The Playbook - July 9, 2018

July 19, 2018 • Playbook



Weekly Commentary – July 9, 2018

Alfred Lam, MBA, CFA
Senior Vice-President
and Chief Investment Officer
Richard J. Wylie, MA, CFA
Vice-President, Investment Strategy

Richard Wylie’s podcast will return the week of July 16, 2018.

Economic Calendar

Date Release Period Consensus Previous
July 10 NFIB Business Optimism Index June 18 105.0 107.8
July 11 PPI Y/Y June 18 2.9% 3.1%
July 11 Wholesale Inventories May 18 0.5% 0.1%
July 10 Housing Starts June 18 205.5 k 195.6 k

Key Earnings:
July 9: Healthcare Services Group Inc., Helen of Troy Ltd.
July 10: PepsiCo. Inc., MSC Industrial Direct Co. Inc., WD-40 Co.
July 11: Delta Air Lines Inc., Fastenal Co., Saratoga Investment Corp.
July 12: Commerce Bancshares Inc., First Horizon National Corp.
July 13: Citigroup Inc., JPMorgan Chase & Co., Lombard Medical Inc.
Source: Trading Economics, Yahoo Finance

Market Focus

Canadian labour force sees expansion
Statistics Canada reported that the unemployment rate jumped to an eight-month high of 6% in June. The increase came as the labour force saw its largest growth in six years in the same month, expanding by 75,600. Until last month, the labour force had been relatively stable through 2018, and economists expected the unemployment rate to remain around 5.8%. The growth in the labour force is likely to be welcomed news for the Bank of Canada as it could ease wage pressures if it continues, which has been one of its justifications for being cautious on rate hikes. Over the same period, employment rose by 31,800, beating market expectations. It was the second highest expansion this year in what has been a sluggish year for job creation. The gain was driven mostly by self-employment (22,000), part-time work (22,700) and the public sector (11,800).

Australian cash rate remains on hold
The Reserve Bank of Australia (RBA) left its benchmark interest rate unchanged at 1.5% following its latest policy meeting. The rate has now been at the same level since August 2016. The decision coincides with a decline in the Australian dollar, which dropped to its lowest level in more than a year in response to trade war concerns between Australia’s trading partners, including China. Australia relies heavily on commodity markets and is the most China-dependent developed nation. While a lower Australian dollar could provide support to the nation’s trade-reliant economy, it would likely need to fall significantly further to change the central bank’s calculations. The RBA reported it is prepared to remain patient and is unlikely to lift rates over the next twelve months. The no-change result was in line with expectations.

Longer View

Following several years of a general expansion in the price-earnings ratio of equities, we believe returns from this asset class will moderate somewhat and become more closely tied to the rate of growth in company earnings. With equity market volatility increasing to at least the normal range, it's important to keep in mind that equities are best suited for long-term investing, and that the allocation in your portfolio should reflect your investment horizon and risk tolerance. Fixed-income investments, while generally providing limited income in today's low interest rate world, are an effective diversifier in a portfolio. When there is extreme pessimism in the equity market, fixed-income tends to outperform. There is no one asset class that looks better than others, in our view, as their current valuations accurately reflect their potential and risk. Talk to your professional advisor to ensure your portfolio is optimized and continues to meet your needs.

Weekly Summary

July 5
The Toronto Real Estate Board reported that home sales rose 18% (seasonally adjusted) in June, the biggest monthly gain since 2004, and was up 2.4% from the same period a year earlier. The increase signals that Canada’s biggest housing market is rebounding from the declines seen over the past few months, which were a result of tightened lending regulations and higher borrowing costs.


Although the above information has been compiled from sources believed to be reliable, as at the date indicated, we cannot guarantee its accuracy or completeness. The information is provided solely for informational and educational purposes and is not to be construed as advice in respect of securities or as to the investing in or buying or selling of securities, whether express or implied. All data provided is subject to change without notice. The authors of this publication are employed by CI Investments Inc. or its affiliates. ®The Assante symbol and Assante Wealth Management are registered trademarks of CI Investments Inc. Assante Wealth Management and/or Assante Wealth Management and design are trademarks of CI Investments Inc. Neither CI Investments Inc. nor any of its affiliates or their respective officers, directors, employees or advisors is responsible in any way for damages or losses of any kind whatsoever in respect of the use of this information. © 2018 CI Investments Inc.


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