BCA Indicators/Model

Weekly Performance Update For the week ending Thu Aug 19, 2021 The Market Monitor displays the trailing 1-quarter performance of strategies based around the BCA Score. For each region, we construct an equal-weighted, monthly rebalanced portfolio consisting of the top 3 stocks per sector and compare it with the regional benchmark. For each portfolio, we show the weekly performance of individual holdings in the Top Contributors/Detractors table. In addition, the Top Prospects table shows the holdings that currently have the highest BCA Score within the portfolio. For more details, click the region headers below to be redirected to the full historical backtest for the strategy. BCA US Portfolio Market Monitor (Aug 19, 2021) Market Monitor (Aug 19, 2021) Total Weekly Return BCA US Portfolio S&P500 TRI -2.33% -1.20% Top Contributors   IQV:US PSA:US BMY:US HSY:US JNJ:US Weekly Return 12 bps 7 bps 7 bps 6 bps 6 bps Top Detractors   TX:US R:US SCCO:US EOG:US LEVI:US Weekly Return -25 bps -23 bps -23 bps -22 bps -20 bps Top Prospects   TX:US MPLX:US ESGR:US SC:US IT:US BCA Score 97.96% 97.40% 96.19% 95.65% 94.49% BCA Canada Portfolio Market Monitor (Aug 19, 2021) Market Monitor (Aug 19, 2021) Total Weekly Return BCA Canada Portfolio S&P/TSX TRI -1.54% -1.44% Top Contributors   DCBO:CA QBR.A:CA CSU:CA L:CA WIR.UN:CA Weekly Return 48 bps 9 bps 8 bps 7 bps 7 bps Top Detractors   CS:CA POU:CA SPB:CA TOU:CA LNR:CA Weekly Return -40 bps -39 bps -26 bps -21 bps -20 bps Top Prospects   CS:CA RUS:CA PXT:CA TOU:CA ELF:CA BCA Score 98.30% 97.75% 97.45% 96.31% 95.95% BCA UK Portfolio Market Monitor (Aug 19, 2021) Market Monitor (Aug 19, 2021) Total Weekly Return BCA UK Portfolio FTSE 100 TRI -0.93% -1.64% Top Contributors   TUNE:GB SRE:GB EMIS:GB SSE:GB DOTD:GB Weekly Return 20 bps 13 bps 10 bps 10 bps 8 bps Top Detractors   MXCT:GB RIO:GB ROSN:GB NLMK:GB SVST:GB Weekly Return -42 bps -22 bps -20 bps -15 bps -15 bps Top Prospects   SVST:GB VVO:GB NLMK:GB POLR:GB RIO:GB BCA Score 99.34% 98.26% 97.83% 96.14% 96.00% BCA Eurozone Portfolio Market Monitor (Aug 19, 2021) Market Monitor (Aug 19, 2021) Total Weekly Return BCA EMU Portfolio MSCI EMU TRI -0.88% -2.09% Top Contributors   ROVI:ES VGP:BE ERF:FR JMT:PT ARTO:FR Weekly Return 20 bps 14 bps 13 bps 9 bps 8 bps Top Detractors   HLAG:DE SOLV:BE CEM:IT TRI:FR OMV:AT Weekly Return -26 bps -17 bps -17 bps -16 bps -16 bps Top Prospects   STR:AT FDJ:FR IPS:FR HLAG:DE SOLV:BE BCA Score 98.77% 98.19% 97.09% 97.02% 96.69% BCA Japan Portfolio Market Monitor (Aug 19, 2021) Market Monitor (Aug 19, 2021) Total Weekly Return BCA Japan Portfolio TOPIX TRI -2.15% -2.88% Top Contributors   6960:JP 7164:JP 1835:JP 8977:JP 2296:JP Weekly Return 13 bps 11 bps 7 bps 5 bps 4 bps Top Detractors   5021:JP 3132:JP 7958:JP 8097:JP 3291:JP Weekly Return -49 bps -29 bps -19 bps -18 bps -17 bps Top Prospects   6960:JP 5930:JP 9436:JP 2208:JP 4966:JP BCA Score 99.80% 99.49% 99.45% 99.33% 99.16% BCA Hong Kong Portfolio Image Total Weekly Return BCA Hong Kong Portfolio Hang Seng TRI -0.35% -4.43% Top Contributors   6118:HK 1866:HK 1277:HK 1083:HK 2232:HK Weekly Return 38 bps 35 bps 30 bps 13 bps 8 bps Top Detractors   857:HK 1432:HK 2877:HK 3799:HK 148:HK Weekly Return -31 bps -19 bps -19 bps -15 bps -14 bps Top Prospects   1277:HK 691:HK 435:HK 98:HK 1866:HK BCA Score 99.99% 98.59% 97.43% 96.92% 95.63% BCA Australia Portfolio Market Monitor (Aug 19, 2021) Market Monitor (Aug 19, 2021) Total Weekly Return BCA Australia Portfolio S&P/ASX All Ord. TRI -0.69% -1.36% Top Contributors   OCL:AU BLX:AU AVN:AU ARF:AU REA:AU Weekly Return 35 bps 31 bps 15 bps 14 bps 10 bps Top Detractors   AX1:AU MGX:AU GRR:AU NHC:AU BFG:AU Weekly Return -44 bps -23 bps -23 bps -19 bps -17 bps Top Prospects   MGX:AU GRR:AU BFG:AU PIC:AU ARF:AU BCA Score 99.78% 99.58% 97.31% 96.83% 95.75%

Dear client, FX will be taking a summer break next week. We will resume our regular publication the subsequent week. Kind regards, Chester Ntonifor, Vice President Foreign Exchange Strategy Highlights Our broad finding is that buying a currency when it is cheap and selling it when it is expensive generates excess returns over time. Even if you rebalance monthly, a 5% valuation gap is sufficient to allow outperformance both tactically and cyclically. We investigated this rule with our in-house PPP models, and as we argue in this report, it certainly holds true for our intermediate-term timing models (ITTM). That said, there is no silver bullet for all currencies: some mean-revert to their PPP fair value much faster than to other fundamental fair values, like our ITTM. The recommendations today are a barbell strategy: to be long procyclical currencies (especially the NOK and the Japanese yen). Feature Chart I-1The ITTM Model Works With A Trading Rule The ITTM Model Works With A Trading Rule The ITTM Model Works With A Trading Rule In April 2020 last year, we decided to simplify our FX framework into a trading model. The idea was to see whether the pillars of our framework were sitting on solid bedrock. These three pillars were the macroeconomic environment (rising or falling interest rates), valuation, and sentiment. Once armed with the conclusion that these pillars were indeed robust, we have been constantly evaluating ways to make them more deterministic. Back then, we used purchasing power parity (PPP) as our valuation tool of choice, but we had to overhaul the model from industry standards, to allow for positive results using a trading rule. And like most models, performance was not uniform across currencies. This week, we are both updating and testing our intermediate-term timing models (ITTM), another valuation tool we use for currencies. The models use two key variables, real interest rate differentials and a risk factor, to determine when a currency should mean-revert. The trading results add value over time, but two important conclusions arise from this work (Chart I-1): Valuation can indeed be used as timing tool for currencies. Even if you rebalance monthly, a 5% valuation gap is sufficient to allow for outperformance. Even a 1% valuation gap can add value both tactically and cyclically, used in conjunction with a momentum rule. Chart I-2Model Versus Qualitative Trades A Simple Trading Rule For FX Valuation Enthusiasts A Simple Trading Rule For FX Valuation Enthusiasts Combining a few models together does indeed increase the Sharpe ratio. Since the 2000s, both valuation models have outperformed a buy-and-hold currency strategy with much lower volatility. There are three important considerations. First, the trading rules are generated monthly, which might be too frequent for certain investors. Second, we do not include carry considerations, which might be negligible near term, but will matter over time. Finally, the model does not account for sizing. We intend to incorporate these in future iterations. The ITTM (and PPP) models have variables that are highly statistically significant and of the expected signs. These models thus confirm that paying attention to valuation can help investors with currency strategy both in the short term and in the longer term. These models are especially useful as timing indicators on a three-to-nine month basis, as their error terms revert to zero quickly. Finally, what these models help us do in our role as strategists is stop for a sanity check. As such, since we rolled out our initial model, we have tracked the returns relative to our more qualitative recommendations (Chart I-2) and a simple long DXY strategy. The US Dollar   According to our ITTM model, the dollar is overvalued by 4.3%, or less than 1 standard deviation from its fair value. Our ITTM valuation tool has in general performed worse than our PPP models, but has also provided much lower volatility (Chart I-3). Chart I-3USD Is Overvalued By 4.3% USD Is Overvalued By 4.3% USD Is Overvalued By 4.3% The key driver in this model is real interest rates, and this week’s CPI release suggests that inflation could continue to remain much higher in the US relative to other countries. Headline CPI remained very strong at 5.4% in July, while the core measure came in at 4.3%, bigger numbers than most G10 countries. Unless the Federal Reserve increases interest rates sometime soon, this will keep real rates very depressed in the US. As such, the model recommends that investors short the dollar, once the near-term uptrend in the DXY reverses, which we believe will occur closer to the 94 level. The Euro   The ITTM model has worked relatively well for the euro, even more so than for the US dollar. With the euro about 6.7% cheaper versus the dollar, a buy signal is awaiting a bottom in EUR/USD over a month or two (Chart I-4). It is especially impressive that the ITTM approach has delivered similar results to PPP, but with less volatility. Chart I-4EUR/USD Is Undervalued By 6.7% EUR/USD Is Undervalued By 6.7% EUR/USD Is Undervalued By 6.7% Both the Sentix investor confidence index and the ZEW economic sentiment index rolled over significantly in August. This suggests it might be better to wait before bottom fishing the euro. Structurally, however, we continue to favor the euro as the risk of a breakup, specifically emanating from the southern periphery, remains muted for now. The Yen   The yen is about 4.9% cheaper versus the dollar, according to this model. The ITTM model has been somewhat successful in trading the yen, with very few drawdown periods (Chart I-5). This is important as the yen has been a difficult currency to model, based on the 3-factor approach we described at the beginning of this report. Chart I-5USD/JPY Is Overvalued By 4.9% USD/JPY Is Overvalued By 4.9% USD/JPY Is Overvalued By 4.9% One guess is that yen spends most of the time in the “belly” of most indicators, and so timing extremely potent turns in the currency are rare. Another guess is that the yen’s safe-haven nature probably reduces its correlation with the independent variables in the model. It is important to note that during normal environments (falling corporate spreads, and rising commodity prices), the yen tends to be negatively correlated to the dollar (like other currencies). During risk-off periods, the yen tends to become positively correlated to the dollar (unlike other currencies). This makes the yen a perfect hedge for a currency portfolio and underpins our current long position. The British Pound   Cable is undervalued by around 5.1%. The ITTM model has worked well for the pound especially since the cable spot has been essentially flat for two decades (Chart I-6). Chart I-6GBP/USD Is Undervalued By 5.1% GBP/USD Is Undervalued By 5.1% GBP/USD Is Undervalued By 5.1% Going forward, the model should continue to favor the pound. This week’s GDP release for the UK was very positive. In fact, UK real GDP has been outperforming both the US and the euro area in Q2. This will allow real interest rates to rise in the UK, as the BoE embarks on a normalization plan. Given valuation has been important for gauging shifts in the pound, the falling productivity in the UK (which could lead to structural inflation and lower real rates) would be a worry over the longer term. The Canadian Dollar   The Canadian dollar is undervalued by about 3.3% (Chart I-7). The model has generated poor returns in CAD, but with lower volatility. However, the PPP model has successfully added value over time, highlighting the benefit of a balanced approach. Chart I-7USD/CAD Is Overvalued By 3.3% USD/CAD Is Overvalued By 3.3% USD/CAD Is Overvalued By 3.3% The CAD might be caught in a tug of war between improving real rates, and a drop in commodity prices in the near term. Meanwhile, recent economic data have been below expectations. Employment in July came in at 94K, below expectations of a 176K increase. The PMIs in Canada are also rolling over. As such, the model is correct in being more cautious on CAD.  The Swiss Franc   The ITTM model suggests the franc is undervalued by 3.6%. But unlike for the JPY, the ITTM has a more mundane track record for the CHF (Chart I-8). In general, the franc has been a more difficult currency to model, with our PPP model just barely matching the structural increase in the franc since 2002. Chart I-8USD/CHF Is Overvalued By 3.6% USD/CHF Is Overvalued By 3.6% USD/CHF Is Overvalued By 3.6% Structural improvement in the franc is likely to continue, as any inflation in Switzerland will be much muted, compared to the US.  The Australian Dollar   The Aussie is undervalued by 9% versus the dollar. The ITTM model has an excellent record of adding value, compared to our PPP model (Chart I-9). This is particularly the case in avoiding losses, with very little drawdowns. This increases our confidence in listening to this model when making calls on AUD/USD. Chart I-9AUD/USD Is Undervalued By 9% AUD/USD Is Undervalued By 9% AUD/USD Is Undervalued By 9% The Australian economy has been under strain lately and is like to continue in a stop-and-go fashion until the population gets vaccinated. That said, the Aussie is cheap, even versus the kiwi and we are long AUD/NZD as a hedged trade. The New Zealand Dollar The kiwi is undervalued by 5.6% but unlike the Aussie, our ITTM model has had a poor track record of adding value, compared to the PPP models (Chart I-10). That gives us more confidence in our long AUD/NZD position. Chart I-10NZD/USD Is Undervalued By 5.6% NZD/USD Is Undervalued By 5.6% NZD/USD Is Undervalued By 5.6% The New Zealand economy is certainly benefitting from having put COVID-19 mostly behind it. However, the bottlenecks in the economy, especially on the labor front, are becoming acute as migrant labor is nonexistent. Meanwhile, the RBNZ is intent on raising rates. The combination will boost real rates but nudge the economy closer to vulnerability. For now, the kiwi remains insulated, as rising real rates will lift its fair value.   The Norwegian Krone Our ITTM model for the Norwegian krone shows it as squarely undervalued (by 9.8%), but also has a poor record of adding value. Since 2002, the model has been roughly in line with a flat krone (Chart I-11). Chart I-11USD/NOK Is Overvalued By 9.8% USD/NOK Is Overvalued By 9.8% USD/NOK Is Overvalued By 9.8% Our bias is that the krone could see another mini cycle upwards. First, the Norges bank will raise rates sooner than many central banks, especially with inflation near 3%. This will begin to lift Norwegian real rates. Second, if oil prices stay well bid, as our commodity strategists expect, this will put a floor under Norwegian exports and the krone. The Swedish Krona Like its Scandinavian counterpart, the Swedish krona is also quite cheap (by 10.2%) and is one of our favorite longs (Chart I-12). Our ITTM model however has not markedly outperformed over time. Chart I-12USD/SEK Is Overvalued By 10.2% USD/SEK Is Overvalued By 10.2% USD/SEK Is Overvalued By 10.2% Swedish industrial orders and industrial production continue to boom, according to data this week, with growth admittedly slowing from high levels. If the CPI data coming out shortly surprises to the upside, that could mark the beginning of SEK’s outperformance. We are long the SEK both against the EUR and USD. Chester Ntonifor Foreign Exchange Strategist chestern@bcaresearch.com Trades & Forecasts Forecast Summary Core Portfolio Tactical Trades Limit Orders Closed Trades

Weekly Performance Update For the week ending Thu Aug 12, 2021 The Market Monitor displays the trailing 1-quarter performance of strategies based around the BCA Score. For each region, we construct an equal-weighted, monthly rebalanced portfolio consisting of the top 3 stocks per sector and compare it with the regional benchmark. For each portfolio, we show the weekly performance of individual holdings in the Top Contributors/Detractors table. In addition, the Top Prospects table shows the holdings that currently have the highest BCA Score within the portfolio. For more details, click the region headers below to be redirected to the full historical backtest for the strategy. BCA US Portfolio Market Monitor (Aug 12, 2021) Market Monitor (Aug 12, 2021) Total Weekly Return BCA US Portfolio S&P500 TRI 1.92% 0.77% Top Contributors   ANAT:US TX:US COKE:US MPLX:US R:US Weekly Return 43 bps 32 bps 16 bps 13 bps 11 bps Top Detractors   MAA:US BMY:US EOG:US IQV:US EXR:US Weekly Return -8 bps -7 bps -4 bps -3 bps -2 bps Top Prospects   TX:US ESGR:US SC:US IT:US MPLX:US BCA Score 97.76% 97.12% 96.66% 93.62% 93.56% BCA Canada Portfolio Market Monitor (Aug 12, 2021) Market Monitor (Aug 12, 2021) Total Weekly Return BCA Canada Portfolio S&P/TSX TRI 1.45% 0.77% Top Contributors   WIR.UN:CA ATZ:CA WSP:CA LNF:CA WFG:CA Weekly Return 49 bps 30 bps 21 bps 13 bps 13 bps Top Detractors   CRON:CA DCBO:CA TOU:CA ONEX:CA EMP.A:CA Weekly Return -32 bps -10 bps -6 bps -5 bps -4 bps Top Prospects   RUS:CA PXT:CA TOU:CA CS:CA ELF:CA BCA Score 97.10% 96.65% 95.68% 95.64% 95.54% BCA UK Portfolio Market Monitor (Aug 12, 2021) Market Monitor (Aug 12, 2021) Total Weekly Return BCA UK Portfolio FTSE 100 TRI 1.71% 1.39% Top Contributors   MXCT:GB AAF:GB DEC:GB 888:GB SSE:GB Weekly Return 40 bps 21 bps 17 bps 16 bps 16 bps Top Detractors   DATA:GB NLMK:GB SVST:GB SRE:GB GROW:GB Weekly Return -14 bps -12 bps -10 bps -6 bps -4 bps Top Prospects   SVST:GB VVO:GB NLMK:GB TUNE:GB CTH:GB BCA Score 99.30% 98.26% 96.72% 95.21% 94.84% BCA Eurozone Portfolio Market Monitor (Aug 12, 2021) Market Monitor (Aug 12, 2021) Total Weekly Return BCA EMU Portfolio MSCI EMU TRI 1.54% 1.45% Top Contributors   HLAG:DE ARTO:FR TESB:BE ROTH:FR STR:AT Weekly Return 35 bps 22 bps 17 bps 13 bps 11 bps Top Detractors   ALESK:FR LOUP:FR NESTE:FI MBH3:DE EDNR:IT Weekly Return -27 bps -7 bps -3 bps -1 bps 0 bps Top Prospects   FDJ:FR STR:AT SOLV:BE IPS:FR EDNR:IT BCA Score 97.99% 97.67% 97.18% 96.81% 96.17% BCA Japan Portfolio Market Monitor (Aug 12, 2021) Market Monitor (Aug 12, 2021) Total Weekly Return BCA Japan Portfolio TOPIX TRI 1.04% 1.27% Top Contributors   4694:JP 1419:JP 9543:JP 7958:JP 3291:JP Weekly Return 37 bps 18 bps 14 bps 14 bps 11 bps Top Detractors   5021:JP 3468:JP 8977:JP 8097:JP 3132:JP Weekly Return -16 bps -12 bps -5 bps -4 bps -4 bps Top Prospects   6960:JP 9436:JP 4966:JP 2208:JP 5930:JP BCA Score 99.88% 99.82% 99.68% 99.61% 99.27% BCA Hong Kong Portfolio Image Total Weekly Return BCA Hong Kong Portfolio Hang Seng TRI 0.34% 1.19% Top Contributors   1866:HK 316:HK 857:HK 1277:HK 98:HK Weekly Return 45 bps 19 bps 18 bps 15 bps 15 bps Top Detractors   6118:HK 990:HK 148:HK 691:HK 973:HK Weekly Return -49 bps -28 bps -14 bps -12 bps -10 bps Top Prospects   1277:HK 691:HK 215:HK 2877:HK 98:HK BCA Score 99.99% 98.52% 98.13% 96.98% 96.82% BCA Australia Portfolio Market Monitor (Aug 12, 2021) Market Monitor (Aug 12, 2021) Total Weekly Return BCA Australia Portfolio S&P/ASX All Ord. TRI 1.29% 1.12% Top Contributors   YAL:AU NHC:AU JLG:AU CAJ:AU ARF:AU Weekly Return 66 bps 27 bps 25 bps 21 bps 18 bps Top Detractors   REA:AU PSQ:AU AQZ:AU EZL:AU AX1:AU Weekly Return -31 bps -24 bps -21 bps -19 bps -11 bps Top Prospects   MGX:AU GRR:AU MHJ:AU ARF:AU PIC:AU BCA Score 99.63% 99.45% 97.40% 96.12% 96.06%

Highlights The DXY index appears to be following the seasonal pattern of strengthening in the summer and weakening towards year-end. In this context, the most attractive vehicles to play a decline in the dollar are the Scandinavian currencies over the longer term, and the yen in the very near term. Our composite attractiveness model ranks the US dollar and the NZ kiwi as the least attractive currencies, particularly on the basis of valuation. Our limit buy on long AUD/NZD was triggered at 1.05. Pessimism on the Aussie is becoming overdone, while the economy could stage a coiled spring rebound once vaccination rates improve. Feature Chart I-1Was Dollar Strength Seasonal? Was Dollar Strength Seasonal? Was Dollar Strength Seasonal? Since July 20, the DXY index has been consolidating its gains, and appears to be following the general seasonal pattern of strengthening in the summer, and eventually weakening towards year-end (Chart I-1). With this as a backdrop, it is instructive to revisit our attractiveness ranking, and highlight which currencies might benefit most from a dollar decline. Our framework is based on three major vectors –   the macroeconomic environment, valuation, and sentiment. Our macro vector tracks relative economic strength as measured by relative PMIs and real interest rate differentials. Other factors such as a country’s basic balance and external vulnerability are also considered. In our valuation vector, we consider a swathe of models including PPP, more high-frequency indicators such as our intermediate-term timing model, as well as longer-term models based on relative productivity trends. Finally, we also consider positioning to gauge if our view is mainstream or out of consensus. Using this framework, the most attractive vehicles to play a decline in the dollar are the Scandinavian currencies over the longer term, and the yen more near term, if rates remain well behaved. Meanwhile, the US dollar and the kiwi rank as the least attractive currencies, particularly on the basis of valuation (Chart I-2). Chart I-2An Attractiveness Ranking Of Currencies Which Are The Most Attractive Currencies In The G10? Which Are The Most Attractive Currencies In The G10? Macroeconomic Environment: Real Interest Rates Chart I-3The US Sports A Very Negative Real Yield Which Are The Most Attractive Currencies In The G10? Which Are The Most Attractive Currencies In The G10? On the short tenors, the US is among those sporting  the most negative real rates (Chart I-3). But what is interesting is that we know that there is a divergence in how various central banks are treating their inflation overshoot relative to the Federal Reserve. For example, both Norway and New Zealand have negative 2-year real rates, but their central banks are on track to lift short rates this year. However, the telegraphed messages from the Fed are that there will be no interest rate increases until 2023. This will push US real rates towards becoming more negative vis-à-vis other G10 countries. In our report titled Which Rates Matter For Currencies, we suggested that the recent decline in US Treasury yields should curtail strong inflows into US fixed income. This should ease upward pressure on the dollar. Macroeconomic Environment: Basic Balance Chart I-4Basic Balances Across The G10 Which Are The Most Attractive Currencies In The G10? Which Are The Most Attractive Currencies In The G10? The basic balance is one of the most important determinants of a currency’s attractiveness, simply because it captures the ebb and flow of demand for a country’s domestic assets. In a nutshell, the basic balance is the sum of the current account surplus and long-term investments. Trade surpluses underpin underlying demand for a country’s goods and services, while capital account surpluses suggest a country’s assets are under high demand. As such, persistent basic balance surpluses are usually associated with an appreciating currency and vice versa. There has been a sea change in the basic balances across the G10, a fact we highlighted in our recent report titled On The Fed Shift, And Balance Of Payments. One of those shifts involves Australia  seeing tremendous improvement in its basic balance surplus. In terms of rankings, Sweden sports the best basic balance surplus in the G10, followed by Australia and the euro area (Chart I-4). Meanwhile, the US ranks the worst in terms of basic balances, a big vulnerability for the currency. Macroeconomic Environment: External Debt A country’s external debt situation tends to only matter during crises. Therefore, in the current context of global fiscal and monetary stimulus, as well as generous Fed swap lines to assuage any dollar funding pressures abroad, external (especially USD) debt does not pose a significant threat for currencies. In an absolute sense, external debt as a share of GDP is highest in the UK, Switzerland, and Sweden (Chart I-5). However, what matters most often for vulnerability are net external assets rather than gross liabilities. Based on this measure, Japan, Norway, Canada, Switzerland and Sweden are the most attractive countries, based on net external assets (Chart I-6). Chart I-5External Debt In The G10 Which Are The Most Attractive Currencies In The G10? Which Are The Most Attractive Currencies In The G10? Chart I-6Net International Investment In The G10 Which Are The Most Attractive Currencies In The G10? Which Are The Most Attractive Currencies In The G10? Valuation: Purchasing Power Parity (PPP) Our PPP valuation model is our default in terms of evaluating a currency’s fair value, since by definition, it reveals price arbitration between any two countries.  Chart I-7The Dollar Is Expensive Which Are The Most Attractive Currencies In The G10? Which Are The Most Attractive Currencies In The G10? As we have documented, our model offers unique insight into a true PPP fair value, since it accounts for the fact that consumer price baskets tend to differ in composition from one country to the next. In order to get closer to an apples-to-apples comparison across countries, two adjustments are necessary. First, categorizing the consumer price index (CPI) into five major groups. In most cases, this breakdown captures 90% of the national CPI basket. This includes food, restaurants, and hotels (1), shelter (2), health care (3), culture and recreation (4), and energy and transportation (5). The second adjustment is to test the significance of individual price ratios, with the exchange rate as the dependent variable. This allows us to observe the most influential price ratios that help explain variations in the exchange rate. As a control strategy, we use a weighted average combination of the five groups to form a synthetic relative price ratio. If, for example, shelter is 33% in the US CPI basket, but 19% in the Swedish CPI basket, relative shelter prices will represent 26% of the combined price ratio. This allows for a uniform cross-country comparison, as opposed to using the national CPI weights. The results show the US dollar as overvalued, especially versus the Scandinavian currencies and the yen (Chart I-7). The results are based on the synthetic relative price ratio. Valuation: Intermediate-Term Timing Model (ITTM) Our ITTM is our favored model in the short term, because it gives signals with much higher frequency. Back in 2016, when we developed this indicator, it proved useful in helping global portfolio managers increase their Sharpe ratio in managing currency exposure. The idea was quite simple: For every developed world country, there were three key variables that influenced the near-term path of its exchange rate versus the US dollar: Interest Rate Differentials: We have elaborated at length that interest rate differentials are a key driver for currencies. Given that we get interest rates in real time, they are great inputs into any high-frequency model. Inflation Differentials: Inflation destroys the purchasing power of a currency, both in theory and practice (Chart I-8).  Assuming no transactional costs, the price of a dishwasher cannot be relatively high and rising in New York versus Manila. Either the US dollar needs to fall, the Philippine peso needs to rise, or a combination of the two has to occur to equalize prices across borders. Risk Factor: Exchange rates are risk assets. Ergo, the ebb and flow of risk aversion will have an impact on currencies, which is particularly the case for commodity exporters. We will be releasing a revamped version of our trading model in the coming weeks, incorporating results from ITTM. In a nutshell, our ITTM models have been a very good timing tool. And the signal today is to overweight JPY, AUD, SEK, and NOK in the G10 space (Chart I-9). Chart I-8Inflations and Currencies Inflations and Currencies Inflations and Currencies Chart I-9The Dollar Is Expensive Shorter Term Which Are The Most Attractive Currencies In The G10? Which Are The Most Attractive Currencies In The G10? Valuation: Long-Term Fair Value Model Chart I-10The Dollar Is Not Attractive Longer Term Which Are The Most Attractive Currencies In The G10? Which Are The Most Attractive Currencies In The G10? Our long-term FX models try to capture the movement in exchange rates over a business cycle (3-5 years, let’s say). Included in these models are much slower-moving variables like productivity differentials, and cumulative changes in the current account and basic balance. These models cover 22 currencies, incorporating both G10 and emerging market FX markets. We did an overhaul in these models this year, to account for rising Chinese productivity. Similar to our ITTM models, the longer-term valuation indicator favors the Scandinavian currencies, the yen, and the Aussie dollar (Chart I-10). Sentiment: Speculative Positioning The final consideration in our ranking is sentiment. In general, the dollar is a momentum currency and as such, you want to be long when bullish consensus and/or net speculative positioning is low and rising. Chart I-11 shows that the dollar has failed to break above its major trendlines, at the same time when bullish consensus on the dollar is rising (Chart I-12). This warns that a powerful countertrend reversal could be underway. Chart I-11The Dollar And Momentum The Dollar And Momentum The Dollar And Momentum Chart I-12The Dollar And Sentiment The dollar and sentiment The dollar and sentiment   According to CFTC data, the most shorted currencies are the Australian dollar and Japanese yen (Chart I-13). In our framework, these are the currencies slated to stage very powerful countertrend reversals, given we put the pandemic behind us. Chart I-13Everyone Is Long The Greenback Which Are The Most Attractive Currencies In The G10? Which Are The Most Attractive Currencies In The G10? Housekeeping Chart I-14AUD/NZD and Relative Rates AUD/NZD and Relative Rates AUD/NZD and Relative Rates Our long AUD/NZD position was triggered this week at 1.05. The messaging from the RBA and the RBNZ have been vastly different, whereby the former is cautious about the rising Delta variant infection rate, and the latter is focused on financial stability admist a bubbly housing market. On a relative policy basis, our bias is that the likelihood of rates adjusting higher than market expectations is higher in Australia than in New Zealand (Chart I-14). As we are  eventually going to put the virus behind us, underappreciated currencies such as the AUD could stage a mean-reversion rally.   Chester Ntonifor Foreign Exchange Strategist chestern@bcaresearch.com Trades & Forecasts Forecast Summary Core Portfolio Tactical Trades Limit Orders Closed Trades

Weekly Performance Update For the week ending Thu Aug 05, 2021 The Market Monitor displays the trailing 1-quarter performance of strategies based around the BCA Score. For each region, we construct an equal-weighted, monthly rebalanced portfolio consisting of the top 3 stocks per sector and compare it with the regional benchmark. For each portfolio, we show the weekly performance of individual holdings in the Top Contributors/Detractors table. In addition, the Top Prospects table shows the holdings that currently have the highest BCA Score within the portfolio. For more details, click the region headers below to be redirected to the full historical backtest for the strategy. BCA US Portfolio Market Monitor (Aug 5, 2021) Market Monitor (Aug 5, 2021) Total Weekly Return BCA US Portfolio S&P500 TRI 0.16% 0.24% Top Contributors   IT:US ANAT:US IPG:US TX:US DELL:US Weekly Return 37 bps 17 bps 13 bps 7 bps 5 bps Top Detractors   EOG:US SCCO:US EPD:US COKE:US GPC:US Weekly Return -12 bps -12 bps -11 bps -10 bps -9 bps Top Prospects   TX:US SC:US ESGR:US SIM:US MPLX:US BCA Score 98.74% 97.90% 97.72% 95.28% 95.08% BCA Canada Portfolio Market Monitor (Aug 5, 2021) Market Monitor (Aug 5, 2021) Total Weekly Return BCA Canada Portfolio S&P/TSX TRI -0.66% 0.34% Top Contributors   DCBO:CA CSU:CA LNF:CA RUS:CA L:CA Weekly Return 23 bps 13 bps 12 bps 10 bps 6 bps Top Detractors   POU:CA CS:CA PXT:CA QBR.A:CA TOU:CA Weekly Return -30 bps -27 bps -18 bps -17 bps -15 bps Top Prospects   CS:CA ELF:CA CFP:CA TOU:CA PXT:CA BCA Score 99.08% 97.59% 97.07% 95.45% 94.41% BCA UK Portfolio Market Monitor (Aug 5, 2021) Market Monitor (Aug 5, 2021) Total Weekly Return BCA UK Portfolio FTSE 100 TRI 1.51% 0.71% Top Contributors   MXCT:GB EMG:GB SXS:GB GROW:GB DOTD:GB Weekly Return 27 bps 24 bps 21 bps 20 bps 19 bps Top Detractors   BAKK:GB DRX:GB RIO:GB DEC:GB RMG:GB Weekly Return -23 bps -14 bps -12 bps -7 bps -5 bps Top Prospects   SVST:GB VVO:GB NLMK:GB POLR:GB CTH:GB BCA Score 99.35% 98.65% 96.88% 96.06% 95.95% BCA Eurozone Portfolio Market Monitor (Aug 5, 2021) Market Monitor (Aug 5, 2021) Total Weekly Return BCA EMU Portfolio MSCI EMU TRI 1.14% 1.26% Top Contributors   HLAG:DE ERF:FR ARTO:FR ALESK:FR VGP:BE Weekly Return 48 bps 40 bps 28 bps 19 bps 14 bps Top Detractors   FDJ:FR FLUX:BE TFI:FR ROTH:FR STR:AT Weekly Return -16 bps -13 bps -10 bps -8 bps -7 bps Top Prospects   STR:AT FDJ:FR IPS:FR EDNR:IT TFI:FR BCA Score 98.58% 98.38% 98.08% 97.05% 96.87% BCA Japan Portfolio Market Monitor (Aug 5, 2021) Market Monitor (Aug 5, 2021) Total Weekly Return BCA Japan Portfolio TOPIX TRI -1.12% 0.08% Top Contributors   4694:JP 5021:JP 8595:JP 7716:JP 8630:JP Weekly Return 20 bps 15 bps 8 bps 8 bps 7 bps Top Detractors   1419:JP 3459:JP 2208:JP 9945:JP 2124:JP Weekly Return -40 bps -25 bps -24 bps -15 bps -11 bps Top Prospects   9436:JP 6960:JP 2208:JP 5930:JP 4966:JP BCA Score 99.88% 99.75% 99.73% 99.55% 99.02% BCA Hong Kong Portfolio Image Total Weekly Return BCA Hong Kong Portfolio Hang Seng TRI 1.06% -0.42% Top Contributors   316:HK 6118:HK 691:HK 973:HK 98:HK Weekly Return 48 bps 33 bps 20 bps 15 bps 12 bps Top Detractors   1083:HK 3799:HK 990:HK 148:HK 590:HK Weekly Return -16 bps -14 bps -12 bps -10 bps -5 bps Top Prospects   1277:HK 98:HK 215:HK 691:HK 2877:HK BCA Score 99.96% 98.79% 98.24% 97.99% 97.44% BCA Australia Portfolio Market Monitor (Aug 5, 2021) Market Monitor (Aug 5, 2021) Total Weekly Return BCA Australia Portfolio S&P/ASX All Ord. TRI 0.19% 1.10% Top Contributors   MAQ:AU OCL:AU JLG:AU BLX:AU EZL:AU Weekly Return 36 bps 26 bps 20 bps 19 bps 16 bps Top Detractors   GRR:AU MGX:AU MHJ:AU MAU:AU IDX:AU Weekly Return -61 bps -34 bps -26 bps -22 bps -14 bps Top Prospects   MGX:AU GRR:AU MHJ:AU BFG:AU EZL:AU BCA Score 99.48% 99.45% 99.25% 97.33% 96.44%

Highlights The rapid spread of the COVID-19 delta variant in Asia will re-focus precious metals markets anew on the possibility of another round of lockdowns and the implications for demand, particularly in Greater China and India, which account for 33% and 12% of global physical demand for gold (Chart of the Week).1 Regulatory crackdowns across various sectors in China will continue to roil markets over coming months.  Policy uncertainty around these crackdowns is elevated in local financial markets, and could spill into global markets.  This will support the USD at the margin, which creates a headwind for gold and silver prices. Ambiguous and contradictory signaling from Fed officials following the July FOMC meeting re its $120-billion-per-month bond-buying program also adds uncertainty to precious-metals and general commodity forecasts. Despite this uncertainty, we remain bullish gold and silver.  More efficacious jabs will become available, which will support the global economic re-opening, particularly in EM economies.  In DM economies, vaccination uptake likely increases as risks become more apparent.  We continue to expect gold to trade to $2,000/oz and silver to trade to $30/oz this year. Feature Markets once again are focused on the possibility lockdowns will follow rising COVID-19 infections and deaths, as the delta variant – the most contagious variant to date – spreads through Asia and elsewhere. Chart of the WeekCOVID-19 Delta Variant Rampages Uncertainty Checks Gold's Recovery Uncertainty Checks Gold's Recovery Chart 2COVID-19 Infections, Deaths Rising Uncertainty Checks Gold's Recovery Uncertainty Checks Gold's Recovery Infection and death rates are moving higher globally (Chart 2). COVID-19 infections are still rising in 78 countries. Based on the latest 7-day-average data, the countries reporting the most new infections daily are the US, India, Indonesia, Brazil, and Iran. The countries reporting the most deaths each day are Indonesia, Brazil, Russia, India, and Mexico. Globally, more than 42% of infections were in Asia and the Middle East, where ~ 1mm new infections are reported every 4 days. We expect more efficacious jabs will become available, which will support the global economic re-opening, particularly in EM economies. In DM economies, vaccination uptake likely increases as risks become more apparent. China's Regulatory Crackdown Markets also are contending with a regulatory crackdowns across multiple sectors in China, which is part of a years-long reform process initiated by the Politburo.2 Industries ranging from internet, property, education, healthcare to capital markets will have new rules imposed on them under China's 14th Five-Year Plan as part of this process. Our colleagues in BCA's China Investment Service note the pace of regulatory tightening will not moderate in the near term, as policymakers transition from an annual planning cycle focused on setting economic growth targets to a multi-year planning horizon. "This allows policymakers to have a higher tolerance for near-term distress in exchange for long-term benefits," according to our colleagues. The overarching goal of this reform process is to introduce more social equality in the society. Of immediate import for precious metals markets is the potential for spillover effects outside China arising from the policy uncertainty that already is emanating from that market. Uncertainty boosts the USD and gold. This makes its effect uncertain. In our most recent modeling of gold prices, we have found strong two-way feedback between US and Chinese policy uncertainty.3 We also find that broad real foreign exchange rates for the USD and RMB exert a negative influence on gold prices, while higher economic uncertainty pushes gold prices higher (Chart 3). In addition, across markets – Chinese and US economic policy uncertainty – have similar effects, suggesting economic uncertainty across these markets has a similar effect as domestic uncertainty at home (Chart 4).4 Chart 3Domestic Uncertainty, Real FX Rates Strongly Affect Gold Prices... Domestic Uncertainty, Real FX Rates Strongly Affect Gold Prices... Domestic Uncertainty, Real FX Rates Strongly Affect Gold Prices... Chart 4...As Do Cross-Border Uncertainty, Real FX Rates ...As Do Cross-Border Uncertainty, Real FX Rates ...As Do Cross-Border Uncertainty, Real FX Rates This is yet another reason to pay close attention to PBOC and Fed policy innovations and surprises: they affect each other in similar ways within and across borders. Fed Officials Add Uncertainty Following the FOMC meeting at that end of last month, various Fed officials expressed their views of Chair Jerome Powell's post-meeting remarks, or again resumed their campaigns to begin tapering the US central bank's bond-buying program. Chair Powell's remarks reinforced the data-dependency of the Fed in directing its bond buying and monetary accommodation. He emphasized the need to see solid improvement in the jobs picture in the US before considering any lift-off of rates. As to the Fed's bond-buying program, this, too, will depend on progress on reducing unemployment in the US. Powell also reiterated the Fed views the current inflation in the US as transitory, a point that was emphasised by Fed Governor Lael Brainard two days after Powell's presser. Some very important Fed officials, most notably Fed Vice Chair Richard Clarida, are staking out an early position on what will get them to consider reducing the Fed's current accommodative policies, chiefly an "overshoot" of PCE inflation, the Fed's favored gauge, above 3%. Other Fed officials are urging strong action now: St. Louis Fed President James Bullard is adamant that tapering of the Fed's bond-buying program needed to begin in the Autumn and should be done early next year. Bullard is supported by Governor Christopher Waller. The Fed's bond-buying program is more than a year old. Beginning in July 2020, the Fed started buying $80 billion of Treasurys and $40 billion of mortgage-backed securities every month, or ~ $1.6 trillion so far. This lifted the Fed's balance sheet to ~ $8.3 trillion. Thinking about this as a commodity, that's a lot of asset supply removed from the Treasury and MBS market, which likely explains the high cost of the underlying debt instruments (i.e., their low interest rates). It is understandable why the gold market would get twitchy whenever Fed officials insist the winddown of this program must begin forthwith and be done in relatively short order. The loss of that steady stream of buying could send interest rates higher quickly, possibly raising nominal and real interest rates in the process, which, given the sensitivity of gold prices to US real rates would be bearish (Chart 5). While it is impossible to know when the tapering of the Fed's asset-purchase program will end, these occasional choruses of its imminent inauguration add to uncertainty in the US, which also depresses precious metals prices, as Chart 5 indicates. A larger issue attends this topic: economic policy uncertainty is not contained within national borders. Above, we noted there is a two-way feedback between US and China economic policy uncertainty. There also is a long-term relationship in levels of economic policy uncertainty re China and Europe, which makes sense given the trading relationship between these states. Changes in the two measures of economic policy uncertainty exhibit strong co-movement (Chart 6). Chart 5Taper Talk Makes Precious Metals Markets Twitchy Taper Talk Makes Precious Metals Markets Twitchy Taper Talk Makes Precious Metals Markets Twitchy Chart 6Economic Policy Uncertainty Goes Across National Borders Uncertainty Checks Gold's Recovery Uncertainty Checks Gold's Recovery Investment Implications The increase in COVID-19 infection and re-infection rates, and death rates, is forcing commodity markets to reevaluate demand projections and the likelihood of continued monetary accommodation globally. This ultimately affects the prospects for commodity prices. Conflicting interpretations of the state of local and the global economies increases uncertainty across markets, especially precious metals, which are exquisitely sensitive to even a hint of a change in policy. This uncertainty is compounded when top officials at systematically important central banks provide sometimes-contradictory interpretations of the state of their economies. Despite this uncertainty we remain bullish gold and silver, expecting efficacious vaccines to become more widely available, which will allow the global recovery to regain its footing. We are less sanguine about the prospects for the winding down of the massive monetary accommodation globally, particularly that of the US, where data-dependent policymakers still feel compelled to provide almost-certain policy prescriptions in an increasingly uncertain world.This is a fundamental factor driving global uncertainty. We remain long gold expecting it to trade to $2,000/oz this year, and long silver, expecting it to hit $30/oz.   Robert P. Ryan Chief Commodity & Energy Strategist rryan@bcaresearch.com Ashwin Shyam Research Associate Commodity & Energy Strategy ashwin.shyam@bcaresearch.com   Commodities Round-Up Energy: Bullish While US crude oil inventories rose 3.6mm barrels in the week ended 30 July 2021 gasoline stocks fell 5.3mm barrels, contributing to an overall decline in crude and product inventories in the US of 1.2mm barrels, according to the US EIA's latest tally (Chart 7). US crude and product stocks have been falling throughout the COVID-19 pandemic, and now stand ~ 13% below year earlier levels at 1.7 billion barrels. Crude oil stocks, at 439mm barrels, are just over 15% below year-ago levels. This reflects the decline in US domestic production, which is down 7.1% y/y and now stands at 11.2mm b/d. US refined-product demand, however, is up close to 9% over the January-July period y/y, and stands at 21.2mm b/d. Base Metals: Bullish Workers at the world's largest copper mine, Escondida in Chile, are in government-mediated talks with management that end on Saturday to see if they can avert a strike. There is a chance talks could be extended five days beyond that date, under Chilean law. The mine is majority owned by BHP. Workers at a Codelco-owned mine also voted to strike and will enter government-mediated talks as well. These potential strikes most likely explain why copper prices have been holding relatively steady as other commodities have come under pressure, as markets reassess the odds of a demand slowdown brought about by surging COVID-19 infections, which are hitting Asian markets particularly hard (Chart 8). Chart 7 Uncertainty Checks Gold's Recovery Uncertainty Checks Gold's Recovery Chart 8 Copper Prices Recovering Copper Prices Recovering   Footnotes 1     We flagged this risk in our July 8, 2021 report entitled Assessing Risks To Our Commodity Views, which is available at ces.bcaresearch.com. 2     Please see Pricing A Tighter Regulatory Grip published on August 4, 2021 by our China Investment Strategy.  It is available at cis.bcaresearch.com. 3    We measure this using Granger-Causality tests. 4    These broad real FX rates are handy explanatory variables, in that they combine two very important factors affecting gold prices – inflation and broad FX trade-weighted indexes.  Additional modelling also suggests these broad real FX rates for the USD and RMB coupled with US real 2- and 5-year rates also provide good explanatory models for gold prices. Investment Views and Themes Strategic Recommendations Tactical Trades Commodity Prices and Plays Reference Table Trades Closed in 2021 Summary of Closed Trades Image

Weekly Performance Update For the week ending Thu Jul 29, 2021 The Market Monitor displays the trailing 1-quarter performance of strategies based around the BCA Score. For each region, we construct an equal-weighted, monthly rebalanced portfolio consisting of the top 3 stocks per sector and compare it with the regional benchmark. For each portfolio, we show the weekly performance of individual holdings in the Top Contributors/Detractors table. In addition, the Top Prospects table shows the holdings that currently have the highest BCA Score within the portfolio. For more details, click the region headers below to be redirected to the full historical backtest for the strategy. BCA US Portfolio Market Monitor (Jul 29, 2021) Market Monitor (Jul 29, 2021) Total Weekly Return BCA US Portfolio S&P500 TRI 3.04% 1.20% Top Contributors   TX:US JLL:US NUE:US KOF:US GOOG.L:US Weekly Return 39 bps 30 bps 30 bps 22 bps 18 bps Top Detractors   SIG:US VZ:US FLO:US ENBL:US ET:US Weekly Return -5 bps 0 bps 0 bps 0 bps 1 bps Top Prospects   TX:US ESGR:US ANAT:US BRK.A:US GOOG.L:US BCA Score 97.19% 96.51% 95.94% 95.89% 94.88% BCA Canada Portfolio Market Monitor (Jul 29, 2021) Market Monitor (Jul 29, 2021) Total Weekly Return BCA Canada Portfolio S&P/TSX TRI 1.14% 1.13% Top Contributors   CS:CA LNF:CA TCL.A:CA CRON:CA WIR.UN:CA Weekly Return 37 bps 13 bps 12 bps 9 bps 9 bps Top Detractors   MG:CA WEED:CA GIB.A:CA BB:CA QBR.A:CA Weekly Return -7 bps -6 bps -5 bps -4 bps -3 bps Top Prospects   CS:CA CFP:CA LNF:CA ELF:CA TOU:CA BCA Score 98.26% 97.64% 96.54% 93.43% 92.34% BCA UK Portfolio Market Monitor (Jul 29, 2021) Market Monitor (Jul 29, 2021) Total Weekly Return BCA UK Portfolio FTSE 100 TRI 2.15% 1.62% Top Contributors   FDEV:GB GLTR:GB NVTK:GB EMIS:GB DEC:GB Weekly Return 25 bps 21 bps 21 bps 21 bps 19 bps Top Detractors   HFD:GB BAKK:GB PZC:GB RMG:GB NFC:GB Weekly Return -14 bps -10 bps -7 bps -7 bps -6 bps Top Prospects   SVST:GB VVO:GB TUNE:GB ROSN:GB NLMK:GB BCA Score 99.04% 97.11% 96.41% 94.58% 94.15% BCA Eurozone Portfolio Market Monitor (Jul 29, 2021) Market Monitor (Jul 29, 2021) Total Weekly Return BCA EMU Portfolio MSCI EMU TRI 1.49% 1.58% Top Contributors   APAM:NL MELE:BE ATS:AT STR:AT SON:PT Weekly Return 36 bps 27 bps 25 bps 17 bps 17 bps Top Detractors   094124453:BE CNV:FR FDJ:FR TL5:ES POST:AT Weekly Return -25 bps -14 bps -12 bps -10 bps -8 bps Top Prospects   STR:AT POST:AT FDJ:FR SOLV:BE GIMB:BE BCA Score 98.84% 97.16% 95.14% 95.08% 94.70% BCA Japan Portfolio Market Monitor (Jul 29, 2021) Market Monitor (Jul 29, 2021) Total Weekly Return BCA Japan Portfolio TOPIX TRI 0.51% 1.22% Top Contributors   3132:JP 9543:JP 5021:JP 7994:JP 3459:JP Weekly Return 23 bps 15 bps 13 bps 13 bps 9 bps Top Detractors   6345:JP 8060:JP 8979:JP 3539:JP 6960:JP Weekly Return -15 bps -12 bps -10 bps -10 bps -6 bps Top Prospects   6960:JP 9436:JP 4966:JP 3468:JP 3291:JP BCA Score 99.66% 99.47% 99.40% 97.68% 97.42% BCA Hong Kong Portfolio Image Total Weekly Return BCA Hong Kong Portfolio Hang Seng TRI -3.79% -5.08% Top Contributors   323:HK 329:HK 468:HK 28:HK 3308:HK Weekly Return 15 bps 12 bps 6 bps 2 bps 0 bps Top Detractors   215:HK 2877:HK 1919:HK 1898:HK 506:HK Weekly Return -57 bps -43 bps -32 bps -24 bps -22 bps Top Prospects   1277:HK 98:HK 990:HK 857:HK 1606:HK BCA Score 99.92% 98.95% 98.61% 98.01% 98.01% BCA Australia Portfolio Market Monitor (Jul 29, 2021) Market Monitor (Jul 29, 2021) Total Weekly Return BCA Australia Portfolio S&P/ASX All Ord. TRI 1.29% 0.47% Top Contributors   GRR:AU SDG:AU ZIM:AU RUL:AU DDR:AU Weekly Return 41 bps 28 bps 27 bps 21 bps 17 bps Top Detractors   FLN:AU CVW:AU CAJ:AU SGLLV:AU AST:AU Weekly Return -17 bps -16 bps -9 bps -8 bps -5 bps Top Prospects   GRR:AU BFG:AU BLX:AU BSE:AU SOL:AU BCA Score 99.02% 98.62% 97.96% 97.14% 96.64%

Weekly Performance Update For the week ending Thu Jul 22, 2021 The Market Monitor displays the trailing 1-quarter performance of strategies based around the BCA Score. For each region, we construct an equal-weighted, monthly rebalanced portfolio consisting of the top 3 stocks per sector and compare it with the regional benchmark. For each portfolio, we show the weekly performance of individual holdings in the Top Contributors/Detractors table. In addition, the Top Prospects table shows the holdings that currently have the highest BCA Score within the portfolio. For more details, click the region headers below to be redirected to the full historical backtest for the strategy. BCA US Portfolio Market Monitor (Jul 22, 2021) Market Monitor (Jul 22, 2021) Total Weekly Return BCA US Portfolio S&P500 TRI 0.37% 0.18% Top Contributors   AN:US IPG:US JLL:US DELL:US ESGR:US Weekly Return 42 bps 19 bps 12 bps 7 bps 6 bps Top Detractors   SIG:US LPX:US FLO:US MTZ:US PEG:US Weekly Return -13 bps -9 bps -8 bps -6 bps -5 bps Top Prospects   TX:US MPLX:US BRK.A:US ESGR:US ANAT:US BCA Score 97.25% 95.16% 95.13% 93.88% 91.26% BCA Canada Portfolio Market Monitor (Jul 22, 2021) Market Monitor (Jul 22, 2021) Total Weekly Return BCA Canada Portfolio S&P/TSX TRI -0.95% -0.42% Top Contributors   ONEX:CA RCH:CA QBR.A:CA SMU.UN:CA TCL.A:CA Weekly Return 13 bps 12 bps 6 bps 6 bps 3 bps Top Detractors   IFP:CA CS:CA CFP:CA CRON:CA CNQ:CA Weekly Return -25 bps -21 bps -15 bps -13 bps -10 bps Top Prospects   LNF:CA CS:CA IFP:CA CFP:CA ELF:CA BCA Score 98.98% 98.62% 98.50% 96.76% 93.76% BCA UK Portfolio Market Monitor (Jul 22, 2021) Market Monitor (Jul 22, 2021) Total Weekly Return BCA UK Portfolio FTSE 100 TRI 0.73% -0.61% Top Contributors   FDEV:GB FDM:GB HFD:GB SVST:GB GLTR:GB Weekly Return 42 bps 26 bps 12 bps 12 bps 10 bps Top Detractors   SPI:GB RMG:GB TUNE:GB CMCX:GB MNOD:GB Weekly Return -18 bps -11 bps -10 bps -9 bps -8 bps Top Prospects   SVST:GB ROSN:GB GROW:GB NLMK:GB RMG:GB BCA Score 99.11% 96.58% 95.14% 93.80% 93.56% BCA Eurozone Portfolio Market Monitor (Jul 22, 2021) Market Monitor (Jul 22, 2021) Total Weekly Return BCA EMU Portfolio MSCI EMU TRI 0.22% 0.25% Top Contributors   CNV:FR MONT:BE REY:IT PHA:FR ROVI:ES Weekly Return 20 bps 16 bps 10 bps 9 bps 8 bps Top Detractors   ATS:AT RWAY:IT LOUP:FR PMAG:AT SON:PT Weekly Return -12 bps -11 bps -9 bps -7 bps -7 bps Top Prospects   STR:AT TESB:BE SOLV:BE BB:FR FDJ:FR BCA Score 99.74% 97.33% 96.76% 96.66% 96.57% BCA Japan Portfolio Market Monitor (Jul 22, 2021) Market Monitor (Jul 22, 2021) Total Weekly Return BCA Japan Portfolio TOPIX TRI -0.77% -1.81% Top Contributors   7593:JP 8117:JP 6960:JP 6413:JP 3459:JP Weekly Return 8 bps 7 bps 6 bps 4 bps 4 bps Top Detractors   5021:JP 5020:JP 3291:JP 7994:JP 6641:JP Weekly Return -19 bps -14 bps -13 bps -12 bps -12 bps Top Prospects   4966:JP 6960:JP 9436:JP 6641:JP 8117:JP BCA Score 99.72% 99.39% 99.01% 98.49% 98.41% BCA Hong Kong Portfolio Image Total Weekly Return BCA Hong Kong Portfolio Hang Seng TRI -0.77% -0.97% Top Contributors   215:HK 2380:HK 316:HK 990:HK 323:HK Weekly Return 30 bps 26 bps 14 bps 12 bps 11 bps Top Detractors   220:HK 3600:HK 468:HK 856:HK 2232:HK Weekly Return -29 bps -25 bps -24 bps -22 bps -19 bps Top Prospects   1277:HK 2232:HK 857:HK 1606:HK 990:HK BCA Score 99.81% 99.47% 99.25% 98.76% 98.51% BCA Australia Portfolio Market Monitor (Jul 22, 2021) Market Monitor (Jul 22, 2021) Total Weekly Return BCA Australia Portfolio S&P/ASX All Ord. TRI 0.10% 0.56% Top Contributors   NEC:AU RUL:AU JLG:AU SGF:AU GRR:AU Weekly Return 22 bps 17 bps 16 bps 15 bps 12 bps Top Detractors   AGI:AU FLN:AU BLX:AU DDR:AU PSQ:AU Weekly Return -47 bps -12 bps -8 bps -8 bps -8 bps Top Prospects   GRR:AU BFG:AU PIC:AU BLX:AU SOL:AU BCA Score 99.09% 98.31% 97.86% 97.46% 97.33%

Dear Client, We will be presenting our quarterly webcast next week, and, as a result, will not be publishing on 29 July 2021.  We will cover our major calls for the quarter and provide a look-ahead.  I look forward to the Q+A, and am hopeful you will tune in. Bob Ryan Chief Commodity & Energy Strategist   Highlights Chart Of The WeekOPEC 2.0's Hand Strengthened By Production Agreement OPEC 2.0s Hand Strengthened By Production Agreement OPEC 2.0s Hand Strengthened By Production Agreement The deal crafted by OPEC 2.0 over the weekend to add 400k b/d of oil every month from August preserves the coalition, and sends a credible signal of its ability to raise output after its 5.8mm b/d of spare capacity is returned to market next year.1 KSA and Russia will remain primi inter pares, but the position of OPEC 2.0's core producers – not just the UAE, which negotiated an immediate baseline increase – was enhanced for future negotiations. This deal explicitly recognizes they are the only ones capable of increasing output over an extended period. We assume the revised production baselines for core OPEC 2.0 effective May 2022 reflect the coalition's demand expectations from 2H22 onward. Our modeling indicates core OPEC 2.0's output will almost converge on the revised baseline production of 34.3mm b/d by 2H23, when we expect these producers to be at ~ 33.4mm b/d. Holding our demand estimates constant from last week, our revised supply expectations prompt us to move our forecast closer to our June forecast. We expect Brent to average $70/bbl in 2H21, with 2022 and 2023 averaging $74 and $80/bbl (Chart of the Week). Feature The deal concluded by OPEC 2.0 over the weekend will do more than add 400k b/d of spare capacity to the market every month beginning next month. It also does more than preserve the producer coalition's successful production-management strategy.  The big take-away from the deal is the clear message being sent by the coalition's core members – KSA, Russia, Iraq, UAE and Kuwait – that they are able to significantly increase output after their 5.8mm b/d of spare capacity has been returned to the market over the next year or so. It does so by raising the baselines of the core producers starting in May 2022, clearly indicating the capacity and willingness to raise output and keep it there (Table 1). Table 1Baseline Increases For Core OPEC 2.0 OPEC 2.0's Forward Guidance In New Baselines OPEC 2.0's Forward Guidance In New Baselines What OPEC 2.0's Deal Signals Internally, the deal is meant to recognize the investment made by the UAE in particular, which was not being accounted for in its current baseline. Externally – i.e., to competitors outside the coalition – the deal signals OPEC 2.0's successful production management strategy will continue, by raising the likelihood the coalition will remain intact. This has kept the level of supply below demand over the course of the COVID-19 pandemic (Chart 2), and is responsible for the global decline in inventories (Chart 3). Chart 2OPEC 2.0 Durability Increases OPEC 2.0 Durability Increases OPEC 2.0 Durability Increases Chart 3Inventories Will Remain Under Control Inventories Will Remain Under Control Inventories Will Remain Under Control Specifically, the massive spare capacity still to be returned to the market between now and 2H22 can be accomplished with minimal risk of a market-share war breaking out among the core OPEC 2.0 members seeking to monetize their off-the-market production before the other members of the coalition. Most importantly, the revised benchmark production levels that becomes effective May 2022 signal the coalition members with the capacity to increase production can do so. Longer-Term Forward Guidance We assume the revised production baselines for core OPEC 2.0 effective May 2022 reflect the coalition's demand expectations from 2H22 onward. Our modeling indicates core OPEC 2.0's output will approach the revised baseline reference levels of 34.3mm b/d, hitting 33.4mm b/d for crude and liquids output by 2H23 (Table 2).  Table 2BCA Global Oil Supply - Demand Balances (MMb/d, Base Case Balances) To Dec23 OPEC 2.0's Forward Guidance In New Baselines OPEC 2.0's Forward Guidance In New Baselines This implies the core group expects to be able to cover production declines within the coalition and to meet demand increases going forward. The estimates are far enough into the future to prepare ahead of time to increase production. Our estimates for core OPEC 2.0 production reflects our assumption the revised baseline levels do reflect demand expectations of the coalition. In estimating the coalition's production, we rely on historical data from the US EIA, which allows us to estimate future production using regressors we consider reliable (e.g., GDP estimates from the IMF and World Bank).  Non-OPEC 2.0 Production We use EIA historical data for non-OPEC 2.0 production as well. In last week’s balances, we substituted the EIA's estimates for non-OPEC 2.0 producers ex-US for our estimates, which resulted in lower supply numbers throughout our forecast sample.  This threw off our balances estimates in particular, as we did not balance the decrease in supply from this group using the new data set with an increase from another group. We corrected this oversight this week: We will continue to use EIA estimates for non-OPEC 2.0 ex-US countries, but will balance the decrease in oil production from this cohort with increased supply from other countries. Chart 4US Shales Are The Marginal Barrel US Shales Are The Marginal Barrel US Shales Are The Marginal Barrel For US oil production, we will continue to estimate it as a function of WTI price levels, the forward curve and financial variables – chiefly high-yield rates, which serve as a good proxy for borrowing costs for the marginal US shale producer, which we view as the quintessential marginal producer in the global price-taking cohort (Chart 4). Our research indicates US shale producers – like all producers, for that matter – are prioritizing shareholder interests first and foremost. This means they will focus on profitability and margins. While we have observed this tendency for some time, it appears it is gaining speed, as oil and gas producers are now considering whether they want to retain their existing exposure to their hydrocarbon assets.2   There appears to be a reluctance among resource producers generally – this is true in copper, as we have noted – to substantially increase capex. This could be the result of covid uncertainty, demand uncertainty, monetary-policy uncertainty or a real attempt to provide competitive returns. We think it is a combination of all of these, but the picture is clouded by the difficulty in separating all of these uncertainties. Income Drives Oil Demand Chart 5Income Drives Oil Demand Income Drives Oil Demand Income Drives Oil Demand Our demand estimates will continue to be driven by estimates of GDP from the IMF and the World Bank. We have found the level of oil consumption is highly correlated with GDP, particularly for EM states (Chart 5). Holding our demand estimates constant from last week, our revised supply expectations prompt us to move our forecast closer to our June forecast.  This week, we also will adjust our inventory calculations, which will rely less on EIA estimates of OECD stocks. In the recent past, these estimates played a sizeable role in our forecasts. From this month on, they will play a smaller part. This is why, even though our supply estimates have risen from last week, there is not a significant change to our inventory levels. Investment Implications Holding our demand estimates constant from last week, our revised supply expectations prompt us to move our forecast closer to our June forecast. We expect Brent to average $70/bbl in 2H21, with 2022 and 2023 averaging $74 and $80/bbl. We remain bullish commodities in general, given the continued tightness in these markets. We expect this to persist, as capex remains elusive in oil, gas and metals markets. This underpins our long S&P GSCI and COMT ETF commodity recommendations, and our long MSCI Global Metals & Mining Producers ETF (PICK) recommendation.   Robert P. Ryan  Chief Commodity & Energy Strategist rryan@bcaresearch.com Ashwin Shyam Research Associate Commodity & Energy Strategy ashwin.shyam@bcaresearch.com   Commodities Round-Up Energy: Bullish US natural gas exports via pipeline to Mexico averaged just under 7 bcf/d in June, according to the EIA. Exports hit a record high of 7.4 bcf/d on 24 June 2021. The record high for the month was 7.4 Bcf/d on June 24. The EIA attributes the higher exports to increases in industrial and power demand, and high temperatures, which are driving air-conditioning demand south of the US border. Close to 5 bcf/d of the imported gas is used to generate power, according to the EIA. This was up close to 20% y/y. Increases in gas-pipeline infrastructure are allowing more gas to flow to Mexico from the US. Base Metals: Bullish China reportedly will be selling additional copper from its strategic stockpiles later this month, in an effort to cool the market. According to reuters.com, market participants expect China to auction 20k MT of Copper on 29 July 2021. This will bring total sales via auction to 50k MT, as the government earlier this month sold 30k MT at $10,500/MT (~ $4.76/lb). Prior to and since that first auction, copper has been trading on either side of $4.30/lb (Chart 6). Market participants expected a higher volume than the numbers being discussed as we went to press. In addition to auctioning copper, the government reportedly will auction other base metals. Precious Metals: Bullish Interest rates on 10-year inflation-linked bonds remain below -1%, as U.S. CPI inflation rises. US 10-year treasury yields have rebounded since sinking to a five-month low at the beginning of this week. The positive effect of negative real interest rates on gold is being balanced by a rising USD (Chart 7). Safe-haven demand for the greenback is being supported by uncertainty caused by COVID-19’s Delta variant. Gold prices are still volatile after the Fed’s ‘dot shock’ in mid-June.3 This volatility is reducing safe-haven demand for the yellow metal despite rising economic and policy uncertainty. Ags/Softs: Neutral Hot, dry weather is expected over most of the grain-growing regions of the US for the balance of July, which will continue to support prices, according to Farm Futures. Chart 6Copper Prices Going Down Copper Prices Going Down Copper Prices Going Down Chart 7Weaker USD Supports Gold Weaker USD Supports Gold Weaker USD Supports Gold   Footnotes 1Please see 19th "OPEC and non-OPEC Ministerial Meeting concludes" published by OPEC 18 July 2021. 2Please see "BHP said to seek an exit from its petroleum business" published by worldoil.com July 20, 2021.  3Please refer to ‘“Dot Shock” Continues To Roil Gold; Oil…Not So Much’, which we published on  July 1, 2021 for additional discussion. It is available at ces.bcaresearch.com. Investment Views and Themes Strategic Recommendations Tactical Trades Commodity Prices and Plays Reference Table Trades Closed In 2021 Summary of Trades Closed OPEC 2.0's Forward Guidance In New Baselines OPEC 2.0's Forward Guidance In New Baselines

Weekly Performance Update For the week ending Thu Jul 15, 2021 The Market Monitor displays the trailing 1-quarter performance of strategies based around the BCA Score. For each region, we construct an equal-weighted, monthly rebalanced portfolio consisting of the top 3 stocks per sector and compare it with the regional benchmark. For each portfolio, we show the weekly performance of individual holdings in the Top Contributors/Detractors table. In addition, the Top Prospects table shows the holdings that currently have the highest BCA Score within the portfolio. For more details, click the region headers below to be redirected to the full historical backtest for the strategy. BCA US Portfolio Market Monitor (Jul 15, 2021) Market Monitor (Jul 15, 2021) Total Weekly Return BCA US Portfolio S&P500 TRI 0.73% 0.92% Top Contributors   TX:US ESGR:US AN:US ANAT:US PSB:US Weekly Return 31 bps 27 bps 17 bps 13 bps 7 bps Top Detractors   DELL:US ET:US SIG:US LPX:US ENBL:US Weekly Return -16 bps -16 bps -14 bps -14 bps -13 bps Top Prospects   ESGR:US MPLX:US ANAT:US BRK.A:US TX:US BCA Score 98.82% 95.52% 95.26% 94.88% 94.47% BCA Canada Portfolio Market Monitor (Jul 15, 2021) Market Monitor (Jul 15, 2021) Total Weekly Return BCA Canada Portfolio S&P/TSX TRI -0.92% 0.61% Top Contributors   CS:CA RUS:CA GIB.A:CA NWH.UN:CA CSU:CA Weekly Return 18 bps 10 bps 7 bps 5 bps 5 bps Top Detractors   CFP:CA IFP:CA BB:CA WEED:CA CRON:CA Weekly Return -34 bps -30 bps -23 bps -17 bps -14 bps Top Prospects   LNF:CA IFP:CA CFP:CA CS:CA LNR:CA BCA Score 99.21% 99.11% 97.65% 96.46% 95.82% BCA UK Portfolio Market Monitor (Jul 15, 2021) Market Monitor (Jul 15, 2021) Total Weekly Return BCA UK Portfolio FTSE 100 TRI 0.42% -0.27% Top Contributors   TUNE:GB SVST:GB NLMK:GB AGRO:GB MNOD:GB Weekly Return 34 bps 26 bps 22 bps 20 bps 18 bps Top Detractors   HFD:GB FDEV:GB DEC:GB PZC:GB NVTK:GB Weekly Return -25 bps -18 bps -16 bps -14 bps -12 bps Top Prospects   SVST:GB NLMK:GB GLTR:GB ROSN:GB GROW:GB BCA Score 98.36% 97.66% 95.92% 95.79% 93.68% BCA Eurozone Portfolio Market Monitor (Jul 15, 2021) Market Monitor (Jul 15, 2021) Total Weekly Return BCA EMU Portfolio MSCI EMU TRI -0.27% 1.28% Top Contributors   APAM:NL POST:AT ATS:AT SOLV:BE US:IT Weekly Return 18 bps 11 bps 7 bps 6 bps 6 bps Top Detractors   CNV:FR ROTH:FR PHA:FR GTT:FR REY:IT Weekly Return -33 bps -11 bps -9 bps -8 bps -8 bps Top Prospects   STR:AT FDJ:FR ROTH:FR SOLV:BE TESB:BE BCA Score 99.81% 98.29% 97.59% 97.45% 97.16% BCA Japan Portfolio Market Monitor (Jul 15, 2021) Market Monitor (Jul 15, 2021) Total Weekly Return BCA Japan Portfolio TOPIX TRI 1.70% 1.00% Top Contributors   7994:JP 9543:JP 6960:JP 8133:JP 8630:JP Weekly Return 20 bps 19 bps 17 bps 13 bps 12 bps Top Detractors   8117:JP 8979:JP 3468:JP 3539:JP 4326:JP Weekly Return -17 bps -4 bps -3 bps -2 bps -0 bps Top Prospects   4966:JP 8117:JP 6960:JP 9436:JP 8133:JP BCA Score 99.95% 98.90% 98.70% 98.13% 97.70% BCA Hong Kong Portfolio Image Total Weekly Return BCA Hong Kong Portfolio Hang Seng TRI 1.03% 3.11% Top Contributors   2877:HK 3600:HK 1898:HK 323:HK 148:HK Weekly Return 64 bps 54 bps 31 bps 25 bps 24 bps Top Detractors   1919:HK 316:HK 329:HK 43:HK 990:HK Weekly Return -56 bps -51 bps -40 bps -29 bps -25 bps Top Prospects   1277:HK 98:HK 857:HK 1606:HK 990:HK BCA Score 99.86% 99.31% 99.04% 98.80% 98.67% BCA Australia Portfolio Market Monitor (Jul 15, 2021) Market Monitor (Jul 15, 2021) Total Weekly Return BCA Australia Portfolio S&P/ASX All Ord. TRI 0.42% 0.02% Top Contributors   GRR:AU RUL:AU JLG:AU AST:AU SDG:AU Weekly Return 50 bps 22 bps 18 bps 10 bps 8 bps Top Detractors   TLX:AU NEW:AU PSQ:AU CVW:AU SGF:AU Weekly Return -22 bps -18 bps -17 bps -16 bps -13 bps Top Prospects   BSE:AU BFG:AU GRR:AU AGI:AU SGF:AU BCA Score 98.77% 98.47% 98.41% 98.34% 97.32%