Turning Japanese? May 2016

Transcription

1 Turning Japanese? May 216 Avery Shenfeld, Chief Economist & Managing Director, CIBC

2 Turning Japanese? Bond Buyers Really Think So 1 4 Japan 1Y Bond Yield (%) 6 1Y Bond Yield (%) Mar-95 May-99 Jul-3 Sep-7 Nov-11 Jan-16 1 US Canada Source: Bloomberg, CIBC

3 Submerging Markets Change in Real GDP Growth (215 vs 214, %-pts) World Developed Emerging Source: Bloomberg, CIBC

4 Global Growth: A Mixed Picture, But Sluggish Overall 3 5 yrs before recession, avg 212A 213A 214A 215A 216F 217F World* US Canada Euroland UK Japan Brazil Russia India China

5 EM Slowdown Not a Large Hit to US, But a Big Issue for Commodity Prices Impact of 1%-point slowing in Emerging markets US Eurozone Japan UK Contributions to Commodity Price Weakness (%) EM Slowdown Other Factors Including Supply CRB Drop Since 211 Source: IMF, CIBC

6 Policy Eases in Asia (L), EM Growth Pickup in 17 (R) 5 Change in Policy Rate from Year-Ago (%) Emerging Market Growth (%) F 217F Source: Bloomberg, IMF, CIBC

7 Commodity Prices: Better Ahead, But Not Good Enough 6 19-Apr (f) 217 (f) Oil (WTI) $/bbl Natural Gas (Henry) $/Mn Btu Gold* $/troy oz Silver* $/troy oz Iron Ore (62% Fe) $/mt Copper $/lb Aluminum $/lb Nickel $/lb Zinc $/lb Lumber** $/' bd ft Potash $/tonne * end of period, **1st CME Futures Source: CIBC

8 US Production Declining at Steady Pace (L), Helping Crude Market Reach Balance (R) 7 Weekly Change in US Crude Prod 1 (k bbl/day) average Feb 26 Feb 18 Mar 8 Apr IEA Implied Crude Oil Mkt Balance 2.5 (mn bbl/day) Q3 15Q4 16Q1 16Q2 16Q3 16Q4

9 Most New Oil Reserves Sit Below Canada in All-in Costs 8 Proven Crude Reserves (Changes Over Last 5 Years, bn bbls) < >65 Breakeven Cost per Barrel ($)

10 US: Gonna Party Like s Nineteen Ninety-Eight? 9 Today The Late 9 s Experience 65 ISM Manufacturing (Index) 65 ISM Manufacturing (Index) 5% GDP Growth (% Yr/Yr) 6 6 4% % 5 5 2% 45 Jan-12 Aug-12 Mar-13 Oct-13 May-14 Dec-14 Jul-15 Feb Jul-97 Nov-97 Mar-98 Jul-98 Nov-98 1% % Source: ISM, BEA, CIBC

11 How the US Maintains 2% Growth Ahead 1 2. Contributions to GDP Growth (%-pts) Avg Avg F. -.5 Consumer Bus. Inv Res. Inv Gov Net Trade Source: BEA, Bloomberg, CIBC

12 Recent Caution a Concern, But Wages Should Help Ahead Savings Rate (%) 5 Avg. Hourly Earnings Growth (% Y/Y) years ago End-217F Current End-216F 4.2 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan Employment-to-Pop. Ratio (Ages 25-54) Source: BEA, CIBC

13 Source: CPB World Trade Monitor, CIBC 12

14 Fed Will Hike a Bit Less Than it Thinks; Rates On Gentler Path this Cycle year-end, % Futures CIBC FOMC *

15 Unlike Japan, US/Canadian Inflation Expectations in Bond Market Don t Fit History or Current Core CPI Signals % Avg CPI Past 1Y 1Y Breakeven Current Core CPI.8.4. Japan Germany Canada US Source: National Statistical Agencies, Bloomberg, CIBC

16 US Labour Market Passes Canada s And So Will Policy Rates, as BoC Stands Pat Until Late Unemployment Rate (%, SA) 11 Forecast Jan-9 Sep-9 May-1 Jan-11 Sep-11 May-12 Jan-13 Sep-13 May-14 Jan-15 Sep-15 May-16 USA Canada* * Measured using US methodology for comparability

17 The Hole in the Doughnut: Energy % 1.%.5%.% GDP Growth by Industry (YoY) Change in Investment (215E, $ bn) % % All Industries Resources GDP minus NR -14 Other Oil & Gas Total

18 Provincial Heat Map: Prairies Cool, Ontario Scorching 17 West Central Atlantic Y/Y % Chg; Employment Jobless Rate Avg Hrly Mfg Retail Wholesale Housing Existing Homes 3M Trend Household Payroll Y/Y Chg Wage Shipments Sales Trade Starts Sales Price BC Alta Sask Man Ont Qué NB NS PEI N&L Canada Notes: Unless otherw ise noted, figures represent y ear-ov er-y ear % change for latest three-month period; jobless rate represents av erage lev el for latest three-month period w hile jobless rate change represents change in %-pts compared to prior y ear; based on seasonally adjusted monthly data; in all cases, top-3 performances in each category are shaded Sources: Statistics Canada, CMHC, CREA

19 Location, Location, Location 18 Real GDP Nominal GDP Y/Y % Chg Y/Y % Chg 214A 215F 216F 217F 214A 215F 216F 217F BC Alta Sask Man Ont Qué NB NS PEI N&L Canada Source: Statistics Canada, CIBC

20 Smaller and Energy Provinces Have Underperformed Spread to Ontario (bps) Chg in roll - LS 3Y roll - RS BC ALTA SASK MAN NB NS QUE PEI N&L

21 Federal/Provincial Stimulus is Modest vs %.4% Boost/Drag to GDP From Change in Cyclically Adjusted Deficits.3%.2%.1% Federal Provincial.% -.1% -.2% Source: IMF, Budget documents, CIBC

22 No Reason to Fear a $29 bn Deficit Q Interest as a Percentage of Revenue Q Q1 199 Q Q Q3 23 Q1 28 Forecast Q3 212 Q Federal Gov t Accumulated Deficit to GDP Forecast Assuming Deficits of $1 bn each year Budget '16 and $14.5 bn Deficits Thereafter 216F 222F 228F Source: Statistics Canada, CIBC

23 No Alarm Bells Yet 22 6% Credit Cards Net Loss Rate (annualized).8 Mortgage Arrears % of arrears to total no. of mortgages 5%.7 4% 3% 2% %.2 % Source: Industry Canada, CBA, CIBC

24 Jobs, Not Interest Rates, Telling the Retail Story 23 1 Real Retail Sales (YoY %, 3-mon avg) Alta, Sask & N&L Rest of Cda -8 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Source: Statistics Canada, CIBC

25 A Tale of Two Markets 24 2 Weighted Average Price y/y % chg, 3-mo moving avg 22 2 Unit Sales (Index 213=1) All CMAs Less Toronto, Calgary and Vancouver Toronto and Vancouver 8 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 BC Ont Rest of Canada Source: CREA, CIBC

26 Canadian Workers: Now on Sale in Manufacturing and Exportable Services Average Hourly Earnings Mfg (US$/hr) 6 5 US$/hr US Canada USA Cda (in US$) 1 '97 '98 ' '2 '4 '5 '7 '9 '11 '12 '14 Source: BLS, Statistics Canada, CIBC

27 Canadian Investment Has Room to Catch Up (L), Conditions in Place For an Acceleration Ahead (R) 9.% 8.% 7.% 6.% M&E Investment intensity (share of GDP) Real ex-mining & Energy Investment (YoY, %) 26 5.% 4.% 3.% 2.% 1.% USA Canada Source: Statistics Canada, CIBC '4 '5 '6 '7 '8 '9 '1 '11 '12 '13 '14 '15E '16F '17F Actual CIBC Model

28 Has The Bank of Canada Set The Goalposts? 27 CADUSD.85.8 The C$ has strengthened (with) higher oil prices...their net effect will need to be assessed Non-resource exports profile is weaker than previously projected, in part because of the higher C$.75.7 the C$ has declined significantly A further rapid depreciation might influence inflation expectations..65 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16

29 TSX ex-resources Trading at a Discount to US (L), Earnings to Rebound (R) S&P 5 minus TSX Forward PEs (Ex-Resources, 3mo Avg) 2 1 TSX Earnings Growth (YoY, %) Forward 12mo Prior 12mo CIBC Model Source: Statistics Canada, CIBC

30 What it All Means: Not Turning Japanese 29 q q q q q q q Canadian real GDP grows 1½ % in improves to >2% as energy shock fades, C$ lifts exports and cap-ex. Commodities: upside, but no return to glory. Gold a casualty of US Fed hikes. Household debt not as scary as it looks; jobs, not debt levels, are the key. US Fed hikes twice in second half. Long rate rally is overdone. Bank of Canada on hold, but 1-yr Canadian yields top 2% in mid-217. Core inflation steady near 2%. Need to keep C$ below 8 cents to drive exports keeps short interest rates low Equity market s next big leg tied to 217 earnings.