JANUARY 20, 2012

FEATURE ARTICLE, PAGE 5

BoC Policy: Keep Low and Carry On

Bank of Canada on Hold; Forecast Upgraded Slightly Chinese Growth Slowest in 2 Years Solid European Bond Auctions Canadian Inflation Hits the Brakes U.S. Housing Data Mostly Solid Brazil Cuts Rates 50 bps

Our Thoughts
Why suddenly so glum, Canada? While the market mood across much of the world so far in 2012 is cautiously optimistic (or at least cautiously less pessimistic, see the next two items), and there are rising hopes for the U.S. economy, both consumer and business confidence look to be still heading south in Canada. Even the Bank of Canada got into the act, DOUGLAS PORTER somehow managing to simultaneously upgrade its growth estimate for 2011 and 2012, while also noting ominously that the outlook has darkened in the past three months. Meantime, rumbling in the background is a steady stream of warnings from all and sundry about record levels of household debt and the possibility of a meaningful housing market correction. While the risks are no doubt serious, there are a number of positives to point to as well when considering the Canadian outlook: The better tone in the U.S. economy is probably the biggest plus. True, the U.S. will grow faster than Canada this year, but that should be welcomed insofar as it reflects a pick-up in U.S. growth (our #1 export destination). Long-term borrowing costs have dropped to record lows, which will support the housing market. Yet, homebuyers do not appear to be broadly over-doing it. Home sales were up a moderate 4.6% y/y in December, and average prices just 0.9% y/y. Auto production is reviving, and an expected further rise in U.S. auto sales will support additional gains in 2012. Manufacturing sales jumped 2% in November and are back to 2007 levels. The fever in Canadian inflation broke late last year, with prices for gasoline, clothing and cars all moderating. At 2.3%, Canada now has one of the lowest inflation rates in the world among major economies. Merchandise trade is back in surplus, as strong oil exports are more than offsetting the steep drop in natural gas sales. Ottawas budget deficit is narrowing faster than expected; in the first seven months of the fiscal year, the gap is down more than $6 billion from last year, and looks to better the full-year estimate of $31 billion. The TSX is up more than 10% from the lows it hit just over three months ago. The Canadian dollar is again close to par at just under 99 cents(US), a strong level for consumers without adding further material strain for producers. Spring is barely two months away. Overall, we do look for a cooling in Canadian GDP growth this year to 2.0%, which is below the economys long-run average. However, a better-than-expected performance by the U.S. economy would soothe a lot of anxieties about the outlook for the rest of the world. While Europes economy buckles under the weight of fiscal austerity and a debilitating credit crisis, the U.S. economy continues to carve out a durable recovery. Each week brings more evidence of a virtuous cycle in demand, production, jobs and credit creation. Following the subprime credit and housing busts, the linchpin to a sustainable, healthy expansion has been an improvement in household finances and incomes. The former, though

SAL GUATIERI

PAGE 2 FOCUS JANUARY 20, 2012

Our Thoughts
likely not complete, is evident in a 16-ppt reduction in household debt-to-income ratios since 2007 (back to 2004 levels). The latter is evident in firmer employment numbers (notably the 1.3 million new household survey jobs of the past five months) and in lower initial jobless claims (to near 4-year lows of 352k). With new jobs come greater confidence. Consumer sentiment, though still low, has retraced all of last summers plunge. Improved confidence whets credit appetites. Consumer credit rose 3.2% y/y to November, the fastest pace since Lehman Brothers collapsed. Jobs, confidence and credit drive spending, notably on big-ticket items. Although high foreclosure rates will continue to undermine housing for a while, there is no disputing the improved tone in recent indicators. Existing home sales rose for the third straight month in December to near one-year highs. This cut the months supply to a near six-year trough of 6.2, putting the market firmly in balanced territory. A recent upturn in new mortgage applications and a 4-year high in homebuilders activity point to further strength ahead. With more spending comes more production. U.S. factory output jumped 0.9% in December, the most in a year and up 4% annualized in the fourth quarter. Next weeks reports on durable goods orders, new home sales and Q4 GDP (3.0% growth expected, the most in 1 years) should provide further evidence of a firming U.S. expansion. With expected 2.3% growth this year, the U.S. wont win any sprinting medals, but it should at least lead the G7 economic marathon. This means U.S. stocks could outperform other world indexes once again in 2012. Its been a solid start to the year, with equities climbing after a tough 2011, as Euro Area debt crisis worries have eased to some extent. European equity markets have performed well, with Germanys 8.8% gain through the first three weeks of the year among the top gainers globally. A series of successful debt auctions by France, Spain, Italy and others has sharply lowered peripheral spreads versus Germany, and suggests that worries about sovereign funding issues may have been overstated. Even so, Italy and Spain still have to roll over a combined 140 bln in debt through the rest of Q1. Ratings agencies could also slash ratings once again, which would dent confidence. As such, theres little slack for policymakers, as markets will press for continued progress. A sharp rebound in the euro, nearing $1.30 at its best level this week, might also be a sign of easing concerns about the region. On the other hand, there was a record net short speculative position in euros as of last Tuesday, and the rally could largely reflect short covering. The European saga still has at least a few chapters left before the conclusion. European leaders meet on January 30th and markets will be looking for more signs of progress. Moreover, all of the austerity and reform already agreed to still has to be implementedeasier said than done. Meantime, European banks, which are receiving massive liquidity from the ECB, remain a question mark. They still need to hit 9% core tier 1 capital by mid-year, as mandated by the EBA. Expect significant asset sales over the coming months, which have the potential to weigh on growth in Europe and elsewhere. And, dont forget about Greece. Recent reports are encouraging, but debt renegotiations face a hard deadline in March. Overall, one cant deny the New Year has started on a firm footing, but lets not get of ahead ourselves.
PAGE 3 FOCUS JANUARY 20, 2012

Recap
Jennifer Lee, Senior Economist

GOOD NEWS
Manufacturing Sales +2.0% (Nov.) Manufacturing New Orders +3.6% (Nov.) Existing Home Sales +4.6% y/y (Dec.)and average prices slowed to +0.9% y/y Consumer Prices unexpectedly fall 0.6% (Dec.) Foreigners buy a net $15.0 bln of Canadian securities (Nov.) Empire State Manufacturing Survey +5.3 pts to 13.48; Philly Fed Index +0.5 pts to 7.3 (Jan.) Foreigners bought a net $58.0 bln of U.S. securities (Nov.) Industrial Production +0.4% (Dec.) NAHB Housing Index +4 pts to 25 (Jan.) Initial Claims -50,000 to 352,000 (Jan. 14 wk) Core Consumer Prices +0.1% (Dec.) Building Permits -0.1% to 679,000 a.r. (Dec.)much better than expected Existing Home Sales +5.0% (Dec.) EurozoneConsumer Prices revised down to +2.7% y/y (Dec.) GermanyZEW Survey +32.2 pts to -21.6 (Jan.) GermanyProducer Prices -0.4% (Dec.) ItalyIndustrial Orders +0.1% (Nov.) U.K.Consumer Prices slowed to +4.2% y/y (Dec.) U.K.Retail Sales +0.6% (Dec.)

BAD NEWS

CANADA U.S. EUROPE JAPAN CHINA AUSTRALIA

CANADA
BoC opts to stay on the sidelines, but calls for output gap to close a quarter earlier

Wholesale Trade -0.4% (Nov.) New Motor Vehicle Sales -1.0% (Nov.)

UNITED STATES
Economic recovery holding up in the new year Very encouraging drop in initial claims

Housing Starts -4.1% to 657,000 a.r. (Dec.) Redbook -1.4% (Jan. 14 wk) Core Producer Prices +0.3% (Dec.)

EUROPE
S&P downgrades EFSF to AA+ This weeks debt issues well received despite S&P downgrade (including France, Spain and EFSF) IMF proposes boosting lending resources by US$500 bln

U.K.Rightmove House Prices -0.8% (Jan.) U.K.Jobless Claims +1,200 (Dec.) U.K.Nationwide Consumer Confidence -2 pts to 38 (Dec.)

JAPAN
Nikkei closes at 2-month high

Machine Orders +14.8% (Nov.) Corporate Goods Prices +0.1% (Dec.) Consumer Confidence +0.8 pts to 38.9 (Dec.) Department Store Sales +0.8% y//y (Dec.) Westpac Consumer Confidence +2.4% (Jan.)

All-Industry Activity Index -1.1% (Nov.)

AUSTRALIA
RBA may ease next month

Employment -29,300 (Dec.) New Motor Vehicle Sales -2.9% (Dec.)

CHINA
Decent economic data ease fears of a hard landing

Real GDP eases to +8.9% y/y (Q4)better than expected and up 9.2% for 2011 Industrial Production +12.8% y/y (Dec.) Retail Sales +18.1% y/y (Dec.) Fixed Asset Investment +23.8% y/y (2011)

Foreign Direct Investment -12.7% y/y (2011)

Indications of stronger growth and a move toward price stability are good news for the economy.
PAGE 4 FOCUS JANUARY 20, 2012

Feature

BoC Policy: Keep Low and Carry On

Michael Gregory, CFA, Senior Economist

The Bank of Canada kept policy rates unchanged this week, for the 11th consecutive time since September 2010. The outcome was completely expected, but the announcement and subsequent Monetary Policy Report contained some interesting tidbits. By standing pat, the BoC retained the distinction of being the only G-10 central bank not having eased policy since last March. As recently as early November, the BoC had four friends in this regard. But the incipient Euro Area recession caused the ECB, along with Swedens Riksbank and Norway, to flip their policies over, cutting rates after hiking them earlier in the year. The Reserve Bank of Australias compounding concern over Chinas slowing economic momentum nudged it off the on-hold fence, where it had been sitting since the autumn of 2010, right beside the Bank of Canada. Its not that Europe and China arent important policy considerations. The Bank said the outlook for the global economy has deteriorated and uncertainty has increased since October (the last MPR). In particular, the Euro Area recession was now expected to be deeper and longer. Indeed, European topics occupied both technical boxes in the MPR, a sign that the Banks researchers have been feverishly analyzing the myriad implications of the crisis for Canada, a crisis that is poised to claim some 0.6% of local GDP this year. This is serious stuff, but there are offsetting considerations. The Bank continues to assert that there is considerable monetary policy stimulus in place, helping to mitigate these external risks. All four of the BoCs previously non-easing central bank friends sported policy rates above those in Canada before they cut rates. Meantime, the Banks pronouncements this week sported major shifts in the assessment of U.S. economic risks and in concern over local household debt dynamics, supporting the cause for pause. Both the Canadian and U.S. economies performed significantly better than the BoC projected during the second half of last year (e.g., Canadian 2011 H2 growth was revised up to 2.8% from 1.4%). Although both economies are expected to slow down at least a bit in the first half of this year, in the face of European and other global headwinds, prospects are necessarily less riskier given that both economies hit these headwinds with a running start. Indeed, U.S. prospects have now moved from being a net downside risk for the Canadian outlook, to being a net upside risk. The Bank is concerned that recent U.S. consumer spending vigour could prove more persistent and fiscal austerity could prove feebler (Stateside, the BoC is bracing for 0.8% of GDP fiscal drag in 2012 and a whopping 2.5% in 2013). As before, Canadian household debt and housing dynamics pose both upside and downside risks to the outlook. If anything, the Bank might have added a wee bit more weight to the upside (i.e., the risk of credit-based consumer spending continuing to grow strongly), given the arrival of record-low 5year mortgage rates. The Bank said very favourable financing conditions are expected to buttress consumer spending and housing activity. Household expenditures are expected to remain high relative to GDP and the ratio of household debt to income is projected to rise further. Before, the Banks chatter was about Canadian household expenditures growing only modestly. The juxtaposition of expected continued debt accumulation, after repeatedly warning Canadians about the evils of their potentially profligate ways, and record-low borrowing costs was not lost on
PAGE 5 FOCUS JANUARY 20, 2012

Feature
reporters at Governor Carneys post-MPR press conference. Asked whether he judged if current-low policy rates were contributing to record-low mortgage rates (and related risks to economic and financial stability), the Governor responded that the Bank controls the one-day interest rate only, and that 5-year yields are influenced far more by other factors such as foreign capital inflows. However, longer-term interest rates are also heavily influenced by the expected path for shorter-term interest rates, which key off the expected path for policy rates. Mr. Carney himself has waxed previously on the prospects for rates remaining low for long. Few are expecting policy moves within the next year, and thats worth the first 20% of a 5year maturity. Although the BoC might be trying to sidestep greater responsibility for the germination of the policy seeds it has sown, it also has little influence on resulting sectoral, industrial and regional sprouts (or lack thereof). By aiming for a national aggregate such as CPI inflation, the optimal policy path could prove less than optimal for a wide swath of stakeholders. There is no doubt that interest rates are too low to constrain risky household debt build up, but one could also argue that lower (C$-strength-sapping, capex-encouraging) interest rates are what many Canadian exporters require. This is no different than during the past economic cycle when policy was deemed too accommodative for booming Alberta, but too restrictive for struggling Ontario. Its essentially up to fiscal and macroprudential policy to deal with the sectoral, industrial and regional fallout.

CHART 1

LOW FOR LONG...

Canada (% : as of January 19, 2012)

Overnight Rate
6 5 4 3 2 1 0 01 03 05 07 09 11 13
* BMO Capital Markets
1.00%
forecast *

CHART 2

...BUT NOT FOREVER

Canada (percent)

2-Year Benchmark Bond Yield

2.5 2.0 1.5 1.0 0.5 Mar 10 Jun Sep Dec Mar 11 Jun Sep Dec
BoC Rate Hikes June 1 July 20 Sep 8 BoC Signals More Hikes

However, its not like the BoC is saying rates will never rise. Employing its now rote phrase, the MPR asserted that this projection includes a gradual reduction in monetary stimulus over the projection horizon, consistent with achieving the inflation target. In combination with the BoC tweaking its Canadian projection, so that the economy now reaches full capacity by 2013 Q3one quarter earlier than beforewere betting on some degree of rate hikes (no matter how modest) starting by the middle of next year (Chart 1). The market is not quite there yet (Chart 2), more fixated on the prospects for potential easing in the near term and currently pricing in slightly less than even odds of a single quarter-point cut by October (mid-market OIS). We judge that given North Americas decent economic momentum to start 2012 amid escalating domestic debt concerns, external headwinds are going to have to blow much harder to elicit Bank of Canada easing. We sense the BoC will still be sitting on the on hold fence through the early part of 2013, before jumping off into the rate-hike side where they might find a central bank friend or two (were thinking the Scandinavians).

PAGE 6 FOCUS JANUARY 20, 2012

Economic Forecast
2011 CANADA Real GDP (q/q % chng : a.r.) Consumer Price Index (y/y % chng) Unemployment Rate (%) Housing Starts (000s : a.r.) I II III IV I II 2012 III IV 2010 ANNUAL 2011 2012

3.5 2.6 7.7 177

-0.5 3.4 7.5 192 -64.5

3.5 3.0 7.2 205 -48.5

1.8 2.7 7.4 199 -49.8

1.7 2.3 7.5 186 -52.1

2.2 2.2 7.5 181 -50.5

2.4 2.4 7.4 181 -50.5

2.7 2.1 7.3 182 -48.8

3.2 1.8 8.0 191 -50.9

2.3 2.9 7.5 193 -51.0

2.0 2.3 7.4 182 -50.5

Current Account Balance ($blns : a.r.) -41.3 Interest Rates (average for the quarter : %) Overnight Rate 3-month Treasury Bill 10-year Bond Canada/U.S. Interest Rate Spreads (average for the quarter : bps) 90-day 10-year UNITED STATES Real GDP (q/q % chng : a.r.) Consumer Price Index (y/y % chng) Unemployment Rate (%) Housing Starts (mlns : a.r.) Current Account Balance ($blns : a.r.) Interest Rates (average for the quarter : %) Fed Funds Target Rate 3-month Treasury Bill 10-year Note EXCHANGE RATES (average for the quarter) US/C$ C$/US$ /US$ US$/Euro US$/

1.00 0.95 3.31

1.00 0.95 3.16

1.00 0.88 2.53

1.00 0.86 2.13

1.00 0.82 2.00

1.00 0.82 2.00

1.00 0.82 2.18

1.00 0.82 2.46

0.60 0.56 3.24

1.00 0.91 2.78

1.00 0.82 2.16

82 -15 0.4 2.2 9.0 0.58 -478

90 -5 1.3 3.3 9.1 0.57 -499

86 10 1.8 3.8 9.1 0.62 -441

84 9 3.0 3.3 8.7 0.66 -442

80 5 2.0 2.5 8.6 0.67 -442

80 10 2.4 2.2 8.5 0.70 -440

80 8 2.8 2.0 8.4 0.71 -440

80 6 2.9 2.2 8.3 0.71 -439

42 2 3.0 1.6 9.6 0.58 -471

86 0 1.7 3.1 8.9 0.61 -465

80 7 2.3 2.2 8.5 0.70 -440

0.13 0.13 3.46

0.13 0.05 3.21

0.13 0.03 2.43

0.13 0.01 2.05

0.13 0.02 1.95

0.13 0.02 1.90

0.13 0.02 2.10

0.13 0.02 2.40

0.13 0.14 3.21

0.13 0.05 2.79

0.13 0.02 2.09

101.4 0.986 82 1.37 1.60

103.4 0.967 82 1.44 1.63

102.1 0.979 78 1.41 1.61

97.8 1.023 77 1.35 1.57

96.7 1.034 77 1.28 1.54

94.3 1.060 76 1.25 1.53

96.2 1.040 77 1.28 1.55

99.0 1.010 79 1.33 1.59

97.1 1.030 88 1.33 1.55

101.2 0.989 80 1.39 1.60

96.6 1.036 77 1.29 1.55

Note: Blocked areas represent BMO Capital Markets forecasts Up and down arrows indicate changes to the forecast

PAGE 7 FOCUS JANUARY 20, 2012

Key for Next Week CANADA

Retail Sales
Tuesday, 8:30 am Nov. (e) +0.2% Consensus +0.2% Oct. +1.0% Ex. Autos +0.3% +0.1% +0.7%

Douglas Porter, CFA, Deputy Chief Economist

After a pair of powerful 1% advances in each of the two prior months, look for Canadian retail sales to simmer down somewhat in November. Auto sales slipped 1%, gasoline prices retreated more than 2%, and consumer confidence and employment were weak in the month. Still, we expect a mild 0.2% rise in overall sales, as large-scale retailers reported decent activity in the month (up 3.2% y/y), in spite of all the headwinds listed above. With consumer prices nudging up just 0.1% in the month, this points to a small gain in the volume of retail sales (up 0.1%). With back-to-back 0.6% increases in real sales in the two prior months, our call would put Q4 volumes on track for an annualized increase of nearly 5%. This points to some upside risk for our call of less than 2% growth for both consumer spending and GDP in the quarter. Given the robust rise in manufacturing activity but a fall in wholesale sales in November, our call on retail trade would point to a 0.1% rise for GDP in the month (reported Jan. 31).

UNITED STATES
FOMC Announcement
Wednesday, 12:30 pm

Sal Guatieri, Senior Economist

Quarterly FOMC Press Briefing

Wednesday, 2:15 pm

Chairman Bernanke will boldly go where no Fed chief has gone before with the publication of interest rate forecasts from all 17 policy makers. The forecasts, to be unveiled at the end of the meeting, will cover the final quarter of 2012 and the end of subsequent years. Each policymaker will also state the period in which he/she expects rates to increase, as well as his/her outlook for the Feds balance sheet. If the modal forecast and starting date of rate hikes suggest that rates will rise much later than the market anticipates (late 2013 or early 2014) or much later than mid-2013 (recall, the conditional pledge of no change at least through mid-2013), then longer-term interest rates should decline, an effective easing in policy. A somewhat more dovish slate of incoming policymakers could lean in that direction, though recent better economic data suggest otherwise. The Fed will also outline its long-term goals for inflation and unemployment. The lower the latter, the greater the likelihood of an extended period of low rates. Also look for the members to continue the current mortgage-bonds reinvestment and Operation Twist programs to maintain the size of the Feds balance sheet while extending its average maturity. No additional bond purchases are likely to be announced. A surge in Boeing aircraft sales likely lifted durable goods orders 2.5% in December. Capital goods orders (excluding defense and aircraft) should also rise, albeit more modestly and for the first time in three months, as companies likely ramped up equipment orders ahead of the now expired full-expensing allowance. Although capex probably moderated from its double-digit pace of the past two years, it should remain a key pillar of the expansion in 2012.

Durable Goods Orders

Thursday, 8:30 am Dec. (e) +2.5% Consensus +2.0% Nov. +3.7% Ex. Transport +0.6% +0.9% +0.3%

PAGE 8 FOCUS JANUARY 20, 2012

Key for Next Week

New Home Sales
Thursday, 10:00 am Dec. (e) 318,000 a.r. (+1.0%) Consensus 320,000 a.r. (+1.6%) Nov. 315,000 a.r. (+1.6%)

Buyers are starting to nibble again at new homes now that the overhang in the resale market is easing. Supported by unusually warm weather, sales likely rose 1.0% to 318,000 annualized in December, the fourth straight gain and the highest level in a year, though still a fraction of long-term norms. The housing market is showing concrete signs of stabilizing, supported by improved job growth and confidence, and the best affordability on record. The U.S. economy likely expanded at the fastest pace in 1 years in Q4, with all sectors (except government) providing support. We look for growth of 3.0% annualized, twice as fast as the economy grew in the past year, with decent support from exports and construction (including housing), and a moderate assist from consumers (2.5%). Capex no doubt slowed from the double-digit rate of the previous two years, but likely remained healthy ahead of the now-expired full-expensing allowance. While growth will likely downshift to 2.0% in Q1, as the personal savings rate stops falling, it should strengthen again through the year.

Real GDP
Friday, 8:30 am Q4 A (e) +3.0% a.r. Consensus +3.0% a.r. Q3 +1.8% a.r. GDP Deflator +0.7% a.r. +2.0% a.r. +2.6% a.r.

PAGE 9 FOCUS JANUARY 20, 2012

Financial Markets Update

JAN 20 * JAN 13 CHANGE FROM: (BASIS POINTS) WEEK AGO 4 WEEKS AGO DEC. 31/11

Canadian Money Market

Call Money Prime Rate

1.00 3.00 0.25 3.25 0.83 0.04 0.20 1.18 1.09 4.59

1.00 3.00 0.25 3.25 0.78 0.02 0.10 1.23 1.09 4.60

0 0 0 0 5 2 10 -5 0 -1

0 0 0 0 1 5 10 -22 1 -1

0 0 0 0 1 3 10 -17 1 -1

U.S. Money Market

Fed Funds (effective) Prime Rate

3-Month Rates
Canada United States Japan Eurozone United Kingdom Australia

Bond Markets
2-year Bond Canada United States 10-year Bond Canada United States Japan Germany United Kingdom Australia

1.04 0.24 2.05 2.02 0.98 1.93 2.13 3.82 19.7 52 108 602 98.66 1.014 77.12 1.2936 1.553 104.77 310.33 98.36 2.36 1659.23 12387 1312 2785 12680 8766 6401 5728 3321 4240

0.95 0.22 1.92 1.86 0.94 1.76 1.97 3.84 20.9 55 116 655 97.73 1.023 76.97 1.2680 1.532 103.22 307.70 98.70 2.67 1639.00 12231 1289 2711 12422 8500 6143 5637 3196 4196

9 2 12 15 4 17 16 -2 -1.2 pts -3 -8 -53 0.9 0.2 2.0 1.4 1.5 0.9 -0.3 -11.7 1.2 1.3 1.8 2.8 2.1 3.1 4.2 1.6 3.9 1.0

12 -4 4 -1 1 -2 9 9 -1.1 pts -6 -14 -93

(% CHANGE)

9 0 11 14 0 11 15 16 -3.7 pts -5 -12 -78 0.8 0.3 -0.2 -0.1 2.6 1.6 -0.5 -21.1 6.1 3.6 4.3 6.9 3.8 3.7 8.5 2.8 5.1 4.5

Risk Indicators
VIX TED Spread Inv. Grade CDS Spread ** High Yield CDS Spread **

Currencies
US/C$ C$/US$ /US$ US$/Euro US$/ US/A$

0.7 -1.2 -0.8 -0.4 3.2 1.4 -1.3 -24.3 3.3 3.9 3.7 6.4 3.1 4.4 8.9 3.9 7.1 2.4

Commodities
CRB Futures Index Oil (generic contract) Natural Gas (generic contract) Gold (spot price)

Equities
S&P/TSX Composite S&P 500 Nasdaq Dow Jones Industrial Nikkei Frankfurt DAX London FT100 France CAC40 S&P ASX 200
* as of 10:30 am ** One day delay

PAGE 10 FOCUS JANUARY 20, 2012

JANUARY 23 JANUARY 27
MONDAY JANUARY 23 TUESDAY JANUARY 24 WEDNESDAY JANUARY 25
Merchandise Trade Balance Dec. 11 (e) -155 bln Dec. 10 +726 bln Bank of Japan Monetary Policy Meeting (January 23-24)

Global Calendar
THURSDAY JANUARY 26 FRIDAY JANUARY 27
CPI Dec. (e) -0.2% y/y Nov. -0.5% y/y Retail Sales Dec. (e) +0.4% Nov. -2.0% Core CPI -0.1% y/y -0.2% y/y +2.0% y/y -2.2% y/y

JAPAN

Minutes from the December 20-21 BoJ Monetary Policy Meeting

EUROZONE

EUROZONE

EUROZONE

GERMANY

GERMANY

EUROZONE

Consumer Confidence Jan. A (e) -21.4 Dec. -21.1

Euro Area Finance Ministers Meet Merkel meets Belgiums Di Rupo in Berlin Germany & France sell Tbills

Manufacturing PMI Jan. A (e) 47.2 Dec. 46.9 Services PMI Jan. A (e) 49.0 Dec. 48.8 Industrial New Orders Nov. (e) -2.2% Oct. +1.8%

IFO Survey Jan. (e) 107.5 Dec. 107.2

ITALY

GfK Consumer Confidence Feb. (e) 5.6 Jan. 5.6

M3 Money Supply (3m avg.) Dec. (e) +2.3% y/y Nov. +2.5% y/y

Retail Sales Nov. (e) -0.2% Oct. +0.1% -2.7% y/y +1.6% y/y

-1.4% y/y -1.5% y/y

EU Finance Ministers Meet Italy sells Bonds Netherlands sells Bonds Spain sells Tbills Real GDP Q4 A (e) -0.1% Q3 +0.6% Germany sells Bonds Merkel meets Spains Rajoy in Berlin Italy sells Tbills

U.K.

+0.8% y/y +0.5% y/y

Minutes from the January 11-12 BoE Monetary Policy Meeting

OTHER

AUSTRALIA

INDIA

AUSTRALIA

Producer Price Index Q4 (e) +0.4% Q3 +0.6%

+3.0% y/y +2.7% y/y

Reserve Bank of India Monetary Policy Meeting

Consumer Price Index Q4 (e) +0.2% Q3 +0.6%

+3.3% y/y +3.5% y/y

Chinese Lunar New Year (Markets closed all week)

JANUARY 23 JANUARY 27
MONDAY JANUARY 23 TUESDAY JANUARY 24
8:30 am Nov. (e) Consensus Oct. Retail Sales +0.2% +0.2% +1.0% Ex. Autos +0.3% +0.1% +0.7%

North American Calendar

THURSDAY JANUARY 26
8:30 am Survey of Employment, Payrolls and Earnings (Nov.) Initial Claims 365k (+13k) * 352k (-50k) Continuing Claims

WEDNESDAY JANUARY 25
3:00 am BoC Governor Carney participates in a panel discussion at the World Economic Forum in Davos, Switzerland 12:05 pm 3-year bond auction $3.0 bln (New cash $3.0 bln)

FRIDAY JANUARY 27
Ottawas Budget Balance ** Nov. 11 Nov. 10 -$4.5 bln

CANADA

8:30 am Dec. (e) Nov.

Leading Indicator +0.8% +0.8%

7:45 am ICSC Same-Store Sales Jan. 21 Jan. 14 (mtd) -2.7% m/m +2.8% y/y 8:55 am Redbook Same-Store Sales Jan. 21 Jan. 14 (mtd) -1.4% m/m +3.1% y/y 10:00 am Richmond Fed Manufacturing Index Jan. (e) 7 Dec. 3

7:00 am Jan. 20 Jan. 13 10:00 am Nov. (e) Consensus Oct. 10:00 am Dec. (e) Consensus Nov.

MBA Mortgage Apps +23.1% FHFA House Price Index -0.1% +0.1% -0.2% Pending Home Sales -3.0% -1.0% +7.3%

FOMC Meeting Begins 9:00 pm State of the Union Address

12:30 pm FOMC Announcement 2:15 pm Quarterly FOMC Press Briefing

3,432k ( -215k) Durable Goods Orders Ex. Transport Dec. (e) +2.5% +0.6% Consensus +2.0% +0.9% Nov. +3.7% +0.3% 8:30 am Chicago Fed National Activity Index Dec. (e) 0.20 Nov. -0.37 9:45 am Bloomberg Consumer Comfort Index Jan. 22 Jan. 15 -47.4 10:00 am New Home Sales Dec. (e) 318,000 a.r. (+1.0%) Consensus 320,000 a.r. (+1.6%) Nov. 315,000 a.r. (+1.6%) 10:00 am Leading Indicator Dec. (e) +0.7% Consensus +0.7% Nov. +0.5% 11:00 am Kansas City Fed Mfg. Activity Jan. Dec. -4 11:00 am 13- & 26-week bill announcements 11:00 am Fed buying $2.25-2.75 bln bonds (Feb. 2036-Nov. 2041) 1:00 pm 7-year note auction $29.0 bln

UNITED STATES

8:30 am Jan. 21 (e) Jan. 14 8:30 am Jan. 14 Jan. 7 8:30 am

Real GDP GDP Deflator Q4 A (e) +3.0% a.r. +0.7% a.r. Consensus +3.0% a.r. +2.0% a.r. Q3 +1.8% a.r. +2.6% a.r. 9:55 am Univ. of Michigan Consumer Sentiment Jan. F (e) 74.2 * Jan. P 74.0 Dec. 69.9

8:30 am

11:00 am

4-week bill auction announcement 11:00 am Fed buying $1.5-2.0 bln notes (Aug. 2022-Feb. 2031) 11:30 am 13- & 26-week bill auction $56.0 bln * consensus ** date approximate

11:00 am Fed buying $4.25-5.0 bln notes (Jan. 2018-Nov. 2019) 11:30 am 4-week bill auction 1:00 pm 2-year note auction $35.0 bln

1:00 pm

5-year note auction $35.0 bln

11:00 am Fed selling $8.0-8.75 bln notes (Mar. 2014-Jan. 2015)

Upcoming Policy Meetings Bank of Canada: March 8, April 17, June 5 FOMC: March 13, April 24-25, June 19-20

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