June 30, 2018
Economic Overview 2
Global & Regional Growth Forecasts IMF GDP Forecasts (% change YoY) 2010 2011 2012 2013 2014 2015 2016 2017 2018 Advanced Economies 1.7% 1.2% 1.3% 2.1% 2.3% 1.7% 2.3% 2.5% 2.2% Emerging Markets 6.4% 5.4% 5.1% 4.7% 4.3% 4.4% 4.8% 4.9% 5.1% World 4.3% 3.5% 3.5% 3.6% 3.5% 3.2% 3.8% 3.9% 3.9% 12% 10% 8% 6% 4% 2% 0% -2% -4% -6% 2011 2012 2013 2014 2015 2016 2017 2018 2019 World Japan Canada Euro US Russia Brazil China India 3
Dominant Contributors of Global GDP IMF Share of World GDP based on Purchasing Power Parity (Year Ending 2017) 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% China European Union United States India Japan Russia Brazil Indonesia Mexico South Korea Saudi Arabia Canada Turkey Australia Taiwan Switerland Norway 4
Global Mergers & Acquisitions M&A Transaction Value Global Index by Quarter (15 years) 5.00 4.50 4.00 3.50 3.68 4.05 3.30 4.32 3.60 3.40 3.00 2.50 2.14 2.73 2.50 2.22 2.27 2.23 2.33 2.00 1.79 1.50 1.00 0.50 1.20 1.34 0.00 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 5
Closer Look at China Export results provide valuable insight China Exports (exports by quarter) (USD billion) $250.00 $200.00 $150.00 $100.00 $50.00 $- Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 6
Closer Look at China % of GDP NSA Cumulative (10 years in CNY) 60% 50% 40% 30% 20% Farming and Forestry Industrie et construction Services 10% 0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 7
Total and Core CPI Canada and US Total and Core CPI (% change YoY) Canada US 4% CAN - Total CPI CAN - Core CPI 6% US - Total CPI US - Core CPI 3% 5% 4% 2% 3% 1% 2% 1% 0% 0% -1% -1% -2% -2% -3% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 8
Consumer Spending & Business Investment Real Consumer Spending (q/q % a.r.) Real Business Investment (q/q % a.r.) 6.0% 6.0% 4.0% 4.0% 2.0% 2.0% 0.0% -2.0% Canada USA 0.0% -2.0% Canada É.-U. -4.0% -4.0% -6.0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017-6.0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 9
Corporate Profits Corporate Profits Growth Rate (% change YoY) US Corporate Profits Canada Corporate Profits 25% 20% 15% 10% 5% 60% 50% 40% 30% 20% 0% 10% -5% 0% -10% -10% -15% -20% -20% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017-30% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 US Corporate Profits Without IVA and CCA Profits After Tax SAAR (in billions) Bank of Canada Corporate Profits After Taxes SAAR 10
Job Market US Unemployment Rate Canadian Unemployment Rate 12.0% 12.0% 10.0% 8.0% 6.0% 5.8% 9.3% 9.6% 8.9% 8.1% 7.4% 6.2% 5.3% 4.9% 4.4% 10.0% 8.0% 6.0% 6.2% 8.4% 8.0% 7.5% 7.3% 7.1% 6.9% 6.9% 7.0% 6.3% 5.8% 4.0% 3.9% 4.0% 2.0% 2.0% 0.0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 0.0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 11
Closer look at Canada GDP Breakdown GDP Breakdown across commodity related sectors (Indexed) 110 Selected export related industries Industries most affected by commodity prices Rest of the Economy 105 100 95 90 85 2015 2016 2017 Note: Selected export-related industries includes manufacturing, agriculture, forestry, fishing and hunting, and transportation. Industries most affected by commodity prices includes mining, oil and gas, engineering and non-residential construction, and related professional services. 12
US Economic Indicators US Real GDP Growth US Core Inflation 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 0.0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 13
US Leading Economic Indicator (LEI) 15 Years ending June 2018 120 Leading Economic Index 110 100 90 80 70 60 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 14
US Home Sales and Prices 5 Years ending June 2018 US Existing Home Sales US Existing Home Selling Prices 6.3 $290.0 5.8 $270.0 $250.0 5.3 $230.0 4.8 $210.0 4.3 vs. Last month (0.4%) vs. Last year (3.0%) $190.0 $170.0 vs. Last month 2.7% vs. Last year 4.9% 3.8 2013 2014 2015 2016 2017 $150.0 2013 2014 2015 2016 2017 15
How Does Canada s Housing Market Compare? Canada housing market vs. U.S. housing market 20% 15% Existing Homes Prices US Canada 10% 5% 0% -5% -10% -15% -20% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 16
Commodities 17
Commodity Overview Bloomberg Commodity Index 15 Year Performance to June 30, 2018 250 200 150 100 50 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 18
Crude reality: Price of Oil West Texas Intermediate ($US per barrel) 15 Year Price to June 30, 2018 $160 $140 $120 $100 $80 $60 $40 $20 $0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 19
Gold Bullion Gold (US$/troy ounce) 15 Year Price to June 30, 2018 $2,000 $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 20
Canada s PetroDollar The Canadian Dollar plots a similar course as the price of Oil CDN$ vs. Price of Crude Oil (10 Years) 1.2 1 0.8 0.6 0.4 0.2 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 140 120 100 80 60 40 20 0 CADUSD (lhs) WTI Oil Price (rhs) 21
Currencies 22
Canadian Dollar vs. U.S. Dollar Years ending June 2018 $1.10 $1.05 $1.00 $0.95 $0.90 $0.85 $0.80 $0.75 $0.70 $0.65 $0.60 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 23
FX Rates USD Comparisons 1 Year Rates to June 30, 2018 0.0098 Yen vs. USD Euro vs. USD CDN vs. USD 1.30 0.84 0.0096 0.0094 0.0092 1.25 1.20 0.82 0.80 0.0090 1.15 0.78 0.0088 0.0086 1.10 0.76 0.74 0.0084 1.05 0.72 0.0082 Jun-17 Dec-17 1.00 Jun-17 Dec-17 0.70 Jun-17 Dec-17 24
Emerging Market Currencies Exchange rates against the U.S. Dollar 3 Year Rates to June 30, 2018 (Indexed to 100 on June 30, 2015) 120 110 100 90 80 70 60 50 40 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Brazil Real Chilean Peso South African Rand Russia Rouble Indian Rupee Turkish Lira Argentine Peso Chinese Yuan 25
Currency The Hidden Difference n currencies vs. Canadian Dollar 1 Year Rates to June 30, 2018 to 100 on June 30, 2017) 115 110 105 100 95 90 85 80 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 USDCAD EURCAD JPYCAD Comparing 1 Year returns in local currency to CDN$-based Canada U.S. Euro Area Japan Emerg. Markets China World S&P/TSX S&P500 MSCI Europe NR MSCI Japan NR MSCI EM NR MSCI China NR MSCI World Local Currency Returns 10.4% 14.4% 4.3% 8.9% 10.5% 21.7% 10.9% CDN$-Based Returns 10.4% 15.7% 6.5% 11.8% 9.5% 22.7% 12.4% 26
Equities 27
A View of Global Market Indices S&P/TSX Composite Index Prices - 12 months ending June 30, 2018 54000 52000 50000 48000 46000 44000 42000 40000 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 S&P/TSX S&P 500 Euro Area Japan Emerg. Mkts China World 1-Year returns to Jun 30: 0.8% 14.4% 4.3% 8.9% 10.5% 21.7% 10.9% Year-to-Date: 0.4% 1.8% (0.2%) (3.7%) (4.1%) (4.6%) 0.8% Quarter-to-Date: 0.2% 5.8% 4.1% 1.7% (3.2%) (2.8%) 5.1% Month-to-Date: 0.1% (0.9%) (1.6%) (2.1%) (4.5%) (8.0%) (1.1%) 28
Global Market Results 60,000 50,000 40,000 30,000 20,000 6,000 5,000 4,000 3,000 2,000 1,000 S&P/TSX Composite Index 10,000 2018 0 0.66% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 S&P 500 Index 2018 1.72% 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 7,000 6,000 5,000 4,000 3,000 2,000 1,000 2018 (1.01%) 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 7,000 6,000 5,000 4,000 3,000 MSCI Europe Index MSCI Japan Index 2,000 2018 1,000 (3.88%) 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 29
S&P/TSX by Sector S&P/TSX returns for 2017 and 2018 YTD 40% 35% 30% 25% 20% 15% 10% 5% 0% (5%) (10%) S&P/TSX Composite Index Information Technology Industrials Real Estate Energy Consumer Discretionary Materials Health Care Financials Consumer Staples 2018 1.9% 22.2% 6.6% 5.3% 4.8% 3.5% 3.3% (1.1%) (1.5%) (2.6%) (5.0%) (6.2%) 2017 9.1% 16.8% 19.7% 11.2% (7.0%) 22.8% 7.7% 34.2% 13.3% 7.8% 14.8% 10.8% Telecom Services Utilities 30
Don t Fear the Fed S&P 500 Index following the Federal Reserve boosting interest rates May 1958 - Nov 1959 July 1961 - Nov. 1966 July 1967 - Aug. 1969 March 1971 - Aug. 1971 Feb 1972 - July 1974 Jan. 1977 - May 1980 July 1980 - June 1981 Feb 1993 - Aug. 1984 June 1985 - Dec. 1985 Oct. 1986 - Sept. 1987 Mar. 1988 - Mar. 1989 Dec. 1993 - April 1995 June 1999 - July 2000 Dec. 2003 - July 2007-30.0% -20.0% -10.0% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 31
Fixed Income 32
U.S. Fed Overnight Rate Fed Funds: Target Rate (%) 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 33
Bank of Canada Overnight Rate Bank of Canada Overnight Rate (%) 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 34
Central Bank Rates Central Bank Rates and 10-Year Government Bond Yields - 3 Years to June 30, 2018 Canada U.S. 3 2.5 2 1.5 1 0.5 0 Jul-15 Jul-16 Jul-17 Canada - Overnight Rate 10-Year GoC 3.5 3 2.5 2 1.5 1 0.5 0 Jun-15 Jun-16 Jun-17 US - Overnight Rate 10-Year Treasury 35
Central Bank rates around the globe Central Bank Rates and 10-Year Government Bond Yields - 10 Years to June 30, 2018 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% Australia Canada England USA (Upper Range) ECB 1.00% 0.00% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 36
10 Year Government Bond Yields As of June 30, 2018, 3 months ago and 1 year ago (bps) 9% 8% 7% 6% 5% 4% 3% Today 2% 3 months ago 1% 12 months ago 0% -1% US Canada Mexico (USD) Germany Britain France Italy Spain Greece Switzerland Japan Australia New Zealand Hong Kong South Korea India Americas Europe Asia 37