CIBC Asset Management's (CAM) baseline economic forecast continues to project a sluggish expansion over the next 12 months, with a below-consensus global GDP growth forecast of 3%. Lower energy prices will likely mean that many developed and emerging central banks will undershoot their inflation targets. On the positive side, the growth benefits of lower energy prices combined with aggressive monetary policy initiatives, led by the European Central Bank, should keep the global expansion alive.
Fixed Income vs. Equity – CAM's empirical research indicates that global equity markets hover around fair value. However, on an equity risk-premium basis and compared to bond yields, equities remain attractive.
Equity – The right conditions are moving into place for emerging markets to start to outperform once again.
Fixed Income – Given the deflationary impact of the negative oil shock and low yields elsewhere in the world, the upside for bond yields in the U.S. and Canada should be limited.
Currencies – Canada's monetary policy outlook relative to the U.S. is not supportive for the currency. Continued weakness in energy prices only adds to the loonie's woes.
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