iA Investment Management macroeconomic and markets | iA Financial Group

Diverging trends between the Canadian & the US markets, the strength of the US dollar and market positioning: here are the subjects that we discussed with S├ębastien McMahon as we start our last quarter of the year.

Good morning welcome to the ie investment management macroeconomic and market to date today i’m discussing with sebastian mcmahon about macro in asset classes outlook um my name is rose marcello and i’m a director of client perform manager sebastian is vice president asset allocation and chief strategies chief economist and portfolio manager sebasti thank you for

Being here a pleasure bros so let’s start maybe with markets some divergences that we’ve seen between canada and the us since september how do we explain that we see it both in bond yields and economic indicators and what conclusion should we draw for a short immediate term sure sure so um maybe i’ll start with the economic part last time that we spoke we were

Focusing on the u.s economy which had two consecutive quarters of negative growth which used to be a definition of a recession but now i know it takes more than that so there’s a committee that that analyzes all of the data and decides when there’s a decision or not a recession or not and we’re not there yet according to that committee but we are looking at q3

Now which is getting more and more likely to be negative too so that would be three consecutive negative quarters but on the flip side in the u.s even though gdp is under pressure the labor market is still going strong so creating jobs the housing market is starting to sputter but not uh not at an at an alarming pace in yet so the u.s economy is in a different

Situation than canada because here we have positive gdp growth still because we’re helped by the exterior sector the trade sector but our labor market is slowing down we’ve had a few consecutive months of negative prints on the jobs uh the jobs reports we did recover all of the jobs that were lost during covid much earlier than in the u.s so probably were just

Earlier in the cycle of of accumulating jobs and then seeing some job losses the housing sector in canada is also slowing down uh right now the canadian economy being much more sensitive than the us to interest rates we’re starting to see an impact on housing but also on inflation so inflation figures are slowing down here not yet the case in the u.s when you look

At the core inflation the sticky components of inflation so i mean many commonalities but we’re not exactly at the same place in the cycle but looking looking forward at late 2022 and in 2023 we are still expecting a recession on both sides of the border a recession that might not come with massive unemployment spike the bar is pretty high for massive layoffs but

Still both are going in that direction looking at markets now we also discussed last quarter that we were in a bear market and the playbook for the bear market continues to unfold pretty much as according to history we had a bear market rally that was vigorous during the summer it faded and the bottoms for bear markets the ultimate bottoms tend to coincide with

Either the bottom in economic data so right here 2023 story or a real pivot by central banks when we start to hear from them that they’re worried about the academy not just that they’re taking a pause from hiking but they have some real worries probably again a 2023 story so very interesting juncture we find ourselves in right now indeed another concern on markets

Is the us dollar so it’s being very strong uh reaching heights we haven’t seen in 20 years and this negatively impacts both men trading partners at the us but also u.s large corporations was uh revenue for a large part is earned abroad what do you think the where do you think the valuation of the dollar stance is a top near yeah sure it is the top near it’s always

A tricky question likely the top could also be a 2023 story of course this is just a forecast it’s hard to tell right now but uh typically the peak in the us dollar tends to coincide with the bottom in global economic activity so we are still hearing about coded zero in china and difficulties in the chinese economy we’re hearing about the energy crisis in europe and

It could be a tough winter ahead so a bottoming in the global economic prospects and then probably some verve coming back to the global economic cycle likely that’s a 2023 story until then the us dollar is expensive right now it is a safe haven when there’s risks in the market when the risk sentiment is low money tends to float towards the usd this is contributing

To bringing more risk sentiment to the market so this is self-feeding uh the bottom the peak i don’t know exactly what is going to be likely we still have some some months ahead before we start to see a definitive turn but i’ll tell you that when we start to see the us dollar turning and getting lower it’s going to be a very interesting opportunity to start hedging

Or explode exposure to foreign currencies and portfolios where’s your positioning right now right positioning if you there’s two columns here in the table that you see on the right is the 12 month forward view so there’s a lot of green because when the market’s already down 25 like right now and when rates are at the highest level since three financial crisis of

2008 well it pays to invest if you can take the volatility over the next few months 12 24 36 months ahead earlier being the green and you’ll be happy to have invested now in stocks same thing for bonds so prospects for a long term are interesting but in the short run we’re active managers tactical managers that are job to navigate that so we remain underweight

Equities we see indiscriminate buying and selling depending on the weeks so that’s why we’re underweight equally in all regions we have cash on hands or money market holdings is uh is higher than normal and we have more bonds more duration than normal because we do see volatility ahead so it’s good to hold bonds and we see attractive rates well thank you so much

Sebastian for taking the time today always a pleasure

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iA Investment Management macroeconomic and markets | iA Financial Group By iA Groupe financier – iA Financial Group