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Speaker 1: You're listening to Taking Stock with Pim Box and Kathleen

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Speaker 1: has on Bloomberg Radio, a live broadcast today as we

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Speaker 1: broadcast live from Bloomberg World Headquarters at the fourth Annual

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Speaker 1: Canadian Fixed Income Conference sponsored by National Bank of Canada

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Speaker 1: Financial Markets. The health of the Canadian economy, it's a

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Speaker 1: big question for developed nations around the world. Of central

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Speaker 1: banks except for the federal reserves, still seem to be

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Speaker 1: looking at more interest rate cuts, and investors wonder where

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Speaker 1: to put their money among their many choices. Joining us

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Speaker 1: now as Stefan Mariani's chief economist and strategist at National

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Speaker 1: Bank of Canada and National Bank Financials defend, welcome, nice

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Speaker 1: to have terrific conference today. We're learning a lot about

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Speaker 1: Canada and so are our listeners, but mostly kind of

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Speaker 1: some different comments we've had today about the Canadian economy

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Speaker 1: that it is uh, that it is not, that is

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Speaker 1: still weak at the employment rate still around seven percent,

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Speaker 1: kind of not too much progress since the Great Recession

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Speaker 1: in a financial crisis. What do you see for the

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Speaker 1: Cannadian economy now? Lackluster growth if you look at the

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Speaker 1: national average, but that masks tremendous regional divergences. For example,

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Speaker 1: we have three provinces that presented today Quebec, BC and Ontario.

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Speaker 1: They have a good fiscal stands balanced budget or or

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Speaker 1: surplus is so uh that says a lot. If we

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Speaker 1: were weak across the board, you wouldn't have this this, this,

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Speaker 1: this type of dynamics. So clearly regional divergence. Some countries

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Speaker 1: are growing above potential, some below, but obviously with the

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Speaker 1: massive drop in oil prices, oil producers are dragging down

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Speaker 1: the national average. If that's the case, then why hold

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Speaker 1: that overnight lending rate to just a half a percent

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Speaker 1: at the Bank of Canada If it's really not as

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Speaker 1: weak as many people speculate. I think that from the

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Speaker 1: bank again at the standpoint, I mean they need to

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Speaker 1: look at the national average. Obviously, Uh, they managed their

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Speaker 1: national average and uh for the other provinces, Uh, they

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Speaker 1: can put in place some of their fiscal stimulus if needed.

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Speaker 1: So I take from a bank account of perspective. There's

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Speaker 1: also the realization that so is it a global malaise

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Speaker 1: with the commodity prices, and as all of the central

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Speaker 1: banks would argue, they probably want a cheaper currency. So

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Speaker 1: I think of for all of these reasons, the bank

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Speaker 1: cats keeping rate slow, and then macro predential policies are

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Speaker 1: being put in place in cant to slow the housing sector,

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Speaker 1: et cetera. So the exchange rate weaker. Looney, we just

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Speaker 1: had a guest too said it, it hasn't done that

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Speaker 1: much yet to stimulate Canadian exports to stimulate Canadian manufacturing.

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Speaker 1: Is that true? And if so, why I would disagree

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Speaker 1: on that Because exports are back to the pre recession peak,

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Speaker 1: non energy exports. That is, so we've seen a substantial

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Speaker 1: rebound um. What we haven't seen yet is a currency

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Speaker 1: that entices corporations to start investing again. It's as if

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Speaker 1: corporations are still uh shocked by what happened in two

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Speaker 1: thousand or twelve or thirteen where the currency and went

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Speaker 1: above parody, so they don't have good visibility on that.

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Speaker 1: But I would assume that if the currency stays in

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Speaker 1: the one dirty range one one thirty five range for

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Speaker 1: a little while longer, we might see more business investment,

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Speaker 1: and businesss investment would create more capacity that would help

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Speaker 1: us build more on exports. So it's just that it's

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Speaker 1: not that we haven't seen to pick up an export.

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Speaker 1: We haven't seen a rebound as uh forceful as we

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Speaker 1: normalcy would if you expected more corporate activity by non

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Speaker 1: Canadian investors in Canada. Since the looney has the Canadian

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Speaker 1: currency has declined by about thirty going back about a

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Speaker 1: year and a year and a half. Why why are

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Speaker 1: there not more foreign buyers, Let's say, have Canadian assets.

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Speaker 1: Canadian companies have been going on a buying released in

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Speaker 1: the United States to a certain extent, foreigner has been

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Speaker 1: buying Canadian Uh, anything other than the houses. No, but seriously,

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Speaker 1: you've seen that situation there. I think with the drop

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Speaker 1: in commodity prices, right, I mean a lot of the

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Speaker 1: foreign purchases were in the energy sector. So at this

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Speaker 1: point in time we were seeing perhaps we we could

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Speaker 1: see more ferns coming back with the currency at one dirty.

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Speaker 1: Now we are becoming more competitive for sure. Uh. So

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Speaker 1: I think that's a story that might unfold in the

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Speaker 1: next few years or next couple of years or so. So. Um,

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Speaker 1: we've had a big route in global bond markets. How

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Speaker 1: is this washing over the Canadian bar market? Uh? Because

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Speaker 1: we're unlikely, uh to the bank hands unlikely to hike

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Speaker 1: interest rates anytime soon. Uh, the route won't be as

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Speaker 1: big at the short end and the curve. One thing

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Speaker 1: that we need to watch the mccinnian perspective, if the

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Speaker 1: five year bond yield was to rise by a hundred

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Speaker 1: business points or so, that would significantly reduce your attractive

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Speaker 1: if the housing sector, so that could undermine your canting economy.

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Speaker 1: So if you want, there's not gonna be any tightening

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Speaker 1: by the bank candor per se, but we need to

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Speaker 1: be wary of a steepening of the global yield curve

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Speaker 1: that would impact a caning housing sector. Do you believe

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Speaker 1: that the new government of a Prime Minister Trudeau that

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Speaker 1: the stimulus packages and proposals will in fact increase economic

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Speaker 1: growth because right now it's a sluggish what GDP one

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Speaker 1: point one percent? Yeah. I think that's really important because

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Speaker 1: that actually might entice the private sector to invest a

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Speaker 1: bit more if they believe that potential output will be

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Speaker 1: growing faster down the road. I think given the fact

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Speaker 1: that fifteen percent of Kansas GP relate is related to construction,

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Speaker 1: we cannot afford to have that sector UH lose too

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Speaker 1: much UH strength in the next the next few years.

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Speaker 1: I think the fiscal stimulus is welcome used and if

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Speaker 1: it spreads to other countries, maybe the US, then we

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Speaker 1: should see a rebound in Canadian road and commodity prices.

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Speaker 1: I want to thank you very much for spending time

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Speaker 1: with us. Stefan Marion. He is the chief economist and

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Speaker 1: strategist for National Bank of Canada and the National Bank

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Speaker 1: of Financial giving us his perspective on the Canadian economy.

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Speaker 1: We're broadcasting live from the fourth Annual Canadian Fixed Income Conference.

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Speaker 1: This is Bloomberg