BMO Harris Private Banking Market Outlook: Positive Signs Resonate Worldwide in Early 2013

TORONTO, ONTARIO--(Marketwire - Feb. 22, 2013) - BMO Harris Private Banking's latest Market Outlook Commentary Report reveals that 2013 is off to a robust start with several positive developments in North American and global markets.

The report notes that corporate earnings growth is on the upswing in the U.S. and Canadian interest rates should remain stable. Overseas, there has been minimal negative news to fuel Europe's sovereign debt crisis further, while China's economy is in a good position for continued growth.

Highlights from the report include:

U.S. Recovery Moves Ahead

Late 2012 featured an unpredictable few months: the Fiscal Cliff was a real concern and the market reacted to that volatility. The next phase of these debates, which will focus on the debt ceiling and the borrowing limit for the U.S. federal Government, was moved off until May 2013, helping keep markets calm from now until then.

"Delaying the Fiscal Cliff discussions was a prudent move, enabling President Obama and Congress to address discretionary spending in a meaningful way," said Richard Mason, Head of Investment Management at BMO Harris Private Banking. "With talks and negotiations now stretched out through to spring, the focus has shifted from anxiety to relative calm, which has been buoyed by evidence of a sustained economic recovery."

The report reveals improvement in several other key areas in the U.S.:

• Earnings growth is on the upswing for the first time in nearly three years, with forecasts calling for 2013 earnings to grow by 13.8 per cent.
• Housing sales, prices, inventories, retail sales and job numbers continue to improve.
• Cash flowing into equity funds has increased steadily since the start of the year.

Europe Picks Up

According to the report, Europe's policymakers remain diligent in attempting to ease the recession; however, their efforts are being met with mixed reviews:

• Yield spreads between German 10-year bonds and those of Italy and Spain are continuing to narrow, signalling that these economies are stabilizing and there is less of a perceived risk.
• However, the International Monetary Fund projects economic slippage to be 0.3 per cent lower than previously forecasted.
• The IMF expects a sluggish recovery in 2014.

"European policymakers could become complacent as the economy shows signs of improvement and may only respond to and address each crisis as it arises," said Mr. Mason. "However, it's prudent that they use this time to look closely at the issues that have hindered the Eurozone until now, such as outsized government debt and high unemployment."

China Continues to Show Improvement

The report reveals that the New Year has brought moderate economic success to China, with growth expected to exceed 7.5 per cent for 2013. This is a result of several factors:

• Improved manufacturing activity, along with better-than-expected GDP growth in the fourth quarter, has invigorated both domestic and world equity markets.
• Policymakers' tightening of money supply and credit is likely coming to a conclusion.
• Purchasing managers' index and retail sales have improved.

"Despite this commendable progress, China is at a relatively early stage of economic development; we encourage investors to proceed with caution," said Mr. Mason. "That being said, the country does posses considerable untapped productive potential and an ability to increase the amount of money and credit in circulation. It will be interesting to see how the next few months unfold."

Modest Gains for Canada

Stability is the name of the game in Canada, according to the report. Over the past few months, the housing market has started to cool - mainly as a result of the mortgage-tightening rules introduced by the government in July 2012. In addition, the Bank of Canada suggests interest rates are expected to remain stable until late 2013 or early 2014.

As equity markets gained in the S&P 500 and S&P TSX, two Canadian federal bonds were issued in early January 2013 - the five-year bond yielding only 1.2 per cent and the 10-year at 1.5 per cent . However, the bonds did little to attract investors as equities in the broader market offered the potential for higher returns.

"From now through earnings season the signs are favourable for stronger corporate earnings in Canada. It's also worth noting that the return of NHL hockey has not only made fans happy, but seems to be contributing to improved investor confidence in Canada," said Mr. Mason.

To view the full report, please visit: www.bmo.com/harrisprivatebanking.

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