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September 26, 2014

Key Data Preview A1-A2

Key Indicators A3-A5

Global Auctions Calendar A6

Events Calendar A7

Global Central Bank Watch A8

Forecasts A9

Latest Economic Statistics A10-A11

Latest Financial Statistics A12

Forecasts & Data

This Week’s Featured Chart

Economics

ECB And Nonfarm The Main Events 2-5

Derek Holt

Canadian Auto Parts Industry Revs Up 6

Carlos Gomes

Bond Markets Have Dangerously Shot Past Neutral Rate Guidance 7

Derek Holt

Beyond Demographics: Structural Declines In The U.S. Labor Force 8-9

Frances Donald

Flash PMIs Underscore Uneven Global Growth 10

Neil Tisdall

Economic Challenges Continue In Puerto Rico 11

Rory Johnston

Strengthening Global Demand Bodes Well For Singapore And Taiwan 12

Tuuli McCully

Foreign Exchange Strategy

Latin America Week Ahead: For The Week Of September 29 - October 3 13-14

Eduardo Suárez

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2013 2014

U.S. Business Investment Continues to Boost Economy in 2014:H2

Source: U.S. Census, Scotiabank Economics.

US$ billions

Capital Goods New Orders Nondefense

ex. Aircrafts

Economics

Global Views

September 26, 2014

2

ECB And Nonfarm The Main Events

Please see our full indicator, central bank, auction and event calendars on pp. A3-A8.

Canada — A Fine Start To Q3

Did Canada’s economy hit 3.2% annualized growth in Q2 only because it unleashed some temporary pent-up demand from Q1? Or are solid growth prospects sustainable into Q3 and beyond? We’ll get a first glimpse at answering this question on Tuesday when the main source of domestic market risk arrives via the July GDP print.

We think the economy grew in the low tenths of a percentage point in July over June but don’t have a great amount of conviction on the call. That’s because a number of the readings were mixed. To the downside, wholesale trade volumes fell 0.6% m/m, retail sales volumes were flat and so were housing starts, while home resales were up by a relatively mild 0.8% m/m.

What keeps me on the plus side of the ledger with an indefatigable bounce you can’t take out of my step, however, is that trade, manufacturing and job markets sent solid signals. Hours worked were up 0.8% m/m in July which might suggest a solid gain in GDP given that it equals labour productivity times hours worked. That said, volatility in job reports raises uncertainty in this component of the add-up. Export volumes were up 1.1% in July while import volumes were up a milder 0.4% which suggests that net trade was a plus for economic growth. The volume of manufacturing shipments soared by 2.8% m/m and partly fed the export gain.

In terms of forecast tracking, even if the economy flat-lines on a monthly basis throughout Q3, then growth of 1.6% q/q at a seasonally adjusted and annualized pace is built in to the outlook. That’s purely a mathematical outcome given that the Q2 GDP hand-off into Q3 offered a higher starting point that the Q2 average. Now, if we’re right on July GDP, then that raises our tracking of Q3 GDP growth to about 2.5%. That’s getting closer to the 3.2% clip registered in Q2.

In a more basic sense, the third quarter is proving to be an interesting testing ground by way of the long-awaited rotation of growth prospects more toward international trade with less reliance on the consumer. Unleashed pent-up demand from a worse-than-usual winter temporarily drove Q2 retail sales volumes up by over 7% q/q (chart 1) and our current tracking is a still decent gain but at a clip five full points slower. That said, while the consumer may have decelerated, net trade accelerated. Chart 2 shows our Q3 tracking of the q/q growth in export volumes net of import volumes and next Friday’s August update will help us refine our Q3 tracking one way or the other.

Quebec’s Finance Minister Carlos Leitao speaks on finances and prospects at a think tank gathering on Monday. A former colleague of mine (and Ontario’s future finance minister was also in our ranks), I recall his affable style when he covered provincial economies two steps ago in his career and if anyone knows the opportunities and challenges facing the province and can sell a convincing story it should be Minister Leitao.

Of relevance to the financials may be that new OSFI Superintendent Jeremy Rudin will deliver a speech on ‘regulating and supervising federal financial institutions’ on Tuesday that may lay out his and the government’s priorities over his term in office.

Derek Holt (416) 863-7707 [email protected]

THE WEEK AHEAD

Chart 1

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*14Q3 Based on Current Tracking Estimates.Source: Statistics Canada, Scotiabank Economics.

q/q annualized % change in retail sales volumes

Q2 Consumption Gain Sustainable?

Chart 2

Economics

Global Views

September 26, 2014

3

… continued from previous page

United States — Data-Dependent Fed Puts The Focus On Nonfarm

Was the August nonfarm payrolls report (+142k) just an aberration on a solid longer-run trend, or was it a harbinger of the feared false start happening all over again? That will be the question of the week and it will take until Friday to answer. The outcome may go a long way toward determining whether the Fed reconciles its ‘dot plot’ for rate hikes starting next year with retention of guidance that rates hikes will commence a ‘considerable time’ after ending the bond purchase program by dropping those two words from its statement language. That could happen as soon as the October 29th FOMC, but we think a stronger case can be made for the December 17th FOMC depending on the near-term data flow. If such words were to go then we’d likely see mitigating steps like heightened data dependency and/or some alternate word(s) on which markets can wait with Shakespearean bated breath like the pre-1994 “patience” plea. Recall that even that boom year for employment showed that job growth for any one single month can be all over the map from a low that year of 200k in February to a high of 419k in November. Oh, and as for our call, we think nonfarm payroll growth returned to around the 240k mark last month. As usual, we caution that the 90% confidence interval on nonfarm is about 95,000 so just as random noise might have explained the slowdown in job growth over July, it could also explain a bounce back up next week even if markets couldn’t care less about this perspective. Look to the trend over time, and so far the Fed’s bias to look through the July jobs print has merit but another disappointment might call that further into question.

ADP (Wednesday) will provide a bit of a teaser ahead of nonfarm, but the two measures do not track each other well (Chart 3). In fact, since ADP revised its methodology in October 2012 to more closely track nonfarm, the initial prints for ADP and private nonfarm payrolls have been off by between -82k and +151k.

Fed speak will include Governor Powell on government debt, Atlanta Fed President Dennis Lockhart (alternate 2014, voting 2015, moderate), St. Louis Fed President James Bullard (nonvoting 2014, alternate 2015), Chicago Fed President Charles Evans (alternate 2014, voting 2015, dovish), and former Chairman Ben Bernanke. Evans and Lockhart have already revealed their latest thinking so market effects are unlikely; Evans pleads for patience, and Lockhart sits between the hawks (Fisher, Plosser, Lacker, Bullard, George) and the doves (Kocherlakota, Evans).

The rest of the week will retain a focus upon data flow that starts with consumer spending that will probably accelerate given we already know retail sales, pending home sales that might give back some of the prior month’s big rise, and the Fed’s preferred inflation gauge on Monday that is expected to slip to 1.4% y/y. Calm on Tuesday gives way to ISM-manufacturing that might have gone up too much too fast to the highest reading since March 2011, construction spending and vehicle sales on Wednesday. Factory orders will fall given we already know that about half of the report plunged when top-line durable goods orders fell on the unwinding of the prior month’s massive rise in the transportation sector. The narrowest trade deficit since January might slip a touch to close the week but this will be buried behind the same day’s nonfarm print.

Europe — Easier Central Bank?

Thursday’s ECB meeting and President Mario Draghi’s press conference will compete with Friday’s US nonfarm payrolls for the marquee developments of the week from a market risk standpoint. Will the ECB deliver quantitative easing via unsterilized purchases of sovereign bonds either now or cue them up for later? Both are unlikely for next week in part because current initiatives have not been given enough time, partly because firing off the last gun now would signal outright panic at the ECB, and partly because we remain skeptical toward the success of QE if the principal aim in the Eurozone’s context is to smoke the euro.


THE WEEK AHEAD

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ADP Often Throws Nonfarm Headfakes

Source: ADP, BLS, Scotiabank Economics.

Difference Between Initially Reported Monthly Changes in ADP and Private Nonfarm Payrolls, Thousands

Chart 3

Economics

Global Views

September 26, 2014

4


Stepping back for a moment, the original intent of ECB stimulus is to arrest a declining balance sheet that has shrunk back to mid-2011 levels (chart 4). Repayment of loans under Long-Term Refinancing Operations (LTRO) was resulting in balance sheet shrinkage. Falling money supply by this narrow definition was increasingly coming to be viewed as one reason behind persistent strength in the euro as the Fed continued to expand its balance sheet. This may have contributed toward lagged negative effects for Eurozone inflation that resumed a disinflationary trend from 2012 onward and is presently at its softest since October 2009. That’s the case for adding stimulus since July which some felt was far too late.

The problem is that monetary stimulus in the Eurozone is of diminishing effectiveness. Witness the softer-than-expected take-up of the Targeted Long-Term Refinancing Operation loans on September 18th in the first offering. They came in on the lower side of expectations with only €82.6 billion in loans offered at the practically free 0.15% rate for four years. The next offering in December will be more closely watched when QE bets might hang on the results. What’s that about how you can lead a horse to water but can’t make it drink? This is the ECB dilemma here when operating in the liquidity trap. Inelastic demand for money won’t borrow sufficient funds at any rate. What they do with such funds is another matter. Perhaps sit on the free loans and substitute away from higher-cost funding? I’m just surmising here as, like most economists, I’ve never actually made a loan in my life. Nevertheless lenders need borrowers and they’re not in a terribly upbeat mood within a system that is already flush with liquidity while lenders are getting no term premium to take risk given how remarkably flat the base yield curves are. Your reward for lending to the German government for 10 years instead of one is that at least you won’t lose money on negative front-end yields but at sub-1% for 10s you also won’t recoup long-term inflation risk. Who’d lend in that environment?

That said, some action is possible next Thursday. In the wake of soft TLTRO take-up, further softness in CPI inflation, and declining market-based inflation expectations may be more disconcerting to the ECB. Possibilities include announcing an immediate start to purchases of Asset-Backed Securities, or potentially providing firmer guidance over the targeted size of the ABS purchase program which risks backfiring if it falls short of some market speculation.

The rest of the week’s developments should be relatively modest in significance with one exception: another batch of inflation data across the Eurozone. That will arrive on Monday via Germany and Spain, followed by Italy and the EC add-up on Tuesday. Expectations are for a repeat 0.9% y/y print in the add-up for a second month and compared to the earlier 0.7% trough. If that happens, then it might give the ECB a bit more conviction that a bottom is being carved out. If another downside occurs, then there might be a few more anxious looking faces walking around the ECB headquarters in Frankfurt. I’m still skeptical regarding hopes that the ECB can sharply depreciate the euro and push inflation higher through QE as the constant assertions that the Fed has done this just don’t stand up to a dispassionate look at the USD (chart 5).


THE WEEK AHEAD

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ECB Peaked Too Early?

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ECB TotalAssets(EUR)

Source: Bloomberg, Scotiabank Economics

Federal Reserve Total Assets

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Chart 4

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No Clear Effect On The USD

USDEUR

Source: Bloomberg, U.S. Federal Reserve Board, Scotiabank Economics.

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Dollar Index

Chart 5

Economics

Global Views

September 26, 2014

5


Other than that, updates will be received for German and French consumer spending, Germany’s unemployment rate, and revised Q2 UK GDP that is expected to repeat the initial print of 0.8% q/q at a seasonally adjusted non-annualized clip.

Asia — Counting Medals

Asia should be relatively quiet with limited capacity to influence the global market tone next week. That will have the region following developments in Europe and the US, but also counting medals at the 2014 Asian Games in South Korea that involve 45 nations. Japanese indicators will be a mild focal point with updates for the jobless rate, household spending, retail sales, industrial production, vehicle production, housing starts, and the Tankan manufacturing survey all on tap.

The Reserve Bank of India is not expected to alter its main policy rates or reserve ratios on Tuesday. India’s inflation rate has sharply ebbed from a peak of 11.2% last November to 7.8% now. That’s still high, but the smoothed trend remains pointed somewhat lower so far and against the backdrop of generally soft global inflation.

Tertiary data releases of regional market importance will include Australian new home sales, trade figures for a number of economies, and inflation data from South Korea and Thailand. Random revision risk to China’s private ‘flash’ PMI could land into Tuesday.


THE WEEK AHEAD

Economics

Global Views

September 26, 2014

6

Canadian Auto Parts Industry Revs Up

Employment growth accelerates at the fastest pace in fourteen years.

The Canadian auto parts sector is rebounding sharply, benefiting from a recovery in U.S. vehicle sales, the highest North American production in a decade, as well as from the depreciation of the Canadian dollar over the past year and a half. Auto parts shipments and exports have posted double-digit gains so far this year, climbing in July to the highest level since late 2007, prior to the global economic downturn. The industry has also started to make inroads in becoming more geographically diversified, with shipments outside of the United States, advancing by 19% so far this year — the largest increase of the past decade.

While vehicle production in Canada has been dampened this year by the retooling for new products at several assembly plants, the parts sector has become a leader in Canada’s manufacturing revival in 2014. Auto parts shipments have surged 14% so far this year, nearly triple the increase in overall manufacturing activity. Leading indicators point to further gains, as both new and unfilled orders have outpaced the increase in auto parts shipments this year. In addition, stronger-than-expected car and light truck sales in the United States during the summer months have prompted automakers to further boost their fourth-quarter vehicle production schedules for Canada, the United States and Mexico. Given strengthening demand, we expect North American vehicle assemblies to climb to a record 17.8 million in 2015, surpassing the previous peak of 17.7 million in 2000. Record production across North America will provide a further lift to the Canadian auto parts industry, as each vehicle produced in North America contains roughly $1,600 of Canadian-made parts.

The sharp gain in auto parts exports this year, combined with a largely flat performance for imports due to the retooling at assembly plants, has reduced Canada’s auto parts deficit to an annualized $18.1 bn, down from an average of $19.5 bn over the past two years. However, further gains will be hard to come by as imports are likely to pick up as vehicle production ramps up at Canadian plants in coming months. Canadian-made vehicles have the highest content of imported parts among the major vehicle-producing nations. Each vehicle built in Canada contains roughly $16,000 of imported auto parts, double the global average and at least 25% higher than vehicles built in either the United States or Mexico.

Motor vehicle engines are leading the recovery, with shipments advancing 25% over the past year and exports surging 32%. This reflects increased investment at several Canadian engine plants in recent years, with a focus on fuel-efficient vehicles. In fact, reports indicate that Ford’s facilities in the Windsor area are in the running for a new engine program that, with the assistance of both levels of government, could create up to 1,000 new jobs.

Highlighting the improving fundamentals in Canada’s auto parts sector, employment has jumped 5% over the past year — the sharpest gain since 2000 when the industry was “motoring” throughout North America. In addition, employment in Canada’s auto parts sector has increased a cumulative 22% since bottoming out in mid-2009, a sharp contrast to overall manufacturing employment which continues to hover around the trough.

The industry is also starting to make much-needed inroads in diversifying its exports outside of the United States. While the United States will continue to be the main destination for Canadian auto parts exports, shipments to other jurisdictions have increased by 20% so far this year, outpacing the 16% advance to the U.S. In particular, exports to Mexico have surged by 30% over the past year, and are approaching the $507 million peak attained in 2007. In contrast, shipments to the United States remain 25% lower than a decade ago, despite this year’s rebound.

Carlos Gomes (416) 866-4735 [email protected]

AUTOS

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Auto Parts Industry Accelerates

y/y % change

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Source: Statistics Canada, Scotiabank Global Auto Report

Economics

Global Views

September 26, 2014

7

Bond Markets Have Dangerously Shot Past Neutral Rate Guidance

As Fed actions re-price bonds, the BoC may have to be more accommodative.

The Bank of Canada provided welcome insight into its thinking on the so-called neutral policy interest rate this past week (go here). It had little market effect in part because the BoC’s estimate in the 3-4% range was broadly in line with consensus expectations. It also largely mirrored the US Federal Reserve’s neutral rate guidance (3.25-4.25%).

More important, however, is that market yields have long since sharply undershot both central banks’ revised guidance and this creates important risks to the conduct of monetary policy. As the US Federal Reserve signals rate hikes beginning in 2015 and moving progressively higher throughout 2016 and ending at just over 3% by the end 2017, US 10 year Treasuries at about the 2.5% mark are too dear. That is based on the view that the term structure should be some reasonable average of forward rates with the overnight rate gradually getting reset higher relatively soon.

Either the Fed’s and the BoC’s revised neutral rate guidance is too high and markets are right, or bond markets are seriously over-valued. What leads us more in the direction of the latter argument entails looking at bond valuations in a different manner. A nominal sovereign bond yield should, over time, be driven by some combination of expectations for inflation and inflation-adjusted growth. Enter charts 1 and 2. In both the US and Canada, the nominal ten year government bond yield has collapsed upon the markets’ long-run inflation expectations derived from breakeven rates between nominal and inflation-linked bonds. This measure of inflation expectations can be subject to liquidity distortions during flights to and from safe-havens but, over time, usually serves as a useful guide to the broad market’s best guess at where inflation will land. This measure of inflation expectations also converges closely upon each central bank’s 2% inflation target. That’s true across the curve with 10s shown for the US and 30s for Canada given longer data history. In other words, either nominal bond yields are pricing in next to no inflation-adjusted growth expectations over very long periods of time, or market inflation expectations are far too high. The first interpretation is probably the correct one, and I’d happily bet against the US economy flat-lining for decades.

The ability to model a sharp rise in longer term borrowing costs is limited (for instance, see section 3.4 of the BoC’s ToTEM model manual here). We therefore have two important layers of uncertainty. One is the risks to financial stability stemming from hunt for yield pressures on distorted bond market pricing as flagged by the Bank for International Settlements in its summertime annual report (here). A sharp bond market repricing would trigger mark-to-market losses, and potentially destabilizing bond market outflows. Two is how an abrupt repricing of such risks would impact the domestic and global economies. Our feeling is that the US economy is better positioned to withstand rate increases over time, but that the Canadian economy is less well positioned as it lies at structural peaks on the two main sources of past growth: the household sector and resource investment. A Fed-led bond market sell-off that imposes a fixed rate shock and probably softer commodity prices on Canada would likely force the Bank of Canada to become more accommodative over time. This long-held view (go here for our piece on this a year ago) on the spillover effects of Fed moves into Canada is partly behind our longer-than-consensus BoC hold. As BoC Deputy Governor Timothy Lane cautiously put it: “In the event the Fed’s renormalization does not play out smoothly in financial markets, the impact on Canada could be significant. But we have full confidence in our colleagues at the Federal Reserve to manage this process well.”


MONETARY POLICY

Chart 1

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Source: Bloomberg, Scotiabank Economics.

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Treasuries Are Either Rich or the Economy is Really in Trouble

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Chart 2

http://www.bankofcanada.ca/2014/09/discussion-paper-2014-5/

http://www.bankofcanada.ca/wp-content/uploads/2013/10/technical_report_100.pdf

http://www.bis.org/publ/arpdf/ar2014_ec.pdf

http://www.gbm.scotiabank.com/English/bns_econ/cmsr131024.pdf

Economics

Global Views

September 26, 2014

8

Beyond Demographics: Structural Declines In The U.S. Labor Force

We estimate that roughly half of the decline in the Labor Force Participation Rate (LFPR) since 2000 has been due to long-term non-demographic structural trends, implying a stronger labor market than the LFPR suggests, even when taking the ageing population into account.

The demographic arguments behind the decline in labor force participation rates are well recognized: the working age population is shrinking and weak job prospects during the financial crisis encouraged early retirement. Yet, there are additional structural issues weighing on the 4.7 percentage point drop in the LFPR since 2000 that seem less well understood such as the increase in disabled beneficiaries and rising college enrollment rates. There are certainly some cyclical and demographic elements to these issues that are difficult to parcel out, but we attempt to illustrate here that their long-term trends are meaningfully impacting the LFPR.

The rise in disabled beneficiaries

Since the mid-1980s, the share of the working age civilian population that receives disability benefits has grown from 2.0% to 4.5% (chart 1). Relative to 2000 (the peak in LFPR), 4.4 million additional individuals have become disabled beneficiaries, 1.5 million of them since 2009. We estimate that between 2000 and 2014, these additional disabled beneficiaries resulted in a 1.8 percentage point drop in the LFPR, 0.6 percentage points of which occurred since 2009.

Similarly, a Federal Reserve Bank of Philadelphia paper found that 1.3 percentage points of the decline in LFPR between 2000 and 2011 was caused by the rise in disability. The paper also emphasized that an exit from the labor force to disability is “more or less permanent”, i.e., the increase in the share of disabled beneficiaries is a structural blow that rarely reverses itself.

It could be argued that the rise in disability is just a symptom of demographic changes, i.e., older workers are more likely to claim disability benefits. That’s true to a certain extent: since 2007, there has been a greater share of 55-64 year olds claiming disability (though far fewer 65+) (chart 2). Yet, from a longer-run structural perspective, the Social Security Administration has pointed out that the average age of beneficiaries has actually fallen from 57.2 in 1960 to 49.8 in 1995, then back up slightly to 53.2 by 2012. Meanwhile, the average age of retirement has only changed from 72.4 to 73.7. This makes it difficult to separate how much of the decline in LFPR is purely non-demographic, so our estimate of the impact likely includes a demographic impact. However, the long-term trend suggests there is more to this story than ageing population.

College enrollment rates are rising

There has also been a long-term structural increase in the rate of college enrollment of 18-24 year olds, and thus, their reduced participation in the labor force. This coincides fairly closely with the decline in the 20-24 year old LFPR which fell from 80% in the mid-1980s to its current rate of 70%. Between 2000 and 2012, the rate of college enrollment grew 5.6 percentage points (or by 2.3 million 20-24 year olds) (see chart 3), whereas the 20-24 year old population only grew by 0.15 percentage points. If we make the assumption that the 78% of these students who are full-time have no attachment to the labor force, then their higher enrollment rate corresponds

Frances Donald (416) 862-3080 [email protected]

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Disabled beneficiaries as % of civilian population age 16+

Source: Bloomberg, Scotiabank EconomicsSource: Bloomberg, Scotiabank Economics

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Source: Bureau of Labor Statistics, Scotiabank Economics

Chart 1

Chart 2

http://philadelphiafed.org/research-and-data/publications/research-rap/2013/on-the-causes-of-declines-in-the-labor-force-participation-rate.pdf

http://www.ssa.gov/policy/docs/chartbooks/fast_facts/2013/fast_facts13.pdf

Economics

Global Views

September 26, 2014

9


to a 0.7 percentage point fall in the labor force between 2000 and 2013. Unlike disabled beneficiaries, students eventually re-enter the labor force, but the missing 18-24 demographic will continue to suppress the LFPR for as long as the rate of enrollment increases.

Yet, schooling isn’t just a youth issue. The share of full-time students who are over 35 years old has also grown from 1.8% in 1970, to 6.6% in 2000 and 8.3% in 2013 (chart 4). That works out to roughly 500,000 new 35+ full-time students since 2000. If we added these older students back into the labor force, the LFPR would be 0.3 percentage points higher which implies that the 20-24 yrs and 35yrs+ demographics alone have suppressed LFPR by more than a full percentage point since 2000. The Federal Reserve Bank of Philadelphia looked across all demographics and similarly found that college enrollments had reduced LFPR by 0.9 percentage points between 2007 and 2013.

A thought experiment on incarceration

The technical definition of labor force participation is the ratio of working age civilian non-institutionalized persons in the labor force to the number of working age civilian non-institutionalized population. So, it might initially seem like incarceration has zero impact on labor force metrics. And yet, there are relevant considerations with respect to labor market indicators from an accounting perspective.

As an illustration, let’s make the assumption that the newly admitted prisoner has a lower LFPR than a non-prisoner, i.e., they count in the denominator but not the numerator of the LFPR equation. Their incarceration reduces the denominator, and thus increases the LFPR. The same argument could be made in reverse: a newly released prisoner with a higher rate of unemployment or reduced attachment to the labor force due to stigmatization and deterioration of skills would make labor market indicators immediately appear worse. In this case, if the number of prisoners released exceeds the number of prisoners admitted, we should expect the unemployment rate to be higher and the LFPR to be lower.

Between 1978 and 2009, the number of prison admissions exceeded the number of prison releases and the stock of inmates under prison jurisdiction grew steadily towards 1.4 million (see chart 5). Between 2000 and 2009, there were 170k new prisoners and if we make the aggressive assumption that none were labor market participants, their removal from the denominator of the LFPR equation would have improved the LFPR by 0.14 percentage points over that period. Yet, beginning in 2009, a trend change occurred and the amount of prisoners fell by 43K over the next four years, pushing down the LFPR by 0.03 percentage points. For now, these are not statistically significant impacts and the assumptions made in this illustration are too aggressive. However, if the trend towards a lower incarceration rate accelerates, it’s worth being aware of this invisible accounting effect on LFPR.


UNITED STATES

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Source: National Center for Education Statistics, Scotiabank Economics

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Source: Bureau of Justice Statistics, Scotiabank Economics

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Source: National Center for Education Statistics, Scotiabank Economics

Chart 3

Chart 4

Chart 5

Economics

Global Views

September 26, 2014

10

Flash PMIs Underscore Uneven Global Growth

U.S. gains momentum, while Europe lags.

A slate of flash purchasing managers’ indices (PMIs) and global trade figures released this week illustrate the uneven growth in the global economy. The world’s largest economies are on diverging paths. The U.S. is recording robust growth across a wide range of indicators, while Japan is starting to recover from the shock of April’s sales tax increase. Meanwhile, China and the euro zone remain in expansionary territory, but are testing the line of contraction. Based on these trends, we estimate that global growth was largely flat in September.

September’s U.S. manufacturing PMI was unchanged from August at 57.9, the highest level since the summer of 2010, and the highest PMI reading of all the major economies. Strong domestic demand and confidence in future sales is allowing U.S. manufacturers to expedite hiring, leading to the strongest growth in manufacturing employment since March 2012. New orders and backlogs also increased in September, indicating strength is likely to continue in the coming months.

China’s manufacturing PMI ticked up to 50.5 in September, a small improvement over August’s reading of 50.2. The index has spent the first half of this year in contraction, but has climbed back over the expansionary 50 mark alongside liquidity injections from the central bank. New orders improved, but employment weakened, leading to the near-flat result. Industrial activity has been moderating in China for several years, with August’s increase of 6.9% y/y the lowest since December 2008.

Europe is also registering uneven growth. With the exception of some peripheral nations that are expanding rapidly (Ireland and the Czech Republic), European business activity is generally decelerating. German manufacturing PMI dipped to 50.3 in September from 51.4 the previous month. This continues the downward trend since January when the index reached a multi-year peak of 56.5. France climbed to a 4-month high at 48.8, but is still in negative growth territory, pointing to a possible contraction in Q3. Euro zone businesses decreased prices for the 30th consecutive month in September in the face of persistently weak demand. Disinflationary concerns remain elevated, prompting ECB President Draghi to comment that “We stand ready to use additional unconventional instruments within our mandate, and alter the size or composition of our unconventional interventions should it become necessary to further address risks of a too prolonged period of low inflation”. New orders were down on the month while backlogs and future expectations slumped to their lowest levels since July 2013.

Japan’s manufacturing output is outpacing both Europe and China despite a drop to 51.7 from 52.2 in August. New orders expanded, but employment and backlogs both declined, indicating future growth will be positive but moderate.

Trade data for advanced economies is mirroring the mixed performances of the PMIs, with the U.S. leading and Europe lagging. U.S. exports are up 3% year-to-date, compared with only 1.4% in Europe and 2.5% worldwide. Increasing export volumes should continue, as global new orders have been expanding for 25 consecutive months, although activity will be concentrated in developing markets, particularly emerging Asia.

Neil Tisdall (416) 866-6252 [email protected]

GLOBAL MANUFACTURING

45

50

55

60

13 14

Diverging Trends

Euro zone

purchasing managers' indices,above 50 = expansion below 50 = contraction

Source: Markit, Scotiabank Economics.

U.S.

China

Japan

-4

-2

0

2

4

6

8

10

12

14

11 12 13 14

Europe Dampens Global Trade

Emerging Economies

exports, y/y % change, 3-month moving average

Source: CPB Netherlands Bureau for Economic Policy Analysis, Scotiabank Economics.

U.S.

Euro Area

Source: Markit, Scotiabank Economics.

Source: CPB Netherlands Bureau for Economic Policy Analysis, Scotiabank Economics.

Economics

Global Views

September 26, 2014

11

Economic Challenges Continue In Puerto Rico

The Puerto Rican economic growth outlook remains weak and it is unlikely that the Commonwealth will manage to turn the tide in the near term. The Puerto Rican Development Bank’s Economic Activity Index recorded a 0.7% y/y contraction in July; this was the 19th consecutive monthly decline and the territory has recorded annual contractions in 7 of the past 9 fiscal years (Figure 1).

Puerto Rico’s population continues to fall, shedding over 200,000 (5.5%) residents off its 2004 peak (3.8 million) and is expected to shrink by about 0.65% in 2014. High unemployment and low labour force participation rates — hitting 13.9% and 39.6% in July, respectively (Figure 2) — point to a structural mismatch between human capital and employment opportunities. Meanwhile, jobs that the private sector has generated have, more or less, been offset by public sector layoffs amidst continuing fiscal consolidation efforts. High energy costs (over double the mainland average) hamper the island’s ability to attract investment into the manufacturing or other energy-intensive sectors, and heavy transport costs counterbalance the Commonwealth’s privileged export position with the mainland. The tourism industry has rebounded slightly, but not enough to offset other challenges. Despite the fact that the aggregate US economy is expected to grow by 2.1% in 2014 and 3.2% in 2015, we foresee Puerto Rico’s economy contracting by approximately 1% in 2015.

Puerto Rico’s fiscal outlook remains weak despite the current administration’s consolidation efforts. Large public sector layoffs and tax increases have bettered the near-term fiscal position but these actions will weigh on domestic demand, weakening medium-term growth prospects. The government announced its first balanced budget in 22 years for FY2014/15, achieved by cutting up to US$1.4 billion in public sector expenditures. However, continued economic sluggishness will strain revenue generation capacity. Nonetheless, any movement on this the country’s fiscal position bodes well for sustainability and will at least begin to slow the rate of public debt growth, which increased from 60% of GNP in 2000 to more than 100% in 2013.

The large underground economy — by some accounts representing almost one-quarter of Puerto Rico’s GNP — continues to limit the government’s tax base and has resulted in increased taxation on the most visible portions of the formal economy like labour and property, further eroding consumer spending capacity. The Commonwealth’s current account position will benefit from the United States’ economic recovery, with exports to the mainland rising as imports fall on the back of depressed local demand. However, cuts at the federal level will limit the stream of aid destined for Puerto Rico.

Puerto Rico’s creditworthiness continues to face significant headwinds. The Commonwealth recently issued US$3.5 billion in long-term general obligation bonds (maturing in 2035) with an 8% coupon rate, reflecting continued but strained access to capital markets. General obligation long-term credit ratings have fallen further this year, with S&P (BB), Moody’s (B2), and Fitch (BB-) all maintaining “negative” outlooks on ratings that are already well below investment grade.

Rory Johnston (416) 862-3908 [email protected]

AMERICAS

-7

-6

-5

-4

-3

-2

-1

0

1

2

3

4

Jul-06 Oct-08 Jan-11 Apr-13 Jul-15

Figure 1: Puerto Rican Economic Growth

Note: Puerto Rican fiscal year (July-June).Source: Puerto Rican Development Bank.

y/y %change

30%

35%

40%

45%

50%

55%

8%

9%

10%

11%

12%

13%

14%

15%

16%

17%

18%

Jul-06 Oct-08 Jan-11 Apr-13 Jul-15

Figure 2: Puerto Rican Labour Market

Note: Puerto Rican fiscal year (July-June).Source: Puerto Rican Development Bank.

ParticipationRate (RHS)

UnemploymentRate (LHS)

Economics

Global Views

September 26, 2014

12

Strengthening Global Demand Bodes Well For Singapore And Taiwan

While Singapore enjoys a diversified export market, Taiwan continues to rely largely on Chinese demand.

The Singaporean and Taiwanese economies are benefiting from recuperating global demand. Both nations are highly trade-intensive, with net exports of goods and services accounting for 27% of GDP in Singapore and 20% in Taiwan. The two economies share a comparative advantage in producing high-value added goods, particularly machinery and equipment including electronics and telecommunication products. Driven by the external sector, we expect real GDP growth for both countries to average 3.6% annually in 2014-15. Complementing the improving external environment, the economies maintain sound domestic demand momentum as labour market conditions underpin household spending and a favourable global outlook supports investment activity.

The Singaporean economy advanced by 2.4% y/y in the second quarter of 2014 following an expansion of 4.8% in the January-March period. The growth deceleration reflected a temporary slowdown in the manufacturing sector, particularly in terms of electronics and transport engineering output; nevertheless, momentum is expected to bounce back in the second half of the year. Regardless, net exports increased by 12.6% y/y in the first half of 2014, while industrial production grew by 5.2% y/y in the first 8 months of the year. Household spending continues to be supported by wage gains that reflect tight labour market conditions (the unemployment rate was 2% in the second quarter of 2014), while investment growth is being buttressed by public sector infrastructure development.

In Taiwan, real GDP growth picked up to 3.7%% y/y in the second quarter of 2014 from 3.2% in the prior three months. Net exports increased by 8.1% y/y in the first half of 2014, while industrial production advanced by 5.1% y/y in the January-August period. Recuperating external prospects will continue to underpin sentiment and investment activity, while favourable employment conditions (with the jobless rate at 3.9% in August) buttress household spending.

Inflation in both Singapore and Taiwan will remain manageable through 2015. In Singapore, tightness in the labour market will continue to underpin modest inflationary pressures. The consumer price index increased by 0.9% y/y in August and we expect inflation to accelerate gradually in the coming months, reaching an average of 2.0% through 2015, as companies pass on higher business costs to consumers. We expect inflation to hover near the current level through 2015. In Taiwan, temporary food price pressures pushed consumer price inflation to 2.1% y/y in August. Nevertheless, relatively low global energy prices combined with a negative output gap domestically will keep inflationary pressures at bay; we expect headline inflation to hover near the 2% mark through 2015.

Singapore and Taiwan are very well-positioned to benefit from globalization and the upturn in world trade; they rank highly (second and 12th, respectively, out of 148 countries) in the World Economic Forum’s 2013-2014 Global Competitiveness Index, being both classified as highly developed “innovation-driven” economies. The World Bank’s Ease of Doing Business Index places Singapore at the very top of the list, though Taiwan does not fare poorly either, being placed in the 16th position in the world.

While the two countries have similar economic structures, Singapore enjoys greater demand security with its export market being more diversified. Taiwan has historically benefitted from strong Chinese economic growth, yet its dependence on the mainland (the destination for nearly 30% of Taiwanese goods) exposes it to larger external shocks given China’s ongoing structural transformation and the associated implementation risks.

Tuuli McCully (416) 863-2859 [email protected]

ASIA

0

1

2

3

4

5

6

7

8

9

10

Mar-11 Mar-12 Mar-13 Mar-14

Singapore

Taiwan

Real GDP Growth

y/y % change

Source: Bloomberg.


Global Views

September 26, 2014

13

Latin America Week Ahead: For The Week Of September 29 - October 3

This week’s major event is likely to be the US non-farm payrolls data, but we also have a number of PMI releases, as well as the first round of Brazil’s presidential elections over the next week-end (October 5th). Although there are enough interesting developments taking place within LATAM to add a little differentiation between the countries in the region, we think the major theme that will play out over the next few weeks (or months) remains the Fed. Our view in this environment is to focus on avoiding trying to catch falling knives, by not fighting the Fed.

On the “China front”, this is a very short week, as Wednesday — Friday are holidays for “National Day”. However, we are still scheduled to get relevant manufacturing and non-manufacturing PMIs, which are worth watching in an environment where market participants are trying to gauge the depth of the potential slowdown risks. The Inter-American Dialogue released an interesting report on Chinese mining activity in LATAM. The report contains a lot of interesting information, including details on where the flows are going, as well as showing that LATAM accounts for 10% of Chinese mining investments.

Week-ahead views:

Brazil: Last night’s Vox Populi poll showed another reversal in what is shaping to be an exciting and volatile race, with Dilma regaining a marginal lead (still within the margin of error) of 42% - 41% in first round voter intentions, but we believe the data suggested a rebound in Rousseff’s voter intentions in the poll (at least if we compare to the last two most recent polls by Ibope and Datafolha — so not sticking to the same company). On the fiscal front, local newspaper Estado de Sao Paulo reported that the government is debating the use of the sovereign wealth fund to “meet the primary surplus target”, which we believe would be a negative sign, as the net fiscal result is still the same, but could signal the use of “cosmetic fixes”.

The economy has taken a bit of a secondary role for markets in our view, as investors have turned towards trying to determine what, if any, changes in policy direction the different candidates represent. However, we are scheduled to get PMI data, which is still interesting to watch, even if it may not be as market relevant as usual. Next week is the last before the first round voting over the week-end (October 5), so polls this week are very important. However, it seems extremely likely that a second round vote will be necessary (October 26), for which dynamics will likely change as candidates’ “air-time” will become more even, but they will also be able to focus their attacks on a single target.

Chile: This week we get the Chilean manufacturing index, unemployment and retail sales, which are all important to watch for signs that the economy is gaining traction — and hence how long the easing cycle will continue (our sense is 25bps more). In addition we are expecting the BCCh’s MPC meeting minutes where we hope to get more clarity on whether we are right to expect one more cut. USD/CLP has struggled to break above 600, but our sense is that in the current environment, this seems only a matter of time.

Colombia: With next week being very quiet on the data front, outside of the unemployment data release, today’s BanRep meeting is arguably the main event for next week. There are two major questions heading into the decision: Will the FX intervention program be extended? and Will the rate hike cycle come to an end? … we think the answer to both is yes. Recent talk by central bank board members has sounded more comfortable with current rates while, on the FX front, we don’t think intervention would come at these levels, but given the program is an “up to” purchase amount, it is somewhat of a “free option”, so we see little harm in extending it (beyond a potential knee jerk).

Mexico: The economy seems to be gaining steam, and the latest polls conducted by GEA show that citizen perceptions towards the economic prospects, the government, and the reforms all jumped sharply higher, which we take as a positive sign. On this front, looking at the releases of the HSBC Mexican manufacturing PMI, as well as the IMEF Mexican manufacturing and non-manufacturing PMIs will be important, in order to see if these trends are confirmed. We are also expecting the publication of consumer confidence data, where it will be interesting to see if the results of the GEA survey are confirmed.

Eduardo Suárez (416) 945-4538 [email protected]

http://thedialogue.org/uploads/ChineseMiningActivityinLatinAmerica.pdf

http://economia.estadao.com.br/noticias/geral,uso-do-fundo-soberano-divide-equipe-economica-imp-,1566234

http://structura.com.mx/images/uploads/gea/2014_0918_Escenarios_Politicos_Septiembre_2014_VERSI%C3%93N_DEFINITIVA.pdf


Global Views

September 26, 2014

14


In our view, one of the key elements that Mexico needs to advance on, in order to fight the ‘underground economy’, corruption, and a number of other problems, is to create a unique ID number that its citizens are identified by for legal purposes (similar to a Social Insurance Number). For decades, this has been discussed, and nothing has been done about it. However, President Peña Nieto announced on Thursday that the current administration would seek to create it — we think this is an issue worth tracking.

Peru: In its last meeting the BCRP delivered the widely expected 25bps cut, with our sense being that the bias remained to dovish side, but with a certain degree of “data watchfulness”. On one hand, the board highlighted the negative inflation in August, which is back within the target range, as well as softer-than-expected economic activity. However, the BCRP also said that “the decision does not imply an easing cycle”, and added a signal of data dependence by stating that “the board is attentive to inflation projections and their determinants, to consider, if necessary, additional easing measures”. Our sense is these comments suggest the decision on October 9th is data dependent, making this week’s CPI release important to watch.

Eduardo Suárez (416) 945-4538 [email protected]

http://www.elfinanciero.com.mx/politica/pena-nieto-se-compromete-a-materializar-cedula-de-identidad.html

http://www.bcrp.gob.pe/docs/Transparencia/Notas-Informativas/2014/nota-informativa-2014-09-11-Ml9tBzJqK65nNaxFgt5krR65zx12lK.pdf

Economics

Global Views

September 26, 2014

15

Key Data Preview

CANADA

Canadian GDP for July is a bit of a wildcard. Auto manufacturing was up very considerably on the month, rising by 11.6% m/m (see chart) according to the manufacturing sales report for the month, lifting overall manufacturing sales volumes by 2.8% m/m. We think that this alone should have a positive impact on GDP, and is the principal reason why we’re looking for a 0.2% m/m overall print. The other major positive was a +0.7% m/m increase in total hours worked, which also points to strength in the aggregate economy. The issue is that everything else… was on the soft side. Retail sales volumes were flat, wholesale trade volumes fell 0.6% m/m, and housing starts were flat (albeit at an elevated level close to 200k/month annualized). Trade data were consistent with a view that the industrial economy was strong but not much else. Exports of motor vehicles and parts were higher by 6.9% m/m while most other important categories including energy exports dropped and imports fell outright (-0.3% m/m).

We’re looking for a moderate drop in the trade surplus for August on a pull-back in autos shipments and an increase in imports. As mentioned above, the autos manufacturing boom in July was massive; however, data released from the U.S. on manufacturing during August imply that the production surge may not have been sustained, pointing to softer Canadian production (and exports) too. Energy exports may rebound in August from weakness in July in volume terms, but Canadian crude prices started softening fairly substantially in line with global benchmarks (see chart). A rebound in imports after a soft July could also weigh on the trade balance and leave us expecting a +1.9bn number.

UNITED STATES

We’re looking for U.S. jobs to rebound from a relatively soft August, with non-farm payrolls increasing by 240k. Initial jobless claims were very low on the month (see chart), falling to 280k during the reference week for non-farm payrolls which, all things being equal, points to strength. The unemployment rate has been hovering near 6.1% for three months now and it will be interesting to see if new entrants into the labor force prevent progress here. We’re looking for unemployment to hold at 6.1%.

The ISM manufacturing index for September is a tough call: the Philly Fed index fell on the month, but other regional manufacturing indices were solid including the Richmond Fed index which ticked higher and the Empire manufacturing index which skyrocketed. Overall we’re looking for a flat but solid reading for the ISM Manufacturing index. The ISM non-manufacturing index could move slightly lower but remain at a still-elevated reading of 58 as retail sales popped higher, consumer confidence numbers continue to come in strong and business sentiment on balance was higher on the month as reflected in the regional Fed surveys.

We’re looking for personal spending for August to increase by 0.4% m/m, a shade below the 0.6% m/m increase in retail sales on the month. Similarly, we’re looking for incomes to rise by 0.2% m/m, a little below the 0.4% m/m increase in aggregate wages reported in the month’s jobs numbers.

Dov Zigler (212) 225-6631 [email protected]



A1

70

72

74

76

78

80

82

84

86

88

90

Jan-2014 Jul-2014

WCS

USD/Barrel

Source: Bloomberg, Scotiabank Economics

Western Canadian SelectSoft in August

280

330

380

430

480

10 12 14

Initial Jobless Claims

8-Week-Moving Avg.

000s

Source: DoL, Scotiabank Economics

Initial Jobless ClaimsEncouraging Trend

0

1

2

3

4

5

6

7

8

00 02 04 06 08 10 12 14

Source: Statistics Canada, Scotiabank Economics.

C$ billions

Canadian Auto Industry Climbing Back

CanadianMotor Vehicle Manufacturing

Sales

Economics

Global Views

September 26, 2014

16


EUROPE

Next week on Tuesday September 30th, the euro zone flash HICP for September will be released. The slowdown in euro zone inflation is not yet over as we expect the flash HICP to ease from 0.4% y/y to 0.3% y/y, an outcome that will continue to fuel the debate on deflation. Our forecast assumes further softness in gasoline prices, with weekly retail prices pointing to a -0.2%/-0.5% m/m drop — compared to a decline of 1.3% m/m in August. However, thanks to favourable base effects (last year food prices dropped -0.4% m/m vs. traditional seasonality of around +0.2% m/m), the year-over-year trend in food prices should support headline inflation; though we do not exclude the risk of a weaker-than-expected price trend in fresh food on the back of Russian trade sanctions. Core inflation could also ease back to 0.8% y/y, following a slight acceleration to 0.9% y/y in August.

LATIN AMERICA

Both Chile and Brazil will release industrial production figures for August on September 30th and October 2nd, respectively. In Chile, relatively low copper prices still weigh on the economy, impacting industrial production as investment slows; we expect Chilean industrial output to contract by 2.8% y/y in August, following a -4.2% y/y drop in July. In Brazil, the economy continues to struggle to grow, with real GDP contracting by 0.9% y/y in the second quarter of 2014. This, combined with high interest rates aimed at combatting persistently high inflation, has impacted investor and consumer confidence, with knock on effects for the country’s industrial core. We expect Brazilian industrial production to decline by around 6% y/y in August, down from -3.6% in July.

ASIA

South Korea, Indonesia and Thailand will release September inflation data next week. In South Korea (due September 30th EST) inflation remains low with consumer prices rising by 1.4% y/y in August; we estimate that headline inflation stood at 1.5% y/y in September. Near-zero producer price inflation together with relatively low energy costs indicate that upside pressure on consumer prices will remain absent in the medium term. We expect prices to climb gradually in the coming months, with inflation closing the year at slightly below 2% y/y and accelerating to around 2.5% by the end of 2015, thereby reaching the lower boundary of the Bank of Korea’s 2.5-3.5% target range.

In Indonesia (data scheduled to be released on October 1st), inflation has been easing in recent months, with the consumer price index rising by 4.0% y/y in August, down from over 8% in early 2014. The substantial deceleration reflects tight domestic monetary conditions and the fact that the effect of the fuel subsidy cut in mid-2013 has fallen out of the consumer price index. We estimate that prices increased by 4.6% y/y in September and will remain near that level through the end of the year. In 2015, however, inflation dynamics will likely be impacted by further progress on the fuel subsidy reform.

Thailand’s inflation (September data to be released on October 1st) remains manageable at 2.1% y/y in August, recording a modest deceleration from prior months on the back of price controls implemented by the military rule as well as lower food costs. We estimate that inflation remained unchanged in September and will continue to hover near the current level through the end of the year before picking up somewhat in 2015 along with rebounding domestic demand.

A2

Frédéric Prêtet (00 33) 17037-7705 [email protected]

Tuuli McCully (416) 863-2859 [email protected]

Rory Johnston (416) 862-3908 [email protected]

-10

-8

-6

-4

-2

0

2

4

6

8

10

12

Aug-11 Aug-12 Aug-13 Aug-14

Chilean and Brazilian Industrial Production


Chile

Brazil

y/y %change

forecast

Economics

Global Views

September 26, 2014

1

Key Indicators for the week of September 29 – October 3

Forecasts at time of publication. Source: Bloomberg, Scotiabank Economics.

North America

Europe

A3

Country Date Time Indicator Period BNS Consensus LatestUS 09/29 08:30 PCE Deflator (m/m) Aug -0.1 -0.1 0.1US 09/29 08:30 PCE Deflator (y/y) Aug 1.4 1.4 1.6US 09/29 08:30 PCE ex. Food & Energy (m/m) Aug 0.0 0.0 0.1US 09/29 08:30 PCE ex. Food & Energy (y/y) Aug 1.4 1.4 1.5US 09/29 08:30 Personal Spending (m/m) Aug 0.4 0.4 -0.1US 09/29 08:30 Personal Income (m/m) Aug 0.2 0.3 0.2US 09/29 10:00 Pending Home Sales (m/m) Aug -- -0.5 3.3US 09/29 10:30 Dallas Fed. Manufacturing Activity Sep -- 11.0 7.1

CA 09/30 08:30 Real GDP (m/m) Jul 0.2 0.3 0.3CA 09/30 08:30 IPPI (m/m) Aug -- -0.2 -0.3CA 09/30 08:30 Raw Materials Price Index (m/m) Aug -- -1.3 -1.4US 09/30 09:00 S&P/Case-Shiller Home Price Index (m/m) Jul 0.0 -0.1 -0.2US 09/30 09:00 S&P/Case-Shiller Home Price Index (y/y) Jul 7.5 7.5 8.1US 09/30 09:45 Chicago PMI Sep -- 62.0 64.3US 09/30 10:00 Consumer Confidence Index Sep 93.5 92.5 92.4

US 10/01 07:00 MBA Mortgage Applications (w/w) SEP 26 -- -- -4.1US 10/01 08:15 ADP Employment Report (000s m/m) Sep 210.0 205.0 204.3US 10/01 10:00 Construction Spending (m/m) Aug -- 0.5 1.8US 10/01 10:00 ISM Manufacturing Index Sep 59.0 58.3 59.0US 10/01 Domestic Vehicle Sales (mn a.r.) Sep 13.7 13.6 13.9US 10/01 Total Vehicle Sales (mn a.r.) Sep 17.0 16.9 17.5

US 10/02 08:30 Initial Jobless Claims (000s) SEP 27 290 297 293US 10/02 08:30 Continuing Claims (000s) SEP 20 -- 2430 2439US 10/02 10:00 Factory Orders (m/m) Aug -9.0 -9.3 10.5

CA 10/03 08:30 Merchandise Trade Balance (C$ bn) Aug 1.9 1.6 2.6US 10/03 08:30 Nonfarm Employment Report (000s m/m) Sep 240.0 215.0 142.0US 10/03 08:30 Unemployment Rate (%) Sep 6.1 6.1 6.1US 10/03 08:30 Household Employment Report (000s m/m) Sep -- -- 16.0US 10/03 08:30 Average Hourly Earnings (m/m) Sep -- 0.2 0.2US 10/03 08:30 Average Weekly Hours Sep -- 34.5 34.5US 10/03 08:30 Trade Balance (US$ bn) Aug -41.0 -41.0 -40.5US 10/03 10:00 ISM Non-Manufacturing Composite Sep 58.0 58.5 59.6

Country Date Time Indicator Period BNS Consensus LatestSP 09/29 03:00 CPI (y/y) Sep P -- -0.2 -0.5SP 09/29 03:00 CPI - EU Harmonized (y/y) Sep P -- -0.3 -0.5SP 09/29 03:00 Real Retail Sales (y/y) Aug -- -- -0.3EC 09/29 05:00 Business Climate Indicator Sep -- 0.1 0.2EC 09/29 05:00 Consumer Confidence Sep F -- -11.4 -11.4EC 09/29 05:00 Economic Confidence Sep -- 99.9 100.6EC 09/29 05:00 Industrial Confidence Sep -- -5.8 -5.3GE 09/29 08:00 CPI (m/m) Sep P -0.2 -0.1 0.0GE 09/29 08:00 CPI (y/y) Sep P 0.6 0.8 0.8GE 09/29 08:00 CPI - EU Harmonized (m/m) Sep P -- -0.1 0.0GE 09/29 08:00 CPI - EU Harmonized (y/y) Sep P -- 0.7 0.8UK 09/29 19:05 GfK Consumer Confidence Survey Sep -- 0.0 1.0

Economics

Global Views

September 26, 2014

2



A4

Country Date Time Indicator Period BNS Consensus Latest

GE 09/30 02:00 Retail Sales (m/m) Aug -- 0.5 -1.1UK 09/30 02:00 Nationwide House Prices (m/m) Sep -- 0.5 0.8FR 09/30 02:45 Consumer Spending (m/m) Aug -- -0.1 0.9FR 09/30 02:45 Producer Prices (m/m) Aug -- 0.0 -0.3GE 09/30 03:55 Unemployment (000s) Sep -- -2.0 2.0GE 09/30 03:55 Unemployment Rate (%) Sep -- 6.7 6.7UK 09/30 04:30 Business Investment (q/q) 2Q F -- -- 5.0UK 09/30 04:30 Current Account (£ bn) 2Q -- -18.0 -18.5UK 09/30 04:30 GDP (q/q) 2Q F -- 0.8 0.8UK 09/30 04:30 Index of Services (m/m) Jul -- 0.3 0.3EC 09/30 05:00 Euro zone CPI Estimate (y/y) Sep 0.3 0.3 0.3EC 09/30 05:00 Euro zone Core CPI Estimate (y/y) Sep A 0.8 0.9 0.9EC 09/30 05:00 Unemployment Rate (%) Aug -- 11.5 11.5IT 09/30 05:00 CPI (m/m) Sep P -- -0.2 0.2IT 09/30 05:00 CPI (y/y) Sep P -- 0.0 -0.1IT 09/30 05:00 CPI - EU Harmonized (m/m) Sep P -- 1.8 -0.2IT 09/30 05:00 CPI - EU Harmonized (y/y) Sep P -- -0.1 -0.2SP 09/30 Budget Balance YTD (€ mn) Aug -- -- -32050

IT 10/01 03:45 Manufacturing PMI Sep -- 49.5 49.8UK 10/01 04:30 Manufacturing PMI Sep -- 52.7 52.5IT 10/01 Budget Balance (€ bn) Sep -- -- -7.5RU OCT 1-2 Real GDP (y/y) 2Q F -- 0.8 0.8

UK 10/02 04:30 PMI Construction Sep -- 63.5 64.0EC 10/02 05:00 PPI (m/m) Aug -- -0.1 -0.1EC 10/02 07:45 ECB Announces Interest Rates (%) Oct 2 0.05 0.05 0.05

IT 10/03 03:45 Services PMI Sep -- 49.6 49.8UK 10/03 04:30 Official Reserves (£ bn) Sep -- -- -377.0UK 10/03 04:30 Services PMI Sep -- 59.0 60.5EC 10/03 05:00 Retail Trade (m/m) Aug -- 0.1 -0.4

Europe (continued from previous page)

Asia Pacific

Country Date Time Indicator Period BNS Consensus LatestSK 09/28 19:00 Current Account (US$ mn) Aug -- -- 7908.8CH SEP 28-30 Leading Index Aug -- -- 100.1TH SEP 28-29 Customs Exports (y/y) Aug -- -3.3 -0.9TH SEP 28-29 Customs Imports (y/y) Aug -- -4.3 -2.9TH SEP 28-29 Customs Trade Balance (US$ mn) Aug -- -109.5 -1102.1

HK 09/29 04:30 Retail Sales - Volume (y/y) Aug -- -3.3 -4.5SK 09/29 17:00 Business Survey- Manufacturing Oct -- -- 74.0SK 09/29 17:00 Business Survey- Non-Manufacturing Oct -- -- 72.0SK 09/29 19:00 Industrial Production (y/y) Aug -- 2.1 3.4SK 09/29 19:00 Cyclical Leading Index Change Aug -- -- 0.1JN 09/29 19:30 Household Spending (y/y) Aug -- -3.6 -5.9JN 09/29 19:30 Jobless Rate (%) Aug 3.8 3.8 3.8JN 09/29 19:50 Industrial Production (m/m) Aug P -- 0.2 0.4JN 09/29 19:50 Large Retailers' Sales (y/y) Aug -- 0.3 -0.6JN 09/29 19:50 Retail Trade (y/y) Aug -- 0.3 0.6JN 09/29 19:50 Industrial Production (y/y) Aug P -- -1.1 -0.7AU 09/29 21:30 Private Sector Credit (y/y) Aug -- 5.2 5.1CH 09/29 21:45 HSBC Flash China Manufacturing PMI Sep F 50.5 50.5 50.5PH SEP 29-30 Bank Lending (y/y) Aug -- -- 20.4

Economics

Global Views

September 26, 2014

3



A5

Latin America

Asia Pacific (continued from previous page)

Country Date Time Indicator Period BNS Consensus Latest

JN 09/30 00:00 Vehicle Production (y/y) Aug -- -- -1.7JN 09/30 01:00 Housing Starts (y/y) Aug -- -13.7 -14.1JN 09/30 01:00 Construction Orders (y/y) Aug -- -- 24.4IN 09/30 01:30 Repo Rate (%) Sep 30 8.00 8.00 8.00IN 09/30 01:30 Reverse Repo Rate (%) Sep 30 7.00 7.00 7.00IN 09/30 01:30 Cash Reserve Ratio (%) Sep 30 4.00 4.00 4.00TH 09/30 03:30 Exports (y/y) Aug -- -- -0.5TH 09/30 03:30 Imports (y/y) Aug -- -- -3.4TH 09/30 03:30 Trade Balance (US$ mn) Aug -- -- 1450.0TH 09/30 03:30 Current Account Balance (US$ mn) Aug -- 151.0 -864.0TH 09/30 03:30 Business Sentiment Index Aug -- -- 49.6SK 09/30 19:00 CPI (y/y) Sep 1.5 1.5 1.4SK 09/30 19:00 Core CPI (y/y) Sep -- 2.1 2.4JN 09/30 19:50 Tankan All Industries Index 3Q -- 7.0 7.4JN 09/30 19:50 Tankan Manufacturing Index 3Q -- 10.0 12.0JN 09/30 19:50 Tankan Non-Manufacturing Index 3Q -- 17.0 19.0SK 09/30 20:00 Exports (y/y) Sep -- 6.5 -0.2SK 09/30 20:00 Imports (y/y) Sep -- 6.0 3.1SK 09/30 20:00 Trade Balance (US$ mn) Sep -- 3784.0 3369.0CH 09/30 21:00 Manufacturing PMI Sep -- 51.0 51.1AU 09/30 21:30 Retail Sales (m/m) Aug -- 0.4 0.4ID SEP 30-OCT 1 Exports (y/y) Aug -- 8.7 -6.0ID SEP 30-OCT 1 Imports (y/y) Aug -- 8.0 -19.3ID SEP 30-OCT 1 Trade Balance (US$ mn) Aug -- 210.0 123.7ID SEP 30-OCT 10 Consumer Confidence Index Sep -- -- 120.2JN SEP 30-OCT 7 Official Reserve Assets (US$ bn) Sep -- -- 1278.0TH SEP 30-OCT 1 CPI (y/y) Sep 2.1 2.0 2.1TH SEP 30-OCT 1 Core CPI (y/y) Sep -- 1.9 1.8

ID 10/01 00:00 CPI (y/y) Sep 4.6 4.5 4.0ID 10/01 00:00 Core CPI (y/y) Sep -- 4.3 4.5JN 10/01 01:00 Vehicle Sales (y/y) Sep -- -- -5.0SI 10/01 09:30 Purchasing Managers Index Sep -- -- 49.7JN 10/01 19:50 Monetary Base (y/y) Sep -- -- 40.5AU 10/01 21:00 HIA New Home Sales (m/m) Aug -- -- -5.7AU 10/01 21:30 Building Approvals (m/m) Aug -- 1.0 2.5AU 10/01 21:30 Trade Balance (AUD mn) Aug -- -850.0 -1359.0

CH 10/02 21:00 Non-manufacturing PMI Sep -- -- 54.4HK 10/02 22:30 Purchasing Managers Index Sep -- -- 49.6

Country Date Time Indicator Period BNS Consensus LatestCL 09/30 08:00 Industrial Production (y/y) Aug -2.8 -2.8 -4.1CL 09/30 08:00 Retail Sales (y/y) Aug -- 1.00 1.50CL 09/30 08:00 Unemployment Rate (%) Aug -- 6.6 6.5CO 09/30 12:00 Urban Unemployment Rate (%) Aug -- 9.6 9.9

PE 10/01 01:00 Consumer Price Index (y/y) Sep -- -- 2.7BZ 10/01 09:00 PMI Manufacturing Index Sep -- -- 50.2BZ 10/01 14:00 Trade Balance (FOB) - Monthly (US$ mn) Sep -- -- 1168.0

BZ 10/02 08:00 Industrial Production (y/y) Aug -6.0 -6.0 -3.6

Economics

Global Views

September 26, 2014

4

Global Auctions for the week of September 29 – October 3

North America

Europe


A6

Asia Pacific

Latin America

Country Date Time EventUS 09/29 11:00 U.S. Fed to Purchase USD2.00-2.50 Bln Notes

CA 10/01 12:00 2Y Auction Size

Country Date Time EventDE 09/29 04:30 Denmark to Sell BillsGE 09/29 05:30 Germany to Sell EUR2 Bln 364-Day BillsIT 09/29 05:00 Italy to Sell Up to EUR2.5 Bln 1.5% 2019 BondsIT 09/29 05:00 Italy to Sell Up to EUR3 Bln 2.5% 2024 BondsIT 09/29 05:00 Italy to Sell Up to EUR3 Bln Floating 2020 BondsFR 09/29 08:50 France to Sell 13-Week BillsFR 09/29 08:50 France to Sell 20-Week BillsFR 09/29 08:50 France to Sell 50-Week BillsNO 09/29 05:00 Norway to Sell NOK5 Bln 350-Day Bills

BE 09/30 05:30 Belgium to Sell 3-Month BillsBE 09/30 05:30 Belgium to Sell 6-Month BillsEC 09/30 05:10 ECB Main Refinancing Operation ResultSZ 09/30 05:15 Switzerland to Sell 95-Day BillsUK 09/30 05:30 U.K. to Sell 2027 Bonds

GE 10/01 05:30 Germany to Sell EUR5 Bln 1% 2024 BondsSW 10/01 05:03 Sweden to Sell SEK1.75 Bln 2.5% 2025 BondsSW 10/01 05:03 Sweden to Sell SEK1.75 Bln 3.5% 2022 BondsMB 10/01 05:00 Malta to Sell BillsUK 10/01 05:30 U.K. to Sell Bonds

FR 10/02 04:50 France to Sell BondsSP 10/02 04:30 Spain to Sell Bonds

UK 10/03 06:00 U.K. to Sell 1-Month BillsUK 10/03 06:00 U.K. to Sell 3-Month BillsUK 10/03 06:00 U.K. to Sell 6-Month Bills

Country Date Time EventJN 09/29 23:45 Japan to Sell 2-Year Bonds

AU 10/01 20:30 Australia Plans to Sell T-BillsJN 10/01 23:45 Japan to Sell 10-Year BondsJN 10/01 23:35 Japan to Sell 3-Month Bill

Country Date Time EventCL 09/30 1M Bill Yield

CL 10/01 10Y BTP Fixed YieldCL 10/01 10Y BTU I/L YieldCL 10/01 1M Bill Yield

CL 10/02 1M Bill Yield

Economics

Global Views

September 26, 2014

5

Events for the week of September 29 – October 3

North America

Europe


A7

Asia Pacific

Country Date Time EventUS 09/28 12:15 Bernanke Speaks at Economics Conference in Chicago

US 09/29 09:00 Fed's Evans Speaks at Economics Conference in Chicago

US 09/30 10:45 Fed's Powell Speaks on Government Debt Panel in Washington

US 10/02 13:00 Fed's Lockhart Speaks on Employment Insurance in AtlantaUS 10/02 19:45 Fed's Bullard to Speak on Economy in Tupelo, Mississippi

Country Date Time EventIN SEP 25-30 India Prime Minister Modi Travels to New York, Washington

IN 09/30 01:30 RBI Cash Reserve RatioIN 09/30 01:30 RBI Reverse Repo RateIN 09/30 01:30 RBI Repurchase RateRU 09/30 Russian President Vladimir Putin Visits Kazakhstan

JN OCT 1-3 OECD Global Forum on Knowledge Economy

AU 10/02 01:15 RBA Annual Report

Country Date Time EventEC 09/29 04:00 EU's Kroes Speaks at Digital Conference in BrusselsUK 09/29 07:00 U.K. Chancellor Osborne Addresses Tory ConferenceEC 09/29 08:30 Sweden's Malmstroem at EU Parliament Hearing on NominationGE 09/29 10:45 Merkel Meets With Finnish Prime Minister Stubb in BerlinGE 09/29 12:00 Finnish Prime Minister Stubb Speech on EU-Russia RelationsIT 09/29 12:00 Bank of Italy Governor Visco Speaks at Book PresentationEC 09/29 12:30 Germany's Oettinger at EU Parliament Hearing on NominationEC 09/29 EU General Affairs Ministers Hold Meeting in Brussels

PO 09/30 04:15 Bank of Portugal Vice Governor Speaks in LondonNO 09/30 05:10 Norges Bank's Olsen speaks in OsloEC 09/30 07:00 ECB's Makuch Holds Press ConferenceEC 09/30 07:30 Austria's Hahn at EU Parliament Hearing on NominationIT 09/30 11:00 Istat Releases Updated Economic Forecasts

UK 10/01 06:30 U.K. Prime Minister Cameron Addresses Tory ConferenceEC 10/01 07:30 U.K.'s Hill at EU Parliament Hearing on Commission NominationGE 10/01 08:15 Merkel Speaks at BGA Foreign Trade Lobby Conference, BerlinEC 10/01 12:00 Spain's Canete at EU Parliament Hearing on NominationIT 10/01 Deadline for Presentation of Government Updated Forecasts

NO 10/02 03:00 Norges Bank's Olsen and NBIM's Grande speak in AalesundEC 10/02 03:00 France's Moscovici at EU Parliament Hearing on NominationUK 10/02 04:30 BOE's Financial Policy Committee Publishes StatementEC 10/02 06:00 ECB Announces 3-Year LTRO RepaymentEC 10/02 07:45 ECB Main Refinancing RateEC 10/02 07:45 ECB Deposit Facility RateEC 10/02 07:45 ECB Marginal Lending FacilityEC 10/02 08:30 ECB'S Draghi Holds Press Conference After Rate DecisionEC 10/02 12:00 Denmark's Vestager at EU Parliament Hearing on Nomination

NO 10/03 04:00 Norges Bank's Nicolaisen, NBIM's Thomsen speak in KristiansandUK 10/03 Scottish First Minister Salmond Addresses IoD Convention

Economics

Global Views

September 26, 2014

6

Global Central Bank Watch

NORTH AMERICARate Current Rate Next Meeting Scotia's Forecasts Consensus ForecastsBank of Canada – Overnight Target Rate 1.00 October 22, 2014 1.00 --

Federal Reserve – Federal Funds Target Rate 0.25 October 29, 2014 0.25 0.25

Banco de México – Overnight Rate 3.00 October 31, 2014 3.00 --

EUROPERate Current Rate Next Meeting Scotia's Forecasts Consensus ForecastsEuropean Central Bank – Refinancing Rate 0.05 October 2, 2014 0.05 0.05

Bank of England – Bank Rate 0.50 October 9, 2014 0.50 0.50

Swiss National Bank – Libor Target Rate 0.00 December 11, 2014 0.00 --

Central Bank of Russia – One-Week Auction Rate 8.00 October 31, 2014 8.00 --

Hungarian National Bank – Base Rate 2.10 October 28, 2014 2.10 --

Central Bank of the Republic of Turkey – 1 Wk Repo Rate 8.25 October 23, 2014 8.25 --

Sweden Riksbank – Repo Rate 0.25 October 28, 2014 0.25 --

Norges Bank – Deposit Rate 1.50 October 23, 2014 1.50 --

ASIA PACIFICRate Current Rate Next Meeting Scotia's Forecasts Consensus ForecastsReserve Bank of Australia – Cash Target Rate 2.50 October 6, 2014 2.50 2.50

Reserve Bank of New Zealand – Cash Rate 3.50 October 29, 2014 3.50 3.50

People's Bank of China – Lending Rate 6.00 TBA -- --

Reserve Bank of India – Repo Rate 8.00 September 30, 2014 8.00 8.00

Bank of Korea – Bank Rate 2.25 October 14, 2014 2.25 --

Bank of Thailand – Repo Rate 2.00 November 5, 2014 2.00 2.00

Bank Indonesia – Reference Interest Rate 7.50 October 7, 2014 7.50 --

LATIN AMERICARate Current Rate Next Meeting Scotia's Forecasts Consensus ForecastsBanco Central do Brasil – Selic Rate 11.00 October 29, 2014 11.00 --

Banco Central de Chile – Overnight Rate 3.25 October 16, 2014 3.25 --

Banco de la República de Colombia – Lending Rate 4.50 October 31, 2014 4.50 --

Banco Central de Reserva del Perú – Reference Rate 3.50 October 9, 2014 3.50 3.50

AFRICARate Current Rate Next Meeting Scotia's Forecasts Consensus ForecastsSouth African Reserve Bank – Repo Rate 5.75 November 20, 2014 5.75 --

Fed: The FOMC will be closely watching whether next week's nonfarm payrolls rebound from last month's dismal showing, but S&P Case-Shiller home prices will also be important to their consumer view. Fed Governor Powell, Atlanta Fed President Lockhart and St. Louis Fed President Bullard will all speak next week. BoC: It's quiet in Canada, but the July m/m reading of GDP will be key to the BoC as they gear up towards the October 22nd Monetary Policy Report.

The Reserve Bank of India (RBI) will likely maintain the benchmark repo rate at 8.0% at next week’s monetary policy meeting. Rising business sentiment and a boost in investment following the 2014 Indian general election in May has resulted in relatively strong second quarter real GDP growth at 5.7% y/y – the fastest pace over the previous nine quarters. Meanwhile, inflation has continued to ease, reaching 7.8% y/y in August from 8.0% y/y in July. Nonetheless, the RBI will continue to prioritize inflation containment over promoting economic expansion over the medium term before allowing for cautious monetary easing in early 2015.

Next week, The European Central Bank (ECB) will meet and announce its monetary policy decision on October 2nd. The Governing Council is expected to keep all key rates unchanged, however, markets will pay close attention for details on the ECB’s asset-backed securities (ABS) and covered bonds purchasing programs, as well as any additional insight on the TLTRO.

North America

Europe

Asia Pacific

Latin America

Africa


A8

Economics

Global Views

September 26, 2014

7

Forecasts as at July 31, 2014* 2000-12 2013 2014f 2015f 2000-12 2013 2014f 2015f

Output and Inflation (annual % change) Real GDP Consumer Prices2

World13.7 3.1 3.2 3.6

Canada 2.2 2.0 2.2 2.5 2.1 0.9 2.0 2.0 United States 1.9 2.2 2.0 3.2 2.5 1.5 1.9 2.3 Mexico 2.4 1.1 2.7 3.7 4.7 4.0 4.1 4.0

United Kingdom 1.7 1.8 2.9 2.5 2.3 2.0 1.6 2.1 Euro zone 1.3 -0.4 1.1 1.4 2.1 0.8 0.7 1.1

Japan 0.9 1.5 1.6 1.2 -0.3 1.6 2.3 1.9 Australia 3.1 2.4 3.0 2.8 3.0 2.7 2.7 2.9 China 9.3 7.7 7.4 7.2 2.4 2.5 2.6 3.1 India 7.2 4.7 5.2 5.7 6.7 6.4 5.3 5.8 Korea 4.2 3.0 3.6 3.2 3.1 1.1 2.1 2.5 Thailand 4.2 2.9 2.0 4.0 2.7 1.7 2.4 2.8

Brazil 3.4 2.5 1.2 1.8 6.5 5.9 6.5 6.0 Chile 4.5 4.1 2.8 3.8 3.2 2.9 3.5 3.1 Peru 5.5 5.6 4.5 5.8 2.6 2.9 3.0 2.8

Central Bank Rates (%, end of period) 13Q4 14Q1 14Q2 14Q3f 14Q4f 15Q1f 15Q2f 15Q3f

Bank of Canada 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00Federal Reserve 0.25 0.25 0.25 0.25 0.25 0.25 0.50 0.75European Central Bank 0.25 0.25 0.15 0.15 0.15 0.15 0.15 0.15Bank of England 0.50 0.50 0.50 0.50 0.50 0.75 1.00 1.25Swiss National Bank 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00Reserve Bank of Australia 2.50 2.50 2.50 2.50 2.50 2.50 2.75 3.00

Exchange Rates (end of period)

Canadian Dollar (USDCAD) 1.06 1.11 1.07 1.08 1.10 1.12 1.12 1.11Canadian Dollar (CADUSD) 0.94 0.90 0.94 0.93 0.91 0.89 0.89 0.90Euro (EURUSD) 1.37 1.38 1.37 1.34 1.30 1.28 1.26 1.25Sterling (GBPUSD) 1.66 1.67 1.71 1.73 1.72 1.70 1.69 1.68Yen (USDJPY) 105 103 101 104 109 110 111 112Australian Dollar (AUDUSD) 0.89 0.93 0.94 0.94 0.92 0.91 0.90 0.90Chinese Yuan (USDCNY) 6.1 6.2 6.2 6.2 6.1 6.1 6.0 6.0Mexican Peso (USDMXN) 13.0 13.1 13.0 13.1 13.2 13.3 13.2 13.2Brazilian Real (USDBRL) 2.36 2.27 2.21 2.40 2.40 2.48 2.48 2.50

Commodities (annual average) 2000-12 2013 2014f 2015f

WTI Oil (US$/bbl) 60 98 102 103Brent Oil (US$/bbl) 62 109 109 110Nymex Natural Gas (US$/mmbtu) 5.45 3.73 4.35 4.50

Copper (US$/lb) 2.22 3.32 3.16 3.10Zinc (US$/lb) 0.78 0.87 0.99 1.25Nickel (US$/lb) 7.64 6.80 8.35 10.75Gold, London PM Fix (US$/oz) 745 1,410 1,300 1,350

Pulp (US$/tonne) 730 941 1,000 1,020Newsprint (US$/tonne) 585 608 607 630Lumber (US$/mfbm) 274 356 355 390

1 World GDP for 2003-12 are IMF PPP estimates; 2013-15f are Scotiabank Economics' estimates based on a 2012 PPP-weighted sample of 38 countries. 2 CPI for Canada and the United States are annual averages. For other countries, CPI are year-end rates.

* See Scotiabank Economics 'Global Forecast Update' report for additional forecasts & commentary.

Brazil

India South Korea Thailand

Chile Peru

Japan

Canada

United States

Mexico

United Kingdom

Australia China

Euro Zone

A9

Forecasts as at August 28, 2014*

http://www.gbm.scotiabank.com/English/bns_econ/forecast.pdf

Economics

Global Views

September 26, 2014

8

North America

Canada 2013 14Q1 14Q2 Latest United States 2013 14Q1 14Q2 Latest Real GDP (annual rates) 2.0 0.9 3.1 Real GDP (annual rates) 2.2 -2.1 4.6 Current Acc. Bal. (C$B, ar) -60.3 -48.1 -47.5 Current Acc. Bal. (US$B, ar) -400 -445 Merch. Trade Bal. (C$B, ar) -7.3 7.2 7.4 31.0 (Jul) Merch. Trade Bal. (US$B, ar) -702 -729 -757 -722 (Jul) Industrial Production 0.4 2.5 3.4 2.9 (Jul) Industrial Production 2.9 3.6 4.0 3.9 (Aug) Housing Starts (000s) 188 175 196 192 (Aug) Housing Starts (millions) 0.93 0.93 0.99 0.96 (Aug) Employment 1.3 0.8 0.6 0.4 (Aug) Employment 1.7 1.7 1.8 1.8 (Aug) Unemployment Rate (%) 7.1 7.0 7.0 7.0 (Aug) Unemployment Rate (%) 7.4 6.7 6.2 6.1 (Aug) Retail Sales 3.2 4.2 5.3 5.0 (Jul) Retail Sales 4.3 2.4 4.5 4.8 (Aug) Auto Sales (000s) 1744 1712 1816 1949 (Jul) Auto Sales (millions) 15.5 15.7 16.5 17.4 (Aug) CPI 0.9 1.4 2.2 2.1 (Aug) CPI 1.5 1.4 2.1 1.7 (Aug) IPPI 0.4 2.5 3.4 -2.9 (Jul) PPI 1.2 1.6 2.8 2.2 (Aug) Pre-tax Corp. Profits -1.7 7.0 12.1 Pre-tax Corp. Profits 4.6 5.9 10.4

Mexico Real GDP 1.1 1.9 1.6 Current Acc. Bal. (US$B, ar) -26.3 -17.6 -27.9 Merch. Trade Bal. (US$B, ar) -1.2 -5.3 4.3 -13.5 (Aug) Industrial Production -0.7 1.6 1.0 2.1 (Jul) CPI 3.8 4.2 3.6 4.1 (Aug)

Euro Zone 2013 14Q1 14Q2 Latest Germany 2013 14Q1 14Q2 Latest Real GDP -0.4 0.9 0.7 Real GDP 0.2 2.2 1.3 Current Acc. Bal. (US$B, ar) 288 173 309 524 (Jul) Current Acc. Bal. (US$B, ar) 255.2 280.2 280.1 352.1 (Jul) Merch. Trade Bal. (US$B, ar) 230.3 202.3 279.3 341.4 (Jul) Merch. Trade Bal. (US$B, ar) 282.6 290.6 302.2 381.8 (Jul) Industrial Production -0.7 1.5 0.8 1.7 (Jul) Industrial Production 0.1 4.0 0.8 2.4 (Jul) Unemployment Rate (%) 11.9 11.7 11.6 11.5 (Jul) Unemployment Rate (%) 6.9 6.8 6.7 6.7 (Aug) CPI 1.4 0.6 0.6 0.4 (Aug) CPI 1.5 1.2 1.1 0.8 (Aug)

France United Kingdom Real GDP 0.4 0.8 0.1 Real GDP 1.7 3.0 3.2 Current Acc. Bal. (US$B, ar) -36.6 -69.5 -81.4 11.4 (Jul) Current Acc. Bal. (US$B, ar) -114.3 -102.7 Merch. Trade Bal. (US$B, ar) -46.9 -42.6 -42.8 -49.1 (Jul) Merch. Trade Bal. (US$B, ar) -168.7 -175.2 -184.4 -208.7 (Jul) Industrial Production -0.7 -0.3 -2.1 0.1 (Jul) Industrial Production -0.4 2.5 2.1 1.7 (Jul) Unemployment Rate (%) 10.3 10.2 10.2 10.3 (Jul) Unemployment Rate (%) 7.6 6.8 6.4 6.2 (Jun) CPI 0.9 0.7 0.6 0.4 (Aug) CPI 2.6 1.7 1.7 1.5 (Aug)

Italy Russia Real GDP -1.8 -0.4 -0.2 Real GDP 1.3 0.9 0.8 Current Acc. Bal. (US$B, ar) 20.7 -4.7 39.0 110.7 (Jul) Current Acc. Bal. (US$B, ar) 34.1 27.1 17.1 Merch. Trade Bal. (US$B, ar) 40.3 37.8 57.4 111.4 (Jul) Merch. Trade Bal. (US$B, ar) 15.2 16.9 17.4 17.1 (Jul) Industrial Production -3.1 0.0 -0.1 -1.2 (Jul) Industrial Production 0.4 1.1 1.9 0.0 (Aug) CPI 1.2 0.4 0.3 0.0 (Aug) CPI 6.8 6.4 7.6 7.6 (Aug)

Europe

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

Economic Statistics

Source: Bloomberg, Global Insight, Scotiabank Economics.

A10

Economics

Global Views

September 26, 2014

9

Asia Pacific

Australia 2013 14Q1 14Q2 Latest Japan 2013 14Q1 14Q2 Latest Real GDP 2.3 3.4 3.1 Real GDP 1.5 2.7 0.0 Current Acc. Bal. (US$B, ar) -49.7 -26.0 -39.1 Current Acc. Bal. (US$B, ar) 33.6 -31.0 12.2 49.2 (Jul) Merch. Trade Bal. (US$B, ar) 20.7 25.7 18.0 15.8 (Jul) Merch. Trade Bal. (US$B, ar) -117.5 -173.5 -109.4 -107.7 (Aug) Industrial Production 3.6 5.4 4.6 Industrial Production -0.6 8.3 2.6 -0.6 (Jul) Unemployment Rate (%) 5.7 6.0 5.9 6.1 (Aug) Unemployment Rate (%) 4.0 3.6 3.6 3.8 (Jul) CPI 2.4 2.9 3.0 CPI 0.4 1.5 3.6 3.3 (Aug)

South Korea China Real GDP 3.0 3.9 3.5 Real GDP 7.7 7.4 7.5 Current Acc. Bal. (US$B, ar) 79.9 60.3 96.5 94.9 (Jul) Current Acc. Bal. (US$B, ar) 182.8 Merch. Trade Bal. (US$B, ar) 44.1 20.9 59.6 40.4 (Aug) Merch. Trade Bal. (US$B, ar) 259.2 68.2 345.4 598.0 (Aug) Industrial Production 0.2 1.3 1.2 3.5 (Jul) Industrial Production 9.7 8.8 9.2 6.9 (Aug) CPI 1.3 1.1 1.6 1.4 (Aug) CPI 2.5 2.4 2.3 2.0 (Aug)

Thailand India Real GDP 2.9 -0.5 0.4 Real GDP 4.7 4.6 5.7 Current Acc. Bal. (US$B, ar) -2.5 8.2 0.5 Current Acc. Bal. (US$B, ar) -49.3 -1.2 -7.8 Merch. Trade Bal. (US$B, ar) 0.6 2.2 2.0 1.5 (Jul) Merch. Trade Bal. (US$B, ar) -12.7 -9.4 -11.1 -10.8 (Aug) Industrial Production -3.1 -7.2 -5.2 -5.1 (Jul) Industrial Production 0.6 -0.4 4.2 0.5 (Jul) CPI 2.2 2.0 2.5 2.1 (Aug) WPI 6.3 5.4 5.8 3.7 (Aug)

Indonesia Real GDP 5.8 5.2 5.1 Current Acc. Bal. (US$B, ar) -29.1 -4.2 -9.1 Merch. Trade Bal. (US$B, ar) -0.3 0.4 -0.7 0.1 (Jul) Industrial Production 6.0 3.5 4.6 7.3 (Jun) CPI 6.4 7.8 7.1 4.0 (Aug)

Brazil 2013 14Q1 14Q2 Latest Chile 2013 14Q1 14Q2 Latest Real GDP 2.3 1.8 -0.7 Real GDP 4.1 2.4 1.9 Current Acc. Bal. (US$B, ar) -81.2 -100.6 -72.7 Current Acc. Bal. (US$B, ar) -4.6 -2.7 0.1 Merch. Trade Bal. (US$B, ar) 2.6 -24.3 14.3 14.0 (Aug) Merch. Trade Bal. (US$B, ar) 8.0 8.7 11.9 4.3 (Aug) Industrial Production 2.2 -0.5 -4.4 -3.4 (Jul) Industrial Production 3.0 0.6 2.1 -2.6 (Jul) CPI 6.2 5.8 6.4 6.5 (Aug) CPI 1.9 3.2 4.5 4.5 (Aug)

Peru Colombia Real GDP 6.0 5.1 1.7 Real GDP 4.7 6.5 4.3 Current Acc. Bal. (US$B, ar) -9.1 -2.7 -3.5 Current Acc. Bal. (US$B, ar) -12.4 -4.0 Merch. Trade Bal. (US$B, ar) 0.1 -0.2 -0.4 -0.5 (Jul) Merch. Trade Bal. (US$B, ar) 0.2 -0.2 -0.2 -0.8 (Jul) Unemployment Rate (%) 5.9 6.8 5.9 5.9 (Aug) Industrial Production -1.7 4.4 -0.3 1.6 (Jul) CPI 2.8 3.4 3.5 2.7 (Aug) CPI 2.0 2.3 2.8 3.0 (Aug)

Latin America

Economic Statistics

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

Source: Bloomberg, Global Insight, Scotiabank Economics.

A11

Economics

Global Views

September 26, 2014

10

Financial Statistics

A12

Interest Rates (%, end of period)

Canada 14Q1 14Q2 Sep/19 Sep/26* United States 14Q1 14Q2 Sep/19 Sep/26*BoC Overnight Rate 1.00 1.00 1.00 1.00 Fed Funds Target Rate 0.25 0.25 0.25 0.25 3-mo. T-bill 0.89 0.95 0.93 0.92 3-mo. T-bill 0.03 0.02 0.01 0.01 10-yr Gov’t Bond 2.46 2.24 2.25 2.17 10-yr Gov’t Bond 2.72 2.53 2.57 2.52 30-yr Gov’t Bond 2.96 2.78 2.76 2.68 30-yr Gov’t Bond 3.56 3.36 3.28 3.21 Prime 3.00 3.00 3.00 3.00 Prime 3.25 3.25 3.25 3.25 FX Reserves (US$B) 76.3 75.7 75.5 (Aug) FX Reserves (US$B) 133.2 134.1 130.3 (Aug)

Germany France 3-mo. Interbank 0.27 0.15 0.03 0.03 3-mo. T-bill 0.19 0.02 -0.04 -0.04 10-yr Gov’t Bond 1.57 1.25 1.04 0.97 10-yr Gov’t Bond 2.08 1.70 1.39 1.31 FX Reserves (US$B) 66.8 66.1 66.4 (Aug) FX Reserves (US$B) 53.1 55.2 53.6 (Aug)

Euro Zone United Kingdom Refinancing Rate 0.25 0.15 0.05 0.05 Repo Rate 0.50 0.50 0.50 0.50 Overnight Rate 0.69 0.34 0.01 0.02 3-mo. T-bill 0.39 0.44 0.51 0.50 FX Reserves (US$B) 338.8 340.2 337.7 (Aug) 10-yr Gov’t Bond 2.74 2.67 2.54 2.46

FX Reserves (US$B) 97.3 99.4 97.9 (Aug)

Japan Australia Discount Rate 0.30 0.30 0.30 0.30 Cash Rate 2.50 2.50 2.50 2.50 3-mo. Libor 0.07 0.07 0.06 0.06 10-yr Gov’t Bond 4.08 3.54 3.73 3.49 10-yr Gov’t Bond 0.64 0.57 0.56 0.52 FX Reserves (US$B) 54.1 55.9 52.8 (Aug) FX Reserves (US$B) 1247.5 1251.5 1246.3 (Aug)

Exchange Rates (end of period)

USDCAD 1.11 1.07 1.10 1.11 ¥/US$ 103.23 101.33 109.04 109.24CADUSD 0.91 0.94 0.91 0.90 US¢/Australian$ 0.93 0.94 0.89 0.88GBPUSD 1.666 1.711 1.629 1.626 Chinese Yuan/US$ 6.22 6.20 6.14 6.13EURUSD 1.377 1.369 1.283 1.270 South Korean Won/US$ 1065 1012 1045 1044JPYEUR 0.70 0.72 0.71 0.72 Mexican Peso/US$ 13.058 12.968 13.210 13.430USDCHF 0.88 0.89 0.94 0.95 Brazilian Real/US$ 2.272 2.214 2.368 2.422

Equity Markets (index, end of period)

United States (DJIA) 16458 16827 17280 16996 U.K. (FT100) 6598 6744 6838 6660 United States (S&P500) 1872 1960 2010 1972 Germany (Dax) 9556 9833 9799 9508 Canada (S&P/TSX) 14335 15146 15265 14983 France (CAC40) 4392 4423 4461 4404 Mexico (IPC) 40462 42737 45762 44780 Japan (Nikkei) 14828 15162 16321 16230 Brazil (Bovespa) 50415 53168 57789 56852 Hong Kong (Hang Seng) 22151 23191 24306 23678 Italy (BCI) 1181 1155 1143 1115 South Korea (Composite) 1986 2002 2054 2032

Commodity Prices (end of period)

Pulp (US$/tonne) 1030 1030 1030 1030 Copper (US$/lb) 3.01 3.15 3.12 3.07 Newsprint (US$/tonne) 605 605 605 605 Zinc (US$/lb) 0.90 1.00 1.02 1.03 Lumber (US$/mfbm) 354 346 351 340 Gold (US$/oz) 1291.75 1315.00 1219.75 1213.75 WTI Oil (US$/bbl) 101.58 105.37 92.41 92.92 Silver (US$/oz) 19.97 20.87 18.45 17.54 Natural Gas (US$/mmbtu) 4.37 4.46 3.84 3.96 CRB (index) 304.67 308.22 279.40 279.72

* Latest observation taken at time of writing. Source: Bloomberg, Scotiabank Economics.

A12

Global Views

September 26, 2014

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