January Economic Assessment

As we enter the third week of January, many Experts, Economists, Analysts, and Wealth Managers have been up and down in regard to what is truly happening in today’s financial markets and our economy. It was only a few weeks ago on Christmas eve that the overall sentiment was extremely negative. Many of the indices had crossed into bear territory. There was talk of a looming recession on the horizon in 2019 and yet 3 weeks later the winds have shifted directions and there is a growing sense among these same experts that there is still some fuel left to allow our economy to grow in 2019. The impending recession has been possibly pushed back to 2020. Is anyone really able to accurately tell us what’s happening?

At the end of 2018, we decided to try and get a different perspective; a perspective from those in the trenches investing and operating both public and private enterprises here in Canada. We went out and surveyed our Leadership Community at PEO and expanded it to include a number of high net worth investors to gain some perspective.  We were curious to gain an understanding of what they saw playing out in 2019 in respect to interest rates both in Canada and the US, the Canadian dollar and the performance of the TSX in naming a few.  We’ve summarized our findings below, with some commentary what our Leadership Community thinks is in store for us this upcoming year:

In respect to the Canadian prime interest rate:

• 4% of our Leaders predicted we will end the year between 3.8% and 4.1%.
• Another 38.1% suggested that interest rates would rise beyond 4.1%.
• The bank of Canada has recently held on their rates this month at 3.7%. Based on our results, Canadian business leaders are of the belief that rates will rise in 2019 to counter inflation and growth, as the Bank of Canada gets us to what they define as their neutral rate. Our business leaders are suggesting you should consider a number of rate hikes in the coming months.

In respect to the US prime interest rate:

• 3% of our Leaders suggested that rates would end up around 5.2% and 5.5%.
• Another 26.2% suggested interest rates would rise beyond 5.5%.
• The current US prime rate is 5.5%. Through the eyes of our Leaders, it appears that we are getting close to the end of interest rate hikes in the US. If we dig deeper into some of our monthly Peer Advisory Board conversations, there is an overall feeling that the US market is running out of steam after all the monetary stimulation and tax cuts over the last several years. The government shutdown, increasing debt and the fragility of the US/China trade seems to be contributing to their thinking.

In respect to the TSX:

Our leaders were a little bullish in comparison to where we sit today.

• 6% of the Leaders suggest the TSX will end up between 13500 and 15000.
• Another 47.7% believe the TSX will close the 2019 year up between 15000 and 16500.
• The TSX as of Friday January 11 was 14,939. On December 24^th the TSX closed the day at 13,780.  Perhaps much of the talk these days of the TSX being potentially undervalued is real as indicating by the data noted above.

In respect to the Canadian/US Dollar:

The Canadian/US Dollar which closed at 73.32 on December 31.

• 9% of our leaders suggested the dollar would end up lower by December 31, 2019. This seems a little counter intuitive with their suggestion about rising Canadian interest rates and the US rates holding steady.

In respect to oil prices:

Oil prices tend to be somewhat correlated to the Canadian dollar exchange rate.

• 7% of our Leaders suggested that oil prices (WTI) would be below $50.
• Another 50% suggested it would close between $50 and $60.
• This seems to be in accordance with what was released on January 12^th by 2 big producer predictions on oil. However, what was asked of our Leaders was the WTI price. There is still a very strong possibility the WCS price (Canadian Crude) will be trading at a significant discount.

No one can accurately predict the future, and as a result, a successful leader needs to constantly adapt to the changing environment. Changes in the markets and economy are influenced by politics, global events, and of course, global trade arrangements. If you are running a company today, it is imperative that you pull yourself out of the ‘day-to-day operations’ once in a while and listen to a different perspective from others in different industries. As a leader, you are responsible for the vision, strategy, inspiration and empowerment of your people. Your people depend on you for both the organization’s success and their success. Take the time to not only read the papers but step outside the silo of your business by listening and speaking with your peers. If you’d like to learn more about PEO please contact us at 416-637-0299 x201 or info@peo.net