June 4, 2014 Newsletter

Dear Friends,

Tangents:

On this day 25 years ago, China’s Communist Party leaders sent heavily armed forces into Beijing to end peaceful pro-democracy protests. Tune in here as current and former WSJ reporters will recall covering Tiananmen Square in 1989 and the subsequent government crackdown that killed hundreds. –Steven Russolillo, WSJ.

June 4, 1942, Battle of Midway.

1944 – The U.S. Fifth Army began liberating Rome during World War II.

1984 – The album “Born in the U.S.A.” by Bruce Springsteen was released.

Photos of the day

Tens of thousands of people attend a candlelight vigil at Victoria Park in Hong Kong to mark the 25th anniversary of the June 4th Chinese military crackdown on the pro-democracy movement in Beijing. Cyrus Wong/AP

Britain’s Queen Elizabeth II (center l.) and Prince Philip, the Duke of Edinburgh, proceed through the Royal Gallery, during the State Opening of Parliament, in the House of Lords, in London. The State Opening of Parliament is an annual pageant of pomp and politics centered on the Queen’s Speech, a legislative program written by the government but read out by the monarch before a crowd of lawmakers, ermine-robed peers and ceremonial officials in bright garb evoking centuries past. Yui Mok/AP

Market Closes for June 4^th, 2014

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

June 4 (Bloomberg) — Canadian stocks rose a fourth day to a six-year high, erasing earlier losses amid improving earnings from financial companies.

Canaccord Genuity Group Inc. climbed 1.2 percent after reporting higher-than-estimated fourth-quarter profit on improving U.S. and U.K. operations. Laurentian Bank added 1 percent after posting better-than-expected profit. Magna International Inc. and Martinrea International Inc. rallied at least 1.9 percent to pace gains among auto parts makers. Teck Resources Ltd., Canada’s largest diversified miner, and First Quantum Minerals Ltd. lost at least 1.5 percent as copper sank the most in five weeks.

The Standard & Poor’s/TSX Composite Index rose 62.10 points, or 0.4 percent, to 14,796.79 at 4 p.m. in Toronto, the highest since June 2008. The gauge is 1.8 percent below its all- time closing high of 15,073.13, reached on June 18, 2008.

“The Canadian market is mirroring the U.S., and the two major pieces of information the market is looking forward to is the ECB decision tomorrow and the jobs numbers on Friday,” said Luciano Orengo, a fund manager at Manulife Asset Management Ltd. in Toronto. His firm manages about C$298 billion ($272 billion).

The price-to-earnings ratio for the benchmark equity gauge is 19.8, the highest level since 2011.

The European Central Bank is scheduled to release its next rate decision tomorrow amid speculation central bankers will introduce unconventional measures such as quantitative easing.

The pace of U.S. hiring likely slowed in May, to 217,000 from 288,000 jobs in the previous month, according to the average estimate of economists surveyed by Bloomberg.

Canaccord Genuity rose 1.2 percent to C$11.21, the highest since August 2011. Laurentian Bank gained 1 percent to C$48.06.

Martinrea jumped 5.4 percent to C$12.23 and Magna International rose 1.9 percent to C$116.05, a record, as consumer discretionary stocks rose 1 percent as a group for the biggest increase in the benchmark equity gauge. Eight of 10 industries in the S&P/TSX advanced on trading volume 2.8 percent above the 30-day average.

First Quantum Minerals retreated 1.9 percent to C$22.13 and Teck Resources slipped 1.5 percent to C$23.83. Copper for July delivery slid 1.4 percent in New York, the biggest drop in five weeks, as signs of slowing economic growth in Europe fueled demand concerns.

USA

By Joseph Ciolli

June 4 (Bloomberg) — U.S. stocks rose, with benchmark indexes at record levels, amid better-than-forecast data on service industries before a European Central Bank decision on stimulus and a monthly employment report.

Prudential Financial Inc. and MetLife Inc. led gains in financial stocks, increasing more than 2.3 percent. Protective Life Corp. surged 18 percent after Dai-ichi Life Insurance Co. agreed to buy the life insurer for 582.2 billion yen ($5.7 billion). Coach Inc. declined 2.6 percent after its rating was downgraded by Sterne, Agee & Leach Inc.

The Standard & Poor’s 500 Index gained 0.2 percent to 1,927.88 at 4 p.m. in New York, reaching an all-time high. The Dow Jones Industrial Average gained 15.19 points, or less than 0.1 percent, to 16,737.53 after climbing to a record on June 2. The Nasdaq Composite Index added 0.4 percent. About 5 billion shares changed hands today on U.S. exchanges, 20 percent below the three-month average.

“The market is positioning ahead of the events later this week,” Michael James, a Los Angeles-based managing director of equity trading at Wedbush Securities Inc., said in a phone interview. “We’re just marking time until we get to the real market-moving decisions, which are going to be from the ECB tomorrow, and the jobs data on Friday.”

Service industries expanded in May at the fastest pace in nine months as orders picked up, according to the Institute for Supply Management’s non-manufacturing index today, indicating improving sales will help the U.S. economy strengthen.

The data offset a private report on payrolls indicating companies in the U.S. added fewer jobs than forecast in May, a sign of uneven progress in the labor market. The result comes ahead of the Labor Department’s data on employment on June 6.

That may show private payrolls, which exclude government agencies, increased 210,000 in May after a 273,000 gain in the month prior, according to the median estimate in a Bloomberg survey.

The Federal Reserve said in its Beige Book business survey today that the economy expanded at a modest to moderate pace last month as auto sales led household spending and the labor market improved. The survey, released two weeks before policy makers meet in Washington, supports Chair Janet Yellen’s view that the economy is rebounding from a 1 percent contraction in the first quarter caused largely by harsh winter weather.

Fed officials are watching the labor market as they move to complete their bond-purchase program late this year and start considering the timing of the first interest-rate increase since 2006. Central-bank stimulus has helped propel the S&P 500 higher by as much as 185 percent from its bear-market low in March 2009.

“The economy is in a good position where it’s not so buoyant that the Fed has got to withdraw its support quickly, and not so weak that they have to worry about further weakening,” said Patrick Spencer, London-based head of equity sales at Robert W. Baird & Co., which oversees more than $100 billion.

Investors are also watching data from Europe before a meeting of central bank policy makers. Euro-area economic growth slowed in the first quarter, while a separate report showed services expanded last month at the strongest pace in three years.

The reports emphasize the challenges facing ECB President Mario Draghi as he tries to rekindle the economy and prevent deflation. The ECB’s Governing Council meets in Frankfurt tomorrow, where it will probably lower its economic forecasts and add stimulus.

Equity returns are poised to beat fixed income and government bonds aren’t attractive anywhere, according to Abby Joseph Cohen, a senior investment strategist at Goldman Sachs Group Inc. U.S. consumers are doing better and exports are the fastest part of the economy, she said at an S&P conference in New York today.

The S&P 500 has rebounded 6.2 percent since a selloff in small-cap and Internet shares spread to the broader market, dragging the index to a two-month low in April. It advanced 2.1 percent in May for a fourth consecutive monthly increase. The measure trades at 16.3 times the projected earnings of its members, up from a multiple of 14.8 at the start of February.

The benchmark gauge has continued to set records amid low volume and a narrow trading range. The index hasn’t had a move of more than 1 percent at the close for 33 straight days. That’s the longest stretch since December 2006. About 1.8 billion shares traded each day in S&P 500 companies last month, the fewest since 2008, according to data compiled by Bloomberg.

The Chicago Board Options Exchange Volatility Index rose 1.8 percent to 12.08 today, for its third straight day of gains.

The gauge of U.S. equity volatility known as the VIX dropped to 11.36 on May 23, its lowest level since March 2013.

Seven out of 10 major industries in the S&P 500 advanced, with consumer-discretionary and financial companies gaining the most. Phone companies had the largest decline.

Protective Life soared 18 percent to $69.36. Dai-ichi, Japan’s second-largest life insurer, will buy the company in the biggest foreign acquisition by a Japanese life insurer.

Under Armour added 4.9 percent to $53.62. The sportswear retailer was raised to buy from hold at Jefferies, which cited its long-term sales potential, the brand’s growing popularity among young people and women, and its valuation after recent declines. Under Armour has fallen 18 percent from a record on March 18 through yesterday’s close.

Prudential and MetLife posted two of the three biggest gains in the S&P 500 Financials Index after the Senate approved a bill that gives Fed regulators more flexibility in how they apply capital rules to the biggest U.S. life insurers.

Prudential climbed 2.4 percent to $88.09. MetLife increased 3 percent to $54.78.

Medtronic Inc. climbed 3.6 percent to $63.22. The medical- device maker is evaluating a takeover of London-based Smith & Nephew Plc that could see the U.S. company move its tax domicile overseas, people familiar with the matter said. Smith & Nephew surged 12 percent to a record of $97.27 in U.S. trading.

FuelCell dropped 7.6 percent to $2.19. The manufacturer of fuel-cell power plants had a second-quarter net loss of $15.8 million compared with a loss of $7.4 million a year earlier, according to a statement released after the close of U.S. trading yesterday. Excluding some items, it posted a 4-cent loss, exceeding the 3.3-cent loss estimated by analysts.

TIBCO Software Inc. lost 5.4 percent to $19.66 after reporting preliminary adjusted earnings of 12 cents to 13 cents per share for the second quarter. That missed analysts’ forecasts for 21 cents. JMP Securities LLC and Stifel Financial Corp. both lowered their ratings on the stock.

Coach declined 2.6 percent to $38.99. The largest U.S. luxury handbag maker had its rating downgraded to neutral from buy at Sterne, Agee & Leach.

Have a wonderful evening everyone.

Be magnificent!

Knowledge is the annihilation of the separation between me and the other.

Swami Prajnanpad, 1891-1974

As ever,

Carolann

A hunch is creativity trying to tell you something.

-Frank Capra, 1897-1991

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