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The synchronization of the various economies around the world is noteworthy at the end of the first half of 2017. In this environment, global GDP growth forecasts are encouraging and the risk of recession remains low for the next 12 months.

Sharp decline in unemployment

The jobless rate dropped considerably in most industrialized countries. For example, in the U.S., this key indicator fell to its lowest level in 16 years. However, there was no concomitant increase in wages, due among other things to the decline in the labour force participation rate and to technological innovation.

Continued normalization of U.S. monetary policy

The U.S. Federal Reserve (Fed) continued to normalize its monetary policy by gradually withdrawing the stimulus put in place over the years, although many investors believe that the modest inflation outlook does not justify such a strategy. The yield curve for 10-year Treasuries and their current level indicate that the U.S. economy is having difficulty regaining momentum, at the very time when doubts are growing about the implementation of the Trump administration’s tax reforms. The resulting uncertainty is paralyzing business investment and limiting the growth potential of the U.S. economy.

Surprising economic growth in Canada

Canadian economic data surprised in the first half, with a GDP growth rate among the best of the G7 countries. Consequently, the Bank of Canada recently announced that the 2015 rate cut seemed to have done its job. That was all it took for analysts to expect the BoC to start tightening its monetary policy, the first 25 base point increase being announced on July 12. The readjustment of the benchmark rate will be done gradually, however, and it will take into account the real estate market, the renegotiation of the North American Free Trade Agreement (NAFTA) and the price of oil.

The first half of 2017 by the numbers
Actual level Variation  
June 30, 2017 1st quarter 2nd quarter Year to date
Interest Rates
CAD 10 years 1.76 -0.10 0.14 0.04
USD 10 years 2.31 -0.06 -0.08 -0.14
CAD → USD 0.77 -0.02% 2.69% 2.67%
EUR → USD 1.14 1.90% 6.54% 8.57%
WTI oil 46.04 -5.81% -9.01% -14.30%
 GOLD 1,241.55 8.43% -0.62% 7.75%
North America (CAD)
S&P/TSX (T.R.*) 15,182 1.70% -2.35% -0.69%
S&P 500 (T.R.*) 2,423 5.53% 2.57% 8.24%
International (CAD)
MSCI World (T.R.*) 5,360 6.37% 4.03% 10.65%
MSCI Europe (T.R.*) 6,260 7.44% 7.36% 15.35%
MSCI AC Asia Pacific (T.R.*) 316 8.87% 2.93% 12.06%
NIKKEI Japan 20,033 -1.07% 5.94% 4.81%
MSCI Emerging Markets (T.R.*) 450 11.40% 6.27% 18.38%
FTSE/TMX Universe 1,035 1.28% 1.11% 2.40%

Source: Bloomberg

*T.R.: total return including dividends


Five other noteworthy developments in the first half of 2017

  • The inflation rate remained below expectations and inflation forecasts were revised downwards, which had an impact on the yield curve and interest rate levels.
  • In France, the unequivocal election of centrist Emmanuel Macron reassured the markets and reduced the risks associated with the rise of the populist and eurosceptic movements.
  • The U.K. officially began the process of exiting the European Union and the government will be faced with difficult negotiations, as its position was weakened following the general elections in which it lost its majority in the British parliament.
  • In the U.S., the Fed is preparing to begin a gradual reduction of its balance sheet, which could, among other things, lead to a rise in interest rates and an increase in credit spreads and volatility.
  • In May, for the first time in 30 years, the Moody’s rating agency lowered China’s credit rating, which investors could view as an additional opportunity for future growth.

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