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Time for Investors to "Chill" - CIBC

Worries of negative interest rates are overblown

TORONTO, March 3, 2016 /CNW/ - Global investors need to take a chill pill as economic prospects are not as bleak as many fear, finds a new report from Avery Shenfeld, Chief Economist at CIBC.

Mr. Shenfeld notes that even though he's been steadily downgrading his Canadian and global growth outlook since the second half of 2014, market chatter has left him feeling like a rosy-glassed optimist. "The wall of worry isn't that high in consensus economic forecasts," he says. "Instead, it's been heard in the talk on the trading floors of Wall Street and Bay Street, and whatever street the Shanghai market sits on, among the newly cautious Federal Open Market Committee voters, and in the resulting flight to safety rally in U.S. Treasuries.

"Prospects aren't as bleak as some now fear, and rates aren't going negative everywhere. Investors, need to be scanning for signs that the news ahead might be better rather than worse, and there are indeed some forces that might pave the way for at least less-bad news."

He notes that while emerging market recessions, or in China's case, growth disappointments, have been front and centre in the global economic slowdown of the past year, there are some positive signs.

"The analogies that the bond market was relying on to price away almost all U. S. rate hikes in the next two years, and take 10-year rates below 2 per cent, simply ignore too many of the facts on the ground. In recent days, we're seeing what could be the early signs of a reversal of that trend."

He adds that worries of negative interest rates in the U.S. are overblown. "Only weeks after the Fed hiked in December, we were being asked to assess the odds that America's central bank will eventually be pushed into negative rates. Increasingly, the analogy is being drawn to Japan, which had its own real estate and financial market shock way back in the early 1990s, from which it ended up being stuck in a zero rate policy, and now negative policy rates, for what seems like forever.

"We long ago projected that U.S. rates will track much lower than in past cycles but America isn't turning Japanese, not by a long shot. Nor is it sitting with a massive output gap like the one still festering in Europe, wounded by the Eurozone's failure to use fiscal stimulus during the Great Recession."

He does add that the market's assessment of Canada is rightly one of concern for near-term growth prospects. Just as fiscal policy differentiated the Eurozone's post-recession fate from that of the U.S., it will hold the cards for getting the Canadian economy back in gear.

"Monetary policy is a spent force here, given an indebted household sector and an aging housing boom. Look for the federal budget to deliver a larger fiscal boost than was talked about during the campaign as a way to avoid Canada having to turn Japanese in monetary policy ahead.

"Take a chill pill, as things aren't as bad as you're hearing on the street."

The complete CIBC World Markets report is available at:

About CIBC

CIBC is a leading Canadian-based financial institution with 11 million individual, small business, commercial, corporate and institutional clients and three major business units - Retail and Business Banking, Wealth Management and Capital Markets. CIBC Capital Markets provides integrated global markets products and services, corporate and investment banking, and top-ranked research to corporate, government and institutional clients around the world. Visit for more information on CIBC and CIBC Capital Markets. News releases are available at

SOURCE Canadian Imperial Bank of Commerce

For further information:

Avery Shenfeld, Chief Economist, CIBC World Markets Inc. at 416-594-7356, or Olga Petrycki, Director, External Communications, 416-306-9760,