The Playbook - July 30, 2018

July 27, 2018 • Playbook



Weekly Commentary – July 30, 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

Date Release Period Consensus Previous
August 1 ISM Manufacturing PMI July 18 57.5 60.2
August 2 Factory Orders June 18 0.6% 0.4%
August 3 Imports June 18 $255.80B $258.38B
August 3 Markit Composite PMI Final July 18 55.9 56.2
August 1 RBC Manufacturing PMI  July 2018 57.2 57.1
August 3 Balance of Trade June 2018 -$2.90B -$2.77B

Key Earnings:
July 30: Caterpillar Inc., Denny’s Corp., Loews Corp., Quaker Chemical Corp.
July 31: Apple Inc., Clear Channel Outdoor Holdings Group, Procter & Gamble Co.
August 1: Allstate Corp., Domtar Corp., Pitney Bowes Inc., Sprint Corp.
August 2: Aetna Inc., Kellogg Co., Marriott Vacations Worldwide Corp., WestRock Co.
August 3: Kraft Heinz Co., MoneyGram International Inc., Titan International Inc.
Source: Trading Economics, Yahoo Finance

Market Focus

Canadian dollar finds support
The Canadian dollar touched US$0.767 on July 26 as market participants focused on recent statements suggesting that Mexico and Canada will present a united front as North American Free Trade Agreement (NAFTA) re-negotiations continue with the U.S. In addition, fundamental support based on the July 11 rate hike from the Bank of Canada and the recent strength of domestic economic data have helped pull the loonie back up from the one-year low (US$0.751) recorded on June 21. Nevertheless, the currency was in a much stronger position at the previous two rate hikes on January 17, 2018 (US$0.805) and September 6, 2017 (US$0.815). Currency traders will be closely watching the heavy schedule of data releases, which include trade, employment and GDP figures, due for release between July 31 and August 10.

U.S. economy roars ahead
Updated figures from the U.S. Bureau of Economic Analysis revealed GDP growth at an annualized 4.1% during the second quarter of 2018, virtually doubling the upwardly-revised 2.2% pace in the first quarter (previously reported as 2.0%). The quarterly advance was the strongest since the third quarter of 2014 and was led by strong consumer (4.0%) and business investment (7.3%). At the same time, trade results were also supportive for overall growth as exporters moved to get goods, particularly agricultural products, to foreign markets quickly. Many expect that retaliatory tariffs will curb growth in this sector in the near term. While analysts remain cautiously optimistic, the fallout from ongoing trade disputes and additional tightening by the U.S. Federal Reserve could limit economic growth in the second half of the year.

South Korea’s GDP remains steady
Fresh data from the Bank of Korea revealed that GDP expanded 0.7% (quarter-over-quarter) in the second quarter of 2018. Even though this is somewhat weaker than the 1.0% pace (on the same basis) seen in the first quarter, the year-over-year growth rate edged higher to 2.9% from 2.8%. Annual growth was fuelled by a 4.5% surge in exports, well ahead of the 1.5% annual gain seen in the previous quarter and the 2.4% advance recorded in the second quarter of 2017. However, this is likely to be an issue going forward. International trade disputes are expected to dampen export demand and with both personal and government spending recording declines in this report, the strength of GDP growth may be undermined.

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 23
Statistics Canada reported that wholesale sales rose 1.2% to a record $63.7 billion in May. At the same time, inventories also climbed to a new record of $84.0 billion, rising 1.4% during the month. On a year-over-year basis, overall wholesale sales are up 4.7%, while inventories are up 6.3%. The monthly sales advance was stronger than market expectations. Activity at the wholesale level can be an indicator of future consumer trends.

According to the U.S. National Association of Realtors, existing-home sales edged 0.6% lower to a seasonally adjusted annual rate of 5.38 million units in June from a downwardly revised 5.41 million in May (originally a 5.43 million-unit pace). Sales are 2.2% below June 2017 levels. These results are weaker than consensus expectations. Activity in the housing market has a significant "ripple" effect on the broader economy.

July 26
The U.S. Department of Labor announced that initial jobless claims totalled 217,000 (seasonally adjusted) in the week ending July 21, an increase of 9,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 207,000 to 208,000. The four-week moving average was 218,000, a decrease of 2,750 from the previous week's revised average. The previous week's average was revised up by 250 from 220,500 to 220,750. These results are in line with consensus estimates.

The U.S. Census Bureau announced that durable goods orders rose 1.0% in June, following two consecutive monthly declines. Excluding transportation, new orders increased 0.4% in August. Excluding defence, new orders increased 1.5%. With only minor revisions to the previous data, these figures are weaker than market expectations. Orders for durable goods indicate how busy manufacturers will be in the months to come, as they work to fill those orders.

The Bank of Korea announced that South Korea’s real GDP grew 0.7% (quarter-over-quarter) in the second quarter of 2018. This is the “advance estimate” prepared with preliminary data and is often subject to substantial revision. In the first quarter, real GDP increased 1.0% on the same basis. On a year-over-year basis, growth accelerated to 2.9% from 2.8%. These results are marginally weaker than expected. GDP is the broadest measure of aggregate economic activity and encompasses every sector of the economy.

July 27
The U.S. Bureau of Economic Analysis announced that real GDP grew at an annual rate of 4.1% in the second quarter of 2018. This is the “advance estimate” prepared with preliminary data and is often subject to substantial revision. In the first quarter, real GDP increased a revised 2.2% on the same basis. These results are in line with market expectations for a significant acceleration from the first-quarter pace. GDP is the broadest measure of aggregate economic activity and encompasses every sector of the economy.


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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