Japans extends growth streak
It was a big week filled with political drama and upbeat economic news starting with Japan. The world’s third-largest economy extended its stretch of growth to five quarters with Q1 GDP notching a better-than-expected 2.2% rise. That makes it the longest expansion since 2006 offering hope that Japan may be returning to stable – albeit slow growth – after years of government spending and loose monetary policy. In Washington, the headline event was the appointment of a special counsel to look into Russian intervention in the 2016 presidential election. The move rattled markets Wednesday as traders grew concerned the Trump administration may have difficulty getting its pro-business agenda passed by lawmakers due to the turmoil. Also in Washington, U.S. lawmakers were informed by letter that Trump intends to launch formal negotiations on the North American Free Trade Agreement with Canada and Mexico. The talks could start as soon as 90 days and may fundamentally alter the 23-year-old pact. In commodity news, Russian and Saudi Arabian oil ministers have verbally agreed to extend production cuts to the end of March 2018. The cuts are designed to bring down global oil inventories and will be formally tabled at an OPEC meeting in Vienna May 25. In the U.K., retail sales jumped a better-than-expected 2.3% in April versus the previous month when sales fell 1.4%. Meantime, U.K. consumer prices rose 2.7% yoy in April, the fastest pace in over 3 years. Looking ahead, we’ll get a look at Canadian inflation data and retail sales today with a Bank of Canada policy meeting scheduled next Wednesday.
Stocks sell-off, pare losses
North American stock benchmarks sold off Wednesday – the largest decline this year – but buyers quickly returned the following day paring losses. For the four days covered in this report, the Dow fell 233 pts. to close at 20,663, the S&P 500 gave back 25 pts. to close at 2,365 and the Nasdaq shed 66 pts. to close at 6,055. In Canada, the TSX closed out the period down 260 pts. to settle at 15,277.
Market volatility picks up heading into the summer
Our 2017 bullish stance on equities has materialized as the market hit a string of new all-time highs recently. Despite this performance, the last couple of weeks have disappointed us as internal market dynamics have begun to weaken with every new high on growing North Korean concerns, softening economic data (Q1 GDP, CPI, ISM), Chinese growth anxiety, and discouraging political noise out of Washington along with legislative gridlock. We believe caution on broad based new-money purchases for the next 1-2 months could be prudent as the odds of a typical 5% pullback have increased. Such a pullback should reset investor positioning and would present an ideal entry point into our bullish year-end view (premised on low recession risks, breakout corporate earnings, peak corporate buybacks feeding into rising capital goods orders, etc.).
This material does not include or constitute an investment recommendation, and is not intended to take into account the particular investment objectives, financial conditions, or needs of individual clients. Before acting on this material, you should consider whether it is suitable for your particular circumstances and talk to your investment advisor.
This publication has been prepared by ScotiaMcLeod, a division of Scotia Capital Inc. (SCI). This publication is intended as a general source of information and should not be considered as personal investment or tax advice. We are not tax advisors and we recommend that individuals consult with their professional tax advisor before taking any action based upon the information found in this publication. Opinions, estimates, and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. Neither SCI nor its affiliates accepts liability whatsoever for any loss arising from any use of this publication or its contents. This publication is not, and is not to be construed as, an offer to sell or solicitation of an offer to buy any securities and/or commodity futures contracts. SCI, its affiliates and/or their respective officers, directors, or employees may from time to time acquire, hold, or sell securities and/or commodities and/or commodity futures contracts mentioned herein as principal or agent. SCI and/or its affiliates may have acted as financial advisor and/or underwriter for certain of the corporations mentioned herein and may have received and may receive remuneration for same. All insurance products are sold through Scotia Wealth Insurance Services Inc., the insurance subsidiary of Scotia Capital Inc., a member of the Scotiabank Group. When discussing life insurance products, ScotiaMcLeod advisors are acting as Insurance Advisors (Financial Security Advisors in Quebec) representing Scotia Wealth Insurance Services Inc. This publication and all the information, opinions, and conclusions contained in it are protected by copyright. This report may not be reproduced in whole or in part, or referred to in any manner whatsoever, nor may the information, opinions, and conclusions contained in it be referred to without in each case the prior express consent of SCI.