April 9, 2015 @ 7:55 EST

Global Economics

Daily Points

Derek Holt 416.863.7707

derek.holt@scotiabank.com

Tracking the Numbers

Frances Donald 416.862.3080

frances.donald@scotiabank.com

Dov Zigler 212.225.6631

dov.zigler@scotiabank.com

On Deck for Thursday, April 9

Country
CA
CA
US
US
US

Date
04/09
04/09
04/09
04/09
04/09

Tim e
08:30
08:30
08:30
08:30
10:00

Indicator
Building Permits (m/m)
New Housing Price Index (m/m)
Continuing Claims (000s)
Initial Jobless Claims (000s)
Wholesale Inventories (m/m)

Period
Feb
Feb
MAR 28
APR 4
Feb

BNS Consensus
-3.3
-0.1
2300
2350.0
290
283.0
0.1
0.2

BoC Events
Latest
-12.9
-0.1
2325.0
268.0
0.2

BoC Overnight Lending Rate

Current Rate: 0.75%
Next Move: April 15 @ 0.75%
Bias: Dovish

KEY POINTS:
Hang Seng leads stock markets higher
but Chinese stocks are not a bubble - yet
BoE stands pat as expected
BoK holds but policy risk looking ahead is easing
Eurozone Q1 recovery update: retail leading the way, industrial

production inching along, trade to drag

and the UK is following the same pattern
US, Canada should follow the global market tone

INTERNATIONAL
Stocks are mixed so far this morning. The Hang Seng was the hands down
winner for market gains overnight with a 2.7% single day advance. Its
important to recognize that the Hang Sengs p/e ratio is still only about
11 and the dividend yield is 3.4% which continues to make it among the
cheaper stock markets globally so why not back up the truck and buy? The
Hang Seng index has done relatively little for the past six years compared to
other major stock exchanges. European equities are up across the board,
but North American equity futures are fairly flat. Currency markets are
putting a bid to the commodity crosses like CAD, the AUD and NZD. 10
year sovereign benchmarks are a little dearer in the US, Canada, UK,
Germany and France.
We'll issue an in-depth research paper on China's stock market either
later today or tomorrow morning. What has emerged to be the most hotly
argued and arguably important issue in China today is whether the countrys
stock market is in a bubble given the near doubling of the Shanghai and
Shenzhen equity composites since last summer and the very recent rally in
the Hang Seng. Index levels and percentage gains might suggest frothy
behaviour, but they are poor ways of looking at valuations. The key
takeaways will be:

Using multiple valuation methods, we observe that Chinese equities are

simply transitioning from being among the cheapest in the world as of
last summer to fairer value today.
the re-pricing has been facilitated by financial liberalization since
November
the role of explosive growth in new investor accounts in driving the rally

Scotiabank Economics
Scotia Plaza 40 King Street West, 63rd Floor
Toronto, Ontario Canada M5H 1H1
Tel: 416.866.6253 Fax: 416.866.2829
Email: scotia.economics@scotiabank.com

Fed Events
Fed Funds Target Rate
Current Rate: 0-0.25%
Next Move: April 29 @ 0-0.25%
Bias: Neutral/Hawkish

Key International Events

BoJ
Current Rate: 0.10%
Next Move: April 30 @ 0.10%
Bias: Dovish
BoE
Current Rate: 0.50%
Next Move: April 9 @ 0.50%
Bias: Dovish
ECB
Current Rate: 0.05%
Next Move: April 15 @ 0.05%
Bias: Dovish

This report has been prepared by Scotiabank Economics as a resource for the clients of Scotiabank.
Opinions, estimates and projections contained herein are our own as of the date hereof and are
subject to change without notice. The information and opinions contained herein have been
compiled or arrived at from sources believed reliable but no representation or warranty, express or
implied, is made as to their accuracy or completeness. Neither Scotiabank nor its affiliates accepts
any liability whatsoever for any loss arising from any use of this report or its contents.
TM

Trademark of The Bank of Nova Scotia. Used under license, where applicable.

Daily Points is available on scotiabank.com and Bloomberg at SCOT

Global Economics

April 9, 2015

Daily Points

is being grossly exaggerated

Ditto for concerns about margin loans.
Chinese investors have increased an already high home bias by stopping foreign equity purchases while they buy more
domestic equities.
China's mountain of reserves provides strong defences to manage potential future equity market imbalances. The fact
they are falling slightly should be lauded not disparaged.

The Bank of England surprised no one this morning by leaving its key policy rate unchanged at 0.5%.
After a 25bps cut in March, the Bank of Korea joined Australia, Japan and India in holding rates steady at their most
recent policy meeting. That said, the statement and forecasts are distinctly dovish and KRW is correspondingly weaker
across the board. Primarily, growth forecasts were cut from 3.4% to 3.1% in 2015, and thats down from the 3.9% forecast in
January. Inflation forecasts were also sharply revised lower from 1.9% in 2015 to 0.9%, substantially below the 2.5-3.0%
target range, and that figure is also being propped up by Septembers cigarette tax hike. Then, there was the shift in
language addressing the output gap. Previously, the BoK had said the negative output gap would persist longer than
expected. Now, they say it will persist for a considerable time. Our interpretation is that this language is a dovish tilt
supported by the growth and inflation downgrades, though some headlines this morning saying it is marginally more
constructive. BoK Governor Lee also mentioned that one member had opposed the decision to hold rates and instead called
for a rate cut on grounds that KRW was holding back exports. Combined with weak consumer and business confidence,
industrial production, exports and the ongoing strengthening of the KRW vs. JPY, our sense is that the seeds of the next cut
are brewing and that the BoK will increasing view exacerbated household debt as the lesser of two evils.
Economic data through February continue to point to strength in Q1 in Europe. German industrial production increased
by 0.2% m/m in February and the trade balance swelled to EUR 19.2bn (vs. EUR 15.9bn in January). Both prints were a little
bit better than consensus expectations and leave the economy tracking at a decent rate: industrial production is running at
0.5% q/q, while the improvement in trade leaves net exports likely to pose a more modest drag than previously expected as
exports are higher by 0.2% q/q while imports are higher by 0.8%, consistent with strong consumer numbers in Q1. Todays
prints dont seem to have swung things very much one way or the other, with the DAX simply rebounding (modestly) from
yesterdays weakness.
The UK economy is following a similar trajectory to the German one and indeed the broader European path, with
retail sales leading the way (+1.1% q/q through February according to data released in late March) while trade will pose a
drag according to data released today, which showed the trade deficit swelling to GBP10.3bn vs. a revised GBP 9.2bn in
January. Real exports are tracking at -2.2% q/q and imports at a strong +0.7% q/q in line with the consumer strength.
Scotiabanks UK Fixed Income Strategist Alan Clarke makes a compelling argument that while pundits may point to the tradeweighted GBP driving this dynamic, the fact of the matter is that UK exports are more of a function of trade partner economic
growth than currency fluctuations, particularly in the short term. Moreover, UK exports were a major driver of growth in Q4, so
there is some mean reversion/smoothing out of unsustainable trends going on here.

UNITED STATES
US markets will follow the global market tone today with only initial jobless claims due out (8:30amET). This will be
the first reading for April and so well start to get a feel for how claims are evolving toward the nonfarm reference period that
covers pay periods including the 12th of each month.

CANADA
Canada will be quiet and follow the global market tone today with only building permits for February on tap
(8:30amET). Following the steep plunge in the value of total permits in January were likely to see a bit of a bounce higher
today. Key will be to look through the headline to the volume of housing permits issued as they have been falling rather
sharply over recent months. CAD is appreciating versus the greenback and one of the top performers this morning and one
probably need look no further than a buck gain in WTI and Brent oil prices for the reason given its petro-currency status.

April 9, 2015

Global Economics

Daily Points

U.S .
CANADA
GER M A N Y
JA P A N
U.K.
CANADA
GER M A N Y
JA P A N
U.K.
E quit ie s
S &P / T S X
D o w 30
S &P 5 0 0
N a s da q
DAX
F T SE
N ik k e i
H a ng S e ng
CAC
C o m m o dit ie s
WT I C rude
N a t ura l G a s
G o ld
S ilv e r
C R B Inde x
C urre nc ie s
US D C A D
E UR US D
US D J P Y
A UD US D
G B P US D
US D C H F

C e nt ra l B a nk s

G o v e rnm e nt Y ie ld C urv e s ( %) :

F ixe d Inc o m e
Last
0.53
0.49
-0.28
0.01
0.41

2-YEA R
1-day
0.53
0.50
-0.28
0.02
0.44

-3
-81
-51
-11

-3
-82
-51
-9

1-wk
0.54
0.49
-0.25
0.03
0.44

Last
1.33
0.75
-0.14
0.10
1.16

-5
-59
-80
-147
-51
-123
-11
-17
Level

La s t
15214
17903
2082
4951
12095
6993
19938
26944
5186

5-YEA R
1-wk
1-day
1.35
1.35
0.76
0.73
-0.14
-0.09
0.10
0.10
1.20
1.20
S pre a ds v s .
-59
-62
-148
-144
-124
-125
-15
-15

10 - Y E A R
Last
1-day
1.90
1.91
1.32
1.34
0.15
0.16
0.37
0.36
1.54
1.58
U.S . ( bps ) :
-58
-57
-175
-174
-153
-154
-36
-33

C ha nge
24.8
27.1
5.6
40.6
59.3
55.6
147.9
707.5
49.5

1 D ay
0.2
0.2
0.3
0.8
0.5
0.8
0.7
2.7
1.0

0.98
0.02
-3.38
-0.54
-5.45

1.9
0.8
-0.3
-3.2
-2.5

-0.0034
-0.0009
-0.1700
0.0053
-0.0024
0.0035

-0.3
-0.1
-0.1
0.7
-0.2
0.4

Level
51.40
2.64
1199.13
16.30
216.40
Level
1.2512
1.0772
119.96
0.7737
1.4842
0.9700

1-wk
1.91
1.31
0.19
0.34
1.59

30-YEA R
1-wk
Last
1-day
2.53
2.53
2.53
1.98
1.99
1.96
0.64
0.66
0.65
1.39
1.38
1.32
2.29
2.32
2.32

-60
-55
-172
-189
-157
-113
-32
-24
% change:
1- wk
1- m o
2.4
2.1
0.7
-0.5
0.7
0.1
1.0
0.2
1.1
4.4
3.2
1.7
6.1
3.2
8.4
11.7
5.0
3.0
% change:
2.6
2.8
1.3
-1.4
-0.3
2.7
-3.2
2.4
2.1
-1.3
% change:
-0.4
-0.7
-1.0
-0.7
0.2
-1.0
1.9
0.5
0.1
-1.9
1.1
-1.6

-54
-187
-115
-21

-58
-188
-121
-21
1- yr
5.4
8.9
11.2
18.3
27.2
5.4
39.4
18.0
16.7

C urre nt R a t e
C a na da - B o C

0 .7 5

US - F e d

0 .2 5

E ngla nd - B o E

0 .5 0

E uro zo ne - E C B

0 .0 5

J a pa n - B o J

n/ a

M e xic o - B a nxic o

3 .0 0

A us t ra lia - R B A

2 .2 5

N e w Z e a la nd - R B N Z

3 .5 0

N e xt M e e t ing D a t e
C a na da - B o C

A pr 15 , 2 0 15

US - F e d

A pr 2 9 , 2 0 15

-50.4
-42.4
-8.6
-18.0
-30.1

E ngla nd - B o E

A pr 0 9 , 2 0 15

E uro zo ne - E C B

A pr 15 , 2 0 15

15.0
-22.3
17.6
-17.6
-11.6
10.3

M e xic o - B a nxic o

A pr 3 0 , 2 0 15

A us t ra lia - R B A

M a y 0 5 , 2 0 15

N e w Z e a la nd - R B N Z

A pr 2 9 , 2 0 15

J a pa n - B o J

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