Month in Review: DECEMBER 2014

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1 Month in Review: DECEMBER 2014 What Moved the Markets Diverging monetary policy amongst global central banks, rising geopolitical tensions and declining global oil prices caused significant volatility across financial markets in December. Against this backdrop, the S&P 500 traded in a broad range, ultimately declining about 0.5% for the month. In Europe, the European Central Bank (ECB) concluded its December policy meeting without providing any further specifics about a potential government bond purchase program, although officials did continue to emphasize that the central bank had stepped up preparation for such measures in the new year. In Russia, policy makers surprised the markets with the largest interest rate increase since 1998 and a plan to sell foreign exchange reserves in an effort to shore up the falling ruble. Fixed Income Specific Developments The yield on U.S. 10-year Treasuries ended the month at 2.23%, 7 bps higher than November s closing yield of 2.16%. November Nonfarm payrolls posted a gain of 321,000, which represented the largest month-over-month increase since 2011, while third quarter gross domestic product (GDP) of 5.0% (vs. consensus 4.3%) signalled that the ongoing U.S. recovery continues to gain momentum. The main driver of the upward revision was consumer spending on services, which added an additional 0.6% to headline growth. November retail sales also beat expectations, rising 0.7% (vs. consensus 0.4%), driven in part by the sharp decline in gasoline prices, which has added significant cash flow to consumer wallets. The Federal Reserve left its benchmark rate unchanged at 0%-0.25%; however, it did shift its language to some degree as the official statement indicated the Fed would be patient before hiking interest rates, which was a departure from its pledge to keep interest rates low for a considerable time. In Canada, the yield on the benchmark 10-year bond increased 2 basis points to 1.87%. GDP increased by 0.3% in October, which was above the consensus expectations of a 0.1% increase, with gains broadly based across goods and services. November s headline CPI cooled slightly as energy prices continued to decline, advancing by 2.0% year-over-year compared to the 2.4% reading in October. The Bank of Canada maintained its overnight rate at 1% as expected, with Governor Stephen Poloz adding: stronger exports are beginning to be reflected in increased business investment and employment. All indices and figures priced in local currency as at December 31, 2014 (unless otherwise stated). For Important Disclosures, see page 9.

2 What Moved the Markets continued from page 1 Global Developments The European Central Bank (ECB) left its benchmark policy rate unchanged at its December policy meeting and did not provide any details of a potential asset purchase program. ECB President Mario Draghi indicated that the decline in oil prices was influencing the Governing Council s thinking about policy given the implications for inflation. Although lower oil prices are a boon to consumers and can help to support growth, depressed energy prices could have a dampening effect on inflation that could prove problematic should inflation expectations fall from current low levels. Number Crunching Equity Indices* Month YTD* S&P/TSX Composite Index TR -0.4% 10.6% Dow Jones Industrial Average TR 0.1% 10.0% S&P 500 Index TR -0.3% 13.7% NASDAQ Composite Index TR -1.1% 14.7% MSCI EAFE TR (USD) -3.4% -4.5% MSCI World TR (USD) -1.6% 5.5% S&P/TSX Sector Performance* Month YTD* S&P/TSX Financials TR -3.0% 13.8% S&P/TSX Energy TR 0.4% -4.8% S&P/TSX Materials TR 1.0% -2.6% S&P/TSX Industrials TR -0.3% 21.9% S&P/TSX Consumer Discretionary TR 2.3% 29.1% S&P/TSX Telecom Services TR -0.3% 15.5% S&P/TSX Information Technology TR 5.0% 35.1% S&P/TSX Consumer Staples TR 8.1% 49.1% S&P/TSX Utilities TR -1.8% 16.1% S&P/TSX Healthcare TR 0.7% 30.3% Currencies (in Canadian Dollars) Exchange Month YTD* US Dollar % 9.4% Euro % -3.7% British Pound % 2.9% Japanese Yen (100) % -3.8% Commodities (US$) Spot Price Month YTD* Crude Oil (WTI per barrel) $ % -45.9% Natural Gas (per million btu) $ % -31.7% Gold (per ounce) $1, % -1.7% Silver (per ounce) $ % -19.3% Copper (per pound) $ % -13.7% Nickel (per pound) $ % 9.0% Aluminum (per pound) $ % 4.0% Zinc (per pound) $ % 6.0% * All returns are on a Total Return basis. All indices are in local currency unless otherwise noted. Source: Bloomberg 2 MONTH IN REVIEW

3 What Moved the Markets continued from page 2 The Central Bank of Russia announced an emergency rate hike of 650 bps, bringing its key overnight rate to 17% after the ruble plunged to a record low versus the U.S. dollar. During the annual Central Economic Work Conference in China on December 11, President Xi and Premier Li suggested a shift towards lower growth, but higher quality in the New Normal. The overall tone of the statement was slightly more positive on growth than previous statements had been, with the government noting that it expects 2014 annual growth to be within a reasonable range and that various major economic targets will likely be achieved. S&P/TSX Index - Target Overnight Rate, LTM S&P/TSX Index Target Overnight Rate 1.4 % 16,000 15, % 14, % 13, % 12, % 11, % 10,000 1/16/14 2/13/14 3/14/14 4/11/14 5/12/14 6/10/14 7/9/14 8/7/14 9/5/14 10/3/14 11/3/14 12/1/14 12/31/14 Source: Bloomberg 3 MONTH IN REVIEW

4 North American Equity Highlights December ,100 15,400 December 18: Shares of Oracle Corporation (ORCL) surged 10.2% after it announced quarterly earnings and revenue results that topped analyst expectations, along with strong cloud growth. 3 2,070 15,150 14,900 December 9: Shares of Abercrombie & Fitch Co (ANF) rose 8.0% after CEO Michael Jeffries announced he would step down after over two decades at the helm. 1 December 15: PetSmart Inc. (PETM) increased 4.2% after it agreed to be bought by a group led by BC Partners for about $8.3 billion (U.S.). 2 December 22: Shares of Gilead Sciences Inc (GILD) tumbled 14.3% after it was announced that Express Scripts Holding Co. (ESRX) said it had lined up a cheaper price for AbbVie Inc's (ABBV) newly approved hepatitis C treatment and, in most cases, would no longer cover GILD's treatments. 1 2,040 2,010 1,980 S&P/TSX 14,650 December 4: Enbridge Inc. (ENB) shares surged 10.3 % after it announced a sweeping plan to restructure its finances by transferring $17 billion of assets into Enbridge Income Fund (ENF). 2 1,950 S&P ,400 14,150 13,900 December 1: Canexus Corp (CUS) slid 10.8% after it announced in its latest earnings release that it loaded five unit trains in the third quarter, well below its intended 70,000 bpd capacity. 1 December 9: Shares of AGF Management Ltd (AGF.B) plummeted 35.5% after the company announced it would From slash its quarterly Subject dividend Received Size by 70% in Mackay, order to RyCan allow AGF I get to m 11:05 AM 2 KB renew its share buyback program, as well as allocate capital for growth. 1 December 23: Shares of Encana Corp (ECA) and Veresen Inc. (VSN) increased 1.8% and 14.9%, respectively, after ECA announced it was selling its gas pipeline and processing assets in the Montney region to VSN and KKR & Co. LP for $412 million. 2 December 15: Talisman Energy Inc. (TLM) shares rose 18.5% after it was announced it agreed to be acquired by Spain's Repsol SA in an $8.3 billion (U.S.) all cash deal. 2 1,920 1,890 1,860 1,830 13,650 1,800 12/1/ /2/ /3/ /4/ /5/ /8/ /9/ /10/ /11/ /12/ /15/ /16/ /17/ /18/ /19/ /22/ /23/ /24/ /26/ /29/ /30/ /31/2014 S&P/TSX S&P Reuters 2 The Globe and Mail 3 The Wall Street Journal Pricing Data Source: Bloomberg 4 MONTH IN REVIEW

5 World Markets December 2014 Global indices were mostly negative for the month of December. China s Shanghai Index posted the largest return, gaining 20.6%. Australia s S&P/ASX 200 also posted a positive return of 2.1%, while Japan s Nikkei index was flat for the month. The remaining indices were lower for the month, with the S&P 500 (-0.3%), the S&P/TSX (-0.4%), Hong Kong s Hang Seng (-1.6%), Germany s DAX (-1.8%), UK s FTSE 100 (-2.3%), India s Sensex (-4.1%), and Brazil s Bovespa (-8.6%) all posting negative returns. The MSCI World Index lost 1.6% overall in the last month of Canada: S&P/TSX M/M: -0.4% YTD: 10.5% U.S.: S&P 500 M/M: -0.3% YTD: 13.7% Brazil: Bovespa** M/M: -8.6% YTD: -2.9% U.K.: FTSE 100 M/M: -2.3% YTD: 1.0% Germany: DAX M/M: -1.8% YTD: 2.7% MSCI World Index: Global USD M/M: -1.6% YTD: 5.6% India: Sensex M/M: -4.1% YTD: 32.0% China: Shanghai Index M/M: 20.6% YTD: 58.0% Hong Kong: Hang Seng M/M: -1.6% YTD: 5.3% Japan: Nikkei M/M: 0.0% YTD: 8.9% Australia: S&P/ASX 200 M/M: 2.1% YTD: 7.1% All returns are on a total return basis unless otherwise noted All returns calculated in local currency except for MSCI World ** These indices are calcuated on a price return basis Source: Bloomberg 5 MONTH IN REVIEW

6 Canadian & U.S. Equities December 2014 S&P/TSX Composite Sector Movement S&P 500 Sector Movement -9% -7% -5% -3% -1% 1% 3% 5% 7% 9% Consumer Staples Information Technology Consumer Discretionary Materials Healthcare Energy Industrials Telecom Services Utilities Financials -7% -5% -3% -1% 1% 3% 5% 7% Utilities Financials Consumer Discretionary Energy Industrials Materials Consumer Staples Healthcare Information Technology Telecom Services Top 10 S&P/TSX Contributors/Decliners by Index Points Enbridge Inc Talisman Energy Inc Alimentation Couche-Tard Inc TransCanada Corp Potash Corp of Saskatchewan Inc Suncor Energy Inc Pembina Pipeline Corp Inter Pipeline Ltd Restaurant Brands International Inc Husky Energy Inc National Bank of Canada First Quantum Minerals Ltd Cenovus Energy Inc Encana Corp Canadian Oil Sands Ltd Canadian Natural Resources Ltd Canadian Imperial Bank of Commerce/Canada Toronto-Dominion Bank/The Royal Bank of Canada Bank of Nova Scotia/The Top 10 S&P 500 Contributors/Decliners by Index Points JPMorgan Chase & Co Bank of America Corp Oracle Corp Exxon Mobil Corp Biogen Idec Inc Home Depot Inc/The Chevron Corp CVS Health Corp Morgan Stanley Lowe's Cos Inc Gilead Sciences Inc AT&T Inc Coca-ColaCola Co/The Merck & Co Inc Johnson & Johnson Amazon.com Inc Microsoft Corp General Electric Co Verizon Communications Inc Apple Inc 6 MONTH IN REVIEW Source: Bloomberg

7 Canadian and U.S. Economic Data December 2014 Release Date Economic Indicators: Canada Period Consensus Actual Prior 12/23/2014 Gross Domestic Product (m-o-m, SA) Oct 0.10% 0.30% 0.40% 12/23/2014 Gross Domestic Product (y-o-y, SA) Oct 2.10% 2.30% 2.40% Labour market 12/05/2014 Net Change in Employment (000, SA) Nov /05/2014 Participation Rate (SA) Nov 66.00% 66.00% 66.00% 12/05/2014 Unemployment Rate (SA) Nov 6.60% 6.60% 6.50% Housing market 12/08/2014 Housing Starts (000, SAAR) Nov /11/2014 New Housing Price Index (y-o-y) Oct % 1.60% 12/15/2014 Existing Home Sales (m-o-m) Nov % 0.70% 12/12/2014 Teranet/National Bank HPI (m-o-m) Nov % 0.20% Consumer & Manufacturing 12/19/2014 Retail Sales (m-o-m, SA) Oct -0.30% 0.00% 0.80% 12/19/2014 Retail Sales Less Autos (m-o-m, SA) Oct 0.20% 0.20% 0.00% 12/16/2014 Manufacturing Sales (m-o-m, SA) Oct -0.30% -0.60% 2.20% Trade 12/05/2014 Merchandise Trade (billion, SA) Oct Prices 12/19/2014 Consumer Price Index (m-o-m) Nov -0.20% -0.40% 0.10% 12/19/2014 Consumer Price Index (y-o-y) Nov 2.20% 2.00% 2.40% 12/19/2014 Bank of Canada CPI Core (m-o-m) Nov 0.10% -0.20% 0.30% 12/19/2014 Bank of Canada CPI Core (y-o-y) Nov 2.40% 2.10% 2.30% Industrial Product Price (m-o-m) Oct -0.40% -0.50% -0.40% Raw Materials Price Index (m-o-m) Oct -2.50% -4.30% -1.80% 7 MONTH IN REVIEW

8 Economic Data continued from page 7 Release Date Economic Indicators: Canada Period Consensus Actual Prior 12/17/2014 Wholesale Sales (m-o-m, SA) Oct 0.20% 0.10% 1.80% 12/04/2014 Ivey Purchasing Managers Index (SA) Nov /08/2014 Building Permits (m-o-m, SA) Oct 0.00% 0.70% 12.50% Release Date Economic Indicators: U.S. Period Consensus Actual Prior 12/23/2014 GDP (q-o-q, SAAR) 3Q T 4.30% 5.00% 3.90% 12/23/2014 GDP Price Index (q-o-q, SAAR) 3Q T 1.40% 1.40% 1.40% 12/23/2014 Core PCE (q-o-q, SAAR) 3Q T 1.40% 1.40% 1.40% Labour market 12/05/2014 Change in Nonfarm Payrolls (000, SA) Nov /05/2014 Unemployment Rate (SA) Nov 5.80% 5.80% 5.80% Housing market 12/16/2014 Building Permits (000, SAAR) Nov /16/2014 Housing Starts (000, SAAR) Nov /23/2014 New Home Sales (000, SAAR) Nov /22/2014 Existing Home Sales (million, SAAR) Nov /15/2014 NAHB Housing Market Index (SA) Dec /02/2014 Construction Spending (m-o-m, SA) Oct 0.60% 1.10% -0.10% Consumer & Manufacturing 12/11/2014 Advance Retail Sales (m-o-m, SA) Nov 0.40% 0.70% 0.50% 12/11/2014 Retail Sales Less Autos (m-o-m, SA) Nov 0.10% 0.50% 0.40% 12/30/2014 Consumer Confidence (SA) Dec /23/2014 U. of Michigan Confidence Dec F /23/2014 Personal Consumption (q-o-q, SAAR) 3Q T 2.50% 3.20% 2.20% 12/23/2014 Durable Goods Orders (m-o-m, SA) Nov 3.00% -0.70% 0.30% 12/05/2014 Factory Orders (m-o-m, SA) Oct 0.00% -0.70% -0.50% 8 MONTH IN REVIEW

9 Economic Data continued from page 8 Release Date Economic Indicators: U.S. Period Consensus Actual Prior Trade 12/11/2014 Import Price Index (m-o-m) Nov -1.80% -1.50% -1.20% 12/11/2014 Import Price Index (y-o-y) Nov -2.60% -2.30% -1.70% 12/05/2014 Trade Balance (billion, SA) Oct Prices 12/17/2014 Consumer Price Index (m-o-m, SA) Nov -0.10% -0.30% 0.00% 12/17/2014 Consumer Price Index (y-o-y) Nov 1.40% 1.30% 1.70% 12/17/2014 CPI Core Index (SA) Nov /23/2014 PCE Deflator (y-o-y, SA) Nov 1.20% 1.20% 1.40% Other Indicators 12/01/2014 ISM Manufacturing Index (SA) Nov /31/2014 Chicago Purchasing Manager Index Dec /18/2014 Philadelphia Fed Index Dec /18/2014 Leading Indicators (m-o-m) Nov 0.50% 0.60% 0.60% 12/11/2014 Business Inventories (m-o-m, SA) Oct 0.20% 0.20% 0.30% Source: Bloomberg SA = Seasonally Adjusted; SAAR = Seasonally Adjusted Annual Rate; m-o-m = Month-over-month % change; q-o-q = Quarter-over-quarter % change; y-o-y = Year-over-year % change. This document has been prepared for use by the RBC Wealth Management member companies, RBC Dominion Securities Inc. (RBC DS)*, RBC Phillips, Hager & North Investment Counsel Inc. (RBC PH&N IC), RBC Global Asset Management Inc. (RBC GAM), Royal Trust Corporation of Canada and The Royal Trust Company (collectively, the Companies ) and their affiliates, RBC Direct Investing Inc. (RBC DI) *, RBC Wealth Management Financial Services Inc. (RBC WM FS) and Royal Mutual Funds Inc. (RMFI). Each of the Companies, their affiliates and the Royal Bank of Canada are separate corporate entities which are affiliated. *Members-Canadian Investor Protection Fund. RBC advisor refers to Private Bankers who are employees of Royal Bank of Canada and mutual fund representatives of RMFI, Investment Counsellors who are employees of RBC PH&N IC and the private client division of RBC GAM, Senior Trust Advisors and Trust Officers who are employees of The Royal Trust Company or Royal Trust Corporation of Canada, or Investment Advisors who are employees of RBC DS. In Quebec, financial planning services are provided by RMFI or RBC WM FS and each is licensed as a financial services firm in that province. In the rest of Canada, financial planning services are available through RMFI, Royal Trust Corporation of Canada, The Royal Trust Company, or RBC DS. Estate & Trust Services are provided by Royal Trust Corporation of Canada and The Royal Trust Company. If specific products or services are not offered by one of the Companies or RMFI, clients may request a referral to another RBC partner. Insurance products are offered through RBC WM FS, a subsidiary of RBC DS. When providing life insurance products in all provinces except Quebec, Investment Advisors are acting as Insurance Representatives of RBC WM FS. In Quebec, Investment Advisors are acting as Financial Security Advisors of RBC WM FS. The strategies, advice and technical content in this publication are provided for the general guidance and benefit of our clients, based on information believed to be accurate and complete, but we cannot guarantee its accuracy or completeness. This publication is not intended as nor does it constitute tax or legal advice. Readers should consult a qualified legal, tax or other professional advisor when planning to implement a strategy. This will ensure that their individual circumstances have been considered properly and that action is taken on the latest available information. Interest rates, market conditions, tax rules, and other investment factors are subject to change. This information is not investment advice and should only be used in conjunction with a discussion with your RBC advisor. None of the Companies, RMFI, RBC WM FS, RBC DI, Royal Bank of Canada or any of its affiliates or any other person accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained herein. Registered trademarks of Royal Bank of Canada. Used under license Royal Bank of Canada. All rights reserved. 15_90087_001 9 MONTH IN REVIEW