Dundee Financial Monitor by William Tharp

1. Financial Monitor
by William Tharp June 4, 2010
THE WEEK IN REVIEW
US RECOVERY CONTINUES: PACE TO WEAKEN US EMPLOYMENT DATA
500
• US job creation disappointed in May. While 431,000 jobs were Thousands, Monthly change
created, 411,000 of those were part time census jobs. In June 400
Census 2010
of 2000 (the previous census year) 225,000 temporary census 300 Government (except census)
jobs were lost, suggesting that next month could see a net Private
loss in jobs, depending on what happens in the private sector. 200
This could further rattle confidence, though some of those 100
concerns were factored into markets on Friday.
0
• The ISM indices showed little change in May. The
manufacturing index slipped a little from 60.4 to a still robust -100
Jan-10 Feb-10 Mar-10 Apr-10 May-10
59.7. The service sector index remained at 55.4.
CANADIAN RECOVERY CONTINUES: PACE TO WEAKEN
• Canadian economic growth beat expectations, rising by an annualized 6.1% in the first quarter.
• Overall building permits rose in April but there were already hints of a weakening in the housing sector, where
permits fell. In May monthly sales of homes fell as buyers reacted to higher prices and tighter mortgage rules.
Forecasters are starting to mark down their forecast for house sales, with many predicting falling prices. The
harmonized sales tax in Ontario and BC will hit sales prospects after June, primarily higher priced homes.
GLOBAL RECOVERY CONTINUES: PACE TO WEAKEN
• Europe will lose momentum, not that strong to begin with, because of fiscal tightening. Germany is the latest
country to begin paring spending/raise revenues.
• Chinese growth is also likely to slacken, possibly to 8% or so. Recent measures to curb real estate speculation
are reported to have flattened the housing market (for a few months at least); the bigger question is to what
extent strong sales in recent quarters, when financing was easy, have come at the expense of sales over the
next twelve months. As well reduced Chinese importation of commodities has been trimming the price of oil
and metals such as copper. Some of this is because of expanding domestic supply following several years of
high prices.
LOOKING FORWARD
• The Bank of Canada raised interest rates by 25 points on June 1 but sounded uncertain when the next hike
would come. We are assuming October 19 but it could be sooner. Next week sees new data for the trade
balance and new housing prices (Thursday) and capacity utilization (Friday).
• The Fed next meets on June 23 to consider interest rates. No change is expected. With core inflation now
under 1.0% it will keep “interest rates low for an extended period”. While the Fed did note improving economic
conditions recently, we wouldn’t expect to see the first interest rate hike until November at the earliest.
New statistics coming next week include: consumer credit (Monday), trade data and the May fiscal number
(Thursday) and retail sales (Friday).
• Government bond yields fell last week, as Europe’s fiscal woes were compounded by the suggestion of a
Hungarian default, prompting another shift from higher yielding to safer government bonds. This is probably not
the time to buy governments, unless you are persuaded that the forces of deflation will take considerable time
and effort to be reversed.
• The Canadian Dollar lost ground on the week, following an initial attempt at recovery. We will probably see it
move closer to parity as the year progresses.
• The US Dollar was generally stronger this week in a flight to quality. A shift back to the dollar as prime reserve
currency is likely also having an influence – something that could prevail for many months.
www.dundeewealtheconomics.com

2. RECENT CANADIAN ECONOMIC DATA
CANADA GROSS DOMESTIC PRODUCT
12
10
8 Canadian GDP had its best
6 quarter in a decade, rising by an
4 annualized 6.1% in the first quarter.
2 Consumption rose about 4.5%. Our
0 detailed table will follow at a later
-2 date (Statscan now delays releasing
-4 some of the data for several weeks).
-6
-8
annualized growth rate Last quarter: 2010 Q1
-10
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10
CANADA JOB CREATION
125
100 000s monthly
change
75
50
Canada’s job creation (24,700),
25
though far less than reported for
0
April, was nonetheless quite solid
-25
in May. The unemployment rate for
-50 3-month
moving
May was unchanged at 8.1%.
-75
average
-100
-125
Last month: May 2010
-150
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10
CANADA BUILDING PERMITS
375
350
325
300
Building permits rose in value
275
by 5.4% in April, following a strong
250
12.3% gain in March. However
225
the gain was entirely in the non-
200
175
residential area, which more than
150
made up for a decline in residential
125 permits.
100
000s dwelling units Last month: April 2010
75
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10
www.dundeewealtheconomics.com

3. CURRENT STATE OF AFFAIRS by Martin Murenbeeld
ECRI LEADING INDICATOR UNEMPLOYMENT CLAIMS COPPER
146 30 700 450
ECRI
650 400
140 20
600 350
134 10 US recession
550 300
128 0 500 250
122 -10 450 200
US recession 400 150
116 -20
Percent change 350 100
Year-over-year 52-week US recession
110 -30 moving
300 50
average
104 -40 250 0
02 03 04 05 06 07 08 09 10 02 03 04 05 06 07 08 09 10 02 03 04 05 06 07 08 09 10
Source: Economic Cycle Research Institute Source: US Department of Labour Source: Thomson Datastream
LIBOR-OIS AND TED SPREAD VOLATILITY
6 90
OIS (overnight indexed swap) VIX (Chicago Board Options Exchange
Ted Spread (3-month eurodollar deposit – 80
S&P 500 Volatility Index) The top three charts
5 US T-bill)
70 suggest the recovery in
4 60 the US and elsewhere
3
50 is “pausing”.
40
2 30
LIBOR-OIS
TED spread 20
1 spread
10
0
06 07 08 09 10
0
06 07 08 09 10
The middle two
Source: Thomson Datastream Source: Thomson Datastream
charts point to extreme
nervousness in financial
markets, but much less
STOCK MARKETS RUPEE AND REAL
6400 22500 54 2.75 so than in 2008-2009.
Brazilian
Real
5600 20000 51 2.50
BSE
(India)
4800 17500
48 2.25
4000 15000
45 2.00
3200 12500 The bottom two
2400 10000
42 1.75
charts suggest key
Shanghai
1600
Composite
7500
39 1.50 emerging markets are
Indian Rupee
volatile, with tendencies
800 5000 36 1.25
06 07 08
Source: Thomson Datastream
09 10 06 07 08
Source: Thomson Datastream
09 10 to weakness.
www.dundeewealtheconomics.com

4. POLICY INTEREST RATES
US FED TARGET RATE
6
Percent The Bank of Canada raised interest rates
by 25 points (0.25%) on June 1 as its first
5
step toward normalization. Will July 20 see
a follow-up move? It could come that soon,
4
though the Bank itself sounded fairly cautious
in announcing the June 1 move. It will want to
3
see the next month’s worth of data, particularly
2
the housing market and domestic inflation, but
also get a sense of what is happening in the US
1
and abroad. At the moment, a delay for several
months is a possibility, especially if inflation
Last date: June 4, 2010
0
Weekly comes in below forecast. However, barring a
02 03 04 05 06 07 08 09 10 major change in the economy, headline inflation
appears headed for 2% in September (after
first falling to 1% or less in June). At this point
we look for another 25 point rate hike not
BANK OF CANADA TARGET RATE
5.0 later than October 19. While nothing is set in
Percent
4.5
cement we expect the Bank of Canada to raise
rates by 0.25% per quarter for the next five or
4.0
six quarters, bringing the overnight target to
3.5 about 2.00% from the current 0.50%. We might
3.0 see more but at present we continue to have
2.5 a cautious eye on deflationary pressures in
2.0 the US, much of Europe, and Japan. If slower
global growth ahead means that oil prices fail
1.5
to rise appreciably, or fall further, and the steam
1.0
continues to come out of Canada’s housing
0.5 market then worries about inflation in Canada
Weekly Last date: June 4, 2010
0.0 will evaporate, putting a lower ceiling on
02 03 04 05 06 07 08 09 10 domestic policy rates than many expect.
3-MONTH LIBOR SHORT-TERM INTEREST RATES
7 14
Percent Percent, 3-month Treasury Bills
6 12
5 10
4 8
Canada
3 6
2 4
1 2
US
Daily Last date: June 3, 2010 Weekly Last date: June 4, 2010
0 0
Jul-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10
90 92 94 96 98 00 02 04 06 08 10
www.dundeewealtheconomics.com

5. LONGER TERM BOND YIELDS
US TREASURY YIELDS
5.5 In the US the 10-year maturity yield fell to 3.20%
Percent
from 3.29%, while the 30-year yield dropped to
5.0
4.13% from 4.21%. The Canadian 10-year yield
30-year slipped to 3.28% from 3.31%. The main mover of
4.5
markets continued to be concerns about sovereign
4.0 European debt and a related continuing slump in
the Euro. Or so it appeared. But one could also
3.5 compose a reasonable story around the continuing
10-year slippage in core American CPI (now down to 0.9%
3.0
and still falling), stagnation (if not worse) in oil
2.5
prices, and the prospects for somewhat weaker
North American, if not global, growth in the second
Daily, Last date: June 4, 2010
2.0 half of 2010. While yields don’t look especially
Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jun-10 attractive at the moment, it could be some months
before something more appetizing appears – and
there are no guarantees. A new 10 and 30-year
auction next week may raise yields temporarily.
CANADA GOVERNMENT BOND YIELDS
5.0
Percent BBB yields ended at 5.05% on Thursday, not
much changed from a week earlier. High yielder
4.5
yields rose further, ending at 9.21% from 9.14% a
30-year week before. In an environment where growth is
4.0
apt to slow at least somewhat, and bank lending in
Europe has become somewhat constrained, riskier
3.5
issues are being avoided by some investors. That
10-year might be a buying opportunity, but yields had fallen
3.0
rather a lot a few weeks ago.
2.5 10-year Government Bond Yields (%)
Jun 4 Apr 30 Change
Daily, Last date: June 4, 2010
2.0 US 3.20 3.66 -0.46
Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jun-10
UK 3.51 3.86 -0.35
Canada 3.28 3.65 -0.37
Germany 2.57 3.02 -0.45
Japan 1.28 1.29 -0.01
BBB CORPORATE BOND YIELDS
10.5 8.7 US HIGH-YIELD BONDS
BBB Yield BBB – US 10-year rate spread 24 22
10.0 8.0 Merrill Lynch High-Yielding
22 Corporate Yield
20
9.5 7.3
20 18
9.0 6.6
18 16
8.5 5.9
16 14
8.0 5.2
7.5 4.5 14 12
7.0 3.8 12 10
6.5 3.1 10 8
6.0 2.4 8 6
5.5 1.7 6 Merrill Lynch High Yielding Corporate – 4
US 10-year rate spread
5.0 1.0 4 2
Percent Daily, Last date: June 3, 2010 Percent Daily, Last date: June 3, 2010
4.5 0.3 2 0
Jul-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Jul-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10
www.dundeewealtheconomics.com

6. 10-YEAR BOND YIELDS AND SPREADS
FRANCE GERMANY
15 9 15 9
12 6 12 6
10-year government bond yield
10-year government bond yield
9 3 9 3
France 10-year minus US 10-year
Germany 10-year minus US 10-year
6 0 6 0
3 -3 3 -3
Weekly, Last Date : June 3, 2010 Weekly, Last Date : June 3, 2010
0 -6 0 -6
85 87 89 91 93 95 97 99 01 03 05 07 09 85 87 89 91 93 95 97 99 01 03 05 07 09
GREECE IRELAND
15 9 15 9
10-year government bond yield
12 6 12 6
Greece 10-year minus US 10-year
Ireland 10-year minus US 10-year
9 3 9 3
6 0 6 0
10-year government bond yield
3 -3 3 -3
Weekly, Last Date : June 3, 2010 Weekly, Last Date : June 3, 2010
0 -6 0 -6
85 87 89 91 93 95 97 99 01 03 05 07 09 85 87 89 91 93 95 97 99 01 03 05 07 09
ITALY PORTUGAL
15 9 15 9
10-year government
bond yield
12 6 12 6
Italy 10-year minus US 10-year Portugal 10-year minus US 10-year
9 3 9 3
6 0 6 0
10-year government bond yield
3 -3 3 -3
Weekly, Last Date : June 3, 2010 Weekly, Last Date : June 3, 2010
0 -6 0 -6
85 87 89 91 93 95 97 99 01 03 05 07 09 85 87 89 91 93 95 97 99 01 03 05 07 09
SPAIN UK
15 9 15 9
10-year government bond yield
10-year government bond yield
12 6 12 6
9 3 9 3
Spain 10-year minus US 10-year
UK 10-year minus US 10-year
6 0 6 0
3 -3 3 -3
Weekly, Last Date : June 3, 2010 Weekly, Last Date : June 3, 2010
0 -6 0 -6
85 87 89 91 93 95 97 99 01 03 05 07 09 85 87 89 91 93 95 97 99 01 03 05 07 09
www.dundeewealtheconomics.com

7. STOCK MARKETS
by William Tharp and Chantelle Schieven
S&P/TSX COMPOSITE Percent changes
16000
15000 1-week 4-week 52-week
14000
S&P/TSX
TSX -0.9 -1.1 8.7
13000 50-Day Moving Average
200-Day Moving Average
DJI -2.0 -4.3 12.9
12000 S&P 500 -2.3 -4.1 12.5
11000 NASDAQ -1.7 -2.1 19.4
10000
9000 Equity markets tumbled on Friday, pushing the
8000 TSX down 101.83 points for the week to close at
7000 11569.61. The DJI declined 204.66 points to close
6000 at 9931.97 The S&P 500 closed at 1064.88, a 24.53
Last Date: June 4, 2010
5000 point decline, and the NASDAQ declined 37.87
02 03 04 05 06 07 08 09 10 points to close at 2219.17.
Equity markets declined on Friday as
disappointment over a weaker than expected US job
DOW JONES INDUSTRIALS report and new worries about the sovereign debt of
15000
Europe sent investors to the safety of the US dollar.
14000 Late Thursday a Hungarian official rattled markets
13000 by suggesting that it wouldn’t be out of the question
DJIA
50-Day Moving Average
to talk about a default. Any hint of default from a
12000 200-Day Moving Average
government official plays into the market’s greatest
11000 fear at the moment. And in this case the comment
10000 opened a new front - Hungary and Eastern Europe.
With international banking regulators pondering
9000
a move to require large banks to have even more
8000 capital to cushion any future losses, banks received
7000 an added jolt.
Last Date: June 4, 2010
6000 Note that the 200-day moving average has
02 03 04 05 06 07 08 09 10
been broken by all markets for the first time
since 2007-2008!
S&P 500 NASDAQ
1600 3000
1500
2750
1400 S&P 500 Nasdaq
50-Day Moving Average 2500 50-Day Moving Average
1300 200-Day Moving Average 200-Day Moving Average
1200 2250
1100 2000
1000
1750
900
1500
800
700 1250
Last Date: June 4, 2010 Last Date: June 4, 2010
600 1000
02 03 04 05 06 07 08 09 10 02 03 04 05 06 07 08 09 10
www.dundeewealtheconomics.com

8. DOLLAR CURRENCIES
CANADIAN DOLLAR CANADIAN DOLLAR
110 101
US cents/Cdn$ US Cents/Cdn$
105 100
100 99
95
98
90
97
85
96
80
95
75
70 94
65 93
Last date: June 4, 2010
Daily Daily: April 30, 2010 to June 4, 2010
60 92
03 04 05 06 07 08 09 10 04/30 05/07 05/14 05/21 05/28
The Canadian Dollar ended at 94.27, down from
95.07 the previous week. Both oil and copper prices
US DOLLAR INDEX tumbled on concerns that global growth would slow
110 – as well as on concerns that China was importing
Daily
105
US Dollar Index – EFXR0 less in the commodity area as domestic production
(Yen, Pound, Euro, Cdn$)
ramped up, particularly in the case of metals. As
100 well Chinese policy is shifting increasingly to fuel
95 efficiency/conservation. And being a Communist
government, switching from gasoline to electrical
90
cars is apt to proceed much more rapidly than
85 in democratic countries which have the luxury of
80 debating for years.
75 The Australian Dollar closed at 82.20, down quite
70 sharply from last week’s 84.75. Australia’s commodity
January 1999 = 100 Last date: June 4, 2010 exports to China stand to be hurt more than Canada’s
65
by rising Chinese commodity production. First quarter
03 04 05 06 07 08 09 10
Australian growth slipped to 0.5% from 1.1% in the
previous quarter (figures are not annualized).
AUSTRALIAN DOLLAR AUS/CDN
105 1.35
US cents/Aus$ Aus$/Cdn$
100 1.30
95
1.25
90
1.20
85
80 1.15
75 1.10
70
1.05
65
1.00
60
55 0.95
Daily Last date: June 4, 2010 Daily Last date: June 4, 2010
50 0.90
03 04 05 06 07 08 09 10 03 04 05 06 07 08 09 10
www.dundeewealtheconomics.com

9. EUROPEAN CURRENCIES
EURO EURO
1.7 1.36
US$/Euro US$/Euro
1.6 1.34
1.32
1.5
1.30
1.4
1.28
1.3
1.26
1.2
1.24
1.1
1.22
1.0 1.20
Daily Last date: June 4, 2010 Daily: April 30, 2010 to June 4, 2010
0.9 1.18
03 04 05 06 07 08 09 10 04/30 05/07 05/14 05/21 05/28
The Pound rose marginally, while the Euro
suffered another significant fall. The euro is likely
SWISS FRANC
0.9 to slip further against the US dollar in the months
Swiss Franc/US$
ahead, but the pound is gaining some support from an
1.0 improving longer term yield spread.
The euro looks set for continuing declines from
1.1 • increased central bank liquidity
• ongoing worries about eventual sovereign default
1.2 • weak domestic consumer spending aggravated
by fiscal tightening
1.3 • central bank reserve currency shifts
1.4 The latest significant worries to materialize were
(1) Spain’s large $38 billion debt refinancing coming in
Last date: June 4, 2010
1.5
Daily July, (2) A Hungarian official’s musing about a possible
03 04 05 06 07 08 09 10 Hungarian default, and (3) a report that Iran’s central
bank was shifting out of euros and back to US dollars,
something that must be tempting for many.
POUND STERLING POUND STERLING
220 156
US Cents/Pound US Cents/Pound
155
210
154
200 153
152
190 151
180 150
149
170 148
147
160
146
150 145
144
140
143
Daily Last date: June 4, 2010 Daily: April 30, 2010 to June 4, 2010
130 142
03 04 05 06 07 08 09 10 04/30 05/07 05/14 05/21 05/28
www.dundeewealtheconomics.com

10. ASIAN CURRENCIES
JAPANESE YEN 89
JAPANESE YEN
80
Yen/US$ Yen/US$
85
90
90
95 91
100
92
105
93
110
115 94
120
95
125
Daily Last date: June 4, 2010 Daily: April 30, 2010 to June 4, 2010
130 96
03 04 05 06 07 08 09 10 04/30 05/07 05/14 05/21 05/28
The Yen closed on Friday at 91.7, weaker than
last week’s 90.9, the return of risk aversion on Friday
RUPEE notwithstanding. The presumed new Prime Minister,
38
Rupee/US$
Naoto Kan, is said to favor a weaker yen.
40
The Renminbi continues to trade above 6.83 for
42
the occasional hour or two before reverting to sub
44 6.83. It closed this week at 6.829, marginally stronger
than last week’s 6.831. The moves hint that the
46
renminbi is not set to be revalued in the immediate
48 future. Both of China’s purchasing managers’ indices
fell in May but this might not portend future economic
50
growth weakness as the pattern normally occurs
52 in May (even though the data are supposed to be
Daily Last date: June 4, 2010 seasonally adjusted).
54
03 04 05 06 07 08 09 10 The Indian Rupee closed weaker at 46.88, down
from 46.32, despite first quarter economic growth
coming in at a robust 8.6%.
RENMINBI (YUAN) RENMINBI (YUAN)
6.6 6.822
RMB/US$ RMB/US$
6.8
6.824
7.0
6.826
7.2
7.4 6.828
7.6 6.830
7.8
6.832
8.0
8.2 6.834
Daily Last date: June 4, 2010 Daily: April 30, 2010 to June 4, 2010
8.4 6.836
03 04 05 06 07 08 09 10 04/30 05/07 05/14 05/21 05/28
Views contained in this report regarding a particular company, security, industry or market sector are the views of the writer and do not necessarily represent the views of DundeeWealth Inc.,
its affiliates and subsidiaries. Views expressed should not be considered a recommendation to buy or sell nor should they be relied upon as investment advice. Information contained in this
report is current as of the date of publication and has been obtained from third party sources believed to be reliable. DundeeWealth Inc., its affiliates and subsidiaries does not warrant or
make any representations regarding the use or the results of the information contained herein in terms of its correctness, accuracy, timeliness, reliability, or otherwise, and does not accept
any responsibility for any loss or damage that results from its use.
www.dundeewealtheconomics.com