Global financial pandemic

Transcription

1 Global financial pandemic Dr. Sherry Cooper Global Economic Strategist & Executive Vice President BMO Financial Group November, 8 BMO Capital Markets

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3 Financial crisis eases for interbank lending 3 1 Interbank rates LIBOR / OIS spread 7 8 UK Euro TED spread United States 7 8 LIBOR / OIS spread:, UK, Euro = (3-mnth LIBOR minus 3-mnth OIS : bps), = (3-mnth BA minus 3-mnth OIS : bps) TED spread = (3-mnth LIBOR minus 3-mnth T-bills : bps) 3 1 Stocks highly volatile 8 (as of November, 8) VIX = CBOE market volatility index Equity markets TSX DJIA 7 Sep 1 Sep Oct 13 Nov 3 Nov VIX United States Sep 1 Sep Oct 13 Nov 3 Nov Corporate credit spreads rise United States Junk bond spread (bps) 7 8 Commercial real estate prices (y/y % chng) Commercial real estate at risk Junk bond spread = Merrill Lynch High Yield Corporates minus Treasuries Commercial real estate prices = S&P/GRA Commercial Real Estate Index 1 1 Central banks take action BoC provides liquidity for banks Rate cuts Capital infusion Bail out banks On the way: Housing bail-out Fiscal stimulus for households and businesses Re-regulation Page 1-

4 The ultimate outcome Reduced leverage Smaller balance sheets Reduced growth potential Economic outlook weak recession Canadian recession Credit crunch Future of Detroit-Three Lower rates of return Deleveraging Unprecedented private-sector deleveraging underway Growth brakes Debt outstanding United States ($ blns : q/q chng) 3 1 Business Consumer Government (q/q % chng : ar) Real GDP Recession Final domestic demand Recession Final domestic demand = Real GDP less net exports and inventories Page -8

5 Ontario recession risk Real GDP (y/y % chng) Sask Alta Man BC Atlantic Que Ont Source: BMO Capital Markets s Sask Atlantic Man BC Alta Que Ont A have not province Regional divide takes on new meaning (3-mnth ma : y/y % chng : as of August 8) Retail sales 1 1 British Columbia + Alberta Ontario + Quebec housing crisis Falling prices Rising foreclosures Large glut of unsold homes Creates financial crisis Still massive overhang of unsold homes Home sales United States New Median prices (rhs) Months supply (lhs) Record low ½-year high Existing Median prices (rhs) Record low Negative equity Walkaways Months supply = (ratio) Median prices = (y/y % chng) Months supply (lhs) Record high Page 9-1

6 housing activity and prices plummet, 1,8 1, Housing starts (s of units) (lhs) (rhs) Good news S&P/Case-Shiller cities index United States (y/y % chng) Record decline Down 1.8% from July peak Canadian house prices slow Existing home prices (3-mnth ma : y/y % chng) -8 8 (3-mnth avg : y/y % chng : as of October 8) St John s Saskatoon Halifax Ottawa Toronto Vancouver Calgary Major Markets First national decline since 1998 Average home price $189, $8, $, $81, $33, $7, $389, $3, G-7 recession Global growth chills Real GDP G-7 (y/y % chng) 8 Germany France UK.8.8. Japan.3 Italy Source: BMO Capital Markets s 9 Japan France Italy Germany UK (ann % chng) Real GDP China India Latin Asia Europe Japan America (excl China, Japan & India) Emerging markets also slow Ranked by 8 Source: [8 & 9] BMO Capital Markets s World Page 13-1

7 Global recession? dollar off the bottom (y/y % chng) Global real GDP World Recession (as of November, 8) Broad trade-weighted $ February 7, peak 1 July 1, 8 trough % from trough % Chng (vs $) Euro Swiss franc Yen Canadian $ Australian $ Chinese yuan UK pound Trade-weighted $ Mexican peso Feb peak to present y-t-d Loonie weakens with economy and commodity prices ( : as of November, 8) Canadian dollar Parity Current Commodity price pullback Commodity price range (since January : as of November, 8) Foodstuffs Metals & energy Low Current High Low Current High Coffee Gold ($/lb) ($/oz) Soybeans Oil ($/bu) ($/bbl) Wheat Natural gas ($/bu) ($/mmbtu) Corn Copper 8. 1,11. ($/bu) ($/lb) Page 17-

8 Headline inflation falling Consumer price index (y/y % chng) 3 Core United States Total.% 1.7% Deflation risk Total 3.7% 3 Core.% BoC and Fed will step in again (% : as of November, 8) Overnight rates housing boom 1% -year low %.% Interest rates fall (% : as of November, 8) 3-month bills 1-year bonds Current spread 7 bps... 3.% (Year-end. 1.8% 9) 3. 1.% 3.%.13% % % (Year-end 9) 3.% consumers worried Housing collapse Job uncertainty Stocks weak Credit tight Page 1-

9 Consumer confidence buckling Consumer confidence indices (January = 1) Conference Board University of Michigan sentiment index United States Nose-dives in... Lower gas prices help a bit American consumers retrench (y/y % chng) Real personal consumption expenditures Canadians follow suit Discretionary spending crimped business cautious Retail sales (3-mnth ma : y/y % chng) 1 1 United States Necessities 1 1 Necessities Confidence falls Financial sector earnings collapse Capital spending growth slows Discretionary Total Discretionary Total Necessities = food, health care, gas Hard hit Canadian business hurt as well Page -8

10 Commodity decline to hurt Canadian profits Financial market performance Business confidence Conference Board 7 8 Pre-tax corporate profits United States Business chill Business confidence = (:Q1 = 1) Pre-tax corporate profits = (y/y % chng) Pre-tax corporate profits Financial market returns local currency (% chng : as of November, 8) Dividend yields: TSX.% S&P 3.% Stocks DJIA TSX S&P Nasdaq Bonds GoCs Treasuries Commodities CRB index 8 y-t-d 7-3% -39% -% -% % 9% -3% % 7% % 1% % 1% 17% 1% 1% 1% 1% % 3% -7% -1% % 3% 1% 7% 3% 17% Global bear market Transformational leader (y-t-d % chng : as of November, 8) Equity markets DJIA TSX S&P UK Germany Nasdaq Australia Japan India China Russia Big stimulus package soon after inauguration Postpones tax hikes Facing enormous challenges Page 9-3