This morning we are seeing some weakness in Asia as the Chinese continue to try and determine how free of a market they will allow in the future. The general consensus is a more accessible market is welcome, however at what cost. China was off overnight by about 1.75%, while Japan was fairly quiet with only a slight decline.
Europe is weaker on on good news out of the UK on employment improving at a faster pace that thought (yes good news is bad news?). Also, the ECB is trying to determine why Germany continues to have strong current account surplus (they export far more than they import) which does not bolster internal growth in the big Euro economy. The report is to be released in the early New Year. Markets in Europe are off about a point.
US and Canadian futures are lower this morning on continuing discussion and speculation on when the Fed will begin to taper bond purchases (QE?). So everyone is aware, the US cannot go on forever increasing the size of its balance sheet, therefore, at some point in the not so distant future the FOMC will announce a decreased level of purchases. Why this is a shock to anyone is beyond me, but markets continue to trade on a volatile basis around the rumour. As I have mentioned in many of my blogs, corrections are normal in bull markets and we will take advantage of lower pricing when and if that occurs. I have also been repositioning the fixed income portfolios in all mandates to take advantage of a higher interest environment. US and Canadian futures are trading lower by about a half a point.
Gold is up 5 bucks to 1275, oil is up 0.33 to 93.36 and the loonie is stronger by a couple of basis points to 95.39. Bond markets are rallying this morning with the US and Canada 10 year bonds yielding 2.74% and 2.63% respectively.
Lastly this morning, the Canadian Finance Minister provided and economic update yesterday in Edmonton and suggested that a surplus of about $3.7bn was possible by 2015. I have included the highlights from the speech below which were released by the Finance Department yesterday afternoon:
- The federal deficit has been reduced by almost two-thirds, from $55.6 billion in 2009–10 to $18.9 billion in 2012–13. Direct program spending has fallen for the third consecutive year, from $122.8 billion in 2009–10 to $117.7 billion in 2012–13.
- The projected budgetary balance has improved across the forecast horizon as a result of policy decisions and changes to the forecast since Budget 2013. The Government projects a deficit of $17.9 billion in 2013–14, down from the $18.9-billion deficit recorded in 2012–13. This projection takes into account the estimated federal liability of $2.8 billion for disaster assistance related to the recent flooding in Alberta and the $60 million in assistance announced for the town of Lac-Mégantic. The deficit is projected to decline to $5.5 billion in 2014–15. A surplus of $3.7 billion is projected for 2015–16, even after taking into account a $3.0-billion adjustment for risk.
- The Government remains on track to return to a balanced budget in 2015. Eliminating the deficit will ensure that the federal debt-to-GDP (gross domestic product) ratio will fall to low, pre-recession levels by 2017–18 and that Canada’s total government net debt-to-GDP ratio remains the lowest in the Group of Seven (G-7).
- The Government is also on track to achieve the target, announced this September at the G-20 Leaders’ Summit in St. Petersburg, Russia, of reducing the federal debt-to-GDP ratio to 25 per cent by 2021.
- The Canadian economy has experienced the best performance among G-7 countries over the recovery in terms of both output and job creation.
- However, the global economic environment remains highly uncertain and downside risks continue to weigh on the outlook. While economic growth in Canada has remained resilient, Canada is not immune to developments outside its borders. Global economic weakness has weighed on our exports, which has restrained Canada’s real GDP growth. More recently, the weak external environment has dampened the prices of our export commodities which, combined with low domestic inflation, has resulted in weaker nominal GDP growth than was expected in Budget 2013.
- To support jobs and growth, in September 2013 the Government announced that it will freeze the Employment Insurance premium rate at the 2013 level of $1.88 per $100 of insurable earnings for 2014, and additionally that the rate will be set no higher than $1.88 for 2015 and 2016.
- As announced in the Speech from the Throne, the Government is reintroducing a freeze on departmental operating spending, which will incent departments to use their existing resources more efficiently. The freeze will apply to the 2014–15 and 2015–16 fiscal years and will help ensure a return to balanced budgets in 2015.
- The Government is undertaking a systematic review of its corporate assets as a normal part of good governance, with a view to improving their efficiency and effectiveness and ensuring value for taxpayers. When it is in the best interest of Canadians, assets will be sold. As a first step, onSeptember 16, the Government divested its interests in 30 million common shares in General Motors. The Government is also updating its spending projections in light of lower-than-expected departmental spending in 2012–13, which reflects the Government’s commitment to the responsible use of public funds—funds are only spent when necessary.
Note: This document incorporates economic, financial and fiscal data available up to and including November 8, 2013, unless otherwise indicated.
|Kenneth A. Dick, BA, CIM, CFP, FCSI
Branch Manager & Portfolio Manager | Independent Wealth Management
Canaccord Genuity Wealth Management