**May 8th Issue of The JMRD Market Observer**
In This Week’s JMRD Market Observer
JMRD Website – Refreshed!
- Alberta Election Results
- NBF Asset Allocation – May 2015
- NBF Forex – May 2015
- JMRD Basket Corner
- Retirement Corner
- Week at a Glance
- Reads of the week
- Economic Calendar
- Earnings Reports
JMRD Website – Refreshed!
As you know, the JMRD Team has undergone a few changes over the past month, including the addition of a few key team members. We took this as an opportunity to refresh and improve our website. The new version went live just last week. As a Team, we often discuss potential enhancements to continuously improve the format and layout of the website but we also welcome comments from you. We invite you to visit our website and provide any feedback that you may have. The link is copied below. We look forward to hearing from you.
Alberta Election Results
This week the NDPs won a majority government in Alberta, ending 44 years of PC rule. While investors are understandably concerned about the election of a majority NDP government in Alberta, and while the uncertainty may remain for some time, worse case scenarios are overdone. A meaningful market pullback in the energy sector should be viewed as a buying opportunity.
(see the Geopolitical Briefing and Impact of an NDF Gov’t Attachments)
NBF Asset Allocation – May 2015
At the risk of sounding like a broken record, we continue to believe the USD will eventually benefit from a more hawkish Fed as the economy rebounds from a weak first quarter and inflation starts to tick upward with the recent strength in energy prices and improvement on the employment side. We think that in light of the increase in Eurozone inflation and bond yield performance, recent Euro strength will prove temporary since any further pickup in inflation will prompt a faster response from the Fed than the ECB. With regard to fixed income, even if the recent uptick in European interest rates narrowed the U.S./E.U. yield differential, the U.S. remains the most attractive destination for capital inflows and this should support the USD over the medium term. We also believe the spread will eventually widen again once the ECB confirms a follow through on its QE program, or should any adverse news emerge on the Grexit front. We think that the recent Euro area government bond volatility is likely to continue for the foreseeable future. On the U.S. side, the Fed removed any forward guidance with regard to its monetary policy, which means September would be the most likely period for the first rate increase barring any unforeseen negative economic news. In light of this, we favor assets that offer some protection against monetary policy tightening, such as those with a shorter duration and higher coupon rates.
(see attached for the full report)
NBFM Monthly Forex – May 2015
NBF’s Economics & Strategy Team published the Monthly Forex Report for May. We have been getting a few questions on the desk about the recent USD weakness, which is addressed in this report (highlights are below)
- The trade-weighted US dollar’s impressive run ended with a nearly 2% decline in April, the worst monthly performance since September 2013. Weaker than expected US economic data in the first quarter of the year had markets pare back expectations of Fed rate hikes. But the US economy is stronger than what’s depicted by Q1 results, the latter being impacted by temporary factors such as bad weather and port strikes. So, growth and hence rate expectations should bounce back as those factors dissipate.
- EURUSD has benefitted from the combination of weak US results and improving economic data on the old continent, gaining more than 4% in April, the best performance in four years. As we suggested last month, a move closer to 1.15 shouldn’t be ruled out over the near term given that momentum could be sustained by the reversal of massive speculative net short positions on the euro. That said, we remain of the view that the euro is heading lower against USD over the longer term on the back of diverging monetary policies. Our end-of-2015 target for EURUSD remains at 1.05.
- The Canadian dollar just had its best month since 2011. Higher oil prices and a less dovish Bank of Canada gave the currency a boost in April. While the loonie could remain strong over the near term, we continue to expect it to head back towards 1.30 in the second half of the year, coinciding with the US economy returning to strong growth.
(see attached for the full report)
JMRD Basket Corner
Manulife Financial (MFC) – Manulife Financial report solid earnings in its Canadian and Asian operations but sluggish results in the US. They also announce a 10% dividend hike and the stock hit a 52 week high today hitting $23.23. NBF report attached. MFC
Keyera Corp (KEY) – KEY reported AFFO/sh (FD) of $0.83, beating our estimate of $0.73 on adj. EBITDA of $185 mln versus our estimate of $165 mln (Street: $155 mln). Recall, in our April 22nd “Q1 preview”, we highlighted a potential beat stemming from KEY’s Alberta EnviroFuels Facility (AEF) due to Q1 benchmark iso-octane gross profit margins averaging US$27/bbl versus the long-term average of US$15/bbl. NBF report attached. KEYERA
Pembina Pipeline Corp (PPL) – PPL reported Q1 EBITDA of $240 mln, slightly ahead of our estimate of $225 mln (Street: $223 mln). Elsewhere, the company announced a 5% dividend increase to $1.83/sh annually commencing with the June 2015 monthly payment – largely matching our 5% forecast increase for July 2015.
All Cap Growth Basket
Sunlife Financial – Sunlife was another Canadian insurer to report earnings this week. Like Manulife the earnings were mixed but the company did raise the dividend by 6% and the stock moved higher. Another possible reason to explain the increase in prices of the insurers this week is that long term interest rates move higher this week around the globe and higher interest rates are typically positive for insurance companies’ earnings.
CCL Industries Inc. – First-Quarter Highlights – Record quarterly adjusted basic earnings per Class B share(3) of $1.99; up 27.6%, basic earnings per Class B share of $1.97, up 27.9%; Robust operating income improvement in all Segments totaled 32.2%; Sales increased 15.8%, supported by organic sales growth of 5.5%. The stock price hit an all-time high of $155.93 this week.
U.S. Growth Basket
HCA Holdings – HCA Holdings Inc. on Tuesday said its first-quarter earnings rose 70% as admissions continued to improve, and the hospital operator unveiled a $1 billion stock-buyback plan and increased its long-term capital-spending estimate. HCA reported a first-quarter profit of $591 million, or $1.36 a share, up from $347 million, or 76 cents a share, a year earlier. Excluding asset-sale gains, prior-year litigation-related costs and other items, per-share earnings rose to $1.35 from 84 cents. Revenue increased 9.5% to $9.68 billion. The company in April said it expected a profit of $1.35 a share on revenue of $9.68 billion. On Thursday, the shares traded higher by 3% following the release.
CVS Health Corp. – CVS Health bets big on becoming a one-stop health resource – Fortune
Week at a Glance
(See attached Week at a Glance report)
Reads of the Week
Monday May 11th – None
Tuesday May 12th – US Monthly Budget Statement
Wednesday May 13th – Canada Teranet/National Bank Home Price Index; US Retail Sales
Thursday May 14th – Canada New Home Price Index; US Producer Prices Index, US Initial Jobless Claims
Friday May 15th – Canada Manufacturing Sales, Canada Existing Home Sales; US Industrial Production; U. of Michigan Consumer Sentiment
Monday May 11th – Inter Pipeline, Northland Power, Emera, Aecon
Tuesday May 12th – Air Canada, Encana, WSP Global, Trican well
Wednesday May 13th – Element Financial, Innergex Renewable, Cisco
Thursday May 14th – Amaya, Canadian Tire, Chemtrade Logistics, Enercare, Just Energy, RMP Energy, TORC Oil and Gas
Friday May 15th – Power Corp
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Have a good weekend!