by Martin Lefebvre, CIO, & Team, National Bank Investments
Highlights
1. The Bull Case (Immaculate disinflation): a scenario where there is an "immaculate disinflation" with inflation decelerating faster than expected. Central banks pause and prepare for rate cuts, labor markets cool down without significant layoffs, household consumption remains resilient, and Beijing announces stimulus measures to turn around its economy. The implications include positive real GDP growth and steady job growth.
- Market implications: Increased equity prices, decreased bond yields, and a decrease in the value of the US dollar. The US and emerging markets (EM) are expected to outperform Canada and the EAFE (Europe, Australasia, and Far East) markets.
2. Base case (Stagnation): a scenario of stagnation, where rising energy prices keep inflation above the comfort level of monetary policy-makers. Central banks push back against rate cut expectations, corporate earnings are under pressure, and the Chinese economic recovery disappoints, impacting the global outlook.
- Market implications: Equity prices may remain stagnant, bond yields may stay relatively stable, and the value of the US dollar may experience a slight decrease. Canada is expected to outperform EM and EAFE markets.
3. The Bear Case (Recession): a scenario of recession, where inflation surprises on the upside and central banks tighten monetary policy further. The cumulative impact of past rate hikes and tightening financial conditions lead to a recession. Unknown financial market fragilities are revealed, and geopolitical tensions escalate, destabilizing the global economy.
- Market implications: Decreased equity prices, increased bond yields, and an increase in the value of the US dollar. Both Canada and the US are expected to outperform EM and EAFE markets.
Please note that these market implications are subjective and can change without notice.
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