June 2016


June 29th, 2016

  • With Britain voting to exit the European Union, downside risks have increased for the global economy.Related uncertainties alone will brake economies worldwide and force the major central banks to maintainaccommodative monetary policies. Consequently the threat of a Federal Reserve tightening in 2016 hasdisappeared. But the U.S. dollar should be supported by its safe-haven properties.

  • We see a stronger greenback as bad news for global equities as we anticipate a tightening of financialconditions. Emerging countries are especially vulnerable because of their sizeable USD-denominateddebt. Also, we now see downside for commodity prices in the coming weeks (WTI down to $40).

  • We do not anticipate a global recession as we expect central banks to gain some traction in their effortsto support investor confidence in the coming weeks. Still, we think the current environment is prone toheightened volatility and justifies a reduction of risk in the portfolio.In our June 24 Strategy Update, we shifted our asset allocation to a more defensive stance, raising cashfrom 5% to 10% at the expense of equities.

Stephane Marion



June 24th, 2016

Good day,

  • With Britain voting to exit the European Union, downside risks have increased for a global economy that was already sputtering. Related uncertainties alone will restrain economic activity worldwide and force the Fed to remain on the sidelines for longer. But the dollar should find support via its safe-haven properties. The world’s reserve currency indeed tends to benefit from periods of heightened uncertainties and stress in financial markets. We have adjusted our currency forecasts accordingly to reflect a stronger USD over the forecast horizon.

  • The battle against deflation is far from won in Europe and Japan. With the Fed likely to remain on the sidelines, the European Central Bank and Bank of Japan are poised to provide more stimulus before year-end to stimulate their respective anemic economies. More so considering potential contagion from Brexit. So, the euro and yen should remain vulnerable to loose central bank policies.

  • Another leg up for the USD coupled with enhanced uncertainties about the global economy courtesy of Brexit, should restrain commodity prices and hence the Canadian dollar. Adding to the loonie’s woes, a dovish Bank of Canada may weigh on the currency with pre-emptive measures to stimulate growth. Another thorn in the loonie’s side is the large current account deficit and hence the dependence of foreign capital inflows which could dwindle with the risk-off mood. We now expect USDCAD to be in the 1.30-1.40 trading range over the next 12 months.


Hightlights Fed policy monitor

June 15, 2016

Fed sidelined by a softening labor market

  • As widely expected, the Federal Reserve left monetary policy unchanged. The fed funds rate remains between 0.25% (lower bound) and 0.50% (upper bound). The FOMC acknowledged the softening of the labour market. Yet, the FOMC sounded positive about recent GDP growth, a view supported by the FRB of Atlanta GDPNow model forecasting a 2.8% GDP growth pace in the second quarter of 2016 after the May`s retail sales release. Again it pointed to softness in business investment but mentioned that the drag from net export appears to have lessened. The FOMC made no reference to Brexit but it said it will continue to closely monitor global economic and financial developments The Fed says inflation should remain low in the near term but expects it to rise to 2% over the medium term “as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further”. For a fourth time, the Fed didn’t explicitly state how it views the balance of risks. Esther George, a known hawk on the FOMC was the lone dissenter in March, wanting a rate hike to 0.50-0.75%. She joined with the majority this time.

Paul-André Pinsonnault

Economics and strategy

Senior Fixed Income Economist