Economic outlook: Post-election landscape

Transcription

1 Economic outlook: Post-election landscape November 19, 2015 Douglas Porter, CFA Chief Economist, BMO Financial Group Please refer to the next page for Important Disclosures A presentation of BMO Capital Markets Economic Research

2 General Disclosure BMO Capital Markets is a trade name used by the BMO Investment Banking Group, which includes the wholesale arm of Bank of Montreal and its subsidiaries BMO Nesbitt Burns Inc., BMO Capital Markets Ltd. in the U.K. and BMO Capital Markets Corp. in the U.S. BMO Nesbitt Burns Inc., BMO Capital Markets Ltd. and BMO Capital Markets Corp are affiliates. Bank of Montreal or its subsidiaries ( BMO Financial Group ) has lending arrangements with, or provide other remunerated services to, many issuers covered by BMO Capital Markets. The opinions, estimates and projections contained in this report are those of BMO Capital Markets as of the date of this report and are subject to change without notice. BMO Capital Markets endeavours to ensure that the contents have been compiled or derived from sources that we believe are reliable and contain information and opinions that are accurate and complete. However, BMO Capital Markets makes no representation or warranty, express or implied, in respect thereof, takes no responsibility for any errors and omissions contained herein and accepts no liability whatsoever for any loss arising from any use of, or reliance on, this report or its contents. Information may be available to BMO Capital Markets or its affiliates that is not reflected in this report. The information in this report is not intended to be used as the primary basis of investment decisions, and because of individual client objectives, should not be construed as advice designed to meet the particular investment needs of any investor. This material is for information purposes only and is not an offer to sell or the solicitation of an offer to buy any security. BMO Capital Markets or its affiliates will buy from or sell to customers the securities of issuers mentioned in this report on a principal basis. BMO Capital Markets or its affiliates, officers, directors or employees have a long or short position in many of the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon. The reader should assume that BMO Capital Markets or its affiliates may have a conflict of interest and should not rely solely on this report in evaluating whether or not to buy or sell securities of issuers discussed herein. Dissemination of Research Our publications are disseminated via and may also be available via our web site Please contact your BMO Financial Group Representative for more information. Conflict Statement A general description of how BMO Financial Group identifies and manages conflicts of interest is contained in our public facing policy for managing conflicts of interest in connection with investment research which is available at ADDITIONAL INFORMATION IS AVAILABLE UPON REQUEST BMO Financial Group (NYSE, TSX: BMO) is an integrated financial services provider offering a range of retail banking, wealth management, and investment and corporate banking products. BMO serves Canadian retail clients through BMO Bank of Montreal and BMO Nesbitt Burns. In the United States, personal and commercial banking clients are served by BMO Harris Bank N.A., Member FDIC. Investment and corporate banking services are provided in and the through BMO Capital Markets. BMO Capital Markets is a trade name used by BMO Financial Group for the wholesale banking businesses of Bank of Montreal, BMO Harris Bank N.A, BMO Ireland Plc, and Bank of Montreal (China) Co. Ltd. and the institutional broker dealer businesses of BMO Capital Markets Corp. (Member SIPC), BMO Nesbitt Burns Securities Limited (Member SIPC) and BMO Capital Markets GKST Inc. (Member SIPC) in the U.S., BMO Nesbitt Burns Inc. (Member Canadian Investor Protection Fund) in, Europe and Asia, BMO Capital Markets Limited in Europe, Asia and Australia and BMO Advisors Private Limited in India. Nesbitt Burns is a registered trademark of BMO Nesbitt Burns Inc., used under license. BMO Capital Markets is a trademark of Bank of Montreal, used under license. "BMO (M-Bar roundel symbol)" is a registered trademark of Bank of Montreal, used under license. Registered trademark of Bank of Montreal in the United States, and elsewhere. TM Trademark Bank of Montreal COPYRIGHT 2015 BMO CAPITAL MARKETS CORP. A member of BMO Financial Group

3 Global GDP: New leader, new laggards 2015:Q3 (y/y % chng) Real GDP India (e) 7.4 China 6.9 Mexico (e) 2.4 UK 2.3 Australia (e) Eurozone Japan Brazil Russia (e) (e) World Emerging markets G Another sub-par year (e) = estimate BMO Capital Markets 1 North American growth divergence (q/q % chng : ar) Real GDP Weather Two quarters sub zero -6 forecast to outpace by most since 1996 : 2015:Q3 = BMO estimate BMO Capital Markets 2

4 Jobless rates: falling fast not so much Unemployment rate (percent) [33-year low] 5.8% 10.0% 8.7% Kelowna 7.2 Vancouver % 5.0% 4.4% British Columbia 6.3 forecast Greece 24.6 Spain 2 Portugal 12.2 Italy 11.8 France 10.7 Ireland Australia 5.9 UK Germany 4.5 Japan 3.4 BMO Capital Markets 3 Best. Recession. Ever Not a recession Real GDP (6-mnth % chng : ann) Not a recession This year: 171,000 jobs created Record auto sales Record home prices Housing starts rose Record household net worth Balanced Federal budget Canadian recession BMO Capital Markets 4

5 Commodities: Oil spill spreads (as of November 18, 2015) Crude oil ($/bbl) Brent Natural gas ($/mmbtu) WTI¹ Lumber² ($/1,000 bd ft) Base metals ($000s/ton) Nickel (rhs) Copper (lhs) ¹ West Texas Intermediate ² 2x4 kiln-dried, Prince George BMO Capital Markets 5 Regional outlook: The changing of the guard (y/y % chng) Retail sales¹ (3-mnth ma) Employment² Real GDP³ BC 6.0 ON 1.7 BC 2.3 ON 4.6 BC 1.4 ON 2.0 NB 3.2 NL 1.1 MB 1.9 MB PE 0.3 NS NS 0.5 MB 0.2 QC 1.5 QC 0.3 NS -0.3 PE 1.5 PE 0.2 QC -0.4 NB 1.1 NL 0.2 NB -1.0 SK -0.1 SK AB SK AB AB NL Oil producers ¹ August 2015 ² Survey of Employment, Payrolls and Hours (August 2015) ³ 2015 BMO forecast BMO Capital Markets 6

6 Provincial deficits: Some progress, some trouble FY15/16 Budget balance (% of GDP) British Columbia Alberta Saskatchewan Manitoba Ontario Quebec New Brunswick Nova Scotia Prince Edward Island Newfoundland and Labrador All provinces Federal 0.1 $0.3 bln $6.1 bln $0.3 bln $0.4 bln $8.5 bln 0.4 $ bln $0.5 bln $0.1 bln $0.02 bln $1.1 bln $15.2 bln 0.1 $1.4 bln deficit surplus Quebec: Before GF transfers Sources: Federal and provincial budgets/fiscal updates BMO Capital Markets 7 Canadian election 2015 Federal election Justin Trudeau [Liberals] Political party Votes Seats Votes Seats (%) (%) Liberals Conservatives NDP Bloc Québécois Stephen Harper [Conservatives] Other Thomas Mulcair [NDP] Implications: Infrastructure spending $10 billion deficits Tax cuts / tax hikes Bigger child tax credit TFSA rollback BMO Capital Markets 8

7 Regional real estate outlook Okanagan Mainline Sales, starts rising slowly Population growth rebounding Rates to stay low Oil shock repercussion drags BMO Capital Markets 9 Housing starts: recovering, resilient (mlns of units : 3-mnth ma) Housing starts (rhs) (lhs) BMO Capital Markets 10

8 Population growth revives (3-mnth ma : y/y % chng) Population growth Kelowna BMO Capital Markets 11 And starts follow, gradually Kelowna 3.5 Housing starts¹ Population growth² ¹ (000s of units : 12-mnth ms) ² (3-mnth ma : y/y % chng) BMO Capital Markets 12

9 Canadian house prices: Regional divide (y/y % chng : nsa : as of October 2015) Existing home prices¹ Vancouver 15.3 Average home price (y-t-d avg) $894,000 Toronto 10.3 $622, $441,000 Okanagan Mainline $410,000 Edmonton $370,000 Winnipeg $279,000 Montreal 1.4 $336,000 Ottawa 0.5 $370,000 Calgary -1.1 $455,000 Saskatoon -1.4 $343, Okanagan Mainline sales up 5% y-t-d in October ¹ HPI composite benchmark where available ² Average home price (y-t-d) BMO Capital Markets 13 Canadian consumers: Still borrowing Households¹ 1.8 Debt ratio (ratio to personal disposable income) 15 Debt growth² (y/y % chng) crossover Debt ratio at record highs ¹ Households, nonprofits and unincorporated businesses ² Consumer credit and residential mortgages only BMO Capital Markets 14

10 Global debt comparison: not unusual Household debt-to-disposable income 2014 (ratio) High Low Denmark Netherlands Iceland Switzerland Norway Australia New Zealand Ireland Sweden South Korea UK Spain Finland Japan Belgium Austria Greece France Germany Italy Poland Hungary median Source: Reserve Bank of New Zealand BMO Capital Markets 15 Values supported by incomes and interest rates (% of household income) Average mortgage payments 45 44% Toronto bubble % Correction 37% 30% If R 2 ppt % Housing extremely cheap Next decade: Price growth much more subdued Based on 25-year amortization, average of 1- and 5-year posted rate, average-priced house, down payment equal to half of annual income. Household income measured as personal income per labour force member. BMO Capital Markets 16

11 Canadian dollar: Leaking oil Loonie drops to 75 Bank of cuts twice Commodities retreat $: Renewed strength Biggest two-year drop ever BMO Capital Markets 17 Canadian dollar: Lower still? Canadian dollar 106 ( : as of November 18, 2015) Q parity 90 Poloz takes over at BoC (June 1, 2013) 82 Bank of Governor Stephen Poloz Similar to other commodity currencies BMO Capital Markets 18

12 Inflation plunges for now Consumer price index (y/y % chng) 4.5 United States 4.5 Total CPI (latest month) Brazil Total Core 1.9% 0.2% Total Core 2.1% 1.0% India China Eurozone Japan 0.0 forecast high versus industrial world UK British Columbia: 1.3% BMO Capital Markets 19 Interest rates: rate hikes coming (% : as of November 18, 2015) 6 5 Overnight rate Year-end forecast year bonds Year-end % record lows BoC back on sidelines % 5% 0%-0.25% Record spread BMO Capital Markets 20

13 Outlook in a nutshell expansion still improving Businesses hiring, consumers thriving, oil prices help Housing recovery ongoing tripped up by oil, other commodities Major regional re-shuffling underway Housing market concerns overdone Provincial governments tight-fisted Interest rates: Gradual upward drift in rates Exchange rates: dollar to hold firm, C$ on defensive Stocks: Bull market to resume, but valuations a headwind BMO Capital Markets 21