Weekly Market Insight
June 13, 2008 NORTH AMERICAN & INTERNATIONAL ECONOMIC HIGHLIGHTS
Shots Across the Bow
It seems odd to look at a Canadian interest rate decision for clues on the thinking at the US Federal Reserve or
the European Central Bank. What could possibly transpire in Ottawa's backwater that would be instructive for
the big boys in Washington or Frankfurt? Plenty, if central bankers have been talking to each other about the
global inflation risks they collectively face.
It doesn't take a conspiracy theory to see that Governor Carney has gone to school on a recent shift in thinking
at the Fed. As recently as May 1st, Carney testified about a "deeper and more protracted" American
slowdown, that would have "a more pronounced impact on consumer spending" with "direct consequences
for the Canadian economy" making further stimulus "likely". That matched the Fed's earlier discussion of
"considerable downside risks".
But, maybe because job losses didn't escalate, another investment bank didn't fail, or simply because it faced a
building inflation threat, the Fed changed its tune. That was summed up in Bernanke's claim on June 11th that
"the risk that the economy has entered a substantial downturn appears to have diminished over the past
month or so."
The Bank of Canada likes to speak in terms of inflation rather than growth risks, but inevitably treats these as
one and the same. So Bernanke's new view was perfectly echoed by the Bank of Canada when, in declining to
deliver a rate cut it earlier deemed "likely", it wrote that "many of the downside risks to inflation identified in
the April MPR have eased."
Having decided to worry less about growth, both central banks chose to send a message to financial markets
about their limited tolerance for inflation risks, which at this point are still centred on commodities. Carney
didn't even think about hinting at a rate hike, but many on the Fed are already playing that "what if" game,
even describing how quickly rates might rise.
The Fed hawks can only go so far as long as jobs are vanishing. But if, as seems likely, employment levels off
late this year, the Fed won't hesitate to take back what it judges to have been emergency style rate cuts
delivered when it was in greater fear of a Wall Street collapse. A rate hike by Q4 looks probable, with a 4%
funds rate in store within four or five quarters from now. And the Bank of Canada will follow along to that
same target, requiring fewer hikes in 2009 to get there.
That brings us to the ECB. Unconstrained by US-style job losses, or Canada's factory sector meltdown, or the
US and UK style housing crash, it's the one major western central bank that can afford to send a sterner
message against global inflation. A token quarter point hike at its next meeting might be all we see from the
ECB this year, given evidence of a slowdown emerging in Q2. But Trichet's anti-inflation shot across the bow
will be a hint of what's to come in North America.
Avery Shenfeld
Senior Economist
Economics & Strategy CIBC WORLD MARKETS INC. Weekly Market Insight June 13, 2008
2
International Stock Indexes Thursday, June 12, 2008 YTD 3-yr High Low - + % chg % chg
World DJ World Index 276.88 274.54 275.5 -1.29 -0.47 0 -8.4 320.33 261.44 -8.9 9.3
World DJ World ex U.S. 250.14 246.48 247.47 -2.52 -1.01 0 -9 291.11 231.73 -7.2 13.6
World MSCI EAFE* n.a. n.a. 2011.9 -19.53 -0.96 0 -10.7 2388.74 1913.54 -10 11.2
Asia-Pacific DJ Asia-Pacific 148.99 144.51 144.55 -4.41 -2.96 0 -8.6 172.49 133.78 -7.9 10.9
Australia All Ordinaries 5547.3 5428.2 5433.2 -128.7 -2.31 0 -15.4 6853.6 5163.8 -13.6 9.1
Australia S & P/ASX 200 5451.6 5326 5329.2 -138.1 -2.53 0 -15.9 6828.7 5086.1 -14.9 8.1
China DJ CBN China 600 24941.92 23963.88 24446.72 -431.44 -1.73 0 -41 44631.83 24446.72 -25 40.1
China Dow Jones China 88 273.9 262.62 267.81 -5.69 -2.08 0 -43.3 530.54 267.81 -21.3 38.6
China Shanghai Composite 3031.06 2900.12 2957.53 -66.7 -2.21 0 -43.8 6092.06 2957.53 -28.1 n.a.
Hong Kong Hang Seng 23023.86 22695.1 23023.86 -303.74 -1.3 0 -17.2 31638.22 20387.13 10.3 18.2
India Bombay Sensex 15270.85 14748.07 15250.2 64.88 0 0.43 -24.8 20873.33 13989.11 7.4 31
Indonesia Jakarta Composite 2409.01 2345.05 2409.01 34.22 0 1.44 -12.3 2830.26 1908.64 14.3 30
Malaysia Kuala Lumpur Composite 1228.25 1221.58 1225.54 -3.74 -0.3 0 -15.2 1516.22 1173.22 -9.7 11.3
New Zealand NZSX-50 3487.43 3439.22 3439.22 -48.21 -1.38 0 -14.9 4332.29 3404.55 -18 3.8
Pakistan KSE 100 13167.69 12933.36 13025.64 9.26 0 0.07 -7.5 15676.34 11958.09 -3.2 21
Philippines Manila Composite 2564.44 2510.81 2544.89 -34.39 -1.33 0 -29.7 3873.5 2544.89 -29.9 9.5
Singapore Straits Times 3024.96 2978.58 3020.15 -26.62 -0.87 0 -12.9 3831.19 2792.75 -13.6 12.2
South Korea Kospi 1761.29 1739.36 1739.36 -42.31 -2.37 0 -8.3 2064.85 1574.44 -1.7 20.6
Sri Lanka Colombo Stock Exchange 2483.34 2459.99 2459.99 -14.94 -0.6 0 -3.2 2681.27 2354.98 -5 10
Taiwan Weighted 8216.43 8053.07 8062.31 -283.28 -3.39 0 -5.2 9809.88 7408.4 -4.6 9.2
Thailand SET 791.68 782.91 790.8 -0.86 -0.11 0 -7.8 915.03 728.58 7.6 5.2
Japan Nikkei Stock Avg 14010.32 13826.07 13888.6 -294.88 -2.08 0 -9.3 18261.98 11787.51 -22.2 7.1
Japan Nikkei 300 279.11 275.6 276.8 -5.88 -2.08 0 -8.1 359.95 234.2 -21.5 8.2
Europe DJ Stoxx 600 304.59 301.46 304.1 2.73 0 0.91 -16.6 399.71 290.26 -22.9 3.6
Europe DJ Stoxx 50 3008.89 2972 2999.82 29.4 0 0.99 -18.6 3998.93 2873.33 -23.9 -0.1
Euro zone DJ Euro Stoxx 50 3555.35 3511.97 3542.59 33.2 0 0.95 -19.5 4557.57 3431.82 -21 4.1
Euro zone DJ Euro Stoxx 342.66 339.18 341.89 2.86 0 0.84 -17.6 441.18 328.12 -21.4 5.9
Austria ATX 4197.75 4087.82 4196.15 98.4 0 2.4 -7 4981.87 3524.64 -14.5 13
Belgium Bel-20 3601.26 3538.32 3585.69 38.8 0 1.09 -13.1 4681.67 3460 -22.7 5
Czech Republic PX 50 1602 1576 1602 16.6 0 1.05 -11.7 1936.9 1405.1 -13.6 10.4
Denmark OMX Copenhagen 409.79 405.08 409.11 1.03 0 0.25 -8.8 492.84 368.52 -12.6 10.7
Finland OMX Helsinki 9046.5 8951.25 9016.89 -5.49 -0.06 0 -22.3 12656.77 9016.89 -21.5 8.2
France CAC 40 4694.71 4646.15 4672.3 11.39 0 0.24 -16.8 6125.6 4431.04 -22.7 3.8
Germany DAX 6733.12 6647.6 6714.52 64.26 0 0.97 -16.8 8105.69 6182.3 -14.5 13.6
Hungary BUX 21521.43 21112.99 21457.9 174.4 0 0.82 -18.2 30118.12 21073.23 -19.8 5.7
Italy S & P/MIB 30976 30631 30890 162 0 0.53 -19.9 43099 30371 -27.5 -1.6
Netherlands AEX 460.95 456.5 459.11 2.77 0 0.61 -11 561.9 415.92 -15.8 6.9
Norway All-Shares 562.28 552.95 560.37 7.42 0 1.34 -1.7 605.05 442.79 -1.1 23.5
Poland WIG 43461.47 42820.8 43459.77 491.7 0 1.14 -21.9 67568.51 42968.11 -32.8 16.4
Portugal PSI 20 10174.19 10062.67 10174.11 85.78 0 0.85 -21.9 13702.03 9814.88 -22.2 10.8
Russia DJ Russia Titans 10 7497.45 7405.21 7497.45 26.42 0 0.35 -2.2 7920.96 6226.15 11.8 50.4
Russia RTS Index 2359.39 2339.53 2356.71 ... 0 Closed 2.9 2487.92 1820.3 26 51.6
Spain IBEX 35 12853.3 12598.4 12853.3 269 0 2.14 -15.3 15945.7 12254.6 -14.8 10.4
Sweden SX All Share 305.33 301.13 305.22 2.86 0 0.95 -13.3 427.24 293.53 -26.4 7.1
Switzerland Swiss Market 7265.28 7121.96 7222.79 55.49 0 0.77 -14.9 9395.75 6774.26 -22.3 5
Turkey Istanbul National 100 387596.6 37965.38 38593.64 355.22 0 0.93 -30.5 58231.9 38238.42 -13.6 14.5
U.K. FTSE 100 5797.8 5719.8 5790.5 67.2 0 1.17 -10.3 6732.4 5414.4 -12.9 4.8
U.K. FTSE 250 9554.2 9402.7 9554.2 131.1 0 1.39 -10.4 11999.6 9260.6 -19.1 9.6
Americas DJ Americas 357.12 351.91 354.09 0.78 0 0.22 -6.1 399.86 330.4 -8 7.2
Argentina Merval 2088.62 2046.25 2056.69 -15.39 -0.74 0 -4.42 2351.44 1833.71 -6.2 12.7
Brazil Sao Paulo Bovespa 67958.45 66797.72 67319.63 524.87 0 0.79 5.4 73516.8 48015.55 25.3 39.2
Canada S & P/TSX Comp 14716.52 14576.54 14602.59 -113.93 -0.77 0 5.6 15047.34 12132.13 4.3 14.3
Chile Santiago IPSA 3080.22 3000.58 3050.08 49.5 0 1.65 -0.1 3499.5 2427.11 -9.5 14.8
Mexico IPC All-Share 30955.39 30435.67 30475.44 29.2 0 0.1 3.2 32836.12 25284.88 -5.1 32.1
Venezuela Caracas General 36958.37 36484.62 36883.17 162.56 0 0.44 -2.7 42249.77 34172.43 -3.3 18.9
Egypt CASE 30 10697.31 10622.06 10696.67 58.01 0 0.55 1.4 11935.67 7517.75 38.3 n.a.
Israel Tel Aviv 1110.7 1094.51 1107.91 3.24 0 0.29 -9 1237.13 964.38 0.1 n.a.
South Africa Johannesburg All Share 31033.3 30405.58 31033.3 393.35 0 1.28 7.2 33232.89 25135.13 7.1 30.3
*Europe, Australia, Far East; U.S.-dollar terms
Three year percent change is annualized.
Sources: Reuters; WSJ.com
DAILY 52 WEEK Region/Country Index Close Chg High Low % Chg % Chg
Other Countries
World
Asia Pacific
Europe
Americas
CIBC WORLD MARKETS INC. Weekly Market Insight June 13, 2008
3
MARKET INDICES Jun 12 a month ago a year ago
S&P/TSX Composite 14602.59 14666.07 13724.33
S&P 500 1345.55 1403.58 1493.00
Dow Jones Industrial Average 12212.66 12876.3 13295.0
INTEREST / FX RATES Jun 13 a month ago a year ago
Prime Can (%) 4.75 4.75 6.00
Prime US (%) 5.00 5.00 8.25
30 Day BA Can (%) 3.145 3.157 4.39
3 month US T-Bill (%) 1.96 1.83 4.57
3 month Can T-Bill (%) 2.790 2.660 4.378
10yr US Bond (%) 4.176 3.778 5.198
10yr Can Bond (%) 3.86 3.57 4.66
10yr-2yr US Spread (bps) 127.00 137.30 12.90
10yr-2yr Spread Can (bps) 51.00 78.00 -5.00
US$/Cdn$ 0.9742 1.0028 1.0630
US$/Euro 1.5345 1.5587 1.3343
Yen/US$ 108.000 103.705 123.57
118 34
INTERNATIONAL INTEREST RATES Jun 13 3 mo LIBOR (%) Spread vs US (bps) a wk ago (Spread-bps)
United States 2.81 NA NA
Canada 3.41 60 53
Euro-zone 4.96 214 226
Switzerland 2.91 9 13
Japan 0.93 -189 -177
Australia 7.85 504 514
10 Year Bond (%) Spread vs US (bps) a wk ago (Spread-bps)
United States 4.18 NA NA
Canada 3.86 -31.6 -26.7
Euro-zone 5.04 86.6 84.7
Switzerland 3.40 -77.2 -72.3
Japan 1.86 -231.5 -218.1
Australia 6.73 255.3 267.0
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