Market Watch for August 19, 2016

Portfolio Advisory Group

August 19, 2016

Big Picture

Central bank minutes in focus

Central bank minutes and a full economic calendar made for a busy week amid the dog days of summer. U.S. Federal Reserve minutes released Wednesday showed officials warming to the idea of an interest rate hike but not until consensus had been reached among them. The minutes – taken from the Fed’s July 26-27 meeting – indicate greater confidence in the U.S. and global economies as last month’s near-term risks diminished. The ECB also released minutes from its last policy meeting which showed uncertainty about Europe’s post-Brexit world but held back on new stimulus judging it premature. Turning to economic news, the U.S. consumer price index – a measure of what Americans pay for everything from prescriptions to child care and gasoline – was unchanged on a seasonally adjusted basis in July from the previous month. The index rose 0.2% in each of the two prior months. The numbers underline a lack of inflation in the U.S. economy which may constrain the Fed from raising rates as it hopes to see greater, upward movement in consumer prices. Foreshadowing the inflation data were U.S. retail sales reported last Friday which were lower than expected for July. Jobs data for the U.K. came out Wednesday for the April to June period which showed employment at a record high while unemployment was unchanged at 4.9%. The solid jobs report was not expected in light of the uncertainty before the U.K. voted to leave the EU. Turning to Canada, manufacturing sales were reported Tuesday with a better-than-expected rise of 0.8% versus estimates of 0.5% for July. Manufacturing data is an important measure of growth for the Bank of Canada as it hopes to see a rebound in factory activity to offset energy sector woes. Looking ahead, Statistics Canada reports on Canadian retail sales today as well as inflation. 


Stocks inch higher

Expectations for more central bank easing amid mixed economic data was enough to support most North American stock benchmarks this week. In the U.S., the Dow added 21 pts. to end at 18,597, the S&P 500 added 3 pts. to close at 2,187 and the Nasdaq settled 8 pts. higher at 5,240. The TSX bucked the uptrend giving back 54 pts. to finish Thursday’s session at 14,693.

Our Recommendations

Energy stocks remain resilient despite oil market volatility

Equities: Sunny Singh, Senior Manager, Canadian Equities, Global Portfolio Advisory Group wrote: “In recent months, we’ve been highlighting short-term risks to crude oil prices as adverse U.S. rig count and inventory data could weigh on near-term sentiment. Indeed, these factors, combined with incremental OPEC production and demand growth concerns, did result in oil pulling back from the US$50/barrel level to the low US$40s/barrel. But as quickly as oil declined, it bounced right back, currently trading around $48/barrel. Our medium-term outlook remains constructive as global supply and demand should approach equilibrium sometime in 2017. As Q2 reporting season has drawn to a close, the sentiment of most publicly traded oil producers appears to remain cautious when it comes to incremental drilling activity, which we consider constructive to our medium-term thesis. Despite the recent volatility of the commodity, the TSX and S&P500 Energy sectors have remained relatively unchanged, suggesting to us that energy equities may remain range bound. We are doubtful that an impromptu meeting of OPEC members next month will result in any meaningful accord to curtail production.”

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