As we ended the first quarter of the year we saw the Canadian capital markets perform stronger than our partners to the south, but you would be surprised as to where that strength came from. Ironically it was the REIT and Utility sectors that provided a good portion of that strength in contrast to what many of the market commentators in the newspapers or BNN were suggesting. In Canada, a balanced ownership of our economy provided investors a relatively strong quarterly return to start the year.
This week we saw the employment data on both sides of the border providing us with increasingly positive reports, suggesting that the US Federal Reserve policymakers are going to continue to reduce stimulus and keep interest rates low throughout the remainder of the year. With the employment data for both January and February being revised higher recently we are now seeing payroll growth that shows companies are optimistic about the outlook for demand.
The U.S. has now recovered all but 437,000 of the 8.7 million jobs lost as a result of the last recession. According to Nariman Behravesh, chief economist at HIS Inc in Lexington Massachusetts, “this week’s employment report was very good and it looks like we’re back on track.” Dan Black of Ernst & Young, “Not only are we back to pre-recession level, when you see growth like that, for me, and for us, that’s an indicator of something positive. We’re seeing a lot of demand here.”
To us, this is all positive for the longer term outlook in how we allocate capital on behalf of our clients. However, we also have to be aware of the seasonality that we see within the capital markets in order to best take advantage of these longer term economic conditions. In conversation with our North American strategists, Martin Roberge and Tony Dwyer, we have seen a modest amount of macro momentum leveling off as we approach summer, according to the Organization for Economic Cooperation and Development’s leading economic indicators. This sentiment was echoed to us yesterday as we met with Jason Donville of Donville Kent Asset Management, he expects to see a modest consolidation within the markets as the global capital markets have seen an extended run over the past few years.
While we remain fundamentally bullish, we see it as prudent within the current business cycle to take modest profits in certain situations and build up some cash balances when growth in global leading economic indicators shows some deceleration. We do see continued growth in both the S&P 500 along with the S&P TSX, however we feel there could be a bit of a seasonal lull as we approach summer.
Another benefit of the positive employment data here in Canada has been our currency, as it has climbed to the strongest level we have seen in four weeks. Camilla Sutton, head of currency strategy as Bank of Nova Scotia stated in an interview this morning that “it was a strong (employment) number with strong details, and that’s positive for Canada.” With the next Bank of Canada Monetary Policy Statement coming April 16th, should that meeting be relatively neutral, we would expect to see continued strength in the Canadian Dollar in the near term.
The positive impact of having a weaker dollar over the past few months will begin to be reflected in the economic data going forward. As we saw in the trade numbers earlier in the week, we would expect these improvements to result in continued employment strength leading to growing utilization within our economy. We think we are still a long way from being concerned about inflation exceeding the Bank of Canada’s target, thus we feel that the Canadian investor is in a good position with respect to balancing risk and reward at the present time.
We read a very interesting article in the Toronto Sun this week which we felt was worth relaying to our readers who enjoy salty and savoury snacks; a scientific reason to go out and pick up that bag of Salt and Vinegar chips. According to a new Danish Study, published in the American Journal of Hypertension, the recommended limits on the level of sodium one should consume per day is too low. According to the study, a meta-analysis of 25 separate studies involving more than 250,000 people, found that a range of between 2650 and 4950 mg per day is actually healthier than the 1500 mg per day the Centers for Disease Control suggest. According to Dr. Niels Graudal, “Our results are in line with the (Institute of Medicine’s) concern that lower levels could produce harm, and they provide a concrete basis for revising the recommended range in the best interest of public health.”
Canadians currently consume about 3,400 mg of sodium per day according to Health Canada. So, there you have it! No more guilt in picking up that bag of chips, because now they are almost doctor recommended.
Have a great weekend.
Thank you for your trust.
As always, we welcome any feedback.
The Dekker Hewett Group