JMRD Market Observer for December 16th, 2016 – Federal Reserve Interest Rate Decision

December 16, 2016

In This Week’s JMRD Market Observer

 

 

  • Federal Reserve Interest Rate Decision

  • Telecom Services

  • Tax Reminders

  • JMRD Basket Corner

  • Retirement Corner

  • Reads of the Week

  • Economic Calendar

  • Earnings Report

 

 

Federal Reserve Interest Rate Decision

 

As widely expected, the Federal Reserve raised the fed funds rate by 25 basis points. The lower bound of the fed funds rate is now 0.50% while the upper bound has been raised to 0.75%. The Fed was encouraged by the strength of the labour market and household spending which has been on the rise. It also pointed out that market-based measures of inflation compensation have moved up considerably. Even with “gradual adjustments in the stance of monetary policy”, the Fed expects economic activity to expand, the labour market to strengthen further and inflation to rise towards target. The decision to tighten monetary policy was unanimous.

 

Fed’s new projections:

 

The central tendency forecast for GDP growth (Q4/Q4) was raised slightly to 1.9-2.3% for 2017 (versus 1.9-2.2% previously), and 1.8-2.2% for 2018 (versus 1.8-2.1% previously). The central tendency projections for the unemployment rate were lowered to 4.5-4.6% for 2017 and 4.3-.7% for 2017 for 2018. PCE core inflation forecasts were nudged up slightly over the forecast horizon although the timeline for the 2% target to be met was left unchanged, i.e. 2018. The dot plots show how participants feel about the pace of policy firming going forward. Participants now expect three rate hikes in 2017 according to median forecasts, one more than expected back in September. The long-run level of the nominal fed funds rate was left unchanged at 2.50-3.75%, range which the majority of participants expect to be reached by 2019.

 

See the full article.

 

 

Telecom Services

 

Over the past three years, share price moves in November, dictated by the direction of oil prices and other macro factors, set the stage for the relative performance of Canadian Cable/Telecom stocks vs. utilities and financials as well as the overall market, let alone energy names in particular, through the final weeks of 2013-2015 and first two months of 2014-2016. The Trump rally post-election and agreement on oil production cuts by OPEC and non-OPEC producers has created a somewhat different picture over the past six weeks than the prior late fall trends, with perhaps an accelerated or compressed dynamic heavily built on optimism that likely needs to be discounted somewhat in regards to timing and optimal execution.
See the full article.

 

 

Year End Tax Reminders

 

  • Last day for Tax Loss selling of Canadian Equities – Friday, December 23rd, 2016 (Canadian Markets are closed December 26th and 27th)
  • Last day for Tax Loss selling of U.S. Equities – Tuesday, December 27th, 2016
  • 2016 RSP contribution deadline – Wednesday, March 1st, 2017. The 2016 maximum RRSP contribution limit is 18% of “earned income” in 2015, to an annual maximum $25,370. The 2017 contribution limit is a maximum of $26,010.
  • If you have turned 71 in 2016; December 30, 2016 is the last day you can contribute to you own RRSP. 
  • 2016 TFSA contribution deadline – Friday December 30th, 2016– contribution limit $5500.00.  The contribution can be made in cash or securities.
  • Note that the 2017 TFSA contribution limit has not yet been announced.
  • If you are planning a TFSA withdrawal in early 2017, consider withdrawing the funds by December 30th, 2016. The advantage is that you will not have to wait until 2018 to re-contribute that amount.
  • The last date to make an RESP contribution is Friday December 30th, 2016.
  • As a reminder, in order to benefit from the entire government grant, the contribution per child per year is $2,500.  If by chance, there are unused grants from the past, $5,000 can be contributed and still receive the full 20% grant.  If your child turns, or already turned 17 in 2016, this will be your last year to receive the government grant, which makes the December 31st deadline all the more important for you.
  • Deadline for making a charitable donation that can be claimed for the 2016 tax year is December 30th, 2016.

 

 

Year-end tax tips:

 

  1. Pre-pay any 2017 Children’s Arts & Fitness Activities
    • There won’t be children’s arts or fitness tax credits in 2017, so pay for next year’s activities before Dec. 31 to take advantage of the final year of credits. This could save clients up to $250 of expenses on artistic or cultural activities and up to $500 of expenses on physical activity programs.
  2. Renovate for home accessibility
    • The new Home Accessibility Tax Credit will permit a claim equal to 15% of up to $10,000 for renovations to assist seniors and those eligible for the disability tax credit to be more mobile or functional in their home.
  3. Stock up on school supplies
    • The new School Supply Tax Credit will help compensate teachers and early educators for school supply expenses they incur in the year.
  4. Re-balance Corporate Class Mutual Funds
    • Currently, switching between corporate class mutual funds isn’t taxable, but starting Jan. 1, 2017, new federal rules mean it will be. Re-balance portfolios by the end of the year to avoid triggering a taxable disposition in the New Year.

 

 

JMRD Basket Corner

 

DIG Basket

 

Canadian Natural Resources (CNQ) – CNRL sells stake in oil sands pipeline system for $527 million

 

Capital Power (CPX) – 2016 Investor Day highlights: CPX introduced its 2017e financial outlook with AFFO of $305 mln to $345 mln – a midpoint of $325 mln and modest ~2% bump over 2016 guidance of $320 mln. Elsewhere, CPX reiterated its annual dividend growth guidance of 7% through 2018. Of note, the company requires spot power prices of <$10/MWh to maintain over 100% dividend coverage through 2019e. With lower trading contributions offset by lower carbon taxes, our longer-term estimates remain intact and our $28 target unchanged. CPX currently trades at a 6.5x 2017e P/AFFO multiple (i.e., >15% FCF yield) with a 44% payout ratio – versus the low-payout group averages of 11.3x and 46%. Combined with a 12-month total return opportunity of 24.8% (group: 15.8%), we reiterate our Outperform rating.

 

See the full article.

 

All-Cap Growth Basket

 

Boyd Group (BYD.un) – Boyd Group Income Fund (TSX:BYD.UN): Terry Smith and Brock Bulbuck’s Collision Course with Success

 

Innergex Renewable Energy (INE) – Small, but accretive tuck-in acquisition of two wind farms in France; Acquisition of 24 MW of new wind farms should close before year end INE has an agreement to acquire two wind projects in France, totaling 24 MW. INE will own a 69.55% interest in the projects, with a financial partner taking the remaining portion. The wind farms are currently in commissioning and expected to reach COD by the end of the year. This is a small addition to INE’s current fleet (at 1000 MW net ownership including assets under construction), but is meaningful relative to the 131 MW of wind currently operating in France and demonstrates potential for accretive growth on its international platform.

 

See the full article.

 

U.S. Growth Basket

 

Arista Network (ANET) – A U.S. jury on Wednesday handed Arista Networks Inc a major win in a wide-ranging legal battle against Cisco Systems, ruling that Arista owed no damages over Cisco’s claims of copyright infringement. Cisco had been seeking roughly $335M in damages over copyright infringement of its user interfaces.

 

 

Retirement Corner

 

 

 

 

Reads of the Week

 

  • Canada Watch Hot Charts – Much continues to be made of the veritable mountain of mortgage debt Canadians are walking around with. Witness the fascination with the household debt to disposable income ratio, which established yet another record in Q3 (at 167%). It might not spark the same water cooler chat or chew up as many column inches, but there’s even faster debt accumulation in other sectors of the economy. As today’s Hot Charts show (left chart), there’s a growing gap between the amount of Canadian government and non-financial corporate debt outstanding and the country’s total stock of mortgage credit. Importantly, however, foreign investors continue to absorb a sizeable chunk of this net bond issuance, having now accumulated a record $1.15 trillion of Canadian bonds (all sectors, all currencies) as of September (right chart). Economically speaking, Canada’s star may not be shining as brightly, and yield differentials (vs the US at least) have moved against us. But non-residents continue to feast on Canadian bonds (in one currency or another), drawn alternatively by the exceptional quality, liquidity and/or relatively attractive valuations afforded of our sovereign, crown, provincial and corporate bond markets. Foreign engagement may not be as predictable as we’d like, but these flows were (on balance) a positive story in 2016 and remain critical for the financing of our large current account deficit.

 

See the full article.

 

 

 

 

 

 

 

Economic Reports

 

Monday December 19th – None

Tuesday December 20th – None

Wednesday December 21st – US Existing Home Sales

Thursday December 22nd – Canada Inflation, Canada Retail Sales; US GDP, US Durable Goods, US Chicago Fed Index, US Leading Indicators

Friday December 23rd – Canada GDP; US Consumer Sentiment, US New Home Sales Index

 

 

Earnings Reports

 

Monday December 19th – None

Tuesday December 20th – Blackberry, Nike

Wednesday December 21st – None

Thursday December 22nd – None

Friday December 23rd – None

 

 

Have a good weekend!

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