1. GWLInvestment Management Ltd.GWLInvestment Management Ltd. October, 2010
Volume 3, Issue 10
ECONOMIC AND CAPITAL MARKETS MONTHLY UPDATE
THE ECONOMY
Canada
♦ Canadian retail sales fell 0.1% in July, a weaker-than-
expected result. The soft reading was accentuated by
the HST but the weakness in home-related sales had a
bigger impact.
♦ Consumer prices dipped 0.1% in August, dropping annual
inflation slightly to 1.7% from 1.8% in July. The results were
modestly lower than expected as a broad-based decline
in energy prices was the major factor behind the drop.
♦ The Canadian economy is expected to grow at a modest
2.0% annualized rate in the second half of 2010. Soft U.S.
demand and a strong loonie will increase the trade
deficit. Also, consumer confidence has slipped recently,
likely due to concerns about rising debts.
♦ On a positive note, industrial capacity utilization rose
slightly higher than projected to 76% in the second
quarter. Growth was broadly-based and included an
improvement in the battered manufacturing sector.
United States
♦ Inflation pressures remain subdued, with deflation is still
only a remote possibility. The U.S. consumer price index
rose 0.3% in August, largely due to a jump in gasoline
prices and partly because of slightly higher food costs.
♦ U.S. housing starts increased 10.5% in August to 598,000
units annualized, for surpassing expectations. This was the
highest since April of this year with starts 2.2% above a
year ago and 25% above April 2009’s record low of
477,000 units. However, housing starts and completions
are likely to fall for all of the third quarter.
♦ The U.S. economy is forecast to grow just under 2.0%
annualized in the second half of the year. Households
have made progress in deleveraging by raising their
savings from 2.0% before the recession to approximately
6.0%. Household debt as a ratio of disposable income has
fallen 12.0% since 2007, returning to 2005 levels.
International
♦ The recovery of world trade continues with 12-month
trade volume growth running at an impressive 20% plus. In
parallel with the trade rebound, industrial output has risen
significantly in emerging countries and is now 11.9% above
the pre-recession peak and more than offsets the drag
from industrial output in the advanced economies.
♦ The euro zone has maintained its cyclical momentum and
fears of a downturn have abated slightly. Real GDP
expanded at a 3.9% annualized rate in the second
quarter with German GDP up a remarkable 9.0%.
Manufacturing output has been rising strongly with gains
even in Spain and Portugal.
Canadian Economic Indicators
Annual % change 2009 2010 2011
Unless otherwise indicated Forecast Forecast
G.D.P. (real) -2.6% 3.4% 3.0%
Exports -14.0 7.0 4.6
Consumer spending 0.2 3.3 3.0
Business Investment -17.4 0.0 6.1
Corporate Profits (pre-tax) -33.2 22.1 12.1
Unemployment rate (%) 8.3 8.1 7.7
Inflation Rate (all items) 0.3 1.9 2.2
Interest Rate Trends
Dec. Dec. Sept.
2008 2009 2010
Canadian Bank Prime 3.50% 2.25% 3.00%
U.S. Bank Prime 3.25 3.25 3.25
30-Day Commercial Paper
Canada 2.24 0.36 1.04
U.S. 0.38 0.20 0.21
5-Year Bonds
Canada 1.69 2.77 2.03
U.S. 1.55 2.68 1.27
30-Year Bonds
Canada 3.46 4.08 3.36
U.S. 2.68 4.64 3.68
Cdn./U.S. dollar 82.05¢ 94.95¢ 97.20¢
Market Index Returns
2009 Sept. YTD
S&P/TSX Composite Index 35.05% 4.09% 7.46%
S&P 500 Composite 8.08 5.42 2.22
MS EAFE (net) 12.62 6.27 -0.55
MS Japan -9.07 1.28 1.43
MS Pacific (ex Japan) 47.89 9.35 6.34
MS Europe 16.92 7.43 -1.67
MS Emerging Markets 53.00 7.56 9.24
DEX Universe Bond 5.41 0.65 7.51
Real Estate Fund (Gross) 1.61 0.76 2.54
All returns are in Canadian dollars and include income.
Source: TD Newcrest/”PC-Bond, a business unit of TSX Inc. Copyright © TSX Inc. All rights reserved. The
information contained herein may not be redistributed, sold or modified or used to create any
derivative work without the prior written consent of TSX Inc.”

2. 2.7
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GWLInvestment Management Ltd.
EQUITY MARKETS
September saw a surprisingly robust rally for global equities with the
S&P/TSX Composite Index gaining 4.1% during the month to a new post-
credit crisis high. Mid and small cap stocks saw even stronger
performance with the Completion Index up 6.6% during the month. A
slightly better tone to recent economic data out of the US has eased
fears of a double-dip recession. As well, the Federal Reserve has given
every indication that it will undertake further quantitative easing should
the situation warrant it. Sectors that led the market higher during the
month included the Technology, Utilities and Financial sectors. Lagging
performance was posted by the Healthcare and Consumer Staples
groups. The S&P/TSX Composite has at last broken out of the trading
range it’s been locked in since last September. This is encouraging
action. Commodity markets have also re-accelerated, in part reflecting
currency trends and the strength of emerging markets. All of this
underscores our constructive outlook for Canadian equities. As the
macro headwinds facing the market continue to clear, we expect
equities to show better relative performance to other asset classes in the
years ahead.
The US equity market posted its best September since 1939 and rose by
8.8%. This performance was driven primarily by rising expectations of
additional quantitative easing by the Federal Reserve. The Technology,
Industrials and Consumer Discretionary sectors led the charge, rising by
11 – 12%, as investors rotated into highly cyclical stocks. Accordingly, the
defensive Utilities and Consumer Staples sectors were the worst
performers with returns of 2.6% and 5.4%, respectively. Financials,
typically viewed as a cyclical sector, stood out as a laggard by rising
only 6.0%. The relatively poor performance of Financials stemmed
primarily from ongoing concerns over potential regulation and its
implications for long-term profitability. Investors continue to be fearful of
missing out on any potential market rally, and yet at the same time are
showing signs of elevated risk aversion, causing pronounced swings in the
market. Economic data continues to be mixed, suggesting that recent
US growth may be at risk - job growth remains elusive and house prices
could see another down-leg as an additional wave of foreclosures are
expected to hit the market. The current lack of job growth is the greatest
impediment to further stock market gains.
FIXED INCOME MARKETS
The DEX Universe Bond Index recorded a gain of 0.65% in September
continuing a very strong period of gains from the end of April. The gains
for the month were the strongest in the long-term sector of the index
where yields fell 12 basis points in the month compared to a decline of
only 7 basis points in the mid-term sector and an increase of 12 basis
points in the short-term sector. Provincial bond returns were very strong in
the month, returning 1.23%, compared to 0.68% for the corporate bond
sector and 0.31% for the federal government sector. On September 8
the Bank of Canada raised its overnight lending rate by 0.25% to 1.00%.
Recent commentary from the Bank suggests tightening of monetary
policy is now on hold indefinitely while it monitors future economic
conditions in Canada, the U.S. and around the world. In the U.S. the
Federal Reserve indicated a second round of quantitative easing would
be implemented in the near future if economic growth did not begin to
show stronger signs of improvement, especially in the critical area of
employment growth. In this environment, interest rates in Canada should
remain near current levels for the balance of the year unless economic
growth in Canada and the U.S. surprises to the upside.
10750
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ECONOMIC AND CAPITAL MARKETS MONTHLY UPDATE
October, 2010
GWLInvestment Management Ltd. Page 2
The views expressed in this commentary are those of GWL Investment Management Ltd. (“GWLIM”) as at the date of publication and are subject to change without notice. This commentary
is presented only as a general source of information and is not intended as a solicitation to buy or sell specific investments, nor is it intended to provide tax or legal advice. Prospective
investors should review the offering documents relating to any investment carefully before making an investment decision and should ask their representative for advice based on their
specific circumstances. GWLIM is a subsidiary of The Great-West Life Assurance Company. Great-West and GWLIM are members of the Power Financial Corporation group of companies.
© GWL Investment Management Ltd. 2010
S&P/TSX COMPOSITE INDEX
STANDARD & POOR’S 500 INDEX
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MS EAFE INDEX
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DEX UNIVERSE BOND INDEX*
* Formerly the SC Universe Bond Index