While this week has been another trendless journey for markets, February has been a positive month for both Canadian and US markets. Other risky assets such as commodities have had a strong bounce and the general increase in the global investorsￂﾒ risk appetite has increased. Now, with worries over Greece seeming to have quieted down, Russia and Ukraine pulling back arms, and the fourth quarter earnings season over, what is on the wall of worries for March? We find ourselves asking questions like are we going to see a relapse in oil prices as some pundits predict? Will the US$ charge to new highs and crush gold prices below $1200/oz? Will the Bank of Canada cut rates next week? Our answer today to those questions is that we do not know, and if we had a crystal ball that worked we would certainly tell. But, if we continue to focus on reducing the risk or volatility for our clients then we will be better prepared should any of those situations play themselves out.
Regarding economic statistics this week, in Canada, inflation decelerated to 1% (vs. 0.7% exp.) but core inflation remains sticky at 2.2%. This comes ahead of the Bank of Canada decision next week where expectations for another rate cut faded upon less dovish comments from governor Poloz. In the US, inflation, as measured by headline CPI, slipped into deflation territory, however the durable goods measure, which is a key component of the Consumer Price index, rose a strong 2.8% in January. Core inflation remained stable at 1.6% and in our opinion, these statistics hardly call for a rate hike anytime soon by the U.S. Federal Reserve (but again you just never know).
Before the U.S. Federal Reserve hikes rates, they will likely wait for a turnaround in inflation and world economic growth reacceleration as opposed to bet on such developments. Our stance is that we would now expect that rate increase to be later in the year, versus over the next couple of months. In fact, the Fed never hiked rates when S&P 500 forward earnings were falling and headline inflation was below 2%.
Globally, inflation improved slightly in Germany, Spain, and Italy but still remains well below the ECB target. Meanwhile, in Japan, where their QE (quantitative easing) program is older than the recently launched European program, the Bank of Japan has seen a successful boosting of inflation. Both of these QE programs are behind the United States, where their program has ended last October, where we have seen even greater re-inflation. Hopefully, the improved economic performance that we are seeing in the U.S. is a precursor to what we might see in both Japan and Europe. Now we certainly are not expecting to see an exact duplication of their turnaround, but something similar is expected.
So with the Eurozone seemingly pulling itself together finally, even though we are still very early days recent economic data have been upbeat. Interestingly, the recovery actually began to develop prior to dramatic decline in oil prices, the plunge in the euro and the implementation of QE by the ECB. The lagged impact of these tailwinds suggests Europe could really be the economic surprise this year. The ￂﾓupbeatￂﾔ argument is that global growth visibility is improving and earnings growth is expected to accelerate later this year.
With our strategists forward-looking economic indicators pointing to a marked recovery over the second half of the year, we continue to remain balanced towards risk and reward favoring strong North American equity and fixed income ownership, while starting to build in a small but increasing ownership of Europe and Asia via the First Asset Low Risk Europe ETF and iShares MSCI EAFE ETF.
Join us for the launch of Canaccord Genuity GPS Optimized Portfolios ￂﾖ and learn how to take control of market volatility in your investment portfolio.
Given the recent volatility in the markets, our Optimized Portfolios, part of Canaccord Genuity Global Portfolio Solutions (GPS) are a timely solution. The award-winning, proprietary process behind our GPS Optimized Portfolios aims to cap volatility and reduce the potential for capital loss to provide you with steadier returns and more certainty. In other words, returns include peace of mind.
The Dekker Hewett Group is pleased to invite you to this exclusive event. With over 60 years of combined investment management experience, we are confident that this innovative investment solution ￂﾖ now available in Canada for the first time ￂﾖ can give you a powerful tool for protecting your capital. We hope to see you there.
Wednesday, March 3, 2015 Wednesday, March 4, 2015
5:30 p.m. Registration l 8:00 a.m. Breakfast Presentation
6:30 p.m. Presentation begins l Hawksworth Restaurant
Four Seasons Hotel l Hotel Georgia
Downtown Vancouver l Downtown Vancouver
Seating is limited.
We end this week's commentary on a bit of a sad note. Star Trek fans, myself included, lost Mr. Spock today at the passing of Leonard Nemoy.
We thank you for the privilege you have bestowed upon us with taking care of you and your family. We thank you for that trust, and in the famous words of Mr. Spock, "live long and prosper."
As always, we welcome your feedback. Have a great weekend.
The Dekker Hewett Group