October 19, 2015 Newsletter

Dear Friends,

Tangents:

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

PHOTOS OF THE DAY

Fallen leaves in autumn colors lie on roots in Munich, Germany, Monday. Matthias Schrader/AP

The Cotopaxi volcano spews ash and vapor, seen from Quito, Ecuador, Monday. Cotopaxi began showing renewed activity in April and its last major eruption was in 1877. Dolores Ochoa/AP

Market Closes for October 19^th, 2015

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

By Kate Garber and Eric Lam

     (Bloomberg) — A slide in commodities producers sent Canadian stocks lower in light trading as investors remained on tenterhooks ahead of the results of a hotly contested federal election with no clear front-runner among three parties.

     Voters went to the polls Monday in a tight election that may end the decade-long run of incumbent Prime Minister Stephen Harper’s Conservatives. Polls suggest the Liberal Party led by Justin Trudeau will win the most seats, though fall short of enough to form a majority government. The threat of the election producing no clear winner introduces a wild card to volatile currency and equity markets.

     “We’ll really wait to see tomorrow whether the results of the election have an impact,” said David Cockfield, fund manager at Northland Wealth Management in Toronto. His firm manages about C$325 million. “I have the impression that if it’s a Conservative minority or a Liberal minority government that not too much would change from a foreign investment standpoint.”

     In trading 24 percent below the 30-day average, the Standard & Poor’s/TSX Composite Index fell 79.72 points, or 0.6 percent, to 13,758.38 at 4 p.m. in Toronto. With polls set to close at 9:30 p.m., investors focused on the slowest quarterly expansion in China’s economy since 2009, with commodities sliding on the prospect for a drop in demand. 

     Valeant Pharmaceuticals International Inc., the fourth- biggest stock by weighting in the benchmark index, slid after saying it may spin off one line of drugs and in the future focus less on acquisitions that depend on buying old treatments and raising their prices.

     If no party wins a majority, the country may be headed for fraught negotiations to form a minority government. While some parties have collaborated, historically there’s never been a formal coalition in Canada and that’s unlikely to change. 

     Stretching back to 1922 and the time of William Lyon Mackenzie King, Liberal prime ministers have posted stock returns three times higher than with Conservative leaders, according to monthly data to August 2015 compiled by Bloomberg from TMX Group Ltd., the operator of the Toronto Stock Exchange.

     The instability caused by the election is adding another layer of worry for investors in a year when Canadian equities and the dollar have struggled amid the commodity price plunge, expectations of the removal of U.S. stimulus and tepid global demand. The benchmark stock index has lagged global peers among developed markets this year with a 6 percent decline.

     “We suspect that a minority Liberal outcome, with informal support by the NDP party, is the scenario ’priced into’ markets given the movement in opinion polls in recent weeks,” said Mark Chandler, head of Canadian fixed income strategy at Royal Bank of Canada’s RBC Capital Markets unit, in a note to clients. “Such an outcome should not have an unduly large market reaction.”

     The S&P/TSX has risen 3.4 percent in October as it tries to recover from the worst quarter since 2011. The gauge has alternated between gains and losses for five straight sessions.

US

By Jeremy Herron and Anna-Louise Jackson

     (Bloomberg) — While signs of weakness in the Chinese economy rekindled declines in commodities, U.S. stocks ended Monday little changed at an eight-week high as consumer companies advanced before a barrage of earnings reports.

     Crude oil extended last week’s drop on concern over the global glut, while copper slipped the most in three weeks as data showed China’s economy grew at the slowest pace since 2009 last quarter. The Standard & Poor’s 500 Index eked out a third day of gains, with advances in Netflix Inc. to Tyson Foods Inc. offsetting a slump in raw material producers. The dollar strengthened versus the euro, while rates on short-term Treasury bills surged amid concern the U.S. Congress won’t reach a deal to raise or suspend the debt-ceiling.

     “There’s fear out there of missing the rally and that forces people into the market,” said Tim Ghriskey, chief investment officer who helps oversee $1.5 billion at Solaris Asset Management. “Right now, the focus is on earnings. Overall, earnings have been better than expected. There have been no big currency issues and no big impact from losing orders from the strength in the dollar.”

     While investors are switching their focus to company earnings following a three-week rally in global equities, the anxieties that fueled last quarter’s worst selloff in four years flared again Monday with the Chinese growth data, which stoked concern over weakening demand in the world’s biggest consumer of commodities and Asia’s largest economy. Morgan Stanley became the latest American bank to disappoint on earnings, with results due this week from about 100 other S&P 500 companies. U.S. lawmakers need to raise the government’s borrowing capacity by Nov. 3 to ensure it can meet daily expenses.

     The S&P 500 added less than 0.1 percent Monday to 2,033.66, extending a three-week climb that’s driven the gauge up 5.9 percent in October, following two months of declines.

     International Business Machines Corp. fell in after-hours U.S. trading after reporting revenue that fell short of analysts’ estimates. The stock was down almost 5 percent in New York.

     Meanwhile, SanDisk Corp. surged more than 7 percent after people familiar with the matter said the company is in advanced talks to sell itself to Western Digital Corp. This year to date has been the biggest ever for semiconductor company mergers and acquisitions. Firms in the $300 billion industry are facing rising costs and a shrinking customer base, encouraging them to get together to add scale.

     Energy and materials producers led losses during the normal trading day, sliding more than 0.7 percent. The two groups are suffering their biggest declines since September after leading the recent stock rebound. Commodity companies are the worst performers in the S&P 500 in 2015.

     Morgan Stanley followed Goldman Sachs Group Inc. and JPMorgan Chase & Co. in reporting profit that trailed analysts’ expectations, renewing concern over the earning power of financial companies. The stock slid 4.8 percent. 

     The Stoxx Europe 600 Index climbed 0.3 percent to a two- month high, fueled by positive company earnings reports and gains in stock of Deutsche Bank AG. The German lender rose 3.7 percent on news that it’s undertaking the biggest management shakeup in more than a decade. Foodmaker Danone SA and Metro AG advanced after earnings.

     The MSCI Asia Pacific Index lost 0.3 percent amid losses in Japan. The Hang Seng Index in Hong Kong ended Monday little changed after the Chinese data, while the Hang Seng China Enterprises Index, which tracks mainland Chinese stocks listed in the city, climbed 0.5 percent.

     Rates on Treasury bills due Nov. 12 surged to the highest level since March. Such debt is the most at risk of not being repaid should Congress fail to reach a debt-ceiling deal. The rate on the bill, which began trading in November 2014, rose to as high as 0.165 percent, from 0.0325 percent on Oct. 16, according to Bloomberg Bond Trader data.

     U.S. Treasury Secretary Jacob J. Lew last week moved up by two days to Nov. 3 the date by which lawmakers must raise the nation’s borrowing capacity to ensure the government can meet daily expenses.

     In 2013, similar wrangling over the debt ceiling sent rates on bills that matured close to the deadline to a two-year high before a deal triggered a decline. An 11th-hour political agreement allowed President Barack Obama to sign legislation to suspend the debt ceiling and end a partial government shutdown – – on the very day Lew then said the government would exhaust its borrowing capacity.

     The rate on one-month bills reached the highest since October 2013, while yields on U.S. 10-year Treasuries slipped one basis point, or 0.01 percentage point, to 2.03 percent, after falling five basis points last week.

     The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major counterparts, added 0.3 percent Monday as the euro slid for a third day.

     The single currency retreated against 12 of its 16 major peers as economists said European Central Bank President Mario Draghi may consider adding to monetary stimulus. The ECB meets on Thursday.

     The Canadian dollar weakened 0.8 percent in a second day of losses as citizens voted in a tight national election that opinion polls suggest will see Prime Minister Stephen Harper’s Conservative Party ejected from power. The Liberal Party is projected to secure the most seats in parliament, though short of the 170 required to form a majority government.

     The MSCI Emerging Markets Index added 0.2 percent to add to its third straight weekly advance.

     Positive company earnings from India and gains in Turkish shares helped extend a rally that’s boosted riskier assets this month. Weaker commodity prices weighed on South African gold producers, while Russia’s ruble retreated with oil.

     The Brazilian real climbed 1.1 percent, posting the biggest gain among Latin American currencies, after President Dilma Rousseff reassured markets that Finance Minister Joaquim Levy will stay in his post because the government agrees with his policies.

     Gold futures dropped the most this month, sliding 0.9 percent to settle at $1,172.80 an ounce after a private report on Friday showed a bigger-than-expected increase in U.S. consumer sentiment. The data helped revive speculation over the path of U.S. interest rates, with many Federal Reserve officials touting an increase this year, a possibility being discounted by traders. Silver fell 1.7 percent.

     Copper futures slid 1.5 percent to settle at $5,206 a metric ton, the biggest drop in three weeks, while aluminum, lead, nickel and zinc also fell.

     West Texas Intermediate crude dropped 2.9 percent to settle at $45.89 a barrel, its lowest close since Oct. 2, while Brent dropped 3.7 percent to end at $48.61 in London. The Chinese gross domestic product data along with figures showing Saudi Arabia’s commercial oil stockpiles rose to the highest level since 2002 in August unsettled traders already on edged amid signs of waning demand and global oversupply.

     Crude, wheat and metals helped drive the Bloomberg Commodity Index down 1.4 percent to its lowest level since Oct. 2. Wheat futures slumped a fourth day, losing 1.3 percent amid favorable growing weather in Ukraine, a top producer of the crop. The U.S. Plains and Midwest regions are also expected to see beneficial rain in the next two weeks.

Have a wonderful evening everyone.

“In every day, there are 1,440 minutes. That means we have 1,440 daily opportunities to make a positive impact.” Les Brown

Be magnificent!

 “The purpose of life is a life of purpose.” Robert Byrne

As ever,

Karen

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