Economic Watch Q3 2019

Our partners at National Bank Financial offer a 2019 fourth quarter perspective on changing global economic trends and what to expect for the balance of the year. What they are watching for:

September’s (Canadian) labour force survey will draw the
most attention. No less than 304,000 jobs were added in the country
in the first eight months of the year, the best tally since 2002

NBF Economics October 4, 2019

The Canadian economy saw a weaker GDP growth rate in July and coupled with a broader economic easing, along side the tumult in the U.S. on both a political and economic level, the fourth quarter will be choppy for investors, as often is the case.

Read more

Trade Wars – ‘The Yin and The Yang’

The Canadian and American economies are proving to be resilient in light of current global trade tensions and wars.

U.S. consumer spending, which accounts for an outsized share of GDP, bounced back strongly, supported by the lowest unemployment rate in 50 years. Canada’s wage growth and inflationary pressures have emerged against a steady, central bank interest rate. Yet, Canada had similar increase in economic output in GDP. (NBF July 2019) Furthermore, some U.S. trade tensions have benefitted Canadian manufacturers and producers. For example, Lobster exports are way up to China more than doubled after receiving a 3-percentage point Chinese tariff cut. Also, the Canadian dollar has been appreciating against the U.S. dollar. (It) has increased over 3% since the end of May 2019 and maybe begin to soften to benefit Canadian exporters.  (BDC July 2019) Sounds like a pretty good economic ‘Yang’. So what’s the ‘Yin’?

Trade Wars Expand Their Impact

Trade Wars may be a negotiating strategy but if sustained they will become a global ‘wet blanket’ that no economy will escape. As our partners at NBF Economics, point out in their recent economic outlook, China’s slowdown is significant. This is the ‘Yin”. A significant Chinese economic slowdown could hit Canada hard and cause a decline in the U.S.

“In China, GDP expanded just 6.2% in Q2 from a year earlier (+1.6% q/q non-annualized). Its slowest pace since data collection began in 1992. Although in line with expectations, this result confirmed that the world’s second largest economy is slowing amid persistent U.S. trade tensions. The deceleration could have been worse had other indicators not surprised on the upside in June.”

NBF Economics July 2019
Predicted U.S. GDP is expected to decline especially if trade wars persist.
Predicted U.S. GDP is expected to decline especially if trade wars persist.

“Global trade contracted 2.3% between October and April, according to the Netherlands Bureau of Economic Analysis. The World Bank expects the global economy to grow by just 2.6% this year—the weakest pace since the financial crisis.”

Source: BDC July 2019

It appears the later half of 2019 may be more Yin than Yang. Looming challenges include slowing Chinese growth coupled with the U.K.’s new Prime Minister’s hard line approach to Brexit.

Women and Wealth

Here are some interesting facts about Female Investors:

-Women have accounted for over 50% of job gains, as gender wage gap still exists but has narrowed in 2019.

-Women outlive men by 6 years on average.

-By 2028, it is estimated that women will control $4 Trillion in financial assets and if real estate assets are included, the value is estimated at $8 Trillion.

-Women start more businesses and are often more risk averse in their investing approaches.

-Millennial women (born 1981-2000) are entering the highest circles of asset ownership faster than women born earlier: 22% of Baby Boomer women (born 1946-1964) have $5 million or more in assets, while Millennials come in at 32%.

-The definition of wealth is defined differently by generations as well as gender, with 38% of women including preparedness for the future in their definition, compared with 30% of men.

(Sources: CIBC Economics and RBC Wealth Mgmt)

Tariffs, Trade and Your Investment Portfolio

Canadians have an understandable bias towards building investment portfolios that own Canadian stocks and bonds. Our partners at National Bank Financial Economics suggest that the world of Trump tariffs and trade policies may require a new approach to how to analyze your investments.

In an article from Investment Executive Canada, National Bank Financial recommends, “In this new global environment, Canadian investors must do more than simply analyze a company’s fundamentals. They must focus on the country that the company considers its home base, and determine if that country’s relations with its main trading partners are strained in a way that might impact its bottom line. “

Technology, Tariffs and Trade are Linked

Angelo Katsoras from National Bank Financial warns that while “a trade deal between China and the United States would be good news for the markets in the short term, it would not change the long-term fundamentals fuelling tensions between the two countries. This includes the battle for geopolitical influence and dominance of tomorrow’s technologies.”

To enjoy Angelo’s in-depth analysis please review the report here. Make sure to contact your Hampton Securities Advisor to discuss your specific investment needs.

Outlook On Housing

Interpreting recent economic signals in the first quarter of 2019 is challenging. Housing markets in main urban centers are cooling. This is generally interpreted as a good sign and potentially averting a housing bubble. It appears that the new rules on speculation, foreign ownership and increasing mortgage rates have had a positive impact on a heated marketplace. As BDC.ca indicates the cooling will continue, “Research shows it takes between three and five years for changes in central bank interest rates to fully work their way through the economy. When they do, a one percentage point change in interest rates can have a three-to-five percentage point impact on home prices.”

Business Confidence Stabilizes In April

The Canadian economy is in transition. Our partners at NBF Economics remind us, there is a positive outcome. The benefit is that interest rate hikes are not likely in the future as the Bank of Canada Governor Poloz indicates.

“As financial conditions had eased, the Bank believed the current interest rate level to be consistent with its positive economic outlook going forward. If we assumed the Bank’s forecast to be right, Poloz’s view was that the policy rate was more likely to go up than down, though there was “no rush to get back in the saddle in terms of hikes.”

https://www.nbc.ca/content/dam/bnc/en/rates-and-analysis/economic-analysis/weekly-economic-watch.pdf

Happy New Year!

Happy 2019!  While December 2018 for investors may have felt more like coal in your stocking than a Santa Claus rally, we believe a return to normalized financial markets and interest rates in North America is beneficial in the longer run. What are your New Years ‘Investing’ Resolutions for 2019? Mercer offers a few to consider.

Four Investing Themes to Consider From Mercer

Mercer’s Consulting four themes investors could consider in 2019:

  • Increased Volatility
  • Less Borrowing Due to Higher Interest Rates
  • Political Fragmentation and Trade Woes
  • Sustainability Expands for Risk and Return Considerations

Uncertain times can require a more active approach to investment strategies. We look forward to an exciting 2019. We are grateful for the privilege to serve and support the clients and families as we embark on the next journey!

Monday Monitor: Have Interest Rate Hikes Had An Impact?

As the NAFTA 2.0 trade deal (USMCA) is finalized and the trade uncertainty is resides, it still appears that successive increases in interest rates are already having an impact in key sectors such as housing and autos. Many investors are asking — where are we as it relates to the next steps of economic growth and market expectations?

Enjoy a thoughtful and thorough economic analysis from our partners at NBF Economics HERE.

Unrealistic Views Of Risk and Return

Do investors have a realistic view of risk and return? As we recently pass the 10th anniversary of the Financial Crisis of 2008 with significant volatility in the financial markets, insights about investor sentiment were surveyed. Why is sentiment important? Simply put, it can move markets. Here are some of the highlights of the research by the Investment Managers at Natixis.

How Do Investors Feel About Risk And Their Investments In 2018?

Some of the highlights that reveal myths and realities of investing from the recent survey include:

  • 71% feel more financially secure than they did during the financial crisis
  • 63% say index funds are less risky (they’re not)
  • 70% don’t think the world itself is a more secure place

How do you feel about your investment expectations? If you wish to learn more, enjoy the Natixis report and as always feel free to discuss your perspectives or second opinions with your Hampton Wealth Investment Advisor.

Abby Normal – Is volatility the new market norm?

When an asset rises in value for over 400 business days, it is normal to pause to reassess. The past two weeks, but in particular the last five trading days has delivered the most volatile trading ranges in recent history. The S&P 500 is used as a proxy for the American economy. Enjoy the article from wealthmanagement.com who explores a perspective.

There is a general consensus that global stock markets were due for a healthy pullback triggered by overall inflationary fears and rapidly rising long-bond yields. The normal reality of between two to five, 2% to 5% stock market declines across an economic cycle has evolved to what appears to be a more compacted, less frequent yet more significant declines as explored by seekingalpha.com. “How about if we normalize the data to the value of the S&P 500? Well, the most volatile day in the past week, February 6, 2018, is ranked only 156th in S&P 500’s history, with a 4.08% swing in intraday range. The top-ranked intraday swing is, you guessed it, Black Monday 1987 with a 22.80% difference between the high and low prices of the day.” Food for thought and more comparisons in the article from SeekingAlpha.

Volatility of S&P 5000 In February From SeekingAlpha.com

Monday Monitor – July 17th House Price Index

The Teranet–National Bank National Composite House Price Index TM rose 2.6% in June, the largest increase for that month in the index’s 19-year history. The table below breaks it down metropolitan areas:

City Hamilton Toronto Quebec City Vancouver Victoria Edmonton Halifax Montreal Ottawa
June Change +4.1% +3.7% +3.7% +2.5% +2.2% +1.8% +1.7% +1.6% 1.2% 

 

Year over year, the national index up a record 14.2%. The hottest markets are Toronto (+29.3%—a record), Hamilton (+25.6%—also a record) and Victoria (+17.4%).

The June stats show that the Ontario government’s Fair Housing Plan intends to put a damper on Toronto house prices. Real new residential construction expenses and housing starts had not yet had a bearing in this regard. Given the plan’s effect on home sales and listings, the impact on prices should be felt soon enough.

 

The implications of these trends impact the net worth of approximately 75% of Canadian households. Residential real estate as an asset class is often the largest holdings within their overall net worth.

First Interest Rate Increase In Seven Years

The Bank of Canada (BoC) hiked its policy rate for the first time in seven years, raising the overnight rate 25 basis points to 0.75%. The BoC acknowledged that inflation remains low. The latest reading showed common core Consumer Price Index (CPI) rising only 1.3% on an annual basis. CPI weakness is considered “temporary”. National Bank Financial Economics continues to project inflation close to 2% by the middle of 2018.

Positive Economic Growth for Canada

This increase couples today’s forecast from the Conference Board of Canada (CBoC) anticipating an increase in GDP (Gross Domestic Product) growth in Canada from July 2017 forward. Housing is a key driver. The CBoC expects the Canadian economy to grow by 2.6% this year, before slowing to 1.9% in 2018. Enjoy the complete Economic Report and Forecast from our partners at National Bank Financial Here.