Market Focus Canadian output rises for fifth straight month Updated information from Statistics Canada revealed a 0.2% advance in GDP during November, following a 0.3% September gain. On a year-over-year basis the economy grew at a 2.6% rate, in line with the Bank of Canada’s most recent forecast. However, the string of positive months is likely to end as severe weather during the month of December is expected to produce a negative monthly result when these figures are released on February 28. Within the report, manufacturers continued to struggle with a 0.5% monthly decline and only a modest 0.4% year-over-year gain. The decline in the Canadian dollar, seen over the past several months, is expected to provide some support to this still-struggling sector. U.S. GDP posts another strong quarter The first release of GDP data for the final quarter of 2013 revealed a 3.2% (annualized) growth pace in the U.S. This advance comes on the heels of a 4.1% rate for the third quarter, and produced the strongest second-half of any calendar year since 2003. However, 2013 got off to a slow start and annual GDP growth for the year as a whole was a relatively modest 1.9%. In spite of a material decline in federal government spending, the bulk of the report revealed sector advances during the fourth quarter. In particular, gains in consumer spending suggest positive momentum was carried into 2014. The resilience of the broader economy reflected in the data suggests that the Federal Reserve’s second round of tapering of bond purchases was justified. U.K. economy closes 2013 on a strong note The U.K. Office for National Statistics announced that overall GDP had grown by 2.7% (annualized) during the fourth quarter of 2013, leaving it with a 2.8% growth rate when compared to the final quarter of 2012. This was the strongest year for the economy since 2007. Despite the solid rebound, overall economic output was still estimated to be 1.3% below the peak recorded in Q1 2008. From the peak to the trough in 2009, the U.K. economy shrank by 7.2%, a much larger decline than was seen in the three previous recessions. The fact that the economy has yet to recover to pre-recession levels may take some of the pressure off of the Bank of England to raise interest rates even as unemployment moves closer to its 7.0% target (unemployment was 7.1% in November). 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. Also, we anticipate that after an extended period of declining yields in the bond market and therefore increasing bond prices, interest rates will likely rise, which would detract from bond performance. We continue to favour stocks over bonds as they have greater expected growth potential than bonds and are less sensitive to changes in interest rates. Having a professional advisor who can provide a diversified portfolio that takes into consideration your risk tolerance can help protect your investment returns from rising interest rates. Market Board – Weekly Summary January 28 ▼The U.S. Census Bureau announced that durable goods orders decreased 4.3% in December. Excluding transportation, new orders decreased 1.6%. Excluding defence, new orders decreased 3.7%. These figures are considerably weaker than market expectations. Orders for durable goods indicate how busy manufacturers will be in the months to come, as they work to fill those orders. January 29 ■ The U.S. Federal Reserve held interest rates steady following its latest policy meeting. Also, the Fed stated that it would further taper its bond buying quantitative easing program by $10 billion per month (the initial $10 billion per month of tapering was announced on December 18, 2013) as the U.S. economy is showing signs of improved growth. The no-change interest rate policy is in line with expectations. However, additional tapering was not a firm consensus view. U.S. monetary policy, as decided by the Fed, has significant influence on both the U.S. and global economy. Its lead is often followed by policymakers in other countries. January 30 ▼The U.S. Department of Labor announced that initial jobless claims totalled 348,000 (seasonally adjusted) in the week ending January 25, an increase of 19,000 from the previous weeks revised figure of 329,000 (previously reported as 326,000). The four-week moving average was 333,000, an increase of 750 from the previous weeks revised average of 332,250 (previously reported as 331,500). These results are weaker than market consensus. ▲The U.S. Bureau of Economic Analysis announced that real gross domestic product grew at an annual rate of 3.2% in the final quarter of 2013. In the third quarter, real GDP increased 4.1% on the same basis. These results are somewhat stronger than the market was expecting. Gross Domestic Product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. ▲Statistics Canada reported that average weekly earnings rose 0.9% during November. On a year-over-year basis, weekly earnings increased 2.5%, the strongest increase since May. These results are above expectations. As this indicator measures growth in income, it can reveal trends in consumer spending. January 31 ▲Statistics Canada announced that real gross domestic product (GDP) grew 0.2% in November, up for a fifth consecutive month. Both the output of goods-producing industries and service industries contributed to growth in November. On a year-over-year basis GDP growth stood at 2.6%. These results are in line with consensus expectations. GDP is the broadest measure of aggregate economic activity and encompasses every sector of the economy. ▼The Institute for Supply Management reported that its Chicago Purchasing Managers Index edged lower to a 59.6 reading in January. This is down slightly from Decembers revised 60.8 reading (but up from the previously reported 59.1). The index remains well above the key 50.0 (generally expanding) level. The reading is above consensus expectations and indicates continued solid growth in manufacturing activity within the region. ▼ The Thomson Reuters/University of Michigan index of consumer sentiment dipped to 81.2 in the month-end reading for January. This is down from Decembers 82.5 level but up from the 80.4 figure recorded in mid-January. The final result is slightly higher than consensus expectations. This is another indicator of the likely pattern of consumer spending. 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. CI Investments and the CI Investments design are registered 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. © 2014 CI Investments Inc.
Posted on: Mon, 03 Feb 2014 15:19:06 +0000
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