Weekly Market Insight
August 1, 2008 NORTH AMERICAN & INTERNATIONAL ECONOMIC HIGHLIGHTS
When the Stimulus Runs Dry
Looking over the most recent US GDP report a person cannot help but be struck by two competing thoughts.
On the one hand, one must marvel at the resiliency of the American economy, which managed to grow by
close to 2% in the second quarter, despite record gasoline prices and over 400K in year-to-date job losses. On
the other hand, one must also call into question the prospects of an economy that can only post, what is for all
intents and purposes, mediocre growth, despite tens of billions of dollars in federal stimulus.
The stimulus in question is the $168 billion package signed into law in February 2008, and including over $100
billion in direct tax rebates to more than 130 million American households. These cheques were sent out
between mid-April and mid-July, with the bulk of the government's largesse landing on peoples' doorsteps in
Q2. A quick look at the GDP data clearly shows that these payments gave consumers a noticeable boost, but
even with this very material support, real personal spending only grew by 1.5% in the second quarter. There is
no doubt that this activity helped keep real output growth positive, but it turns out that the major economic
driver for the quarter was not personal consumption at all but trade, which was actually helped by a large
decline in domestic demand for foreign goods, including oil.
Even with these GDP numbers, quantifying the economic effectiveness of federal stimulus is not very easy. The
evidence that is available does not provide much comfort as to the effectiveness that this type of spending has
on the economy. According to a 2002 study the economic effect of a $100 billion stimulus package distributed
in the form of a tax rebate was found to only last for the quarter in which the rebate was issued, and even
then had no impact on employment or capital spending.
Translating these results to the present, it appears that US economic performance will be significantly more
challenged in the coming quarter than it has been all year. The stimulus cheques are no longer flowing and
whatever small impact there will be in July, will be ancient history once September rolls around. Trade may still
help provide some support to the US economy over the second half of the year, but it is unlikely to have as
dramatic an effect with the economic picture in Europe looking gloomier.
As the FOMC convenes early in the week to discuss its rate-setting policy it remains in the same difficult
position that it found itself in last time around, only this time the stakes appear to be even higher. After all, the
downside risks to growth have magnified, while headline inflation is now at 5%. The Fed can't touch rates in
this environment and must walk a very neutral line to avoid tipping its hand in either direction for the time
being. This will make the upcoming Fed meeting a relatively staid affair, with policy frozen until much later in
the year.
Meny Grauman
Senior Economist
Economics & Strategy CIBC WORLD MARKETS INC. Weekly Market Insight August 1, 2008
2
International Stock Indexes Thursday, July 31, 2008 YTD 3-yr High Low - + % chg % chg
World DJ World Index 262.14 259.79 259.83 -1.3 -0.5 0 -13.6 320.33 251.64 -12.3 5.8
World DJ World ex U.S. 233.91 232.31 232.74 0.19 0 0.08 -14.4 291.11 226.74 -12 9.8
World MSCI EAFE* n.a. n.a. 1902.75 3.62 0 0.19 -15.6 2388.74 1845.93 -13.4 7.8
Asia-Pacific DJ Asia-Pacific 136.87 135.13 136.09 0.31 0 0.23 -13.9 172.49 132.87 -13.5 7.7
Australia All Ordinaries 5083.2 5027.8 5052.6 43.9 0 0.88 -21.3 6853.6 4910.1 -16.5 5.1
Australia S & P/ASX 200 5015.2 4959.3 4977.4 40.7 0 0.82 -21.5 6828.7 4815.7 -17.2 4.3
China DJ CBN China 600 23359.03 22585.94 22589.82 -657.82 -2.83 0 -45.5 44631.83 21535.15 -34.9 38.4
China Dow Jones China 88 254.92 247.18 247.24 -6.49 -2.56 0 -47.7 530.54 236.45 -36.1 34.5
China Shanghai Composite 2848 2774.1 2775.72 -61 -2.15 0 -47.2 6092.06 2651.61 -37 n.a.
Hong Kong Hang Seng 22878.76 22695.73 22731.1 40.5 0 0.18 -18.3 31638.22 20387.13 1.3 15.2
India Bombay Sensex 14369.42 14161.76 14355.75 68.54 0 0.48 -29.2 20873.33 12575.8 -4.2 23.4
Indonesia Jakarta Composite 2322.41 2297.96 2304.51 25.82 0 1.13 -16.1 2830.26 1908.64 1.5 24.9
Malaysia Kuala Lumpur Composite 1164.64 1157.94 1163.09 3.15 0 0.27 -19.5 1516.22 1103.48 -12.8 7.5
New Zealand NZSX-50 3338.12 3287.76 3336.28 48.52 0 1.48 -17.4 4332.29 3040.45 -19.4 -0.2
Pakistan KSE 100 10949.63 10531.5 10583.58 -269.44 -2.48 0 -24.8 15676.34 10212.92 -23.1 13.8
Philippines Manila Composite 2613.97 2576.52 2577.1 -6.73 -0.26 0 -28.8 3873.5 2339.84 -23.3 8.8
Singapore Straits Times 2960.92 2928.33 2929.65 4.15 0 0.14 -15.5 3831.19 2792.75 -12.9 8.6
South Korea Kospi 1600.15 1577.81 1594.67 16.97 0 1.08 -15.9 2064.85 1507.4 -13.9 12.8
Sri Lanka Colombo Stock Exchange 2465.03 2429.19 2463.41 34.27 0 1.41 -3.1 2681.27 2338.63 1.7 6.4
Taiwan Weighted 7172.48 6965.08 7024.06 -46.29 -0.65 0 -17.4 9809.88 6710.64 -21.5 3.6
Thailand SET 679.65 669.17 676.32 6.42 0 0.96 -21.2 915.03 664.52 -18.5 unch.
Japan Nikkei Stock Avg 13467.67 13256.38 13376.81 9.02 0 0.07 -12.6 17458.98 11787.51 -21.2 4
Japan Nikkei 300 267.5 262.58 265.39 unch. ... 0 -11.9 338.84 234.2 -20.7 5
Europe DJ Stoxx 600 286.03 281.64 283.76 -0.24 -0.08 0 -22.2 390.63 266.51 -24.7 -0.2
Europe DJ Stoxx 50 2905.14 2859.47 2881.35 -1.1 -0.04 0 -21.8 3932.44 2710.85 -23.6 -2.8
Euro zone DJ Euro Stoxx 50 3402.12 3342.06 3367.82 0.5 0 0.01 -23.5 4489.79 3142.73 -21.5 0.4
Euro zone DJ Euro Stoxx 319 313.61 315.84 -0.23 -0.07 0 -23.9 432.27 296.6 -23.8 1.3
Austria ATX 3731.33 3639.62 3659.74 18 0 0.49 -18.9 4871.71 3386.82 -21.7 5.4
Belgium Bel-20 3024.04 2972.04 2994.38 -35.87 -1.18 0 -27.5 4534.91 2863.44 -30.8 -2.5
Czech Republic PX 50 1480.2 1456.6 1471.8 -2.2 -0.15 0 -18.9 1936.9 1398.6 -16.8 5.3
Denmark OMX Copenhagen 387.37 381.62 386.95 3 0 0.78 -13.8 492.84 359.2 -19.2 6.5
Finland OMX Helsinki 8509.03 8375.62 8480.36 2.92 0 0.03 -26.9 12656.77 8101.73 -25.3 4.9
France CAC 40 4448.05 4365.26 4392.36 -8.19 -0.186 0 -21.8 5862.83 4061.15 -22.7 -0.5
Germany DAX 6540.45 6428.49 6479.56 19.44 0 0.3 -19.7 8076.12 6081.7 -14 9.9
Hungary BUX 22443.79 22033.66 22209.14 -302.11 -1.34 0 -15.3 29000 19870.33 -23.4 2.3
Italy S & P/MIB 28711 28199 28331 -84 -0.3 0 -26.5 41106 27044 -28.7 -5.6
Netherlands AEX 406.22 398.74 399.95 -4.44 -1.1 0 -22.5 559.14 383.66 -24.2 0.4
Norway All-Shares 498.69 486.19 494.33 8.14 0 1.67 -13.3 603.98 442.79 -12.5 14.1
Poland WIG 42546.36 41755.24 42405.83 -10.5 -0.02 0 -23.8 64292.3 37507.55 -32.1 11.7
Portugal PSI 20 8563.04 8436.18 8496.58 35.69 0 0.42 -34.7 13380.9 8011.54 -36 3.8
Russia DJ Russia Titans 10 6236.49 6024.72 6050.3 5.66 0 0.09 -21.1 7920.96 5787.87 -11.4 33.9
Russia RTS Index 1996.81 1954.3 1966.68 17.7 0 0.91 -14.1 2487.92 1820.3 0.5 36.2
Spain IBEX 35 11977.5 11775.1 11881.3 63.4 0 0.54 -21.7 15945.7 11151.6 -19.1 5.5
Sweden SX All Share 278.04 274.37 276.69 0.19 0 0.07 -21.4 407.81 261.26 -30.9 1
Switzerland Swiss Market 7188.62 7088.97 7141.21 32.3 0 0.45 -15.8 9218.28 6561.98 -18.6 2.7
Turkey Istanbul National 100 43285.6 41345.04 42200.75 858.45 0 2.08 -24 58231.9 33208.24 -17.9 12.5
U.K. FTSE 100 5456.1 5371.3 5411.9 -8.8 -0.16 0 -16.2 6730.7 5150.6 -14.1 0.8
U.K. FTSE 250 8909.1 8784.5 8856.7 -29.6 -0.33 0 -16.9 11666 8279.3 -21.2 5.2
Americas DJ Americas 338.23 333.46 333.75 -4.08 -1.21 0 -11.5 399.86 322.02 -10.6 3.7
Argentina Merval 1949.84 1915.85 1919.82 -30.02 -1.54 0 -10.8 2351.44 1833.71 -12.2 8.4
Brazil Sao Paulo Bovespa 60022.54 59225.49 59505.17 -492.47 -0.82 0 -6.9 73516.8 48015.55 8.8 31.7
Canada S & P/TSX Comp 13727.97 13564.18 13592.91 -90.3 -0.66 0 -1.7 15073.13 12132.13 -1.6 9.3
Chile Santiago IPSA 3030.21 2989.34 3014.8 3.41 0 0.11 -1.2 3496.18 2427.11 -9.4 11.5
Mexico IPC All-Share 27600.34 27340.75 27501.02 26.98 0 0.1 -6.9 32836.12 25284.88 -9.5 24
Venezuela Caracas General 39758.13 39323.99 39758.13 130.86 0 0.33 4.9 42249.77 34172.43 -5.9 24.6
Egypt CASE 30 9263.62 9075.21 9251.19 117.11 0 1.28 -12.3 11935.67 7517.75 13.8 n.a.
Israel Tel Aviv 1039.7 1026.35 1034.97 0.75 0 0.07 -15 1237.13 964.38 -5.2 15.1
South Africa Johannesburg All Share 28207.05 27552.65 27719.67 -47.9 -0.17 0 -4.3 33232.89 25135.13 -0.5 22.3
*Europe, Australia, Far East; U.S.-dollar terms
Three year percent change is annualized.
Sources: Reuters; WSJ.com
Other Countries
World
Asia Pacific
Europe
Americas
DAILY 52 WEEK Region/Country Index Close Chg High Low % Chg % Chg CIBC WORLD MARKETS INC. Weekly Market Insight August 1, 2008
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MARKET INDICES Jul 31 a month ago a year ago
S&P/TSX Composite 13592.91 14467.03 13868.63
S&P 500 1267.38 1280.00 1455.27
Dow Jones Industrial Average 11378.02 11350.0 13212.0
INTEREST / FX RATES Aug 1 a month ago a year ago
Prime Can (%) 4.75 4.75 6.25
Prime US (%) 5.00 5.00 8.25
30 Day BA Can (%) 3.13 3.16 4.61714
3 month US T-Bill (%) 1.68 1.83 4.84
3 month Can T-Bill (%) 2.444 2.481 4.552
10yr US Bond (%) 3.966 3.975 4.719
10yr Can Bond (%) 3.69 3.72 4.47
10yr-2yr US Spread (bps) 145.90 144.20 22.0
10yr-2yr Spread Can (bps) 76.00 54.00 -15.0
US$/Cdn$ 0.9733 0.9842 1.0538
US$/Euro 1.555 1.5689 1.3768
Yen/US$ 107.61 106.605 118.538
118 34
INTERNATIONAL INTEREST RATES Aug 1 3 mo LIBOR (%) Spread vs US (bps) a wk ago (Spread-bps)
United States 2.79 NA NA
Canada 3.35 55 53
Euro-zone 4.96 217 217
Switzerland 2.76 -3.9 -2.9
Japan 0.90 -189 -189
Australia 7.67 487 499
10 Year Bond (%) Spread vs US (bps) a wk ago (Spread-bps)
United States 3.97 NA NA
Canada 3.69 -27.6 -21.4
Euro-zone 4.86 89.0 98.9
Switzerland 3.07 -89.9 -81.4
Japan 1.51 -245.6 -248.0
Australia 6.12 215.6 220.6
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