2 august 2012 - td ameritrade august 2012 the td view trading bias macro outlook rates fx key risks...
TRANSCRIPT
1
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2 August 2012
Highlights
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TD 12Q4 FORECASTS
2 5 10 2 5 10 30 2 5 10 30 2 5 10 2 5 10 30
NZ CA US AU UK
$/CH
F
$/CA
D
DXY
!/SE
K
$/¥
NZD
/$
!/N
OK
AUD
/$
£/$
!/$
$/PL
N
$/H
UF
$/RU
B
$/M
YR
$/IN
R
$/TR
Y
$/ID
R
$/M
XN
$/BR
L
$/ZA
R
Pall
Silv
er
Plat
Zinc
Lead
Gol
d
Cop
WTI
Nat
G
Bren
t
G10 FX
EM FX
COMMODITY
RATES
-20
-10
0
10
20
30
40
-6
-4
-2
0
2
4
6
% f rom spot
-4
-2
0
2
4
6
-50-40-30-20-10
0102030
Bps f rom spot
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G10 MACRO
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G10 RATES
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G10 FX
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EMFX & RATES
8D.('56!$Q.5./'Q!6-.(0#!('DD!1-./10!E$H!Q$50-3D!Y35E7!0.!344 /GDG7X!7G11. 56!'54G70-'3D!Q.//.4 $7!354!D' '56!6.D4!354!.0#$-!1-$Q'.G7!/$03D7*!
COMMODITIES
THE VIEW FROM 10,000 FEET
Europe Ongoing lack of plan to attack theproblems and data deterioration
ECB to cut re! rate, deliver LTROsand use SMP, QE from the FOMC,further pullback in yields and evenslower and later move higher
US
While avoiding recessionary signs,US data continues to run at asubpar pace and not recover asquickly as expected
Reinforces QE decision, gives near-term strength to selectcommodity/EMFX and JPY, withmore accomodation from EMCBs
Australia One of the few countries postingconsistent upside data surprises
Push back RBA rate cuts to 12Q4and further AUD support
UK Data is signi!cantly undershootingexpectations
BoE to enter ZIRP and adding atleast another £25bn in QE
What Has Changed What We've ChangedSAMPLE
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2 August 2012
THE TD VIEWTrading Bias
Macro Outlook Rates FX Key Risks
USThe 1.5% Q2 GDP print shouldgive way to modestly bettergrowth in H2.
We expect rates to hit new lowsin advance of QE3, but headhigher into year-end.
We have cut the end yearUSD/JPY forecast to JPY79 (fromJPY84).
A disorderly European debtdefault remains the key risk forthe US economy. Domestically,the 2013 !scal cli" is a concern.
Canada
Trend growth balancing externalweakness/domestic momentumwill preserve a small output gapand keep in#ation contained.
Lower for longer across the curve.Lean against Bank of Canadacuts and towards a #atter curve.
Growth and modest yields keepthe CAD generally wellsupported. Risk aversion is athreat.
A further deterioration in globalgrowth and !nancial conditionswill overwhelm domestic demandand imperil economic growth.
Europe
Doubts about H2 rebound. UKOlympic boost may be smallerthan hoped, and Eurozoneperipherals still contracting.
Short duration/steepeningpossibilities return with EZ/UKZIRP and negative rates, whileAAA fears linger in long end.
Slow growth, low rates, sovereign!scal crisis weigh on EURbroadly. Strong growth trendsustains SEK out-performance.
Spanish/Italian yields needsupport before they get lockedout of market. Greece working onnew Troika agreement.
Asia-Pac
RBA on hold to 'pause andassess' but next move is down;RBNZ on hold for some time butwatching rising house prices.
Yield curves #attening as OISprices out extreme easingexpectations on optimism ofglobal easing action.
AUD and NZD soaring onexpectations for further QE3, butshorting is proving to beunpro!table.
Sagging global trade, soggycommodity prices but very stickycurrencies threaten exports andcurrent account de!cits.
Latam
Weak growth and benign in#ationare the main regional trends.Mexico’s economy is resilientthough, implying stronger CPI.
Easing bias for Brazil, but PRE-DI swaps are #atter than theyshould be. In Mexico, bull#attening on UST moves.
FX remains exposed to risksentiment, but QE3 adds extrapotential strength in the shortterm. We like BRL and MXN.
High commodity-driven CPI onQE3, excessively loose rates inBrazil, and re-emerging riskaversion on unsolved EZ troubles.
EMEA
Weakening macro trendsextending to Poland, but IMFprogram for Hungary looks closer.S. Africa decelerating sharply.
While swap curves have bullsteepened in recent weeks, theymostly look #atter than theyshould be given cash rate levels.
We see moderate appreciation inthe coming months. QE3 likely toadd short-term strength, butcorrections likely in 2013.
EZ troubles are still the main risk,but insu$cient ECB response toinvestor instances also likely todisappoint markets.
Asia
China’s deceleration is leadingAsia’s loss of momentum. CPI isin check, allowing CBs to cutrates, except for India.
India’s ND-OIS #attened, butshould steepen as RBI starteasing. Dysfunctional markets inIndonesia keep NDS #at.
The INR likely to underperformregional and global peers. MYRalso overvalued, while IDR looksmore attractive beyond Q3.
Sharper slowdown than expectedin China, while in#ation picks upon a QE3-driven high commodityprice cycle. EZ troubles.
Energy
Help from macro factors andgeopoltical risks to keep oilsupported, but weak demand tolimit upside
A breakout of Iran-related politicalrisk reintroduces a large riskpremium into the crude marketagain
Preciousmetal
Central bank accommodationexpectations to lift gold abovekey resistance levels
Stronger economic data easesthe need for central banks toaccommodate
Othermetals
Macro trends keep downsidesupported, but waning globalgrowth is causing stockpiles torise
A more pronounced slowing inChina could further derail demandand cause industrial metals to fallthrough prior levels
G10
EM
COMMODITY
Sell front-end crude spreads; sell natgas above $3.15/MMBtu
Long platinum/gold ratio
Long palladium/platinum ratio; buy prompt silver on dips
CENTRAL BANK MONITORIn#ation Central Bank Policy Rate
Deviation from target* (% points) Y/Y% As of Next Last Mtg Current Next Mtg 12m Fcast (bps% from spot)Print Date Change % Date TD Mkt TD
Below Target Above Target
*Deviation from 10y avg for India, which does not have an in#ation target.
-28 +0Australia 1.3 Jun 6 Aug 3 Jul +0bp 3.50 7 Aug
+0bp 1.50 29 Aug +0Norway 0.5 Jun 10 Aug 20 Jun+0
1.50 6 Sep+0bp 0.10 9 Aug
-73 -25Japan -0.1 Jun 31 Aug 12 Jul -5 +0+0
+0bp 2.50 12 Sep+0 -42 +0
NZ 1.6 Jun 15 Oct 26 Jul +3 +75+0Sweden 1.0 Jun 14 Aug 4 Jul +0bp
+2 +50US 1.7 Jun 15 Aug 1 Aug -1 +0+0Canada 1.5 Jun 17 Aug 17 Jul +0bp 1.00 5 Sep
+0bp 0.50 2 Aug+0bp 0.25 13 Sep
+0
EZ 2.4 Jul 31 Aug 5 JulUK 2.5 Jun 14 Aug 5 Jul
+25-8 -50
Emerging
Markets
Russia 4.3 Jun 3 Aug 2 Jul +0bp 4.00-25bp 0.75 2 Aug +0
G10
+0 -33 -50
6 Aug +0 n/aChina 2.1 Jun 9 Aug
-50bp 8.00 29 Aug -50
-4015 Aug 5 Jul +0bp 3.00 6 Sep +0 +25Indonesia 4.5 Jul 3 Sep 12 Jul +0bp +505.75 9 Aug +0 n/aMalaysia 1.6 Jun
7 Sep +0
+31 +0S Africa 5.6 Jun 22 Aug 19 Jul +0bp +05.00 20 Sep +0 -8Brazil 4.9 Jun 8 Aug 11 Jul
+0 +0Poland 4.3 Jun 14 Aug 5 Jul +0bp -254.75 5 Sep +0 -80Mexico 4.4 Jun 9 Aug 20 Jul +0bp 4.50
-100 -150Turkey 8.9 Jun 3 Aug 19 Jul +0bpHungary 5.6 Jun 14 Aug 24 Jul +0bp 7.00 28 Aug +0
n/a -125+0
India 10.1 Jun 14 Aug 31 Jul +0bp 8.00 17 Sep +05.75 16 Aug +0 +0
-4 -2 0 2 4 6
#$%&'!()*!"+,-./**01'
-200 -100 0 100SAMPLE
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2 August 2012
The View From the TopEric Green
Global growth momentum has slowed markedly over thepast several months. Global PMIs have dipped to thelowest level of this uneven recovery, and prospects for anear term bounce back to levels earlier in the year areunlikely. There is simply no obvious engine for growth.There are some obvious hindrances, however. This is aglobal economy in transition and as is normally the case,adjustment is often uneven and lumpy. The problem todayis that we must engage in this transition within a vacuum ofpolitical leadership. In this world, hype and hope surroundexpectations global central banks will ride to the rescue.
We have a growth de!cit, but interest rates are already atrecord lows in Japan, the UK, the Euro zone, the US, andBrazil. Growth in India is decelerating and in China 7.5% isthe new 10% growth rate of years past. In e"ect, almost60% of the global economy is operating on an emergencyfooting, and at least another 20% is easing policy tosqueeze more out of the growth genie. Not all of thisweakness can be attributed to Europe. More broadly,emerging markets can simply no longer vendor !nancetheir way to prosperity, not to a developed world saturatedwith debt. Other sources of growth through strongerdomestic demand are needed, but that is a transition thatrequires time. For its part, the developed world mustgenerate growth with less leverage, and at the same timeprovide a credible solution to pare down excess debt. Thatincludes the US as much as it does Europe.
In a Panglossian world, decisive political leadership wouldprevail. In the US, it requires facing up to an uncomfortablereality that the standard of living must fall, but politiciansrarely get elected on that platform. In Europe, it is evenmore di#cult. Peripheral countries saddled with debt mustnot only su"er a lower standard of living, but Italians mustbecome more European and less Italian. Germans mustalso be more European. We don’t live in such a world. Ifwe did, one bane of this recovery would be lifted as moreclarity would unleash the private surpluses needed togenerate stronger growth. The Fed would not be waitinganother 3 years to raise rates, and Europe would notremain perpetually on the brink of disaster. Economicoutcomes are being held hostage to political paralysis.Game theory trumps fundamentals.
Central banks are left to pick up the pieces. The good newsis that central banks around the world are more aligned toaddress this growth de!cit. To be fair, a focus on thedenominator (growth) rather than the numerator (debt) hasbeen the centerpiece of US policy. In Europe, the policyresponse is now moving closer to the US model. The badnews is that wanting growth and achieving it don’t alwaysgo hand in hand.
The problem for Bernanke is that monetary policy cannot
0.50
1.00
1.50
2.00
2.50
3.00
0.50
1.00
1.50
2.00
2.50
3.00
7/10 10/10 1/11 4/11 7/11 10/11 1/12 4/12 7/12
YEAR -AHEAD G7 GDP FORECASTS
GDP forecast (%)*
*Weighted average of current and next yearSource: TD Economics and Consensus Economics
Consensus
TD
US
Cana
daAustra
liaNZ
UK
EZ Norway
Swed
enJapa
nCh
ina
India
Indo
nesia
Malaysia
Brazil
Mexico
Hun
gary
Poland
Russia
SAfrica
Turkey
Oil
|ISM
Food
|SPX
JulJunMayAprMarFeb
12 JanDecNovOctSepAugJul
JulJunMayAprMarFeb
12 JanDecNovOctSepAugJul
JulJunMayAprMarFeb
12 JanDecNovOctSepAugJul
*For relative shading, monthly !gure is compared with the lastthree years worth of data for that country. For Production, thetwo columns of drivers on the right show the US ISMManufacturing and S&P500. For In$ation, it shows oil andfood prices.
Prod
uctio
n(6m%)
)%y/y(
noitalfnIenildae
HCo
reIn$atio
n(y/y%)
MACRO MOMENTUM HEAT MAPG10 EM Driver
Dollar Bloc Europe Asia Latam EMEA
WEAK STRONG
SAMPLE
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2 August 2012
adequately compensate for the two main risks to theoutlook which remain Europe and the !scal cli". QE maytemporarily boost risk taking and equity share prices, butits success in generating pro!ts is less convincing, andabsent pro!t growth high share prices cannot besustained. The problem for Draghi is that monetary policycannot address the balance of payment crisis which liesat the heart of the crisis. More concrete steps towardpolitical union are the only hope to make Europe functionas a monetary union. Without it, Draghi has nothing tosave. Nevertheless, both the ECB and the Fed aremandated to preserve economic stability and at the endof the day the incentive structure must ultimately bealigned to do that.
The incentive structure at the Fed is to achieve insuranceagainst downside risk in a volatile world from which theUS is not immune. In this regard, Bernanke has an easierrow to hoe. Indeed the underlying fundamentals in the USare arguably better than at any point in this cycle. Growthhas slowed, but two fundamental headwinds to therecovery are fading. One is the big improvement inhousehold !nances that point to a deleveraging cyclenearing an end. The other is the turn in housing. Crucialareas of the private economy are better positioned forgrowth. Prospects for growth, however, remaincompromised by greater !scal austerity of unknown sizeand duration.
This uncertainty, compounded by risk aversion stemmingfrom Europe, has contributed to cash hoarding andprivate surpluses that may not adequately compensatefor !scal austerity. Both magnify a reliance on !nancialrepression. If the Fed needs more growth, and morein#ation, and low real rates to incent the former and easethe debt burden through the latter, then that is where thecentral bank will remain. We now suspect the odds ofmore balance sheet expansion in September are betterthan even. QE is not a panacea for what ails, but is oneof a shrinking menu of options available to the Fed. Real10yr rates should not be 170bps below those in Japan.However, there is nothing to suggest that will changeover coming months.
Europe remains stuck. The view that the problems areintractable has an intrinsic logic. After all, 60 years ofintegration are competing against 800 years of history. Inthis case no amount of central bank action will change anugly end-game. Ultimately, however, it requires a leap offaith. We continue to believe the incentive structureremains to preserve the monetary union, at least amongits core constituencies. That does not guarantee success,and brinksmanship by de!nition carries the potential for amiscalculation and disorderly outcome. However, thedialogue is now more constructive, and the means to bidetime do exist even if in the ESM there remains some legaluncertainty. Ultimately it is a crisis of con!dence. Providea roadmap to a credible union, and the money will come.
YEAR-END FORECASTS AND HISTORICAL RANGE
2 5 10 2 5 10 30 2 5 10 30 2 5 10 2 5 10 30
NZ CA US AU UK
$/CHF $/CAD DXY $/SEK $/¥ NZD/$ $/NOK AUD/$ £/$ $/$
$/PLN $/HUF $/RUB $/MYR $/INR $/TRY $/IDR $/MXN $/BRL $/ZAR
Pall Silver Plat Zinc Lead Gold Cop WTI NatG Brent
RATES
G10
FX
EM
FX
COMMODITY
1.01.05
84.0
9.3683.73 0.85 7.90
1.11.7
1.45
0.7
0.98
73.7
8.3075.82
0.74
7.37
1.0
1.5 1.21
-30-25-20-15-10-505
101520% from spot
4249.4
343.20
57
1.9
9540
14.38
2.09 9
3186.4
28
2.96
45
1.7
8508 11.99
1.58
7
-25
-20
-15
-10
-5
0
5
10% from spot
783.75
44
1904
1
1
1900.2 4.2 109.84
123
563.00 26 1369 1 1 1539.63.0
75.7
2
90
-40-30-20-100
10203040506070% from spot
3.9 4.2 4.7
1.41.8
2.6 3.2
0.4
1.3
2.63.8
3.9 4.1 4.6
0.7
1.5
2.7 4.0
2.12.6 3.2 0.8 1.1 1.6 2.2 0.2 0.5 1.4 2.5
1.9 2.12.8 0.1
0.5
1.5 2.8
-100
-50
0
50
100
150
200Bps from spot
TD fcast
52w range1m range
52whigh
52wlow
SAMPLE
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2 August 2012
ECB President Draghi has now demonstrated thatbrinksmanship between the ECB and the politicians hasdiminished. At some point, we expect the same betweenthose countries holding the IOU’s and those holding thedebt.
The next several months will prove bumpy and volatile andwe do not expect decisive action from either the Fed or theECB until September. Consequently, the tension betweencompeting views on risk will go unresolved, andpreservation of capital strategies will remain a lingeringtheme. Moreover, the two key risks to the global outlookstemming from Europe and the !scal cli" in the US, will notbe resolved. However, we would also tend to favor moreactive strategies over those premised on tail -risk eventsthat, in our view, may not have been eradicated but arediminished. The probability of more aggressive re#atione"orts by the the Fed through QE, and the ECB throughfurther LTROs, further rate cuts, and possibly a near termreactivation of the SMP has risen. Uncertainty is high, butthe resolve of central banks to compensate for politicalinaction and provide liquidity has also moved higher.
Under these assumptions we have re!ned our rateforecasts to re#ect a low for longer theme, but similar valueplays persist. One is for US Treasuries to outperformBunds. Germany will ultimately expand its euro wide debtcommitments and as part of the solution must yield some ofits !nancial strength. In addition, there may be limitedscope for Bunds to rally given 10yr rates are a mere 60bpsabove the policy rate compared to 125bps in the US. Thegrowing chance of naked balance sheet expansion by theFed also works in favor of Treasuries. We also suspectKangaroos will underperform given market pricing for theRBA which looks far too aggressive.
Further injections of liquidity should constrain volatilityplays and provide an underlying subsidy for risk assets, thee"ects of which we admit will ultimately prove ephemeralwithout evidence of stronger growth. Over the near termglobal growth momentum will remain sluggish. Prospectsfor better growth increase into year-end, however. Despitean atrocious round of PMIs in July, we suspect the laggede"ect from LTROs should provide some underlying supportfor Europe into year end. In e"ect, growth prospects inEurope simply become less bad. China is also set to avoida hard landing, and the recent improvement in home pricescoupled with the lagged e"ect of policy easing alsoprovides some room for cautious optimism. In the US, astop-gap spending bill to fund the government throughMarch should alleviate some year -end uncertainty in theUS.
Central banks are poised to pick up the pieces of a globaleconomy in transition. However, the fate of the globalrecovery ultimately hinges on decisive political leadershipin the US and Europe. That alone will keep tail riskuncomfortably high.
SPXDXY
US10CRB
WTI
US data
VIXEZCDS
SPX
DXYUS10
CRB
WTI
US data
VIXEZCDS
0.00
0.20
0.40
0.60
0.80
0.00 0.20 0.40 0.60 0.80
RELATIVE FX CORRELATIONS*
EMFX
G10 FX
EM correlationstronger
G10correlation
stronger
*Average absolute correlations across G10 and EM FX.
Current 1mcorrelation
Correlationover prior 3m
ASSET ALLOCATION
G10 RatesLiquidity trap conditions;expected loss is greater thanexpected gain
Risk Assets Asset price re#ation a big centralbank objective
EM Expected gain greater thanexpected loss
VolatilityAsset price re#ation and bettergrowth should push volatilitydown
Bias Asset Allocation
Underweight
Overweight equities
ForeignExchange
Mature market re#ation will favourthe Euro, EM and commoditysensitive currencies eventually
LONG SHORTUSD CHFBRL USDMXN PLNCAD AUD
Long
Gold also trends up with assetprice re#ation from QE hopeCommodities
Overweight
LONG SHORTGold CopperGold WTI
Europe Ongoing lack of plan to attack theproblems and data deterioration
ECB to cut re! rate, deliver LTROsand use SMP, QE from the FOMC,further pullback in yields and evenslower and later move higher
US
While avoiding recessionary signs,US data continues to run at asubpar pace and not recover asquickly as expected
Reinforces QE decision, gives near-term strength to selectcommodity/EMFX and JPY, withmore accomodation from EMCBs
Australia One of the few countries postingconsistent upside data surprises
Push back RBA rate cuts to 12Q4and further AUD support
UK Data is signi!cantly undershootingexpectations
BoE to enter ZIRP and adding atleast another £25bn in QE
What Has Changed What We've Changed
SAMPLE
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2 August 2012
Lower Yields, Flatter Curves
The global economy remains perched on the precipice. Whileno one is cheering over a US economy stuck in stall speed, itbears noting that while the oft-feared European collapse stillshangs over the global economy, it at least looks no closer tofruition . US data has for the most part disappointed, with theoutlook for employment growth still stubbornly low, while someindicators (such as ISM -Manufacturing PMI) hint darkly at areturn to recession. Smaller advanced economies such asCanada and Australia continue to eek out modest gains, butinsolvency fears drove Spanish 10 -year yields as high as7.75% before rumours of further ECB actions produced asharp compression in spreads.
Rumours abound on both sides of the Atlantic that centralbanks are preparing to intervene, with some form of easingwidely expected from the FOMC before the end of the year.The twin forces of !ight-to-safety !ows and growingexpectations for more action from the Fed pushed Treasuryyields to new record lows during the month, and despite therecent uptick in rates, these factors should drive yields lower
still. Correlations with US equities remain high across mostsovereign bond markets, as bonds in safe economiescontinue to move almost in unison in response to shifts in risksentiment. With so much uncertainty still surrounding thesituation in Europe, the rally in "xed income markets may notbe over yet.
We look for Treasuries to outperform versus their global peersin the near-term, though we emphasize that the outsized rallyin US "xed-income is likely to prove short-lived. Thedownward pressure on US rates is as much a product of pooreconomic data as it is the ongoing Eurozone crisis. We expectto see signs of improvement in the US economy in the latterhalf of the year, which should render 10 -year bonds at deeplynegative real yields unpalatable. To be sure, yields will staylow – growth in the US is only likely to be modestly above itscurrent rate, and there will not be a quick resolution to theEurozone crisis. But with 10s expected to reach 1.25% by theend of the quarter, a sharp sell -o# in Q4 is not incongruentwith a very low yield environment. Hence, although we favouroverweight Treasury positions for the next two or threemonths, such trades should be seen as tactical; once the !ight
G10 RATES AT A GLANCE1-Month Correlation Spreads (bps) History and Forecasts
SPX DXY WTIEco˚
(Dom)Eco(US) Largest 3m$
StrongestRate Corr UST ASW $m $y $ytd Consensus TD
2 0.2 -0.2 0.0 0.2 0.2 CRB -0.5 GE2 0.6 … -18 -21 -27 -3 11 7
5 0.6 -0.3 0.4 0.1 0.1 DXY -0.2 GE10 0.8 … -20 -6 -48 -24 … -3
10 0.7 -0.4 0.4 0.1 0.1 Eco -0.2 GE10 0.9 … -10 -5 -42 -19 32 13
30 0.8 -0.4 0.5 0.1 0.1 Eco -0.2 CA5 0.8 … 22 -4 -34 -11 … 1
2 0.7 -0.4 0.5 0.2 0.2 Eco -0.2 US10 0.8 86 -28 7 -21 15 12 5
5 0.7 -0.3 0.4 0.2 0.1 Eco -0.3 US10 0.9 67 -31 4 -36 2 … 5
10 0.7 -0.3 0.4 0.2 0.1 Eco -0.3 GE30 0.9 20 -44 -2 -38 -12 34 9
30 0.7 -0.3 0.5 0.2 0.0 Eco -0.3 GE30 0.8 -29 -33 -1 -30 -8 … 11
3 0.5 -0.3 0.3 -0.2 0.0 SPX 0.3 NZ3 0.6 241 -80 4 -38 -16 -15 -24
5 0.5 -0.3 0.3 -0.2 0.0 Eco˚ -0.3 NZ3 0.6 210 -81 3 -37 -16 … -3
10 0.5 -0.3 0.2 -0.2 -0.1 DXY 0.3 NZ3 0.6 164 -81 -1 -33 -14 7 -10
3 0.4 -0.2 0.2 -0.2 0.1 DXY 0.4 AU10 0.6 239 -32 2 -35 -3 … 12
5 0.4 -0.2 0.3 0.1 0.1 US10 0.3 AU10 0.5 236 -34 0 -34 -9 … 21
10 0.2 -0.1 0.1 0.2 0.1 US10 0.3 AU10 0.5 207 -29 1 -27 -6 37 2
2 0.3 -0.5 0.2 0.0 0.0 US10 0.6 SW30 0.7 -30 -68 -171 -107 -149 29 -18
5 0.4 -0.4 0.2 0.0 0.0 US10 0.7 SW30 0.9 -27 -63 -36 -77 -52 … -1
10 0.4 -0.3 0.3 0.0 0.0 US10 0.7 SW30 0.9 -15 -45 -10 -43 -25 22 -17
30 0.3 -0.1 0.3 0.1 -0.1 US10 0.6 CA10 0.9 -38 -8 -4 -31 -7 … -20
2 0.5 -0.5 0.2 0.0 0.1 CRB -0.3 GE5 0.6 -15 -76 -70 -87 -75 44 -28
5 0.5 -0.5 0.4 -0.1 -0.1 CRB -0.3 GE10 0.8 -13 -50 -31 -66 -52 … -40
10 0.6 -0.4 0.4 0.0 -0.1 Eco -0.3 GE5 0.9 -1 -39 -11 -46 -24 41 -11
30 0.4 -0.1 0.3 0.2 -0.2 Eco -0.5 GE5 0.8 33 6 -3 -27 -4 … 3
3 0.0 0.2 0.3 0.0 -0.3 DXY 0.5 CA2 0.4 109 -116 0 0 -1 … 38
5 0.3 -0.3 0.3 0.0 -0.1 CRB -0.4 NZ10 0.5 67 -146 0 2 1 … 50
9 0.4 -0.5 0.3 0.1 0.0 CRB -0.3 GE10 0.6 23 -153 0 6 4 … 51
NOK
EUR
UK
AUD
NZD
US
CAD
Forecastedbps from spotSorted by average G10 correlation
Strongest Weakest(1m-3m) correlation
#$%&'! !'(!)*+,! -./&0
0.230.63
1.52
2.59
1.10 1.301.71
2.30
-0.07 0.36
1.372.20
2.64 2.73 3.15
2.63 2.99 3.58
1.33 1.30 1.73
0.08 0.501.51
2.92
2y 5y 10y 30y
Trading Themes & Strategies: G10 RatesAndrew Kelvin
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-to-safety !ows begin to lessen we look for Treasuries tounderperform versus Canadian bonds, owing in part toCanada’s better "scal backdrop.
Canadian yields should grind lower over the next month ortwo, with yields on long-bonds expected to reach new recordlows as the curve continues to gradually !atten. 10 -year yieldsare also expected to scrape against their lows from late July,but a 30-plus basis point rally in Canadian bonds looksunlikely. Instead we look for Canadian bonds to lag versusTreasuries over the next few months, as US bonds shoulddisproportionately bene"t from the expected safehaven !owsand eventual easing from the Fed. Conversely, we expectCanadian bonds to outperform when market sentimenteventually improves and bonds begin to sell -o#. From afundamental perspective we remain in favour of owningCanadian bonds versus the US, but better entry points for long-Canada/short -US trades are likely to emerge in the comingmonths.
Front-end Canadian bonds are also likely to remain well -bidover the near-term, but recent communiqués from the Bank ofCanada have maintained a slight hawkish bias, and with onlya small amount of excess supply remaining in the economywe remain of the view that the Bank’s next move will behigher. The stark di#erences between policy stances at theFed and the Bank of Canada should impact the evolution ofthe yield curve in those two countries going forward. Weexpect that the Bank’s tightening bias will keep the Canadiancurve relatively !at over the next few years, with 2s10s notexpected to steepen much beyond current levels. By contrast,with US 2s likely to stay below 0.50% for the remainder of2012 and all of 2013, we forecast US 2s10s will break above200 bps. Such a forecast clearly supports a 2s10s box trade –though we again caution that we could see better entry pointslater in the year.
Turning to the rest of the Dollar Bloc, bonds in Australia andNew Zealand are expected to by and large follow Treasuriesthrough the remainder of the year, and we favour owningAustralian bonds versus New Zealand. Australia stands in theunique position amongst Dollar Bloc economies of having boththe means and desire to ease policy the old -fashioned way: bylowering rates. Still, even with the RBA likely to cut rates atsome point this year, the AUD OIS curve looks too dovish inour view, with two rate cuts fully priced-in and a third seen as aroughly 50/50 chance. With the RBA voicing clear optimismabout Australia’s economic future, we expect only one rate cutfrom the RBA in Q4, and from there the cash rate should sitcomfortably at 3.25% for all of 2013. By contrast, policy ratesin New Zealand are likely to move higher next year as theRBNZ moves to address pressures in the housing market.
A Race to Zero (and beyond) in Europe
As with Treasuries, we have seen strong rallies in gilts andbunds over the past month on softer growth and safehaven
!ows – and in recent weeks the level of chatter regardingfuture ECB action has risen to deafening volumes. 2 -yearGerman yields have now moved "rmly into negative territory,and with the ECB expected to cut rates we think that theGerman front -end has further to run. We look for the Germancurve to !atten over the next few months, but there should bea gradual retracement through the fourth quarter and 2013 asthe Eurozone either struggles towards a resolution or bundsbegin to lose their lustre as a safehaven. Nonetheless,German bonds should continue to trade through Treasuries,and we look for German-US spreads to widen through 2013.
UK "xed income stands out as a somewhat peculiar marketfor us; the broad pro"le of our UK forecast is similar to mostother jurisdictions, with yields expected to fall sharply before along selling takes hold. The expected timing in the UK is ratherdi#erent however, as we look for only slight declines in yieldsover the remainder of the current quarter followed by a sharpdrop in Q4. The trigger for the rush into UK bonds near theend of the year will be further easing from the Bank ofEngland, with the Bank Rate expected to fall to 0%. At thatpoint, we look for 2-year UK rates to fall into negative territory,with 2s10s steepening materially. While we see bene"ts toowning gilts outright, we see overweight UK allocations as atrade for later in the year – for now we see more upside withTreasuries and Australian bonds.
-0.2
-0.1
0
0.1
0.2
0.3
0.4
1.25
1.75
2.25
2.75
08/02/11 10/25/11 01/17/12 04/10/12 07/03/12
Source: Bloomberg
Canadian Bonds Typically Lag Rallies inTreasuries
US 10yr Yields (LHS)Canada-US 10yr Spreads (RHS)
% %
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Trading Themes & Strategies: G10 FXShaun Osborne
G10 FX AT A GLANCETech 1-Month Correlation Mkt Positioning History and Forecasts
100d history
Bias
SPX DXY VIX US10 WTI CRBUS
dataLargest3m! !m !y !ytd Mkt TD
DXY Bullish -0.6 … 0.5 -0.4 -0.4 -0.2 -0.1WTI+0.2 1 11 4 0 3
USD/JPY Bearish 0.3 0.0 -0.3 0.7 0.2 0.1 0.2 US10+0.1
-1 2 2 3 1
USD/CHF Bullish -0.7 0.9 0.5 -0.5 -0.4 -0.3 -0.2 WTI+0.2
3 29 5 1 5
EUR/SEK Bearish 0.1 -0.3 -0.3 0.1 0.2 0.1 0.0 VIX-0.4
-5 -9 -7 6 2
EUR/NOK Bearish 0.5 -0.2 -0.4 0.4 -0.1 0.0 0.2 SPX+0.6
-2 -4 -5 1 0
GBP/USD Neutral 0.7 -0.7 -0.6 0.4 0.4 0.3 -0.1 US data-0.2
-1 -5 0 0 -3
EUR/USD Bearish 0.7 -0.9 -0.5 0.5 0.4 0.3 0.2 WTI-0.2
-3 -14 -5 0 -4
USD/CAD Bearish -0.8 0.7 0.7 -0.6 -0.7 -0.6 -0.1 US data+0.2
-1 5 -2 0 4
NZD/USD Bullish 0.8 -0.6 -0.8 0.6 0.6 0.5 0.1 US10+0.2
1 -7 4 -2 0
AUD/USD Bullish 0.8 -0.6 -0.7 0.6 0.6 0.6 -0.1 US data-0.2
2 -3 3 -5 -150
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-6 -4 -2 0 2 4 6 8
Strong support/resistance50/100/200 day moving average
-3 -2 -1 0 1 2 3 -8 -4 0 4 8
% from spot
3m z-score
Forecasted% from spot
Short Long
Sorted by average G10 correlation
Strongest Weakest
(1m - 3m) correlation
Fcast " to Q412 (%)IMM Risk Reversals
Rate di#erential
EUR Still Winning the Race to the Bottom
Global growth headwinds remain strong. The US economyslowed sharply in Q2, weak or recessionary growth signalsremain the norm for Europe and o$cial comments suggest afurther (at least slight) deceleration in domestic growth liesahead for China. In the G -10 FX space, we remain negativeon the EUR’s broader outlook as there is nothing to suggestthe underlying trend lower is turning. But as the main centralbanks around the world resort to more aggressive, non -conventional monetary policy, those countries where yieldand/or growth remain apparent should outperform.
Our timing is, as ever, impeccable. Just as we are going toprint, policy setting meetings at the ECB and the Fed threatento inject more volatility and uncertainty into the markets.
We are a little sceptical that the outcome of these meetingscan satisfy the market “hype” that is building up ahead ofthem.
Just like last month, when Europe’s politicians managed tosurprise us by pulling out all the stops at the last leaders’summit, it is perhaps easy for anxious markets to get carriedaway by the headlines and lose focus on the risks surroundingthe implementation of policy decisions. Despite those“surprise” agreements made in June, the situation inperipheral bond markets (Spain and Italy) continued todeteriorate sharply subsequently after all. In the past fewweeks, Spanish bond yields reached record euro -era highs.
Now, indications that ECB President Draghi is poised to push
ahead with an aggressive round of economic and %nancialsupport measures have persuaded investors that relief for theEurozone’s %scal crisis is at hand (once again). That remainsto be seen. Mr Draghi might be considering a reactivation ofthe ECB’s bond buying programme, as well as more liquidityand rate cutting measures and reportedly has the support ofGerman Chancellor Merkel. Other German politicians and theGerman central bank are thought to be less enthused by hisideas, however.
We have seen throughout the Eurozone sovereign crisis thattalk is relatively cheap but implementation of simple policyinitiatives, let alone supposedly “game changing” ones hasbeen slow and di$cult. Relief for Spanish and Italian bondmarkets may – once again – be coming but we are loath tobelieve it is coming as soon or that such plans are necessarilyEUR -supportive.
Having run EUR/USD up from the 1.20 area in anticipation ofthe ECB engaging its %nancial bazooka with the markets, therisk of a disappointment trade seems quite high to us in thenear -term. We don’t think there is a potential “game changing”ploy about to be implemented from an FX point of view andwe continue to target new cycle lows for EUR/USD in the nextfew months – driven simply by weaker growth and yield/policydi#erentials.
While the potential for more Fed accommodation is rising tobe sure, we note that in relative – and absolute – terms, theECB is maintaining the more aggressive balance sheetexpansion policy of the two central banks. And if we had to
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bet on prospects, we think that the odds favour larger ECBbalance sheet expansion moving forward (via bond buys and/or new long-term re!nancing operations) over the Fed (wherechanges in the balance sheet’s composition, rather thanoutright growth in it, has been the policy focus of late via“Operation Twist”). For the !rst time since 2008, thebenchmark three month Euribor rate has eased below thethree month USD LIBOR rate, re"ecting expectations ofrelatively easier policy setting in the Eurozone versus theUSA.
With global investors so focused on Europe, the potential fornear -term policy initiatives to disappoint markets – broadly –seems quite high and suggests to us that risk aversion may bethe dominant theme for the markets as we move through themiddle of the quarter.
Seasonal patterns suggest to us that the equity marketstypically under-perform at this time of the year (extending the“sell in May” theme) and late July/early August has been quitea brutal period for US stocks in the past few years.
Disappointment with policy decisions in the short run maydrive a return to risk averse trading and should be supportivefor the typical FX safe havens – the JPY and the USD.Seasonal trends are supportive of the JPY as well over thenext few months and we note that the USD generally (asmeasured by the DXY index) retains a strong, negativecorrelation with stocks (S&P 500). Renewed risk aversion willmean a higher USD, in other words.
The high-beta FX currencies – the commodity bloc – maystruggle to better recent highs against the USD and could slipagainst the JPY from here in a more risk -averse environment.It seems likely that yield and growth considerations for thelikes of the AUD and NZD (as well as the CAD) combined withthe development of the EUR as a “funding currency” willmaintain pressure on the likes of EUR/AUD and EUR/CAD,which have fallen to euro-lifetime lows. In the “race to thebottom” in G-10 FX, no -one seems likely to beat the EUR atthe moment. SA
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Trading Themes & Strategies: EM FXCristian Maggio
Stronger EMFX on QE3, but EZ risks still adominant factor
The general impression is that the market is becomingincreasingly more sceptical about the timing ande!ectiveness of Eurozone solutions. The magnitude of therelief rallies is getting smaller over time, and when thestatements are followed by inadequate action, correctionscan erase the painfully achieved gains. In this respect, ourexpectation that QE3 will be announced by the FederalReserve in September alleviates some of the short termpain, but does not remove the need to have the EZ crisissolved lastingly.
Our analysis shows that the market is already discounting avery high probability of QE3, which is consistent with thefact that EM currencies and equities started rallying roughly1.5 months before the announcement of QE2. Therefore,as these expectations are likely to limit the positive QEimpact when this is "nally delivered, they could trigger asharp correction in case of disappointment, as well.Assuming that quantitative easing is announced inSeptember, we would expect positive implications to beclearly visible in the following three months, then slowlyfade and disappear completely before the programmeexpires. For these reasons, our EMFX forecasts remainedmostly unchanged over the 1yr horizon, and wereasymmetrically tweaked in the short run.
Among the winners and losers, Latin American currenciesare likely to bene"t the most from a QE3 program. First ofall, correlation to the US tends to be higher. Secondly, thepositive implications for commodity prices should also
bene"t major resource exporters such as Brazil andMexico.
Over the next 4 quarters, the Brazilian real and theMexican peso are likely to gain the most in total returnterms. Spot appreciation, however, should be concentratedover Q3 and Q4, when we estimate the QE e!ects to bestronger. We do not favour the MXN over the BRLanymore, as both spot appreciation and interest return arelikely to be higher for the real than the peso. Moreover,recent strong peso appreciation is now limiting the potentialfor further gains. We forecast USD/BRL and USD/MXN at1.98 and 12.96, respectively, by year -end.
We also like the ZAR as a risk -on play, which would be thecase if QE3 is announced. Yet, the SARB has recentlysurprised the market by cutting the repo rate by 50bp to5.00%, triggering moderate short -term volatility on the rand,swaps and FRAs. Despite the non -negligible risk that theReserve Bank will further relax monetary policy in thecoming months, we still hold onto our view that rates will beleft unchanged this year. As the market is still pricing in a25bp cut up to 5 months (this is half of a conventional ratecut by the SARB), we see upside potential for the randmaterializing when the market removes the implied -cutexpectations, pushing USD/ZAR lower near the 8.0 handleby the turn of the year. QE3 could reinforce our view byinducing in#ationary pressure via commodities.
We see the QE3 e!ect more limited on Asian currencies.These are likely to respond positively to the risk -onenvironment, but, as it happened in the past, high betaEMFX are likely to bene"t more in these circumstances.Besides, regional growth drivers continue to lookunsupportive for strong FX rallies over the medium term,
EMFX AT A GLANCETech 1-Month Correlation Mkt Positioning History and Forecasts
100d history
Bias
SPX VIX DXY US10 WTI CRBUS
dataLargest3m$ $m $y $ytd Mkt TD
USD/TRY Bearish -0.5 0.4 0.5 -0.2 -0.3 -0.4 0.0US10+0.3 0 5 -5 0 1
USD/ZAR Neutral -0.7 0.7 0.7 -0.5 -0.5 -0.5 0.0 US data+0.2
2 23 3 -3 -3
USD/RUB Neutral -0.7 0.8 0.6 -0.6 -0.7 -0.5 0.1 VIX+0.2
0 17 1 -1 2
USD/HUF Bearish -0.8 0.6 0.8 -0.6 -0.5 -0.5 -0.2 WTI+0.1
1 20 -6 3 3
USD/PLN Neutral -0.7 0.6 0.8 -0.5 -0.5 -0.3 -0.1 CRB+0.1
0 18 -3 2 5
USD/BRL Neutral -0.4 0.6 0.2 -0.6 -0.5 -0.3 0.2 US10-0.3
3 31 10 -2 -3
USD/MXN Bearish -0.8 0.8 0.6 -0.6 -0.4 -0.4 0.1 US data+0.2
0 13 -4 -1 -3
USD/INR Neutral -0.6 0.6 0.5 -0.6 -0.3 0.1 0.1 CRB+0.5
1 26 5 -2 1
USD/IDR Bullish -0.3 0.4 0.1 -0.4 -0.1 0.2 -0.3 US data-0.5
1 12 5 -1 -1
USD/MYR Bearish -0.3 0.3 0.3 -0.4 -0.3 -0.1 -0.1 CRB+0.4
-1 6 -1 -1 150
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-10 -8 -6 -4 -2 0 2 4
Strong support/resistance50/100/200 day moving average
-2 -1 0 1 2 -6 -3 0 3 6
% from spot
3m z-score
Forecasted% from spot
Short Long
Sorted by average G10 correlation
Strongest Weakest
(1m - 3m) correlation
$%&'(! !()!*+",! -./Risk ReversalsRate di!erential
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and the softening economic momentum is likely to inducemore easing from Asian CBs, thus reducing interest ratedi!erentials vs. DMs and other non -Asia EMFX. Of thethree currencies we cover in EM Asia, only the IDR isforecast to post moderate gains in Q4’12 and Q1’13, givenits persistent weakness in the face of Indonesia’ economicresilience, and contained rate downside risks.
Conversely, the Indian rupee is likely to remain weak overthe forecasting horizon, owing to idiosyncratic risks, andmonetary policy being tighter than we had originallyexpected. In fact, as the INR reacts to the performance ofthe stock market more than to local bond dynamics, byaverting a hard landing and boosting equities, a lower -rateenvironment could support better INR valuations. At themoment, however, we see this as unlikely and havepushed back to October from September the start ofmonetary easing. In the meantime, the elevated WPI andpotentially rising in"ationary pressure after QE3 could leaveeverything hinging on government initiative, which is anegative, while the risk of downgrades to junk will keeppressure high with USD/INR likely above 56 until Q3 2013.
In EMEA, we are likely to see only limited e!ects from QE3,with the exception of South Africa. Our revised forecastsleft the USD crosses almost unchanged as the EZ situationremains critical, while QE should provide only limitedupside, which should reverse anyway before the expiry ofthe programme. We expect USD/HUF slightly weaker now,but this mostly re"ects a higher likelihood of an IMF/EUdeal successfully negotiated before the autumn. Themarket is already anticipating a positive conclusion, butresidual moves should strengthen the forint in theneighbourhood of 275/278 to the EUR by the end of theyear and early -2012.
Again, the most stable cross is likely to be USD/TRY as thelira bene#ts form CBRT’s focus on currency stability via theovernight rate corridor. When the market adds pressure,CBRT pushes banks’ average cost of funding higher, andvice -versa when external conditions normalize. Averagefunding costs have now reached the lowest levels sinceMarch, also triggering the re -steepening of the Xccy curve.Further reductions in money market rates would likelyconstrain lira appreciation below 1.80/1.81 to the USD inthe medium term, but risk aversion could be fought backsending the average funding costs back above 10% fromthe current level of 7.6%, containing TRY depreciation, aswell. For these reasons, we like short USD/TRY in the longterm, prefer TRY/ZAR shorts in the event of QE3, andfavourably look at long TRY/EMEA FX on episodes of riskaversion.
On the rate front, our revised forecasts imply no rate hikesin South Africa over 2013, with the repo rate held at 5.00%,and a delayed start of monetary easing in India.Implications are clearly di!erent. In the case of S. Africa,the IRS curve should remain steeper for longer. 2s10s justshy of 160bp are some 10bp "atter than they should be,especially with the market still pricing in a 50% chance ofanother cut. As the odds of further easing are still quitehigh, curve "attening permanently below 150bp should belimited for now. Only in H2 2013, with an improved growth
outlook and increasing expectations of monetarytightening, will 2s10s fall below 100bp.
Across the rest of EMEA, curves aren’t likely to move muchfrom current levels. We would simply look for normalizationopportunities in Hungarian IRS after the IMF deal iscompleted, and a steeper Xccy curve underpinned by QE3e!ects and a slow, but volatile, normalization of riskappetite going into 2013.
In India, the curve also looks excessively "at given ourforecast of rate cuts from October onwards. By the end ofthe year, we see the possibility that 1y5y ND -OIS reversetheir steepness by $ of a per cent point from the -60bplevel. But the materialization of this forecast strongly hingeson the RBI delivering monetary easing.
In Mexico, TIIE swaps should continue tracking USTs onQE3, producing a "atter curve beyond 10y, while in BrazilPRE -DI swaps continue to be steep, but not as steep asour models suggest given the BCB’s easing (albeit notformal) bias, and the risk of resurging CPI next year. In thiscontext, 2s5s should hover at around 150bp from 95bpcurrently if the BCB cuts the Selic below 7.25%, whilearound 100bp the spread looks just about right if the BCBhalts easing at 7.25 -7.50%. We also like 1y PRE -DIreceivers given a too early reversal of easing priced in bythe market.SAMPLE
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Trading Themes & Strategies: CommoditiesDavid Bouckhout
Commodities Wait on Central BanksThe ebb and !ow of central bank stimulus hopes continue todrive price direction for commodity markets, with lessemphasis being placed on supply/demand fundamentals. Inthis environment, the actions taken by key central banks holdstrong in!uence, and on balance, we see central bankerslargely disappointing those looking for balance sheetexpansions in August. While some form of stimulus couldvery well come in August from some central banks, theheightened market expectations leading up to these decisionswill likely disappoint commodity markets and open up themarket to downside risks in the near -term.
Central bank decisions are not created equal when it comes toin!uencing commodity markets, which makes these marketsdi"cult to navigate, especially when fundamentals are throwninto the mix. The US Fed remains the most in!uential on thecommodity complex, yet by doing nothing at their Augustmeeting has caused very little volatility. This decision to donothing could be seen as putting the ball in the ECB’s court,
hence why commodity markets were rather calm following theWednesday decision, or it could be the Fed waiting for payrollsinfo and a reaction to the ECB. In any event, we believe thatthe optimistic expectations will be disappointed, causingcommodities to move lower early in August, but gain backupward momentum later in the month as stimulus chatter getshot again.
Even though the conditions supportive for another round ofQE appear to be taking shape, Fed Chairman Bernanke islikely looking for more evidence that a slowdown in the US willpersist beyond the negative e#ects from seasonal factors andEurope. This leaves September as the higher probabilitytiming for QE to be announced by the Fed, and would helpdrive commodity prices higher perhaps even ahead ofSeptember.
Europe remains a huge wild card for risky assets across theboard. The BoE has already set their policy until November,leaving the ECB carrying a lot of in!uence. There is noquestion that the market is looking for the ECB to deliver
COMMODITIES AT A GLANCE1-Month correlation History and Forecasts
100d WTI SPX CRB DXY VIX US10US
dataLargest3m$ $m $y $ytd Consensus TD
Gold 0.9 0.7 0.7 -0.7 -0.6 0.4 0.4SPX+0.6 0 -4 2 10 12
Silver 0.8 0.6 0.7 -0.7 -0.4 0.4 0.4 CRB+0.5
0 -33 -1 28 28
Platinum 0.8 0.6 0.7 -0.6 -0.5 0.5 0.1 US10+0.3
-4 -22 0 21 23
Palladium 0.7 0.5 0.5 -0.6 -0.4 0.6 0.0 US10+0.3
1 -29 -11 29 33
Copper 0.9 0.7 0.5 -0.7 -0.5 0.6 0.0 US data-0.2
-4 -23 -2 9 10
Zinc 0.7 0.6 0.5 -0.7 -0.6 0.5 -0.2 SPX+0.3
-4 -26 -1 15 14
Lead 0.8 0.7 0.6 -0.7 -0.6 0.6 -0.1 SPX+0.3
1 -27 -7 13 13
Nickel 0.8 0.6 0.6 -0.6 -0.4 0.4 0.0 WTI+0.3
-7 -37 -17 21 21
Aluminum 0.8 0.7 0.6 -0.7 -0.5 0.6 -0.1 US data-0.3
-3 -29 -8 18 1650
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$%&'(! !()!*+"#! ,-.
Iron Ore 0.0 -0.3 -0.2 -0.1 0.1 -0.3 -0.1 US10-0.3
-11 -32 -13 20 21
WTI 1.0 0.5 0.6 -0.4 -0.5 0.4 -0.3 US data-0.5
6 -5 -10 7 -2
Brent 1.0 0.5 0.7 -0.4 -0.5 0.4 -0.2 US data-0.5
9 -8 1 2 -11
NatGas 0.3 0.1 0.4 0.0 0.3 -0.3 0.3 US10-0.6
11 -24 5 -8 -5
Heating Oil 1.0 0.5 0.6 -0.4 -0.6 0.4 -0.3 US data-0.6
7 -8 -3 -6 -14
Gasoline 0.5 0.5 0.8 -0.2 -0.3 0.1 -0.1 US data-0.5
8 -6 6 … -19
AECO Nat Gas 0.2 0.1 0.3 -0.1 0.2 -0.2 0.3 CRB+0.4
26 -26 -1 … -750
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Thermal coal 0.3 0.6 0.1 -0.7 -0.6 0.5 0.1 SPX+0.5
0 -30 -25 … 14
-30 -25 -20 -15 -10 -5 0 5 10 15
50/100/200 day moving average
-40 -20 0 20 40
% from spot Forecasted% from spot
Sorted by average commodity correlation
Strongest Weakest
(1m-3m) correlation
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something big, but given that the ECB has a history ofdisappointing markets, it is di!cult to determine just howbalanced expectations will be when measured against actualECB action – or lack thereof. ECB President Draghi has beenrather assuring in recent remarks, saying that the ECB will do“whatever it takes”, which has only raised these expectationseven more. But does this mean that markets, includingcommodity markets, only fall that much further on adisappointment?
Our view has been that the ECB will provide signi"cant easingby September, and likely in the form of another LTRO, butvery possibly through EFSF/ESM bond buying. This view wascast on the back of a disappointing June Leaders Summit,deeper issues in Spain, Greece, Italy and Portugal, and thefact that taking interest rates to zero has had an insigni"cantimpact overall.
ECB decisions don’t tend to carry the same sway oncommodity markets as the Fed, but this month could bedi#erent. Given how much of the global macro economicangst has stemmed from Europe, and caused industrialcommodity fundamentals in particular to loosen, the actions oftheir central bank sends a loud message to markets on howserious they see the problem and how immediate they want todeal with it. In fact, Europe’s recessionary environment hasbeen one of the main reasons behind China’s slowingeconomy. China’s top destination for exports is Europe, andwith Europe in a recession, the demand for Chinese exportshas declined, which also decreases China’s demand forcommodities, especially industrial commodities.
This leads us to the PBoC, which has already cut rates twicein so many months in an attempt to spur Chinese growth. Thehope that China’s government and the PBoC would acceleratetheir e#orts to stimulate the economy is one of the keyreasons why we think investors will keep industrialcommodities from falling sharply. But, we don’t expect greatthings owing to a still poor private sector demand environmentand likely excessive inventories. Policy can’t do it all if privatesector demand is poor. Plus, there are policy lags anddiminishing returns to yet another round of QE.
Oil Chopping Around in Rough Waters
Not much has changed for oil, as the energy commodityremains caught between a rock and a hard place. Geopoliticalrisks remain supportive, however, in a fragile economy risingoil prices are not easily sustained, especially in the absence ofan actual supply -side constraint that tightens the fundamentalbalance signi"cantly. Currently, the fundamental balance foroil is not tight; in fact, we estimate that even with new crudedistillation capacity coming on line in the next four-to-sixmonths and the seasonal increase in demand, oil will stillexperience some 1MMbbls/day of surplus supply (on average)for the rest of the year.
Much of this oil will show up in storage, and the oil processed
by these new distillation facilities are likely to end up aspetroleum product stockpiles as global demand growth slowsand supply remains relatively strong. Essentially, the global oilmarket is not facing short supply anytime soon, but the risksdo remain with Iranian tensions keeping market playersreluctant to put too much stock in the downside.
The upside for oil may only be sustainable in the event thatgeopolitical tensions turn into actual events. Of course this isNOT our base case scenario, but instead, we feel that the oilmarket is poised to stay trading in a range, with economicgrowth concerns impeding the upside and supply-side riskskeeping a $oor on prices. And the action in the middle willcontinue to be driven largely by central bank expectations.
Metals Balancing Fundamentals and Global StimulusExpectations
Similarly to oil, metals are facing slower demand stemmingfrom slowing Chinese growth, systemic risks in Europe, andthe "scal cli# in the US. In this light, the concern that slowerdemand will tilt industrial metal markets into oversupplyterritory and force destocking has placed considerabledownside pressures on prices. However, metals are far frombeing immune to the central bank rhetoric, especially gold andother precious metals.
Growing speculation that some form of central bank stimuluswill be announced has seen more buying action in the goldand precious metals space. Specs have been noticeablyabsent in these markets, but will see QE3 and other centralbank stimulus as positives for the demand side, even if just fora short time.
But even with central bank action, fundamentals lack thenecessary support for a sustained rally, much like in oil.Industrial metals have seen LME and global stockpiles buildas global demand concerns hurt infrastructure spending andmanufacturing. Global PMIs have yet to hit recovery speed,with many key country PMI measures coming in with sub -50prints, or contraction territory. So while we expect that centralbank stimulus will be good for metals, industrial base andindustrial precious metals will have their work cut out for them,as poor fundamentals drag hard on the upside.
On balance, we see commodity markets continuing to ebb and$ow with key central bank actions. And in this light we seecommodities like gold, oil, copper, and PGMs vulnerable todownside risks as the heightened market expectations aredisappointed by central bank actions early in August.However, with global macro economic conditions far fromstable, central bank stimulus is very likely to be furtheremployed, which will support commodities, and likely besupportive ahead of September.
SAMPLE
!"#!
!
2 August 2012
Regional RisksEric Green, David Tulk, Annette Beacher, Rich Kelly, Cristian Maggio
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CANADA ASIA-PACIFIC
EMsEUROPE
UNITED STATES
SAMPLE
!"#!
!
2 August 2012
Snapshot: US
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MACRO
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RATES
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FX
TD FORECASTS - United States Spread to Germany
100dhistory
Spot+4qfcast Spot 9/12 12/12 3/13 6/13 9/13 12/13 3/14
100dhistory
Spot+4qfcast Spot 9/12 12/12 3/13 6/13 9/13
O/N 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 -50 -25 0 0 0 0
3m 0.09 0.10 0.10 0.15 0.15 0.20 0.20 0.20 26 35 30 35 25 20
2y 0.23 0.25 0.30 0.30 0.30 0.30 0.45 0.55 30 45 55 35 25 15
5y 0.63 0.50 0.60 0.60 0.65 0.80 1.00 1.15 27 25 25 5 -20 -35
10y 1.52 1.25 1.65 1.90 2.00 2.25 2.50 2.65 15 10 45 55 40 35
30y 2.59 2.15 2.60 2.90 3.00 3.30 3.60 3.75 38 15 60 75 70 65
USD/JPY 78 78 79 80 80 84 84 84
EUR/USD 1.23 1.22 1.18 1.18 1.20 1.22 1.25 1.27
GBP/USD 1.55 1.54 1.51 1.51 1.56 1.63 1.67 1.64
USD/CHF 0.98 0.98 1.03 1.06 1.04 1.07 1.04 1.04
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Economic Growth Momentum Falling
88 90 92 94 96 98 00 02 04 06 08 10 1225
30
35
40
45
50
55
60
65
70
75
-25
-20
-15
-10
-5
0
5
10
15
LEI 6M AR (3MLead)
Leading Index (6M MA)ISM Manufacturing (RHS)
SAMPLE
!"#!
!
TD FORECASTS - Canada Spread to US
100dhistory
Spot+4qfcast Spot 9/12 12/12 3/13 6/13 9/13 12/13 3/14
100dhistory
Spot+4qfcast Spot 9/12 12/12 3/13 6/13 9/13
O/N 1.00 1.00 1.00 1.25 1.50 1.50 1.50 2.00 75 75 75 100 125 125
3m 0.98 0.95 1.00 1.35 1.55 1.55 1.65 2.05 89 85 90 120 140 135
2y 1.10 1.00 1.15 1.45 1.65 1.75 1.90 2.15 86 75 85 115 135 145
5y 1.30 1.20 1.35 1.60 1.85 2.00 2.15 2.30 67 70 75 100 120 120
10y 1.71 1.55 1.80 2.00 2.10 2.25 2.45 2.60 20 30 15 10 10 0
30y 2.30 2.15 2.40 2.55 2.55 2.75 2.95 3.10 -29 0 -20 -35 -45 -55
USD/CAD 1.01 1.03 1.05 1.03 1.02 1.00 1.00 0.98
CAD/JPY 78 76 75 78 78 84 84 86
EUR/CAD 1.23 1.26 1.24 1.22 1.22 1.22 1.25 1.24
GBP/CAD 1.56 1.59 1.59 1.56 1.59 1.63 1.67 1.61
2 August 2012
Snapshot: Canada
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MACRO
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RATES
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FX
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Forecasted Change in the OvernightRate (Basis Points)
-25
0
25
50
75
2012Q3 2012Q4 2013Q1 2013Q2 2013Q3 2013Q4
* Pricing as of July 4/12; Source: Bloomberg, TD Securities
TD SecuritiesBloomberg ConsensusOIS Pricing*
SAMPLE
!"#!
!
TD FORECASTS - Australia Spread to US
100dhistory
Spot+4qfcast Spot 9/12 12/12 3/13 6/13 9/13 12/13 3/14
100dhistory
Spot+4qfcast Spot 9/12 12/12 3/13 6/13 9/13
O/N 3.50 3.50 3.25 3.25 3.25 3.25 3.25 3.50 325 325 300 300 300 300
3m 3.28 3.30 3.30 3.30 3.30 3.30 3.50 3.75 320 320 320 315 315 310
3y 2.64 2.30 2.40 2.45 2.55 2.80 3.40 4.00 241 205 210 215 225 250
5y 2.73 2.35 2.70 2.75 3.00 3.35 3.80 4.25 210 185 210 215 235 255
10y 3.15 2.70 3.05 3.30 3.40 3.65 4.00 4.40 164 145 140 140 140 140
AUD/USD 1.05 1.04 1.04 1.04 1.03 1.03 1.03 1.02
AUD/NZD 1.29 1.30 1.28 1.26 1.25 1.24 1.24 1.24
AUD/JPY 82 81 82 83 82 87 87 86
EUR/AUD 1.17 1.17 1.13 1.14 1.17 1.18 1.21 1.25
2 August 2012
Snapshot: Australia
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8-*-!&5!28-!)40(0),&*!1&*+(4!2&J!7&5!.30,-3-42-9!%*(3!"!
K),@C!!
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0& -41-! .4!28-!%&1-!(%! !/,(+&,!'(,& ,.2@! :">!G8-!4-J2! HAE+0!
7&5!0)58-9!.42(!OP!&5!28-!MN$!58(75!&4!(0 3.5 1!0)+,.1!
%&1-6!3(4.2(*.4/!28-!.30&12!(%!H"AE+0!2(!9&2-!(4!28-!-1(4H
(3@C! :A>!L-! 0)58-9! ()*! QER+0! %*(3!OP! AR";! .42(! AR"P6!
%(,,(7.4/! 28-! /,(+&,! 2*-49! (%! ,(7! %(*! ,(4/-*C! ! N(49! @.-,95!
5,&58-9!9)-!2(!/,(+&,!27-&?5!&49!()*!18&4/-!2(!MN$!'.-7C!
RATES
$ -*! 2*.33.4/! ()*!$DS! %(*-1&525! ,&52!3(428! (4! *-4-7-9!
TDM!0-55.3.536!7-!18&4/-!1()*5-!&49!+((52!()*!$DS!0*(H
U-1 (45!:&49!()20-*%(*3&41-!&/&.452!28-!3&U(*5>!9)-!2(!:">!
OT;!+((5 4/!*.5?!&00- 2-! :A>! 28-!MN$! .5!8./8,@!)4,.?-,@! 2(!
%), ,,!VWX!0*.1.4/!(%!Y#R+0!('-*!28-!4-J2!27-,'-!3(4285!&49!
:;>! *-&,! 3(4-@! .4'-52(*! &00- 2-! %(*! Z1&**@Z! *-./4.2-9! &5!
/,(+&,[email protected],95!&*-!,(7-*!%(*!,(4/-*C!
FX
$44- -CN-&18-*[295-1)*. -5C1(3!!!!!!!!!!!!Q\E!\ERR!]RP#!
$,'.4CI(42(8[295-1)*. -5C1(3!!!!!!!!!!!!!!!!!!!Q\E!\ERR!]RP#!!
X8&)4CV5+(*4-[295-1)*. -5C1(3!!!!!!!!!!!Q"!P"\!^];!A\A^!
_*-/CGC`((*-[295-1)*. -5C1(3!!!!!!!!!!!!!!Q"!P"\!^]A!##]P!
!
0
10
20
30
40
50
60
70
80
90
100
110
120
130
87 89 91 93 95 97 99 01 03 05 07 09 11 13
A$billion
s
0
10
20
30
40
50
60
70
80
90
100
110
120
130
A$billion
s
Work commencedWork doneWork yet to be done
Mining boom here to stay
Source: ABS
! Core in!ation 2-2.5% for longer
S o u rce : R e u te rs E co W in ; T D fro m Q 3 2 0 1 2
03 04 05 06 07 08 09 10 11 12 13
Y/Y
1.752.002.252.502.753.003.253.503.754.004.254.504.75
SAMPLE
!"#!
!
TD FORECASTS - New Zealand Spread to Australia
100dhistory
Spot+4qfcast Spot 9/12 12/12 3/13 6/13 9/13 12/13 3/14
100dhistory
Spot+4qfcast Spot 9/12 12/12 3/13 6/13 9/13
O/N 2.50 2.50 2.50 2.75 3.00 3.25 3.75 4.00 -100 -100 -75 -50 -25 0
3m 2.44 2.50 2.75 3.00 3.30 3.60 4.05 4.25 -84 -80 -55 -30 0 30
3y 2.63 2.40 2.75 3.00 3.40 3.70 4.20 4.50 -1 10 35 55 85 90
5y 2.99 2.65 3.20 3.45 3.65 4.00 4.40 4.75 26 30 50 70 65 65
10y 3.58 3.15 3.60 3.85 4.00 4.25 4.60 5.00 43 45 55 55 60 60
NZD/USD 0.81 0.80 0.81 0.82 0.83 0.83 0.83 0.82
AUD/NZD 1.29 1.30 1.28 1.26 1.25 1.24 1.24 1.24
NZD/JPY 64 62 64 66 66 70 70 69
EUR/NZD 1.51 1.53 1.46 1.44 1.45 1.47 1.51 1.55
2 August 2012
Snapshot: New Zealand
$%&'()*!+,!&-*!.-/('&0-%/0-!/*1%(2)3!2(4(&*)!-+%'(56!'%7728!('!7%'-(56!-+%'*!7/(0*'!&+!&9+:8*;/!-(6-'!;5)!('!;!5*9!7+2(:08!,+0%'!,+/!&-*!<=>?!;5)!@*8!6+A*/54*5&B!!<*&;(2!';2*'!;5)!*C7+/&'! ;/*! '&;65; 563! 7/+A()(56! )+95'()*! &+! +%/! DEF!DG"D!HIJ!,+/*0;'&B! !K():8*;/! (5 ; +5!;&!"FL8/! ('!&-*!1+&:&+4!+,!&-*!<=>?!&;/6*&!1;5)3!1%&!('!5+&!;!&/(66*/!,+/!*;'(56!'-+/&!+,!;!62+1;2! 5;50(;2!4;/M*&!4*2&)+95B!
MACRO
N*!*C7*0&!&-*!<=>?!&+!7;%'*!;&!DBOF!%5 !K;/0-3!;2&-+%6-!0+5'*5'%'!('!2*;5(56!&+9;/)'!P%5*B!N-*&-*/!(50+4(56!<=>?!H+A*/5+/! H/;-;4! N-**2*/! ('! ;! -;9M! +/! )+A*3! 4;5;6(56!/('(56!-+%'*!7/(0*'!('!2(M*28!&-*! /'&!7+2(08!0-;22*56*B!!=+5)!8(*2)'!-;A*!1**5!;)Q%'&*)! 2+9*/! (5! 2(5*!9(&-!62+1;2! &/*5)'3!;2&-+%6-!M(9(!1+5)'!'-+%2)!0+5 5%*!&+!&/;)*!;&!;!)('0+%5&!&+!R"!&/;)(56!7;/&5*/!;5)!SSS:/;&*)!S%'&/;2(;B!
RATES
T-*! >?I! -;'! /;56*:&/;)*)! ;&! UVWGBX#L#"! +A*/! &-*! 2;'&!4+5&-!)*'7(&*!/*5*9*)! 5;50(;2!4;/M*&!A+2; 2(&8!;5)!,;22:(56! '+ ! 0+44+)(&8! 7/(0*'B! ! S'! +%/! 1;'*! 0;'*! ('! YZ[! ;5)!62+1;2!8(*2)'!;/*! ;&!&+!'2(6-&28!5*6; A*!(5!'+4*!0;'*'3!9*!1++'&! >?I! 7/+Q*0 +5'B! ! S'! 0+5'*5'%'! *C7*0&'! -&*5(56!02+'*/!&+!4():DG"[3!9*!-;A*!7%'-!+%&!>?I!+%&7*/,+/4;50*!,/+4! 8*;/:*5)! (5&+! 5*C&! 8*;/3! *A*5! &-+%6-! +%/!$.<! &/;0M!/*4;(5'!%50-;56*)B!!
FX
S55* *B=*;0-*/\&)'*0%/( *'B0+4!!!!!!!!!!!!]^O!^OGG!#G_X!S2A(5BJ+5&+-\&)'*0%/( *'B0+4!!!!!!!!!!!!!!!!!!!]^O!^OGG!#G_X!!
W-;%5B$'1+/5*\&)'*0%/( *'B0+4!!!!!!!!!!!]"!_"^!`#[!D^D`!H/*6BTBK++/*\&)'*0%/( *'B0+4!!!!!!!!!!!!!!]"!_"^!`#D!XX#_!
! In!ation sinks to 1% thanks to NZD
Source: Reuters EcoWin
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Perce
nt
-3
-2
-1
0
1
2
3
4
5
6
HeadlineTradable in!ation
! House prices gather steam
Source: Stats NZ, Reuters EcoWin
02 03 04 05 06 07 08 09 10 11 12
NZD
(thou
sand
s)
175
200
225
250
275
300
325
350
375
Y/Y
-10
-5
0
5
10
15
20
House price level (RHS)
House price growth (LHS)
SAMPLE
!"#!
!
TD FORECASTS - German Rates and Euro Spread to US
100dhistory
Spot+4qfcast Spot 9/12 12/12 3/13 6/13 9/13 12/13 3/14
100dhistory
Spot+4qfcast Spot 9/12 12/12 3/13 6/13 9/13
O/N 0.75 0.50 0.25 0.25 0.25 0.25 0.25 0.25 50 25 0 0 0 0
3m -0.17 -0.25 -0.20 -0.20 -0.10 0.00 0.00 0.48 -26 -35 -30 -35 -25 -20
2y -0.07 -0.20 -0.25 -0.05 0.05 0.15 0.20 0.94 -30 -45 -55 -35 -25 -15
5y 0.36 0.25 0.35 0.55 0.85 1.15 1.25 1.50 -27 -25 -25 -5 20 35
10y 1.37 1.15 1.20 1.35 1.60 1.90 2.00 1.63 -15 -10 -45 -55 -40 -35
30y 2.20 2.00 2.00 2.15 2.30 2.65 2.90 1.23 -38 -15 -60 -75 -70 -65
EUR/USD 1.23 1.22 1.18 1.18 1.20 1.22 1.25 1.27
EUR/GBP 0.79 0.79 0.78 0.78 0.77 0.75 0.75 0.77
EUR/CHF 1.20 1.20 1.22 1.25 1.25 1.31 1.30 1.32
EUR/JPY 96 95 93 94 96 102 105 107
2 August 2012
Snapshot: Eurozone
$%&%'(! )*+,! -.%! &/',0,(%'(! 10(2! -'/(2%.! 34-.(%.! /5! &/'6
(.- /'!5/.!74./8/'%!9:);!-<(2/4=2!(2%!>-&%!/5!?%&<0'%!2-,!
- %'%?!/4(!-'?!1%!,2/4<?!,%%!,/@%!=./1(2!AB!B%-.!%'?C!!
$%&%'(!<%'?0'=!,4.D%B,!,2/1!(2-(!?%@-'?!0,!, !(2%!A0==%.!
/A,(-&<%!(/!&.%?0(!=./1(2;!'/(!,4>><B;!120&2!&-<<,!5/.!54.(2%.!
%-,0'=! 5./@! (2%! 7EFC!G%! (20'H! (2%! '%I(! .% ! .-(%! &4(! 10<<!
&/@%! 0'! J%>(%@A%.;! -</'=! 10(2! </1%.! ,(- ! 5/.%&-,(,! 5/.!
KL"K!-'?!KL"MC!
MACRO
N2%!7EFO,!?%>/,0(!.-(%!&4(!(/!8%./! 0'!P4<B!2-?!(2%!% %&(!/5!
>4,20'=! ,2/.(6(%.@! .-(%,! '%=- D%! 5/.! (2%! &/.%;! A4(! @/.%!
0@>/.(-'(<B;! %I-&%.A- '=! (2%! ?0,</&- /'!10(2! (2%! >%.0>26
%.BC!Q/.! (2%! .,(! @%! 0'! ,/@%! @%;!1%!>.%5%.!,2/.(!?4.-6
/'! 5/.! A4'?,! 4' 4'<%,,! (2%! 7EF! 0,! ?/'%! &4 '=! .-(%,C!!
J2/.(!%'?!,4>>/.(%?!AB!.0,H!/5!'%=- D%!?%>/,0(!.-(%,!120<%!
@-.H%(! .%<0%5! /.! 1/..0%,! /5! =.-'?! A-0</4(! 10<<! &/' '4%! (/!
@/D%!(2%!</'=!%'?C!
RATES
+'&.%-,0'=! >.%,,4.%! /'! <-.=%! -'?! ,B,(%@0&-<<B! ,0='0 &-'(!
74./8/'%!,/D%.%0='!&.%?0(,!2-,! 5/.&%?! (2%!7EF! (/!&/',0?%.!
@/.%!-==.%,,0D%!>/<0&B!/> /',!(/!-??.%,,!(2%! '-'&0-<!-'?!
%&/'/@0&! &.0,0,C! ! +(! .%@-0',! 4'&<%-.! 2/1! @4&2! ,4>>/.(!
(2%.%! 0,! 5/.! ,4&2!@%-,4.%,! 10(20'! (2%! 7EF! /.! 2/1! 340&H<B!
@%-,4.%,!&/4<?!A%!0@><%@%'(%?;!2/1%D%.C!!!!
FX
$0&2-.?CR%<<BS(?,%&4.0 %,C&/@!!!!!!!!!!!!!!TUU!KL!VVWX!WUUW!
P-&340C:/4=<-,S(?,%&4.0 %,C&/@!!!!!!!!!!!TUU!KL!VVWX!WUM#!!
J2-4'CY,A/.'%S(?,%&4.0 %,C&/@!!!!!!!!!!!!T"!U"X!#WM!KXK#!
9.%=CNC*//.%S(?,%&4.0 %,C&/@!!!!!!!!!!!!!!T"!U"X!#WK!VVWU!
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12
Germany FinlandNetherlands FranceAustria
Source: Bloomberg
2y yield (%)
FROM ZIRP TO NIRP
SAMPLE
!"#!
!
TD FORECASTS - United Kingdom Spread to US
100dhistory
Spot+4qfcast Spot 9/12 12/12 3/13 6/13 9/13 12/13 3/14
100dhistory
Spot+4qfcast Spot 9/12 12/12 3/13 6/13 9/13
O/N 0.50 0.50 0.00 0.00 0.00 0.00 0.00 0.00 25 25 -25 -25 -25 -25
3m 0.33 0.30 -0.10 -0.05 -0.05 0.00 0.05 0.10 24 20 -20 -20 -20 -20
2y 0.08 0.10 -0.20 -0.10 0.00 0.10 0.20 0.30 -15 -15 -50 -40 -30 -20
5y 0.50 0.45 0.10 0.10 0.25 0.35 0.50 0.70 -13 -5 -50 -50 -40 -45
10y 1.51 1.45 1.40 1.55 1.70 1.80 1.90 2.05 -1 20 -25 -35 -30 -45
30y 2.92 2.85 2.95 3.15 3.35 3.50 3.55 3.65 33 70 35 25 35 20
GBP/USD 1.55 1.54 1.51 1.51 1.56 1.63 1.67 1.64
EUR/GBP 0.79 0.79 0.78 0.78 0.77 0.75 0.75 0.77
GBP/CHF 1.52 1.51 1.56 1.60 1.62 1.74 1.74 1.71
GBP/JPY 122 120 119 121 125 137 140 138
2 August 2012
Snapshot: United Kingdom
$"!%&'!()*!+,-./0+123!0+*)445+, ,67!),0!.)+*/0!89/* 5,*!)159:! :;/! 9,0/.23+,6! 4)-/! 5<! 6.5(:;! +,! :;/! =>! /-5,5?3@!A/! 05,B:! :;+,C! :;):! :;/! D23?4+-*! (+22! 4.5E+0/! :;/! 155*:!:;):!5:;/.*!)./! 255C+,6!<5.! F(/!/* ?):/!)159:!G#@"44:*! +,!$HI7! ),0!(/)C,/**! +,! :;/! .*:! 5<! :;/!$H! *9.E/3! 0):)! *96J6/*:*!:;):!$K!+*!:;/!=>B*! .*:!-;),-/!):!),3!0/-/,:!9,0/.23J+,6! 6.5(:;@! L;/! ?5./! 6.5(:;! 0+*)445+,:*7! :;/! ?5./! :;/!=>B*! *-)2!*:),-/!+*!):!.+*C@!
MACRO
A+:;! :;/! ./-/**+5,! 0.)66+,6! 5,! ),0! +, ) 5,! <)22+,6! <)*:/.!:;),!/M4/-:/07!(/!/M4/-:!?5./!$N!),0!)!.):/!-9:7!19:!,5:!9, !$K7! :5! *//!;5(!(/22! OPQ! +*!(5.C+,6! F5.!,5:I@!A/! 255C!<5.! )! R#14*! -9:! :5! S),C! T):/! :5! U/.5! ),0! ),! )00 5,)2!V"R1,!+,!$N7!19:!:;/!.+*C!+*!-2/).23!?5./!$N@!Q;5.:!09.) 5,!) .) E/!(+:;!:;/!.):/!-9:7!2+C/23!<5225(/0!13!?).C/:!*4/-J92):+5,!5<!,/6):+E/!S),C!T):/7!(;+2/!25,6!/,0!(+22!(5..3!5,!WWW!25**@!
RATES
&+*)445+, ,6!6.5(:;!),0!),!/M:/,*+5,!5<!:;/!S5NX*!$N!4.5J6.)??/! F)21/+:! +,! 2+,/! (+:;! /M4/-:) 5,*I! 0+0! ,5:! 9,0/.J?+,/!:;/!%S'! 2)*:!?5,:;!19:!:;/!.+*C!5<!?5./!$N!3/:!?)3!*25(!6)+,*@!!L;/!*:)12/!59:255C!FQY'I!:5!:;/!=>X*!WWW!.) ,6!05/*! 4.5E+0/! *5?/:;+,6! 5<! )! 45* E/! 5 */:! <5.! :;/! %S'!./2) E/!:5!?9-;!5<!N9.54/@!!!!
FX
T+-;).0@>/223Z:0*/-9.+ /*@-5?!!!!!!!!!!!!!!GKK!"#![[\]!\KK\!^)-89+@&5962)*Z:0*/-9.+ /*@-5?!!!!!!!!!!!GKK!"#![[\]!\KH_!!
Q;)9,@D*15.,/Z:0*/-9.+ /*@-5?!!!!!!!!!!!!G`!K`]!_\H!"]"_!%./6@L@a55./Z:0*/-9.+ /*@-5?!!!!!!!!!!!!!!G`!K`]!_\"
!"#!
!
TD FORECASTS - Norwegian Rates and Scandie FX Spread to US
100dhistory
Spot+4qfcast Spot 9/12 12/12 3/13 6/13 9/13 12/13 3/14
100dhistory
Spot+4qfcast Spot 9/12 12/12 3/13 6/13 9/13
O/N 1.50 1.50 1.50 1.50 1.50 1.50 1.75 2.00 125 125 125 125 125 125
3m 1.38 1.55 1.55 1.55 1.55 1.70 2.00 2.25 129 145 145 140 140 150
3y 1.37 1.40 1.70 2.00 2.30 2.50 2.60 2.90 113 115 140 170 200 220
5y 1.35 1.45 1.80 2.40 2.80 3.00 3.30 3.60 72 95 120 180 215 220
9y 1.76 1.90 2.25 2.70 3.10 3.50 4.00 4.20 24 65 60 80 110 125
EUR/NOK 7.38 7.45 7.35 7.30 7.20 7.15 7.10 7.05
USD/NOK 6.02 6.11 6.23 6.19 6.00 5.86 5.68 5.55
NOK/SEK 1.13 1.14 1.15 1.16 1.15 1.15 1.14 1.14
EUR/SEK 8.30 8.50 8.45 8.45 8.30 8.20 8.10 8.05
USD/SEK 6.77 6.97 7.16 7.16 6.92 6.72 6.48 6.34
2 August 2012
Snapshot: Scandies
$%&'()!)*+!),-.!/0!1/2)!3, ,%!()*4!,50,2(,.!64!7&%'*8!*4.!9',.,4:!*+!(),8;<,!3&()!1*++6<,-8!&/(0,%=&%1,.!(),6%!>/%&0,*4!4,6?)3&/%+@!A/(!*(!(),!+*1,! 1,!64 * &4!(%,4.+!)*<,!3,,4!',*B!*4.!3&()!2/%%,426,+!)*<,!%,2,4(-8!)6(!1/-C8,*%!)6?)+!<,%+/+!(),!>DE:!0/ 4?!,<,4!=/%(),%!.&'4'*%.!0%,++/%,! &4! .&1,+ ! 0%62,+@! A/(! 3&()! 2,4(%*-! 3*4B+! *%,!',*%8!(&!-&',%!%*(,+!=/%(),%:!=&%!=,*%+!&=!64 *164?! 4*426*-!613*-*42,+@!
MACRO
F),! 7&%?,+! A*4B! )*+! (&! 3*-*42,! 0,%+6+(,4(! 2/%%,428!+(%,4?()!*4.!*! +,<,%,!/4.,%+)&& 4?!&=! 6(+! 64 * &4! (*%?,(!'6()!(),!%6+B!&=!+(&B64?!(),! *1,+!&=!')*(!*-%,*.8!-&&B+!-6B,!*!%*(),%!&<,%),*(,.!)&/+64?!1*%B,(@!G4.!'6()!?&<,%41,4(!& 26*-+!+-&'!(&!*2(!(&!%,64!64!1&%(?*?,!-,4.64?:!6(!-&&B+!-6B,!(),!7&%?,+!A*4B!)*+! !%&&1!(&!,*+,:!*4.!6+!/4*3-,!(&!.&!*48()64?!1&%,!&4!7HI!()*4!(%8!(&!(*-B!.&'4!6(+!+(%,4?()@!
RATES
E,-* <,! (&! +& 4,++! 64! >/%&J&4,! .*(*:! 3/&8*4(! .&1,+ 2!*2 <6(8!)*+!),-0,.!(),!7HI!*4.!(),!9>I!(&!3&()!1*B,!=%,+)!282-,! )6?)+! *?*64+(! (),! *6-64?! >DE@! K&',<,%:! (),! ,-,<*(,.!2/%%,426,+!2&1364,.!'6()!.*10!64 * &4!642%,*+,!(),!&..+!&=! 2,4(%*-! 3*4B! *2 &4! L! 0*% /-*%-8! =&%! (),! 7&%?,+! A*4B@!F)*(!+)&/-.!B,,0!(),!0%,++/%,!&4!(),!7HIM9>I@!!
FX
E62)*%.@I,--8N(.+,2/%6 ,+@2&1!!!!!!!!!!!!!!OPP!"Q!RRST!SPPS!U*2V/6@W&/?-*+N(.+,2/%6 ,+@2&1!!!!!!!!!!!OPP!"Q!RRST!SPXY!!
9)*/4@H+3&%4,N(.+,2/%6 ,+@2&1!!!!!!!!!!!!O#!P#T!YSX!"T"Y!$%,?@F@Z&&%,N(.+,2/%6 ,+@2&1!!!!!!!!!!!!!!O#!P#T!YS"!RRSP!
50
75
100
125
150
175
200
00 01 02 03 04 05 06 07 08 09 10 11 12
Australia Canada NorwaySpain Sweden UKUS
Source: Haver
CONSUMER DEBT PUTS NORGES IN TOUGH SPOT
Household debt/disposable income (%)
SAMPLE
!""!
!
TD FORECASTS - Japan100d
historySpot+4qfcast Spot 9/12 12/12 3/13 6/13 9/13 12/13 3/14
USD/JPY 78 78 79 80 80 84 84 84
EUR/JPY 96 95 93 94 96 102 105 107
AUD/JPY 82 81 82 83 82 87 87 86
GBP/JPY 122 120 119 121 125 137 140 138
2 August 2012
Snapshot: CHF
#$%&! %&'!&'()!*+! %&'!,-./!0123456!&78! 7%9($:';!*<'=! %&'!)78%!>*:%&/!?@8%!7A*<'!%&'!,-.9$>)*8';! **=!7%!BC"DC!#$%&!%&'! .7:EF8! 8%'7;+78%! G*>>$%>':%! %*! @)&*(;! $%8! **=! A7(97:G';!7H7$:8%!*:H*$:H!012!)='88@='/! %&'! ='G':%(I! 7%!)=*9('! 8&*@(;! G*: :@'! $:! %&'!>*:%&8! %*! G*>'C! .'$:H! ';! 7%!
%&'!&$)!%*!%&'!012!7(8*! $>)($'8! +@=%&'=! 8* :'88!7H7$:8%! $%8!:*:90@=*)'7:!G=*88'8C!!
FX
,&7@:CJ8A*=:'K%;8'G@=$ '8CG*>!LB!MBN!OPQ!"N"O!!
R='HCSCT**='K%;8'G@=$ '8CG*>!LB!MBN!OP"!UUPM!
TD FORECASTS - Switzerland100d
historySpot+4qfcast Spot 9/12 12/12 3/13 6/13 9/13 12/13 3/14
EUR/CHF 1.20 1.20 1.22 1.25 1.25 1.31 1.30 1.32
USD/CHF 0.98 0.98 1.03 1.06 1.04 1.07 1.04 1.04
CHF/JPY 80 76 81 85 83 90 87 87
GBP/CHF 1.52 1.51 1.56 1.60 1.62 1.74 1.74 1.71
Snapshot: JPY
S&'! VWX! &78! A'':! 7! %*)! )'=+*=>'=! *<'=! %&'! (78%! >*:%&/!)@8&$:H!0123VWX!%*!;'G7;'!(*Y8/!7:;!';H$:H!1,Z3VWX!G(*8'=!%*!('<'(8!8'':!)=$*=!%*!)78%!.*V!$:%'=<': *:8C!S&'!VWX!;*'8!:*%! (**E! +@:;7>':%7((I! *<'=<7(@';/! &*Y'<'=C! ! #$%&*@%! 7!8&$ ! $:!>*:'%7=I! )*($GI! 7:;!Y&$('! 87+'9&7<':!;'>7:;! +*=!%&'! VWX! G*: :@'8/! .*V! 7G *:! $:%'=<': *:! $8! ($7A('! %*! A'!$:' 'G%@7(C! J@=! (*Y'=! +*=! (*:H'=! <$'Y! *:!1,! =7%'8! 8&*@(;!&'()!>7$:%7$:!7!8* '=!1,Z3VWXC!!
FX
,&7@:CJ8A*=:'K%;8'G@=$ '8CG*>!LB!MBN!OPQ!"N"O!!
R='HCSCT**='K%;8'G@=$ '8CG*>!LB!MBN!OP"!UUPM!
SAMPLE
!"#!
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TD FORECASTS - EMEA Policy Rates and FX Spread to Germany
100dhistory
Spot+4qfcast Spot 9/12 12/12 3/13 6/13 9/13 12/13 3/14
100dhistory
Spot+4qfcast Spot 9/12 12/12 3/13 6/13 9/13
Poland 4.75 4.75 4.75 4.75 4.50 4.50 4.50 4.50 400 425 450 450 425 425
Hungary 7.00 7.00 6.25 5.75 5.75 5.50 5.50 5.50 625 650 600 550 550 525
Romania 5.25 5.25 5.25 5.25 5.00 5.00 5.25 5.50 450 475 500 500 475 475
Russia 4.00 4.00 4.00 4.00 4.00 4.25 4.25 4.25 325 350 375 375 375 400
Turkey 5.75 5.75 5.75 5.75 5.75 5.75 6.00 6.00 500 525 550 550 550 550
S. Africa 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.50 425 450 475 475 475 475
EUR/PLN 4.11 4.21 4.15 4.12 4.14 4.07 4.06 4.14
EUR/HUF 281 284 278 275 276 278 276 281
EUR/RON 4.61 4.58 4.53 4.51 4.62 4.59 4.59 4.73
EUR/RUB 39.8 40.4 39.2 39.1 39.2 39.7 40.0 40.6
EUR/TRY 2.21 2.21 2.14 2.12 2.15 2.17 2.20 2.23
EUR/ZAR 10.20 9.96 9.50 9.48 9.72 9.80 9.88 10.05
2 August 2012
Snapshot: EMEA
$%&!'()*+,'&!-.()/%!.&0,+,(*!)&!'&1,0&.&'! 12+/!3(*/%!.&432,*+!5*6%2*-&'7!8&29&.!&6(*(3,6!+/.&*-/%!2*'!3(3&*4/53! 2.&! 61&2.1:! 0,+,;1&! ,*! <(12*'! =211! >.('5 (*! ,*',62/(.+!*()! +5--&+/! )&29&.! -.()/%! ,*! /%&! 6(3,*-! ?52./&.+@! 2*'!A(5/%!BC.,62! =;5/! /%&!ABDE!266(33('2/&'!),/%!2! +5.>.,+&!65/@7!F5*-2.:! +5 &.+! C.(3!2! +%2.>!'.(>! ,*!&G>(./+!2+!H&.432*:!21+(!C&&1+!/%&!%&2/!(C!/%&!-1(;21!'&6&1&.2 (*!2*'!/%&!IJ!.&6&++,(*7!E& &.!D5++,2!2*'!$5.9&:7!
MACRO
K(+/!*(/2;1:L! /%&! ABDE!'&1,0&.&'!2! +5.>.,+&! 65/! =4MN;>! /(!M7NNO@!2*'!/%&!PE<!2*'!/%&!PEF!%20&!%2'!2!+5''&*!'(0,+%!'., 7!B+! C2.!2+!A7!BC.,62! ,+! 6(*6&.*&'L! /%&!>(+ 0&!Q<R!(5/41((9! ,+!5*1,9&1:! /(! 12+/! 1(*-!&*(5-%!/(!+5>>(./! C5./%&.!&2+4,*-L!&+>&6,211:!,C!SI#!C5&1+!6(33(',/:!>.,6&+7!D2/&+!2.&!1,9&41:!/(!+/2:! 2 +%!C(.!*()7!R*!<(12*'!2*'!F5*-2.:L!/%&!32.49&/!1((9+!C(.!TN;>!2*'!UN;>!(C!65/+L!.&+>& 0&1:L!,*!T37!
RATES
<(++,;1&! IQE! ,*/&.0&* (*+! /(! +/2;,1,V&! /%&! IJ! +>.&2'+! 2.&!1,9&1:! /(! :,&1'! >(+ 0&! & &6/+! (*! IKIB! 65..&*6,&+7! SI#!)(51'! 21+(! 2''! /(! /%&! 2>>.& (*! >(/&* 21! ,*! /%&! +%(./!/&.37! F()&0&.L! ;(/%! SI#! 2*'! &3&.-&*6:! IQE! 3&2+5.&+!62*!6(3&!(*1:!,C!32.9&/!+&* 3&*/!'&/&.,(.2/&+!+5;+/2* 2141:7!8%,1&!/%&!IQE!62*!;5:! &L!,/!,+!5>!/(!>( ,2*+!/(!'&41,0&.! 12+ *-!+(15 (*+7!W* !/%&*L!0(12 1,/:! ,+!+&/! /(!.&32,*!&1&02/&'!'&+>,/&!SI#7!
FX
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!"#!
!
TD FORECASTS - Latam Policy Rates and FX Spread to US
100dhistory
Spot+4qfcast Spot 9/12 12/12 3/13 6/13 9/13 12/13 3/14
100dhistory
Spot+4qfcast Spot 9/12 12/12 3/13 6/13 9/13
Brazil 8.00 7.50 7.50 7.50 7.50 8.00 8.75 9.00 775 725 725 725 725 775
Mexico 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50 425 425 425 425 425 425
USD/BRL 2.04 2.02 1.98 1.96 1.96 1.94 1.90 1.89
USD/MXN 13.36 13.06 12.96 12.80 12.88 12.71 12.61 12.54
BRL/MXN 6.54 6.47 6.55 6.53 6.57 6.55 6.64 6.64
EUR/BRL 2.50 2.46 2.34 2.31 2.35 2.37 2.38 2.40
EUR/MXN 16.38 15.93 15.29 15.10 15.46 15.51 15.76 15.93
2 August 2012
Snapshot: LATAM
$%&'&()%! *+&,-&,'! )*! * ! .-/.'%)'01! 2*32%).++4! )'! 56.7)+1!,8)+2! 92:)%&;*! .% /)<4! 62(.)'*! =.)6+4! 62*)+)2'<! ->2! <&! <82!*<6&'0!%&662+. &'!,)<8!<82!?@A!B)()-!*)0'.+*!&=!62%&/264!)'!<82! ?@! 8&>*)'0! *2%<&6! *8&>+-! *22! 92:)%&! .*! <82! C)002*<!C2'2 %).641! ,)<8! )'%62.*)'0! 62( .'%2*! +)D2+4! <&! 36&3! >3!36)/.<2! %&'*>(3 &'! <82621! C><! .+*&! 3&*)'0! .-- &'.+! EFG!6)*D*A! E&'/26*2+41! 56.7)+! )*! <&! *> 26! =&6! 42<! .'&<826! =2,!(&'<8*A!
MACRO
56.7)+;*!FH$IJG!*,.3*!62(.)'!*<223!)'!<82!"4K4!*2%<&6!.*!<82!5E5!8.*';<!*)0'.++2-!)'<2' &'*!<&!8.+<!2.*)'0A!B82!(.6D2<!)*!* !36)%)'0! )'!LMC3!&=! 6.<2!%><*! )'!K(1!%&'*)*<2'<!,)<8!&>6!/)2,1!C><!<&&!.'!2.6+4!62/26*.+!*>002*<*!N46!62%2)/26*A!E&'I/26*2+41! 92:)%.'! 6.<2*! .62! >'+)D2+4! <&! (&/2! &'! -&(2* %!=.%<&6*1! 0)/2'! 5.':)%&! *8&>+-! 8&+-! 6.<2*! .<! #AKMO! >'"MN#A! P&'0I2'-! &=! BGG$! %>6/2! +)D2+4! <&! 62 2%<! <82!Q$R! .<I<2')'0!2 2%<A!
RATES
P)()<2-! %&662+. &'! <&! <82! $S! <6&>C+2*1! 620)&'.+! -4'.()%*1!.'-!*<6&'026!+)'D*!,)<8!<82!?@!T,8)%8!62(.)'*!.'!2%&'&()%!&><326=&6(26! )'!<82!UNM!*3.%2V1!(.D2!P. '!W(26)%.'!%>6I62'%)2*!. 6. /2A!9&62&/261!<82!2 2%<*!&=!Q$R!.62!+)D2+4!<&!C2!(&62!/)*)C+2!8262!<8.'!2+*2,8262A!X2'%21!,2!8./2!82+-!&>6! &3 )* ! /)2,! &'! <82! 9YZ1! .'-! )(36&/2-! 2:32%<.I&'*! &'! <82! 5HP! ->2! <&! 8)08! %.664! .'-! 2:32%<2-! *3&<! 62I
<>6'*A!
FX
E6)* .'A9.00)&[<-*2%>6) 2*A%&(!!!!!!!!\##!"M!]]^L!^#RL!9.6%)'A5>-D)2,)%7[<-*2%>6) 2*A%&(!!\##!"M!]]^L!^#R]!
SAMPLE
!"#!
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TD FORECASTS - Asian Policy Rates and FX Spread to US
100dhistory
Spot+4qfcast Spot 9/12 12/12 3/13 6/13 9/13 12/13 3/14
100dhistory
Spot+4qfcast Spot 9/12 12/12 3/13 6/13 9/13
India 8.00 8.00 7.50 7.25 6.75 6.75 6.75 6.75 775 775 725 700 650 650
Indonesia 5.75 5.75 5.75 5.75 6.00 6.25 6.50 6.75 550 550 550 550 575 600
Malaysia 3.00 3.00 3.00 3.00 3.00 3.25 3.25 3.25 275 275 275 275 275 300
USD/INR 55.8 56.2 56.4 56.4 56.0 55.3 55.0 54.9
USD/IDR 9482 9481 9413 9351 9354 9282 9239 9193
USD/MYR 3.13 3.18 3.17 3.16 3.14 3.11 3.09 3.08
2 August 2012
Snapshot: EM ASIA
$%&'()*! +,-'-.&,!( /&01!%(*!2+(3+'+4!5+1-'4!-67!-7&8&9'(:!+;<+,0( -'*=!47(88&'8!.-*0!-0%+7!>?!@*&('!+,-'-.&+*!&'0-!0%+!/-70+;!-A!*:-24-2'B!C+0=!@*&(!7+.(&'*!(!8:-5(:!+,-9'-.&,!-60<+7A-7.+7!+/+'!0%7-68%!0%+!*0-7.B! D'4&(!,-' '96+*! 0-! *6 +7! -'+! -A! 0%+! *%(7<+*0! A(::*! &'! <7-46 -'! &'! (!4+,(4+=! 560! &' ( -'! 7+.(&'*! +:+/(0+4! -'! 4+.('49*6<<:1!5- :+'+,3*!('4!DEF!4+<7+,&( -'B!>(*&+7!7(0+*!(7+!7+G6&7+4!0-!7+/+7*+!0%+!07+'4B!
MACRO
H-! A-*0+7! 87-20%=! .(I-7! @*&('! >?*! %(/+! (:7+(41! +(*+4!.-'+0(71!<-:&,&+*B! H%+! 07+'4! &*! :&3+:1! 0-! ,-' '6+!-/+7! 0%+!.+4&6.! 0+7.=!2&0%! 0%+! +;,+< -'! -A! D'4&(=!2%+7+! 0%+! FJD!7+.(&'*!,-',+7'+4!(5-60!+:+/(0+4!KLD!('4!$LDB!M-&'8!A-792(74=! 2+! *++! 0%+*+! ,-',+7'*! A(4&'8=! 560! 2+! '-2! 5+:&+/+!7(0+!,60*!2-')0!%(<<+'!(0! 0%+!'+;0!.++ '8! &'!N+<0+.5+7=!560!.-*0!:&3+:1!&'!O,0-5+7B!C+0=!P>Q!+ +,0*!-'!$LD!.(1!%(/+!%(23&*%!7+8&-'(:!&.<:&,( -'*B!
RATES
H%+!DEF!:--3*!.-7+!( 7( /+!0%('!:(*0!.-'0%!(*!&0!7+.(&'*!'+(7!%&*0-7&,(:! :-2*!0-!0%+!RNS=!2%&:+!0%+!,(771! &*!'-2!0%+!%&8%+*0! &'!-67!,-/+7(8+B!@44& -'(::1=!P>Q! &*! :&3+:1! 0-!57&'8!*-.+! +;07(! (<<7+ -'=! (:0%-68%! '-0! +'-68%! 0-! <+7.(9'+'0:1!7+/+7*+! &4&-*1',7( ,!2+(3'+**+*!( + '8!0%+!*<-0B!N&.&:(7:1=!'+8( /+!DSF!.-.+'06.!&*!*+0!0-!:(*0!:-'8+7=!560!P>Q! ('4! 5+ +7! 8:-5(:! A(,0-7*! *%-6:4! A(/-67! 0%+! 7+,-/+71!A7-.!PT!-'2(74*B!
FX
$7&* ('B?(88&-U04*+,67& +*B,-.!!!!!!!!VTT!"W!XXYZ!YTQZ!?(7,&'BJ643&+2&,[U04*+,67& +*B,-.!!VTT!"W!XXYZ!YTQX!
SAMPLE
!"#!
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2 August 2012
Forecasts
SpotAug 2, 2012 Q1 Q2 Q3 F Q4 F Q1 F Q2 F Q3 F Q4 F
Fed Funds Rate 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.253m 0.09 0.07 0.08 0.10 0.10 0.15 0.15 0.20 0.202y 0.23 0.33 0.30 0.25 0.30 0.30 0.30 0.30 0.455y 0.63 1.04 0.72 0.50 0.60 0.60 0.65 0.80 1.0010y 1.52 2.21 1.64 1.25 1.65 1.90 2.00 2.25 2.5030y 2.59 3.34 2.75 2.15 2.60 2.90 3.00 3.30 3.60
Overnight Rate 1.00 1.00 1.00 1.00 1.00 1.25 1.50 1.50 1.503m 0.98 0.91 0.88 0.95 1.00 1.35 1.55 1.55 1.652y 1.10 1.20 1.03 1.00 1.15 1.45 1.65 1.75 1.905y 1.30 1.57 1.25 1.20 1.35 1.60 1.85 2.00 2.1510y 1.71 2.11 1.74 1.55 1.80 2.00 2.10 2.25 2.4530y 2.30 2.66 2.33 2.15 2.40 2.55 2.55 2.75 2.95
Cash Target Rate 3.50 4.25 3.50 3.50 3.25 3.25 3.25 3.25 3.253m 3.28 4.06 3.43 3.30 3.30 3.30 3.30 3.30 3.503y 2.64 3.48 2.40 2.30 2.40 2.45 2.55 2.80 3.405y 2.73 3.56 2.50 2.35 2.70 2.75 3.00 3.35 3.8010y 3.15 3.98 3.04 2.70 3.05 3.30 3.40 3.65 4.00
Cash Target Rate 2.50 2.50 2.50 2.50 2.50 2.75 3.00 3.25 3.753m 2.44 2.48 2.45 2.50 2.75 3.00 3.30 3.60 4.053y 2.63 3.04 2.47 2.40 2.75 3.00 3.40 3.70 4.205y 2.99 3.64 2.91 2.65 3.20 3.45 3.65 4.00 4.4010y 3.58 4.08 3.43 3.15 3.60 3.85 4.00 4.25 4.60
ECB Re!"Rate 0.75 1.00 1.00 0.50 0.25 0.25 0.25 0.25 0.253m -0.17 -0.03 -0.02 -0.25 -0.20 -0.20 -0.10 0.00 0.002y -0.07 0.21 0.12 -0.20 -0.25 -0.05 0.05 0.15 0.205y 0.36 0.80 0.61 0.25 0.35 0.55 0.85 1.15 1.2510y 1.37 1.79 1.58 1.15 1.20 1.35 1.60 1.90 2.0030y 2.20 2.45 2.33 2.00 2.00 2.15 2.30 2.65 2.90
Bank Rate 0.50 0.50 0.50 0.50 0.00 0.00 0.00 0.00 0.003m 0.33 0.37 0.37 0.30 -0.10 -0.05 -0.05 0.00 0.052y 0.08 0.42 0.28 0.10 -0.20 -0.10 0.00 0.10 0.205y 0.50 1.03 0.75 0.45 0.10 0.10 0.25 0.35 0.5010y 1.51 2.20 1.73 1.45 1.40 1.55 1.70 1.80 1.9030y 2.92 3.36 3.04 2.85 2.95 3.15 3.35 3.50 3.55
Deposit Rate 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.50 1.753m 1.38 1.50 1.49 1.55 1.55 1.55 1.55 1.70 2.003y 1.37 1.70 1.41 1.40 1.70 2.00 2.30 2.50 2.605y 1.35 1.98 1.55 1.45 1.80 2.40 2.80 3.00 3.309y 1.76 2.45 1.88 1.90 2.25 2.70 3.10 3.50 4.00
EURO
PE
German
yUK
Norw
ay
SUMMARY G10 RATES FORECASTS2012 2013
DOLLAR
BLOC
Unite
dStates
Cana
daAu
stralia
New
Zealan
d
SAMPLE
!"#!
!
2 August 2012
Forecasts
SpotAug 2, 2012 Q1 Q2 Q3 F Q4 F Q1 F Q2 F Q3 F Q4 F
USD/JPY 78.5 82.9 79.8 78.0 79.0 80.0 80.0 84.0 84.0EUR/USD 1.23 1.33 1.27 1.22 1.18 1.18 1.20 1.22 1.25GBP/USD 1.55 1.60 1.57 1.54 1.51 1.51 1.56 1.63 1.67CHF/USD 0.98 0.90 0.95 0.98 1.03 1.06 1.04 1.07 1.04USD/CAD 1.01 1.00 1.02 1.03 1.05 1.03 1.02 1.00 1.00AUD/USD 1.05 1.03 1.02 1.04 1.04 1.04 1.03 1.03 1.03NZD/USD 0.81 0.82 0.80 0.80 0.81 0.82 0.83 0.83 0.83EUR/NOK 7.38 7.59 7.55 7.45 7.35 7.30 7.20 7.15 7.10EUR/SEK 8.30 8.83 8.77 8.50 8.45 8.45 8.30 8.20 8.10DXY 83.0 79.0 81.6 83.4 85.8 85.8 84.4 83.6 82.0
SUMMARY G10 FX FORECASTS2012 2013
Spot LTAug 2, 2012 Q1 Q2 Q3 F Q4 F 2012 F 2013 F 2014 F 2015 F
Gold * 1602 1668 1597 1650 1800 1688 1813 1600 1450 1200Silver * 27 32.3 27.5 30.0 35.0 31.8 32.9 25.0 24.0 19.0Platinum * 1399 1639 1447 1550 1725 1597 1825 1850 1750 1550Palladium * 583 654 583 650 775 684 950 975 850 700
Copper ** 3.36 3.84 3.49 3.45 3.70 3.62 3.65 3.40 3.25 2.75Zinc ** 0.82 0.90 0.85 0.85 0.94 0.90 1.10 1.15 1.20 0.95Lead ** 0.85 0.92 0.84 0.86 0.96 0.92 1.11 1.20 1.25 0.80Nickel ** 7.03 8.05 7.57 8.00 8.50 8.30 8.51 8.50 8.50 8.50Aluminum ** 0.83 0.95 0.85 0.88 0.96 0.93 1.02 1.05 1.05 1.10Molybdenum + 11.80 14.13 12.90 14.00 16.00 14.52 18.00 17.50 17.00 15.00Iron Ore *+ 124 150 138 145 150 146 144 130 100 90
Nymex Crude Oil +- 89 103 85 83 87 92 95 100 110 115Brent Crude Oil +- 106 120 98 93 95 104 100 105 110 115Heating Oil -+ 2.86 3.17 2.70 2.60 2.45 2.78 2.50 3.00 3.10 3.10Gasoline -+ 2.85 3.39 2.73 2.50 2.30 2.70 2.50 2.95 3.05 3.05Natural Gas -- 3.14 2.13 2.82 2.50 3.00 2.60 3.05 3.50 4.25 5.00AECO Natural Gas -- 2.69 1.72 2.14 2.10 2.50 2.17 2.55 2.90 3.50 4.25Uranium ++ 50 52 51 52 54 52 63 75 70 70Hard Coking Coal Spot +* … 176 190 190 220 210 180 150Newcastle Thermal Coal- 83 104 87 88 95 97 100 90 85 85
Note: *London PM Fix $/oz., **LME $/lb ., +Molybdenum equivalent to moly oxide, FOB USA, *+CFR China, 62% Fe, dry $/tonnes, +- $/b b l, -+ $/gal., -- $/mmb tu, ++pre-2011 Uranium price is Ux Consulting spot price indicator post 2011 is NYMEX, +* Japan-Australia Spot, $/tonne FOB, -Japan CIF steam coal marker -Newcastle, $/tonne
Energy
SUMMARY COMMODITIES FORECASTS2012 Annual
Precious
metals
Other
metals SAMPLE
!"#!
!
2 August 2012
Forecasts
SpotAug 2, 2012 Q1 Q2 Q3 F Q4 F Q1 F Q2 F Q3 F Q4 F
Brazil 8.00 9.75 8.50 7.50 7.50 7.50 7.50 8.00 8.75Mexico 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50 4.50India 8.00 8.50 8.00 8.00 7.50 7.25 6.75 6.75 6.75Indonesia 5.75 5.75 5.75 5.75 5.75 5.75 6.00 6.25 6.50Malaysia 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.25 3.25Poland 4.75 4.50 4.75 4.75 4.75 4.75 4.50 4.50 4.50Hungary 7.00 7.00 7.00 7.00 6.25 5.75 5.75 5.50 5.50Romania 5.25 5.25 5.25 5.25 5.25 5.25 5.00 5.00 5.25Russia 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.25 4.25Turkey 5.75 5.75 5.75 5.75 5.75 5.75 5.75 5.75 6.00South Africa 5.00 5.50 5.50 5.00 5.00 5.00 5.00 5.00 5.00
USD/BRL 2.04 1.83 2.01 2.02 1.98 1.96 1.96 1.94 1.90USD/MXN 13.36 12.81 13.36 13.06 12.96 12.80 12.88 12.71 12.61USD/INR 55.80 50.88 55.64 56.17 56.40 56.37 56.00 55.26 55.00USD/IDR 9482 9146 9433 9481 9413 9351 9354 9282 9239USD/MYR 3.13 3.06 3.18 3.18 3.17 3.16 3.14 3.11 3.09USD/PLN 3.35 3.11 3.35 3.45 3.52 3.49 3.45 3.34 3.25USD/HUF 229 221 226 233 236 233 230 228 221USD/RON 3.76 3.29 3.51 3.75 3.84 3.82 3.85 3.76 3.67USD/RUB 32.44 29.35 32.42 33.12 33.20 33.10 32.70 32.50 32.00USD/TRY 1.80 1.78 1.81 1.81 1.81 1.80 1.79 1.78 1.76USD/ZAR 8.32 7.67 8.16 8.16 8.05 8.03 8.10 8.03 7.90
EUR/BRL 2.50 2.44 2.54 2.46 2.34 2.31 2.35 2.37 2.38EUR/MXN 16.38 17.09 16.92 15.93 15.29 15.10 15.46 15.51 15.76EUR/INR 68.41 67.92 70.09 68.53 66.55 66.52 67.20 67.42 68.75EUR/IDR 11624 12201 11865 11567 11107 11034 11225 11324 11549EUR/MYR 3.83 4.09 4.00 3.88 3.74 3.73 3.77 3.79 3.86EUR/PLN 4.11 4.15 4.22 4.21 4.15 4.12 4.14 4.07 4.06EUR/HUF 281 294 286 284 278 275 276 278 276EUR/RON 4.61 4.39 4.45 4.58 4.53 4.51 4.62 4.59 4.59EUR/RUB 39.76 39.17 41.02 40.41 39.18 39.06 39.24 39.65 40.00EUR/TRY 2.21 2.38 2.29 2.21 2.14 2.12 2.15 2.17 2.20EUR/ZAR 10.20 10.24 10.34 9.96 9.50 9.48 9.72 9.80 9.88
EMvs
EUR
SUMMARY EMERGING MARKET FORECASTS2012 2013
CantralBank
Rates
EMvs
USD
SAMPLE
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2 August 2012
Legal Terms: This report has been prepared solely for information purposes and is not intended to provide !nancial, legal, a ccounting or tax advice and should not be reliedupon in that regard. Information provided in this Report is believed to be accurate and reliable, but we cannot guarantee it is accurate or complete or current at all times andno representation is made in this regard. Conclusions and opinions do not guarantee any future event or performance. It is no t an o"er, recommendation or solicitation tobuy or sell, nor is it an o#cial con!rmation of terms. It is based on public information. Changes to assumptions may have a material impact on any returns detailed. Historicinformation or performance is not indicative of future returns. The information is subject to change without notice. Any view s expressed are those of the author and do notnecessarily express those of The Toronto Dominion Bank (“TD Bank”). described herein.
TD Rates & FX ResearchUSA
Canada
Australia
New Zealand
UK
Europe
Emerging Markets
FX & Commodities
Research Team
New YorkEric Green Global Head of Research + 1 212 827 7156
Millan Mulraine Senior US Macro Strategist + 1 212 827 7186
Cheng Chen Macro Strategist + 1 212 827 7183
Gennadiy Goldberg Macro Strategist + 1 212 827 7186
TorontoShaun Osborne Chief FX Strategist + 1 416 983 2629
David Tulk Chief Canada Macro Strategist + 1 416 983 0445
Bart Melek Head of Commodity Strategy + 1 416 983 9288
Andrew Kelvin Senior Fixed Income Strategist + 1 416 983 7184
Mazen Issa Canada Macro Strategist + 1 416 983 0859
Greg T. Moore FX Strategist + 1 416 982 7784
Mike Dragosits Commodity Strategist + 1 416 983 8075
CalgaryDavid Bouckhout Senior Commodity Strategist + 1 403 299 8649
LondonRichard Kelly Head of European Research + 44 20 7786 8448
Jacqui Douglas Senior Global Strategist + 44 20 7786 8439
Cristian Maggio Senior Emerging Markets Strategist + 44 20 7786 8436
Marcin Budkiew icz Emerging Markets Strategist + 44 20 7786 8437
SingaporeAnnette Beacher Head of Asia-Paci!c Research + 65 6500 8047
Alvin Pontoh Asia-Pac Macro Strategist + 65 6500 8047
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