BMO Bank of Montreal

BMO Bank of Montreal
BMO Harris Private Banking

BMO Harris Private Banking

October 19, 2012 09:09 ET

BMO Harris Private Banking Market Outlook: Improved Stability for World's Major Economies Boosts Market Confidence

- Equities expected to resume their upward trend

- The U.S. housing market has improved and consumers are spending more compared to Q2

- Significant drop in yield on Italian and Spanish 10-year bonds suggests lower perceived risk in the Eurozone

- China's stimulus measures demonstrate the country is on track for a soft landing

TORONTO, ONTARIO--(Marketwire - Oct. 19, 2012) - As the U.S. presidential campaign enters the home stretch and the Eurozone and China commit to resolving economic challenges, equities are poised to resume their upward trend, according to the BMO Harris Private Banking's recent Market Outlook Commentary. The report also notes that global economic growth will be moderate over the next 12 months and North American corporate earnings are expected to show stable growth.

Additional highlights from the report include:

The U.S.

While the U.S. recovery showed signs of weakness in Q2, the economy appeared to stabilize and improve in the third quarter:

  • The housing market improved noticeably; year-over-year prices rose, inventories dropped and housing affordability is now at a multi-decade high.
  • U.S. consumers increased spending despite persistently low confidence levels.
  • The private sector continued to create new jobs at a steady pace as the unemployment rate dropped to 7.8 per cent in September.
  • GDP growth expected above 2 per cent - a positive sign that the economic recovery will continue.

"Barring the mismanagement of the impending fiscal cliff situation, we expect the United States to continue to produce positive growth through 2013 and avoid a recession next year," said Richard Mason, Head of Investment Management at BMO Harris Private Banking. "On a larger scale, positive growth in one of the world's most dominant economies means good news for the international economy. This particularly bodes well for Canada as the United States remains the single biggest influence on our economy."

The Eurozone

The credit situation in Europe and its impact on business, consumer and investor confidence is slowly improving:

  • The European Central Bank's debt purchase program provided a significant confidence boost to debt markets and demonstrated policy makers' commitment to keeping the Euro currency intact.
  • The yield on Italian and Spanish 10-year bonds dropped significantly in the third quarter (indicating lower perceived risk) and economic growth is expected to be flat over the next year.
  • The risks associated with sovereign debt are expected to remain manageable.

"Although the Eurozone's debt troubles will take time to resolve, every month that passes creates more confidence that we're moving farther from the risk of systemic damage to the financial system and thus alleviating investors' concerns," said Mr. Mason. "Though one or more peripheral countries may leave the euro currency union in the next few years, their departures will likely not precipitate the collapse of the entire union."


Following Chinese policymakers' launch of their stimulus program in the second quarter, this created further monetary easing in Q3, helping China to get back on track, with a soft landing ahead.

"After lower than expected growth in the second quarter, China aims to further control its economic situation in a number of ways, hoping to beat their growth forecast of 7.5 per cent," said Mr. Mason. "Once the new political regime takes over in November, we anticipate China will announce additional stimulus measures, helping to boost growth further."

BMO Harris Private Banking encourages investors to work closely with an investment professional to determine the appropriate investment plan and strategy for their distinct needs.

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