The global economic expansion is expected to continue in 2017, but growth is unlikely to accelerate. Uncertainty around our forecast is unusually large this quarter, given many policy unknowns as we enter 2017.
Since the U.S. election of Donald Trump last November, the prospect of fiscal stimulus amid accommodative monetary conditions in the U.S. has dramatically changed global financial dynamics. Other aspects of a new Trump administration, such as trade protectionism and the potential imposition of tariffs on trading partners, have so far been treated with benign neglect by financial markets. This may come to haunt investors in the first 100 days of the new administration.
Fixed Income vs. Equity - A neutral to cautiously positive stance on equities is warranted. Bonds should underperform, as monetary policy and bond yields continue to normalize.
Equity - Emerging Asian equity markets remain attractively valued, especially following the post-U.S. election sell-off. This is our preferred global equity region.
Fixed Income - Current conditions are moderately bearish for bond prices, marginally favourable to Canadian bonds versus U.S. and still supportive of an outperformance of corporates relative to sovereigns.
Currencies - The projected widening in Canadian versus U.S. monetary policy differentials will keep the U.S. dollar well supported against the Canadian dollar.