June 10, 2016 Newsletter

Dear Friends,

Tangents:

POINTS OF PROGRESS:

GERMANY:

In a milestone for renewable, the total output of solar, wind, hydropower, and biomass in the country – the world’s fourth-largest economy – hit 90 percent of its required power on May 8^th.  That was during a Sunday morning power-consumption lull; Germany still leans on fossil fuels.  On average, renewable supply 30 percent of the country’s power. –Thinkprogress, Agora Energiewende.

UNITED STATES:

Energy-related Carbon Dioxide emissions fell in 2015 to about 12 % below 2005 levels, after rising in 2013 and in  2014, owing chiefly to changes in the electric power sector – partly from the growth in renewable sources but especially from the decreased use of coal in favor of natural gas. –Energy Information Administration.

N. CALIFORNIA/OREGON COASTS:

Starfish are staging a comeback, after a virus devastated adult populations along the northern West Coast starting in 2013.  The number of juveniles was “higher than we’d seen – as much as 300 times normal,” says Bruce Menge, a marine biologist at Oregon State University.  The high survival rate to the juvenile stage was linked in part to a spike in available food due to the absence of adult sea stars.  Researchers caution that the revival does not indicate that “sea star wasting disease” is over. –Oregon State University.

BRITIAIN:

Ina bid to combat childhood obesity, the Local Government Association, which represents more than 370 local councils, is pressing restaurants to offer water with meal service as an alternative to sugary drinks.  The provision of water as an option is required of licensed restaurants, but an LGA poll  that while 8 of 10 people usually drink tap water at home, only a third do so at restaurants.  A long-delayed childhood obesity strategy in Britain has included more controversial measures, such as a sugar tax.  –The Guardian.

WORLDWIDE:

Most shipping concerns are refusing shark-fin cargo, with 16 of the world’s top 20 shipping companies having agreed not to carry shark fins, according to WWF’s offices in Hong Kong, traditionally a transit hub for the trade.  The practice of finning typically leaves live sharks at the mercy of predators or suffocation.  The global market for shark fins saw a surge beginning in the late 1990s.  but a survey last year showed 70 % of Hong Kong residents have reduced or entirely stopped consuming shark-fin soup. –WWF-Hong Kong, The Standard (Hong Kong).

PHOTOS OF THE DAY

Britain’s Queen Elizabeth arrives for a service of thanksgiving for her 90th birthday at St Paul’s Cathedral in London on Friday. Toby Melville/Reuters

Participants dressed in ancient Japanese costumes take part in a parade at the Imperial Palace during the Sanno Festival in Tokyo on Friday.Toru Hanai/Reuters

Market Closes for June 10^th, 2016

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Number of the Day:
0.023%
The low on the 10-year German bund yield Friday, surpassing its all-time low of 0.025% hit on Thursday.
Tweet of the Day
Switzerland can borrow for 50 years at a lower rate than the U.S. can borrow for 1 month. Swiss 50yr yield 0.15% US 1-month yield 0.21%
— Jamie McGeever @ReutersJamie

Canada

By Inyoung Hwang

     (Bloomberg) — Canadian stocks fell a third day, sliding the most in four months, as energy producers tumbled with the price of oil and investors braced for a series of events this month that could renew turbulence in markets.

     The S&P/TSX Composite Index slid 1.4 percent to 14,037.54 at 4 p.m. in Toronto. While the benchmark touched the highest level in 10 months earlier this week, it has fallen 2.3 percent in the last three days. Trading volume today was 11 percent lower than the 30-day average.

     Global stocks also posted the steepest drop since February and bond yields slid to record lows, before next week’s Federal Reserve meeting and Britain’s referendum on European Union membership this month. Canadian shares remain more expensive relative to their U.S. peers, trading at 21.5 times earnings, about 11 percent higher than the 19.4 times valuation of the S&P 500 Index.

     Energy producers contributed the most to declines today, as all 10 industries in the Canadian equity benchmark retreated. Gran Tierra Energy Inc. and Baytex Energy Corp. lost at least 7.4 percent. Crude futures dipped below $50 a barrel in New York as a rising U.S. dollar countered declining crude stockpiles and disruptions from Canada to Nigeria.

     Transcontinental Inc., a Montreal-based commercial printer of flyers, plunged 9.9 percent after posting second-quarter profit that fell short of analysts’ estimates.

US

By Oliver Renick

     (Bloomberg) — U.S. stocks retreated, with the S&P 500 Index falling the most in three weeks, amid caution over tepid global growth and a series of looming events with the potential to spur renewed market turbulence.

     Losses intensified in afternoon trading following fresh poll results favoring an exit in Britain’s European Union referendum, though a rebound in the final minutes pared declines. Energy producers led the slide, capping their worst session in five weeks. Banks sold off for a second day as Treasury yields continued to drop, with Citigroup Inc. and Bank of America Corp. sinking more than 2.4 percent. A measure of equity market volatility posted the biggest jump in five months.

     The S&P 500 fell 0.9 percent to 2,096.07 at 4 p.m. in New York, slipping below 2,100 for the first time in a week, a level where other rallies during the past year have faded. The Dow Jones Industrial Average dropped 119.85 points, or 0.7 percent, to 17,865.34. The Nasdaq Composite Index lost 1.3 percent, the largest decline in two months. About 6.8 billion shares traded hands on U.S. exchanges, 3 percent below the three-month average.

     “With the macroeconomic data mixed and the British referendum, the market continues to struggle with the overall general macro environment not just in the U.S. but globally,” Nadia Lovell, U.S. equity strategist at J.P. Morgan Private Bank in New York, said by phone. “And from a valuations standpoint, there is very little to no earnings growth expected. The market has really rallied from February lows, so people will be in a protect-my-profit mode as no one forgot about how volatile markets were last summer.”

     The CBOE Volatility Index surged 16 percent to 17.03, the biggest climb since January to a three-month high. The measure of market turbulence known as the VIX also marked its largest weekly advance in five months, up 26 percent. A flight from risk was apparent as 10-Year U.S. Treasury yields fell for a fourth day to a three-year low.

     Friday’s retreat wiped out the S&P 500’s weekly gain, leaving the index 0.2 percent lower for the period after reaching on Wednesday its highest in nearly 11 months and coming within 0.6 percent of a record. It signals a shift in sentiment as investors reevaluate a rally that regained momentum in the last three weeks and now faces simmering concerns over the health of the economy, lackluster corporate profits and the effectiveness of central-bank stimulus.

     The so-called FANG stocks were the biggest drivers of the Nasdaq Composite’s worst decline since April 7, with Facebook Inc., Amazon.com Inc. and Google parent Alphabet Inc. losing more than 1.3 percent. Netflix Inc. sank 3.4 percent.

     Optimism that borrowing costs will remain lower for longer amid modest global growth is waning ahead of a string events in the next two weeks. The Federal Reserve and Bank of Japan meetings next week, followed by the vote on Britain’s EU membership, have the potential to roil markets.

     Remarks on Monday by Federal Reserve Chair Janet Yellen had soothed investors following a disappointing jobs report, as she said the U.S. economy is making progress and indicated policy makers won’t rush to raise interest rates. The employment report prompted traders to cut back the probability for a June rate increase to zero, and only 18 percent in July. At least even odds for a raise fluctuated today between December and January.

     A report today showed confidence among American consumers in June eased from an almost one-year high as favorable views about personal finances were offset by concerns about the economy’s prospects.

     A rebound of as much as 16 percent from the February low brought the valuation of S&P 500 companies to about 17 times estimated earnings, almost 10 percent more than the multiple for MSCI All-Country World Index members. Meanwhile, the U.S. benchmark’s recent approach toward the all-time high has been grinding. Before today, it failed to move more than 0.5 percent up or down for 10 consecutive sessions, the longest such streak since September 2014.

     “The market is not really supported by earnings growth and the relative valuation to other markets makes the U.S. market rather expensive,” said Christian Zogg, head of equity and fixed income at LLB Asset Management in Vaduz, Liechtenstein. “We are at the upper boundary of a trading range, which will not be broken through so quickly.”

     In Friday’s trading, eight of the S&P 500’s 10 main industries declined, with half the groups losing at least 1 percent. Phone companies rallied for a second day amid investors’ preference for more defensive stocks, while consumer staples were little changed.

     Lenders posted the worst two days in five weeks. Wells Fargo & Co. and JPMorgan Chase & Co. slipped at least 1.4 percent. Along with banks, insurers fell for a second day to weigh on financials. American International Group Inc., Prudential Financial Inc. and MetLife Inc. all lost more than 1.5 percent. It’s the first two-day slide for the benchmark’s insurers since May 4.                       

     Energy producers dropped for a third day, sinking 2 percent amid the longest losing streak in two months. West Texas Intermediate crude fell 3 percent, below $50 a barrel, as the dollar gained for a second session. ConocoPhillips and Apache Corp. lost more than 4.1 percent, the steepest for both in more than two months.

     The health-care group was dragged lower by the riskiest part of the industry — biotechnology companies. Celgene Corp. slumped 3 percent, the most in a month, while Gilead Sciences Inc. and Biogen Inc. lost more than 1.5 percent. The Nasdaq Biotechnology Index dropped 2.2 percent.

     Phone companies, the group with the highest dividend yield in the S&P 500, rose 0.8 percent. Verizon Communications Inc. gained 1.4 percent to a two-month high, and AT&T Inc. increased to the highest since May 2008.

     Among companies moving on corporate news, H&R Block Inc. soared almost 13 percent, the best gain in seven years, after reporting better-than-estimated revenue and boosting its quarterly dividend by 10 percent.                        

     Axiall Corp. surged 26 percent after Westlake Chemical Corp. agreed to acquire the vinyl maker for about $2.4 billion to become the second largest North American producer of vinyl products used in pipe, siding and decks. Westlake added 3 percent.

     Mattress Firm Holding Corp. lost 12 percent after cutting its annual forecast, renewing concerns about a slowdown at the bedding provider. Tempur Sealy International Inc. declined 3 percent.

     Urban Outfitters Inc. fell for a sixth day, tumbling 5.8 percent after a warning on sales this quarter renewed concerns about a slowdown at the retail chain. Other retailers were also weak, with Nordstrom Inc. and Kohl’s Corp. sliding 1.7 percent.

Have a wonderful weekend everyone.

Be magnificent!

That economics is untrue which ignores or disregards moral values.

The extension of the law of nonviolence in the domain of economics means nothing less

than the introduction of moral values as a factor to be considered with regulating international commerce.

Mahatma Gandhi

As ever,

Carolann

How old would you be if you didn’t know how old you are?

                                           -Satchel Paige, 1906-1982

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