JMRD Market Observer for November 3rd 2017 – National Bank Investments Asset Allocation Strategy – November 2017

November 3, 2017

In This Week’s JMRD Market Observer

 

 

  • National Bank Investments Asset Allocation Strategy – November 2017

  • JMRD Investment Beliefs

  • Forex- Feeding the Beast

  • Economic News: Canada: Full time employment surging

  • JMRD Basket Corner

  • Retirement Corner

  • Reads of the Week

  • Economic Calendar

  • Earnings Reports

 

 

National Bank Investments Asset Allocation Strategy – November 2017

 

Green is also a fall color – stay the course

 

Highlights

 

  • Our asset allocation has not changed for November, the global economic backdrop is still healthy and conducive to a risk-on mindset, which favors equities over fixed income.

 

  • After a pick-up of 40 bps over the last two months that took yields on U.S. 10-year notes above their long-term trend, markets look bound for a short-term reversal. With current expectations of a gradual phase-in for corporate tax cuts from a rate of 35% in 2018 to 20% in 2022 (an equivalent of three percentage points per year), it will be difficult for yields to maintain their upward momentum.

 

  • Foreign exchange moves were Central Bank motivated in October, as monetary policy adjustments decided the direction and volatility of currency pairs. For the euro, the ECB announced that, starting in January, it was halving its stimulative bond purchases to 30 billion euros a month. However, the big story was the commitment to keep buying bonds beyond September 2018, if the Governing Council believes it necessary.

 

  • For the Canadian dollar, we expect the $1.30 to be the next resistance. This level will be key in assessing the plan regarding currency hedges. If the loonie punches through without an afterthought, we will wait for the weakness to subside before hedging. However, if the trend starts to reverse around $1.30 we think it would be wise to start selling U.S. dollars in favour of the Canadian dollar.

 

  • It is undeniable that crude oil risks were skewed to the downside in the past. However, the fortunes have recently turned as the uptick in global demand spurred by synchronized global economic growth have evened things out. The fundamental picture has strengthened and deficits are now well entrenched, and the inventories are starting to normalize in the U.S. and the world.

 

  • Separating equity returns between forward earnings growth and PE expansion paints a picture in favour of the Canadian index over the US one, as 100% of the S&P/TSX 2017 performance was propelled by earnings growth. In other words, we believe that the valuation gap continues to depict a better risk-reward profile north of the border.

 

See the full article

 

 

JMRD Investment Beliefs

 

Just in case you missed it last week: Over the summer months, the principals of the JMRD Team who form the JMRD Investment Committee set about to articulate our Team’s investment beliefs.  We have been a Team for over 10 years and largely have the same investment views.  However, with added members to the Team and an ever changing investment world, we wanted to dig deeper into our key beliefs.  Our team has processes in place and holds regular strategy conference calls in order to improve our investment decision-making process. We feel that testing and confirming our investment beliefs provides the solid foundation on which to make the all-important investment decisions on an ongoing basis. 

 

Belief #4.  We are not just passive managers or active managers.  We believe there is a place for both in a portfolio.  Value and momentum factors, when applied correctly, can help manage risk and provide returns beyond broad market returns. 

 

 

Forex- Feeding the Beast

 

The U.S. economy is doing well enough to prompt the Federal Reserve to consider further tightening of monetary policy. A December rate hike is in the cards, assuming of course the extension of positive data and no bad surprises with regards to negotiations surrounding the debt ceiling. Governor Jerome Powell, who will be leading the Fed as from February 2018, is likely to continue gradual normalization of monetary policy. That equates to further interest rate hikes, more so if fiscal stimulus is deployed. And since markets are not yet pricing those hikes, the USD could do well next year. 

 

See the full article

 

 

Economic News: Canada: Full time employment surging

 

FACTS: Canadian employment rose 35K in October according to the Labour Force Survey (top chart). That was well above consensus which was expecting an increase of 15K. Despite this gain, the unemployment rate rose one tick to 6.3% as the participation rate rose one tick to 65.7%. Job gains in October were mostly from the private sector (+39K) while public sector jobs were down (-5K). Self-employed workers remained essentially unchanged (+1K). Good sector employment was up 35K helped mostly by construction (+18K), manufacturing (+8K) and agriculture (+6K). The services sector showed a meagre 1K increase with weaknesses in trade (-36K), educational services (-6K) and healthcare (-4K) offsetting partially strength in other services (+21K), information/recreation (+15K) and professional services (+8K). Full-time employment surged 89K while part-time employment plunged 53K. Total hours worked were flat, following a 0.6% increase in the prior month. On a regional basis, employment was up in 7 provinces with Quebec (+18K) and Alberta (+12K) being the top performers. Ontario’s jobs were up 5K while British Columbia (-7K) employment was down for a second consecutive month.

 

OPINION: The Canadian jobs report was well above expectations for net jobs added and the details of the report are very impressive. Full-time employment rose a massive 89K, following a 112K gain in September. This is the largest 2-month tally on record. Private corporations strong hiring in October is also welcomed putting an end to a stretch of three consecutive declines. The current streak of consecutive gains for the Canadian labour market has now reached 11 months, making it the longest since 2006-2007. Evaluating gains on a 12-month basis, job creation is running at an impressive pace of 308K with no less than 396k being full-time and 174K in the prime-age worker cohort (25-54) which tend to take more leverage. Not surprisingly, average hourly earnings has accelerated strongly recently posting a further 0.5% advance in October. On a 3-month annualized basis, it’s running at an astonishing 5.7% annualized pace (middle chart), a development consistent with a labour market at full employment. The latest CFIB survey showed that 39% of corporations see shortage of skilled labour as their main concern, the highest proportion on record (data starts in 2009). This, bodes well for hiring and wages which should translate in good consumption performance.       

 

See the full article

 

 

JMRD Basket Corner

 

DIG Basket

 

SNC Lavalin (SNC) – SNC-Lavalin announces its Q3 2017 results, with a net income attributable to shareholders of $104 million, up from $43 million in Q3 2016

 

Enbridge (ENB) – Enbridge reported Q3 AFFO/sh of $0.82, largely in line with our $0.77 estimate (Street: $0.82), while reiterating 2017 AFFO/sh guidance of $3.60 to $3.90. But dividend growth / funding guidance in flux.  See the full article 

 

All-Cap Growth Basket

 

Parkland Fuel (PKI) – Parkland Fuel Corporation Achieves Record Third Quarter Adjusted EBITDA of $96.4M

 

Kinaxis (KXS) – Reports 24% Growth in Subscription Revenue and 32% Adjusted EBITDA Margin

 

Sleep Country Canada (ZZZ)Sleep Country Canada Reports 17th Consecutive Quarter of Growth with Third Quarter 2017 Earnings

 

Innergex Renewable (INE) – Innergex Renewable Energy to acquire Alterra Power Corp.

 

U.S. Growth Basket

 

Marriot International (MAR) – Trump Is Pushing Travelers North to Canada, Marriott CEO Says

 

Broadcom (AVGO) – Broadcom Explores Deal to Buy Chipmaker Qualcomm

 

Arista Networks (ANET) – Arista Networks Earnings, Revenue, Shares Keep Flying Higher

 

 

Retirement Corner

 

1.      How to retire better, with less money than you think

 

 

Reads of the week

 

 

 

 

 

 

 

 

 

 

Economic Reports

 

Monday November 6th – None

Tuesday November 7th – Consumer Credit (US),

Wednesday November 8th – Housing Starts (CAD)

Thursday November 9th – New Home Prices (CAD), Initial Jobless claims (US)

Friday November 10th – None

 

 

Earnings Reports

 

Monday November 6th – Canadian Apartment Properties, Cargojet Inc, GoDaddy Inc.

Tuesday November 7th – Agrium, Dream Industrial REIT, Keyera, Spin Master Corp, Valeant, Snap Inc, Coca-Cole Bottling Co.

Wednesday November 8th – Arizona Mining, CCL Industries, Encana Corp, Innergex Renewable Energy, Just Energy, Manulife Financial Corporation, New Flyer Industries, Northland Power, Savaria Corporation, Sun life Financial, Equifax Inc, Square

Thursday November 9th – Canadian Tire Corp, Extendicare Inc, Inter Pipeline Ltd, Magna International Inc, Telus, Trans Canada Corp, Uni- Select, The Walt Disney Company, Macys, Nvidia Corp.

Friday November 10th – Hydro One Ltd, J.C. Penny

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