This week the global capital markets continued their recent bumpy ride as Greece and the U.S. Federal Reserve having been the dominant sources of news flow.
Earlier this week news out of Europe was initially optimistic about Greece, as the differences between Germany, France, the International Monetary Fund and Greece looked to be getting sorted, however this faded when it was learned that the IMFs team left Brussels stating that little progress had actually been made. Officially, Chancellor Angela Merkel is urging the Greek President to accept the framework for financial aid as Euro-area officials are demanding a proposal for stabilizing that country’s debt. However, the rumour mill is swirling with unconfirmed reports that the German Government is simultaneously preparing for a potential Grexit scenario as major differences remain between Greece and its creditors.
UniCredit SPA Chief Global Strategist, Erik Nielsen, said in an interview today that “People are really fed up with this.” and that “They’ve never seen anything so completely ridiculous from a debtor country.” Battle lines seem to have been drawn as EU finance officials have set out the parameters of a likely showdown next week as meeting continue will continue in Luxembourg. As the Dutch Finance Minister put it “if the Greek Government isn’t willing to take difficult measures, even if they’re unpopular, then Greece will never be saved.”
Needless to say this has cast a negative tone over the markets, as we will certainly end the week on a negative note, continuing the downtrodden trend they have been on over the past six weeks or so. We are also keenly aware that it is during periods such as this that some of the best longer term opportunities present themselves; a comment that was re-iterated to us yesterday in our meeting with Matt Wood, who manages the Vertex Enhanced Income Fund on behalf of many of our readers.
As many readers know, we have been modestly building our European asset allocation over the past several months, adding to our holdings in the First Asset Low Risk Europe ETF and the iShares MSCI EAFE Index ETF, and we continue to take advantage of an improving economics amid turbulent headline news. Remembering that the Greek economy is about the same size as North Carolina, our focus will remain on the much larger improving picture of the world’s second largest economic region and to take advantage of any short term noise.
On this side of the pond the economic news continues to reflect growth, with employment / jobless claims data being somewhat flat relative to previous; the University of Michigan Consumer Confidence Index rising modestly; in addition to housing starts continuing to rise. While this is good news, it also plays into the Federal Reserve’s commentary that their policy on when they begin to increase interest rates as “data dependent”. The fear is now the data is showing that the economy can handle higher rates quite soon, resulting in a consistent selling of longer term bonds as the yield curve begins to steepen and the capital markets shift in advance of rising interest rates.
Specific to British Columbia, Malaysia’s Petronas announced overnight a conditional green light for the $11 billion Pacific NorthWest LNG project in Prince Rupert. While the Final Investment Decision is contingent on two conditions being met, the company is poised to create thousands of construction and operational jobs in the midst of the current energy sector slowdown. While we think this project will eventually proceed, there is considerable work yet to be done.
When one factors in the capital cost of the LNG plant, a new pipeline and upstream natural gas assets are included; this project could have an economic impact as high as $36 Billion on our province.
For those of our readers who are looking for a fun event around town this weekend, Vancouver’s Italian Day is one of the most celebrated cultural festivals in the city, with over a quarter million people expected to embrace the food, drink and culture of Commercial Drive. Italian Day 2015 will take place on Sunday, June 14 on Commercial Drive, Vancouver’s original Little Italy, and will offer everything from Italian inventions to Italian goods and lifestyle, as well as the products of Italian history and culture found in our very own backyard.
With a rich history of over 50 years, Commercial Drive will be transformed into a vibrant street festival, that shares all that is Italian with Vancouver’s multi-cultural community, showcasing food, performing arts, fashion, exhibits and activities.
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Have a great weekend.
The Dekker Hewett Group