Blue Days for the Greenback By Avery Shenfeld

1. Weekly Market Insight
November 5, 2010
NORTH AMERICAN & INTERNATIONAL ECONOMIC HIGHLIGHTS
Blue Days for the Greenback
By Avery Shenfeld
There was much ado about $100 bn last week. The Fed acted like a corporate CFO, guiding expectations for
the amount of quantitative easing downwards ahead of the announcement, so that it could “beat” street
expectations. Instead of a nice round $500 bn, it went with $600 bn so that it wouldn’t see a disappointed
market sell financial assets that day. The foreign exchange market in particular seemed to attach a lot of
importance to that bump in the first digit.
Note that in his Washington Post op ed, Bernanke listed all of the potential benefits of QE with one key
exception—its impact on the US dollar exchange rate. Sure, a firmer equity market and lower bond yields (if
not for the 30s) are an economic plus. But the market that has moved the most on the news of QE has been
that for the US dollar. In the market’s eyes, the more QE, the weaker your currency.
The Canadian dollar has seen the smallest gain of all major currencies over the past three months. Still, it
managed to appreciate despite the Bank of Canada’s veiled threat to intervene, and a decision to block a
major foreign takeover that cancelled the need for significant C$ purchases by the acquirer. A weaker US
dollar lifts the price of oil, gold and other commodities priced in greenbacks, and thereby makes an
appreciating loonie a bit less of a threat to Canadian growth.
In theory—often a dangerous phrase for those trying to understand market behaviour —the Fed’s QE program
needn’t be that negative for the greenback. True, by lowering US bond yields relative to others, it makes
capital outflows more attractive.
But much of the dollar-selling isn’t premised on a slightly wider spread between, say, German bunds and US
Treasuries, but on the misconception that the world is going to be flooded with “printed money” which will
debase the dollar. That’s simply not the case. The trillions of bonds that the Fed has purchased by creating
money has essentially all been sent back to the Fed as excess reserves on deposit with the central bank. The
money is not being lent and re-lent in the broader economy. US M2 has picked up a bit, but is running at 3%
over the past year, not far off the nearly 2% growth seen in eurozone M2 growth over the same period.
Bernanke continues to pledge to remove the extra dollars from the money supply when more vigorous lending,
and the associated economic growth, starts to emerge.
Still, theory can take a back seat to market dogma. We expected quick profit-taking on short-US$ positions
after the FOMC meeting, but that call seems to have been thwarted by that extra $100 bn, at least for now.
We’ll stick with our view that any further appreciation for the euro, yen and C$ will at some point soon run up
against a reality check, as investors rethink the abilities of the European, Japanese and Canadian economies to
tolerate these moves. There are risks that in the case of the latter two, they might intervene to counter undue
currency strength, and Europe’s fiscal and banking mess is far from over. But we will likely have to push back
the timetable for a significant correction in the US dollar’s favour into early 2011, given the tendency to see QE
and currency weakness as twins.
Economics
http://research.cibcwm.com/res/Eco/EcoResearch.html

2. CIBC WORLD MARKETS INC.
Weekly Market Insight 2
Market Snapshot
US Current* yesterday* a week ago* a month ago* a year ago
TED SPREAD (bps) 18 18 17 17 22
10Y / 2Y SPREAD (bps) 215 215 227 200 268
2Y SWAP SPREAD (bps) 15 15 16 17 35
3M T-Bill (%) 0.11 0.11 0.12 0.12 0.05
LIBOR 1 MONTH (%) 0.25 0.25 0.25 0.26 0.24
LIBOR 3 MONTH (%) 0.29 0.29 0.29 0.29 0.27
2-YR BOND (%) 0.34 0.32 0.36 0.34 0.85
5-YR BOND (%) 1.05 1.02 1.19 1.08 2.31
10-YR BOND (%) 2.50 2.47 2.63 2.35 3.52
A Rated / 10Y TREASURY (bps) 170 181 172 178 181
B Rated / 10Y TREASURY (bps) 559 565 560 600 569
BB Rated / 10Y TREASURY (bps) 401 412 400 433 464
CANADA
PRIME / BA SPREAD (bps) 181 182 182 182 185
CDOR 3 MONTH (%) 1.21 1.21 1.22 1.23 0.50
CDOR 3 MONTH / 3M T-BILL SPREAD (bps) 30 29 30 35 28
10Y / 2Y SPREAD (bps) 138 143 144 137 213
2-YR BOND (%) 1.45 1.41 1.43 1.31 1.41
5-YR BOND (%) 2.01 1.99 2.01 1.87 2.74
10-YR BOND (%) 2.82 2.85 2.86 2.69 3.54
A Rated / 10Y TREASURY (bps) 124 127 125 135 130
BBB Rated / 10Y TREASURY (bps) 176 179 177 193 198
CAN Sovereign Agency / 10Y TREASURY (bps) 32 36 32 49 48
Provincial / 10Y TREASURY (bps)
ALTA 69 72 61 81 68
BC 77 80 73 95 83
MAN 71 74 67 88 80
NB 82 86 82 97 78
PEI 93 96 93 107 105
NFLD 97 101 93 117 114
ONT 89 94 88 106 92
QUE 97 101 95 116 113
SASK 91 96 85 108 90
NS 92 94 88 108 95
COMMODITIES
WTI CRUDE FUTURE (US$ / bbl.) 86.6 86.0 81.5 82.3 78.2
NATURAL GAS (US$ / MMBtu) 3.9 3.9 3.9 3.6 4.6
SILVER (US$ /t oz.) 26.4 25.5 24.1 23.1 17.5
GOLD (US$ / t oz.) 1387.0 1377.0 1343.3 1339.5 1097.5
WHEAT (US¢ / bu.) 710.5 699.0 713.8 719.3 513.5
SOYBEANS (US¢ / bu.) 1267.8 1244.8 1215.8 1135.0 967.5
SUGAR (US¢ / lb.) 31.3 31.3 29.4 26.4 22.2
CORN (US¢ / bu.) 585.5 589.0 573.5 528.3 375.5
FX
C$ / US$ 1.001 1.003 1.019 1.017 1.068
US$ / EURO 1.409 1.426 1.388 1.393 1.489
C$/ EURO 1.410 1.430 1.414 1.417 1.591
YEN / US$ 81.080 80.630 80.730 81.860 89.833
US$ / BRITISH POUND 1.623 1.629 1.596 1.594 1.658
SWISS FRANCS / US$ 0.960 0.964 0.988 0.961 1.015
* As of 11:00 a.m.
Note: Data is for reference only.

3. CIBC WORLD MARKETS INC.
Weekly Market Insight 3
International Stock Indexes
Thursday, November 04, 2010
YTD 3-yr
High Low - + % chg % chg
The Global Dow (World) 2087.52 2037.66 2084.99 47.65 0 2.34 5.1 2087.12 1699.63 10 -9.5
The Global Dow (Euro) (World) 1382.39 1369.09 1380.17 11.28 0 0.82 6 1448.65 1198.65 15.1 -9
DJ Global Index (World) 250.07 244.44 249.95 5.51 0 2.25 10.1 249.95 203.56 14.7 -7.3
DJ Global ex U.S. (World) 221.4 215.52 220.85 5.33 0 2.47 9.8 220.85 170.93 13.7 -8.3
MSCI EAFE* (World) n.a. n.a. 1675.07 47.14 0 2.9 6 1675.07 1305.13 8.4 -10.6
DJ Asia-Pacific (Asia-Pacific) 137.77 135.14 137.67 2.53 0 1.87 11.9 137.67 111.94 17.3 -6.6
All Ordinaries (Australia) 4826.5 4788.1 4817.5 23.74 0 0.5 -1.3 5024.1 4250.6 6.6 -10.5
S & P/ASX 200 (Australia) 4756.9 4715.1 4745.32 22.73 0 0.48 -2.6 5001.9 4222.1 5.3 -10.9
DJ CBN China 600 (China) 29285.82 28728.77 29282.22 553.33 0 1.93 0.8 29811.23 20950.68 4.7 -10.6
Dow Jones China 88 (China) 274.91 271.13 274.81 3.68 0 1.36 -8.8 308.76 208.48 -6.7 -18.5
Shanghai Composite (China) 3087.42 3035.37 3086.94 55.95 0 1.85 -5.8 3338.66 2363.95 -2.2 -18.9
Hang Seng (Hong Kong) 24550.08 24345.93 24535.63 390.96 0 1.62 12.2 24535.63 18985.5 14.2 -7
Bombay Sensex (India) 20917.03 20605.63 20893.57 427.83 0 2.09 19.6 20893.57 15790.93 30.1 1.5
Jakarta Composite (Indonesia) 3633.69 3604.72 3629.05 23.37 0 0.65 43.2 3654.1 2367.21 53.3 10.2
Nikkei 300 (Japan) 167.6 166.03 166.79 2.74 0 1.67 -9.9 202.75 163.58 -5.3 -19.8
Nikkei Stock Avg (Japan) 9377.76 9276.71 9358.78 198.8 0 2.17 -11.3 11339.3 8824.06 -3.7 -17.3
Topix Index (Japan) 820.76 812.48 816.33 13.21 0 1.64 -10.1 998.9 803.12 -6.7 -20.1
Kuala Lumpur Composite (Malaysia) 1513.41 1508.58 1511.74 4.14 0 0.27 18.8 1511.74 1233.86 20.6 2.7
NZSX-50 (New Zealand) 3336.95 3323.91 3326.25 -6.82 -0.2 0 3 3335.51 2933.82 5.8 -7.1
KSE 100 (Pakistan) 10729.22 10604.82 10702.19 84.54 0 0.8 14 10704.16 8762.4 17.5 -8.4
Manila Composite (Philippines) 4397.3 4379.74 4397.3 15.44 0 0.35 44 4397.3 2797.61 49.3 5.4
Straits Times (Singapore) 3244.32 3220.02 3240.31 15.34 0 0.48 11.8 3240.31 2629.35 23.2 -4.1
Kospi (South Korea) 1945.58 1936.04 1942.5 6.53 0 0.34 15.4 1942.5 1524.5 25.1 -1.3
Colombo Stock Exchange (Sri Lanka) 6683.97 6650.17 6658.45 -16.46 -0.25 0 96.7 7147.77 2843.66 133.2 36.1
Weighted (Taiwan) 8367.19 8317.86 8357.85 63.95 0 0.77 2.1 8379.75 7071.67 12.7 -3.4
SET (Thailand) 1031.61 1022.8 1031.61 17.41 0 1.72 40.4 1031.61 676.22 51.3 4.9
Stoxx Europe 600 (Europe) 271.28 267.43 270.83 4.32 0 1.62 7 272.14 232.11 12.6 -10.7
Stoxx Europe 50 (Europe) 2596.99 2554.37 2590.7 43.54 0 1.71 0.5 2711.84 2285.13 6.4 -11.9
Euro Stoxx 50 (Euro zone) 2896.52 2848.68 2884.21 53.78 0 1.9 -2.8 3017.85 2488.5 3.2 -13.2
Euro Stoxx (Euro zone) 278.5 275.16 277.67 4.19 0 1.53 1.1 284.91 237.29 6.1 -13.2
ATX (Austria) 2723.95 2673.11 2721.31 48.03 0 1.8 9 2795.32 2216.84 6.2 -17
Bel-20 (Belgium) 2716.67 2688.65 2710.41 46.57 0 1.75 7.9 2716.7 2296.81 12 -14.3
PX 50 (Czech Republic) 1177.6 1168.6 1173.6 5.3 0 0.45 5 1314.6 1092.8 2.2 -15
OMX Copenhagen (Denmark) 404.84 401.63 403.02 4.4 0 1.1 27.7 403.02 305.19 30.2 -5.4
OMX Helsinki (Finland) 7343.35 7265.82 7323.21 128.21 0 1.78 13.4 7452.62 6046.62 21.1 -16.2
CAC 40 (France) 3931.76 3887.16 3916.78 73.84 0 1.92 -0.5 4065.65 3331.29 5.6 -11.9
DAX (Germany) 6757.29 6676.42 6734.69 116.89 0 1.77 13 6734.69 5434.34 22.9 -5
BUX (Hungary) 23552.53 23258.87 23326.41 251.35 0 1.09 9.9 25322.96 20076.32 14 -5.2
FTSE MIB (Italy) 21621.65 21412.09 21469.19 288.38 0 1.36 -7.7 23811.13 18382.71 -4.9 -18.5
AEX (Netherlands) 346.11 342.57 345.15 6.1 0 1.8 2.9 357.43 305.03 12.1 -13.7
All-Shares (Norway) 451.61 444.04 451.61 7.57 0 1.7 7.5 454.24 367.63 16.7 -8.4
WIG (Poland) 47189.05 46686.36 47066.4 649.56 0 1.4 17.7 47066.4 37322.52 21.1 -8.9
PSI 20 (Portugal) 8159.34 8032.78 8039.38 -35.27 -0.44 0 -5 8839.75 6624.29 -5 -14.4
DJ Russia Titans 10 (Russia) 6357.27 6106.43 6357.27 258.19 0 4.23 14 6357.27 4801.88 26.6 -6.2
RTS Index (Russia) 1613.6 1601.15 1602.53 ... 0 Closed 12.3 1676.27 1226.57 18.8 -10.4
IBEX 35 (Spain) 10744.3 10567.4 10602.8 33.3 0 0.32 -11.2 12222.5 8669.8 -8.2 -12.5
SX All Share (Sweden) 350.67 346.75 349.32 5.55 0 1.61 16.6 351.51 291.74 18.9 -2.4
Swiss Market (Switzerland) 6614.26 6563.09 6595.64 82.65 0 1.27 0.8 6967.56 5942.25 4.9 -9.1
Istanbul National 100 (Turkey) 70912.7 68996.1 70905.39 2300.76 0 3.35 34.2 71006.82 45230.95 49.9 7.6
FTSE 100 (U.K.) 5876 5749 5862.79 113.82 0 1.98 8.3 5862.8 4805.8 14.4 -3.5
FTSE 250 (U.K.) 11026.2 10876.25 11016.46 140.18 0 1.29 18.4 11016.46 8880.52 22.1 -1.3
DJ Americas (Americas) 329.88 323.19 329.71 6.51 0 2.01 11.2 329.71 272.7 16.9 -5.5
Merval (Argentina) 3339.97 3276.5 3339.97 134.18 0 4.19 43.9 3339.97 2061.07 50.3 12.7
Sao Paulo Bovespa (Brazil) 73103.28 71909.64 72995.69 1090.92 0 1.52 6.4 72995.69 58192.08 12.6 4.5
S & P/TSX Comp (Canada) 12921.27 12676 12878.79 207.67 0 1.64 9.6 12878.79 11092.5 15.2 -3.6
Santiago IPSA (Chile) 5013.49 4966.36 4973.03 -4.1 -0.08 0 38.9 4986.74 3184.04 48.4 13.6
IPC All-Share (Mexico) 36322.52 35844.66 36198.6 354.79 0 0.99 12.7 36198.6 29735.34 21.7 5.5
Caracas General (Venezuela) 67729.95 67587.65 67587.65 -142.3 -0.21 0 22.7 67729.95 50715.86 33.2 20.2
CASE 30 (Egypt) 6802.68 6744.24 6764.61 50.62 0 0.75 9 7603.04 5850.38 3.3 -10.8
Tel Aviv (Israel) 1275.14 1263.24 1265.2 2.66 0 0.21 10.5 1277.28 1022.64 23.7 1
Johannesburg All Share (South Africa) 31327.9 30817.97 31327.9 509.93 0 1.65 13.2 31327.9 25793.06 21 0.8
*Europe, Australia, Far East; U.S.-dollar terms. Three year percent change is annualized. Sources: Reuters; WSJ.com
DAILY 52 WEEK
Index (Regiona/Country) Close Chg High Low % Chg
% Chg
Other Countries
Global
Asia Pacific
Europe
Americas

4. CIBC WORLD MARKETS INC.
Weekly Market Insight 4
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