There are three trends that will guide the Canadian economy in 2017. Those are:

  1. the strength, or lack thereof, of oil prices;
  2. domestic housing developments; and
  3. whether the U.S. economy continues to improve.

Read: How much further can U.S. equities climb?

So finds Russell Investments’ 2017 Global Market Outlook, which calls for modest growth in the coming year for Canada.

“Moderate improvement in the price of oil and reasonable growth of the U.S. economy are weighed down by debt-laden households,” says Shailesh Kshatriya, director of Canadian strategies at Russell Investments Canada Limited. “We expect domestic equities to be positive, but without the exuberance of 2016. However, domestic bonds likely will be challenged as lacklustre fundamentals may be partially offset by rising yields in the U.S. […] On balance, we see 2017 economic growth in the range of 1.6% to 2.0%.”

The report doesn’t downplay the Bank of Canada’s admission that it entertained a rate cut during its October 2016 meeting, but strategists question how effective a 25 basis-point cut would be–considering current market conditions.

“We believe it is critical the BoC maintain traditional levers to deal with the next downturn,” says Kshatriya. “Cutting rates in the near term, while recession probabilities are low, is a view that is difficult to reconcile. As such, we expect the central bank will keep their target rate steady at 0.50% in 2017.”

Kshatriya adds Canadian 10-year bond yields are headed higher, albeit moderately, and expects them to trade within a range 1.5% and 1.9% by year-end 2017. “With our anticipation that the U.S. Federal Reserve will raise the federal funds rate, potentially as many as three times by the end of 2017, we believe the upward bias in the U.S. yields could help pull domestic yields higher.”

Read: Where to look as U.S. rates rise

Global forecast overview

Russell Investments’ strategists anticipate a challenging global market environment in 2017. The team says global economic growth is likely to improve, spurred by fiscal stimulus as political leaders worldwide move away from austerity, but that the pciture isn’t as rosy in the long term.

The prospect of trade protectionism raised by Brexit and the U.S. presidential election could lead to slower growth and higher inflation in coming years, they add. “Buckle up for what could be a rollercoaster investing ride in 2017,” said Andrew Pease, global head of investment strategy at Russell Investments. “We will watch closely for evidence that markets have moved too far into fear or euphoria and look for downside protection when it is cheap.”

In the U.S., the strategists see equity market valuations as already expensive, and they caution that euphoric anticipation of Trump stimulus could lead to an extended overbought period. Corporate profit growth is likely to be in the mid-single digits at best, while currently high margins may feel pressure from rising labor costs and a stronger dollar.

“Trumponomics is directionally pro-growth, pro-inflation, and our central scenario is a net addition of half a percentage point to real GDP growth,” said Paul Eitelman, multi-asset investment strategist for North America at Russell Investments. “We continue to favor Europe and Japan equities over the U.S. in global portfolios, and expect expensive U.S. valuations to limit future market performance.”

Inflation and a more hawkish U.S. Federal Reserve appear as headwinds for bonds, the report says, but uncertainty is the primary reason that Russell Investments has upgraded the 10-year U.S. Treasury yield forecast. Trumponomics is untested, it says, and too much stimulus could overheat the U.S. economy–resulting in more Fed tightening and an economic downturn in 2018.

Read: With the Fed about to hike, beat the interest rate challenge