The Playbook - May 28, 2018

May 25, 2018 • Playbook

 


 

Weekly Commentary – May 28, 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
U.S.        
May 30 GDP Growth Rate Q/Q 2nd Estimate Q1 18 2.2% 2.9%
May 30 Wholesale Inventories Advanced April 18 0.5% 0.3%
May 31 Chicago PMI May 18 58.6 57.6
June 1 ISM Manufacturing PMI May 18 58.3 57.3
Canada        
May 30 PPI Y/Y April 18 2.1% 2.3%
May 31 GDP Growth Rate Q/Q Q1 18 0.2% 0.4%

Key Earnings:
May 28: Leading Brands Inc., Leju Holdings Ltd., Ship Finance International Ltd.
May 29: American Woodmark Corp., HP Inc., Salesforce.com Inc., TapImmune Inc.
May 30: Box Inc., NGL Energy Partners LP, RBC Bearings Inc., Semtech Corp.
May 31: Costco Wholesale Corp., Lululemon Athletica Inc., Titan Machinery Inc.
June 1: Abercrombie & Fitch Co., Black Box Corp., Ditech Holding Corp.
Source: Trading Economics, Yahoo Finance

Market Focus

Support for the loonie softens
The Canadian dollar continued to trend weaker as the currency fell to US$0.770 on May 25. This represents a considerable drop from the US$0.814 recorded as recently as February 2. Ironically, this move has taken place against a backdrop of rising world energy prices. Oil (West Texas Intermediate – spot) broke above US$60 per barrel on February 14, and subsequently moved above US$70 on May 7. This was the first post of a US$70 price since November 26, 2014. Historically, world energy prices and the value of the Canadian dollar have been closely tied. However, the current political environment, with respect to oil pipelines, has clearly raised questions with market participants over the strength of this linkage. In addition, lingering concerns over the fate of the North American Free Trade Agreement continue to add to the risks associated with the loonie.

Gold hits a new low for 2018
Gold moved below technical support to US$1,288 on May 23 as the precious metal continued to come under heavy selling pressure on world markets. The pricing level was the lowest since December 27, 2017 and followed the weakening seen earlier this month. On May 15, gold dramatically broke below US$1,300, losing 1.9% in a single session to cap its worst trading day since losing 3.0% on December 15, 2016. Traders attribute much of the recent sell off to the improved yields on U.S. Treasury bonds. As gold does not provide any ongoing yield or dividend, increases in interest rates on government debt issues tend to attract investors looking to pick up some of this yield. More weakness for gold may be on the horizon as the Federal Reserve is widely expected to continue raising interest rates, and yields on benchmark 10-year Treasury bonds remain near seven-year highs.

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

May 23
The U.S. Census Bureau announced that new-home sales totalled 662,000 units (seasonally adjusted annual rate) in April 2018. This is 1.5% below the revised March rate of 672,000 units, but is 11.6% above the April 2017 level of 593,000 units. These results are weaker than consensus estimates. Activity in the housing market has a significant "ripple" effect on the broader economy.

May 24
The U.S. Department of Labor announced that initial jobless claims totalled 234,000 (seasonally adjusted) in the week ending May 19, an increase of 11,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 222,000 to 223,000. The four-week moving average was 219,750, an increase of 6,250 from the previous week's revised average. The previous week's average was revised up by 250 from 213,250 to 213,500. These results are weaker than consensus estimates.

May 25
The U.S. Census Bureau announced that durable goods orders dropped 1.7% in April, following an upwardly-revised 2.7% increase in March (originally reported as 2.6%). Excluding transportation, new orders increased 0.9% in April. Excluding defence, new orders decreased 1.9%. With the upward revisions to the previous data, these figures are broadly in line with market expectations. 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. © 2018 CI Investments Inc.

 

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