Market Watch for Friday August 25, 2017

Global Portfolio Advisory Group

August 25, 2017

Big Picture

All eyes on central bankers

With little in the way of top-tier economic news to contemplate this week, traders turned their attention to other events including the annual central banker get-together in Jackson Hole, Wyoming. The main events for the conference will be speeches by U.S. Federal Reserve Chairwoman Janet Yellen and European Central Bank President Mario Draghi today. Both banks are in the spotlight as market participants await news of possible, future monetary policy tightening. Succession plans for Yellen are also fuel for conversation as her term is up for renewal February 2018 and President Trump has not disclosed his choice. As the days grow closer, speculation is bound to rise along with interest regarding monetary policy without a clear successor in place. On the political front, Trump threatened to bring the government to a shut down if needed to pressure Congress to fund a border wall that was a key campaign pledge. Trump has asked for US$1.6 billion to begin construction with Congress under pressure to pass a spending bill to keep the government running past September 30. In economic news, the print of the week came from Canada where retail sales figures pointed to strong economic growth as the gauge rose 0.1% in June, the fourth monthly gain. Half-year 2017 sales performance is now one of the best on record rising 4.6% since the start of the year. Finally, the opening round of talks to remake NAFTA ended last Sunday with the three countries issuing a statement that they had made ‘detailed conceptual presentations’ of their positions and were working toward an ‘ambitious outcome’. Talks are expected to continue in Mexico and Canada in September and the U.S. in October. Looking ahead, market watchers will be able to digest Canadian Q2 GDP next week as well as July jobs data for the U.S.

 

Markets

North American stocks rise

Risk-off sentiment took a step back this week allowing most North American stock benchmarks to rise. For the four days covered in this report, the Dow added 109 pts. to close at 21,783, the S&P 500 gained 13 pts. to finish at 2,438 and the Nasdaq moved ahead 55 pts. to end at 6,271. The TSX was also a winner through Thursday rising 124 pts. to settle at 15,076.

 

Equities/Strategy

Potential volatility amid political uncertainty; strong earnings support overweight equities

Strategy: Global markets have traded with a defensive tone over the past month as investors have been confronted by a series of geo-political headwinds triggering a wave of mild profit-taking in recent weeks. Events emanating out of Washington have dominated market sentiment thus far in August including intensifying tensions with North Korea, terrorist attacks in Europe as well as the White House’s response to the events in Charlottesville, Virginia. Amidst the reduced liquidity of late-August, we expect markets to remain hesitant as investors could look to lock in profits ahead of September’s important event risk. In particular, markets will be keenly focussed on the upcoming end-September deadline to lift the U.S. government’s debt ceiling and approve a new budget spending bill. If political gridlock continues to elevate the risk of a government shutdown or interruption in government finances, markets are likely to remain volatile and at risk of a short-term pullback. We would view any such material weakness in global markets as an opportunity to put cash to work as indicators suggest the global economic recovery remains solid and recession risks over the coming year are quite low, leaving the bull market in equities on a firm fundamental footing.

 

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