------------------------------------------------------------------------- 1) Douglas Porter, Deputy Chief Economist, BMO Capital Markets - We look for both Canada and the U.S. to post GDP growth of roughly 2.5 per cent in 2010, essentially reversing similar declines in the prior year. - The era of zero interest rates will come to an end just after mid- year in Canada and not soon afterwards in the U.S. However, borrowing costs will remain exceptionally low by historical standards, as major central banks will wait until it is absolutely certain that recovery has taken root before hiking aggressively. - The Canadian dollar is likely to strengthen further and could average close to parity in 2010, bolstered by Canada's relatively favourable fundamentals, underlying uncertainty on the U.S. dollar, and firming commodity prices. - The housing market will continue to thrive in Canada, while the U.S. market will see the first inklings of recovery. The spring selling season could be exceptionally hot in Canada ahead of the new HST in B.C. and Ontario, and in anticipation of interest rate increases later in the year. - Despite the unfolding recovery, the scars from the deep global recession will linger in many areas, including a still-high jobless rate (averaging 10 per cent in the U.S. and 8.5 per cent in Canada next year), still-wide budget deficits almost everywhere, and a lack of pricing power for businesses. The good news is that despite widespread concerns on this front, inflation is expected to remain quite subdued, averaging 1.5 per cent in Canada and about 2 per cent in the U.S. in 2010. 2) Paul Taylor, Chief Investment Officer, BMO Harris Private Banking - After the roller-coaster years of 2008 and 2009, where our financial system teetered on the edge of ruin and equity markets imploded, the "story" of 2010 may well be that volatility and systemic risk fade while the economy and capital markets churn out modest, steady progress. - Global economic growth is likely to return to a rate of around 3 per cent, driven by strong growth rates of 8 to 10 per cent in China and India and held back by weak growth in Core Europe of no more than 1.5 per cent and moderate growth of 2.5 per cent in North America. - Equity returns will likely moderate versus the heady pace of 2009, but will most likely easily out-pace the alternative returns available from cash and bonds. - The S&P/TSX is likely to trade in line with the expected growth rate of earnings rather than on the back of an expansion in the earnings multiple; after a drawdown from the low $900 level in 2008 to about $630 in calendar 2009, the S&P/TSX EPS should expand to approximately $720 - $750 in 2010. - Stocks in the BMO Harris portfolios that are likely to be big movers in 2010 are: Potash, RIM, Sino Forest, Dragonwave, Petro Rubiales, Biox, Enablence Technologies and Mercator Minerals. 3) Jack Ablin, Chief Investment Officer, Harris Private Bank - The massive government stimulus has pulled the global economy off the mat. - Unemployment in the U.S. may have peaked at 10.2 per cent, starting the countdown to monetary tightening. - Equity valuation is full; however the market can continue to advance on technicals. History suggests that the market could advance another 15 per cent from here on favourable momentum. - The U.S. dollar is undervalued against the Yen and Euro and has the potential to advance in the first half of the year. - Emerging market equities are expensive relative to the U.S. and could underperform. - International Small Caps are relatively cheap and have valuation cushion as the rally slows. - High yield bonds should continue to enjoy improving fundamentals. - Our favourite sectors are: Materials, Discretionary, Finance and Technology. 4) Andrew Busch, Global Currency and Public Policy Strategist, BMO Capital Markets - The Federal Reserve will begin to raise interest rates in the second half of the year. But the question is: by how much? Currently, the 12 month overnight index swaps (OIS) are showing almost no chance of the Federal Reserve raising rates for the next year, but I think growth returns are enough to make the Fed raise rates 25 basis points three times by the end of the year. - We will see more Congressmen and Congresswomen elected in the 2010 midterm elections that want more control over Federal Reserve policy decisions. - There is a growing possibility of the White House and Congress imposing a value-added tax or national sales tax to presumably reduce the deficit. It will be precisely the wrong thing at the wrong time for the US economy as it heads into 2011. 5) Bart Melek, Global Commodity Strategist, BMO Capital Markets - Rising global economic tides are on track to buoy most industrial commodity markets in 2010. Recovery in the Western world and a strengthening China are likely to propel demand growth for commodities ranging from copper to iron ore to energy into positive territory. - After reaching new highs and a relatively modest correction recently, gold is expected to remain firm well into 2010, as investors continue to show considerable interest in the metal in order to protect against US dollar weakness and rising inflation risk. - BMO Research considers copper and iron ore to be the preferred industrial commodities and oil and US thermal coal the preferred energy commodities. - The combination of rising exports from China and restocking in the Western world will likely materially tighten the commodity market, providing support for prices broadly in 2010. - The Federal Reserve keeps rates near record lows for most of 2010; given less-than-robust credit creation in the U.S. and a very fragile consumer, low rates are required to assure that the U.S. economy does not fall back into contraction.
The information, opinions, estimates, projections and other materials contained herein are provided as of the date hereof and are subject to change without notice. Some of the information, opinions, estimates, projections and other materials contained herein have been obtained from numerous sources and Bank of
SOURCE BMO Bank of