A crumbling housing market in the United States and soft consumer demandwill hold interest rates down in both the U.S. and Canada early next year, according to CIBC World Markets.
Jeff Rubin, chief strategist with CIBC's investment banking arm, said he expects the Bank of Canada to cut interest rates as many as three times over the next 10 months, by one-quarter of a percentage point each time.
And that, he said in the bank's Canadian Portfolio Strategy Outlook Report, is expected to boost the value of income trusts and high dividend-yielding stocks in 2007.
The CIBC report was released a few hours after the Bank of Canada announced it would leave its key overnight interest rate unchanged at 4.25 per cent. In its decision, the central bank noted that economic activity in the second quarter of 2006 fell below expectations, while inflation was slightly higher than expected.
Metal and resource prices will stay high over the next 12 months, CIBC World Markets said, because the explosive growth in China, India, Russia and in many OPEC countries is pushing up demand. This will carry resource stocks to new highs on the Toronto Stock Exchange, it said.
Rubin also expects oil prices — and energy stocks — to remain high.
"Even in the absence of any hurricanes in the Gulf of Mexico, oil prices have averaged over $70 US per barrel this quarter," saidRubin. "With nearly one million barrels of production currently sidelined — over half in Nigeria — any hit in the Gulf over the rest of the storm season will send West Texas Intermediate [oil] to new record highs."
In the meantime, however, oil prices continued to slide. U.S. light crude fell to $67.77 US on Monday on the New York Mercantile Exchange, the lowest it has been since May 22.