September Outlook
September 11, 2019  |  By Hank Cunningham

Was this turnaround in bond yields an important inflection point or was it merely a typical reaction to an overdone situation? It is likely a combination of the two. Recession fears have been partly assuaged by the revived monetary stimulus occurring globally, accompanied by fiscal stimulus.

While manufacturing has weakened perceptibly, GDP growth remains positive in North America with recent evidence that growth in Europe may have ticked up.

Inflation remains subdued but is stirring sufficiently to attract the markets’ attention. The giant wildcard is trade, as it remains the chief potential disrupter to markets and economic confidence. Its impact is yet to be determined. We conclude that bond yields went too low, too fast and that the current rebound was to be expected. Nevertheless, recession fears have abated somewhat with renewed monetary and fiscal stimulus becoming more prevalent. Therefore, we may not witness yields falling back to their recent lows in the near term.

Arguing against a sustained climb in yields is the subdued inflation picture and slow growth.

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August Outlook
August 13, 2019  |  By Hank Cunningham

Where do we go from here? How low can bond yields go?

The ongoing trade feud will disrupt markets further. On the surface, GDP growth is positive in the U.S. and Canada, albeit at a slower pace.

While U.S. consumers and businesses remain confident, retail sales are strong and the employment market remains taut, investors’ eyes are focused on the growing global recession risk. Investors in negative-yield markets are snapping up U.S. (and Canadian) bonds at a torrid clip.

We conclude that bond yields may go lower, even as they touch all-time lows. Strategists are now pondering whether U.S. interest rates will also go to zero. A reversal in this bond yield decline will require a détente in the trade war and evidence that global growth, while slowing, remains positive with some stirring of inflation.

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July Outlook
July 15, 2019  |  By Hank Cunningham

Where does the market go from here? There are clear signs of slowing in global and American growth. Canada is an exception to this, with its economy performing well.

Monetary ease, in an attempt to forestall further weakness has returned everywhere but Canada. Bond yields, primarily in Europe, have fallen deeper into negative territory. It is premature to fear a recession in the near term, but GDP growth should abate somewhat.

The U.S. consumer remains confident and employment remains strong, while inflation actually stirred to everyone’s surprise. It is likely that bond yields will stay suppressed indefinitely, but we believe that a modest uptrend in yields may take place, especially if inflation continues to tick up.

Of course, global trade concerns are of major importance but it is difficult to predict the outcome or impact. Thus, they are the wild card and could lead to market disruption.

Canada is enjoying a period of positive economic results which should leave the Bank of Canada on the sidelines. The strength in the loonie will act as a de facto tightening, which should continue as the Fed contemplates lowering rates and weakening the U.S. dollar as a result.

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