july 2010 from “v” to “u” benjamin tal. |2|2 impact of us stimulus package and inventory...
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Impact of US Stimulus Package and Inventory Changes on US GDP Growth
-2
-10
1
23
4
5
67
8
09Q:2
09Q:3
09Q:4
10Q:1
10Q:2
10Q:3
10Q:4
11Q:1
11Q:2
11Q:3
11Q:4
fiscal stimulus inventories
Forecast
impact on quarterly growth (%-pts)
| 3
US Core CPI Slowest in Half Century
-4
0
4
8
12
16
J an-62 J an-70 J an-78 J an-86 J an-94 J an-02 J an-10
(five-month % chg, s.a. annualized)
| 5
Probability of Recession
0
0.10.2
0.3
0.40.5
0.6
0.70.8
0.9Ja
n-6
9Ja
n-7
1Ja
n-7
3Ja
n-7
5Ja
n-7
7Ja
n-7
9Ja
n-8
1Ja
n-8
3Ja
n-8
5Ja
n-8
7Ja
n-8
9Ja
n-9
1Ja
n-9
3Ja
n-9
5Ja
n-9
7Ja
n-9
9Ja
n-0
1Ja
n-0
3Ja
n-0
5Ja
n-0
7Ja
n-0
9
| 6
Canadian Stimulus Withdrawal aMajor Drag
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
09/10 10/11 11/12 09 10 11 12
Fiscal Yr (Accrual Basis) Calendar Yr (Cash Basis)
Chg in Fed-Prov Fiscal Stimulus, % of GDP
| 7
OIS Implied BoC Expectations
0%
20%
40%
60%
80%
100%
1st FAD 2nd FAD 3rd FAD 4th FAD
May 31st J uly 13thMarket Snapshot as of:
Prob of 25 bps Hike
| 8
Hikes Will Still Leave Rates Lowby Historical Standards
0
1
2
3
4
5
6
May- 05 Mar- 06 J an- 07 Nov- 07 Sep- 08 J ul- 09 May- 10 Mar- 11
%
Cdn overnight rate
10- yr USTForecast
10-yr Cda
Dec 2011
| 9
Stability Fund Covers Refinancing
0
100
200
300
400
500
600
700
800
Debt refinancing J un10-Dec11
Stability Fund
€ billion
Spain
Greece
PortugalI reland
IMF
EU
| 10
Size of Fiscal Cuts Needed to Stabilize Net Debt-to-GDP Ratio
% of GDP
0
2
4
6
8
10
12
14
J apan UnitedStates
UK Greece Italy Germany Canada AdvancedG- 20
Economies
| 11
China’s Purchasing Index Points to 10% Growth
0
2
4
6
8
10
12
14
48 50 52 54 56 58
GDP y/y growth (% )
PMI
May 2010 PMI
Source: Bloomberg, CIBC
| 12
Chinese Stocks Don’t Always Reflect Economy
1,000
1,200
1,400
1,600
1,800
2,000
2,200
2,400
00:Q1 01:Q3 03:Q1 04:Q34
5
6
7
8
9
10
11
Shanghai C omposite (LHS)
Real GDP, y/y % chng (RHS)
Source: Bloomberg, CIBC
| 13
Incomes Have Kept Pace With Housing Costs
Source: Bloomberg, CIBC
0
50
100
150
200
250
Mar06 Dec06 Sep07 J un08 Mar09 Dec09
Household incomes
Household expenditures on residence
I ndex=100 in March 2006
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Little Inflation Outside of Food
Source: Bloomberg, CIBC
-5
0
5
10
15
20
25
May05 Feb06 Nov06 Aug07 May08 Feb09 Nov09
Food
Non-Food
Total
y/y % chg. in C PI
| 15
Canadian Dollar Rich Relative to Commodities
300
400
500
600
700
800
900
1000
Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10
0.90
0.95
1.00
1.05
1.10
1.15
1.20
1.25
1.30
BoC Commodity Price I ndex (L) Canadian Dollar (R)
C$ per US$ (reverse scale)
Index, 1972 =100
| 16
Fixed Income Inflows Driving C$ Appreciation: C$ to Average Near Parity Through 2011
-10
-5
0
5
10
15
20
25
Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09
75
80
85
90
95
100
105
Net Purchases of C$ Bonds (L) Canadian Dollar (R)
$billions (3mn Total) US¢/C$
n/a
| 17
Global Economy to Slow in the Second Half
0
2
4
6
8
10
12
US Eurozone C hina
1H10F 2H10F
annualized q/q real GDP growth, %
Source: CIBC
| 18
Analysts’ Track Record in PredictingS&P 500 Earnings
0
20
40
60
80
100
120
140
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
08
09
Index-adjusted
Note: Line shows evolution of "bottom-up" consensus reported by Thomson Reuters over time. Last obs is actual for year.
Source: Thomson Reuters, CIBC
| 19
US Earnings Growth Expectations Have Been Ratcheted Up More Aggressively Than in
Canada
Source: Thomson Reuters, CIBC
15
20
25
30
35
40
J an-09
Mar-09
May-09
J ul-09
Sep-09
Nov-09
J an-10
Mar-10
May-10
TSX C omposite S&P 500
Date of Analysts' Survey
concensus expectations for 2010 earnings growth (% )
| 20
Capital Intensive IndustriesBehind Manufacturing Rebound
Source: US Bureau of Economic Analysis, CIBC
* Thousand US$ per worker (2004)
-15 -10 -5 0 5 10 15
Semiconductors
C hemical
Primary metal
PaperC omputer &
electronicWood
TextilesApparel &
leatherPrinting
Furniture
Avgcapital intensity* = $53.3
Avgcapital
intensity* = $210
| 21
Rising Canadian Equity Market Correlation with Non-US Stocks
Source: MSCI/Barra Total Return Index, CIBC
0%
20%
40%
60%
80%
100%
120%
J an-90 J an-95 J an-00 J an-05 J an-10
12 month moving correlation, %
(44% avg)
(83% avg)
| 22
Canadian Equities More Correlated with Global Stocks in Bad Times
Source: MSCI/Barra Total Return Index, CIBC
Correlation - World vs. Canada
0%10%20%30%40%50%60%70%80%
World Total Return 1std deviation or more
above average
World Total Return 1std deviation or more
below average
| 23
Correlation of TSX Sector Returns to World Equities During Periods of Global Underperformance*
Source: MSCI/Barra Total Return Index, CIBC
0% 20% 40% 60% 80%
FinancialsI ndustrials
MaterialsC ons. Disc.
EnergyUtility
I nfo TechC ons. S tp.
HealthTelcomm
* MSC I World Total Return 1 std deviation or more
| 24
Correlation of Various Asset Classes with World Equities During Periods of Underperformance*
Source: MSCI/Barra Total Return Index, CIBC
-40%
-20%
0%
20%
40%
60%
80%
Stocks C ommodities Bonds FX
* MSC I World Total Return 1 std deviation or more below
| 25
Exposure of Exporting Nations to the Eurozone
0 10 20 30 40 50 60
C anada
Korea
J apan
I ndia
US
C hina
Brazil
Russia
UK
% of total exports going to Eurozone in 2009
Source: EuroStat, CIBC
| 26
Canada’s Government Debt Burdenthe Least Onerous
Note: Based on IMF projections
0
50
100
150
200
250
Net
Gross
2010 general govt debt- to-GDP ratio, %
| 27
Government Debt and Per Capita GDP Growth
Source: IMF, “Navigating the Fiscal Challenges Ahead”, May 2010
0 50 100 150 200 250
14
12
10
8
6
4
2
0
2
4
6
Per
capit
a G
DP g
row
th, (%
/ann
um
),
avera
ge f
or
subse
quent
5 y
ears
Initial Gross Debt Level (in % of GDP)
| 28
Canada’s Banks Well Capitalizedby International Standards
Source: CIBC, IMF
6
7
8
9
10
11
12
13
C anada UK US EuroArea
OtherMatureEurope
Average Tier 1 C apital Ratio, %
Source: CIBC WM, IMF
| 29
Projected Growth in Economically Active Population, 2010-2015
Source: International Labour Organization
-4
-3
-2
-1
0
1
2
3
4
5
C anada UnitedStates
WesternEurope
J apan
%
| 30
Canadian Companies Less Leveraged Than US Ones
50
60
70
80
90
100
110
91:Q1 94:Q1 97:Q1 00:Q1 03:Q1 06:Q1 09:Q1
C anada US
Debt-to-Equity Ratio ex financials, %
09:Q4
Source: Statistics Canada, Federal Reserve
| 31
Thank You
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