, 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
Rig Counts Find Bottom (L), But US Production Slipping (R ) 18 16 14 12 1 8 6 4 Jan-14 Source: Baker Hughes, EIA, CIBC US Oil Rig Count Apr-14 Jul-14 Oct-14 Jan- Apr- Jul- 1. 9.5 9. 8.5 8. 7.5 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 ) -1-2 -3 Yr/Yr Change Through August () -1-2 -3-4 WTI Change Since Mid-214 () -4-5 -6 Source: Bloomberg, CIBC WTI CRB Metals -5-6 6mo ago Now Est Supply Effect Est Demand Effect 4
Podemos Popular Support 3 Greek Elections 2 1 Source: Average of Public Opinion Polls, CIBC 5 China: Slowing Rapidly 3 2 1 5-5 -1 - -2 Jan-6 Freight Traffic - Railways Volume, y/y chg Apr-7 Jul-8 Oct-9 Jan-11 Apr-12 Jul-13 Oct-14 3 2 1 5-5 -1 - Industrial Output - Electricity Feb-6 y/y chg Jul-7 Dec-8 May-1 Oct-11 Mar-13 Aug-14 Source: Bloomberg, CIBC 6
China s GDP Growth: Don t Believe the Headline Numbers Source: Bloomberg, CIBC 14 12 1 8 6 4 2 1/9/ 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 7 6 5 4 3 2 1 Price-to-Earnings Ratio 1998 22 26 21 214 Shanghai S&P 5 Source: Bloomberg, CIBC 8
Despite Easing in 2, There is Still Room for More Monetary and Fiscal Expansion 6. Monetary Policy Tools 2. 12 Gross Debt to GDP () 5.5 19.5 1 8 19. 5. 18.5 6 4 4.5 Jan- May- 18. 2 Policy Rate Source: Bloomberg, IMF, CIBC RRR (RHS) China Canada US 9 US GDP Growth One Day They Might Get it Right.8.6.4.2 -.2 -.4 -.6 -.8 First Try 2Q1 Second Try Third Try Fourth Try 4.5 4. 3.5 3. 2.5 2. 1.5 1..5. 2Q2 First Try Second Try Third Try 1
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 3 6 9 12 35 3 2 1 5 Qtrs avg past 4 cycles current expansion 11 US Manufacturing Slowing: Should We Care? 62 6 58 56 54 52 5 48 46 44 Slowing... 3-mo moving avg 11 12 13 14... But Relatively Small Rest of the economy Manufacturing Source: ISM, CIBC ISM Mfg ISM: Non-Mfg 12
Growth in US Exports 2-2 -4-6 -8-1 -12-14 Jan-May 2 vs. Jan-May 214 Consumer Goods Capital Goods Other Motor Vehicles Total Food & Bev. Ind. Supplies Source: Census Bureau, CIBC 13-34 Age Group Doing Better in Jobs (L) Sparking Household Formation (R ). Chg in Unemployment Rate (-pts, 3m vs Year Ago) 118 117 Number of Households (Mn) -.2 116 -.4 -.6 -.8-1. -1.2-1.4 1 114 113 112 111 Post-Recession Trend -1.6 11-1.8 Source: BLS, CIBC Under 35 Over 35 Jan-8 Mar-9 May-1 Jul-11 Sep-12 Nov-13 Jan- 14
Inflation Expectations Move Lower with Crude 12 11 1 9 8 7 6 5 US 3-yr Breakeven (R) WTI ($/bbl, L) 2.7 2.5 2.3 2.1 1.9 4 3 2 1.7 1.5 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan- Apr- Jul- Source: Bloomberg, CIBC Should The Fed Wait to See the White of Inflation s Eyes? 7. 6. 5. 4. 3. 2. 1.. Sep-92 The 1994 Experience Feb-93 Jul-93 Dec-93 May-94 Oct-94 7. 6. 5. 4. 3. 2. 1.. Aug-98 The 1999 Experience Dec-98 Apr-99 Aug-99 Dec-99 Apr- 6. 5. 4. 3. 2. 1.. Jan-3 The 24 Experience Jul-3 Jan-4 Jul-4 Jan-5 Jul-5 Jan-6 Fed Funds Target Rate PCE Core: Y/Y Fed Funds Target Rate PCE Core: Y/Y Fed Funds Target Rate PCE Core: Y/Y Source: Federal Reserve Board, CIBC 16
BoC s Cut Did Little to Accelerate Household Borrowing.5.45.4.35.3..2 Source: Bank of Canada, CIBC Household Credit m/m chg, 3-mo moving avg 13 14 BoC eases policy.45.4.35.3..2..1.5. Household Credit - Avg Jan-Jun 214 Avg Jan-Jun 2 17 We Are Not So Special 2 Change in FX Rate vs. US$ Since Jan 28 1-1 -2-3 -4-5 -6 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
Less Travel Abroad Should Be a Positive for GDP -35 Canadian Current Account Balance for Travel (Millions) -37-39 -41-43 -45-47 -49-1.5-2. -2.5-3. 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 35 3 2 '97 '99 '1 '3 '5 '7 '9 '11 '13 'E USA Cda (in US$) Source: BLS, Statistics Canada, CIBC 2
Canadian Manufacturing: Inventory/Shipments Ratio Source: Statistics Canada, CIBC Clothing Primary Metal Computer/Electronic Petroleum/Coal Transport. Eq. Textile Mills Machinery Textile Prod. Fabricated Metal ALL Wood Nonmetallic Mineral Plastics/Rubber Food Paper Printing & Support Furniture Elect Eq/Appliance Chemical Bev. & Tobacco Misc. Leather/Allied Prod. -.5..5 1. 1.5 Average C$ Sensitivity 36.6 48.6 21 US Production Further Away From Canada 48 Share of US Manufacturing 45 43 4 38 1998 2 22 24 26 28 21 212 214 Source: BEA, CIBC South, South Central, South West Northeast, Midwest, and Western Border States 22
A Tales of Two Markets 14. 12. 1. 8. 6. 4. 2.. y/y chg, 3-mo moving avg Weighted Average Price 11 12 13 14 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 4 6 8 1 12 14 16 16 14 12 1 8 6 4 2 Average 2-216: Toronto units Supply Demand Source: Statistics Canada, CMHC, CIBC 24
S&P 5 CAPE Ratio Relatively High 5 45 4 35 3 2 1 5 S&P 5 CAPE Ratio 1946 195 1954 1958 1962 1966 197 1974 1978 1982 1986 199 1994 1998 22 26 21 214 Source: Robert Shiller, CIBC Realized Volatility by TSX Sector 5 45 4 35 3 2 1 5 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 Jan-1 Jul-12 Jan- Source: Bloomberg, Statistics Canada, CIBC 27, Managing Director, Deputy-Chief Economist CIBC World Markets Inc 28