September 13, 2016 Newsletter

Dear Friends,

Tangents:

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

PHOTOS OF THE DAY

A bee lands on a dahlia blossom at the horticultural exhibition ‘Ega’ in Erfurt, central Germany, on Tuesday. Jens Meyer/AP

Riders compete on horseback during the first race at the annual meet in Laytown, Ireland, on Tuesday. Clodagh Kilcoyne/Reuters
Market Closes for September 13^th, 2016

International Markets

Bonds

Currencies

Commodities

Market Commentary:
Canada
By John Hyland and Anna-Louise Jackson
     (Bloomberg) — Canadian stocks joined a selloff in global equities amid renewed weakness in energy prices and concern that central banks are losing their ability to stimulate the worldwide economy.
     The S&P/TSX Composite Index fell 1.7 percent to 14,349.10 at 4 p.m. in Toronto, the lowest close since July 8. The retreat follows a rout on Friday that capped the worst weekly decline since May. The benchmark for Canadian equity trimmed its gain in 2016 to 10 percent.
     All 10 major industries retreated Tuesday, with energy companies leading the decline as the group lost 3 percent, the worst in seven months. Crude in New York slid below $45 a barrel after the International Energy Agency said it expects a supply glut to persist for longer. None of the industry’s 49 members advanced. Canadian Natural Resources Ltd. dropped 3.6 percent, while Baytex Energy Corp. and Bonavista Energy Corp. tumbled at least 7.6 percent, the most for each since June.
     Canadian Prime Minister Justin Trudeau plans to approve at least one new oil pipeline project in his first term, with U.S.- based Kinder Morgan Inc.’s Trans Mountain expansion to the Pacific Coast the most likely candidate, according to people familiar with his plans.
     Raw-materials companies fell 2.9 percent, led by declines of at least 6 percent for First Quantum Minerals Ltd., OceanaGold Corp. and Iamgold Corp. The group is down about 12 percent since reaching a three-year high on Aug. 10, paring a gain this year to 46 percent. That’s still the most since 1993.
     Health-care shares sank 2.5 percent to the lowest level in almost a month, as Concordia International Corp. extended a 10- day rout, its longest ever, to 27 percent. Valeant Pharmaceuticals International Inc. fell 2.8 percent.
     Financial stocks declined 0.9 percent, extending a six-day selloff to 2.1 percent, as investors remained on edge over central banks’ ability to bolster growth. Toronto-Dominion Bank slipped 1.1 percent, while real-estate companies in the benchmark index retreated 1.3 percent to a four-month low. Financial firms account for about one-third of the Canadian market by capitalization.

US  
By Jeremy Herron and Oliver Renick
     (Bloomberg) — U.S. stocks retreated with sovereign debt, while a plunge in crude oil spurred gains in the dollar as investors calibrated expectations toward prospects of less global monetary stimulus.
     The S&P 500 Index fell to its lowest level since July 7 as Monday’s rebound was overwhelmed by declines in all 10 main industry groups. The CBOE Volatility Index surged 18 percent to the highest since June, while Apple Inc. was the only member of the Dow Jones Industrial Average to rise. Treasuries tumbled, propelling yields on 10-year notes to their highest point in almost three months. U.S. crude slid below $45 a barrel on speculation a glut will persist. Mexico’s peso led losses among emerging-market currencies.
     Equities have been whipsawed over the past three days following an unprecedented stretch of calm. Investors remain on edge over the ability of central banks to fuel economic and price growth, amid concern they are questioning the role of stimulus. For the second time since Friday, stocks and bonds sold off together and gold also fell, leaving investors few places to hide. Oil joined the rout after the International Energy Agency predicted that the supply glut will extend into next year, punishing the currencies of resource exporters.
     “The markets have become dominated by central banks, not just here in the U.S. but globally, that’s the dominating force across all asset classes,” said Bret Chesney, senior portfolio manager at Austin, Texas-based Alpine Partners. “When these central banks don’t move, people start to have fear that their stability factor — which has been central bank policy — may be diminished or gone.”
     The uptick in volatility comes after fund managers increased cash levels this month amid bearish views on the markets, according to a Bank of America Corp. survey. The percentage of investors saying both equities and bonds are overvalued climbed to a record, while stock allocations relative to cash fell to around the lowest level in four years, the survey found.
     The S&P 500 slid 1.5 percent to 2,127.02 as of 4 p.m. in New York, paring a drop of as much as 1.8 percent after the index touched its average price over the past 100 days. The index rallied 1.5 percent Monday, rebounding from a 2.5 percent rout in the previous session that shattered a stretch of tranquility that saw the gauge post no moves of more than 1 percent for 43 straight days.
     Investors also continue to wrestle with extended valuations, given companies in the S&P 500 are forecast to post a sixth consecutive quarterly decline in profits. The index trades at 18.4 times estimated earnings, the most expensive level since 2002. The Dow Average slipped 1.4 percent, while Apple gained 2.4 percent.
     The Stoxx Europe 600 Index slipped 1 percent after an early advance faded amid a slump in mining companies and energy producers. Total SA and Royal Dutch Shell Plc lost at least 2.6 percent, tracking crude prices lower. Commodity producers fell for a fourth day, their longest declining stretch since June.
     The IEA-sparked rout in oil sent emerging-market assets lower for a third day, with stocks and currencies extending losses following the worst selloff since June. The MSCI Emerging Markets Index fell to its lowest point since Aug. 4.
     Futures on Asian equity indexes foreshadowed further declines in the region, with contracts on Japan’s Nikkei 225 Stock Average down 0.5 percent in Osaka. Futures on benchmarks in Australia, South Korea and Hong Kong dropped at least 0.2 percent.
     Treasuries due in a decade tumbled anew, reversing gains after Federal Reserve Governor Lael Brainard urged prudence when it came to tightening U.S. monetary policy. Ten-year yields rose six basis points, or 0.06 percentage point, to 1.73 percent, the highest level since June 23.
     The probability of a rate hike at next week’s Fed Open Market Committee meeting dropped by eight percentage points on Monday to 22 percent, futures prices indicated.
     Longer-dated securities, which have been outperforming in recent months, led losses. The difference between yields on Treasuries due in two and 30 years — a measure of the yield curve — widened to 166 basis points, the most on a closing basis since June 30. Money mangers upped their cash hoard to 5.5 percent, according to the September survey by Bank of America, near the most since November 2001. A record 54 percent of survey respondents said stocks and bonds are overvalued.
     The U.S. Treasury’s $12 billion auction of 30-year bonds Tuesday drew a yield of 2.475 percent, above the level indicated in pre-sale trading. The bid-to-cover ratio, at 2.13, is down from 2.33 in the last 10 sales, signaling weaker demand.
     European bonds also fell. Yields on 10-year German bonds rose three basis points to 0.07 percent as the notes tumbled for a fourth straight day. Yields on similar-maturity French sovereign debt climbed four basis points to 0.37 percent.
     U.K. gilts, which led the global debt-market selloff, reversed gains sparked by inflation data, sending yields higher by four basis points to 0.91 percent, the highest since July 1.
     The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, jumped 0.7 percent, erasing its decline from Monday. The yen weakened 0.7 percent versus the dollar, having surged 0.8 percent the previous day as Brainard said the case for Fed tightening was “less compelling.”
     An MSCI gauge of developing-nation exchange rates slid 0.2 percent, falling for a third day. The Brazilian real led declines, weakening 2 percent, while the Russian ruble and Mexican peso dropped at least 0.9 percent.
     The pound retreated the most in five weeks after a report showed U.K. inflation undershot analyst forecasts. The data again brought into focus the uncertain economic outlook after Britain voted to leave the European Union more than two months ago.
     West Texas Intermediate crude slumped 3 percent to settle at $44.90 a barrel in New York. World stockpiles of oil will continue to accumulate through 2017, a fourth consecutive year of oversupply, due to declining demand in India and China, the IEA said. 
     OPEC also revised up its projections for rival supplies in 2017, predicting an increase in output from outside the group before major producers meet in Algiers for talks later this month. U.S. data due Wednesday is forecast to show the country’s oil inventories rose by 4 million barrels last week, which would be the biggest increase since April.
     “Inventories remain high, they’re well above five-year trend levels,” said David Lennox, a resources analyst at Fat Prophets in Sydney. “The market is just waiting to see what happens at the OPEC meeting. If there is a concrete deal and it’s actioned, we’d expect to see prices rally.”
     Gold also fell, with bullion for immediate delivery down 0.7 percent to $1,319.05 an ounce, touching a 1 1/2-week low. The precious metal has declined for five sessions, its longest run of losses in almost a month.

Have a wonderful evening everyone.

Be magnificent!

 

 “Perfection is not attainable, but if we chase perfection we can catch excellence.” Vince Lombardi

As ever,

Karen

“If opportunity doesn’t knock, build a door.” Milton Berle

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