Weekly Market Insight

November 5, 2010

NORTH AMERICAN & INTERNATIONAL ECONOMIC HIGHLIGHTS Blue Days for the Greenback By Avery Shenfeld There was much ado about $100 bn last week. The Fed acted like a corporate CFO, guiding expectations for the amount of quantitative easing downwards ahead of the announcement, so that it could “beat” street expectations. Instead of a nice round $500 bn, it went with $600 bn so that it wouldn’t see a disappointed market sell financial assets that day. The foreign exchange market in particular seemed to attach a lot of importance to that bump in the first digit. Note that in his Washington Post op ed, Bernanke listed all of the potential benefits of QE with one key exception—its impact on the US dollar exchange rate. Sure, a firmer equity market and lower bond yields (if not for the 30s) are an economic plus. But the market that has moved the most on the news of QE has been that for the US dollar. In the market’s eyes, the more QE, the weaker your currency. The Canadian dollar has seen the smallest gain of all major currencies over the past three months. Still, it managed to appreciate despite the Bank of Canada’s veiled threat to intervene, and a decision to block a major foreign takeover that cancelled the need for significant C$ purchases by the acquirer. A weaker US dollar lifts the price of oil, gold and other commodities priced in greenbacks, and thereby makes an appreciating loonie a bit less of a threat to Canadian growth. In theory—often a dangerous phrase for those trying to understand market behaviour —the Fed’s QE program needn’t be that negative for the greenback. True, by lowering US bond yields relative to others, it makes capital outflows more attractive. But much of the dollar-selling isn’t premised on a slightly wider spread between, say, German bunds and US Treasuries, but on the misconception that the world is going to be flooded with “printed money” which will debase the dollar. That’s simply not the case. The trillions of bonds that the Fed has purchased by creating money has essentially all been sent back to the Fed as excess reserves on deposit with the central bank. The money is not being lent and re-lent in the broader economy. US M2 has picked up a bit, but is running at 3% over the past year, not far off the nearly 2% growth seen in eurozone M2 growth over the same period. Bernanke continues to pledge to remove the extra dollars from the money supply when more vigorous lending, and the associated economic growth, starts to emerge. Still, theory can take a back seat to market dogma. We expected quick profit-taking on short-US$ positions after the FOMC meeting, but that call seems to have been thwarted by that extra $100 bn, at least for now. We’ll stick with our view that any further appreciation for the euro, yen and C$ will at some point soon run up against a reality check, as investors rethink the abilities of the European, Japanese and Canadian economies to tolerate these moves. There are risks that in the case of the latter two, they might intervene to counter undue currency strength, and Europe’s fiscal and banking mess is far from over. But we will likely have to push back the timetable for a significant correction in the US dollar’s favour into early 2011, given the tendency to see QE and currency weakness as twins.

Economicshttp://research.cibcwm.com/res/Eco/EcoResearch.html

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Weekly Market Insight 2

Market Snapshot

US Current* yesterday* a week ago* a month ago* a year agoTED SPREAD (bps) 18 18 17 17 2210Y / 2Y SPREAD (bps) 215 215 227 200 2682Y SWAP SPREAD (bps) 15 15 16 17 35

3M T-Bill (%) 0.11 0.11 0.12 0.12 0.05

LIBOR 1 MONTH (%) 0.25 0.25 0.25 0.26 0.24LIBOR 3 MONTH (%) 0.29 0.29 0.29 0.29 0.27

2-YR BOND (%) 0.34 0.32 0.36 0.34 0.855-YR BOND (%) 1.05 1.02 1.19 1.08 2.3110-YR BOND (%) 2.50 2.47 2.63 2.35 3.52

A Rated / 10Y TREASURY (bps) 170 181 172 178 181B Rated / 10Y TREASURY (bps) 559 565 560 600 569BB Rated / 10Y TREASURY (bps) 401 412 400 433 464

CANADA

PRIME / BA SPREAD (bps) 181 182 182 182 185

CDOR 3 MONTH (%) 1.21 1.21 1.22 1.23 0.50CDOR 3 MONTH / 3M T-BILL SPREAD (bps) 30 29 30 35 28

10Y / 2Y SPREAD (bps) 138 143 144 137 213

2-YR BOND (%) 1.45 1.41 1.43 1.31 1.415-YR BOND (%) 2.01 1.99 2.01 1.87 2.7410-YR BOND (%) 2.82 2.85 2.86 2.69 3.54

A Rated / 10Y TREASURY (bps) 124 127 125 135 130BBB Rated / 10Y TREASURY (bps) 176 179 177 193 198CAN Sovereign Agency / 10Y TREASURY (bps) 32 36 32 49 48Provincial / 10Y TREASURY (bps)

ALTA 69 72 61 81 68BC 77 80 73 95 83MAN 71 74 67 88 80NB 82 86 82 97 78PEI 93 96 93 107 105NFLD 97 101 93 117 114ONT 89 94 88 106 92QUE 97 101 95 116 113SASK 91 96 85 108 90NS 92 94 88 108 95

COMMODITIES

WTI CRUDE FUTURE (US$ / bbl.) 86.6 86.0 81.5 82.3 78.2NATURAL GAS (US$ / MMBtu) 3.9 3.9 3.9 3.6 4.6SILVER (US$ /t oz.) 26.4 25.5 24.1 23.1 17.5GOLD (US$ / t oz.) 1387.0 1377.0 1343.3 1339.5 1097.5WHEAT (US¢ / bu.) 710.5 699.0 713.8 719.3 513.5SOYBEANS (US¢ / bu.) 1267.8 1244.8 1215.8 1135.0 967.5SUGAR (US¢ / lb.) 31.3 31.3 29.4 26.4 22.2CORN (US¢ / bu.) 585.5 589.0 573.5 528.3 375.5

FX

C$ / US$ 1.001 1.003 1.019 1.017 1.068US$ / EURO 1.409 1.426 1.388 1.393 1.489C$/ EURO 1.410 1.430 1.414 1.417 1.591YEN / US$ 81.080 80.630 80.730 81.860 89.833US$ / BRITISH POUND 1.623 1.629 1.596 1.594 1.658SWISS FRANCS / US$ 0.960 0.964 0.988 0.961 1.015

* As of 11:00 a.m.Note: Data is for reference only.

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Weekly Market Insight 3

International Stock IndexesThursday, November 04, 2010

YTD 3-yrHigh Low - + % chg % chg

The Global Dow (World) 2087.52 2037.66 2084.99 47.65 0 2.34 5.1 2087.12 1699.63 10 -9.5The Global Dow (Euro) (World) 1382.39 1369.09 1380.17 11.28 0 0.82 6 1448.65 1198.65 15.1 -9DJ Global Index (World) 250.07 244.44 249.95 5.51 0 2.25 10.1 249.95 203.56 14.7 -7.3DJ Global ex U.S. (World) 221.4 215.52 220.85 5.33 0 2.47 9.8 220.85 170.93 13.7 -8.3MSCI EAFE* (World) n.a. n.a. 1675.07 47.14 0 2.9 6 1675.07 1305.13 8.4 -10.6

DJ Asia-Pacific (Asia-Pacific) 137.77 135.14 137.67 2.53 0 1.87 11.9 137.67 111.94 17.3 -6.6All Ordinaries (Australia) 4826.5 4788.1 4817.5 23.74 0 0.5 -1.3 5024.1 4250.6 6.6 -10.5S & P/ASX 200 (Australia) 4756.9 4715.1 4745.32 22.73 0 0.48 -2.6 5001.9 4222.1 5.3 -10.9DJ CBN China 600 (China) 29285.82 28728.77 29282.22 553.33 0 1.93 0.8 29811.23 20950.68 4.7 -10.6Dow Jones China 88 (China) 274.91 271.13 274.81 3.68 0 1.36 -8.8 308.76 208.48 -6.7 -18.5Shanghai Composite (China) 3087.42 3035.37 3086.94 55.95 0 1.85 -5.8 3338.66 2363.95 -2.2 -18.9Hang Seng (Hong Kong) 24550.08 24345.93 24535.63 390.96 0 1.62 12.2 24535.63 18985.5 14.2 -7Bombay Sensex (India) 20917.03 20605.63 20893.57 427.83 0 2.09 19.6 20893.57 15790.93 30.1 1.5Jakarta Composite (Indonesia) 3633.69 3604.72 3629.05 23.37 0 0.65 43.2 3654.1 2367.21 53.3 10.2Nikkei 300 (Japan) 167.6 166.03 166.79 2.74 0 1.67 -9.9 202.75 163.58 -5.3 -19.8Nikkei Stock Avg (Japan) 9377.76 9276.71 9358.78 198.8 0 2.17 -11.3 11339.3 8824.06 -3.7 -17.3Topix Index (Japan) 820.76 812.48 816.33 13.21 0 1.64 -10.1 998.9 803.12 -6.7 -20.1Kuala Lumpur Composite (Malaysia) 1513.41 1508.58 1511.74 4.14 0 0.27 18.8 1511.74 1233.86 20.6 2.7NZSX-50 (New Zealand) 3336.95 3323.91 3326.25 -6.82 -0.2 0 3 3335.51 2933.82 5.8 -7.1KSE 100 (Pakistan) 10729.22 10604.82 10702.19 84.54 0 0.8 14 10704.16 8762.4 17.5 -8.4Manila Composite (Philippines) 4397.3 4379.74 4397.3 15.44 0 0.35 44 4397.3 2797.61 49.3 5.4Straits Times (Singapore) 3244.32 3220.02 3240.31 15.34 0 0.48 11.8 3240.31 2629.35 23.2 -4.1Kospi (South Korea) 1945.58 1936.04 1942.5 6.53 0 0.34 15.4 1942.5 1524.5 25.1 -1.3Colombo Stock Exchange (Sri Lanka) 6683.97 6650.17 6658.45 -16.46 -0.25 0 96.7 7147.77 2843.66 133.2 36.1Weighted (Taiwan) 8367.19 8317.86 8357.85 63.95 0 0.77 2.1 8379.75 7071.67 12.7 -3.4SET (Thailand) 1031.61 1022.8 1031.61 17.41 0 1.72 40.4 1031.61 676.22 51.3 4.9

Stoxx Europe 600 (Europe) 271.28 267.43 270.83 4.32 0 1.62 7 272.14 232.11 12.6 -10.7Stoxx Europe 50 (Europe) 2596.99 2554.37 2590.7 43.54 0 1.71 0.5 2711.84 2285.13 6.4 -11.9Euro Stoxx 50 (Euro zone) 2896.52 2848.68 2884.21 53.78 0 1.9 -2.8 3017.85 2488.5 3.2 -13.2Euro Stoxx (Euro zone) 278.5 275.16 277.67 4.19 0 1.53 1.1 284.91 237.29 6.1 -13.2ATX (Austria) 2723.95 2673.11 2721.31 48.03 0 1.8 9 2795.32 2216.84 6.2 -17Bel-20 (Belgium) 2716.67 2688.65 2710.41 46.57 0 1.75 7.9 2716.7 2296.81 12 -14.3PX 50 (Czech Republic) 1177.6 1168.6 1173.6 5.3 0 0.45 5 1314.6 1092.8 2.2 -15OMX Copenhagen (Denmark) 404.84 401.63 403.02 4.4 0 1.1 27.7 403.02 305.19 30.2 -5.4OMX Helsinki (Finland) 7343.35 7265.82 7323.21 128.21 0 1.78 13.4 7452.62 6046.62 21.1 -16.2CAC 40 (France) 3931.76 3887.16 3916.78 73.84 0 1.92 -0.5 4065.65 3331.29 5.6 -11.9DAX (Germany) 6757.29 6676.42 6734.69 116.89 0 1.77 13 6734.69 5434.34 22.9 -5BUX (Hungary) 23552.53 23258.87 23326.41 251.35 0 1.09 9.9 25322.96 20076.32 14 -5.2FTSE MIB (Italy) 21621.65 21412.09 21469.19 288.38 0 1.36 -7.7 23811.13 18382.71 -4.9 -18.5AEX (Netherlands) 346.11 342.57 345.15 6.1 0 1.8 2.9 357.43 305.03 12.1 -13.7All-Shares (Norway) 451.61 444.04 451.61 7.57 0 1.7 7.5 454.24 367.63 16.7 -8.4WIG (Poland) 47189.05 46686.36 47066.4 649.56 0 1.4 17.7 47066.4 37322.52 21.1 -8.9PSI 20 (Portugal) 8159.34 8032.78 8039.38 -35.27 -0.44 0 -5 8839.75 6624.29 -5 -14.4DJ Russia Titans 10 (Russia) 6357.27 6106.43 6357.27 258.19 0 4.23 14 6357.27 4801.88 26.6 -6.2RTS Index (Russia) 1613.6 1601.15 1602.53 ... 0 Closed 12.3 1676.27 1226.57 18.8 -10.4IBEX 35 (Spain) 10744.3 10567.4 10602.8 33.3 0 0.32 -11.2 12222.5 8669.8 -8.2 -12.5SX All Share (Sweden) 350.67 346.75 349.32 5.55 0 1.61 16.6 351.51 291.74 18.9 -2.4Swiss Market (Switzerland) 6614.26 6563.09 6595.64 82.65 0 1.27 0.8 6967.56 5942.25 4.9 -9.1Istanbul National 100 (Turkey) 70912.7 68996.1 70905.39 2300.76 0 3.35 34.2 71006.82 45230.95 49.9 7.6FTSE 100 (U.K.) 5876 5749 5862.79 113.82 0 1.98 8.3 5862.8 4805.8 14.4 -3.5FTSE 250 (U.K.) 11026.2 10876.25 11016.46 140.18 0 1.29 18.4 11016.46 8880.52 22.1 -1.3

DJ Americas (Americas) 329.88 323.19 329.71 6.51 0 2.01 11.2 329.71 272.7 16.9 -5.5Merval (Argentina) 3339.97 3276.5 3339.97 134.18 0 4.19 43.9 3339.97 2061.07 50.3 12.7Sao Paulo Bovespa (Brazil) 73103.28 71909.64 72995.69 1090.92 0 1.52 6.4 72995.69 58192.08 12.6 4.5S & P/TSX Comp (Canada) 12921.27 12676 12878.79 207.67 0 1.64 9.6 12878.79 11092.5 15.2 -3.6Santiago IPSA (Chile) 5013.49 4966.36 4973.03 -4.1 -0.08 0 38.9 4986.74 3184.04 48.4 13.6IPC All-Share (Mexico) 36322.52 35844.66 36198.6 354.79 0 0.99 12.7 36198.6 29735.34 21.7 5.5Caracas General (Venezuela) 67729.95 67587.65 67587.65 -142.3 -0.21 0 22.7 67729.95 50715.86 33.2 20.2

CASE 30 (Egypt) 6802.68 6744.24 6764.61 50.62 0 0.75 9 7603.04 5850.38 3.3 -10.8Tel Aviv (Israel) 1275.14 1263.24 1265.2 2.66 0 0.21 10.5 1277.28 1022.64 23.7 1Johannesburg All Share (South Africa) 31327.9 30817.97 31327.9 509.93 0 1.65 13.2 31327.9 25793.06 21 0.8*Europe, Australia, Far East; U.S.-dollar terms. Three year percent change is annualized. Sources: Reuters; WSJ.com

DAILY 52 WEEK

Index (Regiona/Country) Close Chg High Low % Chg% Chg

Other Countries

Global

Asia Pacific

Europe

Americas

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Weekly Market Insight 4

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