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Monday, November 8, 2010

"The Week Ahead" - November 8-12th

CIBC Economic's "The Week Ahead".

Key Highlights

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. In the market’s eye, the more QE, the weaker your currency. However, much of the dollar-selling has been on the misconception that world is going to be flooded with “printed money” which will debase the dollar. 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

Key Numbers to watch this week:
Canada – Merchandise Trade Balance – September (Wed, 8:30 AM) – For four straight months, Canada’s merchandise trade balance has been in the red and September’s poor performance will take 2010 Q3 trade to the worst quarterly balance in decades.
US – Goods and Services Trade Balance – September (Wed, 8:30AM) – The US trade balance may have seen some improvement in September as softer oil and as prices that month helped lower America’s energy bill. The combination of lower imports and flattening exports should allow for some improvements.

Equity Insights:
Canadian reporting season appears to be off to an appreciably better-than-average start. Last quarter, 53% of TSX composite members beat the street expectation. This quarter, nearly 70% of the 180 firsts have reported positively.
TSX finally reclaimed all of the ground lost since the financial crisis’ defining moment – Lehman Brother’s 2008 collapse. Market healing has been swifter this time around then after the 2000 crash, but still behind the double dip in the 80’s.
‘Producing more for less’ was corporate America’s motto earlier in the recovery. That’s good new for earnings while it lasts, but not employment.

Currency Currents:
US$ depreciation gained momentum this past week as the Fed announced a slightly larger than expected QE. QE2 won’t put a dent in the unemployment rate, don’t rule out further liquidity injections next year.
CDS spreads for Brazil continued to dip following the national elections, pointing to confidence in the President-elect will control budget spending as promised
The RBS surprise rate hike this week was done preemptively as improved trade and a continuing recovery in emerging markets may stoke economic activity and inflation.

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