AFTERSHOCKS. Benjamin Tal, Managing Director, Deputy-Chief Economist CIBC World Markets Inc. Will Investment in Renewable Energy Follow Oil Prices?

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Avis Gilmore
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1 , Managing Director, Deputy-Chief Economist CIBC World Markets Inc 67 th Annual Tax Conference 67e Conférence fiscale annuelle 2 Will Investment in Renewable Energy Follow Oil Prices? Source: UNEB, CIBC 2

2 Rig Counts Find Bottom (L), But US Production Slipping (R ) Jan-14 Source: Baker Hughes, EIA, CIBC US Oil Rig Count Apr-14 Jul-14 Oct-14 Jan- Apr- Jul US Crude Production (mn bbl/day) Jan-14 Jun-14 Nov-14 ~1mn bbl/day Apr- Sep- Feb-16 Jul-16 3 Drop in Metals Catching Up to Crude (L); Demand Explaining More of Oil s Weakness (R ) Yr/Yr Change Through August () WTI Change Since Mid-214 () Source: Bloomberg, CIBC WTI CRB Metals mo ago Now Est Supply Effect Est Demand Effect 4

3 Podemos Popular Support 3 Greek Elections 2 1 Source: Average of Public Opinion Polls, CIBC 5 China: Slowing Rapidly Jan-6 Freight Traffic - Railways Volume, y/y chg Apr-7 Jul-8 Oct-9 Jan-11 Apr-12 Jul-13 Oct Industrial Output - Electricity Feb-6 y/y chg Jul-7 Dec-8 May-1 Oct-11 Mar-13 Aug-14 Source: Bloomberg, CIBC 6

4 China s GDP Growth: Don t Believe the Headline Numbers Source: Bloomberg, CIBC /9/ 1/9/26 1/9/27 1/9/28 1/9/29 1/9/21 1/9/211 1/9/212 more realistic 1/9/213 1/9/214 7 Chinese Stocks More Likely to Have Large Swings in PEs Price-to-Earnings Ratio Shanghai S&P 5 Source: Bloomberg, CIBC 8

5 Despite Easing in 2, There is Still Room for More Monetary and Fiscal Expansion 6. Monetary Policy Tools Gross Debt to GDP () Jan- May Policy Rate Source: Bloomberg, IMF, CIBC RRR (RHS) China Canada US 9 US GDP Growth One Day They Might Get it Right First Try 2Q1 Second Try Third Try Fourth Try Q2 First Try Second Try Third Try 1

6 The Cycle is Younger Than It Looks It Took a Long Time To Reach Pre- Recession Levels Duration of Expansion Since Reaching Pre-Recession Level Source: CIBC 17, 16,5 16,,5, 14,5 14, 13,5 13, 12,5 12, Real GDP (US$ Bn) 12 qtrs Qtrs avg past 4 cycles current expansion 11 US Manufacturing Slowing: Should We Care? Slowing... 3-mo moving avg But Relatively Small Rest of the economy Manufacturing Source: ISM, CIBC ISM Mfg ISM: Non-Mfg 12

7 Growth in US Exports Jan-May 2 vs. Jan-May 214 Consumer Goods Capital Goods Other Motor Vehicles Total Food & Bev. Ind. Supplies Source: Census Bureau, CIBC Age Group Doing Better in Jobs (L) Sparking Household Formation (R ). Chg in Unemployment Rate (-pts, 3m vs Year Ago) Number of Households (Mn) Post-Recession Trend Source: BLS, CIBC Under 35 Over 35 Jan-8 Mar-9 May-1 Jul-11 Sep-12 Nov-13 Jan- 14

8 Inflation Expectations Move Lower with Crude US 3-yr Breakeven (R) WTI ($/bbl, L) Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan- Apr- Jul- Source: Bloomberg, CIBC Should The Fed Wait to See the White of Inflation s Eyes? Sep-92 The 1994 Experience Feb-93 Jul-93 Dec-93 May-94 Oct Aug-98 The 1999 Experience Dec-98 Apr-99 Aug-99 Dec-99 Apr Jan-3 The 24 Experience Jul-3 Jan-4 Jul-4 Jan-5 Jul-5 Jan-6 Fed Funds Target Rate PCE Core: Y/Y Fed Funds Target Rate PCE Core: Y/Y Fed Funds Target Rate PCE Core: Y/Y Source: Federal Reserve Board, CIBC 16

9 BoC s Cut Did Little to Accelerate Household Borrowing Source: Bank of Canada, CIBC Household Credit m/m chg, 3-mo moving avg BoC eases policy Household Credit - Avg Jan-Jun 214 Avg Jan-Jun 2 17 We Are Not So Special 2 Change in FX Rate vs. US$ Since Jan USD/CHF USD/CNY USD/HKD USD/JPY USD/NZD USD/AUD USD/EUR USD/CAD USD/SEK USD/MXN USD/NOK USD/INR USD/BRL Source: Bloomberg, CIBC 18

10 Less Travel Abroad Should Be a Positive for GDP -35 Canadian Current Account Balance for Travel (Millions) Number of Americans Travelling to Canada Less Canadians Travelling to the US (Millions) -3.5 Jan-211 Mar-213 May-2 Source: Haver Analytics, CIBC 19 Canadian Manufacturing Labour Pay Now Lower 4 Hourly Compensation in Mfg '97 '99 '1 '3 '5 '7 '9 '11 '13 'E USA Cda (in US$) Source: BLS, Statistics Canada, CIBC 2

11 Canadian Manufacturing: Inventory/Shipments Ratio Source: Statistics Canada, CIBC Clothing Primary Metal Computer/Electronic Petroleum/Coal Transport. Eq. Textile Mills Machinery Textile Prod. Fabricated Metal ALL Wood Nonmetallic Mineral Plastics/Rubber Food Paper Printing & Support Furniture Elect Eq/Appliance Chemical Bev. & Tobacco Misc. Leather/Allied Prod Average C$ Sensitivity US Production Further Away From Canada 48 Share of US Manufacturing Source: BEA, CIBC South, South Central, South West Northeast, Midwest, and Western Border States 22

12 A Tales of Two Markets y/y chg, 3-mo moving avg Weighted Average Price All CMAs Less Toronto, Calgary and Vancouver Toronto and Vancouver Source: CREA, CIBC 23 Rental Demand Set to Ease (L), Falling Short of Upcoming Supply (R ) 16, 14, 12, 1, 8, 6, Demographically Driven Demand for Rental Units - Toronto Average 2-216: Toronto units Supply Demand Source: Statistics Canada, CMHC, CIBC 24

13 S&P 5 CAPE Ratio Relatively High S&P 5 CAPE Ratio Source: Robert Shiller, CIBC Realized Volatility by TSX Sector Annualized 3-day Realized Volatility () Now 2-year Average Source: Bloomberg, CIBC 26

Cyclically Adjusted PE Ratio for TSX: Not Much Movement 6 5 4 3 2 1 TSX CAPE Ratio Jan-9 Jul-92 Jan-95 Jul-97 Jan- Jul-2 Jan-5 Jul-7

14 Cyclically Adjusted PE Ratio for TSX: Not Much Movement TSX CAPE Ratio Jan-9 Jul-92 Jan-95 Jul-97 Jan- Jul-2 Jan-5 Jul-7 Jan-1 Jul-12 Jan- Source: Bloomberg, Statistics Canada, CIBC 27, Managing Director, Deputy-Chief Economist CIBC World Markets Inc 28

Turning Japanese? May 2016

Turning Japanese? May 2016 Turning Japanese? May 216 Avery Shenfeld, Chief Economist & Managing Director, CIBC Turning Japanese? Bond Buyers Really Think So 1 4 Japan 1Y Bond Yield (%) 6 1Y Bond Yield (%) 3 2 5 4 3 1 2-1 Mar-95