Global Views August 22, 2014

Weekly commentary on economic and financial market developments

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 Another Step On The Path To The September FOMC 2-4 Forecasts & Data Key Data Preview A1-A2 Derek Holt Key Indicators A3-A5  ‘New Normal’, Or Simply The Same Old Mistake? 5-6 Global Auctions Calendar A6-A7 Derek Holt Events Calendar A8  Asia/Pacific Regional Outlook 7-8 Global Central Bank Watch A9 Pablo Bréard and Tuuli McCully Forecasts A10 Emerging Markets Strategy Latest Economic Statistics A11-A12  Cautious Chileans Support Fixed Income Rally 9-11 Latest Financial Statistics A13 Joe Kogan Fixed Income Strategy

 The Eurozone To Move Away From Fiscal Consolidation To Save Growth 12-14 This Week’s Featured Chart Frédéric Prêtet Spain - Risk Aversion Decreases As Economy Rebounds Foreign Exchange Strategy 4 %  Latin America Week Ahead: For The Week Of August 25 - 29 15-18 3 Eduardo Suárez 10-Year Bond Spread vs. Germany 2

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Real GDP, y/y change 0

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-2 13Q1 13Q2 13Q3 13Q4 14Q1 14Q2 14Q3f Source: Bloomberg, Scotiabank Economics.

Global Views is available on scotiabank.com, Bloomberg at SCOT and Reuters at SM1C August 22, 2014 Economics Global Views

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

Another Step On The Path To The September FOMC

 Please see our full indicator, central bank, auction and event calendars on pp. A3-A9.

US — Data Dependency In The Aftermath Of Jackson Hole

More hawkish FOMC minutes than markets had anticipated rather nicely set up a less dovish and arguably fully neutral speech by Fed Chair Janet Yellen to open the Jackson Hole symposium (go here for comments following her speech). The agenda for the rest of the symposium into the weekend is available here and risks may spill over into the Monday market open. Recall that it is not always the Chair’s speech that gets the most attention. Michael Woodford’s open-ended QE proposal, William White’s criticisms of QE, or current RBI Governor Raghuram Rajan’s warnings on financial stability in front of Chairman Greenspan and company prior to the crisis all captured substantial attention at prior Jackson Hole symposiums and went on to be influential in the dialogue on evolving Fed risks. In her opening remarks, Yellen argued there is ’no simple recipe’ for determining changes to monetary policy and rate rises could come earlier or later, it is ’more difficult to judge the remaining degree of slack’, while ’unusual aspects of recovery may have altered labor markets in ways that point inflation pressures in either direction.” That signals much greater ambiguity than the once very dovish Yellen and is another sign that the dialogue at the Fed is shifting. A gradual evolution of more hawkish sentiments toward our call for the first hike to occur next April is likely and the September FOMC meeting, statement and press conference may be a bigger event than Jackson Hole. Also note that the view that stocks always rally out of Jackson Hole is only true of the crisis era. As the accompanying chart demonstrates, Jackson Hole has motivated stock sell-offs at points when the Fed has Chart 1 Jackson Hole Effect transitioned toward a hawkish bias. My personal view is 6.0 % change from before to after conference each year that the Fed dialogue needs to shift more rapidly toward rate hikes. The strongest six-month outlook in the 4.0 S&P500 Difference Philadelphia Fed’s business outlook metric since way back in 1992 and coming out of the recession, and the 2.0 strongest level for the Conference Board’s leading index since 2007 are among the latest bits of macro evidence 0.0 that the time for emergency levels of stimulus has passed and experimentation toward policy exits can begin. -2.0

Beyond Jackson Hole and any headline risk into the -4.0 Monday open, data risk will play a large role in -6.0 determining the domestic and perhaps global market 78 83 88 93 98 03 08 13 tone next week. The balance of the evidence could wind Source: Kansas City Federal Reserve, Bloomberg, Scotiabank Economics. up being positive for the economic outlook. Housing data will figure into the picture. New home sales are expected to climb after a record single-month revision for May that turned an 18.6% m/m rise into a milder 8.3% gain, and then followed up with an 8.1% m/m drop in June. Massive revisions that are the norm in US data and rarer in many other countries make it more difficult to read housing markets. Pending home sales are expected to rise later in the week following the softness in June that also followed a strong gain in May. Encouragingly, distressed sales now make up the lowest fraction of home resales since just before the crisis blew open in 2008. Whether or not S&P Case Shiller home prices post a second consecutive monthly decline will also figure into the housing releases.

Thursday’s revision to Q2 GDP is expected to be mild and still hang in close to the 4% initial estimate, but it’s anything goes with US GDP revisions by way of difficulty in evaluating factors like inventory swings and Obamacare-related service spending revisions. This latter effect will be a factor in next month’s round of GDP revisions when we know Q2 services spending. Recall that Q1 GDP started off at 0.1% q/q, was then revised to -1.0%, then revised to -2.9% and then they revised it again to -2.1%.

Following little gain in retail sales during June, consensus is looking for a tepid rise in total consumer spending next Friday and driven by services. The Fed’s preferred inflation metric (the price index for total consumer

2 August 22, 2014 Economics Global Views

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

… continued from previous page spending) is expected to remain just shy of the Fed’s goals and lower than Chart 2 Record Aircraft Backlog 12 CPI. Durable goods orders should be poised for a massive gain and largely backlog of aircraft orders, driven by a large rise in aircraft orders. 324 planes were put on order at industry total 10 Boeing in July and that was up from 109 the prior month. Large orders from Thousands of Emirates and Qatar Airways played a significant role, as did ‘unidentified Units customer(s).’ As the accompanying chart depicts, the aircraft order book is 8 massive and not a single further plane needs to be sold in order to give about 8 years’ worth of production. A much milder gain in durable goods 6 Years orders ex-planes is likely, and in fact, there might be some take-back on the prior month’s large gain in core (ex-defence and ex-air) capital goods orders. 4 The Conference Board’s consumer confidence gauge may be at risk of softening from the highest print since October 2007. 2

The US Treasury auctions 2s, 5s and 7s next week. Earnings will be light with 0 just seven S&P500 firms on tap including Best Buy. 05 06 07 08 09 10 11 12 13 14 Source: Company Reports, Scotiabank Economics. Canada — Poloz, Q2, And Bank Earnings

First up will be a speech by Bank of Canada Governor Stephen Poloz. On Monday, he addresses the annual conference of the Canadian Association of Business Economists and his speech topic will be “Integrating Uncertainty and Monetary Policymaking: A Practitioner’s Perspective.” Over a month has passed since we last heard from Governor Poloz at the press conference for the release of the MPR on July 16th. Since then, inflation ticked a little higher to 2.4% y/y (core 1.8% y/y), and most activity measures have been fairly strong, particularly in terms of export growth and the big revision to job growth. Thus, the reasons for the BoC to remove reference to ‘downside risks to the inflation outlook [are] as important as before’ from its statement have only become stronger. The challenge facing the central bank is how to convey long pause arguments and talk through near-term upsides to inflation and export growth as long as the Federal Reserve is going nowhere fast. Look for the possibility of a stronger emphasis upon estimating the neutral rate as one such way of achieving this. The market effects of doing so, however, would be muted at present yields although the currency may be more vulnerable over time.

Next up will be Friday’s GDP prints for June and the full second quarter. The range of consensus estimates runs from 2-3% for Q2 growth at an annualized and seasonally adjusted pace. Scotia sits at about 2.5% with upside risk. With the exception of the temporary weather and inventory adjustments that hit the US in the first quarter of this year, the US has Chart 3 US Outpacing Canadian Growth generally been outpacing Canada on quarterly GDP growth for the past year. The gap last quarter was probably about 1.5 percentage points in our 5 q/q % change in real GDP, SAAR view and reflected the reversal of the temporary underperformance of the 4 US economy in Q1. Our view on Canada’s relative underperformance 3 on GDP growth, outperformance on the curve, and underperformance on the currency is working well on balance but is a full cycle perspective 2 that will be marked by ups and downs in the story. Forward-looking markets 1 have ditched the currency (it’s down by about twelve cents versus the USD since September 2012) and Canada 10s have outperformed US 10s 0 through a move from about 22bps above the US a year ago to about 33bps -1 below the US now. I’m not convinced this relative outperformance is at its Canada -2 maximum. Supply favours the Canada curve relative to the US with massive US US net financing requirements countered by a return to Federal surpluses in -3 Canada, and there is probably less inflation risk in Canada at a mature point 2013Q3 2013Q4 2014Q1 2014Q2* in the household cycle and in the absence of QE north of the border. * 2014Q2 is an estimate for Canada. Source: BEA, Statistics Canada, Scotiabank Economics. The quarter should end favourably via the June GDP print. Recall that housing starts were up by 1% in June, and existing home sales were 0.8% higher. Net trade was strong in the month with export volumes up 1%

3 August 22, 2014 Economics Global Views

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

… continued from previous page m/m and import volumes down 1.7% which itself may signal some offsetting domestic weakness. For the quarter as a whole, we’re tracking large gains in export and import volumes with the former outpacing the latter and therefore net trade should contribute positively to GDP growth in Q2. Manufacturing shipment volumes were up by a gentle 0.2% m/m, hours worked fell 0.4% m/m, but retail sales came in very strong throughout the quarter including in June.

Bank earnings will dominate action in the credit space throughout the week. Nine firms listed on the TSX will release earnings, including each of the big five banks. Canada also conducts a 3 year auction on Wednesday. Asia-Pacific — Unwinding The Abenomics Lift

Asian markets are unlikely to play a role influencing the global market tone next week as most developments will come to bear upon the outlooks for individual countries and markets. Whether growth in China’s industrial profits continues to trend higher or suffers a near-term setback may be a modest exception to this statement.

Japan conducts its monthly data dump onto markets next week. Key Chart 4 Japanese Inflation Cresting here will be the next batch of CPI figures as Japanese inflation has 4 begun to roll off a temporary peak. Because Japan releases national CPI % change y/y that lags one month behind CPI for the city of Tokyo, we can use the latter 3 as one indication of what to expect in next week’s national print for August.

As the accompanying chart shows, we’re in the early days of rolling off the 2 peak inflation rate. Fast forward to next April when the year-ago base effect Japan National CPI of the three percentage point hike in the sales tax this past April shakes out, 1 and headline national inflation is likely to plunge back toward very low depths while potentially courting renewed deflation risks. Japan also 0 releases updates on household spending, the jobless rate, industrial production and housing starts. -1 Japan Tokyo CPI India’s economy is expected to expand by 5% y/y in next week’s 2014Q2 -2 GDP print. That would be a marginal improvement from the prior quarter. Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 The most recent Bloomberg survey of forecasters expects growth to Source: Bloomberg, Scotiabank Economics. gradually firm over the rest of 2014 through 2016.

Releases of strictly regional consequence will include Australian new home sales, trade figures for New Zealand, Thailand and Philippines, and South Korean industrial output. The Philippines could see the first up-tick on growth since the first quarter of last year and that would at least temporarily arrest a four quarter trend toward softening growth. Consensus expects the economy to grow by 6.3% y/y in Q2 — up a half point from the prior quarter. Europe — Is Inflation Bottoming?

It’s late August in Europe, and that sets the expectations fairly low by way of anything material that might influence global markets. The main risk is a fresh round of inflation figures starting with Germany.

Thursday will be the main event, as German states release their August CPI estimates. Recall that German inflation dipped to 0.8% y/y in July which was the softest inflation reading since February 2010. Friday will follow up the German print with EC CPI. It’s not clear that inflation readings in the very near-term matter much to the ECB outlook. The TLTROs have yet to be rolled out and the other policy measures that were announced at the July 3rd ECB meeting including a negative deposit rate have not been given enough time to be fully operationalized. It’s also possible that inflation may trough in the relatively near-term. Lagging but already-announced policy measures combined with a gradual bottoming in inflation might give the ECB cover to fall shy of some expectations for an unsterilized sovereign bond purchase program. Behind the inflation prints, German retail sales, the unemployment rate, and the IFO business confidence metric will get secondary attention as will Italian retail sales and unemployment.

4 August 22, 2014 Economics Global Views

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

‘New Normal’, Or Simply The Same Old Mistake?

 Potential GDP growth forecasts for the US economy tend to be sharply underestimated during downturns, and overestimated during boom periods. This should serve as a strong caution to fans of ‘new normal’, ‘this time is different’, ‘secular stagnation’, and low-for-long schools of thought. Many debates on the outlook for economic growth and the neutral rate of interest over the full cycle ahead hinge upon the ability to forecast potential GDP growth which represents the non-inflationary speed limit of the economy. For instance, the ‘new normal’ catch phrase argues that the potential speed limit of the economy is lower than it used to be and we should simply get used to this such that the long-run neutral rate of interest is biased to be lower than previously. ‘This time is different’ proponents would argue something similar. Fans of the secular stagnation school of thought — including views expressed by highly regarded economists like Larry Summers (here) and Paul Krugman (here) — believe that developments over recent years have “cast a substantial shadow on the economy’s future potential” to quote Summers. They cite persistent downward revisions to US potential GDP growth since 2007 in likening today’s US situation to estimates of potential GDP growth in Japan that were revised steadily downward from the early 1990s onward as expectations were steadily lowered. This view then motivates Keynesians to promote policy recommendations that are geared toward forcing a lower real rate of interest and/or taking tangible steps to increase demand including via fiscal policy in an effort to raise the economy’s speed limit.

Such views therefore substantially rest upon the ability to forecast potential GDP growth. The broad observation in what follows is that we’ve heard much of this same reasoning before — and in stark contrast to the one Japan parallel, — we have forgotten the lesson on how wrong it was in the past.

To this effect, the accompanying chart might be accused of resembling something to be found hanging on a wall inside the New York Museum of Modern Art or perhaps Medusa’s flowing locks, but it speaks volumes in the debate. Each individual line represents the Congressional Budget Office’s (CBO) forecasts for potential real GDP growth starting when first published in 1991 (data available on request). The thick dark blue line is the latest forecast for potential GDP growth from 2014-onward spliced onto the latest historical estimates of past years’ potential GDP growth and therefore captures all revisions to date. Each dashed grey line

CBO’s Estimates of Potential GDP Growth 4.0 y/y % change Over-Estimation Of 3.5 Potential GDP Growth 3.0

2.5

2.0 Latest Estimate

1.5

Under-Estimation Of Potential GDP Growth 1.0 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21 23

Source: CBO, St. Louis Fed, Scotiabank Economics.

5 August 22, 2014 Economics Global Views

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

… continued from previous page represents potential GDP growth forecasts and revised past estimates drawn up in prior years. Three powerful observations ensue. Potential Growth Is Under-Estimated Coming Out Of Periods Of Weakness...

The first key observation is that potential GDP growth was sharply underestimated in past periods of economic weakness like the early 1990s and perhaps like it may be underestimated today. All of the grey dashed lines progressively shifted higher during each round of forecast revisions for potential GDP growth in the 1990s up to today’s estimates. The recession and ensuing softness during the early 1990s was very similar to today in that the first estimates of the speed limit of the US economy started off very low and pushed down to just above 1%. As the economy improved, forecasters then progressively revised estimates higher in backcasting efforts such that today’s estimate for potential GDP growth back in the early 1990s lies in the 2 ¾ - 3% range. …Over-Estimated During Periods Of Strength...

The second observation is that potential GDP growth is overestimated at points of cyclical strength like much of the 2000s. All of the grey dashed lines over this period progressively shifted lower in each forecast revision. Note that the latest estimates for potential GDP growth during that decade (again, the thick dark blue line) are persistently lower than the initial estimates for that period. Whereas much of the emphasis in the literature is upon the period of 2007 onward during which potential GDP growth estimates were revised lower, this was actually the case for several years prior to 2007. …And Thus Heavily Pro-Cyclical

Juxtaposing the first observation with the second observation makes it such that one should be very careful about putting the emphasis upon persistent downward revisions to potential GDP growth since just before the crisis, while ignoring persistent upward revisions to potential growth over prior periods. This emphasis upon selectively sampling revision periods risks resulting in flawed policy prescriptions and market perspectives, and over-reacting during such periods just when forecasters may be overreacting to contemporary circumstances themselves.

In all, the message we’re left with is that long-term estimates of potential GDP growth are heavily pro- cyclical in that they are too low when devised during periods of softness and too high when devised during periods of economic strength. Forecasting potential GDP growth is a complex exercise that is fraught with enormous uncertainty and forecasters may repeatedly fall into the trap of convincing themselves that ‘this time is different’ only to discover that it really wasn’t. This same mentality was in place in the early 1990s and ended in disaster for bond investors in 1994. Coming off the period of excess in the 1980s and ending it with Resolution Trust, large numbers of failed thrifts, a junk bond melt-down, and the technical insolvency of a large money center bank motivated a comparable forecast bias that US growth would never rebound and the Fed wouldn’t be able to tighten monetary policy for a very long period of time. Later during the 2000s we convinced ourselves as a profession that the economy’s speed limit was higher so monetary policy could be relatively loose for longer and we know how that play ended. With revision risk to potential GDP growth forecasts that can be measured in orders of magnitude, it’s simply not clear that views on public policy steps or long-term borrowing costs should rest upon the ability to forecast the speed limit of the economy.

Special thanks to Neil Tisdall and Andrew Gorsky for their assistance.

6 August 22, 2014 Economics Global Views

ASIA Pablo Bréard (416) 862-3876 Tuuli McCully (416) 863-2859 [email protected] [email protected]

Asia/Pacific Regional Outlook

Solid Economic Performance | Attractive Growth Differentials

Economic growth in Asia/Pacific continues to outpace the rest of the Real GDP Growth world, with the region rapidly increasing its importance in the global economy. Real GDP growth will average 5½% annually in Asia in China 2014-15. Three of the world’s four largest economies by purchasing power parity (PPP) are Asian; China, India and Japan already India account for a quarter of the world economy, with that share increasing to 30% by the end of the decade. China will become the Korea 2014-15 (f) world’s largest economy (in PPP terms) within the next five years. 2004-13 The country has defied mounting investor scepticism about the Hong Kong health of its financial services sector and maintains a favourable growth trajectory with positive effects for the rest of Asia/Pacific. Austalia Simultaneously, India’s encouraging economic outlook is Annual GDP underpinned by the newly elected pro-reform administration. Solid Japan growth rate (%) economic performance and growth differentials between Asia/Pacific and the rest of the world will continue to attract investment flows into -113579 the region. Source: Bloomberg, Scotiabank Economics.

Long-Term Structural Reform Momentum | Supportive Inflation Short-Term Policy Measures India China’s economic structure is changing. The adjustment process will result in gradually lower real GDP growth in the coming years as the Hong Kong economy transitions to a new stage of development that relies more on productivity gains than factor inputs such as fixed capital China 2014-15 (f) investment. The country’s drive towards financial and capital account 2004-13 liberalization is firmly in place with a commitment to decrease the Australia role of the state in the economy. However, effective management of implementation risk is critical for maintaining domestic economic Korea stability. Indeed, policymakers recognize the need for a stable economic environment in order to successfully implement structural Annual % Japan change transformation; China has recently introduced fiscal initiatives along with targeted monetary policy stimulus measures to support 0246 continued economic reform progress. In India, the new government Source: Bloomberg, Scotiabank Economics. aims to improve the country’s policy credibility and business environment through public sector administrative reforms, increasing Benchmark Interest Rates the role of the private sector and opening the economy to foreign 9 investment. India’s public finances remain relatively weak, forcing the % administration to focus on fiscal consolidation. In Japan, the recently 8 India unveiled “third arrow” of the country’s economic revival plan consists 7 China of a growth strategy, fiscal reform and deregulation. Meanwhile, 6 South Korea is restructuring its welfare system, targeting domestic 5 demand-driven growth with an emphasis on services, and reducing the economy’s dependence on exports. 4 Australia 3 Many Asia/Pacific economies remain focused on adjusting their near- Korea term cyclical performance in the challenging global environment. 2 Japan will likely continue its quantitative easing program in the 1 Hong Kong coming quarters while South Korea is allocating additional public 0 spending to boost the economy amid loosening monetary policy. Jan 13 Jul 13 Jan 14 Jul 14 Meanwhile, Australian monetary conditions are set to remain Source: Bloomberg.

7 August 22, 2014 Economics Global Views

ASIA Pablo Bréard (416) 862-3876 Tuuli McCully (416) 863-2859 [email protected] [email protected]

… continued from previous page accommodative for an extended period of time in order to counter- Public Sector Fiscal balance balance the government’s fiscal consolidation efforts. Conditional on enduring disinflation, India may be able to provide monetary Hong Kong 2014-15 (f) 2004-13 stimulus in early 2015. With an officially dollarized economy, Hong Kong’s monetary policy stance will remain largely determined by Korea interest rates in the US. Global Shock Preparedness | Regional Governance China Progress Australia US monetary policy normalization will directly affect emerging- market economies. Asia/Pacific is aptly prepared to manage this India rebalancing, yet risk differentiation within emerging markets may intensify as investors incorporate unique country fundamentals Japan within a scenario of higher US interest rates. While stock valuations % of GDP in emerging markets continue to rise, increasing evidence of -8.0 -3.0 2.0 accelerating US economic activity and a move towards dollarizing Source: IMF. investment portfolios are supporting a bullish trend for the US dollar. During the process of the US monetary policy adjustment, the Asian Equity Market Performance currency environment may be subject to bouts of heightened (August 2009-2014) volatility; nevertheless, the region, led by China, can rely on vast India foreign exchange reserves to counteract any sudden shifts in currency markets. Japan The core group of Asian economies counts on a robust financial sector to accompany a new cycle of global economic growth. Australia Following leadership transition in core countries, there are increasing signs of trade policy convergence, coordinated Hong Kong engagement in global affairs and financial market integration. The recently unveiled BRICS bank initiative, to be based in Shanghai, is Korea yet another recognition of China as a leader among emerging markets. China Five-year local currency return (%) Deeper Regional Integration | China’s Trading -25 25 75 Partnership & ASEAN Source: Bloomberg. A byproduct of Asia/Pacific’s larger economic significance in the Current Account Balance world economy is deeper regional integration. Intra-regional trade increased by 280% over the 10-year period through 2012, with Korea shipments within Asia currently accounting for a fifth of world trade. Australia and Hong Kong, for instance, are reaping the benefits of Hong Kong the sustained activity; increased mining capacity in Australia allows significantly larger commodity exports to meet the demand in China China and the rest of Asia while Hong Kong continues to function as a major regional trade and services hub. Furthermore, the ASEAN Japan Economic Community, to be operational in 2015, will further deepen trade ties within Asia. The 10-nation ASEAN bloc will become the Australia 2014-15 (f) world’s fourth largest economy by the end of the decade. 2004-13 India For further insights regarding the Asia/Pacific economic outlook, % of GDP please refer to the Asia/Pacific Regional Outlook report, published -5.0 0.0 5.0 on August 21, 2014. Source: Bloomberg, Scotiabank Economics.

8 August 22, 2014 Emerging Markets Strategy Global Views

Joe Kogan (212) 225-6541 [email protected]

Cautious Chileans Support Fixed Income Rally

The following article was published on August 20, 2014.

A shift towards conservative investments by Chilean pension fund affiliates and mutual fund investors may be aiding the rally in local bonds. At the same time, the stock of bonds outstanding is not growing as fast as it used to, partly because the Central Bank is not conducting primary auctions this year.

Chilean nominal yields have dropped significantly over the past twelve months to record low levels. For example, 5Y yields fell 170bp and 20Y yields have fallen about 80bp. The Chilean Central Bank has been cutting rates of course, but in order for yields to move that much in the long-end, markets would have to expect the overnight rate to stay at 3% for the next eight years. The 50bp rally in US Treasuries could potentially explain the remainder of the difference, but with the Chilean markets historically more independent of global markets than the rest of Latin America, we may also want to evaluate some domestic explanations. In particular, our local analysts and traders in Chile point to a change in risk tolerance by individual investors, as shown in Figure 1.

Figure 1. Allocations to fixed income and to conservative funds

Source: Scotia Equity Research, SAFP (1)Allocation by Chilean mutual funds to non-equity investments, of which at least 95% is fixed income (2)Allocation of Chilean pension funds to local and foreign fixed income (3)Allocation of Chilean pension funds to local fixed income (4)Allocation of Chileans to “E” funds, which is the most conservative of five pension funds offered

Mutual funds, which in Chile are always fixed income focused, are nevertheless allocating a record high 97% of assets to fixed income. At the same time, allocations of retirement funds to E-type pension funds, which are the most conservative of the five offered in Chile and must maintain a strong concentration in fixed income, have tripled in the past three years. Overall pension fund allocations to fixed income have increased as a result, an effect that is especially visible once we consider total allocations to both domestic and foreign fixed income.

9 August 22, 2014 Emerging Markets Strategy Global Views

Joe Kogan (212) 225-6541 [email protected]

… continued from previous page

The shift in sentiment started in the fall of 2011, but probably did not reach levels that were conservative by historical standards till early 2013. Nevertheless, it seems to have preceded somewhat the deterioration in economic activity, investment, consumer confidence, and business confidence that began in 2013, as shown in figure 2.

Figure 2. Chilean economic activity and confidence

Source: Bloomberg, GFK Adimark

It is surprising that domestic investors turned negative prior to the deterioration of economic indicators, as well as the revisions in Chilean growth forecasts, which started in the summer of 2013. Perhaps, they were responding to past market movements rather than anticipating future fundamentals. According to our local equity analysts, retail investors may have entered Chilean equity markets in the late stages of a long rally that ended in 2010, and were then disappointed by the negative returns in 2011, causing them to subsequently withdraw.

At the same time as demand for fixed income has picked up, the supply of government bonds has decelerated, as shown in Figure 3.

Figure 3. Government and Central Bank bonds outstanding

Source: Chilean Central Bank. 1 UF equals 24,085 CLP

10 August 22, 2014 Emerging Markets Strategy Global Views

Joe Kogan (212) 225-6541 [email protected]

… continued from previous page

Although issuance of nominal Treasuries (BTPs) continues, issuance of inflation-linked Treasuries (BTUs), which are a larger portion of bonds outstanding, has slowed. Meanwhile, with the Central Bank holding no primary auctions this year, in contrast to previous years, the amount outstanding of Central Bank paper is actually declining. Total bonds outstanding from the Treasury and Central Bank are growing at a rate of 7%, far short of the double-digit rates we saw in 2012. In contrast, pension fund AUM in local fixed income grew 15% y/y and mutual fund investments grew 32%. Some of that increase in AUM is the result of price appreciation of the underlying instruments, of course, rather than inflows, but certainly not all.

Why is the amount of Central Bank bonds outstanding declining? The Central Bank says that the number of bonds maturing is small enough so as not to necessitate any new issuance. Nevertheless, an expansive bias to monetary policy probably plays a role as well. The Central Bank may also be leaving room for the government to issue more bonds this year and next year to finance greater spending at a time when activity is weakening. For that reason, bond investors should be wary of a potential increase in supply next year. The Central Bank’s ability to place those bonds will depend in part on Chilean investors remaining cautious in the face of deteriorating economic news.

11 August 22, 2014 Fixed Income Strategy Global Views

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

The Eurozone To Move Away From Fiscal Consolidation To Save Growth

 2014 appears to be a lost year for the Eurozone recovery. In view of Q2 GDP growth, the coming weeks are likely to see all main economic institutions revise their growth forecast down once again to around a meagre 0.7%/0.8%.

 The focus will now be to mitigate a loss of momentum in 2015, with calls for additional monetary accommodation likely to multiply over the coming weeks. Once again, market’s speculation has been mounting for additional actions from the ECB as seen by the strong rally in nominal yields. However, we believe that, for the time being, additional actions could shift away from the ECB onto the governments.

 Since Italy took the EU presidency in July, the debate on austerity in Europe has already re-intensified. With a zero growth performance in Q2 and inflation also flirting with the zero mark the Italian’s position on a new direction for Eurozone macroeconomic policy is likely to have gained additional support during the summer. In turn , the next few months could see:

 A reassessment of national fiscal policies as we expect a number of countries, particularly France, to lobby for an extended time frame for implementing fiscal consolidation targets. In this regard, the presentation of the 2015 budget laws next month will be closely watched.

 The launch of a massive European investment program. A pause in the fiscal consolidation

 Once again, lower-than-expected growth means that a certain number of Eurozone countries will have difficulties meeting their budget deficit reduction plan for this year. In its Spring Economic forecast, the EU Commission expected the Eurozone budget deficit to shrink to -2.5% of GDP from -3.0% last year. This figure will likely be revised up given that its projected Eurozone growth of 1.2% is unlikely attainable at this time. Among the main Eurozone countries, except in the case of Spain, announced GDP growth forecasts looks beyond reach unless a strong acceleration takes place in H2. Therefore, Eurozone members will face the choice of either implementing new corrective fiscal measures or asking the EU Commission for more time to meet its targets.

Table 1: budget deficit reduction target looking at risk in most countries

Source: Stability Program  Austerity and fiscal consolidation was needed to restore confidence in the Eurozone project and favour more solidarity. This has been a key trigger for the creation of a banking Union and for the ECB to embrace unconventional monetary actions over the past two years. However, the negative impact of austerity measures on growth was likely underestimated, with most economic organizations recognizing that the impact of fiscal multipliers on activity is not stable during the economic cycle. We believe the recent string of disappointing economic data will give additional weight to this sentiment and provide arguments for countries to lobby the Commission for greater flexibility in the fiscal consolidation path.

12 August 22, 2014 Fixed Income Strategy Global Views

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

… continued from previous page

 Another argument which could strengthen this position is the widening gap between the trend in total budget deficit and the structural deficit (which excludes the impact of lower growth vs. its potential). While, as earlier mentioned, the total budget deficit is expected to be revised up, the structural budget deficit is seen at around -1.1% of GDP by the EU Commission, well below the 3.0% line. Therefore, the lack of growth could be responsible for more than half of the total budget deficit, highlighting that the inability to meet a budget deficit of below 3% is more a problem of lower-than-expected growth than purely fiscal consolidation.

Chart 1: Total vs. structural budget deficit, the widening gap!

 The statements from the new EU Commission President, J. C. Junker, seemed to open the door for more flexibility. His agenda indeed focuses on “jobs, growth, fairness and democratic change” 1, meaning that fiscal consolidation could become secondary to his top priorities. A pause in the fiscal consolidation path would certainly bolster the economic outlook. A wide European investment plan, which timing?

 In the meantime, the new EU Commission President Junker asked for a €300 bn investment plan for Europe over the next three years. For Europe as a whole, it represents a direct support of more than 2% of GDP. Total investment in the Eurozone has edged down to less than 20% of GDP since the financial crisis and is low even in a country like Germany. So, boosting investment should be a common agreement between governments. This would increase aggregate demand in the short term and increase potential growth in the medium term, which is key for addressing debt sustainability in the area.

Chart 2: Total investment/GDP at low level

1 http://ec.europa.eu/about/juncker-commission/docs/pg_en.pdf

13 August 22, 2014 Fixed Income Strategy Global Views

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

… continued from previous page

 It remains to be seen how quickly it could be implemented. However, with this proposal coming in at the top of Juncker’s agenda, it is likely to be strongly discussed between governments in the second half of this year.

 It could be funded through 5 or 10-year bonds issued by the European Investment Bank. The liquidity offered by the ECB through the TLTRO could help to finance this plan as banks could see incentive in executing carry trades while boosting credit growth. However, we do not exclude the possibility that the ECB could also choose to buy these bonds if needed as part of another future program of asset purchases in addition to the ABS program.

 To conclude, softer than expected economic data over the summer months has refuelled the need for additional reflationary macroeconomic policies. While the debate is still centred on the ECB to do more through additional quantitative easing, we think that the next round could rather turn on potential changes in the stance of fiscal policy and through more expansionary policies at the European level over the coming months. So, 2015 could see a better alignment between fiscal and monetary policies to reflate the Eurozone economy.

14 August 22, 2014 Foreign Exchange Strategy Global Views

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

Latin America Week Ahead: For The Week Of August 25 - 29

Week-ahead highlights

Next week is US PMI week, featuring the ISM, Markit composite and services PMIs, as well as a number of regional Fed indices. We believe the combination of these plus the carryover from the Jackson Hole speeches this week are likely to set expectations on Fed policy for next week, which will be important direction providers for the LATAM region. In addition, the Ukraine conflict remains a subdued risk, but a latent one in our view. In the LATAM specific pipeline, BanRep’s MPC meeting is worth watching, as well as Brazilian electoral polls, and activity indicators. Given the more uncertain direction in price action, we currently prefer intra-region crosses, with long MXN/CLP (strategic), and long COP/PEN (tactical-stop at 0.1463) being our two favoured ones. Week-ahead views:

Brazil: Lending data for July will be interesting to watch for signs on whether the initial reserve requirement adjustments, which sought to boost lending by BRL30 bn had an impact. Our fear is that with consumers already highly leveraged, there are two major risks: 1) that consumers are reluctant to borrow more, or 2) even worse, they borrow further and down the line it proves to have been “too much”. On this front, the release of CNI consumer confidence should also provide us with an idea of how likely consumers are to tap the government’s efforts to boost lending. On a related topic, Friday’s GDP is expected by consensus to print in negative territory, which seems to fit with the government’s recent increased concerns over growth.

Finally, the primary balance release is also key, as the market consensus seems to increasingly lean towards a wide miss of the government’s 2014 target, which could put the country’s ratings at risk. Our base case is that the country will manage to avoid a loss of investment grade, but if either: 1) growth does not rebound over the next couple of years (which we see as a risk given the deleveraging process) or 2) the loose fiscal stance is not reversed, it is a risk. In our view, because households and the government are both uncomfortably debt- burdened, a positive electoral result shock, which is taken by the private sector as a sign of more prudent / predictable economic policy and thus leads to a private investment recovery, could serve as an economic recovery engine. As a result, the continued monitoring of electoral surveys remains the major domestic market driver for Brazilian assets in our view.

Chile: This week has a number of important economic indicator releases, which include the manufacturing index, unemployment, retail sales and copper output data. The BCRP’s recent focus for monetary policy guidance seems to be the softness in domestic demand and investment, and we accordingly believe the more important releases in the pipeline are retail sales and unemployment. Despite CLP’s recent underperformance of its LATAM peers (second weakest among the major LATAM FX since the start of June, to the ARS), we still see long MXN/CLP as our favourite long term LATAM trade (which has been the case since the start of last November).

Colombia: This week is very busy in the Colombian data pipeline, including industrial production and retail sales on the growth front, as well as the BanRep MPC meeting. For Friday’s central bank meeting, we are surprised there are now 4 of the 16 economists surveyed by Bloomberg who call for a pause in the tightening cycle, while the rest look for a hike to 4.5%. An end of the tightening cycle at 4.5% was our view, but we are now somewhat confused by the central bank’s communication. We had taken the arguments presented by at least 3 board members that the country’s neutral rate was now lower than it had been in the past as an indication that the tightening cycle would likely be less pronounced, and also an attempt to adjust market expectations on rates to the downside. Accordingly, we had expected the hiking cycle to stop at 4.5%, based on that view. However, we are now somewhat confused over the bank’s message.

Mexico: Yesterday’s GDP surprised to the upside (+1.6% y/y vs +1.5% y/y expected), but we don’t think the surprise was nearly enough to change the outlook for monetary policy. Mining (-1.0% y/y) and construction (-0.6% y/y) were among the weak components, but industrial production numbers had already suggested construction is regaining its footing as we exit Q2. It was encouraging to see that services seem to be gaining

15 August 22, 2014 Foreign Exchange Strategy Global Views

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

… continued from previous page traction, especially among discretionary / leisure components (restaurants / hotels +4.0%) , which suggests consumers are getting back onto more solid footing. On this front, next week’s retail sales data for June will be part of the Q2 story, but is still worth watching. In addition, the Q2 current account and trade balance release (for July) are worth watching, and are important factors for our longer term MXN bullishness, as we discuss below.

Peru: This week includes the important GDP release, for which we perceive a number of observers (particularly locals) look for a print on the soft side of estimates, which look unusually scattered (some as high as >3.0%). We already saw the monthly GDP proxy print at a very weak +0.3% for June, so we expect much of the market to be prepared for a weak number. The softness we are seeing in economic data is likely to be at least part of the reason why the BCRP is recently more open to the idea of a weaker PEN, which has now broken north of the range which had held for the past year (with a ceiling at 2.83). As we can see in the charts in the next page, Peru is one of the major LATAM economies whose exports have more consistently underperformed the imports of its major trading partners over the past year or so. LATAM FX and its eroding trade support:

Outside of the period around the 2009 crisis, commodities’ exports share of global trade rose rapidly over the last decade, driven by the rise of EM incomes — particularly China — which dominated global growth. However, the trend seems to have peaked in 2012, and has since started to decline. A couple of data points are not enough to be certain of a reversal in the trend, but we believe there are changes in the global economy which suggest this is at least a risk:

 One element is China’s slowing growth, and planned move away from manufacturing export-driven growth — which implies a move away from manufacturing (commodity intensive), and into services (less commodity intensive).

 A commonly cited explanation for the surge in commodity prices we saw during the 2000s, was the rapid rise in the share of global GDP that was represented by EMs (assuming that as income rises, the share of it that is used for consuming commodities will decrease, as a growing share will be services, and thus lower-income countries accounting for a larger share of growth means “goods” demand is rising faster

Commodity exports share of global exports rose EMs were rapidly gaining share of global GDP pre- rapidly pre-2009… but the trend has lost momen- 2009 crisis. While the trend remains positive, it has tum... slowed

40% Commodities as % of total global exports Change in the share of global GDP that is accounted for by EMs Source: UNCTAD, ScotiaFX Strategy. (% y/y) 4.0% 35% 3.5%

30% 3.0% 2.5%

25% 2.0%

1.5%

20% 1.0%

0.5% Source: IMF, ScotiaFX Strategy. 15% 0.0% 1995 1998 2001 2004 2007 2010 2013 2001 2003 2005 2007 2009 2011 2013

16 August 22, 2014 Foreign Exchange Strategy Global Views

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

… continued from previous page

than services demand). However, as the graph below shows, although EMs continue to grab a larger and larger share of world GDP, the pace at which that share was growing has fallen significantly since the ‘09 crisis, which would suggest that at best, commodities should be gaining ground less rapidly than previously.

 This effect may be compounded by EM’s having higher incomes (and thus are themselves devoting a larger share of their marginal incomes to services).

Ultimately, our purpose now is not to determine the fate of commodity exports’ relevance in global trade, but to think about how this trend can affect LATAM if it is maintained going forward. The exports of Chile and Colombia are growing at a slower pace than the imports of their top-20 trading partners (thus losing market share), which can be an indication of a loss of competitiveness (which we believe is part of the reason to different degrees), and may also imply that the products produced by these countries are losing share overall. Either way, this could imply that LATAM FX could be less supported by trade flows going forward.

Most LATAM economies have seen their exports underperform their trading partners’ imports (i.e., losing market share) (a dotted black line moving below the red line suggests the country is losing trading partner market share) Brazil Chile

Imports of Brazil's top‐20 main trading partners (trade weighted; y/y Imports of Chile's top‐20 main trading partners (trade weighted; y/y %), vs exports by Brazil %), vs exports by Chile 30.0% 40.00% Top trading partner imports Top trading partner imports 20.0% 30.00% Chilean exports Brazilian exports

20.00% 10.0%

10.00% 0.0% 0.00% ‐10.0% ‐10.00%

‐20.0% ‐20.00%

Source: UNCTAD, Bloomberg, ScotiaFX Strategy. Source: UNCTAD, Bloomberg, ScotiaFX Strategy. ‐30.0% ‐30.00% Aug‐11 Feb‐12 Aug‐12 Feb‐13 Aug‐13 Feb‐14 Aug‐11 Feb‐12 Aug‐12 Feb‐13 Aug‐13 Feb‐14

Colombia Peru

Imports of Colombia's top‐20 main trading partners (trade Imports of Peru's top‐20 main trading partners (trade weighted ; y/y %), vs exports by Colombia weighted; y/y %), vs exports by Peru Major trading partners' 60.0% Top trading partner imports 40.0% imports Peruvian exports 50.0% Colombian exports 30.0%

40.0% 20.0% 30.0% 10.0% 20.0% 0.0% 10.0% ‐10.0% 0.0%

‐10.0% ‐20.0%

Source: UNCTAD, Bloomberg, ScotiaFX Strategy. Source: UNCTAD, Bloomberg, ScotiaFX Strategy. ‐20.0% ‐30.0% Aug‐11 Feb‐12 Aug‐12 Feb‐13 Aug‐13 Feb‐14 Aug‐11 Feb‐12 Aug‐12 Feb‐13 Aug‐13 Feb‐14

17 August 22, 2014 Foreign Exchange Strategy Global Views

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

… continued from previous page

The outlier in the recent trend of export underperformance by LATAM economies is Mexico, which also is the major manufacturing exporter in the region (Mexico exports more manufactured goods — by value — than South America combined! — See chart below). However, as we have argued repeatedly in the past, the outperformance of Mexican exports is not only due to a strengthening of the position of manufacturing products exports relative to commodities, but to a number of factors that have made Mexico’s manufacturing sector internationally competitive, including: low costs, a broad network of free trade agreements (that make it an attractive place to set up business), location, and a fairly stable economy. An interesting read on the topic is: “America's Car Capital Will Soon Be ... Mexico” J. Muller-Forbes (August 20, 2014).

Mexico is a regional outlier, managing to consist- Mexico’s manufacturing goods exports exceed those of ently gain trading partner market share in the all South America combined… by a wide margin post-2009 world

Imports of Mexico's top‐20 main trading partners (trade 300 Manufacturing exports (US$bn) weighted; y/y %), vs exports by Mexico Source: UNCTAD, ScotiaFX Strategy.

30% Trade partnet imports 250 Mexico South America 25% Mexican exports

20% 200

15% 150 10%

5% 100 0%

‐5% 50 ‐10% Source: UNCTAD, Bloomberg, ScotiaFX Strategy. ‐15% 0 Aug‐11 Feb‐12 Aug‐12 Feb‐13 Aug‐13 Feb‐14 1995 2000 2005 2010

Bottom line: The weak external demand for At risk of over-using one of our favorite charts, our estimates LATAM exports is to a large degree due to the suggest local yields provide an appropriate cushion for FX softening environment for commodity exports, risk in most cases, reducing risk of portfolio outflows which seems like a fairly broad-based development. Our sense is this will have Spread between 10‐yr LATAM local currency bonds & 10‐yr USTs 10.00% implications for the path of LATAM FX direction We proxy the "fair value spread" by adding up: moving forward and suggests that, as opposed 9.00% 1) Credit premium: 10yr CDS. to much of the 2000s where LATAM FX 2) FX risk premium: long run inflation differentials 8.00% consistently appreciated vs the greenback (in w/ respect to the US. 7.00% 3) On‐shore / offshore differentials and liquidity many cases in contradiction to what real- premium. effective exchange rates would suggest for a 6.00% very prolonged period of time), we are more 5.00% Fair Spread likely to see a gradual slide. The reassuring 4.00% Current Spread angle to this, is that we believe the spreads over USTs reflect expectations of “positive FX 3.00% risk” that in most countries are in line with (or 2.00% even overshoot) yield components, which 1.00% should help mitigate risks of capital flow 0.00% reversal. Brazil Chile Colombia Mexico Peru

18 August 22, 2014 Economics Global Views

Derek Holt (416) 863-7707 Dov Zigler (212) 225-6631 [email protected] [email protected]

Key Data Preview

CANADA

The Canadian economy looks to have expanded smartly in Q2 CDN Exports Surged in Q2 41 Chained Dollar Exports 2014 after a soft start in Q1. Growth over 2.5% q/q annualized C$ bn, seems feasible especially following a strong quarter for retail sales 39 Chained (+7% q/q SAAR) and with strength across most major categories. to 2007 37 Natural resources output in the GDP-by-industry segment was especially strong, with output in mining, quarrying, oil and gas 35 tracking at a growth rate of roughly 6% q/q through May with likely 33 upside in June (exports of natural resources in June were very strong). Manufacturing was also solid, and very robust wholesale 31 trade volumes (up by more than 10% q/q annualized) are also a 29 major plus. The drag, it seems, comes from the construction side 27 Exports, 2007 Dollars of the picture, which looks to have contracted moderately overall. Strong wholesale trade growth also points to the possibility that Q2 25 in Canada could bring a very large addition to inventories mirroring Jan-97 Jan-02 Jan-07 Jan-12 the cyclical inventory swing during Q2 in the U.S. Note that a big Source: Scotiabank Economics, Statistics Canada drop in imports drove Q1 GDP, adding 240bps to growth (i.e. accounting for more than the +1.2% q/q annualized pace of GDP U.S. Motor Vehicle Assemblies growth). Trade should be fairly additive in Q2 as imports Huge Swing in July 2014 rebounded strongly, rising by an annualized 2.95% q/q in constant 15 Millions dollars while the volume of exports was even stronger at +4.7% q/q (see chart). Total hours worked were quite soft, however, 13 pointing to our one major concern in terms of quarterly GDP. 11 UNITED STATES 9 U.S. durable goods orders for July should be very strong on the back of a massive order of planes at Boeing (324 vs. 109 in June). 7 US Motor On top of the spike in aircraft orders, motor vehicle production hit a Vehicle multi-year high on the month and that should translate into more 5 Assemblies orders as well (see chart). The net leaves us anticipating a strong number — and that’s before factoring in solid ISM manufacturing 3 numbers for July that showed new orders at a post-crisis high as 07 08 09 10 11 12 13 14 well. We’re anticipating 8% m/m growth in durable goods orders Source: Federal Reserve, Scotiabank Economics with a 0.7% m/m increase ex-transportation. PCE Deflator Inflation Still Well Behaved New home sales should tick higher in July as a variety of leading 5 metrics are looking up. Foot traffic at model homes gained % momentum. Mortgage purchase applications strengthened in May 4 PCE deflator, y/y and June pointing to a possible unleashing of purchases in July. 3 Data on personal consumption and income for July should show consumption on the soft side after retail sales for the month came 2 in at 0% m/m; the income side of the picture should be a bit better after the index of aggregate payrolls ticked up by 0.2% m/m. 1 Accordingly, we’re looking for mild overall consumption growth and a small uptick in incomes. Data on the PCE deflator should show 0 muted inflation growth after CPI increased by 0.1% m/m. We’re anticipating a similar PCE deflator print that leaves the headline -1 08 09 10 11 12 13 14 PCE index flat at 1.6% y/y — higher than last year but still not too strong even by recent standards (see chart). Source: BEA, Scotiabank Economics

A119 August 22, 2014 Economics Global Views

Erika Cain (416) 866-4205 Rory Johnston (416) 862-3908 Tuuli McCully (416) 863-2859 [email protected] [email protected] [email protected]

… continued from previous page

EUROPE

Next week’s euro area inflation estimate is expected to show further signs of weakness and will be closely watched for any implications for the next European Central Bank (ECB) meeting on September 4th. After posting the softest CPI reading since February 2010, we expect Germany’s inflation print for August (to be released on the 28th) will remain stable at a lackluster 0.8% y/y rate, primarily due to energy price base effects. Euro zone inflation will be released the following day and is forecast to ease further to 0.3% y/y in August from a meagre 0.4% y/y increase in July. This also largely reflects softer energy prices. However, with trade sanction imposed earlier this month on food product imports to Russia, downside risks to our forecast could come from weaker food prices. With the euro zone economic recovery coming to a halt during the second quarter and low inflation arousing fears of deflation, pressure on the ECB to implement additional policy easing or greater flexibility in the fiscal consolidation path will likely intensify.

LATIN AMERICA Both Peru and Brazil will release second-quarter GDP results on Peruvian Real GDP & Industrial th th Production Growth August 25 and 29 , respectively. We expect Peruvian real GDP 10 expansion in the second quarter of 2014 to slow to its lowest post-crisis y/y % 9 Industrial Production pace, coming in at around 2.0% y/y, down from 4.8% y/y in the previous change 8 three months. Weaker commodity prices have exerted downward pressure on growth, with industrial production expanding by a mere 7 6 1.9% y/y in April and May. We assess that the Peruvian outlook will pick Forecast up in the second half of the year. In Brazil, we believe that the economy 5 will experience a 0.5% y/y contraction in the April-June period, down 4 from a 1.9% expansion in the previous three months. Industrial 3 GDP production recorded a second quarter 5.4% y/y reduction in activity, 2 while stronger retail sales on the back of World Cup-related spending have served to mitigate the economic damage, posting a 4.1% y/y gain 1 in the same period. Optimism remains, however, and it is likely that the 0 Jun-12 Jun-13 Jun-14 upcoming presidential election will foster a stronger business climate, which will serve to better the country’s outlook. Source: Bloomberg, Scotiabank Economics. ASIA

The Philippines will release second-quarter GDP data on August 27th The Philippines Real GDP Growth (EST). The country’s economic outlook remains favourable, with solid 10 y/y % change growth momentum likely to be maintained through 2015. Real GDP 9 expanded by 5.7% y/y in the first quarter of the year, following a 7.2% 8 gain in 2013; the slowdown reflected the widespread destruction caused forecast 7 by Typhoon Haiyan and other natural disasters at the end of 2013. We estimate that output growth picked up to 6.1% y/y in the April-June 6 period as economic activity is boosted by rebuilding efforts and solid 5 household spending that is underpinned by remittance inflows. 4 3 India will publish data on the economy’s second quarter performance on 2 August 29th. The country’s economic outlook is recuperating as the new 1 government has pledged to prioritize economic reforms to improve 0 India’s policy credibility and business environment, which should lead to Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 faster real GDP expansion. Indeed, business expectations along with Source: Bloomberg, Scotiabank Economics. exports and industrial production have revived recently. We estimate that output growth picked up to 5.2% y/y in the second quarter from 4.6% in the prior three months.

A220 August 22, 2014 Economics Global Views

Key Indicators for the week of August 25 – 29

North America

Country Date Time Indicator Period BNS Consensus Latest MX 08/25 09:00 Retail Sales (INEGI) (y/y) Jun -- 1.6 1.6 US 08/25 10:00 New Home Sales (000s a.r.) Jul 420 426 406 US 08/25 10:30 Dallas Fed. Manufacturing Activity Aug -- 12.5 12.7 US 08/26 08:30 Durable Goods Orders (m/m) Jul 8.0 7.0 1.7 US 08/26 08:30 Durable Goods Orders ex. Trans. (m/m) Jul 0.7 0.4 1.9 US 08/26 09:00 S&P/Case-Shiller Home Price Index (m/m) Jun 0.0 -0.1 -0.3 US 08/26 09:00 S&P/Case-Shiller Home Price Index (y/y) Jun -- 8.2 9.3 US 08/26 10:00 Consumer Confidence Index Aug 91.0 88.8 90.9 US 08/26 10:00 Richmond Fed Manufacturing Index Aug 8.0 6.0 7.0 US 08/27 07:00 MBA Mortgage Applications (w/w) Aug 22 -- -- 1.4 MX 08/27 09:00 Trade Balance (US$ mn) Jul P -- -722.6 423.7 CA 08/28 08:30 Current Account (C$ bn a.r.) 2Q -- -11.7 -12.4 US 08/28 08:30 Initial Jobless Claims (000s) Aug 23 295 300 298 US 08/28 08:30 Continuing Claims (000s) Aug 16 2520 -- 2500 US 08/28 08:30 GDP (q/q a.r.) 2Q S 4.0 3.9 4.0 US 08/28 08:30 GDP Deflator (q/q a.r.) 2Q S -- 2.0 2.0 US 08/28 10:00 Pending Home Sales (m/m) Jul -- 0.5 -1.1 CA 08/29 08:30 IPPI (m/m) Jul -- -0.1 -0.1 CA 08/29 08:30 Raw Materials Price Index (m/m) Jul -- -1.8 1.1 CA 08/29 08:30 Real GDP (m/m) Jun 0.2 0.2 0.4 CA 08/29 08:30 Real GDP (q/q a.r.) 2Q 2.6 2.7 1.2 US 08/29 08:30 PCE Deflator (m/m) Jul 0.1 0.1 0.2 US 08/29 08:30 PCE Deflator (y/y) Jul 1.6 1.6 1.6 US 08/29 08:30 PCE ex. Food & Energy (m/m) Jul 0.1 0.1 0.1 US 08/29 08:30 PCE ex. Food & Energy (y/y) Jul 1.5 1.5 1.5 US 08/29 08:30 Personal Spending (m/m) Jul 0.0 0.2 0.4 US 08/29 08:30 Personal Income (m/m) Jul 0.2 0.3 0.4 US 08/29 09:45 Chicago PMI Aug -- 56.2 52.6 US 08/29 09:55 U. of Michigan Consumer Sentiment Aug F 80.0 80.2 79.2

Europe

Country Date Time Indicator Period BNS Consensus Latest GE 08/25 04:00 IFO Business Climate Survey Aug 106.5 107.0 108.0 GE 08/25 04:00 IFO Current Assessment Survey Aug 111.5 112.0 112.9 GE 08/25 04:00 IFO Expectations Survey Aug 102.0 102.1 103.4 HU 08/26 08:00 Base Rate (%) Aug 26 2.10 2.10 2.10 GE 08/27 02:00 GfK Consumer Confidence Survey Sep 9.0 8.9 9.0 TU 08/27 07:00 Benchmark Repo Rate (%) Aug 27 8.25 8.25 8.25 FR 08/27 12:00 Total Jobseekers (000s) Jul 3413.0 3412.5 3398.3 FR 08/27 12:00 Jobseekers Net Change (000s) Jul 15.0 14.5 9.4 SP 08/28 03:00 CPI (y/y) Aug P -- -0.6 -0.3 SP 08/28 03:00 CPI - EU Harmonized (y/y) Aug P -0.6 -0.6 -0.4 SP 08/28 03:00 Real GDP (q/q) 2Q F 0.6 0.6 0.6 GE 08/28 03:55 Unemployment (000s) Aug -5.0 -5.0 -12.0 GE 08/28 03:55 Unemployment Rate (%) Aug 6.7 6.7 6.7 EC 08/28 05:00 Business Climate Indicator Aug -- 0.1 0.2 EC 08/28 05:00 Economic Confidence Aug 101.2 101.5 102.2 EC 08/28 05:00 Industrial Confidence Aug -4.3 -4.5 -3.8

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

A31 August 22, 2014 Economics Global Views

Key Indicators for the week of August 25 – 29

Europe (continued from previous page)

Country Date Time Indicator Period BNS Consensus Latest EC 08/21 04:00 Composite PMI Aug P -- 53.4 53.8 EC 08/21 04:00 Manufacturing PMI Aug P -- 51.3 51.8 EC 08/21 04:00 Services PMI Aug P -- 53.7 54.2 UK 08/21 04:30 PSNB ex. Interventions (£ bn) Jul -- -1.5 11.4 UK 08/21 04:30 Public Finances (PSNCR) (£ bn) Jul -- -- 11.8 UK 08/21 04:30 Public Sector Net Borrowing (£ bn) Jul -- -1.7 9.5 UK 08/21 04:30 Retail Sales ex. Auto Fuel (m/m) Jul -- 0.4 -0.1 UK 08/21 04:30 Retail Sales with Auto Fuel (m/m) Jul -- 0.4 0.1 EC 08/21 10:00 Consumer Confidence Aug A -- -9.1 -8.4

Asia Pacific

Country Date Time Indicator Period BNS Consensus Latest VN AUG 23-24 CPI (y/y) Aug 4.7 4.6 4.9 SK AUG 24-29 Department Store Sales (y/y) Jul -- -- -4.6 VN AUG 24-29 Exports (y/y) Aug -- 13.1 14.1 VN AUG 24-29 Imports (y/y) Aug -- 11.7 11.4 VN AUG 24-29 Industrial Production (y/y) Aug -- -- 7.5 SI 08/25 01:00 CPI (y/y) Jul 2.2 1.9 1.8 TA 08/25 04:00 Commercial Sales (y/y) Jul -- 2.9 4.1 TA 08/25 04:00 Industrial Production (y/y) Jul -- 4.9 8.6 HK 08/25 04:30 Exports (y/y) Jul -- 5.3 11.4 HK 08/25 04:30 Imports (y/y) Jul -- 5.7 7.6 HK 08/25 04:30 Trade Balance (HKD bn) Jul -- -40.4 -43.1 NZ 08/25 18:45 Trade Balance (NZD mn) Jul -- -475.0 247.3 NZ 08/25 18:45 Exports (NZD bn) Jul -- 4.0 4.2 NZ 08/25 18:45 Imports (NZD bn) Jul -- 4.5 3.9 PH 08/25 21:00 Imports (y/y) Jun -- -- -9.6 PH 08/25 21:00 Trade Balance (US$ mn) Jun -- -- 718.0 SI 08/26 01:00 Industrial Production (y/y) Jul -- 3.6 0.4 SK 08/26 17:00 Consumer Confidence Index Aug -- -- 105.0 TH AUG 26-28 Customs Exports (y/y) Jul -- -- 3.9 TH AUG 26-28 Customs Imports (y/y) Jul -- -- -14.0 TH AUG 26-28 Customs Trade Balance (US$ mn) Jul -- -- 1792.9 TA 08/27 04:00 Leading Index (m/m) Jul -- -- 0.0 TA 08/27 04:00 Coincident Index (m/m) Jul -- -- 0.4 SK 08/27 19:00 Current Account (US$ mn) Jul -- -- 7919.7 AU 08/27 21:00 HIA New Home Sales (m/m) Jul -- -- 1.2 AU 08/27 21:30 Private Capital Expenditure 2Q -- -0.9 -4.2 PH 08/27 22:00 Real GDP (y/y) 2Q 6.1 6.1 5.7 HK 08/28 04:30 Retail Sales - Volume (y/y) Jul -- -- -7.5 SK 08/28 17:00 Business Survey- Manufacturing Sep -- -- 75.0 SK 08/28 17:00 Business Survey- Non-Manufacturing Sep -- -- 66.0 SK 08/28 19:00 Industrial Production (y/y) Jul -- 2.1 0.6 SK 08/28 19:00 Cyclical Leading Index Change Jul -- -- 0.2 JN 08/28 19:30 Household Spending (y/y) Jul -- -2.9 -3.0 JN 08/28 19:30 Jobless Rate (%) Jul 3.7 3.7 3.7 JN 08/28 19:30 National CPI (y/y) Jul 3.2 3.4 3.6 JN 08/28 19:30 Tokyo CPI (y/y) Aug -- 2.7 2.8 JN 08/28 19:50 Large Retailers' Sales (y/y) Jul -- -0.6 -1.8 JN 08/28 19:50 Retail Trade (y/y) Jul -- -0.1 -0.6 JN 08/28 19:50 Industrial Production (y/y) Jul P -- -0.1 3.1

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

A42 August 22, 2014 Economics Global Views

Key Indicators for the week of August 25 – 29

Asia Pacific (continued from previous page)

Country Date Time Indicator Period BNS Consensus Latest AU 08/28 21:30 Private Sector Credit (y/y) Jul -- 5.1 5.1 CH AUG 28-31 Leading Index Jul -- -- 100.1 JN 08/29 00:00 Vehicle Production (y/y) Jul -- -- 6.6 JN 08/29 01:00 Housing Starts (y/y) Jul -- -10.4 -9.5 JN 08/29 01:00 Construction Orders (y/y) Jul -- -- 9.3 TH 08/29 03:30 Exports (y/y) Jul -- -- 3.8 TH 08/29 03:30 Imports (y/y) Jul -- -- -14.1 TH 08/29 03:30 Trade Balance (US$ mn) Jul -- -- 3863.0 TH 08/29 03:30 Current Account Balance (US$ mn) Jul -- -- 1838.0 TH 08/29 03:30 Business Sentiment Index Jul -- -- 48.0 IN 08/29 06:30 Fiscal Deficit (INR Crore) Jul -- -- 57022 IN 08/29 08:00 Real GDP (y/y) 2Q 5.2 -- 4.6

Latin America

Country Date Time Indicator Period BNS Consensus Latest PE 08/25 GDP (y/y) 2Q 2.0 1.8 4.8 BZ 08/29 08:00 GDP (IBGE) (y/y) 2Q -0.5 -0.3 1.9 CL 08/29 09:00 Industrial Production (y/y) Jul -- -- -0.7 CL 08/29 09:00 Retail Sales (y/y) Jul -- -- 2.32 CL 08/29 09:00 Unemployment Rate (%) Jul -- -- 6.5 CO 08/29 12:00 Urban Unemployment Rate (%) Jul -- 10.3 10.7 CO 08/29 Overnight Lending Rate (%) Aug 29 4.50 4.50 4.25

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

A53 August 22, 2014 Economics Global Views

Global Auctions for the week of August 25 – 29

North America

Country Date Time Event US 08/25 11:30 U.S. to Sell 3-Month Bills US 08/25 11:30 U.S. to Sell 6-Month Bills CA 08/26 10:30 Canada to Sell CAD4.650 Bln 98-Day Bills CA 08/26 10:30 Canada to Sell CAD1.8 Bln 182-Day Bills CA 08/26 10:30 Canada to Sell CAD1.8 Bln 360-Day Bills US 08/26 11:00 U.S. Fed to Purchase USD2.00-2.50 Bln Notes US 08/26 11:30 U.S. to Sell 4-Week Bills MX 08/26 12:30 3Y Fixed Yield MX 08/26 12:30 3Y I/L Yield US 08/26 13:00 U.S. to Sell USD29 Bln 2-Year Notes US 08/27 11:30 U.S. to Sell USD13 Bln 2-Year Floating Rate Notes Reopening CA 08/27 12:00 Canada to Sell 3-Year Bonds US 08/27 13:00 U.S. to Sell USD35 Bln 5-Year Notes US 08/28 13:00 U.S. to Sell USD29 Bln 7-Year Notes

Europe

Country Date Time Event NO 08/25 05:00 Norway to Sell Bills GE 08/25 05:30 Germany to Sell EUR2 Bln Bills SP 08/26 04:30 Spain to Sell 3-Month and 9-Month Bills MB 08/26 05:00 Malta to Sell 91-Day Bills IT 08/26 05:00 Italy to Sell Zero Coupon Bonds EC 08/26 05:10 ECB Main Refinancing Operation Result SZ 08/26 05:15 Switzerland to Sell 91-Day Bills IT 08/27 05:00 Italy to Sell Bills SW 08/27 05:03 Sweden to Sell Bills EC 08/27 05:10 ECB Long-Term Refinancing Operation Result UK 08/27 05:30 U.K. to Sell I/L 2040 Bonds DE 08/28 04:30 Denmark to Sell Bills IT 08/28 05:00 Italy to Sell Bonds IT 08/28 05:00 5 Year Bond Average Yield IT 08/28 05:00 10 Year Bond Average Yield SW 08/28 05:03 Sweden to Sell I/L Bonds

Source: Bloomberg, Scotiabank Economics.

A64 August 22, 2014 Economics Global Views

Global Auctions for the week of August 25 – 29

Asia Pacific

Country Date Time Event AU 08/25 21:00 Australia Plans to Sell Index Linked Bonds JN 08/25 23:45 Japan to Sell 40-Year Bonds JN 08/27 23:35 Japan to Sell 3-Month Bill JN 08/27 23:45 Japan to Sell 2-Year Bonds

Latin America

Country Date Time Event BZ 08/26 11:15 Brazil to Sell I/L Bonds due 5/15/2019 - NTN-B BZ 08/26 11:15 Brazil to Sell I/L Bonds due 5/15/2023 - NTN-B BZ 08/26 11:15 Brazil to Sell I/L Bonds due 8/15/2030 - NTN-B BZ 08/26 11:15 Brazil to Sell I/L Bonds due 8/15/2040 - NTN-B BZ 08/26 11:15 Brazil to Sell I/L Bonds due 8/15/2050 - NTN-B CL 08/26 1M Bill Yield CO 08/27 11:30 5Y Fixed Yield CO 08/27 11:30 10Y Fixed Yield CO 08/27 11:30 15Y Fixed Yield CL 08/27 1M Bill Yield BZ 08/28 11:15 Brazil to Sell Bills due 10/01/2015 - LTN BZ 08/28 11:15 Brazil to Sell Bills due 10/01/2016 - LTN BZ 08/28 11:15 Brazil to Sell Bills due 07/01/2018 - LTN

Source: Bloomberg, Scotiabank Economics.

A75 August 22, 2014 Economics Global Views

Events for the week of August 25 – 29

North America

Country Date Time Event CA 08/25 CABE Summer Outlook Conference US 08/26 Arizona Holds Primary Elections US 08/26 Florida Holds Primary Elections US 08/26 Vermont Holds Primary Elections CA 08/27 09:00 Canadian Premiers Meet National Aboriginal Leaders

Europe

Country Date Time Event UK 08/23 12:25 BOE's Ben Broadbent Speaks in Jackson Hole, Wyoming SP 08/24 05:00 Spain PM Meets Germany's Merkel in Santiago de Compostela PO 08/25 Portugal Releases Year-to-Date Budget Report SW 08/26 01:15 Swedish Prime Minister interviewed on public radio SW 08/26 04:00 Business Sweden presents export index HU 08/26 08:00 Central Bank Rate Decision EC 08/26 EU's Ashton, Oettinger and De Gucht SW 08/27 03:15 Sweden's NIER publishes new economic forecasts TU 08/27 07:00 Benchmark Repurchase Rate FR 08/27 12:00 Total Jobseekers SW 08/28 04:00 Handelsbanken Presents New Swedish Forecasts PO 08/28 06:00 Portugal Releases Consumer, Business Confidence Report SZ 08/28 07:30 SNB's Danthine, UBS's Ermotti Speaks at Lugano Conference EC 08/28 10:30 ECB's Erkki Liikanen Gives Keynote in Alpbach, Austria GE 08/28 Merkel Hosts Western Balkans Conference in Berlin GE 08/28 Finance Ministers Sapin, Schaeuble Meet for Talks, Paris PO 08/29 06:00 Portugal Releases July Retail Sales, Employment Report PO 08/29 06:00 Portugal Reports Industrial Production Index EC 08/29 06:00 ECB Announces 3-Year LTRO Repayment NO 08/29 08:00 Norges Bank Releases 3Q Expectations Survey AS 08/29 08:00 Austrian Regulators Ettl, Ittner on ECB SSM Panel in Alpbach GE 08/29 10:00 Merkel Speaks at Election Rally in Dresden Before Saxony Vote GE 08/29 12:00 Merkel Speaks at Election Rally in Eastern Town of Annaberg EC 08/29 EU General Affairs Ministers Hold Meeting EC 08/29 00:00 EU Foreign Ministers Hold Meeting in Italy

Asia Pacific

Country Date Time Event JN 08/25 Cabinet Office Monthly Economic Report for August

Latin America

Country Date Time Event CO 08/29 Overnight Lending Rate

Source: Bloomberg, Scotiabank Economics.

A86 August 22, 2014 Economics Global Views

Global Central Bank Watch

NORTHNorth America AMERIC A

Rate Current Rate Next Meeting Scotia's Forecasts Consensus Forecasts Bank of Canada – Overnight Target Rate 1.00 September 3, 2014 1.00 -- Federal Reserve – Federal Funds Target Rate 0.25 September 17, 2014 0.25 0.25 Banco de México – Overnight Rate 3.00 September 5, 2014 3.00 --

Federal Reserve: More hawkish FOMC minutes than markets had anticipated rather nicely set up a less dovish and arguably fully neutral speech by Fed Chair Janet Yellen to open the Jackson Hole symposium. The rest of the symposium into the weekend may yield risks that spill over into the Monday market open ahead of a highly active week for US data risk. BoC: Governor Poloz will deliver a speech on Monday on “Integrating Uncertainty And Monetary Policymaking: A Practioner’s Perspective.”

EUROPEEurope Rate Current Rate Next Meeting Scotia's Forecasts Consensus Forecasts European Central Bank – Refinancing Rate 0.15 September 4, 2014 0.15 -- Bank of England – Bank Rate 0.50 September 4, 2014 0.50 0.50 Swiss National Bank – Libor Target Rate 0.00 September 18, 2014 0.00 -- Central Bank of Russia – One-Week Auction Rate 8.00 September 12, 2014 8.00 -- Hungarian National Bank – Base Rate 2.10 August 26, 2014 2.10 2.10 Central Bank of the Republic of Turkey – 1 Wk Repo Rate 8.25 August 27, 2014 8.25 8.25 Sweden Riksbank – Repo Rate 0.25 September 4, 2014 0.25 -- Norges Bank – Deposit Rate 1.50 September 18, 2014 1.50 --

The Hungarian central bank’s latest meeting minutes indicate that the two-year easing cycle has likely come to an end. We thus expect the monetary council will decide to hold its base rate at 2.1% at the upcoming meeting on August 26th. The central bank of Turkey will meet the following day and is also expected to keep its benchmark repurchase rate unchanged at 8.25%. Amidst near double-digit inflation, the monetary council has cut rates in three consecutive meetings, calling into question the central bank’s independence and rendering the economy vulnerable to capital outflows amid substantial external imbalances. Despite the government’s pro-growth bias and ongoing pressure for more aggressive monetary easing, with inflation edging higher in July, we do not anticipate any policy changes until inflationary pressures subside.

ASIAAsia PacificPACIFIC Rate Current Rate Next Meeting Scotia's Forecasts Consensus Forecasts Reserve Bank of Australia – Cash Target Rate 2.50 September 2, 2014 2.50 -- Reserve Bank of New Zealand – Cash Rate 3.50 September 10, 2014 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 -- Bank of Korea – Bank Rate 2.25 September 11, 2014 2.25 -- Bank of Thailand – Repo Rate 2.00 September 17, 2014 2.00 -- Bank Indonesia – Reference Interest Rate 7.50 September 11, 2014 7.50 --

LATINLatin America AMERICA

Rate Current Rate Next Meeting Scotia's Forecasts Consensus Forecasts Banco Central do Brasil – Selic Rate 11.00 September 3, 2014 11.00 -- Banco Central de Chile – Overnight Rate 3.50 September 11, 2014 3.50 -- Banco de la República de Colombia – Lending Rate 4.25 August 29, 2014 4.50 4.50 Banco Central de Reserva del Perú – Reference Rate 3.75 September 11, 2014 3.75 3.50

We expect the Banco de la República de Colombia to increase its benchmark overnight lending rate target by 25 bps to 4.50% at its meeting on August 29th. The Colombian economy has been experiencing strong output growth for the past year, providing monetary authorities the cover to normalize interest rates to counter inflationary pressures; the benchmark target has been increased by 25 bps at each of the last four meetings. Comments made by members of the central bank board indicate that this will likely be the last increase in the current tightening cycle.

AFRICAAfrica Rate Current Rate Next Meeting Scotia's Forecasts Consensus Forecasts South African Reserve Bank – Repo Rate 5.75 September 18, 2014 5.75 --

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

A97 August 22, 2014 Economics Global Views

Forecasts as at July 31, 2014* 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

World1 3.73.13.23.6

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

UnitedUnited Kingdom Kingdom 1.7 1.8 2.9 2.5 2.3 2.0 1.6 2.1 Euro zoneEuro Zone 1.3 -0.4 1.1 1.4 2.1 0.8 0.7 1.1

JapanJapan 0.9 1.5 1.6 1.2 -0.3 1.6 2.3 1.9 AustraliaAustralia 3.1 2.4 3.0 2.8 3.0 2.7 2.7 2.9 ChinaChina 9.3 7.7 7.4 7.2 2.4 2.5 2.6 3.1 IndiaIndia 7.2 4.7 5.2 5.7 6.7 6.4 5.3 5.8 KoreaSouth Korea 4.2 3.0 3.6 3.2 3.1 1.1 2.1 2.5 ThailandThailand 4.2 2.9 2.0 4.0 2.7 1.7 2.4 2.8 Brazil Brazil 3.4 2.5 1.2 1.8 6.5 5.9 6.5 6.0 Chile Chile 4.5 4.1 2.8 3.8 3.2 2.9 3.5 3.1 PeruPeru 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 1.00 Federal Reserve 0.25 0.25 0.25 0.25 0.25 0.25 0.50 0.75 European Central Bank 0.25 0.25 0.15 0.15 0.15 0.15 0.15 0.15 Bank of England 0.50 0.50 0.50 0.50 0.50 0.75 1.00 1.25 Swiss National Bank 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Reserve 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 1.11 Canadian Dollar (CADUSD) 0.94 0.90 0.94 0.93 0.91 0.89 0.89 0.90 Euro (EURUSD) 1.37 1.38 1.37 1.34 1.30 1.28 1.26 1.25 Sterling (GBPUSD) 1.66 1.67 1.71 1.73 1.72 1.70 1.69 1.68 Yen (USDJPY) 105 103 101 104 109 110 111 112 Australian Dollar (AUDUSD) 0.89 0.93 0.94 0.94 0.92 0.91 0.90 0.90 Chinese Yuan (USDCNY) 6.1 6.2 6.2 6.2 6.1 6.1 6.0 6.0 Mexican Peso (USDMXN) 13.013.113.013.113.213.313.213.2 Brazilian 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$/bbl) 60 98 102 103 Brent Oil (US$/bbl) 62 109 109 110 Nymex Natural Gas (US$/mmbtu) 5.45 3.73 4.35 4.50 1 World GDP for 2003-12 are Copper (US$/lb) 2.22 3.32 3.16 3.10 IMF PPP estimates; 2013-15f Zinc (US$/lb) 0.78 0.87 0.99 1.25 are Scotiabank Economics' Nickel (US$/lb) 7.64 6.80 8.35 10.75 estimates based on a 2012 Gold, London PM Fix (US$/oz) 745 1,410 1,300 1,350 PPP-weighted sample of 38 countries. 2 CPI for Canada and the Pulp (US$/tonne) 730 941 1,000 1,020 United States are annual Newsprint (US$/tonne) 585 608 607 630 averages. For other countries, Lumber (US$/mfbm) 274 356 355 390 CPI are year-end rates.

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

A108 August 22, 2014 Economics Global Views Economic Statistics

North America

Canada 2013 14Q1 14Q2 Latest United States 2013 14Q1 14Q2 Latest Real GDP (annual rates) 2.0 1.2 Real GDP (annual rates) 2.2 -2.1 4.0 Current Acc. Bal. (C$B, ar) -60.3 -49.5 Current Acc. Bal. (US$B, ar) -400 -445 Merch. Trade Bal. (C$B, ar) -7.3 7.2 8.0 22.3 (Jun) Merch. Trade Bal. (US$B, ar) -702 -729 -757 -723 (Jun) Industrial Production 0.4 2.5 3.4 3.0 (Jun) Industrial Production 2.9 3.6 4.0 4.3 (Jul) Housing Starts (000s) 188 175 197 200 (Jul) Housing Starts (millions) 0.93 0.93 1.00 1.09 (Jul) Employment 1.3 0.8 0.6 0.9 (Jul) Employment 1.7 1.7 1.8 1.9 (Jul) Unemployment Rate (%) 7.1 7.0 7.0 7.0 (Jul) Unemployment Rate (%) 7.4 6.7 6.2 6.2 (Jul) Retail Sales 3.2 4.2 5.2 5.9 (Jun) Retail Sales 4.3 2.4 4.4 3.4 (Jul) Auto Sales (000s) 1744 1712 1811 1779 (Jun) Auto Sales (millions) 15.5 15.7 16.5 16.4 (Jul) CPI 0.9 1.4 2.2 2.1 (Jul) CPI 1.5 1.4 2.1 2.0 (Jul) IPPI 0.4 2.5 3.4 -3.0 (Jun) PPI 1.2 1.6 2.8 2.9 (Jul) Pre-tax Corp. Profits -1.7 6.8 Pre-tax Corp. Profits 4.6 5.9

Mexico Real GDP 1.1 1.9 1.6 Current Acc. Bal. (US$B, ar) -25.9 -18.1 Merch. Trade Bal. (US$B, ar) -1.2 -5.3 4.3 5.1 (Jun) Industrial Production -0.7 1.6 1.0 2.0 (Jun) CPI 3.8 4.2 3.6 4.1 (Jul)

Europe

Euro Zone 2013 14Q1 14Q2 Latest Germany 2013 14Q1 14Q2 Latest Real GDP -0.4 0.9 0.6 Real GDP 0.2 2.2 1.3 Current Acc. Bal. (US$B, ar) 288 173 268 339 (Jun) Current Acc. Bal. (US$B, ar) 255.2 271.1 241.9 244.5 (Jun) Merch. Trade Bal. (US$B, ar) 230.3 202.3 236.9 234.3 (Jun) Merch. Trade Bal. (US$B, ar) 265.5 262.8 287.1 265.9 (Jun) Industrial Production -0.7 1.5 0.8 0.0 (Jun) Industrial Production 0.1 4.0 0.8 -0.4 (Jun) Unemployment Rate (%) 11.9 11.7 11.6 11.5 (Jun) Unemployment Rate (%) 6.9 6.8 6.7 6.7 (Jul) CPI 1.4 0.6 0.6 0.4 (Jul) CPI 1.5 1.2 1.1 0.8 (Jul)

France United Kingdom Real GDP 0.4 0.8 0.1 Real GDP 1.7 3.0 3.2 Current Acc. Bal. (US$B, ar) -36.6 -69.5 -81.4 -12.6 (Jun) Current Acc. Bal. (US$B, ar) -114.3 -102.7 Merch. Trade Bal. (US$B, ar) -47.1 -42.5 -42.8 -47.5 (Jun) Merch. Trade Bal. (US$B, ar) -168.7 -175.2 -184.4 -190.9 (Jun) Industrial Production -0.6 -0.3 -2.0 -0.4 (Jun) Industrial Production -0.4 2.5 2.1 1.2 (Jun) Unemployment Rate (%) 10.3 10.2 10.1 10.2 (Jun) Unemployment Rate (%) 7.6 6.8 6.4 (May) CPI 0.9 0.7 0.6 0.5 (Jul) CPI 2.6 1.7 1.7 1.6 (Jul)

Italy Russia Real GDP -1.8 -0.4 -0.3 Real GDP 1.3 0.9 0.8 Current Acc. Bal. (US$B, ar) 20.7 -4.7 38.2 49.7 (Jun) Current Acc. Bal. (US$B, ar) 34.1 27.1 17.1 Merch. Trade Bal. (US$B, ar) 40.3 37.8 60.6 (May) Merch. Trade Bal. (US$B, ar) 15.2 16.9 17.4 14.0 (Jun) Industrial Production -3.1 0.1 0.1 0.1 (Jun) Industrial Production 0.4 1.1 1.9 1.5 (Jul) CPI 1.2 0.4 0.3 0.1 (Jul) CPI 6.8 6.4 7.6 7.5 (Jul)

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

Source: Bloomberg, Global Insight, Scotiabank Economics.

A119 August 22, 2014 Economics Global Views Economic Statistics

Asia Pacific

Australia 2013 14Q1 14Q2 Latest Japan 2013 14Q1 14Q2 Latest Real GDP 2.4 3.5 Real GDP 1.5 2.7 0.0 Current Acc. Bal. (US$B, ar) -48.6 -19.0 Current Acc. Bal. (US$B, ar) 33.6 -31.0 12.2 -46.9 (Jun) Merch. Trade Bal. (US$B, ar) 20.2 25.8 22.6 32.2 (Jun) Merch. Trade Bal. (US$B, ar) -117.5 -174.0 -109.6 -120.8 (Jul) Industrial Production 3.6 5.7 Industrial Production -0.6 8.3 2.6 1.7 (Jun) Unemployment Rate (%) 5.7 6.0 5.9 6.4 (Jul) Unemployment Rate (%) 4.0 3.6 3.6 3.7 (Jun) CPI 2.4 2.9 3.0 CPI 0.4 1.5 3.6 3.6 (Jun)

South Korea China Real GDP 3.0 3.9 3.6 Real GDP 7.7 7.4 7.5 Current Acc. Bal. (US$B, ar) 79.9 60.3 96.5 95.0 (Jun) Current Acc. Bal. (US$B, ar) 182.8 Merch. Trade Bal. (US$B, ar) 44.1 20.9 59.9 28.8 (Jul) Merch. Trade Bal. (US$B, ar) 259.2 67.8 345.3 567.6 (Jul) Industrial Production 0.2 1.3 1.2 2.0 (Jun) Industrial Production 9.7 8.8 9.2 9.0 (Jul) CPI 1.3 1.1 1.6 1.6 (Jul) CPI 2.5 2.4 2.3 2.3 (Jul)

Thailand India Real GDP 2.9 -0.5 0.4 Real GDP 4.7 4.6 Current Acc. Bal. (US$B, ar) -2.5 8.2 0.5 Current Acc. Bal. (US$B, ar) -49.3 -1.2 Merch. Trade Bal. (US$B, ar) 0.6 2.2 2.0 3.9 (Jun) Merch. Trade Bal. (US$B, ar) -12.7 -9.4 -11.1 -12.2 (Jul) Industrial Production -3.1 -7.1 -5.2 -7.4 (Jun) Industrial Production 0.6 -0.4 3.9 3.4 (Jun) CPI 2.2 2.0 2.5 2.2 (Jul) WPI 6.3 5.4 5.7 5.2 (Jul)

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 -0.3 (Jun) Industrial Production 6.0 3.8 4.9 (Mar) CPI 6.4 7.8 7.1 4.5 (Jul)

Latin America

Brazil 2013 14Q1 14Q2 Latest Chile 2013 14Q1 14Q2 Latest Real GDP 2.3 1.8 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$B, ar) 2.6 -24.3 14.3 18.9 (Jul) Merch. Trade Bal. (US$B, ar) 8.0 8.7 11.9 4.6 (Jul) Industrial Production 2.2 -0.5 -4.3 -7.5 (Jun) Industrial Production 3.0 0.6 1.7 0.9 (Jun) CPI 6.2 5.8 6.4 6.5 (Jul) CPI 1.9 3.2 4.5 4.5 (Jul)

Peru Colombia Real GDP 5.8 4.8 Real GDP 4.7 6.4 Current Acc. Bal. (US$B, ar) -10.2 -3.1 Current Acc. Bal. (US$B, ar) -12.4 -4.0 Merch. Trade Bal. (US$B, ar) 0.1 -0.1 -0.5 -0.3 (Jun) Merch. Trade Bal. (US$B, ar) 0.2 -0.2 -0.2 -0.1 (Jun) Unemployment Rate (%) 5.9 6.8 5.9 5.7 (Jul) Industrial Production -1.7 4.4 -0.3 -0.6 (Jun) CPI 2.8 3.4 3.5 3.3 (Jul) CPI 2.0 2.3 2.8 2.9 (Jul)

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

Source: Bloomberg, Global Insight, Scotiabank Economics.

A1210 August 22, 2014 Economics Global Views Financial Statistics

Interest Rates (%, end of period)

Canada 14Q1 14Q2 Aug/15 Aug/22* United States 14Q1 14Q2 Aug/15 Aug/22* 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 0.95 0.95 3-mo. T-bill 0.03 0.02 0.03 0.02 10-yr Gov’t Bond 2.46 2.24 2.02 2.10 10-yr Gov’t Bond 2.72 2.53 2.34 2.42 30-yr Gov’t Bond 2.96 2.78 2.58 2.65 30-yr Gov’t Bond 3.56 3.36 3.13 3.18 Prime 3.00 3.00 3.00 3.00 Prime 3.25 3.25 3.25 3.25 FX Reserves (US$B) 76.3 75.7 75.7 (Jun) FX Reserves (US$B) 133.2 134.1 134.1 (Jun)

Germany France 3-mo. Interbank 0.27 0.15 0.16 0.14 3-mo. T-bill 0.19 0.02 0.00 0.01 10-yr Gov’t Bond 1.57 1.25 0.95 0.99 10-yr Gov’t Bond 2.08 1.70 1.34 1.37 FX Reserves (US$B) 66.8 66.1 66.1 (Jun) FX Reserves (US$B) 53.1 55.2 55.2 (Jun)

Euro Zone United Kingdom Refinancing Rate 0.25 0.15 0.15 0.15 Repo Rate 0.50 0.50 0.50 0.50 Overnight Rate 0.69 0.34 0.01 0.01 3-mo. T-bill 0.39 0.44 0.42 0.42 FX Reserves (US$B) 338.8 340.2 340.2 (Jun) 10-yr Gov’t Bond 2.74 2.67 2.33 2.40 FX Reserves (US$B) 97.3 99.4 99.4 (Jun) 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 0.07 0.07 10-yr Gov’t Bond 4.08 3.54 3.39 3.48 10-yr Gov’t Bond 0.64 0.57 0.50 0.51 FX Reserves (US$B) 54.1 55.9 55.9 (Jun) FX Reserves (US$B) 1247.5 1251.5 1251.5 (Jun)

Exchange Rates (end of period)

USDCAD 1.11 1.07 1.09 1.10 ¥/US$ 103.23 101.33 102.36 104.01 CADUSD 0.91 0.94 0.92 0.91 US¢/Australian$ 0.93 0.94 0.93 0.93 GBPUSD 1.666 1.711 1.669 1.657 Chinese Yuan/US$ 6.22 6.20 6.15 6.15 EURUSD 1.377 1.369 1.340 1.323 South Korean Won/US$ 1065 1012 1017 1018 JPYEUR 0.70 0.72 0.73 0.73 Mexican Peso/US$ 13.058 12.968 13.074 13.143 USDCHF 0.88 0.89 0.90 0.91 Brazilian Real/US$ 2.272 2.214 2.260 2.280

Equity Markets (index, end of period)

United States (DJIA) 16458 16827 16663 17009 U.K. (FT100) 6598 6744 6689 6760 United States (S&P500) 1872 1960 1955 1986 Germany (Dax) 9556 9833 9093 9318 Canada (S&P/TSX) 14335 15146 15304 15499 France (CAC40) 4392 4423 4174 4242 Mexico (IPC) 40462 42737 44629 45192 Japan (Nikkei) 14828 15162 15318 15539 Brazil (Bovespa) 50415 53168 56964 58375 Hong Kong (Hang Seng) 22151 23191 24955 25112 Italy (BCI) 1181 1155 1060 1083 South Korea (Composite) 1986 2002 2063 2057

Commodity Prices (end of period)

Pulp (US$/tonne) 1030 1030 1030 1030 Copper (US$/lb) 3.01 3.15 3.11 3.22 Newsprint (US$/tonne) 605 605 605 605 Zinc (US$/lb) 0.90 1.00 1.03 1.07 Lumber (US$/mfbm) 354 346 363 367 Gold (US$/oz) 1291.75 1315.00 1296.00 1277.25 WTI Oil (US$/bbl) 101.58 105.37 97.35 93.16 Silver (US$/oz) 19.97 20.87 19.86 19.49 Natural Gas (US$/mmbtu) 4.37 4.46 3.78 3.87 CRB (index) 304.67 308.22 289.93 288.58

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

A1311 A12 August 22, 2014 Disclaimer Global Views

Emerging Markets Strategy www.gbm.scotiabank.com TM Trademark of The Bank of Nova Scotia. Used under license, where applicable. Scotiabank, together with “Global Banking and Markets”, is a marketing name for the global corporate and investment banking and capital markets businesses of The Bank of Nova Scotia and certain of its affiliates in the countries where they operate, including Scotia Capital (USA) Inc.

The fixed income strategy reports contained herein have been prepared for Institutional Investors by Fixed Income Strategists of Scotia Capital (USA) Inc. (“SCUSA”) and may include contributions by strategists who are employees of affiliates of SCUSA. Fixed Income Strategists are employees of SCUSA’s Fixed Income Credit Sales & Trading Desk and support the trading desk through the preparation of market commentary, including specific trading ideas, and other materials, both written and verbal, which may or may not be made publicly available, and which may or may not be made publicly available at the same time it is made available to the Fixed Income Credit Sales & Trading Desk. Fixed Income Strategists are not research analysts, and this report was not reviewed by the Research Departments of SCUSA. Fixed Income Strategist publications are not research reports and the views expressed by Fixed Income Strategists in this and other reports may differ from the views expressed by other departments, including the Research Department, of SCUSA. The securities laws and regulations and the policies of SCUSA that are applicable to Research Analysts may not be applicable to Fixed Income Strategists.

These reports are provided to you for informational purposes only. Prices shown in this publication are indicative and SCUSA is not offering to buy or sell, or soliciting offers to buy or sell any financial instrument. SCUSA may engage in transactions in a manner inconsistent with the views discussed herein. SCUSA may have positions, or be in the process of acquiring or disposing of positions, referred to in this publication. Other than the disclosures related to SCUSA, the information contained in this publication has been obtained from sources that SCUSA knows to be reliable, however we do not represent or warrant that such information is accurate and complete. The views expressed herein are the views of the Fixed Income Strategists of SCUSA and are subject to change, and SCUSA has no obligation to update its opinions or information in this publication. SCUSA and any of its officers, directors and employees, including any persons involved in the preparation or issuance of this document, may from time to time act as managers, co-managers or underwriters of a public offering or act as principals or agents, deal in, own or act as market makers or advisors, brokers or commercial and/or investment bankers in relation to the securities or related derivatives which are the subject of this publication.

Neither SCUSA nor any of its officers, directors, partners, employees or affiliates accepts any liability for any direct or consequential loss arising from this publication or its contents. The securities discussed in this publication may not be suitable for all investors. SCUSA recommends that investors independently evaluate each issuer and security discussed in this publication, and consult with any advisors they deem necessary prior to making any investment. August 22, 2014 Disclaimer Global Views

Fixed Income Strategy (London) www.gbm.scotiabank.com

© 2012, The Bank of Nova Scotia

This material, its content, or any copy of it, may not be altered in any way, transmitted to, copied or distributed to any other party without the prior express written consent of ScotiabankTM. This material has not been prepared by a member of the research department of Scotiabank, it is solely for the use of sophisticated institutional investors, and this material does not constitute investment advice or any personal recommendation to invest in a financial instrument or “investment research” as defined by the Financial Services Authority. This material is provided for information and discussion purposes only. An investment decision should not be made solely on the basis of the contents of this publication. It is not to be construed as a solicitation or an offer to buy or sell any financial instruments and has no regard to the specific investment objectives, financial situation or particular needs of any recipient. It is not intended to provide legal, tax, accounting or other advice and recipients should obtain specific professional advice from their own legal, tax, accounting or other appropriate professional advisers before embarking on any course of action. The information in this material is based on publicly available information and although it has been compiled or obtained from sources believed to be reliable, such information has not been independently verified and no guarantee, representation or warranty, express or implied, is made as to its accuracy, completeness or correctness. Information included in this material related to comparison performance (whether past or future) or simulated performance (whether past or future) is not a reliable indicator of future returns.

This presentation is not directed to or intended for use by any person resident or located in any country where the distribution of such information is contrary to the laws of such country. Scotiabank its directors, officers, employees or clients may currently or from time to time own or hold interests in long or short positions in any securities referred to herein, and may at any time make purchases or sales of these securities as principal or agent. Scotiabank may also have provided or may provide investment banking, capital markets or other services to the companies referred to in this communication.

TM Trademark of The Bank of Nova Scotia. Used under license, where applicable. Scotiabank, together with "Global Banking and Markets", is a marketing name for the global corporate and investment banking and capital markets businesses of The Bank of Nova Scotia and certain of its affiliates in the countries where they operate, including Scotia Capital Inc., Scotia Capital (USA) Inc., Scotiabanc Inc.; Citadel Hill Advisors L.L.C.; The Bank of Nova Scotia Trust Company of New York; Scotiabank Europe plc; Scotia Capital (Europe) Limited; Scotiabank (Ireland) Limited; Scotiabank Inverlat S.A., Institución de Banca Múltiple, Scotia Inverlat Casa de Bolsa S.A. de C.V., Scotia Inverlat Derivados S.A. de C.V. – all members of the Scotiabank Group and authorized users of the mark. The Bank of Nova Scotia is incorporated in Canada with limited liability. Scotia Capital Inc. is a member of CIPF. Scotia Capital (USA) Inc. is a registered broker-dealer with the SEC and is a member of the NASD and SIPC. The Bank of Nova Scotia, Scotiabank Europe plc, Scotia Capital (Europe) Limited and Scotia Capital Inc. are each authorised and regulated by the Financial Services Authority (FSA) in the U.K. Scotiabank Inverlat, S.A., Scotia Inverlat Casa de Bolsa, S.A. de C.V., and Scotia Derivados, S.A. de C.V., are each authorized and regulated by the Mexican financial authorities.

Fixed Income Strategy (Paris)

Disclaimer © 2011, The Bank of Nova Scotia This material, its content, or any copy of it, may not be altered in any way, transmitted to, copied or distributed to any other party without the prior express written consent of Scotiabank™. This material has not been prepared by a member of the research department of Scotiabank, it is solely for the use of sophisticated institutional investors, and this material does not constitute investment advice or any personal recommendation to invest in a financial instrument or “investment research” as defined by the Financial Services Authority. This material is provided for information and discussion purposes only. An investment decision should not be made solely on the basis of the contents of this publication. It is not to be construed as a solicitation or an offer to buy or sell any financial instruments and has no regard to the specific investment objectives, financial situation or particular needs of any recipient. It is not intended to provide legal, tax, accounting or other advice and recipients should obtain specific professional advice from their own legal, tax, accounting or other appropriate professional advisers before embarking on any course of action. The information in this material is based on publicly available information and although it has been compiled or obtained from sources believed to be reliable, such information has not been independently verified and no guarantee, representation or warranty, express or implied, is made as to its accuracy, completeness or correctness. Information included in this material related to comparison performance (whether past or future) or simulated performance (whether past or future) is not a reliable indicator of future returns. This presentation is not directed to or intended for use by any person resident or located in any country where the distribution of such information is contrary to the laws of such country. Scotiabank its directors, officers, employees or clients may currently or from time to time own or hold interests in long or short positions in any securities referred to herein, and may at any time make purchases or sales of these securities as principal or agent. Scotiabank may also have provided or may provide investment banking, capital markets or other services to the companies referred to in this communication. August 22, 2014 Disclaimer Global Views

Foreign Exchange Strategy

This publication has been prepared by The Bank of Nova Scotia (Scotiabank) for informational and marketing purposes only. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable, but no representation or warranty, express or implied, is made as to their accuracy or completeness and neither the information nor the forecast shall be taken as a representation for which Scotiabank, its affiliates or any of their employees incur any responsibility. Neither Scotiabank nor its affiliates accept any liability whatsoever for any loss arising from any use of this information. This publication is not, and is not constructed as, an offer to sell or solicitation of any offer to buy any of the currencies referred to herein, nor shall this publication be construed as an opinion as to whether you should enter into any swap or trading strategy involving a swap or any other transaction. The general transaction, financial, educational and market information contained herein is not intended to be, and does not constitute, a recommendation of a swap or trading strategy involving a swap within the meaning of U.S. Commodity Futures Trading Commission Regulation 23.434 and Appendix A thereto. This material is not intended to be individually tailored to your needs or characteristics and should not be viewed as a “call to action” or suggestion that you enter into a swap or trading strategy involving a swap or any other transaction. You should note that the manner in which you implement any of the strategies set out in this publication may expose you to significant risk and you should carefully consider your ability to bear such risks through consultation with your own independent financial, legal, accounting, tax and other professional advisors. Scotiabank, its affiliates and/or their respective officers, directors or employees may from time to time take positions in the currencies mentioned herein as principal or agent, and may have received remuneration as financial advisor and/or underwriter for certain of the corporations mentioned herein. Directors, officers or employees of Scotiabank and its affiliates may serve as directors of corporations referred to herein. All Scotiabank products and services are subject to the terms of applicable agreements and local regulations. This publication and all information, opinions and conclusions contained in it are protected by copyright. This information may not be reproduced in whole or in part, or referred to in any manner whatsoever nor may the information, opinions and conclusions contained in it be referred to without the prior express written consent of Scotiabank.

™Trademark of The Bank of Nova Scotia. Used under license, where applicable. Scotiabank, together with “Global Banking and Markets”, is a marketing name for the global corporate and investment banking and capital markets businesses of The Bank of Nova Scotia and certain of its affiliates in the countries where they operate, all members of the Scotiabank group and authorized users of the mark. The Bank of Nova Scotia is incorporated in Canada with limited liability and is authorised and regulated by the Office of the Superintendent of Financial Institutions Canada. The Bank of Nova Scotia and Scotiabank Europe plc are authorised by the UK Prudential Regulation Authority. The Bank of Nova Scotia is subject to regulation by the UK Financial Conduct Authority and limited regulation by the UK Prudential Regulation Authority. Scotiabank Europe plc is authorised by the UK Prudential Regulation Authority and regulated by the UK Financial Conduct Authority and the UK Prudential Regulation Authority. Details about the extent of The Bank of Nova Scotia's regulation by the UK Prudential Regulation Authority are available on request. Scotiabank Inverlat, S.A., Scotia Inverlat Casa de Bolsa, S.A. de C.V., and Scotia Inverlat Derivados, S.A. de C.V., are each authorized and regulated by the Mexican financial authorities.Not all products and services are offered in all jurisdictions. Services described are available in jurisdictions where permitted by law. August 22, 2014 Disclaimer Global Views

Scotiabank Economics

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

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

Scotiabank Economics

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