JMRD Market Observer for March 3, 2017 – Bank of Canada Policy Monitor – BoC sees persistent economic slack justifying its current policy stance

In This Week’s JMRD Market Observer



  • BoC Policy Monitor – BoC sees persistent economic slack justifying its current policy stance

  • NBFM Forex (March 2017) – Fed turns hawkish

  • Asset Allocation Strategy: The good, the bad and the ugly

  • Sprott Energy Fund – February Commentary – The Great Waiting Game

  • Morgan McCann – Laurentian University Female Athlete of the Week

  • JMRD Basket Corner

  • Retirement Corner

  • Reads of the week

  • Economic Calendar

  • Earnings Reports



BoC Policy Monitor – BoC sees persistent economic slack justifying its current policy stance


As widely expected, the Bank of Canada left the overnight rate unchanged at 0.50% today. The central bank thought data, both globally and at home, have been in line with its projections. The BoC again bemoaned “ongoing competitiveness challenges” for exporters, while also highlighting labour market slack (despite recent employment gains) and weak wage growth. It also downplayed the recent increase in the headline inflation rate, saying this is temporary given higher energy prices and carbon pricing measures in Alberta and Ontario. The central bank made clear that its three measures of core inflation, taken together, “continue to point to material excess capacity in the economy”. Bottom line: This was a rather short statement from the central bank with a focus on the new measures of core inflation, which according to the Bank of Canada, confirms that there is still “persistent economic slack”. The BoC also continues to highlight the negatives such as “ongoing competitiveness challenges” for exporters and weak wage growth. All in all, the statement reflects a central bank that is not even close in considering raising interest rates.


See the full article.



NBFM Forex (March 2017) – Fed turns hawkish




  • After a difficult start to the year, the U.S. dollar seems to be regaining traction. Hawkish signals from several Fed Governors, including Chair Janet Yellen, prompted investors to adjust their views about the possibility of an interest rate hike as early as this month. A March hike is still not fully priced in by markets, suggesting a move by the Fed this month could push up the U.S. dollar further.


  • The euro has room to depreciate more, possibly testing parity with the greenback later this year. There’s more than just diverging monetary policy weighing on the euro. Political developments on the old continent are getting markets to once again question the viability of the Eurozone.


  • The Canadian dollar is once again under pressure. Oil prices have stagnated as output cuts from OPEC have been offset by higher North American production, while the combination of a more hawkish Fed and a cautious Bank of Canada is causing U.S.-Canada interest rate spreads to widen. The large current account deficit does not bode well for the loonie, more so considering it is being financed entirely by short term foreign capital flows which can reverse on a whim. We continue to expect USDCAD to head towards 1.40 over the coming months. (Full note attached)


See the full article.



Asset Allocation Strategy: The good, the bad and the ugly



  • The likelihood for tightening (now that March is “live”) increased from 27% to over 80% since the beginning of February. While a hike in March may have a limited impact, an increase in the dots from the summary of economic projections tied to the decision would move the dial much more as it would signal to investors that FOMC members plan to tighten three times 2017.


  • We still believe most yields will have a tendency to appreciate by the end of the year. Therefore, we suggest treading cautiously on the duration-side and investing in shorter-term securities.


  • Investing in equities has now become a question of optics. The class may look attractive or not depending on the lens used to analyze them. They are certainly exhibiting a curious mix of the good, the bad, and the ugly.
  • The good: PMI figures are still going strong and are deeply in expansionary mode. Consequently, equities are also the best asset class to benefit from an accelerating growth environment. This is especially true when other investment possibilities such as fixed income, seem to offer lower potential returns.


  • The bad: If policies set forth by the U.S. administration have less amplitude than what was previously announced, equities should suffer as we would expect that the reasons for appreciation would be just as valid the other way around.


  • The ugly: The RSI briefly crossed over 80, a first since… 1996! Price volatility is also eerily low as the realized three-month standard-deviation is now standing at 6.3%, a level close to what we witnessed prior to the financial crisis. Fundamentally, while a 10%+ earnings growth is expected for 2017, we are left wondering how much of it is already priced in when the 12-month forward PE for the S&P 500 is now registering 17.8.


See the full article.



Sprott Energy Fund – February Commentary – The Great Waiting Game


One of the few underperforming sectors in both Canada and the U.S. this year has been energy. We thought this was a timely update from Sprott Energy discussing the energy sector malaise and potential upcoming catalysts for energy producers.


The first two months of the year have been pretty awful for energy investors. Though the price of oil is slightly positive year-to-date Canadian oil stocks have fallen by 15%+ and US oil stocks have fallen by 5%+. What gives? Why are oil stocks down while oil is up? Do we still believe in $60/bbl oil this year? Is this the end of the bull market for oil? Have we raised cash given the sell off? What happens if a Border Adjustment Tax does go through? We will do our best to address all of the above.


See the full article.



Morgan McCann – Laurentian University Female Athlete of the Week


Morgan McCann worked as a summer student with The JMRD Team last summer and is hoping to join us again this summer.  Morgan plays varsity hockey for the Laurentian University Women’s Hockey Team and this week was named Laurentian’s Female Athlete of the Week!  Well done Morgan.  Keep up the good work!


Below you will find a couple of excerpts detailing her exceptional week on the ice.


See the full article.


See the full article.Morgan McCann, who was by far the best player on the ice for both teams on Saturday, opened the scoring early for the Vees just 34 seconds into the game, beating Jackie Rochefort on the blocker side.



JMRD Basket Corner


DIG Basket


Canadian Natural Resources (CNQ) – Canadian Natural Resources hikes dividend 10% after profit blows forecasts out of the water


Northland Power (NPI) – Northland Power Agrees to Acquire 252 MW German Offshore Wind Farm


WSP Global (WSP) – Q4/16 looks better post scratching the surface. For our first look refer here. In the note we argue for likely positive earnings revisions momentum predicated on some 1-offs that we don’t believe should re-occur as 2017 progresses. The company’s guidance (even on the low end) also masks the underlying business momentum. In Canada, WSP incurred a $6.6 mln charge on severance. We are not saying to exclude it, but we should be close to the tail-end of right-sizing. More impactful for the Americas’ margin, Latam saw a client bankruptcy (hence provision against A/R), driving down EBITDA margin for the geography; again, that should not repeat. All-in, the Q looks stronger.




TransCanada (TRP) – TRP announced it has offered to sell a 49.3% interest in Iroquois Gas Transmission System, LP (Iroquois), together with its remaining 11.8% interest in Portland Natural Gas Transmission System (PNGTS) to TC Pipelines, LP (NYSE: TCP, not rated), subject to certain regulatory and Board approvals. The proceeds are expected to be used to fund the company’s $23 bln near-term capital program


All-Cap Growth Basket


Milestone Apartments REIT (MST.un) – Milestone Apartments REIT Postpones Special Unitholder Meeting to March 28, 2017The market is speculating that there will be a high offer forthcoming from Starwood Capital.


Parkland Fuels (PKI) – Thursday, after the close, PKI reported Q4/16 revenue of $1.74 bln (vs. $1.67 bln est. & $1.66 bln Q4/15), adj. EBITDA of $77.1 mln (vs. $65 mln est. & $64.8 mln Q4/15) and adj. DCPS of $0.45 reflecting a 64% payout ratio (vs. $0.41/69% est. & $0.46/60% Q4/15). Top line and EBITDA were similarly ahead of consensus $1.63 bln and $66.3 mln, respectively. Parkland shares trading higher by 5% on Friday.


Shopify (SHOP) – National Bank Financials Technology analyst Richard Tse initiated coverage of Shopify this week with an outperform rating and $80.00 U.S. one-year target price. Shopify is a technology platform company offering turn‐key end‐to-end e‐Commerce solutions. Shopify has 377,500 merchants using its technology platform. As part of its platform, Shopify offers a comprehensive set of solutions that range anywhere from registering a domain name to a set of templates and tools to create virtual storefronts, all the way to payment processing of credit card transactions. Launched in 2006, Shopify debuted as a public company in May 2015 at an offering price of US$17


U.S. Growth Basket


Broadcom (AVGO) – On Wednesday, Broadcom announced fiscal Q1 results that beat expectations, and forecast this quarter’s revenue higher. The company’s shares moved to an all-time high and have returned 24% so far this year.



Retirement Corner




Reads of the Week


  • Get the most out of your tax return this season


  • The Top Hedge Funds of 2016 Share Best Bets for This Year


  • How Bull Markets Affect Your Intelligence


  • Number of distressed U.S. retailers at highest level since Great Recession


  • Stocks have reached these valuations only twice before. Here’s what it means.


  • Cara shopping for restaurants to counter decline in sit-down dining sector


  • Here is the full transcript of billionaire investor Warren Buffett’s interview with CNBC


  • Charlie Munger And The 2017 Daily Journal Corporation Annual Meeting


  • Canadian Banks Storm Back as Markets Boom, Energy Woes Recede



Economic Reports


Monday March 6th – US Factory Orders

Tuesday March 7th – US Consumer Credit

Wednesday March 8th – Canada Housing Starts and Building Permits; US ADP Employment Survey

Thursday March 9th – Canada New Home Price Index; US Initial Jobless Claims

Friday March 10th – Canada and US Employment Change and Unemployment Rate



Earnings Reports


Monday March 6th – Gamehost, Kelt Exploration, Northwest Company, Raging River,

Tuesday March 7th – Aecon, Alaris Royalty, Baytex Energy, Enercare, Entrec Corp, Gibson Energy, Parex Resources, Tourmaline Oil, WesternOne

Wednesday March 8th – IBI Group, Linamar, Liquor Stores NA, Seven Generations, Spartan Energy, ZCL Composites

Thursday March 9th – Canadian Energy Services, Cargojet,

Friday March 10th – None



Have a good weekend!

By | 2017-03-06T15:46:27+00:00 March 3rd, 2017|JMRD Updates|0 Comments

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