Cibc weekly market insight 1105

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Blue Days for the Greenback By Avery Shenfeld

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Cibc weekly market insight 1105

  1. 1. 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. Economics http://research.cibcwm.com/res/Eco/EcoResearch.html
  2. 2. CIBC WORLD MARKETS INC. Weekly Market Insight 2 Market Snapshot US Current* yesterday* a week ago* a month ago* a year ago TED SPREAD (bps) 18 18 17 17 22 10Y / 2Y SPREAD (bps) 215 215 227 200 268 2Y 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 0.24 LIBOR 3 MONTH (%) 0.29 0.29 0.29 0.29 0.27 2-YR BOND (%) 0.34 0.32 0.36 0.34 0.85 5-YR BOND (%) 1.05 1.02 1.19 1.08 2.31 10-YR BOND (%) 2.50 2.47 2.63 2.35 3.52 A Rated / 10Y TREASURY (bps) 170 181 172 178 181 B Rated / 10Y TREASURY (bps) 559 565 560 600 569 BB 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 0.50 CDOR 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 1.41 5-YR BOND (%) 2.01 1.99 2.01 1.87 2.74 10-YR BOND (%) 2.82 2.85 2.86 2.69 3.54 A Rated / 10Y TREASURY (bps) 124 127 125 135 130 BBB Rated / 10Y TREASURY (bps) 176 179 177 193 198 CAN Sovereign Agency / 10Y TREASURY (bps) 32 36 32 49 48 Provincial / 10Y TREASURY (bps) ALTA 69 72 61 81 68 BC 77 80 73 95 83 MAN 71 74 67 88 80 NB 82 86 82 97 78 PEI 93 96 93 107 105 NFLD 97 101 93 117 114 ONT 89 94 88 106 92 QUE 97 101 95 116 113 SASK 91 96 85 108 90 NS 92 94 88 108 95 COMMODITIES WTI CRUDE FUTURE (US$ / bbl.) 86.6 86.0 81.5 82.3 78.2 NATURAL GAS (US$ / MMBtu) 3.9 3.9 3.9 3.6 4.6 SILVER (US$ /t oz.) 26.4 25.5 24.1 23.1 17.5 GOLD (US$ / t oz.) 1387.0 1377.0 1343.3 1339.5 1097.5 WHEAT (US¢ / bu.) 710.5 699.0 713.8 719.3 513.5 SOYBEANS (US¢ / bu.) 1267.8 1244.8 1215.8 1135.0 967.5 SUGAR (US¢ / lb.) 31.3 31.3 29.4 26.4 22.2 CORN (US¢ / bu.) 585.5 589.0 573.5 528.3 375.5 FX C$ / US$ 1.001 1.003 1.019 1.017 1.068 US$ / EURO 1.409 1.426 1.388 1.393 1.489 C$/ EURO 1.410 1.430 1.414 1.417 1.591 YEN / US$ 81.080 80.630 80.730 81.860 89.833 US$ / BRITISH POUND 1.623 1.629 1.596 1.594 1.658 SWISS FRANCS / US$ 0.960 0.964 0.988 0.961 1.015 * As of 11:00 a.m. Note: Data is for reference only.
  3. 3. CIBC WORLD MARKETS INC. Weekly Market Insight 3 International Stock Indexes Thursday, November 04, 2010 YTD 3-yr High 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 -9.5 The Global Dow (Euro) (World) 1382.39 1369.09 1380.17 11.28 0 0.82 6 1448.65 1198.65 15.1 -9 DJ Global Index (World) 250.07 244.44 249.95 5.51 0 2.25 10.1 249.95 203.56 14.7 -7.3 DJ Global ex U.S. (World) 221.4 215.52 220.85 5.33 0 2.47 9.8 220.85 170.93 13.7 -8.3 MSCI 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 -6.6 All Ordinaries (Australia) 4826.5 4788.1 4817.5 23.74 0 0.5 -1.3 5024.1 4250.6 6.6 -10.5 S & P/ASX 200 (Australia) 4756.9 4715.1 4745.32 22.73 0 0.48 -2.6 5001.9 4222.1 5.3 -10.9 DJ CBN China 600 (China) 29285.82 28728.77 29282.22 553.33 0 1.93 0.8 29811.23 20950.68 4.7 -10.6 Dow Jones China 88 (China) 274.91 271.13 274.81 3.68 0 1.36 -8.8 308.76 208.48 -6.7 -18.5 Shanghai Composite (China) 3087.42 3035.37 3086.94 55.95 0 1.85 -5.8 3338.66 2363.95 -2.2 -18.9 Hang Seng (Hong Kong) 24550.08 24345.93 24535.63 390.96 0 1.62 12.2 24535.63 18985.5 14.2 -7 Bombay Sensex (India) 20917.03 20605.63 20893.57 427.83 0 2.09 19.6 20893.57 15790.93 30.1 1.5 Jakarta Composite (Indonesia) 3633.69 3604.72 3629.05 23.37 0 0.65 43.2 3654.1 2367.21 53.3 10.2 Nikkei 300 (Japan) 167.6 166.03 166.79 2.74 0 1.67 -9.9 202.75 163.58 -5.3 -19.8 Nikkei Stock Avg (Japan) 9377.76 9276.71 9358.78 198.8 0 2.17 -11.3 11339.3 8824.06 -3.7 -17.3 Topix Index (Japan) 820.76 812.48 816.33 13.21 0 1.64 -10.1 998.9 803.12 -6.7 -20.1 Kuala Lumpur Composite (Malaysia) 1513.41 1508.58 1511.74 4.14 0 0.27 18.8 1511.74 1233.86 20.6 2.7 NZSX-50 (New Zealand) 3336.95 3323.91 3326.25 -6.82 -0.2 0 3 3335.51 2933.82 5.8 -7.1 KSE 100 (Pakistan) 10729.22 10604.82 10702.19 84.54 0 0.8 14 10704.16 8762.4 17.5 -8.4 Manila Composite (Philippines) 4397.3 4379.74 4397.3 15.44 0 0.35 44 4397.3 2797.61 49.3 5.4 Straits Times (Singapore) 3244.32 3220.02 3240.31 15.34 0 0.48 11.8 3240.31 2629.35 23.2 -4.1 Kospi (South Korea) 1945.58 1936.04 1942.5 6.53 0 0.34 15.4 1942.5 1524.5 25.1 -1.3 Colombo Stock Exchange (Sri Lanka) 6683.97 6650.17 6658.45 -16.46 -0.25 0 96.7 7147.77 2843.66 133.2 36.1 Weighted (Taiwan) 8367.19 8317.86 8357.85 63.95 0 0.77 2.1 8379.75 7071.67 12.7 -3.4 SET (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 -10.7 Stoxx Europe 50 (Europe) 2596.99 2554.37 2590.7 43.54 0 1.71 0.5 2711.84 2285.13 6.4 -11.9 Euro Stoxx 50 (Euro zone) 2896.52 2848.68 2884.21 53.78 0 1.9 -2.8 3017.85 2488.5 3.2 -13.2 Euro Stoxx (Euro zone) 278.5 275.16 277.67 4.19 0 1.53 1.1 284.91 237.29 6.1 -13.2 ATX (Austria) 2723.95 2673.11 2721.31 48.03 0 1.8 9 2795.32 2216.84 6.2 -17 Bel-20 (Belgium) 2716.67 2688.65 2710.41 46.57 0 1.75 7.9 2716.7 2296.81 12 -14.3 PX 50 (Czech Republic) 1177.6 1168.6 1173.6 5.3 0 0.45 5 1314.6 1092.8 2.2 -15 OMX Copenhagen (Denmark) 404.84 401.63 403.02 4.4 0 1.1 27.7 403.02 305.19 30.2 -5.4 OMX Helsinki (Finland) 7343.35 7265.82 7323.21 128.21 0 1.78 13.4 7452.62 6046.62 21.1 -16.2 CAC 40 (France) 3931.76 3887.16 3916.78 73.84 0 1.92 -0.5 4065.65 3331.29 5.6 -11.9 DAX (Germany) 6757.29 6676.42 6734.69 116.89 0 1.77 13 6734.69 5434.34 22.9 -5 BUX (Hungary) 23552.53 23258.87 23326.41 251.35 0 1.09 9.9 25322.96 20076.32 14 -5.2 FTSE MIB (Italy) 21621.65 21412.09 21469.19 288.38 0 1.36 -7.7 23811.13 18382.71 -4.9 -18.5 AEX (Netherlands) 346.11 342.57 345.15 6.1 0 1.8 2.9 357.43 305.03 12.1 -13.7 All-Shares (Norway) 451.61 444.04 451.61 7.57 0 1.7 7.5 454.24 367.63 16.7 -8.4 WIG (Poland) 47189.05 46686.36 47066.4 649.56 0 1.4 17.7 47066.4 37322.52 21.1 -8.9 PSI 20 (Portugal) 8159.34 8032.78 8039.38 -35.27 -0.44 0 -5 8839.75 6624.29 -5 -14.4 DJ Russia Titans 10 (Russia) 6357.27 6106.43 6357.27 258.19 0 4.23 14 6357.27 4801.88 26.6 -6.2 RTS Index (Russia) 1613.6 1601.15 1602.53 ... 0 Closed 12.3 1676.27 1226.57 18.8 -10.4 IBEX 35 (Spain) 10744.3 10567.4 10602.8 33.3 0 0.32 -11.2 12222.5 8669.8 -8.2 -12.5 SX All Share (Sweden) 350.67 346.75 349.32 5.55 0 1.61 16.6 351.51 291.74 18.9 -2.4 Swiss Market (Switzerland) 6614.26 6563.09 6595.64 82.65 0 1.27 0.8 6967.56 5942.25 4.9 -9.1 Istanbul National 100 (Turkey) 70912.7 68996.1 70905.39 2300.76 0 3.35 34.2 71006.82 45230.95 49.9 7.6 FTSE 100 (U.K.) 5876 5749 5862.79 113.82 0 1.98 8.3 5862.8 4805.8 14.4 -3.5 FTSE 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 -5.5 Merval (Argentina) 3339.97 3276.5 3339.97 134.18 0 4.19 43.9 3339.97 2061.07 50.3 12.7 Sao Paulo Bovespa (Brazil) 73103.28 71909.64 72995.69 1090.92 0 1.52 6.4 72995.69 58192.08 12.6 4.5 S & P/TSX Comp (Canada) 12921.27 12676 12878.79 207.67 0 1.64 9.6 12878.79 11092.5 15.2 -3.6 Santiago IPSA (Chile) 5013.49 4966.36 4973.03 -4.1 -0.08 0 38.9 4986.74 3184.04 48.4 13.6 IPC All-Share (Mexico) 36322.52 35844.66 36198.6 354.79 0 0.99 12.7 36198.6 29735.34 21.7 5.5 Caracas 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 -10.8 Tel Aviv (Israel) 1275.14 1263.24 1265.2 2.66 0 0.21 10.5 1277.28 1022.64 23.7 1 Johannesburg 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
  4. 4. CIBC WORLD MARKETS INC. Weekly Market Insight 4 Conflicts of Interest: CIBC World Markets’ analysts and economists are compensated from revenues generated by various CIBC World Markets businesses, including CIBC World Markets’ Investment Banking Department. CIBC World Markets may have a long or short position or deal as principal in the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon. The reader should not rely solely on this report in evaluating whether or not to buy or sell the securities of the subject company. Legal Matters: This report is issued and approved for distribution by (i) in Canada by CIBC World Markets Inc., a member of the IIROC and CIPF, (ii) in the UK, CIBC World Markets plc, which is regulated by the FSA, and (iii) in Australia, CIBC World Markets Australia Limited, a member of the Australian Stock Exchange and regulated by the ASIC (collectively, “CIBC World Markets”). This report is distributed in the Unites States by CIBC World Markets Inc. and has not been reviewed or approved by CIBC World Markets Corp., a member of the New York Stock Exchange ("NYSE"), NASD and SIPC. This report is intended for distribution in the United States only to Major Institutional Investors (as such term is defined in SEC 15a-6 and Section 15 of the Securities Exchange Act of 1934, as amended) and is not intended for the use of any person or entity that is not a major institutional investor. Major Institutional Investors receiving this report should effect transactions in securities discussed in the report through CIBC World Markets Corp. This report is provided, for informational purposes only, to institutional investor and retail clients of CIBC World Markets in Canada, and does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction where such offer or solicitation would be prohibited. This document and any of the products and information contained herein are not intended for the use of private investors in the United Kingdom. Such investors will not be able to enter into agreements or purchase products mentioned herein from CIBC World Markets plc. The comments and views expressed in this document are meant for the general interests of clients of CIBC World Markets Australia Limited. This report does not take into account the investment objectives, financial situation or specific needs of any particular client of CIBC World Markets Inc. Before making an investment decision on the basis of any information contained in this report, the recipient should consider whether such information is appropriate given the recipient’s particular investment needs, objectives and financial circumstances. CIBC World Markets Inc. suggests that, prior to acting on any information contained herein, you contact one of our client advisers in your jurisdiction to discuss your particular circumstances. Since the levels and bases of taxation can change, any reference in this report to the impact of taxation should not be construed as offering tax advice; as with any transaction having potential tax implications, clients should consult with their own tax advisors. Past performance is not a guarantee of future results. The information and any statistical data contained herein were obtained from sources that we believe to be reliable, but we do not represent that they are accurate or complete, and they should not be relied upon as such. All estimates and opinions expressed herein constitute judgements as of the date of this report and are subject to change without notice. Although each company issuing this report is a wholly owned subsidiary of Canadian Imperial Bank of Commerce (“CIBC”), each is solely responsible for its contractual obligations and commitments, and any securities products offered or recommended to or purchased or sold in any client accounts (i) will not be insured by the Federal Deposit Insurance Corporation (“FDIC”), the Canada Deposit Insurance Corporation or other similar deposit insurance, (ii) will not be deposits or other obligations of CIBC, (iii) will not be endorsed or guaranteed by CIBC, and (iv) will be subject to investment risks, including possible loss of the principal invested. The CIBC trademark is used under license. © 2010 CIBC World Markets Inc. All rights reserved. Unauthorized use, distribution, duplication or disclosure without the prior written permission of CIBC World Markets Inc. is prohibited by law and may result in prosecution.

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