Global Economic Research July 23, 2010

Capital Points
Derek Holt (416) 863-7707
derek_holt@scotiacapital.com

Gorica Djeric (416) 862-3080

gorica_djeric@scotiacapital.com — A weekly look ahead at Canadian and U.S. financial markets

Why the BoC Can Sustainably Jump The Fed Index

The BoC has a solid case for raising rates ahead of the Fed perhaps more than
what many may believe and more than what markets are pricing while perhaps 1-2 Commentary
casting doubt upon any pause arguments. That would be a significant departure 3 Canadian Preview
from past monetary policy cycles in the two countries.
3-4 U.S. Preview
But one doesn’t forecast the future path of the two central banks by just 4 International Preview
extrapolating past relationships between their target rates that rarely departed
from one another (chart 1) – and when they did, like early last decade, sometimes 5 U.S. Macro Comment
only to see the BoC back peddle. What may well be sharply different about the 6 U.S. Monetary Policy
current context has to be explored by zeroing the clock, and thinking forward.
7 Canadian Monetary Policy
Doing so coughs up two principal reasons why the BoC can raise spreads over the
Fed significantly higher from this point, in addition to the BoC’s inflation 8 Canadian Macro Comment
thoughts (page 7). 9 Foreign Exchange Markets

Canada Leveraging Past the US 10 International Markets

One reason is that as the US deleverages, Canada continues to leverage higher—a 11 Commodity Markets
point we’ve been emphasizing for some time. Canada is on a fundamentally
12 Fiscal Policy
different debt cycle and that translates into profound differences for the two
countries’ monetary policy cycles. As US households pay down debt, Canadian 13-14 Indicator Preview Tables
households are racking it up by the minute. The US household debt-to-income
ratio has already fallen to about the 153% mark from a peak
of 166% in 2008Q1, Canada’s is still climbing and sits at Chart 1
25 Often - But Not Always - in Lock-Step
148% now. In arriving at these figures, ignore reports %
produced by some accounting firms that Canadians are
already deeper in hock than Americans. To compare apples 20 BoC
Overnight
to apples, all household debt products have to be included
15 Target Rate
in both countries (not just a comparison of a subset of
consumer debt products), and use flow of funds accounts
10
produced by the Fed and Statistics Canada by accurately *
combining household with unincorporated business debt
5 Federal Funds
given no limited liability on unincorporated business debts.
Target Rate
Chart 2 is the result, and Canadian households could well
0
overtake their US counterparts in the indebtedness leagues 71 74 77 80 83 86 89 92 95 98 01 04 07 10
as soon as year-end. * Change in benchmark reference rate.
So urce: Glo bal Insight & Sco tia Capital Eco no mics.

Further, it’s not just the level of debt, it is that the

composition of borrowing behaviour in Canada is being Chart 2
distorted by low rates with a pronounced shift toward
interest-only revolving debt via secured and unsecured
personal lines of credit that have cannibalized fixed and
variable rate installment loans. That amounts to
households going for maximum bang for the buck on short-
term debt payments via substituting very low interest-only
payments for debt products that required principal
repayment mixed into an amortization schedule in past
cycles. Drawn balances on personal lines of credit at just
banks have risen by $52 billion since Lehman blew up, and
now account for about 46% of total consumer loans
including card balances, fixed and variable rate loans, and
lines, but excluding mortgages. The figure would be well

Capital Points is available on: Bloomberg at SCOE and Reuters at SM1C

Global Economic Research July 23, 2010

Capital Points
over 50% if personal lines at credit unions and other financial intermediaries were Chart 3
included. The installment loan business has been largely killed. Over this same
post-Lehman period, balances on installment loans and cards at banks have
each risen by only $5-6 billion. Such balance growth on industry-wide
personal credit lines also equates to about two-thirds of the increase in
residential mortgage debt over this same post-Lehman period.

In our opinion, this reflects monetary policy working all too well, and on that,
Canada remains far apart from conditions in the US. There are no demand or
supply constraints on household borrowing behaviour in Canada. The Fed is
stuck in a liquidity trap where low interest rates are failing to stoke inelastic
demand for money, and faces limited ability to offer further stimulus (see page
6). The US also faces an exceptionally bleak summer-time housing market
environment (page 5). In Canada, however, money multipliers are high and
trending higher while in the US they are falling as the Fed’s frenzied pace of
high-powered money creation (or the monetary base) fails to work itself further
up the money supply aggregates (chart 3).

What’s more is that the business loan picture is also different in Canada than
the US. Small- and medium-sized businesses have not experienced
anywhere near the kind of contraction in business borrowing in Canada Chart 4
during this past recession that they did in the prior two recessions of
the early 1980s and early 1990s, nor did they come close to the Dom estic Econom y Trum ps Trade as a Driver of Canadian Grow th
contraction witnessed in the United States over the crisis period so far. 8 %
Virtually all of the contraction in total short-term business lending at 6
banks in Canada has been at larger businesses that have substituted 4
toward capital market issuance in a classic play. In addition, the Bank 2
of Canada’s Senior Loan Officer Survey is already pointing to a net 0
outright easing of price and non-price terms on business loans.
-2

Over-Stated Impact of Global Risks on Canada -4

The second reason why the BoC can jump the Fed is that concerns -6 REAL GDP GROWTH
over global growth risks and their impact on Canada are over-rated in -8 NET TRADE CONTRIBUTION
our opinion. As one observation, consider that the Canadian economy -10 TO GDP GROWTH
has outperformed despite the fact that net trade has been a drag on the 00 01 02 03 04 05 06 07 08 09 10
economy. It has been for the better part of the past ten years, remains So urce: Statistics Canada, Sco tia Capital Eco no mics.
as such for each of the past four quarters (chart 4), and is forecast to
remain that way in future. Yet Canada chalked up annualized 2010Q1
growth at a pace double that of the US. Why? Because of the domestic economy. Yes housing is flattening out as a driver
of GDP growth, but let’s not discount the already evident expansion in business investment. Further, we think the Canadian
consumer can remain on a positive upward trend in making solid contributions to overall GDP growth (see page 8).

As for concerns over the impact upon the Canadian dollar stemming from the BoC hiking ahead of the Fed, we repeat three
considerations. One is that if fundamentals dictate both a rise in overnight rates and CAD appreciation, then CAD’s rise
falls within the classic ‘type 1’ factors that do not reflect a net tightening of conditions on the Canadian economy. Two is
that even if that is not fully the case—and CAD is already pricing in a portion of material rate hikes—then the Canadian
economy arguably needs a combination of tightening through rates and the currency. That is our core view on further
modest appreciation in CAD into next year. Finally, we refer readers to our earlier paper, “CAD Parity Doesn’t Mean What
it Used To,” Tuesday April 6th 2010, for our views on how the Canadian economy has reduced its sensitivities to an
elevated value of the currency now compared to pre-NAFTA.

Whereas a year ago the policy response of the BoC made sense and had broad agreement, today and with the benefit of
hindsight, we see that Canadian rates went too low and Canadian money supply growth went too high. The way to address
that is not to cling to past arguments or past relationships to cycles, but instead be open to new options in circumstances that
are very different from past cycles. The peer group the BoC resides within during this cycle may well be populated by
central banks in Asia and Oceania and South America, and less so by the Fed, ECB, BofE and especially the BoJ that is
grappling with exceptional Yen strength coupled with deflationary pressures that make it the least likely to hike within our
forecast horizon. All told, the BoC is operating within a fundamentally different domestic context such that we think it can
fairly aggressively hike rates while other major central banks remain sidelined.

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Global Economic Research July 23, 2010

Capital Points
Next Week’s Key Market Risks

Only two central bank monetary policy meetings are slated for next week: Reserve Bank of New Zealand (RBNZ) and
Reserve Bank of India (RBI), both of which are expected to raise key overnight rates by 25bps to 3.00% and 5.75%,
respectively. The euro-zone will release two key fundamental indicators, June unemployment rate and July CPI.
However, Japan leads with the number of updates, which include June construction orders, industrial production, retail
sales, trade balance and unemployment rate as well as July CPI. In North America, the highlight will be the release of
GDP numbers in both Canada and the United States. In Canada, the May report on real GDP is due out next Friday, with
headline growth expected to have picked up pace to 0.1% m/m. In the United States, we get the preliminary update on the
economy on Friday, with our forecast looking for a gain of 2.8% q/q annualized in the second quarter.

CANADA

The May report on real GDP is due out next Friday. We predict headline growth will pick up to 0.1% m/m, from a flat
reading in April. Gains in price-adjusted retail and manufacturing sales volumes as well as a surge in aggregate hours
worked will be only partly offset by declines in housing starts and wholesale trade volumes as well as a wider real trade
deficit.

Industrial prices are likely to have continued to push higher in June for the third straight month, as commodity prices
increased. Over the course of the month, Thomson Reuters/Jefferies Commodity Research Bureau (CRB) Index was
broadly higher, up 1.5% m/m. Crude oil added 2.2% m/m to finish the month at US$75.63/bbl. In contrast, the Canadian
dollar shed 1.8% m/m against its U.S. counterpart, posting a third straight month of depreciation. As a result, we expect the
headline producer price index to have climbed by 0.5% m/m in June, up from 0.3% in the previous month, with the cost of
raw material goods advancing at a faster clip of 0.8% m/m.

The Teranet Home Price Index (THPI) showed that home prices advanced at the fastest clip in four months in April, up
12.9% m/m from 11.6% in March. The THPI measures price changes in repeat sales of single-family homes in six major
Canadian cities, three of which are in Ontario and British Columbia. We expect home prices to have increased by 12.5% y/
y, a slight moderation from April due to base effects; home prices bottomed in April 2009 such that May’s Teranet report
will no longer be keyed off falling house prices a year ago. The HST's more sizeable impact on new home prices may help
insulate against what might have been harsher downsides to resale prices by encouraging some substitution away from new
homes toward resales that are less affected by the HST. In its most recent Monetary Policy Report, the Bank of Canada said
that it expects the housing market “to weaken further through the remainder of 2010 and well into 2011,” in line with our
view. Recent data from the Canadian Real Estate Association indicate that the home resale market is starting to show signs
of cooling.

UNITED STATES

Data released to date suggest that real GDP growth is likely to have remained in the high-two per cent zone in the second
quarter. Our forecast predicts a gain of 2.8% q/q annualized, relative to 2.7% in the previous quarter. Most support is still
likely to have come from household consumption, although less so than in the first quarter. Trend over the recent months
provides evidence that companies are ramping up business investment — and across a broadening set of categories — which
will also add to the GDP headline. Following the expiry of the first-time homebuyer’s tax credit at the end of April, the
contributions from residential investment will likely be flat to modestly positive, as will that of inventories, given that the
inventory restocking cycle is beginning to wear off. Historically, inventory restocking would add the most to the economy in
the first two quarters of the recovery, and would thereafter revert to its long-term trend of neutral contribution. Finally, trade is
expected to shave about 0.5 percentage points from the headline print, on strong demand for imported goods.

New home sales are likely to have remained in the low-300,000 range in June. Leading indicators point to weak activity.
Mortgage purchase applications, even after last week’s gain, are 42% below their peak in the final week of April, when the
first-time homebuyer’s tax credit expired. According to the National Association of Home Builders, traffic of prospective
buyers has been falling for two months now, registering a decline of 18.8% m/m in June and 23.1% in July. For an update
on the U.S. housing market, refer to the article entitled “U.S. Housing Market Heading for a Major Correction” on page 5 of
this week’s Capital Points.

Last week, the University of Michigan confidence index posted a sharp disappointment — dropping to 66.5 in July, from
76.0 in the previous reading — as consumer confidence has been ratcheted back to where it stood at the end of last summer

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Global Economic Research July 23, 2010

Capital Points
before the recovery took hold. Both current conditions and forward-looking expectations retrenched sharply. Despite the
disappointment, confidence measures do not perform terribly well as predictors of actual spending. We expect a slowdown
in growth over 2010H1-2011 on a quarterly annualized basis, but not a double dip. In any event, we predict a more modest
decline for the Conference Board’s consumer confidence index to 52.0 in July, from 52.9 in the previous month. The
two surveys differ in a number of ways. The former asks respondents to comment on big-ticket purchases and to assess
changes in their own finances, while the latter puts more weight on the labour market. Turning to the expectations
component, the former asks questions on expected future conditions both over the next year and the next five years, while
the latter tries to gauge the six-month horizon. For more information on the differences between the two measures and their
ability to capture true economic conditions refer to a paper by NYU’s Bram and Ludvigson (http://www.econ.nyu.edu/user/
ludvigsons/698jbra.pdf).

The headline print for June durable goods report is likely to reverse the previous month’s decline, with our in-house
forecast looking for a 1.0% m/m gain as compared to a 0.6% retreat in the previous reading. Industry data suggest that the
demand for both aircraft and vehicles was higher in June, with Boeing locking in 49 new orders as compared to only 5 in
May. However, the top print is likely to be misleading, distorted by the sizeable and volatile transportation segment. We
expect growth in core orders — which exclude transportation — to have moderated to 0.5% m/m, from 1.6% in May.
According to May ISM manufacturing index, growth in shipments and new orders decelerated to a pace seen at the
beginning of the year, with new export orders reentering concretionary territory for the first time since February. That said,
order backlog remained at a historically high level, and inventory sentiment favourable. Watch out for business investment
– bookings for non-defense capital goods ex-aircraft act as a proxy for future business spending — and manufacturing
inventories, to see whether the inventory restocking cycle continued to firm up in June.

There are no notable speeches scheduled in the United States. The Treasury Department will auction US$38 billion of 2s
on Tuesday, US$37 billion of 5s on Wednesday and US$29 billion of 7s on Thursday.

INTERNATIONAL

Two central bank monetary policy meetings are slated for this week: Reserve Bank of New Zealand (RBNZ) and Reserve
Bank of India (RBI). Both are expected to raise key overnight rates by 25bps to 3.00% and 5.75%, respectively. The
RBNZ began tightening rates in June, with a 25bps hike, a first since mid-2007. The RBNZ Governor indicated that
economic growth is becoming more broad based. Should the RBI raise rates on Tuesday, this would be the fourth increase
for the RBI so far this year. While economists unanimously expect further tightening in July, beyond that point forecasts
diverge on uncertainty over inflation, global economic outlook and liquidity in the banking sector.

Two top-tier releases are on the European fundamental docket: June unemployment rate and July CPI. These reports
will be released on an aggregate and country-by-country basis. The former is expected to have remained unchanged for the
fourth straight month at 10.0%. Headline consumer prices — across the 16 countries that use the euro — are predicted to
have increased, up 1.7% y/y versus a 1.4% gain in June, as commodity prices temporarily move higher. However, core
inflation is likely to remain subdued over the medium term, well below ECB’s target rate of “below, but close to, 2%.”
Rate hikes by the ECB remain a distant prospect. The European Commission will also release its comprehensive
confidence report for July, made up of views on developments in the consumer, industrial and services sectors. Economic
sentiment is expected to have continued to edge up higher, to 99.1 from 98.7 in the previous month. Germany and Spain
are scheduled to publish June retail sales numbers. A handful of U.K. housing data series (Hometrack Housing Survey,
Nationwide House Prices, Mortgage Approvals) will get revised to include July figures.

It is going to be a major release week in Japan, as updates to a number of top-line fundamental indicators get printed,
including June construction orders, industrial production, retail sales, trade balance and unemployment rate as well
as July CPI. South Korea will publish its second-quarter GDP numbers — with the consensus expecting growth to have
moderated to 1.3% q/q from 2.1% in the previous quarter — as well as services and manufacturing output for June.

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 Global Economic Research July 23, 2010

Capital Points

Gorica Djeric (416) 862-3080 Derek Holt (416) 863-7707

U.S. Macro Comment gorica_djeric@scotiacapital.com derek_holt@scotiacapital.com

U.S. Housing Market Heading for a Major Correction

Existing home sales fell less than expected in June, retreating 5.1% m/m to 7.37 million. However, what was gained on a stronger print
in June is likely to vaporize on reports over the rest of the summer. The rush to buy in April — before the first-time homebuyer’s tax
credit expired — not only boosted existing home sales in the first quarter, but is still supporting resale activity since pending contracts
close and show up in resales only 30-60 days later for the most part. S ale s F irst-Ti m e R epe at
Ho m ebu yers H om e buyers
Looking to July, leading indicators point to a significant decline. Pending home sales Tota l S ha re S ale s S h are S a les
collapsed 30% m/m in May (June data has yet to be released). Mortgage purchase (m ns) (% ) (m ns ) (%) (m ns )
Oc tob er 5.98 50 3. 0 50 3 .0
applications, even after last week’s gain, are 42% below their peak in the final week No vem b er 6.49 51 3. 3 49 3 .2
of April. The first-time homebuyers accounted for 43% of overall existing home sales De ce mb er 5.44 43 2. 3 57 3 .1
in June. Brace yourself. Closed resale transactions are heading for a three-handled Jan uary 5.05 40 2. 0 60 3 .0
Febru ary 5.01 42 2. 1 58 2 .9
print of perhaps around 3.7 million units sold at an annualized rate later this summer. Marc h 5.36 44 2. 4 56 3 .0
That would be a record low in modern times, and far below the previous low of 4.53 A pril 5.79 49 2. 8 51 3 .0
million units sold in late 2008. As a result, initial enthusiasm will probably stumble May 5.66 46 2. 6 54 3 .1
Jun e 5.37 43 2. 3 57 3 .1
on harder evidence of deep problems in the U.S housing markets. S o u rce : R e alt ors® , S co tia E co n om ic s.

In the years ahead, we expect generally flat house prices to result from the gradual release of shadow inventories. Basel III will
amplify this risk, as a greater emphasis gets placed on capital preservation. S&P/Case-Shiller home price futures and the Home
Price Expectations Survey reaffirm this view. The latter is produced by Robert Shiller's firm, MacroMarkets LLC, and polls about
one hundred economists, including Scotia Economics. The medium-term median forecast is for house prices to be flat by the end of
2011, with a 5% standard deviation, and to rise by a cumulative 9.5% by the end of 2015. Then the key implication here would be
to expect no wealth effect for U.S. consumer spending for years to come, and perhaps delayed recognition that house prices are not
going to recover a material portion of losses, such that the emphasis on balance sheet repair remains intact. Most of the literature on
wealth effects distinguishes between temporary versus permanent wealth effects in this regard.
In June the U.S. Department of Housing and Urban Development began publishing a new monthly report entitled The Scorecard on
Administration’s Comprehensive Housing Initiative, which focuses on the progress made by the Administration to stabilize the
housing market. While the report highlights that historically low interest rates are promoting affordability and that the loan
modification programs are helping restructure mortgages and stem foreclosures, it concludes that “the recovery in the housing
market remains fragile” and that “it will take time to work through...large inventory” of homes on and off the market. Benefits of
the Administration’s US$75-billion Home Affordable Modification Program (HAMP) are showing signs of slowing down. In June
alone, more than 93,000 loan modifications were cancelled, while only about 15,000 new trial modifications started. What’s more,
some 11 million mortgages are estimated to be underwater and foreclosures remain elevated, at about 300,000 per month. The
HAMP is plagued by a cumbersome and complex administrative process. An interesting paper by Cordell et al. argues that while
HAMP has its benefits, it is not effective on two accounts. It does not deal well with restructuring associated with loss of
employment, as financial institutions remain hesitant to restructure mortgages, in part because default fees often exceed government
incentives that banks receive for loan modification. Also, the focus of the program on reducing mortgage payments (rather than the
principal) limits its appeal to borrowers, as the outlook for home prices in the medium-term is unlikely to elevate many
homeowners back above water, making it easier to just walk away from mortgages in states where that is possible.

U.S. Home Prices - Market vs Economists' Expectations Home Affordable Modification Program (HAMP)
240 240 1.8 1.8
index millions
1.6 1.6
220 220
All Active Loan Modifications
1.4 1.4
Active Trials
200 200
1.2 Active Permanents 1.2

180 180 1.0 Total Loan Modifications Cancelled 1.0

160 160 0.8 0.8

0.6 0.6
140 140
S&P/Case-Shiller Home Price Index
0.4 0.4
120 S&P/Case-Shiller Home Price Futures 120
0.2 0.2
S&P/Case-Shiller Home Price Expectation Survey of Economists
100 100 0.0 0.0
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10

Sources: S&P/Case-Shiller Home Price Index, MacroMarkets LLC , Scotia Capital Sources: HAMP system of record, Scotia Capital Economics.

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Global Economic Research July 23, 2010

Capital Points

Gorica Djeric (416) 862-3080 Derek Holt (416) 863-7707

U.S. Monetary Policy gorica_djeric@scotiacapital.com derek_holt@scotiacapital.com

Bernanke’s Options are Very Limited

The US remains stuck in a liquidity trap and there is precious little the Fed can do about it by way of additional easing options.
While Federal Reserve Chairman Ben Bernanke's semi-annual testimony on monetary policy to the US senate this past week held
out its willingness to act, we think many of its options are likely to be ineffective over time.

The core challenge is that the demand for money in the US economy remains interest inelastic, or insensitive to low rates. It's a
very dangerous spot for a central bank to wind up. Cutting interest on reserves won't do a thing, as a quarter point difference on idle
cash parked at the Fed won't do much to the attractiveness of lending and could well foul up the proper functioning of short-term
money markets all over again. We at least hope that a bank would expect to earn more on loans than a miserly quarter point
alternative in slipping it in the Fed’s mattress such that cutting the interest on excess reserves would do nothing to stoke credit
creation. It also won't force people to borrow. Ditto for buying more Treasuries, agencies or MBS, as an extra modest reduction in
longer rates will be shaken like water off a dog's back, assuming markets understand we’re in an environment with a zero inflation
threat for years and don’t penalize such a policy shift through allowing inflation fears to push up the curve on concerns that the Fed
is acting as the lender of last resort to Washington.

Extending the rate promise in order to push the Fed’s influence further up the
curve won't help either. With US 2s trading just over a paltry half point in
yields and 5s at about 1.7%, even an explicit message to markets that the Fed
will not hike for years won’t materially impact rates. Thus, extending the
“exceptionally low” and “for an extended period” language won’t effectively
add any further Fed influence up the curve than what is already baked in.

After all, what don't we really get about the fact that US home prices are still
30% lower than their peak in the summer of 2006, and US household net
worth is still down US$11 trillion from its peak in 2007Q2? Sure, it has
come back from the loss of US$17.6 trillion that had been booked by
2009Q1, but that’s almost entirely due to higher stock prices that are focused
upon the upper income segments that hold the vast majority of stock wealth.
More important to the mainstreet economy is that US$7.2 trillion in home
equity has been lost, and that is showing no signs of coming back. If the
latest survey of over 100 economists by Robert Shiller’s firm MacroMarkets
LLC is any guide, US home prices might rise a cumulative 10% over the
next five years. Yes, economists have been known to be wrong on occasion
(humour us…), but massive sidelined shadow inventories that have an all-
time record high inventory overhang of unsold listed and unlisted excess housing isn’t an environment within which to reasonably
expect material house price appreciation. With this as the operative backdrop for the Fed, you simply can't pay people to borrow.
They’re worried about their retirement. About footing the college bills for the boom-echo kids of the boomers. About the future
status of their pensions. They spent too much in the party years, and now the reckoning begins. That’s why economy-wide debt in
the US economy is flat despite enormous government issuance as the private sector is mired in pay down mode (see chart). It is
also why a dicey experiment in building inflation expectations wouldn’t work. Would minus 5% real rates make US consumers feel
better about borrowing more against their fallen retirement nest eggs? Deeper negative real rates are likely to be even less
influential now in an aging population than in the past, given the harm that would be done to the fixed income cohorts that are about
to blossom in a fundamentally different age structure of the US population than that which has existed in the past.

In fact, operating at the zero bound on rates is part of the problem in facilitating deleveraging. There is zero incentive for people to
spend when they can take enormous amounts of idle liquidity on household balance sheets that is earning zilch, and use it to pay
down high-cost credit. Where else to put that liquidity when public mistrust of stock markets has been justified on a largely lost
decade for such investments, and the bond market is offering stale peanuts in exchange for your paycheque assuming you have one?
It is also part of why banks are buying up massive lots of Treasuries. Banks' asset-liability choices have them skewed toward
lending for short- to medium-term horizons, and that currently earns them nothing after admin costs at today's low rates. So lend
within a medium-term horizon that doesn’t compensate for risk and transactions costs? Or lend for minimal risk further up the
curve to at least pad something into net interest income? Yes, ZIRP (zero interest rate policy) has backed central banks into a
corner but it’s difficult to see what else they could have done.

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Global Economic Research July 23, 2010

Capital Points

Gorica Djeric (416) 862-3080 Derek Holt (416) 863-7707

Canadian Monetary Policy gorica_djeric@scotiacapital.com derek_holt@scotiacapital.com

The Bank of Canada Explains its Inflation Reasoning

The key to the July Monetary Policy Report (MPR) that was released just this past week was the BoC’s effort toward explaining
why it thinks that despite pushing out the point at which spare capacity is absorbed in the Canadian economy two additional quar-
ters until 2011Q4, it has chosen to leave its inflation views largely unchanged over its forecast horizon.

While the June inflation readings softened with core CPI coming it at 1.7% y/y, the BoC is forecasting that inflation will rest on
its 2% target over the 12-18 month time horizon of maximum relevance to making monetary policy decisions into next year (see
chart). It explained several effects that trade off in terms of upsides and downsides.

Downside influences to headline CPI include lower commodity 2.4 The BoC's Inflation Forecast
prices than previously forecast since the BoC uses an average of y/y % change
oil futures contracts over the two weeks ending July 16th that 2.2

have pushed lower than in the April MPR. Another downside 2.0
influence is the BoC’s expectations regarding the pass-through
effect of refunded tax credits related to the implementation of the 1.8
HST in Ontario and British Columbia that they estimated will 1.6
knock 0.3% off core and total CPI over the second half of the
1.4 Headline inflatio n
year. The BoC argues that this transitory effect reverses later in
Co re inflatio n
the forecast horizon so as to put inflation back at the 2% target. 1.2
Another downside influence the BoC is expecting is for dissipat-
ing wage growth relative to productivity gains to draw down unit 1.0
10q1 10q2 10q3 10q4 11q1 11q2 11q3 11q4 12q1 12q2 12q3 12q4
labour costs and reduce cost-push types of inflation pressures.
Finally, the added downside to inflation pressures is what the So urce: M o netary P o licy Repo rt, B ank o f Canada

BoC is telling markets in terms of adjusting monetary policy:

“This projection includes a gradual reduction in monetary stimulus consistent with achieving the inflation target.”

Upside influences on inflation compared to the prior MPR include a lower assumed value for the Canadian dollar that lessens the
potential import price pass-through effect of lower prices. Expectations also remain sticky. The BoC is also betting that inflation
upsides will come through a gradual closing off of excess capacity.

From our viewpoint, this is a fair balancing of projected influences that supports the further withdrawal of excess monetary
stimulus. The arguments presented in our front page article in this week’s Capital Points ultimately need to be interpreted within
the context of the BoC’s inflation views that entail a non-emergency policy setting marked by substantial increases in the over-
night rate. We think an overnight rate forecast range of 2 ¼ % to 2 ¾ % with upside risks by next summer is reasonable inde-
pendently of what the Federal Reserve does over this period.

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Global Economic Research July 23, 2010

Capital Points

Gorica Djeric (416) 862-3080 Derek Holt (416) 863-7707

Canadian Macro Comment gorica_djeric@scotiacapital.com derek_holt@scotiacapital.com

Canadian Consumers Could Out-Perform US Consumers

Chart 1
While our front page article spoke to reasons why a profoundly different leverage Canada's Job Market
0.8
cycle in the United States versus Canada represent cause for the BoC to hike its m/m % a World Beater
0.6 change
overnight rate fairly aggressively while the Fed stands pat, it’s important to con- C a na da
sider other elements of Canadian household finances that remain supportive of con- 0.4
sumer spending. In fact, such conditions may well come to support out- 0.2
performance in Canadian consumer spending compared to the US.
0.0

First is clearly the jobs picture (chart 1). Canada didn’t cut as aggressively as the -0.2
US for as long a period, and has witnessed a strong rebound in job creation since U.S .
-0.4
last summer. Canada has gained 308,000 jobs since July of last year, and about a
quarter million over just the past quarter. We have our doubts that job growth is -0.6
truly that strong, but it isn’t to be dismissed as out-performance of the US job mar- -0.8
ket. The comparable pace of job creation in the United States would have had to
-1.0
have been on the order or 3 million to 3.5 million nonfarm payroll jobs since last 08 09 10
July. However, over this period, the US is up only 176,000 jobs. Further, most of So urce: B LS, Statistics Canada,
the recent gain in the US that is shown in chart 1 consists of temporary Census Sco tia Capital Eco no mics.
jobs; private payrolls remain 78,000 lower than July of last year.
Chart 2
Second, Canadian home equity remains vastly superior to the US (chart 2). This
chart, however, mildly overstates the advantage. Part of this is because Home Eq-
uity Lines of Credit (HELOCs) are included in the US definition of mortgage debt
that is subtracted from housing assets, but are not included in the Canadian defini-
tion. That’s partly because of a lack of industry-wide data on the secured portion of
personal lines of credit in Canada. Regardless, Canadian home equity would re-
main vastly superior than in the US. That somewhat overstates the advantage in
Canadian household finances, however, because mortgage interest deductibility
encourages Americans to make much more use of mortgages within the mixture of
household debt than is the case in Canada.

Finally, liquidity on Canadian household balance sheets remains very high and
tempting to consumers (chart 3). Even the run-up in the Tax Free Savings Account
is principally concentrated upon very low yielding and highly liquid savings depos-
its (chart 4).

Chart 3 Chart 4

8
Global Economic Research July 23, 2010

Capital Points

Camilla Sutton (416) 866-5470 Sacha Tihanyi (416) 862-3154

Foreign Exchange Markets camilla_sutton@scotiacapital.com sacha_tihanyi@scotiacapital.com

The New Renminbi Basket

With China’s decision to once again allow flexibility in the renminbi, there CNY vs. USD: Three Paces of CNY Appreciation 
is a diversity of opinion regarding the pace of appreciation that will be
allowed against the USD (we target 6.60 in USDCNY by the end of
2010 and 6.20 by the end of 2011). Additionally, one may wonder how
policymakers will manage the renminbi’s newfound flexibility
considering their intention to once again target a basket of currencies in
a managed floating currency regime. We have published a research
piece (please see Global FX Strategy: Estimating the Renminbi
Target Basket, available upon request) that looks at the 2005 to 2008
floating period and estimates the “shape” of the basket of currencies that
the renminbi could be managed against, in order to understand the
importance that policymakers will place on the USD versus other
currencies. We also look at the degree of flexibility that policymakers
allowed in CNY over the previous managed floating period, assessing
the factors that influence the decision to allow a more rapid appreciation
(or not as the case may be) in lieu of additional reserves accumulation. We Renminbi Basket Parameter Estimates 
present a brief summary of our results below, with greater detail
contained in the above mentioned research piece.

It appears that the USD was by far the most important currency in our
basket of USD, EUR, JPY and GBP, accounting for 84% of the basket
weight over the entire period. EUR was the second most important
currency, accounting for 13% of the target basket weight, while JPY
and GBP were estimated to be only marginally important in the
renminbi target basket, accounting for no more than 4% of the basket
weight at best (when statistically significant). Generally, the renminbi
was estimated to be on the inflexible side of spectrum, with a
flexibility estimate of 0.21 on a scale of 0 (completely inflexible) to 1
(perfectly flexible/market determined), suggesting that Chinese
policymakers were very reliant on utilizing reserves accumulation
in order to resist appreciatory pressures, even as the pace of Parameter Estimates
Period First Second Third Entire Statistical Signif. Level
renminbi appreciation against the USD increased. We also
USD 0.81 0.88 0.84 0.84 Highly significant
conducted a period-by-period analysis of the target basket,
EUR 0.11 0.04 0.150 0.13 2.50%
breaking the 2005 to 2008 range into 3 sub-periods based on the
JPY 0.04 ‐0.01 0.020 0.02 5%
different rates of renminbi appreciation against the USD. The GBP 0.04 0.09 ‐0.010 0.01 10%
results broadly match those from the overall period as far as Flexibility 0.36 0.07 0.09 0.21 Insignificant
basket weightings go; the USD retains a consistent weight of well
over 80% while the EUR weight is normally the second highest in the renminbi target basket. One interesting result however is that
as the pace of renminbi appreciation against the USD increased, the flexibility measure decreased. This implies that the more
rapidly CNY appreciated against the USD, the more active monetary authorities were in resisting additional appreciatory pressure.
Also, the greater the pace of broad based USD depreciation (against all major currencies), the less flexibility was allowed in CNY.

Ultimately, we suspect that this is due to the need to ensure cost competitiveness against other major currencies as CNY appreciated
against the USD during a period of rapid and broad based USD depreciation. Additionally, the sheer size of USD reserve holdings
maintained by the Chinese necessitated a cautious approach to pursuing CNY strength, as Chinese policymakers seemed to favour
even more rapid reserves accumulation in lieu of realizing too rapid a capital loss on USD-denominated FX reserves.

The results imply that going forward, the USD will continue to be the prime focus for Chinese policymakers in their renminbi target
basket, and that the amount of flexibility that is allowed will be dependent on the state of China’s trade balance and the evolution in
the USD. The more rapid the depreciation in the USD, the more likely the flexibility in CNY will be reduced, and the higher the
weight placed on EUR will be in order to support the cost competitiveness of Chinese exports.

Please contact us should you wish to see the full renminbi research piece.

9
Global Economic Research July 23, 2010

Capital Points

Sarah Howcroft (416) 607-0058 Tuuli McCully (416) 863-2859

International Markets sarah_howcroft@scotiacapital.com tuuli_mccully@scotiacapital.com

Markets Require Time to Digest EU Bank Stress Test Results; Seven Out of 91 Banks Require More Capital

The process of financial stabilization in Europe is gathering speed following the release of the European bank stress test results on
July 23rd by the Committee of European Banking Supervisors (CEBS). While the results imply that the banking sector in the
European Union (EU) is fairly resilient, they revealed some weaknesses as well. The CEBS together with the European Central
Bank (ECB) and national supervisory authorities conducted stress tests on 91 European financial institutions that represent 65% of
the EU’s banking sector. In addition to testing major cross-border banking groups, the coverage also included many domestic credit
institutions, such as the Spanish cajas that have been considered to be among the most vulnerable.

The objective of the exercise was to assess the banking sector’s resilience in 2010 and 2011, and its capacity to weather possible
credit shocks, such as those stemming from sovereign risks related to highly-indebted euro zone countries, and to assess the banks’
dependence on public support measures. If a bank’s financial strength — i.e. its ability to sustain future losses — is not adequate, as
measured by a Tier 1 capital ratio (core equity capital / total assets) of at least 6% (the regulatory minimum is 4%), it will need to
raise more capital.

The tests included two macro-economic scenarios: the benchmark scenario assumes a modest economic recovery in the euro zone
(GDP growth at 0.7% in 2010 and 1.5% in 2011) while an adverse scenario is based on a double-dip recession (with real GDP
growth of -0.2% in 2010 and -0.6% in 2011). The adverse scenario had two components: the first included a global confidence
shock affecting demand worldwide, and the second added an EU-specific shock stemming from a worsening of the sovereign debt
crisis. An upward shift was implemented for the yield curve at both the short-end — to capture interbank liquidity problems — and
the long end of the curve — to depict deteriorated perceptions regarding the countries’ sovereign creditworthiness. The tests also
included valuation haircuts to sovereign bond holdings for each country, ranging between 4.2% (Slovenia) and 23.1% (Greece),
however an outright sovereign default was not considered. In addition, sovereign-debt losses were mapped for those bonds that
banks trade, rather than those that are held to maturity.

The impact of the sovereign debt shock varied by country, according to their respective international public sector exposure. With
the addition of the sovereign debt shock, seven European banks saw their Tier 1 capital ratios fall below 6% in 2011, up from five
in the case with the global demand shock only. Furthermore, there were 10 institutions with capital ratios that fell in the 6.0-6.9%
range under the initial adverse scenario, increasing to 17 with the inclusion of the sovereign debt shock. One of the failed
institutions is German, which is already owned by the government, while one is a Greek bank, and the remaining five are Spanish
(one bank and four cajas). To date, the Spanish government has already promised sizable funds for recapitalization purposes. The
Spanish banking sector faces sizable challenges; in addition to its large domestic exposure, it is the main foreign lender to Portugal,
accounting for 35% of total international claims on that country, according to BIS data.

As noted beforehand by European authorities, transparency of the testing mechanism is a key element in building credibility and
improving investor confidence. Indeed, with plenty of details published regarding testing procedures, investors will be able to
scrutinize the credibility of the tests easily, though it will take some time; presumably, this was one of the reasons for publishing the
results at the end of the trading week. Nevertheless, investor concerns will likely remain in place regarding the stringency of the
tests; macro-economic assumptions fall short of the economic contraction of more than 4% in 2009, though two consecutive years
of economic decline can be considered a fairly pessimistic assumption.

Following a relatively neutral initial market reaction to the stress test results (the euro remained virtually unchanged on the day vis-
à-vis the US dollar, while the yield of the Spanish 5-year bond increased only by 1 basis point to 3.22%), we expect that the
European sovereign debt crisis has now passed one of the key hurdles and signs of stabilization will start to emerge. Nevertheless,
with the turmoil mainly driven by rapidly changing investor confidence, uncertainty remains high at least in the near term. While
financing conditions for many of the countries in the euro zone periphery remain tough and achieving fiscal sustainability is vital in
order to maintain investor confidence, the stress test results support our view that sovereign debt issues will not cause any
unprecedented difficulties for the European banking sector. Nevertheless, potential for a Greek debt restructuring remains in place.
According to BIS data, the French banking sector is the largest lender to Greece, accounting for 35% of total international claims
(as of Q1 2010) on the country, though these claims on Greece account for only 2% of the French banking sector’s international
exposure. With the Greek public sector accounting for 46% of all international borrowing, a debt restructuring would have an
adverse — though limited — impact on French banks. Nevertheless, the results of the stress tests, that cover nearly 80% of the
French banking sector, indicate that the country’s financial institutions are among the most resilient in Europe.

10
Global Economic Research July 23, 2010

Capital Points

Patricia Mohr (416) 866-4210

Commodity Markets pat_mohr@scotiacapital.com

Outlook on Copper and Oil Market Dynamics

Excerpts from ‘Scotiabank Commodity Price Index’ report, July 21, 2010.

LME copper prices (a bellwether) have surged in recent days and remain exceptionally lucrative in mid-July at US$3.14 per pound
— yielding a 57% profit margin over average world breakeven costs. While China’s refined copper imports have fallen back in the
past three months, the decline likely reflected ‘negative arbitrage’ several months ago (i.e. higher prices on the LME than on the
Shanghai Futures Exchange — SHFE), rather than any significant decline in consumption (as incorrectly assumed by many
observers). Demand for copper was still very high and climbing in China at least through May, as indicated by a rising price
‘premia’ for copper (currently at 6.8 US cents at ‘bonded warehouses’ in Shanghai). The arbitrage has also turned positive again in
favour of Shanghai and Chinese traders have resumed buying – partly accounting for strong prices in recent days. Inventories on
the SHFE have dropped by 38% since late April — with buyers probably taking stocks off the Exchange to meet strong demand.
Tight copper scrap supplies have increased the demand for primary metal, with Chinese smelters running their mills virtually at full
capacity in June. LME copper stocks have also dropped by 23% since mid-February — reflecting a noticeable improvement in U.S.
and overall G7 demand in 2010:Q2.

While China’s copper consumption will likely ease in 2010:Q3, for seasonal as well as fundamental reasons, demand should pick
up again moderately later in the year. Beijing’s recent renewal of the ‘home appliance subsidy scheme’ through late 2012, China’s
plan to encourage production of electric vehicles and the ongoing upgrade of the country’s power infrastructure will underpin
copper demand. China’s copper consumption should grow by 10% in 2010 and 8% in 2011, after 2009’s extraordinary 28%.
Global supply/demand conditions may shift into genuine deficit in 2011 (the first since 2006) — even with weak Euro zone demand
and stepped-up mine production (after this year’s -1.6% decline and an increase of only 1.1% p.a. since 2006) — keeping average
copper prices around US$3.

Turning to oil, the Obama Administration issued a new moratorium on ‘exploratory & development’ drilling in the U.S. Gulf of
Mexico on July 12 to replace the original six-month ban — struck down by a federal court as well as an appeals court. The new
moratorium will apply to all floating rigs using subsea blowout preventers or surface blowout preventers (not just drilling in more
than 500 feet of water). The ban will remain in place until November 30 (after the November 2 Congressional elections), though
there may be conditions for resuming certain ‘deepwater’ activities sooner if safety appears ensured. While ‘producing’ wells are
not affected, injection wells to boost existing output are. The ban is intended to give a Presidential commission time to investigate
the causes of the BP accident and for new safety regulations to be designed.

Meanwhile, the exodus of drilling rigs from the GOM has begun, with Diamond Offshore Drilling relocating two deepwater rigs to
Egypt and the Congo (Brazzaville), two other companies considering a shift to West Africa and Rowan working on relocating two
shallow-water rigs. U.S. oil production will be cut by 45,000 b/d in 2010 and as much as 195,000 b/d in 2011 due to moratorium
delays, tightening U.S. domestic oil supplies and posing a significant drag on the U.S. Gulf Coast economy (50,000 jobs linked to
the offshore E&P industry). The Federal Gulf of Mexico accounts for more than one-third of U.S. oil production, 80% of which is
in the ‘deepwater’. WTI oil is expected to average US$79 per barrel in 2010 and US$80 in 2011.

11
Global Economic Research July 23, 2010

Capital Points

Mary Webb (416) 866-4202

Fiscal Policy mary_webb@scotiacapital.com

Japan: Looking Towards Longer-Term Constraints

The loss of an upper house majority by the ruling Democratic Party of Japan potentially delays but does not alter the advantages of
proceeding with major, longer-term fiscal reforms. Entering 2009, Japan was already burdened with a structural general government
deficit averaging 3.6% of GDP from 2005 to 2008 and gross debt equal to 195% of GDP. In 2009, with the slide in government
receipts as Japan’s real GDP dropped 5.2% and the introduction of significant two-year stimulus, the IMF estimates that the
structural shortfall expanded to more than 7.0% of GDP and the actual general government deficit widened beyond 10% of GDP.
By December 2010, Japan’s gross general government debt according to IMF estimates is expected to top 225% of GDP. Yet the
political and economic challenges are formidable in sustaining Japan’s economic growth while embarking upon extended fiscal
consolidation that realistically includes entitlement program reforms, non-social security spending restraints and rising taxes, most
notably in the consumption tax rate.

What has made Japan’s fiscal situation sustainable to date has been the ample domestic demand for Japan’s government debt,
severing the typical connection between government bond yields and widening deficits (see chart). Japan, even with the sharp
decrease in its personal saving rate this decade, still boasts a massive pool of household assets with individuals’ appetite for risky
assets remaining weak with the global downturn. Through the banking sector (including the Japan Post Bank), a large share of
Japanese households’ savings parked in deposits is invested in JGBs. For the corporate sector, financial assets held with banks also
have been funneled to JGBs. As well, Japan’s other institutional investors have been large and stable purchasers of government
bonds. And finally, government reform of the Fiscal Investment and Loan Program (FILP) has reduced the program’s liabilities
since 2000, making room for other government debt.

Looking forward, Japan’s older population with its rising share of seniors points to pension and 8 Japan's Borrowing Costs
other asset drawdowns, a trend long foreseen in Japan. For the year ending this past March, 10-Year Gov't
Japan’s public pension funds were a small net seller of government bonds, though life assurers’ 4 Bond**
and commercial banks’ purchases more than compensated for the small decline. However, Japan’s
reforms offering more flexibility to its institutional investors could have more impact as the 0
current attractiveness of safe havens wanes. Moreover, much of the FILP reform is completed.
Although the government has raised its average debt maturity (including short-term financing -4
bills) to an estimated 5-5½ years, Japan’s annual financing requirements remain substantial —
roughly 30% of GDP for government bonds and 20% of GDP for short-term bills in FY10 — -8
underlining the importance of ongoing public debt management. The risk of a rise in government Deficit/GDP*
%
yields for Japanese bank portfolios is recognized in the banks’ risk management requirements. In -12
shifting to a negative outlook on Japan’s long-term ‘AA’ sovereign rating in January 2010, 90 94 98 02 06 10f
Standard & Poor’s indicated the need for a credible mid-term growth and fiscal consolidation * General government basis. ** 2010
average: January 1 - July 22. Source: IMF,
strategy, recommendations that were echoed in the IMF’s recent Article IV consultation. Bloomberg, Scotia Economics.

12
Global Economic Research July 23, 2010

Capital Points

Estimates for the week of July 26 – 30

Canada
Date ET Indicator Period BNS Consensus Latest
07/28 (09:00) Teranet - National Bank HPI (y/y) May 12.5 -- 12.9
07/29 (08:30) IPPI (m/m) Jun 0.5 0.5 0.3
07/29 (08:30) Raw Materials Price Index (m/m) Jun 0.8 1.0 -7.2
07/30 (08:30) Real GDP (m/m) May 0.1 0.2 0.0

United States
Date ET Indicator Period BNS Consensus Latest
07/26 (10:00) New Home Sales (mn a.r.) Jun 0.31 0.32 0.30
07/26 Treasury's Brainard Delivers Address in Washington (12:00)
07/27 (07:45) ICSC Chain Store Sales - Weekly (w/w) Jul. 24 -- -- 1.4
07/27 (09:00) S&P/Case-Shiller Home Price Index (y/y) May 3.7 3.8 3.8
07/27 (10:00) Richmond Fed Manufacturing Index Jul -- 14.5 23.0
07/27 (10:00) Consumer Confidence (index) Jul 52.0 51.0 52.9
07/27 (17:00) ABC Consumer Confidence (index) Jul. 25 -- -46 -45
07/28 (07:00) MBA Mortgage Applications (w/w) Jul. 23 -- -- 7.6
07/28 (08:30) Durable Goods Orders (m/m) Jun 1.0 1.0 -0.6
07/28 (08:30) Durable Goods Orders ex. Trans. (m/m) Jun 0.5 0.4 1.6
07/28 (14:00) Beige Book --
07/29 (08:30) Initial Jobless Claims (000s) Jul. 24 480 460 464
07/29 (08:30) Continuing Claims (mn) Jul. 17 4.40 4.53 4.49
07/29 Fed's Fisher Speaks on U.S. Economy in San Antonio (13:20)
07/30 (08:30) GDP Deflator (q/q a.r.) Q2-A 1.5 1.1 1.1
07/30 (08:30) GDP (q/q a.r.) Q2-A 2.8 2.5 2.7
07/30 (08:30) Employment Cost Index (q/q) Q2 -- 0.5 0.6
07/30 (09:45) Chicago PMI (index) Jul -- 56.0 59.1
07/30 (09:55) U. of Michigan Consumer Sentiment Jul-F -- 67.0 66.5

13
Global Economic Research July 23, 2010

Capital Points

Estimates for the week of July 26 – 30

Europe
Date ET Indicator Period BNS Consensus Latest
07/27 (04:00) EC M3 (3 mth avg.) Jun -- -0.2 -0.2
07/28 (02:00) GE CPI (m/m) Jul -- 0.3 0.1
07/28 (02:00) GE CPI - EU Harmonized (m/m) Jul -- 0.2 0.0
07/29 (02:00) UK Nationwide House Prices (m/m) Jul -- -0.3 0.1
07/29 (02:45) FR Producer Prices (m/m) Jun -- 0.3 0.0
07/29 (03:55) GE Unemployment (000s) Jul -- -20.0 -21.0
07/29 (03:55) GE Unemployment Rate (%) Jul -- 7.6 7.7
07/29 (04:30) UK M4 Money Supply (m/m) Jun -- -- 0.0
07/29 (04:30) UK Net Consumer Credit (GBP bn) Jun -- 0.2 0.0
07/29 (05:00) EC Economic Confidence Jul -- 99.1 98.7
07/29 (05:00) EC Consumer Confidence Jul -- -14.0 -14.1
07/29 (05:00) EC Business Climate Indicator Jul -- 0.4 0.4
07/29 (05:00) EC Industrial Confidence Jul -- -5.0 -6.0
07/29 (19:01) UK GfK Consumer Confidence (index) Jul -- -20.0 -19.0
07/30 (02:00) GE Retail Sales (m/m) Jun -- -0.2 3.0
07/30 (05:00) IT CPI (y/y) Jul -- 1.5 1.3
07/30 (05:00) EC Unemployment Rate (%) Jun -- 10.0 10.0

Asia/Oceania
Date ET Indicator Period BNS Consensus Latest
07/26 (00:00) VN Exports (y/y) Jul -- -- 15.7
07/26 (00:00) VN Imports (y/y) Jul -- -- 29.4
07/26 (21:00) PHI Imports (y/y) May -- -- 45.3
07/26 (21:00) PHI Trade Balance (US$ mn) May -- -- -846.0
07/27 (04:30) HK Trade Balance (HK$ bn) Jun -- -24.9 -25.1
07/27 (04:30) HK Imports (y/y) Jun -- 25.2 29.7
07/27 (04:30) HK Exports (y/y) Jun -- 22.7 24.4
07/27 Bank of Japan Board Member Kamezaki to Speak in Sapporo City (22:00)
07/28 (17:00) NZ RBNZ Official Cash Rate (%) -- 3.00 2.75
07/28 (19:50) JN Large Retailers' Sales (y/y) Jun -- -4.0 -4.0
07/28 (19:50) JN Retail Trade (m/m) Jun -- 0.4 -2.0
07/28 (19:50) JN Retail Trade (y/y) Jun -- 3.2 2.8
07/29 (19:30) JN Household Spending (y/y) Jun -- -0.8 -0.7
07/29 (19:30) JN Jobless Rate (%) Jun -- 5.2 5.2
07/29 (19:30) JN National CPI (y/y) Jun -- -0.7 -0.9
07/29 (19:30) JN Tokyo CPI (y/y) Jul -- -0.8 -0.9
07/29 (19:50) JN Industrial Production (m/m) Jun -- 0.2 0.1
07/30 (01:00) JN Housing Starts (y/y) Jun -- 1.8 -4.6
07/30 (03:30) TH Trade Balance (US$ mn) Jun -- -- 2299
07/30 (03:30) TH Imports (y/y) Jun -- -- 53.5
07/30 (03:30) TH Exports (y/y) Jun -- -- 42.5

14
Global Economic Research July 23, 2010

Capital Points

Contacts

Economics Equity Research

Derek Holt, Vice-President John Henderson, Managing Director, Head of Equity Research
derek_holt@scotiacapital.com john_henderson@scotiacapital.com

Karen Cordes Woods, Financial Markets Economist

(Currently on maternity leave) Fixed Income
Gorica Djeric, Financial Markets Economist Roger Quick, Director
gorica_djeric@scotiacapital.com roger_quick@scotiacapital.com
Mary Webb, Senior Economist/Manager
mary_webb@scotiacapital.com Foreign Exchange

Corporate Bonds Camilla Sutton, Director

camilla_sutton@scotiacapital.com
Robert Follis, Managing Director
robert_follis@scotiacapital.com Sacha Tihanyi, Associate Director
sacha_tihanyi@scotiacapital.com
Stephen Dafoe, Director
stephen_dafoe@scotiacapital.com
ScotiaMcLeod Portfolio Advisory Group
Francesco Sorbara, Associate Director
francesco_sorbara@scotiacapital.com Paul Danesi, Director
paul_danesi@scotiacapital.com
Emerging Markets Strategy Geoff Ho, Director
geoff_ho@scotiacapital.com
Joe Kogan, Director
joe_kogan@scotiacapital.com
Joey Mack, Director
joey_mack@scotiacapital.com
Equity Markets
Steve Uzielli, Director
Vincent Delisle, Director, Portfolio Strategy steve_uzielli@scotiacapital.com
vincent_delisle@scotiacapital.com
Gareth Watson, Director
Hugo Ste-Marie, Assistant Strategist gareth_watson@scotiacapital.com
hugo_ste-marie@scotiacapital.com

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