Interest Rates Forecast 2007
A very interesting Monthly Indicators report from CIBC World Markets this month. For two reasons, one the Mortgage strategy of providing a 12 month teaser period for consumers at a heavily discounted rate with the option to convert into potentially lower fixed "Floor" rates in 12 months continues to be a very viable strategy. Secondly, Benjamin Tal wrote a very interesting article on "Exotic Mortgages" and the fact that US $2 Trillion will have rate resets in the coming 24 months……the largest reset in US history.
First off, the forecast over the next 12 months is for Prime to go down 100 bps over the next 12 months and for long term bond yields to decrease by 60 bps.
The reason Prime forecasting has been increased to a drop of 100 bps is the fact that the slowing of the US economy and all the forecasting of a slow down south of the border has not impacted the Canadian dollar as much as it usually does. This is because the US economy used to routinely account for 30% of global GDP growth and now it only accounts for half that much. Far less then that, when it comes to global demand of most commodities, so the US no longer has as much of an impact on the global economy as it once did. The combination of a high exchange rate and a retrenching US consumer, has the potential to turn a mid-cycle slowdown in the US economy into something a lot uglier in Canada and particularly in Ontario, which has North America's largest auto production. If commodity prices don't fall steeply, it will take the Bank of Canada interest rate settings to bring the Canadian dollar down to a favorable level to combat the economic downturn ahead.
First off, the forecast over the next 12 months is for Prime to go down 100 bps over the next 12 months and for long term bond yields to decrease by 60 bps.
The reason Prime forecasting has been increased to a drop of 100 bps is the fact that the slowing of the US economy and all the forecasting of a slow down south of the border has not impacted the Canadian dollar as much as it usually does. This is because the US economy used to routinely account for 30% of global GDP growth and now it only accounts for half that much. Far less then that, when it comes to global demand of most commodities, so the US no longer has as much of an impact on the global economy as it once did. The combination of a high exchange rate and a retrenching US consumer, has the potential to turn a mid-cycle slowdown in the US economy into something a lot uglier in Canada and particularly in Ontario, which has North America's largest auto production. If commodity prices don't fall steeply, it will take the Bank of Canada interest rate settings to bring the Canadian dollar down to a favorable level to combat the economic downturn ahead.
posted by Mortgageman at 1:04 PM
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