June 20, 2014 Newsletter

Dear Friends,

Tangents:

I will be writing the newsletter on Carolann’s behalf, as she is out of town.

Photos of the Day

Costa Rica’s Bryan Ruiz celebrates after scoring his side’s first goal over Italy’s goalkeeper Gianluigi Buffon during the group D World Cup soccer match between Italy and Costa Rica at the Arena Pernambuco.

A soccer fan reacts to Brazil’s scoreless tie against Mexico during their 2014 World Cup Group A soccer match in a public viewing area in Sao Paulo, June 17.

Market Closes for June 20^th, 2014

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Ari Altstedter

June 20 (Bloomberg) — Canada’s dollar climbed to the strongest level since January and the nation’s bonds fell as a gauge of inflation exceeded the central bank’s target for the first time in two years, fueling bets the economy is picking up.

The loonie, as the currency is called, rose against most major counterparts as bankers’ acceptance contracts signaled investors were boosting wagers on higher interest rates. The currency fell to the weakest level since 2009 in March after Bank of Canada Governor Stephen Poloz told reporters he couldn’t rule out a rate cut if the economy worsened.

“If these numbers persist, you can’t deny it’s there, and then maybe you have to change your rhetoric a little bit,” Darcy Browne, managing director of currencies at Canadian Imperial Bank of Commerce, said of inflation by phone from Toronto. “While there’s a threat of hiking, the Canadian dollar is going to strengthen.”

The loonie, nicknamed for the image of the aquatic bird on the C$1 coin, appreciated 0.6 percent to C$1.0758 per U.S. dollar at 5 p.m. in Toronto. It touched C$1.0752, the strongest since Jan. 7, after weakening on March 20 to C$1.1279. One loonie buys 92.95 U.S. cents. The Canadian dollar gained 0.9 percent this week in its second five-day advance.

The currency is the top performer for the past three months in a basket of 10 developed-market currencies tracked by the Bloomberg Correlation Weighted Index, strengthening 4.5 percent. It has lost 2 percent this year. Hedge funds and other large speculators cut wagers on Canada’s dollar weakening against the greenback, known as net shorts, to the least in seven months. The difference in the number of bets on a decline in the loonie versus those on a gain was 21,533 as of June 17, the least since Nov. 22, figures from the Washington-based Commodity Futures Trading Commission show. Net shorts numbered 24,108 on June 10.

The Canadian government’s two-year note dropped, pushing the yield to as high as 1.15 percent, the most since Jan. 6. Benchmark 10-year bond yields rose as much as seven basis points, or 0.07 percentage point, the most since March 19, to 2.33 percent before trading at 2.29 percent. The 2.5 percent security maturing in June 2024 lost 29 cents to C$101.84.

The loonie strengthened past its 200-day moving average of C$1.0781, a technical signal it may gain more, after a report showed the consumer price index gained 2.3 percent in May from a year earlier. Core CPI, which leaves out eight volatile products including food and energy, increased 1.7 percent, from 1.4 percent the previous month. A separate report showed retail sales rose more than forecast in April.

The central bank’s goal for inflation is 2 percent. Economists in a Bloomberg survey forecast today’s data would show the CPI held at that level, which it reached in April for the first time since April 2012. It last exceeded 2 percent in February 2012.

“The Bank of Canada had communicated all along any uptick in inflation is transitory, it’s just energy and food, don’t worry about it,” said Greg Anderson, head of global foreign exchange strategy at Bank of Montreal, by phone from New York.

“Well, here it is, CPI, stripped of energy and food, and it’s surging higher. It is untenable, they’re going to have to change their forecasts massively.”

The central bank kept its benchmark interest rate at 1 percent on June 4, with policy makers reiterating concern that low inflation and weak exports are hindering the nation’s economy. Poloz said “the downside risks to the inflation outlook” remain, even after data two weeks earlier showed consumer prices rose at 2 percent. Since taking over at the Bank of Canada last June, Poloz shifted policy statements from cautioning about the need for interest-rate increases to a neutral view that leaves open the possibility of a cut, increasing pressure on the nation’s dollar. Poloz’s references to the importance of a weaker currency to support exports and persistent warnings about the threat of low inflation have kept up the pressure.

“The Bank of Canada will replace talking about uncomfortably low inflation with instead talking about uncomfortably weak recovery of the export sector,” Bank of Montreal’s Anderson said. “That’s the only way they can take a little more hawkish stance on rates without having the currency appreciate.”

Poloz said March 18 at a press conference that “if the balance of risks were to shift so that the risks on the downside for inflation were increased, then we would need to reconsider” lowering the rate.

The yield on June 2015 bankers’ acceptance contracts reached 1.46 percent today, the highest since April 4, suggesting investors are moving up their expected date for the Bank of Canada to begin raising interest rates.

Canadian retail sales increased 1.1 percent to C$41.6 billion ($38.5 billion), Statistics Canada said today in Ottawa. Economists surveyed by Bloomberg News forecast a 0.6 percent increase, based on the median of 19 projections, and the gain exceeded the 1 percent highest forecast.

USA

By Callie Bost and Jeremy Herron

June 20 (Bloomberg) — U.S. stocks rose, with benchmark indexes extending records amid optimism over the economy, as deal activity spurred a rally in health-care shares and energy producers gained with oil prices. Copper advanced a sixth day.

The Standard & Poor’s 500 Index added 0.2 percent to 1,962.91 at 4 p.m. in New York and the Dow Jones Industrial Average climbed 0.2 percent to an all-time high. Shire Plc surged 17 percent as AbbVie Inc. weighed a higher offer for the European drugmaker. Emerging-market shares completed their first weekly drop in June on concern higher oil costs will curb growth. Copper capped the longest rally in six months and coffee advanced for its best day in a month.

U.S. and European stocks rallied this week after the Federal Reserve said interest rates will remain low as the economic recovery shows signs of accelerating. Commodities led by oil rose for a second week as President Barack Obama said he’s sending U.S. military advisers to assist the Iraqi army battle an insurgency and is prepared to take more action.

“This is an energy bunny sort of market that wants to keep marching higher and for a good reason,” Terry Sandven, chief equity strategist at Minneapolis-based U.S. Bank Wealth Management, which oversees $120 billion, said by phone. “The U.S. economy is showing varying signs of improvement. Earnings are rising, interest rates are low and inflation is elevated, but not at extremes. That’s a favorable environment for equities to march higher.” The S&P 500 has climbed 1.4 percent this week. The index has closed higher six straight days, its longest streak since April. The gauge is trading at 16.6 times the projected earnings of its members, up from 15.5 times at the beginning of the year.

Fed Chair Janet Yellen emphasized the need to put more Americans back to work and downplayed concerns about asset-price bubbles and incipient inflation.

Among stocks moving, CarMax Inc., the biggest U.S. auto dealer by market valuation, surged 17 percent after its profit and revenue topped estimates on higher vehicle sales. AutoNation Inc. added. 5.1 percent. Oracle Corp. slid 4 percent to lead an index of technology shares lower after reporting fourth-quarter profit and sales that fell short of analysts’ estimates.

Five out of 10 main industries in the S&P 500 advanced today, with energy shares adding 1 percent for the biggest increase. Drug companies rallied amid the AbbVie discussions. Cross-border deals are accelerating as U.S. companies seek lower taxes and ways to spend almost $2 trillion protected from U.S. taxes in cash abroad. Merck & Co. increased 1.1 percent and Eli Lilly & Co. climbed 3.6 percent to pace gains. The Stoxx 600 finished little changed, paring gains in the final minutes of trading to trim a weekly gain to 0.3 percent. AbbVie Inc. is considering raising ts takeover bid for Shire Plc a fourth time after the European drugmaker rejected its latest offer for about $46.5 billion, said two people with knowledge of the matter.

TSB Banking Group Plc rallied 12 percent on its first day of trading. Lloyds Banking Group Plc sold a 35 percent stake in the lender, more than the 25 percent it had planned, because of strong demand from investors.

“We’re still overweight global equities,” said Kelvin Tay, chief investment officer for South Asia Pacific at UBS Wealth Management. “Where risk assets are concerned, you tend to benefit from low interest rates, and from the Fed’s statement, we don’t think that interest rates are going to go up anytime soon. There is some concern that the situation in Iraq could escalate and bring oil prices up another notch.” The MSCI Emerging Markets Index slid 0.5 percent, bringing this week’s loss to 0.4 percent. Russia’s equities ended two days of gains as fighting erupted between Ukrainian government troops and insurgents.

The Micex fell 0.6 percent, pushing its weekly decline to 1 percent. After the market closed, Ukraine announced a week-long unilateral cease-fire in its easternmost regions. Earlier, NATO condemned Russia for massing new troops in a move that cast a pall over talks.

Gilts fell as Barclays Plc brought forward its forecast for the first increase in Bank of England interest rates to this year from the second quarter of 2015. The 10-year yield increased three basis points to 2.76 percent, after reaching 2.79 percent on June 13, the highest since March 11.

German 10-year yields increased two basis points to 1.34 percent. Italy’s rose three basis points to 2.95 percent.

The S&P GSCI index of 24 commodities added 0.1 percent for a seventh day of gains, the longest streak in 11 months that left the gauge at the highest level since February 2013. West Texas Intermediate crude climbed 0.8 percent to $107.26, the highest settlement since Sept. 18. Brent crude slipped 25 cents to close at $114.81 a barrel in London, trimming a second weekly gain.

Copper for delivery in three months rose 1.4 percent to settle at $6,820 a metric ton in London, the biggest gain since May 12. Zinc rose to a 16-month high on concern supply will remain tight amid shrinking inventories.

Have a wonderful evening everyone.

Be magnificent!

“Always do your best; what you plant now you will harvest later.” – Og Mandino

As ever,

Brianna

“With the New day comes new strengths and new thoughts.” – Eleanor Roosevelt

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

Senior Vice-President &

Senior Investment Advisor

Queensbury Securities Inc.,

St. Andrew’s Square,

Suite 340A, 730 View St.,

Victoria, B.C. V8W 3Y7