Ian and Royce discuss their expectations for the upcoming Bank of Canada interest-rate decision, focusing on what the forecasts will look like and whether or not any adjustments to QE will be announced. Royce discusses the outlook for CPI, while Ian highlights some opportunities in real-return bonds.
Disclaimer: The materials disclosed on this podcast are deemed to be sales desk literature and subject to our client communication policy and Code of Conduct as well as IIROC rules.
Ian Pollick: Hi, everyone, and welcome to another episode of Curve Your Enthusiasm. I'm your host, Ian Pollick, Global Head of Fixed Income, Currency and Commodities Strategy here at CIBC Capital Markets. I'm joined with my co-host, Royce Mendes, Executive Director and Senior Economist at CIBC Economics. Royce, how are you doing?
Royce Mendes: Good. How are you Ian?
Ian Pollick: I'm OK. Looking forward to the weekend. Do you have any big plans lined up?
Royce Mendes: It's actually my birthday.
Ian Pollick: Is it really?
Royce Mendes: I'm turning twenty-five.
Ian Pollick: For the second time.
Royce Mendes: Yes, just the second time. I like you.
Ian Pollick: OK. Well, happy birthday buddy. I hope that you have a great weekend. And what are you and your roommate planning. Anything fun?
Royce Mendes: Nothing really. Obviously COVID doesn't allow you to do very much. So just cooking a nice dinner at home and that'll be enough though.
Ian Pollick: What is a nice dinner at the Mendes roommate household look like?
Royce Mendes: If I'm cooking it means barbecue.
Ian Pollick: OK, sweet. Listen, I want to get right into things because since the last time we were on the show, we have had a lot of developments. And I think the very first one we need to talk about relates to Governor Macklem's discussion at the Risk Institute last week. One of the things that we're starting to see and correct me if I'm wrong, Royce, but there is a different the way that Governor Macklem is approaching financial stability within the context of monetary policy relative to his predecessor, Governor Poloz, who is very much a risk management type of framework within the monetary policy context. Can you shed some light? Am I on the right track here?
Royce Mendes: I think you're absolutely on the right track. I think there's some light opening up between the two regimes. Governor Macklem is focusing on monetary policy doing its work for the economy and worrying less about the financial system spillovers, basically telling us that he would allow macro prudential policies to work to contain those risks. You'll remember that Governor Poloz and Senior Governor Wilkins talked about this risk management approach to monetary policy. So they were trying to thread the needle, if you will, between stimulating the economy or keeping the economy at a level that they wanted to see it at and not stoking too many financial stability risks. It seems like Governor Macklem is really going to focus just on using monetary policy for economic outcomes. What does that mean in the current environment? Well, it probably means that they are, again, doubling down on this conditional commitment that they've stated that they will keep rates low for an extended period of time. And this tells you even if there are imbalances in the economy or Canadian households potentially becoming dangerously over leveraged, you would see macro prudential policy makers, not monetary policy makers, attacking that problem. I do think that the market has not internalized this yet. And actually that's a question for you, Ian. Why don't you think the market has really internalized this low for very long communication from the Bank of Canada? They're still looking for the Central Bank in Canada to hike rates before the Federal Reserve.
Ian Pollick: It's a good question, and I think we need to take a multi pronged approach to answer it, the very first thing is, do you really believe that the market believes that the Bank of Canada is going to hike rates before the Fed? And will they begin normalizing back to some pre pandemic level within due course? I don't really think we should be discounting the 2023 lift off date, because if you go back over time, really in any cycle, whether it's a strong one or a weak one, that three year head point probably makes the most amount of sense to start pricing in some normalization of monetary policy. When I look at the market right now and I see that OIS markets have the first full hike priced by, call it March 2023, I don't think there's too much to quibble about that per say. But again, as you rightly say, Royce, when you compare that with the rest of the G4, the rest of the G7, all of a sudden it looks like Canada is in a much more speedier, rapid place to begin tightening policies. The question is why? I don't think it's a function of Canadian strength. I think it is also reflective of some structural factors in our money market curve that keeps select points on that curve high. And what I really mean by that is we know that because of the pandemic, we've had a very delayed mortgage season. The problem with mortgages in Canada, of course, is that there is such a huge amount of paying flow that has to go through the market. There's really not a lot of depth on the other side of that trade, meaning that the street collectively is put into a very large received position in two to five year swap rates. And they need an outlet to get off that risk because they don't internalize it with one another. So that creates this kink in the forward curve, whether it's your 2021 contracts or 2022 contracts. It all leaks into that three year point and that's getting exacerbated a bit. So I don't really think the fact that we have hikes priced in 2023 is entirely a function of the macro narrative. I would also argue and this is where I would like your input, when I think about average inflation targeting and I think about the North American divergent story that has been so prominent during the pandemic, it's very evident that because the Fed is now in an average inflation targeting regime, implicitly, they have a few more restrictions on them in terms of when they can begin to actually start hiking rates. The fact that the bank doesn't have that, that they have more degrees of freedom should naturally have the bank being priced sooner than the Fed, I think, regardless of the year without liftoff is estimated to be it. So do you think that when we go to the negotiation for the renewal in 2021, will the Bank of Canada need to follow the Fed, given the parameters that I just suggested, because you could get undue strength in the currency, you do have this very odd pricing relative to other G7 markets. Does the bank care about that short termism, or are they just going to stick to what's worked best for the past 30 years?
Royce Mendes: I don't think the bank can take into account the short term implications of any framework change. This has to be a change that is made for the long term benefit of the Canadian economy, Canadian households, Canadian businesses. However, I will say that if by that time the market is still not pricing in these sort of overnight rates that they would like to see, they will double down on the communication side of it. You know, I would argue at this time, you say they have more degrees of freedom, but I've been saying this for a while that I think they've sort of tied their hands already to allowing an inflation overshoot. They're saying that they're not going to begin hiking rates until it seems like inflation is sustainably running at its 2% target because of the lags in monetary policy. We know that any change in monetary policy, in this case it would be an eventual hike, would work to cool down the economy with about a six to eight quarter lag for its full effect, you would see that the economy would continue to accelerate in that interim time and move to price in higher inflation. So I would argue that at the moment, at least in this cycle, the Bank of Canada is sort of in a similar place to the Fed. Now, they're not committing to average inflation targeting. So we don't know for how long or in what magnitude they'll allow an overshoot, but they could become more specific with that without actually changing the framework. So I think for the framework discussions, we need to pay attention to a lot of the academic research that's been coming out of the bank and what it reveals about which framework works best in a number of different cycles. At this point, it's difficult to say which one works best. If there is one that works better than the current framework, I would argue that maybe it's either status quo moving forward or maybe average inflation targeting. Those two seem to be the front runners at the current moment, but really I don't think it has a lot to do with the pricing of the bank for 2023 or what it would do to the Canadian dollar. Those things will be left to the current tools to deal with.
Ian Pollick: So that's interesting because just to clarify, what I mean by degrees of freedom is that if you look back over the past five years, the bank has operated during extremes, i.e. they have hiked when CORRA was low, they've cut when CORRA was high. So I think you make a very good point. And I think if I have to simplistically say it, implicitly, if you are providing either for guidance or a conditional commitment, you are sponsoring a run hot economy, a pseudo optimal control environment, and that is almost the same as an explicit average inflation target. In that context, if you agree with me, then that does start to highlight some of the differences that could make current pricing in Canada vulnerable to be pushed out in future years. Would you agree with that?
Royce Mendes: I would agree with that. I think that in the way it's laid out right now, the bank could clarify it for everyone to understand if it's just you and me talking about these things and no one else is pricing these in, well it doesn't really matter, they're not doing their job with the communications. They could clarify those things. But 2023, you know, that would be the earliest, I would argue. So pricing in a full hike by early 2023 seems a bit soon.
Ian Pollick: Again, I don't think it's actually a full hike but it is there. The number is plus twenty-five.
Royce Mendes: As you said, there are structural reasons for this, right? But that means that there are also opportunities for investors who can take advantage of that pricing.
Ian Pollick: Let's talk about communication for a second, because one of the unfortunate spillovers from Governor Macklem's discussion last week was when someone in the audience had asked him his view on negative interest rates. And the response to me seemed very benign. It suggested that, listen, it's part of the toolkit. Never say never, but we've already reiterated our stance on this many, many times. It has not really diverged from what the prior Bank of Canada Governing Council had suggested. And yet I did receive a lot of feedback from various amount of clients saying did he just say twenty five was no longer the lower bound? I don't think that's what I heard. I didn't take anything out of it. Am I wrong?
Royce Mendes: I'm with you on this one. When I hear never say never, I think of what that means to me. When I use the term, never say never, I'm usually saying never say never, but I don't think I'll ever jump out of an airplane. Never say never, but I don't think I'm going to be going bungee jumping any time soon. It's basically using the term to say, yes, it is a possibility, but it's a very, very, very low possibility. I think, you know, we saw some articles quoting some economists that suggested that maybe there was a little bit of a shift in tone. I disagree with that. And I think, you know, negative rates as sort of a sexy topic for discussion, because it's sort of interesting. It's sort of weird. But, you know, I would say a more important discussion and a question I actually received this week was on a cut that maybe didn't take the bank into negative rates. And I'll give you a little bit of a compliment. Now, you're regarded as someone who knows a lot and you can say an expert in the plumbing of the financial system. So I want to ask you, maybe a cut that takes the overnight rate down to 15 basis points, 10 basis points, maybe even zero? You know, that seems more plausible to me. So talk to me about why at the current juncture, when I read the statement, the first line of the statement still clearly says that twenty five basis points is the effective lower bound. And this is well after all of that financial market volatility. I know the governor early on said that he didn't want to take rates too low or into negative territory because they would have implications for the banking system, for the financial system, which was already under stress at that point. But now the bank's other programs and tools have sort of stabilized the situation. And they're still saying the twenty five basis points is the effective lower bound. Talk about why that is and what the negative implications would be of cutting the low twenty five basis points for the plumbing of the financial system and for banks.
Ian Pollick: For sure. And I'll try to not get too much in the weeds because it's a topic that I really love talking about. I think the plumbing is super interesting. And, you know, one of the things that 2020 taught us is that things that we thought we knew, we actually didn't really know that well. And I had to go back and revisit all the primers at the bank had. I had many discussions with them. And I would say that right now there's probably zero impediment for the bank to deliver a non standard size cut of five, 10, 15, even 20 basis points. I'll leave you on the flipside of this question to talk about whether or not there is any macro impact to such a small degree of stimulus, but what I will say is that you can right now, given how much cash is sitting in this system, because remember, in Canada, quantitative easing works through the creation of excess settlement balances. And unlike the Fed, the Bank of Canada actually doesn't necessarily print money. They just simply reallocate debit and credit within the LVTS ledger to borrow from financial institutions to pay other financial institutions. So it's a bit of a misnomer to say that the bank's printing money because theoretically they're actually not. Now, when you think about how the system is designed, it's a closed loop system, meaning that if Bank A has a debit that they can't pay for, at the end of the day, they have to go to Bank B to cover that balance. If Bank B doesn't want to lend to Bank A, then Bank A has to go to the Bank of Canada, pay a little bit more cash, and is penalized for not being able to clear it within the Big Six system. The problem is that works when there's not a lot of reserves. When you have four hundred billion of reserves in the system, there's no penalization system or benefit system that's going to actually change monetary policy's transmission. And what that means is that you can begin to lower the effective rate that you're charging on overnight balances because there's so much cash, it's not plausible that you're going to have a transaction that's so large that it doesn't get covered in the large value transfer system. So I think when you think about that corridor system of monetary policy, where remember right now, our deposit rate is flat to the overnight rate and then you have the bank rate, which is 25 basis points above that. All that would do is it would stay within its current confines. It would just move to the left, meaning that plus twenty five difference between your deposit rates and your bank rate probably gets whittled down to maybe 20 basis points. But there's no real reason that you can't do it. You know, a lot of times people say, well, what about Canada's money market system? Money market mutual funds in Canada are not the same as in the United States. There's twenty seven billion outstanding of money market mutual funds in Canada. It's a very small number. So structurally speaking, there's very little other than the compression of net interest margins to the broader banking system that would obviate the need or the ability to reduce the administered rate by nonconventional number. I guess the question I have for you is, would it do anything? I know we're hearing about some of these non-standard cuts in Australia. That's really been the template for a lot of people to look at, both from QE, both from the fiscal response, a policy response, and there is discussion about taking rates to the lower bound below where they are right now. Whether or not it does something, I would argue probably not. But talk to me in your opinion, given that we're already at effectively zero, does lowering rates five, 10, 15, 20 basis points actually provide some type of stimulus outcome above and beyond what can be achieved through QE or fiscal policy?
Royce Mendes: Yes, so there's a balance of risk here. And you picked up on it in terms of the net interest margins. The banking system is a major player in the transmission of monetary policy and what we've seen in other jurisdictions is that as you get closer and closer to that zero point, there are effects on lending conditions. So you don't want to have a reversal rate where you're cutting rates and it's actually hurting lending volume. So that's one thing to keep in mind. And as you rightly point out, if you cut rates five basis points, 10 basis points, I'm not sure how much it's going to do. And look, I mean, these are our thoughts on it. I think what's telling at the moment is the Bank of Canada's communications. Again, I point back to that last statement, which still says in the first sentence that 25 basis points is the effective lower bound. So I think from our point of view, it's an unlikely situation at the current juncture for the Bank of Canada to employ that type of non-standard cut. Now down the road, if there is some unforeseen shock or the second wave of the virus is so bad that it requires a lot more stimulus and monetary policy makers feel like they need to shoulder the load. Certainly not out of the question. More plausible than negative interest rates. But at the moment, I'd still place a pretty low probability on it because, as you mentioned, I'm not sure what the economic positive is. It could be marginal and there could be issues on the transmission of monetary policy with the effects on the banking system.
Ian Pollick: So, listen, I want to switch gears a little bit and thank you for that. We are a couple of weeks away from the October Monetary Policy Report. That's obviously really important because we're going to get some new forecasts, we're going to get some potential discussion on quantitative easing, maybe calibration, when you look at the forecast that they're likely to demonstrate to us and understanding that the last NPR was a bit different. Remember, they gave us a range estimate. They didn't give us a point estimate. Are we going to expect the same thing where, you know, we get the quarterly forecast that's a range or a central scenario, or are they going to go back to a more traditional NPR where they lay out, here's our CPI forecast, here's the growth forecasts, here are the risks, here are the vulnerabilities. What are you thinking about that?
Royce Mendes: Look, I think they're are going to still be in this situation where they want to employ a central tendency, which still gives us an idea, sort of a base case that they're looking at and they're setting monetary policy on. Because, you know, this is a very uncertain time. But there are some changes they're going to need to make. They don't get to update their forecasts as often as we do. But you know, what I'll say is, since the last time they published forecasts, I think everyone should recognize that, first of all, the economy didn't shrink as much as maybe was feared earlier on this year. And more importantly, the economy bounced back a lot better than we had originally anticipated. So they're going to have to upgrade actually 2020 a little bit. They had been looking for the economy to contract by about 7.8% in the last NPR. Our latest forecast is more like a contraction of 5.5%. So pretty material change there. Now, some of that might steal from 2021 growth, which they had above 5%, and we're more around a level of about 4%. Because, of course, we we've sort of hit a wall now in terms of how much we can pick back up with the virus still among us. But, you know, I think there are some positive developments that the bank is going to point to in the upcoming NPR because of what we've seen so far. Now, the question is probably more importantly, what does the bank believe moving forward? And, you know, at the moment, with the level of new virus cases increasing very quickly and the level that seems concerning to governments and public health officials, will shutdowns that are needed affect GDP increasingly going forward. I would argue that that's maybe the more important question that needs to be answered in the NPR than really about the numerical changes, because the numerical changes are almost just mechanical. And also what will be important is obviously any changes that need to be made to the quantitative easing program. You've talked about, quote unquote, right sizing the program. What do you see as being important in the October NPR and statement and policy announcement overall?
Ian Pollick: Well, look, I think, as you know and as a lot of our regular listeners and regular readers know, for a long time I've been arguing that the program's just a bit too large and there's a lot of very elegant ways that you can right size it without removing the total amount of stimulus that Governor Macklem is very evidently really wants to provide to the economy and that's a great thing. The problem is, is that the timing of NPR, which is in a couple of weeks, is coinciding with an obviously new provincial lockdowns, rise in case counts. So optically it'd be very strange for the Bank of Canada to look like they are stepping back from providing stimulus at a time where arguably the economy needs it the most. That's probably pushed out our expectation for an outright tapering to sometime in early 2021, most likely with January NPR if we do get a more reduced case count and lockdowns are a thing of the past. Knock on wood. What I think they do need to discuss, however, is the calibration that they mentioned, because at the end of the day, we still need to understand what net supply looks like in the bond market. We need to understand what the reinvestment policy looks like. And what's very interesting, Royce, is that if you were to decomposed all of the purchases over the past few months, what we're seeing increasingly is that almost 90% of every single purchase operation is only being conducted in the benchmark security for that maturity operation. Remember, every time they go and buy the two to three year sector, the five year sector, or the 10 year or a 30 year sector, there is a list of eligible bonds that they can buy. And in some cases, when you look at the two year sector or five year sector, it's up most of six or seven bonds because most of those bonds that they're buying are only the benchmark, it tells me there's a scarcity effect that's beginning to trickle into the bond market. Very simply put, they purchased too many off the run securities. I think a really elegant thing that they could do without actually tapering is to say and be very transparent about it and say, look, we're seeing reduced liquidity in the market. We've purchased a tremendous amount of off the run securities. In some cases, we own more than 55, 60% of certain bonds. That's probably a bit too much. It seems like the market is very comfortable selling us benchmarks which continue to be issued directly from the Department of Finance. And if you think about the interest rate risk associated with any purchase, the further your maturity is, the more DV01 risk you have. So if they said, listen, we're only going to buy the building benchmarks, the current benchmarks or the single old benchmarks, you can actually increase the amount of interest rate risk that you're taking out of the market, you can ensure that you have a lot of liquidity and you're protecting that off the run sector because at the end of the day, every spread product in Canada trades often off the run bond. So when you begin to distort that market, it has much more important implications than if you only reduce the investable stock of new benchmark securities. I would expect something like that to be discussed, if not completely enacted. What we do know with pretty good certainty will happen, they will completely retire the Bankers' Acceptance Purchase Facility. They will retire the Provincial Money Market Purchase Program. Those facilities were liquidity based. Those are some of the first facilities introduced in the pandemic. They haven't really been used for quite some time. They've been very idle. They're now in the toolkit. But I think they're going to be taking them off the shelf. But outside of that, tell me if I'm wrong, Royce. I don't think optically this is a time that they want to be seen to be pulling back.
Royce Mendes: I absolutely agree with that as we enter into this difficult fall and winter season for the economy. But explain to me one thing. Why would they not just leave those programs idle? Why would they put them back on the shelf? Because as we rightly recognize, I think, is that we're heading into a difficult season. You may need things very quickly, so why not just have them operational?
Ian Pollick: I think when you think about the motivation behind it, when you go back to your first principles, why were they buying bankers' acceptances? Well, that's a key source of corporate funding. When they enacted it, BAs were trading at OIS plus 100 basis points. Today, they're trading OIS through OIS. So you've normalized the conditions in the money market to such a degree that it's functioning by itself. So that backstop isn't actually providing anything at all. If you went into a situation where the market got stressed, then I'm sure that they could reintroduce it by taking it away, I don't think they're doing any harm, to be honest with you, because you've had so much improvement in liquidity, improvement in pricing, that there's no point for them to expand the balance sheet in that part of the investable universe. I think that if they are going to use resources, those resources are better spent somewhere else. Whether that's funding for lending, whether that's increasing two year to five year purchases to ensure household borrowing rates are low. It's not evident to me that you're seeing any strains in those front end markets that this program has to be alive for much longer.
Royce Mendes: You know, I want to move on to discussing next week's data.
Ian Pollick: Yeah, we have a lot of data next week.
Royce Mendes: Yes. So first up is the Business Outlook Survey. And you will remember, it was absolutely ugly the last time it came out, I think this time. And of course, it's conducted, what, three, four weeks, the survey before the actual release date? Things looked a lot better in early September. Let's be honest. People had let their guard down a little bit. I think businesses, a lot of them were feeling significantly better than they did probably in June when the last survey was conducted. So I do think there's going to be some optimism. I don't think that it really makes much of a difference for the outlook only because, of course, that optimism can switch pretty quickly to pessimism depending on the path of the virus and the public health restrictions that are needed. So I'm not sure how much weight to put on that. I don't think we'll put a whole lot of weight on it. I would say, though, maybe for the more medium term outlook and what it means for business investment slowly creeping back up, we could find some tidbits. And that's something we'll be keeping an eye on, but for the near term outlook for Q4, Q1, which typically the Business Outlook Survey is best at sort of forecasting, not a lot of information. We do have retail sales and CPI out next week as well, both on the same day on Wednesday. Retail sales, we have a flash estimate, so we're looking for roughly 1% increase there. So most importantly, we'd be trying to figure out what that flash estimate of September is. I think there's still scope for maybe some growth there for September, but it may be the point in this sort of very short cycle where we start to see a little bit of slippage, because that's when you started to see some concern pick up towards the end of the month about what's happening with the virus. CPI for September, I think will look like a typical September. We'll see a little bit of a drop in food prices because of the harvest each year. I think that we'll see. I'm not going to get into the nitty gritty of it, but a little bit of slippage in prices not seasonally adjusted on the month, I do think, though, that, you know, outside of October, where we see a one month increase in not seasonally adjusted prices in the second half of the year, the ending of the year is going to be tough on real return bond investors and that inflation compensation that comes from the inflation prints. And we just actually produced a paper yesterday, which we published. And I would say it gives investors, and maybe you can comment on this in a second? It gives investors a roadmap for how to look at CPI in this very odd environment with weird demand and supply shocks hitting the market. And, you know, you and I combined to sort of give a real return bond investor some idea of how to play this environment. You want to talk a little bit about that?
Ian Pollick: I agree. I think one of the things that we've seen this year is that forecasting is a difficult exercise in the best of time. But when you're doing forecasting in 2020, well, you're going to get 2020'ed. And I think that's exactly what's happened with this demand supply shock that's concurrent. You had a very lagged impact of prices that misbehaved very early on in the pandemic. They're only now starting to show what they should have done given the degree of contraction you saw, the widening of the output gap, et cetera. So I think you're right. It's just a roadmap. I encourage everyone to take a read of it. Royce and I are available to discuss with you one on one, if you would like. But take a look. We effectively are looking for some defensive posturing over the next few months, just given the lack of positive inflation accruals for the asset class. We talk a little bit about the known unknown, which is the RB21s falling out of the index in December. Remember, they take their last inflation cue before they fall out of the index in October. Because we are looking for negative CPI prints, NSA headlines for November, December, it's not going to be a great carry profile. Therefore, we do think that the real yield curve can flatten quite a bit. But listen, we've talked a lot today, we're a little bit over the time. Royce, it's been a great episode. I hope you have a wonderful birthday weekend. I hope your dinner with your roommate is fantastic. And remember, there were no bonds harmed in the making of this podcast.
Disclaimer: The information and data contained herein has been obtained or derived from sources believed to be reliable, without independent verification by CIBC Capital Markets, and we do not represent or warrant that any such information or data is accurate, adequate or complete. Notwithstanding anything to the contrary herein, CIBC World Markets Inc. (and/or any affiliate thereof) shall not assume any responsibility or liability of any nature in connection with any of the contents of this communication. CIBC World Markets Inc. or its affiliates may engage in trading strategies or hold positions in the issuers, securities, commodities, currencies or other financial instruments discussed in this communication and may abandon such trading strategies or unwind such positions at any time without notice. This communication, including any attachment(s), is confidential and has been prepared by the Rates Strategy Desk within the Global Markets Group at CIBC Capital Markets. CIBC Capital Markets is a trademark brand name under which different legal entities provide different services under this umbrella brand. Products and/or services offered through CIBC Capital Markets include products and/or services offered by the Canadian Imperial Bank of Commerce and various of its subsidiaries. Services offered by the Canadian Imperial Bank of Commerce include corporate lending services, foreign exchange, money market instruments, structured notes, interest rate products and OTC derivatives. CIBC’s Foreign Exchange Disclosure Statement relating to guidelines contained in the FX Global Code can be found at www.cibccm.com/fxdisclosure. Other products and services, such as exchange-traded equity and equity options, fixed income securities, are offered through directly or indirectly held subsidiaries of CIBC as indicated below. The contents of this communication are based on macro and yield curve analysis, market events and general institutional desk discussion. The author(s) of this communication is not a Research Analyst and this communication is not the product of any CIBC World Markets Inc. Research Department nor should it be construed as a Research Report. The author(s) of this communication is not a person or company with actual, implied or apparent authority to act on behalf of any issuer mentioned in the communication. The commentary and any attachments (other than any attached CIBC World Markets Inc. branded Research Reports) and opinions expressed herein are solely those of the individual author(s), except where the author expressly states them to be the opinions of CIBC World Markets Inc. The author(s) may provide short-term trading views or ideas on issuers, securities, commodities, currencies or other financial instruments but investors should not expect continuing analysis, views or discussion relating to the securities, commodities, currencies or other financial instruments discussed herein. Any information provided herein is not intended to represent an adequate basis for investors to make an informed investment decision and is subject to change without notice. CIBC World Markets Inc. or its affiliates may engage in trading strategies or hold positions in the issuers, securities, commodities, currencies or other financial instruments discussed in this communication and may abandon such trading strategies or unwind such positions at any time without notice. The contents of this message are tailored for particular client needs and accordingly, this message is intended for the specific recipient only. Any dissemination, re-distribution or other use of this message or the market commentary contained herein by any recipient is unauthorized. If you are not the intended recipient, please reply to this e-mail and delete this communication and any copies without forwarding them. Distribution in Hong Kong: This communication has been approved and is issued in Hong Kong by Canadian Imperial Bank of Commerce, Hong Kong Branch, a registered institution under the Securities and Futures Ordinance (the “SFO”) to “professional investors” as defined in clauses (a) to (h) of the definition thereof set out in Schedule 1 of the SFO. Any recipient in Hong Kong who has any questions or requires further information on any matter arising from or relating to this communication should contact Canadian Imperial Bank of Commerce, Hong Kong Branch at Suite 3602, Cheung Kong Centre, 2 Queen’s Road Central, Hong Kong (telephone number: +852 2841 6111). Distribution in Singapore: This communication is intended solely for distribution to accredited investors, expert investors and institutional investors (each, an “eligible recipients”). Eligible recipients should contact Danny Tan at Canadian Imperial Bank of Commerce, Singapore Branch at 16 Collyer Quay #04-02 Singapore 049318 (telephone number + 65-6423 3806) in respect of any matter arising from or in connection with this report. Distribution in Japan: This communication is distributed in Japan by CIBC World Markets (Japan) Inc. Distribution in Australia: Communications concerning derivatives and foreign exchange contracts are distributed in Australia to “professional investors” within the meaning of the Corporations Act 2001 by CIBC World Markets Inc. Communications concerning securities are distributed in Australia by CIBC Australia Ltd (License no. 240603; ACN 000 067 256) to CIBC Capital Markets clients. CIBC World Markets Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. In the United States, CIBC World Markets Corp. is a member of the Financial Industry Regulatory Authority and the Securities Investor Protection Fund. CIBC World Markets plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. CIBC World Markets Securities Ireland Limited is regulated by the Central Bank of Ireland. Canadian Imperial Bank of Commerce, Sydney Branch (ABN: 33 608 235 847), is an authorized foreign bank branch regulated by the Australian Prudential Regulation Authority (APRA). CIBC Australia Ltd (AFSL No: 240603) is regulated by the Australian Securities and Investment Commission (“ASIC”). CIBC World Markets (Japan) Inc. is a member of the Japanese Securities Dealer Association. Canadian Imperial Bank of Commerce, Hong Kong Branch, is a registered institution under the Securities and Futures Ordinance, Cap 571. Canadian Imperial Bank of Commerce, Singapore Branch, is an offshore bank licensed and regulated by the Monetary Authority of Singapore. Unauthorized use, distribution, duplication or disclosure without the prior written permission of CIBC World Markets Inc. is prohibited and may result in prosecution.