Economic and Financial Market Outlook: Low for Longer…For Even Longer August 2016 Mazen Issa Senior FX Strategist

China: Growth Expectations Marked Lower…

…But More than Meets the Eye When it Comes to China

Growth Spectrum Not Off to a Good Start… WEAKER 2016 STRONGER 2016 China: Managing slower growth with unknown structural potholes

Growth Spectrum Not Off to a Good Start… WEAKER 2016 STRONGER 2016 China: Managing slower growth with unknown structural potholes Emerging Asia: Caught in China's grip

The Sun is Starting to Rise on the Eurozone…

…But Political Uncertainty Is Also on the Rise Since Brexit

The Problem With Brexit

Europe No Longer a Headwind, but Will Only Provide Minimal Support Eurozone: Structural issues to restrain rebound UK: Recession bound WEAKER 2016 STRONGER 2016 China: Managing slower growth with unknown structural potholes Emerging Asia: Caught in China's grip

Are Some US Economic Headwinds Turning a Corner?

All the Familiar Fundamental Headwinds Continue to Heal

US Recovery Expected to Remain on Track Despite Global Turmoil Eurozone: Structural issues to restrain rebound WEAKER 2016 STRONGER 2016 China: Managing slower growth with unknown structural potholes Emerging Asia: Caught in China's grip United States: Fundamental healing with a bit more turbulence

Saudi Arabia Has Reshaped the Supply Landscape of Oil

Demand Remains Deficient & Supply is Abundant

Primary Hit to Canada is Through Business Investment

Currency is Serving as an Important Shock Absorber to the Economy

Non-Energy Exports Helping to Provide An Offset

However Link to the United States is Not As Close as Before

Even More Pressure on Domestic Demand to Carry the Load

Incomplete Offset to Energy Weakness Will Weigh on Canada Canada: Competing growth impulses Eurozone: Structural issues to restrain rebound WEAKER 2016 STRONGER 2016 China: Managing slower growth with unknown structural potholes Emerging Asia: Caught in China's grip United States: Fundamental healing with a bit more turbulence

Taper Tantrum Experience Reinforced the Theme of Gradualism

Financial Market Implications for the Outlook Even with 50bps of hikes expected from Federal Reserve in 2017, government bond yields are going to remain low by historical standards. Bank of Canada could cut if growth dynamics do not improve. Demand and supply mismatch in the oil market implies renewed downside price pressure with a recovery anticipated in 2016H2. WTI to reach around $60/bbl by the end of 2016.

The Easy Part of the USD Rally Has Passed

The USD Looking More Like an Ageing Rather than a Raging Bull

ECB Policy Crowded Out Investors…

…and Has Encouraged a Reach for Yield in Regions Like CAD

Oil and Rates Still Important Drivers for CAD But May Become More Elusive

A Road Map to 2016 The recovery from a balance sheet recession always moves slower and takes longer than you expect Confidence is key to avoid lurking vulnerabilities in a slow-growth environment: Counterintuitive Federal Reserve response function All other central banks biased to do more and deal with the consequences later Untested economic theory will lead to more uncertainty and more market volatility

Mazen Issa Senior FX Strategist 212– 827 – 7182 mazen.issa@tdsecurities.com