The Playbook - February 25, 2019

February 25, 2019 • Playbook


The Playbook

Weekly Commentary – February 25, 2019

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.

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

Economic Calendar

Date Release Period Consensus Previous
February 27 Factory Orders December 18 1.5% -0.6%
February 28 GDP Growth Rate Q/Q Q4 18 2.7% 3.4%
March 1 Markit Manufacturing PMI Final February 19 53.7 54.9
March 1 Michigan Consumer Sentiment Final February 19 95.5 91.2
February 27 Inflation Rate  January 19 0.5% -0.1%
March 1 GDP Growth Rate Q/Q  Q4 18 0.4% 0.5%

Key Earnings:
February 25: Global Cord Blood Corp., Mosaic Co., Westinghouse Air Brake Technologies Corp.
February 26: American Woodmark Corp., Avanos Medical Inc., Halcon Resources Corp.
February 27: Apache Corp., Bilibili Inc., Glaukos Corp., Monster Beverage Corp.
February 28: Barnes & Noble Inc., Gap Inc., Kratos Defense and Security Solutions Inc.
March 1: Colony Capital Inc., Foot Locker Inc., Tribune Media Co., WEX Inc.
Source: Trading Economics, Yahoo Finance

Market Focus

Canadian retail activity stalls
Updated figures from Statistics Canada revealed a modest 0.1% decline in retail sales during December. Sales fell in seven of 11 main subsectors, with gasoline sales (-3.6%) reporting the largest monthly decline. Building materials stores (+3.1%) recorded the largest gain. However, revisions to prior data lowered total sales values going back to September. More importantly, the weakness in consumer demand during the fourth quarter resulted in an annualized 2.0% drop in retail sales, following the third quarter’s downwardly revised 2.8% advance. This is now the weakest quarterly result since Q1 2015 (-6.5%). These results will focus more attention on the Bank of Canada, as it prepares for its next monetary policy announcement scheduled for March 6.

Japanese trade results reflect China’s economic slowdown
Japan’s Ministry of Finance announced that the country’s trade deficit widened to ¥1,415.2 billion in January, following a ¥948.3 billion shortfall a year earlier. On a year-over-year basis, exports slumped 8.4% in January, the steepest decline since October 2016. The weakness was tied to a 13.1% drop (on the same basis) in exports to all other Asia countries, led by a 17.4% plunge in shipments to China. Much of this volatility in trade can be tied to the variable timing of the Lunar New Year holiday celebrations. Nevertheless, continued global trade disputes, coupled with a clear deceleration in China’s domestic growth, paint a gloomy picture of near-term prospects for Japanese exports. This raises the likelihood of diminished economic growth for Japan in 2019.

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

February 20
Japan’s Ministry of Finance announced that the country’s international trade deficit in goods and services widened to ¥1,415.2 billion (unadjusted) in January, following a ¥948.3 shortfall a year earlier. This was the fourth consecutive monthly gap and the widest since March 2014. Meanwhile, on a year-over year basis, exports from Japan declined 8.4% in January, after an upwardly revised 3.9% decrease in December 2018. It was the steepest fall in outbound shipments since October 2016. On a year-over-year basis, despite imports of U.S. goods rising by a slightly higher margin due to strong growth in purchases of U.S. liquefied gas, coal and grains, worldwide imports to Japan dropped 0.6% in January from a 1.6% growth in the previous month. These results were weaker than market expectations and the trends suggest a deteriorating outlook for global economic slowdown and growing trade tensions.

According to a preliminary flash estimate, the European Commission’s consumer confidence indicator (CCI) in the euro area increased 0.5 points to -7.4 in February, following a -7.9 level in January. This is the second successive month that the CCI climbed higher, however, the reading was still the third weakest outturn in nearly two years. The reading was above market expectations and the index remains comfortably above its long-run average of -11.3%.

Destatis, the Federal Statistical Office of Germany, reported that producer prices advanced 0.4% in January (monthly basis), following a -0.4% decline in December. However, while the monthly increase fully offset December’s decline, it was not enough to prevent annual producer price index (PPI) inflation from edging down one percentage point to 2.6% in January. The annual figure was the lowest PPI inflation since May 2018. The monthly and annual figures were well above market expectations.

February 21
The U.S. Department of Labor announced that initial jobless claims totalled 216,000 (seasonally adjusted) in the week ending February 16, a decrease of 23,000 from the previous week's unrevised level of 239,000. The four-week moving average was 235,750, an increase of 4,000 from the previous week's unrevised average of 231,750. This is the highest level for this average since January 20, 2018 when it was 237,500. These results are in line with consensus estimates.

The U.S. Census Bureau announced that durable goods orders increased 1.2% in December, following a 1.0% increase in November. Excluding transportation, new orders rose 0.1% in December. Excluding defence, new orders increased 1.8%. 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.

The Federal Reserve Bank of Philadelphia reported that manufacturing activity in the region shifted significantly weaker in February. The Philly Fed general business conditions index dropped to -4.1 from +17.0 in January, the first negative reading since May 2016. These results are well below market expectations. This data release is followed as an indicator of broader manufacturing sector trends.

The Australian Bureau of Statistics reported that the number of unemployed workers increased by 6,600 to 673,500 in January. Accordingly, the unemployment rate in Australia remained steady at 5.0% (seasonally adjusted) for a second successive month, its lowest level since mid-2011 and in line with market expectations. However, the labour market recorded an advance of 39,100 employed workers to 12.75 million in January, following a 21,600 gain in December and well above market estimates of 15,200. The gain was entirely driven by a 65,400 increase in full-time employment to 8.74 million in January, after falling by 3,000 in the previous month. However, the stronger-than-expected employment data, coupled with weakness in the housing market, triggered economists to predict the Reserve Bank of Australia will likely cut rates twice in late 2019.

Destatis, the Federal Statistical Office of Germany, reported that consumer prices advanced 1.4% in January (annual basis), matching its flash estimate and 0.2 percentage points below its revised 1.6% December figure. This was the lowest annual inflation rate since April 2017 and in line with market expectations. Accordingly, on a monthly basis, consumer price index (CPI) inflation fell 0.8% in January, after being unchanged in December, mainly due to seasonal factors. The decline in annual CPI was partially due to food prices decreasing 1.0% to 0.8%; however, declines in clothing and footwear also weighed in. It appears the slowdown in economic growth and the weakness in consumer demand, as indicated in last week’s GDP report, are both factors driving down consumer prices. This will likely result in further pressure for the European Central Bank to hold off on any near-term rate hike plans.

February 22
Statistics Canada reported that retail sales dropped again in December, edging down 0.1% (seasonally adjusted) following November’s 0.9% monthly decline. Data from September through to November were revised downward. During December, sales were down in seven of 11 subsectors, with gasoline sales (-3.6%) reporting the largest monthly decline. Building materials stores (+3.1%) recorded the largest gain. Year-over-year, sales growth rose to 1.7% from 0.5%. Coupled with the revision, these results are generally in line with consensus estimates. Since consumer spending accounts for over 60% of Canadian economic activity, it is critical for overall GDP results.

Statistics Japan announced that, on a year-over-year basis, consumer prices increased 0.2% in January, slowing from 0.3% in December for a third consecutive month. This was the lowest level since October 2017 and further below the Bank of Japan’s “price stability target” of 2.0%. On a month-over-month basis, the CPI rose 0.3% (seasonally adjusted), following a 0.2% decrease the previous month. The fall in January’s headline inflation largely reflects a bigger drop in food prices (-1.5%) and transportation costs (-0.2%). Annual core CPI, which excludes fresh food prices, rose 0.8% in January, up from 0.7% in December. The core CPI results were in line with the market expectations.

According to Munich’s ifo Institute, the Business Climate Index for Germany fell 0.8 points to 98.5 in February, the sixth consecutive decline since September 2018. This was the index’s lowest reading since December 2014 and somewhat below market expectations of 99.0. The index’s decline reflected weakness in both the current conditions and business expectations sub-indexes. The current conditions sub-index dropped 1.1 points to 103.4 in January, marking its the fifth consecutive decline and the worst reading since February 2017. Further, the business expectations sub-index shed 0.5 points to 93.8, marking its sixth successive decrease and lowest reading since November 2012. These results portray heightened pessimism relative to the latest IHS Markit Flash Germany PMI report, which pointed to a gentle acceleration in domestic business activity. Compared with the seemingly solid domestic economy, the unstable external risk may likely push the entire economy into negative sentiment territory.


Certain statements in this document are forward-looking. Forward-looking statements (“FLS”) are statements that are predictive in nature, depend upon or refer to future events or conditions, or that include words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” “intend,” “plan,” “believe,” or “estimate,” or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS. FLS are not guarantees of future performance and are by their nature based on numerous assumptions. Although the FLS contained herein are based upon what CI Investments Inc. and the portfolio manager believe to be reasonable assumptions, neither CI Investments Inc. nor the portfolio manager can assure that actual results will be consistent with these FLS. The reader is cautioned to consider the FLS carefully and not to place undue reliance on FLS. Unless required by applicable law, it is not undertaken, and specifically disclaimed that there is any intention or obligation to update or revise FLS, whether as a result of new information, future events or otherwise.

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. © 2019 CI Investments Inc.


Privacy Policy | Legal

© 2019 CI Investments Inc.

« back to Newsletter page