The Arms Race Benjamin Tal
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The Arms Race Benjamin Tal March 2021
The Three Questions 1
- How Bad is the winter ?
- How strong will the second half of the year be ?
- Any scarring ?Biden Light 2
• Covid-19 plan
• Stimulus bill
• Tax Plan
• infrastructure
• Immigration
• Energy sector
• Trade PolicyLives vs. Livelihood 3
January Employment Retail & Recreation Mobility Index
Change (000s) (% Chg. Since Start of Pandemic)
50 10
Canada US
0 0
-50 -10
-100 -20
-30
-150
-40
-200
-50
-250
Canada US -60
17-Feb 6-Jun 24-Sep 12-Jan
Source: StatCan, BLS, OurWorldinData.org, CIBCCanada: Vaccine R-R-R-ROLL-OUT 4
Very Deep But Relatively Narrow 5
% Decline in Private Sector Payrolls
Contribution of Worst Performing 15 Sectors vs Others
0
-1
-2
-3 Other
-4
-5 Worst 15
-6
-7
-8
Financial Crisis (Peak to trough) Current vs Feb'20Service Biz Recover Fast 6
Relative to February 2020 Levels (000's)
0 0
-20
-500
-40
-60 -1000
-80 Same monthly pace of
net business openings -1500
-100 as Jul-Sep 2020
-120 -2000
Jun-20 Sep-20 Mar-21F Jun-21F Sep-21F
Businesses Jobs (RHS)
Source: Statistics Canada, CIBCIncomes Well Supported 7
Household Income
(Bn of $, YoY Chg. Apr-Sep 2020 vs 2019)
120
100
80
Total Household
60 Disposable Income
40 +$82.5bn
20
0
-20
-40
Wages Employment Other All Other Net
(incl. CEWS & Insurance Government Income
Temp. Wage (incl. CERB from Transfers
Subs.*) Service Canada) (incl. CERB from
CRA)
*Government wage support programs represented 10.4% and 5.5% of wages in the second and third quarter, respectively
Source: Statistics Canada, CIBC8
Growth in Employment by Wage Quartile
2020Q4 (Y/Y)
15%
10%
5%
0%
-5%
-10%
-15%
-20%
-25%
Earning range 1 Earning range 2 Earning range 3 Earning range 4
Source: Statistics Canada, CIBCSpending Declined Mostly Among High-Income 9
Households
US: Change in Consumer Spending Since January 2020
3%
2%
1%
0%
-1%
-2%
-3%
-4%
-5%
-6%
High income Low income
Source: Opportunity Insight, Harvard University, CIBCCanadians are Sitting On a Boatload of Cash (L) 10
Set to Flood into Services in Q2-Q4 (R)
Canada Personal Deposits ($Mn.) Changes in Spending:
1,250,000 Total Personal Fcst. Q2 to Q4 2021 Relative
Deposits 50 to Q1 2021
1,200,000 Trend Growth $90Bn (Bn of $, SA)
excess
1,150,000 cash
1,100,000
1,050,000
1,000,000 -50
Services Goods
950,000 Gradual Normalization
Indugling in Discretionary Services
19
9
20
0
9
0
-1
-2
-1
-2
n-
n-
Deferred Essential Services
b
b
t
t
Oc
Oc
Ju
Ju
Fe
Fe
Source: OSFI, CIBCOxford Dictionary - Definition of Inflation 11 Source: Oxford Dictionary
Remember When We Watched Money Supply Data? 12
Canada M2 Money Supply (Y/Y% Chg.) US M2 Money Supply (Y/Y% Chg.)
20% 30%
18%
25%
16%
14% 20%
12%
10% 15%
8%
10%
6%
4% 5%
2%
0% 0%
2007 2011 2015 2019 2007 2011 2015 2019
Source: FRB, BoC, CIBCCore inflation Likely to Rise in Coming Months 13
80 Chain Price Index, SA, 2.2
ISM Price index
70 2012=100 2.0
60 1.8
50
1.6
40
1.4
30
20 1.2
10 1.0
0 0.8
Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21
ISM Manufacturing (L) PCE excl. Energy Goods & Services (R)
Source: Institute for Supply Management, BEA, CIBCCurve Control 14
There is a Good Reason to be Concerned About A Stronger Loonie 15
Contribution of Exports to GDP
Growth since 1975 (%pts)
2.0
1.5
1.0
0.5
0.0
USDCAD Below 1.30 USDCAD 1.30 &
Above
Source: Statistics Canada, CIBCBond Sell Off Contained by Low Real Neutral Rate (L) 16
Nominal Peak Policy Rates are Lower These Days (R)
7 % 20 %
Estimated U.S. natural Peak Policy Rate
rate of interest (%) 18 - Post 1990 (%)
6
16
5 14 Peak Policy Rate
- Post 2008 (%)
12
4 10
3 8
6
2 4
2
1
0
0 BoC Fed BoE RBA
Source: Haver Analytics, CIBC Economics
61 69 77 85 93 01 09 17
Source: Federal Reserve, CIBC Capital MarketsCurrent Stress Test Requirements Bring Qualifying Rates 17
To Higher Levels Than Seen During 2009/09 Recession
Variable Rates
6.0 Fixed Rates
% 6.0
%
5.0 5.0
4.0 4.0
stress stress
3.0 test 3.0 test
2.0 2.0
1.0 actual 1.0 actual
0.0 0.0
2008/9 Current 2008/9 Current
recession recession
actual actual
Source: Bank of Canada, CIBCLow vs. High Rise: A Tale of Two Markets 18
MLS Home Price Index (GTA)
25 y/y % chg
20
15
10
5
0
-5
-10
-15
Dec-18
Dec-19
Dec-20
Apr-18
Apr-19
Apr-20
Aug-18
Aug-19
Aug-20
Feb-18
Feb-19
Feb-20
Jun-18
Oct-18
Jun-19
Oct-19
Jun-20
Oct-20
Single Family Apartment
Source: CREA, CIBCResale Housing Market: Limited New Listing 19
Canada
70,000 100000
60,000
80000
50,000
40,000 60000
30,000 40000
20,000
20000
10,000
Unit sales (L) New listings (R)
0 0
Ja 0
Ju 0
Oc 0
De 0
Au 0
M 0
Ap 0
21
0
20
Se 0
No 0
2
2
-2
-2
2
2
2
2
-2
2
r-
n-
n-
t-
g-
c-
p-
v-
l-
b
ar
ay
Ju
Fe
M
Source: CREA , CIBCHouse Price Inflation Outside of Toronto Has Risen Faster 20
(L); With Houses Further Away Rising Most (R)
MLS HPI Benchmark Price, Price Change (Y/Y %) vs Distance
Single Family (Y/Y, Dec 2020) From Toronto
35%
25%
MLS HPI Benchmark (Toronto) 2020Q4
30%
20% 25%
15% 20%
15%
Y/Y
10%
10%
5% 5%
0% 0%
Toronto 300km radius 0 50 100 150 200 250
from Toronto Distance (km)
Source: CREA, www.distance.to, CIBCThe Evolution of Relative Price Performance 21
Index Dec 2009=100 Index Dec 2014=100 Index Dec 2016=100
140 140 160
130 130
140
120 120
110 110 120
100 100
100
90 90
80 80 80
2009 2011 2013 2014 2015 2016 2016 2018 2020
Source: CREA, CIBCGap - New vs. Resale Condo Price 22
Toronto (psf)
$450
$400
$350
$300
$250
$200
$150
$100
$50
$0
2011 2015 2017 2019 current
Source: Urbanation, CIBCWorking From Home Prevalent At the Moment 23
Share of Workers Working From Home (%)
45
40
35 Est. Pre-Pandemic Range
30
25
20
15
10
5
0
Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20
Source: Statistics Canada, CIBCNarrowing Gap Between Vancouver and Locales Further Away Reached
24
Resistance in 2016 (L); Toronto Might Be Heading This Way (R)
Premium Paid for Vancouver Premium Paid for Toronto Houses
Houses Over Other Regions Over Other Regions
70% 140%
60% 120%
50% 100%
40% 80%
30% 60%
20% 40%
10% 20%
0% 0%
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
05
08
11
14
17
20
20
20
20
20
20
20
Source: CREA, CIBCPopulation Growth Numbers Not As Bad As Feared After Adjusting
25
For Non-Permanent Residents and Returning Citizens
600,000 Chg. in Persons
500,000 Adjusted for NPRs and
Returning Citizens
400,000
300,000
200,000
100,000
0
2018 2019 2020
Source: Statistics Canada, CIBCScarring?
Source: BEA, CIBC
13
14
15
16
17
18
19
20
Q1-04
Q3-04
Q1-05
Q3-05
Q1-06
Q3-06
Q1-07
Q3-07
Q1-08
Q3-08
Q1-09
Q3-09
Q1-10
Q3-10
US Real GDP (Chained $ SAAR, Trillions)
Q1-11
Q3-11
Q1-12
Pre-Financial Crisis Trend
Q3-12
Q1-13
Q3-13
Q1-14
Q3-14
Q1-15
Q3-15
261919 27
New York London
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