October 20, 2015 Newsletter

Dear Friends,

Tangents:

PHOTOS OF THE DAY

A woman selling garlands of marigold flowers waits for customers at a wholesale flower market during Durga Puja festival in Kolkata, India. The garlands are in great demand as people seek to decorate temples and their homes during the festival that will be celebrated till October 22. Rupak De Chowdhuri/Reuters

A hot-air balloon is seen above tents during a tent cultural festival in Hefei, Anhui province, China, Saturday. Nearly 500 tents and about 1,000 people participated in the festival, local media reported. Stringer/Reuters

Market Closes for October 20^th, 2015

International Markets

Bonds

Currencies

Commodities

Market Commentary:

Canada

Eric Lam

     (Bloomberg) — Canadian stocks rose after voters gave Justin Trudeau’s Liberal Party a surprise majority mandate following a tight three-way race. Construction companies, oil and gold producers rallied.

     Trudeau, the first son of a prime minister to be elected into the same office, defeated incumbent Stephen Harper’s Conservative Party with a decisive 184 of 338 seats in the House of Commons, ending almost a decade of Tory rule, according to preliminary results from Elections Canada. Most polls had expected the Liberals would win a minority government.

     The Standard & Poor’s/TSX Composite Index rose 115.38 points, or 0.8 percent, to 13,873.76 at 10:12 a.m. in Toronto. The S&P/TSX has risen 4.2 percent in October as it tries to recover from the worst quarter since 2011.

     “The election is one factor within many things going on,” said Patrick Blais, a fund manager at Manulife Asset Management Ltd. in Toronto. His firm manages about C$280 billion. “The election in itself is a positive as the market doesn’t appreciate uncertainty and now we have certainty with a majority government.”

     Trudeau’s surprise victory removes a layer of worry for investors in a year when Canadian equities and the dollar have struggled amid a plunge in commodity prices, 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 5.2 percent decline.

     “Given the downturn in oil prices, the new government will be careful not to disrupt or further hinder the industry,” Blais said. “It’s not the right time to enact stringent laws.”

     Energy producers gained 1.4 percent as 58 of 59 members of the S&P/TSX Energy Index advanced. Suncor Energy Inc. climbed 1.5 percent. Crude for November delivery, which expires Tuesday, added 1.1 percent to $46.39 a barrel in New York.

     Canopy Growth Corp. jumped as much as 21 percent to lead marijuana stocks higher. Trudeau had also pledged to legalize the substance among his policy promises during the campaign.

     Engineering companies SNC-Lavalin Group Inc. and Aecon Group Inc. rallied at least 3.3 percent in the wake of the vote as Trudeau successfully campaigned on a platform of increased infrastructure spending, said Andrew Pyle, fund manager at ScotiaMcLeod Inc. in Peterborough, Ontario. WSP Global Inc. climbed 2.8 percent.

     “A pro-growth government is good for the markets,” Pyle said in a phone interview. His team manages about C$300 million.

     If history is any guide, equities will trend higher under Trudeau’s incoming Liberal government.

     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.

US

By Jeremy Herron and Anna-Louise Jackson

     (Bloomberg) — The three-week rally in U.S. stocks sputtered for a second day and Treasuries fell, as mixed earnings and robust housing data did little to alter perceptions on the economy’s strength and the timing for higher interest rates.

     The Standard & Poor’s 500 Index slipped from a two-month high in choppy trading. The yield on 10-year Treasuries climbed to a one-week high, reinforcing bond-market sensitivity to data as Federal Reserve officials give conflicting policy signals. Four-week bill rates surged as the government faces a debt crunch next month. Canadian stocks rose on speculation a new government will boost fiscal stimulus.

     “We’ve hit a bit of a soft patch,” said Matthew Kaufler, a portfolio manager with Federated Investors Inc. who oversees funds with about $2 billion assets. “It’s hard to parse out some of what’s going on from earnings. I don’t think there’s a groundswell or major shift happening in the market .”

     A surge in new-home construction signaled the residential real-estate market may underpin economic growth, though futures traders still give a 32 percent chance that rates will rise this year. A European Central Bank report fueled speculation officials won’t add to monetary stimulus in that region. Results from IBM Corp. to Travelers Cos., and deals involving SanDisk Corp. and Yum! Brands Inc. set the tone on U.S. equities market.

     The Standard & Poor’s 500 Index lost 0.1 percent at 4 p.m. in New York. The gauge’s high for the session equaled its average price for the past 100 days, the first time it’s touched that level since August. 

     The index has climbed 7.8 percent since Sept. 29, as it rebounds from the worst quarterly performance since 2001. The gauge has advanced almost 9 percent from the nadir of its summer selloff, though gains have slowed in recent days as earnings season intensifies.

     International Business Machines Corp. declined 5.9 percent after lowering its full-year profit forecast as quarterly sales missed estimates. Harley-Davidson Inc. dropped the most in the S&P 500 after earnings fell short. A slump in biotechnology shares led the Nasdaq Composite Index lower by 0.5 percent.

     United Technologies Corp. surged after announcing a share repurchase program, while Travelers jumped on its results. Verizon Communications Inc. boosted phone stocks. Yum rose 1.9 percent after saying it will split its China business off into a separate publicly traded company. SanDisk surged on speculation it will be bought as soon as this week.

     In Canada, the S&P/TSX Index climbed 0.6 percent after Justin Trudeau’s Liberal Party put an end to Conservative Prime Minister Stephen Harper’s decade-long rule. Trudeau campaigned on a plan that included running C$25 billion ($19 billion) in deficits for three years to stimulate the economy with infrastructure spending, while increasing taxes on top earners and cutting them for the middle class.

     The yield on 10-year Treasury notes rose five basis points to 2.07 percent, the highest since the rate ended at 2.09 percent a week ago. Fed Governor Daniel Tarullo said last week that he doesn’t currently favor an interest rate hike in 2015 after several other officials said the central bank would still increase rates this year as long as the economy stays on track.

     “We’ve seen this difference of opinion at the Fed, and that discussion, which is taking place out in the market, has created a lot of uncertainty,” said Larry Milstein, managing director of government-debt trading at R.W. Pressprich & Co. in New York. “It means more uncertainty, which means more volatility.”

     The cost to the U.S. government to borrow money for four weeks spiked to about $500,000 from zero, as investors demand a premium for the risk that the government won’t be able to make good on the obligations if Congress does not raise the debt limit.

     European government bonds fell after the ECB lending data. Yields on 10-year French bonds rose seven basis points to 0.99 percent, while those on German bunds added six basis points to 0.63 percent.

     The Bloomberg Dollar Spot Index rose less than 0.1 percent. The gauge fell earlier as officials from Australia to Europe signaled looser monetary policies are starting to work. The euro rose 0.2 percent to $1.1344, ending three days of declines. 

     The single currency has gained almost 9 percent from a 12- year low of $1.0458 in March, when the ECB started implementing a QE program designed to revive inflation in the euro zone. The currency has advanced versus 15 of 16 major peers in the past three months.

     Canada’s dollar strengthened 0.3 percent to C$1.29820 to the dollar. Trudeau campaigned against Harper’s budget-restraint agenda, claiming the nation needs a return to deficit spending to combat economic woes triggered by an oil-price collapse.

     Oil dropped to a two-week low before a government report that’s projected to show an increase in U.S. crude stockpiles. West Texas Intermediate crude fell 0.7 percent to settle at $45.55 a barrel. Brent rose 10 cents to end the session at $48.71 in London.

     U.S. inventories probably climbed by 3.5 million barrels last week, following an increase of 7.6 million in the prior period, according to a Bloomberg survey of analysts before an Energy Information Administration report Wednesday.

     U.S. natural gas futures rose 1.9 percent to $2.488 per million British thermal units, advancing for a second day on forecasts for unusually cold weather on the east coast that could boost demand for the heating fuel.

     Emerging-market stocks fell from a two-month high as investors weighed the prospects for a pullback in the monetary stimulus in developed nations that has helped prop up demand for riskier assets.

     The MSCI Emerging Markets Index dropped 0.4 percent from the highest since Aug. 11, while most currencies gained. A Bloomberg gauge tracking 20 developing-nation currencies declined 0.2 percent, falling for a third day. Currencies in Malaysia, Indonesia and South Korea each fell at least 0.8 percent against the dollar.

     The premium investors demand to own emerging-market debt over U.S. Treasuries narrowed three basis points to 392 basis points, according to JPMorgan Chase & Co. indexes.

Have a wonderful evening everyone.

Be magnificent!

“We can do anything we want to do if we stick to it long enough”. Helen Keller

As ever,

“Keep steadily before you the fact that all true success depends at last upon yourself”. Theodore T. Hunger

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