JMRD Market Observer for July 21st, 2017 – NBF Interest Rate ForecastJuly 21, 2017
In This Week’s JMRD Market Observer
NBF Interest-Rate Forecast: Update
FNB Multiple Asset Class Basket Update (MAC)
JMRD Basket updates
JMRD Basket Corner
Reads of the Week
NBF Interest-Rate forecast: Update
The Bank of Canada hiked its policy rate for the first time in seven years, raising the overnight rate 25 basis points to 0.75%. This came as no surprise as the BoC had set the stage for it through its communications. The real question is whether the decision to raise the overnight rate should be seen as a first step in removing the “insurance policy” taken out in 2015 or as the first of a series of upcoming rate hikes. BoC Governor Stephen Poloz was unwilling to categorize the rate decision along those lines. In his press conference, Poloz stated: “In the full course of time, I don’t doubt that interest rates will move higher, but there’s no pre-determined path in mind at this stage. It’s a data dependent, quarter-by-quarter analysis that we’ll be doing.” With interest rates still very low and the bank projecting the output gap closing by the end of this year, we think that there are more rate hikes to come and that the next one will be delivered later this year. In her semi-annual report on the economy and monetary policy before the House of Representatives Financial Services Committee, Fed Chair Janet Yellen reminded her audience that the Fed’s stance remained accommodative and that positive economic developments would “warrant gradual increases in the federal funds rate over time.” She reiterated that the Fed would “likely begin to implement the program this year” but mentioned that no decision had been made regarding the sequencing of actions. She left the door open to speculation that the FOMC might announce the beginning of balance sheet reduction before the next rate hike. We believe that balance sheet normalization will be announced in September and begin in October and that the next rate hike will occur in December. According to our base case scenario, two additional hikes will take place in 2018 instead of the three previously forecasted.
Multiple Asset Class Basket Update (MAC)
As some of you may recall, the Multiple Asset Class Basket is managed by Michel Falk and Phil Hartmann of FNB Capital Asset Management in Montreal. The MAC Basket, one of JMRD’s key holdings, is an actively managed portfolio of exchange traded funds (FNB is the French acronym for ETF) spanning various geographies and asset classes, including alternative asset classes. It is managed with the goal of providing superior risk-adjusted returns while minimizing volatility. We have hosted numerous conference calls and events with Mr. Hartmann and we wanted to pass along FNB’s latest thoughts on how the MAC basket is positioned and what they are expecting for the second half of the year. You will find attached the MAC Basket Updates.
JMRD Basket Corner
In the past week we sold Whitecap Resources (WCP) because of the continued uncertainty in the global energy space. In some accounts, we are able to crystalize a loss, and can revisit within 30-days and/or look at other energy holdings when sector fund flows and interest start to recover. With some of the proceeds we added to our Algonquin Power (AQN) position taking it up to a 4% weighting. The stock had pulled back from its recent high due to bond yields rising and we felt that the selloff was overdone.
All-Cap Growth Basket
Savaria (SIS) – Savaria: An Elevating Idea from NewGen Asset Management
Shopify (SHOP) – Shopify adding eBay as a sales channel for merchants
This week we added to our position in Sleep Country Canada (ZZZ) after a recent pullback. Sleep Country is now a 4.2% weight in the All Cap Basket. Sleep Country stands to benefit from the restructuring that Sears Canada is going through. NBF’s consumer analyst believes that if Sears to exit the Canadian Market, Sleep Country could gain ~$48M in mattress sales (12% increase in mattress sales vs. 2016)
U.S. Growth Basket
Arista Networks (ANET) – The U.S. government on Thursday dealt Arista Networks Inc a loss in its technology dispute with Cisco Systems Inc. and refused to set aside an order blocking importation of some of Arista’s network switches. The U.S. International Trade Commission refused to rescind its May 4 ruling that found Arista’s switches infringed two Cisco patents and banned Arista from importing the infringing products into the United States.
United Health (UNH) – UnitedHealth, the largest U.S. health insurer, reported a better-than-expected quarterly profit, driven by its pharmacy benefit management business, medical cost control and raised its full-year earnings forecast. The insurer’s results come after a second attempt to pass a health-care legislation in the Senate collapsed late on Monday, with U.S. President Donald Trump calling for an outright repeal of Obamacare and others seeking a change in direction toward bipartisanship
Visa (V) – Visa reported earnings that beat analysts’ expectations Thursday after the bell. Last year, Visa reported earnings per share of 17 cents on $3.63 billion in revenue. This year’s revenue figure represents a 26 percent year-over-year increase. The company attributed the increase to the inclusion of Europe, growth in payments volume, cross-border volume and processed transactions.
This week, we took profits in Vantiv Inc. (VNTV) after they announced plans to merge with Worldplay, in a $9.94B transaction. The recent momentum in the stock has faded and we decided to sell the shares.
Reads of the week
Monday July 24th – Existing Home Sales (US)
Tuesday July 25th – Consumer Confidence Index (US)
Wednesday July 26th – New Home Sales (US), MBA MTG Applications (USA)
Thursday July 27th – Initial Jobless Claims (US)
Friday July 28th – Real GDP (CAD), GDP Q2 (US)
Monday July 24th – PrairieSky Royalty Ltd.,
Tuesday July 25th – Waste Connections Inc., Canadian National Railway Company, General Motors Company, McDonald’s Corporation
Wednesday July 26th – Barrick Gold Corporation, Capital Power Corporation, Constellation Software Inc., Loblaw Companies Limited, Whole Foods Market Inc., Ford Motor Company, Norfolk Southern Corporation, Waste Management Inc.
Thursday July 27th – Crescent Point Energy Corp., Amazon.com Inc., Starbucks Corporation, Wynn Resorts Limited, Pinnacle Foods Inc.
Friday July 28th – TransCanada Corporation, WisdomTree Investments Inc.
Enjoy the weekend!
Categorised in: JMRD Updates