June 3, 2016 Newsletter

 Dear Friends,

Tangents:

PRIME NUMBERS:

40.8 MILLION:  People worldwide displaced within their own countries by conflict in 2015, a record high.

35,000: Uber drivers to be included in a new guild, the first of its kind, for drivers in New York City.

1,284: Latest batch of exoplanets discovered by NASA’s Kepler space telescope, the largest cache announced to date.  Nine are considered “potentially habitable.”

 50,000: Appraised value (in U$) of what was thought to be a piece of late- 19^th century folk art.  A viewer who saw the appraisal on PBS’s “Antiques Roadshow” set the record straight:  Her friend – now a horse trainer – made the jug, adorned with human faces, as a high school project in th e1970’s.

151 MILLION: Estimated value (in U$) of used clothing shipped to East Africa in 2015.  Five nations, Burundi, Kenya, Rwanda, Tanzania, and Uganda, are considering a ban on such imports to try to revive local manufacturing

PHOTOS OF THE DAY

A woodpecker perches on a tree in a protected area of Bialowieza forest, the last primeval forest in Europe, near Bialowieza village, Poland.Kacper Pempel/Reuters

Moises Vazquez, known as Spider-Moy, rides the subway to work in Mexico City. Vazquez, a computer science teaching assistant at the National Autonomous University of Mexico (UNAM), teaches dressed as superhero Spider-Man. Edgard Garrido/Reuters

Market Closes for June 3^rd, 2016

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

     (Bloomberg) — Canadian stocks surged back into a bull market, propelled by a furious rally in commodities producers and elevating the nation’s equity markets to one of the top performers in the world this year.

     The S&P/TSX Composite Index rose 0.6 percent to 14,226.78 Friday, capping a 20 percent rally from a bear-market low of 11,843.11 on Jan. 20. The Canadian equity benchmark has surged 9.4 percent in 2016, the second-most among developed markets tracked by Bloomberg. The index plunged 11 percent last year.

     More than C$370 billion ($286 billion) was added to Canada’s resource-heavy equity market in only four months as crude rallied more than 80 percent over that time, stoking growth in the export-oriented economy, the world’s 11th largest, and easing pressure on the balance sheets of lenders exposed to the sector. New Prime Minister Justin Trudeau unveiled in March a budget laden with deficit spending, adding fiscal stimulus to an accommodative interest-rate policy.

     “We’ve turned the corner on the freefall in oil prices,” said Kash Pashootan, fund manager at First Avenue Advisory of Raymond James Ltd. in Ottawa. His firm manages about C$260 million. “We’re getting back to more of what I call a normal market where companies are trading based on fundamentals and future forecasts, which was impossible before as no one knew when commodities would bottom out.”

     Prices for commodities from copper to oil and gold have rallied from the lowest levels in at least 25 years, nearing bull-market territory amid increasing signs of economic stability in China and growth in the U.S., Canada’s two largest trading partners. The Bloomberg Commodity Index, which tracks returns for 22 raw materials, has surged almost 20 percent from a January low after suffering five straight years of declines through 2015. The gauge still remains about 50 percent below the high reached in 2011.

     Odds of a Federal Reserve rate hike this summer faded after the U.S. reported weak jobs data for May on Friday, torpedoing the U.S. dollar and boosting the price of resources denominated in the currency. The Canadian dollar rallied 0.93 cents, or 1.2 percent to 77.29 U.S. cents at 4:08 p.m.                        

     “These trends are sustainable as long as the dollar stays well-behaved,” said Jurrien Timmer, director of global macro at Fidelity Investment, in an interview in Toronto. “The last couple of years, the market has been very narrow. And what happens with the dollar depends on the Fed.”

     Miners have delivered the biggest individual gains in the index this year, with nine metals producers at the top of the index leading the way with rallies of more than 100 percent. Gold rallied 17 percent in the first quarter, the most since 1986. First Majestic Silver Corp. is the best-performing stock in the index with a 237 percent gain, lifting raw-materials producers to a rally of 43 percent, the best start for the industry in three decades, according to data compiled by Bloomberg.

     Crude’s bounce from a 12-year in low in February has also provided a tailwind to Canada’s stock market. Energy producers have surged 35 percent since the S&P/TSX bear-market low, while banks in the S&P/TSX have surged 17 percent.

     Bank of Nova Scotia, Canadian Imperial Bank of Commerce, and National Bank of Canada have jumped at least 11 percent this year, leading banks higher as concern eases that loans to the oil patch will pose a threat to lenders’ balance sheets.

     “What you see with the Canadian banks is a tug of war between pricing in potential loan losses from energy with the fact dividend yields have been so attractive,” Pashootan said. “We saw earlier in the year dividend yields upwards of 5 percent. That was a turning point.”

     Indicated yield for Scotiabank sits at 4.4 percent, while CIBC and National Bank yield more than 4.7 percent, data compiled by Bloomberg show.

     All told, the broader index trails only New Zealand this year among developed markets, though the S&P/TSX’s rapid rally through the first half of 2016 doesn’t leave much room to grow, said John Stephenson, CEO of Stephenson & Co. Capital Management in Toronto.

     “The TSX will sort of plateau,” he said. Stephenson’s firm manages about C$50 million. “You might get another percentage point or two next month, but it’s looking pretty front-loaded.”                      

     First Avenue’s Pashootan is more optimistic and is on the hunt for energy names to add to his existing holdings including Enbridge Inc. and Keyera Corp. His weighting in commodities has doubled to about 8 percent of his portfolio from 4 percent in 2014.

     “We have conviction in energy so we’ve started to add,” he said. “There’s been a shift from our pessimism of even three months ago to now. Given we’re off the bottom, now is the time you want to start building your positions for where things will be two, three, four or five years from now.”

US

By Jeremy Herron and Inyoung Hwang

     (Bloomberg) — U.S. stocks fell with the dollar, while Treasuries and gold gained after American employers added the fewest jobs in almost six years in May, bolstering the case for the Federal Reserve to leave interests rates lower for longer.

     The S&P 500 Index ended the week little changed, while the likelihood for a delayed rate increase sent financial shares lower. The dollar tumbled the most in six months versus the euro, while investors sought the safest government securities, sending the yield on two-year Treasuries to the steepest drop since September and the yield on German 10-year bunds to a record low. The weak greenback sparked a rally in emerging- market assets and commodities.

     “Things are never as bad or as good as they seem,” said Michael Arone, the Boston-based chief investment strategist at State Street Global Advisors’ U.S. intermediary business. The firm oversees $2 trillion. “Fed futures are pricing in a decreasing probability for June and stocks probably don’t mind that scenario all that much. We’re moving away from this risk- on, risk-off formula to one that’s more Fed on, Fed off.”

     The addition of 38,000 jobs last month was less than the most pessimistic of forecasts in a Bloomberg survey, throwing cold water on equity gains that took the S&P 500 within 1.2 percent of its all-time high. Smaller employment gains reduce the odds of a more pronounced upturn economic growth at a time when corporate profits are on a downswing and global markets remain weak. The odds for a Federal Reserve rate increase fell to 27 percent in July, down from 55 percent a day earlier.

     The S&P 500 fell 0.3 percent to 2,099.13 at 4 p.m. in New York, after dropping as much as 1 percent. The index slid back below 2,100 after closing higher than that for the first time since April. The level has capped two prior rallies in the past eight months.

     Utilities and phone stocks rose on Friday as the prospect for lower rates sent investors searching for shares that have large payout ratios. Raw-material shares also climbed, with Newmont Mining Corp. jumping 9.4 percent for the biggest gain in the S&P 500.

     Financial shares trimmed losses to 1.4 percent, after falling as much as 2.4 percent. JPMorgan Chase & Co. and Goldman Sachs Group Inc. sank at least 1.8 percent. Insurers MetLife Inc. and Prudential Financial Inc. fell more than 3.1 percent.

     Canadian stocks surged back into a bull market. The S&P/TSX Composite Index rose 0.6 percent on Friday, capping a 20 percent rally from a low on Jan. 20.

     The Stoxx Europe 600 Index slipped 0.9 percent, extending its first weekly decline in four to 2.4 percent. The MSCI Emerging Markets Index advanced 1.5 percent to a one-month high.

     The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, fell 1.5 percent, the steepest decline since Feb. 3. The dollar dropped 1.9 percent to $1.1363 per euro and lost 2.1 percent to 106.58 yen. The Canadian dollar surged.

     The MSCI Emerging Markets Currency Index jumped 1.1 percent, the biggest jump since March.

     The rand jumped 3.4 percent, reversing earlier losses and extending an advance to four days. South Africa’s credit rating was kept unchanged by S&P Global Ratings, giving the nation a reprieve from a junk assessment, even as it warned it could lower the ratings if the economy doesn’t recover.

     The two-year Treasury note yield fell to 0.77 percent, while 10-year yields dropped 10 basis points to 1.7 percent. The gap between yields on five- and 30-year debt, a measure of the yield curve, steepened by the most since March.

     “This was quite shocking — it’s way under expectations,” said Christopher Sullivan, who oversees $2.3 billion as chief investment officer at United Nations Federal Credit Union in New York. The Fed “will postpone a nearby rate hike for sure — maybe they’ll be forced to look beyond the summer.”

     The yield on Germany’s 10-year bund fell five basis points, or 0.05 percentage point, to 0.068 percent, the lowest ever.

     The Bloomberg Commodity Index rose 0.5 percent to a seven- month high. The gauge bottomed this year in January and is less than half a percentage point from a level that would mark a 20 percent advance, meeting the common definition of a bull market.

     Gold in the spot market climbed 2.8 percent to $1,244.29 an ounce. Bullion is coming off of its biggest monthly loss since November after signs of an improving U.S. economy spurred speculation that the Fed could tighten monetary policy as soon as this month.

     Crude futures fell on both sides of the Atlantic after closing above $50 a barrel in London for the first time in seven months. West Texas Intermediate oil slid to $48.62 a barrel. Brent crude slid 0.8 percent to trade at $49.64 a barrel after closing yesterday at $50.04.

     Zinc rose for a seventh day for its longest rising streak in almost two years amid continued speculation of a raw materials shortage, rising with copper and aluminum.

     Sugar rose to the highest in almost two years as heavy rainfall disrupted loadings at ports in Brazil, slowing down the harvest at a time of peak demand.

Have a wonderful weekend everyone.

Be magnificent!

Unity is an intellectual concept.

On an emotional level unity is serenity, equality and equilibrium.

Swami Prajnanpad

As ever,

Carolann

Good enough never is.

  -Debbie Fields, 1956-

Carolann Steinhoff, B.Sc., CFP®, CIM, CIWM

Portfolio Manager &

Senior Vice-President

Queensbury Securities Inc.,

St. Andrew’s Square,

Suite 340A, 730 View St.,

Victoria, B.C. V8W 3Y7