While some global risks have recently receded, they have not disappeared and global debt levels remain high by historical standards. Even though the cost of financing this debt is lower, the global growth supporting the eventual debt repayment has also declined, leaving a precarious equilibrium. With interest rates near zero and many unconventional monetary policy tools close to their practical limit, the ability of central banks to stimulate growth seems more limited. This could leave the U.S. Federal Reserve as the “last man standing”.
Fixed Income vs. Equity - While we still find equities more attractive than fixed income, investors should not ignore bonds. In the current uncertain, volatile environment, we favour a cautious strategy that is well-diversified across and within asset classes.
Equity - Equities are expected to deliver single-digit returns with above-average volatility.
Fixed Income - Yields in Canada and the U.S. should remain around current levels over the next 12 months, although yields may decline further over the shorter term.
Currencies - For currencies with safe-haven features like the euro and Japanese yen, the U.S. dollar’s cyclical peak has probably already been reached. For cyclical and commodity-sensitive currencies, the U.S. dollar’s long-term uptrend should remain intact as the economic adjustments to lower commodity prices are not yet complete.
Perspectives Video Commentary with Luc de la Durantaye
Podcast with Luc de la Durantaye: "Time to Turn to Safe Havens"