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GLOBAL PORTFOLIO ADVISORY GROUP Quarterly Portfolio Compass January 21, 2020
Quarterly Portfolio Compass – 1Q2020
Featured in this report
Geographic regions
Canada: Bank of Canada, labour market, Liberal party
budget expectations
United States: U.S. Federal Reserve, manufacturing
activity, labour market
Europe: Brexit, fiscal and monetary stimulus
Rest of the world: China, emerging markets
Asset classes
Equities: performance summary, return composition,
equity fundamentals
Fixed Income: performance summary, return composition,
credit fundamentals
Appendix
2020 U.S. elections, trade policy timeline of events,
economic scenario analysis
Executive summary
Financial markets were supported by accommodative monetary policy in 2H19, as major central banks reduced interest
rates to offset global growth headwinds and disinflationary pressures. As the business cycle matures, market volatility is
likely to remain elevated, exacerbated by political issues and global trade conflicts. While uncertainty still exists, downside
risks have eased, improving investor sentiment and driving equity markets to record highs.
The outlook for 2020 has improved in recent weeks, but we continue to expect that global economic growth will be
sluggish. In addition, inflation pressures are likely to remain muted requiring central banks to maintain interest rates at
current levels, or potentially lower them even further. Encouragingly, weakness in the global manufacturing sector appears
to have stabilized, but there are few signs of a meaningful improvement in the near-term.
Fiscal policy may take on a more significant role this year as incremental interest rate reductions are unlikely to be of the
same magnitude as they were in 2019, and therefore may not be as impactful. Governments have kept their powder dry
thus far, but signs of economic weakness may prompt a more aggressive fiscal policy response.
Sources: Scotia Wealth Management, Bloomberg
2.4%
8.5% 8.5%
11.4%
1.8%
3.4%
-0.6%
2.5% 3.0%
12.9%
8.5%
S&P/TSX
Composite
S&P 500 MSCI All-
Country
ex-U.S.
MSCI
Emerging
Markets
BofAML
Global
Corporate
Investment
Grade
BofAML
Global
High Yield
BofAML
Global
Sovereign
S&P/TSX
Preferred
Share
Gold WTI Crude
Oil
Copper
4Q19 Performance Summary
GLOBAL PORTFOLIO ADVISORY GROUP
2
Overview
Figure 1: Year-to-date asset class total returns to December
31st, 2019 (local currency)
Sources: Scotia Wealth Management, Bloomberg
2020 Outlook
❶ Market volatility to remain elevated as the business
cycle continues to mature.
❷ Policy outcomes will continue to influence capital flows.
❸ Emphasis on fiscal policy support as the efficacy of
monetary stimulus wanes.
❹ Financial conditions to remain accommodative amid
slow growth and low inflation.
❺ Neutral equity weight and bias to high quality remain
warranted.
❻ Strong preference for investment-grade sovereign or
corporate credit exposure.
2019 in review
Increasingly accommodative monetary policy supported global equity markets in 2019. Notwithstanding two significant
sell-offs in May and July, equities rose by more than 20% in most major regions. Investor sentiment held-up reasonably
well for most of the year despite concerns relating to global trade and slowing growth. Stock markets posted record
highs towards the end of 2019, and into 2020 so far, reflecting less pronounced downside risks and a relatively positive
outlook for corporate earnings.
In Canada, economic growth maintained a steady pace of expansion last year, though fundamentals weakened near the
end of 2019 as consumer sentiment moderated. Labour market strength, renewed activity in the housing market, and a
surprise increase in business investment should translate into modest growth again in 2020. The S&P/TSX Composite
Index rose 23% in 2019, with all sectors advancing except for healthcare, which was negatively impacted by weakness
among companies operating in the cannabis space.
The U.S. economy continued to perform well in 2019, supported by a reversal in forward guidance and three 25bps
interest rate cuts from the U.S. Federal Reserve (the Fed). The yield curve inverted mid-year as recession risks rose but
subsequently returned to its normal upward-sloping shape and then remained relatively flat for the rest of the year. The
S&P 500 Index rose by more than 30%, on a total return basis, last year, with the information technology sector driving
the largest share of market gains. Energy and materials lagged the rest of the index due to volatile commodity prices.
Issues relating to financial market liquidity and tightening borrowing conditions became notable in September when
the Fed stepped into U.S. money markets. The Fed conducted term and overnight repurchase operations after funding
costs unexpectedly spiked. Constraints were evident in Europe and China as well, with central banks in both
jurisdictions pledging to maintain adequate market liquidity through term-lending facilities. Fixed income performed
well in 2019 as investment funds flowed into this asset class steadily throughout the year. The compression in
government bond yields drove many investors toward higher-yielding risk assets including emerging market debt.
3.8%
5.4%
6.3%
8.0%
11.5%
14.2%
22.9%
23.2%
31.5%
Canada 10 Yr. Note
Global Sovereign
U.S. 10 Yr. Note
Canada Corporate IG
Global Corporate IG
U.S. Corporate IG
S&P/TSX Composite
MSCI World Ex. U.S.
S&P 500
GLOBAL PORTFOLIO ADVISORY GROUP
3
Canada
Sources: Scotia Wealth Management, Bloomberg
Figure 3: New fiscal projections see wider
deficits and higher debt-to-GDP for Canada
across the forecast horizon
Sources: Scotia Wealth Management, Bloomberg
Weakness from export-oriented sectors may continue to weigh on the
Canadian economy in 2020.
The Canadian economy slowed in 4Q19 with early GDP readings
showing low or no growth. The strength of the Canadian labour
market, improvements in the housing market, and net exports buoyed
economic growth in Canada in 1H19. In the second half, slower growth
abroad led to a sharp reversal in net exports and inventory drawdowns
dragged on economic activity. More negative sentiment permeated
through the economy in 4Q19, causing job growth to contract in the
final months of the year. Despite disappointing activity measures,
inflation has continued to track modestly above the mid-point of the
Bank of Canada (BoC)’s target range. Core inflation remains strong,
with a November reading of 2.2%. The question is whether the rise will
prove to be lasting or merely the confluence of a series of transitory
factors.
The BoC could lower rates in 1H20, despite steady employment
and on-target inflation. Although downside risks have eased, global
trade uncertainty may continue to drag on overall performance in
2020. In addition, after maintaining a torrid pace for much of 2019, we
expect job gains to decelerate modestly in 2020. As such, we expect
the BoC will lower its policy rate in 2020 to offset growth headwinds,
matching the more accommodative stance in monetary policy adopted
by other major central banks. The Governing Council discussed the
possibility of a rate cut at its meetings in October and December last
year as insurance against a worsening downturn. We expect those
discussions to continue, and intensify should current dynamics
continue.
Liberal government report suggests less fiscal flexibility with 2019
Economic and Fiscal Update. The December Economic and Fiscal
Update from the Department of Finance revealed that, at the margin,
economic developments and pre-election program adjustments have
already expended some of the government’s fiscal ammunition. The
Liberals now see wider deficits and a higher debt-to-GDP ratio across
the forecast horizon (Figure 3). Nonetheless, Canada’s Liberal-led
minority government will have some room to maneuver. Although
spending is not expected to increase significantly, progressive action
on healthcare, income inequality, housing, and the environment are
expected to be included when new spending details are unveiled in
early 2020.
Latest 2018 2019E 2020E
GDP Growth (%) 1.2 2.1 1.6 1.6
Inflation (%) 2.2 2.3 2.0 1.9
Unemployment
(%)5.6 5.7 5.7 5.8
3 Month Yield 1.64 1.65 1.60 1.58
10 Year Yield 1.56 1.97 1.59 1.61
Yield Curve
Slope(0.09) 0.32 (0.02) 0.02
Current Account
Balance (%)(2.2) (2.5) (2.0) (2.0)
Budget Balance
(%)(0.6) (0.6) (0.6) (0.8)
Federal Debt-to-
GDP (%)-- 27.7 27.2 26.9
27.5%
28.5%
29.5%
30.5%
31.5%
-30
-25
-20
-15
-10
-5
0
2019 2021 2023 2025
Deb
t-to
-GD
P (%
)
Bu
dg
et
Bala
nce
(C
$b
n)
Deficit -Budget 2019
Deficit - December Fiscal Update
Debt-to-GDP - Budget 2019
Debt-to-GDP - December Fiscal Update
GLOBAL PORTFOLIO ADVISORY GROUP
4
United States
Sources: Scotia Wealth Management, Bloomberg
Figure 4: Market pricing reflects limited
expectation for a rate hike in the coming years
Sources: Scotia Wealth Management, Bloomberg, U.S. Federal
Reserve
The U.S. economy begins 2020 with low unemployment and inflation
below 2%.
U.S. growth is expected to moderate on lingering trade policy
uncertainty and fading tailwinds. U.S. GDP for 2019 is likely to have
registered slightly above the economy’s 2% long-term potential level
amid a tight labour market and robust consumer health. Tailwinds from
the Tax Cuts and Jobs Act of 2017 have faded, leading to expectations for
growth below 2% in 2020. Encouragingly, the U.S. labour market
continues to perform well, with unemployment trending lower and
wages moving higher. While the pace may slow, job creation and the
rate of hiring should continue to support low unemployment in 2020.
With the U.S. and China agreeing to terms on the first in a series of
potential partial trade agreements, we expect growth prospects to
improve modestly throughout the year as receeding uncertainty may
boost optimism and support capital expenditures. The phase one
agreement includes chapters on agricultural and energy product
purchases, pharmaceuticals, intellectual property rights, foreign
ownership, and currencies.
Financial conditions and monetary policy should remain
accommodative in 2020. The Federal Open Markets Committee
(FOMC) voted to lower the target range on the Federal Funds rate three
times in 2019, a cumulative 75bps of easing, reversing moves taken in
late 2018. The shift in policy stance was intended to offset global growth
headwinds and disinflationary pressures that weighed on investment,
exports, and manufacturing. In 2020, the FOMC will likely maintain its
accommodative stance, as it monitors global and domestic
developments. In our view, the FOMC will lower rates only once in 2020,
barring a material change in economic expectations. Further, we expect
the Fed will maintain its overnight and term repurchase operations in the
first half of the year before gradually transitioning away from active
repurchases.
Improving sentiment has not yet resulted in a rebound in
manufacturing activity as other factors may be holding the sector
back. The ISM manufacturing index marked its fifth consecutive monthly
contraction in December despite months of progress on trade
negotiations and positive sentiment in financial markets. The unexpected
decline in December suggests that it may take more than a partial trade
agreement to stimulate activity in the U.S. manufacturing sector. The
persistent strength of the U.S. dollar is also likely having an impact.
Forward-looking metrics such as new orders and backlogs do not
suggest the manufacturing slump will be reversed soon. A continuation
of weak readings in 1H20 may reinforce the effect that trade uncertainty
is having on global growth. While the services sector offset
manufacturing weakness through 2019, forward-looking measures in this
area have also deteriorated in recent months.
Latest 2018 2019E 2020E
GDP Growth (%) 2.1 2.9 2.3 1.8
Inflation (%) 2.3 2.4 1.8 2.1
Unemployment
(%)3.5 3.7 3.7 3.6
3 Month Yield 1.57 2.35 1.59 1.58
10 Year Yield 1.79 2.68 1.91 2.01
Yield Curve
Slope0.22 0.33 0.33 0.43
Current Account
Balance (%)(2.5) (2.4) (2.4) (2.5)
Budget Balance
(%)(4.7) (4.7) (4.6) (4.8)
Federal Debt-to-
GDP (%)-- 77.8 78.7 80.7
1.0%
1.3%
1.6%
1.9%
2.2%
2.5%
Dec-18 Feb-20 Apr-21 Jun-22
Federal Funds Rate Upper Bound
Median FOMC Projection
Market Pricing
GLOBAL PORTFOLIO ADVISORY GROUP
5
Europe
Sources: Scotia Wealth Management, Bloomberg
Figure 5: Purchasing managers’ index data
suggests Eurozone economy is stabilizing
Sources: Scotia Wealth Management, Bloomberg
The European economy remains challenged due to the region's
vulnerability to weak global growth and lack of practical policy tools.
Regional disparities emerged in 2019 and are likely to persist this
year as manufacturing conditions spill over into other segments of
the economy. European GDP growth likely mustered a meager 1.1%
increase on a year-over-year basis in 2019, with significant disparities in
the performance of individual countries. Risks remain generally evenly
balanced at this point though it is easier to see a scenario where growth
continues to slow in 2020. Economic indicators are showing growth
stabilizing at low levels, with purchasing managers’ index (PMI) surveys
holding steady near their cycle troughs. Encouragingly, manufacturing
PMI showed some improvement at the end of 2019, potentially
signalling that the worst may be over for the sector that single-handedly
dragged overall growth lower. However, stabilization is not recovery, and
the Eurozone is likely to remain susceptible to adverse global
developments in 2020. Furthermore, the most recent release of
sentiment and activity data showed few confidence-inspiring results for
key forward-looking measures such as new orders and backlogs.
Monetary policy tapped out with the launch of a new stimulus
program in 4Q19; fiscal policy will need to play a more significant
role. The European Central Bank (ECB) unveiled sweeping stimulus in
2019, pushing its policy rate further into negative territory, resuming
quantitative easing, and changing forward guidance to reference realized
inflation gains. Christine Lagarde, who took over from Mario Draghi at
the helm of the ECB in November, has indicated that she will maintain
the accommodative policies put in place by her predecessor. Further, Ms.
Lagarde has called on governments with fiscal policy flexibility to open
their coffers to new stimulus spending. Monetary policy has likely been
pushed to its limits, with few remaining options to defend against
deteriorating global macroeconomic conditions. However, we do not
expect broad fiscal measures to be unveiled in 2020. The German
government seems content to keep its powder dry for the time being,
while the French economy has performed well given its comparatively
less export-reliant economy. We do not expect a recession in Europe in
2020, and the economy should gather momentum over the coming year,
but growth will be slow.
Conservative election landslide clears uncertainty for Brexit as the
terms of withdrawal continue to be negotiated. Conservative Party
leader, and now U.K. Prime Minister, Boris Johnson’s “Get Brexit Done”
campaign translated into the most significant parliamentary majority
since the 1980s. If the U.K. does indeed leave the E.U. with a deal on
January 31st, which appears to be the case, the Brexit process will not be
over. The government would then begin trade negotiations with the E.U.,
and if it is not able to reach an agreement by the end of 2020, or agree
to extend the transition period, there would indeed be a hard Brexit in
December 2020. The bottom line is that uncertainty concerning Brexit is
likely to remain high, making a rebound in 2020 unlikely.
Latest 2018 2019E 2020E
GDP Growth (%) 1.2 1.9 1.4 1.2
Inflation (%) 1.3 1.7 1.2 1.2
Unemployment
(%)7.5 7.1 6.7 6.7
3 Month Yield (0.57) (0.86) (0.35) (0.21)
10 Year Yield (0.20) 0.24 0.27 0.39
Yield Curve
Slope0.37 1.10 0.63 0.60
Current Account
Balance (%)1.9 1.9 1.9 1.8
Budget Balance
(%)(0.7) (0.8) (1.0) (1.1)
Federal Debt-to-
GDP (%)-- 84.9 83.0 80.9
48
52
56
60
2017 2018 2019
Ind
ex
Level
France Germany Italy
Spain Eurozone
GLOBAL PORTFOLIO ADVISORY GROUP
6
Rest of the world
Sources: Scotia Wealth Management, Bloomberg
Figure 6: Government bond issuance to
follow approved infrastructure spending
higher at the beginning of 2020
Sources: Scotia Wealth Management, Bloomberg
Chinese economy enters 2020 with stronger momentum, though
headwinds will persist throughout the year.
Easy year-over-year comparable figures and persistent, measured,
monetary policy accommodation boosts sentiment heading into
2020. The Chinese economy likely grew around 6.0% in 4Q last year,
roughly matching growth in 3Q, as purchasing managers’ index (PMI)
data showed the manufacturing sector returned to expansionary
territory in December. Seasonal factors may have partly driven the
boost in production as meaningful improvements in activity are not
unusual following the golden-week holiday in October. Encouragingly,
the demand side of the PMI survey rose with new orders re-entering
expansion and new export orders improving but remaining in
contractionary territory. Low year-over-year comparable figures,
seasonal credit expansion, looser monetary policy, and government
investment combined to form favourable conditions for improvement
in 1H20. Headwinds remain as trade policy uncertainty persists, and
phase two negotiations, which consist of more contentious issues such
as intellectual property rights and forced technology transfers, are set
to begin now that phase one is signed.
PBoC easing bias to be maintained in 2020 along with measured,
patient approach. We expect the People’s Bank of China (PBoC) to
continue to use interest rates and liquidity tools to ease monetary
conditions further this year, though the impact will probably be less
pronounced than last year. The one-year Loan Prime Rate will likely fall
by ~20bps in 2020, with the first reduction expected to come in two
weeks, as the PBoC strives to lower corporate lending rates. The five-
year Loan Prime Rate, which benchmarks new mortgages, is also likely
to be reduced, albeit to a lesser extent. The required reserve ratio (RRR)
may also be lowered by up to a full percentage point after falling by
1.5 percentage points in 2019. On the fiscal side, the government
continues to employ infrastructure investment to support demand, and
there are plans to front-load special bond issuance next year, which are
a primary funding source for major projects and critical supporter of
domestic demand.
Emerging market growth should improve in 2020 as political drags
fade, and trade relations improve.
Emerging market equities lagged their global peers by 5-10% (on a
U.S. dollar basis) in 2019 as global growth concerns hindered overall
performance. Economic growth should improve at the margin in 2020
with more optimistic outlooks and favourable year-ago comparable
levels. China, and economies that are closely tied to its supply chain,
should benefit from better trade dynamics and monetary and fiscal
stimulus. Emerging market growth will likely be most notable in critical
countries such as Brazil, Mexico, Turkey, India, and peripheral Europe,
as political headwinds dissipate, and transitory weakness fades to
reveal still-solid fundamentals.
End Q3 2018 2019E 2020E
GDP Growth (%) 4.9 4.9 4.4 4.5
Inflation (%) 3.8 3.9 3.9 4.0
Unemployment
(%)5.9 5.9 5.1 5.1
3 Month Yield 2.41 2.83 2.64 2.99
10 Year Yield 3.09 3.31 3.27 3.41
Yield Curve
Slope0.68 0.48 0.63 0.42
Current Account
Balance (%)1.4 1.4 1.2 0.8
Budget Balance
(%)(4.1) (4.1) (4.5) (4.8)
Federal Debt-to-
GDP (%)-- 51.2 54.4 57.6
Em
erg
ing
Mark
ets
Chin
a
0%
6%
12%
18%
24%
30%
-100
50
200
350
500
650
2017 2018 2019
Yo
Y G
rwo
th (
%)
LeveL (
CN
Y b
illio
ns)
Infrastructure Approved by NDRC (LHS)
Special Government Bond (LHS)
Infrastructure Investment YTD (RHS)
GLOBAL PORTFOLIO ADVISORY GROUP
7
Equities
Sources: Scotia Wealth Management, Bloomberg
Figure 7: Multiple expansion drove 2019 amid
meager earnings results
Price Δ EPS Δ Multiple Δ
Canada 19.1% 15.8% 3.3%
U.S. 28.9% 6.5% 22.4%
International 19.0% -0.9% 19.8%
Emerging Markets 15.4% -12.4% 27.9%
Sources: Scotia Wealth Management, Bloomberg
Global equities are likely to track a treacherous climb higher in 2020
as risks remain.
Earnings growth expected to return this year after dismal 2019.
Macroeconomic indicators continue to lend support to modest equity
market price appreciation in 2020, though we expect the trend higher
to be defined by increased periods of volatility. Downside risk to stocks
from political developments should be buffeted by the continuation of
accommodative monetary policy and diminished recession risks.
Earnings growth is expected to contract in 4Q19 before rebounding in
the first half of next year. The improvement in expectations may partly
reflect easier comparable year-ago periods but may also be a function
of analyst views that some global headwinds and uncertainties will
dissipate in 2020. Robust consumer segments in many regions, strong
underlying fundamentals, and mostly optimistic outlooks should also
support earnings growth in the year to come.
Corporate profit margins are likely to remain narrow, though
rising wages have not yet resulted in meaningful cost-push
inflation. Falling interest rates through most of 2019 emboldened
firms to extend their debt maturity profile. With strong labour markets
in many major regions, wages trended higher for much of 2019. To
that end, highly indebted or economically sensitive firms with already
slim margins could see further difficulty sustaining profits amid slower
growth. However, near the end of the year, and initial reports in 2020,
show that wage inflation is moderating, which should lessen some of
the impact from cost-push inflation on profitability.
Valuations remain fair amid benign inflation, accommodative
monetary policy, and prospects for improving growth. Investors
mostly looked through geopolitical developments and perceived
economic sensitives in 2019, pushing equity valuations to record levels.
While valuations may appear elevated, the underlying environment is
vastly different than what preceded the equity sell-off in 2018. At that
time, central banks were normalizing policy rates and were concerned
with inflation overheating. After reversing course through 2019, equity
valuations have re-rated higher in the context of tepid inflation,
accommodative monetary policy, and a stable to improving growth
outlook. We expect equity returns to outpace most other asset classes
again, but are mindful that volatility will likely remain elevated as the
global business cycle matures. Our view underscores the importance of
focusing on risk-adjusted versus total return expectations. A high-
quality bias, emphasizing companies with strong balance sheets,
sustainable competitive advantages, and business models that are not
overly sensitive to the economic cycle remains prudent.
4Q19
ReturnP/E Ratio Div. Yield
S&P/TSX Composite 2.4% 17.7x 3.2%
S&P 500 8.5% 22.0x 1.9%
MSCI All-Country ex. U.S. 8.5% 17.6x 3.2%
Nikkei 225 -8.0% 19.1x 1.9%
Shanghai Composite 5.0% 14.7x 2.7%
STOXX Europe 600 5.8% 20.8x 3.5%
GLOBAL PORTFOLIO ADVISORY GROUP
8
Fixed income
Sources: Scotia Wealth Management, Bloomberg
Figure 8: Fixed income returns will likely be
more modest in 2020 relative to 2019
Price
Return
Yield
Return
Total
Return
Government 3.4% 2.0% 5.4%
Corporate 7.9% 3.6% 11.5%
High Yield 7.4% 6.6% 14.0%
Sources: Scotia Wealth Management, Bloomberg
Financial conditions will remain accommodative in 2020 as central
bankers keep an eye on fundamentals and global developments.
Interest rates are likely to fluctuate around their current levels, but
we see limited upside to rates globally. Central bank bias shifted
significantly in 2019. After entering the year with most policymakers set
on normalizing interest rates, markets witnessed a clear shift to pausing
and then to easing. On a GDP-weighted basis, the yield on the global
10-year government bond fell by nearly one percentage point. We
expect interest rates to be reasonably range-bound in 2020, barring a
significant deterioration in global growth prospects. Further, we do not
see signs of an imminent turnaround in inflation dynamics and believe
any upward momentum would not occur on a sustained basis. Our
preference remains for North American rates, particularly the U.S., given
better fundamentals and relative safety compared to other regions. We
continue to favour extending portfolio duration as we see risks to the
global outlook as skewed to the downside and expect central banks to
maintain their accommodative stance in 2020.
Credit returns are likely to be slightly lower in 2020 than 2019,
with spreads remaining tight. Credit investors were well rewarded in
2019, and while we expect the asset class to perform well again this
year, returns are likely to be lower. Credit spreads have re-tightened in
late 2019 and early 2020 as risk appetite resurfaced modestly. Spreads
will likely remain range-bound for the year, with risks skewed to
widening should global growth concerns emerge. We maintain a high-
quality bias and limited exposure to names that tend to be more
sensitive to the economic cycle. In investment grade, we continue to
avoid BBB rated credits given downgrade risks and the relative
sensitivity of the bucket at this stage of the cycle. We remain averse to
high yield exposure as trading liquidity can dry up quickly as economic
vulnerabilities emerge.
Renewed risk appetite and investor demand have supported
robust supply thus far in 2020. We expect fixed income to perform
reasonably well this year, albeit at a slower pace than last year. Investor
confidence has risen in recent months as positive developments on the
global trade front have resulted in more optimistic investor sentiment,
leading to stable demand for new issues and tighter credit spreads.
Supply has been robust in early 2020 with new issues generally over-
subscribed and favourable issuer concessions made. Flows have been
stable into both the investment grade and high yield space, running
near their average level. Importantly, outflows have not reached a
meaningful level. Valuations should remain well supported by these
factors in 2020.
2Yr. Yld10Yr.
Yld
3m. ∆
2Y-10Y
YTD ∆
2Y-10Y
Canada 1.70% 1.70% 22.2 (10.0)
U.S. 1.57% 1.92% 30.6 15.2
Global 0.93% 1.30% (0.1) (0.4)
YTMSpread
(bps)
3m ∆
Spread
YTD ∆
Spread
A and Higher 2.0% 71 (15.0) (37.0)
BBB 2.6% 130 (23.0) (72.0)
BB-B 5.0% 303 (46.0) (174.0)
CCC+ and Below 12.6% 1,050 (84.0) (126.0)
GLOBAL PORTFOLIO ADVISORY GROUP
9
Appendix
2020 U.S. elections: impeachment
Early 2020
Primary caucuses begin February 3rd in Iowa
and continue through to mid-June.
Summer 2020
Democratic National Convention held July 13
– 16. Republican National Convention held
August 24-27.
Fall 2020
Presidential campaigning begins and debates
are held.
November 2020
Election is held for the U.S. Presidency, all 435
seats in the House of Representatives and 34
of 100 seats in the Senate.
D: 235, R: 197, V: 2, I:1
D: 45, R: 53, I:2
House of Representatives
Senate
Only 2 of 11 times the House has flipped since 1900 has been
in Presidential election years.
34 districts won by President Trump in 2016 were won by
Democrats in 2018. Only 3 districts won by Clinton in 2016
were won by Republicans in 2018.
23 Republican-held seats, along with 12 Democrat-held seats,
will be up for election.
Republicans and Democrats are both defending 2 seats won
by the other party in the 2016 Presidential race.
Notes:
Tariffs remain in replace regardless of which party
wins the White House.
Drug pricing will remain a key focus, in addition to
healthcare reform if Democrats maintain House lead
and take the Presidency.
Deficits are unlikely to be addressed.
Impeachment unlikely as Democrats will not win
enough Senate seats to win an impeachment vote,
which requires a supermajority to pass.
GLOBAL PORTFOLIO ADVISORY GROUP
10
Trade policy: Timeline of events
July 2018
U.S. imposes 25% tariff on US$50bn of Chinese goods and threatens 10% tariffs on additional US$200bn.
China responds with tariffs on US$34Bn of U.S. imports.
Early 2018
U.S. imposes tariffs on all imported washing machines, solar panels, steel, and aluminum.
U.S. unveils plans for 25% tariffs on US$50Bn of Chinese imports. China prepares plans for retaliatory tariffs on
US$50Bn of U.S. imports.
Sept 2018
U.S. implements 10% levy on US$200Bn of Chinese imports, which is to increase to 25% in Jan 2019.
China imposes duties on additional US$60Bn of U.S. goods.
Dec 2018
U.S. and China agree to 90-day truce period where no new tariffs may be imposed.
May 2019
U.S. threatens to tax all imports from China at 25%.
U.S. links tariffs on Mexico to migrant crisis and plans impose a 5% tariff on all imports from Mexico that could
increase to up to 25% by Oct. U.S. delays potential imposition of tariffs on imported automobiles until summer
August 2019
U.S. imposes then partially delays imposition of 10% tariffs on US$300bn of Chinese goods
Tariffed products include consumer electronics, toys, and clothing
October 2019
Phase 1 agreement reached saw China agree to increased purchases of U.S. agricultural goods, suspension of
planned tariff rate hikes, opening of Chinese financial markets, some measures concerning intellectual property,
and competitive currency rules.
January 2020
Phase 1 agreement signed in Washington, D.C. that includes provisions on foreign market access and ownership,
agricultural goods, pharmaceuticals, energy, and currency manipulation.
Phase 2 negotiations are underway.
GLOBAL PORTFOLIO ADVISORY GROUP
11
Base case: moderate economic growth, benign inflation, and accomodative financial policy
Ba
se c
ase
:
Mo
de
rate
gro
wth
Mo
de
rate
gro
wth
Be
nig
n in
fla
tio
n
Ea
sy P
olit
ica
l ris
ks
Tra
de
un
cert
ain
ty
Re
cess
ion
ris
k
fin
an
cia
l co
nd
itio
ns
Ab
ov
e t
ren
d
gro
wth
G
row
th r
e-a
cce
lera
tes
Infl
ati
on
sp
ike
s
Ce
ntr
al b
an
ks t
igh
ten
Re
cess
ion
ris
k
Infl
ect
ion
po
int F
isca
l po
licy
sup
po
rt
Ce
ntr
al b
an
k e
asi
ng
Re
cess
ion
Mo
ne
tary
sti
mu
lus
fails
to
ge
ne
rate
gro
wth
Infl
ati
on
re
ma
ins
low
Ge
op
olit
ica
l / t
rad
e t
en
sio
ns
inte
nsi
fy
Ch
ina
slo
wd
ow
n
Infl
ect
ion
po
int
En
d o
f cy
cle
E
nd
of
cycl
e
Eq
uit
y u
nd
erw
eig
ht
GLOBAL PORTFOLIO ADVISORY GROUP
12
Disclaimers
This report is provided to you for informational purposes only and is not intended to provide personal investment advice. This report
does not include or constitute an investment recommendation and does not take into account the particular investment objectives,
financial conditions, or specific needs of individual clients. Any statements regarding future prospects may not be realized. Before
acting on this material, you should consider whether it is suitable for your particular circumstances and talk to your investment
advisor.
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Scotia Capital Inc. is what is referred to as an “integrated” investment firm since we provide a broad range of corporate finance, investment
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The Global Portfolio Advisory Group prepared this report by analyzing information from various sources. Information obtained in the
preparation of this report may have been obtained from the Equity Research and Fixed Income Research departments of the Global Banking
and Markets division of Scotiabank. Information may be also obtained from the Foreign Exchange Research and Scotia Economics departments
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Copyright 2019 Scotia Capital Inc. All rights reserved.
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GLOBAL PORTFOLIO ADVISORY GROUP
13
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