Is There Logic Behind Is There Logic Behind the Madness? the - - PowerPoint PPT Presentation

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Is There Logic Behind Is There Logic Behind the Madness? the - - PowerPoint PPT Presentation

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Is There Logic Behind Is There Logic Behind the Madness? the Madness? Benj amin Tal November 2016 CONFIDENTIAL Unemployment Rate vs. Wage Increase 1 Reality Theory 12% 1 10% 1 Unemployment rate Unemployment rate 8% 1 6% 1 4% 0

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SLIDE 1

November 2016

CONFIDENTIAL

Benj amin Tal

Is There Logic Behind the Madness? Is There Logic Behind the Madness?

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SLIDE 2

Unemployment Rate vs. Wage Increase

1

CONFIDENTIAL

0% 2% 4% 6% 8% 10% 12% 0% 1% 2% 3% 4% 5% Unemployment rate Wage increase Reality 1 1 1 1 08 09 10 11 12 13 14 15 Unemployment rate Wage increase Theory

S

  • urce: S

t at ist ics Canada, CIBC

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SLIDE 3

Canada: S hare of Low-Paying Jobs - Rising

2

S

  • urce: S

t at ist ics Canada, CIBC

55% 56% 57% 58% 59% 60% 61% 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 S hare of Below Average Wage Jobs

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SLIDE 4

Canada: Job Growth by Wage Category

3

S

  • urce: S

t at ist ics Canada, CIBC

500 1000 1500 2000 2500 <50%

  • f avg

wage 50-100%

  • f avg

wage 100-150%

  • f avg

wage >150%

  • f avg

wage 1997-2015 $'000

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SLIDE 5

Canada: Wage Growth by Wage Percentile

4

S

  • urce: S

t at ist ics Canada, CIBC

2.5% 2.7% 2.9% 3.1% 3.3% 3.5% 3.7% 3.9% P10 P20 P30 P40 P50 P60 P70 P80 P90 1997-2015 Annual Average 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% P10 P20 P30 P40 P50 P60 P70 P80 P90 2010-2015 Annual Average

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SLIDE 6

S hale Marginal S upplier in the Medium Term

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S

  • urce: BP, CIBC

20 40 60 80 100 120 20 40 60 80 100

$/ bbl Production (mn bbl/ d) Middle East Cdn Oil S ands Global Oil Demand 2018 North American S hale

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SLIDE 7

Canadian Economy: It’s Not All Oil

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S

  • urce: S

t at ist ics Canada, ABS , CIBC

0% 5% 10% 15% 20% 25% Iron Ore Coal Precious Metals Crude Oil Vehicles Machinery Australia Canada Proportion of Exports (Pre-Commodity Price S lump)

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SLIDE 8

Canadian Exports Have Underperformed Model Prediction (L) US Has Outperformed in Capital-Intensive Manufacturing (R)

7

S

  • urce: US

BEA, CIBC

95 100 105 110 115 Jan-15 Mar-15 May-15 Jul-15 S ep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Export Volumes Trend Expected After 20% Currency Depreciation

70 80 90 100 110 120 2006 2008 2010 2012 2014 Canada US Capital Intensive Manufacturing Production Index

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SLIDE 9

Mexico Has Also Gained Market S hare (L) Cdn Plants Near Full Capacity; Investment Needed to Lift Exports(R)

S

  • urce: BEA, S

t at ist ics Canada, CIBC

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0% 5% 10% 15% 20% 25% 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 Canada Mexico Proportion of US Goods Imports 65 70 75 80 85 90 Mar-00 Nov-02 Jul-05 Mar-08 Nov-10 Jul-13 Mar-16 Cdn Manufacturing Capacity Use (% ) Avg Last Expansion

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SLIDE 10

US Inventories Trend Higher in Key Areas for Canadian Exporters

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S

  • urce: BEA, CIBC

1.0 1.2 1.4 1.6 1.8 2.0 2.2 Jan-00 Apr-01 Jul-02 Oct-03 Jan-05 Apr-06 Jul-07 Oct-08 Jan-10 Apr-11 Jul-12 Oct-13 Jan-15 Apr-16 Auto, Machinery + Chemical Other S ectors Business Inventory-to-S hipment Ratio (Retail, Wholesale and Manf.)

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SLIDE 11

Has The Bank of Canada S et the Goalposts?

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S

  • urce: CIBC, Bloomberg

1.10 1.20 1.30 1.40 1.50 Jan-15 Mar-15 May-15 Jul-15 S ep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 S ep-16 Nov-16 US DCAD “ The C$ has strengthened (with) higher oil prices...their net effect will need to be assessed” “ the C$ has declined significantly… A further rapid depreciation… might influence inflation expectations.” “ exports… are weaker… in part because of… the higher C$” “ We actively discussed the possibility of adding more monetary stimulus”

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SLIDE 12

S

  • urce: Bloomberg, CIBC

How C$ Depreciates Even as Oil Prices Rise (Change vs. Late August 2016)

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11

  • 10
  • 8
  • 6
  • 4
  • 2

2 4 75bp Increase in US O/ N Rates vs Cda $8/ bbl increase in WTI Total Change Change in C$ Expected by Year-End 2017 (cents-US )

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SLIDE 13

Fiscal S timulus Kicks Up a Gear in H2 2016, Leaving BoC On S idelines

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  • 0.2

0.0 0.2 0.4 0.6 0.8 Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Tax Changes Child Care Benefit %

  • pt Lift to YoY HH Disposable Income Growth

S

  • urce: Depart ment of Finance, CIBC
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SLIDE 14

Liberal Additions to Infrastructure Rise in 2017/ 18 (L) Infrastructure Bank Multiplying Federal Dollars (R)

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1 2 3 4 5 6 7 '16/ 17 '17/ 18 '18/ 19 '19/ 20 '20/ 21 '21/ 22 S

  • cial, Transit, Green & Trade

Infrastructure (C$ bn) 5 10 15 20 25 30 35 Gov't Cda Non-public Inv Total Infrastructure Bank Capital C$ bn

S

  • urce: Finance Canada, CIBC
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SLIDE 15

Provincial Forecast: Dealing With New Realities

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S

  • urce: S

t at ist ics Canada, CIBC

Real GDP Y / Y % Chg 2 0 1 4 A 2 0 1 5 A 2 0 1 6 F 2 0 1 7 F 2 0 1 8 F BC 3.3 3.3 2.6 2.1 2.2 Alta 5.0

  • 3.6
  • 2.2

1.7 1.3 Sask 2.4

  • 1.3
  • 0.7

1.8 1.4 Man 1.5 2.2 1.6 1.7 1.8 Ont 2.7 2.5 2.5 2.1 2.3 Qué 1.3 1.2 1.5 1.5 1.6 NB

  • 0.1

2.3 0.4 0.7 1.0 NS 0.8 1.0 1.3 1.1 1.1 PEI 1.5 1.3 0.8 0.7 1.0 N&L

  • 1.0
  • 2.0

0.2

  • 3.8
  • 1.7

Canada 2 .5 1 .1 1 .2 1 .7 1 .9

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SLIDE 16

Total Inheritance

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S

  • urce: S

t at ist ics Canada, CIBC, CIBC Inherit ance S urvey, 2016 (age group 50-75, past 10 yrs, inflat ion adj ust ed)

100 200 300 400 500 600 700 800 2006-2015E 2016-2025P ($bn)

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SLIDE 17

China: S till Overly Reliant on Capital S pending (L), Rotation to Consumer Not Y et Happening (R)

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10000 20000 30000 40000 50000 60000 70000 80000 90000 10 20 30 40 50 Capital S pending Proportion GDP vs Per-Capita GDP Per-Capita GDP (Inter. $'s) Capital S

  • p. as %

GDP China 5 10 15 20 25 Dec-12 Jul-13 Feb-14 S ep-14 Apr-15 Nov-15 Jun-16 Business Investment Retail S ales % Yr/ Yr

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SLIDE 18

Growth in China’s Money S upply – Exploding

17

S

  • urce: Bloomberg, CIBC
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SLIDE 19

New Federal Mortgage Rules

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1. Standardized stress test for all high-ratio insured mortgages –Effective October 17, 2016 (MANDATORY)

  • All insured homebuyers must qualify for mortgage insurance at an interest rate the greater of their contract mortgage rate or the

Bank of Canada’ s conventional five-year fixed posted rate. That is, expand the existing Bank of Canada MQR to apply to all high-ratio mortgage terms, regardless of length

  • Already applicable for high-ratio insured mortgages with variable rates or fixed rates with terms less than five years
  • Currently, ~15%
  • f new originations are high-ratio insured mortgages

2. Changes to eligibility for portfolio insurance - Effective November 30, 2016

  • To be eligible for portfolio insurance, newly insured low-ratio mortgages must meet the eligibility criteria that previously only

applied to high-ratio insured mortgages:

  • NEW Maximum amortization of 25 years
  • NEW Maximum home purchase price of $1MM
  • Adherence to TDS

R/ GDS R of 44% / 39% as NEW determined by above standardized stress test to all mortgage terms

  • NEW Loan purpose includes the purchase of a property or subsequent renewal of such a loan
  • A minimum credit score of 600 at the time the loan is approved
  • NEW Property will be owner-occupied (NB: CIBC already excludes rentals)
  • For variable-rate loans that allow fluctuations in the amortizat ion period, loan payments that are recalculated at least once

every five years to conform to the original amortization schedule (NB: CIBC already recalculates) 3. Policy Review on shared risk loss

  • The Department of Finance will lead a consultation in the Fall to discuss benefits/ drawbacks on shared risk loss with lenders

4. Tax exemption

  • An individual who was not resident in Canada in the year the individual acquired a residence will not be able to claim the exemption

for that year

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SLIDE 20

Impact of Recent Mortgage Policy Changes

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  • The primary residence capital gains exemption and BC tax should have an impact, but may not deal

with “ satellite” activity where kids live here, parent abroad.

  • Higher qualifying rates and measures on low-ratio insurance will hit pricing and volume growth from

non-bank, monoline lenders.

  • Broker market share—

currently at 30%

  • f originations —will go down.
  • Mortgage originations will slow down for the market as a whole by an estimated 5%
  • 10%

.

  • Growth in overall mortgage outstanding will decelerate by 2.5 percentage points (growth cut in half).

Near/ sub-prime/ MICs activity will rise.

  • Demand for rental units will rise—

leading to increased investors’ activity in the condo market and some acceleration in purpose-built activity.

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SLIDE 21

Housing: Be Careful What Y

  • u Wish For

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0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 Ontario BC Housing (Real Est. + Res. Const.) Other Real GDP (2015 % Year/ Year)