The slides – 2018 strategy outlook – late-stage positioning

Canadian Market Summary

January 9, 2018

  • Macro scenario for 2018. Global purchasing managers’ index [PMI] momentum moderating, EPS growth slowing to high single digits, and yields rising. Recession probabilities remain low; inflation upside could spark volatility.
  • U.S. 10-year Treasury yields. Upside risk to fair value above 3%, core consumer price index (CPI) up >2% (1.8% now).
  • U.S. dollar: more modest losses in 2018 (U.S. Dollar Index [DXY] -10% in 2017). DXY range of 90-95 (now 92) as U.S.-EU yield spreads narrow. C$ trades around US$0.80 in 1H/18.
  • WTI crude oil averaging >US$58/bbl in 2018; Gold benefits from fading PMIs in 2H/18.
  • Recommended asset mix. Equities > Bonds preference intact, but with declining conviction. Rising yields + fading PMIs = less-attractive equity risk/reward outlook.

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