GLOBAL PORTFOLIO ADVISORY GROUP Morning Strategy Update August 17, 2021

Featured in this report Market snapshot: Spotlight: Index performance Chairman Powell hosts town hall today before the minutes Overnight market action from July’s FOMC meeting are published Wednesday Market drivers: Hybrids corner: U.S. retail sales fell in July by more than forecast Top/bottom performing Canadian preferred share and convertible debenture securities Production at U.S. factories strengthened in July by the most in four months Today's economic data releases and events U.K. wage growth hit a record Notable earnings releases The day ahead

Market drivers Spotlight U.S. Chairman Powell hosts town hall today before the minutes from July’s FOMC meeting are published Wednesday  U.S. retail sales fell in July by more than forecast reflecting a steady shift in spending toward services, and indicating  Chairman Powell’s town hall meeting today could characterize consumers may be growing more price conscious as developments from July’s FOMC meeting minutes and inflation picks up while supply issues persist. provide clues for the upcoming Jackson Hole symposium– Investors are eagerly anticipating the Jackson Hole  Production at U.S. factories strengthened in July by the Symposium, scheduled for August 26th-28th, looking for most in four months, rebounding above pre-pandemic updates on policy and whether the impressive July levels and indicating manufacturers are coping with employment report will bring forward the likelihood of bond snarled supply chains and shortages. tapering. U.K.  The path to “substantial further progress” for the U.S. Federal  U.K. wage growth hit a record as companies posted more Reserve rests with the labour market – Several Fed officials, than 1 million new job vacancies for the first time in an including regional branch presidents James Bullard of St. unparalleled scramble for staff following the loosening of Louis, Robert Kaplan of Dallas, and Esther George of Kansas lockdown rules. City, have pushed for the central bank to begin removing stimulus as soon as the September meeting. The day ahead Chart of the day: Notwithstanding recent increases, average  Chairman hosts a town hall this afternoon inflation readings are fallen short of the Fed’s target in the last with students and educators that could be used as an decade opportunity to prime the market for what’s coming. 4.5% Investors are also looking to next week’s Jackson Hole symposium for an update on policy. 4.0%

3.5%

3.0%

2.5%

2.0%

1.5%

5 Yr. Average YoY Inflation YoY Average 5Yr. 1.0%

0.5%

0.0% 1985 1990 1995 2000 2005 2010 2015 2020

Source: Scotia Wealth Management, Bloomberg

GLOBAL PORTFOLIO ADVISORY GROUP

Market snapshot

YTD Equity Indices Level %Δ 1D %Δ YTD Overnight market action: Tot. Ret.  Equities: U.S. equities dropped from a record amid S&P/TSX Composite 20,395 -0.4 17.0 19.0 mixed economic reports and growing concern that S&P 500 4,454 -0.6 18.6 19.6 more shutdowns are becoming necessary to contain a S&P 500 (CAD) 5,619 -0.3 17.5 18.5 fast-spreading pandemic.

MSCI All-Country ex-U.S. 349 -0.7 7.0 8.9  U.S. bond yields: The yield on the 10-year U.S. Treasury note is lower by 1bps, trading at 1.25%. The spread MSCI Emerging Markets 1,272 -0.7 -1.5 0.0 between the 2-year and 10-year bond yields has YTD Fixed Income Indices Level %Δ 1D %Δ YTD narrowed to ~104bps. Tot. Ret.  Commodities: The price of WTI crude oil is lower by ICE BofAML Global Corp 361 0.2 -0.8 -0.8 0.1%, trading at US$67.20. The price of copper is ICE BofAML Global HY 459 0.0 2.4 2.4 trading lower this morning while the price of gold edges ICE BofAML Global Sov 347 0.3 -3.3 -3.3 higher.

S&P/TSX Preferred Share 688 0.0 11.6 11.6 Fixed income update:  This morning, U.S. Treasury yields are flat-to-down Currencies Spot %Δ 1D %Δ YTD %Δ 1 Year small across the curve. Credit spreads are little soft with CAD 0.79 -0.3 0.9 4.5 High Yield (HY) at 344bps and Investment Grade (IG) 94bps. Four IG issuers priced US$3.2bn of new debt EUR 1.17 -0.3 -3.9 -1.1 yesterday. Borrowers paid little to no concessions due JPY 109.43 -0.2 -5.6 -3.1 to relatively strong demand despite an elevated volatility. Three companies are looking to tap the USD 90.82 -0.3 -1.1 -1.1 market this morning, according to Bloomberg. In HY, Commodities Spot %Δ 1D %Δ YTD %Δ 1 Year three borrowers priced about US$2.0bn yesterday amid softer market tone. There are another US$2.0bn Copper 4.24 -2.1 20.4 46.0 of deals that are expected to price next few days.

Gold 1,789.10 0.1 -5.6 -9.9

WTI Crude Oil 67.20 -0.1 38.5 56.7

WCS-WTI Price Diff. -12.75 0.8 16.4 -37.8

Current Policy 5 Yr. 10 Yr. Macro Inflation Rate Yield Yield

Canada 3.1% 0.25% 0.81% 1.15%

U.S. 5.4% 0.25% 0.76% 1.25%

Europe 2.2% -0.50% -0.73% -0.47%

Japan -0.1% -0.10% -0.13% 0.02%

3-mo performance summary 7.0% 4.7% 1.8% 1.0% 0.6% 1.4% 1.3% 1.4%

-3.0% -4.2%

-10.3% S&P/TSX S&P 500 MSCI All- MSCI BofAML BofAML BofAML S&P/TSX Gold WTI Crude Copper Composite Country ex- Emerging Global Corp Global HY Global Sov Preferred Oil U.S. Markets Share

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GLOBAL PORTFOLIO ADVISORY GROUP

Market drivers

U.S.  U.S. retail sales fell in July by more than forecast reflecting a steady shift in spending toward services, and indicating consumers may be growing more price conscious as inflation picks up while supply issues persist. The value of overall retail purchases dropped 1.1% last month, falling more than the 0.3% decline predicted by consensus and reversing last month’s upwardly revised 0.7% increase. Total receipts trailed estimates by a wide margin as declines in motor vehicle and e- commerce sales weighed on the figure. Restaurant spending increased, though at a more moderate pace than in previous months. Motor vehicle and parts dealer sales slumped 3.9% in July after a 2.2% slide a month earlier, likely in response to limited inventory and higher prices as automakers face supply chain constraints. Sales at non-store retailers, which include e- commerce, fell 3.1% in July, a sharp slowdown from the prior month. Overall, 8 of 13 categories registered decreases in July. Delta variant concerns likely did not affect today’s numbers as cases picked up later in the month and restaurants, which typically hardest hit by contagion concerns, were one of only a handful of segments to see higher sales volumes. Indeed, we think supply issues are playing a large part in holding back sales. U.S. retailers' inventory-to-sales ratio is at a record low, and we will get a fuller picture when July inventory data is published next week but supply shortfalls stemming from container shortages, port congestion, and difficulty getting orders into the country are evident across the economy.  Production at U.S. factories strengthened in July by the most in four months, rebounding above pre-pandemic levels and indicating manufacturers are coping with snarled supply chains and shortages. The 1.4% increase in manufacturing production followed a revised 0.3% drop in June, while total industrial production, which also includes mining and utility output, rose 0.9% in July. Resilient business spending, steady consumer demand and lean inventories have fueled output growth but also driven up order backlogs as producers grapple with difficulties sourcing materials and parts. The mismatch of supply and demand highlights room for further growth in factory output, especially if producers have more success filling open positions. Input costs were up 23% from a year ago, according to recent data, while job openings in the space stood at a record 826,000 last month. U.K.  U.K. wage growth hit a record as companies posted more than 1 million new job vacancies for the first time in an unparalleled scramble for staff following the loosening of lockdown rules. The jobless rate fell to 4.7% in the three months to June from 4.8% in May while employment rose by 95,000, each roughly in-line with consensus expectations. The rise in vacancies in the face of an elevated unemployment rate with about two million people still on furlough suggests some friction in the labour market, preventing a smooth reallocation of workers. That is one reason why wage growth has picked up in recent months, accelerating again in the three months to June to 7.4%. We think is it is likely that the unemployment rate remains steady in the near-term, while outlook risks are fairly evenly balanced. The revival in demand could drive unemployed persons back to work or he winding down of the furlough scheme, which became less generous from the start of July and will expire at the end of September, could put upward pressure on the unemployment rate. The (BoE) is unlikely to alter its policy mix until it sees how the labour market responds to the ending of wage support. In their latest projections, policymakers do not expect the jobless rate to rise when the government program ends. If that proves correct and inflation is still well above its 2% target in early 2022, then an increase in interest rates is likely in the first half of next year.

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GLOBAL PORTFOLIO ADVISORY GROUP

Spotlight

Chairman Powell hosts town hall today before the minutes from July’s FOMC meeting are published Wednesday  Chairman Powell’s town hall meeting today could characterize developments from July’s FOMC meeting minutes and provide clues for the upcoming Jackson Hole symposium– Investors are eagerly anticipating the Jackson Hole Symposium, scheduled for August 26th-28th, looking for updates on policy and whether the impressive July employment report will bring forward the likelihood of bond tapering. The gathering has been the setting for important announcement in that past, recall last year when the policymakers unveiled their new Average Inflation Targeting (AIT) mechanism that allowed for periods of corrective overshoots above the 2% symmetric target to achieve average inflation of 2% over sometime. This afternoon, U.S. Federal Reserve Chairman Jerome Powell will take part in a virtual town hall with educators and students this afternoon and while we have limited expectation for any kind of surprise announcement, we think it is possible for his comments and responses to hold clues for the upcoming symposium. The event today is scheduled to include opening remarks and a Q&A, and is unlikely, in our view, to be a prime venue for releasing new information on policy. However, any general comments on job recovery could help to frame information gleaned from the minutes of the July Federal Open Market Committee (FOMC) meeting minutes due out Wednesday. A restatement of talking points from the July press conference would hint it could still be at least a meeting or two, meaning September or November, before a clearer signal is sent on taper timing and mechanics.  The path to “substantial further progress” for the U.S. Federal Reserve rests with the labour market – Several Fed officials, including regional branch presidents James Bullard of St. Louis, Robert Kaplan of Dallas, and Esther George of Kansas City, have pushed for the central bank to begin removing stimulus as soon as the September meeting. However, the leadership, including Chairman Powell and Vice Chairman , have been among those suggesting they want to see further progress before considering a move to taper. FOMC members have maintained that “substantial further progress” was needed toward achieving their inflation and employment goals before substantive discussions on policy normalization could occur. At the Fed’s last meeting, Chairman Jerome Powell indicated that some progress had been made, but there was still some distance to go. In our view, “some distance to go” refers to the labour market. Since the beginning of the pandemic, the threshold officials have set for scaling back ultra-accommodative policies has been substantial further progress, not full attainment. We think this is important to remember when discussing incoming economic data and how it may impact the Fed’s decision-making. If upcoming readings of labour market activity print as strong as expected, we think enough progress will have been made to pass the “substantial” test, in line with our expectation for an announcement on tapering asset purchases in August or September.

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GLOBAL PORTFOLIO ADVISORY GROUP

Hybrids corner Canadian preferred shares Canadian convertible debentures

Top 5 performing Canadian preferred shares %Δ 1D Top 5 performing Canadian convertible debentures %Δ 1D

Aimia Inc AIMCN 4.802 PERP 4.0% Algoma Central Corp ALCCN 5 1/4 06/30/24 2.1%

Bombardier Inc BBDBCN 2.45 PERP 3.6% Innergex Renewable Energy Inc INECN 4 3/4 06/30/25 0.6%

Intact Financial Corp IFCCN 5.4 PERP 2.3% Premium Brands Holdings Corp PBHCN 4.6 12/31/23 0.5%

Fortis Inc/Canada FTSCN 3.913 PERP 2.0% Diversified Royalty Corp DIVCN 5 1/4 12/31/22 0.5%

Fortis Inc/Canada FTSCN 4.9 PERP 1.1% Alaris Equity Partners Income ADCN 5 1/2 06/30/24 0.3%

Bottom 5 performing Canadian preferred shares %Δ 1D Bottom 5 performing Canadian convertible debentures %Δ 1D Brookfield Asset Management BAMACN 2.727 PERP -2.2% Fortuna Silver Mines Inc FVICN 4.65 10/31/24 -1.6% Inc

Enbridge Inc ENBCN 3.043 PERP -2.0% Aecon Group Inc ARECN 5 12/31/23 -1.3%

Altagas Ltd ALACN 3.06 PERP -1.9% Tricon Residential Inc TCNCN 5 3/4 03/31/22 -0.5%

Northwest Healthcare Properties Manulife Financial Corp MFCCN 4.65 PERP -1.6% NWHUCN 5 1/4 12/31/21 -0.4% Real Estate Investment Trust

Brookfield Office Properties Inc BPOCN 4.155 PERP -1.6% Mullen Group Ltd MTLCN 5 3/4 11/30/26 -0.3%

Sun Life Financial announced intention to redeem Class A Canaccord Genuity announced conversion privilege of Non-Cumulative Preferred Shares Series 1 (SLF.PR.A) and Cumulative 5-year Rate Reset First preferred shares, Series A Series 2 (SLF.PR.B) on 29 Sep, and conversion privilege of (CF.PR.A) by Sep 15 Press Release Class A Preferred Shares Series 10R (SLF.PR.H) and Class A Preferred Shares Series 11QR (SLF.PR.K) by 15 Sep. Please Bank of Montreal to redeem Non-Cumulative 5-Year Rate see the attached press releases. Reset Class B Preferred Shares, Series 25 (BMO.PR.Q) and Non-Cumulative Floating Rate Class B Preferred Shares, Series Tricon announced redemption of 5.75% Extendible 26 (BMO.PR.A) on Aug 25 Press Release Convertible Unsecured Subordinated Debentures (TCN.DB.U) on Sep 9 Press Release

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GLOBAL PORTFOLIO ADVISORY GROUP

Economic data releases and events

Event Period Expected Actual Prior CA Housing Starts Jul 280.0k 272.2 282.1k CA Int'l Securities Transactions Jun -- 19.7 20.79b US Retail Sales Advance MoM Jul -0.3% -1.1% 0.6% US Retail Sales Ex Auto MoM Jul 0.2% -0.4% 1.3% US Retail Sales Ex Auto and Gas Jul -0.1% -0.7% 1.1% US Retail Sales Control Group Jul -0.2% -1.0% 1.1% US Industrial Production MoM Jul 0.5% 0.9% 0.4% US Capacity Utilization Jul 75.7% 76.1% 75.4% US Powell Hosts Town Hall Discussion with Educators US Fed's Kashkari Holds Town Hall on Economy EC GDP SA YoY 2Q P 13.7% 13.6% 13.7% EC GDP SA QoQ 2Q P 2.0% 2.0% 2.0% EC Employment YoY 2Q P -- 1.8% -1.8% EC Employment QoQ 2Q P -- 0.5% -0.3% UK Claimant Count Rate Jul -- 5.7% 5.8% UK Jobless Claims Change Jul -- -7.8k -114.8k UK ILO Unemployment Rate 3Mths Jun 4.8% 4.7% 4.8%

Notable earnings releases

S&P/TSX companies reporting today Ticker Date Time Quarter Actual Estimate Surprise None to Report Reported after previous day’s close None to Report S&P 500 companies reporting today Ticker Date Time Quarter Actual Estimate Surprise Home Depot Inc/The HD US 2021-08-17 06:00 Q2 22 4.53 4.42 2.40 Walmart Inc WMT US 2021-08-17 06:59 Q2 22 1.78 1.57 13.70 Agilent Technologies Inc A US 2021-08-17 Aft-mkt Q3 21 -- 0.99 -- Amcor PLC AMCR US 2021-08-17 Aft-mkt Y 21 -- 0.74 -- Jack Henry & Associates Inc JKHY US 2021-08-17 Aft-mkt Q4 21 -- 0.92 -- Reported after previous day’s close None to Report

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GLOBAL PORTFOLIO ADVISORY GROUP

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