Wait Until Next Year By Avery Shenfeld, Chief Economist & Managing Director

Transcription

1 Wait Until Next Year By Avery Shenfeld, Chief Economist & Managing Director January 213

2 Tough Times for The Global Economy 2

3 World GDP Growth: No Pick-up Till % chg A 211A 212E 213E 214E Eurozone US China World 3

4 European Fiscal Drag Has Eased (L), But Private Sector is Still Weakening (R) 2.5% 2.% Fiscal Drag (European Commission) 4% 2% Net % of banks reporting increase/decrease in loan demand relative to prior quarter 1.5% % 1.% -2%.5% -4% -6% loans to firms loans to h.holds.% Q2 9-Q4 1-Q2 1-Q4 11-Q2 11-Q4 12-Q2 Source: EC, ECB 4

5 ECB Aims at Bond Yields But Does Emperor Draghi Have No Clothes? Italian 1-yr yield 8 Draghi: "Eurozone is stabilizing" 7 List of Countries that Need and Qualify for OMT Purchases OMG it's OMT! 2 Sep- 1 Mar- 11 Sep- 11 Mar- 12 Sep- 12 Source: Bloomberg 5

6 Spain is not Greece Elena Salgado, Spanish Finance Minister, February 21 Portugal is not Greece The Economist, April 21 Greece is not Ireland George Papaconstantinou, Greek Finance Minister, November 21 Spain is neither Ireland nor Portugal The Economist, April 21 Ireland is not in Greek Territory Brian Lenihan, Irish Finance Minister, November 21 Neither Spain nor Portugal is Ireland Angel Gurria, Secretary-General OECD, November 21 Italy is not Spain Ed Parker, Fitch MD, June 12, 212 Spain is not Uganda Mariano Rajoy, Spanish Prime Minister, June 212 Uganda does not want to be Spain Sam Kutesa, Minister of Foreign Affairs, June 13, 212 6

7 China: Not As Much Gain Where it Counts As Imports Still Lackluster 13 y/y % chg 8 4 Yr/Yr Index China imports (L) China PMI (R) Mar-12 Jul-12 Nov Industrial Prod. (L) Electricity Demand (R ) Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Source: Markit, HSBC, Bloomberg, CIBC 7

8 Obama Was No Ronald Reagan (L) Fiscal Drag Delays US Acceleration (R) %-pts contribution to GDP from spending 1. Reagan First Term Obama Forecast US GDP growth forecasts No fiscal drag 212 forecast 2.3% CIBC base case Full fiscal drag Years of Presidency 8

9 The Long and Short of Fed Policy Payroll Change ('s) K 3 25 Employment Growth for 6.5% Unemployment by mid-215 Curent Trend Avg Sep-Dec (inc revisions) Avg past 2 years +1% pts +.5%- pts Unchg. -.5% pts Change in Participation Rate Source: BLS, CIBC 9

10 Reserves Sitting Idle (L) But Twist and QE Have Lowered Yields (R) 18 $ bn % Operation Twist discussed 12 3-yr yield yr yield Jan-3 Jan-6 Jan-9 Jan-12 excess reserves total reserves Jun-1 Oct-1 Feb-11 Jun-11 Oct-11 Feb-12 Jun-12 Oct-12 1

11 Record Low US Mortgage Rates Starting to See Results 25 Housing Starts (thousands) 12 US Retail Spending (Nov'7 = 1) Q1-199 Q Q Q Q Q1-2 Q1-22 Q1-24 Q1-26 Q1-28 Q1-21 Q Jan-5 *furnishing, appliances & building materials Apr-6 Jul-7 Oct-8 Jan-1 Apr-11 Housing-related sales* Other (ex-gasoline) Jul-12 Source: Fannie Mae, MBA, Bloomberg, CIBC 11

12 Goods Sector a Small But Important Share of Payroll Employment Share of Payroll Employment Share of jobs still lost since recession Good Producers (14%) Goods Producers (85%) Other (86%) Other (15%) Source: BLS, CIBC 12

13 US Exports Strong Early Showing (L) But Flagging on Weaker Global Picture (R) 5 Exports of Goods & Services, % of GDP growth in first 6 qtrs 15 1 real y/y % chg Post 21 Rebound This Recovery -2 8:Q4 9:Q2 9:Q4 1:Q2 1:Q4 11:Q2 11:Q4 12:Q2 Source: Bureau of Economic Analysis 13

14 Canada No Longer Outpacing US; Slowing to <2% in 213 Delays Rate Hikes 6% Real GDP Growth, Y/Y 4% 2% % -2% -4% -6% US Canada CIBC Fcst 7:4 8:2 8:4 9:2 9:4 1:2 1:4 11:2 11:4 12:2 12:4 13:2 13:4 14

15 Jobs Surge, But Not Hours or Output What s Up With That? 2.% 6-month annualized change 1.5% 1.%.5%.% GDP Total Hours Worked Total Employment 15

16 Canadian Exports: Europe s Outsized Bite Share of Europe (ex-uk) in Cdn exports 5% 12-month change in Canadian exports (C $, bns). 25% Exports to Europe (ex-uk)

17 Fiscal Performance Attracts Safe Haven Flows Leaves C$ Near Parity in C$bln (3M Sum) US /C$ NA 8-1 Oct-7 Oct-8 Oct-9 Oct-1 Oct-11 Oct Net Purchases of C$ Bonds (L) Canadian Dollar (R) 17

18 Canadian Dollar Overvaluation* Helps Keeps Bank of Canada On Hold in Overvaluation/undervaluation (%) *relative to each country's trading partners; midpoint of estimated range -1 Germany China Indonesia Korea India Thailand Mexico Euro Area Brazil S Africa USA Switzerl. Japan Canada Australia UK Spain Source: IMF, BIS, CIBC 18

19 Average 212 (f) 213 (f) 214 (f) Oil (WTI) $/bbl Natural Gas $/Mn Btu Gold $/troy oz 1675* 17* 16* Copper $/lb Lumber** $/' bd ft Potash $/tonne * end of period **1st Futures Source: Bloomberg, CIBC 19

20 No Pent-up Demand in Canadian Consumption; US Retailers Have More Upside Gap Between Actual Consumption vs Fitted (trend relative to population) as % of Real C onsumer Spending overshooting -5-1 pent-up demand 81Q1 86Q1 91Q1 96Q1 1Q1 6Q1 11Q1 Canada US Source: US Department of Commerce, Statistics Canada, CIBC 2

21 Canada: Building Fewer Houses/Condos Offsets Energy Sector Rebound.7%.6%.5% C ontribution to GDP (%-pts) %.3%.2%.1%.% +.5% -.5% -.1% Energy Production Housing 21

22 Mining, Natural Gas Weakness: Not a Recent Blip Mining output index (24 = 1) 18 Marketable natural gas prod. (bns of metres cubed) Jan-24 Jan-25 Jan-26 Jan-27 Jan-28 Jan-29 Jan-21 Jan-211 Jan Source: NRCan, Statistics Canada 22

23 Uh Oh: Where the US Led, Will Canada Follow? Household Debt 17 % of disposable income Canada US House Prices 25 Index 2= Canada (CREA) US: S&P/Case-Shiller Price Idx Source: StatCan, Federal Reserve Board, CREA, Standard & Poor/s, CIBC 23

24 No Notable Deterioration in Credit Score Distribution in Canada 28 Current Highly risky Highly risky Very Good Risky Moderate Very Good Risky Moderate Good Good Source: Equifax, CIBC 24

25 Ratio of Housing Starts to Household Formation: Not As Much Overbuilding Here CAN: Avg last 1 yrs US: Avg 1 yrs leading to the recession Source: StatCan, Conference Board, US Census Bureau, CIBC 25

26 A Key Ingredient to the US Crash Missing Here Non-Conforming Mortgages as a Share of Total Outstanding % Index June 26= C ities with above avg non-conforming exposure C ities with below avg non-conforming exposures Canada 212 US 26 Jun-6 Dec-6 Jun-7 Dec-7 Jun-8 Dec-8 Jun-9 Dec-9 Jun-1 Dec-1 Jun-11 Dec-11 Jun-12 26

27 Low Resource Price Volatility Will Make Real GDP More Relevant for Corporate Profits Year Moving Window Standard Deviation of Commodity Prices Correlation: Real GDP & Corprorate Profit (since 199) Periods of low resource price volatility Periods of high resource price volatility Source: Statistics Canada, CIBC 27

28 US Stocks Rallied Despite Declining Consensus For 213 Earnings (L) and Real GDP Growth (R) Real GDP, % change % yr/yr Jun 9- Aug 17- Oct 28- Dec 1.8 Jun-12 Today 28

29 Stocks Look Cheap vs. Historical or 214 Earnings 6 5 Real stock prices/average inflation-adj earnings, last 1 yrs 1% 8% 8.8% 4 3 Avg since 1965 = 2.2 6% 2 4% 1 Aug-65 Aug-7 Aug-75 Aug-8 Aug-85 Aug-9 8% below l.t. avg Aug-95 Aug- Aug-5 Aug-1 2% % TSX Yield on 214 Earnngs 1.7% 1-Year Canada Source: Bloomberg, Statistics Canada 29

30 US Retail Investors: Swinging to Stocks? (L) Huge Pool of Cash on the Sidelines (R) 2 $bn $tn 9 $1.3 tn excess cash Largest Net Weekly Inflow on Record! Global 5-Dec 12-Dec 19-Dec 26-Dec 2-Jan 9-Jan Domestic :Q3 8:Q3 9:Q3 1:Q3 11:Q3 12:Q3 US households' actual cash Holdings if ratio to total financial assets steady 3

31 Bond Yields Drift Higher in 213 As QE Ends, Risk Assets Gain 6 % Mar- 6 Jan- 7 Nov- 7 Sep- 8 Jul-9 Ma y- 1 Mar- 11 Jan- 12 Nov- 12 Sep Yr Canadas 1-Yr Canadas 1-Yr US Treasuries 31

32 Summing Up Canadian and US Growth: stuck near 2% for now; global growth picks up in 214 Housing corrects, but Canada is not the US Bank of Canada on hold until early 214 Canadian dollar softer in first half, but averages near parity Anticipation of better 214 drives risk on trade in H2, lifting yields and equities Rotation into more cyclical equities in H