The Playbook – April 9, 2018

April 06, 2018 • Playbook



Weekly Commentary – April 9, 2018

Alfred Lam, MBA, CFA
Senior Vice-President
and Chief Investment Officer
Richard J. Wylie, MA, CFA
Vice-President, Investment Strategy

Richard Wylie’s podcast will return the week of April 16, 2018.

Economic Calendar

Date Release Period Consensus Previous
April 9 Consumer Inflation Expectations March 18 2.78% 2.83%
April 10 NFIB Business Optimism Index March 18 107.14 107.60
April 11 Inflation Rate March 18 0.3% 0.2%
April 10 Housing Starts March 18 224.7 k 229.7 k

Key Earnings:
April 9: Century Bancorp Inc., DPW Holdings Inc., Healthcare Services Group Inc.
April 10: Delta Air Lines Inc., Link Motion Inc., MSC Industrial Direct Co. Inc.
April 11: Biostar Pharmaceuticals Inc., First Horizon National Corp., Taylor Devices Inc.
April 12: Commerce Bancshares Inc., Nova LifeStyle Inc., Skyline Corp., TSR Inc.
April 13: J.P. Morgan Chase & Co., PNC Financial Services Group Inc., Wells Fargo & Co.
Source: Trading Economics, Yahoo Finance

Market Focus

U.S. and Canada unemployment rates stay at new low
Canada’s unemployment rate was unmoved from a 40-year low for the second consecutive month, while the U.S. rate remained at a 17-year low for the sixth consecutive month. The latest figures from Statistics Canada showed a 32,000 increase in employment during March. Meanwhile, the unemployment rate was unchanged at 5.8%, the lowest since consistent data were first collected in 1976. Compared with 12 months earlier, the national workforce grew 1.6% following the creation of 296,000 jobs, and the number of full-time workers rose by 335,000. Stateside, non-farm payroll employment edged up by 103,000 in March and the unemployment rate was unchanged at 4.1%. The labour force participation rate dropped to 62.9% from a five-month high of 63.0% in February. The slowdown in March was not a surprise as February’s job growth was mainly driven by temporary weather-related job growth in the construction and retail sector. The slowdown in hiring is likely to be unwelcome news at the White House, as President Donald Trump presses ahead with a multi-front confrontation with trade partners (especially China) that has alarmed the U.S. economy. The future impact on the job market will continue to be closely watched.

North American trade deficits grow
Updated figures from Statistics Canada revealed that Canada's merchandise trade deficit totalled $2.7 billion in February, widening from a $1.9 billion deficit in January. This extends the string of deficits, as Canada recorded its last merchandise trade surplus in December 2016. Stateside, the international trade deficit jumped to US$57.6 billion in February. This is the sixth consecutive month with a widening deficit, the longest streak since 2000, and the current trade gap is the largest since October 2008. Analysts suggest that the 1.7% surge in imports was due to businesses attempting to get ahead of what may be an escalating trade war among the U.S. and its many trading partners. The current figures suggest further dampening of U.S. GDP growth for the first quarter of 2018. However, looking further out, many uncertainties remain.

China’s PMI hits four-month low
China’s Caixin General Manufacturing Purchasing Managers Index (PMI) decreased to a 51.0 reading in March, following a 51.6 result in February. This is the weakest reading since November of last year. The findings sharply contrasted previously released official data, which showed that manufacturing growth picked up more than expected in March in response to stronger domestic and overseas demand. The official PMI revealed a surprise increase to 51.5 in March from 50.3 in the previous month. The divergence between the two indexes could be due to differences in the number and types of businesses surveyed. The Caixin PMI suggested output and new orders grew modestly in March, but growth in export orders slumped to a 10-month low, mirroring growing fears of a possible trade war between the U.S. and China. The survey cited subdued foreign demand, but did not specifically indicate any impact from escalating trade tensions. Either way, new tariffs on both sides will undoubtedly impact bi-lateral trade.

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

April 2
China’s Caixin General Manufacturing PMI decreased to 51.0 in March, following a 51.6 result in February. The March figure is the weakest since November of last year and is somewhat weaker than consensus estimates. The Caixin PMI suggested output and new orders grew modestly in March, but growth in export orders slumped to a 10-month low, mirroring growing fears of a possible trade war between the U.S. and China.

The U.S. Institute for Supply Management reported that its Purchasing Managers Index moved lower to a 59.3 reading in March. This is a 1.5-point loss from February’s 60.8 figure, but remains above the key 50.0 (generally expanding) level for a 19th consecutive month. The reading is below expectations and indicates a deceleration in manufacturing activity.

The U.S. Census Bureau announced that construction spending rose 0.1% in February, following a flat result in January. On a year-over-year basis, construction is up 3.0%. The monthly growth figure is below consensus estimates as the market was anticipating a much larger gain. This result indicates continued modest growth in the construction sector.

April 3
The Nikkei India Manufacturing PMI decreased to a 51.0 reading in March, following a 52.1 result in February. The March level reflected the weakest expansion since October 2017, as new export orders grew at the softest pace in three months and employment fell for the first time in eight months. With the market looking for a gain, this reading was well below consensus expectations. The new U.S. tariffs on steel and aluminium imports are expected to have a limited impact on India, but broader measures could affect global trade in unpredictable ways.

April 4
The European Commission reported that the unemployment rate in the Eurozone decreased to 8.5% in February. This is down 0.1% from January and is 1.0% lower than a year ago. The February reading is the lowest since December 2008 and continues the downward trend that began in 2013. The drop came as the number of jobless fell by 141,000 to 13.9 million. It is the first time that the number of unemployed workers in the Eurozone has been below 14 million since January 2009. This result matched consensus expectations.

The U.S. Census Bureau reported that factory orders increased 1.2% in February, following an upwardly revised 1.3% decrease in January (originally reported as -1.4%). Excluding transportation, new orders rose 0.1% in February. Despite the upward revisions to the previous data, these results are weaker than expectations. The orders data indicate how busy factories will be in coming months as manufacturers work to fill those orders.

The Institute for Supply Management announced that its Non-Manufacturing Index recorded a 58.8 reading in March. It was down 0.7 points from the 59.5 level registered in February, but remained above the key 50.0 (generally expanding) level for a 98th consecutive month. This result is below consensus expectations and indicates continued growth, but at a slightly slower rate in the non-manufacturing sector.

April 5
The U.S. Department of Labor announced that initial jobless claims totalled 242,000 (seasonally adjusted) in the week ending March 31, an increase of 24,000 from the previous week's revised level. The previous week's level was revised up by 3,000 from 215,000 to 218,000. The four-week moving average was 228,250, an increase of 3,000 from the previous week's revised average. The previous week's average was revised up by 750 from 224,500 to 225,250. These results are somewhat weaker than consensus estimates.

The U.S. Census Bureau announced that the nation’s international trade deficit in goods and services widened to US$57.6 billion in February from an upwardly revised US$56.7 billion in January. February exports were US$204.4 billion, US$3.5 billion more than January exports. February imports were US$262.0 billion, US$4.4 billion more than January imports. The trade deficit was larger than expected. The weaker trade results will dampen overall GDP growth.

Statistics Canada announced that Canada's merchandise trade deficit totalled $2.7 billion in February, widening from a $1.9 billion deficit in January. Imports rose 1.9%, mainly due to higher imports of energy products. Exports increased 0.4%, primarily on higher exports of passenger cars and light trucks. While the market was looking for a widening of the deficit, these results are weaker than expected and are a negative sign for overall GDP growth.

April 6
The U.S. Bureau of Labor Statistics reported that the unemployment rate was unchanged at 4.1% in March, marking a 17-year low for a sixth consecutive month. In addition, the February and January results were revised lower by 50,000. Employment rose in manufacturing, health care, and mining, and non-farm payroll employment edged up by 103,000. The employment figures are well below consensus expectations, while the unchanged unemployment rate was slightly above the market forecast. This is the most closely followed set of U.S. statistics as it indicates the relative health of the various sectors of the economy and is suggestive of consumer spending.

Statistics Canada announced that 32,000 jobs were added in March and the unemployment rate was unchanged at 5.8%. On a year-over-year basis, total employment increased 1.6% (+296,000) and the number of full-time workers rose 2.3% (+335,000). The unemployment rate was in line with the consensus forecast, but the employment number was more than expected as jobs were added in construction and public administration. The employment data reflects the strength of the broader economy and individual sectors. As well, it is indicative of consumer spending trends.


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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