. Consensus +12,500 (+0.1%)
10:00 am Ivey Purchasing Managers’ Aug. 211,000 a.r. Aug. +15,200 (+0.1%)
Index 7:00 am Unemployment Rate
Sep. (e) 49.0 Sep. (e) 6.2%
Aug. 51.5 Consensus 6.2%
Aug. 6.1%
7:00 am Average Hourly Wages
Sep. (e) +3.7% y/y
Aug. +3.8% y/y
8:30 am Merchandise Trade Surplus
Aug. (e) $4.2 bln
Consensus $4.7 bln
July $4.9 bln

8:55 am Redbook 10:00 am Pending Home Sales 8:30 am Initial Claims 8:30 am New Housing Price Index
Oct. 4 Aug. (e) -1.0% Oct. 4 (e) 475,000 (-22,000) Aug. (e) +0.1% +2.3% y/y
Sep. 27 -1.3% Consensus -1.1% Sep. 27 497,000 (+1,000) July +0.1% +2.7% y/y
July -3.2% 10:00 am Wholesale Inventories
1:15 pm Fed Chairman Bernanke 10:30 am BoC Business Outlook and
10:35 am DoE’s Petroleum Status Aug. (e) +0.4%
speaks on the economy Report (Oct. 3 week) Consensus +0.4% Senior Loan Officer Surveys
and markets in July +1.4% (Q3)
Washington 10:00 am Conference Board CEO
Confidence Index*
2:00 pm FOMC Minutes from Q3 8:30 am Goods & Services
Q2 39 Trade Deficit
September meeting
10:35 am DoE’s Natural Gas Status Aug. (e) $59.5 bln
3:00 pm Consumer Credit Report (Oct. 3 week) Consensus $59.0 bln
Aug. (e) +$5.0 bln July $62.2 bln
Chain-Store Sales
Consensus +$5.8 bln 8:30 am Import Ex.
Sep. (e) +1.4% y/y
July +$4.6 bln Prices Petroleum
Aug. +1.7% y/y
5:00 pm ABC News/Washington Sep. (e) -3.0% -1.0%
Post Consumer Comfort Consensus -2.5% n.a.
Index Aug. -3.7% -0.3%
Oct. 5 2:00 pm Budget Surplus
Sep. 28 -41 Sep. ’08 (e) $60.0 bln
Sep. ’07 $111.6 bln
Presidential Debate

G7 finance ministers meet in

1:00 pm 3 & 6-month T-bill 1:00 pm 10-year TIPS auction
auction $53.0 bln $9.0 bln
(New cash $8.0 bln) (New cash -$7.0 bln)
* date approximate Upcoming Policy Meetings Bank of Canada: October 21, December 9, January 20 FOMC: October 28-29, December 16, January 27-28
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