us economic outlook october 28, 2015
TRANSCRIPT
US Economic OutlookBilal Hasanjee, CFA®, MBA, MScFinance
October 28th, 2015
Disclaimer
NOTICE & DISCLAIMER: This publication has been prepared for informational purposesonly. Opinions, estimates and projections contained herein are my own and alsoextracted from third party sources and as of the date hereof and are subject to changewithout notice. The information and opinions contained herein have been compiled orarrived at from sources believed reliable, but no representation or warranty, express orimplied, is made as to their accuracy or completeness and neither the information northe forecast shall be taken as a representation for which the author or his employer incurany responsibility. The author does not accept any liability whatsoever for any lossarising from any use of this information. This publication is not, and is not intended to beconstructed as, an offer to sell or solicitation of any offer to buy any financial instrumentreferred to herein, nor shall this publication be construed as an opinion as to whether youshould enter into financial transaction or trading strategy involving any financialinstrument.
US Economic Outlook
US Economic Outlook
The U.S. economy continues to strengthen, with domestic demand picking upmomentum, as reflected in rising retail sales and investment
Despite healthy employment growth and a falling unemployment rate, wagepressures remain muted
Inflation has remained low, helped by a strong dollar and weak energy prices, and theCPI index has flirted on and off with deflation
Credit growth remains robust but U.S. equity markets, industrial production, andexports have all been held back by economic weakness in the rest of the world
A strong possibility that the Federal Reserve will start its rate hike cycle in Decemberpoints to how asynchronous the U.S. recovery is compared to business cycles inmajority of other developed economies
US Economic Outlook
Domestic momentum should be enough to lead the Fed to deliver a December ratehike as downside risks to inflation ease. Thereafter, depressed productivity and lowerpotential growth take center stage
US productivity growth has been strikingly low over the past decade despite aseeming explosion of technological progress and innovation
US Interest Rates Expectations
Source: JP Morgan Asset Management Research
US Interest Rates Expectations
Source: CME Group FedWatch
US Interest Rates Expectations
Relative Volatility in the US Asset Markets
Increase in implied volatility acrossbonds, equities and currencies owingto uncertainties associated with Chinaand emerging markets
Despite that US equities and bondsserved as safe heavens in terms ofrelative volatilities across global assetclasses
Source: Bank of Canada
Source: Bank of Canada
Flight to Quality and Appreciating Dollar
No wonder USD has significantly appreciated all major currencies
US Dollar Index (USD Performance Against a Basket of Currencies)
Conclusion
Conclusion
Key drivers of global economic developments for the next 6 months:
Drop in commodity prices
Weakness in emerging market growth
Appreciation of the US dollar
US Growth
Euro Zone Problems
EMEs and DEs are projected to slow for the fifth year in a row!
4 Key risks to the Canadian Economy:
Correction in house prices
Sharp increase in long term interest rates
Stress emanating from China and EMEs
Financial Stress from Euro area
Conclusion
US productivity growth and consumer spending are key engines to the globaleconomic growth
US higher interest rate cycle is asynchronous to most of the developed economies(except UK) and may force them to move in tandem
China’s PBOC has plenty of fiscal and monetary flexibility to fight off any recessionarytail winds