The Playbook - December 3, 2018

December 03, 2018 • Playbook


The Playbook

Weekly Commentary – December 3, 2018

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

Please click here to listen to Richard Wylie's audio version.

Economic Calendar

Printer friendly version
Date Release Period Consensus Previous
December 3 ISM Manufacturing PMI November 18 56.0 57.7
December 4 IBD/TIPP Economic Optimism December 18 52.3 56.4
December 5 Markit Composite PMI Final November 18 54.4 54.9
December 6 Balance of Trade October 18 -$55.4B -$54.0B
December 3 RBC Manufacturing PMI  November 18 53.98 53.90
December 6 Balance of Trade October 18 -$0.30B -$0.42B
December 7 Employment Change November 18 18.1 k 11.2 k

Key Earnings:
December 3: Coupa Software Inc., Oxford Industries Inc., USA Technologies Inc.
December 4: Barnes & Noble Education Inc., KLX Inc., NCI Building Systems Inc.
December 5: BioPharmX Corp., H&R Block Inc., Lululemon Athletica Inc., Momo Inc.
December 6: Broadcom Inc., Duluth Holdings Inc., Kroger Co., Thor Industries Inc.
December 7: Vail Resorts Inc.
Source: Trading Economics, Yahoo Finance

Market Focus

Weak Canadian growth highlights productivity shortfall
In its latest report, Statistics Canada released updated figures for Canadian GDP and benchmark revisions to data going back to 1981. The most recent figures revealed a 0.1% decline in GDP by industry for September 2018, the first monthly decline since January (-0.2%). The goods sector was hit hard, reporting a 0.7% decline, led by mining, quarrying, and oil and gas extraction (-1.2%). Services grew 0.2% during the month. On a quarterly basis, overall GDP expanded by 2.0% (annualized) in the third quarter, down from the 2.9% recorded in the second quarter and well below the 3.5% pace seen in the U.S. While the revisions left economic growth largely unchanged for 2017, growth figures for 2016 and 2015 were revised downward by 0.3% each. These results raise serious questions with respect to Canadian productivity, as economic growth through the past three years has averaged only 1.6%, yet the Bank of Canada has been consistent with its message that Canada is near growth capacity.

U.S. corporate profits surge in third quarter
The U.S. Bureau of Economic Analysis (BEA) reported that real GDP grew at an annual rate of 3.5% in the third quarter of 2018. This “second estimate” left overall growth for the quarter unrevised from the original estimate. However, while broader economic growth slowed from the 4.2% pace seen in the second quarter, corporate profitability was higher. Profits from current production increased US$76.0 billion in the third quarter, compared with an increase of US$65.0 billion in the second quarter. On a year-over-year basis, corporate profits are up 10.3%, the strongest figure since the second quarter of 2012. Still, analysts suggest that the primary impact of tax cuts has already been reflected in the data, and the U.S. Federal Reserve’s ongoing tightening of monetary policy has only now started to dampen economic activity. A slowdown similar to the one seen from Q2 to Q3 is anticipated for Q3 to Q4.

German unemployment hits record low
Updated figures from Germany’s statistics gathering agency revealed that the number of unemployed workers in Germany declined by 16,000 in November. At the same time, the unemployment rate in Europe’s largest economy slipped by 0.1 percentage points to 5.0%. This is the lowest unemployment rate since Germany’s re-unification in 1990. The data suggest that consumer spending should buoy broader economic activity in the final quarter of the year, following the 0.2% (quarter-over-quarter) contraction in GDP during the third quarter. The report suggests that the summer slowdown in economic activity has moderated and wage pressure concerns may re-emerge. The European Central Bank, which meets to set monetary policy next on December 13, has indicated that capacity constraints within the region are beginning to push prices higher.

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

November 28
The U.S. Bureau of Economic Analysis (BEA) announced that real GDP grew at an annual rate of 3.5% in the third quarter of 2018. This figure is the “second estimate” and, on a net basis, is unrevised from the original growth estimate previously published. In the second quarter of 2018, real GDP increased 4.2% on the same basis. According to the BEA, the general picture of economic growth remains the same; upward revisions to non-residential fixed investment and private inventory investment were offset by downward revisions to personal consumption expenditures, and state and local government spending. These results matched market expectations. GDP is the broadest measure of aggregate economic activity and encompasses every sector of the economy.

November 29
Destatis, Germany’s statistics gathering agency announced that the number of unemployed workers declined by 16,000 in November, and the unemployment rate slipped by 0.1 percentage points to 5.0%. This is the lowest unemployment rate since Germany’s re-unification in 1990. The data suggest that the summer slowdown in economic activity has moderated and wage pressure concerns may re-emerge. These results are weaker than market consensus. The employment data reflect the strength of the broader economy and individual sectors. As well, they are indicative of consumer spending trends.

The U.S. Department of Labor announced that initial jobless claims totalled 234,000 (seasonally adjusted) in the week ending November 24, an increase of 10,000 from the previous week's unrevised level. The four-week moving average was 223,250, an increase of 4,750 from the previous week's unrevised average of 218,500. These results are in line with consensus estimates.

According to the U.S. Bureau of Economic Analysis, personal income increased 0.5% in October. Personal consumption expenditures (PCE) increased 0.6%. Based on revised figures, personal income and PCE each increased by 0.2% in September. Both income and expenditure figures for October were above market expectations. Income and spending patterns of consumers are critical factors in the health of the broader economy.

Statistics Canada reported that Canada's overall current account deficit narrowed by $6.3 billion (on a seasonally adjusted basis) in the third quarter to $10.3 billion, the lowest level since the end of 2016. This reduction reflected lower deficits on goods, services and investment income. The decline in the deficit was larger than anticipated. Current account deficits must be funded by borrowing from foreign lenders.

November 30
Statistics Canada announced that real GDP expanded 2.0% (on an annualized basis) in the third quarter of 2018, after advancing 2.9% in the second quarter. Strength in mining and petroleum refineries boosted growth in the third quarter. However, growth in household spending slowed, and household and business investment were both in negative territory. On a monthly basis, real GDP by industry contracted 0.1% in September, the first decline since January (-0.2%), indicating that the economy may have carried some negative momentum into the third quarter. These results are weaker than market expectations. GDP is the broadest measure of aggregate economic activity and encompasses every sector of the economy.

Statistics Canada reported that its Industrial Product Price Index (IPPI) rose 0.2%, while its Raw Materials Price Index (RMPI) fell 2.4% in October. On a year-over-year basis, the indexes are up 5.3% and 7.7%, respectively. These figures are stronger than market expectations. The IPPI and RMPI data are closely watched as they indicate relative inflationary pressures at the industry and raw materials levels.


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.


Privacy Policy | Legal

© 2018 CI Investments Inc.

« back to Newsletter page