November 13th, 2013 Business & Market Update

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:

Highlights

  • 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

www.glwm.ca

October 31st 2013 Business & Market Updates

Yup its Halloween, which of course also means its month end and it looks like the pundits got both September and October wrong as markets world wide for the most part rallied.

Looking at the overnight numbers, Asia was off about a point following the close in the US yesterday.

Europe on the other hand is rallying up about half a point at midday as investors continue to look for value in the region.

US futures are off slightly this morning despite the fact the Initial Weekly Jobless Claims were virtually at estimates coming in at 340000 vs. 338000.  Also, as mentioned yesterday the FOMC did release the minutes of their two day meeting (attached) and stated that there would be no change to asset purchases or interest rates until both inflation and employment further improved.  The comments indicated that economic improvement is continuing but still at a sluggish pace.  Muddle through comes to mind again.  This is the new normal for the foreseeable future in my view.  As always, I have highlighted in RED the points in the release that I think were interesting.  Bottom line accommodative monetary policy continues.

I have also added the most recent view from Canaccord US Strategist, Tony Dwyer who is suggesting that while the markets are somewhat overbought with the run up in the last couple of months and a correction would not be a surprise, the trend continues to be higher and he continues to affirm his 1955 target on the S&P with a modest 15 multiple.  He is suggesting a modest 4 to 7% correction only and that those that are investors to stay where they are as the rally on the other side of the correction, if indeed it does occur, will be strong.

Canada released GDP numbers for August this morning beating estimates year over year at 2.0% vs. 1.7%.  Canadian futures are off about a half a point however on weak gold prices this morning.

Gold is down 23 bucks to 1325, oil is off 0.33 to 96.44 mostly on supply increases and the loonie has rebounded a third of a cent this morning to 95.77.  The bond market is flat with US and Canadian 10 year yields at 2.50% and 2.39% respectively.

Mandate earnings released after the close last night and this morning for the most part were meets or beats.  AltaGas beat on earnings and beat revenues by a large margin, American Railcar missed by a penny but also saw huge revenue increases, Visa met estimates with revenues were slightly below mostly due to declining demand by consumers in Q3, Williams beat by a large amount on both earnings and revenues and lastly, Valeant Pharma beat on both earnings and revenues.  In all a pretty solid group.

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

Branch Manager & Portfolio Manager | Independent Wealth Management

Canaccord Genuity Wealth Management

www.glwm.ca

 

 

July 29th, 2013 Business & Market Update

A very busy week this week as the earnings reports continue to come at a fast pace, the FOMC meets again Tuesday and Wed with a statement set for release on Wed afternoon and Friday we get the July Employment numbers our of the US.

Overnight in Asia, the Yen was once again stronger and more concern over a slowing Chinese economy caused Japan to drop 3.5% and China 1.75%.

Europe however is higher at midday as Italy has started to recover at a faster pace and should see positive GDP in fiscal 2014.  Markets are trading higher by about a third of a point.

US futures are down about a fifth of a point on no real news as markets wait for the Fed and the employment number later in the week.  Canadian futures are flat this morning.

Gold is trading higher on the weaker dollar this morning up 10.00 to 1337.00, oil is higher by 38 cents to 105.09 and the loonie is flat at 97.33.

On the earnings front, mandate companies, Arc Resources, Air Castle and Eastman Chemical are all announcing results after the market closes this evening.  I will provide the results in tomorrows blog.

A couple of big Canadian companies are in the news today.  The US President stated this weekend that the job creation numbers that have been estimated for the creation and servicing of the Keystone Pipeline project will be about a tenth of what was originally estimated.  Where he got the numbers from has not been divulged, however I am sure there will be much more on this in the days to come.  TransCanada for their part has suggested that a $7.6bn project that spans the continental US would create and sustain more than 20000 jobs which they feel is a conservative estimate.

Lastly, the Hudson’s Bay Company today announced a deal to buy Saks the big US high end retailer for about $2.6bn.  The deal, while accretive is an expensive one for HBC and the financing is being done in a number of different ways through private investment, debt and equity.  The company also announced it will be reducing its dividend by about half to help pay for the deal.

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

Branch Manager & Portfolio Manager | Independent Wealth Management

Canaccord Genuity Wealth Management

www.glwm.ca

July 17th, 2013 Business & Market Update

Today is the day of central bankers as Mark Carney – BOE Governor, Stephen Poloz – BOC Governor and Ben Bernanke – FOMC Head all are providing guidance on monetary policy for each of their respective countries.  Carney has already made his comments and basically is leaving the current asset buying program and interest rates as is.  Poloz and Bernanke are due to speak later this morning and I would suggest that Poloz will do nothing and Bernanke will continue to put the clarify the tapering program parameters (employment levels, inflation levels etc.).  His testimony to congress starts at 10am EDT however the minutes of the speech have been released.  Highlights of the speech, the US economy is still vulnerable to outside shocks (Europe, China etc.), employment is far from satisfactory and bond purchases are not on a pre-set course.  Markets did not move substantially on the remarks but did move slightly higher.

Staying with the US, Housing Starts and Permits both missed by large margins in June which most of which is attributed to the increase in mortgage rates, the weather and supply issues in the South.

In earnings news, mandate companies Mattel and US Bank reported this morning. Mattel missed in both earnings and revenue while US Bank beat on earnings and missed on revenue.

In Asia overnight markets were mixed with China down about a point and Japan flat.

Canadian markets are poised to open higher by about a half a point anticipating no change to the BOC policy position.

Gold is up a couple of points to 1294, oil is higher by 9 cents to 105.77 and the loonie is flat at 96.30.

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

Branch Manager & Portfolio Manager | Independent Wealth Management

Canaccord Genuity Wealth Management

http://www.canaccord.com/

July 12th, 2013 Business & Market Update

It would seem that the Chinese are starting to come to terms with the fact that growth at 8 to 10% a year is just not sustainable over time and a senior official in the finance department has suggested that 6 to 7% is more realistic for the balance of the fiscal year.  That comment caused the markets over there to fall by about a point and a half overnight.  Japan was relatively flat.

In Europe, we are seeing modest gains at midday with markets higher by about a quarter point.  Factory output in May fell for the first time in four months showing that the economy is still fragile in the region.  On the positive side, S&P has upgraded its outlook on Irelands credit rating suggesting the debt may fall faster than anticipated. While other countries in the union seem to be fighting continuously politically as to how to get things done, Ireland’s political parties have put the politics aside and got things done. Pretty rare in the world today but a great example to other countries in financial crisis.

The US markets are set to open slightly higher as JP Morgan and Wells Fargo both beat consensus estimates.  JP Morgan’s loan loss provisions were lower by 78% and both the top and bottom lines were stronger regardless of  higher mortgage interest rates for the quarter.

Markets have had a nice rebound this week based on the clarification by the FOMC on the tapering program in regard to asset purchases.  The gains have been across the board as cash and fixed income assets continue to flow into the capital markets.

In Canada we are going to see about a quarter point advance on the open following the US lead.

Commodities are mixed with gold off 7 to 1273, oil up 0.60 to 104.99 and the loonie down a fifth of a cent to 96.29.

Bond yields have retreated this week after the Fed minutes release with the ten year treasury yield falling back to 2.55% from 2.66% last week.  In Canada we got a similar move with 10 year GOC bonds yielding 2.42% down from 2.51% last week.

For now we seem to be in a holding pattern going deeper into earnings season which will tell the story in regard to continued recovery.

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

Branch Manager & Portfolio Manager | Independent Wealth Management

Canaccord Genuity Wealth Management

www.glwm.ca

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

www.glwm.ca