The Playbook – August 28, 2017

August 25, 2017 • Playbook

 


 

Weekly Commentary – August 28, 2017

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

Date Release Period Consensus Previous
U.S.        
August 28 Wholesale Inventories Adv. July 17 0.2% 0.7%
August 30 ADP Employment Change August 17 180 k 178 k
August 31 Personal Spending July 17 0.3% 0.1%
Canada        
August 29 PPI Y/Y July 17 5.8% 3.3%
August 31 GDP Growth Rate Q/Q Q2 17 0.7% 0.9%

Key Earnings:
August 28: Biomerica Inc., Exa Corp., IF Bancorp Inc., Matrix Service Co., Prospect Capital Corp.
August 29: Best Buy Co. Inc., H&R Block Inc., NCI Building Systems Inc., ScanSource Inc.
August 30: Golar LNG Ltd., Keysight Technologies Inc., Semtech Corp., Vera Bradley Inc.
August 31: Campbell Soup Co., Hurco Companies Inc., Oxford Industries Inc., Tech Data Corp.
Source: Trading Economics, Yahoo Finance

Market Focus

Canadian consumers keep momentum
Updated figures from Statistics Canada revealed a 0.1% advance in retail sales in June. Even though the gain was modest, it was the fourth consecutive monthly increase and established a new high at $49 billion. Annual growth was steady at 7.3%. Sales were mixed with six of 11 subsectors (representing 38% of total retail trade), reporting a gain. Significant monthly declines for both gasoline (-1.8%) and auto (1.4%) sales largely offset healthy gains in other sectors. Sales figures were also mixed on a geographical basis. Five provinces reported gains with British Columbia leading with a 1.9% monthly advance and a 12.4% annual gain, whereas Manitoba (-3.4%) recorded the largest of the regional declines in June. Regardless, for the quarter, overall annualized growth came in at 6% and should go a long way in establishing a solid base for the second quarter GDP results, scheduled for release on August 31.

U.S. housing market falters in July
U.S. data for July showed some surprising weakness in housing activity. According to the U.S. Census Bureau, housing starts dropped heavily, falling 4.8% in July, while building permits tumbled 4.1% during the month. In a separate report, the bureau also reported that new-home sales skidded 9.4% lower in July, with the annual growth rate turning negative (-8.9%) for the first time since February 2016. This report also indicated there was a 5.8 months’ supply of new houses, the highest level of inventories since September 2015. In addition, fresh data from the National Association of Realtors revealed a 1.3% monthly decline in existing-home sales, to an annual rate of 5.44 million units (seasonally adjusted) in July. Analysts point to recent price increases as one of the factors affecting sales at this juncture.

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

August 22
The Centre for European Economic Research’s ZEW Indicator of Economic Sentiment for Germany fell sharply in August 2017, dropping 7.5 points to 10.0 from the 17.5 level recorded in July. This is the lowest reading since October of last year. Both weaker than expected, German exports as well as the widening scandal in the country's automobile sector raised doubts about the future path of growth. This report was weaker than market estimates.

Statistics Canada reported that retail sales edged higher in June, climbing 0.1% and marking a fourth consecutive monthly advance. Sales were up in six of 11 subsectors, representing 38% of total retail trade. Gasoline sales (-1.8%) reported the largest monthly decline, while general merchandise (+2.9%) recorded the largest gain. Year-over-year sales growth was stable at 7.3%, unchanged from May’s annual pace. These results are somewhat weaker than consensus estimates. Since consumer spending accounts for over 60% of Canadian economic activity, it is critical for overall GDP results.

August 23
The U.S. Census Bureau announced that new-home sales totalled 571,000 units (seasonally adjusted annual rate) in July 2017. This is 9.4% below the revised June rate of 630,000 units (originally reported as 610,000) and 8.9% below the July 2016 level of 627,000 units. These results are weaker than consensus estimates. Activity in the housing market has a significant "ripple" effect on the broader economy.

August 24
The U.S. Department of Labor announced that initial jobless claims totalled 234,000 (seasonally adjusted) in the week ending August 19, an increase of 2,000 from the previous week's unrevised level of 232,000. The four-week moving average was 237,750, a decrease of 2,750 from the previous week's unrevised average of 240,500. These results are in line with consensus estimates.

According to the U.S. National Association of Realtors, existing-home sales fell 1.3% to a seasonally adjusted annual rate of 5.44 million units in July, from a downwardly revised 5.51 million units in June (originally a 5.52 million-unit pace). On a year-over-year basis, sales are still up 2.1%. These results are weaker than consensus expectations. Activity in the housing market has a significant "ripple" effect on the broader economy.

August 25
The U.S. Census Bureau announced that durable goods orders dropped 6.8% in July, following a downwardly-revised 6.4% increase in June (originally reported as 6.5%). Excluding transportation, new orders increased 0.5% in July. Excluding defence, new orders decreased 7.8%. Even though the market was braced for a substantial decline, this report is weaker than consensus estimates. Orders for durable goods indicate how busy manufacturers will be in the months to come, as they work to fill those orders.

 

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. © 2017 CI Investments Inc.

 

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