Economic and Financial Outlook - World - Présentation à CFA Montréal Stefane Marion January 23, 2020 - CFA Montréal
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Economic and Financial
Outlook
Présentation à CFA Montréal
Stefane Marion
January 23, 2020
World
2
3
U.S.: Perspective on the current business cycle
Actual vs. potential* real GDP
20,000
$ billions
19,600
19,200 Actual GDP
18,800
18,400
F
Mature
18,000
phase
17,600
17,200
Potential GDP
16,800 E
Expansion
16,400
16,000 A
Peak
15,600
15,200 B D
14,800
Recession C
Trough
Recovery
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
* As calculated by the Congressional Budget Office (CBO) - NBF Economics and Strategy (data via Fed of St-Louis)
4
U.S.: Perspective on inflation
Inflation as measured by PCE deflator: Total, core and trimmed
4.5
% (y/y)
4.0
3.5
3.0
2.5
Trimmed
2.0
Core
1.5 Total
1.0
0.5
0.0
-0.5
-1.0
-1.5
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
NBF Economics and Strategy (data via Fred)
5
U.S.: Perspective on inflation
Inflation as measured by CPI, CPI median and CPI-trimmed
6
% (y/y)
5
4
Median
3
Trimmed
2 CPI
1
0
-1
-2
-3
2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
NBF Economics and Strategy (data via Fred)
6
U.S.: Duration of the mature phase and inflation
U.S. output gap vs. core PCE inflation
12
%
10
8
6
Core PCE
4 (y/y change)
2
0
72 21 24 9 57 24 27
-2
-4
Mature phase:
-6 Output gap
Longest = 72 months
Shortest = 9 months
-8
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
NBF Economics and Strategy (data via FRED)
7
8
9 10
11
World: The most synchronized easing cycle in a decade
Share of central banks cutting rates (%)
80
% (quarterly data)
70
60 Q3 2019
50
40
30
20
10
0
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
NBF Economics and Strategy (data via Financial Times)
12
13
World: Signs of stabilization
Global sales of semiconductors
42
$ billions
40
38
36
34
32
30
28
26
24
2014 2015 2016 2017 2018 2019 2020
NBF Economics and Strategy (SIA via Bloomberg)
14
15
Perspective on financial stress
NBF financial stress index for Canada and the United-States (JAN 2020)
6.0
Standard deviations
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
CAN
-0.5
-1.0 U.S.
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
NBF Economics and Strategy (data via Bloomberg and Refinitiv)
16
World: Positive economic surprises are becoming widespread
Citi economic surprise index: Emerging Markets and Advanced Economies
60
Index
50
40
30
20
Advanced
10
Emerging
0
-10
-20
-30
-40
-50
2017Q3 2017Q4 2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 2019Q4 2020Q1
NBF Economics and Strategy (data via Bloomberg)
17
MSCI composite index: EPS Performance
12 months
2018 2019 2020 2021
forward
MSCI ACWI 13.4 0.0 9.8 10.3 9.8
MSCI World 14.5 -0.1 8.8 9.8 8.9
MSCI USA 24.2 1.0 9.2 11.2 9.8
MSCI Canada 11.7 5.0 5.9 7.7 6.0
MSCI Europe 5.8 -0.8 8.8 8.0 8.7
MSCI Pacific ex Jp 7.7 -0.4 4.2 5.0 4.3
MSCI Japan NA -4.8 -6.6 9.9 7.5
MSCI EM 8.0 1.0 15.1 13.3 15.0
MSCI EM EMEA 25.7 -3.3 10.1 8.9 9.6
MSCI EM Latin America 10.6 5.1 18.7 11.0 17.9
MSCI EM Asia 3.6 1.6 16.0 14.9 15.9
1/17/2020
NBF Economics and Strategy (data via Refinitiv)
18
U.S.: Valuation at cyclical high
Forward PE ratio for the S&P 500
25
ratio
24
23
22
21
20
19
18
17
16
15
14
13
12
11
10
9
1990 1995 2000 2005 2010 2015 2020
NBF Economics and Strategy (data via Refinitiv)
19
U.S. : Perspective on valuation
S&P 500 earnings yield and 7-10 years U.S. treasury yield
12
10
8
6
4
Equities cheap
relative to bonds
2
0
-2 Equities expensive
relative to bonds
Recessions U.S. 7-10 years Treasury Yield S&P 500 Earnings Yield Spread
-4
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
NBF Economics and Strategy (data via Refinitiv)
20U.S. Treasuries: Term premium on 10-year zero coupon
Estimate based on Tobias Adrian, Richard Crump, and Emanuel Moench model
550
Basis points
500
450
400
350
300
250
200
150
100
50
0
-50
-100
-150
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
NBF Economics and Strategy (data via Federal Reserve Bank of New York)
21
Average S&P 500 performance by sectors in different phases
of the cycle since 1973
(Total return indices, annualized growth rates)
Recoveries Expansions Mature Phases Current Phase
Total 22.4% 10.8% 14.0% 14.4%
Oil & Gas 57.8% 6.9% 23.5% ‐1.4%
Basic Materials 23.3% 10.4% 13.3% 5.2%
Gold mining 20.0% 12.3% 9.6% 10.0%
Metals and mines 12.2% 10.4% 20.8% ‐1.2%
Industrials 34.6% 9.9% 17.6% 13.2%
Consumer discretionary 29.2% 13.9% 8.7% 17.3%
Consumer Staples 8.2% 15.5% 17.7% 7.0%
Health Care 6.9% 11.8% 16.4% 14.1%
Financials 22.3% 16.8% 11.7% 12.2%
Banks 29.3% 17.4% 6.2% 8.5%
Insurance 11.1% 18.3% 16.2% 9.1%
Real Estate 11.6% 18.0% 13.9% 12.4%
IT 12.9% 7.5% 12.6% 25.8%
Telecoms 11.9% 18.8% 13.9% 9.0%
Utilities 24.0% 15.4% 13.3% 13.8%
*Reces sions da tes a re thos e of the NBER
NBF Economics a nd Stra tegy 22World: The greenback is weakening
Trade-weighted U.S. dollar index (vs. a basket of 26 currencies)
120
index
119
118
117
116
115
114
113
112
111
110
109
108
107
106
2016 2017 2018 2019 2020
NBF Economics and Strategy (Federal Reserve data via Refinitiv)
23
World: Speculators are still long the greenback
Leveraged funds net speculative position on USD
35
USD
30
25
20
15
10
5
0
-5
-10
-15
-20
2016 2017 2018 2019 2020
NBF Economics and Strategy (Federal Reserve data via Refinitiv)
2425 26
U.S.
27
U.S.: Manufacturing weakness did not spread to services
ISM nonmanufacturing vs. manufacturing
62
Index
60
58
Services
56
54
52
50
48
46 Manufacturing
44
42
40
38
36
34
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
NBF Economics and Strategy (data via Refinitiv)
2829
U.S.: Homebuilder confidence at 20-year high
NAHB/Wells Fargo Housing Market Index. Last observation: December 2019
80
Index
75
70
65
60
55
50
45
40
35
30
25
20
15
10
5
1985 1990 1995 2000 2005 2010 2015 2020
NBF Economics and Strategy (data via Refinitiv)
30U.S.: Supply of homes on resale market at a record low
Number of houses available on the market expressed as a multiple of monthly sales
12
months
11
10
9
8
7
6
5
4
3
1990 1995 2000 2005 2010 2015 2020
NBF Economics and Strategy (Source: National Association of Realtors via Refinitiv)
31
32World: China alters hukou system to increase urbanization rate
Urbanization rate: China and the U.S.
85
%
80 U.S.
75
70
65
60
55
50
45 China
40
35
30
25
20
15
1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025
NBF Economics and Strategy (data via https://population.un.org/wup/Download/)
33
34U.S.: Inflation expectations are trending up
10-year breakeven inflation rate
2.20
%
2.15
2.10
2.05
2.00
1.95
1.90
1.85
1.80
1.75
1.70
1.65
1.60
1.55
1.50
1.45
2018Q1 2018Q2 2018Q3 2018Q4 2019Q1 2019Q2 2019Q3 2019Q4 2020Q1
NBF Economics and Strategy (data via Refinitiv)
35
3637 38
39 40
Canada
41
42Canada: The strongest population growth on record
2019 population growth, natural vs. caused by migration. Selected OECD countries
1.6
%
% Natural Migration Total
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
‐0.2
‐0.4
‐0.6
JAP PRT DEU POL GRC CZE ITA FIN FRA AUT NLD GBR DNK BEL CHE ESP NZL USA SWE NOR AUS MEX CAN
NBF Economics and Strategy (data via Statistics Canada and U.S. Census)
43
4445
Taux de croissance des 25-44 ans et croissance de l’IPP
2008-2018
80%
IPP a/a SWE
AUT CAN
70% NZL
AUS
60% NOR
50% GER
40%
SWI
GBR
30%
PRT BEL
FIN USA
20% DEN
10% JAP
NLD
0% FRA
-10%
ESP ITA
-20% IRE
-30%
-40% GRC
pop a/a
-50%
-18% -16% -14% -12% -10% -8% -6% -4% -2% 0% 2% 4% 6% 8% 10% 12% 14% 16%
FBN Économie et Stratégie (données via US census, Statistics Canada, Eurostats, OCDE)
46Canada : Foreign-born population is well educated
Percentage of immigrants having tertiary education (2017)
CAN
AUS
IRE
NZL
MEX
SWE
DEN
SWI
USA
OECD
BEL
PRT
FRA
AUT
NLD
ESP
DEU
GRC
ITA %
0 10 20 30 40 50 60 70
NBF Economy & Strategy (data from OECD)
47
48Canada: Perspective on homeownership rates
Homeownership rates, Canada vs. U.S.
69.2
%
68.8
68.4
68.0 Canada
67.6
67.2
66.8
66.4
66.0
65.6
65.2
64.8
U.S.
64.4
64.0
63.6
63.2
62.8
62.4
62.0
1985 1990 1995 2000 2005 2010 2015
NBF Economics and Strategy (data via U.S. Census and Statistics Canada)
49
5051 52
Toronto: Home resale market
Ratio of active listings to sales, seasonally adjusted, quarterly basis
Condos apartments Other dwellings
3.5 5
Number of standard deviations from mean
3.0
4
2.5
2.0 Buyers’ market 3
1.5
2
1.0
0.5 1
0.0
0
-0.5
Balanced market
-1.0 -1
-1.5
Sellers’ market -2
-2.0
-2.5 -3
2000 2005 2010 2015 2020 2000 2005 2010 2015 2020
Last observation: Q4 2019 as of December
NBF Economics and Strategy, data from CREA and TREB seasonally adjusted by NBF.
53
Vancouver: Existing home resale market
Normalized active-listings-to-sales ratio. Last observation: December 2019
5.0 Number of standard deviations from long-term mean
4.5
2019.12 / 2018.12
4.0 Active listings: -16.3%
Sales : 88.1%
3.5
3.0
2.5
2.0
1.5 Buyers’ market
1.0
0.5
Balanced market
0.0
-0.5
-1.0
Sellers’ market
-1.5
2006 2008 2010 2012 2014 2016 2018 2020
NBF Economics and Strategy, REBGV data seasonally adjusted by NBF – for sales, CREA seasonal factors were used.
54Montreal: Active listings to sales, by type of dwellings
Seasonally adjusted data, last observation: December 2019
Single‐family Condos
2.5 2.5
Number of standard deviations from mean Number of standard deviations from mean
Number of months to sell listed dwellings at
2.0 2.0 current sales rate
1.5 Buyers’ 1.5 Buyers’
market market
1.0 1.0
Balanced Balanced
0.5 0.5 market
market Buyers’ market
0.0 0.0
-0.5 -0.5
-1.0 -1.0
Sellers’ Sellers’
-1.5 -1.5
market market
-2.0 -2.0
2004 2006 2008 2010 2012 2014 2016 2018 2020 2004 2006 2008 2010 2012 2014 2016 2018 2020
NBF Economics and Strategy, data from Centris (seasonally adjusted by NBF)
55
56Canada: Core inflation running at its fastest pace in a decade in Q4
Average of the three core measures preferred by the Bank of Canada
2.7 So why is the BoC considering rate cuts?
Year on year % chg.
2.6 What has Mr. Poloz most nervous is an apparent deterioration
of the consumer sector. He pointed to slowing retail sales, weak
car sales and, notably, decaying consumer confidence
2.5
“Those things … they’re not just surprises, they’re more
2.4
profound,” he said. “It’s more behavioral; you can’t blame that on the
weather, per se.
2.3
“If it’s behavioral, it doesn’t usually end just instantly,” he said.
2.2
+2.1%
2.1
BoC mid‐point target
2.0
1.9
1.8
1.7
1.6
1.5
1.4
2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
NBF Economics and Strategy (data via Statistics Canada)
57
58Forecast
___
summary
• World, U.S.
- Global growth of around 3.0% in 2019, faster in 2020
- China continues to grow at around 6%
- US economy at around 2% in 2020
- Geopolitical risks to remain an issue / we still expect common sense to prevail
Canada
- GDP growth a little above potential in 2020 at 1.8%; Consumers remain resilient
- No rate cuts from the BoC
• Interest rates, currency:
- Interest rates to remain low for the foreseeable future but we still see 10-year Treasury above 2.0%
- CAD towards 1.25?
- Commodity prices: Some upside (WTI closer to $60/barrel)
Regime change: Dual supply chain = less productivity = sticky inflation?
59
NBF Market Forecast NBF Market Forecast
Canada United States
Actual Q42020 (Est.) Actual Q42020 (Est.)
Index Level Jan-03-20 Target Index Level Jan-03-20 Target
S&P/TSX 17,066 17,900 S&P 500 3,235 3,300
Assumptions Q42020 (Est.) Assumptions Q42020 (Est.)
Level: Earnings * 1053 1120 Level: Earnings * 160 172
Dividend 521 554 Dividend 58 62
PE Trailing (implied) 16.2 16.0 PE Trailing (implied) 20.2 19.2
Q42020 (Est.) Q42020 (Est.)
10-year Bond Yield 1.54 2.05 10-year Bond Yield 1.79 2.18
* Before extraordinary items, source Thomson * S&P operating earnings, bottom up.
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