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Why It’s Too Early to Claim Victory Over Inflation – Or Recession Concerns – AGF Perspectives



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Insights and Market Perspectives


Author: David Stonehouse

March 9, 2023

Less than three months into the new year, the prevailing narrative has changed substantially for the economy. In the fourth quarter of 2022, the consensus view was that peak inflation was behind us and that the economy was decelerating at an alarming rate, both in North America and globally. In fact, by some measures, expectations for an imminent recession were at record levels going back through decades of history. However, history has also shown how difficult it is to forecast a recession. Indeed, whether they be central bankers, economists or investors, observers have struggled to identify recessionary conditions in real time even when they’re in the midst of one.

The first aspect of the consensus outlook – disinflation – has directionally been playing out as expected. Various measures of price changes, including producer inflation, consumer price indexes and personal consumption expenditures, have been decelerating in most Organization for Economic Co-Operation and Development [OECD] countries from their 2022 peaks, although the pace of moderation has been frustratingly slow based on the surprising strength of the most recent data. The trend has also been evident in commodity prices, headlined by energy and food, and core goods prices, which have benefited from an improvement in supply chains and a shift in demand from goods to services. Even some of the more stubborn core service prices have begun to recede from peak levels. This trend, along with concerns about an economic slowdown, drove a bond market rally to start the year as yields declined from last fall’s high-water marks.

Yet recession fears have proven to be misguided. Several factors have contributed to economic resilience. Businesses and consumers have enjoyed an energy dividend in the form of substantially lower prices, as oil and gasoline have fallen some 40% from early 2022 levels, while natural gas in North America and Europe is down in the range of 80%. Capital spending picked up as companies adapted to supply chain issues and strove to replenish sources of raw and intermediate goods in the face of rising geopolitical uncertainty. Finally, consumers still have a stockpile of excess savings from the pandemic response, which in the U.S. could last until at least the summer. As a result, economic data have surprised to the upside. This Goldilocks environment of disinflation and economic growth has changed the narrative to that of a soft landing, or possibly even no landing. In a reflection of the improving outlook, bond yields rebounded in February.

Nevertheless, market participants may once again be latching on to the wrong perspective. First, while the disinflation story may continue for some months to come, we may not be out of the woods yet. In our view, the potential for inflation to reaccelerate later this year may be underappreciated. Here are six reasons why:

  1. The tailwind of declining energy prices may be subsiding as supply becomes more constrained, with prices approaching production cost bases and potential geopolitical issues in areas such as Russia/Ukraine and Iran/the Middle East remaining elevated.
  2. China’s economy is reaccelerating as it reopens this year.
  3. A combination of mid- to upper-single digit cost-of-living adjustments and multi-year contract negotiations at mid-single digit percentages (or higher) levels may keep pressure on wages and services inflation.
  4. The economic resilience discussed above, coupled with financial conditions that are actually looser than when the hiking cycle started, is unlikely to allow inflation pressures to moderate as much as officials are hoping.
  5. The substantial weakening in the U.S. dollar, which remains close to 10% below its September peak in broad index terms even after a February rally, may generate higher import inflation down the road.
  6. Finally, the easy year-over-year inflation comparisons we are currently experiencing become tougher in the second half of 2023, as the economy laps the more benign monthly inflation prints in the latter part of 2022.

For those reasons, we believe the market has been too sanguine about disinflation, as reflected in inflation breakeven levels, which declined through most of 2022 even as investor worries about inflation were top-of-mind. Breakevens have finally started to move higher in recent weeks as markets begin to reassess medium-term inflation prospects – a key factor in the recent rise in bond yields.

The other area the market may not be fully appreciating is the economic outlook. The fabled “pivot” has ended up not being in central bank policy, but rather in recession fears, which have faded from the highest levels ever through “soft landing” to “no landing” in a remarkably quick two months. The outcome, though, is that central bank terminal policy rates have shifted higher and later, another reason for the recent backup in bond yields. Ironically, this reset of overnight rate expectations is resulting in tighter monetary policy. While rate hikes have not derailed the economy so far, the second half trajectory is looking increasingly fragile as the lagged impact of the largest and fastest hiking cycle in a generation takes effect. Add to that a deceleration in capital expenditures from elevated 2022 levels, along with consumers using up the remainder of their excess pandemic savings, and the prospects of recession merely look to have been deferred, not eliminated. Far from “no landing,” we believe the probability of a recession next winter continues to rise.

What does this mean for bond yields?

A potential resurgence in inflation (albeit not nearly as high or intense as in 2022) and near-term economic resilience portend a risk that bond yields may not yet have peaked. However, if a recession does transpire toward the end of 2023 or early in 2024, yields may start to fall later this year in expectation of this outcome. Overall, we expect bond yields to be rangebound in 2023 after the substantial backup in 2022.

For the moment, we continue to hold short-duration positions, although the recent rise in yields is presenting an opportunity to start nibbling again, and we anticipate taking advantage of higher yields to lengthen duration as the year progresses. In addition, inflation-linked bonds are looking more appealing, and we have begun adding exposure again. Our third area of focus has been on corporate bonds with attractive yields. These opportunities include investment-grade bonds with yields well north of 5%, high-yield bonds with yields of 8-10% or more and solid business prospects in our view, and idiosyncratic opportunities in other parts of the fixed income market such as convertible debentures, leveraged loans and Emerging Market debt. In combination, these securities can result in portfolios with mid- to upper-single digit yields.

Since yields should comprise the majority of returns for bond investors (as has historically been the case over time), fixed income returns should not only be much better in 2023 than in 2022, but should also offer a more viable alternative to equities than has been the case through most of the post-Great Financial Crisis period. Bonds now provide a more competitive yield, better potential for downside protection in the event of a recession, and lower volatility than equities despite last year’s elevated risk.

The views expressed in this blog are those of the authors and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds, or investment strategies.

Commentary and data sourced Bloomberg, Reuters and company reports unless otherwise noted. The commentaries contained herein are provided as a general source of information based on information available as of March 1, 2023 and are not intended to be comprehensive investment advice applicable to the circumstances of the individual. Every effort has been made to ensure accuracy in these commentaries at the time of publication, however, accuracy cannot be guaranteed. Market conditions may change and AGF Investments accepts no responsibility for individual investment decisions arising from the use or reliance on the information contained here.

This document may contain forward-looking information that reflects our current expectations or forecasts of future events. Forward-looking information is inherently subject to, among other things, risks, uncertainties, and assumptions that could cause actual results to differ materially from those expressed herein.

AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), AGF Investments America Inc. (AGFA), AGF Investments LLC (AGFUS) and AGF International Advisors Company Limited (AGFIA). AGFA and AGFUS are registered advisors in the U.S. AGFI is registered as a portfolio manager across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.

® ™ The “AGF” logo and all associated trademarks are registered trademarks or trademarks of AGF Management Limited and used under licence.


About AGF Management Limited

Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.

For further information, please visit

© 2023 AGF Management Limited. All rights reserved.

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From bubble to boom? New report shows economic momentum in Atlantic Canada



Atlantic Canada’s economy has “wind in its sails” and is poised for an economic breakout, according to a new report from the Ottawa-based think-tank Public Policy Forum.

The report, entitled the Atlantic Canada Momentum Index, says that Canada’s East Coast provinces are experiencing “historic” momentum, in large part because of population growth.

“It’s ‘have not’ no more,” said president and CEO Edward Greenspon. “Atlantic Canada did lag on a number of indicators in a lot of ways for years. But that’s not true anymore.”

The think-tank measured 20 metrics, including measuring economic and population growth, level of education, immigration numbers, median age and employment rate. It based provinces’ performance on how many of these indicators improved between 2015 and 2022.


It found Atlantic Canada is performing comparably to the national average, and that it is showing a significant improvement compared to its performance from 2008 to 2015.

“I am proud,” said Wade MacLauchlan, former P.E.I. premier and one of 17 former Atlantic Canadian premiers and deputy premiers who signed on to the report.

“This is something that I and hundreds of thousands of others have worked hard for over generations. And there is a real sense of accomplishment and something on which we can build and grow.”

But some Atlantic Canadians say this report doesn’t tell the whole story: they say they’re squeezed by skyrocketing housing costs, as population growth and increased wealth creates a strain on the existing housing stock.

A man in a grey suit with a pink and purple striped tie smiles at the camera.
Edward Greenspon, President and CEO of Public Policy Forum, says that Atlantic Canada should do what it can to capitalize on recent economic growth. (Public Policy Forum)

Population propelling economic growth

Atlantic Canada’s population declined five decades in a row in proportion to the rest of Canada.

That tendency is shifting.

“For the first time, you’re beginning to see population growth,” said Greenspon.

Recent census numbers show the country’s fastest-growing cities — Halifax and Moncton — are in the Maritimes.

Much of that population growth is spurred by people like Pauline Landriault, an Ontario resident who is able to work remotely. She has a property in Nova Scotia and is hoping to move there permanently.

“There’s a lot of people who bought places here during the pandemic,” she said. “With the nature and the trails, it’s the most beautiful province in the country. It’s a hidden gem.”

The Atlantic bubble, which allowed unrestricted travel within the East Coast provinces for a period during the COVID-19 pandemic, may have also made the province attractive to people looking to relocate during the pandemic, according to former Nova Scotia premier Stephen McNeil.

A woman in a purple toque, sunglasses and a black parka stands on a sidewalk in front of a ramen restaurant.
Ontario resident Pauline Landriault said she’s planning a permanent move to Nova Scotia, calling the province a ‘hidden gem.’ (David Laughlin/CBC)

McNeil said his province was beginning to see more jobs creation around 2015, and shifted focus toward attracting more people back to Atlantic Canada to fill those jobs.

He said his government fought the long-held belief that Maritimers must give up career advancement aspirations if they choose to stay out East.

“We can do all the economic stuff right, but if we don’t have people, then we’re doomed,” he said. “We’re as close to New York as Toronto is, but we’re more affordable.”

He said economic challenges in Alberta, low interest rates fostering growth, and Ontario’s high housing prices contributed to people’s decisions to move to Nova Scotia.

Immigration is also booming in Atlantic Canada: the average number of immigrants in Atlantic Canada from 2008 to 2015 was about 7,000 per year. From 2015 to 2022, that average more than doubled, to about 15,000 immigrants per year.

The median age of Atlantic Canadians, while older than the national average, has slowed in its growth.

“There’s a growth in confidence, in population and economic activity. In many ways, this is for Atlantic Canadians, the opportunity to say after 130 years of outmigration, let’s try something else,” MacLauchlan said.

A woman with shoulder-length brown hair in a red jacket and white hoodie stands on a busy Halifax sidewalk.
Halifax resident Melissa Gazzard receives social assistance and said the rising housing costs make it very difficult for her to find long-term housing. (David Laughlin/CBC)

With more prosperity, new challenges

Though the Public Policy Forum report does track the number of new housing builds in a region, it does not track the current costs of housing in Atlantic Canada, which have soared in recent years.

Halifax resident Melissa Gazzard relies on social assistance to pay her bills, and she said increased cost of housing has made it extremely difficult to find a long-term home.

“They’re leaving us that are out here to basically fend for ourselves,” she said. “It’s really hard. They put us in one circle, and say, ‘OK, we’ll deal with you later.’ But it never gets dealt with.”

One of the other metrics measured was access to a family physician, an area where Atlantic Canada continues to struggle.

Nearly 370,000 Atlantic Canadians don’t have a family doctor and the report shows that provinces have not made improvement in decreasing this number.

“There’s new challenges and problems. There’s problems around health care and access to physicians,” said Greenspon.

“There’s always going to be some people left behind, and policy needs to address that and make sure they don’t fall through cracks,” he said.

A man wearing a suit stands in front of press microphones at a podium
Former Nova Scotia premier Stephen McNeil, shown here speaking to reporters outside Province House on Oct. 13, 2020, is one of 17 former Atlantic Canadian premiers and deputy premiers who signed on to the report. (Jean Laroche/CBC)

How to keep building?

For momentum to keep growing in Atlantic Canada, it needs to be fostered, the report concludes.

“It would be negligent to let this swelling momentum pass without putting the necessary policy supports in place to perpetuate it,” it reads.

The think-tank says it will meet with policymakers to discuss policies to build on the momentum.

“The message that I think is most important is to really recognize we can raise our expectations and that we should keep going. Because this is working and it is good for us,” said MacLauchlan.

McNeil, who left office in 2021, said he expects the trend will continue upward.

“Atlantic Canada is alive and well, and quite frankly, a global player,” he said.


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Bank of Canada concerned about bringing inflation down




The Bank of Canada says it’s still concerned inflation might be harder to bring down than expected, noting the economy is still in excess demand.

On Wednesday, the central bank published a summary on the governing council’s deliberations ahead of its decision to hold its key interest rate steady on March 8.

The members of the governing council, which include governor TIff Macklem and his deputies, were encouraged to see the economy and inflation both slowing, supporting their decision to hold the key interest rate steady at 4.5 per cent.


However, the governing council remained concerned about the risk of inflation getting stuck above two per cent and agreed that supply was still outstripping demand in the economy.

In the fourth quarter, the Canadian economy posted no growth as the accumulation of business inventories slowed.

“With inventories adjusting earlier than anticipated, governing council concluded that growth in early 2023 may be a bit stronger than the bank had forecast,” the summary said.

Ahead of the federal and provincial governments rolling out their budgets, the governing council also discussed the risk of elevated government spending further fueling demand in the economy.

Finance Minister Chrystia Freeland has pledged that her March 28 budget will be fiscally restrained, noting that the federal government doesn’t want to make the Bank of Canada’s job of fighting inflation harder.

The central bank said it will incorporate the fiscal plans of both levels of government into its updated projections to be released in the next monetary policy report.

The Bank of Canada will release the report along with its next interest rate decision on April 12.

Economists widely expect the central bank to continue holding its key interest rate steady.

The latest consumer price index report showed inflation slowed further in February, with the annual rate falling to 5.2 per cent.

However, an ongoing concern for the Bank of Canada is the tight labour market and strong wage growth.

The unemployment rate continues to hover near record lows, while average hourly wages have been increasing at an annual rate of four to five per cent.

The Bank of Canada notes in its summary of deliberations that the governing council continues to believe that the pace of wage growth will make it harder to get inflation back to its two per cent target, given wage growth isn’t accompanied with productivity growth.

This report by The Canadian Press was first published March 22 2023.


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NOVA Chemicals sets bold ESG aspirations to lead the plastics circular economy



CALGARY, AB, March 22, 2023 (GLOBE NEWSWIRE) — NOVA Chemicals Corporation (“NOVA Chemicals”) today announced sector-leading ESG ambitions to drive the circular economy for plastics, in line with its vision to become the leading sustainable polyethylene producer in North America.

By 2030, the company aims to:

  • Set new industry standards for driving the transition to the plastics circular economy and solidifying the market for recycled polyethylene, with 30 per cent of its polyethylene sales[i] from recycled contet;
  • Be at the forefront of decarbonization by reducing its Scope 1 and 2 absoute CO2 emissions by 30 per cent[ii]; and
  • Become a Top 30 company in Canada.

Outlined in NOVA 2030: Our Roadmap to Sustainability Leadership, NOVA Chemicals has also shared its aspiration to reach net-zero Scope 1 and 2 emissions by 2050.

“NOVA’s Roadmap to Sustainability Leadership details a strong plan forward for the company to become the leader in sustainable polyethylene production while building on our commitments to developing innovative solutions for our customers, enabling the circular economy, and being a responsible steward of our environment,” stated Danny Dweik, CEO. “Plastic products play an essential role in our daily lives. With our renewed purpose of reshaping plastics for a better, more sustainable world, we have developed a clear pathway to become a catalyst for a low carbon, zero-plastic-waste future.”


To achieve these aspirations, NOVA Chemicals anticipates investing between USD$2-4 billion by 2030 to expand its sustainable product offerings, decarbonize assets, and build a state-of-the-art mechanical recycling business while exploring new advanced recycling technologies to create high-quality, high-performance recyclable and low carbon plastics.

Building on its proprietary, Advanced SCLAIRTECHTM technology (AST), NOVA Chemicals will explore expanding its product portfolio to include the development of innovative, advanced materials. These new product offerings, which will include the company’s first ASTUTE™ polyolefin plastomers line, will better serve existing customers and provide more options for sustainability-focused end markets such as electric vehicles and renewables.

NOVA Chemicals has already begun growing its portfolio of recycled and recyclable polyethylene resins through its recently announced launch of SYNDIGO™ recycled polyethylene, a new portfolio of products made from circular polymers to encourage both waste and emissions reductions.

The company’s 2030 aspirations are shorter-term objectives that will help NOVA Chemicals reach its ultimate goal of achieving net-zero Scope 1 and 2 absolute CO2 emissions by 2050. NOVA Chemicals has developed a technical solutions-focused roadmap for decarbonizing its asset base by improving energy efficiencies, electrifying and acquiring renewable power, and exploring clean hydrogen as a low carbon fuel source and Carbon Capture, Utilization, and Storage (CCUS). The company will also continue to pursue new technologies to abate and eliminate emissions from its production processes, such as the development of its proprietary Low Emissions Ethylene Process (LEEP™) technology.

The company has also announced a virtual power purchase agreement (VPPA) with Shell Energy for renewable power, marking the first of many opportunities to increase low carbon, renewable energy in its power portfolio.

Today’s announcement builds upon NOVA Chemicals’ long-standing commitment to developing innovative solutions for its customers while enabling the circular economy and preparing for and responding to a changing world. NOVA’s approach to managing its material ESG topics including Responsible Care® and its commitment to the environment, health, and safety, can be found in its annual ESG report.

– 30 –

About NOVA Chemicals Corporation
NOVA Chemicals aspires to be the leading sustainable polyethylene producer in North America. Our driving purpose is to reshape plastics for a better, more sustainable world by delivering innovative solutions that help make everyday life healthier and safer and acting as a catalyst for a low carbon, zero-plastic-waste future. NOVA Chemicals’ innovative and quality product offerings, value chain collaboration, and unique customer experience is what sets us apart; our customers use our products to create easy-to-recycle and recycled content films, packaging, and products. Our employees work to ensure health, safety, security, and environmental stewardship through our commitment to sustainability and Responsible Care®.

NOVA Chemicals, headquartered in Calgary, Alberta, Canada, has nearly 2,500 employees worldwide and is wholly owned by Mubadala Investment Company of the Emirate of Abu Dhabi, United Arab Emirates. Learn more at or follow us on LinkedIn.

NOVA Chemicals’ logo is a registered trademark of NOVA Brands Ltd.; authorized use.
Advanced SCLAIRTECH™, SYNDIGO™, LEEP™, and ASTUTE™ are trademarks of NOVA Chemicals.
Responsible Care® is a registered trademark of the Chemistry Industry Association of Canada.

This news release contains forward-looking statements. By their nature, forward-looking statements require NOVA Chemicals to make assumptions and are subject to inherent risks and uncertainties. NOVA Chemicals’ forward-looking statements are expressly qualified in their entirety by this cautionary statement. In addition, the forward-looking statements are made only as of the date of this news release, and except as required by applicable law, NOVA Chemicals undertakes no obligation to update the forward-looking statements to reflect new information, subsequent events or otherwise.

Statements in this news release as to future aspirations, ambitions or goals, including any projections or plans to reduce emissions or emissions intensity, and projections or plans to increased recycled polyethylene or in respect of circularity, to increase the size, value or ranking of NOVA Chemicals, or in regards to any investments or investment amounts, are forward-looking statements.  In addition, any roadmaps related to the foregoing represent forward-looking statements as well.  Any actual future results could vary depending on NOVA Chemicals’ ability to execute on a timely and successful basis, on policy and consumer support, changes in laws and regulations, unforeseen difficulties, and the outcome of research efforts or technology developments.


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