Podcast: A Divergence in Economic Strength - 11 avril 2024
As the economy shows more signs of weakness, will the Bank of Canada be the first to cut rates? In today’s episode, Portfolio Managers Chris McHaney, Chris Heakes, and your host, Mckenzie Box, examine the economic divergence between Canada and the U.S., and potential paths forward. They also discuss currency exposure, a large federal investment in artificial intelligence, and commodities.
McKenzie Box is Vice President of Product Management and Strategy at BMO Global Asset Management. She is joined on the podcast by Chris McHaney and Chris Heakes, Portfolio Managers and ETF Specialists at BMO Global Asset Management. The episode was recorded live on Thursday, April 11, 2024.
Economic Update
In Canada, there was an expectation of 25,000 jobs being added to the economy and the result was a negative number of just over 2000. The unemployment rate ticked up to over 6% and we’ve seen inflation data come down as well. South of the border, payrolls were up 300,000 in US with expectations around a 200,000 level, with an unemployment rate near 3.8%. US CPI came in hot as well at 3.5 and the core coming in at 3.8. The market is pricing in less than 2 cuts now, with the first cut probably not happening until September. In Canada, the expectation is about 2−2.5 cuts, with at least one rate cut by July. The two economies are starting to diverge.
BMO Short Corporate Bond Index ETF (Ticker: ZCS)
Currency
Focusing here on just the US Dollar versus the Canadian dollar. There is a benefit of owning US dollars if rates continue to be higher for longer, that tends to strengthen the US dollar. The US Dollar versus Canadian dollar was up since this past Wednesday. For the remainder of the year, central bank policy will play a large role. With the diverging economies, Canadian rate cuts are more likely to happen sooner due to it’s weaker economy relative to the US. That can play into a weaker Canadian dollar. At BMO we have a large suite of hedge and unhedged ETFs to help investors express their currency views.
BMO S&P 500 Index ETF (Ticker: ZSP) BMO S&P 500 Hedged to CAD Index ETF (Ticker: ZUE)
Technology Spending
Governments are announcing spending in the AI and cybersecurity space. As well, recent survey’s suggest CEOs top near term concern is cybersecurity. We see this as one of those mega trends. A long term trend for investors to take advantage of over the next several years. Related ETFs that can get you that exposure are BMO NASDAQ 100 Equity Index ETF (Ticker: ZNQ). And for investors that are seeking less volatility in their portfolios, BMO Global Communications Index ETF (Ticker: COMM), or BMO Global Infrastructure Index ETF (Ticker: ZGI) can be great options for exposure to growing companies building their technology and communications AI capabilities.
Commodities
If inflation remains sticky that tends to create an environment that historically has been more favorable for commodities. For investors seeking maximum diversification and portfolio construction it can be beneficial to have exposure to commodities. The price of oil has been notable with NYMEX crude at about $85 US a barrel. Gold and silver have had very strong starts to the year. On the agricultural commodities side, Cocoa futures are up over 100% this year. Investors can look to these options for exposure: BMO Gold Bullion ETF (Ticker: ZGLD), BMO Equal Weight Global Base Metals Hedged to CAD Index ETF (Ticker: ZMT), BMO Equal Weight Oil & Gas Index ETF (Ticker: ZEO) and BMO Covered Call Energy ETF (Ticker: ZWEN)
Price of gold: Bloomberg, as of April 11, 2024.
ZSP, total returns as at 2024/03/28: 1yr: 26.69%, 3yr: 13.94%, 5yr: 14.97%, 10yr: 14.83%, SI: 17.39%
ZEO, total returns as at 2024/03/28: 1yr: 26.25%, 3yr: 30.46%, 5yr: 14.94%, 10yr: 1.41%, SI: 1.65%
ZWEN, total returns as at 2024/03/28: 1yr: 20.57%
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