Tracking the Numbers Daily Points

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Global Economics

Scotiabank Economics

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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.

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Derek Holt 416.863.7707 derek.holt@scotiabank.com

Frances Donald 416.862.3080 frances.donald@scotiabank.com

Dov Zigler 212.225.6631 dov.zigler@scotiabank.com

April 9, 2015 @ 7:55 EST

On Deck for Thursday, April 9

KEY POINTS: Hang Seng leads stock markets higher but Chinese stocks are not a bubble - yet BoE stands pat as expected BoK holds but policy risk looking ahead is easing Eurozone Q1 recovery update: retail leading the way, industrial

production inching along, trade to drag and the UK is following the same pattern US, Canada should follow the global market tone INTERNATIONAL Stocks are mixed so far this morning. The Hang Seng was the hands down winner for market gains overnight with a 2.7% single day advance. Its important to recognize that the Hang Sengs p/e ratio is still only about 11 and the dividend yield is 3.4% which continues to make it among the cheaper stock markets globally so why not back up the truck and buy? The Hang Seng index has done relatively little for the past six years compared to other major stock exchanges. European equities are up across the board, but North American equity futures are fairly flat. Currency markets are putting a bid to the commodity crosses like CAD, the AUD and NZD. 10 year sovereign benchmarks are a little dearer in the US, Canada, UK, Germany and France. We'll issue an in-depth research paper on China's stock market either later today or tomorrow morning. What has emerged to be the most hotly argued and arguably important issue in China today is whether the countrys stock market is in a bubble given the near doubling of the Shanghai and Shenzhen equity composites since last summer and the very recent rally in the Hang Seng. Index levels and percentage gains might suggest frothy behaviour, but they are poor ways of looking at valuations. The key takeaways will be: Using multiple valuation methods, we observe that Chinese equities are

simply transitioning from being among the cheapest in the world as of last summer to fairer value today.

the re-pricing has been facilitated by financial liberalization since November

the role of explosive growth in new investor accounts in driving the rally

Fed Events

BoC Events

Key International Events

Fed Funds Target Rate Current Rate: 0-0.25% Next Move: April 29 @ 0-0.25% Bias: Neutral/Hawkish

BoC Overnight Lending Rate Current Rate: 0.75% Next Move: April 15 @ 0.75% Bias: Dovish

BoJ Current Rate: 0.10% Next Move: April 30 @ 0.10% Bias: Dovish BoE Current Rate: 0.50% Next Move: April 9 @ 0.50% Bias: Dovish ECB Current Rate: 0.05% Next Move: April 15 @ 0.05% Bias: Dovish

Country Date Time Indicator Period BNS Consensus LatestCA 04/09 08:30 Building Permits (m/m) Feb -- 3.3 -12.9CA 04/09 08:30 New Housing Price Index (m/m) Feb -- 0.1 -0.1US 04/09 08:30 Continuing Claims (000s) MAR 28 2300 2350.0 2325.0US 04/09 08:30 Initial Jobless Claims (000s) APR 4 290 283.0 268.0US 04/09 10:00 Wholesale Inventories (m/m) Feb 0.1 0.2 0.2

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April 9, 2015 Global Economics

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is being grossly exaggerated Ditto for concerns about margin loans. Chinese investors have increased an already high home bias by stopping foreign equity purchases while they buy more

domestic equities. China's mountain of reserves provides strong defences to manage potential future equity market imbalances. The fact

they are falling slightly should be lauded not disparaged. The Bank of England surprised no one this morning by leaving its key policy rate unchanged at 0.5%. After a 25bps cut in March, the Bank of Korea joined Australia, Japan and India in holding rates steady at their most recent policy meeting. That said, the statement and forecasts are distinctly dovish and KRW is correspondingly weaker across the board. Primarily, growth forecasts were cut from 3.4% to 3.1% in 2015, and thats down from the 3.9% forecast in January. Inflation forecasts were also sharply revised lower from 1.9% in 2015 to 0.9%, substantially below the 2.5-3.0% target range, and that figure is also being propped up by Septembers cigarette tax hike. Then, there was the shift in language addressing the output gap. Previously, the BoK had said the negative output gap would persist longer than expected. Now, they say it will persist for a considerable time. Our interpretation is that this language is a dovish tilt supported by the growth and inflation downgrades, though some headlines this morning saying it is marginally more constructive. BoK Governor Lee also mentioned that one member had opposed the decision to hold rates and instead called for a rate cut on grounds that KRW was holding back exports. Combined with weak consumer and business confidence, industrial production, exports and the ongoing strengthening of the KRW vs. JPY, our sense is that the seeds of the next cut are brewing and that the BoK will increasing view exacerbated household debt as the lesser of two evils. Economic data through February continue to point to strength in Q1 in Europe. German industrial production increased by 0.2% m/m in February and the trade balance swelled to EUR 19.2bn (vs. EUR 15.9bn in January). Both prints were a little bit better than consensus expectations and leave the economy tracking at a decent rate: industrial production is running at 0.5% q/q, while the improvement in trade leaves net exports likely to pose a more modest drag than previously expected as exports are higher by 0.2% q/q while imports are higher by 0.8%, consistent with strong consumer numbers in Q1. Todays prints dont seem to have swung things very much one way or the other, with the DAX simply rebounding (modestly) from yesterdays weakness. The UK economy is following a similar trajectory to the German one and indeed the broader European path, with retail sales leading the way (+1.1% q/q through February according to data released in late March) while trade will pose a drag according to data released today, which showed the trade deficit swelling to GBP10.3bn vs. a revised GBP 9.2bn in January. Real exports are tracking at -2.2% q/q and imports at a strong +0.7% q/q in line with the consumer strength. Scotiabanks UK Fixed Income Strategist Alan Clarke makes a compelling argument that while pundits may point to the trade-weighted GBP driving this dynamic, the fact of the matter is that UK exports are more of a function of trade partner economic growth than currency fluctuations, particularly in the short term. Moreover, UK exports were a major driver of growth in Q4, so there is some mean reversion/smoothing out of unsustainable trends going on here. UNITED STATES US markets will follow the global market tone today with only initial jobless claims due out (8:30amET). This will be the first reading for April and so well start to get a feel for how claims are evolving toward the nonfarm reference period that covers pay periods including the 12th of each month. CANADA Canada will be quiet and follow the global market tone today with only building permits for February on tap (8:30amET). Following the steep plunge in the value of total permits in January were likely to see a bit of a bounce higher today. Key will be to look through the headline to the volume of housing permits issued as they have been falling rather sharply over recent months. CAD is appreciating versus the greenback and one of the top performers this morning and one probably need look no further than a buck gain in WTI and Brent oil prices for the reason given its petro-currency status.

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Source: Bloomberg. All quotes reflect Bloomberg data as at the time of publishing. While this source is believed to be reliable, Scotiabank cannot guarantee its accuracy.

F ixed Inco me

Last 1-day 1-wk Last 1-day 1-wk Last 1-day 1-wk Last 1-day 1-wkU.S. 0.53 0.53 0.54 1.33 1.35 1.35 1.90 1.91 1.91 2.53 2.53 2.53 C anada - B o C 0.75C A N A D A 0.49 0.50 0.49 0.75 0.76 0.73 1.32 1.34 1.31 1.98 1.99 1.96GER M A N Y -0.28 -0.28 -0.25 -0.14 -0.14 -0.09 0.15 0.16 0.19 0.64 0.66 0.65 US - F ed 0.25JA P A N 0.01 0.02 0.03 0.10 0.10 0.10 0.37 0.36 0.34 1.39 1.38 1.32U.K. 0.41 0.44 0.44 1.16 1.20 1.20 1.54 1.58 1.59 2.29 2.32 2.32 England - B o E 0.50

C A N A D A -3 -3 -5 -59 -59 -62 -58 -57 -60 -55 -54 -58 Euro zo ne - EC B 0.05GER M A N Y -81 -82 -80 -147 -148 -144 -175 -174 -172 -189 -187 -188JA P A N -51 -51 -51 -123 -124 -125 -153 -154 -157 -113 -115 -121 Japan - B o J n/ aU.K. -11 -9 -11 -17 -15 -15 -36 -33 -32 -24 -21 -21Equit ies M exico - B anxico 3.00

1 D ay 1-moS&P / T SX 0.2 2.4 A ustralia - R B A 2.25D o w 30 0.2 -0.5S&P 500 0.3 0.1 N ew Z ealand - R B N Z 3.50N asdaq 0.8 0.2D A X 0.5 4.4F T SE 0.8 1.7N ikkei 0.7 6.1 C anada - B o C A pr 15, 2015H ang Seng 2.7 11.7C A C 1.0 5.0 US - F ed A pr 29, 2015C o mmo dit iesWT I C rude 1.9 2.8 England - B o E A pr 09, 2015N atural Gas 0.8 -1.4Go ld -0.3 2.7 Euro zo ne - EC B A pr 15, 2015Silver -3.2 2.4C R B Index -2.5 -1.3 Japan - B o JC urrenciesUSD C A D -0.3 -0.7 M exico - B anxico A pr 30, 2015EUR USD -0.1 -0.7USD JP Y -0.1 -1.0 A ustralia - R B A M ay 05, 2015A UD USD 0.7 0.5GB P USD -0.2 -1.9 N ew Z ealand - R B N Z A pr 29, 2015USD C H F 0.4 -1.6

Spreads vs. U.S. (bps):

Go vernment Yield C urves (%):2-YEA R 5-YEA R 10-YEA R 30-YEA R

59.3

Last15214179032082495112095

C hange24.827.15.640.6

55.6147.9707.549.5

% change:

18.016.7

1-wk2.1

Level

3.2

3.0

699319938269445186

% change:

1-yr5.48.911.218.327.25.4

39.4

% change:

0.70.71.01.13.2

8.4

2.1

-42.41.32.6

-0.3-3.2

-50.4

-8.6-18.0

Level

Level

2.64

-5.45

0.02

216.40

51.40

1199.1316.30

0.98

-3.38-0.54

0.0035

1.25121.0772119.960.77371.48420.9700

-0.0034-0.0009-0.17000.0053-0.0024

C urrent R ateC entral B anks

N ext M eet ing D ate

1.1

-17.6

-0.4-1.00.21.90.1

15.0-22.317.6

-11.610.3

-30.1

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