Financial Market Report

As you probably know, the Bank of Canada raised their interest rate by onequarter percent recently. With an overall household debt in Canada at two trillion dollars, this presents an awful big number! Let us try to put some context around it. A common way to measure household debt is to compare it with the amount of disposable income people have. In Canada’s case, household debt is around 170 per cent of disposable income. In other words, the average Canadian owes about $1.70 for every dollar of income he or she earns per year after taxes.

So, you can see our economy runs on borrowed money. That is fine as long as interest rates remain low. Now do not think the sky is falling as three-quarter of that debt is mortgages. With all the new mortgage rules we have in place for mortgage approvals, a one-quarter percent increase in rates will have a very small impact if any impact on causing people to default. Another positive is that household debt has actually dropped from 172 per cent to 170 per cent. If that does not calm you down a bit, then think about this. The net worth of the average Canadian household is $450,000. It has been growing faster than the household debt ratios.

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In other news

The BDYI global shipping index is sitting at 1,632 - up 19.47 so far this year and 83 per cent from this time last year. The Vix fear index is sitting at 12.18 indicating a low level of volatility - in other words a low level of market fear. The lowest gas price in Manitoba is $112.4 at the Husky in Headingley and the lowest gas price in Saskatchewan is $116.9 at the Messenger in Regina. The WTI oil price is $70.58 - down from last week. Quote of the week is debt related: I often say paying off debt is like dieting. There are no miracle cures, it takes discipline and hard work.

Lisa Madigan-

TSX powers to new high even as metals sector pounded by trade war Global equities churned through another week of trade war turmoil. Stocks started higher on hopes that the strong U.S. economy and the start of earnings reporting season would draw attention away from tariff concerns. The technology- heavy NASDAQ Composite Index and Canada’s S&P/TSX Composite Index both climbed to new all-time highs.

But on Wednesday, the U.S. tariff war with China kicked into high gear with the Trump administration announcing a list of $200 billion worth of Chinese goods that will be the subject of the next round of protectionist measures. Equities around the world got pummeled and the U.S. dollar shot higher. By the next day, when it appeared China was striking a conciliatory tone, North American stock indices reversed course and more than made up the previous day’s losses.

Despite the late-week reversal that lifted the market to new highs, the materials sector, which led to Wednesday’s plunge, failed to regain much of its drop. Metals and mining stocks were hit hard by concerns that tariffs would slow global growth, and slow the Chinese economy in particular. China is the biggest consumer of almost all industrial metals. The interest rate-sensitive utilities and real estate sectors also fell, as the Bank of Canada raised its benchmark rate 25 basis points to 1.5 per cent and signaled its intent to continue on a higher rate trajectory despite mounting trade uncertainty.

The consumer staples sector led the index’s climb. Convenience store operator Alimentation Couche-Tard (33 per cent of its sector’s weight) jumped after reporting better-than-expected quarterly results. Information technology, a relatively lightweight sector in the S&P/ TSX, was also particularly strong. Shopify Inc. and Constellation Software Inc., each representing more than 20 per cent of the sector weight, were both among the broader benchmark’s top gainers. Shopify got a boost when U.S. giant Alphabet Inc. (Google) announced a deal with the company aimed at spurring ecommerce and ad spending.

Technology and industrials led the advance in the S&P 500, with heavyweight Facebook Inc. climbing to a new high. The company’s stock has surged more than 35 per cent since the height of the Cambridge Analytica scandal that shook investors in March. Amazon.com Inc. also pushed to record high territory, lifting consumer discretionary into third place on the sector leaderboard for the week. As in Canada, interest rate-sensitive sectors underperformed. Utilities, telecom, and real estate all fell as economic data increased the probability that the Federal Reserve would tighten monetary policy again when it meets in September. Tight labour market readings, high consumer and business confidence, and a gradual upward drift in inflation all point to continued rate hikes.

Major Asian markets were all higher as trade sentiment improved at week’s end; but European markets struggled in the face of some disappointing economic data. Most ended higher, but to a much more modest degree than their North American and Asian counterparts. Germany’s ZEW Economic Sentiment Index dropped to its lowest level since 2012 and the European Commission revised down its estimate for Euro area growth this year from 2.3 per cent to 2.1 per cent. In Britain, investors are growing concerned as Prime Minister May’s government teeters into crisis with just a few months left to negotiate a Brexit deal.

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