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Jean Gauthier, I’m managing director, CIO, global fixed income for CIBC Asset Management.
We expect the market to do OK. If we look at the stock market, we had a great start of the year. The market is up between 3% and 6%. We do expect, probably, return is going to be something like 8%, which is the average.
Definitely if we see the stock market continue to well perform and get close to a 10% increase for the balance of this year then we would play a little more defence on the stock market.
In term of the bond market, the middle part of the curve, which is the five year and 10 year part of the curve, starts to be slightly expensive. If you remember, the 10-year Canada back in 2016 did a low around 1%. That’s when the Bank of Canada had the overnight at 50 basis points.
Current overnight of the the Bank of Canada is 175 basis points. We’re expecting probably a cut of 25 basis points, probably in March or April. That’s what the market is pricing right now. If you look at the 10-year at 137 it’s actually pricing more than one cut, probably two or three cuts already.
So, a lot of the bad scenario already priced in the 10-year part of the curve, which is not the case in the front end. So for us right now, the positioning that remain the best would be overweight the short part of the curve in Canada.
And probably because we do believe the stock market should be OK, corporate bonds should also perform in this environment. So we rather be long corporate bonds and be long the short part of the curve because if you see any deterioration, short part of the curve should outperform the five-year and 10-year, which already priced a lot of bad problem in it.
We still maintain the U.S. should do OK. What we have seen is, the slowdown we have seen the last couple of months seems to be stabilizing. The indicator, like ISM, both service and manufacturing, seems to turn around.
I think we’re going to have a market where maybe the business investment is not up there, but still we do believe that the consumer is in good shape, that the recent cut by the Federal Reserve last year is going to help the market.
So we are not that worried about the U.S. market. We should believe that the U.S. market should do OK, the economy should do OK. The big question points remain China. With the coronavirus it seems that, again, we should see a little bit of slowdown.
So right now expecting maybe a growth for 2020 around 5.5%. If we do see more traction in the coronavirus and more economic slowdown, and if we see the growth getting soggy and get close to 5% then that may trigger some problem for the global GDP and for the U.S.
So, again, exogenous factor on the China side. But, in the meantime, the last news we got on the coronavirus is the number of cases seems to be still growing, but not growing in the same pace every day.
Because at the beginning it was really exponentially and a lot of prediction has been within the exponential growth of the cases that may have a lot of impact.
But now it seems that the growth is much more stabilized. So I think if this event can be resolved in the next month and a half, two months, then I think we should be OK in terms of growth for this year.