TORONTO and CHICAGO, Dec. 23 /CNW/ - BMO Financial Group's economists, market and commodity strategists in Canada and the United States give their predictions for 2010.
1) Douglas Porter, Deputy Chief Economist, BMO Capital Markets
- We look for both Canada and the U.S. to post GDP growth of roughly
2.5 per cent in 2010, essentially reversing similar declines in
the prior year.
- The era of zero interest rates will come to an end just after mid-
year in Canada and not soon afterwards in the U.S. However,
borrowing costs will remain exceptionally low by historical
standards, as major central banks will wait until it is absolutely
certain that recovery has taken root before hiking aggressively.
- The Canadian dollar is likely to strengthen further and could
average close to parity in 2010, bolstered by Canada's relatively
favourable fundamentals, underlying uncertainty on the U.S.
dollar, and firming commodity prices.
- The housing market will continue to thrive in Canada, while the
U.S. market will see the first inklings of recovery. The spring
selling season could be exceptionally hot in Canada ahead of the
new HST in B.C. and Ontario, and in anticipation of interest rate
increases later in the year.
- Despite the unfolding recovery, the scars from the deep global
recession will linger in many areas, including a still-high
jobless rate (averaging 10 per cent in the U.S. and 8.5 per cent
in Canada next year), still-wide budget deficits almost
everywhere, and a lack of pricing power for businesses. The good
news is that despite widespread concerns on this front, inflation
is expected to remain quite subdued, averaging 1.5 per cent in
Canada and about 2 per cent in the U.S. in 2010.
2) Paul Taylor, Chief Investment Officer, BMO Harris Private Banking
- After the roller-coaster years of 2008 and 2009, where our
financial system teetered on the edge of ruin and equity markets
imploded, the "story" of 2010 may well be that volatility and
systemic risk fade while the economy and capital markets churn out
modest, steady progress.
- Global economic growth is likely to return to a rate of around 3
per cent, driven by strong growth rates of 8 to 10 per cent in
China and India and held back by weak growth in Core Europe of no
more than 1.5 per cent and moderate growth of 2.5 per cent in
- Equity returns will likely moderate versus the heady pace of 2009,
but will most likely easily out-pace the alternative returns
available from cash and bonds.
- The S&P/TSX is likely to trade in line with the expected growth
rate of earnings rather than on the back of an expansion in the
earnings multiple; after a drawdown from the low $900 level in
2008 to about $630 in calendar 2009, the S&P/TSX EPS should expand
to approximately $720 - $750 in 2010.
- Stocks in the BMO Harris portfolios that are likely to be big
movers in 2010 are: Potash, RIM, Sino Forest, Dragonwave, Petro
Rubiales, Biox, Enablence Technologies and Mercator Minerals.
3) Jack Ablin, Chief Investment Officer, Harris Private Bank
- The massive government stimulus has pulled the global economy off
- Unemployment in the U.S. may have peaked at 10.2 per cent,
starting the countdown to monetary tightening.
- Equity valuation is full; however the market can continue to
advance on technicals. History suggests that the market could
advance another 15 per cent from here on favourable momentum.
- The U.S. dollar is undervalued against the Yen and Euro and has
the potential to advance in the first half of the year.
- Emerging market equities are expensive relative to the U.S. and
- International Small Caps are relatively cheap and have valuation
cushion as the rally slows.
- High yield bonds should continue to enjoy improving fundamentals.
- Our favourite sectors are: Materials, Discretionary, Finance and
4) Andrew Busch, Global Currency and Public Policy Strategist, BMO
- The Federal Reserve will begin to raise interest rates in the
second half of the year. But the question is: by how much?
Currently, the 12 month overnight index swaps (OIS) are showing
almost no chance of the Federal Reserve raising rates for the next
year, but I think growth returns are enough to make the Fed raise
rates 25 basis points three times by the end of the year.
- We will see more Congressmen and Congresswomen elected in the 2010
midterm elections that want more control over Federal Reserve
- There is a growing possibility of the White House and Congress
imposing a value-added tax or national sales tax to presumably
reduce the deficit. It will be precisely the wrong thing at the
wrong time for the US economy as it heads into 2011.
5) Bart Melek, Global Commodity Strategist, BMO Capital Markets
- Rising global economic tides are on track to buoy most industrial
commodity markets in 2010. Recovery in the Western world and a
strengthening China are likely to propel demand growth for
commodities ranging from copper to iron ore to energy into
- After reaching new highs and a relatively modest correction
recently, gold is expected to remain firm well into 2010, as
investors continue to show considerable interest in the metal in
order to protect against US dollar weakness and rising inflation
- BMO Research considers copper and iron ore to be the preferred
industrial commodities and oil and US thermal coal the preferred
- The combination of rising exports from China and restocking in the
Western world will likely materially tighten the commodity market,
providing support for prices broadly in 2010.
- The Federal Reserve keeps rates near record lows for most of 2010;
given less-than-robust credit creation in the U.S. and a very
fragile consumer, low rates are required to assure that the U.S.
economy does not fall back into contraction.
The information, opinions, estimates, projections and other materials contained herein are provided as of the date hereof and are subject to change without notice. Some of the information, opinions, estimates, projections and other materials contained herein have been obtained from numerous sources and Bank of Montreal ("BMO") and its affiliates make every effort to ensure that the contents thereof have been compiled or derived from sources believed to be reliable and to contain information and opinions which are accurate and complete. However, neither BMO nor its affiliates have independently verified or make any representation or warranty, express or implied, in respect thereof, take no responsibility for any errors and omissions which may be contained herein or accept any liability whatsoever for any loss arising from any use of or reliance on the information, opinions, estimates, projections and other materials contained herein whether relied upon by the recipient or user or any other third party (including, without limitation, any customer of the recipient or user). Information may be available to BMO and/or its affiliates that is not reflected herein. The information, opinions, estimates, projections and other materials contained herein are not to be construed as an offer to sell, a solicitation for or an offer to buy, any products or services referenced herein (including, without limitation, any commodities, securities or other financial instruments), nor shall such information, opinions, estimates, projections and other materials be considered as investment advice or as a recommendation to enter into any transaction. Additional information is available by contacting BMO or its relevant affiliate directly. BMO and/or its affiliates may make a market or deal as principal in the products (including, without limitation, any commodities, securities or other financial instruments) referenced herein. BMO, its affiliates, and/or their respective shareholders, directors, officers and/or employees may from time to time have long or short positions in any such products (including, without limitation, commodities, securities or other financial instruments). BMO Nesbitt Burns Inc. and/or BMO Capital Markets Corp., subsidiaries of BMO, may act as financial advisor and/or underwriter for certain of the corporations mentioned herein and may receive remuneration for same. "BMO Capital Markets" is a trade name used by the Bank of Montreal Investment Banking Group, which includes the wholesale/institutional arms of Bank of Montreal, BMO Nesbitt Burns Inc., BMO Nesbitt Burns Ltée/Ltd., BMO Capital Markets Corp. and Harris N.A., and BMO Capital Markets Limited.
SOURCE BMO BANK OF MONTREAL
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