The Great Escape? Douglas Porter, CFA. Deputy Chief Economist & Managing Director, BMO Capital Markets

Transcription

1 The Great Escape? Douglas Porter, CFA Deputy Chief Economist & Managing Director, BMO Capital Markets

2 Financial Markets Revive (as of May 3, 21) 16 Stocks Canadian Dollar ( ) 15 Commodities S&P 5 (lhs) TSX (rhs) Oil ($/bbl: lhs) Copper ($/lb: rhs) Recovery Trumps New Concerns

3 Major Indicators On the Mend 3 Employment (m/m chng : s) Retail Sales (y/y % chng) 45 3 China s Exports (y/y % chng : 2-mnth ma)

4 Recession Ends (q/q % chng : ar) Real GDP Recession Gauges: Length ~19 mnths 3 qtrs Depth -3.8% -3.6% (last 4 qtrs) forecast

5 Canadian Housing Markets Rebound 9 8 Home Sales (mlns : ar) (rhs) Existing Home Prices (y/y % chng : 3-mnth ma) 12 1 Housing Starts (25 = 1 : 2-mnth ma) (lhs) Home Sales: = Existing = Existing + New

6 Canadian House Prices Major Markets (y/y % chng : as of March 21) Existing Home Prices Vancouver Toronto Major Markets Ottawa Quebec City Montreal Calgary Winnipeg (weighted) 3.7 Average Home Price $693, $435, $374, $331, $26, $278, $46, $227,

7 Affordability: Back Below Average... Before Rate Hikes (January 1988 = 1) Housing Affordability Index mean Source: BMO Capital Markets

8 Job Losses in Perspective (y/y % chng) Employment 6 Cumulative Chng in Recession % Level -2.4% -417, -5.9% -8.4 mln Record -4.7% -2.4% recession Recession Much Worse.9% -1.8%

9 Unemployment to Remain High (percent) Unemployment Rate 12 9 Quebec 9.7% 8.2% 6 8.% 3 forecast

10 Ontario, Alberta and BC Hit Hardest Victoria Change in Unemployment Rate Vancouver (chng since credit crisis erupted : ppts) 3.8 Edmonton Calgary [September 8 to March 1] 3.5 Winnipeg Saskatoon Regina Southwestern Ontario 2.3 Windsor Sudbury Quebec City Montreal Ottawa Thunder Bay Oshawa Toronto 2. Windsor Kitchener London 2.4 St Catharines Hamilton Toronto Saint John Sherbrooke 1.2 Halifax St John s

11 Provincial Outlook: Broad Recovery Real GDP (y/y % chng) Man Que BC Atlan Ont Alta Sask Sask BC Alta Ont Man Que Atlan Source: [21] BMO Capital Markets forecasts

12 Consumers Retrench Real Consumer Spending (y/y % chng) Personal Savings Rate (% of disposable income) forecast

13 Canadian Consumers: Holding Up Better Consumer Confidence Index (January 27 = 1) Employment Ratio (% of population) Household Credit (y/y % chng) Confidence, Cash and Credit Are Key Household Credit = Consumer Credit and Residential Mortgages

14 Canadian Household Sector in Better Shape Total Debt (ratio to personal disposable income) Loan-to-House Value (%) Subprime Malaise Net Worth (ratio to personal disposable income) 6.5 Housing Bubble Tech Stock Bubble Total Debt includes unincorporated businesses

15 Changing Gears Vehicle Sales (mlns : ar) China Crossover (lhs) (rhs) (3-mnth ma) 8 : Mar & Apr = estimate

16 Global GDP: World of Difference 29:Q4 (y/y % chng) Real GDP World China Taiwan Korea India Brazil Australia Japan Eurozone Mexico UK Russia [Q1] [Q1] [Q1] [Q1] [Q1]

17 Loonie & Commodities: So Happy Together Again (as of May 3, 21) BoC Commodity Price Index (lhs) C$ ( : rhs)

18 Dollar Still Vulnerable (as of May 3, 21) Broad Trade-weighted $ February 27, 22 Peak March 9, 29 July 15, 28 Trough forecast % Chng (vs $) Sovereign Risks Australian $ Canadian $ Swiss Franc Euro Japanese Yen Chinese Yuan UK Pound Trade-weighted $ Mexican Peso Feb 2 Peak to Present Y-T-D

19 Budget Deficit: Record Shortfall Budget Balance United States $ Blns 4-4 Reagan Bush Clinton Bush Obama 8-8 % of Nominal GDP -5.1% -6.% -8.3% -9.9% -1.6% -8-1,2-1, Source: OMB = forecast -1,413-1, ,342 Record World War I AAA Rating At Risk World War II

20 Priming the Fiscal Pump in Budget Balance C$ Blns % of Nominal GDP Prior Trough Attention Will Soon Turn to Restraint Source: Federal Budget 29/1 = estimate forecast

21 OECD Fiscal Landscape 21 (% of nominal GDP) Deficit vs Debt Deficit Surplus New Zealand Australia Ireland Net Debt Dots represent countries in the OECD, except Norway, which has huge assets UK Spain France Portugal Germany TROUBLE Greece Italy Japan

22 Europe: Sovereign Risk 1-year Spreads vs Germany 1 (as of May 3, 21) Greece 2 Portugal 2 Ireland 1 Spain

23 Canadian Exports: Where now? Canadian Exports (% of total) 85 United States 16 Europe & Emerging Markets Europe Emerging Markets

24 Loonacy ( : as of May 3, 21) Canadian Dollar Parity Current Parity Beckons forecast

25 Headline Inflation Bounces Back Consumer Price Index (y/y % chng) United States 6 3 Total forecast 1.7% 6 3 Total 2.3% Core 1.4% Core 1.1% HST: Short-term Bump for Inflation

26 Inflation and Deflation Consumer Price Index (y/y % chng : as of March 21) Deflationary Inflationary Natural Gas Video Equipment Air Fares Mortgage Interest Clothing Furniture/Appliances Vegetables Gasoline Water Charges Auto Insurance Telephone Services Child Care Property Tax Tuition Fees Core CPI 1.7% Overall CPI 1.4%

27 Canadian Rate Hikes Coming (% : as of May 3, 21) Overnight Rate forecast 2 1 % -.25% Can Go It Alone?.25% Record Lows

28 Long-term Yields Will Rise a Bit (% : as of May 3, 21) 1-year Bonds % 3.65% Current spread -4 bps forecast 4.15% 4.5% (Year-end 1) 5.% 4.7% (Year-end 11) Fed Quantitative Easing Finished

29 Global Equities: From Worst to First Equity Markets (% chng) UK DJIA TSX S&P 5 Germany Nasdaq Japan Australia India China Russia Russia China India Nasdaq Australia TSX Germany S&P 5 UK Japan DJIA Nasdaq Russia S&P 5 DJIA Japan TSX Germany UK India Australia China 21 Year-to-Date (as of May 3, 21)

30 A Long Way Back (as of May 3, 21) 16 October 9, 27 S&P % 16 TSX June 18, % % % % March 9, % March 9,

31 Valuations in Check United States S&P 5 Price/Trend Earnings 5 4 Overvalued Undervalued (± one standard deviation)

32 Worst Is Over Massive Rate Cuts Fiscal Stimulus Financial Markets Heal But... Sovereign Risks Deleveraging Continues Strong Canadian Dollar Threat Outperforms, But Challenges Remain

33 The Great Escape? Douglas Porter, CFA Deputy Chief Economist & Managing Director, BMO Capital Markets