July 9th, 2013 Business & Market Update

Asia rallied once again with markets up about 2% on the positive US markets yesterday.

Euro markets are also stronger by about a point at midday on the strength of the US markets yesterday.

North American futures are moving higher this morning on continued dissemination of the real effects of the FOMC tapering threat and the fact it is not going to occur immediately and will be a process vs. an event.  Futures in both the US and Canada are up about a half a point this morning.

Alcoa, the first Dow 30 company to release earnings each quarter came in slightly ahead of estimates after the close yesterday which also helped in moving futures higher this morning.

Gold has rebounded another 12 dollars this morning to 1247, oil is lower by a half a dollar to 102.48 regardless of continued fighting in Egypt and the loonie is up a half a cent to 95.09 on a weaker US dollar.

In other news this morning Blackberry is holding their annual meeting in Waterloo and will need to reassure shareholders that they are on the right track despite a poor earnings report a week ago.

Our intrepid US Strategist, Tony Dwyer has come out with a good piece this morning on the current confusion that seems to be rocking the markets and puts some clarity to it.  I have attached the highlights of the report below and the entire PDF above.  He is suggesting that the real indicators should provide a continued run in the markets.  He still has a 2014 target on the S&P at 1955 which would represent an approximate upside of 20% from here:

What would turn us more cautious? This is the question we get most often, and the answer is that we would get more defensive if:

  • Core inflation expectations rose enough to cause the Fed to aggressively tighten- the opposite is happening. (page 5)
  • The tightening monetary policy began to discount a pending recession via a sharp flattening of the yield curve- the opposite is happening (page 9)
  • The flatter yield curve caused bank lending standards to tighten- the opposite is happening (page 26)
  • High yield debt to treasury yield spread begins to trend significantly higher- the opposite is happening (page 13)
  • Economic data began trending lower- the opposite is happening (pages 15 & 20)
  • The current uptrend in valuation reversed- the opposite is happening (pages 35-38)

Summary. The increased likelihood of Fed tapering has pushed market-driven interest rates up and generated fear of negative economic effect. We believe the opposite may happen because the yield curve steepened, credit spreads have remained historically tight, and the sharpness of the rise in 10-year yields has been dramatic enough to suggest a decline in long rates over coming weeks. Our fundamental thesis remains firmly in place, and until we get consistently stronger economic numbers OR core inflation expectations begin to rise, we expect the Fed to stay on course and not taper bond purchases through 2013. Bottom line: we continue to urge investors to not fight the Fed or the tape, and with the uptrend in place, the economy in the fundamental sweet spot, and the SPX trading at less than 15x our conservative 2014 estimate of $115, our conviction level for SPX 1955 remains high.

Lastly, with the tragic events in Quebec still unfolding, the debate continues on how to transport crude.  I am of the view we are early on this as there are still people missing, but of course both sides need to make sure the line in the sand is drawn.  The pipeline people suggest that there method is safer, the rail people suggest their method is safer and greener and the green people want neither!  I am quite sure that neither is not an option unless we go back to the horse and buggy era until all of these COST EFFECTIVE alternatives have been made available to all.  The bottom line is we need crude to live at the present time and for the foreseeable future and I would suggest that both methods are going to be required to handle the transport of the commodity efficiently.

Kenneth A. Dick, BA, CIM, CFP, FCSI

Branch Manager & Portfolio Manager | Independent Wealth Management

Canaccord Genuity Wealth Management


July 3rd, 2013 Business and Market Update

In Asia the Chinese PMI numbers were released and were a nice surprise to the upside in regard to the services sector.  However the construction industry is continuing to stagnate. Markets there were off about a point overnight.

In Europe, while we continue to see improvement across the board for a reasonable recovery in the the second half of the year, markets have sold off at midday by about 1.5% on news that Portugal is once again in trouble as 10 year bonds there broke through the 8% level yesterday.  There have been some issues within the government in regard to difference of opinion on the austerity programs running in the country.  Threatened resignations from a couple of ministers in the finance department have the markets concerned.

In the US lots of employment information this morning and most of it good.  The ADP Private Payrolls for June were released and came in well above the estimate of 160000 at 188000.  We also got Initial Weekly Jobless Claims that were just below estimates of 345000 at 343000.  Both numbers suggest that the employment picture continues to improve, albeit at a slow pace.  Markets are trending lower however on the world news and the unrest in Egypt.  Futures are off about a quarter point, which is about half as much as when I came into the office at 7am indicating the jobs numbers have had some effect on moderating markets.  The monthly employment numbers for June will be released on Friday, due to the US Independence Day holiday tomorrow.

Canadian futures are lower by about a quarter point regardless of the resource uptick.

Gold is higher by about 5 bucks to 1250, oil continues its run higher on the continued unrest in Egypt by about 1.75 to 101.25.  This latest run on oil is due to the situation in Egypt which does suggest that no matter what anyone suggests self sustaining fossil fuel production makes a great deal of sense for North America as the unrest in the Middle East never seems to end.  The loonie is virtually flat at 94.75.

With the US holiday tomorrow, markets to the south close at 1pm today and reopen on Friday. Also, volumes in Toronto will be light through to the end of the week.

Kenneth A. Dick, BA, CIM, CFP, FCSI

Branch Manager & Portfolio Manager | Independent Wealth Management

Canaccord Genuity Wealth Management