Strategist reveals sectors that appear poised to outperform for the rest of 2024
With a long-awaited rate cut announced by the Bank of Canada last week, all eyes are now on the magnitude and number of rate cuts the central bank will deliver.
Absolutely, I think it does. I wasn’t even expecting the governor to say that conditions are reasonable to expect more rate cuts. I thought they would leave that out, but he made that pretty explicit. We think the rate differential is less of an important variable explaining the currency these days. Also, the pass through of a weaker currency to inflation tends to be very small.
We don’t think it has that much room to go lower because we’re seeing U.S. economic data starting to deteriorate a little bit, so that’s giving the Canadian dollar support.We have annual GDP coming in at about 1 per cent for this year. It should resemble 2023, which was 1.2 per cent. This economy is not collapsing, but it’s still struggling under the plight of mortgage renewals.
The recession risk, I would say it’s not nil. I would have said 40 per cent a few months ago. Now, I would say it’s maybe 25 per cent. I think it’s tied to the U.S. If the U.S. were to go into recession, we wouldn’t escape it. Maybe not now, but eventually it will start to bring more people into the housing market. More first-time homebuyers being able to qualify at lower interest rates. And in some markets where you still don’t have the supply, it could very easily boost prices, not as we’ve seen in the pandemic, but if we’re talking 5-per-cent gains on an annual basis, it could quickly erode that affordability improvement.
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