the great escape?€¦ · (chng since credit crisis erupted : ppts) 3.0 canada 3.5 y calgary...

Douglas Porter, CFA Deputy Chief Economist & Managing Director, BMO Capital Markets

The Great Escape?

© BMO Capital Markets www.bmocm.com/economics

Financial Markets Revive

Commodities

08 09 10

30

60

90

120

150

0.75

1.50

2.25

3.00

3.75

4.50Stocks

08 09 10

600

800

1000

1200

1400

1600

6000

8000

10000

12000

14000

16000

(as of May 3, 2010)

Canadian Dollar(US¢)

08 09 10

75

80

85

90

95

100

105

Oil(US$/bbl:

lhs)

Copper(US$/lb:

rhs)TSX(rhs)

S&P 500(lhs)

Recovery Trumps New Concerns


Major Indicators On the Mend

Retail Sales(y/y % chng)

07 08 09 10-12

-9

-6

-3

0

3

6

9

US Employment(m/m chng : 000s)

07 08 09 10-900

-600

-300

0

300Canada

US

China’s Exports(y/y % chng : 2-mnth ma)

07 08 09 10-30

-15

0

15

30

45


Recession Ends

Real GDP

04 05 06 07 08 09 10 11-8

-6

-4

-2

0

2

4

6

(q/q % chng : ar)

Canada

US

forecast

Recession Gauges:Length Depth

USCanada

~19 mnths3 qtrs

08 09 10 11CanadaUS

0.40.4

-2.6-2.4

3.43.1

3.23.1

-3.8%-3.6%

(last 4 qtrs)


Canadian Housing Markets Rebound

Housing Starts(2005 = 100 : 2-mnth ma)

03 05 07 0920

40

60

80

100

120

Home Sales: Canada = Existing US = Existing + New

Home Sales(mlns : ar)

03 05 07 094

5

6

7

8

9

0.2

0.3

0.4

0.5

0.6Canada

(rhs) CanadaCanada

USUS

US(lhs)

Existing Home Prices(y/y % chng : 3-mnth ma)

03 05 07 09-20

-10

0

10

20


Canadian House Prices

Existing Home Prices

VancouverToronto

Major MarketsOttawa

Quebec CityMontreal

CalgaryWinnipeg

0 5 10 15 20 25 30 35 40

30.7

20.1

16.1

14.9

13.2

10.7

9.0

7.5

(y/y % chng : as of March 2010)Canada – Major Markets

(weighted)

AverageHome Price$693,000

$435,000

$374,000

$331,000

$206,000

$278,000

$406,000

$227,000


Source: BMO Capital Markets

Canada (January 1988 = 100)

Affordability: Back Below Average... Before Rate Hikes

Housing Affordability Index

88 90 92 94 96 98 00 02 04 06 08 1060

80

100

120

140

160

180

mean


US Recession Much Worse

Employment

75 80 85 90 95 00 05 10

-6

-4

-2

0

2

4

6

(y/y % chng)

Job Losses in Perspective

% Level-2.4%-5.9%

-417,000-8.4 mln

CanadaUS

Cumulative Chng in Recession

US recession

Canada

US-1.8%

0.9%

-2.4%

Record-4.7%


Unemployment Rate

98 99 00 01 02 03 04 05 06 07 08 09 10 113

6

9

12

(percent)

Canada

US

forecast

Unemployment to Remain High

9.7%

8.2%Quebec

8.0%


Ontario, Alberta and BC Hit Hardest

[September ’08 to March ’10]

Change in Unemployment Rate (chng since credit crisis erupted : ppts)

3.0

Canada

3.5

Calgary

3.7Victoria

3.4

VancouverWinnipeg

1.0 5.3

Sudbury

1.2

Edmonton

3.8

1.9Regina

0.0Saskatoon

1.7

Montreal

Quebec City

1.2Saint John

Ottawa

Halifax

2.3Windsor

3.4

Oshawa2.6

London 2.4

Hamilton

St Catharines

Kitchener

SouthwesternOntario

St John’s-0.2

Sherbrooke

Toronto

4.2 1.0

2.0

WindsorToronto

1.2

Thunder Bay

2.7

1.8

0.1


Provincial Outlook: Broad Recovery

ManQue

BCAtlan

OntAltaSask

-8 -6 -4 -2 0

-0.2

-1.0

-2.3

-3.1

-3.1

-5.1

-6.3

SaskBC

AltaOnt

ManQue

Atlan

0 2 4 6 8

4.2

3.9

3.6

3.4

3.0

2.9

2.8

Real GDP – Canada (y/y % chng)

Source: [2010] BMO Capital Markets forecasts

2009 2010

08 09 10 11Canada 0.4 -2.6 3.4 3.2


Consumers Retrench

Personal Savings Rate(% of disposable income)

06 07 08 09 10 111

2

3

4

5

6

Real Consumer Spending

(y/y % chng)

06 07 08 09 10 11-3

0

3

6

US

Canada

forecast

US

Canada

08 09 10 11CanadaUS

3.0-0.2

0.2-0.6

3.22.4

3.53.1


Employment Ratio(% of population)

05 06 07 08 09 1058

59

60

61

62

63

64

Confidence, Cash and Credit Are KeyHousehold Credit = Consumer Credit and Residential Mortgages

Canadian Consumers: Holding Up Better

Consumer Confidence Index(January 2007 = 100)

07 08 09 1015

30

45

60

75

90

105

Household Credit(y/y % chng)

05 06 07 08 09 10-5

0

5

10

15

Canada

US

Canada

US

Canada

US


Net Worth(ratio to personal disposable income)

95 00 05 104.5

5.0

5.5

6.0

6.5

Total Debt includes unincorporated businesses

Canadian Household Sector in Better Shape

Tech Stock Bubble

Canada

US

Housing Bubble

Loan-to-House Value(%)

95 00 05 1020

30

40

50

60

70

US

Canada

Subprime Malaise

Total Debt(ratio to personal disposable income)

95 00 05 101.00

1.25

1.50

1.75

2.00

Canada

US


Vehicle Sales (mlns : ar)

Changing Gears

05 06 07 08 09 10

8

12

16

20

24

0.8

1.2

1.6

2.0

2.4

Canada: Mar & Apr = estimate

(3-mnth ma)05 06 07 08 09 10

5

10

15

20

China

US

Crossover

US(lhs)

Canada(rhs)


Global GDP: World of Difference

[Q1]

[Q1]

[Q1]

[Q1] -0.3[Q1]

Real GDP China

TaiwanKoreaIndia

BrazilAustralia

USJapan

CanadaEurozone

MexicoUK

Russia

-6 -3 0 3 6 9 12 15

11.99.2

7.86.0

4.32.7

2.6

4.5

-1.0-1.2

-2.2-2.3

-3.1-3.8

2009:Q4 (y/y % chng)08 09 10 11

World 3.1 -0.8 4.1 4.3

10.76.0

0.1


Loonie & Commodities: So Happy Together Again

95 97 99 01 03 05 07 0980

120

160

200

240

280

320

60

70

80

90

100

110

120

Canada (as of May 3, 2010)

BoC Commodity Price Index

(lhs)

C$(US¢ : rhs)


Australian $Canadian $Swiss FrancEuroJapanese YenChinese YuanUK PoundTrade-weighted US$Mexican Peso

79.559.257.452.742.421.37.6

-21.3-25.8

3.24.2-4.6-7.8-1.60.0-5.70.06.8

(as of May 3, 2010)

US Dollar Still Vulnerable

Broad Trade-weighted US$

00 02 04 06 08 10

90

100

110

120

130

140February 27,

2002 Peakforecast

July 15, 2008 Trough

March 9,2009

2010Y-T-D

Peak toPresent

Feb ’02

% Chng (vs US$)

Sovereign Risks


US Budget Deficit: Record Shortfall

– US$ Blns –

81 89 93 01 09-1,600

-1,200

-800

-400

0

400

– % of Nominal GDP –

1900 1925 1950 1975 2000-32

-24

-16

-8

0

8

Budget Balance – United States

Reagan BushClinton

Source: OMB 2010-12 = forecast

AAA Rating “At Risk”

ObamaBush

World War II

World War I

-1,413

-6.0% -9.9%-10.6%

-8.3%-5.1%

-1,342Record-1,500

-914


Priming the Fiscal Pump in Canada

– % of Nominal GDP –

62 72 82 92 02 12

-10

-8

-6

-4

-2

0

2

– C$ Blns –

89 94 99 04 09 14

-60

-40

-20

0

20

Attention Will Soon Turn to RestraintSource: Federal Budget 2009/10 = estimate

forecastPrior Trough

Budget Balance – Canada


Dots represent countries in the OECD, except Norway, which has huge assets

OECD Fiscal Landscape

Deficit vs Debt

-60 -30 0 30 60 90 120-3

0

3

6

9

12

15

Net Debt

2010 (% of nominal GDP)

Deficit

Surplus

Australia

New Zealand

Japan

US

Canada

Greece

UKIreland

Italy

SpainPortugal

TROUBLE

Germany

France


10-year Spreads vs Germany

Europe: Sovereign Risk

07 08 09 100

2

4

6

8

10

07 08 09 100

1

2

3

4

Portugal

Spain

Greece

Ireland

(as of May 3, 2010)


Europe & Emerging Markets

75 80 85 90 95 00 05 104

6

8

10

12

14

16

Canadian Exports (% of total)

Canadian Exports: Where now?

United States

75 80 85 90 95 00 05 1060

65

70

75

80

85

Europe

Emerging Markets


Loonacy

Canadian Dollar

03 04 05 06 07 08 09 10 11

60

70

80

90

100

110

Parity Beckons

(US¢ : as of May 3, 2010)

Parity

Current 98.96¢

forecast


Headline Inflation Bounces Back

Canada

04 05 06 07 08 09 10 11

-3

0

3

6

Consumer Price Index (y/y % chng)

HST: Short-term Bump for Inflation

United States

04 05 06 07 08 09 10 11

-3

0

3

6

Core

TotalTotal

Core1.4%

forecast

2.3%

1.1%

1.7%


Core CPI 1.7%

(y/y % chng : as of March 2010)

Deflationary

Natural GasVideo EquipmentAir FaresMortgage InterestClothingFurniture/AppliancesVegetables

-22.4-16.6-10.9-6.0-4.2-2.1-1.5

Inflation and Deflation

Inflationary

GasolineWater ChargesAuto InsuranceTelephone ServicesChild CareProperty TaxTuition Fees

17.25.65.55.04.84.34.1

Consumer Price Index – Canada

Overall CPI 1.4%


Canadian Rate Hikes Coming

Overnight Rate

01 02 03 04 05 06 07 08 09 10 11

0

1

2

3

4

5

6

7

(% : as of May 3, 2010)

US

Canada

0% - 0.25%

forecast

Can Canada Go It Alone?

Record Lows

0.25%


Current spread-4 bps

10-year Bonds

06 07 08 09 10 11

2

3

4

5

6

US

Canada

(% : as of May 3, 2010)

Fed Quantitative Easing Finished

Long-term Yields Will Rise a Bit

’11)(Year-end4.70%

’10)(Year-end4.05%

forecast

3.65%Canada3.69%US 4.15%

5.00%


NasdaqRussia

S&P 500DJIA

JapanTSX

GermanyUK

IndiaAustralia

China-30 -15 0 15

10.18.9

7.86.9

4.83.83.52.6

-0.5-1.6

-14.4

RussiaChinaIndia

NasdaqAustralia

TSXGermanyS&P 500

UKJapan

DJIA0 50 100 150

128.695.0

81.043.9

33.430.7

23.923.522.119.018.8

UKDJIATSX

S&P 500Germany

NasdaqJapan

AustraliaIndia

ChinaRussia

-100 -75 -50 -25 0

-31.3-33.8-35.0

-38.5-40.4-40.5-42.1-43.0

-52.5-65.7

-72.4

Equity Markets (% chng)

Global Equities: From Worst to First

2010 Year-to-Date(as of May 3, 2010)20092008


A Long Way Back

TSX

07 08 09 10

6000

8000

10000

12000

14000

16000

S&P 500

07 08 09 10

600

800

1000

1200

1400

1600

March 9, 2009

June 18, 2008October 9, 2007

March 9, 2009

(as of May 3, 2010)

+77.7%

-56.8%

+23.6%

+61.2%

-49.8%

+30.2%


(± one standard deviation)

Valuations in CheckUnited States

Overvalued

Undervalued

S&P 500 Price/Trend Earnings

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 20100

10

20

30

40

50


Worst Is Over

Massive Rate CutsFiscal Stimulus

Financial Markets Heal

But...Sovereign Risks

US Deleveraging ContinuesStrong Canadian Dollar Threat

Canada Outperforms, But Challenges Remain

Douglas Porter, CFA Deputy Chief Economist & Managing Director, BMO Capital Markets

The Great Escape?

the great escape?€¦ · (chng since credit crisis erupted : ppts) 3.0 canada 3.5 y calgary...

Documents