The Playbook - April 29, 2019

April 26, 2019 • Playbook


The Playbook

Weekly Commentary – April 29, 2019

Alfred Lam, MBA, CFA
Senior Vice-President
and Chief Investment Officer
CI Multi-Asset Management
Richard J. Wylie, MA, CFA
Vice-President, Investment Strategy
Assante Wealth Management

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

A PDF version of The Playbook is also available for download.

Economic Calendar

Date Release Period Consensus Previous
April 30 Pending Home Sales Y/Y March 19 -2.1% -4.9%
May 1 ISM Manufacturing PMI April 19 54.7 55.3
May 2 Factory Orders March 19 0.6% -0.5%
May 3 ISM Non-Manufacturing PMI April 19 56.6 56.1
April 30 PPI Y/Y March 19 2.0% 1.2%
May 1 RBC Manufacturing PMI April 19 51.0 50.5

Key Earnings:
April 29: Alphabet Inc., Great Ajax Corp., Mercury General Corp., U.S. Concrete Inc.
April 30: Apple Inc., bluebird bio Inc., Carter’s Inc., CNX Resources Corp.
May 1: Athene Holding Ltd., Caesarstone Ltd., CVS Health Corp., Domtar Corp.
May 2: Iconix Brand Group Inc., IRIDEX Corp., Kellogg Co., Materion Corp.
May 3: City Office REIT Inc., Digirad Corp., Geospace Technologies Corp., ITT Inc.
Source: Trading Economics, Yahoo Finance

Market Focus

Bank of Canada cuts forecast again
The Bank of Canada met consensus expectations by leaving interest rates untouched at its latest policy meeting. However, the simultaneous publication of its latest, quarterly, Monetary Policy Report (MPR) revealed another downgrade to expectations for the Canadian economy. The forecast for 2019 GDP growth has now been set at 1.2%, down from 1.7% in the January MPR. This in turn had already been lowered from 2.1% in the October 2018 MPR. Given the bank’s estimate of potential output growth (1.5% to 2.1%), this forecast points directly to a widening of the nation’s output gap. Despite this clear weakness in economic growth, the new consumer price index (CPI) forecast is set at 1.9% for 2019, higher than the 1.7% predicted in January. The text of the press release specifically mentions the price of gasoline and the new carbon tax. Either way, there appears to be nothing in the report that would suggest any tightening of monetary policy over the balance of 2019.

U.S. economy gathers momentum
The U.S. Bureau of Economic Analysis surprised market watchers by announcing that GDP growth accelerated to 3.2% (annualized, quarter-over-quarter) in the first quarter of 2019. Many analysts had been looking for a shift down from the 2.2% pace recorded in the final quarter of 2018. Critical to the U.S. economy, consumers remained positive with personal consumption rising 1.2%. However, on a more cautionary note, a portion of the overall advance came from a $128.4 billion increase in private inventories during the first three months of the year. As well, the trade data revealed a significant improvement with exports up and imports down. These data are the most likely to be revised over the course of the next two months. In either case, the resilience of the U.S. economy continues to drive an extended growth cycle, with negligible signs of inflationary imbalance.

Australian inflation slips further
The Australian Bureau of Statistics reported that consumer prices were flat (0.0% quarter-over-quarter) in the first quarter of 2019, following a 0.5% advance in the previous quarter. On a year-over-year basis, the inflation rate also fell to 1.3% in the March quarter, following a 1.8% reading in Q4 2018. It was the lowest quarterly figure in three years and came amid a softening in petrol and housing prices. In the minutes of its April meeting, the Reserve Bank of Australia (RBA) said that an interest rate cut would “likely be appropriate” if inflation did not move higher and if unemployment rose. As inflation is now further below its (2%-3%) target band, the RBA will be under additional pressure to ease monetary policy at its next meeting on May 7. However, with a federal election set for May 18, the RBA may step to the sidelines to avoid the perception of political interference.

Longer View

It will likely take some time for central banks to normalize interest rates and unwind the quantitative easing that has added trillions of dollars to central banks’ balance sheets. Growth rates for loans will slow significantly because of the unwind likely causing economies to grow at below-average rates. Valuations for stocks are fair and expected returns are positive although overall markets are unlikely to deliver double-digit returns over the next decade. Companies that have solid balance sheets will likely outperform. Recent volatility and general noise in the market can represent a material distraction and may discourage investors. Working with a financial advisor will ensure your portfolio is optimized and continues to meet your needs.

Weekly Summary

April 22
According to the U.S. National Association of Realtors, existing-home sales fell 4.9% to a seasonally adjusted, annual rate of 5.21 million units in March from a downwardly revised 5.48 million in February (originally a 5.51-million-unit pace). Sales are now 5.4% below the 5.51-million-unit pace in March 2018. These results were considerably weaker than consensus expectations. The median existing-home price increased to US$259,400 (+3.8%) in March from the same month a year earlier, marking the 85th consecutive month of year-over-year gains. Activity in the housing market has a significant "ripple" effect on the broader economy.

April 23
Statistics Canada reported that wholesale sales rose 0.3% in February, a third consecutive increase. At the same time, inventories edged 0.1% lower during the month, the first decline since August. On a year-over-year basis, overall wholesale sales are now up 2.4% while inventories are up 9.6%. The monthly sales advance was stronger than expected. Activity at the wholesale level can be an indicator of future consumer trends.

The U.S. Census Bureau announced that new-home sales totalled 692,000 units (seasonally adjusted, annual rate) in March 2019. This is 4.5% above the revised February rate of 662,000 units and 3.0% above the March 2018 level of 672,000 units. These results are significantly stronger than consensus estimates. Activity in the housing market has a significant "ripple" effect on the broader economy.

According to a preliminary flash estimate, the European Commission’s consumer confidence indicator (CCI) in the euro area dropped 0.7 points to -7.9 in April, following a -7.2 reading in March. This was the indicator’s first decline in four months and equalled a three-month low. The reading was weaker than market consensus; however, the index remained comfortably above its long-run average of -11.3%.

April 24
The Bank of Canada announced that it was, once again, holding the target for its key overnight interest rate steady at 1.75%. The bank rate was left at 2.00% and the deposit rate remains at 1.50%. The bank has not altered administered interest rates since it raised them by 0.25% on October 24, 2018. The press release that accompanied the announcement focused on weaker-than-anticipated economic growth, both domestically and globally. Importantly, the bank stated that it now anticipates a near-term widening of Canada’s output gap, suggesting an even longer period of steady interest rates. The bank’s next policy announcement window is May 29. The decision to leave interest rates unchanged was in line with market expectations. Canadian monetary policy, as decided by the Bank of Canada, has significant influence on both the domestic economy and the value of the currency.

According to Munich’s ifo Institute, the ifo Business Climate Index for Germany fell by 0.5 points to 99.2 in April, following the first increase in six months during March. As the market was anticipating another gain, this result was weaker than expected. According to the readings, companies are less satisfied with their current business situation and March’s modest optimism regarding the coming months has evaporated. The German economy continues to lose steam.

The Australian Bureau of Statistics reported that consumer prices were flat at 0.0% (quarter-over-quarter) in the first quarter of 2019, following the 0.5% advance in the previous quarter. On a year-over-year basis, the inflation rate fell to 1.3% in the March quarter, following the 1.8% reading in the previous period. It was the lowest quarterly reading in three years, amid a softening in petrol and housing prices. These results were weaker than the consensus forecast.

April 26
The U.S. Bureau of Economic Analysis announced that real GDP grew at an annual rate of 3.2% in the first quarter of 2019. This is the “advance estimate” prepared with preliminary data and is often subject to substantial revision. In the fourth quarter of 2018, real GDP increased 2.2% on the same basis. These results are considerably stronger than expected as the market was not looking for a material change from the fourth quarter pace. GDP is the broadest measure of aggregate economic activity and encompasses every sector of the economy.


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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 are subject to change without notice. The authors of this publication are employed by CI Investments Inc. or its affiliates. CI Multi-Asset Management is a division of CI Investments Inc. ®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. © 2019 CI Investments Inc.


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