Sunday , February 28 2021

Investors, be careful: there may be turbulence in the store for the company



Scott Barlow, Globe Investor's internal market strategist, writes exclusively for our subscribers to Inside the Market.

The street forecasts of the credit markets mark a positive panorama of solvency in 2019. But, in the light of a recent series of weak national economic reports, investors may want to curb the expectations of the currency .

The high sensitivity of the Canadian dollar to relative yields – Canada's government debt yield to two years less the performance of the two-year US Treasury – illustrates the first table (at the end of the article). The price of oil is still important to determine the value of the rate (we get to that), but in the last five years, the correlation analysis indicates that the yields have had a greater impact. The highest yields of internal bonds relative to US yields have served to support the value of the Canadian dollar.

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On Tuesday, home equity yield was trading at 1.86 percent and Treasury yield was 2.57 percent, leaving a difference of less than 71 basis points (one basic point is one percent) . The dollar is quoted at approximately 75.5 cents in the USA.

The prognostic of the consensus economist indicates a yield of 2.39 percent for the two year Canadian bonus and 2.93 percent for the two year yields in the United States by the end of 2019. This wants To say that it is expected that the yield differential is less than 54 basis points. In the graph, the distribution constraint will be represented by a rising dwell line and, depending on the previous performance patterns, it would significantly increase the national currency.

The growth rates of the Bank of Canada and economic growth are the two factors that predict that bond yields are higher than current levels to 2.39 percent. At this time, the market is priced at two rate hikes by the Bank of Canada this year and the gross domestic product growth of 1.9 percent.

All this would be well up to the forecasts if the recent indications did not show that the Canadian economy was reduced in November. The disappointing results of domestic retail sales for the month to November, which fell by 0.6%, fell even in this number, with a decrease of 0.9%, and also trade in Wholesale and manufacturing sales, economists predict 0.1% cents in contraction when GDP data is published on Thursday.

November is only a month and the trend of growth could be improved. However, the economy is clearly diminishing and this makes the yields of higher bonds much less likely. The Bank of Canada is unlikely to increase interest rates when faced with a contraction economy and the growth of GDP growth of 1.9 percent by 2019 as well it is in danger

The threat of GDP growth in 2019 was evident in a Merrill Lynch report this week that the risks of economic growth due to the reduction of the Montreal Bank were "neutral" to "low." Investors may be underestimated [BMO’s] The risk of revenue to slow GDP growth "due to its exposure to commercial loans.

Slower growth and less rate increases mean lower bond yields, an expansion of debt (depending on US economic reports and Federal Reserve policy, of course) and a weaker trend and no stronger

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Oil prices are a factor that could justify the current upward trend in the national currency. Our second graph (below) shows that gross prices, both Western Select Canada and West Texas Intermediate, have had an influence on the rate, although the correlation is less strong than between the differentials and the dollar. Higher oil prices have been constantly accompanied by a fortress currency.

Chief economist at the BMO, Doug Porter, acknowledges that the prospects of growth and monetary policy do not mean much in the Canadian dollar. But, in an interview, he adds: "One thing that could enclose the square of the forecasts … would be a bounce on oil prices (and / or a generally weaker USD) … would reinforce the case for the rises of Bank of Canada as well as support the constraints of two-year designs. But, more broadly … given the pronounced softness in domestic demand recently, even the two increases in the BOC d & # 39; this year they are increasingly seen as a long shot. "

Is it an upward perspective for justified justice?

2 years. Diffusion: 2 years. Government of CanadaBond

Yield less than 2 years. Treasury Performance of the United States

Western Canada Select

raw (US $ / bbl, right)

WTI Crude (US $ / bbl, correct)

JOHN SOPINSKI / THE GLOBE AND THE MAIL

SOURCE: scott barlow; Bloomberg

Is it an upward perspective for justified justice?

Diffusion of 2 years: Government of 2 years of Canada

Good yield less the performance of the three years of the USA

Western Canada Select

raw (US $ / bbl, right)

WTI Crude (US $ / bbl, correct)

JOHN SOPINSKI / THE GLOBE AND THE MAIL

SOURCE: scott barlow; Bloomberg

Is it an upward perspective for justified justice?

Two-year Broadcast: Two-year Canadian Government

Good yield minus the yield of the three years of the United States Treasury

Western Canada Select

raw (US $ / bbl, right)

WTI Crude (US $ / bbl, correct)

JOHN SOPINSKI / THE BALLOON AND THE CORREO, SOURCE: scott barlow; Bloomberg


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