October 3, 2016 Newsletter

Dear Friends,

Tangents:
On Oct. 3, 1990, West Germany and East Germany ended 45 years of postwar division, declaring the creation of a new unified country.
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PHOTOS OF THE DAY

Policemen walk through Theaterplatz during celebrations marking German Unification Day in Dresden on Monday. Fabrizio Bensch/Reuters

LEGO statues for the ‘South by South Lawn Festival’ of ideas, arts, and action are on exhibit at the White House in Washington, D.C. on Monday. Gary Cameron/Reuters

A photographer takes a picture as a fish balloon floats through hanging speakers, part of the new commission entitled ‘Anywhen’ by French artist Philippe Parreno, in the Turbine Hall at the Tate Modern in London on Monday. The commission transforms the area into an experience that plays with time and space. It is open to the public from Oct. 4 until April 2, 2017. Kirsty Wigglesworth/AP
Market Closes for October 3^rd, 2016

International Markets

Bonds

Currencies

Commodities

Market Commentary:
Canada
By Eric Lam
     (Bloomberg) — Canadian stocks slipped for a second day as financial-services shares retreated after the group capped the best quarterly performance since 2013, while Aritzia Inc. surged in its trading debut.
     The S&P/TSX Composite Index fell 0.3 percent to 14,689.04 at 4 p.m. in Toronto, in the first day of trading in the fourth quarter. The index rose 4.7 percent for the three months since the end of June on Friday for a third quarterly gain, its longest streak in two years. The S&P/TSX is up 13 percent this year, making it the the second-best performing developed market equity index in the world behind New Zealand.
     Canadian stock valuations touched highest level in 14 years Friday, and remain more expensive than their U.S. peers, with the S&P/TSX carrying a price-to-earnings ratio of 23.5 compared with 20.3 for the the S&P 500 Index, according to data compiled by Bloomberg.
     Raw-materials producers slumped 1.8 percent to lead losses across seven of 11 industries in the S&P/TSX. Goldcorp Inc. tumbled 4.4 percent after halting work at one of its biggest mines amid a labor protest. Oil and gas companies ended the day 0.3 percent higher after crude settled at the highest level in three months to follow up an 8.5 percent rally last week.
     Financial services companies dropped 0.2 percent as Royal Bank of Canada lost0.4 percent. The group comprises one-third of the Canadian stock market.
     Canadian Finance Minister Bill Morneau introduced a series of new measures to tighten access to mortgage insurance for commercial banks and close a tax loophole on home purchases by foreigners, in an attempt to cool the Vancouver and Toronto real-estate markets without harming other regions.
     The banks joined a retreat in financials in Europe and the U.S., with losses coming as British Prime Minister Theresa May pledged to start pulling the U.K. out of the European Union by March. Deutsche Bank AG said it was poised to reach an agreement with labor representatives paving the way for the elimination of 1,000 jobs. The lender has come under pressure as mounting legal costs have prompted some clients to pull funds and investors to question Deutsche Bank’s financial health. Meanwhile banks across Europe are preparing to cut some 20,000 jobs.
     Aritzia, the Canadian women’s fashion retailer, jumped 11 percent after raising C$400 million in its initial public offering, the largest in Canada this year. Aritzia was started in 1984 by Brian Hill, who’s the current CEO. The company sells clothes and accessories aimed at women aged 15 to 45 has 75 locations across North America.
     Energy and raw-materials producers remain the top- performing industries in Canada this year, fueling a rebound in the wider gauge. The S&P/TSX Materials Index is up 46 percent and set to halt its longest yearly losing streak since 1988, while energy producers are second with a 24 percent gain.
     Ritchie Bros. Auctioneers Inc. added 3 percent for a third day of gains, climbing to a record. The company said they conducted their largest-ever two-day auction in the U.S. last week, selling more than $76 million worth of equipment.

US
By Rita Nazareth and Anna-Louise Jackson
     (Bloomberg) — Government debt fell with stocks after data showing expansion in U.S. manufacturing bolstered wagers that the Federal Reserve will raise interest rates this year. The pound slid on concern Britain may face a so-called hard Brexit.
     Treasuries declined across maturities and the S&P 500 Index fell following three straight weekly gains. U.K. shares climbed the most among western-European markets as the weaker currency boosted exporters with Prime Minister Theresa May saying the country will begin to exit the European Union next year. Colombian assets sank as the government’s failure to gain popular support for a peace deal fueled speculation it won’t be able to deliver key tax reforms. Oil rallied as traders mulled last week’s shift in OPEC policy.
     Traders are keeping a close watch on U.S. economic reports this week, scouring data for clues as to the timing of a potential Fed rate increase. New orders and production swung into expansion territory last month, indicating gradual improvement across America’s manufacturing landscape. At the same time, factories continued to focus on becoming leaner by trimming inventories and cutting employment. Later this week, a key jobsreport could show a pickup in the pace of hiring, according to economists surveyed by Bloomberg.
     “You’ve got to watch the bond markets, that’s been key,” said John Canally, chief economic strategist at LPL Financial in Boston, which oversees about $479 billion. “Markets are warming up to the idea that the Fed is going to hike rates.”
     While the U.S. central bank decided last month to wait for stronger signs of growth before raising rates, some officials have since publicly endorsed a hike in the near term amid signs of a tightening labor market and expectations that inflation will move closer to the Fed’s 2 percent target. Traders are pricing in 60 percent odds of Fed action in December, up from 51 percent a week ago.
     Fed Bank of New York President William Dudley suggested the central bank should be cautious in raising interest rates. Noting concerns from some economists that the risk of a recession is increasing, he told a central-banking seminar hosted at his bank that the Fed may have limited room to cut rates in the event of a downturn in the next few years. That may fuel the need to turn again to unconventional policies, such as purchasing bonds.
     The S&P 500 Index lost 0.3 percent to 2,161.20 as of 4 p.m. in New York. Financial shares in the benchmark index lost momentum after jumping the most in eight weeks on Friday.
      “Data will matter,” said Michael Antonelli, an institutional equity sales trader and managing director at Robert W. Baird & Co. in Milwaukee. “Earnings kick off in a couple weeks. I think people have their eyes on that.”
     The reporting season unofficially starts in about a week, when Alcoa Inc. posts results. Analysts forecast a drop of 1.5 percent in S&P 500 company profits in the third quarter, which would mark a sixth consecutive decline.
     Britain’s megacap stocks rose to their highest level in more than 16 months, with companies that get most of their revenue outside the U.K. contributing the most to gains in the FTSE 100 Index. HSBC Holdings Plc, Royal Dutch Shell Plc, GlaxoSmithKline Plc and British American Tobacco Plc all advanced at least 1 percent.
     Henderson Group Plc surged 17 percent after agreeing to buy Janus Capital Group Inc. to create a $320 billion money manager, while peers Aberdeen Asset Management Plc and Jupiter Fund Management Plc advanced 5 percent or more. The Stoxx Europe 600 Index gained 0.1 percent.
     Emerging-market shares extended their best quarterly performance since 2012 as a strong Chinese manufacturing reading eased anxiety over the world’s second-largest economy. Egyptian stocks soared as investors bet that policy makers may devalue the country’s currency, luring back foreign investors.
     Saudi Arabia’s benchmark, which fell to the lowest level since 2011 on Sunday, has lost about $30 billion since the nation last week announced a series of cuts to government salaries and bonuses as part of efforts to slash spending.
     Exchanges in China, Germany and South Korea were shut for holidays on Monday. Asian index futures foreshadowed a mixed picture for Tuesday, with contracts on Japan’s Nikkei 225 Stock Average diverging despite losses in the yen.
     Ten-year U.S. yields rose three basis points, or 0.03 percentage point, to 1.62 percent. The yields on two-year bonds, which are most sensitive to Fed expectations, advanced three basis points to 0.79 percent.
     Benchmark securities posted their first back-to-back declines in two weeks. The U.S. manufacturing report will be followed by data on services and factory orders, while the non- farm payrolls numbers are due out Friday.
     “The most important thing, of course, will be Friday’s payrolls data,” said Philip Marey, a strategist at Rabobank International in Utrecht, Netherlands. “Provided the data goes in the right direction, they will hike but there are considerable downside risks. The market has been prepared by the Fed for a December hike.”
     Treasuries advanced last week as mounting concern over the financial health of Germany’s Deutsche Bank AG roiled financial markets and fueled demand for the safest assets. Those bond gains were pared Friday on a media report that the lender was nearing a settlement with the U.S. Department of Justice that was less than half the amount initially requested.
     Italy’s yield spread with Spanish securities widened to the most in almost two years after an opinion poll showed that the constitutional referendum, on which Prime Minister Matteo Renzi’s political fate hangs, is too close to call.
     Sterling dropped 1 percent to $1.2842, the most among its 16 major peers. British financial-services companies will get no special favors in Brexit negotiations, according to three senior figures in Prime Minister May’s administration. The government will refuse to prioritize the protection of the sector after the U.K. has left the EU, the people said.
     May told delegates at her Conservative Party’s annual conference at the weekend that she’ll curb immigration, stoking speculation the nation is headed toward a Brexit scenario that involved limited access to the EU’s single market.
     “Hard Brexit is a sell for the pound,” said Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd in London. “I know the government line is that they don’t see a need to differentiate between hard and soft Brexit, but the market certainly does.”
     The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, rose 0.1 percent.
     Colombia’s peso weakened 1.7 percent versus the dollar after citizens narrowly rejected a peace agreement with Marxist guerrillas by 50.2 percent to 49.8 percent in a weekend ballot.
     West Texas Intermediate crude climbed 1.2 percent to $48.81 a barrel after rallying 8.5 percent last week. It was the highest close since July 1 and followed a 7.9 percent jump in September.
     While the Organization of Petroleum Exporting Countries outlined an accord to curb output by as much as 750,000 barrels a day last week, Libyan production rose and will advance further this month, according to an official of the state oil company. Independent crude producers are using the rally that followed the agreement to hedge their price risk for next year, banks and consultants said. Rigs targeting oil in the U.S. also rose to the most since February, Baker Hughes Inc. said on its website Friday.
     “This looks like follow through from the OPEC accord last week,” said Thomas Finlon, director of Energy Analytics Group LLC in Wellington, Florida. “For all the holes in this agreement it’s still the first one that’s been reached in eight years.”
     Gold futures for December delivery slipped 0.3 percent to settle at $1,312.70 an ounce on the Comex in New York as silver also slumped. Nickel slid 2.1 percent in London, leading losses among industrial metals.

Have a wonderful evening everyone.

Be magnificent!

The lamp is empty, the oil is used up.
The tambourine is dead, the dancer lies down,
The fire is out, and no smoke rises from it.
The soul is absorbed into the Unique, and there is no longer a duality.
Kabir

As ever,
 

Carolann

We shall never know all the good that a simple smile can do.
                                           -Mother Teresa, 1910-1997

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