May 27, 2015 Newsletter

Dear Friends,

Tangents:

Carolann is out of the office, I will be writing the newsletter on her behalf.

PHOTOS OF THE DAY

Britain’s Queen Elizabeth is accompanied by Prince Philip as they proceed through the Royal Gallery before the State Opening of Parliament in the House of Lords, at the Palace of Westminster in London, Wednesday. Geoff Pugh/Reuters

Two snow leopard cubs are presented at the wildlife park Lueneburger Heide, in Nindorf-Hanstedt, Germany, Wednesday. The cubs were born on May 5. Philipp Schulze/dpa/AP

Market Closes for May 27^th, 2015

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Eric Lam

     (Bloomberg) — Canadian stocks rose, after slumping the most in almost three weeks yesterday, as Air Canada and financial companies advanced while the Bank of Canada kept its key interest rate unchanged for a third meeting.

     Air Canada soared 8 percent after announcing the airliner’s first share buyback program since 2011. Bank of Montreal, Canada’s fourth-largest lender, rose 0.3 percent after adjusted profit topped analysts’ estimates. Legacy Oil + Gas Inc. slumped 8.2 percent after Crescent Point Energy Corp. agreed to buy the company.

     The Standard & Poor’s/TSX Composite Index rose 59.66 points, or 0.4 percent, to 15,110.47 at 4 p.m. in Toronto. The benchmark equity gauge declined 0.9 percent yesterday for a third straight day of losses.

     Eight of 10 industries in the S&P/TSX advanced on trading volume 15 percent lower than the 30-day average today. Financial shares added 0.4 percent, while shares in industrial companies increased 1.4 percent.

     Air Canada surged to the highest level since 2007. The airline opted out of a pension agreement with the federal government that will create potential savings of about C$310 million in the next two years, paving the way for Air Canada to buy back as many as 10 million shares.

     The Bank of Canada maintained its benchmark rate at 0.75 percent and said the economy is recovering from a drop in oil prices. Economists surveyed by Bloomberg unanimously forecast no change to the central bank’s 0.75 percent benchmark rate.

     Bank of Montreal rebounded from an earlier loss as the company raised its dividend 2.5 percent. Net income declined 7.2 percent after taking a restructuring charge of C$106 million to “drive operational efficiencies.”

     Canadian Imperial Bank of Commerce, Royal Bank of Canada and Toronto-Dominion Bank report results Thursday, followed by Bank of Nova Scotia on Friday.

     Valeant Pharmaceuticals International Inc. increased 1.9 percent, the fourth gain in five days as the company extends an all-time high.

     Energy shares declined 0.3 percent as oil dropped 52 cents in New York to $57.51 a barrel.

US

By Callie Bost and Joseph Ciolli

     (Bloomberg) — The calmest markets in six months and the best run of economic data this year spelled trouble for U.S. stocks after a three-day break.

     The combination ignited yesterday, with the Standard & Poor’s 500 Index falling more than 1 percent as a benchmark gauge for equity turbulence surged the most since January. The Chicago Board Options Exchange Volatility Index jumped 16 percent to 14.06.

     Options traders were caught leaning the wrong way as speculation the Federal Reserve will raise interest rates shook investors returning from Memorial Day. For the VIX, it was only the second move of more than 15 percent all year — compared with four in December alone.

     “The market was not realizing any significant volatility over the last couple of weeks, particularly to the downside,” said Dan Deming, a managing director at Chicago-based Equity Armor Investments. “Any type of significant selloff was going to have more of a slingshot effect on the VIX.”

     The VIX’s violent reaction may have reflected a repricing in the index after the long weekend, according to Deming. The selloff followed the slowest week this year for domestic equities, which fluctuated in the smallest range in six months over the five days en route to a 0.2 percent gain.

     On Thursday, the VIX closed at its lowest level of 2015 as the S&P 500 reached an all-time high. In the five-day period, the VIX’s closing level averaged 12.54, its lowest for a week since one ending Sept. 5.

     U.S. stocks fell the most in three weeks as comments Friday from Fed Chair Janet Yellen that borrowing costs would be boosted this year were followed by data adding to evidence of a recovery in American economic growth after a first-quarter slowdown.

     Reports on Tuesday showed orders for capital equipment in the U.S. rose for a second month, sales of new homes climbed more than forecast and a measure of regional manufacturing exceeded estimates.

     Over the last week, economic data from housing starts to leading indicators have strengthened the case for higher interest rates, beating market forecasts by a large-enough margin to push the Citigroup Economic Surprise Index for the U.S. higher by the fastest rate all year.

     Adding to pressure on equities is anxiety over Europe, where there has been little convergence in talks between Greece and its creditors as time runs out to secure a deal before the country needs to make payments to the International Monetary Fund in early June.

     “There’s been a lot of chatter into the end of the month with the Fed and Greece,” Deming said. “The market kept drifting higher but the feeling was ‘boy, one misstep and this could backfire.’”

     Tuesday’s decline pared the S&P 500’s advance for May to 0.9 percent. The gauge has climbed 2.2 percent this year, while the VIX has dropped 27 percent for 2015.

     Hedging yesterday was concentrated in near-term options. The CBOE S&P 500 Short Term Volatility Index, a measure of nine- day hedging costs on the stocks gauge, soared 39 percent, its biggest daily jump since December. Four of the five most-traded S&P 500 contracts were puts expiring May 29, with strike prices ranging from 2,030 to 2,100.

     The slide in U.S. equities was a godsend for traders in VIX options expecting more turbulence. At the end of last week, they owned about 3.5 contracts wagering on upside in the volatility gauge for every option predicting downside, the highest ratio of calls to puts since October.

     The VIX fell 0.1 percent to 14.04 at 9:43 a.m. in New York as the S&P 500 rose 0.3 percent.

     It was only a matter of time for stocks’ lull to mirror swings seen in other asset classes, according to Jim Strugger at MKM Holdings LLC. While the VIX fell to its lowest level in 2015, gauges of expected volatility in U.S. Treasuries and global currencies remained elevated.

     “U.S. equity market resilience has been surprising to us in recent weeks,” Strugger, a derivatives strategist at MKM in Stamford, Connecticut, wrote in a note Tuesday. The recent rally in U.S. stocks and the slide in the VIX “seemed improbable in the context of sustained elevation in volatility across asset classes and geographies,” he wrote.

Have a wonderful evening everyone.

Be magnificent!

“Take up one idea. Make that one idea your life–think of it, dream of it, live on that idea. Let the brain, muscles, nerves, every part of your body, be full of that idea, and just leave every other idea alone. This is the way to success.” Swami Vivekananda

As ever,

Karen

“Things work out best for those who make the best of how things work out.” John Wooden

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