June 30, 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

Morning fog covers the valleys near Bernbeuren, southern Germany, at sunrise.

An Iraqi Christian girl whose family fled from Mosul, Iraq, arrives at a social club in Ainkawa, a suburb of Irbil with a majority Christian population. Hundreds of Iraqi villagers are fleeing advances by Sunni militants.

Market Closes for June 30^th, 2014

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Andrew Mayeda

June 30 (Bloomberg) — Canadian consumer confidence rose for the first time in a month as optimism about real-estate prices surged to the highest in almost five years.

The Bloomberg Nanos Canadian Confidence Index climbed to 59.2 for the week ended June 27, from 58.5 in the prior period. The percentage of respondents who believe home values in their neighborhood will increase in the next six months rose to 44.1, the highest since the fourth quarter of 2009.

Optimism about personal finances and the economy also increased, while job-security sentiment dimmed, according to the survey-based index.

“Looking at the key drivers of consumer sentiment over the past six years, it is clear that positive views of real estate is a key factor in Canadian consumer confidence,” said Nik Nanos, chairman of Ottawa-based polling firm Nanos Research Group. Sentiment about real estate is “noticeably” above its six-year average, while personal-finance views are “marginally” below the average for the period, he said.

Canada’s housing market has been surging even as the world’s 11th largest economy struggles to shift into high gear. Canadian realtors recorded their biggest sales gain in almost four years last month, as the industry rebounded from the impact of a difficult winter, the Canadian Real Estate Association said June 16.

Housing starts rose to their strongest level in seven months in May, following a slump in construction in the first three months of the year, Canada Mortgage & Housing Corp. reported June 9.

Bank of Canada Governor Stephen Poloz said June 12 that the biggest domestic risk to the country’s financial system remains households with stretched consumer finances after a period of rapid homebuilding. Poloz also predicted a soft landing in the housing market and progress in Europe’s effort to ease its debt crisis.

Canada’s economic growth slowed in the first quarter as the harsh winter slowed housing construction, business spending and exports, and expanded less than economists forecast in April. Poloz said June 4 it remained appropriate for the central bank to keep its benchmark interest rate at 1 percent, in view of the economy’s “modest” pace of growth.

The survey-based Nanos index has two sub-indexes. The Expectations Index, based on responses about the national economy and real estate, rose to 58.7 last week from 58.2.

The share of respondents who think the Canadian economy will improve over the next six months rose to 21.8 percent from 21.1 percent the week before.

The Pocketbook Index, based on responses to questions about personal finances and job security, climbed to 59.7 from 58.9.

Those who say their finances have improved over the past year rose to 17.6 percent from 17.0 percent, according to the Nanos report.

The proportion who say they feel at least somewhat secure about their jobs dropped to 68.8 percent, the lowest since May 30, from 69.2 percent.

“A modest pickup in overall economic activity appears to have bolstered consumer sentiment,” said Joseph Brusuelas, senior economist at Bloomberg LP, “However, Canadians remain concerned about their own personal financial condition, which is reflective of the household imbalances that remain a pressing policy challenge.”

Canada’s gross domestic product grew less than economists forecast in April as goods production fell while service industries such as wholesaling expanded, Statistics Canada said today in Ottawa. Output rose 0.1 percent to an annualized C$1.62 trillion ($1.51 trillion), the same pace as in March. The median forecast in a Bloomberg economist survey was for the world’s 11th largest economy to expand 0.2 percent.

The Nanos data are based on phone interviews with 1,000 people, using a four-week rolling average of 250 respondents.

The results are accurate to within 3.1 percentage points.

USA

By Jeanna Smialek

June 30 (Bloomberg) — The number of contracts to purchase previously owned U.S. homes jumped in May by the most in more than four years, a sign the residential-real estate market is rebounding after a slow start to the year.

The pending home sales index climbed 6.1 percent, the biggest advance since April 2010, after a revised 0.5 percent increase in April, the National Association of Realtors said today in Washington. The gain exceeded the most optimistic estimate in a Bloomberg survey of economists, whose median forecast called for a 1.5 percent gain.

Housing demand is benefiting from cheaper borrowing costs, a stronger employment outlook and easier access to credit for some households. At the same time, higher prices and limited income gains are keeping the improvement in the residential real estate from becoming more broad-based.

“Housing is beginning to bounce back,” Paul Ashworth, chief U.S. economist at Capital Economics Ltd. in Toronto, whose forecast for a 4 percent gain was the highest in the Bloomberg survey. “Mortgage rates have backed down a bit recently. Home prices are still rising, which means fewer people have mortgages that are under water. The longer the housing recovery goes on, the more people will gain confidence to join in.”

The gain in May was the biggest since first-time buyers rushed to sign contracts before the expiration of a tax credit four years ago. Estimates in the Bloomberg survey of 37 economists ranged from a decline of 0.5 percent to an advance of 4 percent after a previously reported 0.4 percent April gain.

Another report showed manufacturing cooled in June from a month earlier. The Chicago Institute for Supply Management Inc.’s business barometer fell to 62.6 from 65.5 in May. The median forecast called for the gauge to fall to 63. Readings above 50 signal expansion.

Stocks rose after the data, with the Standard & Poor’s 500 Index advancing 0.1 percent to 1,962.77 at 10:35 a.m. in New York. The S&P Supercomposite Homebuilding Index increased 1.5 percent.

Purchases fell 6.9 percent from the year prior, on an unadjusted basis, after a 9.3 percent decrease in the 12 months that ended in April, the association reported.

The pending sales index was 103.9 on a seasonally-adjusted basis, the highest since September. A reading of 100 corresponds to the average level of contract activity in 2001, or “historically healthy” home-buying traffic, according to the NAR.

Pending home sales climbed in all four regions, led by an 8.8 percent gain in the Northeast. Contract signings increased 7.6 percent in West, 6.3 percent in the Midwest and 4.4 percent in the South.

Economists consider pending sales a leading indicator because they track new purchase contracts. Existing-home sales are tabulated when a contract closes, usually a month or two later.

“Solid income growth and a slight easing in underwriting standards are needed to encourage first-time buyer participation, especially as renting becomes less affordable,” NAR chief economist Lawrence Yun said as the report was released.

Home sales have been slowly emerging from a slump early this year. Purchases of new homes rose in May by the most in 22 years, increasing 18.6 percent, the biggest one-month gain since January 1992, to a 504,000 annualized pace, figures from the Commerce Department showed.

Gains in home prices have started to cool, which will help bring more properties within reach of those prospective buyers with access to credit.  The S&P/Case-Shiller index of property values increased 10.8 percent from April 2013, the smallest 12-month gain in more than a year, after rising 12.4 percent in March, the group reported last week.

Hovnanian Enterprises Inc., New Jersey’s largest homebuilder, is optimistic that demand will continue to rise though sales have been uneven in recent months.

“While the housing market has improved dramatically overall compared to where it was a couple of years ago, the recent recovery has been a little more choppy,” Chief Executive Officer Ara Hovnanian said during an earnings conference call on June 4.

Household formation will be the primary driver of long-term housing demand, he said, and “the creation of well-paying jobs will go a long way” toward it. “Given the low levels of total U.S. housing starts, we remain convinced that we are still in the early stages of the housing industry recovery.”

Home-improvement retailers including Lowe’s Cos. also remain upbeat about the housing recovery.

“We’ve seen a bit of a downturn in housing turnover, but home prices continue to appreciate,” Chief Financial Officer Robert Hull said at a June 24 consumer conference. “As we think about the drivers of our business, both housing and income is constructive.”

Have a wonderful evening everyone.

Be magnificent!

As ever,

Brianna

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