JMRD Market Observer for March 3, 2016 – Asset Allocation Strategy: Spring CleaningMarch 3, 2016
**March 3rd Issue of The JMRD Market Observer**
In This Week’s JMRD Market Observer
- Gain/Loss Reports
- Asset Allocation Strategy: Spring Cleaning
- NBFM Forex – The Revenant
- JMRD Basket Corner
- Retirement Corner
- Week at a Glance
- Reads of the week
- Economic Calendar
- Earnings Reports
Gains Loss Reports
As some of you may have already noticed, JMRD is now sending out the 2015 gain/loss reports to all non-registered account(s) holders. Joe Dibrita has emailed the reports to some of you already, but the remainder will be sent over the next week. Do not hesitate to contact Joe Dibrita if you have any questions on your capital gain/loss reports or about any other tax-related issues.
Asset Allocation Strategy – March 2016: Spring Cleaning
The best expression we could find for the S&P 500 in February was: “sharply unchanged,” since a rally during the second half of the month wasn’t enough to make up for the bad start – its third negative posting in a row. Bolstered by gold, the materials sector (+17.9%) pushed the S&P/TSX into green territory, marking the first positive performance since October 2015.
On the fixed-income and currency side, the soft economic numbers in the U.S. pushed the 10-year bond yields down to 1.74% (down 0.2% in February) while Canadian counterparts stayed virtually unchanged at 1.2%. The loonie followed through the trend set in mid-January and strengthened by 4.3 cents for the month.
Asset allocation strategy
- We are close to a gradual improvement in the supply/demand balance in the oil space, which should put a floor on prices and stabilize earnings expectations for energy companies that have already been revised downward significantly from the 2015 year-end.
- In the US, we shouldn’t expect any change for the Fed’s March meeting. The main factor to watch will be the “dot plot,” that will tell us much more about the FOMC’s intentions, as well as its reading of the current economic situation.
- We think the Canadian stock market is poised to take advantage of the eventual strengthening in energy prices and we would favor the S&P/TSX over its U.S. counterpart.
- The story is the same for the Canadian dollar. We believe hedging the exposure at the current levels against the U.S. dollar will prove wise for investors who have a medium- to long-term horizon, as the currency pairing is tied to crude oil’s performances.
(Full note attached)
NBFM Forex (March 2016): The Revenant
- With the global economy continuing to struggle, markets desperately need some good news. China, a major source of bearish market sentiment in recent months, now has an opportunity to be a source of hope for the world economy as it presents its five-year plan in March. One can only hope Beijing doesn’t under-deliver. Else, risk aversion could move up a gear and rekindle flight towards USD.
- The greenback’s woes in February was partly due to soft US economic data which had investors pare expectations about the Fed this year. While the trade-weighted USD should give back some of the outsized gains registered in the last two years, it could nonetheless find bouts of strength if the European Central Bank and the Bank of Japan decide to provide more stimulus.
- Mauled by bears and left for dead just a few weeks ago, the Canadian dollar is now back with a vengeance. The loonie’s Revenant-like performance was helped by a softening greenback, but markets also started to question whether or not the Bank of Canada really needs to cut interest rates considering that upcoming fiscal stimulus will provide a boost to the economy. The earlier oil price collapse suggests there is more upside than downside for the commodity, and as such we remain comfortable with our view that WTI will hit $40/barrel by year-end. While the loonie has room to appreciate, don’t expect a linear movement towards our newly adjusted USDCAD end-of-year target of 1.32. Currency volatility is the name of the game, more so with Canada’s dependence on short term foreign inflows and much uncertainty with regards to commodity prices and Fed policy.
(Full note attached)
JMRD Basket Corner
All-Cap Growth Basket
Cara (CAO) – Cara delivered very strong Q4/15 results, ahead of both consensus and NBF’s forecast. EPS of $0.42 was ahead of our $0.33 estimate and consensus of $0.34 as strong cost controls drove margins ahead of our forecasts. We think the key themes from Q4/15 should drive improving results in 2016. NBF’s analyst expects solid top-line and margin improvement as the company continues to focus on expanding its high quality banner names (Bier Markts and Landings), improve the health of the franchise network and hold down overhead costs. (Full note attached) Cara
CCL Industries (CCL.b) – CCL moved higher by 10% this week following announcement of a deal to acquire Checkpoint Systems which makes antitheft tags for the retail and apparel industry, for $10.15 a share. The offer represents a 29% premium to Checkpoint’s closing share price on Tuesday, and values the New Jersey-based company at about $428M (USD). The deal is the latest international purchase for CCL, coming just one day after announcing the purchase of a private electronics-focused label company in Singapore for about 39 million Canadian dollars ($29 million). CLL also announced two small acquisitions in January, including a label-systems supplier with operations in the U.S. and China, and a label maker in Ireland. Wednesday’s deal is the biggest recent purchase for CCL, which has operations in 31 countries.
Parkland Fuel (PKI) – PKI reported Q4 revenue of $1.7 bln (vs. $1.8 bln est. and $1.7 bln in Q4/14), adj. EBITDA of $64.9 mln (vs. $67 mln est. and $51.1 mln in Q4/14) & DCPS (NBF definition) of $0.33 reflecting an 83% payout (vs. $0.46/59% est. & $0.28/94% in Q4/14). Note the DCPS miss is mostly due to higher than expected capex that is expected to normalize, and we continue to forecast a sustainable sub-70% payout going forward. Q4 EBITDA was similarly consistent with the Street’s $65 mln forecast. (Full note attached) Parkland Fuel
- “$2,000 a month is plenty to live on in these countries” (Globe and Mail)
- “Can I afford to travel in retirement” (Globe and Mail)
Week At a Glance
Full report attached.
Reads of the Week
- NBF Economics & Strategy morning comment, Monday February 29: G-20: “Need stimulus from government, not from central banks” That was the main conclusion from the G20 meeting that ended Feb 27 in Shanghai. According to the IMF head Christine Lagarde, the effect of monetary policies are diminishing and monetary policy alone cannot lead to balanced growth”. Mark Carney, the governor of the Bank of England went further by arguing that negative interest rates that are implemented in ways that insulate retail customers will only serve to weaken the currency – a zero sum game for the global economy. For Mr. Carney, “it doesn’t take a genius to recognise that a prolonged period of low interest rates can lead to a build-up of vulnerabilities which could derail an expansion and deepen a subsequent recession”. From his standpoint, “lower interest rates create space for fiscal policy to boost domestic demand directly”. (Full note attached) NBF Economics
- “More ugly fruits and veggies coming to Loblaw’s stores” Not-as-pretty produce costs 30% less (Canadian Business)
- “5 Questions at the top of Investor’s minds these days” (Financial Post)
Monday March 7th – US Consumer Credit
Tuesday March 8th – Canada Housing Starts and Building Permits;
Wednesday March 9th – Bank of Canada Interest Rate Decision
Thursday March 10th – Canada New House Price Index; US Initial Jobless Claims
Friday March 11th – Canada Unemployment rate and Net Change in Employment
Monday March 7th – None
Tuesday March 8th – Alaris Royalty Corp, Enercare Inc
Wednesday March 9th – Crescent Point Energy, Linamar, Veresen Inc
Thursday March 10th – Algonquin Power and Utilities, Canadian Energy Services, Empire Corp, Tricon Capital, Pure Industrial REIT
Friday March 11th – None
Have a good weekend!
Categorised in: JMRD Updates