Dec Mullarkey
Managing Director, Investment Strategy
and Asset Allocation


China’s post COVID economic recovery continues at a tepid pace. After China swiftly abandoned its restrictive lockdown policies in January, the world braced for its second largest economy to rebound with a bang. But a surge in consumer spending has not emerged. Chinese households remain cautious. Global demand has softened and profits for many local industrial companies have dipped. Home sales are down, business and consumer confidence are below pre-COVID levels and youth unemployment is at record highs. The most recent official purchasing managers’ index (PMI) shows that manufacturing activity is contracting.

While China experienced similar demand and supply dynamics as other countries during lockdown, it is the only major economy since early 2020 to have experienced consumer deflation. As a result, it may have to resort to rate cuts and targeted stimulus to give a jolt to its recovery. Policymakers continue to target 5% real GDP growth for this year but probably need to do more to help get there. 

Source: Bloomberg, 2023.

Linda Kong Ting
Senior Director and Credit Analyst,
Asset Management


Looking back on an eventful month of May, the most critical themes weren’t in the corporate bond market at all – they were in the debt ceiling debate, as well as in the rapid rise of seven technology stocks related to artificial intelligence (AI) that have accounted for the vast majority of S&P 500 Index gains year to date. As political gridlock subsides, we’ve been thinking about the impact of AI on the economy more generally. Which jobs look the most vulnerable here? Surprisingly, while call centers might appear the most vulnerable at first glance, most of us learned during the pandemic that it’s comforting to talk to a real person. Therefore, jobs that are enhanced by personal service, live sales pitches or other required in-person appearances may be productivity-enhanced or upskilled, rather than eliminated, by AI.

At the same time, the recently infamous pratfall of a lawyer who generated fake case citations with ChatGPT demonstrates that outputs requiring mission-critical certainty may be safe for a while longer. Therefore, the non-intuitive answer may be that AI replaces the type of labour that has already been offshored to some extent to middle-income countries – low level computer programming and non-client-facing administrative, regulatory compliance and back-office work. Therefore, we think AI will quicken the path of deglobalization. We also see further catalysts from AI in the additional valuation bifurcation between premium, highly amenitized new-build commercial real estate and more quotidian properties even in the Class A office space, as onshore employees with similar types of work may have differing needs for physical space if they transition toward prompt-engineering tasks or find their positions eliminated entirely.

Source: Bloomberg, New York Times, 2023. 

Melissa Boulrice
Senior Director, Asset Management,
Public Fixed Income


Canada’s first-quarter GDP was stronger than anticipated, coming in at 3.1% annualized versus the 2.5% expected by economists, and was also hotter than the Bank of Canada’s forecast of 2.3%. This can be viewed as another data point showcasing the resiliency of the Canadian economy. With the Bank of Canada’s next meeting just a few days away, there is little doubt that, at the very least, we will hear a more hawkish tone from policymakers.

Source: Bank of Canada, 2023. 

John Fekete
Managing Director and
Head of Capital Markets
Crescent Capital Group

The threat of a U.S. debt default continues to percolate. And while markets remain complacent broadly, there is some fraying at the edges. Treasury bills maturing in the first week of June are trading at close to a 7% yield. The cost of buying one-year default protection on U.S. government debt, through the credit default swaps market, is much greater than what it was in 2009, amid the Great Financial Crisis. Or during 2011, when S&P Global Ratings downgraded the U.S. because of similar debt ceiling negotiations.

Now another credit agency, Fitch Ratings, just placed the U.S. on negative outlook. That’s a stern way of telling a borrower they need to restore discipline. Otherwise, a credit downgrade will likely follow. In its statement, Fitch amplified that political deadlock was one of the reasons for its move.

In the 1960s, France’s finance minister at the time complained about “America’s exorbitant privilege,” given the dominance of U.S. dollars in international trade and, by extension, the demand for its debt. If steps are not taken in the near term by U.S. political leaders, this historically favourable positioning could be at risk, and more action from ratings agencies and growing hot spots of market deterioration may be needed to force a settlement. Hopefully, it won't come to that.

Source: Bloomberg, 2023.

Market insights are based on individual portfolio manager opinions and market observations. These are observations only and are not intended to provide specific financial, tax, investment, insurance, legal or accounting advice and should not be relied upon and does not  constitute a specific offer to buy and/or sell securities, insurance or investment services. Investors should consult with their professional advisors before acting upon any information posted here.



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