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Luc de la Durantaye, chief strategist and CIO for multi-assets and currency management at CIBC Asset Management.

It is a conundrum that equity markets have continued to rally, I think, relative to the trade tensions that seem to be lingering. Our sense is that the initial signal by central banks of easing or planning to ease policy over the summer months has given a degree, a certain lift, to risky assets in general. And also the restart of negotiations between the U.S. and China have also helped lift spirits a little bit. So that has underpinned the rally in bonds and the improvement in equity prices.

We’re a bit more cautious from now relative to these expectations for a number of reasons. One, on the trade front, it’s the policy of the U.S. administration to want to correct the U.S. trade deficit with its different partners. That’s with China, but that’s also with Europe, and that we don’t talk as much about. Although it is said that it is in the best interest of both parties—of the U.S. and China—to reach a deal, and that’s a logical statement, but the reality is that they are at quite different spectrums in terms of what they want to achieve in that deal. I think that’s what’s going to create a difficult negotiation. So in the meantime, the lingering impact on consumer uncertainty and business uncertainty will continue to have a sluggish economic environment. That will eventually turn into slower profit growth from corporations and I think that’s where that will sort of start to reduce the impetus on equity prices from that environment.

Canada is in an interesting position because it certainly looks like the USMCA, the new NAFTA, will move ahead. It’s in the interest of the three parties, and that makes Canada securing its relationship with the U.S. The other element is that Canada’s exports are predominantly to the U.S. and the U.S. is, in relative terms, doing a little bit better, obviously, than Europe or Japan. So that places Canada’s exports in some sense [in] a little bit better position.

And third, and we were talking about monetary policy effectiveness: Canada and the U.S. have more leeway than the European Central Bank or the Bank of Japan in terms of stimulating or lowering interest rates. They have more room and, from a fiscal perspective, our fiscal situation is in relatively good shape by a world comparison. And so that gives us more policy flexibility to absorb and stimulate our domestic economy. So we’re in a decent position at this point in time.

CIBC Multi-Asset Absolute Return Strategy
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