BMO Focus - 01-20-2012

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FEATURE ARTICLE, PAGE 5

BoC Policy: Keep Low and Carry On

Bank of Canada on Hold; Forecast Upgraded Slightly Chinese Growth Slowest in 2 Years Solid European Bond Auctions Canadian Inflation Hits the Brakes U.S. Housing Data Mostly Solid Brazil Cuts Rates 50 bps

JANUARY 20, 201

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PAGE 2 FOCUS JANUARY 20, 2012

Why suddenly so glum, Canada? While the market mood across much o

the world so far in 2012 is cautiously optimistic (or at least cautiously les

pessimistic, see the next two items), and there are rising hopes for th

U.S. economy, both consumer and business confidence look to be st

heading south in Canada. Even the Bank of Canada got into the ac

somehow managing to simultaneously upgrade its growth estimate fo2011 and 2012, while also noting ominously that the outlook has darkened in the pa

three months. Meantime, rumbling in the background is a steady stream of warning

from all and sundry about record levels of household debt and the possibility of

meaningful housing market correction. While the risks are no doubt serious, there a

a number of positives to point to as well when considering the Canadian outlook:

The better tone in the U.S. economy is probably the biggest plus. True, the Uwill grow faster than Canada this year, but that should be welcomed insofar as

reflects a pick-up in U.S. growth (our #1 export destination).

Long-term borrowing costs have dropped to record lows, which will support thhousing market.

Yet, homebuyers do not appear to be broadly over-doing it. Home sales were ua moderate 4.6% y/y in December, and average prices just 0.9% y/y.

Auto production is reviving, and an expected further rise in U.S. auto sales wsupport additional gains in 2012. Manufacturing sales jumped 2% in Novembe

and are back to 2007 levels.

The fever in Canadian inflation broke late last year, with prices for gasolinclothing and cars all moderating. At 2.3%, Canada now has one of the lowe

inflation rates in the world among major economies.

Merchandise trade is back in surplus, as strong oil exports are more thaoffsetting the steep drop in natural gas sales.

Ottawas budget deficit is narrowing faster than expected; in the first sevemonths of the fiscal year, the gap is down more than $6 billion from last year, an

looks to better the full-year estimate of $31 billion.

The TSX is up more than 10% from the lows it hit just over three months ago. The Canadian dollar is again close to par at just under 99 cents(US), a strong lev

for consumers without adding further material strain for producers.

Spring is barely two months away.Overall, we do look for a cooling in Canadian GDP growth this year to 2.0%, which

below the economys long-run average. However, a better-than-expected performanc

by the U.S. economy would soothe a lot of anxieties about the outlook for the rest of thworld.

While Europes economy buckles under the weight of fiscal austerity and

debilitating credit crisis, the U.S. economy continues to carve out a durab

recovery. Each week brings more evidence of a virtuous cycle in deman

production, jobs and credit creation. Following the subprime credit an

housing busts, the linchpin to a sustainable, healthy expansion has bee

an improvement in household finances and incomes. The former, thoug

Our Thoughts

DOUGLAS PORTER

SAL GUATIERI

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likely not complete, is evident in a 16-ppt reduction in household debt-to-income ratio

since 2007 (back to 2004 levels). The latter is evident in firmer employment numbe

(notably the 1.3 million new household survey jobs of the past five months) and in low

initial jobless claims (to near 4-year lows of 352k). With new jobs come great

confidence. Consumer sentiment, though still low, has retraced all of last summer

plunge. Improved confidence whets credit appetites. Consumer credit rose 3.2% y/y tNovember, the fastest pace since Lehman Brothers collapsed. Jobs, confidence an

credit drive spending, notably on big-ticket items. Although high foreclosure rates w

continue to undermine housing for a while, there is no disputing the improved tone

recent indicators. Existing home sales rose for the third straight month in December

near one-year highs. This cut the months supply to a near six-year trough of 6.2, puttin

the market firmly in balanced territory. A recent upturn in new mortgage application

and a 4-year high in homebuilders activity point to further strength ahead. With mo

spending comes more production. U.S. factory output jumped 0.9% in December, th

most in a year and up 4% annualized in the fourth quarter. Next weeks reports o

durable goods orders, new home sales and Q4 GDP (3.0% growth expected, the most 1 years) should provide further evidence of a firming U.S. expansion. With expecte

2.3% growth this year, the U.S. wont win any sprinting medals, but it should at least lea

the G7 economic marathon. This means U.S. stocks could outperform other wor

indexes once again in 2012.

Its been a solid start to the year, with equities climbing after a tough 201

as Euro Area debt crisis worries have eased to some extent. Europea

equity markets have performed well, with Germanys 8.8% gain throug

the first three weeks of the year among the top gainers globally. A series

successful debt auctions by France, Spain, Italy and others has sharplowered peripheral spreads versus Germany, and suggests that worrie

about sovereign funding issues may have been overstated. Even so, Italy and Spain st

have to roll over a combined 140 bln in debt through the rest of Q1. Ratings agencie

could also slash ratings once again, which would dent confidence. As such, theres litt

slack for policymakers, as markets will press for continued progress. A sharp rebound

the euro, nearing $1.30 at its best level this week, might also be a sign of easin

concerns about the region. On the other hand, there was a record net short speculativ

position in euros as of last Tuesday, and the rally could largely reflect short covering.

The European saga still has at least a few chapters left before the conclusio

European leaders meet on January 30th and markets will be looking for more signs oprogress. Moreover, all of the austerity and reform already agreed to still has to b

implementedeasier said than done. Meantime, European banks, which are receivin

massive liquidity from the ECB, remain a question mark. They still need to hit 9% cor

tier 1 capital by mid-year, as mandated by the EBA. Expect significant asset sales ove

the coming months, which have the potential to weigh on growth in Europe an

elsewhere. And, dont forget about Greece. Recent reports are encouraging, but deb

renegotiations face a hard deadline in March. Overall, one cant deny the New Year ha

started on a firm footing, but lets not get of ahead ourselves.

Our Thoughts

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GOOD NEWS BAD NEWS

CANADABoC opts to stay on the

sidelines, but calls for output

gap to close a quarter earlier

Manufacturing Sales +2.0% (Nov.)

Manufacturing New Orders +3.6% (Nov.)

Existing Home Sales +4.6% y/y (Dec.)and

averageprices slowed to +0.9% y/y

Consumer Prices unexpectedly fall 0.6% (Dec.)

Foreigners buy a net $15.0 bln of Canadian

securities (Nov.)

CANADAWholesale Trade -0.4% (Nov.)

New Motor Vehicle Sales -1.0% (Nov.)

UNITED STATESEconomic recovery holding up

in the new year

Very encouraging drop in initialclaims

Empire State Manufacturing Survey +5.3 pts to

13.48; Philly Fed Index +0.5 pts to 7.3 (Jan.)

Foreigners bought a net $58.0 bln of U.S.

securities (Nov.)

Industrial Production +0.4% (Dec.)

NAHB Housing Index +4 pts to 25 (Jan.)

Initial Claims -50,000 to 352,000 (Jan. 14 wk)Core Consumer Prices +0.1% (Dec.)

Building Permits -0.1% to 679,000 a.r. (Dec.)muchbetter than expected

Existing Home Sales +5.0% (Dec.)

U.S.

Housing Starts -4.1% to 657,000 a.r. (Dec.)

Redbook -1.4% (Jan. 14 wk)

Core Producer Prices +0.3% (Dec.)

EUROPES&P downgrades EFSF to AA+This weeks debt issues well

received despite S&P

downgrade (including France,Spain and EFSF)

IMF proposes boosting lendingresources by US$500 bln

EurozoneConsumer Prices revised down to

+2.7% y/y (Dec.)

GermanyZEW Survey +32.2 pts to -21.6 (Jan.)

GermanyProducer Prices -0.4% (Dec.)

ItalyIndustrial Orders +0.1% (Nov.)

U.K.Consumer Prices slowed to +4.2% y/y (Dec.)

U.K.Retail Sales +0.6% (Dec.)

EUROPEU.K.Rightmove House Prices -0.8% (Jan.)

U.K.Jobless Claims +1,200 (Dec.)

U.K.Nationwide Consumer Confidence -2 pts to

38 (Dec.)

JAPANNikkei closes at 2-month high

Machine Orders +14.8% (Nov.)

Corporate Goods Prices +0.1% (Dec.)

Consumer Confidence +0.8 pts to 38.9 (Dec.)

Department Store Sales +0.8% y//y (Dec.)

JAPANAll-Industry Activity Index -1.1% (Nov.)

AUSTRALIA

RBA may ease next month

Westpac Consumer Confidence +2.4% (Jan.)

AUST

RALIAEmployment -29,300 (Dec.)

New Motor Vehicle Sales -2.9% (Dec.)

CHINADecent economic data ease

fears of a hard landing

Real GDP eases to +8.9% y/y (Q4)better than

expected and up 9.2% for 2011

Industrial Production +12.8% y/y (Dec.)

Retail Sales +18.1% y/y (Dec.)

Fixed Asset Investment +23.8% y/y (2011)

CHINAForeign Direct Investment -12.7% y/y (2011)

Indications of stronger growth and a move toward price stability are good news for the economy.

Jennifer Lee, SeniorEconomist

Recap

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BoC Policy: Keep Low and Carry OnMichael Gregory, CFA, Senior Economist

The Bank of Canada kept policy rates unchanged this week, for the 11th consecutive time sinc

September 2010. The outcome was completely expected, but the announcement and subseque

Monetary Policy Report contained some interesting tidbits.

By standing pat, the BoC retained the distinction of being the only G-10 central bank not having ease

policy since last March. As recently as early November, the BoC had four friends in this regard. But th

incipient Euro Area recession caused the ECB, along with Swedens Riksbank and Norway, to flip the

policies over, cutting rates after hiking them earlier in the year. The Reserve Bank of Australia

compounding concern over Chinas slowing economic momentum nudged it off the on-hold fenc

where it had been sitting since the autumn of 2010, right beside the Bank of Canada.

Its not that Europe and China arent important policy considerations. The Bank said the outlook for th

global economy has deteriorated and uncertainty has increased since October (the last MPR).

particular, the Euro Area recession was now expected to be deeper and longer.Indeed, European topi

occupied both technical boxes in the MPR, a sign that the Banks researchers have been feverish

analyzing the myriad implications of the crisis for Canada, a crisis that is poised to claim some 0.6% o

local GDP this year. This is serious stuff, but there are offsetting considerations.

The Bank continues to assert that there is considerable monetary policy stimulus in place, helping t

mitigate these external risks. All four of the BoCs previously non-easing central bank friends sporte

policy rates above those in Canada before they cut rates. Meantime, the Banks pronouncements th

week sported major shifts in the assessment of U.S. economic risks and in concern over loc

household debt dynamics, supporting the cause for pause.

Both the Canadian and U.S. economies performed significantly better than the BoC projected during th

second half of last year (e.g., Canadian 2011 H2 growth was revised up to 2.8% from 1.4%). Althoug

both economies are expected to slow down at least a bit in the first half of this year, in the face

European and other global headwinds, prospects are necessarily less riskier given that both economie

hit these headwinds with a running start. Indeed, U.S. prospects have now moved from being a ne

downside risk for the Canadian outlook, to being a net upside risk. The Bank is concerned that recent U

consumer spending vigour could prove more persistent and fiscal austerity could prove feebl

(Stateside, the BoC is bracing for 0.8% of GDP fiscal drag in 2012 and a whopping 2.5% in 2013).

As before, Canadian household debt and housing dynamics pose both upside and downside risks t

the outlook. If anything, the Bank might have added a wee bit more weight to the upside (i.e., the risof credit-based consumer spending continuing to grow strongly), given the arrival of record-low 5

year mortgage rates. The Bank said very favourable financing conditions are expected to buttre

consumer spending and housing activity. Household expenditures are expected to remain high relative

GDP and the ratio of household debt to income is projected to rise further.Before, the Banks chatter wa

about Canadian household expenditures growing only modestly.

The juxtaposition of expected continued debt accumulation, after repeatedly warning Canadia

about the evils of their potentially profligate ways, and record-low borrowing costs was not lost o

Feature

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reporters at Governor Carneys post-MPR press conferenc

Asked whether he judged if current-low policy rates we

contributing to record-low mortgage rates (and relate

risks to economic and financial stability), the Governo

responded that the Bank controls the one-day interest rat

only, and that 5-year yields are influenced far more bother factors such as foreign capital inflows. Howeve

longer-term interest rates are also heavily influenced b

the expected path for shorter-term interest rates, whic

key off the expected path for policy rates. Mr. Carne

himself has waxed previously on the prospects for rate

remaining low for long. Few are expecting policy move

within the next year, and thats worth the first 20% of a

year maturity.

Although the BoC might be trying to sidestep greatresponsibility for the germination of the policy seeds it ha

sown, it also has little influence on resulting sectora

industrial and regional sprouts (or lack thereof). By aimin

for a national aggregate such as CPI inflation, the optim

policy path could prove less than optimal for a wide swat

of stakeholders. There is no doubt that interest rates a

too low to constrain risky household debt build up, bu

one could also argue that lower (C$-strength-sappin

capex-encouraging) interest rates are what man

Canadian exporters require. This is no different than durin

the past economic cycle when policy was deemed to

accommodative for booming Alberta, but too restrictiv

for struggling Ontario. Its essentially up to fiscal an

macroprudential policy to deal with the sectoral, industri

and regional fallout.

However, its not like the BoC is saying rates will never rise. Employing its now rote phrase, the MP

asserted that this projection includes a gradual reduction in monetary stimulus over the projectio

horizon, consistent with achieving the inflation target. In combination with the BoC tweaking i

Canadian projection, so that the economy now reaches full capacity by 2013 Q3one quarter earlie

than beforewere betting on some degree of rate hikes (no matter how modest) starting by thmiddle of next year (Chart 1). The market is not quite there yet (Chart 2), more fixated on the prospec

for potential easing in the near term and currently pricing in slightly less than even odds of a sing

quarter-point cut by October (mid-market OIS). We judge that given North Americas decent econom

momentum to start 2012 amid escalating domestic debt concerns, external headwinds are going t

have to blow much harder to elicit Bank of Canada easing. We sense the BoC will still be sitting on th

on hold fence through the early part of 2013, before jumping off into the rate-hike side where the

might find a central bank friend or two (were thinking the Scandinavians).

Feature

CHART 1

LOW FOR LONG...

* BMO Capital Markets

Canada (% : as of January 19, 2012)

forecast *

1.00%

Overnight Rate

01 03 05 07 09 11 130

1

2

3

4

5

6

CHART 2

...BUT NOT FOREVERCanada (percent)

2-Year Benchmark Bond Yield

Mar 10 Jun Sep Dec Mar 11 Jun Sep Dec0.5

1.0

1.5

2.0

2.5June 1

July 20

Sep 8

BoC Rate Hikes

BoC SignalsMore Hikes

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CANADA I II III IV I II III IV 2010 2011 2012

Real GDP (q/q % chng : a.r.) 3.5 -0.5 3.5 1.8 1.7 2.2 2.4 2.7 3.2 2.3 2.0

Consumer Price Index (y/y % chng) 2.6 3.4 3.0 2.7 2.3 2.2 2.4 2.1 1.8 2.9 2.3 Unemployment Rate (%) 7.7 7.5 7.2 7.4 7.5 7.5 7.4 7.3 8.0 7.5 7.4

Housing Starts (000s : a.r.) 177 192 205 199 186 181 181 182 191 193 182

Current Account Balance ($blns : a.r.) -41.3 -64.5 -48.5 -49.8 -52.1 -50.5 -50.5 -48.8 -50.9 -51.0 -50.5

Interest Rates

(average for the quarter : %)

Overnight Rate 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 0.60 1.00 1.00

3-month Treasury Bill 0.95 0.95 0.88 0.86 0.82 0.82 0.82 0.82 0.56 0.91 0.82

10-year Bond 3.31 3.16 2.53 2.13 2.00 2.00 2.18 2.46 3.24 2.78 2.16

Canada/U.S. Interest Rate Spreads(average for the quarter : bps)

90-day 82 90 86 84 80 80 80 80 42 86 80

10-year -15 -5 10 9 5 10 8 6 2 0 7

UNITED STATES

Real GDP (q/q % chng : a.r.) 0.4 1.3 1.8 3.0 2.0 2.4 2.8 2.9 3.0 1.7 2.3

Consumer Price Index (y/y % chng) 2.2 3.3 3.8 3.3 2.5 2.2 2.0 2.2 1.6 3.1 2.2

Unemployment Rate (%) 9.0 9.1 9.1 8.7 8.6 8.5 8.4 8.3 9.6 8.9 8.5

Housing Starts (mlns : a.r.) 0.58 0.57 0.62 0.66 0.67 0.70 0.71 0.71 0.58 0.61 0.70

Current Account Balance ($blns : a.r.) -478 -499 -441 -442 -442 -440 -440 -439 -471 -465 -440

Interest Rates

(average for the quarter : %)

Fed Funds Target Rate 0.13 0.13 0.13 0.13 0.13 0.13 0.13 0.13 0.13 0.13 0.13

3-month Treasury Bill 0.13 0.05 0.03 0.01 0.02 0.02 0.02 0.02 0.14 0.05 0.02

10-year Note 3.46 3.21 2.43 2.05 1.95 1.90 2.10 2.40 3.21 2.79 2.09

EXCHANGE RATES

(average for the quarter)

US/C$ 101.4 103.4 102.1 97.8 96.7 94.3 96.2 99.0 97.1 101.2 96.6

C$/US$ 0.986 0.967 0.979 1.023 1.034 1.060 1.040 1.010 1.030 0.989 1.036

/US$ 82 82 78 77 77 76 77 79 88 80 77

US$/Euro 1.37 1.44 1.41 1.35 1.28 1.25 1.28 1.33 1.33 1.39 1.29

US$/ 1.60 1.63 1.61 1.57 1.54 1.53 1.55 1.59 1.55 1.60 1.55

Note: Blocked areas represent BMO Capital Markets forecasts

Up and down arrows indicate changes to the forecast

2011 2012 ANNUAL

Economic Forecast

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CANADA Douglas Porter, CFA, Deputy Chief EconomiAfter a pair of powerful 1% advances in each of the two prior months, look fo

Canadian retail sales to simmer down somewhat in November. Auto sales slipped 1%

gasoline prices retreated more than 2%, and consumer confidence and employmen

were weak in the month. Still, we expect a mild 0.2% rise in overall sales, as large-scaretailers reported decent activity in the month (up 3.2% y/y), in spite of all th

headwinds listed above. With consumer prices nudging up just 0.1% in the mont

this points to a small gain in the volume of retail sales (up 0.1%). With back-to-bac

0.6% increases in real sales in the two prior months, our call would put Q4 volumes o

track for an annualized increase of nearly 5%. This points to some upside risk for ou

call of less than 2% growth for both consumer spending and GDP in the quarter. Give

the robust rise in manufacturing activity but a fall in wholesale sales in November, ou

call on retail trade would point to a 0.1% rise for GDP in the month (reported Jan. 31).

UNITED STATES Sal Guatieri, Senior EconomiChairman Bernanke will boldly go where no Fed chief has gone before with th

publication of interest rate forecasts from all 17 policy makers. The forecasts, to b

unveiled at the end of the meeting, will cover the final quarter of 2012 and the end o

subsequent years. Each policymaker will also state the period in which he/she expec

rates to increase, as well as his/her outlook for the Feds balance sheet. If the mod

forecast and starting date of rate hikes suggest that rates will rise much later than th

market anticipates (late 2013 or early 2014) or much later than mid-2013 (recall, th

conditional pledge of no change at least through mid-2013), then longer-term intere

rates should decline, an effective easing in policy. A somewhat more dovish slate

incoming policymakers could lean in that direction, though recent better economic da

suggest otherwise. The Fed will also outline its long-term goals for inflation an

unemployment. The lower the latter, the greater the likelihood of an extended period o

low rates. Also look for the members to continue the current mortgage-bond

reinvestment and Operation Twist programs to maintain the size of the Feds balanc

sheet while extending its average maturity. No additional bond purchases are likely t

be announced.

A surge in Boeing aircraft sales likely lifted durable goods orders 2.5% in Decembe

Capital goods orders (excluding defense and aircraft) should also rise, albeit mor

modestly and for the first time in three months, as companies likely ramped uequipment orders ahead of the now expired full-expensing allowance. Althoug

capex probably moderated from its double-digit pace of the past two years, it shou

remain a key pillar of the expansion in 2012.

Retail SalesTuesday, 8:30 am

Ex. AutosNov. (e) +0.2% +0.3%

Consensus +0.2% +0.1%Oct. +1.0% +0.7%

Key for Next Week

FOMC AnnouncementWednesday, 12:30 pm

Quarterly FOMC PressBriefingWednesday, 2:15 pm

Durable Goods OrdersThursday, 8:30 am

Ex. TransportDec. (e) +2.5% +0.6%Consensus +2.0% +0.9%

Nov. +3.7% +0.3%

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Buyers are starting to nibble again at new homes now that the overhang in the resa

market is easing. Supported by unusually warm weather, sales likely rose 1.0% t

318,000 annualized in December, the fourth straight gain and the highest level in

year, though still a fraction of long-term norms. The housing market is showin

concrete signs of stabilizing, supported by improved job growth and confidence, an

the best affordability on record.

The U.S. economy likely expanded at the fastest pace in 1 years in Q4, with all secto

(except government) providing support. We look for growth of 3.0% annualized, twic

as fast as the economy grew in the past year, with decent support from exports an

construction (including housing), and a moderate assist from consumers (2.5%). Cape

no doubt slowed from the double-digit rate of the previous two years, but like

remained healthy ahead of the now-expired full-expensing allowance. While growt

will likely downshift to 2.0% in Q1, as the personal savings rate stops falling, it shou

strengthen again through the year.

New Home SalesThursday, 10:00 am

Dec. (e) 318,000 a.r. (+1.0%)Consensus 320,000 a.r. (+1.6%)

Nov. 315,000 a.r. (+1.6%)

Real GDPFriday, 8:30 am

GDP DeflatorQ4 A (e) +3.0% a.r. +0.7% a.r.

Consensus +3.0% a.r. +2.0% a.r.Q3 +1.8% a.r. +2.6% a.r.

Key for Next Week

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JAN 20 * JAN 13 WEEK AGO 4 WEEKS AGO DEC. 31/11

Call Money 1.00 1.00 0 0 0Prime Rate 3.00 3.00 0 0 0

Fed Funds (effective) 0.25 0.25 0 0 0Prime Rate 3.25 3.25 0 0 0

Canada 0.83 0.78 5 1 1United States 0.04 0.02 2 5 3Japan 0.20 0.10 10 10 10Eurozone 1.18 1.23 -5 -22 -17United Kingdom 1.09 1.09 0 1 1Australia 4.59 4.60 -1 -1 -1

Canada 1.04 0.95 9 12 9

United States 0.24 0.22 2 -4 0

Canada 2.05 1.92 12 4 11United States 2.02 1.86 15 -1 14Japan 0.98 0.94 4 1 0Germany 1.93 1.76 17 -2 11United Kingdom 2.13 1.97 16 9 15Australia 3.82 3.84 -2 9 16

Risk IndicatorsVIX 19.7 20.9 -1.2 pts -1.1 pts -3.7 pts

TED Spread 52 55 -3 -6 -5Inv. Grade CDS Spread ** 108 116 -8 -14 -12High Yield CDS Spread ** 602 655 -53 -93 -78

US/C$ 98.66 97.73 0.9 0.7 0.8C$/US$ 1.014 1.023 /US$ 77.12 76.97 0.2 -1.2 0.3US$/Euro 1.2936 1.2680 2.0 -0.8 -0.2US$/ 1.553 1.532 1.4 -0.4 -0.1US/A$ 104.77 103.22 1.5 3.2 2.6

CommoditiesCRB Futures Index 310.33 307.70 0.9 1.4 1.6Oil (generic contract) 98.36 98.70 -0.3 -1.3 -0.5Natural Gas (generic contract) 2.36 2.67 -11.7 -24.3 -21.1Gold (spot price) 1659.23 1639.00 1.2 3.3 6.1

S&P/TSX Composite 12387 12231 1.3 3.9 3.6S&P 500 1312 1289 1.8 3.7 4.3Nasdaq 2785 2711 2.8 6.4 6.9Dow Jones Industrial 12680 12422 2.1 3.1 3.8Nikkei 8766 8500 3.1 4.4 3.7Frankfurt DAX 6401 6143 4.2 8.9 8.5London FT100 5728 5637 1.6 3.9 2.8France CAC40 3321 3196 3.9 7.1 5.1S&P ASX 200 4240 4196 1.0 2.4 4.5

* as of 10:30 am ** One day delay

Equities

CHANGE FROM: (BASIS POINTS)

(% CHANGE)

Canadian Money Market

U.S. Money Market

3-Month Rates

Bond Markets

10-year Bond

2-year Bond

Currencies

Financial Markets Update

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MONDAYJANUARY 23 TUESDAYJANUARY 24 WEDNESDAYJANUARY 25 THURSDAYJANUAR

JAPAN Merchandise Trade Balance

Dec. 11 (e) -155 blnDec. 10 +726 bln

Bank of Japan Monetary Policy Meeting (January 23-24)

EUROZONE E U R O Z O N E

Consumer Confidence Jan. A (e) -21.4Dec. -21.1

Euro Area Finance Ministers Meet

Merkel meets Belgiums

Di Rupo in Berlin

Germany & France sell Tbills

E U R O Z O N E

Manufacturing PMI Jan. A (e) 47.2Dec. 46.9

Services PMI Jan. A (e) 49.0Dec. 48.8

Industrial New OrdersNov. (e) -2.2% -2.7% y/yOct. +1.8% +1.6% y/y

EU Finance Ministers Meet

Netherlands sells Bonds

Spain sells Tbills

G E R M A N Y

IFO Survey Jan. (e) 107.5Dec. 107.2

I T A L Y

Retail SalesNov. (e) -0.2% -1.4% y/yOct. +0.1% -1.5% y/y

Germany sells Bonds

G E R M A N Y

GfK Consumer ConfidenceFeb. (e) 5.6Jan. 5.6

Italy sells Bonds

Merkel meets Spains Rajo

U.K.

Real GDPQ4 A (e) -0.1% +0.8% y/yQ3 +0.6% +0.5% y/y

Minutes from the January 11-12

BoE Monetary Policy Meeting

OTHER A U S T R A L I A

Producer Price IndexQ4 (e) +0.4% +3.0% y/yQ3 +0.6% +2.7% y/y

I N D I A

Reserve Bank of India

Monetary Policy Meeting

A U S T R A L I A

Consumer Price IndexQ4 (e) +0.2% +3.3% y/yQ3 +0.6% +3.5% y/y

Chinese Lunar New Year (Markets closed all week)

JANUARY 23 JANUARY 27

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The information, opinions, estimates, projections and other materials contained herein are provided as of the date hereof and are subject to change without noti

Some of the information, opinions, estimates, projections and other materials contained herein have been obtained from numerous sources and Bank of Montre

(BMO) and its affiliates make every effort to ensure that the contents thereof have been compiled or derived from sources believed to be reliable and to contai

information and opinions which are accurate and complete. However, neither BMO nor its affiliates have independently verified or make any representation or

warranty, express or implied, in respect thereof, take no responsibility for any errors and omissions which may be contained herein or accept any liabilitywhatsoever for any loss arising from any use of or reliance on the information, opinions, estimates, projections and other materials contained herein whether rel

upon by the recipient or user or any other third party (including, without limitation, any customer of the recipient or user). Information may be available to BMO

and/or its affiliates that is not reflected herein. The information, opinions, estimates, projections and other materials contained herein are not to be construed as

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and/or their respective shareholders, directors, officers and/or employees may from time to time have long or short positions in any such products (including,

without limitation, commodities, securities or other financial instruments). BMO Nesbitt Burns Inc. and/or BMO Capital Markets Corp., subsidiaries of BMO, may

as financial advisor and/or underwriter for certain of the corporations mentioned herein and may receive remuneration for same. BMO Capital Markets is a trade

name used by BMO Financial Group for the wholesale banking businesses of Bank of Montreal, BMO Harris Bank N.A. and Bank of Montreal Ireland p.l.c., and th

institutional broker dealer businesses of BMO Capital Markets Corp., BMO Nesbitt Burns Trading Corp. S.A., BMO Nesbitt Burns Securities Limited and BMO Capit

Markets GKST Inc. in the U.S., BMO Nesbitt Burns Inc. in Canada, Europe and Asia, BMO Nesbitt Burns Lte/Ltd. in Canada, BMO Capital Markets Limited in Europ

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TO U.S. RESIDENTS: BMO Capital Markets Corp. and/or BMO Nesbitt Burns Securities Ltd., affiliates of BMO NB, furnish this report to U.S. residents and accept

responsibility for the contents herein, except to the extent that it refers to securities of Bank of Montreal. Any U.S. person wishing to effect transactions in any

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TO U.K. RESIDENTS: The contents hereof are not directed at investors located in the U.K., other than persons described in Part VI of the Financial Services and

Markets Act 2000 (Financial Promotion) Order 2001.

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BMO Focus - 01-20-2012