Sub-zero interest rates have been a rare event for major economies—until now. The spread of negative rates, and the unintended consequences for the economic landscape, has captured the attention of CIBC Asset Management (CAM). When confronted with negative rates, consumers and businesses could opt to save instead of borrow and consume, possibly triggering a more sluggish economic environment.
Fixed Income vs. Equity - Cyclical forces may continue to support higher-than-average equity valuations a little longer, making equities more attractive than fixed income.
Equity - With a rally in equity markets in the first quarter, CAM’s forecasts predict lower returns in equities than at the start of the year. Non-commodity sectors in emerging Asia have been resilient and actually stand to benefit from lower commodity prices.
Fixed Income - CAM’s forecasts also predict lower returns in fixed income than at the start of the year, after a sharp decline in interest rates in the first quarter. Canadian agencies and corporate bonds represent a better opportunity than sovereigns in the next year.
Currencies - In the context of a very dovish Canadian central bank and oil price weakness, the Canadian dollar is expected to consolidate around current levels for some time—probably well into the summer.
Perspectives Video Commentary with Luc de la Durantaye
Podcast with Luc de la Durantaye: "How negative rates affect economies"