**February 26th Issue of The JMRD Market Observer**
In This Week’s JMRD Market Observer
- Introducing Joe DiBrita and Wendy Gardner to the JMRD Team
- NBFM Monthly Economic Monitor
- Ontario Budget 2016
- JMRD Basket Corner
- Retirement Corner
- Week at a Glance
- Reads of the week
- Economic Calendar
- Earnings Reports
Introducing Joe DiBrita and Wendy Gardner to the JMRD Team
It is with great pleasure that we officially announce the addition of two new Team Members to the JMRD Team – Joe Dibrita and Wendy Gardner.
Joe is an Investment Associate with six years of industry experience. After graduating from Carleton University with a Bachelor of Arts Honours Degree in 2010, Joe started his career as Sales Associate with MBNA Bank in Ottawa. In 2011 Joe moved to Toronto and started working for CIBC in various roles before finally finding his niche in the Brokerage world at CIBC Investors Edge. In 2015 Joe moved to London and started his career with National Bank Financial and the JMRD Team. Joe has been with the Team since September.
Joe is IIROC licensed and currently working toward his Certified Investment Manager (CIM) designation.
Joe Is happily married to his wife, Liz, of almost five years. Joe has a number of interests and hobbies including cycling, golf, baseball, cross-country skiing and woodworking.
Wendy is a Senior Investment Associate located in our Toronto office who has been working alongside Zach Davidson for about a month. Wendy’s career in the brokerage industry started in the customer service area of the discount brokerage side at TD Bank. From there she move to various administration roles including Credit/Compliance, Manager of Pension Administration and finally Project Management work which included process improvements and software upgrades.
Wendy started working in the full service brokerage side 18 years ago as a Branch Administrator supporting Investment Advisors and Associates. Since joining National Bank in 2014 she has continued to support the branch staff and is now pleased to be part of the JMRD team. She is a licensed and registered Investment Representative and is currently working towards a Portfolio Management designation.
Wendy is a native to Toronto who enjoys all the activities a large city offers. Her passion is travel, adventure sports and immersing herself in food and culture along the way.
Please join us in welcoming Joe and Wendy to the JMRD Wealth Management Team!
NBFM Monthly Economic Monitor
- A disappointing 2015 is set to be followed by an equally weak 2016 with regards to global growth. And that despite highly stimulative monetary policies by central banks worldwide. Emerging economies are struggling to adapt to the new world of sub-7% growth in China. Adding to concerns is the risk of disorderly deleveraging in emerging markets where the sizable amount of USD-denominated debt has become harder to service after the dollar’s surge. Considering the headwinds, one can only hope Beijing does not under deliver when it presents its five-year plan in March.
- The US economy continues to expand, albeit at a measured pace. Trade is set to subtract from growth for the third consecutive year due to the persistence of dollar strength. Consumption will once again drive the US economy but expect spending growth to decelerate in synch with softer labour and housing markets, and as benefits of low pump prices fade. Our forecast of 2.0% for 2016 US GDP growth (or 2.2% Q4/Q4) is near the bottom of the range of FOMC participants’ forecasts, consistent with our view there won’t be as many interest rate hikes as the Fed says it expects this year.
- While consensus has pretty much written off 2015Q4 with Canadian GDP growth largely expected to be close to flat, there seems to be more optimism about the Q1 outlook. But a quick rebound is not guaranteed considering the oil price dive in the first quarter would have done nothing to halt the prolonged decline in business investment, while the observed deceleration in the labour market does not bode well for consumption spending. Moreover, the US inventory build warrants caution about expecting Canada’s exports to pick up the slack in Q1.
(Full report attached)
There’s a light at the end of Ontario’s fiscal tunnel and it’s shining brighter with every passing day. The 2016 budget may have stopped short of declaring an end to budgetary deficits, but a surplus for Canada’s most populous province and benchmark provincial credit is but a hair’s breadth away. More than half of the $4.3 billion deficit expected for the coming fiscal year accounts for layers of padding ($1 billion reserve, $1.2 billion of contingency funds and almost $100 million from a GDP forecast growth lower than private sector’s). For Ontario then, it’s time to step out of the darkness and into the light…or more appropriately, out of the red ink and into the black…if not this coming fiscal year, then no later than 2017-18.
(Full report attached)
Monthly Fixed Income Monitor – March 2016
At this writing we continue to see the economy growing 2.2% Q4/Q4 in 2016 and the unemployment rate slipping another tick to 4.8%. That would remain an environment in which the FOMC would want to move further away from ZLB. Our base case scenario is consistent with 10-year Treasuries trading at 2.27% by year end and 2-year Notes at 1.27%.
Given the inflation outlook, and assuming significant multi-year stimulus in the federal budget to be tabled March 22, we think the odds are that the Bank of Canada will stay on the sidelines out to our forecast horizon. We see 2- year Canada’s trading at 0.55% by year end and 10-years around 1.66%.
(Full report attached)
JMRD Basket Corner
Toronto Dominion (TD) – Earnings in line with our expectations. TD reported Q1 f2016 core cash EPS (excluding IFRS dilution) of $1.18. This compares with $1.14 last quarter and $1.12 one year ago. Earnings were in line with NBF’s forecast of $1.18, but below the consensus estimate of $1.20. As expected, TD increased its dividend $0.04/share (8%) to $0.55/share, taking effect next quarter. Expense performance underpinned much of the strong operating result this quarter. Specifically, Canadian P&C Banking and U.S. Retail offset revenue headwinds with strong expense control and both segments exceeded our estimates. This demonstrates to us that TD’s recent restructuring efforts are paying off. Conversely, elevated expenses in Wholesale Banking offset better than anticipated trading revenue, driving a miss to our forecast. (Full report attached) TD Bank
All-Cap Growth Basket
Parkland Fuel (PKI) – “Two stocks to gain commodities exposure without going ‘all-in’ on oil”
U.S. Growth Basket
Home Depot (HD) – Home Depot announced stronger-than-expected earnings growth in its latest quarter, on a nearly 10% increase in sale, as Americans continued to snap up products for home improvement projects. Home Depot also lifted its quarterly dividend 17% to 69 cents a share. The company has continued to report rising sales, bucking a larger retail trend marked by deeper discounting and softer sales as consumers dial back spending on items like apparel and electronics.
Pinnacle Foods (PF) – Food producer Pinnacle Foods posted profit and revenue increases as it continues to integrate companies it acquired in recent years. Pinnacle, whose brands include Vlasic pickles and Birds Eye frozen vegetables, also said Thursday it expects annual earnings per share between $2.08 to $2.13, bracketing analyst expectations of $2.10.
- “Canada’s pension safety net is strong but showing strains” (The Globe and Mail)
- “How much you need in retirement depends on what life throws at you” (Globe and Mail)
Week at a Glance
Full report attached.
Reads of the Week
- This weekend, Berkshire Hathaway will release their annual letter. Here is a good read on what to look for in the letter: Berkshire Hathaway Report Also, a fun read on “Here’s What Buffett Wouldn’t Do, and Maybe You Shouldn’t Either” (Bloomberg)
- “Is Today’s Market More Volatile Than in the Past?” (Motley Fool)
- “How you can play the low-flying loonie to your advantage—not just now, but over the long term as well” (Canadian Business)
- “Market Calm May Be Short-Lived“ (Bloomberg)
- “Watch Five Years of Oil Drilling Collapse in Seconds’: The crash in oil prices has taken its toll. The number of active oil-drilling rigs in the U.S. is plunging toward the lowest level in more than 75 years of records. The animation below shows the deployment of oil and gas rigs over five years, culminating in the collapse of almost 75 percent of the rig count.
- NBF Hot Charts: Wasn’t a depreciating Canadian dollar supposed to help the external balance? Despite the currency’s near-20% dive against the USD last year, the current account deficit likely topped C$66 bn in 2015, the worst on records. That’s because of the deterioration of the goods trade balance, courtesy of the oil price collapse and disappointing growth for real exports (the latter only tends to respond to the currency with a lag). That said, the loonie’s dive still had an immediate positive impact on the external balance via services trade. For instance the travel account (which is more than 70% of the services trade balance) must have improved last year based on the now-available full year data on inbound and outbound travel. As today’s Hot Charts show, 2015 saw a spike in inbound travel by non-residents and the sharpest drop in outbound travel by Canadians since the Asian financial crisis. (see attached chart) Hot Charts Canada Watch
- NBF Hot Charts: Canada Watch – Even Leo DiCaprio should be impressed. Mauled by bears and left for dead just a few weeks ago, the Canadian dollar is now back with a vengeance. Indeed, after plunging as low as 1.46 early in the year USDCAD is now testing 1.35. And that, despite commodity prices remaining depressed. The loonie’s Revenant-like performance was assisted by a softening greenback, but investors were also looking at yields and questioning whether the Bank of Canada really needs to cut interest rates considering that upcoming fiscal stimulus will provide a boost to the economy. As today’s Hot Charts show, markets have lowered their expectations of a BoC rate cut this year. The Canadian dollar’s comeback isn’t over in our view. The earlier oil price collapse suggests there is more upside than downside for the commodity. If, as we expect, WTI hits $40/barrel this year, USDCAD could be in the low 1.30’s by year-end. (see attached chart) Hot Charts Loonie
Monday February 29th – Canadian Current Account Balance, Canadian Industrial Product Price, Canadian Raw Materials Price Index, U.S. Pending Home Sales
Tuesday March 1st – Canadian GDP, Canadian Manufacturing PMI, U.S. ISM Manufacturing, U.S. Construction Spending
Wednesday March 2nd –U.S. Federal Reserve Releases Beige book
Thursday March 3rd – U.S. Nonfarm Productivity, U.S. Factory Orders, U.S. ISM Non-Manufacturing Composite, U.S. Initial Jobless Claims
Friday March 4th – Canadian Labor Productivity, Canadian Ivey Purchasing Managers Index, U.S. Trade Balance, U.S. Unemployment Rate
Monday February 29th – Artis REIT, PrairieSky Royalty, Vermilion Energy
Tuesday March 1st – Bank of Nova Scotia, Gibson Energy
Wednesday March 2nd – Element Financial, Parkland Fuel
Thursday March 3rd – Baytex Energy, George Weston Ltd, SNC-Lavalin, Cominar REIT, Canadian Natural Resources
Friday March 4th – None
Have a good weekend!