Weekly Sentiment Paper

Distributed by: One Financial

For the Week of: 11/23 through 11/29

Written by: Andrei Wogen

Email: [email protected]

Last Week in Review!

Australian Dollar!

New Zealand Dollar!

Japanese Yen!

China Renminbi; Onshore, Yuan!

Euro Area: Euro!

10

British Pound!

12

Canadian Dollar!

14

United States Dollar!

16

Last Week in Review

China cuts interest rate by 0.4 points; seems that the recent Yen weakness combined with
continued weak Chinese fundamentals has finally caused concern in Chinas central bank
ECB Draghi drives down the Euro with a couple of speeches last week and then the ECB
announced they are beginning to buy asset backed securities
US CPI stays steady and even rises a bit
Canada CPI rises more than expected which should give the Bank of Canada some food
for thought; shelter and taxes the biggest contributor to the increase
BoE meeting minutes show a bit more optimistic tone than the inflation report a couple of
weeks ago though concerns were still voiced in regards to growth and inflation
RBA Gov. Stevens talks down the Aussie Dollar though no sign of actual intervention by
the RBA as seen by their monthly Forex transaction report
Japan PM Abe dissolves Parliament, calls a snap election for December 14th of this year
and postpones tax hike till April 2017
Fonterra milk prices slide again, down over three percent this time

Australian Dollar
Overall Picture and Its Tone
Overall the Australian is weak economically. The weak points continue to be weak mining
sector and the employment sector while the consumer also remains weak and feels weak as
both retail sales and consumer sentiment have been lower respectively. As for the business
sector, manufacturing and services sectors continue to weaken as does business sentiment.
Politically speaking, the country is doing well but recent budget problems have caused the
government to cut down on spending and adjust policy in order to keep debt from rising too
much. This action has also caused consumer sentiment to weaken and there is likely more cuts
on the way as the mining industry continues to slow. Another thing that has caused some worry

from the government is the strong housing market. Prices continue to rise which is helping to
support consumers some but has caused the government to voice their disproval of these high
prices worrying about a bubble forming. As for the central bank they continue to remain neutral
to slightly dovish while continuing to keep rates at historical levels. They continue to say that
rates are the right level to foster growth and investment but they also continue to verbally talk
down the Australian Dollar which they say is too high. Still no actual intervention though.yet.
Overall then the tone of Australia is neutral to slightly negative
. Overall Sentiment of the Australian Dollar

As for the overall sentiment towards the Australian Dollar,

Last Week in Review
The big news last week was the RBA Governor who was at it again talking down the
AUD during a speech during the week. This came after the RBAs concerns about the high AUD
value were also outlined in their meeting minutes. Nothing too much of interest came from his
speech though.more of the same words and tone. As for the RBAs meeting minutes, there
was really no change overall from their last minutes. They are though seeming to be paying a
bit more attention to their trading partners now, namely China and Japan. In their minutes they
voiced concern about the struggling housing market in China, with no real idea how it could
affect the Australian economy, and they are expecting that the AUD could remain elevated due
to increased inflows of currency into Australia as Japan in particular, continues to weaken their
currency. However with all this talk from them about their concerns with the Aussie Dollar, they
still have not actually intervened yet as seen by the RBAs October Forex Transactions data. So
until there is evidence of any sort of physical intervention the Aussie will continue to largely
ignore any tone from the RBA in regards to its high value, minus a few small down moves here
and there. Other than that, there was little news or economic data to pay attention to from
Australia last week. On the political side though, Australian PM Tony Abbott sealed a deal with
Beijing for free trade between the two. This free trade agreement includes the elimination of
tariffs within a few years for such Australian industry groups such as dairy farmers and wine
makers. Overall this is another move by China to expand their reach globally and go beyond
what the US has and is currently doing in the world in terms of trade and business.

The Week Ahead and Other Thoughts

Itll be a slow one for data this week again from Australia. There are three main data
releases to note. Construction Work data on Tuesday, New Home sales data on Wednesday and
Private Sector Credit on Thursday. Construction work will be factored into overall GDP so it
will be of importance on some level. As for the housing data, this will be watch by the
government authorities in particular. With their recent concerns about the strong housing
market in Australia this data will more than likely be watched by them to see how much more
active this sector has gotten particularly on the investor side of things. The other event to watch
during the week will be a speech by RBA Deputy Gov. Lowe who will be speaking at a business

dinner in Sydney. Overall, I dont expect any mention of anything too important from him but
with all the talk about how high the AUDs value is right now from other RBA members and the
Bank itself, I wouldnt be too surprised if Lowe were to slip in a mention of his own on the
subject. All in all though it looks like itll be a slow week for the Land Down Under.

New Zealand Dollar

Overall Picture and Its Tone
New Zealand as a whole continues to do well though has weakened some over the past
few months, economically speaking. Lower commodity prices, lower house prices and lower
inflation have been the main weaknesses for the New Zealand economy. Other weaknesses have
been a deteriorating trade balance, along with falling exports and a fall in business and
consumer sentiment which has also translated into lower consumer spending via retail sales
data. However all is not bad in New Zealand and actually things are pretty good despite these
negatives. Though business sentiment is low, it is still high in historical terms which has been
seen in the manufacturing sector in particular which remains strong as well as does the
industrial sector. As for trade, imports continue to rise while the labor market also remains
strong with falling unemployment and increased employment overall. However, as is the case
around the world overall, wages continue to remain weak. Looking to the housing market now,
after rising prices from the beginning of this year, they have fallen now from their highs after
implementation of policy to help cool the housing market went into effect several months back.
This, and now weaker building permits, continue to cause the housing market to weaken
overall though in some parts, construction remains active overall. As for the government, they
continue to remain strong as pro-growth policies and increased government spending continue
to help support the economy and with the recent elections keeping the incumbent prime
minister in power for another term, there will likely be little change. In regards to the central
bank, after having tightened policy by raising rates three times this year beginning in March,
the central bank is now on hold indefinitely after falling commodity prices and lower inflation
have caused them to reassess their estimates of future inflation in the country. This is a pretty
big turnaround for them from just a few months ago when they were talking about seeing a
need to raise rates pretty consistently due to what they used to see as inflation pressures
building. However these pressures have since diminished or left altogether and so in response
the central bank is expected to be on hold until at least the middle of next year and possibly

longer if inflation doesnt start to pick up soon. They have also voiced their concerns about the
high valuation of the New Zealand Dollar relative to other currencies. This has caused the
RBNZ to intervene in recent months in the currency market to bring down the value of the
Kiwi. This is an obvious statement by the Bank that they are not willing to let the currency stay
too strong and will do something to help bring it down and so in light of this there continues to
be speculation that they will continue to intervene in the markets going forward. Overall then,
the tone for New Zealand remains in neutral territory overall.

Overall Sentiment of the New Zealand Dollar

The overall sentiment for the New Zealand dollar is neutral to negative as it
continues to move lower versus the Dollar but higher versus the Yen.
Last Week in Review
Last weeks Retail sales data saw a good boost in consumer spending for the third quarter
of this year. The actual numbers came in a good amount above estimates as sales volumes rose
the most they have since the middle part of 2012. These strong retail sales were helped mostly
by food-related sectors of the retail space. Overall though a good sign on consumer
consumption as the low inflation appears to be possibly helping them at least. This also points
to a possibly strong third quarter GDP print. The other data from last week confirmed lower
third quarter inflation data that we have already gotten with the release of lower than expected
PPI numbers last week. However, this does not bode well for future PPI and overall inflation
numbers in my opinion. The other big news for the week was the release of Fonterras latest
global dairy price numbers which fell again this time falling -3.1% and whole mil prices in
particular, falling -5.1%. These continued lower prices in dairy products will likely continue to
put pressure on the farmers buying and investment power and therefore overall growth will
likely be hurt by this. However maybe it wont be so bad if last weeks retails sales data, already
mentioned, is giving any indication for overall economic growth. Also last week, an earthquake
was reported off the East Coast of the North Island however no Tsunami warnings were issued
and overall the event passed without any important incidents. The relationship between the
currencys tone and New Zealands tone continue to be mixed; inline in NZD/USD but
continuing to spread apart in NZD/JPY.

The Week Ahead and Other Thoughts

For this week, there will be some more data to sift through. Starting at the top of the
week, Visitor Arrivals will be released on Sunday night (US EST time). A data set that is
watched by the RBNZ, it has been weakening some in the last few months and is likely having a
negative impact on overall economic growth for New Zealand as the country is a large tourist
based economy. Moving on then, on Monday, RBNZ Inflation expectations data will likely carry
some weight in the market. These expectations have also been falling and with a recent halt in
the RBNZs rate hiking campaign due to what they expect will be lower inflation going forward,
I am personally not seeing any reason to be optimistic on these inflation expectation numbers

this week. Then on Wednesday, Trade balance data for October will be released along with
import and export data over the same time period. The overall trade balance has been
deteriorating over the past few months while imports and exports have begun to both move
higher after a bit of weakness themselves. Then on Thursday, Building permits and Business
Confidence data will be released. Both of these data prints have been weakening as of late and
so good rebound in them will be a welcoming sign. Business confidence did bounce back some
last month after a few months of it falling and so whether this remains the case, that the bounce
will continue, will be interesting to see. With the recent strong Manufacturing data though that
was released a couple of weeks back, there is a good chance that business optimism follows this
as they are over the same time period.

Japanese Yen
Overall Picture and Its Tone
Japan as a whole is very weak right now, politically, socially and economically. On the
economic side, businesses continue to be weak as manufacturing, services and industrial sectors
continue to be weak however on a bright note, corporate profits continue to rise. On the
consumer side, consumer sentiment and consumption both remain weak as seen recently in
household spending and retail sales data. As for trade, imports and exports have been weak but
now both are improving some while the overall trade balance remains in negative territory.
Inflation also remains weak and continues to fall causing deflation to persist. On the
government side of things, debt remains high while recent tax hikes meant to bring down the
level of debt in the country have caused yet more weakness in the economy. The government in
general remains stuck in old ways and lacking reforms to help revise the economy. As for the
central bank they continue to remain very negative overall with low interest rates and and a
quantitative easing program that puts all others that have occurred or are occurring to shame as
its size is huge. A couple of weeks ago too, the central bank surprised the markets by
implementing and increasing their QE program. Finally, on the social side of things, as the
population continues to age the levels of debt continue to increase while other social
developments continue to cause weakness in the economy. Overall then the picture of Japan is
very negative right now.

Overall Sentiment of the Japanese Yen

The overall sentiment for the Japanese Yen is very negative right now as it
continues to move lower against pretty much everything.
Last Week in Review
Politics continued to be a dominant story from Japan last week. However GDP data for
the third quarter was the primary driving factor of the political developments that occurred last
week. As for the political news, last week it was confirmed that PM Abe will delay the sales tax
hike until April of 2017 at the earliest and that he would dissolve the lower parliament on
November 21st. News then came out a couple of days later that snap elections will be held on
December 14th of this year for the lower house of parliament. Expectations are that Abe
continues to have enough support from the people that the elections for the lower parliament
will give Abe the majority he needs in order to continue to push through the reforms he wants
to happen. We will see..though I am not so optimistic on the elections and think there is some
good risk that Abe either gets less support than he expects or worse, loses support in the lower
house. On an interesting note though, there was also news that Abe will be suspending the
recent tax hikes done in April of this year on certain necessities. This is interesting and in fact
is not a good sign for anyone looking for fiscal discipline from the Japanese government. Seems
they dont have any. Whether these tax increases are reintroduced later on when Abe says he
plans to hike taxes again, will remain to be seen. As for what drove these political events,
preliminary GDP data for the third quarter came in a good amount below expectations and in
fact showed that Japan slipped into recession yet again. Business spending fell as did private
consumption. Business investment was the worst though as it slipped into negative territory.
Overall though, growth on the whole remains weak in Japan. The other event of note was the
BoJ meeting and interest rate decision. On the whole they left policy and rates on hold. The one
thing of note though was the improvement in support for the current policy measures of the
BoJ, which includes the recent increase in stimulus. Last meeting the vote was a very close 5-4 in
favor of the measures but this meeting things improved quite a bit with a vote of 8-1 with only
the one vote of disapproval. However there is likely still disagreement within the BoJ regardless
of this improved voting count. Other than that, the rate statement had within it a more upbeat
tone on the exports sector while Kurodas speech during the press conference was pretty much
the same. As for data, other than the GDP data, things came in mixed. Trade balance data
showed an improvement in not only the overall balance of trade number but also in exports and
imports with exports rising the most since February of this year. An encouraging sign. A note
though on imports, though imports rose, its rise was below expectations. As for manufacturing
data, this came in lower than previous though output growth improved a good amount while
the outlook was unusually certain. Other minor data showed both the Leading Economic and
Coincident index numbers coming in better than previous. On the whole though, last week was
another fun filled week in Japan where it appears that growth may be improving now that the

third quarter GDP is out of the way while the political arena looks to be pretty shaken up right
now. The relationship between the currencys tone and Japans tone continue to be inline overall
as the Yen continues to move lower overall.

The Week Ahead and Other Thoughts

Inflation data this week will be the main release for the week. Last week news came of the
BoJ expecting lower inflation going forward and so this data will continue to be watched. The
data continues to be skewed some though with the tax hike in April having its effect and the
real inflation rate continues to be below the BoJs 2% target and moving lower. This data will be
released on Thursday. Also on Thursday, Industrial Production, Housing starts, construction
orders, and the unemployment rate as well as Large Retailer sales data will all be released. So a
big day for data from Japan on Thursday. As for Industrial production numbers, these began to
improve last month after continued declines in the data over the last several months. As for the
sales data from large retailers, with the third quarter GDP numbers being as weak as they were
largely due to weaker consumption from the consumer, any rebound in consumer activity will
be a welcome sign. The other data for the week will be the BoJ monetary policy meeting
minutes which will come from their meeting where they made the decision to increase their
stimulus program. This should be an interesting set of minutes as it will be interesting to find
out what the BoJ saw in the economy or other areas of Japan to justify their decision to increase
their stimulus program. Also on Monday, BoJ Kuroda will be speaking and given the BoJs
recent actions, interest has increased on what Kuroda speaks about.

China Renminbi; Onshore, Yuan

Overall Picture and Tone
Overall China is weak right now economically and is changing politically and socially. As
for the economic picture, this has been weakening over the past few months. Inflation continues
to move lower which also includes food prices which continue to move lower. As for the
consumer, Consumer Confidence is improving some again after deteriorating over the past few
months while retail sales continue to move lower. As for the business side of things, the services
sector, manufacturing sector and industrial sector as well as business confidence all continue to
weaken overall. As for the employment picture this remains mixed to weak as labor costs
continue to weaken and the number of unemployed persons continues to move higher
highlighting the struggle of the Chinese economy to move from a strictly manufacturing based
economy to more of a services based country in terms of their main revenue and GDP growth

source. As for the housing market, prices continue to move lower as does loan growth putting
pressure on the consumer and the economy as a whole. With lower housing prices the demand
for existing and new housing is slowing and with the real estate market being such a big driver
of growth in China, this is putting a strain on its overall growth. On the government side of
things they continue to work on pushing through reforms to move the economy form a
centrally, government controlled economy, to a more market baed economy. During their recent
Fourth Plenum meeting they highlighted these reforms they are and want to implement
especially focusing on making the law system freer. As for the central bank, they continue to
implement reforms and easing measures to help revive the economy including reserve ratio for
certain banks and other reforms to help rural regions and the real estate market improve
including rate cuts recently. Interest rate liberalization is also one of the main things on the
central banks agenda in terms of reforms they want to implement. Overall then the tone of
China is a more negative one right now as reforms being implemented by the government and
central bank continue to cause weakness in the economy while overall global growth being
weak is causing the manufacturing industry to be weak right now.

Overall Sentiment of the Chinese Yuan (Onshore)

The overall sentiment for China is negative but as the Yuan is controlled by the
PBoC right now, the movements in their are not true in many ways. However, the Yuan
has been strengthening versus the USD overall lately and closed higher versus the USD
last week.
Last Week in Review
Last week started out a slow one for China and then towards the end things suddenly lit
up as the central bank took a couple of big steps to help ease conditions in the Chinese economy.
The biggest action from them came in the form of a rate cut. They cut the 1-year lending rate by
0.4 points and cut the deposit rate by 0.25 to 2.75%. The last cut in rates by them was way back
in June 2012 so this is a pretty big move for them. They also made the move to raise deposit
ceiling to 1.2 times of benchmark from 1.1 times and says it will give banks more freedom to set
deposit rates. The other move by them was them offering short-term funds to financial
institutions as liquidity conditions tightened a good amount last week with the 7-day repo
gaining to the highest level since September. They also announced the creation of Certificates of
Deposit...something the US in particular has had for years. So some big actions by China that
shows the markets that they are not willing to let the overall economy get too weak as they
continue to reform. House price data showed a continued decline in house prices and Foreign
Direct Investment continued its decline. Also HSBC manufacturing PMI data came in lower
than previous and is now right at the 50 level which separates expansion from contraction. As
for the manufacturing data, disinflationary pressures remain a headwind and labor market
continues to slow down. Also within the data it showed that price pressures and capacity

utilization are a weak point in the manufacturing sector. On a plus side though, new orders
increased as did new export orders. Overall though, it was a weak number and continues to
show a weak manufacturing sector in China.
The Week Ahead and Other Thoughts:
Things are looking like it will be a slow week this week too again in terms of data from
China with only CB Leading economic index number being released. So things at this point look
like they will be pretty quiet from China this week.

Euro Area: Euro

Overall Picture and Its Tone
The overall conditions of the Euro Zone are and continue to be very weak and negative.
Overall growth continues to move lower with some countries, including Germany, slipping into
negative growth in the most recent quarter. As for the business side of the economy, the services
and manufacturing and industries sectors all continue to move into weak territory while
business sentiment also continues to deteriorate. As for the consumer, consumption remains low
as seen in continued weakening retail sales data while sentiment also continues to move lower.
The labor market is also very weak with high unemployment, especially youth unemployment,
and wages continue to be low. Trade also remains weak with imports falling while exports are
actually remaining fairly supported. As far as the loan and money sector goes, loan growth
continues to be weak to both businesses and consumers. On the government side of things debt
levels remain very high and there is little ambition from some Euro Zone members to bring
those high debt levels down. In fact the recent budget presented by Italy to the European
Commission showed little in the way of actual reforms to bring down their debt level and was
accepted by the Commission showing once again, that these debt levels in the Euro Zone will
continue to rise until a day of reckoning comes and these countries have to default. Another
thing of continued concern continues to be the political divide between political members and
regions of the Euro Zone especially, now, in terms of how the ECB is allowed to deal with the
low growth and inflation. However disagreement and divide are also continuing to be present
in light of continued rising debt and lack of reforms from different countries, namely Italy and

France. As for the central bank, they continue to remain very dovish, recently implementing a
sort of QE program with the purchases of covered bonds and ABS assets in a bid to help revive
the Euro Zones struggling loan and banking industry in order to therefore revive economic
growth. They also have cut rates quite a good amount since about June of this year with one of
their rates now in negative territory. So overall the tone of the Euro Zone is negative.

Overall Sentiment of the Euro

The overall sentiment for the Euro currency is currently still negative overall.
Last Week in Review
Last week, worries about the weakness in the Euro Zone economy sprouted up again as
Manufacturing data from Germany, France and the Euro Zone all came in weaker than expected
and previous with Germanys manufacturing sector number now resting right on the 50 level
that separates contraction from expansion. Services data also showed more signs of slowing as
German and Euro Zone data for the services industry came in lower than expected and
previous while Frances services sector improved some. Also Industrial orders in particular
came in lower than previous and showed a big slowdown in both domestic and international
orders. Industrial sales also showed more weakness. As for some bright news, German and
Euro Zone ZEW economic sentiment numbers came in far above expected and previous
estimates showing an improvement in investor sentiment. However, this could just be a one
time up swing in the number at this point after the recent down move in the overall numbers of
this data. The other big news though for the week came from Draghi who once again was able
to drive the Euro lower. He made a couple of speeches during the week in which he was very
dovish on both monetary policy and the economy. At his first speech he continued to drive
home the point that additional measures are available to help ease policy and even mentioned
QE (buying government bonds) as being one of those options. Then a couple of days later he
drove the Euro lower again with mention that the Euro economy will likely remain in stagnate
mode for some time. He also said ECB will do what I must to raise inflation and inflation
expectations as fast as possible. This is a pretty strong signal coming from him and shows that
more action is very likely on the way however the when is still up in the air. All in all though
the ECB and Draghi in particular is sounding a bit desperate(?) is maybe the word. I wouldnt
blame him either very much if that is the stance he is coming from with these remarks as the
Euro Zone continues to move closer and closer to deflation and overall growth continues to be
weak. Then to close out the week, announcement came that the ECB began to purchase asset
backed securities showing that Draghi does likely have some action behind the words he has
spoken. This is pretty big too though no word yet on what type of assets they are buying but the
fact that they are buying some sort of assets, and starting to build their balance sheet, is a sign of
what is likely to come. Though I still hold to my argument that things could likely be rocky if
they (and now looking more possibly like when) they do QE especially on the legality side of
things and especially with the ruling on the OMT still due. The relationship between the Euros

tone and the Euro Zones tone continue to be mixed; inline in EUR/USD and EUR/GBP but
continuing to spread apart in EUR/JPY.

The Week Ahead and Other Thoughts

So looking once again at what Draghi said in regards to the need to push up inflation and
inflation expectations, this weeks inflation data is even more important than usual. We will get
German inflation data on Thursday and then Euro Zone inflation data on Friday. The reaction in
the markets though could be interesting and possibly quite volatile as the US will be on holiday
for Thanksgiving on Thursday and on Friday too pretty much. Also on Friday Italy CPI data
will be released. This inflation data too, as was mentioned, carries much greater weight now in
my opinion than usual as it seems that the ECB is getting closer to implementing some sort of
additional easing with the market pinning QE to be the next big move from them. However
there is still the question about the legality of such an action. A top EU court still has to rule on a
program known as OMT that the ECB implemented way back in the summer of 2012 which was
in all intense and purposes, a smaller version of QE. This ruling, when it occurs which is not
scheduled till next year some time, could very well be a turing point in the debate within the
ECB on whether to do QE or not. Unless they just do QE before the ruling anyway, which is a
real possibility in my opinion and could make things more complicated if later on OMT is ruled
illegal by the EU courts. So it will be interesting to see what happens with all this and how the
ECB proceeds from here. If what we have heard from Draghi though is just talk and in the end
they do not do QE, or especially if they are unable to, I see that as a trigger for the markets to
lose faith in the ECB and Draghi especially in light of Draghis promise a couple of years ago to
do whatever it takes to save the Euro. Really too I think the beginning of next year and next
year in general is going to be a big year for the Euro Zone and its future.

British Pound
Overall Picture and Its Tone
The overall economic picture is one of strong growth while some weakness has been seen
recently in some sectors. The recent weakness has been seen in particular in the manufacturing
and services industries with the latter being of some concern as the UKs economy is so
dependent on this sector for its growth. Other weakness has been seen in the countrys exports,
though not too surprising there as the Pound continues to be strong overall. Imports also have
fallen some over the last few months. As for the consumer, consumption has moved lower as
seen in recent weakening in Retail Sales data while sentiment numbers have begun to weaken.

This weakness in consumer sentiment has stemmed in part from a weakening housing market
as house prices fall as well as construction activity. As far as inflation goes, this also continues to
move lower as the UK follows the rest of the world (or a large part of it) into a world-wide
deflationary trend, in some respects. This low inflation and weaker growth has also kept the
BoE at bay in terms of them raising rates. They continue to be neutral on that fact and the
market is currently expecting them to keep rates on hold and not raise them until the middle
part of next year at the very least. Another concern of the BoE, which has kept them from
raising rates at this point is the low wage growth. However the labor market as a whole
continues to improve as the number of newly employed continues to rise and the number of
unemployed continues to fall. Overall then the tone of the United Kingdom is neutral to slightly
positive.

Overall Sentiment of Pound Sterling

Overall the sentiment for the Pound Sterling is neutral to negative.

Last Week in Review

Last weeks inflation data gave the impression that it will be a while yet before the BoE
raises rates while the BoE meeting minutes from their last meeting gave the impression that rate
hikes are closer than previously thought. As for the inflation data the Core number came in
lower than expected while PPI numbers rose and Producer Price index, both input and output
numbers, continuing to print in negative territory. As for the BoE meeting minutes, the Bank
sounded a bit more hawkish than the market (and I) was expecting especially after their
inflation report which were more on the dovish side as inflation and growth forecasts were cut.
In the meeting minutes though they sounded more optimistic on CPI as they said that CPI
pressure may be boosted as slack soon exhausted though they then countered that by saying
that inflation expectations are drifting lower. Also two of the BoE members continued to dissent
and vote for rate hikes which which was a bit against expectations as there were some
expectations that one of the dissenters would recede their vote to hike rates. They also though
see a couple of risks one being that domestic spending may not offset weaker exports and that
growth may soften further, both though echoing what was said during the inflation report. They
did though voice optimism on business investment. Overall though what is happening, in my
opinion, within the BoE and looking at the inflation report two weeks ago and now the meeting
minutes last week is that the BoE is in fact getting close to raising rates but because they expect
lower growth and inflation for a while they will be getting closer to raising rates very slowly. So
all this dovishness to me is just talk at this point and is meant to keep the market at bay and
keep them from pricing a rate hike in too quickly while also giving themselves (the BoE) time to
prepare and be sure that raising rates is the best option when they do so. The other data of
importance last week was in retail sales which showed a good gain in comparison to
expectations and versus previous numbers. Furniture and non-food sales helped this number to
move higher. The one downside though, and which will likely be cared about more than the

retail sales data itself, if the Retail Sales deflator number which had the biggest fall since Dec.
2002 as prices continue to fall in the UK. This will put downward expectations on inflation yet
again most likely and so it would appear that the BoEs forecast for lower inflation going
forward is already coming to fruition. The relationship between the currencys tone and the
United Kingdoms tone continue to be mixed; inline in GBP/USD but continuing to spread
apart in EUR/USD and GBP/JPY.

The Week Ahead and Other Thoughts

For this week preliminary third quarter growth numbers will be released on Wednesday.
There is risk for a lower number as business conditions, particularly the exports market, and the
services sector (which is a big part of the UK economy) have both weakened over the past few
months. How much lower than the second quarter will third quarter growth numbers be
though is the question. A tad weaker will likely not be too much of a concern of the market or
the BoE while too much weaker and rate hike expectations will likely be pushed back yet again
some. Also on Wednesday, Business investment numbers and services data will be released both
key indicators of overall growth in the UK economy though that will also be reflected in the
overall GDP numbers so the attention they get will likely be limited. A couple of other data
releases of note will be BBA Mortgage Approvals on Tuesday and Nationwide housing prices
and GfK Consumer Confidence numbers, the last two being released on Thursday.

Canadian Dollar
Overall Picture and Its Tone
The Canadian economy continues to be mixed overall. The positive side of things is that
inflation continues to be relatively stable and high, though this has likely changed now with oil
moving so low. Overall growth too continues to be supported. As for the consumer this is where
some of the weakness lies as spending remains subdued as seen via retail sales data. As for the
business side of things, this remains supported overall. Oil production also continues to
increase but with prices as low as they are, they are not helping the economy any right now. As
for the housing sector, this remains strong with high prices and good building activity both
being supported by low interest rates. As for trade, exports have started to increase some
recently especially as the US continues to bounce back. As for the labor market, this seems to be
improving as new jobs continue to increase in number and the unemployment rate continues to
move higher while wages remain weak, as seems to be norm right now. As for the central bank

they remain neutral to dovish in their tone towards the Canadian economy though they are
starting to sound a bit more optimistic now as the US economy, which Canada is very
dependent on, continues to improve. However, they continue to see recent inflation levels as
being just temporary and still continue to expect weaker growth for a while going forward.
Overall then the tone of Canada as a whole is neutral in relation to the monetary policy in
particular.

Overall Sentiment of the Canadian Dollar

Overall the sentiment for the CAD is currently neutral to negative.

Last Week in Review

Last week, inflation surprised to the upside as both the headline and the Core were higher
than expected, putting into question yet again the view point the BoC has on inflation right now
as they continue to see inflation as it is right now as mostly just noise. Well I would be to differ
as I think does the market as well. With lower energy prices in particular, one would expect that
inflation (especially in Canada which is an oil producing nation) would be just noise and lower
too. But no. So now the BoC will have to come up with some reason for this as they continue to
want to keep rates low and policy easy. What reason they come up with will be interesting.
Looking at the internals of the inflation data some of the items were higher than in September
but Food, Transportation, Recreation/Education, healthcare and energy costs all come in lower
than previous. As for shelter, household operations, clothing/footwear and alcoholic beverages,
the prices of these all climbed higher as did taxes. The other data for the week was stronger than
expected wholesale sales which point to possibly better growth numbers form Canada. We also
heard from BoC member Cote who said that the Bank should consider a higher inflation target,
above the 2% mark that it is currently at. Well may I suggest they start with the current inflation
rate we got last week? Would be the simplest way in order to avoid trying to explain away the
inflation data. Anyway, point is it should be interesting how the BoC approaches this inflation
data and how they monetary policy in general. The relationship between the currencys tone
and Canadas tone continue to be mixed; inline in USD/CAD but continuing to spread apart in
CAD/JPY.
The Week Ahead and Other Thoughts
Quarter three growth data will be released on Friday and will be the highlight from
Canada for the week. If the surprise in inflation is any indication, we could be looking at a
better than expected number. Higher inflation usually means higher demand and we saw that
in some of the details of the inflation data last week as clothing and alcohol prices both rose.
Also this week, Retail Sales data for September will be released on Tuesday and this could also
show some strength. If it does then GDP expectations will likely be lifted.

United States Dollar

Overall Picture and Its Tone
The overall picture of the US one of positive growth overall, a central bank that is (very
slowly) turning more hawkish while the government has been pushed to one side in many
respects as it continues to wrangle with its differences and division. As for the economy: it
continues to improve overall though there has been some weakness seen recently, particularly
in the manufacturing sector due to the increasing value of the US Dollar. However this sector, as
well as the industrial and services sectors continue to grow. Business sentiment also remains
strong. The employment sector continues to be good overall with rising employment and falling
unemployment. However problems remain as long term unemployed people continue to
struggle to find jobs and the skills gap continues to widen as fewer and fewer have the skills
necessary to do high tech jobs that are so vital to a nations growth. As for the consumer, they
also remain pretty good though weak wage growth continues to be a problem and consumption
is down some now looking at retail sales data. Sentiment though for the consumer remains
strong overall. Trade continues to do well with both exports and imports strong though the
deficit in the US continues to deepen. As for inflation, this continues to stay steady, but steadily
below the Feds target. As for housing, after a good start this year this sector has weakened
some in the past few months as rate hike expectations continue to be in focus for this industry.
As for rates, and the Fed, in light of the overall US economic picture they have begun to turn
more hawkish in their tone and in their policy recently exiting their QE program completely in a
bid to begin to slowly tighten policy. The tone from the Fed is also changing, though also
changing as they are sounding more optimistic on the economy and jobs and so on but are still
concerned about low inflation. Looking to the government, this part of the US continues to be in
a wrangle with itself failing to pass any meaningful laws or policy changes to help the economy
grow. Recent mid-term elections have given some people some hope as the Republicans now
control both the House and Senate though with a stubborn President at the helm of things, little
will likely change until after presidential elections in two years. However we will have to see.
Maybe Congress will be able to pull a rabbit out of its hat after all. Overall though the tone of
the US economy is neutral to positive overall due to a more optimistic Federal Reserve.

Overall Sentiment of the US Dollar

Overall the sentiment for the USD continues to be positive overall.

Last Week in Review

Inflation looks to be steady overall in the US as last weeks inflation came in as expected
and better than expected. Headline inflation were better than expected both month-to-month
and year-to-year data and Core CPI also came in better than expected and previous. So at this
point inflation is looking to be good overall but is still a concern of the Fed and the markets
right now. Other data was housing data which showed some life as existing home sales and
building permits data was better than expected while housing starts came in just a bit below
expectations. However as rate hike expectations continue to increase the housing sector could
very well start to weaken again and I expect this to happen. Also in regards to the housing
market, NAHB housing market number came in better than expected. Other upbeat data for the
week was in Philly Fed data as this number came in way above expectations and previous
readings. The internals were impressive too as new orders and employment improved while
prices paid (another inflation indicator) moved lower. Other inflation orientated data in the
form of PPI came in better than expected. As for data that came in lower than expected, the
industrial sector weakened further in October as did Capacity Utilization and NY Empire State
Manufacturing index. Jobless claims also gained for the week. Overall though the US economy
continues to roll along nicely as the rest of the world seems to be weakening even more. Makes
me wonder when this global weakness will be felt in the States. The relationship between the
US Dollars tone and the United States tone continue to move inline with each other overall.

The Week Ahead and Other Thoughts

Things this week will be a little slower likely, especially towards the end of the week as
the Thanksgiving holiday on Thursday will likely turn into a long weekend for many US
investors. This week though the big event will be the second reading of US third quarter growth
numbers. With the first reading coming in over three percent this second reading will be in
focus but normally does not come out too far off the first reading. Other data will be consumer
confidence numbers on Tuesday as well as well as PCE numbers which are a favorite of Fed
Chair Yellen. Another big release will be on Wednesday, and may actually get more attention
than the GDP number will be Durable Goods orders for October which are expected to come in
higher than previous, but still in negative territory. Durable Goods orders data goes right into
overall GDP and so the market will be paying attention to this very closely to gauge how the US
economy is likely performing in the fourth quarter and therefore what overall fourth quarter
and subsequently year-end GDP could likely be. Other minor data for the week will Services
and Composite PMI data on Monday and then Jobless claims and Core PCE numbers as well as
New Home Sales and Pending home sales data all on Wednesday. Overall though it will likely
be a very busy first part of the week and then a very slow last part of the week for the US
markets with the Thanksgiving holiday occurring on Thursday and then Black Friday (when
many will be out shopping instead of sitting in front of their charts).