Trump, Taxes, Trade & More
Length: 3:53

Benjamin Tal
Deputy Chief Economist,
CIBC World Markets

“Trump really did not impact markets until very recently. But then something changed. The tax code in the U.S. changed. We have a situation in which we have a totally different policy now with major implications, not only for the U.S., but also for Canada. The changes in the tax policy in the U.S. are game changers for Canada because, for many CEOs in Canada now, you're facing so many obstacles that in the past we didn't have, you know, their tax rate is now below our tax rate. They can write off capital investment immediately. We cannot do that and they can repatriate money. So there are a lot of things happening that impact the ability of Canadian companies to compete and therefore more money, and we're starting to see it, is going to the U.S. not to Canada.”

U.S. tax policy impacts Canadian interest rates

“This means that the Bank of Canada looking at this situation says, I'm not in a rush to raise interest rates. So what's happening over there is impacting the psyche of the Bank of Canada, and that's why the Bank of Canada is telling us maybe we will move again in July. Not sure. So you will see interest rates in Canada rising more slowly than interest rates in the U.S. In addition, you have the uncertainty regarding NAFTA. You have the uncertainty regarding the U.S.-China trade dispute that clearly can impact Canada. We will be caught in the crossfire there. So a lot of things for the Bank of Canada to think about when it comes to economic growth in 2018, 2019.”

Outlook for C$ & stock market

“Clearly interest rates will not be rising as quickly. It also means that the Canadian dollar will have to give. It’s already giving and it probably will have to give more because the only way to equate this situation is to actually see the Canadian dollar going down and enable basically companies to compete. At this point, all the tax cuts are going over there. The investment is going over there and I think that the stock market in the U.S. over the next six months or so will be more interesting than the Canadian stock market reflecting the weakness in the Canadian economy. So all those forces are coming to this kind of conclusion.”

Undervalued energy sector in Canada?

“The energy sector is very, very interesting because it's really undervalued. We see oil prices rising without major implication when it comes to valuations in the energy sector. I think that our energy sector has some potential. Clearly the pipeline story is one big headache that is impacting the psyche of investors and that's why this is a situation in which for the first time oil prices are relatively elevated but Canada is not really benefiting from the increasing prices to the same extent that it used to. Usually you actually have the negative because of consumer spending going more towards oil and gasoline but you see investment in the oil field. We don't see the same investment. I believe that will come. I think that the market is a bit too pessimistic about the ability of Alberta and oil sands actually to benefit from high oil prices. We see spreads actually starting to narrow between WTI and in Albertan oil. I think that's actually a positive. So I'm a bit more positive on valuations in the energy sector.”


Health of Canadian financials

“The financial sector in Canada is going to be fine because of the fact that you see a situation in which, yes, the mortgage market will slow down, and yes, interest rates may not be rising as much as before but valuations are attractive enough to keep them where they are especially with dividends so high and interest rates rising very, very slowly. So there are some pockets and clearly if I believe that the U.S. economy will do fine, there are many companies in Canada that are highly influenced by the U.S. market. I will be there as well.”

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