Bnsmt_December 4- 2009

8/14/2019 Bnsmt_December 4- 2009

1/12

The Week Jobs and confidence.

Canada Exiting the recession in Q3.

United States Non-farm payrolls surprise on the

upside. Leading employment indicators point to further

stabilization.

Mexico Central bank sees higher inflation in 2010 but

amid continued slackness.

Latin America Indicators turn in favour of renewed local

spending in Peru.

International Reserve Bank of Australia announces third

successive rate hike; RBNZ unlikely to follow.

Industry I Strong investment fund interest in base

metals.

Industry II Rising sales point to a double-digit gain in

North American vehicle production in 2010.

Highlights

Global Economic Research December 4, 2009

Index

2

3

4

5

6

7

8

9

10

11

Forecasts

The Week

Canada

United States

Mexico & Developing Americas

Europe & Asia/Oceania

Industry & Commodity

Market Metrics / Fiscal Policy

Economic Tables

Financial Tables

Scotia Economics

Scotia Plaza 40 King Street West, 63rd Floor

Toronto, Ontario Canada M5H 1H1

Tel: (416) 866-6253 Fax: (416) 866-2829

Email: [email protected]

This Report is prepared by Scotia Economics as a resource for the

clients of Scotiabank and Scotia Capital. While the information is from

sources believed reliable, neither the information nor the forecast shall

be taken as a representation for which The Bank of Nova Scotia or

Scotia Capital Inc. or any of their employees incur any responsibility.

Weekly Trendsis available on: www.scotiabank.com, Bloomberg at SCOE and Reuters at SM1C

New Releases

Global Auto Report (12/04)

Foreign Exchange Outlook (December 2009)

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

Auto News Flash (12/01)

Global Forecast Update (12/01)

Special Report: 2010-11 Economic and MarketOutlook Report(12/01)

Special Report: 2010-11 Economic and MarketOutlook Presentation(12/01)

Scotiabank Commodity Price Index (11/30)
http://www.scotiacapital.com/English/bns_econ/bns_auto.pdfhttp://www.scotiacapital.com/English/bns_econ/fxout.pdfhttp://www.scotiacapital.com/English/bns_econ/nbbudget.pdfhttp://www.scotiacapital.com/English/bns_econ/autoflash.pdfhttp://www.scotiacapital.com/English/bns_econ/forecast.pdfhttp://www.scotiacapital.com/English/bns_econ/EMOCRPT.pdfhttp://www.scotiacapital.com/English/bns_econ/EMOCRPT.pdfhttp://www.scotiacapital.com/English/bns_econ/EMOCRPT.pdfhttp://www.scotiacapital.com/English/bns_econ/EMOCRPT.pdfhttp://www.scotiacapital.com/English/bns_econ/EMOCPPT.pdfhttp://www.scotiacapital.com/English/bns_econ/EMOCPPT.pdfhttp://www.scotiacapital.com/English/bns_econ/EMOCPPT.pdfhttp://www.scotiacapital.com/English/bns_econ/EMOCPPT.pdfhttp://www.scotiacapital.com/English/bns_econ/bnscomod.pdfhttp://www.scotiacapital.com/English/bns_econ/bnscomod.pdfhttp://www.scotiacapital.com/English/bns_econ/EMOCPPT.pdfhttp://www.scotiacapital.com/English/bns_econ/EMOCRPT.pdfhttp://www.scotiacapital.com/English/bns_econ/forecast.pdfhttp://www.scotiacapital.com/English/bns_econ/autoflash.pdfhttp://www.scotiacapital.com/English/bns_econ/nbbudget.pdfhttp://www.scotiacapital.com/English/bns_econ/fxout.pdfhttp://www.scotiacapital.com/English/bns_econ/bns_auto.pdf


2/12

2


Forecasts

Economic Performance (annual % change unless otherwis e indicated)

2000-08 2009e 2010f 2011f 2000-08 2009e 2010f 2011f

Real GDP 2.6 -2.6 2.7 2.8 2.4 -2.5 3.3 2.5Consumer Prices 2.3 0.3 1.7 2.1 2.9 -0.4 2.1 2.3

Pre-tax Profits 7.7 -33.0 17.5 10.0 5.3 -5.3 13.0 7.0Federal Budget Balance ($bn) 8.4 -56.0 -46.0 -30.0 -196 -1417 -1320 -1050

Current Account Balance ($bn) 21.0 -44.5 -37.1 -27.2 -601 -438 -521 -580Merchandise Trade Balance ($bn) 58.2 -7.2 -1.3 7.5 -655 -510 -603 -675

Motor Vehicle Sales (000s)* 1,605 1,470 1,525 1,570 16.4 10.2 11.5 12.2Motor Vehicle Production (000s)* 2,590 1,425 1,750 1,850 11.5 5.6 7.1 7.4Housing Starts (000s)* 207 142 160 165 1.65 0.58 0.78 1.14

Employment 1.9 -1.6 0.7 1.5 0.7 -3.7 0.3 2.2Jobs Created (000s)* 302 -281 119 258 0.89 -5.13 0.41 2.87

Unemployment Rate (%) 6.9 8.4 8.7 8.4 5.1 9.3 10.1 9.6

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

Real GDP 3.8 -0.3 3.6 3.7 5.2 1.1 4.9 4.7Consumer Prices 8.1 7.1 7.9 4.4 1.6 0.4 1.6 1.9

*In the United States, millions.

Commodity Prices (US$ annual average)

2000-08 2009e 2010f 2011f Pulp (tonne) 662 720 790 850Newsprint (tonne) 574 560 580 670Lumber (mfbm) 286 178 215 240

Copper (lb) 1.72 2.32 2.95 3.30Zinc (lb) 0.73 0.74 0.85 0.90Nickel (lb) 7.16 6.85 7.45 7.50

WTI Oil (bbl) 49.93 62 90 92Nymex Natural Gas (US$/mmbtu) 6.15 4.15 5.50 5.50Wheat (tonne) 223 454 305 290

Financial Markets (end of period , % unless otherwise ind icated)

09Q4f 10Q1f 10Q2f 10Q3f 10Q4f 11Q1f 11Q2f 11Q3f CANADA3-month T-bill 0.30 0.35 0.40 1.05 1.75 2.10 2.30 2.255-year Canada 2.40 2.55 3.10 3.20 3.75 3.85 3.65 3.5510-year Canada 3.25 3.60 3.95 4.10 4.50 4.80 4.60 4.55

UNITED STATES3-month T-bill (Yield) 0.05 0.15 0.35 1.00 1.75 2.10 2.30 2.25

5-year Treasury 2.15 2.35 2.90 3.00 3.60 3.75 3.60 3.5510-year Treasury 3.30 3.75 4.15 4.40 4.80 5.10 4.90 4.85

CANADIAN-US SPREADS3-month T-bill 0.25 0.20 0.05 0.05 0.00 0.00 0.00 0.005-year 0.25 0.20 0.20 0.20 0.15 0.10 0.05 0.0010-year -0.05 -0.15 -0.20 -0.30 -0.30 -0.30 -0.30 -0.30

Canadian Dollar (USD/CAD) 1.04 1.02 1.00 0.98 0.97 0.97 0.96 0.95Canadian Dollar (CAD/USD) 0.96 0.98 1.00 1.02 1.03 1.03 1.04 1.05Yen (USD/JPY) 87 90 88 86 85 86 87 89Euro (EUR/USD) 1.50 1.53 1.56 1.58 1.60 1.60 1.59 1.58Sterling (GBP/USD) 1.65 1.65 1.66 1.67 1.68 1.70 1.70 1.68Mexican Peso (USD/MXN) 13.3 13.5 13.6 13.7 13.8 13.9 13.9 14.0

Latin America (Excl. Mexico) Asia

Mexico Euro zone

Canada United States


3/12

3


The Job-Creation Engine Cranks Back To Life

There is no greater confidence indicator than the job market, and

todays bullish November employment reports suggest that the

Canadian and U.S. economies are beginning to build momentum as

the recovery takes hold. Expect that the next round of confidence

surveys will be materially stronger, with both households and

businesses signalling even better times ahead.

We are manoeuvring ourselves out of a

very deep hole. Including last months

outsized hiring gain of 79,000 in Canada,

we have now added 94,000 net new jobs

since the beginning of August, recouping

almost 25% of the massive 414,000

employment cuts that occurred in the nine

months beginning last October. The public

sector has accounted for around 57% of

the new positions, highlighting the

positive impact of government-sponsored

job creation programmes, and with the

promise of more forthcoming. But the

private sector is also contributing to the

turnaround, with private paid and mainly

full-time positions recouping roughly 10%

of prior job losses. Not every sector and

region is participating in the jobs revival,

but we are, nonetheless, witnessing the

much-anticipated broadening in hiring gains. Even Ontario, which

suffered the most over the past year, has clawed back one-quarter of

its recession-induced job losses.The employment picture is also brightening in the United States.

Although payrolls still shrank by 11,000 this was the smallest

reduction in almost two years of non-stop and hefty job cuts the

upward revisions to prior cuts in September and October amounted to

Aron Gampel

(416) 866-6259

[email protected]

The Week Past, Present & Prospects

an eye-popping +159,000. This improving trend in

employment has been foreshadowed by the

accelerating decline in initial unemployment

insurance claims, highlighting the extent to which

the recession grip in the U.S. economy is lessening.

And dont forget the third amigo, Mexico, whose

job market has been improving as well in recent

months as the revival in U.S. and global demand

took hold.

Todays Canadian and U.S. employment results

highlight the fundamental turn for the better in

underlying economic conditions. Low borrowing

costs are underpinning affordability, which along

with improving employment, are bolstering

purchasing power. With retail activity on the mend,

the inventory restocking cycle is driving ahead. And

government stimulus is increasingly percolating

though the economies. Although it may be

premature to sound the all clear claxon

considering last weeks Dubai Worlds debt blowout

and the lingering effects associated with the

simultaneous deleveraging of the household and

financial sectors in the United States confidence

in the sustainability of the economic rebound

underway has clearly improved.

Policymakers will be breathing a big sigh of relief now

that there are more signs that the recovery has taken

hold. However, the recovery is still in nascent territory,and from a Canadian perspective, there are many U.S.-

specific structural and competitive challenges to

overcome. But the worst of the downturn is behind us,

with better times ahead of us.

-800

-700

-600

-500

-400

-300

-200

-100

0

EMPLOYMENT RECOVERY

(M/M 000's CHANGE)

UNITED

STATES

-150

-100

-50

0

50

100

150

Sep-08 Apr-09 Nov-09

CANADA


4/12

4


Canada Claws Its Way Out Of The Recession

Canada clawed its way out of the recession in the third quarter of

2009, with GDP advancing an annualized 0.4% q/q. Consumer

spending and business investment posted their largest gains since the

fourth quarter of 2007, helping to offset the drag of a widening export

gap. Government expenditures rose an annualized 7.9% q/q, the

largest advance since 1998, as stimulus programs kicked off, helping

to pull Canadian economic growth back into positive territory.

Consumer spending rose 3.2% q/q

annualized, and is expected to continue to

show solid growth into 2010. Steadying

employment will help support consumer

confidence, while strengthening housing

prices will help to rebuild household

wealth. Though still cautious, consumers

appear to be testing the waters, as the

savings rate edged down slightly to 4.8%,

while outlays advanced.

Business investment advanced 4.7% q/q

annualized, led by investment in

machinery & equipment due in part to

retooling at auto plants while a resurgence in the housing market

led to an 8.1% q/q annualized increase in residential investment.

Although activity in both segments is expected to cool off somewhat,

positive growth is expected in the new year, a trend not seen since

2007.

Canadas export gap widened considerably as import growth far outpaced

the growth in exports. Significant investment in industrial goods, autosand machinery necessary to kick-start production led to a large

trade imbalance. The resulting export gains will likely be carried over

into the next several quarters, as manufacturing activity ramps up and

finished goods are shipped back across the U.S. border. Resources will

also provide some reprieve, with commodity prices poised to continue

their recovery amid increasing global industrial activity. However, the

Canadian dollar will continue to temper gains, squeezing margins on

Alex Koustas

(416) 866-4212

[email protected]

resource exports and suppressing shipments of durable

goods.

That Canada has escaped from the recession this

quarter is a testament to our healthier household

balance sheets and stable financial system.

However, the modest recovery to date highlights

ongoing trade and competitive hurdles that we must

overcome in order to record stronger growth.

Canada

Review

Employment There were 79,100 new jobs added in

November according to Statistics Canadas Labour

Force Survey release, the largest monthly increase

since September 2008. The gains were almost evenly

split between full-time and part-time positions, and

consisted of 54,300 public positions, 56,900 private

positions, while 32,000 self-employed jobs were lost.

Construction, agriculture and transportation were the

only three sectors that declined on a m/m basis. The

manufacturing sector gained 12,600 jobs, while the

finance and insurance sector increased by 12,200, two

of the strongest sectors on the November report. The

unemployment rate fell 0.1% to 8.5%, and remains

close to its 11-year high of 8.7% that occurred

September 2009, although we are still well off the

jobless levels experienced in the early 1990s when

unemployment topped 12%.

IPPI The IPPI dipped 0.3% m/m in October, its

second consecutive decline. U.S. dollar weakness was

the cause for the drop, as Canadian producers are

often paid in U.S. dollars raw materials and

petroleum products rose 2.5% and 1.6% m/m

respectively, and excluding the exchange rate factors,

the IPPI would have risen by 0.4% m/m. The motor

vehicle industry was the biggest negative non-

exchange rate factor, as it was down 1.5% m/m on theindex, its seventh straight decline.

Preview

Building Permits (12/07)

Housing Starts, BoC Policy Announcement (12/08)

Merchandise Trade Balance (12/10)

New Housing Price Index (12/11)

Neil Tisdall (416) [email protected]

-35

-30

-25

-20

-15

-10

-5

0

5

10

07 08 09

LUKEWARM GDP RECOVERY

(Q/Q % CHANGE A.R.)

PERSONAL

EXPENDITURE

BUSINESS

INVESTMENT

GDP


5/12

5


Employment Report Surprises On The Upside

The much-awaited non-farm payrolls report for November hit the tape

this morning, surprising on the upside, and considerably so. The U.S.

economy shed 11,000 payroll positions last month, the smallest

contraction since January 2008. While one month does not make a

trend, payroll declines have been moderating at an accelerating pace

and leading employment indicators point of further stabilization.

Even upon excluding government hiring,

results were not significantly different.

Private sector workforce contracted by

18,000, also the least since the beginning of

2008. Taking away seasonal adjustments

which can sometimes be sizeable the

print, here too, would only have differed

modestly, coming in at -19,000. Whats

more, revisions to the September and

October data were positive. There were

159,000 fewer job losses, bringing the

three month total to -275,000, much less

than in June alone.

The unemployment rate a lagging employment indicator moderated

to 10%, from 10.2% in the previous month. The broader measure

which also includes discouraged, marginally-attached and underemployed

workers edged back to 17.2%, from the all-time high of 17.5%. The

jobless rate is expected to remain above the 10% mark through 2010. As

the economic recovery gains momentum, discouraged workers will re-

enter the labour market, pushing the unemployment rate even higher,

before it slowly begins to turn back down.

The labour market, no doubt, remains fragile. The diffusion of losses

remains widespread across industries. However, while caution still

outweighs optimism, businesses are slowly getting back on track.

Private service-providing companies added 51,000 bodies to the deck.

Aside from the education & healthcare services, which expanded by

40,000 employees, professional & business services registered a gain

of 86,000. After revisions of September and October data, this was

their third straight monthly increase.

Gorica Djeric

(416) 866-4214

[email protected]

Leading employment indicators average work

week, manufacturing overtime, temporary help

services and part-time workers for economic reasons

have also exhibited improving trends. These series

can signal turning point in the labour market by up totwo quarters, and are well worth monitoring. The

average work week lengthened to 33.2 hours, from

33.0, the biggest increase since early 2003.

Newswire reports indicate that Washington is

considering rechanneling some of the TARP funds

to help support the labour market, as banks have

repaid much of what they have borrowed.

United States

Review

ISM Indices The ISM manufacturing index fell more

than expected in November, dropping from 55.7 to

53.6. Declines in prices and employment contributed to

the weakness, as employment fell from 53.1 to 50.8,

and prices from 65.0 to 55.0. Even with the greater

than expected drop, the index remains above 50

signaling that the manufacturing industry is still

expanding. The same cannot be said for the non-

manufacturing sector, which dipped below 50 for the

first time in three months. The non-manufacturing index

fell to 48.7 from 50.6 in October, although the

employment component slowed its contraction from

41.1 to 41.6 an important factor considering non-

manufacturing employment makes up 86% of the U.S.

workforce.

Construction Spending Total construction

spending edged up in October, following five

consecutive, and eleven of twelve monthly declines. A

4.2% m/m increase in residential construction kept the

monthly data positive, as commercial, manufacturing

and public projects all experienced decreased

spending. With Octobers small 0.04% increase,

spending is -14.4% y/y, second only to last months

-15.8% y/y figure as the lowest y/y data on record.

Preview

Consumer Credit (12/07)

Wholesale Trade (12/09)

Trade Balance, Treasury Statement (12/10)

Retail Sales, Trade Price Indices, Business

Inventories, Consumer Sentiment (12/11)

Neil Tisdall (416) [email protected]

-30

-20

-10

0

10

20

30

40

50

60

03 04 05 06 07 08 09

32.5

32.7

32.9

33.1

33.3

33.5

33.7

33.9

34.1

34.3

34.5

LEADING EMPLOYMENT INDICATORS

6-month % chng,

3mma, sa

hours/week,

3mma, sa

AVERAGE WORK

WEEK (RHS)

PART-TIME FOR

ECONOMIC REASONS (LHS)

TEMPORARY

HIRING (LHS)


6/12

6


Higher Inflation In 2010 In The Midst Of Economic Slack

After exiting from recession in the third quarter of 2009, economic

conditions in Mexico will continue to improve through 2010. External

demand gains on the back of the U.S. industrial rebound are now

disseminating through to the rest of the sectors with the economy

having everything in its favour to drive it forward.

Accommodative monetary conditions in the form of relatively low

interest rates and a weakened exchange rate are bound to continue to

pull demand in the coming months. Notwithstanding this weeks

stellar performance by the Mexican peso which traded at some point

close to the 12.50 per dollar level, closing the week at 12.6, the

currency is still over 15% lower than were it was a year ago.

With the general tone with respect to Mexican fixed income and

equity securities having changed dramatically in the past ten days on

the back of improving economic activity indicators, analyst

perceptions of a hawkish view on the part of the Banco de Mexico are

being peso supportive.

The central bank published on Wednesday an addendum to its third-

quarter inflation report correcting its views on inflation for 2010-11,

now that the budget implications are clearer (to access the document

please refer to:http://www.banxico.org.mx/publicaciones-y-discursos/

publicaciones/informes-periodicos/trimestral-inflacion/%

7BF64F6DE0-189A-503A-167B-646FADD668FA%7D.pdf ). The

monetary institution sees yearly inflation picking up again to a 4.75-

5.25% range in the next twelve months, to converge back towards the

3% target at the end of 2011. One-time effects of budget approved tax

increases in 2010 are to blame for the short-term pickup, with the

corresponding pronounced downward trajectory on the back ofgeneral slackness in conditions with an output gap foreseen to remain

in negative territory through 2011.

This weeks manufacturing purchasing managers index for

November (both from the national statistical agency and the institute

of finance executives survey) fell slightly but remained north of the

expansionary threshold. These indicators have echoed the ISM

manufacturing indicator in the United States, whose latest observation

Oscar Snchez

(416) 862-3174

[email protected]

Mexico

also slowed somewhat, but which has improved for

4 consecutive months, with production and orders

displaying persistent gains for at least six months.

Mexico Developing Americas

Peru: Less Unemployment & Inflation

Peruvian consumer prices fell again in November on

the back of lower food costs and transport fares, with

the yearly inflation rate dropping to a record low 0.3%.

Prices fell 0.11% m/m, the most in the past three

months, contradicting analysts expectations of a slight

pickup.

Reduced price pressures are enhancing the prospects

of a turnaround in household spending which has

continued to grow during 2009 although at a lowering

pace. Private consumption represents 67% of

aggregated demand in Peru, going a long way inexplaining last years over 9.8% GDP growth. After an

8.7% y/y expansion in 2008, consumer spending gains

have been positive in 2009 but trended down reaching

1.5% y/y rate in the third quarter. Improving labour

market conditions support the expectation of a rebound

in consumer spending early in 2010, as joblessness

has trended down to a below year-earlier

unemployment rate of 7.6% in October.

Public sector outlays in Peru have matched the

downward trend in both private consumption and

investment, with public investment averaging a 21% y/y

expansion up to the third quarter. Solid government

spending has helped bolster domestic demand partially

compensating for the contraction in private investmentdemand, as a fiscal stimulus package equivalent to 2.5%

of GDP has been implemented by the government.

After five years of public sector surpluses, the fiscal

accounts moved into deficit this year and will remain

that way through 2010. Inflation will not be a concern

next year which is consistent with the recently

published central bank forecasts. The monetary

authorities expect GDP to expand by 5% y/y in 2010

following 1.8% growth in 2009.

The currency continues to strengthen as foreign direct

investment flows have improved persistently in 2009,

with the quarterly inflow for July-September being the

largest since the first three months of 2008. Peru hasone of the most business friendly investment regimes

within the Americas, ranking 56 among 181 countries in

the Doing Business 2010 World Bank Survey.

Mexico Developing Americas


7/12

7


Reserve Bank of Australia Announces Third

Successive Rate Hike; RBNZ Unlikely To Follow

The Reserve Bank of Australia (RBA) will likely continue its tightening

monetary stance in 2010, though at a less frenetic pace, as it closed off

2009 with three successive monthly rate hikes. This weeks decision to

bump the Cash Rate up another 25 basis points to 3.75% was surprising,since it appears incompatible with the RBAs repeated assertions that

monetary policy adjustment would be gradual. Interestingly, although

the RBA has never before raised rates in three successive months,

Governor Glenn Stevens still described the material adjustments to

policy in that manner. In announcing the central banks decision,

Stevens noted the improved prospects for private sector spending and

early signs of a turnaround in labour market conditions. In any event,

the most recent flurry of statistical releases offers ample justification for

a slower pace of policy tightening in 2010. Consumer spending growth

is moderate, as the 0.3% m/m increase in retail sales in October

followed a 0.2% dip the previous month. Private sector credit was

unchanged in October and has increased by a meagre 0.3% over thepast six months; moreover, private home sales fell for a second

consecutive month, reversing the 11.4% m/m surge in August. In

addition, corporate profits weakened for a fourth consecutive quarter,

slipping 2.1% q/q. With the RBA likely to remain in the vanguard of

monetary policy tightening, the period of Australian dollar appreciation

is not yet at an end. We expect the currency to break through parity with

the USD before retrenching.

The challenges facing Reserve Bank of New Zealand (RBNZ) are

intensifying. We expect the RBNZ to hold the line for at least several

more months, although the arguments favouring a precautionary rate

hike are beginning to accumulate. In particular, home buildingapprovals continue to spike higher; the monthly trend rate is 2.7%,

according to Statistics New Zealand. The RBNZs Official Cash Rate

has been held at 2.5% since April, and a modest preemptive adjustment

to limit the risk of a housing bubble might appear appropriate.

However, the central bank is understandably reluctant to raise rates in

view of the potential impact on the exchange rate. Markets have thus far

been relatively indifferent to official efforts by the government as

Erik Nilsson

(416) 866-4205

[email protected]

well as the monetary authorities to talk down the

currency. A bump-up in interest rates would only

exacerbate this problem. We believe that there is still

scope for a further modest appreciation of the New

Zealand dollar, but that it will be among the early

casualties when negative sentiment vis--vis the U.S.

dollar eventually begins to subside.

Europe & Asia/Oceania ECB Begins To Phase Out Longer-TermRe-Financings; Rates On Hold

The European Central Bank (ECB) is preparing to

cautiously withdraw its extraordinary liquidity measures,

but will be in no hurry to raise its benchmark interest rate.

In its last rate meeting of the year, the ECBs Governing

Council opted to leave the refinancing rate unchanged at

1.0%; however, President Jean-Claude Trichet also

confirmed that the December 16th refinancing operation

will represent the final 12-month allotment, and that 6-

month refinancings will conclude on March 31st, 2010.

The termination of these measures reflects the central

banks view that not all our liquidity measures are

needed to the same extent as in the past, as overall

financing conditions continue to improve. In his formal

statement following the Council meeting, Trichet

expressed cautious optimism about the economic

outlook, anticipating growth at a moderate pace in 2010

and low inflationary pressure over the medium term.

We do not expect the ECB to adjust its benchmark

interest rate until mid-2010, at which point the gradual

recovery in private sector credit demand and in

consumer price inflation may prompt a precautionary 25

basis point increase as part of the monetary

normalization process. The Governing Council views the

risks to growth as broadly balanced. Nevertheless, it is

clear that - apart from a possible temporary boost to the

rate of expansion as a result of inventory swings - any

recovery in private sector spending, particularly

consumer spending, will be moderate. While labour

market conditions may be stabilizing the jobless rateheld steady at 9.8% in October this is up almost two

percentage points from a year earlier; moreover, in

Germany, total employment dipped back to its lowest

level since January 2008. After hovering at or below the

zero mark for six consecutive months, consumer price

inflation in the euro zone has moved back into positive

territory. The flash estimate for the November figure is

0.6% m/m, still comfortably below the ECBs target of

close to, but less than 2%; as such, the most recent

inflation data have not elicited any policy response, other

than to reinforce the ECBs determination to withdraw its

extraordinary liquidity measures in a gradual and orderly

manner.


8/12

8


Commodity Prices Rally Further in October/November

After easing in September, Scotiabanks Commodity Price Index

rallied back strongly in October, rising 6.8% m/m. The All Items

Index has advanced by 11.4% from its cyclical low in April, with all

sub-components rising in October. Recent weakness in the U.S. dollar

particularly against the euro continued to boost commodity

prices into November, with investors attracted to hard assets such as

gold, silver and copper. While a better-than-expected U.S.

employment report for November has bolstered the U.S. dollar today,

the dollar is still expected to move irregularly lower in 2010. Most

commodities are priced internationally in U.S. dollars; a lower dollar

facilitates higher prices, with increases translating into less in euros,

yen and other overseas currencies.

The Oil & Gas Index led the advance in

overall commodity prices in October

(+20.1% m/m). WTI oil prices (the

bellwether for North America) jumped

from US$69.54 per barrel in September to

US$75.71 in October and edged up further

to US$78 in November (with considerable

day-to-day volatility, linked to U.S. dollar

fluctuations and the ebb & tide of

expectations over the strength and

sustainability of U.S. economic recovery).

Canadian natural gas export prices also

rallied modestly, with NYMEX prices

rebounding from a low of only US$2.51 per mmbtu in early September

to a high of US$5.19 on November 27. While U.S. gas-in-storage

continued to build through mid-November and is at record levels (closeto maximum storage capacity), traders have bid up prices, recognizing

that even the lowest-cost of the new natural gas shale basins cannot be

economically developed at recent low prices. NYMEX prices plunged

through much of the third quarter of this year, as the U.S. recession cut

industrial demand (-12% ytd) in the face of more-than-ample supplies.

The Metal & Mineral Index also posted a strong gain in October

(+3.0% m/m). Broad-based strength in base metals, a surge in gold &

Patricia Mohr

(416) 866-4210

[email protected]


silver prices and slight gains in sulphur and uranium

prices more than offset somewhat softer steel-alloy

prices (molybdenum and cobalt). Spot gold prices

touched a new all-time record high over US$1,226

per ounce on December 4, though profit-taking haspared prices to US$1,174 today. The Reserve Bank

of India purchased 200 tonnes of gold directly from

the IMF a month ago, cutting in half the 403.3

tonnes the IMF might have sold on the open market

(to boost its long-term finances and provide low-

interest loans to developing countries). China and

Russia are also boosting their holdings.

The Forest Products Index strengthened markedly in

October (+3.1% m/m). Newsprint prices are

beginning to pull up rapidly from levels below

average cash costs for North American mills (upUS$35 to US$480). Tight world supplies boosted

NBSK pulp prices to US$800 per tonne in the

United States in October and to US$830 in

November. A strong yen is also allowing Canadian

J-grade lumber producers to increase prices in

Japan. Finally, the Agricultural Index posted a

slight 0.8% m/m gain, with seasonally stronger

wheat, barley and canola prices.

Investment Fund Interest In Copper Still Strong

LME copper prices (a bellwether) remain at an

exceptionally lucrative US$3.19 per pound in early

December 153% above the cyclical low in mid-

December 2008. China has massively restocked copper

in 2009 taking advantage of bargain prices in early

2009 and now holds about 800,000 tonnes, of which

200,000 tonnes are held by the Strategic Reserve

Bureau. While Chinas copper imports fell by 40% m/m in

October, imports were still at normal levels compared

with 2007-08 and prices have been little impacted.

The positive sentiment underlying copper prices reflects: 1)

Beijing and Chinese investors/fabricators are likely willing

holders of these stocks; underlying demand for copper in

China will advance by 23% in 2009 and by at least 8% in

2010, assuming greater availability of scrap next year.

Copper scrap is still in short supply; 2) global hedge funds

and investors still believe there is good value in commodities

as an asset class particularly vis--vis low yielding U.S.

Treasury securities; and 3) investment funds expect re-

stocking of basic materials across the G7, once these

economies fully recover, after massive liquidation late last

year.

0

50

100

150

200

250

300

00 02 04 06 08 10

SCOTIABANK COMMODITY

PRICE INDEX

(1997=100)


9/12

9


Auto Cycle Drives Double-Digit Output Gain In 2010

The global car sales recovery continues to gain momentum. Overall

purchases (including U.S. volumes) posted a double-digit year-over-

year increase in October, the strongest gain since August 2007, and

accelerated further in November. In the United States, sales climbed

to an annualized 10.4 million units in October and strengthened to

10.9 million in November, rebounding from a September slowdown

of 9.2 million after the expiry of the cash-for-clunkers program. We

believe that sales will continue to strengthen in coming months, and

that the impact of the sales pull ahead from the government subsidy

has run its course.

Improving U.S. sales, combined with

extremely low dealer inventories, will lead

to a double-digit gain in North American

vehicle output next year. Despite the sharp

increase in vehicle production since August

when dealer stocks plunged to a record low,

overall inventories have barely increased

and are still more than 40% below the year-

end average of the past 20 years (see chart).

Furthermore, we believe that rising vehicle

U.S. sales will become the main driver

underpinning gains in vehicle output across

North America going forward.

Vehicle purchases in the United States have reversed the downward

sales trend, with volumes advancing above a year earlier in three of

the past four months alongside a nascent economic recovery. This

represents the best performance since late 2006, and will be supported

by rising real incomes going forward. In particular, real disposableincome is now advancing in excess of 2% y/y the fastest pace since

mid-2007, prior to the start of the U.S. recession. Income from private

sector employment has been advancing since April 2009, and will

support household spending going forward, especially with U.S.

unemployment insurance claims now at the lowest level since early

September 2008 just prior to the collapse of Lehman Bros., which

precipitated the downward spiral in the global economy.

Carlos Gomes

(416) 866-4735

[email protected]

In addition, stable new vehicle prices in Canada and

the United States partly due to a shift towards

smaller cars have lifted vehicle affordability to

the highest level on record. We estimate that a

typical U.S. household now has to work only 13

weeks to purchase a new car. This is nearly 20% less

than the average of the past decade and about 30%

lower than in the mid-nineties, when automakers

began to promote vehicle leasing as a way to boost

industry volumes.

North American production is scheduled to climb to

an annualized 10.8 million units for the final months

of 2009. This represents a double-digit increase

from the third quarter, and further gains are

scheduled for the opening months of 2010. Ford and

General Motors recently announced sharp increases

in their first-quarter 2010 North Americanassemblies 58% y/y at Ford and 75% at General

Motors. In fact, we estimate that overall first-quarter

production will likely climb nearly 10% above

current levels. This increase will continue to boost

economic activity across North America, adding at

least 0.5 percentage points to GDP growth in the

opening months of 2010.


Widespread Employment Growth

Canadas 0.5% m/m advance in employment was widely

spread across Canada, with nine out of the ten provinces

showing gains.

Employment in Ontario continued to trend upwards,

displaying a gain of 0.4%. its 5th increase in 6 months. In

addition, full-time employment continued to rebound, a

further sign of economic recovery for the hard-hit province.

Likewise Quebec appears to be turning the corner after

posting its third increase in the past 4 months.

Manitoba, Saskatchewan and Nova Scotia posted

gains of 0.5% m/m, 0.3% m/m and 0.3% m/m,

sustaining positive year-to-date employment growth.

Employment in Alberta dropped later than in most other

provinces, as a tight labour market allowed employers

to cut hours before jobs. As a result, labour markets

have yet to stabilize, though this months 0.7% gain will

hopefully mark the beginning of a turnaround.

Alex Koustas (416) [email protected]

300

400

500

600

700

800

900

1000

1100

1200

1300

06 07 08 09 10

4

6

8

10

12

14

16

18

U.S. AUTO

INVENTORIES

NORTH

AMERICAN

PRODUCTION

000's of

units

mn's of

units a.r.

VEHICLE PRODUCTION

CONTINUES TO MOVE HIGHER


10/12

1


Market Metrics

0.75

0.80

0.85

0.90

0.95

1.00

1.05

1.10

12/7/07 12/5/08 12/4/09

CANADIAN DOLLAR

(CAD/USD)

0.0

1.0

2.0

3.0

4.0

5.0

6.0

12/7/07 12/5/08 12/4/09

CANADIAN INTEREST

RATES

(%)

10-YEAR

GOC

3-MONTH

BA

0.0

1.0

2.0

3.0

4.0

5.0

6.0

12/7/07 12/5/08 12/4/09

U.S. INTEREST RATES

(%)

10-YEAR

T-BOND

3-MONTH

LIBOR

7000

8000

9000

10000

11000

1200013000

14000

15000

16000

12/7/07 12/5/08 12/4/09

S&P/TSX

(INDEX)

600

700

800

900

1000

1100

1200

1300

1400

1500

1600

12/7/07 12/5/08 12/4/09

S&P500

(INDEX)

1.15

1.20

1.25

1.30

1.35

1.40

1.45

1.50

1.55

1.60

1.65

12/7/07 12/5/08 12/4/09

EURO

(EUR/USD)

Gorica Djeric

(416) 866-4214

[email protected]

Mary Webb

(416) 866-4202

[email protected]

Highlights

Markets & Monetary Policy Last week, Dubai World, a

state-owned entity, asked its creditors for a six-month

standstill on US$60 billion of debt. In response, the Central

Bank of the UAE reassured that it stands behind local and

foreign banks and will make a liquidity line of an unspecified

size available at 50 bps over 3-month LIBOR. In a separate

statement, Dubai's Finance Department indicated that it does

not guarantee the debt of Dubai World. Company officials

said that they are in constructive talks with banks about

restructuring US$26 billion of debt, adding that the rest of the

liabilities are on a stable financial footing.

Chinas State Council announced that the country

would allow foreign firms and individuals to establish

limited partnerships firms beginning March 2010, as to

"stabilise and expand" foreign investment.

In line with expectations, Australia continued to tighten

its monetary policy for the third straight month. The

RBA raised the cash rate 25bps to 3.75%. The

statement omitted to reiterate that the RBA is prudent

to lessen gradually the degree of monetary stimulus

leaving the door open as to the Banks next move.

In contrast, the ECB kept its overnight rate unchanged

at 1%. The statement reaffirmed that the rates will

remain low for an extended period of time, even as the

liquidity measures are slowly being scaled back. The

twelve month lending program to banks, which is set to

expire in December, will not be renewed.

In a surprise move, the Bank of Japan implemented anew 10 trillion lending program. The move came in

response to growing concerns that deflation and rising

yen could threaten Japans economic recovery.

The New York Fed announced that it will be conducting

small-scale, real value tri-party reverse repo

transactions in coming weeks. The Fed highlighted that

this was a test, and no indication of a change in the

Banks monetary policy stance.

Highlights

Fiscal Policy New Brunswick, in the first provincial

Budget for fiscal 2010-11 (FY11), announced a $749

million FY11 shortfall and edged its FY10 deficit wider

to $754 million (2.8% of provincial GDP). After a record

$661 million capital investment plan for FY10, N.B. is

stepping up its infrastructure commitment to $896

million for F11 to help sustain the economic recovery.

N.B.s ambitious four-year tax reform plus lower power

rates with Hydro-Qubecs purchase of NB Powers

assets should aid N.B. in balancing its books by FY15.

Note: Latest observation taken at time of writing.


11/12

1


Economic Tables

Canada 2008 09Q1 09Q2 Latest United States 2008 09Q1 09Q2 LatestReal GDP (annual rates) 0.4 -6.2 -3.1 0.4 (Q3) Real GDP (annual rates) 0.4 -6.4 -0.7 2.8 (Q3)Current Acc. Bal. (C$B, ar) 8.1 -31.1 -47.8 Current Acc. Bal. (US$B, ar) -706 -418 -395Merch. Trade Bal. (C$B, ar) 46.9 4.2 -6.6 -11.1 (Sep) Merch. Trade Bal. (US$B, ar) -840 -496 -462 -571 (Sep)Industrial Production -4.2 -8.6 -12.6 -12.4 (Sep) Industrial Production -2.2 -11.5 -13.5 -7.0 (Oct)Housing Starts (000s) 211 140 128 157 (Oct) Housing Starts (millions) 0.90 0.53 0.54 0.53 (Oct)Employment 1.5 -1.3 -1.8 -1.1 (Nov) Employment -0.4 -3.1 -4.0 -3.4 (Nov)Unemployment Rate (%) 6.2 7.6 8.3 8.5 (Nov) Unemployment Rate (%) 5.8 8.1 9.3 10.0 (Nov)

Retail Sales 3.4 -5.3 -5.0 -3.3 (Sep) Retail Sales -1.2 -10.2 -10.7 -2.1 (Oct)Auto Sales (000s) 1641 1370 1422 1509 (Sep) Auto Sales (millions) 13.2 9.5 9.6 10.9 (Nov)CPI 2.4 1.2 0.1 0.1 (Oct) CPI 3.8 0.0 -1.2 -0.2 (Oct)IPPI 4.3 0.8 -4.1 -6.3 (Oct) PPI 6.3 -1.9 -4.3 -1.9 (Oct)Pre-tax Corp. Profits 5.7 -30.8 -42.9 Pre-tax Corp. Profits -17.6 -23.1 -16.1

Mexico BrazilReal GDP 1.3 -7.9 -10.1 Real GDP 4.7 -1.5 -0.9

Current Acc. Bal. (US$B, ar) -15.8 -13.9 3.4 Current Acc. Bal. (US$B, ar) -28.2 -19.8 -8.5Merch. Trade Bal. (US$B, ar) -17.3 -7.8 3.1 1.2 (Oct) Merch. Trade Bal. (US$B, ar) 25.0 12.0 43.8 7.4 (Nov)

Industrial Production -0.7 -9.8 -11.5 -5.7 (Sep) Industrial Production 2.9 -13.8 -11.3 -3.0 (Oct)CPI 5.1 6.2 6.0 4.5 (Oct) CPI 5.5 6.9 5.5 4.5 (Oct)

Argentina ItalyReal GDP 6.8 2.0 -0.8 Real GDP -1.0 -6.0 -5.9

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

Germany FranceReal GDP 1.0 -6.7 -5.8 Real GDP 0.4 -3.8 -3.1Current Acc. Bal. (US$B, ar) 243.9 108.0 131.2 164.0 (Sep) Current Acc. Bal. (US$B, ar) -64.0 -34.5 -77.1 -71.1 (Sep)Merch. Trade Bal. (US$B, ar) 261.1 128.0 171.1 169.9 (Sep) Merch. Trade Bal. (US$B, ar) -36.6 -43.1 -29.7 -14.5 (Sep)

Industrial Production 0.0 -20.0 -19.2 -12.8 (Sep) Industrial Production -2.9 -18.0 -15.8 -11.0 (Sep)Unemployment Rate (%) 7.8 8.0 8.2 8.1 (Nov) Unemployment Rate (%) 7.9 8.9 9.4 10.1 (Oct)CPI 2.6 0.8 0.3 0.3 (Nov) CPI 2.8 0.7 -0.2 -0.2 (Oct)

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

Japan AustraliaReal GDP -0.7 -8.4 -7.1 Real GDP 2.4 0.3 0.6Current Acc. Bal. (US$B, ar) 157.1 105.7 134.0 206.0 (Sep) Current Acc. Bal. (US$B, ar) -47.6 -15.0 -35.1Merch. Trade Bal. (US$B, ar) 21.7 -23.9 33.7 55.7 (Oct) Merch. Trade Bal. (US$B, ar) -4.6 12.3 2.4 -20.0 (Sep)Industrial Production -3.4 -34.0 -27.6 -14.0 (Oct) Industrial Production 2.8 -3.5 -3.8

Unemployment Rate (%) 4.0 4.4 5.2 5.1 (Oct) Unemployment Rate (%) 4.2 5.3 5.7 5.8 (Oct)CPI 1.4 -0.1 -1.0 -2.5 (Oct) CPI 4.4 2.5 1.5

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

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


12/12

1


Financial Tables

Interest Rates (%, end of period)

Canada 09Q2 09Q3 Nov/27 Dec/04* United States 09Q2 09Q3 Nov/27 Dec/04*

BoC Overnight Rate 0.25 0.25 0.25 0.25 Fed Funds Target Rate 0.25 0.25 0.25 0.25

3-mo. T-bill 0.25 0.31 0.32 0.28 3-mo. T-bill 0.18 0.11 0.02 0.04

10-yr Govt Bond 3.36 3.31 3.23 3.32 10-yr Govt Bond 3.53 3.31 3.21 3.47


Prime 2.25 2.25 2.25 2.25 Prime 3.25 3.25 3.25 3.25

FX Reserves (US$B) 44.6 58.1 55.9 (Oct) FX Reserves (US$B) 70.4 123.3 123.6 (Oct)

Germany France

3-mo. Interbank 1.07 0.65 0.60 0.58 3-mo. T-bill 0.54 0.36 0.39 0.40


FX Reserves (US$B) 44.9 61.3 62.6 (Oct) FX Reserves (US$B) 29.0 45.2 45.3 (Oct)

Euro-Zone United Kingdom

Refinancing Rate 1.00 1.00 1.00 1.00 Repo Rate 0.50 0.50 0.50 0.50

Overnight Rate 0.40 0.53 0.36 0.34 3-mo. T-bill 4.85 4.85 4.85 4.85

FX Reserves (US$B) 214.4 285.2 286.9 (Oct) 10-yr Govt Bond 3.69 3.59 3.55 3.71FX Reserves (US$B) 45.1 57.5 57.7 (Oct)

Japan Australia

Discount Rate 0.30 0.30 0.30 0.30 Cash Rate 4.25 3.25 3.25 3.00

3-mo. Libor 0.39 0.29 0.24 0.22 10-yr Govt Bond 5.52 5.36 5.21 5.38

10-yr Govt Bond 1.36 1.30 1.26 1.30 FX Reserves (US$B) 40.0 40.5 41.8 (Oct)

FX Reserves (US$B) 996.2 1030.8 1033.9 (Oct)

Exchange Rates (end of period)

USD/CAD 86.04 93.50 94.18 95.04 /US$ 96.36 89.70 86.54 89.88CAD/USD 1.16 1.07 1.06 1.05 US/Australian$ 80.65 88.28 90.63 91.46

GBP/USD 1.646 1.598 1.650 1.651 Chinese Yuan/US$ 6.83 6.83 6.83 6.83

EUR/USD 1.403 1.464 1.499 1.489 South Korean Won/US$ 1272 1176 1175 1156

JPY/EUR 0.74 0.76 0.77 0.75 Mexican Peso/US$ 13.185 13.502 12.942 12.648

CHF/USD 1.09 1.04 1.01 1.01 Brazilian Real/US$ 1.953 1.766 1.743 1.727

Equity Markets (index, end of period)

United States (DJIA) 8447 9712 10310 10357 U.K. (FT100) 4249 5134 5246 5322

United States (S&P500) 919 1057 1091 1101 Germany (Dax) 4809 5675 5686 5818

Canada (S&P/TSX) 10375 11395 11464 11475 France (CAC40) 3140 3795 3721 3847

Mexico (Bolsa) 24368 29232 30775 31811 Japan (Nikkei) 9958 10133 9082 10023

Brazil (Bovespa) 51465 61518 67082 67859 Hong Kong (Hang Seng) 18379 20955 21135 22498

Italy (BCI) 958 1144 1070 1113 South Korea (Composite) 1390 1673 1525 1625

Commodity Prices (end of period)

Pulp (US$/tonne) 660 770 800 800 Copper (US$/lb) 2.32 2.78 3.06 3.19

Newsprint (US$/tonne) 495 445 480 480 Zinc (US$/lb) 0.71 0.87 1.00 1.07

Lumber (US$/mfbm) 186 184 224 232 Gold (US$/oz) 934.50 995.75 1166.50 1190.25

WTI Oil (US$/bbl) 69.89 70.61 76.05 75.75 Silver (US$/oz) 13.94 16.45 17.98 18.83

Natural Gas (US$/mmbtu) 3.84 4.84 5.19 4.61 CRB (index) 249.96 259.39 273.09 276.55

* Note: Latest observation taken at time of writing.

Bnsmt_December 4- 2009

Documents